<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1999
[_] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File No. 1-7170
IMCO Recycling Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
75-2008280
(I.R.S. Employer Identification No.)
5215 North O'Connor Blvd.
Suite 940
Central Tower at Williams Square
Irving, Texas 75039
(Address of principal executive offices)
(972) 401-7200
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports),and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of April 30, 1999.
Common Stock, $0.10 par value 16,472,604
----------------------------------------
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -------
IMCO RECYCLING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 8,450 $ 6,075
Accounts receivable, net of allowance of $1,633 and $1,616 at
March 31, 1999 and December 31, 1998, respectively 101,911 84,446
Inventories 56,007 50,921
Deferred income taxes 4,330 4,093
Other current assets 5,806 6,302
--------------- ----------------
Total Current Assets 176,504 151,837
Property and equipment, net 181,864 168,505
Excess of acquisition cost over the fair value of net assets acquired,
net of accumulated amortization of $8,054 and $7,156 at March 31, 1999
and December 31, 1998, respectively 118,148 112,559
Investments in joint ventures 14,957 14,502
Other assets, net 7,561 9,155
--------------- ----------------
$499,034 $456,558
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 77,383 $ 67,089
Accrued liabilities 14,595 10,365
Current maturities of long-term debt 1,374 1,415
--------------- ----------------
Total Current Liabilities 93,352 78,869
Long-term debt 193,019 168,700
Deferred income taxes 13,343 12,820
Other long-term liabilities 8,875 8,861
STOCKHOLDERS' EQUITY
Preferred stock; par value $.10; 8,000,000 shares authorized;
none issued - -
Common stock; par value $.10; 40,000,000 shares authorized;
17,050,530 issued at March 31, 1999; 17,048,585 issued at
December 31, 1998 1,705 1,705
Additional paid-in capital 106,078 106,046
Retained earnings 91,372 87,214
Accumulated other comprehensive loss from currency
translation (1,325) (902)
adjustments
Treasury stock, at cost; 583,926 shares at March 31, 1999;
530,539 shares at December 31, 1998 (7,385) (6,755)
--------------- ----------------
Total Stockholders' Equity 190,445 187,308
--------------- ----------------
$499,034 $456,558
=============== ================
</TABLE>
<PAGE>
IMCO RECYCLING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the three months ended
March 31,
-----------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Revenues $175,231 $127,232
Cost of sales 157,224 113,606
--------------- ---------------
Gross profits 18,007 13,626
Selling, general and administrative expense 6,149 4,008
Amortization expense 1,038 732
Interest expense 2,980 1,998
Interest income (119) (103)
Equity in earnings of affiliates (478) (464)
--------------- ---------------
Earnings before provision for income taxes and minority interests 8,437 7,455
Provision for income taxes 3,194 2,756
--------------- ---------------
Earnings before minority interests 5,243 4,699
Minority interests, net of provision for income taxes 102 88
--------------- ---------------
Net earnings $ 5,141 $ 4,611
=============== ===============
Net earnings per common share:
Basic $ 0.31 $ 0.28
Diluted $ 0.31 $ 0.28
Weighted average shares outstanding:
Basic 16,497 16,485
Diluted 16,550 16,686
Dividends declared per common share $ 0.06 $ 0.05
</TABLE>
<PAGE>
IMCO RECYCLING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
For the three months ended
March 31,
------------------------------------
1999 1998
--------------- ----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 5,141 $ 4,611
Depreciation and amortization 6,287 4,984
Provision for deferred income taxes 287 451
Equity in earnings of affiliates (478) (464)
Other noncash charges 629 656
Changes in operating assets and liabilities:
Accounts receivable (16,647) (3,625)
Inventories (2,378) (777)
Other current assets 517 (622)
Accounts payable and accrued liabilities 14,003 8,564
--------------- ----------------
Net cash from operating activities 7,361 13,778
INVESTING ACTIVITIES
Payments for property and equipment (5,944) (7,535)
Acquisitions, net of cash acquired (21,618) -
Other 72 745
--------------- ----------------
Net cash used by investing activities (27,490) (6,790)
FINANCING ACTIVITIES
Net proceeds from long-term revolver 24,000 1,479
Proceeds from issuance of long-term debt 550 -
Principal payments of long-term debt (273) -
Dividends paid (982) (825)
Purchases of treasury stock (649) -
Other (89) (155)
--------------- ----------------
Net cash from financing activities 22,557 499
--------------- ----------------
Effect of exchange rate differences on cash and cash equivalents (53) 9
--------------- ----------------
Net increase in cash and cash equivalents 2,375 7,496
Cash and cash equivalents at January 1 6,075 405
Cash and cash equivalents at March 31 $ 8,450 $ 7,901
=============== ================
SUPPLEMENTARY INFORMATION
Cash payments for interest $ 2,437 $ 1,833
Cash payments for income taxes $ 230 $ 390
</TABLE>
<PAGE>
IMCO RECYCLING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 1999
(DOLLARS IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended March 31,
1999 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1999. The accompanying financial statements include
the accounts of IMCO Recycling Inc. and all of its subsidiaries (the "Company").
All significant intercompany accounts and transactions have been eliminated.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1998. Certain reclassifications have been made to prior
year statements to conform to the current year presentation.
NOTE B - INVENTORIES
The components of inventories are:
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ -----------
<S> <C> <C>
Finished goods $24,518 $26,668
Raw materials 29,184 23,012
Supplies 2,305 1,241
------------ -----------
$56,007 $50,921
------------ -----------
</TABLE>
NOTE C - LONG-TERM DEBT
In February 1999, the Company borrowed, under its long-term revolving credit
facility, approximately $22,000,000 to fund the acquisition of substantially all
of the assets of an aluminum alloying facility located in Shelbyville, Tennessee
and substantially all of the assets of a zinc oxide production facility located
in Clarksville, Tennessee.
NOTE D--NET EARNINGS PER SHARE
The following table sets forth the reconciliation between weighted average
shares used for calculating basic and diluted earnings per share for the three
months ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
------- ---------
<S> <C> <C>
Weighted average shares outstanding for basic earnings per share 16,497 16,485
Effect of employee stock options 53 201
------ ------
Weighted average shares outstanding for diluted earnings per share 16,550 16,686
------ ------
</TABLE>
NOTE E - OPERATIONS
The Company's operations, like those of other basic industries, are subject to
federal, state, local and foreign laws, regulations and ordinances that (1)
govern activities or operations that may have adverse
<PAGE>
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for solid and hazardous wastes and (2) impose liability
for costs of cleaning up, and certain damages resulting from past spills,
disposals, or other releases of hazardous substances (together, "Environmental
Laws"). It is possible that more rigorous Environmental Laws will be enacted
that could require the Company to make substantial expenditures in addition to
those referred to in this Form 10-Q.
From time to time, operations of the Company have resulted or may result in
certain noncompliance with applicable requirements under Environmental Laws.
However, the Company believes that any such non-compliance under such
Environmental Laws would not have a material adverse effect on the Company's
financial position or results of operations.
The Illinois Environmental Protection Agency ("IEPA") has notified the
Company that two of the Company's subsidiaries are potentially responsible
parties ("PRP") pursuant to the Illinois Environmental Protection Act for the
cleanup of contamination at a site in Marion County, Illinois to which these
subsidiaries, among others, in the past sent zinc oxide for processing and
resale. These subsidiaries have joined a group of PRPs that is planning to
negotiate with the IEPA regarding the cleanup of the site. Although the site has
not been fully investigated and final cleanup costs not yet determined, based on
current cost estimates and information regarding the amount and type of
materials sent to the site by the subsidiaries, the Company does not believe,
while there can be no assurance, that its potential liability (if any) at this
site will have a material adverse effect on its financial position or results of
operations.
NOTE F - OTHER COMPREHENSIVE INCOME
SFAS 130 requires foreign currency translation adjustments to be reflected as a
component of other comprehensive income. As of March 31, 1999 the Company's
foreign currency translation adjustment increased to $1,325,000 from $902,000 as
of December 31, 1998. This resulted in other comprehensive loss of $423,000 for
the quarter ended March 31, 1999. Foreign currency translation adjustment
resulted in income for the three months ended March 31, 1998 of $148,000.
Total comprehensive income for the three months ended March 31, 1999 and 1998
was approximately $4,718,000 and $4,759,000, respectively.
NOTE G - NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted SOP 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use, effective January 1, 1999. The adoption
of SOP 98-1 did not have a material impact on the Company's results of
operations for the three months ended March 31, 1999.
NOTE H - SEGMENT REPORTING
The Company has two reportable segments: aluminum and zinc. The aluminum
segment represents all of the Company's aluminum melting, processing, alloying,
brokering and salt cake activities, including investments in joint ventures. In
addition, this segment includes magnesium melting activities which represent
less than 1% of consolidated revenues and production. The Company's zinc
segment represents all of the Company's zinc melting, processing and brokering
activities.
There has been no material change in the Company's segment classifications
during 1999.
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
REVENUES:
Aluminum $133,790 $124,080
Zinc 41,464 3,152
Intersegment Elimination (23) -
------------ ------------
Total Revenues $175,231 $127,232
============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
INCOME:
Aluminum $ 14,278 $ 13,575
Zinc 3,253 138
------------ ------------
Total Segment Income $ 17,531 $ 13,713
============ ============
Unallocated amounts:
General and administrative expense 6,233 4,363
Interest expense 2,980 1,998
Interest income (119) (103)
------------ ------------
Income before provision for income taxes and
minority interests $ 8,437 $ 7,455
============ ============
ASSETS:
Aluminum $344,328 $320,855
Zinc 133,177 9,577
Corporate and other assets 21,529 16,881
------------ ------------
Total Assets $499,034 $347,313
============ ============
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------- CONDITION AND RESULTS OF OPERATIONS
Most of the Company's processing consists of aluminum tolled for its customers.
Tolling revenues reflect only the processing cost and the Company's profit
margin. To a lesser (but increasing) extent, the Company's processing also
consists of the processing, recovery and alloying of aluminum and zinc metal and
the production of other value-added zinc products for sale by the Company. The
revenues from these sales transactions include the cost of the metal as well as
the processing cost and the Company's profit margin. Accordingly, tolling
business produces lower revenues and costs of sales than does the product sales
business. Variations in the mix between these two types of transactions could
cause revenue amounts to change significantly from period to period while not
significantly affecting gross profit. As a result, the Company considers
processing volume to be a more important determinant of performance than
revenues.
The companies recently acquired by the Company (see "ACQUISITIONS" below) are
primarily engaged in product sales activities as opposed to tolling; therefore,
the Company has experienced higher levels of product sales relative to tolling
in 1999. The higher level of sales has also increased the Company's working
capital requirements and will subject the Company to the additional risks
associated with price fluctuations in the zinc and aluminum commodity markets.
The following table shows the total pounds of aluminum and zinc processed, the
percentage of total pounds processed represented by tolled metal, total revenues
and total gross profit in the three month periods ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------------
1999 1998
----------- ------------
<S> <C> <C>
Pounds of aluminum processed 643,057 568,832
Pounds of zinc processed 57,127 10,556
Percentage of pounds tolled 62% 72%
Revenues $175,231 $127,232
Gross profit $ 18,007 $ 13,626
</TABLE>
ACQUISITIONS
<PAGE>
In July 1998, the Company completed the acquisition of U.S. Zinc Corporation
("U.S. Zinc") for a total purchase price of approximately $72,000,000.
In February 1999, the Company acquired substantially all of the assets of an
aluminum alloying facility located in Shelbyville, Tennessee from Alcan Aluminum
Corporation for approximately $11,000,000 cash (not including acquisition
costs). Also in February 1999, the Company acquired, through its wholly-owned
subsidiary U.S. Zinc, substantially all of the assets of a zinc oxide
production facility located in Clarksville, Tennessee from North American Oxide,
LLC for approximately $11,000,000 in cash (not including acquisition costs).
Both the Alcan Aluminum Corporation acquisition and the North American Oxide,
LLC acquisition will be accounted for using the purchase method of accounting.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
PRODUCTION: The Company processed 21% more metal for the three month period
ended March 31, 1999 than it did in the same period of 1998. Increased aluminum
processing at the Company's Morgantown, Kentucky facility and processing from
the zinc facilities acquired in 1998 and 1999 account for the majority of this
increase. Significant processing gains were also recorded at the Company's
Swansea, Wales facility (which is now operating near its capacity after
beginning processing in late 1997) and at the recently acquired Shelbyville,
Tennessee facility. The Company's other aluminum plants in total, processed
approximately the same amount of material in the 1999 quarter as they did in the
1998 quarter. Tolling activity represented 62% and 72% of the Company's total
processing for the respective three month periods of 1999 and 1998. The Company
currently believes that the percentage of tolling business in 1999 will more
accurately reflect the levels which can be expected in future periods.
REVENUES: Revenues increased 38% in the three month period of 1999 compared to
1998. The increase in revenues is greater than the increase in processing
volumes discussed above, because much of the gains in processing were at plants
which primarily engage in zinc and aluminum product sales. As discussed
previously, increased product sales will generally result in a much higher
increase in revenues than a similar increase in tolling business. The recently
acquired U.S. Zinc business is virtually all product sale business. Increased
product sales exposes the Company to a somewhat greater degree of market risk
because of fluctuations in prices for the scrap metals the Company buys for its
raw material and the then-prevailing aluminum and zinc market prices the Company
can obtain in selling the processed metal.
GROSS PROFIT: Gross profit was $18,007,000 for the first quarter of 1999. This
represented an increase of 32% over the $13,626,000 for the same period of 1998.
The increase in gross profit is greater than the increase in processing volumes
due to a higher level of gross profit per pound of processing attributed to the
newly acquired U.S. Zinc business, compared to the Company's aluminum processing
business, and because of efficiencies gained at the Company's Morgantown
facility. Partially offsetting these items were lower levels of activity at some
plants which serve the can sheet markets and declining aluminum prices in the
first quarter.
SG&A EXPENSES: Selling, general and administrative expenses of $6,149,000 were
53% higher than the $4,008,000 recorded for the same three month period in 1998.
Increased employee costs, attributable principally to the increased number of
production facilities, were the primary reason for the increase.
AMORTIZATION EXPENSE: Amortization expense of $1,038,000 in the first quarter of
1999 was 42% higher than the $732,000 incurred in the first quarter of 1998.
This is due almost entirely to amortization of additional goodwill recorded as a
result of the U.S. Zinc, Shelbyville and Clarksville acquisitions discussed
above. See "ACQUISITIONS."
INTEREST: Interest expense, net of interest income, of $2,861,000 was an
increase of 51% from $1,895,000 for the first quarter of 1998. Net interest
expense was higher due to higher amounts of debt
<PAGE>
outstanding in 1999 compared to 1998, primarily resulting from the recent
acquisitions. See "LIQUIDITY AND CAPITAL RESOURCES."
NET EARNINGS: Due to the factors discussed above, the Company reported net
income of $5,141,000 in 1999's first quarter compared to net earnings of
$4,611,000 for the first quarter of 1998. The Company recorded an effective tax
rate of 37.9% in the first quarter of 1999, which was slightly higher than the
37% recorded in the same period of 1998.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATIONS: Operations provided cash of $7,361,000 during the
first quarter of 1999, compared to $13,778,000 in the same period of 1998.
During the first quarter of 1999, increases in net income and depreciation and
amortization discussed above were more than offset by a net increase in
operating assets and liabilities of $ 4,505,000. In the first quarter of 1998,
the aggregate total of these same items decreased $3,540,000. An increase in net
operating assets and liabilities is a utilization of operating funds while a
decrease is a source of funds. These changes in net operating assets and
liabilities accounted for virtually all of the difference in cash provided by
operating activities. The change in usage of net operating assets and
liabilities was due to the increases in sales in 1999, which resulted in
increases in receivables and inventories.
CASH FLOWS FROM INVESTING ACTIVITIES: In the first quarter of 1999, the
Company's total utilization of cash for investing was $27,490,000 compared to a
use of $6,790,000 during the same period of 1998. The Company spent $21,618,000
during the 1999 first quarter on the acquisitions of the Shelbyville and
Clarksville, Tennessee facilities. See "ACQUISITIONS." There were no
acquisitions during 1998's first quarter. Capital spending for property, plant
and equipment in the first quarter of 1999 was $5,944,000, or slightly below
1998's first quarter total of $7,535,000. Capital expenditures for all of 1999
are expected to total approximately $35,000,000. The majority of this spending
will be in connection with the new aluminum recycling facility the Company is
constructing near Saginaw, Michigan and for an expansion of its Uhrichsville,
Ohio facility.
CASH FLOWS FROM FINANCING ACTIVITIES: Financing activities provided $22,557,000
in the first quarter of 1999 compared to $499,000 in the first quarter of 1998.
In the first quarter of 1999, the Company borrowed $24,000,000 under its
revolving line of credit. Most of these funds were used in the acquisitions of
the Shelbyville and Clarksville, Tennessee facilities. See "ACQUISITIONS." In
the first quarter of 1998, the Company borrowed $1,479,000. At March 31, 1999
the Company had $176,000,000 in indebtedness outstanding under its long-term
revolving credit facility. In addition, there were standby letters of credit
outstanding with several banks totaling $2,202,000.
Financing activities in the first quarter of 1999 also included the payment of
$982,000 in dividends compared to $825,000 in the first quarter of 1998. In
addition, in 1999 $649,000 was used to purchase 55,000 shares of common stock in
open market transactions. This stock will be used as treasury stock. No such
transactions occurred in 1998's first quarter.
As of March 31, 1999, the Company had approximately $23,200,000 available for
borrowing under its reducing revolving line of credit facility. The terms of the
Company's Credit Agreement presently provide that the maximum amount which may
be borrowed under the Credit Agreement will be reduced from $200,000,000 to
$180,000,000 effective on December 31, 1999. The Company believes that its cash
on hand, the availability of funds under its lines of credit and its anticipated
internally generated funds will be sufficient to fund its current needs,
including its expected capital spending plans. The Company has experienced and
expects to continue to experience substantial capital funding requirements for
its new facilities, potential acquisitions and capital and environmental
improvement programs. The Company believes that additional financing may be
necessary to maintain its recent rate of growth and is presently reviewing
alternative sources of funding for these activities.
<PAGE>
ENVIRONMENTAL
The Company's operations, like those of other basic industries, are subject to
federal, state, local and foreign laws, regulations and ordinances that (1)
govern activities or operations that may have adverse environmental effects,
such as discharges to air and water, as well as handling and disposal practices
for solid and hazardous wastes and (2) impose liability for costs of cleaning of
hazardous substances (together, "Environmental Laws"). It is possible that more
rigorous Environmental Laws will be enacted that could require the Company to
make substantial expenditures in addition to those referred to in this Form 10-Q
and in other filings made by the Company.
From time to time, operations of the Company have resulted or may result in
certain noncompliance with applicable requirements under such Environmental
Laws. However, the Company believes that any such noncompliance under such
Environmental Laws would not have a material adverse effect on the Company's
financial position or results of operations.
The Illinois Environmental Protection Agency ("IEPA") has notified the Company
that two of the Company's zinc subsidiaries are potentially responsible parties
("PRP") pursuant to the Illinois Environmental Protection Act for the cleanup of
contamination at a site in Marion County, Illinois to which these subsidiaries,
among others, in the past sent zinc oxide for processing and resale. These
subsidiaries have joined a group of PRPs that is planning to negotiate with the
IEPA regarding the cleanup of the site. Although the site has not been fully
investigated and final cleanup costs not yet determined, based on current cost
estimates and information regarding the amount and type of materials sent to the
site by the subsidiaries, the Company does not believe, while there can be no
assurance, that its potential liability if any at this site will have a material
adverse effect on its financial position or results of operations.
YEAR 2000 COMPLIANCE
The Company relies on software and hardware technology for its information and
data processing and to deliver its services, and has established a comprehensive
plan to address potential Year 2000 compliance problems resulting from the
computer programs written utilizing two digits, instead of four, to represent
the year. The Company's embedded systems (or non-information technology
systems) include office equipment such as phone and voicemail systems, fax
machines, copiers, and postage machines, as well as environmental and
manufacturing control systems at its plants. These environmental and
manufacturing systems at Company plant locations consist of items such as
scales, process controllers, programmable logic controllers, adjustable
frequency drives, and radiation detection systems.
The Company has completed a physical inventory of its information technology
computer hardware and software, and its embedded systems at each facility. The
Company's assessment phase, currently in progress, entails obtaining
manufacturer and developer year 2000 compliance information about embedded
systems and software. This process is ongoing and is currently expected to be
completed in the second quarter of 1999.
All personal computer hardware compliance testing and remediation is anticipated
to be completed by mid-1999. Testing of embedded systems and desktop
application software is ongoing and expected to be completed by July 1999.
The Company believes that its primary operations and accounting software are
Year 2000 compliant. Because of the Company's recent rapid growth and the need
to integrate its financial and operating systems, the Company is in the process
of implementing an enterprise-wide information technology system, which has been
tested to be year 2000 compliant. When complete, this will enable the Company
to gather more uniform operating and financial information, and do so in less
time than is currently required.
The Company has identified potential Year 2000 compliance issues with certain
subsidiaries and a joint venture partner, and is currently converting and
modifying those systems in order to achieve Year 2000 compliance prior to
December 31, 1999.
The cumulative Year 2000 project expenditures have been immaterial to date, and
based upon results of current testing, the estimated remaining Year 2000 costs
are not expected to be material to the Company's
<PAGE>
results of operations and financial position. The Company currently believes
that it will be able to manage its total Year 2000 transition without any
material adverse effect on its business, financial position or results of
operations.
The Company cannot presently determine the impact on its customers and suppliers
in the event that they may not be Year 2000 compliant, and in such event,
whether such non-compliance may have a material adverse effect on the Company's
results of operations or financial position. The Company has contacted its
customers and suppliers (through written questionnaires and verbal inquiries) to
determine the status of their respective Year 2000 compliance programs and is
currently reviewing the responses and taking additional actions, such as further
inquiries and personal follow up interviews, on an as needed basis.
An unexpected or widespread Year 2000 problem involving the Company and/or its
suppliers and customers could result in a significant interruption to the
Company's normal business operations or activities, which could have a material
adverse effect on the Company's results of operations and financial position.
The Company is preparing for this uncertainty through its remediation efforts
and its ongoing investigation of its suppliers and customers referred to above.
The Company has not yet developed a contingency plan, but, based upon the
results of its assessments and investigations discussed above, intends to
develop such a plan. Currently, the development of such a contingency plan is
anticipated to be completed in mid-1999.
CAUTIONARY STATEMENT FOR PUSPOSES OF FORWARD-LOOKING STATEMENTS
Certain information contained in this ITEM 2. "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" (as well as certain
oral statements made by or on behalf of the Company) may be deemed to be
forward-looking statements within the meaning of The Private Securities
Litigation Reform Act of 1995 and are subject to the "Safe Harbor" provisions in
that enacted legislation. This information includes, without limitation,
statements concerning future capacity, volumes, revenues, earnings, costs,
margins and expenses; anticipated refinancings of the Company's debt facilities;
the expected effects of strikes or work stoppages at Company or customer
facilities; future acquisitions or corporate combinations; expected effects of
recent acquisitions; future prices for metals; projected completion dates and
anticipated technological advances; prospects for the Company's joint venture
partners to purchase a portion of the Company's interests; future (or extensions
of existing) long-term supply contracts with its customers; the outcome of and
any liabilities resulting from any claims, investigations or proceedings against
the Company or its subsidiaries; future levels of dividends (if any); the future
mix of business; future costs and asset recoveries; future operations, demand
and industry conditions; future capital expenditures and future financial
condition; becoming "Year 2000" compliant; and the impact of the "Year 2000"
transition on the operations, results of operations and financial condition of
the Company, its customers and suppliers. These statements are based on current
expectations and involve a number of risks and uncertainties. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to be correct.
When used in or incorporated by reference into this Quarterly Report on Form 10-
Q, the words "anticipate," "estimate," "expect," "may," "project" and similar
expressions are intended to be among the statements that identify forward-
looking statements. Important factors that could affect the Company's actual
results and cause actual results to differ materially from those results that
might be projected, forecasted, estimated or budgeted by the Company in these
forward-looking statements include, but are not limited to, the following:
fluctuations in operating levels at the Company's facilities, the mix of
buy/sell business as opposed to tolling business, retention and financial
condition of major customers, effects of future costs, collectability of
receivables, the inherent unpredictability of adversarial or administrative
proceedings, effects of environmental and other governmental regulations,
currency exchange rate fluctuations, trends in the Company's key markets, the
price of and supply and demand for aluminum and zinc (and their derivatives) on
world markets, business conditions and growth in the aluminum and zinc
industries and aluminum and zinc recycling industries, the extent of "Year 2000"
compliance by the Company's suppliers and customers and the Company's
information and embedded technology, and future levels and timing of capital
expenditures.
<PAGE>
These statements are further qualified by the following:
. Estimates of future operating rates at the Company's plants are based on
current expectations by management of the Company of future levels of volumes
and prices for the Company's services or metal, and are subject to
fluctuations in customer demand for the Company's services and prevailing
conditions in the metal markets, as well as certain components of the
Company's costs of operations, including energy and labor costs. Many of the
factors affecting revenues and costs are outside of the control of the
Company, including weather conditions, general economic and financial market
conditions, and governmental regulation and factors involved in
administrative and other proceedings. The future mix of buy/sell vs. tolling
business is dependent on customers' needs and overall demand, world and U. S.
market conditions then prevailing in the respective metal markets, and the
operating levels at the Company's various facilities at the relevant time.
. The price of primary aluminum, zinc and other metals is subject to worldwide
market forces of supply and demand and other influences. Prices can be
volatile, which could affect the Company's buy/sell metals business. The
Company's use of contractual arrangements including long-term agreements and
forward contracts, may reduce the Company's exposure to this volatility but
does not eliminate it.
. The markets for most aluminum and zinc products are highly competitive. The
major primary aluminum producers are larger than the Company in terms of
total assets and operations and have greater financial resources. In
addition, aluminum competes with other materials such as steel, vinyl,
plastics and glass, among others, for various applications in the Company's
key markets. Unanticipated actions or developments by or affecting the
Company's competitors and/or willingness of customers to accept substitutions
for aluminum products could affect the Company's financial position and
results of operations.
. Fluctuations in the costs of fuels, raw materials and labor can affect the
Company's financial position and results of operations.
. The Company's key transportation market is cyclical, and sales within that
market in particular can be influenced by economic conditions. Strikes and
work stoppages by automotive customers of the Company may have a material
adverse effect on the Company's financial condition and results of
operations.
. A strike at a customer facility or a significant downturn in the business of
a key customer supplied by the Company could affect the Company's financial
position and results of operations.
. The Company spends substantial capital and operating sums on an ongoing basis
to comply with environmental laws. In addition, the Company is involved in
certain investigations and actions in connection with environmental
compliance and past disposals of solid waste. Estimating future environmental
compliance and remediation costs is imprecise due to the continuing evolution
of environmental laws and regulatory requirements and uncertainties about
their application to the Company's operations, the availability and
applicability of technology and the allocation of costs among principally
responsible parties. Unanticipated material legal proceedings or
investigations could affect the Company's financial position and results of
operations.
REVIEW BY INDEPENDENT ACCOUNTANTS
The Company's independent accountants, Ernst & Young LLP, have reviewed the
Company's consolidated financial statements at March 31, 1999, and for the three
months then ended prior to filing and their report is included herein.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------
<PAGE>
There have been no material changes regarding market risk and the Company's
derivative instruments during the first quarter of 1999. Accordingly, no
additional disclosures have been provided in accordance with regulation S-K Item
305 (c).
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -------
(a) The following exhibits are included herein:
10.1 Supply Agreement between the Company, IMCO Recycling of Ohio Inc.,
and Commonwealth Aluminum Corporation.
15.1 Acknowledgment letter regarding unaudited financial information
from Ernst & Young LLP.
27 Financial Data Schedule
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the first
quarter of 1999.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
IMCO Recycling Inc.
Date: May 12, 1999 By: /s/ Robert R. Holian
------------------------------------
Robert R. Holian
Vice President and Controller
(Principal Accounting Officer)
<PAGE>
Independent Accountant's Review Report
Stockholders and
Board of Directors
IMCO Recycling Inc.
We have reviewed the accompanying consolidated balance sheet of IMCO Recycling
Inc. as of March 31, 1999, and the related consolidated statements of earnings
and cash flows for the three-month periods ended March 31, 1999 and 1998. These
financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, which will be performed
for the full year with the objective of expressing an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements referred to above
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of IMCO Recycling Inc. as of
December 31, 1998, and the related consolidated statements of earnings,
stockholders' equity, and cash flows for the year then ended, not presented
herein, and in our report dated February 1, 1999, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
December 31, 1998, is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
/s/ ERNST & YOUNG LLP
Dallas, Texas
April 26, 1999
<PAGE>
EXHIBIT 10.1
SUPPLY AGREEMENT
BY AND AMONG
COMMONWEALTH ALUMINUM CORPORATION
IMCO RECYCLING OF OHIO INC.
AND
IMCO RECYCLING INC.
<PAGE>
TABLE OF CONTENTS
I. Expansion of Facility................................................ 1
II. Agreement to Sell and to Purchase.................................... 1
III. Term................................................................. 2
IV. Tolling Operation.................................................... 3
V. Price, Packaging and Terms and Conditions of Sale.................... 4
VI. Warranty and Related Rights.......................................... 4
VII. Force Majeure........................................................ 5
VIII. Proprietary and Confidential Information............................. 5
IX. Notices and Communication............................................ 7
X. Independent Status of Parties and Limitation of Authority............ 8
XI. Patent Infringement.................................................. 8
XII. Indemnity............................................................ 8
XIII. Option to Purchase and Right of First Refusal........................ 9
XIV. Termination.......................................................... 9
XV. Representations...................................................... 10
XVI. Miscellaneous........................................................ 11
Exhibit "G" (Option to Purchase and Right of First Refusal)
<PAGE>
SUPPLY AGREEMENT
This Supply Agreement (the "Agreement") is made and entered into effective
as of this 1st day of April, 1999, by and among Commonwealth Aluminum
Corporation, a Delaware corporation with its principal place of business at 500
West Jefferson, Citizens Plaza, 18th Floor, Louisville, Kentucky 40202 ("Buyer"
or "Commonwealth"), IMCO Recycling of Ohio Inc., a Delaware corporation with its
principal place of business at 7335 Newport Road S.E., Uhrichsville, Ohio 44683
("Supplier") and IMCO Recycling Inc., a Delaware corporation with its principle
place of business at 5215 N. O'Connor Blvd., Suite 940, Irving, Texas 75039
("IMCO").
WHEREAS, Buyer is engaged in the business of producing aluminum rolled
products at its rolling mill facility in Uhrichsville, Ohio (the "Mill"); and
WHEREAS, Supplier is engaged in the business of recycling and processing
aluminum at its aluminum recycling and processing facility in Uhrichsville, Ohio
(the "Facility"); and
WHEREAS, the parties desire to enter into a Supply Agreement whereby
Supplier will provide tolling services to Buyer so as to satisfy certain of
Buyer's requirements of secondary aluminum in the form of ingot and molten
metal, and Buyer will purchase said services from Supplier.
NOW, THEREFORE, in consideration of the mutual covenants and conditions set
forth herein, the adequacy and sufficiency of which are hereby acknowledged, and
intending to be legally bound, the parties agree as follows:
ARTICLE I. EXPANSION OF FACILITY
1.01 EXPANSION OF FACILITY BY SUPPLIER. Subject to the terms of this
Agreement, Supplier agrees to complete the installation of two (2) reverberatory
furnaces (the "Reverb Furnaces") in the Facility as soon as reasonably
practicable after all environmental and construction permits required for the
installation of the Reverb Furnaces have been procured by Supplier. Supplier
agrees to use its commercially reasonable best efforts to obtain all permits
required to construct the Reverb Furnaces. Supplier and Buyer anticipate that
the Reverb furnaces will be operational by January 1, 2000. In the event that
the Reverb furnaces are not fully operational within thirty (30) days of such
date, then the Supplier and Buyer shall negotiate in good faith appropriate
changes to this Agreement.
ARTICLE II. AGREEMENT TO SELL AND TO PURCHASE
2.01 PURCHASE OF REQUIREMENTS. Subject to the terms and provisions of
Exhibit "D" hereto, Supplier shall be Buyer's exclusive source of secondary
ingot and molten metal with respect to the Scrap Based Alloys used by the Mill
in conformance with the specifications detailed in Exhibit "A" hereto (the
"Product") up to the Target Volume. For
Page 1
<PAGE>
purposes of this Agreement, "Scrap Based Alloys" shall refer to all aluminum
alloys except alloys 1100, 1350, 8111 and 5052 and any additional high purity
alloys which may be excluded by mutual agreement as listed in the Registration
Record of Aluminum Association Designation and Chemical Composition Limits for
Wrought Aluminum and Wrought Aluminum Alloys ("Green Sheet"). Buyer shall,
however, be permitted to purchase nominal quantities of primary alloys and other
"sweeteners" from vendors other than Supplier to achieve the standards set forth
for Scrap Based Alloys in the Green Sheet. In determining the source of raw
materials to be used in the production of Buyer's alloys, it is the intent of
Buyer to maximize the use of Scrap (as defined in Section 4.01(a) below) in the
composition of Scrap Based Alloys. Notwithstanding anything in this Section 2.01
to the contrary, Buyer has arrangements for tolling with certain of its sheet
customers, and such arrangements shall not be deemed to be a violation of this
Agreement; provided however, that Buyer shall notify Supplier in writing of all
such arrangements, and provided further that the aggregate annual volume for all
such third party tolling of Scrap Based Alloys shall not exceed eight percent
(8%) of the Target Volume.
2.02 SUPPLY OBLIGATIONS. Subject to the terms of this Agreement, Supplier
shall toll/convert sufficient quantities of Buyer's Scrap (defined below) as
ordered by Buyer from time to time so as to satisfy the Target Volume(s) as set
forth in Exhibit "D". Supplier shall not be prohibited from selling any ingot
or molten metal it produces at the Facility to purchasers other than Buyer,
provided that Supplier at all times meets its supply obligations to Buyer
hereunder. Notwithstanding the foregoing, Buyer shall be the principal customer
of the Facility, and for so long as Buyer is not in violation of this Agreement
Buyer's orders shall receive priority scheduling over Supplier's other customers
at the Facility.
In the event Supplier agrees to sell or toll any ingot, molten metal or any
other product or accepts any Scrap at the Facility for any purchaser other than
Buyer, Supplier shall not comingle the scrap, waste, dunnage, or finished
products relating to any other purchasers with those of Buyer. Supplier shall
maintain and make available to Buyer accurate and complete records of the Scrap,
waste, dunnage, and finished products relating to services performed for Buyer
under this Agreement and separate records for services provided or products
produced for other purchasers. The exact content of said records shall include
such detail as may reasonably be requested by Buyer from time to time.
ARTICLE III. TERM
3.01 TERM. This Agreement shall be effective as of the date first written
above (the "Effective Date"). Subject to the installation of the Reverb
Furnaces as provided in Section 1.01, the obligations of the parties with
respect to the delivery and processing of Scrap (as defined in Section 4.01)
shall commence April 1, 1999 and shall be in effect for a ten (10) year term
thereafter. For purposes of this Agreement the term "Contract Year" shall refer
to consecutive twelve (12) month periods commencing April 1st of each calendar
year. Similarly "Contract Quarter" shall refer to each consecutive three (3)
month period during the term of this Agreement.
Page 2
<PAGE>
ARTICLE IV. TOLLING OPERATION
4.01 TOLLING OPERATION.
(a) Buyer will purchase Scrap, as defined below, to be delivered to
Supplier to be tolled/processed into Product. Upon request by Buyer, Supplier
will, at its expense, receive and accept said Scrap. For purposes of this
Agreement, Scrap shall include and be classified into the categories listed in
Part I of Exhibit "C" (the "Scrap"). Buyer shall make available for the use of
Supplier, and Supplier shall at its expense pick up or cause to be picked up,
dross from the Mill for its use in the tolling/processing of Scrap for Buyer
hereunder. The quantities of Scrap and dross supplied by Buyer shall be
sufficient so that, assuming the Supplier obtains recovery rates set forth in
Exhibit "C", Supplier will be able to process the Target Volume (defined in
Exhibit "D").
(b) Supplier shall at its expense load or cause to be loaded onto Buyer's
trucks all saltcake and rotary furnace baghouse dust generated as a result of
Supplier's tolling/converting operations for Buyer. Supplier shall be solely
responsible for disposing of all waste, impurities, refuse or other substance or
material produced as a result of the Facility operations not otherwise required
to be delivered to Buyer hereunder. Buyer shall indemnify and hold Supplier,
its officers, directors and shareholders harmless from any and all damages,
losses, liabilities, suits, actions, demands, proceedings (whether legal or
administrative), and expenses (including but not limited to attorneys' fees)
suffered by Supplier which arise directly or indirectly out of Buyer's
treatment, storage, recycling or disposal of saltcake and rotary furnace
baghouse dust. Buyer shall from time to time provide to Supplier the
information and documentation reasonably requested by Supplier regarding the
disposal or recycling of saltcake and rotary furnace baghouse dust by Buyer.
(c) Supplier shall, as part of its tolling operations, supply and at all
times maintain at its expense a sufficient number of crucibles and low profile
sow molds necessary to comply with its supply obligations under this Agreement.
(d) Except as otherwise provided in Section 7.01, Supplier shall at all
times during its period of performance of this Agreement, provide and augment as
necessary a work force and Facility Capacity fully adequate to perform and
comply with this Agreement. The term "Facility Capacity" as used herein shall
include but shall not be limited to, engineers, skilled and unskilled workmen,
supervision, materials, supplies, tools, equipment and facilities.
4.02. TITLE. All Scrap supplied by Buyer to Supplier hereunder, as
well as the resulting Product, shall remain the sole property of and be at all
times titled in the name of Buyer, and Supplier shall execute and deliver to
Buyer upon reasonable request by and at the expense of Buyer, documentation to
evidence and/or perfect such retention of title.
Page 3
<PAGE>
ARTICLE V. PRICE, PACKAGING AND TERMS AND CONDITIONS OF SALE
5.01 PRICE. The compensation and remuneration which Buyer shall be
required to pay Supplier in consideration of Supplier's performance of its
obligations hereunder is set forth in Exhibit "D" hereto.
5.02 PACKAGING AND DELIVERY PROCEDURE. Packaging, preparation for
transport, delivery, and identification of Product items shall be in accordance
with Exhibit "A" hereto. Supplier shall, at its expense, deliver or cause to be
delivered to the Mill all Product processed pursuant to this Agreement.
5.03 TERMS AND CONDITIONS OF SALE. All orders placed and services
performed pursuant to this Agreement shall be subject to the terms of this
Agreement. Notwithstanding the fact that either party may submit purchase
orders, acknowledgments, invoices, or similar documentation, any terms or
conditions contained in said documents inconsistent with or contrary to the
terms of this Agreement shall be superseded by the terms hereof.
5.04 INSPECTION OF SUPPLIER'S FACILITY. Supplier shall grant to Buyer
access to the Facility and to its books and records during normal business hours
upon prior written notice for the purpose of verifying Supplier's compliance
with the terms of this Agreement.
ARTICLE VI. WARRANTY AND RELATED RIGHTS
6.01 WARRANTY. Supplier warrants that the Product will meet the
specifications set forth in Exhibit "A" in all material respects. In the event
Supplier fails to achieve the recovery rates set forth in Exhibit "C", Supplier
shall be obligated to pay the penalty set forth therein either in cash or such
other method acceptable to Buyer.
6.02 QUALITY. The Product shall meet the manufacturing, design,
performance, and appearance specifications as described in Exhibit "A". Should
any of the Product fail to meet said specifications, Buyer and Supplier shall
immediately initiate the procedures set forth in Exhibit "A". In no event shall
Buyer be entitled to consequential damages, but this exclusion shall in no event
limit or restrict Buyer's right to recover direct and incidental damage for
Supplier's breach and the Non-conformance Penalty described in Exhibit "A",
Paragraph 5.
6.03 DISCLAIMER OF OTHER WARRANTIES. EXCEPT FOR THE WARRANTIES CONTAINED
IN THIS ARTICLE VI, SUPPLIER MAKES NO WARRANTY THAT THE PRODUCT COVERED BY THIS
AGREEMENT IS MERCHANTABLE OR FIT FOR ANY PARTICULAR PURPOSE AND THERE ARE NO
WARRANTIES, EXPRESS OR IMPLIED, WHICH EXTEND BEYOND THIS ARTICLE VI.
Page 4
<PAGE>
ARTICLE VII. FORCE MAJEURE
7.01 FORCE MAJEURE. In any event, and in addition to all other
limitations stated herein, the parties hereto shall not be liable for any act,
omission, result, or consequence, including but not limited to any delay in
delivery or performance, which is due to any act of God, the prior performance
of any government order, fire, flood, or casualty, government regulation or
requirement, shortage or failure of raw material, supplies, fuel, power or
transportation, breakdown of equipment, or any other cause beyond said party's
reasonable control whether of a similar or dissimilar nature to those above
enumerated, or due to any strike, labor dispute or difference with workers,
regardless of whether or not said party is capable of settling such labor
problem.
Upon the occurrence of any of the events described in this Section 7.01,
Supplier shall have the obligation to use its reasonable best efforts to supply
the Product to the Buyer from its affiliated plants if the Facility is not able,
as a result of one of the events described herein, to process the quantities of
Scrap and dross set forth on Exhibit "D" at any time during the term of this
Agreement.
ARTICLE VIII. PROPRIETARY AND CONFIDENTIAL INFORMATION
8.01 PROPRIETARY INFORMATION. Buyer and Supplier acknowledge that, in the
course of performing their duties under this Agreement, they will necessarily be
supplied with confidential and/or proprietary information of the other party
concerning business affairs, methods of operation, processes and other
information.
(a) For purposes of this Article VIII, the term "Confidential
Information" shall mean any and all proprietary, trade secret, technical and
other confidential information concerning the business or affairs of the
provider, including but not limited to:
(i) information concerning the design or method of production of
any of the provider's products or services, including but not limited to
all records, files, memorandum, reports, price lists, customer lists,
drawings, plans, sketches, documents, equipment, production specifications,
manufacturing processes and methods, production machinery, quality
assurance methods, accounting systems, and the like;
(ii) discoveries, inventions, copyrights, whether patentable or not,
and including, without limitation, the nature and result of research,
development, manufacturing, marketing, planning and other business
activities and all designs, concepts, processes and operational techniques
in connection with Supplier's rotary furnaces;
(iii) ideas, concepts and mathematical formulas which comprise all of
said confidential information.
Page 5
<PAGE>
(b) It is agreed that the Confidential Information shall include all
information described in Section 8.01(a) except for any information:
(i) which is already in recipient's possession, by recipient's
development;
(ii) which is generally available to the public or which becomes
generally available to the public through no act or failure to act on the
part of recipient or recipient's agents or employees;
(iii) which is disclosed to recipient on a non-confidential basis by
a third party having no obligation to provide it on a confidential basis or
to refrain from so doing; or
(iv) which the recipient can demonstrate by written record was
independently developed by persons who did not have access to provider's
information.
Specific information disclosed shall not be deemed to be in recipient's
possession, or part of public knowledge or literature, or available to recipient
merely because it can be assembled by selection of information previously in
recipient's possession or part of the public knowledge or literature or
available to recipient from a source other than the provider.
8.02 NON-DISCLOSURE. The parties hereby acknowledge that all Confidential
Information has been developed or acquired at considerable expense, and has
independent economic value from not being known or readily ascertainable by
others, and hereby covenant and agree that each will not, nor permit any
subsidiary, affiliate or employee to, communicate or divulge to, or use for the
benefit of itself or any other person, firm, association, or corporation,
without the prior written consent of the other party, any Confidential
Information or Know how (as defined in Section 8.03 below) that may be
communicated to, acquired by, or learned by the other party in the course of or
as a result of this Agreement.
8.03 KNOW HOW. The parties hereby recognize that the other party has a
property interest not only in the actual Confidential Information but also in
the ideas, concepts, and mathematical formulas ("Know how") which comprises said
information. In addition to each party's duty not to disclose said Know how as
provided in Section 8.02, each party further agrees that it will not integrate
any of the Know how into any of its products or processes which it develops.
8.04 LABELING CONFIDENTIAL INFORMATION. The failure of either party to
designate or label any property or information as confidential, proprietary or
trade secret shall in no way affect the property's classification as such. In
no instance shall any information disclosed to the other party, regardless of
whether said information would constitute Confidential Information, be
reproduced by the other party in any form whatsoever.
8.05 RETURN OF INFORMATION. Each party agrees, upon request of the other
party, to promptly deliver to the other party all drawings, blueprints, manuals,
letters, notes, notebooks, reports, computer software, compilations of
information and all other material or copies thereof, in whatever form,
including without limitation, electronic media or other tangible
Page 6
<PAGE>
forms of any information, obtained from the other party, regardless of whether
said information would constitute Confidential Information, which is in said
party's possession or under said party's control.
8.06 USE BY PARTY'S EMPLOYEES AND AGENTS. The parties hereby agree to
limit the number of employees and agents that have access to the Confidential
Information to those whose knowledge of such information is essential for said
party to satisfy its obligations under this Agreement. Each party shall use its
reasonable best efforts to ensure that its employees and agents do not utilize
the Confidential Information except in the performance of their duties to said
party.
8.07 EQUITABLE RELIEF. The parties hereby acknowledge and agree that a
breach by it of the provisions of this Article VIII would cause the other party
irreparable injury and damage which could not be reasonably or adequately
compensated by damages at law. Therefore, each party expressly agrees that in
addition to any other remedies provided for by law, in equity or pursuant to
this Agreement, either party shall be entitled to injunctive or other equitable
relief to prevent a breach of this Article VIII by the other party.
ARTICLE IX. NOTICES AND COMMUNICATION
9.01 NOTICES AND COMMUNICATION. Any notice or other communication
required or permitted hereunder shall be sufficiently given if delivered in
person, sent registered mail, postage prepaid, or by electronic transmission
confirmed by the recipient addressed as follows:
As to Buyer: Commonwealth Aluminum Corporation
500 West Jefferson
Citizens Plaza, 18th Floor
Louisville, Kentucky 40202
Attention: John Wasz, Vice President Materials
With a copy to: Shottenstein, Zox & Dunn
41 S. High Street, Suite 2600
Columbus, Ohio 43215
Attention: Richard A. Barnhart
As to Supplier: IMCO Recycling Inc.
5215 North O'Connor Blvd.
Suite 940
Central Tower at Williams Square
Irving, Texas 75039
Attention: President
The date upon which any such communication is personally delivered or, if
such communication is transmitted by mail or electronic transmission, the date
upon which it is
Page 7
<PAGE>
received by the addressee, shall be deemed the effective date of such
communication. Each party shall promptly advise the other in writing in the
event of any change in their respective addresses.
ARTICLE X. INDEPENDENT STATUS OF PARTIES
10.01 INDEPENDENT STATUS OF PARTIES. This Agreement does not appoint
either party the other's agent, or partner for any purpose whatsoever, nor does
it grant to either party any right or authority to create any obligation or
responsibility, expressed or implied, on behalf of or in the name of the other
party, nor to bind the other party in any manner whatsoever. No partnership or
joint venture is intended nor is created as a result of this Agreement, but
rather the parties' relationship shall be that of a Supplier/Customer and except
as otherwise provided herein, each shall be solely answerable for the cost and
expenses, consequences and damages arising out of their own acts and from the
operation and maintenance of their respective businesses.
ARTICLE XI. PATENT INFRINGEMENT
11.01 PATENT INFRINGEMENT. Supplier shall, at its own expense, defend any
suit or proceeding brought against Buyer to the extent the same is based upon a
claim that any Product furnished by Supplier hereunder constitutes an
infringement of any patent of the United States, and Supplier shall pay all
damages and costs awarded in such action against buyer. In case any Product
furnished hereunder is in such suit held to constitute infringement and their
use or sales enjoined, Supplier shall, at its expense, either:
(a) procure for buyer the rights to continue using said Product;
(b) replace them with non-infringing Products;
(c) modify them so they become non-infringing, provided that the Products
are so modified to Buyer's satisfaction; or
(d) remove them and refund the purchase price and the transportation costs
thereof.
ARTICLE XII. INDEMNITY
12.01 BUYER'S INDEMNITY. Buyer hereby agrees to indemnify and hold
Supplier, its officers, directors and shareholders harmless from and against any
and all damages, losses, liabilities, suits, actions, demands, proceedings
(whether legal or administrative), and expenses (including but not limited to
attorneys' fees) arising, directly or indirectly, out of any action or failure
to act by Buyer, its employees or agents or any negligence, breach of this
Agreement, or misrepresentation, on the part of Buyer, its employees or agents.
Notwithstanding anything
Page 8
<PAGE>
contained in this Agreement to the contrary, Supplier shall only be entitled to
recover direct and incidental damages and not consequential damages.
12.02 SUPPLIER'S INDEMNITY. Supplier hereby agrees to indemnify and hold
Buyer, its officers, directors and shareholders harmless from and against any
and all damages, losses, liabilities, suits, actions, demands, proceedings
(whether legal or administrative), and expenses (including but not limited to
attorneys' fees) arising, directly or indirectly, out of any action or failure
to act by Supplier, its employees or agents or any negligence, breach of this
Agreement, or misrepresentation, on the part of Supplier, its employees or
agents. Notwithstanding anything contained this Agreement to the contrary,
Buyer shall only be entitled to recover direct and incidental damages and not
consequential damages.
ARTICLE XIII. OPTION TO PURCHASE AND RIGHT OF FIRST REFUSAL
13.01 OPTION TO PURCHASE RELATING TO FACILITY. IMCO hereby reaffirms
Buyer's Option to Purchase the Facility as set forth in Exhibit "G".
13.02 RIGHT OF FIRST REFUSAL RELATING TO FACILITY. IMCO hereby reaffirms
Buyer's Right of First Refusal relating to the Facility as set forth in Exhibit
"G".
ARTICLE XIV. TERMINATION
14.01 TERMINATION. (a) Either of the parties hereto may terminate this
Agreement by notice in writing to the other party in any of the following
events:
(i) Any attempted assignment of this Agreement by the other party
except as provided in Section 16.01 of this Agreement;
(ii) Dissolution or liquidation of the other party;
(iii) Application for or appointment of a receiver by the non-
terminating party;
(iv) Assignment for the benefit of creditors by the non-terminating
party;
(v) Appointment of a committee of creditors or a liquidating agent
by the non-terminating party;
(vi) An offer of composition or extension to creditors generally by
the non-terminating party;
(vii) The adjudication of the non-terminating party as bankrupt or
insolvent;
(viii) The non-terminating party files a voluntary petition for
bankruptcy or admits in writing that it is unable to pay its debts as they
become due;
Page 9
<PAGE>
(ix) Either party fails to cure a default hereunder, other than as
a result of Buyer's failure to make payments when due hereunder or
Supplier's failure to deliver the Product when said delivery is required
hereunder, within sixty (60) days after receipt of written notice thereof;
or
(x) Subject to Section 7.01, delivery or payments not made when
due after the expiration of a sixty (60) day grace period.
The grace periods provided for in Subparts (ix) and (x) shall be extended during
such period as the Parties are negotiating in good faith with regard to a
legitimate dispute with respect to the Parties' obligations hereunder.
(b) In the event of a termination of this Agreement pursuant to the
provisions of this Article XIV, except under Section 14.01(a)(x), any orders
outstanding as of the effective date of termination shall be filled in
accordance with the terms of this Agreement, and any excess inventory will be
properly picked up by Buyer.
(c) No termination of this Agreement shall in any way affect the obligation
of the other party with regard to the provisions of this Agreement previously
matured and/or in effect, including, but not limited to, the obligations
relating to confidentiality under Article VIII hereof, the right to enforce any
remedy for the breach of any terms of this Agreement or the indemnity
obligations under Article XII, and Section 4.01(b).
(d) Buyer may terminate this Agreement in accordance with the terms of
Section 5 of Exhibit "A."
ARTICLE XV. REPRESENTATIONS
15.01 REPRESENTATIONS OF BUYER.
(a) Authorization and Validity of Agreement. The execution, delivery and
performance by Buyer of this Agreement have been duly authorized by its Board of
Directors. No other corporate action on the part of Buyer is necessary for the
execution, delivery and performance by Buyer of this Agreement. This Agreement
has been duly executed and delivered by Buyer and is a legal, valid and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms,
except to the extent that its enforceability may be limited by applicable
bankruptcy, insolvency, reorganization or other laws affecting the enforcement
of creditors' rights generally and except that the availability of equitable
remedies, including specific performance, is subject to the discretion of the
court before which any proceedings therefor may be brought.
(b) No Conflict. Neither the execution and delivery of this Agreement, nor
any other agreement or instrument executed and delivered by Buyer under this
Agreement does (i) conflict with, violate or result in a breach of the terms,
conditions or provisions of, or constitute a default
Page 10
<PAGE>
under, or accelerate or permit the acceleration of the performance under, the
Certificate or Articles of Incorporation or Bylaws, as amended, of Buyer, or any
contract, judgment, order, award or decree to which Buyer is a party or is
subject to by which it is bound or to which any of its assets is subject; (ii)
require the approval, consent, authorization or other order or action of any
court, governmental authority or regulatory body or filing or registration
therewith or notice thereto; (iii) result in the violation by Buyer of any law,
rule, regulation or order of any jurisdiction; or (iv) require the consent,
approval or authorization of any other person.
15.02 REPRESENTATIONS OF SUPPLIER.
(a) Authorization and Validity of Agreement. The execution, delivery and
performance by Supplier of this Agreement have been duly authorized by its Board
of Directors. No other corporate action on the part of Supplier is necessary
for the execution, delivery and performance by Supplier of this Agreement. This
Agreement has been duly executed and delivered by Supplier and is a legal, valid
and binding obligation of Supplier, enforceable against Supplier in accordance
with its terms, except to the extent that its enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or other laws affecting the
enforcement of creditors' rights generally and except that the availability of
equitable remedies, including specific performance, is subject to the discretion
of the court before which any proceedings therefor may be brought.
(b) No Conflict. Neither the execution and delivery of this Agreement, nor
any other agreement or instrument executed and delivered by Supplier under this
Agreement does (i) conflict with, violate or result in a breach of the terms,
conditions or provisions of, or constitute a default under, or accelerate or
permit the acceleration of the performance under, the Certificate of
Incorporation or Bylaws, as amended, of Supplier, or any contract, judgment,
order, award or decree to which Supplier is a party or is subject or by which it
is bound or to which any of its assets is subject; (ii) require the approval,
consent, authorization or other order or action of any court, governmental
authority or regulatory body or filing or registration therewith or notice
thereto; (iii) result in the violation by Supplier of any law, rule, regulation
or order of any jurisdiction; or (iv) except as set forth in Paragraph 5, Part C
of Exhibit "G," require the consent, approval or authorization of any other
person.
ARTICLE XVI. MISCELLANEOUS
16.01 BENEFIT AND ASSIGNMENT. Subject to the restrictions contained in
this Agreement prohibiting the assignment of this Agreement, this Agreement
shall inure to the benefit of, and be binding upon, the respective successors
and assigns of the parties hereto. This Agreement shall not be assigned by
either party without the express written consent of the other which consent
shall not be unreasonably withheld or delayed. If Buyer or Supplier proposes to
assign this Agreement in accordance with the terms of this Section 16.01 then
Buyer or Supplier, as the case may be, agrees to cause the person or entity to
whom this Agreement will be assigned or transferred to assume in writing Buyer's
or Supplier's, as the case may be, obligations under this Agreement.
Notwithstanding anything contained herein to the contrary, either party shall
have the right to assign this Agreement to its direct or indirect wholly owned
subsidiary. In
Page 11
<PAGE>
addition, notwithstanding any provision herein to the contrary, no provision in
this Agreement shall affect in any way the right or power of either Buyer or
Supplier, or their respective shareholders, to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in their
respective capital structure or business, or any merger or consolidation of
either of them, or any other corporate act or proceeding respecting them,
whether of a similar character or otherwise. Notwithstanding anything in this
Agreement to the contrary, the assignment of this Agreement by either party to a
direct or indirect wholly owned subsidiary or any adjustment, recapitalization,
reorganization, or other change or merger or consolidation described above shall
in no way release said assignor of its obligations and duties under this
Agreement.
16.02 NON-WAIVER. The failure of either party at any time to enforce any
provision of this Agreement shall not be construed to be a waiver of such
provision of the right of the respective party hereunder to enforce any such
provision.
16.03 SEVERABILITY. If any provision of this Agreement or the application
thereof to any party or circumstance shall for any reason and to any extent be
deemed invalid or unenforceable, the remainder of this Agreement and application
of such provision to the other parties and other circumstances shall not be
affected thereby, but rather the invalid or unenforceable provisions as applied
to the particular party or circumstance shall be modified to the extent
necessary so as to render said provision valid and enforceable while to the
greatest extent possible accomplishing the intended purpose of said provision.
16.04 ENTIRE AGREEMENT. This writing constitutes the entire Agreement
between the parties relating to the sale of the Products described herein during
the specific term, and any extensions thereof, and supersedes all previous
contracts, including but not limited to, the Supply Agreement entered into
between the parties hereto on March 2, 1992 (the "1992 Agreement"). As of the
date hereof, the 1992 Agreement is hereby terminated and shall be null, void and
of no further force and effect. Neither party to this Agreement makes any
representation to the other party except as expressly set forth in this
Agreement. No modification or waiver of any of the terms of this Agreement
shall bind either party unless in writing signed by duly authorized
representatives of both Buyer and Supplier.
16.05 CAPTIONS. Captions of the sections of this Agreement are for
convenience and reference only and the words contained therein shall in no way
be held to explain, modify, amplify, or aid in the interpretation, construction,
or meaning of the provisions of this Agreement.
16.06 GOVERNING LAW. This Agreement shall be construed under and enforced
according to the laws of the State of Ohio, without giving effect to the
conflict of law principles thereof, and any action arising out of or related to
this Agreement shall be venued in a federal or state court of appropriate
jurisdiction in the State of Ohio. The parties hereby consent to the
jurisdiction of the said courts.
16.07 FURTHER ASSURANCES. Subject to the terms and conditions herein
provided, Buyer and Supplier shall use their reasonable best efforts to take, or
cause to be taken, all actions
Page 12
<PAGE>
and to do, or cause to be done, all things reasonably necessary, proper or
advisable to make effective as promptly and practicable the transactions
contemplated by this Agreement and to cooperate with each other in connection
with the foregoing.
16.08 FINDER'S AND BROKER'S FEES. Buyer and Supplier each represent and
warrant to the other that there are no claims (or any basis for any claims) for
brokerage commissions, finder's fees or like payments in connection with this
Agreement or the transactions contemplated hereby resulting from any action
taken by either of them or on behalf of either party.
16.09 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
16.10 SUBSTANTIATION. For purposes of substantiating each party's
financial information or data which relates to each party's obligations under
this Agreement, each party shall record and account for such items in a manner
which is consistent with its historical practice applied in a consistent manner
or if it is determined such party's independent certified public accountants
that it is appropriate to change said historical practice, then in a manner in
conformity with generally accepted accounting principles with all said changes
being fully disclosed to the other party.
16.11 PUBLICITY. Neither party shall use the name of the other in
publicity releases or advertising or for other promotional purposes, without
securing the prior written approval of the other party hereto, unless in the
opinion of counsel to such disclosing party, such disclosure is required by law
in which event a copy will be provided to the non-disclosing party.
[signature page to follow]
Page 13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed the date first written above by their duly authorized representatives.
BUYER:
COMMONWEALTH ALUMINUM CORPORATION
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
SUPPLIER:
IMCO RECYCLING OF OHIO INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
IMCO:
IMCO RECYCLING INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
Page 14
<PAGE>
EXHIBIT "G"
RIGHT OF FIRST REFUSAL AND OPTION TO PURCHASE
A. OPTION TO PURCHASE. Subject to the provisions set forth below, IMCO hereby
grants to Commonwealth an option to purchase (the "Option") IMCO's
Uhrichsville, Ohio facility (plant, property and equipment) (the
"Facility").
1. At End of Agreement Term. Subject to Section 2 below of this Paragraph
A, the Option will be exercisable during the ninety (90) calendar days
ending on the last day of the ninth Contract Year of the Agreement. If
Commonwealth exercises the Option, the purchase and sale of the
Facility will have a closing date effective as of the end of the tenth
Contract Year.
The price of the Facility will be an amount equal to five (5) times
the Average EBITDA. For the purposes of this Agreement, the "Average
EBITDA" is equal to the quotient of (x) the sum of the EBITDA
(earnings before interest, taxes, depreciation and amortization) of
the Facility for each of the three calendar years ending on or before
the first day of the tenth Contract Year, divided by (y) three. The
computation of Average EBITDA will be made on a consolidated basis in
accordance with the books and records of the Facility and IMCO,
maintained in accordance with generally accepted accounting
principles, consistently applied.
2. IMCO Change of Control. In the event of an IMCO Change of Control
(defined below), the Option would become exercisable for a ninety (90)
calendar day period (or, if such ninety (90) period would adversely
affect the consummation of the IMCO Change in Control, the greatest
number of days that would not adversely affect such transaction;
provided, however, such period shall be at least thirty (30) calendar
days) following notification by IMCO to Commonwealth of an IMCO Change
of Control. If the Option is exercised pursuant to an IMCO Change of
Control, the price of the Facility will be an amount equal to the
product of (x) the EBITDA of the Facility for the most recently
completed calendar year ended on or before the date of the IMCO Change
of Control, multiplied by (y) the Option Multiple. The "Option
Multiple~~ is a number determined by dividing (a) the aggregate value
of the transaction which represented or resulted in the IMCO Change of
Control by (b) the consolidated EBITDA of IMCO Recycling Inc. for the
most recently completed calendar year ended on or before the IMCO
Change of Control.
For the purposes of this Agreement, an "IMCO Change of Control" shall
mean any of the following: (a) any merger or consolidation pursuant to
which shares of IMCO's Common Stock would be converted into cash,
securities, or other property, or any sale, lease, exchange or other
disposition (excluding a disposition by way of mortgage, pledge or
hypothecation), in one transaction or a series of related
transactions, of all or substantially all of the assets of IMCO (an
"IMCO Business Combination"), in each case unless, following such IMCO
Business Combination, all or substantially all of the holders of the
outstanding Common
Page 15
<PAGE>
Stock of IMCO immediately prior to such IMCO Business Combination
beneficially own, directly or indirectly, more than 50.1% of the
outstanding common stock or equivalent equity interests of the
corporation or legal entity resulting from such IMCO Business
Combination (including, without limitation, a corporation which as a
result of such transaction owns JMCO or all or substantially all of
IMCO's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately
prior to such IMCO Business Combination, of the outstanding IMCO
Common Stock, or (b) any individual or entity (or group of individuals
or entities acting in concert), other than IMCO or any successor to
IMCO or any subsidiary of IMCO, or any employee benefit plan of IMCO
or any subsidiary of IMCO (including any trustee of such plan or
plans) becomes a beneficial owner for purposes of Section 13(d) of the
Securities Exchange Act of 1934 of 50.1% or more of IMCO's then
outstanding securities having the right to vote in an election of
directors. Expressly excepted from the definition of IMCO Change of
Control under this Section 2 shall be an event described in clauses
(a) and/or (b) of this definition which is accomplished as a
management-led buyout or management-led purchase of all or
substantially all of the business, securities, or assets of IMCO
and/or its subsidiaries.
3. Termination of Option. In the event of a Commonwealth Change of
Control (defined below), the Option shall immediately thereupon
terminate and will not be exercisable by Commonwealth, its
successor(s) or assign(s).
For the purposes of this Agreement, a "Commonwealth Change of Control"
shall mean any of the following: (a) any merger or consolidation
pursuant to which shares of Commonwealth's Common Stock would be
converted into cash, securities, or other property, or any sale,
lease, exchange or other disposition (excluding a disposition by way
of mortgage, pledge or hypothecation), in one transaction or a series
of related transactions, of all or substantially all of the assets of
Commonwealth (a "Commonwealth Business Combination"), in each case
unless, following such Commonwealth Business Combination, all or
substantially all of the holders of the outstanding Common Stock of
Commonwealth immediately prior to such Commonwealth Business
Combination beneficially own, directly or indirectly, more than 50.1%
of the outstanding common stock or equivalent equity interests of the
corporation or legal entity resulting from such Commonwealth Business
Combination (including, without limitation, a corporation which as a
result of such transaction owns Commonwealth or all or substantially
all of Commonwealth's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Commonwealth Business
Combination, of the outstanding Commonwealth Common Stock, or (b) any
individual or entity (or group of individuals or entities acting in
concert), other than Commonwealth or any successor to Commonwealth or
any subsidiary of Commonwealth, or any employee benefit plan of
Commonwealth or any subsidiary of Commonwealth (including any trustee
of such plan or plans)
Page 16
<PAGE>
becomes a beneficial owner for purposes of Section 13(d) of the
Securities Exchange Act of 1934 of 50.1% or more of Commonwealth's
then outstanding securities having the right to vote in an election of
directors. Expressly excepted from the definition of Commonwealth
Change of Control under this section 2. shall be an event described in
clauses (a) and/or (b) of this definition which is accomplished as a
management-led buyout or management-led purchase of all or
substantially all of the business, securities, or assets of
Commonwealth and/or its subsidiaries.
B. RIGHT OF FIRST REFUSAL. Subject to the provisions set forth below, IMCO
hereby grants to Commonwealth a right of first refusal to purchase the
Facility (the "Right of First Refusal").
1. Third Party Offer. In the event that IMCO receives an offer from a
third party (other than an affiliate of IMCO) to purchase solely the
Facility (an IMCO Change of Control or other event pursuant to which
all or substantially all of the assets and business of IMCO are to be
transferred to a third party shall not be deemed an offer to purchase
solely the Facility), which offer IMCO finds acceptable, then IMCO
will notify Commonwealth of such offer. Commonwealth will have ninety
(90) calendar days (or, if such ninety (90) day period would adversely
affect the consummation of the purchase by the third party, the
greatest number of days that would not adversely affect such
transaction; provided, however, such period shall be at least thirty
(30) calendar days) from the date of IMCO's notification to exercise
its Right of First Reftisal on the same terms and conditions as the
terms and conditions of such offer. Transfers to direct or indirect
wholly-owned subsidiaries of IMCO or other affiliates of IMCO shall
not be subject to this Section B.
2. IMCO Decision to Sell. In the event that IMCO decides to sell the
Facility, IMCO will notify Commonwealth of its intent to sell and
IMCO's "asking price" for the Facility. Commonwealth may exercise its
right of first refusal and enter into negotiations to purchase the
Facility. If an agreement is not reached within ninety (90) calendar
days from the date of IMCO's notification to Commonwealth, then
Commonwealth's Right of First Refusal hereunder shall lapse, and IMCO
may thereupon terminate the negotiations with Commonwealth and enter
into negotiations with other parties; provided, however, that the
purchase price agreed to by IMCO and the third party for the Facility
shall be within five percent (5%) of IMCO's "asking price.".
3. Termination of Right of First Refusal. In the event of a Commonwealth
Change of Control, Commonwealth's Right of First Refusal under this
Section B shall thereupon immediately terminate and shall not be
exercisable by Commonwealth, its successor(s) or assign(s).
Page 17
<PAGE>
C. GENERAL.
1. IMCO agrees to grant to Commonwealth sufficient opportunity to perform
a due diligence review and title review of the Facility during the
respective period(s) following notification of exercise and prior to
closing of the exercise of the Option or the Right of First Refusal,
as the case may be, including access to IMCO Facility properties and
documents during normal business hours (subject to mutually
satisfactory confidentiality agreements regarding the subject matter
thereof to be entered between IMCO and Commonwealth with respect
thereto).
2. All notices contemplated under this Exhibit "G" shall be in writing
and sent to the addresses and individuals in strict accordance with
the provisions of Article XI of the Agreement.
3. Notwithstanding any provision contained herein to the contrary, (a)
Commonwealth shall not have the right to exercise its rights under
Section A. or Section B. above in the event that at such time,
Commonwealth is in material default of any of its material obligations
under the Agreement, and (b) the rights of Commonwealth and
obligations of IMCO under this Exhibit "G" shall terminate and expire
at the expiration of the term of the Agreement or when the Agreement
is otherwise no longer in force and effect.
4. At the option of either IMCO or Commonwealth, the parties agree to
negotiate in good faith written agreements containing ordinary and
customary terms and setting forth in additional detail the rights and
obligations of the respective parties regarding the Option and Right
of First Refusal as contemplated hereunder, including summary
memoranda or similar notifications in recordable form to be filed with
the appropriate recording agencies, if the parties so desire.
5. IMCO's obligations hereunder are also subject in all respect to IMCO's
securing the prior written consent or waiver of its senior secured
lenders before the Option or Right of First Refusal can become
effective.
Page 18
<PAGE>
EXHIBIT 15.1
Stockholders and
Board of Directors
IMCO Recycling Inc.
We are aware of the incorporation by reference in the Registration Statements
(Form S-8 No. 33-26641, Form S-8 No. 33-34745, Form S-8 No. 33-76780, Form S-8
No. 333-00075, and Form S-8 No. 333-07091) pertaining to the Nonqualified Stock
Option Plan of IMCO Recycling Inc., the IMCO Recycling Inc. Amended and Restated
Stock Option Plan, the IMCO Recycling Inc. 1992 Stock Option Plan, the IMCO
Recycling Inc. Amended and Restated 1992 Stock Option Plan, and the IMCO
Recycling Inc. Annual Incentive Program of our report dated April 26, 1999
relating to the unaudited consolidated interim financial statements of IMCO
Recycling Inc. which are included in its Form 10-Q for the quarter ended March
31, 1999.
Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not a part
of the registration statements prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
/s/ ERNST & YOUNG LLP
Dallas, Texas
May 14, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 8,450
<SECURITIES> 0
<RECEIVABLES> 103,544
<ALLOWANCES> 1,633
<INVENTORY> 56,007
<CURRENT-ASSETS> 176,504
<PP&E> 258,631
<DEPRECIATION> 76,767
<TOTAL-ASSETS> 499,034
<CURRENT-LIABILITIES> 93,352
<BONDS> 193,019
0
0
<COMMON> 1,705
<OTHER-SE> 188,740
<TOTAL-LIABILITY-AND-EQUITY> 499,034
<SALES> 175,231
<TOTAL-REVENUES> 175,231
<CGS> 157,224
<TOTAL-COSTS> 157,224
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 483
<INTEREST-EXPENSE> 2,980
<INCOME-PRETAX> 8,437
<INCOME-TAX> 3,194
<INCOME-CONTINUING> 5,141
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,141
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.31
</TABLE>
