<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 1997
REGISTRATION NO. 333-23729
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
OM GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation or Organization)
52-1736882
(I.R.S. Employer Identification No.)
50 PUBLIC SQUARE
3800 TERMINAL TOWER
CLEVELAND, OHIO 44113-2204
(216) 781-0083
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
---------------
JAMES M. MATERNA
50 PUBLIC SQUARE, 3800 TERMINAL TOWER
CLEVELAND, OHIO 44113-2204
(216) 781-0083
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent For Service)
---------------
Copies to:
CAROLYN J. BULLER, ESQ. E. WAIDE WARNER, JR.
SQUIRE, SANDERS & DEMPSEY L.L.P. DAVIS POLK & WARDWELL
4900 KEY TOWER 450 LEXINGTON AVENUE
127 PUBLIC SQUARE NEW YORK, NEW YORK 10017
CLEVELAND, OHIO 44114-1304
---------------
Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after the effective date of this Registration
Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 2
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 APRIL 24, 1997
PROSPECTUS
, 1997
[OM GROUP LOGO] 3,000,000 SHARES
OM GROUP, INC.
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by OM
Group, Inc. (the "Company"). The Common Stock of the Company is traded on the
New York Stock Exchange under the symbol "OMP." On April 23, 1997, the closing
sale price of the Common Stock as reported on the New York Stock Exchange
Composite Tape was $26 3/8 per share. See "Price Range of Common Stock and
Dividends."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................................... $ $ $
Total(3).......................................... $ $ $
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $600,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an aggregate of 450,000 additional shares at the Price to the Public,
less Underwriting Discounts and Commissions, solely to cover
over-allotments, if any. If the option is exercised in full, the total Price
to the Public, Underwriting Discounts and Commissions and Proceeds to the
Company, will be $ , $ and $ , respectively. See
"Underwriting."
The shares of Common Stock are being offered by the several Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, subject to various prior conditions, including their right to
reject any order in whole or in part. It is expected that delivery of share
certificates will be made in New York, New York, on or about , 1997.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
FIRST ANALYSIS SECURITIES CORPORATION
<PAGE> 3
[OM GROUP LOGO]
VERTICAL INTEGRATION PROCESS CAPABILITIES
<TABLE>
<S> <C> <C>
RAW Concentrates
MATERIALS Slags
--------- Recycled Materials
Other
|
EXTRACTION Kokkola, Finland
PROCESS St. George, UT
------- |
United States
-------------
Research Triangle Park, NC
Franklin, PA
Johnstown, PA
St. George, UT
Europe
------ <--- Other Salts
PRODUCTION Kokkola, Finland and Metals
PROCESS Ezanville, France
-------
Asia Pacific (Joint Ventures)
-----------------------------
Kim Hae City, Korea
Singapore
|
PRODUCT LINES __________________________________________________________________________
- ------------- | | |
Metal Metal Salts Metal Powders
__ Carboxylates __ 45% __ 34%
| 21% | of Sales | of Sales
| of Sales | |
| | |
| | |
| Custom homogeneous catalysts | |
|__ - Catalysts for petrochemicals |__ Colorants for earthenware and glass, |__ Bonding agents used to strengthen
| - Rubber adhesion catalysts | pigments, decolorizers, adhesives | cemented carbides in mining and
| - Urethane foam catalysts | | machine cutting tools and drilling
| |__ Agents used to enhance recording |
| | quality of magnetic tapes | Raw material intermediates for
|__ Oxidation catalysts to speed | |__ organic and inorganic chemicals,
| drying of paint and ink |__ Catalysts to reduce sulfur dioxide | rechargeable batteries
| | and nitrogen in petroleum |
|__ Catalysts to cure polyester resins | |__ Additives for diamond cutting
| used in fiberglass boats |__ Agents for plating of steel for | tools
| | corrosion protection |
|__ Additives to improve performance | |__ Agents used to enhance formability
| of fuel oil and lubricants |__ Catalysts for production of | and improve efficiency for
| | synthetic fibers | compacting and friction materials
|__ Heat stabilizers for flexible PVC used | |
in vinyl flooring and medical tubing |__ Antifouling agents for marine |__ Solder pastes used to enhance joint
paints and roofing materials strength for circuit boards
</TABLE>
<PAGE> 4
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by the Company can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its regional
offices located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and 7 World Trade Center, 13th Floor, New York, New
York 10048. Copies of such materials can also be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549 at prescribed rates.
The Commission also maintains a Web site that contains reports, proxy statements
and other information filed by the Company. The Commission's Internet address is
http://www.sec.gov. The Company's Common Stock is listed on the New York Stock
Exchange ("NYSE"), and reports, proxy statements and other information
concerning the Company are available for inspection and copying at the office of
the NYSE, 20 Broad Street, New York, New York 10005.
This Prospectus constitutes a part of a Registration Statement on Form S-3
("Registration Statement") filed by the Company with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus does
not contain all of the information set forth in the Registration Statement in
accordance with the rules and regulations of the Commission. Reference is hereby
made to the Registration Statement and related exhibits for further information
regarding the Company and the securities offered hereby. Statements contained
herein concerning the provisions of any document are not necessarily complete
and, in each instance, reference is made to the copy of such document filed as
an exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference. The
Registration Statement and the exhibits thereto may be inspected and copied at
the public reference facilities of the Commission at the addresses set forth
above.
INCORPORATION BY REFERENCE
The following documents filed with the Commission in accordance with the
provisions of the Exchange Act are incorporated herein by reference:
(a) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996;
(b) the Company's Current Report on Form 8-K filed with the Commission on
January 28, 1997 regarding the Company's acquisition of SCM Metal
Products, Inc.;
(c) the Company's Current Report on Form 8-K/A filed with the Commission
on March 21, 1997 containing financial information regarding the
Company's acquisition of SCM Metal Products, Inc.;
(d) the description of the Company's Common Stock contained in the
Registration Statement on Form S-1 (Registration No. 33-60444) filed
with the Commission on April 1, 1993;
(e) the Company's Current Report on Form 8-K filed with the Commission on
December 5, 1996 regarding the Company's Shareholders' Rights
Agreement;
(f) the Company's Proxy Statement filed with the Commission on March 21,
1997; and
(g) the Company's Current Report on Form 8-K filed with the Commission on
April 22, 1997 regarding the Company's quarterly results as of and for
the three months ended March 31, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act, after the date of this Prospectus and prior to the
termination of the offering of the securities hereby, shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for the purposes of this Prospectus to the extent that
a statement contained herein, or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom a Prospectus
has been delivered, upon written or oral request of 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 copies should
be directed to Ms. Kristine Marks, Manager of Investors Relations and Corporate
Communications, OM Group, Inc., 50 Public Square, 3800 Terminal Tower,
Cleveland, Ohio 44113-2204, telephone (216) 781-0083.
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus or incorporated herein.
Prospective purchasers of Common Stock should carefully read this entire
Prospectus and should consider, among other things, the matters set forth under
"Risk Factors." Unless otherwise noted, all information in this Prospectus with
respect to the Company's capital stock including share and per-share amounts,
does not include Common Stock that may be issued in connection with the exercise
of the over-allotment option granted by the Company to the Underwriters.
On January 21, 1997, the Company acquired SCM Metal Products, Inc. ("SCM"),
a leading producer of metal-based specialty powders and chemicals. As used in
this Prospectus and unless the context otherwise requires, the term "OMG" means
OM Group, Inc. and its consolidated subsidiaries prior to the acquisition of
SCM, and the term "Company" means OMG and SCM on a pro forma consolidated basis.
THE COMPANY
The Company is a leading, vertically integrated, producer and international
marketer of value-added, metal-based specialty chemicals and powders. The
Company applies proprietary technology to a wide variety of raw material
feedstocks to manufacture and market the following three categories of
metal-based specialty chemicals and powders -- carboxylates, inorganic salts and
powders. Carboxylates, salts and powders accounted for approximately 21%, 45%
and 34% of the Company's net sales in 1996, respectively. The Company believes
it is the world's leading producer of cobalt carboxylates, cobalt and nickel
specialty inorganic salts and copper powders. The Company also believes that it
is the world's second largest producer of cobalt extra-fine powders.
The Company sells more than 300 specialty chemicals and powders for diverse
applications in more than 25 industries. The Company serves over 1,500 customers
with no single customer accounting for 10% or more of the Company's 1996 net
sales. During 1996, approximately 46% of the Company's net sales were to
customers in the Americas, 35% were to customers in Europe, and 19% were to
customers in Asia Pacific. Typically, the Company's products represent a small
portion of the customer's total cost of manufacturing or processing, but are
critical to the customer's product performance.
The Company believes that it has successfully grown in recent years by
accessing new product markets and leveraging core technologies and production
capabilities to satisfy current market needs. OMG had net sales of $251.3
million, $361.0 million and $388.0 million in 1994, 1995 and 1996, respectively,
and net income from operations of $35.2 million, $44.0 million and $51.4 million
in 1994, 1995 and 1996, respectively. Net income for 1994, 1995 and 1996 was
$20.7 million, $25.9 million and $30.0 million, respectively, representing a
compound annual growth rate of 20.4%.
On January 21, 1997, OMG acquired SCM, a leading producer of copper, iron
and stainless steel powders. SCM serves over 35 niche markets, primarily within
the automotive, electronics, transportation and catalyst industries. The
addition of SCM's metal-based specialty powders and chemicals to the Company's
product line offers significant growth opportunities through cross-selling to
existing customers, geographic expansion and new product development. The
Company's combined pro forma net sales, income from operations and net income
for 1996 were $482.3 million, $60.1 million and $29.2 million, respectively.
COMPETITIVE STRENGTHS
The Company benefits from the following competitive strengths:
- LEADING MARKET POSITIONS
As a result of its high quality products, technological capabilities and
customer service and support, the Company has achieved a leading market position
in the production of metal-based specialty chemicals and powders. The Company
serves numerous international companies including British Steel plc, E.I. du
Pont de Nemours & Company, Exxon Corporation, Ferro Corporation, General
Electric Company, The Goodyear Tire and Rubber Company, Minnesota Mining and
Manufacturing Company (3M), The Nippert Company, a subsidiary of Outokumpu
Copper, Inc., and Sandvik Aktiebolag.
4
<PAGE> 6
- WORLDWIDE PRESENCE
The Company serves customers on a worldwide basis in over 50 countries with
an international sales force of 36 persons and 110 independent agents. This
sales presence, combined with the Company's manufacturing facilities in the
United States, Europe and Asia Pacific, enables the Company to respond promptly
to customer needs on a worldwide basis.
- NEW PRODUCT DEVELOPMENT
The Company's research and new product development personnel in the United
States and Finland work closely with its customers to develop new products to
meet changing industry needs and customer requirements. The Company estimates
that products introduced over the last five years represented approximately 10%
of the Company's 1996 net sales.
- ADVANCED PRODUCTION CAPABILITY
The Company's manufacturing plants, all of which have received ISO 9002
certification, are capable of efficiently producing a broad range of specialty
chemicals and powders. The Company's refining capability gives it the
flexibility to work with a variety of raw materials. The technical capabilities
of the Finnish and Utah facilities permit the Company to transform low-grade
feedstocks, such as cobalt slag, concentrates and recycled materials, to high
quality finished products. The ability to convert and recycle these materials
gives the Company a significant cost advantage in the marketplace and enables it
to source many grades of feedstocks at competitive prices.
- RELIABLE SUPPLY
Through its long-term relationships with its suppliers and its purchasing
power as the world's largest purchaser of cobalt, the Company has been able to
achieve reliability of supply for its customers. Additionally, the Company's
ability to process a variety of low-grade feedstocks provides the Company with
enhanced supply reliability.
- EXPERIENCED MANAGEMENT
The Company's management has an average of over 20 years' experience in the
chemical industry. This management team has consistently delivered strong
operating performance as demonstrated by increasing income from operations and
net income in each of the last five fiscal years.
BUSINESS STRATEGIES
The Company believes that additional opportunities for earnings growth are
available through continuing implementation of its principal business
strategies:
- FOCUS ON VALUE-ADDED NICHE MARKETS
The Company continues to focus on value-added niche markets through
continuing emphasis on research and technology and customer solution
engineering. Recent examples include development of 400 mesh powders for the
diamond tool market and frit grade cobalt oxides for the ceramic frit market.
- EXPAND SALES OF EXISTING PRODUCTS
The Company seeks to extend the markets for its existing products by
expanding its geographical presence through a growing international sales force
and participating in joint ventures in Asia Pacific. The Company also seeks
cross-selling opportunities across its broad customer base.
- TARGET HIGH GROWTH APPLICATIONS
The Company believes that growth opportunities exist for the Company's
cobalt and nickel products incorporated in such end products as rechargeable
batteries and in the Company's barium, calcium and zinc products used to
stabilize both color and strength in flexible polyvinyl chloride ("PVC"). In
addition, through
5
<PAGE> 7
its acquisition of SCM, the Company believes that growth opportunities exist in
stainless steel powders, iron powders, metal pastes and proprietary catalysts.
- STRATEGIC ACQUISITIONS AND JOINT VENTURES
The Company will continue to selectively pursue acquisitions that, like
SCM, are complementary to its existing product lines, markets and geography. The
Company pursues acquisitions that leverage its current technology and production
capabilities in carboxylates, salts, powders and other metal-based specialty
products. The Company will also consider additional joint ventures to help it
achieve geographic expansion and extend the markets for its products.
RECENT DEVELOPMENTS
On January 21, 1997, the Company acquired SCM, one of the world's leading
producers of metal-based specialty powders and chemicals, principally specialty
powders made from copper, iron and stainless steel. SCM serves over 35 niche
markets, primarily within the automotive, electronics, transportation and
catalyst industries. In its fiscal year ended September 28, 1996, SCM had
revenues of approximately $94.3 million. The addition of SCM's metal-based
specialty powders and chemicals to the Company's product line offers significant
growth opportunities through cross-selling to existing customers, geographic
expansion and new product development. See "Business -- Acquisition of SCM."
On April 22, 1997, the Company released the results of its operations for
the three months ended March 31, 1997. Net sales for the three months ended
March 31, 1997 were $110.1 million, a 7% increase from $102.9 million reported
for the comparable period in 1996. Net income for the three months ended March
31, 1997 was $8.2 million, a 15% increase from $7.2 million reported for the
comparable period in 1996. The Company's 1997 first quarter increases in sales
and net income were achieved primarily through an increase in physical volume of
products sold. Higher physical volume in carboxylates and salts, as well as the
net sales added through the acquisition of SCM in January 1997, more than offset
the effect on the net sales line of decreasing cobalt chemical prices due to
declining cobalt raw material prices.
On November 5, 1996, the Company's directors approved a three-for-two split
of its Common Stock in the form of a stock dividend, with one additional share
issued on December 2, 1996, for every two common shares held by shareowners of
record on November 15, 1996.
On December 4, 1996, the Company's Common Stock began trading on the NYSE
under the stock symbol "OMP." Prior to that time, the Common Stock was traded on
the Nasdaq National Market ("Nasdaq") under the symbol "OMGI."
THE OFFERING
Common Stock offered by the Company............... 3,000,000 shares(1)
Common Stock outstanding after the Offering....... 21,617,914 shares(1)(2)
Use of Proceeds................................... The net proceeds received by
the Company from the
Offering will be used to
reduce indebtedness incurred
in the acquisition of SCM.
See "Use of Proceeds."
NYSE Symbol....................................... OMP
- ------------------------------
(1) Excludes 450,000 shares that may be issued by the Company upon the exercise
of the over-allotment option granted to the Underwriters. See
"Underwriting."
(2) Excludes 1,243,079 shares of Common Stock reserved for issuance upon the
exercise of stock options granted under the Company's stock option plans.
6
<PAGE> 8
SUMMARY FINANCIAL AND PRO FORMA COMBINED INFORMATION
Set forth below is selected historical financial information of OMG for the
years ended December 31, 1994, 1995 and 1996, selected historical financial
information of SCM for its fiscal year ended September 28, 1996 and selected pro
forma financial information for OMG and SCM combined as of and for the 1996
fiscal year. For a discussion of the accounting basis relating to the pro forma
information, see "Unaudited Pro Forma Combined Condensed Financial Data."
<TABLE>
<CAPTION>
SCM PRO FORMA
OMG YEAR ENDED COMBINED
YEAR ENDED DECEMBER 31, SEPTEMBER 28, FISCAL YEAR ENDED
---------------------------- ------------- -----------------
1994 1995 1996 1996 1996
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales.......................... $251.3 $361.0 $388.0 $94.3 $ 482.3
Gross profit....................... 60.6 74.6 84.0 23.0 106.2
Selling, general and administrative
expenses......................... 25.4 30.6 32.6 10.8 46.1
------ ------ ------ ------ -----
Income from operations............. 35.2 44.0 51.4 12.2 60.1
Other income (expense)............. (4.1) (5.5) (7.0) (4.1) (15.4)
Net income......................... $ 20.7 $ 25.9 $ 30.0 $ 5.0 $ 29.2
====== ====== ====== ====== =====
Net income per share(1)............ $ 1.09 $ 1.36 $ 1.56 -- $ 1.52
% Growth......................... 14.7% 24.8% 14.7% -- --
BALANCE SHEET DATA:
Total assets....................... $278.0 $358.0 $438.6 $45.7 $ 589.4
Long-term debt..................... 46.6 89.8 109.3 --(2) 233.3
Stockholders' equity............... 141.2 161.4 185.3 18.5 185.3
OTHER DATA:
Capital expenditures............... $ 19.7 $ 31.2 $ 28.1 $ 1.3 $ 29.4
Depreciation and amortization...... 10.7 13.7 15.8 1.1 20.4
PRODUCTS SOLD:
(millions of pounds)
Carboxylates....................... 37.0 39.7 43.1 -- 43.1
Salts.............................. 42.9 46.4 50.7 7.6 58.3
Powders............................ 1.6 2.4 2.9 33.1 36.0
------ ------ ------ ------ -----
Total............................ 81.5 88.5 96.7 40.7 137.4
====== ====== ====== ====== =====
<FN>
- ---------------
(1) Adjusted to give effect to the 3-for-2 split of the Common Stock effective
December 2, 1996.
(2) Does not reflect SCM indebtedness to its former parent that existed prior to
its acquisition by OMG.
</TABLE>
7
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RISK FACTORS
Prospective investors in the Common Stock should consider the following factors,
as well as the other information set forth in this Prospectus and incorporated
herein by reference, in evaluating an investment in the Common Stock.
RAW MATERIAL PRICES AND SUPPLY
The primary raw materials used by the Company in manufacturing products are
cobalt, nickel and copper. The cost of raw materials fluctuates due to actual or
perceived changes in supply and demand. Generally, the Company is able to pass
through to its customers increases and decreases in raw material prices by
increasing or decreasing, respectively, the prices of its products. The degree
of profitability of the Company depends, in part, on the Company's ability to
maintain the differential between its product prices and raw material prices.
While nickel and copper are worldwide commodities and generally available,
cobalt availability can be more uncertain. The Company's supply of cobalt has
historically been sourced primarily from Zaire, Australia, Finland and Zambia.
Although the Company has never experienced a material shortage of cobalt,
production problems and political and civil instability in certain supplier
countries may affect the supply and market price of cobalt. In particular, the
present political and civil instability in Zaire may affect the availability of
raw materials from that supplier country. If a substantial interruption should
occur in the supply from Zaire or elsewhere, there is no assurance that the
Company would be able to obtain as much cobalt from other sources as would be
necessary to satisfy the Company's requirements at prices comparable to its
current arrangements.
The Company attempts to mitigate changes in prices and availability by
maintaining adequate inventories and long-term supply relationships with a
variety of producers. The Company presently has secured all its anticipated
cobalt needs through 1997 and has contracted for a portion of its anticipated
needs in 1998 and 1999.
ENVIRONMENTAL MATTERS
Manufacturers of specialty chemical products, including the Company, are
subject to stringent laws and regulations relating to the storage, handling,
disposal, emission and discharge of materials into the environment.
Manufacturers of specialty chemicals, including the Company, have expended, and
may be required to expend in the future, substantial funds for compliance with
such laws and regulations. In addition, claims for personal injury, property
damages or natural resource damages may be made by third parties or regulators.
Annual environmental compliance costs of the Company have approximated $2.0
million in each of the last three years. In addition, the Company has made
capital expenditures of approximately $1.5 million in each of the last three
years in connection with environmental compliance.
Some risk of environmental liability is inherent in the nature of the
Company's business and in the ownership and operation of real property, and
there is no assurance that additional material environmental costs will not
arise in the future. In addition, environmental considerations may affect
customer acceptance of certain of the Company's products. Based on presently
available information, however, the Company does not currently anticipate any
material adverse effect on its results of operations, financial condition, or
competitive position as a result of compliance with environmental requirements,
environmental liability or the impact of environmental considerations on the
marketability of its products. See "Business -- Environmental Matters."
ACQUISITIONS
As part of its business strategy, the Company continues to pursue strategic
acquisitions and joint ventures that would leverage its current technology and
production capability for metal-based specialty chemicals and powders.
Identifying and pursuing future acquisition and joint venture opportunities and
integrating acquired products and businesses will require a significant amount
of management time and skill. There can be no assurance that the Company will be
able to identify suitable acquisition candidates, or finance (through available
cash flow and/or additional debt or equity financing), consummate or assimilate
such acquisitions.
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FOREIGN EXCHANGE
In addition to the United States, the Company has manufacturing and other
facilities in Europe and Asia Pacific, and markets its products worldwide.
Although most of the Company's raw material purchases and product sales are
transacted in U.S. dollars, liabilities for non-U.S. operating expenses and
income taxes are denominated in local currencies. Accordingly, fluctuations in
currency prices may affect the Company's operating results and net income. In
order to partially hedge the balance sheet exposure to fluctuating rates, the
Company enters into forward contracts to purchase Finnish Markka.
FOREIGN COUNTRY OPERATING RISKS
In addition to exchange rate risks, the Company is subject to a number of
risks inherent in international operations, including unexpected changes in
regulatory requirements, the costs and burdens of complying with foreign laws,
and political and economic instability. There can be no assurance that the
foregoing factors will not have a material adverse effect on the Company's
future results of operations.
CERTAIN ANTI-TAKEOVER EFFECTS
The Company's certificate of incorporation and by-laws contain certain
provisions that may be deemed to have anti-takeover effects. These provisions
include a classified Board of Directors, the elimination of the ability of
stockholders to act by written consent in lieu of a meeting and the ability of
the Board to establish one or more series of preferred stock, having such number
of shares, designations, relative voting rights, dividend rates, liquidation and
other rights, preferences and limitations as the Board may fix, without further
stockholder approval. In addition, in November of 1996, the Board adopted a
Shareholders' Rights Plan pursuant to which the Board declared a dividend
distribution of one Right for each outstanding share of Common Stock of the
Company. The Shareholders' Rights Plan and the other provisions discussed above
may be deemed to have anti-takeover effects because they may delay, defer or
prevent an unsolicited acquisition proposal that some, or a majority, of the
stockholders might believe to be in their best interests or in which
stockholders might receive a premium for their Common Stock over the then market
price of such shares.
9
<PAGE> 11
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
OMG's Common Stock began trading on the NYSE under the symbol "OMP" on
December 4, 1996. Prior to that time, the Common Stock was traded on Nasdaq
under the symbol "OMGI." The following table sets forth for the calendar
quarters indicated the high and low sale prices for the Common Stock as reported
on the NYSE Composite Tape or Nasdaq, as the case may be, and the dividends per
share paid in such quarters. The information provided below has been adjusted to
give effect to the three-for-two split of the Company's Common Stock approved by
the Board in November, 1996. The last reported sale price of the Common Stock on
the NYSE Composite Tape on April 23, 1997, was $26 3/8 per share.
<TABLE>
<CAPTION>
PRICE RANGE
OF COMMON STOCK DIVIDENDS
--------------- PAID PER
HIGH LOW SHARE
<S> <C> <C> <C>
Year Ended December 31, 1995:
1st Quarter.................................................. $16 5/8 $14 1/2 $0.06
2nd Quarter.................................................. 19 1/2 15 3/8 0.06
3rd Quarter.................................................. 21 3/8 18 5/8 0.06
4th Quarter.................................................. 22 3/8 18 7/8 0.06
Year Ended December 31, 1996:
1st Quarter.................................................. $25 1/8 $21 5/8 $0.07
2nd Quarter.................................................. 28 24 1/2 0.07
3rd Quarter.................................................. 27 3/8 22 3/4 0.07
4th Quarter.................................................. 28 3/4 25 3/8 0.07
Year Ended December 31, 1997:
1st Quarter.................................................. $31 3/8 $26 1/4 $0.08
2nd Quarter through April 23, 1997........................... 28 1/2 25 0.08
</TABLE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of Common Stock pursuant to
the Offering are estimated to be approximately $74.4 million ($85.6 million if
the Underwriters' over-allotment option is exercised in full), after deducting
underwriting discounts and commissions and estimated expenses.
The Company increased its credit facility with certain lenders led by
National City Bank ("NCB Credit Facility") by $120.0 million in January of 1997
to purchase SCM (the "SCM Loan"). The SCM Loan was used to finance, in part, the
SCM purchase price of $122.0 million and related acquisition expenses of $2.0
million. The Company intends to use the proceeds of the Offering to reduce the
SCM Loan.
The SCM Loan bears interest at the Company's option at either (i) NCB's
prime rate or (ii) at a floating rate based on LIBOR, plus a margin ranging from
1.00% to 1.25% depending on the Company's long-term debt to EBITDA ratio. The
Company's maximum credit under the NCB Credit Facility is an amount equal to the
lesser of (i) $240.0 million, or (ii) $120.0 million plus any portion of the SCM
Loan which is not paid down with the proceeds of the Offering; provided,
however, the maximum credit under the facility will not at any time be less than
$180.0 million. As of February 28, 1997, the aggregate borrowings under the NCB
Credit Facility were approximately $225.0 million. The SCM Loan matures on June
30, 1997, and all outstanding borrowings under the credit facility following
such date, including any portion of the SCM Loan which is not paid down with the
proceeds of this Offering, matures on January 31, 2002, subject to extension.
10
<PAGE> 12
CAPITALIZATION
The following table sets forth OMG's capitalization as of December 31,
1996, with pro forma adjustments to reflect the acquisition of SCM on January
21, 1997, and as adjusted to reflect the sale by the Company of Common Stock
offered hereby and the application of the net proceeds therefrom as described
under "Use of Proceeds." The following information should be read in conjunction
with OMG's consolidated financial statements and notes thereto and the Company's
pro forma combined condensed financial data and the notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA AND
PRO FORMA AS ADJUSTED
OMG FOR THE ACQUISITION FOR THE
HISTORICAL OF SCM OFFERING
(IN MILLIONS)
<S> <C> <C> <C>
Long-term debt(1):
Notes payable to banks........................... $ 79.0 $ 203.0 $ 128.6
Notes payable to insurance companies............. 30.0 30.0 30.0
Other............................................ 3.9 3.9 3.9
------ ------ ------
Total long-term debt.......................... 112.9 236.9 162.5
Stockholders' equity:
Preferred stock.................................. -- -- --
Common stock..................................... 0.2 0.2 0.2
Capital in excess of par value................... 102.1 102.1 176.5
Retained earnings................................ 86.3 86.3 86.3
Treasury stock................................... (3.1) (3.1) (3.1)
Foreign currency translation adjustments......... (0.2) (0.2) (0.2)
------ ------ ------
Total stockholders' equity.................... 185.3 185.3 259.7
------ ------ ------
Total capitalization............................... $298.2 $ 422.2 $ 422.2
====== ====== ======
</TABLE>
- ------------------------------
(1) Includes current portion of $3.6 million.
11
<PAGE> 13
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following unaudited pro forma combined condensed financial statements
have been prepared by OMG's management. These financial statements reflect OMG's
acquisition of SCM and combine, for the periods or date indicated, the
historical consolidated financial statements of OMG and SCM, using the purchase
method of accounting.
OMG has a December 31 year end, while SCM has historically utilized a
September year ending on the Saturday closest to September 30. For purposes of
developing the pro forma financial statements, OMG and SCM have been combined
utilizing their respective fiscal years. The unaudited pro forma combined
condensed balance sheet reflects the adjustments as if the acquisition had
occurred on December 31, 1996. The unaudited pro forma combined statement of
income reflects adjustments as if the acquisition occurred at the beginning of
the year indicated. These pro forma financial statements should be read in
conjunction with the historical financial statements and related notes of OMG
and SCM. The pro forma financial statements include preliminary estimates and
assumptions which OMG's management believes are reasonable. The pro forma
results are not necessarily indicative of the results which would have occurred
if the business combination had been in effect on the dates indicated, or which
may result in the future, and do not include any cost savings or other effects
of the planned integration of OMG and SCM.
The pro forma financial statements were prepared using the following facts
and assumptions:
1. OMG acquired the assets and liabilities of SCM in exchange for a total
cash payment of $122.0 million.
2. OMG borrowed $124.0 million to finance the acquisition price and related
transaction costs of $2.0 million.
3. The acquired assets and liabilities of SCM are recorded at estimated
fair values as determined by OMG's management based on information
currently available and on current tentative assumptions as to the
future operations of SCM. Accordingly, the allocation of the purchase
price to the acquired assets and liabilities of SCM is subject to
revision as a result of the final determination of appraised and other
fair values.
12
<PAGE> 14
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF FISCAL YEAR END 1996
-------------------------------------------------------
OMG SCM PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 7,818 $ 405 $ 8,223
Accounts receivable.......................... 60,054 11,293 71,347
Inventories.................................. 195,050 11,748 206,798
Other current assets......................... 8,245 1,426 9,671
-------- ------- --------
Total current assets................. 271,167 24,872 296,039
Property, plant and equipment, net............. 110,621 13,880 $ 8,573(2a) 133,074
Other assets:
Unprocessed inventory........................ 27,499 27,499
Goodwill and other intangible assets......... 23,036 2,124 3,230(2b)
(2,124)(2c)
97,000(2d) 123,266
Deferred income taxes........................ 3,844 (1,576)(2f) 2,268
Other assets................................. 6,310 980 7,290
-------- ------- -------- --------
Total assets......................... $ 438,633 $ 45,700 $ 105,103 $ 589,436
======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............ $ 3,586 $ 3,586
Accounts payable............................. 77,330 $ 5,709 83,039
Accrued income taxes......................... 2,753 3,156 5,909
Other accrued expenses....................... 13,637 5,221 18,858
-------- ------- --------
Total current liabilities............ 97,306 14,086 111,392
Long-term debt................................. 109,295 $ 124,000(1) 233,295
Contract payable............................... 27,499 27,499
Deferred income taxes.......................... 17,773 2,176 4,131(2e) 24,080
Other long-term liabilities.................... 1,438 10,910 (4,500)(2g) 7,848
Stockholders' equity........................... 185,322 18,528 (18,528)(2h) 185,322
-------- ------- -------- --------
Total liabilities and stockholders'
equity............................. $ 438,633 $ 45,700 $ 105,103 $ 589,436
======== ======= ======== ========
<FN>
- ---------------
(1) The borrowing by OMG to finance the $122,000 acquisition price and
$2,000 of transaction costs.
(2) The allocation of the aggregate purchase price of SCM, and the
recognition of the excess of aggregate purchase price over the estimated
fair value of net assets acquired, is as follows:
</TABLE>
<TABLE>
<C> <S> <C>
a. Adjust property, plant and equipment to estimated fair value $ 8,573
b. Adjust intangible assets to estimated fair value 3,230
c. Eliminate the excess of cost over net assets acquired related to SCM's
acquisitions of businesses in prior years (2,124)
d. Adjust for excess of purchase price over estimated fair value of net assets
acquired 97,000
e. Establish deferred income tax liability resulting from the application of
purchase accounting, assuming a 35% tax rate (4,131)
f. Reverse deferred income tax asset resulting from the application of purchase
accounting, assuming a 35% tax rate (1,576)
g. Adjust benefit plan liabilities to current value 4,500
h. Eliminate net equity, prior to purchase accounting adjustments 18,528
--------
Aggregate purchase price and related transaction costs $124,000
========
</TABLE>
13
<PAGE> 15
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED 1996
-------------------------------------------------------
OMG SCM PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales...................................... $ 387,999 $ 94,279 $ 482,278
Cost of products sold.......................... 304,025 71,252 $ 857(1a)
(72)(1b) 376,062
-------- ------- ------- --------
Gross profit................................... 83,974 23,027 (785) 106,216
Selling, general and administrative expenses... 32,553 10,765 323(1c)
2,425(1d) 46,066
-------- ------- ------- --------
Income from operations......................... 51,421 12,262 (3,533) 60,150
Other income (expense)
Interest expense............................. (7,485) (4,095) (4,275)(1e) (15,855)
Interest income.............................. 244 244
Foreign exchange gain........................ 223 223
-------- ------- ------- --------
(7,018) (4,095) (4,275) (15,388)
-------- ------- ------- --------
Income before income taxes..................... 44,403 8,167 (7,808) 44,762
Income taxes................................... 14,356 3,137 (1,918)(lf) 15,575
-------- ------- ------- --------
Net income..................................... $ 30,047 $ 5,030 $(5,890) $ 29,187
======== ======= ======= ========
Weighted average number of common shares
outstanding.................................. 19,266 19,266
Net income per share (1g)...................... $ 1.56 $ 1.52
<FN>
- ---------------
(1) To reflect OMG's acquisition of SCM:
</TABLE>
<TABLE>
<C> <S> <C>
a. Recognize over ten years additional depreciation for write-up of property, plant
and equipment to fair value $ 857
b. Add back eliminated goodwill amortization expense 72
c. Recognize over ten years additional amortization for write-up of intangible assets
to estimated fair value 323
d. Amortize over a forty-year period the excess of purchase price of SCM over
estimated fair value of net assets acquired 2,425
e. Recognize additional interest expense due to $124 million increase in consolidated
long-term debt to finance the acquisition and related transaction costs 4,275
f. Record the income tax effect of the previous adjustments assuming a 35% income tax
rate 1,918
g. Pro forma net income per Common Share is computed by dividing net income by the
weighted average number of shares outstanding
</TABLE>
14
<PAGE> 16
SELECTED FINANCIAL DATA
Set forth below are selected historical financial data for OMG as of and
for its last five fiscal years, and selected pro forma financial information for
OMG and SCM combined as of and for their respective 1996 fiscal years. The
selected historical financial data for OMG does not include SCM which was
acquired on January 21, 1997. This information should be read in conjunction
with the consolidated financial statements of OMG and the related notes thereto
included elsewhere in this Prospectus and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
COMBINED
OMG PRO FORMA
YEAR ENDED DECEMBER 31, FISCAL YEAR ENDED
-------------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales.................... $201.2 $179.5 $251.3 $361.0 $388.0 $ 482.3
Gross profit................. 38.6 45.8 60.6 74.6 84.0 106.2
Selling, general and
administrative expenses.... 20.4 20.7 25.4 30.6 32.6 46.1
------ ------ ------ ------ ------ ------
Income from operations....... 18.2 25.1 35.2 44.0 51.4 60.1
Other income (expense)....... 0.6 (2.0) (4.1) (5.5) (7.0) (15.4)
Net income................... $ 12.0 $ 15.4 $ 20.7 $ 25.9 $ 30.0 $ 29.2
====== ====== ====== ====== ====== ======
Net income per share......... $ 0.77 $ 0.95 $ 1.09 $ 1.36 $ 1.56 $ 1.52
% Growth................... -- 23.4% 14.7% 24.8% 14.7% --
BALANCE SHEET DATA:
Total assets................. $172.6 $217.3 $278.0 $358.0 $438.6 $ 589.4
Long-term debt............... 48.5 30.6 46.6 89.8 109.3 233.3
Stockholders' equity......... 80.1 124.9 141.2 161.4 185.3 185.3
OTHER DATA:
Capital expenditures......... $ 7.1 $ 8.7 $ 19.7 $ 31.2 $ 28.1 $ 29.4
Depreciation and
amortization............... 8.2 9.6 10.7 13.7 15.8 20.4
PRODUCTS SOLD:
(millions of pounds)
Carboxylates................. 32.4 32.7 37.0 39.7 43.1 43.1
Salts........................ 29.0 36.3 42.9 46.4 50.7 58.3
Powders...................... 0.8 1.0 1.6 2.4 2.9 36.0
------ ------ ------ ------ ------ ------
Total...................... 62.2 70.0 81.5 88.5 96.7 137.4
====== ====== ====== ====== ====== ======
</TABLE>
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The primary raw materials used by the Company in manufacturing its products
are cobalt, nickel and copper. The degree of profitability of the Company
depends, in part, on the Company's ability to maintain the differential between
its product prices and raw material prices. Typically, the Company's products
represent a small portion of the customer's total cost of manufacturing or
processing, but are critical to the customer's product performance. Generally,
the Company is able to pass along to its customers increases and decreases in
raw material prices by increasing or decreasing, respectively, the prices of its
products. The timing and amount of such adjustments in its product prices
depends upon the type of product sold and the inventories and market share
positions of the Company and its competitors. The Company's flexibility to
adjust its prices in response to changes in raw material prices is greater with
respect to carboxylates than with salts and powders.
Because certain of the Company's products are sold at a relatively fixed
dollar amount over raw material costs, the Company's percentage gross margins
can increase or decrease with increases or decreases in raw material prices.
When raw material prices increase, percentage gross margins contract.
Conversely, when raw material prices decrease, percentage gross margins expand.
The Company focuses on increasing the dollar amount of its gross profit by
managing its product mix, volumes, selling prices, raw material costs and
operating expenses.
RESULTS OF OPERATIONS
The following discussion of results of operations relates to OMG prior to
the acquisition of SCM and should be read in conjunction with the financial
statements of OMG and the notes thereto which are included elsewhere in this
Prospectus.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net sales for 1996 were $388.0 million, an increase of 7.5% compared to
1995. The increase in sales resulted principally from increases in physical
volume of products sold and from changes in product mix, more than offsetting a
decline in OMG's product prices resulting from decreasing cobalt market prices.
Cobalt market prices ranged from $20 to $32 per pound during 1996 compared
to $27 to $32 per pound during 1995. The market price of nickel ranged from
$2.92 to $3.78 per pound during 1996 compared to $3.17 to $4.57 per pound during
1995.
Pounds of product sold by OMG were approximately 96.7 million pounds during
1996 compared to 88.5 million pounds in 1995. The increase in carboxylate
products sold resulted principally from higher sales in Europe. The increase in
salt products sold resulted principally from higher sales of cobalt-based
products. The increase in powders sold resulted principally from higher sales of
coarse grade powders.
Gross profit increased to $84.0 million in 1996, a 12.6% increase from
1995. The improvement in gross profit was primarily the result of higher
physical volume of cobalt-based products sold. Cost of products sold decreased
to 78.4% of net sales for the year ended 1996 from 79.3% of net sales in 1995
primarily because of lower cobalt market prices.
Selling, general and administrative expenses remained approximately the
same at 8.4% of net sales in 1996 and 1995.
Other expenses were $7.0 million in 1996 compared to $5.5 million in 1995
due primarily to increased interest expense on higher outstanding borrowings,
offset by gains on foreign exchange.
Income taxes as a percentage of income before tax decreased to 32% in 1996
from 33% in 1995 as a greater percentage of total income was earned in Finland,
which has a lower statutory tax rate (28%) than in the United States.
16
<PAGE> 18
Net income for 1996 was $30.0 million, an increase of $4.1 million from
1995, primarily due to the aforementioned factors.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net sales for 1995 were $361.0 million, an increase of 43.7% compared to
1994. The increase in sales resulted principally from increases in OMG's selling
prices resulting from increasing cobalt market prices, as well as increases in
physical volume of products sold.
Cobalt market prices ranged from $27 to $32 per pound during 1995 compared
to $14 to $30 per pound during 1994. The market price of nickel ranged from
$3.17 to $4.57 per pound during 1995 compared to $2.37 to $4.02 per pound during
1994.
Pounds of product sold by OMG were approximately 88.5 million pounds during
1995 compared to 81.5 million pounds in 1994. The increase in physical volume of
carboxylate products sold resulted primarily from increased sales of PVC heat
stabilizers. The increase in salt products sold resulted primarily from higher
sales of cobalt salts. The increase in powder products sold resulted from
increases in both extra fine and coarse grade powder sales.
Gross profit increased to $74.6 million in 1995, a 23.1% increase from
1994. The improvement in gross profit was primarily the result of higher
physical volume of products sold, a more favorable product mix, and relatively
more stable market prices. Because certain of OMG's products are sold at a
relatively fixed dollar amount over raw material costs, OMG's percentage gross
margin decreased to 20.7% in 1995 from 24.1% in 1994 as cobalt market prices
increased to higher levels in 1995.
Selling, general and administrative expenses decreased to 8.5% of net sales
in 1995 from 10.1% of net sales in 1994. This improvement resulted from higher
overall increases in net sales relative to increases of $5.2 million in expenses
due to higher administrative costs to support OMG's growth in global markets.
Other expenses were $5.5 million in 1995 compared to $4.1 million in 1994
due primarily to increased interest expense on higher outstanding borrowings
offset by lower losses on foreign exchange.
Income taxes as a percentage of income tax remained approximately the same
at 33% in both 1995 and 1994. In 1995, a greater percentage of total income was
earned in Finland, which has a lower statutory tax rate than the United States.
Offsetting this, however, were adjustments of worldwide tax liabilities and a
change in Finland's statutory tax rate to 28% for 1996.
Net income for 1995 was $25.9 million, an increase of $5.2 million from
1994, primarily due to the aforementioned factors.
LIQUIDITY AND CAPITAL RESOURCES
The Company has used available cash flow from operations, increased
borrowings, and proceeds from the sale of common stock to finance increases in
working capital and capital expenditures. The Company believes that it will have
sufficient cash generated by operations to provide for its future working
capital and capital expenditure requirements and to pay quarterly cash dividends
on its common stock, subject to the Board's discretion. In February, 1997, the
Board of Directors authorized an increase in quarterly dividends to $0.08 per
share. Subject to several limitations in its revolving credit facilities and its
note purchase agreement, the Company may incur additional borrowings to finance
working capital and certain capital expenditures, including, without limitation,
the purchase of additional raw materials. The Company intends to finance any
future acquisitions and joint ventures through a combination of available cash
flow, borrowings under a credit facility and/or debt or equity offerings.
The Company had higher working capital needs in 1995 and 1996 resulting
from its substantial growth, and for funding advance payments for certain raw
materials.
The Company has ongoing capital expenditure programs to improve its
processing technology and plant and equipment, and to expand capacity to
accommodate its substantial growth. The Company anticipates that capital
spending, exclusive of acquisitions or joint ventures, will approximate $30.0
million per year through 1998.
17
<PAGE> 19
The Company enters into long-term inventory supply arrangements and in 1995
took delivery of and title to 53,000 wet metric tons of cobalt slag at its
Kokkola facilities from a major supplier. The Company was not required to pay
for such slag until used, but has at times made advance payments. During 1996,
the Company took delivery of an additional 80,000 wet metric tons.
In 1994, the Company entered into an interest rate swap agreement for the
three year period ending December 20, 1997 to convert the variable interest rate
on an aggregate contract amount of $30 million to a fixed rate of 7.28% plus
0.35% to 0.75%. The purpose of entering into the interest rate swap is to
protect the Company from the possibility of higher interest rates on what it
views as base borrowings under its variable rate revolving credit facility.
The Company's revolving credit facility was revised in October, 1996 to
increase its maximum available credit from $60.0 to $120.0 million and expand
its sources of capital by adding two new institutions. The Company increased the
credit facility by $120.0 million in January of 1997 to purchase SCM. The SCM
Loan was used to finance, in part, the SCM purchase price of $122.0 million and
related acquisition expenses of $2.0 million. Proceeds from the Offering will be
used to pay down the SCM Loan. After giving effect to the SCM acquisition and
the Offering, the Company's maximum credit under the credit facility will be
approximately $180.0 million and its available credit at December 31, 1996 would
have been approximately $58.1 million.
Although most of the Company's raw material purchases and product sales are
transacted in U.S. Dollars, liabilities for non-U.S. operating expenses and
income taxes are denominated in local currencies. Accordingly, fluctuations in
currency prices may affect the Company's operating results and net income.
Specifically, when the Finnish Markka weakens against the U.S. dollar, there is
a net favorable effect on the Company due to lower operating expenses and lower
net balance sheet liabilities when translated into U.S. dollars. The reverse is
true when the Finnish Markka strengthens against the U.S. dollar. In order to
partially hedge the balance sheet exposure to fluctuating rates, the Company
enters into forward contracts to purchase Finnish Markka.
BUSINESS
HISTORY
OMG was formed in 1991 to effect the combination of Mooney Chemicals, Inc.,
now known as OMG Americas, Inc. ("OMG Americas"), Kokkola Chemicals Oy ("KCO")
and Vasset, S.A. ("Vasset"), which are long established companies operating in
the United States, Finland and France, respectively. KCO and Vasset were
previously wholly owned subsidiaries of Outokumpu Oy, a Finnish corporation
("Outokumpu Oy"). OMG Americas entered the carboxylates business in 1946 and the
cobalt salts business in 1983. Outokumpu Oy began manufacturing cobalt powders
in 1967. In 1983, a predecessor company of KCO entered the cobalt and
nickel-based salts business and, in 1990, the carboxylates business through the
acquisition of Vasset, an established manufacturer and marketer of organic
compounds of cobalt and other metals used primarily in the tire industry.
This business combination (the "Combination"), which created a company with
an international presence, was designed to take advantage of complementary
technical and manufacturing strengths, market positions, product ranges and raw
material sources. Since the Combination, the Company has achieved the following:
(i) implemented new refining technology to lower raw material costs
and increased physical volumes of products sold, simultaneously
strengthening its position as a supplier of cobalt based specialty
chemicals and as a buyer of cobalt raw materials.
(ii) focused and expanded its regional product strengths
geographically, specifically expanding salts from Europe into the U.S.,
carboxylates from the U.S. into Europe, and salts, carboxylates, and
powders into Asia Pacific.
(iii) introduced new products focused on new applications or market
segments such as PVC heat stabilizers and rechargeable battery chemicals.
(iv) expanded geographic scope and product offerings through joint
ventures and acquisitions.
18
<PAGE> 20
GENERAL
The Company is a leading, vertically integrated, producer and international
marketer of value-added, metal-based specialty chemicals and powders. The
Company applies proprietary technology to a wide variety of raw material
feedstocks to manufacture and market the following three categories of
metal-based specialty chemicals and powders -- carboxylates, inorganic salts and
powders. Carboxylates, salts and powders accounted for approximately 21.0%,
45.0% and 34.0% of the Company's net sales in 1996, respectively. The Company
believes it is the world's leading producer of cobalt carboxylates, cobalt and
nickel specialty inorganic salts and copper powders. The Company also believes
that it is the world's second largest producer of cobalt extra-fine powders.
The Company sells more than 300 specialty chemicals and powders for diverse
applications in more than 25 industries. The Company serves over 1,500 customers
with no single customer accounting for 10% or more of the Company's 1996 net
sales. During 1996, approximately 46% of the Company's net sales were to
customers in the Americas, 35% were to customers in Europe and 19% were to
customers in Asia Pacific. Typically, the Company's products represent a small
portion of the customer's total cost of manufacturing or processing, but are
critical to the customer's product performance.
The Company believes that it has successfully grown in recent years by
accessing new product markets and leveraging core technologies and production
capabilities to satisfy current market needs. OMG had net sales of $251.3
million, $361.0 million and $388.0 million in 1994, 1995 and 1996, respectively,
and net income from operations of $35.2 million, $44.0 million and $51.4 million
in 1994, 1995 and 1996, respectively. Net income for 1994, 1995 and 1996 was
$20.7 million, $25.9 million and $30.0 million, respectively, representing a
compound annual growth rate of 20.4%.
On January 21, 1997, OMG acquired SCM, a leading producer of copper, iron
and stainless steel powders. SCM serves over 35 niche markets, primarily within
the automotive, electronics, transportation and catalyst industries. The
addition of SCM's metal-based specialty powders and chemicals to the Company's
product line offers significant growth opportunities through cross-selling to
existing customers, geographic expansion and new product development. The
Company's combined pro forma net sales, income from operations and net income
for 1996 were $482.3 million, $60.1 million and $29.2 million, respectively.
COMPETITIVE STRENGTHS
The Company benefits from the following competitive strengths:
- LEADING MARKET POSITIONS
As a result of its high quality products, technological capabilities and
customer service and support, the Company has achieved a leading market position
in the production of metal-based specialty chemicals and powders. The Company
serves numerous international companies including British Steel plc, E.I. du
Pont de Nemours & Company, Exxon Corporation, Ferro Corporation, General
Electric Company, The Goodyear Tire and Rubber Company, Minnesota Mining and
Manufacturing Company (3M), The Nippert Company, a subsidiary of Outokumpu
Copper, Inc., and Sandvik Aktiebolag.
- WORLDWIDE PRESENCE
The Company serves customers on a worldwide basis in over 50 countries with
an international sales force of 36 persons and 110 independent agents. This
sales presence, combined with the Company's manufacturing facilities in the
United States, Europe and Asia Pacific, enables the Company to respond promptly
to customer needs on a worldwide basis.
- NEW PRODUCT DEVELOPMENT
The Company's research and new product development personnel in the United
States and Finland work closely with its customers to develop new products to
meet changing industry needs and customer requirements. The Company estimates
that products introduced over the last five years represented approximately 10%
of the Company's 1996 net sales.
19
<PAGE> 21
- ADVANCED PRODUCTION CAPABILITY
The Company's manufacturing plants, all of which have received ISO 9002
certification, are capable of efficiently producing a broad range of specialty
chemicals and powders. The Company's refining capability gives it the
flexibility to work with a variety of raw materials. The technical capabilities
of the Finnish and Utah facilities permit the Company to transform low-grade
feedstocks, such as cobalt slag, concentrates and recycled materials, to high
quality finished products. The ability to convert and recycle these materials
gives the Company a significant cost advantage in the marketplace and enables it
to source many grades of feedstocks at competitive prices.
- RELIABLE SUPPLY
Through its long-term relationships with its suppliers and its purchasing
power as the world's largest purchaser of cobalt, the Company has been able to
achieve reliability of supply for its customers. Additionally, the Company's
ability to process a variety of low-grade feedstocks provides the Company with
enhanced supply reliability.
- EXPERIENCED MANAGEMENT
The Company's management has an average of over 20 years' experience in the
chemical industry. This management team has consistently delivered strong
operating performance as demonstrated by increasing income from operations and
net income in each of the last five fiscal years.
BUSINESS STRATEGIES
The Company believes that additional opportunities for earnings growth are
available through continuing implementation of its principal business
strategies:
- FOCUS ON VALUE-ADDED NICHE MARKETS
The Company continues to focus on value-added niche markets through
continuing emphasis on research and technology and customer solution
engineering. Recent examples include the development of 400 mesh powders for the
diamond tool market and frit grade cobalt oxides for the ceramic frit market.
- EXPAND SALES OF EXISTING PRODUCTS
The Company seeks to extend the markets for its existing products by
expanding its geographical presence through a growing international sales force
and participating in joint ventures in Asia Pacific. The Company also seeks
cross-selling opportunities across its broad customer base.
- TARGET HIGH GROWTH APPLICATIONS
The Company believes that growth opportunities exist for the Company's
cobalt and nickel products incorporated in such end products as rechargeable
batteries and in the Company's barium, calcium and zinc products used to
stabilize both color and strength in flexible PVC. In addition, through its
acquisition of SCM, the Company believes that growth opportunities exist in
stainless steel powders, iron powders, metal pastes and proprietary catalysts.
- STRATEGIC ACQUISITIONS AND JOINT VENTURES
The Company will continue to selectively pursue acquisitions that, like
SCM, are complementary to its existing product lines, markets and geography. The
Company pursues acquisitions that leverage its current technology and production
capabilities in carboxylates, salts, powders and other metal-based specialty
products. The Company will also consider additional joint ventures to help it
achieve geographic expansion and extend the markets for its products.
20
<PAGE> 22
PRODUCTS AND MARKETS
The following is a discussion of the Company's products and markets,
including SCM.
METAL CARBOXYLATES. The Company believes it is the world's leading
manufacturer and marketer of cobalt carboxylates and produces over 200
carboxylate products. In addition to cobalt products, the Company manufactures
carboxylates using a variety of other metals, including barium, calcium, copper,
manganese, molybdenum, nickel, potassium, zinc, and zirconium. Metal
carboxylates are essential components in numerous complex chemical and
industrial processes, and are used in many end markets, such as coatings, custom
catalysts, liquid detergents, lubricants and fuel additives, plastic
stabilizers, polyester promoters and adhesion promoters for rubber tires.
Examples of specific applications include the use of additives to optimize the
drying process in paints and enamels, fuel additives to improve combustion and
suppress smoke, rubber adhesion promoters to improve the bonding of rubber to
steel-belted tires, and lubricant additives to improve fuel efficiency.
The Company produces metal carboxylates at its manufacturing facilities in
the United States and Europe. Metal carboxylates are sold to customers in the
Americas, Europe and Asia Pacific. Sales of metal carboxylates accounted for
approximately $98.9 million, or approximately 21% of the Company's 1996 net
sales. The following table sets forth certain information concerning the
Company's end markets for metal carboxylates and representative attributes:
<TABLE>
<CAPTION>
END MARKETS ATTRIBUTES
<S> <C>
Coatings...................... Promotes faster drying in such products as house paints,
both exterior and interior, as well as industrial and marine
coatings
Liquid Detergents............. Catalyzes the detergent alcohol found in liquid laundry
soaps
Lubricating Oils.............. Enhances the performance of various lubricating oils used in
automobile engines, generators and mining equipment by
reducing sludge build-up, preventing oxidation under high
pressure and reducing friction
Polyester Resins.............. Accelerates the curing of polyester resins found in
reinforced fiberglass boats, storage tanks, bathrooms,
sports equipment, automobile and truck components
Polyvinyl Chloride (PVC)...... Mitigates the effect of heat on flexible PVC in such
products as medical tubing, garden hoses, resilient flooring
and shower curtains
Printing Inks................. Promotes faster drying in various printing inks
Tires......................... Promotes bonding of metal-to-rubber in radial tires
</TABLE>
METAL SALTS. The Company believes it is the world's leading manufacturer
and marketer of cobalt and nickel-based specialty salts and produces over 25
products in this category. The Company also produces copper salts. Metal salts
are used in a wide variety of end products including catalysts, colorants,
batteries, petroleum additives, magnetic media, metal finishing agents and a
broad range of chemicals. Salts have several characteristics that make them
essential components in a wide range of industrial and chemical processes. For
example, cobalt oxide is ideal for use as a bonding agent for the underlaying of
enamels and ceramics which require uniform fine powder. Nickel carbonate has the
necessary purity and consistency to make it suitable for electrogalvanizing
steel to prevent corrosion. Copper oxide has properties well suited for
antifouling in marine paint applications.
The Company produces cobalt, nickel and copper salts at its manufacturing
facilities in the United States and Finland for sale to customers in the
Americas, Europe and Asia Pacific. Sales of metal salts accounted for
21
<PAGE> 23
approximately $218.9 million, or 45% of the Company's 1996 net sales. The
following table sets forth certain information concerning the Company's end
markets for metal salts and representative attributes:
<TABLE>
<CAPTION>
END MARKETS ATTRIBUTES
<S> <C>
Ceramics and Glassware........ Provides color for earthenware and glass, pigments, and
facilitates adhesion of porcelain to metal
Household Appliances.......... Enhances metal-glass bonding in a variety of household
appliances
Magnetic Media................ Improves the recording quality of video and audio tapes, as
well as enhances the high screen resolution properties in
television sets
Petrochemical Refining........ Reduces sulfur dioxide and nitrogen emissions
Steel......................... Improves the rust resistance in auto and truck bodies
Synthetic Fibers.............. Improves the efficiency of chemical processes used to
manufacture synthetic fibers
Paints........................ Enhances antifouling in marine paints
</TABLE>
METAL POWDERS. The Company believes it is a leading producer of copper
powders and the world's second largest manufacturer of cobalt extra-fine
powders. The Company also manufactures iron and stainless steel powders. Cobalt
extra-fine powders are among the most technically advanced metal powder
products. High specification metal powders have several important
characteristics that make them essential components in a number of applications.
Cobalt extra-fine powders have very low oxygen levels, thereby avoiding
brittleness, and are used primarily to produce cemented carbides for mining and
machine tools and oil and gas drilling equipment, and diamond tools used in the
construction, quarrying and manufacturing industries as well as other hard metal
applications. Copper powders produce high strength, corrosion resistant, high
performance alloyed materials used in the military and aerospace industries.
The Company produces powders at its manufacturing facilities in Finland and
the United States for sale to customers in the Americas, Europe and Asia
Pacific. Sales of cobalt and copper powders accounted for approximately $164.5
million, or approximately 34% of the Company's 1996 net sales. The following
table sets forth certain information concerning the Company's end markets for
metal powders and representative attributes:
<TABLE>
<CAPTION>
END MARKETS ATTRIBUTES
<S> <C>
Construction Equipment........ Strengthens and adds durability to diamond cutting and
drilling equipment used in construction and quarrying
Cutting Tools................. Strengthens and adds durability to mining and machine
cutting tools, as well as oil and gas drilling equipment
Rechargeable Batteries........ Improves the electrical conduction of rechargeable batteries
found in cellular phones, video cameras, portable computers
and power tools
Bushings & Bearings........... Enhances performance through porous, self-lubricating bronze
bearings for electric motors and other industrial
applications
Microelectronic............... Reduces the solder bridging and enhances solder joint
strength for circuit boards and brazing
Pressed Metal Parts........... Prevents corrosion in automotive exhaust systems
High-Tech Alloys.............. Strengthens and prevents corrosion of high performance
alloyed materials
</TABLE>
RAW MATERIALS
The primary raw materials used by the Company in manufacturing products are
cobalt, nickel and copper. The cost of raw materials fluctuates due to actual or
perceived changes in supply and demand.
22
<PAGE> 24
Generally, the Company is able to pass through to its customers increases and
decreases in raw material prices by increasing or decreasing, respectively, the
prices of its products. The degree of profitability of the Company depends, in
part, on the Company's ability to maintain the differential between its product
prices and raw material prices.
While nickel and copper are worldwide commodities and generally available,
cobalt availability can be more uncertain. The Company's supply of cobalt has
historically been sourced primarily from Zaire, Australia, Finland and Zambia.
Although the Company has never experienced a material shortage of cobalt,
production problems and political and civil instability in certain supplier
countries may affect the supply and market price of cobalt. In particular, the
present political and civil instability in Zaire may affect the availability of
raw materials from that supplier country. If a substantial interruption should
occur in the supply from Zaire or elsewhere, there is no assurance that the
Company would be able to obtain as much cobalt from other sources as would be
necessary to satisfy the Company's requirements at prices comparable to its
current arrangements.
The Company attempts to mitigate changes in prices and availability by
maintaining adequate inventories and long-term supply relationships with a
variety of producers. The Company presently has secured all its anticipated
cobalt needs through 1997 and has contracted for a portion of its anticipated
needs in 1998 and 1999.
The following tables set forth the average quarterly per pound prices for
cobalt, nickel and copper for the last five years.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) Cobalt - Price/lb
<S> <C>
1Q 1992 29.50
2Q 1992 26.50
3Q 1992 20.25
4Q 1992 20.50
1Q 1993 15.75
2Q 1993 14.75
3Q 1993 12.50
4Q 1993 13.00
1Q 1994 20.50
2Q 1994 24.50
3Q 1994 24.00
4Q 1994 32.25
1Q 1995 29.75
2Q 1995 28.00
3Q 1995 28.00
4Q 1995 31.75
1Q 1996 31.00
2Q 1996 27.00
3Q 1996 22.50
4Q 1996 22.25
</TABLE>
Source: Metals Bulletin
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) Nickel - Price/lb
<S> <C>
1Q 1992 3.47
2Q 1992 3.30
3Q 1992 3.27
4Q 1992 2.75
1Q 1993 2.75
2Q 1993 2.60
3Q 1993 2.20
4Q 1993 2.15
1Q 1994 2.65
2Q 1994 2.70
3Q 1994 2.80
4Q 1994 3.45
1Q 1995 3.95
2Q 1995 3.40
3Q 1995 3.90
4Q 1995 3.80
1Q 1996 3.70
2Q 1996 3.70
3Q 1996 3.35
4Q 1996 3.15
</TABLE>
Source: London Metal Exchange
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) Copper - Price/lb
<S> <C>
1Q 1992 1.0
2Q 1992 1.02
3Q 1992 1.12
4Q 1992 .98
1Q 1993 .98
2Q 1993 .84
3Q 1993 .84
4Q 1993 .74
1Q 1994 .88
2Q 1994 .98
3Q 1994 1.04
4Q 1994 1.28
1Q 1995 1.36
2Q 1995 1.32
3Q 1995 1.34
4Q 1995 1.32
1Q 1996 1.16
2Q 1996 1.14
3Q 1996 .92
4Q 1996 .99
</TABLE>
Source: Commodity Exchange Inc.
RESEARCH AND DEVELOPMENT
The Company's research and new product development program is an integral
part of its business. Research and development focuses on adapting proprietary
technologies to develop new products and working with customers to meet their
specific requirements. New products introduced since 1991 represented
approximately 10% of the Company's 1996 net sales. Research and development
expenses for OMG on a historical basis were approximately $2.8 million, $3.4
million, and $3.8 million for 1994, 1995, and 1996, respectively. The Company's
pro forma research and development expenses were approximately $5.8 million for
1996.
The Company's research staff of 52 persons conducts carboxylate, metal
salts and powders research and development at the Company's laboratories located
in Cleveland, Ohio; Research Triangle Park, North Carolina; and Kokkola,
Finland. The Company also maintains a research agreement with Outokumpu Research
Oy.
PATENTS
The Company holds 112 patents related to the manufacturing, processing and
use of metallo-organic and metal-based compounds. In addition, the Company has
the right to use, and in certain instances license and sell, technology covered
by 16 patents in the areas of hydrometallurgical processes, solvent extraction,
agitators and metal powders. The Company does not consider any single patent or
trademark to be material to its business as a whole.
23
<PAGE> 25
MARKETING AND SALES
The Company conducts its U.S. marketing and sales from its offices in
Cleveland, Ohio and Research Triangle Park, North Carolina and its marketing and
sales in Europe and Asia Pacific through the Company's subsidiaries, OMG Europe
GmbH and OMG Asia Pacific Co., Ltd. in Dusseldorf, Germany and Taipei, Taiwan,
respectively. The Company's sales group consists of 36 employees, who are
responsible for certain industry and geographic segments. The Company has 110
independent sales and marketing agents worldwide.
ENVIRONMENTAL MATTERS
Since 1970, a wide variety of environmental laws and regulations have been
adopted by the United States and by foreign, state and local governments which
continue to be amended and supplemented. The Company is subject to these laws
and regulations as a result of its operations and use of certain substances that
are, or have been, used, produced or discharged at or by the Company's plants.
In addition, soil and/or groundwater contamination presently exists and may in
the future be discovered at levels which require remediation under environmental
laws at properties now or previously owned, operated or used by the Company.
Annual environmental compliance costs and capital expenditures were
approximately $2.0 million and $1.5 million, respectively, for 1996. Such
ongoing expenses include costs relating to waste water analysis and disposal,
hazardous and non-hazardous solid waste analysis and disposal, sea water
control, air emissions controls, soil and groundwater clean-up and monitoring
and related staff costs. The Company anticipates that it will continue to incur
costs and make expenditures at moderately increasing levels for the foreseeable
future in light of the Company's recent acquisition of SCM, the fact that
environmental laws and regulations are becoming increasingly stringent, and the
likely lowering of permissible discharge limits.
Due to the ongoing development and understanding of facts and remedial
options and due to the possibility of unanticipated regulatory developments, the
amount and timing of future environmental expenditures could vary significantly
from those currently anticipated. Although it is difficult to quantify the
potential impact of compliance with or liability under environmental protection
laws, based on presently available information, the Company believes that the
ultimate aggregate cost to the Company of environmental remediation, as well as
other legal proceedings arising in the normal course of business, will not
result in a material adverse effect upon its financial condition or results of
operations.
EMPLOYEES
At January 31, 1997, the Company had 703 full-time employees of which 451
were located in the United States, 209 in Finland, 36 in Western Europe and 7 in
Taiwan. Employees at the Company's facilities in Research Triangle Park, North
Carolina; Franklin, Pennsylvania; St. George, Utah; and Ezanville, France are
non-unionized. Employees at the Company's facilities in Kokkola, Finland are
members of several national workers' unions under various union agreements.
Generally, such union agreements have two-year terms. Employees at the
Johnstown, Pennsylvania facility are members of the United Steelworkers Union.
The Johnstown union agreement has a term of 5 years expiring in June of 1998.
The Company believes relations with its employees are good.
PROPERTIES
The Company believes that its plants and facilities, which are of varying
ages and of different construction types, have been satisfactorily maintained,
are in good condition, are suitable for the Company's operations and generally
provide sufficient capacity to meet the Company's production requirements. The
Company's manufacturing plants have all received ISO 9002 certification. The
land on which the Kokkola plant is located is leased with a remaining term of 94
years. The land on which the St. George, Utah plant is located is leased with a
remaining term, including options, of 48 years. Otherwise, the real properties
comprising the Company's manufacturing facilities are owned by the Company. The
principal executive offices of the Company are located at 50 Public Square, 3800
Terminal Tower, Cleveland, Ohio and the telephone number for such offices is
(216) 781-0083.
24
<PAGE> 26
The Company's Kokkola, Finland production facility is situated on property
owned by Outokumpu Zinc Oy. KCO and Outokumpu Zinc Oy share certain physical
facilities, services and utilities under agreements with varying expiration
dates. General property and administrative services are provided under a service
agreement, which expires in 1998, but are priced separately and subject to
yearly renegotiation in anticipation of phasing out Outokumpu Zinc's role as a
service provider. Utilities and raw material purchase assistance contracts
provide that KCO jointly purchase with, or pay a fee to, affiliates of Outokumpu
Oy for assistance in negotiating contracts and securing bulk quantity discounts.
Certain information regarding the Company's offices and research and
product development and manufacturing facilities is set forth below:
<TABLE>
<CAPTION>
APPROXIMATE LEASED/
LOCATION(1) FACILITY FUNCTION SQUARE FEET OWNED
<S> <C> <C> <C>
Cleveland, Ohio Corporate headquarters 5,800 leased
Research and development facility 11,400 leased
Americas marketing and administration offices 14,800 leased
Dusseldorf, Germany European marketing and administration offices 3,800 leased
Taipei, Taiwan Asia Pacific marketing and administration offices 1,500 leased
Franklin, Pennsylvania Manufactures carboxylates and salts 220,000 owned
St. George, Utah Manufactures salts 37,000 leased
Kokkola, Finland Manufactures carboxylates, salts and powders 400,000 leased
Ezanville, France Manufactures carboxylates 50,000 owned
Johnstown, Pennsylvania Manufactures powders 137,700 owned
Research Triangle Park, N.C. Manufactures powders 132,300 owned
Marketing and administration offices
<FN>
- ---------------
(1) Does not include facilities owned or leased by the Company's Asia Pacific
joint ventures.
</TABLE>
25
<PAGE> 27
ACQUISITION OF SCM
On January 21, 1997, the Company acquired SCM, one of the world's leading
producers of metal-based specialty powders and chemicals -- principally
specialty powders made from copper, iron and stainless steel.
Set forth below are selected financial information for SCM for its fiscal
year ended September 28, 1996 and the three months ended December 30, 1995 and
December 28, 1996:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
SEPTEMBER 28, DECEMBER 30, DECEMBER 28,
----------------- -------------- --------------
1996 1995 1996
<S> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Statement of Income Data:
Net Sales................................. $94,279 $ 23,557 $ 22,857
Gross profit.............................. 23,027 5,913 6,143
Selling, general and administrative
expenses............................... 10,765 2,813 2,580
------------- ----------- -----------
Income from operations.................... 12,262 3,100 3,563
Interest expense.......................... (4,095) (1,170) (975)
Net income................................ $ 5,030 $ 1,210 $ 1,614
============= =========== ===========
Balance Sheet Data:
Total assets.............................. $45,700 $ 42,198 $ 44,984
</TABLE>
SCM serves over 35 niche markets, primarily within the automotive,
electronics, transportation, and catalyst industries. It offers significant
growth opportunities through geographic expansion, cross-selling opportunities
and new product development. Through SCM, the Company plans to enter new niche
markets and leverage its core technology in specialty chemicals and powders. The
following are examples of products and markets offering opportunity for growth:
- Stainless steel powders used to fabricate metal parts such as exhaust
flanges for automobiles;
- Electrolytic iron powders used in specialty applications where
performance is critical;
- Copper catalysts used for the production of silanes in the silicone
industry which has been operating at near capacity levels and is
expanding;
- Solder pastes used in the electronics industry and in cellular phones,
personal computers, laptop/notebook computers, and supporting devices.
SCM is a global supplier with manufacturing facilities located in Research
Triangle Park, North Carolina; Johnstown, Pennsylvania; and Singapore (as part
of a 70% owned joint venture). SCM's sales and administrative activities are
headquartered at its Research Triangle Park facility.
26
<PAGE> 28
MANAGEMENT
The following table sets forth, as of February 28, 1997, certain
information regarding the Company's directors, executive officers and certain
other significant employees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --- ---------------------------------------------------------------
<S> <C> <C>
James P. Mooney............. 49 Director, Chairman and Chief Executive Officer
Eugene Bak.................. 63 Director, President and Chief Operating Officer
Lee R. Brodeur.............. 68 Director
Frank Butler................ 61 Director
Thomas R. Miklich........... 49 Director
John E. Mooney.............. 46 Director
Markku Toivanen............. 56 Director
James M. Materna............ 51 Chief Financial Officer
Thomas E. Fleming........... 51 President, OMG Americas, Inc.
Kari Muuraiskangas.......... 52 President, OMG Europe GmbH
J.R. Hwang.................. 48 President, OMG Asia Pacific Co., Ltd.
Antti Aaltonen.............. 49 President, OMG Kokkola Chemicals Oy
Michael J. Scott............ 46 Vice President, Human Resources, General Counsel and Secretary
H. Burnham Tinker........... 57 Vice President, Corporate Development
John R. Holtzhauser......... 40 Corporate Controller
Terry Guckes................ 47 Vice President, Planning and Development
</TABLE>
JAMES P. MOONEY is Chairman of the Board and has been a director and Chief
Executive Officer of the Company since 1991. From 1991 to 1994, Mr. Mooney was
President of the Company. From 1979 to 1991, Mr. Mooney was President and Chief
Executive Officer of Mooney Chemicals, Inc. Mr. Mooney received a B.A. degree in
history from Quincy University, where he is a member of the Board of Trustees.
Mr. Mooney is also a member of the Board of Directors of Brush Wellman Inc. Mr.
Mooney is John E. Mooney's brother.
EUGENE BAK has been President and Chief Operating Officer of the Company
since 1994. From 1992 to 1994, Mr. Bak was President of Mooney Chemicals, Inc.
From 1970 to 1992, Mr. Bak held various management positions at Mooney
Chemicals, Inc., including Vice President of Operations and Manager of the
Company's Franklin, Pennsylvania, facility. Mr. Bak received a B.S. in chemical
engineering from Ohio State University and an M.B.A. from Seton Hall University.
LEE R. BRODEUR has been a director of the Company since 1991 and a director
of Mooney Chemicals, Inc. since 1987. Mr. Brodeur was employed by the Firestone
Tire & Rubber Company, Akron, Ohio from 1951 until his retirement as President
and Chief Operating Officer of that company in 1986.
FRANK BUTLER has been a director of the Company since 1996. He has been the
President and General Manager of the Coatings Division of The Sherwin Williams
Company since 1992 and has held several other management positions with The
Sherwin Williams Company since 1966. Mr. Butler received a B.S. degree in
Chemistry from Kansas State University and a M.S. degree in Chemistry from Iowa
State University.
THOMAS R. MIKLICH has been a director of the Company since 1993. Mr.
Miklich has been employed by Invacare Corporation as Chief Financial Officer
since 1993. Prior to joining Invacare, Mr. Miklich was Executive Vice President,
Chief Financial Officer and a Director of Van Dorn Company. For 22 years prior
to that, Mr. Miklich was employed with The Sherwin Williams Company where he
held several financial positions, culminating as their Senior Vice President and
Chief Financial Officer.
JOHN E. MOONEY was appointed as a director of the Company in November,
1995, to fill a vacancy. For the past 10 years, Mr. Mooney has been President of
Sachem, Inc., a specialty chemical manufacturer. Prior to that time, he was the
Vice President of Finance and Procurement for Mooney Chemicals, Inc. Mr. Mooney
received a B.A. in Economics from the University of Toronto. Mr. Mooney is James
P. Mooney's brother.
27
<PAGE> 29
MARKKU TOIVANEN has been a director of the Company since 1991. Since 1993,
Mr. Toivanen has served as President and Chief Executive Officer of Outokumpu
Metals & Resources Oy. From 1992 to 1993, Mr. Toivanen served as OMR's Executive
Vice President and Chief Operating Officer. From 1991 to 1992, Mr. Toivanen
served as Chairman and Chief Executive Officer of Outokumpu Mines Ltd. (Canada),
a wholly owned subsidiary of Outokumpu Oy. Mr. Toivanen and Antti Aaltonen, Vice
President of Operations for Kokkola Chemicals Oy, are brothers-in-law.
JAMES M. MATERNA has been the Company's chief financial officer since 1992.
Prior to such time, he was a principal in Ashley Management, a financial
management services and private investment firm for six years. From 1981 to
1986, Mr. Materna was a partner with the accounting firm of KPMG Peat Marwick in
New York and Cleveland. Mr. Materna received a B.S. degree in chemical
engineering from the University of Pittsburgh, and an M.B.A. degree from the
Graduate School of Business of Stanford University. Mr. Materna is a certified
public accountant.
THOMAS E. FLEMING has been President of OMG Americas, Inc. since 1994.
Prior to that, he served as Mooney Chemical, Inc.'s Vice President of Marketing
for seven years. From 1968 to 1987, Mr. Fleming held various positions with
Mooney Chemical, Inc. including national accounts manager, industry manager and
national sales manager. Mr. Fleming received a B.B.A. degree in marketing from
Cleveland State University.
KARI MUURAISKANGAS has been the President of OMG Europe GmbH since 1992.
From 1970 to 1992, Mr. Muuraiskangas was employed by Outokumpu Oy and its
subsidiary companies in various production and marketing capacities. From 1986
to 1989 he served as President of Outokumpu Japan KK, a wholly owned subsidiary
of Outokumpu Oy. Mr. Muuraiskangas received an M.S. degree from Tempere
University, Finland in 1969.
J.R. HWANG has been the President of OMG Asia Pacific Co., Ltd. since 1994.
Prior to that, he held various positions with Amax Extractive Research &
Development, Inc. and the Hall Chemical Company where he served as the director
of Far East operations. Dr. Hwang earned a bachelor's degree in metallurgical
engineering and materials science from National Cheng-Kung University, Taiwan, a
master's degree and Ph.D. from Stanford University and an M.B.A. from the
Weatherhead School of Management of Case Western Reserve University.
ANTTI AALTONEN has been President of OMG Kokkola since 1996 and prior to
that was KCO's Vice President of Operations for four years. Mr. Aaltonen was
appointed project manager for the design and construction of the Kokkola plant
in 1977. He was appointed the first production manager for the facility in 1982
and subsequently became development manager. Mr. Toivanen and Mr. Aaltonen are
brothers-in-law.
MICHAEL J. SCOTT has been Vice President, General Counsel and Secretary of
the Company since 1995. Prior to that, Mr. Scott was General Counsel and
Secretary. Mr. Scott has a B.A. from Hamilton College and a J.D. from the
Cleveland State University, John Marshall College of Law.
H. BURNHAM TINKER has been the Vice President of Corporate Development
since 1994. Prior to that, Dr. Tinker served as MCI's Vice President of Research
and Development for four years. From 1983 to 1991, Dr. Tinker was the technical
director of Mooney Chemicals, Inc. From 1966 to 1980, Dr. Tinker worked in
various research and management capacities at Monsanto Company, a chemical
company. Dr. Tinker received a B.S. degree in chemistry from St. Louis
University and a Ph.D. degree in inorganic chemistry from the University of
Chicago.
JOHN R. HOLTZHAUSER has been the Corporate Controller since 1993. From 1986
to 1992 Mr. Holtzhauser was the Controller of Mooney Chemicals, Inc. Mr.
Holtzhauser received a B.B.A. degree in accounting from Cleveland State
University and an M.B.A. degree from the Weatherhead School of Management of
Case Western Reserve University.
28
<PAGE> 30
TERRY GUCKES has been Vice President of Planning and Development of the
Company since 1995. From 1988 to 1995, Dr. Guckes worked for The Lubrizol
Corporation as a Vice President of Lubrizol Enterprises, the venture capital arm
of Lubrizol, and then as Vice President of the Strategic Planning and Investment
Division. From 1986 to 1988, Dr. Guckes led the area of commercial development
of new products in the automotive area for W. R. Grace. From 1974 to 1986, Dr.
Guckes held various positions with the Exxon Corporation in venture capital,
chemicals, refinery engineering and production. Dr. Guckes received a B.Sc.E. in
Chemical Engineering from Princeton University, a Ph.D. in Chemical Engineering
from the University of Wisconsin in 1974, and an M.B.A. from the Wharton School
of Business in 1984.
29
<PAGE> 31
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below have severally agreed to purchase from the Company, and
the Company has agreed to sell to them, the following respective number of
shares of Common Stock at the offering price less the underwriting discounts and
commissions set forth on the cover of this Prospectus.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation..................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................
First Analysis Securities Corporation................................
---------
Total........................................................... 3,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by their counsel
and to certain other conditions. The Underwriters are obligated to take and pay
for all the shares of Common Stock offered hereby (other than those covered by
the over-allotment option described below) if any of such shares of Common Stock
are taken.
The Company has been advised by the Underwriters that they propose to offer
the shares of Common Stock to the public at the offering price set forth on the
cover of this Prospectus and to certain dealers at such price, less a concession
not in excess of $ per share. The Underwriters may allow, and such
dealers may re-allow, a concession not in excess of $ per share to
certain other dealers. After the initial offering, the offering price and other
selling terms may be changed by the Underwriters. The Company has granted to the
Underwriters an option, exercisable not later than 30 calendar days from the
date of this Prospectus, to purchase up to 450,000 additional shares of Common
Stock at the same price per share as the Company receives for the other shares
that the Underwriters have agreed to purchase.
To the extent that the Underwriters exercise such option to purchase up to
a total of 450,000 shares of Common Stock, each of the Underwriters will have a
firm commitment to purchase approximately the same percentage thereof that the
number of shares of Common Stock to be purchased by it shown in the above table
bears to the total number of shares of Common Stock shown in the above table,
and the Company will be obligated, pursuant to the option, to sell such Common
Stock to the Underwriters. The Underwriters may exercise such option only to
cover over-allotments made in connection with the sale of the Common Stock
offered hereby.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act.
The Company has agreed that it will not, and shall cause each director and
executive officer of the Company to agree that such person will not, without the
prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation,
(x) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, file any registration statement with respect to (in the
case of the Company) or make any demand for or exercise any right with respect
to the registration of (in the case of each director and executive officer) or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock, or (y) enter into any swap or other arrangement that transfers all
or a portion of the
30
<PAGE> 32
economic consequences associated with the ownership of the Common Stock
(regardless of whether any of the transactions described in clause (x) or (y) of
this paragraph is to be settled by the delivery of Common Stock, or such other
securities, in cash or otherwise), for a period of 90 days after the date of the
Underwriting Agreement, other than (i) the shares of Common Stock offered hereby
and (ii) the Company may issue any shares of Common Stock sold upon the exercise
of an option or warrant or the conversion of a security outstanding on the date
hereof or pursuant to any employee stock option or other benefit plan in
existence on the date hereof, or pursuant to the Company's Long-Term Incentive
Compensation Plan.
Due to the repayment of borrowings under the SCM Loan, certain affiliates
of members of the National Association of Securities Dealers, Inc. participating
in the distribution will receive more than 10% of the net proceeds of the
Offering.
Certain of the Underwriters have provided from time to time, and are
expected to provide in the future, investment banking services to the Company
and certain of their affiliates for which such Underwriters have received and
will receive customary fees and commissions.
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may over-allot the Offering,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Common Stock in the open market to cover syndicate short positions. In
addition, the Underwriters may bid for and purchase shares of Common Stock in
the open market to stabilize the price of the Common Stock. These activities may
stabilize or maintain the market price of the Common Stock above independent
market levels. The Underwriters are not required to engage in these activities,
and may end any of these activities at any time.
LEGAL MATTERS
Certain legal matters in connection with the Common Stock offered hereby
are being passed upon for the Company by Squire, Sanders & Dempsey L.L.P. and
for the Underwriters by Davis Polk & Wardwell.
EXPERTS
The consolidated financial statements of OM Group, Inc. at December 31,
1996 and 1995, and for each of the three years in the period ended December 31,
1996, and the financial statements of SCM Metal Products, Inc. for the year
ended September 28, 1996, appearing or incorporated by reference in this
Prospectus and Registration Statement in which this Prospectus is included, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein and in the Registration Statement or
incorporated by reference. Such financial statements have been included herein
or incorporated herein by reference in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
31
<PAGE> 33
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors...................... F-2
Consolidated Balance Sheets............................................ F-3
Statements of Consolidated Income...................................... F-4
Statements of Consolidated Stockholders' Equity........................ F-5
Statements of Consolidated Cash Flows.................................. F-6
Notes to Consolidated Financial Statements............................. F-7
</TABLE>
F-1
<PAGE> 34
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS
OM GROUP, INC.
We have audited the accompanying consolidated balance sheets of OM Group,
Inc. as of December 31, 1996 and 1995, and the related consolidated statements
of income, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of OM Group, Inc.
at December 31, 1996 and 1995, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Cleveland, Ohio
January 30, 1997
F-2
<PAGE> 35
OM GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------
1995 1996
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 9,098 $ 7,818
Accounts receivable, less allowance of $194 in 1995 and $210 in
1996.............................................................. 71,959 60,054
Inventories.......................................................... 139,067 195,050
Other current assets................................................. 13,817 8,245
-------- --------
Total current assets......................................... 233,941 271,167
Property, plant and equipment:
Land................................................................. 331 467
Buildings and improvements........................................... 33,607 40,569
Machinery and equipment.............................................. 102,576 122,695
Furniture and fixtures............................................... 3,427 4,074
-------- --------
139,941 167,805
Less accumulated depreciation................................ 42,661 57,184
-------- --------
97,280 110,621
Other assets:
Unprocessed inventory................................................ 27,499
Goodwill and other intangible assets, less accumulated amortization
of $4,088 in 1995 and $4,967 in 1996.............................. 23,842 23,036
Other assets......................................................... 2,979 6,310
-------- --------
Total assets................................................. $358,042 $438,633
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................................... $ 5,263 $ 3,586
Accounts payable..................................................... 61,917 77,330
Accrued income taxes................................................. 9,484 2,753
Other accrued expenses............................................... 10,282 13,637
-------- --------
Total current liabilities.................................... 86,946 97,306
Long-term debt......................................................... 89,845 109,295
Contract payable....................................................... 27,499
Deferred income taxes.................................................. 18,597 17,773
Other long-term liabilities............................................ 1,226 1,438
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized 2,000,000 shares; no shares issued or outstanding
Common stock, $.01 par value:
Authorized 30,000,000 shares; issued 18,759,346 shares............ 125 188
Capital in excess of par value....................................... 102,088 102,125
Retained earnings.................................................... 61,763 86,345
Treasury stock (129,168 shares in 1995 and 141,432 shares in 1996, at
cost)............................................................. (2,512) (3,095)
Foreign currency translation adjustments............................. (36) (241)
-------- --------
Total stockholders' equity................................... 161,428 185,322
-------- --------
Total liabilities and stockholders' equity................... $358,042 $438,633
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE> 36
OM GROUP, INC.
STATEMENTS OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------
1994 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Net sales.................................................. $251,275 $360,959 $387,999
Cost of products sold...................................... 190,701 286,396 304,025
-------- -------- --------
60,574 74,563 83,974
Selling, general and administrative expenses............... 25,413 30,594 32,553
-------- -------- --------
Income from operations........................... 35,161 43,969 51,421
Other income (expense)
Interest expense......................................... (3,150) (5,516) (7,485)
Interest income.......................................... 366 398 244
Foreign exchange (loss) gain............................. (1,349) (333) 223
-------- -------- --------
(4,133) (5,451) (7,018)
-------- -------- --------
Income before income taxes................................. 31,028 38,518 44,403
Income taxes............................................... 10,286 12,585 14,356
-------- -------- --------
Net income....................................... $ 20,742 $ 25,933 $ 30,047
-------- -------- --------
Net income per share............................. $ 1.09 $ 1.36 $ 1.56
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE> 37
OM GROUP, INC.
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOREIGN
CAPITAL IN CURRENCY
COMMON EXCESS OF RETAINED TREASURY TRANSLATION
STOCK PAR VALUE EARNINGS STOCK ADJUSTMENTS TOTAL
------ ---------- -------- -------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994....... $125 $ 102,088 $ 23,058 $(389) $124,882
Net income....................... 20,742 20,742
Translation adjustment........... 205 205
Dividends paid................... (3,496) (3,496)
Treasury stock purchased......... $ (1,158) (1,158)
---- -------- ------- ------- ----- --------
Balance at December 31, 1994..... 125 102,088 40,304 (1,158) (184) 141,175
Net income....................... 25,933 25,933
Translation adjustment........... 148 148
Dividends paid................... (4,474) (4,474)
Treasury stock purchased......... (1,354) (1,354)
---- -------- ------- ------- ----- --------
Balance at December 31, 1995..... 125 102,088 61,763 (2,512) (36) 161,428
Net income....................... 30,047 30,047
Non-employee directors'
compensation................... 100 100
Translation adjustment........... (205) (205)
Dividends paid................... (5,465) (5,465)
Treasury stock purchased......... (583) (583)
Three-for-two stock split........ 63 (63) 0
---- -------- ------- ------- ----- --------
Balance at December 31, 1996..... $188 $ 102,125 $ 86,345 $ (3,095) $(241) $185,322
==== ======== ======= ======= ===== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE> 38
OM GROUP, INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------
1994 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Operating activities
Net income............................................... $ 20,742 $ 25,933 $ 30,047
Items not affecting cash:
Depreciation and amortization......................... 10,689 13,734 15,814
Foreign exchange loss (gain).......................... 1,349 333 (223)
Deferred income taxes................................. 2,962 1,552 7,841
Changes in operating assets and liabilities:
Accounts receivable................................... (21,401) (25,336) 11,905
Inventories........................................... (48,635) (14,081) (83,482)
Accounts payable and other accruals................... 41,338 7,342 34,765
Other................................................. (1,181) (5,833) (851)
-------- -------- --------
Net cash provided by operating activities.................. 5,863 3,644 15,816
Investing activities
Expenditures for property, plant and equipment, net...... (19,674) (31,215) (28,129)
Acquisitions of businesses............................... (14,511) (395)
-------- -------- --------
Net cash used in investing activities...................... (19,674) (45,726) (28,524)
Financing activities
Dividend payments........................................ (3,496) (4,474) (5,465)
Long-term borrowings..................................... 18,000 94,418 33,364
Payments of long-term debt............................... (2,000) (46,021) (15,591)
Purchase of treasury stock............................... (1,158) (1,354) (583)
-------- -------- --------
Net cash provided by financing activities.................. 11,346 42,569 11,725
Effect of exchange rate changes on cash.................... 47 19 (297)
-------- -------- --------
Increase (decrease) in cash................................ (2,418) 506 (1,280)
Cash and cash equivalents at beginning of year............. 11,010 8,592 9,098
-------- -------- --------
Cash and cash equivalents at end of year................... $ 8,592 $ 9,098 $ 7,818
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE> 39
OM GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of dollars, except per share amounts)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Consolidation
OM Group, Inc. (the Company) and its operating subsidiaries manufacture and
sell metal carboxylates, salts, and powders that are primarily derived from
cobalt and nickel. The consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Inventories
Inventories are stated at the lower of cost or market and are principally
valued using the last-in, first-out (LIFO) method.
Property, Plant and Equipment
Property, plant and equipment is recorded at historical cost less
accumulated depreciation. Depreciation of plant and equipment is provided by the
straight-line method over the useful lives of the various classes of assets.
Long-lived assets are assessed for impairment when operating profits for the
related business indicate that the carrying value may not be recoverable.
Research and Development
Selling, general and administrative expenses include research and
development costs of $2,791, $3,413 and $3,756 in 1994, 1995 and 1996,
respectively.
Income Taxes
Deferred income taxes are provided to recognize the effect of temporary
differences between financial and tax reporting arising principally from
different depreciation methods and inventory reserves. Deferred income taxes are
not provided for undistributed earnings of foreign consolidated subsidiaries, to
the extent such earnings are reinvested for an indefinite period of time.
Foreign Currency Translation
The functional currency for the Company's Kokkola, Finland subsidiary is
the U.S. dollar since a majority of its purchases and sales are denominated in
U.S. dollars and it holds a significant intercompany note payable, denominated
in U.S. dollars. Accordingly, foreign exchange gains and losses related to
assets, liabilities and transactions which are denominated in other currencies
(principally the Finnish Markka) are included in results of operations. The
Company enters into forward contracts to partially hedge its balance sheet
exposure to the Finnish Markka, and accordingly, gains or losses related to the
forward contracts are included in results of operations.
The functional currency for the Company's other subsidiaries outside of the
United States is the applicable local currency. For those operations, financial
statements are translated into U.S. dollars at year-end exchange rates as to
assets and liabilities and weighted average exchange rates as to revenues and
expenses. The resulting translation adjustments are recorded as a component of
stockholders' equity.
Goodwill and Other Intangibles
Goodwill and other intangibles represent principally the excess of the
acquisition purchase price of businesses acquired over the fair market value of
the net tangible assets acquired. These intangible assets are
F-7
<PAGE> 40
OM GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
being amortized on a straight-line basis over their respective useful lives
(fifteen to forty years). Goodwill is assessed for impairment when operating
profits for the related business indicate that the carrying value may not be
recoverable.
Cash Equivalents
For purposes of the statements of cash flows, all highly liquid investments
with a maturity of three months or less when purchased are considered to be cash
equivalents.
Earnings Per Share
Earnings per share are computed based on weighted average shares
outstanding and the dilutive effect of stock options outstanding as discussed in
Note F.
Stock Options and Compensation Plans
The Company grants stock options for a fixed number of shares to certain
employees with an exercise price equal to the fair value of the shares at the
date of grant and accounts for stock options using the intrinsic value method.
Accordingly, compensation expense is not recognized for the stock option grants.
Beginning in 1995, non-employee members of the Board of Directors were
eligible to receive their annual retainer in the form of cash, stock options, or
restricted stock. Directors may purchase stock options for a price equal to the
difference between the exercise price (75% of fair market value on date of
grant) and the fair market value per share. Restricted shares may be purchased
at a price equal to fair market value per share. Also, directors electing to
receive restricted stock receive additional restricted stock equal to 5% of
their applied cash compensation. Accordingly, compensation expense is recognized
for stock option and restricted share grants elected by eligible directors.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in certain circumstances that affect the amounts reported in the
accompanying consolidated financial statements and notes. Actual results could
differ from these estimates.
B. INVENTORIES
Current inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
<S> <C> <C>
Raw materials and supplies................................... $ 99,853 $116,389
Finished goods............................................... 74,715 87,980
-------- --------
174,568 204,369
LIFO reserve................................................. (35,501) (9,319)
-------- --------
Total inventories............................................ $139,067 $195,050
======== ========
</TABLE>
Unprocessed inventory represents cobalt slag feedstock. A twelve-month
supply of the cobalt slag feedstock is included in inventory; the remainder of
the slag is classified as non-current unprocessed inventory. The cost of the
cobalt obtained is based upon prevailing market prices.
F-8
<PAGE> 41
OM GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
C. FINANCIAL INSTRUMENTS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
<S> <C> <C>
Notes payable to banks........................................ $56,000 $ 79,000
Notes payable to insurance companies.......................... 30,000 30,000
Business acquisition debt..................................... 8,510 3,447
Other......................................................... 598 434
------- --------
95,108 112,881
Less: Current portion......................................... 5,263 3,586
------- --------
Total long-term debt.......................................... $89,845 $109,295
======= ========
</TABLE>
At December 31, 1996, the Company had a $120 million revolving credit
facility with a group of banks, with variable interest rates based upon either
the agent bank's rate or LIBOR plus a .35% to .75% margin, at the Company's
option. Under the credit agreement, the Company must exceed a minimum predefined
working capital ratio and meet certain funded debt ratios. There are also
covenants which restrict the dividend paying and borrowing capability of the
Company.
In connection with the acquisition of SCM (as described further in Note I),
the Company's revolving credit facility, which expires in 2002, was further
expanded to $240 million in January, 1997, with a $10 million sublimit for
letters of credit.
The Company has an interest rate swap agreement to convert the variable
interest rates on an aggregate contract amount of $30 million to a fixed rate of
7.28% plus .35% to .75% for a three year period ending December 20, 1997. The
combined effective rate of the Company's bank borrowings and the related swap
agreement was approximately 7.1% at December 31, 1996. The net interest paid or
received on the interest rate swap is included in interest expense. The
counterparties to the interest rate swap are international commercial banks. At
December 31, 1996, the fair value of the interest rate swap based upon current
settlement prices approximated $471 payable.
During 1995, the Company borrowed $30 million from a group of insurance
companies through a private placement. The borrowings bear interest at 7.38% and
are due August 30, 2005. Under the terms of the note purchase agreement, the
Company must meet certain interest coverage and funded debt ratios. There are
also covenants which restrict the dividend paying and borrowing capability of
the Company.
In connection with several business acquisitions during 1995, the Company
issued notes payable with a combined effective rate of 8.9%. The balance on
these notes is due in 1997.
Aggregate annual maturities of long-term debt for the five years following
December 31, 1996 are as follows: 1997 -- $3,586; 1998 -- $148; 1999 -- $147; $0
in 2000 and $0 in 2001. Interest paid was $3,056, $4,454 and $7,056 for the
years ended December 31, 1994, 1995 and 1996, respectively. At December 31,
1996, the carrying value of the Company's debt approximated its fair value.
The Company enters into forward contracts to purchase Finnish Markka to
partially hedge its balance sheet exposure to rate fluctuations between the
Finnish Markka and the U.S. Dollar. At December 31, 1996, the fair value of the
forward contracts, based on the current settlement price, approximated $220
payable, which was recorded in results of operations.
F-9
<PAGE> 42
OM GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
D. INCOME TAXES
Income before income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
<S> <C> <C> <C>
United States........................................ $ 9,022 $ 4,654 $ 1,384
Outside the United States............................ 22,006 33,864 43,019
------- ------- -------
$31,028 $38,518 $44,403
======= ======= =======
</TABLE>
Income taxes are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
<S> <C> <C> <C>
Current:
United States:
Federal......................................... $ 2,508 $ 2,158 $ 923
State and local................................. 604 85 258
Outside the United States.......................... 4,212 8,790 5,334
------- ------- -------
7,324 11,033 6,515
Deferred:
United States...................................... 914 949 644
Outside the United States.......................... 2,048 603 7,197
------- ------- -------
2,962 1,552 7,841
------- ------- -------
$10,286 $12,585 $14,356
======= ======= =======
</TABLE>
Significant components of the Company's deferred income taxes are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
<S> <C> <C>
Current -- Principally inventories............................. $(3,671) $ 2,835
Long-term -- Principally accelerated depreciation.............. 18,597 17,773
------- -------
$14,926 $20,608
======= =======
</TABLE>
A reconciliation of income taxes computed at the United States statutory
rate to the effective income tax rate follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1994 1995 1996
<S> <C> <C> <C>
Income taxes at the United States statutory rate............... 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit................. 1.4 0.1 0.4
Effective tax rate differential of earnings outside of the
United States................................................ (3.9) (7.2) (5.7)
Change in statutory tax rate outside of the United States...... 1.8
Adjustment of worldwide tax liabilities........................ 2.9 2.2
Other--net..................................................... 0.7 0.1 0.4
---- ---- ----
33.2% 32.7% 32.3%
==== ==== ====
</TABLE>
The Company has not provided additional United States income taxes on
approximately $80 million of undistributed earnings of consolidated foreign
subsidiaries included in stockholders' equity. Such earnings
F-10
<PAGE> 43
OM GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
could become taxable upon the sale or liquidation of these foreign subsidiaries
or upon dividend repatriation. The Company's intent is for such earnings to be
reinvested by the subsidiaries or to be repatriated only when it would be tax
effective through the utilization of foreign tax credits. It is not practicable
to estimate the amount of unrecognized withholding taxes and deferred tax
liability on such earnings.
Income tax payments were $4,082, $5,060, and $14,129 during the years ended
December 31, 1994, 1995 and 1996, respectively.
E. EMPLOYEE BENEFIT PLANS
The Company sponsors a non-contributory, qualified profit sharing plan
covering all United States employees. Company contributions are determined by
the Board of Directors based upon participant compensation. The Company also
sponsors a non-contributory, non-qualified supplemental executive retirement
plan for certain employees, providing benefits beyond those covered in the
qualified profit sharing plan. Aggregate plan expenses were $1,160, $1,388, and
$1,727 in 1994, 1995 and 1996, respectively.
The Company provides health care benefits upon retirement for certain
United States employees with a specified number of years of service. The
estimated cost of their benefits is actuarially determined and accrued over the
employees' service periods as a level percentage of compensation for employees
expected to qualify for benefits.
Expenses for postretirement benefits other than pensions are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
<S> <C> <C> <C>
Service cost................................................. $15 $16 $ 27
Interest cost................................................ 63 75 84
--- --- ---
$78 $91 $ 111
=== === ===
</TABLE>
The liability recognized in the consolidated balance sheet at December 31,
1996 for postretirement benefit obligations other than pensions is $827 ($761 at
December 31, 1995). For measurement purposes, a 9.55% blended annual rate of
increase in the per capita cost of covered health care benefits was assumed,
grading ratably to 5.9% through 2006. An increase of 1% in assumed health care
cost trend rates would increase the accumulated benefit obligation as of
December 31, 1996 by $155 and the aggregate annual service and interest cost by
$16. The discount rate used in determining the accumulated benefit obligation as
of December 31, 1996 and 1995 was 7.75%.
F. COMMON STOCK AND STOCK OPTIONS
On November 5, 1996, the Board of Directors approved a three-for-two stock
split of its common stock, in the form of a stock dividend, with one additional
common share issued December 2, 1996 for every two common shares held by
shareholders of record on November 15, 1996. All share and per share information
included in the accompanying financial statements have been retroactively
adjusted to give effect to the split.
On November 5, 1996, the Board of Directors declared a dividend
distribution of one Right for each outstanding share of common stock to
stockholders of record on November 15, 1996. Each Right entitles the shareholder
to purchase one one-hundredth share of Series A Participating Preferred Stock at
a purchase price of $160 per share, subject to adjustment.
The Rights are not currently exercisable, but would become exercisable if
certain events occurred relating to a person or group (Acquiring Person)
acquiring or attempting to acquire 15% or more of the outstanding shares of
common stock. In the event that the Rights become exercisable, each Right
(except for Rights beneficially owned by the Acquiring Person, which become null
and void) would enable the holder to purchase
F-11
<PAGE> 44
OM GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
for the exercise price then in effect, shares of the Company's common stock
having a value of twice the exercise price.
The Rights may be redeemed by the Board of Directors in whole, but not in
part, at a price of $0.01 per Right. The Rights have no voting or dividend
privileges and are attached to, and do not trade separately from the common
stock. The Rights expire on November 14, 2006.
The Company's Long-Term Incentive Compensation Plan has authorized the
grant of options to management personnel for up to 1,523,438 shares of the
Company's common stock. All options granted have 10 year terms and vest and
become fully exercisable at the end of the fiscal year following the year of
grant.
Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123, "Accounting for Stock Based Compensation,"
and has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value of these
options was estimated at the date of grant using a Black-Scholes options pricing
model with the following weighted-average assumptions for 1995 and 1996:
risk-free interest rate of 6.5%; dividend yield of 1.2%; the volatility factor
of the expected market price of the Company's common stock of .20; and a
weighted-average expected life of the option of 5 years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Pro forma net income........................................... $25,782 $28,874
Pro forma earnings per share:
Primary...................................................... $1.35 $1.50
Fully diluted................................................ $1.34 $1.50
</TABLE>
A summary of the Company's stock option activity, and related information
for the years ended December 31 follows:
<TABLE>
<CAPTION>
1994 1995 1996
------------------ -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1.......... 736,851 $ 6.47 900,101 $ 7.65 1,061,656 $ 9.94
Granted......................... 163,250 13.00 208,055 18.72 202,860 25.96
Exercised....................... (46,500) 5.04 (17,355) 9.19
Forfeited....................... (4,082) 12.25
------- ------ --------- ------- --------- -------
Outstanding at December 31........ 900,101 $ 7.65 1,061,656 $ 9.94 1,243,079 $12.55
======= ====== ========= ======= ========= =======
Exercisable at end of year........ 736,851 $ 6.47 878,168 $ 7.89 1,055,579 $10.05
Weighted-average fair value of
options granted during the
year............................ $ 5.46 $ 7.37
</TABLE>
The weighted-average remaining contractual life of these options
outstanding is 7.2 years.
G. COMMITMENTS AND CONTINGENCIES
The Company's Finnish operating subsidiary has agreed to take shipment of
43,000 wet metric tons of Zairian cobalt and nickel slag from La Generale des
Carrieres et des Mines (Gecamines) in 1997. The cost of the cobalt obtained will
be based upon the prevailing market price as material is processed.
F-12
<PAGE> 45
OM GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The Company is a party to various legal proceedings incidental to its
business and is subject to a variety of environmental and pollution control laws
and regulations in the jurisdictions in which it operates. As is the case with
other companies in similar industries, the Company faces exposure from actual or
potential claims and legal proceedings involving environmental matters. Although
it is difficult to quantify the potential impact of compliance with or liability
under environmental protection laws, management believes that the ultimate
aggregate cost to the Company of environmental remediation, as well as other
legal proceedings arising out of operations in the normal course of business,
will not result in a material adverse effect upon its financial condition or
results of operations.
H. BUSINESS AND GEOGRAPHIC INFORMATION
The Company operates in a single business segment serving numerous
customers and industries; its operations are located principally in the United
States and Finland. Financial information by geographic area is summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1994 1995 1996
<S> <C> <C> <C>
Net sales:
United States........................................... $119,470 $149,114 $160,507
Finland................................................. 125,740 202,114 219,754
Other................................................... 6,065 9,731 7,738
-------- -------- --------
$251,275 $360,959 $387,999
======== ======== ========
Operating profit:
United States........................................... 12,706 12,108 13,781
Finland................................................. 26,200 37,227 44,063
Other................................................... (177) 504 304
Corporate administrative expense........................ (3,568) (5,870) (6,727)
-------- -------- --------
35,161 43,969 51,421
Other expense............................................. (4,133) (5,451) (7,018)
-------- -------- --------
Income before income taxes................................ $ 31,028 $ 38,518 $ 44,403
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996
<S> <C> <C>
Identifiable assets:
United States..................................................... $141,422 $161,945
Finland........................................................... 209,576 270,013
Other............................................................. 7,044 6,675
-------- --------
$358,042 $438,633
======== ========
</TABLE>
I. SUBSEQUENT EVENT
On January 21, 1997, pursuant to a Stock Purchase Agreement dated December
20, 1996, the Company acquired SCM Metal Products, Inc., a subsidiary of U.S.
Industries, Inc. SCM, with annual sales in fiscal 1996 of approximately $94
million, is one of the world's leading producers of specialty chemicals and
powders, principally specialty powders primarily from copper, iron and stainless
steel. The total consideration paid by the Company for SCM was $122 million,
financed entirely through bank borrowings. The Company is considering other
longer term financing options. The acquisition, which is not reflected in the
accompanying financial statements, will be accounted for by the purchase method
of accounting.
F-13
<PAGE> 46
OM GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
J. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
<S> <C> <C> <C> <C>
1995
Net sales............................ $89,429 $84,974 $80,967 $105,589
Gross profit......................... 17,547 19,131 18,477 19,408
Income from operations............... 10,218 11,553 11,099 11,099
Net income........................... 6,090 6,722 6,606 6,515
Net income per share................. $0.32 $0.35 $0.35 $0.34
Market price: high-low............... 16 5/8 - 14 1/2 19 1/2 - 15 3/8 21 3/8 - 18 5/8 22 3/8 - 18 7/8
Dividends paid per share............. $0.06 $0.06 $0.06 $0.06
1996
Net sales............................ $102,853 $101,485 $89,071 $94,590
Gross profit......................... 20,211 21,030 20,905 21,828
Income from operations............... 12,258 13,084 13,036 13,043
Net income........................... 7,151 7,583 7,670 7,643
Net income per share................. $0.37 $0.39 $0.40 $0.40
Market price: high-low............... 25 1/8 - 21 5/8 28 - 24 1/2 27 3/8 - 22 3/4 28 3/4 - 25 3/8
Dividends paid per share............. $0.07 $0.07 $0.07 $0.07
</TABLE>
F-14
<PAGE> 47
METAL CARBOXYLATES
(21% of Sales)
<TABLE>
<CAPTION>
CUSTOM PAINT FUEL INK
CATALYSTS DRIERS ADDITIVES DRIERS
--------- ------ --------- ------
<S> <C> <C> <C> <C>
Applications Oxidation Oxidation Combustion Oxidation
Carbonylation Catalysts Improvers Catalysts
Polymerization Polymerization Soot Suppressants Polymerization
Esterification Catalysts Smoke Suppressants Catalysts
Corrosion Inhibitors
End Markets Adhesion Promoters Driers Used in Additives Used Offset Letterpress
in Steel Belted Automotive Paints in Marine, Diesel Inks, Overprint
Radial Tires, House Paints, and Aviation Fuels Varnishes,
Catalysts Used To Marine Coatings, Gravure Inks
Produce Traffic Paint,
Petrochemicals, Industrial Coatings
Urethane Foam
<CAPTION>
POLYESTER
LUBRICANT CURING
ADDITIVES AGENTS STABILIZERS
--------- --------- -----------
<S> <C> <C> <C>
Applications Extreme Polymerization Heat
Pressure Catalysts Stabilizers
Anti-Wear
Anti-Oxidants
Corrosion Inhibitors
End Markets Engine Oils, Unsaturated Polyester Flexible PVC
Gear Oils, Resin Used in Used in Vinyl
Greases, Reinforced Flooring, Medical
Cutting Oils, Fiberglass Boats, Tubing, Garden
Lubricating Oils Cultured Marble, Hoses, Shower
Storage Tanks, Curtains
Bathrooms,
Automobile
Components
</TABLE>
METAL SALTS
(45% of Sales)
<TABLE>
<CAPTION>
PETROLEUM
COLORANTS STORAGE REFINING
AND PIGMENTS ADDITIVES MEDIA CATALYSTS
------------ --------- ------- ---------
<S> <C> <C> <C> <C>
Applications Adhesives Antifouling Electroreprography Desulfurization
Colorants Agents Information Storage Denitrofication
Pigments
Decolorizers
End Markets Ceramic Tiles, Marine Paints, Magnetic Media Desulfurized and
Pigments, Colored Roofing Materials Audio and Denitroized Oil Used
Glassware, Video Tapes in Gasoline Fuel Oil,
Porcelain Compact Discs Chemical
Enamel, Frits Feedstocks
<CAPTION>
AGENTS FOR
STEEL SPECIALTY CUSTOM
PLATING CHEMICALS CATALYSTS
---------- --------- ---------
<S> <C> <C> <C>
Applications Anti-Corrosion Raw Material Oxidation Catalysts
Agents Intermediates Hydrogenation
Catalysts
Hydroformylation
Catalysts
Polymerization
Catalysts
End Markets Plating Solutions for Vitamin Supplements, Detergents,
Electrogalvanized Catalysts for Organic Carpeting, Bottles
Steel Chemicals, Metal (PET), Textiles
Oxides (Rechargeable Silicones
Batteries)
</TABLE>
METAL POWDERS
(34% of Sales)
<TABLE>
<CAPTION>
COBALT EXTRA-FINE 400 MESH-GRADE CHEMICAL GRADE COPPER
POWDER COBALT POWDER COBALT POWDER POWDER
----------------- -------------- -------------- ------
<S> <C> <C> <C> <C>
Applications Adhesives Adhesives Raw Material Compacting
Intermediates Powder Metallurgy
End Markets Cutting Tools, Diamond Metal Carboxylates, Bushings and
Cutting Tool Inserts, Cutting Tools Metal Inorganic Salts Bearings,
Drill Bits, Saw Rechargeable Friction Materials
Teeth, Batteries
Grinders/Polishers
<CAPTION>
STAINLESS OTHER
STEEL IRON METAL BASED
POWDER POWDER POWDER
--------- ------ -----------
<S> <C> <C> <C>
Applications Anti-Corrosion Vitamin Solder Pastes
Agents Supplements and Electrical Conductors
Strengtheners
End Markets Pressed Metals Processed Foods Microelectronics
High-Tech Brazing Pastes
Alloys High-Temp
Electrical
Applications
</TABLE>
METALS PRODUCTION
FACILITIES
COBALT, NICKEL & COPPER ----------------------------
- ----------------------- Europe
Powders ------
Cathodes Kokkola, Finland
Granules Ezanville, France
Ingots
Concentrates United States
Slags -------------
Scrap Metal Research Triangle Park, NC
Recycled Catalysts Franklin, PA
Johnstown, PA
St. George, UT
OTHER
----- Asia Pacific (Joint Ventures)
Barium ----------------------------
Calcium Kim Hae City, Korea
Copper Singapore
Iron
Manganese
Zinc
Zirconium
Others
ACIDS
Acetic
2-Ethyl Hexoic
Hydrochloric
Naphthenic
Neodecanoic
Nitric
Sulfuric
Others
SOLVENTS
--------
Mineral Spirits
Water
Others
PROPRIETARY
ADDITIVES [OMG LOGO]
<PAGE> 48
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information............... 3
Incorporation by Reference.......... 3
Prospectus Summary.................. 4
Risk Factors........................ 8
Price Range of Common Stock
and Dividends..................... 10
Use of Proceeds..................... 10
Capitalization...................... 11
Unaudited Pro Forma Combined
Condensed Financial Data.......... 12
Selected Financial Data............. 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 16
Business............................ 18
Management.......................... 27
Underwriting........................ 30
Legal Matters....................... 31
Experts............................. 31
Index to Financial Statements....... F-1
</TABLE>
============================================================
3,000,000 SHARES
[OM GROUP LOGO]
OM GROUP, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
FIRST ANALYSIS SECURITIES CORPORATION
, 1997
============================================================
<PAGE> 49
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses expected to be incurred by the
Registrant in connection with the Offering described in this Registration
Statement. All amounts, except the SEC registration fees, are estimated.
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 29,535
NASD filing fee................................................... 10,247
Printing, engraving and postage fees.............................. 250,000
Legal fees and expenses........................................... 75,000
Accounting fees and expenses...................................... 50,000
Blue sky fees and expenses........................................ 5,000
NYSE listing fee.................................................. 12,100
Transfer agent fees............................................... 1,000
Miscellaneous..................................................... 167,118
--------
Total........................................................ $600,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"GCL") permits a corporation to indemnify certain persons made a party to an
action, by reason of the fact that such person 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 or
enterprise. To the extent that person has been successful in any such matter,
that person shall be indemnified against expenses actually and reasonably
incurred by him. In the case of an action by or in the right of the corporation,
no indemnification may be made in respect of any matter as to which that person
was adjudged liable unless and only to the extent that the Delaware Court of
Chancery or the court in which the action was brought determines that despite
the adjudication of liability that person is fairly and reasonably entitled to
indemnity for proper expenses.
The Company's Amended and Restated By-Laws provide for indemnification of
its directors and officers to the fullest extent permitted by law.
The directors and officers of the Company are covered by insurance policies
indemnifying against certain liabilities, including certain liabilities arising
under the Securities Act which might be incurred by them in such capacities and
against which they may not be indemnified by the Company.
II-1
<PAGE> 50
ITEM 16. EXHIBITS
Exhibits identified in parentheses below are on file with the SEC and are
incorporated herein by reference to such previous filings.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<S> <C>
1.1 Underwriting Agreement.
(3.1) Amended and Restated Certificate of Incorporation (filed as Exhibit 3.1 to the
Company's Registration Statement on Form S-1 (No. 33-60444) which became effective
on October 12, 1993 (the "S-1")).
(3.2) Amended and Restated By-Laws (filed as Exhibit 3.2 to the S-1).
(4.1) Specimen of certificate representing Common Stock (filed as Exhibit 4 to the S-1).
(4.2) Shareholders' Rights Agreement (filed as Exhibit 1 to the Company's Current report
on Form 8-K filed on December 5, 1996)
5.1 Opinion of Squire, Sanders & Dempsey L.L.P. with respect to legality of the Common
Stock.
23.1+ Consent of Ernst & Young LLP
23.2 Consent of Squire, Sanders & Dempsey L.L.P. (included in the opinion filed as
Exhibit 5.1).
24.1+ Power of Attorney.
</TABLE>
- ---------------
+previously filed
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933 (the "Securities
Act"), each filing of the registrant's annual report pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15 (d) of
the Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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.
Insofar as indemnification for liabilities arising under the Securities Act
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.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus 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.
II-2
<PAGE> 51
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and duly caused this Amendment No. 2 to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Cleveland, State of Ohio, on the 24th day of
April, 1997.
OM GROUP, INC.
By: /s/ James P. Mooney
------------------------------------
James P. Mooney, Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 2
has been signed by the following persons in the capacities indicated below on
the 24th day of April, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
/s/ James P. Mooney Chairman and Chief Executive Officer
- ---------------------------------------- (Principal Executive Officer)
James P. Mooney
/s/ Markku Toivanen* Director
- ----------------------------------------
Markku Toivanen
/s/ Eugene Bak* Director
- ----------------------------------------
Eugene Bak
/s/ Lee R. Brodeur* Director
- ----------------------------------------
Lee R. Brodeur
/s/ Thomas R. Miklich* Director
- ----------------------------------------
Thomas R. Miklich
/s/ John E. Mooney* Director
- ----------------------------------------
John E. Mooney
/s/ Frank Butler* Director
- ----------------------------------------
Frank Butler
/s/ James M. Materna Chief Financial Officer (Principal Financial and
- ---------------------------------------- Accounting Officer)
James M. Materna
/s/ James P. Mooney
- ----------------------------------------
James P. Mooney
Attorney-In-Fact
<FN>
- ------------------------------
* James P. Mooney, by signing his name hereto signs this document on behalf of
each of the persons so indicated above pursuant to powers of attorney duly
executed by such persons and filed with the Securities and Exchange
Commission.
</TABLE>
II-3
<PAGE> 52
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGINATION
BY
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER DESCRIPTION OF EXHIBIT SYSTEM
<S> <C> <C>
1.1 Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation (filed as Exhibit 3.1 to the
Company's Registration Statement on Form S-1 (No. 33-60444) which became effective
on October 12, 1993 (the "S-1")).
3.2 Amended and Restated By-Laws (filed as Exhibit 3.2 to the S-1).
4.1 Specimen of certificate representing Common Stock (filed as Exhibit 4 to the S-1).
4.2 Shareholders' Rights Agreement (filed as Exhibit 1 to the Company's Current report
on Form 8-K filed on December 5, 1996)
5.1 Opinion of Squire, Sanders & Dempsey L.L.P. with respect to legality of the Common
Stock.
23.1+ Consent of Ernst & Young LLP
23.2 Consent of Squire, Sanders & Dempsey L.L.P. (included in the opinion filed as
Exhibit 5.1).
24.1+ Power of Attorney.
</TABLE>
- ---------------
+previously filed
<PAGE> 1
Exhibit 1.1
3,000,000 Shares
OM GROUP, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
April , 1997
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO., MERRILL LYNCH,
PIERCE, FENNER & SMITH INCORPORATED
FIRST ANALYSIS SECURITIES CORPORATION,
As Representatives of the several
underwriters named in Schedule I hereto
277 Park Avenue
New York, New York 10172
Dear Sirs:
OM Group, Inc. a Delaware corporation (the "Company"), proposes to issue
and sell 3,000,000 shares of its Common Stock, par value of $0.01 per share,
(the "Firm Shares") to the several underwriters named in Schedule I hereto (the
"Underwriters"). The Company also proposes to issue and sell to the several
Underwriters not more than 450,000 additional shares of its Common Stock, par
value of $0.01 per share, (the "Additional Shares"), if requested by the
Underwriters as provided in Section 2 hereof. The Firm Shares and the Additional
Shares are hereinafter referred to collectively as the "Shares". The shares of
common stock of the Company to be outstanding after giving effect to the sales
contemplated hereby are hereinafter referred to as the "Common Stock".
<PAGE> 2
SECTION 1. Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Act"), a registration statement on Form S-3 (File No. 333-
23729) including a prospectus, relating to the Shares. The registration
statement, as amended at the time it became effective, including the information
(if any) deemed to be part of the registration statement at the time of
effectiveness pursuant to Rule 430A under the Act, is hereinafter referred to as
the "Registration Statement", and the prospectus in the form first used to
confirm sales of Shares is hereinafter referred to as the "Prospectus"
(including, in the case of all references to the Registration Statement and the
Prospectus, documents incorporated therein by reference). If the Company has
filed or is required pursuant to the terms hereof to file a registration
statement pursuant to Rule 462(b) under the Act registering additional shares of
Common Stock (a "Rule 462(b) Registration Statement"), then, unless otherwise
specified, any reference herein to the term "Registration Statement" shall be
deemed to include such Rule 462(b) Registration Statement. The terms
"supplement" and "amendment" or "amend" as used in this Agreement shall include
all documents subsequently filed by the Company with the Commission in
accordance with the Securities Exchange Act of 1934, as amended, and the rules
and regulations of the Commission thereunder (collectively, the "Exchange Act")
that are deemed to be incorporated by reference in the Prospectus.
SECTION 2. Agreements to Sell and Purchase and Lock-Up Agreements. On the
basis of the representations and warranties contained in this Agreement, and
subject to its terms and conditions, the Company agrees to issue and sell, and
each Underwriter agrees, severally and not jointly, to purchase from the Company
at a price per Share of $__________ (the "Purchase Price") the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I hereto.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to issue
and sell the Additional Shares and the Underwriters shall have the right to
purchase, severally and not jointly, up to 450,000 Additional Shares from the
Company at the Purchase Price. Additional Shares may be purchased solely for the
purpose of covering over-allotments made in connection with the offering of the
Firm Shares. The Underwriters may exercise their right to purchase Additional
Shares in whole or in part from time to time by giving written notice thereof to
the Company within 30 days after the date of this Agreement. You shall give any
such notice on behalf of the Underwriters and such notice shall specify the
aggregate number of Additional Shares to be purchased pursuant to such exercise
2
<PAGE> 3
and the date for payment and delivery thereof, which date shall be a business
day (i) no earlier than two business days after such notice has been given (and,
in any event, no earlier than the Closing Date (as hereinafter defined)) and
(ii) no later than ten business days after such notice has been given. If any
Additional Shares are to be purchased, each Underwriter, severally and not
jointly, agrees to purchase from the Company the number of Additional Shares
(subject to such adjustments to eliminate fractional shares as you may
determine) which bears the same proportion to the total number of Additional
Shares to be purchased from the Company as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I bears to the total number of
Firm Shares.
The Company hereby agrees not to (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock or
(ii) enter into any swap or other arrangement that transfers all or a portion of
the economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (i) or (ii)
is to be settled by the delivery of Common Stock, or such other securities, in
cash or otherwise), except to the Underwriters pursuant to this Agreement, for a
period of 90 days after the date of this Agreement without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation. Notwithstanding
the foregoing, during such period (i) the Company may grant stock options
pursuant to the Company's existing stock option plan (ii) the Company may issue
shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof and (iii) the Company
may issue shares of Common Stock pursuant to any employee stock option or other
benefit plan or the Stockholder Rights Agreement dated as of November 5, 1996
between the Company and National City Bank, as agent. The Company also agrees
not to file any registration statement with respect to any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock. The Company shall, prior to or concurrently with the execution of
this Agreement, deliver an agreement executed by each of the directors and
executive officers of the Company to the effect that such person will not,
during the period commencing on the date such person signs such agreement and
ending 90 days after the date of this Agreement, without the prior written
consent of Donaldson, Lufkin & Jenrette Corporation, (x) engage in any of the
transactions described in the first sentence of this paragraph or (y) make any
demand for, or exercise any right with respect to, the registration of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock.
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SECTION 3. Terms of Public Offering. The Company is advised by you that
the Underwriters propose (i) to make a public offering of their respective
portions of the Shares as soon after the execution and delivery of this
Agreement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
SECTION 4. Delivery and Payment. Delivery to the Underwriters of and
payment for the Firm Shares shall be made at 9:00 A.M., New York City time, on
__________________, 1997 (the "Closing Date") at such place as you shall
designate. The Closing Date and the location of delivery of and payment for the
Firm Shares may be varied by agreement between you and the Company.
Delivery to the Underwriters of and payment for any Additional Shares to
be purchased by the Underwriters shall be made at such place as you shall
designate at 9:00 A.M., New York City time, on the date specified in the
applicable exercise notice given by you pursuant to Section 2 (an "Option
Closing Date"). Any such Option Closing Date and the location of delivery of and
payment for such Additional Shares may be varied by agreement between you and
the Company.
Certificates for the Shares shall be registered in such names and issued
in such denominations as you shall request in writing not later than two full
business days prior to the Closing Date or an Option Closing Date, as the case
may be. Such certificates shall be made available to you for inspection not
later than 9:30 A.M., New York City time, on the business day prior to the
Closing Date or the applicable Option Closing Date, as the case may be.
Certificates in definitive form evidencing the Shares shall be delivered to you
on the Closing Date or the applicable Option Closing Date, as the case may be,
with any transfer taxes thereon duly paid by the Company, for the respective
accounts of the several Underwriters, against payment to the Company of the
Purchase Price therefor by wire transfer of Federal or other funds immediately
available in New York City.
SECTION 5. Agreements of the Company. The Company agrees with you:
(a) To advise you promptly and, if requested by you, to confirm such
advice in writing, (i) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or for
additional information, (ii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the suspension
of qualification of the Shares for offering or sale in any jurisdiction, or the
initiation of any proceeding for such purposes, (iii) when any amendment to the
Registration Statement becomes effective, (iv) if the Company is required to
file a Rule 462(b) Registration Statement after the effectiveness of this
Agreement, when the Rule
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462(b) Registration Statement has become effective and (v) of the happening of
any event during the period referred to in paragraph (d) below which makes any
statement of a material fact made in the Registration Statement or the
Prospectus untrue or which requires any additions to or changes in the
Registration Statement or the Prospectus in order to make the statements therein
not misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, the Company will use
its best efforts to obtain the withdrawal or lifting of such order at the
earliest possible time.
(b) To furnish to you, without charge, four signed copies of the
Registration Statement as first filed with the Commission and of each amendment
to it, including all exhibits and documents incorporated therein by reference,
and to furnish to you and each Underwriter designated by you such number of
conformed copies of the Registration Statement as so filed and of each amendment
to it, without exhibits but including documents incorporated therein by
reference, as you may reasonably request.
(c) To prepare the Prospectus in a form approved by you and to file the
Prospectus in such form with the Commission within the applicable period
specified in Rule 424(b) under the Act; not to file any further amendment to the
Registration Statement and not to make any amendment or supplement to the
Prospectus of which you shall not previously have been advised or to which you
shall reasonably object after being so advised; and to prepare and file with the
Commission, promptly upon your reasonable request, any amendment to the
Registration Statement or amendment or supplement to the Prospectus which may be
necessary or advisable in connection with the distribution of the Shares by you,
and to use its best efforts to cause any such amendment to the Registration
Statement to become promptly effective.
(d) Prior to 10:00 A.M., New York City time, on the first business day
after the date of this Agreement and from time to time thereafter for such
period as in the opinion of counsel for the Underwriters a prospectus is
required by law to be delivered in connection with sales by an Underwriter or a
dealer, to furnish in New York City to each Underwriter and dealer as many
copies of the Prospectus (and of any amendment or supplement to the Prospectus)
and any documents incorporated therein by reference as such Underwriter or
dealer may reasonably request.
(e) If during the period specified in paragraph (d), any event shall
occur as a result of which, in the opinion of counsel for the Underwriters, it
becomes necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances when the Prospectus is
delivered to a purchaser, not misleading, or if it is necessary to amend or
supplement the
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Prospectus to comply with applicable law, forthwith to prepare and file with the
Commission an appropriate amendment or supplement to the Prospectus so that the
statements in the Prospectus, as so amended or supplemented, will not in the
light of the circumstances when it is so delivered, be misleading, or so that
the Prospectus will comply with law, and to furnish to each Underwriter and to
such dealers as you shall specify, such number of copies thereof as such
Underwriter or dealers may reasonably request.
(f) Prior to any public offering of the Shares, to cooperate with you and
counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters and
by dealers under the state securities or Blue Sky laws of such jurisdictions as
you may request, to continue such qualification in effect so long as required
for distribution of the Shares and to file such consents to service of process
or other documents as may be necessary in order to effect such registration or
qualification; provided that in connection therewith the Company shall not be
required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction or to take any action that would subject
it to any taxing authority to which it is not now subject.
(g) To mail and make generally available to its stockholders as soon as
practicable an earnings statement covering a period of at least twelve months
after the effective date of the Registration Statement (but in no event
commencing 90 or more days after such date) which shall satisfy the provisions
of Section 11(a) of the Act, and to advise you in writing when such statement
has been so made available.
(h) During the period of three years after the date of this Agreement, to
furnish to you as soon as available copies of all reports or other
communications furnished to the record holders of Common Stock or filed with the
Commission and such other publicly available information concerning the Company
and its subsidiaries as you may reasonably request.
(i) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of the Company's obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the Company's
counsel and the Company's accountants in connection with the registration and
delivery of the Shares under the Act and all other fees or expenses in
connection with the preparation, printing, filing and distribution of the
Registration Statement (including financial statements and exhibits), any
preliminary prospectus, the Prospectus and all amendments and supplements to any
of the foregoing prior to or during the period specified in paragraph (d),
including the mailing and delivering of copies thereof to the Underwriters and
dealers in the quantities specified herein,
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<PAGE> 7
(ii) all costs and expenses related to the transfer and delivery of the Shares
to the Underwriters, including any transfer or other taxes payable thereon,
(iii) all costs of printing or producing this Agreement and any other agreements
or documents in connection with the offering, purchase, sale or delivery of the
Shares, (iv) all expenses in connection with the registration or qualification
of the Shares for offer and sale under the securities or Blue Sky laws of the
several states and all costs of printing or producing any Preliminary and
Supplemental Blue Sky Memoranda in connection therewith (including the filing
fees and fees and disbursements of counsel for the Underwriters in connection
with such registration or qualification and memoranda relating thereto), (v) the
filing fees and disbursements of counsel for the Underwriters in connection with
the review and clearance of the offering of the Shares by the National
Association of Securities Dealers, Inc., and all costs and expenses incident to
the listing of the Shares on the New York Stock Exchange (the "NYSE"), (vi) the
cost of printing certificates representing the Shares, (vii) the costs and
charges of any transfer agent, registrar and/or depositary and (viii) all other
costs and expenses incident to the performance of the obligations of the Company
hereunder for which provision is not otherwise made in this Section.
(j) To use its best efforts to list, subject to notice of issuance, the
Shares on the NYSE and to maintain the listing of the Shares on the NYSE for a
period of three years after the date of this Agreement.
(k) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company prior to
the Closing Date or any Option Closing Date, as the case may be, and to satisfy
all conditions precedent to the delivery of the Shares.
(l) If the Registration Statement at the time of the effectiveness of
this Agreement does not cover all of the Shares, to file a Rule 462(b)
Registration Statement with the Commission registering the Shares not so covered
in compliance with Rule 462(b) by 10:00 P.M., New York City time, on the date of
this Agreement and to pay to the Commission the filing fee for such Rule 462(b)
Registration Statement at the time of the filing thereof or to give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the
Act.
(m) to apply the net proceeds from the sale of the Stock being sold by
the Company as set forth in the Prospectus.
(n) To take such steps as shall be necessary to ensure that neither the
Company nor any subsidiary shall become and "investment company" within the
meaning of such term under the United States Investment Company Act of 1940 and
the rules and regulations of the Commission thereunder.
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SECTION 6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) The Registration Statement has become effective (other than any Rule
462(b) Registration Statement to be filed by the Company after the effectiveness
of this Agreement); any Rule 462(b) Registration Statement filed after the
effectiveness of this Agreement will become effective no later than 10:00 P.M.,
New York City time, on the date of this Agreement; and no stop order suspending
the effectiveness of the Registration Statement is in effect, and no proceedings
for such purpose are pending before or threatened by the Commission.
(b)(i) Each document, if any, filed or to be filed pursuant to the
Exchange Act and incorporated by reference in the Prospectus complied or will
comply when so filed in all material respects with the Exchange Act and the
applicable rules and regulations of the Commission thereunder, (ii) the
Registration Statement (other than any Rule 462(b) Registration Statement to be
filed by the Company after the effectiveness of this Agreement), when it became
effective, did not contain and, as amended or supplemented, if applicable, will
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, (iii) the Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the effectiveness of
this Agreement) and the Prospectus comply and, as amended or supplemented, if
applicable, will comply in all material respects with the Act, (iv) if the
Company is required to file a Rule 462(b) Registration Statement after the
effectiveness of this Agreement, such Rule 462(b) Registration Statement and any
amendments or supplements thereto, when they become effective (1) will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (2) will comply in all material respects with the Act and (v) the
Prospectus does not contain and, as amended or supplemented, if applicable, will
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that the representations and
warranties set forth in this paragraph (b) do not apply to statements or
omissions in the Registration Statement or the Prospectus based upon information
relating to any Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use therein.
(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the Act, and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements
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therein, in the light of the circumstances under which they were made, not
misleading, except that the representations and warranties set forth in this
paragraph (c) do not apply to statements or omissions in any preliminary
prospectus based upon information relating to any Underwriter furnished to the
Company in writing by such Underwriter through you expressly for use therein.
(d) Each of the Company and its subsidiaries has been duly incorporated,
is validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation and has the corporate power and authority to carry
on its business as described in the Prospectus and to own, lease and operate its
properties, and each is duly qualified and is in good standing as a foreign
corporation authorized to do business in each jurisdiction in which the nature
of its business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not, singly or
in the aggregate, reasonably be expected have a material adverse effect on the
business, prospects, financial condition or results of operations of the Company
and its subsidiaries, taken as a whole.
(e) There are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens granted or issued by
the Company or any of its subsidiaries relating to or entitling any person to
purchase or otherwise to acquire any shares of the capital stock of the Company
or any of its subsidiaries, except as otherwise disclosed in the Registration
Statement.
(f) All the outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid, non-assessable and not
subject to any preemptive or similar rights; and the Shares have been duly
authorized and, when issued and delivered to the Underwriters against payment
therefor as provided by this Agreement, will be validly issued, fully paid and
non-assessable, and the issuance of such Shares will not be subject to any
preemptive or similar rights.
(g) All of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued and are
fully paid and non-assessable and (except for directors' qualifying shares) are
owned by the Company, free and clear of any security interest, claim, lien,
encumbrance or adverse interest of any nature.
(h) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(i) Neither the Company nor any of its subsidiaries (i) is in violation
of its respective charter or by-laws or (ii) is in default in any material
respect, and no
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event has occurred which, with notice or lapse of time or both, would constitute
such a default, in the performance of any obligation, agreement, covenant or
condition contained in any indenture, loan agreement, mortgage, lease or other
agreement or instrument that is material to the Company and its subsidiaries,
taken as a whole, to which the Company or any of its subsidiaries is a party or
by which it or any of its subsidiaries or their respective property is bound.
(j) The execution, delivery and performance of this Agreement by the
Company, compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby will not require any
consent, approval, authorization or other order of, or qualification with, any
court or governmental body or agency (except such as may be required under the
securities or Blue Sky laws of the various states) and will not conflict with or
constitute a breach of any of the terms or provisions of, or a default under,
the charter or by-laws of the Company or any of its subsidiaries or any
indenture, loan agreement, mortgage, lease or other agreement or instrument that
is material to the Company and its subsidiaries, taken as a whole, to which it
or any of its subsidiaries is a party or by which it or any of its subsidiaries
or their respective property is bound, or violate or conflict with any
applicable law or any rule, regulation, judgment, order or decree of any court
or any governmental body or agency having jurisdiction over the Company, any of
its subsidiaries or their respective property.
(k) There are no legal or governmental proceedings pending or, to the
knowledge of the Company, threatened to which the Company or any of its
subsidiaries is a party or to which any of their respective property is subject
that are required to be described in the Registration Statement or the
Prospectus and are not so described; nor are there any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not so described or filed as required.
(l) Neither the Company nor any of its subsidiaries has violated any
foreign, federal, state or local law or regulation relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws"), any provisions of the
Employee Retirement Income Security Act or the rules and regulations promulgated
thereunder or any other law, ordinance, governmental rule, regulation or court
decree to which the Company or its subsidiaries or their respective property or
assets may be subject, except for such violations which, singly or in the
aggregate, would not have a material adverse effect on the business, prospects,
financial condition or results of operation of the Company and its subsidiaries,
taken as a whole.
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(m) Each of the Company and its subsidiaries has such patents. permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("permits"), including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease and operate its respective
properties and to conduct its business and is in compliance with all terms and
conditions thereof, and no event has occurred which allows or, after notice or
lapse of time or both, would allow, revocation or termination of such permits or
results or, after notice or lapse of time or both, would result in any other
impairment of the rights of the holder of any such permit; and such permits
contain no restrictions that are burdensome to the Company or any of its
subsidiaries; except where such failure to have, or comply with the terms or
conditions of, such permits, the occurrence of any such event or the presence of
any such restriction would not, singly or in the aggregate, have a material
adverse effect on the business, prospects, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole.
(n) There are no costs or liabilities associated with Environmental Laws
(including, without limitation, any capital or operating expenditures required
for clean-up, closure of properties or compliance with Environmental Laws or any
permit, license or approval, any related constraints on operating activities and
any potential liabilities to third parties) which would, singly or in the
aggregate, have a material adverse effect on the business, prospects, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole.
(o) This Agreement has been duly authorized, executed and delivered by
the Company.
(p) Ernst & Young LLP are independent public accountants with respect to
the Company and its subsidiaries as required by the Act.
(q) The consolidated financial statements, together with related
schedules and notes forming part of the Registration Statement and the
Prospectus (and any amendment or supplement thereto), present fairly the
consolidated financial position, results of operations and changes in financial
position of the Company and its subsidiaries on the basis stated in the
Registration Statement at the respective dates or for the respective periods to
which they apply; such statements and related schedules and notes have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as disclosed
therein; and the other financial and statistical information and data set forth
in the Registration Statement and the Prospectus (and any amendment or
supplement thereto) is, in all material respects, accurately presented and
prepared on a basis consistent with such financial statements or the books and
records of the Company as applicable.
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(r) The Company is not and, after giving effect to the offering and sale
of the Shares and the application of the proceeds thereof as described in the
Prospectus, will not be, an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended.
(s) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the Company to
file a registration statement under the Act with respect to any securities of
the Company or to require the Company to include such securities with the Shares
registered pursuant to the Registration Statement.
(t) Since the respective dates as of which information is given in the
Prospectus or incorporated by reference other than as set forth in the
Prospectus (exclusive of any amendments or supplements thereto subsequent to the
date of this Agreement), (i) there has not occurred any material adverse change
or any development involving a prospective material adverse change in the
condition, financial or otherwise, or the earnings, business, management or
operations of the Company and its subsidiaries, taken as a whole, (ii) there has
not been any material adverse change or any development involving a prospective
material adverse change in the capital stock or in the long-term debt of the
Company or any of its subsidiaries and (iii) neither the Company nor any of its
subsidiaries has incurred any material liability or obligation, direct or
contingent.
(u) The Company has complied with all provisions of Section 517.075,
Florida Statutes (Chapters 92-198, Laws of Florida).
(v) The pro forma financial statements of the Company and its
subsidiaries and the related notes thereto set forth or incorporated by
reference in the Registration Statement and the Prospectus present fairly the
information shown therein, have been prepared in accordance with the applicable
requirements of Rule 11-02 of Regulation S-X promulgated by the Commission and
have been compiled on the pro forma basis described therein; and the assumptions
used in the preparation thereof are reasonable and the adjustments used therein
are appropriate to give effect to the transactions and circumstances referred to
therein.
(w) The Company and its subsidiaries are in compliance in all material
respects with all presently applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "prohibited transaction" or "reportable
event" (as defined in ERISA) has occurred with respect to any "pension plan" (as
defined in ERISA) for which the Company or any of its subsidiaries would have
any liability; neither the Company nor any of its subsidiaries has incurred, and
do
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not expect to incur, liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii) Section 412 or
4971 of the Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each "pension plan"
for which the Company would have any liability that is intended to be qualified
under Section 401 (a) of the Code is so qualified in all material respects and
nothing has occurred, whether by action or by failure to act, which would cause
the loss of such qualification. Notwithstanding the foregoing, the
representations made in this Section 6(v) will be deemed breached only to the
extent that any such condition or event either singly or in the aggregate could
reasonably be expected to result in a material adverse effect on the business,
prospects, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
SECTION 7. Indemnification. (a) The Company agrees to indemnify and hold
harmless each Underwriter, its directors, its officers and each person, if any,
who controls any Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages, liabilities and judgments (including, without limitation, any legal or
other expenses incurred in connection with defending or investigating any matter
that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (or any amendment
thereto), the Prospectus (or any amendment or supplement thereto) or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or judgments are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information relating
to any Underwriter furnished in writing to the Company by such Underwriter
through you expressly for use therein; provided, however, that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not inure
to the benefit of any Underwriter from whom the person asserting any such
losses, claims, damages, liabilities or judgments purchased Shares, or any
director or officer of, or person controlling, such Underwriter, if a copy of
the Prospectus (as then amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) was not sent or given by or on
behalf of such Underwriter to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the Shares to
such person, and if the Prospectus (as so amended and supplemented) would have
cured the defect giving rise to such loss, claim, damage, liability or judgment.
(b) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the Registration
Statement and any person controlling the Company within the meaning of Section
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15 of the Act or Section 20 of the Exchange Act, to the same extent as the
foregoing indemnity from the Company to such Underwriter but only with reference
to information relating to such Underwriter furnished in writing to the Company
by such Underwriter through you expressly for use in the Registration Statement
(or any amendment thereto), the Prospectus (or any amendment or supplement
thereto) or any preliminary prospectus.
(c) In case any proceeding (including any governmental or regulatory
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to paragraph (a) or (b) of this Section 7 (the
"indemnified party"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying party") in writing
and the indemnifying party shall assume the defense of such proceeding,
including the employment of counsel reasonably satisfactory to the indemnified
party and the payment of all fees and expenses of such counsel, as incurred
(except that in the case of a proceeding in respect of which indemnity may be
sought pursuant to both paragraphs (a) and (b) of this Section 7, the
Underwriter shall not be required to assume the defense of such proceeding
pursuant to this paragraph (c), but may employ separate counsel and participate
in the defense thereof, but the fees and expenses of such counsel, except as
provided below, shall be at the expense of such Underwriter), Any indemnified
party shall have the right to employ separate counsel in any such proceeding and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the indemnified party unless (i) the employment of
such counsel shall have been specifically authorized in writing by the
indemnifying party, (ii) the indemnifying party shall have failed to assume the
defense of such proceeding or employ counsel reasonably satisfactory to the
indemnified party or (iii) the persons involved in any such proceeding
(including any impleaded parties) include both the indemnified party and the
indemnifying party, and the indemnified party shall have been advised by such
counsel that there may be one or more legal defenses available to it which are
different from or additional to those available to the indemnifying party or
that representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them (whether or not such
representation by the same counsel has been proposed) (in which case the
indemnifying party shall not have the right to assume the defense of such
proceeding on behalf of the indemnified party). In any such case, the
indemnifying party shall not, in connection with any one proceeding or separate
but substantially similar or related proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
fees and expenses of more than one separate firm of attorneys (in addition to
any local counsel) for all indemnified parties and all such fees and expenses
shall be reimbursed as they are incurred. Such firm shall be designated in
writing by Donaldson, Lufkin & Jenrette Securities Corporation, in the case of
parties indemnified pursuant to paragraph (a)
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<PAGE> 15
of this Section 7, and by the Company, in the case of parties indemnified
pursuant to paragraph (b) of this Section 7. The indemnifying party shall
indemnify and hold harmless the indemnified party from and against any and all
losses, claims, damages, liabilities and judgments by reason of any settlement
of any proceeding (i) effected with its written consent or (ii) effected without
its written consent if the settlement is entered into more than ten business
days after the indemnifying party shall have received a request from the
indemnified party for reimbursement for the fees and expenses of counsel (in any
case where such fees and expenses are at the expense of the indemnifying party)
and, prior to the date of such settlement, the indemnifying party shall have
failed to comply with such reimbursement request. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement or compromise of, or consent to the entry of judgment with respect
to, any pending or threatened proceeding in respect of which indemnity or
contribution may be sought hereunder by the indemnified party (whether or not
the indemnified party is a party to such proceeding), unless such settlement,
compromise or judgment (i) includes an unconditional release of the indemnified
party from all liability on claims that are or could have been the subject
matter of such proceeding and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act, by or on behalf of the
indemnified party.
(d) To the extent the indemnification provided for in this Section 7 is
unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the offering
of the Shares or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company and the Underwriters in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Underwriters shall be deemed to be in
the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company, and the total underwriting
discounts and commissions received by the Underwriters, bear to the total price
to the public of the Shares, in each case as set forth in the table on the cover
page of the Prospectus. The relative fault of the Company and the Underwriters
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a material
fact relates to information supplied by the Company or the Underwriters and the
parties' relative
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<PAGE> 16
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses incurred by such indemnified party in
connection with investigating or defending any matter that could have given rise
to such losses, claims, damages, liabilities or judgments. Notwithstanding the
provisions of this Section 7, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute pursuant to this Section 7(d) are
several in proportion to the respective number of Shares purchased by each of
the Underwriters hereunder and not joint.
(e) The remedies provided for in this Section 7 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
SECTION 8. Conditions of Underwriters' Obligation. The several
obligations of the Underwriters to purchase the Firm Shares under this Agreement
are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company contained in
this Agreement shall be true and correct on the Closing Date with the same force
and effect as if made on and as of the Closing Date.
(b) If the Company is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., New York
City time, on the date of this Agreement; and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose
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<PAGE> 17
shall have been commenced or shall be pending before or contemplated by the
Commission.
(c) You shall have received on the Closing Date a certificate dated the
Closing Date, signed by James P. Mooney and James M. Materna, in their
capacities as the Chairman and Chief Executive Officer, and Chief Financial
Officer of the Company, confirming the matters set forth in paragraphs (a), (b),
and (c) of this Section 8.
(d) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there shall not have occurred any change or any development involving a
prospective change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Company and its subsidiaries, taken as
a whole, (ii) there shall not have been any change or any development involving
a prospective change in the capital stock or in the long-term debt of the
Company or any of its subsidiaries and (iii) neither the Company nor any of its
subsidiaries shall have incurred any liability or obligation, direct or
contingent, the effect of which, in any such case described in clause (i), (ii)
or (iii), in your judgment, is material and adverse and, in your judgment, makes
it impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.
(e) You should have received on the Closing Date an opinion (satisfactory
to you and counsel for the Underwriters), dated the Closing Date, of Squire,
Sanders & Dempsey, counsel for the Company, to the effect that:
(i) each of the Company and its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation and has the corporate power
and authority to carry on its business as described in the Prospectus and
to own, lease and operate its properties;
(ii) each of the Company and its subsidiaries is duly qualified
and is in good standing as a foreign corporation authorized to do
business in each jurisdiction in which the nature of its business or its
ownership or leasing of property requires such qualification, except
where the failure to be so qualified would not, singly or in the
aggregate, have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole;
17
<PAGE> 18
(iii) all the outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid,
non-assessable and not subject to any preemptive or similar rights;
(iv) the Shares have been duly authorized and, when issued and
delivered to the Underwriters against payment therefor as provided by
this Agreement, will be validly issued, fully paid and non-assessable,
and the issuance of such Shares is not subject to any preemptive or
similar rights;
(v) all of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued and
are fully paid and non-assessable, and (except for directors' qualifying
shares) are owned by the Company, free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature;
(vi) this Agreement has been duly authorized, executed and
delivered by the Company;
(vii) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus;
(viii) the Registration Statement has become effective under the
Act, no stop order suspending its effectiveness has been issued and no
proceedings for that purpose are, to the best of such counsel's knowledge
after due inquiry, pending before or contemplated by the Commission,
(ix) The statement set forth (1) in the Prospectus under the
caption "Business - Patents", "- Environmental Matters," "Properties" and
"Underwriting" (2) in the Proxy Statement under the caption "Report of
Compensation Committee - Employment Contracts with Executive Officers"
and "Related Party Transactions" (3) in the Registration Statement on
Form S-1 (File No. 33-60444) under the caption "Description of Capital
Stock" and (4) in the Company's report on Form 10-K for the year ended
December 31, 1996 under Part I, Item 1 under the captions "Environmental
Matters," "Patents," "Employees", and Item 2 under the caption
"Properties" and Item 3 under the caption "Legal Proceedings" and Item 15
of Part II of the Registration Statement, insofar as such statements
constitute a summary of the legal matters, documents or proceedings
referred to therein, fairly present the information called for with
respect to such legal matters, documents and proceedings;
(x) neither the Company nor any of its subsidiaries is in
violation of its respective charter or by-laws and, to the best of such
counsel's
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<PAGE> 19
knowledge after due inquiry, neither the Company nor any of its
subsidiaries is in default in the performance of any obligation,
agreement, covenant or condition contained in any indenture, loan
agreement, mortgage, lease or other agreement or instrument which is,
singly or in the aggregate, material to the Company and its subsidiaries,
taken as a whole, to which the Company or any of its subsidiaries is a
party or by which it or any of its subsidiaries or their respective
property is bound;
(xi) the execution, delivery and performance of this Agreement by
the Company, compliance by the Company with all the provisions hereof and
the consummation of the transactions contemplated hereby will not require
any consent, approval, authorization or other order of, or qualification
with, any court or governmental body or agency (except such as may be
required under the securities or Blue Sky laws of the various states) and
will not conflict with or constitute a breach of any of the terms or
provisions of, or a default under, the charter or by-laws of the Company
or any of its subsidiaries or any indenture, loan agreement, mortgage,
lease or other agreement or instrument that is, singly or in the
aggregate, material to the Company and its subsidiaries, taken as a
whole, to which it or any of its subsidiaries is a party or by which it
or any of its subsidiaries or their respective property is bound, or
violate or conflict with any applicable law or any rule, regulation,
judgment, order or decree of any court or any governmental body or agency
having jurisdiction over the Company, any of its subsidiaries or their
respective property;
(xii) after due inquiry, such counsel does not know of any legal
or governmental proceedings pending or threatened to which the Company or
any of its subsidiaries is a party or to which any of their respective
property is subject that are required to be described in the Registration
Statement or the Prospectus and are not so described, or of any statutes,
regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed
as exhibits to the Registration Statement that are not so described or
filed as required;
(xiii) to the best of such counsel's knowledge, neither the
Company nor any of its subsidiaries has violated any Environmental Law or
any provisions of the Employee Retirement Income Security Act or the
rules and regulations promulgated thereunder, except for such violations
which, singly or in the aggregate, would not have a material adverse
effect on the business, prospects, financial condition or results of
operation of the Company and its subsidiaries, taken as a whole;
19
<PAGE> 20
(xiv) each of the Company and its subsidiaries has such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("permits"), including, without limitation, under any
applicable Environmental Laws, as are necessary to own, lease and operate
its respective properties and to conduct its business and, to the best of
such counsel's knowledge, is in compliance with all terms and conditions
thereof, and no event has occurred which allows or, after notice or lapse
of time or both, would allow, revocation or termination of such permits
or results or, after notice or lapse of time or both, would result in any
other impairment of the rights of the holder of any such permit; and such
permits contain no restrictions that are burdensome to the Company or any
of its subsidiaries; except where such failure to have, or comply with
the terms or conditions of, such permits, the occurrence of any such
event or the presence of any such restriction would not, singly or in the
aggregate, have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole;
(xv) the Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be, an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended;
(xvi) to the best of such counsel's knowledge after due inquiry,
there are no contracts, agreements or understandings between the Company
and any person granting such person the right to require the Company to
file a registration statement under the Act with respect to any
securities of the Company or to require the Company to include such
securities with the Shares registered pursuant to the Registration
Statement;
(xvii) (A) each document, if any, filed pursuant to the Exchange
Act and incorporated by reference in the Registration Statement and the
Prospectus (except for financial statements and other financial data
included therein as to which no opinion need be expressed) complied when
so filed as to form with the Exchange Act, (B) the Registration Statement
and the Prospectus and any supplement or amendment thereto (except for
the financial statements and other financial data included therein as to
which no opinion need be expressed) comply as to form with the Act, (C)
such counsel has no reason to believe that (except for the financial
statements and other financial data as to which such counsel need not
express any belies at the time the Registration Statement became
effective or on the date of this Agreement, the Registration Statement
and the prospectus included therein contained any untrue statement of a
material
20
<PAGE> 21
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (D) such
counsel has no reason to believe that the Prospectus, as amended or
supplemented, if applicable (except for the financial statements and
other financial data, as aforesaid) contains any untrue statement of a
material fact or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.
The opinion of Squire, Sanders & Dempsey L.L.P. described in this shall
be rendered to you at the request of the Company and shall so state therein.
(f) You shall have received on the Closing Date an opinion (satisfactory
to you and counsel for the Underwriters), dated the Closing Date, of Davis Polk
& Wardwell, counsel for the Underwriters, as to the matters referred to in
clauses (iv), (vi), (ix) (but only with respect to the statements under the
caption "Description of Capital Stock" and "Underwriting") and subclauses (B),
(C) and (D) of (xvii) of the foregoing paragraph (e).
In giving such opinions with respect to the matters covered by clause
(xvii) of paragraph (e), Squire, Sanders & Dempsey L.L.P. may state that their
opinion and belief are based upon their participation in the preparation of the
Registration Statement and Prospectus and any amendments or supplements thereto
and documents incorporated therein by reference and review and discussion of the
contents thereof, but is without independent check or verification except as
specified. In giving such opinions with respect to the matters covered by
subclauses (B), (C) and (D) of clause (xvii) of paragraph (e) above, Davis Polk
& Wardwell may state that their opinion and belief are based upon their
participation in the preparation of the Registration Statement and Prospectus
and any amendments or supplements thereto (other than the documents incorporated
therein by reference) and review and discussion of the contents thereof
(including the documents incorporated therein by reference), but are without
independent check or verification except as specified.
In rendering such opinions, such counsel may (A) rely as to matters
involving the application of laws other than the laws of the United States and
the laws of the State of New York and the General Corporation Law of the State
of Delaware, to the extent such counsel deems proper and to the extent specified
in such opinion, if at all, upon an opinion or opinions (reasonably satisfactory
to Underwriters' counsel) of other counsel reasonably acceptable to the
Underwriters' counsel, familiar with the applicable laws and (B) may state that
they express no opinion as to the laws of any jurisdiction outside the United
States.
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<PAGE> 22
(g) You shall have received, on each of the date hereof and the Closing
Date, a letter dated the date hereof or the Closing Date, as the case may be, in
form and substance satisfactory to you, from Ernst & Young LLP, independent
public accountants, containing the information and statements of the type
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial information contained
in or incorporated by reference into the Registration Statement and the
Prospectus.
(h) The Company shall have delivered to you the agreements specified in
Section 2 hereof which agreements shall be in full force and effect on the
Closing Date.
(i) The Shares shall have been duly listed, subject to notice of
issuance, on the NYSE.
(j) The Company shall not have failed at or prior to the Closing Date to
perform or comply with any of the agreements herein contained and required to be
performed or complied with by the Company at or prior to the Closing Date.
The several obligations of the Underwriters to purchase any Additional
Shares hereunder are subject to the delivery to you on the applicable Option
Closing Date of such documents as you may reasonably request with respect to the
good standing of the Company, the due authorization and issuance of such
Additional Shares and other matters related to the issuance of such Additional
Shares.
SECTION 9. Effectiveness of Agreement and Termination. This Agreement
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time prior to the Closing Date by
you by written notice to the Company if any of the following has occurred: (i)
any outbreak or escalation of hostilities or other national or international
calamity or crisis or change in economic conditions or in the financial markets
of the United States or elsewhere that, in your judgment, is material and
adverse and would, in your judgment, make it impracticable to market the Shares
on the terms and in the manner contemplated in the Prospectus, (ii) the
suspension or material limitation of trading in securities on the NYSE; the
American Stock Exchange, the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange, the Chicago Board of Trade or the Nasdaq National Market or
limitation on prices for securities on any such exchange or the Nasdaq National
Market, (iii) the suspension of trading of any securities of the Company on any
exchange or in the over-the-counter market, (iv) the enactment, publication,
decree or other promulgation of any
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<PAGE> 23
federal or state statute, regulation, rule or order of any court or other
governmental authority which in your opinion materially and adversely affects,
or will materially and adversely affect, the business, prospects, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole (v) the declaration of a banking moratorium by either federal or New
York State authorities or (vi) the taking of any action by any federal, state or
local government or agency in respect of its monetary or fiscal affairs which in
your opinion has a material adverse effect on the financial markets in the
United States.
If on the Closing Date or on an Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase the Firm
Shares or Additional Shares, as the case may be, which it or they have agreed to
purchase hereunder on such date and the aggregate number of Firm Shares or
Additional Shares, as the case may be, which such defaulting Underwriter or
Underwriters, as the case may be, agreed but failed or refused to purchase is
not more than one-tenth of the total number of Shares to be purchased on such
date by all Underwriters, each non-defaulting Underwriter shall be obligated
severally, in the proportion which the number of Firm Shares set forth opposite
its name in Schedule I bears to the total number of Firm Shares which all the
non-defaulting Underwriters, as the case may be, have agreed to purchase, or in
such other proportion as you may specify, to purchase the Firm Shares or
Additional Shares, as the case may be, which such defaulting Underwriter or
Underwriters, as the case may be, agreed but failed or refused to purchase on
such date- provided that in no event shall the number of Firm Shares or
Additional Shares, as the case may be, which any Underwriter has agreed to
purchase pursuant to Section 2 hereof be increased pursuant to this Section 9 by
an amount in excess of one-ninth of such number of Firm Shares or Additional
Shares, as the case may be, without the written consent of such Underwriter. If
on the Closing Date any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of Firm
Shares to be purchased by all Underwriters and arrangements satisfactory to you
and the Company for purchase of such Firm Shares are not made within 48 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Underwriter and the Company. In any such case which does
not result in termination of this Agreement, either you or the Company shall
have the right to postpone the Closing Date, but in no event for longer than
seven days, in order that the required changes, if any, in the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected. If, on an Option Closing Date, any Underwriter or Underwriters shall
fail or refuse to purchase Additional Shares and the aggregate number of
Additional Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Additional Shares to be purchased on such
date, the non-defaulting Underwriters shall have the option to
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<PAGE> 24
(i) terminate their obligation hereunder to purchase such Additional Shares or
(ii) purchase not less than the number of Additional Shares that such
non-defaulting Underwriters would have been obligated to purchase on such date
in the absence of such default. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any default of
any such Underwriter under this Agreement.
SECTION 10. Miscellaneous. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (a) if to the Company, to OM
Group, Inc., 50 Public Square, 3800 Terminal Tower, Cleveland, Ohio 44113-2204
and (b) if to any Underwriter or to you, to you c/o Donaldson, Lufkin & Jenrette
Securities Corporation, 277 Park Avenue, New York, New York 10172, Attention:
Syndicate Department, or in any case to such other address as the person to be
notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company and the several Underwriters set
forth in or made pursuant to this Agreement shall remain operative and in full
force and effect, and will survive delivery of and payment for the Shares,
regardless of (i) any investigation, or statement as to the results thereof,
made by or on behalf of any Underwriter, the officers or directors of any
Underwriter, any person controlling any Underwriter, the Company, the officers
or directors of the Company or any person controlling the Company, (ii)
acceptance of the Shares and payment for them hereunder and (iii) termination of
this Agreement.
If for any reason the Shares are not delivered by or on behalf of the
Company as provided herein (other than as a result of any termination of this
Agreement pursuant to Section 9), the Company agrees to reimburse the several
Underwriters for all out-of-pocket expenses (including the fees and
disbursements of counsel) reasonably incurred by them.
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of and shall be binding upon the Company, the Underwriters, the
Underwriters' directors and officers, any controlling persons referred to
herein, the Company's directors and the Company's officers who sign the
Registration Statement and their respective successors and assigns, all as and
to the extent provided in this Agreement, and no other person shall acquire or
have any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include a purchaser of any of the Shares from any of the
several Underwriters merely because of such purchase.
This Agreement shall be governed and construed in accordance with the
laws of the State of New York.
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<PAGE> 25
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
25
<PAGE> 26
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters.
Very truly yours,
OM GROUP, INC.
By:_______________________________
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO., MERRILL LYNCH,
PIERCE, FENNER & SMITH INCORPORATED
FIRST ANALYSIS SECURITIES CORPORATION,
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By____________________________
Authorized Representative
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<PAGE> 27
SCHEDULE I
----------
Number of Firm Shares
Underwriters to be Purchased
- ------------ ---------------------
Donaldson, Lufkin & Jenrette Securities
Corporation .....................................
Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated .....................
First Analysis Securities Corporation ...............
----------
Total 3,000,000
<PAGE> 1
EXHIBIT 5.1
April 22, 1997
OM Group, Inc.
50 Public Square
3800 Terminal Tower
Cleveland, Ohio 44114-2204
Ladies and Gentlemen:
We have acted as counsel to OM Group, Inc. (the "Company") in connection
with its Registration Statement on Form S-3 ("Registration Statement") filed
under the Securities Act of 1933, as amended, relating to 3,000,000 shares of
Common Stock, par value $.01 per share, of the Company (the "Shares").
In that connection we have examined such documents, corporate records and
other instruments as we have deemed necessary or appropriate for purposes of
this opinion, including but not limited to the following documents:
(a) the Amended and Restated Certificate of Incorporation of the Company; and
(b) the Code of Regulations of the Company.
Based upon the foregoing and such legal considerations as we have deemed
relevant, we are of the opinion that:
(1) The Company is a corporation duly organized and validly existing under the
laws of the State of Delaware.
(2) The Shares, when issued, will be validly issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion with the Registration
Statement and the use of our name therein.
Respectfully submitted,
/s/ Squire, Sanders & Dempsey L.L.P.
