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will likely cause a change in control if a substantial number of our shares of common stock are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and most likely will also result in the resignation or removal of our present officers and directors; and
may adversely affect prevailing market prices for our common stock.
Similarly, if we incur substantial debt, it could result in:
default and foreclosure on our assets if our operating cash flow is insufficient to pay our debt obligations;
acceleration of our obligations to repay the indebtedness even if we have made all principal and interest payments when due if the debt security contains covenants that require the maintenance of certain financial ratios or reserves and any such covenant is breached without a waiver or renegotiation of that covenant;
our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand;
covenants that limit our ability to acquire capital assets or make additional acquisitions;
our inability to obtain additional financing, if necessary, if the debt security contains covenants restricting our ability to obtain additional financing while such security is outstanding;
our inability to pay dividends on our common stock;
using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our common stock, working capital, capital expenditures, acquisitions and other general corporate purposes;
limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate;
increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and
limitations on our ability to borrow additional amounts for working capital, capital expenditures, acquisitions, debt service requirements, execution of our strategy and other purposes; and other disadvantages compared to our competitors who have less debt.
Contractual Obligations
Since inception,On January 8, 2008, we haveentered into a Revolving Line of Credit Note with our Manager, where our Manager agreed to provide us with a revolving line of credit up to $300,000 of which $250,000 was outstanding as of June 30, 2008. The principal balance, including all accrued and unpaid interest, outstanding pursuant to the Note shall become payable on the earlier of (i) December 31, 2008 or (ii) the consummation of the initial public offering. The Note bears an interest rate of 6.0% per annum. In the event of default, all amounts due pursuant to the Note shall become immediately payable.
On July 11, 2008, we entered into a Purchase/Supply/Agency Agreement with Unionmet. Pursuant to the Agreement, Unionmet agreed to (i) sell a minimum of ten (10) metric tons of indium to us within ten (10) months of the effectiveness of this offering at a price to be determined by a formula negotiated between us and Unionmet and (ii) act as a non-exclusive agent to negotiate sales on our behalf and broker introductions with suppliers of indium based in China. We agreed to purchase a minimum of ten (10) metric tons of indium and agreed to pay a commission to Unionmet for all transactions negotiated by Unionmet on our behalf or introductions brokered by Unionmet between us and other indium suppliers resulting in a transaction. The term of the Agreement shall begin on the effectiveness of this offering and terminate one year after the effectiveness of this offering.
Certain members of our management, officers and directors, individually and as a group, retain a passive investment interest in Unionmet and do not been underexercise control of Unionmet. Unionmet is a publicly traded company listed on the Singapore Exchange Ltd. On July 29, 2008, Unionmet’s stock closed on the Singapore Exchange Ltd. at a price of 0.12 Singapore dollars or 0.08772 U.S. dollars based on the spot currency conversion rate of 1.3680 Singapore dollars to 1 U.S. dollar. Ailon Z. Grushkin, a member of our Manager, and an
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officer and director of our Company personally owns 250,000 shares of Unionmet’s stock valued at approximately $21,930 U.S. dollars based upon the price of Unionmet’s stock on July 29, 2008. Richard Biele, a member of our Manager and an officer and director of our Company personally owns 50,000 shares of Unionmet’s stock valued at approximately $4,386 U.S. dollars based upon the price of Unionmet’s stock on July 29, 2008. The A.Z.G. Capital Corp. Profit Sharing Plan, whose sole beneficiary is Mr. Grushkin, owns 595,000 shares of Unionmet’s stock valued at approximately $52,193 U.S. dollars based upon the price of Unionmet’s stock on July 29, 2008. Mr. Grushkin is also the Managing Member of the AZG Tangible Assets Fund LLC, which holds 2,130,000 shares of Unionmet’s stock valued at approximately $186,844 U.S. dollars based upon the price of Unionmet’s stock on July 29, 2008. Richard Biele, a member of our Manager, and an officer and director of our Company, and Richard Morena, our Chief Financial Officer, are members of the AZG Tangible Assets Fund LLC and therefore beneficially own shares in Unionmet as well. Based on Unionmet having approximately 368,000,000 shares outstanding, the combined group owns 3,025,000 shares representing less than 1.0% of the total shares outstanding. Consequently, a conflict of interest may arise in connection with transactions between our company and Unionmet. We therefore adopted specific procedures to be used in connection with future transactions with Unionmet, including creating an independent committee to review and approve any contractual obligations. and all transactions to be entered into with Unionmet. Such procedures require the approval of (i) Alan Benjamin, the remaining independent member of our Manager, Specialty Metals Group Advisors LLC and (ii) the Unionmet (Singapore) Limited Negotiation and Agreement Committee, comprised of three of our independent board members: Mark Neuhof (Chairman), P.J. Richardson, and Fred Arena.
Prior to the consummation of this offering, we will enter into a Management Services Agreement with the Manager. Pursuant to such agreement, the Manager will, on a monthly basis, prepare a report on the net asset value (“NAV”)NMV of each share of our
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common stock, which shall be determined by multiplying the number of kilograms of indium held by or for us by the last spot price for indium published by Metal Bulletin posted on Bloomberg L.P. for the month, plus cash and any of our other assets, less any and all of our outstanding payables, indebtedness and any other liabilities, divided by the total number of outstanding shares of our common stock. Such report will be made available to us and our Boardboard of Directors.directors. We shall pay to the Manager a fee equal to 2%2.0% per annum of our NAV,NMV, which shall be paid monthly.
Disclosure Controls and Procedures
A company’s internal control over financial reporting is a process designed by, or under the supervision of, a company’s principal executive and principal financial officers, or persons performing similar functions, and effected by a company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. As a private company, we have designed our internal control over financial reporting to provide reasonable assurance to our management and Boardboard of Directorsdirectors regarding the preparation and fair presentation of financial statements. As a public company, we will be required to comply with the internal control requirements of the Sarbanes-Oxley Act. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Special Information Regarding Forward-Looking Statements
Some of the statements in this Management’s Discussion are “forward-looking statements.” These forward-looking statements involve certain known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These factors include, among others, the factors set forth above under “Risk Factors.” The words “believe,” “expect,” “anticipate,” “intend,” “plan,” and similar expressions identify forward-looking statements.
We caution investors not to place undue reliance on these forward-looking statements. We undertake no obligation to update and revise any forward-looking statements or to publicly announce the result of any revisions to any of the forward-looking statements in this document to reflect any future developments.
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Off Balance Sheet Transactions
We are not party to any off balance sheet transactions. We have no subsidiaries or equity ownership in any other entity. We have no guarantees or obligations other than those which arise out of normal business operations, i.e. the purchase and sale of indium, and costs of being a public company that will significantly increase our operating costs or cash requirements in the future.
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BUSINESS
Overview
Specialty Metals Group Indium Corp. wasWe were formed to purchase and stockpile the metal indium. Our strategy is to achieve long-term appreciation in the value of our indium stockpile, and not to actively speculate with regard to short-term fluctuations in indium prices. Our indium will be insured and physically stored in facilities located in the United States, Canada, and/or the United Kingdom.third-party facilities. While it is not our current intention to do so in the short term, at our discretion, we may subsequently lease, lend or sell some or all of our indium stockpile based on market conditions. Our shareholders will have the ability to effectively purchase an interest in indium in a manner that does not directly include the risks associated with ownership of companies that explore for, mine and process indium. Our common shares represent an indirect interest in the physical indium we own.
All of our indium transactions will be negotiated by our Manager. Our Manager will be paid a 2.0% per annum fee based on our NMV as compensation for these services. Our Manager is entitled to receive the indium we2.0% management fee regardless of its ability to successfully purchase and own stockpile the metal indium. None of our officers or directors have experience in stockpiling the metal indium, although our Chief Executive Officer has experience purchasing, selling, storing and lending precious metals, base metals, minor metals, non-exchange traded metals, and illiquid metals. Our Manager:
will be storedfirst and foremost purchase and stockpile indium with a minimum purity level of 99.97% and or higher grade indium ingots on our behalf;
will negotiate storage arrangements for our indium stockpile in warehouses or storagethird-party facilities located in the United States, Canada and and/or the United Kingdom. Our Manager Kingdom;
will negotiatemake sure the stockpile is fully insured by either the storage arrangements of our indium holdings and is required to ensure that the indium holdings have the benefit offacility’s insurance arrangements obtainedpolicy, a separately purchased insurance policy, or by both;
will purchase insurance on standard industry terms.terms to insure the indium during its transportation from the supplier to the storage facility;
will be responsible for conducting limited inspections of the indium delivered to us;
will not be responsible for conducting any chemical assays or other tests designed to verify that such indium meets the 99.97% purity requirements as established as industry practice and as referred to in our prospectus;
will rely on the good faith of its suppliers to provide indium that meets our requirements. If indium is purchased from a third-party supplier that is not known to be a regular indium industry supplier, our Manager, at its discretion, may hire, at our expense, an independent lab to perform random assay tests using glow-discharge mass spectrometry (GDMS) to verify the purity of the indium. The Manager will not brand specific companies and assayers. The Manager will deal only with known regular industry suppliers and participants. The Manager will use only reputable assayers recommended by reliable third party source;
will lend and/or sell indium from our stockpile, based on market conditions; and
will not retain a custodian to provide custodial services on our behalf.
Our expenses will be required to be satisfied by cash on hand that is not set aside for the purchase of indium. Cash on hand following completion of the offering is expected to be sufficient to satisfy our expenses for approximately 48 to 55 months. Annual expenses, including corporate taxes, are estimated to be approximately $1,675,000. For a detailed description of such expenses please see “Management of SMG Indium Corp. — Management Services Agreement”. We are a taxable United States corporation and are subject to federal and state taxes.
Our objective is to purchase and stockpile the metal indium. Potential stockholders will only receive a return on their investment if our acquired indium stockpile increases in value more than we expend on operating expenses. Price appreciation of the metal indium is critical for investors to receive a return on their investment.
On July 11, 2008, we entered into a Purchase/Supply/Agency Agreement with Unionmet. Unionmet is a leading manufacturer and supplier of indium ingots under the “Intai” brand name in the PRC. Unionmet is headquartered in Singapore and maintains production and research and development divisions strategically
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located in Liuzhou, Guangxi, PRC. Unionmet is listed on the Singapore Exchange Ltd. Pursuant to the Agreement, Unionmet agreed to (i) sell a minimum of ten (10) metric tons of Unionmet’s indium to us within ten (10) months of the effectiveness of this offering at a price to be determined by a formula negotiated between us and Unionmet and (ii) act as a non-exclusive agent to negotiate sales on our behalf and broker introductions with suppliers of indium based in China. We agreed to purchase the ten (10) metric tons of indium and agreed to pay Unionmet a commission for all transactions negotiated by Unionmet on our behalf or introductions brokered by Unionmet between us and other indium suppliers resulting in a transaction. The term of the Agreement shall begin on the effectiveness of this offering and terminate one year after the effectiveness of this offering. We agreed with Unionmet to negotiate the commissions on each specific transaction where Unionmet acts as our non-exclusive agent in China. The exact commissions payable to Unionmet per transaction have not yet been determined and will depend on a litany of variables specific to each transaction, including and not limited to: (a) U.S. dollar value of the transaction, (b) quantity of indium purchased, (c) purity of the material, (d) date or dates of shipment or shipments, (e) terms of payment, (f) Unionmet’s particular role in each specific transaction, i.e., the commission will vary depending on whether Unionmet introduces us to the third party supplier and we negotiate the terms of the transaction or if Unionmet negotiates the particulars of the transaction with the third party supplier on our behalf and (g) other conditions (if applicable). We will not pay a commission to Unionmet on their own proprietary “Intai” brand name indium ingots that we purchase directly from them. There are no standard commissions within the indium industry. We do not intend to rely principally upon Unionmet to secure supplies of indium during the initial stockpiling phase of our operations.
Certain members of our Managers and our officers and directors, Ailon Grushkin, Richard Biele and Richard Morena, directly or beneficially hold shares in Unionmet. Consequently, a conflict of interest may arise in connection with transactions between our company and Unionmet. We therefore adopted specific procedures to be used in connection with future transactions with Unionmet, including creating an independent committee to review and approve any and all transactions to be entered into with Unionmet. Such procedures require the approval of (i) Alan Benjamin, the remaining independent member of our Manager, Specialty Metals Group Advisors LLC and (ii) the Unionmet (Singapore) Limited Negotiation and Agreement Committee, comprised of three of our independent board members: Mark Neuhof (Chairman), PJ Richardson, and Fred Arena. See “Contractual Obligations” for a further discussion regarding procedures used in connection with future transactions with Unionmet.
Assuming we are able to utilize 85.0% of the net proceeds of this offering to purchase the stockpile of indium at $500 per kilogram, the price of indium would need to increase approximately 12.4% within 12 months to offset the depreciation in our NMV associated with the initial offering expenses of $3,725,812 and annual operating expenses of $1,675,000. The price of indium would need to increase approximately 16.2% within 24 months or 8.1% on average per annum to offset the depreciation in our NMV due to the expenses listed above. The price of indium would need to increase approximately 20.1% within 36 months or 6.7% per annum to offset the depreciation in our NMV due to the expenses listed above.
Our business model is designed to capture the long-term appreciation of the price of indium. Over the last five years, the price of indium has appreciated 163.2% (32.6% annually) from $190 per kilogram in September 2003 to $500 per kilogram in September 2008. Over the last ten years, the price of indium has appreciated 104.1% (10.4% annually) from $245 per kilogram in September 1998 to $500 per kilogram in September 2008. Over the last fifteen years, the price of indium has appreciated 203.0% (13.5% annually) from $165 per kilogram in September 1993 to $500 per kilogram in September 2008. Over the last twenty-five years, the price of indium has appreciated 385.4% (15.4% annually) from $103 per kilogram in 1983 to $500 per kilogram in September 2008. Over the last fifty years, the price of indium has appreciated 594.4% (11.9% annually) from $72 per kilogram in 1958 to $500 per kilogram in September 2008.
Based on market conditions, we may seek to lend or sell indium. If there is a shortage of indium in the market place, we may decide that it is in our best interest to lend or sell indium directly to industry suppliers and or end users. For example, if our supplier is a miner, and such miners do not have a sufficient amount of indium in inventory to sell to an end user, we may lend or sell to the miner indium from our stockpile. Furthermore, if we need additional capital to cover annual operating expenses, we may lend or sell indium from our stockpile to cover such operating expenses. Deciding on whether to lend or sell in these instances can
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only be determined by a careful analysis of each option and its particular benefit to us at that particular point in time. Market conditions will dictate which option we would elect to pursue. We do not intend to change our stated strategy. Our operations are limited to purchasing, stockpiling, lending and selling only the metal indium.
Based on common industry knowledge and our established indium industry relationships, we can determine which companies are regular indium industry suppliers. We consider companies granted indium export licenses from the Chinese government as regular indium industry suppliers. We consider companies like Teck Cominco Ltd., Falconbridge, Indium Corporation of America, Umicore Indium Products Co. Ltd., and Aim Specialty Materials as regular industry suppliers because they are all well known within the industry and have well established reputations. We consider metal trading houses listed in our “Competition” section like Glencore International AG, Wogen PLC, MCP Metal Specialties, etc. that have years and in some cases, decades of experience within the industry as regular indium industry suppliers. We intend to use subjective criteria to determine whom we plan to do business with and for competitive reasons we do not disclose specifically which companies we intend to do business with other than Unionmet. Currently, an established regular indium industry designated supplier list does not exist. We consider the miners, refiners, suppliers and trading houses listed in our “Competition” section to be a partial list of known regular indium industry suppliers.
We intend to stockpile indium with a minimum purity level of 99.97% known as 3N7 or standard grade. We expect that our stockpile will also contain higher grade indium ingots such as, but not limited to, 4N (99.99% purity) and 5N (99.999% purity) material. The specific purity of the actual metal is very important to each of indium’s specific applications. The purity of the indium used in alloys is typically 2N material. Thin-film coatings such as Indium-Tin-Oxide (ITO) use 4N8 purity indium. Therefore, refiners and suppliers will upgrade 3N7 material to 4N8 for use in ITO production via a basic electro-refining process dissolving the indium in hydrochloric acid and plating out the purified indium. In its purest form, 6N and 7N, indium is used in smaller quantities for research and development and as the raw material used to make Indium Phosphide (InP), Indium Arsenide (InAs) and Gallium Indium Arsenide (GaInAs). Preparation of 6N high-purity indium is also done by a method of physical-chemical purification and electro-refining. While the purity of the metal is important to each of its applications, the price of the higher purity indium is not considered significant relative to the industry standard grade of 3N7. Manufacturers typically customize the purity of the indium to its customer’s specific needs and charge a small fee to convert standard grade into its higher purity forms.
Once the portion of the offering proceeds to be held as cash is exhausted, we have several options. We may physically sell indium from our stockpile to cover our annual operating expenses, which are projected at $1,675,000. We may lend indium from our stockpile to generate sufficient income to cover our annual operating expenses. Alternatively, we may access the private or public equity markets to raise additional capital to either cover our annual operating expenses and or purchase additional indium. We may choose to do a combination of the three listed options to generate or raise sufficient capital to cover our annual operating expenses.
Strategy and Policies
We based our business model projections on having approximately $43.6 million available from the proceeds of the IPO (85.0% of the net proceeds after expenses) to purchase approximately 87.2 metric tons of 99.97% purity indium paying an average price of $500 per kilogram for indium. Based on projected expenses, cash remaining from the offering should be able to sustain operations for 48 to 55 months, without our needing to sell or lend any indium from our stockpile. If the price of indium rises prior to our being able to purchase our stockpile of indium, we would purchase fewer tons of indium to expend the 85.0% of the net proceeds of the offering. This in turn would result in lower storage fees for fewer tons of indium held in our stockpile and higher values for our stockpile could result in higher annual management fees. If the price of indium decreases, we may purchase additional indium and our storage fees would increase accordingly and lower values for our stockpile could result in lower management fees, either shortening or lengthening how long our cash on hand may last. Our business model is premised on the long-term appreciation in the value of our indium stockpile.
In order to facilitate our business plan over the next 36 months, our Manager may elect to purchase indium under long-term supply contracts. Information regarding how much and what percentage of the total
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indium supply is currently under long-term contracts is not known. This may hinder our ability to enter into long-term supply contracts with industry suppliers, purchase and stockpile indium, and fulfill our business plan in a timely manner.
Our ability to complete our business plan could be adversely affected by the substantial competition we face in the marketplace. There are a substantial number of manufacturers that require indium for the production of FPDs, LCDs and PDAs. We expect to compete with them for primary indium supply. The fact that many of these companies have more substantial resources than us and have established relationships with indium industry suppliers may prove to be detrimental to our ability to consummate our business plan.
We may face direct competition from market participants in purchasing our stockpile of indium. There are no other companies, known to us, that have a business model solely dedicated to the purchasing and stockpiling of indium. However, we would have to potentially compete with miners, refiners, suppliers, end-users, traders and other market participants in purchasing indium from suppliers. The companies listed in the “Competition” section are a partial list of companies that are well known indium industry participants that either mine, refine, use, and or trade indium. These companies would be considered indirect competition.
In addition, we are not aware of any additional information, if any, regarding the indium market, or the type of market information other industry producers, purchasers, suppliers and other market participants may possess. Our inability to access this information, if any, places us at a potential relative competitive disadvantage to other market participants who may have access to such information. This may adversely affect our ability to purchase and stockpile indium.
We do not expect to purchase indium from the recycling market. After extensive discussions with indium industry participants, we determined that it is not feasible for us to buy directly from the recycling companies. Recycling scrap indium into 3N7 or higher purity metal ingot is extremely complex and time consuming. Typically, end users (ie. FPD manufacturers) establish contracts directly with the recyclers. Pursuant to such contracts, the end user supplies the recycler with scrap indium and the recycler specially processes, refines, and then returns the purified recaptured indium to the end user. Recyclers cannot sell the recycled indium to anyone else other than the end user who supplied the scrap indium. Industry insiders consider the recycling market a “closed loop”.
End users and recyclers do not disclose the particulars of their relationships and contracts. This inaccessibility will limit us to the primary indium market. The primary market is smaller than the recycling market and may affect our ability to purchase enough indium to meet our business plan’s objectives in a timely manner.
Chinese export restrictions may serve to further reduce our access to more than 50% of the world’s primary indium production. In May 2008, an earthquake in China completely halted ten zinc smelters in Sichuan Province’s Deyang, Hanyuan and Ganzi regions, as well as in nearby southern regions of Shaanxi Province and Gansu Province, due to damaged facilities and power supply failures. It was estimated that 510,000 metric tons of zinc smelting capacity was affected or approximately 7% of China’s national total. If those zinc smelters were refining indium and were shut down for one full year, it is estimated that as much as 24.8 metric tons or 4.9% of primary indium production would have been lost. The lack of availability of indium may affect our ability to spend at least 50% of the net proceeds of the offering on purchasing and stockpiling indium within the first 18 months following the completion of this offering.
In furtherance of our strategy, our Boardboard of Directorsdirectors will establish the following policies which will be included in our By-laws.policies:
1. At least 85%85.0% of the net proceeds of this offering (and at least 85%85.0% of the net proceeds of future offerings, if any) must be used to purchase, or be held for future purchases of indium, and may only be amended by a resolution of our stockholders.
2. We may not enter into any borrowing arrangements except in strictly limited circumstances to facilitate indium purchase payments. Under such circumstances, we may enter into borrowing arrangements for which all outstanding amounts do not exceed our total assets.
3. All purchases and sales of indium shall be made by our Manager in accordance with the Management Services Agreement. In such capacity, our Manager shall use commercially reasonable efforts to purchase, lease, lend and or sell the indium at the best prices available to it over a prudent period of time. We consider 18 months
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a prudent amount of time during which our Manager will spend at least 50% of the net proceeds of the offering allocated toward stockpiling indium. We expect that it will take us several years to build our indium stockpile. Potential stockholders purchasing our stock should be aware that the price of indium could rise prior to our ability to fully utilize the proceeds from the offering to build our stockpile. In this event, our NMV will not be directly correlated to the changes in the price of indium because we will be holding cash allocated toward purchasing indium in the future.
4. In the event that our Manager elects to purchase indium under long term contracts with an indium supplier, we shall have the funds set aside to satisfy the purchase price.
5. In the event that our Manager elects to lease, lend or sell indium under long term contracts with an indium customer, we shall have indium set aside to satisfy the delivery commitments.
The indium market is illiquid and considered small compared to the base metals. There are a limited amount of suppliers and purchasers of indium. If new companies are formed to purchase and stockpile indium, this would adversely affect our ability to procure sufficient quantities of indium on a timely basis or even at all. It is our intention to spend the 85.0% of the net proceeds from the offering to purchase 5.7% of the next three years of global primary indium production in the first thirty-six months after the completion of this offering without disrupting the indium market. If we cannot purchase indium from China, we would need to purchase 11.2% of the rest of the world’s three year annual primary indium production to expend the proceeds from our offering. These calculations are based on the assumption that global primary indium supply remains constant at 510 metric tons per year and China produces 250 metric tons per year over the next thirty-six months. Although we do not anticipate purchasing indium from the recycling market, if the recyclers were willing to sell indium to us, the percentage of the world’s annual primary indium production that we would need to purchase would be reduced. If we are unable to purchase indium from China and or from recyclers, we anticipate it will most likely take several years to purchase the 87.2 tons we require to expend 85.0% of the net proceeds from the offering based on current prices.
LeasingAccounting for Direct Sales and Lending Transactions
We envision that our stockpile of indium may engage in leasing indiumbe used from time to time. We, as the lessor, will physically deliver indium to the lessee.time for “direct sales and or “lending” transactions. Under a leasing arrangement, there“direct sale” transaction we would be a pre-established timeframe, interest rate,record as income, or loss, the difference between the proceeds received from the sale of indium and value for the physical indium (calculated by multiplying the price of the indium times the quantity of indium). The lessee does not pay us the dollar value of the indium it is leasing from us. We are therefore in effect assuming credit risk based on the lessee’s ability to eventually deliver back to us equivalent indium or at the very least, pay us back the dollar value of the indium it leased. At the end of the lease, the lessee returns equivalent physical indium to us and pays us a fee based upon the value of the metal leased and the time duration of the lease. The fee is typically equal to the price multiplied by the lease rate multiplied by division of the number of days leased by 360.carrying value.
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Lending
We may engage in lending indium from time to time. We asplan to lend in order to facilitate our relationships with suppliers and thereby build our stockpile. Occasionally, we may lend to take advantage of periodic shortages in the lendor,indium market. A typical loan contract would be for terms of six months or less, and in almost no circumstance would it exceed a period of one year. As lender, we will negotiate an Unconditional Sale and Purchase Agreement (“USPA”) with a prospective borrower. As part of the USPA, once all terms are reviewed and approved by our management team, we will physically deliver indium to the borrower.
The USPA arrangement involves us negotiating, as lender, and physically delivering a pre-agreed upon quantity and purity of indium to the borrower. The borrower will then pay us a negotiated dollar amount equal tovalue for the full value of the indium delivered. Those dollars willTypically this would be held by usdone when market conditions favored such a transaction and we would record income (loss) equal to the value of the negotiated price over (under) our carrying value of indium lent. At the same time, we would record a liability for the unconditional obligation to purchase back a pre-determined time frame and at a pre-established dollar lending rate. We will agree to buy back, in a predetermined amount of time, the equivalent amount of indium from the borrower of like purity based upon the negotiated terms as detailed in the USPA. Such lending transaction(s) will include in the USPA a provision that the borrower return to us a like quantity and purity of indium. Failure to fulfill this return commitment will subject the borrower to a “penalty fee” thus discouraging the borrower from borrowing indium but never replenishing the indium to us. The ability of the borrower to satisfy the commitment to return the quantity and purity of indium is a business risk that we would face in a transaction like this. However, the penalty fee aspect as detailed in the USPA would partially mitigate our overall business risk, in that, the penalty fee would provide us with greater flexibility in recovering indium from other sources at a predetermined price. The feeless than favorable prices (if applicable) if the borrower defaulted on its return of indium. We anticipate recognizing gains and losses on purchases and sales of indium under these arrangements in accordance APB 29 “Non-Monetary Transactions” and EITF Issue No. 04-13 “Accounting for Purchases and Sales of Inventory with the Same Counterparty.”
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Accordingly we will earndisclose unconditional purchase obligations under these arrangements in accordance with SFAS 47 “Disclosure of Long Term Obligations” and, if applicable, accrue net losses on such unconditional purchase obligations in accordance with ARB 43.
There is the blendedno established market lending rate for indium. The terms of the interest earned onUSPA contracts will stipulate that the dollarsindium returned must be of equivalent quantity and purity. An example of a loan to facilitate future purchases of indium would be made to an indium producer, to be repaid by the return of equivalent indium of the same quantity and purity along with the possible purchase of additional indium from the producer. In the event of a loan to the producer, in which we are holding as collateralhave received dollars for the indium lent, there is a risk that the producer will not return the equivalent quantity indium. Our Manager will be responsible for conducting limited inspections of the indium delivered to us. Our Manager will not be responsible for conducting any chemical assays or other tests designed to verify that such indium meets the minimum 99.97% purity requirements referred to in our prospectus. Our Manager will rely on the good faith of its suppliers to provide indium that meets our requirements. We do not intend to brand specific companies and assayers. It is our intention to deal only with known regular industry suppliers and participants. We consider the miners, refiners, suppliers and trading houses listed in our “Competition” section to be a partial list of known regular indium industry suppliers. We will use only reputable assayers recommended by reliable third party sources. Indium typically comes delivered with a certificate of analysis in sealed boxes. Our Manager, at its discretion, may hire, at our expense, an independent lab to perform random assay tests using glow-discharge mass spectrometry (GDMS) to verify the purity of the indium, if the indium loan was done with a company that is not known to be a regular indium industry supplier. Failure to perform is a risk to our business if the price of indium appreciates and we cannot replace the loaned indium at the same or a lower price we loaned the indium. The ability of the borrower plusto satisfy the differencecommitment to return the equivalent quantity and purity of indium is a business risk that we face in a lending transaction. However, the price we agreedpenalty fee aspect as detailed in our USPA would somewhat mitigate our overall business risk because the penalty fee would provide funds for us to purchase backindium from other sources at less than favorable prices (if applicable). Notwithstanding the foregoing, if the borrower defaults in its obligations under the USPA, there is always the risk that we might not be able to replace the indium fromlent at favorable prices. In such instances, we may not be able to recoup our losses through litigation and we would assume the borrower.loss which could negatively impact our NMV.
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INDIUM MARKET OVERVIEW
About Indium
Indium (symbol In) is a rare, very soft, silvery-white malleable metal with a bright luster. It is number 49 on the Periodic Table of Elements with an atomic weight of 114.81. Indium is chemically similar to aluminum and gallium, but more closely resembles zinc. Indium is a rare element and ranks 61st in abundance in the Earth’s crust at an estimated 240 parts per billion by weight. This makes it about three times more abundant than silver or mercury. Indium occurs predominantly in the zinc-sulfide ore mineral, sphalerite. Indium is produced mainly from residues generated during zinc ore processing but is also found in iron, lead, and copper ores. The average indium content of zinc deposits from which it is recovered, ranges from less than 1 part per million to 100 parts per million. Its occurrence in nature with other base metal ores is sub-economic for indium recovery. Pure indium in metal form is considered non-toxic by most sources.
Properties and Characteristics of Indium
Indium is very malleable and ductile and can be easily formed into a wide variety of fabrications. Another distinctive characteristic of indium is that it retains its softness at temperatures approaching absolute zero degrees, making it ideal for cryogenic (freezing or very low temperature) and vacuum application. The properties of indium may be summarized as follows:
Low melting point alloy: It is useful in the high-end optical industry where lenses can be held with the alloy instead of the lens surfaces during the polishing process to minimize surface distortion.
Lead-free and mercury-free solder industries: It is commonly used by environmentally friendly electronics goods manufacturers and high-energy alkaline dry cell batteries producers in their respective industries. This reduces or eliminates the use of lead and mercury in soldering.
Cold Welding: Oxide-free indium has the ability to cold-weld or attach to itself. Parts coated with indium can be bonded together without the application of heat or chemicals.
Reduce gold scavenging: When soldering to gold or gold-plated surface, solder has a tendency to dissolve gold into the joint. The addition of indium to solder will reduce this tendency.
Join Materials with different CTEs: It is common for materials being joined to have different coefficients of thermal expansion (CTE). Traditional solder joints can crack during the expansion/contraction process because of this. Indium, when added to a solder alloy, provides ductility which can enable the materials to expand and contract at their individual rates whilst absorbing the CTE difference of the other material, all without cracking the bond.
Bond glass, quartz and ceramics: These materials cannot be bonded with traditional solders. Indium’s unique cold-welding properties allow it to produce a bond in a variety of non-metal applications.
Transparent Electrical Conductor: When indium (in the form of indium-tin-oxide) is coated onto various materials such as glass or plastic films, it acts as a transparent electrical conductor and an infrared reflector. When architectural or photovoltaic glass is coated with indium-tin-oxide, it keeps the harmful infrared rays of the sun from passing through. When coated onto automotive or aircraft windshields, it allows the glass to be electronically deiced or demisted as well as reducing the air conditioning requirement by reducing heat gain.
Malleable: Because indium is so soft and pliable (malleable), it can easily fill voids between two surfaces, even at cryogenic (freezing or very low) temperatures.
According to Displaybank, the total demand for indium was 861 tons in 2006 and was expected to be about 1,000 tons in 2007. Metal Bulletin reported that the average price for indium was $823 per kilogram in 2006. Based on these figures, we determined that the total size of the indium market was approximately $709 million in 2006. Although the actual size of the indium market in 2007 has yet to be determined, Displaybank expects the total sales of indium in 2007 to be $533 million. Industry information with regards to monthly sales volumes and dollar values of indium transactions is not readily available. Indium does not trade on any futures exchange and there are no indium futures contracts.
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APPLICATIONS
Flat Panel Displays & LCDs
Indium is an essential raw material for a number of consumer electronics applications. The primary commercial application of indium is in coatings for the flat panel display (“FPD”) industry. Indium is only useful when chemically processed with tin-oxide to form indium-tin-oxide (“ITO”) to allow for electrical conductivity and optical transparency. Sputtering targets are placed in a vacuum and since ITO is conductive and optically transparent, thin layers of ITO are then applied as electrical contacts onto glass, which can in turn be used as Liquid Crystal Display (LCD) on electronic devices like television sets, computers and mobile phones. The ITO transparent conductor is currently popularly used in LCD technology due to its unique qualities of low melting point, good uniformity (which is suitable for large LCDs), fast etching time and long life span.
Solar Energy Technology
Indium is increasingly being used as a crucial raw material in the solar energy industry. Copper Indium Gallium Selenide (CIGS) is a new semiconductor material comprised of copper, indium, gallium, and selenium. Its main use is for high-efficiency photovoltaic cells (CIGS cells), in the form of thin-film photovoltaic. The thin-film photovoltaic has several advantages over traditional solar energy technologies. It is lightweight, can be applied on uneven surfaces and can be rolled up when not in use. CIGS show great promise in achieving high conversion efficiencies at low costs. According to the USGS, CIGS solar cells require approximately 50 metric tons of indium to produce 1 gigawatt of solar power. Research is underway to develop a low-cost manufacturing process for flexible CIGS solar cells that would yield high production throughput. We believe that flexible CIGS solar cells could be used in roofing materials and in various applications in the aerospace, military and recreational industries.
Other Uses
UseIndium is also used in the manufacture of low-melting-temperature alloys. An alloy consisting of 24% indium and 76% gallium is liquid at room temperature.
Some indium compounds such as indium antimonide, indium phosphide, and indium nitride are semiconductors with useful properties.
Indium is also used in light-emitting diodes (LEDs) and Laser Diodes (LDs) based on compound semiconductors that are fabricated by Metalorganic Vapor Phase Epitaxy (MOVPE) technology.semiconductors.
The ultrapure metalorganics ofUltrapure indium, specifically high purity trimethylindium, is used as a precursor in III – V compound semiconductors, while it is also used as the semiconductor dopant in II – VI compound semiconductors.
Indium oxide is used as transparent conductive glass substrate in the making of electroluminescent panels.
Indium is also used as a light filter in low pressure sodium vapor lamps.
Indium’s high neutron capture cross section for thermal neutrons makes itIndium is suitable for use in control rods for nuclear reactors, typically in an alloy containing 80% silver, 15% indium, and 5% cadmium.
111-Indium (isotope) is used in medical imaging to monitor activity of white blood cells.
Indium-Tin-Oxide Applications
Indium-Tin-Oxide (ITO, or tin-doped indium oxide) is a mixture of indium (III) oxide (In2O3) and tin (IV) oxide (SnO2), typically 90% In2O3, 10% SnO2by weight. It is transparent and colorless in thin layers. In bilk form, it is yellowish to grey colored powder with a molecular weight of 277.64. It is a stable ceramic-like material, insoluble in water and volatizes at 850 degrees Celsius. ITO’s main feature is the combination of electrical conductivity and optical transparency. Thin films of ITO are most commonly deposited on surfaces by electron beam evaporation, physical vapor deposition, or a range of sputtering deposition techniques.
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ITO is mainly used to make transparent conductive coatings for liquid crystal displays, flat panel displays, plasma displays, touch panels, electronic ink applications, organic light-emitting diodes, and solar cells, and anti-static coatings and EMI shieldings. In organic light-emitting diodes, ITO is used as the anode (hole injection layer).
ITO has been used as a conductive material in the plastic electroluminescent lamp of toy Star Wars type lightsabers.
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ITO is also used for various optical coatings, most notably infrared-reflecting coatings (hot mirrors) for architectural, automotive, and sodium vapor lamp glasses. Other uses include gas sensors, antireflection coatings, electrowetting on dielectrics, and Bragg reflectors in VCSEL layers.
Reportedly, ITO is used as sensor coating in the Canon 400D/Xti and Sony Alpha DSLR-A100
ITO thin film strain gauges can operate at temperatures up to 1400 degrees Celsius and can be used in harsh environments, ie. Gas turbines, jet engines, and rocket engines.
Production of ITO thin-film coatings accounted for approximately 84% of global indium consumption. Of the remaining 16% of the global indium market, other end uses include solders and alloys, 8%; compounds, 5%; electrical components and semiconductors, 2%; and research and other, 1%.
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SUPPLY
According to the U.S. Geological Survey (USGS),USGS, the top five indium producing countries in the world in 2007 were China, Japan, Canada, Republic of Korea, and Belgium. China’s refinery production of indium was approximately 250 metric tons in 2007. This is almost 50% of the annual total global refined production of 510 metric tons.
According to the USGS, in 2005, the world’s primary refined production of indium increased by 25%, compared with production in 2004. Most of the increase was attributed to China, with 59% of world production in 2005 compared with 49% in 2004. Worldwide refinery production increased from 500 metric tons in 2005 to 580 metric tons in 2006. Worldwide production actually decreased to 510 metric tons in 2007.
On the supply side, a critical element will be the ability of individual countries to recycle indium contained in electronic components. Because indium is mostly a byproduct of zinc mining and smelting, it will be hard to increase primary production unless there is an increase in zinc production. During the past decades, dwindling zinc prices forced some high cost and low-grade underground zinc mines and a few older and less efficient zinc refineries to close. Zinc prices soared in 2005 and 2006 to record high levels, in turn, according to the USGS, world mine production of zinc increased from 10 million metric tons in 2006 to 10.5 million metric tons in 2007. The average London Metals Exchange (LME) price for zinc in July 2004 was approximately US$1,020 per ton. The average LME price for zinc increased to approximately US$3,340 per ton by July 2006. We believe that this has increased primary indium production as well. Higher prices for indium, has also resulted in increased recycling. Despite increasing demand for indium, worldwide supply is expected to be adequate with increased primary production and recycling. More recently, by the end of 2007, the price of zinc plummeted from the lofty levels witnessed in 2006 and early 2007. We believe that weak zinc prices may curtail the production of zinc leading to lower levels of indium recovery in the near future and increased competition for indium.
Recycling Market
The recycling of indium has increased in recent years. The indium recycling market is now larger than primary refinery production. Recycling scrap indium into 3N7 or higher purity metal ingot is extremely complex and time consuming. Typically, end users (ie. FPD manufacturers) establish contracts directly with the recyclers. Pursuant to such contracts, the end user supplies the recycler with scrap indium and the recycler specially processes, refines, and then returns the purified recaptured indium to the end user. Recyclers cannot sell the recycled indium to anyone else other than the end user who supplied the scrap indium. Industry insiders consider the recycling market a “closed loop”. If recycling activity continues to grow and becomes more efficient, this may serve to increase the total worldwide indium supply. In the primary indium market, an increase in the price of indium does not lead to increased indium production because it is predominantly a byproduct of zinc mining. It is believed that the market price of indium does influence the rates of reclaiming and recycling of indium. In recent years, according to a report titled Indium and Gallium Sustainability — September 2007 Update, reclaimed indium supply increased from 357 metric tons in 2005 to 503 metric tons in 2006. The same report projected total indium recycling at 650 metric tons in 2007, 802 metric tons in 2008, and 961 metric tons in 2009. In September 2007, a presentation titled “Indium: Hot, Green & Bright” prepared by AIM Specialty Materials estimated that the total supply of indium from recycling at 847 metric tons in 2007, 1101 metric tons in 2008, and 1318 metric tons in 2009. Based on what we consider the more conservative estimates, recycled indium represented 41.6% of total global indium supply in 2005, 46.4% in 2006, and 56.0% in 2007. While the primary indium supply actually decreased from 580 metric tons in 2006 to 510 metric tons in 2007, the recycling market continues to expand. The USGS does not provide specific data for the recycling market but stated that global secondary indium production increased significantly during the past several years and now accounts for a greater share of indium production than primary. The USGS also stated that this trend is expected to continue in the future and that several major secondary indium producers in Japan and the Republic of Korea announced plans to further increase their recycling capacity.
According to Umicore Indium Products, a leading U.S. manufacturer and supplier of ITO products, in some cases up to 70% of ITO can be recycled, generating a considerable source for secondary indium, attenuating the effect of reduced virgin indium production. Indium scrap is recovered from ITO, specially processed or refined and purified back to a minimum purity of 99.97%. In 2005, Sharp reported they succeeded in
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recycling indium from LCD panels. Japanese based, Dowa Mining Company Ltd. is the world’s largest secondary indium producer. In November 2005, Metal-Pages reported that Dowa Mining was expecting to expand its production capacity to recover indium from ITO scrap by 50% to 150 metric tons at its subsidiary Akita Rare Metal Co. We do not expect to have any access to material sold by indium recyclers and we will be primarily dependent on primary refined production.
Indium's price per kilogram is infrequently quoted and investors may have to pay for subscriptions to various data service providers to access such information. We intend to make arrangements with a service provider to obtain a weekly quotation and make such information available, for free, on our website. In the event we cannot obtain permission from one of the various service providers to post their quotes, we will post a short discussion of the weekly price range of indium on our website atwww.smg-indium.com.
China
According to the USGS, China controls over 50% of the world’s refined indium production. There are a number of major producers in China, but also numerous smaller producers, relying on purchasing the concentrates from the larger base-metal refiners. China produces approximately 250 to 350 metric tons of indium per year. The Chinese government restricts 99.9% indium’s export with taxes. In October 2007, The Ministry of Commerce issued a quota allowing China to export 240 tons of indium in 2008. On September 28, 2007, Metal Bulletin PLC reported that several traders and producers in China were expected to leave the indium business after Beijing awarded export permits for 168 tons of indium for the minor metalfirst half of the 2008 calendar year to only 20 companies. The ten licensed companies granted the largest indium export quotas were Zhuzhou Smelter Group Co., Ltd. – 29 metric tons; Liuzhou China Tin Group Co., Ltd. – 22 metric tons; Nanjing Foreign Economic & Trade Development Co., Ltd. – 18 metric tons; Nanjing Sanyou Electronic Materials Co., Ltd. – 17 metric tons; Huludao Nonferrous Metals (Group) I/E Co., Ltd. – 12 metric tons; Nanjing Germanium Co., Ltd. – 10 metric tons; Xiangten Zhengtan Nonferrous Metals Co., Ltd., – 10 metric tons; Guangxi Intai Technology Co., Ltd., a wholly owned division of Unionmet (Singapore) Ltd. – 9 metric tons; Hunan Jingshi Group – 7 metric tons; and Laibin Debang Industry and Trade Co., Ltd. – 6 metric tons. We believe that most of China’s indium output is exported, with domestic demand unable to sustain production. In May 2007, China established the world’s first indium exchange in the city of Liuzhou, in south China’s Guangxi Province, with the aim of uniting domestic indium makers. The exchange is open for two hours per day with light trading volume.
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Canada
The USGS estimated that in 2007 Canada produced 50 metric tons of indium. According to the USGS, the Canadian firm, Teck Cominco Ltd., is a long-time producer and refiner of indium as a byproduct at its facilities in Trail, British Columbia, Canada. In 2005, Teck Cominco produced 41 metric tons of indium there from concentrates. Teck Cominco announced in 2005 that it was planning to increase indium production to 75 metric tons within two years. The USGS indium data sheet for 2007 does not show any increased production of indium in Canada between 2005 and 2007, but we believe the increase may show up in 2008 figures.
According to the USGS, the other major producer of indium in Canada is Falconbridge Ltd. In 2007, Falconbridge was acquired by Xstrata Plc, a diversified global mining company.
United States
The United States does not produce any primary domestic indium and relies on imports from China, Canada, Japan, Russia, and other countries. All refined indium production in the United States during 2007 came from the refining of lower grade imported indium metal and from refining scrap. Two refineries, one in New York and the other in Rhode Island, produced the majority of indium metal and indium compounds in 2007. A number of small companies produced specialty indium alloys and other indium products. Very little indium is recycled in the United States. We believe this is because there is no infrastructure for the collection of used indium-containing products.
Zinc Supply
According to CIBC World Markets Equity Research — Base Metals 2008 Outlook — December 11, 2007, CIBC World Markets adjusted their supply demand forecasts for the zinc market in early December 2007 to account for lower U.S. demand and higher Chinese production, which we believe has pushed the zinc market
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into a small surplus in 2008. Despite the uncertain outlook for the transportation sector, which utilizes zinc, CIBC states that zinc demand for infrastructure projects remains strong, and should keep the market tight in 2008. CIBC continues to believe market expectations for the rate of new zinc supply are overstated and believe there remains a weak pipeline of development projects for supply to keep pace with current demand levels. Further, if the “hidden” inventories and Chinese exports do not materialize, CIBC expects zinc prices to post a strong recovery. In light of the surplus in 2008 and actual price levels at the end of the year, CIBC adjusted their price forecast downward. The sharp recent decline in zinc prices appears to have reduced actual production levels.
According to the USGS, total worldwide zinc production was 8.5 million metric tons in 2003, 9.6 million metric tons in 2004, 9.8 million metric tons in 2005, 10.0 million metric tons in 2006, and approximately 10.5 million metric tons in 2007. Yearly zinc production dwarfs the 2007 total primary refined indium production figures of 510 metric tons and the more conservatively estimated 650 metric tons of recycled indium. Total indium production represents less than one hundredth of one percent of total zinc production on an annual basis.
Any disruptions in the mining of zinc could have a direct impact on the production and availability of primary refined indium. In May 2008, an earthquake in China completely halted ten zinc smelters in Sichuan Province’s Deyang, Hanyuan and Ganzi regions, as well as in nearby southern regions of Shaanxi Province and Gansu Province, due to damaged facilities and power supply failures. It was estimated that 510,000 metric tons of zinc smelting capacity was affected or approximately 7% of China’s national total. If those particular zinc smelters were all refining indium and were shut for one full year, perhaps as much as 24.8 metric tons or 4.9% of primary indium production could have been lost.
World Refinery Production, Reserves, and Reserve Base (Metric Tons)(1):
 | | | | | | | | | | |
| | Refinery Production | | Reserves(3) | | Reserve Base(2) |
| | | 2005 | | 2006 | | 2007 | | |
| China | | | 300 | | | | 350 | | | | 250 | | | | 8,000 | | | | 10,000 | |
| Korea, Republic | | | — | | | | 50 | | | | 85 | | | | 0 | | | | 0 | |
| Japan | | | 70 | | | | 55 | | | | 50 | | | | 0 | | | | 0 | |
| Canada | | | 50 | | | | 50 | | | | 50 | | | | 150 | | | | 560 | |
| Belgium | | | 30 | | | | 30 | | | | 30 | | | | in other countries | | | | in other countries | |
| Russia | | | 15 | | | | 16 | | | | 17 | | | | 360 | | | | 580 | |
| France | | | 10 | | | | 10 | | | | 10 | | | | in other countries | | | | in other countries | |
| United States | | | 0 | | | | 0 | | | | 0 | | | | 280 | | | | 450 | |
| Other Countries | | | 25 | | | | 15 | | | | 15 | | | | 1800 | | | | 4200 | |
| Total | | | 500 | | | | 580 | | | | 510 | | | | 11,000 | | | | 16,000 | |
| (1) | Table is taken from the U.S. Geological Survey Minerals Commodities Summaries, January 2007 and January 2008. |
| (2) | The Reserve Base is that part of an identified resource that meets specified minimum physical and chemical criteria related to current mining and production practices, including those for grade, quality, thickness, and depth. The reserve base is the in-place demonstrated resource from which reserves are estimated. It includes reserves that are currently economic, marginally economic, and some that are subeconomic. |
| (3) | Reserves are resources that are currently economic. |
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DEMAND
According to a DisplayDaily.com article published on August 1, 2007 titled “Indium You May Not See It But You Really Need It,” the demand for indium was 861 tons in 2006 and was expected to be about 1,000 tons in 2007 and may reach almost 2,000 tons by 2011. Indium is primarily produced as a by-product of zinc production. By the standards of the zinc industry, indium is miniscule in terms of both tons and dollar volume. Four years ago indium was about $100/kg and now costs $550/kg. Recently a spike drove the price briefly above $1,000/kg. Although the actual size of the indium market in 2007 has yet to be determined, Displaybank expects the total sales of indium in 2007 to be $533 million.
The price of indium has declined substantially since it peaked in March 2005. The price for indium has declined 53.2% from its high of $1,070 per kilogram in March 2005 to $500 per kilogram as of September 2, 2008. If we began operations in March 2005, and we purchased our stockpile at peak prices, the value of our stockpile would have decreased by 53.2% in approximately three and one half years. It is possible that if we purchase the stockpile at today’s prices then the value may fall substantially. It is possible that we will not be able to sell our indium stockpile at prices higher than the price we paid for it. As recently as 2002, the price of indium was less than $100 per kilogram. If the price of indium returns to those levels, our stockpile and NMV will be substantially lower than what we paid for it.
A small amount of indium is used to make every liquid crystal display screen. This is the primary use of indium today and accounts for over 50%approximately 84% of consumption. These LCDs are key components in laptop computers, flat panel monitors and flat panel televisions. They are also used in cell phones, PDAs, digital cameras, clocks, watches, picture frames, GPS receivers, answering machines and other electronic devices. We believe many of these products are in very high demand and LCDs are being incorporated into an increasing number of devices.
We believeAccording to the USGS, about 15%2% of the indium produced is used to make electrical components. These are mainly used in infrared detectors, high speed transistors and photovoltaic devices for the solar industry. Indium’s very low melting point and ability to conduct electricity make it an important ingredient in many low temperature solders and alloys. We believeAccording to the USGS, about 12%13% of indium consumption goes to alloys, solders and solders.compounds.
Another important use of indium is in coatings applied to glass. These coatings are transparent, but reflect radiant heat through the glass. These glasses are used in aircraft windows, windows of office buildings, and doors on refrigerators and ovens. Small amounts of indium are also used for defogging agents to keep condensation from building up on aircraft and locomotive windows. We believe many of these uses have declined over the past few years because of the rise in the price of indium.
Flat Panel Displays (FPDs)
We believe the demand for indium will grow for the foreseeable future. We believe the markets for flat panel displays are strong, particularly for computer monitors, televisions, phones, and PDA’s. We expect high rates of growth in the LCD industry to generate increased demand for indium and we expect increased consumption in this market.
Indium is a key component of Indium-Tin-Oxide (ITO), the standard transparent electrode used in virtually all flat panel displays and micro displays. An electrode is needed to either drive the cell or provide electromagnetic shielding, whether the display is a liquid crystal (LC), organic light emitting diode (OLED) or plasma cell. Transparency is needed to allow the light generated or controlled to reach the outside world.
According to the USGS, the indium market remained in deficit in 2007 as demand for the metal, supported largely by ITO demand, continued to outpace supply. The USGS also reported that in 2007, year-on-year shipments of LCD television panels were forecast to increase 47%, and LCD monitor panels to increase 24%. According to the USGS, mainstream LCD devices were also trending toward larger panel sizes, which require more indium per unit.
According to the LCD TV Association, less than 10 million LCD TV sets were sold globally in 2004. By 2006, more than 40 million LCDs were sold ramping to an estimated 70 million in 2007, with a further estimate of 100 million units sold globally in 2008. According to Bloomberg.com, Samsung, Asia’s largest
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maker of flat-screens used in computers and televisions, forecast that this year’s Beijing Olympics would propel global LCD TV sales to 98 million units. The LCD TV Association predicted that with LCD TVs getting better and less expensive each year that there will be 200 million units sold annually by 2012.(1) According to Aim Specialty Materials, the cost of ITO per LCD panel is insignificant. Despite indium prices exceeding $800 per kilogram in 2006, the cost of indium that is applied to a 32” LCD panel would be approximately $0.55. Even if the price of indium were to double, the indium (ITO) cost per panel would be approximately $1.00 on a product that retails for over $1,000 per unit.
| (1) | LCD TV Association, Summer of 2007, Volume 1, Issue 1 of “LCD TV Matters.” |
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Management also believes that the portable device market (PDA) also represents opportunities for growth in the market for indium.
Solar Industry
Indium is increasingly being used as a crucial raw material in the solar energy industry. According to the United States’ National Renewable Energy Laboratory, to produce 20 gigawatts of solar power by the year 2050, the United States will need 400 metric tons of indium per year for the production of photovoltaic modules and systems alone. Based on the same report, the shortage of either indium or tellurium (another raw material for photovoltaic production) could result in serious bottlenecks to such growth unless such cells were made thinner or substitutes were found.
Solar cells are growing in importance and have a distinct similarity to FPDs. For example, the recently announced Sharp Gen 10 fabrication facility will be used not only for LCD panels but also for manufacturing solar cells as well. According to Insight Media Analyst, we believe that in one year, the facility is expected to be able to produce enough solar cells to produce 100 MW of power indefinitely. This is the equivalent of a medium-sized nuclear power plant.
Copper-Indium-Gallium-di-Selenide (CIGS) is a new semiconductor material comprising copper, indium, gallium, and selenium. This material is being used in the next generation of photovoltaic cells or CIGS solar cells. CIGS solar cells are not yet as efficient as crystalline silicon solar cells, however, they are expected to be substantially cheaper. As a thin-film photovoltaic (PV) technology, CIGS should have relatively low costs in scale production due to low usage of PV materials and efficient production processes. CIGS is recognized to be one of the most promising thin-film technologies given its high conversion efficiency as delivered in lab environments. We believe that once mass production issues are mastered by industry participants, CIGS based solar photovoltaic panels could be a large new market for the usage of indium.
Governmental Regulation
General Description
There are no governmental regulations which will directly impact our intended operation of purchasing leasing and lending indium. However, there are government regulations from the Defense National Stockpile Center (DNSC), which governWe intend to use standard industry commercial terms recognized by industry participants in connection with the storage and shipment of indium. These regulationsA representative sample of such terms are summarizedlisted below.
Purity. The recognized industry wide standard purity level is 99.97%.
Price. All purchases and sales of indium are individually negotiated. There is no fixed price ratio between 3N7, 4N or 5N material in the indium industry. Typically, in a regular indium market, balanced supply and demand, the higher the purity of the indium, the more it costs. 4N indium is slightly more expensive than 3N7. 5N is slightly more expensive than 4N. In a declining indium market, the price of 3N7 purity indium is often quoted at an even greater discount to indium with purities of 4N or 5N. In some cases, the prices may be as much as 2% to 5% lower. Typically, when the price of indium is appreciating, there is often no difference in the price of 3N7 purity indium compared to 4N or 5N purity metal.
Form.Indium Metal, 4N3N7 grade, Type 1 or Type 2, is received for storage in the form of ingots which have a uniform trapezoidal shape or uniform rectangular shape with square or rounded edges. The top and bottom surfaces are relatively flat and parallel.
| (1) | LCD TV Association, Summer of 2007, Volume 1, Issue 1 of “LCD TV Matters.” |
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Surface Characteristics.Indium is a silvery white metal with a bluish cast. Surfaces of the ingot are clean and free of dirt, grease, oil, cleaning residues, etc.
Dimensions.Nominal ingot dimensions are listed below for the two types of Indium.
| | | | | | | | |
| | Weight | | Length | | Width | | Height |
| Type 1 | | 100 tr. oz | | 8.50 in./ | | 3.25 in./ | | 1.25 in./ |
| | | (3.11 kg) | | 215.9 mm | | 82.5 mm | | 31.75 mm |
| Type 2 | | 10 kg | | 340/345 mm | | 85/95 mm | | 45 mm |
| | | | | (bottom/top) | | (bottom/top) | | |
Production Lot Size.Each ingot shall be traceable to the refining lot or melt from which it was produced.
Packaging
Ingots.Ingots in a production lot shall be individually wrapped in a new, clean, transparent polyethylene bag which has a minimum thickness of 0.004 inches (4 mm). Both ends of the bag shall be closed by heat sealing.
Boxes.Each box from the supplier shall contain either a maximum of twenty 100 tr. oz ingots or six 10 kg ingots with a total net weight of approximately 63 kg (2,000 tr. oz).
Marking
Ingot.Each ingot in a refining lot or melt shall be permanently marked or stamped with identification information.
Boxes.Sufficient aluminum tags shall be affixed to each box and shall be marked with identification information.
Storage
Indium ingots shall be stored indoors, in a vault or vault like area of a warehouse which has been equipped with fire prevention sprinklers. Storage identity shall be maintained by contract and production lot number as indicated on each box and in shipping instructions.
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Security
Eight seals shall be affixed through holes bored in the top and bottom corners of the box to maintain the integrity of the box contents. Entry into vault areas for the purpose of shipments, inventory or qualitative maintenance inspections will be documented by use of logs and/or custodial reports.
Our Manager will be responsible for conducting limited inspections of the indium delivered to us. Our Manager will not be responsible for conducting any chemical assays or other tests designed to verify that such indium meets the 99.97% purity requirements referred to in our prospectus. Our Manager will rely on the good faith of its suppliers to provide indium that meets our requirements. Regular industry suppliers of indium mark each ingot with grade and ingot number. Boxes of ingots are marked with lot identification. Indium comes delivered with a certificate of analysis in sealed heavy duty boxes. There is a chain of authenticity that our Manager will rely upon. If the Manager purchases indium from a company that is not known to be a regular indium industry supplier, then at the Manager’s discretion, it may hire, at our expense, an independent lab to perform random assay tests using glow-discharge mass spectrometry (GDMS) to verify the purity of the indium. This would be done prior to taking delivery of the said lots. Depending on the lot size, we might take a sample of indium from random ingots to be tested for purity. This would minimize our risk in taking delivery of an entire shipment of lower grade indium. The Manager does not intend to certify known indium industry refiners. Indium in transit will be insured regardless from whom it is purchased. We anticipate that disputes or disagreements will be resolved by arbitration.
Competition
Although we believe no other companies have our business model, we may have competition from miners, refiners, suppliers, and supplierstraders of indium such as Huludao Zinc Industry Co. of China, Liuzhou China Tin Group, Jianxi Copper Co., Zhuzhou Smelter Group Co., Ltd., Nanjing Foreign Economic & Trade Development Co., Ltd., Nanjing Sanyou Electronic Materials Co., Ltd., Huludao Nonferrous Metals (Group) I/E
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Co., Ltd., Nanjing Germanium Co., Ltd., Xiangten Zhengtan Nonferrous Metals Co., Ltd., Guangxi Intai Technology Co., Ltd., Hunan Jingshi Group, Laibin Debang Industry and Trade Co., Ltd., Tianjin Indium Products Co. Ltd., Teck Cominco Limited, Falconbridge, Indium Corporation of America, Umicore Indium Products, Dowa Electronics Materials Co., Unionmet Singapore Limited.(Singapore) Limited, Aim Specialty Materials, Glencore International AG, Wogen PLC, RJH Trading Ltd., MCP Metal Specialties, Hudson Metals Corporation, and Traxys Group. We may also have competition from end users of indium. It is our belief that the top producers of FPD’s are the largest purchasers of indium. According to an article published on June 21, 2007 in the Asia Times titled “Japan Goes Prospecting for Rare Metals,” Japan consumes 60% of global indium such as Auproduction in the form of indium-tin-oxide for the manufacturing of FPDs. China supplies Japan with 70% of their imports, according to the same article. Major producers of FPDs, not limited to Japan and listed in alphabetical order, are AU Optronics, Chi Mei Optoelectronics, Chunghwa Picture Tubes, HannStar Display Co., Innolux, LG Phillips LCD, Co.Quanta Display Inc., Samsung Electronics, Sharp Corp., and Sony Corp. These companies are likely competing with us for purchasing indium from industry suppliers.
Properties
We maintain our principal executive offices at c/o Richard A. Biele, 103 Carnegie Center,41 University Drive, Suite 101, Princeton, New Jersey 08540.400, Newtown, Pennsylvania 18940.
Employees
We have no full-time employees. Our officers will provide services to us through the Manager. Our Chief Financial Officer will be a part-time employee and will receive quarterly compensation of $7,500 and an annual award of 30,000 options, subject to the consummation of this offering.
Legal Proceedings
There are no legal proceedings currently pending or, to our knowledge, threatened against us.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information concerning our executive officers and directors as of February 25,April 1, 2008:
| | | | |
| Name | | Age | | Position |
| Executive Officers and Directors: | | | | |
| Alan Benjamin | | 46 | | Chairman of the Board, Chief Executive Officer |
| Ailon Z. Grushkin | | 3536 | | President, Director |
| Richard A. Biele | | 3839 | | Chief Operating Officer, Secretary, Director |
| Richard T. Morena | | 48 | | Chief Financial Officer |
| P.J. (Patrick James) Richardson | | 61 | | Director |
| Fred Arena | | 53 | | Director |
| Mark Stephen Neuhof | | 55 | | Director |
| | | | | | | | | | |
Executive Officers and Directors
Alan Benjamin has been our Chairman and Chief Executive Officer since inception. Mr. Benjamin currently owns and operates SMA Development Associates, LLC, a Connecticut based real estate investment company he founded in 2003. Prior to his time at SMA Development Associates,this, he spent thirteen years at AIG where he last served as Senior Vice President in charge of AIG’s global base metals businesses. Mr. Benjamin began his career at Drexel Burnham Lambert in 1983, where he started as a broker in their commodity’s department and by 1988 he was managing the Asian operations of the firm’s bullion trading activities. Drexel’s commodity trading group moved to AIG in 1990 where Mr. Benjamin founded and managed their metals and foreign exchange trading operations in Asia. Mr. Benjamin is also a Managing Member of Heritage Building Group, a contractor in the luxury residential market in Fairfield County, Connecticut. He is a graduate of the University of Michigan with a Bachelor of Arts in history.
Ailon Z. Grushkin has been our President and Director since inception. He is currently the General Partner of both the Nano-Cap Hyper Growth Partnership L.P., a micro-cap focused hedge fund he founded in October 1996, and the Nano-Cap New Millennium Growth Fund L.P., a similar fund he founded in January 2000. He is also currently the Managing Member of the AZG Tangible Assets Fund LLC, a commodities based hedge fund he launched in January 2004. Prior to 1996, Mr. Grushkin worked or interned at Merrill Lynch Futures Investment Partners (“MLFIP”), Thompson McKinnon Securities, Prudential Securities and Sumitomo Bank Ltd. At these firms he held various positions including assistant commodity trader, commodity trading advisor analyst and assistant derivatives trader. At MLFIP, he helped create the first Discretionary Trading Advisor Index in the Managed Futures Industry. Mr. Grushkin is a graduate of the John M. Olin School of Business at Washington University in St. Louis with a Bachelor’s of Science in Business Administration.
Richard A. Biele has been our Chief Operating Officer and a director since inception. Mr. Biele is currently a Principal of Princeton Financial Partners, which owns and operates a branch of Andrew Garrett Inc., a full service boutique Broker Dealer based in Princeton, New Jersey, servicing retail and institutional investors. Prior to that, Princeton Financial Partners, operated as an affiliate of S.W. Bach & Company, a FINRA regulated securities firm, from 2005 to 2007. From August 2001 through November 2005, Mr. Biele worked at Kirlin Holdings Corp. From January 1998 through August 2001, Mr. Biele worked at Princeton Securities. Mr. Biele has had seventeen years of experience in investment banking and mergers and acquisitions. In 2001, Mr. Biele formed Wall Street Contracting, a builder of luxury waterfront homes in southern New Jersey. Mr. Biele has a Bachelor’s of Science in Economics from Old Dominion University.
Richard T. Morena has been our Chief Financial Officer since inception. Since 1996, Mr. Morena ishas been a part-owner and the Chief Financial Officer of Press Communications, LLC, a diversified media company that through its presently owned and prior operated properties has owned and operated radio, TV, newspaper, cable, direct mail, internet, and other media related ventures. Currently his company operates six radio stations in Central New Jersey. Mr. Morena’s responsibilities include all tax, accounting, mergers and
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acquisitions, and other financial and business support services for the company’s radio broadcasting operations. Mr. Morena has been responsible for the company’s overall strategic direction through various business acquisitions and dispositions. Prior to Mr. Morena’s work in the private sector, he worked for Price Waterhouse where he worked on a
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variety of audit engagements of large multinational manufacturing corporations in the Health Care, Consumer Products, Chemicals, Aerospace, Automotive and Oil and Gas Industries and a diversification of other manufacturing and service-oriented companies. Mr. Morena is a Certified Public Accountant in the State of New Jersey and a member of the New Jersey Society of Certified Public Accountants and The American Institute of Certified Public Accountants. He is also is associated with many philanthropic/charitable activities that include, Little Baby Face, the American Cancer Society, the Jimmy Fund, the United Way and Autism Speaks. Mr. Morena while being active in all of these endeavors is especially tied to the Autism community and presently sits on the New England Chapter Autism Speaks Board in Boston, MA. Mr. Morena is a graduate of Rutgers University and Columbia University Graduate School where he earned his Master’s Degree in Finance graduating Summa Cum Laude.
Non-Employee Directors
Mark Stephen Neuhof has been a director of our company since April 2008. Mr. Neuhof has over 30 years of experience in the fields of metals trading and derivatives. Mr. Neuhof is currently a Senior Manager at Sumitomo Corporation Global Commodities Limited and is responsible for developing their base and precious metals business in the United States. Mr. Neuhof has been involved with Sumitomo Corporation since 2005, initially as a consultant advising them on their metals business worldwide and aiding them in developing various new opportunities. Concurrently, Mr. Neuhof was a principal of JEMM Development Group which invested in and developed properties in New York and Connecticut. Prior to his affiliation with Sumitomo, Mr. Neuhof was employed by AIG Financial Products from 1990 to 2005 as a Managing Director in both their Wilton Connecticut and London offices. Mr. Neuhof had overall responsibility for their precious and base metals business including profit and loss, risk management as well as maintaining and developing client relationships. Prior to that, he was a Vice President at Drexel Burnham Lambert and held various other positions in the currency and metals trading fields. Mr. Neuhof is a graduate of Queens College and Saint John’s University where he earned his Masters of Business Administration.
P.J. (Patrick James) Richardson, has been a director of our company since January 2008. Mr. Richardson is currently Chairman of the EXTOL Group, Inc., a private investment group, specializing in diagnostic technology for the Homeland Security Industry since 2005. Previously, he served as President and Chief Executive Officer of The Reeves Group, (TRG) Inc., a company he founded in 1990 and divested in January 2005. TRG was the technology leader for products used in the consequence management of WMD events of a Chemical/Biological nature. Prior to the formation of TRG, Mr. Richardson served as President & Chief Executive Officer of Racal Health & Safety, a subsidiary of Racal Electronics PLC, from 1986 to 1990 and was responsible for all North American activities for Racal Health & Safety Group, PLC, a world leader in the manufacture and distribution of respiratory protection and other personal protective equipment. Prior to joining Racal, MR. Richardson served as Director of Sales & Marketing for American Optical Corporation, Safety Products Division, from 1983 to 1984. Early in his career he spent considerable time with The Johnson & Johnson Family of Companies. He held a series of senior level positions over ten plus years with the Johnson & Johnson organization. Mr. Richardson currently serves on the Boardboard of Directorsdirectors of Trailerlogic, LLC and the Board of Advisors of Evergreen Capital LLC. Mr. Richardson received his Bachelor of Business Administration from St. Michael’s College and has co-authored two books for Thomas Nelson Publishers.
Fred Arenahas been a director since January 2008.Mr. Arena is currently the Senior Vice President of Asset Management of American Financial Realty Trust. He is also currently the founder and President of Vision Equities LLC. Mr. Arena has served as Senior Vice President of Asset Management at American Financial Realty Trust since May of 2006 and is a member of the company's senior management team. From 1999 to 2006, Mr. Arena served as Regional Managing Director of Commercial Real Estate for one of the Goldman Sachs Whitehall Companies. Prior to 1999, Mr. Arena was Senior Vice President of Asset Management and General Manager for one of the most prestigious privately owned real estate companies in the northeast. Mr. Arena began his career with Hartz Mountain Industries in the 1980s managing a 10 million square foot commercial office portfolio. Mr. Arena serves on the Boardboard of Directorsdirectors of the Building Owners & Managers Association (BOMA) New Jersey and is a member of its Executive Board. He is also a member of the
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National Association of Industrial & Office Properties (NAIOP). Mr. Arena received his Bachelor of Science in Business Administration and Management from Rutgers University.
Board of Directors
Board Composition
Our certificate of incorporation, as amended, and bylaws provide that the authorized number of directors may be changed only by resolution of the Boardboard of Directors.directors. We currently have fivesix directors. In accordance with our certificate of incorporation, as amended, and bylaws, immediately upon the closing of this offering, our Boardboard of Directorsdirectors will be divided into two classes with staggered two-year terms. At each annual meeting of stockholders commencing with the meeting in 2009, the successors to the directors whose terms then expire will be elected to serve until the second annual meeting following the election. The term of office of the first class of directors, Class I, consisting of Alan BenjaminMark Neuhof, Fred Arena and Ailon Z. Grushkin,P.J. Richardson, will expire at our first annual meeting of stockholders immediately following the initial classification of the Boardboard of Directors.directors. The term of office of the second class of directors, Class II, consisting of Alan Benjamin, Richard Biele Fred Arena and P.J. RichardsonwillAilon Z. Grushkin, will expire at the second annual meeting of stockholders immediately following the initial classification of the Boardboard of Directors.
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Any additional directorships resulting from an increase in the number of directors will be distributed among the two classes so that, as nearly as possible, each class will consist of one-third of the directors.
Director Independence
Our Boardboard of Directorsdirectors has reviewed the materiality of any relationship that each of our directors has with us, either directly or indirectly. Based on this review, the board has determined that the following directors are “independent directors” as defined by American Stock Exchange and Rule 10A-3 of the Exchange Act: Messrs. Richardson, Neuhof and Arena.
Committees of the Board of Directors
Our Boardboard of Directorsdirectors has an audit committee, a compensation committee, and a nominating and governance committee, each of which has the composition and responsibilities described below.
Audit Committee. Our audit committee is composed of P.J. Richardson (Chairman), Mark Neuhof and Fred Arena. Each member of our audit committee satisfies the current independence standards promulgated by the SEC and by the American Stock Exchange, as such standards apply specifically to members of audit committees. All members of our audit committee are also financially literate under the current listing standards of the American Stock Exchange, and our Boardboard of Directorsdirectors has determined that Mr. Arena qualifies as the “audit committee financial expert,” as such term is defined by the SEC. Our audit committee is authorized to:
approve and retain the independent registered public accounting firm to conduct the annual audit and quarterly reviews of our books and records;
review the proposed scope and results of the audit;
review and pre-approve the independent registered public accounting firm’s audit and non-audit services rendered;
review accounting and financial controls with the independent registered public accounting firm and our financial and accounting staff;
review and approve transactions between us and our directors, officers and affiliates;
recognize and prevent prohibited non-audit services;
establish procedures for complaints received by us regarding accounting matters;
oversee internal audit functions; and
prepare the report of the audit committee that SEC rules require to be included in our annual meeting proxy statement.
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Compensation Committee. Our compensation committee is composed of Mr. P.J. Richardson (Chairman) and Mr. Fred Arena. All members of the compensation committee qualify as independent under the current definition promulgated by the American Stock Exchange. Our compensation committee is authorized to:
review and recommend the compensation arrangements for management, including the compensation for our Chief Executive Officer;
establish and review general compensation policies with the objective to attract and retain superior talent, to reward individual performance and to achieve our financial goals;
approve and oversee reimbursement policies for directors, executive officers and key employees;
administer our stock incentive plan;
review and discuss the compensation discussion and analysis prepared by management to be included in our annual report, proxy statement or any other applicable filings as required by the SEC; and
prepare the report of the compensation committee that SEC rules require to be included in our annual meeting proxy statement.
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Nominating and Governance Committee. Our nominating and governance committee is composed of Messrs. P.J. Richardson (Chairman), Mark Neuhof and Fred Arena. All members of the nominating and governance committee qualify as independent under the current definition promulgated by American Stock Exchange. Our nominating and governance committee is authorized to:
identify and nominate members of the Boardboard of Directors;directors;
develop and recommend to the Boardboard of Directorsdirectors a set of corporate governance principles applicable to our company;
review and maintain oversight of matters relating to the independence of our board and committee member, in light of the independence standards of the Sarbanes-Oxley Act of 2002 and the rules of the American Stock Exchange; and
oversee the evaluation of the Boardboard of Directorsdirectors and management.
Unionmet (Singapore) Limited Negotiation and Agreement Committee. Our Unionmet (Singapore) Limited negotiation and agreement committee is composed of Messrs. Mark Neuhof (Chairman), P.J. Richardson and Fred Arena. All members of the Unionmet (Singapore) Limited negotiation and agreement committee qualify as independent under the current definition promulgated by the American Stock Exchange. Our Unionmet (Singapore) Limited negotiation and agreement committee is authorized to review, approve, and finalize any and all transactions between Unionmet and our company.
Corporate Code of Conduct and Ethics
We have adopted a corporate code of conduct and ethics applicable to our directors and officers in accordance with applicable federal securities laws and the rules of American Stock Exchange.
Employment
Our Manager and our Chief Executive Officer, President, Chief Operating Officer and board of directors will allocate, in the aggregate, approximately 120 hours per week during the stockpiling phase of the business plan. Once the stockpiling effort is complete, the number of hours allocated will fall to approximately 60 hours per week. Our Chief Financial Officer will allocate approximately 10 hours per week.
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MANAGEMENT SERVICES AGREEMENT
We will enter into a Management Services Agreement with the Manager prior to the consummation of this offering. The primary responsibilities of the Manager under the Management Services Agreement will be to:
| (i) | use commercially reasonable efforts to arrange for, and complete, for and on our behalf through industry-standard tenders, the purchase and sale of indium at the best available prices available over a prudent period of time as may be requested by our Boardboard of Directorsdirectors from time to time; |
| (ii) | provide to our Boardboard of Directorsdirectors delivery and payment particulars in respect of each purchase and sale of indium; |
| (iii) | arrange for the storage of our indium, including arrangements regarding indemnities or insurance in our favor for the loss of such indium in accordance with industry practices; |
| (iv) | on a monthly basis, prepare a report on the NAVNMV of each share of our common stock,stock. The NMV is a non-GAAP term which shall be determined by multiplying the number of kilograms of indium held by or for us by the last spot price for indium published by Metal Bulletin posted on Bloomberg L.P. for the month, plus cash and any of our other assets, less any and all of our outstanding payables, indebtedness and any other liabilities, divided by the total number of outstanding Common Shares. Such report will be made available to us and our Boardboard of Directors;directors; |
| (v) | prepare regulatory filing materials, reports to our stockholders, and other reports to our Boardboard of Directorsdirectors as may be reasonably requested from time to time; |
| (vi) | furnish office facilities, services and supplies and generally oversee with its staff and independent contractors, our management; and |
| (vii) | generally manage our business and affairs. |
Our Manager has agreed to manage our activities in accordance with reasonable and prudent practices and may delegate, with the approval of our Boardboard of Directorsdirectors and at its own cost, any of its duties or obligations under the Management Services Agreement to any third party.
All purchases and sales of indium will be completed by the Manager in its discretion for and on our behalf. The Manager will typically purchase or sell indium in the form of a tender for an offer to sell or buy indium, whichever the case may be. Such purchases are usually in the form of a tender, which will stipulate the quantity to be purchased or sold, delivery particulars and payment particulars, but not price. Typical purchasers or sellers of indium include, but are not limited to, Huludao Zinc Industry Co. of China, Liuzhou China Tin Group, Jianxi Copper Co., Zhuzhou Smelter Group Co., Ltd., Nanjing Foreign Economic & Trade Development Co., Ltd., Nanjing Sanyou Electronic Materials Co., Ltd., Huludao Nonferrous Metals (Group) I/E Co., Ltd., Nanjing Germanium Co., Ltd., Xiangten Zhengtan Nonferrous Metals Co., Ltd., Guangxi Intai Technology Co., Ltd., Hunan Jingshi Group, Laibin Debang Industry and Trade Co., Ltd., Tianjin Indium Products Co. Ltd., Teck Cominco Limited, Falconbridge,
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Indium Corporation of America, Umicore Indium Products, Dowa Electronics Materials Co., Unionmet Singapore(Singapore) Limited, AuAim Specialty Materials, Glencore International AG, Wogen PLC, RJH Trading Ltd., MCP Metal Specialties, Hudson Metals Corporation, Traxys Group, AU Optronics, Chi Mei Optoelectronics, Chunghwa Picture Tubes, HannStar Display Co., Innolux, LG Phillips LCD, Co.Quanta Display Inc., Samsung Electronics, Sharp Corp., and Sony Corp. There is no public market through which these purchases and sales may occur and accordingly all such purchase and sale transactions are private. The pool of potential purchasers and sellers is limited and each transaction may require the negotiation of specific provisions. Accordingly, a purchase or sell cycle pursuant to a tender may take several months to complete. Since all purchases are confidential, we, including our Manager, may not be able to publicly disclose any vendor from which we would potentially purchase indium or any seller to which we may sell indium.
The Management Services Agreement shall have an initial term of five years (the “Initial Term”). After the Initial Term, the Management Services Agreement may be renewed on terms mutually acceptable to each party and may be terminated by either party upon the provision of 90 days prior written notice. The Management Services Agreement shall terminate immediately where a winding-up, liquidation, dissolution, bankruptcy, sale of assets, sale of business or insolvency proceeding have been commenced or are being
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contemplated by the Manager, and terminated upon our completion of any such proceeding. We may terminate the Management Services Agreement at any time if the Manager breaches any of its material obligations thereunder and such breach has not been cured within 90 days following notice thereof from us to the Manager.
On July 11, 2008, we entered into a Purchase/Supply/Agency Agreement with Unionmet. Certain members of our Manager, Ailon Grushkin and Richard Biele, directly or beneficially hold shares in Unionmet. Consequently, a conflict of interest may arise in connection with transactions between our company and Unionmet. We therefore adopted specific procedures to be used in connection with future transactions with Unionmet. Such procedures require that any and all transactions to be entered into with Unionmet must be reviewed and approved by (i) Alan Benjamin, the remaining independent member of our Manager, and (ii) the Unionmet (Singapore) Limited Negotiation and Agreement Committee, which is comprised of independent board members that has no direct or indirect affiliation with Unionmet.
We acknowledge that our Manager shall not be responsible for any loss of opportunity whereby the value of any of our assets or the value of any particular indium, monetary or currency investment could have been increased, nor shall it be responsible for any decline in value of any of our assets unless such decline is the result of the Manager's gross negligence or willful failure to comply with express directions given by resolution of either our Boardboard of Directorsdirectors or our Common Shareholders.
We will be responsible for paying all costs and expenses incurred in connection with its business except those that are expressly to be borne by our Manager as set out therein. Such costs and expenses to be borne by us will include, without limitation: (i) brokerage and trading commissions; (ii) transportation costs, insurance fees and commissions, security services costs, and other charges arising upon the holding, purchase lease or sale of indium or our other assets; (iii) legal and audit fees; (iv) corporate finance offering costs; (v) fees payable for listings, the maintenance of listings and filings or other requirements of stock exchanges on which any of our securities are listed or quoted; (vi) the cost of printing and mailing financial reports and material for Common Shareholders' meetings, valuations, reporting to Common Shareholders, securities regulatory filings and any other purposes required by law; (vii) fees payable to any registrar and transfer agent of the Common Shares or our other securities; (viii) our directors' fees and expenses; (ix) the Manager's fees payable under the Management Services Agreement; and (x) all taxes (including income, capital and sales taxes).
Our estimated annual expenses are anticipated to be approximately $1,675,000 in the aggregate, include: (i) storage and holding of indium — $125,000; (ii) insurance — $75,000; (iii) shareholder communications and relations and maintaining the effectiveness of our registration statement for the shares of common stock underlying our public warrants — $150,000; (iv) the annual Manager's fee — $1,025,000; (v) director and officer liability insurance premiums — $150,000; and (vi) other/administrative expenses including legal, accounting and director fees — $150,000.
In consideration of the Manager carrying out its duties and obligations under the terms of the Management Services Agreement, we shall pay to the Manager a fee equal to 2%2.0% per annum of our NAVNMV (the “Management Fee”). We and our Manager subjectively determined that two percent per annum of our NMV is the minimum compensation required for the Manager to assume the risk involved with overseeing our Company, executing the strategy, and annual time required to be spent managing our affairs. The Management Fee shall be payable on or before the 10th day following the end of each such month. For such purposes, the NAVNMV, a non-GAAP term, shall mean our total assets as at the valuation date, valued by multiplying the number of kilograms of our indium holdingsheld by or for us by the last spot price for indium published by Metal Bulletin as posted on Bloomberg L.P. for the month, plus cash plus fixed priced forward contracts marked to market and any of our other assets, less any and all of our outstanding payables, indebtedness or any other liabilities divided by the total number of our other liabilities.outstanding common shares. Our independent Boardboard of Directorsdirectors will have the express authority to engage a third party for the purpose of conducting an independent valuation or audit of our assets.
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The Manager may purchase up to $500,000 worth of indium prior to the completion of this offering. Pursuant to the Management Services Agreement, and subject to the completion of this offering, the Manager, at our option, will agree to sell to us any indium purchased by it at the same price as the Manager paid for such indium.
Under the terms of the Management Services Agreement, the Manager shall incur no liability for any action except for its own gross negligence, willful misconduct or breach of the Management Services Agreement.
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The following table sets forth certain information concerning the membership of the Manager as of January 31, 2008:
| | | | |
| Name | | Age | | Position |
| Ailon Z. Grushkin | | 3536 | | Member, Manager |
| Alan Benjamin | | 46 | | Member |
| Richard A. Biele | | 3839 | | Member |
Please see above for the biographies of Messrs. Grushkin, Benjamin and Biele.
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EXECUTIVE COMPENSATION
Compensation for Officers and Directors
We have no employment agreements or arrangements with our Chairman and Chief Executive Officer, Mr. Benjamin, with our President, Mr. Grushkin or with our Chief Operating Officer, Mr. Biele. Messrs. Benjamin, Grushkin and Biele will provide services on our behalf through the Manager and will be compensated by the Manager out of the management fee to be paid by us to the Manager pursuant to the Management Services Agreement. We have an employment arrangement with Richard T. Morena, our Chief Financial Officer, that upon effectiveness of the public offering, we will employ Mr. Morena for a term of one year. Mr. Morena’s employment will provide for an annual base salary of $30,000, to be paid quarterly in installments of $7,500.
Employment Agreements and Change of Control Arrangements
We have no employment agreements or arrangements with our Chairman and Chief Executive Officer, Mr. Benjamin, with our President, Mr. Grushkin or with our Chief Operating Officer, Mr. Biele. Messrs. Benjamin, Grushkin and Biele will provide services on our behalf through the Manager and will be compensated by the Manager out of the management fee to be paid by us to the Manager pursuant to the Management Services Agreement. We have an employment arrangement with Richard T. Morena, our Chief Financial Officer, that upon effectiveness of the public offering, we will employ Mr. Morena for a term of one year. Mr. Morena’s employment will provide for an annual base salary of $30,000, to be paid quarterly in installments of $7,500. Mr. Morena has been awarded stock options to purchase 30,000 shares of our common stock at an exercise price equal to $4.50 per share of our common stock, subject to completion of this offering. Mr. Morena will receive an award of 30,000 options annually thereafter on terms to be established by the board of directors or the compensation committee of the board of directors.
Remuneration of Board of Directors
Each of the independent members of our Boardboard of Directorsdirectors will be paid such remuneration for their services as our board of directors may, from time to time, determine. Until otherwise determined, upon consummation of the offering, we anticipate paying each of our independent Board members $10,000 per year, $1,000 per meeting attended (including committee meetings), reimbursement of travel expenses, and options to purchase 5,000 shares per annum of common stock pursuant to the 2008 Long-Term Incentive Compensation Plan. We will also reimburse the members of our Boardboard of Directorsdirectors for out-of-pocket expenses for attending such meetings, and all directors will participate in the indemnification arrangements described under the Management Services Agreement.
2008 Long-Term Incentive Compensation Plan
In connection with the commencement of our initial public offering, our Boardboard of Directorsdirectors adopted and our stockholders approved the plan in its entirety in January 2008. Under this plan, we may grant incentive
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stock options, non-qualified stock options restricted and unrestricted stock awards and other stock-based awards. A maximum of 330,000 shares of common stock has been reserved for issuance under this plan. Since inception, we have granted 5,000 options to purchase common stock to each of our twothree independent directors and 30,000 options to our Chief Financial Officer. The option grants will be exercisable at $4.50 per share and are exercisable subsequent to completion of this offering. The plan expires on January 31, 2018.
Our Boardboard of Directorsdirectors has authorized our compensation committee to administer our plan. In connection with the administration of our Incentive Plan, the compensation committee, with respect to awards to be made to any person who is not one of our directors, will:
determine which employees and other persons will be granted awards under our Incentive Plan;
grant the awards to those selected to participate;
determine the exercise price for options; and
prescribe any limitations, restrictions and conditions upon any awards, including the vesting conditions of awards.
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With respect to stock options or restricted stock awards to be made to any of our directors, the Compensation Committee will make recommendations to our Boardboard of Directorsdirectors as to:
which of such persons should be granted stock options, restricted stock awards, performance units or stock appreciation rights;
the terms of proposed grants of awards to those selected by our Boardboard of Directorsdirectors to participate;
the exercise price for options; and
any limitations, restrictions and conditions upon any awards.
Any grant of awards to any of directors under our Incentive Plan must be approved by our Boardboard of Directors.directors.
In addition, the compensation committee will:
interpret our Incentive Plan; and
make all other determinations and take all other action that may be necessary or advisable to implement and administer our Incentive Plan.
Types of Awards
Our Incentive Plan permits the Compensation Committee to grant the following types of awards.
Stock Options.Stock options are contractual rights entitling an optionee who has been granted a stock option to purchase a stated number of shares of our common stock at an exercise price per share determined at the date of the grant. Options are evidenced by stock option agreements with the respective optionees. The exercise price for each stock option granted under our Incentive Plan will be determined by our Boardboard of Directorsdirectors or the Compensation Committee at the time of the grant, but will not be less than fair market value on the date of the grant. Our Boardboard of Directorsdirectors or a committee of the Board will also determine the duration of each option; however, no option may be exercisable more than ten years after the date the option is granted. Within the foregoing limitations, the Boardboard of Directorsdirectors or committee of the Board may, in its discretion, impose limitations on exercise of all or some options granted under our Incentive Plan, such as specifying minimum periods of time after grant during which options may not be exercised. Options granted under our Incentive Plan will vest at rates specified in the option agreement at the time of grant; however, all options granted under our Incentive Plan will vest upon the occurrence of a change of control, as defined in the Incentive Plan. Our Incentive Plan also contains provisions for our Boardboard of Directorsdirectors or a committee of the Board to provide in the participants’ option award agreements for accelerating the right of an individual employee to exercise his or her stock option or restricted stock award in the event of retirement or other termination of employment. No cash consideration is payable to us in exchange for the grant of options.
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Our Incentive Plan provides that the stock options may either be Incentive Stock Options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, or Non-Qualified Options, which are stock options other than Incentive Stock Options within the meaning of Sections 422 of the Code. Incentive Stock Options may be granted only to our employees or employees of our subsidiaries, and must be granted at a per share option price not less than the fair market value of our common stock on the date the Incentive Stock Option is granted. In the case of an Incentive Stock Option granted to a stockholder who owns shares of our outstanding stock of all classes representing more than 10%10.0% of the total combined voting power of all of our outstanding stock of all classes entitled to vote in the election of directors, the per share option price must be not less than 110%110.0% of the fair market value of one share of our common stock on the date the Incentive Stock Option is granted and the term of such option may not exceed five years. As required by the Code, the aggregate fair market value, determined at the time an Incentive Stock Option is granted, of our common stock with respect to which Incentive Stock Options may be exercised by an optionee for the first time during any calendar year under all of our incentive stock option plans may not exceed $100,000.
The exercise price for Non-Qualified Options may not be less than the fair market value of our common stock on the date the Non-Qualified Option is granted. Non-Qualified Options are not subject to any of the restrictions described above with respect to Incentive Stock Options. The exercise price of stock options may be paid in cash, in whole shares of our common stock, in a combination of cash and our common stock, or in
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such other form of consideration as our Boardboard of Directorsdirectors or the committee of the Board may determine, equal in value to the exercise price. However, only shares of our common stock which the option holder has held for at least six months on the date of the exercise may be surrendered in payment of the exercise price for the options. In no event may a stock option be exercised after the expiration of its stated term.
Stock Appreciation Rights.A stock appreciation right permits the grantee to receive an amount (in cash, common stock, or a combination thereof) equal to the number of stock appreciation rights exercised by the grantee multiplied by the excess of the fair market value of our common stock on the exercise date over the stock appreciation rights’ exercise price. Stock appreciation rights may or may not be granted in connection with the grant of an option. The exercise price of stock appreciation rights granted under the Incentive Plan will be determined by the Boardboard of Directorsdirectors or a committee of the Board; provided, however, that such exercise price cannot be less than the fair market value of a share of common stock on a date the stock appreciation right is granted (subject to adjustments). A stock appreciation right may be exercised in whole or in such installments and at such times as determined by the Boardboard of Directorsdirectors or a committee of the Board.
Restricted Stock.Restricted shares of our common stock may be granted under our Incentive Plan subject to such terms and conditions, including forfeiture and vesting provisions, and restrictions against sale, transfer or other disposition as the Boardboard of Directorsdirectors or a committee of the Board may determine to be appropriate at the time of making the award. In addition, the Boardboard of Directorsdirectors or a committee of the Board may direct that share certificates representing restricted stock be inscribed with a legend as to the restrictions on sale, transfer or other disposition, and may direct that the certificates, along with a stock power signed in blank by the grantee, be delivered to and held by us until such restrictions lapse. The Boardboard of Directorsdirectors or a committee of the Board, in its discretion, may provide in the award agreement for a modification or acceleration of shares of restricted stock in the event of permanent disability, retirement or other termination of employment or business relationship with the grantee.
Performance Units.The Incentive Plan permits grants of performance units, which are rights to receive cash payments equal to the difference (if any) between the fair market value of our common stock on the date of grant and its fair market value on the date of exercise of the award, except to the extent otherwise provided by the Boardboard of Directorsdirectors or a committee of the Board or required by law. Such awards are subject to the fulfillment of conditions that may be established by the Boardboard of Directorsdirectors or a committee of the Board including, without limitation, the achievement of performance targets based upon the factors described above relating to restricted stock awards.
Performance Bonus.The Incentive Plan permits grants of performance bonuses, which may be paid in cash, common stock or combination thereof as determined by the Boardboard of Directorsdirectors or a committee of the Board. The maximum value of performance bonus awards granted under the Incentive Plan shall be established by the compensation committee at the time of the grant. An employee’s receipt of such amount will be
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contingent upon achievement of performance targets during the performance period established by the compensation committee. The performance targets will be determined by the Boardboard of Directorsdirectors or a committee of the Board based upon the factors described above relating to restricted stock awards. Following the end of the performance period, the Boardboard of Directorsdirectors or a committee of the Board will determine the achievement of the performance targets for such performance period. Payment may be made within 60 days of such determination. Any payment made in shares of common stock will be based upon the fair market value of the common stock on the payment date.
Transferability
With the exception of Non-Qualified Stock Options, awards are not transferable other than by will or by the laws of descent and distribution. Non-Qualified Stock Options are transferable on a limited basis. Restricted stock awards are not transferable during the restriction period.
Change of Control Event
The Incentive Plan provides that in the event of a change of control event the Board shall have the discretion to determine whether and to what extent to accelerate the vesting, exercise or payment of an Award.
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Termination of Employment/Relationship
Awards granted under our Incentive Plan that have not vested will generally terminate immediately upon the grantee’s termination of employment or business relationship with us or any of our subsidiaries for any reason other than retirement with our consent, disability or death. The Boardboard of Directorsdirectors or a committee of the Board may determine at the time of the grant that an award agreement should contain provisions permitting the grantee to exercise the stock options for any stated period after such termination, or for any period the Boardboard of Directorsdirectors or a committee of the Board determines to be advisable after the grantee’s employment or business relationship with us terminates by reason of retirement, disability, death or termination without cause. Incentive Stock Options will, however, terminate no more than three months after termination of the optionee’s employment, twelve months after termination of the optionee’s employment due to disability and three years after termination of the optionee’s employment due to death. The Boardboard of Directorsdirectors or a committee of the Board may permit a deceased optionee’s stock options to be exercised by the optionee’s executor or heirs during a period acceptable to the Boardboard of Directorsdirectors or a committee of the Boardboard following the date of the optionee’s death but such exercise must occur prior to the expiration date of the stock option.
Dilution; Substitution
As described above, our Incentive Plan will provide protection against substantial dilution or enlargement of the rights granted to holders of awards in the event of stock splits, recapitalizations, asset acquisitions, consolidations, reorganizations or similar transactions. New award rights may, but need not, be substituted for the awards granted under our Incentive Plan, or our obligations with respect to awards outstanding under our Incentive Plan may, but need not, be assumed by another corporation in connection with any asset acquisition, consolidation, acquisition, separation, reorganization, sale or distribution of assets, liquidation or like occurrence in which we are involved. In the event that our Incentive Plan is assumed, the stock issuable with respect to awards previously granted under our Incentive Plan shall thereafter include the stock of the corporation granting such new option rights or assuming our obligations under the Incentive Plan.
Amendment of the Incentive Plan
Our Board may amend our Incentive Plan at any time. However, without stockholder approval, our Incentive Plan may not be amended in a manner that would:
increase the number of shares that may be issued under our Incentive Plan;
materially modify the requirements for eligibility for participation in our Incentive Plan;
materially increase the benefits to participants provided by our Incentive Plan; or
otherwise disqualify our Incentive Plan for coverage under Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended.
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Awards previously granted under our Incentive Plan may not be impaired or affected by any amendment of our Incentive Plan, without the consent of the affected grantees.
Accounting Treatment
Under generally accepted accounting principles with respect to the financial accounting treatment of stock options used to compensate employees, upon the grant of stock options under our Incentive Plan, the fair value of the options will be measured on the date of grant and this amount will be recognized as a compensation expense ratably over the vesting period. Stock appreciation rights granted under the Incentive Plan must be settled in common stock. Therefore, stock appreciation rights granted under the Incentive Plan will receive the same accounting treatment as options. The cash we receive upon the exercise of stock options will be reflected as an increase in our capital. No additional compensation expense will be recognized at the time stock options are exercised, although the issuance of shares of common stock upon exercise may reduce basic earnings per share, as more shares of our common stock would then be outstanding.
When we make a grant of restricted stock, the fair value of the restricted stock award at the date of grant will be determined and this amount will be recognized over the vesting period of the award. The fair value of a restricted stock award is equal to the fair market value of our common stock on the date of grant.
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Due to consideration of the accounting treatment of stock options and restricted stock awards by various regulatory bodies, it is possible that the present accounting treatment may change.
Tax Treatment
The following is a brief description of the federal income tax consequences, under existing law, with respect to awards that may be granted under our Incentive Plan.
Incentive Stock Options.An optionee will not realize any taxable income upon the grant or the exercise of an Incentive Stock Option. However, the amount by which the fair market value of the shares covered by the Incentive Stock Option (on the date of exercise) exceeds the option price paid will be an item of tax preference to which the alternative minimum tax may apply, depending on each optionee’s individual circumstances. If the optionee does not dispose of the shares of our common stock acquired by exercising an Incentive Stock Option within two years from the date of the grant of the Incentive Stock Option or within one year after the shares are transferred to the optionee, when the optionee later sells or otherwise disposes of the stock, any amount realized by the optionee in excess of the option price will be taxed as a long-term capital gain and any loss will be recognized as a long-term capital loss. We generally will not be entitled to an income tax deduction with respect to the grant or exercise of an Incentive Stock Option.
If any shares of our common stock acquired upon exercise of an Incentive Stock Option are resold or disposed of before the expiration of the prescribed holding periods, the optionee would realize ordinary income, instead of capital gain. The amount of the ordinary income realized would be equal to the lesser of (i) the excess of the fair market value of the stock on the exercise date over the option price; or (ii) in the case of a taxable sale or exchange, the amount of the gain realized. Any additional gain would be either long-term or short-term capital gain, depending on whether the applicable capital gain holding period has been satisfied. In the event of a premature disposition of shares of stock acquired by exercising an Incentive Stock Option, we would be entitled to a deduction equal to the amount of ordinary income realized by the optionee.
Non-Qualified Options.An optionee will not realize any taxable income upon the grant of a Non-Qualified Option. At the time the optionee exercises the Non-Qualified Option, the amount by which the fair market value at the time of exercise of the shares covered by the Non-Qualified Option exceeds the option price paid upon exercise will constitute ordinary income to the optionee in the year of such exercise. We will be entitled to a corresponding income tax deduction in the year of exercise equal to the ordinary income recognized by the optionee. If the optionee thereafter sells such shares, the difference between any amount realized on the sale and the fair market value of the shares at the time of exercise will be taxed to the optionee as capital gain or loss, short- or long-term depending on the length of time the stock was held by the optionee before sale.
Stock Appreciation Rights.A participant realizes no taxable income and we are not entitled to a deduction when a stock appreciation right is granted. Upon exercising a stock appreciation right, a participant will
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realize ordinary income in an amount equal to the fair market value of the shares received minus any amount paid for the shares, and we will be entitled to a corresponding deduction. A participant’s tax basis in the shares of common stock received upon exercise of a stock appreciation right will be equal to the fair market value of such shares on the exercise date, and the participant’s holding period for such shares will begin at that time. Upon sale of the shares of common stock received upon exercise of a stock appreciation right, the participant will realize short-term or long-term capital gain or loss, depending upon whether the shares have been held for more than one year. The amount of such gain or loss will be equal to the difference between the amount realized in connection with the sale of the shares, and the participant’s tax basis in such shares.
Restricted Stock Award.A recipient of restricted stock generally will not recognize any taxable income until the shares of restricted stock become freely transferable or are no longer subject to a substantial risk of forfeiture. At that time, the excess of the fair market value of the restricted stock over the amount, if any, paid for the restricted stock is taxable to the recipient as ordinary income. If a recipient of restricted stock subsequently sells the shares, he or she generally will realize capital gain or loss in the year of such sale in an amount equal to the difference between the net proceeds from the sale and the price paid for the stock, if any, plus the amount previously included in income as ordinary income with respect to such restricted shares.
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A recipient has the opportunity, within certain limits, to fix the amount and timing of the taxable income attributable to a grant of restricted stock. Section 83(b) of the Code permits a recipient of restricted stock, which is not yet required to be included in taxable income, to elect, within 30 days of the award of restricted stock, to include in income immediately the difference between the fair market value of the shares of restricted stock at the date of the award and the amount paid for the restricted stock, if any. The election permits the recipient of restricted stock to fix the amount of income that must be recognized by virtue of the restricted stock grant. We will be entitled to a deduction in the year the recipient is required (or elects) to recognize income by virtue of receipt of restricted stock, equal to the amount of taxable income recognized by the recipient.
Performance Units and Performance Bonuses.A participant realizes no taxable income and we are not entitled to a deduction when performance units or performance bonuses are awarded. When the performance units or performance bonuses vest and become payable upon the achievement of the performance objectives, the participant will realize ordinary income equal to the amount of cash received or the fair market value of the shares received minus any amount paid for the shares, and we will be entitled to a corresponding deduction. A participant’s tax basis in shares of common stock received upon payment will be equal to the fair market value of such shares when the participant receives them. Upon sale of the shares, the participant will realize short-term or long-term capital gain or loss, depending upon whether the shares have been held for more than one year at the time of sale. Such gain or loss will be equal to the difference between the amount realized upon the sale of the shares and the tax basis of the shares in the participant’s hands.
Section 162(m) of the Code. Section 162(m) of the Code precludes a public corporation from taking a deduction for annual compensation in excess of $1.0 million paid to its chief executive officer or any of its four other highest-paid officers. However, compensation that qualifies under Section 162(m) of the Code as “performance-based” is specifically exempt from the deduction limit. Based on Section 162(m) of the Code and the regulations thereunder, our ability to deduct compensation income generated in connection with the exercise of stock options or stock appreciation rights granted under the Incentive Plan should not be limited by Section 162(m) of the Code. Further, we believe that compensation income generated in connection with performance awards granted under the Incentive Plan should not be limited by Section 162(m) of the Code. The Incentive Plan has been designed to provide flexibility with respect to whether restricted stock awards or performance bonuses will qualify as performance-based compensation under Section 162(m) of the Code and, therefore, be exempt from the deduction limit. If the vesting restrictions relating to any such award are based solely upon the satisfaction of one of the performance goals set forth in the Incentive Plan, then we believe that the compensation expense relating to such an award will be deductible by us if the awards become vested. However, compensation expense deductions relating to such awards will be subject to the Section 162(m) deduction limitation if such awards become vested based upon any other criteria set forth in such award (such as the occurrence of a change in control or vesting based upon continued employment with us).
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Certain Awards Deferring or Accelerating the Receipt of Compensation. Section 409A of the Internal Revenue Code, enacted as part of the American Jobs Creation Act of 2004, imposes certain new requirements applicable to “nonqualified deferred compensation plans.” If a nonqualified deferred compensation plan subject to Section 409A fails to meet, or is not operated in accordance with, these new requirements, then all compensation deferred under the plan may become immediately taxable. Stock appreciation rights and deferred stock awards which may be granted under the plan may constitute deferred compensation subject to the Section 409A requirements. It is our intention that any award agreement governing awards subject to Section 409A will comply with these new rules.
Limitation of Directors’ Liability and Indemnification
The Delaware General Corporation Law authorizes corporations to limit or eliminate, subject to certain conditions, the personal liability of directors to corporations and their stockholders for monetary damages for breach of their fiduciary duties. Our certificate of incorporation, as amended, limits the liability of our directors to the fullest extent permitted by Delaware law.
We will have in place, upon effectiveness of this offering, director and officer liability insurance to cover liabilities our directors and officers may occur in connection with their services to us, including matters arising under the Securities Act of 1933. Our amended and restated certificate of incorporation and amended and
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restated bylaws also provide that we will indemnify any of our directors and officers who, by reason of the fact that he or she is one of our officers or directors, is involved in a legal proceeding of any nature. In addition, we have entered into indemnification agreements with each of our directors and executive officers. We will repay certain expenses incurred by a director or officer in connection with any civil or criminal action or proceeding, specifically including actions by us or in our name (derivative suits). Such indemnifiable expenses include, to the maximum extent permitted by law, attorney’s fees, judgments, civil or criminal fines, settlement amounts and other expenses customarily incurred in connection with legal proceedings. A director or officer will not receive indemnification if he or she is found not to have acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, our best interest.
Such limitation of liability and indemnification does not affect the availability of equitable remedies. In addition, we have been advised that in the opinion of the SEC, indemnification for liabilities arising under the Securities Act is against public policy as expressed in the Securities Act and is therefore unenforceable.
There is no pending litigation or proceeding involving any of our directors, officers, employees or agents in which indemnification will be required or permitted. We are not aware of any threatened litigation or proceeding that may result in a claim for such indemnification.
Conflicts of Interest
CONFLICTS OF INTEREST
Potential investors should be aware of the following potential conflicts of interest:
None of our officers and directors are required to commit their full time to our affairs and, accordingly, they may have conflicts of interest in allocating their time among various business activities.
In the course of their other business activities, our officers and directors may become aware of investment and business opportunities that may be appropriate for presentation to us as well as the other entities with which they are affiliated. They may have conflicting fiduciary duties in determining to which entity a particular business opportunity should be presented. Our officers and directors currently are, and may in the future become affiliated with additional entities that are, engaged in business activities similar to those intended to be conducted by us and, accordingly, may have conflicts of interest in determining to which entity a particular business opportunity should be presented. Such officers and directors may become subject to conflicts of interest regarding us and other business ventures in which they may be involved, which conflicts may have an adverse effect on our ability to purchase, hold and sell indium.
Our officers and directors may in the future become affiliated with entities engaged in business activities similar to those intended to be conducted by our company.
We have not adopted a policy that expressly prohibits our directors, officers, securityholders or affiliates from having a direct or indirect pecuniary interest in any investment to be acquired or disposed of by us or in any transaction to which we are a party or have an interest. Nor do we have a policy that expressly prohibits any such persons from engaging for their own account in business activities of the types conducted by us. Accordingly, such parties may have an interest in certain transactions in which we are involved, and may also compete with us.
The management fee paid by us to the Manager is dependent on our NMV. In the event we raise additional capital or conduct future offerings, there is a risk that the Manager may value its own interest in the management fee more than the interest of our public stockholders, resulting in a conflict of interest, which may not necessarily be resolved in the best interest of our public stockholders.
Our Manager is responsible for negotiating, purchasing and stockpiling indium on our behalf. On July 11, 2008, we entered into a Purchase/Supply/Agency Agreement with Unionmet. Certain members of our Manager and our executive officers and directors, Ailon Grushkin, Richard Biele and Richard Morena, directly or beneficially hold shares in Unionment (Singapore) Limited. Although certain procedures regarding the approval of future transactions with Unionmet are in place, members of our Manager and our officers and directors may experience a conflict of interest in negotiating future transactions with Unionmet on our behalf.
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| | disposed of by us or in any transaction to which we are a party or have an interest. Nor do we have a policy that expressly prohibits any such persons from engaging for their own account in business activities of the types conducted by us. Accordingly, such parties may have an interest in certain transactions in which we are involved, and may also compete with us. |
In general, officers and directors of a corporation incorporated under the laws of the State of Delaware are required to present business opportunities to a corporation if:
the corporation could financially undertake the opportunity;
the opportunity is within the corporation’s line of business; and
it would not be fair to the corporation and its stockholders for the opportunity not to be brought to the attention of the corporation.
Accordingly, as a result of multiple business affiliations, our officers and directors may have similar legal obligations relating to presenting business opportunities meeting the above-listed criteria to multiple entities. In addition, conflicts of interest may arise when our board evaluates a particular business opportunity with respect to the above-listed criteria. We cannot assure you that any of the above mentioned conflicts will be resolved in our favor.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The following is a description of the transactions we have engaged in since our formation in January 2008 with our directors and officers and beneficial owners of more than five percent of our voting securities and their affiliates.
On January 7, 2008, the Manager purchased 90,000 shares of our common stock at the price of $0.111 per share. The members of the Manager are Messrs. Benjamin, Grushkin and Biele, our Chairman and Chief Executive Officer, our President, and our Chief Operating Officer, respectively.
We will enter into a Management Services Agreement with the Manager prior to the effective dateconsummation of this prospectusoffering pursuant to which the Manager will administer our activities. See “Management of Specialty Metals Group Indium Corp. — Management Services Agreement.”
On January 7, 2008, we agreed to reimburse our Chief Operating Officer Richard Biele or his affiliates commencing with the successful completion of this offering, for office, secretarial and related office expenses as follows: (1) $1,200 per month for rent; (2) reimbursement for up to 20% of his secretary’s salary and healthcare benefits; and (3) office expenses directly related to our operations. We will continue to reimburse our Chief Operating Officer or his affiliates for rent and other office-related expenses as set forth above.
On January 8, 2008, we entered into a revolving line of credit with the Manager in the aggregate amount of $300,000. The revolver will be used to fund the deferred offering costs to be incurred by us in connection with this offering. To date, we have borrowed $75,000$250,000 under the revolver. The revolver is unsecured and bears interest at the rate of six percent (6%(6.0%) per annum. The loan will be payable on the earlier of December 31, 2008 or the consummation of this offering. The loan will be reapidrepaid out of the net proceeds of this offering.
PriorOn July 11, 2008, we entered into a Purchase/Supply/Agency Agreement with Unionmet. Pursuant to the Agreement, Unionmet agreed to (i) sell a minimum of ten (10) metric tons of indium to us within ten (10) months upon the effectiveness of this offering and (ii) act as a non-exclusive agent to negotiate sales on our behalf and broker introductions with suppliers based in China. In exchange, we agreed to purchase the ten (ten) metric tons of indium and agreed to pay Unionmet a commission for all transactions negotiated by Unionmet on our behalf or introductions brokered by Unionmet between us and other indium suppliers resulting in a transaction. The term of the Agreement shall begin on the effectiveness of this offering and terminate one year after the effectiveness of this offering.
Certain members of our management, officers and directors, individually and as a group, retain a passive investment interest in Unionmet and do not exercise control of Unionmet. Unionmet is a publicly traded company listed on the Singapore Exchange Ltd. On July 29, 2008, Unionmet’s stock closed on the Singapore Exchange Ltd. at a price of 0.12 Singapore dollars or 0.08772 U.S. dollars based on the spot currency conversion rate of 1.3680 Singapore dollars to 1 U.S. dollar. Ailon Z. Grushkin, a member of our Manager, may purchase up to $500,000and an officer and director of indiumour Company personally owns 250,000 shares of Unionmet’s stock valued at approximately $21,930 U.S. dollars based upon the price of Unionmet’s stock on July 29, 2008. Richard Biele, a
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member of our Manager and an officer and director of our Company personally owns 50,000 shares of Unionmet’s stock valued at approximately $4,386 U.S. dollars based upon the price of Unionmet’s stock on July 29, 2008. The A.Z.G. Capital Corp. Profit Sharing Plan, whose sole beneficiary is Mr. Grushkin, owns 595,000 shares of Unionmet’s stock valued at approximately $52,193 U.S. dollars based upon the price of Unionmet’s stock on July 29, 2008. Mr. Grushkin is also the Managing Member of the AZG Tangible Assets Fund LLC, which holds 2,130,000 shares of Unionmet’s stock valued at approximately $186,844 U.S. dollars based upon the price of Unionmet’s stock on July 29, 2008. Richard Biele, a member of our Manager, and an officer and director of our Company, and Richard Morena, our Chief Financial Officer, are members of the AZG Tangible Assets Fund LLC and therefore beneficially own shares in open market purchases. IfUnionmet as well. Based on Unionmet having approximately 368,000,000 shares outstanding, the Manager makes such purchases at our option, we may purchase any such inventory after this offering at cost. The purchases may be made bycombined group owns 3,025,000 shares representing less than 1.0% of the Manager before the offering in order to obtain favorable pricing, and also to develop relationships with future suppliers.total shares outstanding.
We believe that all of the transactions above were made on terms no less favorable to us than could have been obtained from unaffiliated third parties. All futureWe will not engage in any transactions including loans between us,with our officers, principal stockholders andshareholders, or affiliates involving purchasing, lending, or selling indium to or from us, except pursuant to the terms of our affiliates will be approved by our Audit Committee and will continue to be on terms no less favorable to us than could be obtained from unaffiliated third parties.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial ownership of our common stock as of February 25, 2008 and as adjusted to reflect the sale of our common stock included in the units offered by this prospectus (assuming none of the individuals listed purchase units in this offering), by:
each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock;
each of our officers and directors; and
all our officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. Shares of common stock that may be acquired by an individual or group within 60 days of February 25, 2008, pursuant to the exercise of options or warrants, are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table. Percentage of ownership is based on 90,000 shares of common stock outstanding on January 31,June 30, 2008, and 11,090,000 shares of common stock outstanding after the completion of this offering.
Except as indicated in footnotes to this table, we believe that the stockholders named in this table have sole voting and investment power with respect to all shares of common stock shown to be beneficially owned by them, based on information provided to us by such stockholders.
 | | | | | | | | | | | | | | | | |
| | Common Stock | | Common Stock |
| | | Before the Offering(1)(2) | | As Adjusted for the Offering(1) | | Before the Offering(1)(2) | | As Adjusted for the Offering(1) |
| Name and Address of Beneficial Owners(3) | | Number of Shares(4) | | Percentage of Common Stock | | Number of Shares(4) | | Percentage of Common Stock | | Number of Shares(4) | | Percentage of Common Stock | | Number of Shares(4) | | Percentage of Common Stock |
| Specialty Metals Group Advisors LLC(5) | | | 90,000 | | | | 100.0 % | | | | 90,000 | | | | * % | | | | 90,000 | | | | 100.0 % | | | | 90,000 | | | | * % | |
| Alan Benjamin(5) | | | 30,000 | | | | 33.33 % | | | | 30,000 | | | | * % | | | | 30,000 | | | | 33.33 % | | | | 30,000 | | | | * % | |
| Ailon Z. Grushkin(5) | | | 30,000 | | | | 33.33 % | | | | 30,000 | | | | * % | | | | 30,000 | | | | 33.33 % | | | | 30,000 | | | | * % | |
| Richard A. Biele(5) | | | 30,000 | | | | 33.33 % | | | | 30,000 | | | | * % | | | | 30,000 | | | | 33.33 % | | | | 30,000 | | | | * % | |
| Richard T. Morena(6) | | | — | | | | — | | | | 30,000 | | | | * % | | | | — | | | | — | | | | 30,000 | | | | * % | |
| P.J. (Patrick James) Richardson(7) | | | — | | | | — | | | | 5,000 | | | | * % | | | | — | | | | — | | | | 5,000 | | | | * % | |
| Fred Arena(7) | | | — | | | | — | | | | 5,000 | | | | * % | | | | — | | | | — | | | | 5,000 | | | | * % | |
| Mark Stephen Neuhof(7) | | | | — | | | | — | | | | 5,000 | | | | *% | |
| All Directors and Officers as a Group (6 persons) | | | 90,000 | | | | 100.0 % | | | | 130,000 | | | | 1.17 % | | | | 90,000 | | | | 100.0 % | | | | 135,000 | | | | 1.21 % | |
| * | represents less than 1%1.0%. |
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| (1) | Assumes only the sale of 11,000,000 units in this offering, but not the exercise of (i) the 11,000,000 warrants comprising such units or (ii) the 1,650,000 units subject to the over-allotment option. |
| (2) | Does not include the 40,00045,000 stock options issued but subject to completion of the offering. |
| (3) | Unless otherwise indicated, the business address of each of the stockholders is 103 Carnegie Center,41 University Drive, Suite 101, Princeton, New Jersey 08540.400, Newtown, Pennsylvania 18940. |
| (4) | Unless otherwise indicated, all ownership is direct beneficial ownership. |
| (5) | Messrs. Benjamin, Grushkin, and Biele may be deemed to beneficially own the shares owned by Specialty Metals GroupSMG Indium Corp. Inc.Resources Ltd. by virtue of their respective ownership and control of Specialty Metals Group Advisors LLC. |
| (6) | Since inception, we have agreed to grant 30,000 options to purchase common stock to Mr. Morena, our Chief Financial Officer. The option grant will be exercisable at $4.50 per share and is subject to completion of this offering. |
| (7) | Since inception, we have agreed to grant 5,000 options to purchase common stock to each of our twothree independent directors, Messrs. Richardson, Arena and Arena.Neuhof. The option grants will be exercisable at $4.50 per share and are exercisable subsequent to completion of this offering. |
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DESCRIPTION OF SECURITIES
General
We are authorized to issue 50,000,000 shares of common stock, par value $0.001, and 1,000,000 shares of preferred stock, par value $0.001. As of the effective date of the registration statement, 90,000 shares of common stock were outstanding, held by one (1) stockholder of record, our Manager. No shares of preferred stock are currently outstanding.
Units
Each unit consists of one share of common stock and one warrant. Each warrant entitles the holder to purchase one share of common stock. The common stock and warrants, without any securityholder having to take any action, may begin to trade separately on the 90th day after the effective date of the registration statement unless Maxim Group LLCthe representatives of the underwriters informs us of its decision to allow earlier separate trading (based upon its assessment of the relative strengths of the securities markets and small capitalization companies in general and the trading pattern of, and demand for, our securities in particular), provided that in no event may the common stock and warrants be traded separately until the earlier of the expiration or exercise in full of the underwriter’s over-allotment option. Following the date the common stock and warrants are eligible to trade separately, the units will continue to be listed for trading, and any securityholder may elect to trade the common stock or warrants separately or as a unit. Even if the component parts of the units are broken apart and traded separately, the units will continue to be listed as a separate security, and any securityholder of our common stock and warrants may elect to combine them together and trade them as a unit. Securityholders will have the ability to trade our securities as units until such time as the warrants expire or are redeemed.
Common Stock
Holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders, and do not have cumulative voting rights. Subject to preferences that may be applicable to any outstanding shares of preferred stock, holders of common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by our Boardboard of Directorsdirectors out of funds legally available for dividend payments. All outstanding shares of common stock are fully paid and non-assessable, and the shares of common stock to be issued upon completion of this offering will be fully paid and non-assessable. The holders of common stock have no preferences or rights of conversion, exchange, pre-emption or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. In the event of any liquidation, dissolution or winding-up of our affairs, holders of common stock will be entitled to share ratably in our assets that are remaining after payment or provision for payment of all of our debts and obligations and after liquidation payments to holders of outstanding shares of preferred stock, if any.
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Preferred Stock
The preferred stock has priority over the common stock with respect to dividends and other distributions, including the distribution of assets upon liquidation. Our Boardboard of Directorsdirectors has the authority, without further stockholder authorization, to issue from time to time shares of preferred stock in one or more series and to fix the terms, limitations, relative rights and preferences and variations of each series. Although we have no present plans to issue any shares of preferred stock, the issuance of shares of preferred stock, or the issuance of rights to purchase such shares, could decrease the amount of earnings and assets available for distribution to the holders of common stock, could adversely affect the rights and powers, including voting rights, of the common stock, and could have the effect of delaying, deterring or preventing a change in control of us or an unsolicited acquisition proposal.
Warrants
Prior to the effective date of this prospectus, there will not be any warrants currently outstanding. Each warrant included in the units entitles the registered holder to purchase one share of our common stock at a price of $6.00 per share, subject to adjustment as discussed below, immediately upon the effectiveness of the registration statement.Thestatement. The warrants will expire at 5:00 p.m., New York City time, on [ ], 2011 [three[three years from the effective date of the registration statement] or earlier upon redemption.
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The warrants may trade separately on the 90th day after the date of this prospectus unless Maxim Group LLCthe representatives of the underwriters determines that an earlier date is acceptable, based upon its assessment of the relative strengths of the securities markets and small capitalization companies in general, and the trading pattern of, and demand for, our securities in particular. In no event will Maxim Group LLC allow separate trading of the common stock and warrants until the underwriters’ over-allotment option has either expired or been exercised.
We may call the warrants for redemption (including any warrants issued upon exercise of the unit purchase option) at any time after [ ], 20082009[six months from the effective date of the registration statement]:
in whole and not in part;
at a price of $.01 per warrant;
upon not less than 30 days’ prior written notice of redemption to each warrant holder; and
if, and only if, the last sale price of the common stock equals or exceeds $9.00 per share, for any 20 trading days within a 30 trading day period ending on the third business day prior to the notice of redemption to warrant holders.
In addition, we may not redeem the warrants unless the warrants comprising the units sold in this offering and the shares of common stock underlying those warrants are covered by an effective registration statement from the beginning of the measurement period through the date fixed for the redemption.
We have established these criteria to provide warrant holders with a reasonable premium to the initial warrant exercise price as well as a degree of liquidity to cushion against a negative market reaction, if any, to our redemption call. If the foregoing conditions are satisfied and we call the warrants for redemption, each warrant holder will then be entitled to exercise his or her warrant prior to the date scheduled for redemption, however, there can be no assurance that the price of the common stock will exceed the call trigger price or the warrant exercise price after the redemption call is made.
The exercise price and number of shares of common stock issuable on exercise of the warrants may be adjusted in certain circumstances, including in the event of a stock dividend, extraordinary dividend or our recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuances of common stock at a price below their respective exercise prices.
The warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the transfer agent, with the exercise form on the reverse side of the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price, by certified or official bank check payable to us, for the number of warrants being exercised. The warrant holders do not have the rights or privileges of holders of common stock and any voting rights until they exercise their warrants and
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receive shares of common stock. After the issuance of shares of common stock upon exercise of the warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by stockholders.
No warrants will be exercisable unless at the time of exercise a prospectus relating to common stock issuable upon exercise of the warrants is current and the common stock has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the warrants. Under the terms of the warrant agreement, we have agreed to use our best efforts to maintain a current prospectus relating to common stock issuable upon exercise of the warrants until the expiration of the warrants. If we are unable to maintain the effectiveness of such registration statement until the expiration of the warrants, and therefore are unable to deliver registered shares of common stock, the warrants may become worthless. Additionally, the market for the warrants may be limited if the prospectus relating to the common stock issuable upon the exercise of the warrants is not current or if the common stock is not qualified or exempt from qualification in the jurisdictions in which the holders of the warrants reside. In no event will the registered holders of a warrant be entitled to receive a net-cash settlement, stock, or other consideration in lieu of physical settlement in shares of our common stock.
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No fractional shares of common stock will be issued upon exercise of the warrants. If, upon exercise of the warrants, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, round up to the nearest whole number the number of shares of common stock to be issued to the warrant holder.
Purchase Option
We have agreed to sell to Maxim Group LLC, the representativerepresentatives of the underwriters, for $100, an option to purchase up to a total of 550,000 units at $5.50 per unit. The units issuable upon exercise of this option are identical to those offered by this prospectus except that the warrants included in the option have an exercise price of $6.60 (110%(110.0% of the exercise price of the warrants included in the units sold in this offering). For a more complete description of the purchase option, including the registration rights afforded to the holders of such option, see the section appearing elsewhere in this prospectus entitled “Underwriting — Purchase“Purchase Option.”
Dividends
We have not paid any cash dividends on our common stock to date and do not intend to pay cash dividends. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition. The payment of any dividends will be within the discretion of our then board of directors. It is the present intention of our board of directors to retain all earnings, if any, for use in our business operations and, accordingly, our board does not anticipate declaring any dividends in the foreseeable future. Further our ability to declare dividends may be limited to restrictive covenants if we incur any indebtedness.
Delaware Law and Certain Charter and Bylaw Provisions
The provisions of (1) Delaware law, (2) our certificate of incorporation, as amended, and (3) our bylaws could discourage or make it more difficult to accomplish a proxy contest or other change in our management or the acquisition of control by a holder of a substantial amount of our voting stock. It is possible that these provisions could make it more difficult to accomplish, or could deter, transactions that stockholders may otherwise consider to be in their best interests or our best interests. These provisions are intended to enhance the likelihood of continuity and stability in the composition of our Boardboard of Directorsdirectors and in the policies formulated by the Boardboard of Directorsdirectors and to discourage certain types of transactions that may involve an actual or threatened change of control of us. These provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal. The provisions also are intended to discourage certain tactics that may be used in proxy fights. Such provisions also may have the effect of preventing changes in our management.
Delaware Statutory Business Combinations Provision. We are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporations Law. In general, Section 203 prohibits a publicly-held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder,
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unless the business combination is, or the transaction in which the person became an interested stockholder was, approved in a prescribed manner or another prescribed exception applies. For purposes of Section 203, a “business combination” is defined broadly to include a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder, and, subject to certain exceptions, an “interested stockholder” is a person who, together with his or her affiliates and associates, owns (or within three years prior, did own) 15%15.0% or more of the corporation’s voting stock.
Classified Board of Directors. Our certificate of incorporation, as amended, provides that our Boardboard of Directorsdirectors will be divided into two classes as nearly equal in number as possible. Each year the stockholders will elect the members of one of the two classes to a two-year term of office. All directors elected to our classified Boardboard of Directorsdirectors will serve until the election and qualification of their respective successors or their earlier resignation or removal. Our Boardboard of Directorsdirectors is authorized to create new directorships and to fill such positions so created and is permitted to specify the class to which any such new position is assigned. The person filling such position would serve for the term applicable to that class. Our Boardboard of Directorsdirectors (or its remaining members, even if less than a quorum) is also empowered to fill vacancies on the Boardboard of Directorsdirectors occurring for any reason for the remainder of the term of the class of directors in which the vacancy occurred. Members
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of our Boardboard of Directorsdirectors may only be removed for cause. These provisions are likely to increase the time required for stockholders to change the composition of our Boardboard of Directors.directors. For example, in general, at least two annual meetings will be necessary for stockholders to effect a change in a majority of the members of our Boardboard of Directors.directors.
Advance Notice Provisions for Stockholder Proposals. For an annual or special meeting, a stockholder’s notice generally must be delivered not less than 10 days nor more than 60 days prior to the meeting.
Special Meetings of Stockholders. Special meetings of the stockholders may be called by our Boardboard of Directorsdirectors pursuant to a resolution adopted by a majority of the total number of directors, or by such persons or persons as may be authorized by the certificate of incorporation, as amended, or the by-laws.
Super-Majority Stockholder Vote required for Certain Actions. The Delaware General Corporation Law provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation’s certificate of incorporation and bylaws, unless the corporation’s certificate of incorporation, as amended, and bylaws, as the case may be, requires a greater percentage.
Transfer Agent and Registrar
We intend to retain Continental Stock Transfer and Trust Company as our transfer agent and registrar for the units, common stock and warrants in connection with our public offering.
Listing
We intend to applyhave applied to list our common stock on the American Stock Exchange under the symbols “IND”“ITD”, “IND.U”“ITD.U” and “IND.WS”“ITD.WS”
Shares of Common Stock Eligible for Future Sale
Immediately after this offering, we will have 11,090,000 shares of common stock outstanding, or 12,740,000 shares if the underwriters’ over-allotment option is exercised in full. Of these shares, the 11,000,000 shares sold in this offering, or 12,650,000 shares of common stock if the over-allotment option is exercised, will be freely tradable without restriction or further registration under the Securities Act, except for any shares of common stock purchased by one of our affiliates within the meaning of Rule 144 under the Securities Act. All of the remaining 90,000 shares of common stock are restricted securities under Rule 144, in that they were issued in private transactions not involving a public offering. None of those shares of common stock will be eligible for sale under Rule 144 prioruntil the following conditions are met:
we cease to January 31, 2009.be a shell company;
we are subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act;
we have filed all reports and materials required to be filed under Section 13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months, other than Form 8-K reports; and
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at least one year has elapsed from the time we filed current Form 10 type information with the SEC reflecting our status as an entity that is not a shell company.
Rule 144
The SEC has recently adopted amendments to Rule 144 which became effective on February 15, 2008 and apply to securities acquired both before and after that date. Under these amendments, a person who has beneficially owned restricted shares or our common stock or warrants for at least six months would be entitled to sell their securities provided that (i) such person is not deemed to have been one of our affiliates at the time of, or at any time during the three months preceding, a sale and (ii) we are subject to the Exchange Act periodic reporting requirements for at least three months before the sale.
Persons who have beneficially owned restricted shares of our common stock or warrants for at least six months but who are our affiliates at the time of, or at any time during the three months preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of either of the following:
1%1.0% of the total number of shares of our common stock then outstanding, which will equal 110,900 shares of our common stock immediately after this offering or 127,400 shares of our common stock if the underwriters’ over-allotment is exercised in full; or
the average weekly trading volume of the shares of our common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.
Sales under Rule 144 are also limited by manner of sale provisions, notice requirements and the availability of current public information about us.
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Rule 701
In general, under Rule 701, as currently in effect, any of our employees, directors, officers, consultants or advisors who purchases shares from us in connection with a compensatory stock or option plan or other written agreement before the effective date of this offering is entitled to resell such shares 90 days after the effective date of this offering in reliance on Rule 144, without having to comply with the holding period requirements or other restrictions contained in Rule 701.
The Securities and Exchange Commission has indicated that Rule 701 will apply to typical stock options granted by an issuer before it becomes subject to the reporting requirements of the Securities Exchange Act, along with the shares acquired upon exercise of such options, including exercises after the date of this prospectus. Securities issued in reliance on Rule 701 are restricted securities and, subject to the contractual restrictions described above, beginning 90 days after the date of this prospectus, may be sold by persons other than “affiliates,” as defined in Rule 144, subject only to the manner of sale provisions of Rule 144 and by “affiliates” under Rule 144 without compliance with its six-month minimum holding period requirement.
Lock-up Agreements
Our current officers, directors and principal shareholders have agreed, with limited exceptions, to a 12 month “lock-up” period with respect to all of their shares. After the 12 month period from the date of this prospectus, these shares may be sold in the public market, subject to compliance with Rule 144. At any time without notice, the underwriterrepresentatives of the underwriters may, in itstheir sole discretion, release all or some of the securities subject to these lock-up agreements. The underwriter’sSuch decision to waive the lock-up restrictions may be based on market conditions, then-current stock price, the number of shares requested to be waived from the lock-up restrictions, the potential price impact of the release and other factors the selection of which are based on its sole discretion.
Notwithstanding the foregoing, if (a) during the last 17 days of the lock-up period we release earnings results or material news or a material event relating to us occurs, or (b) prior to the expiration of the lock-up period, we announce that we will release earnings results during the 16-day period following the last day of the lock-up period, the above restrictions shall continue to apply until the expiration of the 18-day period beginning on the date of the release of the earnings results or the occurrence of the material news or material event.
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UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the underwriters named below through their representative Maxim Group LLC, have severally agreed to purchase from us on a firm commitment basis the following respective number of units at a public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus:
| | |
| Underwriters | | Number of Units |
| Maxim Group LLC | | | | |
| Canaccord Adams Inc. | | | | |
| Total | | | 11,000,000 | |
The underwriting agreement provides that the obligation of the underwriters to purchase all of the 11,000,000 units being offered to the public is subject to specific conditions, including the absence of any material adverse change in our business or in the financial markets and the receipt of certain legal opinions, certificates and letters from us, our counsel and the independent auditors. Subject to the terms of the underwriting agreement, the underwriters will purchase all of the 11,000,000 units being offered to the public, other than those covered by the over-allotment option described below, if any of these units are purchased.
We have been advised by the representativerepresentatives of the underwriters that the underwriters propose to offer the units to the public at the public offering price set forth on the cover of this prospectus and to dealers at a price that represents a concession not in excess of $ per unit under the public offering price of $5.00 per unit. The underwriters may allow, and these dealers may re-allow, a concession of not more than $ per unit to other dealers. After the initial public offering, the representativerepresentatives of the underwriters may change the offering price and other selling terms.
Over-Allotment Option
We have granted to the underwriters an option, exercisable not later than 45 days after the effective date of the registration statement, to purchase up to 1,650,000 additional units at the public offering price less the underwriting discounts and commissions set forth on the cover of this prospectus. The underwriters may exercise this option only to cover over-allotments made in connection with the sale of the units offered by this prospectus. The over-allotment option will only be used to cover the net syndicate short position resulting from the initial distribution. To the extent that the underwriters exercise this option, each of the underwriters will become obligated, subject to conditions, to purchase approximately the same percentage of these additional units as the number of units to be purchased by it in the above table bears to the total number of units offered by this prospectus. We will be obligated, pursuant to the option, to sell these additional units to the underwriters to the extent the option is exercised. If any additional units are purchased, the underwriters will offer the additional units on the same terms as those on which the other units are being offered hereunder.
The underwriting discounts and commissions are 5%5.0% of the initial public offering price. We have agreed to pay the underwriters the discounts and commissions set forth below, assuming either no exercise or full exercise by the underwriters of the underwriters’ over-allotment option.
Fees(1)
| | | | | | | | | | | | |
| | Fee
per Unit(1) | | Without
Exercise of
Over Allotment Option | | With
Exercise of
Over Allotment
Option | | Fee per Unit(1) | | Without
Exercise of
Over Allotment
Option | | With
Exercise of
Over Allotment
Option |
| Public offering price | | $ | 5.00 | | | $ | 55,000,000 | | | | 63,250,000 | | | $ | 5.00 | | | $ | 55,000,000 | | | $ | 63,250,000 | |
| Discount | | $ | 0.25 | | | $ | 2,750,000 | | | | 3,162,500 | | | $ | 0.25 | | | $ | 2,750,000 | | | $ | 3,162,500 | |
| Proceeds before expenses(2) | | $ | 4.75 | | | $ | 52,250,000 | | | | 60,087,500 | | | $ | 4.75 | | | $ | 52,250,000 | | | $ | 60,087,500 | |
| (1) | The fees do not include the over-allotment option granted to Maxim Group LLC,the underwriters or the corporate finance fee in the amount of 1%1.0% of the gross proceeds, or $0.05 per unit ($550,000 in total, and $632,500 in the event that the over-allotment option is exercised in full), payable to Maxim Group LLC.the representatives of the underwriters. |
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| (2) | The offering expenses are estimated at $425,812, and will be paid in part from a loan from the Manager. |
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| | On January 8, 2008, the Company entered into a Revolving Line of Credit (the Revolver) with the Manager in the aggregate amount of $300,000, at a rate of six (6%(6.0%) percent interest per annum, $75,000$250,000 of which has already been drawn by us for the payment of offering expenses. The Revolver will be payable on the earlier of December 31, 2008 or the consummation of this offering. The loan will be repaid out of the net proceeds of this offering. |
Purchase Option
We have agreed to sell to Maxim Group LLC,the representatives of the underwriters, for $100, an option to purchase up to a total of 550,000 units. The units issuable upon exercise of this option are identical to those offered by this prospectus except that the warrants included in the option have an exercise price of $6.60 per share (110%(110.0% of the exercise price of the warrants included in the units sold in the offering). This option is exercisable at $5.50 per unit, commencing one year from the effective date of the registration statement and expiring five years from the effective date of the registration statement. The option and the 550,000 units, the 550,000 shares of common stock and the 550,000 warrants underlying such units, and the 550,000 shares of common stock underlying such warrants, have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 2710(g)(1) of the FINRA Conduct Rules. Maxim Group LLCThe representatives of the underwriters will not sell, transfer, assign, pledge, or hypothecate this option or the securities underlying this option, nor will it engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of this option or the underlying securities for a period of 180 days from the date of this prospectus. Additionally, the option may not be sold transferred, assigned, pledged or hypothecated for a one-year period (including the foregoing 180 day period) following the effective date of the registration statement except to any underwriter and selected dealer participating in the offering and their bona fide officers or partners. This option also contains a cashless exercise feature. Although the purchase option and its underlying securities have been registered on the registration statement of which this prospectus forms a part, the option grants holders demand and “piggy back” registration rights for periods of five and seven years, respectively, from the date of this prospectus. These rights apply to all of the securities directly and indirectly issuable upon exercise of the option. We will bear all fees and expenses attendant to registering the securities issuable on exercise of the option, other than underwriting commissions incurred and payable by the holders. The exercise price and number of units issuable upon exercise of the option may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary cash dividend or our recapitalization, reorganization, merger or consolidation. However, the option exercise price or underlying units will not be adjusted for issuances of common stock at a price below the option exercise price.
The sale of the option will be accounted for as a cost attributable to the proposed offering. Accordingly, there will be no net impact on our financial position or results of operations, except for the recording of the $100 proceeds from the sale.
Directed Unit Program
At our request, the underwriters have reserved up to 250,000 units for sale at the initial public offering price through a directed unit program to persons who are directors, officers or employees, or who are otherwise associated with our corporate stockholder. The number of units available for sale to the public will be reduced by the number of directed units purchased by participants in the program, if any. To the extent the directed units are not purchased pursuant to the directed unit program, the units will be offered by the underwriters to the public on the same basis as all other units. We have agreed to indemnify the underwriters against certain liabilities and expenses, including liabilities under the Securities Act, in connection with the sales of the directed units.
Lock-up Agreements
Our current officers, directors and principal shareholders have agreed, with limited exceptions, to a 12 month “lock-up” period with respect to all of their shares. After the 12 month period from the date of this prospectus, these shares may be sold in the public market, subject to compliance with Rule 144. At any time without notice, the underwriterrepresentatives of the underwriters may, in itstheir sole discretion, release all or some of the securities subject to these lock-up agreements. The underwriter’sSuch decision to waiver the lock-up restrictions may be based on market conditions, then-current stock price, the number of shares requested to be waived from the lock-up
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restrictions, the potential price impact of the release and other factors the selection of which are based on its sole discretion. The underwriter has no present intention to release such lock-ups early.
Notwithstanding the foregoing, if (a) during the last 17 days of the lock-up period we release earnings results or material news or a material event relating to us occurs, or (b) prior to the expiration of the lock-up period, we announce that we will release earnings results during the 16-day period following the last day of the lock-up period, the above restrictions shall continue to apply until the expiration of the 18-day period beginning on the date of the release of the earnings results or the occurrence of the material news or material event.
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Pricing of this Offering
Prior to this offering there has been no public market for any of our securities. The public offering price of the units and the terms of the warrants were negotiated between us and the representative. Factors considered in determining the prices and terms of the units, including the common stock and warrants underlying the units, include:
the history and prospects of companies whose principal business is the acquisition and disposition of specialty metals;
prior offerings of those companies;
our prospects for acquiring and storing indium at attractive values;
our capital structure;
an assessment of our management and their experience in specialty metals;
general conditions of the securities markets at the time of the offering; and
other factors as were deemed relevant.
However, although these factors were considered, the determination of our offering price is more arbitrary than the pricing of securities for an operating company in a particular industry since the underwriters are unable to compare our financial results and prospects with those of public companies operating in the same industry.
In connection with this offering, the underwriters may distribute prospectuses electronically. No forms of prospectus other than printed prospectuses and electronically distributed prospectuses that are printable in Adobe .PDFAdobe. PDF format will be used in connection with this offering.
The underwriters have informed us that they do not expect to confirm sales of units offered by this prospectus to accounts over which they exercise discretionary authority without obtaining the specific approval of the account holder.
Price Stabilization and Short Positions
Rules of the SEC may limit the ability of the underwriters to bid for or purchase our securities before the distribution of the securities is completed. The “Restricted Period” under Regulation M for this offering will have ended when (i) all of the Units have been sold, (ii) there are no more selling efforts, (iii) there is no more stabilization, and (iv) the over-allotment option has been exercised or has expired. However, the underwriters may engage in the following activities in accordance with the rules:
| • | Stabilizing Transactions.The underwriters may make bids or purchases for the purpose of pegging, fixing or maintaining the price of our securities, so long as stabilizing bids do not exceed the maximum price specified in Regulation M, which generally requires, among other things, that no stabilizing bid shall be initiated at or increased to a price higher than the lower of the offering price or the highest independent bid for the security on the principal trading market for the security. |
| • | Over-Allotments and Syndicate Coverage Transactions.The underwriters may create a short position in our securities by selling more of our securities than are set forth on the cover page of this |
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| | prospectus. If the underwriters create a short position during the offering, the representativerepresentatives may engage in syndicate covering transactions by purchasing our securities in the open market. The representativerepresentatives may also elect to reduce any short position by exercising all or part of the over-allotment option. |
| • | Penalty Bids.The representativerepresentatives may reclaim a selling concession from a syndicate member when the units originally sold by the syndicate member are purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. |
Stabilization and syndicate covering transactions may cause the price of the securities to be higher than they would be in the absence of these transactions. The imposition of a penalty bid might also have an effect on the prices of the securities if it discourages resales of the securities.
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Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the prices of the securities. These transactions may occur on the American Stock Exchange or on any trading market. If any of these transactions are commenced, they may be discontinued without notice at any time.
Other Terms
We have also agreed that upon successful completion of the offering in excess of $55$35 million, and for a period of 24 months from the offering, that it would grant the underwriterrepresentatives of the underwriters the right of first participation to act as lead underwriterunderwriters or minimally as a co-managerco-managers with at least 30% of the economics; or in the case of a three-handed deal 20% of the economics, for any and all future public and private equity and debt offerings during such 24 month period by us, or any successor to or any subsidiary of ours.
Although we are not under any contractual obligation to engage any of the underwriters to provide any services for us after this offering, and have no present intent to do so, any of the underwriters may, among other things, assist us in raising additional capital, as needs may arise in the future. If any of the underwriters provide services to us after this offering, we may pay such underwriter fair and reasonable fees that would be determined at that time in an arm’s length negotiation; provided that if no agreement will be entered into with any of the underwriters and no fees for such services will be paid to any of the underwriters prior to the date which is 90 days after the effective date of the registration statement, unless the National Association of Securities DealerFINRA determines that such payment would not be deemed underwriters compensation in connection with this offering.
Indemnification
We have agreed to indemnify the underwriters against some liabilities, including civil liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in this respect.
Foreign Regulatory Restrictions on Purchase of Shares
We have not taken any action to permit a public offering of the units outside the United States or to permit the possession or distribution of this prospectus outside the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to this offering of units and the distribution of the prospectus outside the United States.
Italy. This offering of the units has not been cleared by Consob, the Italian Stock Exchanges regulatory agency of public companies, pursuant to Italian securities legislation and, accordingly, no units may be offered, sold or delivered, nor may copies of this prospectus or of any other document relating to the shares be distributed in Italy, except (1) to professional investors (operatori qualificati); or (2) in circumstances which are exempted from the rules on solicitation of investments pursuant to Decree No. 58 and Article 33, first paragraph, of Consob Regulation No. 11971 of May 14, 1999, as amended. Any offer, sale or delivery of the units of or distribution of copies of this prospectus or any other document relating to the units in Italy under (1) or (2) above must be (i) made by an investment firm, bank or financial intermediary permitted to conduct such activities in Italy in accordance with the Decree No. 58 and Legislative Decree No. 385 of September 1, 1993, or the Banking Act; and (ii) in compliance with Article 129 of the Banking Act and the implementing guidelines of the Bank of Italy, as amended from time to time, pursuant to which the issue or the offer of securities in Italy may need to be preceded and followed by an appropriate notice to be filed with the Bank of
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Italy depending,inter alia, on the aggregate value of the securities issued or offered in Italy and their characteristics; and (iii) in compliance with any other applicable laws and regulations.
Germany. The offering of the units is not a public offering in the Federal Republic of Germany. The units may only be acquired in accordance with the provisions of the Securities Sales Prospectus Act (Wertpapier-Verkaufsprospektgesetz), as amended, and any other applicable German law. No application has been made under German law to publicly market the units in or out of the Federal Republic of Germany. The units are not registered or authorized for distribution under the Securities Sales Prospectus Act and accordingly may not be, and are not being, offered or advertised publicly or by public promotion. Therefore, this prospectus is strictly for private use and the offering is only being made to recipients to whom the document
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is personally addressed and does not constitute an offer or advertisement to the public. The units will only be available to persons who, by profession, trade or business, buy or sell shares for their own or a third party’s account.
France. The units offered by this prospectus may not be offered or sold, directly or indirectly, to the public in France. This prospectus has not been or will not be submitted to the clearance procedure of the Autorit des Marchs Financiers, or the AMF, and may not be released or distributed to the public in France. Investors in France may only purchase the units offered by this prospectus for their own account and in accordance with articles L. 411-1, L. 441-2 and L. 412-1 of the Code Montaire et Financier and decree no. 98-880 dated October 1, 1998, provided they are “qualified investors” within the meaning of said decree. Each French investor must represent in writing that it is a qualified investor within the meaning of the aforesaid decree. Any resale, directly or indirectly, to the public of the units offered by this prospectus may be effected only in compliance with the above mentioned regulations.
“Les actions offertes par ce document d’information ne peuvent pas être, directement ou indirectement, offertes ou vendues au public en France. Ce document d’information n’a pas t ou ne sera pas soumis au visa de l’Autorit des Marchs Financiers et ne peut être diffus ou distribu au public en France. Les investisseurs en France ne peuvent acheter les actions offertes par ce document d’information que pour leur compte propre et conformment aux articles L. 411-1, L. 441-2 et L. 412-1 du Code Montaire et Financier et du dcret no. 98-880 du 1 octobre 1998, sous rserve qu’ils soient des investisseurs qualifis au sens du dcret susvis. Chaque investisseur doit dclarer par crit qu’il est un investisseur qualifi au sens du dcret susvis. Toute revente, directe ou indirecte, des actions offertes par ce document d’information au public ne peut être effectue que conformment à la rglementation susmentionne.”
Switzerland. This prospectus may only be used by those persons to whom it has been directly handed out by the offeror or its designated distributors in connection with the offer described therein. The units are only offered to those persons and/or entities directly solicited by the offeror or its designated distributors, and are not offered to the public in Switzerland. This prospectus constitutes neither a pubicpublic offer in Switzerland nor an issue prospectus in accordance with the respective Swiss legislation, in particular but not limited to Article 652A Swiss Code Obligations. Accordingly, this prospectus may not be used in connection with any other offer, whether private or public and shall in particular not be distributed to the public in Switzerland.
United Kingdom. In the United Kingdom, the units offered by this prospectus are directed to and will only be available for purchase to a person who is an exempt person as referred to at paragraph (c) below and who warrants, represents and agrees that: (a) it has not offered or sold, will not offer or sell, any shares offered by this prospectus to any person in the United Kingdom except in circumstances which do not constitute an offer to the public in the United Kingdom for the purposes of the section 85 of the Financial Services and Markets Act 2000 (as amended) (“FSMA”); and (b) it has complied and will comply with all applicable provisions of FSMA and the regulations made thereunder in respect of anything done by it in relation to the units offered by this prospectus in, from or otherwise involving the United Kingdom; and (c) it is a person who falls within the exemptions to Section 21 of the FSMA as set out in The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (“the Order”), being either an investment professional as described under Article 19 or any body corporate (which itself has or a group undertaking has a called up share capital or net assets of not less than €500,000 (if more than 20 members) or otherwise €5 million) or an unincorporated association or partnership (with net assets of not less than €5 million) or is a trustee of a high value trust or any person acting in the capacity of director, officer or employee of such entities as defined
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under Article 49(2)(a) to (d) of the Order, or a person to whom the invitation or inducement may otherwise lawfully be communicated or cause to be communicated. The investment activity to which this document relates will only be available to and engaged in only with exempt persons referred to above. Persons who are not investment professionals and do not have professional experience in matters relating to investments or are not an exempt person as described above, should not review nor rely or act upon this document and should return this document immediately. It should be noted that this document is not a prospectus in the United Kingdom as defined in the Prospectus Regulations 2005 and has not been approved by the Financial Services Authority or any competent authority in the United Kingdom.
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Norway. This prospectus has not been produced in accordance with the prospectus requirements laid down in the Norwegian Securities Trading Act 1997 as amended. This prospectus has not been approved or disapproved by, or registered with, neither the Oslo Stock Exchange nor the Norwegian Registry of Business Enterprises. This prospectus may not, either directly or indirectly be distributed to other Norwegian potential investors than the addressees without the prior consent of Maxim Group LLC.
Denmark. This prospectus has not been prepared in the context of a public offering of securities in Denmark within the meaning of the Danish Securities Trading Act No. 171 of 17 March 2005 as amended from time to time or any Executive Orders issued on the basis thereof and has not been and will not be filed with or approved by or filed with the Danish Financial Supervisory Authority or any other public authorities in Denmark. The offering of units will only be made to persons pursuant to one or more of the exemptions set out in Executive Order No. 306 of 28 April 2005 on Prospectuses for Securities Admitted for Listing or Trade on a Regulated Market and on the First Public Offer of Securities exceeding EUR 2,500,000 or Executive Order No. 307 of 28 April 2005 on Prospectuses for the First Public Offer of Certain Securities between EUR 100,000 and EUR 2,500,000, as applicable.
Sweden. Neither this prospectus nor the units offered hereunder have been registered with or approved by the Swedish Financial Supervisory Authority under the Swedish Financial Instruments Trading Act (1991:980) (as amended), nor will such registration or approval be sought. Accordingly, this prospectus may not be made available nor may the units offered hereunder be marketed or offered for sale in Sweden other than in circumstances which are deemed not to be an offer to the public in Sweden under the Financial Instruments Trading Act. This prospectus may not be distributed to the public in Sweden and a Swedish recipient of the prospectus may not in any way forward the prospectus to the public in Sweden.
Israel. The units offered by this prospectus have not been approved or disapproved by the Israeli Securities Authority (ISA). The units may not be offered or sold, directly or indirectly, to the public in Israel. The ISA has not issued permits, approvals or licenses in connection with the offering of the units or publishing the prospectus; nor has it authenticated the details included herein, confirmed their reliability or completeness, or rendered an opinion as to the quality of the units being offered. Any resale, directly or indirectly, to the public of the units offered by this prospectus is subject to restrictions on transferability and must be effected only in compliance with the Israeli securities laws and regulations.
LEGAL MATTERS
The validity of the securities offered in this prospectus are being passed upon for us by Ellenoff Grossman & Schole, LLP, New York, New York. Lowenstein Sandler PC New York, New York, is acting as counsel for the underwriters in this offering. Ellenoff Grossman & Schole, LLP has previously represented Maxim Group LLC and expects to do so again in the future.
EXPERTS
The consolidated financial statements included in this Prospectus and in the Registration Statement have been audited by Marcum & Kliegman LLP, an independent registered public accounting firm, to the extent and for the periods set forth in their report appearing elsewhere herein and in the Registration Statement, and are included in reliance upon such report given upon the authority of said firm as experts in auditing and accounting.
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WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act, with respect to the common stock offered by this prospectus. This prospectus, which is part of the registration statement, omits certain information, exhibits, schedules and undertakings set forth in the registration statement. For further information pertaining to us and our common stock, reference is made to the registration statement and the exhibits and schedules to the registration statement. Statements contained in this prospectus as to the contents or provisions of any documents referred to in this prospectus are not necessarily complete, and in each instance where a copy of the document has been filed as an exhibit to the registration statement, reference is made to the exhibit for a more complete description of the matters involved.
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You may read and copy all or any portion of the registration statement without charge at the office of the SEC at the Public Reference Room at Station Place, 100 F Street, N.E., Washington, D.C. 20549. Copies of the registration statement may be obtained from the SEC at prescribed rates from the Public Reference Section of the SEC at such address. In addition, registration statements and certain other filings made with the SEC electronically are publicly available through the SEC’s web site at http://www.sec.gov. The registration statement, including all exhibits and amendments to the registration statement, has been filed electronically with the SEC.
Upon completion of this offering, we will become subject to the information and periodic reporting requirements of the Securities Exchange Act and, accordingly, will file annual reports containing financial statements audited by an independent public accounting firm, quarterly reports containing unaudited financial data, current reports, proxy statements and other information with the SEC. You will be able to inspect and copy such periodic reports, proxy statements and other information at the SEC’s public reference room, and the web site of the SEC referred to above.
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SPECIALTY METALS GROUP INDIUM CORP.
(A Development Stage Enterprise)
INDEX TO FINANCIAL STATEMENTS
| | |
| | Page(s) |
| Report of Independent Registered Public Accounting Firm | | | F-1 | |
Financial Statements:
| | | | |
Balance Sheet as of January 31,June 30 , 2008 | | | F-2 | |
Statement of Operations for the Period
January 7, 2008 (Inception) Through
January 31, June 30 , 2008 | | | F-3 | |
Statement of Changes in Stockholders’ Equity for the Period
January 7, 2008
(Inception) Through January 31,June 30 , 2008 | | | F-4 | |
Statement of Cash Flows for the Period
January 7, 2008 (Inception) Through
January 31, June 30 , 2008. | | | F-5 | |
| Notes to Financial Statements | | | F-6 – F-12F-13 | |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of SMG Indium Resources Ltd.
(formerly Specialty Metals Group Indium Corp.)
We have audited the accompanying balance sheet of SMG Indium Resources Ltd. (formerly Specialty Metals Group Indium Corp.) (a developmental stage enterprise) (the “Company”) as of January 31,June 30, 2008, and the related statements of operations, changes in stockholders’ equity and cash flows for the period January 7, 2008 (inception) through January 31,June 30, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based upon our audit.
We conducted our audit in accordance with the standards of the Public Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Specialty Metals GroupSMG Indium Corp.Resources Ltd., (a development stage enterprise), as of January 31,June 30, 2008, and the results of its operations and its cash flows for the period January 7, 2008 (inception) through January 31,June 30, 2008 in conformity with United States generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has no present revenue. ItsThe Capitalization of the Company’s business plan is also dependent upon the completion of anits proposed initial public offering. The Company’s cash and working capital resources as of January 31,June 30, 2008 are not sufficient to sustain operations or complete its planned activities for the upcoming year unless an offering is successfully launched.it completes its proposed initial public offering. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are described in Notes 1 and 2.2 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of the uncertainty.
/s/ Marcum & Kliegman LLP
New York, New York
February 25,July 11, 2008
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SPECIALTY METALS GROUPSMG INDIUM CORP.RESOURCES LTD.
(formerly Specialty Metals Group Indium Corp.)
(A Development Stage Enterprise)
BALANCE SHEET
January 31,June 30, 2008
| | | | |
ASSETS
| ASSETS
| | | | | |
| Cash | | $ | 9,932 | | |
| Current Assets – Cash | | | $ | 50,936 | |
| Deferred Offering Costs | | | 75,000 | | | | 207,843 | |
| Total Assets | | $ | 84,932 | | | $ | 258,779 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY
| LIABILITIES AND STOCKHOLDERS’ EQUITY
| | | | | |
Current Liabilities:
| | | | | |
| Note Payable to Manager | | $ | 75,000 | | | $ | 250,000 | |
| Accrued Expenses | | | 1,106 | | | | 1,106 | |
| Accrued Interest Payable – Manager | | | 288 | | | | 5,596 | |
| Total Liabilities | | $ | 76,394 | | | $ | 256,702 | |
Commitment and contingencies
| | | | | | | | |
Stockholders’ Equity:
| | | | | | | | |
Preferred Stock, $.001 par value;
| | | | | |
| 1,000,000 shares authorized, 0 issued and outstanding | | $ | — | | |
Common Stock, $.001 par value,
| | | | | |
| 50,000,000 shares authorized 90,000 issued and outstanding | | | 90 | | |
Preferred Stock, $.001 par value;
1,000,000 shares authorized, 0 issued and outstanding | | | $ | — | |
Common Stock, $.001 par value,
50,000,000 shares authorized 90,000 issued and outstanding | | | | 90 | |
| Additional Paid-in Capital | | | 9,910 | | | | 9,910 | |
| Deficit Accumulated during the development stage | | | (1,462 | ) | | | (7,923 | ) |
| Total Stockholders’ Equity | | | 8,538 | | | | 2,077 | |
| Total Liabilities and Stockholders’ Equity | | $ | 84,932 | | | $ | 258,779 | |
The accompanying notes are an integral part of these financial statements.
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SPECIALTY METALS GROUPSMG INDIUM CORP.RESOURCES LTD.
(formerly Specialty Metals Group Indium Corp.)
(A Development Stage Enterprise)
STATEMENT OF OPERATIONS
For the Period January 7, 2008 (Inception) Through January 31,June 30, 2008
| | | | |
| Formation and operating costs | | $ | 1,174 | | | $ | 2,327 | |
| Interest expense – Manager | | | 288 | | | | 5,596 | |
| Net loss | | $ | (1,462 | ) | | $ | (7,923 | ) |
| Net loss per share common - basic and diluted | | $ | (0.02 | ) | |
| Weighted average number of common shares outstanding - basic and diluted | | | 90,000 | | |
| Net loss per share common – basic and diluted | | | | (0.09 | ) |
| Weighted average number of common shares outstanding – basic and diluted | | | $ | 90,000 | |
The accompanying notes are an integral part of these financial statements.
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SPECIALTY METALS GROUPSMG INDIUM CORP.RESOURCES LTD.
(formerly Specialty Metals Group Indium Corp.)
(A Development Stage Enterprise)
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Period January 7, 2008 (Inception) Through January 31,June 30, 2008
| | | | | | | | | | | |
| | | | | | | | Deficit
Accumulated During the
Development Stage | | | | | | | | | | | | |
| | | Common Stock | | Additional
Paid-In
Capital | | Total
Stockholders’ Equity | | Common Stock | | Additional Paid-In Capital | | Deficit Accumulated During the Development Stage | | Total Stockholders’ Equity |
| | | Shares | | Amount | | Shares | | Amount |
| Proceeds from the sales of common stock to founding stockholders on January 7, 2008 at $.1111 per share | | | 90,000 | | | $ | 90 | | | $ | 9,910 | | | $ | — | | | $ | 10,000 | | | | 90,000 | | | $ | 90 | | | $ | 9,910 | | | | — | | | $ | 10,000 | |
| Net loss | | | | | | | | | | | | | | | (1,462 | ) | | | (1,462 | ) | | | | | | | | | | | | | | | (7,923 | ) | | | (7,923 | ) |
| Balances, January 31, 2008 | | | 90,000 | | | $ | 90 | | | $ | 9,910 | | | $ | (1,462 | ) | | $ | 8,538 | | |
| Balances, June 30, 2008 | | | | 90,000 | | | $ | 90 | | | $ | 9,910 | | | | (7,923 | ) | | $ | 2,077 | |
The accompanying notes are an integral part of these financial statements.
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SPECIALTY METALS GROUPSMG INDIUM CORP.RESOURCES LTD.
(formerly Specialty Metals Group Indium Corp.)
(A Development Stage Enterprise)
STATEMENT OF CASH FLOWS
For the Period January 7, 2008 (Inception) Through January 31,June 30, 2008
| | | | |
Cash flow from operating activities:
| | | | | | | | |
| Net loss | | $ | (1,462 | ) | | $ | (7,923 | ) |
| Accrued expenses | | | 1,106 | | | | 1,106 | |
| Accrued interest – Manager | | | 288 | | | | 5,596 | |
| Net cash used in operating activities | | | (68 | ) | | | (1,221 | ) |
Cash flow from financing activities:
| | | | | | | | |
| Proceeds from note payable – Manager | | | 75,000 | | | | 250,000 | |
| Deferred offering costs | | | (75,000 | ) | | | (207,843 | ) |
| Proceeds from issuance of common stock to founding stockholders | | | 10,000 | | | | 10,000 | |
| Net cash provided by financing activities | | | 10,000 | | | | 52,157 | |
| Net increase in cash | | | 9,932 | | | | 50,936 | |
| Cash, at beginning of period | | | — | | | | — | |
| Cash, at end of period | | $ | 9,932 | | | $ | 50,936 | |
The accompanying notes are an integral part of these financial statements.
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SPECIALTY METALS GROUPSMG INDIUM CORP.RESOURCES LTD.
(formerly Specialty Metals Group Indium Corp.)
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 1 — Organization, Proposed Business Operations, Going Concern and Significant Accounting Policies
Organization and Proposed Business Operations
SMG Indium Resources Ltd. (formerly Specialty Metals Group Indium Corp.) (a development stage enterprise) (the “Company”) is a corporation established pursuant to the laws of Delaware on January 7, 2008. On April 2, 2008, the Company changed its name from Specialty Metals Group Indium Corp. to SMG Indium Resources Ltd. The Company’s sole business purpose is to purchase and stockpile indium, a specialty metal that is being increasingly used as a raw material in a wide variety of consumer electronics manufacturing applications. The Company’s business strategy is to achieve long-term appreciation in the value of its indium stockpile, and not to actively speculate with regard to short-term fluctuations in indium prices. The Company’s indium will be insured and physically stored in facilities located in the United States, Canada, and or the United Kingdom. While it is not the Company’s current intention to do so in the short term, at its discretion, the Company may subsequently lease, lend or sell some or its entire indium stockpile based on market conditions. The Company’s common shares will represent an indirect interest in the physical indium it will own.
In furtherance of the strategy of the Company, the Board of Directors will implement policies, including but not limited to: (i) utilizing at least 85% of the net proceeds of a proposed initial public offering (see Note 2) (or any future offering) in, or holding for future purchases of indium, (ii) having funds available to purchase indium pursuant to contracts and (iii) having indium available to satisfy delivery commitments to lease, lend or sell indium pursuant to contracts. Indium is an essential raw material for a number of consumer electronics applications. The primary commercial application of indium is in coatings for the flat panel display industry and in the Liquid Crystal Display industry on electronic devices like television sets, computers, cell phones and digital cameras. Indium is increasingly being used as a crucial raw material in the solar energy industry. Its main use in solar energy applications is for high-efficiency photovoltaic cells in the form of thin-film photovoltaic. Other uses of Indium are in electrical components, alloys and solders.
From January 7, 2008 (inception) through January 31,June 30, 2008, the Company had not yet commenced any operations. All activity through January 31,June 30, 2008 relates to the Company’s formation and proposed public offering described in Note 2 below. The Company has no operating history and is therefore subject to all of the risks and uncertainties that are associated with starting a new business, including inherent uncertainties as to the viability of the business model. The Company has selected December 31 as its fiscal year-end.
Going Concern
The Company has $9,932$50,936 of cash as of January 31,June 30, 2008 and incurred a $1,462$7,923 loss in its initial operating period. To date, the Company has financed its initial operations principally from the proceeds drawn under its Revolving Line of Credit with the Manager (see Note 4). The Company’s ability to commence operations and realize its business plan is dependent upon its ability to complete the proposed public offering which is discussed in Note 2. There is no assurance that the Company will complete the proposed public offering or that the completion of the proposed public offering will lead to the successful execution of the Company’s business plan. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
The Company will incur substantial additional operating costs following the completion of the proposed public offering (if completed). Company management has established specific guidelines as to how the proceeds of the proposed public offering would be used. The Company would use 85% of such net proceeds to fund Indium purchases the remaining 15% of such net proceeds for general corporate and working capital purposes.
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SMG INDIUM RESOURCES LTD.
(formerly Specialty Metals Group Indium Corp.)
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 1 — Organization, Proposed Business Operations, Going Concern and Significant Accounting Policies – (continued)
If the Company has not, within 18 months after the closing of the offering, purchased indium in sufficient quantity to utilize at least 50% of the net proceeds (gross proceeds less underwriting discounts and commission, corporate finance expenses and offering expenses) of the offering that have been allocated for the purchase of indium or 42.5% of the total net proceeds, the Company’s Board of Directors will have the discretion to distribute such unused proceeds to the stockholders as a return of capital. Any such distributions
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SPECIALTY METALS GROUP INDIUM CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 1 — Organization, Proposed Business Operations, Going Concern and Significant Accounting Policies – (continued)
will lower the amount of cash available to purchase additional indium which will, in turn, lower the net assetmarket value of the Company’s supply of indium. This may have the effect of decreasing the Company’s stock price.
Further, after the proposed public offering, the Company expects annual operating costs to approximate $1,675,000 comprised of $125,000 for storing and holding the indium, $75,000 for insuring the indium, $150,000 for stockholder communications and relations; $1,025,000 for the initial annual manager’s fee;fee which is subject to fluctuations in the Company’s Net Market Value; $150,000 for directors and officers liability insurance premiums; and $150,000 for other/administrative expenses including legal, accounting and director fees. As with the indium purchases, the Company expects to pay for these expenses and asset purchases from the offering proceeds. The Company is not certain that its business model will be viable or that it can sustain revenue growth or be profitable. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern should the offering not be successful.concern. The financial statements do not include any adjustments that might result from the Company’s inability to consummate the offering or its ability to continue as a going concern.
Income Taxes
The Company follows Statement of Financial Standards No. 109, “Accounting for Income Taxes” (SFAS No. 109) and FASB Interpretation No. 48, ”Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (“FIN No. 48”). Under SFAS No. 109, the Company establishes financial accounting assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such amounts were not material during the initial period ending January 31,June 30, 2008.
FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with SFAS No. 109 and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under FIN No. 48, the impact of an uncertain income tax position(s) on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, FIN No. 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Such amounts required to be recorded under Fin 48 were not material during the initial period ending January 31,June 30, 2008.
Start-Up Costs
The Company follows the guidance of Statement of Position (“SOP”) 93-7), “Reporting on the Costs of Start-Up Activities”. This SOP provides guidance on the financial reporting of start-up costs and organizational costs. It requires the costs of start-up activities and organizational costs to be expensed as incurred.
Inventory or “Stockpile” of the Metal Indium
The Company’s inventory or “stockpile” of the metal indium will be recorded at cost on the date the Company takeswe take delivery of the physical metal. The stockpile of the physical metal indium will be carried at fairthe lower of cost or market with cost being determined on a specific identification method and market being determined as the net realizable value which isas computed from the closing spot price as posted by Metal Bulletin on
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SMG INDIUM RESOURCES LTD.
(formerly Specialty Metals Group Indium Corp.)
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 1 — Organization, Proposed Business Operations, Going Concern and Significant Accounting Policies – (continued)
Bloomberg L.P., a real-time financial information services data platform, based on the last day of the period.period amongst other considerations. The difference between cost and fair market value will be reflectedreviewed on a periodic basis to determine if a loss should be recognized where the utility of indium has been impaired. Where such impairment is viewed as unrealized appreciation (depreciation) of inventory as part of its operations.something other than temporary, the Company will charge against earnings the value by which the fair market value is less than the cost. Realized gains (losses) from other transactions will be determined for income tax and for financial reporting purposes on the specific identification method.
The Company envisions that its stockpile of indium may be used from time to time for “direct sales” and or “lending” transactions. Under a “direct sale” transaction it will record a gain (loss) equal to the difference between the proceeds received from the sale of indium and the indium carrying value. The Company may also elect to enter into a lending transaction. In indium lending transactions, it would exchange a specified tonnage and purity of indium for cash. Title and the risks and rewards of such indium ownership would pass to the purchaser/counterparty in the lending transaction. The Company will simultaneously enter into an agreement with such counterparty in which it would unconditionally commit to purchase and the counterparty would unconditionally commit to sell a specified tonnage and purity of indium that would be delivered to the Company at a fixed price and at a fixed future date in exchange for cash (the Unconditional Sale and Purchase Agreement or “USPA”). The USPA would also contain terms providing the counterparty with substantial disincentives (“penalty fees”) for non-performance of the return of indium to the company as a means to assure our future supply of indium. While the Company believes that this risk is somewhat mitigated by the penalty fee features of the USPA, it is nonetheless a risk associated with a transaction of this type. We anticipate recognizing revenues on purchases and sales of indium under these arrangements in accordance APB 29 “Non-Monetary Transactions” and EITF Issue No. 04-13 “Accounting for Purchases and Sales of Inventory with the Same Counterparty.” Accordingly we will disclose unconditional purchase obligations under these arrangements in accordance with SFAS 47 “Disclosure of Long Term Obligations” and, if applicable, accrue net losses on such unconditional purchase obligations in accordance with ARB 43.
Employee Share Based Payment Arrangements
The Company accounts for employee share based payment arrangements in accordance with the provision of SFAS 123R, “Share-Based Payments” (“SFAS 123R”). This statement is a revision of SFAS 123, and
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SPECIALTY METALS GROUP INDIUM CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 1 — Organization, Proposed Business Operations, Going Concern and Significant Accounting Policies – (continued)
supersedes APB Opinion No. 25, and its related implementation guidance. SFAS 123R addresses all forms of share-based payment (“SBP”) awards including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights. Under SFAS 123R, SBP awards result in a cost that is measured at fair value on the awards’ grant date, based on the estimated number of awards that are expected to vest and will result in a charge to operations. As the Company only recently adopted an equity incentive plan but has not yet issued any employee share-based payments there is currently no compensation for the periods.
Basic and Diluted Loss per Share
The Company computes net loss per share in accordance with SFAS No. 128, “Earnings per Share” (“SFAS No. 128”). SFAS No. 128 requires presentation of both basic and diluted earnings/(loss) per share (“EPS”) on the face of the statement of operations. Basic EPS is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the year. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options and warrants, using the treasury stock method and convertible debt using the if-converted method. If anti-dilutive, the effect of outstanding warrants and options is ignored. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock option or warrants. For the period ended January 31,June 30, 2008, basic and diluted EPS loss per share are based upon 90,000 common shares outstanding.
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SMG INDIUM RESOURCES LTD.
(formerly Specialty Metals Group Indium Corp.)
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 1 — Organization, Proposed Business Operations, Going Concern and Significant Accounting Policies – (continued)
Common Stock Purchase Warrants and Other Derivative Financial Instruments
The Company accounts for the issuance of common stock purchase warrants and other free standing derivative financial instruments in accordance with the provisions of EITF 00-19. Based on the provisions of EITF 00-19, the Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) gives the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company assesses classification of its common stock purchase warrants and other free standing derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required.
The Company currently has no outstanding free standing derivatives. Notwithstanding, the Company, as a matter of policy, will evaluate any common stock purchase warrants or other free standing derivatives at each reporting date to assess their proper classification using the applicable classification criteria enumerated in EITF 00-19.
A portion of the Company’s planned purchasing and stockpiling policy, whereby it enters into contracts for the future purchase of Indium, may expose the Company to fluctuations in the fair value of these contracts due to changes in the spot price as posted by Metal Bulletin on Bloomberg L.P., a real-time financial information services data platform. Therefore, in accordance with Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities”, the change in fair value of these contracts will be currently recorded into earnings. During the Company’s initial period ended January 31, 2008, the Company had not yet entered into any of these contracts.
Use of Estimates
The preparation of the financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets
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SPECIALTY METALS GROUP INDIUM CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 1 — Organization, Proposed Business Operations, Going Concern and Significant Accounting Policies – (continued)
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Recently Issued Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements. The changes to current practice resulting from the application of this statement relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. The Company adopted the provisions of SFAS No. 157 at the date of the Company’s inception. The adoption of SFAS No. 157 did not have a material impact on the Company’s financial position, results of operations or cash flows, however, this pronouncement may have an effect in the future.
In September 2006, the Securities and Exchange Commission (“SEC”) released Staff Accounting Bulletin No. 108, Considering the Effects of Prior Misstatements in Current Year Financial Statements (”SAB 108”). SAB 108 provides guidance on how the effects of the carry over or reversal of prior year financial statement misstatements should be considered in quantifying a current year misstatement. Prior practice allowed the evaluation of materiality on the basis of (i) the error quantified as the amount by which the current year income statement was misstated (rollover method) or (ii) the cumulative error quantified as the cumulative amount by which the current year balance sheet was misstated (iron curtain method). Accordingly, reliance on either method in prior years could have resulted in misstatement of the financial statements. The guidance provided in SAB 108 requires both methods to be used in evaluating materiality. Immaterial prior year errors may be corrected with the filing of prior year financial statements after adoption. The cumulative effect of the correction would be reflected in the opening balance sheet with appropriate disclosure of the cause of the error and that error had been deemed to be immaterial in the past. The adoption of this pronouncement did not have any material effects on the Company’s consolidated financial position, results of operation, or cash flows.
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SMG INDIUM RESOURCES LTD.
(formerly Specialty Metals Group Indium Corp.)
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 1 — Organization, Proposed Business Operations, Going Concern and Significant Accounting Policies – (continued)
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115, “(SFAS No. 159”), which is effective for fiscal years beginning after November 15, 2007. SFAS No. 159 permits an entity to choose to measure many financial instruments and certain other items at fair value at specified election dates. Subsequent unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. The adoption of this pronouncement did not have any material effects on the Company’s consolidated financial position, results of operation, or cash flows, however, this pronouncement may have an effect in the future.
In June 2007, the EITF reached a consensus on EITF Issue No. 06-11, “Accounting for Income Tax Benefits on Dividends on Share-Based Payment Awards” (“EITF 06-11”). EITF 06-11 addresses share-based payment arrangements with dividend protection features that entitle employees to receive (a) dividends on equity-classified non-vested shares, (b) dividend equivalents on equity-classified non-vested share units, or (c) payments equal to the dividends paid on the underlying shares while an equity-classified share option is outstanding, when those dividends or dividend equivalents are charged to retained earnings under SFAS 123R and result in an income tax deduction for the employer. A realized income tax benefit from dividends or dividend equivalents that are charged to retained earnings are paid to employees for equity-classified non-vested shares, non-vested equity share units, and outstanding equity share options should be recognized as an increase in additional paid in capital. The amount recognized in additional paid-in capital for the realized income tax benefit from dividends on those awards should be included in the pool of excess tax benefits
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SPECIALTY METALS GROUP INDIUM CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 1 — Organization, Proposed Business Operations, Going Concern and Significant Accounting Policies – (continued)
available to absorb potential future tax deficiencies on share-based payments. The Company does not expect that the adoption of this pronouncement had a material impact on its financial position or results of operations.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s financial statements upon adoption.
Note 2 — Proposed Public Offering
The proposed public offering calls for the Company to offer for public sale up to 11,000,000 units at a proposed offering price of $5.00 per unit (plus up to 1,650,000 units to cover over-allotments, if any). Each unit consists of one share of the Company’s common stock and one redeemable common stock purchase warrant. Each warrant will entitle the holder to purchase from the Company one share of common stock at an exercise price of $6.00 per share commencing six monthsimmediately following the effectiveness of the offering and will expire three years from the effective date of the proposed offering. The Company may redeem the warrants at a price of $.01 per warrant at any time aftersix months following the warrants become exercisable,effectiveness of the offering, upon providing at least 30 days advance written notice of redemption and if, and only if, the last sales price of the Company’s common stock equals or exceeds $9.00 per share for any 20 trading days within a 30 trading day period ending three business days before the Company sends the notice of redemption. In addition, the Company may not redeem the Warrants unless the warrants comprising the units sold in the proposed offering and the shares of common stock underlying those warrants are covered by an effective registration statement from the beginning of the measurement period through the date fixed for the redemption.
If the foregoing conditions are satisfied and the Company calls the warrants for redemption, each warrant holder shall then be entitled to exercise their warrants prior to the date scheduled for redemption. The redemption provisions for the Company’s warrants have been established at a price which is intended to avail to the warrant holders a premium in the market price as compared to the initial exercise price. There can be no assurance, however, that the price of the common stock will exceed either the redemption price of $9.00 or the warrant exercise price of $6.00 after the Company calls the warrants for redemption.
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SMG INDIUM RESOURCES LTD.
(formerly Specialty Metals Group Indium Corp.)
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 2 — Proposed Public Offering – (continued)
The Company will pay the underwriters in the proposed offering an underwriting discount of five percent of the gross proceeds of the proposed offering and a non accountable expense allowance of one percent of the gross proceeds of the proposed offering. The Company will also issue a unit purchase option, for $100, only upon the consummation of the proposed offering, to allow the underwriter to purchase an additional 550,000 units at an exercise price of 110% of the price per unit in the proposed offering. The Company intends to account for the fair value of this purchase option, net of the receipt of the $100 cash payment, as an expense of the proposed public offering resulting in a charge directly to stockholders’ equity. The Company estimates that the fair value of this option is approximately $1,350,718 ($2.46 per unit) using the Black Scholes option pricing model. The fair value of the UPOunit purchase option granted to the underwriter is estimated as of the date of grant using the following assumptions: (i) expected volatility of 57.48%; (ii) risk free interest rate of 2.82%; and (iii) a contractual exercise term of five years. The volatility rate was based upon the five year average volatility of ten small-cap mining stocks traded on U.S. exchanges between February 19, 2003 and February 19, 2008. The assumed discount rate was computed by taking the average Treasury bill rate for the contractual exercise term of the option.
Note 3 — Deferred Offering Costs
Deferred offering costs consist principally of legal and underwriting fees incurred through the balance sheet date that are directly related to the proposed offering and that will be charged to stockholders’ equity upon the receipt of the capital raised. In the event that the proposed offering is not consummated, the deferred offering costs will be charged against operations.
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SPECIALTY METALS GROUP INDIUM CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 3 — Deferred Offering Costs – (continued)
Note 4 — Related Party Transaction
Some of the Company’s executives are also members of the limited liability company Specialty Metals Group Advisors, LLC (the “SMG Advisors”). Prior to the consummation of the offering, the Company will enter into a management services agreement with SMG Advisors (the “Manager”) to engage them to perform certain services on behalf of the Company. To date the Manager has been an inactive entity. The Manager is also considered to be a variable interest entity with its members being the primary obligors. Pursuant to the management agreement, the Manager will be responsible for: (i) the purchase and sale of indium, (ii) submission of written reports detailing the delivery and payment particulars regarding each purchase and sale to the Company’s Board of Directors, (iii) arrange for the storage of indium and prepare a report on the net assetmarket value of the Company’s common stock, (iv) prepare regulatory filing materials, reports to the Company’s stockholders and other reports to its Board of Directors and (v) generally manage the Company’s business and affairs.
The management agreement shall have an initial term of five years with options to renew the agreement on terms mutually acceptable to each party and may be terminated by either party upon 90 days prior written notice. The Company shall be responsible for paying all costs and expenses incurred in connection with the business, except those expressly assumed by the Manager. The Company shall pay the Manager a fee equal to 2% per annum of its net assetmarket value. The members of SMG Advisors, and the positions they hold in the Company, are as follows: Ailon Z. Grushkin, President; Richard A. Biele, Chief Operating Officer; and Alan Benjamin, Chairman and Chief Executive Officer. SMG Advisors is managed by Ailon Z. Grushkin.
The Company and the Manager have agreed that the manager may purchase up to $500,000 worth of indium prior to the completion of this offering. In the event that the public offering is completed, the Manager will agree to sell to the Company at the Company’s option any indium so purchased at the same price as the Manager paid for such indium.
On January 7, 2008, the Company agreed to reimburse its Chief Operating Officer Richard Biele or his affiliates commencing upon the successful completion of the offering for office, secretarial and related office expenses as follows: (1) $1,200 per month for rent; (2) reimbursement for up to 20% of his secretary’s salary and healthcare benefits; and (3) office expenses directly related to the Company’s operations. The Company will continue to reimburse its Chief Operating Officer or his affiliates for rent and other office-related expenses as set forth above. As of January 31,June 30, 2008, there were no expenses incurred in connection with this agreement to be accrued in the accompanying financial statements.
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SMG INDIUM RESOURCES LTD.
(formerly Specialty Metals Group Indium Corp.)
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 4 — Related Party Transaction – (continued)
On January 8, 2008, the Company entered into a revolving line of credit with the Manager in the aggregate amount of $300,000. The line of credit will be used to fund the deferred offering costs to be incurred by the Company in connection with the proposed offering. To date, the Company has borrowed $75,000$250,000 under the line of credit. Borrowings under the line are unsecured and bear interest at the rate of six percent per annum. As of the balance sheet date, 23174 days have been accrued there under and the Company has recorded a charge to operations of $288$5,596 in connection therewith. The loan willis anticipated to be payable on the earlier of December 31, 2008 or the consummation of this offering. The loan willis anticipated to be repaid out of the net proceeds of this offering.
Note 5 — Commitments and Contingency
On behalf of the Company, the Manager will begin making purchases of indium upon consummation of the offering. If the Manager has not, within 18 months after the closing of the offering, purchased indium in sufficient quantity to utilize at least 50% of the proceeds of the offering that have been allocated for the purchase of indium, the Company’s Board of Directors will have the discretion to distribute such unused proceeds to its stockholders as a return of capital. Any such distributions will lower the amount of cash available to purchase additional indium which will, in turn, lower the net assetmarket value of the Company’s supply of indium. This may have the effect of decreasing the Company’s stock price.
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SPECIALTY METALS GROUP INDIUM CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 5 — Commitments and Contingency – (continued)
The Company entered into an annual employment arrangement with Richard T. Morena, the Company’s Chief Financial Officer that will provide for an annual base salary of $30,000 to be paid in quarterly installments of $7,500. As noted above, Mr. Morena has also been awarded a stock option to purchase 30,000 shares of the Company’s common stock at an exercise price equal to $4.50 per share of common stock, exercisable subject to the completion of the offering, for a period of five years. Additionally, Mr. Morena will receive an award of 30,000 options annually thereafter on terms to be established by the board of directors and compensation committee of the board of directors.
In connection with the commencement of the Company’s initial public offering, the Company’s Board of Directors adopted and the Company’s stockholders approved the 2008 Equity Incentive Plan (the “Plan”) in its entirety in January 2008. Under the Plan, the Company may grant incentive stock options, non-qualified stock options, restricted and unrestricted stock awards and other stock-based awards. A maximum of 330,000 shares of common stock has been reserved for issuance under this plan. Since inception, the Company has agreed to grant 5,000 options to purchase common stock to each of the Company’s two independent directors and 30,000 options to the Company’s Chief Financial Officer. Exercise of these options is contingent upon the successful completion of the initial public offering. The options will be exercisable at $4.50 per share, subsequent to the completion of the offering for a period of five years. The Company estimates that the fair value of the 10,000 director’s options will be approximately $27,144$20,000 and Mr. Morena’s 30,000 options will be approximately $61,000 using the Black-Scholes option pricing model, assuming the successful completion of the offering at the proposed offering price of $5.00 per share. The fair value of these options granted to the directors and officers is estimated as of the date of grant using the following assumptions: (i) expected volatility of 57.48%; (ii) risk free interest rate of 2.82%; and (iii) an expected life of 52.5 years for the director’s (contractual life) and 2.5 years for Mr. Morena’s options using Staff Accounting Bulletin No. 110 method. The volatility rate was based upon the five year (2.5 years for Mr. Morena’s options) average volatility of ten small-cap mining stocks traded on U.S. exchanges between February 19, 2003 and February 19, 2008. The assumed discount rate was computed by taking the Treasury bill rate for 5 years (2.5 years for Mr. Morena’s options). The valuation of these options is an estimate and at the time the public offering is consummated the options will be valued again and the value may change.
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SMG INDIUM RESOURCES LTD.
(formerly Specialty Metals Group Indium Corp.)
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 6 — Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors. At January 31,June 30, 2008, there were no outstanding preferred shares.
Note 7 — Subsequent Events
On July 11, 2008, the Company entered into a Purchase/Supply/Agency Agreement with Unionmet. Pursuant to the Agreement, Unionmet agreed to (i) sell a minimum of ten (10) metric tons of indium to us within ten (10) months upon the effectiveness of this offering at a price to be determined by a formula negotiated between the Company and Unionmet and (ii) act as a non-exclusive agent to negotiate sales on the Company’s behalf and broker introductions with suppliers of indium based in China. The Company agreed to purchase the ten (10) metric tons of indium and agreed to pay Unionmet a commission for all transactions negotiated by Unionmet on the Company’s behalf or introductions brokered by Unionmet between the Company and other indium suppliers resulting in a transaction. The term of the Agreement shall begin on the effectiveness of this offering and terminate one year after the effectiveness of this offering.
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Until [ •[• ] 2008, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
No dealer, salesperson or any other person is authorized to give any information or make any representations in connection with this offering other than those contained in this prospectus and, if given or made, the information or representations must not be relied upon as having been authorized by us. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any security other than the securities offered by this prospectus, or an offer to sell or a solicitation of an offer to buy any securities by anyone in any jurisdiction in which the offer or solicitation is not authorized or is unlawful.
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$
Specialty Metals
GroupSMG Indium Corp.Resources Ltd.
11,000,000 Units
PROSPECTUS
Maxim Group LLC
Sole Bookrunner
February
PROSPECTUS
Maxim Group LLC
Canaccord Adams
September __, 2008
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth an itemization of the various costs and expenses, all of which we will pay, in connection with the issuance and distribution of the securities being registered. All of the amounts shown are estimated except the SEC registration fee, the American Stock Exchange listing fee and the FINRA filing fee:
| | |
| SEC registration fee | | $ | 5,731 | |
| AMEX listing fee | | | 70,000 | |
| FINRA filing fee | | | 15,081 | |
| Accounting fees and expense | | | 100,000 | |
| Printing and engraving expenses | | | 50,000 | |
| Legal fees and expenses | | | 135,000 | |
| Transfer Agent and Registrar fees | | | 10,000 | |
| Miscellaneous | | | 40,000 | |
| Total | | $ | 425,812 | |
Item 14. Indemnification of Directors and Officers.
Our certificate of incorporation, as amended, and bylaws provide that each person who was or is made a party or is threatened to be made a party to or is otherwise involved (including, without limitation, as a witness) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was a director or an officer of Specialty Metals GroupSMG Indium Corp.Resources Ltd. or is or was serving at our request as a director, officer, or trustee of another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan, whether the basis of such proceeding is alleged action in an official capacity as a director, officer or trustee or in any other capacity while serving as a director, officer or trustee, shall be indemnified and held harmless by us to the fullest extent authorized by the Delaware General Corporation Law against all expense, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such.
Section 145 of the Delaware General Corporation Law permits a corporation to indemnify any director or officer of the corporation against expenses (including attorney’s fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with any action, suit or proceeding brought by reason of the fact that such person is or was a director or officer of the corporation, if such person acted in good faith and in a manner that he reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, if he or she had no reason to believe his or her conduct was unlawful. In a derivative action, (i.e., one brought by or on behalf of the corporation), indemnification may be provided only for expenses actually and reasonably incurred by any director or officer in connection with the defense or settlement of such an action or suit if such person acted in good faith and in a manner that he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, except that no indemnification shall be provided if such person shall have been adjudged to be liable to the corporation, unless and only to the extent that the court in which the action or suit was brought shall determine that the defendant is fairly and reasonably entitled to indemnity for such expenses despite such adjudication of liability.
Pursuant to Section 102(b)(7) of the Delaware General Corporation Law, our amended and restated certificate of incorporation eliminates the liability of a director to us or our stockholders for monetary damages for such a breach of fiduciary duty as a director, except for liabilities arising:
from any breach of the director’s duty of loyalty to us or our stockholders;
from acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
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under Section 174 of the Delaware General Corporation Law; and
from any transaction from which the director derived an improper personal benefit.
We carry insurance policies insuring our directors and officers against certain liabilities that they may incur in their capacity as directors and officers. In addition, we expect to enter into indemnification agreements with each of our directors and executive officers prior to completion of the offering.
Pursuant to the indemnification agreements, the Company agrees to hold harmless and indemnify its directors and executive officers to the fullest extent authorized or permitted by the provisions of the Company’s amended and restated certificate of incorporation, amended and restated by-laws and the DGCL, including for any amounts that such director or officer becomes obligated to pay because of any claim to which such director or officer is made or threatened to be made a party, witness or participant, by reason of such director’s or officer’s service as a director, officer, employee or other agent of the Company.
There are certain exceptions from the Company’s obligation to indemnify its directors and executive officers pursuant to the indemnification agreements, including for “short-swing” profit claims under Section 16(b) of the Securities Exchange Act of 1934, losses that are as a result of conduct that is established by a final judgment as knowingly fraudulent or deliberately dishonest or that constituted willful misconduct, or that constituted a breach of the duty of loyalty to the Company or resulted in any improper personal profit or advantage, where payment is actually made to a director or officer under an insurance policy, indemnity clause, bylaw or agreement, except in respect of any excess beyond payment under such insurance, clause, bylaw or agreement, for indemnification which is not lawful, or in connection with any proceeding initiated by such director or officer, or any proceeding against the Company or its directors, officers, employees or other agents, unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the board of directors of the Company, (iii) such indemnification is provided by the Company, in its sole discretion, pursuant to the powers vested in the Company under the DGCL, or (iv) the proceeding is initiated to enforce a claim for indemnification pursuant to the indemnification agreement.
All agreements and obligations of the Company contained in the indemnification agreements shall continue during the period when the director or officer who is a party to an indemnification agreement is a director, officer, employee or other agent of the Company (or is or is serving at the request of the Company as a director, officer, employee or other agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise) and shall continue thereafter so long as such director or officer shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal, arbitrational, administrative or investigative. In addition, the indemnification agreements provide for partial indemnification and advance of expenses.
Additionally, reference is made to the Underwriting Agreement filed as Exhibit 1.1 hereto, which provides for indemnification by the underwriters of Specialty Metals GroupSMG Indium Corp.Resources Ltd., our directors and officers who sign the registration statement and persons who control Specialty Metals GroupSMG Indium Corp.Resources Ltd. under certain circumstances.
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Item 15. Recent Sales of Unregistered Securities.
In the three years preceding the filing of this Registration Statement, we have sold the following securities that were not registered under the Securities Act.
| | |
| Name of Beneficial Owners | | Number of Shares |
| Specialty Metals Group Advisors LLC(1) | | | 90,000 | |
| (1) | Mr. Benjamin, our Chairman and Chief Executive Officer, Mr. Grushkin, our President, and Mr. Biele, our Chief Operating Officer may be deemed to beneficially own the shares owned by Specialty Metals GroupSMG Indium Corp. Inc.Resources Ltd. by virtue of their respective ownership and control of Specialty Metals Group Advisors LLC. |
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Item 16. Exhibits and Financial Statement Schedules.
| (a) | (a) The following exhibits are filed as part of this Registration Statement: |
(a) (a) The following exhibits are filed as part of this Registration Statement:
| | |
| Exhibit No. | | Description |
| 1.1 | | Form of Underwriting Agreement*Agreement |
| 3.1 | | Certificate of IncorporationIncorporation* |
| 3.2 | | BylawsCertificate of Amendment to the Certificate of Incorporation* |
| 3.3 | | Bylaws* |
| 4.1 | | Specimen Unit Certificate*Certificate |
| 4.2 | | Specimen Common Stock Certificate*Certificate |
| 4.3 | | Specimen Warrant Certificate*Certificate |
| 4.4 | | Form of Warrant AgreementAgreement* |
| 4.5 | | Form of Unit Option Purchase Agreement*Agreement |
| 4.6 | | 2008 Long-Term Incentive Compensation PlanPlan* |
| 5.1 | | Opinion of Ellenoff Grossman & Schole LLP*LLP |
| 10.1 | | Management Services Agreement*Agreement |
| 10.2 | | Form of LeasePurchase/Supply/Agency Agreement** |
| 14.1 | | Corporate Code of Conduct and EthicsEthics* |
| 23.1 | | Consent of Marcum & Kliegman LLP |
| 23.2 | | Consent of Ellenoff Grossman & Schole LLP (included in Exhibit 5.1)* |
| 24 | | Power of Attorney (included on the signature page of this Registration Statement) |
| 99.1 | | Audit Committee Charter |
| 99.2 | | Corporate Governance and Nominating Committee Charter |
| * | To be filed by amendment.Previously filed. |
| ** | Confidential treatment is requested for certain portions of this exhibit pursuant to 17 C.F.R. Section 200.8(b)(4) and Securities Act Rule 406. |
Item 17. Undertakings.
(a) The undersigned hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 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
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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 Act and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933, 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 of 1933, 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.
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SIGNATURE
Pursuant to the requirements of the Securities Act, the registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 275th day of February,September, 2008.
SPECIALTY METALS GROUP
SMG INDIUM CORP.RESOURCES LTD.
By: /s/ Alan Benjamin
Name: Alan Benjamin
Title:Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Alan Benjamin his true and lawful attorney-in-fact, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities to sign any and all amendments including post-effective amendments to this registration statement, including pursuant to Rule 462(b), and to file the same, with all exhibits thereto, and other documents in connection therewith, with the SEC, hereby ratifying and confirming all that said attorney-in-fact or his substitute, each acting alone, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
| | | | |
| Name | | Position | | Date |
/s/ Alan Benjamin
Alan Benjamin | | Chairman, Chief Executive Officer and Director
(Principal Executive Officer) | | February 27,September 5, 2008 |
/s/ Richard T. Morena
Richard T. Morena | | Chief Financial Officer
(Principal Financial and Accounting Officer) | | February 27,September 5, 2008 |
/s/ Ailon Z. Grushkin
Ailon Z. Grushkin | | President and Director | | February 27,September 5, 2008 |
/s/ Richard A. Biele
Richard A. Biele | | Chief Operating Officer and Director | | February 27,September 5, 2008 |
/s/ P.J. Richardson
P.J. Richardson | | Director | | February 27,September 5, 2008 |
/s/ Fred Arena
Fred Arena | | Director | | February 27,September 5, 2008 |
/s/ Mark S. Neuhof
Mark S. Neuhof | | Director | | September 5, 2008 |
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| | |
| Exhibit No. | | Description |
| 1.1 | | Form of Underwriting Agreement*Agreement |
| 3.1 | | Certificate of IncorporationIncorporation* |
| 3.2 | | BylawsCertificate of Amendment to the Certificate of Incorporation* |
| 3.3 | | Bylaws* |
| 4.1 | | Specimen Unit Certificate*Certificate |
| 4.2 | | Specimen Common Stock Certificate*Certificate |
| 4.3 | | Specimen Warrant Certificate*Certificate |
| 4.4 | | Form of Warrant AgreementAgreement* |
| 4.5 | | Form of Unit Option Purchase Agreement*Agreement |
| 4.6 | | 2008 Long-Term Incentive Compensation PlanPlan* |
| 5.1 | | Opinion of Ellenoff Grossman & Schole LLP*LLP |
| 10.1 | | Management Services Agreement*Agreement |
| 10.2 | | Form of LeasePurchase/Supply/Agency Agreement** |
| 14.1 | | Corporate Code of Conduct and EthicsEthics* |
| 23.1 | | Consent of Marcum & Kliegman LLP |
| 23.2 | | Consent of Ellenoff Grossman & Schole LLP (included in Exhibit 5.1)* |
| 24 | | Power of Attorney (included on the signature page of this Registration Statement) |
| 99.1 | | Audit Committee Charter |
| 99.2 | | Corporate Governance and Nominating Committee Charter |
| * | To be filed by amendment.Previously filed. |
| ** | Confidential treatment is requested for certain portions of this exhibit pursuant to 17 C.F.R. Section 200.8(b)(4) and Securities Act Rule 406. |
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