<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended December 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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class Exchange on Which Registered
- ------------------- ----------------------------
Common Stock, $0.10 Par Value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 1, 2000, the aggregate market value of voting and non-voting common
equity held by nonaffiliates of the Registrant was $118,262,723.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of March 1, 2000.
Common Stock, $0.10 par value, 15,270,028
-----------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement relating to its 2000
Annual Meeting of Stockholders are incorporated by reference into Part III
hereof.
<PAGE>
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<S> <C>
PART I
- ------
Item 1. Business 3
Item 2. Properties 20
Item 3. Legal Proceedings 22
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 4A. Executive Officers of the Registrant 23
PART II
- -------
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 25
Item 6. Selected Financial Data 26
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 26
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 40
Item 8. Financial Statements and Supplementary Data 42
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 66
PART III
- --------
Item 10. Directors and Executive Officers of the Registrant 67
Item 11. Executive Compensation 67
Item 12. Security Ownership of Certain Beneficial Owners and
Management 67
Item 13. Certain Relationships and Related Transactions 67
PART IV
- -------
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 68
Signatures 71
</TABLE>
<PAGE>
PART I
This Annual Report on Form 10-K contains forward-looking statements as defined
by the Private Securities Litigation Reform Act of 1995. Forward-looking
statements should be read in conjunction with the cautionary statements and
other important factors included in this Form 10-K. See ITEM 7. "MANAGEMENT'S
------
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--
CAUTIONARY STATEMENT FOR PURPOSES OF FORWARD-LOOKING STATEMENTS" for a
description of important factors which could cause actual results to differ
materially from those contained in the forward-looking statements.
Forward-looking statements include statements about plans, objectives, goals,
strategies, future events or performance and assumptions underlying those
statements. These forward-looking statements may be identified by words such as
"anticipates," "estimates," "expects," "intends," "plans," "predicts,"
"projects," and similar expressions. The Company's expectations, beliefs and
projections are expressed in good faith and the Company believes they have a
reasonable basis, through management's examination of historical operating
trends, data contained in the Company's records and other data available from
third parties, but there can be no assurance that management's expectations,
beliefs or projections will result or be achieved or accomplished.
ITEM 1. BUSINESS
- -------
GENERAL
IMCO Recycling Inc. recycles aluminum and zinc. It is the largest aluminum
recycler in the United States and believes that it is the largest aluminum
recycler in the world. The Company's processing of aluminum includes used
aluminum beverage cans ("UBCs"), scrap and dross (a by-product of aluminum
production). The Company converts UBCs, scrap and dross into molten metal in
furnaces at facilities owned and/or operated by the Company. While the aluminum
is in molten form, the Company may blend in other metals to prepare a precise
aluminum alloy mixture. The Company then delivers the processed aluminum to
customers in molten form or ingots. The Company recovers magnesium in a similar
process.
With the acquisition of U.S. Zinc Corporation in July 1998 (see "GROWTH OF
BUSINESS" below), the Company believes that it is now the largest recycler of
zinc secondaries in the United States. U.S. Zinc uses furnaces to convert zinc
scrap and dross into various value-added zinc products, such as zinc oxides,
dust and metal.
Most of the Company's processing capacity is utilized to recycle customer-owned
materials, for which the Company charges a fee (a service called "tolling").
During 1999, approximately 61% of the Company's total pounds of metal melted
involved tolling. The balance of the Company's business involves the purchase of
scrap and dross for processing and recycling by the Company for subsequent
resale ("product sales" business). Except where the context otherwise requires,
the term "Company" as used herein refers to IMCO Recycling Inc. and its
subsidiaries.
The Company's business has benefited from the trend to include recycled
materials in finished products, the growth in the production and recycling of
UBCs and the increasing utilization of aluminum in automotive components.
According to The Aluminum Association, over the past 20 years, U.S. production
of recycled aluminum has more than doubled to 7.6 billion pounds from 3.3
billion pounds. In addition, recycled aluminum in the U.S. currently represents
3
<PAGE>
approximately 33% of the total domestic aluminum supply, compared with 22% in
1978. The U.S. is the world's leading consumer of zinc, currently consuming
about one-sixth of the world's production. However, the U.S. is only the fifth
largest producer, and consequently is also the largest importer of refined zinc.
Over the past several years, U.S. zinc recycling has grown at three times the
rate of primary zinc metal production and now accounts for about 40 percent of
domestic zinc supply. Worldwide, about 80% of zinc resources available
for recycling are recovered. This accounts for some 36% of world zinc
supply.
The Company's aluminum customers include some of the world's major aluminum
producers and aluminum fabricators, diecasters, extruders, automotive companies
and other processors. Most of the aluminum metal processed by the Company is
used to produce products for the transportation, packaging and construction
industries, which constitute the three largest aluminum markets. Due to the
increasing use of aluminum in automotive components, much of the Company's
recent growth has been directed toward serving the transportation sector, which
has been the largest and fastest-growing aluminum market in recent years. The
Company's principal aluminum customers include Aluminum Company of America
("Alcoa"), Commonwealth Aluminum Corporation ("Commonwealth"), Kaiser Aluminum
Corporation ("Kaiser"), Ford Motor Company ("Ford"), Ravenswood Aluminum
Corporation ("Ravenswood"), General Motors Corporation ("GM"), Toyota Tsusho
America, Inc., Nelson Metals and Wise Metals Company ("Wise Metals").
The Company's zinc customers include some of the world's major tire and rubber
producers and galvanizers, steel companies and other processors, including
Goodyear Tire & Rubber Co., Michelin Tire, Bethlehem Steel and Dow Agrosciences.
STRATEGY
The Company's strategy is to participate in sectors of the nonferrous metals
recycling industry in which it believes it can provide customers with a
technology-based, value-added service and in which it can develop significant
market share. The Company believes that it has been successful in
differentiating its aluminum recycling services from those of its competitors
through:
. operating technologies that are designed to produce higher metal
recovery yields,
. the strategic location of facilities in close proximity to customers,
providing for both stronger customer ties and greater convenience and
accessibility for its customers,
. the ability to deliver recycled aluminum in molten form for just-in-
time delivery, thereby saving customers the expense of remelting
aluminum ingots, and
. its environmental technologies and practices, including dedicated
disposal facilities and a proprietary process developed by the Company
used to recover aluminum from by-products of the recycling process.
The Company believes that it has been successful in differentiating its zinc
value-added products from those of its competitors through:
. operating technologies that are designed to produce lower cost, higher
quality products,
. the strategic location of facilities in close proximity to
customers, and
. customized packaging that meets customers' specifications.
To achieve its objectives, the Company focuses on internal expansion as well as
growth through strategic acquisitions, vertical integration of its operations
and services, and operational efficiencies through technological innovation.
4
<PAGE>
Expansion. Since 1993, the Company has increased its number of facilities and
- ---------
capacity through acquisitions of existing facilities, construction of new
facilities and expansion of existing facilities. As of March 31, 1993, the
Company owned and operated five recycling plants, which had an aggregate annual
processing capacity of 735 million pounds of aluminum and 50 million pounds of
other metals. As of December 31, 1999, the Company owned and operated 24
recycling and processing plants, which have an aggregate annual melting capacity
of approximately 2.9 billion pounds of aluminum and 290 million pounds of zinc,
for a total annual processing capacity of 3.2 billion pounds.
In February 1999, the Company acquired substantially all the assets of an
aluminum alloying facility in Shelbyville, Tennessee, which has an annual
capacity of 140 million pounds, and a zinc oxide facility in Clarksville,
Tennessee, which has an annual capacity of approximately 40 million pounds.
Additionally, in March 1999, the Company announced plans to construct an
aluminum alloying facility near Saginaw, Michigan to supply molten aluminum to
GM under a new long-term supply agreement. In addition, the Company owns a 50%
interest in an aluminum recycling joint venture in Germany, VAW-IMCO Gu(beta)
and Recycling GmbH ("VAW-IMCO"), which has an annual melting capacity of 480
million pounds, and an aluminum recycling facility in Swansea, Wales, which has
an annual melting capacity of 100 million pounds. The Company expects that
planned expansions will add approximately 200 million pounds of annual
processing capacity during 2000 and 2001. See "GROWTH OF BUSINESS" below.
Expansion of the Company's network of facilities in the U.S. enables the Company
to allocate processing work among its facilities, thereby maximizing utilization
of capacity and absorbing excess demand. The Company intends to continue
expanding its business by targeting growing markets, such as the automotive
market, constructing additional recycling facilities, expanding and improving
its existing facilities and acquiring or partnering with similar recycling
businesses or other metals processors. In addition, the Company plans to
continue seeking foreign sites for its recycling facilities where market
conditions warrant.
Vertical Integration. The Company also seeks business opportunities that combine
- --------------------
its traditional recycling services with downstream processing operations that
more directly serve manufacturers and other end-users. The Company's subsidiary,
Alchem Aluminum, Inc., manufactures and sells specification aluminum alloy
products for automotive equipment manufacturers. The Company's Shelbyville,
Tennessee acquisition in February 1999 expanded the Company's capacity to serve
this market. Further expansion will occur with the construction of the new
aluminum alloying facility near Saginaw, Michigan.
Technological Innovation. The Company's facilities and equipment are continually
- ------------------------
improved and updated through plant modernization programs, including
technological advancements designed to improve operational efficiencies. Between
January 1, 1992 and December 31, 1999, the Company made capital expenditures and
joint venture investments totaling $169 million in new plant and equipment
(excluding acquisitions of existing companies or facilities). These investments
have increased the Company's productivity, market share and total processing
capacity.
5
<PAGE>
Customer Service. The Company is dedicated to maintaining customer satisfaction
- ----------------
and seeks to develop new methods and processes to better serve its customers.
The Company emphasizes a strong commitment to customer service by offering:
. high metal recovery rates,
. high quality of metal recovered,
. more precise specifications for alloyed metals,
. advanced environmental technology and practices,
. facilities conveniently located near its customers, and
. customized packaging.
Through long-term relationships with primary producers and other customers, the
Company maximizes its production capabilities while providing customers with a
reliable source for their product requirements.
Handling of By-Products. Much of the salt cake (a by-product of aluminum
- -----------------------
recycling that is not classified as hazardous) generated by the Company's
operations is brought to a processing facility at the Morgantown, Kentucky plant
site where aluminum is recovered through materials separation technology. After
processing, the salt cake residue is placed in a Company-owned, synthetically
lined landfill that is built to hazardous waste standards. Disposal of salt cake
in this manner helps protect customers from the possibility of a future cleanup
liability. The Company also recycles salt cake with a patented wet-milling
process employed at both its Goodyear, Arizona facility and its Solar Aluminum
Technology Services ("SALTS") joint venture in Wendover, Utah. All other salt
cake generated by the Company's operations and airborne contaminants captured by
environmental equipment are disposed of in permitted landfills. See "THE
RECYCLING/MANUFACTURING PROCESS."
The zinc manufacturing process generates two by-products: zinc oxides and zinc
fines. These are either sold to third parties or melted in another process in
the zinc manufacturing cycle. Thus, there is no significant disposal issue in
the zinc process.
6
<PAGE>
GROWTH OF BUSINESS
Since its inception, the Company has increased its number of facilities and
capacity through acquisitions, construction of new facilities and expansion of
existing facilities. See ITEM 2. "PROPERTIES." Beginning in 1995, this growth
------
strategy was accelerated, as evidenced by the following table:
<TABLE>
<CAPTION>
YEAR ACQUISITION CONSTRUCTION/EXPANSION
- -------- ------------------------------------------- -----------------------------------------
<S> <C> <C>
1995 Formation of VAW-IMCO joint venture (IMCO
owns a 50% interest)
Acquisition of an aluminum recycling
facility in Bedford, Indiana
Acquisition of Metal Mark, Inc. (aluminum
recycling plants in Illinois and Missouri)
1996 Construction of a salt cake processing
facility in Morgantown, Kentucky
Construction of Coldwater, Michigan
aluminum recycling facility
1997 Acquisition of IMSAMET, Inc. (aluminum Construction of Swansea, Wales aluminum
recycling plants in Idaho, Arizona and recycling facility
Utah and a 50% interest in SALTS, a salt
cake processing facility) Expansion of capacity at Sapulpa,
Oklahoma facility
Acquisition of Rock Creek Aluminum, Inc.
(2 Ohio facilities processing aluminum
dross and scrap into aluminum
metallurgical products used in steel
making)
Acquisition of Alchem Aluminum, Inc. (a
Michigan facility producing specification
aluminum alloys for automotive
manufacturers and suppliers)
1998 Acquisition of U.S. Zinc Corporation (5 Expansion of capacity at Grevenbroich,
zinc recycling and value-added zinc Germany facility
products facilities in Texas, Illinois
and Tennessee)
1999 Acquisition of an aluminum alloying Expansion of capacity at Uhrichsville,
facility in Shelbyville, Tennessee and Ohio facility
a zinc oxide production facility in
Clarksville, Tennessee
2000 Construction scheduled to begin on
Saginaw, Michigan aluminum alloying plant
(to serve nearby GM metal casting plant)
scheduled to begin operations in late 2000
Planned expansion of Goodyear, Arizona,
Clarksville, Tennessee and Millington,
Tennessee facilities
</TABLE>
7
<PAGE>
CERTAIN FACTORS
For descriptions of certain factors affecting the Company, including commitments
and contingencies which subject the Company to certain continuing risks, see (i)
"ENVIRONMENTAL MATTERS" below, (ii) ITEM 3. "LEGAL PROCEEDINGS," (iii) ITEM 7.
------ ------
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CAUTIONARY STATEMENT FOR PURPOSES OF FORWARD-LOOKING STATEMENTS" and
(iv) NOTE K--"OPERATIONS" of Notes to Consolidated Financial Statements.
SEGMENT REPORTING
With the acquisition of U.S. Zinc in July 1998, the Company has two business
segments that meet the reporting requirements of Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information." See NOTE L--"SEGMENT INFORMATION" of Notes to Consolidated
Financial Statements. The aluminum segment represents all of the Company's
aluminum melting, processing, alloying, brokering and salt cake activities. In
addition, this segment includes the Company's 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.
PRODUCTS AND SERVICES
Aluminum. The Company recycles aluminum and delivers the recycled metal to
- --------
customers as molten aluminum or ingots. The Company's customers include most of
the major United States aluminum producers and aluminum diecasters, extruders,
automotive companies and other processors of aluminum products. A principal
element of the Company's strategic plan calls for expanding the Company's
activities in the rapidly growing aluminum automotive components market.
The Company's metal alloying plant in Coldwater, Michigan manufactures
specification aluminum alloy products for automotive equipment manufacturers and
their suppliers. The acquisition of the Shelbyville, Tennessee facility and the
new facility near Saginaw, Michigan strengthens the Company's ability to serve
this market.
The Company's Rock Creek and Elyria, Ohio facilities manufacture a variety of
aluminum products that are ultimately used as metallurgical additions in the
steel making process, such as slag conditioners, deoxidizers, steel
desulfurizers and hot topping compounds. These facilities utilize milling,
shredding, blending, testing and packaging equipment to process various types of
raw materials, including aluminum dross and scrap, into aluminum products for
the steel industry. In addition, these facilities manufacture a wide range of
proprietary briquetted products and offer toll briquetting services.
The Company's aluminum business has benefited from the trend to include recycled
materials in finished products, and during its early years, from the growth in
the use and recycling of aluminum beverage containers. The recycling of UBCs in
the United States has increased because of numerous economic, legislative and
environmental factors. According to industry estimates, the number of aluminum
beverage cans produced has increased from 29.3 billion in
8
<PAGE>
1978 to an annual average of approximately 100 billion in each of the past five
years. The number of UBCs recycled increased from 8.0 billion in 1978 to
approximately 64 billion in 1998.
The major force behind increased demand for recycled aluminum in recent years
has been its greater use in auto and truck components, including body
structures. This trend has made the transportation sector the largest and
fastest-growing aluminum market. The total amount of aluminum shipped to the
North American auto market has more than doubled since 1992 to about 4.2 billion
pounds per year.
The average amount of aluminum used per vehicle produced in North America
increased to 248 pounds in 1999, some 50% above the 165 pound average in
1990. Major auto makers estimate that this average will rise to 350 pounds or
more by 2005. Some 65% of the aluminum contained in cars and trucks is
recycled metal, but this percentage is expected to move higher in future years
as more usable scrap becomes available.
The Company also recycles magnesium dross for primary magnesium producers. In
addition, it produces a line of magnesium anodes that are recycled from
post-consumer scrap and sold to end-users and independent distributors for
corrosion protection of steel structures.
Zinc. Zinc is used in diecastings, in brass-making as an alloying metal with
- ----
copper and in chemical compounds to produce rubber, ceramics, paints and
fertilizer. However, its most unique quality is its natural ability to
metallurgically bond with iron and steel and protect these metals from
corrosion. The Company manufactures three main value-added zinc products:
oxides, dust and metal.
Zinc oxide is used predominantly in the tire and rubber industries and by the
- ----------
specialty chemical, motor oil and ceramics industries. The Company produces two
types of zinc dust: extra low lead dust, which is used in the industrial paint
---------
industry, and regular dust, which is used in paints, specialty chemical and
mining applications. Zinc metal recovered by the Company is used to galvanize
----------
steel, and by-products generated in the zinc metal recycling process, called
fines, serve the zinc sulfate industry as fertilizer additives.
The Company's zinc business has benefited from the growth of secondary zinc
refining, which in recent years has increased at three times the rate of primary
zinc production. According to published industry reports, it is estimated that
secondary zinc now accounts for about 36% of the world's refined zinc output,
and it is estimated that the consumption of recycled zinc will account for more
than 40% of total worldwide zinc consumption by 2005.
Foreign Opportunities. The Company continues to evaluate expansion opportunities
- ---------------------
in foreign countries where market conditions warrant. General political and
economic conditions in foreign countries could affect the business prospects and
financial condition of the Company. Foreign operations are generally subject to
risks, including foreign currency exchange rate fluctuations, environmental
regulations, changes in the methods and amounts of taxation, foreign exchange
controls and government restrictions on the repatriation of hard currency.
9
<PAGE>
SALES AND LONG-TERM CONTRACTS
Aluminum-General. The Company's principal aluminum customers (see "GENERAL"
- ----------------
above) use recycled aluminum to produce can sheet, building, automotive and
other products. The Company provides products and services to a number of
primary and fabricating facilities of Alcoa. During 1999, 1998 and 1997, Alcoa
accounted for approximately 7%, 7% and 9%, respectively, of the Company's
consolidated revenues, and Ford and its affiliates accounted for approximately
8%, 10% and 2% of the Company's consolidated revenues in 1999, 1998 and 1997,
respectively. The Company does not have any long-term commitments with Ford. The
loss of Alcoa or Ford as customers would have a material adverse effect upon the
business of the Company and its future operating results.
Customarily, agreements with customers in the aluminum recycling industry have
been short-term. These usually result from a bidding process where aluminum
producers and metal traders offer to sell materials or to have materials tolled.
Consequently, the Company historically has maintained no significant backlog of
orders.
Aluminum-Long-Term Contracts. The Company has secured long-term commitments for
- ----------------------------
its recycling services with Alcoa, Commonwealth, Aluminum Norf GmbH ("AluNorf"),
Kaiser, Wise Metals, PBR Automotive USA LLC ("PBR"), Ravenswood, Reynolds Metals
Company ("Reynolds") and GM. For the year ended December 31, 1999 the Company
melted 1.3 billion pounds of aluminum pursuant to multi-year contracts with its
customers, which represented approximately 45% of the Company's total 1999
aluminum melting volume. The following table describes these multi-year
contracts. See ITEM 2. "PROPERTIES--RECYCLING AND PROCESSING FACILITIES" for
------
more information about these contracts.
10
<PAGE>
<TABLE>
<CAPTION>
IMCO LENGTH OF TERMINATION TYPE OF
CUSTOMER PLANT(S) CONTRACT DATE CONTRACT
- ----------------- --------------- ----------------------- -------------------- ----------------------
<S> <C> <C> <C> <C>
Alcoa - Tennessee Rockwood, 3 years with automatic December 2002 Secondary aluminum
Tennessee and 2-year renewals processing
Loudon,
Tennessee
Alcoa - Wales Swansea, Wales 5 year primary term December 2002 Secondary aluminum
with automatic 3-year processing
extensions
AluNorf VAW-IMCO 5 years December 2003 22,000 metric tons of
(German dross processing per
plants) year
Wise Metals Morgantown, 5 1/2 years January 2003 10 million pounds of
Kentucky aluminum per month
Commonwealth Uhrichsville, 10 years April 2009 Process all of
Ohio Commonwealth's
Uhrichsville plant
scrap, UBCs and
dross
Kaiser Post Falls, 4 years September 2001 Toll molten and
Idaho ingot aluminum
PBR Loudon, 5 years January 2003 Secondary aluminum
Tennessee processing
Ravenswood Uhrichsville, 5 years September 2000 Secondary aluminum
Ohio processing
Reynolds Coldwater, Volume dependent Volume dependent Specialty alloy
Michigan, processing
Bedford,
Indiana and
Shelbyville
and Loudon,
Tennessee
General Motors Saginaw, 12 years December 2011 Provide alloyed
Michigan molten and ingot
(plant under aluminum to GM's
construction) metal casting facility
</TABLE>
Many of these agreements contain cross-indemnity provisions, including
provisions obligating the Company to indemnify the customer for certain
environmental liabilities that the customer may incur in connection with the
transactions contemplated by the agreements.
11
<PAGE>
The Company may seek similar dedicated long-term arrangements with customers in
the future. Increased emphasis on dedicated facilities and dedicated contracts
with customers carries the inherent risk of increased dependence on a single or
few customers with respect to a particular Company facility. In such cases, the
loss of such a customer could have a material adverse effect on the Company's
financial condition and results of operation, and any timely replacement of
volumes attributable to such a customer could prove difficult.
Zinc. The Company's principal zinc customers use zinc to make tires and other
- ----
rubber products, industrial paints, fertilizers, specialty chemicals, motor oil
and ceramics. Zinc products are also used in the mining and steel galvanizing
industries. Most of the Company's zinc products are sold directly to end-users.
No single zinc customer accounted for more than 10% of the Company's
consolidated revenues in 1999. Most of the Company's contracts with zinc
customers are for a term of one year or less. The Company historically has
maintained no significant backlog of orders for zinc products.
General. The primary metals industry and the metals recycling industry are
- -------
subject to cyclical fluctuations, depending upon the availability and price of
unprocessed scrap metal and the level of demand in the metal consuming
industries. Temporary reductions in can stock production by aluminum customers
have adversely affected the Company's results of operations from time to time,
and no assurances can be given that such conditions will not recur. See ITEM 7.
------
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
The Company sells to both domestic and international customers. Sales to
customers in foreign locations accounted for approximately 14% and 13% of
consolidated revenues in 1999 and 1998 respectively, and aluminum shipments to
customers located in Canada accounted for approximately 8% and 9% of
consolidated revenues for 1999 and 1998, respectively. Foreign sales in 1997
were immaterial (less than 3%). See ITEM 7. "MANAGEMENT'S DISCUSSION AND
------
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CAUTIONARY STATEMENT
FOR PURPOSES OF FORWARD-LOOKING STATEMENTS" and "NOTE L -- SEGMENT INFORMATION"
of Notes to Consolidated Financial Statements.
THE RECYCLING/MANUFACTURING PROCESS
Aluminum. The Company uses two types of furnace technology, rotary and
- --------
reverberatory. Rotary or barrel-like furnaces are able to pour a batch of melted
aluminum from dross and then immediately switch to other types of scrap; they
provide high recovery and excellent product quality. Reverberatory furnaces are
stationary and use both radiation and convection heating to melt the material
being processed. Reverberatory furnaces provide better recovery from shredded
material than a rotary furnace and can take advantage of the heat energy
contained in delacquered shreds.
After the aluminum is melted, the recovered metal is poured directly into an
ingot mold or hot metal crucible for delivery to customers. Magnesium is
recycled by the same method in a rotary furnace at the Sapulpa, Oklahoma plant.
Some of the Company's plants deliver molten aluminum in crucibles directly to
their customers' manufacturing facilities. As of December 31, 1999, the Company
had the capacity to provide approximately 74% of its processed aluminum in
molten form. The molten aluminum is poured directly into the customer's furnace,
saving the
12
<PAGE>
customer the time and expense of remelting aluminum ingots. The Company normally
charges an additional fee for transportation and handling of molten aluminum.
The Sapulpa, Oklahoma, Goodyear, Arizona, Wendover, Utah, Chicago Heights,
Illinois and Sikeston, Missouri facilities are restricted to delivering aluminum
in ingot form, due to the geographical locations of their customers. See ITEM 2.
------
"PROPERTIES."
Alloying. At the Company's metal alloying facilities in Coldwater, Michigan, and
- --------
Shelbyville, Tennessee, additional materials are blended with molten aluminum to
produce a metal alloy. The alloyed aluminum is shipped in either molten or ingot
form to its customers. The Coldwater, Michigan alloying facility generates
dross, which is recycled at the Company's adjacent aluminum recycling plant.
By-products. The aluminum recycling process from the Company's rotary furnaces
- -----------
produces a by-product called "salt cake," which is formed from the contaminants
and coatings on aluminum scrap and dross and the salts added during the aluminum
recycling process. Salt cake is composed of salts, metallic aluminum, aluminum
oxide and small amounts of other materials. The by-product of processing
materials through the reverberatory furnaces is dross, which is then sent to the
Company's rotary furnaces for processing.
The Company disposes of its salt cake and certain airborne contaminants
("baghouse dust") in landfills that are used exclusively by the Company or that
are permitted specifically to handle the types of materials generated by the
Company. Salt cake is not listed as a "hazardous waste" under the Resource
Conservation and Recovery Act of 1976 ("RCRA") or as a "hazardous substance"
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980 ("CERCLA"). The Company built and operates a lined landfill at its
Morgantown, Kentucky facility, the design of which exceeds current requirements
for disposal of salt cake and meets RCRA Subchapter "C" hazardous waste
standards.
In 1996, the Company completed the construction of a facility adjacent to its
Morgantown, Kentucky plant to further process salt cake through the use of a
patented materials separation process, and extract additional aluminum that is
left after the melting process. The facility's process involves crushing the
salt cake and separating the aluminum out of the salt cake. The residual product
is then landfilled in the Company's Morgantown, Kentucky landfill. See
"ENVIRONMENTAL MATTERS."
Certain of the Company's facilities also recycle salt cake and other by-products
from the aluminum recycling process. The Goodyear, Arizona facility processes
aluminum scrap and turnings and recycles concentrates from purchased dross and
salt cake. These concentrates are first treated in the facility's patented wet
milling process, which reduces the volume of material handled, thus allowing for
more efficient utilization of capacity. Aluminum oxide, a by-product of the wet
milling process, is treated further and sold for use in the production of
cement.
Located near the Bonneville Salt Flats, the Company's Wendover, Utah facility
processes aluminum concentrates from the adjacent 50%-owned SALTS joint venture
and produces aluminum ingots. The SALTS facility recycles salt cake from the
Company's Post Falls, Idaho and Wendover, Utah plants into aluminum
concentrates, aluminum oxide and salt brine. The clear brine is delivered to the
venture's partner, where its chemical content is recycled for multiple uses,
including reuse as a flux.
13
<PAGE>
Zinc. Zinc oxide is produced by melting top dross, a low iron-content zinc
- ---- ----------
by-product of continuous galvanizing, and re-melt die cast, a high zinc-content
alloy, in a sweat or premelt furnace. The sweat furnace separates the zinc from
other metals contained in the raw material. The molten zinc is then transferred
to a muffle furnace, which uses radiant heat to transform the molten zinc into a
vapor. The vaporized zinc is sent to a vapor chamber where, upon contact with
air, it condenses to zinc oxide. The final manufacturing step is to send the
completed product through a vertical cooler to a bag collector where the zinc
oxide is collected and custom packaged for shipment.
Zinc Dust. The Company manufactures two types of zinc dust: extra low lead and
- ---------
regular. Zinc dust with extra low lead content, which is preferred by the
domestic industrial paint industry, is produced by converting primary zinc into
a molten form using an electro thermal furnace. The Company manufactures regular
zinc dust by melting bottom dross, an iron-bearing zinc residue, created during
the galvanizing process, and re-melt die cast in a pot or ladle. Next, the
molten zinc is fed into a zinc dust retort furnace where the molten metal is
vaporized and condensed into raw zinc dust. Finally, the raw zinc dust is
processed in a dust mill, where it is screened, sent through a ball mill and
then packaged into custom-sized containers.
Zinc metal at the Houston, Texas facility is produced by placing pieces of
- ----------
oxidized zinc-bearing metals (skimmings) into a ball mill, where the Company
separates the oxidic zinc (zinc fines), which are sold as fertilizer additives.
After the ball mill process, the metallic zinc-bearing material is melted in an
electric induction furnace and is then transferred to a holding furnace for
additional refining. Finally, the molten zinc is poured into molds and shipped
to galvanizers.
In the Company's Coldwater, Michigan zinc recycling process, continuous
galvanizers' top dross is first melted in an electric induction furnace and then
transferred to a reactor which removes the impurities (iron and zinc oxide,
which are sold as by-products). The remaining molten zinc is poured into a
reverberatory holding furnace from which it is blended and cast into ingots,
which are returned to the customer.
OPERATIONS
Aluminum. In its aluminum tolling operations, the Company accepts UBCs; dross
- --------
and scrap owned by its customers and processes this material for a tolling
charge per pound of incoming weight. In order to retain control of their metal
supplies, customers have often desired to toll, rather than sell, their scrap
materials. Tolling requires no metal inventory to be purchased or held by the
Company. In addition, tolling limits the Company's exposure to the risk of
fluctuating metal prices since the Company does not own the material being
processed. For the year ended December 31, 1999, approximately 66% of the
Company's total pounds of aluminum processed involved tolling. Unlike tolling
transactions, product sales transactions increase the Company's exposure to the
risk of fluctuating metal prices and working capital requirements. See ITEM 7.
------
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" and ITEM 7A. "QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
-------
RISK."
Zinc. The Company's zinc operations primarily consist of product sales
- ----
transactions. The Company's product sales from zinc operations represent
approximately 95% of its total zinc production.
14
<PAGE>
General. The Company's production network of plants have generally achieved high
- -------
overall operating rates due to strong demand for the Company's services and
products and due to the strategic location of many of the Company's plants near
major customers' production facilities. Expansion of the Company's network of
facilities in the U.S. has enabled the Company to allocate processing work among
its facilities, thereby maximizing utilization of available capacity and taking
advantage of excess demand.
The Company believes that its advanced scrap preparation equipment and recycling
technologies have also increased the demand for its services by producing higher
recovery rates and better quality recycled aluminum and zinc products than many
of its competitors.
The Company constantly seeks improvements in operational efficiencies at its
existing plants and at its acquired facilities through technological
advancements, automation of its operational procedures, and modifications in
processing and material throughput methods.
In addition to its increased emphasis on the product sales business, the Company
has also entered into an increasing amount of metal brokerage transactions
pursuant to which the Company buys metal from primary and other producers and
then sells the metal to end users. These transactions involve buying and selling
metal without ever processing it. Additionally, in order to facilitate acquiring
metal for its production process, the Company occasionally enters into metal
"swap" transactions whereby the Company agrees to exchange its recycled finished
goods for scrap raw materials.
When purchasing metals in the open market for its product sales business, the
Company attempts to reduce the risk of fluctuating metal prices by hedging
anticipated sales of aluminum and zinc and by avoiding large inventories, except
to the extent necessary to allow its plants to operate without interruption. See
ITEM 7A. "QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK."
- -------
COMPETITION
General. The aluminum and zinc recycling industries are fragmented and highly
- -------
competitive. The Company believes that its position as the largest U.S.
recycler of secondary aluminum and zinc is a positive competitive factor.
Aluminum. The principal factors of competition in the aluminum segment are
- --------
price, recovery rates, environmental and safety regulatory compliance, and
services (e.g., the ability to deliver molten aluminum). Freight costs also
limit the geographic areas in which the Company can compete effectively.
The major aluminum producers, some of which are the Company's largest customers,
have generally discontinued processing dross, instead focusing their resources
on other aspects of aluminum production. UBCs and other scrap are processed by
both the secondary recycling industry and the major producers. The Company
competes both with other secondary recyclers and their customers when purchasing
and processing scrap for the product sales business.
The amount of the Company's aluminum tolling business can vary depending upon
the extent that the major aluminum producers' used metal materials are
internally recycled. The aluminum producers generally vary their rate of
internal recycling depending upon furnace availability,
15
<PAGE>
inventory levels, the price of aluminum and their own internal demand for metal.
The major aluminum producers are larger and have greater financial resources
than the Company. A decision by these producers to expand their recycling
operations could reduce demand for certain of the Company's products and
services.
Zinc. The principal factors of competition in the zinc segment are price,
- ----
customer service and delivery schedules. Competition is generally regionally
focused due to high freight costs.
For zinc oxide, the Company's major competitors are Zinc Corporation of America,
a subsidiary of Horsehead Industries, Inc. and Zochem, a subsidiary of Hudson
Bay Mining & Smelting, Ltd. The Company believes its strong customer
relationships, low cost production capabilities and geographic coverage allow it
to compete effectively in the zinc oxide market.
For zinc dust, the Company's major competitors are Purity Zinc Metals Company,
Ltd. and Meadowbrook Company, a subsidiary of T.L. Diamond Company, Inc. The
Company's Houston, Texas facility is believed to be the largest zinc dust
facility in the world, based on volume.
For zinc metal, the Company considers primary and secondary zinc producers to be
competitors. However, the Company believes that only a minimal threat exists
from galvanizers recycling their own by-products, since relatively large capital
expenditures, technology costs and internally generated raw material volume
represent effective barriers to entry into this market.
SOURCE AND AVAILABILITY OF RAW MATERIALS AND ENERGY
Aluminum. The Company does not anticipate having difficulties in obtaining raw
- --------
materials for its aluminum operations. However, over the last several years
certain locations have experienced from time to time sporadic availability of
can sheet and related materials. In the case of product sales business, the
primary sources of aluminum and magnesium for recycling and alloying are dross
and scrap, which are purchased from both the major aluminum producers and metal
traders. Many of the Company's aluminum suppliers are also customers of the
Company.
Zinc. As the largest worldwide purchaser of zinc-bearing secondaries, the
- ----
Company provides its customers an outlet to sell the by-products of their
manufacturing processes. A significant portion of the Company's zinc products is
produced from secondary materials provided by the galvanizing and scrap metals
industries. Secondary zinc-bearing materials consist of top dross generated by
continuous galvanizers, bottom dross and skimmings generated by "hot dip"
galvanizers, and die cast scrap generated by scrap dealers or remelters. The
Company purchases approximately 100,000 tons of these materials each year. The
Company also purchases primary zinc to produce high-grade zinc oxide at its
Hillsboro, Illinois facility and for metals brokerage purposes.
The Company purchases zinc raw materials from numerous suppliers. Many of the
"hot dip" galvanizers, which supply approximately 40% of the aggregate zinc raw
materials, are also customers of the Company. This supplier-customer
relationship is beneficial since the Company competes with other zinc recyclers
for raw materials. The Company's zinc brokerage unit also procures raw materials
for use in the Company's zinc manufacturing operations. The availability of zinc
dross is dependent upon the demand for galvanized steel, which has historically
16
<PAGE>
paralleled fluctuations in customer demand in the automotive, appliance and
construction industries.
General. The Company's operations are fueled by natural gas, which represents
- -------
the second largest component of operating costs. In an effort to acquire the
most favorable natural gas costs, the Company has secured some of its natural
gas at fixed price commitments for its requirements. Occasionally, when deemed
necessary, the Company purchases its natural gas on a spot-market basis. Most of
the Company's long-term supply contracts with its customers contain provisions
to reflect fluctuations in natural gas prices. See ITEM 7A. "QUANTITATIVE AND
-------
QUALITATIVE DISCLOSURES ABOUT MARKET RISK." The Company believes it will
continue to have access to adequate energy supplies to meet its needs for the
foreseeable future.
SEASONALITY
Aluminum. UBC collections have historically been highest in the summer months
- --------
and lowest in the winter months. Therefore, the Company has, at times,
experienced lower volumes at certain facilities during the winter. In recent
years, however, the Company's total processing volumes have fluctuated mostly
due to the startup of additional capacity rather than the seasonality of UBC
collections.
A portion of the Company's business that serves the automotive industry has
historically experienced a decline in molten metal deliveries during periods
when its automotive customers stop production to perform new model changeovers
and during the holidays in December.
Zinc. Historically, demand for the Company's zinc products used in the painting
- ----
industry is somewhat lower in the winter months, while demand for zinc products
used in fertilizers is lower in the summer months.
TRANSPORTATION
The Company receives incoming metal by rail and truck. Most of the Company's
plants own their own rail siding or have access to rail lines nearby. The
Company owns and leases various trucks and trailers to support its business.
Customarily, the transportation costs of scrap materials to be tolled are paid
by the Company's customers, while the transportation costs of metal purchased
and sold by the Company may be paid by either customers or the Company. The
Company contracts with third-party transportation firms for hauling some of its
solid waste for disposal.
17
<PAGE>
EMPLOYEES
As of January 31, 2000, the Company had 1,960 employees, consisting of 485
employees engaged in administrative and supervisory activities and 1,475
employees engaged in production and maintenance. Labor relations with employees
have been satisfactory. The production and maintenance employees at the
following Company facilities are represented by the collective bargaining groups
set forth below:
<TABLE>
<CAPTION>
CONTRACT
FACILITY REPRESENTATIVE EXPIRES
- -------------- ----------------------------------------------- -------------
<S> <C> <C>
Bedford, IN International Brotherhood of Electrical Workers April 2000
Rockwood, TN United Steelworkers of America August 2000
Hillsboro, IL Laborer's International Union of North America August 2000
Uhrichsville, OH United Mine Workers of America December 2001
Chicago, IL United Auto Workers June 2002
</TABLE>
ENVIRONMENTAL MATTERS
General. The Company's operations, like those of other basic industries, are
- -------
subject to federal, state, local and foreign laws, regulations and ordinances.
These laws and regulations (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 up, and certain damages resulting from past
spills, disposals or other releases of hazardous substances. It can be
anticipated that more rigorous environmental laws will be enacted that could
require the Company to make substantial expenditures in addition to those
described in this Form 10-K, including future regulations which are expected to
impose stricter emission requirements on the aluminum industry. While the
Company believes that current pollution control measures at most of the emission
sources at its facilities will meet these anticipated future requirements,
additional measures at some of the Company's facilities may be required.
The Company's operations may generate certain discharges and emissions,
including in some cases off-site dust and odors, which are subject to the
Federal Clean Air Act and other environmental laws. From time to time,
operations of the Company have resulted or may result in certain noncompliance
with applicable requirements under environmental laws. The Company may also
incur liabilities for off-site disposals of salt cake and other materials. In
addition, historical or current operations at, or in the vicinity of, the
Company's facilities, may have resulted in soil or groundwater contamination.
However, based on environmental investigations conducted by the Company and its
consultants and certain indemnities associated with the Company's acquisitions,
the Company believes that any such noncompliance or liability under current
environmental laws would not have a material adverse effect on the Company's
financial position. See ITEM 3. "LEGAL PROCEEDINGS."
------
Due to relatively high costs and limited coverage, the Company does not carry
environmental impairment liability insurance. The Company made capital
expenditures for environmental control facilities of approximately $5,309,000 in
1999, most of which was for air pollution control equipment and landfill
capacity additions. Environmental expenditures for 2000 and
18
<PAGE>
2001, which primarily relate to the Company's landfills and air pollution
control equipment, are currently estimated to be approximately $3,480,000 and
$5,000,000, respectively.
Aluminum. The processing of UBCs, dross and scrap generates solid waste in the
- --------
form of salt cake and baghouse dust. Currently, such material is either disposed
of at off-site landfills or at the Company's permitted Sapulpa, Oklahoma and
Morgantown, Kentucky disposal sites. For example, the Rockwood and Loudon,
Tennessee, Bedford, Indiana and Sikeston, Missouri plants currently dispose of
the majority of their solid waste by transporting it to the Morgantown, Kentucky
plant, where the Company operates a salt cake processing facility which prepares
salt cake for landfilling. See ITEM 2. "PROPERTIES--SOLID WASTE DISPOSAL." At
------
the Uhrichsville, Ohio plant, under the Company's supply agreement with
Commonwealth, the disposal of all salt cake generated by the Company as a result
of its processing for Commonwealth is the responsibility of Commonwealth. Salt
cake from all other material processed at the Uhrichsville, Ohio plant is either
shipped to the Morgantown, Kentucky plant for disposal or landfilled with a
local solid waste management firm. The Goodyear, Arizona facility recycles its
own salt cake and sells the by-products to third parties, and the Sapulpa,
Oklahoma, Wendover, Utah and Post Falls, Idaho facilities ship their salt cake
to the 50%-owned SALTS joint venture for further processing. See "THE
RECYCLING/MANUFACTURING PROCESS."
If salt cake were ever classified as a hazardous waste or substance under RCRA
or CERCLA, the Company's handling and disposal of salt cake would be required to
be modified. To dispose of its salt cake, the Company may then be required to
take other actions including obtaining a RCRA Subchapter "C" permit for its
Morgantown, Kentucky landfill, obtaining other permits (including transportation
permits), and landfilling additional amounts of salt cake with third parties not
under the Company's direct control. Based on current annual processing volumes,
planned utilization rates and remaining landfill capacity, the estimated
remaining life of the landfill at the Sapulpa, Oklahoma plant is four years. The
Company has constructed a second landfill cell at its Morgantown, Kentucky
plant, which was expanded in 1998, and estimates its remaining useful life to be
approximately four years. A planned second expansion is expected to provide an
additional seven years of useful life. Landfill closure costs for the
Company-owned landfills are currently estimated to be approximately $9,000,000.
The Company is currently providing for this expenditure by accruing, on a
current basis, these estimated costs as the landfills are used. See ITEM 2.
-------
"PROPERTIES."
Zinc. Several of the zinc manufacturing processes create various by-products
- ----
which are either sold to downstream processors or re-used internally. Because
there are virtually no remaining by-products requiring disposal, the zinc
manufacturing process is essentially a "closed loop" process.
19
<PAGE>
ITEM 2. PROPERTIES
- -------
RECYCLING AND PROCESSING FACILITIES
During 1999, the Company owned and/or operated the following facilities as
described below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Estimated Estimated
Number Melting Processing Molten
Owned of Capacity Capacity Year Year Materials Delivery
Plant Acreage Furnaces (million lbs) (million lbs) Built Acquired Processed Capability
- --------------------------------------------------------------------------------------------------------------------
ALUMINUM SEGMENT:
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sapulpa, OK 64 7 210 -- 1962 -- Alum/Mag No
- --------------------------------------------------------------------------------------------------------------------
Rockwood, TN 238 6 220 -- 1985 -- Alum Yes
- --------------------------------------------------------------------------------------------------------------------
Morgantown, KY 552 (a) 7 360 -- 1989 -- Alum Yes
- --------------------------------------------------------------------------------------------------------------------
Uhrichsville, OH (g) 42 10 530 -- 1992 -- Alum Yes
- --------------------------------------------------------------------------------------------------------------------
Loudon, TN 173 4 220 -- -- 1994 Alum Yes
- --------------------------------------------------------------------------------------------------------------------
Bedford, IN 19 4 210 -- -- 1995 Alum Yes
- --------------------------------------------------------------------------------------------------------------------
Chicago Hts., IL 9 2 100 -- -- 1995 Alum No
- --------------------------------------------------------------------------------------------------------------------
Sikeston, MO 31 2 60 -- -- 1995 Alum No
- --------------------------------------------------------------------------------------------------------------------
Morgantown, KY (a) (b) (b) 400 1996 -- Salt Cake (b)
- --------------------------------------------------------------------------------------------------------------------
Post Falls, ID 49 4 280 -- -- 1997 Alum Yes
- --------------------------------------------------------------------------------------------------------------------
Goodyear, AZ 40 (c) 4 70 (d) 168 -- 1997 Al/Salt Cake No
- --------------------------------------------------------------------------------------------------------------------
Wendover, UT 160 (c) 2 70 -- -- 1997 Alum No
- --------------------------------------------------------------------------------------------------------------------
Elyria, OH 12 (e) (e) 50 -- 1997 Alum (e)
- --------------------------------------------------------------------------------------------------------------------
Rock Creek, OH 11 (e) (e) 100 -- 1997 Alum (e)
- --------------------------------------------------------------------------------------------------------------------
Coldwater, MI 75 3 180 -- 1997 -- Alum Yes
- --------------------------------------------------------------------------------------------------------------------
Swansea, Wales 5 (c) 2 100 -- 1997 -- Alum Yes
- --------------------------------------------------------------------------------------------------------------------
Coldwater, MI (alloys) 47 3 200 -- -- 1997 Alum Yes
- --------------------------------------------------------------------------------------------------------------------
Shelbyville, TN 46 2 140 -- -- 1999 Alum No
- --------------------------------------------------------------------------------------------------------------------
TOTAL ALUM. 2,950 718
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
ZINC SEGMENT:
- --------------------------------------------------------------------------------------------------------------------
Coldwater, MI 27 2 40 -- -- 1992 Zinc Metal No
- --------------------------------------------------------------------------------------------------------------------
Houston, TX 4 22 50 -- -- 1998 Zinc Dust No
- --------------------------------------------------------------------------------------------------------------------
Houston, TX 7 1 20 -- -- 1998 Zinc Metal No
- --------------------------------------------------------------------------------------------------------------------
Chicago, IL 2 6 40 -- -- 1998 Zinc Oxide No
- --------------------------------------------------------------------------------------------------------------------
Hillsboro, TN 5 3 50 -- -- 1998 Zinc Oxide No
- --------------------------------------------------------------------------------------------------------------------
Millington, TN 17 3 50 -- -- 1998 Zinc Oxide No
- --------------------------------------------------------------------------------------------------------------------
Clarksville, TN 15 3 40 -- -- 1999 Zinc Oxide No
- --------------------------------------------------------------------------------------------------------------------
TOTAL ZINC 290 --
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Consolidated Capacity 3,240 718
- --------------------------------------------------------------------------------------------------------------------
50% Owned Facilities (Aluminum):
- --------------------------------------------------------------------------------------------------------------------
VAW-IMCO, Germany 29 13 480 (f) -- -- 1996 Alum Yes
- --------------------------------------------------------------------------------------------------------------------
SALTS, Wendover, UT 40 (b) (b) 168 -- 1997 Salt Cake (b)
- --------------------------------------------------------------------------------------------------------------------
TOTAL CAPACITY 3,720 886
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
NOTES:
- -----
(a) The acreage in Morgantown, Kentucky includes both the aluminum and salt
cake processing facilities as well as landfill cells.
(b) These facilities process salt cake only.
(c) This acreage is leased.
(d) Represents 100% of the capacity of this facility--the facility is 70% owned
by the Company.
(e) These facilities process aluminum products for use in the steel industry.
(f) Represents 100% of the capacity of the two VAW-IMCO facilities located in
Grevenbroich and Toging, Germany.
(g) Subject to option and right of first refusal as described below.
The average operating rates for all of the Company's facilities for 1999, 1998
and 1997 were 96%, 97% and 95%, respectively, of stated capacity. See ITEM 7.
------
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
In 1996, the Company began its 50% participation in its VAW-IMCO joint venture
in Germany. The joint venture owns and operates two recycling and foundry alloy
facilities located at Grevenbroich and Toging, Germany. Aggregate annual melting
capacity for these two plants is approximately 480 million pounds.
The Company also has five zinc brokerage offices located in California, Texas,
Pennsylvania, Canada and Germany.
Under the Company's new Supply Agreement with Commonwealth dated April 1, 1999,
the Company granted Commonwealth an option to purchase the Uhrichsville, Ohio
facility, exercisable 90 days before the end of the ninth contract year under
the contract (presently, between January 1 and March 30, 2008). In the event of
a "change of control" of the Company (as defined in the Supply Agreement), the
exercise date of this option would be accelerated to a date before the change of
control event. The exercise price is based on varying multiples of EBITDA for
the facility (five times EBITDA in the case of a non-change of control
exercise). In addition, the Company granted Commonwealth a right of first
refusal in the event the Company desires to sell the facility in a non-change of
control situation. In the event of a "change of control" of Commonwealth, then
Commonwealth's option and right of first refusal would automatically terminate.
These potential purchase prices may be above or below the fair value of the
Uhrichsville, Ohio plant. Should Commonwealth exercise these rights, there can
be no assurance that the production or earnings attributable to the
Uhrichsville, Ohio facility could be replaced, and the Company's cash flows and
net earnings could be adversely affected.
21
<PAGE>
SOLID WASTE DISPOSAL
The Company completed a new landfill cell adjacent to its plant in Morgantown,
Kentucky in 1996. All of the waste generated from the salt cake processing
facility at the Morgantown site is deposited in this landfill. Management
anticipates that this new landfill cell, which was expanded during 1998 and is
designed to be expanded again, will serve the Company's landfilling needs for
the majority of the salt cake generated by facilities currently owned by the
Company in the Eastern United States for the next 11 years, based on current
utilization. The Company also owns a landfill at its Sapulpa, Oklahoma plant,
which is estimated to have four years' useful life remaining, based on planned
utilization. The Goodyear, Arizona facility recycles its own salt cake and sells
the by-products to third parties, and the Sapulpa, Oklahoma, Wendover, Utah and
Post Falls, Idaho facilities ship their salt cake to the 50%-owned SALTS joint
venture for further processing. See ITEM 1. "BUSINESS--ENVIRONMENTAL MATTERS."
-------
ADMINISTRATIVE
In Irving, Texas, the Company leases approximately 39,866 square feet of office
space for certain of its executive, financial and management functions. This
lease expires in January 2007. In Houston, Texas, the Company owns approximately
30,000 square feet of office space for certain of its financial and management
functions for its zinc operations.
The Company believes that its plants and equipment are maintained in good
operating condition. Properties and improvements at the Company's Rockwood and
Loudon, Tennessee, Sapulpa, Oklahoma, Morgantown, Kentucky, Bedford, Indiana,
Chicago Heights, Illinois and Post Falls, Idaho plants are mortgaged to secure
senior indebtedness. See ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
-------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--LIQUIDITY AND CAPITAL RESOURCES"
and NOTE F--"LONG-TERM DEBT AND EXTRAORDINARY LOSS ON EARLY DEBT RETIREMENT" of
Notes to Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
- -------
In 1997, the Illinois Environmental Protection Agency ("IEPA") 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 have not yet been
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 liability at this site will
have a material adverse effect on its financial position or its results of
operations.
The Company is also a party from time to time to what it believes are routine
litigation and proceedings considered part of the ordinary course of its
business. The Company believes that the outcome of such proceedings would not
have a material adverse effect on the Company's financial position or results of
operations.
22
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------
No matters were submitted to a vote of security holders of the Company during
the quarter ended December 31, 1999.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
- --------
The executive officers of the Company are listed below, together with brief
accounts of their experience and certain other information. Executive officers
are appointed by the Board of Directors.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Don V. Ingram 64 Chairman of the Board and Chief Executive Officer
Richard L. Kerr 57 President and Chief Operating Officer
Paul V. Dufour 60 Executive Vice President, Chief Financial Officer
Denis W. Ray 51 Executive Vice President, Domestic Aluminum
Operations
Thomas W. Rogers 53 Senior Vice President, Sales and Marketing,
Aluminum Recycling Division
C. Lee Newton 56 Senior Vice President, Technology, Engineering and
Environmental
Robert R. Holian 47 Senior Vice President, Controller and Chief
Accounting Officer
James B. Walburg 46 Senior Vice President, Finance and Administration
and Treasurer
M. Russ Robinson 42 President, U.S. Zinc Corporation
</TABLE>
Don V. Ingram has served as a director of the Company since 1988 and as Chairman
of the Board since 1994. He was elected Chief Executive Officer of the Company
in February 1997. Mr. Ingram played a major role in the formation of the Company
in 1986.
Richard L. Kerr was elected President of the Company in February 1997.
Previously, he served as Executive Vice President and has been Chief Operating
Officer since 1991. In 1994, he became President of the Company's Metals
Division. Mr. Kerr joined International Metal Co., a predecessor of the Company,
in April 1984.
23
<PAGE>
Paul V. Dufour has served as Vice President, Chief Financial Officer and
Secretary of the Company since March 1987. He was promoted to Senior Vice
President in May 1988 and to Executive Vice President in October 1994.
Denis W. Ray has served as Senior Vice President of the Company since March
1998. He was promoted to Executive Vice President in July 1999. Previously, Mr.
Ray served as President of Reynolds Architectural Products at Reynolds Metals
Company from 1997 to 1998, President of Reynolds (Europe) Ltd. in Switzerland
from 1995 to 1997 and Vice President, Operations of Reynolds (Europe) Ltd. from
1994 to 1995. Prior to his employment with Reynolds Metals Company and its
affiliates, Mr. Ray was employed by Alcoa in various capacities for 24 years.
Thomas W. Rogers has served as Senior Vice President of Sales and Marketing
since July 1988. Mr. Rogers was employed as Plant Manager of the Sapulpa,
Oklahoma plant in October 1986.
C. Lee Newton has served as Senior Vice President of the Company since 1993. Mr.
Newton was named Vice President in 1990 and was the General Manager of the
Morgantown, Kentucky plant from 1989 to 1993. He was originally employed by the
Company as Plant Manager of its Rockwood, Tennessee plant in 1987.
Robert R. Holian has served as Vice President and Controller since 1994. He
joined the Company in 1990 and was named Controller in 1992. He was promoted to
Senior Vice President and Chief Accounting Officer in 1999.
James B. Walburg has served as Vice President and Treasurer of the Company since
September 1994. He was promoted to Senior Vice President, Finance and
Administration in 1999. Prior to this, Mr. Walburg was employed by NTS, Inc., a
transportation service company headquartered in Ft. Worth, Texas, as Vice
President, Client Service and Operations and previously as Vice President,
Finance.
M. Russ Robinson has served as President, U.S. Zinc Corporation since May 1999.
Previously, Mr. Robinson served as President and Chief Executive Officer of U.S.
Zinc, which was acquired by the Company in 1998.
24
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- -------
The Company's Common Stock trades on the New York Stock Exchange (trading
symbol: IMR). The following table sets forth, for the fiscal quarters indicated,
the high and low sales prices for the Company's Common Stock, as reported on the
New York Stock Exchange composite tape from January 1, 1998 through December 31,
1999, and the dividends declared per share during the periods indicated.
<TABLE>
<CAPTION>
CALENDAR PRICE RANGE DIVIDENDS
------------------------
YEAR HIGH LOW DECLARED
- --------------------- -------- --------- ----------
<S> <C> <C> <C>
1998
- ----
FIRST QUARTER $ 18 1/2 $ 14 1/4 $ 0.05
SECOND QUARTER $ 20 $ 15 1/2 $ 0.05
THIRD QUARTER $ 18 5/8 $ 10 1/4 $ 0.05
FOURTH QUARTER $ 15 13/16 $ 12 3/16 $ 0.06
1999
- ----
FIRST QUARTER $ 15 7/8 $ 10 13/16 $ 0.06
SECOND QUARTER $ 18 $ 12 7/8 $ 0.06
THIRD QUARTER $ 17 7/8 $ 14 7/16 $ 0.06
FOURTH QUARTER $ 15 1/16 $ 10 1/4 $ 0.06
</TABLE>
Dividends as may be determined by the Board of Directors may be declared and
paid on the Common Stock from time to time out of legally available funds. The
Company's Second Amended and Restated Credit Agreement contains limitations on
the Company's ability to declare and pay dividends in cash or property; however,
if there is no default under this agreement, then the Company is permitted to
make cash dividend payments in an aggregate amount of up to $6,000,000 in 1999
and 2000, and $8,000,000 in each year thereafter. See ITEM 7. "MANAGEMENT'S
------
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
No assurances can be given as to future levels of dividends, if any, which may
be declared and paid. The Company intends to continue paying dividends on its
Common Stock, although future dividend declarations are at the discretion of the
Company's Board of Directors and will be based upon the Company's level of
earnings, cash flow, financial requirements, and economic and business
conditions then prevailing, as well as other relevant factors, including the
restrictions contained in the Company's long-term debt instruments.
On March 1, 2000, the outstanding shares of Common Stock were held of record by
455 stockholders.
During the fourth quarter of 1999, the Company made no unregistered sales of its
equity securities.
25
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
- -------
(In thousands, except per share data)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
For the Year Ended December 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 764,831 $ 562,093 $ 337,377 $ 210,871 $ 141,167
Earnings before extraordinary item $ 20,796 $ 19,590 $ 14,127 $ 6,720 $ 12,470
Earnings per common share before
extraordinary item:
Basic $ 1.26 $ 1.18 $ 1.08 $ 0.57 $ 1.08
Diluted $ 1.26 $ 1.17 $ 1.06 $ 0.55 $ 1.05
Total assets $ 543,637 $ 456,558 $ 332,536 $ 164,707 $ 139,877
Long-term debt (excluding current maturities) $ 214,993 $ 168,700 $ 109,194 $ 48,202 $ 29,754
Dividends declared per common share $ 0.240 $ 0.210 $ 0.200 $ 0.200 $ 0.105
- --------------------------------------------------------------------------------------------------------
</TABLE>
The Company's results of operations and financial position have been affected by
acquisitions of existing facilities and companies during the periods presented.
See NOTE B-- "ACQUISITIONS" of Notes to Consolidated Financial Statements. See
also ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
-------
RESULTS OF OPERATIONS."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------
OF OPERATIONS
GENERAL
Most of the Company's processing consists of aluminum and magnesium tolled for
its customers. Tolling revenues reflect only the processing cost and the
Company's profit margin. The Company's processing activities also consist of the
processing, recovery and specialty 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 facilities 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 than in prior periods. This higher level of sales has also increased the
Company's working capital requirements and, as a result, will subject the
Company to the additional risks associated with price fluctuations in the zinc
and aluminum commodity markets.
26
<PAGE>
During the 1990's, aluminum inventories on the worldwide commodity exchanges
fluctuated from severe excesses to relatively balanced positions. In times of
excess, aluminum prices declined, negatively impacting the profitability of the
Company's product sales business and the profitability of the major aluminum
producers who are some of the Company's largest customers. Environments of low
profitability for the Company's customers have inhibited, during those times,
the Company's ability to pass cost increases through to its customers. It is not
possible to predict the future price of aluminum or zinc, or the level of
worldwide inventories of these metals and whether, or to what extent, such
factors will affect the Company's future business.
The following table shows total pounds processed, the percentage of total pounds
processed represented by tolled metals, total revenues and total gross profits
(in thousands, except percentages):
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------------------
1999 1998 1997
----------------------------------------------
<S> <C> <C> <C>
Pounds processed 2,832,969 2,516,752 1,988,796
Percent of pounds tolled 61% 68% 82%
Revenues $ 764,831 $ 562,093 $ 337,377
Gross Profits $ 70,638 $ 58,891 $ 47,320
</TABLE>
In addition to its increased emphasis on the product sales business, the Company
also entered into an increasing amount of metal brokerage transactions each year
pursuant to which the Company buys metal from primary and other producers and
then sells the metal to end-users. These transactions involve buying and selling
metal without ever processing it. Additionally, in order to facilitate acquiring
metal for its production process, the Company occasionally enters into metal
"swap" transactions whereby the Company agrees to exchange its recycled finished
goods for scrap raw materials. As with the product sales business, the brokerage
business also increases the Company's working capital requirements and subjects
the Company to greater price risk associated with fluctuations in the metals
commodity markets. See ITEM 7A. "QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
--------
MARKET RISK."
27
<PAGE>
The following table sets forth, for the periods indicated, aluminum and zinc
segment information for pounds processed, revenues, income and assets (in
thousands, except percentages):
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Pounds Processed:
Aluminum 2,575,284 2,375,200 1,951,432
Zinc 257,685 141,552 37,364
---------- ---------- ----------
Total Pounds Processed 2,832,969 2,516,752 1,988,796
Percentage Tolled:
Aluminum 66% 71% 83%
Zinc 5% 15% 50%
Total Percentage Tolled 61% 68% 82%
Revenues:
Aluminum revenues from external customers $ 568,327 $ 470,722 $ 324,598
Zinc revenues from external customers 196,504 91,371 12,779
---------- ---------- ----------
Consolidated revenues $ 764,831 $ 562,093 $ 337,377
========== ========== ==========
Income:
Aluminum income $ 52,974 $ 52,897 $ 43,411
Zinc income 12,788 4,218 1,127
Unallocated general and administrative expenses (21,775) (17,360) (14,114)
Unallocated interest expense (12,478) (9,197) (7,331)
Unallocated interest and other income 795 585 413
---------- ---------- ----------
Net earnings before provision for income taxes,
minority interests and extraordinary item $ 32,304 $ 31,143 $ 23,506
========== ========== ==========
Assets:
Aluminum $ 415,614 $ 328,891 $ 314,377
Zinc 109,377 109,398 9,235
Other unallocated assets 18,646 18,269 8,924
---------- ---------- ----------
Consolidated assets $ 543,637 $ 456,558 $ 332,536
========== ========== ==========
</TABLE>
The accounting policies of the reportable segments are the same as those
described in NOTE A--"SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES" of Notes to
Consolidated Financial Statements. The Company evaluates performance based on
gross profit or loss from operations, net of selling expenses. Provision for
income taxes, interest, corporate general and administrative costs, including
depreciation of corporate assets and amortization of capitalized debt costs, are
not allocated to the reportable segments. Intersegment sales and transfers are
recorded at market value; net profits on intersegment sales and transfers were
immaterial for the periods presented. Consolidated cash, net capitalized debt
costs, net current deferred tax assets
28
<PAGE>
and assets located at the Company's headquarters office in Irving, Texas are not
allocated to the reportable segments. Also, see NOTE L--"SEGMENT INFORMATION" of
Notes to Consolidated Financial Statements for additional segment disclosures.
ACQUISITIONS
In July 1998, the Company completed the acquisition of U.S. Zinc for an
aggregate 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 in cash (not including acquisition
costs). Also in February 1999, the Company acquired, through its wholly owned
subsidiary, Midwest Zinc Corporation, 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 acquisitions were accounted for using the purchase method of
accounting, and their results of operations are included herein since their
dates of acquisition.
RESULTS OF OPERATIONS
Fiscal Year 1999 vs. Fiscal Year 1998
- -------------------------------------
PRODUCTION. During 1999, the Company melted 2.83 billion pounds, 13% more metal
- -----------
compared to 2.52 billion pounds in 1998. The aluminum and zinc segments
accounted for 63% and 37%, respectively, of the overall production increase for
1999. Tolling activity in 1999 represented 61% of total pounds processed
compared to 68% in 1998. The Company currently believes the percentage of
tolling business in 1999 will more accurately reflect the levels which can be
expected in future periods.
The following table shows the total pounds processed and the percentage tolled
for the aluminum and zinc segments (in thousands, except percentages):
<TABLE>
<CAPTION>
For the year ended
December 31,
-------------------------
1999 1998
--------- ---------
<S> <C> <C>
Pounds Processed:
Aluminum 2,575,284 2,375,200
Zinc 257,685 141,552
--------- ---------
Total Pounds Processed 2,832,969 2,516,752
========= =========
Percentage Tolled:
Aluminum 66% 71%
Zinc 5% 15%
Total Percentage Tolled 61% 68%
</TABLE>
ALUMINUM PRODUCTION: During 1999, the Company melted 8% more aluminum than it
did during 1998. The increase in aluminum production for the year was primarily
due to the
29
<PAGE>
following: (1) a significant increase in production at the Company's Morgantown,
Kentucky facility (which was expanded late in the third quarter of 1998), (2)
processing from the Shelbyville, Tennessee facility (acquired in February 1999),
(3) higher production at the Swansea, Wales facility (which is now operating
near its capacity after beginning processing in late 1997) and (4) increases in
production at the Post Falls, Idaho and Wendover, Utah facilities due to an
increase in scrap supply. These increases in aluminum production were partially
offset by lower volumes at the Rockwood and Loudon, Tennessee facilities due to
a lack of supply of material for recycling from a large tolling customer. The
decrease in aluminum percentage tolled is primarily due to the acquisition of
the Shelbyville, Tennessee facility, the production of which is dedicated
primarily for product sales serving the transportation market.
ZINC PRODUCTION: During 1999, the Company melted 82% more zinc than it did
during 1998. The February 1999 acquisition of the Clarksville, Tennessee
facility and a full year of processing from U.S. Zinc, which was acquired in
July 1998, accounted for virtually all of the increase in zinc production. The
decrease in zinc percentage tolled is primarily due to these acquisitions which
are virtually 100% involved in product sales.
REVENUES. During 1999, the Company's consolidated revenues increased 36% to
- --------
$764,831,000 compared to revenues of $562,093,000 in 1998. The aluminum and zinc
segments accounted for 48% and 52%, respectively, of the overall increase of
revenues.
Increased product sales relative to tolling transactions expose the Company to a
greater degree of market risk because of fluctuations in the price of scrap
metal which the Company must buy as raw material, and fluctuations in the
then-prevailing aluminum and zinc market prices at which the Company sells the
resulting processed metal. The Company's aluminum specialty alloying activities,
which serve the transportation market, and the Company's zinc segment primarily
consist of product sales business. Tolling activity represented 61% of the
Company's total pounds melted during 1999 as compared to 68% in 1998. Due to the
reasons discussed above, the increase in product sales activity in 1999 compared
to 1998 resulted in higher inventory, accounts receivable and accounts payable
levels at December 31, 1999 compared to December 31, 1998.
The following table shows the total revenues for the aluminum and zinc segments
(in thousands):
<TABLE>
<CAPTION>
For the year ended
December 31,
-------------------------
1999 1998
--------- ---------
<S> <C> <C>
Revenues:
Aluminum $ 568,327 $ 470,722
Zinc 196,504 91,371
--------- ---------
Total Revenues $ 764,831 $ 562,093
========= =========
</TABLE>
ALUMINUM REVENUES: During 1999, the Company's aluminum revenues increased 21%
compared to 1998. Aluminum revenues increased due to the combination of (1)
higher aluminum product sale prices, (2) higher aluminum production volumes as a
result of facility expansions and the Shelbyville, Tennessee acquisition and (3)
a decrease in the proportion of
30
<PAGE>
volumes from tolling versus product sales (see "ALUMINUM PRODUCTION" above). As
discussed earlier, increased product sales generally result in a greater
increase in revenues than a similar increase in tolling business.
ZINC REVENUES: During 1999, the Company's zinc revenues increased 115% compared
to 1998. Zinc revenues increased primarily due to the combination of higher zinc
production volumes, as a result of the 1998 and 1999 acquisitions (see "ZINC
PRODUCTION" above), and higher zinc product sale prices.
GROSS PROFITS. During 1999, the Company's consolidated gross profits increased
- -------------
20% to $70,638,000 compared to gross profits of $58,891,000 in 1998. The
aluminum and zinc segments accounted for 12% and 88%, respectively, of the
overall increase of segment income.
The following table shows the total income for the aluminum and zinc segments
and a reconciliation of segment income to the Company's consolidated gross
profits (in thousands):
<TABLE>
<CAPTION>
For the year ended
December 31,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Segment Income:
Aluminum $ 52,974 $ 52,897
Zinc 12,788 4,218
-------- --------
Total segment income 65,762 57,115
Items not included in gross profits:
Plant selling expense 2,168 867
Management SG&A costs 5,613 3,050
Equity in earnings of affiliates (2,265) (1,750)
Other income (640) (391)
-------- --------
Gross Profits $ 70,638 $ 58,891
======== ========
</TABLE>
ALUMINUM INCOME: During 1999, the Company's aluminum income increased 2%
compared to 1998. The increase was primarily due to higher overall aluminum
production volumes (see "ALUMINUM PRODUCTION" above). This increase in
production was partially offset by lower operating rates at certain facilities
(those principally serving the packaging market) and by narrowing spreads
between primary aluminum prices and certain scrap aluminum prices which
negatively affected the aluminum product sales.
ZINC INCOME: During 1999, the Company's zinc income increased 181% compared to
1998. The increase was primarily due to a full year's operation of U.S. Zinc,
which led to higher overall zinc production volumes (see "ZINC PRODUCTION"
above). In addition, the relative increase in zinc income was greater than the
increase in zinc processing volumes due to higher zinc product sale prices and
benefits from integrating the Company's previously owned zinc business with the
acquired U.S. Zinc and Clarksville, Tennessee facilities.
31
<PAGE>
SG&A EXPENSES. Selling, general and administrative expenses in 1999 increased
- -------------
41% to $24,924,000 compared to $17,714,000 in 1998. The increase is primarily
due to more production facilities and higher employee costs attributable to the
acquisitions of the U.S. Zinc and the Shelbyville and Clarksville, Tennessee
facilities, and the development and installation of a new management information
system. In addition, selling expenses will be higher as product sales increase
because more marketing effort is required with this activity compared to
tolling.
AMORTIZATION EXPENSE. Amortization expense in 1999 increased 24% to $4,653,000
- --------------------
compared to $3,748,000 in 1998. The increase is due almost entirely to
amortization of goodwill recorded as a result of the Shelbyville and
Clarksville, Tennessee acquisitions (see "ACQUISITIONS" above) and from a full
year's amortization of U.S. Zinc, which was acquired in July 1998.
INTEREST EXPENSE. Interest expense in 1999 increased 36% to $12,478,000 compared
- ----------------
to $9,197,000 in 1998. The increase is the result of increased interest rates
and higher amounts of debt outstanding in 1999 compared to 1998, primarily
resulting from the 1998 and 1999 acquisitions (see "LIQUIDITY AND CAPITAL
RESOURCES" below).
NET EARNINGS. Net earnings increased 6% to $20,796,000 in 1999 compared to
- ------------
$19,590,000 in 1998. The increase was primarily the result of improved
performance by the zinc segment as well as increased processing volume provided
by new plant construction, expansions and acquisitions completed in 1998 and
1999. Partially offsetting the volume increase was an increase in interest
expense, amortization expense and selling, general and administration expense
due to a higher level of borrowing, the effects of recent acquisitions and the
operation of more production facilities. The Company recorded a slight decrease
in its effective tax rate from 36% in 1998 to 35% in 1999 primarily due to
foreign earnings that are considered permanently reinvested.
Fiscal Year 1998 vs. Fiscal Year 1997
- -------------------------------------
PRODUCTION. During 1998, the pounds of metal processed by the Company increased
- ----------
27% to 2.52 billion pounds compared to 2.0 billion pounds processed in 1997.
Aluminum processing at the Company's newest plants in Coldwater, Michigan (which
began production in the first quarter of 1997) and Swansea, Wales (which began
production in the fourth quarter of 1997) and the acquisitions of the Alchem
Aluminum, Inc. aluminum alloying facility (which was acquired in November 1997)
and U.S. Zinc facilities (which were acquired in July 1998) accounted for 74% of
the increase in production for 1998. The increase in production was partially
offset by lower production at the Bedford, Indiana facility due to a
reconfiguration of the furnaces and a work force reorganization at that
facility. In addition, the Company's June and July 1998 production was
negatively impacted by a strike at several of the facilities of GM, a customer
of the Company.
32
<PAGE>
Production by segment is as follows (in thousands):
<TABLE>
<CAPTION>
For the year ended
December 31,
------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Pounds Processed:
Aluminum 2,375,200 1,951,432
Zinc 141,552 37,364
-------------- --------------
Total Pounds Processed 2,516,752 1,988,796
============== ==============
</TABLE>
Aluminum processing at the Company's newest plants in Coldwater, Michigan,
Swansea, Wales and the Alchem facility accounted for 68% of the increase in
production for the aluminum segment. Zinc processing at the Company's U.S. Zinc
facilities accounted for 96% of the increase in production for the zinc segment.
REVENUES. During 1998, revenues increased 67% to $562,093,000 compared to
- ---------
revenues of $337,377,000 in 1997. The acquisitions of Alchem and U.S. Zinc and
operations at the new Coldwater, Michigan and Swansea, Wales plants principally
accounted for this increase; however, this increase was partially offset by
lower aluminum selling prices prevailing during 1998. The percentage increase in
revenues was greater than the relative increase in volumes processed due to
higher levels of product sales business during 1998 as compared to 1997. The
product sales business increased to 32% of total processing for 1998 compared to
18% for 1997. As discussed above, an increase in product sales business
generally results in a much higher increase in revenue than would be generated
by a similar increase in tolling business. The increased levels of product sales
business were principally attributable to the acquisitions of Alchem and U.S.
Zinc. Prior to November 1997, materials processed for Alchem at the Company's
Coldwater, Michigan facility were classified as tolling business, but because
the Company acquired Alchem in November 1997, these pounds are now classified as
product sales business. The increase in product sales activity in 1998 also
resulted in higher inventory, accounts receivable and accounts payable levels.
Sales at the Company's plants in Coldwater, Michigan, Swansea, Wales and the
Alchem facility accounted for 114% of the increase in revenues for the aluminum
segment, which was partially offset by a decrease in aluminum selling prices.
Sales from the Company's U.S. Zinc facilities acquired in 1998 accounted for
virtually all of the increase in revenues for the zinc segment.
GROSS PROFITS. During 1998, gross profits increased 25% to $58,891,000 compared
- --------------
to gross profits of $47,320,000 in 1997. The acquisitions of Alchem and U.S.
Zinc and operations at the new Coldwater, Michigan plant accounted for virtually
all of the increase in total gross profits and virtually all of the increase in
profits by each segment. However, falling aluminum and zinc selling prices
reduced the gross margin per pound of metal sold.
SG&A EXPENSES. During 1998, selling, general and administrative costs increased
- --------------
22% to $17,714,000 compared to $14,497,000 in 1997. This increase was due
principally to higher employee and selling expenses, principally associated with
the acquisitions of Alchem and U.S. Zinc.
33
<PAGE>
AMORTIZATION EXPENSE. Amortization expense in 1998 increased 49% to $3,748,000
- ---------------------
compared to $2,520,000 in 1997. The increase is due almost entirely to
amortization of additional goodwill recorded as a result of the U.S. Zinc
acquisition (see "ACQUISITIONS" above) and the Alchem acquisition in November
1997.
INTEREST. During 1998, interest expense increased 25% to $9,197,000 compared to
- ---------
interest expense of $7,331,000 in 1997. The increase in interest expense was
primarily related to higher levels of borrowings outstanding to fund the cash
portion of the U.S. Zinc acquisition ($46,500,000) and to repay $16,000,000 of
U.S. Zinc's outstanding debt.
EXTRAORDINARY ITEM. In connection with the Company's acquisitions made in
- -------------------
January 1997, the Company borrowed funds under a new long-term credit facility.
A portion of the funds borrowed under this credit facility was used to retire
substantially all of the Company's then-outstanding indebtedness prior to its
stated maturity. This early debt retirement generated an extraordinary loss of
$1,318,000 (net of income tax benefit of $878,000) for the first quarter of
1997. There was no extraordinary item in 1998.
NET EARNINGS. During 1998, the Company's earnings before provision for income
- -------------
taxes, minority interests and extraordinary item increased 32% to $31,143,000
compared to $23,506,000 in 1997. The increase was primarily the result of higher
gross profits, due mainly to the Alchem and U.S. Zinc acquisitions, which were
in turn partially offset by the increases in selling, general and administrative
expenses and interest expense (also attributable to these and other recent
acquisitions). The Company's higher earnings before income taxes caused the tax
provision to increase to $11,275,000 in 1998, compared to $9,086,000 in 1997.
The effective tax rate was approximately 36% in 1998 compared to 39% in 1997
primarily due to lower state taxes provided during 1998. During 1998, net
earnings increased 53% to $19,590,000, compared to $12,809,000 in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations and capital expenditures
from internally generated cash and its working capital credit facilities and has
financed its acquisitions and capacity expansions from a combination of funds
from long-term borrowings and stock issuances.
CASH FLOWS FROM OPERATIONS. During 1999, operations provided cash of $18,233,000
- ---------------------------
compared to $53,198,000 in 1998. Changes in operating assets and liabilities
utilized $33,075,000 in cash during 1999 compared to providing $11,386,000 in
cash during 1998. The change in net operating assets and liabilities resulting
in a net usage of cash was primarily due to the increase in revenues in 1999, as
discussed above, and the increase in the percentage of product sales compared to
tolling transactions, which resulted in increases in receivables and
inventories. The 1999 acquired businesses are primarily engaged in the product
sales business. This change in net operating assets and liabilities was
partially offset by higher net earnings in 1999 of $20,796,000 compared to
$19,590,000 for 1998, higher depreciation and amortization of $27,038,000
compared to $22,828,000 in 1998, and a provision for deferred income taxes of
$3,369,000 compared to a benefit of $674,000 in 1998. As of December 31, 1999,
the relationship of current assets to current liabilities, or current ratio,
increased to 1.98, compared to 1.93 as of December 31, 1998.
34
<PAGE>
CASH FLOWS FROM INVESTING ACTIVITIES. During 1999, net cash used by investing
- -------------------------------------
activities was $54,139,000 compared to $93,873,000 in 1998. During the first
quarter of 1999, the Company spent approximately $21,600,000 (net of cash
acquired) on the acquisitions of the Shelbyville and Clarksville, Tennessee
facilities. During the third quarter of 1998, the Company spent approximately
$59,500,000 (net of cash acquired) on the acquisition of the U.S. Zinc business
(see "ACQUISITIONS" above). In addition, the Company's total payments for
property, plant and equipment in 1999 decreased to $30,856,000 compared to
$35,199,000 spent in 1998. Major 1999 projects included the acquisition of
software, development and first phase implementation of an Enterprise Resource
Planning (ERP) system, installation of new furnaces at the Uhrichsville, Ohio
facility and the initial construction of a new aluminum alloying facility near
Saginaw, Michigan. The Company expects that capital expenditures for property,
plant and equipment in 2000 will total approximately $44,000,000. Major 2000
projects include the construction of the new aluminum alloying facility near
Saginaw, Michigan, continued implementation of the ERP system, the replacement
of furnaces at two zinc facilities and environmental upgrades.
CASH FLOWS FROM FINANCING ACTIVITIES. Net cash provided by financing activities
- -------------------------------------
was $32,405,000 for 1999, compared to $46,326,000 for 1998. In 1999, the Company
borrowed $44,377,000 under its revolving credit facility, a significant portion
of which was used in the acquisitions of the Shelbyville and Clarksville,
Tennessee facilities (see "ACQUISITIONS" above), and the remainder was used to
finance additional working capital requirements. In 1998 the Company had net
borrowings of $55,775,000 under its long-term revolving credit facility, the
majority of which was used to fund the cash portion of the acquisition of U.S.
Zinc and to repay a portion of U.S. Zinc's outstanding indebtedness under its
working capital line of credit facility. At December 31, 1999, the Company had
$200,000,000 in indebtedness outstanding under its long-term revolving credit
facility and had approximately $48,631,000 available for borrowing. In addition,
there were standby letters of credit outstanding with several banks totaling
$2,415,000. As of March 10, 2000, the Company had borrowed an additional
$35,000,000 under the credit facility, leaving $13,631,000 available for
additional borrowings. While the Company believes it has sufficient sources to
fund its current needs, securing additional financing sources or increasing its
revolving credit facility (see Credit Facilities below) may be necessary to
maintain its recent rate of growth. Management is currently reviewing
alternative sources of funding for these activities.
Financing activities also included cash payments of $3,931,000 in dividends for
1999 compared to $3,503,000 for 1998.
Equity Purchases and Sales. In September 1998, the Company's Board of Directors
- ---------------------------
authorized an aggregate maximum amount of $15,000,000 to be expended for the
repurchase of its common stock in open market or privately-negotiated
transactions, resulting in the repurchase of 488,900 shares in 1998. During
1999, the Company repurchased 576,500 shares at an aggregate purchase price of
$7,080,000. In January 2000, the Company's Board of Directors authorized an
increase in the aggregate maximum amount to be expended by the Company under its
share repurchase program, to $35,000,000. Determinations to purchase Company
common stock will be made from time to time, subject to prevailing market
conditions. Shares repurchased are to be held as treasury shares to be used for
the Company's stock option and other equity plans and for general corporate
purposes.
Credit Facilities. On October 25, 1999, the Company amended and restated the
- ------------------
terms of its long-term credit facility with its lenders. The Second Amended and
Restated Credit Agreement provides for a credit facility of up to $250,000,000.
The Company has the option to request
35
<PAGE>
increases to the revolving credit commitment of up to $50,000,000 in the
aggregate, and these additional commitments could increase the revolving credit
facility to $300,000,000. The credit agreement allows the Company to issue up to
$125,000,000 in convertible subordinated debt, subject to certain terms and
conditions. The Company has no current plans, but reserves the right in the
future, to issue convertible subordinate debt. In addition, up to $12,000,000
available under the amended credit facility may be used by the Company for
letters of credit. The entire balance of debt outstanding under the amended
credit facility will mature in December 2003. Indebtedness under the amended
credit facility bears interest, at the Company's option, at fluctuating interest
rates based upon an alternate base rate (which may be the prime rate), or a rate
based upon the applicable LIBOR rate plus a credit margin which is based upon
the Company's ratio of total debt to total capitalization. In addition, the
Company must pay a commitment fee for unborrowed amounts available under the
revolving credit facility at a rate based upon the Company's ratio of debt to
total capitalization.
The Second Amended and Restated Credit Agreement imposes certain restrictions on
the Company, including: (i) a prohibition against incurring certain additional
indebtedness, (ii) maintenance of certain financial ratios, (iii) limitations on
dividends on and repurchases of shares of capital stock, and (iv) limitations on
capital expenditures, investments and acquisitions, except for mergers,
consolidations and acquisitions in any fiscal year having an aggregate
consideration of up to $75,000,000. The annual limitations for cash dividends on
capital stock are as follows: $6,000,000 per year for 1999 and 2000, and
$8,000,000 for each year after 2000. The credit agreement authorizes repurchases
of the Company's common stock not to exceed an aggregate purchase price of
$35,000,000. The indebtedness under the amended credit facility is secured by
substantially all of the Company's personal property (including inventories,
accounts receivable and equipment) and a first lien mortgage on certain real
property at seven of the Company's operating plants, as well as a pledge of the
capital stock of substantially all of the Company's subsidiaries.
While the Company believes that its cash on hand, the availability of funds
under its credit facility and its anticipated internally generated funds will be
sufficient to fund its current needs, including its expected capital spending
plans, additional financing may be necessary for the Company to continue its
recent growth rate. 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.
IMPACT OF RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In July 1999, the Financial Accounting Standards Board delayed the effective
date of Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities," for one year to fiscal years beginning after June 15, 2000. The
Company plans to adopt the statement effective January 1, 2001. The Company has
evaluated the impact of Statement No. 133 and believes the impact will not have
a material adverse effect upon the Company's future operating results.
IMPACT OF YEAR 2000
In prior years, the Company implemented a comprehensive plan to address
potential Year 2000 compliance problems. In late 1999, the Company completed its
remediation and testing of systems. As a result of those efforts, the Company
experienced no significant disruptions in mission critical information
technology and non-information technology systems and believes those systems
successfully responded to the Year 2000 date change. The Company's Year 2000
36
<PAGE>
project expenditures were immaterial during 1999 and prior years. The Company is
not aware of any material problems resulting from Year 2000 issues, either with
its products, its internal systems, or the products and services of third
parties. The Company will continue to monitor its critical computer applications
and those of its third parties throughout the year 2000 to ensure that any
latent Year 2000 matters that may arise are addressed promptly.
ENVIRONMENTAL
The Company's operations, like those of other basic industries, are subject to
federal, state, local and foreign laws, regulations and ordinances. These laws
and regulations (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 up, and certain damages resulting from past spills,
disposals or other releases of hazardous substances. It can be anticipated that
more rigorous environmental laws will be enacted that could require the Company
to make substantial expenditures in addition to those described in this Form
10-K.
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.
In 1997, the Illinois Environmental Protection Agency ("IEPA") 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 have not yet been
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 liability at this site will
have a material adverse effect on its financial position or results of
operations. Also, see NOTE K--"OPERATIONS" of Notes to Consolidated Financial
Statements.
CONVERSION TO THE EURO CURRENCY
On January 1, 1999, certain members of the European Union established fixed
conversion rates between their existing currencies and the European Union's
common currency (the "euro"). The Company conducts business through a joint
venture in one European Union country. The transition period for the
introduction of the euro is between January 1, 1999 and June 30, 2002. The
Company is addressing the issues involved with the introduction of the euro. The
more important issues facing the Company include: converting information
technology systems, reassessing currency risk, and processing tax and accounting
records.
Based on progress to date, the Company believes that use of the euro will not
have a significant impact on the manner in which it conducts its business
affairs and processes its business and accounting records. Accordingly,
conversion to the euro is not expected to have a material adverse effect on the
Company's financial condition or results of operations.
37
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF FORWARD-LOOKING STATEMENTS
Certain information contained in ITEM 1. "BUSINESS;" ITEM 3. "LEGAL PROCEEDINGS"
------- -------
and ITEM 7. "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; the ability of the Company to
be able to continue to grow its domestic and foreign business through expansion,
acquisition or partnering; the expected effects of strikes, work stoppages or
production shutdowns 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;
future (or extensions of existing) long-term supply contracts with its
customers; anticipated environmental control measures; the outcome of and any
liabilities resulting from any claims, investigations or proceedings against the
Company or its subsidiaries; access to adequate energy supplies at commercial
rates; future levels of dividends (if any); potential affects of the Company's
metals brokerage activities; the future mix of business (product sales vs.
tolling); future costs and asset recoveries; future operations, demand and
industry conditions; future capital expenditures and future financial condition.
When used in or incorporated by reference into this Annual Report on Form 10-K,
the words "anticipate," "estimate," "expect," "may," "project" and similar
expressions are intended to be among the statements that identify
forward-looking statements.
These forward-looking 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. 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 product sales business as opposed to
tolling business, retention and financial condition of major customers, effects
of future costs, collectibility 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, the effects of shortages in used
aluminum beverage containers and can scrap at facilities, any continuation of
reduced spreads between primary aluminum prices and aluminum scrap prices,
business conditions and growth in the aluminum and zinc industries and recycling
industries, and future levels and timing of capital expenditures.
These statements are further qualified by the following:
* Any 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 cost of operations, including energy and labor costs.
38
<PAGE>
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; work stoppages, maintenance programs and other production
shutdowns at customer facilities; and governmental regulation and factors
involved in administrative and other proceedings. The future mix of product
sales 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 product sales 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. Lower market prices for primary metals may adversely
affect the demand for the Company's recycling services and recycled metals.
* 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.
* 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.
39
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------
In the ordinary course of business, the Company is exposed to potential losses
arising from changes in the price of aluminum, zinc and natural gas, and the
level of interest rates. The Company uses derivative instruments, such as
futures, options, swaps and interest rate caps to manage the effect of such
changes. See NOTE A--"SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES" of Notes to
Consolidated Financial Statements.
Risk Management. All derivative contracts are held for purposes other than
- ----------------
trading, and are used primarily to mitigate uncertainty and volatility, and
cover underlying exposures. The Company's commodity and derivative activities
are subject to the management, direction and control of the Company's Risk
Management Committee, which is composed of the chief executive officer, the
chief operating officer, the chief financial officer, the treasurer and other
officers and employees that the chief executive officer designates. The Risk
Management Committee reports to the Company's Board of Directors, which has
supervisory authority over all of its activities.
Counter-parties. The Company is exposed to losses in the event of
- ----------------
non-performance by the counter-parties to the derivative contracts discussed
below; however, while no assurances can be made, the Company currently does not
anticipate any non-performance by the counter-parties. Counter-parties are
evaluated for creditworthiness and risk assessment prior to the Company
initiating trading activities. The counter-parties' creditworthiness is
monitored on an ongoing basis, and credit levels are reviewed to ensure that
there is not an inappropriate concentration of credit outstanding to any
particular counter-party.
Metal Commodity Price Risk. Aluminum and zinc ingots are internationally
- ---------------------------
produced, priced, and traded commodities, with their principal trading market
being the London Metal Exchange ("LME"). In order to preserve margins, the
Company enters into futures and options contracts.
Aluminum. The Company enters into futures sales contracts with metal brokers to
- ---------
fix the margin on a portion of the aluminum generated by the Company's salt cake
processing facility in Morgantown, Kentucky and some of the aluminum generated
from the processing of other scrap metal. These futures sales contracts are
settled in the month of shipment. Estimated 2000 total production covered under
these futures sales contracts as of December 31, 1999 was 3,230 metric tonnes
(mt). The impact of a 10% change in the December 31, 1999 LME price of aluminum
ingot would not be material to the Company's gross profit for the year ended
December 31, 2000.
Zinc. In the normal course of business, the Company enters into fixed-price
- -----
forward sales contracts with a number of its zinc customers. At December 31,
1999, such contracts had metal deliveries committed during 2000 of 1,078 mt. The
Company may enter into similar arrangements in the future. In order to hedge the
risk of higher metal prices the Company enters into long positions, principally
using future purchase contracts. These contracts are settled in the month of the
corresponding shipment. At December 31, 1999, the contracts hedging 2000
deliveries totaled 1,078 mt. The impact of a 10% change in the December 31, 1999
LME price of zinc ingot would not be material to the Company's gross profit for
the year ended December 31, 2000.
40
<PAGE>
Natural Gas. The Company's earnings are affected by changes in the price and
- ------------
availability of natural gas, which is the Company's second largest cost
component. In an attempt to acquire the most favorable natural gas costs, the
Company is utilizing natural gas swap contracts. Under the terms of the swap
contracts, the Company has fixed the price for approximately 28% of its expected
2000 natural gas requirements. The Company makes or receives payments based on
the difference between the month-end closing price on the New York Mercantile
Exchange ("NYMEX") and the fixed price agreed to in the swap contracts. The
impact of a 10% change in the December 31, 1999 NYMEX closing price would not be
material to the Company's gross profit for the year ended December 31, 2000.
Interest. Approximately 93% of the Company's outstanding long-term debt as of
- ---------
December 31, 1999 bears interest at floating rates related to LIBOR plus a
margin. In order to limit the risk associated with a potentially significant
increase in the LIBOR rates, the Company entered into an interest rate cap
transaction, which expires on March 30, 2001. Under the terms of this rate cap
transaction, the Company's interest rate will not exceed 8% per annum for
$29,600,000 (the notional amount as of December 31, 1999) of the Company's
outstanding floating-rate debt. The notional amount covered under the rate cap
transaction reduces quarterly until the amount of the cap reaches $22,800,000
upon its expiration. The counter-party to the rate cap transaction is a major
commercial bank, and management believes that losses related to the credit risk
are remote.
The Company's earnings are affected by changes in interest rates due to the
impact those changes have on its interest expense from variable-rate debt
instruments. If interest rates increased 10% from the floating rates as of
December 31, 1999, interest expense for the year ended December 31, 2000 would
increase by approximately $1,469,000. These amounts are determined by
considering the impact of hypothetical interest rates on the Company's
variable-rate long-term debt, as of December 31, 1999, adjusted for known cash
commitments during 2000.
Market risk for fixed-rate long-term debt is estimated as the potential increase
in fair value resulting from a hypothetical decrease in market interest rates.
With respect to the Company's fixed-rate long-term debt outstanding at December
31, 1999, a 10% decline in market interest rates would result in an increase to
the fair value of the Company's fixed-rate long-term debt of approximately
$1,129,000. The fair values of the Company's long-term debt were estimated using
discounted future cash flows based on the Company's incremental borrowing rates
for similar types of borrowing arrangements.
41
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -------
INDEX OF FINANCIAL STATEMENTS OF IMCO RECYCLING INC. AND SUBSIDIARIES
PAGE
----
Report of Ernst & Young LLP, Independent Auditors 43
Consolidated Balance Sheets at December 31, 1999 and 1998 44
Consolidated Statements of Earnings for the three years ended
December 31, 1999 45
Consolidated Statements of Cash Flows for the three years ended
December 31, 1999 46
Consolidated Statements of Changes in Stockholders' Equity for the
three years ended December 31, 1999 47
Notes to Consolidated Financial Statements 48
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
42
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Stockholders and
Board of Directors
IMCO Recycling Inc.
We have audited the accompanying consolidated balance sheets of IMCO Recycling
Inc. and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of IMCO
Recycling Inc. and subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Dallas, Texas
January 31, 2000
43
<PAGE>
IMCO RECYCLING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
---------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 2,578 $ 6,075
Accounts receivable (net of allowance of $1,950 and $1,616
at December 31, 1999 and 1998, respectively) 125,917 84,446
Inventories 74,568 50,921
Deferred income taxes 3,008 4,093
Other current assets 9,228 6,302
------------- -------------
Total Current Assets 215,299 151,837
Property and equipment, net 189,987 168,505
Excess of acquisition cost over the fair value of net assets
acquired, net of accumulated amortization of $11,149 and
$7,156 at December 31, 1999 and 1998, respectively 117,861 112,559
Investments in joint ventures 13,901 14,502
Other assets, net 6,589 9,155
------------- -------------
$ 543,637 $ 456,558
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 101,458 $ 67,089
Accrued liabilities 7,164 10,365
Current maturities of long-term debt 181 1,415
------------- -------------
Total Current Liabilities 108,803 78,869
Long-term debt 214,993 168,700
Deferred income taxes 15,104 12,820
Other long-term liabilities 9,081 8,861
STOCKHOLDERS' EQUITY
Preferred stock; par value $.10; 8,000,000 shares
authorized; none issued - -
Commonstock; par value $.10; 40,000,000 shares authorized;
17,110,620 issued at December 31, 1999; 17,048,585
issued at December 31, 1998 1,711 1,705
Additional paid-in capital 106,549 106,046
Retained earnings 104,079 87,214
Accumulated other comprehensive loss from foreign currency
translation adjustments (3,131) (902)
Treasury stock, at cost; 1,083,406 shares at December 31, 1999;
530,539 shares at December 31, 1998 (13,552) (6,755)
------------- -------------
Total Stockholders' Equity 195,656 187,308
------------- -------------
$ 543,637 $ 456,558
============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
44
<PAGE>
IMCO RECYCLING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $764,831 $562,093 $337,377
Cost of sales 694,193 503,202 290,057
----------- ----------- -----------
Gross profits 70,638 58,891 47,320
Selling, general and administrative expense 24,924 17,714 14,497
Amortization expense 4,653 3,748 2,520
Interest expense 12,478 9,197 7,331
Interest and other income (1,456) (1,161) (352)
Equity in earnings of affiliates (2,265) (1,750) (182)
----------- ----------- -----------
Earnings before provision for income taxes, minority
interests and extraordinary item 32,304 31,143 23,506
Provision for income taxes 11,162 11,275 9,086
----------- ----------- -----------
Earnings before minority interests and extraordinary item 21,142 19,868 14,420
Minority interests, net of provision for income taxes 346 278 293
----------- ----------- -----------
Earnings before extraordinary item 20,796 19,590 14,127
Extraordinary item, net - - (1,318)
----------- ----------- -----------
Net earnings $ 20,796 $ 19,590 $ 12,809
=========== =========== ===========
Net earnings per common share:
Basic:
------
Earnings before extraordinary item $ 1.26 $ 1.18 $ 1.08
Extraordinary item - - (0.10)
----------- ----------- -----------
Net earnings $ 1.26 $ 1.18 $ 0.98
=========== =========== ===========
Diluted:
-------
Earnings before extraordinary item $ 1.26 $ 1.17 $ 1.06
Extraordinary item - - (0.10)
----------- ----------- -----------
Net earnings $ 1.26 $ 1.17 $ 0.96
=========== =========== ===========
Weighted average shares outstanding:
Basic 16,448 16,670 13,066
Diluted 16,555 16,802 13,293
Dividends declared per common share $ 0.24 $ 0.21 $ 0.20
</TABLE>
See Notes to Consolidated Financial Statements.
45
<PAGE>
IMCO RECYCLING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Earnings before extraordinary item $ 20,796 $ 19,590 $ 14,127
Depreciation and amortization 27,038 22,828 16,511
Provision for (benefit of) deferred income taxes 3,369 (674) 1,516
Equity in earnings of affiliates (2,265) (1,750) (182)
Other noncash charges 2,370 1,818 1,228
Changes in operating assets and liabilities:
Accounts receivable (39,588) (9,504) 12,256
Inventories (20,962) (6,505) 2,594
Other current assets (129) (531) 379
Accounts payable and accrued liabilities 27,604 27,926 (18,061)
---------- ---------- -----------
Net cash from operating activities 18,233 53,198 30,368
INVESTING ACTIVITIES
Payments for property and equipment (30,856) (35,199) (37,159)
Acquisition of U.S. Zinc Corporation, net of cash acquired - (59,497) -
Acquisition of IMSAMET, Inc., net of cash acquired - - (59,882)
Acquisition of Alchem Aluminum, Inc., net of cash acquired - - (25,430)
Acquisitions of other businesses and investments in joint ventures (21,480) (700) 163
Other (1,803) 1,523 (2,153)
---------- ---------- -----------
Net cash used by investing activities (54,139) (93,873) (124,461)
FINANCING ACTIVITIES
Net proceeds from long-term revolving credit facility 44,377 55,775 96,225
Net repayments of short-term borrowings - - (8,351)
Net proceeds from issuance (repayments) of long-term debt 679 705 (41,072)
Net proceeds (costs) from public stock offering - (65) 44,799
Debt issuance costs (1,041) (158) (3,180)
Dividends paid (3,931) (3,503) (2,702)
Purchases of treasury stock (7,080) (6,377) -
Other (599) (51) 3,715
---------- ---------- -----------
Net cash from financing activities 32,405 46,326 89,434
Effect of exchange rate differences on cash and cash equivalents 4 19 (6)
---------- ---------- -----------
Net increase (decrease) in cash and cash equivalents (3,497) 5,670 (4,665)
Cash and cash equivalents at January 1 6,075 405 5,070
---------- ---------- ----------
Cash and cash equivalents at December 31 $ 2,578 $ 6,075 $ 405
========== ========== ==========
SUPPLEMENTARY INFORMATION
Cash payments for interest $ 13,417 $ 9,098 $ 9,087
Cash payments for income taxes $ 9,825 $ 10,152 $ 5,940
Fair value of the shares and warrants issued in the acquisition
of U.S. Zinc Corporation - $ 8,500 -
Fair value of the shares issued in the acquisition of Alchem
Aluminum, Inc. - - $ 17,250
Fair value of the shares issued in the acquisition of Rock
Creek Aluminum, Inc. - - $ 7,125
</TABLE>
See Notes to Consolidated Financial Statements.
46
<PAGE>
IMCO RECYCLING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands, except share amounts)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN RETAINED TREASURY STOCK TOTAL
---------------------- ---------------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT DOLLARS
----------- ---------- -------------- ------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 12,017,914 $ 1,202 $ 27,553 $ 61,021 (118,551) $ (1,441) $ 88,335
Comprehensive income:
Net earnings - - - 12,809 - - 12,809
Other comprehensive loss, net
of tax:
Foreign currency translation
adjustments - - - (32) - - (32)
-----------
Net comprehensive income 12,777
-----------
Cash dividend - - - (2,702) - - (2,702)
Net proceeds from public stock
offering 2,645,000 264 44,535 - - - 44,799
Purchase of Rock Creek Aluminum 618,137 62 7,063 - - - 7,125
Purchase of Alchem Aluminum 1,208,339 121 17,129 - - - 17,250
Issuance of common stock for
services 7,493 1 127 - - - 128
Exercise of stock options
18,867 2 (212) - 79,197 1,098 888
Tax benefit from the exercise of non-
qualified stock options - - 324 - - - 324
----------- ---------- -------------- ------------- ---------- ---------- -----------
BALANCE AT DECEMBER 31, 1997 16,515,750 1,652 96,519 71,096 (39,354) (343) 168,924
Comprehensive income:
Net earnings - - - 19,590 - - 19,590
Other comprehensive loss, net
of tax:
Foreign currency translation
adjustments - - - (871) - - (871)
-----------
Net comprehensive income 18,719
-----------
Cash dividend - - - (3,503) - - (3,503)
Public stock offering costs - - (65) - - - (65)
Purchase of U.S. Zinc Corporation 298,010 30 8,470 - - - 8,500
Issuance of common stock for services 7,625 1 123 - - - 124
Exercise of stock options 227,200 22 1,554 - (2,285) (35) 1,541
Executive option exercise loan
program - - (1,360) - - - (1,360)
Tax benefit from the exercise of non-
qualified stock options - - 994 - - - 994
Common stock repurchased - - - - (488,900) (6,377) (6,377)
Other - - (189) - - - (189)
----------- ---------- -------------- ------------- ---------- ---------- -----------
BALANCE AT DECEMBER 31, 1998 17,048,585 1,705 106,046 86,312 (530,539) (6,755) 187,308
Comprehensive income:
Net earnings - - - 20,796 - - 20,796
Other comprehensive loss, net
of tax:
Foreign currency translation
adjustments - - - (2,229) - - (2,229)
-----------
Net comprehensive income 18,567
-----------
Cash dividend - - - (3,931) - - (3,931)
Purchase of B&F Metals, Inc. 17,890 2 268 - - - 270
Issuance of common stock for services 7,945 1 122 - 4,000 51 174
Exercise of stock options 36,200 3 165 - 21,120 252 420
Executive option exercise loan
program - - (264) - - - (264)
Tax benefit from the exercise of non-
qualified stock options - - 218 - - - 218
Common stock repurchased - - - - (576,500) (7,080) (7,080)
Other - - (6) - (1,487) (20) (26)
-------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 17,110,620 $ 1,711 $ 106,549 $ 100,948 (1,083,406) $(13,552) $195,656
-------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
47
<PAGE>
IMCO RECYCLING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(dollars in tables are in thousands, except per share data)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation:
- ----------------------
The accompanying consolidated financial statements include the accounts of IMCO
Recycling Inc. and all of its majority owned subsidiaries (the "Company"). All
significant intercompany accounts and transactions have been eliminated upon
consolidation. Investments in affiliated companies, owned 50% or less, are
accounted for using the equity method.
The Company's principal business involves the ownership and operation of
aluminum recycling and alloying facilities and zinc manufacturing facilities.
Aluminum scrap material is recycled for a fee and then the material is returned
to its customers, some of whom are the world's largest aluminum and automotive
companies. Aluminum and zinc scrap is also purchased on the open market,
recycled and sold.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash Equivalents:
- ----------------
All highly liquid investments with a maturity of three months or less when
purchased are considered cash equivalents. The carrying amount approximates fair
value because of the short maturity of those instruments.
Inventories:
- -----------
Inventories are stated at the lower of cost or market. Cost is determined using
the specific identification method and includes an allocation of average
manufacturing labor and overhead costs to finished goods.
Credit Risk:
- -----------
The majority of the Company's accounts receivable are due from companies in the
aluminum, zinc and automotive industries. Credit is extended based on evaluation
of the customers' financial condition and, generally, collateral is not
required. Accounts receivable are net of a valuation reserve that represents an
estimate of amounts considered uncollectible. Expense for such uncollectible
amounts was $1,602,000, $1,325,000 and $670,000 in 1999, 1998 and 1997,
respectively.
48
<PAGE>
Property and Equipment:
- ----------------------
Property and equipment are stated at cost. Major renewals and improvements are
capitalized, while maintenance and repairs are expensed when incurred.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets.
Landfill closure costs are currently estimated to be approximately $9,000,000
and are being accrued as space in the landfills is used. The construction costs
of the landfills are depreciated as space in the landfills is used.
The Company reviews its property and equipment for impairment when changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Impairment is measured as the amount by which the carrying amount
of the asset exceeds the estimated fair value of the asset less disposal costs.
Interest is capitalized in connection with the construction of major facilities.
Capitalized interest costs for 1999, 1998 and 1997 were $520,000, $339,000 and
$1,386,000, respectively.
Amortization of Intangibles:
- ---------------------------
The excess of original acquisition cost over the fair value of net assets
acquired (goodwill) is amortized on a straight-line basis over the expected
life, currently from 15-40 years. Management regularly reviews the remaining
goodwill with consideration toward recovery through future operating results.
Goodwill is evaluated for recovery on an undiscounted basis. Deferred debt
issuance costs, included in other assets, are being amortized over the term of
the long-term debt.
Revenue Recognition:
- -------------------
Revenues are recognized when products are shipped or when services are performed
for customers.
Stock-Based Compensation:
- ------------------------
The Company follows Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25") and related interpretations in accounting
for its employee stock options. Under APB 25, if the exercise price of employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recorded.
Market Risk Management Using Financial Instruments:
- --------------------------------------------------
In order to reduce the floating interest rate risk on its long-term debt, the
Company entered into an interest rate cap transaction in 1997 (see NOTE F). The
cost of the rate cap is included in other long-term assets and is being
amortized as interest expense over the term of the agreement.
In order to manage its price exposure for natural gas purchases, the Company has
fixed the future price of a portion of its natural gas requirements by entering
into financial hedge agreements. Under these agreements, payments are made or
received based on the differential between the monthly closing price on the New
York Mercantile Exchange, ("NYMEX") and the actual hedge
49
<PAGE>
price. These contracts are accounted for as hedges, with all gains and losses
recognized in cost of sales when the gas is consumed. In addition, the Company
has cost escalators included in some of its long-term supply contracts with its
customers, which limit the Company's exposure to natural gas price risk. At
December 31, 1999, the Company had outstanding swap agreements to hedge its
anticipated domestic natural gas requirements on approximately 1,650,000 Mmbtus
of natural gas, which represents approximately 28% of its expected 2000 fuel
needs.
The Company has entered into futures contracts and a series of put and call
option contracts with metal brokers to cover the future selling prices on a
portion of the aluminum generated by the Company's salt cake processing facility
in Morgantown, Kentucky and some of the aluminum generated from the processing
of other scrap metal. At December 31, 1999, estimated 2000 total production
covered under these futures sales contracts was 3,230 metric tonnes (mt), which
represents approximately 14% of its expected 2000 production. In conjunction
with these futures sales contracts, the Company has also entered into options
contracts covering 1,200 mt. In addition, the Company has entered into futures
contracts with metal brokers to cover the future selling prices of zinc recycled
for certain zinc customers under fixed-price contracts. At December 31, 1999,
such contracts had metal deliveries committed during 2000 of 1,078 mt, which
represents less than 1% of its expected 2000 production. In conjunction with
these futures sales contracts, the Company has also entered into options
contracts covering 4,133 mt. These contracts are settled in the month of the
corresponding production and/or shipment, with all gains and losses recognized
in revenues.
The Company is exposed to losses in the event of non-performance by the
counter-parties to the financial hedge agreements and futures contracts
discussed above; however, the Company does not anticipate non-performance by the
counter-parties. The counter-parties are evaluated for creditworthiness and risk
assessment prior to initiating trading activities with the brokers. The Company
does not require collateral to support broker transactions.
The fair value of the Company's financial hedging agreements at December 31,
1999, representing the amount the Company would pay to terminate the agreements,
totaled $507,000.
Foreign Currency Translation:
- ----------------------------
The Company's foreign subsidiaries in the U.K., Germany, Netherlands, and its
equity investee in Germany use the local currency as their functional currency.
Adjustments resulting from the translation into U.S. dollars are reflected as a
separate component of stockholders' equity, and foreign currency transaction
gains and losses are reflected in the Statements of Earnings. The gains and
losses on foreign currency exchange rate fluctuations and the translation
adjustments for the three years ended 1999 were immaterial. As of December 31,
1999, the Company's accumulated foreign currency translation adjustment totaled
$3,131,000 and the annual change is included in other comprehensive income in
the Statements of Changes in Stockholders' Equity.
New Accounting Standards:
- ------------------------
In July 1999, the Financial Accounting Standards Board delayed the effective
date of Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities," for one year to fiscal years beginning after June 15, 2000. The
Company plans to adopt the statement effective January 1, 2001. The Company has
evaluated the impact of Statement No. 133 and believes the impact will not have
a material adverse effect upon the Company's future operating results.
50
<PAGE>
Prior Year Reclassifications:
- ----------------------------
Certain reclassifications have been made to prior year statements to conform to
the current year presentation. Freight out expenses, which had previously been
included in cost of sales, are now included as a reduction in revenues.
Miscellaneous income was reclassified from revenues to interest and other
income. Also, certain plant selling, general and administrative expenses were
reclassified from selling, general and administrative expense to cost of sales.
In addition, the Company elected to classify the zinc brokerage facilities'
operating costs to cost of sales. These costs were previously included in
selling, general and administrative expense. Certain other amounts reported in
1998 and 1997 have been reclassified to conform with the 1999 presentation. All
of these reclassifications had no effect on net income for either period. The
effects of the reclassifications are as follows:
<TABLE>
<CAPTION>
As Previously As Currently
Filed Presented
------------------ -----------------
<S> <C> <C>
For the year ended December 31, 1998:
Revenues $ 568,514 $ 562,093
Cost of sales $ 506,994 $ 503,202
Selling, general and administrative expense $ 20,036 $ 17,714
Amortization expense $ 3,669 $ 3,748
Interest and other income $ (775) $ (1,161)
For the year ended December 31, 1997:
Revenues $ 339,381 $ 337,377
Cost of sales $ 291,527 $ 290,057
Selling, general and administrative expense $ 15,171 $ 14,497
Amortization expense $ 2,441 $ 2,520
Interest and other income $ (413) $ (352)
</TABLE>
NOTE B--ACQUISITIONS
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 in cash (not including acquisition
costs). Also in February 1999, the Company acquired, through its wholly owned
subsidiary, Midwest Zinc Corporation, 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 acquisitions were accounted for using the purchase method of
accounting, and their results of operations are included herein since their
dates of acquisitions. Pro forma results from these acquisitions would not vary
significantly from actual results for 1999 and 1998.
On July 21, 1998, the Company acquired all of the capital stock of U.S. Zinc
Corporation ("U.S. Zinc") for a total purchase price of approximately
$72,000,000, consisting of (i) $46,500,000 in cash, (ii) the assumption of
approximately $17,000,000 in long-term debt, (iii) the issuance of 298,010
shares of the Company's common stock, and (iv) the issuance of four-year
warrants to purchase up to 1,500,000 shares of the Company's common stock at an
exercise price of $19.04 per share. The former U.S. Zinc shareholders have
certain registration rights with respect to the shares of common stock, and the
warrants that were issued to the former U.S. Zinc shareholders
51
<PAGE>
are contractually restricted from exercise for periods of up to four years. In
addition, the transaction provides for future contingent payments (which will be
expensed as earned) to certain former U.S. Zinc shareholders, dependent upon the
future earnings performance of U.S. Zinc and the Company's other zinc-related
operations through June 30, 2002 and continued employment with the Company. The
acquisition was accounted for using the purchase method of accounting and its
results of operations are included herein since the date of acquisition. The
excess of the purchase price over the fair value of net assets acquired is
approximately $39,180,000 and is being amortized over thirty years on a
straight-line basis.
U.S. Zinc, headquartered in Houston, Texas, and its subsidiaries operated five
production facilities located in Illinois, Texas and Tennessee which convert
zinc scrap into various value-added zinc products such as zinc dust, oxides,
ingots and other zinc by-products. These facilities have an aggregate annual
processing capacity of approximately 200 million pounds of zinc-bearing
materials.
The allocation of the purchase price of U.S. Zinc is as follows:
<TABLE>
<S> <C>
Working capital $ 20,105
Property and equipment 14,335
Goodwill 39,180
Other noncurrent assets 540
Noncurrent liabilities (19,291)
--------
Total $ 54,869
========
</TABLE>
The following table sets forth unaudited pro forma results of operations of the
Company and U.S. Zinc for the year ended December 31, 1998, assuming the
acquisition had been consummated on January 1 of that year. The pro forma
combined information is presented for comparative purposes only and does not
purport to represent the actual results which would have occurred had the
acquisition been consummated on such date or of future results of the combined
companies under the ownership and management of the Company:
<TABLE>
<CAPTION>
1998
-------------
(unaudited)
<S> <C>
Revenues $ 650,561
Gross profit $ 67,576
Earnings before extraordinary item $ 20,248
Net earnings $ 20,248
Earnings per common share before extraordinary item:
Basic $ 1.20
Diluted $ 1.19
Net earnings per common share:
Basic $ 1.20
Diluted $ 1.19
</TABLE>
The table above reflects certain pro forma adjustments including additional
depreciation expense as a result of the increased basis of the fixed assets
acquired, additional amortization expense related to the goodwill recorded, a
reduction in general and administrative expenses for the
52
<PAGE>
elimination of duplicate management costs, additional interest expense related
to debt incurred on the acquisition and adjustments for related income taxes
and minority interests.
In November 1997, the Company acquired all of the capital stock of Alchem
Aluminum, Inc. in exchange for approximately $26,000,000 cash, the assumption of
debt and 1,208,339 shares of the Company's common stock. In January 1997, the
Company acquired all of the capital stock of IMSAMET, Inc., a wholly owned
subsidiary of EnviroSource, Inc., for approximately $58,000,000 in cash, not
including acquisition costs. Also in January 1997, the Company acquired all of
the capital stock of Rock Creek Aluminum, Inc. in exchange for 618,137 shares of
the Company's common stock. These acquisitions were accounted for using the
purchase method of accounting.
NOTE C--INVENTORIES
The components of inventories are:
<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998
---------- ---------
<S> <C> <C>
Finished goods $ 35,130 $ 26,668
Raw materials 36,768 23,012
Supplies 2,670 1,241
---------- ---------
$ 74,568 $ 50,921
========== =========
</TABLE>
NOTE D--PROPERTY AND EQUIPMENT
The components of property and equipment are:
<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Land, buildings and improvements $ 140,530 $ 113,709
Production equipment and machinery 129,745 117,861
Office furniture, equipment and other 13,086 8,876
---------- ----------
283,361 240,446
Accumulated depreciation (93,374) (71,941)
---------- ----------
$ 189,987 $ 168,505
========== ==========
</TABLE>
Depreciation expense for 1999, 1998 and 1997 was $22,405,000, $19,074,000 and
$14,007,000, respectively.
Estimated useful lives for buildings and improvements range from 15 to 39 years,
machinery and equipment range from 3 to 20 years and office furniture and
equipment range from 3 to 10 years.
53
<PAGE>
NOTE E--INCOME TAXES
The provision for income taxes was as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal $ 7,293 $ 11,498 $ 6,035
State 500 451 1,535
--------- --------- ---------
7,793 11,949 7,570
Deferred:
Federal 3,221 (45) 2,028
State 577 (211) (512)
Foreign (429) (418) -
--------- --------- ---------
3,369 (674) 1,516
--------- --------- ---------
$ 11,162 $ 11,275 $ 9,086
========= ========= =========
</TABLE>
The income tax expense, computed by applying the federal statutory tax rate to
earnings before income taxes, differed from the provision for income taxes as
follows:
<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Income taxes at the federal statutory rate $ 11,231 $ 11,854 $ 8,227
Foreign taxes at the statutory rate 67 (845) -
Goodwill amortization, nondeductible 807 453 196
State income taxes, net 693 150 651
Foreign loss (871) (593) -
Other, net (765) 256 12
--------- --------- ---------
Provision for income taxes $ 11,162 $ 11,275 $ 9,086
========= ========= =========
</TABLE>
54
<PAGE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
Deferred tax liabilities:
- ------------------------
Accelerated depreciation and amortization $ 18,270 $ 15,250
Federal effect of state income taxes 918 969
Other 460 1,016
------------ ------------
Total deferred tax liabilities 19,648 17,235
Deferred tax assets:
- -------------------
Net operating loss carryforwards 1,798 1,591
Tax credit carryforwards 1,958 2,074
Expenses not currently deductible 3,653 5,288
Federal effect of state income taxes 1,038 896
------------ ------------
Total deferred tax assets 8,447 9,849
Valuation allowance (895) (1,341)
------------- ------------
Net deferred tax assets 7,552 8,508
------------ ------------
Net deferred tax liability $ 12,096 $ 8,727
============ ============
</TABLE>
At December 31, 1999, the Company had a $895,000 valuation allowance to reduce
certain deferred tax assets to amounts that are more than likely not to be
realized. The majority of the valuation allowance relates to the Company's
potential inability to utilize state recycling credits.
At December 31, 1999, the Company had approximately $2,729,000 of unused net
operating loss carryforwards for foreign tax purposes, which do not expire, and
had approximately $13,603,000 for state purposes which expire in 2008 to 2014.
The majority of the net operating loss carryforwards were generated by the
Loudon, Tennessee, Bedford, Indiana and Houston, Texas facilities.
At December 31, 1999, the Company had $1,937,000 of unused state tax credit
carryforwards, $126,000 of which expire in 2004 to 2014, and $1,811,000 of which
do not expire.
Undistributed earnings of the Company's non-United States investment in a joint
venture amounted to approximately $2,429,000 at December 31, 1999. These
earnings are considered permanently reinvested and, accordingly, no additional
United States income taxes or non-U.S. withholding taxes have been provided.
Determination of the amount of additional taxes that would be payable if such
earnings were not considered indefinitely reinvested is not practical.
55
<PAGE>
NOTE F--LONG-TERM DEBT AND EXTRAORDINARY LOSS ON EARLY DEBT RETIREMENT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Revolving credit loans $ 200,000 $ 152,000
7.65% Morgantown, Kentucky Solid Waste
Disposal Facilities Revenue Bonds-1996 Series 5,693 5,690
7.45% Morgantown, Kentucky Solid Waste
Disposal Facilities Revenue Bonds-1997 Series 4,600 4,600
6.00% Morgantown, Kentucky Solid Waste
Disposal Facilities Revenue Bonds-1998 Series 4,100 3,421
Other 781 4,404
-------------- --------------
Subtotal 215,174 170,115
Less current maturities 181 1,415
-------------- --------------
Total $ 214,993 $ 168,700
============== ==============
</TABLE>
On October 25, 1999, the Company amended and restated the terms of its long-term
credit facility with its lenders (the "Second Amended and Restated Credit
Agreement"). The Second Amended and Restated Credit Agreement provides for a
credit facility of up to $250,000,000. The Company has the option to request
increases to the revolving credit commitment of up to $50,000,000 in the
aggregate, and these additional commitments could increase the revolving credit
facility to $300,000,000. The Second Amended and Restated Credit Agreement
allows the Company to issue up to $125,000,000 in convertible subordinated debt,
subject to certain terms and conditions. In addition, up to $12,000,000
available under the Second and Restated Credit Agreement may be used by the
Company for letters of credit. The entire balance of debt outstanding under the
Second Amended and Restated Credit Agreement will mature in December 2003.
Indebtedness under the Second Amended and Restated Credit Agreement bears
interest, at the Company's option, at fluctuating interest rates based upon an
alternate base rate (which may be the prime rate), or a rate based upon the
applicable LIBOR rate plus a credit margin which is based upon the Company's
ratio of total debt to total capitalization. In addition, the Company must pay a
commitment fee for unborrowed amounts available under the revolving credit
facility at a rate based upon the Company's ratio of debt to total
capitalization. As of December 31, 1999, the Company had $200,000,000 of
indebtedness outstanding under the Second Amended and Restated Credit Agreement
and had approximately $48,631,000 available for borrowing.
The Second Amended and Restated Credit Agreement imposes certain restrictions on
the Company, including: (i) a prohibition against incurring certain additional
indebtedness, (ii) maintenance of certain financial ratios, (iii) limitations on
dividends on and repurchases of shares of capital stock, and (iv) limitations on
capital expenditures, investments and acquisitions, except for mergers,
consolidations and acquisitions in any fiscal year having an aggregate
consideration of up to $75,000,000. The annual limitations for cash dividends on
capital stock are as follows: $6,000,000 per year for 1999 and 2000, and
$8,000,000 for each year after 2000.
56
<PAGE>
In addition, during January 2000, the Second Amended and Restated Credit
Agreement was amended to increase the aggregate maximum amount to be expended by
the Company for repurchases of its common stock to $35,000,000. The indebtedness
under the Second Amended and Restated Credit Agreement is secured by
substantially all of the Company's personal property (including inventories,
accounts receivable and equipment) and a first lien mortgage on certain real
property at seven of the Company's operating plants, as well as a pledge of the
capital stock of substantially all of the Company's subsidiaries.
In order to reduce the fluctuating interest rate exposure on the term loan, the
Company entered into an interest rate cap transaction agreement ("Rate Cap
Transaction") with the primary lender in April 1997. The cost associated with
this Rate Cap Transaction is being amortized as interest expense over the
four-year term of the agreement. Under the terms of this Rate Cap Transaction,
the Company's interest rate will not exceed 8% per annum for $29,600,000 (the
notional amount as of December 31, 1999) of the Company's outstanding
floating-rate debt. The notional amount covered under the Rate Cap Transaction
reduces quarterly until the amount of the cap reaches $22,800,000. As of
December 31, 1999, the floating interest rate was capped at 8% per annum for 15%
of the total borrowings under the credit agreement.
At December 31, 1999, the Company had standby letters of credit outstanding in
the aggregate amount of $2,415,000.
Early debt retirement generated an extraordinary loss of $1,318,000 in the first
quarter of 1997, which consisted of early payment penalties of $1,953,000,
write-off of old debt costs of $243,000 and an income tax benefit of $878,000.
The fair value of the Company's outstanding indebtedness under the Second
Amended and Restated Credit Agreement approximates its carrying value due to its
recent issuance, floating rate and relatively short maturity. The fair value of
the Company's fixed rate Revenue Bonds based on discounted cash flows and
incremental borrowing rates totals approximately $15,200,000.
Scheduled maturities of long-term debt subsequent to December 31, 1999 are as
follows:
<TABLE>
<S> <C>
2000 $ 181
2001 110
2002 110
2003 200,110
2004 105
After 2004 14,558
---------
Total $ 215,174
=========
</TABLE>
57
<PAGE>
NOTE G--NET EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
1999 1998 1997
------------- -------------- -------------
<S> <C> <C> <C>
Numerators for basic and diluted earnings per share:
Net earnings before extraordinary item $ 20,796 $ 19,590 $ 14,127
Extraordinary item - - (1,318)
------------- -------------- -------------
Net earnings $ 20,796 $ 19,590 $ 12,809
============= ============== =============
Denominator:
Denominator for basic earnings per share--
weighted-average shares 16,447,949 16,669,768 13,066,006
Dilutive potential common shares--stock options 106,740 132,300 226,698
------------- -------------- -------------
Denominator for diluted earnings per share 16,554,689 16,802,068 13,292,704
============= ============== =============
Basic net earnings per share:
Net earnings before extraordinary item $ 1.26 $ 1.18 $ 1.08
Extraordinary item - - (0.10)
------------- -------------- -------------
Net earnings $ 1.26 $ 1.18 $ 0.98
============= ============== =============
Diluted net earnings per share:
Net earnings before extraordinary item $ 1.26 $ 1.17 $ 1.06
Extraordinary item - - (0.10)
------------- -------------- -------------
Net earnings $ 1.26 $ 1.17 $ 0.96
============= ============== =============
</TABLE>
The following stock options were excluded from the computation of diluted
earnings per share because the effect would have been anti-dilutive, as the
options' exercise price was greater than the average market price of the common
stock:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Anti-dilutive stock options as of December 31 2,099,996 1,098,856 225,829
</TABLE>
NOTE H--EMPLOYEE BENEFIT PLANS
With the exception of the employees at the Company's U.S. Zinc facilities, the
Company's profit-sharing retirement plan covers most of its employees who meet
defined service requirements. Contributions are determined annually by the Board
of Directors and may be as much as 15% of covered salaries. Contributions for
1999, 1998 and 1997 were $2,302,000, $1,994,000 and $1,524,000, respectively.
The Company paid the 1999 and 1998 contributions in January 2000 and 1999,
respectively.
Subject to certain dollar limits, employees may contribute a percentage of their
salaries to this plan, and the Company matches a portion of the employees'
contributions. The Company's
58
<PAGE>
match of employee contributions totaled $876,000, $707,000 and $582,000 for
1999, 1998 and 1997, respectively.
NOTE I--STOCK OPTION PLANS
In 1990, the Company adopted an Amended and Restated Stock Option Plan. This
plan expired in 1997, and no further grants of options may be made under the
plan. This plan provided for the granting of nonqualified and incentive stock
options. The number of shares of common stock authorized for issuance under the
plan was 1,200,000 shares. Options granted under the plan had various vesting
periods and are exercisable for a period of 10 years from the date of grant,
although options may expire earlier because of termination of employment.
In 1992, the Company adopted the 1992 Stock Option Plan, which provides for the
granting of nonqualified and incentive stock options to employees, officers,
consultants and nonemployee members of the Board of Directors. Options granted
to employees under this plan have various vesting periods. Annually, nonemployee
directors will be granted nonqualified stock options exercisable after six
months from the date of grant, equal to the number of shares determined by
dividing the annual director fee amount by the fair market value of a share of
common stock as of the date of grant. All options granted under this plan, once
vested, are exercisable for a period of up to 10 years from the date of grant,
although options may expire earlier because of termination of employment or
service.
In 1996, the Company adopted the Annual Incentive Program, which provides
certain of the Company's key employees with annual incentive compensation tied
to the achievement of pre-established and objective performance goals. This plan
provides for the granting of stock options to key management employees on a
discretionary basis. Nonqualified and incentive stock options may be granted,
and the terms of the plan concerning the stock options are substantially the
same as the corresponding terms of the 1992 Stock Option Plan.
The 1992 Stock Option Plan and the 1996 Annual Incentive Program allow for the
payment of all or a portion of the exercise price and tax withholding
obligations in shares of the Company's common stock delivered and/or withheld.
Such payment or withholding will be valued at fair market value as of the date
of exercise. Participants making use of this feature will automatically be
granted a reload stock option to purchase a number of shares equal to the number
of shares delivered and/or withheld. When a reload stock option is granted, a
portion of the shares issued to the participant will be designated as restricted
stock for a period of five years, although the restriction may be removed
earlier under certain circumstances. Reload stock options have an exercise price
equal to the fair market value as of the date of exercise of the original
options and will expire on the same date as the original options.
In March 1998, the Company adopted the Executive Option Exercise Loan Program in
order to encourage option exercises and share retention by management employees
holding certain options under the Company's Amended and Restated Stock Option
Plan and to provide such management employees with a long-term capital
accumulation opportunity. This program provides loans to permit the exercise of
certain Company stock options under the Amended and Restated Stock Option Plan
and to pay federal and state taxes realized upon such exercises. Under this loan
program 35,000 and 196,800 shares were exercised in 1999 and 1998, respectively.
As of December 31, 1999, the Company had extended $2,266,000 in executive loans
to these
59
<PAGE>
individuals ($1,624,000 of which represented a reduction to additional paid-in
capital and $642,000 of which was included in other long-term assets) and
recorded $38,000 in interest income.
Transactions under the option plans are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- ----------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
--------------------- ----------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding Jan. 1 2,240,363 $ 14.71 1,868,433 $ 14.25 1,541,959 $ 13.65
Options granted 214,832 $ 11.49 627,696 $ 13.36 584,714 $ 15.84
Options exercised (62,647) $ 8.05 (227,200) $ 6.94 (117,767) $ 10.63
Options forfeited (50,520) $ 16.34 (28,566) $ 16.79 (140,473) $ 17.30
---------- ----------- ----------
Options outstanding Dec. 31 2,342,028 $ 14.56 2,240,363 $ 14.71 1,868,433 $ 14.25
========== =========== ==========
Options exercisable Dec. 31 1,571,098 $ 15.17 1,131,961 $ 15.11 958,285 $ 12.62
========== =========== ==========
</TABLE>
Information related to options outstanding at December 31, 1999, is summarized
below:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------- --------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Contractual Exercise Exercise
Exercise Prices Options Life Price Options Price
- -------------------------------------- --------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
$ 4.89 - $ 7.55 59,200 1.2 Years $ 7.55 59,200 $ 7.55
$ 10.00 - $ 13.75 1,191,139 7.2 Years $ 12.83 662,643 $ 13.27
$ 14.25 - $ 19.00 940,074 5.7 Years $ 15.87 697,640 $ 15.97
$ 22.75 - $ 23.38 151,615 5.6 Years $ 22.75 151,615 $ 22.75
-------------- ------------
2,342,028 1,571,098
============== ============
</TABLE>
The fair value of the Company's outstanding stock options was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Expected option life in years 3.9 4.0 3.4
Risk-free interest rate 5.94% 4.58% 6.13%
Volatility factor 0.329 0.312 0.293
Dividend yield 2.11% 1.80% 1.28%
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option
60
<PAGE>
valuation models require the input of highly subjective assumptions including
the expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options. For purposes of pro forma disclosures, the estimated
fair value of the options is amortized to expense over the options' vesting
period. In addition, because Statement of Financial Accounting Standards No. 123
("SFAS No. 123") is applicable only to options granted subsequent to December
31, 1994, the pro forma information does not reflect the pro forma effect of all
previous stock option grants of the Company. Therefore, the pro forma
information is not necessarily indicative of future amounts unless SFAS No. 123
is applied to all outstanding stock options.
The Company's pro forma information is as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1999 1998 1997
------------ ----------- ------------
<S> <C> <C> <C>
Net earnings before extraordinary item:
As reported $20,796 $19,590 $14,127
Pro forma $19,629 $18,528 $13,446
Net earnings per common share before extraordinary item:
As reported--basic $ 1.26 $ 1.18 $ 1.08
As reported--diluted $ 1.26 $ 1.17 $ 1.06
Pro forma--basic $ 1.19 $ 1.11 $ 1.03
Pro forma--diluted $ 1.19 $ 1.10 $ 1.01
Weighted-average fair value of options granted during the year $ 3.25 $ 3.56 $ 4.15
</TABLE>
NOTE J--EMPLOYEE STOCK PURCHASE PLAN
Effective July 1, 1999 the Company adopted a qualified, non-compensatory
employee stock purchase plan, which allows employees to acquire shares of common
stock through payroll deductions over a six-month period. The purchase price is
equal to 85% of the fair market value of the common stock on either the first or
last day of the offering period, whichever is lower. Purchases under the plan
are limited to 15% of an employee's eligible compensation. A total of 800,000
shares are available for purchase under the plan. For 1999, the Company issued
24,860 shares under the plan in January 2000.
NOTE K--OPERATIONS
The Company's operations, like those of other basic industries, are subject to
federal, state, local and foreign laws, regulations and ordinances. These laws
and regulations (1) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as
61
<PAGE>
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. It can be
anticipated that more rigorous environmental laws will be enacted that could
require the Company to make substantial expenditures in addition to those
described in this Form 10-K.
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 noncompliance under such
environmental laws would not have a material adverse effect on the Company's
financial position or results of operations.
In 1997, the Illinois Environmental Protection Agency ("IEPA") 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 have not yet been
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 liability at this site will
have a material adverse effect on its financial position or results of
operations.
The Company is also a party from time to time to what it believes are routine
litigation and proceedings considered part of the ordinary course of its
business. The Company believes that the outcome of such proceedings would not
have a material adverse effect on the Company's financial position or results of
operations.
NOTE L--SEGMENT INFORMATION
Description of the Types of Products and Services from which Each Reportable
- ----------------------------------------------------------------------------
Segment Derives its Revenues:
- ----------------------------
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 recovery activities, including investment in joint
ventures. The Company delivers aluminum in molten and ingot form to aluminum
producers, diecasters, extruders, steel and automotive companies and other
aluminum customers in the packaging, construction and transportation industries.
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. The Company sells zinc dust, oxides and metal to customers in the
tire and rubber, industrial paint, specialty chemical, mining and steel
galvanizing industries.
Measurement of Segment Profit or Loss and Segment Assets:
- --------------------------------------------------------
The accounting policies of the reportable segments are the same as those
described in NOTE A. The Company evaluates performance based on gross profit or
loss from operations, net of selling expenses. Provision for income taxes,
interest, corporate general and administrative costs, including depreciation of
corporate assets and amortization of capitalized debt costs, are not allocated
to the reportable segments. Intersegment sales and transfers are recorded at
market
62
<PAGE>
value; net profits on intersegment sales and transfers were immaterial for the
periods presented. Consolidated cash, net capitalized debt costs, net current
deferred tax assets and assets located at the Company's headquarters office in
Irving, Texas are not allocated to the reportable segments.
Factors Management Used to Identify the Company's Reportable Segments:
- ---------------------------------------------------------------------
The Company's reportable segments are business units that offer different types
of metal products and services. The reportable segments are each managed
separately, because they produce distinct products and services and sell to
different types of customers.
Reportable Segment Information:
- ------------------------------
Selected reportable segment disclosures for the three years ended December 31,
1999 are as follows:
<TABLE>
<CAPTION>
ALUMINUM ZINC TOTALS
---------------- --------------- --------------
<S> <C> <C> <C>
1999
- ----
Revenues from external customers $ 568,327 $ 196,504 $ 764,831
Segment income $ 52,974 $ 12,788 $ 65,762
Depreciation and amortization expense $ 20,718 $ 4,615 $ 25,333
Equity in earnings of affiliates $ 2,265 - $ 2,265
Segment assets $ 415,614 $ 109,377 $ 524,991
Equity investments in joint ventures $ 13,901 - $ 13,901
Payments for plant and equipment $ 19,612 $ 3,670 $ 23,282
1998
- ----
Revenues from external customers $ 470,722 $ 91,371 $ 562,093
Segment income $ 52,897 $ 4,218 $ 57,115
Depreciation and amortization expense $ 19,155 $ 2,402 $ 21,557
Equity in earnings of affiliates $ 1,750 - $ 1,750
Segment assets $ 328,891 $ 109,398 $ 438,289
Equity investments in joint ventures $ 14,502 - $ 14,502
Payments for plant and equipment $ 30,507 $ 1,518 $ 32,025
1997
- ----
Revenues from external customers $ 324,598 $ 12,779 $ 337,377
Segment income $ 43,411 $ 1,127 $ 44,538
Depreciation and amortization expense $ 15,162 $ 304 $ 15,466
Equity in earnings of affiliates $ 182 - $ 182
Segment assets $ 314,377 $ 9,235 $ 323,612
Equity investments in joint ventures $ 14,271 - $ 14,271
Payments for plant and equipment $ 32,623 $ 3,532 $ 36,155
</TABLE>
63
<PAGE>
Reconciliations of total reportable segment disclosures to the Company's
consolidated financial statements are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
PROFITS
- -------
Total profits for reportable segments $ 65,762 $ 57,115 $ 44,538
Unallocated amounts:
General and administrative expense (21,775) (17,360) (14,114)
Interest expense (12,478) (9,197) (7,331)
Interest and other income 795 585 413
------------ ------------ ------------
Income before provision for income taxes, minority interests
and extraordinary item $ 32,304 $ 31,143 $ 23,506
============ ============ ============
DEPRECIATION AND AMORTIZATION EXPENSE
- -------------------------------------
Total depreciation and amortization expense for reportable
segments $ 25,333 $ 21,557 $ 15,466
Other depreciation and amortization expense 1,705 1,271 1,045
------------ ------------ ------------
Total consolidated depreciation and amortization expense $ 27,038 $ 22,828 $ 16,511
============ ============ ============
ASSETS
- ------
Total assets for reportable segments $ 524,991 $ 438,289 $ 323,612
Other assets 18,646 18,269 8,924
------------ ------------ ------------
Total consolidated assets $ 543,637 $ 456,558 $ 332,536
============ ============ ============
PAYMENTS FOR PLANT AND EQUIPMENT
- --------------------------------
Total payments for plant and equipment for reportable segments $ 23,282 $ 32,025 $ 36,155
Other payments for plant and equipment 7,574 3,174 1,004
------------ ------------ ------------
Total consolidated payments for plant and equipment $ 30,856 $ 35,199 $ 37,159
============ ============ ============
</TABLE>
Geographic Information:
- ----------------------
The following table sets forth the geographic breakout of revenues (based on
customer location) and property and equipment (net of accumulated depreciation):
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
- --------
Domestic $ 658,261 $ 488,253 $ 327,933
Foreign 106,570 73,840 9,444
---------- ---------- ----------
Consolidated total $ 764,831 $ 562,093 $ 337,377
========== ========== ==========
PROPERTY AND EQUIPMENT
- ----------------------
Domestic $ 180,342 $ 157,844 $ 135,716
Foreign 9,645 10,661 6,384
---------- ---------- ----------
Consolidated total $ 189,987 $ 168,505 $ 142,100
========== ========== ==========
</TABLE>
Aluminum shipments to customers located in Canada accounted for approximately 8%
of consolidated revenues for 1999. Substantially all of the Company's foreign
property and equipment are located at the Company's aluminum facility in
Swansea, Wales.
64
<PAGE>
Major Customers:
- ---------------
During 1999 and 1997, no single customer accounted for more than 10% of
consolidated revenues. During 1998, aluminum sales to Ford Motor Company
("Ford") accounted for 10% of consolidated revenues. The loss of Ford as a
customer would have a material adverse effect upon the business of the Company
and its future operating results.
NOTE M--QUARTERLY FINANCIAL DATA (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
1999:
- ----
Revenues $ 172,778 $ 182,301 $ 196,347 $ 213,405 $ 764,831
Gross profits $ 17,198 $ 17,680 $ 18,200 $ 17,560 $ 70,638
Net earnings $ 5,141 $ 5,473 $ 5,645 $ 4,537 $ 20,796
Net earnings per common share:
Basic $ 0.31 $ 0.33 $ 0.34 $ 0.28 $ 1.26
Diluted $ 0.31 $ 0.33 $ 0.34 $ 0.28 $ 1.26
1998:
- ----
Revenues $ 126,364 $ 123,324 $ 151,406 $ 160,999 $ 562,093
Gross profits $ 13,187 $ 13,724 $ 15,584 $ 16,396 $ 58,891
Net earnings $ 4,611 $ 5,011 $ 4,968 $ 5,000 $ 19,590
Net earnings per common share:
Basic $ 0.28 $ 0.30 $ 0.29 $ 0.30 $ 1.18
Diluted $ 0.28 $ 0.30 $ 0.29 $ 0.30 $ 1.17
</TABLE>
NOTE N--RELATED PARTY TRANSACTION
The Company has entered into an agreement with one of the Company's executive
officers and his brother, both former stockholders of the U.S. Zinc Corporation,
under which the Company sold real property for $2,450,000 in exchange for cash
and a secured promissory note. The Company believes the sale price of the
property is equivalent to sale prices for comparable properties in the area. The
$2,440,000 note, due on June 30, 2002, bears interest at a rate of 8% per annum,
is payable in monthly installments, and is secured by a first lien mortgage on
the property. The transaction resulted in an after tax gain of approximately
$295,000.
NOTE O--COMMITMENTS
- -------------------
The Company has entered into an aluminum supply agreement with General Motors
Corporation to supply certain volumes of aluminum to their plant in Saginaw,
Michigan. As a result, the Company will spend approximately $15,300,000 to
construct a new plant facility near Saginaw, Michigan. Under the terms of the
agreement metal is expected to be delivered in late 2000.
65
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------
FINANCIAL DISCLOSURE
Not applicable.
66
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- --------
The information required by this item with respect to directors and nominees for
director of the Company appears under the captions "Election of Directors" and
"Remuneration of Directors and Officers -- Compliance with Section 16(a)" in the
definitive Proxy Statement (herein so called) of the Company relating to the
Company's 2000 Annual Meeting of Stockholders, to be filed with the Securities
and Exchange Commission (the "Commission") pursuant to Regulation 14A of the
Securities Exchange Act of 1934, which information is incorporated herein by
reference. It is currently anticipated that the Proxy Statement will be publicly
available and mailed to stockholders in early to mid-April 2000. Certain
information as to executive officers is included herein under PART I, ITEM 4A.
"EXECUTIVE OFFICERS OF THE REGISTRANT."
ITEM 11. EXECUTIVE COMPENSATION
- --------
The information required by this item appears under the caption "Remuneration of
Directors and Officers" in the definitive Proxy Statement, which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------
The information required by this item appears under the caption "Voting and
Principal Stockholders" in the definitive Proxy Statement, which information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------
The information required by this item appears under the captions "Remuneration
of Directors and Officers--Option Exercises and Holdings" and "--Certain
Transactions" and "Compensation Committee Report to Stockholders -- Compensation
Committee Interlocks and Insider Participation" in the definitive Proxy
Statement, which information is incorporated herein by reference.
67
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- --------
(a) The following documents are filed as part of this Annual Report on Form
10-K:
1. Consolidated Financial Statements: See index to Consolidated Financial
Statements and Financial Statement Schedules on Page 42 hereof.
2. Consolidated Financial Statement Schedules: See index to Consolidated
Financial Statements and Financial Statement Schedules on Page 42
hereof.
3. Exhibits:
--------
3.1 Certificate of Incorporation of IMCO Recycling Inc., as amended
May 13, 1998, filed as Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 1998,
and incorporated herein by reference.
*3.2 By-laws of IMCO Recycling Inc., as amended, effective as of March
24, 1999.
10.1 IMCO Recycling Inc. Amended and Restated Stock Option Plan, filed
as Exhibit 10.4 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997, and incorporated herein by
reference.
10.2 Specimen Split-Dollar Life Insurance Agreement, filed as Exhibit
10.7 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1998, and incorporated herein by reference.
This agreement is virtually identical to agreements between the
Company and Richard L. Kerr, Paul V. Dufour, Denis W. Ray, Thomas
W. Rogers, C. Lee Newton, Robert R. Holian, and James B. Walburg.
10.3 Supply Agreement between Commonwealth Aluminum Corporation and
the Company, dated April 1, 1999, filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1999, and incorporated herein by reference.
10.4 Agreement, effective as of January 1, 1994, between IMCO
Recycling Inc. and Aluminum Company of America, filed as Exhibit
10.11 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1998, and incorporated herein by reference.
10.5 First Amendment to processing agreement by and among the Rigid
Packaging division of Aluminum Company of America, the Company
and Metal Resources Inc., filed as Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended June
30, 1995, and incorporated herein by reference.
10.6 IMCO Recycling Inc. 1992 Stock Option Plan, as amended December
15, 1994, February 28, 1996, February 25, 1997, May 13, 1997 and
May 13, 1998, filed as
68
<PAGE>
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1998, and incorporated herein
by reference.
10.7 IMCO Recycling Inc. Annual Incentive Program, as amended February
25, 1997, April 1, 1997, May 13, 1997 and May 13, 1998, filed as
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1998, and incorporated herein
by reference.
10.8 Registration Rights Agreement dated as of November 14, 1997 among
IMCO Recycling Inc. and the former shareholders of Alchem
Aluminum, Inc., filed as Exhibit 10.4 to the Company's Current
Report on Form 8-K/A-2 dated September 18, 1997, and incorporated
herein by reference.
10.9 Executive Option Exercise Loan Program, dated March 10, 1998,
filed as Exhibit 10.1 to the Company's Quarterly Report for the
quarterly period ended March 31, 1998, and incorporated herein by
reference.
10.10 Memorandum of Purchase and Sale Agreement by and among IMCO
Recycling Inc., The Minette and Jerome Robinson Community
Property Trust, The Minette and Jerome Robinson Foundation, The
Minette and Jerome Robinson Charitable Remainder Trust, M. Russ
Robinson, Howard Robinson and Mindy Robinson Brown, dated July
21, 1998, filed as Exhibit 2.1 to the Company's Current Report on
Form 8-K, dated August 4, 1998, and incorporated herein by
reference.
10.11 Form of Common Stock Purchase Warrant, dated July 21, 1998, filed
as Exhibit 2.2 to the Company's Current Report on Form 8-K, dated
August 4, 1998, and incorporated herein by reference.
10.12 Second Amended and Restated Credit Agreement, by and among the
Company; Subsidiary Guarantors named therein; the Lenders
thereunder; Bank of America, N.A.; PNC Bank, National Association
and Chase Bank of Texas National Association dated October 25,
1999, filed as Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1999, and
incorporated herein by reference.
*10.13 First Amendment dated January 5, 2000, to the Second Amended and
Restated Credit Agreement, by and among the Company; Subsidiary
Guarantors named therein; the Lenders thereunder; Bank of
America, N.A.; PNC Bank, National Association and Chase Bank of
Texas National Association dated October 25, 1999.
10.14 IMCO Recycling Inc. Annual Incentive Compensation Plan, filed as
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1999, and incorporated herein
by reference.
10.15 Employee Stock Purchase Plan, filed as Exhibit 4.4 to the
Company's Form S-8 dated June 30, 1999, and incorporated herein
by reference.
*10.16 Registration Rights Agreement dated as of July 21, 1998 among
IMCO Recycling Inc. and the former shareholders of U.S. Zinc
Corporation.
69
<PAGE>
*10.17 Split-Dollar Life Insurance Agreement.
*10.18 IMCO Recycling Inc. Performance Share Unit Plan.
*21 Subsidiaries of IMCO Recycling Inc. as of March 1, 2000.
*23 Consent of Ernst & Young LLP.
*27.1 Financial Data Schedule.
*27.2 Restated Financial Data Schedule.
_________________
* Filed herewith.
(b) Reports on Form 8-K filed in fourth quarter 1999: None.
(c) See sub-item (a) above.
(d) See sub-item (a) above.
70
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated: March 10, 2000 IMCO Recycling Inc.
/s/ ROBERT R. HOLIAN
By:___________________________
Robert R. Holian, Senior Vice President,
Controller and Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------------------- -------------------------------------- --------------
<S> <C> <C>
Director, Chairman of the Board, Chief
/s/ DON V. INGRAM Executive Officer March 10, 2000
- ----------------------------------
Don V. Ingram
/s/ JOHN J. FLEMING Director March 10, 2000
- ----------------------------------
John J. Fleming
/s/ DON NAVARRO Director March 10, 2000
- ----------------------------------
Don Navarro
/s/ STEVE BARTLETT Director March 10, 2000
- ----------------------------------
Steve Bartlett
/s/ JEB HENSARLING Director March 10, 2000
- ----------------------------------
Jeb Hensarling
/s/ WILLIAM WARSHAUER Director March 10, 2000
- ----------------------------------
William Warshauer
/s/ HUGH G. ROBINSON Director March 10, 2000
- ----------------------------------
Hugh G. Robinson
Executive Vice President, Chief
/s/ PAUL V. DUFOUR Financial Officer and Secretary March 10, 2000
- ----------------------------------
Paul V. Dufour
Senior Vice President, Controller
/s/ ROBERT R. HOLIAN and Chief Accounting Officer March 10, 2000
- ----------------------------------
Robert R. Holian
</TABLE>
71
<PAGE>
EXHIBIT 3.2
TABLE OF CONTENTS
Page
----
ARTICLE I
---------
OFFICES
Section 1. Registered Office............................................. 1
Section 2. Other Offices................................................. 1
ARTICLE II
----------
MEETING OF STOCKHOLDERS
Section 1. Place of Meetings............................................. 1
Section 2. Annual Meetings............................................... 1
Section 3. Notice of Annual Meetings..................................... 3
Section 4. Special Meetings.............................................. 3
Section 5. Notice of Special Meetings.................................... 3
Section 6. Quorum........................................................ 3
Section 7. Organization.................................................. 4
Section 8. Order of Business............................................. 4
Section 9. Voting........................................................ 5
Section 10. List of Stockholders.......................................... 6
Section 11. Inspectors of Votes........................................... 6
Section 12. Actions Without a Meeting..................................... 6
ARTICLE III
-----------
BOARD OF DIRECTORS
Section 1. Powers........................................................ 7
Section 2. Number, Qualification and Term of Office...................... 7
Section 3. Resignations.................................................. 7
Section 4. Removal of Directors.......................................... 7
Section 5. Vacancies..................................................... 8
MEETINGS OF THE BOARD OF DIRECTORS
Section 6. Place of Meetings............................................. 9
Section 7. Annual Meetings............................................... 9
Section 8. Regular Meetings.............................................. 9
Section 9. Special Meetings; Notice...................................... 9
Section 10. Quorum and Manner of Acting................................... 9
<PAGE>
Section 11. Remuneration.................................................. 9
Page
----
COMMITTEES OF DIRECTORS
Section 12. Executive Committee: How Constituted and Powers............... 10
Section 13. Organization.................................................. 10
Section 14. Meetings...................................................... 10
Section 15. Quorum and Manner of Acting................................... 11
Section 16. Other Committees.............................................. 11
Section 17. Alternate Members of Committees............................... 11
Section 18. Minutes of Committees......................................... 11
GENERAL
Section 19. Actions Without a Meeting..................................... 12
Section 20. Presence at Meeting by Means of Communication Equipment....... 12
ARTICLE IV
----------
NOTICES
Section 1. Type of Notice................................................ 12
Section 2. Waiver of Notice.............................................. 12
ARTICLE V
---------
OFFICERS
Section 1. Elected and Appointed Officers................................ 12
Section 2. Time of Election or Appointment............................... 13
Section 3. Salaries of Elected Officers.................................. 13
Section 4. Term.......................................................... 13
Section 5. Duties of the Chairman of the Board........................... 13
Section 6. Duties of the President....................................... 13
Section 7. Duties of Vice President...................................... 14
Section 8. Duties of Assistant Vice Presidents........................... 14
Section 9. Duties of the Secretary....................................... 14
Section 10. Duties of Assistant Secretaries............................... 14
Section 11. Duties of the Controller...................................... 15
Section 12. Duties of Assistant Controllers............................... 15
ii
<PAGE>
Page
----
ARTICLE VI
----------
INDEMNIFICATION
Section 1. Actions Other Than by or in the Right of the Corporation...... 15
Section 2. Actions by or in the Right of the Corporation................. 16
Section 3. Determination of Right to Indemnification..................... 16
Section 4. Right to Indemnification...................................... 16
Section 5. Prepaid Expenses.............................................. 17
Section 6. Other Rights and Remedies..................................... 17
Section 7. Insurance..................................................... 17
Section 8. Mergers....................................................... 17
ARTICLE VII
-----------
CERTIFICATES OF STOCK
Section 1. Right to Certificate.......................................... 18
Section 2. Facsimile Signatures.......................................... 18
Section 3. New Certificates.............................................. 18
Section 4. Transfers..................................................... 18
Section 5. Record Date................................................... 19
Section 6. Registered Stockholders....................................... 19
ARTICLE VIII
------------
GENERAL PROVISIONS
Section 1. Dividends..................................................... 19
Section 2. Reserves...................................................... 19
Section 3. Annual Statement.............................................. 19
Section 4. Checks........................................................ 20
Section 5. Fiscal Year................................................... 20
Section 6. Corporate Seal................................................ 20
ARTICLE IX
----------
AMENDMENTS................................................................. 20
iii
<PAGE>
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation
---------- -----------------
shall be in the City of Wilmington, County of New Castle, State of Delaware.
Section 2. Other Offices. The Corporation may also have offices at such
---------- -------------
other place or places, both within and without the State of Delaware, as the
Board of Directors may from time to time determine or the business of the
Corporation may require.
ARTICLE II
MEETING OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders for the
---------- -----------------
election of directors shall be held in the City of Dallas, State of Texas, at
such place within such city as may be fixed from time to time by the Board of
Directors, or at such other place either within or without the State of Delaware
as shall be designated from time to time by the Board of Directors and stated in
the notice of the meeting. Meetings of stockholders for any other purpose may be
held at such time and place, within or without the State of Delaware, as shall
be stated in the notice of the meeting or in a duly executed waiver or notice
thereof.
Section 2. Annual Meetings.
---------- ---------------
(a) Annual meetings of stockholders shall be held on such date and
time as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting, at which the stockholders shall elect by a
plurality vote by written ballot a Board of Directors and transact such other
business as may properly be brought before the meeting, all as set forth in
paragraphs (b) and (c) below of this Section 2.
(b) At an annual meeting of stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (B) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (C) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than one hundred twenty
(120) calendar days in advance of the date specified in the Corporation's proxy
statement released to stockholders in connection with the previous year's annual
1
<PAGE>
meeting of stockholders; provided, however, that in the event that no annual
meeting was held in the previous year or the date of the annual meeting has been
changed by more than thirty (30) days from the date contemplated at the time of
the previous year's proxy statement, notice by the stockholder to be timely must
be so received not later than the close of business on the later of one hundred
twenty (120) calendar days in advance of such annual meeting date or ten (10)
calendar days following the date on which public announcement of the date of the
annual meeting is first made. A stockholder's notice to the Secretary shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting: (i) a brief description of the business desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address, as they appear on the Corporation's books,
of the stockholder proposing such business, (iii) the class and number of shares
of the Corporation which are beneficially owned by the stockholder, (iv) any
material interest of the stockholder in such business, and (v) any other
information that is required to be provided by the stockholder pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934
Act"), in his capacity as a proponent to a stockholder proposal.
Notwithstanding the foregoing, in order to include information with respect to a
stockholder proposal in the proxy statement and form of proxy for a
stockholders' meeting, stockholders must provide notice as required by the
regulations promulgated under the 1934 Act. Notwithstanding anything in these
Bylaws to the contrary, no business shall be conducted at any annual meeting
except in accordance with the procedures set forth in this paragraph (b). The
chairman of the annual meeting shall, if the facts warrant, determine and
declare at the meeting that business was not properly brought before the meeting
and in accordance with the provisions of this paragraph (b), and, if he should
so determine, he shall so declare at the meeting that any such business not
properly brought before the meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the procedures
set forth in this paragraph (c) shall be eligible for election as directors.
Nominations of persons for election to the board of directors of the Corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the Corporation entitled to vote in the
election of directors at the meeting who complies with the notice procedures set
forth in this paragraph (c). Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
in writing to the Secretary of the Corporation in accordance with the provisions
of paragraph (b) of this Section 2. Such stockholder's notice shall set forth
(i) as to each person, if any, whom the stockholder proposes to nominate for
election or re-election as a director: (A) the name, age, business address and
residence address of such person, (B) the principal occupation or employment of
such person, (C) the class and number of shares of the Corporation which are
beneficially owned by such person, (D) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are to
be made by the stockholder, and (E) any other information relating to such
person that is required to be disclosed in solicitations of proxies for
elections of directors, or is otherwise required, in each case
2
<PAGE>
pursuant to Regulation 14A under the 1934 Act (including without limitation such
person's written consent to being named in the proxy statement, if any, as a
nominee and to serving as a director if elected); and (ii) as to such
stockholder giving notice, the information required to be provided pursuant to
paragraph (b) of this Section 2. At the request of the Board of Directors, any
person nominated by a stockholder for election as a director shall furnish to
the Secretary of the Corporation that information required to be set forth in
the stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the Corporation unless nominated
in accordance with the procedures set forth in this paragraph (c). The chairman
of the meeting shall, if the facts warrant, determine and declare at the meeting
that a nomination was not made in accordance with the procedures prescribed by
these Bylaws, and if he should so determine, he shall so declare at the meeting,
and the defective nomination shall be disregarded."
Section 3. Notice of Annual Meetings. Written notice of the annual meeting,
---------- -------------------------
stating the place, date and hour of the meeting, shall be given to each
stockholder of record entitled to vote at such meeting not less than ten or more
than 60 days before the date of the meeting.
Section 4. Special Meetings. Special meetings of the stockholders for any
---------- ----------------
purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called at any time by order of the Board of
Directors and shall be called by the Chairman of the Board, the President or the
Secretary at the request in writing of a majority of the Board of Directors.
Such request shall state the purpose or purposes of the proposed special
meeting. Business transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice.
Section 5. Notice of Special Meetings. Written notice of a special meeting,
---------- --------------------------
stating the place, date and hour of the meeting and the purpose or purposes for
which the meeting is called, shall be given to each stockholder of record
entitled to vote at such meeting not less than ten nor more than 60 days before
the date of the meeting.
Section 6. Quorum. Except as otherwise provided by statute or the
---------- ------
Certificate of Incorporation, the holders of stock having a majority of the
voting power of the stock entitled to be voted thereat, present in person or
represented by proxy, shall constitute a quorum for the transaction of business
at all meetings of the stockholders. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy shall have
power to adjourn the meeting from time to time without notice (other than
announcement at the meeting at which the adjournment is taken of the time and
place of the adjourned meeting) until a quorum shall be present or represented.
At such adjourned meeting at which a quorum shall be present or represented any
business may be transacted which might have been transacted at the meeting as
originally notified. If the adjournment is for more than 30 days, or if after
the adjournment a new record date is
3
<PAGE>
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
Section 7. Organization. Meetings of stockholders shall be presided over by
---------- ------------
the Chairman of the Board, if any, or in his absence by the Chief Executive
Officer, if any, or in his absence by the President, if any, or in his absence
by an Executive Vice President, if any, or in the absence of the foregoing
persons by a chairman designed by the Board of Directors, or in the absence of
such designation by a chairman chosen at the meeting by the vote of a majority
in interest of the stockholders present in person or represented by proxy and
entitled to vote thereat. The Secretary or in his absence an Assistant Secretary
or in the absence of the Secretary and all Assistant Secretaries a person whom
the chairman of the meeting shall appoint shall act as secretary of the meeting
and keep a record of the proceedings thereof.
The Board of Directors of the corporation shall be entitled to make such
rules or regulations for the conduct of meetings of stockholders as it shall
deem necessary, appropriate or convenient. Subject to such rules and regulations
of the Board of Directors, if any, the chairman of the meeting shall have the
right and authority to prescribe such rules, regulations and procedures and to
do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on a participation in such meeting to stockholders of
record of the Corporation and their duly authorized and constituted proxies, and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting and matters which are to be voted
on by ballot. Unless and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure."
Section 8. Order of Business. The order of business at annual meetings of
---------- -----------------
stockholders and, so far as practicable, at other meetings of stockholders shall
be as follows unless changed by the vote of a majority in voting interest of
those present in person or by proxy at such meeting and entitled to vote
thereat:
(a) Call to order.
(b) Proof of due notice of meeting.
(c) Determination of quorum and examination of proxies.
(d) Announcement of availability of list of stockholders.
4
<PAGE>
(e) Reading and disposing of minutes of last meeting of stockholders.
(f) Announcement of purposes for which the meeting was called.
(g) Nomination of directors.
(h) Entertainment of motions with respect to other business that, in the
case of an annual meeting, has been properly brought before the
meeting as set forth in Section 2 of this Article II.
(i) Opening of polls or voting and collection of ballots.
(j) Reports of officers and committees.
(k) Report of voting judges.
(l) Other business.
(m) Adjournment.
Section 9. Voting. Except as otherwise provided in the Certificate of
---------- ------
Incorporation, each stockholder shall, at each meeting of the stockholders, be
entitled to one vote in person or by proxy for each share of stock of the
Corporation held by him and registered in his name on the books of the
Corporation on the date fixed pursuant to the provisions of Section 5 of Article
VII of these By-Laws as the record date for the determination of stockholders
who shall be entitled to notice of and to vote at such meeting. Shares of its
own stock belonging to the Corporation or to another corporation, if a majority
of the shares entitled to vote in the election of directors of such other
corporation is held directly or indirectly by the Corporation, shall not be
entitled to vote. Any vote by stock of the Corporation may be given at any
meeting of the stockholders by the stockholder entitled thereto, in person or by
his proxy appointed by an instrument in writing subscribed by such stockholder
or by his attorney thereunto duly authorized and delivered to the Secretary of
the Corporation or to the secretary of the meeting; provided, however, that no
proxy shall be voted or acted upon after three years from its date, unless said
proxy shall provide for a longer period. Each proxy shall be revocable unless
expressly provided therein to be irrevocable and unless otherwise made
irrevocable by law. At all meetings of the stockholders all matters, except
where other provision is made by law, the Certificate of Incorporation or these
By-Laws, shall be decided by the vote of a majority of the votes cast by the
stockholders present in person or by proxy and entitled to vote thereat, a
quorum being present. Unless demanded by a stockholder of the Corporation
present in person or by proxy at any meeting of the stockholders and entitled to
vote thereat, or so directed by the chairman of the meeting, the vote thereat on
any question other than the election or removal of directors need not be by
written ballot. Upon a demand of any such stockholder for a vote by written
ballot on any question or at the direction of such chairman that a vote by
written ballot be taken on any question, such
5
<PAGE>
vote shall be taken by written ballot. On a vote by written ballot, each ballot
shall be signed by the stockholder voting, or by his proxy, if there be such
proxy, and shall state the number of shares voted.
Section 10. List of Stockholders. It shall be the duty of the Secretary or
----------- --------------------
other officer of the Corporation who shall have custody of its stock ledger,
either directly or through another officer of the Corporation designated by him
or through a transfer agent appointed by the Board of Directors, to prepare and
make, at least ten days before every meeting of the stockholders, a complete
list of the stockholders entitled to vote thereat, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to said
meeting, either at a place within the city where said meeting is to be held,
which place shall be specified in the notice of said meeting, of, if not so
specified, at the place where said meeting is to be held. The list shall also be
produced and kept at the time and place of said meeting during the whole time
thereof, and may be inspected by any stockholder of record who shall be present
thereat. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, such list or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
Section 11. Inspectors of Votes. At each meeting of the stockholders, the
----------- -------------------
chairman of such meeting may appoint two Inspectors of Votes to act thereat,
unless the Board of Directors shall have theretofore made such appointments.
Each Inspector of Votes so appointed shall first subscribe an oath or
affirmation faithful to execute the duties of an Inspector of Votes at such
meeting with strict impartiality and according to the best of his ability. Such
Inspectors of Votes, if any, shall take charge of the ballots, if any, at such
meeting and after the balloting thereat on any question shall count the ballots
cast thereon and shall make a report in writing to the secretary of such meeting
of the results thereof. An Inspector of Votes need not be a stockholder of the
Corporation, and any officer of the Corporation may be an Inspector of Votes on
any question other than a vote for or against his election to any position with
the Corporation or on any other question in which he may be directly interested.
Section 12. Actions Without a Meeting. Any action required to be taken at
----------- -------------------------
any annual or special meeting of stockholders of the Corporation, or any action
which may be taken at any annual or special meeting of stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereat were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
6
<PAGE>
ARTICLE III
BOARD OF DIRECTORS
Section 1. Powers. The business and affairs of the Corporation shall be
---------- ------
managed by its Board of Directors, which shall have and may exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
statute, the Certificate of Incorporation or these By-Laws directed or required
to be exercised or done by the stockholders.
Section 2. Number, Qualification and Term of Office. The number of
---------- ----------------------------------------
directors which shall constitute the whole Board of Directors shall not be less
than three and shall be fixed from time to time exclusively by the Board of
Directors pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in the previously
authorized directorships at the time any such resolution is presented to the
Board of Directors for adoption). The directors shall be divided into three
classes as nearly equal in number as possible as set forth in the Corporation's
Certificate of Incorporation, as amended. Directors need not be stockholders. At
each annual meeting of stockholders following the initial classification and
election of directors as set forth in the Corporation's Certificate of
Incorporation, as amended, each director elected to succeed those directors
whose terms expire shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders after his election and until his
successor is elected and qualified or until his death or retirement or until he
shall resign or shall be removed in the manner hereinafter provided. Such
election shall be by written ballot.
Notwithstanding any other provisions of the By-Laws or any provision of law
which might otherwise permit a lesser vote or no vote, but in addition to any
affirmative vote of the holders of any particular class or series of capital
stock of the Corporation entitled to vote generally in the election of directors
(hereinafter referred to as the "Voting Stock") required by law or the
Corporation's Certificate of Incorporation or the resolution or resolutions of
the Board of Directors relating to the issuance thereof, the affirmative vote of
the holders of at least 60% of the voting power of all of the then-outstanding
shares of the Voting Stock, voting together as a single class, shall be required
to alter, amend, repeal, or adopt any provision inconsistent with this Section 2
of Article III.
Section 3. Resignations. Any director may resign at any time by giving
---------- ------------
written notice of his resignation to the Corporation. Any such resignation shall
take effect at the time specified therein, or, if the time when it shall become
effective shall not
7
<PAGE>
be specified therein, then it shall take effect immediately upon its receipt by
the Secretary. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 4. Removal of Directors. Subject to the right of the holders of any
---------- --------------------
particular class or series of Voting Stock then outstanding, any director, or
the entire Board of Directors, may be removed from office at any time, with or
without cause, but only by the affirmative vote by written ballot of the holders
of at least a majority of the voting power of all of the then-outstanding shares
of the Voting Stock, voting together as a single class. The vacancy in the Board
of Directors caused by any such removal shall be filled by the Board of
Directors as provided in Section 5 of this Article III.
Notwithstanding any other provisions of the By-Laws or any provision of law
which might otherwise permit a lesser vote or no vote, but in addition to any
affirmative vote of the holders of any particular class or series of Voting
Stock required by law or the Corporation's Certificate of Incorporation or the
resolution or resolutions of the Board of Directors relating to the issuance
thereof, the affirmative vote of the holders of at least 60% of the voting power
of all of the then-outstanding shares of the Voting Stock, voting together as a
single class, shall be required to alter, amend, repeal, or adopt any provision
inconsistent with this Section 4 of Article III.
Section 5. Vacancies. Subject to the rights of the holders of any class or
---------- ---------
series of the Voting Stock then outstanding, newly created directorship
resulting from any increase in the authorized number of directors or any
vacancies on the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause may be filled
by a majority vote of the directors then in office, though less than a quorum,
and directors so chosen shall hold office for a term expiring at the annual
meeting of stockholders at which the term of office of the class to which they
have been elected expires. No decrease in the number of authorized directors
constituting the entire Board of Directors shall shorten the term of any
incumbent director. If there are no directors in office, then an election of
directors may be held in the manner provided by statute.
Notwithstanding the foregoing, whenever the holders, if any of any series
of preferred stock of the Corporation shall have the right to elect directors at
an annual or special meeting of stockholders, the election, term of office,
filling of vacancies, and other features of such directorships shall be governed
by the terms of the Corporation's Certificate of Incorporation applicable
thereto, or the resolution or resolutions of the Board of Directors relating to
the issuance of such series of preferred stock, and such directors so elected
shall not be divided into classes pursuant to Section 2 of Article III unless
expressly provided by such terms or such resolution or resolutions.
Notwithstanding any other provisions of the By-Laws or any provision of
laws which might otherwise permit a lesser vote or no vote, but in addition to
any affirmative vote of the holders of any particular class or series of Voting
Stock required by law or the
8
<PAGE>
Corporation's Certificate of Incorporation or the resolution or resolutions of
the Board of Directors relating to the issuance thereof, the affirmative vote of
the holders of at least 60% of the voting power of all of the then-outstanding
shares of the Voting Stock, voting together as a single class, shall be required
to alter, amend, repeal, or adopt any provision inconsistent with this Section 5
of Article III.
MEETINGS OF THE BOARD OF DIRECTORS
Section 6. Place of Meetings. The Board of Directors of the Corporation may
---------- -----------------
hold meetings, both regular and special, either within or without the State of
Delaware.
Section 7. Annual Meetings. The first meeting of each newly elected Board
---------- ---------------
of Directors shall be held immediately following the annual meeting of
stockholders and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event such meeting is not held immediately following
the annual meeting of stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 8. Regular Meetings. Regular meetings of the Board of Directors may
---------- ----------------
be held without notice at such time and at such place as shall from time to time
be determined by the Board of Directors.
Section 9. Special Meetings; Notice. Special meetings of the Board of
---------- ------------------------
Directors may be called by the Chairman of the Board, President or Secretary on
24 hours notice to each director, either personally or by telephone or by mail,
telegraph, telex, cable, wireless or other form of recorded communication;
special meetings shall be called by the Chairman of the Board, President, or
Secretary in like manner and on like notice on the written request of two
directors. Notice of any such meeting need not be given to any director,
however, if waived by him in writing or by telegraph, telex, cable, wireless or
other form of recorded communication, or if he shall be present at such meeting.
Section 10. Quorum and Manner of Acting. At all meetings of the Board of
----------- ---------------------------
Directors, a majority of the directors at the time in office (but not less than
one-third of the whole Board of Directors) shall constitute a quorum for, the
transaction of business, and the act of a majority of the directors present at
any meeting at which a quorum is present shall be the act of the Board of
Directors, except as may be otherwise specifically provided by statute or by the
Certificate of Incorporation. If a quorum shall not be present at any meeting of
the Board of Directors, the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present.
9
<PAGE>
Section 11. Remuneration. Unless otherwise expressly provided by resolution
----------- ------------
adopted by the Board of Directors, none of the directors shall, as such, receive
any stated remuneration for his services, but the Board of Directors may at any
time and from time to time by resolution provide that a specified sum shall be
paid to any director of the Corporation, either as his annual remuneration as
such director or member of any committee of the Board of Directors or as
remuneration for his attendance at each meeting of the Board of Directors or any
such committee. The Board of Directors may also likewise provide that the
Corporation shall reimburse each director for any expenses paid by him on
account of his attendance at any meeting. Nothing in this Section 11 shall be
construed to preclude any director from serving the Corporation in any other
capacity and receiving remuneration therefor.
COMMITTEES OF DIRECTORS
Section 12. Executive Committee: How Constituted and Powers. The Board of
----------- -----------------------------------------------
Directors may in its discretion, by resolution passed by a majority of the whole
Board of Directors, designate an Executive Committee consisting of one or more
of the directors of the Corporation. Subject to the provisions of Section 141 of
The General Corporation Law of the State of Delaware, the Certificate of
Incorporation and these By-Laws, the Executive Committee shall have and may
exercise, when the Board is not in session, all the powers and authority of the
Board of Directors in the management of the business and affairs of the
Corporation, and shall have the power to authorize the seal of the Corporation
to be affixed to all paper which may require it; but the Executive Committee
shall not have the power to fill vacancies in the Board of Directors, the
Executive Committee or any other committee of directors, or to elect or approve
officers of the Corporation. The Executive Committee shall have the power and
authority to authorize the issuance of common stock and grant and authorize
options and other rights with respect to such issuance. The Board of Directors
shall have the power at any time, by resolution passed by a majority of the
whole Board of Directors, to change the membership of the Executive Committee,
to fill all vacancies in it, or to dissolve it, either with or without cause.
Section 13. Organization. The Chairman of the Executive Committee, to be
----------- ------------
selected by the Board of Directors, shall act as chairman at all meetings of the
Executive Committee and the Secretary shall act as secretary thereof. In case of
the absence from any meeting of the Executive Committee of the Chairman of the
Executive Committee or the Secretary, the Executive Committee may appoint a
chairman or secretary, as the case may be, of the meeting.
Section 14. Meetings. Regular meetings of the Executive Committee, of which
----------- --------
no notice shall be necessary, may be held on such days and at such places,
within or without the State of Delaware as shall be fixed by resolution adopted
by a majority of the Executive Committee and communicated in writing to all its
members. Special meetings of the Executive Committee shall be held whenever
called by the Chairman of the Executive Committee or a majority of the members
of the Executive Committee then
10
<PAGE>
in office. Notice of each special meeting of the Executive Committee shall be
given by mail, telegraph, telex, cable, wireless or other form of recorded
communication or be delivered personally or by telephone to each member of the
Executive Committee not later than the day before the day on which such meeting
is to be held. Notice of any such meeting need not be given to any member of the
Executive Committee, however if waived by him in writing or by telegraph, telex,
cable, wireless or other form of recorded communication, or if he shall be
present at such meeting; and any meeting of the Executive Committee shall be a
legal meeting without any notice thereof having been given, if all the members
of the Executive Committee shall be present thereat. Subject to the provisions
of this Article III, the Executive Committee, by resolution adopted by a
majority of the whole Committee shall fix its own rules of procedure.
Section 15. Quorum and Manner of Acting. A majority of the Executive
----------- ---------------------------
Committee shall constitute a quorum for the transaction of business, and the act
of a majority of those present at a meeting thereof at which a quorum is present
shall be the act of the Committee.
Section 16. Other Committees. The Board of Directors may, by resolution or
----------- ----------------
resolutions passed by a majority of the whole Board of Directors, designate one
or more other committees consisting of one or more directors of the Corporation,
which, to the extent provided in said resolution or resolutions, shall have and
may exercise, subject to the provisions of Section 141 of The General
Corporation Law of the State of Delaware, the Certificate of Incorporation and
these By-Laws, the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and shall have the
power to authorize the seal of the Corporation to be affixed to all papers which
may require it; but no such committee shall have the power to fill vacancies in
the Board of Directors, the Executive Committee or any other committee or in
their respective membership, appoint or remove officers of the Corporation, or
authorize the issuance of shares of the capital stock of the Corporation, except
that such a committee may, to the extent provided in said resolutions, grant and
authorize options and other rights to the common stock of the Corporation
pursuant to and in accordance with any plan approved by the Board of Directors.
Such committee or committees shall have such name or names as may be determined
from time to time by resolution adopted by the Board of Directors. A majority of
all the members of any such committee may determine its action and fix the time
and place of its meetings and specify what notice thereof, if any, shall be
given, unless the Board of Directors shall otherwise provide. The Board of
Directors shall have power, to change the members of any such committee at any
time to fill vacancies, and to discharge any such committee, either with or
without cause, at any time.
Section 17. Alternate Members of Committees. The Board of Directors may
----------- -------------------------------
designate one or more directors as alternate members of the Executive Committee
or any other committee, who may replace any absent or disqualified member at any
meeting of the committee, or if none be so appointed, the member of members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum,
11
<PAGE>
may unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member.
Section 18. Minutes of Committees. Each committee shall keep regular
----------- ---------------------
minutes of its meetings and proceedings and report the same to the Board of
Directors at the next meeting thereof.
GENERAL
Section 19. Actions Without a Meeting. Unless otherwise restricted by the
----------- --------------------------
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
the committee.
Section 20. Presence at Meeting by Means of Communications Equipment.
----------- --------------------------------------------------------
Members of the Board of Directors, or of any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 20 shall constitute
presence in person at such meeting.
ARTICLE IV
NOTICES
Section 1. Type of Notice. Whenever, under the provisions of the statutes,
---------- --------------
the Certificate of Incorporation or these By-Laws, notice is required to be
given to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, in person or by mail, addressed
to such director or stockholder, at his address as it appears on the record of
the Corporation, with postage thereon prepaid, and such notice shall be deemed
to be given at the time when the same shall be deposited in the United States
mail. Notice to directors may also be given in any manner permitted by Article
III hereof and shall be deemed to be given at the time when first transmitted by
the method of communication so permitted.
Section 2. Waiver of Notice. Whenever any notice is required to be given
---------- ----------------
under the provision of the statutes, the Certificate of Incorporation or these
By-Laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether, before or after the time stated therein, shall be
deemed equivalent thereto, and
12
<PAGE>
transmission of a waiver of notice by a director of stockholder by mail,
telegraph, telex, cable, wireless or other form of recorded communication may
constitute such a waiver.
ARTICLE V
OFFICERS
Section 1. Elected and Appointed Officers. The elected officers of the
---------- ------------------------------
Corporation shall be a President, one or more Vice Presidents, with or without
such descriptive titles as the Board of Directors shall deem appropriate, a
Secretary and a Controller, and, if the Board of Directors so elects, a Chairman
of the Board (who shall be a director). The Board of Directors or the Executive
Committee of the Board of Directors by resolution also may appoint one or more
Assistant Vice Presidents, Assistant Secretaries, Assistant Controllers, and
such other officers and agents as from time to time may appear to be necessary
or advisable in the conduct of the affairs of the Corporation.
Section 2. Time of Election or Appointment. The Board of Directors at its
---------- -------------------------------
annual meeting shall elect and appoint, as the case may be, officers to fill the
positions designated in or pursuant to Section 1 of this Article V. Officers of
the Corporation may also be elected or appointed, as the case may be, at any
other time.
Section 3. Salaries of Elected Officers. The salaries of all elected
---------- ----------------------------
officers of the Corporation shall be fixed by the Board of Directors.
Section 4. Term. Each officer of the Corporation shall hold his office
---------- ----
until his successor is elected or appointed and qualified or until his earlier
resignation or removal. Any officer may resign at any time upon written notice
to the Corporation. Any officer elected or appointed by the Board of Directors
or the Executive Committee may be removed at any time by the affirmative vote of
a majority of the whole Board of Directors. Any vacancy occurring in any office
of the Corporation by death, resignation, removal or otherwise may be filled by
the Board of Directors or the appropriate committee thereof.
Section 5. Duties of the Chairman of the Board. The Chairman of the Board,
---------- -----------------------------------
if one be elected, shall preside when present at all meetings of the Board of
Directors and shall preside at meetings of the stockholders. He shall advise and
counsel the President and other officers of the Corporation, and shall exercise
such powers and perform such duties as shall be assigned to or required of him
from time to time by the Board of Directors.
Section 6. Duties of the President. The President, subject to the
---------- -----------------------
provisions of these By-laws, shall have general supervision of the affairs of
the Corporation and shall have general and active control of all its business.
He shall preside, in the absence of the Chairman of the Board or any other
person designated to do so by
13
<PAGE>
these By-Laws, at all meetings of the Board of Directors and at meetings of the
stockholders. He shall see that all orders and resolutions of the Board of
Directors and the stockholders are carried into effect. He shall have general
authority to execute bonds, deeds and contracts in the name of the Corporation
and affix the corporate seal thereto; to sign stock certificates; to cause the
employment or appointment of such employees and agents of the Corporation as the
proper conduct of operations may require, and to fix their compensation, subject
to the provisions of these By-Laws; to remove or suspend any employee or agent
who shall have been employed or appointed under his authority or under authority
of an officer subordinate to him; to suspend for cause, pending final action by
the authority which shall have elected or appointed him, any officer subordinate
to the President, and, in general, to exercise all the powers and authority
usually appertaining to the president of a corporation, except as otherwise
provided in these By-Laws.
Section 7. Duties of Vice Presidents. In the absence of the President or in
---------- -------------------------
the event of his inability or refusal to act, the Vice President (or in the
event there be more than one Vice President, the Vice Presidents in the order
designated, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall perform such other duties and have such
other powers as the Board of Directors or the President may from time to time
prescribe.
Section 8. Duties of Assistant Vice Presidents. In the absence of a Vice
---------- -----------------------------------
President or in the event of his inability or refusal to act, the Assistant Vice
President (or in the event there shall be more than one, the Assistant Vice
Presidents in the order designated by the Board of Directors, or in the absence
of any designation, then in the order of their appointment) shall perform the
duties and exercise the powers of that Vice President, and shall perform such
other duties and have such other powers as the Board of Directors, the President
or the Vice President under whose supervision he is appointed may from time to
time prescribe.
Section 9. Duties of the Secretary. The Secretary shall attend all meetings
---------- -----------------------
of the Board of Directors and all meetings of the stockholders and record all
the proceedings of the meetings of the Corporation and of the Board of Directors
in a book to be kept for that purpose and shall perform like duties for the
Executive Committee or other standing committees when required. He shall give,
or cause to be given, notice of all meetings of the stockholders and special
meetings of the Board of Directors, and shall perform such other duties as may
be prescribed by the Board of Directors or the President, under whose
supervision he shall be. He shall have custody of the corporate seal of the
Corporation and he, or an Assistant Secretary, shall have authority to affix the
same to any instrument requiring it, and when so affixed, it may be attested by
his signature or, by the signature of such Assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the Corporation and to attest the affixing by his signature. The Secretary shall
keep and account for all books,
14
<PAGE>
documents, papers and records of the Corporation except those for which some
other officer or agent is properly accountable. He shall have authority to sign
stock certificates and shall generally perform all the duties usually
appertaining to the office of the secretary of a corporation.
Section 10. Duties of Assistant Secretaries. In the absence of the
----------- -------------------------------
Secretary or in the event of his inability or refusal to act, the Assistant
Secretary (or, if there shall be more than one, the Assistant Secretaries in the
order designated by the Board of Directors, or in the absence of any
designation, then in the order of their appointment) shall perform the duties
and exercise the powers of the Secretary and shall perform such other duties and
have such other powers as the Board of Directors, the President or the Secretary
may from time to time prescribe.
Section 11. Duties of the Controller. The Controller shall have the custody
----------- ------------------------
of the corporate funds and securities and shall keep full and accurate accounts
of receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements, and shall
render to the President and the Board of Directors, at its regular meetings, or
when the Board of Directors so requires, an account of all his transactions as
Controller and of the financial condition of the Corporation. If required by the
Board of Directors, he shall give the Corporation a bond (which shall be renewed
every six years) in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation. The Controller shall also have
supervision of the accounting practices of the Corporation and of each
subsidiary and division of the Corporation, and shall prescribe the duties and
powers of the chief accounting personnel of the subsidiaries and divisions. He
shall cause to be maintained an adequate system of financial control through a
program of budget and interpretive reports. He shall initiate and enforce
measures and procedures whereby the business of the Corporation and its
subsidiaries and divisions shall be conducted with the maximum safety,
efficiency and economy. He shall prepare a monthly report covering the operating
results of the Corporation, its subsidiaries and divisions. The Controller shall
be under the supervision of the Vice President, in charge of finance, if one is
so designated, and he shall perform such other duties as may be prescribed by
the Board of Directors, the President or any such Vice President in charge of
finance.
Section 12. Duties of Assistant Controllers. The Assistant Controller or
----------- -------------------------------
Assistant Controllers shall assist the Controller, and in the absence of the
Controller or in the event of his inability or refusal to act, the Assistant
Controller (or, if there shall be more than one, the Assistant Controllers in
the order designed by the Board of Directors, or in the absence of any
designation, then in the order of their appointment), shall
15
<PAGE>
perform the duties and exercise the powers of the Controller and perform such
other duties and have such other powers as the Board of Directors, the President
or the Controller may from time to time prescribe.
ARTICLE VI
INDEMNIFICATION
Section 1. Actions Other Than by or in the Right of the Corporation. The
---------- --------------------------------------------------------
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or contemplated action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Corporation) by reason of the fact that he
is or was a director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation and, with respect to any criminal action or proceeding, that he had
reasonable cause to believe that his conduct was unlawful.
Section 2. Actions by or in the Right of the Corporation. The Corporation
---------- ---------------------------------------------
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or contemplated action or suit by or in the
right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
16
<PAGE>
Section 3. Determination of Right to Indemnification. Any indemnification
---------- -----------------------------------------
under Sections 1 or 2 of this Article VI (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because he has met the applicable standard of
conduct set forth in Section 1 or 2 of this Article VI. Such determination shall
be made (i) by the Board of Directors by a majority vote of a quorum consisting
of directors who were not parties to such action, suit or proceeding, or (ii) if
such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (iii) by the stockholders.
Section 4. Right to Indemnification. Notwithstanding the other provisions
---------- ------------------------
of this Article VI, to the extent that a director, officer, employee or agent of
a corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 1 or 2 of this Article VI, or
in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
Section 5. Prepaid Expenses. Expenses incurred in defending a civil or
---------- ----------------
criminal action, suit or proceeding may be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized in this Article VI.
Section 6. Other Rights and Remedies. The indemnification and advancement
---------- -------------------------
of expenses provided by, or granted pursuant to, this Article VI shall not be
deemed exclusive of any other rights to which any person seeking indemnification
or advancement of expenses may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 7. Insurance. Upon resolution passed by the Board of Directors, the
---------- ---------
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this Article VI.
17
<PAGE>
Section 8. Mergers. For purposes of this Article VI, references to "the
---------- -------
Corporation" shall include, in addition to the resulting or surviving
corporation, constituent corporations (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents, so that any person who is or was a
director, officer, employee, or agent of such constituent corporation or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise shall stand in the same position under the provisions
of this Article VI with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
ARTICLE VII
CERTIFICATES OF STOCK
Section 1. Right to Certificate. Every holder of stock in the Corporation
---------- --------------------
shall be entitled to have a certificate, signed by, or in the name of the
Corporation by, the Chairman of the Board, the President or a Vice President,
and the Secretary or an Assistant Secretary of the Corporation certifying the
number of shares owned by him in the Corporation. If the Corporation shall be
authorized to issue more than one class of stock or more than one series of any
class, the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights shall be set forth in full or summarized on the face or back of the
certificate which the Corporation shall issue to represent such class or series
of stock, provided that, except as otherwise provided in Section 202 of the
General Corporation Law of the State of Delaware, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the Corporation shall issue to represent such class or series of stock, a
statement that the Corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Section 2. Facsimile Signatures. Any of or all the signatures on the
---------- ---------------------
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
18
<PAGE>
Section 3. New Certificates. The Board of Directors may direct a new
---------- ----------------
certificate or certificates theretofore issued by the Corporation and alleged to
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and/or to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen or
destroyed or the issuance of such new certificate.
Section 4. Transfers. Upon surrender to the Corporation or the transfer
---------- ---------
agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation, subject to any proper
restrictions on transfer, to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Section 5. Record Date. In order that the Corporation may determine the
---------- -----------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be less than ten nor more than 60 days before the date of such
meeting, nor more than 60 days prior to any other action. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
In order for business to have been properly brought before an annual meeting of
stockholders by a stockholder pursuant to Section 2 of Article II of these
Bylaws, such stockholder must be a stockholder on the record date, if any, fixed
for such annual meeting.
Section 6. Registered Stockholders. The Corporation shall be entitled to
---------- -----------------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any person, whether or not
provided by the laws of the State of Delaware.
ARTICLE VIII
GENERAL PROVISIONS
19
<PAGE>
Section 1. Dividends. Dividends upon the capital stock of the Corporation,
---------- ---------
subject to the provisions of the Certificate of Incorporation, if any, may be
declared by the Board of Directors (but not any committee thereof) at any
regular meeting, pursuant to law. Dividends may be paid in cash, in property or
in shares of the capital stock, subject to the provision of the Certificate of
Incorporation.
Section 2. Reserves. Before payment of any dividend, there may be set aside
---------- --------
out of any funds of the Corporation available for dividends such sum or sums as
the Board of Directors from time to time, in their absolute discretion, thinks
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the Board of Directors shall think conducive to the
interest of the Corporation, and the Board of Directors may modify or abolish
any such reserve in the manner in which it was created.
Section 3. Annual Statement. The Board of Directors shall present at each
---------- ----------------
annual meeting, and at any special meeting of the stockholders when called for
by vote of the stockholders, a full and clear statement of the business and
condition of the Corporation.
Section 4. Checks. All checks or demands for money and notes of the
---------- ------
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time prescribe.
Section 5. Fiscal Year. The fiscal year of the Corporation shall be
---------- -----------
determined by the Board of Directors.
Section 6. Corporate Seal. The corporate seal shall have inscribed thereon
---------- --------------
the name of the Corporation, the year of its organization and the word
"Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed, affixed, reproduced or otherwise.
ARTICLE IX
AMENDMENTS
These By-Laws may be altered, amended or repealed or new By-Laws may be
adopted by the stockholders or by the Board of Directors at any regular meeting
of the stockholders or the Board of Directors or at any special meeting of the
stockholders or the Board of Directors if notice of such alteration, amendment,
repeal or adoption of new By-Laws be contained in the notice of such special
meeting.
20
<PAGE>
EXHIBIT 10.13
FIRST AMENDMENT TO THE
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO THE SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(the "Amendment") dated as of January 5, 2000 is executed by and among IMCO
Recycling Inc. ("Borrower"), the Subsidiary Guarantors to the Credit Agreement
(hereinafter defined), the Lenders to the Credit Agreement and Chase Bank of
Texas, National Association ("Administrative Agent"), in its capacity as
Administrative Agent under the Credit Agreement.
RECITALS:
A. Borrower, Subsidiary Guarantors, Lenders and Administrative Agent are
parties to that certain Second Amended and Restated Credit Agreement, dated
as of October 25, 1999 (the "Credit Agreement"), pursuant to which Lenders
have made revolving credit commitments to Borrower in the amount of up to
$250,000,000.
B. Borrower, Subsidiary Guarantors, Lenders and Administrative Agent desire to
amend the Credit Agreement in accordance with the terms hereinafter set
forth pursuant to the amendment procedures specified in Section 12.04 of
the Credit Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. Defined Terms. All capitalized terms used herein and not otherwise
defined shall have the meaning given to such term in the Credit Agreement.
2. Amendment to Section 9.10(b)(i) of the Credit Agreement. Section
------------------ -------
9.10(b)(i) of the Credit Agreement is hereby amended by deleting Subsection
- ----------
9.10(b)(i) in its entirety and replacing it with the following:
"(i) purchases by Borrower of shares of its common stock, provided
that the sum of the aggregate amount expended by Borrower for such
purchases, plus the aggregate amount expended by Borrower for purchases of
its common stock during the period from and including September 8, 1998 to
and including the date of determination shall not exceed $35,000,000,"
;so that following such amendment, Section 9.10(b) of the Credit Agreement
--------------
reads in its entirety as follows:
"(b) the following Dividend Payments shall be permitted so long as no
Default or Event of Default shall have occurred and be continuing at the
time of such Dividend Payment nor would result therefrom: (i) purchases by
Borrower of shares of its common stock, provided that the sum of the
aggregate amount expended by Borrower for such purchases, plus the
aggregate amount expended by Borrower for
1
<PAGE>
purchases of its common stock during the period from and including
September 8, 1998 to and including the date of determination shall not
exceed $35,000,000, (ii) prior to the issuance of the Subordinated Debt and
the Trust Preferred Securities, if any, Borrower may declare and make cash
Dividend Payments on its capital stock (other than purchases of its common
stock permitted by clause (i) above) not to exceed in the aggregate
$6,000,000 in each of fiscal 1999 and fiscal 2000, and $8,000,000 in any
fiscal year thereafter, (iii) after the issuance of the Subordinated Debt
and the Trust Preferred Securities, if any, Borrower may declare and make
cash Dividend Payments on its capital stock not to exceed in the aggregate
$8,000,000 in each of fiscal 1999 and fiscal 2000, and $11,000,000 in any
fiscal year thereafter, and (iv) the issuer of the Trust Preferred
Securities may make scheduled Dividend Payments on the Trust Preferred
Securities."
3. Amendment to Section 8.13 of the Credit Agreement. Section 8.13 of
------------
the Credit Agreement is hereby amended by adding the following clause to the end
of the first sentence:
", except for stock purchases expressly permitted by this Agreement,
so long as such purchases do not result in a violation of Regulation T, U
or X."
;so that following such amendment, Section 8.13 of the Credit Agreement
------------
reads in its entirety as follows:
"8.13. Use of Proceeds. Neither Borrower nor any Subsidiary is
---------------
engaged principally, or as one of its important activities, in the business
of extending credit for the purpose, whether immediate, incidental or
ultimate, of buying or carrying Margin Stock and no part of the proceeds of
any extension of credit hereunder will be used to purchase or carry any
Margin Stock, except for stock purchases expressly permitted by this
Agreement, so long as such purchases do not result in a violation of
Regulation T, U or X. On and after the date hereof, Borrower will use
drawings under the Revolving Credit Commitments for (i) ongoing working
capital and general corporate requirements of Borrower and its
Subsidiaries, including the issuance of Letters of Credit; and (iii) the
financing of permitted Acquisitions."
4. No Further Amendments. Except as modified and amended by this
Amendment, the Credit Agreement shall remain in full force and effect with no
other changes or amendments.
5. Counterparts. This Amendment may be executed in counterparts and by
different parties on separate counterparts, each of which shall constitute an
original, and all of which together shall constitute one and the same Amendment.
This Amendment may be validly executed and delivered by facsimile or other
electronic transmission.
6. Expenses. Borrower hereby agrees to pay or reimburse all reasonable
out-of-pocket costs and expenses incurred by Administrative Agent and the
Lenders in connection with the preparation, execution and delivery of this
Amendment, including but not limited to reasonable attorney's fees and expenses.
7. Ratifications. Borrower (a) ratifies and confirms all provisions of
the Credit Agreement as amended by this Amendment, (b) ratifies and confirms
that all guaranties, assurances and Liens granted, conveyed or assigned to
Administrative Agent under the Basic Documents (as they may have been renewed,
extended and amended) are not released, reduced or otherwise adversely affected
by this Amendment and continue to guarantee, assure and secure full payment and
2
<PAGE>
performance of the present and future Obligations, and (c) agrees to perform
such acts and duly authorize, execute, acknowledge, deliver, file and record
such additional documents and certificates as Administrative Agent may
reasonably request in order to create, perfect, preserve and protect those
guaranties, assurances and Liens.
8. Representations. Borrower represents and warrants to Administrative
Agent and Lenders that as of the date of this Amendment (a) all representations
and warranties in the Credit Agreement are true and correct in all material
respects except to the extent that (i) any of them speak to a different specific
date or (ii) the facts on which any of them were based have been changed by
transactions contemplated or permitted by the Credit Agreement, and (b) no Event
of Default exists.
9. Effective Date. The agreements and amendments set forth herein shall
not be effective until executed by the Obligors, the Administrative Agent and
Lenders which constitute "Majority Lenders" as defined in the Credit Agreement,
whereupon this Amendment shall become a binding agreement, enforceable in
accordance with its terms.
* * * * *
EXECUTED as of the 5th day of January, 2000.
OBLIGORS:
IMCO RECYCLING INC.
By:
-----------------------------------
Name: James B. Walburg
Title: Senior Vice President
IMCO MANAGEMENT PARTNERSHIP L.P.
By: IMCO Recycling Inc., its General Partner
By:
-----------------------------------
Name: James B. Walburg
Title: Senior Vice President
IMCO INDIANA PARTNERSHIP L.P.
By: IMCO Energy Corp., its General Partner
By:
-----------------------------------
Name: James B. Walburg
Title: Vice President
3
<PAGE>
ALCHEM ALUMINUM, INC.
ALCHEM ALUMINUM SHELBYVILLE, INC.
B & F METALS, INC.
GULF REDUCTION CORPORATION
IMCO ENERGY CORP.
IMCO INTERNATIONAL, INC.
IMCO INVESTMENT COMPANY
IMCO RECYCLING OF CALIFORNIA, INC.
IMCO RECYCLING OF IDAHO INC.
IMCO RECYCLING OF ILLINOIS INC.
IMCO RECYCLING OF INDIANA INC.
IMCO RECYCLING OF MICHIGAN, L.L.C.
IMCO RECYCLING OF OHIO INC.
IMCO RECYCLING OF UTAH INC.
IMSAMET, INC.
INTERAMERICAN ZINC, INC.
METALCHEM, INC.
MIDWEST ZINC CORPORATION
PITTSBURG ALUMINUM, INC.
ROCK CREEK ALUMINUM, INC.
U.S. ZINC CORPORATION
U.S. ZINC EXPORT CORPORATION
WESTERN ZINC CORPORATION
By:
-----------------------------------
Name: James B. Walburg
Title: Vice President of each above-named
Obligors
LENDERS:
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as
Lender and Administrative Agent
By:
-----------------------------------
Name:
----------------------------------
Title:
---------------------------------
4
<PAGE>
BANK OF AMERICA, N.A., as Syndication Agent
and a lender
By:
-----------------------------------
Name:
----------------------------------
Title:
---------------------------------
MERRILL LYNCH CAPITAL CORPORATION,
as a Lender
By:
-----------------------------------
Name:
----------------------------------
Title:
---------------------------------
BANK OF TOKYO-MITSUBISHI, LTD,
as a Lender
By:
-----------------------------------
Name:
----------------------------------
Title:
---------------------------------
BANK ONE, NA, as a Lender
By:
-----------------------------------
Name:
----------------------------------
Title:
---------------------------------
PNC BANK, NATIONAL ASSOCIATION, as Documentation
Agent and a Lender
By:
-----------------------------------
Name:
----------------------------------
Title:
---------------------------------
DG BANK DEUTSCHE
GENOSSENSCHAFTSBANK, AG, as a Lender
By:
-----------------------------------
5
<PAGE>
Name:
----------------------------------
Title:
---------------------------------
FIRST AMERICAN NATIONAL BANK, as a Lender
By:
-----------------------------------
Name:
----------------------------------
Title:
---------------------------------
NATIONAL CITY BANK, as a Lender
By:
-----------------------------------
Name:
----------------------------------
Title:
---------------------------------
AMSOUTH BANK, as a Lender
By:
-----------------------------------
Name:
----------------------------------
Title:
---------------------------------
COMERICA BANK, as a Lender
By:
-----------------------------------
Name:
----------------------------------
Title:
---------------------------------
WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION, as
a Lender
By:
-----------------------------------
Name:
----------------------------------
Title:
---------------------------------
6
<PAGE>
BANK HAPOALIM, SAN FRANCISCO BRANCH, as a Lender
By:
-----------------------------------
Name:
----------------------------------
Title:
---------------------------------
7
<PAGE>
EXHIBIT 10.16
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into as of July 21, 1998, by and between IMCO Recycling Inc., a Delaware
corporation (the "Company"), and the Stockholders (as defined below).
RECITALS
--------
WHEREAS, the Company and the Stockholders have entered into a Memorandum of
Purchase and Sale Agreement dated July 21, 1998 (the "Purchase Agreement"),
pursuant to which the Company has acquired all of the issued and outstanding
capital stock of U.S. Zinc Corporation, a Delaware corporation; and
WHEREAS, pursuant to the Purchase Agreement, each of the Stockholders has
acquired shares of the Company's common stock, $0.10 par value per share
("Common Stock") and certain warrants (the "Warrants") to acquire shares of
Common Stock (the shares acquired pursuant to the Purchase Agreement and
acquired upon exercise or in exchange for the Warrant in accordance with its
terms being collectively referred to herein as the "Shares"); and
WHEREAS, the Company wishes to grant each of the Stockholders certain
registration rights upon and subject to the terms and conditions as set forth
herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein and in the Purchase Agreement, the parties hereby agree as follows:
1. Certain Definitions. In addition to the other capitalized terms
-------------------
defined throughout this Agreement, as used in this Agreement, the following
terms shall have the meanings set forth below:
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Registrable Securities" shall mean (i) the Shares and any and all shares
of Common Stock issued or issuable at any time or from time to time in respect
of which the Company has previously or may in the future grant in writing
registration rights and (ii) any Common Stock issued or issuable at any time or
from time to time in respect of the Shares or the Registrable Securities upon a
stock split, stock dividend, recapitalization or other similar event involving
the Company.
The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering by the
Commission of the effectiveness of such registration statement.
1
<PAGE>
"Registration Expenses" shall mean all expenses, other than Selling
Expenses (as defined below), incurred by the Company in complying with Section 2
hereof, including, without limitation, all registration, qualification and
filing fees, exchange listing fees, printing expenses, escrow fees, fees and
disbursements of counsel for the Company, blue sky fees and expenses and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company).
"S-3 Demand Registration" shall have the meaning ascribed to such term in
Section 2.1(e).
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean the underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
a Stockholder and all fees and disbursements of counsel for such Stockholder.
"Stockholders" shall mean the owners of Common Stock identified on the
signature page hereof, each of whom is referred to individually herein as a
"Stockholder" and a transferee of Registrable Securities from a Stockholder,
provided such transfer complies with Section 3.2 of this Agreement.
"Underwritten Public Offering" shall mean a public offering in which Common
Stock is offered and sold on a firm commitment basis through one or more
underwriters, all pursuant to an underwriting agreement between the Company and
such underwriters.
2. Registration Rights.
-------------------
2.1 Demand Registration
-------------------
2
<PAGE>
(a) Request for Registration. Subject to the terms hereof, beginning
------------------------
July 21, 1998, and at any time thereafter prior to January 21, 2003,
Stockholders who collectively own a majority of the Registrable Securities
then owned by the Stockholders may make a written request for registration
under the Securities Act pursuant to this Section 2.1 of all or part of
their Registrable Securities (a "Demand Registration"). Such request will
specify the number of shares of Registrable Securities proposed to be sold
(which, in any event, shall not be less than 1,000,000 shares in the
aggregate) and will also specify the intended method of disposition
thereof. Upon receipt of such written request, the Company shall (i)
promptly give written notice of the proposed registration to all other
Stockholders; and (ii) as soon as practicable, use commercially reasonable
efforts to effect such a registration statement in accordance with Section
2.7 hereof, and will also include in such registration all Registrable
Securities of other Stockholders with respect to which the Company has
received written requests for inclusion therein within 20 days after their
receipt of the Company's notice. The Company shall be obligated to
register Registerable Securities for the Purchasers pursuant to this
Section 2.1 on one occasion only, unless solely because of the rights of
the Existing Holders (as defined in Section 2.4) the Stockholders are not
able to include 90% or more of the Registrable Securities they wish to
include in such registration, in which case such registration shall not
count under this Section 2.1. If such a registration has become effective
but is subsequently withdrawn by the Company (but not withdrawn by any
Stockholder or as a result of any action or omission by any Stockholder)
before completion of the offering contemplated thereby, then such
registration shall not count as the Demand Registration contemplated by
this Section 2.
(b) Underwritten Public Offering. If a Demand Registration is in the
----------------------------
form of an Underwritten Public Offering, the Company shall select the
managing underwriter or underwriters for such offering subject to the
approval of the Company (which approval shall not be unreasonably
withheld), and the Company shall enter into an underwriting agreement with
such underwriter containing representations, warranties, indemnities and
agreements then customarily included by an issuer in underwriting
agreements with respect to secondary distributions. The Company shall not
cause the registration under the Securities Act of any other shares of its
Common Stock to become effective (other than any registration of stock
under or interests in any benefit or compensation plan, or registration in
connection with any acquisition, or pursuant to any Rule 145 or similar
transaction) during the effectiveness of a registration requested hereunder
for an Underwritten Public Offering if, in the judgment of the managing
underwriter or managing underwriters, such registration would adversely
affect the offering of the Registrable Securities subject to the Demand
Registration.
(c) Inclusion of Additional Shares. The Company may include in a
------------------------------
registration pursuant to Section 2.1(b) additional securities for its own
account or for the account of other third parties in amounts as determined
by the Company's Board of Directors ("Additional Shares"), so long as the
inclusion thereof does not in any way exclude or otherwise impair the
rights of Stockholders who have requested registration pursuant to Section
2.1(a) above to include in such registration all Registrable Securities so
requested, subject only to the underwriters' market limitation specified in
Section 2.3.
3
<PAGE>
Notwithstanding any other provision of this Section 2.1(c), if the lead
underwriter managing the offering determines that, because of marketing
factors, all of the Registrable Securities and Additional Shares requested
to be registered may not be included in the offering, then all or a portion
of the Additional Shares shall be excluded to the extent so required by
such limitation, prior to the exclusion, if any, of Registrable Securities
of the Stockholders. To facilitate the allocation of shares in accordance
with the above provisions, the Company or the underwriters may round the
number of shares allocated to any person to the nearest 100 shares.
(d) Expenses. In any registration initiated as a Demand
--------
Registration, the Company will pay all Registration Expenses in connection
therewith, whether or not it becomes effective.
(e) S-3 Demand Registration. As an alternative to Section 2.1(b),
-----------------------
during the term of this Agreement, the Stockholders may make a written
request for a selling stockholders' shelf registration on Form S-3 (or any
equivalent or successor form under the Securities Act) pursuant to this
Section 2.1(e) (an "S-3 Demand Registration") of all or part of the
Stockholders' Registrable Securities. Such request will specify the number
of shares of Registrable Securities proposed to be registered (which shall
not in any event be less than 250,000 shares) and will also specify the
intended method(s) of disposition thereof. The Company will pay all
Registration Expenses in connection with any S-3 Demand Registration.
2.2 Piggyback Registration.
----------------------
(a) Notice of Registration. Subject to the terms hereof, beginning
----------------------
July 21, 1998, if at any time or from time to time thereafter prior to
January 21, 2003 (except as otherwise provided in Section 2.7), the Company
shall determine to register any of its Common Stock for its own account
relating to an Underwritten Public Offering, the Company shall:
(i) promptly, but in any event at least 20 days before the
Company files a registration statement for an Underwritten Public
Offering, give to each Stockholder written notice thereof; and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in the underwriting
involved therein, such Registrable Securities as each Stockholder may
request in a writing delivered to the Company within 10 days after
each Stockholder's receipt of the Company's written notice delivered
pursuant to Section 2.1(a)(i) above.
(b) Right to Terminate Registration. The Company shall have the right
-------------------------------
to terminate or withdraw any registration initiated by it under this
Section 2.2 prior to the effectiveness of such registration whether or not
any Stockholder has elected to include its Registrable Securities in such
registration, provided, however, that in such event, the Company shall
promptly pay all reasonable out-of-pocket costs and expenses of the
4
<PAGE>
Stockholders (including, without limitation, all reasonable fees and
disbursements of one law firm chosen to represent the Stockholders)
incurred in connection with such terminated registration.
2.3 Underwriting. The right of each Stockholder to registration
------------
pursuant to Section 2.2 shall be conditioned upon such Stockholder's
participation in such underwriting, and the inclusion of Registrable Securities
in the underwriting shall be limited to the extent provided herein. Each
Stockholder, and all other stockholders proposing to distribute their securities
through such underwriting (in the case of Section 2.2 hereof) shall (together
with the Company) enter into an underwriting agreement in customary form with
the managing underwriter(s) selected for such underwriting by the Company.
Subject to the provisions of Section 2.4 below, if the managing underwriter(s)
determine that marketing factors require a limitation of the number of shares of
the selling stockholders to be underwritten, the managing underwriter(s) may
limit some or all of the Registrable Securities that may be included in the
registration and underwriting as follows: the number of Registrable Securities
that may be included in the registration and underwriting by each Stockholder
shall be determined by multiplying the number of shares of Registrable
Securities of all selling stockholders of the Company which the managing
underwriter(s) are willing to include in such registration and underwriting,
times a fraction, the numerator of which is the number of Registrable Securities
requested to be included in such registration and underwriting by each
Stockholder, and the denominator of which is the total number of Registrable
Securities which all selling stockholders of the Company have requested to have
included in such registration and underwriting. To facilitate the allocation of
shares in accordance with the above provisions, the Company may round the number
of shares allocable to any such person to the nearest 100 shares. If any
Stockholder disapproves of the terms of any such underwriting, it may elect to
withdraw therefrom by written notice to the Company and the managing
underwriter(s), delivered not less than seven days before the effective date.
2.4 Subordination of Registration Rights.
------------------------------------
(a) Until September 30, 1998, in the event that the managing
underwriter(s) of any underwriting shall inform the Company of its intention to
limit the number of Registrable Securities to be included in any registration
and underwriting pursuant to Section 2.3 above, all Registrable Securities held
by Don V. Ingram, a resident of Dallas County, Texas, and PTX Partners, a Texas
limited partnership (collectively, the "Existing Holders") who have notified the
Company of their intent to include their Registrable Securities in such
registration and underwriting pursuant to Section 2.2 above, shall be included
in such registration and underwriting (subject to the terms of that certain
Amended and Restated Registration Agreement dated September 30, 1988, as amended
(the "1988 Agreement")), before the Stockholders shall be permitted to include
any of their Registrable Securities in such registration and underwriting. In
the event that additional Registrable Securities are available for inclusion in
such registration and underwriting after the inclusion of the Existing Holders'
Registrable Securities, then the number of Registrable Securities to be included
in such registration and underwriting by the Stockholders shall be determined by
multiplying the number of shares of Registrable Securities remaining after the
inclusion of the Existing Holders' Registrable Securities which the managing
underwriter is willing to include in such registration and
5
<PAGE>
underwriting, times a fraction, the numerator of which is the number of
Registrable Securities requested to be included in such registration and
underwriting by each Stockholder, and the denominator of which is the total
number of Registrable Securities which all selling stockholders of the Company
have requested to have included in such registration and underwriting.
(b) The Company hereby agrees that if the Company, after the date hereof,
grants to any person rights to register the Company's Common Stock under the
Securities Act of 1933, as amended, ("Registration Rights") that provide for
terms that are in any manner more favorable to the holder of such Registration
Rights than the equivalent terms of this Agreement then in effect (or if the
Company amends or waives any provision of any Registration Rights existing on
the date hereof to provide for terms that are more favorable to the holder
thereof than the equivalent terms of this Agreement), then the Company shall
amend this Agreement to provide for any (or all) of such more favorable terms as
Purchaser shall elect to include herein.
2.5 No Other Registration Rights. Except for (i) the rights granted
----------------------------
pursuant to the 1988 Agreement, (ii) the rights granted pursuant to the
Registration Rights Agreement dated as of January 21, 1997, among the Company
and the former stockholders of Rock Creek Aluminum, Inc., (iii) the rights
granted pursuant to the Registration Rights Agreement dated as of November 4,
1997, among the Company and the former shareholders of Alchem Aluminum, Inc. and
(iv) the rights granted pursuant to this Agreement, the Company is not a party
to, nor is it bound by any agreement with respect to its capital stock which
grants registration rights to any person or entity.
2.6 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with all registrations pursuant to Sections 2.1 and 2.2 shall be
borne by the Company. Unless otherwise stated herein, all Selling Expenses
relating to securities registered on behalf of any Stockholder shall be borne by
such Stockholder in proportion to such Stockholder's percentage ownership of all
selling Stockholders' Registrable Securities being registered.
2.7 Registration Procedures. Whenever the Stockholders have
-----------------------
requested that any Registrable Securities be registered pursuant to this
Agreement, the Company will use its reasonable best efforts to effect the
registration and the sale of such Registrable Securities under the Securities
Act, as provided herein, and as expeditiously as possible:
(a) prepare and file with the Securities and Exchange Commission (the
"Commission") as soon as practicable but in no event later than ninety (90)
days after receipt of a request to file a registration statement with
respect to Registrable Securities, a registration statement on any form for
which the Company then qualifies and which counsel for the Company shall
deem appropriate and which form shall be available for the sale of such
issue of Registrable Securities in accordance with the intended method of
distribution thereof, and use its best efforts to cause such registration
statement to become effective as promptly as practicable thereafter;
provided, that if the Company shall furnish to the Holders a certificate
--------
signed by the Chief Executive Officer of the Company stating that in the
good faith reasonable judgment of the Board of Directors it would be
significantly disadvantageous to the Company and its stockholders for such
a registration statement to be filed on or before the date filing would be
required or to
6
<PAGE>
become effective, the Company shall have an additional period of not more
than one hundred eighty (180) days within which to file (or before which it
requests the effectiveness of) such registration statement; and provided,
--------
further, that before filing a registration statement or prospectus or any
-------
amendments or supplements thereto, the Company will (i) furnish to counsel
selected by the Stockholders copies of all such documents proposed to be
filed and (ii) notify each seller of Registrable Securities of any stop
order issued or threatened by the Commission and take all actions required
to prevent the entry of such stop order or to remove it if entered;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 90 days or such shorter
period which will terminate when all Registrable Securities covered by such
registration statement have been sold, and comply with the provisions of
the Securities Act with respect to the disposition of all securities
covered by such registration statement during such period in accordance
with the intended methods of disposition by the sellers thereof set forth
in such registration statement;
(c) furnish to each seller of Registrable Securities to be included in
a registration statement copies of such registration statement as filed and
each amendment and supplement thereto (in each case including all exhibits
thereto), the prospectus included in such registration statement (including
each preliminary prospectus) and such other documents as such seller may
reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such seller;
(d) use its reasonable best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other
acts and things which may be necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller; provided, that the Company will not be
--------
required to (i) qualify generally to transact business in any jurisdiction
where it would not otherwise be required to qualify but for this Section
2.7(d), (ii) subject itself to taxation in any such jurisdiction where it
would not otherwise be subject to taxation or (iii) consent to general
service of process in any such jurisdiction, but the Company will be
required to consent to service of process in actions arising out of or in
connection with the sale of the Registrable Securities or any violation of
state securities laws;
(e) use its reasonable best efforts to cause the Registrable
Securities covered by such registration statement to be registered with or
approved by any other governmental agencies or authorities as may be
necessary by virtue of the business and operations of the Company to enable
the seller or sellers thereof to consummate the disposition of such
Registrable Securities;
(f) notify each seller of such Registrable Securities at any time when
a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration
7
<PAGE>
statement contains an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, and the Company will prepare a
supplement or amendment to such prospectus so that, as thereafter delivered
to the purchaser of such Registrable Securities, such prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading;
(g) enter into customary agreements (including an underwriting
agreement in customary form) and take such other actions as are required in
order to expedite or facilitate the disposition of such Registrable
Securities;
(h) otherwise comply with all applicable rules and regulations of the
Commission; and
(i) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are
then listed, provided that the applicable listing requirements are
satisfied.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding matters relating to such seller's Registrable Securities
as are customary and as the Company may from time to time reasonably request in
writing.
Each seller of Registrable Securities agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 2.7(f) hereof, the seller will forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such seller's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 2.7(f) hereof, and,
if so directed by the Company, such seller will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
seller's possession, of the prospectus covering such Registrable Securities
current at the time of receipt of such notice. In the event the Company shall
give any such notice, the Company shall extend the period during which such
registration statement shall be maintained effective pursuant to this Agreement
(including the period referred to in Section 2.7(b)) by the number of days
during the period from and including the date of the giving of such notice
pursuant to Section 2.7(f) hereof to and including the date when each seller of
Registrable Securities covered by such registration statement shall have
received the copies of the supplemented or amended prospectus contemplated by
Section 2.7(f) hereof.
8
<PAGE>
2.8 Preparation; Reasonable Investigation. In connection with the
-------------------------------------
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give each seller of Registrable
Securities, their underwriters, if any, and their respective counsel, the
opportunity to participate in the preparation of such registration statement,
each prospectus included therein or filed with the Commission, and each
amendment thereof or supplement thereto, and will give each of them such access
to its books and records and such opportunities to discuss the business of the
Company with its officers and the independent public accountants who have
certified its financial statements as shall be necessary to conduct a reasonable
investigation within the meaning of the Securities Act.
2.9 Indemnification; Contribution.
-----------------------------
(a) Indemnification by the Company. The Company agrees to indemnify,
------------------------------
to the full extent permitted by law, each seller of Registrable Securities,
its officers, directors, trustees, partners and agents and each Person who
controls such seller (within the meaning of the Securities Act) against all
losses, claims, damages, liabilities and expenses ("Losses") caused by any
untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein (in case of a
prospectus or preliminary prospectus, in light of the circumstances under
which they were made) not misleading; provided, however, that the Company
-------- -------
will not be liable to the extent that such Losses arise from and are based
on an untrue statement or omission or alleged untrue statement or omission
of a material fact in a registration statement or prospectus which is made
in reliance on and in conformity with written information furnished to the
Company in an instrument duly executed by or on behalf of such seller.
(b) Indemnification by Seller of Registrable Securities. In
---------------------------------------------------
connection with any registration statement in which a seller of Registrable
Securities is participating, each such seller will furnish to the Company
in writing such information with respect to such seller as the Company
reasonably requests for use in connection with any such registration
statement or prospectus and agrees to indemnify, to the full extent
permitted by law, the Company, its directors and officers and each Person
who controls the Company (within the meaning of the Securities Act) against
any Losses resulting from any untrue or alleged untrue statement of a
material fact or any omission or alleged omission of a material fact
required to be stated in the registration statement, prospectus or
preliminary prospectus or any amendment thereof or supplement thereto or
necessary to make the statements therein (in the case of a prospectus or
preliminary prospectus, in the light of the circumstances under which they
were made) not misleading, to the extent, but only to the extent, that such
Losses arise from and are based on an untrue statement or omission or
alleged untrue statement or omission of a material fact in a registration
statement or prospectus which is made in reliance on and in conformity with
written information furnished to the Company in an instrument duly executed
by or on behalf of such seller. In no event shall a seller of Registrable
Securities be required to contribute any amount under this Section 2.9 in
excess of the lesser of (i) that proportion
9
<PAGE>
of the total of such Losses indemnified against equal to the proportion of
the total securities sold under such registration statement which is being
sold by such seller or (ii) the net proceeds received by such seller from
its sale of securities under such registration statement.
(c) Conduct of Indemnification Proceedings. Promptly after the
--------------------------------------
receipt by an indemnified party of a notice of any claim, action, suit or
proceeding of any third party which is subject to indemnification
hereunder, such party (the "Indemnified Party") shall give written notice
of such claim to the party obligated to provide indemnification hereunder
(the "Indemnifying Party"), stating the nature and basis of such claim and
the amount thereof, to the extent known. Failure of the Indemnified Party
to give such notice promptly shall not relieve the Indemnifying Party from
any liability which it may have on account of this indemnification or
otherwise, except to the extent that the Indemnifying Party is materially
prejudiced thereby (except that the Indemnifying Party shall not be liable
for any expenses incurred during the period in which the Indemnified Party
failed to give such notice). The Indemnifying Party shall be entitled to
participate in the defense of and, if it so chooses, to assume the defense
of, or otherwise contest, such claim, action, suit or proceeding with
counsel selected by the Indemnifying Party and reasonably satisfactory to
the Indemnified Party; provided, that, the Indemnified Party shall be
--------
entitled, to the extent it so elects and at its sole cost and expense, to
assume and control the defense of any claim involving any equitable claim,
including, but not limited to, injunctive relief. Upon the election by the
Indemnifying Party to assume the defense of, or otherwise contest, such
claim, action, suit or proceeding, the Indemnifying Party shall not be
liable for any legal or other expenses subsequently incurred by the
Indemnified Party in connection with the defense thereof, although the
Indemnified Party shall have the right to participate in the defense
thereof and to employ counsel, at its own expense. Notwithstanding the
foregoing, the Indemnifying Party shall be liable for the reasonable fees
and expenses of counsel employed by the Indemnified Party, if, and only to
the extent that (i) the Indemnifying Party has not employed counsel or
counsel reasonably acceptable to the Indemnified Party to assume the
defense of such action within a reasonable time after receiving notice of
the commencement of the action, (ii) the employment of counsel and the
amount reimbursable therefor by the Indemnified Party has been authorized
in writing by the Indemnifying Party or (iii) representation of the
Indemnifying Party and the Indemnified Party by the same counsel would, in
the reasonable determination of such Indemnified Party, constitute a
conflict of interest (in which case the Indemnifying Party will not have
the right to direct the defense of such action on behalf of the Indemnified
Party). The parties shall use commercially reasonable efforts to minimize
Losses from claims by third parties and shall act in good faith in
responding to, defending against, settling or otherwise dealing with such
claims, notwithstanding any dispute as to liability as between the parties
under this Section 2.9. The parties shall also cooperate in any such
defense, give each other reasonable access to all information relevant
thereto and make employees and other representatives available on a
mutually convenient basis to provide additional information and explanation
of any material provided in connection therewith. Whether or not the
Indemnifying Party shall have assumed the defense, the Indemnifying Party
shall not be obligated to indemnify the other party hereunder for any
settlement entered
10
<PAGE>
into without the Indemnifying Party's prior written consent, which consent
shall not be unreasonably withheld or delayed.
(d) Contribution. If the indemnification provided for in this Section
------------
2.9 is for any reason held by a court of competent jurisdiction to be
unavailable to an Indemnified Party in respect of any Losses referred to
therein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party thereunder, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Losses (i) in such
proportion as is appropriate to reflect the relative benefits received by
the Indemnifying Party and the Indemnified Party, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the
Indemnifying Party and the Indemnified Party in connection with the action
or inaction which resulted in such Losses, as well as any other relevant
equitable considerations. In connection with any registration of the
Company's securities, the relative benefits received by the Indemnifying
Party and the Indemnified Party shall be deemed to be in the same
respective proportions that the net proceeds from the offering (before
deducting expenses) received by the Indemnifying Party and the Indemnified
Party, in each case as set forth in the table on the cover page of the
applicable prospectus, bear to the aggregate public offering price of the
securities so offered. The relative fault of the Indemnifying Party and
the Indemnified Party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Indemnifying Party or the Indemnified Party and
the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Indemnifying Party and the Indemnified Party agree that it would
not be just and equitable if contribution pursuant to the foregoing paragraph
were determined by pro rata or per capita allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. In connection with any registration
of the Company's securities, in no event shall a seller of Registrable
Securities be required to contribute any amount under this Section 2.9 in excess
of the lesser of (i) that proportion of the total of such Losses indemnified
against equal to the proportion of the total securities sold under such
registration statement which is being sold by such seller or (ii) the net
proceeds received by such seller from its sale of securities under such
registration statement. No person found guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not found guilty of such fraudulent
misrepresentation.
2.10 Participation in Underwritten Registrations. No Person may
-------------------------------------------
participate in any underwritten registration hereunder unless such Person (a)
agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
11
<PAGE>
2.11 Certain Information. Each Stockholder agrees, with respect to
-------------------
any Registrable Securities included in any registration, to furnish to the
Company such information regarding such Stockholder, the Registrable Securities
and the distribution proposed by such Stockholder as the Company may reasonably
request in writing and as shall be required in connection with any registration,
qualification or compliance referred to in Sections 2.1 or 2.2.
2.12 Rule 144 Reporting. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Securities (such term being used herein as defined in
Rule 144 promulgated under the Securities Act) to the public without
registration, the Company agrees to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times
during which the Company is subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act");
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange
Act (at all times during which the Company is subject to such reporting
requirements); and
(c) So long as any Stockholder owns any Restricted Securities, to
furnish to such Stockholder forthwith upon request a written statement by
the Company as to its compliance with the reporting requirements of said
Rule 144 and with regard to the Securities Act and the Exchange Act (at all
times during which the Company is subject to such reporting requirements),
a copy of the most recent annual or quarterly report of the Company, and
such other non-confidential reports and documents of the Company and other
non-confidential information in the possession of or reasonably obtainable
by the Company as such Stockholder may reasonably request in availing
himself of any rule or regulation of the Commission allowing Stockholder to
sell any such securities without registration.
2.13 Holdback Agreements. Each Stockholder agrees not to effect any
-------------------
public sale or distribution of the issue being registered or a similar security
of the Company, or any securities convertible into or exchangeable or
exercisable for such securities, during the 30 days prior to, and during the 90-
day period beginning on, the effective date of such registration statement
(except as part of such registration), unless the Company in the case of a non-
Underwritten Public Offering, or the managing underwriter(s) in the case of an
Underwritten Public Offering, otherwise agree or consent in writing.
3. Miscellaneous.
-------------
3.1 Governing Law. This Agreement shall be governed in all respects
-------------
by the laws of the State of Texas.
12
<PAGE>
3.2 No Transfer; Termination. The registration rights contemplated
------------------------
herein are not transferable, except (i) by operation of law and by the laws of
descent and distribution, (ii) to any member of a Stockholder's immediate
family, (iii) to any beneficiaries of any Stockholder which is a trust or
foundation, or (iv) to any trust, partnership or other entity as to which all of
the beneficiaries or partners consist of a Stockholder or members of such
Stockholder's immediate family. The registration rights granted herein shall
terminate, and the registration rights will not be exercisable by any
Stockholder (or such Stockholder's lawful assigns or transferees pursuant to
this Section 3.2) after said termination date, on January 21, 2003.
3.3 Entire Agreement; Amendment. This Agreement constitutes the full
---------------------------
and entire understanding and agreement between the parties with regard to the
subject matter hereof. This Agreement, or any provision hereof, may be amended,
waived, discharged or terminated only upon the written consent of the Company
and those Stockholders who are the record holders of at least a majority of the
Shares issued pursuant to the Purchase Agreement.
3.4 Notices. All notices or other communications which are required
-------
or may be given under this Agreement shall be in writing and shall be deemed to
have been duly given when delivered in person, transmitted by telecopier or
mailed by registered or certified first class mail, postage prepaid, return
receipt requested to the parties hereto at the address set forth below (as the
same may be changed from time to time by notice similarly given) or the last
known business or residence address of such other person as may be designated by
either party hereto in writing.
Stockholders:
c/o Mr. M. Russ Robinson
U.S. Zinc Corporation
6020 Navigation St.
Houston, TX 77001
Facsimile No.: (713) 923-1783
Company:
Mr. Don V. Ingram
IMCO Recycling Inc.
5215 North O'Connor Blvd.
Irving, Texas 75039
Facsimile No.: (972) 401-7342
3.5 Delays or Omissions. Except as expressly provided herein, no
-------------------
delay or omission to exercise any right, power or remedy accruing to any party
to this Agreement shall
13
<PAGE>
impair any such right, power or remedy of such party nor shall it be construed
to be a waiver of any such breach or default, or an acquiescence therein, or of
or in any similar breach or default thereafter occurring; nor shall any waiver
of any single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. Any waiver, permit, consent or
approval of any kind or character on the part of any party of any breach or
default under this Agreement, or any waiver on the part of any party of any
provisions or conditions of this agreement, must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party to this Agreement, shall be cumulative and not alternative.
3.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
3.7 Severability. In the event that any provision of this Agreement
------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision.
3.8 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
3.9 Construction. Whenever the context requires, the gender of all
------------
words used in this Agreement shall include the masculine, feminine, and neuter,
and the number of all words shall include the singular and the plural.
[Signature page follows]
14
<PAGE>
IN WITNESS WHEREOF, the undersigned or each of their respective duly
authorized officers or representatives have executed this agreement effective
upon the date first set forth above.
COMPANY:
IMCO RECYCLING INC.
By: ____________________________________
Title: _________________________________
STOCKHOLDERS:
THE MINNETTE AND JEROME ROBINSON
COMMUNITY PROPERTY TRUST
By: ____________________________________
Jerome Robinson, Trustee
By: ____________________________________
Minnette Robinson, Trustee
KANALY TRUST COMPANY, Co-Trustee (in its
fiduciary capacity as Co-Trustee and not
otherwise)
By: ____________________________________
Joan L. Romans, Sr. Vice
President and Trust Officer
THE MINNETTE AND JEROME ROBINSON
FOUNDATION
By: ____________________________________
Dvosha G. Roscoe, Vice President
15
<PAGE>
THE MINNETTE AND JEROME ROBINSON
CHARITABLE REMAINDER TRUST
KANALY TRUST COMPANY, Trustee (in its
fiduciary capicity as sole Trustee and
not otherwise)
By: ____________________________________
Joan L. Romans, Sr. Vice
President and Trust Officer
________________________________________
M. RUSS ROBINSON
________________________________________
HOWARD ROBINSON
________________________________________
MINDY ROBINSON BROWN
16
<PAGE>
EXHIBIT 10.17
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT
-------------------------------------
THIS AGREEMENT, effective as of this 2nd day of May, 1998, is by and
between IMCO RECYCLING INC., a Delaware corporation having its principal
executive offices located in Irving, Texas (the "Company") and Steve B. Ingram,
as Trustee of the INGRAM FAMILY INSURANCE TRUST NO. 1 (the "Trust").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, this Agreement is entered into in accordance with an award made to
DON V. INGRAM (the "Employee"), who has rendered efforts on behalf of the
Company; and
WHEREAS, this Agreement is a life insurance employee benefit plan as
described in Revenue Ruling 64-328; and
WHEREAS, the Company highly values the efforts, abilities, and
accomplishments of the Employee and wishes to retain his services, and as an
inducement thereto, the Company is willing to assist the Trust in the payment of
premiums on life insurance; and
WHEREAS, in exchange for such premium assistance, the Trust is willing to
return to the Company its Premium Advance as provided herein;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the parties hereto, it is
mutually agreed as follows:
1. The Insurance. In furtherance of the purposes of this Agreement, the
-------------
Trust shall purchase the policy(ies) described in Exhibit A (the "Insurance")
from one or
- 1 -
<PAGE>
more insurance companies (the "Insurer(s)") specified in Exhibit A (the
"Insurance"). Exhibit A may be amended by the parties to this Agreement, at any
time and from time to time, by a written instrument complying with Section 13 of
this Agreement. Upon the Employee's death $3,000,000.00 (hereafter referred to
as the "Trust's Death Benefit") shall be payable as the Trust shall have
designated under the Insurance, subject to Section 3 of this Agreement.
2. Ownership. The Trust shall be the sole owner of the Insurance and
---------
shall hold the Insurance. The Trust shall have all the rights of "owner" under
the terms of the Insurance including, but not limited to, the right to designate
beneficiaries, select settlement and dividend options, borrow on the security of
the Insurance, and to surrender the Insurance. All such rights may be exercised
by the Trust without the Company's consent.
3. Repayment of Premium Advance to Company. The Company's "Premium
---------------------------------------
Advance" is an amount equal to the lesser of (i) the cumulative total of the
Company's share of premiums paid on the Insurance (as provided in Section
4(a)(2)), or (ii) the cash surrender value of the Insurance as of the applicable
date. Subject to Section 6 below, in the event of the death of the Employee,
the "Premium Advance" shall be equal to the greater of (i) the cumulative total
of the Company's share of premiums paid on the Insurance, or (ii) the total
death benefits payable under the Insurance less the Trust's Death Benefit.
Subject to Section 6 below, in exchange for the Company's payment of its premium
contribution under Section 4, the Trust agrees to pay to the Company the amount
of its Premium Advance on the earlier of:
(1) Termination of this Agreement as provided in Section 6; or
(2) The Employee's death.
- 2 -
<PAGE>
Nothing herein shall give the Company any interest in the Insurance. The Company
will not take any action in dealing with the Insurer(s) that would impair any
right or interest of the Trust in the Insurance.
4. Payment of Premiums.
-------------------
(a) Each annual premium on the Insurance shall be paid as follows:
(1) At the election of the Company, the Trust shall pay a
portion of each premium equal to (i) the current term rate of the
Employee's age, multiplied by (ii) the excess of the current death
benefit over the Company's current Premium Advance. If the Company
does not require the Trust to pay a portion of the premium pursuant to
the preceding sentence, the Company shall pay such amount on behalf of
the Trust and such amount shall be treated as compensation to the
Employee. Here, the "current term rate" shall mean the lesser of the
Insurer's annual term insurance rate or the rates specified in Revenue
Rulings 64-328 and 66-110.
(2) The Company shall pay all premium amounts not paid by the
Trust.
(b) The Trust's premium share (other than that paid with policy
loans) and the Company's premium share shall be remitted to the Insurer
before expiration of the grace period for payment of premiums.
(c) Dividend on the Insurance shall be applied as elected by the
Trust.
5. Supplements and Riders. Should the Trust deem it desirable,
----------------------
application may be made for a supplemental agreement or rider to be attached to
the Insurance.
- 3 -
<PAGE>
Ownership of any such agreement or rider shall be in the Trust and any
additional premiums shall be paid by the Trust.
6. Termination of Agreement. This Agreement shall terminate on the
------------------------
earliest to occur of the following events:
(a) Surrender of the Insurance by the Trust, which has the sole and
exclusive right of surrender, subject to Section 3 above;
(b) Delivery by the Trust of written notice of termination to the
Company or delivery of written notice by the Company to the Trust;
(c) Failure of the Trust to make a premium contribution required in
Section 4;
(d) Written agreement of the Trust and the Company to terminate the
Agreement; or
(e) The tenth (10th) anniversary of the effective date of this
Agreement.
Upon termination of the Agreement, the Trust shall pay to the Company the
Premium Advance. Upon termination of the Agreement, the Trust and the Company
may enter into further agreement to continue the terms of this Agreement.
7. Policy Loans. It is agreed that no policy loans may be taken by the
------------
Trust which would have the effect of reducing the cash surrender value below the
amount of the Premium Advance. Interest on any such policy loans shall be paid
by the Trust, as owner of the policy, as such interest become due.
8. Payment of Proceeds. At the death of the Employee, the Company and the
-------------------
Trust shall execute such forms and furnish such other documents or information
as are required to receive payments under the Insurance as contemplated herein.
All death benefits under this Agreement shall be paid in accordance with
the terms and conditions of the Insurance and pursuant to the claims and review
- 4-
<PAGE>
procedures of the Insurer. The Company's liability to provide benefits under
this Agreement shall be limited solely to the payment of its share of premiums,
as provided in Section 4. The Company assumes no responsibility for payment of
death benefits under the Insurance.
9. Payment Options. In lieu of a lump sum payment, the Trust, as owner of
---------------
the Insurance may, in accordance with the procedures of the Insurer(s), elect
any of the optional modes of payment for the death proceeds as enumerated in the
Insurance and known as "settlement options." If no such election is in effect,
the beneficiary of any portion of the Insurance shall have the right to elect
such settlement option.
10. Named Fiduciary. For purposes of the Employee Retirement Income
---------------
Security Act of 1974 (P.L. 93-406), as amended, the Company is the "named
fiduciary" of the split-dollar life insurance plan for which this Agreement is
hereby designated the written plan instrument.
11. Allocation Of Fiduciary Responsibilities. The Named Fiduciary may
----------------------------------------
allocate its responsibilities for the operation and administration of this
split-dollar life insurance plan, including the designation of persons to carry
out fiduciary responsibilities under such plan. The Named Fiduciary shall effect
such allocation of its responsibilities by delivering to the Company a written
instrument signed by it that specifies the nature and extent of the
responsibilities allocated, including the persons who are designated to carry
out those fiduciary responsibilities under the plan, together with a signed
acknowledgment of their acceptance.
12. Plan Administrator. The Named Fiduciary is hereby designated as the
------------------
"Plan Administrator" of this plan.
13. Amendment. This Agreement may be altered, amended, or modified,
---------
including the addition of any extra policy provisions, by a written agreement
signed by
- 5 -
<PAGE>
the Company and the Trust. In addition, either party may assign its rights,
interests and obligations under this Agreement; provided, however, that any
assignment shall be made subject to the terms of this Agreement. The laws of the
State of Texas shall govern the construction and enforceability of this
Agreement.
14. Interpretation. Where appropriate in this Agreement, words used in the
--------------
singular shall include the plural and words used in the masculine shall include
the feminine and vice versa.
15. Miscellaneous. The waiver by either party of a breach of any provision
-------------
hereof will not be deemed a waiver of any succeeding breach of such provision,
or a waiver of the provision itself. The parties will not enter into any
agreement or contract with others that would tend to vary, rescind or abrogate
the provisions hereof, nor shall they hinder or interfere with, or cause to be
interfered with in any manner whatsoever, the operation of the terms of this
Agreement. Each party hereto acknowledges that any breach or attempted breach of
any provision of this Agreement will cause irreparable harm for which there is
no adequate remedy at law, and each party agrees that each of the other parties
hereto shall be entitled to specific performance and injunctive and other
equitable relief in case of any such breach or attempted breach. This Agreement
supersedes all prior agreements between the parties and contains the entire and
only agreement between them relating to the Insurance. This Agreement is
severable and if, for any reason, any provision or provisions hereof are
determined to be invalid, inoperative, or contrary to any existing or future
law, the remainder of this Agreement shall continue to be valid after giving
effect to the intent manifested by the portion held invalid or inoperative. This
Agreement shall be binding upon and inure to the benefit of the parties, their
heirs, legal representatives, successors and assigns.
- 6 -
<PAGE>
16. Notices. All notices, requests, demands or other communications
-------
provided for herein shall be in writing and shall be deemed to have been given
when sent by registered or certified mail, return receipt requested, addressed
to the parties at their addresses set forth below or to such other person or
address as a party shall designate to the other parties from time to time in
writing forwarded in like manner:
Company: Trust:
IMCO RECYCLING INC. INGRAM FAMILY INSURANCE TRUST NO. 1
5215 North O'Connor Blvd. c/o Summitt Partners Management Co.
Suite 940 2200 Ross Avenue, #4500E, LB170
Irving, Texas 75039 Dallas, TX 75201
Attention: James B. Walburg
Any party may change such party's address by written notice to all other
parties to this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first hereinabove written.
Trust:
By: /s/ Steve B. Ingram Trustee
--------------------
Company:
By: /s/ James B. Walburg
-----------------------------------
Title: Vice President
--------------------------------
- 7 -
<PAGE>
EXHIBIT A
INSURANCE COMPANY FACE AMOUNT
- ----------------- ------------
Pacific Life $3,000,000
- 8 -
<PAGE>
EXHIBIT B
ASSIGNMENT OF LIFE INSURANCE
POLICY AS COLLATERAL
--------------------
A. For Value Received, the undersigned hereby assigns, transfers and sets over
to IMCO RECYCLING INC., a Delaware corporation (herein called the
"Assignee"), a certain interest hereinafter specified in Policy No.
VP60627230 (herein call the "Policy") issued by Pacific Life (herein called
the "Insurer"), upon the life of DON V. INGRAM, subject to all the terms
and conditions of the Policy and to all superior liens, if any, which the
Insurer may have against the Policy. The undersigned by this instrument
agrees, and the Assignee by the acceptance of this assignment agrees, to
the conditions and provisions herein set forth. This Assignment is entered
into in accordance with a Split-Dollar Life Insurance Agreement by and
between the Assignee and INGRAM FAMILY INSURANCE TRUST NO. 1 dated the same
date as this Assignment (the "Agreement").
B. It is expressly agreed that the following specific interest in the Policy
(including any dividend accumulations or additions standing to the credit
of the Policy) passed by virtue hereof:
The Assignee shall have an interest in the Policy and any proceeds
becoming payable under the Policy due to death, maturity, policy loan
or surrender of the Policy to the extent of any liability arising
under the Agreement.
C. Except as expressly provided in paragraph D below, it is expressly agreed
that the following specific rights are reserved and excluded from this
assignment and do not pass by virtue hereof:
1. The right to collect from the Insurer any disability benefit payable
in cash that does not reduce the amount of insurance;
2. The right to designate and change the beneficiary;
3. The right to elect any optional mode of settlement permitted by the
Policy or allowed by the Insurer; but any designation or change of
beneficiary or election of a mode of settlement shall be made subject
to this assignment and to the rights of the Assignee hereunder;
4. The right to surrender the Policy or to obtain policy loans from the
Insurer;
- 9 -
<PAGE>
5. The right to elect a nonforfeiture provision, to change the
application of dividends or to exercise any other rights privileges
and options available under the terms of the policy to the undersigned
as owner of the Policy; and
6. The right to select investment options with respect to the policy.
D. This assignment is made and the Policy is to be held as collateral security
under the Agreement for any and all liabilities of the undersigned to the
Assignee, either now existing or that may hereafter arise between the
undersigned and the Assignee (all of which liabilities secured or to become
secured are herein called "Liabilities"). It is expressly agreed that all
sums received by the Assignee hereunder, either in the event of death of
the Insured, the maturity or surrender of the Policy, the obtaining of a
loan or advance on the Policy, or otherwise, shall first be applied to the
payment of the Liabilities. In the event that the undersigned is obligated
to pay any amount to the Assignee under the Agreement, the Assignee shall
be entitled to direct payment from the Insurer, and the right to direct the
surrender of the Policy or to obtain policy loans from the Insurer in order
to enforce its rights under the Agreement, upon written notice to the
Insurer.
E. The Assignee covenants and agrees with the undersigned as follows:
1. That any balance of the sums received hereunder from the Insurer
remaining after payment of the then existing Liabilities, matured or
unmatured, shall be paid by the Assignee to the persons entitled
thereto under the terms of the Policy had this assignment not been
executed;
2. That the Assignee will forward to the Insurer, upon request and
without unreasonable delay, the Policy for endorsement of any
designation or change of beneficiary or any election of an optional
mode of settlement.
F. The Insurer is hereby authorized to recognize the Assignee's claims to
rights hereunder without investigating the reason for any action taken by
the Assignee, or the validity or the amount of the Liabilities or the
existence of any default herein, or the giving of any notice, or the
application to be made by the Assignee or any amounts to be paid to the
Assignee. The sole receipt of the Assignee for any sums received shall be a
full discharge and release therefor to the Insurer. Checks for the sums
payable under the policy and assigned herein shall be drawn to the
exclusive order of the Assignee if, when, and in such amounts, as may be
requested by the Assignee. The Insurer shall not take any notice of the
- 10 -
<PAGE>
terms of any outside agreement or of any restrictions that may be imposed
on the Assignee thereby.
G. The Assignee may take or release other security, may release any party
primarily or secondarily liable for any of the Liabilities, may grant
extensions, renewals or indulgences with respect to the Liabilities, or may
apply to the Liabilities proceeds of the Policy hereby assigned or any
amount received on account of the Policy by the exercise of any right
permitted under this assignment, without resorting or regarding to other
security.
H. The undersigned declares that no proceedings in bankruptcy are pending
against it and that its property is not subject to any assignment for the
benefit of creditors.
I. It is the intent of the undersigned to assign an interest in proceeds
becoming payable under the Policy as security for certain advances from the
Assignee, without giving the Assignee any incidents of ownership in the
Policy as defined under Section 2042 of the Internal Revenue Code (and
Regulations thereunder) presently in effect, or any successor thereto.
Signed this 1st day of June, 1999.
INGRAM FAMILY INSURANCE TRUST NO. 1
By: /s/ Steve B. Ingram Trustee
--------------------
- 11 -
<PAGE>
EXHIBIT 10.18
IMCO Recycling Inc.
Performance Share Unit Plan
SECTION 1. ESTABLISHMENT, PURPOSE,
AND EFFECTIVE DATE OF PLAN
1.1 Establishment. IMCO Recycling Inc., a Delaware corporation, hereby
-------------
establishes the "IMCO RECYCLING INC. Performance Share Unit Plan" for key
employees (the "Plan"). The Plan permits the grant of performance units and
performance share units.
1.2 Purpose. The purpose of the Plan is to foster and promote the long-
-------
term financial success of the Company and its Subsidiaries and materially
increase the value of the Company and its Subsidiaries by (a) encouraging the
long-term commitment of key employees, (b) motivating performance of key
employees by means of long-term performance related incentives, (c) attracting
and retaining outstanding key employees by providing incentive compensation
opportunities, and (d) enabling participation by key employees in the long-term
growth and financial success of the Company and its Subsidiaries.
1.3 Effective Date. The Plan shall become effective upon its adoption by
--------------
the Board of Directors of the Company (i.e., December 15, 1999), subject to
----
approval by the stockholders of the Company. Awards may be granted hereunder on
or after the effective date but shall in no event be exercisable by or payable
to a Participant prior to such stockholder approval; and, if such approval of
the stockholders is not obtained within twelve (12) months after the effective
date, such Awards shall be of no force and effect.
SECTION 2. DEFINITIONS
2.1 Definitions. In addition to the terms defined elsewhere herein,
-----------
whenever used herein, the following terms shall have their respective meanings
set forth below:
(a) "Award" means any Performance Unit or Performance Share Unit granted
pursuant to the Plan.
(b) "Award Agreement" means a written agreement between a Participant and
the Company which sets forth the terms of the grant of an Award.
(c) "Board" means the Board of Directors of the Company.
(d) "Cause" means any action by the Participant or inaction by the
Participant that constitutes: (i) a breach of a written employment
agreement by that Participant; or (ii) misconduct, dishonesty,
disloyalty, disobedience or action that might reasonably injure the
Company or any or its Subsidiaries or their business interests or
reputation.
(e) "Change in Control" shall have the meaning set forth in Section 10.2.
<PAGE>
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Committee" means the Compensation Committee of the Board or a
subcommittee thereof, which shall consist of at least two members.
(h) "Company" means IMCO Recycling Inc., a Delaware corporation.
(i) "Disability" means any mental or physical illness, condition,
disability or incapacity that prevents the Participant from reasonably
discharging the Participant's duties and responsibilities to the
Company, as determined by the Committee in its sole discretion.
(j) "Employee" means a regular salaried employee (including officers and
directors who are also employees) of the Company or any of its
Subsidiaries, or any branch or division thereof. An Award may be
granted to a potential Employee in connection with hiring, retention
or otherwise, prior to the date the Employee first performs services
for the Company or its Subsidiaries, provided that such Award shall
not become vested to any extent prior to the date the Employee first
performs such services.
(k) "Participant" means any Employee designated by the Committee to
participate in the Plan.
(l) "Performance Goals" shall mean the criteria and objectives determined
by the Committee pursuant to the Plan, which shall be satisfied or met
during the applicable Performance Period as a condition precedent to
the Participant's receipt of payment with respect to any Performance
Unit Award or Performance Share Unit Award. Such criteria and
objectives may include, but are not limited to, earnings before
interest, taxes, depreciation and amortization; return on assets;
return on equity; growth in net earnings; growth in earnings per
share; tangible net asset growth; any combination of the foregoing; or
any other financial criteria and objectives determined by the
Committee.
(m) "Performance Period" means a period of time determined at date of
grant by the Committee over which performance is measured for the
purpose of determining a Participant's right to and the payment value
of any Performance Unit Award or Performance Share Unit Award.
(n) "Performance Unit Award" or "Performance Share Unit Award" means an
Award representing a contingent right to receive cash at the end of a
Performance Period based upon the achievement of certain Performance
Goals pursuant to Section 6 of the Plan.
(o) "Plan" means the IMCO Recycling Inc. Performance Share Unit Plan as
set forth herein and any amendments hereto.
2
<PAGE>
(p) "Resigns for Good Reason" means a Participant's resignation caused by,
and within ninety (90) days after the occurrence of, any one of the
following: (i) an action is taken by the Company which results in a
material diminution in the position or status of the Participant with
the Company immediately prior to said action, except in connection
with a termination of the Participant's employment as a result of the
Participant's Disability or for Cause; (ii) a transfer or proposed
transfer of the Participant to a location outside of the Participant's
city of residence immediately prior to such transfer, without the
Participant's prior written consent; or (iii) the Company reduces the
annual base salary of the Participant, unless such decrease is the
result of a general reduction affecting the annual base salaries of
sixty percent (60%) or more of the then similarly situated employees
of the Company; provided that the Company has failed to rescind or
--------
remedy the action or occurrence prompting such resignation within five
(5) days (or if it requires a longer period, a reasonable period of
time) after the Participant has given the Company written notice
identifying such action or occurrence.
(q) "Retirement" means termination of employment due to retirement from
the Company and its Subsidiaries in accordance with standard
retirement policies of the Company and its Subsidiaries then in
effect, or permitted early retirement as determined by the Board in
its sole discretion.
(r) "Subsidiary" means any corporation or entity of which more than 50% of
the outstanding securities or ownership interests having ordinary
voting power to elect a majority of the members of the Board of
Directors or persons in a similar capacity of such corporation or
entity, is, directly or indirectly, owned by the Company.
2.2 Definitional Terms; Gender and Number. All terms defined in this Plan
-------------------------------------
shall have the meanings set forth herein when used in any Award Agreement or
other document made or delivered pursuant to the Plan, except where the context
thereof shall otherwise require. Except when otherwise indicated by the
context, words in the masculine gender when used in the Plan shall include the
feminine gender, the singular shall include the plural, and the plural shall
include the singular. The words "hereof," "herein," "hereunder," and similar
terms when used in this Plan shall refer to this Plan as a whole and not to any
particular provision of the Plan.
SECTION 3. ELIGIBILITY AND PARTICIPATION
3.1 Eligibility and Participation. Participants in the Plan shall be
-----------------------------
selected by the Committee from among those Employees who in the opinion of the
Committee, are key employees in a position to contribute materially to the
Company's continued growth and development and to its long-term financial
success. The Committee, upon its own action, may grant, but shall not be
required to grant, an Award to any eligible Employee of the Company or any
Subsidiary. The Committee shall determine the amounts, terms and conditions of
each Award granted hereunder. Awards may be granted by the Committee at any
time and from time
3
<PAGE>
to time to new Participants, or to already-participating Participants, or to a
greater or lesser number of Participants, and may include or exclude previous
Participants, as the Committee shall determine. The grant of an Award shall be
evidenced by an Award Agreement setting forth such terms, provisions,
limitations and performance criteria as are approved by the Committee, but not
inconsistent with the Plan.
Except as required by this Plan, Awards granted at different times need not
contain similar provisions. The Committee's determinations under the Plan
(including without limitation determinations of which Employees are to receive
Awards, the form, amount and timing of such Awards, the terms and provisions of
such Awards and the Award Agreements evidencing same) need not be uniform and
may be made by the Committee selectively among Participants who receive, or are
eligible to receive, Awards under the Plan.
Notwithstanding any other provision contained in this Plan to the contrary,
the Committee may delegate to the Chief Executive Officer of the Company from
time to time the authority to grant up to a certain number (to be designated by
the Committee from time to time) of Performance Units and/or Performance Share
Units to be awarded to eligible Employees to be chosen by the Chief Executive
Officer in his sole discretion, so long as those Employees are not at the date
of grant an officer of the Company and are not and are not likely to be a
"covered employee" (as that term is defined under Section 162(m) of the Code and
the Treasury Regulations promulgated thereunder).
SECTION 4. ADMINISTRATION
4.1 Administration. The Committee shall be responsible for the
--------------
administration of the Plan. Any member of the Committee may be removed at any
time, with or without cause, by resolution of the Board in its sole discretion.
Any vacancy occurring in the membership of the Committee may be filled by
appointment by the Board.
Plan administrative costs and expenses shall be paid by the Company. The
Committee is authorized to interpret the Plan, to prescribe, amend, and rescind
rules and regulations relating to the Plan, to provide for conditions and
assurances deemed necessary or advisable to protect the interests of the
Company, to correct any errors or inconsistencies in and make adjustments for
mistakes or errors made in the administration of the Plan, and to make all other
determinations necessary or advisable for the administration and application of
the Plan, including but not limited to the eligibility and participation
determinations as set forth in Section 3. Notwithstanding any provision
contained herein to the contrary, the Committee may, at any time and from time
to time, in its absolute discretion (i) accelerate the date on which any Award
granted under the Plan vests, (ii) extend the date on which any Award granted
under the Plan terminates, or (iii) remove, suspend or alter the restrictions
imposed with respect to any Award granted under the Plan. Except as otherwise
provided herein, determinations, interpretations, or other actions made or taken
by the Committee pursuant to the provisions of the Plan shall be final and
binding and conclusive for all purposes and upon all persons whomsoever,
including the Company and all Participants.
4
<PAGE>
To the extent that the Committee determines that the restrictions imposed
by the Plan preclude the achievement of the material purposes of the Awards in
jurisdictions outside the United States, the Committee will have the authority
and discretion to modify those restrictions as the Committee determines to be
necessary or appropriate to conform to applicable requirements or practices of
jurisdictions outside of the United States.
SECTION 5. DURATION OF PLAN
5.1 Duration of Plan. The Plan shall remain in effect, subject to the
----------------
Board's right to earlier terminate the Plan pursuant to Section 11 hereof, until
December 15, 2009. Notwithstanding the foregoing, all Awards granted prior to
the date specified in the preceding sentence will continue to be effective in
accordance with their terms and conditions.
SECTION 6. PERFORMANCE UNIT AWARDS AND PERFORMANCE SHARE UNIT AWARDS
6.1 Grant of Performance Unit or Performance Share Unit Awards. Subject
-----------------------------------------------------------
to the provisions of this Section 6, Performance Unit Awards or Performance
Share Unit Awards may be granted to Participants at any time and from time to
time as shall be determined by the Committee. The Committee shall have complete
discretion in determining the number of Performance Units or Performance Share
Units to be awarded to any Participant. Any Award shall be subject to such
conditions, restrictions and contingencies (including such Performance Goals) as
the Committee shall determine. The Performance Period shall also be determined
by the Committee and set forth in the Award Agreement.
6.2 Performance Goals. At the beginning of each Performance Period, the
-----------------
Committee shall (i) establish for each Performance Period the specific
Performance Goals as the Committee believes are relevant to the Company's
overall business objectives; (ii) determine the value of a Performance Unit or a
Performance Share Unit relative to the Performance Goals; and (iii) instruct
senior management to notify each Participant in writing of the established
Performance Goals and the minimum, target, and maximum Performance Unit or
Performance Share Unit value for such Performance Period.
6.3 Adjustments. The Committee will make appropriate adjustments to
-----------
exclude the effect of extraordinary corporate transactions, such as
acquisitions, divestitures, recapitalizations and reorganizations, and will not
take into account extraordinary or non-recurring accounting charges and items,
insofar as they would otherwise affect the results under the applicable
Performance Goals.
6.4 Payment. Upon completion of the Performance Period, the Committee
-------
shall certify the level of the Performance Goals attained and the amount of the
Award payable as a result thereof. The basis for payment of each Performance
Unit or Performance Share Unit for a given Performance Period shall be the
achievement of those Performance Goals determined by the Committee at the
beginning of the Performance Period. If minimum performance is not
5
<PAGE>
achieved for a Performance Period, no payment shall be made, the Performance
Unit Award or Performance Share Unit Award will terminate and all contingent
rights thereunder shall cease. If minimum performance is achieved or exceeded,
the value of a Performance Unit or Performance Share Unit shall be based on the
degree to which actual performance met or exceeded the pre-established minimum
performance standards, as determined by the Committee. The amount of payment
shall be determined by multiplying the number of Performance Units or
Performance Share Units granted at the beginning of the Performance Period times
the final Performance Unit or Performance Share Unit value. Payments shall be
made in cash following the close of the applicable Performance Period.
6.5 Deferral. If the terms of the particular Award granted by the
--------
Committee so provide, the Participant may be provided an option to defer payment
of the Participant's vested Performance Unit Award or Performance Share Unit
Award.
6.6 Termination of Employment Due To Death, Disability or Retirement. In
----------------------------------------------------------------
the case of death, Disability, or Retirement, the holder of a Performance Unit
or Performance Share Unit (or his beneficiary, as the case may be) shall be
entitled to receive following the end of the particular Performance Period, a
pro rata payment based on the number of months' service during the Performance
Period, and the level of achievement of Performance Goals during the Performance
Period, to be determined by the Committee following the end of the Performance
Period.
6.7 Termination of Employment Other Than Death, Disability or Retirement.
--------------------------------------------------------------------
Except in circumstances in which a Change in Control is involved pursuant to
Section 9 hereof, in the event that a Participant terminates employment with the
Company for any reason other than death, Disability or Retirement, all
Performance Unit Awards and Performance Share Unit Awards shall be forfeited.
6.8 Funding. No provision of the Plan shall require the Company, for the
-------
purpose of satisfying any obligations under the Plan, to purchase assets or
place any assets in a trust or other entity to which contributions are made or
otherwise to segregate any assets in a manner that would provide any Participant
any rights that are greater than those of a general creditor of the Company, nor
shall the Company maintain separate bank accounts, books, records or other
evidence of the existence of a segregated or separately maintained or
administered fund if such action would provide any Participant with any rights
that are greater than those of a general creditor of the Company. Participants
shall have no rights under the Plan other than as unsecured general creditors of
the Company. However, the Company may establish a "Rabbi Trust" for purposes of
securing the payment pursuant to a Change in Control.
6.9 Nontransferability. Performance Units or Performance Share Units
------------------
granted under the Plan may not be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated, other than by will or by the laws of
descent and distribution until the termination of the applicable Performance
Period. All rights with respect to Performance Unit Awards and Performance
Share Unit Awards granted to a Participant under the Plan shall be exercisable
during his lifetime only by such Participant.
6
<PAGE>
6.10 Restrictions on Awards. It is intended that the Plan will provide
----------------------
Participants with opportunities for long-term incentive compensation which is
not subject to the deduction limitation rules prescribed under Section 162(m) of
the Code, and that the Plan be construed to the degree possible as providing for
remumeration which is "performance-based compensation" within the meaning of
Section 162(m) of the Code and the Treasury Regulations promulgated thereunder.
Notwithstanding the foregoing, the Committee may grant Awards to non-officers
and individuals who are not and are likely not to be "covered employees" as that
term is defined under Section 162(m) and the Treasury Regulations, which Awards
may thereby not meet the requirements of being "performance-based compensation."
In order for Awards to be "performance-based compensation," the grant of the
Awards and the establishment of the Performance Goals shall be made during the
period required under Section 162(m) of the Code.
6.11 Maximum Amount. No Participant may receive during any fiscal year of
--------------
the Company, payment of Awards covering an aggregate of more than 300% of the
target amount designated in the Participant's Award Agreement, which amount must
be based on maximum achievement of Performance Goals and certified by the
Committee. In addition, and in any event, no Participant may receive during any
fiscal year payment of Awards totaling in excess of $4,500,000.
SECTION 7. BENEFICIARY DESIGNATION
7.1 Beneficiary Designation. Each Participant under the Plan may name,
-----------------------
from time to time, any beneficiary or beneficiaries (who may be named
contingently or successively) to whom any benefit under the Plan is to be paid
in the event of such Participant's death before such Participant receives any or
all of such benefit. Each designation will revoke all prior designations by the
same Participant, shall be in a form prescribed by the Committee, and will be
effective only when filed by the Participant in writing with the Committee
during his lifetime. In the absence of any such designation, benefits remaining
unpaid at the Participant's death shall be paid to his estate.
SECTION 8. RIGHTS OF EMPLOYEES
8.1 Employment. Nothing in the Plan shall interfere with or limit in any
----------
way the right of the Company to terminate any Participant's employment at any
time or confer upon any Participant any right to continue in the employ of the
Company.
8.2 Participation. No Employee shall have a right to be selected as a
-------------
Participant or, having been so selected, to be selected again as a Participant.
7
<PAGE>
SECTION 9. CHANGE IN CONTROL
9.1 In General.
----------
(a) Notwithstanding any other provision contained herein, in the event of
a Change in Control, as defined in Section 9.2 below, affecting the
Company in which the outstanding Awards granted by the Company prior
to such Change in Control (and the Company's obligations in connection
therewith) are not fully assumed by the Company after the Change in
Control or the corporation or entity resulting from the Change in
Control, or replaced by fully equivalent substitute Awards, then all
outstanding Awards shall automatically be accelerated and become fully
vested, whereupon all Performance Unit Awards and Performance Share
Unit Awards shall be paid based upon the extent to which Performance
Goals during the Performance Period have been met up to the date of
the Change in Control, but in any event, not less than the target
Award amount as set forth in each Participant's Award Agreement.
(b) If there is a Change in Control of the Company in which the
outstanding Awards granted by the Company prior to such Change in
Control (and the Company's obligations in connection therewith) are
fully assumed by the Company after the Change in Control or the
corporation or other legal entity resulting from the Change in
Control, or replaced by fully equivalent substitute Awards, then,
except as otherwise provided in this Section 9, no acceleration of
vesting of any unmatured installments of outstanding Awards granted by
the Company shall occur.
(c) In addition, notwithstanding any other provision contained in this
Plan, in the event that a Participant's employment is terminated by
the Company, within that period commencing on the date which is ninety
(90) days prior to and continuing during the 24-month period following
the effective date of a Change in Control (i.e., with such period
ending on the same day of the 24th month following the effective date
of the Change in Control), for any reason (other than such
Participant's (i) voluntary resignation (which does not constitute a
Resign for Good Reason resignation), (ii) termination as a result of
death, Disability or Retirement, or (iii) termination by the Company
for Cause), or such Participant Resigns for Good Reason within such
period, then to the extent the Awards granted to such Participant have
not already become fully vested pursuant to this Section 9, all
outstanding Awards granted by the Company to such Participant shall,
without further action by any person, immediately become fully vested
in full, effective as of the date of such termination of employment,
whereupon all Performance Unit Awards and Performance Share Unit
Awards shall be paid out based upon the higher of the targeted
Performance Goals or the extent to which the Performance Goals during
the Performance Period have been met up to the date of the Change in
Control or the date of termination (whichever date results in the
then-higher value of the particular Award).
8
<PAGE>
9.2 Definition. For purposes of the Plan, a "Change in Control" shall
----------
mean the occurrence of any of the following events: (i) there shall be
consummated any merger or consolidation pursuant to which shares of the
Company's Stock would be converted into or exchanged for cash, securities or
other property, or any sale, lease, exchange or other disposition (excluding
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
the Company (a "Business Combination"), in each case unless, following such
Business Combination, all or substantially all of the holders of the outstanding
Stock immediately prior to such Business Combination beneficially own, directly
or indirectly, more than 50.1% of the outstanding common stock or equivalent
equity interests of the corporation or entity resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more Subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such Business
Combination, of the outstanding Stock, (ii) the stockholders of the Company
approve any plan or proposal for the complete liquidation or dissolution of the
Company, (iii) any "person" (as such term is defined in Section 3(a)(9) or
Section 13(d)(3) under the 1934 Act) or any "group" (as such term is used in
Rule 13d-5 promulgated under the 1934 Act), other than the Company or any
successor of the Company or any Subsidiary of the Company or any employee
benefit plan of the Company or any Subsidiary (including such plan's trustee),
becomes a beneficial owner for purposes of Rule 13d-3 promulgated under the 1934
Act, directly or indirectly, of securities of the Company representing 50.1% or
more of the Company's then outstanding securities having the right to vote in
the election of directors, or (iv) during any period of two consecutive years,
individuals who, at the beginning of such period constituted the entire Board,
cease for any reason (other than death) to constitute a majority of the
directors, unless the election, or the nomination for election, by the Company's
stockholders, of each new director was approved by a vote of at least a majority
of the directors then still in office who were directors at the beginning of the
period.
SECTION 10. AMENDMENT, MODIFICATION,AND TERMINATION OF PLAN
10.1 Amendment, Modification, and Termination of Plan. The Board at any
------------------------------------------------
time may terminate, and from time to time may amend or modify the Plan,
provided, however, that unless required by law, no action contemplated or
permitted by this Section 11.1 shall reduce the amount of any Award theretofore
granted under the Plan without the consent of the affected Participant.
SECTION 11. TAX WITHHOLDING
11.1 Tax Withholding. The Company shall have the power and the right to
---------------
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy Federal, state, and local taxes, domestic or foreign,
required by law or regulation to be withheld with respect to any taxable event
arising as a result of the Plan.
9
<PAGE>
SECTION 12. INDEMNIFICATION
12.1 Indemnification. Each Person who is or shall have been a member of
---------------
the Committee or of the Board, or who acts on behalf of or at the direction of
the Committee or Board with respect to this Plan, shall be indemnified and held
harmless by the Company against and from any loss, cost, liability, or expense
that may be imposed upon or reasonably incurred by him in connection with or
resulting from any claim, action, suit, or proceeding to which he may be a party
or in which he may be involved by reason of any action taken or failure to act
under the Plan and against and from any and all amounts paid by him in
settlement thereof, with the Company's approval, or paid by him in satisfaction
of any judgment in any such action, suit, or proceeding against him, provided he
shall give the Company an opportunity, at its own expense, to handle and defend
the same before he undertakes to handle and defend it on his own behalf. The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company's
Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any
power that the Company may have to indemnify them or hold them harmless.
SECTION 13. MISCELLANEOUS
13.1 Requirements of Law. The granting of Awards shall be subject to all
-------------------
applicable laws, rules, and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be required.
13.2 Governing Law. The Plan, and all agreements hereunder, shall be
-------------
construed in accordance with and governed by the laws of the State of Delaware.
13.3 Substitute Awards. Awards may be granted under the Plan from time to
-----------------
time in substitution for similar instruments held by employees or directors of a
corporation, partnership, or limited liability company who become or are about
to become Employees of the Company or any Subsidiary as a result of a merger or
consolidation of the employing corporation with the Company, the acquisition by
the Company of equity of the employing entity, or any other similar transaction
pursuant to which the Company becomes the successor employer. The terms and
conditions of the substitute Awards so granted may vary from the terms and
conditions set forth in this Plan to such extent as the Committee or Board at
the time of grant may deem appropriate to conform, in whole or in part, to the
provisions of the incentives in substitution for which they are granted.
10
<PAGE>
Exhibit 21
LIST OF IMCO RECYCLING INC. SUBSIDIARIES
Wholly owned unless otherwise indicated as of March 1, 2000.
1. IMCO Investment Company, a Delaware Corporation
2. Interamerican Zinc, Inc., a Delaware Corporation
3. IMCO Recycling of Ohio Inc., a Delaware Corporation
4. IMCO Management Partnership L.P., a Texas Limited Partnership
5. IMCO Recycling of California, Inc., a Delaware Corporation
6. IMCO Energy Corp., a Delaware Corporation
7. IMCO International, Inc., a Delaware Corporation
8. IMCO Recycling of Indiana Inc., a Delaware Corporation
9. IMCO Recycling of Illinois Inc., an Illinois Corporation
10. IMCO Indiana Partnership L.P., an Indiana Limited Partnership
11. Pittsburg Aluminum, Inc., a Kansas Corporation
12. VAW-IMCO Gu(beta)und Recycling GmbH, a private company with limited
liability organized under the laws of Germany (50% owned)
13. IMCO Recycling of Michigan L.L.C., a Delaware Limited Liability Company
14. IMCO Recycling (UK) Ltd., a private company limited by shares and organized
under the laws of England and Wales
15. IMSAMET, Inc., a Delaware Corporation
16. IMCO Recycling of Idaho Inc., a Delaware Corporation
17. IMCO Recycling of Utah Inc., a Delaware Corporation
72
<PAGE>
LIST OF IMCO RECYCLING INC. SUBSIDIARIES
18. Imsamet of Arizona, an Arizona General Partnership (70% owned)
19. Solar Aluminum Technology Services, a Utah General Partnership (50% owned)
20. Rock Creek Aluminum, Inc., an Ohio Corporation
21. Alchem Aluminum, Inc., a Delaware Corporation
22. IMCO Recycling Holding B.V., a private company with limited liability
organized under the laws of the Netherlands
23. IMCO (UK) Limited Partnership, a limited partnership organized under the
laws of England and Wales
24. U.S. Zinc Corporation, a Delaware Corporation
25. Gulf Reduction Corporation, a Delaware Corporation
26. Midwest Zinc Corporation, a Delaware Corporation
27. MetalChem, Inc., a Pennsylvania Corporation
28. Western Zinc Corporation, a California Corporation
29. U.S. Zinc Export Corporation, a Texas Corporation
30. U.S. Zinc - FSC, Inc., a Barbados Corporation
31. MetalChem Canada Incorporated, an Ontario Corporation
32. MetalChem Handel GmbH, a private company with limited liability organized
under the laws of Germany
33. Alchem Aluminum Shelbyville Inc., a Delaware Corporation
34. B&F Metals, Inc., a Pennsylvania Corporation
35. Indiana Aluminum Inc., an Indiana Corporation
<PAGE>
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-26641, Form S-8 No. 33-34745, Form S-8 Nos. 33-76780, 333-
00075, and 333-71339, Form S-8 Nos. 333-07091 and 333-71335, and Form S-8 No.
333-81949) 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. Annual Incentive
Program and the IMCO Recycling Inc. Employee Stock Purchase Plan, respectively,
of our report dated January 31, 2000, with respect to the consolidated financial
statements of IMCO Recycling Inc. included in the Annual Report (Form 10-K) for
the year ended December 31, 1999.
Dallas, Texas
March 23, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,578
<SECURITIES> 0
<RECEIVABLES> 127,867
<ALLOWANCES> 1,950
<INVENTORY> 74,568
<CURRENT-ASSETS> 215,299
<PP&E> 283,361
<DEPRECIATION> 93,374
<TOTAL-ASSETS> 543,637
<CURRENT-LIABILITIES> 108,803
<BONDS> 214,993
0
0
<COMMON> 1,711
<OTHER-SE> 193,945
<TOTAL-LIABILITY-AND-EQUITY> 543,637
<SALES> 764,831
<TOTAL-REVENUES> 764,831
<CGS> 694,193
<TOTAL-COSTS> 694,193
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,602
<INTEREST-EXPENSE> 12,478
<INCOME-PRETAX> 32,304
<INCOME-TAX> 11,162
<INCOME-CONTINUING> 20,796
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,796
<EPS-BASIC> 1.26
<EPS-DILUTED> 1.26
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 6,075 405
<SECURITIES> 0 74
<RECEIVABLES> 87,262 53,508
<ALLOWANCES> 2,816 1,345
<INVENTORY> 50,921 34,556
<CURRENT-ASSETS> 151,837 91,652
<PP&E> 240,446 197,095
<DEPRECIATION> 71,941 54,995
<TOTAL-ASSETS> 456,558 332,536
<CURRENT-LIABILITIES> 78,869 33,804
<BONDS> 168,700 109,194
0 0
0 0
<COMMON> 1,705 1,652
<OTHER-SE> 185,603 167,272
<TOTAL-LIABILITY-AND-EQUITY> 456,558 332,536
<SALES> 562,093 337,377
<TOTAL-REVENUES> 562,093 337,377
<CGS> 503,202 290,057
<TOTAL-COSTS> 503,202 290,057
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 1,325 668
<INTEREST-EXPENSE> 9,197 7,331
<INCOME-PRETAX> 31,143 23,506
<INCOME-TAX> 11,275 9,086
<INCOME-CONTINUING> 19,590 14,127
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 (1,318)
<CHANGES> 0 0
<NET-INCOME> 19,590 12,809
<EPS-BASIC> 1.18 0.98
<EPS-DILUTED> 1.17 0.96
</TABLE>
