UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A
(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. 3)

 

 

PRELIMINARY COPY, SUBJECT TO COMPLETION DATED                     , 2006
ROTONICS MANUFACTURING INC.
17022 SOUTH FIGUEROA STREET
GARDENA, CALIFORNIA  90248

[          ], 2006

Dear Stockholder:

You are cordially invited to attend a special meeting of stockholders of Rotonics Manufacturing Inc. (“RMI”) to be held at 10:00 a.m. (local time) on January 26, 2007, at 17022 South Figueroa Street, Gardena, California  90248.

At the special meeting, you will be asked to consider and vote upon a proposal to adopt the Agreement and Plan of Merger, executed on August 29, 2006, among Rotonics Holding Corporation (“Holding”), RMI Minnesota Corporation (“MergerCo”) and RMI, as amended and restated on December 12, 2006 (the “Merger Agreement”). Pursuant to the Merger Agreement, MergerCo, a wholly-owned subsidiary of Holding formed for the purpose of effecting the merger, will be merged with and into RMI, with RMI remaining as the surviving corporation. Holding is a Minnesota corporation newly formed by Spell Capital Partners, LLC (“Spell Capital”) which, on completion of the merger, will be owned 75% by private equity funds managed by Spell Capital, and 25% by Sherman McKinniss (the Chairman and Chief Executive Officer of RMI). Upon completion of the merger, each issued and outstanding share of RMI’s common stock (other than shares of RMI’s common stock contributed by Mr. McKinniss to Holding immediately prior to the effective time of the merger, shares of RMI’s common stock held by RMI or any of its subsidiaries and shares of RMI’s common stock held by RMI’s stockholders who perfect their appraisal rights under Delaware law) will be converted into the right to receive $3.00 in cash without interest. The consideration of $3.00 per share represents a premium of $0.50 per share, or 20%, over the $2.50 per share closing price on August 29, 2006, the day of the execution of the Merger Agreement, and a premium of $      per share, or     % over the $      closing price of RMI’s stock on December     , 2006. Following completion of the merger, RMI will continue its operations as a privately held company.

On June 25, 2006, the Board of Directors of RMI formed a Special Committee composed of three independent directors who are not officers or employees of RMI, Holding or MergerCo and who have no financial interest in the proposed merger different from RMI’s stockholders generally. The Special Committee, acting with the advice and assistance of its own independent financial advisor, evaluated the merger proposal, including the terms and conditions of the Merger Agreement, with Holding and MergerCo. The Special Committee unanimously determined that the proposed merger is substantively and procedurally fair to RMI’s unaffiliated public stockholders and recommended that the Board of Directors approve of the merger. Acting on the unanimous recommendation of the Special Committee, the Board of Directors of RMI, with Mr. McKinniss and Mr. Berman abstaining, has approved and declared the Merger Agreement and the transactions contemplated thereby, including the merger, advisable, substantively and procedurally fair to and in the best interests of RMI and its unaffiliated public stockholders. Mr. McKinniss has also determined that the proposed merger is substantively and procedurally fair to the unaffiliated stockholders of RMI.

THEREFORE, THE BOARD OF DIRECTORS, WITH MR. MCKINNISS and MR. BERMAN ABSTAINING, RECOMMENDS THAT YOU VOTE “FOR” THE ADOPTION OF THE MERGER AGREEMENT.

In reaching their decisions, the Special Committee and the Board of Directors considered, among other things, the written presentation delivered to the Special Committee on August 14, 2006 by Duff & Phelps, LLC, the Special Committee’s financial advisor, which included a summary of its fairness analysis and preliminary conclusions of fairness, and the final opinion of Duff & Phelps, dated August 29, 2006, to the effect that, based on and subject to the considerations, limitations, assumptions and qualifications set forth in the opinion, as of August 29, 2006, the $3.00 per share cash consideration to be paid to RMI’s stockholders in the proposed merger was fair, from a financial point of view, to RMI’s unaffiliated public

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stockholders (without giving effect to any impact of the proposed merger on any particular shareholder other than in its capacity as a shareholder). A copy of Duff & Phelps’ written opinion is attached to the accompanying proxy statement as Appendix B and should be read in its entirety.

The enclosed proxy statement provides information about RMI, Holding, MergerCo, certain of their affiliates, the Merger Agreement, the proposed merger and the special meeting. A copy of the Merger Agreement is attached to the proxy statement as Appendix A for your information. You may obtain additional information about RMI from documents filed with the Securities and Exchange Commission.

PLEASE READ THE ENTIRE PROXY STATEMENT CAREFULLY, INCLUDING THE APPENDICES. IN PARTICULAR, BEFORE VOTING, YOU SHOULD CAREFULLY CONSIDER THE DISCUSSION IN THE SECTION OF THE PROXY STATEMENT ENTITLED “SPECIAL FACTORS”.

YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. THE MERGER CANNOT BE COMPLETED UNLESS THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF RMI’S COMMON STOCK ENTITLED TO VOTE ADOPT THE MERGER AGREEMENT. In addition, the holders of a majority of the Company’s common stock not owned directly by Mr. McKinniss that are present IN PERSON OR REPRESENTED BY A PROXY and voting at the Special Meeting must vote in favor of the adoption of the Merger Agreement.

Whether or not you plan to attend the special meeting, please complete, date, sign and return the enclosed proxy card. If you complete, date, sign and return your proxy card without indicating how you wish to vote, your proxy will be counted as a vote in favor of the adoption of the Merger Agreement. If you fail to return your proxy card and fail to vote at the special meeting, the effect will be the same as a vote against the adoption of the Merger Agreement and the merger. Returning the proxy card does not deprive you of your right to attend the special meeting and vote your shares in person.

Sincerely,
/s/ PAUL TONKOVICH
Paul Tonkovich
Secretary and Director
Gardena, California

 

The accompanying proxy statement is dated December     , 2006 and is first being mailed to stockholders of RMI on or about December     , 2006.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THIS TRANSACTION, PASSED UPON THE MERITS OR FAIRNESS OF THIS TRANSACTION OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

PRELIMINARY COPY, SUBJECT TO COMPLETION DATED                 , 2006
ROTONICS MANUFACTURING INC.
17022 SOUTH FIGUEROA STREET
GARDENA, CALIFORNIA  90248
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 26, 2007

To the Stockholders of

Rotonics Manufacturing Inc:

Notice is hereby given that a special meeting of stockholders of Rotonics Manufacturing Inc., a Delaware corporation (“RMI”), will be held at 17022 South Figueroa Street, Gardena, California  90248, at 10:00 a.m. (local time) on January 26, 2007, for the following purposes:

1.     To consider and vote upon a proposal to adopt the Agreement and Plan of Merger executed on August 29, 2006, as amended and restated on December 12, 2006 among Rotonics Holding Corporation (“Holding”), RMI Minnesota Corporation (“MergerCo”) and RMI, and to approve the merger contemplated by the Merger Agreement. Pursuant to the Merger Agreement, MergerCo, a wholly-owned subsidiary of Holding formed for the purpose of effecting the merger, will be merged with and into RMI, with RMI remaining as the surviving corporation. Holding is a Minnesota corporation, newly formed by Spell Capital Partners, LLC (“Spell Capital”) which, on completion of the merger, will be owned 75% by private equity funds managed by Spell Capital and 25% by Sherman McKinniss (the Chairman and Chief Executive Officer of RMI). Upon completion of the merger, each issued and outstanding share of RMI’s common stock (other than shares of RMI’s common stock contributed by Mr. McKinniss to Holding immediately prior to the effective time of the merger, shares of RMI’s common stock held by RMI or any of its subsidiaries and shares of RMI’s common stock held by RMI’s stockholders who perfect their appraisal rights under Delaware law) will be converted into the right to receive $3.00 in cash, without interest.

2.     To consider and vote upon approval of any adjournment of the special meeting, if necessary, solely for the purpose of soliciting additional proxies in favor of proposal 1.

3.     To transact such other business as may properly come before the special meeting.

Only holders of record of RMI’s common stock at the close of business on December 15, 2006, the record date, are entitled to notice of, and to vote at, the special meeting or any adjournments or postponements thereof.

THE SPECIAL COMMITTEE, COMPOSED OF INDEPENDENT DIRECTORS WHO ARE NOT OFFICERS OR EMPLOYEES OF RMI, HOLDING OR MERGERCO AND WHO HAVE NO FINANCIAL INTEREST IN THE PROPOSED MERGER DIFFERENT FROM RMI’S STOCKHOLDERS GENERALLY, UNANIMOUSLY DETERMINED THAT THE PROPOSED MERGER IS SUBSTANTIVELY AND PROCEDURALLY FAIR TO RMI’S UNAFFILIATED PUBLIC STOCKHOLDERS AND RECOMMENDED THAT THE BOARD OF DIRECTORS OF RMI APPROVE OF THE MERGER. ACTING ON THE UNANIMOUS RECOMMENDATION OF THE SPECIAL COMMITTEE, THE BOARD OF DIRECTORS OF RMI, WITH MR. MCKINNISS AND MR. BERMAN ABSTAINING, HAS APPROVED AND DECLARED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER, ADVISABLE, SUBSTANTIVELY AND PROCEDURALLY FAIR TO AND IN THE BEST INTERESTS OF RMI AND ITS UNAFFILIATED PUBLIC STOCKHOLDERS.

THEREFORE, THE BOARD OF DIRECTORS, WITH MR. MCKINNISS AND MR. BERMAN ABSTAINING, RECOMMENDS THAT YOU VOTE “FOR” THE ADOPTION OF THE MERGER AGREEMENT.

Stockholders of RMI who do not vote in favor of the adoption of the Merger Agreement will have the right to seek appraisal of the fair value of their shares of RMI’s common stock if the merger is completed,

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but only if they submit a written demand for an appraisal before the vote is taken on the Merger Agreement and otherwise comply with Delaware law as explained in the accompanying proxy statement.

YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. THE MERGER CANNOT BE COMPLETED UNLESS THE HOLDERS OF AT LEAST A MAJORITY OF THE OUTSTANDING SHARES OF RMI’S COMMON STOCK ENTITLED TO VOTE ADOPT THE MERGER AGREEMENT. In addition, the holders of a majority of the Company’s common stock not owned directly by Mr. McKinniss that are present IN PERSON OR REPRESENTED BY A PROXY and voting at the Special Meeting must vote in favor of the adoption of the Merger Agreement.

Whether or not you plan to attend the special meeting, please complete, date, sign and return the enclosed proxy card. A return envelope (which is postage prepaid if mailed in the United States) is enclosed for that purpose. If you complete, date, sign and return your proxy card without indicating how you wish to vote, your proxy will be counted as a vote in favor of the adoption of the Merger Agreement. If you fail to return your proxy card and fail to vote at the special meeting, the effect will be the same as a vote against the adoption of the Merger Agreement. Returning the proxy card does not deprive you of your right to attend the special meeting and vote your shares in person. Please note, however, that if your shares are held of record by a broker, bank or other nominee and you wish to vote at the special meeting, you must obtain from the record holder a proxy issued in your name.

The Merger Agreement is described in the accompanying proxy statement, which you are urged to read carefully. A copy of the Merger Agreement is attached to the accompanying proxy statement as Appendix A for your information.

		By Order of the Board of Directors,
		/s/ PAUL TONKOVICH
		Paul Tonkovich
		Secretary
Gardena, California
[          ], 2006

 

TABLE OF CONTENTS

 

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QUESTIONS AND ANSWERS ABOUT THE MERGER

THIS QUESTION AND ANSWER SECTION, TOGETHER WITH THE “SUMMARY” SECTION THAT FOLLOWS, HIGHLIGHT SELECTED INFORMATION FROM THIS PROXY STATEMENT, INCLUDING THE MATERIAL TERMS OF THE PROPOSED MERGER. FOR A MORE COMPLETE DESCRIPTION, YOU SHOULD CAREFULLY READ THIS PROXY STATEMENT AND ALL OF ITS APPENDICES BEFORE YOU VOTE. FOR YOUR CONVENIENCE, PAGE REFERENCES ARE INCLUDED IN PARENTHESES AT VARIOUS POINTS IN THIS QUESTION AND ANSWER SECTION AND IN THE “SUMMARY” SECTION TO DIRECT YOU TO A MORE DETAILED DESCRIPTION IN THIS PROXY STATEMENT OF THE TOPICS PRESENTED. IN ADDITION, IMPORTANT INFORMATION ABOUT RMI, INC. IS PROVIDED IN THE ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 2006 INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT.

AS USED IN THIS PROXY STATEMENT, “RMI” AND THE “COMPANY” REFER TO ROTONICS MANUFACTURING INC., A DELAWARE CORPORATION, “MERGERCO” REFERS TO RMI MINNESOTA CORPORATION, A DELAWARE CORPORATION, “HOLDING” REFERS TO ROTONICS HOLDING CORPORATION, A MINNESOTA CORPORATION.

Q:    WHEN AND WHERE IS THE SPECIAL MEETING?

A:    The special meeting of RMI’s stockholders will be held at 17022 South Figueroa Street, Gardena, California  90248, at 10:00 a.m. (local time) on January 26, 2007.

Q:    WHAT AM I BEING ASKED TO VOTE UPON? (see pages 5 and 56)

A:    You are being asked to consider and vote upon a proposal to adopt the Merger Agreement among RMI, Holding and MergerCo. Under the Merger Agreement, MergerCo will be merged with and into RMI, with RMI surviving as a wholly-owned subsidiary of Holding. If the Merger Agreement is adopted and the merger is completed, RMI will no longer be a publicly-held corporation and you will no longer own shares of RMI’s common stock. For more information on the Merger Agreement and the transactions contemplated thereby, see “Summary” and “Merger Agreement”.

Q:    WHO ARE THE PARTIES TO THE MERGER?  (see page 58)

A:    The parties to the merger are RMI, Holding and MergerCo. RMI is a Delaware corporation that manufactures rotomolded plastic products. MergerCo, is a Delaware corporation that is wholly owned by Holding. Holding is a Minnesota corporation newly formed by Spell Capital which, on completion of the merger, will be owned 75% by funds managed by Spell Capital and 25% by Sherman McKinniss (the Chairman and Chief Executive Officer of RMI). Holding and MergerCo were formed solely for purposes of completing the merger and have not participated in any activities to date other than those incident to their formation and the transactions contemplated by the Merger Agreement. For more information on the parties to the merger, see “Participants”.

Q:    WHO CAN VOTE ON THE MERGER AGREEMENT?

A:    Holders of RMI’s common stock at the close of business on December 15, 2006, the record date for the special meeting, may vote in person or by proxy on the Merger Agreement at the special meeting.

Q:    WHAT VOTE IS REQUIRED TO ADOPT THE MERGER AGREEMENT?

A:    The adoption of the Merger Agreement requires the affirmative vote of the holders of at least a majority of the outstanding shares of RMI’s common stock entitled to vote. In addition, the holders of a majority of the Company’s common stock not owned directly by Mr. McKinniss that are present in person or represented by a proxy and voting at the Special Meeting must vote in favor of the adoption of the Merger Agreement. The transaction has not been structured to also require the affirmative vote

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of a majority of all shares held by unaffiliated public stockholders. As of the record date, Mr. McKinniss, who has agreed to vote his RMI shares in favor of adoption of the Merger Agreement, holds approximately 45.7% of RMI’s common stock result, the adoption of the Merger Agreement requires the affirmative vote of the holders of approximately an additional 5% of the outstanding shares of RMI’s common stock.

Q:    WHAT WILL I RECEIVE IN THE MERGER? (see pages 60 and 61)

A:    Upon completion of the merger, you will be entitled to receive cash in an amount equal to $3.00, without interest, less applicable withholding taxes, for each share of RMI’s common stock you own. For more information on what you will receive in the merger, see “Merger Agreement—Conversion of Common Stock” and “—Payment for Shares”.

Q:    WHY IS THE BOARD OF DIRECTORS RECOMMENDING THAT I VOTE IN FAVOR OF THE MERGER AGREEMENT? (see page 18)

A:    On June 25, 2006, the Board of Directors of RMI formed a Special Committee, composed of Jules Sandford, Larry Snyder and Brent Brown. All three members of the Special Committee are independent directors; none are officers or employees of RMI, Holding or MergerCo and they have no financial interest in the proposed merger different from RMI’s stockholders generally. The Special Committee, acting with the advice and assistance of its own financial advisor, evaluated the merger proposal, including the terms and conditions of the Merger Agreement. The Special Committee unanimously determined that the proposed merger is substantively and procedurally fair to RMI’s unaffiliated public stockholders and recommended the Board of Directors of RMI approve of the Merger. The Special Committee has based this determination, in part, on the written presentation delivered to the Special Committee on August 14, 2006 by Duff & Phelps, the Special Committee’s financial advisor, which included a summary of its fairness analysis and preliminary conclusions of fairness, and the final opinion of Duff & Phelps, dated August 29, 2006, to the effect that, based on and subject to the considerations, limitations, assumptions and qualifications set forth in the opinion, as of August 29, 2006, the $3.00 per share cash consideration to be paid to RMI’s stockholders in the proposed merger was fair, from a financial point of view, to RMI’s unaffiliated public stockholders. Acting on the unanimous recommendation of the Special Committee, the Board of Directors, with Mr. McKinniss and Mr. Berman abstaining, has approved and declared the Merger Agreement and the transactions contemplated thereby, including the merger, advisable, substantively and procedurally fair to and in the best interests of RMI and its unaffiliated public stockholders. THEREFORE, THE BOARD OF DIRECTORS, WITH MR. MCKINNISS AND MR. BERMAN ABSTAINING, RECOMMENDS THAT YOU VOTE “FOR” THE ADOPTION OF THE MERGER AGREEMENT.

Q:    DO THE DIRECTORS AND EXECUTIVE OFFICERS OF RMI HAVE INTERESTS IN THE MERGER THAT ARE DIFFERENT FROM MINE? (see page 39)

A:    In considering the RMI board of directors’ recommendation that you vote to adopt the Merger Agreement, you should be aware that some RMI officers and directors may have interests in the merger that are different from, or in addition to, your interests. Among other things, these interests include:

·   Mr. McKinniss will contribute to Holding shares of common stock of RMI in exchange for the 25% of the outstanding capital stock of Holding, and those shares will be subject to a different tax treatment than the shares exchanges for cash payment.

·   Berman Capital, LLC, financial advisor to RMI, will receive a payment of up to $352,480 upon successful completion of the merger. Mr. Berman, a director of RMI, is the sole owner of Berman Capital, LLC.

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·   Following the Merger, RMI will continue to be run and managed by the Company’s existing executive officers.

·   The members of the Special Committee will receive fee of approximately $7,506 in the aggregate for their services as the members of the Special Committee.

For more information, see “Special Factors”, particularly “—Interests of RMI’s Directors and Officers in the Merger”.

Q:    ARE THERE RISKS TO BE CONSIDERED? (see page 39)

A:    Under the terms of the Merger Agreement, the per share cash consideration of $3.00 will not change even if the market price of RMI’s common stock changes before the merger is completed. If the merger is completed, public stockholders of RMI will not participate in any future earnings, losses, growth or decline of RMI. For other factors to be considered, see “Special Factors”, particularly “—Effects of the Merger; Plans or Proposals After the Merger” and “—Interests of RMI’s Directors and Officers in the Merger”.

Q:    WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?

A:    The parties to the Merger Agreement are working toward completing the merger as quickly as possible. If RMI’s stockholders approve the Merger Agreement and the other conditions to the merger are satisfied or waived, the merger is expected to be completed in the fourth calendar quarter of 2006.

Q:    WHAT ARE THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO ME? (see page 47)

A:    The receipt of cash for shares of common stock in the merger will be a taxable transaction for U.S. federal income tax purposes and may also be a taxable transaction under applicable state, local, foreign or other tax laws. See “Special Factors—Material U.S. Federal Income Tax Consequences”.

TAX MATTERS ARE VERY COMPLEX, AND THE TAX CONSEQUENCES OF THE MERGER TO YOU WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR TAX ADVISOR FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF THE MERGER TO YOU.

Q:    WHAT DO I NEED TO DO NOW?

A:    You should read this proxy statement carefully, including its appendices, and consider how the merger affects you. Then, mail your completed, dated and signed proxy card in the enclosed return envelope as soon as possible or vote by telephone in accordance with the instructions on the enclosed proxy card so that your shares can be represented at the special meeting of RMI’s stockholders.

Q:    WHAT HAPPENS IF I DO NOT RETURN A PROXY CARD?

A:    The failure to return your proxy card will have the same effect as voting “AGAINST” the Merger Agreement. If you respond but do not indicate how you want to vote, your proxy will be counted as a vote “FOR” the Merger Agreement. If you respond and indicate that you are abstaining from voting, your proxy will have the same effect as a vote “AGAINST” the Merger Agreement.

Q:    MAY I VOTE IN PERSON?

A:    Yes. You may attend the special meeting of RMI’s stockholders and vote your shares in person whether or not you sign and return your proxy card. If your shares are held of record by a broker, bank or other nominee and you wish to vote at the special meeting, you must obtain a proxy from the record holder.

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Q:    MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?

A:    Yes. You may change your vote at any time before your proxy card is voted at the special meeting. You can do this in one of three ways. First, you can send a written notice stating that you would like to revoke your proxy. Second, you can complete and submit a new proxy card. Third, you can attend the special meeting and vote in person. Your attendance alone will not revoke your proxy. If you have instructed a broker to vote your shares, you must follow directions received from your broker to change those instructions.

Q:    IF MY SHARES ARE HELD IN “STREET NAME” BY MY BROKER, WILL MY BROKER VOTE MY SHARES FOR ME?

A:    Your broker will not be able to vote your shares without instructions from you. You should instruct your broker to vote your shares, following the procedures provided by your broker.

Q:    SHOULD I SEND IN MY STOCK CERTIFICATES NOW?

A:    No. After the merger is completed, you will receive written instructions for exchanging your shares of RMI’s common stock for a per share cash payment of $3.00 without interest, less applicable withholding taxes.

Q:    WHAT RIGHTS DO I HAVE TO SEEK AN APPRAISAL OF MY SHARES? (see page 49)

A:    If you wish, you may seek an appraisal of the fair value of your shares, but only if you comply with all requirements of Delaware law as described on pages 49 through 52 and in Appendix C of this proxy statement. Depending upon the determination of the Delaware Court of Chancery, the appraised fair value of your shares of RMI’s common stock, which you will receive if you seek an appraisal, may be less than, equal to or more than the per share cash payment of $3.00 to be paid in the merger.

Q:    WHO CAN HELP ANSWER MY QUESTIONS?

A:    The information provided above in question-and-answer format is merely a summary of the information contained in this proxy statement. You should carefully read the entire proxy statement, including the appendices. If you would like additional copies, without charge, of this proxy statement or if you have questions about the merger, including the procedures for voting your shares, you should contact:

Rotonics Manufacturing Inc.
Attention:  Douglas W. Russell
17022 South Figueroa Street
Gardena, California  90248
Tel:  (310) 538-4932

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SUMMARY

THE MERGER; CONVERSION OF COMMON STOCK (see page 60)

Under the Merger Agreement between RMI, Holding and MergerCo, Holding will acquire 75% of the currently outstanding capital stock of Rotonics (including all shares held by the public) through a merger (the “merger”) of RMI with and into MergerCo for $3.00 per share in cash. Holding is a Minnesota corporation newly formed by Spell Capital and affiliated entities. As required by the merger proposal made by Spell Capital, Mr. McKinniss, Chief Executive Officer of RMI will contribute 25% of the outstanding shares of RMI to Holding in exchange for the 25% of the outstanding capital stock of Holding pursuant to a Share Exchange and Voting Agreement (the “voting agreement”) entered into simultaneously with the execution of the Merger Agreement.

Under the Merger Agreement, MergerCo will merge with and into RMI, and each issued and outstanding share of RMI’s common stock (other than shares of RMI common stock contributed by Mr. McKinniss to Holding shares of RMI common stock held by RMI or any of its subsidiaries, and shares of RMI common stock held by RMI stockholders who perfect their appraisal rights under Delaware law) will be converted into the right to receive $3.00 in cash without interest (and less applicable withholding taxes). The transaction price of $3.00 per share represents a premium of $0.50 per share, or 20%, over the $2.50 closing price of RMI’s stock on August 29, 2006, the day of the execution of the Merger Agreement and a premium of $     per share, or     % over the $      closing price of RMI’s stock on               . Following completion of the merger, RMI will continue its operations as a privately held company.

The merger will become effective upon the filing of a certificate of merger with the Secretary of State of the State of Delaware or at such later time as may be agreed by the parties in writing and specified in the certificate of merger. The merger is subject to the receipt of financing necessary to complete the transaction on terms acceptable to Buyer, the approval of RMI’s stockholders and other customary conditions. The parties intend to complete the merger as soon as practicable once all conditions to the merger have been satisfied or waived, which they anticipate will be in the fourth calendar quarter of 2006. Upon completion of the merger, RMI will remain as the surviving corporation and will be a wholly-owned subsidiary of Holding, and MergerCo will cease to exist.

RECOMMENDATION OF THE BOARD OF DIRECTORS AND THE SPECIAL COMMITTEE  (see page 22)

On June 25, 2006, the Board of Directors formed a Special Committee, composed of three independent directors who are not officers or employees of RMI, Holding or MergerCo and who have no financial interest in the proposed merger different from RMI’s stockholders generally.

The Special Committee, acting with the advice and assistance of its own independent financial advisor, evaluated the merger proposal, including the terms and conditions of the Merger Agreement. The Special Committee unanimously determined that the proposed merger is substantively and procedurally fair to RMI’s unaffiliated public stockholders.

The Special Committee has based this determination, in part, on the written presentation delivered to the Special Committee on August 14, 2006 by Duff & Phelps which included summary of its fairness analysis and preliminary conclusions of fairness, and the final opinion of Duff & Phelps, dated August 29, 2006, to the effect that, based on and subject to the considerations, limitations, assumptions and qualifications set forth in the opinion, the $3.00 per share cash consideration to be paid to RMI’s stockholders in the proposed merger was fair, from a financial point of view, to RMI’s unaffiliated public stockholders.

Acting on the unanimous recommendation of the Special Committee, the Board of Directors, with Mr. McKinniss and Mr. Berman abstaining, has approved and declared the Merger Agreement and the

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transactions contemplated thereby, including the merger, advisable, substantively and procedurally fair to and in the best interests of RMI and its unaffiliated public stockholders.

THEREFORE, THE BOARD OF DIRECTORS, WITH MR. MCKINNISS AND MR. BERMAN ABSTAINING, RECOMMENDS THAT YOU VOTE FOR THE ADOPTION OF THE MERGER AGREEMENT.

POSITION OF SHERMAN MCKINNISS AS TO THE FAIRNESS OF THE MERGER (see page 23)

Sherman McKinniss believes that the consideration to be received in the merger by RMI’s unaffiliated public stockholders is fair to such stockholders and that the merger is substantively and procedurally fair to RMI’s unaffiliated public stockholders.

OPINION OF FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE (see page 27)

In deciding to recommend the approval of the Merger Agreement, one of the factors that the Special Committee considered was the written presentation delivered to the Special Committee on August 14, 2006 by Duff & Phelps which included summary of its fairness analysis and preliminary conclusions of fairness, and the final opinion of Duff & Phelps, dated August 29, 2006, to the effect that, based on and subject to the considerations, limitations, assumptions and qualifications set forth in the opinion, the $3.00 per share cash consideration to be paid to RMI’s stockholders in the proposed merger was fair, from a financial point of view, to RMI’s unaffiliated public stockholders. The complete Duff & Phelps opinion, including applicable considerations, limitations, assumptions and qualifications, describes the basis for the opinion and is attached as Appendix B to this proxy statement.

Pursuant to the terms of Duff & Phelps’s engagement, $125,000 has been paid by RMI to Duff & Phelps for work it performed to render the Fairness Opinion, plus certain out of pocket expenses. Such payment was not conditioned on the completion of the merger.

YOU ARE URGED TO READ THE ENTIRE DUFF & PHELPS OPINION CAREFULLY. DUFF & PHELPS’ OPINION WAS ADDRESSED TO THE SPECIAL COMMITTEE FOR THE PURPOSES OF THEIR EVALUATION OF THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY RMI STOCKHOLDER AS TO HOW TO VOTE WITH RESPECT TO THE PROPOSED MERGER.

INTERESTS OF RMI’S DIRECTORS AND OFFICERS IN THE MERGER (see page 39)

When considering the recommendation of the Special Committee and the Board of Directors that you vote for the adoption of the Merger Agreement, you should be aware that certain of RMI’s directors and officers have interests in the merger that are different from, or in addition to, yours, including:

·  Mr. McKinniss will contribute to Holding shares of common stock of RMI in exchange for the 25% of the outstanding capital stock of Holding, and those shares will be subject to a different tax treatment than the shares exchanges for cash payment;

·  The Board of Directors of RMI has approved of a letter agreement with Berman Capital, LLC, financial advisor to RMI, that provides for compensation of up to $352,480 upon successful completion of the Merger, less a non-refundable retainer of $10,000 paid upon the engagement. Mr. Marc Berman, a director of RMI, is the sole owner of Berman Capital and therefore will control the distribution of the fee received by Berman Capital. Together with Mr. McKinniss, Mr. Berman abstained on the vote to approve the merger;

·  following the merger, RMI will continue to be run and managed by the Company’s existing executive officers; and

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·  the Board of Directors resolved to pay to the members of the Special Committee fees of $7,506 until the signing of a definitive Merger Agreement, based on a predetermined hourly rate, for their time and effort as the members of the Special Committee.

As a result of the merger, Sherman McKinniss, RMI’s Chairman and Chief Executive Officer, will indirectly own 25% of RMI’s common stock and funds managed by Spell Capital and certain other private investors will indirectly own 75% of RMI’s common stock. Each member of the Board of Directors was aware of this result when deciding to approve the merger and the Merger Agreement and recommend that you vote in favor of the proposed transaction, as were the members of the Special Committee when evaluating the terms of the proposed transaction and deciding to recommend such approval to the Board of Directors.

Pursuant to the Voting Agreement, Mr. McKinniss has agreed to:  (a) vote his shares:  (i) in favor of the adoption of each of the Company Proposals as defined in the Merger Agreement; (ii) against any proposal relating to any action or agreement that would result in a breach of any covenant, representation or warranty or any other obligation or agreement of Rotonics under the Merger Agreement or which would result in any of the conditions to Rotonics’ obligations under the Merger Agreement not being fulfilled; (iii) in favor of any other matter relating to the consummation of the transactions contemplated by the Merger Agreement; and (iv)  against any other action which is intended or would reasonably be expected to impede, interfere with, delay, postpone, discourage or materially adversely affect the transactions contemplated by the Merger Agreement; and (b) granted irrevocable proxy to Holding granting Holding the right to vote such shares as specified in clause (a). This proxy terminates upon the earlier to occur of:  (i) termination of the Merger Agreement; and (ii) four months from the date of the Voting Agreement. Pursuant to the Voting Agreement, Mr. McKinniss is also required to indemnify Holding against certain liabilities arising from breaches by RMI of its representations, warranties and covenants contained in the Merger Agreement, up to an aggregate total of $1 million.

As a condition to the merger, Mr. McKinniss must enter into an employment agreement with a term of one year after completion of the merger. The compensation payable to Mr. McKinniss under this employment agreement is less than under his current agreement. The terms of Mr. McKinniss employment agreement are described in “Merger Agreement—Other Agreements” beginning on page 62 below.

Under the Shareholders’ Agreement to be entered into by Mr. McKinniss, Holding and the other shareholders of Holding on consummation of the merger, so long as Mr. McKinniss owns all of his original shares of Holding he will receive for contributing to Holding shares of common stock of the Company or at least 15% of the outstanding shares of Holding, the private equity funds managed by Spell Capital have agreed to vote their shares of Holding in favor of the election of Mr. McKinniss and one other nominee of Mr. McKinniss reasonably acceptable to such private equity funds as directors of Holding. A majority of the directors of Holding will be elected by private equity funds managed by Spell Capital. Other terms of the Shareholders’ Agreement are described in “Merger Agreement—Other Agreements” beginning on page 65 below.

The current RMI employment agreements with Mr. Douglas W. Russell and Dawn J. Whitney will remain in effect following completion of the merger.

MERGER FINANCING  (see page 43)

The estimated total amount of funds necessary to consummate the merger and the related transactions will be approximately $31 million, consisting of:  (1) approximately $27 million to fund the payment of the merger consideration; (2) approximately $2 million to repay certain existing indebtedness of RMI; and (3) approximately $2 million to pay transaction fees and expenses.

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It is anticipated that these funds will be obtained from equity and debt financings as follows:

·  Mr. McKinniss has agreed to contribute 25% of the outstanding RMI common stock to Holding in exchange for an equal interest in the equity securities of Holding pursuant to a Voting and Exchange Agreement between Holding and Mr. McKinniss subject to the terms and conditions set forth therein;

·  private equity funds managed by Spell Capital and other investors are expected to contribute equity capital of approximately $10 million; and

·  Holding anticipates raising approximately $21 million through a combination of senior secured and mezzanine debt financing.

THE SPECIAL MEETING (see page 56)

Time, Date and Place.   A special meeting of the stockholders of RMI will be held at 17022 South Figueroa Street, Gardena, California  90248, at 10:00 a.m. (local time) on January 26, 2007, to consider and vote upon the proposal to adopt the Merger Agreement and to adjourn the special meeting, if necessary, to solicit additional proxies in favor of voting to adopt the Merger Agreement.

Record Date and Voting Information.   You are entitled to vote at the special meeting if you owned shares of RMI’s common stock at the close of business on December 15, 2006, which is the record date for the special meeting. You will have one vote at the special meeting for each share of RMI’s common stock you owned at the close of business on the record date. On the record date, there were [                          ] of RMI’s common stock entitled to be voted at the special meeting.

Required Vote.   The Merger Agreement provides that the affirmative vote of the holders of at least a majority of the shares of RMI’s common stock outstanding at the close of business on the record date is required to adopt the Merger Agreement. In addition, the holders of a majority of the Company’s common stock not owned directly by Mr. McKinniss that are present in person or represented by a proxy and voting at the Special Meeting must vote in favor of the adoption of the Merger Agreement. The transaction has not been structured to also require the affirmative vote of a majority of all shares held by unaffiliated public stockholders. Abstentions and broker non-votes are equivalent to votes cast against the proposal. As of the record date, Mr. McKinniss holds approximately 45.7% of RMI’s common stock, and has agreed with Spell Capital to vote his Shares in favor of the merger and the adoption of the Merger Agreement. As a result, the adoption of the Merger Agreement will require the affirmative of the holders of approximately an additional 5% of the outstanding shares of RMI common stock.

Shares Held By Management.   The other directors and executive officers of RMI, excluding Mr. McKinniss, collectively own approximately 5.1 % of RMI’s common stock. RMI expects them to vote their shares of RMI’s common stock in favor of the Merger Agreement although they are not contractually or otherwise obligated to do so.

APPRAISAL RIGHTS (see page 49)

RMI is a corporation organized under Delaware law. Under Delaware law, if you do not vote in favor of the merger and instead follow the appropriate procedures for demanding appraisal rights as described on pages 49 through 52 and in Appendix C, you will receive a cash payment for the “fair value” of your shares of RMI’s common stock, as determined by the Delaware Court of Chancery.

If you seek appraisal rights, you should be aware that the price determined by the Delaware Court of Chancery may be less than, equal to or more than the $3.00 in cash you would have received for each of your shares in the merger if you had not exercised your appraisal rights.

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Generally, in order to exercise appraisal rights, you must:

·  make written demand for appraisal in compliance with Delaware law before the stockholder vote on the Merger Agreement; and

·  not vote for the adoption of the Merger Agreement.

Merely voting against the adoption of the Merger Agreement will not perfect your appraisal rights under Delaware law. Appendix C to this proxy statement contains the Delaware statute relating to your appraisal rights.

IF YOU WANT TO EXERCISE YOUR APPRAISAL RIGHTS, PLEASE READ AND CAREFULLY FOLLOW THE PROCEDURES DESCRIBED ON PAGES 47 THROUGH 50 AND IN APPENDIX C. FAILURE TO TAKE ALL OF THE STEPS REQUIRED UNDER DELAWARE LAW MAY RESULT IN THE LOSS OF YOUR APPRAISAL RIGHTS.

THE MERGER AGREEMENT (see page 60)

The Merger Agreement, including the conditions to the closing of the merger, is described on pages A-1 through A-34 and is attached to this proxy statement as Appendix A for your information. You should read carefully the entire Merger Agreement as it is the legal document that governs the merger.

CONDITIONS TO COMPLETING THE MERGER (see page 66)

The Merger Agreement and the merger are subject to approval by the holders of a majority of the outstanding shares of RMI’s common stock and a majority of the stock not owned directly by Mr. McKinniss that are present and voting at the meeting, as well as other conditions, including, that the debt financing necessary to complete the merger has been obtained on terms acceptable to Holding that no court or governmental entity has imposed an order or injunction prohibiting the merger, that RMI has received identified third-party consents and approvals, that the holders of no more than 5% of the outstanding shares shall have delivered to the Company a demand for appraisal of such shares in accordance with Section 262 of the Delaware General Corporation Law, RMI’s working capital has to be materially consistent with its projections, RMI’s outstanding borrowing must not exceed $1.5 million, plus certain capital expenditures and transaction expenses paid in cash prior to closing, as well as other conditions described in “Merger Agreement—Conditions to Complete the Merger”.

LIMITATION ON CONSIDERING OTHER ACQUISITION PROPOSALS (see page 65)

RMI has agreed that it will not, and will cause its subsidiaries and will direct its officers, directors, representatives and agents not to, take specified actions relating to other proposals to acquire RMI, including that it will not initiate, encourage or solicit the making or submission of any alternative acquisition proposal or, except in accordance with the terms of the Merger Agreement as described below, participate in any discussions or negotiations with, or furnish or disclose any non-public information to, any person in connection with any alternative acquisition proposal.

So long as RMI has not breached the applicable provisions of the Merger Agreement, prior to the special meeting, RMI, in response to an unsolicited alternative acquisition proposal, may, subject to compliance with certain conditions, take specified actions, including, if the alternative acquisition proposal is or could be reasonably anticipated to lead to a superior proposal (as defined in the Merger Agreement), participating in discussions or negotiations with, or furnishing or disclosing information to, any person making such unsolicited alternative acquisition proposal.

RMI has agreed that neither the Board of Directors nor any committee thereof will:  (1) amend, modify or withdraw its recommendation of the merger and the Merger Agreement or approve or propose to approve or recommend, any alternative acquisition proposal; or (2) cause RMI or any of its subsidiaries

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to enter into and approve any letter of intent, agreement in principle, memorandum of understanding, term sheet or similar document or a definitive agreement relating to any alternative acquisition proposal, except that the Board of Directors or any committee thereof may recommend to its stockholders an alternative acquisition proposal and in connection therewith amend, modify or withdraw its recommendation of the merger, and may terminate the Merger Agreement if the Board of Directors has received an alternative acquisition proposal that it has determined in good faith, after having consulted with its outside legal counsel and its independent financial advisor, is a superior proposal, and so long as RMI has not breached the applicable provisions of the Merger Agreement.

If the Board of Directors recommends to its stockholders an alternative acquisition proposal, Holding has the right to terminate the Merger Agreement.

TERMINATION (see page 68)

RMI, Holding and MergerCo may terminate the Merger Agreement at any time prior to the effective time of the merger, whether before or after the stockholders of RMI have adopted the Merger Agreement, upon mutual written consent.

Either RMI or Holding may terminate the Merger Agreement at any time prior to the effective time of the merger, whether before or after the stockholders of RMI have approved the Merger Agreement, if:

·  the merger has not occurred on or prior to January 31, 2007, provided, however, the right to terminate the Merger Agreement pursuant to this provision is not available to any party whose failure to fulfill any of its obligation under the Merger Agreement has resulted in the failure of the merger to be consummated by such date;

·  any court or other governmental entity has issued a final and nonappealable order permanently restraining, enjoining or otherwise prohibiting the merger;

·  the approval of the majority of RMI’s outstanding common stock to adopt and approve the Merger Agreement shall not have been obtained;

·  the approval of a majority of RMI’s stock not owned by Mr. McKinniss present and voting at the Special Meeting shall not have been obtained.

RMI may terminate the Merger Agreement if:

·  RMI receives a superior proposal:  (1) that the Board of Directors or any committee thereof approves or recommends, or proposes to approve or recommend; or (2) relating to which the Board of Directors or any committee thereof causes RMI or any of its subsidiaries to enter into and approve any letter of intent, agreement in principle, memorandum of understanding, term sheet or similar document or a definitive agreement (other than a typical confidentiality agreement), in each case provided that RMI has complied with its general obligations limiting its consideration of alternative acquisition proposals as set forth below in “The Merger Agreement—Limitation On Considering Other Acquisition Proposals” and prior to or contemporaneously with such termination RMI pays the termination fee set forth below in “—Termination Fee; Expense Reimbursement”;

·  any of the representations or warranties of Holding and MergerCo in the Merger Agreement fail to be true and correct in all material respects, or Holding or MergerCo breach any of their covenants or other agreements in the Merger Agreement, and, in each case, the failure or breach would be incurable or, if curable, is not cured within 10 business days following Holding’s or MergerCo’s receipt of written notice of the breach from RMI; or

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Holding may terminate the Merger Agreement if:

·  any of the representations or warranties of RMI in the Merger Agreement fail to be true and correct in all material respects, or RMI breaches any of its covenants or other agreements in the Merger Agreement, and, in each case, the failure or breach would be incurable or, if curable, is not cured within 10 business days following RMI’s receipt of written notice of the breach from Holding;

·  the Board of Directors withdraws or modifies, in a way that is adverse to Holding, the approval, adoption or recommendation, as the case may be, of the merger or the Merger Agreement or fails to reconfirm its recommendation within 15 days after a written request to do so; or

·  the Board of Directors recommends an alternative acquisition proposal to RMI’s stockholders.

TERMINATION FEE; EXPENSE REIMBURSEMENT (see page 69)

RMI has agreed to pay to Holding:  (1) up to a maximum of $500,000 its the out-of-pocket expenses related to the merger; or (2) a termination fee equal to $1.5 million, in each case under certain instances upon termination of the Merger Agreement. In addition, Holding agreed to pay to RMI up to a maximum of $500,000 its out-of-pocket expenses related to the merger under certain limited circumstances.

CERTAIN EFFECTS OF THE MERGER (see page 11)

Upon completion of the merger, Holding will own 100% of the outstanding common stock of RMI. Subsequent to the merger, RMI’s current stockholders (other than Sherman McKinniss) will cease to have ownership interests in RMI or rights as RMI’s stockholders other than a right to receive the merger consideration of $3.00 per share.

In addition, RMI will be a privately held corporation and there will be no public market for its common stock. RMI’s common stock will cease to be quoted on the American Stock Exchange, and the registration of RMI’s common stock under the Securities Exchange Act of 1934, as amended, will be terminated.

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES (see page 47)

The receipt of cash for shares of RMI’s common stock in the merger will be a taxable transaction for U.S. federal income tax purposes and may also be a taxable transaction under applicable state, local, foreign or other tax laws. Generally, you will recognize gain or loss for these purposes equal to the difference between $3.00 per share and your tax basis for the shares of common stock that you exchange in the merger.

TAX MATTERS ARE VERY COMPLEX AND THE TAX CONSEQUENCES OF THE MERGER TO YOU WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR TAX ADVISOR FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF THE MERGER TO YOU.

LITIGATION CHALLENGING THE MERGER (see page 48)

On September 13, 2006, following the announcement of the Merger Agreement on August 30, 2006, a person alleging that he is a stockholder of RMI filed a putative class action lawsuit challenging aspects of the proposed Merger. The lawsuit, filed in the Superior Court of California, County of Los Angeles, names RMI and eight officers and directors of the Company, together with Holding and Spell Capital Partners Fund III, LP, as defendants. Plaintiff asserts a cause of action for breach of fiduciary duty and self-dealing, and a cause of action of aiding and abetting breach of fiduciary duty. In the complaint, plaintiff alleges generally that the proposed Merger resulted from unfair dealing and the merger consideration of $3.00 was an inadequate purchase price.

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The complaint seeks certification as a class action and various forms of declaratory, injunctive and monetary relief, including an injunction against consummation of the merger or, in the alternative, rescission of the transaction and imposition of a constructive trust.

The defendants deny any wrongdoing, and believe that the action is without merit.  The plaintiff and the defendants have executed a written settlement agreement that they intend to present to the Court for approval.  The settlement requires a change to the stockholder voting requirement to approve the Merger and expanded disclosures regarding the factual background of the Merger, which are reflected in this Proxy Statement.  Defendants agreed not to oppose a request for attorneys’ fees and reimbursement of expenses in an amount not exceeding $160,000.  Defendants expect RMI's directors' and officers' insurance carrier to pay that amount.

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SPECIAL FACTORS

BACKGROUND OF THE MERGER

In 2005, RMI began to explore a possible acquisition of the Company. The Company began to explore the alternative of an acquisition because of its concerns about the risks associated with remaining an independent public company. These risks included its increasing cost of doing business, including significant increases in raw material prices and the cost of utilities and natural gas, the Company’s continuing need for debt financing, the amount of which had not declined in fiscal 2006, the significant cost of compliance with the requirements of the Sarbanes-Oxley Act, the fact that the Company’s stock is thinly traded and does not provide meaningful liquidity to Company stockholders, and is not covered by any financial analysts, the increasingly competitive environment the Company operates in and the Company’s belief that many companies in the plastics industry have failed in recent years, as well as the lack of a successor to Sherman McKinniss, who is 70 years old and has served as the Company’s Chairman and CEO since 1991 and is the largest individual stockholder of RMI. The Company believed all of these factors increased the risk to the Company and its stockholders of the Company remaining an independent public company.

To explore strategic alternatives, the Company considered Berman Capital, which had in the past assisted the Company to complete several small acquisitions, and another investment bank which submitted a formal proposal to act on behalf of the Company. RMI also held informal discussions with a third investment bank based in the Chicago, Illinois area. The Company selected Berman Capital because of Mr. Berman’s familiarity with the plastics industry, his history of working effectively with the Company, competitive nature of his fees, as well as his experience assisting in the sales of companies while maintaining the confidentiality of a possible sale, which was of significant importance to the Company so that relationships with customers, suppliers and employees would not be disrupted.

To assist the Company in its efforts to explore strategic alternatives, Berman Capital (of which Marc Berman, a director of RMI, is the sole owner), contacted potential strategic and financial acquirers of RMI. Beginning in August 2005 and continuing through May 2006, Berman Capital approached approximately 67 entities which included strategic and financial buyers, that it had determined, based on its experience in the plastics industry and in consultation with the Company, might potentially be interested in an acquisition of RMI. All of parties Berman Capital identified as potentially interested in an acquisition of RMI were contacted by Berman Capital. Berman Capital had discussions or other communications with approximately 50 of the entities it approached, and it indicated to each party it had communicated with that the Company was prepared to provide certain public and non-public corporate information regarding RMI, subject to execution of a confidentiality agreement on customary terms; 24 entered into a confidentiality agreement and Berman Capital provided to them an information package that included both public and non-public information regarding RMI. The remaining parties indicated they had no interest in pursuing discussions regarding the Company or did not respond to the contacts made by Berman Capital.

Of the 24 parties that executed confidentiality agreements and received additional information regarding RMI, six orally expressed possible interest in a transaction with RMI. In the fall of 2005, the representative of a financial buyer indicated possible interest in a transaction above $3.00 per share. However, after preliminary discussions and receipt of corporate information regarding RMI, the financial buyer initially informed Berman Capital and the Company it was not interested in a transaction and then several months later indicated it would only be interested in a transaction at a price substantially below $3.00 per share. In addition, during the first quarter of 2006, Berman Capital and the Company held discussions and several meetings with an overseas strategic buyer. While the strategic buyer showed some possible interest in a transaction, it terminated discussions without making an offer to the Company.

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In addition, in May 2006, the Company was contacted by a potential financial buyer not contacted by Berman Capital. In mid-May, the potential financial buyer forwarded to the Company a non-binding proposal for a potential acquisition. The draft proposal was at a per share price greater than $3.00 per share, but after approximately two weeks of discussions with the Company, the proposal was withdrawn. Based on discussions with the potential buyer, RMI believes that the proposal was withdrawn because an individual the potential buyer intended to install as CEO of RMI chose to pursue a different opportunity, and because the potential buyer did not have dedicated funds available for an acquisition and determined not to undertake the effort required to raise the financing necessary for an acquisition.

Consequently, only Spell Capital submitted a proposal concerning a possible transaction. Mr. Berman had preliminary discussions with Spell Capital in late May 2006 regarding a possible acquisition proposal by Spell Capital. To encourage a proposal by Spell Capital, Mr. Berman provided summary data to Spell Capital, including the number of outstanding shares, estimated transaction expenses and bank debt, based on an acquisition price of $3.10 per share. Mr. Berman used this price per share in his summary because it represented a value for the Company which exceeded the multiple of certain financial results which Spell Capital disclosed it used to value similar transactions and represented a premium over recent closing prices for the Company’s stock. Following these conversations, on June 21, 2006, Spell Capital forwarded a draft nonbinding letter addressed to the Board of Directors of the Company outlining certain terms of a transaction in which investment funds affiliated with Spell Capital proposed to acquire the Company. The proposal included a buy-out of all the public stockholders of the Company at $3.00 cash per share.

The Spell Capital proposal also required that that Sherman McKinniss participate in the transaction by contributing 25% of the issued and outstanding shares of RMI to the buyer in exchange for a 25% ownership interest in the buyer. Under this proposal Mr. McKinniss would indirectly retain ownership of 25% of the Company following the transaction, which is a reduction from his current ownership of approximately 45.7% of RMI. By requiring Mr. McKinniss to contribute and hold 25 percent of RMI’s equity, Spell Capital reduced considerably the amount of financing necessary to facilitate the merger. The Spell Capital proposal also required Mr. McKinniss to indemnify the buyer against damages the buyer might incur as a result of breaches of the representations, warranties and covenants of RMI to be contained in the definitive merger agreement. Members of the Special Committee and other RMI directors agreed to the proposal because, although the terms of Mr. McKinniss’ participation, as described above, were not advantageous in comparison to the treatment of RMI’s public stockholders, Spell Capital made clear that Mr. McKinniss’ participation was not negotiable and the Special Committee members and other directors concluded that the proposal was fair to the public stockholders. The proposal also provided that the funds necessary to complete the transaction not contributed by Spell Capital managed private equity funds as equity to the buyer would be financed through debt, and a condition to the Spell Capital proposal was that such debt financing be obtained on terms acceptable to Spell Capital. The proposal also provided that RMI would negotiate exclusively with Spell Capital for a period of 45 days, that RMI would be responsible for payment of certain expenses of Spell Capital if a definitive agreement was not entered into and that the transaction was subject to Spell Capital completing, to its satisfaction, a due diligence review of RMI and its business.

At a regularly scheduled Board meeting held on June 25, 2006, Marc Berman reviewed at length with the Board the efforts made by Berman Capital to identify and contact potential acquirers of the Company. The withdrawn proposal submitted by a potential financial buyer in May 2006 was also discussed by the Board. At the Board meeting, the Spell Capital proposal was discussed at length by the Board of Directors. Mr. Berman reported to the Board that although he had encouraged an acquisition price from Spell Capital of $3.10 per share, Spell Capital’s offer was $3.00 per share and Spell Capital had indicated to him that, based on the Company’s financial results, it was not willing to offer a price above $3.00. Mr. McKinniss informed the Board that while he did not seek to retain an equity interest in the Company and had not agreed to participate in the transaction as proposed by Spell Capital, he was willing to

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consider such an arrangement. Board members acknowledged that the terms of the proposed transaction would oblige Mr. McKinniss to assume a substantial indemnification risk not to be shared by the public stockholders and that the Spell Capital proposal was the only firm offer received by the Company. Mr. McKinniss indicated his willingness to participate in the transaction as proposed by Spell Capital would depend on, among other things, the successful negotiation of a definitive agreement providing for the acquisition of the remaining 75% of the RMI shares, as well as reaching an agreement with Spell Capital satisfactory to him regarding his rights and obligations as a 25% stockholder following the transaction.

Following these discussions, the directors unanimously approved (with Messrs. McKinniss and Berman abstaining) entering into exclusive negotiations with Spell Capital for the acquisition of the Company on the basis of the Spell Capital proposal, with the following changes: the equity contribution of Spell Capital to the buyer should be increased to not less than $10 million, with the amount of debt financing required to complete the transaction correspondingly reduced, and RMI would only be responsible for expenses incurred by Spell Capital if RMI ceased negotiations prior to the end of 45 days in order to enter into an alternative transaction, in which case RMI would be responsible for reimbursing Spell Capital for up to $500,000 of its expenses.

At the June 25 meeting, the Board also determined, in light of the Spell Capital requirement that Mr. McKinniss be a participant in the transaction and the Board’s fiduciary duties, to form a Special Committee of three independent directors to evaluate the Spell Capital proposal, retain a financial advisor to advise the committee as to the fairness of the proposal and to make a recommendation to the entire Board as to whether or not the Spell Capital proposal was fair and should be approved by the full Board and thereafter recommended by the Board to the Company’s stockholders. The Special Committee consisted of directors Jules Sandford, Brent A. Brown and Larry L. Snyder, all of whom are independent directors of the Company as defined by the rules of the American Stock Exchange. A director is not considered independent if such director (a) is a current employee of the Company or was employed by the Company during the past three years, (b) received payments from the company exceeding $60,000 per year during the current year or any of the past three years, other than for certain permitted payments such as compensation for service on the Board or committees of the board, (c) has a family member who served as an executive officer of the Company during the current year or any of the past three years, (d) is, or has an immediate family member who is, an affiliate of, any entity to which the Company made, or from which the Company received, payments that exceed 5% of the respective organization’s consolidated gross revenues for that year, or $200,000, whichever is more, in any of the most recent three fiscal years, (e) a director of the Company who is, or has a family member who is, employed as an executive officer of another entity where at any time during the most recent three fiscal years any of the Company’s executive officers serve on that entity’s compensation committee; or (f) a director who is, or has an immediate family member who is, a current partner of the company’s outside auditor, or was a partner or employee of the company’s outside auditor who worked on the company’s audit at any time during any of the past three years.

Following the Board of Directors meeting, further discussions between Mr. Berman, Mr. McKinniss, principals of Spell Capital and their advisors occurred. On June 26 and 27, Mr. Berman and Mr. McKinniss met with representatives of Spell Capital to discuss the terms of the Spell Capital proposal and to conduct a tour of the Company’s Gardena, California facility. The changes to the Spell Capital proposal requested by the RMI Board of Directors at the June 25 Board meeting were conveyed to Spell Capital, which agreed to such changes after these meetings. A revised nonbinding letter outlining certain terms of a possible transaction was submitted to the Company on June 30, 2006, and on July 5, 2006, the letter was signed by RMI.

Under the nonbinding letter, any agreement regarding the transaction was subject to completion of due diligence regarding the Company deemed satisfactory by Spell Capital. Consequently, beginning on July 10, 2006, Spell Capital initiated its due diligence investigation of the Company through its legal

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counsel, Briggs & Morgan as well as PricewaterhouseCoopers LLP (“PWC”). During this period through the execution of the Merger Agreement, the Company provided to Spell Capital and its representatives copies of documents and information requested by them. In addition, on July 19, 2006, PWC initiated a review of the Company’s audit workpapers, and from July 18 through 20, representatives of PWC visited the Company’s Gardena, California headquarters to interview Company executives and review certain documents. On July 26 and 27, representatives of the Company also met with Briggs & Morgan to provide and discuss certain documents requested by them.

Jules Sandford was selected by the Board of Directors as Chairman of the Special Committee; Mr. Sandford is a practicing attorney. Beginning in early July 2006, the Chairman began to interview possible financial advisors for the Committee. At the request of the Chairman, Mr. Berman provided contact information for three firms he was aware of that might serve as financial advisor and the Chairman contacted each of these firms to request a proposal to act as financial advisor to the Special Committee. The Special Committee received proposals from these three potential financial advisors, including one received on July 6, 2006, from Duff & Phelps. On that date, the Chairman of the Special Committee telephonically interviewed a representative of Duff & Phelps. On July 7, 2006, the Chairman interviewed the representative of another investment bank to discuss its proposal.

On July 11, 2006, the Special Committee reviewed and discussed the engagement proposals submitted by all three firms. On July 13, the Special Committee again reviewed the Duff & Phelps proposal, and met with representatives of Duff & Phelps, who made a detailed presentation to, and responded to questions raised by, the Special Committee, including the firm’s experience in similar engagements, its knowledge of the Company and its industry, the process the Special Committee should anticipate, fees and fee structures and various other matters. On the same day, the Special Committee received a similar presentation from a second potential financial advisor; after the second presentation, the Special Committee determined not to interview the third potential advisor. On July 13, 2006, the Special Committee decided to select Duff & Phelps as its financial advisor. Duff & Phelps did not have any prior relationship with the Company, its subsidiaries or any members of their management or Board of Directors, including Mr. McKinniss. The Special Committee selected Duff & Phelps based on its experience in similar transactions, its reputation, the thoroughness of its presentation to the Special Committee, the individual qualifications of the Duff & Phelps representatives who would be responsible for the engagement, and the fee proposed by Duff & Phelps, which was in the mid-range of the fees proposed by the three potential financial advisors.

On July 17, 2006, the Special Committee held discussions with representatives of Duff & Phelps regarding its engagement, and thereafter requested a change to its engagement proposal concerning the fee which Duff & Phelps would be paid for providing additional services to the Special Committee if the Spell Capital proposal did not proceed because another offer to acquire the Company was received from a third party. This change was accepted by Duff & Phelps. On July 21, 2006, the Special Committee formally approved the engagement of Duff & Phelps. During late July and early August 2006, Duff & Phelps conducted due diligence meetings with members of RMI’s management team at the Company’s headquarters in Gardena, California.

On July 19, 2006, counsel for Spell Capital provided to RMI and its representatives a draft of the Merger Agreement. Counsel for Spell Capital also provided a draft of the voting and share exchange agreement which Mr. McKinniss would be required to enter into with Spell Capital. Copies of these agreements were provided to the Special Committee. On July 28, 2006, counsel for RMI provided preliminary comments on the agreement to counsel for Spell Capital. On August 7, 2006, counsel for Spell Capital provided a revised draft of the Merger Agreement and voting agreement, and on August 15, provided a draft shareholders agreement which Mr. McKinniss would be required to enter into in connection with the transaction. From August 7 until August 16, 2006, RMI and Spell Capital and their respective representatives negotiated various terms of the Merger Agreement, the voting agreement and

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the shareholders agreement, and exchanged drafts of these agreements. Copies of various drafts of these agreements were provided to the Special Committee.

On August 11, 2006, Duff & Phelps provided to the Special Committee a draft copy of its fairness analysis for its review over the weekend. On August 14, 2006, representatives of Duff & Phelps met with the Special Committee to present its fairness analysis and preliminary conclusions as to the fairness of the proposed transaction, from a financial point of view, to the unaffiliated public stockholders of RMI. Duff & Phelps’ final opinion was delivered to the Special Committee on August 29, 2006, which did not differ in any substantive way from its August 14 fairness analysis presentation.

On August 16, 2006, the RMI Board of Directors held a special meeting to discuss the proposed transaction and the results of negotiations between the parties. Heller Ehrman, LLP, counsel to RMI, reviewed the terms of the draft Merger Agreement and the other agreements, as well as the items which remained open and unresolved between RMI and Spell Capital. Counsel also discussed with the Board the issues remaining to be resolved between Mr. McKinniss and Spell Capital relating to the voting agreement and the shareholders agreement, and reviewed with the Board its fiduciary obligations with respect to the potential transaction, including directors’ duties of loyalty and care, the obligation to be fully informed regarding the potential transaction, and the higher standard, such as approval by an independent committee and approval by all disinterested directors, that applied to a transaction in which a director was interested. Mr. Sandford, Chairman of the Special Committee reported to the Board on the activities of the Special Committee. The Chairmen reported to the Board that he had contacted three potential financial advisors, and advised the Board as to the identities of the three, that the Special Committee had received written proposals from each of the three, that he had spoken to representatives of each of the potential financial advisors and the Special Committee had received detailed presentations from two, as well as the fees each of the potential advisors had requested. He also reported that the Special Committee had met several times to discuss which of the proposed financial advisors should be selected and the Special Committee’s decision to retain Duff & Phelps as its financial advisor. Mr. Sandford also reported on the presentations made to the Special Committee by Duff & Phelps, including its preliminary opinion that the transaction was fair, from a financial point of view, to the unaffiliated public stockholders of RMI. Mr. Sandford also reported that, subject to receipt of a final, written fairness opinion from Duff & Phelps and successful negotiation of the open issues in the Merger Agreement, the Special Committee would recommend to the Board that the transaction was substantively and procedurally fair to the unaffiliated public stockholders of RMI and should be approved by the Board.

From August 16 through August 29, 2006, the parties and their representatives continued to negotiate the terms of the Merger Agreement and the other agreements and to exchange drafts of these agreements. On August 22, 2006, counsel for Spell Capital provided a draft one-year employment agreement which Mr. McKinniss would be required to enter into in connection with the transaction.

On August 29, 2006, the RMI Board held a special meeting to further discuss and consider the proposed transaction. At the meeting, the Board members reviewed the outcome of the final negotiations between the parties. Duff & Phelps provided to the Special Committee its written opinion that as of August 29, 2006, and based upon and subject to matters stated in its opinion, from a financial point of view, the consideration to be paid in the proposed transaction was fair to the unaffiliated, public stockholders of RMI. Heller Ehrman LLP reviewed the terms of the Merger Agreement and the other agreements that had been previously distributed for review by the Board. The Special Committee confirmed to the full Board its view that the proposed transaction was substantively and procedurally fair to the unaffiliated public stockholders of RMI and recommend it be approved by the Board. After further review and discussion, the Board, with Messrs. Berman and McKinniss abstaining, determined that the proposed transaction was fair to the unaffiliated stockholders of RMI and voted to approve the Merger Agreement and the transaction contemplated by the Merger Agreement and resolved to recommend that its stockholders vote to adopt the Merger Agreement.

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On December 3, 2006, the Boards of Directors of RMI approved amending the Merger Agreement, including the change in the stockholder voting requirement to approve the Merger and the extension of the termination date of the Merger Agreement until January 31, 2007.

On December 12, 2006, the parties to the merger agreement amended and restated the agreement to reflect the foregoing.

REASONS FOR THE RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS

The Special Committee has at all times been composed of three independent directors who are neither officers nor employees of RMI, Holding or MergerCo, and who have no financial interest in the proposed merger different from RMI’s stockholders generally. At the time of the formation of the Special Committee on June 25, 2006, RMI’s Board of Directors consisted of eight directors, two of whom (Mr. McKinniss and Mr. Berman) had interests in the proposed transaction. Of the remaining six directors, three served on the Special Committee. The Special Committee retained Duff & Phelps to act as its financial advisor. Neither Sherman McKinniss, who is participating in the merger transaction as required by the Spell Capital proposal, nor Marc Berman, a principal of Berman Capital which identified and contacted potential candidates for a transaction with RMI (including Spell Capital) was a member of the Special Committee. Neither Mr. McKinniss nor Mr. Berman was present during any deliberations of the Special Committee.

The Special Committee, acting with the advice and assistance of a financial advisor engaged by the Special Committee, evaluated the merger proposal. The Special Committee unanimously determined that the proposed merger is substantively and procedurally fair to the unaffiliated public stockholders of RMI and recommended to the full Board that the merger transaction be approved.

Acting on the unanimous recommendation of the Special Committee that the merger transaction be approved, and the other matters considered by the Board, on August 29, 2006, the Board of Directors of RMI, with Mr. McKinniss and Mr. Berman abstaining, determined that the proposed transaction was fair to the unaffiliated stockholders of RMI and approved and declared advisable the Merger Agreement and the transactions contemplated thereby, including the merger, and recommended that RMI’s stockholders approve the merger and the Merger Agreement.

Substantive Factors

In reaching their respective determinations, each the Special Committee and the Board of Directors considered the following substantive factors and potential benefits of the merger, each of which they believed supported their respective decisions, including the determination that the proposed transaction was substantively fair to the unaffiliated stockholders of RMI.

Difficult Business Environment.   The difficult business environment in which RMI operates, including the increasing cost of doing business, including significant increases in raw material prices and the cost of utilities and natural gas, the Company’s continuing need for debt financing, the amount of which had not declined in fiscal 2006, the significant cost of compliance with the requirements of the Sarbanes-Oxley Act, as well as the lack of a successor to Sherman McKinniss, who has served as the Company’s Chairman and CEO since 1991 and is the largest individual stockholder of RMI, all of which increases the risk to the Company and its stockholders of the Company remaining an independent public company.

Market Prices and Limited Trading.   The market prices of RMI’s common stock and its trading history, including the fact that the cash merger price of $3.00 per share represents a 20% premium over the closing stock price of $2.50 on the trading day prior to execution of the Merger Agreement, that RMI’s common stock had traded below $3.00 per share for 66% and 72% of the trading days in the prior 12-month and three year periods, respectively. In addition, RMI’s common stock has historically been thinly traded, with the daily trading volume over the month and 12-months prior to execution of the

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Merger Agreement averaging less than 4,600 and 15,500 shares, respectively, which may subject RMI’s stock to sudden and rapid changes in price when stockholders decide to buy or sell, and that, if an RMI stockholder were to sell a significant block of stock, this could likely result in a depressed stock price, making it very difficult for any stockholders to sell now or in the future a significant number of shares of Common Stock of the Company at a price of $3.00 per share or higher.

Lack of Competing Offers.   The fact that during the nearly nine month period in which Berman Capital contacted 67 potential acquirers, of which 24 received additional information after entering into confidentiality agreements, no other firm proposals were received by RMI regarding an acquisition transaction at a price higher than $3.00 or at any other price. Although RMI received a draft proposal in May 2006 regarding an acquisition at a price greater than $3.00 per share, the proposal was withdrawn by the potential buyer.

Opinion of Duff & Phelps.   The written presentation delivered to the Special Committee on August 14, 2006 by Duff & Phelps, stated that, based on and subject to the considerations, limitations, assumptions and qualifications set forth in such opinion, as of that date, the $3.00 per share cash consideration to be paid to RMI’s stockholders in the proposed merger appeared to be fair, from a financial point of view, to RMI’s unaffiliated, public stockholders. On August 29, 2006, Duff & Phelps delivered its final written opinion to the Special Committee to the effect that, subject to the considerations, limitations, assumptions and qualifications set forth in such opinion, the $3.00 per share cash consideration to be paid to RMI’s stockholders in the proposed merger was fair, from a financial point of view, to RMI’s unaffiliated, public stockholders.

Presentation of Duff & Phelps; Financial Analyses.   In considering the merger, the Special Committee and the Board considered the written presentation delivered on August 14, 2006 by Duff & Phelps, copies of which were circulated to the Board, which included a summary of its fairness analysis and preliminary opinion of fairness of the proposed transaction. In its presentation, Duff & Phelps included an analysis of the enterprise value implied by the $3.00 offer price compared to ranges of enterprise values of RMI derived using a discounted cash flow analysis and market approach analysis, both of which are on a going concern basis, and that the enterprise value implied by the $3.00 offer price was at the high end of the concluded range of enterprise values using these methodologies. While the range of values arrived at under both the discounted cash flow and market approach analyses exceeded the implied enterprise value at $3.00 per share, the merger consideration was at the high end of both value ranges and, therefore, supported a determination of fairness from a financial point of view. In addition, the presentation included an analysis of the estimated liquidation value of RMI and that the value implied by the $3.00 per share offer price was above the implied value range assuming an orderly liquidation. In addition, the presentation included an analysis of the historical public trading prices and volume for the RMI stock. The Board noted that while the high closing price during the third and fourth quarters of 2006 was $3.48, the Company’s stock, which is thinly traded, has historically been subject to rapid changes in price, and that RMI’s common stock had traded below $3.00 per share for 66% of the trading days in the 12 month period ended August 2006. The Special Committee and the Board of Directors also noted that the estimated June 30, 2006 net book value per share of $1.69 was substantially less than $3.00 per share offered by Holdings.

The Special Committee and the Board of Directors have adopted the analysis of Duff & Phelps, including the analysis that relates to the discounted cash flow, market approach, and liquidation analysis.

The presentation also included a prior stock transaction analysis, indicating that during the nine months ended March 31, 2006, the Company had repurchased 151,700 shares of common stock at an average price of $2.67, below the offer price of $3.00 per share. The presentation also noted that in the fiscal years between 1998 and June 30, 2005, the Company had repurchased 4,455,313 shares for a total cost of $5,726,000, which implied an average price of $1.29 per share. In addition, at June 25, 2006 Board meeting, the Board had received a management report on stock repurchases through that date which

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indicated that although the Company had repurchased a small number of shares at a price above $3.00 per share in fiscal years 2005 (166 shares), the Company had repurchased total of 39,394 shares in fiscal 2005 at an average price of $2.42 (net of commissions paid by the Company) per share and 188,333 shares in fiscal year 2006 at an average price of $2.72 (net of commissions paid by the Company) per share, had repurchased 6,700 shares in the third quarter of 2006 at an average price of $2.80 (net of commissions paid by the Company) per share and 36,600 shares in the fourth quarter of 2006 at an average price of $2.89 (net of commissions paid by the Company) per share, all of which average repurchase prices were below $3.00 per share.

Implied Value of Consideration to be Received by Sherman McKinniss.   The fact that Duff & Phelps calculated the consideration to be received by Mr. McKinniss in the transaction at $2.19 per share, based on the cash proceeds he would receive in the merger and the implied value of the 25% interest in Holding he would receive for his remaining shares of RMI, which is substantially less than the cash consideration to be received by the public stockholders of RMI. The Special Committee and the Board considered this an important indication of fairness, since Mr. McKinniss is the single largest stockholder of RMI, was participating in the transaction only because it was a condition of the Spell Capital proposal, the only firm proposal received to acquire the Company, and he has no certainty that he will be able in the future to sell the indirect 25% interest he is retaining in RMI. Furthermore, as described further in the Shareholder Agreement, Mr. McKinniss has a right to request that Holding redeem the shares then owned by him for a redemption price per share, payable in cash, equal to the greater of: (i) $2.25 per share (adjusted for any share split, dividend or combination effected by Holding subsequent to the effective date); or (ii) the amount derived by application of a formula based on EBIDTA. Holding is not required to redeem the shares, and there is no certainty that Mr. McKinniss will be able to sell his shares or if purchased by Holding, at what price the shares will be purchased. In addition, the right may not be exercised until five years after completion of the transaction. For all of these reasons, this right was not factored into the implied value of the consideration of $2.19 per share to be received by Mr. McKinniss.

Agreement of McKinniss to Indemnify Holding.   The fact that Sherman McKinniss agreed, in the Voting Agreement, to indemnify Holding against losses incurred by it as a result of certain breaches by RMI of representations, warranties and covenants contained in the Merger Agreement in an amount up to $1 million, a risk not shared by public stockholders and which could reduce the amount of consideration Mr. McKinniss would receive in the transaction.

Ability to Change Recommendation and Terminate Merger Agreement.   The fact that the Board of Directors, under the terms of the Merger Agreement, may terminate the Merger Agreement if Board determines that an unsolicited proposal made in good faith constitutes a superior proposal, subject to payment of a termination fee of $1.5 million.

Merger Agreement Terms.   The other terms and conditions of the Merger Agreement, including the cash price, the ability to consider unsolicited offers, and the ability of the Company to terminate the Merger Agreement in certain circumstances.

Size of Termination Fee.   The belief of the Board, based upon advice from its legal advisors, that the termination fee is within the range of termination fees observed in similar transactions and should not unduly discourage other possible buyers from offering acquisition proposals that are more favorable than the transactions contemplated by the Merger Agreement.

Cash Consideration.   The fact that the merger consideration will be all cash, which provides liquidity and certainty of value to RMI’s stockholders.

Procedural Factors

The Special Committee and the Board of Directors also considered the following factors relating to the procedures involved in the negotiation of the merger, each of which they believed supported their respective decisions, including the determination that the proposed transaction was procedurally fair to the unaffiliated stockholders of RMI.

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Formation, Authority and Independence of the Special Committee.   The Board of Directors appointed the Special Committee:

·  which consisted entirely of directors who are not officers of RMI or affiliated with Holding or its investors;

·  whose members will not personally benefit from the consummation of the merger in a manner different from the stockholders; and

·  which retained its own financial advisor who have extensive experience with transactions similar to the merger and took direction exclusively from the Special Committee;

The Special Committee, composed of three of the six independent directors of RMI, retained Duff & Phelps as its financial advisor. The Special Committee did not retain its own counsel. The Special Committee was formed by the Board to evaluate the Spell Capital proposal, retain a financial advisor to advise the committee as to the fairness of the proposal and to make a recommendation to the entire Board as to whether or not the Spell Capital proposal was fair and should be approved by the full Board. The Special Committee was not formed to negotiate the transaction on behalf of RMI.

Appraisal Rights.   RMI’s stockholders have the right to demand appraisal of their shares in accordance with the procedures established by Delaware law. See “Appraisal Rights”.

Other Procedural Matters.   Although the vote of a majority of the unaffiliated stockholders (those other than Mr. McKinniss) is not required to approve the merger, a vote of a majority of shares held by the unaffiliated stockholders that are present in person or represented by a proxy and voting at the Special Meeting is required. In addition, the Special Committee and the Board believe that the extensive efforts of Berman Capital to find potential acquirers for the Company, which after more than nine months of effort resulted only in the Spell Capital proposal, as well as the approval of the transaction by the Special Committee and the unanimous approval of the merger by the directors other than Mr. McKinniss and Mr. Berman, also support the fairness of the transaction from a procedural standpoint.

Potential Negative Factors

The Special Committee and the Board of Directors also considered a variety of risks and other potentially negative factors concerning the merger but determined that these factors were outweighed by the benefits of the factors supporting the merger. These negative factors included the following:

Limitation on Considering Other Acquisition Proposals.   Certain terms and conditions set forth in the Merger Agreement prohibit RMI and its representatives from soliciting third-party bids and from accepting third-party bids except in specified circumstances and upon and payment of a specified termination fee, and these terms could have the effect of discouraging a third party from making a bid to acquire RMI (See “The Merger Agreement—Limitation on Considering Other Acquisition Proposals”).

Historic Trading Prices.   The $3.00 per share cash merger consideration is lower than the closing prices of RMI’s common stock from early January 2006 until mid-May 2006, during which time RMI’s common shares closed at a high of $3.48. The Board also noted that while the high closing price during this period was $3.48, during this period the closing price was $3.40 or above only three times and the closing price was $3.25 or above only 14 times, that the Company’s stock, which is thinly traded, has historically be subject to rapid changes in price, and that RMI’s common stock had traded below $3.00 per share for 66% of the trading days in the prior 12 month period.

Interests of certain of RMI’s Directors and Officers in the Merger.   The conflict of interest created by the participation of Mr. McKinniss in the transaction and by his continuation as a director and an employee of RMI after the merger, as well as the other factors discussed in “—Interests of RMI’s Directors and Officers in the Merger”.

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Termination Fee and Expense Reimbursement.   If the merger is not consummated under circumstances further discussed in “The Merger Agreement—Termination” and “The Merger Agreement—Termination Fee and Expense Reimbursement” RMI may be required to reimburse Spell Capital for expenses relating to the Merger Agreement and related transactions or to pay the specified termination fee.

Tax Treatment.   The cash consideration to be received by RMI’s stockholders will be taxable to them.

Effects of the Merger.   If RMI consummates the merger, it will no longer be a public company and the unaffiliated public stockholders of RMI will not be able to participate in any long-term profit or gain that might result in the future.

Possibility of Not Completing the Merger.   The merger may not be completed, even if approved by RMI’s stockholders, if financing satisfactory to Spell Capital can not be obtained or if Spell Capital is not satisfied with its due diligence review of the Company or as a result of a breach of the Merger Agreement or the failure of a party to satisfy all applicable conditions to complete the merger. This failure to complete the merger could adversely affect RMI’s stock price.

In considering the merger, the Special Committee considered, among other things, the written presentation delivered to it on August 14, 2006 by Duff & Phelps, the Special Committee’s financial advisor, which included a summary of its fairness analysis and preliminary opinion of fairness of the proposed merger transaction, and the final opinion of Duff & Phelps, dated August 29, 2006. The Special Committee met with representatives of Duff & Phelps to review Duff & Phelps’ written presentation that included an analysis of the enterprise value implied by the $3.00 offer price compared to ranges of enterprise value of RMI derived using a discounted cash flow analysis and a comparable company analysis. The Special Committee noted that the enterprise value implied by the $3.00 offer price was at the high end of the concluded range of enterprise values using these methodologies. In addition, the presentation included an analysis of the estimated liquidation value of RMI and the Special Committee noted that the value implied by the $3.00 offer price was above the implied value range assuming an orderly liquidation. The written presentation included an analysis of the consideration to be received by RMI’s largest shareholder, Mr. Sherman McKinniss, concluding that the estimated valuation of his consideration was approximately $2.19 per share. In addition, Duff & Phelps analyzed the historical public trading price and volume for RMI stock and the control premium implied by the $3.00 offer price.

After considering these factors, the Special Committee and the Board of Directors concluded that the positive factors relating to the merger outweighed the negative factors, including that the Company will no longer be a public company. The Board of Directors and the Special Committee only considered two strategic alternatives: (1) remaining a public company and (2) an acquisition of the Company. Because of the variety of factors considered, the Special Committee and the Board of Directors did not find it practicable to quantify or otherwise assign relative weights to, and did not make specific assessments of, the specific factors considered in reaching its determination. However, individual members of the Special Committee and the Board of Directors may have assigned different weights to various factors. The determination of the Special Committee and the Board of Directors was made after consideration of all of the factors together.

RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS

The Special Committee unanimously determined that the proposed merger is substantively and procedurally fair to RMI’s unaffiliated public stockholders. Acting on the unanimous recommendation of the Special Committee and the other matters described in “Reasons for the Recommendation of the Special Committee and the Board of Directors”, the Board of Directors, with Mr. McKinniss and Mr. Berman abstaining, has approved and declared the Merger Agreement and the transactions

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contemplated thereby, including the merger, advisable, fair to and in the best interests of RMI and its unaffiliated public stockholders.

THEREFORE, THE BOARD OF DIRECTORS, WITH MR. MCKINNISS AND MR. BERMAN ABSTAINING, RECOMMENDS THAT YOU VOTE FOR THE ADOPTION OF THE MERGER AGREEMENT.

Mr. McKinniss holds, as of the record date, an aggregate of approximately 46% of RMI’s common stock, and he has agreed with Spell Capital to vote his shares in favor of adopting the Merger Agreement. The other directors and executive officers of RMI collectively hold, as of the record date, an aggregate of approximately 5.1% of RMI’s common stock. RMI expects that they will vote their shares in favor of adopting the Merger Agreement, although they are not contractually or otherwise obligated to do so.

POSITION OF MR. MCKINNISS AS TO THE FAIRNESS OF THE MERGER

The rules of the SEC require Mr. McKinniss to express his belief as to the fairness of the Merger Agreement and the proposed merger to RMI’s unaffiliated public stockholders. Neither Mr. McKinniss, nor Holding and MergerCo (the parties proposing to purchase RMI), have participated in the deliberations of the Special Committee regarding the fairness of the merger to RMI’s stockholders, nor did they receive any advice from Duff & Phelps as to the fairness of the merger. Mr. McKinniss only considered two strategic alternatives: (1) remaining a public company and (2) an acquisition of the Company.

Mr. McKinniss’ views as to the fairness of the Merger Agreement and the proposed merger should not be construed as a recommendation to any stockholder as to how that stockholder should vote on the proposal to adopt the Merger Agreement.

1.     Substantive Factors

Based on a number of factors, including those considered by the Special Committee and the Board of Directors and, in particular, the material factors discussed below, Mr. McKinniss believes that the merger is fair to RMI’s unaffiliated public stockholders.

Difficult Business Environment.   The difficult and highly competitive business environment in which RMI operates, the fact that many companies in the plastics industry have failed in recent years, the difficulty of managing a business with multiple locations and the significant costs associated with being a public company, especially the expected increase in costs resulting from compliance with the requirements of the Sarbanes-Oxley Act, which are especially difficult for a small company such as RMI, all of which were the risks to the Company and its stockholders of the Company remaining a public company.

Current and Historical Market Prices.   The current and historical market prices of RMI’s common stock, including the fact that the cash merger price of $3.00 per share represents a 20% premium over the closing stock price of $2.50 on the trading day prior to execution of the Merger Agreement and that RMI’s Common Stock had traded below $3.00 per share for 66% and 72% of the trading days in the prior 12 month and three year periods, respectively. In addition, the fact that RMI’s common stock has historically been thinly traded, making it very difficult for any stockholders to sell now or in the future a significant number of shares of Common Stock of the Company at a price of $3.00 per share or higher.

Company Repurchases of Stock.   During the nine months ended March 31, 2006, the Company had repurchased 151,700 shares of common stock at an average price of $2.67, below the offer price of $3.00 per share. In the fiscal years between 1998 and June 30, 2005, the Company had repurchased 4,455,313 shares for a total cost of $5,726,000, which implied an average price of $1.29 per share. In addition, although the Company had repurchased a small number of shares at a price above $3.00 per share in fiscal years 2005 (166 shares), the Company had repurchased total of 39,394 shares in fiscal 2005 at an average

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price of $2.42 (net of commissions paid by the Company) per share and 188,333 shares in fiscal year 2006 at an average price of $2.72 (net of commissions paid by the Company) per share, had repurchased 6,700 shares in the third quarter of 2006 at an average price of $2.80 (net of commissions paid by the Company) per share and 36,600 shares in the fourth quarter of 2006 at an average price of $2.89 (net of commissions paid by the Company) per share, all of which average repurchase prices were below $3.00 per share.

Cash Consideration.   The fact that the consideration to be received by RMI’s stockholders in the merger would consist entirely of cash, eliminating any uncertainties in valuing the merger consideration to be received by RMI’s stockholders.

Opinion of Duff & Phelps.   The fact that on August 14, 2006 the Special Committee received a written presentation from its independent financial advisor that included summary of its fairness analysis and preliminary conclusions as to the fairness of the transaction from a financial point of view. On August 29, 2006, the Special Committee received the final opinion from Duff & Phelps to the effect that, based on and subject to the considerations, limitations, assumptions and qualifications set forth in the opinion, the $3.00 per share cash consideration to be paid to RMI’s stockholders in the proposed merger was fair, from a financial point of view, to RMI’s unaffiliated public stockholders. Mr. McKinniss adopted the analysis of Duff & Phelps, particularly as it relates to the liquidation and discounted cash flow analysis.

Terms and Conditions of the Merger Agreement.   The terms and conditions of the Merger Agreement, including the amount and form of consideration to be paid, and the absence of any future obligations on RMI’s stockholders other than Mr. McKinniss, who will be obligated to indemnify the buyer against certain damages it might incur as a result of the breach by the Company of the representations, warranties and covenants contained in merger agreement up to an aggregate maximum of $1 million.

Recommendation of the Special Committee and the Board of Directors.   The unanimous determination by the members of each of the Special Committee and the Board of Directors that the proposed transaction is fair to RMI’s unaffiliated public stockholders.

Ability of RMI to Change Recommendation and Terminate Merger Agreement.   The fact that the Board of Directors, under the terms of the Merger Agreement, may change its recommendation that RMI’s stockholders vote in favor of the transaction if the directors determine that their fiduciary duties require them to do so, and may terminate the Merger Agreement if the Board determines that an unsolicited proposal made in good faith constitutes a superior proposal, subject to payment of a termination fee of $1.5 million.

Sale of a Substantial Number of Shares by Mr. McKinniss.   The fact that, although he will receive a 25% interest in Holding in connection with the merger transaction in exchange for a portion of his shares of RMI, Mr. McKinniss will dispose of [2,430,655] shares of RMI common stock, or 45.3% of his RMI stock, in the merger, at the cash merger price of $3.00 per share received by public stockholders, and his ownership percentage of Holding will be substantially smaller than his current ownership of RMI.

2.     Procedural Factors

Mr. McKinniss believes that the merger is procedurally fair to RMI’s unaffiliated public stockholders because, among other things:

Formation, Authority and Independence of the Special Committee.   The Board of Directors appointed the Special Committee:

·  which consisted entirely of directors who are not officers of RMI or affiliated with Holding or its investors;

·  whose members will not personally benefit from the consummation of the merger in a manner different from the stockholders; and

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·  which retained its own financial advisor who have extensive experience with transactions similar to the merger, assisted the Special Committee evaluate the merger transaction and took direction exclusively from the Special Committee.

Extensive Efforts to Sell the Company.   The extensive efforts of Berman Capital to find potential acquirers for the Company, which after more than nine months of effort resulted only in the Spell Capital proposal.

Negotiations.   The $3.00 per share cash consideration and the other terms and conditions of the Merger Agreement, including Mr. McKinniss’ obligation to indemnify Holding under certain circumstances, resulted from negotiations between Berman Capital and RMI, on the one hand, and Spell Capital and its representatives, on the other hand. Although Mr. McKinniss is participating in the merger transaction as required by the Spell Capital proposal and therefore his participation in negotiations on behalf of RMI may not be characterized as “arm’s length”, Spell Capital, not Mr. McKinniss initiated the proposal. Mr. McKinniss will dispose of approximately 45.3% of his RMI stock in the merger, and he will have a substantially smaller ownership position of Holding than his current ownership of RMI. Mr. McKinniss’ sale of a substantial portion of his RMI stock provided him significant motivation to receive the highest price possible for the shares he will dispose of, especially since there is no certainty he will be able to dispose of the shares of Holding he will receive in the transaction. In addition, Mr. McKinniss originally sought to sell all of his shares, and he agreed to participate in the merger transaction as required by the Spell Capital proposal in part because no other firm offer for the acquisition of the Company was received despite the efforts of Berman Capital to identify and contact potential acquirers.

Other Procedural Matters.   Although the vote of a majority of the unaffiliated stockholders (those other than Mr. McKinniss) is not required to approve the merger, a vote of a majority of shares held by the unaffiliated stockholders that are present in person or represented by a proxy and voting at the Special Meeting is required. In addition, Mr. McKinniss believes that the extensive efforts of Berman Capital to find potential acquirers for the Company, which after more than nine months of effort resulted only in the Spell Capital proposal, as well as the approval of the transaction by the Special Committee and the unanimous approval of the merger by the directors other than Mr. McKinniss and Mr. Berman, also support the fairness of the transaction from a procedural standpoint.

3.     Factors Not Considered; Relative Weight Not Assigned to Factors Considered

Mr. McKinniss did not consider the net book value or liquidation value of RMI to be a material factor in determining the fairness of the transaction to the Company’s unaffiliated stockholders because Mr. McKinniss was aware from the information provided by Duff & Phelps and the Company’s balance sheet that such values would be less than the merger consideration. Mr. McKinniss did not establish a pre-merger going concern value for the equity of RMI to determine the fairness of the merger consideration to the company’s unaffiliated stockholders, although he noted that the Company’s efforts through Berman Capital to identify acquirers of the Company contemplated the sale of RMI as a going concern.

In reaching their determination as to fairness, Mr. McKinniss did not assign specific weight to particular factors, but rather considered all factors as a whole. Mr. McKinniss believed that there was no need to retain any additional unaffiliated representatives to act on behalf of the stockholders, because the independence of the members of the Special Committee and the retention by the Special Committee of its own financial advisor permitted the Special Committee to effectively represent the interests of such stockholders.

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PROJECTED FINANCIAL INFORMATION

RMI does not as a matter of course prepare or make public long-term projections as to future performance or earnings. However, as described below, in connection with the proposed merger, certain financial forecasts were prepared by management, which the Board of Directors reviewed for accuracy and completeness. Based on these financial projections and historical data, additional financial projections were prepared by RMI with assistance by Duff & Phelps. In performing its analysis, Duff & Phelps relied upon these projections and the Board of Directors found the reliance by Duff & Phelps to be reasonable. The projections set forth below are included to give RMI’s stockholders access to information that was not publicly available and that were used by Duff & Phelps in connection with the proposed merger.

The projections described below were not prepared with a view toward public disclosure or compliance with published guidelines of the SEC, the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information or generally accepted accounting principles. RMI’s independent accountants have neither examined nor compiled the accompanying prospective financial information and, accordingly, they have not expressed any opinion or any other form of assurance with respect thereto. The audit report incorporated by reference in this proxy statement relates to RMI’s historic financial information and does not extend to the projected financial information set forth below and should not be read to do so.

The projections included below are, or are based on, forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those shown below and should be read with caution. See “Cautionary Statement Concerning Forward-Looking Information.” They are subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience and developments occurring since the date each set of projections was prepared. Although presented with numerical specificity, the projections were not prepared in the ordinary course and are based upon a variety of estimates and hypothetical assumptions, including without limitation the following:

·  Revenue growth of 6.2% in fiscal 2007 and slowing to 5.0% by fiscal 2011, reflecting approximately $3 million incremental revenue growth per year.

·  Gross profit margins at 22.0% throughout the projection period, consistent with gross profit margins in fiscal years 2005 and 2006.

·  Operating expenses are adjusted for non-recurring expenses relating to its manufacturing facilities in Florida and savings associated with the termination of its public company status. As a percent of revenues, operating expenses are held at 14.0% per year throughout the projection period.

Some or all of the assumptions may not be realized, and they are inherently subject to significant business, economic and competitive uncertainties and contingencies, all of which are difficult to predict and many of which are beyond RMI’s control, and such uncertainties and contingencies can generally be expected to increase with the passage of time from the dates of the projections. Accordingly, the assumptions made in preparing the projections might not prove accurate, and actual results might differ materially. In addition, the projections do not take into account any of the transactions contemplated by the merger agreement, including the merger and related financing, which might also cause actual results to differ materially.

For these reasons, as well as the assumptions on which the projections were compiled, the inclusion of the projections in this proxy statement should not be regarded as an indication that the projections will be an accurate prediction of future events, and they should not be relied on as such. Except as may be required by applicable securities laws, RMI does not intend to update or otherwise revise the projections to reflect circumstances existing after the date when made or to reflect the occurrences of future events even if any or all of the assumptions are shown to be in error.

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ROTONICS MANUFACTURING, INC.
Discounted Cash Flow Analysis
Income Statement Summary
($ in 000s)

(1)    Fiscal year 2006—excludes non-recurring costs totaling $496,000 relating to the Company’s move and shutdown of its Nutron, Florida facility and non-recurring freight and utility costs resulting from hurricanes at its Nutron and Barlow, Florida facilities. Also excludes public company costs of approximately $400,000.

(2)    Fiscal years 2002 through 2006 exclude public company costs of approximately $400,000.

(3)    RMI management does not expect to generate rental income in the projection period due to the difficulty in subleasing its properties. RMI management relies on negotiating with its landlords to exit the leases.

Note:   Audited financial statements (2002 - 2006), unaudited financial statements (2006).

OPINION OF FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE

Opinion of Financial Advisor

Duff & Phelps rendered a written opinion to the Special Committee of the Board of Directors of RMI dated August 29, 2006, to the effect that, subject to the considerations, limitations, assumptions and qualifications set forth in such opinion, the $3.00 per share cash consideration to be paid to RMI’s stockholders in the proposed merger was fair, from a financial point of view, to RMI’s unaffiliated, public stockholders (without giving effect to any effects of impacts of the Offer and the merger on any particular stockholder other than in its capacity as a stockholder).

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The full text of the written opinion of Duff & Phelps, dated August 29, 2006, which sets forth, among other things, assumptions made, matters considered, and limitations on the review undertaken in connection with the opinion, is attached as Appendix B. The following summary of Duff & Phelps’s opinion is qualified in its entirety by reference to the full text of the opinion. The opinion expressed by Duff & Phelps was provided for the information and assistance of the Special Committee of RMI in connection with its consideration of the transaction contemplated by the Merger Agreement, and such opinion does not constitute a recommendation as to any action the Special Committee of RMI or any stockholder of RMI should take in connection with the proposed merger or any aspect thereof and is not a recommendation as to whether or not any RMI stockholder should vote with respect to the merger. You are urged to read the opinion carefully and in its entirety.

The following is a summary of the material financial analyses performed by Duff & Phelps in connection with rendering its opinion. The summary of the financial analyses is not a complete description of all of the analyses performed by Duff & Phelps. THE DUFF & PHELPS OPINION IS BASED ON THE TOTALITY OF THE VARIOUS ANALYSES THAT IT PERFORMED, AND NO PARTICULAR PORTION OF THE ANALYSIS HAS ANY MERIT STANDING ALONE.

This summary describes the analysis and factors that Duff & Phelps deemed material in its presentation to the RMI Special Committee. The preparation of a fairness opinion is a complex process that involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of these methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to partial analysis or a summary description. In arriving at its opinion, Duff & Phelps did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Duff & Phelps believes that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by it, without considering all analyses and factors, could create a misleading or incomplete view of the evaluation process underlying its opinion. Several analytical methodologies were employed and no one method of analysis should be regarded as critical to the overall conclusion reached by Duff & Phelps. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques. The conclusion reached by Duff & Phelps is based on all analyses and factors taken, as a whole, and also on the application of Duff & Phelps’ own experience and judgment. This conclusion may involve significant elements of subjective judgment and qualitative analysis. Duff & Phelps gives no opinion as to the value or merit of any one or more parts of the analysis it performed standing alone. In performing its analyses, Duff & Phelps made numerous assumptions with respect to the industry outlook, general business and other conditions and matters, many of which are beyond the control of RMI or Duff & Phelps. Any estimates contained in these analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by these analyses. Accordingly, analyses relating to the value of businesses do not purport to be appraisals or to reflect the prices at which these businesses actually may be sold in the future, and these estimates are inherently subject to uncertainty.

In connection with this opinion, Duff & Phelps made such reviews, analyses and inquiries as it deemed necessary and appropriate under the circumstances. No limits were placed on Duff & Phelps by RMI or the Special Committee in terms of the information to which they had access or the matters it could consider. Duff & Phelps’ due diligence with regards to the proposed merger included, but was not limited to, the items summarized below.

1.     Visited RMI’s corporate headquarters in Gardena, California and toured the facilities;

2.     Met with the following members of RMI’s senior management team:

·   Mr. Sherman McKinniss—President, CEO, and Chairman of the Board of Directors

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·   Mr. Douglas W. Russell—Chief Financial Officer

·   Ms. Dawn Whitney—Vice President of Performance Management

3.     Held telephonic conversation with Marc Berman of Berman Capital, LLC in his capacity as investment banker to RMI;

4.     Met with the members of the Special Committee of the Board, Jules Sandford, Brent Brown, and Larry Synder;

5.     Reviewed the Letter of Intent, dated June 30, 2006, from Spell Capital;

6.     Reviewed the Merger Agreement, dated August 29, 2006, and various other documents and agreements related to the Proposed Transaction;

7.     Reviewed the Company’s Board of Directors minutes for the periods December 2004 through February 2006;

8.     Reviewed RMI’s financial statements and budget, including:

·   Annual reports on Form 10-K for the fiscal years ended June 30, 2002 through 2005

·   Quarterly reports on Form 10-Q for the fiscal quarters ended March 31, 2005 and 2006

·   Internal financial statements for the fiscal years ended June 30, 2003 through 2006

·   Financial budget provided by RMI management for the fiscal year ended June 30, 2007

9.     Reviewed other documents and Company information, including the following:

·   List of major customers and suppliers for the fiscal years ended June 30, 2004 through 2006

·   Organizational chart of senior management team

10.   Reviewed and analyzed market trading prices and indicated valuation metrics for RMI and for comparable public companies;

11.   Reviewed and analyzed valuation metrics for comparable merger transactions;

12.   Reviewed pertinent economic and industry information; and

13.   Reviewed and prepared other studies, analyses and investigations as Duff & Phelps deemed appropriate.

Duff & Phelps also took into account its assessment of general economic, market and financial conditions, and its experience in securities and business valuation, in general, and with respect to transactions similar to the proposed transaction in particular. Duff & Phelps did not make any independent evaluation, appraisal or physical inspection of the Company’s solvency or of any specific assets or liabilities (contingent or otherwise). Duff & Phelps’ opinion should not be construed as a credit rating, solvency opinion, an analysis of the Company’s credit worthiness or otherwise as tax advice or as accounting advice. In rendering its opinion, Duff & Phelps relied upon the fact that the Special Committee, the Board of Directors, and the Company have been advised by counsel as to all legal matters with respect to the proposed transaction, including whether all procedures required by law to be taken in connection with the proposed transaction have been duly, validly and timely taken; and Duff & Phelps did not make, and assumed no responsibility to make, any representation, or render any opinion, as to any legal matter.

In preparing its forecasts, performing its analysis and rendering its opinion with respect to the proposed transaction, Duff & Phelps: (1) relied upon the accuracy, completeness, and fair presentation of all information, data, advice, opinions and representations obtained from public sources or provided to it

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from private sources, including Company management, and did not attempt to independently verify such information; (2) assumed, with our consent, that any estimates, evaluations and projections furnished to Duff & Phelps were reasonably prepared and based upon the latest currently available information and good faith judgment of the person furnishing the same; and (3) assumed that the final versions of all documents reviewed by it in draft form conform in all material respects to the drafts reviewed. Duff & Phelps’ opinion further assumes that information supplied and representations made by RMI management are substantially accurate regarding the Company and the proposed transaction. Neither the Company’s management nor the Special Committee placed any limitations upon Duff & Phelps with respect to the procedures followed or factors considered by Duff & Phelps in rendering its opinion.

In its analysis and in connection with the preparation of its opinion, Duff & Phelps made numerous assumptions with respect to industry performance, general business, market and economic conditions and other matters, many of which are beyond the control of any party involved in the proposed transaction. Duff & Phelps has also assumed that all of the conditions precedent required to implement the proposed transaction will be satisfied and that the proposed transaction will be completed in accordance with the documents that were provided for its review.

To the extent that any of the foregoing assumptions or any of the facts on which Duff & Phelps’ opinion is based proves to be untrue in any material respect, its opinion cannot and should not be relied upon.

Duff & Phelps prepared its opinion effective as of August 29, 2006. The opinion is necessarily based upon market, economic, financial and other conditions as they existed and could be evaluated as of such date, and Duff & Phelps disclaims any undertaking or obligation to advise any person of any change in any fact or matter affecting the opinion which may come or be brought to the attention of Duff & Phelps after such date.

Duff & Phelps’ opinion should not be construed as creating any fiduciary duty on Duff & Phelps’ part to any party.

Duff & Phelps’ opinion is not a recommendation as to how the Special Committee or any stockholder should vote or act with respect to any matters relating to the proposed transaction, or whether to proceed with the proposed transaction or any related transaction, nor does it indicate that the consideration received is the best possible attainable under any circumstances. The decision as to whether to proceed with the proposed transaction or any related transaction may depend on an assessment of factors unrelated to the financial analysis on which Duff & Phelps’ opinion is based. As a result, the opinion and presentation of Duff & Phelps was only one of many factors taken into consideration by the Special Committee in making its determination with respect to the proposed transaction.

The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. In addition, the process of preparing a fairness opinion necessarily requires a broad range of subjective judgments with respect to appropriate comparable companies, appropriate multiples of various selected financial data, appropriate discount rates and other financial and nonfinancial factors. Analyses and estimates of the values of companies do not purport to be appraisals or necessarily reflect the prices at which companies or their securities may actually be sold.

In preparing its opinion, Duff & Phelps performed certain financial and comparative analyses summarized in the following paragraphs. Duff & Phelps believes that its analyses must be considered as a whole and that selecting portions of such analyses and the factors it considered, without considering all such analyses and factors, could create an incomplete view of the analyses and the process underlying its opinion. While the conclusions reached in connection with each analysis were considered carefully by Duff & Phelps in arriving at its opinion, Duff & Phelps made various subjective judgments in arriving at its

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opinion and did not consider it practicable to, nor did it attempt to, assign relative weights to the individual analyses and specific factors considered in reaching its opinion.

Although these paragraphs include some information in tabular format, those tables are not intended to stand alone, and must be read together with the full text of each summary and the limitations and qualifications in the opinion.

Duff & Phelps’ analysis was comprised of the following components: (1) fundamental valuation analysis of RMI using generally accepted valuation methodologies; (2) a hypothetical liquidation analysis; (3) an analysis of historical market trading prices and volume for RMI common stock and the premium offered for RMI common stock; (4) an analysis of prior stock transactions; and (5) an analysis of the consideration to be received by Mr. McKinniss in the proposed transaction.

Analysis of Consideration.   Based on the per share purchase price of $3.00 per share and approximately 11.75 million common shares outstanding, Duff & Phelps calculated the value implied by the merger consideration to be $35.3 million. Based on the $35.3 million total implied equity value and then subtracting the cash and cash equivalents and adding interest bearing debt, Duff & Phelps derived a total implied enterprise value of $37.1 million. The implied enterprise value of $37.1 million was used by Duff & Phelps as points of comparison against the results of its own fundamental valuation analysis.

Fundamental Valuation Analysis.   Duff & Phelps’ fundamental valuation analysis of the Company was based on: (1) a discounted cash flow analysis, and (2) the market approach.

Discounted Cash Flow Analysis.   Duff & Phelps performed a discounted cash flow analysis to derive indications of total enterprise value. A discounted cash flow analysis is designed to provide insight into the intrinsic value of a business based on its projected earnings and capital requirements as well as the net present value of projected debt-free cash flows. Duff & Phelps’ starting point for its discounted cash flow analysis was a budget prepared by the Company’s management for the fiscal year ended June 30, 2007. As detailed projections beyond fiscal year 2007 were unavailable, Duff & Phelps assisted in the preparation of projections based on discussions with, and guidance from, RMI management for fiscal years 2008 through 2011.

Duff & Phelps analysis was performed on a controlling interest basis under the assumption that RMI is acquired and therefore no longer operates as a public company. Duff & Phelps excluded expenses associated with the RMI’s public company status from historical and projected cash flows. Management estimated public company costs at approximately $400,000 in fiscal year 2006.

Duff & Phelps used discount rates ranging from 13.0% to 15.0% to reflect the overall risk associated with the Company’s operations and projected financial performance. The discount rate utilized by Duff & Phelps represents an estimate for the company’s weighted average cost of capital. Duff & Phelps estimated the company’s weighted average cost of capital using the capital asset pricing model, as well as estimates of debt and equity costs for RMI in conjunction with its existing capital structure. Duff & Phelps calculated a terminal value at the end of 2011 using a constant growth dividend discount model, which incorporated a range of perpetuity growth rates from 4.0% to 6.0%. Duff & Phelps also calculated a terminal value at the end of 2011 using a terminal multiple approach, which incorporated a range of EBITDA multiples from 5.5x to 6.5x.

Based on the discounted cash flow analysis, Duff & Phelps estimated that the Company’s total enterprise value ranged from $26.3 million to $38.7 million. Based on the foregoing, Duff & Phelps observed that a comparison of the implied enterprise value of $37.1 million based on the merger consideration compared favorably with the range of valuation indications under the discounted cash flow analysis, and therefore supported a determination of fairness from a financial point of view.

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Market Approach.   Duff & Phelps applied the market approach, which consists of the application of valuation multiples to certain financial and operating variables of the Company, where the selected multiples are based on valuation metrics derived from an analysis of comparable public companies trading as well as comparable merger and acquisition transactions.

Comparable Public Company Analysis.   No company used in this analysis is identical to RMI and, accordingly, a comparable public company analysis involves complex and subjective considerations and judgments concerning differences in financial and operating characteristics of businesses and other factors that affect trading prices and overall valuation of the various companies being compared.

In the selection of comparable public companies, Duff & Phelps used multiple databases and other resources to identify companies that are the most similar to RMI from an investment perspective. The companies selected by Duff & Phelps generally exhibited similar product lines, customer bases, or other business attributes which would cause an investor to group these companies in the same broad industry class for investment purposes.

The comparable companies selected by Duff & Phelps consisted of 11 publicly traded companies in the United States that manufacture plastic components for the general commercial and industrial markets. None of these 11 companies were excluded from Duff & Phelps’ analysis. Based on publicly reported financial data as well as published earnings estimates for each of the selected comparable companies, Duff & Phelps analyzed certain valuation metrics, as shown below:

Comparable Public Company Analysis

*       Adjusted for non-recurring and extraordinary items. Does not adjust for public company costs.

Note:   LTM = latest 12 months, EPS = earnings per share, EBITDA = earnings before interest, taxes, depreciation and amortization, EBIT = earnings before interest and taxes.

Comparable Transaction Analysis.   Similar to the comparable public company analysis, Duff & Phelps used multiple databases and resources to identify comparable controlling interest transactions involving companies with similar product lines, customers, or other business attributes. Duff & Phelps identified eight transactions involving companies that manufacture plastic components for the general commercial and industrial markets. Duff & Phelps identified relevant transactions that were announced since 2004 and for which adequate information was available to derive meaningful valuation multiples.

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However, due to the time lag between many of the identified transactions and the present, the lack of access to detailed financial data for many of the acquired companies and access to the detailed terms of many of the identified transactions, the range of valuation multiples observed for comparable transactions was examined in conjunction with the comparable public company analysis to assess the reasonableness of the comparable company multiples. In its overall analysis, Duff & Phelps afforded greater weight to the multiples exhibited by the comparable public companies.

Application of Selected Multiples.   Based on its assessment of the RMI’s historical and projected size, growth and profitability relative to the selected comparable public companies, as well as an assessment of certain company specific risk factors, Duff & Phelps selected valuation multiples to apply to RMI’s fiscal 2006 revenue, adjusted EBITDA, adjusted EBIT, and adjusted net income. In the determination of RMI’s representative levels of EBITDA, EBIT, and net income, Duff & Phelps excluded approximately $400,000 in expenses associated with RMI’s public company status and added back $486,000 for non-recurring expenses associated with RMI’s move and shutdown of its Nutron, Florida facility and non-recurring freight and utility costs resulting from hurricanes at its Nutron and Bartow, Florida facilities. Duff & Phelps’ market analysis is summarized as follows:

 

As the table above indicates, Duff & Phelps’ market approach resulted in total enterprise value indications ranging from $26.1 million to $37.5 million. Duff & Phelps observed that a comparison of the implied enterprise value of $37.1 million based on the merger consideration compared favorably with the valuation indications under its market approach analysis, and therefore supported a determination of fairness from a financial point of view.

Fundamental Valuation Analysis Conclusions.   As noted above, Duff & Phelps compared the implied enterprise value based on the merger consideration with valuation indications under its fundamental analyses and all such comparisons supported an indication of fairness from a financial point of view. In addition, Duff & Phelps utilized its fundamental valuation analysis to derive indications of the Company’s common stock on a per share basis.

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Based on its discounted cash flow analysis and market approach, Duff & Phelps concluded enterprise value ranged from $26.1 million to $38.7 million. From its concluded enterprise value, Duff & Phelps then added cash and cash equivalents and subtracted interest bearing debt, to arrive at a concluded equity value ranging from $24.2 million to $36.8 million. Finally, Duff & Phelps dividing its concluded equity value by 11.75 million common shares outstanding to arrive at an estimated valuation range from $2.06 per share to $3.13 per share, as compared with the proposed transaction price of $3.00 per share.

 

Hypothetical Liquidation Analysis.   Duff & Phelps prepared a hypothetical liquidation analysis using the following key assumptions:

·  RMI’s assets could be disposed, and its liabilities discharged, in an orderly manner;

·  The Company sells its real estate property located in Colorado, Illinois, and Texas for proceeds ranging from $4.9 million to $5.3 million, net of taxes and commissions.

·  Management believes the only saleable material items in a liquidation would be its manufacturing equipment which would sell at substantial discounts due to the limited useful live remaining on the equipment.

·  The Company is not able to sell its customer list or patents, as management believes it would not receive any meaningful consideration.

·  Management estimates additional costs in an orderly liquidation relating to sub-leasing its manufacturing facilities and legal and liquidation fees would be approximately $930,000.

Duff & Phelps’ liquidation analysis resulted in a range of total equity value from $13.9 million to $20.1 million, or $1.19 to $1.71 per share based on 11.75 million shares outstanding. Thus, Duff & Phelps observed that a comparison of the implied enterprise value of $37.1 million based on the merger consideration compared favorably with the range of valuation indications under the hypothetical liquidation analysis, and therefore supported a determination of fairness from a financial point of view.

Historical Stock Trading and Premium Analysis

Historical Stock Trading.   Duff & Phelps reviewed the historical trading prices and volume of RMI over the past three years. In particular, Duff & Phelps observed that RMI stock did not have much liquidity, with daily trading averaging approximately 7,700 shares per day over the past 90 days, or only 0.1% of total shares outstanding and 0.2% of the public float. Duff & Phelps also observed that RMI shares had traded in a range of $2.33 to $3.48 per share over the past year (prior to the public

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announcement of the proposed transaction), with RMI shares trading above $3.00 per share on 85 days and below $3.00 per share on 167 days.

Premium Analysis.   Like most companies with a “small cap” or “micro cap” status, RMI’s stock price is subject to a number of factors that could potentially influence the valuation of the Company’s stock. These factors include the following:

·  Thinly Traded—Thinly traded stocks are typically subject to unusually high price volatility. Public companies with lower average daily volume are more prone to sudden and rapid changes in price when shareholders decide to sell. RMI’s average daily volume over the past month and 12-months has been 4,600 shares and 15,500 shares, respectively.

·  No Analyst Coverage—Small public companies typically have no analyst coverage. A lack of coverage by independent analysts limits shareholders’ ability to obtain an informed outsider’s perspective on identifying strengths and weaknesses and areas for improvement. Currently, RMI does not have analyst coverage.

·  Lack of Institutional Investors—Public companies that lack institutional investors, such as pension funds and hedge funds, and are often limited to retail investors. These are typically companies with small public float and offer limited ability for investors to achieve liquidity. Currently, RMI has very few institutional investors.

·  Lack of Liquidity—Due to RMI’s relatively small size, limited public float (less than 50% of RMI’s stock is publicly traded), and lack of adequate trading volume, there is relative illiquidity for RMI stock. If an RMI stockholder were to sell a significant block of stock, this would likely result in a depressed stock price.

Based on these factors outlined above, RMI’s value implied by the market price may or may not reflect the intrinsic fair market value of RMI’s stock based on fundamentals for the Company. Therefore, the control premium implied by the merger consideration, relative to RMI’s publicly traded common stock price, may not be comparable to premiums offered for public companies with larger market capitalizations and more liquidity in their stock. Notwithstanding, Duff & Phelps has assessed the premium being offered by the merger consideration relative to the public trading price of RMI common stock, and the size of that premium relative to premiums paid in public-to-private transactions and the overall public company M&A market. Duff & Phelps observed the following:

·  The median premiums offered in public-to-private transactions between 2004 and YTD 2006 have ranged from 16.1% to 25.4%. Control premiums in public-to-private transactions between 2004 and YTD 2006 have ranged from a low of 0.0% to a high of 193.4%.

·  The median premiums offered in the overall M&A market between 2004 and YTD 2006 have ranged from 23.3% to 33.3%. Control premiums in the overall M&A market between 2004 and YTD 2006 have ranged from a low of 0.0% to a high of 426.3%. A large portion of the premiums in the overall M&A market include transactions in the banking & finance, computer software & services, and drugs & medical supplies industries which typically have larger premiums.

·  Duff & Phelps’ analysis indicates that the premium offered by the merger consideration, relative to measures of price one day, five days and 30 days, of 14.1%, 19.5%, and 15.4%, respectively, is within the range of premiums in public-to-private transactions and the overall public company M&A market. These premiums were derived based on RMI’s trading price for the period ending August 11, 2006.

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Prior Stock Transaction Analysis.   Duff & Phelps analyzed the Company’s prior stock transactions, as follows:

·  Between June 30, 1998 and June 30, 2005, the Company acquired 4,455,313 shares of common stock at a total cost of $5,726,000, or an average price of $1.29 per share.

·  In June 2005, the Company’s Board of Directors approved a new common stock buyback program to purchase up to $1 million of the Company’s common stock at an initial ceiling price of $2.70 per share that was later increased to $3.00 per share.

·  During the nine months ending March 31, 2006, the Company acquired 151,700 shares of common stock at a total cost of $405,000, or an average price of $2.67 per share.

Analysis of Consideration to Mr. McKinniss.   Duff & Phelps also calculated the consideration to be received by Mr. McKinniss in the proposed transaction, as follows:

Mr. McKinniss owns 5,368,721 shares of RMI common stock, which represents 45.7% of the outstanding shares of the Company. In the proposed transaction, Mr. McKinniss has agreed to exchange 2,938,066 shares, which represents 25% of the outstanding shares of RMI, for 25% of the capital stock of Holding. The remaining 2,430,655 shares will be cashed out for $3.00 per share in the merger.

Ownership—Sherman McKinniss:

 

Mr. McKinniss will receive cash in the amount of $7.3 million for 45.3% of his total shares, as follows:

Cash Consideration—Sherman McKinniss:

 

Mr. McKinniss has agreed to exchange 2,938,066 shares of RMI common stock in exchange for 25% ownership interest in Holding. The estimated post-transaction value of his 25% interest is as follows:

Equity Values

(1)   Based on total shares outstanding of 11.75 million and the merger consideration of $3.00 per share.

(2)   Based on the merger consideration of $3.00 per share to purchase 75% of total shares outstanding (8.8 million).

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The value of Mr. McKinniss’ consideration received in the proposed transaction is as follows:

Value of Mr. McKinniss’ Consideration

 

Summary Analysis

Based on the foregoing analysis, Duff & Phelps concluded that the proposed merger consideration of $3.00 per share of RMI common stock was fair to the public shareholders of RMI, from of a financial point of view (without giving effect to any effect of the Merger on any particular stockholder other than in its capacity as a stockholder), as of August 29, 2006.

The material analyses performed by Duff & Phelps have been summarized above. Nonetheless, the summary set forth above does not purport to be a complete description of the analyses performed by Duff & Phelps. The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of these methods to the particular circumstances. Therefore, such an opinion is not readily susceptible to a summary description. Duff & Phelps did not form a conclusion as to whether any individual analysis, considered in isolation, supported or failed to support an opinion as to fairness. Rather, in reaching its conclusion, Duff & Phelps considered the results of the analyses in light of each other and ultimately reached its opinion based on the results of all analyses taken as a whole. Duff & Phelps did not place a particular reliance or weight on any particular analysis, but instead concluded that its analyses, taken as whole, supported its determination.

In performing its analyses, Duff & Phelps made numerous assumptions with respect to RMI’s performance, general business and economic conditions and other matters. The analyses performed by Duff & Phelps are not necessarily indicative of future actual values or future results, which may be significantly more or less favorable than suggested by such analyses. The analyses do not purport to be appraisals or to reflect prices at which a company might actually be sold or the prices at which any securities may trade at the present time or at any time in the future. Duff & Phelps relied on management-prepared projections of future performance for RMI and on discussions with management of RMI. The projections were based on numerous variables and assumptions, which are inherently unpredictable and must be considered not certain of occurrence as projected. Accordingly, actual results could vary significantly from those assumed in the projections and any related analyses. Duff & Phelps’ opinion does not address the relative merits of the merger as compared to any alternative business strategies that might exist for RMI or the effect of any other business combination in which RMI might engage.

Duff & Phelps’ opinion to the Special Committee of the Board of Directors of RMI was one of many factors taken into consideration by the Board of Directors of RMI in making its determination to approve the Offer and the Merger.

Other

Duff & Phelps is a nationally recognized investment banking firm that is regularly engaged to render financial opinions in connection with mergers and acquisitions, tax matters, ESOP and ERISA matters, corporate planning, and other purposes. Previously, Duff & Phelps has not provided advisory services to the Company.

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The Company has agreed to pay Duff & Phelps an advisory fee in connection with its rendering of a fairness opinion. No portion of Duff & Phelps’ fees was contingent upon consummation of the proposed transaction or the conclusion reached by Duff & Phelps in its fairness opinion. The Company has also agreed to reimburse Duff & Phelps for its expenses incurred in performing its services and to indemnify Duff & Phelps and its affiliates, their respective directors, officers, agents and employees and each person, if any, controlling Duff & Phelps or any of its affiliates against certain liabilities and expenses, including certain liabilities under federal securities laws, related to or arising out of Duff & Phelps’ engagement and any related transactions.

PURPOSE AND STRUCTURE OF THE MERGER

Since August 2005 RMI began to explore a possibility of an acquisition as an alternative to remaining a publicly held independent public company. The Company began to explore the alternative of an acquisition because of the concerns about the risks associated with remaining an independent public company. These risks included its increasing costs of doing business, the Company’s continued need for debt financing, and significant additional cost of compliance with the requirements of the Sarbanes-Oxley Act. After contacting various parties who might be interested in acquiring RMI, RMI has received one viable offer which, in the opinion of the Company’s Board of Directors and the Special Committee could allow RMI’s unaffiliated public stockholders to realize the value of their investment in the Company in cash at a price that represents a premium to the market price of RMI’s common stock before the public announcement of the merger. The Special Committee and the Board of Directors believe that the price to be paid to RMI’s stockholders in the merger represents the best price reasonably available for the common stock of RMI and that the merger is in the best interests of the unaffiliated public stockholders of RMI.

The purpose of the merger for Spell Capital is for private equity funds managed by Spell Capital, through Holding, to acquire all of the common stock of RMI, exclusive of the 25% interest to be owned by Mr. McKinniss. Spell Capital recognizes the substantial risks entailed in a purchase of RMI by Holding but believes that RMI is an attractive long-term investment opportunity as a private company for the following reasons:

Spell Capital has extensive experience and expertise in the plastics industry. As an established industrial manufacturing business in the plastics industry, RMI offers Spell Capital an opportunity to leverage such expertise to create value for Spell fund investors.

RMI has a strong market position and a long history in the marketplace. Spell Capital believes these factors will facilitate RMI’s future growth, both organically and through add-on acquisitions.

The proposed acquisition of RMI has been structured as a merger of MergerCo into RMI in order to permit the cancellation of all of RMI’s common stock in a single step and to preserve RMI’s identity and existing contractual arrangements with third parties. The parties structured the merger as a cash transaction in order to provide the stockholders of RMI (other than the 25% interest in RMI being exchanged by Mr. McKinniss for shares of Holding) with cash for all of their shares and to provide a prompt and orderly transfer of ownership of RMI with reduced transaction costs.

EFFECTS OF THE MERGER; PLANS OR PROPOSALS AFTER THE MERGER

As a result of the merger, RMI, as the surviving corporation, will be a privately held corporation and there will be no public market for RMI’s common stock. RMI’s common stock will cease to be quoted on the American Stock Exchange or any other securities exchange. In addition, thereafter RMI will be entitled to deregister its common stock under the Exchange Act. Termination of registration will make certain provisions of the Exchange Act, such as the short-swing profit recovery provisions of Section 16(b), the requirement of furnishing a proxy statement in connection with stockholders’ meetings and some of the requirements under the Sarbanes-Oxley Act of 2002, no longer applicable to RMI. RMI will no longer be

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subject to the provisions of the Sarbanes-Oxley Act or the liability provisions of the Exchange Act, and the officers of RMI will no longer be required to certify the accuracy of the Company’s financial statements.

Management estimated that the cost savings expected to be realized by the surviving company as a result of RMI no longer being a public company is approximately $400,000 and not including cost of compliance with the Section 404 of the Sarbanes-Oxley Act, estimated to be approximately $1,500,000.

Subsequent to the merger, RMI’s current stockholders (other than Mr. McKinniss who will own 25% of the outstanding common stock of Holding) will cease to have ownership interests in RMI or rights as RMI’s stockholders and, as a result, if the merger is completed, such stockholders of RMI will not participate in any future earnings, losses, growth or decline of RMI.

Subsequent to the merger, Mr. McKinniss’ interest in the Company will be reduced from 46% to 25%. Based on stockholders’ equity of $19.88 million and net earnings of $2.08 million as of June 30, 2006, Mr. McKinniss’ interest in the net book value will be reduced from $9.08 million to $4.97 million, and his interest in net earnings of the company will be reduced from $0.95 million to $0.52 million.

Spell Capital expects that, initially following the merger, the business and operations of RMI will generally continue as they are currently being conducted. Spell Capital currently intends to cause RMI to be run and managed by the Company’s existing executive officers.

RISKS THAT THE MERGER WILL NOT BE COMPLETED

Completion of the merger is subject to various risks, including, but not limited to, those described under “The Merger Agreement—Conditions to Completing the Merger”. As a result of various risks to the completion of the merger, RMI cannot assure you that the merger will be completed even if the requisite stockholder approval is obtained. It is expected that, if RMI’s stockholders do not adopt the Merger Agreement or if the merger is not completed for any other reason, the current management of RMI, under the direction of the Board of Directors, will continue to manage RMI as an ongoing business.

INTERESTS OF RMI’S DIRECTORS AND OFFICERS IN THE MERGER

The Board of Directors appointed the Special Committee, composed solely of independent directors who are not officers or employees of RMI, Spell Capital, Holding and MergerCo and who have no financial interest in the proposed merger different from RMI’s stockholders generally, to evaluate, negotiate and recommend the Merger Agreement and to evaluate whether the merger is in the best interests of RMI’s stockholders.

In considering the recommendations of the Board of Directors, RMI’s stockholders should be aware that certain members of RMI’s management and Board of Directors may have interests in the transaction that are different from, or in addition to, the interests of RMI’s stockholders generally. The Special Committee was aware of these differing interests and considered them, among other matters, in evaluating and negotiating the Merger Agreement and the merger and in recommending to the Board of Directors that the Merger Agreement and the merger be approved. Furthermore, the Board of Directors was aware of these differing interests and considered them, among other matters, in determining that the merger is fair to and in the best interests of RMI and its unaffiliated public stockholders and approving and declaring advisable the Merger Agreement and the merger.

Common Stock

As of the record date, RMI’s directors and executive officers, including Mr. McKinniss and his affiliates, beneficially owned an aggregate of 5,968,971 shares of RMI’s common stock. Mr. McKinniss has agreed with Spell Capital to vote his shares in favor of the merger and adopting the Merger Agreement. RMI expects the other directors and executive officers to vote their shares in favor of adopting the Merger

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Agreement and approving the merger although they are not contractually or otherwise obligated to do so. The following table sets forth the number of shares of RMI’s common stock owned by each of RMI’s directors and executive officers, together with the aggregate payments that are anticipated to be made in connection with such share ownership upon the completion of the merger:

**    The address for all the officers and directors is 17022 S. Figueroa Street, Gardena, CA 90248.

(1)   Unless otherwise indicated, shares are held with sole voting and investment power.

(2)   Consisting of: (i) 5,368,721 shares of common stock held by Mr. McKinniss jointly with his spouse. Mr. McKinniss has agreed to exchange 2,938,066 shares of his RMI common stock for 25% interest in Holding.

(3)   Consisting of: (i) 89,266 shares of common stock held by Mr. Berman jointly with his spouse; and (ii) 36,333 shares of common stock held by a pension plan for the benefit of Mr. Berman.

(4)   Consisting of: (i) 133,333 shares of common stock held by Mr. DeDonato jointly with his spouse; (ii) 3,333 shares of common stock held by a pension plan for the benefit of Mr. DeDonato; and (iii) 6,666 shares of common stock held by the adult child of Mr. DeDonato.

(5)   Consisting of: (i) 115,000 shares of common stock held by Mr. Snyder jointly with his spouse.

(6)   Consisting of: (i) 56,655 shares of common stock held by Mr. Tonkovich as trustee of a profit sharing trust of which Mr. Tonkovich is a beneficiary; and (ii) 15,000 shares of common stock held by Mr. Tonkovich jointly with his spouse.

(7)   Consisting of: (i) 24,000 shares of common stock held by Mr. Sandford jointly with his spouse.

(8)   Consisting of: (i) 30,000 shares of common stock held by Mr. Allen jointly with his spouse.

(9)   Consisting of: (i) 50,664 shares of common stock held by Mr. Russell jointly with his spouse; and (ii) 40,000 shares of common stock held by the dependent children of Mr. Russell.

Share Exchange and Voting Agreement

The parties have entered into a share exchange and voting agreement requiring that Mr. McKinniss, Chairman of the Board and Chief Executive Officer of Rotonics, contribute 25% of the outstanding shares of RMI to Holding in exchange for the 25% of the outstanding capital stock of Holding. This agreement

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requires that Mr. McKinniss indemnify Holding against losses incurred by it as a result of certain breaches by RMI of representations, warranties and covenants contained in the Merger Agreement in an amount up to $1 million. Unlike the receipt of cash by RMI shareholders in the merger in exchange for RMI common stock (which will be a taxable transaction for RMI shareholders for U.S. federal income tax purposes, see “Material U.S. Federal Income Tax Consequences,” below), Mr. McKinniss is not expected to recognize taxable gain or loss as a result of the receipt of Holding capital stock in exchange for his RMI common stock in the share exchange.

Pursuant to the share exchange and voting agreement, Mr. McKinniss has agreed to: (a) vote his shares: (i) in favor of the adoption of each of the proposals set forth in this proxy statement; (ii) against any proposal relating to any action or agreement that would result in a breach of any covenant, representation or warranty or any other obligation or agreement of RMI under the Merger Agreement or which would result in any of the conditions to RMI’s obligations under the Merger Agreement not being fulfilled; (iii) in favor of any other matter relating to the consummation of the transactions contemplated by the Merger Agreement; and (iv) against any other action which is intended or would reasonably be expected to impede, interfere with, delay, postpone, discourage or materially adversely affect the transactions contemplated by the Merger Agreement; and (b) grant an irrevocable proxy to Holding granting Holding the right to vote such shares as specified in clause (a). This proxy terminates upon the earlier to occur of: (i) termination of the Merger Agreement; and (ii) four months from the date of the Share exchange and voting agreement.

Relationships of Executive Officers With the Surviving Corporation

Spell Capital expects that, initially following the merger, the business and operations of RMI will generally continue as they are currently being conducted. Spell Capital currently intend to cause RMI to continue to be run and managed by the Company’s existing executive officers. Except for the anticipated employment agreement that Mr. McKinniss will enter into with RMI at the completion of the merger (as discussed below), Spell Capital has no current plans to enter into any new arrangements with any of the current members of RMI’s management.

Shareholder Agreement

As a condition to the merger, Mr. McKinniss and other shareholders of Holding, which include private equity funds managed by Spell Capital will enter into a shareholders’ agreement. The shareholders’ agreement provides for certain restrictions on the transfer of shares, rights of first refusal and co-sale, and certain buy-sell rights among the shareholders of Holding.

Pursuant to the shareholders’ agreement, in connection with any proposed issuance of equity securities to any funds affiliated with Spell Capital, Mr. McKinniss will be entitled to purchase from Holding, on the same terms and conditions, as the proposed issuance of equity securities to the affiliated fund entities such number of additional equity securities as is necessary to maintain the percentage interest in the Holding’s capital stock owned by McKinniss prior to the proposed issuance of securities to funds affiliated with Spell Capital. In the event Mr. McKinniss has a cash offer from a third party to purchase all of his shares in Holding, Mr. McKinniss must provide a notice to other stockholders of Holding, upon which they will be entitled to exercise their right of first refusal with respect to Mr. McKinniss shares. In the event that the holders of more than 51% of the outstanding shares of Holding elect to sell their shares to a third party, the remaining shareholders may be compelled by the selling shareholders to sell their shares on the same terms and conditions.

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Upon the sale of all or substantially all of the Holding’s assets, stock or a merger transaction resulting in the shareholders receiving cash, or marketable securities in exchange for their shares of Holding capital stock, the aggregate proceeds from such transaction will be allocated among the shareholders as follows:

·  proceeds up to $18,814,274 shall be allocated 46.85% to McKinniss and 53.15% to the shareholders other than McKinniss pro rata based on share ownership; and

·  all proceeds in excess of $18,814,274 shall be allocated 25% to McKinniss and 75% to the remaining shareholders pro rata based on share ownership.

The foregoing allocation was negotiated by Mr. McKinniss so that, in the event of a sale of RMI to a third party in the future, for at least $18,814,274, the aggregate total proceeds he would receive from the sale of his shares in the merger and from the subsequent sale would be equivalent to at least $3.00 for each of his existing shares of RMI, and that in the event of a sale for less than $18,814,274, the proceeds from that subsequent sale would be shared by Mr. McKinniss on substantially the same basis as his current percentage ownership of RMI.

In addition, at any time during the one-year period commencing on the fifth anniversary of the effective date, Mr. McKinniss may deliver in writing to Holding a request that Holding redeem from McKinniss the shares then owned by him for a redemption price per share, payable in cash, equal to the greater of: (i) $2.25 per share (adjusted for any share split, dividend or combination effected by Holding subsequent to the effective date); or (ii) the amount derived by application of the following formula:

·  [(trailing 12-month Corporation EBITDA (´) 6) (+) Holding Cash (-) Holding Funded Debt]

divided by:

·  total issued and outstanding shares of Holding’s capital stock (determined on a fully diluted basis) on date redemption request is delivered to Holding.

At the time Holding receives such redemption request, it can: (i) purchase all shares owned by McKinniss at the redemption price per share described above; (ii) undertake an effort to sell Holding to a third party; or (iii) reject Mr. McKinniss’ request without undertaking the sale of Holding. In the event Holding elects option (iii) above, Mr. McKinniss will be entitled to purchase all shares of Holding not owned by him at the redemption price per share described above or wait for an additional two years and deliver another redemption request at that time. Mr. McKinniss will also have the right to present another redemption request in two years if Holding elects option (ii) and cannot effect a sale within nine months. If Mr. McKinniss elects to deliver another redemption request in two years, Holding will have the same three options described above, following which the buy-sell provisions will terminate.

The shareholders’ agreement also provides that so long as Mr. McKinniss owns all of the shares of Holding he will receive for contributing to Holding shares of Common Stock of the Company or at least 15% of the outstanding shares of Holding, the Spell Capital private equity funds will vote their shares of Holding in favor of Mr. McKinniss and one other nominee of Mr. McKinniss reasonably acceptable to Spell Capital as director, of Holding. A majority of the directors of Holding will be elected by the Spell Capital private equity funds.

Employment Agreements

RMI is a party to employment agreements with Mr. McKinniss, Douglas W. Russell, RMI’s Chief Financial Officer, and Ms. Dawn Whitney, Vice President of Performance Management. Except for the proposed agreement with Mr. McKinniss discussed below, there are currently no plans, proposals or negotiations that relate to, or would result in, a change in the terms of these employment agreements. Each of these employment agreements was entered into prior to, and not in anticipation of, the negotiation of the merger.

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At the closing of the merger, Mr. McKinniss will enter into an employment agreement with RMI for a one year term. Pursuant to his employment agreement, Mr. McKinniss will serve as Company’s President and Chief Executive Officer and will receive a base salary equal to $250,000 per annum, a monthly automobile allowance of $550, and be able to participate in any and all health and other benefit plans and programs maintained by the Company for its employees. In addition, Mr. McKinniss will be entitled to earn up to 30% of his annual base salary in a cash bonus, based upon the Company’s attainment of financial performance objectives. Mr. McKinniss also agreed that for 18-months after the termination of his employment with the Company, he will not without the Company’s prior written consent, engage in any activity or act in any manner, for the purpose of establishing, operating or managing any business or entity that is engaged in competition with the Company. The compensation payable to Mr. McKinniss under this employment agreement is less than under his current employment agreement which expires in June 30, 2007.

Special Committee Compensation

The Board of Directors resolved to pay to the members of the Special Committee fee of approximately $7,506 for their services as the members of the Special Committee, based on a predetermined hourly fee. Members of the Special Committee have not and will not receive any compensation that is contingent on the signing of the Merger Agreement or the consummation of the transactions contemplated thereby.

Financial Advisory Fees

On August 29, 2006, RMI entered into a letter agreement with Berman Capital, LLC that provides for a payment of up to $352,480 upon successful completion of the merger. Mr. Berman is sole owner of Berman Capital, LLC, and therefore, will determine the distribution of the fee paid to Berman Capital.

MERGER FINANCING

The estimated total amount of funds necessary to consummate the merger and the related transactions will be approximately $31 million, consisting of: (1) approximately $27 million to fund the payment of the merger consideration and payments in respect of the cancellation of outstanding stock options; (2) approximately $2 million to repay certain existing indebtedness of RMI; and (3) approximately $2 million to pay transaction fees and expenses.

It is anticipated that these funds will be obtained from equity and debt financings as follows:

·  Mr. McKinniss has agreed to contribute 25 percent of the outstanding RMI common stock to Holding in exchange for an equal interest in the equity securities of Holding pursuant to a Voting and Exchange Agreement between Holding and Mr. McKinniss subject to the terms and conditions set forth therein;

·  private equity funds managed by Spell Capital and other investors are expected to contribute equity capital of approximately $10 million; and

·  Holding anticipates raising approximately $21 million through a combination of senior secured term and revolving credit, and mezzanine debt financing.

Private Equity Fund Equity

Holding anticipates the receipt of approximately $8 million of equity capital from Spell Capital Partners Fund III, LP (“Spell Fund III”) and Spell Capital Partners Fund III for Qualified Purchasers, LP (“Spell Fund III QP”) (collectively, the “Spell Funds”) and approximately $2 million in equity capital from other investors. Spell Fund III, which has partner capital commitments aggregating $21 million, is

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comprised of approximately 100 accredited investors, each of whom has a net worth of at least $1 million and/or annual income of at least $200,000. Spell Fund III QP, which has partner capital commitments aggregating $34 million, is comprised of approximately 85 investors, each of whom satisfies the qualified purchaser requirement of possessing net investments of not less than $5 million. Each Spell Fund limited partner is contractually obligated to contribute to the appropriate Spell Fund up to the full amount of the limited partner’s capital commitment on not less than 30 days prior written notice from the Spell Funds’ general partner. The partnership agreements governing the Spell Funds contain provisions authorizing the general partner to impose the following penalties upon a limited partner who fails to fund the limited partner’s capital commitment when called by the general partner: (i)  forfeiture of capital previously contributed; (ii) forfeiture of any increase or realized gain allocated to the limited partner’s capital account; (iii) removal of the limited partner from the applicable Spell Fund; (iv) forfeiture of the right to distributions from the Spell Fund; and forfeiture of all other rights under the partnership agreement. No Spell Fund investor has advised the Spell Fund general partner of any financial, legal or other restriction or impediment to the investor’s funding of his, her or its capital commitment obligation in connection with the closing of the merger. Each of the other investors referred to above will be an accredited investor (possessing a net worth of at least $1 million and/or annual income of at least $200,000) who will execute, prior to the Special Meeting, a binding subscription agreement obligating the investor to fund its subscription at the merger closing.

Debt Financing

Holding has received a lending term sheet from Wells Fargo Bank setting forth proposed terms of senior credit facilities, a revolving credit facility and a mezzanine loan facility. As is customary with private equity fund acquisition transactions, Holding does not expect to enter into definitive financing agreements prior to the closing of the merger transaction. Following the closing of the merger, definitive financing agreements will be filed as exhibits to RMI’s Schedule 13E-3. This proxy statement does not include a description of the business, properties or legal proceedings of Holding or MergerCo, nor does it include their respective financial statements, because each of Holding and MergerCo is a newly formed entity organized solely for purposes of the merger transaction and neither entity has any assets, liabilities, revenues or expenses.

The term sheet does not include a description of all of the terms, conditions and other provisions to be contained in definitive agreements documenting the respective credit facilities. The following are the anticipated material terms of the credit facilities as described in the term sheet:

Security

All of Holding’s existing and after acquired property, including the assets of Rotonics, will secure Holding’s obligations under the credit facilities.

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Senior Credit Facilities

The Senior Credit Facilities will consist of both a Senior Term Loan A Facility and a Senior Term Loan B Facility. The Senior Term Loan A Facility will have an original principal amount of $7,500,000 and a five-year term. Quarterly principal payments will be required in the following amounts:

(1)   Quarterly principal payments of $350,000 are required in quarters one through three, and a final principal payment of $1,850,000 is due at the end of quarter four.

The Senior Term Loan B Facility will have an original principal amount of $5,000,000 and a five-year term. Quarterly principal payments in the amount of $12,500 (each) will be required until the final payment due in the amount of $4,762,500.

The Senior Term Loan A Facility will initially bear interest, at Holding’s option, at either: (i) the lender’s then prime commercial lending (“Base”) rate plus 2.00 percent; or (ii) the London Interbank Offered Rate (“LIBOR”) plus 3.00 percent. The Senior Term Loan B Facility will initially bear interest, at Holding’s option, at either: (i) the lender’s then Base rate plus 2.25 percent; or (ii) LIBOR plus 3.25 percent. Following December 31, 2006, the margins above Base and LIBOR stated above will be subject to adjustment in accordance with a leverage-based pricing grid to be agreed upon by the lender and borrower. Interest payments shall be due monthly for both the Senior Term Loan A and B Facilities.

Revolving Credit Facility

The revolving credit facility will have a maximum borrowing capacity of $10,000,000, of which up to $6,200,000 will be available for use on the closing date for the merger transaction. The revolving credit facility will have a term of five years. Amounts available for borrowing under the revolving credit facility will be determined pursuant to a borrowing base formula with reference to accounts receivable and inventories.

The revolving credit facility will bear interest, at Holding’s option, at either: (i) the lender’s then Base rate plus 1.75 percent; or (ii) LIBOR plus 2.75 percent. Interest payments shall be due monthly on the revolving credit facility.

Mezzanine Loan Facility

The mezzanine loan facility will be issued in the amount of $2,000,000 and a term of five years. The entire outstanding principal balance will be due on the date of maturity.

Amounts outstanding under the mezzanine loan facilitywill bear interest at either: (i) the lender’s announced prime commercial lending rate plus three percent per annum, payable monthly, plus deferred interest (payable upon maturity) at 3.75 percent per annum; or (ii) 11.5 percent per annum, payable monthly, plus deferred interest (payable upon maturity) at 3.75 percent per annum.

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Voluntary Prepayments

Each of the credit facilities may be prepaid at the option of Holding. No prepayment penalty will apply except in connection with a prepayment of the mezzanine loan facility in the fourth year following the closing of the merger and only if Holding has elected to determine interest pursuant to option (ii) described above, in which event a penalty equal to one percent of the balance prepaid will apply.

Mandatory Prepayments

Amounts outstanding under the senior term loans and the revolving credit facility are subject to mandatory prepayment equal to 100 percent of proceeds from any asset dispositions or new borrowings, 50 percent of proceeds from the issuance of Holding equity securities and 50 percent of “Excess Cash Flow,” a term to be defined in the definitive loan agreements.

Conditions Precedent to Closing

The term sheet lists certain conditions precluded to be satisfied prior to the closing and funding of the credit facilities, including satisfactory completion of the Prospective Lender’s due diligence, no material adverse change in the condition of Rotonics, and Holding’s satisfaction of certain profitability and maximum debt standards.

Repayment of Debt Financing

Each of the proposed credit facilities described above has a maturity date of five years from the closing of the merger transaction and the Senior Term Loans require substantial principal payments throughout their loan terms. Holding is confident that interim principal and interest payment requirements will be satisfied through cash flows generated by Rotonics’ operations. Holding also believes that balloon payments due at the maturity of the credit facilities will be satisfied through a combination of funds made available through positive cash flows and debt refinancing sources.

ESTIMATED FEES AND EXPENSES OF THE MERGER

Whether or not the merger is completed, in general, all fees and expenses incurred in connection with the merger will be paid by the party incurring those fees and expenses. Under certain circumstances described in “The Merger Agreement—Termination Fee and Expense Reimbursement”, RMI could be required to pay Holding $1,500,000 as a termination fee or up to $500,000 in reimbursement of the out-of-pocket expenses of Holding and MergerCo incurred in connection with the merger. Fees and expenses RMI with respect to the merger are estimated at this time to be as follows:

 

These expenses will not reduce the merger consideration to be received by RMI’s stockholders.

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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

The following discussion sets forth the material U.S. federal income tax consequences of the merger to U.S. holders (as defined below) of RMI’s common stock (including holders exercising appraisal rights). This discussion does not address any tax consequences arising under the laws of any state, local or foreign jurisdiction, or under the alternative minimum tax regime. This discussion is based on the Internal Revenue Code of 1986, as amended (referred to as the Code), the regulations of the U.S. Treasury Department and court and administrative rulings and decisions in effect and available on the date of this proxy statement, any of which may change, possibly retroactively. Such a change could affect the continuing validity of this discussion. No ruling has been requested from the Internal Revenue Service with respect to the statements made and conclusions reached in the discussion below, and there can be no assurance that the Internal Revenue Service will agree with such statements and conclusions.

For purposes of this discussion, the term “U.S. holder” means a beneficial owner of RMI common stock who for U.S. federal income tax purposes is: (i) a citizen or resident of the United States; (ii) a corporation, or an entity treated as a corporation, created or organized in or under the laws of the United States or any state or political subdivision thereof; (iii) a trust that: (a) is subject to: (1) the primary supervision of a court within the United States; and (2) the authority of one or more United States persons to control all of its substantial decisions; or (b) has a valid election in place to be treated as a United States person; or (iv) an estate that is subject to U.S. federal income tax on its income regardless of its source.

If a partnership (including for this purpose any entity treated as a partnership for U.S. federal income tax purposes) holds RMI common stock, the tax treatment of a partner generally will depend on the status of the partners and the activities of the partnership. If you are a partner of a partnership Holding RMI common stock, you should consult your tax advisors.

This discussion assumes that you, as a U.S. holder, hold your shares of RMI common stock as capital assets within the meaning of the Code and may not apply to shares of common stock acquired pursuant to the exercise of employee stock options or other compensation arrangements. Further, this discussion does not address all aspects of U.S. federal income taxation that may be relevant to you in light of your particular circumstances or that may be applicable to you if you are subject to special treatment under the U.S. federal income tax laws, including if you are a financial institution, a tax-exempt organization, an S corporation or other pass-through entity, an insurance company, a mutual fund, a dealer in stocks and securities, or foreign currencies, a trader in securities who elects the mark-to-market method of tax accounting, a holder of RMI common stock that is not a U.S. holder, certain expatriates or a person that has a functional currency other than the U.S. dollar, or a holder of RMI common stock who holds RMI common stock as part of a hedge against currency risk, a straddle or a constructive sale or a conversion transaction. In addition, this discussion is not applicable to a holder of RMI common stock who contributed such stock to Holding in exchange for Holding stock in connection with the merger.

HOLDERS OF RMI’S COMMON STOCK SHOULD CONSULT THEIR INDIVIDUAL TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICATION OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.

Consequences of the Merger

The receipt of cash in exchange for shares of RMI common stock pursuant to the merger or upon exercise of appraisal rights will be a taxable transaction for U.S. federal income tax purposes. A U.S. holder who receives cash in exchange for such holder’s RMI common stock will generally recognize capital gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the amount of cash received and the holder’s adjusted tax basis in the shares exchanged. Gain or loss will be determined separately for each block of shares exchanged. Such gain or loss will be long-term capital gain or loss if the holder’s Holding period for the RMI common stock exceeds one year at the time of the merger. Long-term

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capital gains of non-corporate taxpayers are generally taxed at a maximum federal income tax rate of 15%. Capital gains recognized by corporate taxpayers are subject to tax at the normal rates applicable to corporations. In general, capital losses are only deductible against capital gains and are not available to offset ordinary income; however, individual taxpayers are allowed to offset a limited amount of capital losses against ordinary income.

The receipt of cash in exchange for RMI common stock pursuant to the merger may also be a taxable transaction under applicable state, local, foreign and other tax laws. RMI will not recognize gain or loss for tax purposes solely as a result of the merger.

Backup Withholding

Holders of RMI’s common stock may be subject to information reporting and backup withholding on any cash payments received. You will not be subject to backup withholding, however, if you: (i) furnish a correct taxpayer identification number and certify that you are a U.S. person (including a U.S. resident alien) not subject to backup withholding on the substitute Form W-9 you will receive; (ii) are a corporation and, when required, demonstrate that fact and otherwise comply with applicable requirements of the backup withholding rules; or (iii) otherwise establish that you are exempt from backup withholding.

Any amounts withheld under the backup withholding rules will be allowed as a refund or credit against your U.S. federal income tax liability, provided you furnish the required information to the Internal Revenue Service. The backup withholding rate is currently 28%.

THIS DISCUSSION DOES NOT ADDRESS TAX CONSEQUENCES THAT MAY VARY WITH, OR ARE CONTINGENT UPON, THE INDIVIDUAL CIRCUMSTANCES OF HOLDERS OF RMI’S COMMON STOCK. MOREOVER, IT DOES NOT ADDRESS ANY NON-INCOME TAX OR ANY FOREIGN, STATE OR LOCAL TAX CONSEQUENCES OF THE MERGER. TAX MATTERS ARE COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER TO HOLDERS OF RMI’S COMMON STOCK WILL DEPEND ON THE FACTS OF THEIR PARTICULAR SITUATION. ACCORDINGLY, WE STRONGLY URGE HOLDERS OF RMI’S COMMON STOCK TO CONSULT WITH THEIR TAX ADVISORS TO DETERMINE THE PARTICULAR FEDERAL, STATE, LOCAL OR FOREIGN INCOME OR OTHER TAX CONSEQUENCES TO THEM AS A RESULT OF THE MERGER.

LITIGATION CHALLENGING THE MERGER

On September 13, 2006, following the announcement of the Merger Agreement on August 30, 2006, a person alleging that he is a stockholder of RMI filed a putative class action lawsuit, Robert Corwin, on behalf of himself and all others similarly situated v. Sherman McKinniss, et al., Case No. BC358501, challenging aspects of the proposed Merger. The lawsuit, filed in the Superior Court of California, County of Los Angeles, names RMI and eight officers and directors of the Company, together with Holding and Spell Capital, as defendants. Plaintiff asserts a cause of action for breach of fiduciary duty and self-dealing, and a cause of action of aiding and abetting breach of fiduciary duty. In the complaint, plaintiff alleges generally that the proposed Merger resulted from unfair dealing and the merger consideration of $3.00 was an inadequate purchase price.

The complaint seeks certification as a class action and various forms of declaratory, injunctive and an unspecified amount of monetary relief, including an injunction against consummation of the merger or, in the alternative, rescission of the transaction and imposition of a constructive trust.

The defendants deny any wrongdoing, and believe that the action is without merit. The plaintiff and the defendants have executed a written settlement agreement that they intend to present to the court for approval. The settlement requires a change to the stockholder voting requirement to approve the Merger

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and expanded disclosures regarding the factual background of the Merger, which are reflected in this Proxy Statement. Defendants agreed not to oppose a request for attorneys’ fees and reimbursement of expenses in an amount not exceeding $160,000. Defendants expect RMI’s directors’ and officers’ insurance carrier to pay that amount.

APPRAISAL RIGHTS

Under Section 262 of the Delaware General Corporation Law, referred to as the “DGCL”, any holder of common stock who does not wish to accept $3.00 per share in cash for the stockholder’s shares of common stock may exercise appraisal rights under the DGCL and elect to have the fair value of the stockholder’s shares of common stock on the date of the merger (exclusive of any element of value arising from the accomplishment or expectation of the merger) judicially determined and paid to the holder in cash, together with a fair rate of interest, if any, provided that the stockholder complies with the provisions of Section 262 of the DGCL.

The following discussion includes the material information pertaining to appraisal rights under the DGCL. The full text of Section 262 is provided in its entirety as Appendix C to this proxy statement for your reference. All references in Section 262 and in this summary to a “stockholder” are to the record holder of the shares of common stock as to which appraisal rights are asserted. A PERSON HAVING A BENEFICIAL INTEREST IN SHARES OF COMMON STOCK HELD OF RECORD IN THE NAME OF ANOTHER PERSON, SUCH AS A BROKER OR NOMINEE, MUST ACT PROMPTLY TO CAUSE THE RECORD HOLDER TO FOLLOW THE STEPS SUMMARIZED BELOW PROPERLY AND IN A TIMELY MANNER TO PERFECT APPRAISAL RIGHTS.

Under Section 262, where a proposed merger is to be submitted for approval and adoption at a meeting of stockholders, as in the case of the special meeting, the corporation, not less than 20 days before the meeting, must notify each of its stockholders entitled to appraisal rights that appraisal rights are available and include in that notice a copy of Section 262. This proxy statement constitutes that notice to stockholders, and the applicable statutory provisions of the DGCL are attached to this proxy statement as Appendix C. Any stockholder who wishes to exercise appraisal rights or who wishes to preserve that right should review carefully the following discussion and Appendix C to this proxy statement. Moreover, because of the complexity of the procedures for exercising the right to seek appraisal of the common stock, RMI believes that stockholders who consider exercising such appraisal rights should seek the advice of counsel, which counsel or other appraisal services will not be paid for by RMI. FAILURE TO COMPLY WITH THE PROCEDURES SPECIFIED IN SECTION 262 TIMELY AND PROPERLY WILL RESULT IN THE LOSS OF APPRAISAL RIGHTS.

Filing Written Demand

Any stockholder wishing to exercise the right to demand appraisal under Section 262 of the DGCL must satisfy each of the following conditions:

·     as more fully described below, the stockholder must deliver to RMI a written demand for appraisal of the stockholder’s shares before the vote on the Merger Agreement and the merger at the special meeting, which demand must reasonably inform RMI of the identity of the stockholder and that the stockholder intends to demand the appraisal of the stockholder’s shares;

·     the stockholder must not vote the stockholder’s shares of common stock in favor of the Merger Agreement and the merger at the special meeting; and, as a result, a stockholder who submits a proxy and wishes to exercise appraisal rights must vote against the Merger Agreement and the merger or abstain from voting on the Merger Agreement and the merger, because a proxy that does not contain voting instructions will, unless, revoked, be voted in favor of the Merger Agreement and the merger; and

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