<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 20, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SPECIAL METALS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3356 25-1445468
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
</TABLE>
------------------------
4317 MIDDLESETTLEMENT ROAD
NEW HARTFORD, NY 13413
(315) 798-2900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ROBERT F. DROPKIN, ESQ.
VICE PRESIDENT, SECRETARY AND CHIEF LEGAL COUNSEL
SPECIAL METALS CORPORATION
4317 MIDDLESETTLEMENT ROAD
NEW HARTFORD, NY 13413
(315) 798-2900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
ROBERT B. SCHUMER, ESQ. JOHN D. MORRISON, JR., ESQ.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON SHEARMAN & STERLING
1285 AVENUE OF THE AMERICAS 599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10019 NEW YORK, NEW YORK 10022
(212) 373-3000 (212) 848-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AGGREGATE
TITLE OF EACH CLASS OF OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, par value $.01 per share............................................ $62,000,000 $18,788.00
</TABLE>
(1) Estimated pursuant to Rule 457 solely for purposes of calculating the
registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED DECEMBER 20, 1996
SHARES
[LOGO]
SPECIAL METALS CORPORATION
COMMON STOCK
------------------------
OF THE SHARES OF COMMON STOCK BEING OFFERED HEREBY, SHARES ARE
BEING SOLD BY THE COMPANY AND SHARES ARE BEING SOLD BY THE SELLING
STOCKHOLDERS. SEE 'PRINCIPAL AND SELLING STOCKHOLDERS.' THE COMPANY WILL NOT
RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF THE SHARES OF COMMON STOCK BY
THE SELLING STOCKHOLDERS. PRIOR TO THE OFFERING, THERE HAS BEEN NO
PUBLIC MARKET FOR THE COMMON STOCK OF THE COMPANY. IT IS CURRENTLY
ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE PER SHARE WILL BE
BETWEEN $ AND $ . SEE 'UNDERWRITERS' FOR A DISCUSSION
OF THE FACTORS CONSIDERED IN DETERMINING THE INITIAL PUBLIC
OFFERING PRICE.
------------------------
APPLICATION WILL BE MADE FOR QUOTATION OF THE COMMON STOCK ON THE
NASDAQ NATIONAL MARKET UNDER THE SYMBOL 'SMCX.'
------------------------
SEE 'RISK FACTORS' BEGINNING ON PAGE 10 FOR INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) STOCKHOLDERS
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Per Share................................. $ $ $ $
Total(3).................................. $ $ $ $
</TABLE>
- ------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933. See 'Underwriters.'
(2) Before deducting expenses payable by the Company estimated at
$ .
(3) The Company and the Selling Stockholders have granted to the
Underwriters an option, exercisable within 30 days of the date hereof,
to purchase up to an aggregate of additional Shares at the price
to public less underwriting discounts and commissions, for the purpose
of covering over-allotments, if any. If the Underwriters exercise such
option in full, the total price to public, underwriting discounts and
commissions, proceeds to Company and proceeds to Selling Stockholders
will be $ , $ , $ and $ , respectively. See
'Underwriters.'
------------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Shearman & Sterling, counsel for the Underwriters. It is expected that
delivery of the Shares will be made on or about , 1997, at the
office of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment
therefor in immediately available funds.
------------------------
MORGAN STANLEY & CO. SALOMON BROTHERS INC
INCORPORATED
, 1997
<PAGE>
[Artwork: Cutaway diagram of a jet engine indicating component parts made from
the Company's superalloys and special alloys]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON STOCK OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT
IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREBY SHALL UNDER ANY
CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
For investors outside the United States: No action has been or will be
taken in any jurisdiction by the Company, any Selling Stockholder or any
Underwriter that would permit a public offering of the Common Stock or
possession or distribution of this Prospectus in any jurisdiction where action
for that purpose is required, other than in the United States. Persons into
whose possession this Prospectus comes are required by the Company, the Selling
Stockholders and the Underwriters to inform themselves about, and to observe any
restrictions as to, the offering of the Common Stock and the distribution of
this Prospectus.
In this Prospectus, references to 'dollars' and '$' are to United States
dollars, and the terms 'United States' and 'U.S.' mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction. As used in this Prospectus, the term 'jet engine' means all
turbine aircraft engines including turbo jet, turbo fan, turbo shaft and turbo
prop engines.
------------------------
Until , 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock, whether or not participating
in this distribution, may be required to deliver a Prospectus. This delivery
requirement is in addition to the obligation of dealers to deliver a Prospectus
when acting as Underwriters and with respect to their unsold allotments or
subscriptions.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................................................... 4
Prospectus Summary......................................................................................... 5
Risk Factors............................................................................................... 10
The Company................................................................................................ 16
Use of Proceeds............................................................................................ 16
Dividend Policy............................................................................................ 16
Capitalization............................................................................................. 17
Dilution................................................................................................... 18
Selected Financial and Operating Data...................................................................... 19
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 21
Business................................................................................................... 29
Management................................................................................................. 47
Certain Transactions....................................................................................... 52
Principal and Selling Stockholders......................................................................... 55
Description of Capital Stock............................................................................... 57
Shares Eligible for Future Sale............................................................................ 59
Certain United States Federal Tax Consequences To Non-United States Holders of Common Stock................ 60
Underwriters............................................................................................... 62
Legal Matters.............................................................................................. 64
Experts.................................................................................................... 64
Index to Financial Statements.............................................................................. F-1
</TABLE>
------------------------
For so long as the Company's Common Stock is quoted on the Nasdaq National
Market or any national securities exchange, the Company intends to furnish its
stockholders with annual reports containing financial statements audited by an
independent public accounting firm and quarterly reports for the first three
quarters of each fiscal year containing unaudited financial information.
3
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
'Commission') a registration statement on Form S-1 (together with all amendments
and exhibits, the 'Registration Statement') under the Securities Act of 1933, as
amended (the 'Securities Act') with respect to the Common Stock offered hereby.
This Prospectus, which constitutes part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement and to the schedules and exhibits thereto. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected, without charge, and copies may be obtained, at prescribed rates, at
the public reference facilities of the Commission maintained at Judiciary Plaza,
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Copies of the
Registration Statement may also be inspected, without charge, at the
Commission's regional offices at Seven World Trade Center, Suite 1300, New York,
New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. In addition, copies of the Registration Statement may
be obtained by mail at prescribed rates, from the Commission's Public Reference
Section at Judiciary Plaza, 450 Fifth Street, N.W. Washington, D.C. 20549. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants (such as the Company)
that file electronically with the Commission. The address of such site is:
http://www.sec.gov.
Statements contained in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete and in each
instance reference is made to the copy of such contract, agreement or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
As a result of the Offering, the Company will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
of 1934, as amended, and, in accordance therewith, will file periodic reports,
proxy statements and other information with the Commission. Such periodic
reports, proxy statements and other information will be available for inspection
and copying at the public reference facilities, regional offices and Web site
referred to above.
4
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by reference to, the more detailed information and the Financial
Statements of the Company, including the notes thereto, appearing elsewhere in
this Prospectus. Unless otherwise indicated, the information in this Prospectus
assumes (i) the consummation of the merger of the Company with Special Metals
and Technologies Corporation ('SMTC') pursuant to which each share of common
stock of SMTC will be exchanged for 12,400 shares of Common Stock of the Company
and (ii) that the Underwriters' over-allotment option is not exercised.
References in this Prospectus to the 'Company' or 'Special Metals' refer to
Special Metals Corporation, its subsidiaries and their predecessors, or any of
them, depending on the context. Certain information contained in this summary
and elsewhere in this Prospectus, including information with respect to the
Company's plans and strategy for its business, are forward-looking statements.
For a discussion of important factors which could cause actual results to differ
materially from the forward-looking statements contained herein, see 'Risk
Factors.'
THE COMPANY
Special Metals is one of the world's leading producers of superalloy and
special alloy long products. Superalloys are highly engineered metal alloys
designed to withstand extreme heat and stress and are principally used in the
manufacture of jet engine parts. Compared to any other known metal or material,
superalloys offer a superior combination of heat resistance, high temperature
corrosion resistance, toughness and strength. Special alloys have unique
physical, chemical, and/or mechanical properties which are optimized by the
Company's melting and processing capabilities. In 1952, a predecessor of Special
Metals pioneered the melting technology that led to the practical development of
the superalloys that are the critical materials used in the 'hot' section of
modern jet engines. The Company believes that its 45 million pounds of vacuum
induction melting capacity makes it one of the largest producers in the
superalloy industry and that its substantial market share, comprehensive product
line, proprietary know-how and technological experience make it a leader in its
field. Special Metals' total net sales have increased from $80.4 million in 1993
to $132.2 million in 1995. The Company's backlog was approximately $148.8
million at December 10, 1996 compared to approximately $81.8 million at December
31, 1995. For the first nine months of 1996, approximately 77% of the Company's
net sales were to jet engine component manufacturers. The Company's products are
also used in other technically demanding applications, such as land-based power
generating equipment, oil well drilling hardware, die materials, chemical
processing applications and medical applications.
Special Metals operates three divisions. The Superalloy Billet and Bar
Division manufactures a wide array of wrought superalloy and special alloy
products in billet, bar and cast form, which are used primarily in jet engines.
This division also produces 'shape memory' alloys, such as Nitinol, which are
primarily used in medical and dental applications. The Company believes it has
the leading worldwide market share of approximately 32% (excluding China and the
countries of the former Soviet Union) in superalloy billet products and a North
American market share of approximately 20% in superalloy bar products. The
Powder Division produces powder metallurgy superalloy products for military jet
engines and the latest generation of large commercial jet engines and is the
world's largest independent manufacturer of superalloy powder products. The
Dental Division is the leading North American producer of amalgamable dental
alloys. In 1995, the Superalloy Billet and Bar Division, the Powder Division and
the Dental Division accounted for 85%, 10% and 5%, respectively, of the
Company's net sales.
INDUSTRY OVERVIEW
Superalloys were originally developed to meet the highly demanding design
requirements of jet engines and are currently used to make jet engine components
such as turbine blades, vanes, disks, rings, seals and shafts. These
applications require very high strength, toughness and resistance to metal
fatigue and creep while operating in environments where temperatures can
sometimes exceed 2,200degreesF. Management believes that over 70% of all
superalloy sales worldwide are to jet engine component manufacturers. Superalloy
products are also used in other technically demanding applications such as
land-based power generating equipment, oil well drilling hardware, die materials
and chemical processing applications. The complexity of the production process
is reflected in the Company's relatively high average selling prices of $9.92
and $12.44 per pound shipped of superalloys and special alloys, respectively,
for the first nine months of 1996, compared to the average selling price of
other metals such as carbon steel sheet, stainless steel sheet and aluminum,
which currently range from $.17 to $1.25 per pound shipped. The highly
demanding technical nature of superalloy products, specialized multi-stage
production processes and the stringency of jet engine manufacturers'
qualification requirements and certification processes have created what
management believes are high barriers to entry in the superalloy industry.
The superalloy industry has recently entered a period of increased demand
primarily because of improving conditions in the aerospace industry. The
superalloy industry reached a cyclical and historical peak in 1990 and
subsequently declined to a cyclical bottom in 1993. Management believes that the
demand for superalloy long products has almost doubled since 1993 and that the
industry (including the Company) is operating at close to 100% of
5
<PAGE>
available capacity. As a result, since 1993, there have been significant
increases in market prices for superalloy products. Based on industry data, the
Company believes that the superalloy industry will operate at a utilization rate
in excess of 90% for the next three years and that demand for superalloy
products will increase at a 6% to 10% annual rate for the next three years. See
'Business--Industry Overview.'
In 1995, the commercial aircraft industry started to recover from the
recession of the early 1990s. The firm order backlog of The Boeing Co.
('Boeing'), McDonnell Douglas Corp. ('McDonnell Douglas') and Airbus Industrie,
as reported by The Airline Monitor, increased to 1,869 planes at December 31,
1995 from 1,742 planes at December 31, 1994. Roll-outs of commercial aircraft
with more than 100 seats are expected to increase by more than 40% from 1995 to
1997. Boeing's production rate is scheduled to increase from 18 aircraft per
month in early 1996 to over 30 aircraft per month by mid-1997. More importantly,
the number of wide-body aircraft under production or on order is increasing,
which is expected to increase demand for larger engines and larger components
made with superalloys. The superalloy industry has substantially benefitted from
this recovery. The Company believes that demand for jet engines will remain
strong through 1999 because of projected increases in revenue passenger miles
both domestically and internationally (especially in the Pacific Rim) and the
imposition of federal Stage III noise regulations in the United States, which
will require airlines to replace existing Stage II engines or retrofit such
engines with engine hush kits. In addition, because of Federal Aviation
Administration regulations mandating maintenance of aircraft engines based in
part on the number of hours flown and the number of takeoff and landing cycles,
a large number of commercial aircraft built in the 1980s are scheduled to
undergo engine rebuilds in the next five years. As a result management believes
that demand for jet engine spare parts will remain strong.
BUSINESS STRATEGY
The Company's primary objective is to continue the growth of its superalloy
and special alloy business and to focus on both the aerospace and non-aerospace
markets. To achieve its objectives, the Company has implemented a business
strategy which is designed to: (i) capitalize on the Company's leading position
in the aerospace market; (ii) develop new products and markets; (iii) continue
to reduce the Company's costs; and (iv) explore potential acquisitions.
Capitalize on Leading Position in Aerospace Market. Special Metals'
largest single product line is superalloy billet used primarily in the
manufacture of jet engines. Management believes the Company's worldwide market
share (excluding China and the countries of the former Soviet Union) in
superalloy billet was approximately 32% in 1995 and, in certain key high
technology applications, approached 40%. To meet the increased level of
aerospace demand, the Company has increased its annual billet production
capacity by 15% during 1996.
The Company believes that its capital investment programs and commitment to
high quality have contributed to its ability to obtain a wider variety of user
certifications from major jet engine producers, such as General Electric Company
('General Electric'), Rolls Royce Plc ('Rolls Royce'), Pratt & Whitney, a
division of United Technologies Corporation ('Pratt & Whitney'), and Societe
Nationale D'Etude Et De Construction De Moteurs D'Aviation ('SNECMA'), than any
of its competitors. Over the last five years (principally in 1991 and 1992), the
Company invested over $20 million in new state-of-the-art forging and melting
facilities and over the next five years, the Company currently plans to invest
an additional $50 million to expand and modernize its facilities.
Develop New Products and Markets. Special Metals plans to grow its
business through the development of new products and new applications and
markets for its existing products. Between 1990 and 1996, Special Metals engaged
in an aggressive product line expansion effort. Over 20% of the Company's net
sales in 1995 were from sales of enhancements of existing products or new
products that did not exist in 1990. Given the brief commercial history of
superalloys, the non-aerospace market for superalloy products is relatively
immature. The Company believes that it is well positioned to exploit this market
and capitalize on new opportunities.
Continue to Reduce Costs. The Company has undertaken numerous projects to
maintain and improve its efficiency and cost position over the last few years.
Since 1992, Special Metals has enhanced its operating leverage, reduced its
billet cycle time by 33%, and improved its inventory turnover by 37%. The
Company continues to pursue opportunities to further reduce costs and improve
efficiency.
Explore Potential Acquisitions. The Company will examine opportunities to
acquire or invest in companies, technologies or products that complement the
Company's business or its product offerings. In particular, the Company will
consider acquisitions or investments that will leverage its expertise in
superalloy and special alloy products and enable it to enter new markets or sell
new products. Currently, the Company has no agreements or understandings
regarding any such acquisition or investment. See 'Risk Factors--Risks
Associated With Potential Acquisitions.'
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C> <C>
Common Stock offered by the Company............... shares
Common Stock offered by the Selling
Stockholders.................................... shares
--------
Total........................................ shares
=========
Common Stock to be outstanding after the
Offering(1)..................................... shares
Use of Proceeds................................... The net proceeds to the company will be used to repay
indebtedness under the Company's credit facility and, if
available following the repayment of such indebtedness, for
general corporate purposes, including working capital and
capital expenditures. The Company will not receive any
proceeds from the sale by the Selling Stockholders of the
Common Stock in the Offering. See 'Use of Proceeds.'
Proposed Nasdaq National Market symbol............ 'SMCX'
</TABLE>
- ------------------
(1) Does not include shares of Common Stock reserved for issuance upon the
exercise of options under the Special Metals Corporation 1997 Long-Term
Stock Incentive Plan (the 'Stock Option Plan').
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY CERTAIN FACTORS RELATING TO
AN INVESTMENT IN THE COMPANY. SEE 'RISK FACTORS.'
7
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
The following table presents certain historical and pro forma financial and
operating data of the Company for the periods indicated. Results for the nine
months ended September 30, 1996 are not necessarily indicative of the results to
be expected for the year ended December 31, 1996. The financial data set forth
below should be read in conjunction with 'Selected Financial and Operating
Data,' 'Management's Discussion and Analysis of Financial Condition and Results
of Operations' and the Financial Statements of the Company and the notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
-------- ------- -------- ------- -------- ------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER POUND AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................. $111,940 $87,849 $ 80,412 $95,510 $132,245 $92,566 $120,540
Cost of goods sold.................... 103,766 87,849 84,304 93,625 114,752 80,370 99,733
-------- ------- -------- ------- -------- ------- --------
Gross profit (loss)................. 8,174 -- (3,892) 1,885 17,493 12,196 20,807
Selling, general and administrative
expenses............................ 6,457 4,660 4,141 4,313 5,207 3,384 3,723
-------- ------- -------- ------- -------- ------- --------
Operating income (loss)............. 1,717 (4,660) (8,033) (2,428) 12,286 8,812 17,084
Interest expense...................... 3,587 3,169 3,912 4,361 4,727 3,572 3,096
-------- ------- -------- ------- -------- ------- --------
Income (loss) before income taxes and
extraordinary item.................. (1,870) (7,829) (11,945) (6,789) 7,559 5,240 13,988
Income tax expense (benefit)(1)....... (166) (2,139) 197 99 354 245 (1,901)
-------- ------- -------- ------- -------- ------- --------
Income (loss) before extraordinary
item................................ (1,704) (5,690) (12,142) (6,888) 7,205 4,995 15,889
Extraordinary item(2)................. -- 3,840 -- -- -- -- --
-------- ------- -------- ------- -------- ------- --------
Net income (loss)................... $ (1,704) $(1,850) $(12,142) $(6,888) $ 7,205 $ 4,995 $ 15,889
-------- ------- -------- ------- -------- ------- --------
-------- ------- -------- ------- -------- ------- --------
Net income (loss) per share........... $ (.14) $ (.15) $ (.98) $ (.56) $ .58 $ .40 $ 1.28
Weighted average common shares
outstanding......................... 12,400 12,400 12,400 12,400 12,400 12,400 12,400
Pro forma(3):
Net income.......................... $ $
Net income per share................ $ $
Weighted average common
shares outstanding...............
OTHER DATA:
Depreciation and amortization ........ $ 5,849 $ 5,941 $ 6,561 $ 7,200 $ 6,281 $ 4,594 $ 3,212
Capital expenditures.................. 9,922 5,677 793 975 1,963 1,228 1,877
Pounds shipped:
Superalloys......................... 13,277 11,269 10,932 12,253 14,907 10,568 10,626
Special alloys(4)................... 214 368 712 1,181 1,541 1,084 1,025
Toll conversion..................... 4,096 6,077 13,934 14,267 11,612 9,299 7,757
Average net sales per pound shipped:
Superalloys......................... $ 7.74 $ 7.00 $ 6.31 $ 6.48 $ 7.58 $ 7.48 $ 9.92
Special alloys...................... 36.12 21.44 12.55 10.56 10.32 9.12 12.44
Toll conversion..................... .35 .24 .18 .26 .30 .30 .30
Backlog (at period end)(5)............ $ 47,952 $34,878 $ 31,385 $40,711 $ 81,846 $80,010 $135,690
</TABLE>
(footnotes on next page)
8
<PAGE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
--------------------------
ACTUAL AS ADJUSTED(3)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital....................................................................... $ 47,096 $
Total assets.......................................................................... 119,976
Current portion of long-term debt and capital lease obligations....................... 6,772
Long-term debt (excluding current maturities)......................................... 35,560
Long-term capital lease obligations (excluding current maturities).................... 593 593
Subordinated notes payable(6)......................................................... 9,500 9,500
Stockholders' equity.................................................................. 31,802
</TABLE>
- ------------------
(1) Income tax expense for the nine months ended September 30, 1996 differs from
the amount which is derived by applying the combined statutory income tax
rates due to the utilization of previously unrecognized net operating loss
and other tax carryforwards and the recognition of previously unrecognized
deferred income tax assets.
(2) Represents an extraordinary gain from forgiveness of debt owed to an
affiliate of one of the Company's principal stockholders. The per share
impact of the extraordinary gain was $.31.
(3) Gives effect to (i) the Offering and (ii) the application of the net
proceeds therefrom to repay indebtedness under the Company's credit
facility. At November 30, 1996, approximately $49.0 million was outstanding
under the Company's credit facility. Assuming that the transactions
described above occurred as of January 1, 1995, the Company's interest
expense would have been $_____ and $_____ for 1995 and the nine months
ended September 30, 1996, respectively, and the Company's net income would
have been $_____ and $_____, respectively. See 'Use of Proceeds' and
'Management's Discussion and Analysis of Financial Condition and Results
of Operations.'
(4) Includes dental alloys, shape memory alloys and high strength stainless
steel.
(5) The Company defines backlog as firm purchase orders, which are generally
subject to cancellation by the customer subject to, in certain
circumstances, payment of specified charges.
(6) Represents subordinated notes held by certain of the Company's principal
stockholders (the 'Subordinated Notes'). In October and November 1996, the
Company repaid an aggregate of $6.5 million of indebtedness under the
Subordinated Notes. The Company intends to repay the remaining $3.0 million
balance on the Subordinated Notes prior to the consummation of the Offering.
9
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves various
risks. Prior to investing in the Common Stock being offered hereby, prospective
investors should carefully consider the factors set forth below, together with
the other information set forth in this Prospectus.
CYCLICALITY; DEPENDENCE ON AEROSPACE INDUSTRY
Demand for the Company's superalloy and special alloy products is cyclical
and is affected by the cyclical nature of the aerospace industry. Sales of the
Company's products to the aerospace industry accounted for approximately 68%,
69%, 70% and 77% of the Company's net sales in 1993, 1994, 1995 and the nine
months ended September 30, 1996, respectively.
The demand by commercial airlines for new aircraft historically has been
closely related to the state of the U.S. and world economies. The large number
of aircraft delivered in the late 1980s and early 1990s and the airline
industry's widespread losses created excess capacity in the air carrier system.
After this period, airlines and leasing companies deferred existing new aircraft
orders and, to a lesser degree, canceled orders. These deferrals and
cancellations adversely affected the volume and price of orders placed with the
manufacturers of commercial aircraft engine components and their suppliers,
including the Company. Because of the comparatively high level of fixed costs
associated with the Company's manufacturing processes, changes in volume can
result in significant variations in net income. Recently, the U.S. commercial
airline industry has reported profits, excess capacity has been reduced and
orders for new aircraft reported by major aircraft manufacturers have increased.
However, there can be no assurance that the improved operating performance of
the commercial airline industry will continue or that deliveries of large
commercial aircraft will not be deferred or cancelled in the future. Any
developments in the aerospace market resulting in a reduction in the rate of
future aircraft deliveries, including cancellations and deferrals of scheduled
deliveries, could have a material adverse effect on the Company. Also, the
cyclical nature of the superalloy industry could adversely affect the Company's
ability to finance its capital expenditure program and acquisitions. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources.'
HISTORY OF LOSSES
The Company's results of operations for the years 1991 through 1994 reflect
the severe downturn in market conditions experienced generally by the superalloy
industry over that period. The Company incurred losses before extraordinary
items of $26.4 million from 1991 through 1994. In addition, from March 1993 to
September 1994, the Company had insufficient cash flow to make certain interest
and term loan principal payments under a credit agreement with certain lenders
(the 'Prior Credit Agreement') and entered into a series of standstill
agreements with such lenders. Following the amendment and restatement of the
Prior Credit Agreement in December 1994, the Company remained in compliance with
all of its obligations in respect of the Prior Credit Agreement until it was
refinanced in October 1996.
The Company operated profitably in 1995 and in the first three quarters of
1996. Continuing profitable operations will be dependent, among other things,
on: market demand and prices for the Company's superalloys and special alloy
products, particularly demand and pricing in the aerospace industry; competition
and capacity utilization in the superalloy industry; timing and pricing of
long-term firm price contracts; the Company's ability to increase prices for its
products to a level that exceeds any increases in production costs;
manufacturing improvement and cost reduction efforts; any material adverse
developments or market instabilities in the supply of the Company's raw
materials; and the absence of a general economic downturn in North America,
Europe or the rest of the world. The failure of the Company to sustain
profitability could hinder its ability to respond effectively to market
conditions, to make capital expenditures and to take advantage of business
opportunities, the failure to perform any of which could have a material adverse
effect on the Company's financial condition and results of operations. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
10
<PAGE>
CUSTOMER CONCENTRATION
A substantial portion of the Company's business is conducted with a
relatively small number of large customers, including affiliates of SIMA. The
Company's top 10 customers accounted for 67% of the Company's net sales in 1995.
In 1995, each of Wyman-Gordon Forgings Inc. ('Wyman-Gordon'), Ladish Company and
Transmet, a division of Steiner S.A. ('Transmet'), and an affiliate of SIMA
accounted for approximately 17%, 11% and 10%, respectively, of the Company's
net sales. In 1994, the Company's two largest customers accounted for
approximately 22% and 13%, respectively, of the Company's total sales and in
1993, the Company's two largest customers each accounted for approximately 12%
of the Company's total sales. Loss of a significant customer could have a
material adverse effect on the Company.
AVAILABILITY AND COST OF RAW MATERIALS; HEDGING
The major raw materials used in the production of superalloys and special
alloys are scrap and various virgin materials such as nickel, chromium, cobalt,
columbium, molybdenum, titanium and aluminum. Over half of the raw materials
consumed in superalloy production is scrap, either internally generated scrap
from the Company's own production process or scrap purchased on the open market
or from customers. Virgin raw materials are generally purchased directly from
producers. Commercial deposits of certain metals used by the Company are found
in only a few parts of the world. The availability and prices of these metals
may be influenced by cartels, changes in world politics, unstable governments in
exporting nations and inflation. Shortages of, and price increases for, certain
raw materials used by the Company have occurred in the past and may occur in the
future, which could have a material adverse effect on the Company.
As described above, a substantial portion of the Company's raw materials
used in production are commodities, such as nickel, that are subject to wide
price fluctuations. The price the Company pays for nickel is usually based upon
quoted prices on the London Metal Exchange ('LME') plus a premium due to
quality, location, and volume purchased. Although certain of the Company's 1996
product orders provide for price adjustments to reflect changes in the price of
raw materials, a substantial majority of the Company's product orders currently
are, and in the future are expected to be, made pursuant to firm price
contracts, which do not provide for raw material price adjustments. To attempt
to mitigate the risks associated with raw material price fluctuations and to
match raw material purchases with firm price product orders, the Company often
enters into firm price contracts for the purchase of virgin raw materials from
suppliers and for the purchase of scrap from customers or hedges the price of
nickel. Although the Company uses commercially reasonable efforts to collect
cancellation penalties if a customer cancels a firm price purchase order, there
can be no assurance that the Company will receive cancellation penalties which
are adequate to cover any raw material losses incurred by the Company as a
result of its hedging activities. At September 30, 1996, the Company had
commodity swap agreements covering a portion of its nickel requirements for the
period from October 1996 through December 1997, for a total purchase price of
approximately $8.7 million. The fair market value of the material covered by
these agreements, based on the September 30, 1996 price quoted on the LME, was
approximately $7.7 million. The Company's manufacturing specifications require
higher grades of nickel than those available on the LME or other commodities
exchanges. Therefore, the LME contracts only provide hedging on the price of
such materials and do not guarantee the actual delivery of usable raw materials.
There can be no assurance that the hedging and other techniques implemented by
the Company will be successful in eliminating or reducing the effects of
fluctuation in the prices of the Company's raw materials or that the Company
will not incur losses on such transactions.
DEPENDENCE ON ESSENTIAL MACHINERY AND EQUIPMENT
The Company's principal manufacturing assets used in its Billet and Bar
Division (which accounted for approximately 85% of net sales in 1995) are
located at its melting, rolling and finishing production facility in New
Hartford, New York and at its forge shop in Dunkirk, New York. The Dunkirk
facility relies to a significant extent upon ingot produced at the New Hartford
facility and the New Hartford facility relies to a significant extent on the
forging capacity of the Dunkirk facility. Any production failures, shutdowns or
other significant problems at either the New Hartford or the Dunkirk facility
could have a material adverse effect on the Company's financial condition and
results of operation. The Company believes that it maintains adequate property
damage insurance to provide for reconstruction of damaged equipment, as well as
business interruption
11
<PAGE>
insurance to mitigate losses resulting from any production shutdown caused by
insured loss; however, there can be no assurance that such insurance coverage
will be adequate to cover such losses.
The Company's manufacturing processes are dependent on the reliable
operation of its machinery and equipment. The Company's manufacturing facilities
have been operating at near capacity for the last four quarters. The Company has
certain critical pieces of machinery and equipment which may require significant
lead times to complete necessary repairs or replacements and the functions of
which may not be easily replaced by an outside contractor on commercially
acceptable terms. Any such event could result in a disruption in the Company's
production or distribution which could have a material adverse effect on the
Company. See 'Business--Products and Markets.'
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS
The Company will examine opportunities to acquire or invest in companies,
technologies or products that complement the Company's business or its product
offerings. Any future acquisitions may result in a potentially dilutive issuance
of equity securities, the incurrence of additional debt, reduction of existing
cash balances, the amortization of expenses related to goodwill and other
intangible assets or other charges to operations, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Future acquisitions could involve numerous additional
risks, including difficulties in the assimilation of the operations, products,
services and personnel of any acquired company, the diversion of management's
attention from other business concerns, the disruption of the Company's
business, the entry into markets in which the Company has little or no direct
prior experience and potential loss of key employees of any acquired company.
The Company has no agreements or understandings regarding any such acquisition
or investment. See also '--Limitations on Payments of Dividends; Restrictive
Covenants.'
COMPETITION
The superalloy industry is highly competitive and dominated by a few major
producers. The Company competes primarily on the basis of the ability to meet
customers' product specifications, quality, price and delivery schedules. Many
of the Company's competitors are part of large, diversified metals companies
which may have substantially greater capital resources and, in some cases, lower
raw material or labor costs than the Company. Moreover, the Company's
competitors have recently added and may in the future add production capacity
which, when coupled with the competitive nature of the superalloy industry, may
exert downward pressure on prices and therefore the Company's margins. Finally,
despite large start-up costs and technological requirements for entry into the
superalloy business, recent attempts have been made to enter the superalloy
industry, including a joint venture partly owned by one of the Company's largest
customers. Successful entry of new competitors into the superalloy industry
could have a material adverse effect on the business, financial condition,
results of operations or cash flows of the Company. See 'Business--Competition.'
LABOR MATTERS
As of September 30, 1996, approximately 390 (or 68%) of the Company's
approximately 570 employees worked under four collective bargaining agreements.
The Company's agreement with the local branch of the International Association
of Machinists and Aerospace Workers (the 'IAM') representing 55 hourly workers
at its Princeton, Kentucky facility expires in August 1997. Also, the Company's
agreement with the local branch of the IAM representing approximately 290 hourly
workers at its New Hartford, New York facility, expires in August, 1998. The
remaining labor agreements expire in 1999. In 1992, a two-week strike by the IAM
occurred at the Company's New Hartford facility. While the Company considers its
employee relations to be good, there can be no assurance that satisfactory new
collective bargaining agreements will be negotiated when the applicable
collective bargaining agreements expire or that future work stoppages would not
have a material adverse effect on the business, financial condition, results of
operations or cash flows of the Company. See 'Business--Employees.'
12
<PAGE>
ENVIRONMENTAL REGULATIONS
The Company's facilities are engaged in activities regulated by extensive
federal, state, local and foreign environmental and worker safety and health
laws and regulations, including those relating to air emissions, wastewater
discharges, the handling and disposal of solid and hazardous wastes and the
remediation of contamination caused by the release of hazardous substances in
the past. The Company uses substantial quantities of substances that are
considered hazardous or toxic under federal, state and/or local environmental,
worker safety and health laws and regulations. The Company's operations pose a
continuing risk of accidental releases of, and worker exposure to, hazardous or
toxic substances. There is also a risk that governmental environmental
requirements, or enforcement thereof, may become more stringent in the future
and that the Company may be subject to legal proceedings brought by private
parties or governmental agencies with respect to environmental matters. Although
the Company believes that it is in substantial compliance with applicable
requirements of environmental laws, there can be no assurance that some, or all,
of the risks discussed under this heading or in 'Business--Environmental
Matters' will not result in liabilities that are material to the Company's
business, results of operations, financial condition or cash flows.
At September 30, 1996, the Company had total reserves of approximately $3.5
million to cover future costs arising from known environmental liabilities for
remediation and operation and maintenance of remediation systems, including
costs relating to its own properties and certain sites at which the Company's
wastes have been identified. The Company's actual future expenditures, however,
for remediation of environmental conditions existing at its properties and at
these other locations cannot be conclusively determined at this time.
Furthermore, additional locations at which wastes generated by the Company may
have been released or disposed, and of which the Company is currently unaware,
may in the future become the subject of remediation for which the Company may be
liable, in whole or in part. Accordingly, it is possible that the Company could
become subject to environmental liabilities in the future that could result in a
material adverse effect on the Company's business, results of operations,
financial condition or cash flows.
DEPENDENCE UPON KEY MANAGEMENT
The Company's ability to maintain its competitive position is dependent to
a large degree on the services of its senior management team, including Donald
R. Muzyka, President and Chief Executive Officer. On average, the Company's
executive officers have served with the Company for 11 years each. Although Dr.
Muzyka and certain of the Company's other senior managers will have employment
agreements with the Company prior to the consummation of the Offering, there can
be no assurance that such individuals will remain with the Company. The loss of
the services of any of these individuals or an inability to attract and retain
additional senior management personnel could have a material adverse effect on
the Company. There can be no assurance that the Company will be able to retain
its existing senior management personnel or to attract additional qualified
senior management personnel. See 'Management.'
CONTROL BY PRINCIPAL STOCKHOLDERS
Upon completion of the Offering, Societe Industrielle de Materiaux Avances
S.A. ('SIMA'), LWH Holding S.A. ('LWH') and Advanced Materials Investments
Holding S.A. ('AMI,' and, together with SIMA and LWH, the 'Principal
Stockholders') will beneficially own approximately % of the outstanding
Common Stock (approximately % if the Underwriters' over-allotment option is
exercised in full). Under an amended and restated stockholders agreement among
the Company and the Principal Stockholders (the 'Stockholders Agreement'), the
Principal Stockholders have agreed to vote all shares of Common Stock owned by
them unanimously as a group in accordance with the instructions of the holders
of a majority of such shares. In addition, the Company has agreed to nominate a
number of persons for election as directors who are designated by the Principal
Stockholders based on the ownership percentage of the Principal Stockholders.
The Stockholders Agreement provides that 56% of the nominees for director (four
based on the present board of seven directors) may be designated by the
Principal Stockholders so long as the Principal Stockholders beneficially own
35% or more of the outstanding Common Stock. Because SIMA will beneficially own
a majority of the shares of Common Stock held by the Principal Stockholders upon
completion of the Offering, SIMA will be able to control the business, policies
and affairs of the Company, including the election of directors and major
corporate transactions. The concentration of beneficial ownership of the Company
may have the effect
13
<PAGE>
of delaying, deferring or preventing a change in control of the Company, may
discourage bids for the Common Stock at a premium over the market price of the
Common Stock and may otherwise adversely affect the market price of the Common
Stock. See '--Antitakeover Provisions,' and 'Principal and Selling
Stockholders-- Stockholders Agreement.'
For a description of certain relationships between the Company and the
Principal Stockholders, see 'Certain Transactions.' The common equity of SIMA is
beneficially owned by members of the Duval family and certain related parties.
Edouard Duval, a director of the Company, is a Directeur General of SIMA and has
a minority equity interest in SIMA. SIMA holds a controlling interest in Aubert
& Duval, a French steel and alloy producer. Although
Aubert & Duval and the Company currently compete in certain limited product
lines, the Company believes that this competition is not material to the Company
and that it is unlikely that the companies will compete in a material manner in
the superalloy and special alloy business in the future. However, there can be
no assurance that a conflict of interest may not arise in the future. There are
currently no contractual relationships between the companies which limit
competition.
ABSENCE OF PRIOR PUBLIC MARKET
Prior to the Offering, there has been no public market for the Common
Stock. Although the Common Stock is expected to be approved for quotation on the
NASDAQ National Market, there can be no assurance that an active trading market
will develop or be sustained following the Offering. There can be no assurance
that market prices for the Common Stock after the Offering will equal or exceed
the initial public offering price per share set forth on the cover page of this
Prospectus. The initial public offering price of the Common Stock will be
determined by negotiation among the Company, the Selling Stockholders and the
Underwriters and may not be indicative of the market price for the Common Stock
following the Offering. See 'Underwriters--Pricing of Offering.' The market
price of the Common Stock could be subject to significant fluctuations in
response to various factors and events, including the liquidity of the market
for shares of Common Stock, differences between the Company's actual financial
or operating results and those expected by investors and analysts, pricing and
competition in the superalloy industry, new statutes or regulations or changes
in interpretations of existing statutes and regulations affecting the Company's
business or the superalloy or aerospace industries in general, changes in
general market conditions and broad market fluctuations.
DILUTION
Purchasers of Common Stock in the Offering will experience immediate and
substantial dilution of $ per share (assuming an initial public offering
price of $ per share) of the Common Stock from the public offering price.
See 'Dilution.'
POSSIBLE ADVERSE IMPACT ON STOCK PRICE OF SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Common Stock in the public market
following the Offering, or the perception that such sales could occur, could
adversely affect prevailing market prices for the Common Stock and the ability
of the Company to raise capital by issuing its equity securities. Following the
Offering, the Company will have outstanding shares of Common Stock. Of
these, the shares offered hereby will be freely transferable by persons
other than 'affiliates' of the Company without restriction or further
registration under the Securities Act. The remaining outstanding
shares of Common Stock will be owned by the Principal Stockholders and will be
'restricted securities.' Subject to the lockup arrangements described below,
these 'restricted' shares of Common Stock will be registrable upon demand by the
Principal Stockholders and will be eligible for sale without registration under
the Securities Act in accordance with Rule 144 ('Rule 144') promulgated under
the Securities Act. In connection with the Offering, the Company and the
Principal Stockholders have agreed that, without the prior written consent of
Morgan Stanley & Co. Incorporated, they will not sell or otherwise transfer or
dispose of any shares of Common Stock for a period of 180 days after the date
hereof other than the shares of Common Stock offered hereby and certain other
exceptions. In addition, shares of Common Stock are reserved for
issuance upon the exercise of stock options under the Stock Option Plan and the
issuance of such shares will be registered under the Securities Act. See 'Shares
Eligible for Future Sale,' 'Management--Stock Option Plan,' and 'Certain
Transactions--Transactions with Principal Stockholders--Registration Rights.'
14
<PAGE>
LIMITATIONS ON PAYMENT OF DIVIDENDS; RESTRICTIVE COVENANTS
The Company has never declared or paid any dividends on its Common Stock.
Any future decisions as to the payment of dividends will be at the discretion of
the Company's Board of Directors, subject to applicable law. The Company's
ability to pay dividends is also limited by the terms of the Company's Credit
Agreement, dated as of October 18, 1996, among the Company, Credit Lyonnais New
York Branch and the financial institutions from time to time party thereto (the
'Credit Agreement'). The Credit Agreement requires the Company to maintain
certain financial ratios and minimum consolidated net worth. The Credit
Agreement also contains covenants restricting the ability of the Company to pay
dividends, make certain restricted payments, incur additional indebtedness, make
certain investments, create liens, guarantee indebtedness, sell or acquire
assets, enter into mergers or consolidations, and form subsidiaries, which may
restrict the ability of the Company to expand its manufacturing capacity or make
acquisitions. In addition, amounts borrowed under the Company's revolving line
of credit under the Credit Agreement may only be used to finance working capital
needs and to repay outstanding indebtedness. See 'Dividend Policy' and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources.'
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Restated Certificate of Incorporation
(the 'Certificate of Incorporation') and Amended and Restated By-laws (the
'By-laws'), as well as provisions of the Delaware General Corporation Law (the
'DGCL'), may have the effect of delaying, deferring or preventing a change of
control of the Company, including transactions in which stockholders might
otherwise receive a substantial premium for their shares over then current
market prices. For example, under the Certificate of Incorporation, the Board of
Directors (or a committee thereof) is authorized to issue one or more series of
preferred stock having such designations, rights and preferences as may be
determined by the Board. Also, the Certificate of Incorporation and the By-laws
provide for a classified Board of Directors, and the By-laws provide advance
notice procedures for stockholders to submit proposals for consideration at
stockholders' meetings or to nominate persons for election as directors. See
also '--Control by Principal Stockholders,' 'Principal and Selling
Stockholders--Stockholders Agreement' and 'Description of Capital Stock.'
15
<PAGE>
THE COMPANY
The Company's superalloy business commenced operations as part of the Utica
Drop Forge Company ('Utica Drop Forge') in 1952 with the successful introduction
of the world's first production vacuum melting furnace. Operations continued as
a division of Utica Drop Forge until 1961, when Special Metals Corporation was
formed as a separate, publicly-owned, Delaware corporation listed on the New
York Stock Exchange. In 1965, Special Metals was purchased by a predecessor of
Allegheny International Inc. ('AI') and operated as a wholly-owned subsidiary of
AI until 1983, when AI sold its interest in Special Metals to Astrotech
International Corporation ('Astrotech').
In 1987, Astrotech sold all of the outstanding capital stock of the Company
to SMTC, a holding company owned by certain of the Principal Stockholders. Prior
to the date of the Offering, SMTC was merged with and into Special Metals (the
'Merger'). As a result, the Principal Stockholders received 12,400 shares of
Common Stock in exchange for each share of Common Stock of SMTC held by them.
The Company's principal executive offices are located at 4317 Middlesettlement
Road, New Hartford, NY 13413. Its telephone number is (315) 798-2900.
USE OF PROCEEDS
The net proceeds to the Company from the Offering, assuming an initial
public offering price of $ per share (the midpoint of the range set forth on
the cover page of this Prospectus) and after deducting the estimated offering
expenses and underwriting discounts and commissions, are estimated to be $
million. The Company will not receive any proceeds from the sale by the Selling
Stockholders of the Common Stock in the Offering.
The Company will use substantially all of the net proceeds of the Offering
received by it to repay outstanding indebtedness under the revolving credit
facility under the Credit Agreement (the 'Revolving Facility') and the term loan
under the Credit Agreement (the 'Term Loan'). Amounts borrowed under the
Revolving Facility fluctuate depending on the working capital needs of the
Company. If the net proceeds of the Offering are insufficient to repay all
outstanding amounts under the Credit Agreement, the Company intends to repay all
outstanding indebtedness under the Revolving Facility and a portion of the
outstanding indebtedness under the Term Loan. If any net proceeds from the
Offering remain after the repayment of all outstanding indebtedness under the
Credit Agreement, the Company intends to use such remaining net proceeds for
general corporate purposes, including working capital and capital expenditures.
Amounts borrowed under the Credit Agreement bear interest at variable rates
and, at November 30, 1996, averaged approximately 6.6%. On November 30, 1996,
approximately $29.0 million was outstanding under the Revolving Facility and $20
million was outstanding under the Term Loan. All amounts outstanding under the
Revolving Facility mature on October 17, 2001 and all amounts outstanding under
the Term Loan must be repaid between October 17, 1997 and October 17, 2001.
After repayment, amounts may be reborrowed under the Revolving Facility, but may
not be reborrowed under the Term Loan. See 'Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources.'
DIVIDEND POLICY
Since August 1987, the Company has not declared or paid any dividends on
its Common Stock and does not currently pay cash dividends on its Common Stock.
Any future decision as to the payment of dividends will be at the discretion of
the Company's Board of Directors, subject to applicable law. The Company's
ability to pay dividends is also limited by certain covenants of the Credit
Agreement, such as the restricted payment covenant. See 'Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources.'
16
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
the Company as of September 30, 1996 and as adjusted to reflect (i) the Offering
at an assumed initial public offering price of $ per share (the midpoint of
the range set forth on the cover page of this Prospectus) and (ii) the
application of the net proceeds therefrom to repay the indebtedness under the
Credit Agreement. This table should be read in conjunction with 'Use of
Proceeds,' 'Management's Discussion and Analysis of Financial Condition and
Results of Operations' and the Financial Statements of the Company and the notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1996
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt and capital lease obligations........................... $ 6,772 $
------- -----------
------- -----------
Long-term debt, excluding current maturities
Long-term capital lease obligations..................................................... $ 593 $ 593
Credit Agreement(1)..................................................................... 35,550
Subordinated Notes(2)................................................................... 9,500 9,500
Other................................................................................... 10 10
------- -----------
Total long-term debt................................................................. 45,653
------- -----------
Stockholders' equity:
Common Stock, par value $.01 per share: 35,000,000 shares authorized; 12,400,000 shares
issued and outstanding actual; shares issued and outstanding as adjusted(3)... 124
Preferred Stock, par value $.01 per share: 10,000,000 shares authorized; no shares
issued and outstanding............................................................... -- --
Paid-in surplus......................................................................... 25,876
Pension adjustment...................................................................... (479) (479)
Retained earnings....................................................................... 6,281 6,281
------- -----------
Total stockholders' equity........................................................... 31,802
------- -----------
Total capitalization............................................................... $77,455 $
------- -----------
------- -----------
</TABLE>
- ------------------
(1) Under the Revolving Facility of the Credit Agreement, the Company may
borrow, repay and re-borrow from time to time, the lesser of (a) $40 million
or (b) the Company's borrowing base. The Credit Agreement defines the
Company's borrowing base as the sum of 85% of eligible accounts receivable
and 60% of eligible inventory. As of October 31, 1996, the borrowing base
was $48.1 million. The Company's ability to borrow under the Credit
Agreement is subject to the satisfaction of various conditions including
compliance with certain financial covenants.
(2) In October and November 1996, the Company repaid an aggregate of $6.5
million of indebtedness under the Subordinated Notes. The Company intends to
repay the remaining $3.0 million balance on the Subordinated Notes prior to
the consummation of the Offering.
(3) Excludes shares of Common Stock reserved for issuance pursuant to the
Stock Option Plan, under which options to purchase shares at the
initial public offering price will be granted effective on the date of the
Offering. See 'Management--Stock Option Plan' and 'Description of Capital
Stock.'
17
<PAGE>
DILUTION
At September 30, 1996, the net tangible book value of the Company after
giving effect to the Merger but prior to the Offering would have been
approximately $27.8 million, or $2.24 per share. Net tangible book value per
share of Common Stock is determined by dividing the number of shares of Common
Stock outstanding into the net tangible book value of the Company (total
tangible assets less total liabilities) without giving effect to the possible
exercise of stock options which will be granted by the Company upon consummation
of the Offering under its Stock Option Plan. After giving effect to the Offering
at an assumed initial public offering of per share (the midpoint of the
range set forth on the cover page of this Prospectus) and the application of the
net proceeds therefrom as set forth in 'Use of Proceeds,' the net tangible book
value at such date would have been $ million, or $ per share,
representing an immediate increase in net tangible book value of $ per
share. Accordingly, purchasers of the Common Stock in the Offering would sustain
an immediate dilution of $ per share.
The following table illustrates such per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price.................. $
Net tangible book value as of September 30, 1996..... $
Increase in net tangible book value attributable to
the Offering(1)................................... $ $
----------
Pro forma net tangible book value after the Offering... $
----------
Dilution to new investors in the Offering(2)........... $
----------
----------
</TABLE>
- ------------------
(1) After deduction of underwriting discounts and commissions and estimated
offering expenses.
(2) Dilution is determined by subtracting the net tangible book value per share
after completion of the Offering from the assumed initial public offering
price per share of the Common Stock.
The following table summarizes, on a pro forma basis as of September 30,
1996, the differences between the holders of Common Stock prior to the Offering,
as a group, and the new investors in the Common Stock offered by the Company,
with respect to the number of shares purchased, the total consideration paid and
the average price paid per share, based upon an assumed initial public offering
price of $ per share:
<TABLE>
<CAPTION>
SHARES
PURCHASED(1) TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- -------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(2)(3)............................... $ $
New investors.............................................
------ ------- -------- -------
Total..................................................... 100.0% $ 100.0%
------ ------- -------- -------
------ ------- -------- -------
</TABLE>
- ------------------
(1) If the Underwriters' over-allotment option is exercised in full, the number
of shares of Common Stock held by existing stockholders would be reduced to
% of the total number of shares to be outstanding after the Offering and
the number of shares of Common Stock held by new investors would be
increased to or % of the total number of shares of Common Stock to be
outstanding after the Offering.
(2) Excludes shares of Common Stock reserved for issuance pursuant to the
Stock Option Plan, under which options to purchase shares at the
initial public offering price will be granted effective on the date of the
Offering. See 'Management--Stock Option Plan' and 'Description of Capital
Stock.'
(3) Sales by the Selling Stockholders in the Offering will cause the number of
shares of Common Stock held by the existing Stockholders to be reduced, and
the number of shares to be held by the new investors to be increased, by
. See 'Principal and Selling Stockholders.'
18
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
The following selected financial data as of and for the years ended
December 31, 1991, 1992, 1993, 1994 and 1995 have been derived from the
Company's audited Financial Statements. The following selected financial data as
of and for the nine months ended September 30, 1995 and 1996 have been derived
from the Company's unaudited Financial Statements. In the opinion of management,
such unaudited financial statements reflect all adjustments, consisting only of
normal recurring accruals, necessary for a fair presentation of the Company's
financial position and results of operations for such periods. Results for the
nine months ended September 30, 1996 are not necessarily indicative of the
results to be expected for the year ended December 31, 1996. The financial data
set forth below should be read in conjunction with the information under
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and the Financial Statements of the Company and the notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER POUND AND PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................... $111,940 $ 87,849 $ 80,412 $95,510 $132,245 $ 92,566 $120,540
Cost of goods sold............ 103,766 87,849 84,304 93,625 114,752 80,370 99,733
-------- -------- -------- ------- -------- -------- --------
Gross profit (loss)......... 8,174 -- (3,892) 1,885 17,493 12,196 20,807
Selling, general and
administrative expenses..... 6,457 4,660 4,141 4,313 5,207 3,384 3,723
-------- -------- -------- ------- -------- -------- --------
Operating income (loss)..... 1,717 (4,660) (8,033) (2,428) 12,286 8,812 17,084
Interest expense.............. 3,587 3,169 3,912 4,361 4,727 3,572 3,096
-------- -------- -------- ------- -------- -------- --------
Income (loss) before income
taxes and extraordinary
item........................ (1,870) (7,829) (11,945) (6,789) 7,559 5,240 13,988
Income tax expense
(benefit)(1)................ (166) (2,139) 197 99 354 245 (1,901)
-------- -------- -------- ------- -------- -------- --------
Income (loss) before
extraordinary item.......... (1,704) (5,690) (12,142) (6,888) 7,205 4,995 15,889
Extraordinary item(2)......... -- 3,840 -- -- -- -- --
-------- -------- -------- ------- -------- -------- --------
Net income (loss)........... $ (1,704) $ (1,850) $(12,142) $(6,888) $ 7,205 $ 4,995 $ 15,889
-------- -------- -------- ------- -------- -------- --------
-------- -------- -------- ------- -------- -------- --------
Net income (loss) per share... $ (.14) $ (.15) $ (.98) $ (.56) $ .58 $ .40 $ 1.28
Weighted average common shares
outstanding................. 12,400 12,400 12,400 12,400 12,400 12,400 12,400
OTHER DATA:
Depreciation and
amortization................ $ 5,849 $ 5,941 $ 6,561 $ 7,200 $ 6,281 $ 4,594 $ 3,212
Capital expenditures.......... 9,922 5,677 793 975 1,963 1,228 1,877
Pounds shipped:
Superalloys................. 13,277 11,269 10,932 12,253 14,907 10,568 10,626
Special alloys(3)........... 214 368 712 1,181 1,541 1,084 1,025
Toll conversion............. 4,096 6,077 13,934 14,267 11,612 9,299 7,757
Average net sales per pound
shipped:
Superalloys................. $ 7.74 $ 7.00 $ 6.31 $ 6.48 $ 7.58 $ 7.48 $ 9.92
Special alloys.............. 36.12 21.44 12.55 10.56 10.32 9.12 12.44
Toll conversion............. .35 .24 .18 .26 .30 .30 .30
Backlog (at period end)(4).... $ 47,952 $ 34,878 $ 31,385 $40,711 $ 81,846 $ 80,010 $135,690
</TABLE>
(footnotes on next page)
19
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER POUND AND PER SHARE DATA)
BALANCE SHEET DATA (AT PERIOD END): (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital............... $ 38,830 $ 35,216 $ 32,378 $29,287 $ 35,779 $ 32,652 $ 46,596
Total assets.................. 110,027 108,651 98,779 91,901 106,945 105,376 119,976
Current portion of long-term
debt and capital lease
obligations................. 3,010 2,193 3,210 4,233 5,270 5,018 6,772
Long-term debt (excluding
current maturities)......... 48,500 50,500 47,500 45,500 40,810 41,050 35,560
Long-term capital lease
obligations (excluding
current maturities)......... -- 1,359 1,174 965 777 814 593
Subordinated notes
payable(5).................. -- 2,000 8,500 8,500 8,500 8,500 9,500
Stockholders' equity.......... 30,066 28,216 16,074 8,987 15,666 13,982 31,802
</TABLE>
- ------------------
(1) Income tax expense for the nine months ended September 30, 1996 differs from
the amount which is derived by applying the combined statutory income tax
rates due to the utilization of previously unrecognized net operating loss
and other tax carryforwards and the recognition of previously unrecognized
deferred income tax assets.
(2) Represents an extraordinary gain from forgiveness of debt owed to an
affiliate of one of the Company's principal stockholders. The per share
impact of the extraordinary gain was $.31 per share.
(3) Includes dental alloys, shape memory alloys and high strength stainless
steel.
(4) The Company defines backlog as firm purchase orders, which are generally
subject to cancellation by the customer subject to, in certain
circumstances, payment of specified charges.
(5) In October and November 1996, the Company repaid an aggregate of $6.5
million of indebtedness under the Subordinated Notes. The Company intends to
repay the remaining $3.0 million balance on the Subordinated Notes prior to
the consummation of the Offering.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by reference to, the Financial Statements of the
Company and the notes thereto included elsewhere in this Prospectus. Certain
information contained below are forward-looking statements. See 'Risk Factors'
for a discussion of important factors which could cause actual results to differ
materially from the forward-looking statements contained herein.
OVERVIEW
The Company manufactures superalloys and special alloys, which are highly
engineered metal alloys designed to withstand extreme heat, stress and
corrosion. Special Metals operates three divisions. The Superalloy Billet and
Bar Division manufactures a wide array of wrought superalloy and special alloy
products in billet, bar and cast form, which are used primarily in jet engines.
This division also produces 'shape memory' alloys, such as Nitinol, which are
primarily used in medical and dental applications. The Powder Division produces
powder metallurgy superalloy products for military jet engines and the latest
generation of large commercial jet engines and is the world's largest
independent manufacturer of superalloy powder products. The Dental Division is
the leading North American producer of amalgamable dental alloys. In 1995, the
Superalloy Billet and Bar Division, the Powder Division and the Dental Division
accounted for 85%, 10% and 5%, respectively, of the Company's net sales of
$132.2 million.
Historically, approximately 70% of the superalloys produced were consumed
by the aerospace industry for use in jet engine components. As a result, the
aerospace industry, which is highly cyclical, has had a significant effect on
the overall sales and profitability of the superalloy industry. During 1993,
1994 and 1995 and the nine months ended September 30, 1996, the Company's
estimated sales to jet engine component manufacturers totaled 68%, 69%, 70% and
77%, respectively, of the Company's net sales. The percentage of net sales to
jet engine component manufacturers increased during the nine months ended
September 30, 1996 as a result of a substantial increase in demand from the
aerospace industry. See 'Risk Factors--Cyclicality; Dependence on Aerospace
Industry.'
The superalloy industry has recently entered a period of increased demand
primarily because of improving conditions in the aerospace industry. The
superalloy industry reached a cyclical and historical peak in 1990 and
subsequently declined to a cyclical bottom in 1993. Management believes that
demand for superalloy long products has almost doubled since 1993 and that the
industry (including the Company) is operating at close to 100% of available
capacity. As a result, since 1993, there have been significant increases in
market prices for superalloy products. Based on industry data, the Company
believes that the superalloy industry will operate at a utilization rate in
excess of 90% for the next three years and that demand for superalloy products
will increase at a 6% to 10% annual rate for the next three years. See
'Business--Industry Overview.'
In 1995, the commercial aircraft industry started to recover from the
recession of the early 1990s. The firm order backlog of Boeing, McDonnell
Douglas and Airbus Industrie, as reported by The Airline Monitor, increased to
1,869 planes at December 31, 1995 from 1,742 planes at December 31, 1994.
Roll-outs of commercial aircraft with more than 100 seats are expected to
increase by more than 40% from 1995 to 1997. Boeing's production rate is
scheduled to increase from 18 aircraft per month in early 1996 to over 30
aircraft per month by mid-1997. More importantly, the number of wide-body
aircraft under production or on order is increasing, which is expected to
increase demand for larger engines and larger components made with superalloys.
The superalloy industry has substantially benefitted from this recovery. The
Company believes that demand for jet engines will remain strong through 1999
because of projected increases in revenue passenger miles both domestically and
internationally (especially in the Pacific Rim) and the imposition of federal
Stage III noise regulations in the United States, which will require airlines to
replace existing Stage II engines or retrofit such engines with engine hush
kits. In addition, because of Federal Aviation Administration regulations
mandating maintenance of aircraft engines based in part on the number of hours
flown and the number of takeoff and landing cycles, a large number of commercial
aircraft built in the 1980s are scheduled to undergo engine rebuilds in the next
five years. As a result of these factors, management believes that demand for
jet engine spare parts will remain strong.
21
<PAGE>
Net Sales. Net sales include sales of the Company's superalloy and special
alloy products and income earned from toll conversion. Sales of the Company's
products are made under standard orders, under one-year supply contracts and
long-term firm price contracts. For the nine months ended September 30, 1996,
approximately 70% of the pounds shipped of the Company's billet and bar products
were sold under standard orders or under one-year supply contracts. The
remaining 30% of the pounds shipped of the Company's billet and bar products for
the nine months ended September 30, 1996 were sold at firm prices under
long-term contracts negotiated in 1993 at the bottom of the aerospace cycle.
Since the early 1990s, long-term firm price contracts have become more prevalent
in the superalloy industry because jet engine manufacturers need to quote firm
prices to airlines for jet engines to be delivered several years in the future.
Because of the adverse business conditions prevailing when the long-term firm
price contracts were negotiated in 1993, the pricing on the contracts was very
unfavorable to superalloy producers and resulted in severely depressed margins
in the superalloy industry from 1994 to 1996. Special Metals recognized losses
on these long-term firm price contracts in 1994 and 1995 and generally did not
earn a profit on such contracts in the nine months ended September 30, 1996.
Substantially all of the firm price contracts concluded in 1993 are due to
expire in 1996, with a minor portion of shipments for 1996 orders carrying over
into 1997. The current market prices for superalloy products have returned to
acceptable levels. During 1996, the Company began negotiations with certain
customers to enter into new long-term firm price contracts which, if entered
into, are expected to provide improvements compared to the expiring contracts.
See 'Business--Pricing.'
Export sales represent a significant portion of the Company's business. In
1993, 1994, 1995 and the nine months ended September 30, 1996, sales to
purchasers outside of the United States totaled 28%, 25%, 35% and 27% of the
Company's net sales, respectively. All of the Company's export sales are
conducted in U.S. dollars.
Costs of Goods Sold. The superalloy industry is characterized by high
capital investment and high fixed costs, and profitability is therefore
significantly affected by changes in volume. Variable costs such as raw
materials, labor, supplies and energy (primarily electricity) generally account
for over three-fourths of the Company's costs of goods sold. Fixed costs, such
as indirect overhead and depreciation, constitute the remainder of the Company's
cost of goods sold. The Company has undertaken numerous projects to maintain and
improve its efficiency and cost position over the last few years. See
'Business--Business Strategy.'
A substantial portion of the Company's raw material used in production are
commodities, such as nickel, that are subject to wide price fluctuations. The
price the Company pays for nickel is usually based upon quoted prices on the LME
plus a premium due to quality, location, and volume purchased. Although certain
of the Company's 1996 product orders provide for certain price adjustments to
reflect changes in the price of raw materials, a substantial majority of the
Company's current product orders currently are, and in the future are expected
to be, made pursuant to firm price sales contracts, which do not provide for raw
material price adjustments. To attempt to mitigate the risks associated with raw
material price fluctuations and to match raw material purchases with firm price
product orders, the Company often enters into firm price contracts for the
purchase of virgin raw materials from suppliers and for the purchase of scrap
from customers or hedges the price of nickel. At September 30, 1996, the Company
had commodity swap agreements covering a portion of its nickel requirements for
the period from October through December 1997, for a total purchase price of
approximately $8.7 million. The fair value of the material covered by these
agreements, based on the September 30, 1996 price quoted on the LME, was
approximately $7.7 million. Unrealized gains and losses on the contracts are
deferred and are recognized in income during the periods affected. See 'Risk
Factors--Availability and Cost of Raw Materials; Hedging.'
Selling, General and Administrative Expenses. Selling, general and
administrative expenses represent costs associated with sales and marketing,
research and development, compensation expenses and legal expenses. During 1993,
1994, 1995 and the nine months ended September 30, 1996, increases in selling,
general and administrative expenses have primarily resulted from increased sales
of the Company's products. Selling, general and administrative expenses as a
percentage of the Company's net sales have declined from 5.2% in 1993 to 3.1%
for the nine months ended September 30, 1996, primarily as a result of increased
sales and cost control programs.
Income Taxes. The Company's effective income tax rate in 1993 and 1994
varied from the U.S. statutory rate due to losses which resulted in temporary
differences between book and taxable income for which recognition of a deferred
tax asset was not considered appropriate at the time. The Company's effective
income tax rate in 1995 varied from the U.S. statutory rate due to utilization
of net operating loss carryforwards. See
22
<PAGE>
Note 11 to the Financial Statements of the Company included elsewhere in this
Prospectus. Statement of Financial Accounting Standards No. 109 ('SFAS 109')
requires a valuation allowance when it is more likely than not that some
portion, or all, of the deferred tax assets will not be realized. SFAS No. 109
further states that forming a conclusion that a valuation allowance is not
needed is difficult when there is evidence that the deferred tax asset may not
be realized, such as cumulative losses in recent years. The Company incurred
losses in 1991 through 1994, and as a result, a valuation allowance was recorded
which substantially reduced the deferred tax assets. During 1995, and continuing
into 1996, the Company utilized substantial amounts of its net operating loss
and alternative minimum tax credit carryforwards. This use of available tax
carryforwards, together with the Company's recent profitability and the
Company's expectations for profitable operating results in the fourth quarter of
1996 and the year 1997, have resulted in the elimination, during 1996, of
substantially all of the valuation allowance previously recorded. As a result,
in the future, the Company does not expect that its effective tax rate will be
as favorable as it was during 1995 and the nine months ended September 30, 1996.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, statement of
operations data as a percentage of net sales.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------- --------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold........................................... 104.8 98.0 86.8 86.8 82.7
----- ----- ----- ----- -----
Gross profit (loss)........................................ (4.8) 2.0 13.2 13.2 17.3
Selling, general and administrative expenses................. 5.2 4.5 3.9 3.7 3.1
----- ----- ----- ----- -----
Operating income (loss).................................... (10.0) (2.5) 9.3 9.5 14.2
Interest expense............................................. 4.9 4.6 3.6 3.9 2.6
----- ----- ----- ----- -----
Income (loss) before income taxes............................ (14.9) (7.1) 5.7 5.6 11.6
Income taxes expense (benefit)............................... .2 .1 .3 .2 (1.6)
----- ----- ----- ----- -----
Net income (loss).......................................... (15.1) (7.2) 5.4 5.4 13.2
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1995
Net Sales. Net sales increased $28.0 million, or 30.2%, from $92.6 million
for the nine months ended September 30, 1995 to $120.6 million for the nine
months ended September 30, 1996. This increase was principally due to a shift in
the Company's product mix toward higher value-added products and improved
pricing. Average net sales per pound of superalloy shipped increased $2.44, or
32.6%, from $7.48 in the nine-month period in 1995 to $9.92 during the
comparable period in 1996. Average net sales per pound of special alloys shipped
increased $3.32, or 36.4%, from $9.12 in the nine-month period in 1995 to $12.44
during the comparable period in 1996. Pounds of superalloys shipped increased
slightly from 10.57 million pounds in the nine months ended September 30, 1995
to 10.63 million pounds in the nine months ended September 30, 1996 and pounds
of special alloys shipped decreased slightly from 1.08 million pounds in the
nine months ended September 30, 1995 to 1.03 million pounds in the nine months
ended September 30, 1996.
Cost of Goods Sold. Cost of goods sold increased $19.4 million, or 24.1%,
from $80.4 million for the nine months ended September 30, 1995 to $99.7 million
for the nine months ended September 30, 1996, primarily as a result of increased
sales partially offset by improved manufacturing efficiencies and cost reduction
programs. As a percentage of net sales, cost of goods sold decreased from 86.8%
in the nine months ended September 30, 1995 to 82.7% in the nine months ended
September 30, 1996.
Gross Profit. Gross profit increased $8.6 million, or 70.6% from $12.2
million for the nine months ended September 30, 1995 to $20.8 million for the
nine months ended September 30, 1996. This increase was due primarily to
increased sales, cost reduction programs and improved manufacturing
efficiencies.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $0.3 million, or 10.0% from $3.4 million for
the nine months ended September 30, 1995 to $3.7 million for the nine months
ended September 30, 1996. The increase was due primarily to the increase in net
sales. Selling,
23
<PAGE>
general and administrative expenses as a percentage of net sales decreased from
3.7% for the nine months ended September 30, 1995 to 3.1% for the nine months
ended September 30, 1996.
Operating Income. Operating income increased $8.3 million, or 93.9% from
$8.8 million for the nine months ended September 30, 1995 to $17.1 million for
the nine months ended September 30, 1996. Operating income as a percentage of
net sales increased from 9.5% for the nine months ended September 30, 1995 to
14.2% for the nine months ended September 30, 1996 as a result of increased net
sales offset in part by increased expenses.
Interest Expense. Interest expense decreased $.5 million, or 13.3%, from
$3.6 million for the nine months ended September 30, 1995 to $3.1 million for
the nine months ended September 30, 1996. This decrease was due primarily to a
decrease in average debt outstanding and to an overall decrease in interest
rates.
Income Taxes. The Company had an income tax expense of $245,000 for the
nine months ended September 30, 1995, compared to an income tax benefit of $1.9
million for the nine months ended September 30, 1996. The Company's effective
income tax rate for the nine months ended September 30, 1995 and 1996 varied
from the U.S. statutory rate due to utilization of net operating losses and
alternative minimum tax credit carryforwards and, in 1996 only, also due to the
recognition of previously unrecognized deferred tax assets of $5.8 million.
Net Income. Net income increased 218% from $5.0 million for the nine
months ended September 30, 1995 to $15.9 million for the nine months ended
September 30, 1996. Net income as a percentage of net sales increased from 5.4%
for the nine months ended September 30, 1995 to 13.2% for the nine months ended
September 30, 1996 primarily as a result of stronger demand for the Company's
products by the aerospace industry, cost reduction programs, improved
manufacturing efficiencies and recognition of certain unrecognized deferred tax
assets.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
Net Sales. Net sales increased $36.7 million, or 38.5%, from $95.5 million
in 1994 to $132.2 million in 1995. This increase was principally due to
increased sales volume of the Company's products and improved pricing related to
much stronger demand from customers in the aerospace industry. Pounds of
superalloys shipped increased 2.66 million pounds, or 21.7%, from 12.25 million
pounds in 1994 to 14.91 million pounds in 1995 and pounds of special alloys
shipped increased by 360,000 pounds, or 30.5%, from 1.18 million pounds in 1994
to 1.54 million pounds in 1995. Average net sales per pound of superalloy
shipped increased $1.10, or 17.0%, from $6.48 in 1994 to $7.58 in 1995. Average
net sales per pound of special alloys shipped decreased $0.24, or 2.3%, from
$10.56 in 1994 to $10.32 in 1995.
Cost of Goods Sold. Costs of goods sold increased $21.1 million, or 22.6%,
from $93.6 million in 1994 to $114.7 million in 1995, primarily as a result of
increased sales partially offset by improved manufacturing efficiencies and cost
reduction programs. As a percentage of net sales, cost of goods sold decreased
from 98.0% in 1994 to 86.8% in 1995.
Gross Profit. Gross profit increased $15.6 million from $1.9 million in
1994 to $17.5 million in 1995. This increase was due primarily to increased
sales, cost reduction programs, and improved manufacturing efficiencies.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $.9 million, or 20.7%, from $4.3 million in
1994 to $5.2 million in 1995. The increase was due primarily to increased
professional expenses and the increase in net sales in 1995 partially offset by
cost reduction programs. Selling, general and administrative expenses as a
percentage of net sales decreased from 4.5% in 1994 to 3.9% in 1995.
Operating Income (Loss). Operating income (loss) increased $14.7 million
from a loss of $2.4 million in 1994 to income of $12.3 million in 1995.
Operating income (loss) as a percentage of net sales increased from (2.5)% in
1994 to 9.3% in 1995 as a result of the stronger demand for the Company's
products in the aerospace industry, cost reduction programs and improved
manufacturing efficiencies.
Interest Expense. Interest expense increased $.3 million, or 8.4% from
$4.4 million in 1994 to $4.7 million in 1995. This increase was due primarily to
an increase in interest rates partially offset by a decrease in the average debt
outstanding.
Income Taxes. Income tax expenses increased $255,000 from $99,000 in 1994
to $354,000 in 1995 due primarily to increased income before income taxes. The
Company's effective income tax rate in 1994 varied from the U.S. statutory rate
due to losses which resulted in temporary differences between book and taxable
income for
24
<PAGE>
which recognition of a deferred tax asset was not considered appropriate at the
time. The Company's effective income tax rate in 1995 varied from the U.S.
statutory rate due to utilization of net operating loss carryforwards. See Note
11 to the Financial Statements of the Company.
Net Income (Loss). Net income (loss) increased $14.1 million from a loss
of $6.9 million in 1994 to income of $7.2 million in 1995. Net income (loss) as
a percentage of net sales increased from (7.2)% in 1994 to 5.4% in 1995 as a
result of the stronger demand for the Company's products in the aerospace
industry, cost reduction programs and improved manufacturing efficiencies.
YEAR ENDED DECEMBER 31, 1994 COMPARED WITH YEAR ENDED DECEMBER 31, 1993
Net Sales. Net sales increased $15.1 million, or 18.8%, from $80.4 million
in 1993 to $95.5 million in 1994. This increase was principally due to stronger
demand from customers in the aerospace industry. Pounds of superalloys shipped
increased by 1.32 million pounds, or 12.1%, from 10.93 million pounds in 1993 to
12.25 million pounds in 1994 and pounds of special alloys shipped increased by
469,000 pounds, or 65.9%, from 712,000 pounds in 1993 to 1.18 million pounds in
1994. Average net sales per pound of superalloy shipped increased $0.17, or
2.7%, from $6.31 in 1993 to $6.48 in 1994. Average net sales per pound of
special alloy shipped decreased $1.99, or 15.8%, from $12.55 in 1993 to $10.56
in 1994.
Cost of Goods Sold. Costs of goods sold increased $9.3 million, or 11.1%,
from $84.3 million in 1993 to $93.6 million in 1994, primarily as a result of
increased sales partially offset by improved manufacturing efficiencies and cost
reduction programs. As a percentage of net sales, cost of goods sold decreased
from 104.8% in 1993 to 98.0% in 1994.
Gross Profit (Loss). Gross profit increased $5.8 million from a loss of
$3.9 million in 1993 to a gain of $1.9 million in 1994. This increase was due to
several factors, including increased sales, cost reduction programs, and
improved manufacturing efficiencies.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $.2 million, or 4.2% from $4.1 million in
1993 to $4.3 million in 1994. The increase was due primarily to the increase in
net sales, offset somewhat by cost reduction programs. Selling, general and
administrative expenses as a percentage of net sales decreased from 5.2% in 1993
to 4.5% in 1994.
Operating Income (Loss). Operating loss decreased $5.6 million from a loss
of $8.0 million in 1993 to a loss of $2.4 million in 1994. Operating loss as a
percentage of net sales decreased from 10.0% in 1993 to 2.5% in 1994 as a result
of increased sales of the Company's products, cost reduction programs and
improved manufacturing efficiencies.
Interest Expense. Interest expense increased $.4 million, or 11.5%, from
$3.9 million in 1993 to $4.4 million in 1994. This increase was due primarily to
an increase in the average debt outstanding due to increased working capital
requirements resulting from the increase in net sales, and an overall increase
in interest rates.
Income Taxes. Income tax expenses decreased by $98,000 from $197,000 in
1993 to $99,000 in 1994 due primarily to decreased income before income taxes.
The Company's effective income tax rate in 1993 and 1994 varied from the U.S.
statutory rate due to losses which resulted in temporary differences between
book and taxable income for which recognition of a deferred tax asset was not
considered appropriate.
Net Income (Loss). Net loss decreased $5.2 million from a loss of $12.1
million in 1993 to a loss of $6.9 million in 1994. Net loss as a percentage of
net sales decreased from 15.1% in 1993 to 7.2% in 1994 as a result of the
stronger demand for the Company's products in the aerospace industry, cost
reduction programs and improved manufacturing efficiencies.
LIQUIDITY AND CAPITAL RESOURCES
The Company's historical liquidity needs arose primarily from capital
investments, working capital requirements, and principal and interest payments
on indebtedness. The Company has historically met these liquidity requirements
with funds generated from operations and from short-term and long-term debt
financing (including borrowings from the Principal Stockholders). The Company's
business is capital intensive and requires substantial expenditures for, among
other things, the purchase and maintenance of equipment used in the
manufacturing process and compliance with environmental laws. See 'Risk
Factors--Environmental Regulations,' 'Certain Transactions--Transactions with
Principal Stockholders--Lines of Credit' and 'Certain Transactions--Subordinated
Notes.'
25
<PAGE>
Net cash provided by operating activities was $.2 million, $1.3 million,
and $6.9 million for 1993, 1994 and 1995, respectively. Net cash provided by
operating activities was $4.7 million and $3.4 million for the nine-month
periods ended September 30, 1995 and 1996, respectively. Improvements in cash
flows from operating activities are principally the result of improved operating
results, offset by increased working capital requirements attributable to
increases in accounts receivable and inventory due to increased sales in 1995
and the first nine months of 1996.
From March 1993 to September 1994, the Company had insufficient cash flow
to make certain interest and term loan principal payments under the Prior Credit
Agreement. As a result, the Company and the lenders under the Prior Credit
Agreement entered into a series of standstill agreements pursuant to which such
lenders agreed not to accelerate the indebtedness outstanding under the Prior
Credit Agreement for a specified period of time. Such standstill agreements
terminated and all remaining interest due was paid in the fourth quarter of
1994. Following the amendment and restatement of Prior Credit Agreement in
December 1994, the Company remained in compliance with all of its obligations in
respect of the Prior Credit Agreement until it was refinanced in October 1996.
Capital expenditures were $.8 million, $1.0 million and $2.0 million for
the years 1993, 1994 and 1995, respectively. Capital expenditures were $1.2
million and $1.9 million for the nine-month periods ended September 30, 1995 and
1996, respectively.
At September 30, 1996, the Company had $52.4 million of outstanding
indebtedness and capitalized lease obligations, consisting principally of $42.0
million of borrowings under the Credit Agreement, $9.5 million of outstanding
indebtedness under the Subordinated Notes and $.9 million of capital lease
obligations. The Company's outstanding indebtedness fluctuates depending on the
Company's working capital needs. Since September 30, 1996, the Company has
borrowed an additional $7 million under the Credit Agreement. The Company repaid
$6.5 million of the outstanding amounts under the Subordinated Notes in October
and November 1996 and intends to repay the remaining $3.0 million balance on the
Subordinated Notes prior to the consummation of the Offering. The Company
intends to use substantially all of the net proceeds from the Offering to repay
outstanding indebtedness under the Credit Agreement. If the net proceeds of the
Offering are insufficient to repay all amounts outstanding under the Credit
Agreement, the Company intends to repay all outstanding indebtedness under the
Revolving Facility and a portion of the outstanding indebtedness under the Term
Loan. If the net proceeds from the Offering are sufficient to pay all
outstanding indebtedness under the Credit Agreement, any remaining net proceeds
from the Offering will be used for general corporate purposes, including working
capital and capital expenditures. See 'Use of Proceeds.'
Following the completion of the Offering, the Company's principal sources
of funds will be (i) funds generated from operations and (ii) borrowings under
the Revolving Facility of the Credit Agreement. Under the Revolving Facility of
the Credit Agreement, the Company may borrow, repay, and re-borrow from time to
time, the lesser of (a) $40 million or (b) the Company's borrowing base. The
Credit Agreement defines the Company's borrowing base as the sum of 85% of
eligible accounts receivable and 60% of eligible inventory. As of October 31,
1996, the borrowing base was $48.1 million. The Company's ability to borrow
under the Credit Agreement is subject to the satisfaction of various conditions
including compliance with certain financial covenants. In addition, amounts
borrowed under the Revolving Facility may only be used to finance working
capital needs and to repay outstanding indebtedness. The amount the Company may
borrow under the Revolving Facility is reduced by the aggregate amount of any
letters of credit issued for the account of the Company. All advances under the
Credit Agreement bear interest at the Company's option at (i) a base rate, which
is the higher of the bank's short-term commercial reference rate or the Federal
Funds rate plus .25%, (ii) the Eurodollar rate, which is the New York interbank
offered rate, plus 1.25% or (iii) the London Interbank Offered Rate ('LIBOR'),
plus 1.25%. An annual commitment fee of .25% on the unused available working
capital commitment is due monthly. All amounts outstanding under the Revolving
Facility mature on October 17, 2001. In connection with the Company's
obligations under the Credit Agreement, the Company has granted security
interests in the Company's receivables, inventory and general intangibles. The
Credit Agreement also contains covenants restricting the ability of the Company
to pay dividends, make certain restricted payments, incur additional
indebtedness, make certain investments, create liens, guarantee indebtedness,
sell or acquire assets, enter into mergers or consolidations, form subsidiaries
and enter into transactions with affiliates. The Company is also subject to
certain financial tests relating to, among other things, its consolidated net
worth, its consolidated leverage ratio and the ratio of its senior debt to
consolidated EBITDA. The Company may prepay amounts owing
26
<PAGE>
under the Credit Agreement at its option at any time. See 'Risk
Factors--Limitations on Payment of Dividends; Restrictive Covenants.'
Over the next five years, the Company plans to invest over $50 million (or
approximately $10 million per year) in capital expenditures to expand and
modernize its melting, forging and finishing equipment, install a
state-of-the-art information system and make other investments to maintain its
technological leadership and reduce production costs. In addition to planned
capital expenditures, the Company expects to evaluate from time to time
potential acquisitions. Potential acquisitions may include investments in
companies, technologies or products that complement the Company's business or
products. Sources of funds for such acquisitions could include funds generated
from operations or alternative sources of debt or equity capital. Certain
covenants in the Credit Agreement, such as the investment limitation covenant,
the merger and acquisition covenant and certain financial covenants may restrict
or limit the Company's ability to enter into or complete an acquisition. Under
such circumstances, the Company would need to amend, obtain a waiver of or
refinance the Credit Agreement. See 'Risk Factors--Risks Associated With
Potential Acquisitions.'
The Company expects that cash flow from operations and net proceeds of the
Offering will be adequate to meet its anticipated operating requirements, debt
service requirements and planned capital expenditures over the next 12 months.
However, to the extent that the Company's cash flow and net proceeds of the
Offering are insufficient to fund its capital expenditure program due to a
cyclical downturn in the superalloy industry or otherwise, the Company will be
dependent upon borrowings under the Credit Agreement or alternative sources of
debt or equity capital. In addition, as described above, the Company may need to
obtain additional debt or equity capital to fund any potential acquisitions. If
the Company is unable to borrow under the Credit Agreement or to obtain funds
from alternative sources of debt or equity capital, the Company may not be able
to fund its capital expenditures or potential acquisitions and its business
could be materially adversely affected.
QUARTERLY RESULTS OF OPERATIONS
The following tables present the Company's quarterly operating data for
1994, 1995 and the first three quarters of 1996. Although the Company's business
is not seasonal, operating results have varied from quarter to quarter due to
industry cyclicality, fluctuations of raw material prices and general global
economic conditions. In addition, results in the third quarter are adversely
affected by a one to two-week shutdown of the Company's manufacturing facilities
for equipment maintenance and results in the fourth quarter are adversely
affected by a one-week shutdown for the Christmas holiday.
<TABLE>
<CAPTION>
1994 QUARTERS 1995 QUARTERS
---------------------------------------- ----------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................ $23,519 $26,678 $21,662 $23,651 $27,862 $35,148 $29,556 $39,679
Cost of goods sold....... 22,930 25,340 21,072 24,283 24,279 29,799 26,291 34,383
------- ------- ------- ------- ------- ------- ------- -------
Gross profit (loss)...... 589 1,338 590 (632) 3,583 5,349 3,265 5,296
Selling, general and
administrative
expenses............... 1,099 1,196 1,086 932 1,135 1,144 1,104 1,824
------- ------- ------- ------- ------- ------- ------- -------
Operating income (loss).. (510) 142 (496) (1,564) 2,448 4,205 2,161 3,472
Operating income (loss)
margin................. (2.1)% .5% (2.2)% (6.6)% 8.7% 11.9% 7.3% 8.7%
Interest expense......... 1,007 1,120 1,232 1,002 1,193 1,213 1,164 1,157
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes........... (1,517) (978) (1,728) (2,566) 1,255 2,992 997 2,315
Income tax expense....... 27 26 27 19 27 27 27 273
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)........ $(1,544) $(1,004) $(1,755) $(2,585) $ 1,228 $ 2,965 $ 970 $ 2,042
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
1996 QUARTERS
-----------------------------
FIRST SECOND THIRD
------- ------- -------
(IN THOUSANDS EXCEPT
PERCENTAGES)
<S> <C> <C> <C>
Net sales.............................................................. $39,639 $43,727 $37,174
Cost of goods sold..................................................... 33,428 35,820 30,485
------- ------- -------
Gross profit........................................................... 6,211 7,907 6,689
Selling, general and administrative expenses........................... 1,183 1,264 1,276
------- ------- -------
Operating income....................................................... 5,028 6,643 5,413
Operating income margin................................................ 12.6% 15.1% 14.5%
Interest expense....................................................... 1,087 1,003 1,006
------- ------- -------
Income before income taxes............................................. 3,941 5,640 4,407
Income tax expense (benefit)........................................... 1,018 1,631 (4,550)
------- ------- -------
Net income............................................................. $ 2,923 $ 4,009 $ 8,957
------- ------- -------
------- ------- -------
</TABLE>
BACKLOG
As of December 10, 1996, the Company's backlog orders aggregated
approximately $148.8 million, compared to approximately $81.8 million at
December 31, 1995. The increase in backlog orders is primarily due to an
increase in orders for jet engines worldwide and increased demand for jet engine
spare parts. The Company defines backlog as firm purchase orders, which are
generally subject to cancellation by the customer subject to, in certain
circumstances, payment of specified charges. Substantially all orders in the
backlog at December 10, 1996 are expected to be shipped within the 12 months
beginning January 1, 1997. Due to the cyclical nature of order entry experienced
by the Company and its dependence on the aerospace industry, there can be no
assurance that order entry will continue at current levels or that current firm
purchase orders will not be canceled or delayed. See 'Risk Factors--Cyclicality;
Dependence on Aerospace Industry.'
Order to shipment lead times can be a competitive factor as well as
indicative of the strength of demand for superalloy products. The Company's
current average manufacturing lead time for its cast/wrought superalloy products
is approximately five to ten weeks, although due to current backlog levels, lead
times from order to shipment have lengthened to up to 52 weeks. The Company
believes that its lead times are comparable with those offered by its
competitors.
INFLATION
Although the Company's sales and results of operations are affected by the
prices of raw materials used to make its products and the cyclicality of the
aerospace industry, the Company does not believe that general economic inflation
has had a material effect on its results of operation for the periods presented.
ENVIRONMENTAL AND OTHER CONTINGENCIES
For a description of certain environmental liabilities and related
matters, see 'Risk Factors-- Environmental Regulations' and
'Business--Environmental Matters.'
28
<PAGE>
BUSINESS
GENERAL
Special Metals is one of the world's leading producers of superalloy and
special alloy long products. Superalloys are highly engineered metal alloys
designed to withstand extreme heat and stress and are principally used in the
manufacture of jet engine parts. Compared to any other known metal or material,
superalloys offer a superior combination of heat resistance, high temperature
corrosion resistance, toughness and strength. Special alloys have unique
physical, chemical, and/or mechanical properties which are optimized by the
Company's melting and processing capabilities. In 1952, a predecessor of Special
Metals pioneered the melting technology that led to the practical development of
the superalloys that are the critical materials used in the 'hot' section of
modern jet engines. The Company believes that its 45 million pounds of vacuum
induction melting capacity makes it one of the largest producers in the
superalloy industry and that its substantial market share, comprehensive product
line, proprietary know-how and technological experience make it a leader in its
field. Special Metals' total net sales have increased from $80.4 million in 1993
to $132.2 million in 1995. The Company's backlog was approximately $148.8
million at December 10, 1996 compared to approximately $81.8 million at December
31, 1995. For the first nine months of 1996, approximately 77% of the Company's
net sales were to jet engine component manufacturers. The Company's products are
also used in other technically demanding applications, such as land-based power
generating equipment, oil well drilling hardware, die materials, chemical
processing applications and medical applications.
Special Metals operates three divisions. The Superalloy Billet and Bar
Division manufactures a wide array of wrought superalloy and special alloy
products in billet, bar and cast form, which are used primarily in jet engines.
This division also produces 'shape memory' alloys, such as Nitinol, which are
primarily used in medical and dental applications. The Company believes it has
the leading worldwide market share of approximately 32% (excluding China and the
countries of the former Soviet Union) in superalloy billet products and a
North American market share of approximately 20% in superalloy bar products. The
Powder Division produces powder metallurgy superalloy products for military jet
engines and the latest generation of large commercial jet engines and is the
world's largest independent manufacturer of superalloy powder products. The
Dental Division is the leading North American producer of amalgamable dental
alloys. In 1995, the Superalloy Billet and Bar Division, the Powder Division and
the Dental Division accounted for 85%, 10% and 5%, respectively, of the
Company's net sales.
INDUSTRY OVERVIEW
Superalloys are primarily nickel-based alloys containing varying amounts of
other elements, such as chromium, cobalt, columbium, molybdenum, titanium and
aluminum. Superalloys were originally developed to meet the highly demanding
design requirements of jet engines and are currently used to make jet engine
components such as turbine blades, vanes, disks, rings, seals and shafts. These
applications require very high strength, toughness and resistance to metal
fatigue and creep while operating in environments where temperatures can
sometimes exceed 2,200degreesF. These engine components are designed to
withstand the high stress and high temperatures associated with aircraft
takeoffs and landings, when maximum power is applied for thrust and reverse
thrust. The highly demanding technical nature of superalloy products,
specialized multi-stage production processes and the stringency of jet engine
manufacturers' qualification requirements and certification processes have
created what Management believes are high barriers to entry in the superalloy
industry. Management believes that over 70% of all superalloy sales worldwide
are to jet engine component manufacturers. Superalloy products are also used in
other technically demanding applications such as land-based power generating
equipment, oil well drilling hardware, die materials and chemical processing
applications. The complexity of the production process is reflected in the
Company's relatively high average selling prices of $9.92 and $12.44 per pound
shipped of superalloys and special alloys, respectively, for the first nine
months of 1996, compared to the average selling price of other metals such as
carbon steel sheet, stainless steel sheet and aluminum, which currently range
from $.17 to $1.25 per pound shipped. The chart set forth below illustrates the
end uses of superalloy products during 1995.
29
<PAGE>
[Pie chart: Superalloy End Use Markets for Bar/Billet Products, 1995.
Data: Aerospace 79%; Petrochemical 12%; Power Generation 2%; Fasteners 6%;
All others 1%. Source: Marketronics.]
The aerospace industry, which is highly cyclical, has had a significant
impact on the sales and profitability of the superalloy industry. The superalloy
industry reached a cyclical and historical peak in 1990 and subsequently
declined to a cyclical bottom in 1993. Management estimates that between 1990
and 1993, industry capacity utilization fell from approximately 100% to 67%. The
steep decline was the result of a severe downturn in commercial aircraft
deliveries, the Gulf War, a recession, an over-ordering of aircraft in the late
1980s and excess industry capacity. The downturn was exacerbated because the
aerospace industry was shifting to 'lean' manufacturing, which substantially
reduced cycle times and inventories. Special Metals estimates that inventory
reductions between 1990 and 1994 eliminated as much as a full year of production
of superalloy billet and bar product. During this recession, approximately 40
million pounds of inefficient industry vacuum induction melt capacity (or 20% of
total industry vacuum induction melt capacity) was eliminated.
In 1995, the commercial aircraft industry started to recover from the
recession of the early 1990s. The firm order backlog of Boeing, McDonnell
Douglas and Airbus Industrie, as reported by The Airline Monitor, increased to
1,869 planes at December 31, 1995 from 1,742 planes at December 31, 1994.
Roll-outs of commercial aircraft with more than 100 seats are expected to
increase by more than 40% from 1995 to 1997. Boeing's production rate is
scheduled to increase from 18 aircraft per month in early 1996 to over 30
aircraft per month by mid-1997. More importantly, the number of wide-body
aircraft under production or on order is increasing, which is expected to
increase demand for larger engines and larger components made with superalloys.
The superalloy industry has substantially benefitted from this recovery. The
Company believes that demand for jet engines will remain strong through 1999
because of projected increases in revenue passenger miles both domestically and
internationally (especially in the Pacific Rim) and the imposition of federal
Stage III noise regulations in the United States, which will require airlines to
replace existing Stage II engines or retrofit such engines with engine hush
kits.
The superalloy industry is also benefiting from a significant increase in
demand for jet engine spare parts. This increase is attributed to a combination
of factors. First, when the aerospace cycle was strong from 1985 to 1990,
hundreds of new aircraft were delivered. Because of Federal Aviation
Administration regulations mandating maintenance of aircraft based in part on
the number of hours flown and the number of takeoff and landing cycles, from
1995 to 2001, these aircraft are scheduled to undergo engine rebuilds, which
will require replacement parts containing superalloy products. Second, the
airlines and engine companies are increasing their spare part stocks, which fell
below required levels during the early 1990s. Third, because of increased
activity
30
<PAGE>
and a return to profitability, the airlines now are flying older, previously
grounded aircraft, which generally require more spare parts than newer aircraft.
Demand for superalloy long products has almost doubled since 1993 from 16
million pounds to 30 million pounds in 1996. Management believes that the
industry is operating at close to 100% of available capacity. As a result, since
1993, there have been significant increases in prices for superalloy products.
Based on industry data, the Company believes that demand for superalloy products
will increase at a 6 to 10% annual rate for the next three years and that,
despite certain announced capacity expansion programs scheduled to occur in the
next five years, including capital expenditures planned by the Company of $50
million, the superalloy industry will operate at a utilization rate in excess of
90% for the next three years. Although capacity can be added by existing
producers, installation times for critical equipment often exceeds one year and
prevents capacity from being increased quickly in times of strong demand.
[Graph of Worldwide (excluding China and countries of the former Soviet Union)
Shipments of Wrought/Cast Supperalloys. Data:
World Shipments U.S. Shipments
Year (millions of pounds) (millions of pounds)
- ---- -------------------- --------------------
1990 127 95
1991 117 89
1992 95 70
1993 80 60
1994 92 70
1995 111 84
1996F 120 90
2000F 160 120
Source: Marketronics]
BUSINESS STRATEGY
The Company's primary objective is to continue the growth of its superalloy
and special alloy business and to focus on both the aerospace and non-aerospace
markets. To achieve its objectives, the Company has implemented a business
strategy which is designed to: (i) capitalize on the Company's leading position
in the aerospace market; (ii) develop new products and markets; (iii) continue
to reduce the Company's costs; and (iv) explore potential acquisitions.
Capitalize on Leading Position in Aerospace Market. Special Metals'
largest single product line is superalloy billet used primarily in the
manufacture of jet engines. Management believes the Company's worldwide market
share (excluding China and the countries of the former Soviet Union) in
superalloy billet was approximately 32% in 1995 and, in certain key high
technology applications, approached 40%. To meet the increased level of
aerospace demand, the Company has increased its annual billet melting capacity
by 15% during 1996.
The Company believes that its capital investment programs and commitment to
high quality have contributed to its ability to obtain a wider variety of
certifications from major jet engine producers such as General Electric, Rolls
Royce, Pratt & Whitney and SNECMA, than any of its competitors. Over the last
five
31
<PAGE>
years (principally in 1991 and 1992), the Company invested over $20 million in
new state-of-the-art forging and melting facilities, and over the next five
years, the Company currently plans to invest an additional $50 million to
expand and modernize its facilities.
Develop New Products and Markets. Special Metals plans to grow its
business through the development of new products and new applications and
markets for its existing products. Between 1990 and 1996, Special Metals engaged
in an aggressive product line expansion effort. Improved superalloys, corrosion
resistant alloys, shape memory alloys, new dental products and high strength
stainless steels were added to the Company's product line. Over 20% of the
Company's net sales in 1995 were from sales of enhancements of existing products
or new products that did not exist in 1990. Given the brief commercial history
of superalloys, the non-aerospace market for superalloy products is relatively
immature. The Company believes that it is well positioned to exploit this market
and capitalize on new opportunities. Special Metals intends to continue its
growth efforts by increasing sales of its products to commercial markets and by
seeking to develop new products.
Continue to Reduce Costs. The Company has undertaken numerous projects to
maintain and improve its efficiency and cost position over the last few years.
Since 1992, Special Metals has enhanced its operating leverage, reduced its
billet cycle time by 33%, and improved its inventory turnover by 37%. The
Company continues to pursue opportunities to further reduce costs and improve
efficiency.
Explore Potential Acquisitions. The Company will examine opportunities to
acquire or invest in companies, technologies or products that complement the
Company's business or its product offerings. In particular, the Company will
consider acquisitions or investments that will leverage its expertise in
superalloy and special alloy products and enable it to enter new markets or sell
new products. Currently, the Company has no agreements or understandings
regarding any such acquisition or investment. See 'Risk Factors--Risks
Associated With Potential Acquisitions.'
PRODUCTS AND MARKETS
The Company's products include superalloy ingots and wrought products such
as billets, bars, and wire manufactured by the Superalloy Billet and Bar
Division. These products are sold to casters, forgers, machine shops,
fabricators, and independent distributors, which use these products primarily in
the manufacture of jet engine parts and in other critical applications that
require heat resistance, high temperature corrosion resistance, toughness and
strength. The Superalloy Billet and Bar Division also produces advanced
specialty metals, including shape memory alloys, such as Nitinol. The Powder
Division produces powder metallurgy superalloy products in the form of loose
powder, billet and bar which are used in military jet engines and the latest
generation of large commercial jet engines. The Dental Division produces
amalgamable silver-based dental alloys.
Management estimates major end use markets for the Company's products in
1995 were: jet engines (70%); power generation (12%), distributors (6%); and
medical applications (6%). Management believes distributors sell the Company's
products for use in oil and gas exploration and production, chemical processing
and for jet engine parts.
BILLETS
Billets are produced by taking an ingot manufactured at the Company's New
Hartford, New York facility and forging it at the Company's Dunkirk, New York
facility to a smaller diameter. The forging process involves heating an ingot to
a precisely controlled high temperature and reducing its diameter in a large
forging press. The reduction of an ingot into a billet refines the grain
structure of the ingot into a fine uniform structure that is both tough and
ductile. Billets are sold to forgers for production into a wide range of parts
that are used primarily in the hot section of an aircraft jet engine. Disks,
rings, spacers, shafts, and casings are forged from billet.
Billet is sold as either 'standard grain' or 'fine grain.' Fine grain
processing facilitates the subsequent quality control of superalloys through
ultrasonic inspection to detect smaller discontinuities in the superalloy. Fine
grain billet is used in more advanced jet engines where great strength and low
defect levels are required. Fine grain billet was developed in the late 1980s
and early 1990s and typically has been available only in diameters 10 inches or
smaller. Special Metals' new forging press allows the production of larger fine
grain superalloy billets, which the Company believes gives it a unique
competitive advantage. The new larger engines
32
<PAGE>
used on the Boeing 777, such as the Trent, GE90 and PWA4084, require larger
diameter, heavier disks. These large disks are very difficult to produce from
smaller diameter billet, and the availability of large fine grain billet allows
the forger to eliminate operations, improve yield and reduce cycle time, thereby
producing a part at lower total cost and enhancing the competitiveness of the
forger's product to its own customers. During 1993, 1994, 1995 and the first
nine months of 1996, 37%, 37%, 40% and 52% of the Company's net sales were
derived from billet sales.
BAR
Bar products are manufactured by rolling a billet to a smaller cross
section on either one of two rolling mills. The rolling process involves heating
the billet to a precisely controlled temperature and then reducing its diameter
by passing it back and forth between shaped rolls. The rolling process reduces
the diameter, lengthens the product, and refines the grain structure.
Special Metals sells a wider range of alloys in bar product than it does in
billet or ingot product. Bars are sold to machine shops, forgers and
distributors. One application for bar products is to produce disks and shafts
for the hot section of smaller jet engines and auxiliary power units. During
1993, 1994, 1995 and the nine months ended September 30, 1996, 21%, 21%, 21% and
20% of the Company's net sales were derived from bar product.
INGOTS
Ingots are long cylindrical alloy castings that are the primary product of
the Company's New Hartford, New York melting facility. As sold to the market,
ingots range in diameter from 3.5 inches to 34 inches and weigh up to 46,000
pounds. Ingots are manufactured by melting scrap and virgin raw materials,
casting the molten metal into a mold, and, in most cases, remelting them once or
twice. The primary attributes of an ingot are its chemistry, homogeneity, and
structure. Ingots are sold to either casters or forgers, and the largest single
end use market for ingots is large disks used in power generation turbines. In
1996, the Company consumed substantially all of its total ingot production to
produce billet, bar and other wrought products. The remainder of ingot
production was sold to third parties. During 1993, 1994, 1995 and the first nine
months of 1996, 11%, 11%, 11% and 4% of the Company's net sales were derived
from third party ingot sales.
NITINOL
Nitinol represents a group of titanium/nickel alloys that have unique shape
memory and flexibility properties. Shape memory alloys can be formed into a
product, bent or twisted into a different shape, and then be easily returned to
their original shape. Nitinol's major uses are in medical applications such as
orthodontic wire, stents, catheter guide wires and eye glass frames and
industrial applications such as temperature control devices and clamping
devices. Nitinol is sold primarily as fine wire. Although currently relatively
small, the Nitinol product market is expected to grow over the next five years.
POWDERS
In the most advanced jet engines, the requirements for strength, high
temperature corrosion resistance and toughness exceed the capabilities of
conventionally cast/wrought superalloys. In these applications, alloys have been
developed that cannot be processed using normal ingot metallurgy. Instead,
powder metallurgical techniques are needed to produce the product. Special
Metals developed and pioneered powder metallurgical processing of superalloys in
the 1960s and remains the leading independent producer of powder metallurgy
superalloys. Powder metallurgy superalloys are produced at the Company's
Princeton, Kentucky facility. During 1993, 1994, 1995 and the nine months ended
September 30, 1996, 12%, 12%, 10% and 10% of the Company's net sales were
derived from powder products. The Company believes that there are substantial
growth prospects in the superalloy powder market.
DENTAL PRODUCTS
The Dental Division designs, manufactures, and markets silver-based
amalgamable alloys used primarily for tooth fillings. The products are in the
form of very fine powder produced by melting, alloying, and atomizing alloys of
silver, copper, tin, palladium and other materials. The Dental Division produces
both finished alloy ready for packaging and distribution (about 90% of sales)
and master components that are blended to produce the final product. A number of
the Dental Division's products are covered by patents extending to 2000 and
beyond.
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Approximately 16% of the Dental Division's 1995 net sales were to European
customers. Management estimates that the Company has a 50% share in the North
American market compared to an estimated 5% share of the European market. The
Company believes that an opportunity exists to expand its sales of dental
products in select emerging foreign markets with potential for growth.
TOLL CONVERSION
In addition to its manufactured products, the Company sells toll conversion
services, primarily forging and melting, to other metal-working companies. Toll
conversion allows the Company to sell excess equipment capacity that may exist
for short periods of time, or may result from an imbalance of capacity between
various units in the Company.
PRODUCTION PROCESS
Superalloys are more difficult to manufacture than titanium alloys and
lower performance alloys, such as stainless steels. Superalloys are vacuum
induction melted followed by vaccum arc remelting or electro-slag remelting or
both. Stainless steels, on the other hand, are usually electric arc melted
followed by argon-oxygen-decarburization, while titanium alloys are typically
vacuum arc remelted two or three times. The resulting superalloy is much more
difficult to process than stainless steels or titanium alloys because, by
design, superalloys retain their strength and toughness at high temperatures.
Consequently, deforming superalloys requires greater force than stainless steels
or titanium alloys. Also, because of the need to control grain structure,
superalloy deformation processes are more complex than those used for stainless
steels and most titanium alloys. Certain of the Company's superalloys may
undergo up to 14 distinct stages of melting, remelting, forging and rolling over
a period of weeks before they achieve the customer's specifications.
Due to the critical nature of the applications in which the Company's
products are used and the stringency of customer specifications, the process of
producing superalloy is highly demanding and complex. Quality control is
critical. The Company's Superalloy Billet and Bar Division is ISO 9002 certified
and certified by the National Aerospace and Defense Contractors Accreditation
Program ('NADCAP'), a private accreditation organization recognized by the jet
engine industry. The Company employs state of the art melting and furnace
technology and processes.
Special Metals has pioneered a number of 'total quality' activities, and,
in 1994, embarked on a Continuous Flow Manufacturing ('CFM') program. CFM
reduces queue times and speeds the flow of products through the plant. Since
1992, the Company has reduced cycle times by 33% and significantly reduced
work-in-process inventories.
INGOT METALLURGY
As illustrated in the diagram below, production of wrought superalloys
using ingot metallurgy techniques involves several basic steps: An initial
melting in a vacuum induction melting ('VIM') furnace; secondary melting in
either a vacuum arc remelt ('VAR') furnace, or an electroslag remelting ('ESR')
furnace; or, in the case of the highest quality materials, remelting in both ESR
and VAR furnaces. Melting and remelting are followed by thermomechanical
processing on a forging press and then by finishing and inspection.
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<PAGE>
[Diagram depicting ingot metallurgy process steps: vacuum induction melting of
raw material into ingot; vacuum arc remelting of ingot; forging of ingot into
billets; finishing of product by grinding, peeling and end clearing; inspection;
and shipping.]
Special Metals' New Hartford facility has one of the largest melting
complexes in the superalloy industry, with three VIM furnaces of 44,000 pound,
12,000 pound, and 7,000 pound capacity, respectively, as well as seven VAR
furnaces and two ESR furnaces. Upon its scheduled completion in 1997, the
addition of a VAR furnace and a major upgrade of the 44,000 pound VIM furnace at
a cost of approximately $5 million are expected to increase ingot capacity by
15%. Special Metals is a fully integrated producer and does not rely on outside
manufacturers to produce its primary wrought superalloy product line.
Vacuum Induction Melting. Vacuum induction melting is a process that
converts virgin and scrap raw materials into homogeneous alloys. The primary
advantage of VIM is that it prevents the reactive alloy elements, such as
aluminum, titanium, zirconium, and hafnium, from oxidizing and forming
nonmetallic defects which severely limit the mechanical integrity of the alloy.
In addition, VIM is useful for removing deleterious volatile elements, such as
bismuth and lead, which are commonly found in raw materials and which
drastically reduce mechanical properties necessary to achieve strength and
toughness in superalloys. Gaseous elements, such as hydrogen, oxygen and
nitrogen, can also be removed.
A VIM furnace is made up of a large vacuum chamber containing a refractory
crucible, induction heating coils, a pour system and large ingot molds. The
Company's primary VIM furnace is one of the largest in the world and, although
rated at 44,000 pounds, can melt up to 46,000 pounds of superalloy in a single
heat. To prepare a melt, raw materials are introduced into the furnace through a
vacuum lock which maintains the melt under a vacuum. Generally, virgin raw
materials are melted first and degassed before any reactive elements are added.
Scrap or revert raw material is then added and melted. Once the deleterious
elements are reduced to an acceptable level, the heat's chemistry is verified
and any alloy chemistry corrections are made. It is not uncommon that up to 28
key elements will be controlled to within very tight tolerances. The melt is
then poured into individual molds to produce ingots weighing typically 10,000 to
14,000 pounds each.
The ingots produced from the VIM process are generally 'clean' and have the
desired uniform chemistry but are not acceptable in terms of the as-solidified
structure. The VIM ingots are therefore subsequently remelted once or twice to
achieve the customer's cleanliness and structure requirements.
Vacuum Arc Remelting. VAR is used for the secondary melt process, which
converts VIM ingots into a cleaner ingot with greatly improved chemical and
physical homogeneity. The process consists of welding a stub to one end of the
VIM ingot, suspending the VIM ingot in a water-cooled copper crucible that is
inside a vacuum chamber, and subsequently striking an electric arc between the
end of the VIM ingot and the crucible bottom. As the arc is maintained,
sufficient heat is generated to melt the VIM ingot, dripping it into the
crucible to form a VAR ingot. In general, the greater the current applied in the
arc, the faster the melt rate. Typically, a 17-inch VIM ingot is remelted into a
20-inch VAR ingot in about 20 hours. The methods of controlling the melt rate
and the parameters that are used to melt a particular alloy are usually very
specific to the alloy and the furnace and are critical to obtaining the desired
product. As a result of the slow remelting process in a vacuum, further melt
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<PAGE>
refining occurs, deleterious low density oxide and nitride inclusions float out,
and an ingot with a controlled grain structure is formed.
Electroslag Remelting. ESR is similar in principle to VAR in that the
initial ingot is slowly remelted into a larger diameter ingot. The primary
difference is that the melting does not occur in a vacuum but through a reactive
molten slag that is resistance-heated by an electric current flowing through it.
As molten metal drops from the VIM ingot it passes through the molten slag which
purifies the metal before it settles into the molten pool of the new ingot. ESR
is particularly useful in further refining the sulfur levels of the alloy.
Some premium grades of superalloys use a triple melting process that
includes both ESR and VAR. The melt sequence for these superalloys is VIM,
followed by ESR, then VAR. The additional ESR melt step is used to further
refine the alloy, remove more nonmetallic inclusions and to provide a more sound
ingot for VAR processing. Triple-melted superalloys are considered to be
superior in some applications because they provide more consistent mechanical
properties.
Given the extreme conditions under which superalloys must operate, the
overall production process is more technically demanding than that of other
metals such as titanium and stainless steels. The melting of titanium alloys is
similar to that used for superalloys in that both use VAR processing. One
primary difference between superalloys and titanium alloys is that VIM is used
to form the primary superalloy ingots whereas titanium alloy production uses
multiple VAR melts to obtain uniform chemistries and structure. ESR cannot be
used for titanium because of titanium's severely reactive nature. Special Metals
does not melt production quantities of titanium-based alloys.
The manufacturers of stainless steels generally do not use vacuum melting
because the alloys that they make do not contain large amounts of reactive
elements such as aluminum and titanium. Stainless steels are also generally not
required to have the same cleanliness as superalloys. There are specific grades
of specialty stainless steel that do require vacuum melting to insure
cleanliness. These grades are typically used for special electronic or medical
applications. ESR processing is frequently used to make stainless steels and
other specialty alloys. In contrast, the Company's high strength stainless steel
products use VIM and the Company's other sophisticated processing techniques to
ensure their strength and integrity.
Thermo-mechanical Processing. After satisfactory solidification structures
are obtained, the superalloy ingot is heat-treated at controlled temperatures of
up to 2,200degreesF for up to 48 hours to improve the micro-chemical homogeneity
of the ingot and then press-forged to produce a smaller diameter billet. The
forging process serves to shape the ingot into billet, refine the ingot's
microstructure and enhance its mechanical properties through highly controlled
deformation. Because superalloys are designed to have high strength at high
temperatures, the thermo-mechanical processing of these alloys requires
equipment that is capable of applying high stresses at high temperatures at high
rates of speed. A typical superalloy ingot must be heated to temperatures of
1,800-2,100degreesF, forged, and reheated for numerous cycles before the desired
sizes and structures are obtained. Superalloys can only be forged within a very
narrow temperature range, as compared to other alloyed metals such as stainless
steel.
Special Metals' Dunkirk forge plant is one of the most modern forging
facilities in the North American superalloy industry. In 1992, Special Metals
installed a state-of-the-art 4,000 ton, high speed forging press. This press
offers a unique combination of high forging force, very high speed and precise
control of press position and press speed, all of which features are designed to
achieve highly controlled deformation of the hot ingot. This combination of
great power and high speed enables Special Metals to produce very high quality
products. The press also produces large diameter (in excess of 10 inches) fine
grain superalloy billets. New, larger jet engines, such as those used in
Boeing's 777 aircraft, require larger internal parts, the manufacture of which,
in turn, requires larger and heavier superalloy billets. The Company believes
that its ability to produce large diameter fine grain superalloy billets gives
it a competitive advantage. Prior to the installation of Special Metals' 4,000
tons forging press in 1992, the largest diameter fine grain billet available in
the superalloy industry was 10 inches. The press facility has also been upgraded
with new forging furnaces and is being further upgraded with more heating
capacity and a re-engineering of the smaller 2,000 ton press to increase its
speed and productivity. These upgrades are expected to be completed in early
1997 at a cost of approximately $800,000.
Bar Products. In addition to wrought superalloy billet, Special Metals
produces superalloy bar products. Bar product processing is similar to billet
processing from melting through forging. After forging, billets are rolled at
the New Hartford facility into smaller round sections and finished for shipment
to machine shops and forgers.
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Finishing and Inspection. After forging, superalloy billets are returned
to the New Hartford facility for finishing, which involves various cutting,
peeling, and inspection and testing operations. The New Hartford facility has a
complete array of finishing facilities, along with extensive chemical,
metallurgical, and mechanical test facilities.
Once superalloy product is forged to billet or rolled to bar it goes
through a variety of rigid inspection procedures to certify that it meets the
customer's specification. Billet ends are cropped to remove any ingot end-
effects. Slices are taken to verify macrostructures and microstructures and to
test mechanical properties. The billet surface is peeled to remove surface
irregularities and to provide a suitable surface for ultrasonic inspection which
is used to locate any defects in the billet, sometimes as small as 1/64th of an
inch in diameter.
The final product is certified for chemistry, microstructure, mechanical
properties and ultrasonic inspection. All products are carefully serialized to
form a traceable reference. Even after many years of service, the process
history of a given jet engine component can be quickly traced back to the
component manufacturer, forging process, melting heats and raw materials.
POWDER METALLURGY
As illustrated in the chart below, powder metallurgy operations begin with
the melting of master alloy using the VIM technique described above at the New
Hartford facility.
[Diagram depicting powder metallurgy process steps: gas atomization into powder;
classify; blend; containerize; extrude into billet product or hot isostatic
press into near net shape product].
In order to make a superalloy billet from powder, a master alloy is made
using VIM processing techniques described above. Once its chemistry is
satisfactory, the master alloy is taken to the Company's Princeton facility
where it is remelted in a VIM furnace, poured into a cup and then transferred
into a nozzle that atomizes the molten metal by breaking up the liquid stream
with a high pressure inert gas, typically argon. The atomized metal is collected
under an inert environment to prevent surface contamination of the powder
surfaces. The powder is sieved to very specific sizes and collected in a sealed
stainless steel container, evacuated to remove gases, and then reconsolidated by
either hot isostatic pressing or extrusion. The result is a billet with uniform
chemistry and uniform metallurgical structure.
The overall process of making powder superalloys requires very careful
control and very clean conditions to make sure the millions of powder particles
do not become contaminated with defects before they are reconsolidated.
Superalloy billets made from powder are typically inspected for defects that are
much smaller than can be detected in conventionally processed billets. These
billets are sold to the forging industry and used in the most critical
applications where the highest strength and integrity are required. Formerly
found primarily in military jet engines, powder metallurgy superalloys are now
beginning to be used in the more advanced commercial jet engines.
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<PAGE>
Production equipment at the Princeton facility includes two 2,000 pound
vacuum melt furnaces with associated inert gas atomization units. These units
are supported by a full range of vacuum and inert gas powder handling
facilities. The plant's manufacturing is supported by chemical, mechanical and
metallurgical test facilities. The sole contractor that provides extrusion
services to the Company is a producer of powder-based products.
The Company recently received a patent on a superalloy process that has the
potential of reducing the cost of powder metallurgy superalloys and enhancing
the mechanical processing. The process, called 'SS-HIP,' consists of
containerizing the powder superalloy via conventional methods and then hot
isostatically pressing the container at temperatures very near the point that
the alloy begins to melt. Initial testing has shown that this novel thermal
treatment alters the metallurgical structure in such a way that the material is
more amenable to hot-working in a conventional manner similar to processes used
for cast/wrought alloys. If future applications of this development are
successful, the need for extrusion services outside of the Company could be
reduced. The patented process also has the potential to produce billets that
could be directly forged into components using conventional equipment instead of
the more expensive 'isothermal processing' that is needed for present products.
The Company is also developing a new process which may increase yields and
reduce costs.
POWDER METALLURGY DENTAL ALLOYS
Powder alloys that are used for dental amalgam restorations are
manufactured at the Company's Ann Arbor, Michigan facility. Powder alloys for
dental amalgam are produced by melting, alloying and atomizing alloys of silver,
copper, tin, palladium and other materials. Environmental conditions for
atomizing silver-copper-tin alloys are less demanding than superalloys and do
not require the carefully controlled inert handling conditions. The following
diagram depicts the dental alloy production process.
[Diagram depicting dental alloy production process steps: Atomization; drying;
classification; heat treating; characterization and/or mechanical processing;
alloying; blending; inspection; bulk packaging or encapsulation.]
Atomization can be achieved using various gases and sometimes water. Dental
alloys are carefully controlled to maintain critical powder shape and size
distributions and thermal treatments to meet the desired product
characteristics. Some dental alloy products are blended to create complex
characteristics. Most of the powder dental alloy that the Company manufactures
is sold in bulk form to distributors that repackage it for sale to dentists.
Specific dental alloys are designed for properties such as handling
characteristics, expansion, corrosion, short-term strength, long-term strength,
and affordability. The Dental Division pioneered the development of atomized
powder based amalgam alloys which are far superior to the former 'cut' dental
alloys. The division's products are highly regarded for their outstanding
strength, resistance to corrosion, low leakage, and outstanding carving and
polishing properties.
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RAW MATERIALS
The major raw materials used in the production of superalloys and special
alloys are scrap and various virgin materials such as nickel, chromium, cobalt,
columbium, molybdenum, titanium and aluminum. Over half of the raw materials
consumed in superalloy production is scrap, either internally generated scrap
from the Company's own production process, or scrap purchased on the open market
or from customers. Virgin raw materials are generally purchased directly from
producers. Although there can be no assurances, the Company believes that a
number of suppliers can produce sufficient quantities of either scrap or virgin
raw materials and that it is not dependent on any one supplier for any of the
raw materials used to manufacture its products.
Commercial deposits of certain metals used by the Company are found in only
a few parts of the world. The availability and prices of these metals may be
influenced by cartels, changes in world politics, unstable governments in
exporting nations and inflation. Shortages of, and price increases for, certain
raw materials used by the Company have occurred in the past and may occur in the
future, which could have a material adverse effect on the Company.
As described above, a substantial portion of the Company's raw materials
used in production are commodities, such as nickel, that are subject to wide
price fluctuations. The price the Company pays for nickel is usually based upon
quoted prices on the LME plus a premium due to quality, location, and volume
purchased. Although certain of the Company's 1996 product orders provide for
price adjustments to reflect changes in the price of raw materials, a
substantial majority of the Company's product orders currently are, and in the
future are expected to be, made pursuant to firm price sales contracts which do
not provide for raw material price adjustments. To attempt to mitigate the risks
associated with raw material price fluctuations and to match raw material
purchases with firm price product orders, the Company often enters into firm
price contracts for the purchase of virgin raw materials from suppliers and for
the purchase of scrap from customers or hedges the price of nickel. See 'Risk
Factors--Availability and Cost of Raw Materials; Hedging' and 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Overview.'
PRICING
Pricing of superalloys can be volatile and often moves in concert with key
raw materials, such as nickel and cobalt. Sales of the Company's products are
made under standard orders, under one-year supply contracts and long-term firm
price contracts. For the nine months ended September 30, 1996, approximately 70%
of the pounds shipped of the Company's billet and bar products were sold under
standard orders or under one-year supply contracts. The remaining 30% of the
pounds shipped of the Company's billet and bar products for the nine months
ended September 30, 1996 were sold at firm prices under long-term contracts
negotiated in 1993 at the bottom of the aerospace cycle. Since the early 1990s,
long term firm price sales contracts have become more prevalent in the
superalloy industry because jet engine manufacturers need to quote firm prices
to airlines for jet engines to be delivered several years in the future. In
1993, at the bottom of the aerospace cycle, the major jet engine manufacturers
negotiated three year firm price sales agreements with their forging vendors,
who, in turn, negotiated three year contracts with superalloy suppliers. Because
of the adverse business conditions prevailing when the contracts were
negotiated, the pricing on the contracts was very unfavorable to superalloy
producers and resulted in severely depressed margins in the superalloy industry
from 1994 to 1996. Special Metals recognized losses on these long-term firm
price contracts in 1994 and 1995 and generally did not earn a profit on such
contracts during the nine months ended September 30, 1996. Substantially all of
these firm price sales contracts concluded in 1993 are due to expire into 1996,
with a minor portion of shipments for 1996 orders carrying over into 1997. The
current market prices for superalloy products have returned to acceptable
levels. During 1996, Special Metals began negotiations with certain customers to
enter into new long-term supply contracts, which, if entered into, are expected
to provide significant improvements compared to the expiring contracts.
Firm price sales contracts will continue to be a significant part of the
superalloy industry because the end users of superalloy products, primarily jet
engine companies, need to be able to quote firm prices to the airlines for
engines to be delivered several years in the future. The Company attempts to
minimize raw material price risks in connection with its firm price contracts by
hedging prices of raw materials, purchasing raw materials
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under fixed price arrangements and entering into scrap purchase arrangements
with customers. See '--Raw Materials.'
MARKETING AND DISTRIBUTION
Special Metals has a 14 person sales department consisting of an outside
sales force and inside sales personnel. In certain foreign markets, the Company
relies on agents to sell its products. Regular contacts and key relationships
between Special Metals and significant customers are maintained by executive,
sales, financial, production, technical and quality control personnel. The
Company has a program of regular meetings with key executives of customers.
Through the combined efforts of the Company's direct sales organization and its
technical staff, the Company works closely with customers in order to identify,
develop and support diverse applications for its superalloy and special alloy
products and to anticipate its customers' and end-user future materials
requirements.
Special Metals has historically made products to specific customer orders.
However, as part of its diversification strategy, the Company has recently
increased sales of superalloy product through its warehouse distribution
facility in Oceanside, California. From 1990 to 1995, sales through distributors
increased from less than 1% to approximately 6% of the Company's net sales.
There are a small number of large consumers of superalloy long products in
the world, and Special Metals believes it enjoys good relations with all of
them. A substantial portion of the Company's business is conducted with a
relatively small number of large customers, including affiliates of SIMA.
The Company's top 10 customers accounted for 67% of the Company's net sales in
1995. In 1995, each of Wyman-Gordon, Ladish Company and Transmet, an affiliate
of SIMA, accounted for approximately 17%, 11% and 10%, respectively, of the
Company's net sales. In 1994, the Company's two largest customers each accounted
for approximately 22% and 13%, respectively, of the Company's total sales and in
1993, the Company's two largest customers each accounted for approximately 12%
of the Company's total sales. See 'Risk Factors--Customer Concentration.'
Although the Powder Division sells its products to approximately 12
customers, it is substantially dependent on its two largest customers. In 1993,
1994, 1995 and the nine months ended September 30, 1996, sales to the two
largest customers of the Powder Division constituted between 79% and 92% of the
division's net sales. The majority of the division's sales result from long term
supply arrangements with aircraft engine manufacturers and their suppliers.
The Dental Division supplies powder alloys to approximately nine of the
leading dental supply firms. The supply firms package the alloys and market them
to dental supply houses under well established trade names.
COMPETITION
The superalloy industry is highly competitive. The market for superalloys
is global and is dominated by a few major producers. The Company's major
competitors include Carpenter Technology Corporation, Allegheny Teledyne, Inco
Alloys International, a division of Inco Ltd., and Western Australian Specialty
Alloys Pty. Ltd. The Company competes primarily on the basis of ability to meet
customers' product specifications, quality, price and delivery schedules. Many
of the Company's competitors are subsidiaries or divisions of large, diversified
metals companies which may have substantially greater capital resources, and, in
some cases, lower raw material or labor costs than the Company. During the
downturn of the early 1990s, one superalloy producer went out of business,
leading to some industry consolidation and a reduction in capacity. However, the
Company's competitors have recently added and may in the future add production
capacity which, when coupled with the competitive nature of the superalloy
industry, may exert downward pressure on prices. In particular, Carpenter
Technology Corporation has announced the installation of a new 20 ton VIM
furnace and two new VAR furnaces. The installations will be completed in 1997.
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Special Metals is primarily dedicated to the superalloy and special alloy
business. In spite of progress in diversifying, Special Metals still derives
over 70% of its revenues from the production of wrought and powder superalloys
sold to the jet engine market. Other large producers of superalloys are
divisions of large stainless steel companies or specialty steel producers who
also make superalloys as part of a larger array of product lines. Although these
competitors may have greater financial resources than the Company, the Company
believes that its primary focus on the superalloy industry provides it with a
competitive advantage. However, because of its greater exposure to the
superalloy business, the Company will be more adversely affected than its
competitors in a downturn in the superalloy business.
Management believes that the superalloy industry is characterized by high
barriers to entry. The startup and continuing capital costs of operating in the
superalloy business are significant. In addition, all superalloy producers must
secure 'certifications' by both the key consumers of superalloys as well as the
major engine producers, such as General Electric, Rolls Royce, Pratt & Whitney
and SNECMA. These certifications are difficult to obtain because extensive
product evaluations, including engine testing, is usually required. Management
believes Special Metals has the most extensive list of certifications in the
industry. Finally, superalloy technology is difficult to transfer or acquire.
Significant scientific and engineering knowledge is required, and there exists a
significant degree of 'art' in the superalloy production process. As a leader in
the development of superalloys, the Company has developed significant
proprietary technology and expertise. Although certain manufacturing and
management techniques have become standard in the industry, the need to
simultaneously control the precise chemistry of up to 28 different elements
while controlling advanced melting technology and sophisticated thermomechanical
processing, makes it difficult to enter or learn the superalloy business.
Despite these difficulties, recent attempts have been made to enter the
superalloy industry, including a joint venture which is partly owned by
Wyman-Gordon, one of the Company's largest customers. Successful entry of new
competitors into the superalloy industry could have a material adverse effect on
the business, financial condition, results of operations or cash flows of the
Company.
FACILITIES
Set forth below is a list of the Company's principal manufacturing
facilities. The Company leases its facilities in New Hartford, New York,
Dunkirk, New York and Princeton, Kentucky from government agencies under
arrangements in which it pays rent in lieu of taxes and has options to purchase
such facilities at a nominal purchase price. These arrangements for the New
Hartford, Dunkirk and Princeton facilities expire in 1997, 2001 and 2000,
respectively. Although no assurance can be given, the Company expects to renew
the arrangement for the New Hartford facility. The Princeton facility lease is
subject to extensions for an additional 15 years beyond the current term. The
facility in Ann Arbor, Michigan is owned.
<TABLE>
<CAPTION>
LOCATION OF FACILITY SIZE (SQ. FT.) PRIMARY ACTIVITY
- -------------------------------------- -------------- --------------------------------------
<S> <C> <C>
New Hartford, New York 352,000 Melting Plant and Finishing Plant
Dunkirk, New York 98,000 Forging Plant
Princeton, Kentucky 70,000 Powder Metallurgy Plant
Ann Arbor, Michigan 9,000 Dental Alloy Plant
</TABLE>
The Company's physical and production assets consist of a melt shop, a
rolling facility, a finishing plant, a forge shop, and complete superalloy
powder and dental amalgam plants. Special Metals' melting, rolling and finishing
operations are all located in its New Hartford, New York facility which also
houses the Company's corporate headquarters. Special Metals' melt shop operates
what the Company believes to be one of the largest VIM furnaces now in
production in the super alloy industry. The VIM furnace can produce ingots of up
to 46,000 pounds and can produce ingots large enough to make certain gas turbine
parts required by the power generation industry. The other primary melting
equipment includes two additional VIM production furnaces with capacities of
12,000 pounds and 7,000 pounds, respectively, as well as several smaller
development units. The secondary and tertiary melting equipment consists of
seven VAR furnaces and two ESR furnaces. Special Metals' bar rolling facility
operates a 22 inch roughing mill and a 16 inch finishing mill. The finishing
plant consists of complete facilities for finishing bar from one-half inch
diameter to 18 inch diameter superalloy billet, including straightening,
grinding, peeling and modern ultrasonic inspection equipment. The New Hartford
plant also houses
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research facilities, a production test facility and a process laboratory in
which the Company conducts small scale production of new products and alloys
prior to full scale production.
The Company's forge shop is located in Dunkirk, New York in a plant that
houses two forging presses. The newer of the two presses is a 4,000 ton high
speed press which is a double manipulator, computer controlled unit. The other
unit is a 2,000 ton press that has been modernized and is also an automated,
double manipulator, computer controlled unit. Due to its high operating
throughput and the advanced level of automation of its two presses and the
plant's support equipment, management believes that the Dunkirk facility is one
of the most cost-effective plants of its type in the superalloy industry.
The Company's plant for producing powder-based superalloy products was
built in 1971 and is located in Princeton, Kentucky. The Princeton facility
includes two vacuum-argon atomizing furnaces along with all of the necessary
storage and classification equipment that provide inert gas or vacuum processing
of powders until they are reconstituted in bar, billet or shaped forms. The
plant also is equipped to finish, cut, ultrasonically inspect, and ship forging
mults for the industry. Special Metals believes its Princeton facility is one of
the most modern and largest capacity plants of its type in the superalloy
industry.
The Company's dental amalgam plant is located in Ann Arbor, Michigan and is
equipped to make many variations of dental restoration alloys. This facility
includes both water and gas atomizing equipment as well as full classification
and processing equipment.
The Company believes that its capital investment programs and commitment to
high quality have contributed to its ability to obtain more certifications to
supply superalloys and special alloys than any of its competitors. Over the last
five years, the Company invested over $20 million in a state-of-the-art forging
press, new melting facilities, and continuous flow manufacturing to reduce
costs, improve manufacturing cycle times, and improve product quality. Over the
next five years, the Company plans to invest an additional $50 million to expand
and modernize its melting, forging and finishing equipment, install a
state-of-the-art information system and make other investments to maintain its
technological leadership and reduce its production costs.
RESEARCH AND DEVELOPMENT
The Company believes it is a leader in the development of technology for
the manufacture of premium wrought and powder nickel-based superalloys. The goal
of the Company's research and development operations is to reduce the cost of
producing its core business products, develop and improve proprietary alloys and
processes, and apply its technology to the manufacture of specialty alloys and
materials for new non-aerospace markets. The Company's research, technical
development and metallurgical production efforts are staffed by approximately 25
individuals with engineering and sciences degrees. The Company conducts research
activities at its New Hartford, Princeton and Ann Arbor facilities. The New
Hartford research facility includes laboratories for physical and mechanical
metallurgical analysis and a stand alone process laboratory for the small scale
processing of vacuum melted alloys which is used for internally supported
development efforts and external sales of developmental materials and specialty
alloys, including the Company's shape memory alloys, such as Nitinol. The
research and development staff works closely with the Company's production staff
and sales force to improve existing products and processes.
In addition, the Company is presently an active participant in the
Specialty Metals Processing Consortium ('SMPC') whose membership includes other
superalloy producers. SMPC's purpose is to pursue melting and solidification
technology and to better understand the very complex nature of alloy melting and
solidification. SMPC's research is conducted at the Sandia National Laboratory
and also includes industrial experiments conducted at the member companies.
Funding for the consortium is made up of membership fees and matching monies
from the U.S. Department of Energy and other sources.
Non-aerospace special alloys under development include products in the
Company's shape memory alloy product line. These products, such as Nitinol,
utilize precise alloy chemistries and thermomechanical processing and are being
designed for use in medical, dental and consumer products. Other non-aerospace
products under development include proprietary dental alloys, such as a recently
patented restoration alloy system that offers a unique combination of properties
and handling characteristics during application.
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The Company spent $1.1 million, $1.3 million, $1.3 million and $1.2 million
during 1993, 1994, 1995 and the nine months ended September 30, 1996 for
research and development activities.
ENVIRONMENTAL MATTERS
The Company's facilities are engaged in activities regulated by extensive
federal, state, local and foreign environmental and worker safety and health
laws and regulations, including those relating to air emissions, wastewater
discharges, the handling and disposal of solid and hazardous wastes and the
remediation of contamination caused by the release of hazardous substances in
the past. In the U.S., such laws include the Federal Clean Air Act, the Clean
Water Act, the Resource Conservation and Recovery Act ('RCRA'), the
Comprehensive Environmental Response, Compensation and Liability Act ('CERCLA')
and analogous state laws. The Company uses substantial quantities of substances
that are considered hazardous or toxic under federal, state and/or local
environmental, worker safety and health laws and regulations. The Company's
operations pose a continuing risk of accidental releases of, and worker exposure
to, hazardous or toxic substances. There is also a risk that government
environmental requirements, or enforcement thereof, may become more stringent in
the future and that the Company may be subject to legal proceedings brought by
private parties or governmental agencies with respect to environmental
matters. Although the Company believes that it is in substantial compliance
with applicable requirements of environmental laws, there can be no assurance
that some, or all, of the risks discussed under this heading will not result in
liabilities that are material to the Company's business, results of operations,
financial condition or cash flows.
The Company's facilities have been used for industrial purposes for a
substantial period and, over such time, these facilities have used substances or
generated and disposed of wastes which are hazardous. For example, the Company
used substantial quantities of polychlorinated biphenyls ('PCBs') at its New
Hartford facility through the 1970s. Sites at which the Company's wastes have
been released or otherwise come to be located, and for which the Company
currently faces potentially material environmental remediation liabilities, are
described below. At September 30, 1996, the Company had total reserves of
approximately $3.5 million to cover future costs arising from known
environmental liabilities for remediation and operation and maintenance of
remediation systems, including costs relating to its own properties and certain
sites at which the Company's wastes have been identified. The Company's actual
future expenditures, however, for remediation of environmental conditions
existing at its properties and at these other locations cannot be conclusively
determined at this time. Furthermore, additional locations at which wastes
generated by the Company may have been released or disposed, and of which the
Company is currently unaware, may in the future become the subject of
remediation for which the Company may be liable, in whole or in part.
Accordingly, it is possible that the Company could become subject to
environmental liabilities in the future that could result in a material adverse
effect on the Company's business, results of operations, financial condition or
cash flows.
The Company's policy is to continually strive to improve environmental
performance. From time to time, the Company may be subject to environmental
regulatory enforcement under various statutes, resolution of which typically
involves the establishment of compliance programs and may involve the payment of
penalties, but to date no material penalties have been incurred. The Company
incurred average annual expenditures for environmental protection and compliance
of less than $220,000 for 1994, 1995 and 1996 and its capital budget provides
for less than $150,000 for such expenditures in 1997. However, the imposition of
more strict standards or requirements under environmental laws and the
possibility of increased enforcement could result in expenditures in excess of
amounts estimated to be required for such matters.
The Company is currently involved in the following potentially material
environmental matters or proceedings:
Clayville, New York. The State of New York identified the Company as a
potentially responsible party ('PRP') under CERCLA for the release or threatened
release of hazardous substances at Ludlow Landfill, Clayville, New York, due to
the Company's generation of certain industrial wastes, including PCB wastes,
believed to have been disposed at the landfill (the 'Site'). CERCLA imposes
strict, joint and several liability for investigatory and clean-up costs. The
State of New York brought a federal action against Ludlow Sand and Gravel
Company, Ludlow Sanitary Landfill, Inc., James Ludlow and Kevin Ludlow
(collectively, 'Ludlow') under CERCLA, common law nuisance and state statutory
law, seeking the recovery of its response costs,
43
<PAGE>
damages to natural resources, closure of the landfill and penalties. Ludlow, in
turn, brought a third-party action for indemnification and/or contribution
against the Company and four other generators of wastes allegedly sent to the
Site.
A consent judgment was entered, resolving the litigation with respect to
the Company. Under the terms of the consent judgment, claims against Ludlow, the
Company and Chesebrough Pond's (the 'Settling Defendants') are settled and the
Site is required to be closed and remediated pursuant to an approved remedial
plan (the 'ARP') as defined in the consent judgment. The Company is obligated
under the consent judgment to pay all remediation costs required to implement
the ARP in excess of the funds in a trust account established by the Consent
Judgment. The trust account has received monies paid by the Settling Defendants
as well as a specified percentage of the settlement funds obtained to date from
a contribution action brought by the Company and Chesebrough-Pond's against
non-settling users of the landfill. The trust account currently has
approximately $100,000. Further recovery in the contribution action against the
non-settling users is not anticipated to be more than $75,000.
The Company has completed the ARP with respect to the main body of the
Site. However, completion of the remedy in one area (the 'North Gravel Pit') was
delayed because of PCB contamination discovered in the course of excavation in
that area. A work plan designed to determine the extent of contamination in the
North Gravel Pit and select an appropriate remedial alternative has been
approved by the New York State Department of Environmental Conservation ('DEC')
but not yet completed by the Company's environmental engineers. In the interim,
the Company has assumed its responsibility for onsite treatment of the leachate
generated at the project site and subsurface discharge of the treated leachate.
The cost of the investigative and remedial work which will ultimately be
required in the North Gravel Pit cannot be estimated until the investigation
specified in the work plan is complete and a remedial alternative is determined.
Therefore, it is possible that liabilities in respect of this site could have a
material adverse effect on the Company's business, results of operations,
financial condition and cash flow. Based upon preliminary information, the
Company estimates that the cost will be at least $1.0 million and the Company
has provided for this amount in its financial statements.
The Company will be responsible for the cost of post-closure operation and
maintenance ('O&M') at the Site for a period of thirty (30) years, and part of
the required O&M activities will include groundwater monitoring. These costs are
estimated for the main body of the site to be approximately $150,000 per year in
years one and two and approximately $90,000 per year in years three through 30
for a total of $2.8 million. The Company has established a reserve of $1.8
million in respect of these expenses based upon the present value of these
expenses using a discount rate of 4%. In addition, there are contingent
post-closure activities. It cannot be determined which, if any, of the
contingent activities the Company will need to perform.
Universal Waste Site. In the mid 1980s, the owners/operators of Universal
Waste in Utica, New York (the 'Universal Waste Site') were cited by the DEC in a
formal enforcement proceeding for cleanup of the site which was allegedly
contaminated with PCBs and trichloroethylene. The owner of the Universal Wastes
Site requested by motion that the Company be named as an indispensable party to
that proceeding. The DEC, however, took the position that the Company should not
be named as an indispensable party. The Company believes that at least four
other potentially responsible parties have been identified with respect to the
contamination at the site. A consent order has been executed obligating the site
operator to conduct a preliminary site assessment on a portion of the property.
The preliminary site assessment is underway. The DEC is also conducting a
separate preliminary site assessment. The Company is presently not involved in
investigating the alleged contamination.
Based upon the limited information available to its environmental
engineers, the Company has established a reserve of $575,000. However, because
of the preliminary nature of the investigation, it is not possible, at this
time, to provide a reasonable estimate as to the ultimate cost of any
investigative or remedial work which will be required, or the Company's share,
if any, of such costs. Therefore, it is possible that liabilities could arise in
respect of this site that could have a material adverse effect on the Company's
business, results of operations, financial condition and cash flows.
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<PAGE>
Quanta Resources Site. In August 1990, the Company received notification
from the United States Environmental Protection Agency (the 'EPA') that it is
considered a potentially responsible party under CERCLA at a site in Syracuse,
New York (the 'Quanta Resources Site'). The Company, together with approximately
20 other potentially responsible parties, formalized an agreement by which it
paid the sum of $27,500 towards contribution for removal costs of the EPA
associated with waste material at the site. The total sum collected
(approximately $1 million) was paid directly to the EPA. In September 1996, the
Company received notification from the EPA asking the Company to attend another
meeting with respect to the site. The EPA requested approximately $200,000 to
investigate further removal and cleanup actions. The Company, together with
approximately 60 other potentially responsible parties, formalized an agreement
by which it paid the sum of $5,000 towards the investigation. The investigation
is to be managed by the potentially responsible parties. The extent of
additional regulatory action which may be required at the site is unclear. It is
not possible, at this time, to provide a reasonable estimate as to the cost of
any further investigative or remedial work which will be required or the
Company's share, if any, of such costs. Therefore, it is possible that
liabilities could arise in respect of this site that could have a material
effect on the Company's business, results of operations, financial condition and
cash flows.
Al-Tech Site. Al-Tech Specialty Steel Corporation ('Al-Tech') occupies a
parcel of realty adjacent to the Company's Dunkirk, New York, facility. In 1988,
Al-Tech advised the Company that a cooling pond located on its property was
contaminated with PCBs. At the time, the Company utilized the pond as a source
of non-contact cooling water. The Company conducted a PCB investigation
(including sampling) of its facilities. The Company's investigation did not
indicate any connection between contamination in the pond and the Company's
operations. A recent edition of an Al-Tech newsletter indicated that Al-Tech has
retained a consultant to conduct a RCRA Facility Investigation ('RFI') at its
facility in Dunkirk, New York to determine whether or not chemical constituents,
from past and present activities at the site, have impacted the environment. The
Company has no other information on which to estimate reasonably the cost of
further investigative or remedial work at the Al-Tech site, or the Company's
share, if any, of such costs. Depending on the development of any information
connecting the Company to this site, it is possible that liabilities could arise
in respect of this site that could have a material adverse effect on the
Company's business, results of operations, financial condition and cash flows.
New Hartford Site. In 1986, the DEC approved the Company's plan for the
closure of a waste impoundment containing spent acid waste at its New Hartford
facility. The impoundment is now maintained pursuant to the RCRA Corrective
Action Program. In September 1993 the Company submitted a Voluntary RCRA
Facility Investigation Report to the DEC to monitor ground water for metals in
the area of the Company's waste impoundment. Based on test results from the
spring of 1994 to the spring of 1996, it appears that further remediation may
not be necessary, and the Company does not believe that it will incur any
material liability in connection with this matter. The Company will continue to
perform groundwater monitoring at the site pursuant to the RCRA Corrective
Action Program. Depending on the results, it is possible that further
investigative or remedial activity could be required in respect of this matter
and that the liabilities in respect thereof could have a material effect on the
Company's business, results of operations, financial condition and cash flows.
New Hartford SPDES Permit Issue. One outfall out of five permitted under
the Company's State Pollution Discharge Elimination System permit at its New
Hartford facility has been out of compliance from time to time with respect to
PCB limits. The current limit for PCBs in the Company's permit is .5 parts per
billion. The Company had certain sections of its sewers jet-cleaned during the
summer of 1996 to reduce or eliminate further incidences of noncompliance. The
DEC has notified the Company that it plans to modify the Company's permit limit
for PCBs to .3 parts per billion. The Company met the .3 parts per billion
limit six out of twelve months in 1995 and eight out of the first ten months in
1996. The Company has obtained a preliminary estimate of $120,000 to install
additional storm water treatment equipment designed to consistently meet the
proposed DEC .3 parts per billion limit. Although the Company cannot at this
time provide a reasonable estimate of any additional costs that may be required,
the Company does not believe it will incur any material liability in connection
with this matter.
Ann Arbor EPCRA Violation Complaint. In early December, 1996, the Company
received a Notice of Intent to File Civil Administrative Complaint from the EPA.
In the notice, EPA stated its intent to commence an administrative proceeding
against the Company under the Emergency Planning and Community Right to Know Act
based upon the alleged failure of the Company's Ann Arbor, Michigan facility to
timely file with EPA
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certain forms disclosing the amount and type of silver used at the facility for
the years 1991 and 1992. EPA invited the Company to provide EPA with information
relating to the alleged offense. The Company intends to avail itself of this
opportunity. The Company has not yet been informed of the amount of the civil
penalty or the nature of the corrective work which EPA intends to seek in this
matter but the Company does not expect the penalty or the cost of the corrective
work to be a material amount.
Other Matters. The Company is on notice of, and involved in, certain other
environmental matters which have been settled or are at various stages of
discussion, negotiation or settlement which the Company does not believe to be
material.
PATENTS AND TRADEMARKS
The Company continually seeks patent protection with respect to its
technical developments. The Company currently holds 19 U.S. and numerous foreign
patents. Several of the alloys produced by the Company's dental division are
covered by one or more of these patents. The manufacturing technology presently
used by the Company does not benefit from patent protection. The Company
recently received a patent on a superalloy process that has the potential of
reducing the cost of powder superalloys and enhancing mechanical processing. The
Company has registered the trademark UDIMET, which refers to superalloys
produced by the Company in the United States and other countries. The Company
believes that it has taken commercially reasonable steps to protect its material
patents, trademarks and proprietary processes.
EMPLOYEES
As of September 30, 1996, the Company employed approximately 570 persons.
Of these, approximately 390 (or 68%) work under four collective bargaining
agreements. The Company's agreement with the local branch of the IAM
representing approximately 55 hourly workers at its Princeton, Kentucky facility
expires in August 1997. The Company's agreement with the the local branch of the
IAM, representing approximately 290 hourly workers at its New Hartford facility
expires in August 1998. The remaining labor agreements expire in 1999. In 1992,
a two-week strike by the IAM occurred at the Company's New Hartford facility.
While the Company considers its employee relations to be good, there can be no
assurance that satisfactory new collective bargaining agreements will be
negotiated when the applicable collective bargaining agreements expire or that
future work stoppages would not have a material adverse effect on the business,
financial condition, results of operations or cash flows of the Company. See
'Risk Factors--Labor Matters.'
LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation relating to a
claim arising out of its operations in the normal course of business. Except as
described in '--Environmental Matters,' the Company does not believe that it is
a party to any litigation at the present time that could have a material adverse
effect on the business, financial condition, results of operations or cash flows
of the Company.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ------------------------------------------------ --- ------------------------------------------------
<S> <C> <C>
Donald R. Muzyka................................ 58 President, Chief Executive Officer and Director
Donald C. Darling............................... 44 Vice President--Administration, Chief Financial
Officer and Director
Robert F. Dropkin............................... 55 Vice President, Secretary, Chief Legal Counsel
and Director
Gernant E. Maurer............................... 47 Vice President--Technology
Thomas E. MacDonald............................. 53 Vice President--Sales/Marketing and Product
Management
James D. Page................................... 54 Vice President--Operations
Robert D. Halverstadt........................... 77 Chairman of the Board of Directors
Raymond F. Decker............................... 66 Director
Edouard Duval................................... 52 Director
Antoine G. Treuille............................. 48 Director
</TABLE>
Prior to the date of the Offering, the Company's Board of Directors will be
classified into three classes which consist of, as nearly as practicable, an
equal number of directors. The members of each class will serve staggered
three-year terms. Messrs. Darling, Dropkin and Decker will be Class I directors,
Messrs. Halverstadt and Treuille will be Class II directors and Messrs. Duval
and Muzyka will be Class III directors. Nominees for director will be divided
among the three classes upon their election or appointment. The terms of Class
I, Class II and Class III directors expire at the annual meeting of stockholders
to be held in 1998, 1999 and 2000, respectively. See 'Description of Capital
Stock--Certain Provisions of the Company's Certificate of Incorporation and
By-Laws--Classified Board of Directors.'
Dr. Muzyka has been President and a director of Special Metals since
joining the Company in 1990. He was appointed Chief Executive Officer in October
1996. Before joining the Company, Dr. Muzyka held several executive positions
serving the aerospace industries. He has 36 years of metals-related experience,
including service with Cabot Corporation, Carpenter Technology Corporation
('Cartech'), and Pratt & Whitney. Dr. Muzyka holds several degrees, including a
Ph.D. in Material Science from the Thayer School of Engineering-Dartmouth
College. Dr. Muzyka is also a director of Aviall, Inc., an aircraft parts
distributor and CSM Industries, a metals company.
Mr. Darling has been Vice President--Administration and Chief Financial
Officer since September, 1993 and served as Vice President and Chief Financial
Officer since 1989. He joined Specials Metals in 1980, serving in supervisory,
financial planning, and strategic management positions. He has 20 years of
metals-related experience and holds degrees in Business Management, including a
Masters in Accounting, from the School of Management-SUNY/Binghamton. Mr.
Darling has been a director of the Company since 1991.
Mr. Dropkin has been Vice President and Chief Legal Counsel since 1985 and
Secretary since 1987. He joined Special Metals in 1984. Prior to that he held
various legal positions with Cabot Corporation and Allegheny Ludlum Industries
and has 28 years of metals-related experience. Mr. Dropkin holds a metallurgical
engineering degree, and a J.D. degree from George Washington University. Mr.
Dropkin has been a director of the Company since 1987.
Mr. MacDonald has been Vice President--Sales/Marketing and Product
Management since joining the Company in 1991. Prior to that he was Vice
President of Market Development with Slater Steel Corporation and held positions
with Cartech and LTV Steel Company, Inc., a subsidiary of the LTV Corporation.
He has 30 years of metals-related experience and holds a degree in Metallurgical
Engineering, with a Masters in Business Administration, from the University of
Michigan.
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<PAGE>
Dr. Maurer has been Vice President--Technology since 1987 and has served in
several management positions, including Director of Technology, since joining
Special Metals in 1976. He has 25 years of metals-related experience and holds
several degrees, including a Ph.D. in Materials Engineering from Rensselaer
Polytechnic Institute.
Mr. Page has been Vice President--Operations since joining the Company in
August 1993. Prior to that he was Vice President of Operations with the RMI
Titanium Company from July 1990 to August 1993 and held positions with Titanium
Metals Corporation, Howmet Corporation, and NF&M Corporations. He has 28 years
of metals-related experience, and holds a degree in Engineering, Physics and a
Masters in Aeronautical Engineering from Cornell University.
Mr. Halverstadt has been Chairman of the Board since 1987 and was President
of the Company from 1974 to 1982. Prior to that, he was Group Vice President of
the Product and Process Group at Booz Allen and Hamilton with responsibility for
its contract research and engineering businesses, including Foster D. Snell,
Inc., the biological and chemical company, Design and Development, Inc., the
electro-mechanical engineering company, and the Environmental Resources Group.
Earlier he was Manager of the Thomson Engineering Laboratory at General Electric
in Lynn, Massachusetts, responsible for materials development and application in
the General Electric line of small gas turbine engines. He holds a degree from
Case Institute of Technology and is a director of Carus Corporation, a
manufacturer of manganese-based chemicals.
Dr. Decker has been a director of the Company since 1990. He is founder of
USP Holdings, Inc. and Thixomat, Inc., companies that commercialize materials
technology, and has been the Chairman of the Board of such companies since 1989.
Dr. Decker was Vice President for Research of Michigan Technological University
from 1982 to 1986 and Vice President for Corporate Technology of Inco, Ltd. from
1978 to 1982. He was President of ASM International, the largest technical
society for metals, in 1987. Dr. Decker holds a Ph.D. from the University of
Michigan and has specialized in superalloys for 46 years. Dr. Decker is a
director of Lindberg Corporation, a heat treating and die casting company,
Packer Group, a foundry products and failure analysis firm, and Wavemat, Inc., a
microwave equipment manufacturer.
Mr. Duval has been a director of the Company since 1987. He is Directeur
General of Aubert & Duval, a French steel and alloy producer, and SIMA, a
holding company which controls Aubert & Duval and other industrial firms. Mr.
Duval has more than 20 years experience at Aubert & Duval and SIMA in the
marketing, sale and management of superalloy and special metallurgical products
for both aerospace and industrial applications.
Mr. Treuille has been a director of the Company since 1987. He is currently
President of Charter Pacific Corporation, a financial services company. From May
1993 to March 1996, he was a Senior Vice President of Desai Capital Management,
Inc., an investment management company, and, from August 1985 to April 1993, he
was an Executive Vice President at Entrecanales Inc., a private investment
company. He currently serves as a director of Eye Care Center of America, Inc.
and BIC Corp., a private company.
DIRECTOR COMPENSATION AND COMMITTEES
Currently, non-employee and non-affiliate directors receive an annual fee
of $6,000 plus $600 for each meeting of the Board of Directors or committee of
the Board of Directors that they attend. Commencing after the Offering,
non-employee directors will receive a $14,000 annual fee plus $1,000 for each
meeting of the Board of Directors or committee of the Board of Directors that
they attend.
The Board of Directors has established, effective upon the completion of
the Offering, a Compensation Committee and an Audit Committee. The Compensation
Committee, composed of Mr. Halverstadt and Mr. Duval, will establish salaries,
incentives and other forms of compensation for the Company's directors and
officers and will recommend policies relating to the Company's benefit plans.
The Audit Committee, composed of Dr. Decker and Mr. Treuille, will oversee the
engagement of the Company's independent auditors and, together with the
Company's independent auditors, will review the Company's accounting practices,
internal accounting controls and financial results.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation
of the Company's Chief Executive Officer and each of the four other most highly
compensated executive officers of the Company (collectively, the 'Named
Executive Officers') for the fiscal year ended December 31, 1995. The principal
components of such individuals' current cash compensation are the annual base
salary and annual bonus included
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in the Summary Compensation Table. Also described below is the estimated future
compensation such individuals can receive under the Company's retirement plans.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------
ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($)(1) COMPENSATION($)(2)
- ----------------------------------------------------------------------- --------- ----------- ------------------
<S> <C> <C> <C>
Donald R. Muzyka
President and Chief Executive Officer................................ $ 185,558 $ 53,288 $ 5,820
James D. Page
Vice President--Operations........................................... 112,958 30,269 4,959
Robert F. Dropkin
Vice President, Secretary and Chief Legal Counsel.................... 112,899 33,766 4,975
Thomas E. MacDonald
Vice President--Sales & Marketing and Product Management............. 112,488 30,139 4,588
Gernant E. Maurer
Vice President--Technology........................................... 108,010 30,056 4,588
</TABLE>
- ------------------
(1) Includes discretionary bonuses earned by the Named Executive Officers and
amounts earned pursuant to the Company's 1995 Profit Sharing Plan. All
salaried employees were eligible to participate in the Company's 1995 Profit
Sharing Plan. The plan provided for a profit sharing pool equal to 10% of
the Company's year-end after tax profit. The profit sharing pool was divided
among participants based on the midpoint of their salary grade. The
Company has adopted a similar plan for 1996.
(2) Includes the Company match under the Special Metals Corporation 401(k) Plan
(Salaried Employees), a defined contribution plan established under section
401(k) of the Internal Revenue Code of 1986, as amended (the 'Code') and the
value of premiums paid for group term life policies in excess of $50,000.
Prior to the completion of the Offering, it is anticipated that the Company
will review all existing and potential compensation arrangements for the
executive officers of the Company. Depending upon the outcome of its review, one
or more of the Company's compensation arrangements with its executive officers
may be amended or terminated or new compensation arrangements may be adopted.
SALARIED EMPLOYEE RETIREMENT PLAN
The Amended and Restated Pension Plan for Salaried Employees of Special
Metals Corporation (the 'Salaried Retirement Plan') covers full-time and
part-time salaried employees of Special Metals and is intended to meet the
requirements of section 401(a) of the Code. Generally, under the Salaried
Retirement Plan participants with five years of service become entitled to
receive a basic retirement benefit upon retirement at age 65. Benefits under the
Salaried Retirement Plan are calculated using a career average benefit formula
which has been updated, from time to time, to make adjustments for final average
earnings. For participants who retire or terminate their employment after
December 31, 1994, the retirement benefit equals the sum of: (i) 1.25% of final
average earnings as of December 31, 1994 multiplied by years of service as of
December 31, 1994 to the extent total years of service do not exceed 35; (ii)
0.50% of final average earnings as of December 31, 1994 multiplied by years of
service as of December 31, 1994 in excess of 35; (iii) 1.25% of average monthly
earnings commencing January 1, 1995 multiplied by years of service after
December 31, 1994 to the extent total years of service do not exceed 35; and
(iv) .50% of average monthly earnings commencing January 1, 1995 multiplied by
years of service after December 31, 1994 in excess of 35. In calculating
benefits, 'final average earnings' is the average of the highest five
consecutive years of earnings out of the last ten years, as of December 31,
1994. Earnings taken into account for calculating benefits under the plan
include base salary, bonuses, profit sharing, overtime, commissions and
deferrals made under certain plans maintained by the Company, including any Code
section 401(k) savings plan or Code section 125 cafeteria plan, and are subject
to limits imposed by the Code, including Code section 401(a)(17) (generally,
limiting compensation to $150,000 per year, as indexed). Payments are made in
the form of a joint and survivor annuity (for married employees) or single life
annuity (for single employees), unless another form of benefit is elected by the
participant in accordance with the terms of the plan. The plan contains
provisions for early retirement benefits and supplements, special retirement
benefits and
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<PAGE>
supplements for termination due to a plant or department reorganization or
closing, payments upon disability and spousal death benefits. The estimated
annual benefit payable under the Salaried Retirement Plan at age 65 is $29,773,
$29,042, $36,616, $33,429 and $62,897 for each of Dr. Muzyka, Messrs. Page,
Dropkin and MacDonald and Dr. Maurer, respectively, assuming annual salary
increases of 5.0% and 3.0% annual increases in the compensation limit under Code
Section 401(a)(17).
EQUITY RIGHTS PLAN
The Special Metals Corporation Equity Appreciation Rights Plan (the 'Equity
Rights Plan') provides for the grant of rights to receive cash payments based on
the appreciation of the book value of the Company ('Rights'). Each Right is
based on the total book value of the Company, divided by 10,000,000. Rights are
generally exercisable from the fifth anniversary of the date of grant until the
tenth anniversary of the date of grant, or earlier in the event of a 'change of
control' of the Company, termination without cause, retirement at age 65, death
or disability. Rights are forfeited in the event the holder is terminated by the
Company for 'cause.' Dr. Muzyka is the only current participant in the Equity
Rights Plan. He has received 50,000 Rights, none of which were granted in the
fiscal year ended December 31, 1995. As of December 31, 1995, 10,000 of such
Rights were exercisable until 2000. The remaining 40,000 Rights will become
exercisable in 10,000 Right increments in 1996 through 1999 and will be
exercisable for five years after becoming exercisable.
The following table summarizes the value of Dr. Muzyka's Rights under the
Equity Rights Plan as of December 31, 1995.
<TABLE>
<CAPTION>
NUMBER OF UNITS VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
DECEMBER 31, 1995 (#) DECEMBER 31, 1995 ($)
<S> <C> <C>
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
- ------------------------------------------------------- ---------------------- ---------------------
Donald R. Muzyka 10,000/40,000 -- / --
</TABLE>
SUPPLEMENTAL RETIREMENT INCOME PLAN
The Company has adopted the Special Metals Corporation Supplemental
Retirement Income Plan (the 'SRIP') which covers only Dr. Muzyka. The SRIP is
intended to grant Dr. Muzyka supplemental retirement benefits equal to the
difference between (i) the benefits that Dr. Muzyka would have received under
his prior employer's pension plan had he remained at his prior employer until he
was age 65, based on his 'average compensation' (as defined in the SRIP) at
Special Metals and (ii) his vested accrued benefits under the prior employer's
pension plan and the Salaried Retirement Plan. Compensation for purposes of the
SRIP includes bonus and profit sharing payments and amounts of income deferred
under deferred compensation plans of the Company. Benefits under the SRIP will
ratably vest over a 10-year period subject to immediate vesting upon a 'change
of control' of the Company (as defined in the SRIP) and special and accelerated
vesting provisions in the event of death, disability or other termination of
employment. Based on Dr. Muzyka's compensation and years of service, he would be
entitled to estimated annual benefits of $39,479 under the SRIP at normal
retirement age (65).
STOCK OPTION PLAN
In December 1996, the Board of Directors of the Company adopted, and the
Company's stockholders approved, the Special Metals Corporation 1997 Long-Term
Stock Incentive Plan. The Stock Option Plan will be administered either by the
Board of Directors of the Company or by a committee comprised of Directors who
are 'Non-Employee directors' (within the meaning of Rule 16b-3 Exchange Act of
1934) and 'outside directors' (within the meaning of section 162(m) of the
Code.) The Board of Directors or such committee is referred to as the 'Stock
Plan Committee.' Approximately employees including any officer or other
key employee or consultant to the Company or any of its subsidiaries shall be
eligible to be designated as a participant under the Stock Option Plan. The
Stock Plan Committee has the sole and complete authority to determine the
participants to whom awards shall be granted under the Stock Option Plan.
50
<PAGE>
Subject to anti-dilution provisions for stock splits, stock dividends and
similar events, the Stock Option Plan authorizes the grant of awards to
participants with respect to a maximum of shares of the Company's Common
Stock ('Shares'), which awards may be made in the form of (i) nonqualified stock
options; (ii) stock options intended to qualify as incentive stock options under
section 422 of the Code; (iii) stock appreciation rights; (iv) restricted stock
and/or restricted stock units; (v) performance awards and (vi) other stock based
awards; provided that the maximum number of shares that may be awarded to any
employee in any calendar year in the form of stock options and stock
appreciation rights may not exceed . If, after the effective date of
the Stock Option Plan, any Shares covered by an award granted under the Stock
Option Plan, or to which such an award relates, are forfeited, or if an award
has expired, terminated or been canceled for any reason whatsoever (other than
by reason of exercise or vesting), then the Shares covered by such award shall
again be, or shall become, Shares with respect to which awards may be granted
under the Stock Option Plan.
Awards of options, stock appreciation rights, restricted stock units,
performance awards and other stock based awards granted under the Stock Option
Plan shall be subject to such terms, including exercise price, circumstances of
forfeiture and conditions and timing of exercise (if applicable), as may be
determined by the Stock Plan Committee. Stock options that are intended to
qualify as incentive stock options will be subject to terms and conditions that
comply with such rules as may be prescribed by section 422 of the Code. Payment
in respect of the exercise of an option granted under the Stock Option Plan may
be made in cash, or its equivalent, or (i) by exchanging Shares owned by the
optionee which are not the subject of any pledge or other security interest and
which have been owned by such optionee for at least six months) or (ii) through
delivery of irrevocable instructions to a broker to deliver promptly to the
Company an amount equal to the aggregate exercise price, or by a combination of
the foregoing, provided that the combined value of all cash and cash equivalents
and the fair market value of such Shares so tendered to the Company as of the
date of such tender is at least equal to the aggregate exercise price of the
option.
The Board of Directors of the Company may amend, alter, suspend,
discontinue, or terminate the Stock Option Plan or any portion thereof at any
time; provided that no such amendment, alteration, suspension, discontinuation
or termination shall be made without stockholder approval if such approval is
necessary to comply with any tax or regulatory requirement and provided further
that no such amendment may materially and adversely affect any participant in
the Stock Option Plan without such participant's consent.
Anticipated Awards. Prior to the date of the Offering, it is expected that
grants of stock options under the Stock Option Plan will be made to certain
officers of the Company (including all of the Company's executive officers).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1995, the Company had no
Compensation Committee. Decisions regarding compensation for 1995 were made by
the Company's senior management with the advice of Mr. Duval. Following
completion of the Offering, compensation decisions will be made by the
Compensation Committee and the Stock Plan Committee.
51
<PAGE>
CERTAIN TRANSACTIONS
TRANSACTIONS WITH PRINCIPAL STOCKHOLDERS.
Prior to the Offering, the Principal Stockholders owned all of the
Company's outstanding Common Stock. Upon the completion of the Offering, the
Principal Stockholders will beneficially own approximately % of the Company's
outstanding Common Stock (approximately % if the Underwriters' over-allotment
option is exercised in full). By virtue of the Stockholders Agreement, SIMA will
be able to control the business, policies and affairs of the Company, including
the election of directors and major corporate transactions. SIMA is beneficially
owned by members of the Duval family and certain related parties. Edouard Duval,
a director of the Company, is a Directeur General of SIMA and has a minority
equity interest in SIMA. See 'Principal and Selling Stockholders.'
The Company and the Principal Stockholders have from time to time entered
into various business transactions and agreements, and the Company and the
Principal Stockholders may from time to time enter into additional transactions
and agreements in the future. See Note 10 in the Financial Statements of the
Company included elsewhere in this Prospectus. It is possible that conflicts of
interest could arise in the future. The following is a summary of the material
agreements and transactions between the Company and the Principal Stockholders.
Technology Exchange Agreement
Upon completion of the Offering, the Company and SIMA will enter into a
technology exchange agreement (the 'Technology Exchange Agreement'). During the
term of the Technology Exchange Agreement, subject to certain exceptions, SIMA
and the Company are required, to the best of their ability and subject to
government controls and other limitations imposed by pre-existing agreements
with third parties, to furnish all technical information pertaining to the
manufacture of high temperature alloys and other alloys and materials, as may be
needed and requested by the other to further develop and diversify its
respective business. Under the agreement, SIMA and the Company will periodically
provide technical and manufacturing persons to consult and advise each other.
The Technology Exchange Agreement may be terminated by either party upon 30
days' advance written notice to the other party.
In 1996, the Company paid $300,000 to SIMA pursuant to a previously
terminated technology assistance agreement.
Managerial Assistance Agreement
Upon completion of the Offering, the Company and SIMA will also enter into
a managerial assistance agreement (the 'Managerial Assistance Agreement'). The
Managerial Assistance Agreement provides that SIMA will provide the Company with
information and advice regarding the management of its existing business and the
expansion of the Company's business into new products and markets. The Company
will (i) compensate SIMA for managerial assistance at a rate of $2,500 per work
day for executive level management persons, a rate of $1,300 per work day for
senior management persons and at a rate of $1,000 per working day for middle
management persons and (ii) reimburse SIMA for telecommunication charges, travel
costs and subsistence while traveling, to the extent that such expenses are
reasonable and for the benefit of the Company. The Managerial Assistance
Agreement may be terminated by either party upon 30 days' advance written notice
to the other party.
Registration Rights
Under a registration rights agreement (the 'Registration Rights Agreement')
among the Company and the Principal Stockholders, the Company has granted the
Principal Stockholders the right to require, subject to the terms and conditions
set forth therein, the Company to register shares of Common Stock held by the
Principal Stockholders (the 'Registrable Securities') for sale in accordance
with their intended method of disposition thereof (a 'demand registration'). The
holders of a majority of the Registrable Securities may request one demand
registration per year. In addition, so long as any Principal Stockholder
continues to hold at least 5% of the outstanding Common Stock, such Principal
Stockholder shall also have the right to request one demand registration. The
Principal Stockholders may not require more than one demand registration each
year.
52
<PAGE>
Additionally, the Company has granted to each Principal Stockholder the right,
subject to certain exceptions, to participate in registrations of Common Stock
initiated by the Company on its own behalf or on behalf of its stockholders (a
'piggy-back registration'). The Company is required to pay expenses (other than
underwriting discounts and commissions) incurred by the Principal Stockholders
in connection with the demand and piggy-back registrations. Subject to certain
limitations specified in the Registration Rights Agreement, the Principal
Stockholders' registration rights are assignable to third parties. The
Registration Rights Agreement contains indemnification and contribution
provisions by the Company for the benefit of the Principal Stockholders and
their respective permitted assigns and their related persons. Each Principal
Stockholder's rights under the Registration Rights Agreement will terminate if
such Principal Stockholder ceases to own at least 5% of the outstanding Common
Stock. The Registration Statement of which this Prospectus is a part constitutes
a piggy-back registration for purposes of the Registration Rights Agreement and
AMI and LWH have requested that shares of Common Stock be included in the
Offering. As a result, the Company expects to incur approximately $ of
expenses in connection with the Offering and will indemnify the Selling
Stockholders for certain liabilities, including liabilities under the Securities
Act.
Subordinated Notes
In 1992 and 1993, the Company borrowed funds from SIMA and LWH under the
Subordinated Notes. The outstanding amount of the Subordinated Notes was $8.5
million at each of December 31, 1993, 1994 and 1995. The Subordinated Notes
mature on demand and bear interest at a rate equal to LIBOR plus 1.5%. The
Subordinated Notes are subordinate to the Company's obligations under the Credit
Agreement. Accrued interest on the Subordinated Notes totaled approximately
$472,000, $937,000 and $1.59 million at December 31, 1993, 1994 and 1995,
respectively. The weighted average interest rate on the Subordinated Notes at
December 31, 1995 was 7.47%. The Subordinated Notes are expected to be fully
repaid prior to the consummation of the Offering.
Lines of Credit
From December 1994 to October 1996, SIMA provided the Company with a $6
million line of credit. During 1995 and 1996, the Company borrowed and repaid
various amounts under the line of credit. The maximum amounts outstanding were
$2.0 million and $2.5 million in 1995 and 1996, respectively. Interest was paid
at a rate of LIBOR plus 2.25%. In 1995 and 1996, the Company paid $37,418 and
$76,932 in interest under the line of credit. The line of credit terminated upon
establishment of the Cash Flow Support Agreement described below and all
outstanding amounts under the line of credit were repaid in October 1996.
Under the Cash Flow Support Agreement, dated as of October 18, 1996,
between SIMA and the Company in favor of Credit Lyonnais, New York branch (the
'Cash Flow Support Agreement'), SIMA agreed to make loans of up to $6 million to
the Company in the event of certain financial and payment defaults under the
Credit Agreement. Amounts borrowed under the agreement bear interest at a rate
set by SIMA based on market rates and are payable upon demand. Amounts borrowed
under the Cash Flow Support Agreement are subordinated to the Company's
obligations under the Credit Agreement. No amounts are currently outstanding
under the Cash Flow Support Agreement. The Company and SIMA intend to negotiate
termination of the Cash Flow Support Agreement upon completion of the Offering.
Affiliate Sales
During 1993, 1994 and 1995, the Company sold superalloy and special alloy
products to affiliates of SIMA. The net revenues from such sales were $7.9
million, $9.3 million and $15.0 million in 1993, 1994 and 1995, respectively.
Management believes that the terms of such sales are no less favorable to the
Company than the terms that it would have obtained in transactions with
unaffiliated third parties. The Company may sell superalloy and special alloy
products to affiliates of SIMA in the future.
53
<PAGE>
Raw materials
In the past, from time to time, the Company and affiliates of SIMA have
sold raw materials to each other. Management believes that the terms of such
sales are no less favorable to the Company than the terms that it would have
obtained in transactions with unaffiliated third parties. The Company and SIMA
expect that such sales may occur in the future.
Insurance
The Company and Aubert & Duval share common insurance coverage for
aircraft/space liabilities, contingent liabilities and excess liabilities
greater than $10 million but less than $50 million. The Company is charged a pro
rata premium based on the net sales of the covered parties. The Company was
charged $162,000, $160,000 and $206,000 for such premiums in 1993, 1994 and
1995, respectively. The Company believes that the insurance coverage provided to
it is more favorable than the insurance coverage that it could obtain as a
stand-alone entity. The Company intends to continue this common insurance
coverage following completion of the Offering.
CONSULTING ARRANGEMENTS
The Company has regularly engaged Robert D. Halverstadt, Chairman of the
Board of Directors, and Applied Innovative Management Engineering ('AIME'), a
sole proprietorship of Mr. Halverstadt, as consultants. In 1993, 1994 and 1995,
Mr. Halverstadt and AIME received approximately $145,000, $143,000 and $174,000,
respectively, in fees and expense reimbursements. The Company intends to
continue to employ Mr. Halverstadt and AIME as consultants in the future.
The Company also has consulting agreements with Mr. Treuille for financial
services advice and Mr. Decker for technical advice. During 1993, 1994 and 1995,
the fees paid and expenses reimbursed under each of these consulting agreements
did not exceed $60,000.
FUTURE TRANSACTIONS
Following completion of the Offering, it will be the policy of the Company
to engage in transactions with affiliated parties on terms which, when taken
together with all transactions between the Company and such affiliate, are, in
the opinion of the Company, no less favorable to the Company than those that
could be obtained from unaffiliated third parties.
54
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of shares of Common Stock by (i) all persons known by the
Company to own beneficially more than 5% of the Common Stock, (ii) each of the
Company's directors, (iii) each of the Named Executive Officers and (iv) by all
directors and executive officers as a group. Unless otherwise noted, the address
of each person listed is in care of the Company, 4317 Middlesettlement Road, New
Hartford, New York 13413.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED
PRIOR TO OFFERING
------------------------------------------------ NUMBER
NAME AND ADDRESS OF NUMBER PERCENTAGE OF SHARES
BENEFICIAL OWNER OF SHARES OF CLASS BEING OFFERED(1)
- ---------------------------------------- ---------------------- ---------------------- ----------------
<S> <C> <C> <C>
Societe Industrielle de Materiaux
Avances(2)(3)......................... 5,952,000 48.0% --
LWH Holding S.A.(3)(4).................. 3,968,000 32.0%
Advanced Materials Investments Holding,
S.A.(3)(5)............................ 2,480,000 20.0%
Donald R. Muzyka........................ -- -- --
Robert F. Dropkin....................... -- -- --
Gernant E. Maurer....................... -- -- --
Thomas E. MacDonald..................... -- -- --
James D. Page........................... -- -- --
Robert D. Halverstadt................... -- -- --
Edouard Duval(2)........................ -- -- --
Antoine Treuille........................ -- -- --
Raymond F. Decker....................... -- -- --
Donald C. Darling....................... -- -- --
All Directors and Executive Officers as
a group (10 persons).................. -- -- --
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED
AFTER OFFERING
------------------------------------------------
NAME AND ADDRESS OF NUMBER PERCENTAGE
BENEFICIAL OWNER OF SHARES OF CLASS
- ---------------------------------------- ---------------------- ----------------------
<S> <C> <C>
Societe Industrielle de Materiaux
Avances(2)(3)......................... 5,952,000
LWH Holding S.A.(3)(4)..................
Advanced Materials Investments Holding,
S.A.(3)(5)............................
Donald R. Muzyka........................ -- --
Robert F. Dropkin....................... -- --
Gernant E. Maurer....................... -- --
Thomas E. MacDonald..................... -- --
James D. Page........................... -- --
Robert D. Halverstadt................... -- --
Edouard Duval(2)........................ -- --
Antoine Treuille........................ -- --
Raymond F. Decker....................... -- --
Donald C. Darling....................... -- --
All Directors and Executive Officers as
a group (10 persons).................. -- --
</TABLE>
- ------------------
(1) Without giving effect to the Underwriters' over-allotment option. The
Selling Stockholders have granted the Underwriters an option, exercisable
within 30 days of the date of this Prospectus, to purchase up to an
aggregate of additional shares of Common Stock for the purpose of
covering over-allotments, if any, as follows: , shares and
, shares.
(2) SIMA's address is 41, Rue de Villiers, BP120, 92202 Neuilly Sur Seine,
Cedex, France. Mr. Duval's address is in care of SIMA. The common equity of
SIMA is beneficially owned by members of the Duval family and certain
related parties. Edouard Duval, a director of the Company, is a Directeur
General of SIMA and has a minority equity interest in SIMA.
(3) The Company, SIMA, AMI and LWH have entered into the Stockholders Agreement,
which provides for certain voting rights, nominating rights and transfer
restrictions. See '--Stockholders Agreement.'
(4) LWH's address is Boulevard Royal 3, L-2449 Luxembourg. Carlos Luis Landin
beneficially owns 100% of the capital stock of LWH and may be deemed to
beneficially own the shares of Common Stock owned of record by LWH after the
Offering. Mr. Landin's address is in care of LWH.
(5) AMI's address is 3A Rue Guillaume Kroll, L-1882 Luxembourg. Jean Chauveau
beneficially owns 100% of the capital stock of AMI and may be deemed to
beneficially own the shares of Common Stock owned of record by AMI after the
Offering. Mr. Chauveau's address is in care of AMI.
STOCKHOLDERS AGREEMENT
Upon completion of the Offering, the Principal Stockholders will
beneficially own approximately % of the outstanding Common Stock ( % of the
Underwriters' over-allotment option is exercised in full). Under the
Stockholders Agreement, the Principal Stockholders have agreed to vote all
shares of Common Stock beneficially owned by them (the 'Principal Shareholder
Shares') unanimously as a group in accordance with the instructions
55
<PAGE>
of the holders of a majority of the Principal Stockholder Shares. In addition,
as indicated in the table below, the Company has agreed to nominate a number of
persons for election as directors who are designated by the holders of a
majority of the Principal Stockholders Shares (based on the aggregate Common
Stock ownership percentage of the Principal Stockholders).
<TABLE>
<CAPTION>
PERCENTAGE OF DIRECTOR
NOMINEES DESIGNATED BY OUTSTANDING COMMON STOCK
PRINCIPAL STOCKHOLDERS(1) HELD BY PRINCIPAL STOCKHOLDERS
- ---------------------------------- ----------------------------------
<S> <C>
56% 35% or more
42% 27% or more but less than 35%
28% 19% or more but less than 27%
14% 10% or more but less than 19%
0% Less than 10%
</TABLE>
- ------------------
(1) Percentage rounded up to the nearest whole number.
Based on the present board size of seven, the Principal Stockholders will be
able to designate at least four nominees for election to the Board of Directors
of the Company upon completion of the Offering. The Company has agreed to use
its best efforts to cause the election of such nominees. If a director who is
designated by the Principal Stockholders resigns, is removed or dies, the
Company has agreed to elect another director designated by the Principal
Stockholders to the extent that the Principal Stockholders are entitled to
designate such director under the formula described above. The Stockholders
Agreement also contains transfer restrictions relating to the Principal
Stockholder Shares. A Principal Stockholder may not sell its shares of Common
Stock unless it first offers such shares to one or both of the other Principal
Stockholders at a price equal to the lower of (i) the proposed sale price and
(ii) the average sales price of the Common Stock on the Nasdaq National Market
over the 20 trading day period prior to the exercise date of the right of first
refusal. Under the Stockholders Agreement, each of the Principal Stockholders
and the Company has agreed not to hire any employee of any other party to the
Stockholder's Agreement without the prior consent of such other party. The
Stockholders Agreement will terminate when the Principal Stockholders
beneficially own, in the aggregate, less than 10% of the outstanding Common
Stock of the Company.
56
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary information is qualified in its entirety by the
provisions of the Company's Certificate of Incorporation and By-laws, copies of
which have been filed as exhibits to the Registration Statement of which this
Prospectus is a part. See 'Available Information.'
Upon completion of the Offering, the authorized capital stock of the
Company will consist of 35,000,000 shares of Common Stock, par value $.01 per
share, and 10,000,000 shares of preferred stock, par value $.01 per share
('Preferred Stock'). Currently there are 12,400,000 shares of Common Stock
outstanding held by three persons and there are no shares of Preferred Stock
outstanding.
Prior to the Offering, there has been no public market for the Common
Stock. See 'Risk Factors--Absence of Prior Public Market.'
COMMON STOCK
Voting Rights. The Company's Certificate of Incorporation provides that
holders of Common Stock are entitled to one vote per share held of record on all
matters submitted to a vote of stockholders. The stockholders are not entitled
to vote cumulatively for the election of directors. The Company and the
Principal Stockholders have entered into the Stockholders Agreement which
governs the voting of the Common Stock held by the Principal Stockholders. See
'Principal and Selling Stockholders--Stockholders Agreement.'
Dividends. Subject to the rights of any Preferred Stock which may be
outstanding, each holder of Common Stock on the applicable record date is
entitled to receive dividends if, as and when declared by the Board of
Directors. Under Delaware law, a corporation may declare and pay dividends out
of surplus, or if there is no surplus, out of net profits for the fiscal year in
which the dividend is declared and/or the preceding year. No dividends may be
declared, however, if the capital of the corporation has been diminished by
depreciation in the value of its property, losses or otherwise to an amount less
than the aggregate amount of capital represented by any issued and outstanding
stock having a preference on the distribution of assets. See 'Dividend Policy.'
Other Rights. Stockholders of the Company have no preemptive or other
rights to subscribe for additional shares. Subject to any rights of the holders
of any Preferred Stock that may be issued subsequent to the Offering, all
holders of Common Stock are entitled to share equally on a share-for-share basis
in any assets available for distribution to stockholders on liquidation,
dissolution or winding up of the Company. No shares of Common Stock are subject
to conversion, redemption or a sinking fund. All outstanding shares of Common
Stock are, and the Common Stock to be outstanding upon completion of the
Offering will be, fully paid and nonassessable.
Transfer Agent and Registrar. The Transfer Agent and Registrar for the
Common Stock is American Stock Transfer & Trust Company.
PREFERRED STOCK
The Company's Board of Directors (or a committee thereof) is authorized to
issue, without further authorization from stockholders, up to 10,000,000 shares
of Preferred Stock in one or more series and to determine, at the time of
creating each series, the distinctive designation of, and the number of shares
in, the series, its dividend rate, the number of votes, if any, for each share
of such series, the price and terms on which such shares may be redeemed, the
terms of any applicable sinking fund, the amount payable upon liquidation,
dissolution or winding up, the conversion rights, if any, and such other rights,
preferences and priorities of such series as the Board of Directors (or a
committee thereof) may be permitted to fix under the laws of the State of
Delaware as in effect at the time such series is created. The issuance of
Preferred Stock could adversely affect the voting power of the holders of Common
Stock and could have the effect of delaying, deferring or preventing a change in
control of the Company. The Company has no present plan to issue any shares of
Preferred Stock.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BY-LAWS
Certain provisions of the Certificate of Incorporation and By-laws of the
Company summarized below may be deemed to have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider in its best interest, including an attempt that might result in
the receipt of a premium over the market price for the shares held by
stockholders.
Classified Board of Directors. The Certificate of Incorporation and the
By-laws provide for the Board of Directors to be divided into three classes of
directors serving staggered three-year terms. Notwithstanding the foregoing, the
term of any director who is also an officer of the Company shall automatically
end if he or she ceases to be an employee of the Company. As a result,
approximately one-third of the Board of Directors will be
57
<PAGE>
elected each year. Moreover, under DGCL, in the case of a corporation having a
classified board, stockholders may remove a director only for cause. This
provision, when coupled with the provision of the By-laws authorizing only the
Board of Directors to fill vacant directorships, will preclude a stockholder
from removing incumbent directors without cause and simultaneously gaining
control of the Board of Directors by filling the vacancies created by such
removal with its own nominees.
Special Meeting of Stockholders. The Certificate of Incorporation and the
By-laws provide that special meetings of stockholders of the Company may be
called only by the Board of Directors, the Chairman of the Board of Directors or
the President. This provision will make it more difficult for stockholders to
take actions opposed by the Board of Directors.
Stockholder Action by Written Consent. The Certificate of Incorporation
and the By-laws provide that no action required or permitted to be taken at any
annual or special meeting of the stockholders of the Company may be taken
without a meeting, and the power of stockholders of the Company to consent in
writing, without a meeting, to the taking of any action is specifically denied.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The By-laws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual or special meeting of stockholders, must provide
timely notice thereof in writing. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Company not less than 30 days nor more than 60 days' prior to the meeting;
provided, however, that in the event that less than 40 days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be received no later than the close
of business on the tenth day following the day on which such notice of the date
of the meeting was mailed or such public discourse was made. The By-laws also
specify certain requirements for a stockholder's notice to be in proper written
form. These provisions may preclude some stockholders from bringing matters
before the stockholders at an annual or special meeting or from making
nominations for directors at an annual or special meeting.
LIMITATION ON DIRECTORS' LIABILITY
The Company has included in its Certificate of Incorporation provisions to
eliminate the rights of the Company and its stockholders (through stockholders'
derivative suits on behalf of the Company) to recover monetary damages from a
director resulting from breaches of fiduciary duty (including breaches resulting
from grossly negligent behavior). This provision does not eliminate liability
for breaches of the duty of loyalty, acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, violations
under Section 174 of the DGCL concerning the unlawful payment of dividends or
stock redemptions or repurchases or for any transaction from which the director
derived an improper personal benefit. However, these provisions will not limit
the liability of the Company's Directors under Federal securities laws. The
Company believes that these provisions are necessary to attract and retain
qualified persons as directors and officers.
SECTION 203 OF THE DELAWARE LAW
Section 203 of the DGCL prohibits publicly held Delaware corporations from
engaging in a 'business combination' with an 'interested stockholder' for a
period of three years following the date of the transaction in which the person
or entity became an interested stockholder, unless (i) prior to such date,
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder is approved by the Board of
Directors of the corporation, (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the outstanding voting stock of the
corporation (excluding for this purpose certain shares owned by persons who are
directors and also officers of the corporation and by certain employee benefit
plans) or (iii) on or after such date the business combination is approved by
the Board of Directors of the corporation and by the affirmative vote (and not
by written consent) of at least 66 2/3% of the outstanding voting stock which is
not owned by the interested stockholder. For the purposes of Section 203, a
'business combination' is broadly defined to include mergers, asset sales and
other transactions resulting in a financial benefit to the interested
stockholder. An 'interested stockholder' is a person who, together with
affiliates and associates, owns (or within the immediately preceding three years
did own) 15% or more of the corporation's voting stock.
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
shares of Common Stock. Of these shares, the shares sold in the Offering will be
freely tradeable without restriction or further registration under the
Securities Act, except for any shares purchased or acquired by an 'affiliate' of
the Company (as that term is defined under the rules and regulations of the
Securities Act), which shares will be subject to the resale limitations of Rule
144. The remaining outstanding shares of Common Stock were issued to
the Principal Stockholders in connection with the Merger and are 'restricted
securities' as that term is defined in Rule 144 that may not be sold in the
absence of registration under the Securities Act unless an exemption from
registration is available, including the exemptions contained under Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned restricted securities for at least two years,
including a person who may be deemed to be an affiliate of the Company, is
entitled to sell within any three-month period a number of shares that does not
exceed the greater of (i) 1% of the then outstanding shares of Common Stock of
the Company ( shares immediately after the Offering) or (ii) the average
weekly trading volume of the Common Stock during the four calendar weeks
preceding the date on which a notice of sale is filed with the Commission. A
person (or persons whose shares are aggregated) who is not at any time during
the 90 days preceding a sale an 'affiliate' is entitled to sell such shares
under Rule 144, commencing three years after the date such shares were acquired
from the Company or an affiliate of the Company, without regard to the volume
limitations described above. Sales under Rule 144 are subject to certain other
restrictions relating to the manner of sale, notice and the availability of
current public information about the Company.
Subject to the lockup arrangements described below, shares of
Common Stock owned by the Principal Stockholders will be eligible for sale in
the public market subject to the volume and other limitations described above
because the Principal Stockholders will be deemed to have held such shares for
more than two years. Each of the Company and the Principal Stockholders has
agreed that, without the prior written consent of Morgan Stanley & Co.
Incorporated, it will not (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock (provided that such shares
or securities are either currently owned by such person or are thereafter
acquired from the Company) or (ii) enter into any swap or other agreement that
transfers, in whole or in part, any of the economic consequences of ownership of
such shares of Common Stock, whether any such transaction described in clause
(i) or (ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise, for a period of 180 days after the date hereof
subject to certain exceptions. See 'Underwriters.'
Pursuant to the Registration Rights Agreement, the Company will grant the
Principal Stockholders, subject to certain exceptions, demand and piggy-back
registration rights. See 'Certain Transactions--Transactions with Principal
Stockholders--Registration Rights.'
In addition to the outstanding shares of Common Stock described above, an
aggregate of shares of Common Stock have been reserved for issuance to
employees, officers and Directors upon exercise of stock options, of which stock
options for shares of Common Stock will be granted effective on the date
of the Offering. The Company anticipates filing a registration statement on Form
S-8 under the Securities Act to register all of the shares of Common Stock
issuable or reserved for future issuance under the Stock Option Plan. Thus,
shares purchased upon exercise of options granted pursuant to the Stock Option
Plan generally will be available for resale in the public market to the extent
the lock-up arrangements with Morgan Stanley & Co. Incorporated have expired,
except that any such shares issued to affiliates are subject to the volume
limitations and certain other restrictions of Rule 144. See 'Management--Stock
Option Plan.'
Prior to the Offering, there has been no public market for the Common Stock
of the Company and no prediction can be made as to the effect, if any, that the
sale or availability for sale of shares of Common Stock will have on the market
price of the Common Stock. Nevertheless, sales of significant amounts of such
shares in the public market, or the perception that such sales may occur, could
adversely affect the market price of Common Stock and could impair the Company's
future ability to raise capital through an offering of its equity securities.
59
<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS OF COMMON STOCK
The following is a general discussion of certain U.S. Federal income and
estate tax consequences of the ownership and disposition of Common Stock by a
'Non-United States Holder.' A 'Non-United States Holder' is a person or entity
that, for U.S. Federal income tax purposes, is (i) a non-resident alien
individual, (ii) a foreign corporation or partnership, or (iii) a non-resident
fiduciary of a foreign estate or trust.
This discussion is based on the Internal Revenue Code of 1986, as amended
(the 'Code'), and administrative interpretations as of the date hereof, all of
which may be changed either retroactively or prospectively. This discussion does
not address all aspects of U.S. Federal income and estate taxation that may be
relevant to Non-United States Holders in light of their particular circumstances
and does not address any tax consequences arising under the laws of any state,
local or foreign taxing jurisdiction.
Prospective holders should consult their tax advisors with respect to the
United States Federal, state, local and Non-United States income and other tax
consequences to them of holding and disposing of Common Stock.
DIVIDENDS
Subject to the discussion below, dividends paid to a Non-United States
Holder of Common Stock generally will be subject to withholding tax at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty
unless the dividend is effectively connected with the conduct of a trade or
business within the United States, or, if an income tax treaty applies, is
attributable to a United States permanent establishment of the Non-United States
Holder and the Non-United States Holder provides the payor with proper
documentation (Form 4224). In order to claim the benefit of an applicable tax
treaty rate, a Non-United States Holder may have to file with the Company or its
dividend paying agent an exemption or reduced treaty rate certificate or letter
in accordance with the terms of such treaty. Under current United States
Treasury regulations, for purposes of determining whether tax is to be withheld
at a 30% rate or at a reduced rate as specified by an income tax treaty, the
Company ordinarily will presume that dividends paid to the address in a foreign
country are paid to a resident of such country absent knowledge that such
presumption is not warranted. However, under proposed United States Treasury
regulations which have not yet been put into effect, additional certification
requirements would apply after December 1, 1997. See '--Information Reporting
Requirements and Backup Withholding.'
In the case of dividends that are effectively connected with the Non-United
States Holder's conduct of a trade or business within the United States or, if
an income tax treaty applies, is attributable to a United States permanent
establishment of the Non-United States Holder, the Non-United States Holder will
generally be subject to regular U.S. income tax in the same manner as if the
Non-United States Holder were a United States resident. A Non-United States
corporation receiving effectively connected dividends also may be subject to an
additional branch profits tax which is imposed, under certain circumstances, at
a rate of 30% (or such lower rate as may be specified by an applicable treaty)
of the Non-United States corporation's 'effectively connected earnings and
profits,' subject to certain adjustments.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-United States Holder generally will not be subject to U.S. Federal
income tax with respect to gain realized on a sale or other disposition of
Common Stock unless (i) the gain is effectively connected with a trade or
business of such Non-United States Holder in the U.S., (ii) in the case of
certain Non-United States Holders who are non-resident alien individuals and
hold the Common Stock as a capital asset, such individuals are present in the
U.S. for 183 or more days in the taxable year of the disposition and either (a)
such individuals have a 'tax home' (as defined for United States Federal income
tax purposes) in the U.S., or (b) the gain is attributable to an office or other
fixed place of business maintained by such individuals in the U.S., (iii) the
Non-United States Holder is subject to tax, pursuant to the provisions of U.S.
tax law applicable to certain U.S. expatriates whose loss of U.S. citizenship
had as one of its principal purposes the avoidance of U.S. taxes, or (iv) the
Company is or has been a 'United States real property holding corporation'
within the meaning of section 897(c)(2) of the Code and, assuming that the
Common Stock is regularly traded on an established securities market for tax
purposes, the Non-United States Holder held, directly or indirectly, at any time
within the five-year period
60
<PAGE>
preceding such disposition more than 5% of the outstanding Common Stock. The
Company is not, and does not anticipate becoming, a United States real property
holding corporation.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
Under United States Treasury regulations, the Company must report annually
to the Internal Revenue Service and to each Non-United States Holder the amount
of dividends paid to such holder and the tax withheld with respect to such
dividends. These information reporting requirements apply even if withholding
was not required because the dividends were effectively connected with a trade
or business in the United States of the Non-United States Holder or withholding
was reduced or eliminated by an applicable income tax treaty. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the Non-United States
Holder is a resident under the provisions of an applicable income tax treaty or
agreement.
United States backup withholding (which generally is a withholding tax
imposed at the rate of 31% on certain payments to persons that fail to furnish
certain information under the United States information reporting requirements)
generally will not apply to (i) dividends paid to Non-United States Holders that
are subject to the 30% withholding discussed above (or that are not so subject
because a tax treaty applies that reduces or eliminates such 30% withholding) or
(ii) under current law, dividends paid to a Non-United States Holder at an
address outside of the United States. However, under proposed United States
Treasury regulations, in the case of dividends paid after December 31, 1997
(December 31, 1999 in the case of dividends paid to accounts in existence on or
before the date that is 60 days after the propsed United States Treasury
regulations are published as final regulations), a Non-United States Holder
generally would be subject to backup withholding at a 31% rate, unless certain
certification procedures (or, in the case of payments made outside the United
States with respect to an offshore account, certain documentary evidence
procedures) are complied with, directly or through an intermediary.
Backup withholding and information reporting generally will apply to
dividends paid to addresses inside the United States on shares of Common Stock
to beneficial owners that are not 'exempt recipients' and that fail to provide
in the manner required certain indentifying information.
The payment of the proceeds of the disposition of Common Stock to or
through the U.S. office of a broker is subject to information reporting unless
the disposing holder, under penalty of perjury, certifies its Non-United States
status or otherwise establishes an exemption. Generally, U.S. information
reporting and backup withholding will not apply to a payment of disposition
proceeds if the payment is made outside the U.S. through a Non-United States
office of a non-United States broker. However, information reporting
requirements (but not backup withholding) will apply to a payment of disposition
proceeds outside the U.S. if (A) the payment is made through an office outside
the U.S. of a broker that is either (i) a U.S. person, (ii) a foreign person
which derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the U.S. or (iii) a 'controlled foreign
corporation' for U.S. Federal income tax purposes and (B) the broker fails to
maintain documentary evidence that the holder is a Non-United States Holder and
that certain conditions are met, or that the holder otherwise is entitled to an
exemption.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the Internal
Revenue Service.
FEDERAL ESTATE TAX
An individual Non-United States Holder who is treated as the owner of or
has made certain lifetime transfers of an interest in the Common Stock will be
required to include the value thereof in his gross estate for U.S. Federal
estate tax purposes, and may be subject to U.S. Federal estate tax unless an
applicable estate tax treaty provides otherwise. Estates of non-resident aliens
are generally allowed a statutory credit which generally has the effect of
offsetting the U.S. Federal estate tax imposed on the first $60,000 of the
taxable estate.
61
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof (the 'Underwriting Agreement'), the Company and the
Selling Stockholders have agreed to sell and shares, respectively,
of the Company's Common Stock, and the Underwriters named below, for whom Morgan
Stanley & Co. Incorporated and Salomon Brothers Inc are serving as
Representatives, have severally agreed to purchase the respective number of
shares of Common Stock set forth opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- -------------------------------------------------------------------------------------------- ---------
<S> <C>
Morgan Stanley & Co. Incorporated...........................................................
Salomon Brothers Inc .......................................................................
---------
Total................................................................................
---------
---------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to take
and pay for all of the shares of Common Stock offered hereby (other than those
covered by the Underwriters' over-allotment option described below) if any such
shares are taken.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the Price to Public set forth on the cover page
hereof and part to certain dealers at a price which represents a concession not
in excess of $ per share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to other Underwriters or to certain dealers. After the
initial offering of the shares of Common Stock, the offering price and other
selling terms may from time to time be varied by the Underwriters.
Application will be made for quotation of the Common Stock on the Nasdaq
National Market under the symbol 'SMCX.'
At the request of the Company, the Underwriters have reserved up to
shares of Common Stock for sale at the initial public offering price to
non-executive employees and other individuals having relationships with the
Company. The number of shares available for sale to the general public will be
reduced to the extent such individuals purchase such reserved shares. Any
reserved shares which are not so purchased will be offered by the Underwriters
to the general public on the same basis as the other shares offered hereby.
Reserved shares purchased by such individuals will, except as restricted by
applicable securities laws, be available for resale following the Offering.
Pursuant to the Underwriting Agreement, the Company and the Selling
Stockholders have granted to the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase up to additional shares of
Common Stock at the public offering price set forth on the cover page hereof,
less underwriting discounts and commissions. The Underwriters may exercise such
option to purchase solely for the purpose of covering over-allotments, if any,
made in connection with the offering of the shares of Common Stock offered
hereby. To the extent such option is exercised, each Underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares of Common Stock as the
62
<PAGE>
number set forth next to such Underwriter's name in the preceding table bears to
the total number of shares of Common Stock offered by the Underwriters hereby.
The Company and each of the Principal Stockholders have agreed that,
without the prior written consent of Morgan Stanley & Co. Incorporated, it will
not (i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock (provided that such shares or
securities are either currently owned by such person or are thereafter acquired
from the Company) or (ii) enter into any swap or other agreement that transfers,
in whole or in part, any of the economic consequences of ownership of such
shares of Common Stock, whether any such transaction described in clause (i) or
(ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise, for a period of 180 days after the date
hereof, other than (x) the sale to the Underwriters of the shares of Common
Stock offered hereby or (y) the issuance by the Company of shares of Common
Stock upon the exercise of any options granted or shares of Common Stock issued
pursuant to existing benefit plans of the Company.
Each of the Underwriters has represented and, during the period of six
months after the date hereof, agreed that (a) it has not offered or sold and
will not offer or sell any shares of Common Stock in the United Kingdom except
to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purpose of
their business or otherwise in circumstances which have not resulted and will
not result in an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations (1995) (the 'Regulations'); (b) it
has complied and will comply with all applicable provisions of the Financial
Services Act 1986 and the Regulations with respect to anything done by it in
relation to the shares of Common Stock offered hereby in, from or otherwise
involving the United Kingdom; and (c) it has only issued or passed on and will
only issue or pass on to any person in the United Kingdom any document received
by it in connection with the issue of the shares of Common Stock if that person
is of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996, or is a person to whom such
document may otherwise lawfully be issued or passed on.
It is possible that more than 10% of the proceeds of the Offering, not
including underwriting compensation, will be received by entities who are
National Association of Securities Dealers, Inc. (the 'NASD') members or who are
affiliated with NASD members who are participating in the Offering. Therefore,
the Offering is being conducted in accordance with NASD Conduct Rule 2710 ('Rule
2710').
In compliance with Rule 2710, the initial public offering price can be no
higher than that recommended by a 'qualified independent underwriter.' Morgan
Stanley & Co. Incorporated is assuming the responsibilities of acting as
qualified independent underwriter and the initial offering price of the shares
of Common Stock offered hereby will not be higher than the initial public
offering price recommended by Morgan Stanley & Co. Incorporated. In connection
with the Offering, Morgan Stanley & Co. Incorporated in its role as 'qualified
independent underwriter' has performed due diligence investigations and reviewed
and participated in the preparation of the Registration Statement of which this
Prospectus is a part. In addition, the Underwriters may not confirm sales to any
discretionary account without the prior written approval of the customer.
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
PRICING OF OFFERING
Prior to the Offering, there has been no public market for the shares of
Common Stock of the Company. Consequently, the initial public offering price for
the Common Stock will be determined by negotiation among the Company, the
Selling Stockholders, and the Underwriters. Among the factors to be considered
in determining the initial public offering price will be the Company's record of
operations, the Company's current financial condition and future prospects, the
experience of its management, the economics of its industry in general, the
general condition of the equity securities market and the market prices of
similar securities of companies considered comparable to the Company and such
other factors as may be deemed relevant. There can be no assurance that a
regular trading market for the shares of Common Stock will develop after the
Offering or, if developed, that a public trading market can be sustained. There
can also be no assurance that the prices at which
63
<PAGE>
the Common Stock will sell in the public market after the Offering will not be
lower than the price at which it is issued by the Underwriters in the Offering.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York. Certain
legal matters will be passed upon for the Underwriters by Shearman & Sterling,
New York, New York.
EXPERTS
The financial statements of the Company at December 31, 1995 and December
31, 1994 and for each of the three years in the period ended December 31, 1995,
appearing elsewhere in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
herein and in the Registration Statement, and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
64
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS
Report of Independent Auditors............................................................................ F-2
Balance Sheets as of December 31, 1994 and 1995........................................................... F-3
Statements of Operations and Retained Earnings (Accumulated Deficit) for the
years ended December 31, 1993, 1994, and 1995........................................................... F-4
Statements of Cash Flows for the years ended December 31, 1993, 1994, and 1995............................ F-5
Notes to Financial Statements............................................................................. F-6
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
Balance Sheets as of September 30, 1995 and 1996 (unaudited).............................................. F-21
Statements of Operations and Retained Earnings (Accumulated Deficit) for the
nine months ended September 30, 1995 and 1996 (unaudited)............................................... F-22
Statements of Cash Flows for the nine months ended September 30, 1995
and 1996 (unaudited).................................................................................... F-23
Notes to Interim Financial Statements (unaudited)......................................................... F-24
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Special Metals Corporation
We have audited the accompanying balance sheets of Special Metals Corporation as
of December 31, 1994 and 1995, and the related statements of operations and
retained earnings (accumulated deficit) and cash flows for each of the three
years in the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Special Metals Corporation at
December 31, 1994 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Buffalo, New York
February 14, 1996,
except for Note 19, as to which the date is
December 18, 1996
F-2
<PAGE>
SPECIAL METALS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash........................................................................... $ 1,929,258 $ 2,612,797
Accounts receivable, less allowance for doubtful accounts of $75,000 for 1994
and $100,000 for 1995....................................................... 18,341,619 26,869,181
Inventories.................................................................... 29,101,594 39,056,340
Prepaid expenses............................................................... 268,422 260,097
Deferred taxes................................................................. 202,275 202,275
------------ ------------
Total current assets............................................................. 49,843,168 69,000,690
Property, plant and equipment.................................................... 35,903,364 33,559,461
Other assets..................................................................... 6,154,513 4,384,777
------------ ------------
Total assets..................................................................... $ 91,901,045 $106,944,928
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable............................................................... $ 7,031,269 $ 14,828,183
Accrued payroll and employee benefits.......................................... 6,397,866 7,671,415
Accrued other liabilities...................................................... 2,799,091 5,002,399
Income taxes payable........................................................... 94,414 449,262
Current portion of long-term debt.............................................. 4,010,000 5,000,000
Current obligation under capital leases........................................ 223,497 270,263
------------ ------------
Total current liabilities........................................................ 20,556,137 33,221,522
Long-term debt................................................................... 45,500,000 40,810,000
Long-term obligation under capital leases........................................ 965,330 776,942
Subordinated notes payable....................................................... 8,500,000 8,500,000
Other long-term liabilities...................................................... 7,392,420 7,970,299
------------ ------------
Total liabilities................................................................ 82,913,887 91,278,763
Commitments and contingencies
Shareholder's equity:
Common stock, $0.01 par value, 35,000,000 shares authorized, 12,400,000 shares
issued and outstanding...................................................... 124,000 124,000
Paid-in surplus................................................................ 25,876,000 25,876,000
Pension adjustment............................................................. (198,572) (724,884)
Accumulated deficit............................................................ (16,814,270) (9,608,951)
------------ ------------
Total shareholder's equity....................................................... 8,987,158 15,666,165
------------ ------------
Total liabilities and shareholder's equity....................................... $ 91,901,045 $106,944,928
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
SPECIAL METALS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (ACCUMULATED DEFICIT)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1993 1994
---------------------- ----------------------
<S> <C> <C>
Net sales........................................................ $ 80,412,286 $ 95,509,977
Cost of goods sold............................................... 84,304,390 93,625,339
---------------------- ----------------------
(3,892,104) 1,884,638
Selling, general and administrative expenses..................... 4,140,806 4,313,101
---------------------- ----------------------
Operating income (loss).......................................... (8,032,910) (2,428,463)
Interest expense................................................. 3,911,856 4,361,058
---------------------- ----------------------
Income (loss) before income taxes................................ (11,944,766) (6,789,521)
Income tax expense............................................... 196,740 99,177
---------------------- ----------------------
Net income (loss)................................................ (12,141,506) (6,888,698)
Retained earnings (accumulated deficit)..........................
Beginning of year.............................................. 2,215,934 (9,925,572)
---------------------- ----------------------
End of year.................................................... $ (9,925,572) $ (16,814,270)
---------------------- ----------------------
---------------------- ----------------------
Net income (loss) per share...................................... $ (0.98) $ (0.56)
---------------------- ----------------------
---------------------- ----------------------
Weighted average shares outstanding.............................. 12,400,000 12,400,000
---------------------- ----------------------
---------------------- ----------------------
<CAPTION>
1995
----------------------
<S> <C>
Net sales........................................................ $ 132,244,734
Cost of goods sold............................................... 114,751,837
----------------------
17,492,897
Selling, general and administrative expenses..................... 5,207,191
----------------------
Operating income (loss).......................................... 12,285,706
Interest expense................................................. 4,726,797
----------------------
Income (loss) before income taxes................................ 7,558,909
Income tax expense............................................... 353,590
----------------------
Net income (loss)................................................ 7,205,319
Retained earnings (accumulated deficit)..........................
Beginning of year.............................................. (16,814,270)
----------------------
End of year.................................................... $ (9,608,951)
----------------------
----------------------
Net income (loss) per share...................................... $ 0.58
----------------------
----------------------
Weighted average shares outstanding.............................. 12,400,000
----------------------
----------------------
</TABLE>
See accompanying notes.
F-4
<PAGE>
SPECIAL METALS CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1993 1994 1995
------------ ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................................... $(12,141,506) $(6,888,698) $ 7,205,319
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization..................................... 6,560,922 7,199,934 6,281,165
Provision for doubtful accounts................................... 75,000 (125,000) 25,000
Loss on sale of fixed assets...................................... -- 17,684 5,336
Provision for deferred income taxes............................... 1,254,157 -- --
Change in assets and liabilities:
Accounts receivable............................................ 2,748,919 (5,345,300) (8,552,562)
Inventories.................................................... 5,299,075 3,084,324 (9,954,746)
Prepaid expenses............................................... (14,818) 31,033 8,325
Income taxes................................................... (540,590) 1,261,326 354,848
Accounts payable............................................... (2,428,569) 288,535 7,796,914
Accrued payroll and employee benefits.......................... (522,446) 866,627 1,433,266
Accrued other liabilities...................................... (378,184) (182,193) 2,203,308
Other long-term liabilities.................................... 283,289 1,095,600 51,567
------------ ----------- -----------
Net cash provided by operating activities........................... 195,249 1,303,872 6,857,740
INVESTING ACTIVITIES
Capital expenditures................................................ (792,660) (975,389) (1,963,297)
Proceeds from sale of fixed assets.................................. -- 6,296 2,500
------------ ----------- -----------
Net cash used in investing activities............................... (792,660) (969,093) (1,960,797)
FINANCING ACTIVITIES
Net proceeds from (repayment of) revolving credit facilities........ (2,000,000) 1,500,000 300,000
Proceeds from subordinated notes payable............................ 6,500,000 -- --
Net repayments of term loans........................................ -- (2,500,000) (4,000,000)
Financing and other deferred costs.................................. (36,706) (1,316,831) (273,667)
Payments on capital lease obligations............................... (168,382) (205,470) (239,737)
------------ ----------- -----------
Net cash provided by (used in) financing activities................. 4,294,912 (2,522,301) (4,213,404)
------------ ----------- -----------
Net increase (decrease) in cash..................................... 3,697,501 (2,187,522) 683,539
Cash at beginning of year........................................... 419,279 4,116,780 1,929,258
------------ ----------- -----------
Cash at end of year................................................. $ 4,116,780 $ 1,929,258 $ 2,612,797
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
See accompanying notes.
F-5
<PAGE>
SPECIAL METALS CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
1. ACCOUNTING POLICIES
Description of Business
Special Metals Corporation (the 'Company'), a manufacturer of superalloys,
is a wholly-owned subsidiary of Special Metals and Technologies Corporation
('SMTC'), a holding company established for that sole purpose. SMTC has no other
operations other than its investment in the Company.
The Company sells its products world-wide, with a substantial portion being
sold to customers in the aerospace industry. The Company performs periodic
credit evaluations of its customers' financial condition and generally does not
require collateral. An allowance for doubtful accounts is maintained at a level
which management believes is sufficient to cover potential credit losses.
Revenue Recognition
The Company recognizes revenue at the time of shipment to the customer.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
on the FIFO (first-in, first-out) method of accounting.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated on the
straight-line method based on the estimated useful lives of the assets. The cost
of property, plant and equipment held under capital leases is equal to the lower
of the net present value of the minimum lease payments, using interest rates
appropriate at the inception of the lease, or the fair value of the leased
property, plant and equipment at the inception of the lease. Depreciation
expense includes the amortization of property, plant and equipment recorded
under capital leases.
Patents
Patents are stated at cost and are being amortized on the straight-line
method over their expected useful lives which average 8.5 years.
Excess of Purchase Price Over Net Assets Acquired
The excess of purchase price over net assets acquired is being amortized on
the straight-line method over 40 years. The Company periodically reviews this
asset to assess recoverability. Impairments would be recognized in operating
results if a permanent reduction in value were to occur.
Impairment of Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, 'Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of' ('SFAS 121').
Under the provisions of this accounting standard, asset carrying amounts are
required to be reviewed whenever events or circumstances indicate that such
carrying amounts may not be recoverable. When considered impaired, the
accounting standard requires that the carrying amount of the asset be reduced,
by a charge to income, to its current fair value. With regards to assets to be
disposed of, the accounting standard requires such assets to be reported at the
lower of carrying amount or fair value less cost to sell. The Company adopted
SFAS 121 effective January 1, 1996. The adoption of the accounting standard had
no impact on the Company's results of operations or financial position.
F-6
<PAGE>
SPECIAL METALS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
1. ACCOUNTING POLICIES--(CONTINUED)
Taxes on Income
Effective January 1, 1993, the Company adopted Statement of Accounting
Standards No. 109, 'Accounting for Income Taxes,' which requires a change from
the deferred method of accounting for income taxes to the asset and liability
method. The effect of this change was not significant to the 1993 results of
operations. Under the asset and liability method, deferred income taxes are
recognized for the tax consequences of temporary differences by applying enacted
statutory rates applicable to future years to differences between the financial
statement carrying amounts and the tax basis of existing assets and liabilities.
The effect of a change in tax rates is recognized in the period that includes
the enactment date.
Post-Retirement Benefits
Certain employees may be eligible for post-retirement health care and life
insurance benefits upon retirement from the Company. As more fully disclosed in
Note 9, effective January 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 106, 'Employer's Accounting for
Postretirement Benefits Other Than Pensions.'
Environmental Liabilities
Environmental expenditures that relate to current or future revenues are
expensed or capitalized as appropriate. Expenditures that relate to an existing
condition caused by past operations and that are not allocable to current or
future earnings are expensed. Liabilities for environmental costs are recognized
when environmental assessments or clean-ups are probable and the associated
costs can be reasonably estimated.
Research and Development Costs
Product research and development costs are charged to expense as incurred.
Research and development expense for the years ended December 31, 1993, 1994 and
1995 was $1,118,000, $1,288,000 and $1,313,000, respectively.
Purchase Contracts
The Company periodically uses commodity swap agreements to hedge against
price fluctuations of raw materials, principally nickel, used in the
manufacturing process. The swap agreements are intended to hedge long-term sales
agreements of the Company. Under the swap agreements, the Company receives or
makes payments based on the difference between a specified price and the market
price of the material. Unrealized gains and losses on the swap agreements are
deferred and are recognized in income, in conjunction with the transaction being
hedged.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-7
<PAGE>
SPECIAL METALS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
----------- -----------
<S> <C> <C>
Raw materials and supplies........................... $ 6,505,769 $10,511,647
Work-in-process...................................... 22,595,825 28,544,693
----------- -----------
$29,101,594 $39,056,340
----------- -----------
----------- -----------
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
----------- -----------
<S> <C> <C>
Land................................................. $ 1,271,716 $ 1,271,716
Buildings and improvements........................... 17,791,251 17,848,497
Machinery and equipment.............................. 45,428,197 47,353,650
Furniture and fixtures............................... 356,562 356,562
Construction-in-progress............................. 642,964 699,527
----------- -----------
65,490,690 67,529,952
Less accumulated depreciation........................ 29,587,326 33,970,491
----------- -----------
$35,903,364 $33,559,461
----------- -----------
----------- -----------
</TABLE>
Depreciation expense for the years ended December 31, 1993, 1994 and 1995
was $4,913,000, $5,649,000 and $4,397,000, respectively.
F-8
<PAGE>
SPECIAL METALS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
4. OTHER ASSETS
Other long-term assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
----------- -----------
<S> <C> <C>
Patents.............................................. $ 8,472,000 $ 8,472,000
Excess of purchase price over net assets acquired.... 3,911,950 3,911,950
Agreement not to compete............................. 64,250 64,250
Deferred financing costs............................. 1,372,847 1,289,976
Deferred lease costs................................. 75,843 75,843
----------- -----------
13,896,890 13,814,019
Less accumulated amortization........................ 7,995,888 9,523,036
----------- -----------
5,901,002 4,290,983
Intangible pension asset............................. 196,280 36,563
Other................................................ 57,231 57,231
----------- -----------
$ 6,154,513 $ 4,384,777
----------- -----------
----------- -----------
</TABLE>
5. LONG-TERM DEBT
Long-term debt outstanding was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
----------- -----------
<S> <C> <C>
Credit Agreement:
Term loans......................................... $22,000,000 $18,000,000
Revolving line of credit........................... 27,500,000 27,800,000
Other................................................ 10,000 10,000
----------- -----------
49,510,000 45,810,000
Current portion...................................... 4,010,000 5,000,000
----------- -----------
$45,500,000 $40,810,000
----------- -----------
----------- -----------
</TABLE>
The Company has entered into an Amended and Restated Credit Agreement dated
December 15, 1994 which provides for the following credit facility:
o Class A term loan of $19,000,000 (less $7,000,000 subsequently
repaid), payable in increasing quarterly installments ranging from
$1,250,000 to $1,750,000 through 1998 on the dates specified in the
agreement;
o Class B aggregate term loans of $6,000,000, payable January 2, 1998;
o Revolving credit facility of up to $30,000,000, subject to a
borrowing base computation which is described below, payable January
2, 1998.
All advances under the Credit Agreement bear interest at either a base
rate, as defined, plus a margin of 3/4%, or a rate equal to the eurodollar rate,
which equates to the New York interbank offered rate, plus a margin of 2 1/4%.
Interest is payable periodically in arrears. An annual commitment fee of 1/4% on
the unused available working capital commitment is due quarterly.
The weighted-average interest rate on the obligations outstanding at
December 31, 1995 was 8.07%.
F-9
<PAGE>
SPECIAL METALS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
5. LONG-TERM DEBT--(CONTINUED)
Under the revolving credit facility, the Company may borrow, repay, and
re-borrow from time to time, the lesser of (a) $30,000,000 or (b) the Company's
borrowing base. The Credit Agreement defines the Company's borrowing base as the
sum of 85% of eligible accounts receivable and 60% of eligible inventory. The
amount the Company may borrow against the revolving credit facility is reduced
by the aggregate amount of any letters of credit issued for the account of the
Company.
Mandatory prepayments are required in the amount of the net proceeds from
certain transactions not in the ordinary course of business (including the sale
of significant operating assets, the sale or issuance of capital stock, or
employer reversions from employee benefit plan terminations). These mandatory
prepayments will be applied first to the Class A term loans, then to the Class B
term loans, and finally as a permanent reduction of the revolving credit
facility commitment. The Company may also make additional prepayments at its
option.
In connection with the Company's obligations under the Credit Agreement,
the Company has granted mortgages or other security interests in substantially
all of the Company's assets now owned or hereafter acquired. The Company is also
subject to certain affirmative and negative covenants.
The aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
TERM LOANS LINE OF CREDIT OTHER TOTAL
----------- -------------- ------- -----------
<S> <C> <C> <C> <C>
1996................................. $ 5,000,000 $ -- $ -- $ 5,000,000
1997................................. 5,250,000 -- -- 5,250,000
1998................................. 7,750,000 27,800,000 -- 35,550,000
2000................................. -- -- 10,000 10,000
----------- -------------- ------- -----------
$18,000,000 $ 27,800,000 $10,000 $45,810,000
----------- -------------- ------- -----------
----------- -------------- ------- -----------
</TABLE>
6. CAPITAL LEASE OBLIGATIONS
The Company entered into non-cancelable leases for certain equipment. The
leases expire in 1997 through 2000 and contain bargain purchase options. The
property held under capital leases is included in the balance sheet as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
---------- ----------
<S> <C> <C>
Equipment............................................... $1,725,645 $1,823,760
Less: accumulated amortization.......................... 413,614 577,361
---------- ----------
$1,312,031 $1,246,399
---------- ----------
---------- ----------
</TABLE>
F-10
<PAGE>
SPECIAL METALS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
6. CAPITAL LEASE OBLIGATIONS--(CONTINUED)
Future minimum lease payments for equipment under capital leases at
December 31, 1995 is as follows:
<TABLE>
<S> <C>
1996........................................................ $ 349,916
1997........................................................ 335,414
1998........................................................ 328,753
1999........................................................ 190,966
2000........................................................ 3,962
------------
1,209,011
Less: amount representing interest.......................... 161,806
------------
Present value of net minimum lease payments (including
long-term obligations of $776,942)........................ $ 1,047,205
------------
------------
</TABLE>
7. OPERATING LEASES
The Company leases certain equipment under operating leases which contain
renewal options and escalation clauses in some cases. Rental expense under these
leases amounted to approximately $556,000, $525,000 and $500,000 for the years
ended December 31, 1993, 1994 and 1995, respectively. The following amounts
represent future minimum payments under operating leases with initial or
remaining noncancelable terms extending beyond one year:
<TABLE>
<S> <C>
1996.......................................................... $ 267,868
1997.......................................................... 137,510
1998.......................................................... 111,414
1999.......................................................... 44,256
2000.......................................................... 44,256
</TABLE>
8. RETIREMENT PLANS
The Company has several noncontributory defined benefit pension plans
covering substantially all employees of the Company. Benefits for salaried
employees are based on a percentage of career average earnings multiplied by
years of benefit service. Benefits for certain hourly employees under the plans
are based on a percentage of final average earnings multiplied by years of
benefit service. Benefits for remaining hourly employees under the plans are
based on years of service multiplied by pre-established benefit rates. The
Company's funding policy is to contribute annually at least the minimum amount
required by the Employee Retirement Income Security Act of 1974, as amended
('ERISA'). Unrecognized differences between actual experience and that assumed
and prior service costs are amortized on a straight-line basis over a period
approximating the average remaining service period for active employees.
F-11
<PAGE>
SPECIAL METALS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
8. RETIREMENT PLANS--(CONTINUED)
Net pension cost included the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Service cost--benefits earned during the period............ $ 792,857 $ 813,781 $ 724,144
Interest cost on projected benefit obligation.............. 2,125,898 2,288,129 2,416,313
Actual return on plan assets............................... (2,549,375) (6,501) (4,636,283)
Net amortization and deferral.............................. 1,014,398 (1,666,588) 2,996,976
----------- ----------- -----------
Net periodic pension cost.................................. $ 1,383,778 $ 1,428,821 $ 1,501,150
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The following table sets forth the Plans' funded status:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
----------- -----------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation,
including vested benefit obligations of $25,847,000 and
$30,022,000, respectively.................................... $26,981,600 $31,211,000
----------- -----------
----------- -----------
Projected benefit obligation................................... $29,384,300 $31,650,000
Plan assets at fair value...................................... 22,937,800 26,830,100
----------- -----------
Projected benefit obligation in excess of plan assets.......... (6,446,500) (4,819,900)
Unrecognized net loss.......................................... 2,033,100 2,959,400
Prior service cost (credit).................................... 644,800 (2,225,500)
Adjustment to recognize minimum pension liability.............. (394,900) (761,000)
----------- -----------
Pension liability recorded in financial statements............. $(4,163,500) $(4,847,000)
----------- -----------
----------- -----------
</TABLE>
The pension liability is recorded in the balance sheet as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
---------- ----------
<S> <C> <C>
Accrued payroll and employee benefits............................. $1,643,630 $1,800,900
Other long-term liabilities....................................... 2,519,870 3,046,100
---------- ----------
$4,163,500 $4,847,000
---------- ----------
---------- ----------
</TABLE>
The projected benefit obligation is based on a weighted-average assumed
discount rate of 8.5% at December 31, 1994 and 7.5% at December 31, 1995, and an
assumed rate of compensation increase of 4%-5% at both December 31, 1994 and
1995. The decrease in the discount rate from 8.5% to 7.5% increased the vested
benefit obligation, accumulated benefit obligation, and projected benefit
obligation by $3,100,000, $3,194,000, and $3,268,000, respectively. The
weighted-average expected long-term rate of return on plan assets used to
determine the expected return on plan assets in net periodic pension cost
was 9%.
During 1995, the benefit formula for certain hourly employees was amended.
This amendment reduced the projected benefit obligation, with a corresponding
adjustment to unrecognized prior service cost, by approximately $2,500,000.
Assets of the plans are commingled in a Master Trust which invests in a
variety of investment vehicles.
F-12
<PAGE>
SPECIAL METALS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
8. RETIREMENT PLANS--(CONTINUED)
The Company also sponsors a defined contribution plan covering all salaried
employees. Participants may elect to contribute basic contributions between 1%
and 15% of base compensation. Basic contributions consist solely of elective
deferrals which may be excluded from the participant's gross income for Federal
tax purposes pursuant to Section 401(k) of the Code. A participant may also
elect to contribute additional after-tax contributions of up to 10% for each
plan year up to the annual limit on elective deferrals under the Internal
Revenue Code of 1986. The Company may, at the sole discretion of its Board of
Directors, contribute, as a matching contribution, an amount not to exceed 50%
of the participants' basic contributions up to a maximum of 4%. In addition, the
Company may, at its sole discretion, make discretionary contributions which are
allocated to participants in accordance with the Plan provisions. The Company
recorded a charge for such contributions of approximately $0, $100,000 and
$200,000 in 1993, 1994 and 1995, respectively.
During 1994 the Company implemented a defined contribution plan covering
all employees covered by the collective bargaining agreement between the Company
and I.A.M.--Local Lodge #2310. Participants may elect to contribute basic
contributions between 1% and 15% of compensation. Basic contributions consist
solely of elective deferrals which may be excluded from the participant's gross
income for Federal tax purposes pursuant to Section 401(k) of the Code. A
participant may also elect to contribute additional after-tax contributions of
up to 10%. The Company may, at its sole discretion, make discretionary
contributions which are allocated to participants in accordance with the Plan
provisions. There were no Company contributions made to the plan in 1994 or
1995.
9. POSTRETIREMENT HEALTHCARE AND LIFE INSURANCE BENEFITS
The Company provides certain healthcare and life insurance benefits to
eligible retired employees and their spouses. Participants generally become
eligible for these benefits after achieving certain age and years of service
requirements. Employees at certain of the Company's facilities are not eligible
for postretirement healthcare and life insurance benefits. For certain hourly
employees retiring after August 1, 1989, healthcare coverage ceases after the
retiree reaches age 65. Health and life insurance benefits are provided through
insurance contracts. The health insurance plans are contributory and contain
other cost-sharing features such as deductibles, coinsurance, and lifetime
maximums. Life insurance benefits are generally a factor of final compensation
for salaried employees and are pre-defined for eligible hourly employees. The
Company's current policy is to fund these benefits on a pay-as-you-go basis.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, 'Employers' Accounting for Postretirement Benefits
Other Than Pensions,' which requires that the estimated cost of postretirement
benefits be accrued over the period earned. Prior to 1993, the Company
recognized the costs of these benefits on the pay-as-you-go basis. The
accumulated postretirement benefit obligation at adoption was $4,681,000 and
will be recognized over 20 years.
F-13
<PAGE>
SPECIAL METALS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
9. POSTRETIREMENT HEALTHCARE AND LIFE INSURANCE BENEFITS--(CONTINUED)
The amounts recognized in the Company's balance sheets, in other long-term
liabilities, were as follows:
<TABLE>
<CAPTION>
HEALTH LIFE
CARE INSURANCE TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
DECEMBER 31, 1995:
Accumulated postretirement benefits obligation:
Retirees................................................. $1,450,400 $ 979,400 $2,429,800
Fully eligible active participants....................... 263,500 288,900 552,400
Other active participants................................ 1,841,200 419,400 2,260,600
---------- ---------- ----------
Total accumulated postretirement benefits obligation........ 3,555,100 1,687,700 5,242,800
Unrecognized transition obligation.......................... 2,787,200 1,190,800 3,978,000
Unrecognized net (gain) loss................................ (77,300) 4,700 (72,600)
---------- ---------- ----------
Accrued postretirement obligation........................... $ 845,200 $ 492,200 $1,337,400
---------- ---------- ----------
---------- ---------- ----------
DECEMBER 31, 1994:
Accumulated postretirement benefits obligation:
Retirees................................................. $2,116,100 $ 860,300 $2,976,400
Fully eligible active participants....................... 154,700 240,000 394,700
Other active participants................................ 1,181,900 294,500 1,476,400
---------- ---------- ----------
Total accumulated postretirement benefits obligation........ 3,452,700 1,394,800 4,847,500
Unrecognized transition obligation.......................... 2,951,200 1,261,000 4,212,200
Unrecognized net (gain) loss................................ (41,300) (261,800) (303,100)
---------- ---------- ----------
Accrued postretirement obligation........................... $ 542,800 $ 395,600 $ 938,400
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-14
<PAGE>
SPECIAL METALS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
9. POSTRETIREMENT HEALTHCARE AND LIFE INSURANCE BENEFITS--(CONTINUED)
Net periodic postretirement benefit costs included the following:
<TABLE>
<CAPTION>
HEALTH LIFE
CARE INSURANCE TOTAL
-------- --------- --------
<S> <C> <C> <C>
1995:
Service cost--benefits earned during the period.................. $ 51,400 $ 14,200 $ 65,600
Interest cost.................................................... 264,300 121,200 385,500
Amortization..................................................... 150,800 58,200 209,000
-------- --------- --------
Net periodic postretirement benefit cost......................... $466,500 $ 193,600 $660,100
-------- --------- --------
-------- --------- --------
1994:
Service cost--benefits earned during the period.................. $ 60,500 $ 25,700 $ 86,200
Interest cost.................................................... 259,800 106,400 366,200
Amortization..................................................... 164,000 61,800 225,800
-------- --------- --------
Net periodic postretirement benefit cost......................... $484,300 $ 193,900 $678,200
-------- --------- --------
-------- --------- --------
1993:
Service cost--benefits earned during the period.................. $ 54,800 $ 22,400 $ 77,200
Interest cost.................................................... 252,200 112,100 364,300
Amortization..................................................... 164,000 70,200 234,200
-------- --------- --------
Net periodic postretirement benefit cost......................... $471,000 $ 204,700 $675,700
-------- --------- --------
-------- --------- --------
</TABLE>
For measuring the postretirement benefit obligation, an 11% annual rate of
increase in the net medical claims cost was assumed. The rate was assumed to
decrease gradually to 5.5% in 2005 and remain at that level thereafter. Retiree
contributions were assumed to increase at the same rates as the annual rate of
increase in the net medical claims cost. In addition, it was assumed that the
retirees would continue to pay for all Medicare Part B premiums. Increasing the
annual rate of increase in the net medical claims cost by one percentage point
in each year would increase the accumulated postretirement benefit obligation by
$194,000 and would increase the service cost and interest cost components of net
periodic postretirement benefit cost by $4,000 and $14,000, respectively. The
discount rate used in determining the accumulated postretirement benefit
obligation was 7.5% in 1995 and 8.5% in 1994. The change in the discount rate
increased the accumulated postretirement benefit obligation at December 31, 1995
by approximately $417,000.
The unrecognized transition obligation is being amortized on a
straight-line basis over 20 years. Unrecognized gains and losses are amortized
on a straight-line basis over the average remaining service period of active
participants.
10. RELATED PARTY TRANSACTIONS
The Company has received advances from two of its parent company's
shareholders. The amount outstanding at December 31, 1994 and 1995 was
$8,500,000. This debt is supported by notes and is subordinate to the Company's
obligations under its Credit Agreement. In addition, the Company's senior
lenders have placed restrictions on the repayment of these amounts. As a result
of these restrictions, amounts owing to shareholders under the subordinate notes
payable have been classified as long-term. Accrued interest on these obligations
totaled $937,000 and $1,587,000 at December 31, 1994 and 1995, respectively.
These amounts are included in accrued other liabilities. The weighted average
interest rate is 5% at December 31, 1994 and 7.47% at December 31, 1995.
F-15
<PAGE>
SPECIAL METALS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
10. RELATED PARTY TRANSACTIONS--(CONTINUED)
The Company also has a $6,000,000 line of credit available from one of its
parent company's shareholders. No amounts were outstanding on this line at
December 31, 1995 and 1994.
During the years ended December 31, 1993, 1994 and 1995, the Company made
sales to affiliated companies totalling $7,850,000, $9,332,000 and $15,028,000,
respectively.
The Company and an affiliate have shared common insurance coverage for
aircraft and space liabilities, contingent liabilities and excess liabilities
greater than $10 million but less than $50 million. The Company is charged a pro
rata premium based on the net sales of the covered parties. The Company was
charged $162,000, $160,000, and $206,000 for the years ended December 31, 1993,
1994 and 1995.
11. INCOME TAXES
As discussed in Note 1, in 1993 the Company adopted Statement of Accounting
Standards No. 109, 'Accounting for Income Taxes,' which requires a change from
the deferred method of accounting for income taxes to the asset and liability
method. The effect of this change was not significant to the 1993 results of
operations. Under the asset and liability method, deferred income taxes are
recognized for the tax consequences of temporary differences by applying enacted
statutory rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and liabilities.
The effect of a change in tax rates is recognized in the period that includes
the enactment date.
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal.................................................. $(1,150,000) $ -- $ 250,000
State.................................................... 92,583 99,177 103,590
----------- ----------- -----------
(1,057,417) 99,177 353,590
Deferred................................................... 1,254,157 -- --
----------- ----------- -----------
$ 196,740 $ 99,177 $ 353,590
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Income tax expense (benefit) differs from the amount computed by applying
the statutory income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Income before income taxes at 34%.......................... $(4,128,100) $(2,342,200) $ 2,570,000
Permanent income tax disallowances......................... 7,100 23,800 23,000
State taxes, net of federal benefit........................ 61,100 65,500 68,400
Net losses with no tax benefit and other changes in
valuation allowance...................................... 4,314,600 2,318,300 --
Benefit of net operating loss carryforwards................ -- -- (2,307,800)
Other...................................................... (57,960) 33,777 (10)
----------- ----------- -----------
$ 196,740 $ 99,177 $ 353,590
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-16
<PAGE>
SPECIAL METALS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
11. INCOME TAXES--(CONTINUED)
The Company has approximately $3,000,000 of net operating loss
carryforwards available to offset future federal regular taxable income and
approximately $150,000 of net operating loss carryforwards available to offset
future federal alternative minimum taxable income. These carryforwards will
expire in 2008-2009.
The Company was subject to the provisions of the corporate alternative
minimum tax ('AMT') in certain prior years. The AMT is imposed at a fixed
statutory rate of 20% on the Company's alternative minimum taxable income which
is determined by making statutory adjustments to the Company's regular taxable
income. The Company has AMT credit carryforwards of approximately $2,100,000
which will be available, indefinitely, to reduce future regular federal income
taxes payable in the event that regular taxes exceed the AMT.
General business credits, including investment credits and research and
development credits, are accounted for using the flow-through method. The
Company has research and development credit carryforwards of approximately
$247,000 available to reduce future federal income taxes. These credits will
expire in 2002 through 2005.
Deferred tax liabilities and assets are recorded in the Company's balance
sheets as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
------------ -----------
<S> <C> <C>
Deferred tax liabilities
Property, plant and equipment...................... $ (1,848,000) $(1,190,300)
Other long-term assets............................. (130,800) (26,000)
------------ -----------
Gross deferred tax liabilities....................... (1,978,800) (1,216,300)
Deferred tax assets:
AMT credit carryforward............................ 1,894,900 2,055,600
Federal net operating loss carryforward............ 3,906,400 1,021,400
New York State net operating loss carryforward..... 840,000 480,000
New York State investment tax credit
carryforward.................................... 1,500,000 1,600,000
Accrued liabilities................................ 3,010,500 2,649,600
Employee retirement plans.......................... 1,683,000 1,785,600
Inventory.......................................... 376,500 256,900
Other.............................................. 302,275 317,375
------------ -----------
13,513,575 10,166,475
Valuation allowance................................ (11,332,500) (8,747,900)
------------ -----------
Net deferred tax assets.............................. 2,181,075 1,418,575
------------ -----------
Net deferred taxes................................... $ 202,275 $ 202,275
------------ -----------
------------ -----------
</TABLE>
The valuation allowance at December 31, 1993 was $8,674,500.
F-17
<PAGE>
SPECIAL METALS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
12. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
------------ -----------
<S> <C> <C>
Pension obligation................................... $ 2,519,870 $ 3,046,100
Post retirement benefits obligation.................. 938,400 1,337,400
Environmental reserves............................... 2,817,437 2,965,625
Contract loss reserve................................ 480,000 --
Other................................................ 636,713 621,174
------------ -----------
$ 7,392,420 $ 7,970,299
------------ -----------
------------ -----------
</TABLE>
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
Commodity Swap Agreement
The Company periodically uses commodity swap agreements to hedge against
price fluctuations of raw materials, principally nickel, used in the
manufacturing process. At December 31, 1995, the Company had open swap
agreements with a notional principal value of approximately $6,400,000. The fair
value of the material covered by these contracts, based on the December 31, 1995
price quoted on the London Metal Exchange, was approximately $7,000,000. At
December 31, 1995, the Company had entered into sales agreements which will
require amounts of material in excess of the amount covered by the swap
agreements.
Fair Value Disclosure
The carrying amounts reported in the Company's balance sheets for cash
approximate fair value. The carrying amounts reported in the Company's balance
sheets for long-term debt, including current portion, and subordinated notes
payable approximate fair value, as the underlying long-term debt instrument is
comprised of notes that are repriced on a short-term basis, and the subordinated
notes carry a variable-rate interest which is adjusted on a short-term basis.
14. BUSINESS SEGMENT INFORMATION
The Company considers its operations to be one industry segment, specialty
metals. All significant operations are in the United States. Total export sales,
by geographic area, were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Europe.......................................... $18,337,200 $20,079,400 $37,105,400
Middle East..................................... 2,902,800 2,977,500 7,082,700
Other........................................... 1,257,800 952,500 2,442,100
----------- ----------- -----------
$22,497,800 $24,009,400 $46,630,200
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
15. STATEMENT OF CASH FLOW--SUPPLEMENTAL DISCLOSURES
The Company's actual cash payments (receipts) for interest (net of amounts
capitalized) and income taxes were $3,023,000 and ($533,000), respectively, for
the year ended December 31, 1993, $4,435,000 and $(1,171,000), respectively, for
the year ended December 31, 1994 and $4,090,000 and ($2,000), respectively, for
the year ended December 31, 1995.
F-18
<PAGE>
SPECIAL METALS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
15. STATEMENT OF CASH FLOW--SUPPLEMENTAL DISCLOSURES--(CONTINUED)
Non-cash activities:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Intangible pension asset........................ $(967,709) $(159,717)
Accumulated pension adjustment.................. 198,572 526,312
--------- ---------
Accrued pension liability....................... $(769,137) $ 366,595
--------- ---------
--------- ---------
</TABLE>
During 1996, the Company acquired $98,000 of fixed assets which were
directly offset by capital lease liabilities.
16. COMMITMENTS AND CONTINGENCIES
Environmental
The Company is subject to loss contingencies pursuant to various federal,
state and local environmental laws, and is currently involved in several actions
regarding the clean-up of disposal sites alleged to contain hazardous and/or
toxic wastes generated over a number of years including the following.
The Company, with contribution from other parties, performed remedial
actions at a site in Clayville, New York (the 'Ludlow Landfill'), except for
adjoining property known as the 'North Gravel Pit.' The New York State
Department of Environmental Conservation ('DEC') has advised the Company that
all work performed to date is acceptable. Notwithstanding the fact that the
remediation work has been completed (except for the North Gravel Pit) the DEC
may seek a post-excavation claim for biota monitoring, which is an environmental
assessment procedure. This claim is not anticipated to be material. The Company
is also responsible for operation and maintenance costs for a period of 30
years. The costs for this are estimated to be approximately $150,000 per year in
years one and two, and approximately $90,000 in the remaining years. The total
estimated costs of approximately $2.8 million have been discounted at an annual
rate of 4% in the accompanying financial statements.The Company may also be
required to perform contingent post-closure activities. It is not possible to
determine which, if any, of the contingent activities the Company will need to
perform. Contamination has also been discovered at the North Gravel Pit site,
and a study is currently underway to determine the extent of the contamination
and to select an appropriate remedial alternative. This study is expected to be
completed in the second half of 1997. It is not possible to provide a reasonable
estimate as to the cost of any remedial work which will be required in the North
Gravel Pit until the study is complete and a remedial alternative is determined.
Based upon preliminary information, the Company estimates the cost will be at
least $500,000 and the Company has established a reserve in this amount. The
Company has reserved a total of approximately $2.3 million with respect to the
Ludlow Landfill and North Gravel Pit.
The Company is also involved in a site in Utica, New York which is
alleged to be contaminated. In the mid 1980s, the owners/operators of Universal
Waste in Utica, New York (the 'Universal Waste Site') were cited by the DEC in a
formal enforcement proceeding for cleanup of the site which was allegedly
contaminated. The owner of the Universal Waste Site requested by motion that the
Company be named as an indispensable party to that proceeding. The DEC, however,
took the position that the Company should not be named as an indispensable
party. The Company believes that at least four other potentially responsible
parties have been identified with respect to the contamination at the site. A
consent order has been executed obligating the site operator to conduct a
preliminary site assessment on a portion of the property.
The preliminary site assessment is underway. The DEC is also conducting a
separate preliminary site assessment. The Company is presently not involved in
investigating the alleged contamination. Based upon the limited information
available to its environmental engineers, the Company has established a reserve
of $575,000.
F-19
<PAGE>
SPECIAL METALS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
16. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
However, because of the preliminary nature of the investigation, it is not
possible, at this time, to provide a reasonable estimate as to the ultimate cost
of any investigative or remedial work which will be required, or the Company's
share, if any, of such costs.
The Company is on notice of, and involved in, certain other environmental
matters which have been settled or are at various stages of discussion,
negotiation or settlement which the Company does not believe to be material.
Although the Company believes that it is in substantial compliance with
applicable requirements of environmental laws, there can be no assurance that
some, or all, of the risks noted previously will not result in liabilities that
are material to the Company's business, results of operations, financial
positions, or cash flows.
Other
From time to time, the Company is involved in legal proceedings relating to
claims arising out of its operations in the normal course of business. The
Company does not believe that it is a party to any proceedings at the present
time that could have a material adverse effect on the business, financial
condition, results of operations or cash flows of the Company.
17. MAJOR CUSTOMERS
For the year ended December 31, 1993, sales made to the Company's two
largest customers represented approximately 12% each, of the Company's total
sales. For the year ended December 31, 1994, sales made to the Company's two
largest customers represented approximately 22% and 13%, respectively, of the
Company's total sales. For the year ended December 31, 1995, sales made to the
Company's three largest customers represented approximately 17%, 11% and 10%,
respectively, of the Company's total sales. No other customers, in any year,
represented over 10% of the Company's total sales.
At December 31, 1994, accounts receivable from two customers represented
approximately 39% of total accounts receivable. At December 31, 1995, accounts
receivable from three customers represented approximately 43% of total accounts
receivable. No other customers accounted for over 10% of the Company's total
accounts receivable at December 31, 1994 and 1995.
18. EQUITY APPRECIATION RIGHTS PLAN
The Company has an Equity Appreciation Rights Plan ('Rights Plan') which
provides for the grant of rights to receive cash payments based on the
appreciation of the book value of the Company, as defined ('Rights'). Rights may
generally be exercised from the fifth anniversary of the date of grant through
the tenth anniversary of the date of grant, or earlier in the event of a change
in control, termination without cause, retirement, death or disability. Rights
are forfeited in the event the holder is terminated by the Company for cause, as
defined. Each Right is based on the total book value of the Company, divided by
10,000,000. At December 31, 1994 and 1995, 50,000 Rights were outstanding, of
which 10,000 were currently exercisable. As of December 31, 1995, no material
amounts had accrued under the Rights Plan.
19. SUBSEQUENT EVENTS
On December 18, 1996, the Company's Board of Directors authorized a merger
of SMTC and the Company, with the Company being the surviving corporation (the
'Merger'). In the Merger, each holder of common stock of SMTC will receive
12,400 shares of the Company's common stock for each share of SMTC common stock
and all shares of the Company's common stock outstanding prior to the Merger
will be cancelled. The Board's authorization was made in anticipation of, and
is subject to, an initial public offering of the Company's common stock, which
is anticipated to take place in the first quarter of 1997.
All share and per-share amounts in the accompanying financial statements
have been retroactively adjusted to reflect the Merger.
F-20
<PAGE>
SPECIAL METALS CORPORATION
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash........................................................................... $ 1,242,538 $ 1,067,728
Accounts receivable, less allowance for doubtful accounts of $61,000
for 1995 and $50,000 for 1996............................................... 21,702,238 29,019,445
Inventories.................................................................... 42,767,200 46,474,297
Prepaid expenses............................................................... 457,444 460,331
Deferred taxes................................................................. 202,275 3,700,000
------------ ------------
Total current assets............................................................. 66,371,695 80,721,801
Property, plant and equipment.................................................... 33,932,250 32,925,432
Deferred taxes................................................................... -- 2,546,000
Other assets..................................................................... 5,072,214 3,783,147
------------ ------------
Total assets..................................................................... $105,376,159 $119,976,380
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable............................................................... $ 15,166,326 $ 12,908,555
Accrued payroll and employee benefits.......................................... 7,604,003 8,118,532
Accrued other liabilities...................................................... 5,591,571 4,752,010
Income taxes payable........................................................... 339,984 1,074,659
Current portion of long-term debt.............................................. 4,760,000 6,500,000
Current obligation under capital leases........................................ 257,750 272,484
------------ ------------
Total current liabilities........................................................ 33,719,634 33,626,240
Long-term debt................................................................... 41,050,000 35,560,000
Long-term obligation under capital leases........................................ 813,596 592,779
Subordinated notes payable....................................................... 8,500,000 9,500,000
Other long-term liabilities...................................................... 7,311,420 8,895,549
------------ ------------
Total liabilities................................................................ 91,394,650 88,174,568
Commitments and contingencies
Shareholder's equity:
Common stock, $0.01 par value, 35,000,000 shares authorized, 12,400,000 shares
issued and outstanding...................................................... 124,000 124,000
Paid-in surplus................................................................ 25,876,000 25,876,000
Pension adjustment............................................................. (198,573) (478,885)
Retained earnings (accumulated deficit)........................................ (11,819,918) 6,280,697
------------ ------------
Total shareholder's equity....................................................... 13,981,509 31,801,812
------------ ------------
Total liabilities and shareholder's equity....................................... $105,376,159 $119,976,380
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-21
<PAGE>
SPECIAL METALS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (ACCUMULATED DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1995 1996
------------ ------------
<S> <C> <C>
Net sales........................................................................ $ 92,565,989 $120,540,377
Cost of goods sold............................................................... 80,369,758 99,733,176
------------ ------------
12,196,231 20,807,201
Selling, general and administrative expenses..................................... 3,384,259 3,722,578
------------ ------------
Operating income................................................................. 8,811,972 17,084,623
Interest expense................................................................. 3,572,408 3,096,210
------------ ------------
Income before income taxes....................................................... 5,239,564 13,988,413
Income tax expense (benefit)..................................................... 245,212 (1,901,235)
------------ ------------
Net income....................................................................... 4,994,352 15,889,648
Retained earnings (accumulated deficit)
Beginning of period............................................................ (16,814,270) (9,608,951)
------------ ------------
End of period.................................................................. $(11,819,918) $ 6,280,697
------------ ------------
------------ ------------
Net income per share............................................................. $ 0.40 $ 1.28
------------ ------------
------------ ------------
Weighted average shares outstanding.............................................. 12,400,000 12,400,000
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-22
<PAGE>
SPECIAL METALS CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1995 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income..................................................................... $ 4,994,352 $ 15,889,648
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization................................................ 4,594,456 3,212,338
Provision for doubtful accounts.............................................. (13,961) (49,555)
Loss on sale of fixed assets................................................. 5,336 --
Provision for deferred income taxes.......................................... -- (5,797,725)
Change in assets and liabilities:
Accounts receivable....................................................... (3,346,658) (2,100,709)
Inventories............................................................... (13,665,606) (7,417,957)
Prepaid expenses.......................................................... (189,022) (200,234)
Income taxes.............................................................. 245,570 625,397
Accounts payable.......................................................... 8,135,057 (1,919,628)
Accrued payroll and employee benefits..................................... 1,206,137 447,117
Accrued other liabilities................................................. 2,792,480 (250,389)
Other long-term liabilities............................................... (81,000) 925,250
------------ ------------
Net cash provided by operating activities...................................... 4,677,141 3,363,553
INVESTING ACTIVITIES
Capital expenditures........................................................... (1,228,126) (1,877,311)
Proceeds from sale of fixed assets............................................. 2,500 --
------------ ------------
Net cash used in investing activities.......................................... (1,225,626) (1,877,311)
FINANCING ACTIVITIES
Net repayment of revolving credit facilities................................... (700,000) --
Proceeds from subordinated notes payable....................................... -- 1,000,000
Net repayments of term loans................................................... (3,000,000) (3,750,000)
Financing and other deferred costs............................................. (222,639) (50,540)
Payments on capital lease obligations.......................................... (215,596) (230,771)
------------ ------------
Net cash provided by financing activities...................................... (4,138,235) (3,031,311)
------------ ------------
Net decrease in cash........................................................... (686,720) (1,545,069)
Cash at beginning of year...................................................... 1,929,258 2,612,797
------------ ------------
Cash at end of year............................................................ $ 1,242,538 $ 1,067,728
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-23
<PAGE>
SPECIAL METALS CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1995 AND 1996
NOTE 1.
The unaudited financial information furnished herein reflects all
adjustments, which in the opinion of management are of a normal recurring
nature, to fairly state the Company's financial position and results from
operations for the periods presented. This information should be read in
conjunction with the Company's audited financial statements for the year ended
December 31, 1995.
The results of operations for the nine-month period ended September 30,
1996 are not necessarily indicative of the results to be expected for the entire
year ended December 31, 1996.
NOTE 2.
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1995 1996
------------ ------------
<S> <C> <C>
Raw materials and supplies..................................... $ 10,261,677 $ 13,216,466
Work-in-process................................................ 32,505,523 33,257,831
------------ ------------
$ 42,767,200 $ 46,474,297
------------ ------------
------------ ------------
</TABLE>
NOTE 3.
Environmental
The Company is subject to loss contingencies pursuant to various federal,
state and local environmental laws, and is currently involved in several actions
regarding the clean-up of disposal sites alleged to contain hazardous and/or
toxic wastes generated over a number of years including the following.
The Company, with contributions from other parties, performed remedial
actions at a site in Clayville, New York (the 'Ludlow Landfill'), except for
adjoining property known as the 'North Gravel Pit.' The New York State
Department of Environmental Conservation ('DEC') has advised the Company that
all work performed to date is acceptable. Notwithstanding the fact that the
remediation work has been completed (except for the North Gravel Pit) the DEC
may seek a post-excavation claim for biota monitoring, which is an environmental
assesment procedure. This claim is not anticipated to be material. The Company
is also responsible for operation and maintenance costs for a period of 30
years. The costs for this are estimated to be approximately $150,000 per year in
years one and two, and approximately $90,000 in the remaining years. The total
estimated costs of approximately $2.8 million have been discounted at an annual
rate of 4% in the accompanying financial statements. The Company may also be
required to perform contingent post-closure activities. It is not possible to
determine which, if any, of the contingent activities the Company will need to
perform. Contamination has also been discovered at the North Gravel Pit site,
and a study is currently underway to determine the extent of the contamination
and to select an appropriate remedial alternative. This study is expected to be
completed in the second half of 1997. It is not possible to provide a reasonable
estimate as to the cost of any remedial work which will be required in the North
Gravel Pit until the study is complete and a remedial alternative is determined.
Based upon preliminary information, the Company estimates the cost will be at
least $1.0 million and the Company has established a reserve in this amount.
The Company has reserved a total of approximately $2.8 million with respect to
the Ludlow Landfill and North Gravel Pit.
F-24
<PAGE>
The Company is also involved in a site in Utica, New York (the 'Universal
Waste Site') which is alleged to be contaminated. In the mid 1980s, the
owners/operators of Universal Waste in Utica, New York were cited by the DEC in
a formal enforcement proceeding for cleanup of the site which was allegedly
contaminated. The owner of the Universal Waste Site requested by motion that the
Company be named as an indispensable party to that proceeding. The DEC, however,
took the position that the Company should not be named as an indispensable
party. The Company believes that at least four other potentially responsible
parties have been identified with respect to the contamination at the site. A
consent order has been executed obligating the site operator to conduct a
preliminary site assessment on a portion of the property. The preliminary site
assessment is underway. The DEC is also conducting a separate preliminary site
assessment. The Company is presently not involved in investigating the alleged
contamination. Based upon the limited information available to its environmental
engineers, the Company has established a reserve of $575,000. However, because
of the preliminary nature of the investigation, it is not possible, at this
time, to provide a reasonable estimate as to the ultimate cost of any
investigative or remedial work which will be required, or the Company's share,
if any, of such costs.
The Company is on notice of, and involved in, certain other
environmental matters which have been settled or are at various stages of
discussion, negotiation or settlement which the Company does not believe to be
material.
Although the Company believes that it is in substantial compliance with
applicable requirements of environmental laws, there can be no assurance that
some, or all, of the risks noted previously will not result in liabilities that
are material to the Company's business, results of operations, financial
positions, or cash flows.
Other
From time to time, the Company is involved in legal proceedings relating to
claims arising out of its operations in the normal course of business. The
Company does not believe that it is a party to any proceedings at the present
time that could have a material adverse effect on the business, financial
condition, results of operations or cash flows of the Company.
NOTE 4.
Income tax expense for the nine months ended September 30, 1995 differs
from the amount which would be expected by applying the combined statutory
income tax rates due to utilization of previously unrecognized net operating
loss and other tax carryforwards. Income tax expense for the nine months ended
September 30, 1996 differs from the amount which would be expected by applying
the combined statutory income tax rates due to utilization of previously
unrecognized net operating loss and other tax carryforwards, and due to the
recognition of previously unrecognized deferred income tax assets of $5,800,000.
NOTE 5.
On October 18, 1996, the Company entered into a Credit Agreement (the
'Credit Agreement') and refinanced all amounts owing under the Amended and
Restated Credit Agreement dated December 15, 1994. The Credit Agreement provides
for the following credit facility:
o Term loan of $20,000,000, payable in annual installments of
$4,000,000 beginning October 17, 1997;
o Revolving credit facility of up to $40,000,000, subject to a
borrowing base computation which is described below, payable October
17, 2001.
All advances under the Credit Agreement bear interest at a base rate, as
defined, or a rate equal to the eurodollar rate, which equates to the New York
interbank offered rate, plus a margin of 1.25%, or a rate equal to the London
interbank offered rate, plus a margin of 1.25%. Interest is payable periodically
in arrears. An annual commitment fee of 0.25% on the unused available revolving
credit commitment is due quarterly.
Under the revolving credit facility, the Company may borrow, repay, and
re-borrow from time to time, the lesser of (a) $40,000,000 or (b) the Company's
borrowing base. The Credit Agreement defines the Company's borrowing base as the
sum of 85% of eligible accounts receivable and 60% of eligible inventory. The
amount the Company may borrow against the working capital loans is reduced by
the aggregate amount of any letters of credit issued for the account of the
Company.
The Company may prepay amounts owing under the Credit Agreement at its
option at any time.
F-25
<PAGE>
In connection with the Company's obligations under the Credit Agreement,
the Company has granted security interests in the Company's accounts receivable,
inventory and general intangibles now owned or hereafter acquired. The Company
is also subject to certain affirmative and negative covenants.
NOTE 6.
On December 18, 1996, the Company's Board of Directors authorized a merger
of SMTC and the Company, with the Company being the surviving corporation (the
'Merger'). In the Merger, each holder of common stock of SMTC will receive
12,400 shares of the Company's common stock for each share of SMTC common stock
and all shares of the Company's common stock outstanding prior to the Merger
will be cancelled. The Board's authorization was made in anticipation of, and
is subject to, an initial public offering of the Company's common stock, which
is anticipated to take place in the first quarter of 1997.
All share and per-share amounts in the accompanying financial statements
have been retroactively adjusted to reflect the Merger.
F-26
<PAGE>
SPECIAL METALS CORPORATION
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses payable in connection
with the offering of the shares being registered hereby, other than underwriting
discounts and commissions. All the amounts shown are estimates, except the
Securities and Exchange Commission registration fee and the NASD filing fee. All
of such expenses are being borne by the Company.
<TABLE>
<S> <C>
SEC registration fee........................................................................ $ 18,788
NASD filing fee............................................................................. 6,700
NASDAQ listing fee.......................................................................... *
Accounting fees and expenses................................................................ *
Legal fees and expenses..................................................................... *
Printing and engraving expenses............................................................. *
Registrar and transfer agent's fees......................................................... *
Miscellaneous fees and expenses............................................................. *
--------
Total................................................................................ $ *
--------
--------
</TABLE>
- ------------------
*To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102(b)(7) of the DGCL permits a provision in the certificate of
incorporation of each corporation organized thereunder, eliminating or limiting,
with certain exceptions, the personal liability of a director to the corporation
or its stockholders for monetary damages for certain breaches of fiduciary duty
as a director. The Certificate of Incorporation of the Company eliminates the
personal liability of directors to the fullest extent permitted by Delaware law.
Section 145 of the DGCL ('Section 145'), in summary, empowers a Delaware
corporation, within certain limitations, to indemnify its officers, directors,
employees and agents against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement, actually and reasonably incurred by them
in connection with any suit or proceeding other than by or on behalf of the
corporation, if they acted in good faith and in a manner reasonably believed to
be in or not opposed to the best interest of the corporation, and, with respect
to a criminal action or proceeding, had no reasonable cause to believe their
conduct was unlawful.
With respect to actions by or on behalf of the corporation, Section 145
permits a corporation to indemnify its officers, directors, employees and agents
against expenses (including attorneys' fees) actually and reasonably incurred in
connection with the defense or settlement of such action or suit, provided such
person meets the standard of conduct described in the preceding paragraph,
except that no indemnification is permitted in respect of any claim where such
person has been found liable to the corporation, unless the Court of Chancery or
the court in which such action or suit was brought approves such indemnification
and determines that such person is fairly and reasonably entitled to be
indemnified.
Article Eight of the Certificate of Incorporation of the Company provides
for the indemnification of officers and directors and certain other parties (the
'Indemnitees') of the Company to the fullest extent permitted by law.
The Underwriting Agreement provides for indemnification by the Underwriters
of the Company, its directors and officers, and persons who control the Company
within the meaning of Section 15 of the Securities Act for certain liabilities.
The Registration Rights Agreement provides for indemnification of the
Company, its directors and officers, and persons who control the Company within
the meaning of Section 15 of the Securities Act for certain liabilities,
including liabilities arising thereunder.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Prior to the date of the Offering, 12,400,000 shares of Common Stock were
issued to the Principal Stockholders in connection with the Merger. These
securities will be issued in reliance on the exemption from registration
contained in Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ --------------------------------------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement among the Company, the Selling Stockholders and the Underwriters.
3.1* Amended and Restated Certificate of Incorporation of the Company.
3.2* Amended and Restated By-laws of the Company.
4.1 Credit Agreement, dated as of October 18, 1996, among the Company, Credit Lyonnais New York Branch
('Credit Lyonnais') and the financial institutions from time to time party thereto.
4.2* Amendment No. 1 to the Credit Agreement among the Company, Credit Lyonnais New York Branch and the
financial institutions named therein.
4.3* Letter from the Company to the Securities and Exchange Commission agreeing to file certain debt
instruments.
5.1* Opinion of Paul, Weiss, Rifkind, Wharton & Garrison.
10.1* Form of Registration Rights Agreement among the Company, SIMA, LWH and AMI.
10.2* Form of Amended and Restated Stockholders Agreement among the Company, SIMA, LWH and AMI.
10.3* Form of Technology Exchange Agreement between the Company and SIMA.
10.4* Form of Managerial Assistance Agreement between the Company and SIMA.
10.5 Cash Flow Support Agreement, dated as of October 18, 1996, between the Company and SIMA in favor of
Credit Lyonnais New York Branch.
10.6 Subordinated Note in favor of LWH, dated October 1, 1994.
10.7 Subordinated Note in favor of SIMA, dated October 1, 1994.
10.8 Subordination Agreement, dated as of October 18, 1996 among the Company, SIMA and Credit Lyonnais.
10.09 Lease Agreement, dated as of February 1, 1994 between the Oneida County Development Agency and the Company.
10.10 Payment In Lieu of Taxes Agreement, dated as of February 1, 1994, by and between the Oneida County
Industrial Development Agency and the Company.
10.11 Lease, dated as of November 1, 1990 between the County of Chautauqua Industrial Development Agency and the
Company.
10.12 Payment In Lieu of Taxes Agreement, dated as of November 1, 1990 by and between the Company and the County
of Chautauqua Industrial Development Agency.
10.13 Amended and Restated Lease, dated as of September 1, 1990 between the City of Princeton, Kentucky and the
Company.
10.14 Special Metals Corporation Equity Appreciation Rights Plan
10.15 Special Metals Corporation Supplemental Retirement Income Plan
10.16* Form of Special Metals Corporation 1997 Long-Term Stock Incentive Plan, together with Form of Stock
Option Award Agreement.
21.1 Subsidiaries of the Company.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ --------------------------------------------------------------------------------------------------------
<S> <C>
23.1 Consent of Ernst & Young LLP.
23.2* Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in Exhibit 5.1).
24.1 Power of Attorney (see signature pages).
27.1 Financial Data Schedule
</TABLE>
- ------------------
* To be filed by amendment.
(b) Financial Statement Schedules
The following financial statement schedules are included herein;
Schedule II--Valuation and qualifying accounts
All other schedules are omitted because they are either not required, not
applicable or the required information is included in the financial statements
or notes thereto.
ITEM 17. UNDERTAKINGS
The Company hereby undertakes to provide to the underwriters at the closing
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to its Certificate of Incorporation, By-laws, the Underwriting
Agreement or otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be a part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New Hartford, State of
New York, on the 20th day of December, 1996.
SPECIAL METALS CORPORATION
By: /s/ DONALD R. MUZYKA
----------------------------------
Name: Donald R. Muzyka
Title: President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Donald R. Muzyka, Robert F. Dropkin and
Donald C. Darling and each of them, as his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities (until revoked in writing), to
sign any and all amendments, including post-effective amendments, to this
Registration Statement, and any registration statement relating to the same
offering as this Registration Statement that is to be effective upon filing
pursuant to Rule 462(b) and the Securities Act of 1933, and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, or his or their
substitute or substitutes may lawfully do or cause to be done by virtue hereof.
II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------ ------------------------------------------- ------------------
<S> <C> <C>
/s/ ROBERT D. HALVERSTADT Chairman of the Board of Directors December 20, 1996
- ------------------------------------------
Robert D. Halverstadt
/s/ DONALD R. MUZYKA President, Chief Executive Officer December 20, 1996
- ------------------------------------------ and Director (Principal Executive Officer)
Donald R. Muzyka
/s/ DONALD C. DARLING Chief Financial Officer (Principal December 20, 1996
- ------------------------------------------ Financial and Accounting Officer)
Donald C. Darling and Director
/s/ ROBERT F. DROPKIN Director December 20, 1996
- ------------------------------------------
Robert F. Dropkin
/s/ EDOUARD DUVAL Director December 20, 1996
- ------------------------------------------
Edouard Duval
/s/ ANTOINE G. TREUILLE Director December 20, 1996
- ------------------------------------------
Antoine G. Treuille
/s/ RAYMOND F. DECKER Director December 20, 1996
- ------------------------------------------
Raymond F. Decker
</TABLE>
II-5
<PAGE>
INDEX TO FINANCIAL
STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors............................................................................. S-2
Schedule II--Valuation and Qualifying Accounts............................................................. S-3
</TABLE>
S-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Special Metals Corporation
We have audited the balance sheets of Special Metals Corporation as of December
31, 1994 and 1995, and the related statements of operations and retained
earnings (accumulated deficit) and cash flows for each of the three years in the
period ended December 31, 1995, and have issued our report thereon dated
February 14, 1996 (included elsewhere in this Registration Statement). Our
audits also included the financial statement schedule listed in Item 16(b) of
this Registration Statement. This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Buffalo, New York
February 14, 1996
S-2
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
SPECIAL METALS CORPORATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
---------------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING CHARGED TO OTHER END OF
DESCRIPTION OF PERIOD EXPENSE ACCOUNTS DEDUCTIONS PERIOD
- -------------------------------------------------- ---------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts.............. $ 75 $ 41 $ $ 16(a) $ 100
Allowance for obsolescence................... 1,377 143 551(b) 969
---------- ------ ---------- ---------- ----------
Total...................................... $1,452 $ 184 $ 0 $567 $1,069
---------- ------ ---------- ---------- ----------
---------- ------ ---------- ---------- ----------
Year ended December 31, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts.............. $ 200 $ (61) $ $ 64(a) $ 75
Allowance for obsolescence................... 1,620 282 525(b) 1,377
---------- ------ ---------- ---------- ----------
Total...................................... $1,820 $ 221 $ 0 $589 $1,452
---------- ------ ---------- ---------- ----------
---------- ------ ---------- ---------- ----------
Year ended December 31, 1993:
Deducted from asset accounts:
Allowance for doubtful accounts.............. $ 125 $ 82 $ $ 7(a) $ 200
Allowance for obsolescence................... 1,382 561 323(b) 1,620
---------- ------ ---------- ---------- ----------
Total...................................... $1,507 $ 643 $ 0 $330 $1,820
---------- ------ ---------- ---------- ----------
---------- ------ ---------- ---------- ----------
</TABLE>
- ------------------
(a) Uncollectible accounts written off, net of recoveries.
(b) Obsolete inventory disposals, physical inventory adjustments, and
adjustments for material reclaimed or ultimately sold.
S-3
<PAGE>
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
EXHIBITS
FILED WITH
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SPECIAL METALS CORPORATION
------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------ ----------------------------------------------------------------------------------------------- -----------
<S> <C> <C> <C>
1.1* -- Form of Underwriting Agreement among the Company, the Selling Stockholders and the
Underwriters.
3.1* -- Amended and Restated Certificate of Incorporation of the Company.
3.2* -- Amended and Restated By-laws of the Company.
4.1 -- Credit Agreement, dated as of October 18, 1996, among the Company, Credit Lyonnais New
York Branch ('Credit Lyonnais') and the financial institutions from time to time party
thereto.
4.2* -- Amendment No. 1 to the Credit Agreement among the Company, Credit Lyonnais New York
Branch and the financial institutions named therein.
4.3* -- Letter from the Company to the Securities and Exchange Commission agreeing to file
certain debt instruments.
5.1* -- Opinion of Paul, Weiss, Rifkind, Wharton & Garrison.
10.1* -- Form of Registration Rights Agreement among the Company, SIMA, LWH and AMI.
10.2* -- Form of Amended and Restated Stockholders Agreement among the Company, SIMA, LWH and AMI.
10.3* -- Form of Technology Exchange Agreement between the Company and SIMA.
10.4* -- Form of Managerial Assistance Agreement between the Company and SIMA.
10.5 -- Cash Flow Support Agreement, dated as of October 18, 1996, between the Company and SIMA
in favor of Credit Lyonnais New York Branch.
10.6 -- Subordinated Note in favor of LWH, dated October 1, 1994.
10.7 -- Subordinated Note in favor of SIMA, dated October 1, 1994.
10.8 -- Subordination Agreement, dated as of October 18, 1996 among the Company, SIMA and Credit
Lyonnais.
10.09 -- Lease Agreement, dated as of February 1, 1994 between the Oneida County Development Agency
and the Company.
10.10 -- Payment In Lieu of Taxes Agreement, dated as of February 1, 1994, by and between the
Oneida County Industrial Development Agency and the Company.
10.11 -- Lease, dated as of November 1, 1990 between the County of Chautauqua Industrial Development
Agency and the Company.
10.12 -- Payment In Lieu of Taxes Agreement, dated as of November 1, 1990 by and between the Company
and the County of Chautauqua Industrial Development Agency.
10.13 -- Amended and Restated Lease, dated as of September 1, 1990 between the City of Princeton,
Kentucky and the Company.
10.14 -- Special Metals Corporation Equity Appreciation Rights Plan
10.15 -- Special Metals Corporation Supplemental Retirement Income Plan
10.16* -- Form of Special Metals Corporation 1997 Long-Term Stock Incentive Plan, together with
Form of Stock Option Award Agreement.
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Ernst & Young LLP.
23.2* -- Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in Exhibit 5.1).
24.1 -- Power of Attorney (see signature pages).
27.1 -- Financial Data Schedule
</TABLE>
- ------------------
* To be filed by amendment.
<PAGE>
EXHIBIT 4.1
================================================================================
$60,000,000
CREDIT AGREEMENT
dated as of October 18, 1996
among
SPECIAL METALS CORPORATION
as Borrower,
THE FINANCIAL INSTITUTIONS
FROM TIME TO TIME PARTY HERETO,
as Lenders,
CREDIT LYONNAIS NEW YORK BRANCH,
as Issuing Bank and Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
This table of contents has been provided for the convenience of the parties and
does not constitute part of the Agreement to which it is attached.
PAGE
----
ARTICLE 1 DEFINITIONS..........................................
1.1 Defined Terms........................................
1.2 Other Definitional Provisions........................
ARTICLE 2 THE CREDIT FACILITY..................................
2.1 The Revolving Loans..................................
2.2 The Term Loans ......................................
2.3 Procedure for Borrowing..............................
2.4 Procedure for Conversion and Continuation............
2.5 Minimum Amount and Maximum Number of
Tranches.............................................
2.6 Termination or Reduction of Revolving
Commitments..........................................
2.7 Repayment of Loans...................................
2.8 Evidence of Indebtedness.............................
2.9 Optional and Mandatory Prepayments...................
2.10 Interest Rates and Payment Dates.....................
2.11 The Letters of Credit................................
2.12 Fees.................................................
2.13 Computation of Interest and Fees.....................
2.14 Pro Rata Treatment and Payments......................
2.15 Obligations of Lenders...............................
ARTICLE 3 YIELD PROTECTION AND ILLEGALITY;
TAXES................................................
3.1 Inability to Determine Interest Rate.................
3.2 Illegality...........................................
3.3 Additional Costs; Capital Adequacy...................
3.4 Taxes................................................
3.5 Indemnity............................................
3.6 Lenders' Obligation to Mitigate......................
ARTICLE 4 REPRESENTATIONS AND WARRANTIES.......................
<PAGE>
4.1 Organization, Powers, Compliance.....................
4.2 Capital Stock, Subsidiaries, Fiscal Year.............
4.3 Authorization, Absence of Conflicts..................
4.4 Binding Obligations..................................
4.5 Financial Condition and Statements...................
4.6 Taxes................................................
4.7 Title to Properties..................................
4.8 Proceedings..........................................
4.9 Labor Disputes; Collective Bargaining Agreements.....
4.10 Material Agreements and Licenses.....................
4.11 Intangible Assets....................................
4.12 Condition of Assets..................................
4.13 No Defaults, Compliance With Laws....................
4.14 Indebtedness.........................................
4.15 Not an Investment Company or Regulated Company.......
4.16 Use of Proceeds......................................
4.17 Ranking of Loans.....................................
4.18 Burdensome Provisions................................
4.19 ERISA................................................
4.20 Environmental Matters................................
4.21 Deposit Account Balances.............................
4.22 Correct Information..................................
ARTICLE 5 CONDITIONS PRECEDENT.................................
5.1 Conditions Precedent to Initial Credit Event.........
5.2 Conditions Precedent to Each Credit Event............
ARTICLE 6 COVENANTS............................................
6.1 Corporate Existence, Properties......................
6.2 Payment of Indebtedness, Taxes.......................
6.3 Financial Statements, Reports, etc...................
6.4 Notice of Adverse Events and Significant Changes.....
6.5 Books and Records; Inspection........................
6.6 Insurance............................................
6.7 Compliance with Laws.................................
6.8 Environmental Laws...................................
6.9 Use of Proceeds......................................
6.10 Indebtedness.........................................
6.11 Liens................................................
6.12 Contingent Liabilities...............................
<PAGE>
6.13 Merger and Consolidation; Acquisition and
Disposition of Assets................................
6.14 Investments..........................................
6.15 Change in Nature of Business.........................
6.16 Transactions with Affiliates.........................
6.17 Restricted Payments..................................
6.18 Consolidated Net Worth...............................
6.19 Consolidated Leverage Ratio..........................
6.20 Consolidated Senior Debt Coverage Ratio..............
6.21 Subsidiaries.........................................
6.22 Leases...............................................
6.23 Cash Flow Support Agreement..........................
6.24 Deposit Account Balances.............................
ARTICLE 7 EVENTS OF DEFAULT....................................
7.1 Events of Default....................................
7.2 Waivers..............................................
ARTICLE 8 THE AGENT............................................
8.1 Appointment..........................................
8.2 Delegation of Duties.................................
8.3 Exculpatory Provisions...............................
8.4 Reliance by Agent....................................
8.5 Notice of Default ...................................
8.6 Non-Reliance on Agent and Other Creditors............
8.7 Indemnification......................................
8.8 Agent in Its Individual Capacity.....................
8.9 Successor Agent......................................
ARTICLE 9 MISCELLANEOUS........................................
9.1 Notices..............................................
9.2 Expenses, Indemnity..................................
9.3 Amendments and Waivers...............................
9.4 No Waiver; Cumulative Remedies.......................
9.5 Survival of Representations and Warranties...........
9.6 Successors and Assigns;
Participations and Assignments.......................
9.7 Adjustments; Set-Off.................................
9.8 GOVERNING LAW........................................
9.9 JUDICIAL PROCEEDINGS.................................
9.10 WAIVER OF JURY TRIAL.................................
<PAGE>
9.11 Further Assurances...................................
9.12 Integration Clause...................................
9.13 Severability.........................................
9.14 Counterparts.........................................
9.15 Acknowledgements.....................................
SCHEDULES
Schedule I - Schedule of Commitments and Percentages
Schedule II - Schedule of Offices and Addresses for Notices
Schedule III - Disclosure Schedule
Schedule IV - Schedule of Acceptable Foreign Account Debtors
EXHIBITS
Exhibit A-1 - Form of Revolving Note
Exhibit A-2 - Form of Term Note
Exhibit B-1 - Form of Notice of Borrowing
Exhibit B-2 - Form of Notice of Conversion or Continuation
Exhibit C - Form of Borrower Security Agreement
Exhibit D - Form of Subsidiary Guarantee
Exhibit E - Form of Subsidiary Security Agreement
Exhibit F - Form of Contribution Agreement
Exhibit G - Form of Cash Flow Support Agreement
Exhibit H - Form of Subordination Agreement
Exhibit I - Form of Borrowing Base Certificate
Exhibit J - Form of Assignment and Acceptance Agreement
<PAGE>
CREDIT AGREEMENT dated as of October 18, 1996, among SPECIAL METALS
CORPORATION, a Delaware corporation (the "Borrower"), THE FINANCIAL INSTITUTIONS
FROM TIME TO TIME PARTY TO THIS AGREEMENT (each a "Lender" and collectively the
"Lenders"), and CREDIT LYONNAIS NEW YORK BRANCH ("CLNY"), a New York-licensed
branch of Credit Lyonnais, S.A. ("Credit Lyonnais"), a banking corporation
organized and existing under the laws of the Republic of France, as Issuing Bank
(in such capacity, the "Issuing Bank"), and as agent for the Issuing Bank and
the Lenders hereunder (in such capacity, the "Agent").
W I T N E S S E T H :
WHEREAS, the Borrower has requested that the Lenders and the Issuing
Bank extend credit to it in the form of term loans, revolving loans and letters
of credit as provided below, and the Lenders and the Issuing Bank are willing to
extend such credit on the terms and subject to the conditions specified below.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms
shall have the following meanings:
"Acceptable Foreign Account Debtor": any account debtor listed on
Schedule IV attached hereto, subject to the additions and deletions set forth
below. The Borrower may request from time to time, but in any event not more
frequently than once every six months, that additional foreign account debtors
be added to Schedule IV, which request shall be made by delivery to the Agent
and each Lender of a replacement Schedule, accompanied by a letter duly executed
by a Responsible Officer of the Borrower identifying the new foreign account
debtors and requesting that the Schedule annexed to said letter replace Schedule
IV then in effect. Each Lender may grant or withhold its approval of the
Borrower's request for replacement in its sole discretion (it being understood
and agreed that any Lender's failure to respond shall constitute withholding by
such Lender of its approval of the Borrower's request for replacement). If the
Majority Lenders approve the replacement Schedule in writing, then the foreign
account debtors listed in such replacement Schedule shall constitute Acceptable
Foreign Account Debtors until another replacement Schedule is presented to and
approved by the Majority Lenders. The Majority Lenders (or the Agent acting
pursuant to their instructions) may at any time notify the Borrower that one or
more foreign account debtors listed in Schedule IV then in effect are no longer
acceptable to them, whereupon such foreign account debtors shall cease to be
Acceptable Foreign Account Debtors.
<PAGE>
"Affected Fixed Rate Loans": all Fixed Rate Loans of a particular
Type, which have been affected by the occurrence of any event specified in
Section 3.1, 3.2 or 3.3.
"Affiliate": as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person. For purposes of this definition, "control" of a Person means the
power, directly or indirectly, either to (a) vote 5% or more of the securities
having ordinary voting power for the election of directors of such Person or (b)
direct or cause the direction of the management and policies of such Person,
whether by contract or otherwise.
"Agent": as defined in the preamble hereto.
"Agreement": this Credit Agreement, as amended, supplemented, waived
or otherwise modified from time to time.
"Aggregate Available Revolving Commitments": at any time, the
aggregate amount of the Available Revolving Commitments of all the Lenders at
such time.
"Aggregate Commitments": at any time, the aggregate amount of the
Revolving Commitments and the Term Commitments of all the Lenders at such time.
"Aggregate LC Exposure": at any time, the sum of (a) the aggregate
undrawn amount of all Letters of Credit then outstanding, plus (b) the aggregate
amount drawn under Letters of Credit for which the Issuing Bank or the Lenders,
as the case may be, have not been reimbursed by the Borrower.
"Aggregate Revolving Commitments": at any time, the aggregate amount
of the Revolving Commitments of all the Lenders at such time.
"Aggregate Revolving Exposure": at any time, the sum of (a) the
aggregate principal amount of all Revolving Loans outstanding at such time, plus
(b) the Aggregate LC Exposure at such time.
"Aggregate Term Commitments": at any time, the aggregate amount of the
Term Commitments of all the Lenders at such time.
"Assignee": as defined in Section 9.6(c).
"Available Revolving Commitment": at any time, as to any Lender, the
amount, if any, by which at such time (a) the lesser of (x) such Lender's
Revolving Commitment or (y) such Lender's Percentage of the Borrowing Base,
exceeds (b) such Lender's Revolving Exposure.
2
<PAGE>
"Base Rate": for any day, a rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the greater of (a) the CLNY Base
Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on
such day plus 1/4 of 1%. For purposes hereof: "CLNY Base Rate" shall mean the
rate of interest per annum established by CLNY from time to time as a reference
rate for short-term commercial loans in Dollars to domestic corporate borrowers,
as such rate is in effect on such day (which the Borrower acknowledges is not
necessarily CLNY's lowest rate); and "Federal Funds Effective Rate" shall mean
the overnight cost of funds of CLNY, as determined solely by CLNY. Any change in
the Base Rate due to a change in the CLNY Base Rate or the Federal Funds
Effective Rate shall be effective as of the opening of business on the effective
day of such change in the CLNY Base Rate or the Federal Funds Effective Rate, as
the case may be.
"Base Rate Loan": at any time, any Revolving Loan, or any portion of a
Lender's Term Loan, which bears interest at such time at a rate which is based
upon the Base Rate.
"Benefitted Lender": as defined in Section 9.7.
"Borrower" as defined in the preamble hereto.
"Borrower Security Agreement": as defined in Section 5.1(a)(iii).
"Borrowing": the aggregate amount of all Loans of a particular Class
and Type made to the Borrower on a particular Borrowing Date.
"Borrowing Base" means, at any time, an amount equal to the sum of:
(i) eighty-five percent (85%) of the aggregate amount owing at
such time on all Eligible Receivables of the Borrower and its
Qualified Subsidiaries, plus
(ii) sixty percent (60%) of the aggregate value (at the lower of
cost or market value) at such time of all Eligible Inventory of the
Borrower and its Qualified Subsidiaries.
"Borrowing Base Certificate": as defined in Section 6.3(e).
"Borrowing Date": any Business Day on which a Loan is made to the
Borrower.
"Business" as defined in Section 4.20(a).
"Business Day": a day (i) other than a Saturday, Sunday or any other
day on which commercial banks in New York, New York are authorized or required
by law to close and (ii) if such day relates to a Fixed Rate Loan, which is also
a day on which dealings in eurodollar deposits are carried out between banks in
the relevant interbank eurodollar market.
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"Capital Expenditures": for any period, the aggregate amount of all
expenditures, whether paid in cash or other assets or accrued as a liability
(including the aggregate amount of all obligations under Capital Leases incurred
during such period) made or to be made by the Borrower or any of its
Subsidiaries during such period to acquire or construct fixed or capital assets,
plant and equipment (including any renewals, improvements and replacements
thereof and all tooling costs, but excluding repairs), computed in accordance
with GAAP.
"Capital Lease": any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance with
GAAP to be capitalized on a balance sheet of the lessee.
"Capital Stock": any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation, any
and all equivalent ownership interests in a Person (other than a corporation),
and any and all warrants or options to purchase any of the foregoing.
"Cash Collateralize": with respect to any outstanding Letter of
Credit, to deposit cash with the Agent in an amount equal to the undrawn amount
of such Letter of Credit, as collateral security for the Borrower's obligation
to reimburse the Issuing Bank or the Lenders, as the case may be, for any
payment made by the Issuing Bank under or pursuant to such Letter of Credit.
"Cash Flow Support Agreement": as defined in Section 5.1(a)(vi).
"Class": as to any Loan or portion thereof, its nature as a Term Loan
or a Revolving Loan.
"CLNY": as defined in the preamble hereto.
"CLNY Base Rate": as set forth in the definition of the term "Base
Rate".
"Closing Date": the date on which this Agreement shall have been
executed by all the parties hereto.
"Code": the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral": all assets of the Borrower or any Subsidiary of the
Borrower which secure the Obligations from time to time, including all assets
which constitute "Collateral", as such term is defined in any Security Document.
"Commitment": as to any Lender, its Revolving Commitment or its Term
Commitment; and "Commitments" means, as to any Lender, its Revolving Commitment
and its Term Commitment, collectively.
"Commitment Fee": as defined in Section 2.12(b).
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"Commonly Controlled Entity": an entity, whether or not incorporated,
which is under common control with the Borrower within the meaning of Section
4001 of ERISA or is part of a group which includes the Borrower and which is
treated as a single employer under Section 414(b) or 414(c) of the Code.
"Consolidated EBITDA": as defined in Section 6.20.
"Consolidated Leverage Ratio": as defined in Section 6.19.
"Consolidated Net Income": as defined in Section 6.17.
"Consolidated Net Worth": as defined in Section 6.18.
"Consolidated Senior Debt Coverage Ratio": as defined in Section 6.20.
"Contractual Obligation": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Contribution Agreement": a Contribution Agreement substantially in
the form of Exhibit F.
"Credit Lyonnais": as defined in the preamble hereto.
"Creditor": each Lender and the Issuing Bank, individually; and
"Creditors" means the Lenders and the Issuing Bank, collectively.
"Customary Charges": as defined in Section 2.12(c).
"Default": any of the events specified in Section 7.1, whether or not
any requirement for the giving of notice, the lapse of time, or both, or any
other condition, has been satisfied.
"Disclosure Schedule": the Disclosure Schedule attached to this
Agreement as Schedule III.
"Dollars: and "$": dollars in lawful currency of the United States of
America.
"Effective Date": the date on which all the conditions precedent set
forth in Section 5.1 shall have been satisfied or waived.
"Eligible Inventory" means, as of any date of determination, all
Inventory of the Borrower or any of its Qualified Subsidiaries
(a) that is of merchantable quality and (other than raw
materials) fit for sale;
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(b) to which the Borrower or such Qualified Subsidiary has good,
marketable and undisputed title, free and clear of any Liens,
other than Liens in favor of the Agent and Permitted Liens; and
(c) in which the Agent holds a perfected security interest for
the benefit of the Lenders and the Issuing Bank;
provided, however, that there shall in any event be excluded from Eligible
Inventory
(1) any goods which are consigned or leased to the Borrower or
such Qualified Subsidiary or are, for any reason, not owned by
the Borrower or such Qualified Subsidiary;
(2) Inventory allocable to contracts with Governmental
Authorities;
(3) all amounts which constitute "scrap" (other than scrap or
"revert" held by the Borrower or such Qualified Subsidiary in the
ordinary course of business consisting of nickel or cobalt or
other metals containing nickel or cobalt as a significant
component);
(4) goods in the possession of third-party processors (other than
processors which have entered into collateral access agreements
satisfactory to the Agent in favor of the Agent);
(5) all amounts which constitute supplies, general ledger
material reserves, unamortized tooling, applied indirect
overhead, reserves for progress payments, costs of procurement,
engineering, manufacturing prototypes and program accounting;
(6) items which are obsolete or are not marketable in the
ordinary course of business of the Borrower or such Qualified
Subsidiary; and
(7) items which are determined by the Majority Lenders, in their
reasonable discretion, to be ineligible for any other reason.
"Eligible Receivable" means a Receivable of the Borrower or a
Qualified Subsidiary in which the Agent holds a first and perfected security
interest for the benefit of the Lenders and the Issuing Bank and which meets
each of the following requirements:
(1) such Receivable arose from a bona fide outright sale of goods
or rendition of services by the Borrower or such Qualified Subsidiary
(and not consignments or "sale or return" transactions) and such goods
have been shipped or services rendered to the respective account
debtors;
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(2) such Receivable is based on an enforceable order or contract
for goods shipped or services rendered and such goods were delivered
or such services were rendered in accordance with such order or
contract;
(3) the amount shown as a Receivable on the Borrower's or such
Qualified Subsidiary's books and any invoice or statement delivered to
the Agent or any Lender is owing to the Borrower or such Qualified
Subsidiary and no partial payment has been made thereon by anyone;
(4) such Receivable is not subject to any discount, credit,
rebate, allowance, set-off, reserve, chargeback, contra, claim of
reduction, counterclaim, recoupment, or any claim for credit,
allowances or adjustments by the account debtor on such Receivable
known to the Borrower because of returned, inferior and/or damaged
goods or unsatisfactory services, or for any other reason, except for
customary discounts allowed for prompt payment;
(5) the Borrower or such Qualified Subsidiary has good,
marketable and undisputed title to such Receivable, free and clear of
any Liens, other than Liens in favor of the Agent and Permitted Liens;
(6) such Receivable is unconditionally payable in Dollars and the
obligations of the account debtor under such Receivable (i) are not
evidenced by a promissory note or other negotiable instrument (except
for any such note or instrument which has been pledged to the Agent
for the benefit of the Lenders and the Issuing Bank) and (ii) are not
in dispute and are not subject to any set-off or counter-claim;
(7) the account debtor on such Receivable (i) is not an Affiliate
of the Borrower and (ii) is not bankrupt or insolvent or the subject
of receivership proceedings, and has not made an assignment for
benefit of creditors or a composition with creditors;
(8) to the extent such Receivable is reflected in any Borrowing
Base Certificate, the account debtor thereon has not as of the
effective date of such Borrowing Base Certificate returned, or refused
to retain, or asserted a right to return or refuse, any of the goods
from the sale of which such Receivable or portion thereof arose;
(9) such Receivable is evidenced by an invoice dated the date
that shipment, delivery or performance was made or rendered to the
account debtor and (i) such Receivable is not more than 60 days past
due from the original due date thereof and (ii) not more than 90 days
(or, in the case of a Receivable from Carmel Forge, 180 days or, in
the case of a Receivable from any other Acceptable Foreign Account
Debtor, 120 days) have elapsed from the invoice date of such invoice;
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(10) the amount of such Receivable reported on a Borrowing Base
Certificate as an Eligible Receivable excludes as of the date of such
Borrowing Base Certificate (i) all partial or total payments received
therefor, (ii) all chargeback billings, (iii) all finance charges,
late charges or other service charges, (iv) any retainages agreed to
by the Borrower or such Qualified Subsidiary or asserted by the
account debtor thereon, (v) reversals of credits previously given to
the account debtor thereon, or (vi) credits received from the account
debtor thereon if the credit has been issued, aged or outstanding 90
days or more;
(11) such Receivable does not represent progress or contract
billings;
(12) such Receivable does not arise out of a contract with or
order from an account debtor which by its terms forbids or makes void
or unenforceable the assignment of the Receivable arising with respect
thereto;
(13) if the United States of America, any state, county or
municipality, or any agency, department or instrumentality thereof, is
the account debtor with respect to such Receivable, the Borrower or
such Qualified Subsidiary shall have duly assigned its rights to
payment thereon to the Agent pursuant to the Assignment of Claims Act
of 1940, as amended, or any similar state or local statute or
regulation; and
(14) either (i) the account debtor on such Receivable is a
resident of the United States of America, an entity organized under
the laws of the United States of America or any political subdivision
thereof, or an office or branch located in the United States of
America of an entity organized under the laws of another country, or
(ii) the account debtor on such Receivable is an Acceptable Foreign
Account Debtor, or (iii) such Receivable is backed by a letter of
credit in form and issued by a bank satisfactory to the Majority
Lenders or is credit-insured pursuant to a policy in form and issued
by an insurer satisfactory to the Majority Lenders.
(15) such Receivable is not deemed ineligible, and the account
debtor thereon is not deemed unacceptable, by the Majority Lenders in
their reasonable discretion for any other reason;
"Environmental Costs": any and all costs or expenses (including,
without limitation, attorneys' and consultants' fees, investigation and
laboratory fees, response costs, court costs and litigation expenses) of
whatever kind or nature, known or unknown, contingent or otherwise, arising out
of, or in any way relating to any violation of, noncompliance with or liability
under any Environmental Laws or any orders, requirements, demands, or
investigations of any Person related to any Environmental Laws. Environmental
Costs include any and all of the foregoing, without regard to whether they arise
out of or are related to any past, pending or threatened proceeding of any kind.
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"Environmental Laws": any and all applicable foreign, Federal, state,
local or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees, requirements of any Governmental Authority or other Requirements
of Law (including common law) regulating, relating to or imposing liability or
standards of conduct concerning protection of human health or the environment,
as now or at any time hereafter in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with all rules and regulations promulgated
from time to time thereunder.
"Eurocurrency Reserve Requirements": for any day as applied to a Fixed
Rate Loan, the aggregate (without duplication) of the rates (expressed as a
decimal fraction) of reserve requirements in effect on such day (including,
without limitation, basic, supplemental, marginal and emergency reserves) under
any regulations of the Board of Governors of the Federal Reserve System or other
Governmental Authority having jurisdiction with respect thereto dealing with
reserve requirements prescribed for eurocurrency funding (currently referred to
as "Eurocurrency Liabilities" in Regulation D of such Board) maintained by a
member bank of such System.
"Eurodollar Base Rate": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, a rate per annum equal to the rate
quoted by CLNY to banks in the New York interbank eurodollar market for deposits
in eurodollars in immediately available funds to be delivered on the first day
of such Interest Period in amounts and for durations comparable to the relevant
Eurodollar Loan and Interest Period.
"Eurodollar Loan": at any time, any Revolving Loan, or any portion of
a Lender's Term Loan, which bears interest at such time at a rate which is based
upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, a rate per annum determined for such day
in accordance with the following formula (rounded upward, if necessary, to the
nearest 1/16th of 1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Event of Default": any of the events specified in Section 7.1,
provided that any requirement for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
"Existing Agreement": the Amended and Restated Credit Agreement dated
as of December 15, 1994, among the Borrower, the banks party thereto, and CLNY
as agent for such banks, as amended to date.
"Existing Lender": each Lender that was party to the Existing
Agreement.
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"Existing Letters of Credit": as defined in Section 2.11(b).
"Federal Funds Effective Rate": as set forth in the definition of the
term "Base Rate".
"Fee": each of the Commitment Fee, the Letter of Credit Fees, the
Fronting Fees, the fees payable pursuant to the Fee Letter, and the Customary
Charges; and "Fees" means all of the foregoing, collectively.
"Fee Letter": as defined in Section 2.12(d).
"Fixed Rate Loan": any Eurodollar Loan or LIBOR Loan; and "Fixed Rate
Loans" means all Eurodollar Loans and LIBOR Loans, collectively.
"Former Plan": any employee benefit plan in respect of which the
Borrower or a Commonly Controlled Entity could incur liability because of
Section 4069 or Section 4212(c) of ERISA.
"Fronting Fee": as defined in Section 2.12(c); and "Fronting Fees"
means the Fronting Fees payable with respect to all the Letters of Credit issued
hereunder from time to time, collectively.
"GAAP": generally accepted accounting principles in the United States
of America in effect from time to time, consistently applied; provided, however,
that for purposes of determining compliance with the financial covenants
contained in Sections 6.18, 6.19 and 6.20, the term "GAAP" shall mean generally
accepted accounting principles in the United States of America in effect on the
date of this Agreement, applied on a basis consistent with their application in
the preparation of the financial statements referred to in Section 4.5.
"Governmental Authority": any nation or government, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Guarantee Obligation": of or by any Person shall mean any obligation,
contingent or otherwise, of such Person, guaranteeing or entered into with the
purpose of guaranteeing any Indebtedness of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, and including any
obligation of such Person, direct or indirect, (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness or to
purchase (or to advance or supply funds for the purchase of) any security for
the payment of such Indebtedness, (b) to purchase property, securities or
services for the purpose of assuring the holder of such Indebtedness of the
payment of such Indebtedness, or (c) to maintain working capital, equity or
other financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Indebtedness, and any other contract
which, in economic effect, is substantially equivalent to a guarantee; provided,
however, that the term "Guarantee
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Obligation" shall not include endorsements for collection or deposit of
instruments in the ordinary course of business.
"Hazardous Substances": any and all wastes, materials and substances,
whether solid, liquid or gaseous, (i) defined as "hazardous substances" or
"toxic substances" in any Environmental Law, (ii) otherwise protected against by
any Environmental Law, or (iii) the discharge, spillage, uncontrolled loss,
seepage or filtration of which constitutes a violation of any Environmental Law,
including, without limitation, radioactive waste, asbestos, asbestos-containing
materials, radon gas, urea formaldehyde foam insulation, polychlorinated
biphenyls, petroleum products and by-products and oil.
"Indebtedness": of any Person at any date (a) all indebtedness,
liabilities and obligations of such Person for borrowed money (including, in the
case of the Borrower, indebtedness hereunder), (b) all indebtedness evidenced by
notes, bonds, debentures or similar instruments, (c) all obligations of such
Person under Capital Leases, (d) all obligations of such Person in respect of
acceptances (as defined in Section 3-410 of the UCC) issued or created for the
account of such Person, (e) the undrawn amount of all letters of credit issued
for the account of such Person (including, in the case of the Borrower, the
Letters of Credit) and (without duplication) all drafts drawn thereunder, (f)
all indebtedness of such Person for the deferred purchase price of property or
services (other than trade liabilities incurred in the ordinary course of
business and payable in accordance with customary practices), (g) all
obligations of such Person, contingent or otherwise, under or in respect of any
interest rate swap, cap or collar agreement, any currency exchange rate swap
agreement, or similar arrangement between such Person and a bank or other
financial institution providing for the transfer or mitigation of interest or
exchange risks either generally or under specific contingencies, (h) all
indebtedness or obligations of the types referred to in the preceding clauses
(a) through (g) above secured by any Lien on any property owned by such Person
even though such Person has not assumed or otherwise become liable for the
payment thereof and (i) all Guarantee Obligations of such Person, in each case
determined as at such date, without duplication and in accordance with GAAP. The
Indebtedness of any Person shall include the Indebtedness of any Partnership in
which such Person is a general partner, unless such partnership Indebtedness is
without recourse to such general partner. The term "Indebtedness", when used
with respect to any Person, shall include all liabilities and obligations of
such Person in respect of any of the items specified above, irrespective of
whether GAAP requires that such liabilities and obligations be reported as
indebtedness on such Person's financial statements or whether such Person
actually reports such liabilities and obligations as indebtedness on its
financial statements.
"Indemnitee": as defined in Section 9.2(b).
"Ineligible Financial Institutions": any banks or other financial
institutions, other than (a) the Lenders and (b) banks or other financial
institutions which have executed and delivered to the Agent letter agreements in
form and substance reasonably satisfactory to the Agent, acknowledging the
security interest of the Agent in any funds or credit balances maintained by
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them for the account of the Borrower or any of its Subsidiaries and limiting
their set-off rights in a manner reasonably satisfactory to the Agent.
"Interest Period": with respect to any Fixed Rate Loan, the period
commencing on the borrowing or conversion date of such Fixed Rate Loan, or on
the last day of the immediately preceding Interest Period applicable to such
Fixed Rate Loan, as the case may be, and ending one, two or three months
thereafter, as selected by the Borrower in its notice of borrowing, conversion
or continuation, as the case may be, given with respect thereto; provided,
however, that:
(a) if any Interest Period would otherwise end on a day that is
not a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless the result of such extension would be
to carry such Interest Period into another calendar month, in which
event such Interest Period shall end on the immediately preceding
Business Day;
(b) no Interest Period may extend beyond the Revolving Commitment
Termination Date;
(c) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically
corresponding day in the relevant subsequent calendar month) shall end
on the last Business Day of the relevant subsequent calendar month;
and
(d) the Borrower shall ensure that principal payments in respect
of the Term Loans may be made under Section 2.7(b) without requiring
the prepayment of any Fixed Rate Loans prior to the last day of any
Interest Period applicable thereto.
"Inventory": with respect to any Person, all goods and other personal
property owned by such Person which are held for sale or lease or are furnished
or are to be furnished under a contract of service or which constitute raw
materials, work in process or materials used or consumed or to be used or
consumed in such Person's business, or in the processing, packaging or shipping
of the same, and all finished goods, including all inventory as defined in
Section 9-109(4) of the UCC.
"Investments": in any Person means:
(i) the purchase or acquisition (whether for cash, property,
services or securities or otherwise, and whether structured as an
acquisition or as a merger or consolidation or otherwise) of any share
of Capital Stock, any bond, note, debenture or other evidence of
indebtedness, or any other security, issued by such Person, or of any
partnership or other ownership interest in such Person, or any binding
obligation or option to make such purchase or acquisition,
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(ii) any loan, advance, or extension of credit to, any deposit
with, and any contribution to the capital of, such Person, and any
commitment to make such loan, advance, extension of credit, deposit or
contribution to capital,
(iii) any Guarantee Obligation, or other contingent obligation,
with respect to Indebtedness or other liability of such Person, and
(iv) any purchase of all or any integral part of the business of
such Person or assets comprising such business or part thereof, and
any binding obligation or option to make such purchase;
provided, however, that the term "Investment" shall not include (a) current
trade and customer accounts receivable for services rendered in the ordinary
course of business and payable in accordance with customary trade terms and
other investments in accounts, contract rights and chattel paper arising or
acquired in the ordinary course of business or (b) stock or other securities
acquired in connection with the satisfaction or enforcement of debts or claims
due or owing or as security for any such debts or claims, provided that such
debts or claims were not created for the purpose of or with a view to acquiring
such stock or other securities.
"Issuing Bank": as defined in the preamble hereto.
"LC Application": as defined in Section 2.11(d).
"LC Disbursement": any payment or disbursement made by the Issuing
Bank under or pursuant to a Letter of Credit.
"LC Exposure": with respect to any Lender at any time, such Lender's
Percentage of the Aggregate LC Exposure.
"Lender" and "Lenders": as defined in the preamble hereto.
"Letter of Credit Fee": as defined in Section 2.12(b); and "Letter of
Credit Fees" means the Letter of Credit Fees payable with respect to all the
Letters of Credit issued hereunder from time to time, collectively.
"LIBO Base Rate": with respect to each day during each Interest Period
pertaining to a LIBOR Loan, the rate of interest determined on the basis of the
rate for deposits in Dollars for a period equal to such Interest Period
commencing on the first day of such Interest Period appearing on Page 3750 of
the Telerate Screen as of 11:00 A.M., London time, two Business Days prior to
the beginning of such Interest Period. In the event that such rate does not
appear on Page 3750 of the Telerate Screen (or otherwise on the Telerate
Service), the "LIBO Base Rate" shall instead be a rate per annum equal to the
rate at which deposits in eurodollars in immediately available funds to be
delivered on the first day of such Interest Period for the number of days
comprised therein and in an amount comparable to the amount of CLNY's
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LIBOR Loan to be outstanding during such Interest Period are offered by the
principal London office of Credit Lyonnais to banks in the London interbank
eurodollar market at approximately 11:00 a.m. London time two Business Days
prior to the beginning of such Interest Period.
"LIBOR Loan": at any time, any Revolving Loan, or any portion of a
Term Loan, which bears interest at such time at a rate which is based upon the
LIBO Rate.
"LIBO Rate": with respect to each day during each Interest Period
pertaining to a LIBOR Loan, a rate per annum determined for such day in
accordance with the following formula (rounded upward, if necessary, to the
nearest 1/16th of 1%):
LIBO Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Lien": any mortgage, pledge, hypothecation, assignment, security
deposit arrangement, encumbrance, lien (whether statutory, consensual or
otherwise), charge or other security interest or any preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement and any Capital Lease having substantially the same economic
effect as any of the foregoing).
"Loan": each Revolving Loan and each portion of a Term Loan that is of
a particular Type; and "Loans" means all of the Revolving Loans and the Term
Loans, collectively.
"Loan Documents": this Agreement, the Notes, the Security Documents,
the Subordination Agreement, the LC Applications, the Subsidiary Guarantee, the
Contribution Agreement, each Supplement to the Subsidiary Guarantee or the
Contribution Agreement, and any other instruments or documents relating hereto
or thereto.
"Losses": as defined in Section 11.2(b)(i).
"LWH": LWH Holding, S.A., a Luxembourg joint stock company (Societe
Anonyme).
"Majority Lenders": at any time, Lenders who have Percentages which
total at least 66 2/3%.
"Material Adverse Effect": a material adverse effect on (a) the
business, operations, property, condition (financial or otherwise) or prospects
of the Borrower or the Borrower's ability to perform its obligations under this
Agreement or any other Loan Document or (b) the validity or enforceability
(against the Borrower) of this Agreement or any other Loan Document, or any of
the rights or remedies of the Agent, the Issuing Bank or any Lender hereunder or
thereunder.
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"Material Environmental Amount": any amount payable by the Borrower
and/or any of its Subsidiaries in respect of or under any Environmental Law for
remedial costs, compliance costs, compensatory damages, punitive damages, fines,
penalties or any combination thereof, that has a Material Adverse Effect.
"Material Subsidiary": any Subsidiary of the Borrower which, together
with its Subsidiaries, either (a) has assets constituting 5% or more of the
total assets of the Borrower and its consolidated Subsidiaries on the date of
determination or (b) accounts for 5% or more of the Consolidated EBITDA for the
fiscal quarter of the Borrower ended on, or most recently ended prior to, the
date of determination.
"Multiemployer Plan": a Plan which is a multiemployer plan as defined
in Section 4001(a)(3) of ERISA.
"Note" and "Notes": as defined in Section 2.8(c).
"Notice of Borrowing": as defined in Section 2.3(a).
"Notice of Conversion or Continuation": as defined in Section 2.4(a).
"Obligations": all indebtedness and other liabilities and obligations
of the Borrower hereunder or under any other Loan Document including, without
limitation, (i) the obligation to repay the Loans in full when due, (ii) the
obligation to pay interest on the Loans at the rates and on the dates specified
herein, (iii) the obligation to pay the Fees in full when due at the rates and
on the dates specified herein or in the Fee Letter, (iv) the obligation to
reimburse the Issuing Bank in full for any payment made by it under a Letter of
Credit as provided herein or in the relevant LC Application, (v) the obligation
to Cash Collateralize the Letters of Credit as provided herein, (vi) the
obligation to indemnify the Agent, the Issuing Bank and the Lenders as provided
herein or in any other Loan Document, (vii) the obligation to pay costs and
expenses as provided herein or in any other Loan Document, and (viii) the
obligation to pay all other amounts specified herein or in any other Loan
Document.
"Other Taxes": as defined in Section 9.2(a).
"Participants": as defined in Section 9.6(b).
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA and any successor thereto.
"Percentage": as to any Lender at any time, (a) so long as any
Aggregate Revolving Commitments are in effect, the percentage set forth opposite
such Lender's name in the column entitled "Percentages" on Schedule I, as such
schedule may be amended from time to time and (b) after the Aggregate Revolving
Commitments have been cancelled or terminated, have been reduced to $0 or have
expired, the percentage of the aggregate principal amount of Loans then
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outstanding represented by the aggregate outstanding principal amount of such
Lender's Loans. Each Lender's Percentage shall initially be equal to the
percentage of the Aggregate Commitments represented by such Lender's Commitments
as of the Closing Date and shall be changed from time to time to reflect any
changes in the relative sizes of the Lenders' respective Revolving Commitments
and outstanding Term Loans, whether by reason of assignments, permitted non-pro
rata repayments of the Loans, or otherwise. The Agent is hereby authorized to
amend Schedule I from time to time to the extent necessary to reflect any such
changes, and the Schedule shall be deemed to have been amended automatically,
without the need for any action by the Agent, to reflect any such changes
recorded in the Register.
"Permitted Liens": the Liens described in clauses (a) through (i) of
Section 6.11.
"Person": an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
"Plan": any employee benefit plan which is covered by ERISA and in
respect of which the Borrower or a Commonly Controlled Entity is an "employer"
as defined in Section 3(5) of ERISA.
"Properly Contested": as defined in Section 6.2.
"Property" as defined in Section 4.21.
"Qualified Subsidiary": any wholly-owned Subsidiary of the Borrower
all of whose stock has been pledged to the Agent for the benefit of the Lenders
and the Issuing Bank pursuant to a pledge agreement satisfactory in form and
substance to the Agent, which Subsidiary (a) is organized or incorporated under
the laws of the United States of America or any state thereof, (b) has been
approved in advance in writing by the Majority Lenders as a Qualified Subsidiary
under this Agreement, (c) has duly executed and delivered to the Agent, with a
counterpart for each Lender, a Subsidiary Guarantee, a Subsidiary Security
Agreement and a Contribution Agreement (or Supplements to the foregoing
substantially in the forms annexed thereto) and (d) has duly executed and/or
delivered such other certificates, opinions, documents and instruments as may be
reasonably requested by the Agent.
"Receivable" means any right, now existing or hereafter arising, of
the Borrower to payment for goods sold or for services rendered which
constitutes an account receivable of the Borrower under GAAP.
"Register": as defined in Section 9.6(d).
"Regulation U": Regulation U of the Board of Governors of the Federal
Reserve System as in effect from time to time.
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"Reportable Event": any of the events set forth in Section 4043(c) of
ERISA, other than those events as to which the thirty-day notice period is
waived under Sections .13, .14, .16, .18, .19 or .20 of PBGC Reg. Section 4043
or any successor regulation thereto.
"Requirement of Law": as to any Person, the articles or certificate of
incorporation, declaration of trust, partnership agreement and by-laws or other
organizational or governing documents of such Person, and any law, treaty, rule
or regulation or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of its
material property or to which such Person or any of its material property is
subject.
"Responsible Officer": the president or vice president-administration
of the Borrower or, with respect to financial matters, the chief financial
officer or treasurer of the Borrower or, with respect to any certification of
incumbency of any officer or any resolutions or other matters of corporate
authorization or governance, the secretary of the Borrower.
"Restricted Payment": with respect to any Person, (i) the declaration
or payment by such Person of any dividend (excluding dividends payable solely in
Capital Stock of such Person) or any other distribution on any share of the
Capital Stock of such Person, (ii) the purchase, redemption or retirement by
such Person of any share of any of such Person's Capital Stock, (iii) any
payment by such Person resulting in the reduction of the capital of such Person,
and (iv) the payment by such Person of any amount, including principal and
interest, of subordinated indebtedness of such Person.
"Revolving Commitment": with respect to each Lender, the commitment of
such Lender to make Revolving Loans pursuant to Section 2.1, and to issue or
participate in Letters of Credit pursuant to Section 2.11, in the amount
specified for such Lender in Schedule I, as such Lender's Revolving Commitment
may be terminated or reduced from time to time in accordance with the provisions
of this Agreement.
"Revolving Commitment Period": the period from and including the date
hereof to but excluding the Revolving Commitment Termination Date.
"Revolving Commitment Termination Date": October 17, 2001, or such
earlier date on which the Revolving Commitments shall terminate as provided
herein.
"Revolving Exposure": with respect to any Lender at any time, the sum
of (c) the aggregate principal amount of all Revolving Loans of such Lender
outstanding at such time, plus (d) such Lender's LC Exposure at such time.
"Revolving Loan" and "Revolving Loans": as defined in Section 2.1(a).
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"SEC": the United States Securities and Exchange Commission or any
successor thereto.
"Security Documents": collectively, the Borrower Security Agreement,
the Subsidiary Security Agreement, each Supplement to the Subsidiary Security
Agreement, and each financing statement or other document executed, filed or
recorded in connection therewith; and "Security Document" means each of the
foregoing, individually.
"SIMA": Societe Industrielle de Materiaux Avances, a societe anonyme
organized under the laws of the Republic of France.
"Single Employer Plan": any Plan which is covered by Title IV of
ERISA, but which is not a Multiemployer Plan.
"Solvent" and "Solvency": with respect to any Person on a particular
date, the condition that on such date (a) the fair value of the property of such
Person is greater than the total amount of liabilities, including, without
limitation, contingent liabilities, of such Person, (b) the present fair salable
value of the assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person's ability to
pay as such debts and liabilities mature, and (d) such Person is not engaged in
business or a transaction, and is not about to engage in business or a
transaction, for which such Person's property would constitute an unreasonably
small amount of capital.
"Subordinated Indebtedness": all Indebtedness of the Borrower which is
subordinated to the Obligations by an instrument in writing satisfactory in form
and substance to the Agent.
"Subordination Agreement": as defined in Section 5.1(a)(vii).
"Subsidiary": as to any Person, a corporation, partnership or other
entity of which shares of stock or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other managers of
such corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries, or both, by such Person; and "wholly-owned Subsidiary"
means, as to any Person, a corporation, partnership or other entity all of whose
shares of stock or other ownership interests are owned by such Person and/or by
one or more wholly owned Subsidiaries of such Person.
"Subsidiary Guarantee": a Subsidiary Guarantee substantially in the
form of Exhibit D.
"Subsidiary Security Agreement": a Subsidiary Security Agreement
substantially in the form of Exhibit E.
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"Taxes": as defined in Section 4.4(a).
"Term Commitment": with respect to each Lender, the commitment of such
Lender to make Term Loans pursuant to Section 2.2 in the amount specified for
such Lender in Schedule I, as such Lender's Term Commitment may be terminated or
reduced from time to time in accordance with the provisions of this Agreement.
"Term Loan" and "Term Loans": as defined in Section 2.2(a).
"Tranche": as defined in Section 2.5.
"Transferee": as defined in Section 9.6(g).
"Type": as to any Loan or portion thereof, its nature as a Base Rate
Loan, a Eurodollar Loan, or a LIBOR Loan.
"Underfunding": an excess of the present value of all accumulated
benefits under a Plan (based on those assumptions used to fund such Plan), over
the aggregate market value of the assets of such Plan allocable to such
accumulated benefits, determined in each case as of the most recent annual
valuation date.
"UCC": the Uniform Commercial Code as adopted in New York and from
time to time in effect.
1.2 Other Definitional Provisions. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in any other Loan Document or any certificate or other document made
or delivered pursuant hereto.
(b) As used herein, in the other Loan Documents, and in any
certificate or other documents made or delivered pursuant hereto or thereto,
accounting terms which are not defined in Section 1.1 and accounting terms which
are partly defined in Section 1.1, to the extent not defined, shall have the
respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; references to Articles,
Sections, Schedules and Exhibits are references to Articles and Sections of, and
Schedules and Exhibits to, this Agreement unless otherwise specified; and the
words "this Agreement" refer to this Credit Agreement, together with all
schedules and exhibits hereto, as amended, restated, modified or supplemented
from time to time.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
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(e) Unless otherwise expressly specified herein, defined terms
denoting the singular number shall, when in the plural form, denote the plural
number of the matter or item to which such defined terms refer, and vice-versa.
Words of the neuter gender mean and include correlative words of the masculine
and feminine gender.
(f) The Table of Contents and Article, Section, Schedule and Exhibit
headings used in this Agreement are for convenience only and shall not affect
the construction or meaning of any provisions of this Agreement.
(g) Except as otherwise specified herein, all references herein (i) to
any Person shall be deemed to include such Person's successors and assigns, (ii)
to any Requirement of Law defined or referred to herein shall be deemed
references to such Requirement of Law or any successor Requirement of Law as the
same may have been or may be amended or supplemented from time to time, and
(iii) to any Loan Document or other document or agreement defined or referred to
herein shall be deemed to refer to such Loan Document or other document or
agreement (and, in the case of any Note or any other instrument, any instrument
issued in substitution therefor) as the terms thereof may have been or may be
amended, supplemented, waived or otherwise modified from time to time.
(h) Unless otherwise specified, all references to times of day shall
be to New York, New York times.
(i) Unless otherwise specified, the term "including", whenever used in
this Agreement or any other Loan Document, shall be deemed to mean "including
without limitation".
(j) Each authorization in favor of the Agent, the Issuing Bank or any
Lender granted by or pursuant to this Agreement shall be deemed to be
irrevocable and coupled with an interest.
ARTICLE 2
THE CREDIT FACILITY
2.1 The Revolving Loans.
(a) Subject to the terms and conditions hereof, each Lender severally
agrees to make revolving credit loans (each, a "Revolving Loan" and,
collectively, the "Revolving Loans") to the Borrower from time to time during
the Revolving Commitment Period in an aggregate principal amount at any one time
outstanding not exceeding such Lender's Revolving Commitment; provided, however,
that no Revolving Loan shall be made by any Lender hereunder if, after giving
effect thereto, (i) such Lender's Revolving Exposure would exceed such Lender's
Revolving Commitment or (ii) the Aggregate Revolving Exposure would exceed
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the lesser of (1) the Aggregate Revolving Commitments or (2) the Borrowing Base
then in effect.
(b) Subject to the terms and conditions of this Agreement, during the
Revolving Commitment Period the Borrower may borrow from the Lenders pursuant to
this Article 2, repay or prepay pursuant to Section 2.9 (subject to the
provisions of Section 3.5) and reborrow pursuant to this Article 2 up to the
amount of the Aggregate Revolving Commitments then in effect by means of Base
Rate Loans, Eurodollar Loans or LIBOR Loans; provided that no Revolving Loan
shall be made hereunder as a Eurodollar Loan or a LIBOR Loan after the day that
is one month prior to the Revolving Commitment Termination Date.
2.2 The Term Loans.
(a) Subject to the terms and conditions hereof, each Lender severally
agrees to make a term loan (each Lender's term loan herein called a "Term Loan"
and all of the Lenders' term loans herein collectively called the "Term Loans")
on the Effective Date in a principal amount of up to, but not exceeding, such
Lender's Term Commitment. Subject to the terms and conditions of this Agreement,
each Term Loan shall be made as a Base Rate Loan and may, from time to time
after the Effective Date, be converted into one or more Base Rate Loans,
Eurodollar Loans, or LIBOR Loans or a combination thereof, as determined by the
Borrower and notified to the Agent in accordance with Section 2.4.
(b) The Borrower shall borrow the Term Loans in a single borrowing
hereunder on the Effective Date. In the event that the aggregate principal
amount of Term Loans requested by the Borrower pursuant to Section 2.3(b) is
less than the Aggregate Term Commitments, each Lender's Term Commitment shall be
reduced on the Effective Date, immediately prior to its disbursement of its Term
Loan, to the principal amount of such Term Loan. Amounts repaid or prepaid in
respect of the Term Loans may not be reborrowed.
2.3 Procedure for Borrowing.
(a) The Borrower may borrow under the Revolving Commitments during the
Revolving Commitment Period on any Business Day, provided that the Borrower
shall give the Agent irrevocable notice (which notice must be received by the
Agent (i) prior to 11:00 a.m. on the requested Borrowing Date with respect to
Base Rate Loans, (ii) prior to 4:00 p.m. on the Business Day immediately
preceding the requested Borrowing Date with respect to Eurodollar Loans, and
(iii) prior to 11:00 a.m. on the date three Business Days prior to the requested
Borrowing Date with respect to LIBOR Loans), which notice shall be substantially
in the form of Exhibit B-1 and shall be duly completed by the Borrower (each, a
"Notice of Borrowing"). Each Borrowing consisting of Eurodollar Loans or LIBOR
Loans shall be in an amount equal to $500,000 or any greater amount that is a
whole multiple of $100,000 and each Borrowing consisting of Base Rate Loans
shall be in an amount equal to $100,000 or any whole multiple thereof (or, if
the Aggregate Revolving Commitments on the requested Borrowing Date are less
than $100,000, such lesser amount). If the Type of the requested Loans is not
specified in a
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Notice of Borrowing, then such Loans shall be made as Base Rate Loans. If no
Interest Period is specified with respect to any requested Fixed Rate Loans in a
Notice of Borrowing, then the Borrower shall be deemed to have selected an
Interest Period of one month's duration. Upon receipt of any such notice from
the Borrower, the Agent shall promptly notify each Lender thereof. Each Lender
will make the amount of its Percentage of each Borrowing available to the Agent
for the account of the Borrower in Dollars and in immediately available funds at
the office of the Agent at 1301 Avenue of the Americas, New York, New York
10019, prior to 12:00 noon on the Borrowing Date requested by the Borrower. The
Agent shall make the amounts received by it from the Lenders available to the
Borrower on the requested Borrowing Date by crediting such amounts to the
account maintained by the Borrower with the Agent.
(b) The Borrower may borrow the Term Loans as Base Rate Loans on the
Effective Date, provided that the Borrower shall give the Agent a Notice of
Borrowing (which notice must be received by the Agent prior to 11:00 a.m. on the
Effective Date). The requested Borrowing shall be in an amount equal to $100,000
or any whole multiple thereof. Upon receipt of a Notice of Borrowing from the
Borrower, the Agent shall promptly notify each Lender thereof. Each Lender will
make the amount of its Term Loan available to the Agent in Dollars and in
immediately available funds for the account of the Borrower at the office of the
Agent at 1301 Avenue of the Americas, New York, New York 10019, prior to 12:00
noon on the Effective Date. The Agent shall make the amounts received by it from
the Lenders available to the Borrower on the Effective Date by crediting such
amounts to the account maintained by the Borrower with the Agent.
2.4 Procedure for Conversion and Continuation.
(a) The Borrower may elect from time to time to convert outstanding
Loans from one Type to another by giving the Agent irrevocable written notice of
such election (i) at least one Business Day prior to the proposed conversion
date, in the case of conversion of Loans of another Type into Eurodollar Loans
or Base Rate Loans and (ii) at least three Business Days prior to the proposed
conversion date, in the case of conversion of Loans of another Type into LIBOR
Loans, which notice shall be substantially in the form of Exhibit B-2 and shall
be duly completed by the Borrower (each, a "Notice of Conversion or
Continuation"); provided, however, that any conversion of Eurodollar Loans or
LIBOR Loans into Loans of another Type may only be made on the last day of an
Interest Period with respect thereto. Any such notice of conversion to Fixed
Rate Loans shall specify the length of the initial Interest Period or Interest
Periods therefor. If such notice fails to specify the length of the initial
Interest Period or Interest Periods therefor, then the Borrower shall be deemed
to have selected an Interest Period of one month's duration. Upon receipt of any
such notice the Agent shall promptly notify each Lender thereof. All or any part
of any outstanding Loans may be converted as provided herein, provided that (i)
no Loan may be converted into a Fixed Rate Loan when any Event of Default has
occurred and is continuing and the Agent has notified the Borrower that such
conversion option is no longer available, (ii) no Revolving Loan may be
converted into a Fixed Rate Loan after the date that is one month prior to the
Revolving Commitment Termination Date, and (iii) no portion of any Term Loan may
be converted into a Fixed Rate
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Loan after the date that is one month prior to the date of the final installment
of principal of the Term Loans.
(b) Any Fixed Rate Loans may be continued by the Borrower as such upon
the expiration of the then current Interest Period with respect thereto by
giving a Notice of Conversion or Continuation to the Agent, specifying the
length of the next Interest Period to be applicable to such Loans, determined in
accordance with the applicable provisions of the definition of the term
"Interest Period" set forth in Section 1.1; provided, however, that no Fixed
Rate Loan may be continued as such (i) when any Event of Default has occurred
and is continuing and the Agent has notified the Borrower that such continuation
option is no longer available or (ii) after the date that is one month prior to
the Revolving Commitment Termination Date (if the relevant Fixed Rate Loan is a
Revolving Loan) or the date of the final installment of principal of the Term
Loans (if the relevant Fixed Rate Loan is part of a Term Loan); and provided
further, that if the Borrower shall fail to give any required notice as
described above in this paragraph or if such continuation is not permitted
pursuant to the preceding proviso, such Fixed Rate Loans shall be automatically
converted to Base Rate Loans on the last day of the then expiring Interest
Period.
2.5 Minimum Amount and Maximum Number of Tranches.
All borrowings, conversions and continuations of Loans hereunder and
all selections of Interest Periods hereunder shall be in such amounts and shall
be made pursuant to such elections so that, after giving effect thereto, the
aggregate principal amount of the Fixed Rate Loans comprising each Tranche (as
defined below) shall be equal to $100,000 or any greater amount that is a whole
multiple thereof and so that there shall not be more than 6 Tranches at any one
time outstanding. For purposes of this Section, the term "Tranche" shall mean
any group of Fixed Rate Loans of the same Class and Type, whose Interest Periods
begin on the same day and end on the same day (whether or not such Loans were
originally made as Fixed Rate Loans of such Type or converted into Fixed Rate
Loans of such Type on the same day).
2.6 Termination or Reduction of Revolving Commitments.
(a) The Borrower shall have the right, upon not less than five
Business Days' notice to the Agent, to terminate the Aggregate Revolving
Commitments or, from time to time, to reduce the amount of the unused Aggregate
Revolving Commitments. Any such partial reduction shall be in an aggregate
amount equal to $1,000,000 or a whole multiple thereof and shall reduce
permanently the Aggregate Revolving Commitments then in effect. If the aggregate
principal amount of the Revolving Loans outstanding on the effective date of any
such reduction exceeds the amount of the Aggregate Revolving Commitments after
giving effect to such reduction, the Borrower shall prepay the Revolving Loans
on the date on which such reduction becomes effective, by an amount equal to the
amount of such excess. Any such termination of the Aggregate Revolving
Commitments shall be accompanied by prepayment in full of the Revolving Loans
then outstanding.
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(b) Interest accrued on the amount of any partial prepayment pursuant
to this Section 2.6 to the date of such partial prepayment shall be paid on the
date of such partial prepayment. In the case of the termination of the Aggregate
Revolving Commitments, interest accrued on the amount of the prepayment relating
thereto and any unpaid Commitment Fees accrued hereunder shall be paid by the
Borrower on the date of such termination. Prepayments made pursuant to this
Section 2.6 shall be accompanied by amounts payable pursuant to Section 3.5, if
any, that are attributable to such prepayments.
2.7 Repayment of Loans.
(a) The Borrower hereby unconditionally promises to repay to each
Lender in full on the Revolving Commitment Termination Date (or such earlier
date on which the Revolving Loans become due and payable pursuant to Section
7.1) the principal amount of all Revolving Loans of such Lender that are then
outstanding.
(b) The Borrower hereby unconditionally promises to repay the
aggregate principal amount of the Term Loans in five (5) consecutive annual
installments payable on the dates set forth below in the respective amounts set
forth below opposite such dates (or, if less, the aggregate principal amount of
the Term Loans then outstanding):
Installment Date Amount of Installment
---------------- ---------------------
October 17, 1997 $4,000,000
October 17, 1998 4,000,000
October 17, 1999 4,000,000
October 17, 2000 4,000,000
October 17, 2001 4,000,000
The outstanding principal balance of the Term Loans shall be repaid in
full on October 17, 2001. Each installment of principal of the Term Loans shall
be made together with payment in full of all interest accrued thereon to the
payment date.
2.8 Evidence of Indebtedness.
(a) Each Lender shall maintain in accordance with its normal practice
an account or accounts evidencing Indebtedness of the Borrower to such Lender
resulting from each Loan of such Lender from time to time, including the amounts
of principal and interest payable and paid to such Lender from time to time
under this Agreement.
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(b) The entries made in the accounts of each Lender maintained
pursuant to this Section 2.8 shall, to the extent permitted by applicable law,
be prima facie evidence of the existence and amounts of the obligations of the
Borrower therein recorded, provided, however, that the failure of any Lender to
maintain any such account, or any error therein, shall not in any manner affect
the obligation of the Borrower to repay (with applicable interest) the Loans
made to the Borrower by such Lender in accordance with the terms of this
Agreement.
(c) The Borrower agrees that, upon request to the Borrower by the
Agent at the behest of any Lender, the Borrower will execute and deliver to such
Lender promissory notes furnished to the Borrower by the Agent, duly executed by
the Borrower, substantially in the form of Exhibits A-1 and A-2, with
appropriate insertions as to date and principal amount (each, a "Note" and,
collectively, the "Notes"), evidencing the Revolving Loans and the Term Loans,
respectively, of such Lender to the Borrower.
2.9 Optional and Mandatory Prepayments.
(a) The Borrower may at any time prepay the Loans made to it, in whole
or in part, without premium or penalty, upon at least one Business Day's
irrevocable notice to the Agent, specifying the date and amount of prepayment.
Upon receipt of any such notice the Agent shall promptly notify each Lender
thereof. If any such notice is given, the amount specified in such notice shall
be due and payable on the date specified therein, together with accrued interest
on the amount prepaid and any amounts payable pursuant to Section 3.5. Optional
partial prepayments shall be in an aggregate principal amount equal to $500,000
or any greater amount that is a whole multiple of $100,000.
(b) If the Aggregate Revolving Exposure exceeds the lesser of (i) the
Aggregate Revolving Commitments or (ii) the Borrowing Base at any time, the
Borrower shall immediately prepay any outstanding Revolving Loans and Cash
Collateralize any outstanding Letters of Credit, to the extent necessary to
eliminate such excess. Any prepayment hereunder shall be accompanied by accrued
interest on the amount prepaid and any amounts payable pursuant to Section 3.5.
(c) Any prepayment under this Section 2.9 shall be applied, first, to
outstanding Base Rate Loans and Fixed Rate Loans with Interest Periods ending on
the day of such prepayment, if any, and thereafter to any other Fixed Rate Loans
then outstanding.
(d) Partial prepayments of the Term Loans shall be applied to the
installments of principal thereof in the inverse order of maturity of such
installments.
2.10 Interest Rates and Payment Dates.
(a) Each Base Rate Loan shall bear interest for each day it is
outstanding at a rate per annum equal to the Base Rate in effect on such day.
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(b) Each Eurodollar Loan shall bear interest for each day during each
Interest Period with respect thereto at a rate per annum equal to the Eurodollar
Rate applicable to such Interest Period, plus one and one-quarter percent
(1.25%).
(c) Each LIBOR Loan shall bear interest for each day during each
Interest Period with respect thereto at a rate per annum equal to the LIBO Rate
applicable to such Interest Period, plus one and one-quarter percent (1.25%).
(d) If all or a portion of (i) the principal amount of any Loan, (ii)
any interest payable thereon or (iii) any Fee or other amount payable hereunder
is not paid when due (whether at the stated maturity thereof, by acceleration or
otherwise), such overdue amount shall bear interest from its due date until it
is paid in full (after as well as before judgment) at a rate per annum equal to
the Eurodollar Rate plus the margin applicable to Eurodollar Loans under
paragraph (b) of this Section 2.10, plus 2%.
(e) Interest (i) on each Base Rate Loan shall be payable monthly in
arrears on the first Business Day of each calendar month, on the Revolving
Credit Termination Date, and on any earlier repayment or conversion of such Loan
and (ii) on each Fixed Rate Loan shall be payable in arrears on the last day of
each Interest Period applicable thereto; provided that interest accruing
pursuant to paragraph (d) of this Section 2.10 shall be payable from time to
time on demand.
(f) It is the intention of the parties hereto to comply strictly with
applicable usury laws; accordingly, it is stipulated and agreed that the
aggregate of all amounts which constitute interest under applicable usury laws,
whether contracted for, charged, taken, reserved, or received, in connection
with the Indebtedness evidenced by this Agreement or any other Loan Document
shall never exceed under any circumstance whatsoever the maximum amount of
interest allowed by applicable usury laws.
2.11 The Letters of Credit.
(a) Subject to the terms and conditions hereof and relying upon the
representations and warranties herein set forth, the Issuing Bank agrees, at any
time and from time to time on or after the Effective Date until the earlier of
(i) the tenth Business Day preceding the Revolving Commitment Termination Date
and (ii) the termination of the Revolving Commitments in accordance with the
terms hereof, to issue Letters of Credit for the account of the Borrower;
provided, however, that no Letter of Credit shall be issued if, after giving
effect thereto:
(x) the Aggregate LC Exposure would exceed Five Million Dollars
($5,000,000); or
(y) the Aggregate Revolving Exposure would exceed the lesser of (1)
the Aggregate Revolving Commitments or (2) the Borrowing Base then in
effect.
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Each Letter of Credit (i) shall be in a form satisfactory to the Issuing Bank
and (ii) shall permit drawings upon the presentation of such documents as shall
be specified by the Borrower in the LC Application delivered pursuant to
paragraph (d) of this Section 2.11.
(b) All letters of credit issued by the Issuing Bank under the
Existing Agreement and outstanding on the Effective Date (the "Existing Letters
of Credit") shall automatically become Letters of Credit hereunder on the
Closing Date and shall be deemed for all purposes of this Agreement to have been
issued on the Closing Date. All letter of credit applications and reimbursement
agreements executed and delivered by the Borrower in connection with the
issuance, amendment or renewal of any Existing Letter of Credit shall constitute
LC Applications for all purposes of this Agreement and the other Loan Documents.
All Existing Letters of Credit are listed in the Disclosure Schedule.
(c) Each Letter of Credit shall by its terms expire no later than the
earlier to occur of (i) 360 days after the issuance thereof or (ii) the last
Business Day prior to the Revolving Commitment Termination Date. Any Letter of
Credit may provide for the renewal thereof for additional periods (which shall
in no event extend beyond the date referred to in clause (ii) of the preceding
sentence). Each Letter of Credit shall by its terms provide for payment of
drawings in Dollars.
(d) The Borrower shall request the issuance of a Letter of Credit by
submitting to the Issuing Bank, at its address specified in Schedule I, a
properly completed and duly executed counterpart of the Issuing Bank's standard
letter of credit application (an "LC Application") no later than 11:00 a.m.,
five (5) Business Days (or such shorter period as shall be acceptable to the
Issuing Bank) prior to the proposed issuance of the requested Letter of Credit.
Each LC Application shall refer to this Agreement, shall specify (i) the date on
which such Letter of Credit is to be issued (which shall be a Business Day) and
the face amount of such Letter of Credit, (ii) the name and address of the
beneficiary of such Letter of Credit, (iii) whether such Letter of Credit shall
permit a single drawing or multiple drawings, (iv) the form of the documents
required to be presented at the time of any drawing (together with the exact
wording of such documents or copies thereof), and (v) the expiry date of such
Letter of Credit (which shall conform to the provisions of paragraph (c) of this
Section 2.11), and shall be accompanied by such certificates, documents, and
other papers and information as the Issuing Bank may reasonably request. The
Agent shall give to each Lender prompt written or telecopy advice of the
issuance of any Letter of Credit. The Borrower hereby agrees to observe and
perform all of its covenants, duties and obligations under each LC Application.
(e) By the issuance of a Letter of Credit and without any further
action on the part of the Issuing Bank or the Lenders in respect thereof, the
Issuing Bank hereby grants to each Lender, and each Lender hereby acquires from
the Issuing Bank, effective upon the issuance of such Letter of Credit, a
participation in such Letter of Credit equal to such Lender's Percentage at the
time of any drawing thereunder of the stated amount of such Letter of Credit. In
addition, the Issuing Bank hereby grants to each Lender, and each
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Lender hereby acquires from the Issuing Bank, effective on the Closing Date, a
participation in each Existing Letter of Credit equal to such Lender's
Percentage at the time of any drawing thereunder of the face amount of such
Existing Letter of Credit. In consideration and in furtherance of the foregoing,
each Lender hereby absolutely and unconditionally agrees to pay to the Agent,
for the account of the Issuing Bank, in accordance with paragraph (g) of this
Section 2.11, such Lender's Percentage of each LC Disbursement under a Letter of
Credit that is not paid or reimbursed by the Borrower by 10:00 a.m. on the date
such LC Disbursement is made by the Issuing Bank; provided, however, that the
Lenders shall not be obligated to make any such payment with respect to any
payment or disbursement made under any Letter of Credit to the extent resulting
from the gross negligence or wilful misconduct of the Issuing Bank, as finally
determined by a court of competent jurisdiction.
(f) Each Lender acknowledges and agrees that its acquisition of
participations pursuant to paragraph (e) of this Section 2.11 in respect of
Letters of Credit and its obligation to make the payments specified in paragraph
(g) of this Section 2.11 in respect thereof shall be absolute and unconditional
and shall not be affected by any circumstance, including, without limitation,
(i) any setoff, counterclaim, recoupment, defense or other right which such
Lender or the Borrower may have against the Issuing Bank, the Borrower or any
other Person for any reason whatsoever; (ii) the occurrence or continuance of a
Default or an Event of Default or the failure to satisfy any of the conditions
specified in Article 5; (iii) any adverse change in the condition (financial or
otherwise) of the Borrower or any of its Subsidiaries; (iv) any breach of this
Agreement by the Borrower or any Lender; or (v) any other circumstance,
happening or event whatsoever, whether or not similar to any of the foregoing.
(g) On the date on which it shall have ascertained that any documents
presented under a Letter of Credit appear to be in conformity with the terms and
conditions of such Letter of Credit, the Issuing Bank shall give written or
telecopied notice to the Borrower and the Agent of the amount of the drawing and
the date on which payment thereon has been or will be made (the "Drawing Date").
If the Issuing Bank shall not have received from the Borrower the payment
required pursuant to paragraph (h) of this Section 2.11 by 10:00 a.m. on the
relevant Drawing Date, the Issuing Bank shall so notify the Agent, which shall
in turn promptly notify each Lender, specifying in the notice to each Lender
such Lender's Percentage of the amount paid or to be paid by the Issuing Bank
under such Letter of Credit. Each Lender shall pay to the Agent, not later than
12:00 noon on the relevant Drawing Date, such Lender's Percentage of the payment
made or to be made by the Issuing Bank under such Letter of Credit, which the
Agent shall promptly pay to the Issuing Bank. The amount paid by each Lender
pursuant to the preceding sentence shall be deemed to constitute a Base Rate
Loan of such Lender and such payment shall be deemed to have increased the
outstanding principal amount of such Lender's Revolving Loans and reduced such
Lender's L/C Exposure. In the event that any Lender fails to pay its Percentage
of such amount when due in accordance with the preceding sentence, such Lender
shall pay such amount to the Agent for the account of the Issuing Bank on
demand, together with interest thereon at the
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rates specified in Section 2.14 (b) and the administrative fee specified in said
Section. Promptly upon its receipt from the Borrower of any payment in respect
of a drawing under a Letter of Credit with respect to which the Lenders have
reimbursed the Issuing Bank pursuant to this paragraph (g), the Agent will remit
to each Lender such Lender's Percentage of such payment; provided that (i)
amounts so received for the account of any Lender prior to payment by such
Lender of amounts required to be paid by it hereunder in respect of any drawing
under a Letter of Credit and (ii) amounts representing interest at the rate
provided in paragraph (h) of this Section 2.11 on any payment made by the
Issuing Bank under a Letter of Credit for the period prior to the payment by
such Lender of such amounts shall in each case be remitted to the Issuing Bank.
(h) If any draft shall be presented to the Issuing Bank under a Letter
of Credit, the Borrower shall pay to the Issuing Bank an amount equal to the
amount of such draft before 10:00 a.m. on the date the Issuing Bank proposes to
pay such draft. If such payment is not made when due, it shall bear interest at
a rate per annum equal to the interest rate applicable to Base Rate Loans from
(and including) the date of payment of such draft by the Issuing Bank to (but
excluding) the date on which the Borrower shall have reimbursed the Issuing Bank
in full for such payment and shall be payable, together with accrued interest,
on demand. Each payment made to the Issuing Bank by the Borrower pursuant to
this paragraph (h) shall be made at the Issuing Bank's address specified in
Schedule I (or such other address as the Issuing Bank may specify in writing
from time to time) in lawful money of the United States of America and in
immediately available funds. The obligation of the Borrower to pay the amounts
referred to above in this paragraph (h) (and the obligations of the Lenders
under paragraphs (e) and (g) of this Section 2.11) shall be absolute,
unconditional and irrevocable and shall be satisfied strictly in accordance with
their terms irrespective of:
(i) any lack of validity or enforceability of any Letter of Credit or
of the obligations of the Borrower under this Agreement;
(ii) the existence of any claim, setoff, defense or other right which
the Borrower or any other Person may at any time have against the
beneficiary under any Letter of Credit, the Agent, the Issuing Bank or
any Lender (other than the defense of payment in accordance with the
terms of this Agreement or a defense based on the gross negligence or
wilful misconduct of the Issuing Bank, as finally determined by a
court of competent jurisdiction) or any other Person in connection
with this Agreement or any other transaction;
(iii) any draft or other document presented under a Letter of Credit
proving to be forged, fraudulent or invalid in any respect or any
statement therein being untrue or inaccurate in any respect; provided
that payment by the Issuing Bank under such Letter of Credit against
presentation of such draft or document shall not have constituted
gross negligence or wilful misconduct, as finally determined by a
court of competent jurisdiction;
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(iv) payment by the Issuing Bank under a Letter of Credit against
presentation of a draft or other document which does not comply in any
respect with the terms of such Letter of Credit; or
(v) any other circumstance or event whatsoever, whether or not similar
to any of the foregoing.
It is understood that in making any payment under a Letter of Credit
(x) the Issuing Bank's exclusive reliance on the documents presented to it under
such Letter of Credit as to any and all matters set forth therein, including
reliance on the amount of any draft presented under such Letter of Credit,
whether or not the amount due to the beneficiary thereof equals the amount of
such draft and whether or not any document presented pursuant to such Letter of
Credit proves to be forged, fraudulent or invalid in any respect, if such
document on its face appears to be in order, and whether or not any other
statement or any other document presented pursuant to such Letter of Credit
proves to be forged or invalid or any statement therein proves to be inaccurate
or untrue in any respect whatsoever, and (y) any noncompliance in any immaterial
respect of the documents presented under a Letter of Credit with the terms
thereof shall, in either case, not, in and of itself, be deemed wilful
misconduct or gross negligence of the Issuing Bank.
2.12 Fees.
(a) The Borrower shall pay to the Agent, for the account of the
Lenders, a commitment fee (the "Commitment Fee") calculated at the rate of
one-quarter of one percent (0.25%) per annum on the average daily unused amount
of the Aggregate Revolving Commitments from the Closing Date through the
Revolving Commitment Termination Date (or, if the Aggregate Revolving
Commitments are terminated pursuant to Section 2.6, through the date of such
termination). The Commitment Fee payable with respect to each month shall be
paid on the last Business Day of such month, starting with October 31, 1996, and
on the Revolving Commitment Termination Date or the date on which the Aggregate
Revolving Commitments shall have been cancelled or terminated.
(b) The Borrower shall pay to the Agent, for the account of the
Lenders, in respect of each Letter of Credit, a letter of credit fee (the
"Letter of Credit Fee") for the period from the issuance of such Letter of
Credit through its expiration date, calculated at the rate of one and one-eighth
percent (1.125%) per annum on the face amount of such Letter of Credit (taking
into account, in calculating such fee, any scheduled reductions in said face
amount). The Letter of Credit Fee payable with respect to each Letter of Credit
shall be paid on the date such Letter of Credit is issued and upon any renewal
thereof.
(c) The Borrower shall pay to the Agent, for the account of the
Issuing Bank, in respect of each Letter of Credit, (i) a fronting fee (the
"Fronting Fee") for the period from the issuance of such Letter of Credit
through its expiration date, calculated at the rate of one-eighth of one percent
(0.125%) per annum on the face amount of such Letter of Credit
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(taking into account, in calculating such fee, any scheduled reductions in said
face amount) and (ii) the customary administration, issuance, amendment,
transfer, drawing and negotiation fees and charges (the "Customary Charges")
charged by the Issuing Bank from time to time in connection with its issuance,
administration and payment of letters of credit. The Fronting Fee payable with
respect to each Letter of Credit shall be paid on the date such Letter of Credit
is issued and upon any renewal thereof. The Customary Charges shall be paid
promptly upon request therefor by the Issuing Bank.
(d) The Borrower shall pay to the Agent, when and as due, all fees
specified in the letter agreement dated September 24, 1996, between the Agent
and the Borrower (the "Fee Letter").
2.13 Computation of Interest and Fees.
(a) Interest and Fees shall be calculated on the basis of a 360-day
year for the actual number of days elapsed, except that so long as interest on
Base Rate Loans is determined on the basis of the CLNY Base Rate, such interest
shall be calculated on the basis of a 365 or 366-day year, as applicable, for
the actual number of days elapsed. Any change in the interest rate on a Loan
resulting from a change in the CLNY Base Rate or the Federal Funds Rate shall
become effective as of the opening of business on the day on which such change
becomes effective. The Agent shall notify the Borrower and the Lenders as soon
as practicable of the effective date and the amount of each such change in
interest rate.
(b) Each determination of an interest rate by the Agent pursuant to
any provision of this Agreement shall be conclusive and binding on the Borrower
and the Lenders in the absence of manifest error.
2.14 Pro Rata Treatment and Payments.
(a) Each Borrowing, each payment received by the Agent on account of
the Commitment Fee or the Letter of Credit Fees, and any reduction in the
Commitments, shall be allocated by the Agent to the Lenders pro rata according
to their respective Percentages. Each payment and prepayment by the Borrower on
account of principal of or interest on the Loans, each continuation of Loans of
a particular Type, and each conversion of Loans from one Type to another (other
than conversions pursuant to Section 3.2 or 3.3) shall be made pro rata and
shall be allocated by the Agent among the Lenders according to the respective
outstanding principal amounts of their Loans. All payments and prepayments to be
made by the Borrower hereunder, whether on account of principal, interest, fees
or otherwise, shall be made without set-off or counterclaim and shall be made
prior to 12:00 noon (or, in the case of payments under Section 2.11(h), prior to
10:00 a.m.) on the due date thereof to the Agent, for the account of the
Lenders, the Issuing Bank or the Agent, as appropriate, by a transfer in Dollars
and in immediately available funds to the office of the Agent at 1301 Avenue of
the Americas, New York, New York 10019, or at such other office of the Agent or
any affiliate thereof as the Agent may specify from time to time. The Agent
shall
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distribute any such payments received by it for the account of the Lenders or
the Issuing Bank to the Lenders or the Issuing Bank, as appropriate, promptly
upon its receipt thereof in like funds as received. If any payment hereunder
becomes due and payable on a day other than a Business Day, such payment due
date shall be extended to the next succeeding Business Day, and, with respect to
payments of principal, interest thereon shall be payable at the then applicable
rate during such extension.
(b) Unless the Agent shall have been notified in writing by any Lender
prior to any Borrowing Date or any Drawing Date that such Lender will not make
its Percentage of the relevant Borrowing or LC Disbursement available to the
Agent, the Agent may assume that such Lender is making such amount available to
the Agent, and the Agent may, in reliance upon such assumption, make available
to the Borrower or the Issuing Bank, as the case may be, a corresponding amount.
If such amount is not made available to the Agent by the required time on the
relevant Borrowing Date or Drawing Date, such Lender shall pay to the Agent, on
demand, (x) such amount with interest thereon at a rate per annum equal to (i)
the Federal Funds Rate for the first three days following the relevant Borrowing
Date or Drawing Date and (ii) the Base Rate thereafter, until such Lender makes
such amount immediately available to the Agent and (y) an administrative fee of
$250. A certificate of the Agent submitted to any Lender with respect to any
amounts owing under this Section shall be conclusive in the absence of manifest
error. If any Lender's Percentage of any Borrowing is not made available to the
Agent by such Lender within three Business Days of the Borrowing Date for such
Borrowing, the Agent shall also be entitled to recover such amount with interest
thereon at the rate or rates per annum applicable to such Borrowing hereunder,
on demand, from the Borrower if and to the extent that the Agent has made such
amount available to the Borrower (without prejudice to any rights the Borrower
may have against such Lender).
2.15 Obligations of Lenders
The Lenders' obligations to make Loans and participate in Letters of
Credit hereunder shall be several and not joint. No Lender shall be responsible
for the obligations of any other Lender and no Lender shall be liable for any
failure by any other Lender to perform any of its obligations hereunder or under
any other Loan Document. The failure by any Lender to perform any of its
obligations hereunder or under any other Loan Document shall not relieve any
other Lender from any of its obligations hereunder or under any other Loan
Document.
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ARTICLE 3
YIELD PROTECTION AND ILLEGALITY; TAXES.
3.1 Inability to Determine Interest Rate.
If prior to the first day of any Interest Period:
(a) the Agent shall have determined (which determination shall be
conclusive and binding upon the Borrower) that, by reason of
circumstances affecting the relevant market, adequate and reasonable
means do not exist for ascertaining the Eurodollar Rate or the LIBO
Rate for such Interest Period, or
(b) the Agent shall have received notice from the Majority
Lenders that the Eurodollar Rate or the LIBO Rate determined or to be
determined for such Interest Period will not adequately and fairly
reflect the cost to such Lenders of making or maintaining their Loans
during such Interest Period as Eurodollar Loans or LIBOR Loans, as the
case may be,
the Agent shall give telecopy or telephonic notice thereof to the Borrower and
the Lenders as soon as practicable thereafter. If such notice is given, any
Affected Fixed Rate Loans requested to be made on the first day of such Interest
Period shall be made as Base Rate Loans. Until such notice has been withdrawn by
the Agent, no further Affected Fixed Rate Loans shall be made, nor shall the
Borrower have the right to request any Affected Fixed Rate Loans.
3.2 Illegality. Notwithstanding any other provision herein, if the
adoption of or any change in any Requirement of Law or in the interpretation or
application thereof occurring after the date hereof shall make it unlawful for
any Lender to make or maintain Eurodollar Loans or LIBOR Loans as contemplated
by this Agreement, (a) such Lender shall promptly give written notice of such
circumstances to the Borrower and the Agent (which notice shall be withdrawn
whenever such circumstances no longer exist), (b) the obligation of such Lender
hereunder to make any Affected Fixed Rate Loans shall forthwith be canceled and,
until such time as it shall no longer be unlawful for such Lender to make and
maintain Affected Fixed Rate Loans, such Lender shall have no obligation to make
or maintain Affected Fixed Rate Loans, and (c) any Affected Fixed Rate Loans of
such Lender then outstanding shall be converted automatically to Base Rate Loans
on the respective last days of the then current Interest Periods with respect to
such Loans or within such earlier period as required by law. If any such
conversion of an Affected Fixed Rate Loan of a Lender occurs on a day which is
not the last day of the then current Interest Period with respect thereto, the
Borrower shall pay to the Agent for the account of such Lender such amounts, if
any, as may be required pursuant to Section 3.5.
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3.3 Additional Costs; Capital Adequacy.
(a) If the adoption of or any change in any Requirement of Law or in
the interpretation or application thereof applicable to any Creditor, or
compliance by any Creditor with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority, in each
case made subsequent to the date hereof (or, if later, the date on which such
Creditor becomes a Creditor hereunder):
(i) shall subject such Creditor to any tax of any kind whatsoever with
respect to any Letter of Credit issued or maintained by it, any Fixed
Rate Loan made or maintained by it, or its obligation to issue or
participate in Letters of Credit or make Fixed Rate Loans, or change
the basis of taxation of payments to such Creditor in respect thereof
(except for Taxes covered by Section 3.4 and changes in taxes measured
by or imposed upon the overall net income, or franchise taxes (imposed
in lieu of such net income tax), of such Creditor or its applicable
lending office, branch, or any affiliate thereof);
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held
by, deposits or other liabilities in or for the account of, advances,
loans, letters of credit or other extensions of credit by, or any
other acquisition of funds by, any office of such Creditor, which
requirement is not otherwise included in the determination of the
Eurodollar Rate or the LIBO Rate hereunder; or
(iii) shall impose on such Creditor any other condition;
and the result of any of the foregoing is to increase the cost to such Creditor
of issuing, maintaining or participating in Letters of Credit or of making or
maintaining Fixed Rate Loans or to reduce any amount receivable hereunder in
respect thereof or of its Revolving Commitment hereunder, then from time to
time, within 2 Business Days after submission by such Creditor to the Borrower
(with a copy to the Agent) of a written request therefor, the Borrower shall pay
to such Creditor (i) any additional amounts necessary to compensate such
Creditor for such increased cost or reduced amount receivable attributable to
its issuance, maintenance or participation in any Letters of Credit or its
making or maintaining any Fixed Rate Loans, and such additional amount or
amounts as will compensate such Creditor for such increased cost or reduced
amounts receivable attributable to this Agreement, such Creditor's obligation to
issue, maintain or participate in Letters of Credit, such Creditor's Revolving
Commitment and the credit facilities provided hereunder; provided that, in any
such case, if the compensation required to by provided by it hereunder relates
to a Fixed Rate Loan, the Borrower may elect to convert the Affected Fixed Rate
Loans made by the relevant Lender to it hereunder to Base Rate Loans by giving
the Agent at least one Business Day's notice of such election, in which case the
Borrower shall promptly pay to the Agent for the account of such Lender, upon
demand, without duplication, such amounts, if any, as
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may be required pursuant to Section 3.5. If any Creditor becomes entitled to
claim any additional amounts pursuant to this Section 3.3, it shall provide
prompt notice thereof to the Borrower, through the Agent. Such notice as to any
additional amounts payable pursuant to this Section 3.3 submitted by such
Creditor, through the Agent, to the Borrower shall be conclusive in the absence
of manifest error. This covenant shall survive the termination of this Agreement
and the other Loan Documents and the payment in full of the Notes and all other
amounts payable hereunder.
(b) If any Creditor shall have determined that the adoption of or any
change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Creditor or any
corporation controlling such Creditor with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority, in each case made subsequent to the date hereof (or, if later, the
date on which such Creditor becomes a Creditor hereunder), does or shall have
the effect of reducing the rate of return on such Creditor's or such
corporation's capital as a consequence of its obligations hereunder to a level
below that which such Creditor or such corporation could have achieved but for
such change or compliance (taking into consideration such Creditor's or such
corporation's policies with respect to capital adequacy), then from time to
time, within 2 Business Days after submission by such Creditor to the Borrower
(with a copy to the Agent) of a written request therefor, (i) the Borrower shall
pay to such Creditor such additional amount or amounts as will compensate such
Creditor for such reduction attributable to its issuance or maintenance of or
participation in the Letters of Credit hereunder, or its making or maintaining
of Fixed Rate Loans hereunder, and (ii) the Borrower shall pay to such Creditor
such additional amount or amounts as will compensate such Creditor or such
corporation for such reduction attributable to this Agreement, its obligation to
issue or participate in Letters of Credit hereunder, its Revolving Commitment
hereunder and the credit facilities provided hereunder to the Borrower.
(c) If any Creditor requests compensation from the Borrower pursuant
to paragraph (a) or (b) of this Section 3.3, such Creditor will deliver to the
Borrower a certificate setting forth in reasonable detail the basis and amount
of such request (with a copy to the Agent) and such certificate shall be
conclusive as to the amount set forth therein, absent manifest error. In
determining such amount, such Creditor may make such estimates, assumptions,
allocations among its assets and liabilities and the like as it determines in
good faith to be appropriate, and the determinations made by such Creditor on
the basis thereof shall be final, binding and conclusive upon the Borrower,
except, in the case of such determinations, for manifest errors. The covenants
and obligations of the Borrower set forth in this Section 3.3 shall survive the
termination of this Agreement, the expiration of the Letters of Credit and the
payment of the Loans and all other amounts payable hereunder.
3.4 Taxes.
(a) Except as provided below in this Section 3.4, all payments made by
the Borrower under this Agreement and the other Loan Documents shall be made
free and clear
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of, and without deduction or withholding for or on account of, any present or
future income, stamp or other taxes, levies, imposts, duties, charges, fees,
deductions or withholdings, now or hereafter imposed, levied, collected,
withheld or assessed by any Governmental Authority, excluding, in the case of
the Agent or any Creditor, net income taxes and franchise taxes (imposed in lieu
of net income taxes) imposed on the Agent or such Creditor, as the case may be,
as a result of a present or former connection between the jurisdiction of the
government or taxing authority imposing such tax and the Agent or such Creditor
(excluding a connection arising solely from the Agent or such Creditor having
executed, delivered or performed its obligations or received a payment under, or
enforced, this Agreement or any other Loan Document) or any political
subdivision or taxing authority thereof or therein (all such non-excluded taxes,
levies, imposts, duties, charges, fees, deductions and withholdings being
hereinafter called "Taxes"). If any such Taxes are required to be withheld from
any amounts payable to the Agent or any Creditor hereunder or under any other
Loan Document, the amounts so payable shall be increased to the extent necessary
to yield to the Agent or such Creditor (after payment of all Taxes) interest,
fees or any other amounts payable hereunder or under any other Loan Document at
the rates or in the amounts specified in this Agreement or such other Loan
Document; provided, however, that the Borrower shall be entitled to deduct and
withhold Taxes from amounts payable to any Creditor that is not organized under
the laws of the United States of America or a state thereof (and shall not be
required to increase amounts payable hereunder to gross up for Taxes) if such
Creditor fails to comply with the requirements of paragraph (b) of this Section
3.4. Whenever any Taxes are payable by the Borrower, as promptly as possible
thereafter the Borrower shall send to the Agent for its own account or for the
account of such Creditor, as the case may be, a certified copy of an original
official receipt received by the Borrower showing payment thereof. If the
Borrower fails to pay any Taxes when due to the appropriate taxing authority or
fails to remit to the Agent the required receipts or other required documentary
evidence, the Borrower shall indemnify the Agent and each Creditor for any
incremental taxes, interest or penalties that may become payable by the Agent or
such Creditor as a result of any such failure. The agreements in this Section
shall survive the termination of this Agreement and the payment of the Notes and
all other amounts payable hereunder.
(b) Each Creditor that is not incorporated under the laws of the
United States of America or a state thereof shall:
(i) on or before the date of any payment by the Borrower under
this Agreement or any other Loan Document to such Creditor, deliver to
the Borrower and the Agent (A) two duly completed copies of the United
States Internal Revenue Service Form 1001 or 4224, or any successor
applicable form, as the case may be, certifying that it is entitled to
receive payments under this Agreement and its Notes without deduction
or withholding of any United States federal income taxes and (B) an
Internal Revenue Service Form W-8 or W-9, or any successor applicable
form, as the case may be, certifying that it is entitled to an
exemption from United States backup withholding tax; and
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(ii) deliver to the Borrower and the Agent two further copies of
any such form or certification on or before the date that any such
form or certification expires or becomes obsolete and after the
occurrence of any event requiring a change in the most recent form
previously delivered by it to the Borrower and the Agent;
unless in any such case any change in any Requirement of Law has occurred after
the date such Creditor becomes a Creditor hereunder which renders all such forms
inapplicable or which would prevent such Creditor from duly completing and
delivering any such form with respect to it and such Creditor so advises the
Borrower and the Agent. Each Person that becomes a Lender or a Participant
pursuant to Section 9.6 shall, upon the effectiveness of the related transfer,
be required to provide all of the forms, certifications and statements required
pursuant to this Section, provided that in the case of a Participant the
obligations of such Participant pursuant to this paragraph (b) shall be
determined as if the Participant were a Lender except that such Participant
shall furnish all such required forms, certifications and statements to the
Lender from which the related participation shall have been purchased.
3.5 Indemnity.
The Borrower agrees to indemnify each Lender against and to hold each
Lender harmless from any loss or expense which such Lender may sustain or incur
as a consequence of (a) default by the Borrower in making a borrowing of Fixed
Rate Loans, converting any Loans to Fixed Rate Loans or continuing any Fixed
Rate Loans as such, after the Borrower has given a notice requesting the same in
accordance with the provisions of this Agreement, (b) default by the Borrower in
making any payment of a Fixed Rate Loan after the Borrower has given a notice
thereof in accordance with the provisions of this Agreement or (c) the making by
the Borrower of a payment or prepayment of a Fixed Rate Loan on a day which is
not the last day of an Interest Period with respect thereto. Without limiting
the foregoing, such indemnification shall include an amount equal to (i) the
amount of interest which would have accrued on the amount so prepaid, or not so
borrowed, converted or continued for the period from the date of such prepayment
or of such failure to borrow, convert or continue to the last day of the
applicable Interest Period (or, in the case of a failure to borrow, convert or
continue, the Interest Period that would have commenced on the date of such
failure) in each case at the interest rate applicable to such Fixed Rate Loans,
minus (ii) the amount of interest (as reasonably determined by such Lender)
which would have accrued to such Lender on such amount by placing such amount on
deposit for a comparable period with leading banks in the relevant interbank
eurodollar market. This covenant shall survive the termination of this Agreement
and the other Loan Documents, the expiration of the Letters of Credit and the
payment of the Notes and all other amounts payable hereunder.
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3.6 Lenders' Obligation to Mitigate.
Each Creditor agrees to use reasonable efforts (including reasonable
efforts to change the booking office for its Loans or the issuing office for the
Letters of Credit) to avoid or minimize any illegality pursuant to Section 3.2
or any amounts which might otherwise be payable pursuant to Sections 3.3 or 3.4;
provided, however, that such efforts shall not (a) cause the imposition on such
Creditor of any additional costs or legal or regulatory burdens deemed by such
Creditor to be material, (b) violate any Requirement of Law applicable to such
Creditor, or (c) violate such Creditor's internal policies.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
To induce the Lenders to make the Loans, the Issuing Bank to issue the
Letters of Credit, and the Agent to act as agent hereunder, the Borrower hereby
represents and warrants to the Agent, the Issuing Bank and each Lender that on
the Closing Date, on and at all times after the Effective Date, and on the date
of any Borrowing or issuance of any Letter of Credit hereunder, as applicable:
4.1 Organization, Powers, Compliance.
Each of the Borrower and its Subsidiaries is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and is duly qualified to do business and is in good standing in
each jurisdiction in which the character of its properties or the transaction of
its business makes such qualification necessary. Each of the Borrower and its
Subsidiaries has full corporate power and authority to own the properties and
assets it currently owns and to carry on its business as it is now being
conducted. The Borrower has full corporate power and authority to execute,
deliver and perform this Agreement and the other Loan Documents to be executed
and delivered by it hereunder. Neither the Borrower nor any of its Subsidiaries
is in violation of any Requirement of Law that is applicable to it or any of its
properties.
4.2 Capital Stock, Subsidiaries, Fiscal Year.
(a) The authorized, issued and outstanding shares of Capital Stock of
the Borrower are as set forth in the Disclosure Schedule. All such outstanding
shares have been duly authorized, are validly issued and outstanding and are
fully paid and non-assessable. To the best of the Borrower's knowledge, there
are no outstanding options or other rights pertaining to the Capital Stock of
the Borrower, other than as set forth in the Disclosure Schedule. The Borrower
has no obligation to repurchase or redeem any shares of its Capital Stock.
(b) The Disclosure Schedule sets forth the names and jurisdictions of
incorporation of, and the ownership interest of the Borrower in, all of the
Borrower's Subsidiaries. On the date hereof the Borrower has no Material
Subsidiaries.
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(c) Special Metals Foreign Sales Corp. is a foreign sales corporation
within the meaning of Section 922(a) of the Code and acts as a commission agent
of the Borrower as described in Treasury Regulation ss.1.924(a)-1T(b).
(d) The Borrower's fiscal year ends on December 31 and its fiscal
quarters end on March 31, June 30, September 30 and December 31, respectively.
4.3 Authorization, Absence of Conflicts.
The execution, delivery and performance by the Borrower of this
Agreement and the other Loan Documents to be executed and delivered by it
hereunder, the borrowings and the requests for issuance of letters of credit
hereunder, and the creation of security interests in favor of the Bank pursuant
to the Security Documents (a) have been duly authorized by all requisite
corporate action of the Borrower, (b) do not require the consent or approval of
any stockholders of the Borrower, and (c) will not (i) violate any Requirement
of Law applicable to the Borrower, (ii) violate or constitute (with due notice
or lapse of time or both) a breach of or a default under any Contractual
Obligation of the Borrower or any of its Subsidiaries, (iii) result in the
creation or imposition of any Lien of any nature whatsoever upon any properties
or assets of the Borrower or any of its Subsidiaries or (iv) require any
authorization, consent, approval, license, ruling, permit, tariff, rate,
certification, exemption, or filing or registration by or with any Governmental
Authority or any consent or approval of any other Person.
4.4 Binding Obligations.
This Agreement is, and, upon the delivery thereof to the Agent, each
other Loan Document executed and delivered by the Borrower will be, legal, valid
and binding obligations of the Borrower, enforceable against the Borrower in
accordance with their respective terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting enforceability of creditors' rights generally at the time
in effect and except as specific performance and rights of acceleration may be
subject to equitable principles of general applicability.
4.5 Financial Condition and Statements.
The consolidated balance sheets of the Borrower and its Subsidiaries
as at December 31, 1995, and the related consolidated statements of income,
retained earnings and cash flows of the Borrower and its Subsidiaries for the
fiscal year ended on said date, with the opinion thereon of Ernst & Young, LLP,
and the unaudited consolidated balance sheets of the Borrower and its
consolidated Subsidiaries as at March 31 and June 30, 1996, and the related
consolidated statements of income and cash flows of the Borrower and its
Subsidiaries for the fiscal quarters then ended, heretofore furnished to the
Lenders, are complete and correct and fairly present the consolidated financial
condition of the Borrower and its Subsidiaries as at said dates and the
consolidated results of their operations for the fiscal year
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and fiscal quarters ended on said dates (subject, in the case of such financial
statements as at March 31 and June 30, 1996, to normal year-end audit
adjustments), all in accordance with GAAP and practices applied on a consistent
basis. On said dates neither the Borrower nor any of its Subsidiaries had any
material obligations or liabilities, direct or contingent (including, without
limitation, any liabilities for Environmental Costs and any liabilities under
Environmental Laws), liabilities for taxes, forward or long-term commitments or
unrealized or anticipated losses from any commitments, except as referred to or
reflected or provided for in said balance sheets as at said dates, and except
for liabilities set forth on the Disclosure Schedule. Since December 31, 1995
(a) there has been no material adverse change in the consolidated financial
condition, operations, business or prospects taken as a whole of the Borrower
and its consolidated Subsidiaries from that set forth in said financial
statements as at said date and (b) there has been no development or event which
has had or could reasonably be expected to have a Material Adverse Effect. As of
the Effective Date, after giving effect to the transactions contemplated hereby,
the Borrower is Solvent.
4.6 Taxes.
The Borrower and its Subsidiaries have filed all United States Federal
income tax returns and all other material tax returns which are required to be
filed by them and have paid all taxes due pursuant to such returns or pursuant
to any assessment made against the Borrower or any of its Subsidiaries or any of
their respective assets and all other taxes, fees and other charges imposed on
the Borrower or any of its Subsidiaries by any Governmental Authority, except
such taxes, if any, as are being Properly Contested. The charges, accruals and
reserves on the books of the Borrower and its Subsidiaries in respect of taxes
and other governmental charges are, in the opinion of the Borrower, adequate. No
tax Liens other than Permitted Liens have been filed and no claims are being
asserted with respect to any such taxes, fees or other charges. Neither the
Borrower nor any of its Subsidiaries is undergoing any tax audits, other than as
specified in the Disclosure Schedule.
4.7 Title to Properties.
Each of the Borrower and its Subsidiaries owns and has good and
marketable title or leasehold rights to all of its assets, free and clear of any
Liens other than Permitted Liens, and enjoys peaceful and undisturbed possession
under all leases necessary in any material respects for the operation of its
assets. No mortgage or financing statement or other evidence or notice of a
security interest covering all or any part of the assets of the Borrower or any
of its Subsidiaries is on file in any public office, except such as have been
filed in connection with Permitted Liens.
4.8 Proceedings.
Except as set forth in the Disclosure Schedule, there is no action,
suit, proceeding or claim, at law or in equity, by or before any arbitrator,
Governmental Authority or other body (including, without limitation, any
Environmental Proceeding), now pending or, to the
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knowledge of the Borrower, threatened against or affecting the Borrower or any
Subsidiary of the Borrower or any of their respective properties, rights or
assets, which relates to the transactions contemplated hereby or by the other
Loan Documents or which, if adversely determined, could have a Material Adverse
Effect.
4.9 Labor Disputes; Collective Bargaining Agreements.
Except as set forth in the Disclosure Schedule, as of the date hereof
(a) there are no collective bargaining agreements or other labor contracts
covering the Borrower or any of its Subsidiaries; (b) no such collective
bargaining agreement or other labor contract will expire during the term of this
Agreement; (c) no union or other labor organization is seeking to organize, or
to be recognized as bargaining representative for, a bargaining unit of
employees of the Borrower or any of its Subsidiaries; (d) there is no pending or
threatened strike, work stoppage, material unfair labor practice claim or
charge, arbitration or other material labor dispute against or affecting the
Borrower or any of its Subsidiaries or their respective employees; and (e) there
are no actions, suits, charges, demands, claims, counterclaims or proceedings
pending or, to the knowledge of the Borrower, threatened against the Borrower or
any of its Subsidiaries, by or on behalf of, or with, its employees, other than
employee grievances arising in the ordinary course of business which are not, in
the aggregate, material.
4.10 Material Agreements and Licenses.
To the best of the Borrower's knowledge, the Borrower and its
Subsidiaries have all necessary licenses, permits and approvals (including,
without limitation, all necessary licenses, permits and authorizations relating
to Environmental Laws) to own and operate their respective properties and assets
and to carry on their business as currently conducted, except where the failure
to have such license, permit or authorization would not have a Material Adverse
Effect.
4.11 Intangible Assets.
Each of the Borrower and its Subsidiaries possesses all necessary
patents, know-how, trademarks, service marks, trade names, and copyrights, and
rights with respect to each of the foregoing, necessary to carry on its business
as currently conducted and the possession and use thereof in its business does
not, to the best of the Borrower's knowledge, conflict with the patents,
know-how, trademarks, service marks, trade names, and copyrights, and rights
with respect to the foregoing, of any other Person, except where such conflict
could not have a Material Adverse Effect.
4.12 Condition of Assets.
All of the assets and properties of the Borrower and its Subsidiaries
which are reasonably necessary for the operation of the Borrower's and its
Subsidiaries' respective
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businesses are in good working condition, ordinary wear and tear excepted, and
are able to serve the function for which they are currently being used or for
which they are intended.
4.13 No Defaults, Compliance With Laws.
To the best of the Borrower's knowledge, neither the Borrower nor any
Subsidiary of the Borrower is in default under any Contractual Obligation, which
default could have a Material Adverse Effect. Each of the Borrower and its
Subsidiaries has complied and is in compliance in all respects with all
Requirements of Law including, without limitation, all applicable Environmental
Laws, non-compliance with which would have a Material Adverse Effect. No Default
or Event of Default has occurred and is continuing.
4.14 Indebtedness.
Neither the Borrower nor any of its Subsidiaries has any Indebtedness,
except (i) Indebtedness set forth in the Disclosure Schedule and (ii)
Indebtedness set forth in the financial statements referred to in Section 4.5.
4.15 Not an Investment Company or Regulated Company.
(a) Neither the Borrower nor any of its Subsidiaries or Affiliates is
subject to regulation under the Investment Company Act of 1940, as amended, or
is subject to any statute or regulation which regulates the incurrence by the
Borrower or such corporation of indebtedness for or with respect to borrowed
money.
(b) Neither the Borrower nor any of its Subsidiaries or other
Affiliates is subject to regulation under the Public Utility Holding Company Act
of 1935, as amended.
(c) Neither the Borrower nor any of its Subsidiaries or other
Affiliates is subject to regulation as a "public utility" or "public service
corporation" or the equivalent under the applicable law of any state relating to
public utilities and/or public service corporations.
4.16 Use of Proceeds.
(a) The Borrower shall use the proceeds of the Loans solely (i) to
refinance the principal of, and to pay all interest, fees and other amounts
payable in respect of, all loans outstanding under the Existing Agreement, (ii)
to pay the transaction costs relating to this Agreement, (iii) to finance the
working capital needs of the Borrower and its Subsidiaries, and (iv) to repay
outstanding Indebtedness of the Borrower to its Affiliates. The Borrower shall
use the Letters of Credit solely to support payment obligations incurred by it
in the ordinary course of its business.
(b) No part of the proceeds of the Loans or the Letters of Credit will
be used for the purpose, whether immediate, incidental or ultimate, of
purchasing or carrying any
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"margin stock" (as such term is defined in Regulation U of the Board of
Governors of the Federal Reserve System as now and from time to time hereafter
in effect), or for the payment in full or in part of, or to provide credit
support for, Indebtedness which was or is to be incurred for such purpose, or to
extend credit or support credit extended to others for such purpose. The
Borrower is not engaged principally, or as one of its important activities, in
the business of extending credit for the purpose, whether immediate, incidental
or ultimate, of buying or carrying "margin stock".
4.17 Ranking of Loans.
The Obligations rank and will rank at least pari passu in priority of
payment with all other Indebtedness of the Borrower.
4.18 Burdensome Provisions.
Neither the Borrower nor any of its Subsidiaries is a party to or
bound by any Requirement of Law or Contractual Obligation, compliance with which
could have a Material Adverse Effect.
4.19 ERISA.
During the five year period ending on the Effective Date (or, with
respect to (vi) or (viii) below, as of the date such representation is made or
deemed made), except as set forth in the Disclosure Schedule or as reflected in
the financial statements referred to in Section 4.5, none of the following
events or conditions has occurred which, either individually or in the
aggregate, has resulted or could reasonably be expected to result in a liability
to the Borrower which could have a Material Adverse Effect: (i) a Reportable
Event; (ii) an "accumulated funding deficiency" (within the meaning of Section
412 of the Code or Section 302 of ERISA); (iii) any material noncompliance with
the applicable provisions of ERISA or the Code; (iv) a termination of a Single
Employer Plan (other than a standard termination pursuant to Section 4041(b) of
ERISA); (v) a Lien in favor of the PBGC or a Plan; (vi) Underfunding with
respect to any Single Employer Plan; (vii) a complete or partial withdrawal from
any Multiemployer Plan by the Borrower or any Commonly Controlled Entity; (viii)
any liability of the Borrower or any Commonly Controlled Entity under ERISA if
the Borrower or any such Commonly Controlled Entity were to withdraw completely
from all Multiemployer Plans as of the annual valuation date most closely
preceding the date on which this representation is made or deemed made; (ix) the
Reorganization or insolvency (within the meaning of Section 4245 of ERISA) of
any Multiemployer Plan; (x) the excess of the present value (determined using
actuarial and other assumptions which are reasonable in respect of the benefits
provided and the employees participating) of the aggregate liability of the
Borrower or any of its Subsidiaries for post-retirement benefits to be provided
to their current and former employees under Plans which are welfare benefit
plans (as defined in Section 3(1) of ERISA) over the assets under all such
Plans; and (xi) an event or condition
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with respect to which the Borrower or any Commonly Controlled Entity could incur
any liability in respect of a Former Plan.
4.20 Environmental Matters.
Except as set forth in the Disclosure Schedule:
(a) To the best of the Borrower's knowledge, (i) the facilities and
properties owned, leased or operated by the Borrower or any of its Subsidiaries
(the "Properties") and all operations at the Properties are in compliance with
all applicable Environmental Laws, (ii) there is no violation of any
Environmental Law with respect to the Properties or the business operated by the
Borrower or any of its Subsidiaries (the "Business"), and (iii) there are no
conditions relating to the Business or Properties that could reasonably be
expected to give rise to liability under any applicable Environmental Law,
except for any failure so to comply or violation or condition, or any
aggregation thereof, that could not reasonably be expected to result in the
payment of a Material Environmental Amount.
(b) To the best of the Borrower's knowledge after diligent inquiry,
the Properties do not contain, and have not previously contained, any Hazardous
Substances at, on or under the Properties in amounts or concentrations that
constitute or constituted a violation of, or could reasonably give rise to
liability under, Environmental Laws except insofar as the presence of any
Hazardous Substances is not reasonably likely to result in the payment of a
Material Environmental Amount.
(c) Neither the Borrower nor any of its Subsidiaries has received any
written or verbal notice of, or inquiry from any Governmental Authority, of any
violation, alleged violation, non-compliance, liability or potential liability
regarding environmental matters or compliance with Environmental Laws with
regard to any of the Properties or the Business (including, without limitation,
any notice that any of the Properties has been listed on the national priorities
list or any similar state list), nor does the Borrower have knowledge or reason
to believe that any such notice will be received or is being threatened, except
insofar as such notice or threatened notice, or any aggregation thereof, does
not involve a matter or matters that is or are reasonably likely to result in
the payment of a Material Environmental Amount.
(d) To the best of the Borrower's knowledge, Hazardous Substances have
not been transported or disposed of from the Properties, or generated, treated,
stored or disposed of by or on behalf of the Borrower or any of its Subsidiaries
at, on or under any of the Properties or any other location in violation of, or
in a manner that would be reasonably likely to give rise to liability under, any
applicable Environmental Law, except insofar as any such violation or liability
referred to in this paragraph, or any aggregation thereof, is not reasonably
likely to result in the payment of a Material Environmental Amount.
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(e) No judicial proceeding or governmental or administrative action is
pending or, to the knowledge of the Borrower, threatened, under any
Environmental Law to which the Borrower or any of its Subsidiaries is or will be
named as a party, nor are there any consent decrees or other decrees, consent
orders, administrative orders or other orders, or other administrative or
judicial requirements outstanding under any Environmental Law with respect to
the Borrower, any of its Subsidiaries, the Properties or the Business, except
insofar as such proceeding, action, decree, order or other requirement, or any
aggregation thereof, is not reasonably likely to result in the payment of a
Material Environmental Amount.
(f) There has been no release or, to the best knowledge of the
Borrower, after diligent inquiry, threat of release of Hazardous Substances at
or from the Properties, or arising from or related to the operations (including,
without limitation, disposal) of the Borrower or any of its Subsidiaries in
connection with the Properties or otherwise in connection with the Business, in
violation of or in amounts or in a manner that would be reasonably likely to
give rise to liability under Environmental Laws, except insofar as any such
violation or liability referred to in this paragraph, or any aggregation
thereof, is not reasonably likely to result in the payment of a Material
Environmental Amount.
(g) Neither the Borrower nor any of its Subsidiaries has knowingly
assumed any liability of any Person under any Environmental Law.
(h) The Borrower is implementing an environmental program reasonably
designed to (i) ensure that the Borrower, its Subsidiaries, any of their
respective operations (including, without limitation, disposal), and any
properties owned or leased by any of them, remain in compliance with applicable
Environmental Laws and (ii) minimize prudently any liabilities or potential
liabilities that the Borrower, any of its Subsidiaries, any of their respective
operations (including, without limitation, disposal), and any properties owned
or leased by any of them, may have under applicable Environmental Laws, except
where the failure to do so could not reasonably be expected to result in the
payment of a Material Environmental Amount.
4.21 Deposit Account Balances. The Borrower and its Subsidiaries do
not maintain balances in excess of $1,000,000 in the aggregate with Ineligible
Financial Institutions.
4.22 Correct Information.
The information, schedules, exhibits and reports furnished by the
Borrower to the Agent in connection with the negotiation and preparation of this
Agreement and the other Loan Documents did not contain any omissions or
misstatements of fact which would make the statements contained therein
misleading or incomplete in any material respect when furnished to the Agent.
The Borrower knows of no fact that has not been disclosed in writing to the
Lenders and which materially and adversely affects, or which could reasonably be
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expected in the future to materially and adversely affect, the Borrower, any of
its Subsidiaries, or the ability of the Borrower to perform its obligations
hereunder and under the other Loan Documents.
ARTICLE 5
CONDITIONS PRECEDENT
5.1 Conditions Precedent to Initial Credit Event.
The obligation of each Lender to make its initial Loan hereunder, and
the obligation of the Issuing Bank to issue the initial Letter of Credit
hereunder, are subject to the following conditions precedent:
(a) Receipt of Documents. The Agent shall have received each of the
following documents (dated or certified as of the Closing Date unless otherwise
provided herein, in form and substance satisfactory to the Agent, and in number
sufficient for distribution to all the Lenders):
(i) Credit Agreement. Counterparts of this Agreement, duly
executed by each party hereto;
(ii) Notes. Notes in favor of any Lenders who have requested
them, appropriately completed and duly executed by the Borrower;
(iii) Borrower Security Agreement. A security agreement duly
executed by the Borrower substantially in the form of Exhibit C (the
"Borrower Security Agreement");
(iv) Perfection and Priority of Liens. (1) UCC-1 financing
statements duly executed by the Borrower and properly completed for
filing in all public offices specified by the Agent, (2) letters in
form and substance satisfactory to the Agent, duly executed by each
public warehouse in which the Borrower maintains Inventory, and (3)
evidence that no financing statements are currently on record in any
public office specified by the Agent naming the Borrower as debtor,
other than financing statements filed in connection with Permitted
Liens and financing statements with respect to which the Agent shall
have received UCC-3 termination statements duly executed by the
secured party named therein;
(v) Insurance. Certificates of insurance satisfactory in form and
substance to the Agent with respect to the insurance required by the
provisions of Section 6.6, which shall include loss payable clauses
naming the Agent as loss-payee or additional insured, as appropriate;
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(vi) Cash Flow Support Agreement. A letter from SIMA to the
Agent, the Issuing Bank and the Lenders (the "Cash Flow Support
Agreement"), pursuant to which SIMA shall agree to provide cash flow
support to the Borrower by extending to the Borrower a $6,000,000
committed unsecured line of credit and maintaining such line available
to the Borrower until the payment in full of the Obligations, the
expiration of the Letters of Credit and the termination of the
Aggregate Revolving Commitments, which letter shall be duly executed
by SIMA and shall be substantially in the form of Exhibit G;
(vii) Subordination Agreement. A subordination agreement duly
executed by SIMA and the Borrower substantially in the form of Exhibit
H (the "Subordination Agreement");
(viii) Certificate Regarding Projected Capital Expenditures. A
certificate duly executed by a Responsible Officer of the Borrower,
describing the Borrower's proposed expansion program and setting forth
the Borrower's projected capital expenditures during the twelve-month
period commencing on the Closing Date, all in detail reasonably
satisfactory to the Agent;
(ix) Corporate Authority, Actions and Incumbency. Originals or
copies of such documents as the Agent may require (all of which shall
be certified by such corporate officers or governmental officials as
the Agent may require) relating to the existence and corporate
authority of the Borrower, the taking of all necessary corporate
action to authorize the execution, delivery and performance by the
Borrower of the Loan Documents to which it is a party, and the
incumbency and authenticity of the signature of each officer who
executes a Loan Document on behalf of the Borrower;
(x) Compliance Certificate. A certificate dated the Closing Date,
duly executed by a Responsible Officer of the Borrower, to the effect
that on and as of such date (1) the Borrower has complied and is then
in compliance with all the terms, covenants and conditions of the
Existing Agreement and this Agreement, (2) there exists no Default or
Event of Default under the Existing Agreement or this Agreement, and
(3) the representations and warranties of the Borrower contained in
Article 4 are true with the same effect as though such representations
and warranties had been made on such date, which certificate shall set
forth in detail reasonably satisfactory to the Agent the calculations
upon which the Borrower bases its determination that it is in
compliance with the financial covenants set forth in Sections 6.18,
6.19 and 6.20 on the Effective Date;
(xi) Opinions of Counsel. The favorable legal opinion of Bond,
Schoeneck & King, LLP, special counsel to the Borrower, as to such
matters as the Agent shall reasonably require;
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(xii) Financial Statements. Copies, certified to the Agent's
satisfaction, of the Borrower's financial statements specified in
Section 4.5; and
(xiii) Solvency Certificate. A solvency certificate satisfactory
in form and substance to the Agent, duly executed by a Responsible
Officer of the Borrower;
(xiv) Additional Documents. Such other statements, certificates,
documents or information as the Agent or any Lender shall reasonably
specify.
(b) Payment of Fees. The Agent shall have received from the Borrower
payment in full of the Fees required to be paid on the Closing Date pursuant to
the Fee Letter.
(c) Existing Agreement. Prior to or simultaneously with the
disbursement by the Lenders of the first Loans hereunder, (i) the Borrower shall
have paid in full the principal of all loans outstanding under the Existing
Agreement and all interest, fees and other amounts owing to the Existing Lenders
under the Existing Agreement or any related document and (ii) the Agent shall
have received such duly executed documentation as shall be necessary for the
cancellation of all commitments under the Existing Agreement and the
termination, release or discharge of all security interests granted by the
Borrower to the Existing Lenders thereunder.
5.2 Conditions Precedent to Each Credit Event.
The obligation of each Lender to make any Loan hereunder (including
its Term Loan and its initial Revolving Loan, but excluding any Base Rate Loan
required to be made by it pursuant to paragraph (g) of Section 2.11), and the
obligation of the Issuing Bank to issue or renew any Letter of Credit hereunder
(including the initial Letter of Credit), are subject to the following
conditions precedent (it being agreed that any certificates or other documents
required hereunder shall be dated or certified as of the Borrowing Date for such
Loan or Issuance Date for such Letter of Credit unless otherwise provided
herein, and shall be in form and substance satisfactory to the Agent and in
number sufficient for distribution to the Issuing Bank and all the Lenders):
(a) Representations and Warranties. Each of the representations and
warranties set forth in Article 4 shall be true and correct in all material
respects on and as of such date as if made on and as of such date (except to the
extent that such representations and warranties expressly relate to an earlier
date) and, if the Agent so requests, the Agent shall have received a certificate
duly executed by a Responsible Officer of the Borrower to such effect.
(b) No Default. No Default or Event of Default shall have occurred and
be continuing on such date or after giving effect to the Revolving Loans
requested to be made and the Letters of Credit requested to be issued on such
date and, if the Agent so requests,
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the Agent shall have received a certificate duly executed by a Responsible
Officer of the Borrower to such effect.
(c) Request of Borrowing or Issuance. The Agent shall have received an
appropriate Notice of Borrowing or LC Application, as the case may be, with
respect to the Loans to be made or Letters of Credit to be issued on such date.
(d) Borrowing Base Certificate. If the Borrower requests a Revolving
Loan or a Letter of Credit, the Agent shall have received the most recent
Borrowing Base Certificate required to be delivered by the Borrower to the Agent
pursuant to Section 6.3(e), which certificate shall indicate that the requested
Revolving Loan or Letter of Credit does not exceed the Aggregate Available
Revolving Commitments on such date.
(e) Fees. If the relevant credit event consists of a request for
issuance or renewal of a Letter of Credit, the Agent shall have received payment
in full of the Letter of Credit Fee and Fronting Fee payable pursuant to Section
2.12 in connection with such issuance or renewal.
(f) Additional Matters. The Agent shall have received such additional
instruments, certificates or other documents, and such additional information,
as the Agent may reasonably require.
Each borrowing and each issuance of a Letter of Credit hereunder shall
constitute a representation and warranty by the Borrower that as of the date of
such borrowing or issuance the conditions contained in this Section 5.2 have
been satisfied with respect to such borrowing or issuance.
ARTICLE 6
COVENANTS
The Borrower hereby covenants and agrees that so long as any
Commitment remains in effect or any Letter of Credit remains outstanding and
until the payment in full of the Obligations and the complete performance of all
of the Borrower's other obligations hereunder and under the other Loan
Documents, unless the Agent and the Majority Lenders shall otherwise consent in
writing:
6.1 Corporate Existence, Properties.
The Borrower shall, and shall cause each of its Subsidiaries to, do or
cause to be done all things necessary to:
(a) preserve and keep in full force and effect its legal existence;
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(b) remain or become a corporation qualified to engage in business in
good standing in all jurisdictions in which the character of its
properties or the transaction of its business make such qualification
necessary;
(c) maintain, preserve and protect all permits, rights and privileges
necessary for the proper conduct of its business and all franchises,
licenses, patents, trade names, trademarks and copyrights owned by or
licensed to it that are necessary or desirable in the normal conduct
of its business;
(d) ensure that all property used or useful in the conduct of its
business is maintained and kept in good repair, working order and
condition, and from time to time take all reasonable action to make,
or cause to be made, all needful and proper repairs, renewals,
replacements, betterments and improvements thereto so that, in the
reasonable judgment of the Borrower or such Subsidiary, the business
carried on in connection therewith may be properly and advantageously
conducted at all times.
6.2 Payment of Indebtedness, Taxes.
The Borrower shall, and shall cause each of its Subsidiaries to, pay
all of its Indebtedness and obligations promptly and in accordance with normal
terms and trade practices and shall promptly pay and discharge or cause to be
paid or discharged all taxes, assessments or other governmental charges or
levies imposed upon it or upon its income and profits or upon its property,
real, personal or mixed, or upon any part thereof, before the date on which
penalties attach thereto, as well as all lawful claims for labor, materials and
supplies or otherwise which, if unpaid, might become a lien or charge upon such
properties or any part thereof; provided, however, that the Borrower shall not
be required to pay and discharge, or cause any of its Subsidiaries to pay or
discharge any such debt, obligation, tax, assessment, charge, levy or claim so
long as it is Properly Contested. For purposes of this Agreement, any debt or
obligation of, any tax, assessment, charge, levy or claim against, and any
litigation or other legal proceeding involving, any Person shall be deemed to be
"Properly Contested" only if (a) it shall be contested diligently and in good
faith by appropriate proceedings, (b) such Person shall have assigned on its
books adequate reserves with respect to any such debt, obligation, tax,
assessment, charge, levy or claim so contested, and (c) no material portion of
such Person's assets shall be subject to encumbrance, loss or forfeiture by
reason of such contest.
6.3 Financial Statements, Reports, etc.
The Borrower shall furnish to each Lender (in reasonable detail
satisfactory to the Agent):
(a) as soon as available and in any event within 30 days after the end
of each fiscal quarter of the Borrower, consolidated and consolidating
statements of cash flows of the Borrower and its Subsidiaries for such period
and for the period from the beginning of the
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respective fiscal year to the end of such period, the related consolidated and
consolidating statements of income for such period and the related consolidated
and consolidating balance sheets, as at the end of such period, setting forth in
each case in comparative form the corresponding consolidated and consolidating
figures for the corresponding period in the preceding fiscal year, accompanied
by a certificate of a Responsible Officer of the Borrower, which certificate
shall state that said financial statements fairly present the consolidated
financial condition and results of operations, as the case may be, of the
Borrower and its Subsidiaries in accordance with GAAP, consistently applied, as
at the end of, and for, such period (subject to normal year-end audit
adjustments);
(b) as soon as available and in any event within 90 days after the end
of each fiscal year of the Borrower, consolidated statements of cash flows of
the Borrower and its Subsidiaries for such year, the related consolidated
statements of income and retained earnings for such year and the related
consolidated balance sheets as at the end of such year, setting forth in each
case in comparative form the corresponding consolidated figures for the
preceding fiscal year, and accompanied by an opinion thereon of Ernst & Young,
LLP or another firm of independent certified public accountants of recognized
national standing that is satisfactory to the Agent, which opinion shall state
that said consolidated financial statements fairly present the consolidated
financial condition and results of operations of the Borrower and its
Subsidiaries as at the end of, and for, such fiscal year, and a certificate of
such accountants showing whether the Borrower is in compliance with the
financial covenants contained in Sections 6.18, 6.19 and 6.20, which certificate
shall set forth in detail reasonably satisfactory to the Agent the calculations
made to determine such compliance and the information required to make such
calculations;
(c) together with each set of financial statements delivered to the
Lenders pursuant to paragraph (a) or (b) above, a certificate of a Responsible
Officer of the Borrower to the effect that to the best of his knowledge, after
due inquiry, no Default or Event of Default has occurred and is continuing (or,
if any Default or Event of Default has occurred and is continuing, describing
the same in detail reasonably satisfactory to the Agent and describing the
actions, if any, that the Borrower has taken or proposes to take with respect
thereto), which certificate shall set forth in detail reasonably satisfactory to
the Agent the calculations made to determine compliance with the financial
covenants contained in Sections 6.18, 6.19 and 6.20 and the information required
to make such calculations;
(d) together with each set of financial statements delivered to the
Lenders pursuant to paragraph (a) or (b) above, a management letter signed by a
Responsible Officer of the Borrower, discussing in detail reasonably
satisfactory to the Agent the business, operations, property and condition
(financial and otherwise) of the Borrower and its Subsidiaries with respect to
the period covered by such financial statements, including the sales, cost of
goods sold, purchases, backlog and short-term forecasts of the Borrower and its
Subsidiaries, and any material deviations from the Borrower's and its
Subsidiaries' operating budget and cash flow projections for such period, and
describing in detail reasonably satisfactory to the Agent any expansion program
approved or adopted by the Borrower's board of directors or senior management
during such period which entails Capital
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Expenditures in excess of $10,000,000 in the aggregate for the Borrower and its
Subsidiaries in any fiscal year of the Borrower;
(e) as soon as available, but in any event within 10 Business Days
after the last day of each month, a borrowing base certificate substantially in
the form of Exhibit I (each, a "Borrowing Base Certificate"), setting forth the
information requested therein as of the last day of such month, certified by a
Responsible Officer of the Borrower;
(f) as soon as available and in any event within 90 days after the
beginning of each fiscal year of the Borrower, three-year forecasts prepared by
a Responsible Officer of the Borrower covering such fiscal year and the two
immediately succeeding fiscal years, and certified by such officer to have been
prepared in good faith and based upon reasonable assumptions; and
(g) from time to time such other information regarding the business,
affairs or financial condition of the Borrower or any of its Subsidiaries
(including, without limitation, any Plan and any reports or other information
required to be filed under ERISA) as the Agent, the Issuing Bank or any Lender
may reasonably request.
6.4 Notice of Adverse Events and Significant Changes.
The Borrower shall furnish to the Agent, the Issuing Bank and each
Lender prompt written notice of:
(a) the occurrence of any event which constitutes a Default or Event
of Default hereunder,
(b) the commencement of any action or proceeding involving or
affecting the Borrower or any Subsidiary thereof or any properties or assets of
the Borrower or such Subsidiary an adverse determination of which could
reasonably be expected to have a Material Adverse Effect,
(c) any default or event of default under any material Contractual
Obligation of the Borrower or any of its Subsidiaries,
(d) any litigation, investigation or proceeding which may exist at any
time between the Borrower or any of its Subsidiaries and any Governmental
Authority, which in either case, if not cured or if adversely determined, as the
case may be, could reasonably be expected to have a Material Adverse Effect,
(e) the occurrence of any of the following events: (i) the occurrence
or expected occurrence of any Reportable Event with respect to any Single
Employer Plan which could reasonably be expected to have a Material Adverse
Effect, (ii) a failure on the part of the Borrower or any of its Subsidiaries to
make any required contribution to a Single Employer
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or Multiemployer Plan (other than a failure to make a contribution which (1)
together with all other contributions that are then past due does not exceed
$100,000 in the aggregate, (2) does not constitute or result in a violation of
any provision of ERISA or the Code or any regulation adopted thereunder, (3)
does not cause an Underfunding of such Plan and (4) does not result in the
imposition of any fees or penalties against the Borrower or any of its
Subsidiaries, other than the requirement to pay interest accrued on such
contribution to the relevant Plan), (iii) the creation of any Lien in favor of
the PBGC or a Plan or any withdrawal from, or the termination, Reorganization or
insolvency (within the meaning of Section 4245 of ERISA) of, any Multiemployer
Plan; (iv) Underfunding with respect to any Single Employer Plan which could
result in a material liability to the Borrower; (v) the institution of
proceedings or the taking of any other action by the PBGC or the Borrower or any
Commonly Controlled Entity or any Multiemployer Plan with respect to the
withdrawal from, or the termination, Reorganization or insolvency (within the
meaning of Section 4245 of ERISA) of, any Single Employer or Multiemployer Plan;
or (vi) the occurrence or expected occurrence of any event or condition under
which the Borrower or any Commonly Controlled Entity has incurred or could incur
any liability in respect of a Former Plan which could reasonably be expected to
have a Material Adverse Effect,
(f) any material adverse change in the business, operations, property,
condition (financial or otherwise) or prospects of the Borrower and its
Subsidiaries taken as a whole,
(g) (i) any release or discharge by the Borrower or any Subsidiary of
any Hazardous Substances required to be reported under Environmental Laws to any
Governmental Authority; (ii) any condition, circumstance, occurrence or event
that could result in material Environmental Costs or could result in the
imposition of any lien or other restriction on the title, ownership or
transferability of any Property; and (iii) any proposed action to be taken by
the Borrower or any Subsidiary that could subject the Borrower or any Subsidiary
to any material additional or different requirements or liabilities under
Environmental Laws,
(h) the execution by the Borrower or any of its Subsidiaries of any
new collective bargaining agreement or other labor contract, the recognition of
any union or other labor organization as bargaining representative for a
bargaining unit of employees of the Borrower or any of its Subsidiaries, any
pending or threatened strike, work stoppage, material unfair labor practice
claim or charge, arbitration or other material labor dispute against or
affecting the Borrower or any of its Subsidiaries, and any actions, suits,
charges, demands, claims, counterclaims or proceedings pending or, to the
knowledge of the Borrower, threatened against the Borrower or any of its
Subsidiaries, by or on behalf of, or with, its employees, other than employee
grievances arising in the ordinary course of business which are not, in the
aggregate, material,
(i) any change in the Borrower's fiscal year,
(j) any change in the Borrower's accounting policies, practices or
procedures in effect on the date hereof,
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(k) the receipt by the Borrower or any of its Subsidiaries of any
communication from the Internal Revenue Service disallowing the status of
Special Metals Foreign Sales Corp. as a foreign sales corporation, if such
disallowance could reasonably be expected to have a Material Adverse Effect, and
(l) the approval or adoption by the Borrower's board of directors or
senior management of any expansion program which entails Capital Expenditures in
excess of $10,000,000 in the aggregate for the Borrower and its Subsidiaries in
any fiscal year of the Borrower. Each notice pursuant to paragraph (e) of this
Section 6.4 shall be accompanied by a statement of a Responsible Officer of the
Borrower (and, if applicable, the relevant Commonly Controlled Entity or
Subsidiary) setting forth details of the occurrence referred to therein and
stating what action the Borrower (or, if applicable, the relevant Commonly
Controlled Entity or Subsidiary) proposes to take with respect thereto.
6.5 Books and Records; Inspection.
The Borrower shall maintain, and shall cause each of its Subsidiaries
to maintain, proper books and records with respect to the operation of its
business in accordance with GAAP consistently applied; the Borrower shall
permit, and shall cause each of its Subsidiaries to permit, authorized
representatives of the Agent to visit and inspect from time to time upon
reasonable notice during business hours (or at any time after the occurrence and
during the continuance of an Event of Default hereunder) any of the offices,
inventory locations and other facilities of the Borrower or such Subsidiary, to
examine the books and records of the Borrower or such Subsidiary and make copies
or extracts therefrom, to examine the Inventory of the Borrower or such
Subsidiary, to conduct field examinations with respect to the assets of the
Borrower and its Subsidiaries, to verify the eligibility of the Inventory and
Receivables of the Borrower and its Subsidiaries for inclusion in the Borrowing
Base, and to discuss the affairs, inventory and accounts of the Borrower or such
Subsidiary with its officers and accountants.
6.6 Insurance.
The Borrower shall, and shall cause each of its Subsidiaries to, (i)
keep its assets that are of an insurable character insured by financially sound
and reputable insurers against loss or damage by fire, explosion and other
hazards insured against by extended coverage in amounts sufficient to prevent it
from becoming a co-insurer (other than maintaining reasonable deductibles) and
in any event not less than 80% of the full insurable value (replacement value if
available) of the property insured, (ii) maintain with financially sound and
reputable insurers, insurance against hazards, risks and liability to persons
and property to the extent and in the manner customary for companies in similar
business similarly situated, and (iii) file with the Agent upon its request a
detailed list of the insurance then in effect and stating the names of the
insurance companies, the amounts of insurance, dates of expiration thereof and
the properties and risks covered thereby.
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6.7 Compliance with Laws.
The Borrower shall, and shall cause each of its Subsidiaries to,
observe and comply in all material respects with all Requirements of Law which
now or at any time hereafter may be applicable to the Borrower or such
Subsidiary (including all applicable provisions of ERISA and the Code).
6.8 Environmental Laws.
The Borrower shall, and shall cause each of its Subsidiaries to, (a)
comply with, and use all reasonable efforts to ensure compliance by all tenants
and subtenants of the Properties, if any, with, all applicable Environmental
Laws and obtain and comply with and maintain and use all reasonable efforts to
ensure that all tenants and subtenants obtain and comply with and maintain, any
and all licenses, approvals, notifications, registrations or permits required by
applicable Environmental Laws, except in each case to the extent that the
failure to do so could not reasonably be expected to result in the payment of a
Material Environmental Amount, (b) conduct and complete all investigations,
studies, sampling and testing, and all remedial, removal and other similar
actions required of the Borrower or any Subsidiary under Environmental Laws and
promptly comply with all orders and directives of all Governmental Authorities
regarding Environmental Laws, except to the extent that the same are being
contested in good faith by appropriate proceedings, and except in each case to
the extent that the failure to do so could not reasonably be expected to result
in the payment of a Material Environmental Amount.
6.9 Use of Proceeds.
The Borrower shall use the Letters of Credit and the proceeds of the
Loans solely in accordance with its representations and warranties in Section
4.16.
6.10 Indebtedness.
The Borrower shall not, and shall not permit any of its Subsidiaries
to, create, incur, assume or suffer to exist any Indebtedness at any time,
except:
(a) Indebtedness owing to the Lenders and the Issuing Bank hereunder
and under the other Loan Documents;
(b) taxes, assessments and governmental charges that are not yet due
and payable;
(c) Indebtedness secured by purchase money liens permitted under
Section 6.11(f) and obligations under Capital Leases, so long as the
total amount of such Indebtedness and obligations does not exceed
$5,000,000 in the aggregate for the Borrower and its Subsidiaries;
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(d) Subordinated Indebtedness of the Borrower to its Affiliates
(including any Subordinated Indebtedness of the Borrower to SIMA under
the Cash Flow Support Agreement);
(e) Indebtedness specified in the financial statements referred to in
Section 4.5 or in the Disclosure Schedule (provided that, from and
after the Effective Date, Indebtedness to SIMA shall be permitted only
if it constitutes Subordinated Indebtedness);
(f) obligations under metal hedging contracts or interest rate swap,
cap or collar agreements or similar arrangements entered into for
hedging purposes with any Lender or any other financial institution
that is satisfactory to the Majority Lenders;
(g) Indebtedness to the New York Power Authority under the Industrial
Energy Efficiency Program described in the Disclosure Schedule; and
(h) additional unsecured Indebtedness of the Borrower incurred in the
ordinary course of its business and not exceeding $1,000,000 in
aggregate principal amount at any one time outstanding.
6.11 Liens.
The Borrower shall not, and shall not permit any of its Subsidiaries
to, create, incur, assume or suffer to exist any Lien of any kind upon, or any
security interest in, any of its property or assets, whether now owned or
hereafter acquired, except:
(a) Liens in favor of the Agent securing the Obligations;
(b) liens for taxes not delinquent or being contested in good faith
and by appropriate proceedings;
(c) deposits or pledges to secure obligations under workers'
compensation, social security or similar laws, or under unemployment
insurance;
(d) deposits or pledges to secure bids, tenders, contracts (other than
contracts for borrowed money), leases, statutory obligations, surety
and appeal bonds and other obligations of like nature arising in the
ordinary course of business;
(e) mechanics', workers', carriers', warehousemen's, materialmen's or
other like liens arising in the ordinary course of business with
respect to obligations which are not due, which are bonded or
discharged within 30 days of the date of filing or which are being
contested in good faith;
(f) purchase money liens on fixed assets of the Borrower or such
Subsidiary, securing Indebtedness permitted under Section 6.10(c),
which liens secure the
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purchase price of such fixed assets and apply only to the fixed assets
so purchased, provided that the principal amount of the indebtedness
secured by any such lien shall at no time exceed an amount equal to
the lesser of the cost to the Borrower or such Subsidiary of the fixed
assets so purchased and the fair market value of such fixed assets (as
determined in good faith by the board of directors of the Borrower or
such Subsidiary) at the time of such acquisition, and that any such
Lien shall be created within 12 months after, in the case of property,
its acquisition, and in the case of improvements, their completion;
(g) liens arising out of Capital Leases permitted under Section
6.10(c), so long as such liens attach only to the fixed assets subject
to such Capital Leases;
(h) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial and do not interfere with the ordinary
conduct of the business of the Borrower; and
(i) the Liens set forth in the Disclosure Schedule, provided that no
such Lien is extended to cover any additional property after the
Closing Date and that the amount of Indebtedness secured thereby is
not increased.
6.12 Contingent Liabilities.
The Borrower shall not, and shall not permit any of its Subsidiaries
to, assume, guarantee, endorse, contingently agree to purchase or otherwise
become liable upon any obligation of any Person, except (a) by the endorsement
of instruments for deposit or collection or similar transactions in the ordinary
course of business, (b) guarantees in favor of the Agent, the Issuing Bank and
the Lenders hereunder and under the other Loan Documents, (c) the guarantees
disclosed in the financial statements referred to in Section 4.5, and (d) the
guarantees listed in the Disclosure Schedule.
6.13 Merger and Consolidation; Acquisition and Disposition of Assets.
The Borrower shall not, and shall not permit any of its Subsidiaries
to, enter into any merger, consolidation or voluntary dissolution, or lease or
acquire all or substantially all of the assets of any Person or of any division
or business unit of any Person, or sell, lease, license or otherwise dispose of
any of its assets, except (a) acquisitions, sales, leases, licenses or
dispositions in the ordinary course of business, (b) mergers and consolidations
with, and acquisitions of all or substantially all of the assets or capital
stock of, any Person or any division or business unit of any Person, provided
that the Borrower or such Subsidiary is the surviving entity of such merger or
consolidation, that no Default or Event of Default has occurred or would occur
after giving effect to such merger, consolidation or acquisition, and that (in
the case of an acquisition of capital stock) such acquisition is permitted under
Section 6.14 and the Borrower complies with Section 6.21, if applicable, (c)
mergers by the Borrower with one of its Subsidiaries (provided that the Borrower
is the
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surviving entity of such merger) or mergers of Subsidiaries of the Borrower with
each other, (d) the sale of the Borrower's dental division currently located in
Ann Arbor, Michigan, and (e) the sale of a two-story building located in New
Hartford, New York, acquired by the Borrower in 1988 from Victoria C. Herubin.
6.14 Investments.
The Borrower shall not, and shall not permit any of its Subsidiaries
to, make any Investment, except (a) obligations issued or guaranteed by the
United States of America or any agency thereof or short term repurchase
agreements with respect thereto, in each case maturing within 12 months after
the date of acquisition thereof, (b) short-term certificates of deposit issued
by, and deposits in, any Lender or any other commercial bank having a combined
capital and surplus of not less than $500,000,000 or the equivalent thereof in
another currency, in each case maturing within 12 months after the date of
acquisition thereof, (c) short-term commercial paper maturing within 12 months
after the date of acquisition thereof, which has been given the highest rating
by Standard & Poor's Corporation, Moody's Investors Service, Inc., or another
nationally recognized credit rating agency of similar standing, (d) shares of
money market mutual funds having net assets of not less than $1,000,000,000,
which invest solely in securities referred to in clauses (a), (b) or (c) above,
(e) loans and advances to employees of the Borrower or any Subsidiary for
travel, entertainment and relocation expenses in the ordinary course of business
in an aggregate amount not to exceed $50,000 at any one time outstanding, (f)
Investments in Subsidiaries, so long as the Borrower shall be in compliance
with, or shall concurrently with the making of such Investments comply with,
Section 6.21 with respect to such Subsidiaries, (g) Investments in joint
ventures formed solely for the purpose of acquiring, maintaining and operating
fixed assets used by the Borrower and/or its Qualified Subsidiaries and their
respective joint venture partners in their respective operations, and (h)
Investments in other joint ventures, so long as the aggregate amount of all
Investments by the Borrower and its Subsidiaries in such other joint ventures
does not exceed $5,000,000.
6.15 Change in Nature of Business.
The Borrower shall not, and shall not permit any of its Subsidiaries
to, engage at any time in any business or business activity other than the
business currently conducted by it and business activities reasonably incidental
thereto.
6.16 Transactions with Affiliates.
The Borrower shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, (a) make any Investment in any Affiliate of the
Borrower or any Affiliate of such Subsidiary, (b) transfer, sell, lease, assign
or otherwise dispose of any assets to any Affiliate of the Borrower or any
Affiliate of such Subsidiary, (c) merge into or consolidate with or purchase or
acquire assets from any Affiliate of the Borrower or any Affiliate of such
Subsidiary; or (d) enter into any other transaction directly or indirectly with
or for the benefit of any Affiliate of the Borrower or any Affiliate of such
Subsidiary (including, without
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limitation, any Guarantee Obligation or assumption of obligations thereof);
provided, however, that: (x) any Affiliate of the Borrower or of a Subsidiary of
the Borrower who is a natural person may serve as an employee or director of the
Borrower or such Subsidiary and receive reasonable compensation for his or her
services in such capacity and (y) the Borrower or any of its Subsidiaries may
enter into any transaction with any of their respective Affiliates providing for
the leasing of property, the rendering or receipt of services or the purchase or
sale of product, inventory or other assets in the ordinary course of business on
terms that are no less favorable to the Borrower or such Subsidiary than those
which might be obtained at the time from Persons who are not Affiliates of the
Borrower or such Subsidiary.
6.17 Restricted Payments.
The Borrower shall not, and shall not permit any of its Subsidiaries
that is not a wholly-owned Subsidiary to, make any Restricted Payment, or set
apart any sum for the purpose of making any Restricted Payment; provided,
however, that (a) so long as no Default or Event of Default has occurred and is
continuing, the Borrower may declare and pay dividends or other distributions on
its shares of Capital Stock in an aggregate amount not exceeding in any fiscal
year of the Borrower an amount equal to fifty percent (50%) of the Consolidated
Net Income of the Borrower for the immediately preceding fiscal year and (b) the
Borrower may make payments of principal and interest on Subordinated
Indebtedness permitted to be made under the subordination provisions relating to
such Subordinated Indebtedness. The provisions of this Section 6.17 shall be in
addition to, and not in lieu of, any restriction contained in the instrument
evidencing, or the instrument of subordination with respect to, any Subordinated
Indebtedness. For purposes of this Agreement, the term "Consolidated Net Income"
shall mean, with respect to any period, the consolidated net income of the
Borrower and its consolidated Subsidiaries for such period, determined in
accordance with GAAP.
6.18 Consolidated Net Worth.
The Borrower shall not permit its Consolidated Net Worth to be less
than $24,000,000 at any time. For purposes of this Agreement, the term
"Consolidated Net Worth" shall mean, as at any date, (a) the total of the
amounts that would be shown on the consolidated balance sheet of the Borrower
and its consolidated Subsidiaries as at such date in accordance with GAAP as the
par or stated value of all outstanding shares of Capital Stock, paid-in capital
or capital surplus, and retained earnings (excluding, however, the value of any
treasury stock and any redeemable preferred stock or similar capital stock),
less (b) any accumulated deficit.
6.19 Consolidated Leverage Ratio.
The Borrower shall not permit its Consolidated Leverage Ratio to be
greater than 2.8 to 1 at any time. For purposes of this Agreement, the term
"Consolidated Leverage Ratio" shall mean, as at any date, the ratio of:
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(a) the aggregate amount of all Indebtedness and trade accounts
payable of the Borrower and its consolidated Subsidiaries outstanding
on such date, other than Subordinated Indebtedness, to
(b) the sum of (i) the Consolidated Net Worth as at such date, plus
(ii) the aggregate principal amount of all Subordinated Indebtedness
of the Borrower and its consolidated Subsidiaries outstanding on such
date.
6.20 Consolidated Senior Debt Coverage Ratio.
The Borrower shall not permit its Consolidated Senior Debt Coverage
Ratio to be greater than 3.5 to 1 at any time. For purposes of this Agreement,
the term "Consolidated Senior Debt Coverage Ratio" shall mean, as at any date,
the ratio of:
(a) the sum of (i) the aggregate principal amount of the Loans
outstanding on such date, plus (ii) the Aggregate LC Exposure on such
date, to
(b) Consolidated EBITDA for the period consisting of the four
consecutive fiscal quarters of the Borrower ended on, or most recently
ended prior to, such date;
and the term "Consolidated EBITDA" shall mean, with respect to any period,
Consolidated Net Income for such period, plus interest expense, income tax
payments, provisions for deferred income taxes, depreciation, amortization and
other non-cash charges (to the extent that such items were included in the
calculation of Consolidated Net Income for such period); and adjusted to exclude
any non-operating gains in excess of $100,000 (including extraordinary or
unusual gains, gains from the discontinuance of operations, gains arising from
the sale of capital assets, gains in respect of earnings of Subsidiaries which
are not available for payment to the Borrower in the form of dividends and other
non-recurring gains) for such period and to include any similar non-operating
losses incurred for such period.
6.21 Subsidiaries.
(a) The Borrower shall not form any direct or indirect Subsidiary,
unless the Borrower has (i) given the Agent and the Lenders not less than 30
days' prior written notice of its intention to form such Subsidiary and (ii)
provided to the Agent and each Lender such information about the Subsidiary, its
assets and its contemplated operations as the Agent or such Lender may
reasonably require.
(b) The Borrower shall cause each Material Subsidiary to execute and
deliver to the Agent, promptly after the Borrower determines that such
Subsidiary is a Material Subsidiary, the Subsidiary Guarantee, the Subsidiary
Security Agreement and the Contribution Agreement (or Supplements to the
foregoing substantially in the forms annexed thereto) and such other
certificates, opinions, documents and instruments as may be reasonably requested
by the Agent.
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(c) The Borrower shall not acquire any direct or indirect Subsidiary
unless such acquisition is permitted under Sections 6.13 and 6.14.
(d) The Borrower shall not transfer any of its Inventory or
Receivables to a foreign sales corporation.
6.22 Leases.
The Borrower shall not, and shall not permit any of its Subsidiaries
to, enter into any operating lease as lessee or guarantee the obligations of any
lessee under an operating lease; provided, however, that so long as no Default
or Event of Default has occurred and is continuing and entering into such leases
would not cause a Default or Event of Default to occur, the Borrower and its
Subsidiaries may enter into operating leases which provide for total scheduled
payments (including base rent, supplemental rent and other amounts, however
characterized) not exceeding $1,500,000 in the aggregate for all such leases in
any fiscal year of the Borrower.
6.23 Cash Flow Support Agreement.
The Borrower (a) shall comply in all material respects with the Cash
Flow Support Agreement (unless such compliance is inconsistent with the terms of
this Agreement or the Subordination Agreement), (b) shall enforce its rights and
remedies and the obligations of SIMA under the Cash Flow Support Agreement, (c)
shall not amend, modify or terminate, or permit SIMA to amend, modify or
terminate, the Cash Flow Support Agreement, and (d) shall not assign its rights
or interests thereunder, or permit SIMA to assign its rights, interests or
obligations thereunder, to any Person.
6.24 Deposit Account Balances. The Borrower shall not, and shall not
permit any of its Subsidiaries to, maintain balances in excess of $1,000,000 in
the aggregate with Ineligible Financial Institutions.
ARTICLE 7
EVENTS OF DEFAULT
7.1 Events of Default.
If one or more of the following events (each, an "Event of Default")
shall occur:
(a) The Borrower shall default in (i) the punctual payment when due
(whether at stated maturity or otherwise) of any principal of any Loan or the
punctual reimbursement when due (whether at the due date thereof or otherwise)
of any LC Disbursement or (ii) the punctual payment when due of any interest on
any Loan or LC Disbursement, any Fees or any other amounts payable by it
hereunder, under any Note or under any other Loan Document and, in the case of a
default in the payment of any amount specified in this clause
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(ii), such default shall continue unremedied for more than three (3) days after
written notice is given by the Agent to the Borrower; or
(b) The Borrower shall default in the due observance or performance of
any term, covenant or agreement contained in Section 6.4(a) or Sections 6.10
through 6.23 (inclusive); or
(c) The Borrower or any of its Subsidiaries shall default in the due
observance or performance of any other term, covenant or agreement contained in
this Agreement or any other Loan Document on its part to be observed or
performed and such default shall continue unremedied for a period of 30 days
after written notice thereof, specifying such default and requiring it to be
remedied, shall have been given to the Borrower by the Agent; or
(d) Any representation or warranty made by the Borrower or any of its
Subsidiaries herein or in any other Loan Document, or any statement or
representation made in any certificate, report or opinion delivered by the
Borrower, any of its Subsidiaries or any officer of the Borrower or any of its
Subsidiaries pursuant to this Agreement or any other Loan Document shall prove
to have been incorrect or misleading in any material respect when made; or
(e) The Borrower or any Subsidiary of the Borrower shall fail to make
any payment when due (after giving effect to any applicable grace periods) on
any Indebtedness of the Borrower or such Subsidiary aggregating at least
$1,000,000 (other than Subordinated Indebtedness owing to an Affiliate of the
Borrower or such Subsidiary); or any Indebtedness of the Borrower or any
Subsidiary of the Borrower (other than Subordinated Indebtedness owing to an
Affiliate of the Borrower or such Subsidiary) aggregating at least $1,000,000
shall be accelerated or shall be required to be paid prior to the stated
maturity thereof or prior to any regularly scheduled dates of payment, or shall
be required to be purchased by the Borrower or any of its Subsidiaries prior to
its stated maturity or regularly scheduled date of payment, or the Borrower or
any of its Subsidiaries shall default in the performance of any term contained
in, or any event or condition shall exist under, any agreement or instrument
pursuant to which it has outstanding any such Indebtedness if the effect of such
default, event or condition is to cause, or permit holder(s) of such
Indebtedness to cause (i) Indebtedness of the Borrower or any of its
Subsidiaries aggregating at least $1,000,000 to become due and payable prior to
its stated maturity or regularly scheduled dates of payment or (ii) the Borrower
or any of its Subsidiaries to be required to purchase or otherwise acquire
Indebtedness aggregating at least $1,000,000; or
(f) The Borrower or any of its Subsidiaries or SIMA shall be insolvent
or shall generally cease paying, or be unable to pay, its debts as they become
due or shall make any admission in writing to the foregoing effect; or a
substantial part of the operations or business of the Borrower or any of its
Subsidiaries or SIMA shall be suspended and such suspension shall, in the
opinion of the Majority Lenders, have a material adverse effect on the condition
(financial or otherwise) or operations of the Borrower or SIMA or on the ability
of the Borrower to repay the Obligations; or the Borrower or any of its
Subsidiaries
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or SIMA shall make an assignment for the benefit of creditors, or shall commence
(as debtor) a case under the Federal Bankruptcy Code, or shall commence any
proceeding with respect to itself, or a substantial portion of its properties or
assets, under any other insolvency, bankruptcy, arrangement, reorganization,
liquidation, dissolution or similar law of the United States or the Republic of
France or any other jurisdiction, or shall apply for a trustee, receiver or
custodian (however named) for all or a substantial portion of its properties or
assets for the purpose of general administration of such properties or assets
for the benefit of creditors or for any other purpose or shall take any action
to authorize any of the foregoing actions; or a court or competent jurisdiction
in the premises shall enter an order for relief against the Borrower or any of
its Subsidiaries or SIMA as a debtor in a case or proceeding under the Federal
Bankruptcy Code or any similar law of the United States, the Republic of France
or any other jurisdiction; or any case or proceeding under the Federal
Bankruptcy Code or any other insolvency, bankruptcy, reorganization,
arrangement, liquidation, dissolution or similar law of the United States, the
Republic of France or any other jurisdiction shall be commenced against the
Borrower or any of its Subsidiaries or SIMA and such case or proceeding shall
remain undismissed, undischarged or unbonded for 60 days or the Borrower or any
of its Subsidiaries or SIMA shall consent to or admit in writing the material
allegations against it in any such case or proceeding; or any trustee, receiver
or similar officer, however named, shall be appointed for all or a substantial
part of the property of the Borrower or any of its Subsidiaries or SIMA and the
Borrower or such Subsidiary or SIMA, as the case may be, shall consent thereto
or such trusteeship or receivership shall continue for a period of 60 days; or
(g) One or more judgment or judgments for the payment of money the
uninsured portion of which exceeds in the aggregate $1,000,000 shall be rendered
against the Borrower, against one or more Subsidiaries of the Borrower, or
against the Borrower and one or more of its Subsidiaries, and shall not be
stayed, released, discharged or fully bonded within 60 days after the issuance
thereof; or
(h) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan,
(ii) any "accumulated funding deficiency" (as defined in Section 412 of the Code
or Section 302 of ERISA), whether or not waived, shall exist with respect to any
Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of the
Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall occur
with respect to, or proceedings shall commence to have a trustee appointed, or a
trustee shall be appointed, to administer or to terminate, any Single Employer
Plan, which Reportable Event or commencement of proceedings or appointment of a
trustee is reasonably likely to result in the termination of such Plan for
purposes of Title IV of ERISA (other than a standard termination pursuant to
Section 4041(b) of ERISA), (iv) any Single Employer Plan shall terminate for
purposes of Title IV of ERISA, (v) the Borrower or any Commonly Controlled
Entity shall, or is reasonably likely to, incur any liability in connection with
a withdrawal from, or the insolvency (within the meaning of Section 4245 of
ERISA) or Reorganization of, a Multiemployer Plan, (vi) the occurrence or
expected occurrence of any event or condition which results or is reasonably
likely to result in the Borrower's or any Commonly Controlled Entity's becoming
responsible
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for any liability in respect of a Former Plan, or (vii) any other event or
condition shall occur or exist with respect to a Plan; and in each case in
clauses (i) through (vii) above, such event or condition, together with all
other such events or conditions, if any, could result in liability which could
have a Material Adverse Effect; or
(i) SIMA and LWH shall cease to own beneficially, directly or
indirectly, with full control thereof and free and clear of any Liens, shares of
voting Capital Stock of the Borrower having, in the aggregate, at least 51% of
the total voting power of all outstanding shares of Capital Stock of the
Borrower; or
(j) SIMA shall terminate the Cash Flow Support Agreement or shall
default in the performance of any of its obligations thereunder; or
(k) The Borrower, any Qualified Subsidiary or any Material Subsidiary
shall assert, or institute any proceedings seeking to establish, that any
provision of any Loan Document is invalid, not binding or unenforceable; or
(l) any Security Document shall cease to be in full force and effect
or shall cease to be effective to grant to the Agent for the benefit of the
Issuing Bank and the Lenders a perfected security interest in the collateral
described therein, with the priority purported to be created thereby;
then, upon the happening of any of the foregoing Events of Default or at any
time thereafter so long as any such Event of Default shall be continuing, the
Majority Lenders may instruct the Agent to take, and upon receipt of such
instructions from the Majority Lenders the Agent shall take, by a notice to the
Borrower, any one or more of the following actions: (1) terminate the
Commitments, whereupon the Commitments shall immediately terminate and/or (2)
declare the outstanding principal amount of the Loans and all interest accrued
thereon, the reimbursement of the LC Disbursements and all interest accrued
thereon, and all fees and other amounts payable hereunder or under any of the
other Loan Documents to be immediately due and payable, whereupon said
principal, interest, fees and other amounts shall become immediately due and
payable and/or (3) require that the Borrower Cash Collateralize all Letters of
Credit then outstanding, whereupon the amount of such cash collateral shall
become immediately due and payable; provided, however, that upon the happening
of any event specified in clause (f) above the Commitments shall immediately
terminate and the Loans, the LC Disbursements, all accrued interest thereon and
all fees and other amounts payable hereunder or under any other Loan Document,
shall be immediately due and payable, and the Borrower shall immediately Cash
Collateralize all Letters of Credit then outstanding, all without declaration or
other notice to the Borrower.
7.2 Waivers.
The Borrower hereby waives, to the extent permitted by applicable law,
(a) all presentments, demands for performance, notices of nonperformance (except
to the extent required by the provisions of this Agreement or of any other Loan
Document), protests,
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notices of protest, notices of intent to accelerate and notices of dishonor in
connection with the Notes and the Loans and (b) any requirement of diligence or
promptness on the part of the Agent in the enforcement of its, the Issuing
Bank's or the Lenders' rights under the provisions of this Agreement, the Notes
or any other Loan Document.
ARTICLE 8
THE AGENT
8.1 Appointment.
Each Creditor hereby irrevocably designates and appoints CLNY as the
Agent of such Creditor under this Agreement and the other Loan Documents, and
each Creditor irrevocably authorizes CLNY, as the Agent for such Creditor, to
take such action on its behalf under the provisions of this Agreement and the
other Loan Documents and to exercise such powers and perform such duties as are
expressly delegated to the Agent by the terms of this Agreement and the other
Loan Documents, together with such other powers as are reasonably incidental
thereto. Notwithstanding any provision to the contrary elsewhere in this
Agreement, the Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Creditor, and
no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Agent.
8.2 Delegation of Duties.
The Agent may execute any of its duties under this Agreement and the
other Loan Documents by or through agents or attorneys-in-fact, and shall be
entitled to advice of counsel concerning all matters pertaining to such duties.
The Agent shall not be responsible for the negligence or misconduct of any
agents or attorneys-in-fact selected by it with reasonable care.
8.3 Exculpatory Provisions.
Neither the Agent nor any of its officers, directors, employees,
agents, attorneys-in-fact or Affiliates shall be (i) liable for any action
lawfully taken or omitted to be taken by it or such Person under or in
connection with this Agreement or any other Loan Document (except, in the case
of any Person, for its own gross negligence or willful misconduct and, in the
case of the Agent, for the gross negligence or willful misconduct of its
officers, directors or employees) or (ii) responsible in any manner to any of
the Creditors for any recitals, statements, representations or warranties made
by the Borrower, any of its Subsidiaries or SIMA or any officer of any of the
foregoing contained in this Agreement or any other Loan Document or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agent under or in connection with, this Agreement or any
other Loan Document or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document or
for any failure of the Borrower, any of its Subsidiaries or SIMA to perform its
obligations hereunder or
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thereunder. The Agent shall not be under any obligation to any Creditor to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of the Borrower, any of
its Subsidiaries or SIMA.
8.4 Reliance by Agent.
The Agent shall be entitled to rely, and shall be fully protected in
relying, upon any writing, resolution, notice, consent, certificate, affidavit,
letter, telecopy, telex or teletype message, statement, order or other document
or conversation believed by it to be genuine and correct and to have been
signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including, without limitation, counsel to the
Borrower), independent accountants and other experts selected by the Agent. The
Agent may deem and treat the payee of any Note as the owner thereof for all
purposes unless a written notice of assignment, negotiation or transfer thereof
shall have been filed with the Agent. The Agent shall be fully justified as
between itself and the Creditors or any of them in failing or refusing to take
any action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Majority Lenders as it deems
appropriate or it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement
and the other Loan Documents in accordance with a request of the Majority
Lenders, and such request and any action taken or failure to act pursuant
thereto shall be binding upon all present and future Creditors.
8.5 Notice of Default.
The Agent shall not be deemed to have knowledge or notice of the
occurrence of any Default or Event of Default hereunder unless the Agent has
received notice from a Creditor or the Borrower referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a
"notice of default". In the event that the Agent receives such a notice, the
Agent shall give notice thereof to the Lenders. The Agent shall take such action
with respect to such Default or Event of Default as shall be reasonably directed
by the Majority Lenders; provided that unless and until the Agent shall have
received such directions, the Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable in the best interests of the
Creditors.
8.6 Non-Reliance on Agent and Other Creditors.
Each Creditor expressly acknowledges that neither the Agent nor any of
its officers, directors, employees, agents, attorneys, attorneys-in-fact or
Affiliates has made any representations or warranties to it, including any
representations or warranties regarding the Borrower, any of its Subsidiaries,
SIMA or any Creditor, and that no act by the Agent hereinafter taken, including
any review of the affairs of the Borrower, any of its Subsidiaries
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or SIMA, shall be deemed to constitute any representation or warranty by the
Agent to any Creditor. Each Creditor represents to the Agent that it has,
independently and without reliance upon the Agent or any other Creditor, and
based on such documents and information as it has deemed appropriate, made its
own appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Borrower, its
Subsidiaries and SIMA and made its own decision to make its Loans hereunder and
enter into this Agreement. Each Creditor also represents that it will,
independently and without reliance upon the Agent or any other Creditor, and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement and the other Loan Documents,
and to make such investigation as it deems necessary to inform itself as to the
business, operations, property, financial and other condition and
creditworthiness of the Borrower, its Subsidiaries and SIMA. Except for notices,
reports and other documents expressly required to be furnished to the Creditors
by the Agent hereunder, the Agent shall not have any duty or responsibility to
provide any Creditor with any credit or other information concerning the
business, operations, property, condition (financial or otherwise), prospects or
creditworthiness of the Borrower, any of its Subsidiaries or SIMA which may come
into the possession of the Agent or any of its officers, directors, employees,
agents, attorneys-in-fact or Affiliates.
8.7 Indemnification.
The Lenders agree to indemnify the Agent in its capacity as such (to
the extent not reimbursed by the Borrower and without limiting the obligation of
the Borrower under Section 9.2 of this Agreement or under any other Loan
Document to do so), ratably according to their Percentages in effect on the date
on which indemnification is sought under this Section 8.7, from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind whatsoever which
may at any time (including, without limitation, at any time following the
payment in full of the Obligations) be imposed on, incurred by or asserted
against the Agent in any way relating to or arising out of this Agreement, any
other Loan Document or any document contemplated by or referred to herein or
therein or the transactions contemplated hereby or thereby or any action taken
or omitted by the Agent under or in connection with any of the foregoing;
provided, however, that no Lender shall be liable for the payment of any portion
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting solely from the
Agent's gross negligence or willful misconduct. The agreements in this Section
8.7 shall survive the payment of the Obligations and the termination of the
Letters of Credit.
8.8 Agent in Its Individual Capacity.
The Agent, the other branches of Credit Lyonnais, and the Affiliates
of Credit Lyonnais may make loans to, accept deposits from and generally engage
in any kind of business with the Borrower as though the Agent were not the Agent
hereunder and under the other Loan Documents. With respect to its Loans and LC
Exposure hereunder and any
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Notes issued to it, CLNY shall have the same rights and powers under this
Agreement and the other Loan Documents as any Lender and may exercise the same
as though it and the Agent were not branches of the same financial institution,
and the terms "Lenders" and "Creditors" shall include CLNY and any other
branches of Credit Lyonnais who may from time to time be the Issuing Bank or
Lenders hereunder, in their individual capacity.
8.9 Successor Agent.
The Agent may resign as Agent upon 30 days' notice to the Lenders. If
the Agent resigns as Agent under this Agreement and the other Loan Documents,
then the Majority Lenders shall have the right to appoint a successor Agent. If
no successor Agent shall have been so appointed by the Majority Lenders and
shall have accepted such appointment within 30 days after the retiring Agent's
giving of notice of resignation, then the retiring Agent may, on behalf of the
Lenders, appoint a successor Agent that shall be a bank which has an office in
New York and has a combined capital and surplus of at least $500,000,000,
whereupon such successor Agent shall succeed to the rights, powers and duties of
the Agent, and the term "Agent" shall mean such successor Agent effective upon
such appointment and approval, and the retiring Agent's rights, powers and
duties as Agent shall be terminated, without any other or further act or deed on
the part of such retiring Agent or any of the parties to this Agreement or any
holders of the Notes. After any retiring Agent's resignation as Agent, the
provisions of this Article 8 shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Agent under this Agreement and the
other Loan Documents.
ARTICLE 9
MISCELLANEOUS
9.1 Notices.
All notices, requests, demands, instructions, directions and other
communications provided for hereunder shall be in writing (which term shall
include telecopied communications) and shall be mailed (by registered or
certified mail, postage prepaid), telecopied or delivered to the applicable
party at the address or telecopier number specified for such party on Schedule I
or, as to any party, to such other address or telecopier number as such party
shall specify by a notice in writing to the other parties hereto delivered in
accordance with the provisions of this Section 9.1. Each notice, request,
demand, instruction, direction or other communication provided for hereunder
shall be deemed delivered (a) if by mail, five Business Days after being
deposited in the mails, addressed to the applicable party at its address set
forth above, (b) if by hand, when delivered to the applicable party at such
address, and (c) if by telecopy, when sent to the applicable party at such
telecopier number.
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9.2 Expenses, Indemnity.
(a) The Borrower agrees to pay, promptly upon demand of the Agent,
whether or not the transactions contemplated hereby are consummated, the
following fees, disbursements, costs, expenses, taxes and charges: (i) to the
extent specified in the Fee Letter, the reasonable fees and disbursements of
counsel for the Agent (including reasonable fees and disbursement of outside
counsel and reasonable allocated costs of in-house counsel) in connection with
the preparation of this Agreement and the other Loan Documents and the
transactions contemplated hereby and thereby, (ii) the reasonable fees and
disbursements of counsel for the Agent (including reasonable fees and
disbursement of outside counsel and reasonable allocated costs of in-house
counsel) in connection with any amendment, supplement or modification of this
Agreement or of any other Loan Document, and any consent or waiver hereunder or
thereunder (or any such instrument which is proposed but not executed and
delivered); (iii) all reasonable costs and expenses incurred by the Agent in
connection with due diligence or the syndication of the credit facilities
contemplated hereby; and (iv) all recording and release taxes, all transfer
taxes, all documentary, stamp, intangible and similar taxes, all filing and
recording fees and taxes, and any other excise or property taxes, charges, or
similar taxes imposed by the United States of America, the jurisdiction in which
any Lender's applicable lending office is located or any political subdivision
of any of the foregoing, at any time payable in respect of this Agreement or any
other Loan Document, the incurrence of obligations hereunder and under the other
Loan Documents, or any payment made hereunder or under any other Loan Document
(collectively, the "Other Taxes"). The Borrower further agrees to pay, promptly
upon demand by the Agent, all expenses incurred by the Agent, the Issuing Bank
or any Lender in connection with the enforcement or preservation of any rights
and remedies with respect to the Borrower, any of its Subsidiaries or SIMA
hereunder or under any other Loan Document, including all costs of collection,
all reasonable fees and disbursements of outside counsel, all reasonable
allocated costs of in-house counsel, and all out-of-pocket expenses of the
Agent, the Issuing Bank and each Lender.
(b) The Borrower agrees to indemnify the Agent, the Issuing Bank, each
Lender, each Person, if any, controlling the Agent, the Issuing Bank or any
Lender, and each of their respective directors, officers, employees, attorneys
and agents (each of the foregoing herein called an "Indemnitee") against, and to
hold each Indemnitee harmless from (i) any losses, liabilities, damages, claims,
costs and expenses (collectively, "Losses") suffered or incurred by such
Indemnitee arising out of, resulting from or in any manner connected with, the
execution, delivery and performance of this Agreement or any other Loan
Document, the making or maintenance of any Loans, the issuing, maintenance or
participation in any Letter of Credit, or any transaction related to or
consummated in connection with this Agreement, the Loans or the Letters of
Credit, including any Losses suffered or incurred by such Indemnitee arising out
of or related to the violation of, noncompliance with or liability under, any
Environmental Laws or any orders, requirements or demands of Governmental
Authorities related thereto, or in investigating, preparing for, defending
against, or providing evidence, producing documents or taking any other action
in respect of any commenced or threatened litigation, administrative proceeding
or investigation, under any Environmental
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Laws or any other statute of any jurisdiction, or any regulation, or at common
law or otherwise, other than Losses arising out of or relating to the gross
negligence or willful misconduct of such Indemnitee; (ii) any and all Losses
(including, without limitation, all reasonable fees and disbursements of counsel
with whom any Indemnitee may consult in connection therewith and all expenses of
litigation or preparation therefor) that any Indemnitee may incur or which may
be asserted against any Indemnitee in connection with any litigation or
investigation involving or relating to the Borrower, any of its Subsidiaries or
any of its officers, directors, employees or agents, or any of its assets, other
than Losses arising out of or relating to the gross negligence or willful
misconduct of such Indemnitee; and (iii) (x) the full amount of any Other Taxes
paid by the Agent, the Issuing Bank or any Lender and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto,
whether or not such Other Taxes were correctly or legally asserted, which relate
to this Agreement or any other Loan Document or the credit facilities provided
hereunder.
(c) The covenants contained in clauses (a) and (b) of this Section 9.2
shall be in addition to any other obligations or liabilities of the Borrower to
the Agent, the Issuing Bank and the Lenders hereunder, under any other Loan
Document, or at common law or otherwise and shall survive the termination of the
Commitments, the expiration of the Letters of Credit and the repayment of the
Obligations.
9.3 Amendments and Waivers.
Neither this Agreement nor any other Loan Document, nor any terms
hereof or thereof may be amended, supplemented or modified except in accordance
with the provisions of this Section 9.3. The Majority Lenders may or, with the
written consent of the Majority Lenders, the Agent may, from time to time, (x)
enter with the Borrower or any of its Subsidiaries into written amendments,
supplements or modifications hereto or to any other Loan Document for the
purpose of adding any provisions to this Agreement or such other Loan Document
or changing in any manner the rights or obligations of the Issuing Bank, the
Lenders, the Borrower, any of its Subsidiaries or SIMA hereunder or thereunder
or (y) waive at the Borrower's request, on such terms and conditions as the
Majority Lenders or the Agent, as the case may be, may specify in such
instrument, any of the requirements of this Agreement or any other Loan Document
or any Default or Event of Default and its consequences; provided, however, that
no such waiver and no such amendment, supplement or modification shall (a) (i)
reduce the amount or extend the scheduled date of maturity of any Loan or of any
scheduled installment or mandatory prepayment thereof, (ii) reduce the stated
rate of interest or fees payable hereunder or extend the scheduled date of any
payment thereof, (iii) increase the amount or extend the expiration date of any
Commitment of any Lender, (iv) reduce the percentage specified in the definition
of Majority Lenders or amend, modify or waive any provision of this Section 9.3,
(v) consent to the assignment or transfer by the Borrower of any of its rights
and obligations under this Agreement or any other Loan Document or to the
release of any portion of the Collateral, in each case without the written
consent of all the Lenders, (b) amend, modify or waive any provision of Section
2.11 or otherwise affect the rights or duties of the Issuing Bank without the
written consent of the
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Issuing Bank, or (c) amend, modify or waive any provision of Article 8 or
otherwise affect the rights or duties of the Agent without the written consent
of the Agent. Any waiver and any amendment, supplement or modification pursuant
to this Section 9.3 shall apply to the Issuing Bank and each of the Lenders and
shall be binding upon the Borrower, the Issuing Bank, the Lenders and the Agent
and all future Lenders. Any waiver granted hereunder shall be effective only in
the specific instance and for the specific purpose for which given.
9.4 No Waiver; Cumulative Remedies.
No failure to exercise and no delay in exercising, on the part of the
Agent, the Issuing Bank or any Lender, any right, remedy, power or privilege
hereunder or under the other Loan Documents shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.
9.5 Survival of Representations and Warranties.
All representations and warranties made hereunder and in the other
Loan Documents (or in any amendment, modification or supplement hereto or
thereto) and in any certificate delivered pursuant hereto or such other Loan
Documents shall survive the execution and delivery of this Agreement and the
other Loan Documents and the making of the Loans and issuance of the Letters of
Credit hereunder.
9.6 Successors and Assigns; Participations and Assignments.
(a) This Agreement shall be binding upon and inure to the benefit of
the Borrower, the Lenders, the Issuing Bank, the Agent, all future Lenders and
their respective successors and permitted assigns, except that the Borrower may
not assign or transfer any of its rights or obligations under this Agreement
without the prior written consent of the Issuing Bank and each Lender.
(b) Any Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time sell to one or more
banks or other entities ("Participants"), participating interests in the Loans
owing to, and the LC Exposure of, such Lender, the Notes held by such Lender or
any other interest of such Lender hereunder and under the other Loan Documents;
provided that no such participating interests shall be in an aggregate principal
amount of less than $5,000,000. In the event of any such sale by a Lender of a
participating interest to a Participant, such Lender's obligations under this
Agreement to the other parties to this Agreement shall remain unchanged, such
Lender shall remain solely responsible for the performance thereof, such Lender
shall remain the holder of any Loans made by it, any Notes issued to it, and any
participations in Letters of Credit sold to it, hereunder for all purposes of
this Agreement and the other Loan Documents, and the Borrower, the Issuing Bank,
the other Lenders and the Agent shall continue to deal solely
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and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the other Loan Documents. Any agreement
pursuant to which any Lender shall sell any such participating interest shall
provide that such Lender shall retain the sole right and responsibility to
exercise such Lender's rights and enforce the Borrower's obligations hereunder,
including the right to consent to any amendment, supplement, modification or
waiver of any provision of this Agreement or any other Loan Document, provided
that such participation agreement may provide that without the consent of the
Participant such Lender will not agree to (i) the increase or extension of the
term of such Lender's Commitment, (ii) the extension of any date fixed for the
payment of principal of or interest on any of such Lender's Loans, (iii) the
reduction of any payment of principal of any of such Lender's Loans or (iv) the
reduction of the rate of interest on any of such Lender's Loans below the rate
at which the Participant is entitled to receive interest in respect of its
participation therein. The Borrower agrees that each Lender shall be entitled to
the benefits of Sections 3.3, 3.4 and 3.5 without regard to whether it has
granted any participating interests, and that all amounts payable to a Lender
under Sections 3.3 and 3.4 shall be determined as if such Lender had not granted
any such participating interests. The Borrower agrees that each Participant
shall have the right of setoff in respect of its participating interest in
amounts owing under this Agreement and any Note to the same extent as if the
amount of its participating interest were owing directly to it as a Lender under
this Agreement or any Note, provided that such Participant shall only be
entitled to such right of setoff if it shall have agreed in the agreement
pursuant to which it shall have acquired its participating interest to share
with the Lenders the proceeds thereof as provided in Section 9.7.
(c) Any Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time and from time to
time, with the prior written consent of the Agent and the Issuing Bank (which
consent shall not be unreasonably withheld or delayed) assign to any of its
Affiliates or to any other Lender or any Affiliate thereof, or, with the prior
written consent of the Agent and the Issuing Bank and (so long as no Event of
Default shall have occurred and be continuing) the Borrower (which consents
shall not be unreasonably withheld or delayed), to any other bank or financial
institution (each, an "Assignee") all or any part of its rights and obligations
under this Agreement and the other Loan Documents, including its Loans, its LC
Exposure and its Commitments pursuant to an Assignment and Acceptance,
substantially in the form of Exhibit J, executed by such Assignee, such
assigning Lender, the Agent and the Issuing Bank (and, in the case of an
Assignee that is not then a Lender or an Affiliate thereof, by the Borrower) and
delivered to the Agent for its acceptance and recording in the Register;
provided that each such transfer to an Assignee shall be in an aggregate
principal amount of $5,000,000 or any larger amount that is a whole multiple of
$1,000,000 (or, if less, the full amount of such assigning Lender's Loans). Upon
such execution, delivery, acceptance and recording, from and after the effective
date determined pursuant to such Assignment and Acceptance, (x) the Assignee
thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Lender hereunder
with Loans as set forth therein, and (y) the assigning Lender thereunder shall
be released from its obligations under this Agreement to the extent that such
obligations shall have been expressly assumed by the Assignee pursuant to such
Assignment and Acceptance (and, in the case of an
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Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such assigning Lender
shall cease to be a party hereto; provided, however, that, notwithstanding such
assignment, the provisions of Sections 3.3, 3.4, 3.5 and 9.2 shall continue to
inure to the benefit of such Lender as to any payments made to, any costs or
reductions affecting, and any actions taken or omitted to be taken by, such
Lender prior to the effective date of such assignment). Notwithstanding the
foregoing, no Assignee which as of the date of any assignment to it pursuant to
this Section 9.6(c) would be entitled to receive any greater payment under
Section 3.3 or 3.4 than the assigning Lender would have been entitled to receive
as of such date under such Sections with respect to the rights assigned, shall
be entitled to receive such greater payments unless the Borrower has consented
in writing to the assignment.
(d) The Agent shall maintain at its address referred to on Schedule I
a copy of each Assignment and Acceptance delivered to it and a register (the
"Register") for the recordation of the names and addresses of the Lenders and
the Commitments of, and principal amount of the Loans owing to, each Lender from
time to time. The entries in the Register shall be conclusive, in the absence of
manifest error, and the Borrower, the Agent, the Issuing Bank and the Lenders
may treat each Person whose name is recorded in the Register as the owner of the
Loans recorded therein for all purposes of this Agreement. The Register shall be
available for inspection by the Borrower, the Issuing Bank or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender, an Assignee, the Issuing Bank and the Agent (and, in the case
of an Assignee that is not then a Lender or an Affiliate thereof, by the
Borrower), together with payment by the assigning Lender to the Agent of a
registration and processing fee of $3,000, the Agent shall (i) promptly accept
such Assignment and Acceptance and (ii) on the effective date determined
pursuant thereto (which date shall be no earlier than 5 Business Days after the
Agent's receipt of such Assignment and Acceptance) record the information
contained therein in the Register and give prompt notice of such acceptance and
recordation to the Lenders, the Issuing Bank and the Borrower. On or prior to
such effective date, the assigning Lender shall surrender any outstanding Notes
held by it, and the Borrower, at its own expense, shall execute and deliver to
the Agent, if so requested by the Assignee, one or more new Notes, to the order
of such Assignee in an aggregate amount equal to the portion of the assigning
Lender's Loans that are being acquired by such Assignee and, if the assigning
Lender has retained a portion of its Loans hereunder and requests such Notes,
one or more new Notes, to the order of the assigning Lender in an amount equal
to the amount of the Loans retained by it. Such new Notes shall be dated the
effective date of such assignment and shall otherwise be in the form of the
Notes replaced thereby. The Notes surrendered by the assigning Lender shall be
returned by the Agent to the Borrower marked "canceled".
(f) Notwithstanding anything to the contrary set forth in this Section
9.6, no Lender may assign or sell a participating interest in any of its Loans,
any of its Notes or any of its obligations under this Agreement or any other
Loan Document to the Borrower or any of its Affiliates without the prior written
consent of all the Lenders.
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(g) The Borrower authorizes each Lender to disclose to any Participant
or Assignee (each, a "Transferee") and any prospective Transferee, any and all
financial information in such Lender's possession concerning the Borrower and
its Affiliates which has been delivered to such Lender by or on behalf of the
Borrower pursuant to this Agreement or which has been delivered to such Lender
by or on behalf of the Borrower in connection with such Lender's credit
evaluation of the Borrower and its Affiliates prior to becoming a party to the
Agreement.
(h) In addition to the assignments and participations permitted under
the foregoing provisions of this Section 9.6, any Lender may assign or pledge
all or any portion of its Loans and its Notes to any Federal Reserve Bank as
collateral security pursuant to Regulation A of the Board of Governors of the
Federal Reserve System and any operating circular relating thereto.
9.7 Adjustments; Set-off.
(a) If any Lender (a "Benefitted Lender") shall at any time receive
any payment of all or part of any of its Loans, its LC Exposure or interest on
any of the foregoing (whether voluntarily or involuntarily, through the exercise
of the right of set-off or banker's lien, pursuant to any events or proceedings
of the nature referred to in Section 7.1(f), or otherwise), in a greater
proportion than any such payment to any other Lender, if any, in respect of such
other Lender's Loans, its LC Exposure or interest on any of the foregoing, such
Benefitted Lender shall purchase for cash from each other Lender a participating
interest in such portion of each such other Lender's Loans, LC Exposure and
interest thereon, as shall be necessary to cause such Benefitted Lender to share
the excess payment ratably with each of the Lenders; provided, however, that if
all or any portion of such excess payment or benefits is thereafter recovered
from such Benefitted Lender, such purchase shall be rescinded, and the purchase
price and benefits returned, to the extent of such recovery, but without
interest.
(b) In addition to any rights and remedies of the Issuing Bank and the
Lenders provided by law, the Issuing Bank and each Lender shall have the right,
without prior notice to the Borrower, any such notice being expressly waived by
the Borrower, to the extent permitted by applicable law, upon the occurrence of
an Event of Default to set off and appropriate and apply against any amount then
due and payable by the Borrower to the Issuing Bank or such Lender hereunder or
under any other Loan Document, any and all deposits (general or special, time or
demand, provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by the Issuing Bank or such Lender or any branch or agency thereof to or
for the credit or the account of the Borrower.
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9.8 GOVERNING LAW.
THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT
REFERENCE TO ITS PRINCIPLES OF CONFLICTS OF LAW.
9.9 JUDICIAL PROCEEDINGS.
(A) THE BORROWER HEREBY EXPRESSLY SUBMITS TO THE NON-EXCLUSIVE
JURISDICTION OF ALL FEDERAL AND STATE COURTS SITTING IN THE CITY OF NEW YORK,
STATE OF NEW YORK IN CONNECTION WITH ANY ACTION, SUIT OR PROCEEDING RELATING TO
THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR ANY INSTRUMENT OR DOCUMENT RELATING
HERETO OR THERETO, AND, IN CONNECTION WITH ANY SUCH ACTION, SUIT OR PROCEEDING,
AGREES THAT ANY PROCESS OR NOTICE OF MOTION OR OTHER APPLICATION TO ANY OF SAID
COURTS OR A JUDGE THEREOF MAY BE SERVED UPON THE BORROWER WITHIN OR WITHOUT SUCH
COURT'S JURISDICTION BY REGISTERED OR CERTIFIED MAIL, AT THE ADDRESS OF THE
BORROWER SPECIFIED ON SCHEDULE I HERETO (OR AT SUCH OTHER ADDRESS AS THE
BORROWER SHALL SPECIFY BY A PRIOR NOTICE IN WRITING DELIVERED TO THE AGENT IN
ACCORDANCE WITH SECTION 9.1), PROVIDED A REASONABLE TIME FOR APPEARANCE IS
ALLOWED.
(B) THE BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT BROUGHT
IN ANY FEDERAL OR STATE COURT SITTING IN THE CITY OF NEW YORK, STATE OF NEW YORK
AND HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(C) NOTWITHSTANDING THE FOREGOING, THE AGENT, THE ISSUING BANK OR ANY
LENDER MAY SUE THE BORROWER IN ANY JURISDICTION WHERE THE BORROWER OR ANY OF ITS
ASSETS MAY BE FOUND AND MAY SERVE LEGAL PROCESS UPON THE BORROWER IN ANY OTHER
MANNER PERMITTED BY LAW.
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9.10 WAIVER OF JURY TRIAL.
THE BORROWER, THE ISSUING BANK, THE AGENT AND EACH LENDER HEREBY
IRREVOCABLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE
ARISING UNDER OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND AGREE
THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
9.11 Further Assurances.
At any time and from time to time, upon the request of the Agent, the
Borrower shall execute, deliver and acknowledge, or cause to be executed,
delivered and acknowledged, such further documents and instruments, and shall
take or refrain from taking such other action, as the Agent may reasonably
request in order to fully effect the purposes of this Agreement, the other Loan
Documents and any other agreements, instruments and documents delivered pursuant
hereto or in connection with the Loans or the Letters of Credit.
9.12 Integration Clause.
This Agreement and the other Loan Documents embody the entire
agreement and understanding among the Borrower, the Agent, the Issuing Bank and
the Lenders and supersede all prior agreements and understandings, whether
written or oral, between the parties hereto relating to the subject matter of
this Agreement.
9.13 Severability.
If any part of this Agreement is contrary to, prohibited by, or deemed
invalid under, any applicable law of any jurisdiction, such provision shall, as
to such jurisdiction, be inapplicable and deemed omitted to the extent so
contrary, prohibited or invalid, without invalidating the remainder hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
9.14 Counterparts.
This Agreement may be simultaneously executed in several counterparts,
each of which shall be an original and all of which shall constitute one and the
same agreement. Delivery of an executed signature page to this Agreement by
facsimile transmission shall be as effective as delivery of a manually signed
counterpart of this Agreement.
9.15 Acknowledgements. The Borrower hereby acknowledges that:
(a) it has been represented and advised by counsel in the negotiation,
execution and delivery of this Agreement and the other Loan Documents;
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(b) neither the Agent nor the Issuing Bank nor any Lender has any
fiduciary relationship with or duty to the Borrower arising out of or in
connection with this Agreement or any of the other Loan Documents, and the
relationship between Agent, the Issuing Bank and the Lenders, on one hand, and
the Borrower, on the other hand, in connection herewith or therewith is solely
that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions contemplated hereby among the
Lenders, the Issuing Bank or the Agent or among the Borrower and any of the
Lenders, the Issuing Bank or the Agent.
9.16 Termination of Existing Agreement. The Borrower and each of the
Existing Lenders hereby terminate the Existing Agreement effective as of the
Closing Date; provided, however, that the provisions of the Existing Agreement
which by their terms survive the repayment of the Borrower's obligations
thereunder and the termination of the Existing Lenders' commitments thereunder
shall survive the termination of the Existing Agreement pursuant hereto. Each of
the Existing Lenders hereby instructs and authorizes CLNY, acting in its
capacity as agent and/or collateral agent for the Existing Lenders under the
Existing Agreement or any related documents, to release all liens granted to
CLNY for the ratable benefit of the Existing Lenders as security for the
obligations of the Borrower to the Existing Lenders under the Existing Agreement
or any related documents and to execute and deliver to the Borrower and to file
or record, or permit the Borrower to file or record, such releases, discharges
and terminations as the Borrower may require in connection therewith.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURE PAGES FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their duly authorized officers, as of the day and year first
above written.
SPECIAL METALS CORPORATION
By:______________________________________
Donald C. Darling
Vice President - Administration
CREDIT LYONNAIS NEW YORK BRANCH, as
Agent, Issuing Bank and Lender
By:______________________________________
Xavier Roux
First Vice President
MELLON BANK, N.A.
By:______________________________________
Name:
Title:
BANQUE NATIONALE DE PARIS
NEW YORK BRANCH
By:______________________________________
Name:
Title:
By:______________________________________
Name:
Title:
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BANQUE NATIONALE DE PARIS
GEORGETOWN BRANCH
By:______________________________________
Name:
Title:
By:______________________________________
Name:
Title:
SOCIETE GENERALE NEW YORK BRANCH
By:______________________________________
Name:
Title:
<PAGE>
EXHIBIT 10.5
CASH FLOW SUPPORT AGREEMENT
AGREEMENT dated as of October 18, 1996, by SPECIAL METALS
CORPORATION, a Delaware corporation ("Special Metals") and SOCIETE INDUSTRIELLE
DE MATERIAUX AVANCES, a societe anonyme organized under the laws of the Republic
of France ("SIMA"), in favor of CREDIT LYONNAIS NEW YORK BRANCH, a New
York-licensed branch of Credit Lyonnais, S.A., a banking corporation organized
and existing under the laws of the Republic of France, in its capacity as agent
(in said capacity, together with any successor thereto in said capacity, herein
called the "Agent") under the Credit Agreement referred to below and the Lenders
(the "Senior Lenders") and Issuing Bank (the "Issuing Bank") party thereto (the
Agent, the Senior Lenders and the Issuing Bank herein collectively called the
"Senior Creditors" and each a "Senior Creditor").
RECITALS:
A. Concurrently herewith Special Metals and the Senior Creditors are
entering into a Credit Agreement dated as of the date hereof (as it may be
amended , supplemented or otherwise modified from time to time, herein called
the "Credit Agreement") providing for the making of loans by the Senior Lenders
to Special Metals (the "Senior Loans"), and the issuance of letters of credit by
the Issuing Bank for account of Special Metals (the "Senior Letters of Credit"),
in the amounts, and subject to the terms and conditions, specified in the Credit
Agreement.
B. The execution and delivery of this Cash Flow Support Agreement
and the undertaking of SIMA to make subordinated loans to Special Metals
pursuant hereto constitute conditions precedent to the obligation of the Senior
Lenders to make Senior Loans and the obligation of the Issuing Bank to issue
Senior Letters of Credit pursuant to the terms of the Credit Agreement.
C. SIMA owns 48% of the outstanding shares of voting stock of
Special Metals' sole shareholder and will derive substantial benefits from the
credit being extended to Special Metals pursuant to the Credit Agreement.
ACCORDINGLY, in consideration of the premises, and in order to
induce the Senior Creditors to execute and deliver the Credit Agreement, the
Senior Lenders to make and maintain the Senior Loans and participate in the
Senior Letters of Credit, and the Issuing Bank to issue and maintain the Senior
Letters of Credit, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, SIMA and Special Metals hereby
agree with each other and with the Senior Creditors as follows:
1. Certain Definitions.
<PAGE>
(a) Capitalized terms that are not defined herein have the
respective meanings ascribed to them in the Credit Agreement and, in addition,
the following terms have the following meanings:
"Agent" has the meaning specified in the preamble hereto.
"Available SIMA Commitment" means at any time the amount, if any, by
which the SIMA Commitment exceeds the aggregate principal amount of the SIMA
Loans outstanding at such time.
"Credit Agreement" has the meaning specified in Recital A.
"Effective Date" has the meaning specified in Section 18.
"Existing SIMA Agreement" has the meaning specified in Section 18.
"Financial Compliance Loan" has the meaning specified in Section
2(a).
"Financial Covenant Default" has the meaning specified in Section
2(a).
"Issuing Bank" has the meaning specified in the preamble hereto.
"Payment Default" has the meaning specified in Section 2(b).
"Payment Default Loan" has the meaning specified in Section 2(b).
"Post-Petition Interest" means any interest accrued on the Senior
Debt after the commencement of a case, proceeding or other action with respect
to Special Metals of the type described in Section 15(d).
"Senior Creditor" and "Senior Creditors" have the respective
meanings specified in the preamble hereto.
"Senior Lenders" has the meaning specified in the preamble hereto.
"Senior Debt" means all indebtedness and other liabilities and
obligations of the Borrower under the Credit Agreement, any Senior Note or any
other Loan Document including, without limitation, (i) the obligation to repay
the Senior Loans in full when due, (ii) the obligation to pay interest on the
Senior Loans (including, without limitation, Post-Petition Interest) at the
rates and on the dates specified in the Credit Agreement, (iii) the obligation
to pay the fees specified in the Credit Agreement in full when due at the rates
and on the dates specified therein or in the Fee Letter, (iv) the obligation to
reimburse the Issuing Bank in full for any payment made by it under a Letter of
Credit as provided in the Credit Agreement, (v) the obligation to Cash
Collateralize the Letters of Credit as provided in the Credit Agreement,
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(vi) the obligation to indemnify the Senior Creditors as provided in the Credit
Agreement or any other Loan Document, (vii) the obligation to pay costs and
expenses as provided in the Credit Agreement or any other Loan Document, (viii)
the obligation to pay all other amounts specified in the Credit Agreement or any
other Loan Document and (ix) all extensions, modifications, deferrals or
renewals of any amount specified in clause (i) through (viii) above.
"Senior Letters of Credit" has the meaning specified in Recital A.
"Senior Loans" has the meaning specified in Recital A.
"SIMA" has the meaning specified in the preamble hereto.
"SIMA Commitment" has the meaning specified in Section 3.
"SIMA Commitment Period" means the period commencing on the date
hereof and ending on the first Business Day on which all of the following events
shall have occurred: (i) all commitments of the Senior Creditors under the
Credit Agreement to make Senior Loans or to issue or participate in Senior
Letters of Credit shall have terminated, (ii) all Senior Letters of Credit shall
have expired or been terminated, and (iii) the Senior Debt shall have been
indefeasibly paid in full.
"SIMA Loans" has the meaning specified in Section 3.
"SIMA Note" has the meaning specified in Section 9.
"Special Metals" has the meaning specified in the preamble hereto.
"Subordination Agreement" means the Subordination Agreement dated as
of the date hereof among Special Metals, SIMA and the Agent.
(b) Unless otherwise expressly specified herein, defined terms
denoting the singular number shall, when in the plural form, denote the plural
number of the matter or item to which such defined terms refer, and vice-versa.
(c) Words of the neuter gender mean and include correlative words of
the masculine and feminine gender.
(d) Section and Schedule headings used in this Agreement are for
convenience only and shall not affect the construction or meaning of any
provisions of this Agreement.
(e) Unless otherwise specified, the words "hereof", "herein",
"hereunder" and other similar words refer to this Agreement as a whole and not
just to the Section, subsection, paragraph or clause in which they are used; and
the words "this Agreement" refer to this Cash Flow Support Agreement, as
amended, modified or supplemented from time to time.
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(f) Unless otherwise specified, the term "including", whenever used
in this Agreement, shall be deemed to mean "including without limitation".
(g) Unless otherwise specified, references to Sections, Recitals or
Exhibits are references to Sections of, and Recitals and Exhibits to, this
Agreement.
2. Obligation to Borrow.
(a) If Special Metals shall violate any financial covenant set forth
in Section 6.19 or 6.20 of the Credit Agreement (any such violation herein
called a "Financial Covenant Default"), it shall request from SIMA pursuant to
Section 4(a), promptly and in any event no later than three Business Days after
it determines that such Financial Covenant Default has occurred, a loan (a
"Financial Compliance Loan") in a principal amount equal to the lesser of (i) an
amount sufficient to cure such Financial Covenant Default or (ii) the then
Available SIMA Commitment.
(b) If Special Metals shall fail to make any payment in respect of
the Senior Debt when due (any such failure herein called a "Payment Default"),
it shall request from SIMA pursuant to Section 4(a), promptly and in any event
no later than three Business Days after it determines that such Payment Default
has occurred, a loan (a "Payment Default Loan") in a principal amount equal to
the lesser of (i) an amount sufficient to cure such Payment Default or (ii) the
then Available SIMA Commitment.
3. Commitment to Lend; Obligation to Lend Absolute.
(a) SIMA hereby irrevocably and unconditionally (but subject to the
terms and conditions of this Agreement) agrees to make Financial Compliance
Loans and Payment Default Loans (collectively, the "SIMA Loans") to Special
Metals from time to time during the SIMA Commitment Period in an aggregate
principal amount at any one time outstanding not exceeding Six Million Dollars
($6,000,000) (the "SIMA Commitment"). SIMA Loans may be borrowed at any time
during the SIMA Commitment Period, but may not be repaid or prepaid prior to the
last day of the SIMA Commitment Period.
(b) SIMA acknowledges and agrees that its obligation to make SIMA
Loans to Special Metals pursuant to paragraph (a) of this Section 3 shall be
absolute and unconditional and shall not be affected by any circumstance,
including, without limitation, (i) any setoff, counterclaim, recoupment, defense
or other right which SIMA may have against Special Metals or any other Person
for any reason whatsoever; (ii) the occurrence or continuance of an Event of
Default hereunder (other than an Event of Default under Section 15(d) hereof) or
under the Credit Agreement; (iii) any adverse change in the condition (financial
or otherwise) of Special Metals or any of its Subsidiaries; (iv) any breach of
this Agreement by Special Metals or any other Person; or (v) any other
circumstance, happening or event whatsoever, whether or not similar to any of
the foregoing.
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(c) SIMA may at the request of Special Metals, but shall have no
obligation to, make loans to Special Metals which are not governed by this
Agreement, upon terms and conditions to be agreed upon by SIMA and Special
Metals.
4. Disbursement of SIMA Loans.
(a) Each SIMA Loan shall be made within three Business Days after
SIMA receives either (i) a request therefor from Special Metals, specifying the
amount and borrowing date of such loan or (ii) a written notice from the Agent
that a Financial Covenant Default or a Payment Default has occurred, which
notice shall be substantially in the form of Exhibit B.
(b) SIMA shall make the proceeds of each SIMA Loan available to
Special Metals on the requested borrowing date for such Loan, by a wire transfer
in U.S. dollars to the account maintained by Special Metals with the Agent at
its office located at 1301 Avenue of the Americas, New York, New York 10019.
5. No Cancellation or Reduction of SIMA Commitment.
During the SIMA Commitment Period, neither SIMA nor Special Metals
shall have the right to cancel or reduce the SIMA Commitment or to reduce the
SIMA Commitment Period without the prior written consent of the Majority Lenders
(or the Agent acting on their behalf), and any such attempted cancellation or
reduction without such consent shall be null and void.
6. Repayment and Prepayment of SIMA Loans.
(a) After the last day of the SIMA Commitment Period, Special Metals
shall repay any SIMA Loans that are then outstanding promptly upon demand from
SIMA. SIMA shall make no demand for repayment of, and Special Metals shall have
no obligation to repay, the SIMA Loans prior to the last day of the SIMA
Commitment Period, unless an Event of Default shall have occurred under Section
15(d) and such repayment is not otherwise prohibited.
(b) Special Metals shall not make any payment or prepayment in
respect of the principal amount of the SIMA Loans, or allow any of its assets to
be applied to such payment or prepayment, prior to the last day of the SIMA
Commitment Period. If SIMA receives any payment or prepayment from Special
Metals or out of its assets on account of the principal amount of the SIMA Loans
prior to the last day of the SIMA Commitment Period, such payment or prepayment
shall be held in trust for the benefit of the Senior Creditors, and shall be
paid over to the Agent (for distribution to the Senior Creditors).
7. Interest on the SIMA Loans.
Special Metals shall pay interest on the unpaid principal amount of
each SIMA Loan for the period from (and including) the borrowing date for such
Loan to (but excluding)
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the date such Loan shall be paid in full, at a rate per annum set by SIMA based
on market conditions. Interest shall be paid in arrears at such time or times as
SIMA may request, subject to the terms of the Subordination Agreement.
8. Place and Manner of Payment.
All payments due to SIMA under or pursuant to this Agreement and the
SIMA Note shall be made by Special Metals when due in U.S. Dollars and in
immediately available funds at such address as SIMA may designate in writing
from time to time.
9. The SIMA Note.
The obligation of Special Metals to repay the principal amount of
the SIMA Loans and to pay interest thereon as provided in this Agreement shall
be evidenced by a promissory note substantially in the form of Exhibit A (the
"SIMA Note"). SIMA shall endorse on the schedule attached to the SIMA Note the
amount of each loan made by it hereunder and the amount of any payments or
prepayments received by it in respect of principal or interest on each such
loan. Any such endorsement shall constitute conclusive evidence of the accuracy
of the information so recorded, absent manifest error. SIMA's failure to make
any such notation shall not affect the obligation of Special Metals to repay the
unpaid principal amount of and all accrued interest on the SIMA Loans.
10. Use of Loan Proceeds; Obligation to Prepay the Loans. Special
Metals shall use the proceeds of any Financial Compliance Loans or Payment
Default Loans made to it hereunder, immediately upon its receipt thereof, solely
to pay, repay or prepay the Senior Debt to the extent necessary to cure the
relevant Financial Covenant Default or Payment Default, as the case may be (or,
if the then Available SIMA Commitment is less than the amount necessary to avoid
the occurrence of or cure such default, to prepay the Senior Debt to the extent
of the then Available SIMA Commitment); provided, however, that if such payment
would result in the prepayment of any Fixed Rate Loan prior to the last day of
the Interest Period applicable thereto, the Borrower may deposit the amount of
such prepayment in a cash collateral account with the Agent, as security for the
Obligations, until the last day of the relevant Interest Period, at which time
the amount in such cash collateral account shall be applied by the Agent to the
prepayment of the Loans in accordance with the terms of the Credit Agreement.
11. Representations and Warranties of Special Metals.
Special Metals hereby represents and warrants to SIMA and the Senior
Creditors that:
(a) Special Metals has full power and authority to execute and
deliver this Agreement and the SIMA Note, to borrow hereunder and to incur and
perform the obligations provided for herein or therein.
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(b) The execution, delivery and performance of this Agreement and
the SIMA Note by Special Metals, the borrowings by it hereunder, and the
incurrence and performance of the obligations provided for herein or therein (i)
have been duly authorized by all requisite corporate action of Special Metals,
(ii) do not require the approval of the stockholders of Special Metals, and
(iii) will not (1) violate any law or regulation or the certificate of
incorporation or by-laws of Special Metals, (2) violate or constitute (with due
notice or lapse of time or both) a default under any provision of any indenture,
agreement, license or other instrument to which Special Metals is a party or by
which it or any of its properties may be bound or affected, (3) violate any
order of any court, tribunal or governmental agency binding upon Special Metals
or any of its properties or (4) result in the creation or imposition of any lien
or encumbrance of any nature whatsoever upon any assets or revenues of Special
Metals.
(c) No authorizations, approvals and consents of, and no filings and
registrations with, any governmental or regulatory authority or agency are
necessary for the execution, delivery or performance by Special Metals of this
Agreement or the SIMA Note or for the validity or enforceability hereof or
thereof.
(d) This Agreement and the SIMA Note constitute the legal, valid and
binding obligations of Special Metals, enforceable against Special Metals in
accordance with their respective terms.
12. Representations and Warranties of SIMA.
SIMA hereby represents and warrants to Special Metals and the Senior
Creditors that:
(a) SIMA is a corporation duly organized, validly existing and in
good standing under the laws of the Republic of France. SIMA has full power and
authority to execute and deliver this Agreement and to incur and perform the
obligations provided for herein.
(b) The execution, delivery and performance of this Agreement by
SIMA and the incurrence and performance by it of the obligations provided for
herein, including its extensions of credit to Special Metals (i) have been duly
authorized by all requisite corporate action of SIMA, (ii) do not require the
approval of the stockholders of SIMA, and (iii) will not (1) violate any law or
regulation or the certificate of incorporation or by-laws of SIMA, (2) violate
or constitute (with due notice or lapse of time or both) a default under any
provision of any indenture, agreement, license or other instrument to which SIMA
is a party or by which it or any of its properties may be bound or affected, (3)
violate any order of any court, tribunal or governmental agency binding upon
SIMA or any of its properties or (4) result in the creation or imposition of any
lien or encumbrance of any nature whatsoever upon any assets or revenues of
SIMA.
(c) No authorizations, approvals and consents of, and no filings and
registrations with, any governmental or regulatory authority or agency are
necessary for the
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execution, delivery or performance by SIMA of this Agreement or for the
validity or enforceability hereof.
(d) This Agreement constitutes the legal, valid and binding
obligation of SIMA, enforceable against SIMA in accordance with its terms.
13. Covenants of Special Metals.
Special Metals hereby covenants and agrees for the benefit of the
Agent and the other Senior Creditors that so long as Special Metals may borrow,
or request the issuance of letters of credit, under the Credit Agreement and
until the Senior Debt has been indefeasibly paid in full and all the Senior
Letters of Credit have expired or been terminated, Special Metals shall:
(a) comply in all respect with its obligations under this Agreement
and the SIMA Note;
(b) notify the Agent in writing of each borrowing request made by
Special Metals hereunder, which notice shall be delivered to the Agent no later
than the close of business on the day on which such borrowing request is made by
Special Metals, shall specify the amount and borrowing date of the requested
SIMA Loan and whether such Loan is a Financial Compliance Loan or a Payment
Default Loan and shall set forth in detail reasonably satisfactory to the Agent
the basis for such borrowing (including all necessary calculations); and
(c) furnish to each Senior Creditor as soon as available and in any
event within 5 days after the end of each calendar month, a certificate signed
by a Responsible Officer of Special Metals, setting forth in detail reasonably
satisfactory to the Senior Creditors the aggregate principal amount of the SIMA
Loans outstanding on the last day of such month, the borrowing date therefor,
the interest rate applicable thereto, and stating whether such Loans were
borrowed as Financial Compliance Loans or Payment Default Loans.
14. Covenants of SIMA; Acknowledgment of Reliance.
SIMA hereby covenants and agrees for the benefit of the Agent and
the other Senior Creditors that so long as Special Metals may borrow, or request
the issuance of letters of credit, under the Credit Agreement and until the
Senior Debt has been indefeasibly paid in full and all the Senior Letters of
Credit have expired or been terminated, SIMA shall comply in all respects with
its obligations under this Agreement, including the obligation to make loans to
Special Metals pursuant to Section 3. SIMA hereby acknowledges that the Senior
Creditors are entering into the Credit Agreement in reliance upon SIMA's
execution and delivery of this Agreement and its covenant to perform its
obligations hereunder in accordance with the terms hereof.
15. Events of Default.
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The occurrence of any of the following events shall constitute an
event of default hereunder:
(a) At any time after the last day of the SIMA Commitment Period,
Special Metals shall fail to make payment of any amounts owing under this
Agreement or the SIMA Note within ten (10) days following the due date thereof;
(b) At any time after the last day of the SIMA Commitment Period,
Special Metals shall (i) default in the payment of principal of or interest on
any indebtedness or in the payment of any guaranty obligation in an individual
principal amount of $1,000,000.00 or more or an aggregate principal amount of
$1,000,000.00 or more beyond the period of grace, if any, provided in the
instrument or agreement under which indebtedness or guarantee obligation was
created; or (ii) shall default in the observance or performance of any other
covenant, agreement or condition relating to any such indebtedness or guarantee
obligation or contained in any instrument or agreement evidencing, securing or
relating thereto, or any other event shall occur or condition exist, the effect
of which default or other condition is to cause or to permit the lender of such
indebtedness or beneficiary of such guarantee obligation to cause, with the
giving of notice or the lapse of time or both, if required, such indebtedness to
become due prior to its stated maturity or such guarantee obligation to become
payable;
(c) One or more judgments or decrees shall be entered against
Special Metals at any time after the last day of the SIMA Commitment Period,
involving in the aggregate a liability (not paid or fully covered by insurance)
of $1,000,000.00 or more and there shall have been a period of thirty (30)
consecutive days during which a stay of enforcement of such judgment or decree,
by reason of a pending appeal or otherwise, shall not be in effect or during
which such judgments or decrees shall not have been vacated or discharged; or
(d) (i) Special Metals shall commence any case, proceeding or other
action (A) under any existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors
seeking to have an order for relief entered with respect to it, or seeking to
adjudicate it bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or other relief
with respect to it or its debts, or (B) seeking appointment of a receiver,
trustee, custodian or other similar official for it or for all or any
substantial part of its assets, or Special Metals shall make a general
assignment for the benefit of its creditors; or (ii) there shall be commenced
against Special Metals any case, proceeding or other action of a nature referred
to in clause (i) above which (A) results in the entry of an order for relief for
any such adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for period of sixty (60) days; or (iii) there shall be commenced
against Special Metals any case, proceeding or other action seeking issuance of
a warrant of attachment, execution, distraint or similar process against all or
any substantial part of its assets which results in the entry of an order for
any such relief which shall not have been vacated, discharged, or stayed or
bonded pending appeal within sixty (60) days from the entry thereof, or (iv)
Special Metals shall take any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the acts set forth in clause
(i), (ii) or (iii)
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<PAGE>
above; or (v) Special Metals shall generally not, or shall be unable to, or
shall admit in writing its inability to, pay its debts as they become due.
Without in any way limiting SIMA's right to demand payment at any
time after the last day of the SIMA Commitment Period (subject to the terms of
the Subordination Agreement), upon the occurrence after the last day of the SIMA
Commitment Period of one of the events specified in paragraphs (a), (b) or (c)
above, all amounts due under this Agreement and the SIMA Note may, at SIMA's
option, be accelerated and declared payable in full, subject to the terms of the
Subordination Agreement, and SIMA's obligation to make further loans hereunder
shall be terminated. Upon the occurrence of one of the events specified in
clause (d) (whether before or after the last day of the SIMA Commitment Period),
all amounts due under this Agreement and the SIMA Note shall automatically be
accelerated and become payable in full, subject to the terms of the
Subordination Agreement, and SIMA's obligation to make further loans hereunder
shall be terminated.
16. Confirmation of Subordination.
Special Metals and SIMA hereby acknowledge and agree that all of the
obligations of Special Metals hereunder and under the SIMA Note, the
indebtedness evidenced by the SIMA Note and all claims SIMA may now or at any
time hereafter have against Special Metals or any of its assets arising out of
or relating to such obligations and indebtedness are subordinated to the Senior
Debt as provided in the Subordination Agreement and that payment of such
obligations and indebtedness is subject to the restrictions set forth in the
Subordination Agreement.
17. Specific Performance.
The Agent is hereby authorized to demand specific performance of the
respective obligations of Special Metals and SIMA under this Agreement, and
Special Metals and SIMA hereby irrevocably waive any defense based on adequacy
of a remedy at law that might be asserted as a bar to the remedy of specific
performance of this Agreement in any action brought therefor.
18. Termination of Existing Subordinated Loan Agreement.
Special Metals and SIMA hereby agree that (a) Special Metals shall
not request, and SIMA shall have no obligation to make, any loans under the
Subordinated Loan Agreement and Note dated December 15, 1994, between Special
Metals and SIMA (as amended, the "Existing SIMA Agreement"), from and after the
date on which this Agreement shall have been executed and delivered by all the
parties hereto and the SIMA Note shall have been executed and delivered by
Special Metals (such date herein called the "Effective Date") and (b) the loans
made by SIMA to Special Metals under the Existing SIMA Agreement that are
outstanding on the Effective Date shall be due and payable in full in accordance
with the terms thereof upon demand made by SIMA at any time after the Effective
Date, subject to the restrictions contained
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<PAGE>
in the Subordination Agreement.
19. Cumulative Rights.
Each and every right granted to SIMA or any Senior Creditor
hereunder or in connection herewith, or allowed it by law or equity, shall be
cumulative and may be exercised from time to time.
20. Waivers and Amendments.
(a) No failure on the part of SIMA or any Senior Creditor to
exercise, and no delay in exercising, and no course of dealing with respect to,
any right, power or remedy hereunder shall operate as a waiver thereof or of any
default hereunder, nor shall any single or partial exercise by SIMA or any
Senior Creditor of any right, power or remedy hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or remedy. No
amendment, modification or waiver of any provision of this Agreement, nor any
consent to any departure herefrom, shall in any event be effective unless the
same shall be in writing, signed by all the parties hereto and consented to in
writing by the Agent with the approval of the requisite number of Senior Lenders
under the Credit Agreement, and then such amendment, modification, waiver or
consent shall be effective only in the specific instance and for the purpose for
which given.
(b) Special Metals hereby waives presentment, protest, demand,
notice of dishonor or default, and notice of any kind except as herein required
with respect to this Agreement, the SIMA Note or the performance of its
obligations under this Agreement or the SIMA Note.
21. GOVERNING LAW.
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS PRINCIPLES OF
CONFLICT OF LAWS.
22. SUBMISSION TO JURISDICTION.
(A) EACH OF SIMA AND SPECIAL METALS HEREBY EXPRESSLY SUBMITS TO THE
NON-EXCLUSIVE JURISDICTION OF ALL FEDERAL AND STATE COURTS SITTING IN NEW YORK
COUNTY, STATE OF NEW YORK, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE SIMA NOTE OR THEIR RESPECTIVE OBLIGATIONS
HEREUNDER OR THEREUNDER AND EACH OF THEM AGREES THAT ANY PROCESS OR NOTICE OF
MOTION OR OTHER APPLICATION TO ANY OF SAID COURTS OR A JUDGE THEREOF MAY BE
SERVED UPON IT WITHIN OR
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<PAGE>
WITHOUT SUCH COURT'S JURISDICTION BY REGISTERED OR CERTIFIED MAIL (RETURN
RECEIPT REQUESTED) OR BY PERSONAL SERVICE, AT THE ADDRESS OF SUCH PARTY
SPECIFIED NEXT TO ITS SIGNATURE HERETO (OR AT SUCH OTHER ADDRESS AS SUCH PARTY
SHALL SPECIFY BY A PRIOR NOTICE IN WRITING TO THE OTHER PARTIES HERETO).
(B) EACH OF SIMA AND SPECIAL METALS HEREBY IRREVOCABLY WAIVES ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT,
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE SIMA
NOTE BROUGHT IN ANY FEDERAL OR STATE COURT SITTING IN NEW YORK COUNTY, STATE OF
NEW YORK, AND HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
(C) NOTWITHSTANDING THE FOREGOING, ANY PARTY HERETO MAY SUE ANY
OTHER PARTY HERETO, AND MAY BE SUED BY ANY SENIOR CREDITOR, IN ANY JURISDICTION
WHERE SUCH OTHER PARTY OR ANY OF ITS ASSETS MAY BE FOUND AND MAY SERVE LEGAL
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
23. WAIVER OF JURY TRIAL.
EACH PARTY HERETO HEREBY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY OF ANY DISPUTE ARISING UNDER OR RELATING TO THIS AGREEMENT OR THE SIMA NOTE
AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A
JURY.
24. Expenses.
Special Metals agrees to pay all costs and expenses of SIMA, the
Agent or any other Senior Creditor (including the reasonable fees and
disbursements of counsel) in connection with the preparation of this Agreement
(subject, in the case of the fees and disbursements of counsel relating to such
preparation, to the terms of the Fee Letter) and any amendment hereof and the
enforcement of any rights of SIMA, the Agent, the Senior Creditors or any of
them hereunder. SIMA agrees to pay all costs and expenses of the Agent or any
other Senior Creditor (including the reasonable fees and disbursements of
counsel) in connection with the enforcement of any rights of the Agent, the
Senior Creditors or any of them against SIMA hereunder.
25. Termination; Payment in Full; Reinstatement.
(a) This Agreement is a continuing agreement and shall remain in
full force and effect so long as Special Metals may borrow hereunder or under
the Credit Agreement or request the issuance of letters of credit under the
Credit Agreement or any Senior Letter of Credit is
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<PAGE>
outstanding, and until the indefeasible payment in full of the Senior Debt and
of all obligations of Special Metals to SIMA hereunder.
(b) The Senior Debt shall not be deemed to have been indefeasibly
paid in full for purposes of this Agreement until all amounts owing thereon
(including, without limitation, all Post-Petition Interest, if any) shall have
been paid to the Senior Creditors, whether or not a claim for such amounts
(including a claim for such Post-Petition Interest) is enforceable, and any
applicable preference periods shall have expired.
(c) If at any time after the last day of the SIMA Commitment Period
all or any part of any payment of the Senior Debt received by any Senior
Creditor is or must be rescinded or returned to Special Metals or any other
Person for any reason whatsoever (including, without limitation, by reason of
the insolvency, bankruptcy, or reorganization of Special Metals or such other
Person), this Agreement and the SIMA Commitment shall be reinstated as though
the SIMA Commitment Period had not ended.
26. Assignments.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns; provided, however,
that neither Special Metals nor SIMA shall transfer, sell or otherwise dispose
of any of its obligations hereunder or, in the case of SIMA, any portion of the
loans made by it to Special Metals hereunder, without the prior written consent
of the Agent (acting upon instructions of the requisite number of Senior Lenders
under the Credit Agreement).
27. Addresses for Notices, Etc.
All notices, requests, demands, instructions, directions and other
communications provided for hereunder shall be in writing (which term shall
include telecopied communications) and shall be sent by overnight courier,
telecopied or delivered to the applicable party at the address or telecopier
number specified for such party opposite its signature line below or, as to any
party, to such other address or telecopier number as such party shall specify by
a notice in writing to the other parties hereto. Each notice, request, demand,
instruction, direction or other communication provided for hereunder shall be
deemed delivered (i) if by overnight courier, one Business Day (or, in the case
of any party hereto that has indicated an address for notices that is located
outside the United States, two Business Days) after being delivered to the
overnight courier, addressed to the applicable party at its address set forth
above, (ii) if by hand, when delivered to the applicable party at such address,
and (iii) if by telecopy, when sent to the applicable party at such telecopier
number.
28. Severability.
Any provision of this Agreement that is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or
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<PAGE>
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render such provision unenforceable in any other jurisdiction.
29. Execution in Counterparts.
This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, all of which when taken together
shall constitute but one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute this Agreement as of the date first above
written.
Address: SPECIAL METALS CORPORATION
4317 Middle Settlement Road
New Hartford, New York 13413 By _________________________________
Attention: Donald C. Darling Name:
Telecopier: (315) 798-2001 Title:
Address: SOCIETE INDUSTRIELLE DE MATERIAUX
AVANCES
____________________________
____________________________
____________________________ By: ________________________________
Attention: _________________ Name:
Telecopier: ________________ Title:
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<PAGE>
EXHIBIT A
FORM OF PROMISSORY NOTE
This Note and the indebtedness evidenced hereby is subject to the
restrictions contained in a Subordination Agreement (as such
agreement may from time to time be amended, modified or
supplemented, the "Subordination Agree ment") dated as of October
18, 1996, among Special Metals Corporation, a Delaware corporation,
Societe Industrielle de Materiaux Avances, a societe anonyme
organized under the laws of the Republic of France and Credit
Lyonnais New York Branch, a New York-licensed branch of Credit
Lyonnais, S.A., a banking corporation organized and existing under
the laws of the Republic of France, in its capacity as agent for the
Lenders and Issuing Bank specified in the Subordination Agreement;
and each holder of this Note, by its acceptance hereof, shall be
bound by the Subordination Agreement.
$6,000,000 New York, New York
October 18, 1996
For value received, SPECIAL METALS CORPORATION, a Delaware corporation
(the "Borrower"), promises to pay to the order of SOCIETE INDUSTRIELLE DE
MATERIAUX AVANCES, a societe anonyme organized under the laws of the Republic of
France (the "Lender"), ON DEMAND, the principal amount of Six Million United
States Dollars (US$6,000,000) or, if less, the principal amount of all SIMA
Loans made by the Lender to the Borrower pursuant to the Cash Flow Support
Agreement referred to below that are then outstanding. The Borrower also
promises to pay interest on the unpaid principal amount of each such SIMA Loan
from the date such SIMA Loan is made until it is repaid in full, on the dates
and at the rates specified in the Cash Flow Support Agreement. All such payments
of principal and interest shall be made in lawful money of the United States of
America and in immediately available funds in accordance with the terms of the
Cash Flow Support Agreement at the office of the Lender specified in the Cash
Flow Support Agreement or in accordance with wiring instructions specified by
the Lender.
All SIMA Loans made by the Lender and all payments of the principal
thereof shall be recorded by the Lender on the schedule attached hereto or any
continuation thereof. Any such recordation shall constitute prima facie evidence
of the existence and amounts of the obligations of the Borrower so recorded;
provided, however, that the failure of the Lender to make any such recordation
shall not affect the obligations of the Borrower hereunder or under the Cash
Flow Support Agreement.
This note is the SIMA Note referred to in the Cash Flow Support Agreement
dated as of October 18, 1996, by the Borrower and the Lender in favor of the
Senior Creditors specified
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<PAGE>
therein (as the same may be amended, restated, supplemented or otherwise
modified from time to time with the approval of the Agent, the "Cash Flow
Support Agreement") and is entitled to the benefits thereof. Terms defined in
the Cash Flow Support Agreement are used herein with the same meanings.
Reference is made to the Cash Flow Support Agreement for provisions for the
prepayment hereof and the acceleration of the maturity hereof. The Borrower
hereby waives presentment, demand, protest and all other notices of any kind in
connection with this Note.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
PRINCIPLES OF CONFLICT OF LAWS.
SPECIAL METALS CORPORATION
By:______________________________
Name:
Title:
<PAGE>
EXHIBIT B
FORM OF NOTICE FROM THE AGENT
Societe Industrielle de Materiaux Avances
__________________________________
__________________________________
__________________________________
Attention:________________________
Ladies and Gentlemen:
Reference is made to (i) the Credit Agreement dated as of October 18,
1996 (as amended, restated, supplemented or otherwise modified from time to
time, the "Credit Agreement"), among Special Metals Corporation ("Special
Metals"), the financial institutions from time to time party thereto (the
"Lenders"), and Credit Lyonnais New York Branch, as Issuing Bank and as Agent
and (ii) the Cash Flow Support Agreement dated as of October __, 1996, by
Special Metals and Societe Industrielle de Materiaux Avances ("SIMA") in favor
of the Lenders, the Issuing Bank and the Agent (as amended, restated,
supplemented or otherwise modified from time to time, the "Cash Flow Support
Agreement"). Unless otherwise defined herein, terms defined in the Credit
Agreement or the Cash Flow Support Agreement and not otherwise defined herein
shall have the respective meanings given to them in the Credit Agreement or the
Cash Flow Support Agreement, as the case may be.
We hereby notify you pursuant to Section 4(a) of the Cash Flow Support
Agreement that a [Financial Covenant Default] [Payment Default] has occurred and
is continuing. We hereby request that you make a [Financial Compliance Loan]
[Payment Default Loan] to Special Metals pursuant to the terms of the Cash Flow
Support Agreement in the amount of $______ (or, if less, the total amount of the
Available SIMA Commitment on the date hereof). Please disburse the proceeds of
said Loan no later than 12:00 Noon, New York time, on _____________
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<PAGE>
___________(1), by a wire transfer in U.S. Dollars to the account maintained by
Special Metals with the Agent, in accordance with the wiring instructions set
forth below:
___________________________
___________________________
___________________________
Very truly yours,
CREDIT LYONNAIS NEW YORK BRANCH
By ________________________________
Name:
Title:
- --------
(1) Insert date which is at least three Business Days after the date on which
this notice is transmitted to SIMA.
4
<PAGE>
SUBORDINATED NOTE
$2,000,000.00 October 1, 1994
FOR VALUE RECEIVED, SPECIAL METALS CORPORATION, a corporation
organized under the laws of the State of Delaware ("Company"), hereby promises
to pay on demand to the order of LWH HOLDINGS, S.A., a corporation organized
under the laws of Luxembourg ("Lender") the principal sum of TWO MILLION DOLLARS
($2,000,000.00), together with interest which has accrued through September 30,
1994 in the amount of ONE HUNDRED SIXTY-FIVE THOUSAND TWO HUNDRED FIFTY-SEVEN
AND 24/100 DOLLARS ($165,257.24).
Unpaid principal and all accrued and unpaid interest shall bear
interest at the rate of five percent (5%) per annum from October 1, 1994. The
rate of interest hereunder is subject to adjustment at Lender's option on
January 31 of each year upon written notice to the Company but in no event shall
it exceed fifteen percent (15%) per annum.
Until the Senior Obligations (as defined below) have been paid in
full, payments of interest shall be limited to interest on the unpaid principal
balance at the rate of two and one-half percent (2 1/2%) per annum during 1994
and five percent (5%) per annum thereafter, provided that interest shall
continue to accrue on the outstanding principal balance and any accrued and
unpaid interest at the rate set forth above. Subject to the limitations set
forth above, accrued interest shall be payable on the first day of each January,
April, July and October commencing on January 1, 1995 and for so long as the
principal balance remains outstanding under this Subordinated Note.
All payments due under or pursuant to this Subordinated Note shall
be made when due at such address as Lender may designate in writing from time to
time, in lawful money of the United States of America.
1. Subordination. The Lender and any subsequent holder of this
Subordinated Note, or any of them (by its acceptance hereof) agrees that the
payment of principal, interest and any costs or fees on this Subordinated Note
(herein called the "Subordinated Obligations") is specifically and expressly
subordinated to the prior payment in full of all of the obligations of the
Company under (a) that certain Amended and Restated Credit Agreement (the
"Senior Credit Agreement" dated as of December 15, 1994 among the Company,
certain banks party thereto and Credit Lyonnais New York Branch, as the Agent
(the "Agent"), as the same may from time to time be amended, supplemented or
otherwise modified and (b) the promissory notes
<PAGE>
("Senior Notes") issued by the Company pursuant to the Senior Credit Agreement
(all of such obligations under the Senior Credit Agreement and the Senior Notes
whether for principal, interest (including, without limitation, any interest
accruing after the commencement of any case, proceeding or other action relating
to the liquidation, dissolution, assignment for the benefit of creditors,
receivership, arrangement, bankruptcy, insolvency or reorganization of the
Company regardless of whether such interest is allowable, payable or accruable
in such case, proceeding or other action), fees, expenses or otherwise being
herein called the "Senior Obligations"). The Lender and each such holder of this
Subordinated Note (by its acceptance hereof) further agrees (i) not to
accelerate, amend, modify, ask for, demand, sue for, take or receive, directly
or indirectly, payment of all or any part of the Subordinated Obligations
unless and until all of the Senior Obligations have been fully paid; (ii) that,
if any payment is made, directly or indirectly, on account of the Subordinated
Obligations contrary to the terms of this paragraph, each and every amount so
paid will be held in trust and promptly paid to the Agent to be credited and
applied on account of the Senior Obligations, as the holders thereof may elect;
(iii) that, upon any distribu tion of the assets or readjustment of indebtedness
of the Company, whether by reason of reorganization, liquidation, dissolution,
bankruptcy, receivership, assignment for the benefit of creditors, or any other
action or proceeding involving the readjustment of all or any of the
indebtedness evidenced by this Subordinated Note, or the applica tion of assets
of the Company to the payment or liquidation thereof, either in whole or in
part, the holders of the Senior Obligations shall bo entitled to receive payment
in full in cash of any and all of the Senior Obligations prior to the payment of
all or any of the Subordinated Obligations, and in order to enable the holders
of the Senior Obligations to assert and enforce their rights under this
paragraph in any such action or proceeding, or upon the happening of any such
event, the Agent is irrevocably authorized and empowered to file, for and on
behalf of the Lender or such holders of the Subordinated Note, such proof or
proofs of claim against the Company in any statutory or non-statutory proceeding
on account of all or any of the Subordinated Obligations, and to receive and
collect any and all dividends or other payments or disbursements made thereon,
to be applied on account of the Senior Obligations as the holders may elect;
(iv) to execute and deliver to the Agent and the holders of the Senior
Obligations such assignments or other instruments as may be requested by the
Agent in order to enable the holders of the Senior Obligations to enforce their
rights under this paragraph and to collect any and all dividends or other
payments or disbursements which may be made at any time on account of all or any
of the Subordinated Obligations; (v) not to transfer, assign, encumber or
subordinate at any time (except to the holder of the Senior Obligations) while
the Senior Obligations are outstanding any right, claim or interest of any kind
in or to this Subordinated Note, unless such is done expressly subject to the
terms of and provisions of this paragraph; (vi) that the Lender and each such
holder of this Subordinated Note, at all times during which the Senior
Obligations are outstanding, waive the right to receive any payment of the
Subordinated Obligations and (vii) that the holders of the Senior Obligations
may at any time in their discretion accelerate, modify, amend, renew or extend
the time of payment of the principal of and interest on the Senior Obligation or
2
<PAGE>
waive any rights or release any collateral or guaranties relative thereto at any
time, and in reference thereto make and enter into such agreements as the
holders of the Senior Obligations may in their discretion deem proper or
desirable, without notice to or further assent of the Lender or such holders of
this Subordinated Note, all without in any manner impairing or affecting the
provisions of this paragraph or any of the rights of the holders of the Senior
Obligations under this paragraph; provided, however, that so long as no Event
of Default under the Senior Credit Agreement (and no event with which the giving
of notice or lapse of time, or both, would become an Event of Default under the
Senior Credit Agreement) shall have occurred and be continuing or would result
from the payment thereof, the Company may make the payments of interest as
herein provided.
The Lender or any holder of this Subordinated Note shall not be
subrogated to the rights of the Agent and the holders of the Senior Obligations
to receive payments or distributions of assets of the Company made on the Senior
Obligations until the Senior Obligations shall be paid in full; and payments or
distributions to the Agent or the holders of the Senior Obligations of any cash,
property or securities to which the Lender or any holder of this Subordinated
Note would be entitled except for the provisions of the preceding paragraph
shall, as between the Company and its creditors other than the Agent, the
holders of the Senior Obligations and the Lender or any holder of the
Subordinated Note, be deemed to be a payment by the Company to or on account of
do Subordinated Obligations it being understood that the provisions of the
preceding paragraph are, and are intended solely, for the purpose of defining
the relative rights of the Lender on the one hand and the holders of the Senior
Obligations on the other hand.
The Company agrees that, upon any change in the ownership of the
outstanding capital stock of the Company or its parent, the Company will, at
Lender's request, consider amendments to this Subordinated Note subject at all
times to the prior written approval of any such amendments by the holders of the
Senior Obligations in their sole discretion.
The provisions of this Section 1 shall (a) accrue exclusively to the
benefit of the Agent and the holders of the Senior Obligations and their
respective successors and assigns, and no other person or entity shall have or
acquire any rights, benefits or remedies by reason of this Section 1, and (b)
automatically terminate upon indefeasible payment in full and satisfaction of
the Senior Obligations, provided that the provisions of this Section 1 shall
continue to be effective, or be reinstated, as the case may be, if at any time
payment, or any part thereof, of any of the Senior Obligations is rescinded or
must otherwise be restored or returned by the Agent or any holder of the Senior
Obligations upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of the Company or the Lender, or upon or as a result of the
appointment of a receiver, intervenor or conservator of, or trustee or similar
officer for, the Company or the Lender or any substantial part of its property,
or otherwise, all as though such payments had not been made.
3
<PAGE>
2. Events of Default. The occurrence of any of the following events
shall constitute an event of default under this Subordinated Note:
(a) Company fails to make payment of any amounts owing under
this Subordinated Note within ten (10) days following the due date thereof;
(b) Company (i) defaults in the payment of principal of or
interest on any indebtedness or in the payment of any guaranty obligation in an
individual principal amount of $250,000.00 or more or an aggregate principal
amount of $250,000.00 or more beyond the period of grace, if any, provided in
the instrument or agreement under which indebtedness or guarantee obligation
was created; or (ii) defaults in the observance or performance of any other
covenant, agreement or condition relating to any such indebtedness or guarantee
obligation or contained in any instrument or agreement evidencing, securing or
relating thereto, or any other event shall occur or condition exist, the effect
of which default or other condition is to cause or to permit the Lender of such
indebtedness or beneficiary of such guarantee obligation to cause, with the
giving of notice or the lapse of time or both, if required, such indebtedness to
become due prior to its stated maturity or such guarantee obligation to become
payable;
(c) One or more judgments or decrees is entered against
Company involving in the aggregate a liability (not paid or fully covered by
insurance) of $250,000.00 or more and there shall have been a period of thirty
(30) consecutive days during which a stay of enforcement of such judgment or
decree, by reason of a pending appeal or otherwise, shall not be in effect or
during which such judgments or decrees shall not have been vacated or
discharged.
(d) (i) Company commences any case, proceeding or other action
(A) under any existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of debtors seeking
to have an order for relief entered with respect to it, or seeking to adjudicate
it bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with respect
to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian
or other similar official for it or for all or any substantial part of its
assets, or Company shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against Company any case, proceeding
or other action of a nature referred to in clause (i) above which (A) results in
the entry of an order for relief for any such adjudication or appointment or (B)
remains undismissed, undischarged or unbonded for a period of sixty (60) days;
or (iii) there shall be commenced against Company any case, proceeding or other
action seeking issuance of a warrant of attachment, execution, distraint or
similar process against all or any substantial part of its assets which results
in the entry of an order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within sixty (60) days from the
entry thereof; or (iv) Company shall take any action in furtherance of, or
indicating its
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<PAGE>
consent to, approval of, or acquiescence in, any of the facts set forth in
clause (i), (ii) or (iii) above; or (v) Company shall generally not, or shall be
unable to, or shall admit in writing its inability to, pay its debts as they
become due; or
Without in any way limiting the right of Lender to demand payment of
this Subordinated Note at any time (subject to the terms of Section 1 above),
upon the occurrence of one of the events specified in clauses (a), (b) or (c),
all amounts due under this Subordinated Note may, at Lender's option, be
accelerated and declared payable in full, subject to the terms of Section 1
above. Upon the occurrence of one of the events specified in clause (d), all
amounts due under this Subordinated Note shall automatically be accelerated and
become payable in full, subject to the terms of Section 1 above.
3. Waiver of Protest. Company hereby waives presentment, protest,
demand, notice of dishonor or default, and notice of any kind except as herein
required with respect to this Subordinated Note or the performance of its
obligations under this Subordinated Note.
4. Waiver; Amendment. No delay or omission by Lender in enforcing or
exercising any right hereunder shall operate as a waiver of such right or of any
other right under this Subordinated Note. A waiver on any one occasion shall not
be construed as a waiver of any right or remedy on any future occasion. This
Note may not be amended except as Lender may consent thereto in writing duly
signed for and on its behalf.
5. Prior Indebtedness. The Subordinated Note is issued in
replacement of any and all indebtedness owing by the Company to the Lender or
any holder of this Subordinated Note and the Lender or any holder of this
Subordinated Note agrees to such replacement of indebtedness by acceptance of
this Subordinated Note and further agrees that it shall immediately surrender
for cancellation to the Company any prior written evidence of such indebtedness.
6. Governing Law. This Note shall be governed by, and construed in
accordance with, the laws of the State of New York.
SPECIAL METALS CORPORATION
By: /s/ Donald C. Darling
-------------------------------
Donald C. Darling
Vice President - Administration
5
<PAGE>
EXHIBIT 10.7
SUBORDINATED NOTE
$6,500,000.00 October 1, 1994
FOR VALUE RECEIVED, SPECIAL METALS CORPORATION, a corporation
organized under the laws of the State of Delaware ("Company"), hereby promises
to pay on demand to the order of SOCIETE INDUSTRIELLE DE MATERIAUX AVANCES, a
Societe Anonyme organized under the laws of the Republic of France ("Lender"),
the principal sum of SIX MILLION FIVE HUNDRED THOUSAND DOLLARS ($6,500,000.00),
together with interest which has accrued through September 30, 1994 in the
amount of SIX HUNDRED FIFTYTWO THOUSAND FOUR HUNDRED FORTY-NINE AND 70/100
DOLLARS ($652,449.70).
Unpaid principal and all accrued and unpaid interest shall bear
interest at the rate of five percent (5%) per annum from October 1, 1994. The
rate of interest hereunder is subject to adjustment at Lender's option on
January 31 of each year upon written notice to the Company but in no event shall
it exceed fifteen percent (15%) per annum.
While the Subordination Agreement (as defined in Section 2 below) is
in force and effect, payments of interest shall be limited to interest on the
unpaid principal balance at the rate of two and one-half percent (2-1/2%) per
annum during 1994 and five percent (5%) per annum thereafter, provided that
interest shall continue to accrue on the outstanding principal balance and any
accrued and unpaid interest at the rate set forth above. Subject to the
limitations set forth above, all payments of interest shall be made on the first
day of each January, April, July and October, commencing January 1, 1995, and
continuing for so long as the principal balance remains outstanding under this
Subordinated Note.
All payments due under or pursuant to this Subordinated Note shall
be made when due at such address as Lender may designate in writing from time to
time, in lawful money of the United States of America.
1. Events of Default. The occurrence of any of the following
events shall constitute an event of default under this Subordinated Note:
(a) Company fails to make payment of any amounts owing under
this Subordinated Note within ten (10) days following the due date thereof;
(b) Company (i) defaults in the payment of principal of or
interest on any indebtedness or in the payment of any guaranty obligation in an
individual principal amount of $250,000.00 or more or an aggregate principal
amount
<PAGE>
2
of $250,000.00 or more beyond the period of grace, if any, provided in the
instrument or agreement under which indebtedness or guarantee obligation was
created; or (ii) defaults in the observance or performance of any other
covenant, agreement or condition relating to any such indebtedness or guarantee
obligation or contained in any instrument or agreement evidencing, securing or
relating thereto, or any other event shall occur or condition exists, the effect
of which default or other condition is to cause or to permit the Lender of such
indebtedness or beneficiary of such guarantee obligation to cause, with the
giving of notice or the lapse of time or both, if required, such indebtedness to
become due prior to its stated maturity or such guarantee obligation to become
payable;
(c) One or more judgments or decrees is entered against
Company involving in the aggregate a liability (not paid or fully covered by
insurance) of $250,000.00 or more and there shall have been a period of thirty
(30) consecutive days during which a stay of enforcement of such judgment or
decree, by reason of a pending appeal or otherwise, shall not be in effect or
during which such judgments or decrees shall not have been vacated or
discharged; or
(d) (i) Company commences any case, proceeding or other action
(A) under any existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of debtors seeking
to have an order for relief entered with respect to it, or seeking to adjudicate
it bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with respect
to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian
or other similar official for it or for all or any substantial part of its
assets, or Company shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against Company any case, proceeding
or other action of a nature referred to in clause (i) above which (A) results in
the entry of an order for relief for any such adjudication or appointment or (B)
remains undismissed, undischarged or unbonded for a period of sixty (60) days;
or (iii) there shall be commenced against Company any case, proceeding or other
action seeking issuance of a warrant of attachment, execution, distraint or
similar process against all or any substantial part of its assets which results
in the entry of an order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within sixty (60) days from the
entry thereof; or (iv) Company shall take any action in furtherance of, or
indicating its consent to, approval of, acquiescence in, any of the acts set
forth in clause (i), (ii) or (iii) above; or (v) Company shall generally not, or
shall be unable to, or shall admit in writing its inability to, pay its debts as
they become due.
Without in any way limiting the right of Lender to demand payment of
this Subordinated Note at any time (subject to the terms of the Subordination
Agreement referred to below), upon the occurrence of one of the events specified
in clauses (a), (b) or (c), all amounts due under this Subordinated Note may, at
Lender's option, be accelerated and declared payable in full, subject to the
terms of the Subordination Agreement referred to below. Upon the occurrence of
one of the
<PAGE>
3
events specified in clause (d), all amounts due under this Subordinated Note
shall automatically be accelerated and become payable in full, subject to the
terms of the Subordination Agreement referred to below.
2. Subordination Agreement. This Subordinated Note is subject to the
terms and conditions of a certain Amended and Restated Subordination Agreement
dated as of December 15, 1994 by and between Lender and Credit Lyonnais New York
Branch, as Collateral Agent (the "Subordination Agreement"), provided that the
terms of the Subordination Agreement shall (a) accrue exclusively to the benefit
of the Collateral Agent and the Senior Bank Creditors (as defined in the
Subordination Agreement) and their respective successors and assigns, and no
other person or entity shall have or acquire any rights, benefits or remedies by
reason of the Subordination Agreement, and (b) automatically terminate upon
indefeasible payment in full and satisfaction of all Senior Bank Obligations (as
defined in the Subordination Agreement); provided further that the Subordination
Agreement shall continue to be effective, or be reinstated, as the case may be,
if at any time payment, or any part thereof, of any of the Senior Bank
Obligations is rescinded or must otherwise be restored or returned by the
Collateral Agent or any Senior Bank Creditor upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Company or the Lender, or upon
or as a result of the appointment of a receiver, intervenor or conservator of,
or trustee or similar officer for, the Company or the Lender or any substantial
part of its property, or otherwise, all as though such payments had not been
made.
3. Waiver of Protest. Company hereby waives presentment, protest,
demand, notice of dishonor or default, and notice of any kind except as herein
required with respect to this Subordinated Note or the performance of its
obligations under this Subordinated Note.
4. Waiver; Amendment. No delay or omission by Lender in enforcing or
exercising any right hereunder shall operate as a waiver of such right or of any
other right under this Subordinated Note. A waiver on any one occasion shall not
be construed as a waiver of any right or remedy on any future occasion. This
Note may not be amended except as Lender may consent thereto in writing duly
signed for and on its behalf.
5. Governing Law. This Note shall be governed by, and construed
in accordance with, the laws of the State of New York.
SPECIAL METALS CORPORATION
By: /s/ Donald C. Darling
--------------------------------
Donald C. Darling
Vice President - Administration
<PAGE>
EXHIBIT 10.8
SUBORDINATION AGREEMENT
SUBORDINATION AGREEMENT dated as of October 18, 1996, among SPECIAL
METALS CORPORATION, a Delaware corporation (the "Debtor"), SOCIETE INDUSTRIELLE
DE MATERIAUX AVANCES, a societe anonyme organized under the laws of the Republic
of France (the "Subordinated Lender"), and CREDIT LYONNAIS NEW YORK BRANCH, a
New York-licensed branch of Credit Lyonnais, S.A., a banking corporation
organized and existing under the laws of the Republic of France, in its capacity
as agent (in said capacity, together with any successor thereto in said
capacity, herein called the "Agent") for the Lenders (the "Senior Lenders") and
Issuing Bank (the "Issuing Bank") party to the Credit Agreement referred to
below (the Agent, the Senior Lenders and the Issuing Bank herein collectively
called the "Senior Creditors" and each a "Senior Creditor").
RECITALS:
A. Concurrently herewith the Debtor and the Senior Creditors are
entering into a Credit Agreement dated as of the date hereof (as it may be
amended , supplemented or otherwise modified from time to time, herein called
the "Credit Agreement") providing for the making of loans by the Senior Lenders
to the Debtor (the "Senior Loans"), and the issuance of letters of credit by the
Issuing Bank for account of the Debtor (the "Senior Letters of Credit"), in the
amounts, and subject to the terms and conditions, specified in the Credit
Agreement.
B. The execution and delivery of this Subordination Agreement and
the subordination of the Subordinated Debt pursuant hereto constitute conditions
precedent to the obligation of the Senior Lenders to make Senior Loans and the
obligation of the Issuing Bank to issue Senior Letters of Credit pursuant to the
terms of the Credit Agreement.
C. The Subordinated Lender owns 48% of the outstanding shares of
voting stock of the Debtor's sole shareholder and will derive substantial
benefits from the credit being extended to the Debtor pursuant to the Credit
Agreement.
ACCORDINGLY, in consideration of the premises, and in order to
induce the Senior Creditors to execute and deliver the Credit Agreement, the
Senior Lenders to make and maintain the Senior Loans, and the Issuing Bank to
issue and maintain the Senior Letters of Credit, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Subordinated Lender and the Debtor hereby agree with the Senior Creditors as
follows:
1. Certain Definitions.
(a) Capitalized terms that are not defined herein have the
respective meanings ascribed to them in the Credit Agreement and, in addition,
the following terms have the following meanings:
<PAGE>
"Cash Flow Support Agreement" means the Cash Flow Support Agreement
dated as of the date hereof, by the Debtor and the Subordinated Lender in favor
of the Senior Creditors.
"Cash Flow Support Note" means the Promissory Note dated the date
hereof made by the Debtor to the order of the Subordinated Lender in the
original principal amount of $6,000,000, for the purpose of evidencing loans
under the Cash Flow Support Agreement.
"Credit Agreement" has the meaning specified in Recital A.
"Creditor" means any Senior Creditor or the Subordinated Lender; and
"Creditors" means the Senior Creditors and the Subordinated Lender,
collectively.
"Creditor Proceeding" means, with respect to the Debtor, any
distribution of the assets, dissolution or winding-up, or total or partial
liquidation or reorganization, of the Debtor, whether voluntary or involuntary
or in bankruptcy, insolvency, arrangement, reorganization, rearrangement of
debts, receivership or similar proceedings or upon a general assignment for the
benefit of creditors or otherwise.
"Discretionary SIMA Loans" means (a) the outstanding principal
balance of any and all loans or other extensions of credit made by SIMA to
Special Metals prior to the date hereof, including without limitation the loans
evidenced by the Existing SIMA Note and the loans made under the Subordinated
Loan Agreement and Note dated as of December 15, 1994 and (b) the principal
balance of any and all loans made by SIMA to Special Metals from time to time
hereafter, other than the Mandatory SIMA Loans.
"Existing SIMA Note" means the Subordinated Note dated as of the
date hereof, made by the Debtor to the order of SIMA in the original principal
amount of US$6,500,000.
"Mandatory SIMA Loans" means the principal balance of any and all
loans made by SIMA to Special Metals from time to time under or pursuant to the
Cash Flow Support Agreement.
"Post-Petition Interest" means any interest accrued on the Senior
Debt after the commencement of a Creditor Proceeding with respect to the Debtor.
"Senior Credit Documents" means, collectively, the Credit Agreement,
the Senior Notes, the other Loan Documents referred to in the Credit Agreement,
and all other agreements, instruments and documents governing or relating to the
Senior Debt or any portion thereof.
"Senior Debt" means all indebtedness and other liabilities and
obligations of the Borrower under the Credit Agreement, any Senior Note or any
other Loan Document including, without limitation, (i) the obligation to repay
the Senior Loans in full when due, (ii) the obligation to pay interest on the
Senior Loans (including, without limitation, Post-Petition
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Interest) at the rates and on the dates specified in the Credit Agreement, (iii)
the obligation to pay the fees specified in the Credit Agreement in full when
due at the rates and on the dates specified therein or in the Fee Letter, (iv)
the obligation to reimburse the Issuing Bank in full for any payment made by it
under a Senior Letter of Credit as provided in the Credit Agreement, (v) the
obligation to Cash Collateralize the Senior Letters of Credit as provided in the
Credit Agreement, (vi) the obligation to indemnify the Senior Creditors as
provided in the Credit Agreement or any other Loan Document, (vii) the
obligation to pay costs and expenses as provided in the Credit Agreement or any
other Loan Document, (viii) the obligation to pay all other amounts specified in
the Credit Agreement or any other Loan Document and (ix) all extensions,
modifications, deferrals or renewals of any amount specified in clause (i)
through (viii) above.
"Senior Letters of Credit" has the meaning specified in Recital A.
"Senior Loans" has the meaning specified in Recital A.
"Senior Notes" means all promissory notes issued by the Debtor
pursuant to the Credit Agreement, as they may be amended, supplemented or
otherwise modified from time to time, and any notes or other evidences of
indebtedness issued in renewal of, or in exchange or substitution for, such
promissory notes.
"Subordinated Credit Documents" means, collectively, (i) the
Existing SIMA Note, (ii) the Cash Flow Support Agreement, (iii) the Cash Flow
Support Note, and (iv) all other agreements, instruments and documents governing
or relating to the Subordinated Debt or any portion thereof, in each case, as
said documents may be amended, supplemented or otherwise modified from time to
time, and including, in the case of any promissory notes, any notes or other
evidences of indebtedness issued in renewal of, or in exchange or substitution
for, such promissory notes.
"Subordinated Debt" means all indebtedness for borrowed money,
whether now existing or hereafter incurred, owing by the Debtor to the
Subordinated Lender including, without limitation, the indebtedness, liabilities
and obligations of the Debtor to the Subordinated Lender under the Subordinated
Credit Documents (including the obligation to repay any and all Discretionary
SIMA Loans and Mandatory SIMA Loans and to pay interest thereon), and all other
amounts from time to time payable by the Debtor under the Subordinated Credit
Documents, whether now existing or hereafter incurred, to the Subordinated
Lender, and all extensions, deferrals or renewals thereof.
(b) Unless otherwise expressly specified herein, defined terms
denoting the singular number shall, when in the plural form, denote the plural
number of the matter or item to which such defined terms refer, and vice-versa.
(c) Words of the neuter gender mean and include correlative words of
the masculine and feminine gender.
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(d) Section and Schedule headings used in this Agreement are for
convenience only and shall not affect the construction or meaning of any
provisions of this Agreement.
(e) Unless otherwise specified, the words "hereof", "herein",
"hereunder" and other similar words refer to this Agreement as a whole and not
just to the Section, subsection or clause in which they are used; and the words
"this Agreement" refer to this Subordination Agreement, as amended, modified or
supplemented from time to time.
(f) Unless otherwise specified, references to Sections, Recitals or
Schedules are references to Sections of, and Recitals and Schedules to, this
Agreement.
2. Subordination of Subordinated Debt.
(a) The Subordinated Debt shall be subordinate and subject in right
of payment, in all respects, to all Senior Debt. Except as provided in paragraph
2(b) hereof, until the indefeasible payment in full of the outstanding amount of
all Senior Debt, including, without limitation, the outstanding principal of,
and all accrued interest on, the Senior Loans and the LC Disbursements, and the
expiration or termination of the Commitments and all Senior Letters of Credit
(i) the Debtor shall make no payment in respect of, and the Subordinated Lender
shall not accept any payment from the Debtor on account of, the Subordinated
Debt or any portion thereof, (ii) the Debtor shall not purchase or otherwise
acquire, and the Subordinated Lender shall not sell to the Debtor, the
Subordinated Debt or any portion thereof, and (iii) the Debtor shall not permit
any of its assets to be applied to the satisfaction or acquisition of, and the
Subordinated Lender shall not resort to or have any recourse against any assets
of the Debtor to satisfy, the Subordinated Debt or any portion thereof.
(b) Anything in this Agreement to the contrary notwithstanding, so
long as immediately prior to and after giving effect thereto there shall exist
no Default or Event of Default under the Credit Agreement and the Debtor shall
be in compliance with the financial covenants set forth in the Credit Agreement,
the Debtor may (i) make payments or prepayments of principal in respect of any
Discretionary SIMA Loans (but not in respect of any Mandatory SIMA Loans) and
(b) pay interest on all Discretionary SIMA Loans and Mandatory SIMA Loans at a
rate per annum not exceeding the rate specified in the Subordinated Credit
Documents relating thereto. Nothing herein contained shall be deemed to permit
any payments by the Debtor or out of its assets in respect of the principal
amount of any Mandatory SIMA Loans prior to the indefeasible payment in full of
the Senior Debt and the expiration or termination of the Senior Letters of
Credit and the Commitments.
(c) Upon any payment or distribution of assets of the Debtor of any
kind or character, whether in cash, property or securities, to creditors of the
Debtor upon any Creditor Proceeding with respect to the Debtor (i) all
principal, interest and other amounts due or to become due upon all Senior Debt
shall first be indefeasibly paid in full before any payment is made by the
Debtor or out of its property on account of the Subordinated Debt and (ii) any
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<PAGE>
payment or distribution of assets of the Debtor of any kind or character,
whether in cash, property or securities, to which the Subordinated Lender would
be entitled except for the provisions of this paragraph 2 shall be paid by the
Debtor or by any receiver, trustee in bankruptcy, liquidating trustee, agent or
other person making such payment or distribution, or by the relevant
Subordinated Lender if received by it, directly to the Agent (for distribution
to the Senior Creditors), to the extent necessary to pay all Senior Debt in full
after giving effect to any concurrent payment or distribution on the Senior
Debt, before any payment or distribution out of the property of the Debtor is
made on the Subordinated Debt. The Subordinated Lender agrees that in any
Creditor Proceeding with respect to the Debtor, the Agent, as long as any amount
of Senior Debt remains unpaid, shall have the right to vote in accordance with
the instructions of the Majority Lenders any claim representing any Subordinated
Debt on any matter on which creditors of the Debtor are entitled to vote
(including, without limitation, on the selection or appointment of a trustee or
receiver for the Debtor and on any plan of reorganization for the Debtor). The
Subordinated Lender further agrees that if it fails to file a claim for the
Subordinated Debt or any portion thereof in any such bankruptcy, reorganization,
receivership, arrangement or similar proceeding of the Debtor, the Agent, so
long as any amount of Senior Debt remains unpaid, shall have the right to do so
in the name of the Subordinated Lender upon 3 days' prior written notice to the
Subordinated Lender.
(d) If any payment or distribution of assets of the Debtor of any
kind or character, whether in cash, property or securities, shall be received by
the Subordinated Lender on account of the Subordinated Debt before all Senior
Debt is indefeasibly paid in full, which payment or distribution is inconsistent
with the provisions of this paragraph 2, such payment or distribution shall be
held in trust by the Subordinated Lender for the benefit of the Senior
Creditors, and shall be paid over or delivered to the Agent (for distribution to
the Senior Creditors) to the extent necessary to pay all Senior Debt in full,
after giving effect to any concurrent payment or distribution on the Senior
Debt.
(e) The Subordinated Lender and any receiver, trustee in bankruptcy,
liquidating trustee or other person making payments to creditors of the Debtor
pursuant to Section 2(b) or 2(d), may rely conclusively on any certification by
the Agent as to the outstanding amount of the Senior Debt, and the Agent may
relay conclusively on any certification of a holder of Senior Debt as to the
amount of Senior Debt owing to such holder.
3. Agent Appointed Attorney-in-Fact.
The Subordinated Lender hereby appoints the Agent as the
Subordinated Lender's attorney-in-fact, with full power of substitution, for the
purpose of carrying out the provisions of this Agreement and taking any action
and executing any instrument that any Senior Creditor may deem necessary or
advisable to accomplish the purposes hereof, which appointment is irrevocable
and coupled with an interest. Without limiting the generality of the foregoing,
the Agent shall have the right and power, in the name of the Subordinated
Lender, to make, execute and acknowledge, publish, file, record and swear to the
execution, acknowledgment, filing and/or recordation, as applicable, of such
documents as the Senior Creditors, in their sole
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discretion, shall deem necessary, appropriate and/or advisable with respect
to the enforcement and administration of the Senior Debt and the furtherance of
the collection thereof.
4. Consent; Subordination Absolute.
(a) The Subordinated Lender hereby consents to the execution,
delivery and performance by the Debtor of the Senior Credit Documents to which
it is a party and the consummation of the transactions contemplated thereby, and
hereby acknowledges and confirms that such execution, delivery, performance and
consummation do not violate or constitute a default under any term, covenant or
condition of any Subordinated Credit Document or any other agreement, instrument
or document to which the Subordinated Lender is a party or which inures to its
benefit.
(b) No extension, renewal, amendment, modification, forbearance or
waiver of the Senior Debt or any portion thereof or of any terms of the Credit
Agreement or any other Senior Credit Document, no release, modification or
substitution of any collateral therefor, and no exercise of or failure to
exercise any right, power or remedy under or in respect of the Senior Debt or
any Senior Credit Document, shall affect, modify or impair the subordination
provided for herein or the rights of the Senior Creditors hereunder.
5. Representations and Warranties of the Subordinated Lender.
The Subordinated Lender hereby represents and warrants to the Agent
and the Senior Creditors that:
(a) The Subordinated Lender is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. The Subordinated Lender has full power and authority to execute
and deliver this Agreement, to subordinate the Subordinated Debt pursuant
hereto, and to incur and perform the obligations provided for herein.
(b) The execution, delivery and performance of this Agreement by the
Subordinated Lender, the subordination of the Subordinated Debt owing to the
Subordinated Lender pursuant hereto and the incurrence and performance of the
obligations provided for herein (i) have been duly authorized by all requisite
action of the Subordinated Lender, (ii) do not require the approval of the
stockholders of the Subordinated Lender, and (iii) will not (1) violate any law
or regulation or the certificate of incorporation or by-laws of the Subordinated
Lender, (2) violate or constitute (with due notice or lapse of time or both) a
default under any provision of any indenture, agreement, license or other
instrument to which the Subordinated Lender is a party or by which it or any of
its properties may be bound or affected, (3) violate any order of any court,
tribunal or governmental agency binding upon the Subordinated Lender or any of
its properties or (4) result in the creation or imposition of any lien or
encumbrance of any nature whatsoever upon any assets or revenues of the
Subordinated Lender.
(c) No authorizations, approvals and consents of, and no filings and
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registrations with, any governmental or regulatory authority or agency are
necessary for the execution, delivery or performance by the Subordinated Lender
of this Agreement or for the validity or enforceability hereof.
(d) This Agreement constitutes the legal, valid and binding
obligation of the Subordinated Lender, enforceable against the Subordinated
Lender in accordance with its terms.
(e) Schedule I accurately lists all of the agreements, instruments
and documents in effect on the date hereof which govern or relate to the
Subordinated Debt owing to the Subordinated Lender and correctly sets forth the
amount of Subordinated Debt owing to the Subordinated Lender outstanding on the
date hereof, the character of such Subordinated Debt, the interest rate
applicable thereto and the maturity thereof.
(f) The Subordinated Loan Documents to which the Subordinated Lender
is a party or which inure to its benefit are in full force and effect and no
default has occurred thereunder.
(g) To the Subordinated Lender's knowledge, the information,
schedules, exhibits and reports furnished by the Subordinated Lender or the
Debtor to the Agent or any other Senior Creditor in connection with the
negotiation and preparation of this Agreement did not contain any omissions or
misstatements of fact which would make the statements contained therein
misleading or incomplete in any material respect.
6. Representations and Warranties of the Debtor.
The Debtor hereby represents and warrants to the Agent and the
Senior Creditors that:
(a) The Debtor is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. The Debtor has full
power and authority to execute and deliver this Agreement, to subordinate the
Subordinated Debt pursuant hereto, and to incur and perform the obligations
provided for herein.
(b) The execution, delivery and performance of this Agreement by the
Debtor and the incurrence and performance by it of the obligations provided for
herein (i) have been duly authorized by all requisite action of the Debtor, (ii)
do not require the approval of the stockholders of the Debtor, and (iii) will
not (1) violate any law or regulation or the certificate of incorporation or
by-laws of the Debtor, (2) violate or constitute (with due notice or lapse of
time or both) a default under any provision of any indenture, agreement, license
or other instrument to which the Debtor is a party or by which it or any of its
properties may be bound or affected, (3) violate any order of any court,
tribunal or governmental agency binding upon the Debtor or any of its properties
or (4) result in the creation or imposition of any lien or encumbrance of any
nature whatsoever upon any assets or revenues of the Debtor.
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(c) No authorizations, approvals and consents of, and no filings and
registrations with, any governmental or regulatory authority or agency are
necessary for the execution, delivery or performance by the Debtor of this
Agreement or for the validity or enforceability hereof.
(d) This Agreement constitutes the legal, valid and binding
obligation of the Debtor, enforceable against the Debtor in accordance with its
terms.
(e) Schedule I accurately lists all of the agreements, instruments
and documents in effect on the date hereof which govern or relate to the
Subordinated Debt and correctly sets forth the amount of Subordinated Debt
outstanding on the date hereof, the character of such Subordinated Debt, the
interest rate applicable thereto and the maturity thereof.
(f) To the Debtor's knowledge, the information, schedules, exhibits
and reports furnished by the Subordinated Lender or the Debtor to the Agent or
any other Senior Creditor in connection with the negotiation and preparation of
this Agreement did not contain any omissions or misstatements of fact which
would make the statements contained therein misleading or incomplete in any
material respect.
7. Covenants of Subordinated Lender.
The Subordinated Lender hereby agrees that, so long as the Debtor
may borrow, or request the issuance of Senior Letters of Credit, under the
Credit Agreement and until the Senior Debt has been indefeasibly paid in full
and all the Senior Letters of Credit have expired or been terminated, the
Subordinated Lender shall not, without the prior written consent of the Agent
(which consent shall be given or withheld in accordance with the instructions of
the requisite number of Senior Lenders specified in the Credit Agreement):
(a) Accept any payments or prepayments of the Subordinated Debt
owing to the Subordinated Lender by the Debtor or out of the Debtor's assets
(other than as permitted by paragraph 2(b) hereof);
(b) Permit the Subordinated Debt owing to the Subordinated Lender or
any portion thereof to be secured by any lien or security interest on any assets
of the Debtor;
(c) Take, or permit any of its Affiliates to take, any action to
enforce its rights and remedies relating to the Subordinated Debt or any portion
thereof against the Debtor, including, without limitation, any of the following
actions:
(i) accelerate the Subordinated Debt or any portion thereof or
require that the Subordinated Debt or any portion thereof be paid
prior to the stated maturity thereof or prior to any regularly
scheduled dates of payment, except as permitted by the Subordinated
Credit Documents (provided that payments in respect of the
Subordinated Debt shall be subject in all cases to the terms of and
the restrictions
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contained in this Agreement); or
(ii) commence any proceeding against the Debtor or against any
properties or assets of the Debtor, including, without limitation,
any proceeding under the Federal Bankruptcy Code or any other
bankruptcy, insolvency, reorganization, arrangement, liquidation,
dissolution, moratorium or similar law of the United States of
America or any other jurisdiction, or apply for a trustee, receiver
or custodian (however named) for all or a substantial part of the
property of the Debtor; or
(d) Modify or amend, or consent to the modification or amendment of,
or permit the Debtor to modify or amend, the Cash Flow Support Agreement.
(e) Contest the validity, perfection, priority or enforceability of
any lien or security interest granted to any Senior Creditor in any properties
or assets of the Debtor. The foregoing provisions of this Section 7(c) are
solely for the purpose of defining the relative rights of the holders of Senior
Debt on the one hand and the holders of Subordinated Debt on the other and shall
not limit or otherwise affect any rights which any holder of Subordinated Debt
may have against the Debtor under the terms of any agreement or instrument
executed in connection with the Subordinated Debt.
8. Covenants of the Debtor.
The Debtor hereby agrees that, so long as it may borrow or request
the issuance of Senior Letters of Credit under the Credit Agreement and until
the Senior Debt has been indefeasibly paid in full and all the Senior Letters of
Credit have expired or been terminated, the Debtor shall not, without the prior
written consent of the Agent (which consent shall be given or withheld in
accordance with the instructions of the requisite number of Senior Lenders
specified in the Credit Agreement):
(a) Pay, prepay or purchase any portion of the Subordinated Debt
(other than as permitted by Section 2(b).
(b) Permit the Subordinated Debt or any portion thereof to be
secured by any lien or security interest on any assets of the Debtor.
(c) Modify or amend, or consent to the modification or amendment of,
or permit the Subordinated Lender to modify or amend, the Cash Flow Support
Agreement.
9. Legend on Subordinated Notes.
The Subordinated Lender shall promptly cause a conspicuous legend to
be placed on each promissory note which evidences or may from time to time
hereafter evidence the Subordinated Debt or any portion thereof, to the
following effect:
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"This Note and the indebtedness evidenced hereby is subject to the
restrictions contained in a Subordination Agreement (as such
agreement may from time to time be amended, modified or
supplemented, the "Agreement") dated as of October 18, 1996, among
Special Metals Corporation, a Delaware corporation, Societe
Industrielle de Materiaux Avances, a societe anonyme organized under
the laws of the Republic of France and Credit Lyonnais New York
Branch, a New York-licensed branch of Credit Lyonnais, S.A., a
banking corporation organized and existing under the laws of the
Republic of France, in its capacity as agent for the Lenders and
Issuing Bank specified in the Subordination Agreement; and each
holder of this Note, by its acceptance hereof, shall be bound by the
Agreement",
and, if so requested by the Agent, shall deliver each such promissory note, as
so marked, to the Agent.
10. Subrogation.
Subject to the payment in full of the Senior Debt and the expiration
or termination of the Commitments under the Credit Agreement and the Senior
Letters of Credit issued thereunder, the holders of the Subordinated Debt shall
be subrogated to the rights of the holders of the Senior Debt to receive
payments or distributions of cash, property or securities of the Debtor made on
the Senior Debt, until the Subordinated Debt shall be paid in full. No payments
or distributions on the Subordinated Debt of any cash, property or securities
which any holder of Subordinated Debt pays or delivers to the Agent or any
holder of Senior Debt pursuant to the subordination provisions contained in
Section 2 shall be deemed to be a payment by the Debtor to or on account of the
Senior Debt.
11. Relationship Among Creditors.
Nothing contained in this Agreement or otherwise will in any event
be deemed to constitute any holder of Senior Debt the agent of the Subordinated
Lender for any purpose nor to create any fiduciary relationship between any such
holder of Senior Debt and the Subordinated Lender. No action or inaction with
respect to any collateral for Senior Debt; nor any amendment to the Credit
Agreement or any other Senior Credit Document; nor any exercise or non-exercise
of any right, power or remedy under or in respect of any of the Senior Debt or
any instrument or agreement relating to, securing or guaranteeing any of the
Senior Debt; nor any waiver, consent, release, indulgence, extension, renewal,
modification, delay or other action, inaction or omission in respect of any of
the Senior Debt or any instrument or agreement relating to, securing or
guaranteeing any of the Senior Debt will in any event give rise to any claim
against the Agent or any holder of Senior Debt or any officers, director,
employee or agent of such holder.
12. Cumulative Rights.
Each and every right granted to the Agent or any other Senior
Creditor hereunder
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or in connection herewith, or allowed it by law or equity, shall be cumulative
and may be exercised from time to time.
13. Waivers and Amendments.
No failure on the part of the Agent or any other Senior Creditor to
exercise, and no delay in exercising, and no course of dealing with respect to,
any right, power or remedy hereunder shall operate as a waiver thereof or of any
default hereunder, nor shall any single or partial exercise by the Agent or any
other Senior Creditor of any right, power or remedy hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or remedy
of the Agent or such other Senior Creditor. No amendment, modification or waiver
of any provision of this Agreement, nor any consent to any departure herefrom,
shall in any event be effective unless the same shall be in writing and signed
by the party to be charged therewith, and then such amendment, modification,
waiver or consent shall be effective only in the specific instance and for the
purpose for which given. No notice to or demand on the Subordinated Lender or
the Debtor in any case shall, of itself, entitle the Subordinated Lender or the
Debtor to any other or further notice or demand in similar or other
circumstances.
14. GOVERNING LAW.
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS PRINCIPLES OF
CONFLICT OF LAWS.
15. SUBMISSION TO JURISDICTION.
(A) THE DEBTOR AND THE SUBORDINATED LENDER HEREBY EXPRESSLY SUBMITS
TO THE NON-EXCLUSIVE JURISDICTION OF ALL FEDERAL AND STATE COURTS SITTING IN NEW
YORK COUNTY, STATE OF NEW YORK, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THEIR RESPECTIVE OBLIGATIONS HEREUNDER AND THE
DEBTOR AND THE SUBORDINATED LENDER AGREES THAT ANY PROCESS OR NOTICE OF MOTION
OR OTHER APPLICATION TO ANY OF SAID COURTS OR A JUDGE THEREOF MAY BE SERVED UPON
IT WITHIN OR WITHOUT SUCH COURT'S JURISDICTION BY REGISTERED OR CERTIFIED MAIL
(RETURN RECEIPT REQUESTED) OR BY PERSONAL SERVICE, AT THE ADDRESS OF SUCH PARTY
SPECIFIED NEXT TO ITS SIGNATURE HERETO (OR AT SUCH OTHER ADDRESS AS SUCH PARTY
SHALL SPECIFY BY A PRIOR NOTICE IN WRITING TO THE AGENT).
(B) THE DEBTOR AND THE SUBORDINATED LENDER HEREBY IRREVOCABLY WAIVES
ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY
SUIT, ACTION OR PROCEEDING
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ARISING OUT OF OR RELATING TO THIS AGREEMENT BROUGHT IN ANY FEDERAL OR STATE
COURT SITTING IN NEW YORK COUNTY, STATE OF NEW YORK, AND HEREBY FURTHER
IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN
ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(C) NOTWITHSTANDING THE FOREGOING, THE AGENT OR ANY OTHER SENIOR
CREDITOR MAY SUE THE DEBTOR OR THE SUBORDINATED LENDER IN ANY JURISDICTION WHERE
THE DEBTOR OR THE SUBORDINATED LENDER OR ANY OF THEIR RESPECTIVE ASSETS MAY BE
FOUND AND MAY SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
16. WAIVER OF JURY TRIAL.
EACH PARTY HERETO HEREBY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY OF ANY DISPUTE ARISING UNDER OR RELATING TO THE AGREEMENT AND AGREES THAT
ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
17. Expenses.
The Debtor agrees to pay all costs and expenses of the Agent or any
other Senior Creditor (including the reasonable fees and disbursements of
counsel) in connection with the preparation of this Agreement (subject, in the
case of the fees and disbursements of counsel relating to such preparation, to
the terms of the Fee Letter) and any amendment hereof and the enforcement of any
rights of the Agent, the Senior Creditors or any of them hereunder. The
Subordinated Lender agrees to pay all costs and expenses of the Agent or any
other Senior Creditor (including the reasonable fees and disbursements of
counsel) in connection with the enforcement of any rights of the Agent, the
Senior Creditors or any of them against the Subordinated Lender hereunder.
18. Termination; Payment in Full; Reinstatement.
(a) This Agreement is a continuing agreement and shall remain in
full force and effect so long as the Debtor may borrow or request the issuance
of Senior Letters of Credit under the Credit Agreement, or any Senior Letter of
Credit is outstanding, and until the indefeasible payment in full of the Senior
Debt.
(b) The Senior Debt shall not be deemed to have been indefeasibly
paid in full for purposes of this Agreement until all amounts owing thereon
(including, without limitation, all Post-Petition Interest, if any) shall have
been paid to the Senior Creditors, whether or not a claim for such amounts
(including a claim for such Post-Petition Interest) is enforceable, and any
applicable preference periods shall have expired.
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(c) If at any time all or any part of any payment of the Senior Debt
received by any Senior Creditor is or must be rescinded or returned to the
Debtor for any reason whatsoever (including, without limitation, by reason of
the insolvency, bankruptcy, or reorganization of the Debtor) this Agreement
shall be reinstated with respect to such payment so rescinded or returned as
though such payment had never been received by such Senior Creditor. The Debtor
will indemnify each Senior Creditor on demand for all reasonable costs and
expenses (including, without limitation, attorney's fees and disbursements)
incurred by it in connection with such rescission or return.
19. Assignments.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns; provided, however,
that the Agent shall not be required to recognize any assignment of Senior Debt
unless such assignment is permitted under and is accomplished in accordance with
Section 9.6 of the Credit Agreement. In the event the Senior Debt owing to any
Senior Creditor is acquired by any Person, the powers, benefits and obligations
of such Senior Creditor under this Agreement and the subordination provided for
herein shall, at the election of such Senior Creditor (and subject to the
proviso of the immediately preceding sentence) inure to such Person, and all
references herein to "Senior Creditors" shall include such Person to the extent
of the Senior Debt assigned to such Person. The Subordinated Lender shall not
transfer, sell or otherwise dispose of any portion of the Subordinated Debt
owing to it or of any promissory note evidencing any portion of the Subordinated
Debt owing to it, except to a Person who agrees to become a party hereto and to
be bound by all provisions hereof binding on the Subordinated Lender. If the
Subordinated Debt (or any portion thereof) is acquired by any Person, such
Person, with respect to the Subordinated Debt acquired by it, shall in any event
be subject and bound by the subordination provided for herein and all other
obligations of the Subordinated Lender hereunder.
20. Addresses for Notices, Etc.
All notices, requests, demands, instructions, directions and other
communications provided for hereunder shall be in writing (which term shall
include telecopied communications) and shall be sent by overnight courier,
telecopied or delivered to the applicable party at the address or telecopier
number specified for such party opposite its signature line below or, as to any
party, to such other address or telecopier number as such party shall specify by
a notice in writing to the other parties hereto. Each notice, request, demand,
instruction, direction or other communication provided for hereunder shall be
deemed delivered (i) if by overnight courier, one Business Day (or, in the case
of any party hereto that has indicated an address for notices that is located
outside the United States, two Business Days) after being deposited with the
overnight courier, addressed to the applicable party at its address set forth
above, (ii) if by hand, when delivered to the applicable party at such address,
and (iii) if by telecopy, when sent to the applicable party at such telecopier
number.
21. Severability.
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Any provision of this Agreement that is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render such provision unenforceable in any
other jurisdiction.
22. Benefit of Agreement.
The provisions of this Agreement are solely for the benefit of the
parties hereto and are intended to regulate their rights and obligations among
themselves and said provisions will not limit, enlarge or in any way affect the
obligations of the Debtor to any Person not a party hereto. No provision of this
Agreement shall, as between the Debtor and the Subordinated Lender, impair the
absolute right of the Subordinated Lender to payment of the Subordinated Debt
owing to it (subject to the rights of the Senior Creditors under this
Agreement), it being understood that the subordination provisions hereof are
intended to define the rights of the Senior Creditors on the one hand and the
Subordinated Lender on the other.
23. Integration Clause. This Agreement constitutes the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings,
both oral and written, with respect to the subject matter hereof.
24. Further Assurances.
The Debtor and the Subordinated Lender agree to execute and deliver
to the Senior Creditors, at the expense of the Debtor and the Subordinated
Lender, such further instruments, and to take such further action, as the Senior
Creditors may at any time or times request in order to carry out the provisions
and intent of this Agreement.
25. Execution in Counterparts.
This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, all of which when taken together
shall constitute but one and the same agreement.
26. Agency Provisions.
The Agent is acting hereunder in its capacity as agent for the
Lenders and the Issuing Bank pursuant to Article 8 of the Credit Agreement and
is entitled to all the rights, benefits, protections and indemnities provided to
it in said Article 8 in connection with any actions taken by it hereunder.
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute this Agreement as of the date first above
written.
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Debtor:
Address: SPECIAL METALS CORPORATION
4317 Middle Settlement Road
New Hartford, New York 13413 By:______________________________
Attention: Donald C. Darling Name:
Telecopier: (315) 798-2001 Title:
Subordinated Lender:
Address: SOCIETE INDUSTRIELLE DE MATERIAUX
____________________________ AVANCES
____________________________
____________________________
Attention: _________________ By:______________________________
Telecopier: ________________ Name:
Title:
Agent for Senior Creditors:
Address: CREDIT LYONNAIS NEW YORK BRANCH, as
Agent
1301 Avenue of the Americas
New York, New York 10019
Attention: Xavier Roux By:______________________________
Telecopier: (212) 459-3174 Name:
Title:
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THIS LEASE AGREEMENT, dated as of February 1, 1994, is by and between the
ONEIDA COUNTY INDUSTRIAL DEVELOPMENT AGENCY, a public benefit corporation duly
organized and existing under the laws of the State of New York having its office
at Oneida County Airport, Terminal Building, Oriskany, New York 13424 (the
"Agency") and SPECIAL METALS CORPORATION, a corporation duly organized and
existing under the laws of the State of Delaware, having an office at 4317
Middle Settlement Road, New Hartford, New York 13213 (the "Company").
W I T N E S S E T H:
WHEREAS, the Agency is authorized and empowered by the provisions of Title
1 of Article 18-A of the General Municipal Law, Chapter 24 of the Consolidated
Laws of New York, as amended (the "Enabling Act"), and Chapter 372 of the 1970
Laws of New York, as amended, constituting Section 901 of said General Municipal
Law (said Chapter and the Enabling Act being hereinafter collectively referred
to as the "Act") to promote, develop, encourage and assist in the acquiring,
constructing, reconstructing, improving, maintaining, equipping and furnishing
of, among others, industrial facilities for the purpose of promoting, attracting
and developing economically sound commerce and industry in order to advance the
job opportunities, health, general prosperity and economic welfare of the people
of the State of New York, to improve their prosperity and standard of living,
and to prevent unemployment and economic deterioration; and
WHEREAS, by resolution adopted June 1, 1993 (the "Resolution"), the Agency
indicated its intent: (i) to acquire the Project Facility described in the
following paragraph and (ii) to lease (with an obligation to purchase) the
Project Facility to the Company or such other person as may be designated by the
Company and agreed upon by the Agency; and
WHEREAS, the Project Facility consists of the acquisition of land (the
"Land") located in the Town of New Hartford County of Oneida, State of New York,
and described on attached Exhibit A, buildings (the "Facility") on the Land, and
certain equipment (the "Equipment") (the Land, the Facility and the Equipment
being hereinafter referred to as the "Project Facility") , all for the use as a
manufacturing facility; and
WHEREAS, pursuant to Article 8 of the Environmental Conservation Law,
Chapter 43-B of the Consolidated Laws of New York, as amended, and the
regulations adopted pursuant thereto by the Department of Environmental
Conservation of the State of New York (collectively, the "SEQR Act"), the Agency
in the Resolution determined that the acquisition of the Project Facility, and
the leasing thereof to the Company, will not have a significant effect on the
"environment" (as said quoted term is defined in the SEQR Act) and therefore
does not require the preparation of environmental impact statement; and
WHEREAS, the Company has conveyed the Project Facility to the Agency; and
<PAGE>
WHEREAS, the Agency proposes to lease the Project Facility to the Company,
and the Company desires to rent the Project Facility from the Agency, upon the
terms and conditions hereinafter set forth in this Agreement.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants hereinafter contained, the parties hereto hereby formally covenant,
agree and bind themselves as follows (but, with respect to the Agency, subject
to Section 12.11 hereof), to wit:
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ARTICLE I
DEFINITIONS
Section 1.1 Definitions.
The following words and terms as used in this Lease Agreement shall have
the following meanings unless the context or use indicates another or different
meaning or intent:
"Act" means Title 1 of Article 18-A of the General Municipal Law of the
State of New York, as amended from time to time, together with Chapter 372 of
the Laws of 1970 of the State of New York, as amended from time to time.
"Agency" means (i) Oneida County Industrial Development Agency and its
successors and assigns and (ii) any public benefit corporation or political
subdivision or other entity (as provided in Section 9.3 hereof) resulting from
or surviving any consolidation or merger to which the Agency or its successors
may be a party.
"Agreement" means this Lease Agreement, dated as of February 1, 1994, by
and between the Agency and the Company, as the same may be amended or
supplemented from time to time.
"Authorized Representative" means, in the case of the Agency, the
chairman, vice chairman, secretary or assistant secretary of the Agency; in the
case of the Company, its president or any vice president; and in the case of
both, such additional persons as, at the time, are designated to act on behalf
of the Agency or the Company, as the case may be, by written certificate
furnished to the Agency or the Company, as the case may be, containing the
specimen signature of each such person and signed on behalf of (i) the Agency by
the chairman, vice chairman, secretary or assistant secretary of the Agency or
(ii) the Company by the president or any vice president of the Company.
"Company" means (i) Special Metals Corporation, a corporation duly
organized and existing under the laws of the State of Delaware, and its
successors and assigns as the lessee hereunder, and (ii) any surviving,
resulting or transferee Person as provided in Section 8.4 hereof.
"Condemnation" shall mean the taking of title to, or the use of, Property
under the exercise of the power of eminent domain by any governmental entity or
other person acting under governmental authority.
"Equipment" means all material, machinery, equipment, fixtures and
furnishings used in connection with the operation of the Facility and acquired
by the Agency in accordance with this Lease Agreement, and such substitutions
and replacements thereof as may be made from time to time pursuant to this Lease
Agreement.
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"Event of Default" shall have the meaning specified in Section 10.1
hereof.
"Facility" means all those buildings, improvements, structures and other
related facilities now or hereafter affixed or attached to the Land, all as they
may exist from time to time.
"Hazardous Substance" means, without limitation, any flammable explosives,
radon, radioactive materials, asbestos, urea formaldehyde foam insulations,
polychlorinated biphenyls, petroleum and petroleum products, methane, hazardous
materials, hazardous wastes, hazardous or toxic substances or related materials
defined in the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended (42 U.S.C. Sections 1801 et seq.), the Hazardous
Materials Transportation Act, as amended (42 U.S.C. Section 6901 et seq., The
New York State Environmental Conservation law or any other applicable
Environmental Law and the regulations adopted pursuant thereto.
"Independent Counsel" means an attorney or attorneys or firm or firms of
attorneys duly admitted to practice law before the highest court of the State of
New York and not a full time employee of the Agency or the Company.
"Land" means the real estate leased pursuant to this Agreement and more
particularly described in Exhibit A attached hereto, with such additions thereto
and substitutions therefor as may exist from time to time in accordance with the
provisions of this Agreement.
"Lease Term" means the duration of the leasehold estate created in this
Agreement as specified in Section 5.2 hereof.
"Lien" means any interest in Property securing an obligation owed to a
Person, whether such interest is based on common law, statute or contract, and
including but not limited to the security interest arising from a mortgage,
encumbrance, pledge, conditional sale or trust receipt or a lease, consignment
or bailment for security purposes. The term "Lien" includes reservations,
exceptions, encroachments, easements, rights of way, covenants, conditions,
restrictions, leases and other similar title exceptions and encumbrances,
including but not limited to mechanics', materialmen's, warehousemen's and
carriers' liens and other similar encumbrances affecting real property. For the
purpose of this Agreement, a Person shall be deemed to be the owner of any
Property which it has acquired or holds subject to a conditional sale agreement
or other arrangement pursuant to which title to the Property has been retained
by or vested in some other Person for security purposes.
"Local Taxing Entities" shall mean, collectively, Oneida County, the Town
of New Hartford, the New Hartford Central School District and each other taxing
entity in which the Project Facility, or any portion thereof, is located,
including, without limitation, any city, school district, town, village or other
political unit wherein the Project Facility or a portion thereof is located.
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"Net Proceeds" means so much of the gross proceeds with respect to which
that term is used as remain after payment of all expenses, costs and taxes
(including attorneys' fees) incurred in obtaining such gross proceeds.
"Permitted Encumbrances" means (i) the Liens, if any described in Exhibit
B attached hereto, (ii) this Agreement, (iii) utility, access and other
easements and rights of way, restrictions and exceptions that do not, in the
opinion of Independent Counsel, materially impair the utility or the value of
the Property affected thereby for the purposes for which it is intended, (iv)
mechanics', materialmen's, warehousemen's, carriers' and other similar Liens to
the extent permitted by Section 8.9(b) hereof, and (v) Liens for taxes and
assessments, whether general or special, at the time not delinquent.
"Person" means an individual, partnership, corporation, association, joint
venture, trust or unincorporated organization, and a government or any
governmental agency, public benefit corporation or political subdivision.
"Pilot" means that agreement of even date herewith between the Agency and
the Company obligating the Company to make certain payments in lieu of taxes to
the Local Taxing Entities.
"Project Facility" means the Land, the Facility and the Equipment.
"Property" means any interest of any kind in any property or asset,
whether real, personal or mixed, or tangible or intangible.
"Resolution" shall have the meaning set forth in the second recital of
this Agreement.
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ARTICLE II
REPRESENTATIONS AND COVENANTS
Section 2.1 Representations and Covenants of the Agency.
The Agency makes the following representations and covenants as the basis
for the undertakings on the Company's part herein contained:
(a) The Agency is duly established under the provisions of the Act
and has the power to enter into the transactions contemplated by this Agreement
and to carry out its obligations hereunder. Based upon the representations of
the Company as to the utilization of the Project Facility, the Project Facility
will constitute a "project", as such quoted term is defined in the Act. By
proper corporate action, the officers of the Agency have been duly authorized to
execute and deliver this Agreement.
(b) The Agency will acquire the Project Facility and will lease the
Project Facility to the Company pursuant to this Agreement, all for the purpose
of promoting the industry, health, welfare, convenience and prosperity of the
inhabitants of the State of New York and improving their standard of living.
(c) By the Resolution, the Agency determined that, based upon the
review by the Agency of the materials submitted and the representations made by
the Company relating to the Project Facility, the acquisition of the Project
Facility, and the leasing thereof by the Agency to the Company, will not have a
"significant effect on the environment" within the meaning ascribed to such
quoted phrase in Article 8 of the Environmental Conservation Law of the State of
New York and the regulations of the New York State Department of Environmental
Conservation promulgated thereunder.
Section 2.2 Representations and Covenants of the Company.
The Company makes the following representations and covenants as the basis
for the undertakings on the Agency's part herein contained:
(a) The Company is a corporation duly organized and existing under
the laws of the State of Delaware, is in good standing under its certificate of
incorporation and the laws of the State of New York has power to enter into this
Agreement and to carry out its obligations hereunder and by proper corporate
action has been duly authorized to execute and deliver this Agreement.
(b) Neither the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby nor the fulfillment of or
compliance with the provisions of this Agreement will conflict with or result in
a breach of any of the terms, conditions or provisions of any corporate
restriction or any agreement or instrument to which the Company is a party or by
which the Company is
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bound, or will constitute a default under any of the foregoing, or result in the
creation or imposition of any Lien of any nature upon any of the Property of the
Company under the terms of any such instrument or agreement.
(c) The acquisition of the Project Facility by the Agency and the
leasing thereof by the Agency to the Company (i) will induce the Company to
maintain and operate the Project Facility in Oneida County, New York, thereby
retaining and/or creating employment opportunities and promoting the welfare of
the inhabitants thereof and (ii) will not result in the removal of a plant,
facility or other commercial activity of the Company or any other occupant of
the Project Facility from one area of the State of New York to another area of
the State of New York or result in the abandonment of one or more plants or
facilities of the Company or any other occupant of the Project Facility located
within the State of New York.
(d) The Project Facility is and will continue to be a "project," as
such quoted term is defined in the Act, and, so long as the Agency retains title
to the Project Facility, the Company will not take any action, fail to take any
action or allow any action to be taken which would cause the Project Facility
not to constitute a "project" (as such quoted term is defined in the Act) .
(e) To the best of the Company's knowledge, the acquisition of the
Project Facility will not have a "significant effect on the environment" (as
said quoted term is defined in Article 8 of the Environmental Conservation Law
of the State of New York).
(f) The Project Facility will comply in all material respects with
all applicable building, zoning, environmental, planning and subdivision laws,
ordinances, rules and regulations of governmental authorities having
jurisdiction over the Project Facility, and the Company shall defend, indemnify
and save the Agency and its members, officers, agents, servants and employees
harmless from any liability or expenses resulting from any failure by the
Company to comply with the provisions of this subsection (f).
Section 2.3 Environmental Representations and Covenants.
The Company makes the following additional representations and covenants
as the basis for the undertakings on the Agency's part herein contained.
(a) Except as described on Exhibit B, as of the execution of this
Lease Agreement there has been no release or threatened release of oil or
hazardous materials (including, without limitation, asbestos and polychlorinated
biphenyls), Hazardous Substances or hazardous wastes or any other contaminant or
pollutant at, on, to, into, or from the Project Facility, except releases which
have been remediated in compliance with applicable environmental laws. No
federal, state or local agency or authority has issued any claim, notification,
order or violation or instituted any action, suit, or proceeding concerning oil
or hazardous materials, Hazardous Substances or hazardous wastes or any
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other contaminant or pollutant with respect to the Project Facility, or with
respect to the release of such oil or hazardous materials, Hazardous Substances
or hazardous wastes or any other contaminant or pollutant on any adjoining
property. The Company is not aware of any condition or occurrence which could
give rise to any such claim, notification, order, violation, action, suit, or
proceeding.
(b) No consent or approval is needed from any governmental agency
for the transfer of the Project Facility under any environmental law, code,
ordinance, rule or regulation.
(c) Except as set forth on Exhibit B attached hereto and made a part
hereof there are no agreements, consent orders, decrees, judgments, licenses or
permit conditions, or other directives of government which relate to the future
use of the Project Facility or require any change in the present conditions of
the Project Facility. The Project Facility is not listed or proposed to be
listed on either the federal National Properties List or the New York State
Inactive Hazardous Waste Disposal Site Registry, except as set forth on Exhibit
B.
(d) The Project Facility has not been and will not be used for the
treatment, storage or disposal of oil or hazardous materials, hazardous
substances or hazardous wastes or any other contaminant or pollutant, except in
compliance with applicable environmental laws.
(e) The Company has no reason to believe any condition exists
relating to oil or hazardous materials, hazardous substances or hazardous wastes
or any other contaminant or pollutant released at, on, to, into or from the
Project Facility, except in accordance with applicable environmental laws and
the terms and conditions of a permit, certificate, license or other written
approval of a governmental body.
(f) The Company shall not allow or cause any oil or hazardous
materials, hazardous substances or hazardous wastes or any other contaminant or
pollutant to be released at, on, to, into or from the Project Facility, except
in accordance with applicable environmental laws and the terms and conditions of
a permit, certificate, license or other written approval of a governmental body.
(g) All environmental permits, consents, licenses, certificates or
approvals necessary to the operation of any activity on the Project Facility
have been obtained and are and shall be kept in full force and effect.
(h) There are no electrical transformers, capacitors, or other equip
ment, items or articles on or at the Project Facility which contain
polychlorinated biphenyls, except in compliance with applicable environmental
laws.
(i) The Company has fully complied, and will continue to comply,
with all federal, state and local environmental laws, rules, regulations,
orders, decrees, ordinances, and codes applicable to the use and condition of
the Project Facility.
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(j) The Company shall promptly notify the Agency, in writing, of the
filing of an environmental lien against the Project Facility, the listing or
proposed listing of the Project Facility on the federal National Priorities
List, the New York State Inactive Hazardous Waste Disposal Site Registry or
comparable state list, or any environmental claim, notification, order,
violation, action, suit, or proceeding with respect to the Project Facility.
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ARTICLE III
TITLE TO THE PROJECT FACILITY
Section 3.1 Agreement to Convey to the Agency.
The Company has conveyed, or will convey, to the Agency all right, title
and interest in the Project Facility. The Company agrees that the title to the
Project Facility shall be good and marketable and free and clear of all Liens
except for Permitted Encumbrances and will be sufficient for the purposes
intended by this Agreement and the Company agrees that it will defend, indemnify
and hold the Agency and its members, officers, agents, servants and employees
harmless from any expense or liability arising out of a defect in title
affecting the Project Facility and will defend any action respecting title to
the Project Facility.
Section 3.2 Acquisition of the Project Facility.
The Company shall give or cause to be given all notices and comply or
cause compliance with all laws, ordinances, municipal rules and regulations and
requirements of all governmental agencies and public authorities applying to or
affecting the acquisition of the Project Facility, and the Company will defend
and save the Agency and its officers, members, agents, servants and employees
harmless from all fines and penalties due to failure to comply therewith. All
permits and licenses necessary for the acquisition of the Project Facility shall
be procured promptly by the Company.
Section 3.3 Costs of Acquisition to be Paid by the Company.
The Company agrees, for the benefit of the Agency, to pay in full all
costs of acquiring the Project Facility. The Company shall execute, deliver and
record or file such instruments as are necessary in order to perfect or protect
the Agency's title to such portions of the Project Facility. No payment pursuant
to the provisions of this Section 3.3 shall entitle the Company to any
reimbursement for any such expenditure from the Agency or entitle the Company to
any diminution or abatement of any other amounts payable by the Company under
this Agreement.
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ARTICLE IV
(INTENTIONALLY OMITTED)
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ARTICLE V
DEMISING CLAUSES AND RENTAL PROVISIONS
Section 5.1 Demise of the Project Facility.
The Agency hereby demises and leases the Project Facility to the Company,
and the Company hereby rents and leases the Project Facility from the Agency,
upon the terms and conditions of this Agreement.
Section 5.2 Duration of the Lease Term; Quiet Enjoyment.
(a) The Agency shall deliver to the Company sole and exclusive
possession of the Project Facility (subject to the provisions of Sections 8.3
and 10.2 hereof), and the leasehold estate created hereby shall commence on the
date hereof and except as provided in Section 10.2 hereof, the leasehold estate
created hereby shall terminate at 11:59 p.m. on February 28, 1997 or on such
earlier date as may be permitted by Section 11.1 hereof.
(b) The Agency shall take no action, other than pursuant to Article
X of this Agreement, to prevent the Company from having quiet and peaceable
possession and enjoyment of the Project Facility during the Lease Term and will,
at the request of the Company and at the Company's cost, cooperate with the
Company in order that the Company may have quiet and peaceable possession and
enjoyment of the Project Facility.
Section 5.3 Rents and Other Amounts Payable.
(a) The Company shall pay rent for the Project Facility leased
hereunder as follows: So long as the leasehold estate created hereby shall not
be terminated, the Company shall pay, directly to the Agency, on the date of
execution and delivery of this Agreement and on the first day of February in
each calendar year thereafter during the Lease Term, an amount equal to the sum
of Five Hundred Dollars ($500.00) per year.
(b) In addition to the amounts payable pursuant to Section 5.3(a)
hereof, the Company shall pay to the Agency as additional rent, within thirty
(30) days of the receipt of demand therefor, an amount equal to the sum of the
reasonable expenses of the Agency and the members, officers, agents, servants
and employees thereof incurred (i) by reason of the Agency's ownership or
leasing of the Project Facility and/or (ii) in connection with the carrying of
the Agency's duties and obligations under this Agreement. At the request of the
Company, the Agency shall provide the Company with an accounting of all such
costs and expenses.
(c) The above-mentioned payments shall be made, without any further
notice, in immediately available funds in lawful money of the United States of
America
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as, at the time of payment, shall be legal tender for the payment of public and
private debts. In the event the Company shall fail to timely make any payment
required in this Section 5.3, within ten days after notice of nonpayment, the
Company shall pay the same together with interest thereon at the rate of ten
percent (10%) per annum from the date on which such payment was due until the
date on which such payment is made.
Section 5.4 Obligations of the Company Hereunder Unconditional.
(a) The obligation of the Company to make the payments required by
this Agreement and to perform and observe any and all of the other covenants and
agreements on its part contained herein shall be a general obligation of the
Company and shall be absolute and unconditional irrespective of any defense or
any rights of set-off, recoupment, counterclaim or abatement that the Company
may otherwise have against the Agency. The Company will not (i) suspend,
discontinue or abate any payment required by this Agreement or (ii) fail to
observe any of its other covenants or agreements in this Agreement or (iii)
except as provided in Section 11.1 or Section 7.1 hereof, terminate this
Agreement for any cause whatsoever including, without limiting the generality of
the foregoing, failure of the Company to occupy or to use the Project Facility
as contemplated in this Agreement or otherwise, any defect in the title, design,
operation, merchantability, fitness or condition of the Project Facility or in
the suitability of the Project Facility for the Company's purposes or needs,
failure of consideration, destruction of or damage to the Project Facility,
commercial frustration of purpose, or the taking by Condemnation of title to or
the use of all or any part of the Project Facility, any change in the tax or
other laws of the United States of America, or administrative rulings of or
administrative actions by the State, or any political subdivision of either, or
any failure of the Agency to perform and observe any agreement, whether
expressed or implied, or any duty, liability or obligation arising out of or in
connection with this Agreement.
(b) Nothing contained in this Section 5.4 shall be construed to
release the Agency from the performance of any of the agreements on its part
contained in this Agreement, and in the event the Agency should fail to perform
any such agreement, the Company may institute such action against the Agency as
the Company may deem necessary to compel performance (subject to the provisions
of Section 12.11 hereof) or recover damages for non-performance; provided,
however, that the Company shall look solely to the Agency's estate and interest
in the Project Facility for the satisfaction of any right or remedy of the
Company for the collection of a judgment (or other judicial process) requiring
the payment of money by the Agency in the event of any liability on the part of
the Agency, and no other property or assets of the Agency shall be subject to
levy, execution, attachment or other enforcement procedure for the satisfaction
of the Company's remedies under or with respect to this Agreement, the
relationship of the Agency and the Company hereunder, or the Company's use and
occupancy of the Project Facility, or any other liability of the Agency to the
Company.
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ARTICLE VI
MAINTENANCE, MODIFICATIONS, TAXES AND INSURANCE
Section 6.1 Maintenance, Use and Modifications of the Project Facility by
the Company.
(a) During the Lease Term, the Company will (i) maintain the Project
Facility free of material defects or dangerous conditions and keep the Project
Facility in safe condition, (ii) make all necessary repairs and replacements to
the Project Facility (whether ordinary or extraordinary, structural or
nonstructural, foreseen or unforeseen) as are necessary to maintain the Project
Facility free from material defects and dangerous conditions, and (iii) operate
the Project Facility in accordance with all applicable federal and state safety
standards.
(b) The Company agrees to use the Project Facility in conformance
with all zoning ordinances, laws, rules and regulations that would be applicable
to the Project Facility if the Company were the owner of record of the Project
Facility. The Company covenants not to use the Project Facility for any other
purpose without the prior written consent of the Agency.
(c) The Company from time to time may make any additions,
modifications or improvements to the Project Facility or any part thereof which
it may deem desirable for its business purposes, provided such actions do not
affect the integrity of the Project Facility provided that all such additions,
modifications or improvements to the Project Facility or any part thereof shall
be in compliance with all applicable law, rules and regulations, including,
without limitation, requirements that the provisions of Article 8 of the
Environmental Conservation Law be satisfied with respect to such addition or
improvement). All such additions, modifications or improvements so made by the
Company shall be done in a reasonable and workmanlike manner and shall become a
part of the Project Facility. The Company agrees to deliver to the Agency all
documents which may be necessary or appropriate to convey to the Agency title
to, or other satisfactory interest in, such property.
(d) The Agency shall not be under any obligation to renew, repair or
replace any inadequate, obsolete, worn out, unsuitable, undesirable or
unnecessary portions of the Project Facility.
Section 6.2 Installation of Additional Equipment.
(a) The Company from time to time may install additional machinery,
equipment or other personal property in the Project Facility (which may be
attached or affixed to the Project Facility), and such machinery, equipment or
other personal property shall not become, or be deemed to become, a part of the
Project Facility. The Company from time to time may remove or permit the removal
of such machinery,
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equipment or other personal property from the Project Facility; provided that
any such removal of such machinery, equipment or other personal property shall
not adversely affect the integrity of the Project Facility or impair the overall
operating efficiency of the Project Facility for the purposes for which it is
intended and provided further that, if any material damage is occasioned to the
Project Facility by such removal, the Company shall promptly repair such damage
at its own expense.
(b) The Agency shall not be responsible for any loss or damage to
any machinery, equipment or other personal property installed pursuant to the
provisions of this Section 6.2.
Section 6.3 Taxes, Assessments and Utility Charges.
(a) The Company shall pay, as the same respectively become due,
subject to Section 6.8, (i) all taxes and governmental charges of any kind
whatsoever which may at any time be lawfully assessed or levied against or with
respect to (A) the Project Facility, (B) any machinery, equipment or other
property installed or brought by the Company therein or thereon, (C) any sales
or use taxes imposed with respect to the Project Facility or any part or
component thereof, (ii) all utility and other charges incurred or imposed for or
with resect to the operation, maintenance, use, occupancy, upkeep and
improvement of the Project Facility, (iii) all assessments and charges of any
kind whatsoever lawfully made by any governmental body for public improvements,
provided that, with respect to special assessments or other governmental charges
that may lawfully be paid in installments over a period of years, the Company
shall be obligated under this Agreement to pay only such installments as are
required to be paid during the Lease Term, and (iv) all moneys due as payments
in lieu of taxes pursuant to Section 6.8 hereof.
(b) The Company may in good faith actively contest any such taxes,
assessments and other charges, provided that the Company shall have first
notified the Agency in writing of such contest.
(c) The Company shall defend, indemnify and save the Agency and its
members, officers, agents, servants and employees harmless from any liability or
expenses resulting from any failure by the Company to comply with the provisions
of this Section 6.3.
Section 6.4 Insurance Required.
At all times throughout the Lease Term, the Company shall, at its expense,
maintain insurance against such risks and for such amounts and with deductibles
(except as otherwise herein provided) as are customarily insured against by
businesses of like size and type paying, as the same become due and payable, all
premiums in respect thereto, such insurance to include at a minimum the
following coverage:
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(a) Workers' Compensation insurance, and each other form of
insurance which the Agency or the Company is required by law to provide,
covering loss resulting from injury, sickness, disability or death of employees
of the Company who are located at or assigned to the Project Facility.
(b) Insurance against loss or damage by fire, such other hazards,
casualties, risks and contingencies now covered by or that may hereafter be
considered as included within the standard form of extended coverage
endorsement.
(c) Underlying insurance protecting the Company and the Agency
against loss or losses from liabilities arising from bodily injury and death or
damage to the Property of others caused by any accident or occurrence, with
limits of not less than Two Million Dollars ($2,000,000.00) and excess liability
coverage with limits of not less than Fifty Million Dollars ($50,000,000.00),
without any deductible, on account of bodily injury, including death resulting
therefrom, and damage to the property of others excluding liability imposed upon
the Company by any applicable worker's compensation law.
(d) During the Lease Term, any contractor or subcontractor engaged
in the repairs of the Project Facility or in the construction or installation of
any improvements to the Project Facility shall be required to carry general
comprehensive liability insurance with limits acceptable to the Company and the
Agency and containing coverage for premises operations, contractors protective,
owner's protective and completed operations (products liability), with the X, C
and U exclusions removed and containing coverage for all owned, non-owned and
hired vehicles with non-ownership protection for contractor's or subcontractor's
employees.
Section 6.5 Additional Provisions Respecting Insurance.
(a) All insurance required by Section 6.4 hereof shall be procured
and maintained under valid and enforceable policies issued by financially sound
and generally recognized responsible insurance companies selected by the Company
and authorized to write such insurance in the State of New York. All policies
evidencing such insurance shall provide for at least thirty (30) days prior
written notice of the cancellation thereof (or any reduction in policy limits or
material change in coverage thereof) to the Company and the Agency.
(b) All such policies of insurance, or a certificate or certificates
of the insurers that such insurance is in force and effect, shall be deposited
with the Agency on or before the commencement of the Lease TeAt least ten (10)
days prior to the expiration of any such policy, the Company shall furnish to
the Agency evidence that the policy has been renewed or replaced or is no longer
required by this Agreement.
(c) Nothing in this Agreement shall prevent the Company from taking
out insurance of the kind and in the amounts provided for under Section 6.4
hereof under
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a blanket insurance policy or policies which cover other properties owned or
operated by the Company as well as the Project Facility.
Section 6.6 Application of Net Proceeds of Insurance.
The Net Proceeds of Insurance carried pursuant to the provisions of
Section 6.4 hereof shall be applied toward extinguishment or satisfaction of the
liability with respect to which such insurance proceeds may be paid.
Section 6.7 Right of the Agency to Pay Taxes, Insurance Premiums and Other
Charges.
If the Company fails (i) to pay any tax, assessment or other governmental
charge required to be paid by Section 6.3 hereof or (ii) to maintain any
insurance required to be maintained by Section 6.4 hereof, the Agency may pay
(but shall not be obligated to pay) such tax, assessment or other governmental
charge or the premium for such insurance. No such payment by the Agency shall
affect or impair any rights of the Agency hereunder arising in consequence of
such failure by the Company. The Company shall reimburse the Agency upon demand,
for any amount so paid by the Agency pursuant to this Section 6.7, together with
interest thereon from the date of payment by the Agency until the date on which
such reimbursement is made at the rate of 10% per annum.
Section 6.8 Payments in Lieu of Taxes.
(a) It is recognized that under the provisions of the Act, the
Agency is required to pay no taxes or assessments (except for special
assessments and special ad valorem levies) upon any of the Property acquired by
it or under its jurisdiction or control or supervision or upon its activities.
This exemption is only applicable to real property taxes and assessments from
and after the tax incidence date next following the date of this Agreement (the
"Tax Date"). Accordingly, the Company and the Agency intend that, by virtue of
the Agency's ownership, control and supervision of the Project Facility and the
Company's status as agent of the Agency for the purposes stated herein, the
Company shall not be obligated to pay such taxes, charges and assessments
(except for special assessments and special ad valorem levies) described in
Section 6.3 (a) (i) and (iii), but excluding any real property taxes and
assessments due prior to the Tax Date. The Company and the Agency agree,
however, that the Company, or any subsequent lessee under this Agreement, shall,
during the Lease Term and from and after the Tax Date, make payments in lieu of
taxes in accordance with a separate agreement between the Agency and the Company
of even date herewith (the "Pilot").
(b) In the event that the Company shall purchase the Project
Facility pursuant to Article XI of this Agreement, and such purchase shall not
immediately obligate the Company to make pro rata tax payments pursuant to
legislation similar to subdivision one of Section 520 of the Real Property Tax
Law, as added by Chapter 635 of the 1978 Laws of New York, then, notwithstanding
any other provision of this
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Agreement, the obligations of the Company pursuant to this Section 6.8 shall
remain in full force and effect until the first tax year in which the Company
shall appear on the tax rolls of the various taxing entities having jurisdiction
over the Project Facility as the legal owner of record of the Project Facility.
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ARTICLE VII
DAMAGE, DESTRUCTION AND CONDEMNATION
Section 7.1 Damage or Destruction.
(a) If the Project Facility shall be damaged or destroyed (in whole
or in part) at any time during the Lease Term:
(i) the Agency shall have no obligation to replace, repair,
rebuild or restore the Project Facility;
(ii) there shall be no abatement or reduction in the amounts
payable by the Company under this Agreement (whether or not the Project
Facility is replaced, repaired, rebuilt or restored;
(iii) the Company shall promptly give notice thereof to the
Agency; and
(iv) except as otherwise provided in subsection (b) of this
Section 7.1, the Company shall promptly replace, repair, rebuild or
restore the Project Facility to substantially the same condition and value
as an operating entity as existed prior to such damage or destruction,
with such changes, alterations and modifications as may be desired by the
Company, provided that such changes, alterations or modifications do not
so change the nature of the Project Facility that it does not constitute a
"project" (as such quoted term is defined in the Act).
The Net Proceeds of insurance shall be paid to the Company and except as
other provided in subsection (b) of this Section 7.1, the Company shall apply to
the replacement, repair, rebuilding or restoration of the Project Facility so
much as may be necessary of any Net Proceeds of insurance resulting from claims
for such losses.
In the event such Net Proceeds are not sufficient to pay in full the costs
of such replacement, repair, rebuilding or restoration, the Company shall
nonetheless complete the work thereof and pay from its own monies that portion
of the costs thereof in excess of such Net Proceeds.
All such replacements, repairs, rebuilding or restoration made pursuant to
this Section 7.1, whether or not requiring the expenditure of the Company's own
money, shall automatically become a part of the Project Facility as if the same
were specifically described herein.
(b) The Company shall not be obligated to replace, repair, rebuild
or restore the Project Facility, and the Net Proceeds of the insurance shall not
be applied
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as provided in subsection (a) of this Section 7.1, if the Company shall exercise
its option to terminate this Agreement pursuant to Section 11.1 hereof.
(c) The Company may adjust all claims under any policies of
insurance covering damage or destruction of the Project Facility; provided,
however, that no such claim with respect to an insured event as to which the
Agency may be or is alleged to be liable may be adjusted without the prior
written consent of the Agency.
Section 7.2 Condemnation.
(a) If at any time during the Lease Term the whole or any part of
title to, or the use of, the Project Facility shall be taken by Condemnation,
the Agency shall have no obligation to restore or replace the Project Facility
and there shall be no abatement or reduction in the amounts payable by the
Company under this Agreement (whether or not the Project Facility is restored or
replaced).
Except as otherwise provided in subsection (b) of this Section 7.2,
the Company shall promptly:
(i) if necessary to maintain the Project Facility restore the
Project Facility (including the purchase of necessary land to replace any
Land taken by Condemnation) to substantially the same condition and value
as an operating facility as existed prior to such Condemnation; or
(ii) if necessary to maintain the Project Facility acquire, by
construction or otherwise, facilities of substantially the same nature and
value as an operating facility as the Project Facility (hereinafter
referred to in this Section 7.2 as "Substitute Facilities"), which
Substitute Facilities shall constitute a "project," as such quoted term is
defined in the Act; and
(iii) in any event, give prompt notice of such Condemnation and
its plans to restore the Project Facility or acquire Substitute Facilities
to the Agency.
The Net Proceeds of any award in any Condemnation proceeding shall
be paid to the Company and, if required, applied to the payment of the costs of
such restoration of the Project Facility or the acquisition of Substitute
Facilities. In the event such Net Proceeds of any Condemnation award are not
sufficient to pay in full the costs of such restoration of the Project Facility
or such acquisition of Substitute Facilities, the Company shall nonetheless
restore the Project Facility or acquire Substitute Facilities and shall pay from
its own monies that portion of the costs thereof in excess of such Net Proceeds.
The Project Facility, as so restored, or the Substitute Facilities,
whether or not requiring the expenditure of the Company's own monies, shall
automatically become part of the Project Facility as if the same were
specifically described herein.
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(b) The Company shall not be obligated to restore the Project
Facility or acquire Substitute Facilities, and the Net Proceeds of any
Condemnation award shall not be applied as provided in Section 7.2(a), if the
Company shall exercise its option to terminate this Agreement pursuant to
Section 11.1 hereof.
(c) The Agency shall cooperate fully with the Company in the
handling and conduct of any Condemnation proceeding with respect to the Project
Facility. In no event shall the Agency voluntarily settle, or consent to the
settlement of, any Condemnation proceeding with respect to the Project Facility
without the written consent of the Company.
Section 7.3 Condemnation of Company-Owned Property.
The Company shall be entitled to the proceeds of any Condemnation award or
portion thereof made for damage to or taking of any Property which, at the time
of such damage or taking, is not part of the Project Facility and which is owned
by the Company.
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ARTICLE VIII
SPECIAL COVENANTS
Section 8.1 No Warranty of Condition or Suitability by the Agency;
Acceptance "As Is".
THE AGENCY MAKES NO WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO THE
CONDITION, TITLE, DESIGN, OPERATION, MERCHANTABILITY OR FITNESS OF THE PROJECT
FACILITY, OR THAT THE PROJECT FACILITY IS OR WILL BE SUITABLE FOR THE COMPANY'S
PURPOSE OR NEEDS, OR REGARDING THE EXISTENCE OR NON-EXISTENCE OF ANY DEFECTS OR
DANGEROUS CONDITIONS EXISTING ON OR WITH RESPECT TO THE PROJECT FACILITY. THE
COMPANY DOES AND SHALL ACCEPT THE PROJECT FACILITY "AS IS" WITHOUT RECOURSE OF
ANY NATURE AGAINST THE AGENCY FOR ANY CONDITION NOW OR HEREAFTER EXISTING. NO
WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE OR MERCHANT ABILITY ARE MADE. IN
THE EVENT OF ANY DEFECT OR DEFICIENCY OF ANY NATURE, WHETHER PATENT OR LATENT,
THE AGENCY SHALL HAVE NO RESPONSIBILITY OR LIABILITY WITH RESPECT THEREOF.
Section 8.2 Hold Harmless Provision.
(a) The Company hereby releases the Agency and its members,
officers, agents, servants and employees from, agrees that the Agency and its
members, officers, agents, servants and employees shall not be liable for and
agrees to indemnify, defend and hold the Agency and its members, officers,
agents, servants and employees harmless from and against any and all (i)
liability for loss or damage to Property or injury to or death of any and all
persons that may be occasioned, directly or indirectly, by any cause whatsoever
pertaining to the Project Facility or arising by reason of or in connection with
the occupation or the use thereof or the presence of any Person or Property on,
in or about the Project Facility and/or (ii) liability occasioned directly or
indirectly from the violation, or alleged violation, of any environmental law,
rule or regulation with respect to the Project Facility and/or (iii) liability
arising from the Agency's acquiring, owning and leasing of the Project Facility,
including without limiting the generality of the foregoing, (A) any sales or use
taxes which are or may be payable with respect to goods supplied or services
rendered with respect to the Project Facility, and (B) all causes of action and
attorneys' fees and any other expenses incurred in defending any suits or
actions which may arise as a result of any of the foregoing, provided that any
such losses, damages, liabilities or expenses of the Agency are not incurred or
do not result from the intentional, gross negligence or willful wrongdoing of
the Agency or any of its members, officers, agents, servants or employees.
(b) In the event of any claim against the Agency or its officers,
members, agents, servants or employees by any employee of the Company or any
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contractor of the Company or anyone directly or indirectly employed by any of
them or anyone for whose acts any of them may be liable, the obligations
hereunder shall not be limited in any way by any limitation on the amount or
type of damages, compensation or benefits payable by or for the Company or such
contractor under worker's compensation, disability benefits or other employee
benefit acts.
(c) To effectuate the provisions of this Section 8.2, the Company
shall provide for and insure, in the liability policies required in Section
6.4(b) hereof, its liabilities assumed pursuant to this Section 8.2.
(d) Notwithstanding any other provision of this Agreement, the
obligations of the Company pursuant to this Section 8.2 shall remain in full
force and effect after the termination of this Agreement.
Section 8.3 Right to Inspect the Project Facility.
The Agency and its duly authorized agents shall have the right at all
reasonable times on reasonable notice and subject to the Company's usual and
customary security requirements, to inspect the Project Facility.
Section 8.4 Company to Maintain its Corporate Existence; Conditions Under
Which Exceptions Permitted.
The Company agrees that, during the Lease Term, it will maintain its
corporate existence, will not dissolve or otherwise dispose of all or
substantially all of its assets, and will not consolidate with or merge into
another corporation or permit one or more corporations to consolidate with or
merge into it; provided that the Company may consolidate with or merge into
another domestic corporation organized and existing under the laws of one of the
states of the United States of America, or permit one or more such domestic
corporations to consolidate with or merge into it, or sell or otherwise transfer
to another such domestic corporation all or substantially all of its assets as
an entirety and thereafter dissolve, provided (i) that the surviving, resulting
or transferee corporation, as the case may be, is incorporated under the laws of
the State of New York or qualifies to do business in the State of New York, (ii)
that such corporation assumes in writing all of the obligations or any
restrictions on the Company under this Agreement and any other agreement
securing the Company's performance of its obligations hereunder, (iii) that as
of the date of such consolidation, merger, sale or transfer, the Agency shall be
furnished with the following, in form and substance satisfactory to the Agency:
(a) an opinion of Independent Counsel opining as to compliance with items (i)
and (ii) of this Section 8.4, (b) a certificate, dated the effective date of
such consolidation, merger, sale or transfer, signed by an executive officer of
the Company and of the surviving, resulting or transferee corporation, as the
case may be, to the effect that immediately after the consummation of the
transaction, and after giving effect thereto, no Event of Default exists under
this Agreement and no event exists which, with notice or lapse of time or both,
would become such an Event of Default.
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Section 8.5 Omitted.
Section 8.6 Agreement to Provide Information.
The Company shall, whenever requested by the Agency, provide and
certify or cause to be provided and certified such information concerning the
Company, its finances, and other topics as the Agency from time to time
reasonably considers necessary or appropriate, or as may be required by law.
Section 8.7 Omitted.
Section 8.8 Compliance with Orders, Ordinances, Etc.
(a) The Company will, throughout the Lease Term, promptly comply
with all statutes, codes, laws, acts, ordinances, orders, judgments, decrees,
injunctions, rules, regulations, permits, licenses, authorizations, directions
and requirements of all federal, state, county, municipal and other governments,
departments, commissions, boards, companies or associations insuring the
premises, courts, authorities, officials and officers, foreseen or unforeseen,
ordinary or extraordinary, which now or at any time hereafter may be applicable
to the Project Facility or any part thereof, or to any use, manner of use or
condition of the Project Facility or any part thereof.
(b) Notwithstanding the provisions of Section 8.8(a) hereof, the
Company may in good faith actively contest the validity or the applicability of
any requirement of the nature referred to in such subsection (a), provided the
Company shall have first notified the Agency of such contest.
(c) Notwithstanding the provisions of Section 8.8(b) hereof, if
because of a violation enumerated in Section 8.8(a) hereof, either the Agency or
any of the members, officers, agents, servants or employees of the Agency shall
actually be threatened with a fine or imprisonment, then the Company shall
immediately remedy such violation and provide legal protection to the Agency and
its members, officers, agents, servants and employees sufficient to remove the
threat of such fine or imprisonment.
Section 8.9 Discharge of Liens and Encumbrances.
(a) The Company shall not permit or create or suffer to be permitted
or created any Lien, except for Permitted Encumbrances upon the Project Facility
or any part thereof.
(b) Notwithstanding the provisions of subsection (a) of this Section
8.9, the Company may in good faith contest any such Lien, provided the Company
shall have first notified the Agency of such proposed contest. In such event,
the Company may permit the items so contested to remain undischarged or
unsatisfied during the period of such contest and any appeal therefrom.
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(c) Notwithstanding the provisions of subsection (b) of this Section
8.9, if because of a violation enumerated in Section 8.9 (a) hereof, either the
Agency or any of the members, officers, agents, servants or employees of the
Agency shall actually be threatened with a fine or imprisonment, then the
Company shall immediately remedy such violation and provide legal protection to
the Agency and its members, officers, agents, servants and employees sufficient
to remove the threat of such fine or imprisonment.
Section 8.10 Identification of Equipment.
All Equipment which is or may become the property of the Agency pursuant
to the provisions of this Agreement shall be property identified by the Company
by such appropriate records, including computerized records, as may be approved
by the Agency. In this regard all improvements, machinery, equipment and other
Property of whatever nature affixed or attached to the Land shall be deemed
presumptively to be owned by the Agency, rather than the Company, unless the
same were installed by the Company and title thereto was retained by the Company
as provided in Section 6.2 of this Agreement and such improvements, machinery,
equipment and other Property were properly identified by such appropriate
records as were approved by the Agency.
Section 8.11 Depreciation Deductions and Investment Tax Credits.
The parties agree that, as between them, the Company shall be entitled to
all depreciation deductions with respect to any depreciable property in the
Project Facility pursuant to Section 167 or 168 of the Code and to any
investment credit pursuant to Section 38 of the Code with respect to any portion
of the Project Facility which constitutes "Section 38 Property." The Agency
shall have no obligation to furnish any reports or tax returns pursuant to the
provisions of this Section 8.11, but upon written request of the Company will
endeavor to file with the appropriate officer or officers any reports or tax
returns furnished to the Agency by the Company for the purpose of such filing.
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ARTICLE IX
RELEASE OF CERTAIN LAND; ASSIGNMENTS AND SUBLEASING;
MORTGAGE AND PLEDGE AND ASSIGNMENT OF INTERESTS
Section 9.1 Restriction on Sale of the Project Facility; Release of
Certain Land.
(a) Except as otherwise specifically provided in this Article IX and
in Article X hereof, the Agency shall not sell, convey, transfer, encumber or
otherwise dispose of the Project Facility or any part hereof or any of its
rights under this Agreement without the prior written consent of the Company.
(b) The Agency and the Company from time to time may release from
the provisions of this Agreement and the leasehold estate created hereby any
part of, or interest in, the Land which is not necessary, desirable or useful
for the Project Facility. In such event, the Agency, at the Company's sole cost
and expense, shall execute and deliver any and all instruments necessary or
appropriate to so release such part of, or interest in, the Land and convey such
title thereto or interest therein to the Company or such other Person as the
Company may designate.
(c) No conveyance of any Land or interest therein effected under the
provisions of this Section 9. 1 shall entitle the Company to any abatement or
diminution of the rents payable under Section 5.3 hereof.
Section 9.2 Assignment or Subleasing.
(a) This Agreement may be assigned in whole or in part and the
Project Facility may be subleased as a whole or in part by the Company, but only
with the prior written consent of the Agency (which consent may not be
unreasonably withheld or delayed but may be subject to such reasonable
conditions as the Agency may deem appropriate) and provided that:
(1) No assignment (other than pursuant to Section 8.4 hereof)
or sublease shall relieve the Company from primary liability for any of its
obligations hereunder;
(2) The assignee or sublessee shall assume the obligations of
the Company hereunder to the extent of the interest assigned or subleased;
(3) The Company shall, within ten (10) days prior to execution
of such assignment or sublease, furnish or cause to be furnished to the Agency a
true and complete copy of each such assignment or sublease, as the case may be,
and the instrument of assumption;
(4) The Project Facility shall continue to constitute a
"project," as such quoted term is defined in the Act.
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(b) As of the purported effective date of any assignment or sublease
pursuant to subsection (a) of this Section 9.2, the Company at its sole cost
shall furnish the Agency with an opinion, in form and substance satisfactory to
the Agency or Independent Counsel opinion as to compliance with items (1) and
(2) of subsection (a) of this Section 9.2.
(c) No assignment or sublease entered into pursuant to this Section
9.2 may be modified or amended without the prior written consent of the Agency
(which consent may not be unreasonably withheld or delayed but may be subject to
such reasonable conditions as the Agency may deem appropriate).
Section 9.3 Merger of Agency.
(a) Nothing contained in this Agreement shall prevent the
consolidation of the Agency with, or merger of the Agency into, or transfer of
title to the Project Facility as an entirety to, any other political subdivision
or public benefit corporation or other entity which has the legal authority to
own and lease the Project Facility (including but not limited to a subsidiary of
the Agency), provided that:
(1) the Project Facility shall remain exempt from payment of
real property taxes to the extent set forth in Section 874 of the Act, as
amended from time to time, and
(2) upon any such consolidation, merger or transfer, the due
and punctual performance and observance of all the agreements and conditions of
this Agreement to be kept and performed by the Agency shall be expressly assumed
in writing by the political subdivision or public benefit corporation or other
entity resulting from such consolidation or surviving such merger or to which
the Project Facility shall be transferred.
(b) Within thirty (30) days after the consummation of any such
consolidation, merger or transfer of title, the Agency shall give notice thereof
in reasonable detail to the Company together with an instrument of assumption.
The Agency promptly shall furnish such additional information with respect to
any such transaction as the Company reasonably may request.
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ARTICLE X
EVENTS OF DEFAULT AND REMEDIES
Section 10.1 Events of Default Defined.
(a) The following shall be "Events of Default" under this Agreement
and the term "Event of Default" shall mean, whenever it is used in this
Agreement, any one or more of the following events:
(1) The failure of the Company to make the payments required
pursuant to Sections 5.3, 6.3, 6.7, 6.8 or any other Section herein for a period
of ten (10) days after written notice of the failure is given to the Company; or
(2) The failure of the Company to maintain the insurance
required by Section 6.4(c) herein; or
(3) The failure by the Company to observe and perform any
other covenant, condition or agreement hereunder on its part to be observed or
performed for a period of thirty (30) days after written notice, specifying such
failure and requesting that it be remedied, given to the Company by the Agency
provided, however, that if the default is of such a nature that it cannot be
remedied within a period of thirty (30) days, the Company shall not be in
default if it shall promptly commence and thereafter prosecute the curing of the
default with due diligence; or
(4) The abandonment of the Project Facility by the Company or
if the Project Facility remains vacant for a period in excess of ninety (90)
consecutive days after written notice thereof given to the Company by the
Agency.
(b) Notwithstanding the provisions of Section 10.1(a), if by reason
of force majeure either party hereto shall be unable in whole or in part to
carry out its obligations under this Agreement and if such party shall give
notice and full particulars of such force majeure in writing to the other party
within a reasonable time after the occurrence of the event or cause relied upon,
the obligations under this Agreement of the party giving such notice, so far as
they are affected by such force majeure, shall be suspended during the
continuance of the inability, which shall include a reasonable time for the
removal of the effect thereof, and the suspension of such obligations for such
period pursuant to this subsection (b) shall not be deemed an Event of Default
under this Section 10.1. Notwithstanding anything to the contrary in this
subsection (b), an event of force majeure shall not excuse, delay or in any way
diminish the obligations of the Company to make the payments required by
sections 5.3, 6.3, 6.7, 6.8 or any other section hereof, to obtain and continue
in full force and effect the insurance required by Section 6.4 hereof, to
provide the indemnity required by Section 8.2 hereof and to comply with the
provisions of Sections 8.2 and 8.8 hereof. The term "force majeure" as used
herein shall include, without limitation, acts of God, strikes, lockouts or
other industrial disturbances, acts of public enemies, orders of any kind of the
government of
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the United States of America or of the State of New York or any of their
departments, agencies, governmental subdivisions or officials, or any civil or
military authority, insurrections, riots, epidemics, landslides, lightning,
earthquakes, fires, hurricanes, storms, floods, washouts, droughts, arrests,
restraint of government and people, civil disturbances, explosions, shortages of
labor and materials or delays of carriers, shortage of energy, partial or entire
failure of utilities, or any other cause or event not reasonably within the
control of the party claiming such inability and not due to its fault. The party
claiming such inability shall use reasonable efforts to remove the cause for the
same with all reasonable promptness; provided that it is agreed that the
settlement of strikes, lockouts and other industrial disturbances shall be
entirely within the discretion of the party having difficulty, and the party
having difficulty shall not be required to settle any strike, lockout or other
industrial disturbances by acceding to the demands of the opposing party or
parties.
(c) Any written notice of an Event of Default required to be given
to the Company under this section shall also be given to Credit Lyonnais New
York Branch ("Mortgagee"), as Mortgagee under the Mortgage dated as of August
31, 1990 made by the Company to Mortgagee as collateral agent for the financial
institutions named therein (the "Banks"), at the following address or such other
address as Mortgagee may specify to the Agency in writing:
Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, New York 10019
Attention: Mr. Alan Sidrane
Mortgagee may, but shall not be obligated to, satisfy any conditions or defaults
of the Company under this Agreement, within 90 days after its receipt of such
notice of an Event of Default, provided that performance by the Mortgagee or the
Banks shall not render Credit Lyonnais liable for any of the Company's
obligations hereunder, provided however, that the requirement to give such
notice shall not otherwise limit the Company's rights hereunder upon the
occurrence of an event of default.
Section 10.2 Remedies on Default.
(a) Whenever any Event of Default shall have occurred and be
continuing, the Agency may, by notice to the Company, terminate this Agreement
and require the Company to purchase the Project Facility pursuant to Article XI
hereof. The Company does hereby appoint the Agency as its true and lawful agent
to execute such instruments and documents as may be necessary and appropriate to
effectuate such reconveyance as aforesaid. Such appointment of the Agency as the
agent of the Company shall be deemed to be an agency coupled with an interest
and such appointment shall be irrevocable.
(b) No action taken pursuant to this Section shall relieve the
Company from its obligation to make all payments required by Sections 5.3, 6.3,
6.7, 6.8 or any
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other section (which occurred prior to the effective date of such termination)
and 8.2 hereof.
Section 10.3 Remedies Exclusive.
The remedies herein conferred upon or reserved to the Agency under Section
10.2 are intended to be exclusive of any other available remedy. No delay or
omission to exercise any right or power accruing upon any default shall impair
any such right or power or shall be construed to be a waiver thereof, but any
such right and power may be exercised from time to time and as often as may be
deemed expedient. In order to entitle the Agency to exercise any remedy reserved
to it in this Article X, it shall not be necessary to give any notice, other
than such notice as may be expressly required in this Agreement.
Section 10.4 Agreement to Pay Attorneys' Fees and Expenses.
In the event the Company should default under any of the provisions of
this Agreement and the Agency should employ attorneys or incur other expenses
for the collection of amounts payable hereunder or the enforcement of
performance or observance of any obligations or agreements on the part of the
Company herein contained, the Company shall, on demand therefor, pay to the
Agency the reasonable fees of such attorneys and such other expenses so
incurred, whether or not an action is commenced, provided that the Agency is
successful in establishing the existence of such default.
Section 10.5 No Additional Waiver Implied by One Waiver.
In the event any agreement contained herein should be breached by either
party and thereafter waived by the other party, such waiver shall be limited to
the particular breach so waived and shall not be deemed to waive any other
breach hereunder.
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ARTICLE XI
EARLY TERMINATION OF AGREEMENT;
OPTIONS IN FAVOR OF COMPANY
Section 11.1 Early Termination of Agreement.
At any time during the Lease Term, the Company shall have the option to
terminate this Agreement upon filing with the Agency, a certificate signed by an
Authorized Representative of the Company stating the Company's intention to do
so pursuant to this Section 11.1 and upon compliance with the requirements set
forth in Section 11.2 hereof.
Section 11.2 Conditions to Early Termination of Agreement.
(a) In the event the Company exercises its option to terminate this
Agreement in accordance with Section 11.1 hereof, the Company shall make the
following payments:
(i) To the Agency: an amount certified by the Agency as
sufficient to pay all unpaid fees and expenses of the Agency and its
officers, members, agents, servants and employees incurred under this
Agreement; and
(ii) To the appropriate Person: an amount sufficient to pay all
other fees, expenses or charges, if any, due and payable or to become due
and payable under this Agreement and not otherwise paid or provided for.
(b) The certificate required to be filed pursuant to Section 11.1
shall specify the date upon which the payments pursuant to subdivision (a) of
this Section 11.2 shall be made, which date shall be not less than thirty (30)
nor more than sixty (60) days from the date such certificate is filed with the
Agency.
Section 11.3 Obligation to Sell and Purchase the Project Facility.
Contemporaneously with the expiration or termination of the Lease Term in
accordance with Section 5.2, 10.2 or Section 11.1 hereof, the Agency shall sell
and the Company shall purchase all of the Agency's right, title and interest in
and to the Project Facility for the purchase price of One Dollar ($1.00) plus
payment of all sums due and payable to the Agency pursuant to this Agreement.
Section 11.4 Conveyance on Purchase of the Project Facility.
(a) At the closing of any purchase of the Project Facility pursuant
to Section 11.3 hereof, the Agency shall, upon receipt of the purchase price,
deliver to the Company all necessary documents to convey to the Company all the
Agency's right, title
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and interest in and to the Property being purchased, as such Property then
exists, free and clear of all liens except Permitted Encumbrances and liens
created by the Company or at the request, or with the consent of, the Company.
(b) The sale and conveyance of the Agency's right, title and
interest in and to the Land and the Facility shall be effected by the execution,
delivery and recording by the Agency of a deed to the Company (a form of which
is attached hereto as Exhibit C). The sale and conveyance of the Agency's right,
title and interest in and to the Equipment shall be effected by the execution
and delivery by the Agency to the Company of a Bill of Sale to the Company (a
form of which is attached hereto as Exhibit D).
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ARTICLE XII
MISCELLANEOUS
Section 12.1 Notices.
All notices, certificates and other communications hereunder shall be in
writing and shall be sufficiently given and shall be deemed given when delivered
and, if delivered by mail, shall be sent by registered or certified mail,
postage prepaid, return receipt requested, addressed as follows:
To the Agency:
Oneida County Industrial Development Agency
Oneida County Airport
Terminal Building
Oriskany, New York 13424
With a copy to:
Groben, Gilroy, Oster & Saunders
185 Genesee St.
Utica, NY 13501
Attention: James C. Oster, Esq.
To the Company:
Special Metals Corporation
4317 Middle Settlement Road
New Hartford, NY 13413
Attention: Robert F. Dropkin
Vice President, Secretary and Chief Legal Counsel
With a copy to:
Bond, Schoeneck & King
One Lincoln Center
Syracuse, NY
Attention: Ronald C. Berger, Esq.
The Agency and the Company may, by notice given hereunder, designate any
further or different addresses to which subsequent notices, certificates and
other communications shall be sent.
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Section 12.2 Binding Effect.
This Agreement shall inure to the benefit of and shall be binding upon the
Agency, the Company and their respective successors and assigns.
Section 12.3 Severability.
In the event any provision of this Agreement shall be held invalid or
unenforceable by any court of competent jurisdiction, such holding shall not
invalidate or render unenforceable any other provision hereof.
Section 12.4 Amendments, Changes and Modifications.
This Agreement may not be amended, changed, modified, altered or
terminated except by written instrument executed and delivered by the parties
hereto.
Section 12.5 Execution of Counterparts.
This Agreement may be executed in several counterparts, each of which
shall be an original and all of which shall constitute but one and the same
instrument.
Section 12.6 Applicable Law.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.
Section 12.7 Recording and Filing.
A memorandum of this Agreement shall be recorded or filed, as the case may
be, by the Agency, at the cost of the Company, in the Office of the Clerk of
Oneida County, New York, and/or in such other office or offices as may at the
time be provided by law as the proper place or places for the recordation or
filing thereof.
Section 12.8 Survival of Obligations.
The obligations of the Company to make the payments required by Section
5.3(b) hereof and to provide the indemnity required by Section 8.2 hereof shall
survive any termination or expiration of this Agreement, and all such payments
after such termination shall be made upon demand of the Person to whom such
payment is due.
Section 12.9 Table of Contents and Section Headings Not Controlling.
The table of contents and the headings of the several Sections in this
Agreement have been prepared for convenience of reference only and shall not
control, affect the meaning or be taken as an interpretation of any provision of
this Agreement.
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Section 12.10 No Recourse; Special Obligation.
(a) All covenants, stipulations, promises, agreements and
obligations of the Agency contained in this Agreement and in the other documents
and instruments connected therewith, and in any documents supplemental thereto
(collectively the "Documents") shall be deemed to be the covenants,
stipulations, promises, agreements, and obligations of the Agency and not of any
member, officer, agent (other than the Company), servant or employee of the
Agency in his individual capacity, and no recourse under or upon any obligation,
covenant, or agreement in the Documents contained or otherwise based upon or in
respect of the Documents, or for any claim based thereon or otherwise in respect
thereof, shall be had against any past, present or future member, officer, agent
(other than the Company), servant or employee, as such of the Agency or of any
successor public benefit corporation or political subdivision or other successor
entity or any person executing the Documents on behalf of the Agency, either
directly or through the Agency or any successor public benefit corporation or
political subdivision or other successor entity or any person so executing the
Documents, it being expressly understood that the Documents are solely corporate
obligations, and that no such personal liability whatever shall attach to, or is
or shall be incurred by, any such member, officer, agent (other than the
Company), servant or employee of the Agency or of any successor public benefit
corporation or political subdivision or other successor entity or any person so
executing the Documents because of the creation of the indebtedness thereby
authorized, or under or by reason of the obligations, covenants or agreements
contained in the Documents or implied therefrom; and that any and all such
personal liability of, and any and all such rights and claims against, every
such member, officer, agent (other than the Company), servant or employee
because of the creation of the indebtedness hereby authorized, or under or by
reason of the obligations, covenants or agreements contained in the Documents or
implied therefrom, are, to the extent permitted by law, expressly waived and
released as a condition of, and as a consideration for, the execution of the
Documents.
(b) The obligations and agreements of the Agency contained herein
shall not constitute or give rise to an obligation of the State of New York or
Oneida County, New York, and neither the State of New York nor Oneida County,
New York shall be liable thereon, and further such obligations and agreements
shall not constitute or give rise to a general obligation of the Agency, but
rather shall constitute special obligations of the Agency payable solely from
the revenues of the Agency derived and to be derived from the lease, sale or
other disposition of the Project Facility.
(c) Notwithstanding any provision of this Agreement to the contrary,
the Agency shall not be obligated to take any action pursuant to any provision
hereof unless (i) the Agency shall have been requested to do so in writing by
the Company and (ii) if compliance with such request is reasonably expected to
result in the incurrence by the Agency (or any member, officer, agent, servant
or employee of the Agency) in any liability, fees, expenses or other costs, the
Agency shall have received from the Company
35
<PAGE>
security or indemnity satisfactory to the Agency for protection against all such
liability, however remote, and for the reimbursement of all such fees, expenses
and other costs.
IN WITNESS WHEREOF, the Agency and the Company have caused this Lease
Agreement to be executed in their respective corporate names and their
respective corporate seals to be hereunto affixed and attested by their duly
authorized officers, all as of the date first above written.
ONEIDA COUNTY INDUSTRIAL
DEVELOPMENT AGENCY
By: ______________________________________
John T. McKenna,
Chairman
SPECIAL METALS CORPORATION
By: ______________________________________
Donald R. Muzyka,
President
36
<PAGE>
EXHIBIT 10.10
PAYMENT IN LIEU OF TAX AGREEMENT
THIS AGREEMENT, dated as of February 1, 1994 by and between ONEIDA COUNTY
INDUSTRIAL DEVELOPMENT AGENCY, a New York public benefit corporation having an
office at Oneida County Airport Terminal Building, Oriskany, New York 13423 (the
"Agency"), and SPECIAL METALS CORPORATION, having an office at 4317 Middle
Settlement Road, New Hartford, NY 13413 (the "Company").
WHEREAS, the Agency is authorized and empowered by the provisions of Title
1 of Article 18-A of the General Municipal Law, Chapter 24 of the Consolidated
Laws of New York, as amended, (the "Enabling Act"), and Chapter 372 of the 1970
Laws of New York, as amended, constituting Section 901 of said General Municipal
Law (said Chapter and the Enabling Act being hereinafter collectively referred
to as the "Act") to promote, develop, encourage and assist in the acquiring,
constructing, reconstructing, improving, maintaining, equipping and furnishing
of, among others, industrial facilities for the purpose of promoting, attracting
and developing economically sound commerce and industry in order to advance the
job opportunities, health, general prosperity and economic welfare of the people
of the State of New York, to improve their prosperity and standard of living,
and to prevent unemployment and economic deterioration; and
WHEREAS, by resolution adopted June 1, 1993 (the "Resolution") , the
Agency indicated its intent: (i) to acquire the Project Facility described in
the following paragraph and (ii) to lease (with an obligation to purchase) the
Project Facility to the Company or such other person as may be designated by the
Company and agreed upon by the Agency; and
WHEREAS, the Project Facility consists of the acquisition of land (the
"Land") located in the Town of New Hartford County of Oneida, State of New York,
and described on attached Exhibit A, buildings (the "Facility") on the Land, and
certain equipment (the "Equipment") (the Land, the Facility and the Equipment
being hereinafter referred to as the "Project Facility") , all for the use as a
manufacturing facility; and
WHEREAS, the Agency has agreed to accept title to the Project Facility
pursuant to a deed and bill of sale of even date herewith;
WHEREAS, the Agency will simultaneously lease the Project Facility to the
Company pursuant to a lease agreement (the "Lease") dated the date hereof by and
between the Agency and the Company; and
<PAGE>
WHEREAS, the Agency has agreed to accept title to, and execute the Lease
of, the Project Facility in order to advance the job opportunities, health,
general prosperity and economic welfare of the people of the State of New York.
WHEREAS, it is the intention of, and anticipated by, the Agency and the
Company that the Project Facility will be exempt from real property taxes,
general property taxes, general school district taxes, general assessments,
service charges or other governmental charges of a similar nature levied and/or
assessed upon the Project Facility or the interest therein of the Company or the
occupancy thereof by the Company (the "Exempt Taxes"), commencing March 1, 1994,
because the Project Facility is, or will be, under the jurisdiction, supervision
and/or control of the Agency and used for a purpose within the meaning of the
applicable Constitutional and statutory provisions, including Section 874 of the
New York State Industrial Development Agency Act, Title 1 of Article 18-A of the
General Municipal Law, Chapter 24 of the Consolidated Laws of the State of New
York, as amended (the "Enabling Act") , provided, however, such exemption will
not extend to special assessments or ad valorem levies; and
WHEREAS, the Company understands that it, as lessee of the Project
Facility leased by the Agency, will, in fact, have no Exempt Taxes to pay under
the provisions of the Lease from March 1, 1994 through the term of the Lease
(the "Exemption Term") (each year measured by the twelve month period commencing
with March 1, 1994, herein referred to as an "Exemption Year"); and
WHEREAS, the Agency has indicated a reluctance for the taxing authorities
(the "Authorities" or an "Authority") to lose all tax revenues from the Exempt
Taxes during the Exemption Term which would otherwise be received by the
Authorities if the Project Facility were owned by the Company.
NOW THEREFORE, to provide for certain payments to the Authorities, and for
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. The Company shall pay to each Authority all special assessments and ad
valorem taxes coming due and payable during the term of the Lease for which the
Project Facility is not exempt, no later that the last day during which such
payments may be made without penalty.
2. The Company shall pay to each Authority an amount in lieu of the Exempt
Taxes (the "Pilot Payments") during each Exemption Year equal to one third (1/3)
of such taxes that would be payable to each such Authority as if the Company,
and not the Agency, owned the Project Facility.
2
<PAGE>
This Agreement shall terminate on the date on which the Lease shall
terminate and the Agency shall reconvey title to the Project Facility to the
Company pursuant to the Lease.
3. The Company will make Pilot Payments to each Authority hereunder for
each Exemption Year by making the required payment to such Authority no later
than the last day during which such Exempt Taxes could otherwise be made without
penalty as if the Project Facility was owned by the Company.
4. The Pilot Payments to be made by the Company pursuant to this Agreement
are intended to be in lieu of all Exempt Taxes that would have to be paid on the
Project Facility leased to the Company by the Lease.
5. If by reason of a change in the Constitution or laws of the State of
New York, or an interpretation of the Constitution or laws of the State of New
York by the Court of Appeals (or such lower court from which the time to appeal
has expired) of the State of New York, or for any other reason, the Company is
required to pay any tax which the payments specified herein are intended to be
in lieu of, the Company may deduct the aggregate of any such payments made by it
from the amount herein agreed to be paid in lieu of such taxes and need only pay
the difference. Furthermore, inasmuch as the Pilot Payments herein agreed to be
made by the Company are intended to be in lieu of all Exempt Taxes, it is agreed
that said payments shall not, as to any year, be in an amount greater than would
be payable for such year for such Exempt Taxes, in the aggregate, by a private
corporation on account of its ownership of the Project Facility.
6. This Agreement shall be binding upon the successors and assigns of the
parties.
7. It is the intent of the parties that the Company will have all the
rights and remedies of a taxpayer with respect to any real property or other
tax, service charge, special benefit, ad valorem levy, assessment or special
assessment or service charge because of which, or in lieu of which, the Company
is obligated to make a payment hereunder, as if and to the same extent as if the
Company were the owner of the Project Facility. It is the further intent of the
parties that the Company will have all of the rights and remedies of a taxpayer
as if and to the same extent as if the Company were the owner of the Project
Facility with respect to any proposed assessment or change in assessment
concerning the property, or any portion thereof, whether through an assessor,
board of assessment review, court of law, or otherwise and likewise will be
entitled to protest before and be heard by such assessor, board of assessment
review, court of law or otherwise and will be entitled to take any and all
appropriate appeals or initiate any proceedings to review the validity or amount
of any assessment or the validity or amount of any taxes that would have been
payable but for the provisions hereof. In the event, however, that a court of
competent
3
<PAGE>
jurisdiction shall enter an order or judgment determining or declaring that, by
reason of the Agency's ownership of the Project Facility, the Company does not
have the right to bring a proceeding to review such assessment under the Real
Property Tax Law or any other law, then the Company shall have the right to
contest such assessment in the name and as agent of the Agency, and the Agency
agrees to cooperate with the Company in all respects in any such proceeding.
8. All amounts payable by the Company hereunder will be paid to the
respective Authority and will be payable in such lawful money of the United
States of America as at the time of payment is legal tender for the payment of
public and private debts, including a check payable in such money.
9. (a) If any term or provision hereof should be for any reason held or
adjudged to be invalid, illegal or unenforceable by any court of competent
jurisdiction, such term or provision will be deemed separate and independent and
the remainder hereof will remain in full force and effect and will not be
invalidated, impaired or otherwise affected by such holding or adjudication.
(b) This Agreement may not be effectively amended, changed modified,
altered or terminated except by an instrument in writing executed by the parties
hereto.
(c) All notices, certificates or other communications hereunder
shall be in writing and shall be sufficiently given and shall be deemed given
when mailed by United States registered or certified mail, postage prepaid,
return receipt requested, to the Agency or the Company, as the case may be,
addressed as follows:
IF TO THE AGENCY:
Oneida County Industrial Development Agency
Oneida County Airport Terminal Building
Oriskany, New York 13424
Attention: Chairman
WITH A COPY TO:
Groben, Gilroy, Oster & Saunders
185 Genesee Street
P.O. Box 423
Utica, NY 13503-0423
Attn: James C. Oster, Esq.
4
<PAGE>
IF TO THE COMPANY:
Special Metals Corporation
Middle Settlement Road
New Hartford, NY 13413
Attention: President
WITH A COPY TO:
Bond, Schoeneck & King
One Lincoln Center
Syracuse, NY
Attention: Ronald C. Berger, Esq.
provided, that the Agency or the Company may, by notice given hereunder to the
other, designate any further or different addresses to which subsequent notices,
certificates or other communications to them shall be sent.
(e) This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ONEIDA COUNTY INDUSTRIAL
DEVELOPMENT AGENCY
By: _____________________________
John T. McKenna,
Chairman
SPECIAL METALS CORPORATION
By: _____________________________
Donald R. Muzyka,
President
5
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF ONEIDA )
On this 1st day of February, 1994, before me personally came John T.
McKenna, to me known, who being by me duly sworn did depose and say that he
resides at Sauquoit, New York, that he is Chairman of the ONEIDA COUNTY
INDUSTRIAL DEVELOPMENT AGENCY, the public benefit corporation described in the
above instrument, and acknowledged that he executed the same by order of the
members of such public benefit corporation.
s/James C. Oster
-----------------------------
Notary Public
STATE OF NEW YORK )
) ss.:
COUNTY OF ONEIDA )
On this 2nd day of February, 1994, before me personally came Donald R.
Muzyka, to me known, who being by me duly sworn did depose and say that he
resides at Clinton, New York, that he is President of Special Metals Corporation
the corporation described in the above instrument, and acknowledged that he
executed the same by order of the Board of Directors of such corporation.
s/James C. Oster
-----------------------------
Notary Public
6
<PAGE>
LEASE
- --------------------------------------------------------------------------------
Between
COUNTY OF CHAUTAUQUA INDUSTRIAL DEVELOPMENT AGENCY
200 Harrison Street
Jamestown, New York 14701
as Lessor
and
SPECIAL METALS CORPORATION
Willowbrook Avenue
Dunkirk, New York 14048
as Lessee
Dated as of November 1, 1990
This instrument is intended to constitute a lease of the assets
described on Exhibits A and B.
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I PRELIMINARY STATEMENT,
REPRESENTATIONS AND FINDINGS ................................. 1
1.1 Preliminary Statement ............................................ 1
1.2 Definitions ...................................................... 1
1.3 Lessee Representations ........................................... 1
(a) Power ...................................................... 1
(b) Authorization .............................................. 1
(c) Validity ................................................... 1
(d) Conflicts .................................................. 2
(e) Litigation ................................................. 2
(f) Purpose .................................................... 2
(g) Compliance with Certain Laws ............................... 2
1.4 Agency Representations ........................................... 2
(a) Power ...................................................... 2
(b) Authority and Validity ..................................... 2
(c) Project .................................................... 2
(d) Conflicts .................................................. 3
(e) Litigation ................................................. 3
(f) SEQR Act ................................................... 3
ARTICLE II ACQUISITION, CONSTRUCTION AND
COMPLETION OF PROJECT ........................................ 3
2.1 Plans and Specifications ......................................... 3
2.2 Transfer ......................................................... 3
2.3 Construction and Installation .................................... 4
(a) Agent ...................................................... 4
(b) Administration ............................................. 4
(c) Performance ................................................ 4
2.4 Compliance with Laws ............................................. 4
2.5 Completion of Project ............................................ 4
ARTICLE III RENTAL PROVISIONS ............................................ 5
3.1 Lease ............................................................ 5
3.2 Lease Term ....................................................... 5
3.3 Rent ............................................................. 5
ARTICLE IV COVENANTS OF THE LESSEE ...................................... 6
4.1 Maintenance and Operation ........................................ 6
4.2 Installation of Additional Equipment ............................. 6
4.3 Taxes and Special Assessments .................................... 6
4.4 Insurance ........................................................ 7
4.5 Corporate Existence .............................................. 8
4.6 Right of Agency to Pay Lessee Obligations ........................ 8
i
<PAGE>
Page
----
4.7 Payment of Agency's Fee and Expenses ............................. 8
4.8 Indemnity Against Claims ......................................... 8
4.9 Limitation of Liability of the Agency ............................ 9
4.10 Discharge of Liens ............................................... 9
4.11 Certificate of No Default ........................................ 9
4.12 Subordination .................................................... 9
ARTICLE V DAMAGE TO AND STATUS OF PROJECT .............................. 10
5.1 Damage, Destruction and Condemnation ............................. 10
5.2 No Warranty by Agency ............................................ 10
5.3 Inspection ....................................................... 10
5.4 Information ...................................................... 10
5.5 Identification of Equipment ...................................... 10
5.6 Depreciation ..................................................... 10
5.7 Restriction on Sale and Encumbrance of Project ................... 10
5.8 No Assignment or Sublease ........................................ 11
5.9 Merger of Agency ................................................. 11
5.10 Waiver of Real Property Law Section 227 .......................... 11
ARTICLE VI EVENTS OF DEFAULT AND REMENDIES .............................. 11
6.1 Events of Default Defined ........................................ 11
6.2 Remedy on Default ................................................ 13
6.3 No Remedy Exclusive .............................................. 13
6.4 Agreement to Pay Attorneys' Fees and Expenses .................... 13
ARTICLE VII TERMINATION OF THIS LEASE; OPTION IN
FAVOR OF THE LESSEE .......................................... 14
7.1 Early Termination ................................................ 14
7.2 Conditions to Early Termination .................................. 14
7.3 Obligation to Purchase Facility .................................. 14
7.4 Conveyance on Purchase ........................................... 14
7.5 Expenses ......................................................... 15
ARTICLE VIII MISCELLANEOUS ................................................ 15
8.1 Notices .......................................................... 15
8.2 Binding Effect ................................................... 15
8.3 Severability ..................................................... 16
8.4 Execution of Counterparts ........................................ 16
8.5 Net Lease ........................................................ 16
8.6 Applicable Law ................................................... 16
8.7 Headings for Convenience Only .................................... 16
Exhibit A Land
Exhibit B Equipment
Exhibit C Definitions
Exhibit D Pilot Agreement
Exhibit E Litigation
ii
<PAGE>
LEASE, dated as of November 1, 1990 between COUNTY OF CHAUTAUQUA
INDUSTRIAL DEVELOPMENT AGENCY ("Agency") and SPECIAL METALS CORPORATION
("Lessee").
ARTICLE I
PRELIMINARY STATEMENT, REPRESENTATIONS AND FINDINGS
1.1 Preliminary Statement. The Agency is a public benefit
corporation of the State of New York and a body corporate and politic organized
under the New York State Industrial Development Agency Act ("Enabling Act").
Under the Enabling Act, the Agency is authorized to enter into agreements
providing for the lease of industrial development projects (including pollution
control facilities) thereof to industrial occupants for a Public Purpose.
The Lessee has asked the Agency to undertake the Project consisting
of the acquisition and lease to the Lessee of the Land described on Exhibit A
hereto and certain Improvements and other assets thereon, the construction of
certain Improvements on the Land and the acquisition and installation of the
Equipment described on Exhibit B hereto. The purposes of the Project are set
forth in this Lease. The Agency has agreed preliminarily to undertake the
Project in accordance with an inducement resolution passed by the Agency on the
Inducement Date.
The Agency and the Lessee intend that the Project will constitute a
"project" for purposes of the Enabling Act.
1.2 Definitions. Initially capitalized terms used in this Lease,
including Section 1.1 hereof, shall have the meanings specified in Exhibit C
hereto, which definitions are incorporated herein as if fully set forth in this
Section 1.2.
1.3 Lessee Representations. The Lessee represents that:
(a) Power. The Lessee is duly organized, validly existing and
in good standing under the laws of the jurisdiction in which it was organized
and has the power to enter into this Lease and perform its obligations
hereunder.
(b) Authorization. The entry into and the fulfillment of and
compliance with the provisions of this Lease have been duly authorized by all
necessary action.
(c) Validity. This Lease constitutes the valid and legally
binding obligation of the Lessee, enforceable in accordance with its terms,
except as
<PAGE>
2
enforcement may be limited by applicable bankruptcy, insolvency, moratorium or
other laws affecting the enforcement of creditors' rights.
(d) Conflicts. Neither the entry into nor the fulfillment of
and compliance with the provisions of this Lease will conflict with or result in
a breach of or constitute a default under (i) any provision of law, (ii) any
order of any court or other governmental agency, (iii) the certificate of
incorporation or by-laws of the Lessee or (iv) any instrument by which the
Lessee or its properties are bound.
(e) Litigation. Except as stated in Exhibit E, there is no
litigation, proceeding or investigation before or by any court, public board or
body, whether state, local or federal, pending or, to the knowledge of the
Lessee, threatened against or affecting the Lessee, nor to the knowledge of the
Lessee is there any basis therefor, wherein any unfavorable decision, ruling or
finding would, in any way, materially adversely affect this Lease or the
financial condition of the Lessee.
(f) Purpose. The leasing of the Project by the Agency has
induced the Lessee to locate the Project in City of Dunkirk, County of
Chautauqua, New York, will increase employment opportunities and promote the
welfare of the inhabitants of City of Dunkirk, County of Chautauqua and will not
result in the removal of any plant or facility of the Lessee from one area of
the State to another or in the abandonment of a plant or facility of the Lessee
within the State.
(g) Compliance with Certain Laws. The Project and operation
thereof will conform with all applicable zoning, planning, building and
environmental laws, ordinances, rules and regulations of governmental
authorities having jurisdiction over the Project.
1.4 Agency Representations. The Agency represents that:
(a) Power. The Agency is duly established and validly existing
under the provisions of the Act and has the power to enter into this Lease and
to perform its obligations hereunder. The Agency has complied with the
provisions of the Act in all matters relating to this Lease.
(b) Authority and Validity. By proper action, the Agency has
duly authorized the entry into and the fulfillment of and compliance with the
provisions of this Lease, and this Lease constitutes the valid and legally
binding obligation of the Agency, enforceable in accordance with its terms,
except as enforcement may be limited by applicable bankruptcy, insolvency,
moratorium or other similar laws affecting the enforcement of creditors' rights.
(c) Project. Based upon the representation of the Lessee as to
utilization of the Project, the Project is of a character included in the
definition of "project" in the Enabling Act.
<PAGE>
3
(d) Conflicts. Neither the entry into nor the fulfillment of
and compliance with the provisions of this Lease will conflict with or result in
a breach of or constitute a default under (i) any provision of the Act or any
other law, (ii) any order of any court or other governmental agency, (iii) any
corporate restriction or by-law of the Agency or (iv) any instrument or document
by which the Agency or its properties are bound.
(e) Litigation. There is no litigation or governmental
proceeding pending or, to the knowledge of the Agency, threatened to restrain or
enjoin the entry into this Lease or in any manner questioning the proceedings or
authority under which this Lease is authorized; the corporate existence of the
Agency is not being contested; and the right of the Agency to acquire and hold
the Project is not being contested.
(f) SEQR Act. By resolution adopted on September 25, 1990, the
Agency determined that, based upon the review by the Agency of the materials
submitted and the representations made by the Lessee relating to the Project,
the Project would not have a "significant impact" or "significant effect" on the
environment within the meaning of the SEQR Act.
ARTICLE II
ACQUISITION, CONSTRUCTION AND COMPLETION OF PROJECT
2.1 Plans and Specifications. The Lessee agrees that, on behalf of
the Agency, it will acquire, renovate, construct, equip and install the Project
in accordance with the Plans and Specifications.
2.2 Transfer.
(a) The Lessee hereby grants and conveys to the Agency good
and marketable title in the Project. To evidence such grant, the Lessee will
execute and deliver to the Agency a deed with respect to the Land and the
Improvements, and upon the request of the Agency, one or more bills of sale or
other instruments of conveyance. The Lessee shall, however, be entitled to
physical possession and control of the Project and shall be liable at all times
for all risk, loss and damage with respect to the Project.
(b) Title to the Project and all components thereof shall vest
in the Agency immediately upon the Lessee's obtaining an interest therein. The
Lessee shall execute, deliver and record or file all instruments necessary or
appropriate to so vest title in the Agency and shall take all action necessary
or appropriate to protect such title against claims of any third Persons.
<PAGE>
4
2.3 Construction and Installation.
(a) Agent. The Lessee, on behalf of the Agency, has awarded or
will award various contracts with respect to the Project. The Agency appoints
the Lessee its agent:
(i) to acquire, construct, renovate, equip and install the
Project in accordance with the Plans and Specifications,
(ii) to execute contracts related to the Project on behalf of
the Agency,
(iii) to pay all fees, costs and expenses incurred in
connection with completing the Project, and
(iv) to ask, sue for, enforce, recover and receive all sums of
money and other demands that may be due and owing to the Agency under such
contracts related to the Project.
(b) Administration. The Lessee will have full responsibility
for preparing, administering, amending and enforcing the contracts related to
the Project and litigating or settling claims thereunder in the name of the
Lessee or the Agency, and will be entitled to all warranties, guaranties and
indemnities provided under such contracts and by law.
(c) Performance. The Lessee covenants and agrees that on
behalf of the Agency it will acquire, construct and equip the Project on the
Land in accordance with the Plans and Specifications.
2.4 Compliance with Laws. The Lessee shall give or cause to be given
all notices, secure all permits and licenses and comply or cause compliance with
all laws, ordinances and municipal rules and regulations applying to or
affecting the operation of the Project, and the Lessee will defend and save the
Agency and its officers, members and agents harmless from all fines due to
failure to comply therewith.
2.5 Completion of Project. The Lessee agrees to complete the Project
in accordance with the Plans and Specifications by the Completion Date and to
pay any and all costs and expenses whatsoever incurred with respect to the
Project. On the Completion Date, the Lessee shall furnish to the Agency a
certificate certifying that the Project has been substantially completed and the
final cost thereof, together with evidence of such cost.
<PAGE>
5
ARTICLE III
RENTAL PROVISIONS
3.1 Lease. The Agency hereby leases the Project to the Lessee, and
the Lessee hereby accepts the lease of the Project from the Agency, upon the
terms and conditions of this Lease.
3.2 Lease Term. This Lease shall run for a period of ten years
commencing December 11, 1990 and shall expire on December 31, 2001.
(a) The Agency shall deliver to the Lessee sole and exclusive
possession of the Project, subject to the provisions of this Lease, on the
Closing Date.
(b) Except as provided in Sections 6.2 and 7.1 hereof, the
leasehold estate created hereby shall terminate at 12:00 a.m. on December 31,
2001; provided, however, except as provided in Section 6.2 hereof, this Lease
shall not terminate until all costs and expenses due from the Lessee are paid in
full.
(c) The Agency shall not take nor permit any action, other
than pursuant to Article VI of this Lease, to prevent the Lessee during the term
of the Lease from having quiet and peaceable possession of the Project or which
will otherwise adversely affect the rights or estate of the Lessee hereunder,
except upon the written consent of the Lessee.
3.3 Rent.
(a) The Lessee shall pay basic rent to the Agency in the
amount of $1000.00 on November 1 of each year throughout the term of this Lease
commencing November 1, 1991.
(b) In addition to the payments of rent pursuant to Section
3.3(a), the Lessee shall pay directly to the Agency as additional rent, within
ten (10) days of the receipt of demand therefor, an amount equal to the sum of
the expenses of the Agency and the members thereof incurred (i) by reason of the
Agency's ownership of the Project or (ii) in connection with the carrying out of
the Agency's duties and obligations under this Lease, the payment of which is
not otherwise provided for under this Lease. The foregoing shall not be deemed
to include any annual or continuing administrative or management fee beyond any
initial administrative fee or fee for services rendered by the Agency.
<PAGE>
6
(c) The Lessee, under the provisions of this Section 3.3,
agrees to make the above-mentioned payments in immediately available funds and
without any further notice in lawful money of the United States of America.
ARTICLE IV
COVENANTS OF THE LESSEE
4.1 Maintenance and Operation. The Lessee shall not abandon the
project or cause or permit any waste to the Improvements. During the term of the
Lease, except as otherwise provided in this Section 4.1, the Lessee shall not
remove any part of the Project outside the jurisdiction of the Agency and shall
maintain and operate the Project and make all necessary repairs to the
Improvements and the Equipment and replacements to the Project. In any instance
where the Lessee determines that any item of Equipment has become inadequate,
obsolete, worn out, unsuitable, undesirable or unnecessary, the Lessee may
remove such items from the Project and may sell, trade-in, exchange or otherwise
dispose of the same, as a whole or as part, free from any lien of this Lease.
The Agency shall execute and deliver at the Lessee's expense, to the Lessee all
instruments necessary to enable the Lessee to dispose of any such item of
Equipment. The Lessee shall not take any action or fail to take any action which
would cause the Project not to constitute a "project" for purposes of the
Enabling Act.
With the written consent of the Agency, which shall not be
unreasonably withheld, the Lessee may from time to time make structural
additions, modifications and improvements to the Project which it deems
desirable, all of which shall become a part of the Project (but in no way an
obligation or expense of the Agency).
4.2 Installation of Additional Equipment. The Lessee may install on
the Land equipment or other personal property and, except for the Equipment
described on Exhibit B, such equipment or other personal property shall not
become a part of the Project. Therefore, the Lessee from time to time may remove
or permit the removal of such equipment or other personal property from the
Project and may create or permit to be created any Lien thereon; provided, any
removal of such equipment or other personal property shall not adversely affect
the structural integrity of the Improvements or impair the overall operating
efficiency of the Project for the purposes for which it is intended.
4.3 Taxes and Special Assessments.
(a) The Lessee agrees to pay, as the same respectively become
due, (i) all taxes and governmental charges of any kind which may at any
<PAGE>
7
time be lawfully assessed or levied against or with respect to the Project and
any Equipment or other property installed as part of the Project, including,
without limitation, any sales or use taxes imposed with respect to the Project
or any part or component thereof or the rental or sale of the Project or any
part thereof, unless a valid exemption from such taxes or governmental charges
is available, (ii) all utility and other charges incurred or imposed with
respect to the Project or any aspect thereof, and (iii) all assessments and
charges of any kind lawfully imposed by any governmental body.
(b) The Lessee may in good faith contest any such taxes,
assessments and other charges, so long as the overall operating efficiency of
the Project for the purposes for which it is intended is not impaired. In the
event of any such contest, the Lessee may permit the taxes, assessments or other
charges so contested to remain unpaid during the period of such contest and any
appeal therefrom; provided, however, (i) neither the Project nor any part
thereof or interest therein would be in any immediate danger of being sold,
forfeited or lost by reason of such proceedings and (ii) the Lessee shall have
set aside on its books adequate reserves with respect thereto.
(c) Under the provisions of the Act, the Agency is required to
pay no real property taxes upon any of the property acquired by it or under its
jurisdiction or control or supervision; however, the Agency and the Lessee have
entered into the Pilot Agreement, attached hereto as Exhibit D, which provides
for certain in-lieu payments.
4.4 Insurance.
(a) At all times throughout the term of this Lease, the Lessee
will maintain or cause to be maintained the following insurance coverages:
(i) All-risk property insurance; and
(ii) Insurance protecting the Lessee and the Agency against
loss or losses from liabilities imposed by law or assumed in any written
contract (including the contractual liability assumed by the Lessee under
Section 4.8 hereof) and arising from personal injury and death or damage
to the property of others caused by any accident or occurrence, with
limits of not less than $500,000 per accident or occurrence on account of
personal injury and property damage and an excess liability policy in an
amount not less than $5,000,000, naming the Agency as an additional
insured party.
(b) All policies evidencing the insurance required by Section
4.4(a)(ii) hereof shall provide for (i) payment of the losses to the Lessee and
the Agency as their respective interests may appear, and (ii) at least thirty
(30) days'
<PAGE>
8
written notice in accordance with Section 8.1 of this Lease of the proposed
non-renewal, cancellation, reduction of benefits or material change in coverage
thereof to the Lessee and the Agency. Prior to the expiration of any policy of
insurance, the Lessee shall furnish to the Agency evidence that the policy has
been renewed or replaced or is no longer required by this Lease.
(c) The Net Proceeds of the insurance required by Section
4.4(a) (ii), shall be applied toward extinguishment or satisfaction of the
liability with respect to which such insurance is written.
4.5 Corporate Existence. During the term of this Lease, the Lessee
will maintain its existence and will not dissolve, liquidate or otherwise
dispose of all or substantially all of its assets.
4.6 Right of Agency to Pay Lessee Obligations. If the Lessee fails
to pay any tax, assessment or charge required to be paid by Section 4.3 unless
contested in good faith in accordance with Section 4.3 or to maintain any
insurance required to be maintained by Section 4.4, the Agency may pay or cause
to be paid such item or items after giving notice to the Lessee of an intention
to pay such item or items. The Lessee shall reimburse the Agency for any amount
paid under this Section, together with interest thereon from the date of payment
at a per annum rate equal to twelve percent (12%).
4.7 Payment of Agency's Fee and Expenses. The Lessee will pay the
Agency's standard administration fee and all reasonable legal fees and costs,
including, without limitation, any costs related to any transfer of the Project,
incurred by the Agency in connection with this Lease.
4.8 Indemnity Against Claims.
(a) The Lessee releases the Agency from, agrees that the
Agency shall not be liable for, and indemnities and holds harmless the Agency
and its officers, members, agents and employees, past, present and future, from,
any and all loss, damage, liability, claim, expense (including reasonable costs
and attorneys' fees) for any injury or death to persons, any loss or damage to
property or any other loss, claim or damage related to or affected by the
Project, or arising or resulting, directly or indirectly, from acts or omissions
of any Person arising out of the Improvements, the Equipment or the acquisition
by the Agency of title to the Project or any other aspect of the Project,
excepting from the foregoing only such loss or liability as may be caused by the
gross negligence or willful misconduct of the Agency and its officers, members,
agents or employees. If any claim is asserted against the Agency, the Agency
will give prompt notice to the Lessee and the Lessee will assume the defense
thereof, with full power to litigate, compromise or settle the same in its sole
discretion; provided, however, the failure to give such notice shall not relieve
the Lessee of its liability under this Section unless Lessee is not otherwise
aware of such
<PAGE>
9
claim and the Agency's failure to give notice to Lessee adversely and materially
affects Lessee.
(b) Notwithstanding any other provisions of this Lease, the
obligations assumed by the Lessee pursuant to this Section 4.8 shall remain in
full force and effect after the termination of this Lease until the expiration
of the period stated in the applicable statute of limitations during which a
claim, cause of action or prosecution relating to the matters herein described
may be brought, the payment in full or the satisfaction of such claim, cause of
action or prosecution and the payment of all expenses and charges incurred by
the Agency or its officers, members, employees or agents, relating to the
enforcement of the provisions herein specified.
4.9 Limitation of Liability of the Agency. The liability of the
Agency to the Lessee under this Lease shall be enforceable only out of the
Agency's interest under this Lease and in the Project, and there shall be no
other recourse against the Agency, its officers, members, agents and employees,
past, present or future, or other property now or hereafter owned by it or them.
4.10 Discharge of Liens. If any Lien other than the Permitted
Encumbrances is asserted against the Project or the Agency's or the Lessee's
interest therein, the Lessee will cause each such Lien to be fully discharged
and released within thirty (30) days after its assertion; provided, however, the
Lessee may contest any such Lien in good faith. If any such Lien shall be
reduced to final judgment, and such judgment or other process issued for the
enforcement thereof is not promptly stayed, or if so stayed and said stay
thereafter expires, the Lessee shall forthwith pay and discharge said judgment.
4.11 Certificate of No Default. Within ninety (90) days after the
close of each fiscal year of the Lessee during the term of this Lease, the
Lessee shall furnish to the Agency a certificate stating (i) no Event of Default
under this Lease has occurred and is continuing, and (ii) no event has occurred
which with the giving of notice or lapse of time or both would constitute an
Event of Default, or if both of such statements are not correct, the details
with respect to the event or occurrence.
4.12 Subordination. This Lease is hereby made subject, subordinate
and junior in right to the lien of the Mortgage, and to any extensions,
modifications or substitutions of same.
<PAGE>
10
ARTICLE V
DAMAGE TO AND STATUS OF PROJECT
5.1 Damage, Destruction and Condemnation.
(a) If, prior to payment of all rent provided for in Section
3.3, (i) the Project or any portion thereof shall have been destroyed (in whole
or in part) or damaged by fire or other casualty, or (ii) title to, or the
temporary use of the Project or any portion thereof shall have been taken under
the exercise of the power of eminent domain by a Person acting under
governmental authority, the Lessee may, within thirty (30) days after the
occurrence, terminate this Lease upon notice to the Agency or continue the Lease
in effect. In no event shall the Agency have any liability or duty to rebuild or
restore the Project.
(b) The Lessee shall have the right to settle and adjust all
claims under any policies of insurance or in condemnation on behalf of the
Agency and itself. The proceeds of any condemnation award shall be paid to the
Lessee.
5.2 No Warranty by Agency. THE AGENCY MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO THE CONDITION, TITLE, DESIGN, OPERATION, MERCHANTABILITY OR
FITNESS OF THE PROJECT, OR THAT THE PROJECT IS OR WILL BE SUITABLE FOR THE
LESSEE'S PURPOSES OR NEEDS.
5.3 Inspection. The Agency and its agents shall have the right at
all reasonable times to inspect the Project.
5.4 Information. The Lessee agrees to provide promptly such
information concerning the Lessee, its finances and the Project as the Agency
may reasonably request. All financial information furnished to the Agency shall
be kept confidential and not disclosed by the Agency except as required by law.
5.5 Identification of Equipment. All Equipment shall be properly
identified by the Lessee by appropriate records.
5.6 Depreciation. The parties agree that, as between them, the
Lessee shall be entitled to all depreciation or recovery deductions with respect
to any depreciable property in the Project.
5.7 Restriction on Sale and Encumbrance of Project. Except as
otherwise specifically provided in this Article V, Article VI and Article VII,
the Agency shall not sell, convey, transfer or encumber the Project or any
rights under
<PAGE>
11
this Lease without the prior written consent of the Lessee other than Permitted
Encumbrances.
5.8 No Assignment or Sublease. The Lessee shall not assign this
Lease in whole or in part and shall not sublease all or any portion of the
Project.
5.9 Merger of Agency.
(a) Nothing contained in this Lease shall prevent the
consolidation of the Agency with, the merger of the Agency into or the transfer
of title to the Project as an entirety to any other public benefit corporation
or political subdivision which has the legal authority to own and lease the
Project, provided that upon any such consolidation, merger or transfer, the due
and punctual performance and observance of all the agreements and conditions of
this Lease to be kept and performed by the Agency shall be expressly assumed in
writing by the public benefit corporation or political subdivision resulting
from such consolidation, surviving such merger or to which the Project shall be
transferred.
(b) Within thirty (30) days after the consummation of any such
consolidation, merger or transfer of title, the Agency shall give notice thereof
in reasonable detail to the Lessee. The Agency promptly shall furnish such
additional information with respect to any such transaction as the Lessee may
reasonably request.
5.10 Waiver of Real Property Law Section 227. The Lessee hereby
waives the provisions of Section 227 of the Real Property Law of the State or
any laws of like import now or hereafter in effect.
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
6.1 Events of Default Defined. Any one or more of the following
event shall be "Events of Default" under this Lease:
(a) Failure by the Lessee to pay or cause to be paid the rent
required to be paid under Section 3.3 hereof when due.
(b) Failure by the Lessee to pay or cause to be paid when due
the amounts required under the Pilot Agreement.
(c) Failure by the Lessee to observe and perform any covenant,
condition or agreement in this Lease on its part to be observed or
<PAGE>
12
performed, other than referred to in Section 6.1(a) or 6.1(b) for a period of
thirty (30) days after written notice, specifying such failure or breach and
requesting that it be remedied, has been given to the Lessee by the Agency.
The provisions of this Section 6.1(c) are subject to the following
limitations: If by reason of force majeure the Lessee is unable in whole or in
part to carry out the agreements on its part herein contained, other than the
obligations on the part of the Lessee contained in Article III and Sections 4.4,
4.8 and 5.1 hereof, the Lessee shall not be deemed in default during the
continuance of such inability. The term "force majeure" as used herein shall
mean any of the following: acts of God; strikes, lockouts or other industrial
disturbances; acts of public enemies; orders of any kind of the government of
the United States or of the State or any of their departments, agencies or
officials, or any civil or military authority; insurrections; riots; epidemics;
landslides; lightning; earthquake; fire; tornadoes; storms; floods, washouts;
drought; restraint of government; civil disturbances; explosions; partial or
entire failure of utilities or other suppliers of energy; or any other similar
cause or event not reasonably within the control of the Lessee. The Lessee
agrees, however, that after the occurrence of an event of force majeure it will
take such steps as may thereafter be within its reasonable control to mitigate
the cause or causes preventing the Lessee from carrying out its obligations
under this Lease; provided, that the settlement of strikes, lockouts and other
industrial disturbances shall be entirely within the discretion of the Lessee
and that the Lessee shall not be required to make settlement of strikes,
lockouts and other industrial disturbances by acceding to the demands of the
opposing party or parties when such course is in the judgment of the Lessee
unfavorable to the Lessee.
(d) The Lessee shall (i) apply for or consent to the
appointment of or the taking of possession by a receiver, custodian, trustee or
liquidator of itself or of any of its assets, (ii) admit in writing its
inability, or be generally unable, to pay its debts as such debts become due,
(iii) make a general assignment for the benefit of its creditors, (iv) commence
a voluntary case under the federal Bankruptcy Code (as now or hereafter in
effect), (v) file a petition or other request seeking to take advantage of any
other law relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or adjustment of debts, or (vi) take any corporate action for the
purpose of effecting any of the foregoing.
(e) A proceeding or case shall be commenced, without the
application or consent of the Lessee, in any court of competent jurisdiction,
seeking (i) liquidation, reorganization, arrangement, adjustment of debts,
adjudication as a bankrupt, dissolution, winding-up, or relief as a debtor, (ii)
the appointment of a trustee, receiver, custodian, liquidator or the like of the
Lessee or of any of its assets, or (iii) similar relief under any law relating
to bankruptcy, insolvency, reorganization, winding-up or composition or
adjustment of debts, and such proceeding or case shall continue undismissed, or
an order, judgment or decree approving or ordering any of
<PAGE>
13
the foregoing shall be entered and continue unstayed and in effect, for a period
of sixty (60) days.
(f) If any certificate, statement, representation, warranty or
financial statement furnished by or on behalf of the Lessee shall prove to have
been false or misleading in any material respect at the time as of which the
facts therein set forth were made, or to have omitted any substantial or
unliquidated liability or claim against the Lessee.
(g) The occurrence and continuation of an Event of Default
under the Mortgage.
(h) Noncompliance by Lessee of any provision of the
Environmental Compliance Agreement or receipt by the Agency of any notice
pursuant to Section III(f) of the Environmental Compliance Agreement.
6.2 Remedy on Default. Upon the occurrence and during the
continuation of an Event of Default, the Agency may, at its option, convey by
deed and bill of sale the Project to the Lessee, and such conveyance shall be in
accordance with Section 7.4 hereof.
6.3 No Remedy Exclusive. No course of dealing and no delay or
omission by the Agency in exercising any right or remedy hereunder shall operate
as a waiver thereof or of any other right or remedy, and no single or partial
exercise thereof shall preclude any other or further exercise thereof or the
exercise of any right or remedy. The Agency may remedy any default by the Lessee
hereunder or with respect to any other Person in any reasonable manner without
waiving the default remedied by the Lessee. All rights and remedies of the
Agency hereunder are cumulative.
6.4 Agreement to Pay Attorneys' Fees and Expenses. In the event the
Agency employs attorneys or incurs other expenses for the collection of the sums
payable under this Lease, the enforcement of performance or observance of any
obligation or agreement of the Lessee or in connection with any matter arising
out of or related to the transactions contemplated by this Lease, the Lessee
will, on demand therefor, pay to the Agency the reasonable fees and expenses of
such attorneys and such other expenses so incurred.
<PAGE>
14
ARTICLE VII
TERMINATION OF THIS LEASE; OPTION IN FAVOR OF THE LESSEE
7.1 Early Termination. The Lessee shall have the option on any date
before, during and after the occurrence of an Event of Default to terminate this
Lease (i) upon filing with the Agency a certificate signed by an Authorized
Representative of the Lessee advising of the Lessee's election and the date upon
which the payments pursuant to Section 7.2 shall be made; and (ii) upon
compliance with the provisions of Section 7.2.
The Lessee shall have the further option to terminate this Lease
with respect to all or any portion of the Equipment (i) upon filing with the
Agency a certificate signed by an Authorized Representative advising the Agency
of such termination, together with a bill of sale from the Agency to the Lessee
or a third party with respect to the Equipment.
7.2 Conditions to Early Termination. In the event of any early
termination of this Lease, the Lessee shall pay to the Agency an amount
certified by the Agency sufficient to pay all unpaid fees and expenses of the
Agency incurred under this Lease.
7.3 Obligation to Purchase Facility. Upon termination of the Lease
term, the Agency shall have the obligation to sell the Project to Lessee, and
the Lessee shall have the obligation to purchase the Project from the Agency for
the purchase price of One Dollar ($1.00). The Lessee shall purchase the Project
by giving written notice to the Agency (which may be contained in the
certificate referred to in Section 7.1) fixing the date of closing such
purchase, which shall be on or about the date on which this Lease is to be
terminated. This Lease shall thereupon terminate, with the exception of Section
4.8, which shall survive any termination hereof.
7.4 Conveyance on Purchase. At the closing of the purchase of the
Project pursuant to Section 7.3 hereof, the Agency shall, upon receipt of the
purchase price, deliver all necessary documents (a) to convey to the Lessee
title to the Project being purchased, as the Project exists, subject only to the
following: (i) any Liens to which title was subject when conveyed to the Agency,
(ii) any Liens created at the request of the Lessee, to the creation of which
the Lessee consented or in the creation of which the Lessee acquiesced, (iii)
any Permitted Encumbrances, and (iv) any Liens resulting from the failure of the
Lessee to perform or observe any of its agreements contained in this Lease or
arising out of an Event of Default; (b) to release and convey to the Lessee all
of the Agency's rights and interest in and to any rights of action (other than
under Section 4.8) or any Net Proceeds of insurance or
<PAGE>
15
condemnation awards with respect to the Project; and (c) to discharge and
release any security interest or lien of any nature held by the Bank.
7.5 Expenses. Any and all costs, expenses, taxes and charges of any
kind related to any transaction pursuant to this Article VIII shall be for the
account of the Lessee.
ARTICLE VIII
MISCELLANEOUS
8.1 Notices. All notices, certificates and other communications
hereunder shall be in writing and shall be sufficiently given and shall be
deemed given, if by delivery, when delivered and, if delivered by mail, on the
second day following the day on which mailed by certified mail, postage prepaid,
addressed as follows:
To the Agency: County of Chautauqua Industrial Development
Agency
200 Harrison Street
Jamestown, New York 14701
Attention: Administrative Director
To the Lessee: Special Metals Corporation
Middle Settlement Road
New Hartford, New York 13413
Attention: Robert F. Dropkin
Vice President, Secretary &
Chief Legal Counsel
With a copy to: Credit Lyonnais New York Branch
95 Wall Street
New York, New York 10005
Attention: European Corporate Group.
Any of the persons mentioned above to whom notice may be given may,
by notice given hereunder, designate any further or different addresses to which
subsequent notices, certificates and other communications shall be sent.
8.2 Binding Effect. This Lease shall inure to the benefit of and
shall be binding upon the Agency and its successors and assigns and upon the
Lessee and its successors, subject, however, to the limitation contained in
Section 4.5.
<PAGE>
16
8.3 Severability. In the event any provision of this Lease shall be
held invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provision hereof.
8.4 Execution of Counterparts. This Lease may be executed in several
counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
8.5 Net Lease. It is the intention of the parties hereto that this
Lease be a "net lease," and this Lease shall be construed to effect such intent.
8.6 Applicable Law. This Lease shall be governed and construed under
the internal laws of the State without regard to principles of conflicts of law.
8.7 Headings for Convenience Only. The descriptive headings in this
Lease are inserted for convenience only and shall not control or affect the
meaning or construction of any provisions hereof.
IN WITNESS WHEREOF, the Agency and the Lessee have caused this Lease
to be executed by their duly authorized officers, all as of the date first above
written.
COUNTY OF CHAUTAUQUA INDUSTRIAL
DEVELOPMENT AGENCY
By_____________________________________
SPECIAL METALS CORPORATION
By_____________________________________
<PAGE>
17
EXHIBIT C
DEFINITIONS (Section 1.2)
Act means, collectively, the Enabling Act and Chapter 71 of the 1972
Laws of the State, as amended.
Agency means County of Chautauqua Industrial Development Agency, a
corporate governmental agency constituting a body corporate and politic and a
public benefit corporation of the State organized under the laws of the State,
and its successors and assigns and any resulting or surviving public benefit
corporation or political subdivision.
Authorized Representative means the person or persons at the time
designated to act on behalf of the Agency or the Lessee, as the case may be, by
written certificate furnished to the Agency or the Lessee, as the case may be,
containing the specimen signature of each such person.
Bank means Credit Lyonnais New York Branch as collateral agent and
mortgagee under the Mortgage.
Closing Date means December 11, 1990.
Completion Date means the date upon which the Lessee believes that the
Project will be substantially completed, which the Lessee estimates to be March
31, 1992.
Counsel means an attorney, or firm of attorneys, admitted to practice
before the highest court of any State of the United States of America or the
District of Columbia (who may be counsel for the Agency or the Lessee).
County means Chautauqua County, New York.
Enabling Act means the New York State Industrial Development Agency Act
constituting Article 18-a of the New York General Municipal Law, as amended.
Environmental Compliance Agreement means that environmental compliance
and indemnification agreement dated as of November 1, 1990 executed by the
Lessee in favor of the Agency related to the Project, as the same may be amended
and supplemented from time to time.
Equipment means the equipment listed on Exhibit B hereof.
<PAGE>
18
Event of Default (collectively, Events of Default) means any of the
events or conditions so designated in Section 6.1 of the Lease.
Improvements means the buildings, fixtures and improvements acquired or
to be acquired, renovated or to be renovated, or constructed or to be
constructed on the Land.
Inducement Date means September 25, 1990.
Land means the real estate leased pursuant to the Lease, more
particularly described on Exhibit A.
Lease means the lease agreement by and between the Agency and the
Lessee, as the same may be amended and supplemented from time to time.
Lessee means Special Metals Corporation, a corporation duly organized
and existing under the laws of the State of Delaware.
Lien means any interest in personal or real property securing an
obligation owed to a Person whether such interest is based on the common law,
statute or contract. The term "Lien" includes reservations, exceptions,
encroachments, easements, rights of way, covenants, conditions, restrictions,
leases and other similar title exceptions and encumbrances affecting real
property.
Mortgage means the Mortgage dated as of November _, 1990 among the
Agency and Lessee, as mortgagors, and Credit Lyonnais New York Branch as Agent,
as mortgagee.
Net Proceeds means the amount of the gross proceeds with respect to
which that term is used as remain after payment of all expenses, costs and taxes
(including attorneys' fees) incurred in obtaining such gross proceeds.
Permitted Encumbrances means (i) Liens described in the title insurance
policy referred to in Section 2.2 of the Lease, (ii) the Lease, (iii) utility,
access and other easements and rights of way, restrictions and exceptions that
do not materially impair the utility or the value of the property affected
thereby for the purposes for which it is intended, (iv) mechanics',
materialmen's, warehousemen's, carriers' and other similar Liens to the extent
permitted by the Lease, (v) Liens for taxes at the time not delinquent, and (vi)
the Mortgage and Liens to which the Lessee and the Bank have given their written
consent.
Person means an individual, partnership, corporation, association, joint
venture, trust or unincorporated organization, and a government or governmental
agency or political subdivision thereof.
<PAGE>
19
Pilot Agreement means a payment-in-lieu of taxes agreement between the
Agency and the Lessee regarding the payment by such Lessee of certain amounts
in-lieu-of real property taxes on the Project and attached as Exhibit D to the
Lease.
Plans and Specifications means the plans and specifications for the
Project (including cost estimates) prepared by the Lessee and approved by the
Bank.
Project means the Land, the Improvements and Equipment leased to the
Lessee under the Lease and located at Willowbrook Avenue, Dunkirk, New York
14048.
Public Purpose means the State's objective to create industrial
development agencies for the benefit of the several counties, cities, villages
and towns in the State and to empower such agencies, among other things, to
acquire, construct, reconstruct, lease, improve, maintain, equip and sell land
and any building or other improvement, and all real and personal properties,
including, but not limited to, machinery and equipment deemed necessary in
connection therewith, whether or not now in existence or under construction,
which shall be suitable for manufacturing, warehousing, research, commercial,
recreation or industrial facilities, including industrial pollution control
facilities, in order to advance job opportunities, health, general prosperity
and the economic welfare of the people of the State.
SEQR Act means the State Environmental Quality Review Act
constituting Article 8 of the New York Environmental Conservation Law and the
regulations thereunder.
State means the State of New York.
The words "hereof," "herein," "hereto," "hereby" and "hereunder" when
used in the Lease shall refer to that Lease.
Every "request," "order," "demand," "application," "direction,"
"appointment," "notice," "statement," "certificate," "consent" or similar
action hereunder by the Agency or the Lessee shall, unless the form thereof is
specifically provided, be in writing signed by the Chairman, Vice-Chairman,
Treasurer, Assistant Treasurer, Secretary, Assistant Secretary or Executive
Director of the Agency, the President, any Vice-President or general partner of
the Lessee or the Authorized Representative of any of them.
<PAGE>
PAYMENT IN LIEU OF TAXES AGREEMENT
This Agreement (the "Agreement"), made as of the lst day of
November, 1990, by and between SPECIAL METALS CORPORATION, a corporation
organized and existing under the laws of the State of Delaware (hereinafter
together with its successors and assigns, referred to as the "Company"), and
COUNTY OF CHAUTAUQUA INDUSTRIAL DEVELOPMENT AGENCY, a corporate government
agency constituting a body corporate and politic and a public benefit
corporation of the State of New York (hereinafter referred to as the "Agency").
W I T N E S S E T H
WHEREAS, the New York State Industrial Development Agency Act,
constituting Title I of Article 18-A of the General Municipal Law of the State
of New York, Chapter 24 of the Consolidated Laws of the State of New York, as
amended (the "Enabling Act") authorizes and provides for the creation of
industrial development agencies in the several counties, cities, villages, and
towns in the State of New York and empowers such agencies, among other things,
to acquire, expand, construct, reconstruct, lease, improve, maintain, equip,
furnish, and dispose of one or more projects for the purpose of promoting,
developing, encouraging, and assisting in the acquisition, expansion,
construction, reconstruction, improvement, maintaining, equipping, and
furnishing of industrial, manufacturing, warehousing, commercial, research, and
recreational facilities, and thereby advance the job opportunities, general
prosperity, and economic welfare of the people of the State of New York; and
WHEREAS, pursuant to and in accordance with the provisions of the
Enabling Act and Chapter 71 of the 1972 Laws of New York (together with the
Enabling Act, hereinafter referred to as the "Act"), the Agency, which has been
created and established pursuant thereto for the benefit of the County of
Chautauqua, proposes to undertake the acquisition below; and
WHEREAS, the project being undertaken consists of (i) the
acquisition of certain land more particularly described on Exhibit A hereto
("Land"), (ii) the acquisition of certain existing improvements located on the
Land ("Improvements"), (iii) the acquisition and construction of a new building
in which the Equipment (hereinafter defined) is to be located on the Land ("New
Improvements") and (iv) the acquisition and installation of certain equipment
more particularly described on Exhibit B hereto in the New Improvements
("Equipment") (collectively, the actions described in (i), (ii), (iii) and (iv)
hereinafter referred to as the "Project"); and
WHEREAS, the Agency is or will be the owner of the Land, the
Improvements and the New Improvements (collectively, the "Facility"), as well as
the Equipment; and
<PAGE>
2
WHEREAS, the Agency proposes to undertake the Project as an
authorized project under the Act and to lease the interest of the Agency
pursuant to a Lease Agreement dated as of September 1, 1990 entered into between
the Agency, as lessor, and the Company, as lessee (the "Lease"); and
WHEREAS, under the present provisions of the Act and under the
present Section 412A of the Real Property Tax Law of the State of New York, the
Agency is required to pay no taxes or assessments upon any of the property
acquired by it or under its jurisdiction or supervision or under its control;
and
NOW, THEREFORE, in consideration of the premises and the payments,
agreements, and covenants hereinafter contained, the Company and the Agency
formally covenant and agree as follows:
Section 1. Equipment. The Agency and the Company agree that the
Equipment is personal property and should not be assessed as real property for
tax purposes. No portion of the value of the Equipment shall enter into the
computations for the Payments in Lieu of Taxes provided for in this Agreement.
Section 2. Tax-Exempt Status of Facility.
A. Assessment of Facility. Pursuant to Section 874 of the General
Municipal Law of the State of New York and Section 412-a of the Real Property
Tax Law, the parties hereto understand that, upon acquisition of the Facility by
the Agency, and for so long thereafter as the Agency shall own the Facility, the
Facility shall be assessed by the various taxing entities having jurisdiction
over the Facility, including, without limitation, the County of Chautauqua, the
City of Dunkirk and the Dunkirk Public School District (such taxing entities,
and any successors thereto, being hereinafter collectively referred to as the
"Taxing Entities", and each of such Taxing Entities being hereinafter
individually referred to by name or as a "Taxing Entity") as exempt upon the
assessment rolls of the respective Taxing Entities prepared subsequent to the
acquisition by the Agency of title to the Facility. The Company shall, promptly
following acquisition by the Agency of title to the Facility, take such action
as may be necessary to ensure that the Facility shall be assessed as exempt upon
the assessment rolls of each Taxing Entity prepared subsequent to such
acquisition by the Agency. The Facility shall not be entitled to such exempt
status on the tax rolls of any Taxing Entity until the first tax year of such
Taxing Entity following the tax status date of such Taxing Entity occurring
subsequent to the date upon which the Agency became the owner of record of the
Facility. Pursuant to the provisions of the Lease, the Company will be required
to pay all taxes and assessments lawfully levied and/or assessed against the
Facility, including taxes and assessments levied for the current tax year and
all subsequent tax years, until the Facility shall be entitled to exempt status
on the tax rolls of the respective Taxing Entities. The Agency will cooperate
with the Company to preserve the tax-exempt status of the Facility.
<PAGE>
3
B. Special Assessments. The parties hereto understand that the tax
exemption extended to the Agency by Section 874 of the General Municipal Law and
Section 412-a of the Real Property Tax Law does not entitle the Agency to
exemption from special assessments and special ad valorem levies. Pursuant to
the Lease Agreement, the Company will be required to pay all special assessments
and special ad valorem levies lawfully levied and/or assessed against the
Facility.
C. Other Charges. If any taxes, assessments, service charges or
other governmental charges be payable by the Company on the rents under the
Lease or the occupancy of or any interest of the Company in the Facility or any
part thereof or any personal property other than inventory used in connection
with the business conducted and located therein (other than real property taxes
on Equipment which may be or become affixed to the Facility), the amount of any
tax, assessment or charges shall be paid by the Company. Furthermore, water
charges, sewer rentals, sewage treatment charges, solid waste charges and any
other charges in the nature of utility charges shall be paid directly by the
Company and shall not be credited against or affect in any manner any payment in
lieu of taxes in any year and shall be computed pursuant to the formula adopted
by the relevant Taxing Entity(s).
Section 3. Payments In Lieu Of Taxes.
A. Agreement to Make Payments. The Company agrees that it will make
annual payments in lieu of taxes in the amounts hereinafter provided to the
respective Taxing Entities. The Company also agrees to give the appropriate
officer or officers of each respective Taxing Entity responsible for assessing
properties on behalf of each such Taxing Entity (such officers being hereinafter
collectively referred to as the "Assessors") a copy of this Agreement. The
payments due hereunder to any particular Taxing Entity shall be paid by the
Company to the appropriate officer or officers of such Taxing Entity.
Notwithstanding anything to the contrary herein, the payment in lieu of taxes
should not exceed the amount the Company would pay under the normal calculation
for any period.
B. Valuation of Facility.
(1) The value of the Facility for purposes of determining
payments in lieu of taxes due hereunder shall be determined by the appropriate
Assessor for each Taxing Entity. The parties hereto agree that the appropriate
Assessors shall (a) appraise the Facility in the same manner as other similar
properties in the general area of the Facility, and (b) place a value for
assessment purposes (hereinafter referred to as the "Assessed Value") upon the
Facility, equalized if necessary by using the appropriate equalization rates as
apply in the assessment and levy of real property taxes. The initial Assessed
Value of the Land and the Improvements is $485,450.00. Based upon the Company's
estimated cost of the New Improvements, the Initial Assessment of the New
Improvements is $434,900.00.
<PAGE>
4
(2) The Company shall have the right solely at its cost and
expense to seek a reduction in the Assessed Value of the Facility and/or a
determination that certain assets which constitute a portion of the Facility do
not constitute real property. The Agency shall not be required to join in any
such proceeding or contest brought by the Company unless such proceeding or
contest is required to be brought in the name of the Agency, in which case the
Agency will join in the proceeding or contest so long as the Agency is not
thereby required to bear any cost or expense directly or indirectly related
thereto. On final determination of such proceeding or contest, the Company shall
promptly pay or discharge any decision or judgment and all interest and
penalties incidental thereto. The pendency of such a proceeding or contest shall
not abate the Company's obligation to make payments in lieu of taxes.
(3) The Initial Assessment of the New Improvements has been
based on the Plans and Specifications (as defined in the Lease) and the
estimated construction costs thereof. On the Completion Date as established in
the Lease, the Company will confirm the actual construction cost of the New
Improvements and, upon the request of the Agency, will furnish the Agency with
invoices and other evidence of such costs. If the actual cost of the New
Improvements differs from the Initial Assessment thereof, the Agency will adjust
accordingly the Payments in Lieu of Taxes set forth in Section 2.F.
C. Tax Rates in the Applicable Jurisdictions. For purposes of this
Section 3.F., the tax rates for the County of Chautauqua and the following local
municipal and school districts jurisdictions have been established in the
following amount per thousand dollars of Assessed Value:
County of Chautauqua: $ 22.82
City of Dunkirk: $ 41.10
Dunkirk Public Schools: $ 43.04
D. Applicable Period. Subject to subsection B, for purposes of
computing the total payments in lieu of taxes to all Taxing Entities as set
forth in Sections 3.E and 3.F. and only for that purpose, the above tax rates
and Assessed Values are to be frozen for 10 years as specifically set forth in
Section 3.F. below.
E. Amount of Payments in Lieu of Taxes - Land and Improvements. In
any tax year beginning on or after July 1, 1991, for the periods set forth in
Section 3.F, the Company agrees to make annual payments in lieu of real property
taxes in such amounts as shall be determined by multiplying the tax rate or
rates of each Taxing Entity applicable to the Land and Improvements in effect as
of the date of this Agreement and set forth in Section 3.C as if the same were
owned by the Company and not the Agency by an amount equal to one hundred
percent (100%) of the Initial Assessed Value. The total payment shall be
$51,923.74 payable $11,077.97 to the
<PAGE>
5
County of Chautauqua, $19,952.00 to the City of Dunkirk and $20,893.77 to the
Dunkirk Public School District.
F. Amount of Payments in Lieu of Taxes - New Improvements. Subject
to Section 2.A. and Section 3.G., the Company hereby covenants and agrees to
pay, at the time specified in Section 3.I., so long as the Agency is the record
owner of the New Improvements as follows:
1. County. With respect to the County of Chautauqua:
(a) in any tax year beginning on or after January 1,
1992 and through the year ending December 31, 2001, the
Company will make payments in lieu of taxes for the New
Improvements equal to a percentagee of the Assessed Value of
the New Improvements specified below multiplied by the tax
rate of the County of Chautauqua specified in Section 3.C. as
follows:
Tax Year Percentage Payment
-------- ---------- -------
1/l/92 to 12/31/92 0% 0
1/l/93 to 12/31/93 10% 992.45
1/l/94 to 12/31/94 20% 1,984.91
1/l/95 to 12/31/95 30% 2,977.37
1/l/96 to 12/31/96 40% 3,969.82
1/l/97 to 12/31/2001 50% 4,962.28; and
(b) thereafter, until the date that the Agency shall no
longer be the record owner of the Improvements, the Company
shall make full payments in lieu of taxes with respect to the
County of Chautauqua as if the Company were the record owner
of the Improvements and the New Improvements were assessed at
full value for purposes of taxation subject, however, to any
reductions in such payments to which the Agency and the
Company may agree.
2. City. With respect to the City of Dunkirk:
(a) in any tax year beginning on or after January 1,
1992 and through the year ending December 31, 2001, the
Company will make payments in lieu of taxes for the New
Improvements equal to a percentage of the Assessed Value of
the New Improvements specified below multiplied by the tax
rate of the City of Dunkirk specified in Section 3.C. as
follows:
<PAGE>
6
Tax Year Percentage Payment
-------- ---------- -------
1/l/92 to 12/31/92 0% 0
1/l/93 to 12/31/93 10% 1,787.43
1/l/94 to 12/31/94 20% 3,574.87
1/l/95 to 12/31/95 30% 5,362.31
1/l/96 to 12/31/96 40% 7,149.75
1/l/97 to 12/31/2001 50% 8,937.19; and
(b) thereafter, until the date that the Agency shall no
longer be the record owner of the Improvements, the Company
shall make full payments in lieu of taxes with respect to the
City of Dunkirk as if the Company were the record owner of the
Improvements and the New Improvements were assessed at full
value for purposes of taxation subject, however, to any
reductions in such payments to which the Agency and the
Company may agree.
3. School. With respect to the Dunkirk Public School District:
(a) in any tax year beginning on or after July 1, 1991
and through the year terminating June 30, 2001, the Company
will make payments in lieu of taxes for the New Improvements
equal to a percentage of the Assessed Value of the New
Improvements specified below multiplied by the tax rate of the
Dunkirk Public School District as follows:
Tax Year Percentage Payment
-------- ---------- -------
7/l/91 to 6/30/92 0% 0
7/l/92 to 6/30/93 10% 1,871.85
7/l/93 to 6/30/94 20% 3,743.70
7/l/94 to 6/30/95 30% 5,615.55
7/l/95 to 6/30/96 40% 7,487.40
7/l/96 to 6/30/2001 50% 9,359.25; and
(b) thereafter, until the date that the Agency shall no
longer be the record owner of the Improvements, the Company
shall make full payments in lieu of real estate taxes with
respect to the Dunkirk Public School District as if the
Company were the record owner of the New Improvements and the
Improvements were assessed at full value for purposes of
taxation subject, however, to any reductions in such payments
to which the Agency and the Company may agree.
<PAGE>
7
The above reflects the policy that the reduced payments in
lieu of taxes will be scheduled to be made in whole tax fiscal years (that is,
tax payments and payments in lieu of taxes will not be prorated to the date the
Agency becomes owner of the New Improvements), and that the Company will pay
full taxes, or the equivalent of full taxes, before and after the reduced
payment in lieu of tax period (subject to further reductions, if any, agreed to
in the future).
G. Reduction of Payment in Lieu of Taxes by Reason of Reduction in
Tax Rates and/or Assessed Value. Notwithstanding anything to the contrary
herein, the payment in lieu of taxes specified in Section 3.F should not exceed
the percentage specified of the amount the Company would pay under the normal
tax calculation for any period, after taking into account the percentage of tax
to be paid by the Company in that particular year in accordance with Section
3.F.
Therefore, if the tax (calculated as if the Company were the record
owner of the New Improvements and the New Improvements were assessed at full
value for purposes of taxation, after taking into account the percentage of tax
to be paid by the Company in that particular year in accordance with Section
3.F.) otherwise due any taxing jurisdiction, decreases due to a reduction in tax
rates, Assessed Value, or otherwise, below the payment in lieu of taxes as
specified in Section 3.F., then the payment in lieu of taxes due that taxing
jurisdiction shall be decreased to equal the tax that would otherwise be due.
However, once a payment in lieu of taxes been so reduced, if the
taxes which would otherwise be due subsequently increase, the payment in lieu of
taxes will similarly increase but not in excess of the amount specified in
Section 3.F.
H. Payments to Chautauqua County Department of Finance. All payments
in lieu of taxes shall be made by the Company directly to the Chautauqua County
Department of Finance (the "Department") promptly upon receipt of billings from
the Department. It is understood that the Department shall receive the payments
in lieu of taxes in trust for each of the Taxing Entities enumerated in
subsection (1), (2) and (3) of Section 3.F. above, and Chautauqua County shall
make the payments in lieu of taxes to such Taxing Entity as the Agency shall
direct in the event that the Department shall determine to no longer receive,
process and disburse such payments.
I. Due Dates; Interest; Penalties. The Company will be billed by the
Agency, the Department or any of the Taxing Entities for the respective
payments, as if the Facility were on their respective tax rolls, at the times
when taxes for such Taxing Entities are due.
The applicable due dates, interest and penalties are as follows:
All payments are net for 30 days from due date.
<PAGE>
8
County & Town Taxes Due: January
payment in February, 1%
payment in March, 2%
payment in April and beyond, 5% penalty
plus 1% of (tax & penalty) per month
from Feb. lst
Dunkirk City Taxes: Due: April
payment in May and beyond, additional
1% per month
School Taxes: Due: September
payment in October, 2%
payment in November, 3%
payment in December and January, 3%
plus 7% penalty on tax and interest
payment in February and beyond, 1% per
month computed on January amount
J. Partial Sale; Transferee's Obligation; Apportionment of Reduction
to Local Taxing Entities. During the period set forth above, in the event that
any portion of the Land or the Improvements located thereon is sold or disposed
of by the Agency, the transferees thereof will thereafter pay the real property
taxes on such Improvements as may be located on the portion of the Land sold and
on the portion of the Land sold as may be required by applicable law.
K. Sale; Company's Obligation. In the event that the Agency sells
the Facility to any party other than the Company (to the extent consented to by
the Company or permitted under the terms of the Lease), the Company's obligation
for payments in lieu of taxes, shall be prorated to the date of the closing of
the transaction and thereupon all obligations of the Company for payments in
lieu of taxes shall cease, but the Agency shall take such steps with the
purchaser other than the Company to assure that each of the Taxing Entities
shall suffer no loss of revenue until such Facility can be placed back on the
tax rolls and taxes levied and billed therefore.
Section 4. Effective Date; Duration of Agreement. This Agreement
shall become effective upon the delivery of the Lease and shall continue in
effect until the earlier of (i) June 30, 2001 or (ii) the date in which title to
the Facility is conveyed to the Company pursuant to the Lease.
Section 5. Events of Default. The following shall constitute "Events
of Default" under this Agreement:
<PAGE>
9
A. Failure by the Company to make any payment specified in Section 3
hereof within thirty (30) days of receipt of written notice from any Taxing
Entity and the continuance of such failure for a period of ten (10) days after
receipt by the Company of written notice from the Agency.
B. Failure by the Company to make any payment specified in Section 2
hereof and the continuance of such failure for a period of ten (10) days after
receipt by the Company of written notice from the Agency.
C. The occurrence and continuation of a default under the terms of
any agreement entered into between the Agency and the Company.
Upon the occurrence and continuance of an Event of Default
hereunder, the Company shall be required to make payments in lieu of taxes
levied by the Taxing Entities on the Facility if it were owned by the Company,
such amounts to commence to be paid for the period subsequent to the date it is
determined by the Agency that there is an Event of Default hereunder. In such
event, the tax rate, interest, and penalties shall be those then in effect in
the jurisdiction(s) in which the Facility is located.
Upon the occurrence and continuance of an Event of Default
hereunder, the Agency shall be entitled to recover the payments in default from
the Company, together with all the costs and expenses of the Agency, its
successors or assigns, paid or incurred in such recovery (including court costs
and reasonable attorney's charges) and interest at the rate charged by the
respective Taxing Entities on overdue payments of taxes. In addition, the Agency
shall have the right to reconvey the Facility to the Company at any time, and
the Company shall accept any such tender of reconveyance.
The Agency, in enforcing payment by the Company of said amounts, may
take whatever action and exercise any or all of the rights and remedies
specified in this Agreement or any other remedy provided by law.
Each and every Event of Default shall give rise to a separate cause
of action hereunder, and separate suits may be brought hereunder as each cause
of action arises. The Company irrevocably agrees that any suit, action, or other
legal proceeding arising out of this Agreement may be brought in the courts of
record of the State of New York, or the courts of the United States located
within the State of New York, consents to the jurisdiction of each such court in
any such suit, action, or proceeding, and waives any objection which it may have
to the laying of the venue of any such suit, action, or proceeding in any of
such courts.
In no event shall the Agency be liable to any of the Taxing Entities
for the payments specified herein, whether or not the Company makes such
payments. The Company hereby agrees to indemnify the Agency against any such
liability for
<PAGE>
10
such payments and against all penalties, interest, and other charges resulting
from the delinquency of such payments.
Section 6. Reimbursement for Expenses. The Company hereby covenants
and agrees that the Company shall make a payment to the Agency in the amount of
a one-time payment of $15,250 and that the Company shall make additional
payments to the Agency in an amount equal to the reasonable legal fees of
General Counsel to the Agency.
Section 7. Covenants by the Agency. The Agency covenants that,
unless otherwise required by law, the Agency will not enact, adopt or apply to
the detriment of the Company any laws, ordinances, rules, or regulations
imposing any taxes, assessments, or other charges of payments on the Project or
the Company's leasehold interest or personal property therein, or its use or
occupancy thereof or its gross receipts or income therefore, except as the
Company and the Agency have herein agreed, or may agree from time to time in the
future.
Section 8. Notices. Any notice or other written communications
required or permitted hereunder shall be determined to be duly and properly
given, made, or delivered if delivered or mailed by ordinary mail, if to the
Agency, to Chairman, County of Chautauqua Industrial Development Agency, 200
Harrison Street, Jamestown, New York 14701, and if to the Company, Special
Metals Corporation, Middle Settlement Road, New Hartford, New York 13413,
Attention: Robert F. Dropkin, Secretary and Chief Legal Counsel.
Section 9. Assignment of Agreement. This Agreement shall be binding
upon the successors and assigns of the Company but no assignment shall be
effective to relieve the Company of any of its obligations hereunder unless
expressly authorized and approved in writing by the Agency.
Section 10. Independent Agreement. Notwithstanding any other
provision of this Agreement, including the recitals thereof, the parties agree
that the Lease executed between the parties thereto shall be a separate and
independent document from this Agreement, and irrespective of whether any
provision of this Agreement or the entirety hereof shall be held invalid or
unenforceable by any court of competent jurisdiction, the Lease shall be
construed, interpreted, and otherwise regarded separate and apart from this
Agreement. The parties hereto specifically note that the considerations and
terms provided for in this Agreement and provided for in the Lease are the only
considerations and terms for which the parties thereto have executed this
Agreement.
Section 11. Amendments. This Agreement may not be modified,
amended, supplemented, or changed without the written consent of the Agency and
the Company and by written notification to the Taxing Entities.
<PAGE>
11
Section 12. Prior Agreements. This Agreement constitutes the entire
agreement, and supersedes all prior agreements and understandings, whether
written or oral, among the parties with respect to the subject matter hereof and
may be executed simultaneously in several counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the Agency and the Company have made this
Agreement to be executed in their respective names, all on the date first above
written.
COUNTY OF CHAUTAUQUA
INDUSTRIAL DEVELOPMENT
AGENCY
By_________________________________
Name:______________________________
Title:_____________________________
SPECIAL METALS CORPORATION
By_________________________________
Name:______________________________
Title:_____________________________
<PAGE>
AMENDED AND RESTATED LEASE
Between
CITY OF PRINCETON, KENTUCKY
Landlord
- and -
SPECIAL METALS CORPORATION
Tenant
Property Located In:
City of Princeton
Caldwell County
Kentucky
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1 Premises................................................2
ARTICLE 2 Term of Lease...........................................3
ARTICLE 3 Rent....................................................4
ARTICLE 4 Alteration of Premises by Tenant........................5
ARTICLE 5 Utilities...............................................6
ARTICLE 6 Insurance...............................................6
ARTICLE 7 Taxes...................................................7
ARTICLE 8 Repairs and Maintenance................................10
ARTICLE 9 Changes, Alterations and New Construction by Tenant....11
ARTICLE 10 Damage by Fire.........................................12
ARTICLE 11 Eminent Domain.........................................12
ARTICLE 12 Bankruptcy and Default Provisions......................14
ARTICLE 13 Mechanic's Liens.......................................17
ARTICLE 14 Assignments and Transfers of Tenant's Interest.........17
ARTICLE 15 Compliance with Governmental Orders....................18
ARTICLE 16 Subordination to Mortgages.............................18
ARTICLE 17 Notices and Certificates...............................19
ARTICLE 18 Covenant of Quiet Enjoyment............................21
ARTICLE 19 Option to Purchase.....................................21
ARTICLE 20 Miscellaneous Provisions...............................22
Exhibit A - Description of Premises
i
<PAGE>
This sets forth an Amended and Restated Lease made as of the 1st day
of September, 1990, by and between the CITY OF PRINCETON, Caldwell County,
Kentucky (the "Landlord") and SPECIAL METALS CORPORATION, a corporation
organized and existing under the laws of the State of Delaware with its
principal office at 4317 Middle Settlement Road, New Hartford, New York 13413
(the "Tenant").
R E C I T A L S
A. By a Lease Agreement dated as of September 1, 1970, recorded in
the office of the County Clerk of Caldwell County, Kentucky, in Book 15 at Page
452, Landlord leased certain property described therein to Haller Incorporated
(the "Existing Lease").
B. By an Assignment dated as of November 1, 1975, recorded in the
Office of the County Clerk of Caldwell County in Book 17 at Page 421, Haller
Incorporated assigned the Existing Lease to the Tenant.
C. By a Supplemental Lease Agreement dated as of April 1, 1982, the
Landlord and Tenant amended the Existing Lease by excluding a two-acre parcel
from the terms thereof.
D. The initial term of the Existing Lease expired on August 31,
1990. Under the Existing Lease, the Tenant has the option of extending the
Existing Lease for five renewal terms, each with a duration of five years.
<PAGE>
2
E. The Tenant desires to exercise its option to extend the Existing
Lease and Landlord is willing to extend the Existing Lease upon the condition
that the Existing Lease be amended and restated in its entirety.
NOW, THEREFORE, in consideration of the following mutual covenants,
the parties hereby amend and restate the Existing Lease in its entirety as
follows:
ARTICLE 1
Premises
1.1 Premises
Landlord hereby leases to Tenant, and Tenant leases and hires from
Landlord, the parcel of real property described on Exhibit "A" annexed hereto,
together with all buildings, improvements and fixtures located thereon (the
"Premises").
1.2 Use of Premises
Tenant may use the Premises for industrial purposes as a factory,
mill, shop, processing plant, assembly plant or fabricating plant or for any
other lawful purpose. Tenant shall, at Tenant's sole cost and expense, obtain
all necessary permits and licenses relating to Tenant's use of the Premises.
<PAGE>
3
ARTICLE 2
Term of Lease
2.1 Initial Term
The initial term of this Lease shall commence on September 1, 1990
and shall expire on August 31, 1995.
2.2 Renewal Terms
Tenant is granted the option of extending the term of this Lease for
four (4) successive periods of five years each (herein individually referred to
as a "renewal term" and collectively as "renewal terms") upon condition that at
the date of commencement of each such renewal term there is no default by Tenant
in the performance of its obligations under this Lease beyond any applicable
period of notice and grace. In the event that Tenant desires to exercise its
option to extend the initial term or any subsequent renewal term, Tenant shall
give written notice of its intention to exercise its option 90 days prior to the
expiration of the initial term or renewal term, as the case may be. The word
"term" shall, unless otherwise provided to the contrary, be deemed to include
the initial and any renewal term.
2.3 Surrender of Premises
At the expiration of the term of this Lease, Tenant shall surrender
the Premises, together with all buildings, improvements and fixtures located
thereon, except for the personal property of and equipment of Tenant, in good
condition and broom clean, reasonable wear and tear and damage by fire or
casualty excepted. Tenant shall also remove any signs from the Premises and
repair any damage caused to the Premises by the removal of any sign.
<PAGE>
4
ARTICLE 3
Rent
3.1 Fixed Rent
(a) The annual rent during the initial term and subsequent
renewal terms shall be as follows:
Year Annual Rent
---- -----------
1 $ 7,500
2 7,500
3 7,500
4 7,500
5 7,500
6 8,500
7 9,500
8 10,500
9 11,500
10 12,500
11 13,500
12 14,500
13 and each year 15,000
thereafter until
the end of all
renewal terms
(b) Fixed rent shall be payable annually in advance on the
first day of September of each year during the term of this Lease. In the event
that Tenant at any time exercises its option to purchase the Premises in
accordance with Article 19 hereof, any unearned rent previously prepaid shall be
credited toward the purchase price due under Article 19.
<PAGE>
5
3.2 Additional Rent
The Tenant shall pay as additional rent all other sums of money or
charges required to be paid by Tenant under any other Article of this Lease,
whether or not the same be designated "additional rent". If such amount or
charges are not paid at the time provided in this Lease, they shall
nevertheless, if not paid when due, be collectible as additional rent with the
next installment of rent thereafter falling due hereunder, but nothing herein
shall be deemed to suspend or delay the payment of any money or charge at the
time the same becomes due and payable hereunder, or limit any other remedy of
the Landlord.
3.3 Past Due Rent and Additional Rent
If Tenant shall fail to pay, when the same is due and payable, the
fixed rent or any additional rent, such unpaid amounts shall bear interest from
the due date thereof to the date of payment at an annual rate equal to the Prime
Rate of interest, as published in The Wall Street Journal, plus one (1) percent
per annum.
3.4 Lease Year
The term "lease year" means twelve calendar months, beginning on
September 1 of each year and expiring on August 31 of the next year.
ARTICLE 4
Alteration of
Premises by Tenant
4.1 Alteration of Premises
Tenant may, at Tenant's sole cost and expense, alter the Premises
for Tenant's use and occupancy. Tenant, at Tenant's sole cost and expense, shall
obtain
<PAGE>
6
all permits required by law prior to commencing alterations on the Premises and
shall perform or cause to be performed all alterations in compliance with all
applicable laws, codes, rules and regulations of all governmental entities
having jurisdiction.
ARTICLE 5
Utilities
5.1 Utilities
Tenant shall pay for all of its gas, steam, water, electricity and
other utility costs, and heating and air conditioning costs in connection with
the Premises.
ARTICLE 6
Insurance
6.1 All Risks Insurance
Tenant, at its option, may insure the Premises and all improvements
thereon against loss or damage by risks now or hereafter embraced by "All Risks"
coverage in amounts deemed appropriate by Tenant. Tenant shall pay all premiums
and other costs and expenses associated with such insurance coverage.
6.2 Liability Insurance
Tenant, at its sole cost and expense, for the mutual benefit of
Landlord and Tenant, shall maintain personal injury and property damage
liability insurance against claims for bodily injury, death or property damage
with combined limits of not less than $5,000,000. The insurance required by this
Section 6.2 shall be obtained under valid and enforceable policies issued by
insurers of recognized responsibility which are licensed to do business in the
State of Kentucky. At
<PAGE>
7
Landlord's request, the original of the policy or certificates of insurance
bearing notations evidencing the payment of premiums or accompanied by other
evidence satisfactory to Landlord of such payment shall be delivered by Tenant
to Landlord.
All policies of liability insurance required under this Section 6.2
shall name Landlord as an insured. Each such policy shall contain a provision
that such policy shall not be cancelled without at least thirty (30) days prior
written notice to Landlord.
6.3 Other Insurance
Tenant, at its sole cost and expense, may as its option maintain
separate insurance coverages for its benefit on Tenant's leasehold improvements
and Tenant's personal property in such amounts as Tenant deems appropriate.
ARTICLE 7
Taxes
7.1 Exemption From Taxes
Landlord and Tenant acknowledge and understand that, so long as the
Premises is owned by Landlord, the Premises should be exempt from ad valorem
taxes. During the term of this Lease, Landlord will retain title to the
Premises, except as otherwise expressly provided herein, and will take no action
of any kind whatsoever which may tend to result in the assessment of ad valorem
taxes on the Premises. Should any such levy or assessment be threatened or
occur, Landlord will cooperate with Tenant in all reasonable ways to contest any
such levy on assessment.
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8
If, however, any taxes, assessments, or other governmental charges shall be
levied upon the Premises, the provisions of this Article 7 shall apply thereto.
7.2 Payment of Taxes, Assessments, Etc.
As additional rent, Tenant shall pay, before any fine, penalty,
interest or cost may be added thereto or become due or be imposed by operation
of law for the non-payment thereof, all real estate taxes and assessments (if
the Premises is not exempt therefrom), water and sewer rents, rates and charges,
and other governmental charges, general and special, ordinary and extraordinary,
unforeseen and foreseen, of any kind and nature whatsoever, including
payments-in-lieu thereof, which at any time during the term of this Lease may be
assessed, levied, confirmed, imposed upon, or become due and payable out of or
in respect of, or become a lien on, the Premises or any part thereof or any
appurtenance thereto (all such taxes, assessments, water and sewer rents, rates
and charges, and other governmental charges, or payments-in-lieu thereof, being
hereinafter referred to as "Impositions") provided, however that if, by law, any
Imposition may at the option of the taxpayer be paid in installments (whether or
not interest shall accrue on the unpaid balance of such Imposition), Tenant may
elect to pay the same (and any accrued interest on the unpaid balance of such
Imposition) in installments and, in such event, shall pay such installments as
may become due during the term of this Lease as the same respectively become due
and before any fine, penalty, further interest or cost may be added thereto.
<PAGE>
9
7.3 Tax Receipts
Tenant will furnish to Landlord, at Landlord's request, official
receipts of the appropriate taxing authority, or other evidence satisfactory to
Landlord, evidencing the payment of all Impositions.
7.4 Right of Tenant to Contest
Tenant shall have the right to contest the amount or validity, in
whole or in part, of any Imposition by appropriate proceedings diligently
conducted in good faith. Upon the termination of any such proceedings, Tenant
shall pay the amount of such Imposition or part thereof as finally determined in
such proceedings, the payment of which may have been deferred during the
prosecution of such proceedings, together with any costs, fees, interest,
penalties or other liabilities in connection therewith.
Tenant shall have the right to seek a reduction in the valuation of
the Premises assessed for tax purposes and to apply for or pursue any exemption
available for the Premises. To the extent to which any tax refund payable as a
result of any proceeding in the nature of certiorari which Tenant may institute,
or payable by reason of compromise or settlement of any such proceedings, may be
based upon a payment made by Tenant, Tenant shall be authorized to collect the
same, subject to Tenant's obligation to promptly reimburse Landlord for any
expenses and fees incurred by Landlord in connection therewith or any
apportionment due to Landlord hereunder.
Landlord shall not be required to join in any proceedings referred
to above unless the provisions of any law, rule or regulation at the time in
effect shall
<PAGE>
10
require that such proceedings be brought by and/or in the name of Landlord or
any owner of the Premises, in which event Landlord shall join in such
proceedings or permit the same to be brought in its name provided that Landlord
shall not be subjected to any liability for the payment of any costs or expenses
in connection with any such proceedings, and Tenant will indemnify and save
harmless Landlord for any such costs and expenses. Except as otherwise provided
in this Lease, Tenant shall be entitled to any refund of any Imposition and
penalties or interest thereon received by Landlord which have been paid by
Tenant, or which have been paid by Landlord but previously reimbursed in full by
Tenant.
ARTICLE 8
Repairs and Maintenance
8.1 Repairs and Maintenance of the Premises by Tenant
Throughout the term of this Lease, Tenant, at its sole cost and
expense, shall have the right to repair and replace the building and all other
improvements on the Premises. Landlord shall have no obligation under this Lease
to repair and replace the building, equipment, fixtures, heating, air
conditioning, ventilating, plumbing apparatus, sanitary pipes and drains,
waterlines, electric fixtures and related equipment, or other personal property
used in the operation of the Premises. The cost of any repairs or maintenance
undertaken by Tenant during the term hereof shall be borne solely by Tenant.
<PAGE>
11
8.2 Other obligations
Landlord shall have no obligation to maintain the sidewalks,
driveways and parking areas on the Premises or to keep them free of dirt,
rubbish, snow, and unlawful obstructions.
ARTICLE 9
Changes, Alterations and New Construction by Tenant
9.1 Changes, Alterations and New Construction by Tenant Tenant shall
have the right during the term of this Lease to make, at its sole cost and
expense, changes and alterations in or to any building on the Premises, subject,
however, in all cases to the following:
(a) No change or alteration shall be undertaken by Tenant
until Tenant shall have procured and paid for, so far as the same may be
required from time to time, all permits and authorizations of all municipal
departments and governmental subdivisions having jurisdiction. Landlord shall
join in the application for such permits or authorizations whenever such action
is necessary.
(b) Any change or alteration shall be made in compliance with
all applicable permits and authorizations and building and zoning laws and with
all other applicable laws, ordinances, orders, rules, regulations and
requirements of all federal, state and municipal governments, departments,
commissions, boards and officers, any national or local Board of Fire
Underwriters, or any other body hereafter exercising functions similar to those
of any of the foregoing.
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12
(c) The cost of any such change or alteration shall be paid by
Tenant.
ARTICLE 10
Damage by Fire
10.1 Restoration of Premises
The parties hereto mutually agree that if the building or other
improvements erected or to be erected upon the Premises are partially or totally
destroyed or damaged by fire or other hazard, the Landlord shall have no
obligation to repair or restore such building or improvements. The Tenant shall
be entitled to repair and restore the Premises provided it bears all costs
associated therewith.
In the event the improvements erected upon the Premises are
completely or partially destroyed or so damaged by fire or other hazard that
they cannot reasonably be used by Tenant or can only be partially used by
Tenant, there shall be no abatement of rent.
ARTICLE 11
Eminent Domain
11.1 Eminent Domain
In the event that the Premises, or any part thereof, shall be taken
by exercise of the right of condemnation or eminent domain or by sale under
threat of condemnation or in lieu thereof (collectively herein referred to as
"Condemnation Proceedings"), Tenant shall be entitled to collect from any
condemnor the entire award that may be made in any such proceeding, subject to
Landlord's rights as set
<PAGE>
13
forth in this Article 11. Landlord agrees to execute any and all further
documents that may be required in order to facilitate collection by Tenant of
any and all such awards. Landlord further agrees, insofar as it may lawfully do
so, that it will not during the term hereof condemn or attempt to condemn the
Premises or any part thereof.
11.2 Total Taking
If at any time during the term of this Lease title to the whole or
materially all of the Premises shall be taken in Condemnation Proceedings, this
Lease shall terminate and expire on the date of such taking and the fixed rent
provided to be paid by Tenant shall be apportioned and paid to the date of such
taking. In such event, (a) Tenant shall be entitled to receive any apportionment
of any other charges theretofore paid or payable by Tenant hereunder and (b)
Landlord shall be entitled to receive the sum of $10,000 out of the condemnation
award, with Tenant retaining the balance thereof.
11.3 Partial Taking
If title to less than substantially all of the Premises shall be
taken by Condemnation Proceedings, this Lease shall continue without abatement
or reduction in rent payable hereunder. The Tenant may, in its discretion and at
its sole cost and expense, restore the Premises to substantially the same
condition prior to the condemnation using the proceeds of the condemnation
award.
<PAGE>
14
ARTICLE 12
Bankruptcy and Default Provisions
12.1 Events of Default
Any one or more of the following events shall constitute an "event
of default" under this Lease:
(a) If Tenant shall fail to pay any installment of the fixed
annual rent, or additional rent or any part thereof when the same shall become
due and payable, and such failure shall continue for five (5) days after written
notice from Landlord; or
(b) If Tenant shall fail to pay any other charge required to
be paid by Tenant hereunder, and failure shall continue for fifteen (15) days
after notice thereof from Landlord to Tenant; or
(c) If Tenant shall fail to perform or observe any other
requirement of this Lease and such failure shall continue for thirty (30) days
after notice thereof from Landlord to Tenant.
Upon the happening of any one or more of the aforementioned events
of default, and the expiration of the period of time prescribed in any such
notice of default, Landlord may give Tenant a notice (hereinafter called "notice
of termination") of its intention to end the term of this Lease at the
expiration of ten (10) days from the date of service of such notice of
termination, and at the expiration of such ten (10) days, if the event of
default has not then been cured and if Tenant has not then exercised its option
to purchase under Article 19, this Lease shall wholly
<PAGE>
15
cease and expire, and Tenant shall then quit and surrender the Premises to
Landlord, but Tenant shall remain liable as hereinafter provided.
12.2 Landlord's Remedies
(a) If this Lease shall be terminated as provided in paragraph
12.1, Landlord or Landlord's agents or employees may immediately or at any time
thereafter re-enter the Premises and remove the Tenant, its agents, employees,
servants, licensees, and any subtenants and other persons, firms or
corporations, and all or any of its or their property, either by summary
dispossess proceedings or by any suitable action or proceeding at law or by
force or otherwise, without being liable to indictment, prosecution or damages
therefor, and repossess and enjoy said Premises, together with all alterations,
additions and improvements thereto.
(b) In case of any such termination, re-entry or dispossess by
summary proceedings or otherwise, the rents and all other charges required to be
paid up to the time of such termination, re-entry or dispossess, shall be paid
by Tenant and Tenant shall also pay to Landlord all expenses which Landlord may
then or thereafter incur for legal expenses, attorneys' fees, brokerage
commissions and all other costs paid or incurred by Landlord for restoring the
Premises to good order and condition and for altering and otherwise preparing
the same for reletting. Landlord may, at any time and from time to time, relet
the Premises, in whole or in part, for any rental then obtainable either in its
own name or as agent of Tenant, for a term or terms which, at Landlord's option,
may be for the remainder of the then current term of this Lease or for any
longer or shorter period.
<PAGE>
16
(c) If this Lease be terminated, Tenant nevertheless covenants
and agrees, notwithstanding any entry or reentry by Landlord whether by summary
proceedings, termination or otherwise, to pay and be liable for on the days
originally fixed herein for the payment thereof, amounts equal to the several
installments of fixed rent and additional rent as they would, under the terms of
this Lease, become due if this Lease had not been terminated or if Landlord had
not entered or re-entered as aforesaid, and whether the Premises be relet or
remain vacant in whole or in part or for a period less than the remainder of the
term, and for the whole thereof, but in the event the Premises be relet by
Landlord, Tenant shall be entitled to a credit in the net amount of rent
received by Landlord in reletting the Premises after deduction of all expenses
and costs incurred or paid in reletting the Premises and in collecting the rent
in connection therewith.
(d) No failure by Landlord or Tenant to insist upon the strict
performance of any covenant, agreement, term or condition of this Lease or to
exercise any right or remedy consequent upon a breach thereof, and no acceptance
of full or partial rent during the continuance of any such breach, shall
constitute a waiver of any such breach or of such covenant, agreement, term or
condition. No waiver of any breach shall affect or alter this Lease, but each
and every covenant, agreement, term and condition of this Lease shall continue
in full force and effect with respect to any other then existing or subsequent
breach thereof.
(e) In the event of any breach or threatened breach by either
party of any of the covenants, agreements, terms or conditions contained in this
Lease, the other party shall be entitled to enjoin such breach or threatened
breach and
<PAGE>
17
shall have the right to invoke any right and remedy allowed at law or in equity
or by statute or otherwise.
(f) Each right and remedy of Landlord and Tenant provided for
in this Lease shall be cumulative and shall be in addition to every other right
or remedy provided for in this Lease or now or hereafter existing at law or in
equity or by statute or otherwise.
ARTICLE 13
Mechanic's Liens
13.1 Mechanic's Liens
Tenant agrees to pay when due all sums of money that may become due
for any labor, services, materials, supplies or equipment furnished or to be
furnished to or for Tenant in, upon or about the Premises.
If any mechanic's liens shall be filed against the Premises based
upon any act of Tenant or anyone claiming through Tenant, Tenant shall indemnify
and hold harmless the Landlord therefrom.
ARTICLE 14
Assignments and Transfers of Tenant's Interest
14.1 Assignment
The Tenant may assign or transfer this Lease or sublet the whole or
any part of the Premises without the consent of the Landlord provided that (a)
there shall have been delivered to Landlord an agreement, in recordable form,
executed by Tenant and the proposed assignee, wherein and whereby such assignee
assumes the
<PAGE>
18
due performance of the obligations on Tenant's part to be performed under this
Lease to the end of the term hereof, and (b) the assignee is authorized to
conduct business in the State of Kentucky.
Upon the assumption by the assignee of due performance of Tenant's
obligations under this Lease, the Tenant shall be relieved of and released from
any further liability or obligation arising under this Lease.
ARTICLE 15
Compliance with Governmental Orders
15.1 Tenant to Comply
Tenant at its own expense shall promptly execute and comply with all
statutes, ordinances, rules, orders, regulations and requirements of the
Federal, State and Local Governments and of any and all other departments and
bureaus applicable to the Premises for the correction, prevention and abatement
of all nuisances, violations or other grievances in, upon or connected with the
Premises (herein referred to as "Government Orders") during the term of this
Lease.
ARTICLE 16
Subordination to Mortgages
16.1 Subordination to Mortgages
This Lease and all the rights of the Tenant hereunder are and shall
be automatically subject and subordinate to the lien of any mortgage or
mortgages, which may now or hereafter affect the Premises and to all renewals,
modifications, consolidations, replacements and extensions thereof, provided,
however that (a) such
<PAGE>
19
mortgage or mortgages shall provide that in any foreclosure proceeding
thereunder and in any sale pursuant to a power contained in such a mortgage and
any sale in such foreclosure proceeding this Lease shall not be cut off nor
Tenant's position hereunder disturbed in or by such foreclosure proceeding,
provided that at the time this Lease shall be in full force and effect and not
in default as to rent or other covenants thereof; or (b) an agreement embodying
such provision shall be entered into by the mortgagee or mortgagees and Tenant
within a reasonable time after the execution and delivery of this Lease.
Notwithstanding the foregoing, Landlord shall not mortgage or otherwise
voluntarily encumber the Premises without the prior written consent of Tenant.
ARTICLE 17
Notices and Certificates
17.1 Notices and Certificates
Any notice, statement, certificate, request or demand required or
permitted to be given in this Lease, unless personally served, shall be in
writing sent by registered or certified mail, postage prepaid, return receipt
requested, addressed, as the case may be, to Landlord at the address shown at
the beginning of this Lease, and to Tenant at the address shown at the beginning
of this Lease, or to such other addresses as Landlord or Tenant shall designate
in the manner herein provided. Such notice, statement, certificate, request or
demand shall be deemed to have been given three days after the date mailed by
certified mail, return receipt requested, postage
<PAGE>
20
prepaid, in any post office or branch post office regularly maintained by the
United States Government.
17.2 Certificate by Landlord
Within fifteen days after request by Tenant, Landlord, from time to
time and without charge, shall deliver to Tenant or to a person, firm or
corporation specified by Tenant, a duly executed and acknowledged instrument,
certifying:
(a) that this Lease is unmodified and in full force and
effect, or if there has been any modification, that the same is in full force
and effect, as modified, and stating any such modification; and
(b) whether Landlord knows or does not know, as the case may
be, of any default by Tenant in the performance by Tenant of the terms,
covenants and conditions of this Lease, and specifying the nature of such
defaults, if any.
Such certification shall not estop Landlord from thereafter
asserting any existing default of which Landlord did not have actual knowledge
on the date of execution thereof.
17.3 Certificate by Tenant
Within fifteen days after request by Landlord, Tenant, from time to
time and without charge, shall deliver to Landlord or to a person, firm or
corporation specified by Landlord, a duly executed and acknowledged instrument,
certifying:
(a) that this Lease is unmodified and in full force and
effect, or if there has been any modification, that the same is in full force
and effect, as modified, and stating any such modification; and
<PAGE>
21
(b) whether or not there are any then existing setoffs or
defenses by Tenant to the enforcement by Landlord of the terms, covenants and
conditions of this Lease and any modification thereof, and if so, specifying
them; and
(c) the dates to which the fixed rent has been paid.
ARTICLE 18
Covenant of Quiet Enjoyment
18.1 Covenant of Quiet Enjoyment
Tenant, subject to the terms and provisions of this Lease, on
payment of the rent and observing, keeping and performing all of the terms and
provisions of this Lease on its part to be observed, kept and performed, shall
lawfully, peaceably and quietly have, hold and enjoy the Premises during the
term hereof without hindrance or ejection by any persons lawfully claiming under
Landlord.
ARTICLE 19
Option to Purchase
19.1 Option to Purchase
The Tenant shall have the option to purchase the Premises from the
Landlord at any time during the initial term and any renewal term of this Lease,
upon at least 60 days' written notice to the Landlord. Such option to purchase
may be exercised by payment of the purchase price of Ten Thousand Dollars
($10,000), which amount shall be paid to the Landlord. Upon exercise by the
Tenant of an option to purchase the Premises as provided herein, this Lease
shall be terminated.
<PAGE>
22
19.2 Conveyance on Exercise of Option to Purchase
At the closing of any purchase of the Premises pursuant to
Paragraph 19.1 hereof, the Landlord will, upon payment of the purchase price,
deliver a special warranty deed conveying to the Tenant good and marketable
title to the property being purchased, as such property then exists, including
the rights, alleys, ways, waters, privileges, appurtenances and advantages to
the same belonging or appertaining, subject to the following: (i) any liens,
easements and encumbrances to which title to said property was subject when
acquired by the Landlord; (ii) any liens, easements and encumbrances created at
the request of the Tenant or to the creation of suffering of which the Tenant
consented in writing; (iii) any liens and encumbrances resulting from the
failure of the Tenant to perform or observe any of the agreements on its part
contained in this Lease; (iv) any liens for taxes or assessments, if any.
ARTICLE 20
Miscellaneous Provisions
20.1 Holdover
Should the Tenant continue to occupy the Premises after the
expiration or termination of the term hereof, whether with or against the
consent of the Landlord, such tenancy shall be from month-to-month, and such
month-to-month tenancy shall be under all the terms, covenants and conditions of
this Lease.
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23
20.2 Landlord May Pay Tenant's Obligations
All costs and expenses which Tenant assumes or agrees to pay under
the provisions of this Lease shall at Landlord's election be treated as
additional rent and, in the event of non-payment, Landlord shall have all the
rights and remedies herein provided for in case of non-payment of rent or of a
breach of covenant. If Tenant shall default in making any payment required to be
made by Tenant (other than the payment of rent as provided by Article 3 above)
or shall default in performing any term, covenant or condition of this Lease on
the part of Tenant to be performed which shall involve the expenditure of money
by Tenant, Landlord at Landlord's option may, but shall not be obligated to,
make such payment or, on behalf of Tenant, expend such sum as may be necessary
to perform and fulfill such term, covenant or condition, and any and all sums so
expended by Landlord, with interest thereon at the prime rate of interest as
published in The Wall Street Journal plus 1% per annum from the date of such
expenditure, shall be and be deemed to be additional rent, in addition to the
rent provided in Article 3 above, and shall be repaid by Tenant to Landlord, on
demand. No such payment or expenditure by Landlord shall be deemed a waiver of
Tenant's default nor shall it affect any other remedy of Landlord by reason of
such default.
20.3 Indemnification by Tenant
Tenant does hereby indemnify Landlord and save it harmless from and
against any and all claims, actions, damages, liabilities and expenses in
connection with loss of life, personal injury and/or damage to property arising
from or out of any occurrence in, upon or at the Premises, or the occupancy or
use by Tenant of the
<PAGE>
24
Premises or any part thereof, or occasioned wholly or in part by any act or
omission of Tenant, its agents, contractors, employees, servants, lessees or
concessionaires. In case Landlord shall, without fault on its part, be made a
party to any litigation commenced by or against Tenant, then Tenant agrees to
protect and hold Landlord harmless and to pay all costs, expenses, and
reasonable attorney's fees incurred or paid by Landlord in connection with such
litigation. Tenant agrees also to pay all costs, expenses and reasonable
attorney's fees that may be incurred or paid by Landlord in connection with such
litigation. Each party agrees also to pay all costs, expenses and reasonable
attorney's fees that may be incurred or paid by the other party in mutually
enforcing the covenants and agreements in this Lease.
20.4 Captions
The captions or legends on this Lease are inserted only for
convenient reference or identification of the particular paragraphs. They are in
no way intended to describe, interpret, define or limit the scope, extent or
intent of this Lease, or any paragraph or provision thereof.
20.5 Tenant Authorized to Do Business in Kentucky
Tenant represents and covenants that it is and throughout the term
of this Lease shall be authorized to do business in the State of Kentucky.
20.6 Memorandum of Lease
Landlord and Tenant agree to record this Lease or a Memorandum of
Lease in accordance with the laws of the State of Kentucky.
<PAGE>
25
20.7 Law Governing, Effect and Gender
This Lease shall be construed in accordance with the laws of the
State of Kentucky and shall be binding upon the parties hereto and their
respective legal representatives, successors and assigns except as expressly
provided otherwise. Use of the neuter gender shall be deemed to include the
masculine and feminine, as the sense requires.
20.8 Complete Agreement
This Lease contains and embraces the entire Agreement between the
parties hereto and it or any part of it may not be changed, altered, modified,
limited, terminated, or extended orally or by any agreement between the parties
unless such agreement be expressed in writing, signed and acknowledged by the
parties hereto, their legal representatives, successors or assigns, except as
may be expressly otherwise provided herein. This Lease amends and restates the
Lease Agreement dated September 1, 1970 between Landlord and Haller Incorporated
and later assigned to Tenant, as amended and supplemented.
20.9 Force Majeure
The period of time during which either party is prevented or delayed
in the performance of the making of any improvements or repairs or fulfilling
any obligation other than the payment of rent, additional rent and other charges
required under this Lease due to unavoidable delays caused by fire, catastrophe,
strikes or labor trouble, civil commotion, Acts of God or the public enemy,
governmental prohibitions or regulations or inability to obtain materials by
reason thereof, or other
<PAGE>
26
causes beyond such party's reasonable control, shall be added to such party's
time for performance thereof, and such party shall have no liability by reason
thereof.
20.10 Environmental Laws
Tenant shall indemnify the Landlord from and against any liability
which may be incurred by reason of a violation of any law, code, rule, or
regulation of any state, county or local governmental entity now or hereafter
enacted relating to the environment.
20.11 Payments to be Net to Landlord. All payments payable by Tenant
to Landlord shall be absolutely net to Landlord. All costs, expenses and
obligations of every kind and nature whatsoever, foreseen or unforeseen,
relating to the Premises which may arise or become due shall be paid by Tenant
and Tenant shall indemnify and save Landlord harmless from and against these
expenses.
IN WITNESS WHEREOF, the parties hereto have executed this Lease
Agreement on the date first above written.
CITY OF PRINCETON, KENTUCKY
By:________________________________
SPECIAL METALS CORPORATION
By:________________________________
<PAGE>
EXHIBIT 10.14
SPECIAL METALS CORPORATION
Equity Appreciation Rights Plan
Dated December 6, 1989
Section 1. Establishment, Purpose, and Effective Date of Plan
1.1 Establishment. Special Metals Corporation, a Delaware corporation (the
"Company") hereby establishes a long-term executive compensation program
for selected Executives, which shall be known as the Special Metals
Corporation Equity Appreciation Rights Plan (the "Plan").
1.2 Purpose. In recognition of individual contributions to the continued
growth and profitability of the Company, the Plan will provide
participating Executives with a share in the appreciation of the value of
the Company. Equity Appreciation Rights shall be granted to Participants
pursuant to the discretion of the Administrator and shall be exercisable
by Participants for payment in cash.
1.3 Effective Date. The Plan shall become effective as of January 1, 1990.
Section 2. Eligibility and Participation
2.1 Eligibility and Participation. Participants in the Plan shall be selected
by the Administrator from among those Executives of the Company who, in
the opinion of the Administrator, are in a position to contribute
materially to the Company's continued growth and development and to its
long-term financial success.
Section 3. Definitions
3.1 Definitions. Whenever used herein, the following terms shall have their
respective meanings set forth below:
(a) "Adminstrator" means the Compensation Committee of the Board of
Directors of the Company or such other person or entity designated
by the Administrator.
(b) "Book Value" at any date means total assets of the Company minus
total liabilities of the Company and is computed as Initial Book
Value (as defined in Section 3.1(k)) plus aggregate net income of
the Company to date.
At the discretion of the Administrator, the calculation of Book
Value shall be equitably adjusted to reflect the impact on the
Company's financial statements of the occurrence of certain events,
including a
<PAGE>
recapitalization, merger, consolidation, acquisition, divestiture
and other similar types of corporate transactions.
(c) "Book Value Per Unit" means Book Value divided by 10,000,000.
(d) "Change of Control" shall mean any one transaction or series of
related transactions which causes the ownership of all or
substantially all of the then assets of the Company to be
transferred or beneficial ownership or voting rights with respect to
more than fifty percent (50%) of the then outstanding capital stock
of the Company to be transferred. Such transaction or transactions
shall include without limitation (i) consolidation or merger of the
Company with or into another corporation; (ii) the sale or transfer
of more than one-half of the value or voting power of the stock of
any subsidiary or affiliated corporation of the Company or the
product of a taxable or non-taxable spin-off, split-up or split-off;
(iii) the creation of a voting trust; (iv) any other method
excluding sales or transfers of shares by or between current share-
holders; or (v) effective change of control from Aubert et Duval to
another entity. Change of Control shall not include any transaction
or series of related transactions within Aubert et Duval or between
the shareholders of Aubert et Duval.
(e) "Company"means Special Metals Corporation, a Delaware corporation,
and shall include any subsidiary, 50% or more of the outstanding
voting stock of which is owned, directly or indirectly, by the
Company, unless otherwise indicated by the context.
(f) "Disability" of a Participant will be determined by the
Administrator in his sole discretion, using criteria uniformly
applied under the disability provisions of the Company's disability
plan.
(g) "Equity Appreciation Right" means a right to receive cash granted
pursuant to Section 4.
(h) "Executive" means a key employee of the Company.
(i) "Exercise Date" means the date on which an Equity Appreciation Right
is exercised pursuant to Section 5.
(j) "Grant Date" means the date on which an Equity Appreciation Right is
granted.
-2-
<PAGE>
(k) "Initial Book Value" means the total shareholder equity of the
Company as of December 31, 1989 as stated in the Company's financial
statements prepared by an independent qualified public accountant.
(l) "Participant" means any Executive designated to participate in the
Plan pursuant to Subsection 2.1.
(m) "Retirement" means the termination of a Participant who has attained
the age of 65.
(n) "Termination Not-for-Cause" means the termination of a Participant's
employment by the Company, for reasons other than Retirement, death,
Disability, Termination-for-Cause, or termination upon
Change-of-Control.
(o) "Termination-for-Cause" means termination of the Participant's
employment by the Company, by written notice to the Participant,
specifying the event relied upon for such termination, due to (i)
the Participant's willful misconduct in respect of his duties for
the Company, (ii) conviction for a felony or willful neglect or an
act of common law fraud, (iii) material, knowing and intentional
failure to comply with applicable laws with respect to the execution
of the Company's business operations, (iv) theft, fraud,
embezzlement, dishonesty or similar conduct which has resulted or is
likely to result in material economic damage to the Company or any
of its affiliates or subsidiaries, or (v) dependence or addiction to
alcohol or use of drugs (except those legally prescribed by and
administered pursuant to the directions of a practitioner licensed
to do so under the laws of the state or country of licensure) which
in the opinion of the Administrator, interferes with the
Participant's ability to perform his assigned duties and
responsibilities.
3.2 Gender and Number. Except when otherwise indicated by the context, words
in the masculine gender when used in the Plan shall include the feminine
gender, the singular shall include the plural, and the plural shall
include the singular.
Section 4. Equity Appreciation Rights
Each Equity Appreciation Right shall reflect the appreciation in the Book Value
of the Company. The right to exercise Equity Appreciation Rights shall be
evidenced by Equity Appreciation Rights Agreements which are executed by the
Company and the Grantee Participants, subject to the following terms and
conditions:
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4.1 Grant. Equity Appreciation Rights shall be granted to the Participant at
such times and in such amounts as determined by the Administrator, acting
on the recommendation of the Chairman of the Board. The Participant must
execute the Equity Appreciation Rights Agreement (Appendix A) for the
Grant to be valid.
Section 5. Exercise of Equity Appreciation Rights
Each Equity Appreciation Right shall be exercised according to Sections 5.1 and
5.2, subject to the limitations set forth in Section 5.6.
5.1 Exercise Period. Each Equity Appreciation Right shall be exercisable for a
period commencing on the fifth anniversary following the Grant Date and
ending on the tenth anniversary following the Grant Date.
5.2 Payment of Value of Equity Appreciation Rights. Upon the exercise of
Equity Appreciation Rights, the Participant shall be entitled to payment
equal to the excess of the Book Value Per Unit measured at Exercise Date
over the Book Value Per Unit measured at Grant Date, multiplied by the
number of Equity Appreciation Rights to be exercised. This amount shall be
paid in cash as set forth in Section 5.3.
5.3 Form of Payment. Normally, amounts paid to a Participant pursuant to this
Section shall be paid to such Participant in the form of a single sum
payment. However, in the event that the Administrator, in its sole
discretion, determines it to be in the best interests of the Company, such
amounts shall be paid in 3 annual installments, the first of which shall
be paid as promptly as practicable after the exercise of the Equity
Appreciation Rights. Situations in which the Administrator may make such a
determination include, but are not limited to, circumstances whereby an
amount payable to a Participant under this Plan would cause a depletion of
the cash reserves of the Company below a level deemed to be prudent by the
Administrator, or other such payments would be inappropriate under the
circumstances. The Administrator shall not be arbitrary in making such a
determination, and shall at all times take actions which are equitable and
are consistent with the best interests of the Company.
5.4 Tax Withholding. Payments under the Plan shall be subject to applicable
federal, state, and local tax withholding requirements.
5.5 Interest Credit. In the event payment is deferred under Section 5.3, the
unpaid balance shall bear interest from the date the first installment is
paid until the date of payment of the applicable deferred installment at a
rate per annum equal to the next Prime Lending Rate which is reported in
the Wall Street Journal following the date the first installment is paid.
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5.6 Limitations on Exercise. Equity Appreciation Rights may not be exercised
prior to five years after the date of grant of such Equity Appreciation
Rights or after the Participant ceases to be an employee of the Company,
except that:
(a) If employment is terminated due to Retirement, all Equity
Appreciation Rights of the Participant which have been granted
will be immediately exercisable, without regard to the
five-year waiting period prescribed above, on the date of
Retirement until the earlier of (i) ninety (90) days after the
date of Retirement of the Participant, or (ii) the expiration
of the Exercise Period of the Equity Appreciation Rights.
(b) In the event of a Termination Not-For-Cause at the convenience
of the Company, the Company shall provide a notice of the
Participant's rights under this Plan as soon as possible after
the Participant's termination. The Equity Appreciation Rights
of the Participant, which have been granted up to the date of
termination, may be exercised without regard to the five-year
waiting period prescribed in this Section 5.6 for a period of
10 days following the receipt of this notice.
(c) In the event the Participant shall cease to be employed by the
Company by reason of Termination-for-Cause, the Participant
shall forfeit all rights under the Plan, including the right
to receive payment for all Equity Appreciation Rights which
have been granted but not exercised.
(d) In the event of the death of the Participant after a
termination of employment due to Retirement, but before the
expiration of the time limitations set forth in Section
5.6(a), all Equity Apprecia tion Rights which have been
granted as of the date of death will be immediately
exercisable, without regard to the five-year waiting period
prescribed in this Section 5.6, by the personal
representatives, heirs, or legatees of the Participant until
the earlier of (i) one (1) year after the date of termination
of the Participant or (ii) the expiration of the Exercise
Period of the Equity Appreciation Rights.
(e) In the event of the death of the Participant while still
employed with the Company, then all Equity Appreciation Rights
which have been granted as of the date of death will be
immediately exercisable, without regard to the five-year
waiting period prescribed in this Section 5.6, by the personal
representatives, heirs, or legatees of the Participant until
the earlier of (i) one
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(1) year after the date of the death of the Participant, or
(ii) the expiration of the Exercise Period of the Equity
Appreciation Rights.
(f) If employment is terminated or is interrupted by reason of a
Disability or a leave of absence, all Equity Appreciation
Rights which have been granted as of the date of Disability or
leave of absence shall be immediately exercisable without
regard to the five-year waiting period prescribed in this
Section 5.6 for a period of 60 days following the date of
termination of employment. At the request of the Participant,
the Board, in its sole discretion, may extend this period.
(g) In the event of a Change of Control, Participants of the Plan
shall be entitled to exercise all Equity Appreciation Rights
which have been granted and are then exercisable determined
without regard to the five year waiting period prescribed by
this Section 5.6 for a period of 60 days following the date
of Change of Control.
(h) The right to exercise Equity Appreciation Rights under normal
circumstances shall be made available to Participants on an
annual basis. Participants may exercise their Equity Apprecia-
tion Rights each year during the period commencing with the
issuance of the audited financial statements for the previous
fiscal year and ending 60 days after the date of issuance.
5.7 Non-Assignability. Equity Appreciation Rights granted under this Plan
shall be non-transferable by the Participant except by Will or the laws of
descent and distribution. Except as provided in Section 5.8, during the
Participant's lifetime, Equity Appreciation Rights shall be exercisable by
the Participant only.
5.8 Incapacity of Participant. In the event that (a) a Participant is declared
incompetent or (b) the Administrator in its sole discretion determines
that a Participant is unable to manage his financial affairs, and a legal
guardian is appointed, then all Equity Appreciation Rights granted, to the
extent exercisable by the Participant at the date the guardian is
appointed, shall be exercisable by such guardian in accordance with this
Section 5 within the time period specified in the event of Disability
under Section 5.6(f). At the request of the guardian so appointed, the
Board, in its sole discretion, may extend this period.
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5.9 Administration and Finally of Determinations. This Plan shall be
administered by, and any question of interpretation arising under this
Plan shall be determined by the Administrator, which may act on the
recommendation of the Chairman of the Board of the Company, and its
determination shall be final and conclusive upon all parties in interest.
Cash paid pursuant to this Plan shall be paid in consideration of services
performed by the Participant to or for the benefit of the Company.
5.10 No Control and Nature of Interest. The granting of Equity Appreciation
Rights to Participants under the provisions of the Plan represents only a
right to receive cash. Accordingly, the Plan grants no right to vote at
shareholder meetings, nor does the grant of an Equity Appreciation Right
convey an interest in, either express or implied, any equity or ownership
in the Company.
The grant of an Equity Appreciation Right will not convey to a Participant
any right as a shareholder to take part in the control or management of
the affairs of the Company, nor shall any Participant, acting either alone
or in accord, have any right or authority to act for or bind the Company,
or veto any action taken by the Board of Directors or any officer at the
Company, which is in excess of such management right or authority as is
customarily appropriate with respect to the duties and responsibilities of
the executive position held by such Participant in the normal course of
his employment with the Company or service as an officer or director
thereof.
Section 6. No Contract of Employment
6.1 Employment. Neither the establishment of the Plan nor the granting of any
Equity Appreciation Rights under the Plan shall interfere with or limit in
any way the right of the Company to terminate a Participant's employment
at any time, nor confer upon a Participant any right to continue in the
employ of the Company.
Section 7. Miscellaneous
7.1 Amendment, Modification, and Termination of Plan. The Administrator may at
any time terminate, and from time to time may amend or modify the Plan,
provided that no such action shall adversely affect any right or
obligation with respect to any Equity Appreciation Rights theretofore
granted.
7.2 Alienation. A Participant's rights, benefits, and interest under the Plan
shall not be subject to alienation, assignment, transfer, garnishment,
execution or levy of any kind. In the case of a Participant's death, the
Administrator shall
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make payment to the Participant's designated beneficiary, or in the
absence of such designation by will or the laws of descent and
distribution.
7.3 Unfunded Plan. The Plan shall be unfunded. The Company shall not be
required to segregate any assets that may be represented by shares of
Equity Appreciation Rights. The Company shall not be deemed to be a
trustee of any amounts to be paid to Participants from this Plan. Any
liability of the Company to pay any Participant with respect to Equity
Appreciation Rights shall be based solely upon any contractual obligations
created pursuant to the provisions of the Plan; no such obligation shall
be deemed to be secured by any pledge or encumbrance on any property of
the Company. However, the Company has the discretion at any time to
segregate such assets that may be represented by Equity Appreciation
Rights.
7.4 Governing Law. The Plan, and all agreements hereunder, shall be construed
in accordance with and governed by the laws of the State of New York
except to the extent superseded by federal law.
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APPENDIX A
SPECIAL METALS CORPORATION
Equity Appreciation Rights Agreement
THIS AGREEMENT between Special Metals ("Company"), a Delaware corporation
and ________________________________ ("Grantee").
WITNESSETH:
WHEREAS, the Board of Directors ("Board") of the Company has approved the
issuance of Equity Appreciation Rights to key employees pursuant to the Special
Metals Corporation Equity Appreciation Rights Plan ("Plan"); and
WHEREAS, the Grantee is a key employee of the Company and has been
selected to receive Equity Appreciation Rights under the Plan;
NOW, THEREFORE, in consideration of the premises, the Company and the
Grantee agree as follows:
I. GRANT OF EQUITY APPRECIATION RIGHTS
Subject to the terms and conditions set forth herein and in the Equity
Appreciation Rights Plan which is attached hereto and made a part hereof the
Grantee is hereby awarded ____________ Equity Appreciation Rights. For purposes
of this agreement, the Grant Date is _________________. Each Equity Appreciation
Right as of the Grant Date shall have a value equal to ______________________.
II. RESTRICTED RIGHTS
The Equity Appreciation Rights covered by this Agreement may not be
exercised prior to ________________ (five years following Grant Date) or after
_______________________ (ten years following Grant Date).
This Agreement conveys no right to the actual receipt or subscription of any
stock of the Company, any dividends thereon, or any other right or interest of a
shareholder, including voting rights.
III. EXERCISE AND PAYMENT
Subject to the limitations set forth in this Agreement, Equity
Appreciation Rights may be exercised on an annual basis by delivering written
notice to the Company at least 30 days prior to the date of exercise, on a form
provided by the Company, specifying the number of Equity Appreciation Rights the
Grantee then desires to exercise. The Company shall pay cash to the Grantee as
soon as practicable after such written notice is received by the Company.
<PAGE>
IV. GENERAL
Administration. Administration of this agreement will be governed by the
terms and conditions set forth in the Special Metals Corporation Equity
Appreciation Rights Plan in effect on the date of this Grant. That document is
incorporated in this Agreement in its entirety.
Notices. Every notice or other communication relating to the Agreement
shall be in writing, and shall be mailed to or delivered to the party for whom
it is intended at such address as may from time to time be designated by such
party. Unless and until some other address is so designated, all notices or
communications by the Grantee to the Company shall be mailed to Middle
Settlement Road, New Hartford, New York 13413, Attention: Chairman of the Board.
All notices by the Company to the Grantee may be delivered to the Grantee
personally or may be mailed to the Grantee at the address shown on the records
of the Company.
Withholding. The Company shall deduct from any payment of any kind due to
the Grantee, any federal, state or local taxes of any kind required by law to be
withheld with respect to the exercise of the Equity Appreciation Rights.
Interpretation. This Agreement is subject in all respects to the terms of
the Plan, and in the event that any provision of the Agreement shall be
inconsistent with the terms of the Plan, then the terms of the Plan shall
govern. Any question of interpretation arising under this Agreement shall be
determined by the Administrator and its determinations shall be final and
conclusive upon all parties in interest.
Counterparts. This Agreement may be executed in one or more counterparts,
each counterpart of which will be regarded for all purposes as an original.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day of , 19 .
By ____________________________________
SPECIAL METALS CORPORATION
Attest:
_____________________ _____________________________________
Grantee
<PAGE>
EXHIBIT 10.15
SPECIAL METALS CORPORATION
SUPPLEMENTAL RETIREMENT INCOME PLAN
Dated December 6, 1989
Article I
Establishment, Purpose and Effective Date of Plan
1.1 Establishment. Special Metals Corporation, a Delaware corporation (the
"Company") hereby establishes a supplemental executive retirement program
for a selected Executive, which shall be known as the Special Metals
Corporation Supplemental Retirement Income Plan (the "Plan").
1.2 Purpose. The purpose of the Plan is to provide supplemental retirement
income in excess of the limitations on benefits imposed by Section 415 of
the Internal Revenue Code to an executive who is selected by the Board of
Directors. Payment of the retirement benefits under this Plan will be made
from the general assets of the Company or by such other method as is
consistent with Section 5.2 of this plan and which is agreed to by the
Executive and the Company.
1.3 Effective Date. The Plan shall become effective as of January 1, 1990.
Article II
Definitions
2.1 Definitions. Whenever used herein, the following terms shall have their
respective meanings set forth below:
(A) "Average Compensation" means the average compensation for any 5
consecutive calendar years prior to the later of a Participant's
Normal Retirement Date of his actual retirement date resulting in
the highest annual average compensation for any such five year
period. For purposes of computing this average a Participant's last
full year's salary will be projected to his Normal Retirement Date
assuming 5% annual increases in compensation.
(B) "Beneficiary" means the person(s) properly designated to receive,
under provisions of the Plan, benefits payable in the event of a
Participant's death.
<PAGE>
(C) "Board" means the Board of Directors of the Company, or a committee
comprised of members of the Board of Directors assigned the
responsibility to administer the Plan.
(D) "Change of Control" shall mean any one transaction or series of
related transactions which causes the ownership of all or
substantially all of the then assets of the Company to be
transferred or beneficial ownership or voting rights with respect to
more than fifty percent (50%) of the then outstanding capital stock
of the Company to be transferred. Such transaction or transactions
shall include without limitation (i) consolida tion or merger of the
Company with or into another corporation; (ii) the sale or transfer
of more than one-half of the value or voting power of the stock of
any subsidiary or affiliated corporation of the Company or the
product of a taxable or non-taxable spin-off, split-up or split-off;
(iii) the creation of a voting trust; (iv) any other method
excluding sales or transfers of shares by or between current
shareholders; or (v) effective change of control from Aubert et
Duval to another entity. Change of Control shall not include any
transaction or series of related transactions within Aubert et Duval
or between the shareholders of Aubert et Duval.
(E) "Code" means the Internal Revenue Code of 1986 as amended from time
to time, and any regulations relating thereto.
(F) "Company" means Special Metals Corporation, a Delaware corporation,
and shall include any subsidiary, 50% or more of the outstanding
voting stock of which is owned, directly or indirectly, by the
Company, unless otherwise indicated by the context.
(G) "Compensation" means total income as reported on Form W-2, including
any amounts of income deferred under a qualified or non-qualified
deferred compensation plan. Compensation does not include any
contributions to a plan of nontaxable fringe benefits, employer
matching contributions to a qualified or non-qualified deferred
compensation plan, or contributions to or payments from a pension,
profit-sharing or similar plan.
(H) "Disability" of a Participant will be determined by the
Administrator in his sole discretion, using criteria uniformly
applied under the disability provisions of the Company's disability
plan.
(I) "Early Retirement" means the termination of a Participant's employ-
ment after completion of ten (10) years of service and attainment of
age 55.
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<PAGE>
(J) "Executive" means Dr. Donald R. Muzyka.
(K) "Normal Retirement" means the termination of a Participant's employ-
ment upon attaining age 65.
(L) "Normal Retirement Date" means the first day of the month coinciding
with or next following the date a Participant attains 65 years of
age.
(M) "Participant" means and Executive employee of the Company who falls
into the category specified in Sections 201(a)(2), 301(a)(3) and
401(a)(1) of the Employee Retirement Income Security Act of 1974,
and who is named under Section 2.1(J).
(N) "Plan" means the Special Metals Corporation Supplemental Retirement
Income Plan.
(O) "Plan Year" is January 1 through December 31.
(P) "Prior Plan" means the qualified retirement plan in effect as of
September 30, 1989 at the Participant's previous employer.
(Q) "Qualified Plan" means the Amended and Restated Pension Plan of
Special Metals Corporation effective October 1, 1987, and each
predecessor, successor or replacement salaried employees' retirement
plan.
(R) "Supplemental Retirement Benefit" means the benefit payable to a
Participant pursuant to Article IV of the Plan by reason of his
termination of employment with the Company and all affiliates for
any reason other than death. In the case of a Participant's death, a
benefit is payable as described in Section 4.5(C).
(S) "Surviving Spouse" means a person who is married to a Participant at
the date of his death and for at least one year prior thereto.
(T) "Termination Not-for-Cause" means the termination of a Participant's
employment by the Company, for reasons other than Normal Retirement,
Early Retirement, death, Disability, Termination-for-Cause, or
termination upon Change-of-Control.
(U) "Termination-for-Cause" means termination of the Participant's
employment by the Company, by written notice to the Participant,
specifying the event relied upon for such termination, due to (i)
the Participant's willful misconduct in respect of his duties for
the Company, (ii) conviction for a felony or willful neglect or an
act of
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<PAGE>
common law fraud, (iii) material, knowing and intentional failure to
comply with applicable laws with respect to the execution of the
Company's business operations, (iv) theft, fraud, embezzlement,
dishonesty or similar conduct which has resulted or is likely to
result in material economic damage to the Company or any of its
affiliates or subsidiaries, or (v) dependence or addiction to
alcohol or use of drugs (except those legally prescribed by and
administered pursuant to the directions of a practitioner licensed
to do so under the laws of the state or country of licensure) which
in the opinion of the Administrator, interferes with the
Participant's ability to perform his assigned duties and
responsibilities.
2.2 Gender and Number. Except when otherwise indicated by the context, words
in the masculine gender when used in the Plan shall include the feminine
gender, the singular shall include the plural, and the plural shall
include the singular.
Article III
Vesting
3.1 Vesting Schedule. The vesting schedules for the two retirement benefits
specified in Sections 4.1(A) and 4.1(B) are described below:
(A) Schedule. Except as provided in Sections 3.2, 3.3 and 4.5, the
Participant's right to receive his Supplemental Retirement Benefit
as described in Section 4.1(A) will become nonforfeitable in
accordance with the following schedule:
Years of Service Vested Percentage
---------------- -----------------
1 10%
2 20%
3 30%
4 40%
5 50%
6 60%
7 70%
8 80%
9 90%
10 100%
4
<PAGE>
(B) Schedule. Except as provided in Sections 3.2, 3.3 and 4.5, the
Participant's right to receive the benefit described in Section
4.1(B) will be nonforfeitable in accordance with the following
schedule:
Years of Service Vested Percentage
---------------- -----------------
1 20%
2 40%
3 60%
4 80%
After the Participant has completed 5 years of service, the
Participant shall not be entitled to receive the benefit described
in Section 4.1(B) under any circumstances, including those events in
Sections 3.2, 3.3 and 4.5 because he will then be entitled to a
benefit payable directly from the Qualified Plan.
3.2 Change of Control. Notwithstanding Section 3.1, in the event of a Change
of Control, a Participant's Supplemental Retirement Benefit shall become
100% vested.
3.3 Convenience of the Company. Notwithstanding Section 3.1, in the event the
Participant's employment is terminated solely due to convenience of the
Company, as determined by the Board, his Supplemental Retirement Benefit
shall become 100% vested.
Article IV
Supplemental Retirement Benefit
4.1 Amount. In general, the Supplemental Retirement Benefit payable to the
Participant at Normal Retirement Date pursuant to Section 4.2 and
calculated upon his date of termination as the sum of Sections 4.1(A) and
4.1(B) below is:
- Subject to the schedule in Section 3.1(A), an amount equal to
the projected retirement benefit from the Participant's
previous employer's plan ("Prior Plan"), minus the accrued
vested benefit from the Prior Plan, minus the accrued benefit
from the Company's Qualified Plan which has vested under
either Section 3.1(B) of this Plan or the terms of the
Qualified Plan; plus
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<PAGE>
- An amount equal to the accrued vested benefit from the
Company's Qualified Plan based on the schedule described in
Section 3.1(B).
The Supplemental Retirement Benefit as described above shall be an amount
equal to the sum of (A) and (B):
(A) The benefit under the Prior Plan calculated using the years of
service the Participant would have had remained in service until age
65 and the Average Compensation for the Participant at age 65, minus
the sum of (1) and (2).
(1) The Participant's vested accrued benefit under the Prior Plan
payable at age 65, and
(2) (a) If the Participant is 100% vested under the Qualified
Plan:
- The Accrued Benefit under the Qualified Plan as
of the date the Participant terminates employment;
or
(b) If the Participant is not 100% vested under the
Qualified Plan:
- An amount equal to the Accrued Benefit under the
Qualified Plan as of the date the Participant
terminates employment computed as if the
Participant became vested in that Accrued Benefit
at the rate of 20% per year for each year of
service.
(B) The Accrued Benefit under the Qualified Plan as of the date the
Participant terminates employment computed as if the Participant
became vested in the Accrued Benefit under the Qualified Plan as
specified in 3.1(B).
The portion of the Supplemental Retirement Benefit described in Section
4.1(B) shall be payable only if the Participant terminates employment
before the completion of five years of service, as defined in the
Qualified Plan.
Compensation which shall be used for the calculation of the Supplemental
Retirement Benefit is defined in Section 2.1(G). Average Compensation
which
6
<PAGE>
shall be used for the calculation of the portion of the Supplemental
Retirement Benefit based on the Prior Plan is defined in Section 2.1(A).
4.2 Form of Benefit. The Supplemental Retirement Benefit payable to a
Participant shall be paid in the form of a lump sum equal to the present
value of the vested Supplemental Retirement Benefit payable according to
this Article IV. The present value will be computed using a 6% interest
rate and the 1983 Group Annuity Mortality Table for males.
4.3 Commencement of Benefit. Payment of the Supplemental Retirement Benefit to
a Participant shall be made as soon as practicable after the Participant
terminates employment.
4.4 Approval of Company. Notwithstanding the provisions of Sections 4.2 and
4.3 above, an election made by the Participant with respect to the date
for payment of his Supplemental Retirement Benefit hereunder shall not be
effective unless such election is expressly approved in writing by the
Board. If the Board does not approve such election in writing, then the
date for payment of the Participant's Supplemental Retirement Benefit
shall be selected by the Board in its sole discretion, but the date
selected shall not be more than 90 days after the date elected by the
Participant.
4.5 Termination. In the event the Participant terminates employment for reason
other than Normal Retirement, a Participant shall be entitled to be paid
his Supplemental Retirement Benefit pursuant to this Article IV as
follows:
(A) Early Retirement. In the event a Participant terminates employment
by reason of Early Retirement, the Participant shall be entitled to
receive his Supplemental Retirement Benefit, reduced one-half of one
percent (1/2%) for each month by which the date on which payments
commence precedes the Participant's Normal Retirement Date.
(B) Disability. In the event a Participant terminates employment by
reason of Disability, the Participant's right to receive a benefit
under this Plan will become 100% vested and nonforfeitable and
payable pursuant to Sections 4.2, 4.3 and 4.4.
(C) Death. If a Participant dies prior to the commencement of any
benefit payments under this Plan, the Participant's Surviving Spouse
shall receive a benefit equal to the Participant's vested
Supplemental Retirement Benefit payable, had the Participant retired
at age 65 on the day prior to death. If a Participant dies with no
surviving Spouse, the Participant's estate or designated Beneficiary
will be entitled to receive the Participant's Vested Supplemental
Retirement Benefit.
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<PAGE>
(D) Termination Not-For-Cause. In the event a Participant terminates
employment by reasons other than death, Disability, Early
Retirement, Normal Retirement, termination due to Change of Control
or Termination-for-Cause, the Participant shall be entitled to be
paid the vested portion of his Supplemental Retirement Benefit, as
determined under Article III.
(E) Termination-for-Cause. Notwithstanding any other provision of the
Plan, in the event the Company terminates a Participant's employment
due to Termination-for-Cause, the Participant's Supplemental
Retirement Benefit will be forfeitable and the benefits under the
Plan will be payable only at the discretion of the Board. The Board
may in its sole discretion determine that no benefit, a reduced
benefit, or a full benefit as specified by the Plan, shall be
payable to the Participant.
(F) Change of Control. In the event a Participant terminates employment
by reason of Change of Control, the Participant's right to receive a
benefit under this Plan will become 100% vested and payable pursuant
to Sections 3.2, 4.2, 4.3 and 4.4.
Article V
General Provisions
5.1 Administration. The Board shall be responsible for the general operation
and administration of the Plan and for carrying out the provisions
thereof. The Board shall be entitled to rely conclusively upon all tables,
valuations, certificates, opinions and reports furnished by any actuary,
accountant, controller, counsel or other person employed or engaged by the
Company with respect to the Plan.
5.2 Funding. The Board, in its sole discretion, may elect to fund the benefits
payable under the plan through various investments. However, any such
investment shall remain the property of the Company and be subject to the
claims of general creditors of the Company. A Participant shall have no
right, title or interest in any such investments. A Participant may not
pledge as collateral any investments purchased to fund benefits under the
Plan. Nothing contained in the Plan shall constitute a guaranty by the
Company or any other entity or person that assets of the Company will be
sufficient to pay any benefit hereunder.
5.3 No Employment Contract. Nothing contained in the Plan shall be construed
as a contract of employment between the Company and a Participant or as a
right of any Participant to be continued in the employment of the Company
or as a
8
<PAGE>
limitation on the right of the Company to discharge any Participant with
or without cause.
5.4 Spendthrift Provision. No interest of any person or entity in, or right to
receive a benefit under, the Plan shall be subject in any manner to sale,
transfer, assignment, pledge, attachment, garnishment, or other alienation
or encumbrance of any kind; nor may such interest or right to receive a
benefit be taken, either voluntarily or involuntarily, for the
satisfaction of the debts of or other obligations or claims against, such
person or entity, including claims for alimony, support, separate
maintenance and claims in bankruptcy proceedings.
5.5 Applicable Law. The Plan shall be construed and administered under the
laws of the State of New York.
9
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
<TABLE>
<CAPTION>
JURISDICTION OF
NAME ORGANIZATION
- ---------------------------------------------------------------------------------- ----------------
<S> <C>
Udimet Special Metals Ltd......................................................... United Kingdom
Special Metals International Corporation.......................................... Delaware
Special Metals Foreign Sales Corporation.......................................... Barbados
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the caption 'Experts,' and to
the use of our reports dated February 14, 1996 (except for Note 19, as to which
the date is December 18, 1996) in the Registration Statement (Form S-1
No. 333- ) and related Prospectus of Special Metals Corporation dated
December 20, 1996.
/s/ Ernst & Young LLP
Buffalo, New York
December 20, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the Company's
balance sheets as of December 31, 1995 and September 30, 1996 and the Statements
of operations and retained earnings (accumulated deficit) for the year ended
December 31, 1995 and the nine months ended September 30, 1996 and is qualified
in its entirety by reference to such financial statement(s).
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-mos
<FISCAL-YEAR-END> DEC-31-1995 Dec-31-1996
<PERIOD-START> JAN-01-1995 Jan-01-1996
<PERIOD-END> DEC-31-1995 Sep-30-1996
<CASH> 2,612,797 1,067,728
<SECURITIES> 0 0
<RECEIVABLES> 26,969,181 29,069,445
<ALLOWANCES> (100,000) (50,000)
<INVENTORY> 39,056,340 46,474,297
<CURRENT-ASSETS> 69,000,690 80,721,801
<PP&E> 67,529,952 69,456,091
<DEPRECIATION> (33,970,491) (36,530,659)
<TOTAL-ASSETS> 106,944,928 119,976,380
<CURRENT-LIABILITIES> 33,221,522 33,626,240
<BONDS> 0 0
0 0
0 0
<COMMON> 26,000,000 26,000,000
<OTHER-SE> (10,333,835) 5,801,812
<TOTAL-LIABILITY-AND-EQUITY> 106,944,928 119,976,380
<SALES> 132,244,734 120,540,377
<TOTAL-REVENUES> 132,244,734 120,540,377
<CGS> 114,751,837 99,733,176
<TOTAL-COSTS> 119,959,028 103,455,754
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 4,726,797 3,096,210
<INCOME-PRETAX> 7,558,909 13,988,413
<INCOME-TAX> 353,590 (1,901,235)
<INCOME-CONTINUING> 7,205,319 15,889,648
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7,205,319 15,889,648
<EPS-PRIMARY> 0.58 1.28
<EPS-DILUTED> 0.58 1.28
</TABLE>
