<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 9, 1996
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
ICO, INC.
(Exact name of Registrant as specified on its charter)
<TABLE>
<S> <C> <C>
TEXAS 1389 75-1619554
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
100 GLENBOROUGH DRIVE
SUITE 250
HOUSTON, TEXAS 77067
(713) 872-4994
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
GARY P. KREIDER, ESQ.
KEATING, MUETHING & KLEKAMP
1800 PROVIDENT TOWER
ONE EAST FOURTH STREET
CINCINNATI, OHIO 45202
(513) 579-6411
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------
WITH COPIES TO:
EDWARD N. BAROL, ESQ.
DILWORTH, PAXSON, KALISH & KAUFFMAN LLP
3200 MELLON BANK CENTER
1735 MARKET STREET
PHILADELPHIA, PENNSYLVANIA 19109
(215) 575-7170
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
---------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE(1) PRICE(1) FEE
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<S> <C> <C> <C> <C>
Common Stock, no par value... 10,132,609 $13.75 $139,323,374 $48,043.00
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</TABLE>
(1) In accordance with Rule 457(f)(1) under the Securities Act of 1933, the
Proposed Maximum Offering Price Per Share has been computed based on the
average of the high and low trading prices of Wedco Technology, Inc. common
stock on the Nasdaq Stock Market on February 2, 1996.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
ICO, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND HEADING PROSPECTUS CAPTION OR LOCATION
-------------------------------- ------------------------------
<S> <C> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front Cover Page; Available
Information; Documents Incorporated by
Reference
3. Risk Factors, Ratio of Earnings to Fixed
Charges, and Other Information........... Summary; Risk Factors; Unaudited Pro Forma
Financial Information
4. Terms of the Transaction................... Summary
5. Pro Forma Financial Information............ Summary; Unaudited Pro Forma Financial
Information
6. Material Contacts with the Company Being
Acquired................................. Not Applicable
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters....................... Not Applicable
8. Interests of Named Experts and Counsel..... Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information With Respect to S-3
Registrants.............................. Not Applicable
11. Incorporation of Certain Information by
Reference................................ Not Applicable
12. Information With Respect to S-2 or S-3
Registrants.............................. Summary; Risk Factors; The Companies;
Management of the Combined Company
Following the Merger; The Merger; The
Merger Agreement; Description of ICO
Common Stock
13. Incorporation of Certain Information by
Reference................................ Documents Incorporated by Reference
14. Information With Respect to Registrants
Other Than S-3 or S-2 Registrants........ Not Applicable
C. INFORMATION ABOUT THE COMPANIES BEING
ACQUIRED
15. Information With Respect to S-3
Companies................................ Not Applicable
16. Information With Respect to S-2 or S-3
Companies................................ Summary; Risk Factors; The Companies; The
Merger; The Merger Agreement
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND HEADING PROSPECTUS CAPTION OR LOCATION
-------------------------------- ------------------------------
<S> <C> <C>
17. Information With Respect to Companies Other
Than S-3 or S-2 Companies................ Not Applicable
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited....... Summary; ICO Special Meeting; Wedco Special
Meeting; Management of the Combined
Company Following the Merger
19. Information if Proxies, Consents or
Authorizations are not to be Solicited,
or in an Exchange Offer.................. Not Applicable
</TABLE>
<PAGE> 4
ICO, INC.
100 GLENBOROUGH DRIVE
SUITE 250
HOUSTON, TEXAS 77067
, 1996
TO OUR SHAREHOLDERS:
On behalf of the Board of Directors and management of ICO, Inc., we
cordially invite you to attend a Special Meeting of Shareholders (the "Special
Meeting") to be held at the Wyndam Greenspoint Hotel, 1240 Greenspoint Drive,
Houston, Texas on , 1996 at a.m., Central Standard Time.
At the Special Meeting you will be asked to approve the issuance of shares
(the "Share Issuance") of Common Stock of ICO ("ICO Common Stock") pursuant to
the Merger Agreement dated as of December 8, 1995 (the "Merger Agreement") among
ICO, W Acquisition Corp., a wholly-owned subsidiary of ICO ("W Acquisition"),
and Wedco Technology, Inc. ("Wedco").
The Merger Agreement provides for the merger (the "Merger") of Wedco with
and into W Acquisition with W Acquisition surviving the Merger as a wholly-owned
subsidiary of ICO. Upon consummation of the Merger, W Acquisition would change
its corporate name to Wedco Technology, Inc. If the Merger is consummated, each
share of Wedco Common Stock outstanding immediately prior to the effective time
of the Merger would be converted, at the option of the holder, into either (i)
2.20 shares of ICO Common Stock and $3.50 in cash or (ii) 2.84 shares of ICO
Common Stock. Cash would be paid in lieu of any fractional share of ICO Common
Stock.
At the Special Meeting, you will also be asked to approve an amendment to
the Articles of Incorporation of ICO, if the Merger is consummated, to change
ICO's name to "Willoughby International, Inc." (the "Charter Amendment"). Upon
consummation of the Merger and Charter Amendment, Willoughby International, Inc.
would continue to operate its existing oil and gas industry services business
under the name of ICO.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE MERGER, THE
SHARE ISSUANCE AND THE CHARTER AMENDMENT ARE IN THE BEST INTERESTS OF ICO AND
ITS SHAREHOLDERS. ACCORDINGLY, THE BOARD HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT, THE SHARE ISSUANCE AND THE CHARTER AMENDMENT AND RECOMMENDS THAT YOU
VOTE IN FAVOR OF THE SHARE ISSUANCE AND THE CHARTER AMENDMENT AT THE SPECIAL
MEETING. APPROVAL OF THE CHARTER AMENDMENT IS NOT A CONDITION TO THE
CONSUMMATION OF THE MERGER.
The Merger, the Merger Agreement, the Share Issuance and the Charter
Amendment are more fully described in the accompanying Joint Proxy
Statement/Prospectus. We urge you to read this material carefully.
It is important that your shares of ICO Common Stock be represented at the
Special Meeting regardless of the number of shares you hold. You are urged to
specify your voting preferences by marking, dating and signing the enclosed
proxy card and returning it in the enclosed business reply envelope. No postage
is required if mailed in the United States. If you wish to vote in accordance
with the Directors' recommendations, all you need do is date and sign the proxy
card and return it in such envelope.
PLEASE COMPLETE AND RETURN THE PROXY CARD WHETHER OR NOT YOU PLAN TO ATTEND
THE SPECIAL MEETING. If you do attend and wish to vote in person, you may revoke
your proxy at that time.
<PAGE> 5
WEDCO TECHNOLOGY, INC.
ROUTE 173
WEST PORTAL, NEW JERSEY 08802
TO OUR SHAREHOLDERS:
On behalf of the Board of Directors and management of Wedco Technology,
Inc. ("Wedco"), we cordially invite you to attend a Special Meeting of
Shareholders (the "Special Meeting") to be held at Wedco Technology, Inc., Route
173, West Portal, New Jersey 08802, on , 1996 at a.m., Eastern
Standard Time.
At the Special Meeting you will be asked to approve a merger (the "Merger")
pursuant to a Merger Agreement, dated as of December 8, 1995 ("Merger
Agreement") among Wedco, ICO, Inc., ("ICO"), a Texas corporation and W
Acquisition Corp., a wholly owned subsidiary of ICO ("W Acquisition").
The Merger and the Merger Agreement are more fully described in the
accompanying Joint Proxy Statement/Prospectus. We urge you to read this material
carefully.
The Merger Agreement provides for the merger of Wedco with and into W
Acquisition, with W Acquisition surviving the Merger as a wholly-owned
subsidiary of ICO. Upon consummation of the Merger, W Acquisition would change
its corporate name to Wedco Technology, Inc. If the Merger is consummated, each
share of Wedco Common Stock outstanding immediately prior to the effective time
of the Merger would be converted, at the option of the holder, into either (i)
2.20 shares of ICO Common Stock and $3.50 in cash or (ii) 2.84 shares of ICO
Common Stock. Cash would be paid in lieu of any fractional share of ICO Common
Stock.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS IN THE
BEST INTEREST OF WEDCO AND ITS SHAREHOLDERS. ACCORDINGLY, THE BOARD HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT YOU VOTE IN FAVOR
OF APPROVING THE MERGER AGREEMENT AND THE MERGER WHICH WOULD TAKE PLACE PURSUANT
THERETO.
It is important that your shares of Wedco Common Stock be represented at
the Special Meeting regardless of the number of shares you hold. You are urged
to specify your voting preferences by marking, dating and signing the enclosed
proxy card and returning it in the enclosed business reply envelope. No postage
is required if mailed in the United States. If you wish to vote in accordance
with the Directors' recommendations, all you need do is date and sign the proxy
card and return it in such envelope.
IT IS ALSO VERY IMPORTANT THAT YOU DESIGNATE WHETHER, IN THE EVENT THE
MERGER IS CONSUMMATED, EACH SHARE OF WEDCO STOCK OWNED BY YOU SHALL BE CONVERTED
INTO (I) 2.20 SHARES OF ICO COMMON STOCK AND $3.50 IN CASH OR (II) 2.84 SHARES
OF ICO COMMON STOCK. PLEASE NOTE THAT IN THE EVENT THAT YOU FAIL TO DESIGNATE
YOUR CHOICE YOU WILL RECEIVE 2.84 SHARES OF ICO COMMON STOCK FOR EVERY SHARE OF
WEDCO COMMON STOCK OWNED BY YOU.
Please complete and return the proxy card whether or not you plan to attend
the Special Meeting. If you do attend and wish to vote in person, you may revoke
your proxy at that time.
If your shares are not registered in your name and you would like to attend
the Special Meeting, please ask the broker, trust company, bank or other nominee
which holds such shares to provide you with evidence of your shares ownership,
which will enable you to gain admission to the Special Meeting.
We look forward to seeing you at the meeting.
Sincerely,
William E. Willoughby, Chairman Edward N. Barol, Secretary
of the Board and President
<PAGE> 6
If you plan to attend the Special Meeting, please check the proxy card in
the space provided. This will assist us in making preparations for the meeting,
and will enable us to expedite your admittance. If your shares are not
registered in your name and you would like to attend the Special Meeting, please
ask the broker, trust company, bank or other nominee which holds such shares to
provide you with evidence of your shares ownership, which will enable you to
gain admission to the Special Meeting.
We look forward to seeing you at the meeting.
Sincerely,
<TABLE>
<S> <C>
Dr. Asher O. Pacholder Sylvia A. Pacholder
Chairman of the Board and President, Chief Executive Officer
Chief Financial Officer and Secretary
</TABLE>
<PAGE> 7
ICO, INC.
100 GLENBOROUGH DRIVE
SUITE 250
HOUSTON, TEXAS 77067
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD , 1996
A Special Meeting of Shareholders ("ICO Special Meeting") of ICO, Inc., a
Texas corporation ("ICO"), will be held at the Wyndham Greenspoint Hotel, 1240
Greenspoint Drive, Houston, Texas, on , 1996 at a.m.,
Central Standard Time, for the following purposes:
(1) To consider and vote on a proposal to approve the issuance of
shares of common stock, no par value, of ICO ("ICO Common Stock"), pursuant
to the Merger Agreement dated as of December 8, 1995 ("Merger Agreement")
among ICO, W Acquisition Corp., a New Jersey corporation and wholly-owned
subsidiary of ICO ("W Acquisition"), and Wedco Technology, Inc, a New
Jersey corporation ("Wedco").
(2) To consider and vote on a proposal to approve an amendment to
ICO's Articles of Incorporation to change ICO's name to "Willoughby
International, Inc." if the merger provided for in the Merger Agreement is
consummated.
(3) To consider and act upon any matters incidental to the foregoing
purposes, including a motion to adjourn, and to transact such other
business as may properly come before the ICO Special Meeting or any
postponement or adjournment thereof.
A conformed copy of the Merger Agreement is attached to the accompanying
Joint Proxy Statement/ Prospectus as Annex A.
Only holders of record of ICO Common Stock at the close of business on
, 1996 will be entitled to vote at the ICO Special Meeting or any
postponement or adjournment thereof.
THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF ICO COMMON STOCK
MUST BE REPRESENTED AT THE ICO SPECIAL MEETING IN PERSON OR BY PROXY IN ORDER TO
HAVE THE QUORUM NECESSARY TO VOTE ON THE ITEMS ON THE AGENDA. WHETHER YOU INTEND
TO BE PRESENT AT THE ICO SPECIAL MEETING OR NOT, YOU ARE URGED TO COMPLETE,
DATE, SIGN AND RETURN THE ACCOMPANYING PROXY AT YOUR EARLIEST CONVENIENCE. A
REPLY ENVELOPE IS PROVIDED FOR THIS PURPOSE, WHICH NEEDS NO POSTAGE IF MAILED IN
THE UNITED STATES. SHARES OF ICO COMMON STOCK MAY BE REPRESENTED IN PERSON AND
VOTED AT THE ICO SPECIAL MEETING. YOU MAY REVOKE YOUR PROXY BY FOLLOWING THE
PROCEDURES SET FORTH IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS.
By Order of the Board of Directors
<TABLE>
<S> <C>
Dr. Asher O. Pacholder Sylvia A. Pacholder
Chairman of the Board and President, Chief Executive Officer
Chief Financial Officer and Secretary
</TABLE>
Houston, Texas
Date: , 1996
<PAGE> 8
WEDCO TECHNOLOGY, INC.
P.O. BOX 397
BLOOMSBURY, NJ 08804
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD , 1996
A Special Meeting of Shareholders ("Wedco Special Meeting") of Wedco
Technology, Inc., a New Jersey Corporation ("Wedco") will be held at Wedco's
corporate headquarters on Route 173, West Portal, New Jersey, on ,
1996 at a.m., Eastern Standard Time, for the following purposes:
(1) To consider and vote on a proposal to approve and adopt the Merger
Agreement dated as of December 8, 1995 (the "Merger Agreement") among ICO,
Inc., a Texas corporation ("ICO"), W Acquisition Corp., a New Jersey
corporation and wholly-owned subsidiary of ICO ("W Acquisition"), and
Wedco.
(2) To consider and act upon any matters incidental to the foregoing
purposes, including a motion to adjourn, and to transact such other
business as may properly come before the Wedco Special Meeting or any
postponement or adjournment thereof.
A conformed copy of the Merger Agreement is attached to the accompanying
Joint Proxy Statement/ Prospectus as Annex A.
The Merger Agreement provides for the merger (the "Merger") of Wedco with
and into W Acquisition with W Acquisition surviving the Merger as a wholly-owned
subsidiary of ICO. Upon consummation of the Merger, W Acquisition would change
its corporate name to Wedco Technology, Inc. The Merger Agreement provides that
when the Merger is consummated, each share of common stock, $0.10 par value, of
Wedco ("Wedco Common Stock") would be converted, at the option of the holder,
into either (i) 2.20 shares of common stock, no par value, of ICO ("ICO Common
Stock") and $3.50 in cash (the "Cash/Stock Consideration") or (ii) 2.84 shares
of ICO Common Stock (the "Stock Consideration"). Cash would be paid in lieu of
any fractional share of ICO Common Stock.
Only holders of record of Wedco Common Stock at the close of business on
, 1996 will be entitled to vote at the Wedco Special Meeting or any
postponement or adjournment thereof.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS IN THE
BEST INTERESTS OF WEDCO AND ITS SHAREHOLDERS. ACCORDINGLY, THE BOARD HAS
UNANIMOUSLY APPROVED THE MERGER AND RECOMMENDS THAT YOU VOTE IN FAVOR OF THE
APPROVAL OF THE MERGER AGREEMENT AT THE SPECIAL MEETING.
THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF WEDCO COMMON STOCK
MUST BE REPRESENTED AT THE WEDCO SPECIAL MEETING IN PERSON OR BY PROXY IN ORDER
TO HAVE THE QUORUM NECESSARY TO VOTE ON THE ITEMS ON THE AGENDA. WHETHER YOU
INTEND TO BE PRESENT AT THE WEDCO SPECIAL MEETING OR NOT, YOU ARE URGED TO
COMPLETE, DATE, SIGN AND RETURN THE ACCOMPANYING PROXY AT YOUR EARLIEST
CONVENIENCE. A REPLY ENVELOPE IS PROVIDED FOR THIS PURPOSE, WHICH NEEDS NO
POSTAGE IF MAILED IN THE UNITED STATES. SHARES OF WEDCO COMMON STOCK MAY BE
REPRESENTED IN PERSON AND VOTED AT THE WEDCO SPECIAL MEETING. YOU MAY REVOKE
YOUR PROXY BY FOLLOWING THE PROCEDURES SET FORTH IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS.
<PAGE> 9
Shareholders will be required to elect on their forms of proxy whether, if
the Merger is consummated, they desire to receive the Cash/Stock Consideration
or the Stock Consideration. SHAREHOLDERS MUST MAKE THIS ELECTION ON THEIR FORM
OF PROXY WHETHER THEY VOTE FOR OR AGAINST THE PROPOSAL TO APPROVE AND ADOPT THE
MERGER AGREEMENT. IF NO ELECTION IS MADE WITH RESPECT TO A SHARE OF WEDCO COMMON
STOCK BY THE EFFECTIVE TIME OF THE MERGER, THE HOLDER OF SUCH SHARE WILL BE
DEEMED TO HAVE ELECTED THE STOCK CONSIDERATION.
By Order of the Board of Directors
<TABLE>
<S> <C>
William E. Willoughby EDWARD N. BAROL
Chairman of the Board and President Secretary
</TABLE>
Bloomsbury, New Jersey
Date: , 1996
<PAGE> 10
***************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY *
* NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH *
* SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO *
* REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH *
* STATE. *
* *
***************************************************************************
SUBJECT TO COMPLETION, DATED FEBRUARY 9, 1996
ICO, INC.
AND
WEDCO TECHNOLOGY, INC.
JOINT PROXY STATEMENT
---------------------
ICO, INC.
PROSPECTUS RELATING TO
UP TO 10,132,609 SHARES OF COMMON STOCK
---------------------
This Joint Proxy Statement/Prospectus is being furnished to the holders of
Common Stock, no par value (the "ICO Common Stock"), of ICO, Inc., a Texas
corporation ("ICO"), in connection with the solicitation of proxies by the ICO
Board of Directors for use at a Special Meeting of Shareholders of ICO to be
held at the Wyndham Greenspoint Hotel, 1240 Greenspoint Drive, Houston, Texas,
on , 1996 at a.m., Central Standard Time, and at any and all
postponements or adjournments thereof (the "ICO Special Meeting").
This Joint Proxy Statement/Prospectus is also being furnished to the holders
of Common Stock, $0.10 par value (the "Wedco Common Stock"), of Wedco
Technology, Inc., a New Jersey corporation ("Wedco"), in connection with the
solicitation of proxies by the Wedco Board of Directors for use at a Special
Meeting of Shareholders of Wedco to be held at Wedco's corporate headquarters on
Route 173, West Portal, New Jersey, on , 1996 at a.m., Eastern
Standard Time, and at any and all postponements or adjournments thereof (the
"Wedco Special Meeting").
This Joint Proxy Statement/Prospectus relates to the Merger Agreement dated
as of December 8, 1995 (the "Merger Agreement") among ICO, W Acquisition Corp.,
a New Jersey corporation and wholly-owned subsidiary of ICO ("W Acquisition"),
and Wedco, which provides for the merger (the "Merger") of Wedco with and into W
Acquisition with W Acquisition surviving the Merger as a wholly-owned subsidiary
of ICO. Each share of Wedco Common Stock outstanding immediately prior to the
Effective Time (as defined in the Merger Agreement) of the Merger would be
converted, at the option of the holder, into either (i) 2.20 shares of ICO
Common Stock and $3.50 in cash or (ii) 2.84 shares of ICO Common Stock.
The consummation of the Merger is subject, among other things, to: (i) the
approval of the issuance of ICO Common Stock pursuant to the Merger in
accordance with the terms of the Merger Agreement (the "Share Issuance") by the
affirmative vote of a majority of the votes cast by the shareholders of ICO
entitled to vote on the Share Issuance at the ICO Special Meeting; and (ii) the
approval and adoption of the Merger Agreement by at least 66 2/3% of the votes
cast by the shareholders of Wedco entitled to vote thereon at the Wedco Special
Meeting. SEE "RISK FACTORS" COMMENCING ON PAGE FOR A DESCRIPTION OF CERTAIN
MATTERS THAT SHOULD BE CONSIDERED BY SHAREHOLDERS BEFORE VOTING. A conformed
copy of the Merger Agreement is attached hereto as Annex A.
This Joint Proxy Statement/Prospectus also constitutes the Prospectus of ICO
filed as part of a Registration Statement on Form S-4 (the "Registration
Statement") with the Securities and Exchange Commission under the Securities Act
of 1933, relating to the shares of ICO Common Stock constituting the Share
Issuance.
In addition, this Joint Proxy Statement/Prospectus relates to the proposal,
if the Merger is consummated, to approve an amendment to the Articles of
Incorporation of ICO to change its corporate name to Willoughby International,
Inc. (the "Charter Amendment"). Approval of the Charter Amendment will require
the affirmative vote of at least 66 2/3% of the outstanding shares of ICO Common
Stock entitled to vote thereon. APPROVAL OF THE CHARTER AMENDMENT IS NOT A
CONDITION TO THE CONSUMMATION OF THE MERGER.
ICO Common Stock and Wedco Common Stock are traded on the Nasdaq Stock
Market under the symbols "ICOC" and "WEDC", respectively. On December 8, 1995,
the last trading day prior to the public announcement of the signing of the
Merger Agreement, the closing bid prices of the ICO Common Stock and Wedco
Common Stock were $5.375 and $10.875, respectively. ICO has filed an application
to list the ICO Common Stock on the New York Stock Exchange ("NYSE") pending
consummation of the Merger. LISTING OF THE ICO COMMON STOCK ON THE NYSE IS NOT A
CONDITION TO THE CONSUMMATION OF THE MERGER.
This Joint Proxy Statement/Prospectus and the accompanying proxy are first
being mailed to shareholders of ICO and Wedco on or about , 1996.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION. NEITHER THE
SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
The date of this Joint Proxy Statement/Prospectus is , 1996.
<PAGE> 11
AVAILABLE INFORMATION
ICO has filed a Registration Statement on Form S-4, No. 33- (the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933 (the "Securities Act") with
respect to the ICO Common Stock offered hereby. This Joint Proxy
Statement/Prospectus does not contain all of the information set forth in the
Registration Statement, certain portions of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the ICO Common Stock offered hereby, the Merger, ICO and Wedco,
reference is made to the Registration Statement, annexes thereto and exhibits
filed as a part thereof. Statements contained herein concerning the provisions
of any documents or agreements are not necessarily complete, and in each such
instance reference is made to the copy of such document filed as an exhibit to
the Registration Statement or incorporated therein by reference. Each such
statement is qualified in its entirety by such reference.
Both ICO and Wedco are subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and, in accordance
therewith, file reports, proxy statements and other information with the
Commission. Such reports and other information filed with the Commission, as
well as the Registration Statement, can be inspected and copied at the public
reference facilities of the Commission at 450 Fifth Street, N.W., Washington,
D.C., and at the Commission's regional offices located at Suite 1400, 500 West
Madison Avenue, Chicago, Illinois, and at 7 World Trade Center, 13th Floor, New
York, New York. Copies of such material can also be obtained by mail from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, ICO Common Stock and
Wedco Common Stock are listed on the Nasdaq Stock Market, and such reports can
be inspected at the offices of the Nasdaq Stock Market at 1735 K Street, N.W.,
Washington, D.C.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed with the Commission by ICO (File No. 0-10068)
and Wedco (File No. 1-5528) are incorporated herein by reference:
1(a) Annual Report of ICO on Form 10-K for the fiscal year ended
September 30, 1995; and
(b) Current Report of ICO on Form 8-K dated December 12, 1995.
2(a) Annual Report of Wedco on Form 10-K for the fiscal year ended
March 31, 1995;
(b) Quarterly Reports of Wedco on Form 10-Q for the quarters ended
June 30, 1995 and September 30, 1995; and
(c) Current Reports of Wedco on Form 8-K dated August 14, 1995 and
February 5, 1996.
ICO's Annual Report on Form 10-K for the fiscal year ended September 30,
1995 is attached as Annex B.
Wedco's Annual Report on Form 10-K for the fiscal year ended March 31, 1995
and Wedco's Quarterly Report on Form 10-Q for the quarter ended September 30,
1995 are attached as Annexes C and D, respectively.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE
AVAILABLE UPON REQUEST FROM ICO AND WEDCO AT THE ADDRESSES AND PHONE NUMBERS SET
FORTH BELOW. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST
SHOULD BE MADE BY .
ICO and Wedco will provide without charge to each person to whom a copy of
this Joint Proxy Statement/Prospectus is delivered, upon the written or verbal
request of any such person, a copy of any or all of the documents which have
been incorporated herein by reference, other than exhibits to such documents
(unless such exhibits are specifically incorporated by reference into such
documents). Requests for such documents should be directed to ICO, Inc., 100
Glenborough Drive, Suite 250, Houston, Texas 77067,
2
<PAGE> 12
telephone (713) 872-4994, Attention: Jon C. Biro or Wedco Technology, Inc., P.O.
Box 397, Bloomsbury, New Jersey 08804, telephone (908) 479-4181, Attention: Mark
L. Kuna.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES AND THE OFFERING MADE HEREBY AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY ICO OR WEDCO.
THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE THE SOLICITATION
OF A PROXY OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO PURCHASE ANY
SECURITIES IN ANY JURISDICTION IN WHICH SUCH SOLICITATION OR OFFER MAY NOT
LAWFULLY BE MADE.
THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT COVER ANY RESALES OF THE ICO
COMMON STOCK OFFERED HEREBY TO BE RECEIVED BY SHAREHOLDERS OF WEDCO DEEMED TO BE
AFFILIATES OF ICO OR WEDCO UPON THE CONSUMMATION OF THE MERGER.
NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL IMPLY THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF ICO OR WEDCO
SINCE THE DATE HEREOF.
3
<PAGE> 13
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY............................................................................... 6
The Companies....................................................................... 6
The Merger Agreement................................................................ 6
ICO Common Stock Outstanding........................................................ 7
ICO Special Meeting................................................................. 8
Wedco Special Meeting............................................................... 8
No Appraisal Rights................................................................. 8
Recommendations of the Boards of Directors of ICO and Wedco......................... 9
Election of Merger Consideration by Shareholders of Wedco........................... 9
ICO, Inc. Selected Unaudited Pro Forma Condensed Combined Financial Data Fiscal Year
Ended September 30, 1995......................................................... 10
Capitalization...................................................................... 11
ICO, Inc. Selected Financial Data................................................... 12
Wedco Technology, Inc. Selected Consolidated Financial Data......................... 13
Comparative Per Share Data.......................................................... 14
Comparative Market Price Data....................................................... 15
Dividend Policy..................................................................... 15
INTRODUCTION.......................................................................... 16
RISK FACTORS.......................................................................... 17
Risk Factors Relating to ICO........................................................ 17
Risk Factors Relating to Wedco...................................................... 18
Risk Factors Relating to the Merger................................................. 20
THE COMPANIES......................................................................... 23
ICO................................................................................. 23
Wedco............................................................................... 23
W Acquisition....................................................................... 24
ICO SPECIAL MEETING................................................................... 24
General............................................................................. 24
Purpose of Meeting.................................................................. 24
Date, Place and Time; Record Date................................................... 25
Voting Rights....................................................................... 25
Voting Agreement.................................................................... 25
Proxies............................................................................. 25
Solicitation of Proxies............................................................. 26
Adjournment of ICO Special Meeting.................................................. 26
WEDCO SPECIAL MEETING................................................................. 26
General............................................................................. 26
Purpose of Meeting.................................................................. 26
Date, Place and Time; Record Date................................................... 27
Voting Rights....................................................................... 27
Voting Agreement.................................................................... 27
Proxies............................................................................. 27
Solicitation of Proxies............................................................. 27
Adjournment of Wedco Special Meeting................................................ 27
Election of Merger Consideration by Shareholders of Wedco........................... 28
MANAGEMENT OF THE COMBINED COMPANY FOLLOWING THE MERGER............................... 29
THE MERGER............................................................................ 32
Background of the Merger............................................................ 32
ICO's Reasons for the Merger........................................................ 33
Wedco's Reasons for the Merger...................................................... 34
Opinion of Wedco's Financial Adviser................................................ 35
Merger Consideration................................................................ 40
</TABLE>
4
<PAGE> 14
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Interests of Certain Persons in the Merger.......................................... 40
Certain Federal Income Tax Consequences............................................. 40
Accounting Treatment................................................................ 42
Listing on Stock Exchange........................................................... 42
THE MERGER AGREEMENT.................................................................. 42
Effective Time of the Merger........................................................ 43
Effect on ICO Common Stock.......................................................... 43
Conditions.......................................................................... 43
Amendment and Termination........................................................... 44
Ancillary Agreements................................................................ 45
Cash Redemption of Wedco Stock Options.............................................. 46
Transferability of Common Stock to be Received in the Merger........................ 47
No Appraisal Rights................................................................. 47
Regulatory Matters.................................................................. 47
Expenses............................................................................ 47
UNAUDITED PRO FORMA FINANCIAL INFORMATION............................................. 48
DESCRIPTION OF ICO CAPITAL STOCK...................................................... 52
General............................................................................. 52
ICO Common Stock.................................................................... 52
ICO Preferred Stock................................................................. 52
ICO Depositary Shares............................................................... 54
ICO Options and Warrants............................................................ 54
Registration Rights................................................................. 54
COMPARISON OF SHAREHOLDER RIGHTS...................................................... 55
Voting of Shares of Common Stock.................................................... 55
Dividend Rights..................................................................... 55
Shareholder Approval................................................................ 55
Appraisal Rights.................................................................... 55
Action by Shareholders Without a Meeting............................................ 56
Shareholder Proposals............................................................... 56
Call of Special Meetings............................................................ 56
Anti-Takeover Provisions............................................................ 56
Classification of Board of Directors................................................ 57
Removal of Directors................................................................ 57
Indemnification of Directors; Director's Liability.................................. 57
LEGAL MATTERS......................................................................... 57
EXPERTS............................................................................... 58
SHAREHOLDER PROPOSALS FOR 1996 ANNUAL MEETING......................................... 58
Annex A -- Merger Agreement dated as of December 8, 1995 by and among Wedco Technology,
Inc., W Acquisition Corp. and ICO, Inc.
Annex B -- Form 10-K for the fiscal year ended September 30, 1995 of ICO, Inc.
Annex C -- Form 10-K for the fiscal year ended March 31, 1995 of Wedco Technology, Inc.
Annex D -- Form 10-Q for the quarter ended September 30, 1995 of Wedco Technology, Inc.
</TABLE>
5
<PAGE> 15
SUMMARY
The following is a summary of certain information contained elsewhere or
incorporated by reference in this Joint Proxy Statement/Prospectus. Reference is
made to, and this summary is qualified in its entirety by, the more detailed
information and financial statements, including the notes thereto, contained in
or incorporated by reference in this Joint Proxy Statement/Prospectus and the
Annexes hereto.
ICO's fiscal year ends on September 30 of each year and Wedco's fiscal year
ends on March 31 of each year. References to fiscal years for ICO refer to the
fiscal year ending on September 30 of such year (for example, fiscal 1995 refers
to the fiscal year ended September 30, 1995). References to fiscal years for
Wedco refer to the fiscal year ending on March 31 of such year (for example,
fiscal 1995 refers to the fiscal year ended March 31, 1995).
SHAREHOLDERS OF ICO AND WEDCO ARE URGED TO READ THIS JOINT PROXY
STATEMENT/PROSPECTUS, INCLUDING THE ANNEXES HERETO, IN THEIR ENTIRETY AND SHOULD
CONSIDER CAREFULLY THE INFORMATION SET FORTH BELOW UNDER THE HEADING "RISK
FACTORS" ON PAGE ."
THE COMPANIES
ICO. ICO is engaged principally in providing inspection, reconditioning
and coating services for new and used tubular goods and sucker rods utilized in
the exploration of oil and gas. ICO is the leading provider of sucker rod
services and one of the two largest providers of inspection, reconditioning and
coating services for tubular goods in the United States. ICO's inspection,
reconditioning and coating services for new and used tubular goods and sucker
rods involve a variety of processes, many of which are patented, designed to
reduce customers' operating costs by extending the useful lives and reducing the
downhole failure of sucker rods and tubular goods. ICO also sells equipment and
supplies used in the inspection, reconditioning and coating of tubular goods and
sucker rods.
ICO's principal executive offices are located at 100 Glenborough Drive,
Suite 250, Houston, Texas 77067, telephone (713) 872-4994.
Wedco. Wedco's principal business is providing size-reduction services,
such as the grinding of plastic pellets to powder, and related processing
services primarily to the petrochemical industry and also to other industries
that require powder in their operations. Wedco is the largest provider of
size-reduction services for new petrochemicals in the United States and one of
the largest providers of such services in Western Europe. Wedco also
manufactures equipment designed to provide grinding and other ancillary
services.
Wedco's principal executive offices are located at Route 173, West Portal,
New Jersey 08802, telephone (908) 479-4181.
THE MERGER AGREEMENT
General. ICO, W Acquisition and Wedco have entered into the Merger
Agreement pursuant to which (i) Wedco would merge with and into W Acquisition
with W Acquisition surviving the Merger as a wholly-owned subsidiary of ICO and
(ii) each share of Wedco Common Stock would be converted into the Merger
Consideration (as defined hereinafter). The Merger Agreement also provides that
upon consummation of the Merger, ICO shall take all actions necessary to amend
its Articles of Incorporation in order to change ICO's name to "Willoughby
International, Inc."
The Merger Consideration. Each share of Wedco Common Stock will, by virtue
of the Merger and without the need for any further action on the part of the
holder thereof, be converted, at the option of the holder thereof, into either
(i) 2.20 shares of ICO Common Stock and $3.50 in cash (the "Cash/Stock
Consideration") or (ii) 2.84 shares of ICO Common Stock (the "Stock
Consideration" and together with the Cash/Stock Consideration, the "Merger
Consideration"). If a holder of Wedco Common Stock fails to make a timely
election regarding the Merger Consideration to be received, the holder will be
deemed to have elected to receive the Stock Consideration.
6
<PAGE> 16
Additional Merger Consideration. If the weighted average of the closing
prices for ICO Common Stock on the Nasdaq Stock Market for the last five trading
days immediately preceding the effective date of the Merger is less than $4.00
per share, Wedco may elect either to consummate the Merger or to notify ICO it
will require additional merger consideration in order to consummate the Merger.
If Wedco notifies ICO of its election to require additional merger
consideration, ICO may elect either to terminate the Merger Agreement or
consummate the Merger. If it elects to consummate the Merger, ICO will provide
additional consideration of cash and/or ICO Common Stock as determined by ICO
("Additional Merger Consideration") in order to increase the aggregate value of
the Merger Consideration to $12.30 for each share of Wedco Common Stock. All ICO
Common Stock issued as Additional Merger Consideration shall be valued at the
weighted average price determined pursuant to the formula set forth above.
Certain Federal Tax Consequences. Based on certain assumptions, including
the accuracy of certain certificates and representations to be provided by ICO,
W Acquisition, Wedco and certain Wedco Shareholders regarding the satisfaction
of certain requirements to a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986 (the "Code") (including the absence of any
plan or intention by certain holders of Wedco Common Stock to sell, exchange or
otherwise dispose of shares of ICO Common Stock to be received by them in the
Merger), Dilworth, Paxson, Kalish & Kauffman and Keating, Muething & Klekamp,
have delivered their respective opinions to the effect that the Merger will
qualify as a reorganization described in Section 368(a) of the Code. Keating,
Muething & Klekamp (as counsel to ICO) has not been retained to provide any
opinion to Wedco or the Wedco shareholders. Dilworth, Paxson, Kalish & Kauffman
LLP (as counsel to Wedco) has not been retained to provide any opinion to ICO or
the ICO shareholders.
For the principal Federal income tax consequences of the Merger to holders
of Wedco Common Stock see "The Merger -- Federal Income Tax Consequences." Each
Wedco shareholder is advised to consult with its own tax advisor concerning the
federal income tax consequences of the Merger, as well as any applicable state,
local, foreign or other tax consequences, based upon such shareholder's own
particular facts and circumstances.
Conditions. The Merger is subject to the absence of any statute, rule,
regulation, judgment, injunction, decree or order issued by any federal, state
or local legislative, administrative or regulatory body or court that prohibits,
makes illegal or restricts consummation of the Merger; approval of the Merger
Agreement by the shareholders of Wedco; approval of the Share Issuance by the
shareholders of ICO; the cash redemption by Wedco of all outstanding options to
purchase Wedco Common Stock; the weighted average of the closing prices for ICO
Common Stock on the Nasdaq Stock Market for the last five (5) trading days
immediately preceding the effective time of the Merger being greater than or
equal to $4.00; the execution and delivery of certain ancillary agreements; and
other customary conditions, including, without limitation, the receipt by Wedco
of a favorable fairness opinion from an investment banking firm. See "THE MERGER
AGREEMENT -- Conditions."
Ancillary Agreements. Among the conditions to the Merger are the execution
and delivery of certain ancillary agreements pursuant to which certain directors
and officers of Wedco, including William E. Willoughby, Fred R. Feder and Robert
F. Bush, will receive payments under non-competition covenants and consulting,
employment and legal services retainer agreements. See "THE MERGER -- Interests
of Certain Persons in the Merger" and "THE MERGER AGREEMENT -- Ancillary
Agreements."
Cash Redemption of Wedco Stock Options. The Merger Agreement provides that
Wedco shall redeem for cash all outstanding options to purchase Wedco Common
Stock as a condition to the consummation of the Merger. Holders of Wedco stock
options, including Wedco's directors and executive officers, will be paid a
total of approximately $2,167,000 in connection with such redemptions. See "THE
MERGER -- Interests of Certain Persons in the Merger" and "THE MERGER
AGREEMENT -- Cash Redemption of Wedco Stock Options."
ICO COMMON STOCK OUTSTANDING
8,927,361 shares at February 7, 1996.
7
<PAGE> 17
16,776,488 shares following consummation of the Merger, assuming all Wedco
shareholders elect to receive the Cash/Stock Consideration and further assuming
no Additional Merger Consideration is issued.
19,059,870 shares following consummation of the Merger, assuming all Wedco
shareholders elect to receive the Stock Consideration and further assuming no
Additional Merger Consideration is issued.
ICO SPECIAL MEETING
Purpose. To consider and vote on proposals to (i) approve the Share
Issuance and (ii) approve the Charter Amendment. Approval of the Charter
Amendment is not a condition to the consummation of the Merger.
Time, Date and Place. a.m., Central Standard Time on at the
Wyndham Greenspoint Hotel, 1240 Greenspoint Drive, Houston, Texas.
Record Date; Shares Entitled to Vote. , 1996, on which date
there were shares of ICO Common Stock outstanding.
Affirmative Vote Required. A majority of the votes cast at the ICO Special
Meeting is required to approve the Share Issuance. Two-thirds of the outstanding
shares is required to approve the Charter Amendment.
Voting Agreement. Certain shareholders of ICO, including Dr. Asher O.
Pacholder and Sylvia A. Pacholder, who beneficially own in the aggregate
1,251,761 shares, or approximately 14%, of the ICO Common Stock, entered into an
agreement (the "ICO Voting Agreement") with Wedco to vote all of such shares in
favor of the Share Issuance and Charter Amendment and have granted to Wedco,
Walter L. Leib and Edward N. Barol irrevocable proxies to vote all of such
shares in favor of the Share Issuance and Charter Amendment. The authorizations
by the ICO shareholders set forth in the ICO Voting Agreement are subject to the
registration by ICO under the Securities Act of the ICO Common Stock included in
the Merger Consideration.
WEDCO SPECIAL MEETING
Purpose. To consider and vote on a proposal to approve the Merger
Agreement.
Time, Date and Place. a.m., Eastern Standard Time on
at Wedco's corporate headquarters on Route 173, West Portal, New Jersey.
Record Date; Shares Entitled to Vote. , 1996, on which date
there were 3,567, 785 shares of Wedco Common Stock outstanding.
Affirmative Vote Required. Two-thirds of the votes cast at the Wedco
Special Meeting is required to approve the Merger Agreement.
Voting Agreement. Certain shareholders of Wedco, including William E.
Willoughby, William C. Willoughby and Fred R. Feder, who own in the aggregate
1,948,064 shares, or approximately 55%, of the Wedco Common Stock have entered
into an agreement, substantially identical to the ICO Voting Agreement (the
"Wedco Voting Agreement" and together with the ICO Voting Agreement, the "Voting
Agreements"), with ICO to vote all of such shares in favor of the proposal to
approve the Merger Agreement and have granted to ICO, Sylvia A. Pacholder and
Dr. Asher O. Pacholder irrevocable proxies to vote all of such shares in favor
of such proposal. The authorizations by the Wedco shareholders set forth in the
Wedco Voting Agreement are subject to the registration by ICO under the
Securities Act of the ICO Common Stock included in the Merger Consideration.
NO APPRAISAL RIGHTS
Neither the shareholders of Wedco nor the shareholders of ICO will have
dissenters' or appraisal rights with respect to the Merger. See "THE MERGER
AGREEMENT -- No Appraisal Rights."
8
<PAGE> 18
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS OF ICO AND WEDCO
The Boards of Directors of ICO and Wedco each believe that the terms of the
Merger are in the best interests of their respective shareholders and each have
unanimously approved the Merger Agreement and the transactions contemplated
thereby. The Boards of Directors of ICO and Wedco each recommend that their
respective shareholders vote, in the case of ICO, for approval of the Share
Issuance and the Charter Amendment and, in the case of Wedco, for approval of
the Merger Agreement. See "THE MERGER -- Background of the Merger; ICO's Reasons
for the Merger; Wedco's Reasons for the Merger."
ELECTION OF MERGER CONSIDERATION BY SHAREHOLDERS OF WEDCO
Shareholders of Wedco will be required to elect on their forms of proxy
whether, if the Merger is consummated, they desire to receive the Cash/Stock
Consideration or the Stock Consideration. SHAREHOLDERS MUST MAKE THIS ELECTION
ON THEIR FORM OF PROXY WHETHER THEY VOTE FOR OR AGAINST THE PROPOSAL TO APPROVE
AND ADOPT THE MERGER AGREEMENT. IF NO ELECTION IS MADE WITH RESPECT TO A SHARE
OF WEDCO COMMON STOCK BY THE EFFECTIVE TIME OF THE MERGER, THE HOLDER OF SUCH
SHARE WILL BE DEEMED TO HAVE ELECTED THE STOCK CONSIDERATION. See "WEDCO SPECIAL
MEETING -- Election of Merger Consideration by Shareholders of Wedco."
9
<PAGE> 19
ICO, INC.
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
FISCAL YEAR ENDED SEPTEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following unaudited pro forma financial information, including the
notes thereto, give effect to the Merger and are qualified in their entirety by
reference to, and should be read in conjunction with the historical consolidated
financial statements and the notes thereto of ICO and Wedco incorporated herein
by reference.
The pro forma combined financial statements are based on the purchase
method of accounting. The unaudited pro forma consolidated condensed balance
sheet at September 30, 1995, assumes the Merger was consummated as of September
30, 1995 and the unaudited pro forma consolidated condensed statements of income
assume the Merger was consummated as of October 1, 1994.
The pro forma data is presented for informational purposes only and is not
necessarily indicative of the operating results or financial position that would
have occurred had the Merger been consummated at the dates indicated, nor is
such data necessarily indicative of future operating results or financial
position. There is no assurance that similar results will be achieved in the
future.
<TABLE>
<CAPTION>
INCOME STATEMENT(1)
-------------------
<S> <C>
Revenue.................................................................. $ 133,295
----------
Gross Margin............................................................. 45,487
Income before interest and taxes......................................... 11,389
Interest, net.......................................................... 717
----------
Income before taxes...................................................... 10,672
Income taxes........................................................... 4,738
----------
Net income(2)............................................................ 5,934
Preferred stock dividends................................................ 2,176
----------
Net income available for common stockholders............................. 3,758
==========
Earnings per share(2).................................................... $ .21
==========
Weighted average common shares outstanding............................... 17,571,869
==========
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
BALANCE SHEET(1) 1995
---------------- -------------
<S> <C>
Cash and Cash Equivalents............................................... $ 14,851
Working Capital......................................................... 27,289
Property, Plant and Equipment, net...................................... 76,058
Total Assets............................................................ 161,867
Long-Term Debt.......................................................... 18,767
Stockholders' Equity.................................................... 120,769
Book Value per common share(3).......................................... $ 4.99
Shares outstanding...................................................... 17,746,477
</TABLE>
- ---------------
(1) Unaudited pro forma selected income statements and balance sheet data has
been derived from the Unaudited Pro Forma Condensed Combined Financial
Statements appearing elsewhere in this Joint Proxy Statement/Prospectus.
(2) In fiscal year 1995, $.30 of ICO's $.41 earnings per share were
attributable to its recognition of certain tax benefits. While ICO will
continue to realize a cash savings from $9,680,000 (i.e., a tax benefit
of $3,388,000) in net operating carry forwards (at September 30, 1995)
for tax purposes after the Merger, future benefits resulting from the
utilization of these carry forwards will no longer be recognized in the
income statements prepared in accordance with generally accepted
accounting principles. See "COMPARATIVE PER SHARE DATA", "RISK FACTORS --
Effect of Merger on Income Statement" and "Notes to Unaudited Pro Forma
Condensed Financial Statements -- Note 3 -- Pro Forma Adjustments."
(3) Calculated as pro forma stockholders equity of $120,769 less liquidation
preference of ICO's preferred shares outstanding of $32,250, divided by pro
forma common shares outstanding of 17,746,477 at September 30, 1995.
10
<PAGE> 20
CAPITALIZATION
SEPTEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL ICO/WEDCO
----------------- PRO FORMA
ICO WEDCO ADJUSTMENTS(1) COMBINED
------- ------- -------------- ---------
<S> <C> <C> <C> <C>
Current portion of long-term debt................. 635 1,699 2,334
------- ------- ---------
Long-term debt.................................... 1,047 15,386 16,433
------- ------- ---------
Stockholders' Equity
Preferred Stock................................. 13 13
Common Stock.................................... 35,042 409 89 35,131
(409)
Additional paid-in capital...................... 56,105 11,159 46,209 102,314
(11,159)
Cumulative translation adjustment............... (47) 1,731 (1,731) (47)
Retained earnings (deficit)..................... (16,642) 17,431 (17,431) (16,642)
Treasury Stock.................................. 0 (3,278) 3,278 0
------- ------- ----------- ---------
Total Stockholders' Equity.............. 74,471 27,452 120,769
------- ------- ---------
TOTAL CAPITALIZATION.............................. $76,153 $44,537 $ 18,846 $139,536
======= ======= =========== =========
</TABLE>
- ---------------
(1) See unaudited pro forma financial statements and related notes thereto
included elsewhere in this Joint Proxy Statement/Prospectus.
11
<PAGE> 21
ICO, INC.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------
1995(3) 1994(3) 1993 1992(1) 1991
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Exploration Sales and Services.......... $ 34,953 $ 30,096 $ 25,290 $ 12,171 $ 13,018
Production Sales and Services........... 28,749 28,919 24,936 18,569 19,667
Corrosion Control Services.............. 20,562 14,549 9,991 3,895 4,805
Other sales and services................ 3,623 2,406 -- -- --
--------- --------- --------- --------- ---------
Total revenues.................. $ 87,887 $ 75,970 $ 60,217 $ 34,635 $ 37,490
========= ========= ========= ========= =========
Gross Profit.............................. $ 28,002 $ 21,779 $ 17,355 $ 10,482 $ 12,755
Selling, general and administrative
expenses................................ 17,840 15,202 12,730 8,055 9,320
--------- --------- --------- --------- ---------
Income before interest, taxes,
depreciation
and amortization, unusual and
extraordinary items..................... 10,162 6,577 4,625 2,427 3,435
Depreciation and amortization............. 5,112 4,357 3,669 2,616 2,864
Interest (income) expense, net............ (1,307) (431) 2,352 740 632
Unusual items............................. -- -- 605 (467) 4,108
--------- --------- --------- --------- ---------
Income (loss) before income taxes and
extraordinary item...................... $ 6,357 $ 2,651 $ (2,001) $ (462) $ (4,169)
========= ========= ========= ========= =========
Net income (loss)......................... $ 5,790 $ 1,225 $ (2,001) $ (383) $ (3,562)
========= ========= ========= ========= =========
EARNINGS (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE:
Income (loss) before extraordinary item... $ .41 $ .09 $ (.49) $ (.15) $ (1.48)
Net income (loss)......................... $ .41 $ (.07) $ (.49) $ (.12) $ (1.27)
Weighted average shares outstanding....... 8,709,303 8,299,559 4,052,325 3,093,964 2,809,088
BALANCE SHEET DATA:
Working capital........................... $ 37,284 $ 37,656 $ 17,787 $ 3,321 $ 4,019
Property, plant and equipment, net........ 29,824 27,513 24,431 25,435 18,529
Total assets.................... 88,183 78,969 51,353 40,713 27,491
Long-term debt............................ 1,047 456 10,676 19,376 13,685
Stockholders' Equity...................... 74,471 69,204 32,293 10,304 7,928
OTHER FINANCIAL INFORMATION:
Capital expenditures(2)................... $ 5,838 $ 4,782 $ 2,252 $ 642 $ 1,344
</TABLE>
- ---------------
(1) Due to the completion of the acquisition of Baker Hughes Tubular
Services, Inc. on September 30, 1992, the result of such acquisition is
reflected in the balance sheet data at September 30, 1992, but not in
the income statement data for the year ended September 30, 1992.
(2) Consists of cash used for capital expenditures, excluding property,
plant and equipment obtained in acquisitions.
(3) See discussion of fiscal year acquisitions in Item 7 of ICO's Annual
Report on Form 10-K for the fiscal year ended September 30, 1995.
12
<PAGE> 22
WEDCO TECHNOLOGY, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31(1),
---------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Revenues.............................. $ 43,575 $ 38,307 $ 32,817 $ 30,292 $ 29,099
Operating income, before other income
(expenses) and income taxes............. 6,626 5,493 4,080 3,888 4,076
Income before income taxes................ 6,059 4,964 3,578 3,013 2,105
Net income................................ 3,906 3,354 2,540 2,013 1,416
EARNINGS PER COMMON AND COMMON EQUIVALENT
SHARE:
Net income per common share............... $ 1.08 $ .94 $ .71 $ .58 $ .40
Average common shares outstanding......... 3,611,150 3,580,998 3,575,184 3,494,934 3,535,385
BALANCE SHEET DATA:
Working capital........................... $ 663 $ 704 $ 1,193 $ 698 $ 1,713
Property, plant and equipment -- net...... 37,217 30,024 29,031 25,898 25,989
Total Assets.............................. 57,993 48,209 45,432 41,009 40,209
Long-term debt, less current maturities... 15,721 15,404 17,770 16,881 18,573
Stockholders' Equity...................... 27,110 21,597 18,507 15,765 13,631
</TABLE>
- ---------------
(1) Amounts have been stated to reflect the 5% and 10% stock dividends
distributed on September 30 and March 24, 1994, respectively.
13
<PAGE> 23
COMPARATIVE PER SHARE DATA
The following table presents certain unaudited per share data derived from
historical financial statements of ICO and Wedco and pro forma per share data,
adjusted to reflect the consummation of the Merger. This pro forma information
is not necessarily indicative of actual or future operating results or financial
position that would occur upon consummation of the Merger. The equivalent pro
forma combined data per share of Wedco is based upon a conversion ratio of 2.456
shares of ICO Common Stock for each share of Wedco Common Stock. The conversion
ratio assumes that Wedco shareholders owning 60% of the outstanding shares of
Wedco Common Stock will select the Cash/Stock Consideration and the remaining
shareholders of Wedco will select the Stock Consideration. See "THE
MERGER -- Merger Consideration." This information should be read in conjunction
with the pro forma financial information appearing herein under "Unaudited Pro
Forma Financial Information" and the separate historical consolidated financial
statements of ICO and Wedco which are included herein or annexed hereto. As of
September 30, 1995, no dividends had been declared on ICO Common Stock or Wedco
Common Stock. See "SUMMARY -- Dividend Policy."
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
ICO(1) 1995
------ -------------
<S> <C>
Income from continuing operations....................................... $0.41
Book Value per common share at year end................................. 4.75
</TABLE>
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED
SEPTEMBER 30,
WEDCO(2) 1995
--------- -------------
<S> <C>
Income from continuing operations...................................... $0.74
Book Value, per share, for the twelve months ended September 30,
1995................................................................. 7.69
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
PRO FORMA COMBINED(1)(3) 1995
------------------------ -------------
(UNAUDITED)
<S> <C>
Income from continuing operations....................................... $0.21
Book Value at year end.................................................. 4.99
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
EQUIVALENT PRO FORMA COMBINED SEPTEMBER 30,
PER WEDCO COMMON SHARE 1995
----------------------------- -------------
<S> <C>
Income from continuing operations....................................... $ .52
Book Value at year end.................................................. 12.26
</TABLE>
- ---------------
(1) In fiscal year 1995, $0.30 of ICO's $0.41 earnings per share were
attributable to its recognition of certain tax benefits. While ICO will
continue to realize a cash savings from $9,680,000 (i.e., a tax benefit of
$3,388,000) in net operating carry forwards (at September 30, 1995) for tax
purposes after the Merger, future benefits resulting from the utilization
of these carry forwards will no longer be recognized in the income
statements prepared in accordance with generally accepted accounting
principles. See "RISK FACTORS -- Effect of Merger on Income Statement" and
"Notes to Unaudited Pro Forma Condensed Financial Statements -- Note 3 --
Pro Forma Adjustments."
(2) Wedco amounts were derived from the unaudited quarterly financial statements
of Wedco for the applicable period to conform to ICO's fiscal year end.
(3) Derived from the unaudited pro forma financial statements and related notes
thereto included elsewhere in this Joint Proxy Statement/Prospectus.
14
<PAGE> 24
COMPARATIVE MARKET PRICE DATA
ICO Common Stock and Wedco Common Stock are traded on the Nasdaq Stock
Market. The following table sets forth the high and low sale prices of ICO
Common and Wedco Common Stock as reported on the Nasdaq Stock Market for the
calendar periods indicated.
<TABLE>
<CAPTION>
ICO COMMON WEDCO
STOCK COMMON STOCK
--------------- --------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
Calendar 1993
First Quarter...................................... 8 1/8 3 7/16 16 3/4 9 1/4
Second Quarter..................................... 8 1/2 6 7/8 11 7
Third Quarter...................................... 9 3/4 6 1/4 10 1/4 6 3/4
Fourth Quarter..................................... 10 5 3/4 11 8
Calendar 1994
First Quarter...................................... 9 1/4 6 3/4 13 9
Second Quarter..................................... 7 1/4 4 1/4 13 1/4 10
Third Quarter...................................... 5 3/4 4 1/4 13 9 1/2
Fourth Quarter..................................... 5 3/8 3 3/4 10 3/4 9 1/2
Calendar 1995
First Quarter...................................... 6 3 3/4 11 1/2 9 5/8
Second Quarter..................................... 6 1/4 5 1/8 10 3/4 9 1/2
Third Quarter...................................... 5 7/8 4 5/8 14 9 3/8
Fourth Quarter..................................... 5 5/8 4 1/2 15 1/2 10 1/4
Calendar 1996
First Quarter...................................... 5 3/4 4 1/2 13 7/8 12 1/4
</TABLE>
On December 8, 1995, the last full trading day before the public
announcement of the execution and delivery of the Merger Agreement, the last
reported sale price of ICO Common Stock was $5.375 and the last reported sale
price of Wedco Common Stock was $10.875. Shareholders of ICO and Wedco are urged
to obtain current market quotations for the ICO Common Stock and Wedco Common
Stock.
DIVIDEND POLICY
On November 1, 1995, ICO established a quarterly dividend of $0.05 per
share of ICO Common Stock. Prior to such time, ICO had not paid dividends on its
common stock. The first dividend was paid on December 31, 1995 to shareholders
of ICO of record on December 21, 1995. Following the Merger, if consummated, ICO
intends to continue payment of comparable quarterly dividends on ICO Common
Stock; however, no payment of dividends on the Common Stock can be made until
and unless dividends have been paid on the Preferred Stock (as hereinafter
defined). Furthermore, the payment of dividends on the Common Stock will depend
upon, among other things, future earnings, capital requirements, the general
financial condition of ICO, general business conditions and other factors. See
"RISK FACTORS -- Risk Factors Relating to the Merger-Restrictions on Payment of
Dividends."
During Wedco's fiscal years ended March 31, 1995, 1994 and 1993, Wedco did
not declare or pay any cash dividends. On September 30, 1994, Wedco distributed
a 5% stock dividend to its shareholders. On March 24, 1994, Wedco distributed a
10% stock dividend to its shareholders.
15
<PAGE> 25
INTRODUCTION
This Joint Proxy Statement/Prospectus is being furnished to shareholders of
ICO in connection with the solicitation of proxies by the ICO Board of Directors
for use at the ICO Special Meeting to be held at the Wyndham Greenspoint Hotel,
1240 Greenspoint Drive, Houston, Texas on at a.m., Central
Standard Time, and any postponement or adjournment thereof.
This Joint Proxy Statement/Prospectus is also being furnished to
shareholders of Wedco in connection with the solicitation of proxies by the
Wedco Board of Directors for use at the Wedco Special Meeting to be held at
Wedco's corporate headquarters at Route 173, West Portal, New Jersey 08802 on
at a.m., Eastern Standard Time, and any postponement or
adjournment thereof.
At the ICO Special Meeting, ICO shareholders will be asked to approve the
Share Issuance and the Charter Amendment. Approval of the Charter Amendment is
not a condition to the consummation of the Merger.
At the Wedco Special Meeting, Wedco shareholders will be asked to approve
the Merger Agreement. The Merger Agreement provides for the acquisition by ICO
of all the outstanding Wedco Common Stock by means of the merger of Wedco with
and into W Acquisition Corp., a wholly-owned subsidiary of ICO. W Acquisition
Corp. would survive the Merger as a wholly-owned subsidiary of ICO and would
change its corporate name in connection therewith to "Wedco Technology, Inc."
This Joint Proxy Statement/Prospectus also constitutes a prospectus of ICO
with respect to up to 10,132,609 shares of ICO Common Stock issuable to Wedco
shareholders pursuant to the Merger Agreement.
16
<PAGE> 26
RISK FACTORS
In considering whether to approve the Share Issuance or to approve and
adopt the Merger Agreement, as the case may be, the shareholders of ICO and
Wedco should consider carefully the following matters.
RISK FACTORS RELATING TO ICO
Industry Conditions
Demand for ICO's products and services depends primarily on the level of
oil and gas drilling and production activity, including the level of workover
activity. These activities have been, and will continue to be, influenced by
factors that have rendered the market for ICO's products and services somewhat
volatile; over which ICO has no control. These factors include the price and
availability of oil and gas, exploration and production capital expenditures by
major and independent oil and gas companies, the ability of the members of the
Organization of Petroleum Exporting Countries to maintain price stability
through voluntary production limits, worldwide demand for oil and gas and
general economic and political conditions. In particular, demand for ICO's
internal coating services and used tubular and sucker rod services tends to
fluctuate with the price of oil and the level of workover activity, and demand
for ICO's new tubular services tends to fluctuate with the domestic drilling rig
count. Domestic drilling activity declined significantly over the several years
culminating in June 1992 when the average monthly rig count reached a post-World
War II low of 596 rigs. Since June 1992, the rig count has tended to fluctuate
in a range of approximately 600 rigs to approximately 900 rigs, depending on
demand, seasonal conditions and other factors. As of January 19, 1996, the
domestic rig count was 716. There can be no assurance that detrimental industry
factors will not adversely impact ICO's business.
Recent Losses and Financial Condition
ICO reported net losses (before extraordinary items) in fiscal years 1991,
1992 and 1993. The restructuring of ICO's management commenced early in fiscal
year 1994. See "-- Risk Factors Relating to the Merger -- Control of the
Combined Company after the Merger." ICO reported net profits in fiscal years
1994 (before extraordinary loss of $1,371,000 for retirement of debt recorded on
ICO's balance sheet at a discount to face value) and 1995. ICO's net profit for
the fiscal year ended September 30, 1995 was $5,790,000. There can be no
assurance that ICO will be profitable in the future.
Environmental Regulations
ICO's services routinely involve the handling of chemical substances and
waste materials, some of which may be considered to be hazardous wastes. ICO is
subject to numerous local, state and federal laws and regulations concerning the
use and handling of hazardous materials and restricting releases of pollutants
and contaminants into the environment. Many of these laws and regulations
provide for strict liability for the costs of cleaning up contamination
resulting from releases of regulated materials into the environment. ICO's
insurance policies do provide coverage for environmental or other damages caused
as a result of, among other things, defective casing or tubing inspected by ICO.
Although management of ICO believes that ICO is in substantial compliance with
these laws and regulations and also believes continued compliance with existing
laws and regulations and estimated capital expenditures for environmental
remediation will not have a material adverse effect on ICO's results of
operations or financial condition, there can be no such assurance that such an
effect will not occur. See "-- Legal Proceedings."
Competition
The principal competitive factors in ICO's business are price, availability
and quality of service. Consolidation in the tubular inspection, reconditioning
and coating industry has resulted in the elimination of many of ICO's
competitors and reduced ICO's competition in some product lines in some markets
to a single competitor. This consolidation has reduced the capacity which exists
in the domestic market to some extent, but the tubular inspection,
reconditioning and coating industry continues to be highly competitive. ICO's
ability to compete effectively is also dependent upon timely and reliable
performance of its services at competitive rates. If the level of domestic
exploration and production-related activity declines, the prices
17
<PAGE> 27
received by ICO for its services could be adversely affected. Further, ICO's
ability to use certain technology granted under a license in connection with the
acquisition of Baker Hughes Tubular Services, Inc. ("BHTS") on September 30,
1992 is restricted in most foreign markets.
Legal Proceedings
ICO is a named defendant in twelve suits, filed between June 1988 and
October 1994, for personal injury claims alleging exposure to silica resulting
in silicosis-related disease. ICO is generally protected under workers'
compensation law from claims under these suits except to the extent a judgment
is awarded against ICO for intentional tort. In 1994, ICO was dismissed without
liability from two suits alleging intentional tort against ICO for
silicosis-related disease. In fiscal 1993, ICO settled two other suits, both of
which alleged wrongful death caused by silicosis-related diseases, which
resulted in a total charge of $605,000. One of the pending personal injury cases
involves an alleged silicosis-related death, which is premised upon allegations
of gross negligence. The standard of liability applicable to the remainder of
the pending cases is intentional tort, a stricter standard than the gross
negligence standard applicable to the wrongful death case. ICO and its counsel
cannot at this time predict with any reasonable certainty the outcome of any of
the remaining suits. Except as described below, ICO does not believe, however,
that such suits will have a material adverse effect on the financial conditions
or results of operations of ICO. ICO does have in effect general liability and
employer's liability insurance policies applicable to the referenced suits;
however, ICO has been advised by each of the involved insurance carriers of a
reservation of rights with regard to policy obligations pertaining to the suits
because of various exclusions in the policies. If an adverse judgment is
obtained against ICO in any of the referenced suits which is ultimately
determined not to be covered by insurance, the amount of such judgment could
have a material adverse effect on the financial condition or results of
operations of ICO.
In connection with ICO's acquisition of BHTS in September 1992, Baker
Hughes, Incorporated ("Baker Hughes") agreed to reimburse ICO for 50% of BHTS
environmental remediation costs in excess of $318,000, with Baker Hughes' total
reimbursement obligation being limited to $1,000,000. BHTS is a responsible
party at two hazardous waste disposal sites that are currently undergoing
remediation pursuant to the Comprehensive Environmental Response, Compensation
and Liability Act, the French Limited site northeast of Houston, Texas, and the
Sheridan site near Hempstead, Texas. Based on the relatively advanced status of
the remediation at these sites and BHTS's minimal contribution of wastes at each
site, management believes that ICO's future liability under the agreement with
Baker Hughes with respect to these two sites will not be material to ICO.
RISK FACTORS RELATING TO WEDCO
Cyclicality of Business
Wedco's business cycles are created by changes in the cost of the plastic
pellets produced by the major petrochemical companies; as a result, the cycles
are relatively unpredictable. Because plastic pellets are fungible, prices
charged by various companies tend to meet one another. When resin prices are
increasing, users often build inventories to hedge against further price
increases, with the result that Wedco's processing activity also increases. When
prices decline, customers of the petrochemical companies delay purchasing resin
in the anticipation of further price reduction, thus reducing requirements for
Wedco's processing. Wedco's customers, in most cases, are the major
petrochemical companies which produce these materials.
Foreign Currency Translation
The fluctuations of the U.S. dollar against certain foreign currencies,
particularly the Dutch guilder and British pound, impact the translation of
revenue and income of Wedco's foreign subsidiaries into U.S. dollars. Such
fluctuations may be significant and may have a material effect on Wedco's
financial statements. The
18
<PAGE> 28
increases (decreases) in certain income statement accounts resulting from these
fluctuations as shown on Wedco's Consolidated Statements of Income over the past
two fiscal years are as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------------
1995 VS. 1994 1994 VS. 1993
------------- -------------
<S> <C> <C>
Net revenues................................................ $ 1,183,000 $ (1,174,000)
Operating income............................................ 228,000 (197,000)
Pre-tax income.............................................. 210,000 (155,000)
Net income.................................................. 147,000 (131,000)
</TABLE>
Gains and losses from the translation of certain balance sheet accounts are
not included in determining net income, but are accumulated as a separate
component of shareholders' equity. These unrealized gains and losses are also
subject to deferred income taxes. As a result of the dollar's fluctuation
against the Dutch guilder and British pound and changes in the net assets of
foreign subsidiaries, shareholders' equity increased, net of deferred income
taxes, by $1,349,000 in fiscal 1995.
Competition
In its basic business of plastics grinding, Wedco's primary competitors in
the U.S. are smaller, local firms that lack the multiple plant locations,
technology and/or production capacity of Wedco. More substantial competition in
size-reduction services of plastics exists in Europe. End users of ground
plastic pellets may also perform grinding services themselves rather than
purchase materials that have been ground by outside contractors. Due to Wedco's
technical expertise and equipment manufacturing capabilities, Wedco believes
that it can provide plastics grinding services at a lower cost than most of its
customers and competitors. In addition, Wedco's ability to provide convenient
service to its customers is greatly enhanced due to its network of facilities
throughout North America and Western Europe. Wedco also experiences greater
competition in its other major processing service sectors, such as cryogenic
grinding, air-jet milling and compounding.
Wedco also manufactures grinding equipment. Until recently, it supplied
virtually all of such equipment for the North American market. However,
competition in the manufacturing and sale of such equipment has developed.
Recent Decline in Earnings in Fiscal 1996
Wedco reported a 9.0% and 2.8% increase in net revenues for the six and
three-month periods ended September 30, 1995, respectively, when compared to the
same periods in 1994; however, operating income decreased by 29.2% and 35.2%
during these same periods, respectively. The cyclical downturn in the worldwide
plastics industry experienced during the current fiscal year resulted in
declines in the utilization of machinery and equipment and an increase in unit
costs as a result of the inability to spread certain fixed costs over as many
units. Furthermore, a portion of the increase in revenues reported during the
six-month period ended September 30, 1995, is attributed to an increase in
compounding services rendered by Wedco's Dutch subsidiary. Such compounding
revenues yield lower margins than traditional processing services. Income from
Wedco's investment in joint ventures decreased from income of $356,120 to losses
of ($89,591) and from income of $208,704 to losses of ($134,198) during the six
and three-month periods ended September 30, 1995, respectively, primarily as a
result of a decline in earnings experienced by Wedco's Canadian joint venture.
Interest expense increased 9.7% and 7.3% during the six and three-month periods,
respectively, when compared to the same periods of 1994. The decreases in
operating income and joint venture earnings, coupled with an increase in other
expenses, resulted in a 64.1% and 94.6% decline in net income for the six and
three-month periods ended September 30, 1995, respectively, when compared to the
same periods of the prior fiscal year. There can be no assurance that such
decreases in operating income and joint venture earnings and increase in
expenses will not continue.
19
<PAGE> 29
Recent Losses in Joint Ventures
Income from Wedco's investment in joint ventures decreased from income of
$356,120 to losses of ($89,591) and from income of $208,704 to losses of
($134,198) during the six and three-month periods ended September 30, 1995,
respectively, when compared to the same periods of the prior year. Both of
Wedco's joint ventures reported a decline in earnings during the six and
three-month periods. In France, Micronyl-Wedco S.A.'s earnings have been
affected by the current decline in the plastics industry, resulting in a
decrease in the volume of materials processed during the current period. In
Canada, WedTech Inc.'s earnings have been negatively impacted by ongoing costs
associated with its sales, marketing and administrative office in Toronto,
Canada and repetitive monthly losses associated with its research and production
facility in Dewey, Oklahoma. Furthermore, the current market for grinding and
compounding services in Canada has become increasingly competitive and these
revenues are yielding lower margins than in prior periods. The impact of all of
the above, coupled with increased interest expense related to financing these
activities, was a loss in WedTech Inc.'s earnings during the six-month period
ended September 30, 1995. Under the equity method of accounting, net revenues of
the joint ventures are not included in the consolidated net revenues of the
Company. There can be no assurance that such declines in earnings from Wedco's
investment in joint ventures will not continue.
Other Contingent Liabilities
In conjunction with the sale of real estate owned by a former subsidiary,
the New Jersey Department of Environmental Protection and Energy ("DEPE") issued
an Administrative Consent Order ("ACO") to Wedco, under the New Jersey
Environmental Cleanup Responsibility Act ("ECRA"). Under ECRA, property title
cannot pass to a new owner until the DEPE is satisfied that the property meets
defined environmental standards or an ACO has been issued. Under the terms of
the ACO, Wedco is required to clean this site.
Inspections have shown the groundwater at this site contains contaminates
which must be removed. Accordingly, a remediation plan was prepared and
subsequently approved by the DEPE. Wedco has established reserves of $1,400,000
for costs related to cleanup activities, of which approximately $1,118,999 has
been paid as of September 30, 1995. Recent sampling results indicate that
Wedco's groundwater remediation program is working effectively to reduce the
level of groundwater contamination. Expenses in excess of what Wedco has
recorded could be incurred due to the inherent uncertainty surrounding the
extent of contamination, the complexity of governmental regulations and their
interpretations, and the varying costs and effectiveness of cleanup
technologies. However, Wedco believes that its reserve is sufficient.
RISK FACTORS RELATING TO THE MERGER
Control of the Combined Company After the Merger
Five of ICO's six directors are currently associated with Pacholder
Associates, Inc., an investment advisory firm headquartered in Cincinnati, Ohio
, or USF&G Pacholder Fund, Inc., an affiliate of Pacholder Associates, Inc.
After the Merger, four of these persons, together with Pacholder Associates,
Inc. and certain Wedco shareholders with whom these persons will enter into a
Shareholders Agreement, may own a number of shares of the combined company's
Common Stock sufficient to control the election of the combined company's Board
of Directors. Because they will continue to constitute a majority of the
combined company's Board of Directors after the Merger, these persons will
collectively be in a position to direct the business and policies of the
combined company and take certain actions without the necessity of obtaining the
vote of other shareholders, such as approving mergers, to the extent authorized
by the Texas Business Corporation Act. See "Management of the Combined Company
Following the Merger" and "THE MERGER AGREEMENT -- Ancillary
Agreements -- Shareholders Agreement."
Fixed Exchange Ratio Despite Change in Relative Stock Prices
The Merger Consideration is expressed in the Merger Agreement as a fixed
ratio. Accordingly, the Merger Consideration will not be adjusted in the event
of any increase or decrease in the price of either ICO
20
<PAGE> 30
Common Stock or Wedco Common Stock unless the weighted average of the closing
prices for ICO Common Stock on the Nasdaq Stock Market for the last five trading
days immediately preceding the Effective Time is less than $4.00 per share. See
"THE MERGER AGREEMENT -- Conditions." The price of ICO Common Stock at the
Effective Time may vary from its price at the date of this Joint Proxy
Statement/Prospectus and at the dates of the Special Meetings. Such variations
may be the result of changes in the business, operations or prospects of ICO or
Wedco, market assessments of the likelihood that the Merger will be consummated
and the timing thereof, general market and economic conditions and other
factors. Because the Effective Time may occur at a date later than the Special
Meetings, there can be no assurance that the price of ICO Common Stock on the
dates of the Special Meetings will be indicative of its price at the Effective
Time. The Effective Time will occur as soon as practicable following the Special
Meetings and the satisfaction or waiver of the other conditions set forth in the
Merger Agreement. Shareholders of ICO and Wedco are urged to obtain current
market quotations for ICO Common Stock and Wedco Common Stock. See "THE MERGER
AGREEMENT -- Conditions."
Management of Wedco after the Merger; Competition from Former Management
The Merger involves the integration of two companies that have previously
operated independently. ICO and Wedco operate in different industries with
different operating, technical and competitive conditions. ICO's operations are
conducted primarily in the United States and Canada, whereas Wedco has
substantial European operations. Two of the six members of Wedco's senior
management, William E. Willoughby, Wedco's founder and its current Chairman of
the Board and Chief Executive Officer, and William C. Willoughby, Director and
Executive Vice President, will retire from Wedco if the Merger is approved.
Management of the combined company will be controlled by current ICO management.
There can be no assurance that Wedco's management will be successful, after the
Merger, in managing Wedco or operating it in a profitable manner. See
"-- Control of the Combined Company after the Merger."
William C. Willoughby is also the owner of a company engaged in the
business of providing plastic grinding services with annual revenues estimated
by Wedco of approximately $2,000,000. Mr. Willoughby will not be subject to any
restrictions concerning either his or his company's competition with Wedco
following the Merger.
Uncertainties of Achieving Cost Savings
In determining that the Merger is advisable and in the best interests of
its shareholders, each of the ICO Board and the Wedco Board considered
opportunities for cost savings and other benefits expected to result from the
consummation thereof. While ICO and Wedco expect to achieve cost savings as a
result of the Merger, no assurance can be given that difficulties will not be
encountered in integrating the operations of ICO and Wedco or that the benefits
expected from such integration will be realized. Any delays or unexpected costs
incurred in connection with such integration could have a material adverse
effect on the business, results of operations or financial condition of the
combined company.
Effect of Merger on Income Statement
In fiscal year 1995, ICO recognized on its income statement significant tax
benefits relating to the reversal of the valuation allowance on certain deferred
tax assets and also relating to the utilization of net operating loss carry
forwards. See "Notes to Unaudited Pro Forma Condensed Financial
Statements -- Note 3 -- Pro Forma Adjustments." As a result of the Merger, the
combined company will no longer be able to recognize these benefits on its
income statement, although this will not affect the availability of these
benefits for income tax purposes. This will reduce the combined company's net
income and per share earnings relative to ICO's recent net income and per share
earnings and such reduction will be significant. See "SUMMARY -- Comparative Per
Share Data" and -- Unaudited Pro Forma Financial Information."
21
<PAGE> 31
Increased Debt Obligations
As of September 30, 1995, ICO had total indebtedness (including total
short-term and long-term debt) of approximately $1,682,000. On a pro forma basis
after giving effect to the Merger, ICO's total indebtedness as of September 30,
1995, would have been $18,767,000 and its net interest expense would have been
$717,000 for the fiscal year ended September 30, 1995.
Restrictions on Payment of Dividends
The ICO Common Stock to be issued in the Merger will rank junior as to
dividends and upon any liquidation, dissolution or winding up of ICO to ICO's
1,290,000 outstanding Depositary Shares, each of which represents 1/4 of a share
of $6.75 Convertible Exchangeable Preferred Stock (the "Preferred Stock"). See
"Description of ICO Capital Stock -- ICO Preferred Stock." Dividends payable on
the Preferred Stock total $2,176,875 per year. Unless all Preferred Stock
dividends have been paid, no cash dividends may be paid on the outstanding
shares of ICO Common Stock. Under Texas law, ICO may declare and pay dividends
or make other distributions on its capital stock only out of surplus, as defined
in the Texas Business Corporation Act. As of September 30, 1995, ICO had
available surplus of approximately $39,416,000 (or approximately $85,625,000
after giving pro forma effect to the Merger).
Shares Eligible for Future Sale
Future sales of substantial amounts of ICO Common Stock in the public
market could adversely affect the prevailing market price of the ICO Common
Stock.
Pacholder Associates, Inc. and certain of the officers, directors and
principal shareholders of ICO associated with Pacholder Associates, Inc.
beneficially own an aggregate of 1,251,761 shares of ICO Common Stock, or
approximately 6.6% and 7.4% of the outstanding ICO Common Stock, after the
Merger, assuming all Wedco shareholders elect to receive the Stock Consideration
and the Cash/Stock Consideration respectively. Additionally, William E.
Willoughby, William C. Willoughby, and members of their families will own
5,472,373 and 4,299,722 shares of ICO Common Stock, or approximately 28.9 and
25.6% of the ICO Common Stock outstanding after the Merger, assuming all Wedco
shareholders elect to receive the Stock Consideration and Cash/Stock
Consideration respectively.
ICO has outstanding the Depositary Shares as well as warrants and stock
options that are convertible or exercisable, as the case may be, into an
aggregate of 3,534,600 shares of ICO Common Stock, or approximately 15.7 and
17.4% of the ICO Common Stock outstanding after the Merger, assuming all Wedco
shareholders elect to receive the Stock Consideration and Cash/Stock
Consideration respectively. See "DESCRIPTION OF ICO CAPITAL STOCK -- ICO
Depositary Shares and -- ICO Options and Warrants." ICO has filed registration
statements, which in the aggregate register 976,591 shares of ICO Common Stock
which may be issued pursuant to exercise of the stock options issued under ICO's
various stock option plans. To date, options to purchase 648,241 shares of ICO
Common Stock have been issued under these plans.
ICO has 853,000 shares of Common Stock issuable upon the exercise of
warrants, subject to Registration Rights. See "DESCRIPTION OF ICO CAPITAL
STOCK -- Registration Rights."
22
<PAGE> 32
THE COMPANIES
ICO
General. ICO provides inspection, reconditioning and corrosion control
services for new and used tubular goods and sucker rods utilized in the oil and
gas industry. ICO's inspection, reconditioning and corrosion control services
are designed to extend the useful lives and reduce the downhole failure of
sucker rods and tubular goods. ICO also sells equipment and supplies used in the
inspection, reconditioning and corrosion control of tubular goods and sucker
rods.
ICO's services are designed to reduce its customers' cost of drilling and
production by (1) preventing faulty material from being placed downhole
(exploration services), (2) reclaiming tubular goods and sucker rods used
downhole and restoring them to near their original condition, on a cost
effective basis (production services) and (3) preventing premature failure of
tubular goods and sucker rods from occurring due to downhole environment
(corrosion control services). Removal of tubulars or sucker rods for repair or
replacement is expensive and results in an interruption of production and loss
of revenues to the well owner. ICO's principal executive offices are located at
100 Glenborough Drive, Suite 250, Houston, Texas 77067, telephone (713)
872-4994.
Exploration Services. ICO provides inspection services for new tubular
goods to identify tubular goods which are defective or which do not meet
American Petroleum Institute ("API") standards or other specifications set by
the customer. These services are used by customers as a quality assurance and
control measure to reduce the risk of paying for defective tubular goods and to
reduce the risk of downhole failure, which is especially important when drilling
deep oil and natural gas wells with high downhole temperatures and pressures and
when drilling in environmentally sensitive areas such as offshore. ICO provides
these services at fifteen ICO facilities in five states. ICO also has the
capability to provide mobile inspection services in the field and manufactures
inspection and quality control equipment which is sold or leased to steel
producers and processors.
Production Services. ICO reconditions and inspects used tubular goods and
sucker rods. This reduces the customer's well operating costs because
reconditioning used materials is less expensive than the purchase of new
materials. Tubular goods reconditioned by ICO must generally meet the same API
or customer standards as new tubular goods. ICO performs these services for
tubulars at eight facilities in six states. ICO's sucker rod reconditioning and
inspection services are provided at six facilities in four states and in
Alberta, Canada.
Corrosion Control Services. Corrosive conditions exist inside most wells.
To combat these conditions, ICO offers its customers a variety of corrosion
control services which reduce well operating costs by extending the useful life
of downhole tubular goods and sucker rods and by improving the well's hydraulic
efficiency. ICO has five coating facilities located in Louisiana and Texas.
WEDCO
General. The business of Wedco Technology, Inc. was founded by its current
Chairman of the Board and Chief Executive Officer, William E. Willoughby, who
began manufacturing plastics grinding machinery and providing plastics grinding
services in 1960. Wedco's principal business is providing size-reduction and
related processing services primarily to the plastics industry and to other
industries which require powder in their operation. Wedco also manufactures
equipment designed for grinding and providing certain auxiliary processes.
Wedco's principal executive offices are located at Route 173, West Portal, New
Jersey 08802, telephone (908) 479-4181.
Processing Services. Wedco operates seven plants in five states in the
United States and plants in The Netherlands, England and Sweden. In addition,
Wedco owns 50% of a Canadian company, which provides similar services in Ontario
and Alberta, and 50% of a French company, which provides similar services at two
locations in France. Customers' materials are shipped by rail or truck to
Wedco's plants for processing according to customer specifications. After
processing, materials are packaged in bags, drums, boxes, super sacks, bulk
trucks or rail hopper cars and shipped via rail or truck to the customer or end
user. The size-
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<PAGE> 33
reduction of plastics can normally be performed with the conventional line of
Wedco-manufactured equipment, but in some cases, due to the physical
characteristics of the materials, cryogenic grinding is required. Wedco
developed specifically designed equipment and techniques for cryogenic grinding.
Wedco also provides ultra-fine size reduction, utilizing air-jet milling
equipment. This size-reduction technique utilizes high-velocity, compressed air
to process materials to sizes between 0.5 and 50 microns. Materials processed
with Wedco's equipment include polyethylene, polyester, polypropylene, nylon,
fluorocarbons, cellulose acetate, vinyls, phenolics, polyurethane, acrylics,
epoxies and many others. The resulting powders are used in the manufacture of
paint and metal coatings, fabric coating and in certain processes such as
rotational molding, blending and compounding. Materials that are air-jet milled
include additives for printing ink, plastics and paint, as well as a variety of
other applications requiring very fine particle size. Wedco provides a broad
range of processing services which are integrated with the primary
size-reduction services discussed above. These other services include
granulating, compounding, de-agglomerating, blending, mixing, heat treating,
separating and screening as well as packaging, warehousing and certain
distribution services.
Manufacturer of Related Processing Equipment. Wedco manufactures a
substantial amount of the equipment used in providing its size-reduction
services. This equipment primarily includes pulverizers and grinders designed
specifically for plastic materials. In addition, Wedco manufactures accessory
equipment, such as high production, high intensity blenders and material
handling equipment, including hydraulic drum and box dumping devices. Wedco also
sells the size-reduction machinery it manufactures to customers who wish to do
the tasks performed by this equipment in-house.
W ACQUISITION
W Acquisition is a New Jersey corporation organized recently as a
wholly-owned subsidiary of ICO for the sole purpose of effecting the Merger. W
Acquisition has no material assets and has not engaged in any activities except
in connection with the Merger. If the Merger is consummated, the corporate name
of W Acquisition would be changed to "Wedco Technology, Inc."
W Acquisition's principal executive offices are located at 100 Glenborough
Drive, Suite 250, Houston, Texas 77067, telephone (713) 872-4994.
ICO SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is provided to shareholders of ICO in
connection with the ICO Special Meeting as described below. The Board of
Directors of ICO is soliciting proxies for use at the ICO Special Meeting, and
forms of proxy are being provided with this Joint Proxy Statement/Prospectus.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to shareholders of ICO on or about , 1996.
PURPOSE OF MEETING
At the ICO Special Meeting, the shareholders of ICO will be asked to
consider and vote on proposals to approve the Share Issuance and the Charter
Amendment. Approval of the Charter Amendment is not a condition to the
consummation of the Merger. Pursuant to the Merger Agreement, (i) Wedco would
merge with and into W Acquisition, a wholly-owned subsidiary of ICO, and (ii)
each share of Wedco Common Stock would by virtue of the Merger and without the
need for any further action on the part of the holder thereof, be converted, at
the option of the holder thereof, into either the Cash/Stock Consideration or
the Stock Consideration. If the Merger is consummated, ICO would amend its
Articles of Incorporation to change its name to "Willoughby International, Inc."
and thereafter would continue to operate ICO's existing
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<PAGE> 34
oil and gas industry services business under the name of ICO. A copy of the
Merger Agreement is attached as Annex A. The proposed amendment to the Articles
of Incorporation of ICO will read in its entirety as follows:
ARTICLE ONE
The name of the Corporation is Willoughby International, Inc.
The Board of Directors of ICO has unanimously approved the transactions
contemplated in the Merger Agreement and recommends that the shareholders of ICO
vote FOR approval of the Share Issuance and FOR approval of the Charter
Amendment.
DATE, PLACE AND TIME; RECORD DATE
The ICO Special Meeting will be held at a.m., Central Standard Time,
on at the Wyndham Greenspoint Hotel, 1240 Greenspoint Drive,
Houston, Texas.
The ICO Board of Directors has fixed the close of business on
as the record date for the determination of holders of ICO Common
Stock entitled to notice of, and to vote at, the ICO Special Meeting. As of
, 1996, there were shares of ICO Common Stock outstanding
and entitled to vote which were held by approximately holders of record.
VOTING RIGHTS
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of ICO Common Stock entitled to vote is
necessary to constitute a quorum at the ICO Special Meeting.
Under the Texas Business Corporation Act ("TBCA"), the affirmative vote of
the holders of at least 66 2/3 of the outstanding shares of ICO Common Stock is
required to approve Charter Amendment. The TBCA does not require the Merger
Agreement to be approved by ICO's shareholders. However, the rules and
regulations of the Nasdaq Stock Market require that the Share Issuance be
approved by ICO's shareholders. The affirmative vote of a majority of the shares
of ICO Common Stock cast at the ICO Special Meeting is required under these
rules to approve the Share Issuance.
Each shareholder of ICO will be entitled to one vote per share of ICO
Common Stock present or represented at the meeting. Under the TBCA, an
abstention and a broker non-vote will have the same legal effect as a vote
against the adoption of the Charter Amendment. Abstentions and broker non-votes
will have no effect on the outcome of the vote of the approval of the Share
Issuance. A broker-non vote occurs if a broker or other nominee present in
person or by proxy does not have discretionary authority and has not received
instructions with respect to a particular item or does not cast a vote on that
item for any reason.
VOTING AGREEMENT
Pursuant to the Merger Agreement, certain shareholders of ICO, who own in
the aggregate 1,251,761 shares, or approximately 14% of the ICO Common Stock,
entered into the ICO Voting Agreement with Wedco to vote all of such shares in
favor of the Share Issuance and Charter Amendment and have granted to Wedco and
Walter L. Leib and Edward N. Barol irrevocable proxies to vote all of such
shares in favor of such proposals. The authorizations by the ICO shareholders
set forth in the ICO Voting Agreement are subject to the registration by ICO
under the Securities Act of the ICO Common Stock included in the Merger
Consideration.
PROXIES
Shares of ICO Common Stock represented by properly executed proxies
received by ICO prior to or at the ICO Special Meeting, and not revoked, will be
voted in accordance with the instructions specified in the proxies. If no
instructions are specified in such proxies, shares will be voted FOR approval of
the Share Issuance and FOR approval of the Charter Amendment.
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<PAGE> 35
The enclosed proxy, even though executed and returned, may be revoked at
any time prior to voting of the proxy by the execution and submission of a
revised proxy; by written notice to the Secretary of ICO; or by voting in person
at the Special Meeting. Unless a proxy is revoked or withdrawn, the shares
represented thereby will be voted or the votes withheld at the ICO Special
Meeting or at any postponement or adjournment thereof in the manner described in
this Joint Proxy Statement/Prospectus.
SOLICITATION OF PROXIES
The cost of soliciting proxies will be borne by ICO. Following the mailing
of proxy solicitation materials, proxies may be solicited by directors, officers
and employees of ICO and its subsidiaries personally, by telephone or otherwise.
Such persons will not receive any fees or other compensation for such
solicitation. In addition, ICO will reimburse brokers, custodians, nominees and
other persons holding shares of ICO Common Stock for others for their reasonable
expenses in sending proxy materials to the beneficial owners of such shares and
in obtaining their proxies.
ADJOURNMENT OF ICO SPECIAL MEETING
If there are not sufficient votes to approve the Share Issuance or the
Charter Amendment at the time of the ICO Special Meeting, the meeting may be
adjourned in order to permit further solicitation of votes. Proxies that are
being solicited by the ICO Board of Directors grant the discretionary authority
to vote for any such adjournment, if necessary, although executed proxy cards
that are properly marked to vote against the Share Issuance and the Charter
Amendment will not be counted as a vote for any adjournment, unless it is
specifically so indicated. If it is necessary to adjourn the ICO Special
Meeting, no notice of the time and place of the adjourned meeting is required to
be given to shareholders other than an announcement of such time and place at
the ICO Special Meeting. A majority of the shares represented and voting at the
Special Meeting is required to approve any such adjournment.
WEDCO SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is also provided to shareholders of
Wedco in connection with the Wedco Special Meeting as described below. The Board
of Directors of Wedco is soliciting proxies for use at the Wedco Special
Meeting, and forms of proxy are being provided with this Joint Proxy Statement/
Prospectus.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to shareholders of Wedco on or about , 1996.
PURPOSE OF MEETING
At the Wedco Special Meeting, the shareholders of Wedco will be asked to
consider and vote on a proposal to approve the Merger Agreement pursuant to
which ICO would acquire by merger all of the outstanding Wedco Common Stock.
Pursuant to the Merger Agreement, (i) Wedco would merge with and into W
Acquisition, a wholly-owned subsidiary of ICO, with W Acquisition surviving the
Merger as a wholly-owned subsidiary of ICO, (ii) each share of Wedco Common
Stock would, by virtue of the Merger and without the need for any further action
on the part of the holder thereof, be converted, at the option of the holder
thereof, into either the Cash/Stock Consideration or the Stock Consideration,
and (iii) W. Acquisition Corp. would amend its Articles of Incorporation to
change its name to "Wedco Technology, Inc." IF NO ELECTION IS TIMELY MADE WITH
RESPECT TO A SHARE OF WEDCO COMMON STOCK, THE HOLDER OF SUCH SHARE WILL BE
DEEMED TO HAVE ELECTED TO RECEIVE THE STOCK CONSIDERATION. A copy of the Merger
Agreement is attached as Annex A.
The Board of Directors of Wedco has unanimously approved the Merger
Agreement and recommends that the shareholders of Wedco vote FOR approval and
adoption of the Merger Agreement.
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<PAGE> 36
DATE, PLACE AND TIME; RECORD DATE
The Wedco Special Meeting will be held at a.m., Eastern Standard Time,
on , at Wedco's corporate headquarters on Route 173, West Portal, New
Jersey.
The Wedco Board of Directors has fixed the close of business on
as the record date for the determination of holders of Wedco Common Stock
entitled to notice of, and to vote at, the Wedco Special Meeting. As of
, 1996, there were 3,567,785 shares of Wedco Common Stock outstanding
and entitled to vote which were held by approximately holders of record.
VOTING RIGHTS
The presence, in person or by properly executed proxy, of the holders of
shares of Wedco Common Stock entitled to cast a majority of the votes at the
Wedco Special Meeting is necessary to constitute a quorum.
Under the New Jersey Business Corporation Act (the "NJBCA"), the
affirmative vote of the holders of at least 66 2/3% of the votes cast by holders
of Wedco Common Stock is required to approve the Merger Agreement.
Each shareholder of Wedco will be entitled to one vote per share of Wedco
Common Stock present or represented at the meeting. Under the NJBCA, an
abstention will have the same legal effect as a vote against approving the
Merger Agreement. A broker non-vote will be deemed absent from the meeting.
VOTING AGREEMENT
Pursuant to the Merger Agreement, certain shareholders of Wedco, who own in
the aggregate 1,948,064 shares, or approximately 54.6% of Wedco Common Stock
have entered into the Wedco Voting Agreement with ICO to vote all of such shares
in favor of the proposal to approve the Merger Agreement and have granted to ICO
and Sylvia A. Pacholder and Dr. Asher O. Pacholder irrevocable proxies to vote
all of such
shares in favor of such proposal. The authorizations by the Wedco shareholders
set forth in the Wedco Voting Agreement are subject to the registration by ICO
under the Securities Act of the ICO Common Stock included in the Merger
Consideration.
PROXIES
Shares of Wedco Common Stock represented by properly executed proxies
received by Wedco prior to or at the Wedco Special Meeting, and not revoked,
will be voted in accordance with the instructions specified in the proxies. If
no instructions are specified in such proxies, shares will be voted FOR approval
and adoption of the Merger Agreement and the terms of the Merger.
The enclosed proxy, even though executed and returned, may be revoked at
any time prior to voting of the proxy by the execution and submission of a
revised proxy; by written notice to the Secretary of Wedco; or by voting in
person at the Special Meeting. Unless a proxy is revoked or withdrawn, the
shares represented thereby will be voted or the votes withheld at the Wedco
Special Meeting or at any adjournments thereof in the manner described in this
Joint Proxy Statement/Prospectus.
SOLICITATION OF PROXIES
The cost of soliciting proxies will be borne by Wedco. Following the
mailing of proxy solicitation materials, proxies may be solicited by directors,
officers and employees of Wedco and its subsidiaries personally, by telephone or
otherwise. Such persons will not receive any fees or other compensation for such
solicitation. In addition, Wedco will reimburse brokers, custodians, nominees
and other persons holding shares of Wedco Common Stock for others, for their
reasonable expenses in sending proxy materials to the beneficial owners of such
shares and in obtaining their proxies.
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<PAGE> 37
ADJOURNMENT OF WEDCO SPECIAL MEETING
If there are not sufficient votes to approve and adopt the Merger Agreement
at the time of the Wedco Special Meeting, the meeting may be adjourned in order
to permit further solicitation of votes. Proxies that are being solicited by the
Wedco Board of Directors grant the discretionary authority to vote for any such
adjournment, if necessary, although executed Proxy Cards that are properly
marked to vote against the proposal to approve and adopt the Merger Agreement
will not be counted as a vote for any adjournment, unless it is specifically so
indicated. If it is necessary to adjourn the Wedco Special Meeting and a new
record date is not fixed for the adjourned meeting, no notice of the time and
place of the adjourned meeting is required to be given to shareholders other
than an announcement of such time and place at the Wedco Special Meeting. The
meeting may be adjourned for a period of not more than 20 days. A majority of
the voting power represented and voting at the Wedco Special Meeting is required
to approve any such adjournment.
ELECTION OF MERGER CONSIDERATION BY SHAREHOLDERS OF WEDCO
Shareholders of Wedco will be required to elect on their forms of proxy
whether, if the Merger is consummated, they desire to receive the Cash/Stock
Consideration or the Stock Consideration. SHAREHOLDERS OF WEDCO MUST MAKE THIS
ELECTION ON THEIR FORM OF PROXY WHETHER THEY VOTE FOR OR AGAINST THE PROPOSAL TO
APPROVE AND ADOPT THE MERGER AGREEMENT. IF NO ELECTION IS MADE WITH RESPECT TO A
SHARE OF WEDCO COMMON STOCK BY THE EFFECTIVE TIME, THE HOLDER OF SUCH SHARE WILL
BE DEEMED TO HAVE ELECTED TO RECEIVE THE STOCK CONSIDERATION.
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<PAGE> 38
MANAGEMENT OF THE COMBINED COMPANY FOLLOWING THE MERGER
The Merger Agreement provides that Wedco will merge with and into W
Acquisition, a wholly-owned subsidiary of ICO, with W Acquisition surviving the
Merger as a wholly-owned subsidiary of ICO. W Acquisition would, as a result of
the Merger, amend its Articles of Incorporation to change its name to "Wedco
Technology, Inc." Also, the Merger Agreement provides that if the Merger is
consummated, ICO would amend its Articles of Incorporation to change its name to
"Willoughby International, Inc." The Merger, then, will result in Wedco
Technology, Inc., formerly known as W Acquisition Corp., becoming a wholly-owned
subsidiary of Willoughby International, Inc., formerly known as ICO, Inc.
The directors and executive officers of Willoughby International, Inc. upon
consummation of the Merger are set forth below. The Merger Agreement provides
that the persons listed below shall serve in the positions set forth opposite
their respective names with the exception of Messrs. Cave and Lancaster who will
continue to hold the positions indicated.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Dr. Asher O. Pacholder...... 58 Chairman of the Board of Directors
(a Class III Director) and Chief Financial Officer
Sylvia A. Pacholder......... 53 President, Chief Executive Officer, Secretary and Class II
Director
Jon C. Biro................. 29 Controller and Treasurer
Jack C. Cave................ 61 Senior Vice President
William E. Cornelius........ 47 Class I Director
Isaac Joseph................ 40 Senior Vice President
Gary L. Lancaster........... 41 Senior Vice President and General Counsel
Walter L. Leib.............. 66 Class III Director
Curtis Matthews............. 52 Senior Vice President
Kenneth Miller.............. 51 Senior Vice President
William J. Morgan........... 41 Class II Director
Robin E. Pacholder.......... 29 Class I Director
George S. Sirusas........... 56 Class I Director
John F. Williamson.......... 57 Class III Director
William E. Willoughby....... 75 Class II Director
</TABLE>
The directors and executive officers of Wedco Technology, Inc. upon
consummation of the Merger are set forth below. The Merger Agreement provides
that the persons listed below shall serve in the positions set forth opposite
their respective names with the exception of Mr. Verhoeff who will continue to
hold the position indicated.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Dr. Asher O. Pacholder...... 58 Chairman of the Board of Directors and Chief Operating Officer
Sylvia A. Pacholder......... 53 President, Chief Executive Officer, and Director
Robert F. Bush.............. 70 Vice President of Finance
Donald C. Cuomo............. 62 Vice President of Sales and Marketing
Fred R. Feder............... 56 Vice President
Timothy J. Kita............. 35 Manager of Human Resources
Mark L. Kuna................ 32 Vice President and Principal Accounting Officer
Theo J.M.L. Verhoeff........ 45 Vice President -- European Operations
William E. Willoughby....... 75 Director
</TABLE>
Dr. Asher O. Pacholder has been Chairman of the Board of Directors and
Chief Financial Officer of ICO since February 1995. Dr. Pacholder has been a
Director of ICO since 1990. Dr. Pacholder has been Chairman of the Board and
Managing Director of Pacholder Associates, Inc. since 1983. He serves on the
Boards of Directors of USF&G Pacholder Fund, Inc., a closed-end investment
company, Southland Corporation, which owns and operates convenience stores,
Trump's Castle Associates, which owns and operates the Trump's Castle Casino
Resort in Atlantic City, New Jersey, and AM International, Inc., a manufacturer
and
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<PAGE> 39
distributor of graphics equipment and supplies. Dr. Pacholder is the spouse of
Sylvia A. Pacholder and the father of Robin E. Pacholder.
Sylvia A. Pacholder has been Chief Executive Officer of ICO since February
1995, President since November 1994 and Secretary since December 1993. From July
1994 to November 1994, Ms. Pacholder served as Executive Vice
President -- Operations of ICO, and from January 1994 to July 1994, she served
as Vice President -- Corporate Development of ICO. Ms. Pacholder has been a
Director of ICO since 1993. During 1993, Ms. Pacholder was Senior Vice President
of Pacholder Associates, Inc. Ms. Pacholder was a member of the faculty at the
University of Cincinnati from 1984 to 1993, most recently as the head of the
Department of Mathematics and Applied Sciences. Ms. Pacholder is the spouse of
Dr. Asher O. Pacholder and the mother of Robin E. Pacholder.
Jon C. Biro, a certified public accountant, has been principally employed
as Controller of ICO since October 1994 and as Controller and Treasurer of ICO
since April 1995. Prior to that time, Mr. Biro was a certified public accountant
with Price Waterhouse LLP.
Robert F. Bush has been employed as Controller of Wedco since 1992,
becoming Vice President -- Finance in July 1994. Prior to 1992, he was employed
as the Controller-Treasurer of Auxilec Air-Equipment, Inc. and Vice
President -- Finance of National Hose Co., a division of Dayco Corporation. A
certified public accountant, he served eight years with the accounting firm of
Touche, Ross & Co. (now Deloitte & Touche).
Jack C. Cave has been principally employed as Senior Vice
President -- Production Services of ICO since January 1996. From August 1995 to
January 1996, Mr. Cave was Director of Asset Utilization for ICO. From April
1994 to August 1995 he was Division Manager of Frontier Inspection Services for
ICO. Prior to April 1994 Mr. Cave was President and General Manager of Frontier
Inspection Services.
William E. Cornelius has been an independent manufacturing consultant since
1991. For more than five years prior to such time, Mr. Cornelius was Vice
President/Partner of Young & Klein Technicraft, Inc., a printing company. Mr.
Cornelius currently serves as a Director of Novare Services, Inc., a healthcare
services company. Mr. Cornelius has been a Director of ICO since 1992.
Donald C. Cuomo has been continuously employed by Wedco since 1963,
becoming Vice President in 1974.
Isaac Joseph has been principally employed as Senior Vice
President -- Sales of ICO since March 1995. From November 1994 to March 1995, he
was ICO's Louisiana Division Manager. Mr. Joseph was ICO's Division Sales
Manager for Louisiana from June 1994 to November 1994. From March 1992 to June
1994, Mr. Joseph was the Louisiana Sales Manager for Tuboscope Vetco
International. From September 1991 to March 1994, he was a sales representative
for Completion Accessories, Inc., an oilfield service company, in Louisiana.
Prior to that time, he was Senior Sales Representative for Baker Hughes Vetco
Services, an oilfield service company.
Fred R. Feder has been continuously employed by Wedco since 1961, becoming
General Manager in 1972 and Vice President in 1974.
Timothy J. Kita has been employed by Wedco since 1989, becoming Manager of
Human Resources in 1992. Prior to joining Wedco, he was employed by the US Gauge
Division of Ametek Corporation.
Mark L. Kuna, a certified public accountant, has been Corporate Controller
of Wedco since July 1994. From July 1989 to July 1994, Mr. Kuna served as
Assistant Corporate Controller of Wedco.
Gary L. Lancaster has been principally employed as Senior Vice President
and General Counsel of ICO since December 1995. For more than five years prior
to that time, Mr. Lancaster was employed with Scurlock Permian Corporation, a
subsidiary of Ashland Inc., including employment as Senior Attorney from July
1991 to December 1995.
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<PAGE> 40
Walter L. Leib has been Senior Partner in the law firm of Leib, Kraus,
Grispen & Roth, in Scotch Plains, New Jersey since its inception in 1971. Mr.
Leib has served as a Director and General Counsel to Wedco since its inception
in 1960.
Curtis Matthews has been principally employed as Senior Vice
President -- Corporate Development of ICO since July 1995. From October 1994 to
June 1995, Mr. Matthews was Vice President -- Exploration Services of ICO. From
October 1992 to September 1994, Mr. Matthews was employed as Regional Manager of
ICO. For more than five years prior to that time, Mr. Matthews served as
Domestic Inspection Manager for Baker Hughes Tubular Services, Inc.
Kenneth Miller has been principally employed as Senior Vice
President -- Corrosion Control Services of ICO since October 1995. From November
1994 to October 1995, Mr. Miller served ICO as Assistant Vice
President -- Corrosion Control Products. From October 1993 to October 1994, he
was ICO's Louisiana Division Manager, and for the three years prior to October
1993, Mr. Miller served as the Gulf Coast Area Manager for Baker Hughes Tubular
Services, Inc.
William J. Morgan has been the President and a Managing Director of
Pacholder Associates, Inc. for more than five years. He serves as a Director of
USF&G Pacholder Fund, Inc., Duckwall-Alco Stores, Inc., a midwestern retailer,
and Kaiser Ventures, Inc., an environmental resources company. Mr. Morgan has
been a Director of ICO since 1992.
Robin E. Pacholder has been Senior Vice President and Associate General
Counsel of Pacholder Associates, Inc. since 1994. Ms. Pacholder was an Associate
with the law firm of Pachulski, Stang, Ziehl & Young from 1992 to 1994. Prior to
such time, Ms. Pacholder attended and graduated with honors from the UCLA School
of Law and was admitted to practice law in California in 1992. Ms. Pacholder has
been a Director of ICO since 1993. Ms. Pacholder is the daughter of Dr. Asher O.
Pacholder and Sylvia A. Pacholder.
George S. Sirusas has been continuously employed by New Jersey Savings
Bank, Somerville, New Jersey from 1983 and until the bank's merger with the
United Jersey Bank on September 22, 1995. He served as senior lending officer of
the merged bank since 1986 and presently holds the position of Vice President
and commercial lending officer with the United Jersey Bank. Prior to joining New
Jersey Savings Bank, he served as Vice President of Town and Country Bank,
Flemington, New Jersey as Vice President, Senior Lending Officer. He has served
as a member of Wedco's Board of Directors since 1984.
Theo J.M.L. Verhoeff became President of Wedco Holland B.V. in 1984. Mr.
Verhoeff became Vice President of European Operations of Wedco in 1987. Prior to
1984, he was employed by Shell International Petroleum Corporation as a Sales
Representative and later became Product Manager and Head of External Relations.
John F. Williamson has been Executive Vice President and Chief Financial
Officer of Asset Allocation Concepts, Inc., an investment management company,
since May 1995. From 1993 to 1994, Mr. Williamson served as Vice
President/Manager of Investments for American Life and Casualty Insurance
Company. From 1990 to 1993, he was a financial consultant with such firm. From
1985 to 1990, Mr. Williamson was Senior Vice President/Treasurer and member of
the Operating Committee for Community Federal Savings and Loan Association. Mr.
Williamson serves on the Director of USF&G Pacholder Fund. Mr. Williamson was
appointed by the Board of Directors of ICO in June 1995 to fill the vacancy on
the Board resulting from the death of John R. Howard.
William E. Willoughby has been employed by Wedco since 1960 as its Chairman
of the Board and President. He is also a Director of TDT, Inc., which acquired
the assets of Tri-Delta Technology, Inc. and the Bottle Division of Wedco, Inc.
from Wedco in 1988.
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<PAGE> 41
THE MERGER
BACKGROUND OF THE MERGER
Over the past several years, ICO's Board of Directors and management have
followed a strategy focused on (i) reduction of overhead and operating costs,
(ii) development of new products and services and (iii) acquisitions to expand
product and service lines, expand geographic coverage and take advantage of
consolidation opportunities. Pursuant to this acquisition strategy, ICO acquired
BHTS in September 1992 and seven other businesses in fiscal years 1994 and 1995.
ICO's management also has reviewed a number of other possible acquisitions in
various businesses serving the energy and petrochemical markets.
In 1993, William E. Willoughby, Wedco's founder, Chairman of the Board and
Chief Executive Officer, then in his 70's, recognized that he would soon be
interested in retiring from an active role in Wedco's business. He also
recognized that there previously had not been a concerted effort on the part of
Wedco's management to increase its depth or to develop new management to take
over subsequent to his retirement and the retirement of Robert F. Bush, Wedco's
Vice President -- Finance.
In addition, several opportunities for expansion of Wedco's business
appeared necessary in order for Wedco to continue its dominant position in its
markets. It also appeared that, within the next few years, an additional plant
should be built in the mid-western United States to better serve growing
customer demand in that area. Also in 1993, discussions commenced with a major
company in Europe regarding an acquisition by Wedco in Europe. Completion of
either of these projects would have required substantial funds.
Mr. Willoughby and Mr. Bush had meetings with various financial advisers,
who advised them that, based on the market prices of Wedco Common Stock and
prevailing market conditions, the raising of capital in the public or private
markets could have an adverse effect on the price of Wedco Common Stock and such
efforts were discouraged.
It became apparent to Wedco's Board of Directors as well as its management
that Wedco should seek a company to acquire Wedco that could provide both the
management and capital resources necessary in order for Wedco to continue its
growth. From time to time over many years, Wedco had held informal discussions
with several parties concerning the possible acquisition of Wedco. None of those
discussions, however, went beyond the preliminary stage.
Accordingly, commencing in late 1993 and early 1994, the efforts to find a
purchaser for Wedco were significantly intensified. Wedco entered into
non-exclusive contracts with several brokers and investment banks, including New
York-based Brenner Securities Corporation ("Brenner"), which led to discussions
between Wedco's management and certain parties identified by those agents.
However, while some of those discussions resulted in the performance of due
diligence examinations by the parties, none progressed to the signing of a
letter of intent or any other agreement for the acquisition of Wedco.
In March 1995, Dr. Asher O. Pacholder learned that Wedco had retained
Brenner to find a purchaser for Wedco. Dr. Pacholder obtained from Brenner the
confidential memorandum regarding Wedco and the possible sale of Wedco. After
reviewing the confidential memorandum, Dr. Pacholder requested that James P.
Shanahan, Jr. and Howard T. Rice, advisers to ICO's Board of Directors, obtain
the confidential memorandum and meet with Wedco's representatives to obtain
additional information on Wedco and to explore the possible parameters of a
business combination between ICO and Wedco. Over the course of the next few
months, there followed an extensive series of meetings, conference calls and
exchanges of information between management and representatives of the two
companies involving due diligence investigations and negotiations related to a
business combination. ICO management visited facilities and met the management
of Wedco's operating subsidiaries and joint venture affiliates in Europe and
Canada. Wedco management visited ICO facilities and met ICO's operating
management. Wedco and its advisors also performed various due diligence reviews
of ICO. Representatives of the two companies, in consultation with their
respective management groups, negotiated the principal terms of a merger of
Wedco into a wholly-owned subsidiary of ICO, which was described in a joint
press release on August 14, 1995 (the "August 14 Press Release"), pursuant to
which Wedco shareholders would receive $5.71 cash and 1.8 shares of ICO Common
Stock for each share of Wedco Common Stock.
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After the August 14 Press Release, as the companies and their
representatives were continuing due diligence and negotiating definitive
documentation for the transaction, Wedco's financial results, which had declined
during the quarter ended June 30, 1995 compared to the prior quarters and prior
year period, showed further declines which Wedco attributed to, among other
factors, the cyclical world-wide nature of Wedco's business and losses incurred
by Wedco's Canadian joint venture affiliate in its start-up U.S. operation.
These results caused ICO to reevaluate the anticipated requirements for
capital related to Wedco and the proposed structure of the consideration to be
paid in the transaction. As a result of extensive due diligence performed by ICO
and its advisers during September, October and November, 1995, ICO determined
that it would be desirable to structure the transaction in such a way as to
allow the combined company to retain a larger cash position than would have been
the case under the terms described in the August 14 Press Release. During this
time, representatives of the two companies substantially completed negotiation
of the Merger Agreement and related documents.
On November 27, 1995, representatives of ICO and Wedco met to discuss a
revised proposal from ICO which changed the consideration for each share of
Wedco Common Stock to either the Stock Consideration or the Cash/Stock
Consideration at the election of each Wedco shareholder. At the meeting, the
Wedco representatives indicated their support for the proposal.
On November 29, 1995, ICO's Board of Directors met and received detailed
descriptions and analyses of the Merger and related transactions by management
and the Board's advisers. At the meeting, after consideration of the various
factors and for the reasons described below, the Board of Directors, by
unanimous vote, approved the Merger, the issuance of ICO Common Stock pursuant
to the Merger Agreement, the Charter Amendment and authorized ICO's management
to enter into the Merger Agreement.
On November 30, 1995, Dr. Pacholder, Ms. Pacholder, Mr. Shanahan and Mr.
Rice met with Wedco's Board of Directors to present the revised merger proposal
to Wedco's full Board of Directors. At the meeting, Wedco's Board of Directors
indicated their support for the proposal and requested that Mesirow Financial
("Mesirow") complete its review of the fairness of the Merger to Wedco's
shareholders for a meeting of the Wedco Board of Directors to be held the
following week.
On December 5, 1995, Wedco's Board of Directors met with representatives of
Brenner and Mesirow. Mesirow reviewed the Merger and related transactions, as
modified, and reported to the Board that in its opinion the Merger was fair to
Wedco's shareholders from a financial point of view. The Board, taking into
consideration Mesirow's report and its knowledge of the reasons why Wedco had
intensified its effort for its sale, unanimously approved the Merger and the
definitive Merger Agreement and related agreements which had previously been
delivered to the Board.
The Merger Agreement and the Voting Agreements were executed by the parties
thereto on December 8, 1995.
Pursuant to its contract with Wedco, Brenner will receive a fee of one
percent of the net aggregate purchase price for Wedco plus $100,000, half of
which will be paid at the Effective Time and the other half of which will be
paid within six months thereof. Wedco has also agreed to reimburse Brenner for
all necessary out-of-pocket expenses, provided said reimbursement does not
exceed $500 per month, and to indemnify Brenner and certain related persons or
entities against certain liabilities under federal securities laws, relating to
or arising out of its engagement. Brenner's fee is contingent upon consummation
of the Merger.
ICO'S REASONS FOR THE MERGER
The Board of Directors of ICO has unanimously approved the Merger. The
Board of Directors of ICO believes that the Merger is in the best interests of
ICO and its shareholders and unanimously recommends that the shareholders of ICO
vote FOR approval of the Share Issuance and FOR the Charter Amendment.
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In evaluating the proposed Merger, the Board of Directors of ICO considered
a variety of factors, including, but not limited to, the following:
1. Wedco provides size reduction and other services to the
petrochemical industry, which has a long-term record of growth and is
expected to continue to grow in the future.
2. Wedco has a long history of significant revenue and earnings
growth.
3. Wedco is the dominant provider of size reduction services in the
markets it serves. ICO's management believes that Wedco may have attractive
opportunities for acquisition and expansion of product and service lines
which could further leverage Wedco's market leadership position.
4. Wedco has a strong business presence in Europe, providing
geographic diversification to ICO's predominantly North American business.
This geographic diversification may provide a counterbalance to the
exposure to business cycles in North America, and particularly the United
States.
5. Wedco will provide ICO with diversification of business lines.
Although ICO and Wedco serve many of the same customers, especially the
large integrated oil companies, they are in different businesses driven by
different factors. This may provide a counterbalance to the historical
volatility of the demand for the oilfield services provided by ICO.
6. ICO's strong financial position will provide Wedco with better
access to the financial resources necessary to take advantage of
opportunities which may become available to Wedco, including possible
acquisitions and expansion of product and service lines.
7. ICO's management expects to realize certain synergistic benefits
from the Merger and to realize reductions in the expenses associated with
Wedco operating and reporting as an independent publicly-owned company.
8. Information regarding the financial position and results of
operations of ICO and Wedco on a historical and pro forma basis, including
a review of information relating to balance sheets, income statements,
statements of cash flows, cash flow analysis relating to debt service,
capital expenditures and dividends, information relating to historical and
pro forma earnings per share for ICO and Wedco, and information relating to
Wedco's and its affiliates' current operating results.
9. The terms of the Merger and a review of the Merger Agreement and
ancillary agreements, including the circumstances under which either ICO or
Wedco can terminate the Merger Agreement and the fees triggered by such a
termination and the conditions to closing the Merger.
10. The extensive due diligence examination which had been conducted
with regard to Wedco, its affiliates, their financial position, results of
operations, competitive position, the customers Wedco serves and other
matters.
11. The judgment, advice and analyses of ICO's management and the
advisers to the Board of Directors of ICO.
12. The increased size, larger market capitalization and expanded
distribution of the stock of the combined company expected to result from
the Merger may provide shareholders with increased liquidity and enhance
the market visibility of the combined company.
The foregoing discussion of the information and factors considered by the
Board of Directors of ICO is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation of the Merger,
the Board of Directors of ICO did not quantify or otherwise assign relative
weights to the specific factors considered in reaching its determination.
WEDCO'S REASONS FOR THE MERGER
The Board of Directors of Wedco has unanimously approved the Merger.
Wedco's Board of Directors believes that the Merger is in the best interests of
Wedco and its shareholders and unanimously recommends that the shareholders of
Wedco vote FOR approval of the Merger. The Board believes the Merger will enable
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Wedco to have the opportunity to provide for the orderly succession of its most
senior management and to increase the depth of its management generally; to
obtain additional capital, on terms satisfactory to Wedco, needed to fund the
expansion of Wedco's business; and, to provide the potential for increased value
and liquidity for its shareholders in the future.
In evaluating the proposed Merger, the Board of Directors of Wedco
considered, in addition to the foregoing, a variety of factors, including, but
not limited to, the following:
1. Under ICO's new management, ICO has dramatically improved its
results during the last three years. ICO has made a number of acquisitions
over the last few years, although none as large as Wedco. ICO has satisfied
Wedco that its management has been able to integrate these acquired
companies successfully into ICO's system and to provide the necessary
management for the acquired companies. Wedco is also satisfied that the
experience gained by ICO in its prior acquisitions will lead to the
achievement of Wedco's goal of obtaining expanded management for the
future.
2. ICO has also demonstrated through its raising of substantial funds
in 1993 that it has the ability to provide the necessary capital for the
future expansion of Wedco.
3. The shareholders of Wedco will achieve a value for their Wedco
Common Stock substantially in excess of that which they have otherwise been
able to receive in the market since the time that Wedco first became public
in 1984.
4. Wedco's Board of Directors believes that the business combination
of ICO and Wedco will afford the combined company greater access to the
capital markets than would be available to either company on a stand-alone
basis.
5. Wedco's Board believes that the shares of ICO Common Stock to be
received by Wedco's shareholders in the Merger will provide its
shareholders with more liquidity than that associated with their shares of
Wedco Common Stock.
6. The Board anticipates that Wedco and ICO, as a combined entity,
will benefit from the elimination of certain costs and expenses
historically incurred by Wedco as a publicly-owned company, including,
among others, the costs associated with preparing and filing periodic
reports with the Securities and Exchange Commission and conducting annual
meetings of shareholders.
7. ICO will provide Wedco with a diversification of its business,
which will afford Wedco some protection against the effects of the cyclical
nature of Wedco's business.
In determining that the Merger is in the best interests of Wedco and its
shareholders, Wedco's Board of Directors also considered a number of other
factors, including among other things, the terms and conditions of the Merger
Agreement; information with respect to the financial condition and business
operations of both Wedco and ICO; and the views and opinions of their respective
managements and advisors, including the fairness opinion of Mesirow.
OPINION OF WEDCO'S FINANCIAL ADVISER
Mesirow was retained by the Board of Directors of Wedco to act as its
financial adviser in connection with the Merger. Mesirow is a nationally
recognized investment banking firm and was selected by the Board of Directors
based on its experience and expertise. As part of its investment banking
business, Mesirow is regularly engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and other
purposes.
In connection with Mesirow's engagement, the Board of Directors of Wedco
requested that Mesirow evaluate the fairness, from a financial point of view, to
the holders of Wedco Common Stock of the consideration to be received in the
Merger by such holders. On December 5, 1995, Mesirow rendered to Wedco's Board
of Directors its oral opinion, subsequently confirmed in writing, to the effect
that, as of such date, the consideration to be received in the Merger by the
holders of Wedco Common Stock was fair to such holders from a financial point of
view.
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The full text of Mesirow's written opinion addressed to the Board of
Directors of Wedco, dated February 7, 1996, which sets forth the assumptions
made, matters considered and limitations on the review undertaken, is set forth
below. Wedco shareholders are urged to read this opinion carefully in its
entirety. Mesirow's opinion addresses only the fairness of the Merger from a
financial point of view to the shareholders of Wedco and does not constitute a
recommendation to any shareholder of Wedco as to how such shareholder should
vote with respect to the approval of the Merger.
We understand that Wedco Technology, Inc. ("Wedco") has agreed to
merge with a subsidiary of ICO, Inc. ("ICO") in an exchange of Wedco
stock for cash and ICO stock. The Merger Agreement dated December 8,
1995 between Wedco, Inc.; ICO, Inc.; and W Acquisition Corp.
(including all schedules and annexes thereto, the "Merger Agreement"),
provides that holders of Wedco common stock may receive at their
option for each share of Wedco common stock that they hold, either (i)
2.2 shares of ICO stock plus $3.50 cash or (ii) 2.84 shares of ICO
stock. In addition, holders of vested options to acquire Wedco common
stock will receive $16.50 cash per share less the exercise price per
share of such options.
We further understand that the Merger Agreement is subject to
approval and adoption by the stockholders of Wedco, and the issuance
of the ICO Common Stock pursuant to the Merger Agreement is subject to
approval by the stockholders of ICO.
The foregoing summary of the transactions contemplated by the
parties is qualified in its entirety by the more detailed information
appearing in the Merger Agreement.
You have requested our opinion as investment bankers as to
whether or not the terms of the Merger Agreement are fair to Wedco's
common stockholders from a financial point of view.
Mesirow Financial, Inc., as part of its investment banking
business, is regularly engaged in structuring financings and the
valuations of businesses and their securities in connection with
mergers, acquisitions and leveraged buyout transactions, negotiated
underwritings, competitive biddings, secondary distributions of listed
and unlisted securities, and private placements.
In conducting our investigation and analysis, and in arriving at
the opinion set forth below, we have reviewed the Merger Agreement
dated December 8, 1995, and related documents prepared by the parties,
and have taken into account such accepted financial and investment
banking procedures as we have deemed relevant. We have, among other
things (i) reviewed publicly available information concerning Wedco
and ICO, including audited and interim, unaudited financial statements
of Wedco and ICO; (ii) reviewed Wedco's financial projections provided
by senior management of Wedco, which are not publicly available; (iii)
reviewed the efforts made to date by various agents, brokers,
investment bankers and others to sell Wedco to a third party; (iv)
reviewed the premiums paid in transactions we deemed relevant; (v)
prepared a valuation analysis of public companies we deemed relevant
in the plastics industry; (vi) prepared a valuation analysis of public
companies we deemed relevant in the oilfield services industry; (vii)
reviewed public financial and transaction information relating to the
merger and acquisition transactions we deemed to be comparable to the
Merger, (viii) reviewed the current and historical market prices and
trading volumes of the Wedco common stock and of the ICO common stock;
(ix) evaluated the pro forma financial impact of the Merger on ICO and
Wedco as a combined entity; and (x) made or considered such other
analyses, studies and investigations as we deemed appropriate.
In addition, we have met and held discussions with Wedco's
management concerning Wedco's business and operations, assets,
financial condition, and future prospects, and we visited two of
Wedco's plant facilities. We also met and held discussions with ICO's
management concerning ICO's business and operations, assets, financial
condition and future prospects, and we visited two of ICO's plant
facilities. In addition, we discussed with the management of ICO and
Wedco the potential for operational synergies in a merger between the
two companies.
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We requested financial projections from ICO; however, according
to ICO's senior management, ICO does not prepare financial
projections. We believe that other due diligence performed on ICO was
sufficient for purposes of rendering this opinion.
In arriving at our opinion, we have not assumed any
responsibility for independent verification of any of the foregoing
information and have relied on its being complete and accurate in all
material respects. We have neither made nor obtained independent
evaluations or appraisals of the assets of either Wedco or ICO. With
respect to the financial projections provided us by Wedco, we assumed
they have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of Wedco's management as
to the future financial performance of Wedco. Our opinion is
necessarily based upon market, economic and other conditions as they
exist and can be evaluated as of the date of this opinion. It should
be understood that subsequent developments may affect this opinion and
that we do not have any obligation to update, revise or reaffirm this
opinion. We are not rendering any opinion regarding the future
performance of the merged companies.
We have acted as financial adviser to Wedco in connection with
the Merger and will receive a fee for our services, including
rendering this opinion, and Wedco has agreed to indemnify us against
certain liabilities. We did not participate in negotiations with
respect to the terms of the merger and related transactions. In the
ordinary course of business, we and our affiliates may actively trade
the equity securities of Wedco and ICO for our own account or for the
accounts of customers and, accordingly, may at any time hold long or
short positions in such securities.
This letter is provided solely for the benefit of the Board of
Directors of Wedco in connection with and for the purposes of its
evaluation of the Merger. This letter does not constitute a
recommendation to any stockholder with respect to whether to vote in
favor of the Merger. This opinion is based on the business and
operations of the Company as represented to us as of December 31,
1995, and does not purport to take into consideration any information
or event arising subsequent to such date. The information contained in
this opinion may not be used for any other purpose, or reproduced,
disseminated, quoted, referred to or disclosed or otherwise made
available to, or relied upon by any other party nor may reference be
made hereto to our firm without our prior written consent, which
consent will not be unreasonably withheld; provided, however, that it
is understood that the opinion may be referred to in the joint press
release to be issued by Wedco and ICO on the closing of the Merger,
the joint proxy statement/prospectus to be filed by Wedco and ICO with
the Securities and Exchange Commission describing the Merger, for the
special shareholders' meetings of Wedco and ICO at which the Merger
Agreement is to be voted upon for shareholder approval, and as
otherwise required by law or by judicial or regulatory authorities or
in connection with any judicial or regulatory proceeding.
Based upon the foregoing and our experience as investment
bankers, we are of the opinion that the terms of the Merger Agreement
are fair to the holders of Wedco's common stock from a financial point
of view, as of the date of this letter.
Sincerely,
MESIROW FINANCIAL, INC.
In connection with its review, Mesirow did not assume responsibility for
independent verification of any of the information provided to or otherwise
reviewed by Mesirow and relied upon its being complete and accurate in all
respects. With respect to financial forecasts and other data reviewed,
including, without limitation, estimates of liability for environmental matters
and reserves established with respect thereto, Wedco advised Mesirow that such
forecasts and other data were reasonably prepared on bases reflecting the best
currently available estimates and judgments of Wedco's management as to the
future financial performance of Wedco. In addition, Mesirow did not make an
independent evaluation of the assets or liabilities (contingent or otherwise) of
Wedco, ICO, or their affiliates, nor was Mesirow furnished with any such
evaluations or
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appraisals. Mesirow's opinion is necessarily based upon economic, market and
other conditions as in effect on, and the information made available to it as
of, the date of its opinion. Although Mesirow evaluated the fairness of the
consideration to be received in the Merger by the holders of Wedco Common Stock
from a financial point of view, Mesirow was not asked to and did not recommend
the specific consideration payable in the Merger. The consideration to be
received by the Wedco shareholders as a result of the Merger was determined by
negotiation between Wedco and ICO.
In preparing its opinion to Wedco's Board of Directors, Mesirow performed a
variety of financial and comparative analyses, including those described below,
and provided the Board with a written presentation with respect to such
analyses. The summary of Mesirow's analyses set forth below does not purport to
be a complete description of the analyses underlying Mesirow's opinion or
presentation to the Board. The preparation of a fairness opinion is a complex
analytic process involving various determinations as to the most appropriate and
relevant methods of financial analyses and the application of those methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. In arriving at its opinion, Mesirow did not
attribute any particular weight to any analysis or factor considered by it, but
rather made qualitative judgments as to the significance and relevance of each
analysis and factor. Accordingly, Mesirow believes that its analyses must be
considered as a whole and that selecting portions of its analyses and factors,
without considering all analyses and factors, could create a misleading or
incomplete view of the processes underlying such analyses and its opinion. In
its analyses, Mesirow made numerous assumptions with respect to Wedco, ICO and
their affiliates, industry performance, general business, economic, market and
financial conditions and other matters. Such assumptions were used in developing
estimates of future results that are not necessarily indicative of actual values
or predictive of future results or values. In addition, analyses relating to the
value of businesses or securities do not purport to be appraisals or to reflect
the prices at which businesses or securities actually may be sold. Accordingly,
such estimates are inherently subject to substantial uncertainty.
Wedco Shares
In analyzing the value of the Wedco Common Stock to be exchanged in the
Merger, Mesirow (i) analyzed the market prices at which Wedco Common Stock
traded in the six- and 12-month period immediately preceding the announcement of
the transaction on August 14, 1995 (the "Announcement Date") and the implied
purchase price premiums over those market prices to be paid to Wedco
shareholders in the Merger, based on Mesirow's valuation of the consideration
offered by ICO (the "Market Price Premium Analysis"); (ii) performed a
discounted cash flow analysis and a comparable company analysis; and (iii)
reviewed attempts made by Wedco, investment bankers and others to sell Wedco
since March 1994.
Purchase Price Premium Analysis
Mesirow analyzed the closing prices of the Wedco Common Stock at certain
dates over the 12-month period preceding the Announcement Date and the purchase
price premiums implied by ICO's offer as of such dates based upon the concluded
valuation range for the consideration offered by ICO. This analysis resulted in
a range of purchase price premiums for the Wedco Common Stock of (i) 12% to 69%
based upon the $11.25 closing price of Wedco Common Stock five days prior to the
Announcement Date; (ii) 32% to 101% based upon the $9.50 closing price of Wedco
Common Stock 10 days prior to the Announcement Date; and (iii) 31% to 98% based
upon the $9.625 closing price of Wedco Common Stock 21 days prior to the
Announcement Date. Based upon the high closing price for Wedco Common Stock
during the 52-week period prior to the Announcement Date ($11.50 on February 24,
1995), the implied range of purchase price premiums is 9% to 66%. Mesirow noted
that the range of indicated purchase price premiums compared favorably with the
mean premiums reported in a study of similarly sized and otherwise relevant
transactions as reported in the Mergerstat Review 1994 study published by
Merrill Lynch.
Discounted Cash Flow Analysis
Mesirow performed a discounted cash flow analysis of the projected net
leveraged cash flows of Wedco for the fiscal years ended March 31, 1996 through
1999, based upon certain operating and financial
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assumptions, forecasts and other information provided by the management of
Wedco. Mesirow adjusted Wedco's projections based upon its shortfall versus
management's plan in fiscal year 1996. The net effect of this adjustment was to
reduce the baseline revenues and earnings for fiscal 1996, which in turn lowered
the dollar amounts of revenues and earnings in future years. Other than this
adjustment, the projections provided by Wedco's management used in Mesirow's
analysis were substantially unchanged. Mesirow applied discount rates of 7.5%,
8.0% and 8.5%, and terminal year capitalization multiples of 10.5x, 10.0x and
9.5x to the projected net leveraged cash flows. This analysis resulted in a
range of values for Wedco of $10.70 to $14.22 per share, with a mean value of
$12.29.
Mesirow requested projections from ICO, and ICO stated that it did not have
projections nor was it ICO's policy to prepare them. Hence, Mesirow was unable
to prepare a discounted cash flow analysis for ICO. Mesirow believes that the
other valuation analyses it completed on ICO were sufficient for purposes of
rendering its opinion.
Comparable Company Analysis
Mesirow reviewed and compared certain actual and estimated financial,
operating and stock market information of Wedco and ICO and selected companies
in the plastics and oilfield services industries. Plastics companies selected as
comparable to Wedco were Wellman, Inc. and Farrell Corporation. Oil field
services companies selected as comparable to ICO were Tuboscope Vetco
International Corporation, Newpark Resources, Inc., Offshore Logistics, Inc. and
Petroleum Helicopters Incorporated. Mesirow compared invested capital values as
a multiple of trailing earnings before interest, taxes, depreciation and
amortization ("EBITDA") and trailing earnings before interest and taxes
("EBIT"). Mesirow also compared equity values as a multiple of estimated current
fiscal year net income and projected next fiscal year net income. All multiples
were calculated using closing stock prices at December 1, 1995. Using the
comparable company analysis, the indicated value for each share of Wedco Common
Stock ranged from $7.62 to $12.73, with a mean value of $12.29; the indicated
values for each share of ICO Common Stock ranged from $2.52 to $5.95, with a
mean value of $5.32.
Comparable Transaction Analysis
Using publicly available information, Mesirow analyzed the purchase prices
and multiples paid in the following selected transactions in the oilfield
services industry. Weatherford International, Inc./H&H Oil Tool Co., Nabors
Industries, Inc./Sundowner Offshore Services Inc. and Nowsco Well Service
Ltd./Service Fracturing Co. Mesirow compared purchase prices as a multiple of
latest available 12 months EBITDA and net income. This analysis resulted in a
range of concluded values for each share of ICO Common Stock from $5.74 to
$8.20, with a mean of $6.97. Mesirow also reviewed a number of completed
transactions in the plastics industry. Due to Wedco's unique nature, none of the
reviewed transactions were judged to be comparable for purposes of valuing
Wedco.
The comparable company analysis and discounted cash flow analysis for Wedco
resulted in an overall value range for each share of Wedco Common Stock of $9.16
to $13.48, with a mean of $11.38. The comparable company analysis and comparable
transaction analysis resulted in an overall value range for each share of ICO
Common Stock of $4.13 to $7.08, with a mean of $6.15. Using the exchange ratios
stipulated in the Merger Agreement, under the Stock Consideration option, the
indicated consideration for each share of Wedco Common Stock ranged from $11.73
to $20.09, with a mean of $17.45; under the Cash/Stock Consideration option, the
indicated consideration for each share of Wedco Common Stock ranged from $12.59
to $19.07, with a mean value of $17.02.
Pro Forma Impact of the Merger
Based upon discussions with the respective managements of Wedco and ICO and
review of the Merger Agreement, Mesirow concluded that the potential cost
savings and synergies arising from the Merger had a minimal impact on the values
of both Wedco and ICO. Mesirow's pro forma merger analysis indicated that
assuming all Wedco shareholders elected to receive Cash/Stock Consideration,
consolidated net debt (i.e.,
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debt minus cash) would represent 13.9% of total capitalization of the combined
entity as of closing. It was noted by Mesirow that the merged entity would, by
virtue of its greater size and earnings, probably be able to raise equity or
debt capital at less expensive rates and on more favorable terms than could be
obtained by Wedco alone.
Pursuant to the terms of Mesirow's engagement, Wedco has agreed to pay
Mesirow for its services in connection with the Merger a financial advisory fee
of $75,000. Wedco has also agreed to reimburse Mesirow for its reasonable
out-of-pocket expenses, including the fees and expenses of legal counsel, and to
indemnify Mesirow and certain related persons or entities against certain
liabilities, including liabilities under the federal securities laws, relating
to or arising out of its engagement.
MERGER CONSIDERATION
Each share of Wedco Common Stock will, by virtue of the Merger and without
the need for any further action on the part of the holder thereof, be converted,
at the option of the holder thereof, into either (i) the Cash/Stock
Consideration, consisting of 2.20 shares of ICO Common Stock and $3.50 in cash,
or (ii) the Stock Consideration, consisting of 2.84 shares of ICO Common Stock.
SHAREHOLDERS OF WEDCO MUST MAKE AN ELECTION ON THEIR FORM OF PROXY WHETHER THEY
VOTE FOR OR AGAINST THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT. IF
NO ELECTION IS MADE WITH RESPECT TO A SHARE OF WEDCO COMMON STOCK BY THE
EFFECTIVE TIME, THE HOLDER OF SUCH SHARE WILL BE DEEMED TO HAVE ELECTED TO
RECEIVE THE STOCK CONSIDERATION.
If the weighted average of the closing prices for ICO Common Stock on the
Nasdaq Stock Market for the last five trading days immediately preceding the
effective date of the Merger is less than $4.00 per share, Wedco may elect
either to consummate the Merger or to notify ICO it will require ICO to provide
the Additional Merger Consideration, which if ICO agrees to proceed with the
Merger, will consist of cash and/or ICO Common Stock which shall increase the
value of the Merger Consideration to $12.30 for each share of Wedco Common
Stock. All ICO Common Stock issued as Additional Merger Consideration shall be
valued at the weighted average price pursuant to the formula set forth above.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Merger by the Wedco Board of
Directors, the shareholders of Wedco should be aware that certain directors and
officers of Wedco have substantial interests in the consummation of the Merger.
Such interests, together with other relevant factors, were considered by the
Wedco Board in recommending the Merger to the shareholders of Wedco and
approving the Merger Agreement. See "THE MERGER AGREEMENT--Ancillary Agreements
and -- Cash Redemption of Wedco Stock Options."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Based on certain assumptions, including the accuracy of certain
certificates and representations to be provided by ICO, W Acquisition, Wedco and
certain shareholders of Wedco regarding the satisfaction of certain requirements
to a reorganization within the meaning of Section 368(a) of the Code (including
the absence of any plan or intention by certain holders of Wedco Common Stock to
sell, exchange or otherwise dispose of shares of ICO Common Stock to be received
by them in the Merger), Dilworth, Paxson, Kalish & Kauffman and Keating,
Muething & Klekamp have delivered their respective opinions to the effect that
the Merger will qualify as a reorganization described in Section 368(a) of the
Code.
The following is a summary description of the material federal income tax
consequences of the Merger to holders of Wedco Common Stock. This summary is not
intended to be a complete description of the federal income tax consequences of
the Merger. The following discussion does not cover all aspects of federal
income taxation that may be relevant to a Wedco shareholder in light of such
shareholder's particular individual circumstances or to certain Wedco
shareholders subject to special treatment under the federal income tax laws (for
example, insurance companies, dealers in securities, financial institutions,
tax-exempt investors, foreign corporations and individuals who are not citizens
or residents of the United States and shareholders who
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<PAGE> 50
acquired shares pursuant to the exercise of an employee stock option or
otherwise as compensation) and does not discuss any aspects of state, local or
foreign taxation. This discussion is based upon laws, regulations, rulings and
decisions now in effect and upon proposed regulations, all of which are subject
to change (possibly with retroactive effect) by legislation, administrative
action or judicial decision. No ruling has been or will be requested from the
Internal Revenue Service (the "Service") with respect to any of the matters
discussed herein, and the opinions of counsel described elsewhere herein are not
binding on the Service. EACH WEDCO SHAREHOLDER IS ADVISED TO CONSULT WITH SUCH
SHAREHOLDER'S OWN TAX ADVISOR REGARDING THE SPECIFIC FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES OF THE MERGER TO SUCH SHAREHOLDER.
Receipt of Only ICO Common Stock. A holder of Wedco Common Stock who
receives only ICO Common Stock in the Merger (except for cash in lieu of
fractional shares as described below) in exchange for all shares of Wedco Common
Stock owned by such holder will not recognize gain or loss upon such exchange
for federal income tax purposes. The tax basis of the ICO Common Stock actually
received in such an exchange will be equal to the tax basis of the Wedco Common
Stock exchanged therefor (except for the basis attributable to any fractional
shares of ICO Common Stock to which the holder would otherwise have been
entitled, as discussed below). The holding period of the ICO Common Stock
received by a Wedco shareholder in the Merger (including any fractional share
interest to which the holder would otherwise have been entitled) will include
the holding period of the Wedco Common Stock exchanged therefor (provided that
such Wedco Common Stock was held as a capital asset as of the effective time of
the Merger).
Exchange of Wedco Common Stock for a Combination of ICO Common Stock and
Cash. Except as discussed below under "Cash in Lieu of Fractional Shares," a
holder of Wedco Common Stock who receives a combination of ICO Common Stock and
cash in exchange for Wedco Common Stock (by reason of an effective election to
receive the Cash/Stock Consideration) will recognize all or part of the gain
realized in the transaction but will not recognize any loss realized in the
transaction. The amount of gain that is recognized will be calculated separately
for each block of Wedco Common Stock surrendered, in an amount equal to the
lesser of (i) the amount of gain realized in respect of such block (i.e., the
excess of (a) the sum of the amount of cash and the fair market value of ICO
Common Stock received that is allocable to such block of Wedco Common Stock over
(b) the tax basis of such block) and (ii) the amount of cash received that is
allocable to such block. Subject to the different consequences that may apply to
a Wedco shareholder who owns directly or indirectly, more than a minimal
interest in Wedco, as discussed further below, such recognized gain will
constitute long-term capital gain if such block of Wedco Common Stock has been
held for more than one year at the effective time of the Merger, and short term
capital gain if held for not more than one year. For this purpose, all of the
cash and ICO Common Stock received by a holder will be allocated proportionately
among the blocks of Wedco Common Stock surrendered by such holder. The tax basis
of the ICO Common Stock received in exchange for a block of Wedco Common Stock
will be equal to the tax basis of such surrendered block of Wedco Common Stock,
decreased by the amount of cash received in respect of such block and increased
by the amount of gain recognized in respect of such block. The holding period of
the ICO Common Stock will include the holding period of such block of Wedco
Common Stock surrendered.
The tax consequences of receipt of cash pursuant to a Cash/Stock
Consideration Election to certain holders of Wedco Common Stock could be
different from those described above with respect to capital gain reporting if
such holders are considered to own more than a minimal percentage of the
outstanding Wedco Common Stock immediately before the Merger. In that event, the
gain recognized by such a holder of Wedco Common Stock pursuant to the
Cash/Stock Consideration Elections might be treated as a dividend rather than
capital gain. The Service has indicated, however, that, in the case of a
minority shareholder in a publicly held corporation whose relative stock
interest is minimal and who exercises no control over the corporation's affairs,
a minimal reduction in the percentage of stock owned by such stockholder will
avoid dividend treatment. Accordingly, cash received by such a minority holder
of Wedco Common Stock should not be treated as constituting a dividend. For
purposes of determining such percentages, however, stock owned by certain
persons related to the holder or which the holder can acquire pursuant to the
exercise of options would be treated as owned by the holder.
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<PAGE> 51
Holders of Wedco Common Stock should consult with their tax advisor to
determine whether they should report any gain realized as capital gain or as a
dividend. No tax opinion has been provided with respect to this issue.
Cash Received in Lieu of Fractional Shares. A holder of Wedco Common Stock
who receives cash in the Merger in lieu of a fractional share interest in ICO
Common Stock will be treated for federal income tax purposes as having received
such fractional share interest and having sold it for the cash received. Such
shareholder will recognize gain or loss as of the effective time of the Merger
equal to the difference between the amount of cash received and the portion of
the shareholder's adjusted tax basis in the shares of Wedco Common Stock
properly allocable to such fractional share interest. Such gain or loss will be
long-term capital gain or loss if such Wedco Common Stock is considered to have
been held for more than one year as of the effective time of the Merger.
Backup Withholding and Information Reporting. Under the federal income tax
law concerning "backup withholding", ICO may be required to withhold, and may
withhold 31% of any cash payments to which a shareholder may be entitled
pursuant to the Merger unless the holder provides its taxpayer identification
number and certifies that such number is correct or otherwise establishes that
the holder is an exempt holder (such as a corporation or certain foreign
individuals, partnerships or trusts). Each holder should sign the Substitute
Form W-9 included as part of the transmittal letter to be sent by the Transfer
Agent (or in the case of a nonresident alien or foreign entity, a Form W-8) to
prevent backup withholding. Most Wedco shareholders will receive a Form 1099,
which will reflect the amount of cash received on account of the Merger. Holders
who receive ICO Common Stock must also comply with the information reporting
requirements of the Treasury regulations under Section 368 of the Code.
In the event that, notwithstanding the foregoing, the Merger does not
qualify as a reorganization under Section 368(a) of the Code (whether due to the
inaccuracy of certain assumptions or representations regarding the continuing
ownership interest on the part of former Wedco shareholders in ICO Common Stock
or otherwise), the Merger would be a taxable transaction, and (i) each Wedco
shareholder would recognize gain or loss as a result of the Merger in an amount
equal to the difference, if any, between the fair market value of ICO Common
Stock (plus cash received pursuant to election to receive the Cash/Stock
Consideration and any cash received in lieu of fractional shares) received in
the Merger minus such shareholder's basis in the Wedco Common Stock exchanged
therefor, (ii) the basis of the ICO Common Stock received would equal the fair
market value of such shares as of the effective time of the Merger, and (iii)
the holding period of the ICO Common Stock received would begin on the effective
time of the Merger. Any gain or loss recognized by a Wedco shareholder in the
event that the Merger failed to qualify as a tax-free reorganization generally
would be capital gain or loss, and would be long-term capital gain or loss, if
the shares of Wedco Common Stock were held by such shareholder for more than one
year as of the effective time of the Merger. Further, if the Merger does not
qualify as a reorganization under Section 368(a) of the Code, gain or loss could
be recognized by ICO, Wedco or W Acquisition as a result of the Merger.
ACCOUNTING TREATMENT
For financial reporting purposes, the Merger will be accounted for as a
purchase business combination with Wedco being treated as the acquired company.
See "UNAUDITED PRO FORMA FINANCIAL INFORMATION."
LISTING ON STOCK EXCHANGE
ICO has agreed to use its best efforts to list the ICO Common Stock for
trading on the New York Stock Exchange if the Merger is consummated. It is a
condition precedent to Wedco's obligation to consummate the Merger that the
shares of ICO Common Stock to be received as Merger Consideration shall have
been listed on either the Nasdaq Stock Market or the New York Stock Exchange.
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<PAGE> 52
THE MERGER AGREEMENT
The Merger Agreement provides for ICO to acquire Wedco through a merger of
Wedco with and into W Acquisition with W Acquisition surviving the Merger as a
wholly-owned subsidiary of ICO. If the Merger is consummated, W Acquisition
would change its name to "Wedco Technology, Inc." and ICO would change its
corporate name to "Willoughby International, Inc." Willoughby International,
Inc. would operate ICO's existing oil and gas industry services business under
the ICO name. Pursuant to the Merger Agreement, each share of Wedco Common Stock
would be converted, at the option of the holder, into either (i) 2.20 shares of
ICO Common Stock and $3.50 in cash or (ii) 2.84 shares of ICO Common Stock.
EFFECTIVE TIME OF THE MERGER
The Effective Time of the Merger shall be the date and time at which the
Merger shall have become effective pursuant to the laws of the state of New
Jersey.
EFFECT ON ICO COMMON STOCK
The Merger will have no effect on the rights and privileges of the
outstanding shares of ICO Common Stock. If all holders of Wedco Common Stock
were to elect to receive the Stock Consideration and no Additional Merger
Consideration was to be issued, 10,132,609 shares of ICO Common Stock would be
issued in the Merger.
By virtue of the Merger, each outstanding share of Wedco Common Stock will
be converted into the right to receive the specific type of Merger Consideration
elected or deemed to have been elected by the holder thereof upon surrender of
certificates representing Wedco Common Stock to Society National Bank (the
"Exchange Agent").
No fractional shares of ICO Common Stock will be issued in the Merger. In
lieu of the issuance of any fractional share of ICO Common Stock, an amount in
cash will be paid determined by multiplying the weighted average of the mean
between the closing representative bid and asked prices for ICO Common Stock on
the Nasdaq Stock Market for the last five (5) trading days immediately preceding
the Effective Date by the fraction of a share of ICO Common Stock to which the
holder thereof would otherwise be entitled.
CONDITIONS
Consummation of the Merger is subject to the satisfaction, at or prior to
the effective time of the Merger ("Effective Time"), of the following
conditions: (i) the absence of any statute, rule, regulation, judgment,
injunction, decree or order issued by any federal, state or local legislative,
administrative or regulatory body or any court that prohibits, makes illegal or
restricts the Merger or relates to the business of Wedco and its subsidiaries or
ICO and its subsidiaries after consummation of the Merger; (ii) the approval of
the Merger Agreement by the requisite affirmative vote of the shareholders of
Wedco; (iii) the approval of the Share Issuance by the requisite affirmative
vote of the shareholders of ICO; (iv) cash redemption of all outstanding options
to purchase Wedco Common Stock; and (v) the execution and delivery of certain
ancillary agreements, including a Shareholders Agreement among certain of the
shareholders of ICO and Wedco, a Legal Services Retainer Agreement with Edward
N. Barol, Non-Competition Covenants of William E. Willoughby and Fred R. Feder,
a Consulting Agreement with William E. Willoughby, Employment Agreements with
Fred R. Feder, Donald Cuomo, Robert F. Bush, Mark Kuna and Timothy Kita and a
Registration Rights Agreement for the benefit of certain shareholders of Wedco.
See "-- Ancillary Agreements."
In addition, if the weighted average of the closing prices for ICO Common
Stock on the Nasdaq Stock Market for the last five (5) trading days immediately
preceding the Effective Time is less than $4.00 per share, Wedco has the option
either to waive the condition precedent that the weighted average of such
closing price exceed $4.00 per share and proceed to the consummation of the
Merger or to give notice to ICO that it desires to proceed with the consummation
but will require the Additional Merger Consideration. If Wedco
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<PAGE> 53
chooses to proceed, ICO has the option to either terminate the Merger Agreement
or proceed to closing, provided ICO agrees to provide the Additional Merger
Consideration.
Additional conditions precedent to Wedco's obligation to close the Merger
include receipt of a favorable "fairness opinion" from an investment banking
firm in form and substance customary in merger transactions and acceptable to
Wedco, confirmation that certain director indemnification provisions have been
put in place prior to the Effective Time, confirmation that the shares of ICO
Common Stock to be received as Merger Consideration shall have been listed on
either the Nasdaq Stock Market or the New York Stock Exchange and the receipt of
certain favorable legal and tax opinions with respect to the Merger. See "THE
MERGER -- Opinion of Wedco's Financial Advisor."
The obligation of ICO to consummate the Merger is subject to the additional
conditions precedent that all outstanding options to purchase Wedco Common Stock
shall have been redeemed by Wedco for cash prior to the Effective Time, all
material permits, consents, waivers, clearances, approvals and authorizations
shall have been obtained that are required to consummate the Merger or to
prevent a breach, default or right of termination under any agreement to which
Wedco is a party or by which it is bound and the receipt of favorable legal and
tax opinions.
AMENDMENT AND TERMINATION
The Merger Agreement may be amended by the parties thereto at any time
before or after the approval and adoption of the Merger Agreement by the
shareholders of Wedco or the approval of the Share Issuance by the shareholders
of ICO but, after any such shareholder approval, no amendment shall be made that
adversely affects the rights of the respective shareholders of ICO or Wedco
without the approval of the affected shareholders. The Merger Agreement may not
be amended, modified or supplemented except by a written instrument that
expressly states that it amends, modifies or supplements the Merger Agreement.
The Merger Agreement may be terminated and the transactions thereby
contemplated may be abandoned at any time prior to the Effective Time,
notwithstanding the approval of the Merger Agreement by the shareholders of
Wedco or the approval of the Share Issuance by the shareholders of ICO: (i) by
mutual written consent of the Board of Directors of each of Wedco and ICO; (ii)
by Wedco or ICO if the transactions contemplated by the Merger Agreement shall
not have been consummated by July 31, 1996, provided, that the right to
terminate the Merger Agreement under this provision shall not be available to
any party, failure of which to fulfill any obligation under the Merger Agreement
is the cause of, or resulted in, the failure of the Effective Time to occur on
or before July 31, 1996; (iii) by either Wedco or ICO if a court of competent
jurisdiction or other governmental body shall have issued an order, decree or
ruling or taken any other action permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by the Merger Agreement and such
order, decree, ruling or other action shall have become final and
non-appealable; (iv) by Wedco if, notwithstanding its compliance with the
restrictions on negotiations with third parties contained in the Merger
Agreement, a higher offer to acquire Wedco is received and accepted by Wedco
prior to the Effective Time; provided, however, that in the event of any such
termination, Wedco shall promptly pay ICO, as liquidated damages and not a
penalty, the sum of $2,000,000; (v) by ICO if the shareholders of ICO do not
approve the Share Issuance; provided, however, that in the event of any such
termination, ICO shall promptly pay Wedco, as liquidated damages and not as a
penalty, the sum of $350,000; or (vi) by either Wedco or ICO if the other
materially breaches a warranty, representation or covenant contained in the
Merger Agreement or suffers a Material Adverse Change (as defined in the Merger
Agreement); provided, however, that the non-breaching party not suffering a
Material Adverse Change may, at its option, either waive a material breach or
Material Adverse Change or be entitled to receive from the breaching party or
parties suffering the Material Adverse Change, as liquidated damages and not as
a penalty, the sum of $350,000 or except as provided in clause (iv) above by
either Wedco or ICO if, in the case of Wedco, it desires not to consummate the
transactions contemplated by the Merger Agreement notwithstanding the absence of
any material breach by ICO or any Material Adverse Change affecting ICO or any
other condition or event that would entitle Wedco not to consummate such
transactions or, in the case of ICO, it desires not to consummate the
transactions hereby notwithstanding the absence of any material breach by Wedco
or any Material Adverse Change affecting Wedco or any other condition or event
that would entitle ICO not to consummate the transactions;
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<PAGE> 54
provided, however, that the party other than the party desiring not to
consummate the Merger shall have the right, at its option, to elect in its sole
discretion, either (x) to seek and obtain a specific performance of the
transactions contemplated by the Merger Agreement or (y) to obtain prompt
payment from the party desiring not to consummate the transactions, as
liquidated damages and not as a penalty, the sum of $1,000,000; or (vii) in
accordance with Section 8.1(f)(A) of the Merger Agreement, pertaining to the
share price of ICO Common Stock prior to the Effective Time being less than
$4.00 per share.
In the event of any termination of the Merger Agreement, the Merger
Agreement shall become void and have no effect without any liability on the part
of any party thereto except that nothing shall relieve any party from any
liability, including any liability for liquidated damages, set forth in the
termination provisions of the Merger Agreement and except that certain
provisions relating to confidentiality of information shall survive termination
and continue to be binding on the parties to the Merger Agreement.
ANCILLARY AGREEMENTS
Among the conditions to the consummation of the Merger are the execution
and delivery of certain ancillary agreements. The following summaries of the
ancillary agreements do not purport to be complete and are subject to and
qualified by reference to the ancillary agreements which are included as
exhibits to the Registration Statement of which this Joint Proxy
Statement/Prospectus forms a part.
Shareholders Agreement. The shareholders of ICO and Wedco, who are also
parties to the Voting Agreements, see "ICO SPECIAL MEETING -- Voting Agreement"
and "WEDCO SPECIAL MEETING -- Voting Agreement", will enter into a shareholders
agreement (the "Shareholders Agreement") concerning the makeup of the Board of
Directors of the combined company after the Merger. The shareholders will agree
to take all actions necessary or appropriate to cause the election of William E.
Willoughby, Walter L. Leib and George S. Sirusas to the Board of Directors of
the combined company for terms beginning immediately after the Effective Time
and ending on the date of the combined company's annual shareholders meeting in
1996 in the case of Mr. Willoughby, the date of its annual shareholders meeting
in 1997 in the case of Mr. Leib and the date of its annual shareholders meeting
in 1997 in the case of Mr. Sirusas and to cause the reelection of Messrs.
Willoughby and Leib to the Board of Directors of the combined company for
additional three year terms when their respective initial terms expire. The
shareholders will also agree that after the foregoing terms of Messrs.
Willoughby, Leib and Sirusas have expired, they will continue to take all
actions necessary or appropriate to cause their reelections to the Board of
Directors of the combined company until the earlier of the time the Wedco
shareholders who are parties to the Shareholders Agreement, taken as a whole,
beneficially own less than 1,500,000 shares of Common Stock of the combined
company (or as adjusted) or there is a "change in control" of the combined
company (as defined), when the ICO shareholders who are parties to the
Shareholders Agreement shall no longer be obligated to cause the reelection of
such persons to its Board of Directors ("Termination Date"). In addition, if Mr.
Willoughby, Mr. Leib or Mr. Sirusas shall cease to serve as a director of the
combined company at any time prior to the Termination Date, the shareholders
will agree to take all actions necessary or appropriate to ensure that the
vacancy created shall be filled by a person nominated by the others, subject to
the consent of a majority of the full Board of Directors of the combined
company.
In addition to the foregoing, all the ICO shareholders who are parties to
the Shareholders Agreement will grant irrevocable proxies coupled with an
interest to Mr. Leib and Edward N. Barol to vote their shares of Common Stock of
the combined company in favor of the slate of nominees for its Board of
Directors selected by the then incumbent members of the Board of Directors of
the combined company (the "Nominated Slate") and all the Wedco shareholders who
are parties to the Shareholders Agreement will grant substantially identical
proxies to Sylvia A. Pacholder and Dr. Asher O. Pacholder to vote their shares
of Common Stock of the combined company also in favor of the Nominated Slate.
The Shareholders Agreement also provides that after the Merger and with
respect to Wedco, Sylvia A. Pacholder will be its President and Chief Executive
Officer and Dr. Asher O. Pacholder will be its Chairman of the Board and Chief
Operating Officer. Wedco's Articles of Incorporation will be amended to provide
that the Chairman of the Board, President, CEO, COO or any person who shall hold
any other office, position or
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<PAGE> 55
title having similar functions or authority to the functions of the Chairman of
the Board, President, CEO or COO or who shall have equivalent operating
authority of Wedco will be elected by an unanimous vote of the Wedco Board of
Directors. In addition, the combined company will elect Mr. Willoughby as a
director of Wedco. If he is unable or ceases to serve, it will elect Mr. Leib.
If he is unable or ceases to serve, it will elect Mr. Barol. If he is unable or
ceases to serve, a person nominated by Messrs. Willoughby, Leib and Sirusas
and/or their respective successors on the Board of Directors of the combined
company will be elected.
Finally, the Shareholders Agreement provides that if one or more of the ICO
or Wedco shareholders who are parties to the agreement desire to sell 500,000 or
more shares of Common Stock of the combined company, other than in connection
with an underwritten public offering that would not result in a transfer or
transfers of 500,000 or more shares of Common Stock of the combined company to
any person or group of persons, such proposed sale shall not be effective unless
the proposed transferee agrees to be bound as the successor to the transferor
under the agreement.
Legal Services Retainer Agreement. The combined company will agree to
retain Mr. Barol as legal counsel to its Board of Directors for a period to
extend until at least the Termination Date under the Shareholders Agreement. Mr.
Barol will be compensated by the combined company for his legal services at
usual and customary hourly billing rates charged by him from time to time. The
combined company will pay Mr. Barol annually a nonrefundable advance against
legal fees in an amount equal to the annual fee paid by it to its directors plus
the amount paid by it to its directors for attending all meetings of the Board
of Directors.
Non-Competition Covenants. William E. Willoughby and Fred R. Feder will
execute and deliver to the combined company at the closing of the Merger
Agreement Non-Competition Covenants pursuant to which they will agree not to
compete with Wedco for a period of ten years after the Effective Time in
consideration of the combined company's payment to them of $300,000 and $6,000,
respectively, in 60 equal monthly installments.
Consulting Agreement. William E. Willoughby will enter into a five-year
Consulting Agreement with Wedco pursuant to which he will perform consulting
services as requested by Wedco in consideration of consulting fees of $240,000
per year.
Employment Agreements. Fred R. Feder, Donald Cuomo, Robert F. Bush, Mark
Kuna and Timothy Kita will enter one-year Employment Agreements with Wedco. Mr.
Feder will be employed in the position of Vice President at an annual salary of
$160,000. Mr. Cuomo will be employed in the position of Vice President of Sales
and Marketing at an annual salary of $105,000. Mr. Bush will be employed in the
position of Vice President of Finance at an annual salary of $100,000. Mr. Kuna
will be employed in the position of Vice President and Principal Accounting
Officer at an annual salary of $85,000. Mr. Kita will be employed in the
position of Manager of Human Resources at an annual salary of $49,200. The terms
of the Employment Agreements will be renewable, at Wedco's option, for
successive terms of one year each. These employees will be prohibited from
competing with Wedco for a period of one year after the termination or
expiration of their respective Employment Agreement. If Wedco terminates any of
the Employment Agreements without cause or if any of the employees terminates
his employment at any time and for any reason, Wedco will pay the employee eight
months of severance pay and benefits.
Registration Rights Agreement. The combined company will agree with Mr.
Feder and the Wedco shareholders who are parties to the Shareholders Agreement
to provide them, for a period of five years after the Effective Time, with
certain demand and "piggyback" registration rights to enable them to dispose of
the shares of Common Stock of the combined company received by them in the
Merger. See "-- Transferability of Common Stock of the Combined Company to be
Received in the Merger."
CASH REDEMPTION OF WEDCO STOCK OPTIONS
Under the Merger Agreement, Wedco is required to redeem for cash all
outstanding options to purchase Wedco Common Stock as a condition to the
consummation of the Merger. Holders of Wedco stock options would be paid a
redemption price equal to $16.50 minus the exercise price for each option. If
the Merger is consummated, approximately $2,167,000 would be paid in the
aggregate for the redemption of a total of
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<PAGE> 56
approximately 285,700 stock options, including approximately $480,000 to Theo
J.M.L. Verhoeff, $300,000 to Fred R. Feder, $184,000 to William C. Willoughby,
$178,000 to Donald C. Cuomo, $124,000 to Walter L. Leib, $113,000 to Edward N.
Barol, $99,000 to William E. Willoughby, $70,500 to George S. Sirusas, $40,000
to Robert F. Bush, $25,500 to Mark L. Kuna, and $14,000 to Timothy J. Kita.
TRANSFERABILITY OF COMMON STOCK TO BE RECEIVED IN THE MERGER
The shares of Common Stock of the combined company issuable to shareholders
of Wedco upon consummation of the Merger have been registered under the
Securities Act. Such shares may be traded freely without restriction by all
shareholders who are not deemed to be "affiliates" of ICO or Wedco, as that term
is defined in the rules under the Securities Act.
Shares of Common Stock of the combined company received by those
shareholders of Wedco who are deemed to be "affiliates" of Wedco may be resold
without registration under the Securities Act only as permitted by Rule 145
under the Securities Act or as otherwise permitted under the Securities Act.
Wedco has agreed in the Merger Agreement to use its reasonable best efforts to
cause each person who is an "affiliate" of Wedco to deliver to ICO prior to the
Effective Time, the written agreement of such affiliate not to offer to sell,
sell or otherwise dispose of any of the shares of Common Stock of the combined
company received by them pursuant to the Merger, except in compliance with Rule
145 or in a transaction that is otherwise exempt from the registration
requirements of the Securities Act. This Joint Proxy Statement/ Prospectus does
not cover any resales of Common Stock of the combined company received by
persons who are deemed to be "affiliates" of Wedco. However, in connection with
the closing of the Merger Agreement, ICO will enter into the Registration Rights
Agreement to provide certain of the "affiliates" with certain registration
rights to enable them to dispose of the shares of Common Stock of the combined
company received by them in the Merger in compliance with the requirements of
the Securities Act. See "-- Ancillary Agreements -- Registration Rights
Agreement."
NO APPRAISAL RIGHTS
Neither the shareholders of ICO nor the shareholders of Wedco will have
dissenters' rights or appraisal rights with respect to the Merger.
REGULATORY MATTERS
No approvals, consents or authorizations are required to be obtained by ICO
or Wedco from any federal or state governmental authority in connection with the
consummation of the Merger except in connection with compliance with federal and
state securities laws with respect to the transactions contemplated by the
Merger Agreement, including the issuance of shares of ICO Common Stock in
connection with the Merger.
EXPENSES
All expenses incurred by ICO or Wedco in connection with the Merger
Agreement will be paid by the party incurring such expenses.
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UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information, including the
notes thereto, give effect to the Merger and are qualified in their entirety by
reference to, and should be read in conjunction with the historical consolidated
financial statements and the notes thereto of ICO and Wedco incorporated herein
by reference.
The pro forma combined financial statements are based on the purchase
method of accounting. The unaudited pro forma consolidated condensed balance
sheet at September 30, 1995, assumes the Merger was consummated as of September
30, 1995 and the unaudited pro forma consolidated condensed statement of
operations assume the Merger was consummated as of October 1, 1994.
The pro forma data is presented for informational purposes only and is not
necessarily indicative of the operating results or financial position that would
have occurred had the Merger been consummated at the dates indicated, nor is
such data necessarily indicative of future operating results or financial
position. There is no assurance that similar results will be achieved in the
future.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(YEAR ENDED SEPTEMBER 30, 1995)
<TABLE>
<CAPTION>
HISTORICAL
--------------------- PRO FORMA
ICO WEDCO(1) ADJUSTMENTS COMBINED
--------- --------- ----------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales and services revenues.............. $ 87,887 $ 45,408 $ 133,295
--------- --------- ----------
Costs and Expenses:
Cost of sales and services................... 59,885 27,923 87,808
Selling, general and administrative.......... 17,840 8,020 (1,180)(a) 24,680
Depreciation and Amortization................ 5,112 3,786 603(b) 9,501
Interest, net................................ (1,307) 1,434 590(c) 717
Equity loss of Joint Ventures................ (179) (179)
Other, net................................... 96 96
--------- --------- ----------
Income before income taxes................... 6,357 4,328 10,672
--------- --------- ----------
Current provision for income taxes........... 2,200 1,456 (234)(d) 3,422
Deferred tax expense (benefit)............... (1,633) 198 2,751(d) 1,316
--------- --------- ----------
Total tax expense............................ 567 1,654 4,738
--------- --------- ----------- ----------
Net Income................................... $ 5,790 $ 2,674 $ 2,530 $ 5,934
========= ========= ========= ==========
Earnings per common and common equivalent
share...................................... $ 0.41 $ 0.74 $ 0.21
========= ========= ==========
Weighted average shares outstanding.......... 8,709,303 3,616,038 5,246,528(e) 17,571,869
========= ========= ==========
</TABLE>
- ---------------
(1) Wedco historical amounts were derived from the unaudited quarterly
financial statements of Wedco for the applicable period to conform
to ICO's fiscal year-end.
48
<PAGE> 58
UNAUDITED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
HISTORICAL
----------------- PRO FORMA
ICO WEDCO RECLASSIFICATIONS ADJUSTMENTS COMBINED
------- ------- ----------------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents..................... 24,991 214 $ (10,354)(f) 14,851
Trade Receivables, net........................ 18,050 7,563 25,613
Inventories................................... 4,873 2,030 6,903
Prepaid Expenses and Other.................... 2,035 807 2,842
Current deferred tax asset.................... 112(k) 1,345
1,233(j)
------- ------- ---------
Total Current Assets................ 49,949 10,614 51,554
------- ------- ---------
Property, Plant and Equipment, net............ 29,824 40,944 5,290(g) 76,058
Investment in joint ventures.................. 4,640 (1,174)(h) 3,466
Due from related parties...................... 805 805
Goodwill...................................... 4,474 22,822(i) 27,296
Deferred tax asset............................ 1,633 (2,489)(1) 2,732(j) 86
(1,790)(k)
Other assets.................................. 2,303 49 250(l) 2,602
------- ------- ---------
TOTAL ASSETS.................................. $88,183 $57,052 $ 161,867
======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable................................. $ 3,532 $ 3,532
Current portion of long-term debt............. 635 1,699 2,334
Accounts payable.............................. 5,622 2,585 8,207
Accrued Expenses and other liabilities........ 6,408 3,509 275(m) 10,192
------- ------- ---------
Total Current Liabilities........... 12,665 11,325 24,265
------- ------- ---------
Long-term debt................................ 1,047 15,386 16,433
------- ------- ---------
Deferred income taxes......................... 2,489 (2,489)(1) 0
Other Liabilities............................. 400 400
Stockholders Equity
Preferred stock............................. 13 13
Common stock................................ 35,042 409 89(n) 35,131
(409)(n)
Additional paid-in capital.................. 56,105 11,159 46,209(n) 102,314
(11,159)(n)
Cumulative translation adjustment........... (47) 1,731 (1,731)(n) (47)
Retained earnings (deficit)................. (16,642) 17,431 (17,431)(n) (16,642)
Treasury Stock.............................. 0 (3,278) 3,278(n) 0
------- ------- ------- ----------- ---------
Total Stockholders' Equity.......... 74,471 27,452 120,769
======= ======= ========
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.... $88,183 $57,052 $ 0 $ 0 $ 161,867
======= ======= ============ ========= ========
</TABLE>
- ---------------
(1) To net deferred tax liabilities with deferred tax assets.
49
<PAGE> 59
NOTES TO UNAUDITED PRO FORMA
CONDENSED FINANCIAL STATEMENTS
NOTE 1 -- PRO FORMA FINANCIAL STATEMENTS
The basis of the unaudited pro forma consolidated condensed income
statement and balance sheet reflects the assumption that Wedco shareholders
owning 60% of the outstanding shares of Wedco Common Stock will select the
Cash/Stock Consideration and the remaining shareholders of Wedco will select the
Stock Consideration. See "THE MERGER -- Merger Consideration". Regardless of
which option is selected by Wedco shareholders, the pro forma combined condensed
income statement will be materially equivalent to the pro forma income statement
presented.
In the event that approximately 48% or more of the outstanding shares of
Wedco Common Stock are exchanged for the Stock Consideration, the total number
of shares of ICO Common Stock issued to Wedco shareholders in connection with
the Merger would exceed the number of shares of ICO Common Stock outstanding
immediately prior to the consummation of the Merger. Nevertheless, management
believes the Merger will be properly accounted for as a forward merger (i.e.,
ICO being the acquirer) as opposed to a reverse merger. This conclusion is based
upon the following factors that clearly indicate ICO should be treated as the
acquirer: (i) the current chairman of ICO will be the chairman of the combined
company, (ii) the combined company's board of directors will consist of three
directors selected by former Wedco controlling shareholders and six selected by
ICO management, (iii) the execution of certain shareholder agreements regarding
(i) and (ii) above (See "THE MERGER AGREEMENT -- Ancillary Agreements") and (iv)
the assets, revenues, recent net earnings and current market value of ICO
significantly exceeds those of Wedco.
The following summarizes the possible stock and cash consideration
combinations which could be exchanged for outstanding shares of Wedco Common
Stock:
<TABLE>
<CAPTION>
MERGER
CONSIDERATION
SELECTED ICO SHARES CASH
------------------------------------------------------------- ---------- -----------
<S> <C> <C>
100% Stock................................................... 10,132,609 $ 0
100% Cash/Stock.............................................. 7,849,204 $12,487,370
60% Cash/Stock, 40% Stock.................................... 8,762,566 $ 7,492,422
</TABLE>
Regardless of which option is selected by Wedco shareholders, the pro forma
combined condensed income statement will be materially equivalent to the pro
forma income statement presented.
The following summarizes the estimated purchase price:
<TABLE>
<S> <C>
ICO Common Stock issued to Wedco shareholders (fair value based on
most recent 30 day trading average).............................. $45,776
Cash paid to Wedco shareholders.................................... 7,492
Direct acquisition costs incurred by ICO........................... 1,172
-------
54,440
-------
Assumption of Wedco's liabilities.................................. 29,600
Liabilities assumed, pro forma adjustments......................... 2,065
-------
Total purchase price............................................... $86,105
=======
</TABLE>
NOTE 2 -- WEDCO HISTORICAL PRESENTATION
Certain amounts reported in Wedco's historical financial statements have
been reclassified to conform to the ICO presentations in the accompanying
unaudited pro forma financial statements.
50
<PAGE> 60
NOTE 3 -- PRO FORMA ADJUSTMENTS
Statements of Income:
(a) To remove merger costs expensed by Wedco ($440,000), incremental cost
savings for Wedco no longer being a separate public company ($250,000) and to
reflect cost savings resulting from the retirement of certain Wedco executives
($490,000).
(b) To increase amortization for intangibles (including goodwill) and
reduce depreciation for machinery and equipment. Historically, Wedco depreciated
machinery and equipment over 10 years. Select assets which have useful lives in
excess of this time period will be depreciated over their estimated useful life
after the Merger. Goodwill is amortized over a useful life of 40 years and value
allocated to non-compete agreements is amortized over the 10-year term of the
agreement.
ICO has analyzed the past and expected future operating performance of
Wedco, the competitive and regulatory environment in which Wedco operates and
has assessed the expected future life of Wedco's basic technology concluding
that, as of the acquisition date, the future life of goodwill is forty years or
greater. Accordingly, goodwill is amortized over an estimated useful life of 40
years, the maximum allowable life under APB 17. ICO's policy is to periodically
review goodwill and other intangibles to assess recoverability and review the
impact of events and circumstances which may warrant a revision to the estimated
useful life. Impairments would be recognized in operating results if a permanent
diminution in value were to occur.
(c) To reflect the reduced interest income on cash to be used to consummate
the Merger.
(d) To reflect the tax effect of pro forma income statement adjustments and
increase income tax expense resulting from pro forma adjustments to deferred tax
balances including the reversal of ICO's valuation allowance on deferred tax
assets at September 30, 1995. In fiscal year 1995, ICO recognized a $1,633,000
($.18 per share) tax benefit as a reversal of the valuation allowance to the
extent taxes had been paid. ICO also recognized a tax benefit of $1,035,000
($.12 per share) resulting from the utilization of approximately $2.9 million of
net operating loss carry forwards in fiscal year 1995. These amounts are
reversed in this pro forma income statement.
While ICO will continue to realize a cash savings from $9,680,000 (i.e., a
tax benefit of $3,388,000) in net operating loss carry forwards (at September
30, 1995) for tax purposes after the Merger, future benefits resulting from the
utilization of these carry forwards will no longer be recognized in the income
statements prepared in accordance with generally accepted accounting principles.
(e) To give effect to weighted average shares issued in connection with the
Merger, including 100,000 shares issued to advisers of ICO.
Balance Sheet:
(f) To reflect estimated cash consideration and expected direct expenses to
be paid by ICO and Wedco in connection with the Merger.
(g) To increase Wedco's property, plant and equipment to estimated fair
market value.
(h) To decrease Wedco's investment in the Wedtech/Canadian joint venture to
estimated fair market value.
(i) To reflect the excess purchase price over fair value of net tangible
assets acquired allocated to goodwill.
(j) To remove ICO's September 30, 1995 valuation allowance on deferred tax
assets. In accordance with Financial Accounting Standard 109, the need for the
valuation allowance will no longer exist as of the effective date of the Merger.
(k) To increase Wedco's deferred tax balances to reflect purchase price
accounting adjustments.
(l) To reflect the fair value of non-compete agreements with former Wedco
executives.
(m) ICO will incur integration costs pertaining to the management
information systems estimated to be $275,000. These costs will be recorded as
liabilities assumed and will have the effect of increasing goodwill.
(n) To eliminate Wedco stockholders' equity accounts and reflect the
estimated value of shares issued in connection with the acquisition.
51
<PAGE> 61
DESCRIPTION OF ICO CAPITAL STOCK
GENERAL
ICO is authorized to issue up to 50,000,000 shares of ICO Common Stock, no
par value, 8,927,361 shares of which were issued and outstanding at
, 1996 and held of record by approximately shareholders. In
addition, ICO is authorized to issue up to 500,000 shares of preferred stock, no
par value, 322,500 shares of which have been divided into a series and underlie
ICO's Depositary Shares. Each of ICO's 1,290,000 Depositary Shares represents
ownership of 1/4 of a share of ICO's $6.75 Convertible Exchangeable Preferred
Stock (the "Preferred Stock").
ICO COMMON STOCK
Holders of ICO Common Stock are entitled to one vote per share on all other
matters submitted to a vote of shareholders. Such holders do not have the right
to cumulate their votes in the election of directors. Holders of ICO Common
Stock have no redemption or conversion rights and no preemptive or other rights
to subscribe for securities of ICO. In the event of a liquidation, dissolution
or winding up of ICO, holders of ICO Common Stock are entitled to share equally
and ratably in all of the assets remaining, if any, after satisfaction of all
debts and liabilities of the ICO, and of the preferential rights of any series
of preferred stock then outstanding. The outstanding shares of ICO Common Stock
are, and the shares of ICO Common Stock issuable in connection with the Merger
will be, upon issuance thereof, validly issued, fully paid and nonassessable.
Holders of ICO Common Stock are entitled to receive dividends when, as and if
declared by the ICO Board of Directors out of funds legally available therefor.
See "SUMMARY -- Dividend Policy." Society National Bank is transfer agent and
registrar for the ICO Common Stock.
ICO PREFERRED STOCK
ICO is authorized to issue, without any action on the part of its
shareholders, 500,000 shares of preferred stock, no par value per share. The
Board of Directors has the authority to divide the preferred stock into one or
more series and to fix and determine the relative rights and preferences of the
shares of each such series, including dividend rates, terms of redemption,
sinking funds, the amount payable in the event of voluntary liquidation,
dissolution or winding up of the affairs of ICO, conversion rights and voting
powers.
ICO has authorized the issuance of a series, consisting of 345,000 shares
of $6.75 Convertible Exchangeable Preferred Stock in connection with the
issuance and sale by public offering of the Depositary Shares in November, 1993,
prior to which, no shares of preferred stock were outstanding. The following is
a description of the Preferred Stock.
Dividend Rights
Holders of the Preferred Stock are entitled to receive when and if declared
by the ICO Board of Directors, out of the funds of ICO legally available
therefor, an annual cash dividend of $6.75 per share, payable quarterly in each
year. Dividends on the Preferred Stock are cumulative. Unless full cumulative
dividends on all outstanding shares of the Preferred Stock have been paid, no
dividends (other than in ICO Common Stock or other stock ranking junior to the
Preferred Stock as to dividends) may be paid, declared or set aside for payment,
or any other distributions made on the ICO Common Stock or on any other stock of
ICO ranking junior to the Preferred Stock as to dividends. See
"SUMMARY -- Dividend Policy" and "RISK FACTORS -- Risk Factors Relating to the
Merger -- Restrictions on Payment of Dividends."
Conversion Rights
Each share of Preferred Stock is convertible, at any time, at the option of
the holder thereof, into ICO Common Stock, at a conversion rate of 10.96 shares
of ICO Common Stock for each share of Preferred Stock (equivalent to a
conversion rate of 2.74 shares of Common Stock for each Depositary Share). The
initial conversion price is $9.125 per share which, at a liquidation preference
of $100 per share of Preferred Stock, entitles each share of Preferred Stock to
be convertible into 10.96 shares of Common Stock. The conversion price is
subject to adjustment upon certain events.
52
<PAGE> 62
Special Conversion Rights
The Preferred Stock has special conversion rights that become effective
upon the occurrence of certain types of significant transactions affecting
ownership or control of ICO or the market for the ICO Common Stock. The purpose
of the special conversion rights is to provide (subject to certain exceptions)
partial loss protection upon the occurrence of a change of control or a
fundamental change of ICO at a time when the market value of the ICO Common
Stock is less than the then prevailing conversion price. In such situations, the
special conversion right would, for a limited period, reduce the then prevailing
conversion price to the market value of the ICO Common Stock, subject to a
minimum conversion price of $5.17 per share of ICO Common Stock (subject to
certain adjustments).
Exchange Provisions
The Preferred Stock may be exchanged, in whole but not in part, at the
option of ICO, for Debentures of ICO on any dividend payment date beginning
December 31, 1995, at the rate of $100 principal amount of Debentures for each
share of Preferred Stock (equivalent to $25 principal amount of Debentures for
each Depositary Share), provided that all accrued and unpaid dividends through
the date of exchange have been paid and certain other conditions have been met.
The Debentures are issuable in denominations of $1,000 and integral multiples
thereof.
Liquidation Rights
In the event of any liquidation, dissolution or winding up of ICO, after
payment or provision for payment of the debts and other liabilities of ICO and
the payment in full of any preferential amounts to which the holders of the
Preferred Stock shall be entitled, the holders of the Preferred Stock are
entitled to receive, out of the remaining net assets of ICO available for
distribution to shareholders, liquidating distributions in the amount of $100
per share (equivalent to $25 for each Depositary Share), plus an amount equal to
all dividends accrued and unpaid on each such share (whether or not declared) to
the date fixed for distribution, before any distribution is made to holders of
the Common Stock or any other class of stock of the Company ranking junior to
the Preferred Stock.
Optional Redemption
The Preferred Stock is not redeemable prior to December 31, 1996.
Thereafter, the Preferred Stock may be redeemed for cash, in whole or in part,
at the option of ICO at any time or from time to time, at redemption prices
beginning at $105.00 per share in 1997 and reducing to $100.00 in 2001 and
thereafter, in each case, with an amount equal to all dividends (whether or not
declared) accrued and unpaid to the date fixed for redemption.
Voting Rights
Except as required by law or indicated below, holders of Preferred Stock
have no voting rights.
Whenever dividends on the Preferred Stock are in arrears in an amount equal
to or exceeding six quarterly dividends (whether or not consecutive), the number
of directors of ICO will automatically be increased by two and the holders of
the Preferred Stock (voting separately as a class) will be entitled to elect the
additional two directors until all dividends that were accrued and unpaid have
been paid or declared and funds set aside to provide for payment in full. Upon
any termination of such rights to vote for directors, the term of office of all
directors so elected shall terminate.
Without the affirmative vote or consent of the holders of at least
two-thirds of the number of shares of Preferred Stock then outstanding, ICO may
not (1) create or issue or increase the authorized number of shares of any class
or classes or series of stock ranking prior to the Preferred Stock, either as to
dividends or upon liquidation, dissolution or winding up, or (2) alter, change
or repeal any of the powers, rights or preferences of the holders of the
Preferred Stock so as to affect adversely such powers, preferences or rights of
the Preferred Stock. Accordingly, the voting rights of the holders of Preferred
Stock could, under certain
53
<PAGE> 63
circumstances, operate to restrict the flexibility ICO would otherwise have in
connection with any future issuances of equity securities or changes to its
capital structure.
ICO DEPOSITARY SHARES
General
Each Depositary Share represents ownership of 1/4 of a share of Preferred
Stock. The shares of Preferred Stock underlying the Depositary Shares have been
deposited with Society National Bank as depositary. Depositary receipts issued
by the depositary evidence the Depositary Shares. Each owner of a Depositary
Share is entitled, proportionately, to all the rights, preferences and
privileges of a share of Preferred Stock (including dividend, voting,
redemption, exchange, conversion and liquidation rights) summarized above under
the caption "Preferred Stock."
Since each share of Preferred Stock entitles the holder thereof to one vote
on matters on which the Preferred Stock is entitled to vote, each Depositary
Share, in effect, entitles the holder thereof to one quarter of a vote thereon,
rather than one full vote. There is no public trading market for the Preferred
Stock except as represented by the Depositary Shares. The ICO's Depositary
Shares are traded on the Nasdaq Stock Market.
Withdrawal of Shares of Preferred Stock
Upon surrender of depositary receipts, the owner of the Depositary Shares
evidenced thereby is entitled to delivery of certificates evidencing the number
of whole shares of Preferred Stock and any money or other property represented
by such Depositary Shares.
Conversion of Preferred Stock
The Depositary Shares, as such, are not convertible into ICO Common Stock
or any other securities or property of ICO. Nevertheless, the depositary
receipts may be surrendered by holders to the depositary to cause conversion of
the Preferred Stock represented by the Depositary Shares into whole shares of
ICO Common Stock.
Exchange of Preferred Stock
If ICO elects to exchange all the shares of Preferred Stock for Debentures,
the depositary will exchange all Depositary Shares representing the shares of
the Preferred Stock so exchanged for Debentures. The exchange rate per
Depositary Share will be one quarter of the exchange rate per share of the
Preferred Stock, plus all accrued and unpaid dividends.
ICO OPTIONS AND WARRANTS
At January 31, 1996, warrants for the purchase of 853,000 shares of ICO
Common Stock and options covering an aggregate of 648,241 shares of ICO Common
Stock were outstanding. The warrants have exercise prices of $5.00 per share and
expiration dates ranging from June 1997 to July 2002. The options have exercise
prices ranging from $3.75 per share to $8.25 per share, with a weighted average
exercise price of $5.03 per share, and expiration dates ranging from October
1997 to October 2005.
REGISTRATION RIGHTS
Certain warrantholders of ICO presently possess registration rights with
respect to 853,000 shares of ICO Common Stock issuable upon exercise of
warrants. Additional registration rights will be granted under the terms of the
Merger Agreement to certain former Wedco shareholders with respect to a total of
5,472,373 and 4,299,722 shares of ICO Common Stock, assuming all of these
shareholders elect to receive the Stock Consideration and Cash/Stock
Consideration respectively. See "THE MERGER AGREEMENT -- Ancillary
Agreements -- Registration Rights Agreement.
Concurrently with the filing of the Registration Statement of which this
Joint Proxy Statement/ Prospectus forms a part, ICO will file on behalf of
certain ICO shareholders, who would not be deemed
54
<PAGE> 64
"affiliates" of ICO and who have exercised certain registration rights, a
registration statement relating to 311,550 shares of ICO Common Stock subject to
registration rights.
COMPARISON OF SHAREHOLDER RIGHTS
The statements set forth under this heading with respect to the NJBCA,
TBCA, the Wedco Certificate of Incorporation, the Wedco By-Laws, the ICO
Articles of Incorporation, and the ICO By-Laws (copies of which have been filed
as Exhibits to the Registration Statement) are brief summaries thereof and do
not purport to be complete; such statements are subject to the detailed
provisions of the NJBCA, the TBCA, the Wedco Certificate of Incorporation, the
Wedco By-Laws, the ICO Articles of Incorporation, and the ICO By-Laws. See
"Available Information."
The rights of holders of Wedco Common Stock are governed by New Jersey law,
whereas those of holders of ICO Common Stock are governed by Texas law. The
rights and obligations of shareholders are also governed by the Articles or
Certificate of Incorporation and By-Laws of the respective companies. In
general, many of the rights and obligations of the shareholders of Wedco Common
Stock and the shareholders of ICO Common Stock are similar.
VOTING OF SHARES OF COMMON STOCK
Each share of Wedco Common Stock and each share of ICO Common Stock is
entitled to one vote on each matter submitted to a vote of shareholders. In
addition, neither cumulative voting nor pre-emptive rights are provided for the
shareholders of either company.
DIVIDEND RIGHTS
The rights of the shareholders of Wedco Common Stock and ICO Common Stock
to the receipt of dividends are limited by the NJBCA and the TBCA, respectively.
Under both the NJBCA and the TBCA, a corporation may not declare a dividend if,
after giving effect to the distribution, the corporation would be unable to pay
its debts as they become due in the usual course of business or the
corporation's total assets would be less than its total liabilities. The holders
of Wedco Common Stock and the holders of ICO Common Stock are thus entitled to
receive ratably, from funds legally available for the payments thereof,
dividends when and as declared by resolution of their respective boards of
directors.
SHAREHOLDER APPROVAL
Amendments to the Articles or Certificate of Incorporation and the approval
of plans of merger, sales of substantially all assets and similar transactions
require the approval of two-thirds of the outstanding shares of Common Stock
under Texas law and two-thirds of the votes cast by the holders of shares of
Common Stock under New Jersey law. Under Texas law, however, the board of
directors of a Texas corporation not a party to a merger need not submit the
plan of merger to shareholders for approval. ICO has been advised by legal
counsel that under the TBCA, ICO is not a party to the Merger. See "ICO SPECIAL
MEETING -- Voting Rights."
Amendments to Wedco's By-Laws require the approval of either a majority of
shares of Wedco Common Stock or a majority of the entire Board of Directors,
except where the Certificate of Incorporation reserves such power to the Wedco
shareholders or the Wedco shareholders expressly provide otherwise in By-Laws
adopted by them. Amendments to ICO's By-Laws require the approval of either a
majority of shares of ICO Common Stock or the Board of Directors, except where
the Articles of Incorporation or the TBCA reserve the power exclusively to the
shareholders in whole or in part or the shareholders expressly prohibit the
Board of Directors' action with respect to a particular By-Law adopted by the
shareholders.
APPRAISAL RIGHTS
Subject to certain specified exceptions, appraisal rights are provided
under both New Jersey and Texas law for plans of merger to which the corporation
is a party, sales of substantially all assets, and similar
55
<PAGE> 65
transactions. New Jersey denies appraisal rights to shareholders holding shares
of a class or series listed on a national securities exchange or held of record
by at least 1,000 holders and also denies such rights to shareholders who will
receive cash and/or such securities in the proposed transaction. Texas law
contains a similar provision. Specifically, Texas law denies appraisal rights to
shareholders holding a class of shares listed on a national securities exchange
or held of record by at least 2,000 holders and to shareholders who will receive
shares of a class or series listed or authorized for listing on a national
securities exchange or held of record by not less than 2,000 holders.
ACTION BY SHAREHOLDERS WITHOUT A MEETING
Under New Jersey law, Wedco shareholders may take action without a meeting
on matters other than the election of directors and mergers and similar
transactions upon the written consent of shareholders holding that amount of
shares necessary to authorize the action in a meeting. Texas law permits a
company's articles of incorporation to contain a similar provision. ICO's
By-Laws, however, provide that shareholders may act without meeting only if all
shareholders entitled to vote on the matter consent in writing to the action.
SHAREHOLDER PROPOSALS
None of the NJBCA, the Wedco Certificate of Incorporation, or the Wedco
By-Laws limit the ability of Wedco shareholders to bring business before a
meeting of shareholders. The ICO By-Laws establish certain requirements that
must be satisfied by a shareholder in order to nominate a person for director or
bring other business before a meeting of shareholders.
CALL OF SPECIAL MEETINGS
Special meetings of the shareholders of Wedco Common Stock may be called by
the Chairman of the Board, the President or Board of Directors of Wedco, or,
under New Jersey law, by the Superior Court, for good cause shown, upon
application by the holders of at least ten percent (10%) of all shares of Wedco
Common Stock entitled to vote at the meeting. Wedco's By-Laws also obligate the
Chairman of the Board or the Board of Directors to order and call such meetings
whenever persons holding twenty-five percent (25%) of the outstanding shares of
Wedco Common Stock request in writing such a meeting.
Special meetings of the shareholders of ICO Common Stock may be called at
any time by the Chairman of the Board, the President, a majority of the Board of
Directors, a majority of the executive committee (if any), or the holders of at
least ten percent (10%) of all the shares entitled to vote at the proposed
special meeting.
ANTI-TAKEOVER PROVISIONS
The New Jersey Shareholders Protection Act prohibits Wedco from engaging in
a "business combination" with an "interested stockholder" for a period of five
years after the date of the transaction in which the interested stockholder
becomes an interested stockholder, unless the business combination has been
approved by Wedco's Board of Directors prior to that date. In addition, Wedco
may not engage in any "business combination" with any "interested stockholder"
after the expiration of the five-year period unless: (i) the business
combination is approved by the Board of Directors in a prescribed manner, (ii)
two-thirds of the shares not beneficially owned by the interested stockholder
vote in favor of the business combination, or (iii) the combination meets
certain objective tests designed to ensure that shareholders receive a fair
price for their shares. A "business combination" includes mergers, asset sales
and other transactions resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns, or within five years
preceding the date of such determination, did own, ten percent (10%) or more of
Wedco's voting stock. Texas law contains no similar provisions.
56
<PAGE> 66
CLASSIFICATION OF BOARD OF DIRECTORS
The Wedco Certificate of Incorporation and the Wedco By-Laws do not provide
for the classification of the Board of Directors of Wedco, which consists of a
single class of directors who are elected annually.
ICO's By-Laws provide for the classification of the Board of Directors of
ICO into three classes, with directors serving staggered three-year terms. As a
result, one-third of ICO's Board of Directors will be elected each year. The
classified board provision could increase the likelihood that, in the event of
an attempted takeover of ICO, incumbent directors would retain their positions
and, consequently, may have the effect of discouraging, delaying or preventing a
change of control.
REMOVAL OF DIRECTORS
New Jersey law provides for the removal of directors for cause or, unless
otherwise provided in the certificate of incorporation, without cause by an
affirmative vote of the majority of votes cast by the holders of shares entitled
to vote for the election of directors.
The TBCA does not specifically address the matter of the removal of
directors. ICO's By-Laws, however, provide for the removal of directors for
cause at a special shareholder meeting called expressly for the purpose, by a
vote of two-thirds of the shares entitled to vote for the election of directors.
INDEMNIFICATION OF DIRECTORS; DIRECTOR'S LIABILITY
As authorized by the TBCA, ICO's By-Laws provide that to the fullest extent
permitted by Texas law, as the same exists or may hereafter by amended,
directors and former directors of ICO will not be liable to ICO or its
shareholders for monetary damages for acts or omissions occurring in their
capacity as directors. Texas law does not authorize the elimination or
limitation of the liability of a director to the extent the director is found
liable (1) for any breach of the director's duty of loyalty to the company or
its shareholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of law, (3) for transactions from
which the director received an improper benefit, whether or not the benefit
resulted from action taken within the scope of the director's office, and (4)
for acts or omissions for which the liability of a director is expressly
provided by law.
Texas law does, however, permit a company to indemnify a director found
liable to the company to the extent of the director's reasonable expenses
incurred in connection with the proceeding, though not where the director is
found liable for a violation of the duty of loyalty. Pursuant to ICO's By-Laws,
the liability of directors and former directors will be further limited or
eliminated without action by shareholders if Texas law is amended to limit or
eliminate further the personal liability of directors.
New Jersey law is substantially similar to Texas law with respect to the
extent to which a company may limit or eliminate the personal liability of
directors for breaches of directors' duties to the company, though New Jersey
law does not expressly prohibit indemnification for acts or omissions for which
the liability of directors is provided by law. In addition, unlike Texas, New
Jersey law makes no provision for the indemnification of a director's reasonable
expenses where the director is found liable to the company. As with ICO's
By-Laws, Wedco's By-Laws also provide indemnification to directors and former
directors to the fullest extent permitted by state law.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for ICO
by Keating, Muething & Klekamp, Cincinnati, Ohio. Members of that firm do not
beneficially own any shares of ICO Common Stock.
Keating, Muething & Klekamp, counsel to ICO, and Dilworth, Paxson, Kalish &
Kauffman LLP, counsel to Wedco, have delivered certain opinions concerning
certain federal income tax consequences of the Merger. See "THE
MERGER -- Certain Future Income Tax Consequences." Edward N. Barol, a partner in
Dilworth, Paxson, Kalish & Kauffman LLP, has been a director of Wedco since
1984. Members of Dilworth, Paxson, Kalish & Kauffman LLP own 5,775 shares of
Wedco Common Stock.
57
<PAGE> 67
EXPERTS
The consolidated financial statements of ICO as of September 30, 1994 and
1995 and for each of the three years in the period ended September 30, 1995
incorporated by reference into this Joint Proxy Statement/Prospectus have been
so included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting. Representatives of Price Waterhouse LLP are expected to be present
at the ICO Special Meeting, are expected to be available to respond to
appropriate questions and will have the opportunity to make a statement, if they
desire to do so.
The consolidated balance sheet as of March 31, 1995 and 1994 and the
consolidated statements of income, retained earnings and cash flows for each of
the three years in the period ended March 31, 1995 incorporated by reference
into this Joint Proxy Statement/Prospectus, have been incorporated herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
Representatives of Coopers & Lybrand L.L.P. are expected to be present at the
Wedco Special Meeting, are expected to be available to respond to appropriate
questions and will have the opportunity to make a statement, if they desire to
do so.
SHAREHOLDER PROPOSALS FOR 1996 ANNUAL MEETING
A shareholder of ICO intending to submit a proposal to be presented at the
1996 Annual Meeting of Shareholders must have delivered such proposal in writing
to ICO's executive offices no later than , 1996.
If the Merger is not consummated, Wedco will hold its regularly scheduled
Annual Meeting of Shareholders. A shareholder of Wedco intending to submit a
proposal to be presented at the 1996 Annual Meeting of Shareholders must deliver
such proposal in writing to Wedco's executive offices no later than March 26,
1996.
58
<PAGE> 68
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 2.02-1 of the Texas Business Corporation Act provides:
(1) A corporation may indemnify any officer or director from and
against any judgments, penalties, fines, settlements, and reasonable
expenses actually incurred by him in an action, suit, investigation or
other proceeding to which he is, was, or is threatened to be a party;
provided that it is determined by the Board of Directors, a committee
thereof, special legal counsel, or a majority of the stockholders that such
officer or director: (a) acted in good faith; (b) reasonably believed that
his conduct was in the best interest of the corporation or was, in some
circumstances, not opposed to the corporation's interest; and (c) in a
criminal case, had no reasonable cause to believe his conduct was unlawful.
Such indemnity is limited to the reasonable expenses actually incurred in
matters as to which the officer or director is found liable to the
corporation or is found liable on the basis that a personal benefit was
improperly received by him. No indemnification is permitted with respect to
any proceeding in which the officer or director is found liable for willful
or intentional misconduct in the performance of his duty to the
corporation.
(2) A corporation shall indemnify a director against reasonable
expenses incurred by him in connection with an action, suit, investigation,
or other proceeding to which he is, was, or was threatened to be a party if
he has been wholly successful in its defense.
(3) A corporation may advance an officer or director the reasonable
costs of defending an action, suit, investigation or other proceeding in
certain cases.
(4) A corporation shall have power to 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, 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.
Article 7, Section 7.01 of the Registrant's Bylaws provides for
indemnifications of directors and officers, and such Article 7, Section 7.01, is
hereby incorporated herein by reference.
The Registrant has purchased a directors' and officers' liability and
corporation reimbursement policy in the amount of $5,000,000, which, subject to
certain exceptions, protects the officers and directors of the Registrant
against liabilities arising from any claim for breach of duty, neglect, error,
misstatement, misleading statement, omission or other act attempted, committed
or allegedly committed by reason of the director or officer acting in such
capacity.
Article 302-7.06 of the Texas Miscellaneous Corporation Laws Act permits a
corporation to provide in its articles of incorporation that a director of the
corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for an act or omission in the director's
capacity as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for any transaction from which the director
derived an improper personal benefit, or (iv) an act or omission for which
liability of a director is expressly provided by applicable statute.
Article Twelfth of the Articles of Incorporation of the Registrant provides
that to the full extent that the Texas Miscellaneous Corporation Laws Act, as it
now exists or may hereafter be amended, permits the limitation or elimination of
the liability of directors, a director of the Registrant shall not be liable to
the Registrant or its stockholders for monetary damages for breach of fiduciary
duty as a director. Any amendment to or repeal of such Article Twelfth shall not
adversely affect any right or protection of a director of the Registrant for or
with respect to any acts or omissions of such director occurring prior to such
amendments or repeals.
II-1
<PAGE> 69
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ ------------------------------------------------------------------------------------
<S> <C> <C>
2 -- Merger Agreement dated as of December 8, 1995 by and among Wedco Technology, Inc., W
Acquisition Corp. and the Registrant (attached as Annex A to the Registration
Statement).
4.1 -- Indenture for 10% Senior Notes due 2002, dated as of September 1, 1992, between the
Registrant and Ameritrust Texas, N.A., Trustee (incorporated by reference to Exhibit
4 of the Registrant's Annual Report on Form 10-K for 1992).
4.2 -- Warrant Agreement -- Series A, dated as of September 1, 1992, between the Registrant
and Society National Bank (incorporated by reference to Exhibit 4 of the
Registrant's Annual Report on Form 10-K for 1992).
4.3 -- Warrant Agreement Series B, dated as of September 1, 1992, between the Registrant
and Society National Bank (incorporated by reference to Exhibit 4 of the
Registrant's Annual Report on Form 10-K for 1992).
*4.4 -- Registration Rights Agreement
*5 -- Opinion of Keating, Muething & Klekamp.
*8.1 -- Opinion of Keating, Muething & Klekamp regarding tax matters.
*8.2 -- Opinion of Dilworth, Paxson, Kalish & Kauffman LLP regarding tax matters.
*10.1 -- ICO, Inc. Tax Credit Employee Stock Ownership Plan, as amended.
10.2 -- Amendments to Accounts Financing Agreement and Promissory Notes between Registrant
and Congress Financial Corporation (incorporated by reference to Exhibit 4 to the
Registrant's Annual Report on Form 10-K for 1992).
10.3 -- ICO, Inc. 1985 Stock Option Plan, as amended (incorporated by reference to Exhibit B
to the Registrant's Definitive Proxy Statement dated April 27, 1987 for the Annual
Meeting of Shareholders).
10.4 -- Accounts Financing Agreements and Promissory Notes between Congress Financial
Corporation and ICO, Inc. dated January 11, 1989 (incorporated by reference to
Exhibit 3 to the Registrant's Annual Report on Form 10-K for 1988).
10.5 -- Agreement for the Purchase and Sale of all of the Outstanding Shares of Capital
Stock of Baker Hughes Tubular Services, Inc. and Certain Related Non-U.S. assets by
and between the Registrant and Baker Hughes, Incorporated, incorporated by reference
to Exhibit 2(a) of the Registrant's Current Report on Form 8-K dated September 30,
1992).
10.6 -- 1993 Stock Option Plan for Non-Employee Directors of ICO, Inc. (incorporated by
reference to Exhibit 99 to the Registrant's Form S-8 dated September 13, 1993).
10.7 -- ICO, Inc. 1994 Stock Option Plan (incorporated by reference to Exhibit A to
Registrant's Definitive Proxy Statement dated June 24, 1994 for the Annual Meeting
of Shareholders).
10.8 -- ICO, Inc. 1995 Stock Option Plan (incorporated by reference to Exhibit A to
Registrant's Definitive Proxy Statement dated August 10, 1995 for the Annual Meeting
of Shareholders).
*10.9 -- Shareholders Agreement.
*10.10 -- Legal Services Retainer Agreement.
*10.11 -- Non-Competition Covenant -- William E. Willoughby.
*10.12 -- Non-Competition Covenant -- Fred R. Feder.
*10.13 -- Consulting Agreement -- William E. Willoughby.
*10.14 -- Employment Agreement -- Fred R. Feder
*10.15 -- Employment Agreement -- Donald Cuomo
*10.16 -- Employment Agreement -- Robert F. Bush
</TABLE>
II-2
<PAGE> 70
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------
<S> <C> <C>
*10.17 -- Employment Agreement -- Mark Kuna
*10.18 -- Employment Agreement -- Timothy Kita
23.1 -- Consent of Price Waterhouse LLP.
23.2 -- Consent of Coopers & Lybrand L.L.P.
*23.3 -- Consent of Keating, Muething & Klekamp (contained in Exhibit 5 and Exhibit 8.1).
*23.4 -- Consent of Dilworth, Paxson, Kalish & Kauffman LLP (contained in Exhibit 8.2)
23.5 -- Consent of Mesirow Financial, Inc. (contained in Opinion of Mesirow Financial, Inc.
beginning on page 36 of the Registration Statement)
24 -- Powers of Attorney (contained on Signature Page).
*99.1 -- Form of ICO Proxy
*99.2 -- Form of Wedco Proxy
</TABLE>
- ---------------
* To be filed by amendment
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement (i) to
include any prospectus required by Section 10(a)(3) of the Securities Act,
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement for the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement, and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of post-effective amendment
any of the securities being registered which remain unsold in the
termination of the offering.
(b)(1) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding
to the request.
(2) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when
it became effective.
(c)(1) Prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
II-3
<PAGE> 71
(2) That every prospectus (i) that is filed pursuant to paragraph
(c)(1) immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-4
<PAGE> 72
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Houston, State of Texas,
on the 7th day of February, 1996.
/s/ DR. ASHER O. PACHOLDER
--------------------------------------
Dr. Asher O. Pacholder
Chairman of the Board and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person below whose signature is
preceded by an (*) hereby constitutes and appoints Dr. Asher O. Pacholder and
Sylvia A. Pacholder, or either of them, his true and lawful attorney and agent,
to do any and all acts and instruments for him and in his name in the capacity
indicated below, which said attorneys and agents, or either of them, may deem
necessary or advisable to enable ICO to comply with the Securities Act of 1933,
and any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with this Registration Statement, including
specifically, but without limitation, power and authority to sign amendments
(including post-effective amendments).
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ DR. ASHER O. PACHOLDER Chairman of the Board and February 7th, 1996
- --------------------------------------------- Chief Financial Officer
Dr. Asher O. Pacholder (Principal Financial
Officer)
/s/ SYLVIA A. PACHOLDER President and Chief February 7th, 1996
- --------------------------------------------- Executive Officer
Sylvia A. Pacholder (Principal Executive
Officer)
/s/ JON C. BIRO Controller and Treasurer February 7th, 1996
- --------------------------------------------- (Principal Accounting
Jon C. Biro Officer)
/s/ *WILLIAM E. CORNELIUS Director February 7th, 1996
- ---------------------------------------------
William E. Cornelius
/s/ *JOHN F. WILLIAMSON Director February 7th, 1996
- ---------------------------------------------
John F. Williamson
/s/ *WILLIAM J. MORGAN Director February 7th, 1996
- ---------------------------------------------
William J. Morgan
/s/ *ROBIN E. PACHOLDER Director February 7th, 1996
- ---------------------------------------------
Robin E. Pacholder
</TABLE>
II-5
<PAGE> 73
ANNEX A
MERGER AGREEMENT
AMONG
WEDCO TECHNOLOGY, INC.,
W ACQUISITION CORP.
AND
ICO, INC.
- --------------------------------------------------------------------------------
DATED AS OF DECEMBER __, 1995
- --------------------------------------------------------------------------------
<PAGE> 74
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1 THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Effects of Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.3 Exchange of Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.4 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.5 Surviving Corporation Officers; Directors;
Certificate of Incorporation and Bylaws. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 2 STOCKHOLDER APPROVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.1 Stockholders' Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.2 Proxy Statement/Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.3 Correction of Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 3 THE MERGER CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.1 Time and Place . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.2 Deliveries at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.3 Filing of Certificate of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 4 REPRESENTATIONS AND WARRANTIES
OF WEDCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.1 Organization and Qualification; Active Subsidiaries . . . . . . . . . . . . . . . . . . . . . 10
Section 4.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.3 Authority Relative to this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.4 Consents and Approvals; No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.5 SEC Filings; Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.6 Absence of Certain Changes and Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.8 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.9 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.10 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.12 Compliance with Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.13 Fees and Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.14 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.15 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.16 Joint Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 5 REPRESENTATIONS AND WARRANTIES
OF ICO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.1 Organization and Qualification; Active Subsidiaries . . . . . . . . . . . . . . . . . . . . . 27
Section 5.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 5.3 Authority Relative to this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
<PAGE> 75
- ii -
<TABLE>
<S> <C> <C>
Section 5.4 Consents and Approvals; No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 5.5 SEC Filings; Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 5.6 Absence of Certain Changes and Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 5.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 5.8 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 5.9 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 5.10 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 5.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 5.12 Compliance with Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 5.13 Fees and Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 5.14 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 5.15 Environmental Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 5.16 Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE 6 CONDUCT OF BUSINESS PENDING THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 6.1 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 6.2 New York Stock Exchange Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE 7 ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 7.1 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 7.2 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.3 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 7.4 Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 7.5 Rule 145 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 7.6 Post-Merger Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 7.7 Indemnification and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 7.8 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE 8 CONDITIONS TO CONSUMMATION OF THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 8.1 Conditions to the Obligations of Each Party . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 8.2 Additional Conditions to the Obligations of Wedco . . . . . . . . . . . . . . . . . . . . . . 47
Section 8.3 Additional Conditions to the Obligations of ICO . . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE 9 TERMINATION; AMENDMENTS; WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 9.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 9.2 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 9.3 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
ARTICLE 10 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 10.1 Survival of Representations, Warranties, Covenants
and Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 10.2 Entire Agreement; Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
</TABLE>
<PAGE> 76
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<TABLE>
<S> <C> <C>
Section 10.3 Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 10.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 10.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 10.6 Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 10.7 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 10.8 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 10.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 10.10 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
</TABLE>
<PAGE> 77
MERGER AGREEMENT
THIS MERGER AGREEMENT ("Agreement") dated as of December __, 1995, is made
by and among WEDCO TECHNOLOGY, INC., a New Jersey corporation ("Wedco"), W
ACQUISITION CORP., a New Jersey corporation ("W Acquisition"), and ICO, INC., a
Texas corporation ("ICO").
R E C I T A L S:
WHEREAS, the Board of Directors of each of Wedco and ICO has determined that
it is advisable and in the best interests of their respective stockholders that
Wedco become a subsidiary of ICO by merger with and into W Acquisition, a
Subsidiary (as hereinafter defined) of ICO, pursuant to the merger hereinafter
provided for; and
WHEREAS, William E. Willoughby, Peggy S. Willoughby, William C. Willoughby,
Regina S. Willoughby, Fred R. Feder, Theo J.M.L. Verhoeff, Catherine Willoughby
Stevens, William C. Willoughby, as custodian for William B. Willoughby, and
Regina S. Willoughby, as custodian for William B. Willoughby (collectively, the
"Wedco Shareholder Group") have signed an agreement of even date herewith
("Wedco Shareholder Group Agreement") in which they have: (i) granted to
Sylvia A. Pacholder and Dr. Asher O. Pacholder, acting as representatives of
ICO, an irrevocable proxy with respect to the shares of Wedco common stock
controlled by them (which shares are further described on Schedule 1 attached
hereto); and (ii) agreed not to transfer such shares from and after the date
hereof until the Effective Time (as hereinafter defined), except in accordance
with such Wedco Shareholder Group Agreement; and
WHEREAS, Sylvia A. Pacholder, Dr. Asher O. Pacholder, Robin E. Pacholder,
Pacholder Associates, Inc., William J. Morgan and P M Delaware, Inc.
(collectively, the "ICO Shareholder Group") have signed an agreement of even
date herewith (the "ICO Shareholder Group Agreement") in which they have: (i)
granted to Walter L. Leib and Edward N. Barol, acting as representatives of
Wedco, an irrevocable proxy with respect to the shares of ICO capital stock
controlled by them (which shares are further described on Schedule 2 attached
hereto); and (ii) agreed not to transfer such shares from and after the date
hereof until the Effective Time, except in accordance with such ICO Shareholder
Group Agreement; and
WHEREAS, Wedco and ICO desire to make certain representations, warranties
and agreements in connection with such merger; and
WHEREAS, immediately after the Effective Time, ICO shall take all actions
necessary to give effect to the change of its corporate name to "Willoughby
International, Inc.;" and
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WHEREAS, promptly after execution and delivery of this Agreement, ICO shall
initiate and thereafter diligently pursue the process of applying for a listing
of Willoughby International, Inc. stock on the New York Stock Exchange.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
ARTICLE 1
THE MERGER
Section 1.1 The Merger.
(a) ICO shall cause W Acquisition to execute and deliver,
and Wedco shall execute and deliver, a certificate of merger and any other
documents required under the New Jersey Business Corporation Act (the "New
Jersey Law") to effect the merger of Wedco with and into W Acquisition (the
"Merger") consistent with this Agreement. The closing and consummation of the
Merger shall be governed by the provisions of Article 3 of this Agreement.
(b) In the Merger:
(i) Each share of common stock, no par value per
share, and each share of preferred stock, no par value per share, of ICO issued
and outstanding prior to the Effective Time shall remain outstanding;
(ii) Each share of common stock, $0.10 par value
per share, of Wedco ("Wedco Common Stock") issued and outstanding immediately
prior to the Effective Time shall, at the holder's option, be converted, by
virtue of the Merger and without the need for any further action on the part of
the holder thereof, into either: (X) (1) 2.20 shares of common stock, no par
value per share, of ICO ("ICO Common Stock"); and (2) $3.50 in cash (the
"Cash/Stock Consideration"), or (Y) 2.84 shares of ICO Common Stock (the "Stock
Consideration;" the Cash/Stock Consideration and Stock Consideration
collectively, the "Merger Consideration"). In the event that a holder of Wedco
Common Stock shall fail to make an election hereunder prior to the Effective
Time with respect to any or all of such holder's shares of Wedco Common Stock,
such holder shall be deemed for all purposes of this Agreement to have elected
to receive Stock Consideration with respect to those shares of Wedco Common
Stock as to which no election was made;
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(iii) Each vested option to acquire a share of Wedco
Common Stock shall be converted into an amount in cash ("Merger Option
Consideration") equal to the following:
(A) $16.50 cash, less
(B) the exercise price of such options.
(iv) Each share of Wedco Common Stock held in
treasury or otherwise by Wedco or any of its Subsidiaries shall immediately be
cancelled; and
(v) Each share of common stock, no par value per
share, of W Acquisition ("W Acquisition Common Stock") shall be converted, by
virtue of the Merger and without the need for any action on the part of the
holder thereof, into one share of the common stock, no par value, of the
corporation surviving the Merger (the "Surviving Corporation").
(c) No fractional shares of ICO Common Stock shall be issued
in the Merger. All fractional shares of ICO Common Stock that a holder of
Wedco Common Stock would otherwise be entitled to receive as a result of the
Merger shall be aggregated. Such holder shall be entitled to receive, in lieu
of any fractional share of ICO Common Stock, an amount in cash determined by
multiplying the weighted average of the mean between the closing representative
bid and asked prices for such ICO Common Stock on the NASD National Market
System for the last five (5) trading days immediately preceding the date on
which the Effective Time occurs by the fraction of a share of ICO Common Stock
to which such holder is entitled pursuant to the provisions hereof.
(d) As the sole stockholder of W Acquisition, ICO shall
promptly execute a written consent under Section 14A:5-6 of the New Jersey Law
to the execution, delivery and performance by W Acquisition of the Merger and
this Agreement. Each of ICO and Wedco shall promptly submit to its respective
stockholders for adoption and approval this Agreement and the Merger in
accordance with Article 2 hereof. Each of ICO and Wedco shall use its best
efforts to cause the Merger to be consummated in accordance with the terms
hereof.
Section 1.2 Effects of Merger.
When the Merger has been effected, the separate existence of Wedco
and W Acquisition shall cease and Wedco shall be merged with and into W
Acquisition (W Acquisition and Wedco are sometimes referred to herein as the
"Constituent Corporations"), with W Acquisition being the Surviving
Corporation. At and after the
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Effective Time, the Surviving Corporation shall thereupon and thereafter
possess all the rights, privileges, powers, immunities, purposes and
franchises, of a public as well as of a private nature, of the Constituent
Corporations, and, all and singular, the rights, privileges, powers,
immunities, purposes and franchises of each of the Constituent Corporations,
and all property, real, personal and mixed, tangible and intangible, and all
debts due to either of said Constituent Corporations, on whatever account, as
well as for stock subscriptions and all other things in action or belonging to
each of such corporations, shall be vested in the Surviving Corporation without
further act or deed; and all property, rights, privileges, powers, immunities,
purposes and franchises, and all and every other interest shall be thereafter
as effectually the property of the Surviving Corporation as they were of the
Constituent Corporations; and the title to any real estate vested by deed or
otherwise or any other interest in real estate vested by any instrument or
otherwise in either of such Constituent Corporations shall not revert or become
in any way impaired by reason of the Merger, but all rights of creditors and
all liens upon any property of either of the Constituent Corporations shall be
preserved unimpaired, and all debts, liabilities and duties of the Constituent
Corporations shall thenceforth attach to the Surviving Corporation, and shall
be enforceable against it to the same extent as if said debts, liabilities and
duties had been incurred or contracted by it; all of the foregoing in
accordance with the applicable provisions of the New Jersey Law.
Section 1.3 Exchange of Certificates.
From and after the Effective Time, each holder of an outstanding
certificate which immediately prior to the Effective Time represented
outstanding shares of Wedco Common Stock shall be entitled to receive in
exchange therefor, upon surrender thereof to Society Shareholder Services,
Inc., 3200 Renaissance Tower, 1201 Elm Street, Dallas, Texas 75270: (i) a
certificate or certificates representing the number of whole shares of ICO
Common Stock into which such holder's shares were converted in accordance with
Section 1.1(b)(ii); and (ii) a check representing any cash payable in lieu of
any fractional share of ICO Common Stock computed as set forth in Section
1.1(c) hereof; and (iii) if the holder thereof has elected to receive
Cash/Stock Consideration, any cash to be received in connection therewith. No
holder of a certificate or certificates which immediately prior to the
Effective Time represented shares of Wedco Common Stock shall be entitled to
receive any dividend or other distribution from ICO until surrender of such
holder's certificate or certificates for a certificate or certificates
representing shares of ICO Common Stock. Upon such surrender, there shall be
paid to the holder the amount of any dividends or other distributions (without
interest) which theretofore became payable, but which were not paid by reason
of the foregoing, with respect to the number of whole shares of ICO Common
Stock represented by the certificates issued upon such surrender. After the
Effective Time, there shall be no further registration of transfers of Wedco
Common Stock. If, after the Effective Time, certificates representing Wedco
Common Stock are presented to ICO, they
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shall be cancelled and exchanged for the Merger Consideration to be received in
accordance with Section 1.1(b)(ii). From and after the Effective Time, ICO
shall, however, be entitled to treat certificates for shares of Wedco Common
Stock which have not yet been surrendered for exchange as evidencing solely the
right to receive the Merger Consideration for such certificates in accordance
with Section 1.1(b)(ii), notwithstanding any failure to surrender such
certificates in exchange therefor. If any certificate for shares of ICO Common
Stock is to be issued in a name other than that in which the certificate for
shares of Wedco Common Stock surrendered in exchange therefor is registered, it
shall be a condition of such issuance that the person requesting such issuance
shall pay any transfer or other tax required by reason of the issuance of
certificates for such shares of ICO Common Stock in a name other than that of
the registered holder of the certificate surrendered, or shall establish to the
satisfaction of ICO or its agent that such tax has been paid or is not
applicable. Notwithstanding the foregoing, ICO shall not be liable to any
holder of shares of Wedco Common Stock for any shares of ICO Common Stock (or
dividends or distributions with respect thereto) or cash in lieu of fractional
shares delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
Section 1.4 Effective Time.
The term "Effective Time" shall mean the date and time at which
the Merger shall have become effective pursuant to the laws of the State of New
Jersey.
Section 1.5 Surviving Corporation Officers; Directors; Certificate of
Incorporation and Bylaws.
The respective officers and directors of ICO and the Surviving
Corporation immediately following the Effective Time shall be as set forth on
Schedule 3 attached hereto. The Certificate of Incorporation of W Acquisition
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation, except that it shall be amended
hereby to provide that the corporate name of the Surviving Corporation shall be
"Wedco Technology, Inc." The Bylaws of W Acquisition immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation. Nothing in
this Section 1.5 shall be construed to grant to any person any contractual or
other right to hold office or a directorship in the Surviving Corporation or to
preclude the shareholders or Board of Directors of the Surviving Corporation
from further amending or modifying the Certificate of Incorporation or Bylaws
of the Surviving Corporation.
<PAGE> 82
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ARTICLE 2
STOCKHOLDER APPROVAL
Section 2.1 Stockholders' Meetings.
(a) This Agreement contemplates the amendment of ICO's
Certificate of Incorporation to change its corporate name immediately after the
Effective Time (but only if the transactions contemplated hereby are
consummated) to "Willoughby International, Inc." and the issuance of shares of
ICO Common Stock in accordance with Section 1.1(b). Accordingly, pursuant to
the applicable provisions of the Texas General Corporation Act (the "Texas
Act") and the rules of the National Association of Securities Dealers
applicable to corporations with securities quoted on the NASD National Market
System, this Agreement shall be submitted for adoption and approval to the
holders of shares of ICO Common Stock, at a meeting to be duly held for this
purpose by ICO (the "ICO Stockholders' Meeting"). ICO shall endeavor to hold
the ICO Stockholders' Meeting as soon as practicable after the date hereof.
ICO, acting through its Board of Directors, shall, in accordance with
applicable law:
(i) duly call, give notice of, convene and hold
the ICO Stockholders' Meeting;
(ii) include in the Proxy Statement/Prospectus (as
hereinafter defined) the recommendation of its Board of Directors that the
stockholders of ICO vote in favor of the approval and adoption of this
Agreement and the transactions contemplated hereby; and
(iii) use its best efforts to solicit from the
stockholders of ICO proxies in favor of the approval and adoption of this
Agreement and the transactions contemplated hereby, and take all other actions
necessary or advisable to secure the approval and adoption by ICO's
stockholders of this Agreement and the transactions contemplated hereby.
(b) This Agreement (which constitutes a Plan of Merger under
Section 14A:10-1 of the New Jersey Law) shall be submitted for adoption and
approval to the holders of shares of Wedco Common Stock, at a meeting to be
duly held for this purpose by Wedco (the "Wedco Stockholders' Meeting"). Wedco
shall endeavor to hold the Wedco Stockholders' Meeting as soon as practicable
after the date hereof. Wedco, acting through its Board of Directors, shall, in
accordance with applicable law:
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(i) duly call, give notice of, convene and hold
the Wedco Stockholders' Meeting;
(ii) include in the Proxy Statement/Prospectus the
recommendation of its Board of Directors that the stockholders of Wedco vote in
favor of the approval and adoption of this Agreement and the transactions
contemplated hereby; and
(iii) use its best efforts to solicit from the
stockholders of Wedco proxies in favor of the approval and adoption of this
Agreement and the transactions contemplated hereby, and take all other actions
necessary or advisable to secure the approval and adoption by Wedco's
stockholders of this Agreement and the transactions contemplated hereby.
Section 2.2 Proxy Statement/Prospectus.
In connection with: (i) any solicitations of approval by the
stockholders of ICO of this Agreement and the transactions contemplated hereby;
and (ii) any solicitations of approval by the stockholders of Wedco of this
Agreement and the transactions contemplated hereby, ICO and Wedco shall file
with the Securities and Exchange Commission (the "Commission") under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and with the
appropriate state governmental offices under the securities or "blue sky" laws
of such states, shall use all reasonable efforts to respond to the comments of
the staff of the Commission (the "Staff") or such state governmental offices
and have cleared by the Commission under the Exchange Act and shall promptly
thereafter mail to their respective stockholders, proxy solicita- tion
materials, including a letter to stockholders, notice of meeting, proxy
statement and appropriate related forms of proxies with respect to the ICO
Stockholders' Meeting and the Wedco Stockholders' Meeting, as the case may be.
Such proxy statement shall also constitute a prospectus of ICO with respect to
the shares of ICO Common Stock to be issued in the Merger (such proxy statement
and prospectus, together with all amendments and supplements thereto, are
referred to herein as the "Proxy Statement/Prospectus"), and shall be a part of
a registration statement (the "Registration Statement") to be filed by ICO with
the Commission for the purpose of registering the public offering of such
shares of ICO Common Stock under the Securities Act of 1933, as amended (the
"Securities Act"). ICO shall file promptly such Registration Statement and
shall use its best efforts to respond to the comments of the Staff with respect
thereto and to have it declared effective by the Commission. ICO shall notify
Wedco promptly of the receipt of any comments of the Staff and of any request
by the Staff for amendments or supplements to the Proxy Statement/Prospectus or
the Registration Statement or for additional information, and shall supply
Wedco with copies of all correspondence between ICO or its representatives, on
the one hand, and the Commission or members of the Staff,
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on the other hand, with respect to the Proxy Statement/Prospectus, the
Registration Statement or the transactions contemplated hereby.
Section 2.3 Correction of Statements.
Each of ICO and Wedco shall correct promptly any information
specifically provided by it for inclusion in the Proxy Statement/Prospectus
which shall have become false or misleading in any material respect. Each of
ICO and Wedco shall take all steps necessary to file or to cause to be filed
with the Commission and have declared effective or cleared by the Commission
any amendment or supplement to the Registration Statement or the Proxy
Statement/Prospectus so as to correct the same and to cause the Registration
Statement or the Proxy Statement/Prospectus as so corrected to be disseminated
to the respective stockholders of ICO and Wedco, in each case as and to the
extent required by applicable law. The Registration Statement and the Proxy
Statement/Prospectus shall comply as to form in all material respects with the
provisions of the Securities Act, the Exchange Act and other applicable law.
ARTICLE 3
THE MERGER CLOSING
Section 3.1 Time and Place.
The consummation of the Merger (the "Closing") shall take place at
the offices of Messrs. Dilworth, Paxson, Kalish & Kauffman, 3200 Mellon Bank
Center, 1735 Market Street, Philadelphia, Pennsylvania 19109-7595, at 10:00
a.m. local time on the date of the satisfaction or waiver of all conditions
set forth in Article 8 of this Agreement, or at such other place and time as
the parties hereto may agree.
Section 3.2 Deliveries at Closing.
(a) At the Closing, Wedco shall deliver or cause to be
delivered to ICO:
(i) an officer's certificate of Wedco in the form
attached hereto as Annex I (Wedco);
(ii) the Non-Competition Covenants of William E.
Willoughby, William C. Willoughby and Fred R. Feder in the form attached as
Annex II (Wedco);
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(iii) the legal opinions of Messrs. Dilworth,
Paxson, Kalish & Kauffman and Leib, Kraus, Grispin & Roth in the forms annexed
hereto as Annex III-A (Wedco) and Annex III-B (Wedco), respectively;
(iv) [Intentionally Omitted]; and
(v) all other documents required to be delivered
or caused to be delivered by Wedco hereunder and such other documents and
instruments as ICO shall reasonably request in order to effect or evidence the
transactions contemplated hereby.
(b) At the Closing, ICO or Surviving Corporation, as the
case may be, shall deliver or cause to be delivered to Wedco or the holders of
Wedco Common Stock, as the case may be:
(i) the Merger Consideration in accordance with
Section 1.3;
(ii) the officer's certificate of ICO in the form
attached hereto as Annex V (ICO);
(iii) the legal opinions of Messrs. Keating,
Muething & Klekamp and Vinson & Elkins in the forms annexed hereto as Annex
VI-A (ICO) and Annex VI-B (ICO), respectively;
(iv) the Consulting Agreements with Messrs. William
E. Willoughby and William C. Willoughby in the forms attached hereto as Annex
VII-A (ICO) and Annex VII-B (ICO), respectively;
(v) the Employment, Consulting and Severance
Agreement with Robert F. Bush in the form attached hereto as Annex VIII
(Surviving Corporation);
(vi) Employment Agreements and Severance Agreements
with the following persons:
(A) Fred R. Feder in the form attached
hereto as Annex IX-A (Surviving Corporation); and
(B) Donald Cuomo, Timothy Kite and Mark
Kuna in the forms attached hereto as Annexes IX-B, IX-C and IX-D (Surviving
Corporation);
(vii) the Continuing Willoughby International, Inc.
Stockholders' Agreement in the form attached hereto as Annex X (Willoughby
International, Inc.);
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(viii) the Registration Rights Agreement in the form
attached hereto as Annex XI (Willoughby International, Inc.);
(ix) the Reaffirmation Agreement with Allgrind in
the form attached hereto as Annex XII (Surviving Corporation);
(x) the letter agreement with Edward N. Barol in
the form attached hereto as Annex XIII (Willoughby International, Inc.); and
(xi) all other documents required to be delivered
or caused to be delivered by ICO hereunder and such other documents and
instruments as Wedco shall reasonably request in order to effect or evidence
the transactions contemplated hereby.
Section 3.3 Filing of Certificate of Merger.
Contemporaneously with the deliveries pursuant to Section 3.2
above, Wedco shall, and ICO shall cause W Acquisition to cause agents
acceptable to both Wedco and ICO to deliver to the Secretary of State of the
State of New Jersey for filing a Certificate of Merger duly executed by Wedco
and W Acquisition and shall make all other deliveries, filings or recordings
required by applicable law to consummate the Merger.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF WEDCO
Wedco represents and warrants to ICO as follows:
Section 4.1 Organization and Qualification; Active Subsidiaries.
(a) Each of Wedco and each active domestic Subsidiary of
Wedco is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and each has all
requisite corporate power and authority to own, lease or operate the properties
that it purports to own, lease or operate and to carry on its business as it is
now being conducted. Section 4.01(a) of the Disclosure Schedule which is being
delivered by Wedco to ICO herewith (the "Wedco Disclosure Schedule") lists all
active domestic Subsidiaries of Wedco. Each of Wedco and each of its active
domestic Subsidiaries is duly qualified or licensed as a foreign corporation to
do business and is in good standing in each jurisdiction where the property
owned, leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such
<PAGE> 87
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failures to be so duly qualified or licensed and in good standing which, when
taken together with all other such failures and all such failures of Wedco's
active alien Subsidiaries referred to in Section 4.1(b) below, would not have a
material adverse effect on the business, operations or financial condition of
Wedco and its Subsidiaries, taken as a whole. Wedco has heretofore delivered
to ICO true and complete copies of its Certificate of Incorporation and Bylaws,
and the charter and bylaws of each of its active domestic Subsidiaries as
currently in effect. None of Wedco or any of its active domestic Subsidiaries
is in violation of any of the provisions of its respective charter or bylaws.
(b) Each active alien Subsidiary corporation (or other
business entity) of Wedco is a corporation (or other business entity) duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation (or other organization). Each active alien
Subsidiary of Wedco has all requisite corporate (or other) power and authority
to own, lease or operate the properties that it purports to own, lease or
operate and to carry on its business as it is now being conducted. Section
4.01(b) of the Wedco Disclosure Schedule lists all active alien Subsidiary
corporations (and other business entities) of Wedco. Each active alien
Subsidiary corporation (or other business entity) of Wedco is duly qualified or
licensed as a foreign or alien corporation (or other business entity) to do
business and is in good standing in each jurisdiction where the property owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such failures to be so duly
qualified or licensed and in good standing which, when taken together with all
other such failures and all such failures of Wedco's active domestic
Subsidiaries referred to in Section 4.1(a) above, would not have a material
adverse effect on the business, operations or financial condition of Wedco and
its Subsidiaries, taken as a whole. Wedco has heretofore delivered to ICO true
and complete copies of the charter and bylaws (or other organizational or
governing documents) of each active alien Subsidiary corporation (or other
business entity) of Wedco, as currently in effect. None of the active alien
Subsidiary corporations (or other business entities) of Wedco is in violation
of any of the provisions of its respective charter or bylaws (or other
organizational or governing documents).
Section 4.2 Capitalization.
(a) The authorized capital stock of Wedco consists of Ten
Million Four Hundred Ninety-Five Thousand (10,495,000) shares of common stock,
having $0.10 par value per share. As of the date hereof, there are (i) Three
Million Five Hundred Sixty-Seven Thousand Seven Hundred Eighty-Five (3,567,785)
shares of Wedco Common Stock issued, all of which are duly authorized, validly
issued, fully paid, nonassessable and are not subject to and were not issued in
violation of any preemptive rights; (ii) Five Hundred Twenty-Seven Thousand One
Hundred Six (527,106) shares of Wedco Common Stock held by Wedco in its
treasury; and (iii) no shares of Wedco's Common Stock held by any of Wedco's
<PAGE> 88
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Subsidiaries. Except as set forth in Section 4.02(a) of the Wedco Disclosure
Schedule, there are no options, warrants, calls, rights, subscriptions,
convertible securities or other rights or other agreements, arrangements or
commitments of any kind relating to the issued or unissued capital stock of
Wedco or otherwise obligating Wedco or any Subsidiary of Wedco to issue,
transfer or sell any securities of Wedco, or securities or other instruments
convertible into or exchangeable or exercisable for any securities of Wedco.
The Wedco Shareholder Group is the holder of record, in the aggregate, of One
Million Nine Hundred Forty-Four Thousand Two Hundred Seventy-Nine (1,944,279)
outstanding shares of Wedco Common Stock and, subject to the matters disclosed
in Section 4.02(a) of the Wedco Disclosure Schedule, owns such shares free and
clear of all liabilities, obligations, claims, liens, pledges, security
interests, options, charges, encumbrances and interests of any third party of
any nature whatsoever. Except as set forth in Section 4.02(a) of the Wedco
Disclosure Schedule, there are no stockholder agreements, voting trusts or
other agreements or understandings to which Wedco is a party or is bound
relating to the voting or transfer of any of such shares. There are no
outstanding contractual or other obligations of Wedco or any of Wedco's
Subsidiaries to purchase, redeem or otherwise acquire any shares of Wedco
Common Stock.
(b) Section 4.02(b) of the Wedco Disclosure Schedule lists
all the Subsidiaries of Wedco and indicates the number and class of shares of
the capital stock (or other equity interest) of such Subsidiary outstanding and
the record holders or owners thereof, all as of the date of this Agreement.
Except as disclosed in Section 4.02(b) of the Wedco Disclosure Schedule, all
the outstanding shares (or other equity interests) of each of Wedco's
Subsidiaries are validly issued and are fully paid and non-assessable, and are
not subject to and were not issued in violation of any preemptive rights.
Except as disclosed in Section 4.02(b) of the Wedco Disclosure Schedule, there
are no options, warrants, calls, rights, subscriptions, convertible securities
or other rights or other agreements, arrangements or commitments of any kind
relating to the issued or unissued capital stock (or other equity interest) or
other securities of any Subsidiary of Wedco or otherwise obligating Wedco or
any Subsidiary of Wedco to issue, transfer or sell any securities of (or other
equity interest in) any such Subsidiary, or any securities or other instruments
convertible into or exchangeable or exercisable for any securities of (or other
equity interest in) any such Subsidiary. Except as disclosed in Section
4.02(b) of the Wedco Disclosure Schedule, the shares of (or other equity
interests in) each of Wedco's Subsidiaries are owned by the persons indicated
in Section 4.02(b) of the Wedco Disclosure Schedule free and clear of all
liabilities, obligations, claims, liens, pledges, security interests, options,
charges, encumbrances and interests of any third party of any nature
whatsoever. Except as disclosed in Section 4.02(b) of the Wedco Disclosure
Schedule, there are no stockholder agreements, voting trusts or other
agreements or understandings relating to the voting or transfer of any shares
(or other equity interests) held by Wedco, or by any other person, with respect
to any Subsidiary of Wedco. Except as disclosed in Section 4.02(b) of the
Wedco Disclosure
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Schedule, there are no outstanding contractual or other obligations of Wedco or
any of Wedco's Subsidiaries to purchase, redeem or otherwise acquire any shares
of (or other equity interest in) any Subsidiary of Wedco.
(c) None of Wedco or any of its Subsidiaries has any equity
investment in any corporation, association, partnership, joint venture or other
entity, other than the Subsidiaries identified in Section 4.02(b) of the Wedco
Disclosure Schedule and the joint ventures identified in Section 4.16 of this
Agreement or in Section 4.16 of the Wedco Disclosure Schedule.
(d) It is acknowledged that there is a loan from Wedco to
T.D.T. Inc. (the "TDT Loan") and that William E. Willoughby and Peggy S.
Willoughby, his wife, are securing that loan with shares of Wedco Common Stock.
It is understood that, at Closing, the Wedco Common Stock will be released for
exchange and William E. Willoughby and Peggy S. Willoughby will secure the TDT
Loan by pledging shares of ICO Common Stock having a value of 1.5 times the
remaining unpaid principal balance of the TDT Loan. In the event, on the end
of a given quarter, the value of the pledged ICO Common Stock shall exceed 1.5
times the remaining unpaid principal balance of the TDT loan, then, upon their
written request, the excess shares shall be released to William E. Willoughby
and Peggy S. Willoughby. In the event on said date, the value of the pledged
ICO Common Stock does not equal or exceed 1.5 times the remaining unpaid
principal balance of the TDT Loan, then, upon the written request of ICO, the
number of pledged shares of ICO Common Stock will be increased by William E.
Willoughby and Peggy S. Willoughby to equal 1.5 times the remaining unpaid
principal balance of the TDT loan.
Section 4.3 Authority Relative to this Agreement.
Wedco has the corporate power and authority to execute and deliver
this Agreement and to carry out its obligations hereunder. The execution and
delivery by Wedco of this Agreement and the consummation by Wedco of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Wedco. The Board of Directors of Wedco has directed that
this Agreement be submitted to the stockholders of Wedco for approval at a
meeting of such stockholders and, except for such approval, no other corporate
proceedings on the part of Wedco are necessary to authorize this Agreement or
to consummate the transactions contemplated hereby. This Agreement has been
duly executed and delivered by Wedco and, assuming the due authorization,
execution and delivery of this Agreement by ICO, constitutes the legal, valid
and binding agreement of Wedco enforceable against Wedco in accordance with its
terms.
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Section 4.4 Consents and Approvals; No Violation.
Except, in the case of clauses (ii) through (iv) below, as set
forth in Section 4.04 of the Wedco Disclosure Schedule and for such failures to
obtain consents, approvals, authorizations or permits for, or make filings with
or notifications to, or such violations, conflicts, breaches, defaults,
terminations, accelerations and rights of termination, cancellation, amendment
or acceleration which, individually or in the aggregate, would not have a
material adverse effect on the business, operations or financial condition of
Wedco and its Subsidiaries, taken as a whole, none of the execution and
delivery of this Agreement by Wedco, the consummation by Wedco of the
transactions contemplated hereby, or compliance by Wedco with any of the
provisions hereof will: (i) conflict with or result in a breach of any
provision of the charter or bylaws (or other organizational or governing
documents) of Wedco or any of Wedco's active domestic or alien Subsidiary
corporations (and other business entities); (ii) require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority, except (A) pursuant to the Exchange Act, the
Securities Act, the securities or "blue sky" laws of certain states and the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (B) for filing a Certificate of Merger pursuant to the New Jersey Law,
(C) pursuant to New Jersey environmental laws, including the Industrial Site
Recovery Act, and (D) as set forth in Section 4.04 of the Wedco Disclosure
Schedule; (iii) violate or conflict with any judgment, order, writ, injunction,
decree, statute, rule or regulation applicable to Wedco or any active
Subsidiary of Wedco or any of their respective assets; or (iv) conflict with,
result in a breach of any provisions of, constitute a default (or an event
which with notice or lapse of time or both would become a default) under,
result in a termination of, accelerate the performance required by, give to any
third party any right of termination, cancellation, amendment or acceleration
under, or result in the creation of a lien, security interest, charge or other
encumbrance on any of the assets of Wedco or any of its active Subsidiary
corporations (or other business entities) pursuant to any note, bond, mortgage,
indenture, license, lease, agreement or other instrument or obligation to which
Wedco or any of its active Subsidiaries is a party or by which Wedco or any of
its active Subsidiaries or any of their respective assets may be bound or
affected.
Section 4.5 SEC Filings; Financial Statements.
(a) Since January 1, 1991, Wedco has filed with the SEC all
forms, reports and documents required to be filed with the Commission by it
(collectively, the "Wedco SEC Reports"), all of which were prepared in
compliance in all material respects with all applicable requirements of the
Securities Act and the Exchange Act and the rules and regulations promulgated
thereunder. None of the Wedco SEC Reports, including, without limitation, any
financial statements or schedules included therein, at the time filed,
contained any untrue statement of a material fact with respect to Wedco or
omitted to state
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a material fact required to be stated therein or necessary in order to make the
statements made therein with respect to Wedco, in light of the circumstances
under which they were made, not misleading.
(b) Wedco has heretofore provided to ICO a consolidated
balance sheet of Wedco and its Subsidiaries as at March 31, 1995 (including the
notes, schedules and other attachments thereto, the "Wedco Balance Sheet," a
copy of which being delivered with the Wedco Disclosure Schedule) and
consolidated statements of income and statements of cash flow for the years
ended March 31, 1993, March 31, 1994 and March 31, 1995, and for the six-month
period ended September 30, 1995 (including the notes, schedules and other
attachments thereto) (collectively with the Wedco Balance Sheet, the "Wedco
Financial Statements"), all of which, other than the consolidated income
statement, balance sheet and statement of cash flow for the period ended
September 30, 1995, have been audited by Coopers & Lybrand. The Wedco
Financial Statements have been prepared in conformity with generally accepted
accounting principles, applied on a consistent basis during the periods
involved (subject, in the case of unaudited interim statements, to normal
year-end audit adjust- ments), and each presents fairly either the consolidated
financial position of Wedco and its Subsidiaries as of its date, or the
consolidated results of operations and changes in consolidated financial
position of Wedco and its Subsidiaries for the periods presented therein, as
the case may be. Except as and to the extent set forth on the Wedco Balance
Sheet or in Section 4.05(b) of the Wedco Disclosure Schedule, none of Wedco or
any of its Subsidiaries has any liabilities or obligations (whether absolute,
accrued, fixed, contingent, liquidated, unliquidated or otherwise and whether
due or to become due), except for liabilities and obligations incurred since
the date of the Wedco Balance Sheet in the ordinary course of business,
consistent with past practices, that are not, in the aggregate, material to
Wedco and its Subsidiaries, taken as a whole.
(c) Wedco has heretofore furnished to ICO a complete and
correct copy of all amendments and modifications, which have not yet been filed
with the Commission, to all agreements, documents and other instruments which
had previously been filed by Wedco with the Commission since January 1, 1991.
(d) Wedco has heretofore furnished to ICO financial
statements as of March 31, 1995 pertaining to each of its Subsidiaries. These
financial statements fairly present the financial positions of such
Subsidiaries as of the respective dates of the financial statements and the
results of operations and changes in the financial positions of such
Subsidiaries. Except as set forth on such financial statements, Wedco is
subject to no further capital call or other funding requirement with respect to
any of its Subsidiaries.
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Section 4.6 Absence of Certain Changes and Events.
Except as disclosed prior to the execution hereof in the Wedco SEC
Reports or as disclosed in Section 4.06 of the Wedco Disclosure Schedule, since
March 31, 1995: (i) there has not occurred or arisen any event having a
material adverse effect on, and there has not been any material adverse change
in the business, operations or financial condition of Wedco, its Subsidiaries
and, to Wedco's knowledge without further investigation, the Wedco Joint
Ventures taken as a whole and, to Wedco's knowledge, no fact or condition
exists which could reasonably be expected to cause such a material adverse
change; (ii) Wedco and each of its active Subsidiaries has conducted its
business only in the ordinary course, consistent with past practices; and (iii)
none of Wedco or any of its active Subsidiaries has taken any of the actions
described in Section 6.1(e) through (p) hereof.
Section 4.7 Litigation.
Except as may have been disclosed prior to the execution hereof in
the Wedco SEC Reports or as disclosed in Section 4.07 of the Wedco Disclosure
Schedule, there are no claims, actions, suits, proceedings, arbitrations or
investigations pending or, to Wedco's knowledge, threatened, against or
affecting Wedco or any of its Subsidiaries or, to Wedco's knowledge without
further investigation, any of the Wedco Joint Ventures or any properties or
rights of any of them before any court, arbitrator, administrative,
governmental or regulatory body, which, if determined adversely to Wedco or any
of its Subsidiaries or any of the Wedco Joint Ventures, would have a material
adverse effect on the business, operations or financial condition of Wedco, its
Subsidiaries and the Wedco Joint Ventures, taken as a whole, or would adversely
affect any action taken or to be taken by Wedco under this Agreement, or which
seeks to enjoin, or otherwise prevent, the consummation of any of the
transactions contemplated by this Agreement or to recover any damages or to
obtain any other relief as a result of this Agreement or the transactions
contemplated hereby, nor is there any judgment, decree, injunction, rule or
order of any court, arbitrator, administrative, governmental or regulatory body
outstanding against Wedco or any of its Subsidiaries or, to Wedco's knowledge
without further investigation, any of the Wedco Joint Ventures having, or which
would be reasonably likely to have, any such effect.
Section 4.8 Employee Benefit Plans.
(a) As used in this Agreement:
(i) "Benefit Plan" means with respect to any
person, any ERISA Plan or any other plan, agreement, trust or program for any
bonus, severance, hospitalization, vacation, deferred compensation, severance,
pension or profit-sharing, retirement, payroll savings, stock option, group
insurance, death benefit, fringe benefit, welfare or any
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other employee benefit plan or fringe benefit arrangement of any nature
whatsoever, including those benefitting former employees, maintained by such
person and/or any of its Subsidiaries (currently or at any time within the last
three (3) years) or any of their affiliates or to which such person and/or any
of its Subsidiaries (or any of their affiliates) has contributed or has been
obligated to contribute within the last three (3) years.
(ii) "ERISA" means the Employee Retirement Income
Security Act of 1974 and the regulations issued thereunder.
(iii) "ERISA Plan" means with respect to any person,
any employee benefit plan within the meaning of Section 3(3) of ERISA
maintained by such person and/or any of its Subsidiaries (currently or at any
time within the last three (3) years) or any of their affiliates or to which
such person and/or any of its Subsidiaries (or any of their affiliates) has
contributed or has been obligated to contribute within the last three (3)
years.
(iv) "Qualified Plan" means with respect to any
person, any employee pension benefit plan as defined in Section 3(2) of ERISA
which is intended to meet the qualification requirements under Section 401 of
the Internal Revenue Code ("Code") or for which the tax benefits or treatment
applicable to qualified plans under the Code has ever been claimed and which is
or has been maintained by such person and/or any of its Subsidiaries (currently
or at any time within the last three (3) years) or any of their affiliates or
to which such person and/or any of its Subsidiaries (or any of their
affiliates) has contributed or has been obligated to contribute within the last
three (3) years.
(b) Set forth beneath its name on Section 4.08 of the Wedco
Disclosure Schedule is a complete and accurate list of Wedco's and its
Subsidiaries' Benefit Plans, including all Benefit Plans governed or mandated
by non- United States law. A complete and correct copy of each of the Benefit
Plans and of any related trust agreements, insurance or annuity contracts,
valuations, and other funding agreements for each Benefit Plan has been
delivered to ICO.
(c) All of Wedco's and its Subsidiaries' ERISA Plans are
listed in Part I of Section 4.08 of the Wedco Disclosure Schedule. All of
Wedco's and its Subsidiaries' Benefit Plans that are not ERISA Plans, if any,
are listed in Part II of Section 4.08 of the Wedco Disclosure Schedule.
Section 4.08 of the Wedco Disclosure Schedule includes a listing of all
expected annual contributions to the Qualified Plans and ERISA Plans. Neither
Wedco nor any of its Subsidiaries maintains nor has maintained in the past any
defined benefit pension plan, and is not and has not been a party to any
agreement requiring it to contribute to a multi-employer plan within the
meaning of Section 3(37) of ERISA except as disclosed in Section 4.08 of the
Wedco Disclosure Schedule. There are not unfunded vested benefits under any
Qualified Plan which is subject to the vesting and
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funding standards of ERISA and no unfunded liabilities for all benefits accrued
through the date of the last actuarial valuation of such Plan (calculated on
the basis of the Plan's normal funding assumptions on such valuation). Wedco
and its Subsidiaries have operated in good faith compliance with a reasonable
interpretation of the continuation coverage requirements of the Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA"). Other than claims for
benefits in the ordinary course, there are no pending claims involving the
ERISA Plans or Qualified Plans by any participant covered under the ERISA Plans
or Qualified Plans or otherwise involving the ERISA Plans or Qualified Plans
which allege a breach of fiduciary duties or violation of the applicable state
or federal law which may result in material liability on the part of ICO or any
Qualified Plan or ERISA Plan under ERISA or any other law, nor is there any
reasonable basis for such a claim.
(d) To the knowledge of Wedco, none of the ERISA Plans or
Qualified Plans or any of their related trusts, or Wedco or any trustee,
administrator or other "party in interest" or "disqualified person" (within the
meaning of Section 3(14) of ERISA or Section 4975(e)(2) of the Code,
respectively) with respect to the ERISA Plans or Qualified Plans, has engaged
in any "prohibited transaction" (within the meaning of Section 406 of ERISA or
Section 4975(c) of the Code), which could subject any of the ERISA Plans or
Qualified Plans or related trusts, or any trustee, administrator or other
fiduciary of any ERISA Plan or Qualified Plan, or Surviving Corporation or any
other party dealing with the ERISA Plans or Qualified Plans, to the penalties
or excise tax imposed on prohibited transactions by Section 502(i) of ERISA or
Section 4975 of the Code.
(e) All of Wedco's or its Subsidiaries' Qualified Plans are
listed in Part III of Section 4.08 of the Wedco Disclosure Schedule. In the
reasonable belief of Wedco, each of the Qualified Plans meets the requirements
of Section 401(a) of the Code, and the trust, if any, forming a part of each
Qualified Plan is exempt from federal income tax under Section 501(a) of the
Code. A favorable determination letter has been issued by the Internal Revenue
Service within the past ten (10) years as to the qualification under Section
401(a) of the Code (including, but not limited to, amendments made by ERISA),
with respect to each Qualified Plan, and Wedco has delivered to ICO true and
correct copies of all such determination letters. None of the determination
letters has been revoked or modified by the Internal Revenue Service.
(f) All contributions required by law or required in
accordance with the terms of the Qualified Plans to have been made prior to the
Closing will have been made.
(g) Except pursuant to the Benefit Plans listed on Section
4.08 of the Wedco Disclosure Schedule and under COBRA, Wedco and its
Subsidiaries do not have any present or future liability to former employees or
to their dependents, survivors or beneficiaries in connection with or arising
out of any plan, compensation arrangement or
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practice which Wedco and its Subsidiaries contributed prior to the date hereof,
and Wedco and its Subsidiaries have not maintained, adopted or contributed to
any plan that provides benefits or payments to former employees or their
dependents, survivors or beneficiaries, except pursuant to the Benefit Plans
listed on Section 4.08 of the Wedco Disclosure Schedule and under COBRA.
(h) Wedco and its Subsidiaries have satisfied in all
material respects all reporting and disclosure requirements applicable under
ERISA, and the Department of Labor and Internal Revenue Service and Pension
Benefit Guaranty Corporation regulations promulgated thereunder, with respect
to all ERISA Plans and Qualified Plans, and Wedco has delivered to ICO a true
and complete copy of the most recently filed and disclosed Forms 5500, Forms
5500-C/R (with exhibits), and summary plan descriptions and summaries of
material modification for the ERISA Plans and Qualified Plans. In the event
that a Form 5500 for any of Wedco's or its Subsidiaries' Qualified Plans and
ERISA Plans for the 1994 plan year has not been filed prior to the Effective
Time, a proper extension will be filed if necessary.
(i) No Qualified Plan has had any "unrelated business
taxable income" as defined in Sections 512 through 514 of the Code. There have
been no claims, or notice of claims, filed under any fiduciary liability
insurance policy covering any Benefit Plan. With respect to any Qualified Plan
that has been terminated, it was terminated in compliance with the requirements
of the Code and ERISA and the liabilities to such Qualified Plan were fully
satisfied.
(j) The Trustees of each of the Qualified Plans have
completed their required annual accountings for the plan years ended on or
before March 31, 1993, such accountings accurately reflect the financial
positions of the Qualified Plans as of their respective date, and true and
complete copies of the Trustees' reports or schedules of such accountings have
been delivered to ICO.
Section 4.9 Labor Relations.
Except as disclosed in Section 4.09 of the Wedco Disclosure
Schedule: (a) none of Wedco or any of its Subsidiaries is in violation of any
applicable laws respecting employment and employment practices, terms and
conditions of employment, wages and hours, nor is Wedco or any of its
Subsidiaries engaged in any unfair labor practice, except where such violations
and unfair labor practices, individually or in the aggregate, would not have a
material adverse effect on the business, operations or financial condition of
Wedco and its Subsidiaries, taken as a whole; (b) there is no unfair labor
practice charge or complaint against Wedco or any of its Subsidiaries pending
before the National Labor Relations Board or the comparable authority in any
non-United States jurisdiction, nor is
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there any arbitration proceeding arising out of or under any Wedco Labor
Agreement (as hereinafter defined) pending against Wedco or any of its
Subsidiaries, and, to the knowledge of Wedco, no claim therefor exists or is
threatened; (c) no charges are pending before the Equal Employment Opportunity
Commission or any state, local or foreign agency responsible for the prevention
of unlawful employment practices; and (d) none of Wedco or any of its
Subsidiaries has received notice of the intent of any federal, state, local or
foreign agency responsible for the enforcement of labor or employment laws to
conduct an investigation of or relating to Wedco or any of its Subsidiaries
and, to the knowledge of Wedco, no such investigation is in progress. Except
as disclosed in Section 4.09 of the Wedco Disclosure Schedule and except where
the failure to obtain such consent or consents, individually or in the
aggregate, would not have a material adverse effect on the business, operations
or financial conditions of Wedco and its Subsidiaries, taken as a whole, no
consent of any labor organization or other person is required pursuant to any
of the Wedco Labor Agreements for the execution of this Agreement or the
consummation of the transactions contemplated hereby. As used herein, the term
"Wedco Labor Agreements" means all collective bargaining agreements (including
agreements governed by non-United States law), individual employment agreements
and written personnel policies applicable to any of the employees of Wedco or
any of its Subsidiaries.
Section 4.10 Material Contracts.
Section 4.10 of the Wedco Disclosure Schedule sets forth a list of
all lease agreements, loan agreements, promissory notes, guarantees, mortgages,
security and pledge agreements; all Wedco Labor Agreements; all agreements
which resulted in annual gross revenues to Wedco and its Subsidiaries, or
required annual payment by Wedco or any of its Subsidiaries of at least One
Hundred Thousand Dollars ($100,000); and any other agreements material to the
business, operations or financial condition of Wedco and its Subsidiaries,
taken as a whole, to which Wedco or any of its Subsidiaries is a party or to or
by which any of their respective assets is subject or bound. Except as set
forth in Section 4.10 of the Wedco Disclosure Schedule or reserved for in the
Wedco Financial Statements, each of such agreements is in full force and effect
and is valid, binding and enforceable, and none of Wedco, its Subsidiaries or,
to the knowledge of Wedco, any other party thereto, is in breach or default
(and, to the knowledge of Wedco, no event has occurred which, with the giving
of notice or passage of time or both would become a breach or default) under,
or has received notice of a default under, any such agreement, nor is Wedco or
any of its Subsidiaries in any material dispute with any third party under any
such agreement.
Section 4.11 Taxes.
(a) For purposes of this Agreement, (i) "Taxes" shall mean
all taxes, charges, fees, levies or other assessments, including, without
limitation, all net income, gross
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income, gross receipts, sales, use, ad valorem, transfer, franchise, profits,
license, withholding, payroll, employment, social security, unemployment,
excise, estimated, severance, stamp, occupation, property or other taxes,
customs duties, fees, assessments or charges of any kind whatsoever, together
with any interest and any penalties, additions to tax or additional amounts
imposed by any taxing authority, domestic or foreign; and (ii) "Tax Return"
shall mean any return, report, information return or other document (including
any related or supporting information) filed or required to be filed with any
governmental entity or other authority in connection with the determination,
assessment or collection of any Tax (whether or not such Tax is imposed on the
entity filing, or required to file, such return) or the administration of any
laws, regulations or administrative requirements relating to any Tax.
(b) Each of Wedco and Wedco's Subsidiaries and affiliates,
and any affiliated, combined or unitary group of which any such corporation (or
other business entity) is or was a member, as the case may be (individually, an
"Affiliate" of Wedco and, collectively, Wedco's "Affiliates") has: (i)
prepared and timely filed all Tax Returns (as hereinafter defined) (A) the
non-filing of which would have a material adverse effect on Wedco and its
Subsidiaries, taken as a whole, and (B) which are required to be filed by or
with respect to, or which include the income or operations of, Wedco or any
Wedco Subsidiary, in respect of any Taxes (as hereinafter defined); (ii) timely
and properly paid all Taxes that are shown to be due on such Tax Returns or are
otherwise due and payable; (iii) established on its books and records reserves
that are in all material respects adequate for the payment of all Taxes not yet
due and payable; and (iv) complied in all respects with all applicable laws,
rules and regulations the non-compliance with which would have a material
adverse effect on Wedco and its Subsidiaries, taken as a whole, relating to the
payment and withholding of Taxes and has timely and properly withheld from
individual employee wages and paid over to the proper governmental authorities
or deposited as required by law all amounts required to be so withheld and paid
over or deposited under all applicable laws.
(c) All Tax Returns filed by or with respect to, or which
include the income or operations of, Wedco or any Wedco Subsidiary, were, to
the extent applicable to Wedco or any Wedco Subsidiary, true, complete and
correct in all material respects when filed.
(d) There are no liens for Taxes upon the assets of Wedco or
any of its Subsidiaries except liens for Taxes not yet due.
(e) The statute of limitations for the assessment of federal
income taxes has expired for all consolidated federal income tax returns which
include Wedco or any Subsidiary of Wedco, or such returns have been examined by
the Internal Revenue Service ("IRS"), for all periods through March 31, 1990.
Except as set forth in Section 4.11 of the Wedco Disclosure Schedule, there are
no outstanding waivers or comparable consents given
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by or with respect to, or with respect to any Tax Return which includes the
income or operations of, Wedco or any Wedco Subsidiary regarding the
application of the statute of limitations with respect to any federal income
Taxes or federal income Tax Returns. Except as set forth in Section 4.11 of
the Wedco Disclosure Schedule, no federal, state, local or foreign audits or
other administrative proceedings or court proceedings are presently pending
with regard to any Taxes or Tax Returns of or with respect to, or which include
the income or operations of, Wedco or any Wedco Subsidiary.
Section 4.12 Compliance with Applicable Law.
Each of Wedco and its active Subsidiaries holds all material
licenses, franchises, permits and authorizations necessary for the lawful
conduct of its business under and pursuant to all, and has complied with and is
not in default in any respect under any, applicable law, statute, order, rule,
regulation, policy or guideline of any federal, state or local governmental
authority relating to Wedco or any of its Subsidiaries (other than where such
default or noncompliance would not result in a material limitation on the
conduct of the business of Wedco or any of its active Subsidiaries, or not
cause Wedco or any of its Subsidiaries to incur a material financial penalty,
or would not be likely otherwise to have a material adverse effect on the
business, operations or financial condition of Wedco and its Subsidiaries,
taken as a whole) and none of Wedco or any of its Subsidiaries has received
written notice of violation of, or knows of any violation of, any of the above.
Section 4.13 Fees and Commissions.
Except as disclosed on Section 4.13 of the Wedco Disclosure
Schedule, none of Wedco or any of Wedco's Subsidiaries or any of their
respective officers, directors, or employees has employed any broker, finder,
investment banker, consultant, financial or legal advisor or, incurred any
liability for any brokerage, finders' or other fees or commissions in
connection with the transactions contemplated by this Agreement.
Section 4.14 Insurance.
Section 4.14 of the Wedco Disclosure Schedule sets forth a
complete and accurate list of all insurance policies maintained by Wedco and
its Subsidiaries, identifying in each case: (i) the name of the insurance
company; (ii) the nature and limits of the coverage; (iii) the annual premiums
paid thereunder; and (iv) the coverage period applicable thereto. All such
insurance policies are in full force and effect and provide for coverages which
are usual and customary in the business of Wedco and its Subsidiaries as to
amount and scope. Each of Wedco and Wedco's Subsidiaries has properly paid or
will properly pay all premiums due under such policies of insurance on or prior
to the Effective Time. None
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of Wedco or its Subsidiaries is aware of any coverage dispute or claim under or
relating to any of such policies.
Section 4.15 Environmental Matters.
(a) As defined herein:
(i) "Release" shall mean any exposure to past or
current spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, dumping, disposing, abandonment, or any other
release, however defined, whether intentional or unintentional, of any
Hazardous Substances into the environment in violation of applicable
Environmental Laws, or which otherwise gives rise to any liability under any
Environmental Laws, and includes any suspected or threatened Release;
(ii) "Environmental Laws" shall mean all foreign,
federal, state and local laws, statutes, codes, ordinances, regulations, rules,
policies, consent decrees, judicial or administrative orders, permits,
approvals, or other requirements relating to the protection of human health or
the environment, all as amended or modified from time to time, including
without limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended (42 U.S.C. Section 9601, et seq.), the Solid
Waste Disposal Act, as amended (42 U.S.C. Section 6901 et seq.), the Hazardous
Waste Materials Transportation Act, as amended (49 U.S.C. Section 1801 et
seq.), the Clean Air Act, as amended (42 U.S.C. Section 7401 et seq.), the
Federal Water Pollution Control Act, as amended 33 U.S.C. Section 1251, et
seq.), the Toxic Substances Control Act, as amended (15 U.S.C. Section 2601 et
seq.), the Safe Drinking Water Act, as amended (42 U.S.C. Section 300f et
seq.), the Atomic Energy Act, as amended (42 U.S.C. Section 2014 et seq.), the
Federal Insecticide Fungicide and Rodenticide Act, as amended (7 U.S.C. Section
136, et seq.), the Oil Pollution Act of 1990, as amended (33 U.S.C. Section
2701, et seq.), the Emergency Planning and Community Right-to-Know Act of 1986,
as amended (42 U.S.C. Section 11001, et seq.), the Occupational Safety and
Health Act, as amended (29 U.S.C. Section 651 et seq.), and the regulations
adopted and publications promulgated pursuant thereto, and shall also include
any common law theory based on nuisance, trespass, negligence or other tortious
conduct;
(iii) "Hazardous Substances" shall mean any and all
hazardous and toxic substances, wastes or materials, any pollutants,
contaminants, or dangerous materials (including, but not limited to,
polychlorinated biphenyls, friable asbestos, volatile and semi-volatile organic
compounds, oils, petroleum products and fractions, and any materials which
include hazardous constituents or become hazardous, toxic, or dangerous when
their composition or state is changed), or any other similar substances or
materials which are included under or regulated by any Envi- ronmental Laws;
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(iv) "Contamination" shall mean the presence of, or
Release on, under, from, or to any real property, of any Hazardous Substance in
the environment. Contamination does not include a Release which occurred
during the routine storage, use or sale of Hazardous Substances from time to
time in the ordinary course of business, in compliance with Environmental Laws,
in compliance with good commercial practice and which does not otherwise give
rise to any liability under any Environmental Laws;
(v) "Regulatory Action" shall mean any formal and
adverse claim, demand, action or proceeding brought, prosecuted or instigated
by any governmental authority in connection with any Environmental Laws
(including without limitation civil, criminal and/or administrative
proceedings), whether or not seeking costs, damages, penalties or expenses; and
(vi) "Third Party Claim" shall mean third party
claims, actions, demands or proceedings based on any violation of or liability
under any Environmental Laws, or based on negligence, trespass, strict
liability, nuisance, toxic tort or detriment to human health, safety or welfare
due to any Release of Hazardous Substances or Contamination, and whether or not
seeking costs, damages, penalties or expenses.
(b) Except as disclosed on Section 4.15 of the Wedco
Disclosure Schedule, to Wedco's knowledge, no third party claims and/or
regulatory actions have been asserted or assessed against Wedco, any Wedco
Subsidiary or any of their real property and, to Wedco's knowledge, no third
party claims and/or regulatory actions are pending or threatened against Wedco,
any Wedco Subsidiary or any of their real property, arising out of or due to,
or allegedly arising out of or due to, (i) the Release on, under or from the
real property of any Hazardous Substances; (ii) any contamination of the real
property, including without limitation, the presence of any Hazardous Substance
which has come to be located on or under the real property from another
location; (iii) any material violation or alleged violation of any
Environmental Laws with respect to the real property or Wedco's or any Wedco
Subsidiary's business operations; (iv) any injury to human health or safety or
to the environment by reason of the past or present condition of, or past or
present activities on or under, the real property; or (v) the generation,
manufacture, storage, treatment, handling, transportation or other use, however
defined, of any Hazardous Substance on the real property; and, as a result of
any such conditions, whether individually or in the aggregate, there has been a
material adverse change in the business, operations or financial condition of
Wedco and its Subsidiaries, taken as a whole; (any acts, omissions,
circumstances, status or condition described in or contemplated by clauses (i)
through (v) of this Section 4.15(b) are hereinafter referred to collectively as
an "Environmental Condition").
(c) Except as disclosed on Section 4.15 of the Wedco
Disclosure Schedule, to Wedco's knowledge, Wedco's and its Subsidiaries'
storage, transportation, handling, use
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or disposal, if any, of Hazardous Substances on or under the real property or
Hazardous Substances generated on or from the real property is currently, and
at all times has been, in compliance in all material respects with all
applicable Environmental Laws.
(d) To Wedco's knowledge, Wedco has delivered to or has
caused to be delivered to ICO, prior to the execution and delivery of this
Agreement, complete copies of any and all documents relating to compliance by
Wedco and its Subsidiaries with Environmental Laws or to Environmental
Conditions.
(e) Except as disclosed on Section 4.15 of the Wedco
Disclosure Schedule, to Wedco's knowledge: (i) none of Wedco or any Wedco
Subsidiary has transported or arranged for the transportation of any Hazardous
Substances to any location which is listed on the EPA's National Priorities
List of Hazardous Substance Sites (the "National Priorities List"), or (ii)
none of Wedco or any Wedco Subsidiary has been identified as a potentially
responsible party at any site proposed for inclusion on the National Priorities
List, CERCLIS or any similar state list.
(f) Except as disclosed on Section 4.15 of the Wedco
Disclosure Schedule and except where the occurrence of such events, whether
individually or in the aggregate, would result in a material adverse change in
the business, operations or financial condition of Wedco and its Subsidiaries,
taken as a whole, to Wedco's knowledge:
(i) None of Wedco's or its Subsidiaries' real
property is listed in the National Priorities List or any other list maintained
by any federal, state or local governmental agency with respect to sites from
which there is or has been a Release of any Hazardous Substance or any
Contamination.
(ii) No part of Wedco's or its Subsidiaries' real
property is now being used (A) as a landfill, dump or other disposal, storage,
transfer or handling area for Hazardous Substances, excepting, however, for the
routine storage, use and sale of Hazardous Substances from time to time in the
ordinary course of business, in compliance with Environmental Laws; (B) for
military purposes; or (C) as a gasoline service station or a similar facility
for selling, dispensing, storing, transferring or handling petroleum and/or
petroleum products.
(iii) There are no underground or aboveground
storage tanks (whether or not currently in use), polychlorinated biphenyls
(PCBs) or nuclear fuels or wastes, located on or under Wedco's or its
Subsidiaries' real property.
(iv) There is no ongoing Release of any Hazardous
Substance on, under or from Wedco's or its Subsidiaries' real property.
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(v) There is not now present any Contamination of
Wedco's or its Subsidiaries' real property caused by Wedco or its Subsidiaries.
(vi) Wedco's or its Subsidiaries' real property and
the ownership, use and operation thereof, are currently and, at all times
during Wedco's or its Subsidiaries' ownership or operation thereof, have been
in material compliance with all applicable Environmental Laws.
(g) To Wedco's knowledge, there are no liens against Wedco's
or its Subsidiaries' real property arising under any Environmental Laws, or
based upon a Regulatory Action and/or Third Party Claim.
Section 4.16 Joint Ventures.
No reference to a Subsidiary of Wedco in any Section of this Article 4 shall
be deemed to be a reference to either Wedco's Canadian joint venture, WedTech,
Inc., a Canadian corporation (the "Canadian Joint Venture"), or to Wedco's
French joint venture, Micronyl-Wedco, S.A. (the "French Joint Venture"). Other
than the Canadian Joint Venture and the French Joint Venture or as set forth in
Sections 4.02(b) or 4.16 of the Wedco Disclosure Schedule, Wedco has no equity
investment in any joint venture (whether the joint venture is in the form of a
partnership, corporation or other entity). True, complete and correct copies
of all joint venture organizational documents to which Wedco or any of its
Subsidiaries is a party, including (without limitation) the organizational
documents for the Canadian Joint Venture and the French Joint Venture
(collectively, the "Joint Venture Organizational Documents"), are attached to
Section 4.16 of the Wedco Disclosure Schedule. The Joint Venture
Organizational Documents are in full force and effect and Wedco or the Wedco
Subsidiary that is a party thereto is not in breach thereof. True, complete
and correct copies of any agreements or arrangements pursuant to which any
joint venture in which Wedco or any of its Subsidiaries is a joint venturer
(individually, a "Wedco Joint Venture"; collectively, the "Wedco Joint
Ventures") is obligated to repay borrowed money are attached to Section 4.16 of
the Wedco Disclosure Schedule. To Wedco's knowledge, financial statements of
the Wedco Joint Ventures attached to Section 4.16 of the Wedco Disclosure
Schedule have been prepared in conformity with generally accepted accounting
principles, applied on a consistent basis during the periods involved (subject,
in the case of unaudited interim statements, to normal year-end audit
adjustments), and each presents fairly either the financial position of the
applicable Wedco Joint Venture as of its date, or the results of operations and
changes in consolidated financial position of the applicable Wedco Joint
Venture for the periods presented therein, as the case may be. Except as and
to the extent set forth in the above described financial statements or in
Section 4.16 of the Wedco Disclosure Schedule, to Wedco's knowledge, none of
the Wedco Joint Ventures has any liabilities or obligations (whether absolute,
accrued, fixed, contingent,
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liquidated, unliquidated or otherwise and whether due or to become due), other
than liabilities and obligations incurred since the date of the most recent
balance sheet included in the Wedco Joint Venture financial statements in the
ordinary course of business, consistent with past practices, that are not, in
the aggregate, material to that Wedco Joint Venture.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
OF ICO
ICO represents and warrants to Wedco as follows:
Section 5.1 Organization and Qualification; Active Subsidiaries.
(a) Each of ICO and each active domestic Subsidiary of ICO
is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation and each has all requisite
corporate power and authority to own, lease or operate the properties that it
purports to own, lease or operate and to carry on its business as it is now
being conducted. Section 5.01(a) of the Disclosure Schedule which is being
delivered by ICO to Wedco herewith (the "ICO Disclosure Schedule") lists all
active domestic Subsidiaries of ICO. Each of ICO and each of its active
domestic Subsidiaries is duly qualified or licensed as a foreign corporation to
do business and is in good standing in each jurisdiction where the property
owned, leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such failures to be so duly
qualified or licensed and in good standing which, when taken together with all
other such failures and all such failures of ICO's active alien Subsidiaries
referred to in Section 5.1(b) below, would not have a material adverse effect
on the business, operations or financial condition of ICO and its Subsidiaries,
taken as a whole. ICO has heretofore delivered to Wedco true and complete
copies of its Articles of Incorporation and By-laws, and the charter and
by-laws of each of its active domestic Subsidiaries as currently in effect.
None of ICO nor any of its active domestic Subsidiaries is in violation of any
of the provisions of its respective charter or by-laws.
(b) Each active alien Subsidiary corporation (or other
business entity) of ICO is a corporation (or other business entity) duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation (or other organization). Each active alien
Subsidiary of ICO has all requisite corporate (or other) power and authority to
own, lease or operate the properties that it purports to own, lease or operate
and to carry on its business as it is now being conducted. Section 5.01(b) of
the ICO Disclosure Schedule
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lists all active alien Subsidiary corporations (and other business entities) of
ICO. Each active alien Subsidiary corporation (or other business entity) of
ICO is duly qualified or licensed as a foreign or alien corporation (or other
business entity) to do business and is in good standing in each jurisdiction
where the property owned, leased or operated by it or the nature of its
activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing which, when
taken together with all other such failures and all such failures of ICO's
active domestic Subsidiaries referred to in Section 5.1(a) above, would not
have a material adverse effect on the business, operations or financial
condition of ICO and its Subsidiaries, taken as a whole. ICO has heretofore
delivered to Wedco true and complete copies of the charter and bylaws (or other
organizational or governing documents) of each active alien Subsidiary
corporation (or other business entity) of ICO, as currently in effect. None of
the active alien Subsidiary corporations (or other business entities) of ICO is
in violation of any of the provisions of its respective charter or bylaws (or
other organizational or governing documents).
Section 5.2 Capitalization.
(a) The authorized capital stock of ICO consists of Fifty
Million (50,000,000) shares of ICO Common Stock and Five Hundred Thousand
(500,000) shares of Preferred Stock, no par value ("ICO Preferred Stock"). As
of the date hereof, there are (i) Three Hundred Twenty-Two Thousand Five
Hundred (322,500) shares of ICO Preferred Stock issued and outstanding, and
Eight Million Eight Hundred Eighty Three Thousand Nine Hundred Eleven
(8,883,911) shares of ICO Common Stock issued and outstanding as of September
30, 1995, all of which shares of ICO Common Stock are duly authorized, validly
issued, fully paid, non-assessable and are not subject to and were not issued
in violation of any preemptive rights; (ii) no shares of ICO Common Stock held
by ICO as treasury stock; and (iii) no shares of ICO Common Stock held by any
of ICO's Subsidiaries. Except as set forth in Section 5.02(a) of the ICO
Disclosure Schedule, there are no options, warrants, calls, rights,
subscriptions, convertible securities or other rights or other agreements,
arrangements or commitments of any kind relating to the issued or unissued
capital stock of ICO to which ICO or any of its Subsidiaries is a party or
otherwise obligating ICO or any Subsidiary of ICO to issue, transfer or sell
any securities of ICO, or securities or other instruments convertible into or
exchangeable or exercisable for any securities of ICO. Except as set forth in
Section 5.02(a) of the ICO Disclosure Schedule, there are no stockholder
agreements, voting trusts or other agreements or understandings to which ICO is
a party or is bound relating to the voting or transfer of any of such shares.
Except as set forth in Section 5.02(a) of the ICO Disclosure Schedule, there
are no outstanding contractual or other obligations of ICO or any of ICO's
Subsidiaries to purchase, redeem or otherwise acquire any shares of ICO Common
Stock.
<PAGE> 105
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(b) Section 5.02(b) of the ICO Disclosure Schedule lists all
the Subsidiaries of ICO and indicates the number and class of shares of the
capital stock of each such Subsidiary outstanding and the record holders
thereof, all as of the date of this Agreement. All the outstanding shares of
each of ICO's Subsidiaries have been validly issued and are fully paid and
non-assessable, are not subject to and were not issued in violation of any
preemptive rights. There are no options, warrants, calls, rights,
subscriptions, convertible securities or other rights or other agreements,
arrangements or commitments of any kind (other than this Agreement) relating to
the issued or unissued capital stock or other securities of any Subsidiary of
ICO or otherwise obligating ICO or any Subsidiary of ICO to issue, transfer or
sell any securities of any such Subsidiary, or any securities or other
instruments convertible into or exchangeable or exercisable for any securities
of any such Subsidiary. Except as contemplated by this Agreement, the shares
of each of ICO's Subsidiaries are owned by the persons indicated in Section
5.02(b) of the ICO Disclosure Schedule free and clear of all liabilities,
obligations, claims, liens, pledges, security interests, options, charges,
encumbrances and interests of any third party of any nature whatsoever. Except
as contemplated by this Agreement, there are no stockholder agreements, voting
trusts or other agreements or understandings relating to the voting transfer of
any shares of any Subsidiary of ICO. Except as contemplated by this Agreement,
there are no outstanding contractual or other obligations of ICO or any of
ICO's Subsidiaries to purchase, redeem or otherwise acquire any shares of any
Subsidiary of ICO.
(c) Except as set forth in Section 5.02(c) the ICO
Disclosure Schedule, none of ICO or any of its Subsidiaries has any equity
investment in any corporation, association, partnership, joint venture or other
entity. Attached to Section 5.02(c) of the ICO Disclosure Schedule are true
and complete copies of the charter, articles, by- laws, partnership or other
organizational documents to which ICO or any of its Subsidiaries are a party.
Section 5.3 Authority Relative to this Agreement.
(a) ICO has the corporate power and authority to execute and
deliver this Agreement and to carry out its obligations hereunder. The
execution and delivery of this Agreement by ICO and the consummation by ICO of
the transactions contemplated hereby have been duly and validly authorized by
the Board of Directors of ICO. The Board of Directors of ICO has directed that
this Agreement be submitted to the stockholders of ICO for approval at a
meeting of such stockholders and, except for such approval, no other corporate
proceedings on the part of ICO are necessary to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
ICO and, assuming the due authorization, execution and delivery of this
Agreement by Wedco, constitutes a legal, valid and binding agreement of ICO,
enforceable against ICO in accordance with its terms.
<PAGE> 106
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(b) W Acquisition has the corporate power and authority to
execute and deliver this Agreement and to carry out its obligations hereunder.
The execution and delivery by W Acquisition of this Agreement and the
consummation by W Acquisition of the transactions contemplated hereby have been
duly and validly authorized by the Board of Directors of W Acquisition and
shall be duly and validly authorized by ICO as the sole stockholder of W
Acquisition, and no other corporate proceedings on the part of W Acquisition
are necessary to authorize this Agreement or to consummate the transactions
contemplated hereby.
Section 5.4 Consents and Approvals; No Violation.
Except, in the case of clauses 5.4(b) through 5.4(d) below, as set
forth in Section 5.04 of the ICO Disclosure Schedule, and for such failure to
obtain consents, approvals, authorizations or permits for, or make filings with
or notifications to, or such violations, conflicts, breaches, defaults,
terminations, accelerations and rights of termination, cancellation, amendment
or acceleration which, individually or in the aggregate, would not have a
material adverse effect on the business, operations or financial condition of
ICO and its Subsidiaries, taken as a whole, none of the execution and delivery
of this Agreement by ICO, the consummation by ICO of the transactions
contemplated hereby or compliance by ICO or any of its Subsidiaries with any of
the provisions hereof will: (a) conflict with or result in a breach of any
provision of the charter or by-laws of ICO or any Subsidiary of ICO; (b)
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, except (i) pursuant
to the Exchange Act, the Securities Act, the securities or "blue sky" laws of
certain states and the HSR Act, and (ii) for filing a certificate of merger
under the New Jersey Law; (c) violate or conflict with any judgment, order,
writ, injunction, decree, statute, rule or regulation applicable to ICO or any
of its Subsidiaries or any of their respective assets; or (d) conflict with,
result in a breach of any provisions of, constitute a default (or an event
which with notice or lapse of time or both would become a default) under,
result in a termination of, accelerate the performance required by, give to any
third party any right of termination, cancellation, amendment or acceleration
under, or result in the creation of a lien, security interest, charge or other
encumbrance on any of the assets of ICO or any of its Subsidiaries pursuant to,
any note, bond, mortgage, indenture, license, lease, agreement or other
instrument or obligation to which ICO or any of its Subsidiaries is a party or
by which ICO or any of its Subsidiaries or any of their respective assets may
be bound or affected.
Section 5.5 SEC Filings; Financial Statements.
(a) Since January 1, 1991, ICO has filed with the SEC all
forms, reports and documents required to be filed with the SEC by it
(collectively, the "ICO SEC Reports"), all of which were prepared in compliance
in all material respects with all
<PAGE> 107
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applicable requirements of the Securities Act and the Exchange Act and the
rules and regulations promulgated thereunder. None of the ICO SEC Reports,
including, without limitation, any financial statements or schedules included
therein, at the time filed, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
(b) Each of the consolidated balance sheet of ICO and its
Subsidiaries as of September 30, 1995 (including the notes, schedules and other
attachments thereto, the "ICO Balance Sheet"), and the consolidated statements
of income and statement of cash flow for the years ended September 30, 1995 and
September 30, 1994 (including the notes, schedules and other attachments
thereto) of ICO included in the Form 10-K filed by ICO with the Commission for
the fiscal years ended September 30, 1995 and September 30, 1994, as the case
may be, has been prepared in conformity with generally accepted accounting
principles applied on a consistent basis during the periods involved, except as
otherwise noted therein (subject, in the case of unaudited interim statements,
to normal year-end audit adjustments), and each presents fairly either the
consolidated financial position of ICO and its Subsidiaries as of its date, or
the consolidated results of operations and changes in consolidated financial
position of ICO and its Subsidiaries for the periods presented therein, as the
case may be. Except as and to the extent set forth on the ICO Balance Sheet,
none of ICO or any of its Subsidiaries has any liabilities or obligations
(whether absolute, accrued, fixed, contingent, liquidated, unliquidated or
otherwise and whether due or to become due), except for liabilities and
obligations incurred since the date of the ICO Balance Sheet in the ordinary
course of business, consistent with past practices, that are not, in the
aggregate, material to ICO and its Subsidiaries taken as a whole.
(c) ICO has heretofore furnished to Wedco a complete and
correct copy of all amendments and modifications, which have not yet been filed
with the Commission, to all agreements, documents and other instruments which
had previously been filed by ICO with the Commission.
Section 5.6 Absence of Certain Changes and Events.
Except as disclosed prior to the execution hereof in the ICO SEC
Reports or in Section 5.06 of the ICO Disclosure Schedule, since September 30,
1994, (a) there has not occurred or arisen any event having a material adverse
effect on, and there has not been any material adverse change in the business,
operations or financial condition of ICO and its Subsidiaries, taken as a
whole, and, to the knowledge of ICO, no fact or condition exists which could
reasonably be expected to cause such a material adverse change; (b) ICO and
each of its Subsidiaries has conducted its business only in the ordinary
course, consistent
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with past practices; and (c) none of ICO or any of its Subsidiaries has taken
any of the actions described in clauses (e) through (o) of Article 6 hereof.
Section 5.7 Litigation.
Except as may have been disclosed prior to the execution hereof in
the ICO SEC Reports or in Section 5.07 of the ICO Disclosure Schedule, there
are no claims, actions, suits, proceedings, arbitrations or investigations
pending or, to the knowledge of ICO, threatened, against or affecting ICO or
any of its Subsidiaries or, to ICO's knowledge without further investigation,
any joint venture in which ICO or any of its Subsidiaries is a joint venturer
(individually, an "ICO Joint Venture;" collectively, the "ICO Joint Ventures")
or any properties or rights of any of them before any court, arbitrator,
administrative, governmental or regulatory body, which, if determined adversely
to ICO or any of its Subsidiaries, or any of the ICO Joint Ventures, would have
a material adverse effect on the business, operations or financial condition of
ICO, its Subsidiaries and the ICO Joint Ventures, taken as a whole, or would
adversely affect any action taken or to be taken by ICO under this Agreement,
or which seeks to enjoin, or otherwise prevent, the consummation of any of the
transactions contemplated by this Agreement or to recover any damages or to
obtain any other relief as a result of this Agreement or the transactions
contemplated hereby, nor is there any judgment, decree, injunction, rule or
order of any court, arbitrator, administrative, governmental or regulatory body
outstanding against ICO or any of its Subsidiaries or, to ICO's knowledge
without further investigation, any of the ICO Joint Ventures having, or which
would be reasonably likely to have, any such effect.
Section 5.8 Employee Benefit Plans.
(a) The definitions set forth in Section 4.8(a) hereof shall
apply to this Section 5.8.
(b) Set forth beneath its name in Section 5.08 of the ICO
Disclosure Schedule is a complete and accurate list of ICO's and its
Subsidiaries' Benefit Plans, including all Benefit Plans governed or mandated
by non- United States law. A complete and correct copy of each of the Benefit
Plans and of any related trust agreements, insurance or annuity contracts,
valuations, and other funding agreements for each Benefit Plan has been
delivered to Wedco.
(c) All of ICO's and its Subsidiaries' ERISA Plans are
listed in Part I of Section 5.08 of the ICO Disclosure Schedule. All of ICO's
and its Subsidiaries' Benefit Plans that are not ERISA Plans, if any, are
listed in Part II of Section 5.08 of the ICO Disclosure Schedule. Section 5.08
of the ICO Disclosure Schedule includes a listing of all expected annual
contributions to the Qualified Plans and ERISA Plans. Neither ICO nor
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any of its Subsidiaries maintains nor has maintained in the past any defined
benefit pension plan, and is not and has not been a party to any agreement
requiring it to contribute to a multi-employer plan within the meaning of
Section 3(37) of ERISA, except as disclosed in Section 5.08 of the ICO
Disclosure Schedule. There are no unfunded vested benefits under any Qualified
Plan which is subject to the vesting and funding standards of ERISA and no
unfunded liabilities for all benefits accrued through the date of the last
actuarial valuation of such Plan (calculated on the basis of the Plan's normal
funding assumptions on such valuation). ICO and its Subsidiaries have operated
in good faith compliance with a reasonable interpretation of the continuation
coverage requirements of COBRA. Other than claims for benefits in the ordinary
course, there are no pending claims involving the ERISA Plans or Qualified
Plans by any participant covered under the ERISA Plans or Qualified Plans or
otherwise involving the ERISA Plans or Qualified Plans which allege a breach of
fiduciary duties or violation of the applicable state or federal law which may
result in material liability on the part of ICO or any Qualified Plan or ERISA
Plan under ERISA or any other law, nor is there any reasonable basis for such a
claim.
(d) To the knowledge of ICO, none of the ERISA Plans or
Qualified Plans or any of their related trusts, or ICO or any trustee,
administrator or other "party in interest" or "disqualified person" (within the
meaning of Section 3(14) of ERISA or Section 4975(e)(2) of the Code,
respectively) with respect to the ERISA Plans or Qualified Plans, has engaged
in any "prohibited transaction" (within the meaning of Section 406 of ERISA or
Section 4975(c) of the Code), which could subject any of the ERISA Plans or
Qualified Plans or related trusts, or any trustee, administrator or other
fiduciary of any ERISA Plan or Qualified Plan, or Surviving Corporation or any
other party dealing with the ERISA Plans or Qualified Plans, to the penalties
or excise tax imposed on prohibited transactions by Section 502(i) of ERISA or
Section 4975 of the Code.
(e) All of ICO's or its Subsidiaries' Qualified Plans are
listed in Part III of Section 5.08 of the ICO Disclosure Schedule. In the
reasonable belief of ICO, each of the Qualified Plans meets the requirements of
Section 401(a) of the Code, and the trust, if any, forming a part of each
Qualified Plan is exempt from federal income tax under Section 501(a) of the
Code. A favorable determination letter has been issued by the Internal Revenue
Service within the past ten (10) years as to the qualification under Section
401(a) of the Code (including, but not limited to, amendments made by ERISA),
with respect to each Qualified Plan, and ICO has delivered to Wedco true and
correct copies of all such determination letters. None of the determination
letters has been revoked or modified by the Internal Revenue Service.
(f) All contributions required by law or required in
accordance with the terms of the Qualified Plans to have been made prior to the
Closing will have been made.
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(g) Except pursuant to the Benefit Plans listed on Section
5.08 of the ICO Disclosure Schedule and under COBRA, ICO and its Subsidiaries
do not have any present or future liability to former employees or to their
dependents, survivors or beneficiaries in connection with or arising out of any
plan, compensation arrangement or practice which ICO and its Subsidiaries
contributed prior to the date hereof, and ICO and its Subsidiaries have not
maintained, adopted or contributed to any plan that provides benefits or
payments to former employees or their dependents, survivors or beneficiaries,
except pursuant to the Benefit Plans listed on Section 5.08 of the ICO
Disclosure Schedule and under COBRA.
(h) ICO and its Subsidiaries have satisfied in all material
respects all reporting and disclosure requirements applicable under ERISA, and
the Department of Labor and Internal Revenue Service and Pension Benefit
Guaranty Corporation regulations promulgated thereunder, with respect to all
ERISA Plans and Qualified Plans, and ICO has delivered to Wedco a true and
complete copy of the most recently filed and disclosed Forms 5500, Forms
5500-C/R (with exhibits), and summary plan descriptions and summaries of
material modification for the ERISA Plans and Qualified Plans. In the event
that a Form 5500 for any of ICO's or its Subsidiaries' Qualified Plans and
ERISA Plans for the 1994 plan year has not been filed prior to the Effective
Time, a proper extension will be filed if necessary.
(i) No Qualified Plan has had any "unrelated business
taxable income" as defined in Sections 512 through 514 of the Code. There have
been no claims, or notice of claims, filed under any fiduciary liability
insurance policy covering any Benefit Plan.
(j) The Trustees of each of the Qualified Plans have
completed their required annual accountings for the plan years ended on or
before September 30, 1994, such accountings accurately reflect the financial
positions of the Qualified Plans as of their respective date, and true and
complete copies of the Trustees' reports or schedules of such accountings have
been delivered to Wedco.
Section 5.9 Labor Relations.
Except as disclosed in Section 5.09 of the ICO Disclosure
Schedule, (a) none of ICO or any of its Subsidiaries is in violation of any
applicable laws respecting employment and employment practices, terms and
conditions of employment, wages and hours, nor is ICO or any of its
Subsidiaries engaged in any unfair labor practice, except where such violations
and unfair labor practices, individually or in the aggregate, would not have a
material adverse effect on the business, operations or financial condition of
ICO and its Subsidiaries taken as a whole; (b) there is no unfair labor
practice charge or complaint against ICO or any of its Subsidiaries pending
before the National Labor Relations Board, nor is there any arbitration
proceeding arising out of or under any ICO Labor Agreements
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(as hereinafter defined) pending against ICO or any of its Subsidiaries, and,
to the knowledge of ICO, no claim therefor exists or is threatened; (c) no
charges are pending before the Equal Employment Opportunity Commission or any
state, local or foreign agency responsible for the prevention of unlawful
employment practices; and (d) none of ICO nor any of its Subsidiaries has
received notice of the intent of any federal, state or local agency responsible
for the enforcement of labor or employment laws to conduct an investigation of
or relating to ICO or any of its Subsidiaries and, to the knowledge of ICO, no
such investigation is in progress. Except as disclosed in Section 5.09 of the
ICO Disclosure Schedule and except where the failure to obtain such consent or
consents, individually or in the aggregate, would not have a material adverse
effect on the business, operations or financial conditions of ICO and its
Subsidiaries, taken as a whole, no consent of any labor organization or other
person is required pursuant to any of the ICO Labor Agreements for the
execution of this Agreement or the consummation of the transactions
contemplated hereby. As used herein, the term "ICO Labor Agreements" means all
collective bargaining agreements, individual employment agreements and written
personnel policies applicable to any of the employees of ICO or any of its
Subsidiaries.
Section 5.10 Material Contracts.
Section 5.10 of the ICO Disclosure Schedule sets forth a list of
all lease agreements, loan agreements, promissory notes, guarantees, mortgages,
security and pledge agreements; all ICO Labor Agreements, all joint venture
agreements and all agreements which resulted in annual gross revenues to ICO
and its Subsidiaries or required annual expenditures or payment by ICO or any
of its Subsidiaries of advances or guarantees of at least One Hundred Thousand
Dollars ($100,000), and any other agreements material to the business,
operations or financial condition of ICO and its Subsidiaries, taken as a
whole, to which ICO or any of its Subsidiaries is a party or to which any of
their respective assets is subject or bound. Each of such agreements is in
full force and effect and is valid, binding and enforceable, and none of ICO,
its Subsidiaries or, to the knowledge of ICO, any other party thereto, is in
breach or default (and, to the knowledge of ICO, no event has occurred which,
with the giving of notice or passage of time or both, would become a breach or
default) under, or has received notice of a default under, any such agreement,
nor is ICO or any of its Subsidiaries in any material dispute with any third
party under any such agreement.
Section 5.11 Taxes.
(a) The definitions set forth in Section 4.11(a) hereof
shall apply to this Section 5.11.
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(b) Each of ICO and its Subsidiaries and affiliates, and any
affiliated, combined or unitary group of which any such corporation (or other
business entity) is or was a member, as the case may be (individually, an
"Affiliate of ICO" and, collectively, "ICO's Affiliates"), has: (i) prepared
and timely filed all Tax Returns (A) the non-filing of which would have a
material adverse effect on ICO and its Subsidiaries, taken as a whole, and (B)
which are required to be filed by or with respect to it in respect of any
Taxes; (ii) timely and properly paid all Taxes that are shown to be due on such
Tax Return or are otherwise due and payable; (iii) established on its books and
records reserves that are in all material respects adequate for the payment of
all Taxes not yet due and payable; and (iv) complied in all respects with all
applicable laws, rules and regulations, non-compliance with which would have a
material adverse effect on ICO and its Subsidiaries, taken as a whole, relating
to the payment and withholding of Taxes and has timely and properly withheld
from individual employee wages and paid over to the proper governmental
authorities or deposited as required by law, all amounts required to be so
withheld and paid over or deposited under all applicable laws.
(c) All Tax Returns filed by ICO were true, correct and
complete in all material respects when filed.
(d) There are no liens for Taxes upon the assets of ICO or
any of its Affiliates except liens for Taxes not yet due.
(e) The statute of limitations has expired for any federal
income tax returns of ICO through September 30, 1991. Except as set forth in
Section 5.11 of the ICO Disclosure Schedule, there are no outstanding waivers
or comparable consents given by ICO or any of its Affiliates regarding the
application of the statute of limitations with respect to any federal income
Taxes or federal income Tax Returns. Except as set forth in Section 5.11 of
the ICO Disclosure Schedule, no federal, state, local or foreign audits or
other administrative proceedings or court proceedings are presently pending
with regard to any Taxes or Tax Returns.
Section 5.12 Compliance with Applicable Law.
Each of ICO and its Subsidiaries holds all material licenses,
franchises, permits and authorizations necessary for the lawful conduct of its
business under and pursuant to all, and has complied with and is not in default
in any respect under any, applicable law, statute, order, rule, regulation,
policy or guideline of any federal, state or local governmental authority
relating to ICO or any of its Subsidiaries (other than where such default or
noncompliance would not result in a material limitation on the conduct of the
business of ICO or any of its Subsidiaries, or not cause ICO or any of its
Subsidiaries to incur material financial penalty, or would not be likely to
otherwise have a material adverse effect on the
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business, operations or financial condition of ICO and its Subsidiaries taken
as a whole) and none of ICO or any of its Subsidiaries has received written
notice of violation of, or knows of any violation of, any of the above.
Section 5.13 Fees and Commissions.
Except as disclosed on Section 5.13 of the ICO Disclosure
Schedule, none of ICO or any of ICO's Subsidiaries or any of their respective
officers, directors, or employees has employed any broker, finder, investment
banker, consultant, financial or legal advisor or, incurred any liability for
any brokerage, finders' or other fees or commissions in connection with the
transactions contemplated by this Agreement.
Section 5.14 Insurance.
Section 5.14 of the ICO Disclosure Schedule sets forth a complete
and accurate list of all insurance policies maintained by ICO and its
Subsidiaries, identifying in each case: (i) the name of the insurance company;
(ii) the nature and limits of the coverage; (iii) the annual premiums paid
thereunder; and (iv) the coverage period applicable thereto. All such
insurance policies are in full force and effect and provide for coverages which
are usual and customary in the business of ICO and its Subsidiaries as to
amount and scope. Each of ICO and ICO's Subsidiaries has properly paid or will
properly pay all premiums due under such policies of insurance on or prior to
the Effective Time. None of ICO or its Subsidiaries is aware of any coverage
dispute or claim under or relating to any of such policies.
Section 5.15 Environmental Protection.
(a) The definitions set forth in Section 4.15(a) hereof
shall apply to this Section 5.15.
(b) Except as disclosed on Section 5.15 of the ICO
Disclosure Schedule, to ICO's knowledge no third party claims and/or regulatory
actions have been asserted or assessed against ICO, any ICO Subsidiary, or any
of their real property and, to ICO's knowledge, no third party claims and/or
regulatory actions are pending or threatened against ICO, any ICO Subsidiary or
the real property, arising out of or due to, or allegedly arising out of or due
to: (i) the Release on, under or from the real property of any Hazardous
Substances; (ii) any contamination of the real property, including without
limitation, the presence of any Hazardous Substance which has come to be
located on or under the real property from another location; (iii) any material
violation or alleged violation of any Environmental Laws with respect to the
real property or ICO's or any ICO Subsidiary's business operations; (iv) any
injury to human health or safety or to the
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environment by reason of the past or present condition of, or past or present
activities on or under, the real property; or (v) the generation, manufacture,
storage, treatment, handling, transportation or other use, however defined, of
any Hazardous Substance on the real property; and, as a result of any such
conditions, whether individually or in the aggregate, there has been a material
adverse change in the business, operations or financial condition of ICO and
its Subsidiaries, taken as a whole; (any acts, omissions, circumstances, status
or condition described in or contemplated by clauses (i) through (v) of this
Section 5.15(b) are hereinafter referred to collectively as an "Environmental
Condition").
(c) Except as disclosed on Section 5.15 of the ICO
Disclosure Schedule, to ICO's knowledge, ICO's and its Subsidiaries' storage,
transportation, handling, use or disposal, if any, of Hazardous Substances on
or under the real property of Hazardous Substances generated on or from the
real property is currently, and at all times has been, in compliance in all
material respects with all applicable Environmental Laws.
(d) To ICO's knowledge, ICO has delivered to or has caused
to be delivered to Wedco, prior to the execution and delivery of this
Agreement, complete copies of any and all documents relating to compliance by
ICO and its Subsidiaries with Environmental Laws or to Environmental
Conditions.
(e) Except as disclosed on Section 5.15 of the ICO
Disclosure Schedule, to ICO's knowledge: (i) none of ICO or any ICO Subsidiary
has transported or arranged for the transportation of any Hazardous Substances
to any location which is listed on the EPA's National Priorities List of
Hazardous Substance Sites (the "National Priorities List"); or (ii) none of ICO
or any ICO Subsidiary has been identified as a potentially responsible party at
any site proposed for inclusion on the National Priorities List, CERCLIS or any
similar state list.
(f) Except as disclosed on Section 5.15 of the ICO
Disclosure Schedule, and except where the occurrence of such events, whether
individually or in the aggregate, would result in a material adverse change in
the business, operations or financial condition of ICO and its Subsidiaries,
taken as a whole, to ICO's knowledge:
(i) None of ICO's or its Subsidiaries' real
property is listed in the National Priorities List or any other list maintained
by any federal, state or local governmental agency with respect to sites from
which there is or has been a Release of any Hazardous Substance or any
Contamination.
(ii) No part of ICO's or its Subsidiaries' real
property is now being used (A) as a landfill, dump or other disposal, storage,
transfer or handling area for Hazardous Substances; excepting, however, for the
routine storage, use and sale of
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Hazardous Substances from time to time in the ordinary course of business, in
compliance with Environmental Laws; (B) for military purposes; or (C) as a
gasoline service station or a similar facility for selling, dispensing,
storing, transferring or handling petroleum and/or petroleum products.
(iii) There are no underground or aboveground
storage tanks (whether or not currently in use), polychlorinated biphenyls
(PCBs) or nuclear fuels or wastes, located on or under ICO's or its
Subsidiaries' real property.
(iv) There is no ongoing Release of any Hazardous
Substance on, under or from ICO's or its Subsidiaries' real property.
(v) There is not now present any Contamination of
ICO's or its Subsidiaries' real property caused by ICO or its Subsidiaries.
(vi) ICO's or its Subsidiaries' real property and
the ownership, use and operation thereof, are currently and, at all times
during ICO's or its Subsidiaries' ownership or operation thereof, have been in
material compliance with all applicable Environmental Laws.
(g) To ICO's knowledge, there are no liens against ICO's or
its Subsidiaries' real property arising under any Environmental Laws, or based
upon a Regulatory Action and/or Third Party Claim.
Section 5.16 Merger Consideration.
All shares of ICO Common Stock to be issued to the holders of
Wedco Common Stock pursuant to this Agreement at Closing shall, when issued, be
duly authorized, validly issued, fully paid and non-assessable and listed
either on the NASD National Market System automated quotation system or on the
New York Stock Exchange.
ARTICLE 6
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 Conduct of Business.
Except as otherwise specifically provided in this Agreement, from
the date of this Agreement to the Effective Time, each of Wedco and ICO shall
cause its respective Subsidiaries to:
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(a) conduct its business and engage in transactions only in
the ordinary and usual course consistent with past practices;
(b) use its best efforts, and cause its respective
Subsidiaries to use their best efforts, to preserve intact their respective
business organizations and good will, keep available the services of their
respective officers, employees and consultants and preserve their respective
relationships with licensors, licensees, customers, suppliers, employees, labor
organizations and others having business dealings with them including, where
consistent with the conduct of business in the ordinary course, consistent with
past practices, hiring additional personnel and promoting personnel;
(c) confer on a regular basis with one or more
representatives of one another to report operational matters of materiality and
the general status of ongoing operations;
(d) notify one another of any emergency or other change in
the normal course of its or its Subsidiaries' respective businesses or in the
operation of its or its Subsidiaries' respective properties and of any
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated) if such emergency, change,
complaint, investigation or hearing would be material to the business,
operations or financial condition of either Wedco or ICO and their respective
Subsidiaries, as the case may be, taken as a whole;
(e) not adopt or amend (other than amendments that reduce
amounts payable by it or its Subsidiaries) any employee benefit plan or enter
(or permit any of its Subsidiaries to enter) into any employment, severance or
similar contract with any person, or amend or supplement any such existing
agreements, plans or contracts to increase any amounts payable thereunder or
benefit provided thereunder, or grant or permit any increase in compensation to
any of its or its Subsidiaries' employees or pay any bonus, except in each
instance in accordance with past practice;
(f) except as otherwise permitted by this Section 6.1, not
enter into or become obligated by any agreement with any shareholder, officer,
director or employee;
(g) not, with respect to itself or any of its Subsidiaries,
authorize, recommend, propose or announce an intention to authorize, recommend
or propose, or enter into an agreement with respect to, any merger,
consolidation or business combination, any acquisition of material amount of
assets or securities, any disposition of a material amount of assets or
securities or any release or relinquishment of any material contract rights not
in the ordinary course of business, or any dissolution or liquidation;
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(h) not propose or adopt any amendment or otherwise change
its charter or by-laws;
(i) except for the incurrence and establishment by ICO of a
secured revolving credit facility (to be secured by ICO's assets), not create,
incur or assume, or become or be liable (directly or indirectly) in respect of:
(i) any indebtedness for borrowed money; (ii) any indebtedness or other
obligation of another if the primary purpose is to guarantee that such
indebtedness or obligation of another will be paid or discharged; or (iii) any
capital or operating lease;
(j) except for liens issued by ICO or its Subsidiaries in
connection with the financing described above in Section 6(i), not create or
incur any encumbrance, lien or mortgage in respect of any of their property;
(k) not authorize for issuance, sale, pledge, disposition or
encumbrance, or issue, sell, pledge, dispose of or encumber (whether through
the issuance or granting of options, warrants, commitments, subscriptions,
rights to purchase, convertible securities or otherwise), any of its capital
stock of any class or any other securities, or other ownership interest (except
for the authorization and issuance of shares of ICO Common Stock upon the
exercise of employee options pursuant to employee stock option plans
outstanding on the date hereof and the warrants and convertible preferred stock
as described on Section 5.02(a) of the ICO Disclosure Schedule and for the
authorization and issuance of shares of Wedco Common Stock upon the exercise of
employee options outstanding on the date hereof) or amend any of the terms of
any such securities or agreements outstanding on the date hereof;
(l) subject to Section 1.1 hereof, not reclassify, combine,
split or subdivide, any shares of its capital stock, or declare, set aside or
pay any dividend or other distribution (whether in cash, securities or property
or any combination thereof) in respect of any class or series of its capital
stock, other than dividends made by Subsidiaries of ICO or Wedco to such
Subsidiaries' stockholders, and other than distributions made by joint ventures
in which ICO or Wedco has an interest to the parties to such joint ventures;
(m) not redeem, purchase or otherwise acquire, or propose or
offer to redeem, purchase or otherwise acquire, any outstanding shares of its
capital stock or other securities;
(n) not make any tax election or settle or compromise any
federal, state, local or foreign income tax liability;
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(o) not take any action other than in the ordinary course of
business and consistent with past practices with respect to accounting policies
or procedures;
(p) not pay, discharge or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise) other than the payment, discharge or satisfaction in
the ordinary course of business, consistent with past practices, of liabilities
reflected or reserved against in the Wedco Balance Sheet or the ICO Balance
Sheet, as the case may be, liabilities incurred in the ordinary course of
business existing on the date of such Balance Sheets but not required by
generally accepted accounting principles to be reflected therein, or incurred
in the ordinary course of business consistent with past practices since the
date thereof;
(q) not commit or agree (in writing or otherwise) to take
any of the actions described in clauses (e) through (p) above or any action
which would make any representation or warranty in this Agreement untrue or
incorrect, including as of the date hereof and as of the Effective Time, as if
made as of such time; and
(r) not make or incur any Capital Expenditure in any
three-month period in excess of the Capital Expenditures described on the
estimated capital budgets attached hereto as Schedule 6.1(r). For purposes of
this Agreement, "Capital Expenditure" shall mean any amount paid or incurred or
which a party is obligated by contract to pay in connection with the purchase
of real estate, plant, machinery, equipment or other similar expenditure which
would be required to be capitalized in accordance with generally accepted
accounting principles.
Section 6.2 New York Stock Exchange Listing.
Promptly after execution and delivery of this Agreement, ICO shall
initiate, and thereafter diligently pursue, the process of applying for a
listing of Willoughby International, Inc. stock on the New York Stock Exchange.
ARTICLE 7
ADDITIONAL AGREEMENTS
Section 7.1 No Solicitation.
None of Wedco, ICO or any of their respective Subsidiaries or any
of such person's respective officers, directors, employees or agents or
affiliates shall, directly or indirectly initiate contact with, solicit or
encourage any inquiries, proposals or offers by any
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Third Party (as hereinafter defined) in connection with any possible proposal
(an "Acquisition Proposal") regarding a sale of any of the capital stock or any
other equity interest in Wedco or ICO or any of their respective Subsidiaries,
or a merger, consolidation or business combination involving Wedco or ICO or
any of their respective Subsidiaries, or sale of all or (other than in the
ordinary course of business consistent with past practices) any portion of the
assets of Wedco or ICO or any of their respective Subsidiaries or any similar
transaction, or unless otherwise required by law, furnish to any other person
any information with respect to Wedco or ICO or any of their respective
Subsidiaries or afford access to the properties, books or records of Wedco or
ICO or any of their respective Subsidiaries for the purposes of, or cooperate
with, or assist or participate in, facilitate or encourage, any effort or
attempt by any other person or entity to seek or effect an Acquisition
Proposal; provided, however, that in the event that, notwithstanding compliance
by Wedco or ICO and their respective Subsidiaries with the foregoing provisions
of this Section 7.1, Wedco or ICO receives from a Third Party an Acquisition
Proposal, only to the extent necessary to act in accordance with the fiduciary
duties of the Wedco Board of Directors or the ICO Board of Directors, as the
case may be, under applicable laws (as determined by the Wedco Board of
Directors or the ICO Board of Directors, as the case may be, in good faith
after consultation with and based upon advice of counsel), Wedco or ICO, as the
case may be, may take actions otherwise prohibited by the foregoing provisions
of this Section 7.1. Each of Wedco and ICO shall notify the others immediately
in writing if any discussions or negotiations are sought to be initiated, any
inquiry or proposal is made, or any such information is requested, with respect
to an Acquisition Proposal or potential Acquisition Proposal, and shall
immediately communicate in writing to the others the terms and conditions of
any such Acquisition Proposal or potential Acquisition Proposal, discussion,
negotiation or inquiry and the identity of the offeror or potential offeror.
As used in this Agreement, the term "Third Party" means any "person" or
"group", as such terms are defined in Section 13(d) of the Exchange Act, other
than Wedco and ICO.
Section 7.2 Access to Information.
(a) From the date of this Agreement, Wedco and ICO shall,
and shall cause their respective authorized officers, directors, employees,
auditors, agents and Subsidiaries, and the authorized officers, directors,
employees, auditors and agents of their respective Subsidiaries, to, give to
the other party and its authorized officers, employees, counsel, advisors and
representatives full access to all authorized officers, employees, agents,
properties, offices and other facilities and to all books and records of it and
its Subsidiaries and shall furnish the other party with such financial,
operating and other data and information as such other party, through its
authorized officers, employees, agents or representatives, may from time to
time reasonably request.
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(b) All information furnished by either ICO or Wedco to the
other shall be treated as the sole property of the party furnishing the
information until consummation of the transactions contemplated hereby, and, if
such transactions shall not occur, the party receiving the information shall
return to the party which furnished such information all documents or other
materials containing, reflecting or referring to such information, shall keep
confidential all such information, and shall not directly or indirectly use
such information for any competitive or other commercial purpose. The
obligation to keep such information confidential shall continue for six (6)
years from the date this Agreement is terminated but such obligation shall not
apply to (i) any information which (A) the party receiving the information can
establish was already in its possession prior to the disclosure thereof by the
party furnishing the information; (B) was then generally known to the public;
(C) became known to the public through no fault of the party receiving the
information; or (D) was disclosed to the party receiving the information by, to
the knowledge of such party, a third party not bound by an obligation of
confidentiality or (ii) disclosures required by an order of a court of
competent jurisdiction, or by federal or state securities laws, or the rules or
regulations of any applicable securities exchange, as advised by counsel.
Section 7.3 Public Announcements.
Wedco and ICO shall promptly issue a joint press release to
announce the execution and delivery of this Agreement. Thereafter, Wedco and
ICO shall consult with each other before issuing any press release or otherwise
making any public statements with respect to any of the transactions
contemplated by this Agreement and shall not issue any such press release or
make any such public statement prior to such consultation, except as may be
required by law.
Section 7.4 Best Efforts.
Subject to the terms and conditions herein provided, each of the
parties hereto shall use its best efforts to take, or cause to be taken, all
action, and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement and to obtain in a timely manner
all waivers, consents and approvals of, and to make all filings with and
notifications to, any third parties as are necessary in order to consummate the
transactions contemplated by this Agreement. Each party hereto shall have the
right to review and approve in advance all characterizations of it and its
Subsidiaries which appear in any filing made in connection with the
transactions contemplated by this Agreement with any governmental body. In
exercising the foregoing right, the parties hereto shall act as promptly as
possible.
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Section 7.5 Rule 145.
Each of ICO and Wedco will use all reasonable efforts to cause
each person who is an affiliate of ICO or Wedco, as the case may be, to deliver
to ICO prior to the Effective Time a written agreement that such affiliate will
not offer to sell, sell or otherwise dispose of any ICO Common Stock issued to
such affiliate in connection with the Mergers otherwise than within the limits
and in accordance with the provisions of Rule 145 under the Securities Act, as
such rule may be amended from time to time, or except in a transaction that, in
the opinion of legal counsel reasonably satisfactory to ICO, is exempt from
registration under the Securities Act.
Section 7.6 Post-Merger Matters.
(a) If at any time after the Effective Time any further
action is necessary or desirable to carry out the purposes of this Agreement,
the proper officers and directors of each party to this Agreement shall take
all such necessary action.
(b) Immediately after the Effective Time, ICO shall take all
actions necessary to give effect to the change of its corporate name to
"Willoughby International, Inc."
Section 7.7 Indemnification and Insurance.
(a) ICO shall indemnify each person who is or was a
"corporate agent" (as such term is defined in Article VII of the By-Laws of
Wedco as in effect on such date ("Article VII") and also including, to the
fullest extent permitted by applicable law, as the subject or beneficiary of
such indemnity each "corporate agent" in his or her individual and stockholder
capacities regardless of whether the Bylaws of Wedco provide for same) of Wedco
against expenses (including, but not limited to, legal fees, investigations,
discovery costs, settlement and judgment) and liabilities in connection with
any proceeding involving the corporate agent of Wedco by reason of his being or
having been such a corporate agent at any time prior to the Effective Time, to
the same extent provided by Article VII unless such proceeding was initiated by
the corporate agent without the authorization of the Board of Directors of the
Surviving Corporation and the corporate agent was unsuccessful in such
proceeding; a copy of Article VII appears as Annex XIV to this Agreement.
(b) In addition thereto, ICO shall obtain and, commencing as
of the Effective Time, maintain in effect insurance on behalf of each such
corporate agent of Wedco against any expenses incurred in any proceeding and
any liabilities asserted against him by reason of his being or having been a
corporate agent of Wedco at any time prior to the Effective Time, whether or
not Wedco would have the power to indemnify him against
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such expenses and liabilities under the provisions of Article VII, to the same
extent such insurance was maintained in effect by Wedco immediately prior to
the Effective Time and to include, but not limited to, legal fees,
investigation and discovery costs, settlement and judgment.
(c) The indemnification and advancement of expenses and
insurance coverage provided by, or granted pursuant to, this Section 7.7 shall,
unless otherwise provided when authorized or ratified by ICO, continue as to
each person who has ceased to be a director, officer, employee or agent of
Wedco and shall inure to the benefit of the heirs, executors and administrators
of such person.
Section 7.8 Notification of Certain Matters.
Each party hereto shall give prompt notice to the others of the
occurrence (or non-occurrence) of any event the occurrence (or non-occurrence)
of which would be likely to cause any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect and of any
material failure of any party to comply with or satisfy with any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that delivery of any notice pursuant to this Section 7.8
shall not limit or otherwise affect the remedies available to either party
hereunder.
ARTICLE 8
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 8.1 Conditions to the Obligations of Each Party.
The respective obligations of Wedco and ICO to effect the Merger
are subject to the satisfaction, at or prior to the Effective Time, of the
following conditions:
(a) Any applicable waiting period (and any extension
thereof) under the HSR Act relating to the Merger shall have expired or been
terminated;
(b) There shall not be in effect: (i) any judgment,
injunction, decree or order issued by any federal, state or local court or
arbitrator of competent jurisdiction; or (ii) any statute, rule, regulation or
order enacted or promulgated by any federal, state or local, legislative,
administrative or regulatory body of competent jurisdiction, that in either of
cases (i) or (ii) prohibits or restricts the consummation of the transactions
contemplated hereby or makes such consummation illegal or restricts in any
material respect or prohibits
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the effective operation of the business of Wedco and its Subsidiaries or ICO
and its Subsidiaries after the consummation of the transactions contemplated
hereby;
(c) The Registration Statement shall have been declared
effective under the Securities Act and no stop order suspending such
effectiveness shall have been issued or proceedings for such purpose shall have
been instituted;
(d) This Agreement and the Merger hereby contemplated shall
have been adopted and/or approved by the affirmative vote of the stockholders
of ICO and Wedco;
(e) Cash redemption of Wedco options pursuant to Section
1.1(b)(iii) hereof; and
(f) The weighted average of the closing prices for ICO
Common Stock on the NASD National Market System for the last five (5) trading
days immediately preceding the date on which the Effective Time occurs, shall
be greater than or equal to Four Dollars ($4.00) (the "Collar Price"). In the
event that the weighted average closing price for ICO Common Stock as
determined above is less than the Collar Price, then Wedco shall have the
option to (i) waive this condition precedent and proceed to Closing
notwithstanding such event, or (ii) give notice to ICO that it desires to
proceed with the Closing, but will require additional consideration as set
forth below. In the event Wedco chooses to proceed and has given notice to ICO
in accordance with item (ii) above, ICO shall have the option to (A) terminate
this Agreement, or (B) proceed to Closing, provided ICO agrees to provide
additional consideration (cash and/or ICO Common Stock) in an amount necessary
to increase the value of the Merger Consideration payable under Section
1.1(b)(ii) to Twelve and 30/100 Dollars ($12.30) and, provided further, that
any ICO Common Stock issued as additional Merger Consideration in accordance
herewith shall be valued at such weighted average price as determined above.
Section 8.2 Additional Conditions to the Obligations of Wedco.
The obligation of Wedco to consummate the Merger is further
subject to the satisfaction (or waiver by Wedco), at or prior to the Effective
Time, of the following conditions:
(a) W Acquisition and ICO shall have performed in all
material respects all their respective obligations hereunder required to be
performed by them at or prior to the Closing;
(b) The representations and warranties of ICO contained in
this Agreement and in any certificate or other writing delivered by ICO
pursuant hereto which are qualified
<PAGE> 124
- 48 -
by the term "material" or "materiality" shall be true and correct in all
respects, and all other representations and warranties of ICO contained in this
Agreement and in any certificate or other writing delivered by ICO pursuant
hereto shall be true and correct in all material respects, at and as of the
date of this Agreement and at and as of the Closing as if made at and as of
such time (except as to any representation or warranty which specifically
relates to an earlier date);
(c) Wedco shall have received the deliveries described in
Section 3.2(b) and all agreements included in such deliveries shall have been
duly executed and delivered by all parties thereto;
(d) Wedco shall have received all documents it may
reasonably request relating to the existence of ICO and W Acquisition and their
corporate authority for this Agreement, all in form and substance reasonably
satisfactory to Wedco;
(e) Any and all material permits, consents, waivers,
clearances, approvals and authorizations of and filings with all third parties
and governmental bodies shall have been obtained which are required to
consummate the transactions contemplated hereby;
(f) ICO shall have caused to be delivered to Wedco a letter
from its independent public accountants, dated the date on which the
Registration Statement (or last amendment thereto) shall become effective and
dated the date of the Effective Time, and addressed to Wedco, in form and
substance customary in transactions of the nature contemplated hereby;
(g) Wedco shall have received a favorable "fairness opinion"
from an investment banking firm in form and substance customary in transactions
of the nature contemplated hereby and acceptable to Wedco;
(h) ICO shall have provided or caused to be provided to
Wedco written confirmation or other evidence, in form and substance
satisfactory to Wedco, that the insurance required to be obtained by ICO
pursuant to Section 7.7 shall have been duly obtained and be in full force and
effect on and as of the Effective Time;
(i) The shares of ICO Common Stock to be received as Merger
Consideration shall have been listed either on the NASD National Market System
automated quotation system or on the New York Stock Exchange; and
(j) Wedco shall have received an opinion from Dilworth,
Paxson, Kalish & Kauffman in form and substance reasonably satisfactory to
Wedco, dated as of the Effective Time, substantially to the effect that, on the
basis of facts, representations and assumptions
<PAGE> 125
- 49 -
set form in such opinion which are consistent with the state of facts existing
at the Effective Time, the Merger will be treated, for Federal income tax
purposes, as a reorganization within the meaning of Section 368(a) of the Code
and that the Cash Consideration will qualify as capital gain income to those
Wedco stockholders who hold their shares as a capital asset.
Section 8.3 Additional Conditions to the Obligations of ICO.
The obligation of ICO to consummate the Merger are further subject
to the satisfaction (or waiver by ICO), at or prior to the Effective Time, of
the following conditions:
(a) Wedco shall have performed in all material respects all
of its obligations hereunder required to be performed by it at or prior to the
Closing;
(b) The representations and warranties of Wedco contained in
this Agreement and in any certificate or other writing delivered by Wedco
pursuant hereto which are qualified by the term "material" or "materiality"
shall be true and correct in all respects, and all other representations and
warranties of Wedco contained in this Agreement and in any certificate or other
writing delivered by Wedco pursuant hereto shall be true and correct in all
material respects, at and as of the date of this Agreement and at and as of the
Closing as if made at and as of such time (except as to any representation or
warranty which specifically relates to an earlier date);
(c) ICO shall have received the deliveries described in
Section 3.2(a) and all agreements included in such deliveries and in the
deliveries described in Section 3.2(b) shall have been duly executed and
delivered by all parties thereto;
(d) ICO shall have received all documents they may
reasonably request relating to the existence of Wedco and their corporate
authority for this Agreement, all in form and substance reasonably satisfactory
to ICO;
(e) Any and all material permits, consents, waivers,
clearances, approvals and authorizations of and filings with all third parties
and governmental bodies shall have been obtained which are required (i) to
consummate the transactions contemplated hereby or (ii) to prevent a breach,
default or right of termination under any agreement to which Wedco is a party
or by which it is bound caused by consummation of the transactions contemplated
hereby;
(f) Except as set forth in Section 8.03(f) of the Wedco
Disclosure Schedule, all (i) options, warrants, calls, rights, subscriptions,
convertible securities and other rights
<PAGE> 126
- 50 -
and agreements, arrangements and commitments of any kind relating to the issued
or unissued capital stock (or other equity interest) or other securities of
Wedco or any Subsidiary of Wedco, or otherwise obligating Wedco or any
Subsidiary of Wedco to issue, transfer or sell any securities of (or other
equity interest in) Wedco or any of its Subsidiaries, or securities or other
instruments convertible into or exchangeable or exercisable for any securities
of (or other equity interests in) Wedco or any of its Subsidiaries; (ii)
liabilities, obligations, claims, liens, pledges, security interests, options,
charges, encumbrances and interests of any nature whatsoever of any third party
in the outstanding stock of any of Wedco's Subsidiaries; (iii) stockholder
agreements, voting trusts and other agreements and understandings to which
Wedco is a party or is bound relating to the voting or transfer of any shares
of (or other equity interests in) Wedco or any of its Subsidiaries, including
all of the foregoing set forth on the Wedco Disclosure Schedule, shall have
been terminated or canceled, as they relate to such shares (or other equity
interests);
(g) Wedco shall have caused to be delivered to ICO a letter
from its independent public accountants, dated the date on which the
Registration Statement (or last amendment thereto) shall become effective and
dated the date of the Effective Time, and addressed to ICO, in form and
substance customary in transactions of the nature contemplated hereby;
(h) All necessary consents or permits from or filings with
state securities commissions shall have been obtained or made;
(i) ICO shall have received a favorable "fairness opinion"
from an investment banking firm, in form and substance customary in
transactions of the nature contemplated hereby acceptable to ICO; and
(j) ICO shall have received an opinion from Messrs. Keating,
Muething & Klekamp in form and substance reasonably satisfactory to ICO, dated
as of the Effective Time, substantially to the effect that, on the basis of
facts, representations and assumptions set form in such opinion which are
consistent with the state of facts existing at the Effective Time, the Merger
will be treated, for Federal income tax purposes, as a reorganization within
the meaning of Section 368(a) of the Code.
<PAGE> 127
- 51 -
ARTICLE 9
TERMINATION; AMENDMENTS; WAIVER
Section 9.1 Termination.
This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time notwithstanding approval thereof by the
stockholders of ICO or Wedco, but prior to the Effective Time:
(a) By the mutual written consent of the Board of Directors
of each of Wedco and ICO; or
(b) By Wedco, on the one hand, or ICO, on the other, if the
transactions contemplated hereby shall not have been consummated by July 31,
1996; provided, however, that the right to terminate this Agreement under this
Section 9.1(b) shall not be available to any party, failure of which to fulfill
any obligation under this Agreement has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before such date; or
(c) By either Wedco, on the one hand, or ICO, on the other,
if a court of competent jurisdiction in the United States or any state thereof
or other United States governmental, regulatory or administrative body shall
have issued an order, decree or ruling or taken any other action (which order,
decree, ruling or other action the parties agree to use their best efforts
through appeals and otherwise to vacate) permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement and such
order, decree, ruling or other action shall have become final and
nonappealable; or
(d) By Wedco if, in compliance with Section 7.1 hereof, a
higher offer to acquire Wedco is received and accepted by Wedco prior to the
Effective Time; provided, however, that in the event of any such termination,
Wedco shall promptly pay ICO, as liquidated damages and not as a penalty, the
sum of Two Million Dollars ($2,000,000); or
(e) By ICO if the stockholders of ICO do not approve the
transactions contemplated by this Agreement; provided, however, that in the
event of any such termination ICO shall promptly pay Wedco, as liquidated
damages and not as a penalty, the sum of Three Hundred Fifty Thousand Dollars
($350,000); or
(f) By either Wedco or ICO if, in the case of Wedco, ICO
materially breaches a warranty, representation or covenant contained herein or
suffers a material adverse change to its operations or financial condition
("Material Adverse Change") or, in
<PAGE> 128
- 52 -
the case of ICO, Wedco materially breaches a warranty, representation or
covenant contained herein or suffers a Material Adverse Change; provided,
however, that the non-breaching party or party not suffering a Material Adverse
Change may, at its option, either waive the material breach or material Adverse
Change pursuant to Section 9.3 hereof or be entitled to receive from the
breaching party or party suffering the Material Adverse Change, as liquidated
damages and not as a penalty, the sum of Three Hundred Fifty Thousand Dollars
($350,000); or
(g) Except as provided in Section 9.1(d) above, by either
Wedco or ICO if, in the case of Wedco, it desires not to consummate the
transactions contemplated hereby notwithstanding the absence of any material
breach by ICO of any warranty, representation or covenant contained herein or
any Material Adverse Change affecting ICO or any other condition or event that
would entitle Wedco not to consummate such transactions or, in the case of ICO,
it desires not to consummate the transactions contemplated hereby
notwithstanding the absence of any material breach by Wedco of any warranty,
representation or covenant contained herein or any Material Adverse Change
affecting Wedco or any other condition or event that would entitle ICO not to
consummate the transactions; provided, however, that the party other than the
party desiring not to consummate the transactions shall have the right, at its
option, to be selected in its sole discretion, either: (i) to seek and to
obtain specific performance of the transactions hereby contemplated (the
parties hereto acknowledging and agreeing that, given the nature of the
transactions hereby contemplated, specific performance is an appropriate remedy
under this Section 9.1(g)); or (ii) to obtain prompt payment from the party
desiring not to consummate the transactions, as liquidated damages and not as a
penalty, the sum of One Million Dollars ($1,000,000). If the parties hereto
disagree as to whether a Material Adverse Change has occurred or whether a
party has materially breached a warranty, representation or covenant contained
herein, the disagreement shall be referred for resolution to a panel of three
(3) arbitrators in an arbitration to be conducted in New York, New York
pursuant to the commercial arbitration rules of the American Arbitration
Association; or
(h) In accordance with Section 8.1(f)(A).
In the event of the termination of this Agreement pursuant to the
terms of this Section 9.1, this Agreement shall forthwith become void and have
no effect, without any liability on the part of either party hereto, except
that: (A) the provisions of this Section 9.1 and Sections 7.2(b) and 10.7
hereof shall survive any such termination and shall continue to be binding on
the parties hereto; and (B) nothing contained in this Section 9.1 shall relieve
any party from any liability, if any, including any liability for liquidated
damages, for any termination of this Agreement under paragraphs (d), (e), (f)
and (g) above.
<PAGE> 129
- 53 -
Section 9.2 Amendment.
This Agreement may be amended by the parties hereto at any time
before or after adoption of this Agreement by the stockholders of ICO or Wedco
but, after any such stockholder approval, no amendment shall be made which
adversely affects the rights of the stockholders of ICO or Wedco hereunder
without the approval of the affected stockholders. This Agreement may not be
amended, modified or supplemented except by an instrument in writing signed by
all the parties hereto that expressly states that it amends, modifies or
supplements this Agreement.
Section 9.3 Extension; Waiver.
At any time prior to the Effective Time, any party hereto may: (i)
extend the time for the performance of any of the obligations or other acts of
any other party hereto; (ii) waive any inaccuracies in the representations and
warranties contained herein by any other party or in any document or writing
delivered pursuant hereto by such other party; or (iii) waive compliance with
any of the agreements of any other party or with any conditions to its own
obligations. Any agreement on the part of any party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE 10
MISCELLANEOUS
Section 10.1 Survival of Representations, Warranties, Covenants and Agreements.
Other than Sections 7.6 and 7.7 and any other covenant or
agreement herein, the nature of which is to be performed after the Closing, the
representations, warranties, covenants and agreements made in this Agreement or
in any certificate or Disclosure Schedule delivered pursuant to Articles 4 and
5 hereof shall only survive until the Effective Time.
Section 10.2 Entire Agreement; Assignment.
This Agreement (including the Schedules, Disclosure Schedules,
Exhibits and Annexes hereto) constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
other prior agreements and understandings, both written and oral, between the
parties with respect to the subject matter hereof. This Agreement may not be
assigned, by operation of law or otherwise, by any of the parties
<PAGE> 130
- 54 -
hereto without the prior written consent of each of the other parties hereto.
Any such purported assignment undertaken or occurring without such consent
shall be null and void and of no legal force and effect.
Section 10.3 Validity.
The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any of the other
provisions of this Agreement, each of which shall remain in full force and
effect.
Section 10.4 Notices.
All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given when
delivered in person, by cable, telecopy or telex, or by registered or certified
mail (postage prepaid, return receipt requested) to the respective parties as
follows:
If to ICO or W Acquisition, to:
ICO, Inc.
100 Glenborough Drive, Suite 250
Houston, Texas 77067
Attention: Dr. Asher O. Pacholder
Sylvia A. Pacholder
Telephone: (713) 872-4994
Facsimile: (713) 872-9610
with copies to:
Pacholder Associates, Inc.
Towers of Kenwood
8044 Montgomery Road, Suite 382
Cincinnati, Ohio 45236
Attention: James P. Shanahan, Jr.
Telephone: (513) 985-3200
Facsimile: (513) 985-3217
- and -
<PAGE> 131
- 55 -
Howard Rice
15645 Collins Avenue, Suite 606
N. Miami Beach, Florida 33160
Telephone: (305) 945-1030
Facsimile: (305) 945-5371
If to Wedco, to:
P.O. Box 397
Bloomsbury, New Jersey 08804
Attention:
Telephone: (908) 479-4181
Facsimile: (908) 479-4876
with copies to:
Dilworth, Paxson, Kalish & Kauffman
3200 Mellon Bank Center
1735 Market Street
Philadelphia, Pennsylvania 19109-7595
Attention: Edward N. Barol
Telephone: (215) 575-7170
Facsimile: (215) 575-7200
- and -
Leib, Kraus, Grispin & Roth
328 Park Avenue, Box 310
Scotch Plains, New Jersey 07076-0310
Attention: Walter L. Leib
Telephone: (908) 322-6200
Facsimile: (908) 322-6155
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above
(provided, that notice of any change of address shall be effective only upon
receipt thereof).
Section 10.5 Governing Law.
This Agreement shall: (i) with respect to interpretation or
construction of the parties' respective warranties and representations; (ii)
with respect to interpretation or
<PAGE> 132
- 56 -
construction of the terms "material" and "materially" used in this Agreement;
and (iii) with respect to remedies for a breach of representations and
warranties and the provisions of Article 9 hereof, including the availability
and enforceability of liquidated damages stipulated therein, be governed by and
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of laws thereof. All other terms and provisions of this Agreement shall be
governed by and construed in accordance with the laws of the State of New
Jersey, regardless of the laws that might otherwise govern under applicable
principles of conflicts of laws thereof. Any action for restraint relating to
items (i), (ii) and (iii) shall be governed by the law of the State of
Delaware. All other actions for restraint shall be governed by the laws of the
State of New Jersey.
Section 10.6 Arbitration.
Any controversy or claim arising out of or relating to the breach
of this Agreement, shall be settled by binding arbitration in accordance with
the rules of the American Arbitration Association that are in effect at the
time of the arbitration. The arbitration proceedings shall be conducted in New
York, New York. The arbitrator(s) shall have the authority to award any remedy
or relief a court could order or grant (in accordance with the terms of Section
10.5 hereof), including, without limitation, specific performance of any
obligation created under this Agreement and the issuance of an injunction. A
judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof. Notwithstanding the foregoing, any party
hereto may seek injunctive relief under this Agreement solely to preserve the
status quo hereunder pending the initiation and completion of any arbitration
proceedings instituted in accordance with this Agreement. The parties agree
that any such action for injunctive relief may be brought only in a Federal
District Court.
Section 10.7 Expenses.
All expenses incurred by any party hereto in connection with this
Agreement and the consummation of the transactions contemplated hereby shall be
paid by the party incurring such expenses.
Section 10.8 Interpretation.
(a) The descriptive headings herein are inserted for
convenience of reference only and are not intended to be part of, or to affect
the meaning or interpretation of, this Agreement.
<PAGE> 133
- 57 -
(b) Subject to Section 4.16 hereof, the term "Subsidiary"
when used herein with respect to any person means: (i) any corporation,
partnership or other business association or entity in which such person has an
equity interest; or (ii) any other corporation, partnership, limited liability
company or other business association or entity which is consolidated with such
person for financial reporting purposes. The term "person" when used herein
means any individual, corporation, partnership, joint venture, trust,
unincorporated association or other entity of any nature whatsoever. The term
"knowledge" when used herein with respect to ICO or Wedco means actual
knowledge or actually knowing after due inquiry within ICO or Wedco, as the
case may be, and their respective Subsidiaries (which due inquiry each party
undertakes to make).
(c) This Agreement (and each provision thereof) is a
document negotiated at arms length by sophisticated parties represented by
counsel and, therefore, shall not be construed against either party as the
drafter thereof.
Section 10.9 Counterparts.
This Agreement may be executed in multiple counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
Section 10.10 Parties in Interest.
This Agreement shall be binding upon and inure solely to the
benefit of each party hereto, and nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.
THIS SPACE INTENTIONALLY LEFT BLANK
<PAGE> 134
- 58 -
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officer thereunto duly authorized on the day and
year first above written.
WEDCO TECHNOLOGY, INC.
By:
-------------------------------------
Name:
Title:
W ACQUISITION CORP.
By:
-------------------------------------
Name:
Title:
ICO, INC.
By:
-------------------------------------
Name:
Title:
<PAGE> 135
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Initial Page/
Defined Term Section Reference
- ------------ -----------------
<S> <C>
Affiliate of ICO Section 5.11(b)
Agreement Page 1
Article VII Section 7.7
Benefit Plans Section 4.8(a)
Canadian Joint Venture Section 4.16
Capital Expenditure Section 6.1(r)
Cash/Stock Consideration Section 1.1(b)
Closing Section 3.1
Code Section 4.8(a)
Commission Section 2.2
Constituent Corporations Section 1.2
Contamination Section 4.15(a)
Effective Time Page 1
Environmental Condition Section 4.15(b)
Environmental Laws Section 4.15(a)
ERISA Plan Section 4.8(a)
French Joint Venture Section 4.16
Exchange Act Section 2.2
Hazardous Substances Section 4.15(a)
HSR Act Section 4.4
ICO Page 1
ICO Balance Sheet Section 5.5(b)
ICO Common Stock Section 1.1(b)
ICO Disclosure Schedule Section 5.1(a)
ICO Labor Agreements Section 5.9
ICO Preferred Stock Section 5.2(a)
ICO SEC Reports Section 5.5(a)
ICO Shareholder Group Page 1
ICO Shareholder Group Agreement Page 1
ICO Stockholders' Meeting Section 2.1(a)
IRS Section 4.11(e)
Joint Venture Organizational Documents Section 4.16
Knowledge Section 10.8(b)
Material Adverse Change Section 9.1(f)
Merger Section 1.1(a)
Merger Consideration Section 1.1(b)
Merger Option Consideration Section 1.1(b)
</TABLE>
<PAGE> 136
- ii -
<TABLE>
<S> <C>
National Priorities List Section 4.15(e)
New Jersey Law Section 1.1(a)
Proxy Statement/Prospectus Section 2.1(a)
Qualified Plan Section 4.8(a)
Registration Statement Section 2.2
Regulatory Action Section 4.15(a)
Release Section 4.15(a)
Securities Act Section 2.2
Stock Consideration Section 1.1(b)
Staff Section 2.2
Surviving Corporation Section 1.1(b)
Taxes Section 4.11(a)
Tax Return Section 4.11(a)
Texas Act Section 2.1(a)
Third Party Section 7.1
Third Party Claim Section 4.15(a)
W Acquisition Page 1
W Acquisition Common Stock Section 1.1(b)
Wedco Page 1
Wedco Balance Sheet Section 4.5(b)
Wedco Common Stock Section 1.1(b)
Wedco Disclosure Schedule Section 4.1(a)
Wedco Joint Venture Section 4.6
Wedco Labor Agreements Section 4.9
Wedco SEC Reports Section 4.5(a)
Wedco Shareholder Group Page 1
Wedco Shareholder Group Agreement Page 1
Wedco Stockholders' Meeting Section 2.1(b)
</TABLE>
<PAGE> 137
- iii -
SCHEDULES
<TABLE>
<S> <C> <C>
Schedule 1 -- Wedco Common Stock controlled by Wedco Shareholder Group
Schedule 2 -- ICO Capital Stock controlled by ICO Shareholder Group
Schedule 3 -- Post-Effective Time Officers and Directors of ICO and of the
Surviving Corporation
Schedule 4 -- Intentionally Omitted
Schedule 6.1(r) -- Wedco Capital Budget
</TABLE>
ANNEXES
<TABLE>
<S> <C> <C>
Annex I (Wedco) -- Officer's Certificate
Annex II (Wedco) -- Non-Competition Covenants
Annex III-A (Wedco) -- Opinion of DPK&K
Annex III-B (Wedco) -- Opinion of LKG&R
Annex IV -- Intentionally Omitted
Annex V (ICO) -- Officer's Certificate
Annex VI-A (ICO) -- Opinion of KMK
Annex VI-B (ICO) -- Opinion of V&E
Annex VII-A (ICO) -- Consulting Agreement with WEW
Annex VII-B (ICO) -- Consulting Agreement with WCW
Annex VIII (SC)* -- Employment Agreement with RFB
Annex IX-A (SC) -- Employment Agreement with FRF
Annex IX-B (SC) -- Employment Agreement with DC
Annex IX-C (SC) -- Employment Agreement with TK
Annex IX-D (SC) -- Employment Agreement with MK
Annex X (WI)** -- Continuing Stockholders' Agreement
Annex XI (WI) -- Registration Rights Agreement
Annex XII (SC) -- Reaffirmation Agreement with AG
Annex XIII (WI) -- Attorney Agreement
Annex XIV (ICO) -- Article VII of By-Laws of Wedco
</TABLE>
*Surviving Corporation
**Willoughby International, Inc.
<PAGE> 138
Annex B
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 SEPTEMBER 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-10068
ICO, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 75-1619554
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
100 GLENBOROUGH DRIVE, STE. 250,
77067
HOUSTON, TX (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER (713) 872-4994
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Common Stock, no par value Boston Stock Exchange
NASDAQ National Market System
Preferred Stock, no par value NASDAQ National Market System
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 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 / /.
The aggregate market value of voting stock held by nonaffiliates of the
registrant as of November 15, 1995 was $38,557,160.
The number of shares outstanding of the registrant's Common Stock, as of
November 15, 1995: Common Stock, no par value--8,923,911
DOCUMENTS INCORPORATED BY REFERENCE
Certain information has been included by reference. See index at Part IV, Item
14, (c)(2) of this Annual Report.
<PAGE> 139
ICO, INC.
1995 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 7
Item 4. Submission of Matters to a Vote of Security Holders . . . . 9
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters . . . . . . . . . . . . . . . . 10
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . 12
Item 8. Financial Statements and Supplementary Data . . . . . . . . 16
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . 16
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . 17
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . 21
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . . 23
Item 13. Certain Relationships and Related Transactions . . . . . . . 25
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . 26
<PAGE> 140
P A R T I
ITEM 1. BUSINESS
GENERAL
The Company provides inspection, reconditioning and coating services for
new and used tubular goods and sucker rods utilized in the oil and gas
industry. The Company's inspection, reconditioning and coating services for new
and used tubular goods and sucker rods are performed through a variety of
processes, many of which are patented, designed to extend the useful lives and
reduce the downhole failure of sucker rods and tubular goods. These services
are performed on casing, tubing, drill pipe and line pipe. The Company also
sells equipment and supplies used in the inspection, reconditioning and coating
of tubular goods and sucker rods.
Casing is used to seal off fluids and prevent collapse of the bore holes of
oil and natural gas wells. After production casing is set, a string of tubing
is suspended from the surface inside the casing to serve as a conduit for the
extraction of oil and natural gas. Drill pipe is heavy seamless pipe used to
rotate the drill bit and circulate drilling fluids. Line pipe is used for waste
disposal lines, flow lines, gathering systems and pipelines through which oil,
natural gas and liquid hydrocarbons are transported. Removal of casing or
tubing for repair or replacement is expensive and results in an interruption of
production and loss of revenues to the well owner. Sucker rods are steel rods
which are joined together in a "string" by couplings to form a mechanical link
from a downhole pump at the bottom of an oil well to the pumping unit on the
surface. Removal of a sucker rod string for repair or replacement of rods,
couplings or the downhole pump requires a well to be shut down and the entire
string of sucker rods to be removed, resulting in additional expenses and loss
of revenues to the well owner due to interruption of production.
The Company's services are designed to reduce our customers' cost of
drilling and production by (1) preventing faulty material from being placed
downhole (exploration services), (2) reclaiming tubular goods and sucker rods
used downhole and restoring them to near their original condition, on a cost
effective basis (production services) and (3) preventing premature failure of
tubular goods and sucker rods from occurring due to downhole environment
(corrosion control services).
EXPLORATION SERVICES
The Company provides inspection services for new tubular goods to identify
tubular goods which are defective or which do not meet American Petroleum
Institute ("API") standards or other specifications set by the customer. These
services are used by customers as a quality assurance and control measure to
reduce the risk of paying for defective tubular goods and to reduce the risk of
downhole failure, which is especially important when drilling deep oil and
natural gas wells with high downhole temperatures and pressures and when
drilling in environmentally sensitive areas such as offshore. Although
inspection of new tubular goods at well sites and storage yards has been
performed for many years, the Company was a pioneer in providing in-plant
inspection. The Company's in-plant inspection facilities for new tubular goods
provide a controlled environment which permits more efficient and consistent
inspection procedures, facilitates supervision of personnel and electronic
equipment, avoids problems associated with inclement weather and reduces
transportation and handling costs to the customer. The Company provides these
services at nine Company facilities in seven states: Colorado, Louisiana,
Oklahoma, Texas, Wyoming, Ohio and Alabama. The Company also has the capability
to provide mobile inspection services in the field and manufactures inspection
and quality control equipment which is sold or leased to steel producers and
processors.
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The Company's facilities offer both electro-magnetic inspection ("EMI") and
ultrasonic inspection services. EMI is a process which identifies flaws
through magnetic flux leakage. The PipeImage(TM) system is an EMI system
capable of identifying natural and man-made flaws that are not identifiable
using conventional EMI methods. Ultrasonic inspection is able to identify
flaws, using high frequency sound waves, which are virtually undetectable by
other means. The Company expanded its ultrasonic technology and engineering
expertise with the acquisitions of Baker Hughes Tubular Services, Inc. ("BHTS")
in September 1992 and Tubular Ultrasound Corporation in November 1993. The
Company acquired rights to the PipeImage(TM) system through the BHTS
acquisition (See "Patents and Licenses").
PRODUCTION SERVICES
The Company reconditions and inspects used casing, tubing, drill pipe and
line pipe using a process known as "Total Concept Tubing Services." The Company
pioneered this process of providing a complete package of tubular inspection
and maintenance services, which includes the testing, cleaning, reconditioning
and electronic inspection of tubular goods. Such services are performed in a
controlled environment at the Company's facilities, which provides the same
advantages previously described for in-plant inspection facilities (see
"Exploration Services"). This reduces the customer's well operating costs
because reconditioning used tubular goods is less expensive than the purchase
of new tubular goods. Tubular goods reconditioned by the Company must generally
meet the same API or customer standards as new tubular goods. The Company
performs these services at eight Company facilities in California, Louisiana,
Oklahoma, Texas, Wyoming and New Mexico.
For certain customers, the Company has entered into a program in which it
purchases used tubular goods and sucker rods from the customers, reconditions
and grades the pipe and sucker rods for varying degrees of usage and resells
the pipe and sucker rods to customers in the marketplace.
The Company also operates mobile inspection units utilizing a system known
as Wellhead Scanalog ("WHS"). The Company acquired the rights to WHS for use in
the United States pursuant to a license granted to it in connection with the
acquisition of BHTS (See "Patents and Licenses"). WHS is designed to perform
tubular inspection while the tubing is being removed from the well and does not
interfere with the normal operation of the rig. WHS inspection is unique in
that it is not affected by scale, mud, paraffin and water. Prior to the
acquisition of BHTS, the Company had no comparable service.
The Company reconditions and inspects used sucker rods using a patented
process. This in-plant process involves a number of steps designed to clean,
straighten, inspect and apply protective coating to sucker rods to guard
against corrosion. This reduces the customer's well operating costs because
reconditioning used sucker rods is less expensive than purchasing new sucker
rods. The Company also inspects new sucker rods before they are placed in
service to reduce the risk of downhole failure, which requires expensive
pulling services and results in loss of production. The Company's sucker rod
reconditioning and inspection services are provided at six Company facilities
in California, Oklahoma, Texas, Wyoming and Canada. The Canadian operations
were acquired in the February 1994 acquisition of Shearer Supply Ltd. located
in Edmonton, Alberta.
CORROSION CONTROL SERVICES
Corrosive conditions exist inside most wells. Such conditions are
particularly extreme in high temperature gas wells and in oil producing regions
where secondary and tertiary recovery techniques are utilized. Secondary and
tertiary recovery techniques are methods by which natural forces in an oil
reservoir are supplemented by means such as water flooding to increase ultimate
oil recovery. Under highly corrosive conditions, even a microscopic uncoated
area of steel can result in a tubular or rod failure or damage. To combat
these conditions, the Company offers a variety of corrosion control services to
its
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<PAGE> 142
customers, using several Company patented processes. The Company's corrosion
control services reduce well operating costs by extending the useful life of
downhole tubular goods and sucker rods and by improving the well's hydraulic
efficiency.
The Company internally coats new and used casing, tubing, drill pipe and
line pipe with a variety of powder and liquid coatings. In the coating
process, tubular goods are placed in large burnout ovens to remove foreign
substances. The tubular goods are then grit blasted with garnet, primed with
phenolic, preheated, coated internally and subjected to a final baking process.
The tubular goods are then inspected visually and electronically to make
certain the coating uniformly covers the entire interior of the pipe and that
no bare spots or thin coverings exist. A similar process is utilized for
cleaning, priming and coating tubular couplings. The selection of the proper
coating for downhole tubular goods requires considerable knowledge and effort
by the Company's experienced coating managers and technicians. The key process
is gathering complete facts concerning the well, its environment, test
procedures and all related conditions planned for the life of the well. The
Company has three coating facilities located in Louisiana and Texas.
The Company's patented sucker rod coating process involves applying a
special formula stainless steel to the sucker rods and then coating them with a
phenolic primer and a fusion bonded modified epoxy. Sucker rods used in less
corrosive conditions are usually coated only with the phenolic primer and
fusion bonded modified epoxy. The Company's sucker rod coating services are
provided at its facility in Odessa, Texas.
ICO expanded its corrosion control services with the acquisition of Permian
Enterprises, Inc. ("Permian") in April 1994. Permian provides internal cement
lining for small diameter tubing through 24" line pipe. Permian also applies
an external fusion bonded tape which forms a tough protective corrosion barrier
for critical line pipe. Cement provides an increased barrier between corrosive
fluids and the tubular product which allows the customer to use a larger
portion of its used pipe with a welded connection, when weight and torsion
strength are not a primary issue. The addition of Permian has afforded the
Company expanded flexibility and product offerings in small diameter pipe used
in production applications.
ACQUISITIONS
In November 1993, ICO acquired substantially all the assets of Tubular
Ultrasound Corporation ("TUC"), a tubular inspection company with low cost
ultrasonic inspection technology, located in Houston, Texas, for a total
consideration of $1,100,000. The TUC acquisition provided ICO with additional
engineering and product development expertise in the ultrasonic area.
In February 1994, ICO acquired Shearer Supply Ltd. ("Shearer") of Edmonton,
Alberta, the Company's first entry into the Canadian market for a total
consideration of $1,900,000. Shearer is the largest provider of sucker rod
inspection and reclamation services in Canada and also services and sells pump
engines used in the oilfield.
In April 1994, the Company acquired all of the outstanding capital stock of
Permian for a total consideration of $2,498,000. As part of the transaction,
the Company funded a pre-acquisition dividend to Permian shareholders by making
a $2,100,000 loan to Permian. Permian provides cement lining for tubing and
casing and also applies an external fusion bonded wrap.
In April 1994, ICO acquired Frontier Inspection Services, Inc. ("Frontier")
in Farmington, New Mexico for a total consideration of $1,500,000. Frontier is
the leading provider of tubular inspection services in New Mexico and the lower
Rocky Mountain area.
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<PAGE> 143
In October 1994 the Company purchased all of the outstanding capital stock
of B&W Equipment Sales and Mfg., Inc. ("B&W") for $700,000 consisting of
$350,000 cash and 66,666 shares of ICO common stock. B&W designs and
manufacturers parts and components for nondestructive testing and inspection of
equipment for use in the tubular market. The acquisition enables the Company
to lower repair and maintenance expenses for the Company's inspection units.
In March 1995 the Company acquired substantially all of the operational
assets (excluding real estate) of Kebco Pipe Services, Inc. ("Kebco"), which
provides testing, inspecting and reconditioning services for oil country
tubular goods in the West Texas area. Kebco was acquired for a total
consideration of $616,000, consisting of approximately $574,000 cash and a
$42,000 note.
In June 1995 the Company purchased all of the outstanding capital stock of
R.J. Dixon, Inc. (DBA "Spinco") for $1,000,000, consisting of a $490,000 note
and 94,884 shares of ICO common stock. Spinco provides inspection and
reclamation services for drill pipe and other oil country tubular goods in the
Gulf Coast area.
COMPETITION
The principal competitive factors in the Company's business are price,
availability and quality of service. The consolidation in the tubular
inspection, reconditioning and coating industry has resulted in the elimination
of many of the Company's competitors and reduced the Company's competition in
some markets to a single competitor. This consolidation has reduced the
capacity which exists in the domestic market to some extent, but the tubular
inspecting, reconditioning and coating industry continues to be highly
competitive. The Company's ability to compete effectively is also dependent
upon timely and reliable performance of its services at competitive rates.
Management believes that the Company will continue to compete effectively
because of the advantages of certain processes utilized by the Company over
those used by its competitors and the strong relationships which it maintains
with its customers.
The Company is the leading provider of sucker rod services and one of the
two largest providers of inspection, reconditioning and coating services for
tubular goods in the United States. The Company's customers include the major
oil and gas companies, as well as independent oil and gas companies, drilling
contractors and steel producers and processors. No single customer accounted
for over 10% of the Company's revenues in 1994 and 1995.
Few competitors of the Company provide services similar to the Company's
"Total Concept Tubing Services" or provide in-plant inspection of new tubular
goods outside Houston, Texas. The Company and Tuboscope Vetco International
Corporation compete with each other and a number of smaller companies in most
domestic markets. Capital and other requirements for entry into the tubular
inspection business are relatively low, and, as a consequence, competition is
vigorous in all of the Company's tubular inspection markets.
Much of the Company's business is seasonal in nature and reflects the
general pattern of oilfield drilling and workovers, with the first and fourth
quarters of the fiscal year generally having higher levels of activity and the
second and third quarters generally having lower levels of activity.
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ENVIRONMENTAL REGULATION
The Company's services routinely involve the handling of chemical
substances and waste materials, some of which may be considered to be hazardous
wastes. The Company is subject to numerous local, state, and federal laws and
regulations concerning the use and handling of hazardous materials and
restricting releases of pollutants and contaminants into the environment. Many
of these laws and regulations provide for strict liability for the costs of
cleaning up contamination resulting from releases of regulated materials into
the environment. Management believes that the Company is in substantial
compliance with these laws and regulations, and continued compliance with
existing laws and regulations will not have a material adverse effect on the
Company's results of operations or financial condition. Management believes
that estimated capital expenditures for environmental remediation also will not
be material. The Company's insurance policies do provide coverage for
environmental or other damages caused as a result of defective casing or tubing
inspected by the Company.
RAW MATERIALS AND BACKLOGS
Management believes that materials used in the Company's operations are
available from numerous sources and are readily available to meet its needs.
Backlogs are not material to the Company's overall operation.
PATENTS AND LICENSES
The Company holds six United States patents and has one patent application
pending covering the proprietary technology utilized in its reconditioning,
inspecting, spraymetal and epoxy coating of sucker rods and its services for
used tubular goods. The expiration dates on these patents range from April 1998
to February 2009. No single patent is considered essential to the overall
successful operation of the Company's business.
In connection with the acquisition of BHTS, the Company acquired
royalty-free exclusive licenses to use WHS, PipeImage(TM) and other proprietary
technology. Pursuant to the terms of such licenses, the Company generally is
prohibited from using such proprietary technology in foreign markets.
The Company considers its proprietary technology to be important to its
business and future prospects. The Company believes that its patents and
licenses are valid. However, no assurance can be given that one or more of the
Company's competitors may not be able to develop or produce a process or system
of comparable or greater quality to those covered by the Company's patents or
licenses.
EMPLOYEES
As of November 22, 1995 the Company had approximately 900 full-time
employees, none of whom is represented by a union. The Company has experienced
no strikes or work stoppages and considers its relations with its employees to
be satisfactory. The Company provides many of its employees with stock options
and year-end bonuses.
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ITEM 2. PROPERTIES
The location and approximate acreage of the Company's operating facilities
at November 22, 1995, together with an indication of the services performed at
such facilities are set forth below. All facilities have storage areas for
customer goods.
<TABLE>
<CAPTION>
OWNERSHIP
OR
LEASE
LOCATION SERVICES ACRES EXPIRATION
- -------- -------- ----- ----------
<S> <C> <C> <C>
Odessa, Texas Sucker rod reconditioning and inspecting 13 (1)
Odessa, Texas Sucker rod storage 7 Owned
Odessa, Texas Spraymetal and epoxy coating of sucker rods 3 Owned
Odessa, Texas Used tubular goods services 13 Owned
Odessa, Texas Internal coating of tubular goods 15 Owned
Odessa, Texas Trucking yard 14 Owned
Odessa, Texas Used tubular goods services 22 Owned
Odessa, Texas Facility sub-leased to third party 22 Owned
Odessa, Texas Cement lining/external coating 20 (2)
Denver City, Sucker rod reconditioning and inspecting 10 Owned
Texas
Farmington, Inspection of new and used tubular goods 14 1997
New Mexico
Oklahoma City, Sucker rod reconditioning and inspecting 8 Owned
Oklahoma
Oklahoma City, Inspection of new and used tubular goods 22 Owned
Oklahoma
Casper, Wyoming Sucker rod reconditioning and inspecting;
inspection of new and used tubular goods 29 (3)
Bakersfield,
California Sucker rod reconditioning and inspecting 30 Owned
Williston,
North Dakota Used tubular goods services 2 1997
</TABLE>
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<TABLE>
<CAPTION>
OWNERSHIP
OR
LEASE
LOCATION SERVICES ACRES EXPIRATION
- -------- -------- ----- ----------
<S> <C> <C> <C>
Corpus Christi, Inspection of new and used tubular goods 10 Owned
Texas
Houston, Texas Inspection of new tubular goods 199 Owned
Houston, Texas Internal coating of tubular goods 49 Owned
Lone Star, Texas Inspection of new tubular goods 80 Owned
Amelia, Internal coating and inspection of new and used
Louisiana tubular goods 31 1998
Edmonton, Alberta Inspection of new and used sucker rods. 10 (4)
Canada Sales and service of new and used oilwell engines
</TABLE>
(1) Three acres are leased on a month-to-month basis; the remaining ten acres
are owned by the Company.
(2) Eighteen acres owned; the remaining two acres are leased on a
month-to-month basis.
(3) Seventeen acres owned; ten acres leased through 1997; remaining two acres
are leased on a month-to-month basis.
(4) Indicates yearly lease with three one-year, optional extensions.
The Company's facilities and equipment, owned and leased, are considered
by management to be well maintained and adequate for the Company's operations.
The Company also leases various sales and administrative offices with various
lease expiration dates through 2002. Utilization of the Company's facilities
is subject to fluctuations based in part on oil and gas exploration and
production levels. The Company is currently operating most of its facilities
below full capacity. Most facilities are operating no more than one shift per
day. The Company does not presently intend to close any of its significant
operating facilities. Management considers its properties to be suitable for
its present needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is named a defendant in twelve suits, filed between June 1988
and October 1994, for personal injury claims alleging exposure to silica
resulting in silicosis-related disease. The Company is generally protected
under workers' compensation law from claims under these suits except to the
extent a judgment is awarded against the Company for intentional tort. The
Company was dismissed without liability from two suits alleging intentional
tort against the Company for silicosis-related disease. In addition, the
Company has settled two other suits, both of which alleged wrongful death
caused by silicosis-related diseases. One of the pending personal injury cases
currently involves an alleged silicosis-related death, which is premised upon
allegations of gross negligence. The standard of liability
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applicable to the remainder of the pending cases is intentional tort, a stricter
standard than the gross negligence standard applicable to the wrongful death
cases. The Company and its counsel cannot at this time predict with any
reasonable certainty the outcome of any of the remaining suits. Except as
described below, the Company does not believe, however, that such suits will
have a material adverse effect on the financial condition or results of
operations of the Company.
The Company does have in effect general liability and employer's liability
insurance policies applicable to the referenced suits; however, the Company has
been advised by each of the involved insurance carriers of a reservation of
rights with regard to policy obligations pertaining to the suits because of
various exclusions in the policies. If an adverse judgment is obtained against
the Company in any of the referenced suits which is ultimately determined not
to be covered by insurance, the amount of such judgment could have a material
adverse effect on the financial condition or results of operations of the
Company.
The Company is also named as a defendant in certain lawsuits arising in the
ordinary course of business. While the outcome of these lawsuits cannot be
predicted with certainty, management does not expect these matters to have a
material adverse effect on the financial condition or results of operations of
the Company.
The Company's agreement with Baker Hughes, Incorporated ("Baker Hughes")
pursuant to which BHTS was acquired by the Company, provides that Baker Hughes
will reimburse the Company for 50% of the BHTS environmental remediation costs
in excess of $318,000, with Baker Hughes' total reimbursement obligation being
limited to $1,000,000. BHTS is a responsible party at two hazardous waste
disposal sites that are currently undergoing remediation pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act,
frequently referred to as "Superfund". Under Superfund, persons who were
responsible for generating the hazardous waste disposed of at a site where
hazardous substances are being released into the environment are jointly and
severally liable for the costs of cleaning up environmental contamination, and
it is not uncommon for neighboring landowners and other third parties to file
claims for personal injuries and property damage allegedly caused by hazardous
substances released into the environment. The two sites where BHTS is a
responsible party are the French Limited site northeast of Houston, Texas, and
the Sheridan site near Hempstead, Texas. Based on the relatively advanced
status of the remediation at these sites and BHTS's minimal contribution of
wastes at each site, management believes that the Company's future liability
under the agreement with Baker Hughes with respect to these two sites will not
be material.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on September 8,
1995 for the following purposes:
1) To elect two Class II Directors to serve until the 1998 Annual Meeting
of Shareholders and until their respective successors are elected and
qualified;
2) To approve the ICO, Inc. 1995 Stock Option Plan; and
3) To ratify and approve the selection of Price Waterhouse LLP as the
Company's auditors for the ensuing fiscal year.
Holders of shares of common stock of record on the books of the Company at
the close of business on August 9, 1995 were entitled to vote at the meeting.
William E. Cornelius and Robin E. Pacholder were elected as Class I
Directors at the annual meeting with 7,471,265 and 7,471,131 votes for, 0 and
134 votes against and 427,392 and 427,526 abstentions, respectively.
The ICO, Inc. 1995 Stock Option Plan was approved by the following votes:
6,238,841 votes for, 1,545,524 votes against, 19,291 abstentions and 95,000
broker non-votes.
The selection of Price Waterhouse LLP as the Company's auditors for the
1996 Fiscal year was approved by the following vote: 7,871,235 votes for,
19,345 votes against, 8,077 abstentions and 0 broker non-votes.
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<PAGE> 149
P A R T I I
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded on the NASDAQ National Market System
under the symbol ICOC and is listed on the Boston Stock Exchange. The Company's
common stock has been included in the NASDAQ National Market System since July
19, 1988. There were approximately 492 shareholders of record of the Company's
common stock at November 22, 1995.
On November 1, 1995 the Company established a quarterly dividend of $.05
per share on its common stock. The first dividend will be paid on December 31,
1995 to the shareholders of record on December 21, 1995.
The following table sets forth the high and low sales prices for the common
stock as reported on the NASDAQ National Market System.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1994 First Quarter 10 5 3/4
Second Quarter 9 1/4 6 3/4
Third Quarter 7 1/4 4 1/4
Fourth Quarter 5 3/4 4 1/4
1995 First Quarter 5 3/8 3 3/4
Second Quarter 6 3 3/4
Third Quarter 6 1/4 5 1/8
Fourth Quarter 5 7/8 4 5/8
</TABLE>
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------------------
1995(3) 1994(3) 1993 1992(1) 1991
---------- ---------- ---------- ---------- ----------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues:
Exploration Sales and Services .... $ 34,953 $ 30,096 $ 25,290 $ 12,171 $ 13,018
Production Sales and Services ..... 28,749 28,919 24,936 18,569 19,667
Corrosion Control Services ........ 20,562 14,549 9,991 3,895 4,805
Other sales and services .......... 3,623 2,406 -- -- --
---------- ---------- ---------- ---------- ----------
Total revenues ................. $ 87,887 $ 75,970 $ 60,217 $ 34,635 $ 37,490
========== ========== ========== ========== ==========
Gross Profit ......................... $ 28,002 $ 21,779 $ 17,355 $ 10,482 $ 12,755
Selling, general and administrative
expenses ............................. 17,840 15,202 12,730 8,055 9,320
---------- ---------- ---------- ---------- ----------
Income before interest, taxes,
depreciation and amortization, unusual
and extraordinary items .............. 10,162 6,577 4,625 2,427 3,435
Depreciation and amortization ........ 5,112 4,357 3,669 2,616 2,864
Interest (income) expense, net ....... (1,307) (431) 2,352 740 632
Unusual items ........................ -- -- 605 (467) 4,108
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes and
extraordinary item ................... $ 6,357 $ 2,651 $ (2,001) $ (462) $ (4,169)
========== ========== ========== ========== ==========
Net income (loss) .................... $ 5,790 $ 1,225 $ (2,001) $ (383) $ (3,562)
========== ========== ========== ========== ==========
Earnings (loss) per common and
common equivalent share:
Income (loss) before extraordinary
item .............................. $ .41 $ .09 $ (.49) $ (.15) $ (1.48)
Net income (loss) ................. $ .41 $ (.07) $ (.49) $ (.12) $ (1.27)
Weighted average shares
outstanding ....................... 8,709,303 8,299,559 4,052,325 3,093,964 2,809,088
Balance Sheet Data:
Working capital ...................... $ 37,284 $ 37,656 $ 17,787 $ 3,321 $ 4,019
Property, plant and equipment, net ... 29,824 27,513 24,431 25,435 18,529
Total assets ......................... 88,183 78,969 51,353 40,713 27,491
Long-term debt ....................... 1,047 456 10,676 19,376 13,685
Stockholders' equity ................. 74,471 69,204 32,293 10,304 7,928
Other Financial Information:
Capital expenditures(2) .............. $ 5,838 $ 4,782 $ 2,252 $ 642 $ 1,344
</TABLE>
(1) Due to the completion of the acquisition of BHTS on September 30, 1992,
the result of such acquisition is reflected in the balance sheet data at
September 30, 1992, but not in the income statement data for the year
ended September 30, 1992.
(2) Consists of cash used for capital expenditures, excluding property, plant
and equipment obtained in acquisitions.
(3) See discussion of fiscal year acquisitions in Item 7.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY
In November 1993, the Company completed an offering of Convertible
Exchangeable Preferred Stock ("Preferred Stock"). The shares of Preferred
Stock are evidenced by Depositary Shares, each representing one-quarter of a
share of Preferred Stock. A total of 1,290,000 Depositary Shares were sold at
a price of $25 per share. Each preferred share is convertible into 10.96
common shares (equivalent to 2.74 common shares per Depositary Share) at a
conversion price of $9.125 per common share subject to adjustment upon the
occurrence of certain events. The Company realized net proceeds from the
offering of approximately $30,600,000. The Company utilized approximately
$10,707,000 of the net proceeds to reduce its outstanding indebtedness and
approximately $4,133,000 for the acquisitions discussed below. At September
30, 1995, the balance of cash equivalents was approximately $25,000,000 and the
Company has only $1,682,000 of debt. The balance of the net proceeds will be
used for working capital and capital expenditures to fund future growth and for
selective acquisitions of assets or existing businesses.
In November 1993, the Company acquired substantially all of the property,
plant and equipment of TUC, a tubular inspection company for a total
consideration of approximately $1,100,000 consisting of 105,000 shares of the
Company's common stock and the payment of approximately $170,000 of TUC
indebtedness. The Company accounted for this acquisition under the purchase
method of accounting. For the year ended June 30, 1993, TUC generated revenues
of approximately $1,700,000 (unaudited).
In February 1994, the Company purchased all of the outstanding stock of
Shearer, which is located in Edmonton, Alberta, and provides sucker rod
inspection and reclamation services. The purchase price was approximately
$1,900,000 and consisted of approximately $1,300,000 cash and 98,294 shares of
the Company's common stock. The Company accounted for this acquisition under
the purchase method of accounting. For the nine months ended December 31,
1993, Shearer generated revenues of approximately $4,300,000 (unaudited) and
income before tax of approximately $482,000 (unaudited).
In April 1994, the Company acquired all of the outstanding capital stock
of Permian located in Midland, Texas, for approximately $2,500,000 consisting
of 399,600 shares of the Company's common stock. As part of this transaction,
the Company funded a pre-acquisition dividend to Permian shareholders by making
a $2,100,000 loan to Permian. Permian provides cement lining for tubing and
casing. The Company accounted for this acquisition under the purchase method
of accounting. For the year ended December 31, 1993, Permian generated revenues
of approximately $5,200,000 and income before tax of approximately $540,000.
Also in April 1994, the Company acquired all of the outstanding capital
stock of Frontier for approximately $1,500,000 consisting of 230,000 shares of
the Company's common stock. Frontier, which is based in Farmington, New
Mexico, provides inspection and reclamation services for tubing and casing.
The Company accounted for this acquisition under the purchase method of
accounting. For the year ended December 31, 1993, Frontier generated revenues
of approximately $1,800,000 and income before tax of approximately $414,000.
In October 1994, the Company purchased all of the outstanding capital
stock of B&W Equipment Sales and Mfg., Inc. ("B&W"), located in Odessa, Texas,
for approximately $745,000, consisting of $395,000 cash and 66,666 shares of
the Company's common stock. B&W designs and manufactures parts and components
for nondestructive testing and inspection equipment for use in the tubular
market. The
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<PAGE> 152
Company accounted for this acquisition under the purchase method of accounting.
For the nine months ended September 30, 1994 (unaudited), B&W generated
revenues of approximately $1,000,000 (unaudited) and net income of $116,000
(unaudited) with total assets of $528,000.
In March 1995 the Company acquired substantially all of the operational
assets (excluding real estate) of Kebco, which provides testing, inspecting and
reconditioning services for oil country tubular goods in the West Texas area.
Kebco was acquired for a total consideration of approximately $671,000,
consisting of approximately $629,000 cash and a $42,000 note. The Company
accounted for this acquisition under the purchase method of accounting. For
the year ended June 30, 1994, (unaudited) Kebco generated revenues of
approximately $730,000 (unaudited) and net income of approximately $37,000
(unaudited).
In June 1995 the Company purchased all of the outstanding capital stock of
Spinco for approximately $1,000,000, consisting of a $490,000 note and 94,884
shares of ICO common stock. Spinco provides inspection and reclamation
services for drill pipe and other oil country tubular goods in the Gulf Coast
area. For the nine months ended April 30, 1995, (unaudited) Spinco generated
approximately $741,000 (unaudited) in revenues and net income of $207,000
(unaudited).
The acquisitions of Shearer, Permian, Frontier, B&W, Kebco and Spinco
generated approximately $4,600,000 in excess purchase price over fair value of
net tangible assets acquired ("Goodwill") which is recorded in other assets on
the Company's Consolidated Balance Sheet. Goodwill is amortized over an
estimated useful life of 40 years.
The Company and Wedco Technology, Inc. ("Wedco") are negotiating the
acquisition of Wedco by the Company by means of a merger. No definitive
agreement has been reached and there can be no assurance that such transaction
will be consummated. Any merger, among other things, would be subject to the
approval of each company's shareholders and the satisfaction of certain
regulatory requirements.
Capital expenditures for 1995 were $5,838,000, excluding property, plant
and equipment of $1,439,000 acquired in connection with the acquisitions
described above. These expenditures were funded through cash generated from
operations and existing cash. Approximately $2,900,000 of the expenditures
were incurred for major repairs and enhancements of existing facilities. The
remaining expenditures were incurred in conjunction with the manufacture of new
pipe inspection units for steel mill and processor customers. For fiscal 1996,
capital expenditures for major repairs and enhancements of existing facilities
and manufacture of inspection equipment currently under contract for sale are
planned to be approximately $3,000,000 and are expected to be financed through
cash generated from operations and existing cash.
The Company is subject to numerous local, state, and federal laws and
regulations concerning the containment and disposal of hazardous materials.
Management believes that the Company is in substantial compliance with these
laws and regulations and that the compliance and remedial action costs
associated with these laws and regulations have not had a material adverse
effect on its results of operations, financial condition or competitive
position. Management believes that compliance with existing laws and
regulations will not have a materially adverse effect on the Company's results
of operations or financial condition in the foreseeable future and that capital
expenditures for environmental remediation will not be material.
13
<PAGE> 153
RESULTS OF OPERATIONS
Year Ended September 30, 1995 Compared to Year Ended September 30, 1994
Revenues. Revenues increased $11,917,000 or 16% from the year ended
September 30, 1994 to the same period in 1995. Exploration revenues increased
$4,857,000 or 16% from the year ended September 30, 1994 to the same period in
1995. Demand for Exploration services is affected by domestic drilling
activity. The domestic rig count averaged approximately 738 for the year ended
September 30, 1995 compared to an average of approximately 785 for the year
ended September 30, 1994. The adverse impact of the lower domestic rig count,
however, was more than offset by the Company's increased success in providing
in-plant, new pipe inspection services to steel mill and processing customers.
Production revenues decreased $170,000 or less than 1% from the year ended
September 1994 to the same period in 1995. Demand for these services is
affected by changes in oil prices which remained relatively stable in 1995
versus 1994. Oil prices ranged from a high of approximately $21 per barrel to
a low of approximately $17 per barrel for the year ended September 30, 1995
compared to a high of approximately $21 per barrel to a low of approximately
$14 per barrel for the year ended September 30, 1994. The impact of fiscal
year 1994 acquisitions of Frontier, Kebco and Shearer had a positive impact on
production revenues. The effect of the acquisitions, however, was offset by a
temporary decline in California revenues and a decline in demand for tubular
and sucker rod inspection and reconditioning services in the Oklahoma and
Wyoming markets. The decrease in California was the result of production
delays following the relocation of the Company's operating facility to
Bakersfield, California, from The City of Industry, California.
Revenues from Corrosion Control services increased $6,013,000 or 41% from
the year ended September 1994 to the same period in 1995. The increase is due
to the full year effect of the April 1994 Permian acquisition and an increase
demand for the Company's corrosion control services at all of its facilities.
Costs and Expenses. Cost of sales and services as a percentage of net
revenues decreased from 71% for the year ended September 30, 1994 to 68% for
the year ended September 30, 1995. This was due to the cost reduction program
implemented at the beginning of the 1994 third quarter and the increased sales
volume of the Company's exploration sales and services in fiscal year 1995
versus fiscal year 1994.
Selling, general and administrative expenses increased from $15,202,000 for
the year ended September 30, 1994 to $17,840,000 for the year ended September
30, 1995. The change is due to increased sales activity, the 1994 acquisitions
of TUC, Shearer, Permian and Frontier and the 1995 acquisitions of B&W and
Spinco. Selling, general and administrative costs as a percentage of revenues
has remained consistent for the fiscal year ended September 30, 1994 as
compared to the same period in 1995.
Depreciation and amortization expense increased from $4,357,000 for the year
ended September 30, 1994 to $5,112,000 for the year ended September 30, 1995.
The increase resulted from the additions of property, plant and equipment
during the year including the property, plant and equipment included in the
fiscal year 1995 and 1994 acquisitions.
Net interest income increased from $431,000 for the year ended September 30,
1994 to $1,307,000 for the year ended September 30, 1995. This change resulted
from the retirement of indebtedness in early fiscal year 1994 and increasing
yields on the Company's high-quality commercial paper portfolio in fiscal year
1995 versus 1994.
14
<PAGE> 154
Provision (Benefit) For Income Taxes. The Company reduced its valuation
allowance during fiscal year 1995 to reflect its ability to benefit from
temporary differences to the extent that regular federal taxes have been paid.
See the income tax footnote to the fiscal year 1995 financial statements for
the detail of temporary differences between income for financial reporting
purposes and federal income tax purposes.
The Company has for tax purposes $9,068,000 and $306,000 in net operating
and capital loss carryforwards, respectively, which expire between 2000 and
2008, and $2,078,000 in investment, alternative minimum, and other tax credit
carryforwards. All of the tax credits are expected to expire unused except
$104,000 in alternative minimum tax credits, which have no expiration.
Net Income. For the year ended September 30, 1995 the Company had net
income of $5,790,000 as compared to net income of $1,225,000 for the year ended
September 30, 1994 due to the factors described above. Included in the net
income for the year ended September 30, 1994 is an extraordinary loss of
$1,371,000 resulting from the retirement of indebtedness previously recorded on
the consolidated balance sheet at a discounted value.
Year Ended September 30, 1994 Compared to Year Ended September 30, 1993
Revenues. Revenues increased $15,753,000 or 26% from the year ended
September 30, 1993 to the same period in 1994. Exploration revenues increased
$4,806,000 or 19% from the year ended September 30, 1993 to the same period in
1994. Demand for exploration services is affected by domestic drilling
activity. The domestic rig count averaged approximately 785 for the year ended
September 30, 1994 compared to an average of approximately 750 for the year
ended September 30, 1993. Other factors contributing to the increase in
revenues related to exploration services were the completion in 1994 of the
consolidation of operations in Houston, Texas, the acquisition of TUC during
the first quarter and an increase in mill inspection services. The increase in
revenues also included approximately $1,800,000 from the sale of two mill
inspection systems during the year ended September 30, 1994.
Production revenues increased $3,983,000 or 16% from the year ended
September 30, 1993 to the same period in 1994. This increase in revenues was
due to higher sales of pipe and sucker rods during the year ended September 30,
1994, the expansion of operating facilities in Odessa, Texas and the
acquisition of Shearer in February 1994 and Frontier in April 1994. This
increase was partially offset by a decline in the demand for tubular and sucker
rod reconditioning services. The demand for these services is influenced by
oil prices which ranged from a high of approximately $21 per barrel to a low of
approximately $14 per barrel for the year ended September 30, 1994 compared to
a high of approximately $23 per barrel to a low of approximately $17 per barrel
for the year ended September 30, 1993.
Revenues from corrosion control services, which include internal coating and
lining services, increased $4,558,000 or 46% from the year ended September 30,
1993 to the same period in 1994. This increase was primarily due to the
acquisition of Permian in April 1994 and the installation of a new powder
coating line at the Company's Amelia, Louisiana facility.
Costs and Expenses. Cost of sales and services as a percentage of net
revenues remained consistent at 71% for the year ended September 30, 1993 and
for the year ended September 30, 1994, despite the higher sales of pipe and
sucker rods and the increase in corrosion control services, which generally
carry lower margins. This was due in part to a cost reduction program
implemented at the beginning of the third quarter of 1994 concentrating
primarily on production and corrosion control services.
15
<PAGE> 155
Selling, general and administrative expenses increased from $12,730,000
for the year ended September 30, 1993 to $15,202,000 for the year ended
September 30, 1994. The increase in selling, general and administrative
expenses resulted from the additional costs associated with the expansion of
the Company's operations in Odessa and Houston, Texas, the acquisition of TUC,
Shearer, Permian and Frontier and costs associated with exploring potential
opportunities in the international marketplace. Selling, general and
administrative costs as a percentage of revenues has decreased from 21% for the
year ended September 30, 1993 to 20% for the year ended September 30, 1994 due
to management's continuing process of reviewing overhead and operating expenses
in order to maintain appropriate levels relative to revenues.
Depreciation and amortization expense increased from $3,669,000 for the
year ended September 30, 1993 to $4,357,000 for the year ended September 30,
1994. The increase resulted from the addition of property, plant and equipment
during the year and the property, plant and equipment included in the
acquisitions of TUC, Shearer, Permian and Frontier.
Net interest expense was $2,352,000 for the year ended September 30,
1993; for the year ended September 30, 1994, the Company had net interest
income of $431,000. This change resulted from the retirement of indebtedness
and the investment of cash proceeds from the Preferred Stock offering.
Net Income (Loss). For the year ended September 30, 1994, the Company had
net income of $1,225,000 as compared to a net loss of $2,001,000 for the year
ended September 30, 1993 due to the factors described above. Net income for the
year ended September 30, 1994 included an extraordinary loss of $1,371,000
resulting from the retirement of indebtedness recorded on the consolidated
balance sheet at a discounted value. The net loss for the year ended September
30, 1993 included a loss of $605,000 resulting from the settlement of
litigation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted as a separate section of this
report. See index to this information on Page F-1 of this Annual Report on
Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
16
<PAGE> 156
P A R T I I I
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
THE BOARD OF DIRECTORS
The following information is furnished as to each Director of the
Registrant. For each Director, the following table indicates the name, age,
position and offices with the Company, term of office and period during which
the Director has served as such and other directorships held by the Director in
certain companies. Also shown are the total number of shares of common stock
beneficially owned by each Director individually, and all Directors and
executive officers of the Company as a group, without naming them, and the
percent of such class so owned, as of November 15, 1995. Unless otherwise
indicated, all shares are owned directly and the owner has sole voting and
investment powers with respect thereto.
<TABLE>
<CAPTION>
COMMON STOCK OWNED PERCENT OF
NAME AND AGE, ALL POSITIONS HELD FOR BENEFICIALLY (1) COMMON STOCK
DIRECTOR SINCE THE PAST FIVE YEARS OWNED
BENEFICIALLY
<S> <C> <C> <C>
Sylvia A. Pacholder Chief Executive Officer of the Company 2,476,988(4)(5)(6)(7)(8)(11) 25.2%
53, 1993 since February 1995 and President since
November 1994. From July 1994 to November
1994 Ms. Pacholder was Executive Vice
President - Operations, and from January
1994 to July 1994 she was Vice President -
Corporate Development of the Company.
During 1993 Ms. Pacholder was Senior Vice
President of Pacholder Associates, Inc.
Ms. Pacholder was a member of the faculty
at the University of Cincinnati from 1984
to 1993, most recently as the head of the
Department of Mathematics and Applied
Sciences. Ms. S. Pacholder is the spouse
of Asher O. Pacholder and the parent of
Robin E. Pacholder.
Asher O. Pacholder Chairman of the Board of Directors and 2,455,988(4)(5)(6)(7)(8)(11) 25.0%
58, 1990 Chief Financial Officer of the Company
since February 1995. Dr. Pacholder has
been Chairman of the Board and a Managing
Director of Pacholder Associates, Inc.
since 1983. He serves on the Boards of
Directors of USF&G Pacholder Fund, Inc., a
closed-end investment company, Southland
Corporation, which owns and operates
convenience stores, Trump's Castle
Associates, which owns and operates the
Trump's Castle Casino Resort in Atlantic
City, New Jersey, and AM International,
Inc., a manufacturer and distributor of
graphics equipment and supplies. Dr.
Pacholder is the spouse of Sylvia A.
Pacholder and the parent of Robin E.
Pacholder.
William E. Cornelius An independent manufacturing consultant 8,000(2)(3)(6) *
46, 1992 since 1991. For more than five years prior
to 1991, Mr. Cornelius was Vice President/
Partner of Young & Klein Technicraft, Inc.,
a printing company. Currently serving as
Director of Novare Services, Inc., a
health care services company.
</TABLE>
17
<PAGE> 157
<TABLE>
<CAPTION>
COMMON STOCK OWNED PERCENT OF
NAME AND AGE, ALL POSITIONS HELD FOR BENEFICIALLY (1) COMMON STOCK
DIRECTOR SINCE THE PAST FIVE YEARS OWNED
BENEFICIALLY
<S> <C> <C> <C>
William J. Morgan President and a Managing Director of 1,737,644(2)(3)(4)(5)(6)(11) 17.8%
39, 1992 Pacholder Associates, Inc. for more than
five years. He serves on the Board of
Directors of USF&G Pacholder Fund, Inc.,
Duckwall-Alco Stores, Inc., a Midwestern
retailer, and Kaiser Ventures, Inc., an
environmental resources company.
Robin E. Pacholder Senior Vice President and Associate 6,822(6)(9) *
28, 1993 General Counsel with Pacholder
Associates, Inc., an investment advisory
firm, since 1994. Ms. Pacholder was an
Associate with the law firm of Pachulski,
Stang, Ziehl & Young from 1992 to 1994.
Prior to that time, Ms. R. Pacholder
attended and graduated with honors from
the UCLA School of Law and was admitted to
practice law in California in 1992. Ms.
Pacholder is the daughter of Asher O.
Pacholder and Sylvia A. Pacholder.
John F. Williamson Executive Vice President and Chief 4,000(2)(3)(6) *
57, 1995 Financial Officer of Asset Allocation
Concepts, Inc., an investment management
company, since May 1995. From 1993 to 1994
Mr. Williamson was Vice President/Manager
of Investments for American Life and Casualty
Insurance Company. From 1990 to 1993 he
was a Financial Consultant. Prior to that
time Mr. Williamson was Senior Vice
President/Treasurer and member of the
Operating Committee for Community Federal
Savings and Loan Association from 1985 to
1990. Mr. Williamson serves on the Board
of Directors of USF&G Pacholder Fund. Mr.
Williamson was appointed by the Board of
Directors in June 1995 to fill the vacancy
on the Board resulting from the death of
John R. Howard.
</TABLE>
NAMED OFFICERS WHO ARE
NOT DIRECTORS
<TABLE>
<S> <C> <C>
Isaac Joseph, 22,000(6) *
Senior Vice President
Sales
Curtis Mathews, 32,000(6) *
Senior Vice President
Corporate Development
Kenneth Miller, 20,000(6) *
Senior Vice President
Corrosion Control
Services
All Directors and Executive Officers, as a group (12 persons) 2,700,824(10) 26.9%
</TABLE>
_________________
(1) Except as otherwise indicated, the beneficial owner listed below has sole
voting and investment powers with respect thereto.
(2) Audit Committee Member
(3) Compensation Committee Member
(4) Executive Committee Member
(5) Share amounts include 521,964 shares of common stock and 468,000 shares of
common stock which may be acquired through the exercise of warrants and
203,603 shares of common stock which may be acquired upon conversion of
Convertible Exchangeable Preferred Stock, in each case held by limited
partnerships, of which Dr. Pacholder and Mr. Morgan are general partners.
Pursuant to certain Investment Advisory Agreements,
18
<PAGE> 158
Pacholder Associates, Inc. has sole voting and investment power over such
securities. Share amounts also include 391,060 shares of common stock,
100,000 shares of common stock which may be acquired through the exercise
of warrants and 43,017 shares of common stock which may be acquired upon
conversion of Convertible Exchangeable Preferred Stock, in each case owned
by a wholly-owned subsidiary of Pacholder Associates, Inc.
(6) Share amounts for Ms. S. Pacholder, Mr. Joseph, and Mr. Miller include
20,000, 1,500, and 3,000 shares of common stock, respectively, that are
issuable upon exercise of stock options granted under the 1985 Stock
Option Plan. Share amounts for Ms. S. Pacholder, Dr. Pacholder, Mr.
Joseph, Mr. Mathews, and Mr. Miller include 30,000, 30,000, 8,500, 20,000,
and 5,000 shares of common stock, respectively, that are issuable upon
exercise of stock options granted under the 1994 Stock Option Plan. Share
amounts for Ms. S. Pacholder, Dr. Pacholder, Mr. Joseph, Mr. Mathews and
Mr. Miller include 35,000, 30,000, 12,000, 12,000 and 12,000 shares of
common stock, respectively, that are issuable upon exercise of options
granted under the 1995 Stock Option Plan. Share amounts for Dr. Pacholder,
Mr. Morgan, Mr. Cornelius, Ms. S. Pacholder, Ms. R. Pacholder and Mr.
Williamson include 6,000, 8,000, 8,000, 2,000, 6,000 and 4,000 shares of
common stock, respectively, that are issuable upon exercise of stock
options granted under the 1993 Stock Option Plan for Non-Employee
Directors.
(7) Share amounts include 650,944 shares of common stock issued in connection
with six acquisitions over which Ms. S. Pacholder and Dr. Pacholder share
voting power. Ms. S. Pacholder and Dr. Pacholder disclaim beneficial
ownership of these shares.
(8) Includes 11,400 shares of common stock.
(9) Includes 822 shares of common stock which may be acquired upon conversion
of Convertible Exchangeable Preferred Stock.
(10) Share amounts include 249,000 shares of common stock issuable upon
exercise of stock options granted to certain officers and Directors under
the Company's stock option plans 568,000 shares of common stock issuable
upon exercise of warrants and 247,442 shares of Preferred Stock that are
deemed to be beneficially owned by certain Directors as indicated in (5)
and (9) above. Share amounts also include 650,944 shares of common stock
over which certain Directors and officers share voting power as indicated
in (7) above.
(11) Pursuant to the November 17, 1995 scheduled termination of one limited
partnership, of which Dr. Pacholder and Mr. Morgan are general partners,
approximately 730,815 beneficial shares will be distributed to the limited
partners and Pacholder and Associates, Inc. will no longer have sole
voting power over 724,722 shares.
The Board of Directors held seven meetings during the year ended
September 30, 1995. Each meeting was attended by all Directors of record. Each
Director who is not an employee of the Company receives an annual retainer of
$10,000, and a Director's fee in the amount of $2,000 for each meeting of the
Board or Committee of the Board actually attended and reimbursement of actual
expenses incurred. In addition, each Director who is not an employee is a
participant in the 1993 Non-Employee Director Stock Option Plan. Under the
terms of the plan, each non-employee Director is granted options to purchase
2,000 shares of the Company's common stock, on the first business day
subsequent to each annual meeting of shareholders. Ms. Sylvia Pacholder was
granted options to purchase 2,000 shares of the Company's common stock upon her
appointment to the Board of Directors on September 8, 1993. Ms. Robin
Pacholder was granted options to purchase 2,000 shares of the Company's common
stock upon her appointment to the Board of Directors on December 28, 1993. Mr.
Williamson was granted options to purchase 2,000 shares of the Company's common
stock upon his appointment to the Board of Directors on June 9, 1995.
Standing Audit and Compensation Committees, each composed of the
non-officer Directors, met once during the past fiscal year. All committee
members were present. The functions of the Audit Committee include reviewing
the engagement of the independent accountants, the scope and timing of the
audit, certain non-audit services to be rendered by the independent
accountants, reviewing the report of the independent accountants upon
completion of their audit and reviewing with the independent accountants and
management the Company's policies and procedures with respect to accounting and
financial controls. The Compensation Committee reviews and recommends
compensation arrangements for Directors, officers and other employees and takes
whatever action may be required in connection with the Company's stock option
plans.
In fiscal 1993 the Board of Directors established an Executive Committee
which is currently composed of Directors William J. Morgan, Asher O. Pacholder
and Sylvia A. Pacholder. The functions of the Executive Committee include
reviewing capital expenditure projects, and assisting management in developing
and implementing strategic plans. The Executive Committee held five meetings
during the year ended September 30, 1995.
19
<PAGE> 159
The Company does not have a Nominating Committee.
PRINCIPAL EXECUTIVE OFFICERS OF THE COMPANY
WHO ARE NOT ALSO DIRECTORS
Set forth below are the name, age, positions and offices and periods
during which so served, of each executive officer of the Company and certain of
its subsidiaries, who is not also a Director, and all persons presently chosen
to become executive officers of the Company and certain of its subsidiaries:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Jon C. Biro 29 Controller & Treasurer
Randy Hamilton 36 Vice President - Exploration Services
Isaac Joseph 40 Senior Vice President - Sales
Curtis Mathews 52 Senior Vice President - Corporate Development
Kenneth Miller 51 Senior Vice President - Corrosion Control Services
Roy Pickett 47 Vice President - Production Services
</TABLE>
_______________
Mr. Biro, a certified public accountant, has been principally employed as
Controller and Treasurer of the Company since April, 1995. From October 1994
to March 1995, Mr. Biro was Controller of the Company. Prior to that time, Mr.
Biro was a CPA with Price Waterhouse LLP.
Mr. Hamilton has been principally employed as Vice President -
Exploration Services of the Company since October 1995. From July 1995 to
September 1995, Mr. Hamilton was Assistant Vice President - Exploration
Services. From September 1994 to June 1995, Mr. Hamilton was employed as
Division Manager. From September 1992 to August 1994, Mr. Hamilton served the
Company as a department manager. Prior to that time, Mr. Hamilton was employed
as a department manager with Baker Hughes Tubular Services, Inc.
Mr. Joseph has been principally employed as Senior Vice President - Sales
of the Company since March 1995. From November 1994 to March 1995 he was the
Louisiana Division Manager. Mr. Joseph was the Company's Division Sales
Manager for Louisiana from June 1994 to November 1994. From March 1992 to June
1994 Mr. Joseph was the Louisiana Sales Manager for Tuboscope Vetco
International. From September 1991 to March 1992 he was a Sales Representative
for Completion Accessories, Inc., an oilfield service company, in Louisiana.
Prior to that time, he was Senior Sales Representative for Baker Hughes Vetco
Services, an oilfield service company, in Louisiana.
Mr. Mathews has been principally employed as Senior Vice President -
Corporate Development of the Company since July 1995. From October 1994 to
June 1995 Mr. Mathews was Vice President - Exploration Services of the Company.
From October 1992 to September 1994, Mr. Mathews was employed as Regional
Manager. For more than five years prior to that time, Mr. Mathews served as
Domestic Inspection Manager for Baker Hughes Tubular Services, Inc.
Mr. Miller has been principally employed as Senior Vice President -
Corrosion Control Services of the Company since October 1995. From November
1994 to October 1995, Mr. Miller served the Company as Assistant Vice President
- - Corrosion Control Products. From October 1993 to October 1994, He was the
Louisiana Division Manager, and for three years prior to October 1993, Mr.
Miller served as the Gulf Coast Area Manager for Baker Hughes Tubular Services,
Inc.
Mr. Pickett has been principally employed with the Company as Vice
President - Production Services since July 1995. From November 1994 to July
1995, Mr. Pickett was employed as Division Manager.
20
<PAGE> 160
For more than nine years prior to that time, Mr. Pickett was employed as an
assistant sales manager with the Company.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Company
to each of the five most highly compensated executive officers and Directors
and the Company's former Chairman and Chief Executive Officer during the fiscal
year ended September 30, 1995.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG-TERM
------------------- COMPENSATION
-------------
NAME AND OPTION AWARDS ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS (SHARES) COMPENSATION(1)
------------------ ---- ------ ----- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Sylvia A. Pacholder 1995 $156,193 (3) 50,000 2,300
President & 1994 78,564 75,000 0 0
Chief Executive Officer 1993 -- -- -- --
Asher O. Pacholder 1995 94,327 (3) 30,000 0
Chairman of the Board 1994 -- -- -- --
& Chief Financial Officer 1993 -- -- -- --
James P. Shanahan, Jr.(2) 1995 $83,011 $0 30,000 0
Chairman of the Board & 1994 158,958 75,000 6,000 16,336
Chief Executive Officer 1993 131,833 75,000 30,000 1,583
Isaac Joseph 1995 78,126 (3) 10,000 781
Senior Vice President 1994 18,423 17,000 -- 100
Sales 1993 -- -- -- --
Curtis Mathews 1995 91,875 (3) 20,000 1,148
Senior Vice President 1994 78,528 10,000 0 1,020
Corporate Development 1993 77,940 8,100 4,000 0
Kenneth Miller 1995 74,145 (3) 6,000 1,834
Senior Vice President 1994 58,872 2,000 2,000 816
Corrosion Control Services 1993 58,872 3,954 0 809
</TABLE>
(1) Includes the Company's matching contributions for fiscal 1995 to the
Employee Stock Ownership Plan [the 401(k) Plan]. Also includes $14,583
paid to Mr. Shanahan in connection with the Company's relocation plan in
1994.
(2) Mr. Shanahan is no longer an employee of the company; however, he
currently has an acquisition and financing consulting agreement in effect
with the Company for which he is paid $15,000 per month and reimbursement
of certain relocation expenses. The agreement, which was effective in
February 1995, is for not less than twelve months in duration and may be
terminated in certain circumstances, including six months' notice by
either party.
(3) As of November 22, 1995 the distribution of fiscal year 1995 bonuses has
not yet been determined.
21
<PAGE> 161
OPTIONS GRANTED DURING FISCAL 1995
The following table sets forth stock options granted to the individuals
named in the Summary Compensation Table during 1995 under the Company's 1985
and 1994 Stock Option Plan. Under the Securities and Exchange Commission
("SEC") regulations, companies are required to project an estimate of
appreciation of the underlying shares of stock during the option term. The
Company has chosen the 5%, 10% formula approved by the SEC; however, the
ultimate value will depend on the market value of the Company's stock at a
future date, which may or may not correspond to the projections below.
<TABLE>
<CAPTION>
Potential realizable value
at assumed annual rates of
stock price appreciation
INDIVIDUAL GRANTS for option term
- ------------------------------------------------------------------- --------------------------
% of total
Options granted
Options To employees Exercise price Expiration
Name Granted In 1995 Per Share (1) Date 5% 10%
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sylvia A. Pacholder 50,000 11% 30,000 @ $5.00 10/14/2004 $93,334 $239,061
20,000 @ $4.75 12/02/2004 59,745 151,406
Asher O. Pacholder 30,000 7% $5.00 4/01/2005 94,334 239,061
James P. Shanahan, Jr. 30,000 7% $5.00 5/16/1995 0 0
Isaac Joseph 10,000 2% 1,500 @ $4.75 12/02/2004 4,481 11,355
2,500 @ $5.00 10/14/2004 7,861 19,922
6,000 @ $5.75 6/30/2005 21,697 54,984
Curtis Mathews 20,000 4% $5.00 10/14/2004 62,889 159,374
Kenneth Miller 6,000 1% 1,000 @ $4.75 12/02/2004 2,987 7,570
5,000 @ $5.00 10/14/2004 15,722 39,844
</TABLE>
(1) Exercise price is the fair market value on the date of grant.
FISCAL 1995 OPTION EXERCISES AND FISCAL YEAR-END VALUE
The following table sets forth stock options exercised by the individuals
named in the Summary Compensation Table during 1995, and the number and value
of all unexercised options at fiscal year end. The value of "in-the-money"
options refers to options having an exercise price which is less than the
market price of the Company's stock on September 30, 1995.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Shares Options at In-the-Money Options at
Acquired on Value September 30, 1995 September 30, 1995 (1)
Name Exercise Realized (2) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------ ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Sylvia A. Pacholder -0- n/a 52,000/0 $2,500/0
Asher O. Pacholder -0- n/a 36,000/0 0/0
James P. Shanahan, Jr. 30,000 $21,250 36,000/0 33,750/0
Isaac Joseph -0- n/a 10,000/0 188/0
Curtis Mathews -0- n/a 32,000/0 0/0
Kenneth Miller -0- n/a 8,000/0 125/0
</TABLE>
(1) Represents market value of the Company's common stock at September 30,
1995 less the exercise price.
(2) Based on market value of the Company's common stock on the date of
issuance of shares.
22
<PAGE> 162
EMPLOYEE STOCK OWNERSHIP PLAN
In June 1982, the Board of Directors adopted the ICO, Inc. Employee Stock
Ownership Plan (ESOP). The plan has been amended to comply with all tax acts
enacted since 1982. Compensation expense associated with this plan amounted to
approximately $183,000 in 1995, $194,000 in 1994 and $175,000 in 1993. In 1988
management amended the ESOP to provide a 401(k) savings feature. The ESOP is
the only Company-sponsored retirement plan in effect at September 30, 1995. The
amendment provides employees with a tax-deferred savings plan that allows them
to accumulate funds for retirement. All employees with six months of service
who are at least twenty and one-half years of age are eligible to participate
in the plan beginning each October.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1995, the Compensation Committee of the Board of
Directors of the Company consisted of Messrs. Asher O. Pacholder, William J.
Morgan, John R. Howard, William E. Cornelius, and Ms. Robin E. Pacholder until
October 20, 1995.
Effective October 20, 1995 the Compensation Committee of the Board of
Directors of the Company consists of Messrs. William J. Morgan, William E.
Cornelius, and John F. Williamson.
Dr. Pacholder and Mr. Morgan are each Directors of the Company and are
executive officers of Pacholder Associates, Inc.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and Directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and NASDAQ. Officers, Directors and greater than 10% Shareholders are required
by Securities and Exchange Commission regulation to furnish the Company with
copies of all Section 16(a) forms they file. Based solely on the review of the
copies of such forms furnished to the Company, or written representations that
no Forms 5 were required, the Company believes that during fiscal 1995, all
Section 16(a) filing requirements applicable to its Directors, officers and
greater than 10% beneficial owners were met.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table contains information concerning the security
ownership of certain beneficial owners known to the management of the Company,
based upon filings with the Securities and Exchange Commission, to own more
than five percent of the Company's common stock at the close of business on
November 15, 1995.
23
<PAGE> 163
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Pacholder Associates
8044 Montgomery Road, Suite 382
Cincinnati, Ohio 45236......................... 1,727,644 (2)(4) 17.7%
Prudential Insurance Company of America
100 Mulberry Street
Newark, New Jersey 07102....................... 757,400 8.5%
State Street Research & Management Company
One Financial Center, 38th Floor
Boston, Massachusetts 02111.................... 773,040 (3) 8.7%
Wellington Management Company
75 State Street
Boston, Massachusetts 02109.................... 710,760 8.0%
FMR Corporation
82 Devonshire Street
Boston, Massachusetts 02109.................... 661,700 7.4%
Alphi Investment Management Company
155 Pfingsten Road, Suite 360
Deerfield, Illinois 60015...................... 636,700 7.1%
T. Rowe Price Associates, Inc.
100 E. Pratt Street
Baltimore, Maryland 21202..................... 515,040 5.8%
</TABLE>
_______________________________________________________
(1) Voting and dispositive power is shared by the beneficial owner indicated
and certain of its subsidiaries, or investment funds managed by it.
(2) Share amounts include 521,964 shares of common stock, 468,000 shares of
common stock which may be acquired through the exercise of warrants and
203,603 shares of common stock which may be acquired upon conversion of
Convertible Exchangeable Preferred Stock, in each case held by limited
partnerships, of which Dr. Pacholder and Mr. Morgan are general partners.
Pursuant to certain Investment Advisory Agreements, Pacholder Associates,
Inc. has sole voting and investment power over such securities. Share
amounts also include 391,060 shares of common stock, 100,000 shares of
common stock which may be acquired through the exercise of warrants and
43,017 shares of common stock which may be acquired upon conversion of
Convertible Exchangeable Preferred Stock, in each case owned by a
wholly-owned subsidiary of Pacholder Associates, Inc.
(3) This number represents 510,000 shares of common stock held and 263,040
shares of common stock which may be acquired upon conversion of
Convertible Exchangeable Preferred Stock.
24
<PAGE> 164
(4) Pursuant to the November 17, 1995 scheduled termination of one limited
partnership, of which Dr. Pacholder and Mr. Morgan are general partners,
approximately 730,815 beneficial shares will be distributed to the limited
partners and Pacholder and Associates, Inc. will no longer have sole
voting power 724,722 shares.
SECURITY OWNERSHIP OF MANAGEMENT
See Item 10. Directors and Executive Officers of the Registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No reportable transactions occurred in the year ended September 30, 1995.
25
<PAGE> 165
P A R T I V
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The response to this portion of Item 14 is submitted as a separate
section of this report on page F-1.
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the
quarter ended September 30, 1995.
(c) Exhibits Required by Item 601 of S-K:
(1) The following exhibits are filed as a separate section of this
Form 10-K Annual Report:
3(ii) Bylaws of Registrant, as amended
11 Statement re Computation of Per Share Earnings
21 Subsidiaries of the Registrant
23 Consent of Price Waterhouse LLP
27 Financial Data Schedule
(2) The following exhibits are incorporated herein by reference:
3(i) Articles of Incorporation of Registrant, as amended.
(Exhibit 4 to Registrant's Form S-3 dated September 13,
1993)
4(a) Indenture for 10% Senior Notes due 2002, dated as of
September 1, 1992, between Registrant and Ameritrust Texas
N.A., Trustee. (Exhibit 4 to Registrant's Form 10-K Annual
Report for 1992)
4(b) Warrant Agreement - Series A, dated as of September 1,
1992, between Registrant and Society National Bank.
(Exhibit 4 to Registrant's Form 10-K Annual Report for
1992)
4(c) Warrant Agreement - Series B, dated as of September 1,
1992, between Registrant and Society National Bank.
(Exhibit 4 to Registrant's Form 10-K Annual Report for
1992)
MANAGEMENT COMPENSATORY AGREEMENTS
10(a) ICO, Inc. Tax Credit Employee Stock Ownership Plan, as
amended.
10(b) Amendments to accounts financing agreement and promissory
notes between Registrant and Congress Financial
Corporation. (Exhibit 4 to Registrant's Form 10-K Annual
Report for 1992)
26
<PAGE> 166
10(c) ICO, Inc. 1985 Stock Option Plan, as amended. (Exhibit B to
Registrant's definitive proxy statement dated April 27,
1987 for the Annual Meeting of Shareholders)
10(d) Accounts financing agreement and promissory notes between
Congress Financial Corporation and ICO, Inc. dated January
11, 1989. (Exhibit 3 to Registrant's Form 10-K Annual
Report for 1988)
10(e) Agreement for the purchase and sale of all of the
outstanding shares of capital stock of Baker Hughes Tubular
Services, Inc. and certain related non-U.S. assets by and
between ICO, Inc. and Baker Hughes, Incorporated. (Exhibit
2(a) to Registrant's Form 8-K Current Report dated
September 30, 1992)
10(f) 1993 Stock Option Plan for Non-Employee Directors of ICO,
Inc. (Exhibit 99 to Registrant's Form S-8 dated September
13, 1993)
10(g) ICO, Inc. 1994 Stock Option Plan (Exhibit A to Registrant's
definitive proxy statement dated June 24, 1994 for the
Annual Meeting of Shareholders)
10(h) ICO, Inc. 1995 Stock Option Plan (Exhibit A to Registrant's
definitive proxy statement dated August 10, 1995 for the
Annual Meeting of Shareholders)
(d) The response to this portion of Item 14 is submitted as a separate
section of this report on page F-1.
27
<PAGE> 167
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ICO, INC.
By: /s/ SYLVIA A. PACHOLDER
-----------------------------------
Sylvia A. Pacholder, President and
Chief Executive Officer
(Principal Executive Officer)
Date November 22, 1995
-----------------------------------
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 AND TITLE DATE
------------------- ----
<S> <C>
/s/ SYLVIA A. PACHOLDER November 22, 1995
- ---------------------------------------------------
Sylvia A. Pacholder, President and
Chief Executive Officer
(Principal Executive Officer)
November 22, 1995
/s/ ASHER O. PACHOLDER
- ---------------------------------------------------
Asher O. Pacholder, Chairman of the Board
and Chief Financial Officer
(Principal Financial Officer)
November 22, 1995
/s/ JON C. BIRO
- ---------------------------------------------------
Jon C. Biro, Controller and Treasurer
(Principal Accounting Officer)
November 22, 1995
/s/ WILLIAM E. CORNELIUS
- ---------------------------------------------------
William E. Cornelius, Director
November 22, 1995
/s/ WILLIAM J. MORGAN
- ---------------------------------------------------
William J. Morgan, Director
November 22, 1995
/s/ ROBIN E. PACHOLDER
- ---------------------------------------------------
Robin E. Pacholder, Director
November 22, 1995
/s/ JOHN F. WILLIAMSON
- ---------------------------------------------------
John F. Williamson, Director
</TABLE>
28
<PAGE> 168
ICO, INC. AND SUBSIDIARIES
FORM 10-K
INDEX OF FINANCIAL STATEMENTS AND SCHEDULE
The following financial statements of ICO, Inc. and subsidiaries are required
to be included by Item 14(a):
<TABLE>
<CAPTION>
(1) Financial Statements: PAGE
----
<S> <C> <C>
Report of Independent Accountants . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheet at September 30, 1995 and 1994 . . . . . F-3
Consolidated Statement of Operations for the three years
ended September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statement of Cash Flows for the three years
ended September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statement of Stockholders' Equity for the
three years ended September 30, 1995 . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . F-7
(2) Financial Statement Schedule:
Schedule VIII - Valuation and Qualifying Accounts . . . . . . . . . S-1
</TABLE>
All other 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 or
the information is presented in the consolidated financial statements or
related notes.
F-1
<PAGE> 169
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of ICO, Inc.
In our opinion, the consolidated financial statements listed in the Index
appearing on page F-1 present fairly, in all material respects, the financial
position of ICO, Inc. and its subsidiaries at September 30, 1995 and 1994, and
the results of their operations and their cash flows for each of the three
years in the period ended September 30, 1995, in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Houston, Texas
October 31, 1995
F-2
<PAGE> 170
ICO, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1995 1994
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents $ 24,991,000 $ 24,763,000
Trade receivables (less allowance for doubtful accounts of
$828,000 and $576,000, respectively) 18,050,000 14,307,000
Inventories 4,873,000 4,642,000
Prepaid expenses and other 2,035,000 3,253,000
------------- -------------
Total current assets 49,949,000 46,965,000
------------- -------------
Property, plant and equipment, at cost 83,461,000 76,374,000
Less - accumulated depreciation and amortization (53,637,000) (48,861,000)
------------- -------------
29,824,000 27,513,000
------------- -------------
Other assets:
Goodwill, net 4,474,000 3,663,000
Deferred tax asset 1,633,000 --
Patents and licenses, net 229,000 264,000
Other 2,074,000 564,000
------------- -------------
$ 88,183,000 $ 78,969,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 635,000 $ 437,000
Accounts payable 5,622,000 5,122,000
Accrued insurance 1,731,000 1,316,000
Accrued salaries and wages 1,351,000 935,000
Income taxes payable 1,209,000 --
Accrued expenses 2,117,000 1,499,000
------------- -------------
Total current liabilities 12,665,000 9,309,000
------------- -------------
Long-term debt, net of current portion 1,047,000 456,000
------------- -------------
Stockholders' Equity:
Preferred stock, without par value - 500,000 shares authorized;
322,500 shares issued and outstanding with a liquidation
preference of $32,250,000 13,000 13,000
Common Stock, without par value - 50,000,000 shares authorized;
8,883,911 and 8,551,574 shares issued and outstanding, respectively 35,042,000 33,394,000
Additional paid-in capital 56,058,000 56,053,000
Accumulated deficit (16,642,000) (20,256,000)
------------- -------------
74,471,000 69,204,000
------------- -------------
Commitments and contingencies (see Note 5 & 10)
$ 88,183,000 $ 78,969,000
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 171
ICO, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Exploration Services $ 31,342,000 $ 27,531,000 $ 24,878,000
Production Services 19,586,000 19,469,000 20,169,000
Corrosion Control Services 19,394,000 14,549,000 9,991,000
Product sales 14,672,000 12,015,000 5,179,000
Other sales and services 2,893,000 2,406,000 --
------------- ------------- -------------
87,887,000 75,970,000 60,217,000
------------- ------------- -------------
Cost and expenses:
Cost of sales and services 59,885,000 54,191,000 42,862,000
Selling, general and administrative 17,840,000 15,202,000 12,730,000
Depreciation and amortization 5,112,000 4,357,000 3,669,000
Litigation settlement -- -- 605,000
------------- ------------ -------------
82,837,000 73,750,000 59,866,000
------------- ------------- -------------
Operating income 5,050,000 2,220,000 351,000
Other income and expense:
Interest income 1,424,000 902,000 62,000
Interest expense (117,000) (471,000) (2,414,000)
------------- ------------- -------------
Income (loss) before taxes and extraordinary item 6,357,000 2,651,000 (2,001,000)
Provision for income taxes 567,000 55,000 --
------------- ------------- -------------
Income (loss) before extraordinary item 5,790,000 2,596,000 (2,001,000)
Extraordinary item - loss on repayment
of debt -- (1,371,000) --
------------- ------------- -------------
Net income (loss) $ 5,790,000 $ 1,225,000 $ (2,001,000)
============= ============= =============
Earnings (loss) per common and
common equivalent share:
Income (loss) before extraordinary item $ .41 $ .09 $ (.49)
Extraordinary item -- (.16) --
------------- ------------- -------------
Net income (loss) $ .41 $ (.07) $ (.49)
============= ============= =============
Weighted average common and common
equivalent shares outstanding 8,709,303 8,299,559 4,052,325
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 172
ICO, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------------
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 83,388,000 $ 73,612,000 $ 59,180,000
Cash paid to suppliers and employees (74,666,000) (68,961,000) (57,623,000)
Interest received 1,430,000 805,000 62,000
Interest paid (127,000) (710,000) (2,022,000)
Income taxes paid (992,000) -- --
Litigation settlement -- -- (605,000)
-------------- -------------- --------------
Net cash provided by (used for) operating activities 9,033,000 4,746,000 (1,008,000)
-------------- -------------- --------------
Cash flows from investing activities:
Capital expenditures (5,838,000) (4,782,000) (2,252,000)
Acquisitions (939,000) (3,194,000) --
Dispositions of property, plant and equipment 133,000 533,000 137,000
-------------- -------------- --------------
Net cash provided by (used for) investing activities (6,644,000) (7,443,000) (2,115,000)
-------------- -------------- --------------
Cash flows from financing activities:
Net proceeds from sale of stock 622,000 31,418,000 21,635,000
Payment of dividend on preferred stock (2,176,000) (1,826,000) --
Additions and refinanced debt 142,000 -- 49,372,000
Reductions of debt (749,000) (11,582,000) (58,643,000)
-------------- -------------- --------------
Net cash provided by (used for) financing activities (2,161,000) 18,010,000 12,364,000
-------------- -------------- --------------
Net increase in cash 228,000 15,313,000 9,241,000
Cash and equivalents at beginning of year 24,763,000 9,450,000 209,000
-------------- -------------- --------------
Cash and equivalents at end of year $ 24,991,000 $ 24,763,000 $ 9,450,000
============== ============== ==============
Reconciliation of net income (loss) to
net cash provided by (used for) operating activities:
Net income (loss) $ 5,790,000 $ 1,225,000 $ (2,001,000)
-------------- -------------- --------------
Adjustments:
Depreciation and amortization 5,112,000 4,357,000 3,669,000
Loss on extinguishment of debt -- 1,371,000 --
Interest not paid -- -- 67,000
Net changes in assets and liabilities:
Receivables (3,279,000) (1,067,000) (1,037,000)
Inventories 297,000 (515,000) (104,000)
Prepaid expenses and other assets (340,000) (302,000) (1,268,000)
Deferred tax asset (1,634,000) -- --
Accounts payable 400,000 (51,000) 625,000
Accrued expenses 2,687,000 (272,000) (959,000)
-------------- -------------- --------------
Total adjustments 3,243,000 3,521,000 993,000
-------------- -------------- --------------
Net cash provided by (used for)
operating activities $ 9,033,000 $ 4,746,000 $ (1,008,000)
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 173
ICO, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
PREFERRED ---------------------- PAID-IN ACCUMULATED
STOCK SHARES AMOUNT CAPITAL DEFICIT
----- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1992 -- 3,162,192 $25,301,000 $3,258,000 $(18,255,000)
Fractional shares acquired in connection with a
reverse stock split -- (50) -- -- --
Issuance of shares in connection with a stock
offering -- 3,945,000 40,000 22,935,000 --
Issuance of shares in connection with exercise of
warrants -- 154,875 849,000 (75,000) --
Issuance of shares in connection with the exercise
of employee stock options -- 17,100 66,000 -- --
Issuance of shares to the ICO Employee Stock
Ownership Plan -- 18,960 175,000 -- --
Net loss -- -- -- -- (2,001,000)
---------- --------- ----------- ----------- ------------
Balance at September 30, 1993 -- 7,298,077 26,431,000 26,118,000 (20,256,000)
Issuance of shares in connection with acquisitions -- 832,894 5,550,000 -- --
Issuance of shares in connection with the exercise
of warrants -- 349,143 1,095,000 -- --
Issuance of shares in connection with the exercise
of employee stock options -- 32,680 124,000 -- --
Issuance of shares to the ICO Employee Stock
Ownership Plan -- 38,780 194,000 -- --
Issuance of 322,500 shares of Convertible
Exchangeable Preferred Stock $ 13,000 -- -- 30,588,000 --
Convertible Exchangeable Preferred Stock
Dividend (601,000) (1,225,000)
Translation adjustment (52,000)
Net income -- -- -- -- 1,225,000
---------- --------- ----------- ----------- ------------
Balance at September 30, 1994 13,000 8,551,574 33,394,000 56,053,000 (20,256,000)
Issuance of shares in connection with acquisitions -- 161,550 843,000
Issuance of shares in connection with the exercise
of employee stock options -- 133,330 622,000
Issuance of shares to the ICO Employee Stock
Ownership Plan -- 37,457 183,000
Convertible Exchangeable Preferred Stock
Dividend (2,176,000)
Translation adjustment 5,000
Net income 5,790,000
---------- --------- ----------- ----------- ------------
Balance at September 30, 1995 $ 13,000 8,883,911 $35,042,000 $56,058,000 $(16,642,000)
========== ========= =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 174
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of ICO, Inc. and its wholly-owned subsidiaries (the
"Company"). All significant intercompany accounts and transactions have been
eliminated in consolidation.
SEGMENT INFORMATION - While the Company serves many of the significant
oil and gas producing regions and active exploration areas of the Continental
United States, it operates primarily in one industry segment which includes the
inspecting, reconditioning and coating of tubular goods and sucker rods utilized
in the oil and gas industry.
REVENUE AND RELATED COST - The Company generally recognizes revenue
upon completion of its inspection and coating services and related expenses are
generally recognized as incurred. For product sales, revenues and related
expenses are recognized when title is transferred, generally when the products
are shipped. In 1993, product sales were not significant. In 1994 and 1995,
product sales totaling $1,782,000 and $2,043,000 yielded a gross margin of
approximately 50% and 58%, respectively.
INVENTORIES - Inventories are stated at the lower of cost or market,
cost being determined by the first-in, first-out method.
CASH AND CASH EQUIVALENTS - The Company considers all highly-liquid
debt securities with a maturity of three months or less when purchased to be
cash equivalents.
PROPERTY, PLANT AND EQUIPMENT - The costs of property, plant and
equipment, including renewals and improvements which extend the life of existing
properties, are capitalized and depreciated using the straight-line method over
the estimated useful lives of the various classes of assets as follows:
CLASSIFICATION YEARS
- -------------- -----
Site improvements................................................. 3-25
Buildings......................................................... 5-25
Machinery and equipment........................................... 3-22
Transportation equipment.......................................... 3-14
Leasehold improvements are amortized on a straight-line basis over the
lesser of the economic life of the asset or the lease term. Expenditures for
normal maintenance and repairs are expensed as incurred. The cost of property,
plant and equipment sold or otherwise retired and the related accumulated
depreciation are removed from the accounts and any resultant gain or loss is
included in operating results.
GOODWILL - The excess purchase price over fair value of net tangible
assets, goodwill, is being amortized on a straight-line basis over 40 years. The
Company periodically reviews goodwill to assess recoverability. Impairments
would be recognized in operating results if a permanent diminution in value were
to occur. In 1993, goodwill amortization was immaterial. The goodwill
amortization charged against earnings in 1994 and 1995 was $67,000 and $129,000,
respectively.
PATENTS AND LICENSES -- The cost of patents, patent rights and license
agreements is generally amortized over the remaining legal lives of the patents
or agreements on a straight-line basis, averaging approximately ten years. Total
accumulated amortization associated with such patents and agreements at
September 30, 1994 and 1995 was $1,232,000 and $1,267,000, respectively.
F-7
<PAGE> 175
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOREIGN CURRENCY TRANSLATION -- Exchange adjustments resulting from
foreign currency transactions are generally recognized in net earnings, whereas
adjustments resulting from the translation of financial statements are reflected
as a separate component of stockholders' equity. Net foreign currency
transaction gains or losses are not material in any of the periods presented.
ENVIRONMENTAL - Environmental expenditures that relate to current
operations are expensed as incurred. Expenditures that relate to an existing
condition caused by past operations, and which do not contribute to current or
future revenue generation, are also expensed. Liabilities are recorded when
environmental assessments and/or remedial efforts are probable, and the costs
can be reasonably estimated. Generally, the timing of these accruals coincides
with the earlier of completion of a feasibility study or the Company's
commitment to a formal plan of action. As of September 30, 1994 and 1995, a
liability for environmental remediation of $140,000 and $61,000, respectively,
remained which was assumed in the acquisition of Baker Hughes Tubular Services,
Inc. ("BHTS").
INCOME TAXES -- The Company and its wholly-owned subsidiaries file a
consolidated federal income tax return. Investment tax credits are recognized
using the flow-through method, whereby, in the year available for utilization,
they are applied as a reduction of income tax expense. Deferred income taxes are
determined utilizing a liability approach. This method gives consideration to
the future tax consequences associated with existing differences between
financial accounting and tax bases of assets and liabilities. This method also
gives immediate effect to changes in income tax laws upon enactment. Deferred
income tax expense is derived from changes in deferred income taxes on the
balance sheet.
EARNINGS (LOSS) PER SHARE -- Earnings (loss) per share is based on
earnings (loss) applicable to common shareholders and is computed using the
weighted average number of common and common equivalent shares outstanding
during the year including stock options and warrants which may have a dilutive
effect. Outstanding options, and warrants and Exchangeable Preferred Stock had
no materially dilutive effect for the years ended September 30, 1995, 1994, and
1993.
RECLASSIFICATION - Certain reclassifications have been made to the
prior year amounts in order to conform to the current year classifications.
NOTE 2 - ACQUISITIONS
1995 ACQUISITIONS
In June 1995 the Company purchased all of the outstanding capital stock
of R.J. Dixon, Inc. (DBA "Spinco") for a $490,000 note and 94,884 shares of ICO
common stock. Spinco is a Louisiana corporation that provides inspection and
reclamation services for drill pipe and other oil country tubular goods in the
Gulf Coast area. For the nine months ended April 30, 1995, (unaudited) Spinco
generated approximately $741,000 in revenues and net income of $207,000.
In March 1995 the Company acquired substantially all of the operational
assets, excluding real estate, of Kebco Pipe Services, Inc. ("Kebco"), which
provides testing, inspecting and reconditioning services for oil country tubular
goods in the West Texas area. Kebco was acquired for a total consideration of
approximately $671,000, consisting of approximately $629,000 cash and a $42,000
note. For the year ended June 30, 1994, (unaudited) Kebco generated revenues of
approximately $730,000 and net income of approximately $37,000.
F-8
<PAGE> 176
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In October 1994 the Company purchased all of the outstanding capital
stock of B&W Equipment Sales and Mfg., Inc. ("B&W") for approximately $745,000,
consisting of $395,000 cash and 66,666 shares of ICO common stock. B&W is a
Texas corporation that designs and manufactures parts and components for
nondestructive testing and inspection of equipment for use in the tubular
market. For the nine months ended September 30, 1994, (unaudited) B&W generated
revenues of approximately $1,000,000 and net income of $116,000. B&W sales to
ICO during such nine month period totaled approximately $635,000.
All of the 1995 acquisitions were accounted for under the purchase
method of accounting.
1994 ACQUISITIONS
In April 1994, the Company acquired all of the outstanding capital
stock of Permian Enterprises, Inc. ("Permian") located in Midland, Texas, for
$2,498,000 consisting of 399,600 shares of the Company's common stock. As part
of this transaction, the Company funded a pre-acquisition dividend to Permian
shareholders by making a $2,100,000 loan to Permian. Permian provides cement
lining for tubing and casing. For the year ended December 31, 1993 Permian
generated revenues of $5,200,000 and income before tax of $540,000.
In April 1994, the Company purchased all of the outstanding capital
stock of Frontier Inspection Services, Inc. ("Frontier") for $1,495,000
consisting of 230,000 shares of the Company's common stock. Frontier, which is
based in Farmington, New Mexico, provides inspection and reclamation services
for tubing and casing. For the year ended December 31, 1993 Frontier generated
revenues of $1,800,000 and income before tax of $414,000.
In February 1994, the Company purchased all of the outstanding capital
stock of Shearer Supply Ltd. ("Shearer") of Canada for $1,900,000, consisting of
$1,300,000 cash and 98,294 shares of the Company's common stock. Shearer
inspects and reconditions sucker rods and reconditions engines utilized in
connection with pumping units of oil wells. For the nine months ended December
31, 1993 Shearer generated revenues of $4,300,000 and income before tax of
$482,000.
In November 1993, the Company acquired substantially all of the
property, plant and equipment of Tubular Ultrasound Corporation, Inc. ("TUC"), a
pipe-inspection company, located in Houston, Texas, for a total consideration of
$1,100,000 consisting of 105,000 shares of the Company's common stock and the
payment of $170,000 of TUC indebtedness. For the year ended June 30, 1993,
(unaudited) TUC generated revenues of $1,700,000 and income before tax of
$83,000.
All of the 1994 acquisitions were accounted for under the purchase method of
accounting. Assuming the 1994 and 1995 transactions described above occurred at
the beginning of each year presented, condensed unaudited pro forma combined
results of operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------
1995 1994
----------- -----------
<S> <C> <C>
Revenues $88,803,000 $84,394,000
Income before extraordinary item 5,974,000 3,761,000
Net income per share before
extraordinary item .43 .23
</TABLE>
F-9
<PAGE> 177
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3 -- INVENTORIES
Inventories at September 30 consisted of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Finished goods $ 1,941,000 $ 2,176,000
Raw materials and work in process 2,932,000 2,466,000
----------- -----------
$ 4,873,000 $ 4,642,000
=========== ===========
</TABLE>
NOTE 4 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consisted of the following at
September 30:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Land and site improvements $19,133,000 $15,964,000
Buildings 10,171,000 9,707,000
Machinery and equipment 46,228,000 45,045,000
Transportation equipment 2,389,000 2,089,000
Leasehold improvements 1,668,000 1,603,000
Construction in progress 3,872,000 1,966,000
----------- -----------
$83,461,000 $76,374,000
=========== ===========
</TABLE>
NOTE 5 -- DEBT AND PLEDGED ASSETS
Debt at September 30, consisted of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Secured loan agreements $ 1,192,000 $ 893,000
Spinco acquisition note 490,000 --
----------- -----------
1,682,000 893,000
Less - Current portion 635,000 437,000
----------- -----------
$ 1,047,000 $ 456,000
=========== ===========
</TABLE>
The various secured loan agreements are collateralized by certain
assets of the Company and contain restrictions relating to, among other things:
additional borrowings, selling assets except in the ordinary course of business,
and investments or guarantees. The loan agreements carry various maturities and
interest rates ranging from 8.5% to 12.5%, respectively.
The Spinco acquisition note (see Note 2) bears interest at 5% and is
due January 2, 1996.
F-10
<PAGE> 178
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of September 30, 1995, principal payments on long-term debt for the
next five years were as follows: 1996 - $635,000; 1997 - $76,000; 1998 -
$77,000; 1999 - $81,000 and 2000 - $86,000.
NOTE 6 -- PREFERRED STOCK
In November 1993, the Company completed an offering of Convertible
Exchangeable Preferred Stock ("Preferred Stock"). The shares of Preferred Stock
are evidenced by Depositary Shares, each representing one-quarter of a share of
Preferred Stock. A total of 1,290,000 Depositary Shares were sold at a price of
$25 per share. Each preferred share is convertible into 10.96 common shares
(equivalent to 2.74 common shares per Depositary Share) at a conversion price of
$9.125 per common share subject to adjustment upon the occurrence of certain
events. The Board of Directors approved the recording of the Preferred Stock
offering by allocating $.01 per Depositary Share to Preferred Stock and the
remainder to additional paid-in capital. Preferred Stock dividends of $1.68 per
depositary share are paid annually.
NOTE 7 -- STOCK OPTION PLANS AND COMMON STOCK WARRANTS
The ICO, Inc. 1985 Stock Option Plan provides for the grant of options
to purchase an aggregate of 310,000 shares of the Company's common stock during
the ten-year period commencing January 2, 1985. Shares of common stock are
reserved for grant to certain officers and key employees at a price not less
than 100% of the fair market value of the stock at the date of grant. The
following is a summary of stock option activity for the year ended September 30:
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Options outstanding at beginning of year 183,041 193,772 68,968
Options granted at $4.75 61,750 -- --
Options granted at $8.25 -- 17,000 --
Option granted at $7.13 -- 15,000 --
Options granted at $3.75 -- -- 144,000
Options exercised (43,944) (32,680) (17,100)
Options canceled or expired (47,685) (10,051) (2,096)
------------ ------------ ------------
Options outstanding at end of year 153,162 183,041 193,772
============ ============ ============
Price of options exercised $3.75 - 5.00 $3.75 - 5.00 $3.75 - 5.10
Information as of end of year:
Price range of options outstanding $3.75 -12.20 $3.75 -12.20 $3.75 -12.20
Shares exercisable 153,162 183,041 193,772
Shares available for grant None 71,775 93,724
</TABLE>
F-11
<PAGE> 179
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The ICO, Inc. 1993 Non-employee Directors Stock Option Plan provides
for the grant of options to purchase an aggregate of 80,000 shares of the
Company's common stock during the ten-year period commencing June 16, 1993.
Shares of common stock are reserved for grant to the nonemployee Directors at a
price not less than 100% of the fair market value of the stock at the date of
grant. The following is a summary of stock option activity for the year ended
September 30:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Options outstanding at beginning of year 30,000 22,000
Options granted at $5.13 8,000 -- --
Options granted at $5.75 -- 10,000 --
Options granted at $6.13 2,000 -- --
Options granted at $7.13 -- 2,000 --
Options granted at $7.19 -- -- 20,000
Options granted at $9.75 -- -- 2,000
Options canceled or expired (6,000) (4,000) --
------ ------ -----------
Options outstanding at end of year 34,000 30,000 22,000
====== ====== ===========
The ICO, Inc. 1994 Stock Option Plan provides for the grant of options
to purchase an aggregate of 400,000 shares of the Company's common stock during
the ten-year period commencing July 1, 1994. Shares of common stock are reserved
for grant to certain officers and key employees at a price not less than 100% of
the fair market value of the stock at the date of grant. The following is a
summary of stock option activity for the year ended September 30, 1995:
Options granted at $5.00 379,800
Options granted at $5.75 18,000
Options exercised (84,900)
Options canceled or expired (13,500)
------------
Options outstanding at end of year 299,400
============
Price of options exercised $ 5.00
Information as of end of year:
Price range of options outstanding $5.00 - 5.75
Shares exercisable 299,400
Shares available to grant 15,700
</TABLE>
The ICO, Inc. 1995 Stock Option Plan ("1995 Plan") was approved by the
stockholders at the Annual Meeting held on September 8, 1995 and provides for
the grant of options to purchase an aggregate of 400,000 shares of the Company's
common stock during the ten year period commencing August 15, 1995. Shares of
common stock are reserved for grant to certain officers and key employees at a
price not less than 100% of the fair market value of the stock at the date of
grant. As of September 30, 1995 no options had been granted under the 1995 Plan.
F-12
<PAGE> 180
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In connection with the Company's debt restructurings, 51,625 (expiring
June 1997) and 801,375 (expiring July 2002) Common Stock Purchase Warrants were
issued and are outstanding and currently exercisable at $5.00 as of September
30, 1995.
NOTE 8 -- INCOME TAXES
The amounts of income (loss) before income taxes attributable to
domestic and foreign operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Domestic $ 5,297,000 $ 1,323,000 $(1,801,000)
Foreign 1,060,000 (43,000) (200,000)
----------- ----------- -----------
$ 6,357,000 $ 1,280,000 $(2,001,000)
=========== =========== ===========
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------
1995 1994 1993
----------- ---------- -----------
<S> <C> <C> <C>
Current:
Federal $ 1,633,000 $ 55,000
State 208,000
Foreign 359,000
----------- ---------- -----------
$ 2,200,000 $ 55,000
----------- ---------- -----------
Deferred:
Federal $ (1,633,000)
----------- ---------- -----------
$ (1,633,000)
----------- ---------- -----------
Total:
Federal $ 55,000
State $ 208,000
Foreign 359,000
----------- ---------- -----------
$ 567,000 $ 55,000
=========== ========== ===========
</TABLE>
A reconciliation of the income tax expense at the federal statutory
rate (35% for 1995 and 34% for prior years) to the Company's effective rate is
as follows:
F-13
<PAGE> 181
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Tax expense (benefit) at statutory rate $ 2,225,000 $ 435,000 $ (680,000)
Change in the deferred tax assets valuation
allowance (1,695,000) (495,000) 496,000
Non-deductible expenses and other, net 37,000 115,000 184,000
----------- ----------- -----------
$ 567,000 $ 55,000 $
=========== =========== ===========
</TABLE>
Deferred tax assets (liabilities) result from the cumulative effect of
temporary differences in the recognition of expenses (revenues) between tax
returns and financial statements. The significant components of the balances are
as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1995 1994
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating and capital loss carryforwards $ 3,299,000 $ 4,763,000
Tax credit carryforward 2,078,000 2,191,000
Depreciation 966,000 326,000
Insurance reserves 733,000 540,000
Other accruals 382,000 83,000
Bad debt reserves 338,000 228,000
Compensated absence accrual 91,000 89,000
Other 70,000 --
----------- -----------
7,957,000 8,220,000
----------- -----------
Deferred tax liabilities:
Deferred revenue (361,000)
Other (20,000) (14,000)
----------- -----------
(381,000) (14,000)
----------- -----------
Valuation allowance on deferred tax assets: (5,943,000) (8,206,000)
----------- -----------
Net deferred tax assets: $ 1,633,000
=========== ===========
</TABLE>
The Company has for tax purposes $9,068,000 and $306,000 in net
operating and capital loss carryforwards, respectively, which expire between
2000 and 2008, and $2,078,000 in investment, alternative minimum and other tax
credit carryforwards. All of the tax credits are expected to expire unused
except $104,000 in alternative minimum tax credits, which have no expiration.
A stock offering in 1993 resulted in a cumulative change in ownership
that consequently limited the Company's ability to utilize the carryforwards and
investment tax credits to approximately $3,000,000 each year through their
expiration in 2008.
F-14
<PAGE> 182
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company changed its assessment of the deferred tax assets valuation
allowance in the fourth quarter of fiscal 1995 to recognize its ability to
benefit from the reversal of temporary differences between financial and taxable
income to the extent that regular federal income taxes have been paid on taxable
income. The Company continues to maintain a full deferred tax asset valuation
allowance on the net operating loss, capital loss, and tax credit carryforwards
due to the uncertainty of the realizability of their benefit. The deferred tax
asset valuation allowance was also reduced by $568,000 in fiscal 1995 to reflect
the expiration of certain state net operating loss carryforwards and federal tax
credits.
NOTE 9 -- EMPLOYEE BENEFIT PLANS
STOCK OWNERSHIP PLAN - Compensation expense associated with the
Company's Employee Stock Ownership Plan, as amended ("ESOP") amounted to
approximately $183,000 in 1995, $194,000 in 1994, and $175,000 in 1993.
Effective October 1, 1988 management amended the ESOP to provide a 401(k)
savings feature. The Company is required to contribute at least 25% of the
salary contribution of each participant. The ESOP is the only company-sponsored
retirement plan in effect at September 30, 1995. The amendment provides
employees with a tax-deferred savings plan that allows them to accumulate funds
for retirement. All employees with six months of service who are at least twenty
and one-half years of age are eligible to participate in the plan beginning each
October.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
The Company leases certain transportation equipment, office space and
other machinery and equipment under operating leases which expire at various
dates through fiscal 2002. Rental expense was approximately $2,679,000 in 1995,
$2,508,000 in 1994, and $2,616,000 in 1993. Future minimum rental payments, as
of September 30, 1995 are due as follows:
1996 1,701,000
1997 950,000
1998 500,000
1999 427,000
2000 378,000
Thereafter 588,000
The Company is a defendant in twelve lawsuits for personal-injury
claims for exposure to silica resulting in silicosis-related disease. The
Company has in effect general liability and employer's liability insurance
policies applicable to such suits; however, the Company has been advised by each
of the involved insurance carriers of a reservation of rights with regard to
policy obligations pertaining to the suits because of various exclusions in the
policies. Additionally, the Company is generally protected under workers'
compensation law against such claims except to the extent a judgment is awarded
based on claims alleging intentional tort. If an adverse judgment is obtained
against the Company in any such suit, which is ultimately determined not to be
covered by insurance, the amount of such judgment could have a material adverse
effect on the financial condition or results of operations of the Company.
F-15
<PAGE> 183
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
There are various other claims and pending actions incidental to the
business operations of the Company. In the opinion of the Company's management,
the Company's potential liability in these matters in the aggregate is not
material.
In conjunction with the sale of mill inspection equipment for which a
security interest was perfected, the Company is guarantor of amounts due a third
party totaling $1,283,958 as of September 30, 1995. Related revenues of
$1,782,000 and costs of $892,000 have been recognized in the 1994 Consolidated
Statement of Operations.
NOTE 11 -- UNUSUAL ITEMS
In 1994, the Company repaid debt with a face value of $11,380,000 and
recorded an extraordinary loss of $1,371,000 resulting from the elimination of
discounts from face value which originated at the inception of the debt. The
Company retired the 10% Notes at 107% of the principal amount thereof.
On June 9, 1993 the Company settled two personal-injury claims for
exposure to silica resulting in silicosis-related deaths for a cash payment in
the amount of $605,000 which was recorded as a charge to operations during the
quarter ended June 30, 1993.
NOTE 12 -- SUPPLEMENTAL CONSOLIDATED STATEMENT OF CASH FLOWS NON-CASH
INFORMATION
As more full discussed in Note 2, the following is a schedule of assets
acquired, liabilities assumed, and common stock issued in conjunction with the
acquisitions in 1995 and 1994:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1995 1994
----------- -----------
<S> <C> <C>
Trade receivables $ 462,000 $ 2,072,000
Inventories 107,000 1,464,000
Prepaid expenses and other assets 42,000 291,000
Property, plant and equipment 1,439,000 3,045,000
Goodwill 885,000 3,707,000
Accounts payable (102,000) (640,000)
Accrued liabilities (154,000) (781,000)
Long-term debt (897,000) (1,105,000)
Common stock issued (843,000) (4,859,000)
----------- -----------
Cash paid, net of cash acquired $ 939,000 $ 3,194,000
=========== ===========
</TABLE>
In 1995 the Company purchased real estate by issuing debt of $500,000.
During fiscal years 1993, 1994 and 1995, the Company issued to
employees $175,000, 194,000 and 183,000 worth of common stock, respectively, in
connection with the Company's Employee Stock Ownership Plan.
F-16
<PAGE> 184
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In July 1993, Baker Hughes exercised a portion of its Warrant to
purchase 450,857 shares of common stock for an aggregate purchase price of
approximately $1,691,000 which was applied to an equivalent reduction in the
principal balance due under the BHTS seven-year acquisition note. In February
1994, Baker Hughes exercised the remaining portion of its Warrant to purchase
349,143 shares of common stock for an aggregate purchase price of approximately
$1,309,000 which was applied to an equivalent reduction in the principal balance
due under the BHTS seven-year acquisition note. The Company prepaid the
remaining balance of the seven-year note in February 1994.
In September 1993, the holders of $774,375 of 10% Notes due 1997
exercised Warrants by tendering their Note, and the Company issued 154,875
shares of its common stock.
In 1993, the Company purchased real estate previously leased by issuing
debt of $450,000.
NOTE 13 -- SUBSEQUENT EVENTS
On November 1, 1995 the Company established a quarterly dividend of
$.05 per share on its common stock. The first dividend will be paid on December
31, 1995 to the shareholders of record on December 21, 1995.
The Company and Wedco Technology, Inc. ("Wedco") are negotiating the
acquisition of Wedco by the Company by means of a merger. No definitive
agreement has been reached and there can be no assurance that such transaction
will be consummated. Any merger, among other things, would be subject to the
approval of each company's shareholders and the satisfaction of certain
regulatory requirements.
F-17
<PAGE> 185
ICO, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE ADDITIONS BALANCE
AT BEGINNING CHARGED TO (1) AT END OF
OF YEAR EXPENSES DEDUCTIONS YEAR
------------ ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Year ended September 30, 1995:
Allowance for doubtful trade
receivables $ 576 $ 418 $ 166 $ 828
========== ========== ========== =========
Year ended September 30, 1994:
Allowance for doubtful trade
receivables $ 584 $ -- $ 8 $ 576
========== ========== ========== =========
Year ended September 30, 1993:
Allowance for doubtful trade
receivables $ 779 $ -- $ 195 $ 584
========== ========== ========== =========
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
S-1
<PAGE> 186
ANNEX C
Form 10-K for the fiscal year ended March 31, 1995 of Wedco Technology,
Inc. is attached to the Joint Proxy Statement/Prospectus as Annex C. Said
document is also incorporated by reference in the Joint Proxy
Statement/Prospectus.
<PAGE> 187
ANNEX D
Form 10-Q for the quarter ended September 30, 1995 of Wedco Technology,
Inc. is attached to the Joint Proxy Statement/Prospectus as Annex D. Said
document is also incorporated by reference in the Joint Proxy
Statement/Prospectus.
<PAGE> 188
INDEX TO EXHIBITS
23.1 Consent of Independent Accountants (Price Waterhouse LLP)
23.2 Consent of Independent Accountants (Coopers & Lybrand L.L.P.)
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Joint Proxy
Statement/Prospectus constituting part of this Registration Statement on Form
S-4 of ICO, Inc. of our report dated October 31, 1995 appearing on page F-2 of
the ICO, Inc. Annual Report on Form 10-K of the year ended September 30, 1995.
We also consent to the reference to us under the heading "Experts" in such Joint
Proxy Statement/Prospectus.
PRICE WATERHOUSE LLP
Houston, Texas
February 8, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Joint Proxy
Statement/Prospectus constituting part of this Registration Statement on Form
S-4 of ICO, Inc. of our report dated June 13, 1995, on our audits of the
consolidated financial statements of Wedco Technology Inc. as of March 31, 1995
and 1994, and for the years ended December 31, 1995, 1994 and 1993. We also
consent to the reference to our firm under the caption "Experts" in such Joint
Proxy Statement/Prospectus.
COOPERS AND LYBRAND L.L.P.
Princeton, New Jersey
February 6, 1996
