-----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, S5OiFiTS44pFuB3Ebq1VBa4jcWdaPkI99TsSBeZCx36p9H+oYsOuq6f5bBJnJZNf 0PHBBrZ1zAaSzX9dkCp4bQ== 0000950152-97-003161.txt : 19970425 0000950152-97-003161.hdr.sgml : 19970425 ACCESSION NUMBER: 0000950152-97-003161 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19970424 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OM GROUP INC CENTRAL INDEX KEY: 0000899723 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INORGANIC CHEMICALS [2810] IRS NUMBER: 521736882 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-23729 FILM NUMBER: 97586488 BUSINESS ADDRESS: STREET 1: 50 PUBLIC SQ STREET 2: 3800 TERMINAL TOWER CITY: CLEVELAND STATE: OH ZIP: 44113-2204 BUSINESS PHONE: 2167810083 MAIL ADDRESS: STREET 1: 3900 TERMINAL TOWER CITY: CLEVELAND STATE: OH ZIP: 44113 S-3/A 1 OM GROUP, INC. FORM S-3 AMENDMENT NO. 2 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 1997 REGISTRATION NO. 333-23729 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- AMENDMENT NO. 2 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 OM GROUP, INC. (Exact Name of Registrant as Specified in Its Charter) DELAWARE (State or Other Jurisdiction of Incorporation or Organization) 52-1736882 (I.R.S. Employer Identification No.) 50 PUBLIC SQUARE 3800 TERMINAL TOWER CLEVELAND, OHIO 44113-2204 (216) 781-0083 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) --------------- JAMES M. MATERNA 50 PUBLIC SQUARE, 3800 TERMINAL TOWER CLEVELAND, OHIO 44113-2204 (216) 781-0083 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service) --------------- Copies to: CAROLYN J. BULLER, ESQ. E. WAIDE WARNER, JR. SQUIRE, SANDERS & DEMPSEY L.L.P. DAVIS POLK & WARDWELL 4900 KEY TOWER 450 LEXINGTON AVENUE 127 PUBLIC SQUARE NEW YORK, NEW YORK 10017 CLEVELAND, OHIO 44114-1304 --------------- Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after the effective date of this Registration Statement. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] _______ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] _______ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED APRIL 24, 1997 PROSPECTUS , 1997 [OM GROUP LOGO] 3,000,000 SHARES OM GROUP, INC. COMMON STOCK All of the shares of Common Stock offered hereby are being sold by OM Group, Inc. (the "Company"). The Common Stock of the Company is traded on the New York Stock Exchange under the symbol "OMP." On April 23, 1997, the closing sale price of the Common Stock as reported on the New York Stock Exchange Composite Tape was $26 3/8 per share. See "Price Range of Common Stock and Dividends." SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE COMMON STOCK. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------------------------- PRICE UNDERWRITING PROCEEDS TO THE DISCOUNTS AND TO THE PUBLIC COMMISSIONS(1) COMPANY(2) - -------------------------------------------------------------------------------------------------- Per Share......................................... $ $ $ Total(3).......................................... $ $ $ - --------------------------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses payable by the Company estimated at $600,000. (3) The Company has granted to the Underwriters a 30-day option to purchase up to an aggregate of 450,000 additional shares at the Price to the Public, less Underwriting Discounts and Commissions, solely to cover over-allotments, if any. If the option is exercised in full, the total Price to the Public, Underwriting Discounts and Commissions and Proceeds to the Company, will be $ , $ and $ , respectively. See "Underwriting." The shares of Common Stock are being offered by the several Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters, subject to various prior conditions, including their right to reject any order in whole or in part. It is expected that delivery of share certificates will be made in New York, New York, on or about , 1997. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION MERRILL LYNCH & CO. FIRST ANALYSIS SECURITIES CORPORATION 3 [OM GROUP LOGO] VERTICAL INTEGRATION PROCESS CAPABILITIES RAW Concentrates MATERIALS Slags --------- Recycled Materials Other | EXTRACTION Kokkola, Finland PROCESS St. George, UT ------- | United States ------------- Research Triangle Park, NC Franklin, PA Johnstown, PA St. George, UT Europe ------ <--- Other Salts PRODUCTION Kokkola, Finland and Metals PROCESS Ezanville, France ------- Asia Pacific (Joint Ventures) ----------------------------- Kim Hae City, Korea Singapore | PRODUCT LINES __________________________________________________________________________ - ------------- | | | Metal Metal Salts Metal Powders __ Carboxylates __ 45% __ 34% | 21% | of Sales | of Sales | of Sales | | | | | | | | | Custom homogeneous catalysts | | |__ - Catalysts for petrochemicals |__ Colorants for earthenware and glass, |__ Bonding agents used to strengthen | - Rubber adhesion catalysts | pigments, decolorizers, adhesives | cemented carbides in mining and | - Urethane foam catalysts | | machine cutting tools and drilling | |__ Agents used to enhance recording | | | quality of magnetic tapes | Raw material intermediates for |__ Oxidation catalysts to speed | |__ organic and inorganic chemicals, | drying of paint and ink |__ Catalysts to reduce sulfur dioxide | rechargeable batteries | | and nitrogen in petroleum | |__ Catalysts to cure polyester resins | |__ Additives for diamond cutting | used in fiberglass boats |__ Agents for plating of steel for | tools | | corrosion protection | |__ Additives to improve performance | |__ Agents used to enhance formability | of fuel oil and lubricants |__ Catalysts for production of | and improve efficiency for | | synthetic fibers | compacting and friction materials |__ Heat stabilizers for flexible PVC used | | in vinyl flooring and medical tubing |__ Antifouling agents for marine |__ Solder pastes used to enhance joint paints and roofing materials strength for circuit boards
4 AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance therewith, files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Reports, proxy statements and other information filed by the Company can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its regional offices located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such materials can also be obtained from the Public Reference Section of the Commission, Washington, D.C. 20549 at prescribed rates. The Commission also maintains a Web site that contains reports, proxy statements and other information filed by the Company. The Commission's Internet address is http://www.sec.gov. The Company's Common Stock is listed on the New York Stock Exchange ("NYSE"), and reports, proxy statements and other information concerning the Company are available for inspection and copying at the office of the NYSE, 20 Broad Street, New York, New York 10005. This Prospectus constitutes a part of a Registration Statement on Form S-3 ("Registration Statement") filed by the Company with the Commission under the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus does not contain all of the information set forth in the Registration Statement in accordance with the rules and regulations of the Commission. Reference is hereby made to the Registration Statement and related exhibits for further information regarding the Company and the securities offered hereby. Statements contained herein concerning the provisions of any document are not necessarily complete and, in each instance, reference is made to the copy of such document filed as an exhibit to the Registration Statement or otherwise filed with the Commission. Each such statement is qualified in its entirety by such reference. The Registration Statement and the exhibits thereto may be inspected and copied at the public reference facilities of the Commission at the addresses set forth above. INCORPORATION BY REFERENCE The following documents filed with the Commission in accordance with the provisions of the Exchange Act are incorporated herein by reference: (a) the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996; (b) the Company's Current Report on Form 8-K filed with the Commission on January 28, 1997 regarding the Company's acquisition of SCM Metal Products, Inc.; (c) the Company's Current Report on Form 8-K/A filed with the Commission on March 21, 1997 containing financial information regarding the Company's acquisition of SCM Metal Products, Inc.; (d) the description of the Company's Common Stock contained in the Registration Statement on Form S-1 (Registration No. 33-60444) filed with the Commission on April 1, 1993; (e) the Company's Current Report on Form 8-K filed with the Commission on December 5, 1996 regarding the Company's Shareholders' Rights Agreement; (f) the Company's Proxy Statement filed with the Commission on March 21, 1997; and (g) the Company's Current Report on Form 8-K filed with the Commission on April 22, 1997 regarding the Company's quarterly results as of and for the three months ended March 31, 1997. All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, after the date of this Prospectus and prior to the termination of the offering of the securities hereby, shall be deemed to be incorporated by reference into this Prospectus and to be a part hereof from the date of filing such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for the purposes of this Prospectus to the extent that a statement contained herein, or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein, modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person to whom a Prospectus has been delivered, upon written or oral request of such person, a copy of any or all of the documents which have been incorporated herein by reference, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference into such documents). Requests for such copies should be directed to Ms. Kristine Marks, Manager of Investors Relations and Corporate Communications, OM Group, Inc., 50 Public Square, 3800 Terminal Tower, Cleveland, Ohio 44113-2204, telephone (216) 781-0083. ------------------------ CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING, AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." 3 5 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information appearing elsewhere in this Prospectus or incorporated herein. Prospective purchasers of Common Stock should carefully read this entire Prospectus and should consider, among other things, the matters set forth under "Risk Factors." Unless otherwise noted, all information in this Prospectus with respect to the Company's capital stock including share and per-share amounts, does not include Common Stock that may be issued in connection with the exercise of the over-allotment option granted by the Company to the Underwriters. On January 21, 1997, the Company acquired SCM Metal Products, Inc. ("SCM"), a leading producer of metal-based specialty powders and chemicals. As used in this Prospectus and unless the context otherwise requires, the term "OMG" means OM Group, Inc. and its consolidated subsidiaries prior to the acquisition of SCM, and the term "Company" means OMG and SCM on a pro forma consolidated basis. THE COMPANY The Company is a leading, vertically integrated, producer and international marketer of value-added, metal-based specialty chemicals and powders. The Company applies proprietary technology to a wide variety of raw material feedstocks to manufacture and market the following three categories of metal-based specialty chemicals and powders -- carboxylates, inorganic salts and powders. Carboxylates, salts and powders accounted for approximately 21%, 45% and 34% of the Company's net sales in 1996, respectively. The Company believes it is the world's leading producer of cobalt carboxylates, cobalt and nickel specialty inorganic salts and copper powders. The Company also believes that it is the world's second largest producer of cobalt extra-fine powders. The Company sells more than 300 specialty chemicals and powders for diverse applications in more than 25 industries. The Company serves over 1,500 customers with no single customer accounting for 10% or more of the Company's 1996 net sales. During 1996, approximately 46% of the Company's net sales were to customers in the Americas, 35% were to customers in Europe, and 19% were to customers in Asia Pacific. Typically, the Company's products represent a small portion of the customer's total cost of manufacturing or processing, but are critical to the customer's product performance. The Company believes that it has successfully grown in recent years by accessing new product markets and leveraging core technologies and production capabilities to satisfy current market needs. OMG had net sales of $251.3 million, $361.0 million and $388.0 million in 1994, 1995 and 1996, respectively, and net income from operations of $35.2 million, $44.0 million and $51.4 million in 1994, 1995 and 1996, respectively. Net income for 1994, 1995 and 1996 was $20.7 million, $25.9 million and $30.0 million, respectively, representing a compound annual growth rate of 20.4%. On January 21, 1997, OMG acquired SCM, a leading producer of copper, iron and stainless steel powders. SCM serves over 35 niche markets, primarily within the automotive, electronics, transportation and catalyst industries. The addition of SCM's metal-based specialty powders and chemicals to the Company's product line offers significant growth opportunities through cross-selling to existing customers, geographic expansion and new product development. The Company's combined pro forma net sales, income from operations and net income for 1996 were $482.3 million, $60.1 million and $29.2 million, respectively. COMPETITIVE STRENGTHS The Company benefits from the following competitive strengths: - LEADING MARKET POSITIONS As a result of its high quality products, technological capabilities and customer service and support, the Company has achieved a leading market position in the production of metal-based specialty chemicals and powders. The Company serves numerous international companies including British Steel plc, E.I. du Pont de Nemours & Company, Exxon Corporation, Ferro Corporation, General Electric Company, The Goodyear Tire and Rubber Company, Minnesota Mining and Manufacturing Company (3M), The Nippert Company, a subsidiary of Outokumpu Copper, Inc., and Sandvik Aktiebolag. 4 6 - WORLDWIDE PRESENCE The Company serves customers on a worldwide basis in over 50 countries with an international sales force of 36 persons and 110 independent agents. This sales presence, combined with the Company's manufacturing facilities in the United States, Europe and Asia Pacific, enables the Company to respond promptly to customer needs on a worldwide basis. - NEW PRODUCT DEVELOPMENT The Company's research and new product development personnel in the United States and Finland work closely with its customers to develop new products to meet changing industry needs and customer requirements. The Company estimates that products introduced over the last five years represented approximately 10% of the Company's 1996 net sales. - ADVANCED PRODUCTION CAPABILITY The Company's manufacturing plants, all of which have received ISO 9002 certification, are capable of efficiently producing a broad range of specialty chemicals and powders. The Company's refining capability gives it the flexibility to work with a variety of raw materials. The technical capabilities of the Finnish and Utah facilities permit the Company to transform low-grade feedstocks, such as cobalt slag, concentrates and recycled materials, to high quality finished products. The ability to convert and recycle these materials gives the Company a significant cost advantage in the marketplace and enables it to source many grades of feedstocks at competitive prices. - RELIABLE SUPPLY Through its long-term relationships with its suppliers and its purchasing power as the world's largest purchaser of cobalt, the Company has been able to achieve reliability of supply for its customers. Additionally, the Company's ability to process a variety of low-grade feedstocks provides the Company with enhanced supply reliability. - EXPERIENCED MANAGEMENT The Company's management has an average of over 20 years' experience in the chemical industry. This management team has consistently delivered strong operating performance as demonstrated by increasing income from operations and net income in each of the last five fiscal years. BUSINESS STRATEGIES The Company believes that additional opportunities for earnings growth are available through continuing implementation of its principal business strategies: - FOCUS ON VALUE-ADDED NICHE MARKETS The Company continues to focus on value-added niche markets through continuing emphasis on research and technology and customer solution engineering. Recent examples include development of 400 mesh powders for the diamond tool market and frit grade cobalt oxides for the ceramic frit market. - EXPAND SALES OF EXISTING PRODUCTS The Company seeks to extend the markets for its existing products by expanding its geographical presence through a growing international sales force and participating in joint ventures in Asia Pacific. The Company also seeks cross-selling opportunities across its broad customer base. - TARGET HIGH GROWTH APPLICATIONS The Company believes that growth opportunities exist for the Company's cobalt and nickel products incorporated in such end products as rechargeable batteries and in the Company's barium, calcium and zinc products used to stabilize both color and strength in flexible polyvinyl chloride ("PVC"). In addition, through 5 7 its acquisition of SCM, the Company believes that growth opportunities exist in stainless steel powders, iron powders, metal pastes and proprietary catalysts. - STRATEGIC ACQUISITIONS AND JOINT VENTURES The Company will continue to selectively pursue acquisitions that, like SCM, are complementary to its existing product lines, markets and geography. The Company pursues acquisitions that leverage its current technology and production capabilities in carboxylates, salts, powders and other metal-based specialty products. The Company will also consider additional joint ventures to help it achieve geographic expansion and extend the markets for its products. RECENT DEVELOPMENTS On January 21, 1997, the Company acquired SCM, one of the world's leading producers of metal-based specialty powders and chemicals, principally specialty powders made from copper, iron and stainless steel. SCM serves over 35 niche markets, primarily within the automotive, electronics, transportation and catalyst industries. In its fiscal year ended September 28, 1996, SCM had revenues of approximately $94.3 million. The addition of SCM's metal-based specialty powders and chemicals to the Company's product line offers significant growth opportunities through cross-selling to existing customers, geographic expansion and new product development. See "Business -- Acquisition of SCM." On April 22, 1997, the Company released the results of its operations for the three months ended March 31, 1997. Net sales for the three months ended March 31, 1997 were $110.1 million, a 7% increase from $102.9 million reported for the comparable period in 1996. Net income for the three months ended March 31, 1997 was $8.2 million, a 15% increase from $7.2 million reported for the comparable period in 1996. The Company's 1997 first quarter increases in sales and net income were achieved primarily through an increase in physical volume of products sold. Higher physical volume in carboxylates and salts, as well as the net sales added through the acquisition of SCM in January 1997, more than offset the effect on the net sales line of decreasing cobalt chemical prices due to declining cobalt raw material prices. On November 5, 1996, the Company's directors approved a three-for-two split of its Common Stock in the form of a stock dividend, with one additional share issued on December 2, 1996, for every two common shares held by shareowners of record on November 15, 1996. On December 4, 1996, the Company's Common Stock began trading on the NYSE under the stock symbol "OMP." Prior to that time, the Common Stock was traded on the Nasdaq National Market ("Nasdaq") under the symbol "OMGI." THE OFFERING Common Stock offered by the Company............... 3,000,000 shares(1) Common Stock outstanding after the Offering....... 21,617,914 shares(1)(2) Use of Proceeds................................... The net proceeds received by the Company from the Offering will be used to reduce indebtedness incurred in the acquisition of SCM. See "Use of Proceeds." NYSE Symbol....................................... OMP - ------------------------------ (1) Excludes 450,000 shares that may be issued by the Company upon the exercise of the over-allotment option granted to the Underwriters. See "Underwriting." (2) Excludes 1,243,079 shares of Common Stock reserved for issuance upon the exercise of stock options granted under the Company's stock option plans. 6 8 SUMMARY FINANCIAL AND PRO FORMA COMBINED INFORMATION Set forth below is selected historical financial information of OMG for the years ended December 31, 1994, 1995 and 1996, selected historical financial information of SCM for its fiscal year ended September 28, 1996 and selected pro forma financial information for OMG and SCM combined as of and for the 1996 fiscal year. For a discussion of the accounting basis relating to the pro forma information, see "Unaudited Pro Forma Combined Condensed Financial Data."
SCM PRO FORMA OMG YEAR ENDED COMBINED YEAR ENDED DECEMBER 31, SEPTEMBER 28, FISCAL YEAR ENDED ---------------------------- ------------- ----------------- 1994 1995 1996 1996 1996 (IN MILLIONS, EXCEPT PER SHARE DATA) STATEMENT OF INCOME DATA: Net sales.......................... $251.3 $361.0 $388.0 $94.3 $ 482.3 Gross profit....................... 60.6 74.6 84.0 23.0 106.2 Selling, general and administrative expenses......................... 25.4 30.6 32.6 10.8 46.1 ------ ------ ------ ------ ----- Income from operations............. 35.2 44.0 51.4 12.2 60.1 Other income (expense)............. (4.1) (5.5) (7.0) (4.1) (15.4) Net income......................... $ 20.7 $ 25.9 $ 30.0 $ 5.0 $ 29.2 ====== ====== ====== ====== ===== Net income per share(1)............ $ 1.09 $ 1.36 $ 1.56 -- $ 1.52 % Growth......................... 14.7% 24.8% 14.7% -- -- BALANCE SHEET DATA: Total assets....................... $278.0 $358.0 $438.6 $45.7 $ 589.4 Long-term debt..................... 46.6 89.8 109.3 --(2) 233.3 Stockholders' equity............... 141.2 161.4 185.3 18.5 185.3 OTHER DATA: Capital expenditures............... $ 19.7 $ 31.2 $ 28.1 $ 1.3 $ 29.4 Depreciation and amortization...... 10.7 13.7 15.8 1.1 20.4 PRODUCTS SOLD: (millions of pounds) Carboxylates....................... 37.0 39.7 43.1 -- 43.1 Salts.............................. 42.9 46.4 50.7 7.6 58.3 Powders............................ 1.6 2.4 2.9 33.1 36.0 ------ ------ ------ ------ ----- Total............................ 81.5 88.5 96.7 40.7 137.4 ====== ====== ====== ====== ===== - --------------- (1) Adjusted to give effect to the 3-for-2 split of the Common Stock effective December 2, 1996. (2) Does not reflect SCM indebtedness to its former parent that existed prior to its acquisition by OMG.
7 9 RISK FACTORS Prospective investors in the Common Stock should consider the following factors, as well as the other information set forth in this Prospectus and incorporated herein by reference, in evaluating an investment in the Common Stock. RAW MATERIAL PRICES AND SUPPLY The primary raw materials used by the Company in manufacturing products are cobalt, nickel and copper. The cost of raw materials fluctuates due to actual or perceived changes in supply and demand. Generally, the Company is able to pass through to its customers increases and decreases in raw material prices by increasing or decreasing, respectively, the prices of its products. The degree of profitability of the Company depends, in part, on the Company's ability to maintain the differential between its product prices and raw material prices. While nickel and copper are worldwide commodities and generally available, cobalt availability can be more uncertain. The Company's supply of cobalt has historically been sourced primarily from Zaire, Australia, Finland and Zambia. Although the Company has never experienced a material shortage of cobalt, production problems and political and civil instability in certain supplier countries may affect the supply and market price of cobalt. In particular, the present political and civil instability in Zaire may affect the availability of raw materials from that supplier country. If a substantial interruption should occur in the supply from Zaire or elsewhere, there is no assurance that the Company would be able to obtain as much cobalt from other sources as would be necessary to satisfy the Company's requirements at prices comparable to its current arrangements. The Company attempts to mitigate changes in prices and availability by maintaining adequate inventories and long-term supply relationships with a variety of producers. The Company presently has secured all its anticipated cobalt needs through 1997 and has contracted for a portion of its anticipated needs in 1998 and 1999. ENVIRONMENTAL MATTERS Manufacturers of specialty chemical products, including the Company, are subject to stringent laws and regulations relating to the storage, handling, disposal, emission and discharge of materials into the environment. Manufacturers of specialty chemicals, including the Company, have expended, and may be required to expend in the future, substantial funds for compliance with such laws and regulations. In addition, claims for personal injury, property damages or natural resource damages may be made by third parties or regulators. Annual environmental compliance costs of the Company have approximated $2.0 million in each of the last three years. In addition, the Company has made capital expenditures of approximately $1.5 million in each of the last three years in connection with environmental compliance. Some risk of environmental liability is inherent in the nature of the Company's business and in the ownership and operation of real property, and there is no assurance that additional material environmental costs will not arise in the future. In addition, environmental considerations may affect customer acceptance of certain of the Company's products. Based on presently available information, however, the Company does not currently anticipate any material adverse effect on its results of operations, financial condition, or competitive position as a result of compliance with environmental requirements, environmental liability or the impact of environmental considerations on the marketability of its products. See "Business -- Environmental Matters." ACQUISITIONS As part of its business strategy, the Company continues to pursue strategic acquisitions and joint ventures that would leverage its current technology and production capability for metal-based specialty chemicals and powders. Identifying and pursuing future acquisition and joint venture opportunities and integrating acquired products and businesses will require a significant amount of management time and skill. There can be no assurance that the Company will be able to identify suitable acquisition candidates, or finance (through available cash flow and/or additional debt or equity financing), consummate or assimilate such acquisitions. 8 10 FOREIGN EXCHANGE In addition to the United States, the Company has manufacturing and other facilities in Europe and Asia Pacific, and markets its products worldwide. Although most of the Company's raw material purchases and product sales are transacted in U.S. dollars, liabilities for non-U.S. operating expenses and income taxes are denominated in local currencies. Accordingly, fluctuations in currency prices may affect the Company's operating results and net income. In order to partially hedge the balance sheet exposure to fluctuating rates, the Company enters into forward contracts to purchase Finnish Markka. FOREIGN COUNTRY OPERATING RISKS In addition to exchange rate risks, the Company is subject to a number of risks inherent in international operations, including unexpected changes in regulatory requirements, the costs and burdens of complying with foreign laws, and political and economic instability. There can be no assurance that the foregoing factors will not have a material adverse effect on the Company's future results of operations. CERTAIN ANTI-TAKEOVER EFFECTS The Company's certificate of incorporation and by-laws contain certain provisions that may be deemed to have anti-takeover effects. These provisions include a classified Board of Directors, the elimination of the ability of stockholders to act by written consent in lieu of a meeting and the ability of the Board to establish one or more series of preferred stock, having such number of shares, designations, relative voting rights, dividend rates, liquidation and other rights, preferences and limitations as the Board may fix, without further stockholder approval. In addition, in November of 1996, the Board adopted a Shareholders' Rights Plan pursuant to which the Board declared a dividend distribution of one Right for each outstanding share of Common Stock of the Company. The Shareholders' Rights Plan and the other provisions discussed above may be deemed to have anti-takeover effects because they may delay, defer or prevent an unsolicited acquisition proposal that some, or a majority, of the stockholders might believe to be in their best interests or in which stockholders might receive a premium for their Common Stock over the then market price of such shares. 9 11 PRICE RANGE OF COMMON STOCK AND DIVIDENDS OMG's Common Stock began trading on the NYSE under the symbol "OMP" on December 4, 1996. Prior to that time, the Common Stock was traded on Nasdaq under the symbol "OMGI." The following table sets forth for the calendar quarters indicated the high and low sale prices for the Common Stock as reported on the NYSE Composite Tape or Nasdaq, as the case may be, and the dividends per share paid in such quarters. The information provided below has been adjusted to give effect to the three-for-two split of the Company's Common Stock approved by the Board in November, 1996. The last reported sale price of the Common Stock on the NYSE Composite Tape on April 23, 1997, was $26 3/8 per share.
PRICE RANGE OF COMMON STOCK DIVIDENDS --------------- PAID PER HIGH LOW SHARE Year Ended December 31, 1995: 1st Quarter.................................................. $16 5/8 $14 1/2 $0.06 2nd Quarter.................................................. 19 1/2 15 3/8 0.06 3rd Quarter.................................................. 21 3/8 18 5/8 0.06 4th Quarter.................................................. 22 3/8 18 7/8 0.06 Year Ended December 31, 1996: 1st Quarter.................................................. $25 1/8 $21 5/8 $0.07 2nd Quarter.................................................. 28 24 1/2 0.07 3rd Quarter.................................................. 27 3/8 22 3/4 0.07 4th Quarter.................................................. 28 3/4 25 3/8 0.07 Year Ended December 31, 1997: 1st Quarter.................................................. $31 3/8 $26 1/4 $0.08 2nd Quarter through April 23, 1997........................... 28 1/2 25 0.08
USE OF PROCEEDS The net proceeds to the Company from the sale of Common Stock pursuant to the Offering are estimated to be approximately $74.4 million ($85.6 million if the Underwriters' over-allotment option is exercised in full), after deducting underwriting discounts and commissions and estimated expenses. The Company increased its credit facility with certain lenders led by National City Bank ("NCB Credit Facility") by $120.0 million in January of 1997 to purchase SCM (the "SCM Loan"). The SCM Loan was used to finance, in part, the SCM purchase price of $122.0 million and related acquisition expenses of $2.0 million. The Company intends to use the proceeds of the Offering to reduce the SCM Loan. The SCM Loan bears interest at the Company's option at either (i) NCB's prime rate or (ii) at a floating rate based on LIBOR, plus a margin ranging from 1.00% to 1.25% depending on the Company's long-term debt to EBITDA ratio. The Company's maximum credit under the NCB Credit Facility is an amount equal to the lesser of (i) $240.0 million, or (ii) $120.0 million plus any portion of the SCM Loan which is not paid down with the proceeds of the Offering; provided, however, the maximum credit under the facility will not at any time be less than $180.0 million. As of February 28, 1997, the aggregate borrowings under the NCB Credit Facility were approximately $225.0 million. The SCM Loan matures on June 30, 1997, and all outstanding borrowings under the credit facility following such date, including any portion of the SCM Loan which is not paid down with the proceeds of this Offering, matures on January 31, 2002, subject to extension. 10 12 CAPITALIZATION The following table sets forth OMG's capitalization as of December 31, 1996, with pro forma adjustments to reflect the acquisition of SCM on January 21, 1997, and as adjusted to reflect the sale by the Company of Common Stock offered hereby and the application of the net proceeds therefrom as described under "Use of Proceeds." The following information should be read in conjunction with OMG's consolidated financial statements and notes thereto and the Company's pro forma combined condensed financial data and the notes thereto included elsewhere in this Prospectus.
PRO FORMA AND PRO FORMA AS ADJUSTED OMG FOR THE ACQUISITION FOR THE HISTORICAL OF SCM OFFERING (IN MILLIONS) Long-term debt(1): Notes payable to banks........................... $ 79.0 $ 203.0 $ 128.6 Notes payable to insurance companies............. 30.0 30.0 30.0 Other............................................ 3.9 3.9 3.9 ------ ------ ------ Total long-term debt.......................... 112.9 236.9 162.5 Stockholders' equity: Preferred stock.................................. -- -- -- Common stock..................................... 0.2 0.2 0.2 Capital in excess of par value................... 102.1 102.1 176.5 Retained earnings................................ 86.3 86.3 86.3 Treasury stock................................... (3.1) (3.1) (3.1) Foreign currency translation adjustments......... (0.2) (0.2) (0.2) ------ ------ ------ Total stockholders' equity.................... 185.3 185.3 259.7 ------ ------ ------ Total capitalization............................... $298.2 $ 422.2 $ 422.2 ====== ====== ======
- ------------------------------ (1) Includes current portion of $3.6 million. 11 13 UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA The following unaudited pro forma combined condensed financial statements have been prepared by OMG's management. These financial statements reflect OMG's acquisition of SCM and combine, for the periods or date indicated, the historical consolidated financial statements of OMG and SCM, using the purchase method of accounting. OMG has a December 31 year end, while SCM has historically utilized a September year ending on the Saturday closest to September 30. For purposes of developing the pro forma financial statements, OMG and SCM have been combined utilizing their respective fiscal years. The unaudited pro forma combined condensed balance sheet reflects the adjustments as if the acquisition had occurred on December 31, 1996. The unaudited pro forma combined statement of income reflects adjustments as if the acquisition occurred at the beginning of the year indicated. These pro forma financial statements should be read in conjunction with the historical financial statements and related notes of OMG and SCM. The pro forma financial statements include preliminary estimates and assumptions which OMG's management believes are reasonable. The pro forma results are not necessarily indicative of the results which would have occurred if the business combination had been in effect on the dates indicated, or which may result in the future, and do not include any cost savings or other effects of the planned integration of OMG and SCM. The pro forma financial statements were prepared using the following facts and assumptions: 1. OMG acquired the assets and liabilities of SCM in exchange for a total cash payment of $122.0 million. 2. OMG borrowed $124.0 million to finance the acquisition price and related transaction costs of $2.0 million. 3. The acquired assets and liabilities of SCM are recorded at estimated fair values as determined by OMG's management based on information currently available and on current tentative assumptions as to the future operations of SCM. Accordingly, the allocation of the purchase price to the acquired assets and liabilities of SCM is subject to revision as a result of the final determination of appraised and other fair values. 12 14 UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF FISCAL YEAR END 1996 ------------------------------------------------------- OMG SCM PRO FORMA PRO FORMA HISTORICAL HISTORICAL ADJUSTMENTS COMBINED (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents.................... $ 7,818 $ 405 $ 8,223 Accounts receivable.......................... 60,054 11,293 71,347 Inventories.................................. 195,050 11,748 206,798 Other current assets......................... 8,245 1,426 9,671 -------- ------- -------- Total current assets................. 271,167 24,872 296,039 Property, plant and equipment, net............. 110,621 13,880 $ 8,573(2a) 133,074 Other assets: Unprocessed inventory........................ 27,499 27,499 Goodwill and other intangible assets......... 23,036 2,124 3,230(2b) (2,124)(2c) 97,000(2d) 123,266 Deferred income taxes........................ 3,844 (1,576)(2f) 2,268 Other assets................................. 6,310 980 7,290 -------- ------- -------- -------- Total assets......................... $ 438,633 $ 45,700 $ 105,103 $ 589,436 ======== ======= ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt............ $ 3,586 $ 3,586 Accounts payable............................. 77,330 $ 5,709 83,039 Accrued income taxes......................... 2,753 3,156 5,909 Other accrued expenses....................... 13,637 5,221 18,858 -------- ------- -------- Total current liabilities............ 97,306 14,086 111,392 Long-term debt................................. 109,295 $ 124,000(1) 233,295 Contract payable............................... 27,499 27,499 Deferred income taxes.......................... 17,773 2,176 4,131(2e) 24,080 Other long-term liabilities.................... 1,438 10,910 (4,500)(2g) 7,848 Stockholders' equity........................... 185,322 18,528 (18,528)(2h) 185,322 -------- ------- -------- -------- Total liabilities and stockholders' equity............................. $ 438,633 $ 45,700 $ 105,103 $ 589,436 ======== ======= ======== ======== - --------------- (1) The borrowing by OMG to finance the $122,000 acquisition price and $2,000 of transaction costs. (2) The allocation of the aggregate purchase price of SCM, and the recognition of the excess of aggregate purchase price over the estimated fair value of net assets acquired, is as follows:
a. Adjust property, plant and equipment to estimated fair value $ 8,573 b. Adjust intangible assets to estimated fair value 3,230 c. Eliminate the excess of cost over net assets acquired related to SCM's acquisitions of businesses in prior years (2,124) d. Adjust for excess of purchase price over estimated fair value of net assets acquired 97,000 e. Establish deferred income tax liability resulting from the application of purchase accounting, assuming a 35% tax rate (4,131) f. Reverse deferred income tax asset resulting from the application of purchase accounting, assuming a 35% tax rate (1,576) g. Adjust benefit plan liabilities to current value 4,500 h. Eliminate net equity, prior to purchase accounting adjustments 18,528 -------- Aggregate purchase price and related transaction costs $124,000 ========
13 15 UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED 1996 ------------------------------------------------------- OMG SCM PRO FORMA PRO FORMA HISTORICAL HISTORICAL ADJUSTMENTS COMBINED (IN THOUSANDS, EXCEPT PER SHARE DATA) Net sales...................................... $ 387,999 $ 94,279 $ 482,278 Cost of products sold.......................... 304,025 71,252 $ 857(1a) (72)(1b) 376,062 -------- ------- ------- -------- Gross profit................................... 83,974 23,027 (785) 106,216 Selling, general and administrative expenses... 32,553 10,765 323(1c) 2,425(1d) 46,066 -------- ------- ------- -------- Income from operations......................... 51,421 12,262 (3,533) 60,150 Other income (expense) Interest expense............................. (7,485) (4,095) (4,275)(1e) (15,855) Interest income.............................. 244 244 Foreign exchange gain........................ 223 223 -------- ------- ------- -------- (7,018) (4,095) (4,275) (15,388) -------- ------- ------- -------- Income before income taxes..................... 44,403 8,167 (7,808) 44,762 Income taxes................................... 14,356 3,137 (1,918)(lf) 15,575 -------- ------- ------- -------- Net income..................................... $ 30,047 $ 5,030 $(5,890) $ 29,187 ======== ======= ======= ======== Weighted average number of common shares outstanding.................................. 19,266 19,266 Net income per share (1g)...................... $ 1.56 $ 1.52 - --------------- (1) To reflect OMG's acquisition of SCM:
a. Recognize over ten years additional depreciation for write-up of property, plant and equipment to fair value $ 857 b. Add back eliminated goodwill amortization expense 72 c. Recognize over ten years additional amortization for write-up of intangible assets to estimated fair value 323 d. Amortize over a forty-year period the excess of purchase price of SCM over estimated fair value of net assets acquired 2,425 e. Recognize additional interest expense due to $124 million increase in consolidated long-term debt to finance the acquisition and related transaction costs 4,275 f. Record the income tax effect of the previous adjustments assuming a 35% income tax rate 1,918 g. Pro forma net income per Common Share is computed by dividing net income by the weighted average number of shares outstanding
14 16 SELECTED FINANCIAL DATA Set forth below are selected historical financial data for OMG as of and for its last five fiscal years, and selected pro forma financial information for OMG and SCM combined as of and for their respective 1996 fiscal years. The selected historical financial data for OMG does not include SCM which was acquired on January 21, 1997. This information should be read in conjunction with the consolidated financial statements of OMG and the related notes thereto included elsewhere in this Prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
COMBINED OMG PRO FORMA YEAR ENDED DECEMBER 31, FISCAL YEAR ENDED -------------------------------------------------- ----------------- 1992 1993 1994 1995 1996 1996 (IN MILLIONS, EXCEPT PER SHARE DATA) STATEMENT OF INCOME DATA: Net sales.................... $201.2 $179.5 $251.3 $361.0 $388.0 $ 482.3 Gross profit................. 38.6 45.8 60.6 74.6 84.0 106.2 Selling, general and administrative expenses.... 20.4 20.7 25.4 30.6 32.6 46.1 ------ ------ ------ ------ ------ ------ Income from operations....... 18.2 25.1 35.2 44.0 51.4 60.1 Other income (expense)....... 0.6 (2.0) (4.1) (5.5) (7.0) (15.4) Net income................... $ 12.0 $ 15.4 $ 20.7 $ 25.9 $ 30.0 $ 29.2 ====== ====== ====== ====== ====== ====== Net income per share......... $ 0.77 $ 0.95 $ 1.09 $ 1.36 $ 1.56 $ 1.52 % Growth................... -- 23.4% 14.7% 24.8% 14.7% -- BALANCE SHEET DATA: Total assets................. $172.6 $217.3 $278.0 $358.0 $438.6 $ 589.4 Long-term debt............... 48.5 30.6 46.6 89.8 109.3 233.3 Stockholders' equity......... 80.1 124.9 141.2 161.4 185.3 185.3 OTHER DATA: Capital expenditures......... $ 7.1 $ 8.7 $ 19.7 $ 31.2 $ 28.1 $ 29.4 Depreciation and amortization............... 8.2 9.6 10.7 13.7 15.8 20.4 PRODUCTS SOLD: (millions of pounds) Carboxylates................. 32.4 32.7 37.0 39.7 43.1 43.1 Salts........................ 29.0 36.3 42.9 46.4 50.7 58.3 Powders...................... 0.8 1.0 1.6 2.4 2.9 36.0 ------ ------ ------ ------ ------ ------ Total...................... 62.2 70.0 81.5 88.5 96.7 137.4 ====== ====== ====== ====== ====== ======
15 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The primary raw materials used by the Company in manufacturing its products are cobalt, nickel and copper. The degree of profitability of the Company depends, in part, on the Company's ability to maintain the differential between its product prices and raw material prices. Typically, the Company's products represent a small portion of the customer's total cost of manufacturing or processing, but are critical to the customer's product performance. Generally, the Company is able to pass along to its customers increases and decreases in raw material prices by increasing or decreasing, respectively, the prices of its products. The timing and amount of such adjustments in its product prices depends upon the type of product sold and the inventories and market share positions of the Company and its competitors. The Company's flexibility to adjust its prices in response to changes in raw material prices is greater with respect to carboxylates than with salts and powders. Because certain of the Company's products are sold at a relatively fixed dollar amount over raw material costs, the Company's percentage gross margins can increase or decrease with increases or decreases in raw material prices. When raw material prices increase, percentage gross margins contract. Conversely, when raw material prices decrease, percentage gross margins expand. The Company focuses on increasing the dollar amount of its gross profit by managing its product mix, volumes, selling prices, raw material costs and operating expenses. RESULTS OF OPERATIONS The following discussion of results of operations relates to OMG prior to the acquisition of SCM and should be read in conjunction with the financial statements of OMG and the notes thereto which are included elsewhere in this Prospectus. YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 Net sales for 1996 were $388.0 million, an increase of 7.5% compared to 1995. The increase in sales resulted principally from increases in physical volume of products sold and from changes in product mix, more than offsetting a decline in OMG's product prices resulting from decreasing cobalt market prices. Cobalt market prices ranged from $20 to $32 per pound during 1996 compared to $27 to $32 per pound during 1995. The market price of nickel ranged from $2.92 to $3.78 per pound during 1996 compared to $3.17 to $4.57 per pound during 1995. Pounds of product sold by OMG were approximately 96.7 million pounds during 1996 compared to 88.5 million pounds in 1995. The increase in carboxylate products sold resulted principally from higher sales in Europe. The increase in salt products sold resulted principally from higher sales of cobalt-based products. The increase in powders sold resulted principally from higher sales of coarse grade powders. Gross profit increased to $84.0 million in 1996, a 12.6% increase from 1995. The improvement in gross profit was primarily the result of higher physical volume of cobalt-based products sold. Cost of products sold decreased to 78.4% of net sales for the year ended 1996 from 79.3% of net sales in 1995 primarily because of lower cobalt market prices. Selling, general and administrative expenses remained approximately the same at 8.4% of net sales in 1996 and 1995. Other expenses were $7.0 million in 1996 compared to $5.5 million in 1995 due primarily to increased interest expense on higher outstanding borrowings, offset by gains on foreign exchange. Income taxes as a percentage of income before tax decreased to 32% in 1996 from 33% in 1995 as a greater percentage of total income was earned in Finland, which has a lower statutory tax rate (28%) than in the United States. 16 18 Net income for 1996 was $30.0 million, an increase of $4.1 million from 1995, primarily due to the aforementioned factors. YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 Net sales for 1995 were $361.0 million, an increase of 43.7% compared to 1994. The increase in sales resulted principally from increases in OMG's selling prices resulting from increasing cobalt market prices, as well as increases in physical volume of products sold. Cobalt market prices ranged from $27 to $32 per pound during 1995 compared to $14 to $30 per pound during 1994. The market price of nickel ranged from $3.17 to $4.57 per pound during 1995 compared to $2.37 to $4.02 per pound during 1994. Pounds of product sold by OMG were approximately 88.5 million pounds during 1995 compared to 81.5 million pounds in 1994. The increase in physical volume of carboxylate products sold resulted primarily from increased sales of PVC heat stabilizers. The increase in salt products sold resulted primarily from higher sales of cobalt salts. The increase in powder products sold resulted from increases in both extra fine and coarse grade powder sales. Gross profit increased to $74.6 million in 1995, a 23.1% increase from 1994. The improvement in gross profit was primarily the result of higher physical volume of products sold, a more favorable product mix, and relatively more stable market prices. Because certain of OMG's products are sold at a relatively fixed dollar amount over raw material costs, OMG's percentage gross margin decreased to 20.7% in 1995 from 24.1% in 1994 as cobalt market prices increased to higher levels in 1995. Selling, general and administrative expenses decreased to 8.5% of net sales in 1995 from 10.1% of net sales in 1994. This improvement resulted from higher overall increases in net sales relative to increases of $5.2 million in expenses due to higher administrative costs to support OMG's growth in global markets. Other expenses were $5.5 million in 1995 compared to $4.1 million in 1994 due primarily to increased interest expense on higher outstanding borrowings offset by lower losses on foreign exchange. Income taxes as a percentage of income tax remained approximately the same at 33% in both 1995 and 1994. In 1995, a greater percentage of total income was earned in Finland, which has a lower statutory tax rate than the United States. Offsetting this, however, were adjustments of worldwide tax liabilities and a change in Finland's statutory tax rate to 28% for 1996. Net income for 1995 was $25.9 million, an increase of $5.2 million from 1994, primarily due to the aforementioned factors. LIQUIDITY AND CAPITAL RESOURCES The Company has used available cash flow from operations, increased borrowings, and proceeds from the sale of common stock to finance increases in working capital and capital expenditures. The Company believes that it will have sufficient cash generated by operations to provide for its future working capital and capital expenditure requirements and to pay quarterly cash dividends on its common stock, subject to the Board's discretion. In February, 1997, the Board of Directors authorized an increase in quarterly dividends to $0.08 per share. Subject to several limitations in its revolving credit facilities and its note purchase agreement, the Company may incur additional borrowings to finance working capital and certain capital expenditures, including, without limitation, the purchase of additional raw materials. The Company intends to finance any future acquisitions and joint ventures through a combination of available cash flow, borrowings under a credit facility and/or debt or equity offerings. The Company had higher working capital needs in 1995 and 1996 resulting from its substantial growth, and for funding advance payments for certain raw materials. The Company has ongoing capital expenditure programs to improve its processing technology and plant and equipment, and to expand capacity to accommodate its substantial growth. The Company anticipates that capital spending, exclusive of acquisitions or joint ventures, will approximate $30.0 million per year through 1998. 17 19 The Company enters into long-term inventory supply arrangements and in 1995 took delivery of and title to 53,000 wet metric tons of cobalt slag at its Kokkola facilities from a major supplier. The Company was not required to pay for such slag until used, but has at times made advance payments. During 1996, the Company took delivery of an additional 80,000 wet metric tons. In 1994, the Company entered into an interest rate swap agreement for the three year period ending December 20, 1997 to convert the variable interest rate on an aggregate contract amount of $30 million to a fixed rate of 7.28% plus 0.35% to 0.75%. The purpose of entering into the interest rate swap is to protect the Company from the possibility of higher interest rates on what it views as base borrowings under its variable rate revolving credit facility. The Company's revolving credit facility was revised in October, 1996 to increase its maximum available credit from $60.0 to $120.0 million and expand its sources of capital by adding two new institutions. The Company increased the credit facility by $120.0 million in January of 1997 to purchase SCM. The SCM Loan was used to finance, in part, the SCM purchase price of $122.0 million and related acquisition expenses of $2.0 million. Proceeds from the Offering will be used to pay down the SCM Loan. After giving effect to the SCM acquisition and the Offering, the Company's maximum credit under the credit facility will be approximately $180.0 million and its available credit at December 31, 1996 would have been approximately $58.1 million. Although most of the Company's raw material purchases and product sales are transacted in U.S. Dollars, liabilities for non-U.S. operating expenses and income taxes are denominated in local currencies. Accordingly, fluctuations in currency prices may affect the Company's operating results and net income. Specifically, when the Finnish Markka weakens against the U.S. dollar, there is a net favorable effect on the Company due to lower operating expenses and lower net balance sheet liabilities when translated into U.S. dollars. The reverse is true when the Finnish Markka strengthens against the U.S. dollar. In order to partially hedge the balance sheet exposure to fluctuating rates, the Company enters into forward contracts to purchase Finnish Markka. BUSINESS HISTORY OMG was formed in 1991 to effect the combination of Mooney Chemicals, Inc., now known as OMG Americas, Inc. ("OMG Americas"), Kokkola Chemicals Oy ("KCO") and Vasset, S.A. ("Vasset"), which are long established companies operating in the United States, Finland and France, respectively. KCO and Vasset were previously wholly owned subsidiaries of Outokumpu Oy, a Finnish corporation ("Outokumpu Oy"). OMG Americas entered the carboxylates business in 1946 and the cobalt salts business in 1983. Outokumpu Oy began manufacturing cobalt powders in 1967. In 1983, a predecessor company of KCO entered the cobalt and nickel-based salts business and, in 1990, the carboxylates business through the acquisition of Vasset, an established manufacturer and marketer of organic compounds of cobalt and other metals used primarily in the tire industry. This business combination (the "Combination"), which created a company with an international presence, was designed to take advantage of complementary technical and manufacturing strengths, market positions, product ranges and raw material sources. Since the Combination, the Company has achieved the following: (i) implemented new refining technology to lower raw material costs and increased physical volumes of products sold, simultaneously strengthening its position as a supplier of cobalt based specialty chemicals and as a buyer of cobalt raw materials. (ii) focused and expanded its regional product strengths geographically, specifically expanding salts from Europe into the U.S., carboxylates from the U.S. into Europe, and salts, carboxylates, and powders into Asia Pacific. (iii) introduced new products focused on new applications or market segments such as PVC heat stabilizers and rechargeable battery chemicals. (iv) expanded geographic scope and product offerings through joint ventures and acquisitions. 18 20 GENERAL The Company is a leading, vertically integrated, producer and international marketer of value-added, metal-based specialty chemicals and powders. The Company applies proprietary technology to a wide variety of raw material feedstocks to manufacture and market the following three categories of metal-based specialty chemicals and powders -- carboxylates, inorganic salts and powders. Carboxylates, salts and powders accounted for approximately 21.0%, 45.0% and 34.0% of the Company's net sales in 1996, respectively. The Company believes it is the world's leading producer of cobalt carboxylates, cobalt and nickel specialty inorganic salts and copper powders. The Company also believes that it is the world's second largest producer of cobalt extra-fine powders. The Company sells more than 300 specialty chemicals and powders for diverse applications in more than 25 industries. The Company serves over 1,500 customers with no single customer accounting for 10% or more of the Company's 1996 net sales. During 1996, approximately 46% of the Company's net sales were to customers in the Americas, 35% were to customers in Europe and 19% were to customers in Asia Pacific. Typically, the Company's products represent a small portion of the customer's total cost of manufacturing or processing, but are critical to the customer's product performance. The Company believes that it has successfully grown in recent years by accessing new product markets and leveraging core technologies and production capabilities to satisfy current market needs. OMG had net sales of $251.3 million, $361.0 million and $388.0 million in 1994, 1995 and 1996, respectively, and net income from operations of $35.2 million, $44.0 million and $51.4 million in 1994, 1995 and 1996, respectively. Net income for 1994, 1995 and 1996 was $20.7 million, $25.9 million and $30.0 million, respectively, representing a compound annual growth rate of 20.4%. On January 21, 1997, OMG acquired SCM, a leading producer of copper, iron and stainless steel powders. SCM serves over 35 niche markets, primarily within the automotive, electronics, transportation and catalyst industries. The addition of SCM's metal-based specialty powders and chemicals to the Company's product line offers significant growth opportunities through cross-selling to existing customers, geographic expansion and new product development. The Company's combined pro forma net sales, income from operations and net income for 1996 were $482.3 million, $60.1 million and $29.2 million, respectively. COMPETITIVE STRENGTHS The Company benefits from the following competitive strengths: - LEADING MARKET POSITIONS As a result of its high quality products, technological capabilities and customer service and support, the Company has achieved a leading market position in the production of metal-based specialty chemicals and powders. The Company serves numerous international companies including British Steel plc, E.I. du Pont de Nemours & Company, Exxon Corporation, Ferro Corporation, General Electric Company, The Goodyear Tire and Rubber Company, Minnesota Mining and Manufacturing Company (3M), The Nippert Company, a subsidiary of Outokumpu Copper, Inc., and Sandvik Aktiebolag. - WORLDWIDE PRESENCE The Company serves customers on a worldwide basis in over 50 countries with an international sales force of 36 persons and 110 independent agents. This sales presence, combined with the Company's manufacturing facilities in the United States, Europe and Asia Pacific, enables the Company to respond promptly to customer needs on a worldwide basis. - NEW PRODUCT DEVELOPMENT The Company's research and new product development personnel in the United States and Finland work closely with its customers to develop new products to meet changing industry needs and customer requirements. The Company estimates that products introduced over the last five years represented approximately 10% of the Company's 1996 net sales. 19 21 - ADVANCED PRODUCTION CAPABILITY The Company's manufacturing plants, all of which have received ISO 9002 certification, are capable of efficiently producing a broad range of specialty chemicals and powders. The Company's refining capability gives it the flexibility to work with a variety of raw materials. The technical capabilities of the Finnish and Utah facilities permit the Company to transform low-grade feedstocks, such as cobalt slag, concentrates and recycled materials, to high quality finished products. The ability to convert and recycle these materials gives the Company a significant cost advantage in the marketplace and enables it to source many grades of feedstocks at competitive prices. - RELIABLE SUPPLY Through its long-term relationships with its suppliers and its purchasing power as the world's largest purchaser of cobalt, the Company has been able to achieve reliability of supply for its customers. Additionally, the Company's ability to process a variety of low-grade feedstocks provides the Company with enhanced supply reliability. - EXPERIENCED MANAGEMENT The Company's management has an average of over 20 years' experience in the chemical industry. This management team has consistently delivered strong operating performance as demonstrated by increasing income from operations and net income in each of the last five fiscal years. BUSINESS STRATEGIES The Company believes that additional opportunities for earnings growth are available through continuing implementation of its principal business strategies: - FOCUS ON VALUE-ADDED NICHE MARKETS The Company continues to focus on value-added niche markets through continuing emphasis on research and technology and customer solution engineering. Recent examples include the development of 400 mesh powders for the diamond tool market and frit grade cobalt oxides for the ceramic frit market. - EXPAND SALES OF EXISTING PRODUCTS The Company seeks to extend the markets for its existing products by expanding its geographical presence through a growing international sales force and participating in joint ventures in Asia Pacific. The Company also seeks cross-selling opportunities across its broad customer base. - TARGET HIGH GROWTH APPLICATIONS The Company believes that growth opportunities exist for the Company's cobalt and nickel products incorporated in such end products as rechargeable batteries and in the Company's barium, calcium and zinc products used to stabilize both color and strength in flexible PVC. In addition, through its acquisition of SCM, the Company believes that growth opportunities exist in stainless steel powders, iron powders, metal pastes and proprietary catalysts. - STRATEGIC ACQUISITIONS AND JOINT VENTURES The Company will continue to selectively pursue acquisitions that, like SCM, are complementary to its existing product lines, markets and geography. The Company pursues acquisitions that leverage its current technology and production capabilities in carboxylates, salts, powders and other metal-based specialty products. The Company will also consider additional joint ventures to help it achieve geographic expansion and extend the markets for its products. 20 22 PRODUCTS AND MARKETS The following is a discussion of the Company's products and markets, including SCM. METAL CARBOXYLATES. The Company believes it is the world's leading manufacturer and marketer of cobalt carboxylates and produces over 200 carboxylate products. In addition to cobalt products, the Company manufactures carboxylates using a variety of other metals, including barium, calcium, copper, manganese, molybdenum, nickel, potassium, zinc, and zirconium. Metal carboxylates are essential components in numerous complex chemical and industrial processes, and are used in many end markets, such as coatings, custom catalysts, liquid detergents, lubricants and fuel additives, plastic stabilizers, polyester promoters and adhesion promoters for rubber tires. Examples of specific applications include the use of additives to optimize the drying process in paints and enamels, fuel additives to improve combustion and suppress smoke, rubber adhesion promoters to improve the bonding of rubber to steel-belted tires, and lubricant additives to improve fuel efficiency. The Company produces metal carboxylates at its manufacturing facilities in the United States and Europe. Metal carboxylates are sold to customers in the Americas, Europe and Asia Pacific. Sales of metal carboxylates accounted for approximately $98.9 million, or approximately 21% of the Company's 1996 net sales. The following table sets forth certain information concerning the Company's end markets for metal carboxylates and representative attributes:
END MARKETS ATTRIBUTES Coatings...................... Promotes faster drying in such products as house paints, both exterior and interior, as well as industrial and marine coatings Liquid Detergents............. Catalyzes the detergent alcohol found in liquid laundry soaps Lubricating Oils.............. Enhances the performance of various lubricating oils used in automobile engines, generators and mining equipment by reducing sludge build-up, preventing oxidation under high pressure and reducing friction Polyester Resins.............. Accelerates the curing of polyester resins found in reinforced fiberglass boats, storage tanks, bathrooms, sports equipment, automobile and truck components Polyvinyl Chloride (PVC)...... Mitigates the effect of heat on flexible PVC in such products as medical tubing, garden hoses, resilient flooring and shower curtains Printing Inks................. Promotes faster drying in various printing inks Tires......................... Promotes bonding of metal-to-rubber in radial tires
METAL SALTS. The Company believes it is the world's leading manufacturer and marketer of cobalt and nickel-based specialty salts and produces over 25 products in this category. The Company also produces copper salts. Metal salts are used in a wide variety of end products including catalysts, colorants, batteries, petroleum additives, magnetic media, metal finishing agents and a broad range of chemicals. Salts have several characteristics that make them essential components in a wide range of industrial and chemical processes. For example, cobalt oxide is ideal for use as a bonding agent for the underlaying of enamels and ceramics which require uniform fine powder. Nickel carbonate has the necessary purity and consistency to make it suitable for electrogalvanizing steel to prevent corrosion. Copper oxide has properties well suited for antifouling in marine paint applications. The Company produces cobalt, nickel and copper salts at its manufacturing facilities in the United States and Finland for sale to customers in the Americas, Europe and Asia Pacific. Sales of metal salts accounted for 21 23 approximately $218.9 million, or 45% of the Company's 1996 net sales. The following table sets forth certain information concerning the Company's end markets for metal salts and representative attributes:
END MARKETS ATTRIBUTES Ceramics and Glassware........ Provides color for earthenware and glass, pigments, and facilitates adhesion of porcelain to metal Household Appliances.......... Enhances metal-glass bonding in a variety of household appliances Magnetic Media................ Improves the recording quality of video and audio tapes, as well as enhances the high screen resolution properties in television sets Petrochemical Refining........ Reduces sulfur dioxide and nitrogen emissions Steel......................... Improves the rust resistance in auto and truck bodies Synthetic Fibers.............. Improves the efficiency of chemical processes used to manufacture synthetic fibers Paints........................ Enhances antifouling in marine paints
METAL POWDERS. The Company believes it is a leading producer of copper powders and the world's second largest manufacturer of cobalt extra-fine powders. The Company also manufactures iron and stainless steel powders. Cobalt extra-fine powders are among the most technically advanced metal powder products. High specification metal powders have several important characteristics that make them essential components in a number of applications. Cobalt extra-fine powders have very low oxygen levels, thereby avoiding brittleness, and are used primarily to produce cemented carbides for mining and machine tools and oil and gas drilling equipment, and diamond tools used in the construction, quarrying and manufacturing industries as well as other hard metal applications. Copper powders produce high strength, corrosion resistant, high performance alloyed materials used in the military and aerospace industries. The Company produces powders at its manufacturing facilities in Finland and the United States for sale to customers in the Americas, Europe and Asia Pacific. Sales of cobalt and copper powders accounted for approximately $164.5 million, or approximately 34% of the Company's 1996 net sales. The following table sets forth certain information concerning the Company's end markets for metal powders and representative attributes:
END MARKETS ATTRIBUTES Construction Equipment........ Strengthens and adds durability to diamond cutting and drilling equipment used in construction and quarrying Cutting Tools................. Strengthens and adds durability to mining and machine cutting tools, as well as oil and gas drilling equipment Rechargeable Batteries........ Improves the electrical conduction of rechargeable batteries found in cellular phones, video cameras, portable computers and power tools Bushings & Bearings........... Enhances performance through porous, self-lubricating bronze bearings for electric motors and other industrial applications Microelectronic............... Reduces the solder bridging and enhances solder joint strength for circuit boards and brazing Pressed Metal Parts........... Prevents corrosion in automotive exhaust systems High-Tech Alloys.............. Strengthens and prevents corrosion of high performance alloyed materials
RAW MATERIALS The primary raw materials used by the Company in manufacturing products are cobalt, nickel and copper. The cost of raw materials fluctuates due to actual or perceived changes in supply and demand. 22 24 Generally, the Company is able to pass through to its customers increases and decreases in raw material prices by increasing or decreasing, respectively, the prices of its products. The degree of profitability of the Company depends, in part, on the Company's ability to maintain the differential between its product prices and raw material prices. While nickel and copper are worldwide commodities and generally available, cobalt availability can be more uncertain. The Company's supply of cobalt has historically been sourced primarily from Zaire, Australia, Finland and Zambia. Although the Company has never experienced a material shortage of cobalt, production problems and political and civil instability in certain supplier countries may affect the supply and market price of cobalt. In particular, the present political and civil instability in Zaire may affect the availability of raw materials from that supplier country. If a substantial interruption should occur in the supply from Zaire or elsewhere, there is no assurance that the Company would be able to obtain as much cobalt from other sources as would be necessary to satisfy the Company's requirements at prices comparable to its current arrangements. The Company attempts to mitigate changes in prices and availability by maintaining adequate inventories and long-term supply relationships with a variety of producers. The Company presently has secured all its anticipated cobalt needs through 1997 and has contracted for a portion of its anticipated needs in 1998 and 1999. The following tables set forth the average quarterly per pound prices for cobalt, nickel and copper for the last five years.
Measurement Period (Fiscal Year Covered) Cobalt - Price/lb 1Q 1992 29.50 2Q 1992 26.50 3Q 1992 20.25 4Q 1992 20.50 1Q 1993 15.75 2Q 1993 14.75 3Q 1993 12.50 4Q 1993 13.00 1Q 1994 20.50 2Q 1994 24.50 3Q 1994 24.00 4Q 1994 32.25 1Q 1995 29.75 2Q 1995 28.00 3Q 1995 28.00 4Q 1995 31.75 1Q 1996 31.00 2Q 1996 27.00 3Q 1996 22.50 4Q 1996 22.25
Source: Metals Bulletin
Measurement Period (Fiscal Year Covered) Nickel - Price/lb 1Q 1992 3.47 2Q 1992 3.30 3Q 1992 3.27 4Q 1992 2.75 1Q 1993 2.75 2Q 1993 2.60 3Q 1993 2.20 4Q 1993 2.15 1Q 1994 2.65 2Q 1994 2.70 3Q 1994 2.80 4Q 1994 3.45 1Q 1995 3.95 2Q 1995 3.40 3Q 1995 3.90 4Q 1995 3.80 1Q 1996 3.70 2Q 1996 3.70 3Q 1996 3.35 4Q 1996 3.15
Source: London Metal Exchange
Measurement Period (Fiscal Year Covered) Copper - Price/lb 1Q 1992 1.0 2Q 1992 1.02 3Q 1992 1.12 4Q 1992 .98 1Q 1993 .98 2Q 1993 .84 3Q 1993 .84 4Q 1993 .74 1Q 1994 .88 2Q 1994 .98 3Q 1994 1.04 4Q 1994 1.28 1Q 1995 1.36 2Q 1995 1.32 3Q 1995 1.34 4Q 1995 1.32 1Q 1996 1.16 2Q 1996 1.14 3Q 1996 .92 4Q 1996 .99
Source: Commodity Exchange Inc. RESEARCH AND DEVELOPMENT The Company's research and new product development program is an integral part of its business. Research and development focuses on adapting proprietary technologies to develop new products and working with customers to meet their specific requirements. New products introduced since 1991 represented approximately 10% of the Company's 1996 net sales. Research and development expenses for OMG on a historical basis were approximately $2.8 million, $3.4 million, and $3.8 million for 1994, 1995, and 1996, respectively. The Company's pro forma research and development expenses were approximately $5.8 million for 1996. The Company's research staff of 52 persons conducts carboxylate, metal salts and powders research and development at the Company's laboratories located in Cleveland, Ohio; Research Triangle Park, North Carolina; and Kokkola, Finland. The Company also maintains a research agreement with Outokumpu Research Oy. PATENTS The Company holds 112 patents related to the manufacturing, processing and use of metallo-organic and metal-based compounds. In addition, the Company has the right to use, and in certain instances license and sell, technology covered by 16 patents in the areas of hydrometallurgical processes, solvent extraction, agitators and metal powders. The Company does not consider any single patent or trademark to be material to its business as a whole. 23 25 MARKETING AND SALES The Company conducts its U.S. marketing and sales from its offices in Cleveland, Ohio and Research Triangle Park, North Carolina and its marketing and sales in Europe and Asia Pacific through the Company's subsidiaries, OMG Europe GmbH and OMG Asia Pacific Co., Ltd. in Dusseldorf, Germany and Taipei, Taiwan, respectively. The Company's sales group consists of 36 employees, who are responsible for certain industry and geographic segments. The Company has 110 independent sales and marketing agents worldwide. ENVIRONMENTAL MATTERS Since 1970, a wide variety of environmental laws and regulations have been adopted by the United States and by foreign, state and local governments which continue to be amended and supplemented. The Company is subject to these laws and regulations as a result of its operations and use of certain substances that are, or have been, used, produced or discharged at or by the Company's plants. In addition, soil and/or groundwater contamination presently exists and may in the future be discovered at levels which require remediation under environmental laws at properties now or previously owned, operated or used by the Company. Annual environmental compliance costs and capital expenditures were approximately $2.0 million and $1.5 million, respectively, for 1996. Such ongoing expenses include costs relating to waste water analysis and disposal, hazardous and non-hazardous solid waste analysis and disposal, sea water control, air emissions controls, soil and groundwater clean-up and monitoring and related staff costs. The Company anticipates that it will continue to incur costs and make expenditures at moderately increasing levels for the foreseeable future in light of the Company's recent acquisition of SCM, the fact that environmental laws and regulations are becoming increasingly stringent, and the likely lowering of permissible discharge limits. Due to the ongoing development and understanding of facts and remedial options and due to the possibility of unanticipated regulatory developments, the amount and timing of future environmental expenditures could vary significantly from those currently anticipated. Although it is difficult to quantify the potential impact of compliance with or liability under environmental protection laws, based on presently available information, the Company believes that the ultimate aggregate cost to the Company of environmental remediation, as well as other legal proceedings arising in the normal course of business, will not result in a material adverse effect upon its financial condition or results of operations. EMPLOYEES At January 31, 1997, the Company had 703 full-time employees of which 451 were located in the United States, 209 in Finland, 36 in Western Europe and 7 in Taiwan. Employees at the Company's facilities in Research Triangle Park, North Carolina; Franklin, Pennsylvania; St. George, Utah; and Ezanville, France are non-unionized. Employees at the Company's facilities in Kokkola, Finland are members of several national workers' unions under various union agreements. Generally, such union agreements have two-year terms. Employees at the Johnstown, Pennsylvania facility are members of the United Steelworkers Union. The Johnstown union agreement has a term of 5 years expiring in June of 1998. The Company believes relations with its employees are good. PROPERTIES The Company believes that its plants and facilities, which are of varying ages and of different construction types, have been satisfactorily maintained, are in good condition, are suitable for the Company's operations and generally provide sufficient capacity to meet the Company's production requirements. The Company's manufacturing plants have all received ISO 9002 certification. The land on which the Kokkola plant is located is leased with a remaining term of 94 years. The land on which the St. George, Utah plant is located is leased with a remaining term, including options, of 48 years. Otherwise, the real properties comprising the Company's manufacturing facilities are owned by the Company. The principal executive offices of the Company are located at 50 Public Square, 3800 Terminal Tower, Cleveland, Ohio and the telephone number for such offices is (216) 781-0083. 24 26 The Company's Kokkola, Finland production facility is situated on property owned by Outokumpu Zinc Oy. KCO and Outokumpu Zinc Oy share certain physical facilities, services and utilities under agreements with varying expiration dates. General property and administrative services are provided under a service agreement, which expires in 1998, but are priced separately and subject to yearly renegotiation in anticipation of phasing out Outokumpu Zinc's role as a service provider. Utilities and raw material purchase assistance contracts provide that KCO jointly purchase with, or pay a fee to, affiliates of Outokumpu Oy for assistance in negotiating contracts and securing bulk quantity discounts. Certain information regarding the Company's offices and research and product development and manufacturing facilities is set forth below:
APPROXIMATE LEASED/ LOCATION(1) FACILITY FUNCTION SQUARE FEET OWNED Cleveland, Ohio Corporate headquarters 5,800 leased Research and development facility 11,400 leased Americas marketing and administration offices 14,800 leased Dusseldorf, Germany European marketing and administration offices 3,800 leased Taipei, Taiwan Asia Pacific marketing and administration offices 1,500 leased Franklin, Pennsylvania Manufactures carboxylates and salts 220,000 owned St. George, Utah Manufactures salts 37,000 leased Kokkola, Finland Manufactures carboxylates, salts and powders 400,000 leased Ezanville, France Manufactures carboxylates 50,000 owned Johnstown, Pennsylvania Manufactures powders 137,700 owned Research Triangle Park, N.C. Manufactures powders 132,300 owned Marketing and administration offices - --------------- (1) Does not include facilities owned or leased by the Company's Asia Pacific joint ventures.
25 27 ACQUISITION OF SCM On January 21, 1997, the Company acquired SCM, one of the world's leading producers of metal-based specialty powders and chemicals -- principally specialty powders made from copper, iron and stainless steel. Set forth below are selected financial information for SCM for its fiscal year ended September 28, 1996 and the three months ended December 30, 1995 and December 28, 1996:
FISCAL YEAR ENDED THREE MONTHS ENDED SEPTEMBER 28, DECEMBER 30, DECEMBER 28, ----------------- -------------- -------------- 1996 1995 1996 (UNAUDITED) (IN THOUSANDS) Statement of Income Data: Net Sales................................. $94,279 $ 23,557 $ 22,857 Gross profit.............................. 23,027 5,913 6,143 Selling, general and administrative expenses............................... 10,765 2,813 2,580 ------------- ----------- ----------- Income from operations.................... 12,262 3,100 3,563 Interest expense.......................... (4,095) (1,170) (975) Net income................................ $ 5,030 $ 1,210 $ 1,614 ============= =========== =========== Balance Sheet Data: Total assets.............................. $45,700 $ 42,198 $ 44,984
SCM serves over 35 niche markets, primarily within the automotive, electronics, transportation, and catalyst industries. It offers significant growth opportunities through geographic expansion, cross-selling opportunities and new product development. Through SCM, the Company plans to enter new niche markets and leverage its core technology in specialty chemicals and powders. The following are examples of products and markets offering opportunity for growth: - Stainless steel powders used to fabricate metal parts such as exhaust flanges for automobiles; - Electrolytic iron powders used in specialty applications where performance is critical; - Copper catalysts used for the production of silanes in the silicone industry which has been operating at near capacity levels and is expanding; - Solder pastes used in the electronics industry and in cellular phones, personal computers, laptop/notebook computers, and supporting devices. SCM is a global supplier with manufacturing facilities located in Research Triangle Park, North Carolina; Johnstown, Pennsylvania; and Singapore (as part of a 70% owned joint venture). SCM's sales and administrative activities are headquartered at its Research Triangle Park facility. 26 28 MANAGEMENT The following table sets forth, as of February 28, 1997, certain information regarding the Company's directors, executive officers and certain other significant employees of the Company.
NAME AGE POSITION - ---------------------------- --- --------------------------------------------------------------- James P. Mooney............. 49 Director, Chairman and Chief Executive Officer Eugene Bak.................. 63 Director, President and Chief Operating Officer Lee R. Brodeur.............. 68 Director Frank Butler................ 61 Director Thomas R. Miklich........... 49 Director John E. Mooney.............. 46 Director Markku Toivanen............. 56 Director James M. Materna............ 51 Chief Financial Officer Thomas E. Fleming........... 51 President, OMG Americas, Inc. Kari Muuraiskangas.......... 52 President, OMG Europe GmbH J.R. Hwang.................. 48 President, OMG Asia Pacific Co., Ltd. Antti Aaltonen.............. 49 President, OMG Kokkola Chemicals Oy Michael J. Scott............ 46 Vice President, Human Resources, General Counsel and Secretary H. Burnham Tinker........... 57 Vice President, Corporate Development John R. Holtzhauser......... 40 Corporate Controller Terry Guckes................ 47 Vice President, Planning and Development
JAMES P. MOONEY is Chairman of the Board and has been a director and Chief Executive Officer of the Company since 1991. From 1991 to 1994, Mr. Mooney was President of the Company. From 1979 to 1991, Mr. Mooney was President and Chief Executive Officer of Mooney Chemicals, Inc. Mr. Mooney received a B.A. degree in history from Quincy University, where he is a member of the Board of Trustees. Mr. Mooney is also a member of the Board of Directors of Brush Wellman Inc. Mr. Mooney is John E. Mooney's brother. EUGENE BAK has been President and Chief Operating Officer of the Company since 1994. From 1992 to 1994, Mr. Bak was President of Mooney Chemicals, Inc. From 1970 to 1992, Mr. Bak held various management positions at Mooney Chemicals, Inc., including Vice President of Operations and Manager of the Company's Franklin, Pennsylvania, facility. Mr. Bak received a B.S. in chemical engineering from Ohio State University and an M.B.A. from Seton Hall University. LEE R. BRODEUR has been a director of the Company since 1991 and a director of Mooney Chemicals, Inc. since 1987. Mr. Brodeur was employed by the Firestone Tire & Rubber Company, Akron, Ohio from 1951 until his retirement as President and Chief Operating Officer of that company in 1986. FRANK BUTLER has been a director of the Company since 1996. He has been the President and General Manager of the Coatings Division of The Sherwin Williams Company since 1992 and has held several other management positions with The Sherwin Williams Company since 1966. Mr. Butler received a B.S. degree in Chemistry from Kansas State University and a M.S. degree in Chemistry from Iowa State University. THOMAS R. MIKLICH has been a director of the Company since 1993. Mr. Miklich has been employed by Invacare Corporation as Chief Financial Officer since 1993. Prior to joining Invacare, Mr. Miklich was Executive Vice President, Chief Financial Officer and a Director of Van Dorn Company. For 22 years prior to that, Mr. Miklich was employed with The Sherwin Williams Company where he held several financial positions, culminating as their Senior Vice President and Chief Financial Officer. JOHN E. MOONEY was appointed as a director of the Company in November, 1995, to fill a vacancy. For the past 10 years, Mr. Mooney has been President of Sachem, Inc., a specialty chemical manufacturer. Prior to that time, he was the Vice President of Finance and Procurement for Mooney Chemicals, Inc. Mr. Mooney received a B.A. in Economics from the University of Toronto. Mr. Mooney is James P. Mooney's brother. 27 29 MARKKU TOIVANEN has been a director of the Company since 1991. Since 1993, Mr. Toivanen has served as President and Chief Executive Officer of Outokumpu Metals & Resources Oy. From 1992 to 1993, Mr. Toivanen served as OMR's Executive Vice President and Chief Operating Officer. From 1991 to 1992, Mr. Toivanen served as Chairman and Chief Executive Officer of Outokumpu Mines Ltd. (Canada), a wholly owned subsidiary of Outokumpu Oy. Mr. Toivanen and Antti Aaltonen, Vice President of Operations for Kokkola Chemicals Oy, are brothers-in-law. JAMES M. MATERNA has been the Company's chief financial officer since 1992. Prior to such time, he was a principal in Ashley Management, a financial management services and private investment firm for six years. From 1981 to 1986, Mr. Materna was a partner with the accounting firm of KPMG Peat Marwick in New York and Cleveland. Mr. Materna received a B.S. degree in chemical engineering from the University of Pittsburgh, and an M.B.A. degree from the Graduate School of Business of Stanford University. Mr. Materna is a certified public accountant. THOMAS E. FLEMING has been President of OMG Americas, Inc. since 1994. Prior to that, he served as Mooney Chemical, Inc.'s Vice President of Marketing for seven years. From 1968 to 1987, Mr. Fleming held various positions with Mooney Chemical, Inc. including national accounts manager, industry manager and national sales manager. Mr. Fleming received a B.B.A. degree in marketing from Cleveland State University. KARI MUURAISKANGAS has been the President of OMG Europe GmbH since 1992. From 1970 to 1992, Mr. Muuraiskangas was employed by Outokumpu Oy and its subsidiary companies in various production and marketing capacities. From 1986 to 1989 he served as President of Outokumpu Japan KK, a wholly owned subsidiary of Outokumpu Oy. Mr. Muuraiskangas received an M.S. degree from Tempere University, Finland in 1969. J.R. HWANG has been the President of OMG Asia Pacific Co., Ltd. since 1994. Prior to that, he held various positions with Amax Extractive Research & Development, Inc. and the Hall Chemical Company where he served as the director of Far East operations. Dr. Hwang earned a bachelor's degree in metallurgical engineering and materials science from National Cheng-Kung University, Taiwan, a master's degree and Ph.D. from Stanford University and an M.B.A. from the Weatherhead School of Management of Case Western Reserve University. ANTTI AALTONEN has been President of OMG Kokkola since 1996 and prior to that was KCO's Vice President of Operations for four years. Mr. Aaltonen was appointed project manager for the design and construction of the Kokkola plant in 1977. He was appointed the first production manager for the facility in 1982 and subsequently became development manager. Mr. Toivanen and Mr. Aaltonen are brothers-in-law. MICHAEL J. SCOTT has been Vice President, General Counsel and Secretary of the Company since 1995. Prior to that, Mr. Scott was General Counsel and Secretary. Mr. Scott has a B.A. from Hamilton College and a J.D. from the Cleveland State University, John Marshall College of Law. H. BURNHAM TINKER has been the Vice President of Corporate Development since 1994. Prior to that, Dr. Tinker served as MCI's Vice President of Research and Development for four years. From 1983 to 1991, Dr. Tinker was the technical director of Mooney Chemicals, Inc. From 1966 to 1980, Dr. Tinker worked in various research and management capacities at Monsanto Company, a chemical company. Dr. Tinker received a B.S. degree in chemistry from St. Louis University and a Ph.D. degree in inorganic chemistry from the University of Chicago. JOHN R. HOLTZHAUSER has been the Corporate Controller since 1993. From 1986 to 1992 Mr. Holtzhauser was the Controller of Mooney Chemicals, Inc. Mr. Holtzhauser received a B.B.A. degree in accounting from Cleveland State University and an M.B.A. degree from the Weatherhead School of Management of Case Western Reserve University. 28 30 TERRY GUCKES has been Vice President of Planning and Development of the Company since 1995. From 1988 to 1995, Dr. Guckes worked for The Lubrizol Corporation as a Vice President of Lubrizol Enterprises, the venture capital arm of Lubrizol, and then as Vice President of the Strategic Planning and Investment Division. From 1986 to 1988, Dr. Guckes led the area of commercial development of new products in the automotive area for W. R. Grace. From 1974 to 1986, Dr. Guckes held various positions with the Exxon Corporation in venture capital, chemicals, refinery engineering and production. Dr. Guckes received a B.Sc.E. in Chemical Engineering from Princeton University, a Ph.D. in Chemical Engineering from the University of Wisconsin in 1974, and an M.B.A. from the Wharton School of Business in 1984. 29 31 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, the Underwriters named below have severally agreed to purchase from the Company, and the Company has agreed to sell to them, the following respective number of shares of Common Stock at the offering price less the underwriting discounts and commissions set forth on the cover of this Prospectus.
UNDERWRITERS NUMBER OF SHARES Donaldson, Lufkin & Jenrette Securities Corporation.................. Merrill Lynch, Pierce, Fenner & Smith Incorporated............................................ First Analysis Securities Corporation................................ --------- Total........................................................... 3,000,000 =========
The Underwriting Agreement provides that the obligations of the several Underwriters to pay for and accept delivery of the shares of Common Stock offered hereby are subject to approval of certain legal matters by their counsel and to certain other conditions. The Underwriters are obligated to take and pay for all the shares of Common Stock offered hereby (other than those covered by the over-allotment option described below) if any of such shares of Common Stock are taken. The Company has been advised by the Underwriters that they propose to offer the shares of Common Stock to the public at the offering price set forth on the cover of this Prospectus and to certain dealers at such price, less a concession not in excess of $ per share. The Underwriters may allow, and such dealers may re-allow, a concession not in excess of $ per share to certain other dealers. After the initial offering, the offering price and other selling terms may be changed by the Underwriters. The Company has granted to the Underwriters an option, exercisable not later than 30 calendar days from the date of this Prospectus, to purchase up to 450,000 additional shares of Common Stock at the same price per share as the Company receives for the other shares that the Underwriters have agreed to purchase. To the extent that the Underwriters exercise such option to purchase up to a total of 450,000 shares of Common Stock, each of the Underwriters will have a firm commitment to purchase approximately the same percentage thereof that the number of shares of Common Stock to be purchased by it shown in the above table bears to the total number of shares of Common Stock shown in the above table, and the Company will be obligated, pursuant to the option, to sell such Common Stock to the Underwriters. The Underwriters may exercise such option only to cover over-allotments made in connection with the sale of the Common Stock offered hereby. The Underwriting Agreement contains covenants of indemnity among the Underwriters and the Company against certain civil liabilities, including liabilities under the Securities Act. The Company has agreed that it will not, and shall cause each director and executive officer of the Company to agree that such person will not, without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation, (x) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, file any registration statement with respect to (in the case of the Company) or make any demand for or exercise any right with respect to the registration of (in the case of each director and executive officer) or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, or (y) enter into any swap or other arrangement that transfers all or a portion of the 30 32 economic consequences associated with the ownership of the Common Stock (regardless of whether any of the transactions described in clause (x) or (y) of this paragraph is to be settled by the delivery of Common Stock, or such other securities, in cash or otherwise), for a period of 90 days after the date of the Underwriting Agreement, other than (i) the shares of Common Stock offered hereby and (ii) the Company may issue any shares of Common Stock sold upon the exercise of an option or warrant or the conversion of a security outstanding on the date hereof or pursuant to any employee stock option or other benefit plan in existence on the date hereof, or pursuant to the Company's Long-Term Incentive Compensation Plan. Due to the repayment of borrowings under the SCM Loan, certain affiliates of members of the National Association of Securities Dealers, Inc. participating in the distribution will receive more than 10% of the net proceeds of the Offering. Certain of the Underwriters have provided from time to time, and are expected to provide in the future, investment banking services to the Company and certain of their affiliates for which such Underwriters have received and will receive customary fees and commissions. In connection with the Offering, the Underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the Common Stock. Specifically, the Underwriters may over-allot the Offering, creating a syndicate short position. The Underwriters may bid for and purchase shares of Common Stock in the open market to cover syndicate short positions. In addition, the Underwriters may bid for and purchase shares of Common Stock in the open market to stabilize the price of the Common Stock. These activities may stabilize or maintain the market price of the Common Stock above independent market levels. The Underwriters are not required to engage in these activities, and may end any of these activities at any time. LEGAL MATTERS Certain legal matters in connection with the Common Stock offered hereby are being passed upon for the Company by Squire, Sanders & Dempsey L.L.P. and for the Underwriters by Davis Polk & Wardwell. EXPERTS The consolidated financial statements of OM Group, Inc. at December 31, 1996 and 1995, and for each of the three years in the period ended December 31, 1996, and the financial statements of SCM Metal Products, Inc. for the year ended September 28, 1996, appearing or incorporated by reference in this Prospectus and Registration Statement in which this Prospectus is included, have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein and in the Registration Statement or incorporated by reference. Such financial statements have been included herein or incorporated herein by reference in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. 31 33 INDEX TO FINANCIAL STATEMENTS Report of Ernst & Young LLP, Independent Auditors...................... F-2 Consolidated Balance Sheets............................................ F-3 Statements of Consolidated Income...................................... F-4 Statements of Consolidated Stockholders' Equity........................ F-5 Statements of Consolidated Cash Flows.................................. F-6 Notes to Consolidated Financial Statements............................. F-7
F-1 34 REPORT OF INDEPENDENT AUDITORS BOARD OF DIRECTORS OM GROUP, INC. We have audited the accompanying consolidated balance sheets of OM Group, Inc. as of December 31, 1996 and 1995, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of OM Group, Inc. at December 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Cleveland, Ohio January 30, 1997 F-2 35 OM GROUP, INC. CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, --------------------- 1995 1996 (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents............................................ $ 9,098 $ 7,818 Accounts receivable, less allowance of $194 in 1995 and $210 in 1996.............................................................. 71,959 60,054 Inventories.......................................................... 139,067 195,050 Other current assets................................................. 13,817 8,245 -------- -------- Total current assets......................................... 233,941 271,167 Property, plant and equipment: Land................................................................. 331 467 Buildings and improvements........................................... 33,607 40,569 Machinery and equipment.............................................. 102,576 122,695 Furniture and fixtures............................................... 3,427 4,074 -------- -------- 139,941 167,805 Less accumulated depreciation................................ 42,661 57,184 -------- -------- 97,280 110,621 Other assets: Unprocessed inventory................................................ 27,499 Goodwill and other intangible assets, less accumulated amortization of $4,088 in 1995 and $4,967 in 1996.............................. 23,842 23,036 Other assets......................................................... 2,979 6,310 -------- -------- Total assets................................................. $358,042 $438,633 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt.................................... $ 5,263 $ 3,586 Accounts payable..................................................... 61,917 77,330 Accrued income taxes................................................. 9,484 2,753 Other accrued expenses............................................... 10,282 13,637 -------- -------- Total current liabilities.................................... 86,946 97,306 Long-term debt......................................................... 89,845 109,295 Contract payable....................................................... 27,499 Deferred income taxes.................................................. 18,597 17,773 Other long-term liabilities............................................ 1,226 1,438 Stockholders' equity: Preferred stock, $.01 par value: Authorized 2,000,000 shares; no shares issued or outstanding Common stock, $.01 par value: Authorized 30,000,000 shares; issued 18,759,346 shares............ 125 188 Capital in excess of par value....................................... 102,088 102,125 Retained earnings.................................................... 61,763 86,345 Treasury stock (129,168 shares in 1995 and 141,432 shares in 1996, at cost)............................................................. (2,512) (3,095) Foreign currency translation adjustments............................. (36) (241) -------- -------- Total stockholders' equity................................... 161,428 185,322 -------- -------- Total liabilities and stockholders' equity................... $358,042 $438,633 ======== ========
See accompanying Notes to Consolidated Financial Statements. F-3 36 OM GROUP, INC. STATEMENTS OF CONSOLIDATED INCOME
AS OF DECEMBER 31, ---------------------------------- 1994 1995 1996 (IN THOUSANDS, EXCEPT PER SHARE DATA) Net sales.................................................. $251,275 $360,959 $387,999 Cost of products sold...................................... 190,701 286,396 304,025 -------- -------- -------- 60,574 74,563 83,974 Selling, general and administrative expenses............... 25,413 30,594 32,553 -------- -------- -------- Income from operations........................... 35,161 43,969 51,421 Other income (expense) Interest expense......................................... (3,150) (5,516) (7,485) Interest income.......................................... 366 398 244 Foreign exchange (loss) gain............................. (1,349) (333) 223 -------- -------- -------- (4,133) (5,451) (7,018) -------- -------- -------- Income before income taxes................................. 31,028 38,518 44,403 Income taxes............................................... 10,286 12,585 14,356 -------- -------- -------- Net income....................................... $ 20,742 $ 25,933 $ 30,047 -------- -------- -------- Net income per share............................. $ 1.09 $ 1.36 $ 1.56 ======== ======== ========
See accompanying Notes to Consolidated Financial Statements. F-4 37 OM GROUP, INC. STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
FOREIGN CAPITAL IN CURRENCY COMMON EXCESS OF RETAINED TREASURY TRANSLATION STOCK PAR VALUE EARNINGS STOCK ADJUSTMENTS TOTAL ------ ---------- -------- -------- ----------- -------- (IN THOUSANDS) Balance at January 1, 1994....... $125 $ 102,088 $ 23,058 $(389) $124,882 Net income....................... 20,742 20,742 Translation adjustment........... 205 205 Dividends paid................... (3,496) (3,496) Treasury stock purchased......... $ (1,158) (1,158) ---- -------- ------- ------- ----- -------- Balance at December 31, 1994..... 125 102,088 40,304 (1,158) (184) 141,175 Net income....................... 25,933 25,933 Translation adjustment........... 148 148 Dividends paid................... (4,474) (4,474) Treasury stock purchased......... (1,354) (1,354) ---- -------- ------- ------- ----- -------- Balance at December 31, 1995..... 125 102,088 61,763 (2,512) (36) 161,428 Net income....................... 30,047 30,047 Non-employee directors' compensation................... 100 100 Translation adjustment........... (205) (205) Dividends paid................... (5,465) (5,465) Treasury stock purchased......... (583) (583) Three-for-two stock split........ 63 (63) 0 ---- -------- ------- ------- ----- -------- Balance at December 31, 1996..... $188 $ 102,125 $ 86,345 $ (3,095) $(241) $185,322 ==== ======== ======= ======= ===== ========
See accompanying Notes to Consolidated Financial Statements. F-5 38 OM GROUP, INC. STATEMENTS OF CONSOLIDATED CASH FLOWS
AS OF DECEMBER 31, ---------------------------------- 1994 1995 1996 (IN THOUSANDS) Operating activities Net income............................................... $ 20,742 $ 25,933 $ 30,047 Items not affecting cash: Depreciation and amortization......................... 10,689 13,734 15,814 Foreign exchange loss (gain).......................... 1,349 333 (223) Deferred income taxes................................. 2,962 1,552 7,841 Changes in operating assets and liabilities: Accounts receivable................................... (21,401) (25,336) 11,905 Inventories........................................... (48,635) (14,081) (83,482) Accounts payable and other accruals................... 41,338 7,342 34,765 Other................................................. (1,181) (5,833) (851) -------- -------- -------- Net cash provided by operating activities.................. 5,863 3,644 15,816 Investing activities Expenditures for property, plant and equipment, net...... (19,674) (31,215) (28,129) Acquisitions of businesses............................... (14,511) (395) -------- -------- -------- Net cash used in investing activities...................... (19,674) (45,726) (28,524) Financing activities Dividend payments........................................ (3,496) (4,474) (5,465) Long-term borrowings..................................... 18,000 94,418 33,364 Payments of long-term debt............................... (2,000) (46,021) (15,591) Purchase of treasury stock............................... (1,158) (1,354) (583) -------- -------- -------- Net cash provided by financing activities.................. 11,346 42,569 11,725 Effect of exchange rate changes on cash.................... 47 19 (297) -------- -------- -------- Increase (decrease) in cash................................ (2,418) 506 (1,280) Cash and cash equivalents at beginning of year............. 11,010 8,592 9,098 -------- -------- -------- Cash and cash equivalents at end of year................... $ 8,592 $ 9,098 $ 7,818 ======== ======== ========
See accompanying Notes to Consolidated Financial Statements. F-6 39 OM GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Thousands of dollars, except per share amounts) A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Consolidation OM Group, Inc. (the Company) and its operating subsidiaries manufacture and sell metal carboxylates, salts, and powders that are primarily derived from cobalt and nickel. The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Inventories Inventories are stated at the lower of cost or market and are principally valued using the last-in, first-out (LIFO) method. Property, Plant and Equipment Property, plant and equipment is recorded at historical cost less accumulated depreciation. Depreciation of plant and equipment is provided by the straight-line method over the useful lives of the various classes of assets. Long-lived assets are assessed for impairment when operating profits for the related business indicate that the carrying value may not be recoverable. Research and Development Selling, general and administrative expenses include research and development costs of $2,791, $3,413 and $3,756 in 1994, 1995 and 1996, respectively. Income Taxes Deferred income taxes are provided to recognize the effect of temporary differences between financial and tax reporting arising principally from different depreciation methods and inventory reserves. Deferred income taxes are not provided for undistributed earnings of foreign consolidated subsidiaries, to the extent such earnings are reinvested for an indefinite period of time. Foreign Currency Translation The functional currency for the Company's Kokkola, Finland subsidiary is the U.S. dollar since a majority of its purchases and sales are denominated in U.S. dollars and it holds a significant intercompany note payable, denominated in U.S. dollars. Accordingly, foreign exchange gains and losses related to assets, liabilities and transactions which are denominated in other currencies (principally the Finnish Markka) are included in results of operations. The Company enters into forward contracts to partially hedge its balance sheet exposure to the Finnish Markka, and accordingly, gains or losses related to the forward contracts are included in results of operations. The functional currency for the Company's other subsidiaries outside of the United States is the applicable local currency. For those operations, financial statements are translated into U.S. dollars at year-end exchange rates as to assets and liabilities and weighted average exchange rates as to revenues and expenses. The resulting translation adjustments are recorded as a component of stockholders' equity. Goodwill and Other Intangibles Goodwill and other intangibles represent principally the excess of the acquisition purchase price of businesses acquired over the fair market value of the net tangible assets acquired. These intangible assets are F-7 40 OM GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED being amortized on a straight-line basis over their respective useful lives (fifteen to forty years). Goodwill is assessed for impairment when operating profits for the related business indicate that the carrying value may not be recoverable. Cash Equivalents For purposes of the statements of cash flows, all highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. Earnings Per Share Earnings per share are computed based on weighted average shares outstanding and the dilutive effect of stock options outstanding as discussed in Note F. Stock Options and Compensation Plans The Company grants stock options for a fixed number of shares to certain employees with an exercise price equal to the fair value of the shares at the date of grant and accounts for stock options using the intrinsic value method. Accordingly, compensation expense is not recognized for the stock option grants. Beginning in 1995, non-employee members of the Board of Directors were eligible to receive their annual retainer in the form of cash, stock options, or restricted stock. Directors may purchase stock options for a price equal to the difference between the exercise price (75% of fair market value on date of grant) and the fair market value per share. Restricted shares may be purchased at a price equal to fair market value per share. Also, directors electing to receive restricted stock receive additional restricted stock equal to 5% of their applied cash compensation. Accordingly, compensation expense is recognized for stock option and restricted share grants elected by eligible directors. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions in certain circumstances that affect the amounts reported in the accompanying consolidated financial statements and notes. Actual results could differ from these estimates. B. INVENTORIES Current inventories consist of the following:
DECEMBER 31, --------------------- 1995 1996 Raw materials and supplies................................... $ 99,853 $116,389 Finished goods............................................... 74,715 87,980 -------- -------- 174,568 204,369 LIFO reserve................................................. (35,501) (9,319) -------- -------- Total inventories............................................ $139,067 $195,050 ======== ========
Unprocessed inventory represents cobalt slag feedstock. A twelve-month supply of the cobalt slag feedstock is included in inventory; the remainder of the slag is classified as non-current unprocessed inventory. The cost of the cobalt obtained is based upon prevailing market prices. F-8 41 OM GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED C. FINANCIAL INSTRUMENTS Long-term debt consists of the following:
DECEMBER 31, -------------------- 1995 1996 Notes payable to banks........................................ $56,000 $ 79,000 Notes payable to insurance companies.......................... 30,000 30,000 Business acquisition debt..................................... 8,510 3,447 Other......................................................... 598 434 ------- -------- 95,108 112,881 Less: Current portion......................................... 5,263 3,586 ------- -------- Total long-term debt.......................................... $89,845 $109,295 ======= ========
At December 31, 1996, the Company had a $120 million revolving credit facility with a group of banks, with variable interest rates based upon either the agent bank's rate or LIBOR plus a .35% to .75% margin, at the Company's option. Under the credit agreement, the Company must exceed a minimum predefined working capital ratio and meet certain funded debt ratios. There are also covenants which restrict the dividend paying and borrowing capability of the Company. In connection with the acquisition of SCM (as described further in Note I), the Company's revolving credit facility, which expires in 2002, was further expanded to $240 million in January, 1997, with a $10 million sublimit for letters of credit. The Company has an interest rate swap agreement to convert the variable interest rates on an aggregate contract amount of $30 million to a fixed rate of 7.28% plus .35% to .75% for a three year period ending December 20, 1997. The combined effective rate of the Company's bank borrowings and the related swap agreement was approximately 7.1% at December 31, 1996. The net interest paid or received on the interest rate swap is included in interest expense. The counterparties to the interest rate swap are international commercial banks. At December 31, 1996, the fair value of the interest rate swap based upon current settlement prices approximated $471 payable. During 1995, the Company borrowed $30 million from a group of insurance companies through a private placement. The borrowings bear interest at 7.38% and are due August 30, 2005. Under the terms of the note purchase agreement, the Company must meet certain interest coverage and funded debt ratios. There are also covenants which restrict the dividend paying and borrowing capability of the Company. In connection with several business acquisitions during 1995, the Company issued notes payable with a combined effective rate of 8.9%. The balance on these notes is due in 1997. Aggregate annual maturities of long-term debt for the five years following December 31, 1996 are as follows: 1997 -- $3,586; 1998 -- $148; 1999 -- $147; $0 in 2000 and $0 in 2001. Interest paid was $3,056, $4,454 and $7,056 for the years ended December 31, 1994, 1995 and 1996, respectively. At December 31, 1996, the carrying value of the Company's debt approximated its fair value. The Company enters into forward contracts to purchase Finnish Markka to partially hedge its balance sheet exposure to rate fluctuations between the Finnish Markka and the U.S. Dollar. At December 31, 1996, the fair value of the forward contracts, based on the current settlement price, approximated $220 payable, which was recorded in results of operations. F-9 42 OM GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED D. INCOME TAXES Income before income taxes consists of the following:
YEAR ENDED DECEMBER 31, ------------------------------- 1994 1995 1996 United States........................................ $ 9,022 $ 4,654 $ 1,384 Outside the United States............................ 22,006 33,864 43,019 ------- ------- ------- $31,028 $38,518 $44,403 ======= ======= =======
Income taxes are summarized as follows:
YEAR ENDED DECEMBER 31, ------------------------------- 1994 1995 1996 Current: United States: Federal......................................... $ 2,508 $ 2,158 $ 923 State and local................................. 604 85 258 Outside the United States.......................... 4,212 8,790 5,334 ------- ------- ------- 7,324 11,033 6,515 Deferred: United States...................................... 914 949 644 Outside the United States.......................... 2,048 603 7,197 ------- ------- ------- 2,962 1,552 7,841 ------- ------- ------- $10,286 $12,585 $14,356 ======= ======= =======
Significant components of the Company's deferred income taxes are as follows:
DECEMBER 31, ------------------- 1995 1996 Current -- Principally inventories............................. $(3,671) $ 2,835 Long-term -- Principally accelerated depreciation.............. 18,597 17,773 ------- ------- $14,926 $20,608 ======= =======
A reconciliation of income taxes computed at the United States statutory rate to the effective income tax rate follows:
YEAR ENDED DECEMBER 31, ---------------------- 1994 1995 1996 Income taxes at the United States statutory rate............... 35.0% 35.0% 35.0% State income taxes, net of federal tax benefit................. 1.4 0.1 0.4 Effective tax rate differential of earnings outside of the United States................................................ (3.9) (7.2) (5.7) Change in statutory tax rate outside of the United States...... 1.8 Adjustment of worldwide tax liabilities........................ 2.9 2.2 Other--net..................................................... 0.7 0.1 0.4 ---- ---- ---- 33.2% 32.7% 32.3% ==== ==== ====
The Company has not provided additional United States income taxes on approximately $80 million of undistributed earnings of consolidated foreign subsidiaries included in stockholders' equity. Such earnings F-10 43 OM GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED could become taxable upon the sale or liquidation of these foreign subsidiaries or upon dividend repatriation. The Company's intent is for such earnings to be reinvested by the subsidiaries or to be repatriated only when it would be tax effective through the utilization of foreign tax credits. It is not practicable to estimate the amount of unrecognized withholding taxes and deferred tax liability on such earnings. Income tax payments were $4,082, $5,060, and $14,129 during the years ended December 31, 1994, 1995 and 1996, respectively. E. EMPLOYEE BENEFIT PLANS The Company sponsors a non-contributory, qualified profit sharing plan covering all United States employees. Company contributions are determined by the Board of Directors based upon participant compensation. The Company also sponsors a non-contributory, non-qualified supplemental executive retirement plan for certain employees, providing benefits beyond those covered in the qualified profit sharing plan. Aggregate plan expenses were $1,160, $1,388, and $1,727 in 1994, 1995 and 1996, respectively. The Company provides health care benefits upon retirement for certain United States employees with a specified number of years of service. The estimated cost of their benefits is actuarially determined and accrued over the employees' service periods as a level percentage of compensation for employees expected to qualify for benefits. Expenses for postretirement benefits other than pensions are as follows:
YEAR ENDED DECEMBER 31, ------------------------- 1994 1995 1996 Service cost................................................. $15 $16 $ 27 Interest cost................................................ 63 75 84 --- --- --- $78 $91 $ 111 === === ===
The liability recognized in the consolidated balance sheet at December 31, 1996 for postretirement benefit obligations other than pensions is $827 ($761 at December 31, 1995). For measurement purposes, a 9.55% blended annual rate of increase in the per capita cost of covered health care benefits was assumed, grading ratably to 5.9% through 2006. An increase of 1% in assumed health care cost trend rates would increase the accumulated benefit obligation as of December 31, 1996 by $155 and the aggregate annual service and interest cost by $16. The discount rate used in determining the accumulated benefit obligation as of December 31, 1996 and 1995 was 7.75%. F. COMMON STOCK AND STOCK OPTIONS On November 5, 1996, the Board of Directors approved a three-for-two stock split of its common stock, in the form of a stock dividend, with one additional common share issued December 2, 1996 for every two common shares held by shareholders of record on November 15, 1996. All share and per share information included in the accompanying financial statements have been retroactively adjusted to give effect to the split. On November 5, 1996, the Board of Directors declared a dividend distribution of one Right for each outstanding share of common stock to stockholders of record on November 15, 1996. Each Right entitles the shareholder to purchase one one-hundredth share of Series A Participating Preferred Stock at a purchase price of $160 per share, subject to adjustment. The Rights are not currently exercisable, but would become exercisable if certain events occurred relating to a person or group (Acquiring Person) acquiring or attempting to acquire 15% or more of the outstanding shares of common stock. In the event that the Rights become exercisable, each Right (except for Rights beneficially owned by the Acquiring Person, which become null and void) would enable the holder to purchase F-11 44 OM GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED for the exercise price then in effect, shares of the Company's common stock having a value of twice the exercise price. The Rights may be redeemed by the Board of Directors in whole, but not in part, at a price of $0.01 per Right. The Rights have no voting or dividend privileges and are attached to, and do not trade separately from the common stock. The Rights expire on November 14, 2006. The Company's Long-Term Incentive Compensation Plan has authorized the grant of options to management personnel for up to 1,523,438 shares of the Company's common stock. All options granted have 10 year terms and vest and become fully exercisable at the end of the fiscal year following the year of grant. Pro forma information regarding net income and earnings per share is required by FASB Statement No. 123, "Accounting for Stock Based Compensation," and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value of these options was estimated at the date of grant using a Black-Scholes options pricing model with the following weighted-average assumptions for 1995 and 1996: risk-free interest rate of 6.5%; dividend yield of 1.2%; the volatility factor of the expected market price of the Company's common stock of .20; and a weighted-average expected life of the option of 5 years. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
1995 1996 Pro forma net income........................................... $25,782 $28,874 Pro forma earnings per share: Primary...................................................... $1.35 $1.50 Fully diluted................................................ $1.34 $1.50
A summary of the Company's stock option activity, and related information for the years ended December 31 follows:
1994 1995 1996 ------------------ -------------------- -------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price Outstanding at January 1.......... 736,851 $ 6.47 900,101 $ 7.65 1,061,656 $ 9.94 Granted......................... 163,250 13.00 208,055 18.72 202,860 25.96 Exercised....................... (46,500) 5.04 (17,355) 9.19 Forfeited....................... (4,082) 12.25 ------- ------ --------- ------- --------- ------- Outstanding at December 31........ 900,101 $ 7.65 1,061,656 $ 9.94 1,243,079 $12.55 ======= ====== ========= ======= ========= ======= Exercisable at end of year........ 736,851 $ 6.47 878,168 $ 7.89 1,055,579 $10.05 Weighted-average fair value of options granted during the year............................ $ 5.46 $ 7.37
The weighted-average remaining contractual life of these options outstanding is 7.2 years. G. COMMITMENTS AND CONTINGENCIES The Company's Finnish operating subsidiary has agreed to take shipment of 43,000 wet metric tons of Zairian cobalt and nickel slag from La Generale des Carrieres et des Mines (Gecamines) in 1997. The cost of the cobalt obtained will be based upon the prevailing market price as material is processed. F-12 45 OM GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED The Company is a party to various legal proceedings incidental to its business and is subject to a variety of environmental and pollution control laws and regulations in the jurisdictions in which it operates. As is the case with other companies in similar industries, the Company faces exposure from actual or potential claims and legal proceedings involving environmental matters. Although it is difficult to quantify the potential impact of compliance with or liability under environmental protection laws, management believes that the ultimate aggregate cost to the Company of environmental remediation, as well as other legal proceedings arising out of operations in the normal course of business, will not result in a material adverse effect upon its financial condition or results of operations. H. BUSINESS AND GEOGRAPHIC INFORMATION The Company operates in a single business segment serving numerous customers and industries; its operations are located principally in the United States and Finland. Financial information by geographic area is summarized as follows:
YEAR ENDED DECEMBER 31, ------------------------------------ 1994 1995 1996 Net sales: United States........................................... $119,470 $149,114 $160,507 Finland................................................. 125,740 202,114 219,754 Other................................................... 6,065 9,731 7,738 -------- -------- -------- $251,275 $360,959 $387,999 ======== ======== ======== Operating profit: United States........................................... 12,706 12,108 13,781 Finland................................................. 26,200 37,227 44,063 Other................................................... (177) 504 304 Corporate administrative expense........................ (3,568) (5,870) (6,727) -------- -------- -------- 35,161 43,969 51,421 Other expense............................................. (4,133) (5,451) (7,018) -------- -------- -------- Income before income taxes................................ $ 31,028 $ 38,518 $ 44,403 ======== ======== ========
YEAR ENDED DECEMBER 31, ----------------------- 1995 1996 Identifiable assets: United States..................................................... $141,422 $161,945 Finland........................................................... 209,576 270,013 Other............................................................. 7,044 6,675 -------- -------- $358,042 $438,633 ======== ========
I. SUBSEQUENT EVENT On January 21, 1997, pursuant to a Stock Purchase Agreement dated December 20, 1996, the Company acquired SCM Metal Products, Inc., a subsidiary of U.S. Industries, Inc. SCM, with annual sales in fiscal 1996 of approximately $94 million, is one of the world's leading producers of specialty chemicals and powders, principally specialty powders primarily from copper, iron and stainless steel. The total consideration paid by the Company for SCM was $122 million, financed entirely through bank borrowings. The Company is considering other longer term financing options. The acquisition, which is not reflected in the accompanying financial statements, will be accounted for by the purchase method of accounting. F-13 46 OM GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED J. QUARTERLY DATA (UNAUDITED)
QUARTER ENDED ------------------------------------------------------------ MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 1995 Net sales............................ $89,429 $84,974 $80,967 $105,589 Gross profit......................... 17,547 19,131 18,477 19,408 Income from operations............... 10,218 11,553 11,099 11,099 Net income........................... 6,090 6,722 6,606 6,515 Net income per share................. $0.32 $0.35 $0.35 $0.34 Market price: high-low............... 16 5/8 - 14 1/2 19 1/2 - 15 3/8 21 3/8 - 18 5/8 22 3/8 - 18 7/8 Dividends paid per share............. $0.06 $0.06 $0.06 $0.06 1996 Net sales............................ $102,853 $101,485 $89,071 $94,590 Gross profit......................... 20,211 21,030 20,905 21,828 Income from operations............... 12,258 13,084 13,036 13,043 Net income........................... 7,151 7,583 7,670 7,643 Net income per share................. $0.37 $0.39 $0.40 $0.40 Market price: high-low............... 25 1/8 - 21 5/8 28 - 24 1/2 27 3/8 - 22 3/4 28 3/4 - 25 3/8 Dividends paid per share............. $0.07 $0.07 $0.07 $0.07
F-14 47 METAL CARBOXYLATES (21% of Sales)
CUSTOM PAINT FUEL INK CATALYSTS DRIERS ADDITIVES DRIERS --------- ------ --------- ------ Applications Oxidation Oxidation Combustion Oxidation Carbonylation Catalysts Improvers Catalysts Polymerization Polymerization Soot Suppressants Polymerization Esterification Catalysts Smoke Suppressants Catalysts Corrosion Inhibitors End Markets Adhesion Promoters Driers Used in Additives Used Offset Letterpress in Steel Belted Automotive Paints in Marine, Diesel Inks, Overprint Radial Tires, House Paints, and Aviation Fuels Varnishes, Catalysts Used To Marine Coatings, Gravure Inks Produce Traffic Paint, Petrochemicals, Industrial Coatings Urethane Foam POLYESTER LUBRICANT CURING ADDITIVES AGENTS STABILIZERS --------- --------- ----------- Applications Extreme Polymerization Heat Pressure Catalysts Stabilizers Anti-Wear Anti-Oxidants Corrosion Inhibitors End Markets Engine Oils, Unsaturated Polyester Flexible PVC Gear Oils, Resin Used in Used in Vinyl Greases, Reinforced Flooring, Medical Cutting Oils, Fiberglass Boats, Tubing, Garden Lubricating Oils Cultured Marble, Hoses, Shower Storage Tanks, Curtains Bathrooms, Automobile Components
METAL SALTS (45% of Sales)
PETROLEUM COLORANTS STORAGE REFINING AND PIGMENTS ADDITIVES MEDIA CATALYSTS ------------ --------- ------- --------- Applications Adhesives Antifouling Electroreprography Desulfurization Colorants Agents Information Storage Denitrofication Pigments Decolorizers End Markets Ceramic Tiles, Marine Paints, Magnetic Media Desulfurized and Pigments, Colored Roofing Materials Audio and Denitroized Oil Used Glassware, Video Tapes in Gasoline Fuel Oil, Porcelain Compact Discs Chemical Enamel, Frits Feedstocks AGENTS FOR STEEL SPECIALTY CUSTOM PLATING CHEMICALS CATALYSTS ---------- --------- --------- Applications Anti-Corrosion Raw Material Oxidation Catalysts Agents Intermediates Hydrogenation Catalysts Hydroformylation Catalysts Polymerization Catalysts End Markets Plating Solutions for Vitamin Supplements, Detergents, Electrogalvanized Catalysts for Organic Carpeting, Bottles Steel Chemicals, Metal (PET), Textiles Oxides (Rechargeable Silicones Batteries)
METAL POWDERS (34% of Sales)
COBALT EXTRA-FINE 400 MESH-GRADE CHEMICAL GRADE COPPER POWDER COBALT POWDER COBALT POWDER POWDER ----------------- -------------- -------------- ------ Applications Adhesives Adhesives Raw Material Compacting Intermediates Powder Metallurgy End Markets Cutting Tools, Diamond Metal Carboxylates, Bushings and Cutting Tool Inserts, Cutting Tools Metal Inorganic Salts Bearings, Drill Bits, Saw Rechargeable Friction Materials Teeth, Batteries Grinders/Polishers STAINLESS OTHER STEEL IRON METAL BASED POWDER POWDER POWDER --------- ------ ----------- Applications Anti-Corrosion Vitamin Solder Pastes Agents Supplements and Electrical Conductors Strengtheners End Markets Pressed Metals Processed Foods Microelectronics High-Tech Brazing Pastes Alloys High-Temp Electrical Applications
METALS PRODUCTION FACILITIES COBALT, NICKEL & COPPER ---------------------------- - ----------------------- Europe Powders ------ Cathodes Kokkola, Finland Granules Ezanville, France Ingots Concentrates United States Slags ------------- Scrap Metal Research Triangle Park, NC Recycled Catalysts Franklin, PA Johnstown, PA St. George, UT OTHER ----- Asia Pacific (Joint Ventures) Barium ---------------------------- Calcium Kim Hae City, Korea Copper Singapore Iron Manganese Zinc Zirconium Others ACIDS Acetic 2-Ethyl Hexoic Hydrochloric Naphthenic Neodecanoic Nitric Sulfuric Others SOLVENTS -------- Mineral Spirits Water Others PROPRIETARY ADDITIVES [OMG LOGO] 48 ====================================================== NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. ------------------ TABLE OF CONTENTS
PAGE Available Information............... 3 Incorporation by Reference.......... 3 Prospectus Summary.................. 4 Risk Factors........................ 8 Price Range of Common Stock and Dividends..................... 10 Use of Proceeds..................... 10 Capitalization...................... 11 Unaudited Pro Forma Combined Condensed Financial Data.......... 12 Selected Financial Data............. 15 Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 16 Business............................ 18 Management.......................... 27 Underwriting........................ 30 Legal Matters....................... 31 Experts............................. 31 Index to Financial Statements....... F-1
============================================================ 3,000,000 SHARES [OM GROUP LOGO] OM GROUP, INC. COMMON STOCK ------------------------ PROSPECTUS ------------------------ DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION MERRILL LYNCH & CO. FIRST ANALYSIS SECURITIES CORPORATION , 1997 ============================================================ 49 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the expenses expected to be incurred by the Registrant in connection with the Offering described in this Registration Statement. All amounts, except the SEC registration fees, are estimated. SEC registration fee.............................................. $ 29,535 NASD filing fee................................................... 10,247 Printing, engraving and postage fees.............................. 250,000 Legal fees and expenses........................................... 75,000 Accounting fees and expenses...................................... 50,000 Blue sky fees and expenses........................................ 5,000 NYSE listing fee.................................................. 12,100 Transfer agent fees............................................... 1,000 Miscellaneous..................................................... 167,118 -------- Total........................................................ $600,000 ========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the General Corporation Law of the State of Delaware (the "GCL") permits a corporation to indemnify certain persons made a party to an action, by reason of the fact that such person is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise. To the extent that person has been successful in any such matter, that person shall be indemnified against expenses actually and reasonably incurred by him. In the case of an action by or in the right of the corporation, no indemnification may be made in respect of any matter as to which that person was adjudged liable unless and only to the extent that the Delaware Court of Chancery or the court in which the action was brought determines that despite the adjudication of liability that person is fairly and reasonably entitled to indemnity for proper expenses. The Company's Amended and Restated By-Laws provide for indemnification of its directors and officers to the fullest extent permitted by law. The directors and officers of the Company are covered by insurance policies indemnifying against certain liabilities, including certain liabilities arising under the Securities Act which might be incurred by them in such capacities and against which they may not be indemnified by the Company. II-1 50 ITEM 16. EXHIBITS Exhibits identified in parentheses below are on file with the SEC and are incorporated herein by reference to such previous filings.
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT 1.1 Underwriting Agreement. (3.1) Amended and Restated Certificate of Incorporation (filed as Exhibit 3.1 to the Company's Registration Statement on Form S-1 (No. 33-60444) which became effective on October 12, 1993 (the "S-1")). (3.2) Amended and Restated By-Laws (filed as Exhibit 3.2 to the S-1). (4.1) Specimen of certificate representing Common Stock (filed as Exhibit 4 to the S-1). (4.2) Shareholders' Rights Agreement (filed as Exhibit 1 to the Company's Current report on Form 8-K filed on December 5, 1996) 5.1 Opinion of Squire, Sanders & Dempsey L.L.P. with respect to legality of the Common Stock. 23.1+ Consent of Ernst & Young LLP 23.2 Consent of Squire, Sanders & Dempsey L.L.P. (included in the opinion filed as Exhibit 5.1). 24.1+ Power of Attorney.
- --------------- +previously filed ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933 (the "Securities Act"), each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15 (d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-2 51 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Cleveland, State of Ohio, on the 24th day of April, 1997. OM GROUP, INC. By: /s/ James P. Mooney ------------------------------------ James P. Mooney, Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Act, this Amendment No. 2 has been signed by the following persons in the capacities indicated below on the 24th day of April, 1997.
SIGNATURE TITLE /s/ James P. Mooney Chairman and Chief Executive Officer - ---------------------------------------- (Principal Executive Officer) James P. Mooney /s/ Markku Toivanen* Director - ---------------------------------------- Markku Toivanen /s/ Eugene Bak* Director - ---------------------------------------- Eugene Bak /s/ Lee R. Brodeur* Director - ---------------------------------------- Lee R. Brodeur /s/ Thomas R. Miklich* Director - ---------------------------------------- Thomas R. Miklich /s/ John E. Mooney* Director - ---------------------------------------- John E. Mooney /s/ Frank Butler* Director - ---------------------------------------- Frank Butler /s/ James M. Materna Chief Financial Officer (Principal Financial and - ---------------------------------------- Accounting Officer) James M. Materna /s/ James P. Mooney - ---------------------------------------- James P. Mooney Attorney-In-Fact - ------------------------------ * James P. Mooney, by signing his name hereto signs this document on behalf of each of the persons so indicated above pursuant to powers of attorney duly executed by such persons and filed with the Securities and Exchange Commission.
II-3 52 EXHIBIT INDEX
PAGINATION BY SEQUENTIAL EXHIBIT NUMBERING NUMBER DESCRIPTION OF EXHIBIT SYSTEM 1.1 Underwriting Agreement. 3.1 Amended and Restated Certificate of Incorporation (filed as Exhibit 3.1 to the Company's Registration Statement on Form S-1 (No. 33-60444) which became effective on October 12, 1993 (the "S-1")). 3.2 Amended and Restated By-Laws (filed as Exhibit 3.2 to the S-1). 4.1 Specimen of certificate representing Common Stock (filed as Exhibit 4 to the S-1). 4.2 Shareholders' Rights Agreement (filed as Exhibit 1 to the Company's Current report on Form 8-K filed on December 5, 1996) 5.1 Opinion of Squire, Sanders & Dempsey L.L.P. with respect to legality of the Common Stock. 23.1+ Consent of Ernst & Young LLP 23.2 Consent of Squire, Sanders & Dempsey L.L.P. (included in the opinion filed as Exhibit 5.1). 24.1+ Power of Attorney.
- --------------- +previously filed EX-1.1 2 EXHIBIT 1.1 1 Exhibit 1.1 3,000,000 Shares OM GROUP, INC. Common Stock UNDERWRITING AGREEMENT ---------------------- April , 1997 DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION MERRILL LYNCH & CO., MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED FIRST ANALYSIS SECURITIES CORPORATION, As Representatives of the several underwriters named in Schedule I hereto 277 Park Avenue New York, New York 10172 Dear Sirs: OM Group, Inc. a Delaware corporation (the "Company"), proposes to issue and sell 3,000,000 shares of its Common Stock, par value of $0.01 per share, (the "Firm Shares") to the several underwriters named in Schedule I hereto (the "Underwriters"). The Company also proposes to issue and sell to the several Underwriters not more than 450,000 additional shares of its Common Stock, par value of $0.01 per share, (the "Additional Shares"), if requested by the Underwriters as provided in Section 2 hereof. The Firm Shares and the Additional Shares are hereinafter referred to collectively as the "Shares". The shares of common stock of the Company to be outstanding after giving effect to the sales contemplated hereby are hereinafter referred to as the "Common Stock". 2 SECTION 1. Registration Statement and Prospectus. The Company has prepared and filed with the Securities and Exchange Commission (the "Commission") in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Act"), a registration statement on Form S-3 (File No. 333- 23729) including a prospectus, relating to the Shares. The registration statement, as amended at the time it became effective, including the information (if any) deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A under the Act, is hereinafter referred to as the "Registration Statement", and the prospectus in the form first used to confirm sales of Shares is hereinafter referred to as the "Prospectus" (including, in the case of all references to the Registration Statement and the Prospectus, documents incorporated therein by reference). If the Company has filed or is required pursuant to the terms hereof to file a registration statement pursuant to Rule 462(b) under the Act registering additional shares of Common Stock (a "Rule 462(b) Registration Statement"), then, unless otherwise specified, any reference herein to the term "Registration Statement" shall be deemed to include such Rule 462(b) Registration Statement. The terms "supplement" and "amendment" or "amend" as used in this Agreement shall include all documents subsequently filed by the Company with the Commission in accordance with the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Exchange Act") that are deemed to be incorporated by reference in the Prospectus. SECTION 2. Agreements to Sell and Purchase and Lock-Up Agreements. On the basis of the representations and warranties contained in this Agreement, and subject to its terms and conditions, the Company agrees to issue and sell, and each Underwriter agrees, severally and not jointly, to purchase from the Company at a price per Share of $__________ (the "Purchase Price") the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I hereto. On the basis of the representations and warranties contained in this Agreement, and subject to its terms and conditions, the Company agrees to issue and sell the Additional Shares and the Underwriters shall have the right to purchase, severally and not jointly, up to 450,000 Additional Shares from the Company at the Purchase Price. Additional Shares may be purchased solely for the purpose of covering over-allotments made in connection with the offering of the Firm Shares. The Underwriters may exercise their right to purchase Additional Shares in whole or in part from time to time by giving written notice thereof to the Company within 30 days after the date of this Agreement. You shall give any such notice on behalf of the Underwriters and such notice shall specify the aggregate number of Additional Shares to be purchased pursuant to such exercise 2 3 and the date for payment and delivery thereof, which date shall be a business day (i) no earlier than two business days after such notice has been given (and, in any event, no earlier than the Closing Date (as hereinafter defined)) and (ii) no later than ten business days after such notice has been given. If any Additional Shares are to be purchased, each Underwriter, severally and not jointly, agrees to purchase from the Company the number of Additional Shares (subject to such adjustments to eliminate fractional shares as you may determine) which bears the same proportion to the total number of Additional Shares to be purchased from the Company as the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I bears to the total number of Firm Shares. The Company hereby agrees not to (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or (ii) enter into any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any Common Stock (regardless of whether any of the transactions described in clause (i) or (ii) is to be settled by the delivery of Common Stock, or such other securities, in cash or otherwise), except to the Underwriters pursuant to this Agreement, for a period of 90 days after the date of this Agreement without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation. Notwithstanding the foregoing, during such period (i) the Company may grant stock options pursuant to the Company's existing stock option plan (ii) the Company may issue shares of Common Stock upon the exercise of an option or warrant or the conversion of a security outstanding on the date hereof and (iii) the Company may issue shares of Common Stock pursuant to any employee stock option or other benefit plan or the Stockholder Rights Agreement dated as of November 5, 1996 between the Company and National City Bank, as agent. The Company also agrees not to file any registration statement with respect to any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock. The Company shall, prior to or concurrently with the execution of this Agreement, deliver an agreement executed by each of the directors and executive officers of the Company to the effect that such person will not, during the period commencing on the date such person signs such agreement and ending 90 days after the date of this Agreement, without the prior written consent of Donaldson, Lufkin & Jenrette Corporation, (x) engage in any of the transactions described in the first sentence of this paragraph or (y) make any demand for, or exercise any right with respect to, the registration of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock. 3 4 SECTION 3. Terms of Public Offering. The Company is advised by you that the Underwriters propose (i) to make a public offering of their respective portions of the Shares as soon after the execution and delivery of this Agreement as in your judgment is advisable and (ii) initially to offer the Shares upon the terms set forth in the Prospectus. SECTION 4. Delivery and Payment. Delivery to the Underwriters of and payment for the Firm Shares shall be made at 9:00 A.M., New York City time, on __________________, 1997 (the "Closing Date") at such place as you shall designate. The Closing Date and the location of delivery of and payment for the Firm Shares may be varied by agreement between you and the Company. Delivery to the Underwriters of and payment for any Additional Shares to be purchased by the Underwriters shall be made at such place as you shall designate at 9:00 A.M., New York City time, on the date specified in the applicable exercise notice given by you pursuant to Section 2 (an "Option Closing Date"). Any such Option Closing Date and the location of delivery of and payment for such Additional Shares may be varied by agreement between you and the Company. Certificates for the Shares shall be registered in such names and issued in such denominations as you shall request in writing not later than two full business days prior to the Closing Date or an Option Closing Date, as the case may be. Such certificates shall be made available to you for inspection not later than 9:30 A.M., New York City time, on the business day prior to the Closing Date or the applicable Option Closing Date, as the case may be. Certificates in definitive form evidencing the Shares shall be delivered to you on the Closing Date or the applicable Option Closing Date, as the case may be, with any transfer taxes thereon duly paid by the Company, for the respective accounts of the several Underwriters, against payment to the Company of the Purchase Price therefor by wire transfer of Federal or other funds immediately available in New York City. SECTION 5. Agreements of the Company. The Company agrees with you: (a) To advise you promptly and, if requested by you, to confirm such advice in writing, (i) of any request by the Commission for amendments to the Registration Statement or amendments or supplements to the Prospectus or for additional information, (ii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of the suspension of qualification of the Shares for offering or sale in any jurisdiction, or the initiation of any proceeding for such purposes, (iii) when any amendment to the Registration Statement becomes effective, (iv) if the Company is required to file a Rule 462(b) Registration Statement after the effectiveness of this Agreement, when the Rule 4 5 462(b) Registration Statement has become effective and (v) of the happening of any event during the period referred to in paragraph (d) below which makes any statement of a material fact made in the Registration Statement or the Prospectus untrue or which requires any additions to or changes in the Registration Statement or the Prospectus in order to make the statements therein not misleading. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, the Company will use its best efforts to obtain the withdrawal or lifting of such order at the earliest possible time. (b) To furnish to you, without charge, four signed copies of the Registration Statement as first filed with the Commission and of each amendment to it, including all exhibits and documents incorporated therein by reference, and to furnish to you and each Underwriter designated by you such number of conformed copies of the Registration Statement as so filed and of each amendment to it, without exhibits but including documents incorporated therein by reference, as you may reasonably request. (c) To prepare the Prospectus in a form approved by you and to file the Prospectus in such form with the Commission within the applicable period specified in Rule 424(b) under the Act; not to file any further amendment to the Registration Statement and not to make any amendment or supplement to the Prospectus of which you shall not previously have been advised or to which you shall reasonably object after being so advised; and to prepare and file with the Commission, promptly upon your reasonable request, any amendment to the Registration Statement or amendment or supplement to the Prospectus which may be necessary or advisable in connection with the distribution of the Shares by you, and to use its best efforts to cause any such amendment to the Registration Statement to become promptly effective. (d) Prior to 10:00 A.M., New York City time, on the first business day after the date of this Agreement and from time to time thereafter for such period as in the opinion of counsel for the Underwriters a prospectus is required by law to be delivered in connection with sales by an Underwriter or a dealer, to furnish in New York City to each Underwriter and dealer as many copies of the Prospectus (and of any amendment or supplement to the Prospectus) and any documents incorporated therein by reference as such Underwriter or dealer may reasonably request. (e) If during the period specified in paragraph (d), any event shall occur as a result of which, in the opinion of counsel for the Underwriters, it becomes necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, or if it is necessary to amend or supplement the 5 6 Prospectus to comply with applicable law, forthwith to prepare and file with the Commission an appropriate amendment or supplement to the Prospectus so that the statements in the Prospectus, as so amended or supplemented, will not in the light of the circumstances when it is so delivered, be misleading, or so that the Prospectus will comply with law, and to furnish to each Underwriter and to such dealers as you shall specify, such number of copies thereof as such Underwriter or dealers may reasonably request. (f) Prior to any public offering of the Shares, to cooperate with you and counsel for the Underwriters in connection with the registration or qualification of the Shares for offer and sale by the several Underwriters and by dealers under the state securities or Blue Sky laws of such jurisdictions as you may request, to continue such qualification in effect so long as required for distribution of the Shares and to file such consents to service of process or other documents as may be necessary in order to effect such registration or qualification; provided that in connection therewith the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction or to take any action that would subject it to any taxing authority to which it is not now subject. (g) To mail and make generally available to its stockholders as soon as practicable an earnings statement covering a period of at least twelve months after the effective date of the Registration Statement (but in no event commencing 90 or more days after such date) which shall satisfy the provisions of Section 11(a) of the Act, and to advise you in writing when such statement has been so made available. (h) During the period of three years after the date of this Agreement, to furnish to you as soon as available copies of all reports or other communications furnished to the record holders of Common Stock or filed with the Commission and such other publicly available information concerning the Company and its subsidiaries as you may reasonably request. (i) Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, to pay or cause to be paid all expenses incident to the performance of the Company's obligations under this Agreement, including: (i) the fees, disbursements and expenses of the Company's counsel and the Company's accountants in connection with the registration and delivery of the Shares under the Act and all other fees or expenses in connection with the preparation, printing, filing and distribution of the Registration Statement (including financial statements and exhibits), any preliminary prospectus, the Prospectus and all amendments and supplements to any of the foregoing prior to or during the period specified in paragraph (d), including the mailing and delivering of copies thereof to the Underwriters and dealers in the quantities specified herein, 6 7 (ii) all costs and expenses related to the transfer and delivery of the Shares to the Underwriters, including any transfer or other taxes payable thereon, (iii) all costs of printing or producing this Agreement and any other agreements or documents in connection with the offering, purchase, sale or delivery of the Shares, (iv) all expenses in connection with the registration or qualification of the Shares for offer and sale under the securities or Blue Sky laws of the several states and all costs of printing or producing any Preliminary and Supplemental Blue Sky Memoranda in connection therewith (including the filing fees and fees and disbursements of counsel for the Underwriters in connection with such registration or qualification and memoranda relating thereto), (v) the filing fees and disbursements of counsel for the Underwriters in connection with the review and clearance of the offering of the Shares by the National Association of Securities Dealers, Inc., and all costs and expenses incident to the listing of the Shares on the New York Stock Exchange (the "NYSE"), (vi) the cost of printing certificates representing the Shares, (vii) the costs and charges of any transfer agent, registrar and/or depositary and (viii) all other costs and expenses incident to the performance of the obligations of the Company hereunder for which provision is not otherwise made in this Section. (j) To use its best efforts to list, subject to notice of issuance, the Shares on the NYSE and to maintain the listing of the Shares on the NYSE for a period of three years after the date of this Agreement. (k) To use its best efforts to do and perform all things required or necessary to be done and performed under this Agreement by the Company prior to the Closing Date or any Option Closing Date, as the case may be, and to satisfy all conditions precedent to the delivery of the Shares. (l) If the Registration Statement at the time of the effectiveness of this Agreement does not cover all of the Shares, to file a Rule 462(b) Registration Statement with the Commission registering the Shares not so covered in compliance with Rule 462(b) by 10:00 P.M., New York City time, on the date of this Agreement and to pay to the Commission the filing fee for such Rule 462(b) Registration Statement at the time of the filing thereof or to give irrevocable instructions for the payment of such fee pursuant to Rule 111(b) under the Act. (m) to apply the net proceeds from the sale of the Stock being sold by the Company as set forth in the Prospectus. (n) To take such steps as shall be necessary to ensure that neither the Company nor any subsidiary shall become and "investment company" within the meaning of such term under the United States Investment Company Act of 1940 and the rules and regulations of the Commission thereunder. 7 8 SECTION 6. Representations and Warranties of the Company. The Company represents and warrants to each Underwriter that: (a) The Registration Statement has become effective (other than any Rule 462(b) Registration Statement to be filed by the Company after the effectiveness of this Agreement); any Rule 462(b) Registration Statement filed after the effectiveness of this Agreement will become effective no later than 10:00 P.M., New York City time, on the date of this Agreement; and no stop order suspending the effectiveness of the Registration Statement is in effect, and no proceedings for such purpose are pending before or threatened by the Commission. (b)(i) Each document, if any, filed or to be filed pursuant to the Exchange Act and incorporated by reference in the Prospectus complied or will comply when so filed in all material respects with the Exchange Act and the applicable rules and regulations of the Commission thereunder, (ii) the Registration Statement (other than any Rule 462(b) Registration Statement to be filed by the Company after the effectiveness of this Agreement), when it became effective, did not contain and, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (iii) the Registration Statement (other than any Rule 462(b) Registration Statement to be filed by the Company after the effectiveness of this Agreement) and the Prospectus comply and, as amended or supplemented, if applicable, will comply in all material respects with the Act, (iv) if the Company is required to file a Rule 462(b) Registration Statement after the effectiveness of this Agreement, such Rule 462(b) Registration Statement and any amendments or supplements thereto, when they become effective (1) will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (2) will comply in all material respects with the Act and (v) the Prospectus does not contain and, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this paragraph (b) do not apply to statements or omissions in the Registration Statement or the Prospectus based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein. (c) Each preliminary prospectus filed as part of the registration statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the Act, complied when so filed in all material respects with the Act, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements 8 9 therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this paragraph (c) do not apply to statements or omissions in any preliminary prospectus based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein. (d) Each of the Company and its subsidiaries has been duly incorporated, is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation and has the corporate power and authority to carry on its business as described in the Prospectus and to own, lease and operate its properties, and each is duly qualified and is in good standing as a foreign corporation authorized to do business in each jurisdiction in which the nature of its business or its ownership or leasing of property requires such qualification, except where the failure to be so qualified would not, singly or in the aggregate, reasonably be expected have a material adverse effect on the business, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole. (e) There are no outstanding subscriptions, rights, warrants, options, calls, convertible securities, commitments of sale or liens granted or issued by the Company or any of its subsidiaries relating to or entitling any person to purchase or otherwise to acquire any shares of the capital stock of the Company or any of its subsidiaries, except as otherwise disclosed in the Registration Statement. (f) All the outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid, non-assessable and not subject to any preemptive or similar rights; and the Shares have been duly authorized and, when issued and delivered to the Underwriters against payment therefor as provided by this Agreement, will be validly issued, fully paid and non-assessable, and the issuance of such Shares will not be subject to any preemptive or similar rights. (g) All of the outstanding shares of capital stock of each of the Company's subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable and (except for directors' qualifying shares) are owned by the Company, free and clear of any security interest, claim, lien, encumbrance or adverse interest of any nature. (h) The authorized capital stock of the Company conforms as to legal matters to the description thereof contained in the Prospectus. (i) Neither the Company nor any of its subsidiaries (i) is in violation of its respective charter or by-laws or (ii) is in default in any material respect, and no 9 10 event has occurred which, with notice or lapse of time or both, would constitute such a default, in the performance of any obligation, agreement, covenant or condition contained in any indenture, loan agreement, mortgage, lease or other agreement or instrument that is material to the Company and its subsidiaries, taken as a whole, to which the Company or any of its subsidiaries is a party or by which it or any of its subsidiaries or their respective property is bound. (j) The execution, delivery and performance of this Agreement by the Company, compliance by the Company with all the provisions hereof and the consummation of the transactions contemplated hereby will not require any consent, approval, authorization or other order of, or qualification with, any court or governmental body or agency (except such as may be required under the securities or Blue Sky laws of the various states) and will not conflict with or constitute a breach of any of the terms or provisions of, or a default under, the charter or by-laws of the Company or any of its subsidiaries or any indenture, loan agreement, mortgage, lease or other agreement or instrument that is material to the Company and its subsidiaries, taken as a whole, to which it or any of its subsidiaries is a party or by which it or any of its subsidiaries or their respective property is bound, or violate or conflict with any applicable law or any rule, regulation, judgment, order or decree of any court or any governmental body or agency having jurisdiction over the Company, any of its subsidiaries or their respective property. (k) There are no legal or governmental proceedings pending or, to the knowledge of the Company, threatened to which the Company or any of its subsidiaries is a party or to which any of their respective property is subject that are required to be described in the Registration Statement or the Prospectus and are not so described; nor are there any statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not so described or filed as required. (l) Neither the Company nor any of its subsidiaries has violated any foreign, federal, state or local law or regulation relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), any provisions of the Employee Retirement Income Security Act or the rules and regulations promulgated thereunder or any other law, ordinance, governmental rule, regulation or court decree to which the Company or its subsidiaries or their respective property or assets may be subject, except for such violations which, singly or in the aggregate, would not have a material adverse effect on the business, prospects, financial condition or results of operation of the Company and its subsidiaries, taken as a whole. 10 11 (m) Each of the Company and its subsidiaries has such patents. permits, licenses, franchises and authorizations of governmental or regulatory authorities ("permits"), including, without limitation, under any applicable Environmental Laws, as are necessary to own, lease and operate its respective properties and to conduct its business and is in compliance with all terms and conditions thereof, and no event has occurred which allows or, after notice or lapse of time or both, would allow, revocation or termination of such permits or results or, after notice or lapse of time or both, would result in any other impairment of the rights of the holder of any such permit; and such permits contain no restrictions that are burdensome to the Company or any of its subsidiaries; except where such failure to have, or comply with the terms or conditions of, such permits, the occurrence of any such event or the presence of any such restriction would not, singly or in the aggregate, have a material adverse effect on the business, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole. (n) There are no costs or liabilities associated with Environmental Laws (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties) which would, singly or in the aggregate, have a material adverse effect on the business, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole. (o) This Agreement has been duly authorized, executed and delivered by the Company. (p) Ernst & Young LLP are independent public accountants with respect to the Company and its subsidiaries as required by the Act. (q) The consolidated financial statements, together with related schedules and notes forming part of the Registration Statement and the Prospectus (and any amendment or supplement thereto), present fairly the consolidated financial position, results of operations and changes in financial position of the Company and its subsidiaries on the basis stated in the Registration Statement at the respective dates or for the respective periods to which they apply; such statements and related schedules and notes have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved, except as disclosed therein; and the other financial and statistical information and data set forth in the Registration Statement and the Prospectus (and any amendment or supplement thereto) is, in all material respects, accurately presented and prepared on a basis consistent with such financial statements or the books and records of the Company as applicable. 11 12 (r) The Company is not and, after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in the Prospectus, will not be, an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. (s) There are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Act with respect to any securities of the Company or to require the Company to include such securities with the Shares registered pursuant to the Registration Statement. (t) Since the respective dates as of which information is given in the Prospectus or incorporated by reference other than as set forth in the Prospectus (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement), (i) there has not occurred any material adverse change or any development involving a prospective material adverse change in the condition, financial or otherwise, or the earnings, business, management or operations of the Company and its subsidiaries, taken as a whole, (ii) there has not been any material adverse change or any development involving a prospective material adverse change in the capital stock or in the long-term debt of the Company or any of its subsidiaries and (iii) neither the Company nor any of its subsidiaries has incurred any material liability or obligation, direct or contingent. (u) The Company has complied with all provisions of Section 517.075, Florida Statutes (Chapters 92-198, Laws of Florida). (v) The pro forma financial statements of the Company and its subsidiaries and the related notes thereto set forth or incorporated by reference in the Registration Statement and the Prospectus present fairly the information shown therein, have been prepared in accordance with the applicable requirements of Rule 11-02 of Regulation S-X promulgated by the Commission and have been compiled on the pro forma basis described therein; and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein. (w) The Company and its subsidiaries are in compliance in all material respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ("ERISA"); no "prohibited transaction" or "reportable event" (as defined in ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for which the Company or any of its subsidiaries would have any liability; neither the Company nor any of its subsidiaries has incurred, and do 12 13 not expect to incur, liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any "pension plan" or (ii) Section 412 or 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder (the "Code"); and each "pension plan" for which the Company would have any liability that is intended to be qualified under Section 401 (a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification. Notwithstanding the foregoing, the representations made in this Section 6(v) will be deemed breached only to the extent that any such condition or event either singly or in the aggregate could reasonably be expected to result in a material adverse effect on the business, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole. SECTION 7. Indemnification. (a) The Company agrees to indemnify and hold harmless each Underwriter, its directors, its officers and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages, liabilities and judgments (including, without limitation, any legal or other expenses incurred in connection with defending or investigating any matter that could give rise to any such losses, claims, damages, liabilities or judgments) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), the Prospectus (or any amendment or supplement thereto) or any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or judgments are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any Underwriter furnished in writing to the Company by such Underwriter through you expressly for use therein; provided, however, that the foregoing indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of any Underwriter from whom the person asserting any such losses, claims, damages, liabilities or judgments purchased Shares, or any director or officer of, or person controlling, such Underwriter, if a copy of the Prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such Underwriter to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the Shares to such person, and if the Prospectus (as so amended and supplemented) would have cured the defect giving rise to such loss, claim, damage, liability or judgment. (b) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement and any person controlling the Company within the meaning of Section 13 14 15 of the Act or Section 20 of the Exchange Act, to the same extent as the foregoing indemnity from the Company to such Underwriter but only with reference to information relating to such Underwriter furnished in writing to the Company by such Underwriter through you expressly for use in the Registration Statement (or any amendment thereto), the Prospectus (or any amendment or supplement thereto) or any preliminary prospectus. (c) In case any proceeding (including any governmental or regulatory investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to paragraph (a) or (b) of this Section 7 (the "indemnified party"), the indemnified party shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing and the indemnifying party shall assume the defense of such proceeding, including the employment of counsel reasonably satisfactory to the indemnified party and the payment of all fees and expenses of such counsel, as incurred (except that in the case of a proceeding in respect of which indemnity may be sought pursuant to both paragraphs (a) and (b) of this Section 7, the Underwriter shall not be required to assume the defense of such proceeding pursuant to this paragraph (c), but may employ separate counsel and participate in the defense thereof, but the fees and expenses of such counsel, except as provided below, shall be at the expense of such Underwriter), Any indemnified party shall have the right to employ separate counsel in any such proceeding and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the indemnified party unless (i) the employment of such counsel shall have been specifically authorized in writing by the indemnifying party, (ii) the indemnifying party shall have failed to assume the defense of such proceeding or employ counsel reasonably satisfactory to the indemnified party or (iii) the persons involved in any such proceeding (including any impleaded parties) include both the indemnified party and the indemnifying party, and the indemnified party shall have been advised by such counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party or that representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them (whether or not such representation by the same counsel has been proposed) (in which case the indemnifying party shall not have the right to assume the defense of such proceeding on behalf of the indemnified party). In any such case, the indemnifying party shall not, in connection with any one proceeding or separate but substantially similar or related proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all indemnified parties and all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by Donaldson, Lufkin & Jenrette Securities Corporation, in the case of parties indemnified pursuant to paragraph (a) 14 15 of this Section 7, and by the Company, in the case of parties indemnified pursuant to paragraph (b) of this Section 7. The indemnifying party shall indemnify and hold harmless the indemnified party from and against any and all losses, claims, damages, liabilities and judgments by reason of any settlement of any proceeding (i) effected with its written consent or (ii) effected without its written consent if the settlement is entered into more than ten business days after the indemnifying party shall have received a request from the indemnified party for reimbursement for the fees and expenses of counsel (in any case where such fees and expenses are at the expense of the indemnifying party) and, prior to the date of such settlement, the indemnifying party shall have failed to comply with such reimbursement request. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement or compromise of, or consent to the entry of judgment with respect to, any pending or threatened proceeding in respect of which indemnity or contribution may be sought hereunder by the indemnified party (whether or not the indemnified party is a party to such proceeding), unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability on claims that are or could have been the subject matter of such proceeding and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of the indemnified party. (d) To the extent the indemnification provided for in this Section 7 is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages, liabilities or judgments referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities and judgments (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Underwriters in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or judgments, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Underwriters shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company, and the total underwriting discounts and commissions received by the Underwriters, bear to the total price to the public of the Shares, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Company and the Underwriters shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Company or the Underwriters and the parties' relative 15 16 intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7(d) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or judgments referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such indemnified party in connection with investigating or defending any matter that could have given rise to such losses, claims, damages, liabilities or judgments. Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section 7(d) are several in proportion to the respective number of Shares purchased by each of the Underwriters hereunder and not joint. (e) The remedies provided for in this Section 7 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity. SECTION 8. Conditions of Underwriters' Obligation. The several obligations of the Underwriters to purchase the Firm Shares under this Agreement are subject to the satisfaction of each of the following conditions: (a) All the representations and warranties of the Company contained in this Agreement shall be true and correct on the Closing Date with the same force and effect as if made on and as of the Closing Date. (b) If the Company is required to file a Rule 462(b) Registration Statement after the effectiveness of this Agreement, such Rule 462(b) Registration Statement shall have become effective by 10:00 P.M., New York City time, on the date of this Agreement; and no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose 16 17 shall have been commenced or shall be pending before or contemplated by the Commission. (c) You shall have received on the Closing Date a certificate dated the Closing Date, signed by James P. Mooney and James M. Materna, in their capacities as the Chairman and Chief Executive Officer, and Chief Financial Officer of the Company, confirming the matters set forth in paragraphs (a), (b), and (c) of this Section 8. (d) Since the respective dates as of which information is given in the Prospectus other than as set forth in the Prospectus (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement), (i) there shall not have occurred any change or any development involving a prospective change in the condition, financial or otherwise, or the earnings, business, management or operations of the Company and its subsidiaries, taken as a whole, (ii) there shall not have been any change or any development involving a prospective change in the capital stock or in the long-term debt of the Company or any of its subsidiaries and (iii) neither the Company nor any of its subsidiaries shall have incurred any liability or obligation, direct or contingent, the effect of which, in any such case described in clause (i), (ii) or (iii), in your judgment, is material and adverse and, in your judgment, makes it impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus. (e) You should have received on the Closing Date an opinion (satisfactory to you and counsel for the Underwriters), dated the Closing Date, of Squire, Sanders & Dempsey, counsel for the Company, to the effect that: (i) each of the Company and its subsidiaries has been duly incorporated, is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation and has the corporate power and authority to carry on its business as described in the Prospectus and to own, lease and operate its properties; (ii) each of the Company and its subsidiaries is duly qualified and is in good standing as a foreign corporation authorized to do business in each jurisdiction in which the nature of its business or its ownership or leasing of property requires such qualification, except where the failure to be so qualified would not, singly or in the aggregate, have a material adverse effect on the business, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole; 17 18 (iii) all the outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid, non-assessable and not subject to any preemptive or similar rights; (iv) the Shares have been duly authorized and, when issued and delivered to the Underwriters against payment therefor as provided by this Agreement, will be validly issued, fully paid and non-assessable, and the issuance of such Shares is not subject to any preemptive or similar rights; (v) all of the outstanding shares of capital stock of each of the Company's subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable, and (except for directors' qualifying shares) are owned by the Company, free and clear of any security interest, claim, lien, encumbrance or adverse interest of any nature; (vi) this Agreement has been duly authorized, executed and delivered by the Company; (vii) the authorized capital stock of the Company conforms as to legal matters to the description thereof contained in the Prospectus; (viii) the Registration Statement has become effective under the Act, no stop order suspending its effectiveness has been issued and no proceedings for that purpose are, to the best of such counsel's knowledge after due inquiry, pending before or contemplated by the Commission, (ix) The statement set forth (1) in the Prospectus under the caption "Business - Patents", "- Environmental Matters," "Properties" and "Underwriting" (2) in the Proxy Statement under the caption "Report of Compensation Committee - Employment Contracts with Executive Officers" and "Related Party Transactions" (3) in the Registration Statement on Form S-1 (File No. 33-60444) under the caption "Description of Capital Stock" and (4) in the Company's report on Form 10-K for the year ended December 31, 1996 under Part I, Item 1 under the captions "Environmental Matters," "Patents," "Employees", and Item 2 under the caption "Properties" and Item 3 under the caption "Legal Proceedings" and Item 15 of Part II of the Registration Statement, insofar as such statements constitute a summary of the legal matters, documents or proceedings referred to therein, fairly present the information called for with respect to such legal matters, documents and proceedings; (x) neither the Company nor any of its subsidiaries is in violation of its respective charter or by-laws and, to the best of such counsel's 18 19 knowledge after due inquiry, neither the Company nor any of its subsidiaries is in default in the performance of any obligation, agreement, covenant or condition contained in any indenture, loan agreement, mortgage, lease or other agreement or instrument which is, singly or in the aggregate, material to the Company and its subsidiaries, taken as a whole, to which the Company or any of its subsidiaries is a party or by which it or any of its subsidiaries or their respective property is bound; (xi) the execution, delivery and performance of this Agreement by the Company, compliance by the Company with all the provisions hereof and the consummation of the transactions contemplated hereby will not require any consent, approval, authorization or other order of, or qualification with, any court or governmental body or agency (except such as may be required under the securities or Blue Sky laws of the various states) and will not conflict with or constitute a breach of any of the terms or provisions of, or a default under, the charter or by-laws of the Company or any of its subsidiaries or any indenture, loan agreement, mortgage, lease or other agreement or instrument that is, singly or in the aggregate, material to the Company and its subsidiaries, taken as a whole, to which it or any of its subsidiaries is a party or by which it or any of its subsidiaries or their respective property is bound, or violate or conflict with any applicable law or any rule, regulation, judgment, order or decree of any court or any governmental body or agency having jurisdiction over the Company, any of its subsidiaries or their respective property; (xii) after due inquiry, such counsel does not know of any legal or governmental proceedings pending or threatened to which the Company or any of its subsidiaries is a party or to which any of their respective property is subject that are required to be described in the Registration Statement or the Prospectus and are not so described, or of any statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not so described or filed as required; (xiii) to the best of such counsel's knowledge, neither the Company nor any of its subsidiaries has violated any Environmental Law or any provisions of the Employee Retirement Income Security Act or the rules and regulations promulgated thereunder, except for such violations which, singly or in the aggregate, would not have a material adverse effect on the business, prospects, financial condition or results of operation of the Company and its subsidiaries, taken as a whole; 19 20 (xiv) each of the Company and its subsidiaries has such permits, licenses, franchises and authorizations of governmental or regulatory authorities ("permits"), including, without limitation, under any applicable Environmental Laws, as are necessary to own, lease and operate its respective properties and to conduct its business and, to the best of such counsel's knowledge, is in compliance with all terms and conditions thereof, and no event has occurred which allows or, after notice or lapse of time or both, would allow, revocation or termination of such permits or results or, after notice or lapse of time or both, would result in any other impairment of the rights of the holder of any such permit; and such permits contain no restrictions that are burdensome to the Company or any of its subsidiaries; except where such failure to have, or comply with the terms or conditions of, such permits, the occurrence of any such event or the presence of any such restriction would not, singly or in the aggregate, have a material adverse effect on the business, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole; (xv) the Company is not and, after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in the Prospectus, will not be, an "investment company" as such term is defined in the Investment Company Act of 1940, as amended; (xvi) to the best of such counsel's knowledge after due inquiry, there are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Act with respect to any securities of the Company or to require the Company to include such securities with the Shares registered pursuant to the Registration Statement; (xvii) (A) each document, if any, filed pursuant to the Exchange Act and incorporated by reference in the Registration Statement and the Prospectus (except for financial statements and other financial data included therein as to which no opinion need be expressed) complied when so filed as to form with the Exchange Act, (B) the Registration Statement and the Prospectus and any supplement or amendment thereto (except for the financial statements and other financial data included therein as to which no opinion need be expressed) comply as to form with the Act, (C) such counsel has no reason to believe that (except for the financial statements and other financial data as to which such counsel need not express any belies at the time the Registration Statement became effective or on the date of this Agreement, the Registration Statement and the prospectus included therein contained any untrue statement of a material 20 21 fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (D) such counsel has no reason to believe that the Prospectus, as amended or supplemented, if applicable (except for the financial statements and other financial data, as aforesaid) contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The opinion of Squire, Sanders & Dempsey L.L.P. described in this shall be rendered to you at the request of the Company and shall so state therein. (f) You shall have received on the Closing Date an opinion (satisfactory to you and counsel for the Underwriters), dated the Closing Date, of Davis Polk & Wardwell, counsel for the Underwriters, as to the matters referred to in clauses (iv), (vi), (ix) (but only with respect to the statements under the caption "Description of Capital Stock" and "Underwriting") and subclauses (B), (C) and (D) of (xvii) of the foregoing paragraph (e). In giving such opinions with respect to the matters covered by clause (xvii) of paragraph (e), Squire, Sanders & Dempsey L.L.P. may state that their opinion and belief are based upon their participation in the preparation of the Registration Statement and Prospectus and any amendments or supplements thereto and documents incorporated therein by reference and review and discussion of the contents thereof, but is without independent check or verification except as specified. In giving such opinions with respect to the matters covered by subclauses (B), (C) and (D) of clause (xvii) of paragraph (e) above, Davis Polk & Wardwell may state that their opinion and belief are based upon their participation in the preparation of the Registration Statement and Prospectus and any amendments or supplements thereto (other than the documents incorporated therein by reference) and review and discussion of the contents thereof (including the documents incorporated therein by reference), but are without independent check or verification except as specified. In rendering such opinions, such counsel may (A) rely as to matters involving the application of laws other than the laws of the United States and the laws of the State of New York and the General Corporation Law of the State of Delaware, to the extent such counsel deems proper and to the extent specified in such opinion, if at all, upon an opinion or opinions (reasonably satisfactory to Underwriters' counsel) of other counsel reasonably acceptable to the Underwriters' counsel, familiar with the applicable laws and (B) may state that they express no opinion as to the laws of any jurisdiction outside the United States. 21 22 (g) You shall have received, on each of the date hereof and the Closing Date, a letter dated the date hereof or the Closing Date, as the case may be, in form and substance satisfactory to you, from Ernst & Young LLP, independent public accountants, containing the information and statements of the type ordinarily included in accountants' "comfort letters" to Underwriters with respect to the financial statements and certain financial information contained in or incorporated by reference into the Registration Statement and the Prospectus. (h) The Company shall have delivered to you the agreements specified in Section 2 hereof which agreements shall be in full force and effect on the Closing Date. (i) The Shares shall have been duly listed, subject to notice of issuance, on the NYSE. (j) The Company shall not have failed at or prior to the Closing Date to perform or comply with any of the agreements herein contained and required to be performed or complied with by the Company at or prior to the Closing Date. The several obligations of the Underwriters to purchase any Additional Shares hereunder are subject to the delivery to you on the applicable Option Closing Date of such documents as you may reasonably request with respect to the good standing of the Company, the due authorization and issuance of such Additional Shares and other matters related to the issuance of such Additional Shares. SECTION 9. Effectiveness of Agreement and Termination. This Agreement shall become effective upon the execution and delivery of this Agreement by the parties hereto. This Agreement may be terminated at any time prior to the Closing Date by you by written notice to the Company if any of the following has occurred: (i) any outbreak or escalation of hostilities or other national or international calamity or crisis or change in economic conditions or in the financial markets of the United States or elsewhere that, in your judgment, is material and adverse and would, in your judgment, make it impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus, (ii) the suspension or material limitation of trading in securities on the NYSE; the American Stock Exchange, the Chicago Board of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade or the Nasdaq National Market or limitation on prices for securities on any such exchange or the Nasdaq National Market, (iii) the suspension of trading of any securities of the Company on any exchange or in the over-the-counter market, (iv) the enactment, publication, decree or other promulgation of any 22 23 federal or state statute, regulation, rule or order of any court or other governmental authority which in your opinion materially and adversely affects, or will materially and adversely affect, the business, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole (v) the declaration of a banking moratorium by either federal or New York State authorities or (vi) the taking of any action by any federal, state or local government or agency in respect of its monetary or fiscal affairs which in your opinion has a material adverse effect on the financial markets in the United States. If on the Closing Date or on an Option Closing Date, as the case may be, any one or more of the Underwriters shall fail or refuse to purchase the Firm Shares or Additional Shares, as the case may be, which it or they have agreed to purchase hereunder on such date and the aggregate number of Firm Shares or Additional Shares, as the case may be, which such defaulting Underwriter or Underwriters, as the case may be, agreed but failed or refused to purchase is not more than one-tenth of the total number of Shares to be purchased on such date by all Underwriters, each non-defaulting Underwriter shall be obligated severally, in the proportion which the number of Firm Shares set forth opposite its name in Schedule I bears to the total number of Firm Shares which all the non-defaulting Underwriters, as the case may be, have agreed to purchase, or in such other proportion as you may specify, to purchase the Firm Shares or Additional Shares, as the case may be, which such defaulting Underwriter or Underwriters, as the case may be, agreed but failed or refused to purchase on such date- provided that in no event shall the number of Firm Shares or Additional Shares, as the case may be, which any Underwriter has agreed to purchase pursuant to Section 2 hereof be increased pursuant to this Section 9 by an amount in excess of one-ninth of such number of Firm Shares or Additional Shares, as the case may be, without the written consent of such Underwriter. If on the Closing Date any Underwriter or Underwriters shall fail or refuse to purchase Firm Shares and the aggregate number of Firm Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Firm Shares to be purchased by all Underwriters and arrangements satisfactory to you and the Company for purchase of such Firm Shares are not made within 48 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter and the Company. In any such case which does not result in termination of this Agreement, either you or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and the Prospectus or any other documents or arrangements may be effected. If, on an Option Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Additional Shares and the aggregate number of Additional Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Additional Shares to be purchased on such date, the non-defaulting Underwriters shall have the option to 23 24 (i) terminate their obligation hereunder to purchase such Additional Shares or (ii) purchase not less than the number of Additional Shares that such non-defaulting Underwriters would have been obligated to purchase on such date in the absence of such default. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any default of any such Underwriter under this Agreement. SECTION 10. Miscellaneous. Notices given pursuant to any provision of this Agreement shall be addressed as follows: (a) if to the Company, to OM Group, Inc., 50 Public Square, 3800 Terminal Tower, Cleveland, Ohio 44113-2204 and (b) if to any Underwriter or to you, to you c/o Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York, New York 10172, Attention: Syndicate Department, or in any case to such other address as the person to be notified may have requested in writing. The respective indemnities, contribution agreements, representations, warranties and other statements of the Company and the several Underwriters set forth in or made pursuant to this Agreement shall remain operative and in full force and effect, and will survive delivery of and payment for the Shares, regardless of (i) any investigation, or statement as to the results thereof, made by or on behalf of any Underwriter, the officers or directors of any Underwriter, any person controlling any Underwriter, the Company, the officers or directors of the Company or any person controlling the Company, (ii) acceptance of the Shares and payment for them hereunder and (iii) termination of this Agreement. If for any reason the Shares are not delivered by or on behalf of the Company as provided herein (other than as a result of any termination of this Agreement pursuant to Section 9), the Company agrees to reimburse the several Underwriters for all out-of-pocket expenses (including the fees and disbursements of counsel) reasonably incurred by them. Except as otherwise provided, this Agreement has been and is made solely for the benefit of and shall be binding upon the Company, the Underwriters, the Underwriters' directors and officers, any controlling persons referred to herein, the Company's directors and the Company's officers who sign the Registration Statement and their respective successors and assigns, all as and to the extent provided in this Agreement, and no other person shall acquire or have any right under or by virtue of this Agreement. The term "successors and assigns" shall not include a purchaser of any of the Shares from any of the several Underwriters merely because of such purchase. This Agreement shall be governed and construed in accordance with the laws of the State of New York. 24 25 This Agreement may be signed in various counterparts which together shall constitute one and the same instrument. 25 26 Please confirm that the foregoing correctly sets forth the agreement between the Company and the several Underwriters. Very truly yours, OM GROUP, INC. By:_______________________________ Title: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION MERRILL LYNCH & CO., MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED FIRST ANALYSIS SECURITIES CORPORATION, Acting severally on behalf of themselves and the several Underwriters named in Schedule I hereto By DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By____________________________ Authorized Representative 26 27 SCHEDULE I ---------- Number of Firm Shares Underwriters to be Purchased - ------------ --------------------- Donaldson, Lufkin & Jenrette Securities Corporation ..................................... Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ..................... First Analysis Securities Corporation ............... ---------- Total 3,000,000 EX-5.1 3 EXHIBIT 5.1 1 EXHIBIT 5.1 April 22, 1997 OM Group, Inc. 50 Public Square 3800 Terminal Tower Cleveland, Ohio 44114-2204 Ladies and Gentlemen: We have acted as counsel to OM Group, Inc. (the "Company") in connection with its Registration Statement on Form S-3 ("Registration Statement") filed under the Securities Act of 1933, as amended, relating to 3,000,000 shares of Common Stock, par value $.01 per share, of the Company (the "Shares"). In that connection we have examined such documents, corporate records and other instruments as we have deemed necessary or appropriate for purposes of this opinion, including but not limited to the following documents: (a) the Amended and Restated Certificate of Incorporation of the Company; and (b) the Code of Regulations of the Company. Based upon the foregoing and such legal considerations as we have deemed relevant, we are of the opinion that: (1) The Company is a corporation duly organized and validly existing under the laws of the State of Delaware. (2) The Shares, when issued, will be validly issued, fully paid and non-assessable. We hereby consent to the filing of this opinion with the Registration Statement and the use of our name therein. Respectfully submitted, /s/ Squire, Sanders & Dempsey L.L.P. -----END PRIVACY-ENHANCED MESSAGE-----