SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 - For the quarter ended September 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-28538
Titanium Metals Corporation
(Exact name of registrant as specified in its charter)
Delaware 13-5630895
(State or other (IRS Employer
jurisdiction of Identification
incorporation or No.)
organization)
<PAGE>
1999 Broadway, Suite 4300, Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 296-5600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
Number of shares of common stock outstanding on October 31, 1998: 31,369,405
<PAGE>
FORWARD - LOOKING INFORMATION
The statements contained in this Report on Form 10-Q ("Quarterly Report")
that are not historical facts, including, but not limited to, statements found
in the Notes to Consolidated Financial Statements and under the captions
"Results of Operations" and "Liquidity and Capital Resources" (both contained in
Management's Discussion and Analysis of Financial Condition and Results of
Operations), are forward-looking statements or discussions of trends which by
their nature involve substantial risks and uncertainties that could
significantly impact expected results. Actual results could differ materially
from those described in such forward-looking statements, and the Company
disclaims any intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
Among the factors that could cause actual results to differ materially are the
risks and uncertainties discussed in this Quarterly Report, including those
portions referenced above and those described from time to time in the Company's
other filings with the Securities and Exchange Commission, such as the
cyclicality of the Company's business and its dependence on the aerospace
industry, the sensitivity of the Company's business to global industry capacity,
global economic conditions, changes in product pricing, the possibility of labor
disruptions, control by certain stockholders and possible conflicts of interest,
potential difficulties in integrating acquisitions, uncertainties associated
with new product development, the supply of raw materials and services and the
possibility of disruptions of normal business activities from Year 2000 issues.
<PAGE>
TITANIUM METALS CORPORATION
INDEX
Page
number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - December 31, 1997 and
September 30, 1998 2-3
Consolidated Statements of Income - Three months
and nine months ended September 30, 1997 and 1998 4
Consolidated Statements of Comprehensive Income - Three
months and nine months ended September 30, 1997 and 1998 5
Consolidated Statements of Cash Flows - Nine months
ended September 30, 1997 and 1998 6-7
Consolidated Statement of Stockholders' Equity - Nine
months ended September 30, 1998 8
Notes to Consolidated Financial Statements 9-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 13-16
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 17
Item 6. Exhibits and Reports on Form 8-K. 17
TITANIUM METALS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
<PAGE>
<TABLE>
<CAPTION>
December SEPTEMBER
ASSETS 31, 30,
1997 1998
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 68,957 $ 142,591
Receivables, net 155,678 149,640
Receivable from related parties 15,844 8,212
Inventories 153,818 212,059
Prepaid expenses and other 13,253 12,581
Deferred income taxes 6,219 3,112
Total current assets 413,769 528,195
Other assets:
Investments in joint ventures 23,270 32,891
Goodwill 59,771 61,027
Other intangible assets 17,889 19,708
Deferred income taxes 593 487
Other 15,341 15,315
Total other assets 116,864 129,428
Property and equipment:
Land 6,545 5,991
<PAGE>
Buildings 26,823 25,742
Equipment 222,845 289,432
Construction in progress 58,740 76,025
314,953 397,190
Less accumulated depreciation 52,527 67,986
Net property and equipment 262,426 329,204
$ 793,059 $ 986,827
</TABLE>
<PAGE>
<PAGE>
TITANIUM METALS CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES, MINORITY INTEREST AND December SEPTEMBER
STOCKHOLDERS' EQUITY 31, 30,
1997 1998
<S> <C> <C>
Current liabilities:
Notes payable $ 3,372 $ 5,524
Current maturities of long-term debt
and
capital lease obligations 1,354 1,823
Accounts payable 59,501 81,953
Accrued liabilities 46,809 50,501
Payable to related parties 1,298 2,952
Income taxes 11,482 14,721
Deferred income taxes - 95
Total current liabilities 123,816 157,569
Noncurrent liabilities:
Long-term debt 451 105,459
Capital lease obligations 10,996 10,286
Payable to related parties 847 1,395
Accrued OPEB cost 26,192 25,686
Deferred income taxes 11,620 18,791
Other 2,277 88
Total noncurrent liabilities 52,383 161,705
<PAGE>
Minority interest - Company-
obligated mandatorily
redeemable preferred securities of
subsidiary trust 201,250 201,250
holding solely subordinated debt
securities
("Convertible Preferred Securities")
Other minority interest 6,663 7,871
Stockholders' equity:
Preferred stock - -
Common stock 315 315
Additional paid-in capital 346,723 347,972
Retained earnings 58,001 103,731
Accumulated other comprehensive income
- - currency 3,908 7,622
translation adjustment
Treasury stock - (1,208)
Total stockholders' equity 408,947 458,432
$793,059 $ 986,827
</TABLE>
<PAGE>
[FN]Commitments and contingencies (Note 1)
TITANIUM METALS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<PAGE>
<TABLE>
<CAPTION>
Three months Nine months
ended ended
September 30, September 30,
1997 1998 1997 1998
<S> <C> <C> <C> <C>
Revenues and other income:
Net sales $177,177 $173,512 $525,606 $551,390
Other, net 457 2,864 3,025 5,796
177,634 176,376 528,631 557,186
Costs and expenses:
Cost of sales 132,747 130,494 401,153 418,437
Selling, general,
administrative and 10,076 16,414 30,904 44,832
development
Restructuring charge - - - 6,000
Interest 870 1,376 1,955 2,325
143,693 148,284 434,012 471,594
Income before income taxes
and minority interest 33,941 28,092 94,619 85,592
Income tax expense 9,880 9,551 28,846 29,134
Minority interest -
Convertible 2,214 2,133 6,627 6,566
Preferred Securities
<PAGE>
Other minority interest 511 267 1,724 1,645
Net income $ 21,336 $ 16,141 $57,422 $48,247
Diluted net income $ 23,550 $ 18,274 $64,049 $54,813
Earnings per share:
Basic $ .68 $ .51 $ 1.83 $ 1.53
Diluted .64 .50 1.73 1.49
Weighted average shares
outstanding:
Basic 31,457 31,455 31,457 31,457
Diluted 37,078 36,844 36,988 36,875
</TABLE>
<PAGE>
TITANIUM METALS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
<PAGE>
<TABLE>
<CAPTION>
Three months Nine months
ended ended
September 30, September 30,
1997 1998 1997 1998
<S> <C> <C> <C> <C>
Net income $21,336 $16,141 $57,422 $48,247
Other comprehensive income -
currency
translation adjustment (2,712) 4,754 (4,684) 3,714
Comprehensive income $18,624 $20,895 $52,738 $51,961
</TABLE>
<PAGE>
<PAGE>
TITANIUM METALS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 1997 and 1998
(In thousands)
<PAGE>
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Cash flows from operating activities:
Net income $ 57,422 $ 48,247
Depreciation and amortization 21,312 22,660
Restructuring charge - 6,000
Deferred income taxes 2,307 10,478
Other minority interest 1,724 1,645
Other, net 1,121 (964)
83,886 88,066
Change in assets and liabilities, net of
acquisitions:
Receivables (24,731) 12,612
Inventories (16,425) (49,169)
Prepaid expenses 2,605 608
Accounts payable and accrued liabilities (1,504) 10,852
Income taxes 10,376 3,239
Accounts with related parties (6,587) 9,286
Other, net (2,543) (786)
Net cash provided by operating 45,077 74,708
activities
Cash flows from investing activities:
Capital expenditures (40,859) (79,210)
Business acquisitions and joint ventures (12,159) (27,038)
Other, net 102 (67)
<PAGE>
Net cash used by investing activities (52,916) (106,315)
Cash flows from financing activities:
Indebtedness:
Borrowings - 121,800
Repayments (2,653) (17,537)
Deferred financing costs (2,059) -
Related party debt repayments (929) -
Letters of credit refunded (4,753) 734
(collateralized)
Dividends paid - (2,517)
Treasury stock purchased - (1,208)
Other 150 (617)
Net cash provided (used) by financing (10,244) 100,655
activities
Net cash provided (used) by operating,
financing and investing activities $(18,083) $ 69,048
</TABLE>
<PAGE>
TITANIUM METALS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Nine months ended September 30, 1997 and 1998
(In thousands)
<PAGE>
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Net increase (decrease) in cash and
equivalents from:
Operating, investing and financing $(18,083) $ 69,048
activities
Cash acquired - 1,187
Currency translation 346 3,399
(17,737) 73,634
Cash and cash equivalents at beginning of 86,526 68,957
period
Cash and cash equivalents at end of period $ 68,789 $ 142,591
Supplemental disclosures:
Cash paid for:
Interest, net of capitalized interest $ 1,570 $ 1,971
Convertible Preferred Securities 9,999 9,999
dividends
Income taxes 11,973 11,183
Business acquisitions and joint ventures:
Cash acquired $ - $ 1,187
<PAGE>
Receivables 736 6,574
Inventories 769 15,352
Property, equipment and other 1,998 21,765
Investment in joint ventures 23,020 8,085
Goodwill and other intangibles 577 8,566
Liabilities assumed (3,604) (18,117)
23,496 43,412
Less noncash consideration, principally
property and (11,337) (16,374)
equipment
Cash paid $ 12,159 $ 27,038
</TABLE>
<PAGE>
<PAGE>
TITANIUM METALS CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Nine months ended September 30, 1998
(In thousands)
<PAGE>
<TABLE>
<CAPTION>
Net Additioal
common shares Common paid-in
outstanding stock capital
<S> <C> <C> <C>
Balance at December 31,458 $315 $346,723
31, 1997
Comprehensive - - -
income
Dividends paid - - -
($.08 per share)
Treasury stock (90) - -
purchases
Other, net 1 - 1,249
Balance at 31,369 $315 $347,972
September 30, 1998
</TABLE>
<PAGE>
*Currency translation adjustment.
TITANIUM METALS CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Nine months ended September 30, 1998
(In thousands)
<PAGE>
<TABLE>
<CAPTION>
Accumulated
Retained other Treasury
earnings comprehensive stock Total
income*
<S> <C> <C> <C> <C>
Balance at December $ 58,001 $ 3,908 $ - $408,947
31, 1997
Comprehensive 48,247 3,714 - 51,961
income
Dividends paid (2,517) - - (2,517)
($.08 per share)
Treasury stock - - (1,208) (1,208)
purchases
Other, net - - - 1,249
Balance at $103,731 $ 7,622 $(1,208) $458,432
September 30, 1998
</TABLE>
<PAGE>
*Currency translation adjustment.
<PAGE>
TITANIUM METALS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of presentation:
The consolidated balance sheet of Titanium Metals Corporation ("TIMET") and
subsidiaries (collectively, the "Company") at December 31, 1997 has been
condensed from the Company's audited consolidated financial statements at that
date. The consolidated balance sheet at September 30, 1998 and the consolidated
statements of operations, comprehensive income, stockholders' equity and cash
flows for the interim periods ended September 30, 1997 and 1998 have been
prepared by the Company without audit. In the opinion of management, all
adjustments necessary to present fairly the consolidated financial position,
results of operations and cash flows have been made. The results of operations
for interim periods are not necessarily indicative of the operating results of a
full year or of future operations.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The accompanying consolidated financial
statements should be read in conjunction with the consolidated financial
statements included in the Company's Annual Report on Form 10-K/A for the year
ended December 31, 1997 (the "1997 Annual Report").
For information concerning certain legal proceedings and certain
contingencies related to the Company, see (i) Part I, Item 2 -- "Management's
Discussion and Analysis of Financial Condition and Results of Operations," (ii)
Part II, Item 1 -- "Legal Proceedings," and (iii) the 1997 Annual Report.
Note 2 - Operating segment information:
<PAGE>
The Company is a vertically integrated producer of titanium sponge, ingot,
slab and mill products for aerospace, industrial and other applications. The
Company's production facilities are located principally in the United States,
United Kingdom and France and the Company's products are sold throughout the
world.
<PAGE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1998 1997 1998
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Net sales $177,177 $173,512 $525,606 $551,390
Operating income $33,310 $27,342 $92,688 $ 82,865
General corporate 1,501 2,126 3,886 5,052
income, net
Interest expense (870) (1,376) (1,955) (2,325)
Income before income
taxes
and minority $ 33,941 $ 28,092 $ 94,619 $ 85,592
interest
Mill product shipments:
Volume (metric 3,700 3,500 10,700 11,400
tons)
Average price $ 34.00 $ 35.50 $ 35.00 $ 34.75
($ per kilogram)
</TABLE>
<PAGE>
Operating income in the 1998 nine-month period includes a $6 million
restructuring charge. See Note 3.
Note 3 - Acquisitions and dispositions:
~Loterios~acquisition.~In April 1998, the Company completed the acquisition
of Loterios S.p.A., a producer and distributor of titanium pipe and fittings to
the offshore oil and gas drilling and production markets, based in Italy. The
cost of the Loterios acquisition, accounted for by the purchase method, was
approximately $19 million in cash. Additional consideration of up to
approximately $7 million is contingent upon Loterios achieving certain operating
targets. The results of Loterios' operations have been reflected in the
consolidated financial statements from the date of acquisition; net sales in the
1998 year-to-date period approximated $17 million.
~Wyman-Gordon~transaction.~In July 1998, the Company completed a series of
strategic transactions with Wyman-Gordon Company. The principal components
were: (i) the Company exchanged certain of its titanium castings assets and $5
million in cash for Wyman-Gordon's Millbury, MA vacuum arc remelting facility
which produces titanium ingot; (ii) Wyman-Gordon and the Company combined their
respective titanium castings businesses into a new joint venture 80% owned by
Wyman-Gordon and 20% by the Company; and (iii) the Company and Wyman-Gordon
entered into a contract pursuant to which the Company will be the principal
supplier of titanium material to Wyman-Gordon until 2008. The Company accounts
for its interest in the castings joint venture by the equity method. Net sales
of the Company's casting business approximated $22 million through July 1998 and
approximated $23 million in the 1997 year-to-date period.
<PAGE>
~Proforma~information.~The proforma effect of the Loterios acquisition and
the Wyman-Gordon castings business/melting facility exchange, assuming such
transactions had occurred at the beginning of the year, is not material.
~Restructuring~charge.~As previously reported, the Company decided to close
its Pomona, CA castings and vacuum arc remelting facility, and recorded a
restructuring charge of $6 million in the second quarter of 1998. The
restructuring charge consists of approximately $5 million to write down
property, equipment and intangibles to estimated net realizable value and
approximately $1 million of other exit costs, principally severance (all jobs
being eliminated) and facilities carrying costs. At September 30, 1998, the
remaining accrual for other exit costs approximated $.5 million.
The Company currently expects to take an additional charge of approximately
$10 million in the fourth quarter of 1998. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Note 4 - Earnings per share:
Earnings per diluted share reflects an immaterial number of dilutive common
stock options and the assumed conversion of the Convertible Preferred Securities
into 5.4 million shares of common stock. Diluted net income is net income plus
minority interest - Convertible Preferred Securities.
Note 5 - Inventories:
<PAGE>
<TABLE>
<CAPTION>
December SEPTEMBER
31, 30,
1997 1998
(In thousands)
<S> <C> <C>
Raw materials $ 23,925 $ 34,395
Work-in-process 91,884 107,688
Finished products 31,230 62,387
Supplies 6,779 7,589
$ 153,818 $ 212,059
</TABLE>
<PAGE>
The average cost of LIFO inventories exceeded the net carrying amount of
such inventories by approximately $32 million at December 31, 1997 and $30
million at September 30, 1998.
Note 6 - Accrued liabilities:
<PAGE>
<TABLE>
<CAPTION>
December 31, SEPTEMBER 30,
1997 1998
(In thousands)
<S> <C> <C>
Pension and OPEB costs $ 3,174 $ 4,070
Other employee benefits 25,869 22,487
Environmental costs 1,762 1,762
Taxes, other than income 3,062 4,144
Convertible Preferred Securities - 1,103 1,103
accrued dividends
Other 11,839 16,935
$ 46,809 $ 50,501
</TABLE>
<PAGE>
Note 7 - Notes payable, long-term debt and capital lease obligations:
Notes payable at December 31, 1997 and September 30, 1998 consist of
borrowings under the Company's short-term European bank credit agreements.
Long-term debt at September 30, 1998 consists principally of $80 million of
borrowings under the Company's U.S. bank credit agreement and $24 million under
its U.K. bank credit agreement. As of September 30, 1998, the Company had
approximately $125 million of unused borrowing availability under its U.S. and
European bank credit agreements. Available borrowings in the future could
potentially be reduced due to the leverage and interest coverage ratios
contained in the Company's U.S. credit agreement.
Capital lease obligations relate principally to U.K. production facilities
held under long-term leases with IMI plc.
Note 8 - Income taxes:
The difference between the Company's provision for income tax expense
attributable to pretax income and the amounts that would be expected using the
U.S. federal statutory income tax rate of 35% is summarized below.
<PAGE>
<TABLE>
<CAPTION>
Nine months ended
September 30,
1997 1998
(In thousands)
<S> <C> <C>
Expected income tax expense $33,117 $29,957
Change in foreign statutory rate (365) -
Other foreign tax rates (414) (152)
Foreign sales corporation benefit (350) (1,134)
U.S. state income taxes, net 598 495
Adjustment of deferred tax valuation allowance
related to current year results (2,779) -
Other, net (961) (32)
$28,846 $29,134
</TABLE>
<PAGE>
Minority interest - Convertible Preferred Securities is stated net of
income tax benefits of $3.5 million in both the 1997 and 1998 nine-month
periods.
Note 9 - Ownership structure:
Tremont Corporation holds approximately 33% of TIMET's outstanding common
stock. Tremont also holds an option, acquired from IMI in 1996 and expiring in
February 1999, to purchase an additional 5% of TIMET's common stock. Valhi,
Inc. and other entities related to Harold C. Simmons hold an aggregate of
approximately 53% of Tremont's outstanding common stock. Mr. Simmons may be
deemed to control each of Valhi, Tremont and TIMET.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Due to reduced demand for the Company's aerospace and industrial products,
earnings for the quarter ended September 30, 1998 were below expectations. The
Company believes that the reduction in demand for aerospace products is
attributable in large part to inventory reductions by its major customers and a
decline in the number of aircraft forecast to be produced. The major reason for
the falloff in demand for industrial products is the deterioration in Asian
economies, including the strength of the U.S. dollar versus the Japanese yen.
Mill product shipments in the third quarter were approximately 3,500 metric
tons, below both second quarter 1998 (3,900 tons) and third quarter 1997 (3,700
tons) levels. Ingot and sponge shipments were also lower than expected.
Selling prices were relatively flat compared to second quarter levels. The
<PAGE>
Company's overall average mill product selling price in the third quarter of
1998 improved over second quarter levels due to mix changes, as aerospace
products accounted for a higher percentage of mill product shipments. As
previously reported, the Company anticipates that fourth quarter 1998 shipments
and earnings will be lower than third quarter levels.
General and administrative expenses in 1998 continue to be higher than in
1997 in large part due to information technology costs, including implementation
of the Company's enterprise-wide SAP system and addressing "Year 2000" issues.
Expenses related to implementing and maintaining the Company's SAP system and to
addressing "Year 2000" issues are expected to remain high in 1999.
The Company's firm order backlog at the end of September was approximately
$350 million. Comparable backlog at the end of September 1997 was approximately
$500 million. The titanium industry is experiencing reduced demand for
aerospace and industrial products due to high levels of inventories reported to
be held by customers, actual and anticipated declines in number of aircraft
forecast to be produced, expecially wide-bodied aircraft, and continuing
weakness of Asian and other economies. As a result, the Company's 1999
shipments ar anticipated to be below 1998 levels, particularly in the first
half of the year, and 1999 results are expected to be below current
expectations. As previously reported, average selling prices for 1999 are
expected to be lower than 1998 prices by 5% to 10%.
<PAGE>
In order to minimize the impact of the factors described above on its
results of operations and cash flows, the Company may implement additional
temporary or permanent facility closures, layoffs and other measures. The
Company currently expects a special charge in the fourth quarter of
approximately $10 million related to the announced closing of the Company's
leased melting facility in Verdi, NV and to other actions of the type described
above.
The Company has substantial operations and assets located in Europe,
principally in the United Kingdom. Approximately one-half of the Company's
European sales are denominated in currencies other than the U.S. dollar,
principally the U.K. pound sterling along with other major European currencies.
The U.S. dollar value of the Company's foreign sales and operating costs are
subject to currency exchange rate fluctuations that can impact reported earnings
and may affect the comparability of period-to-period operating results. Certain
purchases of raw materials for the Company's European operations, principally
titanium sponge, are denominated in U.S. dollars, while labor and other
production costs are primarily denominated in local currencies. The U.K. is not
adopting the new European currency unit ("Euro") although certain transactions
currently denominated in various other European currencies are expected to be
denominated in the Euro beginning in 1999. Modifications of certain systems to
handle Euro-denominated transactions will be required, although such
modifications are not expected to be extensive, and the Company does not expect
that the impact of conversion to the Euro will be material.
Interest expense in the 1998 periods is only slightly higher than in the
comparable 1997 periods. Substantially all of the additional interest related
to higher borrowing levels in 1998 was capitalized as part of major capital
projects. Dividends on the Convertible Preferred Securities are reported, net
of tax benefit, as minority interest.
<PAGE>
The Company operates in several tax jurisdictions and is subject to various
income tax rates. As a result, the geographical mix of pretax income can impact
the Company's effective tax rate. For financial reporting purposes, the Company
has previously recognized substantially all of its net operating loss
carryforwards, resulting in a higher effective tax rate in 1998 than in 1997.
See Note 8 to the Consolidated Financial Statements.
Year 2000 issues exist because many computer systems and applications
curently use two-digit fields to designate a year. Date-sensitive systems may
recognize the Year 2000 as 1900, or not at all. This inability to treat the
Year 2000 properly could cause systems to process critical financial,
manufacturing and operational information incorrectly. Many of the Company's
information systems have been or are being replaced in connection with the
implementation of SAP. The Company, with the help of outside specialists and
consultants, (i) has substantially completed an initial assessment of potential
Year 2000 issues in its manufacturing and communications systems, as well as in
those information systems that will not be replaced by SAP, (ii) is in process
of determining and implementing remedial actions and (iii) will develop a
contingency plan in the event internal or external Year 2000 issues are not
resolved. Excluding costs related to SAP, the Company expended approximately $1
million on Year 2000 issues through September 1998, and currently expects to
incur an additional $5 million to $6 million through 1999, principally related
to embedded system technology. The Company has also begun an evaluation of
potential Year 2000 exposures relating to key suppliers and customers.
Although the Company believes its key information systems will be Year 2000
compliant before the end of 1999, it cannot yet predict the outcome or success
of the Year 2000 compliance programs related to its embedded manufacturing
systems or those systems of its suppliers and customers. The Company also
cannot predict whether it will find additional problems that would result in
unplanned upgrades of applications after December 31, 1999. As a result of
these uncertainties, the Company cannot predict the impact on its financial
<PAGE>
condition, results of operations or cash flows, of noncompliant Year 2000
systems that the Company directly or indirectly relies upon. Should the
Company's Year 2000 compliance plan not be successful or be delayed beyond
January 2000, the consequences to the Company could be far-reaching and
material, including an inability to produce titanium metal products at its
manufacturing facilities, which could lead to an indeterminate amount of lost
revenue. Other potential negative consequences could include impeded
communications or power supplies, or slower transaction processing and financial
reporting.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had net cash of approximately $30
million ($143 million of cash and equivalents and $113 million of notes payable
and long-term debt). The Company also had $125 million of borrowing
availability under its U.S. and European credit lines. See Note 7 to the
Consolidated Financial Statements.
~Operating~activities~. Cash provided by operating activities (before
changes in assets and liabilities) of $88 million for the nine months ended
September 30, 1998 was higher than the $84 million provided during the same
period in 1997 as higher deferred income taxes and a principally noncash
restructuring charge offset the effect of lower operating results. Changes in
assets and liabilities reflect the timing of purchases, production and sales.
Increases in inventories used cash in 1998, reflecting material purchases and
build rates that were based on expected sales levels higher than actual sales
levels. Changes in receivables, including those from related parties, generated
cash in 1998, principally due to net collections resulting from lower sales
levels compared with the record levels of late 1997.
<PAGE>
The Company estimates capital expenditures for all of 1998 to approximate
$120 million, up from $66 million in calendar 1997. About one-half of capital
expenditures during the two-year 1997-1998 period related to capacity expansion
projects associated with long-term customer agreements, which projects are also
expected to improve cycle times and yields and to increase efficiency. The
majority of these significant projects in both the U.S. and Europe have or will
begin to come on line by the end of 1998.
Approximately one-fourth of the two-year capital spending total relates to
the major SAP information systems and information technology project being
implemented throughout the Company. The SAP system is being implemented in
stages, with the roll-outs accomplished in May 1998 (U.S. Service Centers and
Corporate Headquarters), July 1998 (Henderson, NV plant) and October 1998
(Toronto, OH plant). Roll out of SAP in the U.K. is currently scheduled for the
first quarter of 1999. Certain costs associated with the SAP business process
and information systems project, including training and reengineering, are
expensed as incurred.
Capital spending for 1999 is currently expected to approximate $40 million.
~Investing~activities~. Cash used for business acquisitions and joint
ventures in the first nine months of 1998 relates primarily to the Loterios and
Wyman-Gordon transactions. As previously reported, in October 1998, the Company
purchased $80 million of Special Metals Corporation ("SMC") 6.625% convertible
preferred stock (the "SMC Preferred Stock") in connection with SMC's acquisition
of the Inco Alloys International high performance nickel alloys business unit of
Inco Limited. The Company will account for its investment in the SMC Preferred
stock by the cost method. TIMET also has entered into an agreement in principle
with SMC to form a strategic alliance to pursue certain manufacturing and joint
product development and marketing arrangements. The SMC Preferred Stock is
convertible into SMC common stock at $16.50 per share and is subject to
<PAGE>
mandatory redemption in 2006. The Company funded the SMC investment in October
1998 using cash and equivalents on hand.
~Financing~activities~. Net borrowings in 1998 included $104 million on
the Company's principal U.S. and U.K. bank credit facilities, primarily to fund
capital expenditures and the Loterios acquisition.
The Company's Convertible Preferred Securities do not require principal
amortization, and TIMET has the right to defer dividend payments for one or more
periods of up to 20 consecutive quarters each. The Company's current regular
quarterly dividend on its common stock is four cents per share.
In September 1998, the Board of Directors authorized the repurchase of up
to four million shares of TIMET common stock in open market or privately-
negotiated transactions. During September 1998, TIMET repurchased 90,000 shares
for approximately $1.2 million.
The Company periodically evaluates its liquidity requirements, capital
needs and availability of resources in view of, among other things, its
alternative uses of capital, its debt service requirements, the cost of debt and
equity capital, and estimated future operating cash flows. As a result of this
process, the Company has in the past, and, in light of its current outlook, may
in the future, seek to raise additional capital, modify its dividend policy,
restructure ownership interests, incur, refinance or restructure indebtedness,
repurchase shares of capital stock, sell assets, or take a combination of such
steps or other steps to increase or manage its liquidity and capital resources.
In the normal course of business, the Company investigates, evaluates and
discusses acquisition, joint venture, strategic relationship and other business
combination opportunities in the titanium, specialty metal and related
industries. In the event of any future acquisition or joint venture
<PAGE>
opportunities, the Company may consider using then available liquidity, issuing
additional equity securities or incurring additional indebtedness.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
Reference is made to the Company's 1997 Annual Report and subsequent
Quarterly Reports on Form 10-Q for descriptions of certain previously-reported
legal proceedings.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
10.1 Intercorporate Services Agreement between Titanium Metals
Corporation and Tremont Corporation effective as of January 1,
1998.
10.2 Intercorporate Services Agreement between Titanium Metals
Corporation and NL Industries, Inc. effective as of January 1,
1998.
10.3* Form of Loan and Pledge Agreement by and between Titanium
Metals Corporation and individual TIMET executives under the
Corporation's Executive Stock Ownership Loan Program.
10.4 Amendment to Investment Agreement, dated October 28, 1998,
among Titanium Metals Corporation, TIMET Finance Management
Company and Special Metals Corporation.
<PAGE>
10.5 Registration Rights Agreements, dated October 28, 1998, between
TIMET Finance Management Company and Special Metals
Corporation.
10.6 Certificate of Designations for the Special Metals Corporation
Series A Preferred Stock, filed on October 28, 1998, with
the Secretary of State of Delaware incorporated by reference
to Exhibit 4.5 of a Current Report of Form 8-K dated October
28, 1998 filed by Special Metals Corporation (File No.
(000-22029).
27.1 Financial Data Schedule for the quarter ended September 30,
1998.
*Management contract, compensatory plan or arrangement.
(b) Reports on Form 8-K:
Reports on Form 8-K filed by the Registrant for the quarter ended
September 30, 1998 and the month of October, 1998:
July 9, 1998 - Reported Items 2 and 7
July 23, 1998 - Reported Items 5 and 7
August 3, 1998 - Reported Items 5 and 7
August 4, 1998 - Reported Items 5 and 7
September 2, 1998 - Reported Items 5 and 7
October 5, 1998 - Reported Items 5 and 7
October 5, 1998 - Reported Items 5 and 7
October 8, 1998 - Reported Items 5 and 7
October 20, 1998 - Reported Items 5 and 7
October 28, 1998 - Reported Items 5 and 7
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<PAGE>
<TABLE>
<CAPTION>
TITANIUM METALS CORPORATION
(Registrant)
<S> <C> <C>
Date: November 12, By /s/ J. Thomas Montgomery, Jr.
1998
J. Thomas Montgomery, Jr.
Vice President - Finance and
Treasurer
(Principal Finance and Accounting
Officer)
</TABLE>
<PAGE>
<PAGE>
INTERCORPORATE SERVICES AGREEMENT
This INTERCORPORATE SERVICES AGREEMENT (the "Agreement"), effective as of
January 1, 1998, amends and supersedes that certain Intercorporate Services
Agreement effective as of January 1, 1997, by and between Titanium Metals
Corporation ("TIMET"), a Delaware corporation, and Tremont Corporation
("Tremont"), a Delaware corporation.
W I T N E S S E T H :
WHEREAS, employees and agents of TIMET and affiliates of TIMET, perform
certain management, financial, legal and administrative functions for Tremont;
and
WHEREAS, Tremont does not separately maintain the full internal capability
to perform all necessary management, financial, legal and administrative
functions which Tremont requires; and
WHEREAS, the cost of maintaining the additional personnel and associated
costs necessary to perform the functions provided for by this Agreement would
exceed the fee set forth in Section 3 of this Agreement; and
WHEREAS, the terms of this Agreement are no less favorable to Tremont than
could otherwise be obtained from a third party for comparable services; and
WHEREAS, Tremont desires to continue receiving the management, financial,
legal and administrative services presently provided by TIMET and affiliates of
TIMET, and TIMET is willing to continue to provide such services under the terms
of this Agreement.
<PAGE>
NOW, THEREFORE, for and in consideration of the mutual premises,
representations and covenants herein contained, the parties hereto mutually
agree as follows:
1. TIMET Services to be Provided. TIMET agrees to make available to Tremont,
upon request, the following services (the "TIMET Services") to be rendered
by the internal staff of TIMET and affiliates of TIMET:
(a) Consultation and assistance in the development and implementation of
Tremont's corporate business strategies, plans and objectives.
(b) Consultation and assistance in management and conduct of corporate
affairs and corporate governance consistent with the Certificate of
Incorporation and By-Laws of Tremont.
(c) Consultation and assistance in maintenance of financial records and
controls, including preparation and review of periodic financial
statements and reports to be filed with public and regulatory entities
and those required to be prepared for financial institutions or
pursuant to indentures and credit agreements.
(d) Consultation and assistance in cash management and in arranging
financing necessary to implement the business plans of Tremont.
(e) Consultation and assistance in tax management and administration
including; preparation and filing of tax returns, tax reporting,
examinations by government authorities and tax planning.
(f) Consultation and assistance in legal matters.
(g) Administration of retiree benefit plans.
<PAGE>
(h) Consultation and assistance in environmental regulation and
remediation.
(i) Such other services as reasonably may be requested by Tremont and for
which TIMET has the necessary staffing and resources.
2. Scope of TIMET Services. The parties hereto contemplate that the TIMET
Services rendered in connection with the conduct of Tremont's business will
be on a scale compared to that existing on the date of this Agreement,
adjusted for internal corporate growth or contraction, but not for major
corporate acquisitions or divestitures, and that adjustments may be
required to the terms of this Agreement in the event of such major
corporate acquisitions, divestitures or special projects. Tremont will
continue to bear all other costs required for outside services including,
but not limited to, the outside services of attorneys, auditors, trustees,
consultants, transfer agents and registrars, and it is expressly understood
that TIMET assumes no liability for any expenses or services other than
those stated in Section 1. In addition to the fee paid to TIMET by Tremont
for the TIMET Services provided pursuant to this Agreement, Tremont will
pay to TIMET the amount of out-of-pocket costs incurred by TIMET in
rendering such TIMET Services.
3. Fee for Services. Tremont agrees to pay to TIMET a fee of $83,854
quarterly, commencing as of January 1, 1998, pursuant to this Agreement.
Tremont will reimburse TIMET for the actual amount of Services provided
through an adjustment payment made within three months of the close of each
fiscal year in accordance with Exhibit A attached hereto.
4. Term. The term of this Agreement shall be from January 1, 1998 to December
31, 1998.
<PAGE>
5. Extensions. This Agreement shall be extended on a quarter-to-quarter basis
after the expiration of its original term unless written notification is
given by TIMET or Tremont thirty (30) days in advance of the first day of
each successive quarter or unless it is superseded by a subsequent written
agreement of the parties hereto.
6. Limitation of Liability. In providing TIMET Services hereunder, TIMET
shall each have a duty to act, and to cause its agents to act, in a
reasonably prudent manner, but neither TIMET nor any officer, director,
employee or agent of TIMET or its respective affiliates shall be liable to
the other party hereunder for any error of judgment or mistake of law or
for any loss incurred by such party in connection with the matter to which
this Agreement relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence on the part of TIMET.
7. Indemnification. Tremont shall indemnify and hold harmless TIMET, its
affiliates and its respective officers, directors and employees from and
against any and all losses, liabilities, claims, damages, costs and
expenses (including reasonable attorneys' fees and other expenses of
litigation) to which TIMET may become subject out of the TIMET Services
provided by TIMET hereunder, provided that such indemnity shall not protect
TIMET against any liability to which TIMET would otherwise be subject to by
reason of willful misfeasance, bad faith or gross negligence on the part of
TIMET.
8. Further Assurances. Each of the parties will make, execute, acknowledge
and deliver such other instruments and documents, and take all such other
actions, as the other party may reasonably request and as may reasonably be
required in order to effectuate the purposes of this Agreement and to carry
out the terms hereof.
<PAGE>
9. Notices. All communications hereunder shall be in writing and shall be
addressed, if intended for TIMET, to 1999 Broadway, Suite 4300, Denver,
Colorado 80202, Attention: General Counsel, or such other address as it
shall have furnished to Tremont in writing, and if intended for Tremont, to
1999 Broadway, Suite 4300, Denver, Colorado 80202, Attention: General
Counsel, or such other address as it shall have furnished to TIMET in
writing.
10. Amendment and Modification. Neither this Agreement nor any term hereof may
be changed, waived, discharged or terminated other than by agreement in
writing signed by the parties hereto.
11. Successor and Assigns. This Agreement shall be binding upon and inure to
the benefit of TIMET and Tremont and their respective successors and
assigns, except that neither party may assign its rights under this
Agreement without the prior written consent of the other party.
12. Governing Law. This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the State of Colorado.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
TITANIUM METALS CORPORATION
By:
Robert E. Musgraves
Vice President, General Counsel and
Secretary
TREMONT CORPORATION
By:
J. Landis Martin
Chairman of the Board, President and
Chief Executive Officer
<PAGE>
TIMET/TREMONT INTERCORPORATE SERVICES AGREEMENT--1998
TIMET Services
Worksheet
APPROXIMATE %
OF TRE/TMC
TIME DEVOTED ESTIMATED ESTIMATED
TO ANNUAL TREMONT
INDIVIDUAL(S) TREMONT EMPLOYMENT PORTION
MATTERS COST (1)
General business Lanny Martin 10% $1,305,000 $130,500
management/
strategic planning Pat Clark 10% $36,956 $3,696
Finance/accounting Tom Montgomery 10% $298,800 $29,880
Bill Kirschner 75% $91,335 $67,751
Tedi Smith 10% $39,253 $3,925
Legal Bob Musgraves 10% $354,568 $35,457
Joan Prusse 10% $161,302 $16,130
Secretary/Asst 10% $37,710 $3,771
.
<PAGE>
Environmental Susan Stewart 20% $110,862 $22,172
Benefits HR Employee 50% $44,268 $22,134
administration
Total: $335,416
Quarterly: $83,854
Note:
(1) Estimated compensation for purposes of establishing quarterly charges.
Includes base salary, bonus at assumed "C"/20% ROE level
company performance (23.5% for Mr. Martin), and "exceeds expectations"
individual performance, if applicable, and a 20% rate for fringes
and other costs. Tremont will reimburse for the percentage shown of
each identified individual's (or successor's) actual compensation
plus 20% through an adjusting payment within three
months of the close of each fiscal year.
<PAGE>
INTERCORPORATE SERVICES AGREEMENT
This INTERCORPORATE SERVICES AGREEMENT (the "Agreement") is made effective
as of January 1, 1998, by and between Titanium Metals Corporation ("TIMET"), a
Delaware corporation, and NL Industries, Inc. ("NL"), a New Jersey corporation.
WHEREAS, TIMET desires that NL provide certain insurance, risk management,
loss control, internal audit, tax, and executive secretarial and administrative
services to TIMET, as set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and promises set forth
herein and for other good and valuable consideration the receipt and sufficiency
of which is hereby acknowledged, the parties to this Agreement agree as follows:
1. SERVICES PROVIDED. NL will make available to TIMET and its
subsidiaries the following services (the "Services"):
(a) certain administration and management services with respect
to TIMET's insurance and risk management needs, including:
(i) management of claims (including insured and self-
insured workers compensation and liability
claims);
(ii) budgeting and related activities;
(iii) coordination of property loss control
program; and
<PAGE>
(iv) administration of TIMET's insurance program,
excluding all employee benefit and welfare
related programs.
(b) consultation and assistance in performing internal
audit projects, as requested.
(c) consultation and assistance in tax management and
administration, including, without limitation,
preparation and filing of tax returns, tax reporting,
examinations by government authorities and tax planning.
(d) certain executive secretarial and administrative
services.
<PAGE>
2. FEES FOR SERVICES AND REIMBURSEMENT OF EXPENSES. During the Term (as
defined below) of the Agreement, TIMET shall pay to NL an annual fee of $335,000
for the Services described in paragraphs 1(a), 1(c), and 1(d) above payable in
quarterly installments of $83,750 plus all out-of-pocket expenses incurred in
connection with the performance of such Services. In addition, TIMET will pay
to NL within thirty (30) days after receipt of an invoice (such invoices to
occur no more frequently than once per month) an amount equal to the product of
600 multiplied by the number of days devoted by NL's internal auditors to
providing Services described in paragraph 1(b) above times the number of
internal auditors providing such Services plus all out-of-pocket expenses
incurred in the performance of such Services. Notwithstanding the foregoing, in
the event that TIMET determines, in its sole discretion, that it no longer
desires certain of the Services or NL determines, in its sole discretion, that
it no longer desires to provide certain of the Services, then TIMET or NL, as
appropriate, shall provide the other party with a ninety (90) day prior written
notice of cancellation describing the Services to be terminated or discontinued
and TIMET and NL during such ninety-day period shall agree to a pro-rata
reduction of the fees due hereunder for such terminated or discontinued
Services.
3. LIMITATION OF LIABILITY. In providing Services hereunder, NL shall
have a duty to act, and to cause its agents to act, in a reasonably prudent
manner, but neither NL nor any officer, director, employee or agent of NL shall
be liable to TIMET or its subsidiaries for any error of judgment or mistake of
law or for any loss incurred by TIMET or its subsidiaries in connection with the
matters to which this Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of NL or from NL's
reckless disregard of obligations and duties under this Agreement.
4. INDEMNIFICATION OF NL BY TIMET. TIMET shall indemnify and hold
harmless NL, its subsidiaries and their respective officers, directors and
employees from and against any and all losses, liabilities, claims, damages,
<PAGE>
costs and expenses (including reasonable attorneys' fees and other expenses of
litigation) to which such party may become subject arising out of the provision
by NL to TIMET and its subsidiaries of any of the Services, provided that such
indemnity shall not protect any such party against any liability to which such
person would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of obligations and duties hereunder.
5. FURTHER ASSURANCE. Each of the parties will make, execute,
acknowledge and deliver such other instruments and documents, and take all such
other actions, as the other party may reasonably request and as may reasonably
by required in order to effectuate the purposes of this Agreement and to carry
out the terms hereof.
<PAGE>
6. NOTICES. All communications hereunder shall be in writing and shall
be addressed to:
If to NL: NL Industries, Inc.
16825 Northchase Drive, Suite 1200
Houston, Texas 77060
Attention: General Counsel
If to TIMET: Titanium Metals Corporation
1999 Broadway, Suite 4300
Denver, Colorado 80202
Attention: General Counsel
or such other address as the parties shall have specified in writing.
7. AMENDMENT AND MODIFICATION. Neither this Agreement nor any item
hereof may be changed, waived, discharged or terminated other than by agreement
in writing signed by the parties hereto.
8. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties hereto,
provided that this Agreement may not be assigned by either of the parties hereto
without the prior written consent of the other party.
9. MISCELLANEOUS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. This Agreement constitutes the entire
agreement, and supersedes all prior agreements and understandings, both written
and oral, between the parties with respect to the subject matter hereof. This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original, and all of which together shall constitute one and the same
<PAGE>
instrument. This Agreement shall be governed in all respects, including
validity, interpretation and affect, by the laws of the State of Texas.
10. TERM OF AGREEMENT. This Agreement shall be effective as of January 1,
1998, and shall remain in effect for a term of one year until December 31, 1998
(the "Term"); provided, however, the Agreement shall be extended on a quarter-
to-quarter basis after the expiration of the Term unless written notification is
given by either party thirty (30) days in advance of the first day of each
successive quarter or unless it is terminated or superseded by a subsequent
written agreement of the parties hereto. Upon such termination or upon the
expiration of this Agreement, the parties' rights and obligations hereunder
shall cease and terminate except with respect to rights and obligations arising
on or prior to the date of expiration or termination and the rights and
obligations arising under paragraph 4 above.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement effective
as of the _____ day of July, 1998, which Agreement will be deemed to be
effective as of January 1, 1998.
NL INDUSTRIES, INC.
By:____________________________________
Dennis G. Newkirk
Vice President
TITANIUM METALS CORPORATION
By:____________________________________
J. Thomas Montgomery
Vice President
<PAGE>
LOAN AND
PLEDGE AGREEMENT
THIS LOAN AND PLEDGE AGREEMENT (as amended, restated, supplemented or
otherwise modified from time to time, this "Agreement"), dated as of ______ __,
19__, is by and between ______________________(the "Borrower") and TITANIUM
METALS CORPORATION, a Delaware corporation (together with its successors and
assigns, "TIMET").
RECITALS
WHEREAS, in 1997, TIMET established goals (the "Ownership Goals") for
certain executives of TIMET with respect to such executives' ownership of the
common stock of TIMET or BUCS of TIMET Capital Trust I (such stock or BUCS
collectively referred to herein as "TIMET Stock");
WHEREAS, in 1998, TIMET established a loan program in order to assist its
executives in achieving the Ownership Goals;
WHEREAS, pursuant to TIMET's loan program, TIMET may from time to time
extend to Borrower, and Borrower may from time to time obtain from TIMET, loans
to acquire TIMET Stock, subject to the terms and conditions of this Agreement;
COVENANTS
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and, among other things, the pledge by Borrower of
Borrower's TIMET Stock acquired with the proceeds of the Loans (as defined
below), the parties hereto agree as follows:
<PAGE>
ARTICLE I.
DEFINITIONS
1.1 Definitions. As used herein, and unless the context requires a
different meaning, the following terms have the meanings indicated:
"Base Rate" means an annual interest rate, determined by TIMET in its
reasonable discretion, equal to TIMET's effective borrowing rate as of the date
of each Loan and as adjusted, on each January 2 during the term of this
Agreement, to TIMET's effective borrowing rate as of January 2.
"Base Salary" means Borrower's base salary as an employee of TIMET, as in
effect as of the date of each Loan.
"Collateral" means, collectively, all TIMET Stock acquired, directly or
indirectly, by Borrower with the proceeds of any loan or any other stock or
other property pledged by Borrower to secure the Obligations, together with all
proceeds of any of the foregoing, including, without limitation, any TIMET Stock
and moneys received and at any time held by TIMET under this Agreement.
"Default Rate" means a variable rate per annum which shall be three percent
(3%) per annum plus the Base Rate applicable to each Loan in respect of the
amount on which the Default Rate is being assessed, but in no event in excess of
that permitted by applicable law.
"Event of Default" has the meaning assigned to that term in Section 4.1.
"Lien" means, with respect to any asset, any pledge, hypothecation,
collateral assignment, security interest, encumbrance, lien or charge of any
kind.
<PAGE>
"Loan" means a loan by TIMET to Borrower pursuant to the terms of this
Agreement; collectively, the "Loans."
"Loan Documents" means, collectively, this Agreement, the Notes and all
other agreements, instruments and documents executed in connection therewith, in
each case as the same may at any time be amended, supplemented, restated or
otherwise modified and in effect.
"Market Value" means, for TIMET Common Stock, the closing price for TIMET
Common Stock, as such price is quoted on the applicable market, on the day of a
trade in such stock; and for BUCS, "Market Value" means, on the day of a trade,
the average of the highest bid and lowest asked prices made such day on the
applicable market on which the BUCS are then traded, or, if not traded on any
market, the average of the highest bid and lowest asked prices made such day
with all market makers, or if such valuation cannot be determined for any
reason, the fair value thereof as otherwise reasonably determined by the
Company.
"Note" means a secured promissory note issued by the Borrower to evidence
Loans made by TIMET pursuant to the terms of this Agreement, substantially in
the form of Exhibit A attached hereto and incorporated herein by this reference,
and "Notes" means all of such Notes collectively.
"Obligations" has the meaning set forth in Section 5.1.
"Person" means an individual or a corporation, partnership, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"UCC" means the Uniform Commercial Code as in effect from time to time in
Colorado or, if applicable, other relevant jurisdiction.
<PAGE>
ARTICLE II
AMOUNT AND TERMS OF LOANS
2.1 Loans. Upon written request of Borrower from time to time, TIMET may
(but shall not be required to), on the terms and subject to the conditions
hereinafter set forth and in reliance upon the representations and warranties
set forth herein and in the other Loan Documents, make Loans to Borrower;
provided however, that (a) the aggregate principal amount of all Loans made in
one calendar year shall not exceed an amount equal to fifty percent (50%) of the
Borrower's Base Salary in effect as of the date of each Loan, and (b) the
aggregate principal amount of all Loans outstanding at any one time shall not
exceed two hundred percent (200%) of the Borrower's Base Salary in effect as of
the date of each Loan). Except as otherwise approved by TIMET's Chief Executive
Officer, TIMET will extend a maximum of two (2) Loans per calendar year.
2.2 Notes. Borrower's obligation to pay the principal of and interest on
all the Loans made to it by TIMET shall be evidenced by one or more Notes duly
executed and delivered by Borrower concurrently with each Loan, with blanks
appropriately completed in conformity herewith.
2.3 Request for Loan. Whenever Borrower desires to obtain a Loan
hereunder, Borrower shall give TIMET written notice at its office located at
1999 Broadway, Suite 4300, Denver, CO 80202 (or such other address as TIMET may
hereafter designate) at least seven (7) days' prior written notice of Borrower's
request for a Loan. Such notice shall specify (i) the aggregate principal
amount of the requested Loan, (ii) the requested date of the Loan, (iii) the
name, address and other necessary information concerning the broker or the
transfer agent through whom Borrower will purchase TIMET Stock (including
payment of applicable brokerage fees) with the proceeds of such Loan, and (iv)
any other information reasonably requested by TIMET.
<PAGE>
2.4 Prepayments.
(a) Borrower may prepay the Loans at any time without premium or penalty.
All prepayments shall include payment of accrued interest on the
principal amount so prepaid, shall be applied to the payment of
interest and any other amounts due under any Loan Document before
application to payment of principal.
(b) If Borrower's employment with TIMET is terminated, whether or not for
cause or any other reason, all outstanding principal, accrued and
unpaid interest and any other amounts due under any Loan Document
shall be due and payable in full on the date ninety (90) days after
the date of termination of Borrower's employment; provided however, in
the event a sale within such time period would result in "short-swing"
profits under any applicable securities laws, such repayment date
shall be extended to the earliest date upon which such sale may occur
without Borrower's incurring such liability; provided, further, that
recourse to the Borrower shall be as provided in Section 5.13 hereof.
(c) Upon prior written notice to TIMET, Borrower may sell all or part of
the TIMET Stock securing repayment of the Loans provided (i) no Event
of Default exists hereunder and (ii) such sale is made in compliance
with all applicable securities laws. In the case of any such sale,
all outstanding principal, accrued and unpaid interest and any other
amounts due under any Loan Document shall be due and payable in full
concurrently with the settlement of such sale. TIMET shall have the
right to receive all proceeds of such sale and shall apply such
proceeds as follows: (w) first, to pay to all appropriate
governmental authorities, any Federal, state, local or other taxes
owing by Borrower in respect of such sale, (x) second, to pay all
outstanding, accrued and unpaid interest and any other amounts (except
principal) due under any Loan Document, (y) third, to repay that
<PAGE>
percentage of outstanding principal amounts on the Loans (in order of
maturity) equal to the ratio of the Market Value of the TIMET Stock
then being sold to the Market Value of all Collateral immediately
prior to effecting such sale, and (z) fourth, any balance to Borrower.
In the event such proceeds are inadequate to repay the amount called
for by subsections (w) through (z) herein, Borrower will remit such
difference to TIMET concurrently with the settlement of such sale.
2.5 Conditions to Loans. Subject to the other terms and conditions
hereof, the making of each Loan shall be subject to the satisfaction of all of
the following conditions precedent with respect to each such Loan:
(a) Borrower shall have duly executed and delivered to TIMET a Note, with
blanks appropriately completed in conformity herewith;
(b) Borrower shall have duly executed and delivered proper financing
statements (Form UCC-1 or such other financial statements or similar notices as
shall be required by local law) fully executed for filing under the UCC or other
appropriate filing offices of each jurisdiction as may be necessary or, in the
reasonable opinion of TIMET, desirable to perfect the security interests
purported to be created by this Agreement;
(c) Borrower shall have made arrangements satisfactory to TIMET with
respect to the delivery of all certificates evidencing the TIMET Stock,
including, without limitation, directions to the transfer agent for the TIMET
Stock to deliver all certificates evidencing the TIMET Stock to TIMET upon
issuance of such certificates, together with executed and undated stock powers;
(d) Borrower shall have duly executed and delivered to TIMET all documents
required by the Federal Reserve Board or other governmental authority necessary
or appropriate to comply with Regulations U and X; and
<PAGE>
(e) TIMET shall have received all other instruments, documents and
information it reasonably determines necessary and appropriate, together with
evidence that all other actions necessary, or in the reasonable opinion of
TIMET, desirable to perfect the security interests purported to be taken by the
Loan Documents have been taken.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
3.1 Representations. In order to induce TIMET to enter into this
Agreement and to make the Loans, Borrower makes the following representations,
warranties and agreements as of the date of this Agreement and as of the date of
each Loan, all of which shall survive the execution and delivery of this
Agreement and the Notes and the making of the Loans:
(a) All proceeds of the Loans incurred hereunder shall be used by Borrower
solely for the purpose of acquiring TIMET Stock (including payment of applicable
brokerage fees). No part of the proceeds of any Loan will be used in violation
of Regulations U or X;
(b) The provisions of this Agreement and other Loan Documents are
effective to create in favor of TIMET a legal, valid and enforceable security
interest in all right, title and interest of Borrower in the Collateral, and
this Agreement and other Loan Documents, together with the filings of Form UCC-
1, create a fully perfected first lien on, and security interest in, all right,
title and interest of Borrower in all of the Collateral, subject to no other
Liens;
(c) Borrower has good title to, and is the legal and beneficial owner of,
all TIMET Stock free and clear of all Liens other than Liens for the benefit of
TIMET;
<PAGE>
(d) Borrower is incurring the Loans for business and investment purposes
and the Loans are not incurred primarily for a personal, family or household
purpose; and
(e) Borrower has duly executed and delivered the Loan Documents and such
Loan Documents are enforceable against Borrower in accordance with their terms,
except as such enforceability may be limited by the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors rights generally or general principles of equity.
3.2 Liens. Borrower will not create, incur, assume or suffer to exist or
agree to create, incur, assume or suffer to exist any Lien in, upon or with
respect to any of Collateral.
ARTICLE IV
EVENTS OF DEFAULT
4.1 Events of Default. Any of the following events, acts, occurrences or
state of facts shall constitute an "Event of Default" for purposes of this
Agreement:
(a) Borrower shall default in the payment of principal or interest on any
of the Loans or any other amount owing hereunder or under any other Loan
Document when due and such default in payment shall continue for three (3)
Business Days after written notice from TIMET to Borrower; or
(b) Any representation or warranty made by or on behalf of Borrower
contained in any Loan Document or any document, instrument or certificate
delivered pursuant hereto or thereto shall have been incorrect or misleading in
any material respect when made or deemed made; or
<PAGE>
(c) Borrower shall default in the due performance or observance by it of
any other term, covenant or agreement contained in this Agreement or any other
Loan Document and such default shall continue unremedied for a period of ten
(10) days after written notice from TIMET to Borrower; or
(d) Involuntary proceedings or an involuntary petition shall be commenced
or filed against Borrower or Borrower shall become insolvent, or shall
voluntarily commence any proceeding or file any petition under any bankruptcy,
insolvency or similar law, or shall file any answer admitting the jurisdiction
of the court and the material allegations of an involuntary petition filed in
any bankruptcy, insolvency or similar proceeding against Borrower, or shall be
adjudicated bankrupt, or shall make a general assignment for the benefit of
creditors, or shall consent to, or acquiesce in the appointment of, a receiver,
trustee, custodian or liquidator for Borrower's property or assets; or
(e) At any time after the execution and delivery thereof, any of the Loan
Documents shall cease to be in full force and effect or shall cease in any
material respect to give TIMET the Liens, rights, powers and privileges
purported to be created thereby (including, without limitation, a perfected
security interest in, and Lien on, all of the Collateral subject to no other
Liens.
If any of the foregoing Events of Default shall have occurred and be continuing,
TIMET may declare all of Loans immediately due and payable in full and exercise
any or all of its remedies at law or in equity, including without limitation,
enforcement of all of the Liens and security interests created pursuant to the
Loan Documents and exercise of the remedies set forth in Article V of this
Agreement.
ARTICLE V
SECURITY AGREEMENT
<PAGE>
5.1 Secured Obligations. This Agreement is made by Borrower to secure
repayment of:
(a) fully and promptly when due (whether at the stated maturity, by
acceleration or otherwise, including, without limitation, the mandatory
repayments of principal called for by Section 2.4(c)) of (i) the principal of
and interest on the Notes issued by, and the Loans made to, the Borrower; (ii)
any and all sums advanced by TIMET in order to preserve the Collateral or
preserve its security interest in the Collateral and the expenses of retaking,
holding, preparing for sale or lease, selling or otherwise disposing of or
realizing on the Collateral; (iii) any and all expenses incurred by TIMET
incurred in connection with the exercise by TIMET of its rights under the Loan
Documents, together with reasonable attorneys fees and expenses and court costs;
and (iv) all liabilities and obligations of Borrower now or hereafter arising
under this Agreement and/or any of the other Loan Documents, whether for
principal, interest, fees, expenses, indemnities or otherwise, and whether
primary, secondary, direct, indirect, contingent, fixed or otherwise (including,
without limitation, obligations of performance); and
(b) all amounts paid by TIMET as to which TIMET has the right to
reimbursement under Article V of this Agreement; all such obligations,
liabilities, sums and expenses set forth in this Section 5.1 being herein
collectively called the "Obligations."
5.2 Pledge. To secure repayment of the Obligations, Borrower hereby (i)
grants to TIMET a security interest in all of the Collateral, (ii) pledges and
deposits with TIMET the TIMET Stock, and delivers to TIMET certificates or
instruments therefor, accompanied by undated stock powers duly executed in
blank, or such other instruments of transfer as are reasonably acceptable to
TIMET, and (iii) assigns, transfers, hypothecates, mortgages, charges and sets
over to TIMET all of Borrower's right, title and interest in and to such
Collateral (and in and to all certificates or instruments evidencing such
<PAGE>
Collateral), to be held by TIMET as collateral security for the Obligations,
upon the terms and conditions set forth in this Agreement.
5.3 Subsequently Acquired TIMET Stock. If Borrower shall acquire by stock
dividend, exchange or other similar transaction in respect of the Collateral
pledged hereunder any additional TIMET Stock at any time or from time to time
after the date hereof, Borrower will forthwith pledge and deposit such TIMET
Stock (or certificates or instruments representing such TIMET Stock) as security
with TIMET and deliver to TIMET certificates or instruments therefor, and
accompanied by undated stock powers duly executed in blank, or such other
instruments of transfer as are acceptable to TIMET.
5.4 Uncertificated Securities. Notwithstanding anything to the contrary
contained in Sections 5.1 and 5.2 hereof, if any TIMET Stock (whether now owned
or hereafter acquired) are uncertificated securities, Borrower shall promptly
notify TIMET thereof, and upon request by TIMET, shall promptly take all actions
required to perfect the security interest of TIMET under applicable law.
Borrower further agrees to take such actions as TIMET deems necessary or
desirable to effect the foregoing and to permit TIMET to exercise any of its
rights and remedies hereunder.
5.5 Voting. Unless and until an Event of Default shall have occurred and
be continuing, Borrower shall be entitled to exercise any and all voting and
other consensual rights pertaining to the Collateral, and to give consents,
waivers or ratifications in respect thereof, provided that no vote shall be cast
or any consent, waiver or ratification given or any action taken which would
violate or result in breach of any covenant contained in this Agreement or any
other Loan Document. All such rights of Borrower to vote and to give consents,
waivers and ratifications shall cease in case an Event of Default shall occur
and be continuing, and Section 5.7 hereof shall become applicable.
<PAGE>
5.6 Dividends and Other Distributions. Unless an Event of Default shall
have occurred and be continuing, all cash dividends and distributions payable in
respect of the Collateral shall be paid to Borrower. TIMET also shall be
entitled to receive directly, and to retain as part of the Collateral:
(a) all other or additional stock or other securities or property (other
than cash) paid or distributed by way of dividend or otherwise in respect of the
Collateral;
(b) all other or additional stock or other securities or property
(including, without limitation, cash) paid or distributed in respect of the
Collateral by way of stock-split, spin-off, split-up, reclassification,
combination of shares or similar rearrangement; and
(c) all other or additional stock or other securities or property
(including, without limitation, cash) which may be paid in respect of the
Collateral by reason of any consolidation, merger, exchange of stock, conveyance
of assets, liquidation or similar corporate reorganization.
Nothing contained in this Section 5.6 shall limit or restrict in any way TIMET's
right to receive proceeds of the Collateral in any form in accordance with
Section 5.3 of this Agreement. All dividends, distributions or other payments
which are received by Borrower contrary to the provisions of Section 5.6 and
Section 5.7 shall be received in trust for the benefit of TIMET, shall be
segregated from other property or funds of Borrower and shall be forthwith paid
over to TIMET as Collateral in the same form as so received (with any necessary
endorsement).
5.7 Remedies in Case of Events of Default. In case an Event of Default
shall have occurred and be continuing, then and in every such case, TIMET shall
be entitled to exercise all of the rights, powers and remedies (whether vested
in it by this Agreement, any other Loan Document or by law) for the protection
<PAGE>
and enforcement of its rights in respect of the Collateral, and TIMET shall be
entitled to exercise all of the rights and remedies of a secured party under the
UCC and also shall be entitled, without limitation, to exercise the following
rights, which Borrower hereby agrees to be commercially reasonable:
(a) to receive all amounts payable in respect of the Collateral otherwise
payable to Borrower under Section 5.6 hereof;
(b) to transfer all or any part of the Collateral into TIMET's name or the
name of its nominee or nominees;
(c) to vote all or any part of the Collateral (whether or not transferred
into the name of TIMET) and give all consents, waivers and ratifications in
respect of the Collateral and otherwise act with respect thereto as though it
were the outright owner thereof (Borrower hereby irrevocably constituting and
appointing TIMET the proxy and attorney-in-fact of Borrower, with full power of
substitution to do so);
(d) to sell, assign and deliver, or grant options to purchase, all or any
part of the Collateral, or any interest therein, at any public or private sale,
without demand of performance, advertisement or notice of intention to sell or
of the time or place of sale or adjournment thereof or to redeem or otherwise
(all of which are hereby waived by Borrower), for cash, on credit or for other
property, for immediate or future delivery without any assumption of credit
risk, and for such price or prices and on such terms as TIMET in its absolute
discretion may determine, provided that at least ten (10) days' written notice
of the time and place of any such sale shall be given to Borrower. TIMET shall
not be obligated to make any such sale of Collateral regardless of whether any
such notice of sale has theretofore been given. Borrower hereby waives and
releases to the fullest extent permitted by law any right or equity of
redemption with respect to the Collateral, whether before or after sale
hereunder, and all rights, if any, of marshaling the Collateral and any other
<PAGE>
security for the Obligations or otherwise. At any such sale, unless prohibited
by applicable law, TIMET may bid for and purchase all or any part of the
Collateral so sold free from any such right or equity of redemption. TIMET
shall not be liable for failure to collect or realize upon any or all of the
Collateral or for any delay in so doing nor shall any of them be under any
obligation to take any action whatsoever with regard thereto; and
(e) the right, without prior notice to Borrower, any such notice being
expressly waived by Borrower, to set off and apply against any Obligations,
whether matured or unmatured, of Borrower to TIMET, any amount owing from TIMET
to Borrower, including without limitation any wages, salary, bonus or other
compensation or reimbursement owing by TIMET to Borrower at any time and from
time to time, and the aforesaid right of set off may be exercised by such Lender
against Borrower or against any trustee in bankruptcy, debtor in possession,
assignee for the benefit of creditors, receivers, or execution, judgment or
attachment creditor of Borrower, or against anyone else claiming through or
against, Borrower or such trustee in bankruptcy, debtor in possession, assignee
for the benefit of creditors, receivers, or execution, judgment or attachment
creditor, notwithstanding the fact that such right of set off shall not have
been exercised by TIMET prior to the making, filing or issuance, or service upon
TIMET of, or of notice of, any such petition, assignment for the benefit of
creditors, appointment or application for the appointment of a receiver, or
issuance of execution, subpoena, order or warrant. The Borrower hereby
authorizes TIMET to withhold any and all amounts due from TIMET to Borrower,
including without limitation any wages, salary, bonus or other compensation and
the foregoing shall constitute an authorization to so withhold under all
applicable law.
5.8 Remedies, Etc., Cumulative. Each and every right, power and remedy of
TIMET provided for in this Agreement or any other Loan Document, or now or
hereafter existing at law or in equity or by statute, shall be cumulative and
concurrent and shall be in addition to every other such right, power or remedy.
<PAGE>
The exercise or beginning of the exercise by TIMET of any one or more of the
rights, powers or remedies provided for in this Agreement or any other Loan
Document or now or hereafter existing at law or in equity or by statute or
otherwise shall not preclude the simultaneous or later exercise by TIMET of all
such other rights, powers or remedies, and no failure or delay on the part of
TIMET to exercise any such right, power or remedy shall operate as a waiver
thereof. Unless otherwise required by the Loan Documents, no notice to or
demand on Borrower in any case shall entitle it to any other or further notice
or demand in similar or other circumstances or constitute a waiver of any of the
rights of TIMET to any other or further action in any circumstances without
notice or demand.
5.9 Application of Proceeds. All moneys collected by TIMET upon any sale
or other disposition of the Collateral, together with all other moneys received
by TIMET hereunder, shall be applied to the payment of the Obligations in the
manner provided in the second sentence of Section 2.6.
5.10 Purchasers of Collateral. Upon any sale of the Collateral by TIMET
hereunder (whether by virtue of the power of sale herein granted, pursuant to
judicial process or otherwise), the receipt of TIMET or the officer making the
sale shall be a sufficient discharge to the purchaser or purchasers of the
Collateral so sold, and such purchaser or purchasers shall not be obligated to
see to the application of any part of the purchase money paid over to TIMET or
such officer or be answerable in any way for the misapplication or
nonapplication thereof.
5.11 Indemnity. Borrower agrees to indemnify and hold harmless TIMET and
its successors, assigns, employees, agents and servants (individually an
"Indemnitee," and collectively the "Indemnitees") from and against any and all
claims, demands, losses, judgments and liabilities (including, without
limitation, liabilities for penalties) of whatsoever kind or nature, and to
reimburse each Indemnitee for all costs and out-of-pocket expenses, including,
<PAGE>
without limitation, attorneys fees and costs arising out of or resulting from
this Agreement or the exercise by any Indemnitee of any right or remedy granted
to it hereunder or under any other Loan Document or the enforcement of any of
the terms of, or the preservation of any rights under any thereof, any contract
claim or, to the maximum extent permitted by applicable law, provided that no
Indemnitee shall be indemnified pursuant to this Section 5.11 for claims,
demands, losses, judgments or expenses to the extent caused by the gross
negligence or willful misconduct of such Indemnitee as finally determined by a
court of competent jurisdiction. If any action, suit or proceeding arising from
any of the foregoing is brought against any Indemnitee, Borrower will, if
requested by TIMET or any such Indemnitee, resist and defend such action, suit
or proceeding or cause the same to be resisted and defended by counsel
reasonably satisfactory to the Person or Persons indemnified or intended to be
indemnified. Unless TIMET or other Indemnitee has made the request described in
the preceding sentence and such request has been complied with, each Indemnitee
shall have the right to employ its own counsel (as well as staff counsel) to
investigate and control the defense of any matter covered by such indemnity and
the reasonable fees and expenses of any counsel shall be at the expense of
Borrower.
5.12 Further Assurances; Power-of-Attorney. Borrower agrees to execute,
file and refile under the UCC or other applicable law such financing statements,
continuation statements and amendments or supplements thereto, and other
documents in such offices as TIMET may deem necessary and wherever required by
law in order to perfect and preserve TIMET's security interest in the Collateral
and hereby authorizes TIMET to file financing statements and amendments or
supplements thereto relative to all or any part of the Collateral without the
signature of Borrower where permitted by law, and agrees to do such further acts
and things and to execute and deliver to TIMET such additional conveyances,
assignments, agreements, documents and instruments as TIMET may reasonably
require or deem necessary to carry into effect the purposes of this Agreement or
to further assure and confirm unto TIMET its rights, powers and remedies
<PAGE>
hereunder. Borrower hereby appoints TIMET as Borrower's attorney-in-fact, with
full authority in the place and stead of Borrower and in the name of Borrower or
otherwise, from time to time after the occurrence and during the continuance of
an Event of Default, in TIMET's reasonable discretion to take any action and to
execute any instrument which TIMET may reasonably deem necessary or advisable to
accomplish the purposes of this Agreement.
5.13 Recourse. The Loans shall be full recourse as to Borrower;
provided, however, that in the event of a sale by TIMET of all of the Collateral
upon an Event of Default, or because of termination of Borrower's employment for
any reason, except as otherwise provided in this paragraph, TIMET shall be
limited to seeking or being allowed to obtain a personal judgment against the
Borrower or the Borrower's successors and assigns for (i) seventy percent (70%)
of the remaining unpaid principal outstanding after application of the proceeds
from the sale of Collateral, and (ii) all accrued interest and other amounts due
and payable under the Loan Documents (excluding only principal).
Notwithstanding anything herein to the contrary, in the event of any default by
the Borrower under the Loan Documents, (a) TIMET shall have all rights reserved
herein, in the Loan Documents, and in any other instrument given or granted for
the purpose of securing the payment of the Note, subject to the limitation
described in the first sentence of this paragraph, (b) shall have full recourse
to all Collateral for the payment of the indebtedness evidenced by the Note or
arising under the other Loan Documents and to any other property which is now or
hereafter encumbered or otherwise pledged as security for the payment of the
indebtedness evidenced by the Note or arising under the other Loan Documents,
(c) nothing contained herein or in any instrument the purpose of which is to
secure the payment of the Note or amounts due under the other Loan Documents
shall be construed to prohibit TIMET from filing any necessary action naming the
Borrower or the Borrower's successors and assigns, the purpose of which action
is to effect the realization of any security given for the payment of the Note
or arising under the other Loan Documents, and (d) the limitations contained
herein shall not be construed to prevent TIMET from asserting a claim to an
<PAGE>
interest in any Collateral or the proceeds thereof or other moneys in the hands
of a trustee or receiver or other Person appointed by a court of competent
jurisdiction.
5.14 Termination; Release. Upon the payment in full of all Obligations and
the termination of this Agreement, the security interest created hereby shall
terminate (provided that all indemnities set forth herein shall survive any such
termination) and TIMET, at the request and expense of the Borrower, will execute
and deliver to Borrower a proper instrument or instruments acknowledging the
satisfaction and termination of such security interest, and will duly assign,
transfer and deliver to Borrower (without recourse and without any
representation or warranty) such of the Collateral as has not theretofore been
sold or otherwise applied or released pursuant to this Agreement.
ARTICLE VI
MISCELLANEOUS
6.1 Notices. All notices and communications hereunder shall be sent or
delivered by mail, telecopy or overnight courier service and all such notices
and communications shall, when mailed, telecopied, or sent by overnight courier,
be effective when delivered to the overnight courier or sent by telecopier and
when mailed shall be effective three (3) Business Days following deposit in the
mail with proper postage. All notices and other communications shall be in
writing and addressed as follows:
(a) if to Borrower:
______________________________
______________________________
______________________________
(b) if to TIMET, at:
<PAGE>
Titanium Metals Corporation
1999 Broadway, Suite 4300
Denver, Colorado 80202
Attn: General Counsel
Telephone: (303) 296-5600
Telecopy: (303) 291-2990
or at such other address as shall have been furnished in writing by any Person
described above to the party required to give notice hereunder.
6.2 Waiver; Amendment. None of the terms and conditions of this Agreement
may be changed, waived, modified or varied in any manner whatsoever unless in
writing duly signed by Borrower and TIMET.
6.3 Assignment This Agreement shall be binding upon the parties hereto
and their respective successors and assigns and shall inure to the benefit of
and be enforceable by each of the parties hereto and its successors and assigns;
provided however, the Borrower shall not have the right to transfer any of its
rights or obligations hereunder or under any other Loan Document.
6.4 Governing Law. This Agreement shall be construed and enforced in
accordance with and governed by the law of the state of Colorado.
6.5 Headings. The headings in this Agreement are for purposes of
reference only and shall not limit or define the meaning hereof.
6.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which shall
constitute one instrument.
6.7 Severability. In the event that any provision of this Agreement shall
prove to be invalid or unenforceable, such provision shall be deemed to be
<PAGE>
severable from the other provisions of this Agreement which shall remain binding
on all parties hereto.
6.8 Entire Agreement. This Agreement and the Loan Documents represent the
entire agreement and understanding concerning the subject matter hereof between
the parties hereto, and supersede all other prior agreements, understandings,
negotiations and discussions, representations, warranties, commitments,
proposal, offers and contracts concerning the subject matter hereof, whether
oral or written.
IN WITNESS WHEREOF, Borrower and TIMET have caused this Agreement to
be executed as of the date first above written.
TITANIUM METALS CORPORATION, a Delaware corporation
By:_____________________________________
Name: __________________________________
Title: ___________________________________
________________________________________
BORROWER:
EXHIBIT A
FORM OF SECURED PROMISSORY NOTE
$__________________ _______ __, 19__
DENVER, COLORADO
<PAGE>
FOR VALUE RECEIVED, the undersigned, ______________________(the
"Borrower"), promises to pay to the order of TITANIUM METALS CORPORATION, a
Delaware corporation (together with its successors and assigns, "TIMET"), at the
office of TIMET at 1999 Broadway, Suite 4300, Denver, CO 80202 or such other
place as TIMET may designate in writing to the Borrower, the principal sum of
____________________________ AND ____/100s DOLLARS ($_______________) of United
States funds, or, if less, so much thereof as may be outstanding from time to
time, plus interest as hereinafter provided.
All capitalized terms used herein shall have the meanings ascribed to them
in that certain Loan and Pledge Agreement dated as of _______ __, 19__ (as
amended from time to time, the "Loan Agreement") by and among the Borrower and
TIMET, except to the extent such capitalized terms are otherwise defined or
limited herein.
The Borrower hereby promises to pay the unpaid principal amount hereof in
five (5) equal installments, together with all accrued and unpaid interest as of
each payment date, commencing on the sixth anniversary of the date of this Note.
Notwithstanding the foregoing, all unpaid principal amounts and other
Obligations then outstanding hereunder shall be due and payable on the earliest
to occur of (i) the tenth anniversary of the date of this Note (the "Maturity
Date"), (ii) the sale of the Collateral whether by Borrower or TIMET, or (iii)
such earlier date as payments of the Loans shall be due, whether by acceleration
or otherwise under the terms of this Note or any other Loan Document.
The Borrower hereby promises to pay interest on the unpaid principal amount
hereof at a rate per annum equal to the Base Rate plus .0625% per annum (which
rate as of the date of this Promissory Note is __%) from the date hereof until
the earlier of the Maturity Date, or such earlier date as payments of the Loans
shall be due, whether by acceleration or otherwise. Interest shall be payable in
arrears on each March 31, June 30, September 30 and December 31. Interest under
<PAGE>
this Note also shall be due and payable when this Note shall become due (whether
at the Maturity Date or earlier date by reason of acceleration or otherwise).
Overdue principal and, to the extent permitted by law, overdue interest, shall
bear interest payable on DEMAND at the Default Rate as provided in the Loan
Agreement.
In no event shall the amount of interest due or payable hereunder exceed
the maximum rate of interest allowed by applicable law, and in the event any
such payment is inadvertently made by the Borrower or inadvertently received by
TIMET, then such excess sum shall be credited as a payment of principal, unless
the Borrower shall notify TIMET in writing that it elects to have such excess
sum returned forthwith. It is the express intent of the parties that the
Borrower not pay and TIMET not receive, directly or indirectly in any manner
whatsoever, interest in excess of that which may legally be paid by the Borrower
under applicable law.
All parties now or hereafter liable with respect to this Note, whether the
Borrower, any guarantor, endorser, or any other Person, hereby waive presentment
for payment, demand, notice of non-payment or dishonor, protest and notice of
protest.
No delay or omission on the part of TIMET or any holder hereof in
exercising its rights under this Note, in exercising its rights under the Loan
Agreement or under any other Loan Document, or course of conduct relating
thereto, shall operate as a waiver of such rights or any other right of TIMET or
any holder hereof, nor shall any waiver of any such right or rights on any one
occasion be deemed a bar to, or waiver of, the same right or rights on any
future occasion.
The Borrower promises to pay all reasonable costs of collection, including
attorneys' fees and expenses, should this Note be collected by or through an
attorney-at-law or under advice therefrom.
<PAGE>
Time is of the essence of this Note.
This Note is entitled to the benefits and subject to the terms of the Loan
Agreement, which contains provisions with respect to the acceleration of the
maturity of this Note upon the happening of certain stated events, and
provisions for prepayment. This Note is secured by and is also entitled to the
benefits of the Loan Documents and any other agreement or instrument providing
Collateral for the Loans, whether now or hereafter in existence, and any
filings, instruments, agreements, and documents related thereto and providing
Collateral for the Loans.
This Note shall be construed in accordance with and governed by the
internal laws of the state of Colorado.
The Loans shall be full recourse as to Borrower; provided, however, that in
the event of a sale by TIMET of all of the Collateral upon an Event of Default,
or because of termination of Borrower's employment for any reason, except as
otherwise provided in this paragraph, TIMET shall be limited to seeking or being
allowed to obtain a personal judgment against the Borrower or the Borrower's
successors and assigns in an amount equal to (i) seventy percent (70%) of the
remaining unpaid principal outstanding after application of the proceeds from
the sale of Collateral, and (ii) all accrued interest and other amounts
(excluding principal) due and payable under the Loan Documents. Notwithstanding
anything herein to the contrary, in the event of any default by the Borrower
under the Loan Documents, (a) TIMET shall have all rights reserved herein, in
the Loan Documents, and in any other instrument given or granted for the purpose
of securing the payment of this Note, subject to the limitation described in the
first sentence of this paragraph, (b) shall have full recourse to all Collateral
for the payment of the indebtedness evidenced hereby and to any other property
which is now or hereafter encumbered or otherwise pledged as security for the
payment of the indebtedness evidenced by this Note or arising under the other
<PAGE>
Loan Documents, (c) nothing contained herein or in any instrument the purpose of
which is to secure the payment of this Note or amounts due under the other Loan
Documents shall be construed to prohibit TIMET from filing any necessary action
naming the Borrower or the Borrower's successors and assigns, the purpose of
which action is to effect the realization of any security given for the payment
of this Note or arising under the other Loan Documents, and (d) the limitations
contained herein shall not be construed to prevent TIMET from asserting a claim
to an interest in any Collateral or the proceeds thereof or other moneys in the
hands of a trustee or receiver or other person or entity appointed by a court of
competent jurisdiction.
IN WITNESS WHEREOF, the Borrower has executed this Note as of the day and
year first above written.
BORROWER: __________________________________
[Name]
<PAGE>
<PAGE>
SECURED PROMISSORY NOTE
$_________ __________ __, 199__
DENVER, COLORADO
FOR VALUE RECEIVED, the undersigned, ______________ (the "Borrower"),
promises to pay to the order of TITANIUM METALS CORPORATION, a Delaware
corporation (together with its successors and assigns, "TIMET"), at the office
of TIMET at 1999 Broadway, Suite 4300, Denver, CO 80202 or such other place as
TIMET may designate in writing to the Borrower, the principal sum of
__________________ DOLLARS ($________) of United States funds, or, if less, so
much thereof as may be outstanding from time to time, plus interest as
hereinafter provided.
All capitalized terms used herein shall have the meanings ascribed to them
in that certain Loan and Pledge Agreement dated as of ___________ (as amended
from time to time, the "Loan Agreement") by and among the Borrower and TIMET,
except to the extent such capitalized terms are otherwise defined or limited
herein.
The Borrower hereby promises to pay the unpaid principal amount hereof in
five (5) equal installments, together with all accrued and unpaid interest as of
each payment date, commencing on the sixth anniversary of the date of this Note.
Notwithstanding the foregoing, all unpaid principal amounts and other
Obligations then outstanding hereunder shall be due and payable on the earliest
to occur of (i) the tenth anniversary of the date of this Note (the "Maturity
Date"), (ii) the sale of the Collateral whether by Borrower or TIMET, or (iii)
such earlier date as payments of the Loans shall be due, whether by acceleration
or otherwise under the terms of this Note or any other Loan Document.
<PAGE>
The Borrower hereby promises to pay interest on the unpaid principal amount
hereof at a rate per annum equal to the Base Rate (which rate as of the date of
this Promissory Note is ______%) plus .0625% per annum from the date hereof
until the earlier of the Maturity Date, or such earlier date as payments of the
Loans shall be due, whether by acceleration or otherwise. Interest shall be
payable in arrears on each March 31, June 30, September 30 and December 31.
Interest under this Note also shall be due and payable when this Note shall
become due (whether at the Maturity Date or earlier date by reason of
acceleration or otherwise). Overdue principal and, to the extent permitted by
law, overdue interest, shall bear interest payable on DEMAND at the Default Rate
as provided in the Loan Agreement.
In no event shall the amount of interest due or payable hereunder exceed
the maximum rate of interest allowed by applicable law, and in the event any
such payment is inadvertently made by the Borrower or inadvertently received by
TIMET, then such excess sum shall be credited as a payment of principal, unless
the Borrower shall notify TIMET in writing that it elects to have such excess
sum returned forthwith. It is the express intent of the parties that the
Borrower not pay and TIMET not receive, directly or indirectly in any manner
whatsoever, interest in excess of that which may legally be paid by the Borrower
under applicable law.
All parties now or hereafter liable with respect to this Note, whether the
Borrower, any guarantor, endorser, or any other Person, hereby waive presentment
for payment, demand, notice of non-payment or dishonor, protest and notice of
protest.
No delay or omission on the part of TIMET or any holder hereof in
exercising its rights under this Note, in exercising its rights under the Loan
Agreement or under any other Loan Document, or course of conduct relating
thereto, shall operate as a waiver of such rights or any other right of TIMET or
<PAGE>
any holder hereof, nor shall any waiver of any such right or rights on any one
occasion be deemed a bar to, or waiver of, the same right or rights on any
future occasion.
The Borrower promises to pay all reasonable costs of collection, including
attorneys' fees and expenses, should this Note be collected by or through an
attorney-at-law or under advice therefrom.
Time is of the essence of this Note.
This Note is entitled to the benefits and subject to the terms of the Loan
Agreement, which contains provisions with respect to the acceleration of the
maturity of this Note upon the happening of certain stated events, and
provisions for prepayment. This Note is secured by and is also entitled to the
benefits of the Loan Documents and any other agreement or instrument providing
Collateral for the Loans, whether now or hereafter in existence, and any
filings, instruments, agreements, and documents related thereto and providing
Collateral for the Loans.
This Note shall be construed in accordance with and governed by the
internal laws of the state of Colorado.
The Loans shall be full recourse as to Borrower; provided, however, that in
the event of a sale by TIMET of all of the Collateral upon an Event of Default,
or because of termination of Borrower's employment for any reason, except as
otherwise provided in this paragraph, TIMET shall be limited to seeking or being
allowed to obtain a personal judgment against the Borrower or the Borrower's
successors and assigns in an amount equal to (i) seventy percent (70%) of the
remaining unpaid principal outstanding after application of the proceeds from
the sale of Collateral, and (ii) all accrued interest and other amounts
(excluding principal) due and payable under the Loan Documents. Notwithstanding
anything herein to the contrary, in the event of any default by the Borrower
<PAGE>
under the Loan Documents, (a) TIMET shall have all rights reserved herein, in
the Loan Documents, and in any other instrument given or granted for the purpose
of securing the payment of this Note, subject to the limitation described in the
first sentence of this paragraph, (b) shall have full recourse to all Collateral
for the payment of the indebtedness evidenced hereby and to any other property
which is now or hereafter encumbered or otherwise pledged as security for the
payment of the indebtedness evidenced by this Note or arising under the other
Loan Documents, (c) nothing contained herein or in any instrument the purpose of
which is to secure the payment of this Note or amounts due under the other Loan
Documents shall be construed to prohibit TIMET from filing any necessary action
naming the Borrower or the Borrower's successors and assigns, the purpose of
which action is to effect the realization of any security given for the payment
of this Note or arising under the other Loan Documents, and (d) the limitations
contained herein shall not be construed to prevent TIMET from asserting a claim
to an interest in any Collateral or the proceeds thereof or other moneys in the
hands of a trustee or receiver or other person or entity appointed by a court of
competent jurisdiction.
IN WITNESS WHEREOF, the Borrower has executed this Note as of the day and
year first above written.
BORROWER: __________________________________
[NAME]
<PAGE>
<PAGE>
STOCK POWER
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, _________________ (the "Borrower"), for value received,
hereby bargained, sold, assigned and transferred and by these presents hereby
bargain(s), sell(s), assign(s) and transfer(s) unto
_______ Share(s) of the ___________ stock of _______________________ held in the
name of the Borrower on the books of ________________________ represented by
Certificate No. ___.
The Borrower hereby constitute(s) and appoint(s)
_____________________________________ as attorney-in-fact to sell, assign,
transfer, hypothecate, pledge and make over all or any part of the said stock,
and for that purpose to make and execute all necessary acts of assignment and
transfer thereof, and to substitute one or more persons with like full power,
hereby ratifying and confirming all that said attorney-in-fact or a substitute
or substitutes shall lawfully do by virtue hereof.
WITNESSED this ________ day of __________________, 19___.
BORROWER: _______________________________
Borrower's Name:
<PAGE>
Signed and delivered
in the presence of:
_______________________
_______________________
<PAGE>
Debtor: ____________________
Secured Party: Titanium Metals Corporation
EXHIBIT "A"
Description of Collateral
All of the Debtor's right, title and interest in and to the following
property, whether now owned or hereafter acquired by the Debtor and whether now
existing or hereafter coming into existence:
(a) all of the shares of capital stock or other securities of the
Issuer (as defined below) represented by the respective certificates identified
in Schedule 1 attached hereto and by this reference made a part hereof, together
with in each case the certificates representing the same (collectively, the
"Pledged Securities"); and
(b) all shares, securities, moneys or property representing a
dividend on, or a distribution or return of capital in respect of any of the
Pledged Securities, resulting from a split-up, revisions, reclassification or
other like change of any of the Pledged Securities or otherwise received in
exchange for any of the Pledged Securities and all Equity Rights (as defined
below) issued to the holders of, or otherwise in respect of, any of the Pledged
Securities (collectively, together with the Pledged Securities, the "Pledged
Collateral"); and
(c) all proceeds in whatever form of all or any part of the Pledged
Securities and Pledged Collateral.
<PAGE>
For the purposes hereof, the following terms shall have the meanings
set forth below:
"Equity Rights" shall mean, with respect to any person, any
outstanding subscriptions, options, warrants, commitments, preemptive rights or
agreements of any kind (including any stockholders' or voting trust agreements)
for the issuance, sale, registration or voting of, or outstanding securities
convertible into, any additional shares of capital stock of any class, or
partnership or other ownership interests of any type in, such person.
"Issuer" shall mean Titanium Metals Corporation and/or TIMET Capital
Trust I.
Debtor: ____________________
<PAGE>
Secured Party: Titanium Metals Corporation
SCHEDULE 1
Capital Stock:
Other Securities:
<PAGE>
1,600,000 Shares
6.625% Series A Senior Convertible Preferred Stock
(Liquidation Amount $50.00 per Share)
AMENDMENT TO INVESTMENT AGREEMENT
October 28, 1998
Titanium Metals Corporation
TIMET Finance Management Company
1999 Broadway, Suite 4300
Denver, Colorado 80202
Ladies and Gentlemen:
Reference is made to the Investment Agreement, dated July 8, 1998 (the
"Investment Agreement"), among Special Metals Corporation, a Delaware
corporation (the "Company"), Titanium Metals Corporation, a Delaware corporation
("TMC"), and TIMET Finance Management Company, a Delaware corporation and a
wholly-owned subsidiary of TMC (the "Investor"), relating to the proposed
issuance and sale by the Company to the Investor of shares (the "Shares") of the
Company's 6.625% Series A Senior Convertible Preferred Stock, liquidation amount
$50.00 per share (the "Convertible Preferred Securities").
In consideration of the premises and mutual agreements contained
herein, and for other good and valuable consideration, the receipt and
<PAGE>
sufficiency of which are hereby acknowledged, the parties hereto agree to amend
the Investment Agreement pursuant to Section 19 thereof as follows:
1. Defined Terms. Except as otherwise provided herein, capitalized
terms used herein and not otherwise defined herein shall have the meanings
ascribed to such terms in the Investment Agreement. References herein to this
"Amendment" shall mean this Amendment to the Investment Agreement. Unless the
context otherwise requires, references in the Investment Agreement to
"Convertible Preferred Securities" shall refer solely to the Shares of the
Company's 6.625% Series A Senior Convertible Preferred Stock being purchased by
the Investor pursuant to the Investment Agreement, as amended hereby, and shall
not include any shares being purchased by Inco Limited pursuant to the Inco
Investment Agreement (as hereinafter defined).
2. Amendments to Investment Agreement.
(a) The first paragraph of the Investment Agreement is hereby
amended by deleting such paragraph in its entirety and replacing it with a
new paragraph as follows:
"Special Metals Corporation, a Delaware corporation (the
"Company"), proposes to issue and sell to TIMET Finance Management
Company, a Delaware corporation (the "Investor"), and a wholly-owned
subsidiary of Titanium Metals Corporation, a Delaware corporation
("TMC"), 1,600,000 shares of its 6.625% Series A Senior Convertible
Preferred Stock, liquidation amount $50.00 per share (the "Convertible
Preferred Securities"). The Convertible Preferred Securities will be
convertible into shares of the common stock, par value $.01 per share
(the "Common Stock"), of the Company initially at the conversion price
set forth herein and will rank, with respect to dividend rights and
rights upon liquidation, winding up and dissolution, senior to the
Common Stock, and each other class of capital stock or series of
<PAGE>
preferred stock of the Company established after the original issuance
of the Convertible Preferred Securities, and ~pari~passu~with the
Convertible Preferred Securities to be issued under the Certificate of
Designation referred to in Section 1 below to Inco Limited, a
corporation continued under the laws of Canada ("Inco Limited),
pursuant to the Investment Agreement to be entered into between Inco
Limited and the Company (the "Inco Investment Agreement").
(b) Section 1 of the Investment Agreement is hereby amended by
deleting such Section in its entirety and replacing it with a new Section 1
as follows:
"1. Purchase and Sale. On the terms and subject to the
conditions and in reliance upon the representations and warranties set
forth in this Agreement, the Company agrees to issue, sell and deliver
to the Investor, and the Investor agrees to purchase from the Company,
1,600,000 Convertible Preferred Securities, at a purchase price of
$50.00 per Convertible Preferred Security, for an aggregate purchase
price of $80,000,000 (the "Purchase Price"). Each Convertible
Preferred Security shall be convertible at the option of the holder
into shares of Common Stock of the Company following the Initial
Conversion Date (as defined herein) at a conversion price equal to
$16.50 per share. Such conversion price will be subject to adjustment
from time to time as set forth in the Certificate of Designation of
Rights and Preferences establishing the terms and relative rights and
preferences of the Convertible Preferred Securities substantially in
the form set forth in Exhibit C hereto (the "Certificate of
Designation"). The term "Initial Conversion Date" shall mean the
latest of (i) 90 days following the date of original issuance of the
Convertible Preferred Securities, (ii) the date on which approval is
obtained in accordance with Regulation 14A of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), by the stockholders of
<PAGE>
the Company entitled to vote thereon (the "Stockholders Conversion
Vote") of the issuance of Common Stock upon the conversion of the
Convertible Preferred Securities upon the terms and conditions set
forth in the Certificate of Designation and (iii) the date upon which
all waiting periods under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "Hart-Scott-Rodino Act"), have expired or
been terminated."
(c) Section 3 of the Investment Agreement is hereby amended by
deleting Section 3(h) in its entirety and replacing it with a new Section
3(h) as follows:
" (h) The financing contemplated by (i) the new credit
facility to be entered into by the Company, Credit Lyonnais
New York Branch as agent and various lenders with respect to
the Acquisition (the "New Credit Agreement"), (ii) the
Investor's investment in the Convertible Preferred Securities
as contemplated by this Agreement, (iii) Inco Limited's
investment in $17,000,000 aggregate liquidation amount of
Convertible Preferred Securities as contemplated by the Inco
Investment Agreement, and (iv) Inco's agreement to pay Credit
Lyonnais New York Branch, as agent, a fee of $10,000,000
pursuant to the letter agreement dated October 5, 1998
constitute the only financing arrangements to be entered into
by or on behalf of the Company or any of its Subsidiaries in
connection with the financing of the Acquisition other than
indebtedness of Inco and/or its subsidiaries to be assumed in
connection with the Acquisition."
(d) Section 3(q) of the Investment Agreement is hereby
amended by inserting the words", the Inco Investment Agreement"
<PAGE>
immediately after the words "this Agreement" on the 2nd line of
such Section.
(e) Section 5 of the Investment Agreement is hereby
amended by deleting such Section 5 in its entirety and replacing
it with a new Section 5 as follows:
"5. Governance. The Company agrees with the Investor and TMC
that:
(a) Immediately following the Closing Time, the Board of
Directors of the Company (the "Board") shall increase the authorized
number of Directors of the Board by a number sufficient to include as
an additional director of the Company one Investor Nominee (as defined
in Section 5(b) hereof) who has been designated by the Investor in the
Investor Nominee Notice (as defined in Section 5(b) hereof) and shall
appoint such Investor Nominees to the Board as a Class III Director in
accordance with the Company's procedures for the appointment of
directors. Such Investor Nominee shall hold office for a term
expiring at the annual meeting of stockholders at which the term of
the class to which he or she has been elected expires or until his or
her successor is duly elected and qualified. So long as the Investor
(together with TMC and any wholly-owned subsidiary of TMC)
beneficially owns voting securities of the Company representing at
least 10% of the outstanding voting securities of the Company
(assuming for purposes of this Section 5, that any Convertible
Preferred Securities owned by the Investor, TMC or such subsidiary
have been converted into Common Stock), the Investor shall be entitled
to designate one Investor Nominee to the Board. If at any time the
number of members constituting the entire Board shall exceed 10,
including the Investor Nominee appointed pursuant to this Section 5
but excluding all directors elected by holders of the Convertible
<PAGE>
Preferred Securities pursuant to Section 9 of the Certificate of
Designation, the Investor shall be entitled to designate pursuant to
an Investor Nominee Notice, and the Board shall appoint to the Board,
one additional Investor Nominee in accordance with the provisions of
this Section 5. In the event of a vacancy caused by the
disqualification, removal, resignation or other cessation of service
of any Investor Nominee from the Board, the Board shall elect as a
director (to serve until the Company's immediately succeeding annual
meeting of shareholders at which the term of the class to which such
Investor Nominee has been elected expires) a new Investor Nominee who
has been designated by the Investor in an additional Investor Nominee
Notice that has been provided to the Company at least five days prior
to the date of a regular meeting of the Board. The Investor shall
nominate each Investor Nominee pursuant to an additional Investor
Nominee Notice in advance of each meeting of shareholders at which
such Investor Nominee is to be elected. If the beneficial ownership
by the Investor (together with the beneficial ownership by TMC or any
wholly-owned subsidiary of TMC) of the outstanding voting securities
of the Company decreases below 10% of the outstanding voting
securities of the Company (assuming for purposes of this Section 5,
that any Convertible Preferred Securities owned by the Investor, TMC
and any such wholly-owned subsidiary of TMC have been converted into
Common Stock) the Investor shall, at the request of the Company, cause
all its Investor Nominees to resign from the Board, in accordance with
the Company's procedures for the resignation of directors and
applicable laws and regulations.
(b) The Investor shall provide a designation notice to the
Company (the "Investor Nominee Notice") as required by Section 5(a)
above for each Investor Nominee, which notice shall contain the
following information: (i) the name of the person(s) it has designated
to become director(s) of the Company (each, an "Investor Nominee"),
<PAGE>
and (ii) all information required by Regulation 14A and Schedule 14A
under the Exchange Act with respect to each such Investor Nominee.
Such Investor Nominee may be any person designated by the Investor,
including, but not limited to, persons who are officers, directors or
employees of the Investor.
Notwithstanding the above, the Company shall not be
obligated to perform the obligations under this Section 5 with respect
to any Investor Nominee designated by the Investor if such Investor
Nominee is (i) a director, officer, employee, shareholder, controlling
person or otherwise affiliated with a Significant Competitor (as
hereinafter defined), other than TMC or its affiliates, (ii) a person
that is or theretofore has been engaged in material litigation adverse
to the Company or any of its affiliates, (iii) a person (other than
TMC and/or its wholly owned subsidiaries) who beneficially owns voting
securities of the Company representing more than 10% of the
outstanding voting securities of the Company, or (iv) a person (x)
other than the person then serving as chief executive officer, chief
financial officer or chief operating officer of TMC and/or as a
director of TMC or (y) who the Board, after customary investigation of
such person's qualifications, reasonably determines in good faith is
not qualified or acceptable under standards applied fairly and equally
to all nominees (it being understood that any person listed on
Schedule 5(b) hereto or falling within subclause (x) of this clause
(iii) shall be deemed qualified and acceptable hereunder).
(c) The Company agrees to cause to include the Investor Nominee
which the Investor is entitled to designate pursuant to this Agreement
in the slate of nominees recommended by the Board to the Company's
shareholders for election as directors and shall use its reasonable
best efforts to cause the election or reelection of each such Investor
Nominee to the Board at each meeting of shareholders at which such
<PAGE>
Investor Nominee is up for election, including soliciting proxies in
favor of the election of such persons. At the direction of the
Investor, the Company shall use reasonable efforts to cause the
removal from the Board of any Investor Nominee.
(d) Each Investor Nominee shall be reimbursed for his or her
out-of-pocket expenses incurred in attending regular and special Board
meetings and any meeting of any Board committee by the Company to the
extent of, and in accordance with, the policies of the Company
generally applicable to the reimbursement of expenses of directors of
the Company.
(e) The Board will not establish an executive committee
authorized to exercise the power of the Board generally unless the
Investor is granted representation on such committee proportional to
its representation on the Board, nor will the Board establish or
employ committees (unless the Investor is granted proportional
representation thereon) as a means designed to circumvent or having
the effect of circumventing the rights of the Investor under this
Agreement to representation on the Board."
(f) Section 7(c) of the Investment Agreement is hereby amended
by inserting the words", Inco" immediately after the word "TMC."
(g) Section 7(d) of the Investment Agreement is hereby amended
by inserting the words", Inco" immediately after the word "TMC" on the 7th
line of such Section.
(h) Section 9 of the Investment Agreement is hereby amended by
inserting the words "(other than the Convertible Preferred Securities or
Conversion Shares that are to be issued under the Inco Investment
<PAGE>
Agreement)" immediately after the words "or other voting securities" on the
3rd line from the top of such Section.
(i) Section 11 of the Investment Agreement is hereby amended by
adding subsection (l) thereto as follows:
" (l) The terms of the Convertible Preferred Stock to be issued
and sold to Inco Limited pursuant to the Inco Investment Agreement,
and any additional rights granted to Inco with respect thereto or in
connection therewith, shall be in all material respects as set forth
in the attached Certificate of Designation, Inco Investment Agreement
and registration rights agreement between the Company and Inco
Limited."
(j) Section 12 of the Investment Agreement is hereby amended by
deleting Section 12(b) in its entirety.
(k) The Investment Agreement is hereby amended by adding a
Section 31 thereto as follows:
"31. Acknowledgment of Inco Investment Agreement. The Investor
hereby acknowledges that the Company has advised the Investor that, at
the Closing Time, the Company and Inco Limited will enter into the
Inco Investment Agreement pursuant to which the Company will issue
under the Certificate of Designation, sell and deliver to Inco Limited
340,000 Convertible Preferred Securities, at a purchase price of
$50.00 per Convertible Preferred Security, for an aggregate purchase
price of $17,000,000, and the Investor has agreed to such issuance to
Inco Limited."
<PAGE>
3. Confirmation of Investment Agreement. Except as otherwise
expressly provided herein, the Investment Agreement is and shall remain in full
force and effect and is hereby ratified and confirmed.
4. Governing Law. This Amendment shall be governed by, and
construed, in accordance with, the laws of the State of New York applicable to
contracts made and to be performed in that state.
5. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be deemed to constitute an original, but all
of which together shall constitute one and the same instrument.
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement with respect to the amendment of the Investment Agreement, please sign
and return to us the enclosed duplicate hereof, whereupon this Amendment and
your acceptance shall represent a binding agreement between the Company, on the
one hand, and the Investor and TMC, on the other hand.
Very truly yours,
SPECIAL METALS CORPORATION
By: /s/ Donald R. Muzyka
Name: Donald R. Muzyka
Title: President
The foregoing Amendment is hereby
confirmed and accepted as of the
date first above written:
TIMET FINANCE MANAGEMENT COMPANY
By: /s/ Susan E. Alderton
Name: Susan E. Alderton
Title: Treasurer
TITANIUM METALS CORPORATION
By: /s/ J. Landis Martin
Name: J. Landis Martin
Title: Chief Executive Officer
<PAGE>
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT DATED AS OF OCTOBER 28, 1998 (THIS
"AGREEMENT") BETWEEN TIMET FINANCE MANAGEMENT COMPANY, A DELAWARE CORPORATION
(THE "INVESTOR"), AND SPECIAL METALS CORPORATION, A DELAWARE CORPORATION (THE
"COMPANY").
W I T N E S S E T H:
WHEREAS, IN CONNECTION WITH, AND AS A CONDITION TO, THE CLOSING OF THE
TRANSACTIONS CONTEMPLATED BY THE INVESTMENT AGREEMENT, DATED AS OF JULY 8, 1998,
AS AMENDED ON OCTOBER 28, 1998 (AS SO AMENDED, THE "INVESTMENT AGREEMENT"),
AMONG THE COMPANY, THE INVESTOR AND TITANIUM METALS CORPORATION, A DELAWARE
CORPORATION ("TMC"), THE PARTIES HAVE AGREED TO ENTER INTO THIS AGREEMENT, WHICH
SETS FORTH CERTAIN REGISTRATION RIGHTS APPLICABLE TO THE REGISTRABLE SECURITIES
(AS DEFINED BELOW) HELD FROM TIME TO TIME BY THE INVESTOR AND/OR CERTAIN
PERMITTED TRANSFEREES;
NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL COVENANTS SET FORTH HEREIN
AND FOR OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF
WHICH IS HEREBY ACKNOWLEDGED, AND SUBJECT TO THE CONDITIONS AND UPON THE TERMS
HEREOF, THE PARTIES HERETO HEREBY AGREE AS FOLLOWS:
1. DEFINITIONS. CAPITALIZED TERMS USED HEREIN WITHOUT DEFINITION SHALL
HAVE THEIR RESPECTIVE MEANINGS SET FORTH IN THE INVESTMENT AGREEMENT. AS USED
HEREIN, UNLESS THE CONTEXT OTHERWISE REQUIRES, THE FOLLOWING TERMS HAVE THE
FOLLOWING RESPECTIVE MEANINGS:
<PAGE>
"CERTIFICATE OF DESIGNATION" SHALL MEAN THE CERTIFICATE OF
DESIGNATION OF RIGHTS AND PREFERENCES ESTABLISHING THE TERMS AND RELATIVE RIGHTS
AND PREFERENCES OF THE CONVERTIBLE PREFERRED SECURITIES.
"COMMISSION" MEANS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
OTHER FEDERAL AGENCY AT THE TIME ADMINISTERING THE SECURITIES ACT.
<PAGE>
"COMMON STOCK" SHALL MEAN AND INCLUDE (I) COMMON STOCK, PAR VALUE
$0.01 PER SHARE, OF THE COMPANY, (II) EACH OTHER CLASS OF CAPITAL STOCK OF THE
COMPANY THAT DOES NOT HAVE A PREFERENCE OVER ANY OTHER CLASS OF CAPITAL STOCK OF
THE COMPANY AS TO DIVIDENDS OR UPON LIQUIDATION, DISSOLUTION OR WINDING UP OF
THE COMPANY, AND (III) ANY CLASS OF CAPITAL STOCK OR SECURITIES INTO WHICH OR
FOR WHICH SHARES OF COMMON STOCK OR ANY OTHER CLASS OF CAPITAL STOCK OR
SECURITIES DESCRIBED IN CLAUSES (II) OR (III) MAY HEREAFTER BE CHANGED,
CONVERTED OR EXCHANGED OR WHICH ARE ISSUED TO HOLDERS OF SHARES OF COMMON STOCK
OR ANY OTHER CLASS OF CAPITAL STOCK OR SECURITIES DESCRIBED IN CLAUSES (II) OR
(III) UPON ANY REORGANIZATION, RECAPITALIZATION, RECLASSIFICATION, SHARE
COMBINATION, SHARE SUBDIVISION, SHARE DIVIDEND, MERGER, CONSOLIDATION OR SIMILAR
TRANSACTIONS OR EVENTS.
"CONVERSION SHARES" SHALL MEAN AND INCLUDE THE SHARES OF COMMON
STOCK ISSUABLE UPON CONVERSION OF THE CONVERTIBLE PREFERRED SECURITIES IN
ACCORDANCE WITH THE TERMS OF THE CERTIFICATE OF DESIGNATION.
"CONVERTIBLE PREFERRED SECURITIES" SHALL MEAN AND INCLUDE (I) THE
6.625% SERIES A SENIOR CONVERTIBLE PREFERRED STOCK (LIQUIDATION AMOUNT $50.00
PER CONVERTIBLE PREFERRED SECURITY) OF THE COMPANY AND (II) ANY CLASS OF CAPITAL
STOCK OR SECURITIES INTO WHICH OR FOR WHICH CONVERTIBLE PREFERRED SECURITIES OR
ANY OTHER CLASS OF CAPITAL STOCK OR SECURITIES DESCRIBED IN THIS CLAUSE (II) MAY
HEREAFTER BE CHANGED, CONVERTED OR EXCHANGED (IN EACH CASE, OTHER THAN PURSUANT
TO ITS TERMS) OR WHICH ARE ISSUED TO HOLDERS OF CONVERTIBLE PREFERRED SECURITIES
OR ANY OTHER CLASS OF CAPITAL STOCK OR SECURITIES DESCRIBED IN THIS CLAUSE (II)
UPON ANY REORGANIZATION, RECAPITALIZATION, RECLASSIFICATION, SHARE COMBINATION,
SHARE SUBDIVISION, SHARE DIVIDEND, MERGER, CONSOLIDATION OR SIMILAR TRANSACTIONS
OR EVENTS.
"EXCHANGE ACT" MEANS THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, OR ANY SUPERSEDING FEDERAL STATUTE, AND THE RULES AND REGULATIONS
PROMULGATED THEREUNDER, ALL AS THE SAME SHALL BE IN EFFECT AT THE TIME.
<PAGE>
REFERENCE TO A PARTICULAR SECTION OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, SHALL INCLUDE A REFERENCE TO THE COMPARABLE SECTION, IF ANY, OF ANY
SUCH SUPERSEDING FEDERAL STATUTE.
"FIRST OFFER PRICE" IS DEFINED IN SECTION 2.1(A).
"INCO" MEANS INCO LIMITED, A CORPORATION CONTINUED UNDER THE LAWS OF
CANADA.
"INCO REGISTRATION RIGHTS AGREEMENT" MEANS THE REGISTRATION RIGHTS
AGREEMENT, DATED THE DATE HEREOF, BETWEEN INCO AND THE COMPANY, AS AMENDED FROM
TIME TO TIME.
"INITIATING HOLDER" IS DEFINED IN SECTION 2.1(A).
"A MAJORITY OF THE REGISTRABLE SECURITIES" SHALL MEAN (I) MORE THAN
50% OF THE SHARES OF THE ISSUED AND OUTSTANDING REGISTRABLE SECURITIES IF THE
REGISTRABLE SECURITIES ARE SHARES OF CAPITAL STOCK OR RIGHTS OR WARRANTS TO
ACQUIRE CAPITAL STOCK, (II) MORE THAN 50% OF THE AGGREGATE PRINCIPAL AMOUNT OF
THE ISSUED AND OUTSTANDING REGISTRABLE SECURITIES IF THE REGISTRABLE SECURITIES
ARE DEBT SECURITIES OR (III) MORE THAN 50% OF THE AGGREGATE LIQUIDATION AMOUNT
OF THE ISSUED AND OUTSTANDING REGISTRABLE SECURITIES IF THE REGISTRABLE
SECURITIES ARE CONVERTIBLE PREFERRED SECURITIES. IF THERE IS MORE THAN ONE CLASS
OF REGISTRABLE SECURITIES, THE TERM "A MAJORITY OF THE REGISTRABLE SECURITIES"
SHALL MEAN A MAJORITY OF THE REGISTRABLE SECURITIES, ASSUMING FOR PURPOSES OF
THIS DEFINITION, THAT ALL SUCH SECURITIES HAVE BEEN CONVERTED INTO SECURITIES OF
THE SAME CLASS.
"OFFERED SECURITIES" IS DEFINED IN SECTION 2.8(A).
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"PERSON" MEANS ANY INDIVIDUAL, FIRM, CORPORATION, PARTNERSHIP,
LIMITED LIABILITY COMPANY OR PARTNERSHIP, TRUST, INCORPORATED OR UNINCORPORATED
ASSOCIATION, JOINT VENTURE, JOINT STOCK COMPANY, GOVERNMENT (OR AN AGENCY OR
POLITICAL SUBDIVISION THEREOF) OR OTHER ENTITY OF ANY KIND AND SHALL INCLUDE ANY
SUCCESSOR (BY MERGER OR OTHERWISE) OF SUCH ENTITY.
"PRINCIPAL STOCKHOLDERS" IS DEFINED IN SECTION 2.1(B).
"PRINCIPAL STOCKHOLDERS' REGISTRATION AGREEMENT" IS DEFINED IN
SECTION 2.1(B).
"PRINCIPAL STOCKHOLDERS' SECURITIES" IS DEFINED IN SECTION 2.2(B).
"REGISTRABLE SECURITIES" MEANS THE CONVERTIBLE PREFERRED SECURITIES,
THE CONVERSION SHARES AND ANY OTHER SECURITIES OF THE COMPANY ACQUIRED PURSUANT
TO THE TERMS OF THE INVESTMENT AGREEMENT. AS TO ANY PARTICULAR REGISTRABLE
SECURITIES, ONCE ISSUED, SUCH SECURITIES SHALL CEASE TO BE REGISTRABLE
SECURITIES WHEN (A) A REGISTRATION STATEMENT WITH RESPECT TO THE SALE OF SUCH
SECURITIES SHALL HAVE BECOME EFFECTIVE UNDER THE SECURITIES ACT AND SUCH
SECURITIES SHALL HAVE BEEN DISPOSED OF IN ACCORDANCE WITH SUCH REGISTRATION
STATEMENT, (B) THEY SHALL HAVE BEEN SOLD AS PERMITTED BY RULE 144 (OR ANY
SUCCESSOR PROVISION) UNDER THE SECURITIES ACT, (C) THEY SHALL HAVE BEEN
OTHERWISE TRANSFERRED, NEW CERTIFICATES FOR THEM NOT BEARING A LEGEND
RESTRICTING FURTHER TRANSFER SHALL HAVE BEEN DELIVERED BY THE COMPANY AND
SUBSEQUENT PUBLIC DISTRIBUTION OF THEM SHALL NOT REQUIRE REGISTRATION OF SUCH
DISTRIBUTION UNDER THE SECURITIES ACT OR (D) THEY SHALL HAVE CEASED TO BE
OUTSTANDING. ALL REFERENCES TO PERCENTAGES OF REGISTRABLE SECURITIES SHALL BE
CALCULATED PURSUANT TO SECTION 12.
"REGISTRATION EXPENSES" MEANS ALL EXPENSES INCIDENT TO THE COMPANY'S
PERFORMANCE OF OR COMPLIANCE WITH SECTION 2, INCLUDING, WITHOUT LIMITATION, ALL
REGISTRATION AND FILING FEES, ALL FEES OF THE NASDAQ NATIONAL MARKET, ANY
<PAGE>
NATIONAL SECURITIES EXCHANGE OR THE NATIONAL ASSOCIATION OF SECURITIES DEALERS,
INC., ALL FEES AND EXPENSES OF THE COMPANY OF COMPLYING WITH SECURITIES OR BLUE
SKY LAWS (IF ANY), ALL WORD PROCESSING, DUPLICATING AND PRINTING EXPENSES,
MESSENGER AND DELIVERY EXPENSES OF THE COMPANY, THE FEES AND DISBURSEMENTS OF
COUNSEL FOR THE COMPANY AND OF THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS,
INCLUDING THE EXPENSES OF "COMFORT" LETTERS REQUIRED BY OR INCIDENT TO SUCH
PERFORMANCE AND COMPLIANCE, ANY FEES AND DISBURSEMENTS OF UNDERWRITERS
CUSTOMARILY PAID BY ISSUERS OR SELLERS OF SECURITIES (EXCLUDING ANY UNDERWRITING
DISCOUNTS OR COMMISSIONS OR TRANSFER TAXES WITH RESPECT TO THE REGISTRABLE
SECURITIES) AND THE REASONABLE FEES AND EXPENSES OF ONE COUNSEL TO THE SELLING
HOLDERS (SELECTED BY THE SELLING HOLDERS REPRESENTING A MAJORITY OF THE
REGISTRABLE SECURITIES COVERED BY SUCH REGISTRATION STATEMENT); PROVIDED,
HOWEVER, THAT IN THE EVENT THE COMPANY SHALL DETERMINE, IN ACCORDANCE WITH
SECTION 2.2(A) OR SECTION 2.6, NOT TO REGISTER ANY SECURITIES WITH RESPECT TO
WHICH IT HAD GIVEN WRITTEN NOTICE OF ITS INTENTION TO SO REGISTER TO HOLDERS OF
REGISTRABLE SECURITIES, ALL OF THE COSTS OF THE TYPE (AND SUBJECT TO ANY
LIMITATION TO THE EXTENT) SET FORTH IN THIS DEFINITION AND INCURRED BY SELLING
HOLDERS IN CONNECTION WITH SUCH REGISTRATION ON OR PRIOR TO THE DATE THE COMPANY
NOTIFIES THE SELLING HOLDERS OF SUCH DETERMINATION SHALL BE DEEMED REGISTRATION
EXPENSES.
<PAGE>
"SECOND OFFER PRICE" IS DEFINED IN SECTION 2.8(B).
"SELLING HOLDER" IS DEFINED IN SECTION 2.1(A).
"SECURITIES ACT" MEANS THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY SUPERSEDING FEDERAL STATUTE, AND THE RULES AND REGULATIONS PROMULGATED
THEREUNDER, ALL AS THE SAME SHALL BE IN EFFECT AT THE TIME. REFERENCES TO A
PARTICULAR SECTION OF THE SECURITIES ACT OF 1933, AS AMENDED, SHALL INCLUDE A
REFERENCE TO THE COMPARABLE SECTION, IF ANY, OF ANY SUCH SUPERSEDING FEDERAL
STATUTE.
2. REGISTRATION UNDER SECURITIES ACT, ETC.
2.1 DEMAND REGISTRATION
(A) AT ANY TIME AFTER THE SECOND ANNIVERSARY OF THE DATE OF THIS
AGREEMENT, UPON WRITTEN NOTICE PROVIDED TO THE COMPANY FROM EITHER (X) THE
HOLDER OR HOLDERS OF A MAJORITY OF THE REGISTRABLE SECURITIES OR (Y) THE
INVESTOR SO LONG AS (1) THE INVESTOR HOLDS REGISTRABLE SECURITIES REPRESENTING
MORE THAN 5% OF THE OUTSTANDING COMMON STOCK (ASSUMING ANY CONVERTIBLE PREFERRED
SECURITIES HELD BY THE INVESTOR HAVE BEEN CONVERTED INTO CONVERSION SHARES) OR
(2) THE INVESTOR'S REQUEST FOR REGISTRATION COVERS ALL REGISTRABLE SECURITIES
THEN HELD BY THE INVESTOR (IN EACH CASE, THE "INITIATING HOLDERS") REQUESTING
THAT THE COMPANY EFFECT THE REGISTRATION UNDER THE SECURITIES ACT OF THE
REGISTRABLE SECURITIES HELD BY THE INITIATING HOLDERS (WHICH NOTICE SHALL
SPECIFY (I) THE REGISTRABLE SECURITIES INTENDED TO BE DISPOSED OF, (II) THE
INTENDED METHOD OR METHODS OF DISPOSITION OF SUCH REGISTRABLE SECURITIES AND
(III) THE SELLING PRICE (THE "FIRST OFFER PRICE") ACCEPTABLE TO THE INITIATING
HOLDERS, AS DETERMINED IN GOOD FAITH BY THE INITIATING HOLDERS), THE COMPANY
PROMPTLY WILL GIVE WRITTEN NOTICE OF SUCH REQUESTED REGISTRATION TO ALL
REGISTERED HOLDERS OF REGISTRABLE SECURITIES, AND THEREUPON THE COMPANY WILL USE
<PAGE>
ITS BEST EFFORTS TO EFFECT, AT THE EARLIEST PRACTICABLE DATE, THE REGISTRATION
UNDER THE SECURITIES ACT OF
(I) THE REGISTRABLE SECURITIES WHICH THE COMPANY HAS BEEN SO
REQUESTED TO REGISTER BY SUCH INITIATING HOLDERS; AND
(II) ALL OTHER REGISTRABLE SECURITIES WHICH THE COMPANY HAS BEEN
REQUESTED TO REGISTER BY THE HOLDERS THEREOF (SUCH HOLDERS, TOGETHER WITH THE
INITIATING HOLDERS, HEREINAFTER ARE REFERRED TO AS THE "SELLING HOLDERS") BY
WRITTEN REQUEST GIVEN TO THE COMPANY WITHIN 15 DAYS AFTER THE GIVING OF SUCH
WRITTEN NOTICE BY THE COMPANY, ALL TO THE EXTENT NECESSARY TO PERMIT THE
DISPOSITION OF THE REGISTRABLE SECURITIES SO TO BE REGISTERED;
PROVIDED, HOWEVER, THAT ANY SALE OF OFFERED SECURITIES PURSUANT TO THE
REGISTRATION PROVISIONS OF THIS SECTION 2.1 SHALL, PURSUANT TO THE PROVISIONS OF
SECTION 2.8(A), BE SUBJECT TO THE COMPANY'S PRIOR RIGHT OF FIRST REFUSAL SET
FORTH IN SECTION 8 OF THE INVESTMENT AGREEMENT AND SHALL BE SUBJECT TO THE
ADDITIONAL PURCHASE RIGHTS OF THE COMPANY SET FORTH IN SECTION 2.8(B).
<PAGE>
(B) REGISTRATION OF OTHER SECURITIES. WHENEVER THE COMPANY SHALL
EFFECT A REGISTRATION PURSUANT TO THIS SECTION 2.1, NO SECURITIES OTHER THAN
REGISTRABLE SECURITIES SHALL BE INCLUDED AMONG THE SECURITIES COVERED BY SUCH
REGISTRATION (EXCEPT FOR SUCH SECURITIES THAT ARE REGISTRABLE SECURITIES UNDER
THE REGISTRATION RIGHTS AGREEMENT (THE "PRINCIPAL STOCKHOLDERS' REGISTRATION
AGREEMENT"), DATED AS OF FEBRUARY 25, 1997, AMONG SOCIETE INDUSTRIELLE DE
MATERIAUX AVANCES, LWH HOLDING S.A. AND ADVANCED MATERIALS INVESTMENTS HOLDING
S.A. (COLLECTIVELY, THE "PRINCIPAL STOCKHOLDERS"), WHICH SECURITIES SHALL BE
SUBJECT TO THE PRIORITY PROVISIONS OF SECTION 2.2(B) OF THE PRINCIPAL
STOCKHOLDERS' REGISTRATION AGREEMENT AS IN EFFECT ON THE DATE HEREOF), UNLESS
THE SELLING HOLDERS HOLDING NOT LESS THAN A MAJORITY OF THE REGISTRABLE
SECURITIES TO BE INCLUDED BY SUCH REGISTRATION SHALL HAVE CONSENTED IN WRITING
TO THE INCLUSION OF SUCH OTHER SECURITIES.
(C) REGISTRATION STATEMENT FORM. REGISTRATIONS UNDER THIS
SECTION 2.1 SHALL BE ON SUCH APPROPRIATE REGISTRATION FORM OF THE COMMISSION AS
SHALL BE REASONABLY SELECTED BY THE COMPANY.
(D) EFFECTIVE REGISTRATION STATEMENT. A REGISTRATION REQUESTED
PURSUANT TO THIS SECTION 2.1 SHALL NOT BE DEEMED TO HAVE BEEN EFFECTED UNLESS A
REGISTRATION STATEMENT WITH RESPECT THERETO HAS BECOME EFFECTIVE AND REMAINED
EFFECTIVE IN COMPLIANCE WITH THE PROVISIONS OF THE SECURITIES ACT WITH RESPECT
TO THE DISPOSITION OF ALL REGISTRABLE SECURITIES COVERED BY SUCH REGISTRATION
STATEMENT UNTIL SUCH TIME AS ALL OF SUCH REGISTRABLE SECURITIES HAVE BEEN
DISPOSED OF IN ACCORDANCE WITH THE INTENDED METHODS OF DISPOSITION BY THE SELLER
OR SELLERS THEREOF SET FORTH IN SUCH REGISTRATION STATEMENT (UNLESS THE FAILURE
TO SO DISPOSE OF SUCH REGISTRABLE SECURITIES SHALL BE CAUSED SOLELY BY REASON OF
A FAILURE ON THE PART OF THE SELLING HOLDERS), PROVIDED, THAT, EXCEPT WITH
RESPECT TO ANY REGISTRATION STATEMENT FILED PURSUANT TO RULE 415 UNDER THE
SECURITIES ACT, SUCH PERIOD NEED NOT EXCEED 180 DAYS.
<PAGE>
(E) SELECTION OF UNDERWRITERS. THE UNDERWRITER OR UNDERWRITERS OF
EACH UNDERWRITTEN OFFERING OF THE REGISTRABLE SECURITIES SO TO BE REGISTERED
SHALL BE SELECTED BY THE COMPANY, SUBJECT TO THE REASONABLE CONSENT OF SELLING
HOLDERS HOLDING MORE THAN A MAJORITY OF THE REGISTRABLE SECURITIES TO BE
INCLUDED IN SUCH REGISTRATION.
<PAGE>
(F) PRIORITY REQUESTED REGISTRATION. IF THE MANAGING UNDERWRITER OF
ANY UNDERWRITTEN OFFERING OR, IN THE CASE OF ANY OFFERING WHICH IS NOT
UNDERWRITTEN, A NATIONALLY RECOGNIZED INVESTMENT BANKING FIRM SHALL ADVISE THE
COMPANY IN WRITING (AND THE COMPANY SHALL IN EACH CASE SO ADVISE EACH SELLING
HOLDER OF REGISTRABLE SECURITIES REQUESTING REGISTRATION OF SUCH ADVICE IN
WRITING) THAT, IN ITS OPINION, THE NUMBER OF SECURITIES REQUESTED TO BE INCLUDED
IN SUCH REGISTRATION EXCEEDS THE NUMBER WHICH CAN BE SOLD IN SUCH OFFERING
WITHOUT ADVERSELY AFFECTING THE MARKET FOR THE COMPANY'S SECURITIES OR WITHIN A
PRICE RANGE ACCEPTABLE TO THE SELLING HOLDERS OF A MAJORITY OF THE REGISTRABLE
SECURITIES REQUESTED TO BE INCLUDED IN SUCH REGISTRATION, THE COMPANY, EXCEPT AS
PROVIDED IN THE FOLLOWING SENTENCE, WILL INCLUDE IN SUCH REGISTRATION, TO THE
EXTENT OF THE NUMBER AND TYPE OF SECURITIES WHICH THE COMPANY IS SO ADVISED CAN
BE SOLD IN SUCH OFFERING, FIRST, REGISTRABLE SECURITIES REQUESTED TO BE INCLUDED
IN SUCH REGISTRATION, PRO RATA (BASED ON THE NUMBER OF REGISTRABLE SECURITIES
HELD BY EACH OF THE SELLING HOLDERS) AMONG THE SELLING HOLDERS REQUESTING SUCH
REGISTRATION, AND SECOND, ALL SECURITIES OF THE COMPANY PROPOSED TO BE SOLD BY
THE COMPANY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A PERSON OTHER THAN A
HOLDER OF REGISTRABLE SECURITIES. NOTWITHSTANDING THE FOREGOING, IF THE TOTAL
NUMBER OF REGISTRABLE SECURITIES REQUESTED TO BE INCLUDED IN ANY REGISTRATION
CANNOT BE INCLUDED, THE SELLING HOLDERS HOLDING NOT LESS THAN A MAJORITY OF THE
REGISTRABLE SECURITIES WITH RESPECT TO WHICH REGISTRATION HAS BEEN REQUESTED,
SHALL HAVE THE RIGHT TO WITHDRAW THE REQUEST FOR REGISTRATION OF ALL OR A
PORTION OF THEIR REGISTRABLE SECURITIES REQUESTED TO BE INCLUDED IN SUCH
REGISTRATION BY GIVING WRITTEN NOTICE TO THE COMPANY WITHIN 20 DAYS AFTER
RECEIPT OF THE NOTICE FROM THE MANAGING UNDERWRITER DESCRIBED ABOVE BY THE
COMPANY AND, IN THE EVENT OF SUCH WITHDRAWAL, SUCH REQUEST SHALL NOT BE COUNTED
FOR PURPOSES OF THE REQUESTS FOR REGISTRATION TO WHICH HOLDERS OF REGISTRABLE
SECURITIES ARE ENTITLED PURSUANT TO THIS SECTION 2.1. IF A REQUEST FOR
REGISTRATION IS WITHDRAWN PURSUANT TO THE IMMEDIATELY PRECEDING SENTENCE AND AT
LEAST 90% OF EACH CLASS OF THE REGISTRABLE SECURITIES REQUESTED TO BE INCLUDED
IN SUCH WITHDRAWN REGISTRATION COULD HAVE BEEN INCLUDED THEREIN, THEN, THE
REGISTRATION EXPENSES INCURRED BY THE COMPANY IN CONNECTION WITH SUCH WITHDRAWN
<PAGE>
REGISTRATION SHALL BE REIMBURSED BY THE SELLING HOLDERS, PRO RATA (BASED ON THE
NUMBER OF REGISTRABLE SECURITIES REQUESTED TO BE INCLUDED THEREIN) AMONG THE
SELLING HOLDERS OR FOR THE ACCOUNT OF A PERSON OTHER THAN A HOLDER OF
REGISTRABLE SECURITIES.
(G) LIMITATIONS ON REGISTRATION REQUESTS. NOTWITHSTANDING ANYTHING IN
THIS SECTION 2.1 TO THE CONTRARY, IN NO EVENT WILL THE COMPANY BE REQUIRED TO
(I) EFFECT MORE THAN TWO REGISTRATIONS REQUESTED PURSUANT TO SECTION 2.1(A)
(II) EFFECT A REGISTRATION PURSUANT TO THIS SECTION 2.1 WITHIN THE 12-MONTH
PERIOD OCCURRING IMMEDIATELY SUBSEQUENT TO THE EFFECTIVENESS (WITHIN THE MEANING
OF SECTION 2.1(D)) OF A REGISTRATION STATEMENT FILED PURSUANT TO THIS
SECTION 2.1 OR A REGISTRATION STATEMENT FILED BY THE COMPANY OFFERING ITS SHARES
OF COMMON STOCK (OTHER THAN A REGISTRATION STATEMENT ON FORM S-8 WITH RESPECT TO
AN EMPLOYEE BENEFIT PLAN) WITH RESPECT TO WHICH HOLDERS OF REGISTRABLE
SECURITIES WERE NOTIFIED OF THEIR RIGHT TO PARTICIPATE PURSUANT TO
SECTION 2.2(A), BUT ELECTED NOT TO EXERCISE THEIR PIGGY-BACK RIGHTS (EXCEPT
WHERE SUCH REGISTRATION STATEMENT WAS FILED BY THE COMPANY IN CONNECTION WITH AN
EXCLUSIVE DEMAND REGISTRATION PURSUANT TO SECTION 2.1 OF THE PRINCIPAL
STOCKHOLDERS REGISTRATION AGREEMENT AS IN EFFECT ON THE DATE HEREOF), UNLESS THE
COMPANY DETERMINES THAT EFFECTING A SECOND REGISTRATION WITHIN THE 12-MONTH
PERIOD IS NOT LIKELY TO HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY OR THE
MARKET FOR THE COMPANY'S SECURITIES, OR (III) EFFECT A REGISTRATION PURSUANT TO
SECTION 2.1 COVERING REGISTRABLE SECURITIES WITH AN AGGREGATE OFFERING PRICE OF
LESS THAN $15 MILLION BASED UPON THE THEN CURRENT MARKET PRICE OR FAIR MARKET
VALUES AS ESTIMATED BY THE COMPANY'S BOARD OF DIRECTORS IN GOOD FAITH BASED UPON
THE WRITTEN ADVICE OF THE COMPANY'S MANAGING UNDERWRITER IN THE CASE OF AN
UNDERWRITTEN OFFERING, OR THE WRITTEN OPINION OF A NATIONALLY RECOGNIZED
INVESTMENT BANKING FIRM IN THE CASE OF ANY OFFERING WHICH IS NOT UNDERWRITTEN.
(H) EXPENSES. THE COMPANY WILL PAY ALL REGISTRATION EXPENSES IN
CONNECTION WITH ANY REGISTRATIONS REQUESTED PURSUANT TO THIS SECTION 2.1.
<PAGE>
2.2 PIGGY-BACK REGISTRATION.
<PAGE>
(A) RIGHT TO INCLUDE REGISTRABLE SECURITIES. EXCEPT IN CONNECTION
WITH AN EXCLUSIVE DEMAND REGISTRATION PURSUANT TO SECTION 2.1 OF THE PRINCIPAL
STOCKHOLDERS' REGISTRATION AGREEMENT AS IN EFFECT ON THE DATE HEREOF, IF THE
COMPANY AT ANY TIME AFTER THE SECOND ANNIVERSARY OF THE DATE OF THIS AGREEMENT,
PROPOSES TO REGISTER ANY OF ITS COMMON STOCK UNDER THE SECURITIES ACT BY
REGISTRATION ON ANY FORM OTHER THAN FORMS S-4 OR S-8 OR A FORM S-1 RELATING TO
SECURITIES TO BE ISSUED IN CONNECTION WITH A MERGER OR SIMILAR TRANSACTION,
WHETHER OR NOT FOR SALE FOR ITS OWN ACCOUNT, IT WILL EACH SUCH TIME GIVE PROMPT
WRITTEN NOTICE TO ALL REGISTERED HOLDERS OF REGISTRABLE SECURITIES OF ITS
INTENTION TO DO SO AND OF SUCH HOLDERS' RIGHTS UNDER THIS SECTION 2.2. UPON THE
WRITTEN REQUEST OF ANY SUCH HOLDER MADE AS PROMPTLY AS PRACTICABLE AND IN ANY
EVENT WITHIN 20 DAYS AFTER THE RECEIPT OF ANY SUCH NOTICE FROM THE COMPANY
(WHICH REQUEST SHALL SPECIFY THE REGISTRABLE SECURITIES INTENDED TO BE DISPOSED
OF BY SUCH HOLDER AND THE FIRST OFFER PRICE WHICH IS ACCEPTABLE TO SUCH HOLDER,
AS DETERMINED IN GOOD FAITH BY THE INITIATING HOLDERS), THE COMPANY WILL USE ITS
BEST EFFORTS TO EFFECT THE REGISTRATION UNDER THE SECURITIES ACT OF ALL
REGISTRABLE SECURITIES WHICH THE COMPANY HAS BEEN SO REQUESTED TO REGISTER BY
THE SELLING HOLDERS THEREOF; PROVIDED, THAT PRIOR TO THE EFFECTIVE DATE OF THE
REGISTRATION STATEMENT FILED IN CONNECTION WITH SUCH REGISTRATION, IMMEDIATELY
UPON NOTIFICATION TO THE COMPANY FROM THE MANAGING UNDERWRITER OF THE PRICE AT
WHICH SUCH SECURITIES ARE TO BE SOLD, IF SUCH PRICE IS BELOW THE FIRST OFFER
PRICE WHICH ANY SELLING HOLDER SHALL HAVE INDICATED TO BE ACCEPTABLE TO SUCH
SELLING HOLDER, THE COMPANY SHALL SO ADVISE SUCH SELLING HOLDER OF SUCH PRICE,
AND SUCH SELLING HOLDER SHALL THEN HAVE THE RIGHT TO WITHDRAW ITS REQUEST TO
HAVE ITS REGISTRABLE SECURITIES INCLUDED IN SUCH REGISTRATION STATEMENT; AND
PROVIDED, FURTHER, HOWEVER, THAT ANY SALE OF OFFERED SECURITIES PURSUANT TO THE
REGISTRATION PROVISIONS OF THIS SECTION 2.2 SHALL, PURSUANT TO SECTION 2.8(A),
BE SUBJECT TO THE COMPANY'S PRIOR RIGHT OF FIRST REFUSAL SET FORTH IN SECTION 8
OF THE INVESTMENT AGREEMENT AND SHALL BE SUBJECT TO THE ADDITIONAL PURCHASE
RIGHTS OF THE COMPANY SET FORTH IN SECTION 2.8(B). IF, AT ANY TIME AFTER GIVING
WRITTEN NOTICE OF ITS INTENTION TO REGISTER ANY SECURITIES AND PRIOR TO THE
EFFECTIVE DATE OF THE REGISTRATION STATEMENT FILED IN CONNECTION WITH SUCH
<PAGE>
REGISTRATION, THE COMPANY SHALL DETERMINE FOR ANY REASON NOT TO REGISTER OR TO
DELAY REGISTRATION OF SUCH SECURITIES, THE COMPANY SHALL GIVE WRITTEN NOTICE OF
SUCH DETERMINATION TO EACH SELLING HOLDER OF REGISTRABLE SECURITIES AND (X) IN
THE CASE OF A DETERMINATION NOT TO REGISTER, SHALL BE RELIEVED OF ITS OBLIGATION
TO REGISTER ANY REGISTRABLE SECURITIES IN CONNECTION WITH SUCH REGISTRATION (BUT
NOT FROM ANY OBLIGATION OF THE COMPANY TO PAY THE REGISTRATION EXPENSES IN
CONNECTION THEREWITH), WITHOUT PREJUDICE, HOWEVER, TO THE RIGHTS OF ANY HOLDER
OR HOLDERS OF REGISTRABLE SECURITIES ENTITLED TO DO SO TO CAUSE A REGISTRATION
TO BE EFFECTED UNDER SECTION 2.1, AND (Y) IN THE CASE OF A DETERMINATION TO
DELAY REGISTERING, SHALL BE PERMITTED TO DELAY REGISTERING ANY REGISTRABLE
SECURITIES, FOR THE SAME PERIOD AS THE DELAY IN REGISTERING SUCH OTHER
SECURITIES. NO REGISTRATION EFFECTED UNDER THIS SECTION 2.2 SHALL RELIEVE THE
COMPANY OF ITS OBLIGATION TO EFFECT ANY REGISTRATION UPON REQUEST UNDER
SECTION 2.1.
<PAGE>
(B) PRIORITY IN PIGGY-BACK REGISTRATIONS. IF THE MANAGING
UNDERWRITER OF ANY UNDERWRITTEN OFFERING OR, IN THE CASE OF ANY OFFERING THAT IS
NOT UNDERWRITTEN, A NATIONALLY RECOGNIZED INVESTMENT BANKING FIRM SHALL ADVISE
THE COMPANY (AND THE COMPANY SHALL IN EACH CASE SO ADVISE EACH SELLING HOLDER OF
REGISTRABLE SECURITIES REQUESTING REGISTRATION OF SUCH ADVICE IN WRITING) THAT,
IN ITS OPINION, THE NUMBER OR TYPE OF REGISTRABLE SECURITIES REQUESTED TO BE
INCLUDED IN SUCH REGISTRATION WOULD MATERIALLY ADVERSELY AFFECT SUCH OFFERING OR
THE MARKET FOR THE COMPANY'S SECURITIES, THEN THE COMPANY WILL INCLUDE IN SUCH
REGISTRATION, TO THE EXTENT OF THE NUMBER AND TYPE OF SECURITIES WHICH THE
COMPANY IS SO ADVISED CAN BE SOLD IN (OR DURING THE TIME OF) SUCH OFFERING,
FIRST, ALL SECURITIES OF THE COMPANY PROPOSED BY THE COMPANY TO BE SOLD FOR ITS
OWN ACCOUNT, OR, IN THE CASE OF A SECONDARY OFFERING MADE PURSUANT TO DEMAND
REGISTRATION RIGHTS GRANTED TO ANY PERSON OTHER THAN A HOLDER OF REGISTRABLE
SECURITIES, ALL SECURITIES OF THE COMPANY THAT SUCH PERSON PROPOSES TO SELL;
SECOND, ALL SECURITIES, IF ANY (THE "PRINCIPAL STOCKHOLDERS' SECURITIES"),
PROPOSED BY THE COMPANY TO BE SOLD FOR THE ACCOUNT OF THE PRINCIPAL STOCKHOLDERS
PURSUANT TO THE EXERCISE OF THEIR PIGGY-BACK REGISTRATION RIGHTS UNDER THE
PRINCIPAL STOCKHOLDERS' REGISTRATION RIGHTS AGREEMENT; THIRD, SUCH REGISTRABLE
SECURITIES REQUESTED TO BE INCLUDED IN SUCH REGISTRATION PURSUANT TO THIS
AGREEMENT (PRO RATA, BASED ON THE NUMBER OF REGISTRABLE SECURITIES REQUESTED TO
BE INCLUDED BY EACH SELLING HOLDER HEREUNDER) AMONG SUCH SELLING HOLDERS;
FOURTH, SUCH REGISTRABLE SECURITIES REQUESTED TO BE INCLUDED IN SUCH
REGISTRATION PURSUANT TO THE INCO REGISTRATION RIGHTS AGREEMENT (PRO RATA, BASED
ON THE NUMBER OF REGISTRABLE SECURITIES REQUESTED TO BE INCLUDED BY EACH HOLDER
THEREUNDER); AND FIFTH, ALL SECURITIES OF THE COMPANY TO BE SOLD FOR THE ACCOUNT
OF A PERSON OTHER THAN A HOLDER OF REGISTRABLE SECURITIES OR PRINCIPAL
STOCKHOLDERS' SECURITIES, AS THE CASE MAY BE.
(C) EXPENSES. THE COMPANY WILL PAY ALL REGISTRATION EXPENSES IN
CONNECTION WITH ANY REGISTRATION CONTEMPLATED PURSUANT TO THIS SECTION 2.2.
<PAGE>
2.3 REGISTRATION PROCEDURES. IF AND WHENEVER THE COMPANY IS
REQUIRED TO USE ITS BEST EFFORTS TO EFFECT THE REGISTRATION OF ANY REGISTRABLE
SECURITIES UNDER THE SECURITIES ACT AS PROVIDED IN SECTIONS 2.1 AND 2.2, THE
COMPANY WILL, AS EXPEDITIOUSLY AS POSSIBLE:
(I) SUBJECT TO SECTION 2.6, PREPARE AND (WITHIN 90 DAYS AFTER
THE END OF THE PERIOD WITHIN WHICH REQUESTS FOR REGISTRATION MAY BE GIVEN TO THE
COMPANY) FILE WITH THE COMMISSION THE REQUISITE REGISTRATION STATEMENT TO EFFECT
SUCH REGISTRATION AND THEREAFTER USE ITS COMMERCIALLY REASONABLE BEST EFFORTS TO
CAUSE SUCH REGISTRATION STATEMENT TO BECOME EFFECTIVE; PROVIDED, HOWEVER, THAT
THE COMPANY MAY DISCONTINUE ANY REGISTRATION OF SECURITIES THAT ARE NOT
REGISTRABLE SECURITIES (AND, UNDER THE CIRCUMSTANCES SPECIFIED IN SECTION 2.1(F)
AND 2.2(A) AND (B), REGISTRABLE SECURITIES) AT ANY TIME PRIOR TO THE EFFECTIVE
DATE OF THE REGISTRATION STATEMENT RELATING THERETO;
(II) SUBJECT TO SECTION 2.6, PREPARE AND FILE WITH THE
COMMISSION SUCH AMENDMENTS AND SUPPLEMENTS TO SUCH REGISTRATION STATEMENT AND
THE PROSPECTUS USED IN CONNECTION THEREWITH AS MAY BE NECESSARY TO KEEP SUCH
REGISTRATION STATEMENT EFFECTIVE IN ACCORDANCE WITH SECTION 2.1(D) HEREOF AND TO
COMPLY WITH THE PROVISIONS OF THE SECURITIES ACT WITH RESPECT TO THE DISPOSITION
OF ALL REGISTRABLE SECURITIES COVERED BY SUCH REGISTRATION STATEMENT UNTIL SUCH
TIME AS ALL OF SUCH REGISTRABLE SECURITIES HAVE BEEN DISPOSED OF IN ACCORDANCE
WITH THE INTENDED METHODS OF DISPOSITION BY THE SELLER OR SELLERS THEREOF SET
FORTH IN SUCH REGISTRATION STATEMENT; PROVIDED, THAT EXCEPT WITH RESPECT TO ANY
SUCH REGISTRATION STATEMENT FILED PURSUANT TO RULE 415 UNDER THE SECURITIES ACT,
SUCH PERIOD NEED NOT EXCEED 180 DAYS;
<PAGE>
(III) FURNISH TO EACH SELLER OF REGISTRABLE SECURITIES, SUCH
NUMBER OF CONFORMED COPIES OF SUCH REGISTRATION STATEMENT AND OF EACH SUCH
AMENDMENT AND SUPPLEMENT THERETO (IN EACH CASE INCLUDING ALL EXHIBITS), SUCH
NUMBER OF COPIES OF THE PROSPECTUS CONTAINED IN SUCH REGISTRATION STATEMENT
(INCLUDING EACH PRELIMINARY PROSPECTUS AND ANY SUMMARY PROSPECTUS) AND ANY OTHER
PROSPECTUS FILED UNDER RULE 424 UNDER THE SECURITIES ACT, IN CONFORMITY WITH THE
REQUIREMENTS OF THE SECURITIES ACT, AND SUCH OTHER DOCUMENTS, AS SUCH SELLER MAY
REASONABLY REQUEST;
(IV) MAKE ANY FILINGS (IF ANY) REQUIRED UNDER THE BLUE SKY OR
SECURITIES LAWS OF SUCH STATES OF THE UNITED STATES OF AMERICA AS THE SELLERS OF
REGISTRABLE SECURITIES COVERED BY SUCH REGISTRATION STATEMENT SHALL REASONABLY
REQUEST;
(V) FURNISH AT THE EFFECTIVE DATE OF SUCH REGISTRATION STATEMENT
AND/OR ON THE DATE OF CLOSING UNDER THE UNDERWRITING AGREEMENT, AS THE CASE MAY
BE, TO EACH SELLER OF REGISTRABLE SECURITIES, AND TO THE UNDERWRITERS, IF ANY, A
SIGNED COUNTERPART OF:
(X) AN OPINION OF COUNSEL FOR THE COMPANY DATED THE
EFFECTIVE DATE OF SUCH REGISTRATION STATEMENT AND, IF
APPLICABLE, THE DATE OF THE CLOSING UNDER THE UNDERWRITING
AGREEMENT, AND
(Y) A "COMFORT" LETTER SIGNED BY THE INDEPENDENT
PUBLIC ACCOUNTANTS WHO HAVE CERTIFIED THE COMPANY'S
FINANCIAL STATEMENTS INCLUDED OR INCORPORATED BY REFERENCE
IN SUCH REGISTRATION STATEMENT, COVERING SUBSTANTIALLY THE
SAME MATTERS WITH RESPECT TO SUCH REGISTRATION STATEMENT
(AND THE PROSPECTUS INCLUDED THEREIN) AND, IN THE CASE OF
THE ACCOUNTANTS' COMFORT LETTER, WITH RESPECT TO EVENTS
SUBSEQUENT TO THE DATE OF SUCH FINANCIAL STATEMENTS, AS ARE
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CUSTOMARILY COVERED IN OPINIONS OF ISSUER'S COUNSEL AND IN
ACCOUNTANTS' COMFORT LETTERS DELIVERED TO THE UNDERWRITERS
IN UNDERWRITTEN PUBLIC OFFERINGS OF SECURITIES AND, IN THE
CASE OF THE ACCOUNTANTS' COMFORT LETTER, SUCH OTHER
FINANCIAL MATTERS, AND, IN THE CASE OF THE LEGAL OPINION,
SUCH OTHER LEGAL MATTERS, AS COUNSEL FOR THE SELLER OR
SELLERS OF REGISTRABLE SECURITIES MAY REASONABLY REQUEST;
(VI) NOTIFY EACH SELLER OF REGISTRABLE SECURITIES AT ANY TIME
WHEN A PROSPECTUS RELATING THERETO IS REQUIRED TO BE DELIVERED UNDER THE
SECURITIES ACT, UPON DISCOVERY THAT, OR UPON THE HAPPENING OF ANY EVENT AS A
RESULT OF WHICH, THE PROSPECTUS INCLUDED IN SUCH REGISTRATION STATEMENT, AS THEN
IN EFFECT, INCLUDES AN UNTRUE STATEMENT OF A MATERIAL FACT OR OMITS TO STATE ANY
MATERIAL FACT REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS
THEREIN NOT MISLEADING, IN THE LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE
MADE, AND AT THE REQUEST OF ANY SUCH SELLER PROMPTLY PREPARE AND FURNISH TO IT A
REASONABLE NUMBER OF COPIES OF A SUPPLEMENT TO OR AN AMENDMENT OF SUCH
PROSPECTUS AS MAY BE NECESSARY SO THAT, AS THEREAFTER DELIVERED TO THE
PURCHASERS OF SUCH SECURITIES, SUCH PROSPECTUS SHALL NOT INCLUDE AN UNTRUE
STATEMENT OF A MATERIAL FACT OR OMIT TO STATE A MATERIAL FACT REQUIRED TO BE
STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS THEREIN NOT MISLEADING IN THE
LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE;
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(VII) OTHERWISE USE ITS BEST EFFORTS TO COMPLY WITH ALL
APPLICABLE RULES AND REGULATIONS OF THE COMMISSION, AND MAKE AVAILABLE TO
SECURITY HOLDERS, AS SOON AS REASONABLY PRACTICABLE (BUT NOT MORE THAN SIXTEEN
MONTHS AFTER THE EFFECTIVE DATE OF SUCH REGISTRATION STATEMENT), AN EARNINGS
STATEMENT COVERING THE PERIOD OF AT LEAST TWELVE MONTHS BEGINNING WITH THE FIRST
FULL CALENDAR MONTH AFTER THE EFFECTIVE DATE OF SUCH REGISTRATION STATEMENT,
WHICH EARNINGS STATEMENT SHALL SATISFY THE PROVISIONS OF SECTION 11(A) OF THE
SECURITIES ACT AND RULE 158 PROMULGATED THEREUNDER;
(VIII) PROVIDE AND CAUSE TO BE MAINTAINED A TRANSFER AGENT AND
REGISTRAR (WHICH, IN EACH CASE, MAY BE THE COMPANY) FOR ALL REGISTRABLE
SECURITIES COVERED BY SUCH REGISTRATION STATEMENT FROM AND AFTER A DATE NOT
LATER THAN THE EFFECTIVE DATE OF SUCH REGISTRATION;
(IX) USE ITS BEST EFFORTS TO LIST ALL REGISTRABLE SECURITIES
COVERED BY SUCH REGISTRATION STATEMENT ON ANY NATIONAL MARKET OR NATIONAL
SECURITIES EXCHANGE ON WHICH REGISTRABLE SECURITIES OF THE SAME CLASS COVERED BY
SUCH REGISTRATION STATEMENT ARE THEN LISTED AND, IF NO SUCH REGISTRABLE
SECURITIES ARE SO LISTED, ON ANY NATIONAL MARKET OR NATIONAL SECURITIES EXCHANGE
ON WHICH THE COMMON STOCK IS THEN LISTED;
(X) TO THE EXTENT REASONABLY REQUESTED BY THE MANAGING
UNDERWRITER OF ANY UNDERWRITTEN OFFERING, SEND APPROPRIATE OFFICERS OF THE
COMPANY TO ATTEND "ROAD SHOWS" SCHEDULED IN CONNECTION WITH ANY SUCH
REGISTRATION; AND
(XI) FURNISH UNLEGENDED CERTIFICATES REPRESENTING OWNERSHIP OF
THE REGISTRABLE SECURITIES BEING SOLD IN SUCH DENOMINATIONS AS SHALL BE
REQUESTED BY THE SELLERS OF REGISTRABLE SECURITIES OR THE UNDERWRITERS.
AS A CONDITION PRECEDENT OF THE COMPANY'S OBLIGATIONS UNDER THIS
SECTION 2.3, THE COMPANY MAY REQUIRE EACH SELLER OF REGISTRABLE SECURITIES AS TO
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WHICH ANY REGISTRATION IS BEING EFFECTED TO AGREE TO COMPLY WITH THE SECURITIES
ACT AND THE EXCHANGE ACT IN CONNECTION WITH THE REGISTRATION OF SUCH SELLER'S
REGISTRABLE SECURITIES AND TO PROVIDE THE COMPANY WITH SUCH INFORMATION REQUIRED
UNDER SUCH ACTS AS THE COMPANY MAY REASONABLY REQUEST IN CONNECTION THEREWITH.
EACH HOLDER OF REGISTRABLE SECURITIES AGREES THAT, UPON RECEIPT OF ANY
NOTICE FROM THE COMPANY OF THE HAPPENING OF ANY EVENT OF THE KIND DESCRIBED IN
SUBDIVISION (VI) OF THIS SECTION 2.3, SUCH HOLDER WILL FORTHWITH DISCONTINUE
SUCH DISPOSITION OF REGISTRABLE SECURITIES PURSUANT TO THE REGISTRATION
STATEMENT RELATING TO SUCH REGISTRABLE SECURITIES UNTIL THE RECEIPT OF THE
COPIES OF THE SUPPLEMENTED OR AMENDED PROSPECTUS CONTEMPLATED BY
SUBDIVISION (VI) OF THIS SECTION 2.3 AND, IF SO DIRECTED BY THE COMPANY, WILL
DELIVER TO THE COMPANY (AT THE COMPANY'S EXPENSE) ALL COPIES, OTHER THAN
PERMANENT FILE COPIES, THEN IN ITS POSSESSION OF THE PROSPECTUS RELATING TO SUCH
REGISTRABLE SECURITIES CURRENT AT THE TIME OF RECEIPT OF SUCH NOTICE.
2.4 UNDERWRITTEN OFFERINGS.
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(A) REQUESTED UNDERWRITTEN OFFERINGS. IF REQUESTED BY THE
UNDERWRITERS FOR ANY UNDERWRITTEN OFFERING BY HOLDERS OF REGISTRABLE SECURITIES
PURSUANT TO A REGISTRATION REQUESTED UNDER SECTION 2.1, THE COMPANY WILL ENTER
INTO AN UNDERWRITING AGREEMENT WITH SUCH UNDERWRITERS FOR SUCH OFFERING, SUCH
AGREEMENT TO BE REASONABLY SATISFACTORY IN SUBSTANCE AND FORM TO EACH SUCH
HOLDER AND THE UNDERWRITERS AND TO CONTAIN SUCH REPRESENTATIONS AND WARRANTIES
BY THE COMPANY AND SUCH OTHER TERMS AS ARE GENERALLY PREVAILING IN AGREEMENTS OF
THAT TYPE, INCLUDING, WITHOUT LIMITATION, INDEMNITIES TO THE EFFECT AND TO THE
EXTENT PROVIDED IN SECTION 2.7 OR SUCH OTHER INDEMNITIES AS ARE CUSTOMARILY
RECEIVED BY UNDERWRITERS IN PUBLIC OFFERINGS OF SIMILAR SECURITIES. THE HOLDER
OF THE REGISTRABLE SECURITIES PROPOSED TO BE DISTRIBUTED BY SUCH UNDERWRITERS
WILL REASONABLY COOPERATE WITH THE COMPANY IN THE NEGOTIATION OF THE
UNDERWRITING AGREEMENT. SUCH HOLDERS OF REGISTRABLE SECURITIES TO BE DISTRIBUTED
BY SUCH UNDERWRITERS SHALL BE PARTIES TO SUCH UNDERWRITING AGREEMENT AND MAY, AT
THE OPTION OF THE HOLDERS OF A MAJORITY OF THE REGISTRABLE SECURITIES TO BE
DISTRIBUTED BY SUCH UNDERWRITERS, REQUIRE THAT ANY OR ALL OF THE REPRESENTATIONS
AND WARRANTIES BY, AND THE OTHER AGREEMENTS ON THE PART OF, THE COMPANY TO AND
FOR THE BENEFIT OF SUCH UNDERWRITERS SHALL ALSO BE MADE TO AND FOR THE BENEFIT
OF SUCH HOLDERS AND THAT ANY OR ALL OF THE CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF UNDERWRITERS UNDER SUCH UNDERWRITING AGREEMENT BE CONDITIONS
PRECEDENT TO THE OBLIGATIONS OF SUCH HOLDERS OF REGISTRABLE SECURITIES. NO
HOLDER OF REGISTRABLE SECURITIES SHALL BE REQUIRED TO MAKE ANY REPRESENTATIONS
OR WARRANTIES TO OR AGREEMENTS WITH THE COMPANY OTHER THAN REPRESENTATIONS,
WARRANTIES OR AGREEMENTS REGARDING SUCH HOLDERS AND SUCH HOLDERS' INTENDED
METHOD OF DISTRIBUTION OR ANY OTHER REPRESENTATIONS REQUIRED BY APPLICABLE LAW.
(B) INCIDENTAL UNDERWRITTEN OFFERINGS. IF THE COMPANY PROPOSES TO
REGISTER ANY OF ITS SECURITIES UNDER THE SECURITIES ACT AS CONTEMPLATED BY
SECTION 2.2 AND SUCH SECURITIES ARE TO BE DISTRIBUTED BY OR THROUGH ONE OR MORE
UNDERWRITERS, THE COMPANY WILL, IF REQUESTED BY ANY SELLING HOLDER OF
REGISTRABLE SECURITIES, USE ITS BEST EFFORTS TO ARRANGE FOR SUCH UNDERWRITERS TO
INCLUDE ALL THE REGISTRABLE SECURITIES TO BE OFFERED AND SOLD BY SUCH SELLING
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HOLDER AMONG THE SECURITIES OF THE COMPANY TO BE DISTRIBUTED BY SUCH
UNDERWRITERS, SUBJECT TO THE PROVISIONS OF SECTION 2.2(B). THE HOLDERS OF
REGISTRABLE SECURITIES TO BE DISTRIBUTED BY SUCH UNDERWRITERS SHALL BE PARTIES
TO THE UNDERWRITING AGREEMENT BETWEEN THE COMPANY AND SUCH UNDERWRITERS AND SUCH
HOLDERS OF REGISTRABLE SECURITIES MAY, AT THE OPTION OF THE HOLDERS OF A
MAJORITY OF THE REGISTRABLE SECURITIES TO BE DISTRIBUTED BY SUCH UNDERWRITERS,
REQUIRE THAT ANY OR ALL OF THE REPRESENTATIONS AND WARRANTIES BY, AND THE OTHER
AGREEMENTS ON THE PART OF, THE COMPANY TO AND FOR THE BENEFIT OF SUCH
UNDERWRITERS SHALL ALSO BE MADE TO AND FOR THE BENEFIT OF SUCH HOLDERS OF
REGISTRABLE SECURITIES AND THAT ANY OR ALL OF THE CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF SUCH UNDERWRITERS UNDER SUCH UNDERWRITING AGREEMENT BE CONDITIONS
PRECEDENT TO THE OBLIGATIONS OF SUCH HOLDERS OF REGISTRABLE SECURITIES. ANY SUCH
SELLING HOLDER OF REGISTRABLE SECURITIES SHALL NOT BE REQUIRED TO MAKE ANY
REPRESENTATIONS OR WARRANTIES TO OR AGREEMENTS WITH THE COMPANY OR THE
UNDERWRITERS OTHER THAN REPRESENTATIONS, WARRANTIES OR AGREEMENTS REGARDING SUCH
SELLING HOLDER, SUCH SELLING HOLDER'S REGISTRABLE SECURITIES AND SUCH SELLING
HOLDER'S INTENDED METHOD OF DISTRIBUTION OR ANY OTHER REPRESENTATIONS REQUIRED
BY APPLICABLE LAW.
(C) HOLDBACK AGREEMENTS.
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(I) TO THE EXTENT NOT INCONSISTENT WITH APPLICABLE LAW, EACH
HOLDER OF REGISTRABLE SECURITIES AGREES NOT TO EFFECT ANY PUBLIC SALE OR
DISTRIBUTION OF ANY REGISTRABLE SECURITIES OF THE COMPANY OR ANY SECURITIES
CONVERTIBLE INTO OR EXCHANGEABLE OR EXERCISABLE FOR SUCH REGISTRABLE SECURITIES,
DURING THE SEVEN DAYS PRIOR TO AND THE 90 DAYS AFTER ANY REGISTRATION RELATING
TO SUCH REGISTRABLE SECURITIES PURSUANT TO SECTIONS 2.1 AND 2.2 HAS BECOME
EFFECTIVE, EXCEPT AS PART OF SUCH REGISTRATION, IF AND TO THE EXTENT REQUESTED
BY THE COMPANY IN THE CASE OF A NON-UNDERWRITTEN PUBLIC OFFERING OR IF AND TO
THE EXTENT REQUESTED BY THE MANAGING UNDERWRITER OR UNDERWRITERS IN THE CASE OF
AN UNDERWRITTEN PUBLIC OFFERING.
(II) THE COMPANY AGREES NOT TO EFFECT ANY PUBLIC SALE OR
DISTRIBUTION OF ITS REGISTRABLE SECURITIES OR SECURITIES CONVERTIBLE INTO OR
EXCHANGEABLE OR EXERCISABLE FOR ANY OF SUCH REGISTRABLE SECURITIES DURING THE
SEVEN DAYS PRIOR TO AND THE 90 DAYS AFTER ANY REGISTRATION RELATING TO SUCH
REGISTRABLE SECURITIES PURSUANT TO SECTION 2.1 OR 2.2 HAS BECOME EFFECTIVE,
EXCEPT AS PART OF SUCH REGISTRATION AND EXCEPT PURSUANT TO REGISTRATIONS ON FORM
S-4 OR S-8 OR ANY SUCCESSOR OR SIMILAR FORMS THERETO; PROVIDED, HOWEVER, THAT
THE PROVISIONS OF THIS SECTION 2.4(C)(II) SHALL NOT PREVENT THE CONVERSION OR
EXCHANGE OF ANY SECURITIES PURSUANT TO THEIR TERMS INTO OR FOR OTHER SECURITIES.
2.5 PREPARATION; REASONABLE INVESTIGATION. IN CONNECTION WITH THE
PREPARATION AND FILING OF EACH REGISTRATION STATEMENT UNDER THE SECURITIES ACT
PURSUANT TO THIS AGREEMENT, THE COMPANY WILL GIVE A REPRESENTATIVE HOLDER (THE
"REPRESENTATIVE") DESIGNATED IN WRITING TO THE COMPANY BY A MAJORITY OF THE
HOLDERS OF REGISTRABLE SECURITIES TO BE REGISTERED UNDER SUCH REGISTRATION
STATEMENT, THE UNDERWRITERS DESIGNATED BY THE REPRESENTATIVE, IF ANY, AND
COUNSEL DESIGNATED BY THE REPRESENTATIVE THE OPPORTUNITY TO PARTICIPATE IN THE
PREPARATION OF SUCH REGISTRATION STATEMENT, EACH PROSPECTUS INCLUDED THEREIN OR
FILED WITH THE COMMISSION, AND EACH AMENDMENT THEREOF OR SUPPLEMENT THERETO, AND
WILL GIVE EACH OF THEM SUCH REASONABLE ACCESS TO ITS BOOKS AND RECORDS AND SUCH
OPPORTUNITIES TO DISCUSS THE BUSINESS OF THE COMPANY AND ITS SUBSIDIARIES WITH
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OFFICERS OF THE COMPANY AND THE INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY
WHO HAVE CERTIFIED ITS FINANCIAL STATEMENTS AS SHALL BE NECESSARY, IN THE
OPINION OF SUCH REPRESENTATIVE AND SUCH UNDERWRITERS AND COUNSEL, TO CONDUCT A
REASONABLE INVESTIGATION WITHIN THE MEANING OF THE SECURITIES ACT.
2.6 LIMITATIONS, CONDITIONS AND QUALIFICATIONS TO OBLIGATIONS UNDER
REGISTRATION COVENANTS. THE COMPANY SHALL BE ENTITLED TO POSTPONE FOR A
REASONABLE PERIOD OF TIME (BUT NOT EXCEEDING 120 DAYS) THE FILING OF ANY
REGISTRATION STATEMENT OTHERWISE REQUIRED TO BE PREPARED AND FILED BY IT
PURSUANT TO SECTION 2.1 IF THE COMPANY DETERMINES, IN ITS REASONABLE JUDGMENT,
THAT SUCH REGISTRATION AND OFFERING WOULD INTERFERE IN A MATERIAL WAY WITH ANY
FINANCING, ACQUISITION, CORPORATE REORGANIZATION OR OTHER MATERIAL TRANSACTION
OR EVENT INVOLVING OR BEING CONSIDERED BY THE COMPANY AND, IN EACH CASE,
PROMPTLY GIVES THE HOLDERS OF REGISTRABLE SECURITIES PURSUANT TO SECTION 2.1
WRITTEN NOTICE OF SUCH DETERMINATION, CONTAINING A GENERAL STATEMENT OF THE
REASONS FOR SUCH POSTPONEMENT AND AN APPROXIMATION OF THE ANTICIPATED DELAY. IF
THE COMPANY SHALL SO POSTPONE THE FILING OF A REGISTRATION STATEMENT, HOLDERS OF
REGISTRABLE SECURITIES REQUESTING REGISTRATION THEREOF PURSUANT TO SECTION 2.1
REPRESENTING NOT LESS THAN A MAJORITY OF THE REGISTRABLE SECURITIES WITH RESPECT
TO WHICH REGISTRATION HAS BEEN REQUESTED, SHALL HAVE THE RIGHT TO WITHDRAW THE
REQUEST FOR REGISTRATION BY GIVING WRITTEN NOTICE TO THE COMPANY WITHIN 30 DAYS
AFTER THE EXPIRATION OF SUCH POSTPONEMENT AND, IN THE EVENT OF SUCH WITHDRAWAL,
SUCH REQUEST SHALL NOT BE COUNTED FOR PURPOSES OF THE REQUESTS FOR REGISTRATION
TO WHICH HOLDERS OF REGISTRABLE SECURITIES ARE ENTITLED PURSUANT TO SECTION 2.1
HEREOF.
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2.7 INDEMNIFICATION.
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(A) INDEMNIFICATION BY THE COMPANY. THE COMPANY SHALL, AND HEREBY
DOES, INDEMNIFY AND HOLD HARMLESS, IN THE CASE OF ANY REGISTRATION STATEMENT
FILED PURSUANT TO SECTION 2.1 OR 2.2, EACH SELLER OF ANY REGISTRABLE SECURITIES
COVERED BY SUCH REGISTRATION STATEMENT AND EACH OTHER PERSON WHO PARTICIPATES AS
AN UNDERWRITER IN THE OFFERING OR SALE OF ANY SECURITIES COVERED BY SUCH
REGISTRATION STATEMENT AND EACH OTHER PERSON, IF ANY, WHO CONTROLS SUCH SELLER
OR ANY SUCH UNDERWRITER WITHIN THE MEANING OF THE SECURITIES ACT OR THE EXCHANGE
ACT, AND THEIR RESPECTIVE DIRECTORS, OFFICERS, PARTNERS, AGENTS AND AFFILIATES,
AGAINST ANY LOSSES, CLAIMS, DAMAGES OR LIABILITIES, JOINT OR SEVERAL, TO WHICH
SUCH SELLER OR UNDERWRITER OR ANY SUCH DIRECTOR, OFFICER, PARTNER, AGENT,
AFFILIATE OR CONTROLLING PERSON MAY BECOME SUBJECT UNDER THE SECURITIES ACT OR
OTHERWISE, INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND EXPENSES OF
LEGAL COUNSEL, INSOFAR AS SUCH LOSSES, CLAIMS, DAMAGES OR LIABILITIES (OR
ACTIONS OR PROCEEDINGS, WHETHER COMMENCED OR THREATENED, IN RESPECT THEREOF)
ARISE OUT OF OR ARE BASED UPON ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT
OF ANY MATERIAL FACT CONTAINED IN ANY REGISTRATION STATEMENT UNDER WHICH SUCH
REGISTRABLE SECURITIES WERE REGISTERED UNDER THE SECURITIES ACT, ANY PRELIMINARY
PROSPECTUS, FINAL PROSPECTUS OR SUMMARY PROSPECTUS CONTAINED THEREIN, OR ANY
AMENDMENT OR SUPPLEMENT THERETO, OR ANY OMISSION OR ALLEGED OMISSION TO STATE
THEREIN A MATERIAL FACT REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE
STATEMENTS THEREIN (IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE)
NOT MISLEADING, AND THE COMPANY WILL REIMBURSE SUCH SELLER OR UNDERWRITER AND
EACH SUCH DIRECTOR, OFFICER, PARTNER, AGENT, AFFILIATE AND CONTROLLING PERSON
FOR ANY REASONABLE LEGAL OR ANY OTHER EXPENSES INCURRED BY THEM IN CONNECTION
WITH INVESTIGATING OR DEFENDING ANY SUCH LOSS, CLAIM, LIABILITY, ACTION OR
PROCEEDING; PROVIDED, HOWEVER, THAT THE COMPANY SHALL NOT BE LIABLE IN ANY CASE
TO THE EXTENT THAT ANY SUCH LOSS, CLAIM, DAMAGE, LIABILITY (OR ACTION OR
PROCEEDING IN RESPECT THEREOF) OR EXPENSE ARISES OUT OF OR IS BASED UPON AN
UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OR OMISSION OR ALLEGED OMISSION
MADE IN SUCH REGISTRATION STATEMENT, ANY SUCH PRELIMINARY PROSPECTUS, FINAL
PROSPECTUS, SUMMARY PROSPECTUS, AMENDMENT OR SUPPLEMENT THERETO IN RELIANCE UPON
AND IN CONFORMITY WITH WRITTEN INFORMATION FURNISHED TO THE COMPANY BY OR ON
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BEHALF OF SUCH SELLER OR UNDERWRITER, AS THE CASE MAY BE, SPECIFICALLY STATING
THAT IT IS FOR USE IN THE PREPARATION THEREOF; AND PROVIDED, FURTHER, THAT THE
COMPANY SHALL NOT BE LIABLE IN ANY SUCH CASE TO THE EXTENT THAT ANY SUCH LOSS,
CLAIM, DAMAGE, LIABILITY (OR ACTION OR PROCEEDING IN RESPECT THEREOF) OR EXPENSE
ARISES OUT OF OR IS BASED UPON AN UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT
OR OMISSION OR ALLEGED OMISSION MADE IN SUCH REGISTRATION STATEMENT, ANY SUCH
PRELIMINARY PROSPECTUS, FINAL PROSPECTUS OR SUMMARY PROSPECTUS, AMENDMENT OR
SUPPLEMENT THERETO IF (I) SUCH UNTRUE STATEMENT OR OMISSION OR ALLEGED UNTRUE
STATEMENT OR OMISSION IS COMPLETELY CORRECTED IN A PROSPECTUS OR PROSPECTUS
SUPPLEMENT OR IN AN AMENDMENT OR SUPPLEMENT TO SUCH PROSPECTUS OR PROSPECTUS
SUPPLEMENT, (II) THE SELLER OF REGISTRABLE SECURITIES OR THE UNDERWRITER OF
REGISTRABLE SECURITIES, AS THE CASE MAY BE, HAS AN OBLIGATION UNDER THE
SECURITIES ACT TO DELIVER A PROSPECTUS OR PROSPECTUS SUPPLEMENT IN CONNECTION
WITH SUCH SALE OF REGISTRABLE SECURITIES AND (III) THE SELLER OF REGISTRABLE
SECURITIES OR THE UNDERWRITER OF REGISTRABLE SECURITIES, AS THE CASE MAY BE,
THEREAFTER FAILS TO DELIVER SUCH PROSPECTUS OR PROSPECTUS SUPPLEMENT OR SUCH
AMENDMENT OR SUPPLEMENT TO SUCH PROSPECTUS OR PROSPECTUS SUPPLEMENT PRIOR TO OR
CONCURRENTLY WITH THE SALE OF REGISTRABLE SECURITIES TO THE PERSON ASSERTING
SUCH LOSS, CLAIM, DAMAGE, LIABILITY OR EXPENSE AFTER THE COMPANY HAS FURNISHED
THE SELLER OF REGISTRABLE SECURITIES OR THE UNDERWRITER OF REGISTRABLE
SECURITIES, AS THE CASE MAY BE, WITH A SUFFICIENT NUMBER OF COPIES OF THE SAME.
SUCH INDEMNITY SHALL REMAIN IN FULL FORCE AND EFFECT REGARDLESS OF ANY
INVESTIGATION MADE BY OR ON BEHALF OF SUCH SELLER OR UNDERWRITER OR ANY SUCH
DIRECTOR, OFFICER, PARTNER, AGENT, AFFILIATE OR CONTROLLING PERSON AND SHALL
SURVIVE THE TRANSFER OF SUCH SECURITIES BY SUCH SELLER OR UNDERWRITER.
(B) INDEMNIFICATION BY THE SELLERS. AS A CONDITION TO INCLUDING ANY
REGISTRABLE SECURITIES IN ANY REGISTRATION STATEMENT, THE COMPANY SHALL HAVE
RECEIVED AN UNDERTAKING REASONABLY SATISFACTORY TO IT FROM THE PROSPECTIVE
SELLER OF SUCH REGISTRABLE SECURITIES TO INDEMNIFY AND HOLD HARMLESS (IN THE
SAME MANNER AND TO THE SAME EXTENT AS SET FORTH IN SECTION 2.7(A)) THE COMPANY
AND EACH DIRECTOR OF THE COMPANY, EACH OFFICER OF THE COMPANY WHO SIGNS THE
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REGISTRATION STATEMENT AND EACH OTHER PERSON, IF ANY, WHO PARTICIPATES AS AN
UNDERWRITER IN THE OFFERING OR SALE OF SUCH SECURITIES AND EACH OTHER PERSON WHO
CONTROLS THE COMPANY OR ANY SUCH UNDERWRITER WITHIN THE MEANING OF THE
SECURITIES ACT OR THE EXCHANGE ACT, WITH RESPECT TO ANY STATEMENT OR ALLEGED
UNTRUE STATEMENT OF A MATERIAL FACT IN OR OMISSION OR ALLEGED OMISSION FROM SUCH
REGISTRATION STATEMENT, ANY PRELIMINARY PROSPECTUS, FINAL PROSPECTUS OR SUMMARY
PROSPECTUS CONTAINED THEREIN, OR ANY AMENDMENT OR SUPPLEMENT THERETO, IF SUCH
UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OR OMISSION OR ALLEGED OMISSION WAS
MADE IN RELIANCE UPON AND IN CONFORMITY WITH WRITTEN INFORMATION FURNISHED TO
THE COMPANY BY SUCH SELLER SPECIFICALLY STATING THAT IT IS FOR USE IN THE
PREPARATION OF SUCH REGISTRATION STATEMENT, PRELIMINARY PROSPECTUS, FINAL
PROSPECTUS, SUMMARY PROSPECTUS, AMENDMENT OR SUPPLEMENT; PROVIDED, HOWEVER, THAT
THE LIABILITY OF SUCH INDEMNIFYING PARTY UNDER THIS SECTION 2.7(B) SHALL BE
LIMITED TO THE AMOUNT OF PROCEEDS RECEIVED BY SUCH INDEMNIFYING PARTY IN THE
OFFERING GIVING RISE TO SUCH LIABILITY. SUCH INDEMNITY SHALL REMAIN IN FULL
FORCE AND EFFECT REGARDLESS OF ANY INVESTIGATION MADE BY OR ON BEHALF OF THE
COMPANY OR ANY SUCH DIRECTOR, OFFICER, EMPLOYEE, SHAREHOLDER, CONTROLLING PERSON
OR OTHER PERSON. SUCH INDEMNITY SHALL SURVIVE THE TRANSFER OF SUCH SECURITIES
BY SUCH SELLER.
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(C) NOTICES OF CLAIMS, ETC. PROMPTLY AFTER RECEIPT BY AN INDEMNIFIED
PARTY OF NOTICE OF THE COMMENCEMENT OF ANY ACTION OR PROCEEDING INVOLVING A
CLAIM REFERRED TO IN SECTION 2.7(A) OR (B), SUCH INDEMNIFIED PARTY SHALL, IF A
CLAIM IN RESPECT THEREOF IS TO BE MADE AGAINST AN INDEMNIFYING PARTY, GIVE
WRITTEN NOTICE TO THE LATTER OF THE COMMENCEMENT OF SUCH ACTION; PROVIDED,
HOWEVER, THAT THE FAILURE OF ANY INDEMNIFIED PARTY TO GIVE NOTICE AS PROVIDED
HEREIN SHALL NOT RELIEVE THE INDEMNIFYING PARTY OF ITS OBLIGATIONS UNDER THE
PRECEDING SUBDIVISIONS OF THIS SECTION 2.7, EXCEPT TO THE EXTENT THAT THE
INDEMNIFYING PARTY IS ACTUALLY AND MATERIALLY PREJUDICED BY SUCH FAILURE TO GIVE
NOTICE. IN CASE ANY SUCH ACTION SHALL BE BROUGHT AGAINST ANY INDEMNIFIED PARTY
AND IT SHALL NOTIFY THE INDEMNIFYING PARTY OF THE COMMENCEMENT THEREOF, THE
INDEMNIFYING PARTY SHALL BE ENTITLED TO PARTICIPATE THEREIN AND, TO THE EXTENT
THAT IT MAY WISH, TO ASSUME THE DEFENSE THEREOF, WITH COUNSEL REASONABLY
SATISFACTORY TO SUCH INDEMNIFIED PARTY, AND AFTER NOTICE FROM THE INDEMNIFYING
PARTY TO SUCH INDEMNIFIED PARTY OF ITS ELECTION SO TO ASSUME THE DEFENSE
THEREOF, THE INDEMNIFYING PARTY SHALL NOT BE LIABLE TO SUCH INDEMNIFIED PARTY
FOR LEGAL OR OTHER EXPENSES SUBSEQUENTLY INCURRED BY THE LATTER IN CONNECTION
WITH THE DEFENSE THEREOF; PROVIDED, HOWEVER, THAT ANY INDEMNIFIED PARTY MAY, AT
ITS OWN EXPENSE, RETAIN SEPARATE COUNSEL TO PARTICIPATE IN SUCH DEFENSE.
NOTWITHSTANDING THE FOREGOING, IN ANY ACTION OR PROCEEDING IN WHICH THE COMPANY
AS WELL AS AN INDEMNIFIED PARTY IS, OR IS REASONABLY LIKELY TO BECOME, A PARTY,
SUCH INDEMNIFIED PARTY SHALL HAVE THE RIGHT TO EMPLOY SEPARATE COUNSEL AT THE
EXPENSE OF THE COMPANY, AND TO CONTROL ITS OWN DEFENSE OF SUCH ACTION OR
PROCEEDING IF, IN THE REASONABLE OPINION OF COUNSEL TO SUCH INDEMNIFIED PARTY,
(A) THERE ARE OR MAY BE ANY LEGAL DEFENSES AVAILABLE TO SUCH INDEMNIFIED PARTY
OR TO OTHER INDEMNIFIED PARTIES THAT ARE DIFFERENT FROM OR ADDITIONAL TO THOSE
AVAILABLE TO THE COMPANY, OR (B) ANY CONFLICT OR POTENTIAL CONFLICT EXIST
BETWEEN THE COMPANY AND SUCH INDEMNIFIED PARTY THAT WOULD MAKE SUCH SEPARATE
REPRESENTATION ADVISABLE IN THE OPINION OF THE INDEMNIFIED PARTY. NO
INDEMNIFYING PARTY SHALL BE LIABLE FOR ANY SETTLEMENT OF ANY ACTION OR
PROCEEDING EFFECTED WITHOUT ITS WRITTEN CONSENT, WHICH CONSENT SHALL NOT BE
UNREASONABLY WITHHELD. NO INDEMNIFYING PARTY SHALL, WITHOUT THE CONSENT OF THE
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INDEMNIFIED PARTY, WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD, CONSENT TO
ENTRY OF ANY JUDGMENT OR ENTER INTO ANY SETTLEMENT WHICH DOES NOT INCLUDE AS AN
UNCONDITIONAL TERM THEREOF THE GIVING BY THE CLAIMANT OR PLAINTIFF TO SUCH
INDEMNIFIED PARTY OF A RELEASE FROM ALL LIABILITY IN RESPECT TO SUCH CLAIM OR
LITIGATION OR WHICH REQUIRES ACTION OTHER THAN THE PAYMENT OF MONEY BY THE
INDEMNIFYING PARTY OR WHICH OTHERWISE ADVERSELY AFFECTS THE INDEMNIFIED PARTY.
NO INDEMNIFYING PARTY SHALL BE LIABLE FOR ANY SETTLEMENT OF ANY ACTION OR
PROCEEDING EFFECTED WITHOUT ITS WRITTEN CONSENT, WHICH CONSENT SHALL NOT BE
UNREASONABLE WITHHELD.
(D) CONTRIBUTION. IF THE INDEMNIFICATION PROVIDED FOR IN THIS
SECTION 2.7 SHALL FOR ANY REASON BE HELD BY A COURT TO BE UNAVAILABLE TO AN
INDEMNIFIED PARTY UNDER SECTION 2.7(A) OR (B) HEREOF IN RESPECT OF ANY LOSS,
CLAIM, DAMAGE OR LIABILITY, OR ANY ACTION IN RESPECT THEREOF, THEN, IN LIEU OF
THE AMOUNT PAID OR PAYABLE UNDER SECTION 2.7(A) OR (B), THE INDEMNIFIED PARTY
AND THE INDEMNIFYING PARTY UNDER SECTION 2.7(A) OR (B) SHALL CONTRIBUTE TO THE
AGGREGATE LOSSES, CLAIMS, DAMAGES AND LIABILITIES (INCLUDING LEGAL OR OTHER
EXPENSES REASONABLY INCURRED IN CONNECTION WITH INVESTIGATING THE SAME), IN SUCH
PROPORTION AS IS APPROPRIATE TO REFLECT THE RELATIVE FAULT OF THE COMPANY ON ONE
HAND, AND THE PROSPECTIVE SELLERS ON THE OTHER HAND, WHICH RESULTED IN SUCH
LOSS, CLAIM, DAMAGE OR LIABILITY, OR ACTION OR PROCEEDING IN RESPECT THEREOF,
WITH RESPECT TO THE STATEMENTS OR OMISSIONS WHICH RESULTED IN SUCH LOSS, CLAIM,
DAMAGE OR LIABILITY, OR ACTION OR PROCEEDING IN RESPECT THEREOF, AS WELL AS ANY
OTHER RELEVANT EQUITABLE CONSIDERATIONS; PROVIDED, THAT FOR PURPOSES OF THIS
SECTION 2.7(D), NO SELLER SHALL BE OBLIGATED TO CONTRIBUTE TO ANOTHER PARTY ANY
AMOUNT IN EXCESS OF THE AMOUNT THAT SUCH SELLER WOULD HAVE BEEN OBLIGATED TO PAY
TO SUCH OTHER PARTY IF THE INDEMNITY UNDER SECTION 2.7(A) OR (B) WERE AVAILABLE.
THE RELATIVE FAULT SHALL BE DETERMINED BY REFERENCE TO WHETHER AN UNTRUE
STATEMENT OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT OR OMISSION OR ALLEGED
OMISSION TO STATE A MATERIAL FACT RELATES TO INFORMATION SUPPLIED BY THE
INDEMNIFYING PARTY ON ONE HAND AND THE INDEMNIFIED PARTY ON THE OTHER HAND, THE
INTENT OF THE PARTIES AND THEIR RELATIVE KNOWLEDGE, ACCESS TO INFORMATION AND
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OPPORTUNITY TO CORRECT OR PREVENT SUCH STATEMENT OR OMISSION, BUT NOT BY A
PARTY'S SECURITY OWNERSHIP IN THE COMPANY. NO PERSON GUILTY OF FRAUDULENT
MISREPRESENTATION (WITHIN THE MEANING OF SECTION 11(F) OF THE SECURITIES ACT)
SHALL BE ENTITLED TO CONTRIBUTION FROM ANY PERSON WHO WAS NOT GUILTY OF SUCH
FRAUDULENT MISREPRESENTATION. SUCH PROSPECTIVE SELLER'S OBLIGATIONS TO
CONTRIBUTE AS PROVIDED IN THIS SECTION 2.7(D) ARE SEVERAL IN PROPORTION TO THE
RELATIVE VALUE OF SUCH SELLER'S RESPECTIVE REGISTRABLE SECURITIES COVERED BY
SUCH REGISTRATION STATEMENT AND NOT JOINT. IN ADDITION, NO PERSON SHALL BE
OBLIGATED TO CONTRIBUTE HEREUNDER ANY AMOUNTS IN PAYMENT FOR ANY SETTLEMENT OF
ANY ACTION OR CLAIM EFFECTED WITHOUT SUCH PERSON'S CONSENT, WHICH CONSENT SHALL
NOT BE UNREASONABLY WITHHELD.
<PAGE>
(E) INDEMNIFICATION PAYMENTS. THE INDEMNIFICATION AND CONTRIBUTION
REQUIRED BY THIS SECTION 2.7 SHALL BE MADE BY PERIODIC PAYMENTS OF THE AMOUNT
THEREOF DURING THE COURSE OF THE INVESTIGATION OR DEFENSE, AS AND WHEN BILLS ARE
RECEIVED OR EXPENSE, LOSS, DAMAGE OR LIABILITY IS INCURRED.
2.8 COMPANY'S RIGHT OF FIRST REFUSAL
(A) SECTION 8 OF INVESTMENT AGREEMENT. PRIOR TO ANY SALE OF
REGISTRABLE SECURITIES BY ANY SELLING HOLDERS PURSUANT TO THE REGISTRATION
PROVISIONS OF SECTION 2.1 AND SECTION 2.2, RESPECTIVELY, THE COMPANY SHALL HAVE
THE RIGHT, EXERCISABLE IN ACCORDANCE WITH SECTION 8 OF THE INVESTMENT AGREEMENT,
TO PURCHASE ALL, BUT NOT LESS THAN ALL, OF THE REGISTRABLE SECURITIES TO BE
SUBJECT TO SUCH SALE BY ALL SUCH SELLING HOLDERS (THE "OFFERED SECURITIES") AT A
PURCHASE PRICE IN CASH EQUAL TO THE FIRST OFFER PRICE PER SHARE OF COMMON STOCK
OF THE OFFERED SECURITIES (ASSUMING FOR THIS PURPOSE THAT SUCH CONVERTIBLE
PREFERRED SECURITIES HAVE BEEN CONVERTED INTO COMMON STOCK). FOR PURPOSES OF
THIS SECTION 2.8, (I) REFERENCES IN SECTION 8 OF THE INVESTMENT AGREEMENT TO THE
TERM "INVESTOR" SHALL INCLUDE, AS THE CONTEXT REQUIRES, THE SELLING HOLDERS,
(II) THE DEMAND FOR REGISTRATION OR REQUEST FOR REGISTRATION PROVIDED FOR IN
THIS AGREEMENT SHALL BE DEEMED TO BE THE TRANSFER NOTICE REQUIRED BY
SECTION 8(A) OF THE INVESTMENT AGREEMENT, (III) THE DATE FOR THE CLOSING OF A
PURCHASE BY THE COMPANY OF SPECIFIED REGISTRABLE SECURITIES FROM A SELLING
HOLDER SHALL NOT BE MORE THAN 10 BUSINESS DAYS AFTER THE DELIVERY BY THE COMPANY
OF AN ACCEPTANCE NOTICE (AS SUCH TERM IS DEFINED IN THE INVESTMENT AGREEMENT) TO
SUCH SELLING HOLDER, SUBJECT TO EXTENSION AS PROVIDED IN SECTION 8(F) OF THE
INVESTMENT AGREEMENT, AND (IV) IN THE EVENT THE COMPANY DOES NOT EXERCISE ITS
RIGHT TO PURCHASE REGISTRABLE SECURITIES, AND SUCH REGISTRABLE SECURITIES ARE TO
BE SOLD PURSUANT TO AN UNDERWRITTEN OFFERING, THEN THE SELLING HOLDERS OR THE
REQUESTING HOLDERS, AS THE CASE MAY BE, SHALL CAUSE THE MANAGING UNDERWRITER TO
USE ITS COMMERCIALLY REASONABLE EFFORTS NOT TO SELL ANY SUCH SHARES TO ANY OF
THE PERSONS DESCRIBED IN CLAUSES (X), (Y) OR (Z) OF SECTION 7(B) OF THE
<PAGE>
INVESTMENT AGREEMENT, SUBJECT TO THE EXCEPTIONS AND QUALIFICATIONS SET FORTH
THEREIN.
<PAGE>
(B) ADDITIONAL PURCHASE RIGHTS. IN THE EVENT THE COMPANY ELECTS NOT
TO EXERCISE ITS RIGHT TO PURCHASE THE OFFERED SECURITIES FROM THE SELLING
HOLDERS AS PROVIDED IN SECTION 2.8(A) AND THE OFFERING PRICE AT WHICH SUCH
OFFERED SECURITIES TO BE REGISTERED WITH THE COMMISSION PURSUANT TO SECTION 2.1
OR SECTION 2.2 AND PURCHASED FROM THE SELLING HOLDERS (THE "SECOND OFFER PRICE")
IS LESS THAN 95% OF THE FIRST OFFER PRICE, THEN THE COMPANY SHALL HAVE THE
ADDITIONAL RIGHT TO CANCEL THE PROPOSED PUBLIC OFFERING AND PURCHASE ALL SUCH
OFFERED SECURITIES FROM SUCH SELLING HOLDERS, AT THE SECOND OFFER PRICE (LESS
ANY UNDERWRITING DISCOUNTS AND COMMISSIONS). THE COMPANY AND THE SELLING
HOLDERS SHALL CAUSE ANY UNDERWRITING AGREEMENT ENTERED INTO IN CONNECTION WITH
THE OFFER AND SALE OF THE OFFERED SECURITIES TO REFLECT SUCH PURCHASE RIGHT OF
THE COMPANY. IMMEDIATELY, AND IN NO EVENT LESS THAN THREE BUSINESS DAYS, PRIOR
TO THE TIME THE REGISTRATION STATEMENT FILED BY THE COMPANY FOR THE REGISTRATION
OF THE OFFERED SECURITIES BECOMES EFFECTIVE UNDER THE SECURITIES ACT, (X) THE
REPRESENTATIVE SHALL, OR SHALL CAUSE THE MANAGING UNDERWRITER TO, NOTIFY THE
COMPANY, IN THE CASE OF A REGISTRATION REQUESTED PURSUANT TO SECTION 2.1, AND
(Y) THE COMPANY SHALL, OR SHALL CAUSE THE MANAGING UNDERWRITER TO, NOTIFY THE
SELLING HOLDERS, IN THE CASE OF A REGISTRATION REQUESTED PURSUANT TO
SECTION 2.2, OF THE SECOND OFFER PRICE. IF THE COMPANY ELECTS TO EXERCISE ITS
RIGHT TO PURCHASE THE OFFERED SECURITIES AT THE SECOND OFFER PRICE (LESS ANY
UNDERWRITING DISCOUNTS AND COMMISSIONS), THE COMPANY SHALL PROMPTLY (AND PRIOR
TO THE EFFECTIVENESS OF THE REGISTRATION STATEMENT FOR SUCH OFFERED SECURITIES)
DELIVER AN ACCEPTANCE NOTICE (AS DEFINED IN THE INVESTMENT AGREEMENT) TO EACH
SELLING HOLDER OF ITS INTENTION TO PURCHASE THE OFFERED SECURITIES OWNED BY SUCH
SELLING HOLDER AT THE SECOND OFFER PRICE (LESS ANY UNDERWRITING DISCOUNTS AND
COMMISSIONS), ON A DATE NOT MORE THAN FIVE BUSINESS DAYS AFTER DELIVERY OF SUCH
ACCEPTANCE NOTICE (SUBJECT TO EXTENSION AS PROVIDED IN SECTION 8(F) OF THE
INVESTMENT AGREEMENT). IF THE COMPANY ELECTS TO EXERCISE ITS PURCHASE RIGHTS
HEREUNDER AND PURCHASES THE OFFERED SECURITIES, THE COMPANY SHALL PAY ALL FEES
(INCLUDING ALL UNDERWRITING DISCOUNTS AND COMMISSIONS WHICH WOULD HAVE BEEN
GIVEN OR RETAINED BY SUCH UNDERWRITERS HAD THE PROPOSED PUBLIC OFFERING BEEN
CONSUMMATED) OF THE UNDERWRITERS IN CONNECTION WITH THE PREPARATION AND FILING
<PAGE>
OF THE REGISTRATION STATEMENT AND THE COMPANY SHALL PAY ALL REGISTRATION
EXPENSES OF THE SELLING HOLDERS WHICH WOULD HAVE BEEN PAYABLE BY IT PURSUANT TO
SECTIONS 2.1 OR 2.2 HAD THE COMPANY NOT EXERCISED ITS PURCHASE RIGHTS HEREUNDER.
3. RULE 144. THE COMPANY SHALL TAKE ALL ACTIONS REASONABLY NECESSARY TO
ENABLE HOLDERS OF REGISTRABLE SECURITIES TO SELL SUCH SECURITIES WITHOUT
REGISTRATION UNDER THE SECURITIES ACT WITHIN THE LIMITATION OF THE EXCEPTIONS
PROVIDED BY (A) RULE 144 UNDER THE SECURITIES ACT, AS SUCH RULE MAY BE AMENDED
FROM TIME TO TIME, OR (B) ANY SIMILAR RULES OR REGULATIONS HEREAFTER ADOPTED BY
THE COMMISSION, AND SUBJECT TO THE LIMITATIONS ON TRANSFER SET FORTH IN
SECTION 7 OF THE INVESTMENT AGREEMENT. UPON THE REQUEST OF ANY HOLDER OF
REGISTRABLE SECURITIES, THE COMPANY WILL DELIVER TO SUCH HOLDER A WRITTEN
STATEMENT AS TO WHETHER SUCH REQUIREMENTS HAVE BEEN COMPLIED WITH.
4. AMENDMENTS AND WAIVERS. THIS AGREEMENT MAY BE AMENDED WITH THE
WRITTEN CONSENT OF THE COMPANY AND THE COMPANY MAY TAKE ANY ACTION HEREIN
PROHIBITED, OR OMIT TO PERFORM ANY ACT HEREIN REQUIRED TO BE PERFORMED BY IT,
ONLY IF THE COMPANY SHALL HAVE OBTAINED THE WRITTEN CONSENT TO SUCH AMENDMENT,
ACTION OR OMISSION TO ACT, OF THE HOLDER OR HOLDERS OF AT LEAST A MAJORITY IN
AGGREGATE PRINCIPAL AMOUNT OR LIQUIDATION AMOUNT, AS THE CASE MAY BE, OF THE
REGISTRABLE SECURITIES AFFECTED BY SUCH AMENDMENT, ACTION OR OMISSION TO ACT;
PROVIDED, HOWEVER, THAT THE PROVISIONS SET FORTH IN THE THIRD SENTENCE OF
SECTION 5 MAY NOT, DIRECTLY OR INDIRECTLY, BE AMENDED OR MODIFIED WITHOUT THE
PRIOR WRITTEN CONSENT OF EACH LENDER (AS DEFINED IN SECTION 7(C) OF THE
INVESTMENT AGREEMENT) AFFECTED THEREBY. EACH HOLDER OF ANY REGISTRABLE
SECURITIES AT THE TIME OR THEREAFTER OUTSTANDING SHALL BE BOUND BY ANY CONSENT
AUTHORIZED BY THIS SECTION 4, WHETHER OR NOT SUCH REGISTRABLE SECURITIES SHALL
HAVE BEEN MARKED TO INDICATE SUCH CONSENT. NO COURSE OF DEALING BETWEEN ANY
PARTIES OR ANY DELAY ON THE PART OF ANY PARTY IN EXERCISING ANY RIGHTS HEREUNDER
OR UNDER ANY AGREEMENT CONTEMPLATED HEREBY SHALL OPERATE AS A WAIVER OF ANY
RIGHTS OF ANY SUCH PARTY. NO DELAY ON THE PART OF ANY PARTY IN EXERCISING ANY
RIGHT, POWER OR PRIVILEGE HEREUNDER SHALL OPERATE AS A WAIVER THEREOF, OR SHALL
<PAGE>
ANY WAIVER ON THE PART OF ANY PARTY OF ANY SUCH RIGHT, POWER OR PRIVILEGE, NOR
ANY SINGLE OR PARTIAL EXERCISE OF ANY SUCH RIGHT, POWER OR PRIVILEGE, PRECLUDE
ANY FURTHER EXERCISE THEREOF OR THE EXERCISE OF ANY OTHER SUCH RIGHT, POWER OR
PRIVILEGE. THE RIGHTS AND REMEDIES HEREIN PROVIDED ARE CUMULATIVE AND ARE NOT
EXCLUSIVE OF ANY RIGHTS OR REMEDIES THAT ANY PARTY MAY OTHERWISE HAVE AT LAW OR
IN EQUITY.
<PAGE>
5. TRANSFER OF REGISTRATION RIGHTS; TERMINATION. ANY HOLDER OF
REGISTRABLE SECURITIES MAY TRANSFER ALL OR ANY PORTION OF ITS RIGHTS UNDER THIS
AGREEMENT TO ANY TRANSFEREE (EACH, A "TRANSFEREE") OF REGISTRABLE SECURITIES
OWNED BY SUCH HOLDER, SUBJECT TO THE LIMITATIONS ON TRANSFERS OF CONVERTIBLE
PREFERRED SECURITIES AND CONVERSION SHARES SET FORTH IN SECTION 7 OF THE
INVESTMENT AGREEMENT AND THE COMPANY'S RIGHTS OF PURCHASE SET FORTH IN SECTION 8
OF THE INVESTMENT AGREEMENT AND SECTION 2.8 OF THIS AGREEMENT; PROVIDED,
HOWEVER, THAT THE RIGHTS OF THE INVESTOR UNDER THIS AGREEMENT MAY BE ASSIGNED TO
A WHOLLY-OWNED SUBSIDIARY OF TMC, WITHOUT THE CONSENT OF THE COMPANY, PROVIDED
THAT TMC SHALL REMAIN LIABLE FOR THE OBLIGATIONS OF THE INVESTOR HEREUNDER. ANY
TRANSFER OF RIGHTS PURSUANT TO THIS SECTION 5 SHALL BE EFFECTIVE UPON RECEIPT BY
THE COMPANY OF (I) A WRITTEN NOTICE FROM SUCH HOLDER STATING THE NAME AND
ADDRESS OF ANY TRANSFEREE AND IDENTIFYING THE AMOUNT OF REGISTRABLE SECURITIES
WITH RESPECT TO WHICH THE RIGHTS UNDER THIS AGREEMENT ARE BEING TRANSFERRED AND
THE NATURE OF THE RIGHTS SO TRANSFERRED AND (II) A WRITTEN AGREEMENT FROM SUCH
TRANSFEREE TO BE BOUND BY THE TERMS OF THIS AGREEMENT AND THE INVESTMENT
AGREEMENT. IN ADDITION TO THE FOREGOING, AND NOTWITHSTANDING ANY OTHER
PROVISION OF THIS AGREEMENT OR THE INVESTMENT AGREEMENT, THE INVESTOR MAY
TRANSFER ALL OR ANY PORTION OF ITS RIGHTS UNDER THIS AGREEMENT TO ANY LENDER (AS
DEFINED IN SECTION 7(C) OF THE INVESTMENT AGREEMENT), SUBJECT TO THE COMPANY'S
RIGHTS OF PURCHASE SET FORTH IN SECTION 8 OF THE INVESTMENT AGREEMENT AND
SECTION 2.8 OF THIS AGREEMENT (OTHER THAN SECTION 2.8(A)(IV). THE HOLDERS OF
REGISTRABLE SECURITIES MAY EXERCISE THE RIGHTS HEREUNDER IN SUCH PRIORITY AS
THEY SHALL AGREE UPON AMONG THEMSELVES.
6. NOMINEES FOR BENEFICIAL OWNERS. IN THE EVENT THAT ANY REGISTRABLE
SECURITIES ARE HELD BY A NOMINEE FOR THE BENEFICIAL OWNER THEREOF, THE
BENEFICIAL OWNER THEREOF MAY, AT ITS ELECTION IN WRITING DELIVERED TO THE
COMPANY, BE TREATED AS THE HOLDER OF SUCH REGISTRABLE SECURITIES FOR PURPOSES OF
ANY REQUEST OR OTHER ACTION BY ANY HOLDER OR HOLDERS OF REGISTRABLE SECURITIES
PURSUANT TO THIS AGREEMENT OR ANY DETERMINATION OF ANY NUMBER OR PERCENTAGE OF
REGISTRABLE SECURITIES HELD BY ANY HOLDER OR HOLDERS OF REGISTRABLE SECURITIES
<PAGE>
CONTEMPLATED BY THIS AGREEMENT. IF THE BENEFICIAL OWNER OF ANY REGISTRABLE
SECURITIES SO ELECTS, THE COMPANY MAY REQUIRE ASSURANCES REASONABLY SATISFACTORY
TO IT OF SUCH OWNER'S BENEFICIAL OWNERSHIP OF SUCH REGISTRABLE SECURITIES.
7. NOTICES. ALL NOTICES, DEMANDS AND OTHER COMMUNICATIONS PROVIDED FOR
OR PERMITTED HEREUNDER SHALL BE MADE IN WRITING AND SHALL BE SENT BY REGISTERED
OR CERTIFIED FIRST-CLASS MAIL, RETURN RECEIPT REQUESTED, TELECOPIER, COURIER
SERVICE OR PERSONAL DELIVERY:
(A) IF TO THE INVESTOR, AT 1999 BROADWAY, SUITE 4300, DENVER,
COLORADO 80202, ATTENTION: GENERAL COUNSEL OR AT SUCH OTHER ADDRESS AS THE
INVESTOR SHALL HAVE FURNISHED TO THE COMPANY IN THE MANNER SET FORTH HEREIN;
(B) IF TO THE COMPANY, AT 4317 MIDDLE SETTLEMENT ROAD, NEW HARTFORD,
NEW YORK 13413, ATTENTION: ROBERT F. DROPKIN, VICE PRESIDENT, SECRETARY AND
CHIEF LEGAL COUNSEL OR AT SUCH OTHER ADDRESS AS THE COMPANY SHALL HAVE FURNISHED
TO EACH HOLDER OF REGISTRABLE SECURITIES AT THAT TIME OUTSTANDING IN THE MANNER
SET FORTH HEREIN; OR
<PAGE>
(C) IF TO ANY OTHER HOLDER OF REGISTRABLE SECURITIES, AT THE
ADDRESS THAT SUCH HOLDER SHALL HAVE FURNISHED TO THE COMPANY IN WRITING IN THE
MANNER SET FORTH HEREIN, OR, UNTIL SUCH HOLDER SO FURNISHES TO THE COMPANY AN
ADDRESS, THEN TO AND AT THE ADDRESS OF THE LAST HOLDER OF SUCH REGISTRABLE
SECURITIES WHO HAS FURNISHED AN ADDRESS TO THE COMPANY.
ALL SUCH NOTICES AND COMMUNICATIONS SHALL BE DEEMED TO HAVE BEEN DULY
GIVEN: WHEN DELIVERED BY HAND, IF PERSONALLY DELIVERED; WHEN DELIVERED BY A
COURIER, IF DELIVERED BY OVERNIGHT COURIER SERVICE; THREE BUSINESS DAYS AFTER
BEING DEPOSITED IN THE MAIL, POSTAGE PREPAID, IF MAILED; AND WHEN RECEIPT IS
ACKNOWLEDGED, IF TELECOPIED.
8. SUCCESSORS AND ASSIGNS; THIRD PARTIES.
(A) SUBJECT TO SECTION 5, THIS AGREEMENT SHALL BE BINDING UPON AND
INURE TO THE BENEFIT OF THE PARTIES HERETO AND THEIR RESPECTIVE SUCCESSORS AND
PERMITTED ASSIGNS. EXCEPT BY OPERATION OF LAW, THIS AGREEMENT SHALL NOT BE
ASSIGNED BY THE COMPANY WITHOUT THE PRIOR WRITTEN CONSENT OF THE HOLDERS OF A
MAJORITY OF THE REGISTRABLE SECURITIES OUTSTANDING AT THE TIME SUCH CONSENT IS
REQUIRED.
(B) NOTHING IN THIS AGREEMENT, EXPRESSED OR IMPLIED, IS INTENDED OR
SHALL BE CONSTRUED TO CONFER UPON ANY PERSON (OTHER THAN THE PARTIES AND THEIR
SUCCESSORS AND PERMITTED ASSIGNS AND ANY PERSON ENTITLED TO THE BENEFIT OF
SECTION 2.7) ANY RIGHT, REMEDY OR CLAIM UNDER OR BY REASON OF THIS AGREEMENT.
9. NO INCONSISTENT AGREEMENTS; ACKNOWLEDGMENT. THE COMPANY WILL NOT
HEREAFTER ENTER INTO ANY AGREEMENT WITH RESPECT TO ITS SECURITIES WHICH IS
INCONSISTENT WITH THE RIGHTS GRANTED TO THE HOLDERS OF REGISTRABLE SECURITIES IN
THIS AGREEMENT. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE COMPANY
WILL NOT HEREAFTER ENTER INTO ANY AGREEMENT WITH RESPECT TO ITS SECURITIES WHICH
GRANTS TO ANY HOLDER OF ITS SECURITIES IN CONNECTION WITH A PIGGY-BACK
<PAGE>
REGISTRATION OF SUCH SECURITIES EQUAL OR HIGHER PRIORITY TO THE RIGHTS GRANTED
TO THE HOLDERS OF REGISTRABLE SECURITIES UNDER SECTION 2. THE PARTIES HEREBY
ACKNOWLEDGE THAT, ON THE DATE HEREOF, THE COMPANY AND INCO WILL ENTER INTO THE
INCO REGISTRATION RIGHTS AGREEMENT PURSUANT TO WHICH THE COMPANY WILL GRANT TO
INCO CERTAIN PIGGY-BACK REGISTRATION RIGHTS FOR THE REGISTRABLE SECURITIES HELD
BY IT, WHICH RIGHTS WILL BE SUBORDINATE TO THE PIGGYBACK RIGHTS GRANTED PURSUANT
TO SECTION 2.2.
10. REMEDIES. EACH HOLDER OF REGISTRABLE SECURITIES, IN ADDITION TO
BEING ENTITLED TO EXERCISE ALL RIGHTS GRANTED BY LAW, INCLUDING RECOVERY OF
DAMAGES, WILL BE ENTITLED TO SPECIFIC PERFORMANCE OF ITS RIGHTS UNDER THIS
AGREEMENT. THE COMPANY AGREES THAT MONETARY DAMAGES WOULD NOT BE ADEQUATE
COMPENSATION FOR ANY LOSS INCURRED BY REASON OF A BREACH BY IT OF THE PROVISIONS
OF THIS AGREEMENT AND HEREBY AGREES TO WAIVE THE DEFENSE IN ANY ACTION FOR
SPECIFIC PERFORMANCE THAT A REMEDY AT LAW WOULD BE ADEQUATE.
<PAGE>
11. SEVERABILITY. IF ANY TERM OR PROVISION OF THIS AGREEMENT IS HELD BY
A COURT OF COMPETENT JURISDICTION TO BE INVALID, VOID OR UNENFORCEABLE, THE
REMAINDER OF THE TERMS AND PROVISIONS SET FORTH HEREIN SHALL REMAIN IN FULL
FORCE AND EFFECT AND SHALL IN NO WAY BE AFFECTED, IMPAIRED OR INVALIDATED, AND
THE PARTIES HERETO SHALL USE THEIR BEST EFFORTS TO FIND AND EMPLOY AN
ALTERNATIVE MEANS TO ACHIEVE THE SAME OR SUBSTANTIALLY THE SAME RESULT AS THAT
CONTEMPLATED BY SUCH TERM OR PROVISION.
12. CALCULATION OF PERCENTAGE INTERESTS IN REGISTRABLE SECURITIES. FOR
PURPOSES OF THIS AGREEMENT, ALL REFERENCES TO A PERCENTAGE OF THE REGISTRABLE
SECURITIES SHALL BE CALCULATED BASED UPON THE NUMBER OF SHARES, WARRANTS OR
RIGHTS OR THE AGGREGATE PRINCIPAL AMOUNT OR LIQUIDATION AMOUNT, AS APPLICABLE,
OF REGISTRABLE SECURITIES OUTSTANDING AT THE TIME SUCH CALCULATION IS MADE.
13. ENTIRE AGREEMENT. THIS AGREEMENT IS INTENDED BY THE PARTIES AS A
FINAL EXPRESSION OF THEIR AGREEMENT AND INTENDED TO BE A COMPLETE AND EXCLUSIVE
STATEMENT OF THE AGREEMENT AND UNDERSTANDING OF THE PARTIES HERETO IN RESPECT OF
THE SUBJECT MATTER CONTAINED HEREIN. THERE ARE NO RESTRICTIONS, PROMISES,
WARRANTIES OR UNDERTAKINGS, OTHER THAN THOSE SET FORTH OR REFERRED TO HEREIN.
THIS AGREEMENT SUPERSEDES ALL PRIOR AGREEMENTS AND UNDERSTANDINGS BETWEEN THE
PARTIES WITH RESPECT TO SUCH SUBJECT MATTER.
14. HEADINGS. THE HEADINGS IN THIS AGREEMENT ARE FOR CONVENIENCE OF
REFERENCE ONLY AND SHALL NOT LIMIT OR OTHERWISE AFFECT THE MEANING HEREOF.
15. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE
AND TO BE PERFORMED IN THAT STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW.
16. COUNTERPARTS. THIS AGREEMENT MAY BE EXECUTED IN ANY NUMBER OF
COUNTERPARTS AND BY THE PARTIES HERETO IN SEPARATE COUNTERPARTS, EACH OF WHICH
<PAGE>
WHEN SO EXECUTED SHALL BE DEEMED AN ORIGINAL AND ALL OF WHICH TAKEN TOGETHER
SHALL CONSTITUTE ONE AND THE SAME INSTRUMENT.
17. ACKNOWLEDGMENT. THE PARTIES HERETO HEREBY ACKNOWLEDGE THAT, AT THE
CLOSING TIME, THE INVESTOR AND TMC SHALL ASSIGN THEIR RIGHTS UNDER THIS
AGREEMENT TO BANKERS TRUST COMPANY OR ITS AGENT ("BTC"), AS COLLATERAL SECURITY
FOR CERTAIN OBLIGATIONS OWED BY THE INVESTOR AND TMC TO BTC AND CERTAIN OTHER
PARTIES, AND THAT BTC, IN ITS INDIVIDUAL CAPACITY AND AS AGENT FOR THE OTHER
LENDERS (AS DEFINED IN SECTION 7(C) OF THE INVESTMENT AGREEMENT), SHALL
CONSTITUTE A LENDER FOR PURPOSES OF SECTIONS 4 AND 5 HEREOF.
<PAGE>
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED THIS AGREEMENT TO BE
DULY EXECUTED AND DELIVERED AS OF THE DATE FIRST ABOVE WRITTEN.
TIMET FINANCE MANAGEMENT COMPANY
BY: /S/ SUSAN E. ALDERTON
NAME: SUSAN E. ALDERTON
TITLE: TREASURER
SPECIAL METALS CORPORATION
BY: /S/ DONALD R. MUZYKA
NAME: DONALD R. MUZYKA
TITLE: PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Titanium
Metals Corporation's financial statements for the nine months ended September 30,
1998 and is qualified in its entirety by reference to such consolidated
financial statements.
</LEGEND>
<CIK> 0001011657
<NAME> TITANIUM METALS CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 142,591
<SECURITIES> 0
<RECEIVABLES> 151,679
<ALLOWANCES> 2,039
<INVENTORY> 212,059
<CURRENT-ASSETS> 528,195
<PP&E> 397,190
<DEPRECIATION> 67,986
<TOTAL-ASSETS> 986,827
<CURRENT-LIABILITIES> 157,569
<BONDS> 0
201,250
0
<COMMON> 315
<OTHER-SE> 458,117
<TOTAL-LIABILITY-AND-EQUITY> 986,827
<SALES> 551,390
<TOTAL-REVENUES> 557,186
<CGS> 418,437
<TOTAL-COSTS> 469,269
<OTHER-EXPENSES> 8,211
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,325
<INCOME-PRETAX> 85,592
<INCOME-TAX> 29,134
<INCOME-CONTINUING> 48,247
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,247
<EPS-PRIMARY> 1.53
<EPS-DILUTED> 1.49
</TABLE>
