-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GoHtrfrQf2a5WyblwurjMPPfiO+JLHftW6jl/gDLQegWKvFk3bRYq1h8RFYKigmQ STphWRhDWFPaNwe5hmj7+A== 0000912057-97-017618.txt : 19970515 0000912057-97-017618.hdr.sgml : 19970515 ACCESSION NUMBER: 0000912057-97-017618 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMCO RECYCLING INC CENTRAL INDEX KEY: 0000202890 STANDARD INDUSTRIAL CLASSIFICATION: SECONDARY SMELTING & REFINING OF NONFERROUS METALS [3341] IRS NUMBER: 752008280 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07170 FILM NUMBER: 97604869 BUSINESS ADDRESS: STREET 1: 5215 N OCONNOR BLVD STE 940 CITY: IRVING STATE: TX ZIP: 75007 BUSINESS PHONE: 2148696575 MAIL ADDRESS: STREET 1: 5215 N O CONNOR BOULVARD STE 940 CITY: IRVING STATE: TX ZIP: 75030 FORMER COMPANY: FORMER CONFORMED NAME: FRONTIER TEXAS CORP DATE OF NAME CHANGE: 19881012 FORMER COMPANY: FORMER CONFORMED NAME: PIONEER TEXAS CORP DATE OF NAME CHANGE: 19850416 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File No. 1-7170 IMCO RECYCLING INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 75-2008280 (I.R.S. Employer Identification No.) 5215 North O'Connor Blvd., Suite 940 Central Tower at Williams Square Irving, Texas 75039 (Address of principal executive offices) (972) 869-6575 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of business on May 2, 1997. COMMON STOCK, $0.10 PAR VALUE, 12,532,865 ----------------------------------------- PART 1 - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS IMCO RECYCLING INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share data) MARCH 31, DECEMBER 31, 1997 1996 ----------- ----------- (UNAUDITED) ASSETS CURRENT ASSETS Cash and cash equivalents $ 811 $ 5,070 Accounts receivable 49,202 33,655 Inventories 15,291 11,847 Deferred income taxes 1,445 1,462 Other current assets 2,401 1,282 ----------- ----------- Total Current Assets 69,150 53,316 Property and equipment, net 119,538 86,308 Intangible assets Excess acquisition cost over the fair value of net assets acquired, net of accumulated amortization of $2,520 and $4,607, respectively. 54,745 9,362 Patents, net 156 171 ----------- ----------- 54,901 9,533 Investments in affiliates 15,166 14,187 Other assets, net 4,068 1,363 ----------- ----------- $ 262,823 $ 164,707 ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 23,928 $ 14,351 Accrued liabilities 4,333 2,192 Short-term debt 4,264 2,000 Current maturities of long-term debt 7,096 2,124 ----------- ----------- Total Current Liabilities 39,621 20,667 Long-term debt 110,181 48,202 Other long-term liabilities 6,701 1,647 Deferred income taxes 5,914 5,856 Minority interest 4,484 - STOCKHOLDERS' EQUITY Preferred stock; par value $.10; 8,000,000 shares authorized; none issued - - Common stock; par value $.10; 20,000,000 shares authorized; 12,637,966 issued at March 31, 1997; 12,017,914 issued at December 31, 1996 1,264 1,202 Additional paid-in capital 34,579 27,553 Retained earnings 61,356 61,021 Treasury stock, at cost; 105,101 shares at March 31, 1997; 118,551 shares at December 31, 1996 (1,277) (1,441) ----------- ----------- Total Stockholders' Equity 95,922 88,335 ----------- ----------- $ 262,823 $ 164,707 ----------- ----------- ----------- -----------
Page 2 IMCO RECYCLING INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (in thousands, except per share data) FOR THE THREE MONTHS ENDED MARCH 31, -------------------- 1997 1996 ------- ------- Revenues $82,528 $50,718 Cost of sales 72,376 42,828 ------- ------- Gross profit 10,152 7,890 Selling, general and administrative expense 4,578 2,981 Interest expense 1,716 610 Interest income (70) (144) Equity in (earnings) loss of affiliates (30) (307) ------- ------- Income before provision for income taxes, minority interest and extraordinary item 3,958 4,750 Provision for income taxes 1,583 1,787 ------- ------- Income before minority interest and extraordinary item 2,375 2,963 Minority interest, net of provision for income taxes 95 - ------- ------- Income before extraordinary item 2,280 2,963 Extraordinary item 1,318 - ------- ------- Net earnings $ 962 $ 2,963 ------- ------- ------- ------- Net earnings per common share: Income before extraordinary item $ 0.18 $ 0.24 Extraordinary item (0.10) - ------- ------- Net earnings $ 0.08 $ 0.24 ------- ------- ------- ------- Dividends declared per common share $ 0.05 $ 0.05 ------- ------- ------- ------- Weighted average common and common equivalent shares outstanding 12,645 12,393 ------- ------- ------- ------- Page 3 IMCO RECYCLING INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) FOR THE THREE MONTHS ENDED MARCH 31, -------------------- 1997 1996 -------- ------- OPERATING ACTIVITIES Income before extraordinary item $ 2,280 $ 2,963 Depreciation and amortization 3,837 2,776 Provision for deferred income taxes 75 47 Equity in earnings of affiliates (30) (307) Minority interest 158 - Other noncash charges 64 249 Changes in operating assets and liabilities (excluding investing and financing transactions): Accounts receivable (1,654) (1,902) Inventories 1,337 (145) Other current assets (658) (186) Accounts payable and accrued liabilities 3,543 319 Accrued landfill closure costs 114 (164) -------- ------- NET CASH FROM OPERATING ACTIVITIES 9,066 3,650 INVESTING ACTIVITIES Payments for property and equipment (12,008) (2,256) Acquisition of IMSAMET, Inc., net of cash acquired (58,251) - Other (1,591) (80) -------- ------- NET CASH USED BY INVESTING ACTIVITIES (71,850) (2,336) FINANCING ACTIVITIES Net repayments of short-term borrowings (4,087) - Proceeds from issuance of long-term debt 112,097 - Repayments of long-term debt (48,337) (532) Debt issuance costs (2,147) - Dividends paid (627) (589) Other 1,626 127 -------- ------- NET CASH FROM (USED BY) FINANCING ACTIVITIES 58,525 (994) -------- ------- Net (decrease) increase in cash and cash equivalents (4,259) 320 Cash and cash equivalents at January 1 5,070 8,678 -------- ------- Cash and cash equivalents at March 31 $ 811 $ 8,998 -------- ------- -------- ------- SUPPLEMENTARY INFORMATION Cash payments for interest $ 2,193 $ 123 Cash payments for income taxes $ 200 $ 1,053 Page 4 IMCO RECYCLING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 1997 NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. The accompanying financial statements include the accounts of IMCO Recycling Inc. and all of its subsidiaries (the "Company"). All significant intercompany accounts and transactions have been eliminated. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1996. Certain reclassifications have been made to prior year statements to conform to the current year presentation. NOTE B - INVENTORIES The components of inventories are: (In thousands) MARCH 31, DECEMBER 31, 1997 1996 ------- ------- Finished goods $11,231 $ 8,642 Raw materials 3,751 2,974 Supplies 309 231 ------- ------- $15,291 $11,847 ------- ------- ------- ------- NOTE C - ACQUISITIONS In January 1997, the Company acquired all of the outstanding common stock of IMSAMET, Inc. ("IMSAMET"), a wholly owned subsidiary of EnviroSource Inc., for approximately $58,000,000 in cash, not including acquisition costs. IMSAMET operates and owns or has a majority interest in three aluminum recycling plants located in Post Falls, Idaho; Wendover, Utah and Goodyear, Arizona. In addition, IMSAMET has a 50% interest in a joint venture facility, adjacent to the Utah plant, which uses a proprietary process to reclaim materials from salt cake. The acquisition was accounted for using the purchase method of accounting. Accordingly, the purchase price was allocated to the net assets acquired based on their estimated fair values. The estimated excess of the purchase price over the fair value of net assets acquired is $39,000,000 and is being amortized over forty years on a straight-line basis. Page 5 The preliminary allocation of the purchase price of IMSAMET is as follows (in thousands): Working capital $ 4,674 Property and equipment 22,857 Goodwill 38,971 Other noncurrent assets 914 Noncurrent liabilities (7,176) ------- Total $60,240 ------- ------- The following table sets forth pro forma results of operations of the combined entities of the Company and IMSAMET for the quarter ended March 31, 1996, assuming the acquisition had been consummated on January 1, 1996. The pro forma combined information is presented for comparative purposes only and does not purport to represent the actual results which would have occurred had the acquisition been consummated on such date or of future results of the combined companies under the ownership and management of the Company (in thousands, except per share amounts): Revenues $59,731 Gross profit $ 9,313 Income before extraordinary item $ 2,518 Income per common share before extraordinary item $ 0.20 The table above reflects certain pro forma adjustments including additional depreciation expense as a result of the increased basis of the fixed assets acquired, additional amortization expense related to the goodwill recorded, a reduction in general and administrative expenses for the elimination of duplicate corporate offices, additional interest expense related to debt incurred on the acquisition (see NOTE D) and adjustments for related income taxes and minority interest. Also in January 1997, the Company acquired all of the outstanding common stock of Rock Creek Aluminum, Inc. ("Rock Creek") in exchange for 618,137 shares of the Company's common stock. The acquisition was accounted for using the purchase method of accounting. The estimated excess of the purchase price over the fair value of net assets acquired is $6,000,000 and is being amortized over forty years on a straight-line basis. Rock Creek owns and operates three Ohio facilities located in Cleveland, Elyria and Rock Creek. These facilities utilize milling, blending, testing and packaging equipment to process various types of raw materials, including aluminum dross and scrap, various minerals and slags. The historical results of operations of Rock Creek were not material compared to the Company's results of operations. NOTE D - LONG-TERM DEBT AND EXTRAORDINARY LOSS ON EARLY DEBT RETIREMENT In connection with the January 1997 acquisitions, the Company entered into a new $125,000,000 syndicated credit agreement ("Credit Agreement") with certain lenders, including Merrill Lynch & Co. and an affiliate (syndication agent) and Texas Commerce Bank National Association ("TCB"--administrative agent). The Company received $110,000,000 at the closing and used Page 6 approximately $61,000,000 in connection with the acquisitions. The remaining $49,000,000 of the proceeds was used to retire substantially all of its outstanding debt as of December 31, 1996. The early debt retirement generated an extraordinary loss of $1,318,000 (net of income taxes) in the first quarter of 1997. The Credit Agreement provides for $125,000,000 of senior secured credit facilities consisting of a $105,000,000 term loan and a $20,000,000 revolving credit agreement. Of the $20,000,000 revolving credit agreement, $4,000,000 is to be used, as needed, by the Company for standby letters of credit. As of March 31, 1997, the Company had $6,100,000 in total borrowings outstanding under the revolving credit facility. At March 31, 1997, the Company had $1,800,000 of standby letters of credit outstanding. The credit facilities bear a fluctuating interest rate based on LIBOR or the prime rate, plus a credit margin which is based on the Company's rate of total debt to earnings before interest, taxes, depreciation and amortization. The term loan has a final maturity of seven years, and the revolving credit agreement has a final maturity of five years. The new Credit Agreement imposes certain restrictions, including: (i) certain prohibitions on additional indebtedness, subject to certain exceptions, (ii) maintenance of certain financial ratios, and (iii) limitations on investments, dividends, and capital expenditures. The annual limitations on cash dividends are as follows: $3,500,000 for 1997 and 1998, $4,000,000 for 1999 and 2000 and $6,000,000 after 2000. The Credit Agreement is secured by substantially all of the Company's assets, a first lien mortgage on seven plant facilities and a pledge of the capital stock of substantially all of the Company's subsidiaries. Page 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company is in the resource recovery industry and provides recycling services for primary manufacturers of metal. The Company's principal activity involves the recycling of aluminum and aluminum scrap and by-products. The Company also recycles magnesium and zinc. The Company's financial performance has historically been largely determined by the volume of metal it processes. The largest portion of the Company's business is the processing of customer-owned material for a fee (a service called "tolling"). In addition to tolling, the Company also purchases material for processing and resale ("buy/sell business"). Tolling operations do not expose the Company to the risk of commodity price fluctuations and impose relatively low working capital demands since the Company does not own the material being processed. Both the Company's tolling fees per pound recycled and the selling price of metal it owns, recycles and sells for its own account are included in revenues. Variations in the mix between these two types of transactions can cause revenue amounts to change significantly from period to period while generally not significantly affecting total gross profit, because both types of transactions have historically had approximately the same level of profitability. The following table shows the total pounds of metal melted, the percentage of total pounds melted represented by tolled metal, total revenues and total gross profit. In thousands, except percentages: THREE MONTHS ENDED MARCH 31, -------------------- 1997 1996 -------- -------- Pounds of metal melted 432,434 366,965 Percentage of pounds tolled 81% 88% Revenues $ 82,528 $ 50,718 Gross profit $ 10,152 $ 7,890 ACQUISITIONS In January 1997, the Company completed the acquisitions of IMSAMET and Rock Creek. See NOTE C and NOTE D of "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS" in PART I. IMSAMET owns or has a majority interest in three aluminum recycling plants located in Post Falls, Idaho; Wendover, Utah and Goodyear, Arizona; which together have an annual melting capacity of approximately 440 million pounds. In addition, IMSAMET owns a 50% interest in a joint venture facility, adjacent to the Utah plant, which uses a proprietary process to reclaim materials from salt cake. Rock Creek operates three facilities in Cleveland, Elyria and Rock Creek, Ohio. These facilities manufacture a variety of aluminum products and manufacture products that are eventually used as metallurgical additions in the steel making process such as slag conditioners, deoxidizers, steel desulfurizers and hot topping compounds. Rock Creek utilizes milling, shredding, Page 8 blending, testing and packaging equipment to process various types of raw materials, including aluminum dross and scrap, various minerals and slags. In addition, Rock Creek manufactures a wide range of proprietary briquetted products and offers toll briquetting services. Rock Creek's facilities have a total annual capacity of approximately 150 million pounds. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996 PRODUCTION: The Company melted 18% more metal for the first quarter of 1997 than it did in the first quarter of 1996. Aluminum processing at the Company's newest plant in Coldwater, Michigan (which began production in March 1997) and the IMSAMET facilities (which were acquired in January 1997) were the primary reasons for the increased production. With the exception of the Bedford, Indiana plant, the Company's other aluminum plants processed approximately the same amount of material in both quarters. The Bedford facility's processing volume declined due to a lack of UBC's to process at a profitable level. However, in March, the Company installed and began operating a new furnace in Bedford and is currently in the process of modifying this plant's existing furnaces. Both of these changes will enable the Bedford facility to process a wider variety of aluminum scrap such as dross, lessen its dependence on UBC processing and participate in the auto component market. REVENUES: Revenues increased 63% in the first quarter of 1997 compared to the first quarter of 1996; the acquisitions of IMSAMET and Rock Creek and the new Coldwater, Michigan plant accounted for 76% of this increase in revenues. The remainder of the increase was primarily due to higher buy/sell business for the aluminum plants (exclusive of those plants acquired or built in the first quarter of 1997). As discussed above, increases in buy/sell business will generally result in a much higher increase in revenue than would an increase in tolling. The Company's buy/sell business revenues include the cost of the metal, the processing cost, and the Company's profit margin in the selling price; whereas, revenues associated with tolling only include the processing cost and the Company's profit margin. In 1997, the Company expects to have additional metal for sale due to operation of its salt cake processing facilities in Morgantown, Kentucky (built in 1996) and Goodyear, Arizona (acquired in 1997). The salt cake processing facilities process much of the Company's salt cake generated from its aluminum recycling plants and recover additional amounts of aluminum for resale. Tolling activity represented 81% of the Company's pounds melted for the first quarter 1997 as compared to 88% for the first quarter of 1996. Prior to 1997, materials processed for Rock Creek at the Company's Uhrichsville, Ohio facility were classified as tolling business, but after the Company acquired Rock Creek in January 1997, these pounds are now classified as buy/sell business. GROSS PROFIT: Gross profits of $10,152,000 and $7,890,000 for the first quarters of 1997 and 1996, respectively, increased $2,262,000 or 29% in the first quarter of 1997. The January 1997 acquisitions of IMSAMET and Rock Creek accounted for 88% of the increase. In addition, the elimination of the operating loss at the Company's Corona, California plant, which was permanently closed in 1996, and higher aluminum prices, which improved the Company's buy/sell business (particularly at the Morgantown salt cake processing facility), also contributed to the higher gross profit in 1997. Page 9 SG&A EXPENSES: Selling, general and administrative expenses of $4,578,000 and $2,981,000 for the first quarters of 1997 and 1996, respectively, show an increase of $1,597,000 due primarily to employee severance accruals and higher employee, professional, consulting and selling costs associated with the 1997 acquisitions. INTEREST: Net interest was an expense of $1,646,000 for the first quarter of 1997 which was 250% higher than 1996 first quarter net interest expense of $466,000. The increase in net interest expense was primarily due to a 132% increase in the amount of total debt outstanding in the first quarter of 1997 as compared to the first quarter of 1996. See "LIQUIDITY AND CAPITAL RESOURCES" below. EXTRAORDINARY ITEM: In connection with the January 1997 acquisitions, the Company entered into a new Credit Agreement. A portion of the proceeds were used to retire substantially all of the Company's outstanding debt as of December 31, 1996. The early debt retirement generated an extraordinary loss of $1,318,000 (net of income taxes of approximately $850,000) in the first quarter of 1997. NET INCOME: Income before the provision for income taxes, minority interest and the extraordinary item was $3,958,000 for the first quarter of 1997 compared to $4,750,000, for the first quarter of 1996, as the increase in gross profit was offset by the increases in selling, general, administrative expense and interest expense. The Company's effective income tax rate was 40% for the first quarter of 1997 compared to 38% for the first quarter of 1996. Net income decreased to $962,000 for the first quarter of 1997 compared to $2,963,000 for the first quarter of 1996, due principally to the extraordinary item in the first quarter of 1997. LIQUIDITY AND CAPITAL RESOURCES Operations provided cash of $9,066,000 and $3,650,000 during the first quarter of 1997 and 1996, respectively. Changes in the components of operating assets and liabilities (excluding investing and financing transactions) accounted for the majority of the difference. In the first quarter of 1997, changes in operating assets and liabilities generated $2,682,000 of cash, while in the first quarter of 1996, changes in operating assets and liabilities used $2,078,000 of cash. Most of this net change in operating assets and liabilities was due to the increase in processing volumes during the first quarter of 1997 which caused accounts payable to rise. Income before the extraordinary item for the first quarter of 1997, as discussed above, decreased to $2,280,000 compared to $2,963,000 for the first quarter of 1996, thereby decreasing net cash provided from operating activities. However, offsetting this decline was an increase in noncash charges of $1,339,000, most of which related to an increase in depreciation and amortization. Net cash used by investing activities was $71,850,000 and $2,336,000 for the first quarters of 1997 and 1996, respectively. The increase was primarily due to the first quarter 1997 acquisition of IMSAMET. In addition, the Company's total cash payments for property, plant and equipment in the first quarter of 1997 were $12,008,000, compared to $2,256,000 spent in the first quarter of 1996. Capital expenditures for 1997 are expected to be approximately $34,000,000. The major projects include the construction of new aluminum recycling facilities in Coldwater, Michigan and Swansea, Wales, the relocation of the zinc recycling facility, the purchase of various environmental equipment and the expansion of an existing Company-owned landfill. Page 10 Net cash provided from financing activities was $58,525,000 in the first quarter of 1997 compared to $994,000 net cash used by from financing activities during the first quarter of 1996. In connection with the January 1997 acquisitions, the Company entered into a new $125,000,000 syndicated credit agreement ("Credit Agreement") with certain lenders, including Merrill Lynch & Co. and an affiliate (syndication agent) and TCB (administrative agent). The Company received $110,000,000 at the closing and used approximately $61,000,000 for acquisitions. The remaining $49,000,000 of the proceeds was used to retire substantially all of its outstanding debt as of December 31, 1996. The Credit Agreement provides for $125,000,000 of senior secured credit facilities consisting of a $105,000,000 term loan and a $20,000,000 revolving credit agreement. Of the $20,000,000 revolving credit agreement, $4,000,000 is to be used, as needed, by the Company for standby letters of credit. As of March 31, 1997, the Company had $6,100,000 in total borrowings outstanding under the revolving credit facility. In March 1997, the Company had $1,800,000 of standby letters of credit outstanding. The credit facilities bear a fluctuating interest rate based on LIBOR or the prime rate, plus a credit margin which is based on the Company's rate of total debt to earnings before interest, taxes, depreciation and amortization. In order to reduce the floating interest rate exposure on the term loan, the Company entered into an interest rate cap transaction ("Rate Cap Transaction") agreement with TCB on April 7, 1997. Under the terms of the Rate Cap Transaction agreement, the floating interest rate for 40% of the term loan borrowings under the new Credit Agreement is capped at 8%. The costs associated with this Rate Cap Transaction will be amortized as interest expense over the four year term of the agreement. The term loan has a final maturity of seven years, and the revolving credit agreement has a final maturity of five years. The new Credit Agreement imposes certain restrictions, including: (i) certain prohibitions on additional indebtedness, subject to certain exceptions, (ii) maintenance of certain financial ratios, and (iii) limitations on investments, dividends, and capital expenditures. The annual limitations on cash dividends are as follows: $3,500,000 for 1997 and 1998, $4,000,000 for 1999 and 2000 and $6,000,000 after 2000. The Credit Agreement is secured by substantially all of the Company's assets, a first lien mortgage on seven plant facilities and a pledge of the capital stock of substantially all of the Company's subsidiaries. Financing activities also included a cash payment of $627,000 in dividends during the first quarter of 1997. On May 8, 1996, the Company borrowed the net proceeds of approximately $5,569,000 from the issuance of $5,740,000 principal amount of Solid Waste Disposal Facilities Revenue Bonds by the City of Morgantown, Kentucky. These bonds were issued in connection with the Company's construction of its salt cake processing plant in Morgantown, which was completed in January 1996. In April 1997, the Company received additional net proceeds of $4,450,000 from the issuance of $4,600,000 of Solid Waste Disposal Facilities Revenue Bonds (Series 1997) by the City of Morgantown, Kentucky. These bonds were issued in connection with the Company's expansion of its landfill in Morgantown and additional construction costs of its salt cake processing facility in Morgantown. The 1997 bonds bear a 7.45% interest rate and mature on May 1, 2022. In an effort to minimize the effect of volatility of the price of aluminum on the Company's operations, during the first quarter of 1997, the Company entered into forward sale contracts and a series of put and call option contracts with a metals broker. These contracts cover the future selling Page 11 prices on a portion of the aluminum to be generated by the Company's salt cake processing facility, and are settled in the month of the corresponding production. The contracts did not have a significant impact on the Company's results of operations for the quarter ended March 31, 1997. At March 31, 1997, the relationship of current assets to current liabilities, or current ratio, was 1.75 to 1, compared to 2.58 to 1 at December 31, 1996. Working capital will fluctuate as the mix of buy/sell business and tolling business changes relative to the total business, for the reasons discussed above. On May 8, 1997, Harvard Industries, Inc. ("Harvard") announced that it had filed for protection under Chapter 11 of the U.S. Bankruptcy Code. The Company sells aluminum to Doehler-Jarvis, Inc. ("Doehler-Jarvis"), a subsidiary of Harvard. As of May 8, 1997, the Company had $3,915,000 of outstanding unsecured receivables from Doehler-Jarvis ($4,750,000 at March 31, 1997). Harvard has indicated that it intends to pay 100% of all pre-petition claims by vendors. While the Company currently believes that its exposure regarding Harvard's bankruptcy will not be material, no assurance can be given as to the amount and timing of the Company's ultimate recovery concerning its claims. The Company's revenues from Doehler-Jarvis totaled $8,838,000 and $17,490,000 for the quarter ended March 31, 1997 and the year ended December 31, 1996, respectively. The majority of these revenues were from buy/sell business, and, in the first quarter of 1997, represented approximately 3% the Company's processing volumes. Therefore, the Company believes that the loss of this customer would not have a material effect on the Company's financial position or results of operations. Both the acquisitions and the indebtedness incurred to finance these acquisitions and refinance existing Company debt in January 1997 have resulted in higher working capital requirements and increased debt service requirements for the Company. In addition, certain covenants contained in the Company's Credit Agreement restrict the aggregate amounts of expenditures for acquisitions and investments, as well as future capital expenditures in any fiscal year, that the Company may incur which may have the result of restricting the Company's alternatives for financing and implementing future growth opportunities. SEE "PART II, ITEM 2--CHANGES IN SECURITIES." Nonetheless, the Company believes that its cash on hand, the availability of funds under its credit facilities and its anticipated internally generated funds will be sufficient to fund its current needs and meet its obligations for the foreseeable future. NEW ACCOUNTING PRONOUNCEMENT In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. The impact of SFAS No. 128 on the calculation of earnings per share for the quarters ended March 31, 1997 and 1996 will not be material. Page 12 CAUTIONARY STATEMENT FOR PURPOSES OF FORWARD-LOOKING STATEMENTS Certain information contained herein in ITEM 2.--"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" may be deemed to be forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995 and are subject to the "Safe Harbor" provision in that enacted legislation. These statements are based on current expectations and involve a number of risks and uncertainties. Actual results could differ materially from those described in the forward-looking statements as a result of various factors including, but not limited to the following: expectations of operating levels at the Company's facilities, expectations of the future mix of buy/sell business as opposed to tolling business, retention and financial condition of major customers, effects of future costs, the price of aluminum on world markets, currency exchange fluctuations and future levels and timing of capital expenditures. Such statements are qualified by the following: Estimates of future operating rates at the Company's plants are based on current expectations by management of the Company of future levels of volumes and prices for the Company's services or metal, and are subject to fluctuations in customer demand for the Company's services and prevailing conditions in the metal markets, as well as certain components of the Company's cost of operations, including energy costs. Many of the factors affecting revenues and costs are outside of the control of the Company, including severe weather conditions such as those that prevailed in the first quarter of 1996, currency exchange rates and general economic and financial market conditions. The future mix of buy/sell vs. tolling business is dependent on customers' needs and overall demand, world and U.S. market conditions then prevailing in the respective metal markets, and the operating levels at the Company's various facilities at the relevant time. REVIEW BY INDEPENDENT ACCOUNTANTS The Company's independent accountants, Ernst & Young LLP, have reviewed the Company's consolidated financial statements at March 31, 1997, and for the three months then ended prior to filing, and their report is included herein. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES The credit facilities established pursuant to the Credit Agreement discussed under PART I, ITEM 2.--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "LIQUIDITY AND CAPITAL RESOURCES" of this Form 10-Q contain covenants, representations and warranties by the Company and its guarantor subsidiaries, including (i) limitations on the ability to dispose of assets of the Company and subsidiaries or equity interest of subsidiaries, (ii) limitations on acquisitions of unaffiliated businesses other than certain scheduled specified transactions and additional unscheduled acquisitions not to exceed $25,000,000 in the aggregate, (iii) restrictions on liens and indebtedness permitted to be incurred or assumed by the Company or its Page 13 subsidiaries, other than as otherwise scheduled or permitted under the Credit Agreement, and (iv) restrictions on investments by the Company or its subsidiaries, except as permitted under the Credit Agreement. The Credit Agreement also contains limitations on the Company's ability to declare and pay dividends in cash or property; however, if there is no default under the Credit Agreement, then the Company is permitted to make cash dividend payments on its capital stock in an aggregate amount of up to $3,500,000 in 1997 and in 1998, $4,000,000 in 1999 and in 2000, and $6,000,000 in each fiscal year thereafter. No assurances can be given as to any future levels of dividends, if any, which may be declared or paid; decisions concerning the declaration and payment of dividends are made by the Company's Board of Directors and will be based upon the Company's level of earnings, cash flow, financial requirements, and economic and business conditions then prevailing, as well as other relevant factors. The Credit Agreement further contains provisions restricting the amounts of capital expenditures that the Company and its subsidiaries may make in any fiscal year ($38,000,000 in 1997 and $20,000,000 for each fiscal year thereafter). Finally, the Credit Agreement requires the Company to comply with certain financial covenants and ratios, including Leverage Ratio requirements, an interest coverage ratio, and a covenant requiring that certain minimum net worth amounts be maintained. See NOTE D--"LONG-TERM DEBT AND EXTRAORDINARY LOSS ON EARLY DEBT RETIREMENT" in PART I of this Form 10-Q. The Company paid $626,643 in dividends during the first quarter of 1997. In January 1997, the Company acquired all of the outstanding common stock of Rock Creek Aluminum, Inc. in exchange for 618,137 shares of the Company's common stock. The market value of the shares of the Company's common stock issued in this transaction was approximately $9,500,000. These shares were issued directly to the former shareholders of Rock Creek Aluminum in reliance upon an exemption from the registration requirements of the Securities Act of 1933, as amended ("Securities Act"), promulgated under Section 4(2) of the Securities Act. During the quarter ended March 31, 1997, the Company made no other sales of its equity securities that were not registered under the Securities Act. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K The following exhibits are included herein: 10.1 Registration Rights Agreement dated as of January 21, 1997 among IMCO Recycling Inc. and the former shareholders of Rock Creek Aluminum, Inc. 15.1 Acknowledgment letter regarding unaudited financial information from Ernst & Young LLP. 27 Financial Data Schedule Page 14 (b) Reports on Form 8-K The Company filed a Current Report on Form 8-K dated as of January 21, 1997 under "Item 2--Acquisition or Disposition of Assets" and "Item 5--Other Events" reporting the purchase of the stock of IMSAMET, Inc. and the acquisition of Rock Creek Aluminum. Such current Report on Form 8-K was amended by the Company's for 8-K/A-1 dated April 4, 1997 and Form 8-K/A-2 dated April 4, 1997. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IMCO Recycling Inc. Date: May 12, 1997 By: /s/ ROBERT R. HOLIAN ----------------------------------- Robert R. Holian Vice President and Controller (Principal Accounting Officer) Page 15 INDEPENDENT ACCOUNTANTS' REVIEW REPORT Stockholders and Board of Directors IMCO Recycling Inc. We have reviewed the accompanying consolidated balance sheet of IMCO Recycling Inc. as of March 31, 1997, and the related consolidated statements of earnings and cash flows for the three-month periods ended March 31, 1997 and 1996. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of IMCO Recycling Inc. as of December 31, 1996, and the related consolidated statements of earnings, stockholders' equity, and cash flows for the year ended December 31, 1996, (not presented herein), and in our report dated January 30, 1997, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1996, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Dallas, Texas May 12, 1997 EX-10.1 2 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT ("AGREEMENT") is made and entered into as of January 21, 1997, by and between IMCO Recycling Inc., a Delaware corporation (the "COMPANY"), and the Purchasers (as defined below). RECITALS WHEREAS, the Company and the Purchasers have entered into a Stock Purchase Agreement dated January 21, 1997 (the "PURCHASE AGREEMENT"), pursuant to which the Company has acquired all of the issued and outstanding capital stock of Rock Creek Aluminum, Inc., an Ohio corporation ("ROCK CREEK"); and WHEREAS, pursuant to the Purchase Agreement, each of the Purchasers has acquired shares (collectively, the "SHARES") of the Company's common stock, $.10 par value ("COMMON STOCK"); and WHEREAS, the Company wishes to grant each of the Purchasers certain registration rights in respect of that portion of the Shares held thereby. NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein and in the Purchase Agreement, the parties hereby agree as follows: 1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the meanings set forth below: "COMMISSION" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "PURCHASERS" shall mean the owners of Common Stock identified on the signature page hereof, each of whom is referred to individually herein as a "PURCHASER" and a transferee of Registrable Securities from a Purchaser, provided such transfer complies with Section 3.2 of this Agreement. "REGISTRABLE SECURITIES" shall mean (i) the Shares and any and all shares of Common Stock issued or issuable at any time or from time to time in respect of which the Company has previously or may in the future grant in writing registration rights (collectively, the "REGISTRABLE COMMON"); and (ii) any Common Stock issued or issuable at any time or from time to time in respect of the Shares or the Registrable Common upon a stock split, stock dividend, recapitalization or other similar event involving the Company. The terms "REGISTER," "REGISTERED", and "REGISTRATION" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering by the Commission of the effectiveness of such registration statement. "REGISTRATION EXPENSES" shall mean all expenses, other than Selling Expenses (as defined below), incurred by the Company in complying with Section 2.1 hereof, including, without limitation, all registration, qualification and filing fees, exchange listing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, blue sky fees and expenses and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "SELLING EXPENSES" shall mean only the underwriting discounts, selling commissions and stock transfer taxes applicable to the securities registered by a Purchaser and all fees and disbursements of counsel for such Purchaser. "UNDERWRITTEN PUBLIC OFFERING" shall mean a public offering in which the Common Stock is offered and sold on a firm commitment basis through one or more underwriters, all pursuant to an underwriting agreement between the Company and such underwriters. 2. REGISTRATION RIGHTS. 2.1 COMPANY REGISTRATION. (a) NOTICE OF REGISTRATION. Subject to the terms hereof, if at any time or from time to time prior to the expiration of two years from the date of this Agreement (except as otherwise provided in Section 3.2), the Company shall determine to register any of its Common Stock, for its own account relating to an Underwritten Public Offering, the Company shall: 2 (i) promptly, but in any event at least 30 days before the Company files a registration statement pursuant to an Underwritten Public Offering, give to each Purchaser written notice thereof; and (ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in the underwriting involved therein, such Registrable Securities as each Purchaser may request in a writing delivered to the Company within 20 days after each Purchaser's receipt of the Company's written notice delivered pursuant to Section 2.1(a)(i) above. (b) UNDERWRITING. The right of each Purchaser to registration pursuant to Section 2.1 shall be conditioned upon such Purchaser's participation in such underwriting, and the inclusion of Registrable Securities in the underwriting shall be limited to the extent provided herein. Each Purchaser and all other stockholders proposing to distribute their securities through such underwriting shall (together with the Company and the other holders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company. Subject only to the provisions of Section 2.1(c) below, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the managing underwriter may limit some or all of the Registrable Securities that may be included in the registration and underwriting as follows: the number of Registrable Securities that may be included in the registration and underwriting by each Purchaser shall be determined by multiplying the number of shares of Registrable Securities of all selling shareholders of the Company which the managing underwriter is willing to include in such registration and underwriting, times a fraction, the numerator of which is the number of Registrable Securities requested to be included in such registration and underwriting by each Purchaser, and the denominator of which is the total number of Registrable Securities which all selling shareholders of the Company have requested to have included in such registration and underwriting. To facilitate the allocation of shares in accordance with the above provisions, the Company may round the number of shares allocable to any such person to the nearest 100 shares. If any Purchaser disapproves of the terms of any such underwriting, it may elect to withdraw therefrom by written notice to the Company and the managing underwriter, delivered not less than seven days before the effective date. 3 (c) SUBORDINATION OF REGISTRATION RIGHTS. Notwithstanding any other provision of this Section 2.1 to the contrary, the registration rights granted pursuant hereto are expressly subordinate in all respects to the registration rights previously granted by the Company to each of Merrill Lynch Interfunding Inc., a Delaware corporation, Don V. Ingram, a resident of Dallas County, Texas, and PTX Partners, a Texas limited partnership (collectively, the "EXISTING HOLDERS"), pursuant to that certain Amended and Restated Registration Agreement, dated September 30, 1988 (the "1988 AGREEMENT"). In the event that the managing underwriter of any underwriting shall inform the Company of its intention to limit the number of Registrable Securities to be included in any registration and underwriting pursuant to Section 2.1(b) above, all Registrable Securities held by the Existing Holders who have notified the Company of their intent to include their Registrable Securities in such registration and underwriting pursuant to Section 2.1(a)(ii) above, shall be included in such registration and underwriting (subject to the terms of the 1988 Agreement), before the Purchasers shall be permitted to include any of their Shares in such registration and underwriting. In the event that additional Registrable Securities are available for inclusion in such registration and underwriting after the inclusion of the Existing Holders' Registrable Securities, then the number of Registrable Securities to be included in such registration and underwriting by the Purchasers shall be determined by multiplying the number of shares of Registrable Securities remaining after the inclusion of the Existing Holders' Registrable Securities which the managing underwriter is willing to include in such registration and underwriting, times a fraction, the numerator of which is the number of Registrable Securities requested to be included in such registration and underwriting by each Purchaser, and the denominator of which is the total number of Registrable Securities which all Purchasers have requested to have included in such registration and underwriting. 4 (d) RIGHT TO TERMINATE REGISTRATION. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.1 prior to the effectiveness of such registration whether or not any Purchaser has elected to include its Registrable Securities in such registration, provided, however, that in such event, the Company shall promptly pay all reasonable out-of-pocket costs and expenses of the Purchasers (including, without limitation, all reasonable fees and disbursements of one law firm chosen to represent the Purchasers) incurred in connection with such terminated registration. (e) NO OTHER REGISTRATION RIGHTS. Except (i) as set forth in the first sentence of Section 2.1(c) hereof, (ii) the rights granted pursuant to the Registration Rights Agreement, dated as of October 1, 1995, between the Company and the former stockholders of Alumar Associates, Inc., (iii) the rights granted pursuant to the Registration Rights Agreement, dated as of September 20, 1994, between the Company and the former stockholders of Phoenix Smelting Corporation, and (iv) except for rights granted pursuant to this Agreement, the Company has not previously entered into or become a party to, nor is it bound by any agreement with respect to its capital stock which grants registration rights to any person or entity. 2.2 EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection with all registrations pursuant to Section 2.1 shall be borne by the Company. Unless otherwise stated herein, all Selling Expenses relating to securities registered on behalf of any Purchaser shall be borne by such Purchaser. 2.3 COMPANY'S OBLIGATIONS IN REGISTRATION. In the case of each registration, qualification or compliance effected by the Company pursuant to this Agreement the Company will keep each Purchaser advised in writing as to the initiation of each registration, qualification and compliance and as to the completion thereof. At its expense, the Company will: (a) Prepare and file with the Commission a registration statement with respect to such securities and use its commercially reasonable best efforts to cause such registration statement to become and remain effective with respect to a registration statement filed regarding an Underwritten Public Offering, for the lesser of (i) 90 days or (ii) until the distribution described in such registration statement has been completed; and 5 (b) Furnish to each underwriter such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as such underwriter may reasonably request in order to facilitate the public sale of the shares by such underwriter, and promptly furnish to each underwriter and Purchaser notice of any stop-order or similar notice issued by the Commission or any state agency charged with the regulation of securities, and notice of any NASDAQ or securities exchange listing; and (c) Furnish prospectuses, including preliminary prospectuses and amendments and supplements thereto, to the Purchasers electing to sell any of their Registrable Securities pursuant to Section 2.1 hereof, all in accordance with applicable securities laws; and (d) Notify the Purchasers in the event that the Company becomes aware that a prospectus relating to the Registrable Securities contains a materially untrue statement or omits to state a material fact; and (e) Apply to register or otherwise qualify the Registrable Securities offered by the Purchasers or any of them under all applicable blue sky laws of any state. 2.4 INDEMNIFICATION. (a) To the extent permitted by law, the Company will indemnify and hold harmless each Purchaser, each of its officers and directors and partners, and each person controlling each Purchaser within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification or compliance has been effected pursuant to this Agreement, against all expenses, claims, losses, damages or liabilities (or actions in respect thereof) to the extent to which such person or entity is subject, including any of the foregoing incurred in settlement of any litigation, commenced or threatened, to the extent such expenses, claims, losses, damages or liabilities (or proceedings in respect thereof) arise out of or are based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance, or arise out of or are based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by the Company of the Securities Act 6 or any rule or regulation promulgated under the Securities Act applicable to the Company in connection with any such registration, qualification or compliance, and the Company will reimburse each Purchaser, each of its officers and directors and partners, and each person controlling each Purchaser for any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, PROVIDED, HOWEVER, that the indemnity contained herein shall not apply to amounts paid in settlement of any claim, loss, damage, liability or expense if settlement is effected without the consent of the Company (which consent shall not unreasonably be withheld); PROVIDED, FURTHER, that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Company expressly for inclusion in such registration by such Purchaser or such controlling person specifically for use therein. Notwithstanding the foregoing, insofar as the foregoing indemnity relates to any such untrue statement (or alleged untrue statement) or omission (or alleged omission) made in the preliminary prospectus but eliminated or remedied in the amended prospectus on file with the Commission at the time the registration statement becomes effective or in the final prospectus filed with the Commission pursuant to the applicable rules of the Commission or in any supplement or addendum thereto, the indemnity agreement herein shall not inure to the benefit of any underwriter or (if there is no underwriter) any Purchaser if a copy of the final prospectus filed pursuant to such rules, together with all supplements and addenda thereto, was not furnished to the person or entity asserting the loss, liability, claim or damage at or prior to the time such furnishing is required by the Securities Act. (b) To the extent permitted by law, each Purchaser will, severally but not jointly, if securities held by such Purchaser are included in the securities as to which such registration, qualification or compliance is being effected pursuant to the terms hereof, indemnify and hold harmless the Company, each of its directors and officers, each person who controls the Company within the meaning of Section 15 of the Securities Act, and each other person selling the Company's securities covered by such registration statement, each of such person's officers and directors and each person controlling such persons within the meaning of Section 15 of the Securities Act, against all claims, losses, damages and liabilities (or actions in respect thereof) to the extent to which such person or entity is subject, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any 7 such registration statement, prospectus, offering circular or other document, or arising out of or based on 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, or any violation by such Purchaser of any rule or regulation promulgated under the Securities Act applicable to such Purchaser and relating to action or inaction required of such Purchaser in connection with any such registration, qualification or compliance, and will reimburse the Company, such other persons, such directors, officers, persons or control persons for any legal or other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with information furnished to the Company by such Purchaser expressly for inclusion in such registration; PROVIDED, HOWEVER, that the indemnity contained herein shall not apply to amounts paid in settlement of any claim, loss, damage, liability or expense if settlement is effected without the consent of the Purchaser (which consent shall not be unreasonably withheld); and PROVIDED, FURTHER, that the maximum liability of any Purchaser under this Section 2.4(b) shall be limited to the aggregate amount of all sales proceeds actually received by such Purchaser upon the sale of such Purchaser's Registrable Securities in connection with such registration. Notwithstanding the foregoing, insofar as the foregoing indemnity relates to any such untrue statement (or alleged untrue statement) or omission (or alleged omission) made in the preliminary prospectus but eliminated or remedied in the amended prospectus on file with the Commission at the time the registration statement becomes effective or in the final prospectus filed pursuant to applicable rules of the Commission or in any supplement or addendum thereto, the indemnity agreement herein shall not inure to the benefit of the Company, any underwriter or any other person if a copy of the final prospectus filed pursuant to such rules, together with all supplements and addenda thereto, was not furnished to the person or entity asserting the loss, liability, claim or damage at or prior to the time such furnishing is required by the Securities Act. (c) Each party entitled to indemnification under this Section 2.4 (the "INDEMNIFIED PARTY") shall give notice to the party required to provide indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party has actual knowledge of any action or proceeding commenced against, or written demand made on any such party in respect of which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of 8 any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement unless the failure to give such notice is materially prejudicial to an Indemnifying Party's ability to defend such action and provided further, that the Indemnifying Party shall not assume the defense for matters as to which there is a conflict of interest or as to which the Indemnifying Party is asserting separate or different defenses, which defenses are inconsistent with the defenses of the Indemnified Party. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. No Indemnified Party shall consent to entry of any judgment or enter into any settlement without the consent of each Indemnifying Party. (d) If the indemnification provided for in this Section 2.4 is unavailable to an Indemnified Party in respect of any losses, claims, damages or liabilities 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 or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and all stockholders offering securities in the offering (the "SELLING STOCKHOLDERS") on the other from the offering of the Company's securities, 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 on the one hand and the Selling Stockholders on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Selling Stockholders on the other shall be the net proceeds from the offering (before deducting expenses) received by the Company on the one hand and the Selling Stockholders on the other. The relative fault of the Company on the one hand and the Selling Stockholders on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of material fact or the 9 omission or alleged omission to state a material fact relates to information supplied by the Company or by the Selling Stockholders and the parties' relevant intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Selling Stockholders agree that it would not be just and equitable if contribution pursuant to this Section 2.4(d) were based solely upon the number of entities from whom contribution was requested or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 2.4(d). The amount paid or payable by an Indemnified Party as a result of the losses, claims, damages and liabilities referred to above in this Section 2.4(d) shall be deemed to include any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim, subject to the provisions of Section 2.4(c) hereof. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act). 2.5 CERTAIN INFORMATION. Each Purchaser agrees, with respect to any Registrable Securities included in any registration, to furnish to the Company such information regarding such Purchaser, the Registrable Securities and the distribution proposed by such Purchaser as the Company may reasonably request in writing and as shall be required in connection with any registration, qualification or compliance referred to in Section 2.1. 2.6 RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of the Restricted Securities (used herein as defined in Rule 144 under the Securities Act) to the public without registration, the Company agrees to: (a) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times during which the Company is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"); (b) File with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at all times during which the Company is subject to such reporting requirements); and 10 (c) So long as any Purchaser owns any Restricted Securities, to furnish to such Purchaser forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 and with regard to the Securities Act and the Exchange Act (at all times during which the Company is subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other non-confidential reports and documents of the Company and other non-confidential information in the possession of or reasonably obtainable by the Company as such Purchaser may reasonably request in availing itself of any rule or regulation of the Commission allowing Purchaser to sell any such securities without registration. 3. MISCELLANEOUS. 3.1 GOVERNING LAW. This Agreement shall be governed in all respects by the internal laws of the State of Delaware. 3.2 NO TRANSFER; TERMINATION. The registration rights contemplated herein are not transferable, except (i) by operation of law and by the laws of descent and distribution; (ii) to any member of a Purchaser's immediate family; or (iii) to any trust, partnership or other entity as to which all of the beneficiaries or partners consist of a Purchaser or members of such Purchaser's immediate family. The registration rights granted herein shall terminate, and the registration rights will not be exercisable by any Purchaser (or such Purchaser's lawful transferees pursuant to this Section 3.2) after said termination date, on the earlier of (i) the second anniversary date of this Agreement, or (ii) at such time as all shares of Registrable Securities held by such Purchaser may immediately be sold under Rule 144 (as amended from time to time) during any 90-day period. 3.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subject hereof. This Agreement, or any provision hereof, may be amended, waived, discharged or terminated only upon the written consent of the Company and those Purchasers who are the record holders of at least majority of the Shares issued pursuant to the Purchase Agreement. 11 3.4 NOTICES. All notices or other communications which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when delivered in person, transmitted by telecopier or mailed by registered or certified first class mail, postage prepaid, return receipt requested to the parties hereto at the address set forth below (as the same may be changed from time to time by notice similarly given) or the last known business or residence address of such other person as may be designated by either party hereto in writing. If to the Purchasers: At their respective addresses set forth next to each signature below If to the Company: IMCO Recycling Inc. 5215 North O'Connor Blvd., Suite 940 Irving, Texas 75039 Attention: Chief Executive Officer 3.5 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any party to this Agreement shall impair any such right, power or remedy of such party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party to this Agreement, shall be cumulative and not alternative. 3.6 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. 12 3.7 SEVERABILITY. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision. 13 3.8 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not considered in construing or interpreting this Agreement. IN WITNESS WHEREOF, the undersigned or each of their respective duly authorized officers or representatives have executed this agreement effective upon the date first set forth above. COMPANY: IMCO RECYCLING INC., a Delaware corporation /s/ FRANK H. ROMANELLI --------------------------------- Frank H. Romanelli, President and Chief Executive Officer PURCHASERS: /s/ JAMES T. SKOCH --------------------------------- James T. Skoch Address: 2341 Georgia Drive Westlake, Ohio 44145 /s/ WILLIAM L. WHITWORTH --------------------------------- William L. Whitworth Address: 12325 Stevens Creek Drive Alpharetta, Georgia 30202 14 /s/ WILLIAM T. BEARGIE --------------------------------- William T. Beargie Address: 3144 Dover Center Road Westlake, Ohio 44145 /s/ RANDY L. COLLINS --------------------------------- Randy L. Collins Address: 5730 Birchwood Drive Mentor, Ohio 44060 15 EX-15.1 3 ACKNOWLEDGEMENT LETTER FROM ERNST & YOUNG Stockholders and Board of Directors IMCO Recycling Inc. We are aware of the incorporation by reference in the Registration Statement (Form S-8 No. 33-26641) pertaining to the Nonqualified Stock Option Plan of IMCO Recycling Inc. and the related Prospectus, in the Registration Statement (Form S-8 No. 33-34745) pertaining to the IMCO Recycling Inc. Amended and Restated Stock Option Plan, and in the Registration Statement (Form S-8 No. 33-76780) pertaining to the IMCO Recycling Inc. 1992 Stock Option Plan, in the Registration Statement (Form S-8 No. 333-00075) pertaining to the IMCO Recycling Inc. Amended and Restated 1992 Stock Option Plan, and in the Registration Statement (Form S-8 No. 333-07091) pertaining to the IMCO Recycling Inc. Annual Incentive Plan of our report dated May 12, 1997 relating to the unaudited consolidated interim financial statements of IMCO Recycling Inc. which are included in its Form 10-Q for the quarter ended March 31, 1997. Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not a part of the registration statements prepared or certified by accountants within the meaning of Section 7 or 11 of the Securities Act of 1933. May 12, 1997 Dallas, Texas EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 811 0 49,428 226 15,291 69,150 165,414 (45,876) 262,823 39,621 110,181 0 0 1,264 94,658 262,823 82,528 82,528 72,376 72,376 4,578 40 1,716 3,958 1,583 2,280 0 (1,318) 0 962 .08 .08
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