-----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, QMXY6rh7JaG2GcTT9sY2x87rKUDzIwVpk7PhXpAvORAlAavUjKkRUa+SJtbHEhXM H99abXtmwJ60nLv+Tdn9WA== 0000950134-98-001807.txt : 19980310 0000950134-98-001807.hdr.sgml : 19980310 ACCESSION NUMBER: 0000950134-98-001807 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980309 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-K SEC ACT: SEC FILE NUMBER: 001-07170 FILM NUMBER: 98559677 BUSINESS ADDRESS: STREET 1: 5215 N OCONNOR BLVD STE 940 STREET 2: CENTRAL TOWERS AT WILLIAM SQUARE 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-K 1 FORM 10-K FOR YEAR ENDED DECEMBER 31, 1997 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 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) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Title of Each Class Exchange on Which Registered - ------------------- ---------------------------- Common Stock, $0.10 Par Value New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of March 2, 1998, the aggregate market value of voting and non-voting common equity held by nonaffiliates of the Registrant was $227,153,088. Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of March 2, 1998. Common Stock, $0.10 par value, 16,486,111 ----------------------------------------- DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive proxy statement relating to its 1998 Annual Meeting of Stockholders are incorporated by reference into Part III hereof. 2
ITEM PAGE - ---- ---- PART I - ------ Item 1. Business 3 Item 2. Properties 15 Item 3. Legal Proceedings 17 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 4A. Executive Officers of the Registrant 18 PART II - ------- Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 19 Item 6. Selected Financial Data 20 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 21 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 30 Item 8. Financial Statements and Supplementary Data 32 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 54 PART III - -------- Item 10. Directors and Executive Officers of the Registrant 54 Item 11. Executive Compensation 54 Item 12. Security Ownership of Certain Beneficial Owners and Management 54 Item 13. Certain Relationships and Related Transactions 54 PART IV - ------- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 55 Signatures 59
3 PART I This Annual Report on Form 10-K contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements should be read with the cautionary statements and important factors included in this Form 10-K. See Item 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CAUTIONARY STATEMENTS FOR PURPOSES OF FORWARD-LOOKING STATEMENTS." Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements which are other than statements of current or historical facts. Such forward-looking statements may be identified, without limitation, by the use of the words "anticipates," "estimates," "expects," "intends," "plans," "predicts," "projects," and similar expressions. The Company's expectations, beliefs and projections are expressed in good faith and are believed by the Company to have a reasonable basis, including without limitation, management's examination of historical operating trends, data contained in the Company's records and other data available from third parties, but there can be no assurance that management's expectations, beliefs or projections will result or be achieved or accomplished. ITEM 1. BUSINESS GENERAL IMCO Recycling Inc. (the "Company") is the largest aluminum recycler in the United States and believes that it is the largest aluminum recycler in the world. The Company's principal business is the processing of aluminum, which includes used aluminum beverage cans ("UBCs"), scrap, and dross (a by-product of aluminum production). The Company converts UBCs, scrap and dross into molten metal in furnaces at facilities owned and/or operated by the Company. While the aluminum is in molten form, the Company may blend in other metals to prepare a precise aluminum alloy mixture. The Company then delivers the processed aluminum to customers in molten form or ingots. The Company recovers magnesium in a similar process and also recycles zinc. Most of the Company's processing capacity is utilized to recycle customer-owned materials, for which the Company charges a fee (a service called "tolling"). During 1997, approximately 81% of the Company's total pounds of metal melted involved tolling of aluminum. The balance of the Company's business involves the purchase of scrap and dross for processing and recycling by the Company for subsequent resale ("buy/sell" business). Except where the context otherwise requires, the term "Company" as used herein refers to IMCO Recycling Inc. and its subsidiaries. The Company's business has benefited from the trend to include recycled materials in finished products, the growth in the production and recycling of UBCs and the increasing utilization of aluminum in automotive components. According to industry statistics, over the past 25 years, U.S. production of recycled aluminum has more than tripled to 3.3 million tonnes from 1.0 million tonnes. In addition, recycled aluminum in the U.S. currently represents 35% of the total domestic aluminum supply, compared to 19% in 1972. The Company's customers include some of the world's major aluminum producers and aluminum fabricators, diecasters, extruders, automotive companies and other processors. Most of the metal processed by the Company is used to produce products for the transportation, packaging and construction industries, which constitute the three largest aluminum markets. 3 4 Much of the Company's recent growth has been directed toward serving the transportation sector, which has been the largest and fastest-growing aluminum market in recent years due to the increasing use of aluminum in automotive components. The Company's principal customers include Aluminum Company of America ("Alcoa"), Alumax Inc., Commonwealth Aluminum Corporation ("Commonwealth"), Kaiser Aluminum Corporation ("Kaiser"), Wise Metals Company ("Wise Metals") and Ravenswood Aluminum Inc. ("Ravenswood"), all of whom use aluminum recycled by the Company to produce can sheet, building construction materials or automotive products. The Company was organized in 1985 as Frontier Texas Corporation under the corporate laws of Delaware. In September 1986, the Company acquired its aluminum and magnesium recycling business through its purchase of International Metal Co., an Oklahoma corporation. In September 1988, International Metal Co. merged with and into the Company, and the Company changed its name to IMCO Recycling Inc. STRATEGY The Company's strategy is to participate in sectors of the nonferrous metals recycling industry in which it believes it can provide customers with a technology-based, value-added service and in which it can develop significant market share. The Company believes that it has been successful in differentiating its aluminum recycling services from those of its competitors through (1) operational and design technologies that are designed to produce higher metal recovery yields, (2) the strategic location of facilities in close proximity to customers, providing for both stronger ties to its customers and greater convenience and accessibility for its customers, (3) the ability to deliver recycled aluminum in molten form for just-in-time delivery, thereby saving customers the expense of remelting aluminum ingots and (4) its environmental technologies and practices, including dedicated disposal facilities and a proprietary process used by the Company to recover aluminum from by-products of the recycling process. To achieve its objectives, the Company focuses on internal expansion as well as growth through strategic acquisitions, vertical integration of its aluminum operations and services, and operational efficiencies through technological innovation, customer service and environmental efficiencies. Expansion. Since 1993, the Company has increased its number of facilities and capacity through acquisitions of existing facilities, construction of new facilities and expansion of existing facilities. As of March 31, 1993, the Company owned and operated five recycling plants, which had an aggregate annual processing capacity of 735 million pounds of aluminum and 50 million pounds of other metals. As of December 31, 1997, the Company owned and operated 16 domestic recycling and processing plants, which have an aggregate annual melting capacity of approximately 2,095 million pounds of metal. The Company anticipates 1998's total annual capacity to be approximately 2,460 million pounds of metal. In addition, the Company owns a 50% interest in an aluminum recycling joint venture in Germany, which has an annual melting capacity of 280 million pounds, and has just commenced operations at its new aluminum recycling facility in Swansea, Wales, which when fully completed, will have an annual melting capacity of 100 million pounds. The Company expects that currently planned expansions of existing facilities will add approximately 195 million pounds of annual processing capacity during 1998 and 1999. See "GROWTH OF BUSINESS." Expansion of the Company's network of facilities in the U.S. has enabled the Company to allocate processing work among its facilities, thereby maximizing utilization of capacity and absorbing excess demand. The Company intends to continue to 4 5 expand its business by targeting growing markets, such as the automotive market, constructing additional aluminum recycling facilities, expanding and improving its existing facilities and acquiring or partnering with similar recycling businesses or other metals processors. In addition, the Company plans to continue seeking foreign sites for its recycling facilities where market conditions warrant. Vertical Integration. The Company also seeks business opportunities that combine its traditional recycling services with downstream processing operations that more directly serve manufacturers and other end-users. For example, the Company's acquisition of Rock Creek Aluminum, Inc. ("Rock Creek") in January 1997 expanded the Company's scope of activities from solely recycling operations to include the mechanical processing of aluminum dross and scrap into deoxidization agents, desulphurizers and slag conditioners to be sold to steel producers for use in steel production. In addition, with the acquisition of Alchem Aluminum, Inc. ("Alchem") in November 1997, the Company has begun manufacturing and selling specification aluminum alloy products for automotive equipment manufacturers. Technological Innovation. The Company's facilities and equipment have been continually improved and updated through plant modernization programs, including technological advancements designed to improve operational efficiencies. Between January 1, 1992 and December 31, 1997, the Company made capital expenditures and joint venture investments totaling $103 million in new plant and equipment (excluding acquisitions of existing companies or facilities). These investments have increased the Company's productivity, market share and total processing capacity. Customer Service. The Company is dedicated to maintaining customer satisfaction and seeks to develop new methods and processes to better serve its customers. The Company emphasizes a strong commitment to customer service by offering (1) relatively high metal recovery rates, (2) relatively high quality of metal recovered, (3) more precise specifications for alloyed metals, (4) advanced environmental technology and practices and (5) conveniently located facilities. Through long-term relationships with primary producers and other customers, the Company maximizes its production capabilities while providing customers with a reliable source for their product requirements. Environmental Efficiencies. The Company is developing a "closed loop" production system in which virtually all materials used in the recycling process are reclaimed or consumed, thus greatly reducing the need for and expense of landfilling. Management believes that considerable progress has been made in this area through the operation of its Kentucky salt cake processing plant and its patented wet-milling process employed to recycle salt cake at both its Arizona facility and its Solar Aluminum Technology Services ("SALTS") joint venture in Utah. While no assurances can be given that an economically efficient closed loop recycling system will ever be developed for all of the Company's facilities and processes, management believes that continued progress toward this goal is desirable for the Company's customers due to the opportunities for cost savings and further assurances of environmental safety. In addition, customers benefit from the enhanced environmental facilities employed by the Company, such as the lined landfill at its Morgantown, Kentucky facility, which was built to hazardous waste standards. See "THE RECYCLING PROCESS." 5 6 GROWTH OF BUSINESS Since its inception, the Company has increased its number of facilities and capacity through acquisitions, construction of new facilities and expansion of existing facilities. See ITEM 2. "PROPERTIES." Beginning in 1995, this growth strategy was accelerated. In September 1995, the Company purchased all of the assets of an aluminum recycling facility in Bedford, Indiana ("Bedford") from Ravenswood. In addition, in October 1995, the Company acquired Metal Mark, Inc. ("Metal Mark"), which owned and operated aluminum recycling facilities located in Chicago Heights, Illinois and Sikeston, Missouri. Metal Mark's principal businesses are processing aluminum dross for domestic automotive producers and manufacturers of castings for the automotive industry and recycling aluminum automotive scrap. In December 1995, the Company formed a joint venture, VAW-IMCO Gu(beta) und Recycling GmbH ("VAW-IMCO"), with VAW aluminium AG, the largest aluminum company in Germany. The Company has a 50% interest in this German venture, which owns and operates two recycling and foundry alloy facilities. The plants principally serve the European automotive markets. In January 1996, the Company completed the construction of its salt cake processing facility, which is located adjacent to the Company's Morgantown, Kentucky plant. This facility processes salt cake, a by-product generated from the Company's aluminum recycling plants, through use of materials separation technology, and recovers additional amounts of aluminum for resale that would otherwise be landfilled. See "ENVIRONMENTAL MATTERS." In 1996, the Company began construction of an aluminum recycling facility in Coldwater, Michigan in a joint venture with Alchem. The Coldwater plant started production during the first quarter of 1997 and reached full capacity in the fourth quarter of 1997. In 1997, the Company commenced construction of an aluminum recycling facility in Swansea, Wales, U.K., known as IMCO Recycling (UK) Ltd. ("Wales"). Operations at the Wales facility commenced in December 1997, and the Company expects this facility to reach full capacity in mid-1998. The plant site is adjacent to a plant owned by a subsidiary of Alcoa, which is Wales' principal customer under a long-term tolling agreement. In January 1997, the Company completed the acquisitions of IMSAMET, Inc. ("IMSAMET"), a wholly owned subsidiary of EnviroSource, Inc., and Rock Creek. IMSAMET owns or has a majority interest in three aluminum recycling plants located in Idaho, Arizona and Utah and owns a 50% interest in SALTS, which is a Utah facility that uses a proprietary process to reclaim materials from salt cake. IMSAMET's recycling facilities together have an annual melting capacity of approximately 420 million pounds. Rock Creek operates two facilities in Ohio that utilize milling, shredding, blending, testing and packaging equipment to process various types of raw materials, including aluminum dross and scrap, into aluminum products used as metallurgical additions in the steel making process. Rock Creek's facilities have a total annual processing capacity of approximately 150 million pounds. In 1997, the Company commenced expansion programs at its Sapulpa, Oklahoma facility and the VAW-IMCO facilities in Germany. The Sapulpa expansion, when completed in 1998, is expected to increase the facility's processing capacity by 40 million pounds per year. 6 7 VAW-IMCO recently signed a long-term agreement to process dross for a major rolling mill in Germany and installed a newly designed IMCO furnace, which began melting dross in December 1997. Also during 1997, the Company entered into a commitment to construct a facility at the Company's Loudon, Tennessee site to supply molten metal to an automobile brake component manufacturer under a long-term scrap management, tolling and supply agreement. This facility is expected to be completed in late 1998. Construction related to this contract will increase the Loudon plant's capacity by 40 million pounds. In November 1997, the Company acquired Alchem. Alchem is a producer of specification aluminum alloys for automotive manufacturers and their suppliers and has been operating its facility located in Coldwater, Michigan since 1972. Alchem's facility has an annual melting capacity of 200 million pounds. With the acquisition of Alchem, the Company has increased its participation in the automotive industry, broadened its customer base and expanded its product range to include specification alloys. CERTAIN FACTORS For descriptions of certain factors affecting the Company, including commitments and contingencies, which subject the Company to certain continuing risks, see (i) "ENVIRONMENTAL MATTERS" below, (ii) ITEM 3. "LEGAL PROCEEDINGS," (iii) ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CAUTIONARY STATEMENTS FOR PURPOSES OF FORWARD-LOOKING STATEMENTS" and (iv) NOTE L--"OPERATIONS" of Notes to Consolidated Financial Statements, respectively. PRODUCTS AND SERVICES The Company recycles aluminum and delivers the recycled metal to customers as molten aluminum or ingots. The Company's customers include most of the major United States aluminum producers and aluminum diecasters, extruders, automotive companies and other processors of aluminum products. A principal element of the Company's strategic plan calls for entering into new markets, specifically the expanding aluminum automotive components market. The Company entered this market with the acquisition of the Chicago Heights and Sikeston plants in 1995 and the formation of the VAW-IMCO joint venture in 1996. In the fourth quarter of 1997, the Company completed construction of the Coldwater, Michigan plant and acquired Alchem, which also serve this market. In addition, the Company plans to increase its emphasis on seeking foreign sites for its facilities where market conditions warrant. General political and economic conditions in these countries could affect the overall financial prospects of the Company. Foreign operations are generally subject to several risks, including foreign currency exchange rate fluctuations, distinct environmental regulations, changes in the methods and amounts of taxation, foreign exchange controls and government restrictions on the repatriation of hard currency. The Company's business has benefited from the trend to include recycled materials in finished products, and in particular, from the growth in the use and recycling of UBCs. The recycling of UBCs in the United States has increased because of numerous economic, legislative and environmental factors. According to industry estimates, the number of aluminum beverage cans produced has increased from 34.7 billion in 1979 to an annual average of approximately 100 7 8 billion for each of 1995, 1996 and 1997 and the number of UBCs recycled increased from 8.5 billion in 1979 to approximately 62.8 billion in 1996. The Company's metal alloying plant in Coldwater, Michigan manufactures specification aluminum alloy products for automotive equipment manufacturers and their suppliers. The Company also recycles magnesium dross for primary magnesium producers. In addition, it produces a line of magnesium anodes that are recycled from post-consumer scrap and sold to end-users and independent distributors for corrosion protection of steel structures. The Company believes that its zinc recycling facility in Coldwater is the largest recycler of hot-dip zinc dross for continuous galvanizers in the U.S. This facility's principal customers during 1997 consisted of most of the major U.S. steel companies. The Company's Rock Creek and Elyria, Ohio facilities manufacture a variety of aluminum products that are ultimately used as metallurgical additions in the steel making process, such as slag conditioners, deoxidizers, steel desulfurizers and hot topping compounds. These facilities utilize milling, shredding, blending, testing and packaging equipment to process various types of raw materials, including aluminum dross and scrap, into aluminum products for the steel industry. In addition, these facilities manufacture a wide range of proprietary briquetted products and offers toll briquetting services. SALES AND LONG-TERM CONTRACTS The Company's principal customers (see "GENERAL" above) use recycled aluminum to produce can sheet, building, automotive and other products. The Company provides products and services to a number of primary and fabricating facilities of Alcoa. During 1997, 1996 and 1995, Alcoa accounted for approximately 9%, 13% and 23%, respectively, of the Company's revenues. The loss of Alcoa as a customer would have a material adverse effect upon the business of the Company and its future operating results. Customarily, agreements with customers in the aluminum recycling industry have been short-term. These usually result from a bidding process where aluminum producers and metal traders offer to sell materials or to have materials tolled. Consequently, the Company historically has maintained no significant backlog of orders. However, the Company has secured some long term commitments for its recycling services with Alcoa, Commonwealth, Aluminium Norf GmbH ("AluNorf"), Kaiser, Wise Metals, PBR Automotive USA LLC and Ravenswood. For the year ended December 31, 1997 the Company melted 928 million pounds of aluminum pursuant to multi-year contracts with its customers, which represented approximately 47% of the Company's total 1997 annual aluminum melting volume. In 1992, the Company entered into a 10-year supply contract with Commonwealth's Uhrichsville plant to process all of that facility's scrap aluminum, UBCs and dross at the Company's Uhrichsville plant. See ITEM 2. "PROPERTIES--RECYCLING AND PROCESSING FACILITIES." In 1994, the Company entered into a three-year processing agreement with Alcoa under which the Company's Rockwood plant provides secondary metal for Alcoa's Alcoa, Tennessee facility. This agreement was modified in 1995 to reflect greater volumes and to include the Company's Loudon plant as an approved supplier under the terms of the contract. This agreement will extend for additional one-year terms at the end of each contract year unless 8 9 terminated by either party. If terminated by either party, the agreement will continue in effect until the second anniversary date of the last day of the contract year during which the termination notice was given. The Company has also entered into a similar supply agreement with an English subsidiary of Alcoa pursuant to which the Company's Wales facility will provide Alcoa's adjacent facility with secondary tolled aluminum. The agreement has a five-year primary term, expiring in 2002, with provisions for automatic three-year extensions. In September 1997, the VAW-IMCO joint venture entered into a five-year agreement with AluNorf to process 22,000 metric tons of dross per year. In July 1997, the Company entered into a five and one-half year agreement with Wise Metals to deliver ten million pounds of molten aluminum per month to supply a Kentucky rolling mill. In January 1998, the Company and Wise Metals agreed to temporarily reduce these volume delivery amounts until the Company completes installation of a new reverberatory furnace and delacquering equipment. The Company expects to have this equipment installed by mid-1998, after which it expects to resume delivery at the ten million pound level. The Company's Post Falls, Idaho facility has a processing contract to supply, on a tolling basis, molten and ingot aluminum deliveries of aluminum to Kaiser's nearby Trentwood, Washington aluminum fabrication mill. The term of this agreement expires in September 2000. Certain of these agreements contain cross-indemnity provisions, including provisions obligating the Company to indemnify the supplier for certain environmental liabilities that the supplier may incur in connection with the transactions contemplated by the agreements. These agreements also typically contain escalation provisions that are intended to cover changes in certain of the Company's processing costs. The Company may seek similar dedicated long-term arrangements with customers in the future. Increased emphasis on dedicated facilities to customers and dedicated contracts with customers carries the inherent risk of increased dependence on a single or few customers with respect to a particular Company facility. In such cases, the loss of such a customer could have a material adverse effect on the Company's financial condition and results of operation, and any timely replacement of volumes attributable to such a customer could prove difficult. The primary metals industry and the metals recycling industry are subject to cyclical fluctuations, depending upon the availability and price of unprocessed scrap metal and the level of demand in the metal consuming industries. Temporary reductions in can stock production by one of the Company's customers have previously affected the Company's results of operations, and no assurances can be given that such conditions will not recur. See ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." THE RECYCLING PROCESS The raw material received for aluminum processing is loaded into furnaces where natural gas heat is applied along with a flux mixture (salt and potash). Some of the Company's aluminum facilities operate rotary furnaces, which feature significantly more flexible capabilities than reverberatory furnaces and can process UBCs, dross and various types of aluminum scrap. The 9 10 Company believes that its rotary furnaces are more efficient and cleaner than, and provide rates of recovery superior to, conventional rotary furnaces. Materials are melted in the furnaces, and the recovered metal is poured directly into an ingot mold or hot metal crucible for delivery to customers. Magnesium is recycled by the same method in a rotary furnace at the Sapulpa, Oklahoma plant. Some of the Company's plants deliver molten aluminum in crucibles directly to their customers' manufacturing facilities. As of December 1997, the Company had the capacity to provide approximately 70% of its processed aluminum in molten form. The molten aluminum is poured directly into the customer's furnace, saving the customer the time and expense of remelting aluminum ingots. The Company normally charges an additional fee for transportation and handling of molten aluminum. The Oklahoma, Arizona, Utah, Illinois and Missouri facilities are restricted, due to the geographical locations of their customers, to delivering aluminum in ingot form. See ITEM 2. "PROPERTIES." At the Company's metal alloying facility in Coldwater, Michigan, additional materials are blended with molten aluminum to produce a metal alloy. The alloyed aluminum is shipped in either molten or ingot form to its customers. This facility generates dross, which is recycled at the Company's adjacent aluminum recycling plant in Coldwater. The aluminum recycling process from the Company's rotary furnaces produces a by-product called "salt cake," which is formed from the contaminants and coatings on aluminum scrap and dross and the salts added during the aluminum recycling process. Salt cake is composed of salts, metallic aluminum, aluminum oxide and small amounts of other materials. The by-product of processing materials through the reverberatory furnaces is dross. The Company disposes of its salt cake and certain airborne contaminants ("baghouse dust") in landfills that are used exclusively by the Company or that are permitted specifically to handle the types of materials generated by the Company. Salt cake is not currently listed as a "hazardous waste" under the Resource Conservation and Recovery Act of 1976 ("RCRA") or as a "hazardous substance" under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"). The Company has built and operates a lined landfill at its Morgantown facility, the design of which exceeds current requirements for disposal of salt cake and meets RCRA Subchapter "C" hazardous waste standards. In 1996, the Company completed the construction of a facility adjacent to its Morgantown plant to further process the salt cake through the use of materials separation technology and extract additional aluminum that is left after the melting process. This salt cake processing facility is a critical step needed for "closed loop recycling," which would involve no or minimal waste disposal. The facility's process involves crushing the salt cake and separating the aluminum out of the salt cake. The residual product is then landfilled in the Company's Morgantown landfill. See "ENVIRONMENTAL MATTERS." Certain of the Company's facilities also recycle salt cake and other by-products from the aluminum recycling process. The Goodyear, Arizona facility processes aluminum scrap and turnings and recycles concentrates from purchased dross and salt cake. These concentrates are first treated in the facility's patented wet milling process, which reduces the volume of material handled, thus allowing for more efficient utilization of capacity. Aluminum oxide, a by-product of the wet milling process, is further treated and sold for use in the production of cement. 10 11 Located near the Bonneville Salt Flats, the Company's Wendover, Utah facility processes aluminum concentrates from the adjacent 50%-owned SALTS joint venture and produces ingots. The SALTS facility recycles salt cake from the Company's Idaho and Utah plants into aluminum concentrates, aluminum oxide and salt brine. The clear brine is delivered to the venture's partner, where its chemical content is recycled for multiple uses, including reuse as a flux. In the Company's zinc recycling subsidiary's process, dross is first melted in an electric induction furnace and then transferred to a reactor which removes the impurities (iron and zinc oxide, which are sold as a by-product). The remaining molten zinc is poured into a reverberatory holding furnace from which it is blended and cast into ingots, which are returned to the customer. This subsidiary holds patent rights to its process in several countries. OPERATIONS In its aluminum tolling operations, the Company accepts UBCs, dross and scrap owned by its customers and processes this material for a tolling charge per pound of incoming weight. In order to retain control of their metal supplies, customers have typically desired to toll, rather than sell, their scrap materials. Tolling requires no metal inventory to be purchased or held by the Company. In addition, tolling limits the Company's exposure to the risk of fluctuating metal prices since the Company does not own the material being processed. For the year ended December 31, 1997, approximately 81% of the Company's total pounds of metal processed involved aluminum tolling. The acquisitions of the Chicago Heights and Sikeston plants, the Rock Creek and Elyria processing plants and Coldwater metal alloying plant and the operation of the Morgantown salt cake processing facility have changed the Company's historical ratio of tolling to buy/sell business (formerly, aluminum tolling represented more than 90% of the Company's total annual melting volumes). Only about 50% of the Chicago Heights and Sikeston plants' production and approximately 12% of the Coldwater metal alloying plant's production have traditionally involved tolling; the remainder has been buy/sell business. See ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." When purchasing metals in the open market for its buy/sell business, the Company attempts to reduce the risk of fluctuating metal prices by arranging for the sale of the aluminum anticipated to be recovered and by avoiding large inventories of ingot or scrap material, except to the extent necessary to allow its plants to operate without interruption. See ITEM 7A. "QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK." The Company constantly seeks improvements in operational efficiencies at its existing plants and at its acquired facilities through technological advancements, automation of its operational procedures, and modifications in processing and material throughput methods. The Company's production network of plants have generally achieved high overall operating rates due to strong demand for the Company's recycling services and the strategic location of many of the Company's plants near major customers' production facilities. Expansion of the Company's network of facilities in the U.S. has enabled the Company to allocate processing work among its facilities, thereby maximizing utilization of available capacity and taking advantage of excess demand. 11 12 The Company believes that its advanced scrap preparation equipment and recycling technologies have also increased the demand for its services by producing higher recovery rates for the aluminum processed and better quality of its recycled aluminum than many of its competitors. COMPETITION The aluminum recycling industry is fragmented and highly competitive. The Company believes that its position as the largest U.S. recycler of secondary aluminum is a positive competitive factor. The principal factors of competition in the industry are price, recovery rates, environmental and safety regulatory compliance, and services (e.g., the ability to deliver molten aluminum). Freight costs also limit the geographic areas in which the Company can compete effectively. The major aluminum producers, some of which are the Company's largest customers, have generally discontinued processing dross, instead focusing their resources on other aspects of aluminum production. UBCs and other scrap are processed by both the secondary recycling industry and the major producers. The Company competes both with other secondary recyclers and their customers when purchasing and processing scrap for the buy/sell business. The amount of the Company's tolling business can also vary depending upon the extent that the major aluminum producers' used metal materials are internally recycled. The aluminum producers generally vary their rate of internal recycling depending upon furnace availability, inventory levels, the price of aluminum and their own internal demand for metal. The major aluminum producers are larger and have greater financial resources than the Company. A decision by these producers to expand their recycling operations could reduce demand for certain of the Company's products and services. SOURCE AND AVAILABILITY OF RAW MATERIALS AND ENERGY Except as noted below, the Company has historically not had, and does not anticipate having, difficulties in obtaining raw materials for its operations. In the case of buy/sell business, the primary sources of aluminum and magnesium for recycling are dross and scrap, which are purchased from both the major aluminum producers and metal traders. Prior to 1996, fluctuations in market prices for both aluminum and magnesium had not significantly affected the availability of these metals to the Company. However, during 1996, the Company had difficulty obtaining a significant quantity of UBCs to operate at a profitable level at its Corona, California and Bedford, Indiana facilities, since these plants were then designed to process only UBC material. As a result, management decided to close the Corona facility in 1996. At the Bedford facility, the Company modified one of the existing furnaces and installed an additional furnace which has enabled it to process a greater variety of aluminum scrap, including processing for the automotive industry. Also during 1996, one of the Company's major customers stockpiled inventories in anticipation of a strike, which negatively impacted the Company until the threat of a strike uncertainty was resolved and the excess inventories were returned to their customary levels later that year. The availability of zinc dross is dependent upon the demand for galvanized steel, which has historically paralleled fluctuations in customer demand in the automotive, appliance and construction industries. 12 13 The Company's operations are fueled by natural gas, which represents the second largest component of operating costs. Higher fuel prices in 1996 negatively impacted the Company's results of operations for that year. In an effort to acquire the most favorable natural gas costs, the Company has, at times, secured long-term commitments for its natural gas requirements. Occasionally, when deemed necessary, the Company purchases its natural gas on a spot-market basis. Most of the Company's long-term supply contracts with its customers contain provisions to reflect fluctuations in natural gas prices. See ITEM 7A. "QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK." The Company understands that most of its competitors' operations are also fueled by natural gas; therefore, it believes that increases in the prices for natural gas do not adversely affect the Company's competitive position. The Company believes it will continue to have access to adequate energy supplies to meet its needs for the foreseeable future. SEASONALITY UBC collections have historically been highest in the summer months and lowest in the winter months. Therefore, the Company has, at times, experienced lower volumes at certain facilities during the winter. In recent years, however, the Company's total processing volumes have fluctuated mostly due to the startup of additional capacity rather than the seasonality of UBC collections. A portion of the Company's business that serves the automotive industry has historically experienced a decline in molten metal deliveries during periods when its automotive customers cease production to perform new model changeovers and during the holidays in December. TRANSPORTATION The Company receives UBCs, dross and scrap, and ships its recycled metal by both rail and truck. Most of the Company's plants own their own rail siding or have access to rail lines nearby. The Company owns and leases various trucks and trailers to support its business. Customarily, the transportation costs of scrap materials to be tolled are paid by the Company's customers, while the transportation costs of aluminum and magnesium purchased and sold by the Company may be paid either by customers or the Company. The Company contracts with third-party transportation firms for hauling some of its solid waste for disposal. EMPLOYEES As of January 31, 1998, the Company had 1,586 employees, consisting of 326 employees engaged in administrative and supervisory activities and 1,260 employees engaged in production and maintenance. The production and maintenance employees at the Rockwood plant are represented by the United Steelworkers of America under a five-year collective bargaining agreement that expires in August 2000. The production and maintenance workers at the Uhrichsville plant are represented by the United Mine Workers of America under an agreement that expires on November 30, 1998. The production and maintenance workers at the Bedford plant are represented by the International Brotherhood of Electrical Workers under an agreement that expires in April 2000. The production and maintenance workers at the Sikeston plant are represented by the United Steelworkers of America under an agreement which expires in March 2001. Labor relations with employees have been satisfactory. 13 14 ENVIRONMENTAL MATTERS The Company's operations, like those of other basic industries, are subject to federal, state, local and foreign laws, regulations and ordinances that (1) govern activities or operations that may have adverse environmental effects, such as discharges to air and water, as well as handling and disposal practices for solid and hazardous wastes and (2) impose liability for costs of cleaning up, and certain damages resulting from, past spills, disposals, or other releases of hazardous substances (together, "Environmental Laws"). It can be anticipated that more rigorous Environmental Laws will be enacted that could require the Company to make substantial expenditures in addition to those referred to herein, including future regulations, under the Federal Clean Air Act ("CAA") and otherwise, which are expected to impose stricter emission requirements on the aluminum industry. While the Company believes that current pollution control measures at most of the emission sources at its facilities will meet these anticipated future requirements, additional measures at some of the Company's facilities may be required. The Company's operations may generate certain discharges and emissions, including in some cases off-site dust and odors, which are subject to the CAA and other Environmental Laws. From time to time, operations of the Company have resulted or may result in certain noncompliance with applicable requirements under Environmental Laws. The Company may also incur liabilities for off-site disposals of salt cake and other materials. In addition, historical or current operations at, or in the vicinity of, the Company's facilities, may have resulted in soil or groundwater contamination. However, based on environmental investigations conducted by the Company and its consultants and certain indemnities associated with the Company's acquisitions, the Company believes that any such noncompliance or liability under current Environmental Laws would not have a material adverse effect on the Company's financial position. See ITEM 3. "LEGAL PROCEEDINGS." The processing of UBCs, dross and scrap generates solid waste in the form of salt cake and baghouse dust. Currently, such material is either disposed of at off-site landfills or at the Company's permitted Sapulpa and Morgantown disposal sites. For example, the Rockwood, Loudon, Bedford and Sikeston plants currently dispose of the majority of their solid waste by transporting it to the Morgantown plant where the Company, in 1996, began operating a salt cake processing facility which prepares salt cake for landfilling. See ITEM 2. "PROPERTIES--SOLID WASTE DISPOSAL." At the Uhrichsville plant, under the Company's supply agreement with Commonwealth, the disposal of all salt cake generated by the Company as a result of its processing for Commonwealth is the responsibility of Commonwealth. Salt cake from all other material processed at the Uhrichsville plant is either shipped to the Morgantown plant for disposal or landfilled with a local solid waste management firm. In 1996, the Chicago Heights and Sikeston plants disposed of the majority of their salt cake with third-party landfills; however, a portion of their salt cake was shipped to Morgantown for processing and disposal. The IMSAMET Arizona facility recycles its own salt cake and sells the by-products to third parties, and the Oklahoma, Utah and Idaho facilities ship their salt cake to the 50%-owned SALTS joint venture for further processing. See "THE RECYCLING PROCESS." If salt cake were ever classified as a hazardous waste or substance under RCRA or CERCLA, the Company's handling and disposal of salt cake would be required to be modified. To dispose of its salt cake, the Company may then be required to take other actions including obtaining a RCRA Subchapter "C" permit for its Morgantown landfill, obtaining other permits (including 14 15 transportation permits), and landfilling additional amounts of salt cake with third parties not under the Company's direct control. Based on current annual processing volumes and remaining landfill capacity, the estimated remaining life of the landfill at the Sapulpa plant is three years. The Company has constructed a new landfill cell at its Morgantown plant and estimates its remaining useful life to be approximately one year. The Company has began construction on its first expansion phase at this landfill cell and estimates that once completed, this expansion cell will have a remaining useful life of approximately five years. A planned second expansion is expected to provide an additional ten years of useful life. Landfill closure costs for the Company-owned landfills are currently estimated to be approximately $7,000,000. The Company is currently providing for this expenditure by accruing, on a current basis, these estimated costs as the landfills are used. See ITEM 2. "PROPERTIES." Due to relatively high costs and limited coverage, the Company does not carry environmental impairment liability insurance. The Company made capital expenditures for environmental control facilities of approximately $5,000,000 in 1997, most of which was for air pollution control equipment and landfill capacity additions. Estimated environmental expenditures for 1998 and 1999, which primarily relate to the Company's landfills and air pollution control equipment, are approximately $9,400,000 and $6,000,000, respectively. ITEM 2. PROPERTIES RECYCLING AND PROCESSING FACILITIES During 1997, the Company owned and/or operated the following facilities as detailed below:
- ------------------------------------------------------------------------------------------------------------------ ESTIMATED ESTIMATED 1997 1997 NUMBER MELTING PROCESSING MOLTEN OWNED OF CAPACITY CAPACITY YEAR YEAR MATERIALS DELIVERY PLANT ACREAGE FURNACES (MILLION LBS) (MILLION LBS) BUILT ACQUIRED PROCESSED CAPABILITY - ------------------------------------------------------------------------------------------------------------------ Sapulpa, OK. 64 7 170 -- 1962 -- Alum/Mag. No Rockwood, TN. 238 6 220 -- 1985 -- Alum Yes Morgantown, KY. 552(a) 6 220 -- 1989 -- Alum Yes Coldwater, MI (Zinc) (b) 2 40 -- -- 1992 Zinc No Uhrichsville, OH. 42 10 360 -- 1992 -- Alum Yes Loudon, TN. 173 3 180 -- -- 1994 Alum Yes Bedford, IN. 19 3 175 -- -- 1995 Alum Yes Chicago Hts., IL. 9 2 100 -- -- 1995 Alum No Sikeston, MO. 31 2 60 -- -- 1995 Alum No Morgantown, KY. (a) (c) (c) 400 1996 -- Salt Cake (c) Post Falls, ID 49 4 280 -- -- 1997 Alum Yes Goodyear, AZ 40(d) 4 70(e) 168 -- 1997 Al/Salt Cake No Wendover, UT 160(d) 2 70 -- -- 1997 Alum No Elyria, OH 12 (f) (f) 50 -- 1997 Alum (f) Rock Creek, OH 11 (f) (f) 100 -- 1997 Alum (f) Coldwater, MI 75 3 115 -- 1997 -- Alum Yes Swansea, Wales 5(d) 1 5 -- 1997 -- Alum Yes Coldwater, MI(alloys) 41 3 30 -- -- 1997 Alum Yes --------------------------- CONSOLIDATED CAPACITY 2,095 718 =========================== 50% OWNED FACILITIES: VAW-IMCO, Germany 29 13 280(g) -- -- 1996 Alum Yes SALTS, Wendover, UT 40 (c) (c) 168 -- 1997 Salt Cake (c) --------------------------- TOTAL CAPACITY 2,375 886 =========================== - ------------------------------------------------------------------------------------------------------------------
15 16 NOTES: (a) The acreage in Morgantown, Kentucky includes both the aluminum and salt cake processing facilities as well as landfill cells. (b) The Company's former Adrian, Michigan facility had been leased by IZI. This lease expired in September 1997. This facility was relocated to a Company-owned site adjacent to the Coldwater, Michigan facility in September 1997. (c) These facilities process salt cake only. (d) This acreage is leased. (e) Represents 100% of the capacity of this facility--the facility is 70% owned by the Company. (f) These facilities process aluminum products for use in the steel industry. (g) Represents 100% of the capacity of the two VAW-IMCO facilities. The average operating rates for all of the Company's facilities for 1997, 1996 and 1995 were 95%, 92% and 106%, respectively, of stated capacity. The less-than-full capacity operating rate during 1997 was due primarily to the delay in the start-up of the Swansea, U.K. facility, and the Coldwater, Michigan facility reaching full capacity in the fourth quarter of 1997. The operating rate during 1996 was negatively impacted due to the effect of the closure of the Company's Corona, California facility during the third quarter of 1996. See ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." Commonwealth has a currently exercisable option to acquire up to a 49% equity interest in the Uhrichsville plant at a price equal to the equity percentage amount to be specified by Commonwealth, multiplied by the depreciated book value of the plant, or the subsidiary owning the plant, plus a premium to compensate the Company for its recycling technology. The option price may be above or below the fair value of the Uhrichsville plant. Should Commonwealth exercise its option, there can be no assurance that the production or earnings attributable to the purchased interest could be replaced, and the Company's net earnings and cash flow could be adversely affected. See NOTE D--PROPERTY AND EQUIPMENT of Notes to Consolidated Financial Statements. In 1996, the Company began its 50% participation in its VAW-IMCO joint venture in Germany. The joint venture owns and operates two recycling and foundry alloy facilities located at Grevenbroich and Toging, Germany. Annual melting capacity for these two plants is approximately 280 million pounds. In the first quarter of 1997, the Company began operation of a new aluminum recycling facility in Coldwater, Michigan, which reached full capacity in the fourth quarter of 1997. The facility contains three furnaces with a total annual capacity of 150 million pounds and primarily serves the automotive market. This facility delivers molten aluminum to Alchem, its primary customer, which became a wholly owned subsidiary of the Company in November. 16 17 In December 1997, the Company completed the construction of its aluminum recycling facility in Wales and began production with one furnace. The second furnace is expected to begin production in the second quarter of 1998. Once this facility is complete, its two furnaces will have an annual melting capacity of 100 million pounds, approximately 53 million of which are dedicated to a multi-year contract with Alcoa. See ITEM 1. "BUSINESS--SALES AND LONG-TERM CONTRACTS." SOLID WASTE DISPOSAL The Company completed a new landfill cell adjacent to its plant in Morgantown, Kentucky in 1996. All of the waste generated from the salt cake processing facility at the Morgantown site is deposited in this landfill. Management anticipates that this new landfill cell, which is designed to be expanded several times throughout its life, will serve the Company's landfilling needs for the majority of the salt cake generated by facilities currently owned by the Company in the Eastern United States. The Company has begun construction on the first expansion phase of this landfill cell. The Company also owns a landfill at its Sapulpa, Oklahoma plant which is estimated to have three years useful life remaining. The Arizona facility recycles its own salt cake and sells the by-products to third parties, and the Oklahoma, Utah and Idaho facilities ship their salt cake to the 50%-owned SALTS joint venture for further processing. See ITEM 1. "BUSINESS--ENVIRONMENTAL MATTERS." ADMINISTRATIVE In Irving, Texas, the Company leases approximately 21,704 square feet of office space for certain of its executive, financial and management functions. This lease expires in January 2000. The Company believes that its plants and equipment are maintained in good operating condition. Substantially all of the properties and equipment at the Company's plants are mortgaged to secure senior indebtedness. See ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--LIQUIDITY AND CAPITAL RESOURCES" and NOTE H--"LONG TERM DEBT AND EXTRAORDINARY LOSS ON EARLY DEBT RETIREMENT" of Notes to Consolidated Financial Statements. ITEM 3. LEGAL PROCEEDINGS In 1996, the Company entered into a settlement agreement with the Missouri Department of Natural Resources ("MDNR") pertaining to certain air violations at its Sikeston facility. Since entering into the settlement agreement, the Company has received additional notices of violation from the MDNR, which relate to fugitive dust emissions from its truck loading and unloading operations and certain other air compliance matters. In addition, the Company recently responded to a request for information from the United States Environmental Protection Agency regarding air issues at the Sikeston facility. Since purchasing the Sikeston facility in 1995, the Company has made significant upgrades to the air pollution control equipment located at the facility. There can be no assurance, however, that future violations will not occur or that the violations identified by the MDNR will not result in enforcement action against the Company. 17 18 In 1997, the Illinois Environmental Protection Agency ("IEPA") notified IZI that it is a potentially responsible party ("PRP") pursuant to the Illinois Environmental Protection Act for the cleanup of contamination at a site in Marion County, Illinois to which IZI, among others, in the past sent zinc oxide for processing and resale. IZI has joined a group of PRPs that is planning to negotiate with the IEPA regarding the cleanup of the site. Although the site has not been fully investigated and final cleanup costs not yet determined, based on current cost estimates and information regarding the amount and type of materials sent to the site by IZI, the Company does not believe, although there can be no assurance, that its liability at this site will have a material adverse effect on its financial position or its results of operations. The Company is also a party from time to time to what it believes are routine litigation and proceedings considered part of the ordinary course of its business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders of the Company during the quarter ended December 31, 1997. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company are listed below, together with brief accounts of their experience and certain other information. Executive officers are appointed by the Board of Directors. Name Age Position - ---- --- -------- Don V. Ingram 62 Chairman of the Board and Chief Executive Officer Richard L. Kerr 55 President and Chief Operating Officer Paul V. Dufour 58 Executive Vice President--Finance and Administration, Chief Financial Officer and Secretary Thomas W. Rogers 51 Senior Vice President, Marketing and Sales C. Lee Newton 54 Senior Vice President, Engineering, Technology and Environmental Don V. Ingram has served as a director of the Company since 1988 and as Chairman of the Board since 1994. He was elected Chief Executive Officer of the Company in February 1997. Mr. Ingram played the major role in the formation of the Company in 1986. Mr. Ingram has also been owner and President since 1984 of Summit Partners Management Co., a private investment management company in Dallas, Texas. Richard L. Kerr was elected President of the Company in February 1997. Previously, he served as Executive Vice President (commencing in July 1988) and has been Chief Operating Officer since 1991. In 1994, he became President of the Company's Metals Division. Mr. Kerr joined 18 19 International Metal Co., a predecessor of the Company, in April 1984, and became Executive Vice President of International Metal Co. in April 1987. Paul V. Dufour has served as Vice President, Chief Financial Officer and Secretary of the Company since March 1987. He was promoted to Senior Vice President in May 1988 and to Executive Vice President in October 1994. He is principally responsible for the Company's financial and administrative functions. Thomas W. Rogers has served as Senior Vice President of the Company since July 1988. Mr. Rogers was employed as Plant Manager of the Sapulpa, Oklahoma plant in October 1986. C. Lee Newton became Senior Vice President of the Company in 1993. Mr. Newton was named Vice President in 1990 and was the General Manager of the Morgantown, Kentucky plant from 1989 to 1993. He was originally employed by the Company as Plant Manager of its Rockwood, Tennessee plant in 1987. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock trades on The New York Stock Exchange (trading symbol: IMR). The following table sets forth, for the fiscal quarters indicated, the high and low sales prices for the Company's Common Stock, as reported on The New York Stock Exchange composite tape from January 1, 1996 through December 31, 1997, and the dividends declared per share during the periods indicated.
- -------------------------------------------------------------------------------- PRICE RANGE DIVIDENDS ----------------------- HIGH LOW DECLARED - -------------------------------------------------------------------------------- Calendar Year 1997 First Quarter $17 $13 5/8 $ 0.05 Second Quarter 18 7/8 13 3/4 0.05 Third Quarter 20 1/16 17 3/8 0.05 Fourth Quarter 21 15 1/4 0.05 Calendar Year 1996 First Quarter $24 5/8 $18 1/2 $ 0.05 Second Quarter 24 3/8 17 5/8 0.05 Third Quarter 18 1/4 15 0.05 Fourth Quarter 17 3/4 14 3/8 0.05 - --------------------------------------------------------------------------------
Dividends as may be determined by the Board of Directors may be declared and paid on the Common Stock from time to time out of any funds legally available therefor. In November 1997, the Company amended and restated its senior credit facilities with its lenders, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated as arranger and syndication agent, and Texas Commerce Bank National Association as administrative agent ("TCB") for the lenders, pursuant to the terms of an Amended and Restated Credit Agreement. See NOTE 19 20 H--LONG TERM DEBT AND EXTRAORDINARY LOSS ON EARLY DEBT RETIREMENT of Notes to Consolidated Financial Statements and ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." The Amended and Restated Credit Agreement contains limitations on the Company's ability to declare and pay dividends in cash or property; however, if there is no default under the agreement, then the Company is permitted to make cash dividend payments in an aggregate amount of up to $4,000,000 in 1997, $5,000,000 in 1998, $6,000,000 in 1999 and in 2000, and $8,000,000 in any year thereafter. No assurances can be given as to future levels of dividends, if any, which may be declared and paid. The Company intends to continue paying dividends on its Common Stock, although future dividend declarations are at the discretion of the Company's Board of Directors and will be based upon the Company's level of earnings, cash flow, financial requirements, and economic and business conditions then prevailing, as well as other relevant factors, including the restrictions contained in the Company's long-term debt instruments. On March 2, 1998, the outstanding shares of Common Stock were held of record by 485 stockholders. During the fourth quarter of 1997, the Company made no unregistered sales of its securities, other than on November 14, 1997, the Company issued, in a privately-negotiated transaction, 1,208,339 shares of its Common Stock in connection with the Company's acquisition of Alchem. The Common Stock was issued, along with approximately $9,600,000 in cash, as consideration for such acquisition, to the former shareholders of Alchem in a statutory merger of Alchem with and into a wholly-owned subsidiary of the Company. The issuance of the Common Stock was effected in a transaction exempt from registration pursuant to the provisions of Section 4(2) of the Securities Act of 1933. See NOTE B--"ACQUISITIONS AND INVESTMENTS" of Notes to Consolidated Financial Statements. ITEM 6. SELECTED FINANCIAL DATA (In thousands, except per share data)
- ----------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 1997 1996 1995 1994 1993 ---------------------------------------------------------- Revenues $ 339,381 $ 210,871 $ 141,167 $ 101,116 $ 74,216 Earnings before extraordinary item 14,127 6,720 12,470 8,471 8,022 Earnings per common share before extraordinary item: Basic (a) 1.08 0.57 1.08 0.75 0.72 Diluted (a) 1.06 0.55 1.05 0.74 0.70 Total assets 332,536 164,707 139,877 96,791 79,427 Long-term debt (excluding current maturities) 109,194 48,202 29,754 11,860 8,000 Dividends declared per common share $ 0.200 $ 0.200 $ 0.105 $ 0.100 -- - -----------------------------------------------------------------------------------------------------------
20 21 NOTE: (a) The earnings per share amounts prior to 1997 have been restated, as required, to comply with Statement of Financial Accounting Standards No. 128, Earnings per Share. See NOTE A--"SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES" of Notes to Consolidated Financial Statements. See also ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and Notes to Consolidated Financial Statements. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Most of the Company's processing consists of aluminum, magnesium and zinc tolled for its customers. To a smaller but increasing extent, the Company's processing also consists of buy/sell business, which involves purchasing scrap metal and dross for processing and resale. 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. Tolling revenues reflect only the processing cost and the Company's profit margin. Accordingly, tolling business generally produces lower revenues and costs of sales than does the buy/sell business. Variations in the mix of these two businesses can cause revenues to change significantly from period to period while not significantly affecting gross profit, since both types of business generally produce approximately the same gross profit per pound of metal processed. As a result, the Company considers processing volume to be a more important determinant of performance than revenues. The Company's cold water alloying facility (acquired in November 1997) is primarily engaged in buy/sell business, as opposed to tolling; therefore, the Company expects to experience higher levels of buy/sell business relative to tolling during 1998. Accordingly, the higher level of buy/sell business is expected to increase the Company's working capital requirements and subject the Company to greater risks associated with price fluctuations in the aluminum market. For 1998, the Company currently anticipates that its total aluminum pounds tolled will decrease from 81% in 1997 to approximately 75%; however, unforeseen circumstances could cause this percentage amount to vary. During the 1990's, aluminum inventories on the worldwide commodity exchanges fluctuated from severe excesses to relatively balanced positions. In times of excess, aluminum prices declined, negatively impacting the profitability of the major aluminum producers who are some of the Company's largest customers. Environments of low profitability for the Company's customers have inhibited, during those times, the Company's ability to pass cost increases through to its customers. In early 1994, worldwide inventories of aluminum began falling for a number of reasons, including an increase in demand for aluminum, particularly in the United States, and consequently, prices for aluminum began to rise. During 1995, worldwide aluminum prices declined from their 1994 levels, particularly in the fourth quarter, and continued to fall until the end of 1996. During 1997, the U.S. domestic aluminum industry benefited from increases in aluminum prices and an increase in demand. However, during the fourth quarter of 1997, aluminum prices declined, which negatively impacted the Company's selling prices of aluminum, especially at its salt cake processing facility in Kentucky. It is not possible to predict 21 22 the future price of aluminum, or the level of worldwide inventories of aluminum and whether, or to what extent, such factors will affect the Company's future business. The following table sets forth, for the periods indicated, the total pounds of material processed (aluminum, magnesium and zinc); the percentage of total pounds processed represented by (1) tolled aluminum, (2) purchased aluminum and (3) magnesium and zinc; total revenues; total gross profits and gross profits as a percentage of revenues. (In thousands, except percentages)
- -------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------ 1997 1996 1995 ------------------------------------------ Pounds Processed 1,988,796 1,451,408 1,323,282 Percent of Total Pounds Processed: Tolled Aluminum 81% 82% 92% Purchased Aluminum 17% 15% 5% Zinc and Magnesium 2% 3% 3% Revenues $ 339,381 $ 210,871 $ 141,167 Gross Profits $ 47,854 $ 25,538 $ 30,939 Gross Profit % * 14.1% 12.1% 21.9% - --------------------------------------------------------------------------------
* See NOTE L--"OPERATIONS" of Notes to Consolidated Financial Statements and RESULTS OF OPERATIONS--Fiscal Year 1997 vs. Fiscal Year 1996 below. RESULTS OF OPERATIONS FISCAL YEAR 1997 VS. FISCAL YEAR 1996 Production. During 1997, the pounds of metal processed by the Company increased 37% to 1,989 million pounds, compared to 1,451 million pounds processed in 1996. Increases in aluminum processing from the Idaho, Utah and Arizona facilities (which were acquired in January 1997), the Coldwater, Michigan aluminum facility (which began production during the first quarter of 1997) and the Coldwater alloying facility (which was acquired in November 1997) were the primary reasons for the increased production. Revenues. During 1997, revenues increased 61% to $339,381,000, compared to revenues of $210,871,000 in 1996. The acquisitions of the Idaho, Utah and Arizona plants, the Rock Creek and Elyria, Ohio processing plants and the Coldwater, Michigan alloying facility, and the operations at the new Coldwater aluminum plant, accounted for virtually all of the increase in revenues. During 1997, higher revenues from the combination of higher aluminum selling prices (relative to 1996 prices), higher levels of buy/sell business at the Company's remaining aluminum plants and additional metal for sale from its Kentucky salt cake processing facility were partially offset by the elimination of revenues at the Company's Corona, California plant (which was closed in the third quarter of 1996). The percentage increase in revenues was greater than the relative increase in volumes processed due to higher levels of buy/sell business during 1997 as compared to 1996. 22 23 As discussed above, an increase in buy/sell business generally results in a much higher increase in revenue than would be generated by a similar increase in tolling business. The increased levels of buy/sell business was principally attributable to the Coldwater alloying facility acquired in 1997. Tolling activity for aluminum represented 81% of the Company's total pounds melted during 1997, as compared to 82% in 1996. The increase in buy/sell activity in 1997 also resulted in higher inventory levels. Additionally, revenues increased due to the January 1997 acquisitions of the Rock Creek and Elyria, Ohio plants. Gross Profits. During 1997, gross profits increased 87% to $47,854,000, compared to gross profits of $25,538,000 in 1996. Approximately 60% of the increase in gross profits was due to (1) the January 1997 acquisitions of the Idaho, Utah and Arizona plants, and the Rock Creek and Elyria, Ohio facilities, (2) the operations at the new Coldwater, Michigan plant and (3) the November 1997 acquisition of the Coldwater, Michigan alloying facility. In addition, 1997's gross profits were higher due to (1) the elimination of the losses at the Company's Corona, California plant (which was closed in the third quarter of 1996), (2) higher aluminum prices, which increased margins from the Company's buy/sell business and (3) strengthened plant operating efficiencies. SG&A Expenses. During 1997, selling, general and administrative costs increased 50% to $17,612,000, compared to $11,774,000 in 1996. This increase was due principally to higher employee, professional, consulting and goodwill amortization expenses associated with the January and November 1997 plant acquisitions. Interest. During 1997, interest expense increased 114% to $7,331,000, compared to interest expense of $3,421,000 in 1996. The increase in interest expense was primarily attributable to the additional debt outstanding during 1997 to fund the January and November acquisitions. See "LIQUIDITY AND CAPITAL RESOURCES" below. Extraordinary Item. In connection with the plant acquisitions in January 1997, the Company borrowed funds under a new Credit Agreement. See "LIQUIDITY AND CAPITAL RESOURCES" below. A portion of the sums borrowed under the Credit Agreement was used to retire substantially all of the Company's outstanding indebtedness prior to its stated maturity. This early debt retirement generated an extraordinary loss of $1,318,000 (net of income tax benefit of $878,000) for the first quarter of 1997. There was no extraordinary item in 1996. Net Earnings. During 1997, the Company's earnings before provision for income taxes, minority interests and extraordinary item increased 117% to $23,506,000, compared to $10,852,000 in 1996. This increase in earnings was primarily the result of higher gross profits, which were in turn partially offset by the increases in selling, general and administrative expenses and interest expense. The Company's higher earnings before income taxes caused the tax provision to increase to $9,086,000 in 1997, compared to $4,132,000 in 1996. The effective tax rate was approximately 39% in 1997 compared to 38% in 1996. During 1997, net earnings increased 91% to $12,809,000, compared to $6,720,000 in 1996. FISCAL YEAR 1996 VS. FISCAL YEAR 1995 Production. During 1996, the pounds of metal processed by the Company increased 10% to 1,451 million pounds, compared to 1,323 million pounds processed in 1995. Increases from the 23 24 Bedford, Chicago Heights and Sikeston facilities (which were acquired during the fourth quarter of 1995) were the principal reasons for the increase in production volumes. Revenues. During 1996, revenues increased 49% to $210,871,000, compared to revenues of $141,167,000 in 1995. The percentage increase in revenues was greater than the relative increase in volumes processed due to higher levels of buy/sell business during 1996 as compared to 1995. The increased levels of buy/sell business were principally attributable to the Chicago Heights and Sikeston facilities acquired in October 1995. Gross Profits. During 1996, gross profits decreased 17% to $25,538,000, compared to gross profits of $30,939,000 in 1995. During the third quarter of 1996, the Company recorded charges in cost of sales totaling $4,177,000, resulting from management's decision to close the Company's Corona, California recycling facility and to accelerate the closure of the first cell of the Company's dedicated solid waste landfill in Morgantown, Kentucky. The Corona facility had operated far below its capacity and had recorded losses throughout 1996, due to a precipitous decline in demand for aluminum from the Far East, the plant's largest market. Before these third quarter charges to cost of sales, 1996's gross profits of $29,715,000 were 4% lower than 1995's gross profits. The decline was due to higher energy and salt cake disposal costs and because the Company's Corona and Bedford plants experienced lower operating rates than anticipated. In addition, gross profits were negatively affected by a decline in industry conditions during 1996. SG&A Expenses. During 1996, selling, general and administrative costs increased 17% to $11,774,000, compared to $10,027,000 in 1995. This increase occurred as a result of the addition of key personnel required to manage the Company's accelerated growth since 1994 and because of the added selling, general and administrative costs associated with acquisitions in 1995. Interest. During 1996, interest expense increased 219% to $3,421,000, compared to interest expense of $1,073,000 in 1995. The increase was the result of additional long-term debt outstanding during 1996 which was incurred to fund the Company's fourth quarter 1995 acquisitions of the Chicago Heights, Sikeston and Bedford facilities, the first quarter 1996 investment in the Company's joint venture in Germany and the 1996 construction of the new Coldwater, Michigan facility. Interest income rose to $623,000 compared to $424,000 in 1995. This increase was due to higher average balances of invested cash during 1996. Net Earnings. During 1996, the Company's earnings before income taxes decreased 47% to $10,852,000, compared to $20,363,000 in 1995. As discussed above, approximately 44% of this decrease was due to the additional third quarter charges to cost of sales of $4,177,000, resulting from management decisions to close the Company's Corona, California facility and to accelerate the closure of the first cell of the Company's landfill in Morgantown, Kentucky. Excluding these items, 1996's net earnings before income taxes would have been $15,029,000, or 26% lower than 1995's net earnings before income taxes. This 26% decline was greater than the 4% decline in gross profits (excluding the third quarter charges to cost of sales) due to the higher selling, general and administrative expenses and higher interest expense. 24 25 The Company's lower earnings before income taxes caused the tax expense provision to fall to $4,132,000 in 1996 compared to $7,893,000 in 1995. The effective tax rate was approximately 38% in 1996 compared to 39% in 1995. LIQUIDITY AND CAPITAL RESOURCES The Company has historically financed its operations, capital expenditures and certain capacity expansions from internally generated cash and its working capital credit facilities. Acquisitions and the balance of its capacity expansions have been financed from a combination of internally generated funds, long-term borrowings and public stock offerings. Cash Flows from Operations. During 1997, operations provided cash of $30,368,000, compared to $6,744,000 in 1996. Earnings before noncash charges increased 110% or $7,407,000, and depreciation, amortization and deferred taxes increased 57% or $6,535,000, compared to 1996. These increases were primarily due to plant acquisitions during 1997. Changes in the components of operating assets and liabilities (excluding those attributable to investing and financing transactions) used $2,832,000 in cash in 1997, compared to $15,291,000 in cash used during 1996. As of December 31, 1997, the Company's current ratio increased to 2.71, compared to 2.58 as of December 31, 1996. For the reasons discussed above, working capital fluctuates as the mix of buy/sell business and tolling business changes. The Company's working capital requirements are expected to increase in 1998 due to anticipated higher levels of buy/sell business and increased processing volumes due to the acquisition of the Coldwater, Michigan alloying facility and the operations at the new Wales facility. Cash Flows from Investing Activities. During 1997, net cash used by investing activities increased 310% to $124,461,000, compared to $30,345,000 in 1996. The increase was primarily a result of the first quarter 1997 acquisition of the Idaho, Utah and Arizona facilities and the fourth quarter 1997 acquisition of the Michigan alloying facility. In addition, the Company's total payments for property, plant and equipment (excluding acquisitions) in 1997 increased 122% to $37,159,000, compared to $16,711,000 spent in 1996. During 1997, major projects included the construction of new aluminum recycling facilities in Coldwater, Michigan and Swansea, Wales, the relocation of the Company's zinc recycling facility and the purchase of various environmental equipment. Capital expenditures for property, plant and equipment in 1998 are expected to total approximately $34,500,000. Major projects include the installation of a reverberatory furnace and delacquering equipment at the Morgantown, Kentucky facility, purchases of environmental equipment, the expansion of the Company's landfill in Morgantown, Kentucky and upgrades to various furnaces. Cash Flows from Financing Activities. During 1997, net cash provided from financing activities increased 347% to $89,434,000, compared to $19,993,000 in 1996. In connection with its January 1997 acquisitions, the Company entered into its Credit Agreement with certain lenders, borrowing $110,000,000 at the closing and using approximately $61,000,000 to fund the acquisitions and $49,000,000 to retire substantially all of the Company's outstanding debt as of December 31, 1996. Financing activities also included cash payments of $2,702,000 in dividends during 1997 compared to $2,371,000 in 1996. 25 26 In November 1997, the Company issued and sold 2,645,000 (inclusive of 345,000 shares from the exercise of the underwriters' over-allotment option) shares of its Common Stock through an underwritten public offering (the "Offering") at a price to public of $18.00 per share. The Company received net proceeds of approximately $44,799,000, after deducting underwriting discounts and commissions and Offering expenses. The Company used the net proceeds to reduce outstanding indebtedness originally incurred under the Credit Agreement in January 1997. See NOTE H--"LONG-TERM DEBT AND EXTRAORDINARY LOSS ON EARLY DEBT RETIREMENT" of Notes to Consolidated Financial Statements. On November 5, 1997, the Company renegotiated the terms of the Credit Agreement with its lenders, entering into the Amended and Restated Credit Agreement. The Amended and Restated Credit Agreement provides for a reducing revolving credit facility of up to $200,000,000, which allowed the Company to consolidate the unpaid amount of the outstanding indebtedness of $96,755,000 and $15,100,000 under the original Credit Agreement's term loan and revolving credit facilities, respectively, and permitted the Company to acquire Alchem. The Company funded the cash portion of the consideration to acquire Alchem and repaid a portion of Alchem's outstanding indebtedness from borrowings under the Amended and Restated Credit Agreement. Indebtedness under the Amended and Restated Credit Agreement will mature in December 2003. The Amended and Restated Credit Agreement provides that the maximum amount of commitments under the facility will be reduced on an annual basis beginning in December 1999, so that by December 31, 2002, the maximum amount of aggregate commitments may not exceed $100,000,000. As of December 31, 1997, the Company had $96,225,000 in indebtedness outstanding under the Amended and Restated Credit Agreement and had $102,023,000 available for borrowings. The Amended and Restated Credit Agreement bears interest, at the Company's option, at fluctuating interest rates based upon an alternate base rate (which may be the prime rate), or a rate based upon the applicable LIBOR rate plus a credit margin which is based upon the Company's ratio of total debt to total capitalization. In addition, the Company pays a commitment fee for unborrowed amounts available under the reducing revolving facility, initially in the amount of 0.30% of the aggregate nonutilized revolving credit commitments, and after March 31, 1998, an amount based upon the Company's ratio of debt to total capitalization. At December 31, 1997, the Company had standby letters of credit outstanding with TCB and American National Bank and Trust Company in the amounts of $1,752,000 and $1,044,000, respectively. The Company has also entered into an interest rate cap transaction agreement with TCB. See ITEM 7A. "QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK." The Amended and Restated Credit Agreement is secured by a first lien mortgage and security interest on seven plant facilities owned by the Company, as well as security interests in equipment, accounts receivable, inventories and certain intellectual property and general intangibles. The facilities are additionally secured by a pledge of the capital stock and equity interests of substantially all of the Company's wholly-owned subsidiaries and certain joint ventures in which the Company is directly or indirectly a joint venturer. Additionally, substantially all of the Company's wholly-owned subsidiaries have guaranteed the Company's obligations under the credit facilities. The Amended and Restated Credit Agreement provides that if (i) the Company's senior unsecured long-term indebtedness for borrowed money is rated at least BBB- or Baaa3 by Standard & Poor's and Moody's, or (ii) during four consecutive fiscal quarters the Company's leverage ratio and debt to capitalization ratio meet certain requirements, 26 27 then the lenders' liens in the collateral may be released upon the request and at the expense of the Company. See NOTE H--"LONG-TERM DEBT AND EXTRAORDINARY LOSS ON EARLY DEBT RETIREMENT" of Notes to Consolidated Financial Statements. The Amended and Restated Credit Agreement contains certain covenants, representations and warranties by the Company and its subsidiary guarantors, including (i) limitations on the ability to dispose of assets of the Company and its subsidiaries or equity interests of subsidiaries, (ii) limitations on acquisitions of unaffiliated businesses other than certain scheduled specified transactions, and additional unscheduled acquisitions and investments not to exceed $75,000,000 in the aggregate (excluding the Alchem acquisition), (iii) restrictions on liens and indebtedness permitted to be incurred or assumed by the Company and its subsidiaries, other than as otherwise scheduled or permitted under the Amended and Restated Credit Agreement, and (iv) restrictions on investments by the Company and its subsidiaries. The Amended and Restated 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 agreement, then the Company is permitted to make cash dividend payments in an aggregate amount of up to $4,000,000 in 1997, $5,000,000 in 1998, $6,000,000 in 1999 and in 2000, and $8,000,000 in any year thereafter (see ITEM 5. "MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS"). The Amended and Restated Credit Agreement further contains provisions restricting the amount of capital expenditures that the Company and its subsidiaries may make in any fiscal year ($38,000,000 in fiscal 1997 and $35,000,000 for each fiscal year thereafter, not including capital expenditures for the acquisition of Alchem and certain other permitted acquisitions). Finally, the agreement requires the Company to maintain and comply with certain financial covenants and ratios, including a maximum debt to capitalization ratio, a minimum interest coverage ratio and a covenant requiring that certain minimum net worth amounts be maintained. In May 1996, the Company borrowed $5,740,000 from the issuance of Solid Waste Disposal Facilities Revenue Bonds (Series 1996) 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. The indebtedness under the 1996 bonds bears interest at the rate of 7.65% per annum and matures on May 1, 2016. On April 15, 1997, the Company borrowed an additional $4,600,000 from the issuance 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 second landfill cell and to fund additional construction costs of its salt cake processing facility in Morgantown. The indebtedness under the 1997 bonds bears interest at the rate of 7.45% per annum and matures on May 1, 2022. Contingencies. On May 8, 1997, Harvard Industries, Inc. ("Harvard") announced that it and its wholly-owned subsidiary, Doehler-Jarvis, Inc. ("Doehler-Jarvis"), had filed for protection under Chapter 11 of the U.S. Bankruptcy Code. The Company sells aluminum to Doehler-Jarvis. At December 31, 1997, the Company had $3,492,000 of outstanding unsecured receivables from Doehler-Jarvis, net of related reserves. While the Company currently believes that Harvard's bankruptcy will not have a material adverse effect on the Company's financial position or results of operations, no assurance can be given as to the amount and timing of the Company's ultimate recovery, if any, of its claims. The Company's revenues from Doehler-Jarvis totaled $12,350,000 and $17,490,000 for the years ended December 31, 1997 and 1996, respectively. The Company 27 28 believes that the loss of this customer would not have a material adverse effect on the Company's financial position or results of operations. The Company believes that its cash on hand, the resources available under the terms of the Amended and Restated Credit Agreement and anticipated 1998 cash provided by operations should provide the financial resources necessary to fund its capital requirements and to meet its obligations in 1998 and for the foreseeable future. TECHNOLOGY FOR THE YEAR 2000 The Company relies on software technology to deliver its services and has taken actions to evaluate the nature and extent of the work required to make its systems and infrastructure "Year 2000" compliant. The Company believes that its primary operations and accounting software vendors are Year 2000 compliant. However, the Company has identified potential Year 2000 issues with certain subsidiaries and a joint venture partner, and is currently developing plans to convert or modify those systems in order to achieve Year 2000 compliance. Based on preliminary information, the Company believes that it will be able to manage its total Year 2000 transition without any material adverse effect on its business, financial position or results of operations. However, the Company cannot presently determine the impact on its customers and suppliers in the event that its customers or suppliers may be Year 2000 non-compliant, and in such event, whether such non-compliance may have a material adverse effect on the Company's results of operations or financial position. The Company is in the process of contacting its customers and suppliers to determine the status of their respective Year 2000 compliance programs. CAUTIONARY STATEMENTS FOR PURPOSES OF FORWARD-LOOKING STATEMENTS Certain information contained in this ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and in ITEM 1. "BUSINESS" (as well as certain oral statements made by or on behalf of the Company) may be deemed to be forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995 and are subject to the "Safe Harbor" provisions in that enacted legislation. This information includes, without limitation, statements concerning future revenues, future earnings, future costs, future margins and future expenses; future acquisitions or corporate combinations, plans for domestic or international expansion, facility construction schedules and projected completion dates, and anticipated technological advances; future capabilities of the Company to achieve "closed loop recycling" on a commercially efficient basis; prospects for the Company's joint venture partners to purchase a portion of the Company's interests; future (or extensions of existing) long-term supply contracts with its customers; the outcome of and any liabilities resulting from any claims, investigations or proceedings against the Company or its subsidiaries; future levels of dividends (if any); the future mix of business, future asset recoveries, future operations, future demand, future industry conditions, future capital expenditures, future financial condition, and the impact of the "Year 2000" technology transition on the Company, its customers and suppliers. These statements are based on current expectations and involve a number of risks and uncertainties. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. 28 29 When used in or incorporated by reference into this Annual Report on Form 10-K, the words "anticipate," "estimate," "expect," "may," "project" and similar expressions are intended to be among the statements that identify forward-looking statements. Important factors that could affect the Company's actual results and cause actual results to differ materially from those results that might be projected, forecasted, estimated or budgeted by the Company in such forward-looking statements include, but are not limited to, the following: fluctuations in operating levels at the Company's facilities, the mix of buy/sell business as opposed to tolling business, retention and financial condition of major customers, effects of future costs, collectibility of receivables, the inherent unpredictability of adversarial or administrative proceedings, effects of environmental and other governmental regulations, currency exchange rate fluctuations, trends in the Company's key markets, the price of and supply and demand for aluminum on world markets and future levels and timing of capital expenditures. These statements are further qualified by the following: * Estimates of future operating rates at the Company's plants are based on current expectations by management of the Company of future levels of volumes and prices for the Company's services or metal, and are subject to fluctuations in customer demand for the Company's services and prevailing conditions in the metal markets, as well as certain components of the Company's cost of operations, including energy and labor costs. Many of the factors affecting revenues and costs are outside of the control of the Company, including weather conditions, general economic and financial market conditions, and governmental regulation and factors involved in administrative and other proceedings. The future mix of buy/sell vs. tolling business is dependent on customers' needs and overall demand, world and U.S. market conditions then prevailing in the respective metal markets, and the operating levels at the Company's various facilities at the relevant time. * The price of primary aluminum and other metals is subject to worldwide market forces of supply and demand and other influences. Prices can be volatile, which could affect the Company's buy/sell aluminum business. The Company's use of contractual arrangements including long-term agreements and forward contracts may reduce the Company's exposure to this volatility but does not eliminate it. * The markets for most aluminum products are highly competitive. The major primary aluminum producers are larger than the Company in terms of total assets and operations and have greater financial resources. In addition, aluminum competes with other materials such as steel, vinyl, plastics and glass, among others, for various applications in the Company's key markets. Unanticipated actions or developments by or affecting the Company's competitors and/or willingness of customers to accept substitutions for aluminum products could affect the Company's financial position and results of operations. * Fluctuations in the costs of fuels, raw materials and labor can affect the Company's financial position and results of operations. * The Company's key transportation market is cyclical, and sales to that market in particular can be influenced by economic conditions. 29 30 * A strike at a customer facility or a significant downturn in the business of a key customer supplied by the Company could affect the Company's financial position and results of operations. * The Company spends substantial capital and operating amounts relating to ongoing compliance with environmental laws. In addition, the Company is involved in certain investigations and actions in connection with environmental compliance and past disposals of solid waste. Estimating future environmental compliance and remediation costs is imprecise due to the continuing evolution of environmental laws and regulatory requirements and uncertainties about their application to the Company's operations, the availability and applicability of technology and the allocation of costs among principally responsible parties. Unanticipated material legal proceedings or investigations could affect the Company's financial position and results of operations. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's market risks include (1) floating interest rate risk on its long-term debt, (2) foreign currency risk from its operations outside the United States, (3) price risk for natural gas used in its production process, (4) price risk for aluminum in its buy/sell and by-product processing businesses and (5) credit risk from customers. The Company uses derivative financial instruments to manage some of these risks; these financial instruments are not used for speculative purposes. See NOTE A--"SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES" of Notes to Consolidated Financial Statements. In order to reduce the fluctuating interest rate exposure on the term loan under the January 1997 Credit Agreement (See ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--LIQUIDITY AND CAPITAL RESOURCES"), the Company entered into an interest rate cap transaction ("Rate Cap Transaction") agreement with TCB on April 7, 1997. The cost associated with this Rate Cap Transaction is being amortized as interest expense over the four year term of the agreement. As of December 31, 1997, the floating interest rate was capped at 8% per annum for 41.4% of the total borrowings under the Amended and Restated Credit Agreement. During 1997, the financial impact of gains and losses from foreign currency exchange rate fluctuations associated with the construction and operation of the Company's Wales facility and VAW-IMCO was immaterial. Natural gas is the Company's second largest cost component. In order to manage its upside price exposure for natural gas purchases, the Company has, at times, fixed the future price of a portion of its natural gas requirements by entering into firm-priced physical commitments. In addition, the Company has cost escalators included in some of its long-term supply contracts with its customers, which limit the Company's exposure to natural gas price risk. As of February 28, 1998, approximately 25% of the Company's projected natural gas requirements were locked-in at firm delivery prices for 24 months. Aluminum ingot is an internationally priced, sourced and traded commodity, and its principal trading market is the London Metal Exchange. From time to time, the Company has entered into 30 31 forward sale contracts and a series of put and call option contracts with metal brokers to cover the future selling prices on a portion of the aluminum generated by the Company's salt cake processing facility in Kentucky. These contracts are settled in the month of the corresponding production. The contracts did not have a significant effect on the Company's financial position or results of operations for 1997. Based upon the Company's increased levels of aluminum buy/sell business in recent years (see ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"), it is likely that the degree of the Company's metals hedging activities will increase during 1998 and for the foreseeable future. In May 1997, one of the Company's customers filed for protection under Chapter 11 of the U.S. Bankruptcy Code--see ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--LIQUIDITY AND CAPITAL RESOURCES" above. Because the Company is not yet required to provide the disclosures otherwise mandated under Item 305 of Regulation S-K promulgated by the Securities and Exchange Commission (pursuant to General Instruction 1. of General Instructions to Paragraphs 305(a), 305(b), 305(c), 305(d) and 305(e)), the foregoing disclosures under this ITEM 7A. "QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK." do not and are not intended to comply with Item 305. 31 32 ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA INDEX OF FINANCIAL STATEMENTS OF IMCO RECYCLING INC. AND SUBSIDIARIES PAGE ---- Report of Ernst & Young LLP, Independent Auditors 33 Consolidated Balance Sheets at December 31, 1997 and 1996 34 Consolidated Statements of Earnings for the three years ended December 31, 1997 35 Consolidated Statements of Cash Flows for the three years ended December 31, 1997 36 Consolidated Statements of Changes in Stockholders' Equity for the three years ended December 31, 1997 37 Notes to Consolidated Financial Statements 38-53 All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. 32 33 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Stockholders and Board of Directors IMCO Recycling Inc. We have audited the accompanying consolidated balance sheets of IMCO Recycling Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of IMCO Recycling Inc. and subsidiaries at December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Dallas, Texas February 2, 1998 33 34 IMCO RECYCLING INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, ------------------------------ 1997 1996 ------------ ------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 405 $ 5,070 Accounts receivable 52,163 33,655 Inventories 34,556 11,847 Deferred income taxes 2,782 1,462 Other current assets 1,746 1,282 ------------ ------------ Total Current Assets 91,652 53,316 Property and equipment, net 142,100 86,308 Excess of acquisition cost over the fair value of net assets acquired, net of accumulated amortization of $4,053 and $4,607 at December 31, 1997 and 1996, respectively 74,658 9,362 Investments in joint ventures 14,271 14,187 Other assets, net 9,855 1,534 ------------ ------------ $ 332,536 $ 164,707 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 25,902 $ 14,351 Accrued liabilities 7,254 2,192 Short-term debt -- 2,000 Current maturities of long-term debt 648 2,124 ------------ ------------ Total Current Liabilities 33,804 20,667 Long-term debt 109,194 48,202 Deferred income taxes 11,278 5,856 Other long-term liabilities 9,336 1,647 STOCKHOLDERS' EQUITY Preferred stock; par value $.10; 8,000,000 shares authorized; none issued -- -- Common stock; par value $.10; 20,000,000 shares authorized; 16,515,750 issued at December 31, 1997; 12,017,914 issued at December 31, 1996 1,652 1,202 Additional paid-in capital 96,519 27,553 Retained earnings 71,096 61,021 Treasury stock, at cost; 39,354 shares at December 31, 1997; 118,551 shares at December 31, 1996 (343) (1,441) ------------ ------------ Total Stockholders' Equity 168,924 88,335 ------------ ------------ $ 332,536 $ 164,707 ============ ============
See Notes to Consolidated Financial Statements. 34 35 IMCO RECYCLING INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------ 1997 1996 1995 ------------ ------------ ------------ Revenues $ 339,381 $ 210,871 $ 141,167 Cost of sales 291,527 185,333 110,228 ------------ ------------ ------------ Gross profits 47,854 25,538 30,939 Selling, general and administrative expense 17,612 11,774 10,027 Interest expense 7,331 3,421 1,073 Interest income (413) (623) (424) Equity in (earnings) loss of affiliates (182) 114 (100) ------------ ------------ ------------ Earnings before provision for income taxes, minority interests and extraordinary item 23,506 10,852 20,363 Provision for income taxes 9,086 4,132 7,893 ------------ ------------ ------------ Earnings before minority interests and extraordinary item 14,420 6,720 12,470 Minority interests, net of provision for income taxes 293 -- -- ------------ ------------ ------------ Earnings before extraordinary item 14,127 6,720 12,470 Extraordinary item, net (1,318) -- -- ------------ ------------ ------------ Net earnings $ 12,809 $ 6,720 $ 12,470 ============ ============ ============ Net earnings per common share: Basic: Earnings before extraordinary item $ 1.08 $ 0.57 $ 1.08 Extraordinary item (0.10) -- -- ------------ ------------ ------------ Net earnings $ 0.98 $ 0.57 $ 1.08 ============ ============ ============ Diluted: Earnings before extraordinary item $ 1.06 $ 0.55 $ 1.05 Extraordinary item (0.10) -- -- ------------ ------------ ------------ Net earnings $ 0.96 $ 0.55 $ 1.05 ============ ============ ============ Weighted average shares outstanding: Basic 13,066 11,852 11,581 Diluted 13,293 12,130 11,858 Dividends declared per common share $ 0.20 $ 0.20 $ 0.105
See Notes to Consolidated Financial Statements. 35 36 IMCO RECYCLING INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------ 1997 1996 1995 -------------- -------------- ------------ OPERATING ACTIVITIES Earnings before extraordinary item $ 14,127 $ 6,720 $ 12,470 Depreciation and amortization 16,511 11,316 9,353 Provision for deferred income taxes 1,516 176 1,167 Other noncash charges 1,046 246 135 Provision for plant closure -- 3,577 -- Changes in operating assets and liabilities: Accounts receivable 12,256 (6,282) 3,330 Inventories 2,594 (3,728) (1,756) Other current assets 379 72 (546) Accounts payable and accrued liabilities (18,061) (5,353) 1,563 ------------ ------------ ------------ NET CASH FROM OPERATING ACTIVITIES 30,368 6,744 25,716 INVESTING ACTIVITIES Payments for property and equipment (37,159) (16,711) (15,538) Acquisition of IMSAMET, Inc., net of cash acquired (59,882) -- -- Acquisition of Alchem Aluminum, Inc., net of cash acquired (25,430) -- -- Acquisitions of other businesses and investments in joint ventures 163 (13,681) (20,137) Other (2,153) 47 (731) ------------ ------------ ------------ NET CASH USED BY INVESTING ACTIVITIES (124,461) (30,345) (36,406) FINANCING ACTIVITIES Net proceeds from (repayments of) short-term borrowings (8,351) 2,000 -- Proceeds from issuance of long-term debt 236,525 20,517 20,000 Principal payments of long-term debt (181,372) (2,162) (1,477) Net proceeds from public stock offering 44,799 -- -- Dividends paid (2,702) (2,371) (2,371) Other 535 2,009 362 ------------ ------------ ------------ NET CASH FROM FINANCING ACTIVITIES 89,434 19,993 16,514 Effect of exchange rate differences on cash and cash equivalents (6) -- -- ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents (4,665) (3,608) 5,824 Cash and cash equivalents at January 1 5,070 8,678 2,854 ------------ ------------ ------------ Cash and cash equivalents at December 31 $ 405 $ 5,070 $ 8,678 ============ ============ ============ SUPPLEMENTARY INFORMATION Cash payments for interest $ 9,087 $ 3,083 $ 1,357 Cash payments for income taxes $ 5,940 $ 7,440 $ 6,440 Fair value of the shares issued in the acquisition of Alchem Aluminum, Inc. $ 17,250 -- -- Fair value of the shares issued in the acquisition of Rock Creek Aluminum, Inc. $ 7,125 -- --
See Notes to Consolidated Financial Statements. 36 37 IMCO RECYCLING INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
COMMON STOCK ADDITIONAL TREASURY STOCK -------------------------- PAID-IN RETAINED ------------------------- SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT ---------- ----------- --------------- ------------ --------- ---------- BALANCE AT DECEMBER 31, 1994 11,756,698 $ 1,176 $ 23,511 $ 45,421 (244,910) $ (1,818) Net earnings -- -- -- 12,470 -- -- Cash dividend -- -- -- (1,219) -- -- Exercise of stock options -- -- 234 -- 36,938 (56) Purchase of Alumar Associates 208,213 20 3,354 -- -- -- Tax benefit from the exercise of nonqualified stock options -- -- 183 -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- BALANCE AT DECEMBER 31, 1995 11,964,911 1,196 27,282 56,672 (207,972) (1,874) Net earnings -- -- -- 6,720 -- -- Cash dividend -- -- -- (2,371) -- -- Issuance of common stock for services 3,003 1 51 -- -- -- Exercise of stock options -- -- (586) -- 89,421 433 Tax benefit from the exercise of nonqualified stock options -- -- 806 -- -- -- Exercise of warrants 50,000 5 -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- BALANCE AT DECEMBER 31, 1996 12,017,914 1,202 27,553 61,021 (118,551) (1,441) Net earnings -- -- -- 12,809 -- -- Cash dividend -- -- -- (2,702) -- -- Net proceeds from public stock offering 2,645,000 264 44,535 -- -- -- Purchase of Rock Creek Aluminum 618,137 62 7,063 -- -- -- Purchase of Alchem Aluminum 1,208,339 121 17,129 -- -- -- Issuance of common stock for services 7,493 1 127 -- -- -- Exercise of stock options 18,867 2 (212) -- 79,197 1,098 Tax benefit from the exercise of nonqualified stock options -- -- 324 -- -- -- Foreign currency translation adjustment -- -- -- (32) -- -- ---------- ---------- ---------- ---------- ---------- ---------- BALANCE AT DECEMBER 31, 1997 16,515,750 $ 1,652 $ 96,519 $ 71,096 (39,354) $ (343) ========== ========== ========== ========== ========== ==========
See Notes to Consolidated Financial Statements. 37 38 IMCO RECYCLING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 (DOLLARS IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE A-- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF CONSOLIDATION: The accompanying consolidated financial statements include the accounts of IMCO Recycling Inc. and all of its majority owned subsidiaries (the "Company"). All significant intercompany accounts and transactions have been eliminated upon consolidation. Investments in affiliated companies, owned 50% or less, are accounted for using the equity method. The Company's principal business involves the ownership and operation of aluminum recycling and alloying facilities. Scrap material is recycled for a fee and then the material is returned to its customers, some of whom are the world's largest aluminum and automotive companies. Scrap is also purchased on the open market, recycled and sold. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH EQUIVALENTS: All highly liquid investments with a maturity of three months or less when purchased are considered cash equivalents. The carrying amount approximates fair value because of the short maturity of those instruments. INVENTORIES: Inventories are stated at the lower of cost or market. Cost is determined using the specific identification method and includes an allocation of average manufacturing labor and overhead costs to finished goods. Certain inventories of an acquired business in 1997 were valued using the last-in, first-out (LIFO) method, which approximated specific identification values as of December 31, 1997. CREDIT RISK: The majority of the Company's accounts receivable are due from companies in the aluminum industry. Credit is extended based on evaluation of the customers' financial condition and, generally, collateral is not required. Credit losses historically have been immaterial. PROPERTY AND EQUIPMENT: Property and equipment are stated at cost. Major renewals and improvements are capitalized, while maintenance and repairs are expensed when incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. 38 39 Landfill closure costs are currently estimated to be approximately $7,000,000 and are being accrued as space in the landfills are used. Landfill costs are depreciated as space in the landfill is used. The Company reviews its property and equipment for impairment when changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is measured as the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset less disposal costs. Interest is capitalized in connection with the construction of major facilities. Capitalized interest costs for 1997, 1996 and 1995 were $1,386,000, $237,000 and $438,000 respectively. AMORTIZATION OF INTANGIBLES: The excess of original acquisition cost over the fair value of net assets acquired (goodwill) is amortized on a straight-line basis over their expected life, currently from 15-40 years. Management regularly reviews the remaining goodwill with consideration toward recovery through future operating results. Goodwill is valued on an undiscounted basis. Deferred debt issuance costs, included in other assets, are being amortized over the term of the long-term debt. Organizational costs are being amortized on a straight-line basis from 5-15 years. Patents are amortized over their remaining legal lives. NET EARNINGS PER SHARE: In 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share. Statement 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been restated, as required, to conform to Statement 128. STOCK-BASED COMPENSATION: The Company follows Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related interpretations in accounting for its employee stock options. Under APB 25, if the exercise price of employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recorded. MARKET RISK MANAGEMENT USING FINANCIAL INSTRUMENTS: In order to reduce the floating interest rate risk on its long-term debt, the Company entered into an interest rate cap transaction in 1997 (see NOTE H). In order to manage its price exposure for natural gas purchases, the Company has, at times, fixed the future price of a portion of its natural gas requirements by entering into firm-priced physical commitments. In addition, the Company has cost escalators included in some of its long-term supply contracts with its customers, which limit the Company's exposure to natural gas price 39 40 risk. As of December 31, 1997, approximately 29% of the Company's projected 1998 annual natural gas requirements were locked-in at firm delivery prices. From time to time, the Company has entered into forward sale contracts and a series of put and call option contracts with metal brokers to cover the future selling prices on a portion of the aluminum generated by the Company's salt cake processing facility in Kentucky. These contracts are settled in the month of the corresponding production. The contracts did not have a significant effect on the Company's financial position or results of operations for 1997. FOREIGN CURRENCY TRANSLATION: The Company's U.K. subsidiary uses the British Pound Sterling as their functional currency. Adjustments resulting from the translation into U.S. dollars are reflected as a separate component of Stockholders' Equity, and foreign currency transaction gains and losses are reflected in the Statement of Earnings. The gains and losses on foreign currency exchange rate fluctuations and the translation adjustments for 1997 were immaterial. NEW ACCOUNTING STANDARDS: In 1997, the Financial Accounting Standards Board issued Statement No. 130, "Reporting Comprehensive Income," which is effective for periods beginning after December 31, 1997. Statement 130 establishes standards for reporting and display of comprehensive income and its components. The Company will adopt Statement 130 in the first quarter of 1998, and the impact is not expected to be material. In 1997, the Financial Accounting Standards Board issued Statement No. 131, "Disclosure about Segments of an Enterprise and Related Information," which is effective for periods beginning after December 15, 1997. Statement 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The Company will adopt the new requirement retroactively in 1998. Management has not completed its review of the impact of Statement 131, but anticipates that the adoption of this statement will not affect the number of segments the Company is required to report. PRIOR YEAR RECLASSIFICATIONS: Certain reclassifications have been made to prior year statements to conform to the current year presentation. NOTE B--ACQUISITIONS AND INVESTMENTS In November 1997, the Company acquired all of the capital stock of Alchem Aluminum, Inc. ("Alchem") in exchange for approximately $26,000,000 cash and the assumption of debt and 1,208,339 shares of the Company's Common Stock. The shares of Common Stock that were issued to the Alchem shareholders are contractually restricted from resale for periods of up to three years, and the Alchem shareholders have certain registration rights with respect to such 40 41 shares of 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 approximately $17,000,000 and is being amortized over forty years on a straight-line basis. Alchem is a producer of specification aluminum alloys for automotive manufacturers and their suppliers and has been operating its facility located in Coldwater, Michigan since 1972. Alchem and the Company had been operating under a joint venture agreement entered into in October 1995 to construct and operate an aluminum recycling plant adjacent to Alchem's processing facility in Coldwater. The preliminary allocation of the purchase price of Alchem is as follows: Working capital $ 14,938 Property and equipment 10,959 Goodwill 16,852 Other noncurrent assets 4,228 Noncurrent liabilities (18,819) -------- Total $ 28,158 ========
During 1997, the Company and Alchem completed the construction of a $17,000,000 aluminum recycling facility in Coldwater, Michigan. This facility, which delivers molten metal to the Company's Alchem subsidiary, commenced operations in the first quarter of 1997 and reached full capacity in the fourth quarter of 1997. In January 1997, the Company acquired all of the capital 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 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. 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 fair values. The excess of the purchase price over the fair value of net assets acquired is approximately $42,000,000 and is being amortized over forty years on a straight-line basis. The allocation of the purchase price of IMSAMET is as follows: Working capital $ 4,674 Property and equipment 19,852 Goodwill 41,976 Other noncurrent assets 914 Noncurrent liabilities (7,176) ---------- Total $ 60,240 ==========
Also in January 1997, the Company acquired, in a privately-negotiated transaction, all of the capital 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 41 42 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 two Ohio facilities located in 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 Company's results of operations include the results of IMSAMET and Rock Creek from January 1, 1997 and the results of Alchem from November 1, 1997. The following table sets forth pro forma results of operations of the combined entities of the Company and Alchem for the year ended December 31, 1997 and the Company and IMSAMET, Rock Creek and Alchem for the year ended December 31, 1996, assuming the acquisitions had been consummated on January 1 of the respective years. 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 acquisitions been consummated on such dates or of future results of the combined companies under the ownership and management of the Company:
1997 1996 ------------- ------------- (UNAUDITED) (UNAUDITED) Revenues $ 461,564 $ 408,936 Gross profit 58,657 45,536 Earnings before extraordinary item 16,402 8,292 Net earnings 15,084 8,292 Earnings per common share before extraordinary item: Basic $ 1.16 $ 0.61 Diluted $ 1.14 $ 0.59 Net earnings per common share: Basic $ 1.07 $ 0.61 Diluted $ 1.05 $ 0.59
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 acquisitions (see NOTE H) and adjustments for related income taxes and minority interests. In May 1996, the Company purchased for approximately $14,000,000 a 50% interest in VAW-IMCO Gu(beta) und Recycling GmbH ("VAW-IMCO"), a joint venture in Germany. This joint venture was formed to own and operate two aluminum recycling facilities previously owned by VAW aluminium AG, an aluminum products manufacturing company in Germany. The plants primarily serve the European automotive market. In October 1995, the Company acquired all of the outstanding capital stock of Alumar Associates, Inc. ("Alumar"), which owned Metal Mark, Inc. Metal Mark, Inc. owned and operated three aluminum recycling plants located in Chicago Heights, Illinois; Sikeston, Missouri; and Pittsburg, Kansas and owned 50% of a fourth facility in East Chicago, Indiana. The value of the transaction, which was accounted for as a purchase, was approximately $16,745,000, including the assumption of $8,245,000 of long-term debt of Alumar. The 42 43 remainder of the purchase price consisted of $4,000,000 in cash and 208,213 shares of the Company's Common Stock. In 1997, the Company sold its investment in the Indiana facility. In September 1995, the Company purchased all of the assets of an aluminum recycling facility located in Bedford, Indiana from a private aluminum company. The transaction was accounted for as a purchase for approximately $8,500,000 in cash. NOTE C--INVENTORIES The components of inventories are:
DECEMBER 31, -------------------------------- 1997 1996 ------------- -------------- Finished goods $ 16,771 $ 8,642 Raw materials 17,313 2,974 Supplies 472 231 ------------- -------------- $ 34,556 $ 11,847 ============= ==============
NOTE D--PROPERTY AND EQUIPMENT The components of property and equipment are:
DECEMBER 31, -------------------------------- 1997 1996 ------------- ------------- Land, buildings and improvements $ 100,587 $ 68,890 Production equipment and machinery 89,804 55,102 Office furniture, equipment and other 6,704 4,907 ------------- ------------- 197,095 128,899 Accumulated depreciation (54,995) (42,591) ------------- ------------- $ 142,100 $ 86,308 ============= =============
Depreciation expense for 1997, 1996 and 1995 was $14,007,000, $10,249,000 and $8,590,000, respectively. Estimated useful lives for buildings and improvements range from 15 to 39 years, machinery and equipment range from 3 to 20 years and office furniture and equipment range from 3 to 10 years. In March 1992, the Company entered into an agreement with Commonwealth Industries, Inc. ("Commonwealth"), formerly Barmet Aluminum Corporation, to construct, own and operate the Uhrichsville plant adjacent to Commonwealth's rolling mill in Uhrichsville, Ohio and to supply Commonwealth with all of its recycled aluminum needs. The Uhrichsville plant, including costs for capitalized interest and for the 1994 expansion, cost approximately $20,750,000. Commonwealth has an option to acquire up to a 49% equity interest in the Company's subsidiary 43 44 that owns the Uhrichsville plant at a price based on a predetermined formula; such formula should result in a gain if Commonwealth exercised its option. NOTE E--LONG-TERM RECEIVABLE On May 8, 1997, Harvard Industries, Inc. ("Harvard") announced that it and its wholly-owned subsidiary, Doehler-Jarvis, Inc. ("Doehler-Jarvis"), had filed for protection under Chapter 11 of the U.S. Bankruptcy Code. At December 31, 1997, the Company had $3,492,000 of outstanding unsecured receivables from the sale of aluminum to Doehler-Jarvis, net of related reserves. While the Company currently believes that Harvard's bankruptcy will not have a material adverse effect on the Company's financial position or results of operations, no assurance can be given as to the amount and timing of the Company's ultimate recovery, if any, of its claims. The Company's revenues from Doehler-Jarvis totaled $12,350,000 and $17,490,000 for the years ended December 31, 1997 and 1996, respectively. The Company believes that the loss of this customer will not have a material adverse effect on the Company's financial position or results of operations. NOTE F--COMMON STOCK OFFERING In November 1997, the Company issued and sold 2,645,000 (inclusive of 345,000 shares from the exercise of the underwriters' over-allotment option) shares of its Common Stock through an underwritten public offering (the "Offering") at a price to public of $18.00 per share. The Company received net proceeds of approximately $44,799,000, after deducting underwriting discounts and commissions and Offering expenses. The Company used the net proceeds to reduce outstanding indebtedness originally incurred under the Credit Agreement in January 1997 (see NOTE H). NOTE G--INCOME TAXES The provision for income taxes was as follows:
FOR THE YEAR ENDED DECEMBER 31, ----------------------------------------- 1997 1996 1995 ------------ ------------ ------------ CURRENT: Federal $ 6,035 $ 3,587 $ 5,241 State 1,535 369 1,485 ------------ ------------ ------------ 7,570 3,956 6,726 DEFERRED: Federal 2,028 7 1,678 State (512) 169 (511) ------------ ------------ ------------ 1,516 176 1,167 ------------ ------------ ------------ $ 9,086 $ 4,132 $ 7,893 ============ ============ ============
44 45 The income tax expense computed by applying the federal statutory tax rate to earnings before income taxes differed from the provision for income taxes as follows:
FOR THE YEAR ENDED DECEMBER 31, ----------------------------------------- 1997 1996 1995 ------------ ------------ ------------ Income taxes at the federal statutory rate $ 8,227 $ 3,690 $ 7,127 Goodwill amortization, nondeductible 196 168 91 State income taxes, net 651 355 633 Other, net 12 (81) 42 ------------ ------------ ------------ Provision for income taxes $ 9,086 $ 4,132 $ 7,893 ============ ============ ============
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets are as follows:
DECEMBER 31, -------------------------- 1997 1996 ------------ ------------ Deferred tax liabilities: Accelerated depreciation and amortization $ 13,635 $ 8,139 Federal effect of state income taxes 804 473 Other 171 224 ------------ ------------ Total Deferred Tax Liabilities 14,610 8,836 Deferred tax assets: Net operating loss carryforwards 859 1,130 Tax credit carryforwards 1,900 1,470 Expenses not currently deductible 3,434 1,819 Federal effect of state income taxes 805 488 Other 44 91 ------------ ------------ Total deferred tax assets 7,042 4,998 Valuation allowance (928) (556) ------------ ------------ Net deferred tax assets 6,114 4,442 ------------ ------------ Net deferred tax liability $ 8,496 $ 4,394 ============ ============
At December 31, 1997, the Company had a $928,000 valuation allowance to reduce certain deferred tax assets to amounts that are more likely to be realized. The majority of the valuation allowance relates to the Company's ability to utilize state investment tax credits generated by the Company's Corona, California facility, which was closed in 1996, and the state recycling credits available in Kentucky. At December 31, 1997, the Company had approximately $322,000 of unused net operating loss carryforwards for federal purposes, which expire in the year 2008, and had approximately $10,656,000 for state purposes which expire in 2008 to 2012. The majority of the net operating loss carryforwards were generated by the Loudon and Bedford facilities. 45 46 At December 31, 1997, the Company had $1,900,000 of unused state investment tax credit carryforwards, $103,000 of which expire in 2011 and $1,797,000 of which do not expire. NOTE H--LONG-TERM DEBT AND EXTRAORDINARY LOSS ON EARLY DEBT RETIREMENT Long-term debt is summarized as follows:
DECEMBER 31, ---------------------------- 1997 1996 ------------ ------------ Revolving Credit Loans $ 96,225 $ - 11.18% MONY Senior Notes - 8,000 7.28% MONY Senior Notes - 15,000 7.41% MONY Senior Notes - 15,000 7.65% Morgantown, Kentucky Solid Waste Disposal Facilities Revenue Bonds-1996 Series 5,688 5,526 7.45% Morgantown, Kentucky Solid Waste Disposal Facilities Revenue Bonds-1997 Series 4,600 - Variable Rate Term Loan - 2,750 Variable Rate Converting Revolving Loan - 3,750 Other 3,329 300 ------------ ------------ Subtotal 109,842 50,326 Less current maturities 648 2,124 ------------ ------------ Total $ 109,194 $ 48,202 ============ ============
In connection with the January 1997 acquisitions (see NOTE B), the Company entered into a $125,000,000 syndicated credit agreement (the "Credit Agreement") with certain lenders, including Merrill Lynch & Co. as syndication agent and Texas Commerce Bank National Association as administrative agent ("TCB"). The Company received $110,000,000 at the closing and used approximately $61,000,000 for the IMSAMET acquisition. The remaining $49,000,000 of the proceeds was 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 in the first quarter of 1997, which consisted of early payment penalties of $1,953,000, write-off of debt costs of $243,000 and an income tax benefit of $878,000. The Credit Agreement provided for $125,000,000 of senior secured credit facilities consisting of a $105,000,000 term loan, with a final maturity of seven years, and a $20,000,000 revolving credit facility, with a final maturity of five years. Of the $20,000,000 revolving credit facility, $4,000,000 was to be used, as needed, by the Company for standby letters of credit. On November 5, 1997, the Company amended and restated the terms of the Credit Agreement with its lenders (the "Amended and Restated Credit Agreement"). The Amended and Restated 46 47 Credit Agreement provides for a reducing revolving credit facility of up to $200,000,000, which allowed the Company to consolidate the unpaid amount of its then-outstanding indebtedness of $96,755,000 and $15,100,000 under the original Credit Agreement's term loan and revolving credit facilities, respectively, and permitted the company to acquire Alchem (see NOTE B). The Company funded the cash portion of the Alchem acquisition and repaid a portion of Alchem's outstanding indebtedness from borrowings under the Amended and Restated Credit Agreement. In addition, up to $12,000,000 available under the Amended and Restated Credit Agreement may be used, as needed, by the Company for letters of credit. Indebtedness under the Amended and Restated Credit Agreement will mature in December 2003. The Amended and Restated Credit Agreement provides that the maximum amount of commitments under the facility will be reduced on an annual basis beginning in December 1999, so that by December 31, 2002, the maximum amount of aggregate commitments may not exceed $100,000,000. Indebtedness under the Amended and Restated Credit Agreement bears interest, at the Company's option, at fluctuating interest rates based upon an alternate base rate (which may be the prime rate), or a rate based upon the applicable LIBOR rate plus a credit margin which is based upon the Company's ratio of total debt to total capitalization. In addition, the Company pays a commitment fee for unborrowed amounts available under the reducing revolving facility at a rate based upon the Company's ratio of debt to total capitalization. In order to reduce the fluctuating 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. The cost associated with this Rate Cap Transaction is being amortized as interest expense over the four-year term of the agreement. As of December 31, 1997, the floating interest rate was capped at 8% per annum for 41.4% of the total borrowings under the Amended and Restated Credit Agreement. The Amended and Restated Credit Agreement imposes certain restrictions, including: (i) a prohibition of certain additional indebtedness (ii) maintenance of certain financial ratios, and (iii) limitations on investments, dividends, capital expenditures, acquisitions of businesses and dispositions of assets. The annual limitations on cash dividends are as follows: $4,000,000 for 1997, $5,000,000 for 1998, $6,000,000 per year for 1999 and 2000, and $8,000,000 for each year after 2000. The indebtedness under the Amended and Restated Credit Agreement is secured by substantially all of the Company's assets, as well as a pledge of the capital stock of substantially all of the Company's subsidiaries. At December 31, 1997, the Company had standby letters of credit outstanding with TCB and American National Bank and Trust Company in the amounts of $1,752,000 and $1,044,000, respectively. The 7.45% Morgantown, Kentucky Solid Waste Disposal Facilities Revenue Bonds (Series 1997) are due on May 1, 2022. The bonds were issued in 1997 in conjunction with the Company's expansion of its landfill in Morgantown, Kentucky and additional construction costs of its salt cake processing plant in Morgantown. The 7.65% Morgantown, Kentucky Solid Waste Disposal Facilities Revenue Bonds (Series 1996) are due on May 1, 2016. The bonds were issued in 1996 in conjunction with the Company's construction of its salt cake processing plant in Morgantown, Kentucky. The bonds were issued at a 1% discount which is being amortized over the life of the bonds. 47 48 The fair value of the Company's debt approximates its carrying value due to its recent issuance, floating rate and relatively short maturity. Scheduled maturities of long-term debt subsequent to December 31, 1997 are as follows: 1998 $ 648 1999 553 2000 282 2001 257 2002 271 After 2002 107,831 -------------- Total $ 109,842 ==============
NOTE I--NET EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
1997 1996 1995 ------------- ------------ ------------ Numerators for basic and diluted earnings per share: Net earnings before extraordinary item $ 14,127 $ 6,720 $ 12,470 Extraordinary item (1,318) -- -- ------------ ------------ ------------ Net earnings $ 12,809 $ 6,720 $ 12,470 ============ ============ ============ Denominator: Denominator for basic earnings per share-- weighted-average shares 13,066,006 11,852,066 11,580,838 Dilutive potential common shares--stock options 226,698 277,773 284,857 ------------ ------------ ------------ Denominator for diluted earnings per share 13,292,704 12,129,839 11,865,695 ============ ============ ============ Basic net earnings per share: Net earnings before extraordinary item $ 1.08 $ 0.57 $ 1.08 Extraordinary item (0.10) -- -- ------------ ------------ ------------ Net earnings $ 0.98 $ 0.57 $ 1.08 ============ ============ ============ Diluted net earnings per share: Net earnings before extraordinary item $ 1.06 $ 0.55 $ 1.05 Extraordinary item (0.10) -- -- ------------ ------------ ------------ Net earnings $ 0.96 $ 0.55 $ 1.05 ============ ============ ============
48 49 NOTE J--EMPLOYEE BENEFIT PLANS The Company has a profit-sharing retirement plan covering most of its employees who meet defined service requirements. Contributions are determined annually by the Board of Directors and may be as much as 15% of covered salaries. Contributions for 1997, 1996 and 1995 were $1,524,000, $1,366,000, and $1,331,000, respectively. The Company paid 1997's contribution in January 1998. In July 1996, the Company amended and restated the profit-sharing retirement plan to allow elective contributions as described in Internal Revenue Code Section 401(k). Subject to certain dollar limits, employees may contribute a percentage of their salaries to this plan, and the Company will match a portion of the employees' contributions. The Company's match of employee contributions totaled $582,000 and $189,000 for 1997 and 1996, respectively. NOTE K--STOCK OPTION PLANS In 1990, the Company adopted an amended and restated stock option plan, which expired in 1997. This plan provided for the granting of nonqualified and incentive stock options. The number of shares of common stock authorized for issuance under the plan was 1,200,000 shares. Options granted under the plan had various vesting periods and are exercisable for a period of 10 years from the date of grant, although options may expire earlier because of termination of employment. In 1992, the Company adopted the 1992 Stock Option Plan, which provides for the granting of nonqualified and incentive stock options to employees, officers, consultants and nonemployee members of the Board of Directors. Options granted to employees under this plan have various vesting periods. Annually, nonemployee directors will be granted nonqualified stock options exercisable after six months from the date of grant, equal to the number of shares determined by dividing the annual director fee amount by the fair market value of a share of common stock as of the date of grant. All options granted under this plan, once vested, are exercisable for a period of up to 10 years from the date of grant, although options may expire earlier because of termination of employment or service. In 1996, the Company adopted the Annual Incentive Program, which provides certain of the Company's key employees with annual incentive compensation tied to the achievement of pre-established and objective performance goals. This plan provides for the granting of stock options to key management employees, both on a discretionary basis and based upon a plan formula, in the event that the Company's return on total assets (as defined in the plan) for any bonus year exceeds 15%. Nonqualified and incentive stock options may be granted, and the terms of the plan concerning the stock options are substantially the same as the corresponding terms of the 1992 Stock Option Plan. The 1992 Stock Option Plan and the 1996 Annual Incentive Program allow for the payment of all or a portion of the exercise price and tax withholding obligations in shares of the Company's common stock delivered and/or withheld. Such payment or withholding will be valued at fair market value as of the date of exercise. Participants making use of this feature will automatically be granted a reload stock option to purchase a number of shares equal to the number of shares delivered and/or withheld. When a reload stock option is granted, a portion of 49 50 the shares issued to the participant will be designated as restricted stock for a period of five years, although the restriction may be removed earlier under certain circumstances. Reload stock options have an exercise price equal to the fair market value as of the date of exercise of the original options and will expire on the same date as the original options. In 1997, 1996, and 1995 the Company acquired from employees and placed in the treasury, 19,703, 48,806 and 40,652 shares, respectively, pursuant to provisions of the Company's stock option plan. Such shares were tendered or withheld in satisfaction of those employees' federal and state withholding taxes on compensation resulting from the exercise of nonqualified stock options and for the aggregate exercise cost of certain of the options. Transactions under the option plans are as follows:
1997 1996 1995 --------------------- --------------------- --------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE --------------------- --------------------- --------------------- Options outstanding Jan. 1 1,541,959 $ 13.65 1,291,364 $ 12.05 1,172,402 $ 10.19 Options granted 584,714 $ 15.84 395,422 $ 16.25 200,473 $ 22.55 Options exercised (117,767) $ 10.63 (138,227) $ 6.00 (77,590) $ 11.09 Options forfeited (140,473) $ 17.30 (6,600) $ 17.64 (3,921) $ 13.55 --------- --------- --------- Options outstanding at Dec. 31 1,868,433 $ 14.25 1,541,959 $ 13.65 1,291,364 $ 12.05 ========= ========= ========= Options exercisable at Dec. 31 958,285 $ 12.62 776,732 $ 11.17 714,991 $ 8.19 ========= ========= ========= Options available for grant at Dec. 31 80,331 499,821 391,646 ========= ========= =========
Information related to options outstanding at December 31, 1997, is summarized below:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------------------------------- -------------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE RANGE OF CONTRACTUAL EXERCISE EXERCISE EXERCISE PRICES OPTIONS LIFE PRICE OPTIONS PRICE - -------------------------------------- --------------- ------------ ----------- ------------ $ 4.570 - $7.550 312,000 2.6 Years $ 6.54 312,000 $ 6.54 $12.325 - $13.750 502,011 6.2 Years $ 13.34 409,711 $ 13.32 $15.000 - $19.000 890,498 7.7 Years $ 15.90 125,457 $ 16.47 $22.750 - $23.375 163,924 7.9 Years $ 22.75 111,117 $ 22.75 --------- ----------- 1,868,433 958,285 ========== ===========
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation" requires disclosure of pro forma net earnings and net earnings per common share information computed as if the Company had accounted for its employee stock options granted 50 51 subsequent to December 31, 1995 under the fair value method set forth in SFAS No. 123. The fair value of the Company's outstanding stock options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions:
1997 1996 1995 --------- --------- --------- Expected option life in years 3.4 3.9 4.0 Risk-free interest rate 6.13% 6.11% 5.59% Volatility factor 0.293 0.305 0.242 Dividend yield 1.28% 1.22% 0.89%
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the option's vesting period. In addition, because SFAS No. 123 is applicable only to options granted subsequent to December 31, 1994, the pro forma information does not reflect the pro forma effect of all previous stock option grants of the Company. Therefore, the pro forma information is not necessarily indicative of future amounts until SFAS No. 123 is applied to all outstanding stock options. The Company's pro forma information is as follows:
DECEMBER 31, ---------------------------------------- 1997 1996 1995 ------------ ---------- ------------ Earnings before extraordinary item: As reported $ 14,127 $ 6,720 $ 12,470 Pro forma $ 13,446 $ 6,406 $ 12,455 Earnings per common share before extraordinary item: As reported--basic $ 1.08 $ 0.57 $ 1.08 As reported--diluted $ 1.06 $ 0.55 $ 1.05 Pro forma--basic $ 1.03 $ 0.54 $ 1.08 Pro forma--diluted $ 1.01 $ 0.53 $ 1.05 Weighted-average fair value of options granted during the year $ 4.15 $ 4.83 $ 5.88
51 52 NOTE L--OPERATIONS During 1997, 1996 and 1995, sales to Aluminum Company of America ("Alcoa") totaled 9%, 13% and 23%, respectively, of revenues. No other customer accounted for more than 10% of revenues in 1997, 1996 and 1995. The loss of Alcoa would have a material adverse effect upon the business of the Company and its future operating results. However, a significant portion of the processing for this customer is performed pursuant to long-term supply agreements. During the third quarter of 1996, the Company recorded a charge to cost of sales of $3,577,000 resulting from management's decision to close the Company's Corona, California aluminum recycling plant. The Company's operations, like those of other basic industries, are subject to federal, state, local and foreign laws, regulations and ordinances that (1) govern activities or operations that may have adverse environmental effects, such as discharges to air and water, as well as handling and disposal practices for solid and hazardous wastes and (2) impose liability for costs of cleaning up, and certain damages resulting from, past spills, disposals, or other releases of hazardous substances (together, "Environmental Laws"). It is possible that more rigorous Environmental Laws will be enacted that could require the Company to make substantial expenditures in addition to those referred to herein. From time to time, operations of the Company have resulted or may result in certain noncompliance with applicable requirements under Environmental Laws. However, the Company believes that any such noncompliance under current Environmental Laws would not have a material adverse effect on the Company's financial position or results of operations. The Illinois Environmental Protection Agency ("IEPA") recently notified the Company that its zinc subsidiary ("IZI") is a potentially responsible party ("PRP") pursuant to the Illinois Environmental Protection Act for the cleanup of contamination at a site in Marion County, Illinois to which IZI, among others, in the past sent zinc oxide for processing and resale. IZI has joined a group of PRPs that is planning to negotiate with the IEPA regarding the cleanup of the site. Although the site has not been fully investigated and final cleanup costs not yet determined, based on current cost estimates and information regarding the amount and type of materials sent to the site by IZI, the Company does not believe, although there can be no assurance, that its liability at this site will have a material adverse effect on its financial position or results of operations. 52 53 NOTE M--QUARTERLY FINANCIAL DATA (Unaudited)
FIRST SECOND THIRD FOURTH TOTAL 1997: QUARTER QUARTER QUARTER QUARTER YEAR - ----- ---------- --------- --------- --------- ---------- Revenues $ 82,528 $ 76,600 $ 77,461 $ 102,792 $ 339,381 Gross profit 10,152 12,140 12,843 12,719 47,854 Earnings before extraordinary item 2,280 3,567 4,131 4,149 14,127 Extraordinary item (1,318) - - - (1,318) Net earnings 962 3,567 4,131 4,149 12,809 Basic net earnings per common share (a): Earnings before extraordinary item 0.18 0.28 0.33 0.28 1.08 Extraordinary item (0.10) - - - (0.10) ----------- ---------- ---------- --------- ---------- Net earnings 0.08 0.28 0.33 0.28 0.98 =========== ========== ========== ========= ========== Diluted net earnings per common share (a): Earnings before extraordinary item 0.18 0.28 0.32 0.28 1.06 Extraordinary item (0.10) - - - (0.10) ----------- ---------- ---------- --------- ---------- Net earnings $ 0.08 $ 0.28 $ 0.32 $ 0.28 $ 0.96 =========== ========== ========== ========= ========== 1996 (b): - --------- Revenues $ 50,718 $ 50,465 $ 53,689 $ 55,999 $ 210,871 Gross profit 7,890 7,807 2,625 7,215 25,538 Net earnings (loss) 2,963 2,598 (798) 1,958 6,720 Net earnings (loss) per common share(a): Basic 0.25 0.22 (0.07) 0.16 0.57 Diluted $ 0.24 $ 0.21 $ (0.07) $ 0.16 $ 0.55
NOTES: (a) The earnings per share amounts have been restated, as required, to comply with the Statement of Financial Accounting Standards No. 128, Earnings per Share (see NOTE A). (b) During the third quarter of 1996, the Company recorded a charge of $4,177,000 resulting from management decisions to close the Company's Corona, California aluminum recycling plant and to accelerate the closure of the first cell of the Company's landfill in Morgantown, Kentucky. 53 54 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item with respect to directors and nominees for director of the Company appears under the captions "Election of Directors" and "Remuneration of Directors and Officers - Compliance with Section 16(a)" in the definitive Proxy Statement (herein so called) of the Company relating to the Company's 1998 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission (the "Commission") pursuant to Regulation 14A of the Securities Exchange Act of 1934, which information is incorporated herein by reference. It is currently anticipated that the Proxy Statement will be publicly available and mailed to stockholders in April 1998. Certain information as to executive officers is included herein under PART I, ITEM 4A. "EXECUTIVE OFFICERS OF THE REGISTRANT." ITEM 11. EXECUTIVE COMPENSATION The information required by this item appears under the caption "Remuneration of Directors and Officers" in the definitive Proxy Statement, which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item appears under the caption "Voting and Principal Stockholders" in the definitive Proxy Statement, which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item appears under the captions "Remuneration of Directors and Officer--Directors Compensation" and "Compensation Committee Report to Stockholders - Compensation Committee Interlocks and Insider Participation" in the definitive Proxy Statement, which information is incorporated herein by reference. 54 55 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Annual Report on Form 10-K: 1. Consolidated Financial Statements: See index to Consolidated Financial Statements and Financial Statement Schedules on Page 32 hereof. 2. Consolidated Financial Statement Schedules: See index to Consolidated Financial Statements and Financial Statement Schedules on Page 32 hereof. 3. Exhibits: 3.1 Certificate of Incorporation of IMCO Recycling Inc., as amended, filed as Exhibit 4.6 to the Company's Registration Statement on Form S-2 (No. 33-48571) and incorporated herein by reference. *3.2 By-laws of IMCO Recycling Inc., as amended, effective as of February 25, 1997. 4.1 Specimen Stock Certificate of the Common Stock, $0.10 par value, of IMCO Recycling Inc., filed as Exhibit 4.1 to the Company's Registration Statement on Form S-2 (No. 33-48571) and incorporated herein by reference. 10.1 Amended and Restated Registration Agreement, dated September 30, 1988, among IMCO Recycling Inc., Merrill Lynch Interfunding Inc., Don V. Ingram, Larry Thrasher, and PTX Partners, filed as Exhibit 10.6 to the Company's 1993 Form 10-K and incorporated herein by reference. 10.2 Amendment No. 1 to Amended and Restated Registration Agreement, dated as of December 30, 1988, filed as Exhibit 10.7 to the Company's 1994 Form 10-K and incorporated herein by reference. 10.3 Amendment, dated as of September 5, 1990, to Registration Agreement between Merrill Lynch Interfunding Inc. and Don V. Ingram, filed as Exhibit 10.8 to the Company's 1994 Form 10-K and incorporated herein by reference. *10.4 IMCO Recycling Inc. Amended and Restated Stock Option Plan. 10.5 Assignment, dated September 16, 1986, from Clarence W. Haack and Genevieve Haack to International Metal Co., filed as Exhibit 10.16 to the Company's 1994 Form 10-K and incorporated herein by reference. 10.6 Agreement, dated as of August 26, 1995, between IMCO Recycling Inc., Rockwood, Tennessee Facility, and International Union, United Steelworkers of America, and filed as Exhibit 10.17 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (the "1995 Form 10-K"), and incorporated herein by reference. 55 56 10.7 Split-Dollar Life Insurance Agreement, dated as of November 5, 1990, between Thomas W. Rogers and IMCO Recycling Inc., filed as Exhibit 10.19 to the Company's 1994 Form 10-K and incorporated herein by reference (The Company is a party to virtually identical Split-Dollar Life Insurance Agreements with Paul V. Dufour, C. Lee Newton and Richard L. Kerr. These agreements have been omitted since they are substantially identical to Mr. Rogers' in all material respects). *10.8 Supply Agreement between Barmet Aluminum Corporation (now Commonwealth Aluminum Corporation) and the Company, dated March 2, 1992. 10.9 Right of First Refusal Agreement between Barmet Aluminum Corporation (now Commonwealth Aluminum Corporation) and the Company, dated March 2, 1992, relating to Commonwealth's Indiana recycling plant, filed as Exhibit 10.23 to the Company's 1994 Form 10-K and incorporated herein by reference. 10.10 Agreement, effective as of December 1, 1995, between IMCO Recycling of Ohio Inc. and the United Mine Workers of America, and filed as Exhibit 10.24 to the Company's 1995 Form 10-K and incorporated herein by reference. 10.11 Agreement, effective as of January 1, 1994, between IMCO Recycling Inc. and Aluminum Company of America, filed as Exhibit 10.34 to the Company's 1993 Form 10-K and incorporated herein by reference. 10.12 First Amendment to processing agreement by and among the Rigid Packaging division of Aluminum Company of America, the Company and Metal Resources Inc., filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1995, and incorporated herein by reference. 10.13 Agreement and Plan of Merger, dated as of October 1, 1995, among IMCO Recycling Inc., IMCO Recycling of Illinois Inc., Alumar Associates, Inc., and the Shareholders, filed as Exhibit 1 to the Company's Current Report on Form 8-K, dated October 3, 1995, and incorporated herein by reference. 10.14 Registration Rights Agreement, dated as of October 1, 1995, among IMCO Recycling Inc. and the former Alumar Shareholders, filed as Exhibit 2 to the Company's Current Report on Form 8-K, dated October 3, 1995, and incorporated herein by reference. 10.15 Stock Purchase Agreement by and among IMCO Recycling Inc., EnviroSource, Inc. and IMSAMET, Inc. dated November 26, 1996. (In accordance with Item 601 of Regulation S-K, the copy of the IMSAMET Agreement filed with the Securities and Exchange Commission (the "Commission") does not include the Schedules or exhibits thereto. The Company agrees to furnish such information supplementally to the Commission upon request). This agreement was filed as Exhibit 2.1 to the Company's Current Report on Form 8-K, dated January 21, 1997, and is incorporated herein by reference. 56 57 10.16 Amendment No. 1 to Stock Purchase Agreement by and among IMCO Recycling Inc., EnviroSource, Inc. and IMSAMET, Inc. dated January 21, 1997. Filed as Exhibit 2.2 to the Company's Current Report on Form 8-K, dated January 21, 1997, and incorporated herein by reference. 10.17 Registration Rights Agreement dated as of January 21, 1997 among IMCO Recycling Inc. and the former shareholders of Rock Creek Aluminum, Inc., filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1997, and incorporated herein by reference. 10.18 IMCO Recycling Inc. 1992 Stock Option Plan, as amended December 15, 1994, February 28, 1996, February 25, 1997 and May 13, 1997, filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997, and incorporated herein by reference. 10.19 IMCO Recycling Inc. Annual Incentive Program, as amended February 25, 1997, April 1, 1997 and May 13, 1997, filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997, and incorporated herein by reference. 10.20 Agreement and Plan of Merger by and among IMCO Recycling Inc., IMCO Recycling of Coldwater Inc., Alchem Aluminum, Inc. and the Shareholders of Alchem Aluminum, Inc. dated November 14, 1997, filed as Exhibit 10.3 to the Company's Current Report on Form 8-K/A-2 dated September 18, 1997, and incorporated herein by reference. 10.21 Registration Rights Agreement dated as of November 14, 1997 among IMCO Recycling Inc. and the former shareholders of Alchem Aluminum, Inc., filed as Exhibit 10.4 to the Company's Current Report on Form 8-K/A-2 dated September 18, 1997, and incorporated herein by reference. 10.22 Amended and Restated Credit Agreement by and among the Company, the Subsidiary Guarantors named therein, the Lenders thereunder, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Texas Commerce Bank National Association dated November 5, 1997, filed as Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1997, and incorporated herein by reference. *21 Subsidiaries of IMCO Recycling Inc. as of March 2, 1998. *23 Consent of Ernst & Young LLP. *27 Financial Data Schedule. - ------------------ * Filed herewith. 57 58 (b) Reports on Form 8-K filed in fourth quarter 1997: (1) The Company filed a Current Report on Form 8-K dated October 1, 1997 under "Item 5--Other Events" reporting the Company's pending acquisition of Alchem Aluminum, Inc. Such Current Report on Form 8-K was amended (1) by Form 8-K/A-1 dated October 9, 1997 to include certain financial statements of Alchem Aluminum, Inc., (2) by Form 8-K/A-2 dated November 19, 1997 to file certain exhibits and other information regarding the transaction (under "Item 2--Acquisition or Disposition of Assets"), including the Agreement and Plan of Merger and the Registration Rights Agreement and (3) by Form 8-K/A-3 dated January 9, 1998 to include the audited financial statements of Alchem Aluminum, Inc. and other financial information. (2) The Company filed a Current Report on Form 8-K dated October 20, 1997 under "Item 5--Other Events" reporting the Company's press announcement containing its earnings report for its fiscal quarter ended September 30, 1997. (3) The Company filed a Current Report on Form 8-K dated November 6, 1997 under "Item 5--Other Events" reporting the Company's press release concerning the Amended and Restated Credit Agreement. (c) See sub-item (a) above. (d) See sub-item (a) above. 58 59 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: March 6, 1998 IMCO Recycling Inc. By: /s/ Robert R. Holian . ------------------------- Robert R. Holian, Vice President and Controller, Principal Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature Title Date - ----------------------------- ------------------------------------------------ --------------- Director, Chairman of the Board, Chief /s/ Don V. Ingram Executive Officer March 6, 1998 - ----------------------------- Don V. Ingram /s/ Jack M. Brundrett Director March 6, 1998 - ----------------------------- Jack M. Brundrett /s/ Ralph L. Cheek Director March 6, 1998 - ----------------------------- Ralph L. Cheek /s/ John J. Fleming Director March 6, 1998 - ----------------------------- John J. Fleming /s/ Thomas A. James Director March 6, 1998 - ----------------------------- Thomas A. James /s/ Don Navarro Director March 6, 1998 - ----------------------------- Don Navarro /s/ Jack C. Page Director March 6, 1998 - ----------------------------- Jack C. Page Executive Vice President Finance and /s/ Paul V. Dufour Administration (Principal Financial Officer) March 6, 1998 - ----------------------------- Paul V. Dufour Vice President and Controller (Principal /s/ Robert R. Holian Accounting Officer) March 6, 1998 - ----------------------------- Robert R. Holian
59 60 EXHIBIT INDEX 3.1 Certificate of Incorporation of IMCO Recycling Inc., as amended, filed as Exhibit 4.6 to the Company's Registration Statement on Form S-2 (No. 33-48571) and incorporated herein by reference. *3.2 By-laws of IMCO Recycling Inc., as amended, effective as of February 25, 1997. 4.1 Specimen Stock Certificate of the Common Stock, $0.10 par value, of IMCO Recycling Inc., filed as Exhibit 4.1 to the Company's Registration Statement on Form S-2 (No. 33-48571) and incorporated herein by reference. 10.1 Amended and Restated Registration Agreement, dated September 30, 1988, among IMCO Recycling Inc., Merrill Lynch Interfunding Inc., Don V. Ingram, Larry Thrasher, and PTX Partners, filed as Exhibit 10.6 to the Company's 1993 Form 10-K and incorporated herein by reference. 10.2 Amendment No. 1 to Amended and Restated Registration Agreement, dated as of December 30, 1988, filed as Exhibit 10.7 to the Company's 1994 Form 10-K and incorporated herein by reference. 10.3 Amendment, dated as of September 5, 1990, to Registration Agreement between Merrill Lynch Interfunding Inc. and Don V. Ingram, filed as Exhibit 10.8 to the Company's 1994 Form 10-K and incorporated herein by reference. *10.4 IMCO Recycling Inc. Amended and Restated Stock Option Plan. 10.5 Assignment, dated September 16, 1986, from Clarence W. Haack and Genevieve Haack to International Metal Co., filed as Exhibit 10.16 to the Company's 1994 Form 10-K and incorporated herein by reference. 10.6 Agreement, dated as of August 26, 1995, between IMCO Recycling Inc., Rockwood, Tennessee Facility, and International Union, United Steelworkers of America, and filed as Exhibit 10.17 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (the "1995 Form 10-K"), and incorporated herein by reference. 61 10.7 Split-Dollar Life Insurance Agreement, dated as of November 5, 1990, between Thomas W. Rogers and IMCO Recycling Inc., filed as Exhibit 10.19 to the Company's 1994 Form 10-K and incorporated herein by reference (The Company is a party to virtually identical Split-Dollar Life Insurance Agreements with Paul V. Dufour, C. Lee Newton and Richard L. Kerr. These agreements have been omitted since they are substantially identical to Mr. Rogers' in all material respects). *10.8 Supply Agreement between Barmet Aluminum Corporation (now Commonwealth Aluminum Corporation) and the Company, dated March 2, 1992. 10.9 Right of First Refusal Agreement between Barmet Aluminum Corporation (now Commonwealth Aluminum Corporation) and the Company, dated March 2, 1992, relating to Commonwealth's Indiana recycling plant, filed as Exhibit 10.23 to the Company's 1994 Form 10-K and incorporated herein by reference. 10.10 Agreement, effective as of December 1, 1995, between IMCO Recycling of Ohio Inc. and the United Mine Workers of America, and filed as Exhibit 10.24 to the Company's 1995 Form 10-K and incorporated herein by reference. 10.11 Agreement, effective as of January 1, 1994, between IMCO Recycling Inc. and Aluminum Company of America, filed as Exhibit 10.34 to the Company's 1993 Form 10-K and incorporated herein by reference. 10.12 First Amendment to processing agreement by and among the Rigid Packaging division of Aluminum Company of America, the Company and Metal Resources Inc., filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1995, and incorporated herein by reference. 10.13 Agreement and Plan of Merger, dated as of October 1, 1995, among IMCO Recycling Inc., IMCO Recycling of Illinois Inc., Alumar Associates, Inc., and the Shareholders, filed as Exhibit 1 to the Company's Current Report on Form 8-K, dated October 3, 1995, and incorporated herein by reference. 10.14 Registration Rights Agreement, dated as of October 1, 1995, among IMCO Recycling Inc. and the former Alumar Shareholders, filed as Exhibit 2 to the Company's Current Report on Form 8-K, dated October 3, 1995, and incorporated herein by reference. 10.15 Stock Purchase Agreement by and among IMCO Recycling Inc., EnviroSource, Inc. and IMSAMET, Inc. dated November 26, 1996. (In accordance with Item 601 of Regulation S-K, the copy of the IMSAMET Agreement filed with the Securities and Exchange Commission (the "Commission") does not include the Schedules or exhibits thereto. The Company agrees to furnish such information supplementally to the Commission upon request). This agreement was filed as Exhibit 2.1 to the Company's Current Report on Form 8-K, dated January 21, 1997, and is incorporated herein by reference. 62 10.16 Amendment No. 1 to Stock Purchase Agreement by and among IMCO Recycling Inc., EnviroSource, Inc. and IMSAMET, Inc. dated January 21, 1997. Filed as Exhibit 2.2 to the Company's Current Report on Form 8-K, dated January 21, 1997, and incorporated herein by reference. 10.17 Registration Rights Agreement dated as of January 21, 1997 among IMCO Recycling Inc. and the former shareholders of Rock Creek Aluminum, Inc., filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1997, and incorporated herein by reference. 10.18 IMCO Recycling Inc. 1992 Stock Option Plan, as amended December 15, 1994, February 28, 1996, February 25, 1997 and May 13, 1997, filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997, and incorporated herein by reference. 10.19 IMCO Recycling Inc. Annual Incentive Program, as amended February 25, 1997, April 1, 1997 and May 13, 1997, filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997, and incorporated herein by reference. 10.20 Agreement and Plan of Merger by and among IMCO Recycling Inc., IMCO Recycling of Coldwater Inc., Alchem Aluminum, Inc. and the Shareholders of Alchem Aluminum, Inc. dated November 14, 1997, filed as Exhibit 10.3 to the Company's Current Report on Form 8-K/A-2 dated September 18, 1997, and incorporated herein by reference. 10.21 Registration Rights Agreement dated as of November 14, 1997 among IMCO Recycling Inc. and the former shareholders of Alchem Aluminum, Inc., filed as Exhibit 10.4 to the Company's Current Report on Form 8-K/A-2 dated September 18, 1997, and incorporated herein by reference. 10.22 Amended and Restated Credit Agreement by and among the Company, the Subsidiary Guarantors named therein, the Lenders thereunder, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Texas Commerce Bank National Association dated November 5, 1997, filed as Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1997, and incorporated herein by reference. *21 Subsidiaries of IMCO Recycling Inc. as of March 2, 1998. *23 Consent of Ernst & Young LLP. *27 Financial Data Schedule. - ------------------ * Filed herewith. EX-3.2 2 BY-LAWS OF IMCO RECYCLING EFFECTIVE 2/25/97 1 EXHIBIT 3.2 BYLAWS OF IMCO RECYCLING INC. (a Delaware Corporation) As Amended February 25, 1997 2 TABLE OF CONTENTS
Page ---- ARTICLE I OFFICES Section 1. Registered Office.................................................... 1 Section 2. Other Offices........................................................ 1 ARTICLE II MEETING OF STOCKHOLDERS Section 1. Place of Meetings.................................................... 1 Section 2. Annual Meetings...................................................... 1 Section 3. Notice of Annual Meetings............................................ 1 Section 4. Special Meetings..................................................... 1 Section 5. Notice of Special Meetings........................................... 2 Section 6. Quorum............................................................... 2 Section 7. Organization......................................................... 2 Section 8. Order of Business.................................................... 2 Section 9. Voting............................................................... 3 Section 10. List of Stockholders................................................. 4 Section 11. Inspectors of Votes.................................................. 4 Section 12. Actions Without a Meeting............................................ 4 ARTICLE III BOARD OF DIRECTORS Section 1. Powers............................................................... 5 Section 2. Number, Qualification and Term of Office............................. 5 Section 3. Resignations......................................................... 5 Section 4. Removal of Directors................................................. 6 Section 5. Vacancies............................................................ 6 MEETINGS OF THE BOARD OF DIRECTORS Section 6. Place of Meetings.................................................... 7 Section 7. Annual Meetings...................................................... 7 Section 8. Regular Meetings..................................................... 7 Section 9. Special Meetings; Notice............................................. 7 Section 10. Quorum and Manner of Acting.......................................... 7 Section 11. Remuneration......................................................... 7
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Page ---- COMMITTEES OF DIRECTORS Section 12. Executive Committee: How Constituted and Powers..................... 8 Section 13. Organization......................................................... 8 Section 14. Meetings............................................................. 8 Section 15. Quorum and Manner of Acting.......................................... 9 Section 16. Other Committees..................................................... 9 Section 17. Alternate Members of Committees...................................... 9 Section 18. Minutes of Committees................................................ 10 GENERAL Section 19. Actions Without a Meeting............................................ 10 Section 20. Presence at Meeting by Means of Communication Equipment.............. 10 NOTICES Section 1. Type of Notice ..................................................... 10 Section 2. Waiver of Notice..................................................... 10 OFFICERS Section 1. Elected and Appointed Officers....................................... 11 Section 2. Time of Election or Appointment...................................... 11 Section 3. Salaries of Elected Officers......................................... 11 Section 4. Term................................................................. 11 Section 5. Duties of the Chairman of the Board.................................. 11 Section 6. Duties of the President.............................................. 11 Section 7. Duties of Vice President............................................. 12 Section 8. Duties of Assistant Vice Presidents.................................. 12 Section 9. Duties of the Secretary.............................................. 12 Section 10. Duties of Assistant Secretaries...................................... 13 Section 11. Duties of the Controller............................................. 13 Section 12. Duties of Assistant Controllers...................................... 13
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Page ---- INDEMNIFICATION Section 1. Actions Other Than by or in the Right of the Corporation............. 14 Section 2. Actions by or in the Right of the Corporation ...................... 14 Section 3. Determination of Right to Indemnification............................ 14 Section 4. Right to Indemnification............................................. 15 Section 5. Prepaid Expenses..................................................... 15 Section 6. Other Rights and Remedies............................................ 15 Section 7. Insurance............................................................ 15 Section 8. Mergers.............................................................. 15 CERTIFICATES OF STOCK Section 1. Right to Certificate................................................. 16 Section 2. Facsimile Signatures................................................. 16 Section 3. New Certificates..................................................... 16 Section 4. Transfers............................................................ 17 Section 5. Record Date.......................................................... 17 Section 6. Registered Stockholders.............................................. 17 GENERAL PROVISIONS Section 1. Dividends............................................................ 17 Section 2. Reserves............................................................. 17 Section 3. Annual Statement..................................................... 18 Section 4. Checks ............................................................. 18 Section 5. Fiscal Year.......................................................... 18 Section 6. Corporate Seal....................................................... 18 AMENDMENTS......................................................................... 18
iii 5 ARTICLE I OFFICES Section 1. Registered Office. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. Other Offices. The Corporation may also have offices at such other place or places, both within and without the State of Delaware, as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II MEETING OF STOCKHOLDERS Section 1. Place of Meetings. All meetings of the stockholders for the election of directors shall be held in the City of Dallas, State of Texas, at such place within such city as may be fixed from time to time by the Board of Directors, or at such other place either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver or notice thereof. Section 2. Annual Meetings. Annual meetings of stockholders, commencing with the year 1986, shall be held on such date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which the stockholders shall elect by a plurality vote by written ballot a Board of Directors and transact such other business as may properly be brought before the meeting. Section 3. Notice of Annual Meetings. Written notice of the annual meeting, stating the place, date and hour of the meeting, shall be given to each stockholder of record entitled to vote at such meeting not less than ten or more than 60 days before the date of the meeting. Section 4. Special Meetings. Special meetings of the stockholders for any purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, may be called at any time by order of the Board of Directors and shall be called by the Chairman of the Board, the President or the Secretary at the request in writing of a majority of the Board of Directors. Such request shall state the purpose or purposes of the proposed special meeting. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. 1 6 Section 5. Notice of Special Meetings. Written notice of a special meeting, stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given to each stockholder of record entitled to vote at such meeting not less than ten nor more than 60 days before the date of the meeting. Section 6. Quorum. Except as otherwise provided by statute or the Certificate of Incorporation, the holders of stock having a majority of the voting power of the stock entitled to be voted thereat, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the stockholders. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy shall have power to adjourn the meeting from time to time without notice (other than announcement at the meeting at which the adjournment is taken of the time and place of the adjourned meeting) until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 7. Organization. At each meeting of the stockholders the Chairman of the Board or the President, determined as provided in Article V of these By-Laws, or if those officers shall be absent therefrom, another officer of the Corporation chosen as chairman present in person or by proxy and entitled to vote thereat, or if all the officers of the Corporation shall be absent therefrom, a stockholder holding of record shares of stock of the Corporation so chosen, shall act as chairman of the meeting and preside thereat. The Secretary, or if he shall be absent from such meeting or shall be required pursuant to the provisions of this Section 7 to act as chairman of such meeting, the person (who shall be an Assistant Secretary, if an Assistant Secretary shall be present thereat) whom the chairman of such meeting shall appoint, shall act as secretary of such meeting and keep the minutes thereof. Section 8. Order of Business. The order of business at annual meetings of stockholders and, so far as practicable, at other meetings of stockholders shall be as follows unless changed by the vote of a majority in voting interest of those present in person or by proxy at such meeting and entitled to vote thereat: (a) Call to order. (b) Proof of due notice of meeting. (c) Determination of quorum and examination of proxies. (d) Announcement of availability of list of stockholders. 2 7 (e) Reading and disposing of minutes of last meeting of stockholders. (f) Announcement of purposes for which the meeting was called. (g) Nomination of directors. (h) Entertainment of motions with respect to other business. (i) Opening of polls or voting and collection of ballots. (j) Reports of officers and committees. (k) Report of voting judges. (l) Other business. (m) Adjournment. Section 9. Voting. Except as otherwise provided in the Certificate of Incorporation, each stockholder shall, at each meeting of the stockholders, be entitled to one vote in person or by proxy for each share of stock of the Corporation held by him and registered in his name on the books of the Corporation on the date fixed pursuant to the provisions of Section 5 of Article VII of these By-Laws as the record date for the determination of stockholders who shall be entitled to notice of and to vote at such meeting. Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held directly or indirectly by the Corporation, shall not be entitled to vote. Any vote by stock of the Corporation, shall not be entitled to vote. Any vote by stock of the Corporation may be given at any meeting of the stockholders by the stockholder entitled thereto, in person or by his proxy appointed by an instrument in writing subscribed by such stockholder or by his attorney thereunto duly authorized and delivered to the Secretary of the Corporation or to the secretary of the meeting; provided, however, that no proxy shall be voted or acted upon after three years from its date, unless said proxy shall provide for a longer period. Each proxy shall be revocable unless expressly provided therein to be irrevocable and unless otherwise made irrevocable by law. At all meetings of the stockholders all matters, except where other provision is made by law, the Certificate of Incorporation or these By-Laws, shall be decided by the vote of a majority of the votes cast by the stockholders present in person or by proxy and entitled to vote thereat, a quorum being present. Unless demanded by a stockholder of the Corporation present in person or by proxy at any meeting of the stockholders and entitled of vote thereat, or so directed by the chairman of the meeting, the vote thereat on any question other than the election or removal of directors need not be by written ballot. Upon a demand of any such stockholder for a vote by written ballot on any question or at the direction of such chairman that a vote by written ballot be taken on any question, such vote shall be taken by written ballot. On a vote by written ballot, each ballot shall be 3 8 signed by the stockholder voting, or by his proxy, if there be such proxy, and shall state the number of shares voted. Section 10. List of Stockholders. It shall be the duty of the Secretary or other officer of the Corporation who shall have share of its stock ledger, either directly or through another officer of the Corporation designated by him or through a transfer agent appointed by the Board of Directors, to prepare and make, at least ten days before every meeting of the stockholders, a complete list of the stockholders entitled to vote thereat, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to said meeting, either at a place within the city where said meeting is to be held, which place shall be specified in the notice of said meeting, of, if not so specified, at the place where said meeting is to be held. The list shall also be produced and kept at the time and place of said meeting during the whole time thereof, and may be inspected by any stockholder of record who shall be present thereat. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, such list or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. Section 11. Inspectors of Votes. At each meeting of the stockholders, the chairman of such meeting may appoint two Inspectors of Votes to act thereat, unless the Board of Directors shall have theretofore made such appointments. Each Inspector of Votes so appointed shall first subscribe an oath or affirmation faithful to execute the duties of an Inspector of Votes at such meeting with strict impartiality and according to the best of his ability. Such Inspectors of Votes, if any, shall take charge of the ballots, if any, at such meeting and after the balloting thereat on any question shall count the ballots cast thereon and shall make a report in writing to the secretary of such meeting of the results thereof. An Inspector of Votes need not be a stockholder of the Corporation, and any officer of the Corporation may be an Inspector of Votes on any question other than a vote for or against his election to any position with the Corporation or on any other question in which he may be directly interested. Section 12. Actions Without a Meeting. Any action required to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereat were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. 4 9 ARTICLE III BOARD OF DIRECTORS Section 1. Powers. The business and affairs of the Corporation shall be managed by its Board of Directors, which shall have and may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute, the Certificate of Incorporation or these By-Laws directed or required to be exercised or done by the stockholders. Section 2. Number, Qualification and Term of Office. The number of directors which shall constitute the whole Board of Directors shall not be less than three and shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in the previously authorized directorships at the time any such resolution is presented to the Board of Directors of adoption). The directors shall be divided into three classes as nearly equal in number as possible as set forth in the Corporation's Certificate of Incorporation, as amended. Directors need not be stockholders. At each annual meeting of stockholders following the initial classification and election of directors as set forth in the Corporation's Certificate of Incorporation, as amended, each director elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after his election and until his successor is elected and qualified or until his death or retirement or until he shall resign or shall be removed in the manner hereinafter provided. Such election shall be by written ballot. Notwithstanding any other provisions of the By-Laws or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of capital stock of the Corporation entitled to vote generally in the election of directors (hereinafter referred to as the "Voting Stock") required by law or the Corporation's Certificate of Incorporation or the resolution or resolutions of the Board of Directors relating to the issuance thereof, the affirmative vote of the holders of at least 60% of the voting power of all of the then-outstanding shares of the Voting Stock, voting together as a single class, shall be required to alter, amend, repeal, or adopt any provision inconsistent with this Section 2 of Article III. Section 3. Resignations. Any director may resign at any time by giving written notice of his resignation to the Corporation. Any such resignation shall take effect at the time specified therein, or, if the time when it shall become effective shall not be specified therein, then it shall take effect immediately upon its receipt by the Secretary. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. 5 10 Section 4. Removal of Directors. Subject to the right of the holders of any particular class or series of Voting Stock then outstanding, any director, or the entire Board of Directors, may be removed from office at any time, with or without cause, but only by the affirmative vote by written ballot of the holders of at least a majority of the voting power of all of the then-outstanding shares of the Voting Stock, voting together as a single class. The vacancy in the Board of Directors caused by any such removal shall be filled by the Board of Directors as provided in Section 5 of this Article III. Notwithstanding any other provisions of the By-Laws or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of Voting Stock required by law or the Corporation's Certificate of Incorporation or the resolution or resolutions of the Board of Directors relating to the issuance thereof, the affirmative vote of the holders of at least 60% of the voting power of all of the then-outstanding shares of the Voting Stock, voting together as a single class, shall be required to alter, amend, repeal, or adopt any provision inconsistent with this Section 4 of Article III. Section 5. Vacancies. Subject to the rights of the holders of any class or series of the Voting Stock then outstanding, newly created directorship resulting from any increase in the authorized number of directors or any vacancies on the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled by a majority vote of the directors then in office, though less than a quorum, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires. No decrease in the number of authorized directors constituting the entire Board of Directors shall shorten the term of any incumbent director. If there are no directors in office, then an election of directors may be held in the manner provided by statute. Notwithstanding the foregoing, whenever the holders, if any of any series of preferred stock of the Corporation shall have the right to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies, and other features of such directorships shall be governed by the terms of the Corporation's Certificate of Incorporation applicable thereto, or the resolution or resolutions of the Board of Directors relating to the issuance of such series of preferred stock, and such directors so elected shall not be divided into classes pursuant to Section 2 of Article III unless expressly provided by such terms or such resolution or resolutions. Notwithstanding any other provisions of the By-Laws or any provision of laws which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of Voting Stock required by law or the Corporation's Certificate of Incorporation or the resolution or resolutions of the Board of Directors relating to the issuance thereof, the affirmative vote of the holders of at least 60% of the voting power of all of the then-outstanding shares of the Voting Stock, voting 6 11 together as a single class, shall be required to alter, amend, repeal, or adopt any provision inconsistent with this Section 5 of Article III. MEETINGS OF THE BOARD OF DIRECTORS Section 6. Place of Meetings. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. Section 7. Annual Meetings. The first meeting of each newly elected Board of Directors shall be held immediately following the annual meeting of stockholders and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event such meeting is not held immediately following the annual meeting of stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the directors. Section 8. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board of Directors. Section 9. Special Meetings; Notice. Special meetings of the Board of Directors may be called by the Chairman of the Board, President or Secretary on 24 hours notice to each director, either personally or by telephone or by mail, telegraph, telex, cable, wireless or other form of recorded communication; special meetings shall be called by the Chairman of the Board, President, or Secretary in like manner and on like notice on the written request of two directors. Notice of any such meeting need not be given to any director, however, if waived by him in writing or by telegraph, telex, cable, wireless or other form of recorded communication, or if he shall be present at such meeting. Section 10. Quorum and Manner of Acting. At all meetings of the Board of Directors, a majority of the directors at the time in office (but not less than one-third of the whole Board of Directors) shall constitute a quorum for, the transaction of business, and the act of a majority of the directors present all any meeting at which a quorum is present shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting form time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 11. Remuneration. Unless otherwise expressly provided by resolution adopted by the Board of Directors, none of the directors shall, as such, receive any stated remuneration for his services, but the Board of Directors may at any time and 7 12 from time to time by resolution provide that a specified sum shall be paid to any director of the Corporation, either as his annual remuneration as such director or member of any committee of the Board of Directors or as remuneration for his attendance at each meeting of the Board of Directors or any such committee. The Board of Directors may also likewise provide that the Corporation shall reimburse each director for any expenses paid by him on account of his attendance at any meeting. Nothing in this Section 11 shall be construed to preclude any director from serving the Corporation in any other capacity and receiving remuneration thereof. COMMITTEES OF DIRECTORS Section 12. Executive Committee: How Constituted and Powers. The Board of Directors may in its discretion, by resolution passed by a majority of the whole Board of Directors, designate an Executive Committee consisting of one or more of the directors of the Corporation. Subject to the provisions of Section 141 of The General Corporation Law of the State of Delaware, the Certificate of Incorporation and these By-Laws, the Executive Committee shall have and may exercise, when the Board is not in session, all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and shall have the power to authorize the seal of the Corporation to be affixed to all paper which may require it; but the Executive Committee shall not have the power to fill vacancies in the Board of Directors, the Executive Committee or any other committee of directors, or to elect or approve officers of the Corporation. The Executive Committee shall have the power and authority to authorize the issuance of common stock and grant and authorize options and other rights with respect to such issuance. The Board of Directors shall have the power at any time, by resolution passed by a majority of the whole Board of Directors, to change the membership of the Executive Committee, to fill all vacancies in it, or to dissolve it, either with or without cause. Section 13. Organization. The Chairman of the Executive Committee, to be selected by the Board of Directors, shall act as chairman at all meetings of the Executive Committee and the Secretary shall act as secretary thereof. In case of the absence from any meeting of the Executive Committee of the Chairman of the Executive Committee or the Secretary, the Executive Committee may appoint a chairman or secretary, as the case may be, of the meeting. Section 14. Meetings. Regular meetings of the Executive Committee, of which no notice shall be necessary, may be held on such days and at such places, within or without the State of Delaware as shall be fixed by resolution adopted by a majority of the Executive Committee and communicated in writing to all its members. Special meetings of the Executive Committee shall be held whenever called by the Chairman of the Executive Committee or a majority of the members of the Executive Committee then in office. Notice of each special meeting of the Executive Committee shall be given by mail, telegraph, telex, cable, wireless or other form of recorded communication or be delivered personally or by telephone to each member of the Executive Committee not 8 13 later than the day before the day on which such meeting is to be held. Notice of any such meeting need not be given to any member of the Executive Committee, however if waived by him in writing or by telegraph, telex, cable, wireless or other form of recorded communication, or if he shall be present at such meeting; and any meeting of the Executive Committee shall be a legal meeting without any notice thereof having been given, if all the members of the Executive Committee shall be present thereat. Subject to the provisions of this Article III, the Executive Committee, by resolution adopted by a majority of the whole Committee shall fix its own rules of procedure. Section 15. Quorum and Manner of Acting. A majority of the Executive Committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at a meeting thereof at which a quorum is present shall be the act of the Committee. Section 16. Other Committees. The Board of Directors may, by resolution or resolutions passed by a majority of the whole Board of Directors, designate one or more other committees consisting of one or more directors of the Corporation, which, to the extent provided in said resolution or resolutions, shall have and may exercise, subject to the provisions of Section 141 of The General Corporation Law of the State of Delaware, the Certificate of Incorporation and these By-Laws, the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and shall have the power to authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power to fill vacancies in the Board of Directors, the Executive Committee or any other committee or in their respective membership, appoint or remove officers of the Corporation, or authorize the issuance of shares of the capital stock of the Corporation, except that such a committee may, to the extent provided in said resolutions, grant and authorize options and other rights to the common stock of the Corporation pursuant to and in accordance with any plan approved by the Board of Directors. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. A majority of all the members of any such committee may determine its action and fix the time and place of its meetings and specify what notice thereof, if any, shall be given, unless the Board of Directors shall otherwise provide. The Board of Directors shall have power, to change the members of any such committee at any time to fill vacancies, and to discharge any such committee, either with or without cause, at any time. Section 17. Alternate Members of Committees. The Board of Directors may designate one or more directors as alternate members of the Executive Committee or any other committee, who may replace any absent or disqualified member at any meeting of the committee, or if none be so appointed, the member of members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. 9 14 Section 18. Minutes of Committees. Each committee shall keep regular minutes of its meetings and proceedings and report the same to the Board of Directors at the next meeting thereof. GENERAL Section 19. Actions Without a Meeting. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or the committee. Section 20. Presence at Meeting by Means of Communications Equipment. Members of the Board of Directors, or of any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 20 shall constitute presence in person at such meeting. ARTICLE IV NOTICES Section 1. Type of Notice. Whenever, under the provisions of the statutes, the Certificate of Incorporation or these By-Laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, in person or by mail, addressed to such director or stockholder, at his address as it appears on the record of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given in any manner permitted by Article III hereof and shall be deemed to be given at the time when first transmitted by the method of communication so permitted. Section 2. Waiver of Notice. Whenever any notice is required to be given under the provision of the statutes, the Certificate of Incorporation or these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether, before or after the time stated therein, shall be deemed equivalent thereto, and transmission of a waiver of notice by a director of stockholder by mail, telegraph, telex, cable, wireless or other form of recorded communication may constitute such a waiver. 10 15 ARTICLE V OFFICERS Section 1. Elected and Appointed Officers. The elected officers of the Corporation shall be a President, one or more Vice Presidents, with or without such descriptive titles as the Board of Directors shall deem appropriate, a Secretary and a Controller, and, if the Board of Directors so elects, a Chairman of the Board (who shall be a director). The Board of Directors or the Executive Committee of the Board of Directors by resolution also may appoint one or more Assistant Vice Presidents, Assistant Secretaries, Assistant Controllers, and such other officers and agents as from time to time may appear to be necessary or advisable in the conduct of the affairs of the Corporation. Section 2. Time of Election or Appointment. The Board of Directors at its annual meeting shall elect and appoint, as the case may be, officers to fill the positions designated in or pursuant to Section 1 of this Article V. Officers of the Corporation may also be elected or appointed, as the case may be, at any other time. Section 3. Salaries of Elected Officers. The salaries of all elected officers of the Corporation shall be fixed by the Board of Directors. Section 4. Term. Each officer of the Corporation shall hold his office until his successor is elected or appointed and qualified or until his earlier resignation or removal. Any officer may resign at any time upon written notice to the Corporation. Any officer elected or appointed by the Board of Directors or the Executive Committee may be removed at any time by the affirmative vote of a majority of the whole Board of Directors. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled by the Board of Directors or the appropriate committee thereof. Section 5. Duties of the Chairman of the Board. The Chairman of the Board, if one be elected, shall preside when present at all meetings of the Board of Directors and may preside at meetings of the stockholders. He shall advise and counsel the President and other officers of the Corporation, and shall exercise such powers and perform such duties as shall be assigned to or required of him from time to time by the Board of Directors. Section 6. Duties of the President. The President, subject to the provisions of these By-laws, shall have general supervision of the affairs of the Corporation and shall have general and active control of all its business. He shall preside, in the absence of the Chairman of the Board or any other person designated to do so by these By-Laws, at all meetings of the Board of Directors and at meetings of the stockholders. He shall see that all orders and resolutions of the Board of Directors and the stockholders are carried into effect. He shall have general authority to execute bonds, deeds and contracts in the name of the Corporation and affix the corporate seal thereto; to 11 16 sign stock certificates; to cause the employment or appointment of such employees and agents of the Corporation as the proper conduct of operations may require, and to fix their compensation, subject to the provisions of these By-Laws; to remove or suspend any employee or agent who shall have been employed or appointed under his authority or under authority of an officer subordinate to him; to suspend for cause, pending final action by the authority which shall have elected or appointed him, any officer subordinate to the President, and, in general, to exercise all the powers and authority usually appertaining to the president of a corporation, except as otherwise provided in these By-Laws. Section 7. Duties of Vice Presidents. In the absence of the President or in the event of his inability or refusal to act, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice Presidents shall perform such other duties and have such other powers as the Board of Directors or the President may from time to time prescribe. Section 8. Duties of Assistant Vice Presidents. In the absence of a Vice President or in the event of his inability or refusal to act, the Assistant Vice President (or in the event there shall be more than one, the Assistant Vice Presidents in the order designated by the Board of Directors, or in the absence of any designation, then in the order of their appointment) shall perform the duties and exercise the powers of that Vice President, and shall perform such other duties and have such other powers as the Board of Directors, the President or the Vice President under whose supervision he is appointed may from time to time prescribe. Section 9. Duties of the Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings of the Corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the Executive Committee or other standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the President, under whose supervision he shall be. He shall have custody of the corporate seal of the Corporation and he, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it, and when so affixed, it may be attested by his signature or, by the signature of such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. The Secretary shall keep and account for all books, documents, papers and records of the Corporation except those for which some other officer or agent is properly accountable. He shall have authority to sign stock certificates and shall generally perform all the duties usually appertaining to the office of the secretary of a corporation. 12 17 Section 10. Duties of Assistant Secretaries. In the absence of the Secretary or in the event of his inability or refusal to act, the Assistant Secretary (or, if there shall be more than one, the Assistant Secretaries in the order designated by the Board of Directors, or in the absence of any designation, then in the order of their appointment) shall perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors, the President or the Secretary may from time to time prescribe. Section 11. Duties of the Controller. The Controller shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as Controller and of the financial condition of the Corporation. If required by the Board of Directors, he shall give the Corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. The Controller shall also have supervision of the accounting practices of the Corporation and of each subsidiary and division of the Corporation, and shall prescribe the duties and powers of the chief accounting personnel of the subsidiaries and divisions. He shall cause to be maintained an adequate system of financial control through a program of budget an interpretive reports. He shall initiate and enforce measures and procedures whereby the business of the Corporation and its subsidiaries and divisions shall be conducted with the maximum safety, efficiency and economy. He shall prepare a monthly report covering the operating results of the Corporation, its subsidiaries and divisions. The Controller shall be under the supervision of the Vice President, in charge of finance, if one is so designated, and he shall perform such other duties as may be prescribed by the Board of Directors, the President or any such Vice President in charge of finance. Section 12. Duties of Assistant Controllers. The Assistant Controller or Assistant Controllers shall assist the Controller, and in the absence of the Controller or in the event of his inability or refusal to act, the Assistant Controller (or, if there shall be more than one, the Assistant Controllers in the order designed by the Board of Directors, or in the absence of any designation, then in the order of their appointment), shall perform the duties and exercise the powers of the Controller and perform such other duties and have such other powers as the Board of Directors, the President or the Controller may from time to time prescribe. 13 18 ARTICLE VI INDEMNIFICATION Section 1. Actions Other Than by or in the Right of the Corporation. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or contemplated action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, that he had reasonable cause to believe that his conduct was unlawful. Section 2. Actions by or in the Right of the Corporation. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or contemplated action or suit by or I the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Section 3. Determination of Right to Indemnification. Any indemnification under Sections 1 or 2 of this Article VI (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 1 or 2 of this Article VI. Such determination shall be made (i) by the Board of Directors by a majority 14 19 vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. Section 4. Right to Indemnification. Notwithstanding the other provisions of this Article VI, to the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1 or 2 of this Article VI, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. Section 5. Prepaid Expenses. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that he is not entitled to indemnified by the Corporation as authorized in this Article VI. Section 6. Other Rights and Remedies. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VI shall not be deemed exclusive of any other rights to which any person seeking indemnification or advancement of expenses may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. Section 7. Insurance. Upon resolution passed by the Board of Directors, the Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article VI. Section 8. Mergers. For purposes of this Article VI, references to "the Corporation" shall include, in addition to the resulting or surviving corporation, constituent corporations (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that any person who is or was a director, officer, employee, or agent of such constituent corporation or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, 15 20 trust or other enterprise shall stand in the same position under the provisions of this Article VI with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. ARTICLE VII CERTIFICATES OF STOCK Section 1. Right to Certificate. Every holder of stock in the Corporation shall be entitled to have a certificate, signed by, or in the name of the Corporation by, the Chairman of the Board, the President or a Vice President, and the Secretary or an Assistant Secretary of the Corporation certifying the number of shares owned by him in the Corporation. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the General Corporation Law of the State of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 2. Facsimile Signatures. Any of or all the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Section 3. New Certificates. The Board of Directors may direct a new certificate or certificates theretofore issued by the Corporation and alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed or the issuance of such new certificate. 16 21 Section 4. Transfers. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the Corporation, subject to any proper restrictions on transfer, to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 5. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be less than ten nor more than 60 days before the date of such meeting, nor more than 60 days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 6. Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any person, whether or not provided by the laws of the State of Delaware. ARTICLE VIII GENERAL PROVISIONS Section 1. Dividends. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors (but not any committee thereof) at any regular meeting, pursuant to law. Dividends may be paid in cash, in property or in shares of the capital stock, subject to the provision of the Certificate of Incorporation. Section 2. Reserves. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, thinks proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Board of Directors shall think conducive to the interest of the Corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created. 17 22 Section 3. Annual Statement. The Board of Directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the Corporation. Section 4. Checks. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time prescribe. Section 5. Fiscal Year. The fiscal year of the Corporation shall be determined by the Board of Directors. Section 6. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the word "Delaware." The seal may be used by causing it or a facsimile thereof to be impressed, affixed, reproduced or otherwise. ARTICLE IX AMENDMENTS These By-Laws may be altered, amended or repealed or new By-Laws may be adopted by the stockholders or by the Board of Director at any regular meeting of the stockholders or the Board of Director or at any special meeting of the stockholders or the Board of Directors if notice of such alteration, amendment, repeal or adoption of new By-Laws be contained in the notice of such special meeting. 18 EX-10.4 3 IMCO RECYCLING AMENDED & RESTATED STOCK PLAN 1 EXHIBIT 10.4 IMCO RECYCLING INC. AMENDED AND RESTATED STOCK OPTION PLAN (as amended May 7, 1991, November 5, 1992 and May 13, 1997) PURPOSE The purpose of the Plan is to attract and retain key employees of the Company and to provide such persons with a proprietary interest in the Company through the granting of Incentive Stock Options and Nonqualified Stock Options which will: (a) increase the interest of the employees in the Company's welfare; (b) furnish an incentive to the employees to continue their services for the Company; and (c) provide a means through which the Company may attract able persons to enter its employ. ARTICLE I DEFINITIONS For the purpose of this Plan, unless the context requires otherwise, the following terms shall have the meanings indicated: 1.1 "Board" means the board of directors of the Company. 1.2 "Change in Control" means the occurrence of any of the following events: (i) there shall be consummated (x) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's Common Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company's Common Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or (y) any sale, lease, exchange or other transfer (excluding transfer by way of pledge or hypothecation), in one transaction or a series of related transactions, of all, or substantially all, of the assets of the Company, (ii) the stockholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company, (iii) any "person" (as such term is defined in Section 3(a)(9) or Section 13(d)(3) under the 1934 Act) or any "group" (as such term is used in Rule 13d-5 promulgated under the 1934 Act), other than the Company or any successor of the Company or any Subsidiary of the Company or any employee benefit plan of the Company or any Subsidiary (including such plan's trustee), becomes a beneficial owner for purposes of Rule 13d-3 promulgated under the 1934 Act, directly or indirectly, of securities of the Company representing 50.1% or more of the Company's then outstanding securities having the right to vote in the election of directors, or (iv) during any 1 2 period of two consecutive years, individuals who, at the beginning of such period constituted the entire Board, cease for any reason (other than death) to constitute a majority of the directors, unless the election, or the nomination for election, by the Company's stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. 1.3 "Code" means the Internal Revenue Code of 1986, as amended. 1.4 "Common Stock" means the common stock which the Company is currently authorized to issue or may in the future be authorized to issue. 1.5 "Company" means IMCO Recycling Inc., a Delaware corporation. 1.6 "Date of Grant" means the effective date on which an option is awarded to an employee as set forth in the stock option agreement. 1.7 "Incentive Stock Option" means an option to purchase shares of Common Stock granted to a Participant pursuant to Article V and which is intended to qualify as an incentive stock option under Section 422 of the Code. 1.8 "1934 Act" means the Securities Exchange Act of 1934, as amended. 1.9 "Nonqualifying Stock Option" means an option to purchase shares of Common Stock granted to a Participant pursuant to Article V and which is not intended to qualify as an incentive stock option under Section 422 of the Code. 1.10 "Participant" means any employee of the Company who is, or who is proposed to be, a recipient of a Stock Option. 1.11 "Plan" means IMCO Recycling Inc. Amended and Restated Stock Option Plan, as it may be amended from time to time. 1.12 "Stock Options" shall mean any and all Incentive Stock Options and Nonqualified Stock Options granted pursuant to the Plan. 1.13 "Subsidiary" means any corporation in an unbroken chain of corporations beginning with the Company if, at the time of granting of the Stock Option, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain, and "Subsidiaries" means more than one of any such corporations. 2 3 ARTICLE II ADMINISTRATION Subject to the terms of this Article II, the Plan shall be administered by the Compensation Committee (the "Committee") of the Board, which shall consist of at least two members. Any member of the Committee may be removed at any time, with or without cause, by resolution of the Board. Any vacancy occurring in the membership of the Committee may be filled by appointment by the Board. Each member of the Committee, at the time of his appointment to the Committee and while he is a member thereof, must be "disinterested." For the purposes of the Plan, a member of the Committee shall be deemed to be "disinterested" at any time only if the Company has not, within one (1) year prior to the time such person became a member of the Committee, granted or awarded any shares of Common Stock, any options to acquire Common Stock, or any other "equity security" (as defined in Rule 16b-3 promulgated under the 1934 Act) of the Company, to such person pursuant to the Plan or any other benefits plan of the Company or any of its affiliates. The Committee shall select one of its members to act as its Chairman, and shall make such rules and regulations for its operation as it deems appropriate. A majority of the Committee shall constitute a quorum and the act of a majority of the members of the Committee present at a meeting at which a quorum is present shall be the act of the Committee. Subject to the terms hereof, the Committee shall designate from time to time the key employees to whom Stock Options will be granted, interpret the Plan, prescribe, amend, and rescind any rules and regulations necessary or appropriate for the administration of the Plan, and make such other determinations and take such other action as it deems necessary or advisable. In this regard, the Committee shall consider and give appropriate weight to input from representatives of management of the Company regarding the contributions or potential contributions to the Company of certain of the employees or potential employees of the Company. Except as provided below, any interpretation, determination, or other action made or taken by the Committee shall be final, binding, and conclusive on all interested parties, including the Company and all Participants. ARTICLE III ELIGIBILITY The Committee shall, from time to time, select the particular key employees of the Company and its Subsidiaries to whom the Stock Options provided under the Plan are to be granted and/or distributed in recognition of each such employee's contribution to the Company's success. ARTICLE IV SHARES SUBJECT TO PLAN The Committee may not grant Stock Options under the Plan for more than 1,200,000 shares of Common Stock of the Company (as may be adjusted in accordance with Article IX or X hereof). As set forth in Section 12.7 hereof, this Plan amends and restates the Company's 3 4 Nonqualified Stock Option Plan, which authorized the Committee to grant Nonqualified Stock Options to acquire up to an aggregate of 850,000 shares of Common Stock. As of the date of adoption of the Plan (i.e., March 6, 1990) by the Board, options covering 776,000 shares have been granted under the Nonqualified Stock Option Plan, of which options to purchase 100,000 of such shares have been exercised (resulting in options outstanding to purchase 676,000 shares under the Plan as of such date of adoption). It is intended that the Plan incorporated under its terms all outstanding stock options which have been granted pursuant to the Nonqualified Stock Option Plan. Shares to be distributed and sold may be made available from either authorized but unissued Common Stock or Common Stock held by the Company in its treasury. Shares that by reason of the expiration or unexercised termination of a Stock Option are no longer subject to purchase may be reoffered under the Plan. ARTICLE V STOCK OPTIONS 5.1 GRANT OF STOCK OPTIONS. All grants of Stock Options under the Plan shall be awarded by the Committee. The grant of Stock Options shall be evidenced by stock option agreements setting forth the total number of shares subject to the Stock Option, the option price, the term of the Stock Option, and such other terms and provisions as are approved by the Committee, but, except to the extent permitted herein, are not inconsistent with the Plan. In the case of an Incentive Stock Option, the stock option agreement shall also include provisions that may be necessary to assure that the option is an incentive stock option under the Code. The Company shall execute stock option agreements upon instructions from the Committee. 5.2 OPTION PRICE. The option price for a Nonqualified Stock Option shall be determined by the Committee and shall be an amount not less than 85% of the fair market value per share of the Common Stock on the Date of Grant. The option price for an Incentive Stock Option shall be determined by the Committee and shall be an amount not less than 100% of the fair market value per share of the Common Stock on the Date of Grant; the Committee shall determine the fair market value of the Common Stock on the Date of Grant, and shall set forth the determination in its minutes, using any reasonable valuation method. Notwithstanding anything to the contrary in this Section 5.2, the exercise price of each Stock Option granted pursuant to the Plan shall not be less than the par value per share of the Common Stock. 5.3 OPTION PERIOD. The option period will begin and terminate on the respective dates specified by the Committee, but may not terminate later than ten years from the Date of Grant. However, if a Participant owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10% of the combined voting power of all classes of stock of the Company (or any Subsidiary of the Company) and an Incentive Stock Option is granted to such employee, the term of such Incentive Stock Option (to the extent required by the Code at the time of grant) shall be no more than five years from the Date of Grant. No Stock Option granted under the Plan may be exercised at any time after its term. The Committee may provide for the exercise of Stock Options in installments and upon such terms, conditions and restrictions as it may determine. 4 5 5.4 STOCK OWNERSHIP LIMITATION. No Incentive Stock Option may be granted to an employee who owns more than 10% of the total combined voting power of all classes of stock of the Company or its Subsidiaries. This limitation will not apply if the option price is at least 110% of the fair market value of the Common Stock on the Date of Grant and the option is not exercisable more than five years from the Date of Grant. 5.5 LIMITATION ON EXERCISES OF SHARES SUBJECT TO INCENTIVE STOCK OPTIONS. To the extent required by the Code for incentive stock options, the exercise of Incentive Stock Options granted under the Plan shall be subject to the $100,000 calendar year limit as set forth in Section 422(d) of the Code. 5.6 TERMINATION OF EMPLOYMENT. In the event a Participant shall cease to be employed by the Company, such Participant's Stock Options may be exercised by the Participant for a period of ninety (90) days after the Participant's termination of employment or until expiration of the Stock Option period (if sooner) to the extent of the shares with respect to which such Stock Options could have been exercised by the Participant on the date of termination, and thereafter to the extent not so exercised, such Stock Options shall terminate. In addition: (a) Death. In the event of death while employed, the Stock Option may be exercised, for a period of ninety (90) days after the Participant's death or until expiration of the Stock Option period (if sooner), to the extent of the shares with respect to which the Stock Option could have been exercised by the Participant on the date of the Participant's death, by the Participant's estate or personal representative, or by the person who acquired the right to exercise the Stock Option by bequest or inheritance or by reason of the Participant's death; and (b) Disability. In the event of termination of employment as the result of a total and permanent disability (as defined in Section 22(e) of the Code), the Stock Option may be exercised by the Participant or his guardian for a period of ninety (90) days after such termination or until expiration of the Stock Option period (if sooner), to the extent of the shares with respect to which the Stock Option could have been exercised by the Participant on the date of such termination. Notwithstanding the foregoing, individual grants of Stock Options under the Plan may provide, pursuant to the terms of the particular stock option agreement, more restrictive terms than those contained in this Plan concerning any exercise of such Stock Options with respect to any termination of employment by the Participant. 5.7 PAYMENT. Full payment for shares purchased upon exercise of a Stock Option shall be made in cash, or, provided that the particular stock option agreement so provides, by the Participant's delivery to the Company of shares of Common Stock which have a fair market value equal to the option price (or in any combination of cash and shares of Common Stock having an aggregate fair market value equal to the option price). No shares may be issued until full payment of the purchase price therefor has been made, and a Participant will have none of the rights of a stockholder until shares are issued to him. 5 6 5.8 EXERCISE OF STOCK OPTION. Stock Options granted under the Plan may be exercised during the option period, at such times and in such amounts, in accordance with the terms and conditions and subject to such restrictions as are set forth herein and in the applicable stock option agreements; provided, however, that Stock Options shall not be exercisable at any time during the six month period which begins on the Date of Grant. Except as otherwise contained herein (see Section 12.7 hereof), Stock Options may not be exercised, nor may shares be issued pursuant to a Stock Option (i) until the Plan has been approved by the stockholders of the Company, if necessary to comply with Rule 16b-3 promulgated under the 1934 Act or with the applicable rules or regulations of any stock exchange or inter-dealer quotation system on which the Common Stock is listed or quoted or (ii) if any necessary listing of the shares on a stock exchange or any registration under state or federal securities laws required under the circumstances has not been accomplished. 5.9 NON-ASSIGNABILITY. A Stock Option granted to a Participant may not be transferred or assigned, other than (i) by will or the laws of descent and distribution or (ii) pursuant to the terms of a qualified domestic relations order (as defined in Section 401(a)(13) of the Code or Section 206(d)(3) of the Employee Retirement Income Security Act of 1974, as amended), provided, that in the case of an Incentive Stock Option, such transfer or assignment may occur only to the extent it will not result in disqualifying such option as an incentive stock option under Section 422 of the Code, or any successor provision. Subject to the foregoing, during a Participant's lifetime, Stock Options granted to a Participant may be exercised only by the Participant or, provided the particular stock option agreement so provides, by the Participant's guardian or legal representative. 5.10 DISQUALIFYING DISPOSITION. If stock acquired upon exercise of an Incentive Stock Option is disposed of by a Participant prior to the expiration of either two years from the Date of Grant of such option or one year from the transfer of shares to the Participant pursuant to the exercise of such option, or in any other disqualifying disposition within the meaning of Section 422 of the Code, such Participant shall notify the Company in writing of the date and terms of such disposition. A disqualifying disposition by a Participant shall not affect the status of any other option granted under the Plan as an incentive stock option within the meaning of Section 422 of the Code. ARTICLE VI AMENDMENT OR DISCONTINUANCE The Board may at any time, without the consent of the Participants, alter, amend, revise, suspend, or discontinue the Plan, provided that such action shall not, without obtaining the approval of the stockholders of the Company, (i) materially increase the benefits accruing to Participants under the Plan, (ii) materially increase the number of securities which may be issued under the Plan, or (iii) materially modify the requirements as to eligibility for participation in the Plan. Subject to the foregoing limitations, the Board may amend the Plan or modify the agreements evidencing same in order to comply with any exemption from the operation of Section 16(b) of the 1934 Act. The Committee may also substitute new Stock Options for 6 7 previously granted Stock Options, including previously granted Stock Options having higher exercise prices. ARTICLE VII EFFECT OF THE PLAN Neither the adoption of this Plan nor any action of the Board or the Committee shall be deemed to give any officer or employee any right to be granted a Stock Option to purchase or receive Common Stock of the Company or any other rights except as may be evidenced by a stock option agreement, or any amendment thereto, duly authorized by the Committee and executed on behalf of the Company and then only to the extent and upon the terms and conditions expressly set forth therein. ARTICLE VIII TERM Unless sooner terminated by action of the Board, the Plan will terminate on the 3rd day of March, 1997. Stock Options under the Plan may not be granted after that date, but Stock Options granted before that date will continue to be effective in accordance with their terms and conditions. ARTICLE IX CAPITAL ADJUSTMENTS If at any time while the Plan is in effect or unexercised Stock Options are outstanding there shall be any increase or decrease in the number of issued and outstanding shares of Common Stock through the declaration of a stock dividend or through any recapitalization resulting in a stock split-up, combination, or exchange of shares of Common Stock, then and in such event: (i) An appropriate adjustment shall be made in the maximum number of shares of Common Stock then subject to being awarded under grants pursuant to the Plan, to the end that the same proportion of the Company's issued and outstanding shares of Common Stock shall continue to be subject to being so awarded; and (ii) Appropriate adjustments shall be made in the number of shares of Common Stock and the exercise price per share thereof then subject to purchase pursuant to each such Stock Option previously granted and unexercised, to the end that the same proportion of the Company's issued and outstanding shares of Common Stock in each instance shall remain subject to purchase at the same aggregate exercise price. Any fractional shares resulting from any adjustment made pursuant to this Article IX shall be eliminated for the purposes of such adjustment. Except as otherwise expressly provided herein, the issuance by the Company of shares of its capital stock of any class, or securities convertible into shares of capital stock of any class, either in connection with direct sale or upon 7 8 the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of or exercise price of shares of Common Stock then subject to outstanding Stock Options granted under the Plan. ARTICLE X RECAPITALIZATION, MERGER AND CONSOLIDATION (a) The existence of this Plan and Stock Options granted hereunder shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stocks ranking prior to or otherwise affecting the Common Stock or the rights thereof (or any rights, options or warrants to purchase same), or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. (b) Subject to any required action by the stockholders, if the Company shall be the surviving or resulting corporation in any merger or consolidation, any outstanding Stock Option granted hereunder shall pertain to and apply to the securities or rights (including cash, property or assets) to which a holder of the number of shares of Common Stock subject to the Stock Option would have been entitled. (c) In the event of any merger or consolidation pursuant to which the Company is not the surviving or resulting corporation, there shall be substituted for each share of Common Stock subject to the unexercised portions of such outstanding Stock Option that number of shares of each class of stock or other securities or that amount of cash, property or assets of the surviving or consolidated company which were distributed or distributable to the stockholders of the Company in respect of each share of Common Stock held by them, such outstanding Stock Options to be thereafter exercisable for such stock, securities, cash or property in accordance with their terms. Notwithstanding the foregoing, however, all such Stock Options may be cancelled by the Board as of the effective date of any such reorganization, merger or consolidation, or of any proposed sale of substantially all of the assets of the Company, or of any dissolution or liquidation of the Company, by giving notice to each holder thereof or his personal representative of its intention to do so and by permitting the purchase during the thirty (30) day period next preceding such effective date of any or all of the shares subject to such outstanding Stock Options, including shares as to which such Stock Option would not otherwise be exercisable. (d) In the event of a Change in Control of the Company, then, notwithstanding any other provision in the Plan to the contrary, all unmatured installments of Stock Options outstanding shall thereupon automatically be accelerated and exercisable in full. 8 9 (e) In case the Company shall, at any time while any Stock Option under this Plan shall be in force and remain unexpired, (i) sell all or substantially all of its property, or (ii) dissolve, liquidate, or wind up its affairs, then each Participant may thereafter receive upon exercise hereof (in lieu of each share of Common Stock of the Company which such Participant would have been entitled to receive) the same kind and amount of any securities or assets as may be issuable, distributable or payable upon any such sale, dissolution, liquidation, or winding up with respect to each share of Common Stock of the Company. In the event that the Company shall, at any time prior to the expiration of any Stock Option make any partial distribution of its assets in the nature of a partial liquidation, whether payable in cash or in kind (but excluding the distribution of a cash dividend payable out of retained earnings or earned surplus and designated as such), then in such event the exercise prices than in effect with respect to each option shall be reduced, as of the payment date of such distribution, in proportion to the percentage reduction in the tangible book value of the shares of the Company's Common Stock (determined in accordance with generally accepted accounting principles) resulting by reason of such distribution; provided, that in no event shall any adjustment of exercise prices in accordance with the terms of the Plan result in any exercise prices being reduced below the par value per share of the Common Stock. (f) Upon the occurrence of each event requiring an adjustment of the exercise price and/or the number of shares purchasable pursuant to Stock Options granted pursuant to the terms of this Plan, the Company shall mail forthwith to each Participant a copy of its computation of such adjustment which shall be conclusive and shall be binding upon each such Participant, except as to any Participant who contests such computation by written notice to the Company within thirty (30) days after receipt thereof by such Participant. ARTICLE XI OPTIONS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY OTHER CORPORATIONS Stock Options may be granted under the Plan from time to time in substitution for such stock options held by employees of a corporation who become or are about to become employees of the Company or a Subsidiary as the result of a merger or consolidation of the employing corporation with the Company or a Subsidiary or the acquisition by either of the foregoing of stock of the employing corporation as the result of which it becomes a Subsidiary. The terms and conditions of the substitute options so granted may vary from the terms and conditions set forth in this Plan to such extent as the Committee at the time of grant may deem appropriate to conform, in whole or in part, to the provisions of the options in substitution for which they are granted. ARTICLE XII MISCELLANEOUS PROVISIONS 12.1 INVESTMENT INTENT. The Company may require that there be presented to and filed with it by any Participant(s) under the Plan, such evidence as it may deem necessary to establish 9 10 that the Stock Options granted or the shares of Common Stock to be purchased or transferred are being acquired for investment and not with a view to their distribution. 12.2 ALLOTMENT OF SHARES. The Committee shall determine the number of shares of Common Stock to be offered from time to time by grant of Stock Options to Participants under the Plan. The grant of a Stock Option to a Participant shall not be deemed either to entitle the Participant to, or to disqualify the Participant from, participation in any other grant of Stock Options under the Plan. 12.3 NO RIGHT TO CONTINUE EMPLOYMENT. Nothing in the Plan or in any Stock Option confers upon any employee the right to continue in the employ of the Company or interferes with or restricts in any way the right of the Company to discharge any employee at any time (subject to any contract rights of such employee). 12.4 STOCKHOLDERS' RIGHTS. The holder of a Stock Option shall have none of the rights or privileges of a stockholder except with respect to shares which have been actually issued. 12.5 TAX REQUIREMENTS. Any employee who exercises any Stock Option shall be required to pay the Company the amount of all taxes which the Company is required to withhold as a result of the exercise of the Stock Option. With respect to an Incentive Stock Option, in the event of a subsequent disqualifying disposition of Common Stock within the meaning of Section 422 of the Code, such payment of taxes may be made in cash, by check or through the delivery of shares of Common Stock which the employee then owns, which shares have an aggregate fair market value equal to the required withholding payment, or any combination thereof. With respect to the exercise of a Nonqualified Stock Option, the Participant's obligation to pay such taxes may be satisfied by the following, or by any combination thereof: (i) the delivery of cash to the Company in an amount necessary to satisfy the required tax withholding obligation of the Company and/or (ii) the actual delivery by the exercising Participant to the Company of shares of Common Stock which the Participant owns and/or the Company's withholding of a number of shares to be issued upon the exercise of the Stock Option, which shares so delivered or withheld have an aggregate fair market value which equals or exceeds (if necessary to avoid the issuance of fractional shares) the required tax withholding payment. Any such withholding payments with respect to the exercise of a Nonqualified Stock Option made by a Participant in cash or by actual delivery of shares of Common Stock shall be required to be made within thirty (30) days after the delivery to the Participant of any certificate representing the shares of Common Stock acquired upon exercise of the Stock Option. 12.6 INDEMNIFICATION OF BOARD AND COMMITTEE. No member of the Board or the Committee, nor any officer or employee of the Company acting on behalf of the Board or the Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board or the Committee and each and any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination or interpretation. 10 11 12.7 AMENDMENT AND RESTATEMENT OF PRIOR PLAN. This Plan is intended to amend and restate the Company's Nonqualified Stock Option Plan approved and adopted by the Board on December 14, 1988, which, in turn, memorialized the Company's informal plan or program in effect since March 3, 1987 to provide employees with an opportunity to obtain an equity interest in the Company in order to motivate employment performance, encourage retention of qualified employees and attract highly qualified personnel, by the grant of nonqualified stock options to purchase shares of Common Stock of the Company. The Plan was further amended on May 7, 1991 by action of the Board in order to conform the plan's provisions to the amended rules promulgated by the Securities and Exchange Commission under Section 16(b) of the 1934 Act. The Plan was amended on November 5, 1992 by action of the Board to, among other things, amend Section 12.5. The Plan was amended on May 13, 1997 by action of the Board to further amend Section 12.5. ARTICLE XIII EFFECTIVE DATE The effective date of the Plan shall be March 6, 1990, that is, the date on which it was approved and adopted by the Board (although it amends and restates the Company's Nonqualified Stock Option Plan as set forth in Section 12.7 hereof). IN WITNESS WHEREOF, the Company has caused this instrument to be executed effective as of the 13th day of May 1997, by its Chief Executive Officer pursuant to prior action taken by the Board. IMCO RECYCLING INC. By: --------------------------------- Don V. Ingram Chief Executive Officer Attest: - ----------------------------------- Paul V. Dufour Secretary 11 EX-10.8 4 SUPPLY AGREEMENT DATED MARCH 2, 1992 1 EXHIBIT 10.8 SUPPLY AGREEMENT BETWEEN BARMET ALUMINUM CORPORATION AND IMCO RECYCLING INC. Prepared by: Roetzel & Andress George A. Dietrich Joseph F. Timmons 75 East Market Street Akron, OH 44308 2 TABLE OF CONTENTS
I. Construction of Facility ................................................ 2 II. Agreement to Sell and to Purchase ....................................... 3 III. Term .................................................................... 5 IV. Tolling Operation ....................................................... 5 V. Price, Packaging and Terms and Conditions of Sale ....................... 8 VI. Warranty and Related Rights ............................................. 9 VII. Force Majeure ........................................................... 11 VIII. Proprietary and Confidential Information ................................ 11 IX. Patent Infringement ..................................................... 15 X. Employment Matters ...................................................... 16 XI. Notices and Communication ............................................... 16 XII. Independent Status of Parties and Limitation of Authority ............... 18 XIII. Arbitration ............................................................ 18 XIV. Indemnity ............................................................... 19 XV. Buyer's Option to Participate ........................................... 20 XVI. Rights of First Refusal ................................................. 21 XVII. Purchase of Personal Property ........................................... 22 XVIII. Closing Procedure ....................................................... 23 XIX. Termination ............................................................. 24 XX. Representations ......................................................... 25
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XXI. Miscellaneous ........................................................... 28 Exhibit "A" (Quantity and Quality of Product Delivered) ..................... 33 Exhibit "B" (Scrap Receiving Procedures) .................................... 36 Schedule 5.01 (Price) ....................................................... 41 Exhibit "C" (Contract Recoveries) ........................................... 45 Exhibit "D" (Base Price Adjustment) ......................................... 50 Exhibit "E" (Waste Minimization) ............................................ 52 Exhibit "F" (Supplier's Records) ............................................ 54 Exhibit "G" (Sample Calculation of Recoverable Costs) ....................... 64 Schedule 15.01 (Exercise and Terms of Option) ............................... 65 Exhibit "H" (Memorandum of Facility Rights of First Refusal) ................ 71 Schedule 16.01 (Participation Formula) ...................................... 78 Exhibit "I" (Memorandum of Rockport Rights of First Refusal) ................ 79 Exhibit "J" (List of and Purchase Price for Personal Property) .............. 87 Exhibit "K" (Bill of Sale) .................................................. 88
4 SUPPLY AGREEMENT This Supply Agreement (the "Agreement") is made and entered into as of this 2nd day of March, 1992, by and between Barmet Aluminum Corporation, an Ohio corporation with its principal place of business at 753 W. Waterloo Road, Akron, Ohio 44314 (referred to in this Agreement and Schedules as "Buyer" and in Exhibits as "Barmet") and IMCO Recycling Inc., a Delaware corporation with its principal executive offices at 5215 North O'Connor Blvd., Suite 940, Central Tower at Williams Square, Irving, Texas 75039 (referred to in this Agreement and Schedules as "Supplier" and in Exhibits as "IMCO"). WITNESSETH WHEREAS, Buyer is engaged in the business of producing aluminum rolled products at its rolling mill facility in Uhrichsville, Ohio (the "Mill"); and WHEREAS, Buyer currently operates a Salt Plant (the "Salt Plant"), Crushing Plant (the "Crushing Plant") and Furnace Operations (the "Furnace Operations") in Uhrichsville, Ohio as support operations for the Mill; WHEREAS, Supplier has agreed, subject to the terms hereof, to construct a recycling and processing facility in Uhrichsville, Ohio for the purpose of recycling dross, aluminum scrap and concentrates into ingot or molten metal (the "Facility"); WHEREAS, once the First Phase of the Facility as described below is completed, its recycling capacity will be sufficient to fulfill Buyer's requirements for secondary metal as described in Exhibit "A" and enable Buyer to discontinue its Furnace Operations; and WHEREAS, the parties desire to enter into a Supply Agreement whereby Supplier will provide tolling/converting services to Buyer so as to satisfy Buyer's requirements of secondary metal in the form of ingot and molten metal and Buyer will purchase said services from Supplier. 5 NOW, THEREFORE, and in consideration of the mutual covenants and conditions set forth herein the adequacy and sufficiency of which is hereby acknowledged and intending to be legally bound, the parties agree as follows: ARTICLE 1. CONSTRUCTION OF FACILITY SECTION 1.01 CONSTRUCTION OF FACILITY BY SUPPLIER. Subject to the terms of this Agreement, Supplier agrees to proceed with the construction of the Facility and to complete the installation of five (5) furnaces in the Facility within ten (10) months after all environmental and construction permits required for the construction of the Facility have been duly procured by Supplier. The period beginning on the date hereof and ending upon the first date that all five (5) furnaces in the Facility become operational is referred to herein as the "First Phase". Supplier agrees to construct additional furnaces as may be necessary to satisfy its supply obligations stated in this Agreement and in Exhibit "A". Supplier shall complete the installation of said additional furnaces in the Facility by April 1, 1993 or within ten (10) months after all environmental and construction permits required for the construction of said additional furnaces have been duly procured by Supplier, whichever is later. Supplier hereby agrees to use its best efforts to obtain all permits required to construct the initial five (5) furnaces, as well as the additional furnaces necessary to satisfy its supply obligations stated in this Agreement and in Exhibit "A". Supplier agrees to cause the Facility to be constructed so that, in Supplier's reasonable judgment, it will contain adequate parking, storage and loading space to facilitate incoming and outgoing truck deliveries. SECTION 1.02 CLOSURE OF FURNACE OPERATIONS. Buyer shall completely cease its Furnace 2 6 Operations for production purposes upon the completion of the First Phase provided Supplier then has sufficient furnace capacity to satisfy Buyer's requirements of the Product as defined in Section 2.01 below. ARTICLE II. AGREEMENT TO SELL AND TO PURCHASE SECTION 2.01 PURCHASE OF REQUIREMENTS. After the completion of the First Phase Supplier shall be Buyer's exclusive source of secondary ingot and molten metal with respect to the Scrap Based Alloys used by the Mill in conformance with the specifications detailed in Exhibit "A" hereto (the "Product"). For purposes of this Agreement, the term Scrap Based Alloys shall refer to all alloys except alloys 1100, 1350, 8111 and 5052 and any additional high purity alloys which may be excluded by agreement as listed in the Registration Record of Aluminum Association Designation and Chemical Composition Limits for Wrought Aluminum and Wrought Aluminum Alloys ("Green Sheet"). Buyer shall, however, be permitted to purchase nominal quantities of primary alloys and other "sweeteners" from vendors other than Supplier to achieve the standards set forth for Scrap Based Alloys in said Green Sheet. In determining the source of raw materials to be used in the production of Buyer's alloys, it is the intent of Buyer to maximize the use of Scrap in the composition of Scrap Based Alloys. Exceptions to this Section 2.01 for ingot tolling arrangements which Buyer has with certain of its sheet customers shall be communicated to Supplier in advance, provided, however, total annual volume for such ingot tolling of Scrap Based Alloys shall not exceed ten (10%) percent of the installed capacity per Exhibit "A" hereto. Except as otherwise provided herein, Buyer shall be prohibited from purchasing any of the Product from any other source, whether on a 3 7 tolling/conversion or a purchase basis. SECTION 2.02 SUPPLY OBLIGATIONS. After the completion of the First Phase and subject to the terms of this Agreement, Supplier shall toll/convert sufficient quantities of Buyer's Scrap (as described in Section 4.01 below) as ordered by Buyer from time to time so as to satisfy Buyer's quantity requirements. Supplier shall not be prohibited from selling any ingot or molten metal it produces at the Facility to purchasers other than Buyer assuming Supplier at all times meets its supply obligations to Buyer hereunder. Notwithstanding the foregoing, it is intended that Buyer shall be the principal customer of the Facility and shall be accorded priority treatment meaning that Buyer's orders shall receive priority scheduling over Supplier's other customers. In the event Supplier agrees to sell or toll any ingot, molten metal or any other product or accepts any Scrap at the Facility for any purchaser other than Buyer, Supplier shall not comingle the Scrap, waste, dunnage, or finished products relating to any other purchasers with those of Buyer. Supplier shall maintain and make available to Buyer accurate and complete records of the Scrap, waste, dunnage, and finished products relating to services performed for Buyer under this Agreement and separate records for services provided or products produced for other purchasers. The exact content of said records shall include such detail as may reasonably be requested by Buyer from time to time but shall include, but not be limited to, the data described in Exhibit "F". The parties may, but shall not be obligated to, enter into a separate agreement with regard to Buyer recycling any saltcake generated as a result of Supplier providing services or products to any other purchasers. If such a separate agreement is entered into, the parties will allocate and define obligations with respect to disposal of waste generated as a result 4 8 of Buyer providing said services to Supplier. ARTICLE III. TERM SECTION 3.01 TERM. This Agreement shall be effective as of the date first written above. Subject to the provisions of Section 19.01 below, the obligations of the parties with respect to the delivery and processing of Scrap (as defined in Section 4.01) shall commence at the beginning of the First Contract Year, as defined in this Section 3.01 and shall be in effect for a ten (10) year term thereafter (the "Initial Term"). Buyer shall have the option to extend the term of this Agreement for an additional ten (10) year period at the expiration of the Initial Term based upon the price and terms contained herein (the "Extended Term"). For purposes of this Agreement the term "Contract Year" shall refer to consecutive twelve (12) month periods commencing on the earlier of the first day of the first month in which Supplier processes a minimum of ten million (10MM lbs.) pounds of Buyer's Scrap or notifies Buyer that sufficient capacity has been installed at the Facility to enable it to process said ten million (10MM lbs) pounds per month. Similarly "Contract Quarter" shall refer to each consecutive three (3) month period beginning on the first day of the First Contract Year. ARTICLE IV. TOLLING OPERATION SECTION 4.01 TOLLING OPERATION. (a) Buyer will order and request Scrap, as described herein, to be delivered to Supplier in accordance with Exhibit "B" hereto. Upon request by Buyer, Supplier will, at its expense, receive and accept said Scrap. For purposes of this Agreement, Scrap shall be classified into the categories listed in Exhibit "C" and shall be defined therein (the "Scrap"). 5 9 Buyer shall make available for the use of Supplier and Supplier shall at its expense pick up or cause to be picked up concentrates from the Buyer's Crushing Plant, flux from the Buyer's Salt Plant, and dross from Buyer's Mill for its use in the processing of Scrap for Buyer hereunder. To the extent Supplier utilizes any flux, concentrates, and/or dross provided by Buyer in providing services or products to other purchasers as permitted pursuant to Section 2.02 hereof, Supplier shall pay to Buyer the then prevailing market price of said flux, concentrates, and dross. The quantities of Scrap, flux, concentrates, and dross supplied by Buyer shall be sufficient so that, assuming the Supplier obtains recovery rates set forth in Exhibit "C", it will be able to fill Buyer's total requirements of the Product. All Scrap, flux, concentrate and dross supplied by Buyer to Supplier hereunder, as well as the resulting ingot and/or molten metal, shall remain the sole property of and be at all times titled in the name of Buyer, and Supplier shall execute and deliver to Buyer upon reasonable request by and at the expense of Buyer, documentation to evidence and/or perfect such retention of title. The flux provided to Supplier described herein shall be comprised of a minimum of forty percent (40%) potassium chloride with the remainder of said flux consisting of sodium chloride. In the event, but only to the extent, the flux supplied hereunder consists of less than forty (40%) percent potassium chloride, the Supplier may add potash to the flux in amounts necessary to raise the potash content of the flux to the level which would have been accomplished had the flux originally consisted of forty (40%) percent potassium chloride. Subject to the inspection and verification requirements set forth in Section 5.04 hereof with respect to the potassium chloride concentration in the flux, Buyer shall promptly reimburse Supplier for its cost of the potash added to the flux hereunder. 6 10 (b) Supplier shall at its expense deliver or cause to be delivered all saltcake and rotary furnace baghouse dust generated as a result of Supplier's tolling operations for Buyer at the Facility to the Buyer's Crushing Plant. Supplier shall be solely responsible for disposing of all waste, impurities, refuse or other substance or material produced as a result of the Facility operations not otherwise required to be delivered to Buyer hereunder. Buyer shall indemnify and hold Supplier, its officers, directors and shareholders harmless from any and all damages, losses, liabilities, suits, actions, demands, proceedings (whether legal or administrative), and expenses (including but not limited to attorneys' fees) suffered by Supplier which arise directly or indirectly out of Buyer's treatment, storage, recycling or disposal of saltcake and rotary furnace baghouse dust. Buyer shall from time to time provide to Supplier the information and documentation reasonably requested by Supplier regarding the disposal or recycling of saltcake and rotary furnace baghouse dust by Buyer. (c) Supplier shall, as part of its tolling operations, supply and at all times maintain at its expense a sufficient number of crucibles and sow molds necessary to comply with its supply obligations under this Agreement. (d) Except as otherwise provided in Section 7.01, Supplier shall at all times during the period of performance of this Agreement, provide and augment as necessary a work force and Plant Capacity fully adequate to perform and comply with this Agreement. The term "Plant Capacity" as used herein shall include but shall not be limited to, engineers, skilled and unskilled workmen, supervision, materials, supplies, tools, equipment and facilities. (e) In the event that Buyer offers to sell any excess flux generated at its Salt Plant, 7 11 Supplier shall purchase at the then prevailing delivered price so much of said flux as is then needed to satisfy Supplier's requirement of flux at all of its other recycling locations other than the Facility, as well as the Facility's requirements for service or product provided to other purchasers. ARTICLE V. PRICE, PACKAGING AND TERMS AND CONDITIONS OF SALE SECTION 5.01 PRICE. The compensation and remuneration which Buyer shall be required to pay Supplier in consideration of Supplier's performance of its obligations hereunder is set forth in Schedule 5.01 hereto. SECTION 5.02 PACKAGING AND DELIVERY PROCEDURE. Packaging, preparation for transport, delivery, and identification of Product items shall be in accordance with Exhibit "A" hereto. Subject to Section 7.01 hereof, time shall be of the essence with respect to Supplier's delivery deadlines as set forth in said Exhibit "A", but Supplier shall have the right to toll the Buyer's Scrap at any of Supplier's other plants if the Facility is not able to produce the quantities of Scrap, dross and concentrates set forth on Exhibit "A" by the dates indicated thereon. Supplier shall at its expense, deliver or cause to be delivered to the Mill all ingot or molten metal processed pursuant to this Agreement. SECTION 5.03 TERMS AND CONDITIONS OF SALE. All orders placed and services performed pursuant to this Agreement shall be subject only to the terms of this Agreement. Notwithstanding the fact that either party may submit purchase orders, acknowledgments, invoices, or similar documentation, any terms or conditions contained in said documents shall be superseded by the terms hereof. 8 12 SECTION 5.04 INSPECTION OF SUPPLIER'S FACILITY. Supplier shall grant to Buyer access to the Facility during normal business hours upon prior written notice for the purpose of verifying Supplier's compliance with the terms of this Agreement, including but not limited to inspecting Buyer's Scrap, verifying the accuracy of Supplier's testing of the potassium chloride concentration in the flux, and verifying that Supplier is maintaining accurate and complete records as described in Section 2.02 of this Agreement. ARTICLE VI. WARRANTY AND RELATED RIGHTS SECTION 6.01 WARRANTY. Supplier warrants that the Product will meet the specifications set forth in Exhibit "A" in all material respects. In the event Supplier fails to achieve the recovery rates set forth in Exhibit "C", Supplier shall be obligated to pay the penalty set forth therein either in cash or such other method acceptable to Buyer. SECTION 6.02 QUALITY. The Product shall meet the manufacturing, design, performance, and appearance specifications as described in Exhibit "A". Should any of the Product fail to meet said specifications, Supplier shall immediately initiate procedural changes required to correct the deficient condition at its expense. In no event shall Buyer be entitled to consequential damages but this exclusion shall in no event limit or restrict Buyer's right to recover direct and incidental damage for Supplier's breach. SECTION 6.03 QUANTITY. Buyer shall furnish Supplier with a written ninety (90) day month by month rolling forecast on or before the first day of each month which shall estimate Buyer's requirements of the Product during the next three months. The parties hereby acknowledge that said forecast for the third (3rd) month in each ninety (90) day period shall be 9 13 utilized for planning purposes only and Buyer shall incur no obligation to purchase the volume of Product listed on said forecast for the third (3rd) month in each ninety (90) day period nor shall the Supplier be relieved of any of its obligations to satisfy Buyer's requirements hereunder in the event that the Buyer's forecast proves to be substantially lower than the volume of Product eventually purchased. Subject to Section 7.01, Buyer agrees that it will purchase a minimum of ninety (90%) percent of the volume of Product listed in said forecast for the second month, and Supplier agrees that it will accept orders from Buyer for a maximum of one hundred ten (110%) percent of the volume of Product listed in said forecast for the second month, or Supplier's full capacity, whichever is less. Supplier agrees to use its reasonable best efforts to fully satisfy Buyer's requirements hereunder. Upon a minimum of sixteen (16) hours notice from Buyer, Supplier agrees to make changes in its production schedule with respect to the types of alloys requested by Buyer. Notwithstanding Section 2.02 hereof, Supplier shall not be required to accept orders during the year totalling in excess of the volume set forth in Exhibit "A". Notwithstanding Section 2.01, Buyer has made no representations or warranties with regard to the level of ingot or molten metal it will require during the term of this Agreement or any extension thereof and shall have no obligation to purchase any minimum level of tolling/conversion services from Supplier except as provided in this Section 6.03. SECTION 6.04 DISCLAIMER OF OTHER WARRANTIES. EXCEPT FOR THE WARRANTIES CONTAINED IN THIS ARTICLE VI, SUPPLIER MAKES NO WARRANTY THAT THE PRODUCT COVERED BY THIS AGREEMENT IS MERCHANTABLE OR FIT FOR ANY PARTICULAR PURPOSE AND THERE ARE NO WARRANTIES, EXPRESS OR IMPLIED, WHICH EXTEND BEYOND THIS ARTICLE VI. 10 14 ARTICLE VII. FORCE MAJEURE SECTION 7.01 FORCE MAJEURE. In any event, and in addition to all other limitations stated herein, the parties hereto shall not be liable for any act, omission, result, or consequence, including but not limited to any delay in delivery or performance, which is due to any act of God, the prior performance of any government order, local labor shortage, fire, flood, or casualty, government regulation or requirement, shortage or failure of raw material, supplies, fuel, power or transportation, breakdown of equipment, or any other cause beyond said party's reasonable control whether of a similar or dissimilar nature to those above enumerated, or due to any strike, labor dispute or difference with workers, regardless of whether or not said party is capable of settling such labor problem. Upon the happening of any of the events described in this Section 7.01, Supplier shall have the duty to use its reasonable best efforts to supply the Product to the Buyer from its other plants if the Facility is not able, as a result of one of the events described herein, to process the quantities of Scrap, dross and concentrates set forth on Exhibit "A" at any time during the term of this Agreement. ARTICLE VIII. PROPRIETARY AND CONFIDENTIAL INFORMATION SECTION 8.01 PROPRIETARY INFORMATION. Buyer and Supplier acknowledge that, in the course of performing their duties under this Agreement, they will necessarily be supplied with confidential and/or proprietary information of the other party concerning business affairs, methods of operation, processes and other information. 11 15 (a) For purposes of this Article VIII, the term "Confidential Information" shall mean any and all proprietary, trade secret, technical and other confidential information concerning the business or affairs of the provider, including but not limited to: (i) information concerning the design or method of production of any of the provider's products or services, including but not limited to all records, files, memorandum, reports, price lists, customer lists, drawings, plans, sketches, documents, equipment, production specifications, manufacturing processes and methods, production machinery, quality assurance methods, accounting systems, and the like; (ii) discoveries, inventions, copyrights, whether patentable or not, and including, without limitation, the nature and result of research, development, manufacturing, marketing, planning and other business activities and all designs, concepts, processes and operational techniques in connection with Supplier's rotary furnaces; (iii) ideas, concepts and mathematical formulas which comprise all of said confidential information. (b) It is agreed that the Confidential Information shall include all information described in Section 8.01(a) except for any information: (i) which is already in recipient's possession, by recipient's development; (ii) which is generally available to the public or which becomes generally available to the public through no act or failure to act on the part of recipient or recipient's agents or employees; 12 16 (iii) which is disclosed to recipient on a non-confidential basis by a third party having no obligation to provide it on a confidential basis or to refrain from so doing; or (iv) which the recipient can demonstrate by written record was independently developed by persons who did not have access to provider's information. Specific information disclosed shall not be deemed to be in recipient's possession, or part of public knowledge or literature, or available to recipient merely because it can be assembled by selection of information previously in recipient's possession or part of the public knowledge or literature or available to recipient from a source other than the provider. Buyer hereby acknowledges that Supplier's rotary furnace design, construction and process is not generally available to the public. SECTION 8.02 NON-DISCLOSURE. The parties hereby acknowledge that all Confidential Information has been developed or acquired at considerable expense, and has independent economic value from not being known or readily ascertainable by others, and hereby covenant and agree that each will not communicate or divulge to, or use for the benefit of itself or any other person, firm, association, or corporation, without the prior written consent of the other party, any Confidential Information or Know how (as defined in Section 8.03 below) that may be communicated to, acquired by, or learned by the other party in the course of or as a result of this Agreement. SECTION 8.03 KNOW HOW. The parties hereby recognize that the other party has a property interest not only in the actual Confidential Information but also in the ideas, concepts, and mathematical formulas ("Know how") which comprises said information. In addition to each 13 17 party's duty not to disclose said Know how as provided in Section 8.02, each further agrees that it will not integrate any of the Know how into any of its products which it develops. SECTION 8.04 LABELING CONFIDENTIAL INFORMATION. The failure of either party to designate or label any property or information as confidential, proprietary or trade secret shall in no way affect the property's classification as such. In no instance shall any information disclosed to the other party, regardless of whether said information would constitute Confidential Information, be reproduced by the other party in any form whatsoever. SECTION 8.05 RETURN OF INFORMATION. Each party agrees, upon request of the other party, to promptly deliver to the other party all drawings, blueprints, manuals, letters, notes, notebooks, reports, computer software, compilations of information and all other material or copies thereof, in whatever form, including without limitation, electronic media or other tangible forms of any information, obtained from the other party, regardless of whether said information would constitute Confidential Information, which is in said party's possession or under said party's control. SECTION 8.06 USE BY PARTY'S EMPLOYEES AND AGENTS. The parties hereby agree to limit the number of employees and agents that have access to the Confidential Information to those whose knowledge of such information is essential for said party to satisfy its obligations under this Agreement. Each party shall use its reasonable best efforts to ensure that its employees and agents do not utilize the Confidential Information except in the performance of their duties to said party. SECTION 8.07 PUBLICITY. Neither party shall use the name of the other in publicity 14 18 releases or advertising or for other promotional purposes, without securing the prior written approval of the other party hereto, unless in the opinion of counsel to such disclosing party, such disclosure is required by law in which event a copy will be provided to the non-disclosing party. SECTION 8.08 EQUITABLE RELIEF. The parties hereby acknowledge and agree that a breach by it of the provisions of this Article VIII would cause the other party irreparable injury and damage which could not be reasonably or adequately compensated by damages at law. Therefore, each party expressly agrees that in addition to any other remedies provided for by law, in equity or pursuant to this Agreement, either party shall be entitled to injunctive or other equitable relief to prevent a breach of this Article VIII by the other party. ARTICLE IX. PATENT INFRINGEMENT SECTION 9.01 PATENT INFRINGEMENT. Supplier shall, at its own expense, defend any suit or proceeding brought against Buyer to the extent the same is based upon a claim that any Product furnished by Supplier hereunder constitutes an infringement of any patent of the United States, and Supplier shall pay all damages and costs awarded in such action against Buyer. In case any Product furnished hereunder is in such suit held to constitute infringement and their use or sales enjoined, Supplier shall, at its expense, either: (a) procure for Buyer the rights to continue using said Product; (b) replace them with non-infringing Products; (c) modify them so they become non-infringing, provided that the Products are so modified to Buyer's satisfaction; or (d) remove them and refund the purchase price and the transportation costs thereof. 15 19 ARTICLE X. EMPLOYMENT MATTERS SECTION 10.01 PREFERENTIAL HIRING STATUS. Supplier agrees that it will give preferential hiring consideration to Buyer's employees who shall lose their employment as a result of Buyer ceasing its Furnace Operation. Said displaced employees shall be hired by Supplier to staff its operations as needed, so long as they are able to meet the employment standards established for all new hires at the Facility. Supplier is not obligated to assume Buyer's obligations or liabilities under any collective bargaining agreement covering any employees of Buyer. Supplier agrees that it shall not hire away employees from Buyer, except those displaced employees described above. Except for those employees who lose their employment as a result of Buyer ceasing its Furnace Operations, under no circumstance shall Supplier employ any individual who was employed by Buyer within a two (2) year period prior to the proposed date of hire unless prior written permission is obtained from the President of Buyer. ARTICLE XI. NOTICES AND COMMUNICATION SECTION 11.01 NOTICES AND COMMUNICATION. Any notice or other communication required or permitted hereunder shall be sufficiently given if delivered in person, sent registered mail, postage prepaid, or by electronic transmission confirmed by the recipient addressed as follows: As to buyer: (when personally delivered) Barmet Aluminum Corporation Attention: Uhrichsville, Ohio or 16 20 (IF TRANSMITTED BY MAIL) Barmet Aluminum Corporation Attention: Terry D. Smith 753 W. Waterloo Road Akron, Ohio 44314 WITH A COPY TO: George A. Dietrich Roetzel & Andress 75 East Market Street Akron, Ohio 44308 AS TO SUPPLIER: (WHEN PERSONALLY DELIVERED) IMCO Recycling Inc. Attention: President Irving, Texas or (IF TRANSMITTED BY MAIL) IMCO Recycling Inc. Attention: Paul V. Dufour 5215 North O'Connor Blvd. Suite 940 Central Tower at Williams Square Irving, Texas 75039 WITH A COPY TO: Haynes and Boone, L.L.P. Attention: Marc H. Folladori, Esq. 1600 Smith Street Suite 3700 Houston, Texas 77002 17 21 The date upon which any such communication is personally delivered or, if such communication is transmitted by mail or electronic transmission, the date upon which it is received by the addressee, shall be deemed the effective date of such communication. Each party shall promptly advise the other in writing in the event of any change in their respective addresses. ARTICLE XII. INDEPENDENT STATUS OF PARTIES AND LIMITATION OF AUTHORITY SECTION 12.01 INDEPENDENT STATUS OF PARTIES. This Agreement does not appoint either party the other's agent, or partner for any purpose whatsoever, nor does it grant to either party any right or authority to create any obligation or responsibility, expressed or implied, on behalf of or in the name of the other party, nor to bind the other party in any manner whatsoever. Except in the circumstances described in Article XV, no partnership or joint venture is intended nor is created as a result of this Agreement but rather the parties relationship shall be that of a Supplier/Customer and except as otherwise provided herein, each shall be solely answerable for the cost and expenses, consequences and damages arising out of their own acts and from the operation and maintenance of their respective businesses. ARTICLE XIII. ARBITRATION SECTION 13.01 ARBITRATION OF CERTAIN DISPUTES. In the event that the parties are unable to agree as to the allocation of certain increases in operating costs and capital expenditures as described in Schedule 5.01(e), or in the event of a dispute regarding either party's rights or obligations under Sections 16.01 or 16.02 said allocation and/or any said disputes shall be finally 18 22 settled by arbitration as provided herein. In the event of any such dispute, the parties shall for a period of not less than one (1) month discuss in good faith, and attempt to agree upon a resolution of such dispute. In the event that the parties are unable to agree, the issue may be submitted to arbitration of a three (3) member panel as provided for herein. Either party may invoke the arbitration procedure by serving on the other party written notice requesting arbitration. The three (3) member arbitration panel shall be selected pursuant to and the arbitration should be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association (AAA). The arbitration shall be conducted before the selected panel according to the then current Commercial Arbitration Rules established by the AAA. All costs for the arbitration shall be shared equally between the parties. The decision of the arbitrators will be final and binding on both parties. Venue of the arbitration shall be in Akron, Ohio. Notwithstanding anything herein, all other disputes, controversies or claims arising out of or in connection with this Agreement shall be instituted and resolved in the federal or state court and pursuant to the law described in Section 21.06 hereof. ARTICLE XIV. INDEMNITY SECTION 14.01 BUYER'S INDEMNITY. Buyer hereby agrees to indemnify and hold Supplier, its officers, directors and shareholders harmless from and against any and all damages, losses, liabilities, suits, actions, demands, proceedings (whether legal or administrative), and expenses (including but not limited to attorneys fees) arising, directly or indirectly, out of any action or failure to act by Buyer, its employees or agents or any negligence, breach of this Agreement, or misrepresentation, on the part of Buyer, its employees or agents. Notwithstanding anything 19 23 contained in this Agreement to the contrary, Supplier shalI only be entitled to recover direct and incidental damages and not consequential damages. SECTION 14.02 SUPPLIER'S INDEMNITY. Supplier hereby agrees to indemnify and hold Buyer, its officers, directors and shareholders harmless from and against any and all damages, losses, liabilities, suits, actions, demands, proceedings (whether legal or administrative), and expenses (including but not limited to attorneys fees) arising, directly or indirectly, out of any action or failure to act by Supplier, its employees or agents or any negligence, breach of this Agreement, or misrepresentation, on the part of Supplier, its employees or agents. Notwithstanding anything contained this Agreement to the contrary, Buyer shall only be entitled to recover direct and incidental damages and not consequential damages. ARTICLE XV.BUYER'S OPTION TO PARTICIPATE SECTION 15.01 EXERCISE AND TERMS OF OPTION. Commencing after the completion of the Second Contract Year and continuing during the Initial Term of this Agreement and any extensions thereof, Buyer shall have the option to purchase an interest in the Facility in accordance with Schedule 15.01 hereto. The parties hereby agree to negotiate in good faith and use their best efforts to agree upon the most advantageous form of legal entity to own and operate the Facility. Both Buyer and Supplier hereby acknowledge their intent to be bound by the provisions of this Section 15.01 and that Schedule 15.01 contains the essential terms upon which the Entity (as defined in Schedule 15.01) will be formed, and that the failure of the parties to agree as to any other aspect with respect to the formation and/or operation of the Entity contemplated herein shall not relieve the parties from their obligation to form and operate said 20 24 Entity in the event that Buyer exercises its option as provided herein. ARTICLE XVI. RIGHTS OF FIRST REFUSAL SECTION 16.01 RIGHT OF FIRST REFUSAL RELATING TO FACILITY. Within ninety (90) days of the execution of this Agreement, Buyer and Supplier shall execute and deliver the Right of First Refusal (Facility) in the form attached hereto as Exhibit "H" (the "Facility Right of First Refusal"), wherein Supplier shall grant to Buyer a Right of First Refusal to purchase the Facility in the event a third party makes an offer to purchase the Facility on terms that Supplier is willing to accept (the "Facility Offer"), all as in accordance with the terms of the Facility Right of First Refusal. Notwithstanding the Facility Right of First Refusal, the Supplier shall be prohibited from selling, transferring or otherwise disposing of the Facility prior to the completion of the Second Contract Year except as permitted by Section 21.01. The Buyer's option to purchase an interest in the Facility pursuant to Section 15.01 will not be exercisable from the date notice of the Facility Offer has been made by Supplier until the Facility is sold pursuant to the Facility Offer or while any purchase agreement executed pursuant to the Facility Offer is pending, subject, however, to Buyer's right to share in any Profit as defined herein which may result from said sale. In the event of any sale of the Facility which occurs prior to Buyer exercising its right to acquire an interest in the Facility as described in Section 15.01, Supplier shall pay to Buyer a portion of any Profits resulting from said sale based upon the formula set forth in Schedule 16.01 hereto. SECTION 16.02 RIGHT OF FIRST REFUSAL RELATING TO ROCKPORT FACILITY. Upon execution of this Agreement, Buyer and Supplier shall execute and deliver the Right of First Refusal 21 25 (Rockport) in the form attached hereto as Exhibit "I" (the "Rockport Right of First Refusal"), wherein Buyer shall grant to Supplier Right of First Refusal to purchase the Buyer's Facility and Rockport, Indiana (the "Rockport Facility") in the event a third party makes an offer to purchase the Rockport Facility on terms that Buyer is willing to accept (the "Rockport Offer"), all as in accordance with the terms of the Rockport Right of First Refusal. ARTICLE XVII. PURCHASE OF PERSONAL PROPERTY SECTION 17.01 PURCHASE AND SALE. At the Closing, the Buyer agrees to sell to the Supplier and the Supplier agrees to purchase from the Buyer the Personal Property (as defined in Section 17.02(a) below) for the purchase price and upon the terms and conditions set forth in this Article XVII. SECTION 17.02 PERSONAL PROPERTY. (a) The Supplier shall purchase from the Buyer such machinery, equipment and other personal property scheduled on Exhibit "J" hereto (the "Personal Property"). (b) At the Closing the Buyer shall furnish the Supplier with a limited warranty bill of sale (the "Bill of Sale") to the Personal Property in the form as Exhibit "K" hereto. At Supplier's discretion for a period of up to one-hundred twenty (120) days following the transfer of title to said Personal Property to the Supplier as provided for herein, the Supplier shall grant to the Buyer a license to retain possession of and use the Personal Property in Buyer's processing operations. During such possession Buyer shall at its own cost and expense keep the Personal Property in good repair, condition and working order, ordinary wear and tear excepted. Until Supplier takes possession of the Personal Property, Buyer shall assume the entire risk of loss and 22 26 damage to the Personal Property and shall carry property damage insurance covering the full replacement value thereof. Supplier shall be entitled to no compensation from Buyer as a result of or related to Buyer's use of the Personal Property as described herein. All costs relating to moving the Personal Property to and/or installing it at the Supplier's Facility shall be borne by the Supplier. SECTION 17.03 PURCHASE PRICE. The purchase price of the Personal Property shall be as set forth on Exhibit "J" hereto ("Purchase Price"). SECTION 17.04 CLOSING. The Closing (the "Closing") of the purchase and sale of the Personal Property contemplated hereby shall occur within thirty (30) days of the completion of the First Phase (the "Closing Date"), unless otherwise mutually agreed in writing by the parties hereto or as otherwise extended under the terms of this Agreement. Time is of the essence in this transaction. SECTION 17.05 CONDITION OF THE PERSONAL PROPERTY. The Supplier agrees and understands that the purchase of the Personal Property is "AS IS, WHERE IS," without any representation or warranty of any nature whatsoever, except (a) for warranties of title, and (b) that the Personal Property has been kept and will, until delivered to Supplier, be kept in good repair, condition and working order, ordinary wear and tear excepted. ARTICLE XVIII. CLOSING PROCEDURE SECTION 18.01 CLOSING PROCEDURES. On the Closing Date Buyer shall deliver to Supplier the Bill of Sale. Supplier shall deliver to Buyer a certified check for the full amount of the purchase price of the Personal Property at Closing. 23 27 ARTICLE XIX. TERMINATION SECTION 19.01 TERMINATION, (a) Either of the parties hereto may terminate this Agreement by notice in writing to the other party in any of the following events: (i) Any attempted assignment of this Agreement by the other party except as provided in Article XXI of this Agreement; (ii) Dissolution or liquidation of the other party; (iii) Application for or appointment of a receiver by the non-terminating party; (iv) Assignment for the benefit of creditors by the non-terminating party; (v) Appointment of a committee of creditors or a liquidating agent by the non-terminating party; (vi) An offer of composition or extension to creditors generally by the non-terminating party; (vii) The adjudication of the non-terminating party as bankrupt or insolvent; (viii) The non-terminating party files a voluntary petition for bankruptcy or admits in writing that it is unable to pay its debts as they become due; (ix) Either party fails to cure a default hereunder, other than as a result of Buyer's failure to make payments when due hereunder or Supplier's failure to deliver the Product when said delivery is required hereunder, within sixty (60) days after receipt of written notice thereof; or 24 28 (x) Subject to Section 7.01, delivery or payments not made when due after the expiration of a sixty (60) day grace period. The grace periods provided for in Subparts (ix) and (x) shall be extended during such period as the Parties are negotiating in good faith with regard to a legitimate dispute with respect to the Parties' obligations hereunder. (b) In the event that Supplier is unable, despite its reasonable best efforts, to procure the air quality and construction permits required for the construction of the Facility referred to Section 1.01 of this Agreement on or before April 30, 1992, this Agreement shall automatically terminate and the obligation of Buyer to make the scheduled payments set forth in Schedule 5.01(b) and 5.01(c) shall automatically be extinguished. (c) In the event of a termination of this Agreement pursuant to the provisions of this Article XIX, except under Section 19.01(a)(x), any orders outstanding as of the effective date of termination shall be filled in accordance with the terms of this Agreement. (d) No termination of this Agreement shall in any way affect the obligation of the other party with regard to the provisions of this Agreement previously matured and/or in effect, including, but not limited to, the obligations relating to confidentiality under Article VIII hereof, the right to enforce any remedy for the breach of any terms of this Agreement or the indemnity obligations under Article IX, and Section 4.01(b). ARTICLE XX. REPRESENTATIONS SECTION 20.01 REPRESENTATIONS OF BUYER. (a) AUTHORIZATION AND VALIDITY OF AGREEMENT. The execution, delivery and 25 29 performance by Buyer of this Agreement have been duly authorized by its Board of Directors. No other corporate action on the part of Buyer is necessary for the execution, delivery and performance by Buyer of this Agreement. This Agreement has been duly executed and delivered by Buyer and is a legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except to the extent that its enforceability may be limited by applicable bankruptcy, insolvency, reorganization or other laws affecting the enforcement of creditors' rights generally and except that the availability of equitable remedies, including specific performance, is subject to the discretion of the court before which any proceedings therefor may be brought. (b) NO CONFLICT. Neither the execution and delivery of this Agreement, nor any other agreement or instrument executed and delivered by Buyer under this Agreement does (i) conflict with, violate or result in a breach of the terms, conditions or provisions of, or constitute a default under, or accelerate or permit the acceleration of the performance under, the Certificate or Articles of Incorporation or Bylaws, as amended, of Buyer, or any contract, judgment, order, award or decree to which Buyer is a party or is subject to by which it is bound or to which any of its assets is subject; (ii) require the approval, consent, authorization or other order or action of any court, governmental authority or regulatory body or filing or registration therewith or notice thereto; (iii) result in the violation by Buyer of any law, rule, regulation or order of any jurisdiction; or (iv) require the consent, approval or authorization of any other person. 26 30 SECTION 20.02 REPRESENTATIONS OF SUPPLIER. (a) AUTHORIZATION AND VALIDITY OF AGREEMENT. The execution, delivery and performance by Supplier of this Agreement have been duly authorized by its Board of Directors. No other corporate action on the part of Supplier is necessary for the execution, delivery and performance by Supplier of this Agreement. This Agreement has been duly executed and delivered by Supplier and is a legal, valid and binding obligation of Supplier, enforceable against Supplier in accordance with its terms, except to the extent that its enforceability may be limited by applicable bankruptcy, insolvency, reorganization or other laws affecting the enforcement of creditors' rights generally and except that the availability of equitable remedies, including specific performance, is subject to the discretion of the court before which any proceedings therefor may be brought. (b) NO CONFLICT. Neither the execution and delivery of this Agreement, nor any other agreement or instrument executed and delivered by Supplier under this Agreement does (i) conflict with, violate or result in a breach of the terms, conditions or provisions of, or constitute a default under, or accelerate or permit the acceleration of the performance under, the Certificate of Incorporation or Bylaws, as amended, of Supplier, or any contract, judgment, order, award or decree to which Supplier is a party or is subject or by which it is bound or to which any of its assets is subject; (ii) require the approval, consent, authorization or other order or action of any court, governmental authority or regulatory body or filing or registration therewith or notice thereto; (iii) result in the violation by Supplier of any law, rule, regulation or order of any jurisdiction; or (iv) require the consent, approval or authorization of any other person. 27 31 ARTICLE XXI. MISCELLANEOUS SECTION 21.01 BENEFIT. Subject to the restrictions contained in this Agreement prohibiting the assignment of this Agreement, this Agreement shall inure to the benefit of, and be binding upon, the respective successors and assigns of the parties hereto. Except as set forth in Section 16.01 and Schedule 15.01, this Agreement shall not be assigned by either party without the express written consent of the other which consent shall not be unreasonably withheld or delayed. If Buyer or Supplier proposes to assign this Agreement in accordance with terms of this Section 21.01 then Buyer or Supplier, as the case may be, agrees to cause the person or entity to whom this Agreement will be assigned or transferred to assume in writing Buyer's or Supplier's, as the case may be, obligations under this Agreement. Notwithstanding anything contained herein to the contrary, either party shall have the right to assign this Agreement to its direct or indirect wholly owned subsidiary. In addition, notwithstanding any provision herein to the contrary, no provision in this Agreement shall affect in any way the right or power of either Buyer or Supplier, or their respective shareholders, to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in their respective capital structure or business, or any merger or consolidation of either of them, or any other corporate act or proceeding respecting them, whether of a similar character or otherwise. Notwithstanding anything in this Agreement to the contrary, the assignment of this Agreement by either party to a direct or indirect wholly owned subsidiary or any adjustment, recapitalization, reorganization, or other change or merger or consolidation described above shall in no way release said assignor of its obligations and duties under this Agreement. 28 32 SECTION 21.02 NON-WAIVER. The failure of either party at any time to enforce any provision of this Agreement shall not be construed to be a waiver of such provision of the right of the respective party hereunder to enforce any such provision. SECTION 21.03 SEVERABILITY. If any provision of this Agreement or the application thereof to any party or circumstance shall for any reason and to any extent be deemed invalid or unenforceable, the remainder of this Agreement and application of such provision to the other parties and other circumstances shall not be affected thereby, but rather the invalid or unenforceable provisions as applied to the particular party or circumstance shall be modified to the extent necessary so as to render said provision valid and enforceable while to the greatest extent possible accomplishing the intended purpose of said provision. SECTION 21.04 ENTIRE AGREEMENT. This writing constitutes the entire Agreement between the parties relating to the sale of the Products described herein during the specific term, and any extensions thereof, and supersedes all previous contracts, including but not limited to, the Confidentiality Agreement entered into between the parties hereto on October 17, 1991. Neither party to this Agreement makes any representation to the other party except as expressly set forth in this Agreement. No modification or waiver of any of the terms of this Agreement shall bind either party unless in writing signed by duly authorized representatives of both Buyer and Supplier. 29 33 SECTION 21.05 CAPTIONS. Captions of the sections of this Agreement are for convenience and reference only and the words contained therein shall in no way be held to explain, modify, amplify, or aid in the interpretation, construction, or meaning of the provisions of this Agreement. SECTION 21.06 GOVERNING LAW. This Agreement shall be construed under and enforced according to the laws of the State of Ohio, including without limitation the Ohio Sales Act contained in Ohio Revised Code Section 1302, and any action arising out of or related to this Agreement shall be venued in a federal or state court of appropriate jurisdiction in the State of Ohio. The parties hereby consent to the jurisdiction of the said courts. SECTION 21.07 FURTHER ASSURANCES. Subject to the terms and conditions herein provided, Buyer and Supplier shall use their reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things reasonably necessary, proper or advisable to make effective as promptly and practicable the transactions contemplated by this Agreement and to cooperate with each other in connection with the foregoing. SECTION 21.08 FINDER'S AND BROKER'S FEES. Buyer and Supplier each represent and warrant to the other that there are no claims (or any basis for any claims) for brokerage commissions, finder's fees or like payments in connection with this Agreement or the transactions contemplated hereby resulting from any action taken by either of them or on either of their behalf. SECTION 21.09 COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the 30 34 same instrument. SECTION 21.10 SUBSTANTIATION. For purposes of substantiating Supplier's operating costs and capital expenditures, as well as any other financial information or data of Supplier which relates to this Agreement and exhibits, including but not limited to the calculation of sustaining capital expenditures under Schedule 5.01(b), increases in certain operating costs and capital expenditures described in Schedule 5.01(d) and certain costs and expenditures described in Exhibit "D", the Supplier shall record and account for such items in a manner which is consistent with its historical practice applied in a consistent manner or if it is determined by Supplier's independent Certified Public Accountants that it is appropriate to change said historical practice, then in a manner in conformity with generally accepted accounting principles with all said changes being fully disclosed to Buyer. SECTION 21.11 REFERENCES. When references appear in this Agreement to a Section, such reference where applicable, should be deemed to refer to the appropriate Schedule to this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed the date first written above by their duly authorized representatives. BARMET ALUMINUM CORPORATION By /s/ TERRY D. SMITH By /s/ NORMAN E. WELLS, JR. ------------------------------ ------------------------------ Title Vice-Pres. & C.F.O. Title C.E.O --------------------------- --------------------------- Date 3-2-92 Date March 2, 1992 ---------------------------- ---------------------------- 31 35 IMCO RECYCLING INC. By /s/ PAUL V. DUFOUR By /s/ RALPH L. CHEEK ------------------------------ ------------------------------ Title Sr. Vice Pres. Title President --------------------------- --------------------------- Date March 2, 1992 Date March 2, 1992 ---------------------------- ---------------------------- 32 36 EXHIBIT "A" QUANTITY AND QUALITY OF PRODUCT DELIVERED I. Quantity of Product Delivered A. Provided that the necessary construction permits have been received by March 1, 1992, IMCO will have installed capability to process the following annual volumes by April 1, 1993: Scrap 210MM lbs. Dross 12MM lbs. Concentrates 30MM lbs. ----------- 252MM lbs. If the construction permits have not been obtained by March 1, 1992, the processing capabilities described above will be made available within 10 months of the receipt of permits to install or April 1, 1993, whichever is later. B. Due to seasonal fluctuations, Barmet may request up to 10% of this volume to be processed in any one month except February, and may request up to 8% of this volume during any February. C. IMCO will be responsible for supplying and maintaining all crucible and sow molds. D. IMCO will be responsible for delivering hot metal or sows to the rolling mill. II. Quality of Product Delivered A. IMCO will cooperate with Barmet to establish metal cleanliness practices in the total combined IMCO/Barmet cycle. Any holding furnace, filtration unit or other new requirement not practiced by IMCO at present will be jointly considered by both parties to find the lowest cost answer. Any additional operating and/or capital costs incurred by IMCO will be reflected in the price charged to Barmet as mutually agreed. 33 37 B. Contaminants listed below will not exceed the levels specified: Sodium - .0075% Potassium - .0025% Calcium - .0075% Lithium - .0010% C. Chemistry of Metal Supplied: 1. The average monthly level of magnesium in UBC's will be greater than 0.70% unless otherwise agreed by Barmet. 2. If scrap materials are available, IMCO will blend where required to meet alloy chemistries required by Barmet. D. Quality Requirements of Molten Metal 1. Crucibles must be kept clean and free of contaminants. 2. The metal must not have excessive skim or salts floating on the top. 3. Each crucible must be accompanied by weight and composition information. 4. Crucibles must be at a suitable temperature for pouring when delivered to the rolling mill's molten metal handling system. E. Quality Requirements of Sows 1. The ingot should be skimmed and poured so that the surface is free of surface and/or entrained salts, excessive skim, surface contamination, corrosion, or seams and folds caused by multiple pours. 2. Ingots shall have minimum shrinkage cavities and/or internal voids. 3. Each ingot must clearly display the heat number and alloy on the side of the ingot. Ingots which are out of specification with respect to the stated alloy will be so marked with respect to such elements. 4. Every shipment is to be accompanied by chemical analysis for each heat. Every shipment is to be accompanied with a sample button for each heat. 34 38 5. Each ingot must be poured level so they can be stacked properly. 6. There will be no excessive splashing on sides of ingots. 35 39 EXHIBIT "B" SCRAP RECEIVING PROCEDURES I. Scope: Scrap Receiving Procedures are to be implemented and maintained as agreed to by IMCO and Barmet. Proposed changes will be submitted by IMCO to the Barmet Corporate Materials Management Group for review prior to enactment. H. Purpose: The receipt, acceptance, and data entry of aluminum scrap must be consistent with Barmet's system to assure: - Timely delivery, scrap mix and control of raw material inventory through delivery appointment scheduling. - Quality of scrap conforms to published specifications and yields expected recoveries and chemistries. - Open purchase order balances are managed at current status. - Suppliers are promptly advised of weight differences, rejections and/or proposed downgrades. - Detailed record of delivery performance, quality, and traceability by supplier is readily accessible. - Timely and accurate issuance of scrap payments. - Assessment of current raw material inventories by type and forecasting of future requirements. III. Delivery Appointment Scheduling A. All deliveries of raw materials must be assigned an appointment number for a specific date and time. Appointment numbers should be sequential (nonrepeating) and indicate the calendar month. 36 40 1. A designated employee from IMCO should issue delivery appointments to vendors. 2. All appointments must be entered into the Barmet mainframe computer at the time of issuance. a. Vendor requesting an appointment must indicate Barmet's P.O. number and applicable scrap type. No appointment will be given without this information. B. The delivery appointment schedule is to be printed daily. Appointments may be made as far in advance as practical according to scrap mix requirements, inventory control, and toll customer priority. Delivery appointment schedule will include the following: - Vendor (P.O. issued to) - P.O. Number - Appointment (Release) No. - Type of Material - Delivery Date and Time IV. Delivery Documentation A. A complete manifest or packing list indicating the applicable Barmet purchase order and a bill of lading must accompany each load. B. If load documents presented are incomplete or do not correspond to delivery appointment information, the load is to be held. IMCO is to notify Raw Material Buyers in Akron of any discrepancies. The Buyer will contact the vendor for resolution. C. Once all delivery documentation is in order, the IMCO operator gross weighs the vehicle and initiates internal receiving documents (scrap report sheet and/or weight certificate). V. Unloading A. IMCO's receiving inspector should compare the physical seal numbers to those indicated on delivery documents for agreement and that the seal is intact. If the numbers do not agree or the seal is broken or missing, proper notation must be made on the Bill of Lading and the internal receiving report. 37 41 B. IMCO's receiving inspector should compare actual package type and item count to the supplier's packing list. If a packing list is missing or a discrepancy exists in material type and/or count, notations are to be made on the Bill of Lading and the internal receiving report. C. Each delivery lot must be identified by a tag or paint with the corresponding scrap receiving report or weight ticket number. The method of marking must be sufficient to identify the load at a future date. D. Separate scale weights must be obtained for each scrap type unloaded from mixed loads. Care should be taken to record the correct purchase order for each scrap type. No more than two (2) scrap types will be allowed per load. VI. Inspection A. IMCO's receiving inspector must ensure that the physical scrap (type and package) agrees with the purchase order description. B. Loose material packed in boxes should be dumped into storage bins or bunkers for thorough inspection, whenever possible. C. A hand-held magnet should be passed over as much material as possible to detect the presence of iron or steel. D. Each package must be manually inspected for contamination, (i.e., chrome, plastic, dirt, rubber, radiators, wire, etc.). Maximum allowable grease and/or oil is 1% by weight. If present, a sample should be taken and measured by the Supplier. If sufficient contamination is evident to cause the entire lot or load to be rejected, unloading should cease and Barmet's Raw Material Buyer notified immediately. The Scrap Rejection form should be completed and faxed to Barmet's Raw Material Buyer. All packages should be put back on the delivery vehicle. If contamination is present, but in the opinion of IMCO's inspector, it is not sufficient to warrant outright rejection, the Request for Downgrade form should be prepared and faxed to the Buyer. An estimate of the expected actual recovery, compared to the standard recovery, must be included. The Buyer will discuss with the vendor and notify IMCO of the determination. The load is to be held until final resolution. 38 42 All scrap loads that are downgraded will be identified for separate processing to the extent that downgrading resulted from excessive dirt, oil or other unmeasurable contaminants. Such scrap will be processed on a "best efforts" basis. Where excessive contaminants are measurable, such excessive contamination amounts will be credited to IMCO for recovery calculation purposes. VII. Moisture Testing (UBC's) A. Moisture testing procedures must be approved by Barmet in advance. Our procedure is based upon the test developed by Alcoa and used in the industry. B. Visually inspect and verify the scrap as specified in Section VI (Inspection). C. All lots or loads of UBC, tagged or marked with ID number (see V C), must be held, intact, until the moisture test results are known. D. Moisture tests must be completed within twenty-four (24) hours of load delivery. E. Moisture test results and overall average are to be recorded on the Moisture Test form. 1. In the event the average moisture content exceeds the allowable limit (4%), Barmet's Raw Material Buyer is to be notified. The Buyer win advise IMCO of the vendor's decision. 2. Accepted moisture deductions are to be clearly noted on the test result form and attached to all other internal receiving documents. (Note: Excessive moisture, in the opinion of the receiving inspector, that may cause a safety hazard, is cause for rejection without testing). VIII. Received Weights and Data Entry A. Information on received material will be supplied by IMCO to Barmet within 24 hours of delivery. B. Barmet's net received weight will be the governing payable weight. 39 43 1. If the net received weight is less than the shipping claimed weight, for any item or lot, by one-half of one (0.5) percent or more, the load and delivery vehicle are to be held and Barmet's Raw Material Buyer notified immediately. Barmet's Buyer will notify the vendor of the weight discrepancy. The Buyer will advise the IMCO plant of disposition. 40 44 EXHIBIT "F" DATE: 02/27/92 TIME: 11:23 MORGANTOWN, KENTUCKY PAGE 1 IMCO RECYCLING INC. ********** MONTH END INVENTORY ACTIVITY REPORT ********** AS OF 11/30/91 CONVERSION COST/LB: COMPANY BARMET RPT
------------------------- RAW MATERIALS ---------------------------- 11/01/91 11/30/91 MATERIAL ON NON EOL ON RAW MATERIAL DESIG HAND RECEIVED PROCESSED SHIPPED HAND COST - -------- -------- -------- --------- ------- -------- ------------ BAS 160,660 160,660 ***** COMPANY 160,660 160,660 ------------------------ FINISHED GOODS ------------------------- 11/01/91 11/30/91 MATERIAL ON ON COST FIN GOODS DESIG HAND PRODUCED SHIPPED HAND / LB COST - -------- -------- -------- --------- -------- ------- --------- BAS 148,780 148,780 ***** COMPANY 148,780 148,780
54 45 DATE: 02/27/92 TIME: 11:29 MORGANTOWN, KENTUCKY PAGE 1 IMCO RECYCLING INC. ********** MONTH END RECEIVING STATUS REPORT ********** FROM 11/01/91 TO 11/30/91 FOR BARMET RPT
DATE LOAD CUSTOMER MATERIAL IMCO BILLING CONTRACT FREIGHT MATERIAL FREIGHT TOTAL CUSTOMER ON SPOT NUMBER REF. # DESIG WEIGHT WEIGHT RATE RATE COST COST COST - -------- ------- ------ -------- -------- ------ ------- -------- ------- -------- ------- -------- BARMET RPT 11/19/91 BAS-1 0001 BAS 26,280 26,280 .0700 1,839.60 .00 1,839.60 11/19/91 BAS-2 0002 BAS 46,460 46,460 .0700 3,252.20 .00 3,252.20 11/20/91 BAS-3 0003 BAS 44,960 44,960 .0700 3,147.20 .00 3,147.20 11/20/91 BAS-4 0004 BAS 42,960 42,960 .0700 3,007.20 .00 3,007.20 *---- REF ----* RAW FINISHED CUSTOMER INV. # DATE MATERIAL GOODS SHIPPED - -------- ------ ----- -------- -------- ------- BARMET RPT 25,312 42,454 40,274 40,740
55 46 DATE: 02/27/92 TIME: 11:19 MORGANTOWN, KENTUCKY PAGE 1 IMCO RECYCLING INC. ********** CONTRACT PERFORMANCE REPORT ********** FROM 11/01/91 THRU 11/30/91
CONTRACT CONTRACT CONTRACT CONTRACT MATERIAL MATERIAL CONT CONTRACT CONTRACT CONTRACT CUSTOMER NUMBER BEG DATE END DATE CLASS DESIG TYPE WEIGHT RECEIVED EOL IN - -------- -------- -------- -------- -------- -------- ---- -------- -------- -------- BARMET RPT PO#105990 11/01/91 11/30/91 OTHSCRAP BAS T 180,000 160,660 160,660 CONTRACT CONTRACT CONTRACT CONTRACT CONTRACT CONTRACT CUSTOMER EOL OUT RECOVERY PRICE FREIGHT COMMENTS - -------- -------- -------- -------- -------- -------- BARMET RPT 148,780 92.60 .0700 PTD SIDING & MLC
CUSTOMER LOAD DATE NON EOL EOL IN EOL OUT LOAD EOL REF NUMBER NUMBER RECEIVED WEIGHT WEIGHT WEIGHT RECOV DATE - ---------- ------ -------- ------- ------- ------- ----- -------- 0001 BAS-1 11/19/91 26,280 25,312 96.31 11/19/91 0002 BAS-2 11/19/91 46,460 42,454 91.37 11/19/91 0003 BAS-3 11/20/91 44,960 40,274 89.57 11/21/91 0004 BAS-4 11/20/91 42,960 40,740 94.83 11/22/91 160,660 148,780 92.60
56 47 DATE: 02/27/92 TIME: 11:33 MORGANTOWN, KENTUCKY PAGE 1 IMCO RECYCLING INC. ********** MTD/YTD FINISHED GOODS ANALYSIS REPORT ********** FOR BARMET RPT FROM 11/01/91 THRU 11/30/91
LOAD HEAT UNITS/ WEIGHT ALLOY PROD PROD PROD NUMBER NUMBER CRUCE OUT CODE FURN SHFT DATE --------- -------- ------- -------- ------ ------ ------ ------ * BAS-1 BAS 813 4 5,558 AL 6 4 11/19/91 * BAS-2 BAS 816 5 6,450 AL 6 5 11/19/91 * BAS-2 BAS 817 4 5,148 AL 6 5 11/19/91 * BAS-2 BAS 818 5 6,320 AL 6 5 11/19/91 * BAS-2 BAS 820 6 8,308 AL 6 5 11/19/91 * BAS-3 BAS 836 4 5,546 AL 6 4 11/21/91 * BAS-4 BAS 842 5 5,990 AL 6 5 11/21/91 * BAS-4 BAS 844 4 5,342 AL 6 5 11/21/91 * BAS-2 BAS 815 4 5,474 CF W/FE 6 5 11/19/91 * BAS-3 BAS 839 8 10,230 CF W/FE 6 5 11/21/91 * BAS-2 BAS 814 4 5,478 CF 111 6 5 11/19/91 * BAS-2 BAS 819 4 5,276 CF 111 6 5 11/19/91 * BAS-3 BAS 838 5 6,834 CF 111 6 4 11/21/91 * BAS-3 BAS 837 4 5,706 0000000 6 4 11/21/91 * BAS-1 BAS 811 5 7,154 3004 6 4 11/19/91 * BAS-3 BAS 834 5 6,550 3004 6 4 11/21/91 * BAS-3 BAS 835 4 5,408 3004 6 4 11/21/91 * BAS-4 BAS 841 5 6,428 3004 6 5 11/21/91 * BAS-4 BAS 845 5 6,200 3004 6 5 11/21/91 * BAS-4 BAS 846 4 4,972 3004 6 4 11/22/91 * BAS-1 BAS 810 5 6,686 3105 6 4 11/19/91 * BAS-1 BAS 812 4 5,914 3105 6 4 11/19/91 * BAS-4 BAS 840 5 6,586 3105 6 5 11/21/91 * BAS-4 BAS 843 4 5,222 3105 6 5 11/21/91 ---- -------- 112 148,780 ***** BAS AL 37 48,662 32.71% CF W/FE 12 15,704 10.56% CF 111 13 17,588 11.82% 0000000 4 5,706 3.84% 3004 28 36,712 24.68% 3105 18 24,408 16.41% ------- -------- 112 148,780
LOAD NUMBER -SI- -FE- -CU- -MN- -MG- -CR- -NI- -ZN- -TI- -PB- -BI- -BE- -AL- --------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------- * BAS-1 .312 .559 .310 .366 .323 .117 .008 .140 .015 .048 .000 .000 97.802 * BAS-2 .270 .766 .140 .676 .028 .032 .009 .106 .019 .010 .000 .000 97.944 * BAS-2 .264 .786 .134 .620 .018 .031 .008 .099 .022 .008 .000 .000 98.010 * BAS-2 .267 .756 .136 .656 .028 .027 .008 .102 .017 .011 .000 .000 97.992 * BAS-2 .253 .809 .130 .583 .048 .027 .008 .103 .018 .009 .000 .000 98.012 * BAS-3 .245 .778 .142 .643 .020 .020 .006 .149 .019 .128 .000 .000 97.850 * BAS-4 .284 .715 .216 .803 .106 .048 .010 .175 .012 .008 .000 .000 97.623 * BAS-4 .309 .545 .202 .849 .028 .023 .006 .197 .010 .019 .000 .000 97.812 * BAS-2 .252 1.030 .144 .639 .020 .042 .010 .104 .019 .008 .000 .000 97.732 * BAS-3 .263 1.237 .135 .620 .008 .021 .006 .190 .015 .022 .000 .000 97.483 * BAS-2 .248 .877 .174 .620 .023 .041 .009 .103 .019 .010 .000 .000 97.876 * BAS-2 .271 .947 .128 .611 .035 .023 .008 .095 .015 .009 .000 .000 97.858 * BAS-3 .287 .896 .168 .723 .062 .021 .008 .156 .010 .035 .000 .000 97.634 * BAS-3 .239 4.071 .130 .658 .021 .030 .007 1.510 .023 .016 .000 .000 93.295 * BAS-1 .259 .584 .212 .635 .031 .024 .006 .109 .009 .006 .000 .000 98.125 * BAS-3 .300 .656 .199 .642 .016 .029 .009 .126 .017 .014 .000 .000 97.992 * BAS-3 .261 .700 .150 .632 .009 .024 .006 .146 .016 .010 .000 .000 98.046 * BAS-4 .282 .585 .207 .709 .010 .035 .007 .155 .012 .008 .000 .000 97.990 * BAS-4 .250 .544 .208 .785 .018 .033 .006 .149 .013 .009 .000 .000 97.985 * BAS-4 .248 .649 .221 .575 .026 .037 .008 .121 .012 .007 .000 .000 98.096 * BAS-1 .252 .505 .166 .527 .066 .064 .005 .083 .010 .005 .000 .000 98.317 * BAS-1 .259 .549 .208 .695 .257 .072 .007 .153 .013 .006 .000 .000 97.781 * BAS-4 .341 .548 .251 .668 .023 .044 .010 .186 .008 .014 .000 .000 97.907 * BAS-4 .323 .682 .229 .740 .023 .036 .010 .203 .010 .013 .000 .000 97.731 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------- AVE .272 .866 .179 .651 .050 .036 .007 .190 .014 .017 .000 .000 97.718 HIGH .341 4.071 .310 .849 .323 .117 .010 1.510 .023 .128 .000 .000 98.317 LOW .239 .505 .128 .366 .008 .020 .005 .083 .008 .005 .000 .000 93.295 ALLOY CODE AL .274 .721 .172 .647 .072 .039 .007 .131 .016 .028 .000 .000 97.893 CF W/FE .259 1.164 .138 .626 .012 .028 .007 .160 .016 .017 .000 .000 97.573 CF 111 .270 .905 .157 .657 .041 .027 .008 .121 .014 .019 .000 .000 97.781 0000000 .239 4.071 .130 .658 .021 .030 .007 1.510 .023 .016 .000 .000 93.295 3004 .267 .616 .200 .665 .018 .030 .006 .133 .013 .009 .000 .000 98.043 3105 .292 .565 .212 .651 .091 .054 .007 .153 .010 .009 .000 .000 97.956 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------- .272 .866 .179 .651 .050 .036 .007 .190 .014 .017 .000 .000 97.718
48 DATE: 02/27/92 TIME: 11:42 MORGANTOWN, KENTUCKY PAGE 1 IMCO RECYCLING INC. ********** MATERIAL SHIPMENTS REPORT BY BILL OF LADING ********** FOR 12/01/91 THRU 12/31/91 SHIPPED BY BARMET RPT
BILL BILL SHIPPING PRODUCTION MATERIAL MATERIAL SHIPPED LOAD HEAT SHIPPED SHIPPED IMCO NUMBER DATE CONTRACT CONTRACT CLASS DESIG TO NUMBER NUMBER INGOTS WEIGHT SALE - ------ -------- -------- ---------- -------- -------- ------- ------ --------- -------- ------- ---- 3679 12/17/91 PO#106065 PO#105990 OTHSCRAP BAS BARMET BAS-1 BAS 810 5 6,686 N BAS 811 5 7,154 BAS 812 4 5,914 BAS 813 4 5,558 BAS-2 BAS 814 4 5,478 BAS 815 4 5,474 *****TOTAL 3679 TOLL 36,264 26 36,264 3680 12/17/91 PO#106065 PO#105990 OTHSCRAP BAS BARMET BAS-2 BAS 816 5 6,450 N BAS 817 4 5,148 BAS 818 5 6,320 BAS 819 4 5,276 BAS 820 6 8,308 BAS-3 BAS 834 5 6,550 *****TOTAL 3680 TOLL 38,052 29 38,052 3681 12/18/91 PO#106065 PO#105990 OTHSCRAP BAS BARMET BAS-3 BAS 835 4 5,408 N BAS 836 4 5,546 BAS 837 4 5,706 BAS 838 5 6,834 BAS-4 BAS 840 5 6,586 BAS 841 5 6,428 *****TOTAL 3681 TOLL 36,508 27 36,508 3682 12/18/91 PO#106065 PO#105990 OTHSCRAP BAS BARMET BAS-3 BAS 839 8 10,230 N BAS-4 BAS 842 5 5,590 BAS 843 4 5,222 BAS 844 4 5,342 BAS 845 5 6,200 BAS 846 4 4,972 *****TOTAL 3682 TOLL 37,956 30 37,956
49 DATE: 02/27/92 TIME: 11:42 MORGANTOWN, KENTUCKY PAGE 2 IMCO RECYCLING INC. ********** MATERIAL SHIPMENTS REPORT BY BILL OF LADING ********** FOR 12/01/91 THRU 12/31/91 SHIPPED BY BARMET RPT
BILL BILL SHIPPED SHIPPED SHIPPING TOLL SALES SHIPPED SHIPPED NUMBER DATE BY TO CONTRACT IGNOTS WEIGHT - --------- ------ --------- ---------- -------- ------- -------- --------- --------- 3679 12/17/91 BARMET RPT BARMET PO#106065 36,264 26 36,264 3680 12/17/91 BARMET RPT BARMET PO#106065 38,052 29 38,052 3681 12/18/91 BARMET RPT BARMET PO#106065 36,508 27 36,508 3682 12/18/91 BARMET RPT BARMET PO#106065 37,956 30 37,956 ------- -------- --------- --------- 148,780 112 148,780
*****MONTH TOTALS 50 DATE: 02/27/92 TIME: 11:34 PAGE 1 IMCO RECYCLING INC. MORGANTOWN, KENTUCKY ********** END-OF-LOAD REPORT ********** EOL DATE: 11/19/91
LOAD CUST REF SOURCE CONTRACT TYPE MATERIAL DATE CAR/TRUCK NUMBER NUMBER CUSTOMER CUSTOMER NUMBER P/T CLASS RECEIVED CARRIER NUMBER - ------ -------- -------- -------- -------- ---- -------- -------- ------- --------- BAS-1 0001 BARMET RPT BARMET RPT P0#105990 T OTHSCRAP 11/19/91 PTS 678
WEIGHT WEIGHT RECOV IN OUT PCT ------ ------ ----- 26,280 25,312 96.31
HEAT UNITS/ NUMBER CRUCE WEIGHT -SI- -FE- -CU- -MN- -MG- -CR- - -------- ----- ------- ---- ---- ---- ---- ---- ---- *BAS 810 5 6,686 .252 .505 .166 .527 .066 .064 *BAS 811 5 7,154 .259 .584 .212 .635 .031 .024 *BAS 812 4 5,914 .259 .549 .208 .695 .257 .072 *BAS 813 4 5,558 .312 .559 .310 .366 .323 .117 ----- ------- 18 25,312 AVERAGE ANALYSIS - .269 .549 .220 .561 .157 .066 -NI- -ZN- -TI- -PB- -BI- -BE- -AL- ---- ---- ---- ---- ---- ---- ---- *BAS 810 .005 .083 .010 .005 .000 .000 98.31 *BAS 811 .006 .109 .009 .006 .000 .000 98.12 *BAS 812 .007 .153 .013 .006 .000 .000 97.78 *BAS 813 .008 .140 .015 .048 .000 .000 97.80 AVERAGE ANALYSIS - .006 .119 .012 .015 .000 .000 98.0
* - THIS HEAT HAS BEEN SHIPPED. 60 51 DATE: 02/27/92 TIME: 11:34 PAGE 1 IMCO RECYCLING INC. MORGANTOWN, KENTUCKY ********** END-OF-LOAD REPORT ********** EOL DATE: 11/19/91
LOAD CUST REF SOURCE CONTRACT TYPE MATERIAL DATE CAR/TRUCK NUMBER NUMBER CUSTOMER CUSTOMER NUMBER P/T CLASS RECEIVED CARRIER NUMBER - ------ -------- -------- -------- -------- ---- -------- -------- ------- --------- BAS-2 0002 BARMET RPT BARMET RPT P0#105990 T OTHSCRAP 11/19/91 AMERISTAR 025021
WEIGHT WEIGHT RECOV IN OUT PCT ------ ------ ----- 46,460 42,454 91.37
HEAT UNITS/ NUMBER CRUCE WEIGHT -SI- -FE- -CU- -MN- -MG- -CR- - -------- ----- ------- ---- ---- ---- ---- ---- ---- *BAS 814 4 5,478 .248 .877 .174 .620 .023 .041 *BAS 815 4 5,474 .252 1.030 .144 .639 .020 .042 *BAS 816 5 6,450 .270 .766 .140 .676 .028 .032 *BAS 817 4 5,148 .264 .786 .134 .620 .018 .031 *BAS 818 5 6,320 .267 .756 .136 .656 .028 .027 *BAS 819 4 5,276 .271 .947 .128 .611 .035 .023 *BAS 820 6 8,308 .253 .809 .130 .583 .048 .027 ----- ------- 32 42,454 AVERAGE ANALYSIS - .260 .846 .140 .628 .030 .031 -NI- -ZN- -TI- -PB- -BI- -BE- -AL- ---- ---- ---- ---- ---- ---- ---- *BAS 814 .009 .103 .019 .010 .000 .000 97.8 *BAS 815 .010 .104 .019 .008 .000 .000 97.7 *BAS 816 .009 .106 .019 .010 .000 .000 97.9 *BAS 817 .008 .099 .022 .008 .000 .000 98.0 *BAS 818 .008 .102 .017 .011 .000 .000 97.9 *BAS 819 .008 .095 .015 .009 .000 .000 97.8 *BAS 820 .008 .103 .018 .009 .000 .000 98.0 AVERAGE ANALYSIS - .009 .102 .018 .009 .000 .000 97.9
* - THIS HEAT HAS BEEN SHIPPED. 61 52 DATE: 02/27/92 TIME: 11:34 PAGE IMCO RECYCLING INC. MORGANTOWN, KENTUCKY ********** END-OF-LOAD REPORT ********** EOL DATE: 11/21/91
LOAD CUST REF SOURCE CONTRACT TYPE MATERIAL DATE CAR/TRUCK NUMBER NUMBER CUSTOMER CUSTOMER NUMBER P/T CLASS RECEIVED CARRIER NUMBER - ------ -------- -------- -------- -------- ---- -------- -------- ------- --------- BAS-3 0003 BARMET RPT BARMET RPT P0#105990 T OTHSCRAP 11/20/91 AMERISTAR 025021
WEIGHT WEIGHT RECOV IN OUT PCT ------ ------ ----- 44,960 40,274 89.57
HEAT UNITS/ NUMBER CRUCE WEIGHT -SI- -FE- -CU- -MN- -MG- -CR- - -------- ----- ------- ---- ---- ---- ---- ---- ---- *BAS 834 5 6,550 .300 .656 .199 .642 .016 .029 *BAS 835 4 5,408 .261 .700 .150 .632 .009 .024 *BAS 836 4 5,546 .245 .778 .142 .643 .020 .020 *BAS 837 4 5,706 .239 4.071 .130 .658 .021 .030 *BAS 838 5 6,834 .287 .896 .168 .723 .062 .021 *BAS 839 8 10,230 .263 1.237 .135 .620 .008 .021 ----- ------- 30 40,274 AVERAGE ANALYSIS - .267 1.351 .153 .651 .022 .024 -NI- -ZN- -TI- -PB- -BI- -BE- -AL- ---- ---- ---- ---- ---- ---- ---- *BAS 834 .009 .126 .017 .014 .000 .000 97. *BAS 835 .006 .146 .016 .010 .000 .000 98. *BAS 836 .006 .149 .019 .128 .000 .000 97. *BAS 837 .007 1.510 .023 .016 .000 .000 93. *BAS 838 .008 .156 .010 .035 .000 .000 97. *BAS 839 .006 .190 .015 .022 .000 .000 97. AVERAGE ANALYSIS - .007 .349 .016 .035 .000 .000 97.
* - THIS HEAT HAS BEEN SHIPPED. 62 53 DATE: 02/27/92 TIME: 11:34 PAGE 1 IMCO RECYCLING INC. MORGANTOWN, KENTUCKY ********** END-OF-LOAD REPORT ********** EOL DATE: 11/22/91
LOAD CUST REF SOURCE CONTRACT TYPE MATERIAL DATE CAR/TRUCK NUMBER NUMBER CUSTOMER CUSTOMER NUMBER P/T CLASS RECEIVED CARRIER NUMBER - ------ -------- -------- -------- -------- ---- -------- -------- ------- --------- BAS-4 0004 BARMET RPT BARMET RPT P0#105990 T OTHSCRAP 11/20/91 AMERISTAR 025021
WEIGHT WEIGHT RECOV IN OUT PCT ------ ------ ----- 42,960 40,740 94.83
HEAT UNITS/ NUMBER CRUCE WEIGHT -SI- -FE- -CU- -MN- -MG- -CR- - -------- ----- ------- ---- ---- ---- ---- ---- ---- *BAS 840 5 6,586 .341 .548 .251 .668 .023 .044 *BAS 841 5 6,428 .282 .585 .207 .709 .010 .035 *BAS 842 5 5,990 .284 .715 .216 .803 .106 .048 *BAS 843 4 5,222 .323 .682 .229 .740 .023 .036 *BAS 844 4 5,342 .309 .545 .202 .849 .028 .023 *BAS 845 5 6,200 .250 .544 .208 .785 .018 .033 *BAS 846 4 4,972 .249 .650 .222 .576 .026 .037 ----- ------- 32 40,740 AVERAGE ANALYSIS - .292 .607 .220 .734 .033 .037 -NI- -ZN- -TI- -PB- -BI- -BE- -AL- ---- ---- ---- ---- ---- ---- ---- *BAS 840 .010 .186 .008 .014 .000 .000 97.9 *BAS 841 .007 .155 .012 .008 .000 .000 97.9 *BAS 842 .010 .175 .012 .008 .000 .000 97.6 *BAS 843 .010 .203 .010 .013 .000 .000 97.7 *BAS 844 .006 .197 .010 .019 .000 .000 97.8 *BAS 845 .006 .149 .013 .009 .000 .000 97.9 *BAS 846 .009 .122 .012 .008 .000 .000 98.0 AVERAGE ANALYSIS - .008 .170 .011 .011 .000 .000 97.8
* - THIS HEAT HAS BEEN SHIPPED. 63 54 EXHIBIT "H" RIGHT OF FIRST REFUSAL (Facility) THIS RIGHT OF FIRST REFUSAL (the "Agreement"), is made and entered into as of this 2nd day of March 1992, by and between IMCO RECYCLING INC., a Delaware corporation (the "Grantor") and BARMET ALUMINUM CORPORATION, an Ohio corporation (the "Grantee"). RECITALS: A. Grantor is the owner of a parcel of real estate located near Uhrichsville, Ohio described in Exhibit "A" attached hereto (the "Property") on which Grantor intends to construct and operate an aluminum recycling and processing facility (the "Facility"); B. Grantee owns and operates a rolling mill facility in Uhrichsville, Ohio (the "Mill") located near the Property; and C. Grantor and Grantee have entered into that certain Supply Agreement (the "Supply Agreement") dated as of March 2, 1992, wherein Grantor has agreed, among other agreements, to provide tolling/converting services to Grantee to satisfy Grantee's requirements for certain raw materials at the Mill. D. Pursuant to and as part of the considerations for the Agreement, Grantor has agreed to grant to Grantee a right of first refusal to purchase the Property and the Facility on the terms set forth herein. NOW, THEREFORE, in consideration of the foregoing and of the mutual promises, representations and undertakings of the parties set forth herein, the adequacy and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. Right of First Refusal. Grantor hereby grants to Grantee the right of first refusal (the "Right of First Refusal") to purchase the Property and the Facility, together with all equipment, fixtures, licenses, permits and other tangible and intangible personal property and contract rights owned by Grantor and used in connection with the Facility (collectively, the "Plant"). The Right of First Refusal shall apply to any offer to purchase the Plant received by Grantor from a third party (other than a direct or indirect wholly-owned subsidiary of Grantor) and that Grantor is willing to accept, subject to approval of Grantor's acceptance thereof by Grantor's lenders (the "Offer"). Upon receipt of an Offer, Grantor shall promptly give written notice of the Offer to Grantee, together with a copy of the written Offer and any other terms or materials delivered in connection therewith (the "Notice"). 71 55 Grantee shall have ten (10) days after its receipt of the Notice (the "Acceptance Period") to exercise the Right of First Refusal by delivering to Grantor written notice of Grantee's exercise of the Right of First Refusal and its agreement to purchase the Plant on the same terms as set forth in the Offer (the "Acceptance"). If Grantor does not receive the Acceptance on or before 5:00 p.m. (Dallas, Texas time) on the last day of the Acceptance Period, Grantee shall be conclusively deemed to have waived its Right of First Refusal and Grantor shall be free to sell the Plant on the terms set forth in the Offer. if Grantee delivers the Acceptance to Grantor prior to the expiration of the Acceptance Period, Grantor and Grantee shall execute a written contract substantially identical to the agreement constituting the Offer and Grantor shall sell the Plant to Grantee on the terms and conditions set forth in the Offer. Notwithstanding the above, Grantee shall not have any right to exercise the Right of First Refusal during any time when Grantee is in material default of its obligations under the Supply Agreement. 2. Transfer of Supply Agreement Rights. Notwithstanding any provision herein to the contrary, Grantor agrees that it will not sell the Plant to a third party unless Grantor also transfers to the Transferee, and the Transferee assumes in writing, all of Grantor's rights, liabilities and obligations under and pursuant to the Supply Agreement and this Right of First Refusal. If Grantee fails or refuses to exercise the Right of First Refusal, Grantor shall provide to Grantee such reasonable assurances as Buyer may reasonable require that the Transferee has the ability to perform the obligations of the Grantor under the Supply Agreement in a manner reasonably satisfactory to Buyer. 3. Term. This Agreement shall terminate and be of no further force and effect upon the earlier to occur of the following events: (a) The termination of the Supply Agreement or the Supply Agreement is no longer in force and effect; or (b) Grantee exercises the Right of First Refusal but fails or refuses to consummate the purchase of the Plant in accordance with the terms of the Offer. 4. Notices. Any notices or other communication required hereunder shall be in writing and deemed effective upon the earlier to occur of (a) actual receipt or (b) two (2) days after being deposited in the United States mail, certified or registered, postage prepaid, addressed to the Grantee and the Grantor at the following addresses, or to such other address as either party hereto may designate to the other upon ten (10 days written notice: 72 56 to the Grantee: Barmet Aluminum Corporation 753 West Waterloo Road Akron, Ohio 44314 Attention: Terry D. Smith with copies to: Roetzel & Andress 75 E. Market Street Akron, Ohio 44308 Attention: George A. Dietrich, Esq. to the Grantor: IMCO Recycling Inc. 5215 North O'Connor Road Suite 940 Central Tower at Williams Square Irving, Texas 75039 Attention: Ralph Cheek, President with copies to: Haynes and Boone, L.L.P. 1600 Smith Street, Suite 3700 Houston, Texas 77002 Attention: Marc H. Folladori, Esq. 5. Assignment. This Agreement may be assigned by the Grantor to a wholly-owned subsidiary of the Grantor without the consent of the Grantee. This Agreement may not otherwise be assigned by any party hereto without the prior written consent of the other party. 6. Waiver. No waiver of any provision of this Agreement shall be valid unless the same is in writing and signed by the party against whom it is sought to be enforced. No waiver of any provision of this Agreement at any time will be deemed a waiver of any other provision of this Agreement at such time or will be deemed a waiver of such provision at any other time. No modification of this Agreement shall be binding unless in writing and signed by the party against whom sought to be enforced. 7. Binding Effect. This Agreement and the various rights and obligations arising hereunder shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. 8. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED UNDER AND ENFORCED ACCORDING TO THE LAWS OF THE STATE OF OHIO. 73 57 9. Attorney's Fees. If either party is required to employ an attorney to enforce or defend the rights of such party hereunder, the prevailing party shall be entitled to recover its costs from the other party, including, but not limited to, its reasonable attorney's fees. 10. Time of the Essence. Time is of the essence with respect to this Agreement. ****** 74 58 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by those duly authorized on the day and year first above written. GRANTEE: BARMET ALUMINUM CORPORATION, an Ohio corporation ATTEST: /s/ TERRY D. SMITH By: /s/ NORMAN E. WELLS, JR. ------------------------ --------------------------------- Vice-President & C.F.O. Its: Chief Executive Officer ------------------------ -------------------------------- GRANTOR: IMCO RECYCLING INC., a Delaware corporation By: /s/ RALPH L. CHEEK ------------------------------- Its: President ------------------------------- 75 59 STATE OF OHIO ) ) COUNTY OF SUMMIT ) This instrument was acknowledged on this 2nd day of March, 1992, by Terry D. Smith, Norman E. Wells, Jr. of Barmet Aluminum Corporation, an Ohio corporation, on behalf of said corporation. /s/ [ILLEGIBLE] --------------------------- Notary Public March 2, 1992 No Expiration STATE OF TEXAS ) ) COUNTY OF DALLAS ) This instrument was acknowledged on this ____ day of ______, 1992, by ____________, __________ of IMCO Recycling Inc., a Delaware corporation, on behalf of said corporation. --------------------------- Notary Public 76 60 IMCO RECYCLING INC. PROPERTY DESCRIPTION TUSCARAWAS COUNTY, OHIO MILL TOWNSHIP Situated in the Township of Mill, County of Tuscarawas and State of Ohio: Lot 8 to the Rathbone tract in 4th Qr. Twp. 7 Range 1 U.S.M.D. as follows: beginning at a post on the east boundary of the right of way of B & 0 R. R. and at the north line of lands of Stella Morrison about 500 feet northwardly along said right of way line from the south line of lot 8 thence south 88 deg. 38 min. E 1536.6 feet to a stone; thence north 8 deg. 25 min. west 715 1/2 feet to a stone; thence north 88 deg. 33 min. west 1577 feet to a stone; thence south 11 deg. 33 min. east 720 1/2 feet to place of beginning, containing 25 acres. 77 61 EXHIBIT "I" RIGHT OF FIRST REFUSAL ---------------------- (Rockport] THIS RIGHT OF FIRST REFUSAL (the "Agreement"), is made and entered into as of this 2nd day of March, 1992, by and between BARMET ALUMINUM CORPORATION, an Ohio corporation (the "Grantor") and IMCO RECYCLING INC., a Delaware corporation (the "Grantee"). R E C I T A L S: A. Grantor is the owner of a parcel of real estate located near Rockport, Indiana, described in Exhibit "A" attached hereto (the "Property") on which Grantor operates an aluminum recycling and processing facility (the "Facility"); B. Grantor and Grantee have entered into that certain Supply Agreement (the "Supply Agreement") dated as of March 2, 1992, wherein Grantee has agreed, among other agreements, to provide tolling/converting services to Grantor to satisfy Grantor's requirements for certain raw materials at its facility in Uhrichsville, Ohio. C. Pursuant to and as part of the considerations for the Supply Agreement, Grantor has agreed to grant to Grantee a right of first refusal to purchase the Property and the Facility on the terms set forth herein. NOW, THEREFORE, in consideration of the foregoing and of the mutual promises, representations and undertakings of the parties set forth herein, the adequacy and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. Right of First Refusal. Grantor hereby grants to Grantee the right of first refusal (the "Right of First Refusal") to purchase the Property and the Facility, together with all equipment, fixtures, licenses, permits and other tangible and intangible personal property and contract rights owned by Grantor and used in connection with the Facility (collectively, the "Plant"). The Right of First Refusal shall apply to any offer to purchase the Plant received by Grantor from a third party (other than a direct or indirect wholly-owned subsidiary of Grantor) and that Grantor is willing to accept (the "Offer"). Upon receipt of an Offer, Grantor shall promptly give written notice of the Offer to Grantee, together with a copy of the written Offer and any other terms or materials delivered in connection therewith (the "Notice"). Grantee shall have ten (10) days after its receipt of the Notice (the "Acceptance Period") to exercise the Right of First Refusal by delivering to Grantor written notice of Grantee's exercise of the Right of First Refusal and its agreement to purchase the 79 62 Plant on the same terms as set forth in the Offer (the "Acceptance"). If Grantor does not receive the Acceptance on or before 5:00 p.m. (Dallas, Texas time) on the last day of the Acceptance Period, Grantee shall be conclusively deemed to have waived its Right of First Refusal and Grantor shall be free to sell the Plant on the terms set forth in the Offer. If Grantee delivers the Acceptance to Grantor prior to the expiration of the Acceptance Period, Grantor and Grantee shall execute a written contract substantially identical to the agreement constituting the Offer and Grantor shall sell the Plant to Grantee on the terms and conditions set forth in the Offer. Notwithstanding the above, Grantee shall not have any right to exercise the Right of First Refusal during any time when Grantee is in material default of its obligations under the Supply Agreement. 2. Term. This Agreement shall terminate and be of no further force and effect upon the earlier to occur of the following events: (a) The termination of the Supply Agreement or the Supply Agreement is no longer in force and effect; (b) The sale of the Plant to a third party following Grantee's failure or refusal to exercise the Right of First Refusal in accordance with the terms hereof; or (c) Grantee exercises the Right of First Refusal but fails or refuses to consummate the purchase of the Plant in accordance with the terms of the Offer. 3. Notices. Any notices or other communication required hereunder shall be in writing and deemed effective upon the earlier to occur of (a) actual receipt or (b) two (2) days after being deposited in the United States mail, certified or registered, postage prepaid, addressed to the Grantee and the Grantor at the following addresses, or to such other address as either party hereto may designate to the other upon ten (10) days written notice: to the Grantor: Barmet Aluminum Corporation 753 West Waterloo Road Akron, Ohio 44314 Attention: Terry D. Smith with copies to: Roetzel & Andress 75 E. Market Street Akron, Ohio 44308 Attention: George A. Dietrich, Esq. 80 63 to the Grantee: IMCO Recycling Inc. 5215 North O'Connor Road Suite 940 Central Tower at Williams Square Irving, Texas 75039 Attention: Ralph Cheek, President with copies to: Haynes and Boone, L.L.P. 1600 Smith Street, Suite 3700 Houston, Texas 77002 Attention: Marc H. Folladori, Esq. 4. Waiver. No waiver of any provision of this Agreement shall be valid unless the same is in writing and signed by the party against whom it is sought to be enforced. No waiver of any provision of this Agreement at any time will be deemed a waiver of any other provision of this Agreement at such time or will be deemed a waiver of such provision at any other time. No modification of this Agreement shall be binding unless in writing and signed by the party against whom sought to be enforced. 5. Binding Effect. This Agreement and the various rights and obligations arising hereunder shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. 6. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED UNDER AND ENFORCED ACCORDING TO THE LAWS OF THE STATE OF INDIANA. 7. Attorney's Fees. If either party is required to employ an attorney to enforce or defend the rights of such party hereunder, the prevailing party shall be entitled to recover its costs from the other party, including, but not limited to, its reasonable attorney's fees. 8. Time of the Essence. Time is of the essence with respect to this Agreement. * * * * * * 81 64 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by those duly authorized on the day and year first above written. GRANTOR: BARMET ALUMINUM CORPORATION, an Ohio corporation ATTEST: /s/ TERRY D. SMITH By: /s/ NORMAN E. WELLS, JR. ----------------------- --------------------------------- Vice-Pres. & C.F.O. Its: Chief Executive Officer ----------------------- -------------------------------- GRANTEE: IMCO RECYCLING INC., a Delaware corporation By: /s/ RALPH L. CHEEK ------------------------------- Its: President ------------------------------ 82 65 STATE OF OHIO ) ) COUNTY OF SUMMIT ) This instrument was acknowledged on this 2nd day of March, 1992, by Terry D. Smith, Norman E. Wells, Jr. of Barmet Aluminum Corporation, an Ohio corporation, on behalf of said corporation. /s/ [ILLEGIBLE] --------------------------- Notary Public March 2, 1992 No Expiration STATE OF TEXAS ) ) COUNTY OF DALLAS ) This instrument was acknowledged on this 2nd day of March, 1992, by Ralph L. Cheek, President of IMCO Recycling Inc., a Delaware corporation, on behalf of said corporation. LAINE LYKES --------------------------- Notary Public ===================== LAINE LYKES MY COMMISSION EXPIRES January 5, 1994 ===================== 83 66 BARMET ALUMINUM CORPORATION REAL PROPERTY DESCRIPTION SPENCER COUNTY, INDIANA 84 67 Schedule A1 -(Continued) COMMITMENT NO. 87-126A Beginning at an iron pin, being the northeast corner of the northwest quarter of the northeast quarter of Section (15), Township (7) South, Range (6) West; thence with the east line of said quarter quarter section, S 0 degrees 11'20" E, 1316.66 feet to an iron pin, being the southwest corner of the northeast quarter of the northeast quarter of said section; thence with the south line of quarter quarter section, N 88 degrees 27'18" E, 1327.71 feet to an iron pin, being the northwest corner of the southwest quarter of the northwest quarter of Section (14), Township (7) South, Range (6) West; thence with the west line of said quarter quarter section, S 0 degrees 20'20" E, 1314.96 feet to a railroad spike, being the northwest corner of the northwest quarter of the southwest quarter of Section (14); thence with the West line of said quarter quarter section, S 0 degrees 36'32" W, 330.10 feet to an iron pin, being in the east line of the northeast quarter of the southeast quarter of said section (15); thence severing said quarter quarter section, S 88 degrees 24'00" W, 1322.42 feet to an iron pin, being in the west line of said quarter quarter section; thence with the west line of said quarter quarter section S 0 degrees 05'52" W, 1006.35 feet to an iron pin, being the northeast corner of the southwest quarter of the southeast quarter of said Section (15); thence with the north line of said quarter quarter section, S 89 degrees l3'25" W, 1312.84 feet to an iron pin, being the southeast corner of the northeast quarter of the southwest quarter of said Section (15); thence with the east line of said quarter quarter section, N 0 degrees 25'44" W, 1317.17 feet to a point, being the southeast corner of the southeast quarter of the northwest quarter of said section (15); thence with the east line of said quarter quarter section, N 0 degrees 32'43" W, 1317.52 feet to an iron pin, being the southeast corner of the northeast quarter of the northwest quarter of said Section (15); thence with the east line of said quarter quarter section, N 0 15'19" W, 1317.52 feet to a concrete nail, being the northwest corner of the northwest quarter of the northeast quarter of said Section (15); thence with the north line of said quarter quarter Section N 88 degrees 29'55" E, 1329.22 feet to the point of beginning. EXCEPT 0.50 acres, more particularly described as follows: Beginning at an iron pin, being the northwest corner of the southwest quarter of the northwest quarter of said Section (14); thence with the west line of said quarter quarter section, S 0 degrees 20'20" E, 66.00 feet to an iron pin, being in the east line of the southeast quarter of the northeast quarter of said Section (15); thence severing said quarter quarter section, S 88 degrees 27'18" W, 330.00 feet to an iron pin and, N 0 degrees 20'20" W, 66.00 feet to an iron pin, being in the South line of the northeast quarter of the northeast quarter of said Section (15); thence with the south line of said quarter quarter section, N 88 degrees 27'18" E, 330.00 feet to the point of beginning. ALSO EXCEPT 0.309 acres, more particularly described as follows: Beginning at an iron pin, being in the west line of the northwest quarter of the northeast quarter of said section (15) and being, S 0 degrees 15'19" E, 873.90 feet from the northwest corner of said quarter quarter section; thence severing said quarter section, the following seven (7) calls: 85 68 Schedule A2 -(Continued) COMMITMENT NO. 87-126A (1) N 88 degrees 29'55" E, 75.00 feet to an iron pin; (2) N 0 degrees 15'19" W, 27.00 feet to an iron pin; (3) N 88 degrees 29'55" E, 100.00 feet to an iron pin; (4) S0 degrees 15'19" E, 100.00 feet to an iron pin; (5) S88 degrees 29'55" W, 100.00 feet to an iron pin; (6) N 0 degrees 15'19" W, 27.00 feet to an iron pin; (7) S88 degrees 29'55" W, 75.00 feet to an iron pin, being in the West line of said quarter quarter section; thence with the west line of said quarter quarter section, N 0 degrees 15'19" W, 46.00 feet to the point of beginning. 86 69 EXHIBIT "J" LIST OF AND PURCHASE PRICE FOR PERSONAL PROPERTY DESCRIPTION Tilting Rotary Furnace with 20 ton Crane and Charging System Scrap Crusher and Conveyor Eight (8) lined Crucibles with lids; Two (2) pre-heat Burner Stations One 40-ton low-bed Truck The aggregate purchase price for the Personal Property shall be One Million Dollars ($1,000,000.00). 87 70 EXHIBIT "K" BILL OF SALE Know all men by these presents that Barmet Aluminum Corporation, an Ohio corporation, the Grantor, for consideration of One Million Dollars ($1,000,000.00) paid by IMCO Recycling Inc., the Grantee, the receipt of which is hereby acknowledged, does hereby grant, bargain, sell, transfer and deliver onto said Grantee the goods and chattels listed in the Schedule attached hereto (the "Personal Property") marked Exhibit "A" and made a part hereof, and all insurance proceeds and insurance claims of Grantor relating to all or any part of the Personal Property and, to the extent transferable, the benefit of and the right to enforce the covenants and warranties, if any, that Grantor is entitled to enforce with respect to the Personal Property against Grantor's predecessors in title to the Personal Property and against the manufacturers or producers of the Personal Property. And the said Grantor hereby covenants to and with the said Grantee that said Grantor is the lawful owner of the above-described goods and chattels; that the same are free from all encumbrances whatsoever, and that said Grantor has good right to sell the same as aforesaid, and that said Grantor will warrant and defend the same against all lawful claims and demands whatsoever. Grantee agrees and understands that the purchase of the Personal Property is "AS IS, WHERE IS," without any representation or warranty of any nature whatsoever, except (a) for the warranties of title contained herein, and (b) that the Personal Property has been kept and will, until delivered to Grantee, be kept in good repair, condition and working order, ordinary wear 88 71 and tear excepted. From time to time, as and when requested by Grantee, Grantor shall execute and deliver, or cause to be executed and delivered, such documents and instruments and shall take, or cause to be taken, such further or other actions as may be reasonably necessary to carry out the purposes of this Bill of Sale. This Bill of Sale shall bind Grantor and its successors and assigns and inure to the benefit of Grantee and its successors and assigns. The covenants and warranties of Grantor contained herein shall survive the closing of the transfer of the Personal Property evidenced hereby. This Bill of Sale shall be governed by and construed in accordance with the laws of the State of Ohio, excluding any conflicts-of-law rule or principle which might refer same to another jurisdiction. IN WITNESS WHEREOF, I have hereunto set my hand and seal this __ day of __________, ____. SIGNED AND DELIVERED IN THE PRESENCE OF: BARMET ALUMINUM CORPORATION By - ---------------------------------------- ------------------------------ Its - ---------------------------------------- ----------------------------- 89 EX-21 5 SUBSIDIARIES OF IMCO RECYCLING INC. AS OF 3/2/98 1 Exhibit 21 LIST OF IMCO RECYCLING INC. SUBSIDIARIES Wholly owned unless otherwise indicated as of March 2, 1998. 1. IMCO Investment Company, a Delaware Corporation 2. Interamerican Zinc, Inc., a Delaware Corporation 3. IMCO Recycling of Ohio Inc., a Delaware Corporation 4. IMCO Management Partnership L.P., a Texas Limited Partnership 5. IMCO Recycling of California, Inc., a Delaware Corporation 6. IMCO Energy Corp., a Delaware Corporation 7. IMCO International, Inc., a Delaware Corporation 8. IMCO Recycling of Indiana Inc., a Delaware Corporation 9. IMCO Recycling of Illinois Inc., a Delaware Corporation 10. IMCO Indiana Partnership L.P., an Indiana Limited Partnership 11. Metal Mark, Inc., an Illinois Corporation 12. Pittsburg Aluminum, Inc., a Kansas Corporation 13. VAW-IMCO Gu(beta) und Recycling GmbH, a private company with limited liability organized under the laws of Germany (50% owned) 14. IMCO Recycling of Michigan L.L.C., a Delaware Limited Liability Company 15. IMCO Recycling (UK) Ltd., a private company limited by shares and organized under the laws of England and Wales 16. IMSAMET, Inc., a Delaware Corporation 17. IMCO Recycling of Idaho Inc., a Delaware Corporation 18. IMCO Recycling of Utah Inc., a Delaware Corporation 2 LIST OF IMCO RECYCLING INC. SUBSIDIARIES 19. Imsamet of Arizona, an Arizona General Partnership (70% owned) 20. Solar Aluminum Technology Services, a Utah General Partnership (50% owned) 21. Rock Creek Aluminum, Inc., an Ohio Corporation 22. Alchem Aluminum, Inc., a Delaware Corporation 23. IMCO Recycling Holding B.V., a Dutch BV EX-23 6 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 33-26641, Form S-8 No. 33-34745, Form S-8 No. 33-76780, Form S-8 No. 333-00075, and Form S-8 No. 333-07091) pertaining to the Nonqualified Stock Option Plan of IMCO Recycling, Inc., the IMCO Recycling Inc. Amended and Restated Stock Option Plan, the IMCO Recycling Inc. 1992 Stock Option Plan, and the IMCO Recycling Inc. Annual Incentive Program, respectively, of our report dated February 2, 1998, with respect to the consolidated financial statements of IMCO Recycling, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 1997. /s/ ERNST & YOUNG LLP Dallas, Texas March 4, 1998 EX-27 7 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 405 74 53,508 1,345 34,556 91,652 197,095 54,995 332,536 33,804 109,194 0 0 1,652 167,272 332,536 339,381 339,381 291,527 291,527 0 668 7,331 23,506 9,086 14,127 0 (1,318) 0 12,809 .98 .96
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