<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 3, 1997
REGISTRATION NO. 333-18499
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
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 PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(2) OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share............................... 4,255,000 shares $17.00 $72,335,000 $21,920(3)
</TABLE>
(1) Includes shares issuable upon exercise of an over-allotment option granted
to the Underwriters.
(2) Estimated pursuant to Rule 457 solely for purposes of calculating the
registration fee.
(3) $3,132 of the registration fee is being paid herewith. $18,788 of such fee
was previously paid.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 FEBRUARY 3, 1997
3,700,000 SHARES
[LOGO]
COMMON STOCK
------------------------
OF THE 3,700,000 SHARES OF COMMON STOCK BEING OFFERED HEREBY, 3,000,000 SHARES
ARE BEING SOLD BY THE COMPANY AND 700,000 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 $15 AND $17. SEE 'UNDERWRITERS' FOR A DISCUSSION OF THE
FACTORS CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING
PRICE.
------------------------
THE COMMON STOCK HAS BEEN APPROVED FOR QUOTATION ON THE NASDAQ NATIONAL MARKET,
SUBJECT TO OFFICIAL NOTICE OF ISSUANCE, 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 $700,000.
(3) The Company has granted to the Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
555,000 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 and proceeds to
Company 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.
INCORPORATED
SALOMON BROTHERS INC
CREDIT LYONNAIS SECURITIES (USA) INC.
, 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....................................................................................... 53
Principal and Selling Stockholders......................................................................... 56
Description of Capital Stock............................................................................... 58
Shares Eligible for Future Sale............................................................................ 60
Certain United States Federal Tax Consequences To Non-United States Holders of Common Stock................ 61
Underwriters............................................................................................... 63
Legal Matters.............................................................................................. 65
Experts.................................................................................................... 65
Index to Financial Statements.............................................................................. F-1
</TABLE>
------------------------
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 for so long as required by applicable
law or regulation or by any securities exchange or other market upon which the
Common Stock is traded.
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,
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 $162.3 million in 1996. The Company's backlog was approximately $146.2
million at December 31, 1996 compared to approximately $81.8 million at December
31, 1995. Approximately 77% of the Company's net sales in 1996 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 1996, the Superalloy Billet and Bar Division, the Powder Division and
the Dental Division accounted for 86%, 10% and 4%, 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 $9.84
and $12.26 per pound shipped of superalloys and special alloys, respectively,
for 1996, compared to the average selling price of other metals such as carbon
steel and stainless steel, which currently range from $.20 to $4.00 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 available
capacity. As a result, since 1993, there have been significant increases in
market prices for
5
<PAGE>
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 Speednews, was 2,370 planes at December 31, 1996. 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 40 aircraft per month by the end of
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 1996 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 seven years (principally in 1990, 1991 and
1992), the Company invested over $28 million in new state-of-the-art forging,
melting and other 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 1996 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>
Common Stock offered by the Company............... 3,000,000 shares
Common Stock offered by the Selling
Stockholders.................................... 700,000 shares
Total........................................ 3,700,000 shares
Common Stock to be outstanding after the
Offering(1)..................................... 15,400,000 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.'
Nasdaq National Market symbol..................... 'SMCX'
</TABLE>
- ------------------
(1) Does not include 800,000 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 Incentive 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. 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>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1992 1993 1994 1995 1996
------- -------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER POUND AND PER SHARE
DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................................. $87,849 $ 80,412 $95,510 $132,245 $162,300
Cost of goods sold......................................... 87,849 84,304 93,625 114,752 133,828
------- -------- ------- -------- --------
Gross profit (loss)...................................... -- (3,892) 1,885 17,493 28,472
Selling, general and administrative expenses............... 4,660 4,141 4,313 5,207 5,408
------- -------- ------- -------- --------
Operating income (loss).................................. (4,660) (8,033) (2,428) 12,286 23,064
Interest expense........................................... 3,169 3,912 4,361 4,727 4,079
------- -------- ------- -------- --------
Income (loss) before income taxes.......................... (7,829) (11,945) (6,789) 7,559 18,985
Income tax expense (benefit)(1)............................ (2,139) 197 99 354 (96)
------- -------- ------- -------- --------
Net income (loss)........................................ $(5,690) $(12,142) $(6,888) $ 7,205 $ 19,081
------- -------- ------- -------- --------
------- -------- ------- -------- --------
Net income (loss) per share................................ $ (.46) $ (.98) $ (.56) $ .58 $ 1.54
------- -------- ------- -------- --------
------- -------- ------- -------- --------
Weighted average common shares outstanding................. 12,400 12,400 12,400 12,400 12,400
SUPPLEMENTARY INFORMATION(2):
Pro forma net income..................................... $ 21,395
Pro forma net income per share........................... 1.39
Pro forma weighted average common shares outstanding..... 15,400
OTHER DATA:
Depreciation and amortization ............................. $ 5,941 $ 6,561 $ 7,200 $ 6,281 $ 4,440
Capital expenditures....................................... 5,677 793 975 1,963 2,805
Pounds shipped:
Superalloys.............................................. 11,269 10,932 12,253 14,907 14,495
Special alloys(3)........................................ 368 712 1,181 1,541 1,336
Toll conversion.......................................... 6,077 13,934 14,267 11,612 11,216
Average net sales per pound shipped:
Superalloys.............................................. $ 7.00 $ 6.31 $ 6.48 $ 7.58 $ 9.84
Special alloys........................................... 21.44 12.55 10.56 10.32 12.26
Toll conversion.......................................... .24 .18 .26 .30 .30
Backlog (at period end)(4)................................. $34,878 $ 31,385 $40,711 $ 81,846 $146,247
</TABLE>
(footnotes on next page)
8
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
--------------------------
ACTUAL AS ADJUSTED(2)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital....................................................................... $ 47,450 $ 51,450
Total assets.......................................................................... 116,492 114,992
Current portion of long-term debt and capital lease obligations....................... 4,296 296
Long-term debt (excluding current maturities)......................................... 42,010 2,070
Long-term capital lease obligations (excluding current maturities).................... 512 512
Subordinated notes payable to affiliates(5)........................................... 1,500 --
Stockholders' equity.................................................................. 34,775 78,715
</TABLE>
- ------------------
(1) Income tax expense for 1995 and 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. As of December 31, 1996, substantially all of these tax benefits
have been recognized.
(2) Gives effect to (i) the Offering at an assumed initial public offering price
of $16.00 per share (the midpoint of the range set forth on the cover page
of this Prospectus), (ii) the application of the net proceeds therefrom to
repay indebtedness under the Company's credit facility and (iii) the
repayment of the balance on the subordinated notes payable to affiliates
(the 'Subordinated Stockholder Notes'). Assuming that the transactions
described above occurred as of January 1, 1996, the Company's interest
expense for 1996 would have been $.2 million and the Company's net income
for 1996 would have been $21.4 million. See 'Use of Proceeds' and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
(3) Includes dental alloys, shape memory alloys and high strength stainless
steel.
(4) The Company defines backlog as firm purchase orders, which may be subject
to cancellation by the customer subject to, in certain circumstances,
cancellation charges.
(5) The Company repaid the remaining $1.5 million balance on the subordinated
notes payable to affiliates in January 1997.
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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 69%,
70% and 77% of the Company's net sales in 1994, 1995 and 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 net losses of $26.4 million from
1991 through 1994 (or net losses of $(.14), $(.46), $(.98) and $(.56) per share
of Common Stock in 1991, 1992, 1993 and 1994, respectively). In addition, from
August 1992 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 was in default under the
Prior Credit Agreement. In order to avoid acceleration of the indebtedness under
the Prior Credit Agreement, the Company and its lenders entered into a series of
standstill agreements. 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. For a more detailed description of the Company's
default under the Prior Credit Agreement, see 'Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources.'
The Company operated profitably in 1995 and 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.'
CUSTOMER CONCENTRATION
A substantial portion of the Company's business is conducted with a
relatively small number of large customers, including affiliates of a principal
stockholder. The Company's top 10 customers accounted for 68% of the Company's
net sales in 1996. In 1996, each of Wyman-Gordon Forgings Inc. ('Wyman-Gordon'),
Ladish Company and Carlton Forge Works accounted for approximately 18%, 13% and
11%, respectively, of the Company's net sales. In 1995, the Company's three
largest customers accounted for approximately 17%, 11%
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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. Currently, substantially all of the Company's sales to
its significant customers are made on a purchase order basis and are not subject
to long-term agreements. Purchase orders may be subject to cancellation by the
customer subject to, in certain circumstances, cancellation charges. Loss of a
significant customer could have a material adverse effect on the Company. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview.'
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 consists of 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
is and in the future is 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 December 31, 1996, the Company had commodity swap
agreements covering approximately 41% of its virgin nickel requirements for
1997, for a total purchase price of approximately $8.0 million. The fair market
value of the material covered by these agreements, based on the December 31,
1996 price quoted on the LME, was approximately $6.5 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 86% of net sales in 1996) 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 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
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Company's production or distribution which could have a material adverse effect
on the Company. See 'Business--Products and Markets.'
The Company's Powder Division (which accounted for approximately 10% of the
Company's net sales in 1996) is dependent upon a sole contractor, Wyman-Gordon,
that provides extrusion services to the Company (the 'Extrusion Contractor'). In
December 1996, the Extrusion Contractor experienced an explosion at its facility
in Houston, Texas where its extrusion press is located. The explosion and the
ensuing investigation have interrupted the use of the extrusion press by the
Extrusion Contractor. The Extrusion Contractor has advised the Company that it
expects to restart extrusion in March 1997. The Extrusion Contractor has
informed the Company that it will be able to provide the Company with extrusion
services from another plant located in Scotland and that the Company's
production schedule will not be interrupted. However, the shipment of the
Company's powder products to Scotland will add expense to the Company's powder
production and negatively impact the Company's operating margins if such
expenses are not reimbursed by either the Extrusion Contractor or the Company's
customers; however, the Company does not believe that the impact will be
significant. Accordingly, while the interruption of production at the Extrusion
Contractor's Houston facility has not adversely affected the Company to date, a
significant continuation of the interruption could have a material adverse
effect on the Company.
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's ability to make acquisitions 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'), which contains covenants
restricting, among other things, the ability of the Company to incur additional
indebtedness, make certain investments, sell or acquire assets, enter into
mergers or consolidations and form subsidiaries. The Company and its lenders
have agreed to amend the Credit Agreement to provide the Company with greater
flexibility, including the ability to borrow available amounts under the Credit
Agreement to finance acquisitions and capital improvements. Any amendment is
subject to the execution of definitive documentation. The Company has no
agreements or understandings regarding any such acquisition or investment. See
'--Limitations on Payments of Dividends; Restrictive Covenants' and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources.'
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 December 31, 1996, approximately 400 (or 68%) of the Company's
approximately 590 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 approximately 55
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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 300 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.'
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 December 31, 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 allegedly 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 have employment
agreements with the Company, 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 76% of the outstanding Common
Stock (approximately 73% 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
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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 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 '--Anti-Takeover 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 has been approved for quotation on the NASDAQ
National Market, subject to official notice of issuance, 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.
BENEFIT TO EXISTING STOCKHOLDERS; DILUTION
The initial public offering price of the Common Stock is substantially in
excess of the net tangible book value per share, which results in a benefit to
all existing stockholders of the Company. As a result purchasers of Common Stock
in the Offering will experience immediate and substantial dilution of $11.11 per
share (assuming an initial public offering price of $16.00 per share) of the
Common Stock from the public offering price. In addition, the 12,400,000 shares
of Common Stock outstanding and owned by the Principal Stockholders prior to the
Offering were originally acquired in 1987 (1991 in the case of AMI) for an
aggregate consideration of $29,840,000 or an average of $2.41 per share, as
compared to new investors who will pay $48,000,000, or $16.00 per share, for the
3,000,000 shares of Common Stock offered by the Company hereby (based on the
midpoint of the range set forth on the cover page of this Prospectus).
Accordingly, the Principal Stockholders will benefit from an unrealized
appreciation of $13.59 per share of Common Stock ($169 million in the aggregate)
in the value of their shares of Common Stock as a result of this Offering.
Because the Selling Stockholders are offering 700,000 of their shares of Common
Stock in the Offering and are expected to receive net proceeds of $10,416,000
(assuming an initial public offering price of $16.00 per share), they will be
able to realize, in part, the gain described above. Under the terms of the
Registration Rights Agreement (as defined herein) the Company will pay all of
the expenses of the Offering (other than underwriters discounts and commissions
and the legal expenses of the Selling Stockholders) and will indemnify the
Selling Stockholders for certain liabilities, including liabilities under the
Securities Act. See 'Dilution' and 'Certain Transactions--Transactions with
Principal Stockholders--Registration Rights.'
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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 15,400,000 shares of Common Stock.
Of these, the 3,700,000 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 11,700,000 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, its executive
officers and directors 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, 800,000 shares of Common Stock
are reserved for issuance upon the exercise of stock options under the Stock
Incentive Plan and the issuance of such shares will be registered under the
Securities Act. See 'Shares Eligible for Future Sale,' 'Management--Stock
Incentive Plan,' and 'Certain Transactions--Transactions with Principal
Stockholders--Registration Rights.'
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 Credit Agreement,
which 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.
The Company and its lenders have agreed to amend the Credit Agreement to provide
the Company with greater flexibility, including the ability to borrow available
amounts under the Credit Agreement to finance acquisitions and capital
improvements. Any amendment is subject to the execution of definitive
documentation. 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 Amended and 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.'
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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 $16.00 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 $43.9
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 Term Loan and Revolving Facility 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%. The
weighted-average interest rate on the obligations outstanding under both the
Term Loan and Revolving Facility under the Credit Agreement was 7.0% at
December 31, 1996. On December 31, 1996, approximately $26.0 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.'
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CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
the Company as of December 31, 1996 and as adjusted to reflect (i) the Offering
at an assumed initial public offering price of $16.00 per share (the midpoint of
the range set forth on the cover page of this Prospectus), (ii) the application
of the net proceeds therefrom to repay the indebtedness under the Credit
Agreement and (iii) the repayment of the $1.5 million balance on the
Subordinated Stockholder Notes in January 1997. 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 DECEMBER 31,
1996
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current debt:
Current portion of long-term debt and capital lease obligations......................... $ 4,296 $ 296
Subordinated notes payable to affiliates................................................ 1,500 --
------- -----------
Total current debt................................................................... $ 5,796 $ 296
------- -----------
------- -----------
Long-term debt, excluding current maturities:
Long-term capital lease obligations..................................................... $ 512 $ 512
Credit Agreement(1)..................................................................... 42,000 2,060
Other................................................................................... 10 10
------- -----------
Total long-term debt................................................................. 42,522 2,582
------- -----------
Stockholders' equity:
Preferred Stock, par value $.01 per share: 10,000,000 shares authorized; no shares
issued and outstanding............................................................... -- --
Common Stock, par value $.01 per share: 35,000,000 shares authorized; 12,400,000 shares
issued and outstanding actual; 15,400,000 shares issued and outstanding as
adjusted(2).......................................................................... 124 154
Paid-in surplus......................................................................... 29,716 73,626
Pension adjustment...................................................................... (697) (697)
Retained earnings....................................................................... 5,632 5,632
------- -----------
Total stockholders' equity........................................................... 34,775 78,715
------- -----------
Total capitalization................................................................. $77,297 $81,297
------- -----------
------- -----------
</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 December 31, 1996, the borrowing base
was $45.6 million. The Company's ability to borrow under the Revolving
Facility is subject to the satisfaction of various conditions including
compliance with certain financial covenants.
(2) Excludes 800,000 shares of Common Stock reserved for issuance pursuant to
the Stock Incentive Plan, under which options to purchase 295,500 shares at
the initial public offering price will be granted effective on the date of
the Offering. See 'Management--Stock Incentive Plan' and 'Description of
Capital Stock.'
17
<PAGE>
DILUTION
At December 31, 1996, the net tangible book value of the Company after
giving effect to the Merger but prior to the Offering would have been
approximately $31.4 million, or $2.53 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 Incentive Plan. After giving effect to the
Offering at an assumed initial public offering of $16.00 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 $75.3 million, or $4.89 per
share, representing an immediate increase in net tangible book value of $2.36
per share. Accordingly, purchasers of the Common Stock in the Offering would
sustain an immediate dilution of $11.11 per share.
The following table illustrates such per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................................... $ 16.00
Net tangible book value as of December 31, 1996........................... $ 2.53
Increase in net tangible book value attributable to the Offering(1)....... $ 2.36
---------
Pro forma net tangible book value after the Offering........................ $ 4.89
---------
Dilution to new investors in the Offering(2)................................ $ 11.11
---------
---------
</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 December 31,
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 $16.00 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)....................... 12,400,000 80.5% $29,840,000 38.3% $ 2.41
New investors..................................... 3,000,000 19.5 48,000,000 61.7 16.00
---------- ------- ----------- -------
Total............................................. 15,400,000 100.0% $77,840,000 100.0%
---------- ------- ----------- -------
---------- ------- ----------- -------
</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
77.7% 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 3,555,000 or 22.3% of the total number of shares of Common
Stock to be outstanding after the Offering.
(2) Excludes 800,000 shares of Common Stock reserved for issuance pursuant to
the Stock Incentive Plan, under which options to purchase 295,500 shares at
the initial public offering price will be granted effective on the date of
the Offering. See 'Management--Stock Incentive 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
700,000. 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, 1992, 1993, 1994, 1995 and 1996 have been derived from the
Company's audited Financial Statements. 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>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER POUND AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................. $ 87,849 $ 80,412 $95,510 $132,245 $162,300
Cost of goods sold.................................... 87,849 84,304 93,625 114,752 133,828
-------- -------- ------- -------- --------
Gross profit (loss)................................. -- (3,892) 1,885 17,493 28,472
Selling, general and administrative expenses.......... 4,660 4,141 4,313 5,207 5,408
-------- -------- ------- -------- --------
Operating income (loss)............................. (4,660) (8,033) (2,428) 12,286 23,064
Interest expense...................................... 3,169 3,912 4,361 4,727 4,079
-------- -------- ------- -------- --------
Income (loss) before income taxes..................... (7,829) (11,945) (6,789) 7,559 18,985
Income tax expense (benefit)(1)....................... (2,139) 197 99 354 (96)
-------- -------- ------- -------- --------
Net income (loss)................................... $ (5,690) $(12,142) $(6,888) $ 7,205 $ 19,081
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
Net income (loss) per share........................... $ (.46) $ (.98) $ (.56) $ .58 $ 1.54
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
Weighted average common shares outstanding............ 12,400 12,400 12,400 12,400 12,400
OTHER DATA:
Depreciation and amortization......................... $ 5,941 $ 6,561 $ 7,200 $ 6,281 $ 4,440
Capital expenditures.................................. 5,677 793 975 1,963 2,805
Pounds shipped:
Superalloys......................................... 11,269 10,932 12,253 14,907 14,495
Special alloys(2)................................... 368 712 1,181 1,541 1,336
Toll conversion..................................... 6,077 13,934 14,267 11,612 11,216
Average net sales per pound shipped:
Superalloys......................................... $ 7.00 $ 6.31 $ 6.48 $ 7.58 $ 9.84
Special alloys...................................... 21.44 12.55 10.56 10.32 12.26
Toll conversion..................................... .24 .18 .26 .30 .30
Backlog (at period end)(3)............................ $ 34,878 $ 31,385 $40,711 $ 81,846 $146,247
</TABLE>
(footnotes on next page)
19
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- ------- -------- --------
BALANCE SHEET DATA (AT PERIOD END): (IN THOUSANDS, EXCEPT PER POUND AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Working capital....................................... $ 35,216 $ 32,378 $29,287 $ 35,779 $ 47,450
Total assets.......................................... 108,651 98,779 91,901 106,945 116,492
Current portion of long-term debt and capital lease
obligations......................................... 2,193 3,210 4,233 5,270 4,296
Long-term debt (excluding current maturities)......... 50,500 47,500 45,500 40,810 42,010
Long-term capital lease obligations (excluding current
maturities)......................................... 1,359 1,174 965 777 512
Subordinated notes payable to affiliates(4)........... 2,000 8,500 8,500 8,500 1,500
Stockholders' equity.................................. 28,216 16,074 8,987 15,666 34,775
</TABLE>
- ------------------
(1) Income tax expense for 1995 and 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. As of December 31, 1996, substantially all of these tax benefits
have been recognized.
(2) Includes dental alloys, shape memory alloys and high strength stainless
steel.
(3) The Company defines backlog as firm purchase orders, which may be subject to
cancellation by the customer subject to, in certain circumstances,
cancellation charges.
(4) The Company repaid the remaining $1.5 million balance on the subordinated
notes payable to affiliates in January 1997.
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 1996, the
Superalloy Billet and Bar Division, the Powder Division and the Dental Division
accounted for 86%, 10% and 4%, respectively, of the Company's net sales of
$162.3 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 1994,
1995 and 1996, the Company's estimated sales to jet engine component
manufacturers totaled 69%, 70% and 77%, respectively, of the Company's net
sales. The percentage of net sales to jet engine component manufacturers
increased during 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 Speednews was 2,370 planes at
December 31, 1996. 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 40
aircraft per month by the end of 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.
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. Approximately 70% of the pounds shipped of the
21
<PAGE>
Company's billet and bar products in 1996 were sold under standard purchase
orders or under one-year supply contracts. The remaining 30% of the pounds
shipped of the Company's billet and bar products in 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 1996. Substantially all of the firm price contracts concluded in 1993 expired
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.
Currently, substantially all of the Company's sales to its significant customers
are made on a purchase order basis and are not subject to long-term agreements.
Purchase orders may be subject to cancellation by the customer subject to, in
certain circumstances, cancellation charges. See 'Business--Pricing.'
Export sales represent a significant portion of the Company's business. In
1994, 1995 and 1996, sales to purchasers outside of the United States totaled
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
costs 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
consists of 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 is, and in the future
is 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 December
31, 1996, the Company had commodity swap agreements covering approximately 41%
of its virgin nickel requirements for 1997, for a total purchase price of
approximately $8.0 million. The fair value of the material covered by these
agreements, based on the December 31, 1996 price quoted on the LME, was
approximately $6.5 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.'
As a percentage of net sales, cost of goods sold has decreased from 98.0%
in 1994 to 82.4% in 1996. This improvement is primarily the result of increased
net sales due to improved pricing and increased industry demand as the
superalloy and aerospace industries have recovered from a cyclical bottom in
1993. In addition, from 1994 to 1996 a substantial portion of the Company's
billet and bar product was sold under long-term firm price contracts which were
negotiated at the bottom of the aerospace cycle and contained unfavorable
pricing. In 1996, 30% of the pounds the Company's billet and bar products
shipped were sold under such contracts. Because substantially all of the fixed
price contracts negotiated in 1993 expired in 1996, the Company expects that the
trend in cost of goods sold as a percentage of net sales will continue to
improve in 1997 if demand for its products remains strong. The Company cannot
predict whether the trend in cost of goods sold as a percentage of net sales
will continue beyond 1997 because of the uncertainty created by the cyclical
nature of the superalloy and aerospace industries as well as increases in
capacity by the Company's competitors.
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 1994,
1995 and 1996, increases in selling, general and administrative expenses have
primarily resulted
22
<PAGE>
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 4.5% in 1994 to 3.3% in 1996, primarily as a result of increased sales, the
allocation of the fixed components of selling, general and administrative
expense to a larger sales base and cost control programs.
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 which recognition of a deferred tax asset
was not considered appropriate at the time. The Company's effective income tax
rate in 1995 and 1996 varied from the U.S. statutory rate due to utilization of
net operating loss carryforwards and, in 1996 only, also due to the recognition
of previously unrecognized deferred tax assets of $3.7 million. See 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 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 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 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>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Net sales...................................................................... 100.0% 100.0% 100.0%
Cost of goods sold............................................................. 98.0 86.8 82.5
----- ----- -----
Gross profit (loss).......................................................... 2.0 13.2 17.5
Selling, general and administrative expenses................................... 4.5 3.9 3.3
----- ----- -----
Operating income (loss)...................................................... (2.5) 9.3 14.2
Interest expense............................................................... 4.6 3.6 2.5
----- ----- -----
Income (loss) before income taxes.............................................. (7.1) 5.7 11.7
Income taxes expense (benefit)................................................. .1 .3 --
----- ----- -----
Net income (loss)............................................................ (7.2) 5.4 11.7
----- ----- -----
----- ----- -----
</TABLE>
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
Net Sales. Net sales increased $30.1 million, or 22.8%, from $132.2
million in 1995 to $162.3 million in 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
$2.26, or 29.8%, from $7.58 in 1995 to $9.84 in 1996. Average net sales per
pound of special alloys shipped increased $1.94, or 18.8%, from $10.32 in 1995
to $12.26 in 1996. Pounds of superalloys shipped decreased slightly from 14.91
million pounds in 1995 to 14.50 million pounds in 1996 and pounds of special
alloys shipped decreased slightly from 1.54 million pounds in 1995 to 1.34
million pounds in 1996. Despite this slight decrease in pounds shipped, net
sales increased in 1996 over 1995 because of the increase in net sales per pound
shipped caused by a shift in the Company's product mix toward higher value-added
products and improved pricing.
Cost of Goods Sold. Cost of goods sold increased $19.1 million, or 16.6%,
from $114.7 million in 1995 to $133.8 million in 1996, primarily as a result of
increased sales partially offset by improved manufacturing efficiencies and cost
reduction programs. In addition, depreciation and amortization expense decreased
from $6.3 million in 1995 to $4.4 million in 1996 as a result of various fixed
and intangible assets becoming fully depreciated or amortized, as applicable. As
a percentage of net sales, cost of goods sold decreased from 86.8% in
23
<PAGE>
1995 to 82.5% in 1996 primarily due to the improved pricing related in 1996 as
well as to the allocation of the fixed portion of overhead included in cost of
goods sold to a larger sales base.
Gross Profit. Gross profit increased $11.0 million, or 62.8% from $17.5
million in 1995 to $28.5 million in 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 $.2 million, or 3.9% from $5.2 million in 1995
to $5.4 million in 1996. The increase was due primarily to the increase in net
sales. Selling, general and administrative expenses as a percentage of net sales
decreased from 3.9% in 1995 to 3.3% in 1996 primarily due to the allocation of
the fixed components of selling, general and administrative costs to a larger
sales base.
Operating Income. Operating income increased $10.8 million, or 87.7% from
$12.3 million in 1995 to $23.1 million in 1996. Operating income as a percentage
of net sales increased from 9.3% in 1995 to 14.2% in 1996 as a result of
increased net sales offset in part by increased expenses.
Interest Expense. Interest expense decreased $.6 million, or 12.8%, from
$4.7 million in 1995 to $4.1 million in 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 $354,000 in 1995,
compared to an income tax benefit of $96,000 in 1996. The Company's effective
income tax rate for 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 $3.7 million.
Net Income. Net income increased 165% from $7.2 million in 1995 to $19.1
million in 1996. Net income as a percentage of net sales increased from 5.4% for
1995 to 11.7% for 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 $.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 primarily due to the allocation of the fixed
portion of overhead costs included in cost of goods sold to a larger sales base
as well as the improved pricing 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 primarily
due to the allocation of the fixed components of selling, general and
administrative expenses to a larger sales base in 1995, partially offset by the
increased professional fees 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.
24
<PAGE>
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 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.
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
Stockholder Notes.'
Net cash provided by operating activities was $1.3 million, $6.9 million
and $10.9 million for 1994, 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 1996.
From August 1992 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 was in default under the Prior Credit
Agreement with respect to such interest and principal payments and with respect
to maintenance of certain covenants, including covenants relating to interest
coverage ratio and leverage ratio. 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 amounts due were repaid or refinanced 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 $1.0 million, $2.0 million and $2.8 million for
the years 1994, 1995 and 1996, respectively.
At December 31, 1996, the Company had $48.3 million of outstanding
indebtedness and capitalized lease obligations, consisting principally of $46.0
million of borrowings under the Credit Agreement, $1.5 million of outstanding
indebtedness under the Subordinated Stockholder Notes and $.8 million of capital
lease obligations. The Company's outstanding indebtedness fluctuates depending
on the Company's working capital needs. The Company repaid the remaining $1.5
million balance on the Subordinated Stockholder Notes in full in January 1997.
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
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<PAGE>
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
December 31, 1996, the borrowing base was $45.6 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) 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 under the Credit Agreement at its option at any time. The
Company and its lenders have agreed to amend the Credit Agreement. The amendment
provides for a revolving credit facility of $60 million, which will decrease to
$40 million over a five-year period. The amendment will provide the Company with
greater flexibility, including the ability to borrow available amounts under the
Credit Agreement fo finance acquisitions and capital improvements. Any amendment
is subject to the execution of definitive documentation. 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. Currently planned capital
expenditures for 1997 include (i) approximately $800,000 to upgrade the
Company's Dunkirk press facility, (ii) up to approximately $4 million to install
a new business information system and (iii) approximately $6 million to upgrade
and expand the primary and secondary melting capacity at the Company's New
Hartford facility. 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 incurred average annual capital 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.
The Company does not expect the future recurring operation costs of compliance
with currently enacted environmental laws and adopted or proposed regulations to
have a material impact on its liquidity and capital resources. 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. See 'Risk
Factors--Environmental Regulation' and 'Business--Environmental Matters.'
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 working capital needs and 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
26
<PAGE>
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 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>
<TABLE>
<CAPTION>
1996 QUARTERS
----------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
(IN THOUSANDS EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
Net sales................................................... $39,639 $43,727 $37,174 $41,760
Cost of goods sold.......................................... 33,428 35,820 30,485 34,095
------- ------- ------- -------
Gross profit................................................ 6,211 7,907 6,689 7,665
Selling, general and administrative expenses................ 1,183 1,264 1,276 1,685
------- ------- ------- -------
Operating income............................................ 5,028 6,643 5,413 5,980
Operating income margin..................................... 12.6% 15.1% 14.5% 14.3%
Interest expense............................................ 1,087 1,003 1,006 983
------- ------- ------- -------
Income before income taxes.................................. 3,941 5,640 4,407 4,997
Income tax expense (benefit)................................ 1,018 1,631 (4,550) 1,805
------- ------- ------- -------
Net income.................................................. $ 2,923 $ 4,009 $ 8,957 $ 3,192
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
BACKLOG
As of December 31, 1996, the Company's backlog orders aggregated
approximately $146.2 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 31, 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.'
27
<PAGE>
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 '--Liquidity and Capital Resources,' '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 $162.3 million in 1996. The Company's backlog was approximately $146.2
million at December 31, 1996 compared to approximately $81.8 million at December
31, 1995. Approximately 77% of the Company's net sales in 1996 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 1996, the Superalloy Billet and Bar Division, the Powder Division and
the Dental Division accounted for 86%, 10% and 4%, 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 $9.84 and $12.26 per pound
shipped of superalloys and special alloys, respectively, for 1996, compared to
the average selling price of other metals such as carbon steel and stainless
steel, which currently range from $.20 to $4.00 per pound shipped. The chart set
forth below illustrates the end uses of superalloy products during 1995.
29
<PAGE>
SUPERALLOY END USE MARKET FOR BAR/BILLET PRODUCTS
1995
PETROCHEMICAL 12%
POWER GENERATION 2%
FASTENERS 3%
ALL OTHERS 1%
AEROSPACE 82%
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
approximately 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 Speednews was 2,370 planes at
December 31, 1996. 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 40
aircraft per month by the end of 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, these
aircraft are scheduled to undergo engine rebuilds from 1995 to 2001, 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 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 billet 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
30
<PAGE>
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 time for critical equipment
often exceeds one year and prevents capacity from being increased quickly in
times of strong demand.
WORLDWIDE* AND U.S. SUPERALLOY SHIPMENTS
WROUGHT/CAST SUPERALLOYS
(millions of pounds shipped)
1990 127 95
1991 117 88
1992 95 71
1993 81 60
1994 95 71
1995 111 84
1996F 120 89
* Excluding China and the countries of the former Soviet Union
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 1996 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, Rolls
Royce, Pratt & Whitney and SNECMA, than any of its competitors. Over the last
seven years (principally in 1990, 1991 and 1992), the Company invested over $28
million in new state-of-the-art forging, melting and other 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.
31
<PAGE>
Over 20% of the Company's net sales in 1996 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
1996 were: aerospace (77%); power generation (8%), distributors (7%); and
medical and dental 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 used on the Boeing 777, such as
the Rolls Royce 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 1994, 1995 and 1996, 37%, 40% and 53%, respectively,
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.
32
<PAGE>
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
1994, 1995 and 1996, 21%, 21% and 20%, respectively, 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 1994, 1995 and 1996, 11%, 11% and
4%, respectively, 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 1994, 1995 and 1996, 12%, 10% and 10%,
respectively, 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. Approximately 21% of the Dental Division's 1996 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 vacuum arc remelting or electroslag 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
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<PAGE>
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.
[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 $6 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.
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<PAGE>
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
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.
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<PAGE>
Thermomechanical 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 to increase its 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.
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.
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<PAGE>
POWDER METALLURGY
Powder metallurgy operations begin with the melting of master alloy using
the VIM technique described above at the New Hartford facility and proceed with
the process illustrated below:
[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].
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.
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. Wyman-Gordon, the sole contractor that provides
extrusion services to the Company, is also a producer of powder-based products.
In December 1996, the Extrusion Contractor experienced an explosion at its
facility in Houston, Texas where its extrusion press is located. See 'Risk
Factors--Dependence on Essential Machinery and Equipment.'
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
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<PAGE>
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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<PAGE>
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 consists of 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 is, and in the
future is 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. Approximately 70% of the pounds shipped of the Company's billet
and bar products in 1996 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 in 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 1996. Substantially all of these firm price
sales contracts concluded in 1993 expired 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, 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. Currently, substantially all of
the Company's sales to its significant customers are made on a purchase order
basis and are not subject to long-term agreements. Purchase orders may be
subject to cancellation by the customer subject to, in certain circumstances,
cancellation charges.
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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<PAGE>
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 1996, sales through distributors
increased from less than 1% to approximately 7% 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 68% of the Company's net sales in 1996.
In 1996, each of Wyman-Gordon, Ladish Company and Carlton Forge Works accounted
for approximately 18%, 13% and 11%, respectively, of the Company's net sales. In
1995, the Company's three largest customers 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. 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 1994,
1995 and 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
Incorporated, 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.
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
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<PAGE>
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' from 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, are 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 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
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<PAGE>
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 equipment suitable for both water and gas atomizing 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.
The Company spent $1.3 million, $1.3 million and $1.6 million during 1994,
1995 and 1996, respectively, 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
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<PAGE>
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 allegedly released or otherwise come to be located, and for which the
Company currently faces potentially material environmental remediation
liabilities, are described below. At December 31, 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 allegedly 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 capital 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. The Company does
not expect the future recurring operation costs of compliance with currently
enacted environmental laws and adopted or proposed regulations to have a
material impact on its liquidity and capital resources. 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, 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
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<PAGE>
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.
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
44
<PAGE>
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 nine out of twelve 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 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.
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<PAGE>
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 December 31, 1996, the Company employed approximately 590 persons. Of
these, approximately 400 (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 300 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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<PAGE>
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 a 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 Company also has consulting agreements with Mr. Treuille for financial
services advice and Dr. Decker for technical advice. See 'Certain
Transactions--Consulting Arrangements.' Upon completion of the Offering Messrs.
Treuille and Halverstadt will each receive a $70,000 success fee for advice
rendered in connection with the Offering.
The Board of Directors has established, effective upon the completion of
the Offering, a Compensation Committee and an Audit Committee. The Compensation
Committee, composed of Mr. Halverstadt and Mr. Duval, will establish salaries,
incentives and other forms of compensation for the Company's directors and
officers and will recommend policies relating to the Company's benefit plans.
The Audit Committee, composed of Dr. Decker and Mr. Treuille, will oversee the
engagement of the Company's independent auditors and, together with the
Company's independent auditors, will review the Company's accounting practices,
internal accounting controls and financial results.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation
of the Company's Chief Executive Officer and each of the four other most highly
compensated executive officers of the Company (collectively, the 'Named
Executive Officers') for the fiscal years ended December 31, 1995 and December
31, 1996. The principal components of such individuals' current cash
compensation are the annual base salary and annual bonus included in the Summary
Compensation Table. Also described below is the estimated future compensation
such individuals can receive under the Company's retirement plans.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) COMPENSATION($)(2)
- ---------------------------------------------------------------- ---- --------- ----------- ------------------
<S> <C> <C> <C> <C>
Donald R. Muzyka ............................................... 1996 $ 194,758 $ 99,121 $ 6,118
President and Chief Executive Officer 1995 185,558 53,288 5,820
James D. Page .................................................. 1996 116,085 44,183 5,149
Vice President--Operations 1995 112,958 30,269 4,959
Robert F. Dropkin .............................................. 1996 116,625 44,183 5,373
Vice President, Secretary and Chief Legal Counsel 1995 112,899 33,766 4,975
Thomas E. MacDonald ............................................ 1996 113,102 44,183 4,136
Vice President--Sales & Marketing and Product Management 1995 112,488 30,139 4,588
Gernant E. Maurer .............................................. 1996 111,162 44,183 4,973
Vice President--Technology 1995 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 and 1996 Profit Sharing Plans.
All salaried employees were eligible to participate in the Company's 1995
and 1996 Profit Sharing Plans. 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.
(2) Includes for Dr. Muzyka, Messrs. Page, Dropkin and MacDonald and Dr. Maurer,
$4,750, $4,750, $4,750, $3,873 and $4,750, respectively, for 1996 and
$4,620, $4,589, $4,620, $4,468 and $4,391, respectively, for 1995 in 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'). Also includes for Dr. Muzyka,
Messrs. Page, Dropkin and MacDonald and Dr. Maurer, $1,368, $399, $623, $262
and $223, respectively, for 1996 and $1,200, $370, $355, $120 and $197,
respectively, for 1995 for the value of premiums paid for group term life
policies in excess of $50,000.
EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
The Company has entered into employment agreements with Drs. Muzyka and
Maurer and Mr. Dropkin. The agreements provide for an annual salary which is
subject to adjustment based on periodic performance review and for participation
in employee benefit plans made available to salaried employees. Dr. Muzyka's
employment agreement also provides that he may participate in the Special Metals
Corporation Equity Appreciation Rights Plan and the Special Metals Corporation
Supplemental Retirement Income Plan and that his rights and benefits under these
plans shall fully vest upon a 'change of control' of the Company (as defined
below).
Dr. Muzyka's employment agreement provides that he shall continue to
receive his salary, bonus and other employee benefits for a period of 18 months
following notice of termination other than for 'cause' (as defined in the
agreement). The Company may terminate Dr. Muzyka's employment for 'cause' upon
30 days' written notice. The employment agreements with Mr. Dropkin and Dr.
Maurer provide that their respective term of employment shall continue for (i)
18 months (12 months in the case of Dr. Maurer) following notice of termination
from the Company other than for 'cause' (as defined in the employment
agreements); (ii) 90 days (180 days in the case of Dr. Maurer) following notice
of termination by the employee; (iii) six months following the employee's death
or disability; or (iv) two months if the Company, in good faith and after
advance written notice to the employee, determines that the employee has failed
to adhere to the terms of his employment
49
<PAGE>
agreement or has engaged in conduct which would injure the reputation of the
Company or otherwise materially adversely affect the Company's interest if the
employee remained employed by the Company. In addition, in the event that Mr.
Dropkin is terminated by the Company for reasons other than for 'cause,' for a
period of 18 months after his employment terminates, the Company will continue
to pay his salary and bonus and provide him with continued employee benefits.
Each of the employment agreements provides that the employee shall not engage in
any business similar to the business carried on by the Company so long as the
Company is obligated to pay the employee a salary and that the Company will
retain all rights to any inventions and innovations developed by the employee
during his respective employment with the Company.
The Company has also entered into severance agreements with Messrs.
MacDonald and Page. These agreements provide that employee's employment shall
continue for a period of twelve months following a 'change of control' of the
Company (the 'Severance Period') at the employee's then-current salary and such
employee will receive bonus and profit sharing payments and employee benefits
during such period. The Company shall also provide the employee with
out-placement services. The Company may continue to assign duties to the
employee during the first six months of the Severance Period, provided that such
duties do not require more than 80 hours of work in any calendar month. The
agreements further provide that the employee shall provide the Company with at
least 90 days' advance written notice before terminating his employment.
In each of the employment and severance agreements described above, a
'change of control' is defined to mean any transaction or series of related
transactions which causes beneficial ownership or voting rights with respect to
more than 50% of the capital stock or all or substantially all of the assets of
the Company to be transferred, except for transactions with Aubert & Duval or
between the shareholders of Aubert & Duval.
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)
.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) 0.50% 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 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 $62,897 for each of Dr. Muzyka,
Messrs. Page, Dropkin and MacDonald and Dr. Maurer, respectively, assuming
annual salary increases of 5.0% and 3.0% annual increases in the compensation
limit under Code Section 401(a)(17).
EQUITY RIGHTS PLAN
The Special Metals Corporation Equity Appreciation Rights Plan (the 'Equity
Rights Plan') provides for the grant of rights to receive cash payments based on
the appreciation of the book value of the Company, as defined in the Equity
Rights Plan ('Rights'). Each Right is based on the total book value of the
Company at the
50
<PAGE>
date of grant, divided by 10,000,000 and appreciation is calculated using
aggregate after tax profits after the date of grant. Rights are generally
exercisable from the fifth anniversary of the date of grant until the tenth
anniversary of the date of grant, or earlier in the event of a 'change of
control' of the Company (as defined in the Equity Rights Plan), termination
without 'cause' (as defined in the Equity Rights Plan), retirement at age 65,
death or disability. Rights are forfeited in the event the holder is terminated
by the Company for cause. Dr. Muzyka is the only current participant in the
Equity Rights Plan. He has received 50,000 Rights, none of which were granted in
the fiscal year ended December 31, 1996. As of December 31, 1996, 10,000 of such
Rights are exercisable until 2000 and 10,000 are exercisable until 2001. The
remaining 30,000 Rights will become exercisable in 10,000 Right increments in
1997 through 1999 and will be exercisable for five years after becoming
exercisable.
The following table summarizes the value of Dr. Muzyka's Rights under the
Equity Rights Plan as of December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF UNITS VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
DECEMBER 31, 1996 (#) DECEMBER 31, 1996 ($)
<S> <C> <C>
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
- ------------------------------------------------------- ---------------------- ---------------------
Donald R. Muzyka 20,000/30,000 2,100/20,500
</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 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 INCENTIVE PLAN
In January 1997, 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 purposes of the Stock Incentive Plan are to promote
the interests of the Company by (i) attracting and retaining qualified key
officers, directors and other key employees and consultants of the Company and
its subsidiaries, (ii) motivating such individuals by means of
performance-related incentives to achieve longer-range performance goals and
(iii) enabling such individuals to participate in the long-term growth and
financial success of the Company. The Stock Incentive 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 of
the Securities Exchange Act) 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 22 directors and
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 Incentive Plan. The Stock Plan Committee has the
sole and complete authority to determine the participants to whom awards shall
be granted under the Stock Incentive Plan.
Subject to anti-dilution provisions for stock splits, stock dividends and
other corporate events, the Stock Incentive Plan authorizes the grant of awards
to participants with respect to a maximum of 800,000 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
51
<PAGE>
based awards; provided that the maximum number of shares that may be awarded to
any participant in any fiscal year in the form of stock options and stock
appreciation rights may not exceed 100,000 and the maximum number of Shares
which may be paid to any participant in connection with certain awards
designated as 'performance compensation awards' for purposes of Section 162(m)
of the Code in respect of a single performance period shall be 100,000 shares.
If, after the effective date of the Stock Incentive Plan, any Shares covered by
an award granted under the Stock Incentive 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 Incentive Plan.
Awards of options, stock appreciation rights, restricted stock units,
performance awards and other stock based awards granted under the Stock
Incentive 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 Incentive 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) if there is a public market for the Shares through
delivery of irrevocable instructions to a broker to sell the Shares and 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.
In the event of a 'change of control' of the Company (as defined in the
Stock Incentive Plan), any outstanding Awards then held by Participants which
are unexercisable or otherwise unvested shall automatically be deemed
exercisable or otherwise vested, as the case may be, as of immediately prior to
such change of control. Unless otherwise specified in the grant of a particular
Award, Awards under the Stock Incentive Plan are subject to cancellation or
rescission in the event that the Participant engages in activities that are
competitive with the Company or if the Participant fails to comply with
provisions regarding the confidentiality of Company information and the
Company's ownership of inventions and innovations.
The Board of Directors of the Company may amend, alter, suspend,
discontinue, or terminate the Stock Incentive 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 Incentive Plan without such participant's consent.
Anticipated Awards. As of the effectiveness of the Offering, the Company
will grant options to purchase 295,500 shares of Common Stock at the initial
public offering price to certain directors, executive officers and other key
employees. Of this total, Dr. Muzyka will receive options to purchase 45,000
shares of Common Stock, Messrs. Page, Dropkin, MacDonald, Halverstadt, Treuille
and Darling and Dr. Maurer will each receive options to purchase 22,500 shares
of Common Stock and Dr. Decker will receive options to purchase 5,000 shares of
Common Stock. One half of each of the options described above will vest on the
second anniversary of the date of grant, one-fourth will vest on the third
anniversary of the date of grant and the remaining one-fourth will vest on the
fourth anniversary of the date of grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1996, the Company had no
Compensation Committee. Decisions regarding compensation for 1996 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.
52
<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 76% of the Company's
outstanding Common Stock (approximately 73% 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
technical information 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 preexisting
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.
Neither party will receive compensation from the other for the information and
assistance provided, and all information provided under the Technology Exchange
Agreement shall be kept confidential by the recipient. The Technology Exchange
Agreement will remain in effect until terminated by either party upon 30 days'
advance written notice to the other party. Termination will not affect either
party's right to continue to use information received from the other.
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 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 $30,000 per
month and (ii) reimburse SIMA for out-of-pocket telecommunication charges,
travel costs and subsistence while traveling, to the extent that such expenses
are reasonable and for the benefit of the Company. SIMA will provide the
Company, within 30 days after the end of each month in which managerial
assistance is provided, a written report fully detailing the managerial
assistance furnished, including the assistance, advice and recommendations given
and made. Payment to SIMA will be made within 30 days following receipt and
acceptance by the Company of an invoice and appropriate expense documents. All
payments are to be free of tax and charges of governments other than the
government of France. The Management Assistance Agreement provides that SIMA may
be requested to provide services beyond the scope or level previously provided
by SIMA, whether in connection with potential acquisitions, financings or other
matters involving the Company. In such event, SIMA shall be entitled to
compensation in addition to the monthly fee referred to above, based on the time
spent and other relative factors, as SIMA and the Company will mutually agree.
The Managerial Assistance Agreement will remain in effect until terminated by
either party upon 30 days' advance written notice to the other party. All
information and advice provided by SIMA and all information provided to SIMA by
the Company in connection with the Managerial Assistance Agreement will be kept
confidential.
53
<PAGE>
Registration Rights
Under a registration rights agreement (the 'Registration Rights Agreement')
among the Company and the Principal Stockholders which will become effective
prior to the effectiveness of the Offering, 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 (except in certain circumstances). 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. 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 Registration Rights Agreement provides that to the extent not
inconsistent with applicable law, each holder of Registrable Securities will not
effect any public sale or distribution of any Registrable Securities of the
Company, or any securities convertible into or exchangeable or exercisable for
such Registrable Securities, during the seven days prior to and the 90 days
after any registration relating to such Registrable Securities has become
effective, except as part of such registration, if requested by the Company or
the managing underwriter or underwriters of such offering. In addition, the
Company has agreed not to effect any public sale or distribution of its
Registrable Securities or securities convertible into or exchangeable or
exercisable for any of such Registrable Securities during the seven days prior
to and the 90 days after any registration relating to such Registrable
Securities has become effective, except as part of such registration and except
pursuant to registrations relating to employee benefit plans and certain other
offerings.
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 an aggregate of 700,000 shares of Common Stock be included
in the Offering. As a result, the Company expects to incur approximately
$700,000 of expenses in connection with the Offering and will indemnify the
Selling Stockholders for certain liabilities, including liabilities under the
Securities Act.
Subordinated Stockholder Notes
In 1992 and 1993, the Company borrowed funds from SIMA and LWH under the
Subordinated Stockholder Notes. The outstanding amount of the Subordinated
Stockholder Notes was $1.5 million at December 31, 1996 and $8.5 million at each
of December 31, 1994 and 1995. The Subordinated Stockholder Notes are
subordinate to the Company's obligations under the Credit Agreement. The
Subordinated Stockholder Notes are payable on demand, but such payment is
limited under the Credit Agreement and the related subordination agreement to
repayments that would not cause an event of default under the Credit Agreement.
The Subordinated Stockholder Notes bear interest at rates set by the lenders
under such notes and reset by them from time to time (currently LIBOR plus
1.50%), subject to limitation so long as such notes are subordinate to the
Credit Agreement. The weighted average interest rate on the outstanding
Subordinated Stockholder Notes was 5.00%, 7.47% and 7.09% at December 31, 1994,
1995 and 1996 respectively. Accrued interest on the Subordinated Stockholder
Notes totaled approximately $937,000, $1.59 million and none at December 31,
1994, 1995 and 1996, respectively. The Company prerepaid $2.0 million, $3.5
million and $3.0 million of amounts due under the Subordinated Stockholder Notes
in October, November and December 1996, respectively. The remaining $1.5 million
balance on the Subordinated Stockholder Notes was repaid in full in January,
1997.
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
54
<PAGE>
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, until all amounts outstanding under
the Credit Agreement are paid in full, to make loans of up to $6 million to the
Company in the event of certain financial and payment defaults under the Credit
Agreement and the Company has agreed to borrow such amounts in such
circumstances and use such amounts immediately to cure such 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 after all amounts
outstanding under the Credit Agreement are paid in full. The Company may not
prepay amounts owed to SIMA under the Cash Flow Support Agreement, nor may SIMA
demand any such payment, until all amounts outstanding under the Credit
Agreement are paid in full. 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 its lenders have agreed to amend the Credit Agreement
to permit SIMA and the Company to terminate the Cash Flow Support Agreement. The
amendment is subject to certain conditions, including execution of definitive
documentation.
Affiliate Sales
During 1994, 1995 and 1996, the Company sold superalloy and special alloy
products to affiliates of SIMA. The net revenues from such sales were $9.3
million, $15.0 million and $7.0 million in 1994, 1995 and 1996, 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.
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 $165,000, $165,000 and $212,000 for such premiums in 1994, 1995 and
1996, 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 1994, 1995 and 1996,
Mr. Halverstadt and AIME received approximately $143,000, $174,000 and $157,000,
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 Dr. Decker for technical advice. During 1994, 1995 and 1996,
the fees paid and expenses reimbursed under each of these consulting agreements
did not exceed $60,000. Upon completion of the Offering, Messrs. Treuille and
Halverstadt will each receive a $70,000 success fee for advice rendered in
connection with the Offering.
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.
55
<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
- ------------------------------------------- ---------------------- ---------------------- -------------
<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% 350,000
Advanced Materials Investments Holding,
S.A.(3)(5)............................... 2,480,000 20.0% 350,000
Donald R. Muzyka(6)........................ -- -- --
Robert F. Dropkin(6)....................... -- -- --
Gernant E. Maurer(6)....................... -- -- --
Thomas E. MacDonald(6)..................... -- -- --
James D. Page(6)........................... -- -- --
Robert D. Halverstadt(6)................... -- -- --
Edouard Duval(2)........................... -- -- --
Antoine G. Treuille(6)..................... -- -- --
Raymond F. Decker(6)....................... -- -- --
Donald C. Darling(6)....................... -- -- --
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(1)
- ------------------------------------------- ---------------------- ----------------------
<S> <C> <C>
Societe Industrielle de Materiaux
Avances(2)(3)............................ 5,952,000 38.7%
LWH Holding S.A.(3)(4)..................... 3,618,000 23.5%
Advanced Materials Investments Holding,
S.A.(3)(5)............................... 2,130,000 13.8%
Donald R. Muzyka(6)........................ -- --
Robert F. Dropkin(6)....................... -- --
Gernant E. Maurer(6)....................... -- --
Thomas E. MacDonald(6)..................... -- --
James D. Page(6)........................... -- --
Robert D. Halverstadt(6)................... -- --
Edouard Duval(2)........................... -- --
Antoine G. Treuille(6)..................... -- --
Raymond F. Decker(6)....................... -- --
Donald C. Darling(6)....................... -- --
All Directors and Executive Officers as a
group (10 persons)....................... -- --
</TABLE>
- ------------------
(1) Without giving effect to the Underwriters' over-allotment option. If the
Underwriters' over-allotment option is exercised in full, SIMA, LWH and AMI
will beneficially own 37.3%, 22.7% and 13.4%, respectively, of the
outstanding Common Stock.
(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.
(6) In the case of Drs. Muzyka, Maurer and Decker and Messrs. Dropkin,
MacDonald, Page, Halverstadt, Treuille and Darling, excludes shares of
Common Stock, issuable upon exercise of options to purchase Common Stock at
the initial public offering price granted under the Stock Incentive Plan.
Such options are not exercisable until 1999. See 'Management--Stock
Incentive Plan--Anticipated Awards.'
56
<PAGE>
STOCKHOLDERS AGREEMENT
Upon completion of the Offering, the Principal Stockholders will
beneficially own approximately 76% of the outstanding Common Stock (73% 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 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 of directors.
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 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.
57
<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'). Prior to the Offering, there were 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 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
58
<PAGE>
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 time of the transaction in which the person
or entity became an interested stockholder, unless (i) prior to such time,
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) at or subsequent to such time 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. Because the Board
of Directors of the Company approved the Merger and the Stockholders Agreement,
in which SIMA, LWH and AMI each received more than 15% of the Company's Common
Stock, Section 203 of the DGCL will not prevent SIMA or LWH, who will continue
to own more than 15% of the Common Stock following the Offering, from engaging
in a business combination with the Company.
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
15,400,000 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 11,700,000 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 (154,000 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, 11,700,000 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, its executive officers and directors
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 acquired in connection with the Offering) 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 800,000 shares of Common Stock have been reserved for issuance to
employees, officers and Directors upon exercise of stock options, of which stock
options for 295,500 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 Incentive Plan. Thus,
shares purchased upon exercise of options granted pursuant to the Stock
Incentive 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 Incentive 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.
60
<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
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<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 proposed 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 identifying 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.
62
<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 3,000,000 and 700,000 shares,
respectively, of the Company's Common Stock, and the Underwriters named below,
for whom Morgan Stanley & Co. Incorporated, Salomon Brothers Inc and Credit
Lyonnais Securities (USA) 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 ......................................................................
Credit Lyonnais Securities (USA) Inc.......................................................
---------
Total............................................................................... 3,700,000
---------
---------
</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.
The Common Stock has been approved for quotation on the Nasdaq National
Market, subject to official notice of issuance, under the symbol 'SMCX.'
At the request of the Company, the Underwriters have reserved up to 100,000
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 has granted to the
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to 555,000 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 number set forth
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<PAGE>
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, its executive officers and directors 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 acquired in connection with the Offering) 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.
As described under 'Use of Proceeds,' the Company intends to use the net
proceeds of the Offering to repay indebtedness under the Credit Agreement.
Credit Lyonnais, New York Branch, an affiliate of Credit Lyonnais Securities
(USA) Inc., acts as agent and a lender under the Credit Agreement. Accordingly,
because 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, the Offering
is being conducted in compliance with NASD Conduct Rule 2710(c)(8) ('Rule
2710(c)(8)').
In compliance with Rule 2710(c)(8), 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
64
<PAGE>
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 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, 1996 and for each of the three years in the period ended December 31, 1996,
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
report given upon the authority of such firm as experts in accounting and
auditing.
65
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS
Report of Independent Auditors............................................................................ F-2
Balance Sheets as of December 31, 1995 and 1996........................................................... F-3
Statements of Operations and Retained Earnings (Accumulated Deficit) for the
years ended December 31, 1994, 1995, and 1996........................................................... F-4
Statements of Cash Flows for the years ended December 31, 1994, 1995, and 1996............................ F-5
Notes to Financial Statements............................................................................. F-6
</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, 1995 and 1996, 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, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Special Metals Corporation at
December 31, 1995 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996 in conformity
with generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
Buffalo, New York
January 24, 1997
F-2
<PAGE>
SPECIAL METALS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash........................................................................... $ 2,612,797 $ 3,335,931
Accounts receivable--trade, less allowance for doubtful accounts of $100,000
for 1995 and $120,000 for 1996.............................................. 26,064,359 26,639,748
Accounts receivable--affiliates................................................ 804,822 1,988,440
Inventories.................................................................... 39,056,340 42,739,042
Prepaid expenses............................................................... 260,097 382,350
Deferred taxes................................................................. 202,275 2,995,000
------------ ------------
Total current assets............................................................. 69,000,690 78,080,511
Property, plant and equipment.................................................... 33,559,461 33,231,454
Deferred taxes................................................................... -- 1,743,000
Other assets..................................................................... 4,384,777 3,436,543
------------ ------------
Total assets..................................................................... $106,944,928 $116,491,508
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable............................................................... $ 14,828,183 $ 12,856,076
Accrued payroll and employee benefits.......................................... 7,671,415 7,822,578
Accrued other liabilities...................................................... 5,002,399 3,967,834
Income taxes payable........................................................... 449,262 187,328
Current portion of long-term debt.............................................. 5,000,000 4,000,000
Current obligation under capital leases........................................ 270,263 296,397
Subordinated notes payable to affiliates....................................... -- 1,500,000
------------ ------------
Total current liabilities........................................................ 33,221,522 30,630,213
Long-term debt................................................................... 40,810,000 42,010,000
Long-term obligation under capital leases........................................ 776,942 512,482
Subordinated notes payable to affiliates......................................... 8,500,000 --
Other long-term liabilities...................................................... 7,970,299 8,564,083
------------ ------------
Total liabilities................................................................ 91,278,763 81,716,778
Commitments and contingencies
Shareholder's equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares
issued and outstanding...................................................... -- --
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................................................................ 29,716,000 29,716,000
Pension adjustment............................................................. (724,884) (697,379)
Retained earnings (accumulated deficit)........................................ (13,448,951) 5,632,109
------------ ------------
Total shareholder's equity....................................................... 15,666,165 34,774,730
------------ ------------
Total liabilities and shareholder's equity....................................... $106,944,928 $116,491,508
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
SPECIAL METALS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (ACCUMULATED DEFICIT)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1994 1995
---------------------- ----------------------
<S> <C> <C>
Net sales to non-affiliates...................................... $ 86,178,058 $ 117,216,411
Net sales to affiliates.......................................... 9,331,919 15,028,323
---------------------- ----------------------
95,509,977 132,244,734
Cost of goods sold............................................... 93,625,339 114,751,837
---------------------- ----------------------
1,884,638 17,492,897
Selling, general and administrative expenses..................... 4,313,101 5,207,191
---------------------- ----------------------
Operating income (loss).......................................... (2,428,463) 12,285,706
Interest expense................................................. 4,361,058 4,726,797
---------------------- ----------------------
Income (loss) before income taxes................................ (6,789,521) 7,558,909
Income tax expense (benefit)..................................... 99,177 353,590
---------------------- ----------------------
Net income (loss)................................................ (6,888,698) 7,205,319
Retained earnings (accumulated deficit)..........................
Beginning of year.............................................. (13,765,572) (20,654,270)
---------------------- ----------------------
End of year.................................................... $ (20,654,270) $ (13,448,951)
---------------------- ----------------------
---------------------- ----------------------
Net income (loss) per share...................................... $ (0.56) $ 0.58
---------------------- ----------------------
---------------------- ----------------------
Weighted average shares outstanding.............................. 12,400,000 12,400,000
---------------------- ----------------------
---------------------- ----------------------
Supplementary information (unaudited):
Pro forma income before taxes.....................................................................................
Pro forma income tax provision....................................................................................
Pro forma net income..............................................................................................
Pro forma net income per share....................................................................................
Pro forma weighted average shares outstanding.....................................................................
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------
1996
----------------------
<S> <C>
Net sales to non-affiliates...................................... $ 155,321,907
Net sales to affiliates.......................................... 6,977,827
----------------------
162,299,734
Cost of goods sold............................................... 133,828,091
----------------------
28,471,643
Selling, general and administrative expenses..................... 5,408,437
----------------------
Operating income (loss).......................................... 23,063,206
Interest expense................................................. 4,078,632
----------------------
Income (loss) before income taxes................................ 18,984,574
Income tax expense (benefit)..................................... (96,486)
----------------------
Net income (loss)................................................ 19,081,060
Retained earnings (accumulated deficit)..........................
Beginning of year.............................................. (13,448,951)
----------------------
End of year.................................................... $ 5,632,109
----------------------
----------------------
Net income (loss) per share...................................... $ 1.54
----------------------
----------------------
Weighted average shares outstanding.............................. 12,400,000
----------------------
----------------------
Supplementary information (unaudited):
Pro forma income before taxes.................................. $ 22,841,000
Pro forma income tax provision................................. 1,446,000
----------------------
Pro forma net income........................................... $ 21,395,000
----------------------
----------------------
Pro forma net income per share................................. $ 1.39
----------------------
----------------------
Pro forma weighted average shares outstanding.................. 15,400,000
----------------------
----------------------
</TABLE>
See accompanying notes.
F-4
<PAGE>
SPECIAL METALS CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1994 1995 1996
------------ ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................................... $ (6,888,698) $ 7,205,319 $19,081,060
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization..................................... 7,199,934 6,281,165 4,439,861
Provision for doubtful accounts................................... (125,000) 25,000 20,000
Loss on sale of fixed assets...................................... 17,684 5,336 1,449
Provision for deferred income taxes............................... -- -- (4,070,725)
Change in assets and liabilities:
Accounts receivable............................................ (5,345,300) (8,552,562) (1,779,007)
Inventories.................................................... 3,084,324 (9,954,746) (3,682,702)
Prepaid expenses............................................... 31,033 8,325 (122,253)
Income taxes................................................... 1,261,326 354,848 (261,934)
Accounts payable............................................... 288,535 7,796,914 (1,972,107)
Accrued payroll and employee benefits.......................... 866,627 1,433,266 (276,502)
Accrued other liabilities...................................... (182,193) 2,203,308 (1,034,565)
Other long-term liabilities.................................... 1,095,600 51,567 593,784
------------ ----------- -----------
Net cash provided by operating activities........................... 1,303,872 6,857,740 10,936,359
INVESTING ACTIVITIES
Capital expenditures................................................ (975,389) (1,963,297) (2,804,706)
Proceeds from sale of fixed assets.................................. 6,296 2,500 --
------------ ----------- -----------
Net cash used in investing activities............................... (969,093) (1,960,797) (2,804,706)
FINANCING ACTIVITIES
Proceeds from refinanced revolving credit facility.................. 26,000,000 -- 29,000,000
Proceeds from refinanced term loans................................. 25,000,000 -- 20,000,000
Borrowings under revolving credit facilities........................ 1,500,000 5,500,000 8,300,000
Repayment of revolving credit facilities............................ (26,000,000) (5,200,000) (39,100,000)
Repayment of subordinated notes payable to affiliates............... -- -- (7,000,000)
Repayments of term loans............................................ (27,500,000) (4,000,000) (18,000,000)
Financing and other deferred costs.................................. (1,316,831) (273,667) (321,364)
Payments on capital lease obligations............................... (205,470) (239,737) (287,155)
------------ ----------- -----------
Net cash used in financing activities............................... (2,522,301) (4,213,404) (7,408,519)
------------ ----------- -----------
Net increase (decrease) in cash..................................... (2,187,522) 683,539 723,134
Cash at beginning of year........................................... 4,116,780 1,929,258 2,612,797
------------ ----------- -----------
Cash at end of year................................................. $ 1,929,258 $ 2,612,797 $ 3,335,931
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
See accompanying notes.
F-5
<PAGE>
SPECIAL METALS CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
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.
Provision is made for anticipated losses at the time the loss is known.
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 over the estimated useful lives of the assets, principally
20-40 years for buildings and improvements, 12 years for machinery and
equipment, 3 years for data processing equipment, and 10 years for furniture and
fixtures. 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
F-6
<PAGE>
SPECIAL METALS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
1. ACCOUNTING POLICIES--(CONTINUED)
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.
Taxes on Income
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, 'Accounting for Income Taxes' (SFAS
109). Under SFAS 109, 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.
General business credits, including investment tax credits and research and
development credits, are accounted for using the flow-through method.
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.
Earnings Per Share
Earnings per share are computed based on the weighted average number of
shares outstanding during each period.
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, 1994, 1995 and
1996 was $1,288,000, $1,313,000 and $1,649,000, 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, 1994, 1995 AND 1996
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Raw materials and supplies........................... $10,511,647 $11,387,716
Work-in-process...................................... 28,544,693 31,351,326
----------- -----------
$39,056,340 $42,739,042
----------- -----------
----------- -----------
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Land................................................. $ 1,271,716 $ 1,271,716
Buildings and improvements........................... 17,848,497 18,419,567
Machinery and equipment.............................. 47,353,650 49,312,337
Furniture and fixtures............................... 356,562 356,562
Construction-in-progress............................. 699,527 1,011,237
----------- -----------
67,529,952 70,371,419
Less accumulated depreciation........................ 33,970,491 37,139,965
----------- -----------
$33,559,461 $33,231,454
----------- -----------
----------- -----------
</TABLE>
Depreciation expense for the years ended December 31, 1994, 1995 and 1996
was $5,649,000, $4,397,000 and $3,180,000, respectively.
F-8
<PAGE>
SPECIAL METALS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
4. OTHER ASSETS
Other long-term assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Patents and technology fees.......................... $ 8,472,000 $ 8,522,000
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............................. 1,289,976 270,825
Deferred lease costs................................. 75,843 75,843
----------- -----------
13,814,019 12,844,868
Less accumulated amortization........................ 9,523,036 9,492,289
----------- -----------
4,290,983 3,352,579
Intangible pension asset............................. 36,563 26,733
Other................................................ 57,231 57,231
----------- -----------
$ 4,384,777 $ 3,436,543
----------- -----------
----------- -----------
</TABLE>
5. LONG-TERM DEBT
Long-term debt outstanding was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Credit Agreements:
Term loans......................................... $18,000,000 $20,000,000
Revolving line of credit........................... 27,800,000 26,000,000
Other................................................ 10,000 10,000
----------- -----------
45,810,000 46,010,000
Current portion...................................... 5,000,000 4,000,000
----------- -----------
$40,810,000 $42,010,000
----------- -----------
----------- -----------
</TABLE>
During 1996, the Company entered into a new Credit Agreement on October 18,
1996 (the 'Credit Agreement') and refinanced all amounts outstanding under the
prior credit agreement. 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, maturing on
October 17, 2001.
All advances under the Credit Agreement bear interest at either a base
rate, as defined, a rate equal to the eurodollar rate, which equates to the New
York interbank offered rate, plus 1 1/4%, or the London interbank offered rate
('LIBOR') plus 1 1/4%. Interest is payable periodically in arrears. An annual
commitment fee of 1/4% on the unused available working capital commitment is due
monthly.
The weighted-average interest rate on the obligations outstanding at
December 31, 1996 was 7.0%.
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
F-9
<PAGE>
SPECIAL METALS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
5. LONG-TERM DEBT--(CONTINUED)
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.
The Company may prepay amounts owing under the Credit Agreement at its
option at any time.
In connection with the Company's obligations under the Credit Agreement,
the Company has granted mortgages or other security interests in the Company's
receivables, inventories and general intangibles. The Company is also subject to
certain affirmative and negative covenants.
The aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
REVOLVING
TERM LOANS CREDIT FACILITY OTHER TOTAL
----------- --------------- ------- -----------
<S> <C> <C> <C> <C>
1997................................. $ 4,000,000 $ -- $ -- $ 4,000,000
1998................................. 4,000,000 -- -- 4,000,000
1999................................. 4,000,000 -- -- 4,000,000
2000................................. 4,000,000 -- 10,000 4,010,000
2001................................. 4,000,000 26,000,000 -- 30,000,000
----------- --------------- ------- -----------
$20,000,000 $26,000,000 $10,000 $46,010,000
----------- --------------- ------- -----------
----------- --------------- ------- -----------
</TABLE>
6. CAPITAL LEASE OBLIGATIONS
The Company has 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,
------------------------
1995 1996
---------- ----------
<S> <C> <C>
Equipment............................................... $1,823,760 $1,862,665
Less: accumulated amortization.......................... 577,361 744,760
---------- ----------
$1,246,399 $1,117,905
---------- ----------
---------- ----------
</TABLE>
Future minimum lease payments for equipment under capital leases at
December 31, 1996 is as follows:
<TABLE>
<S> <C>
1997.......................................................... $ 354,473
1998.......................................................... 347,803
1999.......................................................... 190,966
2000.......................................................... 3,961
----------
897,203
Less: amount representing interest............................ 88,324
----------
Present value of net minimum lease payments (including
long-term obligations of $512,482).......................... $ 808,879
----------
----------
</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 $525,000, $500,000 and $460,000 for the years
ended December 31, 1994, 1995 and 1996, respectively. The following amounts
represent
F-10
<PAGE>
SPECIAL METALS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
7. OPERATING LEASES--(CONTINUED)
future minimum payments under operating leases with initial or remaining
noncancelable terms extending beyond one year:
<TABLE>
<S> <C>
1997.......................................................... $ 264,861
1998.......................................................... 156,844
1999.......................................................... 82,272
2000.......................................................... 77,322
2001.......................................................... 51,846
</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.
Net pension cost included the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Service cost--benefits earned during the period............ $ 813,781 $ 724,144 $ 1,192,816
Interest cost on projected benefit obligation.............. 2,288,129 2,416,313 2,406,612
Actual return on plan assets............................... (6,501) (4,636,283) (3,724,250)
Net amortization and deferral.............................. (1,666,588) 2,996,976 1,230,094
----------- ----------- -----------
Net periodic pension cost.................................. $ 1,428,821 $ 1,501,150 $ 1,105,272
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The following table sets forth the Plans' funded status:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation,
including vested benefit obligations of $30,022,000 and
$33,149,000, respectively.................................... $31,211,000 $34,312,400
----------- -----------
----------- -----------
Projected benefit obligation................................... $31,650,000 $35,203,200
Plan assets at fair value...................................... 26,830,100 30,910,200
----------- -----------
Projected benefit obligation in excess of plan assets.......... (4,819,900) (4,293,000)
Unrecognized net loss.......................................... 2,959,400 2,743,000
Prior service cost (credit).................................... (2,225,500) (1,309,100)
Adjustment to recognize minimum pension liability.............. (761,000) (1,189,100)
----------- -----------
Pension liability recorded in financial statements............. $(4,847,000) $(4,048,200)
----------- -----------
----------- -----------
</TABLE>
F-11
<PAGE>
SPECIAL METALS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
8. RETIREMENT PLANS--(CONTINUED)
The pension liability is recorded in the balance sheet as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
---------- ----------
<S> <C> <C>
Accrued payroll and employee benefits............................. $1,800,900 $1,002,100
Other long-term liabilities....................................... 3,046,100 3,046,100
---------- ----------
$4,847,000 $4,048,200
---------- ----------
---------- ----------
</TABLE>
The projected benefit obligation is based on a weighted-average assumed
discount rate of 7.5% at both December 31, 1995 and 1996, and an assumed rate of
compensation increase of 4%-5% at both December 31, 1995 and 1996. 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%
for all periods presented.
Assets of the plans are commingled in a Master Trust which invests in a
variety of investment vehicles, principally debt and equity securities.
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 $100,000, $200,000 and
$220,000 in 1994, 1995 and 1996, 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, 1995,
or 1996.
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. The
Company accounts for these benefits in accordance with 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.
F-12
<PAGE>
SPECIAL METALS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
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, 1996:
Accumulated postretirement benefits obligation:
Retirees................................................. $1,782,800 $1,013,600 $2,796,400
Fully eligible active participants....................... 198,900 343,600 542,500
Other active participants................................ 1,603,500 551,700 2,155,200
---------- ---------- ----------
Total accumulated postretirement benefits obligation........ 3,585,200 1,908,900 5,494,100
Unrecognized transition obligation.......................... 2,446,000 1,120,600 3,566,600
Unrecognized prior service cost............................. -- 139,300 139,300
Unrecognized net gain....................................... (97,600) (18,600) (116,200)
---------- ---------- ----------
Accrued postretirement obligation........................... $1,236,800 $ 667,600 $1,904,400
---------- ---------- ----------
---------- ---------- ----------
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
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-13
<PAGE>
SPECIAL METALS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
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>
1996:
Service cost--benefits earned during the period.................. $ 47,100 $ 19,900 $ 67,000
Interest cost.................................................... 251,300 135,300 386,600
Amortization..................................................... 204,600 86,500 291,100
-------- --------- --------
Net periodic postretirement benefit cost......................... $503,000 $ 241,700 $744,700
-------- --------- --------
-------- --------- --------
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
-------- --------- --------
-------- --------- --------
</TABLE>
For measuring the postretirement benefit obligation, a 10% 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
$148,000 and would increase the service cost and interest cost components of net
periodic postretirement benefit cost by $4,000 and $11,000, respectively. The
discount rate used in determining the accumulated postretirement benefit
obligation was 7.5% in 1996 and 1995.
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 previously received advances from two of its parent company's
shareholders. The amount outstanding at December 31, 1996 was $1,500,000
($8,500,000 at December 31, 1995). 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 certain restrictions, which
are based upon compliance with certain covenants, on the repayment of these
amounts. Accrued interest on these obligations totaled $1,587,000 at December
31, 1995 and was included in accrued other liabilities. The weighted average
interest rate was 7.47% at December 31, 1995 and 7.09% at December 31, 1996.
F-14
<PAGE>
SPECIAL METALS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
10. RELATED PARTY TRANSACTIONS--(CONTINUED)
The Company also has a $6,000,000 line of credit available from one of
SMTC's shareholders. No amounts were outstanding on this line at December 31,
1995 and 1996.
The Company and an affiliate share 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
$165,000, $165,000 and $212,000 for the years ended December 31, 1994, 1995 and
1996, respectively.
11. INCOME TAXES
Deferred income taxes are recognized for the tax consequences of temporary
differences between the financial statement carrying amounts and the tax bases
of existing assets and liabilities by applying enacted statutory rates
applicable to future years to the differences. 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,
-----------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal.................................................. $ -- $ 250,000 $ 3,792,661
State.................................................... 99,177 103,590 181,578
----------- ----------- -----------
99,177 353,590 3,974,239
Deferred................................................... -- -- (4,070,725)
----------- ----------- -----------
$ 99,177 $ 353,590 $ (96,486)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Income tax expense differs from the amount computed by applying the
statutory income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Income before income taxes at 34% in 1994 and 1995, and 35%
in 1996.................................................. $(2,342,200) $ 2,570,000 $ 6,644,600
Permanent income tax disallowances......................... 23,800 23,000 58,900
State taxes, net of federal benefit........................ 65,500 68,400 118,000
Net losses with no tax benefit and other changes in
valuation allowance...................................... 2,318,300 -- --
Benefit of Federal net operating loss carryforwards
previously reserved...................................... -- (2,057,800) (1,121,900)
Benefit of Federal AMT and other credit carryforwards
previously reserved...................................... -- (250,000) (1,996,700)
Elimination of valuation allowance......................... -- -- (3,734,600)
Other...................................................... 33,777 (10) (64,786)
----------- ----------- -----------
$ 99,177 $ 353,590 $ (96,486)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-15
<PAGE>
SPECIAL METALS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
11. INCOME TAXES--(CONTINUED)
Deferred tax liabilities and assets are recorded in the Company's balance
sheets as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996
------------ -----------
<S> <C> <C>
Deferred tax liabilities
Property, plant and equipment...................... $ (1,190,300) $(1,804,300)
Other.............................................. (26,000) (11,500)
------------ -----------
Gross deferred tax liabilities....................... (1,216,300) (1,815,800)
Deferred tax assets:
AMT credit carryforward............................ 2,055,600 309,600
Federal net operating loss carryforward............ 1,021,400 --
New York State net operating loss carryforward..... 316,800 --
New York State investment tax credit
carryforward.................................... 1,056,000 854,000
Accrued liabilities................................ 2,649,600 3,197,000
Employee retirement plans.......................... 1,785,600 1,868,500
Inventory.......................................... 256,900 281,000
Other.............................................. 317,375 43,700
------------ -----------
9,459,275 6,553,800
Valuation allowance................................ (8,040,700) --
------------ -----------
Net deferred tax assets.............................. 1,418,575 6,553,800
------------ -----------
Net deferred taxes................................... $ 202,275 $ 4,738,000
------------ -----------
------------ -----------
</TABLE>
The valuation allowance at December 31, 1993 and 1994 was $8,674,500 and
$11,332,500, respectively.
F-16
<PAGE>
SPECIAL METALS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
12. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996
------------ -----------
<S> <C> <C>
Pension obligation................................... $ 3,046,100 $ 3,046,100
Post retirement benefits obligation.................. 1,337,400 1,904,400
Environmental reserves............................... 2,965,625 3,465,625
Other................................................ 621,174 147,958
------------ -----------
$ 7,970,299 $ 8,564,083
------------ -----------
------------ -----------
</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, 1996, the Company had open swap
agreements with a notional principal value of approximately $8,000,000. The fair
value of the material covered by these contracts, based on the December 31, 1996
price quoted on the London Metal Exchange, was approximately $6,500,000. At
December 31, 1996, 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 to affiliates 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,
-----------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Europe.......................................... $20,079,400 $37,105,400 $35,528,400
Middle East..................................... 2,977,500 7,082,700 5,187,900
Other........................................... 952,500 2,442,100 4,121,400
----------- ----------- -----------
$24,009,400 $46,630,200 $44,837,700
----------- ----------- -----------
----------- ----------- -----------
</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 $4,435,000 and $(1,171,000), respectively,
for the year ended December 31, 1994, $4,090,000 and ($2,000), respectively, for
the year ended December 31, 1995 and $5,616,000 and $4,198,000, respectively,
for the year ended December 31, 1996.
F-17
<PAGE>
SPECIAL METALS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
15. STATEMENT OF CASH FLOW--SUPPLEMENTAL DISCLOSURES--(CONTINUED)
Non-cash activities:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Intangible pension asset........... $(967,709) $(159,717) $ (9,830)
Accumulated pension adjustment..... 198,572 526,312 (27,505)
Deferred taxes..................... -- -- 465,000
--------- --------- ---------
Accrued pension liability.......... $(769,137) $ 366,595 $ 427,665
--------- --------- ---------
--------- --------- ---------
</TABLE>
During 1995 and 1996, the Company acquired $98,000 and $49,000,
respectively, 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 $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.
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. 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.
F-18
<PAGE>
SPECIAL METALS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
16. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
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, 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. For the year ended December 31,
1996, sales made to the Company's three largest customers represented
approximately 18%, 13% and 11%, 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, 1995, accounts receivable from three customers represented
approximately 43% of total accounts receivable. At December 31, 1996, accounts
receivable from three customers represented approximately 45% of total accounts
receivable. No other customers accounted for over 10% of the Company's total
accounts receivable at December 31, 1995 and 1996.
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 at the date
of grant, divided by 10,000,000 and appreciation is calculated using aggregate
after tax profits after the date of grant. At December 31, 1995 and 1996, 50,000
Rights were outstanding, of which 10,000 and 20,000, respectively, were
currently exercisable. As of December 31, 1996, the Company had accrued $50,000
for amounts earned under the Rights Plan.
19. MERGER
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-19
<PAGE>
SPECIAL METALS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
20. UNAUDITED SUPPLEMENTARY INFORMATION
The accompanying financial statements and related supplementary pro forma
amounts have been prepared in contemplation of an initial public offering by the
Company of 3,000,000 shares (3,555,000 assuming the over-allotment option
granted to the underwriters is exercised in full) of the Company's common stock.
The Company intends to use the proceeds from this offering to retire existing
debt.
The unaudited pro forma net income for the year ended December 31, 1996 has
been prepared assuming consummation of the offering on January 1, 1996 and
recognizes a reduction of interest expense of $3.9 million, resulting from the
repayment of existing indebtedness with the proceeds of the offering, and
the repayment of the subordinated notes payable to affiliates which occurred
during 1996 and January 1997. Related income taxes have been provided at an
effective rate of 40%, which represents the estimated effective income tax rate
of the Company. The unaudited pro forma net income per share has been computed
giving effect to the assumed issuance, as of the beginning of the pro forma
period, of the 3,000,000 shares being offered.
F-20
<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........................................................................ $ 21,920
NASD filing fee............................................................................. 7,734
NASDAQ listing fee.......................................................................... 50,000
Accounting fees and expenses................................................................ 150,000
Legal fees and expenses..................................................................... 350,000
Printing and engraving expenses............................................................. 80,000
Registrar and transfer agent's fees......................................................... 3,500
Miscellaneous fees and expenses............................................................. 36,846
--------
Total................................................................................ $700,000
--------
--------
</TABLE>
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 will
be 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
- ------ --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement among the Company, the Selling Stockholders and the Underwriters.
3.1 Form of Amended and Restated Certificate of Incorporation of the Company.
3.2 Form of 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 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 Technical 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.
10.17 Amended and Restated Employment Agreement, dated December 30, 1994, between the Company and Donald R.
Muzyka.
10.18 Amended and Restated Employment Agreement, dated December 30, 1994, between the Company and Robert F.
Dropkin.
10.19 Employment Agreement, dated January 4, 1988, between the Company and Gernant E. Maurer, as amended.
10.20 Employment Agreement, dated December 30, 1994, between the Company and Donald C. Darling.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ --------------------------------------------------------------------------------------------------------
<S> <C>
10.21 Severance Agreement, dated December 30, 1994, between the Company and J. D. Page.
10.22 Severance Agreement, dated December 30, 1994, between the Company and T. E. MacDonald.
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.
27.1** Financial Data Schedule.
</TABLE>
- ------------------
* Previously filed.
** Replaces previously filed exhibit.
(b) Financial Statement Schedules
The following financial statement schedule is 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 3rd day of February, 1997.
SPECIAL METALS CORPORATION
By: /s/ DONALD R. MUZYKA
------------------------------------
Name: Donald R. Muzyka
Title: President and Chief Executive
Officer
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>
* Chairman of the Board of Directors February 3, 1997
- ------------------------------------------
Robert D. Halverstadt
/s/ DONALD R. MUZYKA President, Chief Executive Officer February 3, 1997
- ------------------------------------------ and Director (Principal Executive Officer)
Donald R. Muzyka
* Chief Financial Officer (Principal February 3, 1997
- ------------------------------------------ Financial and Accounting Officer)
Donald C. Darling and Director
* Director February 3, 1997
- ------------------------------------------
Robert F. Dropkin
* Director February 3, 1997
- ------------------------------------------
Edouard Duval
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------ ------------------------------------------- ------------------
<S> <C> <C>
* Director February 3, 1997
- ------------------------------------------
Antoine G. Treuille
* Director February 3, 1997
- ------------------------------------------
Raymond F. Decker
*By: /s/ DONALD R. MUZYKA
--------------------------------
Name: Donald R. Muzyka
Attorney-in-fact
</TABLE>
II-5
<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, 1995 and 1996, 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, 1996, and have issued our report thereon dated January
24, 1997 (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
January 24, 1997
S-1
<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, 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, 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, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts.............. $ 100 $ 69 $ $ 49(a) $ 120
Allowance for obsolescence................... 969 350 209(b) 1,110
---------- ------ ---------- ---------- ----------
Total...................................... $1,069 $ 419 $ 0 $258 $1,230
---------- ------ ---------- ---------- ----------
---------- ------ ---------- ---------- ----------
</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-2
<PAGE>
REGISTRATION NO. 333-18499
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
EXHIBITS
FILED WITH
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SPECIAL METALS CORPORATION
------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------------------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement among the Company, the Selling Stockholders and the
Underwriters.
3.1 -- Form of Amended and Restated Certificate of Incorporation of the Company.
3.2 -- Form of 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 -- 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 Technical 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.
10.17 -- Amended and Restated Employment Agreement, dated December 30, 1994, between the Company
and Donald R. Muzyka.
10.18 -- Amended and Restated Employment Agreement, dated December 30, 1994, between the Company
and Robert F. Dropkin.
10.19 -- Employment Agreement, dated January 4, 1988, between the Company and Gernant E. Maurer,
as amended.
10.20 -- Employment Agreement, dated December 30, 1994, between the Company and Donald C. Darling.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------------------
10.21 -- Severance Agreement, dated December 30, 1994, between the Company and J. D. Page.
<C> <C> <S>
10.22 -- Severance Agreement, dated December 30, 1994, between the Company and T. E. MacDonald.
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.
27.1** -- Financial Data Schedule
</TABLE>
- ------------------
* Previously filed.
** Replaces previously filed exhibit.
<PAGE>
S&S DRAFT 1/31/97
______________ Shares
SPECIAL METALS CORPORATION
Common Stock (par value $.01 per share)
UNDERWRITING AGREEMENT
___________, 1997
<PAGE>
_____________, 1997
Morgan Stanley & Co. Incorporated
Salomon Brothers Inc
Credit Lyonnais Securities (USA) Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
Special Metals Corporation, a Delaware corporation (the
"Company"), proposes to issue and sell to the several Underwriters named in
Schedule I hereto (the "Underwriters"), and certain stockholders of the Company
(the "Selling Stockholders") named in Schedule II, hereto severally propose to
sell to the several Underwriters, an aggregate of 3,700,000 shares of the
Common Stock (par value $.01 per share) of the Company (the "Firm Shares"), of
which 3,000,000 shares are to be issued and sold by the Company (the "Company
Shares") and 700,000 shares are to be sold by the Selling Stockholders, each
Selling Stockholder selling the amount set forth opposite such Selling
Stockholder's name in Schedule II hereto.
The Company also proposes to issue and sell to the several
Underwriters not more than an additional 555,000 shares of its Common Stock
(par value $.01 per share) (the "Additional Shares") if and to the extent that
you, as managers of the offering, shall have determined to exercise, on behalf
of the Underwriters, the right to purchase such shares of Common Stock granted
to the Underwriters in Section 4 hereof. The Firm Shares and the Additional
Shares are hereinafter collectively referred to as the "Shares". The shares of
Common Stock (par value $.01 per share) of the Company to be outstanding after
giving effect to the sales contemplated hereby are hereinafter referred to as
the "Common Stock". The Company and the Selling Stockholders are hereinafter
collectively referred to as the "Sellers".
The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement, including a prospectus,
relating to the Shares. The registration statement as amended at the time it
becomes effective, including the exhibits thereto and the information (if any)
deemed to be part of the registration statement at the time of effectiveness
pursuant to Rule 430A under the Securities Act of 1933, as amended (the
"Securities Act"), is hereinafter referred to as the "Original Registration
Statement"; any registration statement filed pursuant to Rule 462(b) under the
Securities Act is hereinafter
<PAGE>
2
referred to as the "Rule 462(b) Registration Statement"; the Original
Registration Statement and any Rule 462(b) Registration Statement are
hereinafter referred to collectively as the "Registration Statement"; the
prospectus in the form first used to confirm sales of Shares is hereinafter
referred to as the "Prospectus".
As part of the offering contemplated by this Agreement, the
Underwriters have agreed to reserve up to 100,000 Shares, for sale to certain
employees of the Company (and to certain other persons designated by the
Company) (collectively, "Participants"), as set forth in the Prospectus under
the heading "Underwriters" (the "Directed Share Program"). The Shares to be
sold by the Underwriters pursuant to the Directed Share Program (the "Directed
Shares") will be sold by the Underwriters pursuant to this Agreement at the
Public Offering Price (as defined). Any Directed Shares not orally confirmed
for purchase by any Participants by the end of the first business day after the
date on which this Agreement is executed will be offered to the public by the
Underwriters as set forth in the Prospectus.
1. Representations and Warranties of the Company. The Company
represents and warrants to and agrees with each of the Underwriters that:
(a) The Original Registration Statement has become effective,
and if the Company has elected to rely upon Rule 462(b) under the
Securities Act, the Rule 462(b) Registration Statement shall have
become effective not later than the earlier of (i) 10:00 p.m. Eastern
time on the date hereof and (ii) the time confirmations are sent or
given, as specified by Rule 462(b) under the Securities Act; no stop
order suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for such purpose are pending before or, to
the knowledge of the Company, threatened by the Commission.
(b) (i) The Registration Statement, when it became effective,
did not contain and, as amended or supplemented, if applicable, will
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement and
the Prospectus comply and, as amended or supplemented, if applicable,
will comply in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder and
(iii) the Prospectus does not contain and, as amended or supplemented,
if applicable, will not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, except that the representations and
warranties set forth in this paragraph 1(b) do not apply to statements
or omissions in the Registration Statement or the Prospectus based
upon information relating to any Underwriter furnished to the Company
in writing by such Underwriter through you expressly for use therein.
<PAGE>
3
(c) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(d) Each subsidiary of the Company has been duly
incorporated, is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has the
corporate power and authority to own its property and to conduct its
business as presently conducted and is duly qualified to transact
business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to
be so qualified or be in good standing would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole
(it being understood that the Company's Delaware subsidiary, Special
Metals International Corporation, is an inactive subsidiary); all of
the issued shares of capital stock of each subsidiary of the Company,
other than one share of Udimet Special Metals Ltd., which is owned by
a director thereof, have been duly and validly authorized and issued,
are fully paid and non-assessable and are owned directly by the
Company, free and clear of all liens, encumbrances, equities or
claims.
(e) The authorized capital stock of the Company conforms in
all material respects as to legal matters to the description thereof
contained in the Prospectus.
(f) The shares of Common Stock (including the Shares to be
sold by the Selling Stockholders) outstanding prior to the issuance of
the Company Shares have been duly authorized and are validly issued,
fully paid and non-assessable.
(g) The Company Shares have been duly authorized and, when
issued and delivered in accordance with the terms of this Agreement,
will be validly issued, fully paid and non-assessable, and the
issuance of such Shares will not be subject to any preemptive or
similar rights.
(h) This Agreement and each of the Irrevocable Power of
Attorney and Custody Agreements (collectively, the "Power of Attorney
and Custody Agreements"), each dated the date hereof, by each Selling
Stockholder and the Company as Custodian (the "Custodian"), appointing
certain individuals as the Selling Stockholders' attorneys-in-fact to
the extent set forth therein relating to the
<PAGE>
4
transactions contemplated hereby and by the Registration Statement
have been duly authorized, executed and delivered by the Company.
(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
and the Power of Attorney and Custody Agreements, and the issuance and
delivery of the Company Shares will not contravene any provision of
applicable law or the articles of incorporation or by-laws of the
Company or any agreement or other instrument binding upon the Company
or any of its subsidiaries that is material to the Company and its
subsidiaries, taken as a whole, or any judgment, order or decree of
any governmental body, agency or court having jurisdiction over the
Company or any subsidiary, and no consent, approval, authorization or
order of, or qualification with, any governmental body or agency is
required for the performance by the Company of its obligations under
this Agreement, except such as may be required by the securities or
Blue Sky laws of the various states or foreign securities laws in
connection with the offer and sale of the Shares and except for any
such consent, approval authorization, order or qualification the
failure of which to obtain would not result in a material adverse
change in the condition, financial or otherwise, or in the earnings,
business or operations of the Company and its subsidiaries, taken as a
whole.
(j) There has not occurred any material adverse change, or
any development involving a prospective material adverse change, in
the condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from
that set forth in the Prospectus (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement).
(k) There are no legal or governmental proceedings pending
or, to the knowledge of the Company, threatened to which the Company
or any of its subsidiaries is a party or to which any of the
properties of the Company or any of its subsidiaries is subject that
are required to be described in the Registration Statement or the
Prospectus and are not so described or any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to
the Registration Statement that are not described or filed as
required.
(l) Except as described in the Prospectus, each of the
Company and its subsidiaries has all necessary consents,
authorizations, approvals, orders, certificates and permits of and
from, and has made all declarations and filings with, all federal,
state, local and other governmental authorities, all self-regulatory
organizations and all courts and other tribunals, to own, lease,
license and use its properties and assets and to conduct its business
in the manner described in the Prospectus, except to the extent that
the failure to obtain such consents, authorizations, approvals,
orders,
<PAGE>
5
certificates and permits or make such declarations and filings would
not have a material adverse effect on the Company and its
subsidiaries, taken as a whole. Neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such consent, authorization,
approval, order, certificate or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in a material adverse change in the condition,
financial or otherwise, or in the earnings, business or operations of
the Company and its subsidiaries, taken as a whole, except as
described in or contemplated by the Prospectus.
(m) Each preliminary prospectus filed as part of the
registration statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Securities Act or
incorporated by reference into or filed as part of the Rule 462(b)
Registration Statement, complied when so filed in all material
respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.
(n) The Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as such term is defined in the Investment Company Act of
1940, as amended.
(o) Except as described in the Prospectus, the Company and
its subsidiaries (i) are in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("Environmental
Laws"), (ii) have received all permits, licenses or other approvals
required of them under applicable Environmental Laws to conduct their
respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required
permits, licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals would not,
singly or in the aggregate, have a material adverse effect on the
Company and its subsidiaries, taken as a whole.
(p) In the ordinary course of its business, the Company
conducts a periodic review of the effect of Environmental Laws on the
business, operations and properties of the Company and its
subsidiaries, in the course of which it identifies and evaluates
associated costs and liabilities (including, without limitation, any
capital or operating expenditures required for clean-up, closure of
properties or compliance with Environmental Laws or any permit,
license or approval, any related constraints on operating activities
and any potential liabilities to third parties). On the basis of such
<PAGE>
6
review, except as described in the Prospectus, the Company has
reasonably concluded that such associated costs and liabilities would
not, singly or in the aggregate, have a material adverse effect on the
Company and its subsidiaries, taken as a whole.
(q) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
(1) the Company and its subsidiaries have not incurred any material
liability or obligation, direct or contingent, nor entered into any
material transaction not in the ordinary course of business; (2) the
Company has not purchased any of its outstanding capital stock, nor
declared, paid or otherwise made any dividend or distribution of any
kind on its capital stock; and (3) there has not been any material
change in the capital stock, short-term debt or long-term debt of the
Company and its consolidated subsidiaries, except for borrowings and
repayments under the Company's credit facility or repayment of the
Company's subordinated notes as described in or contemplated by the
Prospectus.
(r) The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title
to all personal property in each case owned by them which is material
to the business of the Company and its subsidiaries, in each case free
and clear of all liens, encumbrances and defects except for any liens
or encumbrances created in connection with the Company's Credit
Agreement dated October 18, 1996 and except such as are described in
the Prospectus or such as do not materially affect the value of such
property and do not materially interfere with the use made and
proposed to be made of such property by the Company and its
subsidiaries; and any material real property and buildings held under
lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are
not material and do not materially interfere with the use made and
proposed to be made of such property and buildings by the Company and
its subsidiaries, in each case except as described in or contemplated
by the Prospectus.
(s) The Company and its subsidiaries own or otherwise have
the right to use, or can acquire on reasonable terms, all material
patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names currently employed by them
in connection with the business now operated by them, and neither the
Company nor any of its subsidiaries has received any written notice of
infringement of or conflict with asserted rights of others with
respect to any of the foregoing which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, could
reasonably be expected to result in any material adverse change in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole.
<PAGE>
7
(t) Except as described in the Prospectus, no material labor
dispute with the employees of the Company or any of its subsidiaries
exists or, to the knowledge of the Company, is threatened.
(u) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses
and risks and in such amounts as are prudent and customary in the
businesses in which they are engaged; neither the Company nor any such
subsidiary [during the last five years] has been refused any insurance
coverage sought or applied for; and neither the Company nor any such
subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or
to obtain similar coverage from similar insurers as may be necessary
to continue its business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or the
earnings, business or operations of the Company and its subsidiaries,
taken as a whole, except as described in or contemplated by the
Prospectus.
(v) The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient to provide
reasonable assurance that (1) transactions are executed in accordance
with management's general or specific authorizations; (2) transactions
are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles
and to maintain asset accountability; (3) access to assets is
permitted only in accordance with management's general or specific
authorization; and (4) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(w) There are no holders of securities (debt or equity) of
the Company or any of its subsidiaries, or holders of rights, options,
or warrants to obtain securities of the Company or any of its
subsidiaries, who have the right, during the 180 day period after the
date of this Agreement to require the Company to register securities
held by them under the Securities Act, other than holders who have
waived such right for the 180 day period after the date of the initial
public offering of the Shares and have waived their rights with
respect to the inclusion of their securities in the Registration
Statement.
(x) The Company has not offered, or caused the Underwriters
to offer, Shares to any person pursuant to the Directed Share Program
with the specific intent to unlawfully influence (i) a customer or
supplier of the Company to alter the customer's or supplier's level or
type of business with the Company, or (ii) a trade journalist or
publication to write or publish favorable information about the
Company or its products.
<PAGE>
8
Furthermore, the Company represents and warrants to the
Underwriters that (i) the Registration Statement, the Prospectus and any
preliminary prospectus comply, and any further amendments or supplements
thereto will comply, in all material respects, with any applicable laws or
regulations of foreign jurisdictions in which the Prospectus or any preliminary
prospectus, as amended or supplemented, if applicable, is distributed in
connection with the Directed Share Program, and that (ii) no authorization,
approval, consent, license, order, registration or qualification of or with any
government, governmental instrumentality or court, other than such as have been
obtained, is necessary under the securities laws and regulations of foreign
jurisdictions in which the Directed Shares are offered outside the United
States.
2. Representations and Warranties of the Selling
Stockholders. Each of the Selling Stockholders, severally and not jointly,
represents and warrants to and agrees with each of the Underwriters that:
(a) This Agreement has been duly authorized, executed and
delivered by or on behalf of such Selling Stockholder.
(b) The execution and delivery by such Selling Stockholder
of, and the performance by such Selling Stockholder of its obligations
under, this Agreement and its Power of Attorney and Custody Agreement
will not contravene any provision of applicable law, or the
certificate of incorporation or by-laws of such Selling Stockholder
(if such Selling Stockholder is a corporation), or any material
agreement or other instrument binding upon such Selling Stockholder or
any judgment, order or decree of any governmental body, agency or
court having jurisdiction over such Selling Stockholder, and no
consent, approval, authorization or order of, or qualification with,
any governmental body or agency is required for the performance by
such Selling Stockholder of its obligations under this Agreement or
the Power of Attorney and Custody Agreement of such Selling
Stockholder, except such as may be required by the securities or Blue
Sky laws of the various states or foreign securities laws in
connection with the offer and sale of the Shares.
(c) Such Selling Stockholder has, and on the Closing Date (as
defined below) will have, valid and marketable title to the Shares to
be sold by such Selling Stockholder and the legal right and power, and
all authorization and approval required by law, to enter into this
Agreement and its Power of Attorney and Custody Agreement and to sell,
transfer and deliver the Shares to be sold by such Selling
Stockholder.
(d) The Power of Attorney and Custody Agreement of such
Selling Stockholder has been duly authorized, executed and delivered
by such Selling Stockholder and is a valid and binding agreement of
such Selling Stockholder,
<PAGE>
9
enforceable in accordance with its terms, except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (ii) the
availability of equitable remedies may be limited by equitable
principles of general applicability.
(e) Delivery of the Shares to be sold by such Selling
Stockholder pursuant to this Agreement will pass valid and marketable
title to such Shares free and clear of any security interests, claims,
liens, equities and other encumbrances.
(f) All information furnished to the Company in writing by or
on behalf of such Selling Stockholder expressly for use (i) in the
Registration Statement will, on the Closing Date (as defined below),
be true, correct and complete, and will not, on the Closing Date,
contain any untrue statement of material fact or omit to state any
material fact necessary in order to make such information not
misleading and (ii) in the Prospectus is, and on the Closing Date,
will be, true, correct and complete, and does not, and on the Closing
Date, will not, contain any untrue statement of material fact or omit
to state any material fact necessary in order to make such
information, in light of the circumstances in which such information
was provided, not misleading.
(g) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to, or that might be
reasonably expected to, cause or result in stabilization or
manipulation of the price of the Common Stock (provided that such
Selling Stockholder does not make any representation as to any actions
that may be taken by any Underwriter); and such Selling Stockholder
has not distributed and will not distribute any prospectus or other
offering material in connection with the offering and sale of the
Shares other than any preliminary prospectus filed with the Commission
or the Prospectus or other material permitted by the Securities Act.
(h) Such Selling Stockholder has no direct or indirect
association or affiliation with any National Association of Securities
Dealers, Inc. ("NASD") members and has had no arrangements, dealings
or affiliation with, and is not aware of any information relating to
underwriting compensation payable to or for the benefit of, any NASD
member, person associated with a member or any Underwriter, relating
to the offering of Shares that has not been disclosed in the
Registration Statement.
3. Representations of the Underwriters. Each Underwriter
represents and, during the period of six months from the date hereof, agrees
that (i) it has not offered or sold and will not offer or sell any Shares to
persons 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 purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the
<PAGE>
10
United Kingdom within the meaning of the Public Offers of Securities
Regulations 1995 (the "Regulations"); (ii) 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 in,
from or otherwise involving the United Kingdom; and (iii) 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 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.
4. Agreements to Sell and Purchase. Each Seller, severally
and not jointly, hereby agrees to sell to the several Underwriters, and each
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees, severally
and not jointly, to purchase from such Seller at $______ a share (the "Purchase
Price") the number of Firm Shares (subject to such adjustments to eliminate
fractional shares as you may determine) that bears the same proportion to the
number of Firm Shares to be sold by such Seller (as specified in Schedule II
hereto) as the number of Firm Shares set forth in Schedule I hereto opposite
the name of such Underwriter bears to the total number of Firm Shares.
On the basis of the representations and warranties contained
in this Agreement, and subject to its terms and conditions, the Company agrees
to sell to the Underwriters the Additional Shares, and the Underwriters shall
have a one-time right to purchase, severally and not jointly, up to _________
Additional Shares at the Purchase Price. If you, on behalf of the Underwriters,
elect to exercise such option, you shall so notify the Company in writing not
later than 30 days after the date of this Agreement, which notice shall specify
the number of Additional Shares to be purchased by the Underwriters and the
date on which such shares are to be purchased. Such date may be the same as the
Closing Date (as defined below) but not earlier than the Closing Date nor later
than ten business days after the date of such notice. Additional Shares may be
purchased as provided in Section 6 hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each Underwriter agrees, severally and
not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Additional Shares to be purchased as the
number of Firm Shares set forth in Schedule I hereto opposite the name of such
Underwriter bears to the total number of Firm Shares.
Each Seller hereby agrees that, without the prior written
consent of Morgan Stanley & Co. Incorporated ("Morgan Stanley") on behalf of
the Underwriters, it will not, during the period ending 180 days after the date
of the Prospectus, (i) offer, pledge, sell, contract to sell, sell any option
or contract to purchase, purchase any option or contract to
<PAGE>
11
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 now owned by such Seller or
are hereafter acquired in connection with the public offering of Common Stock
hereunder) or (ii) enter into any swap or other agreement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
such shares of the 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. The foregoing sentence shall not apply
to (A) the Shares to be sold hereunder or (B) 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. In
addition, each Selling Stockholder, agrees that, without the prior written
consent of Morgan Stanley on behalf of the Underwriters, it will not, during
the period ending 180 days after the date of the Prospectus, make any demand
for, or exercise any right with respect to, the registration of any shares of
Common Stock or any security convertible into or exercisable or exchangeable
for Common Stock.
5. Terms of Public Offering. The Sellers are advised by you
that the Underwriters propose to make a public offering of their respective
portions of the Shares as soon after the Original Registration Statement and
this Agreement have become effective as in your judgment is advisable. The
Sellers are further advised by you that the Shares are to be offered to the
public initially at $____ a share (the "Public Offering Price") and to certain
dealers selected by you at a price that represents a concession not in excess
of $____ a share under the Public Offering Price, and that any Underwriter may
allow, and such dealers may reallow, a concession, not in excess of $____ a
share, to any Underwriter or to certain other dealers.
6. Payment and Delivery. Payment for the Firm Shares to be
sold by each Seller shall be made by wire transfers to the Company's account
and the Custodian's account (for the benefit of the Selling Stockholders) in
federal funds or other funds immediately available in New York City against
delivery of such Firm Shares for the respective accounts of the several
Underwriters at the office of Shearman & Sterling, 599 Lexington Avenue, New
York, New York 10022 at 9:00 A.M., New York City time, on _________, 1997, or
at such other time on the same or such other date, not later than _________,
1997, as shall be designated in writing by you. The time and date of such
payment are hereinafter referred to as the "Closing Date".
Payment for any Additional Shares shall be made by wire
transfer payable to the Company's account in federal funds or other funds
immediately available in New York City against delivery of such Additional
Shares for the respective accounts of the several Underwriters at the office of
Shearman & Sterling, 599 Lexington Avenue, New York, New York 10022 at 9:00
A.M., New York City time, on the date specified in the notice
<PAGE>
12
described in Section 4 or at such other time on the same or on such other date,
in any event not later than _______ 1997, as shall be designated in writing by
you. The time and date of such payment are hereinafter referred to as the
"Option Closing Date".
Certificates for the Firm Shares and Additional Shares shall
be in definitive form and registered in such names and in such denominations as
you shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes
payable in connection with the transfer of the Shares to the Underwriters duly
paid, against payment of the Purchase Price therefor.
7. Conditions to the Underwriters' Obligations. The
obligations of the Sellers and the several obligations of the Underwriters
hereunder are subject to the condition that the Registration Statement shall
have become effective not later than the date hereof.
The several obligations of the Underwriters are subject to
the following further conditions:
(a) Subsequent to the execution and delivery of this
Agreement and prior to the Closing Date:
(i) there shall not have occurred any downgrading,
nor shall any notice have been given of any intended or
potential downgrading or of any review for a possible change
that does not indicate the direction of the possible change,
in the rating accorded any of the Company's securities by any
"nationally recognized statistical rating organization", as
such term is defined for purposes of Rule 436(g)(2) under the
Securities Act; and
(ii) there shall not have occurred any change, or
any development involving a prospective change, in the
condition, financial or otherwise, or in the earnings,
business or operations of the Company and its subsidiaries,
taken as a whole, from that set forth in the Prospectus
(exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement) that, in your
judgment, is material and adverse and that makes it, in your
judgment, impracticable to market the Shares on the terms and
in the manner contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date
a certificate, dated the Closing Date and signed by an executive
officer of the Company, to the effect set forth in clause (a)(i) above
and to the effect that the representations and
<PAGE>
13
warranties of the Company contained in this Agreement are true and
correct as of the Closing Date and that the Company has complied with
all of the agreements and satisfied all of the conditions on its part
to be performed or satisfied hereunder on or before the Closing Date.
The officer signing and delivering such certificate may rely
upon the best of his knowledge as to proceedings threatened.
(c) No stop order suspending the effectiveness of the
Registration Statement shall be in effect and no proceedings for such
purpose shall be pending before or, to the knowledge of the Company or
the Underwriters, threatened by the Commission.
(d) The Underwriters shall have received on the Closing Date
an opinion of Paul, Weiss, Rifkind, Wharton & Garrison, special
counsel for the Company, dated the Closing Date, in the form attached
hereto as Exhibit A.
The opinion of Paul, Weiss, Rifkind, Wharton & Garrison shall
be rendered to the Underwriters at the request of the Company and
shall so state therein.
(e) The Underwriters shall have received on the Closing Date
an opinion of Paul, Weiss, Rifkind, Wharton & Garrison and Arendt &
Medernach, U.S. and Luxembourg counsel, respectively, for the Selling
Stockholders, dated the Closing Date, in the form attached hereto as
Exhibit B(i) and Exhibit B(ii), respectively.
The opinions of Paul, Weiss, Rifkind, Wharton & Garrison and
Arendt & Medernach shall be rendered to the Underwriters at the
request of the Selling Stockholders and shall so state therein.
(f) The Underwriters shall have received on the Closing Date
an opinion of Shearman & Sterling, counsel for the Underwriters, dated
the Closing Date, with respect to the Registration Statement and the
Prospectus and such other related matters as the Underwriters may
reasonably request, and such counsel shall have received such
documents and information as they may reasonably request to enable
them to pass upon such matters.
(g) The Underwriters shall have received, on each of the date
hereof and the Closing Date, a letter dated the date hereof or the
Closing Date, as the case may be, in form and substance satisfactory
to the Underwriters, from Ernst & Young LLP, independent public
accountants, containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial
information contained in the Registration
<PAGE>
14
Statement and the Prospectus; provided that the letter delivered on
the Closing Date shall use a "cut-off date" not earlier than the date
hereof.
(h) The "lock-up" agreements, each substantially in the form
of Exhibit C hereto, between you and Societe Industrielle Materiaux
Avances S.A. and officers and directors of the Company relating to
sales and certain other dispositions of shares of Common Stock or
certain other securities, delivered to you on or before the date
hereof, shall be in full force and effect on the Closing Date.
(i) The Underwriters shall have received on the Closing Date
certificates dated the Closing Date and signed by the Selling
Stockholders or by attorneys-in-fact of the Selling Stockholders, to
the effect that the representations and warranties of each such
Selling Stockholder contained in this Agreement are true and correct
in all material respects as of the Closing Date and that each such
Selling Stockholder has complied with all of the agreements and
satisfied all of the conditions on its part to be performed or
satisfied hereunder on or before the Closing Date.
(j) The Company shall have complied with the provisions of
Section 8(a) hereof with respect to the furnishing of Prospectuses on
the business day next succeeding the date of this Agreement, in such
quantities as you shall have reasonably requested.
(k) The Shares shall have been approved for quotation on the
Nasdaq National Market by the Nasdaq Stock Market, Inc.
(l) True and complete copies of the waivers by the lenders
under the Company's Credit Agreement dated as of October 18, 1996
shall be delivered to you on or before the date hereof and shall be in
full force and effect on the Closing Date.
(m) The merger of the Company with Special Metals and
Technologies Corporation ("SMTC") pursuant to which each share of
common stock of SMTC will be converted into 12,400 shares of Common
Stock shall have been consummated prior to the Closing Date.
(n) The Underwriters shall have received on the Closing Date
a certificate, dated the Closing Date and signed by Robert F. Dropkin,
Vice President, Secretary and Chief Legal Counsel of the Company, in
form and substance satisfactory to Morgan Stanley.
(o) You shall have received such other documents and
certificates as are reasonably requested by you or your counsel.
<PAGE>
15
The several obligations of the Underwriters to purchase
Additional Shares hereunder are subject to the delivery to you on the Option
Closing Date of such documents as you may reasonably request with respect to
the good standing of the Company, the due authorization and issuance of the
Additional Shares and other matters related to the issuance of the Additional
Shares.
8. Covenants of the Company. In further consideration of the
agreements of the Underwriters herein contained, the Company covenants with
each Underwriter as follows:
(a) To furnish to you, without charge, three signed copies of
the Registration Statement (including exhibits thereto) and for
delivery to each other Underwriter a conformed copy of the
Registration Statement (without exhibits thereto) and to furnish to
you in New York City, without charge, prior to 5:00 P.M. New York City
time on the business day next succeeding the date of this Agreement
and during the period mentioned in Section (c) below, as many copies
of the Prospectus and any supplements and amendments thereto or to the
Registration Statement as you may reasonably request.
(b) Before amending or supplementing the Registration
Statement or the Prospectus, to furnish to you a copy of each such
proposed amendment or supplement and not to file any such proposed
amendment or supplement to which you reasonably object in a timely
manner; and to file with the Commission within the applicable period
specified in Rule 424(b) under the Securities Act any prospectus
required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the
Underwriters the Prospectus is required by law to be delivered in
connection with sales by an Underwriter or dealer, any event shall
occur or condition exist as a result of which it is necessary to amend
or supplement the Prospectus in order to make the statements therein,
in the light of the circumstances when the Prospectus is delivered to
a purchaser, not misleading, or if, in the opinion of counsel for the
Underwriters, it is necessary to amend or supplement the Prospectus to
comply with applicable law, forthwith to prepare, file with the
Commission and furnish, at its own expense, to the Underwriters and to
the dealers (whose names and addresses you will furnish to the
Company) to which Shares may have been sold by you on behalf of the
Underwriters and to any other dealers upon request, either amendments
or supplements to the Prospectus so that the statements in the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will
comply with law.
<PAGE>
16
(d) To endeavor to qualify the Shares for offer and sale
under the securities or Blue Sky laws of such jurisdictions, to the
extent applicable, as you shall reasonably request; provided, however,
that no such qualification shall be required in any jurisdiction
where, as a result thereof, the Company would be subject to service of
general process or to taxation as a foreign corporation doing business
in such jurisdiction.
(e) If the Company elects to rely on Rule 462(b) under the
Securities Act, the Company shall file a Rule 462(b) Registration
Statement with the Commission in compliance with Rule 462(b) under the
Securities Act no later than the earlier of (i) 10:00 p.m. Eastern
time on the date hereof and (ii) the time confirmations are sent or
given, as specified by Rule 462(b)(2) under the Securities Act, and
shall pay the applicable fees in accordance with Rule 111 under the
Securities Act.
(f) To make generally available to the Company's security
holders and to you as soon as practicable, but no later than 60 days
after the end of the twelve-month period beginning at the end of the
Company's fiscal quarter during which the effective date of the
Original Registration Statement occurs, an earnings statement of the
Company covering such twelve-month period that satisfies the
provisions of Section 11(a) of the Securities Act and the rules and
regulations of the Commission thereunder.
(g) To use the net proceeds received by the Company from the
sale of the Shares hereunder in the manner specified in the Prospectus
under the caption "Use of Proceeds".
(h) That in connection with the Directed Share Program, the
Company will ensure that the Directed Shares will be restricted to the
extent required by the NASD or the NASD rules from sale, transfer,
assignment, pledge or hypothecation for a period of three months
following the date of the effectiveness of the Registration Statement.
The Underwriters will notify the Company as to which Participants will
need to be so restricted. At the request of the Underwriters, the
Company will direct the transfer agent to place stop transfer
restrictions upon such securities for such period of time.
[(i) To pay all fees and disbursements of counsel incurred by
the Underwriters in connection with the Directed Share Program and
stamp duties, similar taxes or duties or other taxes, if any, incurred
by the Underwriters in connection with the Directed Share Program.]
Furthermore, the Company covenants with the Underwriters that
the Company will comply with all applicable securities and other applicable
laws, rules and regulations in
<PAGE>
17
each foreign jurisdiction in which the Directed Shares are offered in
connection with the Directed Share Program.
9. Covenants of the Selling Stockholders. In further
consideration of the agreements of the Underwriters herein contained, each of
the Selling Stockholders severally and not jointly covenants as follows:
(a) Whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated, to pay or cause to be
paid (i) all taxes, if any, on the transfer and sale of the Shares
being sold by such Selling Stockholder and (ii) such Selling
Stockholder's pro rata share (determined by dividing the number of
Shares sold by such Selling Stockholder by the total number of Shares
sold by all Sellers) of all costs and expenses incident to the
performance of the obligations of such Selling Stockholder under this
Agreement, including, but not limited to, all expenses incident to the
delivery of the Shares and the fees and expenses of counsel and
accountants for such Selling Stockholder.
(b) Such Selling Stockholder has carefully reviewed the
Registration Statement and will carefully review, promptly upon
receipt, each amendment thereto provided to such Selling Stockholder.
Such parts of the Registration Statement, including the tables and
notes thereto, that specifically relate to information provided by
such Selling Stockholder in writing expressly for use in the
Registration Statement, do not contain an untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in the
light of the circumstances in which they were made, not misleading. At
any time during the period from the date hereof through the Closing
Date, if there is any change in the information referred to in the
preceding sentence relating to such Selling Stockholder, such Selling
Stockholder will immediately notify the Company of such change.
(c) Such Selling Stockholder shall cooperate fully with the
Company in supplying such information relating to such Selling
Stockholder and the Shares as the Company may reasonably request for
use in preparation of the Registration Statement and all other
documents reasonably necessary or desirable in connection with the
offering of Shares. In addition, such Selling Stockholder shall
furnish to the Company (or, at the Company's request, to the
Underwriters or other parties) such further certificates and documents
confirming the representations and warranties contained herein, or
with respect to related matters, as the Company may reasonably
request.
10. Expenses. Whether or not the transactions contemplated in
this Agreement are consummated or this Agreement is terminated, the Sellers
agree to pay or
<PAGE>
18
cause to be paid (except as provided for herein) all expenses incident to the
performance of their obligations under this Agreement, including: (i) the fees,
disbursements and expenses of the Company's counsel, the Company's accountants
and counsel for the Selling Stockholders in connection with the registration
and delivery of the Shares under the Securities Act and all other fees or
expenses in connection with the preparation and filing of the Registration
Statement, any preliminary prospectus, the Prospectus and amendments and
supplements to any of the foregoing, including (except as otherwise agreed) all
costs associated with the printing and mailing and delivery to the Underwriters
and dealers of the Registration Statement and the Prospectus, in the quantities
hereinabove specified, (ii) all costs and expenses related to the transfer and
delivery of the Shares to the Underwriters, including any transfer or other
taxes payable thereon, (iii) the cost of printing or producing any preliminary
or supplementary Blue Sky memorandum in connection with the offer and sale of
the Shares under state securities laws and all expenses in connection with the
qualification of the Shares for offer and sale under state securities laws as
provided in Section 8(d) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection with such
qualification and in connection with any preliminary or supplementary Blue Sky
memorandum, (iv) all filing fees and disbursements of counsel to the
Underwriters incurred in connection with the review and qualification of the
offering of the Shares by the NASD, (v) all fees of counsel incurred on behalf
of or disbursements by Morgan Stanley in its capacity as "qualified independent
underwriter" within the meaning of Rule 2720 of the NASD's Conduct Rules
("QIU"), (vi) all fees and expenses in connection with the preparation and
filing of the registration statement on Form 8-A relating to the Common Stock
and all costs and expenses incident to quoting the Shares on the Nasdaq
National Market System, (vii) the cost of printing certificates representing
the Shares, (viii) the costs and charges of any transfer agent, registrar or
depositary and (ix) except as otherwise agreed, the costs and expenses of the
Company relating to investor presentations on any "road show" undertaken in
connection with the marketing of the offering of the Shares, including, without
limitation, expenses associated with the production of road show slides and
graphics, fees and expenses of any consultants engaged in connection with the
road show presentations with the prior approval of the Company, travel and
lodging expenses of the representatives and officers of the Company and any
such consultants, and the cost of any aircraft chartered in connection with the
road show. It is understood, however, that except as provided in this Section,
Section 11 entitled "Indemnity and Contribution", and the last paragraph of
Section 13 below, the Underwriters will pay all of their costs and expenses,
including fees and disbursements of their counsel, stock transfer taxes payable
on resale of any of the Shares by them and any advertising expenses connected
with any offers they may make.
The provisions of this Section shall not supersede or
otherwise affect any agreement that the Sellers may otherwise have for the
allocation of such expenses among themselves.
<PAGE>
19
11. Indemnity and Contribution. (a) The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission or alleged
untrue statement or omission that is based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use therein; provided, however, that the foregoing indemnity
agreement with respect to any preliminary prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any such losses,
claims, damages or liabilities purchased Shares, or any person controlling such
Underwriter, if a copy of the Prospectus (as then amended or supplemented if
the Company shall have furnished any amendments or supplements thereto) was not
sent or given by or on behalf of such Underwriter to such person, if required
by law so to have been delivered, at or prior to the written confirmation of
the sale of the Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such losses, claims,
damages or liabilities, unless such failure is the result of noncompliance by
the Company with Section 8(a) hereof.
(b) Each Selling Stockholder agrees, severally and not
jointly, to indemnify and hold harmless the Company, its directors, its
officers who sign the Registration Statement, each Underwriter and each person,
if any, who controls the Company or any Underwriter within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act from
and against any and all losses, claims, damages and liabilities (including,
without limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim) caused by
any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto), or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, but
only with reference to information relating to such Selling Stockholder
furnished in writing by or on behalf of such Selling Stockholder expressly for
use in the Registration Statement; provided, however, that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not inure
to the benefit of any Underwriter from whom the person asserting any such
<PAGE>
20
losses, claims, damages or liabilities purchased Shares, or any person
controlling such Underwriter, if a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such Underwriter to such
person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the Shares to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect giving
rise to such losses, claims, damages or liabilities, unless such failure is the
result of noncompliance by the Company with Section 8(a) hereof.
Notwithstanding the provisions of this Section 11, the liability of each
Selling Stockholder hereunder shall be limited to the net proceeds received by
such Selling Stockholder from the offering of the Shares hereunder.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Selling Stockholders, the
directors of the Company, the officers of the Company who sign the Registration
Statement and each person, if any, who controls the Company or any Selling
Stockholder within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act from and against any and all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or investigating any
such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
amendment thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only with reference to information relating to such
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use in the Registration Statement, any preliminary prospectus,
the Prospectus or any amendments or supplements thereto.
(d) The Company also agrees to indemnify and hold harmless
Morgan Stanley and each person, if any, who controls Morgan Stanley within the
meaning of either Section 15 of the Securities Act, or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages, liabilities
and judgments incurred as a result of Morgan Stanley's participation as a QIU
in connection with the offering of the Common Stock, except for any losses,
claims, damages, liabilities, and judgments resulting from Morgan Stanley's or
such control person's bad faith, gross negligence or willful misconduct.
(e) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to paragraph (a), (b), (c) or (d) of this
Section 11, such person (the "indemnified party") shall promptly notify the
person against whom such indemnity may be sought (the "indemnifying party") in
writing and the indemnifying party, upon request of the indemnified party,
shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified
<PAGE>
21
party and any others the indemnifying party may designate in such proceeding
and shall pay the reasonable fees and disbursements of such counsel related to
such proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such indemnified party unless (i) the indemnifying
party and the indemnified party shall have mutually agreed to the retention of
such counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It
is understood that the indemnifying party shall not, in respect of the legal
expenses of any indemnified party in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for (i) the reasonable fees and
expenses of more than one separate firm (in addition to any local counsel) for
all Underwriters and all persons, if any, who control any Underwriter within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, (ii) the reasonable fees and expenses of more than one separate
firm (in addition to any local counsel) for the Company, its directors, its
officers who sign the Registration Statement and each person, if any, who
controls the Company within the meaning of either such Section and (iii) the
reasonable fees and expenses of more than one separate firm (in addition to any
local counsel) for all Selling Stockholders and all persons, if any, who
control any Selling Stockholder within the meaning of either such Section, and
that in each case all such fees and expenses shall be reimbursed as they are
incurred. In the case of any such separate firm for the Underwriters and such
control persons of any Underwriters, such firm shall be designated in writing
by Morgan Stanley. In the case of any such separate firm for the Company, and
such directors, officers and control persons of the Company, such firm shall be
designated in writing by the Company. In the case of any such separate firm for
the Selling Stockholders and such control persons of Selling Stockholders, such
firm shall be designated in writing by the persons named as attorneys-in-fact
for the Selling Stockholders under the Power of Attorney and Custody
Agreements. Notwithstanding anything contained herein to the contrary, if
indemnity may be sought pursuant to paragraph (d) of this Section 11 in respect
of such action or proceeding, then in addition to such separate firm for the
indemnified parties, the indemnifying party shall be liable for the reasonable
fees and expenses of not more than one separate firm (in addition to any local
counsel) for Morgan Stanley in its capacity as a QIU and all persons, if any,
who control Morgan Stanley within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act. The indemnifying party shall
not be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an indemnified
party shall have requested an indemnifying party to reimburse the indemnified
party for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written
consent if (i) such settlement is entered into more than
<PAGE>
22
45 days after receipt by such indemnifying party of the aforesaid request and
(ii) such indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement other than
such fees and expenses of counsel which are being contested in good faith by
such indemnifying party. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.
(f) To the extent the indemnification provided for in
paragraph (a), (b), (c) or (d) of this Section 11 is unavailable to an
indemnified party or insufficient in respect of any losses, claims, damages or
liabilities referred to therein, then each indemnifying party under such
paragraph, in lieu of indemnifying such indemnified party thereunder, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the indemnifying party
or parties on the one hand and the indemnified party or parties on the other
hand from the offering of the Shares or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the indemnifying party or parties on the
one hand and of the indemnified party or parties on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Sellers on the one hand
and the Underwriters on the other hand in connection with the offering of the
Shares shall be deemed to be in the same respective proportions as the net
proceeds from the offering of the Shares (before deducting expenses) received
by each Seller and the total underwriting discounts and commissions received by
the Underwriters, in each case as set forth in the table on the cover of the
Prospectus, bear to the aggregate Public Offering Price of the Shares. The
relative fault of the Sellers on the one hand and of the Underwriters on the
other hand shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Sellers or by the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Underwriters' respective obligations to contribute pursuant to
this Section 11 are several in proportion to the respective number of Shares
they have purchased hereunder, and not joint.
(g) The Sellers and the Underwriters agree that it would not
be just or equitable if contribution pursuant to this Section 11 were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to in
<PAGE>
23
paragraph (f) of this Section 11. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages and liabilities referred to in
paragraph (f) of this Section 11 shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 11, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Shares underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages that
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission and no Selling
Shareholder shall be required to contribute any amount in excess of the net
proceeds received by such Selling Shareholder from the offering of the Shares
hereunder. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
remedies provided for in this Section 11 are not exclusive and shall not limit
any rights or remedies which may otherwise be available to any indemnified
party at law or in equity.
(h) The indemnity and contribution provisions contained in
this Section 11 and the representations, warranties and other statements of the
Company and the Selling Stockholders contained in this Agreement shall remain
operative and in full force and effect regardless of (i) any termination of
this Agreement, (ii) any investigation made by or on behalf of any Underwriter
or any person controlling any Underwriter, any Selling Stockholder or any
person controlling any Selling Stockholder, or the Company, its officers or
directors or any person controlling the Company and (iii) acceptance of and
payment for any of the Shares.
12. Termination. This Agreement shall be subject to
termination by notice given by you to the Company, if (a) after the execution
and delivery of this Agreement and prior to the Closing Date (i) trading
generally shall have been suspended or materially limited on or by, as the case
may be, any of the New York Stock Exchange, the American Stock Exchange, the
NASD, the Chicago Board of Options Exchange, the Chicago Mercantile Exchange or
the Chicago Board of Trade, (ii) trading of any securities of the Company shall
have been suspended on any exchange or in any over-the-counter market, (iii) a
general moratorium on commercial banking activities in New York shall have been
declared by either federal or New York State authorities or (iv) there shall
have occurred any outbreak or escalation of hostilities or any change in
financial markets or any calamity or crisis that, in your judgment, is material
and adverse and (b) in the case of any of the events specified in clauses
(a)(i) through (iv), such event, singly or together with any other such event,
makes it, in your judgment, impracticable to market the Shares on the terms and
in the manner contemplated in the Prospectus.
<PAGE>
24
13. Effectiveness; Defaulting Underwriters. This Agreement
shall become effective upon the execution and delivery hereof by the parties
hereto.
If, on the Closing Date or the Option Closing Date, as the
case may be, any one or more of the Underwriters shall fail or refuse to
purchase Shares that it or they have agreed to purchase hereunder on such date,
and the aggregate number of Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than
one-tenth of the aggregate number of the Shares to be purchased on such date,
the other Underwriters shall be obligated severally in the proportions that the
number of Firm Shares set forth opposite their respective names in Schedule I
bears to the aggregate number of Firm Shares set forth opposite the names of
all such non-defaulting Underwriters, or in such other proportions as you may
specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; provided
that in no event shall the number of Shares that any Underwriter has agreed to
purchase pursuant to this Agreement be increased pursuant to this Section 13 by
an amount in excess of one-ninth of such number of Shares without the written
consent of such Underwriter. If, on the Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Firm Shares and the aggregate
number of Firm Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Firm Shares to be purchased, and
arrangements satisfactory to you, the Company and the Selling Stockholders for
the purchase of such Firm Shares are not made within 36 hours after such
default, this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter, the Company or the Selling Stockholders. In any
such case either you or the relevant Sellers shall have the right to postpone
the Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and in the Prospectus
or in any other documents or arrangements may be effected. If, on the Option
Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase
Additional Shares and the aggregate number of Additional Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of
Additional Shares to be purchased, the non-defaulting Underwriters shall have
the option to (i) terminate their obligation hereunder to purchase Additional
Shares or (ii) purchase not less than the number of Additional Shares that such
non-defaulting Underwriters would have been obligated to purchase in the
absence of such default. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or
any of them, because of any failure or refusal on the part of any Seller to
comply with the terms or to fulfill any of the conditions of this Agreement, or
if for any reason any Seller shall be unable to perform its obligations under
this Agreement, the Sellers will reimburse the Underwriters or such
Underwriters as have so terminated this Agreement with respect to themselves,
severally, for all out-of-pocket expenses (including the fees and disbursements
of their
<PAGE>
25
counsel) reasonably incurred by such Underwriters in connection with this
Agreement or the offering contemplated hereunder.
14. Jurisdiction. Each of the Selling Stockholders hereby (i)
acknowledges that it has irrevocably designated and appointed the Company, 4317
Middlesettlement Road, New Hartford, NY 13413 (together with any successor, the
"Process Agent"), as its authorized agent upon which process may be served in
any suit, action or proceeding arising out of or relating to this Agreement or
the transactions contemplated herein or brought under federal or state
securities laws that may be instituted in any federal or state court in the
State of New York, sitting in the City of New York, and acknowledges that the
Process Agent has accepted such designation, (ii) agrees that service of
process upon the Process Agent and written notice of such service to the
Selling Stockholders (mailed or delivered to the [Chief Executive Officer] of
each Selling Stockholder at its principal office at [Addresses]), shall be
deemed in every respect effective service of process upon the Selling
Stockholders in any such suit, action or proceeding and (iii) agrees to take
any and all action, including the execution and filing of any and all such
documents and instruments as may be necessary to continue such designation and
appointment of the Process Agent in full force and effect so long as any of the
Shares shall be outstanding. Each of the Selling Stockholders hereby agrees to
submit to the nonexclusive jurisdiction of any such federal or state court in
the State of New York in any such suit, action or proceeding arising out of or
relating to this Agreement or the transactions contemplated herein and hereby
waives to the fullest extent permitted by law any defense to the institution or
continuance of any such suit, action or proceeding based upon lack of proper
venue, inconvenient forum or similar grounds.
To the extent that each of the Selling Stockholders has or
hereafter may acquire any immunity from jurisdiction of any court or from any
legal process (whether through service of notice, attachment prior to judgment,
attachment in aid of execution, execution or otherwise) with respect to itself
or its property, each of them hereby irrevocably waives such immunity in
respect of their obligations under this Agreement to the fullest extent
permitted by law.
If for the purposes of obtaining judgment in any court it is
necessary to convert a sum due hereunder into any currency other than United
States dollars, the parties hereto agree, to the fullest extent that they may
effectively do so, that the rate of exchange used shall be the rate at which in
accordance with normal banking procedures Morgan Stanley could purchase United
States dollars with such other currency in the City of New York on the business
day preceding that on which final judgment is given. The obligation of each of
the Selling Stockholders in respect of any sum due from it to any Underwriter
shall, notwithstanding any judgment in a currency other than United States
dollars, not be discharged until the first business day, following receipt by
such Underwriter of any sum adjudged to be so due in such other currency, on
which (and only to the extent that) such Underwriter may in accordance with
normal banking procedures purchase United States
<PAGE>
26
dollars with such other currency; if the United States dollars so purchased are
less than the sum originally due to such Underwriter hereunder, each of the
Selling Stockholders agrees, as a separate obligation and notwithstanding any
such judgment, to indemnify such Underwriter against such loss. If the United
States dollars so purchased are greater than the sum originally due to such
Underwriter hereunder, such Underwriter agrees to pay to each of the Selling
Stockholders an amount equal to the excess of the dollars so purchased over the
sum originally due to such Underwriter hereunder.
15. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
16. Applicable Law. This Agreement shall be governed by the
laws of the State of New York.
17. Headings. The headings of the sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed a
part of this Agreement.
Very truly yours,
SPECIAL METALS CORPORATION
By
--------------------------------
Name:
Title:
The Selling Stockholders named in
Schedule II hereto, acting severally
By
--------------------------------
Name:
Attorney-in-Fact
Accepted as of the date hereof
MORGAN STANLEY & CO. INCORPORATED
<PAGE>
27
SALOMON BROTHERS INC
CREDIT LYONNAIS SECURITIES (USA) INC.
Acting severally on behalf of themselves
and the several Underwriters
named herein.
By Morgan Stanley & Co. Incorporated
By
--------------------------
Name:
Title:
<PAGE>
SCHEDULE I
Underwriters
Number of
Firm Shares
Underwriter To Be Purchased
----------- ---------------
Morgan Stanley & Co. Incorporated
Salomon Brothers Inc
Credit Lyonnais Securities (USA) Inc.
---------------
Total.................................................
===============
<PAGE>
SCHEDULE II
Selling Stockholders
Number of
Firm Shares
Selling Stockholder To Be Sold
- ------------------- -----------
LWH Holding S.A.
Advanced Materials Investments
Holding S.A.
-----------
Total.....................................................
===========
<PAGE>
EXHIBIT A
Pursuant to Section 7(d) of the Underwriting Agreement, Paul,
Weiss, Rifkind, Wharton & Garrison, special counsel for the Company, shall
furnish an opinion to the effect that:
(i) the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the State
of Delaware, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business (or has a legal corporate existence)
and is in good standing in the states of California, Kentucky,
Michigan and New York, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole;
(ii) Special Metals International Corporation, a subsidiary
of the Company, has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation and has the corporate power and authority to own its
property and to conduct its business as described in the Prospectus;
(iii) the authorized capital stock of the Company conforms as
to legal matters to the description thereof contained in the
Prospectus;
(iv) the shares of Common Stock (including the Shares to be
sold by the Selling Stockholders) outstanding prior to the issuance of
the Company Shares have been duly authorized by all requisite
corporate action on the part of the Company and are validly issued,
fully paid and non-assessable;
(v) all of the issued shares of capital stock of Special
Metals International Corporation have been duly and validly authorized
and issued, are fully paid and non-assessable and are owned of record
directly by the Company;
(vi) the Company Shares have been duly authorized by all
requisite corporate action on the part of the Company and, when issued
and delivered to and paid for by the Underwriters in accordance with
the terms of the Underwriting Agreement, will be validly issued, fully
paid and non-assessable, and the issuance of such Shares will not be
subject to any preemptive or similar rights pursuant to the Company's
certificate of incorporation, or by laws, each as in effect on the
date hereof, or in any agreement or other outstanding instrument known
to such counsel to which the Company is a party;
<PAGE>
A-2
(vii) the Underwriting Agreement and each of the Irrevocable
Power of Attorney and Custody Agreements (collectively, the "Power of
Attorney and Custody Agreements") each dated the date hereof, by each
Selling Stockholder and the Company as Custodian, appointing certain
individuals as the Selling Stockholders' attorneys-in-fact to the
extent set forth therein relating to the transactions contemplated
hereby and by the Registration Statement have been duly authorized,
executed and delivered by the Company;
(viii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, the Underwriting
Agreement, the Power of Attorney and Custody Agreements, and the
issuance and delivery of the Company Shares will not contravene any
provision of any existing applicable law, rule or regulation of the
State of New York, the United States or the General Corporation Law of
the State of Delaware (other than the securities or blue sky laws of
the various states, as to which such counsel need express no opinion)
("Applicable Laws") or the articles of incorporation or by-laws of the
Company or any agreement, indenture or instrument listed as an exhibit
to the Registration Statement or to those court orders, decrees and
judgments specifically identified by the Company and set forth on a
schedule to such opinion, except where such violation would have not
have a material adverse effect on the Company and its subsidiaries as
a whole. No consent, approval, authorization or order of or filing,
registration or qualification under Applicable Laws with any
Governmental Authorities which has not been obtained, taken or made
(other than pursuant to any state securities laws or foreign
securities laws as to which such counsel need not express any opinion)
is required for the performance by the Company of its obligations
under the Underwriting Agreement. For purposes of this opinion, the
term "Governmental Authorities" means any executive, legislative,
judicial, administrative or regulatory body of the State of New York,
the State of Delaware or the United States of America;
(ix) the statements (A) in the Prospectus under the captions
"Certain Transactions - Transactions with Principal Stockholders -
Technology Exchange Agreement", "-- Managerial Assistance Agreement,"
"-- Registration Rights", "-- Subordinated Stockholder Notes",
"Description of Capital Stock", and "Certain United States Federal Tax
Consequences To Non-United States Holders of Common Stock" and (B) in
the Registration Statement in Items 14 and 15, in each case insofar as
such statements constitute summaries of the legal matters, documents
or proceedings referred to therein, fairly present the information
called for with respect to such legal matters, documents and
proceedings and fairly summarize the matters referred to therein;
(x) such counsel does not know of any legal or governmental
proceedings pending or threatened to which the Company or any of its
subsidiaries is a party or to
<PAGE>
A-3
which any of the properties of the Company or any of its subsidiaries
is subject that are required to be described in the Registration
Statement or the Prospectus and are not so described or of any statute
or regulation of the State of New York, the United States or the
General Corporation of the State of Delaware, contracts or other
documents that are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required;
(xi) the Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company", as such term is defined in the Investment Company Act of
1940, as amended;
(xii) each of the Registration Statement and the Prospectus,
as of their respective effective or issue dates appears on its face to
be appropriately responsive in all material respects to the
requirements of the Securities Act and the rules and regulations of
the Commission thereunder, except that in each case such counsel need
not express an opinion as to the financial statements, financial
statement schedules and other financial and statistical data included
therein.
Such counsel shall confirm that they have participated in the
preparation of the Registration Statement and the Prospectus and although such
counsel has not undertaken to investigate or verify independently, and do not
assume responsibility for, the accuracy or completeness of the statements
contained therein (other than as explicitly stated in the paragraph (ix)
above), based upon such participation, no facts have come to such counsel's
attention to lead such counsel to believe (A) that the Registration Statement
or any amendment thereto (except for the financial statements, financial
statement schedules and other financial or statistical data included therein or
omitted therefrom, as to which such counsel need not express any such belief),
at the time it became effective contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or (B) that the
Prospectus (except for the financial statements, financial schedules and other
financial or statistical data included therein or omitted therefrom, as to
which such counsel need not express any such belief), as of its date or the
Closing Date, included or includes an untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
In rendering the foregoing opinions, such counsel may (A)
rely, to the extent such counsel deems proper upon certificates of public
officials and officers of the Company as to factual matters, (B) assume without
independent investigation (i) that each of the parties to the Underwriting
Agreement (other than the Company and the Selling Stockholders) has complied
with all of its obligations and agreements arising thereunder, (ii) the
genuineness of
<PAGE>
A-4
all signatures, (iii) the legal capacity of all individuals who have executed
any of the documents reviewed by such counsel, (iv) the authenticity of all
documents submitted to such counsel as originals, (v) the conformity to the
originals of all documents submitted to such counsel as certified, photostatic,
reproduced or conformed copies of valid existing agreements or other documents,
(vi) the authenticity of all such latter documents and (vii) that the
statements regarding matters of fact in the certificates, records, agreements,
instruments and documents that such counsel have examined are accurate and
complete and (C) indicate that whenever such counsel's opinion with respect to
the existence or absence of facts is based upon such counsel's knowledge, such
counsel's opinion is based solely on the actual knowledge of the attorneys in
such counsel's firm who are representing the Company in connection with the
transactions contemplated by the Underwriting Agreement and without any
independent verification.
<PAGE>
EXHIBIT B(i)
Pursuant to Section 7(e) of the Underwriting Agreement, Paul,
Weiss, Rifkind, Wharton & Garrison, special counsel for the Selling
Stockholders, shall furnish an opinion to the effect that:
(i) the execution and delivery by each Selling Stockholder
of, and the performance by such Selling Stockholder of its obligations
under, the Underwriting Agreement and the Power of Attorney and
Custody Agreement of such Selling Stockholder will not contravene any
provision of any existing applicable law, rule or regulation of the
State of New York, the United States or the General Corporation Law of
the State of Delaware (other than the securities laws or blue sky laws
of the various states, as to which such counsel need express no
opinions) ("Applicable Laws") and no consent, approval, authorization
or order of or filing, registration or qualification under Applicable
Laws with any Governmental Authorities which has not been obtained,
taken or made (other than pursuant to any state securities laws or
foreign securities laws as to which such counsel need express no
opinion) is required for the performance by such Selling Stockholder
of its obligations under the Underwriting Agreement or Power of
Attorney and Custody Agreement of such Selling Stockholder. For
purposes of this opinion, the term "Governmental Authorities" means
any executive, legislative, judicial, administrative or regulatory
body of the State of New York, the State of Delaware or the United
States of America.
(ii) assuming that the Power of Attorney and Custody
Agreement of each of the Selling Stockholders has been duly
authorized, executed and delivered by such Selling Stockholder, the
Power of Attorney and Custody Agreement of each of the Selling
Stockholders is a valid and binding agreement of such Selling
Stockholder, enforceable in accordance with its terms, except as (a)
the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (b) the
availability of equitable remedies may be limited by equitable
principles of general applicability; and
(iii) delivery of the Shares to be sold by each Selling
Stockholder and payment therefor pursuant to the Underwriting
Agreement will pass valid and marketable title to such Shares free and
clear of any security interests, claims, liens, equities and other
encumbrances;
With respect to factual matters and to the extent such
counsel deems appropriate, such counsel may rely upon the representations of
each Selling Stockholder contained herein and in the Power of Attorney and
Custody Agreement of such Selling Stockholder and in other documents and
instruments; provided that copies of such Power of Attorney and Custody
Agreement and of any such other documents and instruments shall be
<PAGE>
B(i)-2
delivered to you and shall be in form and substance satisfactory to counsel for
the Underwriters.
<PAGE>
EXHIBIT B(ii)
Pursuant to Section 7(e) of the Underwriting Agreement,
Arendt & Medernach, special counsel for the Selling Stockholders, shall furnish
an opinion to the effect that:
(i) the Underwriting Agreement has been duly authorized,
executed and delivered by or on behalf of each of the Selling
Stockholders;
(ii) the execution and delivery by each Selling Stockholder
of, and the performance by such Selling Stockholder of its obligations
under, the Underwriting Agreement and the Power of Attorney and
Custody Agreement of such Selling Stockholder will not contravene any
applicable law, or the certificate of incorporation or by-laws of such
Selling Stockholder (if such Selling Stockholder is a corporation),
or, to the best of such counsel's knowledge, any agreement or other
instrument binding upon such Selling Stockholder, or to the best of
such counsel's knowledge, any judgment, order or decree of any
governmental body, agency or court having jurisdiction over such
Selling Stockholder, and no consent, approval, authorization or order
of or qualification with any governmental body or agency is required
for the performance by such Selling Stockholder of its obligations
under this Agreement or Power of Attorney and Custody Agreement of
such Selling Stockholder, except such as may be required by the
securities or Blue Sky laws of the various states in connection with
the offer and sale of the Shares;
(iii) each of the Selling Stockholders has valid and
marketable title to the Shares to be sold by such Selling Stockholder
and the legal right and power, and all authorization and approval
required by law, to enter into the Underwriting Agreement and Power of
Attorney and Custody Agreement of such Selling Stockholder and to
sell, transfer and deliver the Shares to be sold by such Selling
Stockholder;
(iv) the Power of Attorney and Custody Agreement of each of
the Selling Stockholders has been duly authorized, executed and
delivered by such Selling Stockholder;
(v) each Selling Stockholder has the power to submit, and has
taken any necessary corporate action to submit, to the jurisdiction of
any United States federal or state court in the State of New York. The
choice of New York state law to govern the Underwriting Agreement and
the Power of Attorney and Custody Agreement of such Selling
Stockholder is a valid choice of law and the submission therein by
each Selling Stockholder to New York state law and the appointment of
service of process is valid and binding upon such Selling Stockholder;
<PAGE>
B(ii)-2
(vi) neither of the Selling Stockholders nor any of their
respective properties or assets has any sovereign immunity from the
jurisdiction of any court or from any legal process (whether through
service or notice, attachment prior to judgment, attachment in aid of
execution, execution of otherwise) under the laws of Luxembourg; and
(vii) to ensure the legality, validity, enforcement or
admissibility into evidence in Luxembourg of the Underwriting
Agreement, the Power of Attorney and Custody Agreement of such Selling
Stockholder and any other document to be furnished thereunder, it is
not necessary that the Underwriting Agreement, the Power of Attorney
and Custody Agreement of such Selling Stockholder or any other such
document be filed, recorded or registered with any court or other
authority in Luxembourg, or that any tax be paid in Luxembourg on or
in respect of any of the Underwriting Agreement, the Power of Attorney
and Custody Agreement of such Selling Stockholder or any other such
document.
With respect to factual matters and to the extent such
counsel deems appropriate, such counsel may rely upon the representations of
each Selling Stockholder contained herein and in the Power of Attorney and
Custody Agreement of such Selling Stockholder and in other documents and
instruments; provided that copies of such Power of Attorney and Custody
Agreement and of any such other documents and instruments shall be delivered to
you and shall be in form and substance satisfactory to counsel for the
Underwriters.
Such counsel is admitted to practice in Luxembourg and no
opinion need be expressed herein as to matters under or involved in any
jurisdiction other than Luxembourg.
<PAGE>
EXHIBIT C
________, 1997
Morgan Stanley & Co. Incorporated
Salomon Brothers Inc
Credit Lyonnais Securities (USA) Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co.
Incorporated ("Morgan Stanley") proposes to enter into an Underwriting
Agreement (the "Underwriting Agreement") with Special Metals Corporation, a
Delaware corporation (the "Company"), providing for the public offering (the
"Public Offering") by the several Underwriters, including Morgan Stanley (the
"Underwriters"), of ___ shares (the "Shares") of the Common Stock (par value
$.01 per share) of the Company (the "Common Stock").
To induce the Underwriters that may participate in the Public
Offering to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period
commencing on the date hereof and ending 180 days after the date of the final
prospectus relating to the Public Offering (the "Prospectus"), (1) 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 the undersigned or are hereafter acquired in
connection with the Public Offering), or (2) 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 (1) or (2) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise. In addition, the
undersigned agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 180 days after the date of the Prospectus, make any
demand for, or exercise any right with respect to, the registration of any
shares of Common Stock or any security convertible into or exercisable or
exchangeable for Common Stock.
<PAGE>
C-2
Whether or not the Public Offering actually occurs depends on
a number of factors, including market conditions. Any Public Offering will only
be made pursuant to an Underwriting Agreement, the terms of which are subject
to negotiation between the Company and the Underwriters.
Very truly yours,
_____________________________
(Signature)
_____________________________
(Print Name)
_____________________________
(Address)
<PAGE>
C-3
EXHIBIT D
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
of
SPECIAL METALS CORPORATION
Special Metals Corporation, a corporation duly incorporated
under the laws of the State of Delaware, hereby certifies as follows:
FIRST: The name of the corporation is Special Metals
Corporation (the "Corporation"). The original Certificate of Incorporation of
the Corporation was filed with the Secretary of State of the State of Delaware
on 25th day of August, 1983, under the name Cyprus Superalloys Corporation.
SECOND: This Amended and Restated Certificate of
Incorporation has been duly adopted in accordance with Sections 242 and 245 of
the Delaware General Corporation Law (the "General Corporation Law").
THIRD: This Amended and Restated Certificate of
Incorporation restates, integrates and amends the original
Certificate of Incorporation of the Corporation as follows:
1. Name. The name of the corporation is
Special Metals Corporation (the "Corporation").
2. Address; Registered Office and Agent. The
address of the Corporation's registered office is
Corporation Trust Center, 1209 Orange Street, Wilmington,
<PAGE>
2
New Castle County. The name of its registered agent at such
address is Corporation Trust Company.
3. Purpose. The purpose of the Corporation is to engage
in, carry on and conduct any lawful act or activity for which corporations may
be organized under the General Corporation Law.
4. Number of Shares. The total number of shares
of stock that the Corporation shall have authority to issue
is 45,000,000, divided as follows: 10,000,000 shares of
Preferred Stock, of the par value of $0.01 per share (the
"Preferred Stock") and 35,000,000 shares of Common Stock, of
the par value of $0.01 per share (the "Common Stock").
5. Designation of Classes; Relative Rights, Etc.
The designation, relative rights, preferences and limitations of
the shares of each class are as follows:
5.1 Preferred Stock. The shares of
Preferred Stock may be issued from time to time in one or more series of any
number of shares, provided that the aggregate number of shares issued and not
canceled of any and all such series shall not exceed the total number of shares
of Preferred Stock hereinabove authorized, and with such powers, preferences and
rights and qualifications, limitations or restrictions thereof, and such
distinctive serial designations, all as shall hereafter be stated and expressed
in the resolution or resolutions providing for the issue of such shares of
Preferred Stock from time to time
<PAGE>
3
adopted by the Board of Directors of the Corporation (the "Board of Directors")
pursuant to authority so to do which is hereby vested in the Board of Directors.
Each series of shares of Preferred Stock (a) may have such voting rights or
powers, full or limited, or may be without voting rights or powers; (b) may be
subject to redemption at such time or times and at such prices; (c) may be
entitled to receive dividends (which may be cumulative or non-cumulative) at
such rate or rates, on such conditions and at such times, and payable in
preference to, or in such relation to, the dividends payable on any other class
or classes or series of stock; (d) may have such rights upon the voluntary or
involuntary liquidation, winding up or dissolution of, or upon any distribution
of the assets of, the Corporation; (e) may be made convertible into or
exchangeable for, shares of any other class or classes or of any other series of
the same or any other class or classes of stock of the Corpora tion at such
price or prices or at such rates of exchange and with such adjustments; (f) may
be entitled to the benefit of a sinking fund to be applied to the purchase or
redemption of shares of such series in such amount or amounts; (g) may be
entitled to the benefit of conditions and restrictions upon the creation of
indebtedness of the Corporation or any subsidiary, upon the issue of any addi
tional shares (including additional shares of such series or of any other
series) and upon the payment of dividends or the making of other distributions
on, and the purchase,
<PAGE>
4
redemption or other acquisition by the Corporation or any subsidiary of, any
outstanding shares of the Corporation and (h) may have such other relative,
participating, optional or other special rights, qualifications, limitations or
restrictions thereof; all as shall be stated in said resolution or resolutions
providing for the issue of such shares of Preferred Stock. Any of the voting
powers, designations, preferences, rights and qualifications, limitations or
restrictions of any such series of Preferred Stock may be made dependent upon
facts ascertainable outside of the resolution or resolutions providing for the
issue of such Preferred Stock adopted by the Board of Directors pursuant to the
authority vested in it by this Section 5.1, provided that the manner in which
such facts shall operate upon the voting powers, designations, preferences,
rights and qualifications, limitations or restrictions of such series of
Preferred Stock is clearly and expressly set forth in the resolution or
resolutions providing for the issue of such Preferred Stock. The term "facts" as
used in the next preceding sentence shall have the meaning given to it in
Section 151(a) of the General Corporation Law. Shares of Preferred Stock of any
series that have been redeemed (whether through the operation of a sinking fund
or otherwise) or that if convertible or exchangeable, have been converted into
or exchanged for shares of any other class or classes shall have the status of
authorized and unissued shares of Preferred Stock undesignated as to series and
may
<PAGE>
5
be reissued as a part of the series of which they were originally a part or as
part of a new series of shares of Preferred Stock to be created by resolution or
resolutions of the Board of Directors or as part of any other series of shares
of Preferred Stock, all subject to the conditions or restrictions on issuance
set forth in the resolution or resolutions adopted by the Board of Directors
providing for the issue of any series of shares of Preferred Stock.
5.2 Common Stock. Subject to the provisions
of any applicable law or of the By-laws of the Corporation, as from time to time
amended (the "By-laws"), with respect to the closing of the transfer books or
the fixing of a record date for the determination of stockholders entitled to
vote and except as otherwise provided by law or by the resolution or resolutions
providing for the issue of any series of shares of Preferred Stock, the holders
of outstanding shares of Common Stock shall exclusively possess voting power for
the election of directors and for all other purposes, each holder of record of
shares of Common Stock being entitled to one vote for each share of Common Stock
standing in his or her name on the books of the Corporation. Except as otherwise
provided by the resolution or resolutions providing for the issue of any series
of shares of Preferred Stock, the holders of shares of Common Stock shall be
entitled, to the exclusion of the holders of shares of Preferred Stock of any
and all series, to receive such dividends as from time to time may be declared
by the Board
<PAGE>
6
of Directors. In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after payment shall have been
made to the holders of shares of Preferred Stock of the full amount to which
they shall be entitled pursuant to the resolution or resolutions providing for
the issue of any series of shares of Preferred Stock, the holders of shares of
Common Stock shall be entitled, to the exclusion of the holders of shares of
Preferred Stock of any and all series, to share, ratably according to the number
of shares of Common Stock held by them, in all remaining assets of the
Corporation available for distribution to its stockholders.
5.3 Subject to the provisions of this
Certificate of Incorporation and except as otherwise provided by law, the stock
of the Corporation, regardless of class, may be issued for such consideration
and for such corporate purposes as the Board of Directors may from time to time
determine.
6. Compromise, Arrangement or Reorganization. Whenever
a compromise or arrangement is proposed between this Corporation and its
creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this Corporation under the provisions of
<PAGE>
7
Section 291 of the General Corporation Law or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
the provisions of Section 279 of General Corporation Law order a meeting of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all stockholders or class of
stockholders of this Corporation, as the case may be, and also on this
Corporation.
7. Limitation of Liability. No director of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (a) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the General
<PAGE>
8
Corporation Law or (d) for any transaction from which the director derived any
improper personal benefits. If the General Corporation Law is hereafter amended
to authorize corporate action further eliminating or limiting the per sonal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law, as so amended.
Any repeal or modification of the foregoing para graph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
8. Indemnification.
8.1 Indemnity Undertaking. To the extent
not prohibited by law, the Corporation shall indemnify any person who is or was
made, or threatened to be made, a party to any threatened, pending or completed
action, suit or proceeding (a "Proceeding"), whether civil, criminal,
administrative or investigative, including, without limitation, an action by or
in the right of the Corporation to procure a judgment in its favor, by reason of
the fact that such person, or a person of whom such person is the legal
representative, is or was a Director or officer of the Corporation, or, at the
request of the Corporation, is or was serving as a director or officer of any
other corporation or in a capacity with comparable authority or
<PAGE>
9
responsibilities for any partnership, joint venture, trust, employee benefit
plan or other enterprise (an "Other Entity"), against judgments, fines,
penalties, excise taxes, amounts paid in settlement and costs, charges and
expenses (including attorneys' fees, disbursements and other charges). Persons
who are not directors or officers of the Corporation (or otherwise entitled to
indemnification pursuant to the preceding sentence) may be similarly indemnified
in respect of service to the Corporation or to an Other Entity at the request of
the Corporation to the extent the Board at any time specifies that such persons
are entitled to the benefits of this Section 8.
8.2 Advancement of Expenses. The
Corporation shall, from time to time, reimburse or advance to any Director or
officer or other person entitled to indemnification hereunder the funds
necessary for payment of expenses, including attorneys' fees and disbursements,
incurred in connection with any Proceeding, in advance of the final disposition
of such Proceeding; provided, however, that, if required by the General
Corporation Law, such expenses incurred by or on behalf of any Director or
officer or other person may be paid in advance of the final disposition of a
Proceeding only upon receipt by the Corporation of an undertaking, by or on
behalf of such Director or officer (or other person indemnified hereunder), to
repay any such amount so advanced if it shall ultimately be determined by final
judicial decision from which there is
<PAGE>
10
no further right of appeal that such Director, officer or other person is not
entitled to be indemnified for such expenses.
8.3 Rights Not Exclusive. The rights to
indemnification and reimbursement or advancement of expenses provided by, or
granted pursuant to, this Section 8 shall not be deemed exclusive of any other
rights to which a person seeking indemnification or reimbursement or advancement
of expenses may have or hereafter be entitled under any statute, this
Certificate of Incorporation, the By-laws, any agreement, any vote of
stockholders or disinterested Directors or otherwise, both as to action in his
or her official capacity and as to action in another capacity while holding such
office.
8.4 Continuation of Benefits. The rights to
indemnification and reimbursement or advancement of expenses provided by, or
granted pursuant to, this Section 8 shall continue as to a person who has ceased
to be a Director or officer (or other person indemnified hereunder) and shall
inure to the benefit of the executors, administrators, legatees and distributees
of such person.
8.5 Insurance. The Corporation shall have
power to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of an
Other Entity, against any liability asserted against such
<PAGE>
11
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power to
indemnify such person against such liability under the provisions of this
Section 8, the By-laws or under Section 145 of the General Corporation Law or
any other provision of law.
8.6 Binding Effect. The provisions of this
Section 8 shall be a contract between the Corporation, on the one hand, and each
Director and officer who serves in such capacity at any time while this Section
8 is in effect and any other person entitled to indemnification hereunder, on
the other hand, pursuant to which the Corporation and each such Director,
officer or other person intend to be, and shall be legally bound. No repeal or
modification of this Section 8 shall affect any rights or obligations with
respect to any state of facts then or theretofore existing or thereafter arising
or any proceeding theretofore or thereafter brought or threatened based in whole
or in part upon any such state of facts.
8.7 Procedural Rights. The rights to
indemnification and reimbursement or advancement of expenses provided by, or
granted pursuant to, this Section 8 shall be enforceable by any person entitled
to such indemnification or reimbursement or advancement of expenses in any court
of competent jurisdiction. The burden of proving that such indemnification or
reimbursement or advancement of expenses is not appropriate shall be on the
Corporation. Neither the
<PAGE>
12
failure of the Corporation (including its Board of Directors, its independent
legal counsel and its stockholders) to have made a determination prior to the
commencement of such action that such indemnification or reimbursement or
advancement of expenses is proper in the circumstances nor an actual
determination by the Corporation (including its Board of Directors, its
independent legal counsel and its stockholders) that such person is not entitled
to such indemnification or reimbursement or advancement of expenses shall
constitute a defense to the action or create a presumption that such person is
not so entitled. Such a person shall also be indemnified for any expenses
incurred in connection with successfully establishing his or her right to such
indemnification or reimbursement or advancement of expenses, in whole or in
part, in any such proceeding.
8.8 Service Deemed at Corporation's Request.
Any Director or officer of the Corporation serving in any capacity (a) another
corporation of which a majority of the shares entitled to vote in the election
of its directors is held, directly or indirectly, by the Corporation or (b) any
employee benefit plan of the Corporation or any corporation referred to in
clause (a) shall be deemed to be doing so at the request of the Corporation.
8.9 Election of Applicable Law. Any person
entitled to be indemnified or to reimbursement or
advancement of expenses as a matter of right pursuant to
<PAGE>
13
this Section 8 may elect to have the right to indemnification or reimbursement
or advancement of expenses interpreted on the basis of the applicable law in
effect at the time of the occurrence of the event or events giving rise to the
applicable Proceeding, to the extent permitted by law, or on the basis of the
applicable law in effect at the time such indemnification or reimbursement or
advancement of expenses is sought. Such election shall be made, by a notice in
writing to the Corporation, at the time indemnification or reimbursement or
advancement of expenses is sought; provided, however, that if no such notice is
given, the right to indemnification or reimbursement or advancement of expenses
shall be determined by the law in effect at the time indemnification or
reimbursement or advancement of expenses is sought.
9. Directors. This Section is inserted for the
management of the business and for the conduct of the
affairs of the Corporation and it is expressly provided that
it is intended to be in furtherance of and not in limitation
or exclusion of the powers conferred by applicable law.
9.1 Number, Election, and Terms of Office of
Board of Directors. The business of the Corporation shall be managed by a Board
of Directors consisting of not less than three or more than 15 members. The
exact number of directors within the minimum and maximum limitations specified
in the preceding sentence shall be fixed from time to time by resolution adopted
by a majority of the entire Board
<PAGE>
14
of Directors then in office, whether or not present at a meeting. Directors need
not be stockholders of the Corporation. The directors shall be divided into
three classes with the term of office of the first class to expire at the first
annual meeting of stockholders of the Corporation next following the end of the
Corporation's fiscal year ending December 31, 1997, the term of office of the
second class to expire at the first annual meeting of stockholders of the
Corporation next following the end of the Corporation's fiscal year ending
December 31, 1998 and the term of office of the third class to expire at the
annual meeting of stockholders of the Corporation next following the end of the
Corporation's fiscal year ending December 31, 1999. At each annual meeting of
stockholders following such initial election as specified above, directors
elected to succeed those directors whose terms expire shall be elected for a
term of office to expire at the third succeeding annual meeting of stockholders
after their election.
9.2 Tenure. Notwithstanding any provisions
to the contrary contained herein, (i) each director shall hold office until his
or successor is elected and qualified, or until the earlier of such director's
death, resignation or removal and (ii) the term of any director who is also an
officer of SMC shall terminate if he or she ceases to be an officer of SMC.
<PAGE>
15
9.3 Newly Created Directorships and
Vacancies. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause shall be filled by a majority vote of the remaining
directors then in office although less than a quorum, or by a sole remaining
director and directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of the class to which they have
been elected expires or, in each case, until their respective successors are
duly elected and qualified. No decrease in the number of directors constituting
the Board of Directors shall shorten the term of any incumbent director. When
any director shall give notice of resignation effective at a future date, the
Board of Directors may fill such vacancy to take effect when such resignation
shall become effective.
9.4 Removal of Directors. Any one or more
or all of the directors may be removed, at any time, but only for cause by the
stockholders having at least a majority in voting power of the then issued and
outstanding shares of capital stock of the Corporation.
10. Action by Stockholders. Notwithstanding the
provisions of Section 228 of the General Corporation Law (or
any successor statute), any action required or permitted by
<PAGE>
16
the General Corporation Law to be taken at any annual or special meeting of
stockholders of the Corporation may be taken only at such an annual or special
meeting of stockholders and cannot be taken by written consent without a
meeting. At any annual meeting or special meeting of stockholders of the
Corporation, only such business shall be conducted as shall have been brought
before such meeting in the manner provided by the By-laws.
11. Special Meetings of Stockholders. Special
meetings of stockholders for any purpose may be called at
any time by the Board of Directors, the Chairman of the
Board of Directors or the President of the Corporation.
Special meetings shall be held at such place or places
within or without the State of Delaware as shall from time
to time be designated by the Board of Directors and stated
in the notice of such meeting or in the waiver of notice
thereof.
12. Adoption, Amendment and/or Repeal of By-Laws. The
Board of Directors may from time to time adopt, amend or repeal the By-laws;
provided, however, that any By-laws adopted or amended by the Board of Directors
may be amended or repealed, and any By-laws may be adopted, by a vote of the
stockholders having at least a majority in voting power
<PAGE>
17
of the then issued and outstanding shares of capital stock
of the Corporation.
IN WITNESS WHEREOF, the undersigned has executed
this Restated Certification of Incorporation this day of
, 1997.
- --------------
Special Metals Corporation
By:
------------------------
Name:
Title:
Attest:
By:
-----------------------------
Name:
Title:
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED BY-LAWS
of
Special Metals Corporation
(A Delaware Corporation)
------------------------
ARTICLE 1
DEFINITIONS
As used in these By-laws, unless the context otherwise
requires, the term:
1.1 "Assistant Secretary" means an Assistant Secretary of
the Corporation.
1.2 "Assistant Treasurer" means an Assistant Treasurer of
the Corporation.
1.3 "Board" means the Board of Directors of the
Corporation.
1.4 "Business Day" means any day which is not a Saturday,
a Sunday, or a day on which banks are authorized to close in the City of New
York.
1.5 "By-laws" means the by-laws of the Corporation, as
amended from time to time.
1.6 "Certificate of Incorporation" means the certificate
of incorporation of the Corporation, as amended, supplemented or restated from
time to time.
1.7 "Chairman" means the Chairman of the Board of the
Corporation.
1.8 "Chief Financial Officer" means the Chief Financial
Officer of the Corporation.
<PAGE>
2
1.9 "Corporation" means Special Metals Corporation.
1.10 "Directors" means directors of the Corpora-tion.
1.11 "Entire Board" means all Directors of the Corporation
in office, whether or not present at a meeting of the Board, but disregarding
vacancies.
1.12 "General Corporation Law" means the General
Corporation Law of the State of Delaware, as amended from time to time.
1.13 "Office of the Corporation" means the executive
office of the Corporation, anything in Section 131 of the General Corporation
Law to the contrary notwithstanding.
1.14 "President" means the President of the Corporation.
1.15 "Secretary" means the Secretary of the Corporation.
1.16 "Stockholders" means stockholders of the Corporation.
1.17 "Treasurer" means the Treasurer of the Corporation.
1.18 "Vice President" means a Vice President of the
Corporation.
ARTICLE 2
STOCKHOLDERS
2.1 Place of Meetings. Every meeting of Stockholders shall be
held at the Office of the Corporation or at such other place within or without
the State of Delaware as shall be specified or fixed in the notice of such
meeting or in the waiver of notice thereof.
2.2 Annual Meeting. A meeting of Stockholders shall be held
annually for the election of Directors and the transaction of other business at
such hour and on such business day in each year as may be determined by
resolution adopted by affirmative vote of a majority vote of the Entire Board
and designated in the notice of meeting.
2.3 Deferred Meeting for Election of Directors, Etc. If the
annual meeting of Stockholders for the election of Directors and the transaction
of other business is not held on the date designated therefor or at any
adjournment of a meeting convened on such date, the Board shall call a meeting
of Stockholders for the election of Directors and the transaction of other
business as soon thereafter as convenient.
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2.4 Special Meetings. A special meeting of Stockholders,
unless otherwise prescribed by statute, may be called at any time by the Board,
the Chairman of the Board or by the President. At any special meeting of
Stockholders, no business may be transacted other than (i) such business stated
in the notice thereof given pursuant to Section 2.6 hereof or in any waiver of
notice thereof given pursuant to Section 2.7 hereof (in a form prepared by the
Secretary) or (ii) such business as is related to the purpose or purposes of
such meeting and which is properly brought before the meeting by or at the
direction of the Board.
2.5 Fixing Record Date. For the purpose of (a) determining the
Stockholders entitled (i) to notice of or to vote at any meeting of Stockholders
or any adjournment thereof or (ii) to receive payment of any dividend or other
distribution or allotment of any rights, or to exercise any rights in respect of
any change, conversion or exchange of stock; or (b) any other lawful action, the
Board may fix a record date, which record date shall not precede the date upon
which the resolution fixing the record date was adopted by the Board and which
record date shall not be (x) in the case of clause (a)(i) above, more than sixty
nor less than ten days before the date of such meeting and (y) in the case of
clause (a)(ii) or (b) above, more than sixty days prior to such action. If no
such record date is fixed:
2.5.1 the record date for determining
Stockholders entitled to notice of or to vote at a meeting of
Stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the
day on which the meeting is held; and
2.5.2 the record date for determining
Stockholders for any purpose other than those specified in
Section 2.5.1 hereof shall be at the close of business on the day
on which the Board adopts the resolution relating thereto.
When a determination of Stockholders entitled to notice of or to vote at any
meeting of Stockholders has been made as provided in this Section 2.5, such
determination shall apply to any adjournment thereof unless the Board fixes a
new record date for the adjourned meeting.
2.6 Notice of Meetings of Stockholders. Except as otherwise
provided in Section 2.7 hereof, whenever under the provisions of any statute,
the Certificate of Incorporation or these By-laws, Stockholders are required or
permitted to take any action at a meeting, written notice shall be given stating
the place, date and hour of the meeting and, in the case of a special meeting,
the purpose or purposes for which the meeting is called. Unless otherwise
provided by any statute, the Certificate of Incorporation or these By-laws, a
copy of the notice of any meeting shall be given, personally or by mail, not
less than ten nor more than sixty days before the date of the meeting, to each
Stockholder entitled to notice of or to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in
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the United States mail, with postage prepaid, directed to the Stockholder at his
or her address as it appears on the records of the Corporation. An affidavit of
the Secretary or an Assistant Secretary or of the transfer agent of the
Corporation that the notice required by this Section 2.6 has been given shall,
in the absence of fraud, be prima facie evidence of the facts stated therein.
When a meeting is adjourned to another time or place, notice need not be given
of the adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken, and at the adjourned meeting any
business may be transacted that might have been transacted at the meeting as
originally called. If, however, the adjournment is for more than thirty days, or
if after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each Stockholder of record
entitled to vote at the meeting.
2.7 Waivers of Notice. Whenever the giving of any notice is
required by statute, the Certificate of Incorporation or these By-laws, a waiver
thereof, in writing, signed by the Stockholder or Stockholders entitled to said
notice, whether before or after the event as to which such notice is required,
shall be deemed equivalent to notice. Attendance by a Stockholder at a meeting
shall constitute a waiver of notice of such meeting except when the Stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business on the ground that the meeting has
not been lawfully called or convened.
2.8 List of Stockholders. The Secretary shall prepare and
make, or cause to be prepared and made, at least ten days before every meeting
of Stockholders, a complete list of the Stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
Stockholder and the number of shares registered in the name of each Stockholder.
Such list shall be open to the examination of any Stockholder, the Stockholder's
agent or attorney, at the Stockholder's expense, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any Stockholder who is present. The Corporation
shall maintain the list of Stockholders in written form or in another form
capable of conversion into written form within a reasonable time. Upon the
willful neglect or refusal of the Directors to produce such a list at any
meeting for the election of Directors, they shall be ineligible for election to
any office at such meeting. The stock ledger shall be the only evidence as to
who are the Stockholders entitled to examine the stock ledger, the list of
Stockholders or the books of the Corporation, or to vote in person or by proxy
at any meeting of Stockholders.
2.9 Quorum of Stockholders; Adjournment. Except as otherwise
provided by any statute, the Certificate of Incorporation or these By-laws, the
holders of a majority of all outstanding shares of stock entitled to vote at any
meeting of Stockholders, present in person or represented by proxy, shall
constitute a quorum for
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the transaction of any business at such meeting. When a quorum is once present
to organize a meeting of Stockholders, it is not broken by the subsequent
withdrawal of any Stockholders. The holders of a majority of the shares of stock
present in person or represented by proxy at any meeting of Stockholders,
including an adjourned meeting, whether or not a quorum is present, may adjourn
such meeting to another time and place. Shares of its own stock belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of Directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes; provided, however, that the foregoing shall not limit the
right of the Corporation to vote stock, including but not limited to its own
stock, held by it in a fiduciary capacity.
2.10 Voting; Proxies. Unless otherwise provided in the
Certificate of Incorporation, every Stockholder of record shall be entitled at
every meeting of Stockholders to one vote for each share of capital stock
standing in his or her name on the record of Stockholders determined in
accordance with Section 2.5 hereof. If the Certificate of Incorporation provides
for more or less than one vote for any share on any matter, each reference in
the By-laws or the General Corporation Law to a majority or other proportion of
stock shall refer to such majority or other proportion of the votes of such
stock. The provisions of Sections 212 and 217 of the General Corporation Law
shall apply in determining whether any shares of capital stock may be voted and
the persons, if any, entitled to vote such shares; but the Corporation shall be
protected in assuming that the persons in whose names shares of capital stock
stand on the stock ledger of the Corporation are entitled to vote such shares.
Holders of redeemable shares of stock are not entitled to vote after the notice
of redemption is mailed to such holders and a sum sufficient to redeem the
stocks has been deposited with a bank, trust company, or other financial
institution under an irrevocable obligation to pay the holders the redemption
price on surrender of the shares of stock. At any meeting of Stockholders (at
which a quorum was present to organize the meeting), all matters, except as
otherwise provided by statute or by the Certificate of Incorporation or by these
By-laws, shall be decided by a majority of the votes cast at such meeting by the
holders of shares present in person or represented by proxy and entitled to vote
thereon, whether or not a quorum is present when the vote is taken. Directors
may be elected either by written ballot or by voice vote. In voting on any other
question on which a vote by ballot is required by law or is demanded by any
Stockholder entitled to vote, the voting shall be by ballot. Each ballot shall
be signed by the Stockholder voting or the Stockholder's proxy and shall state
the number of shares voted. On all other questions, the voting may be by voice
vote. Each Stockholder entitled to vote at a meeting of Stockholders may
authorize another person or persons to act for such Stockholder by proxy. The
validity and enforceability of any proxy shall be determined in accordance with
Section 212 of the General Corporation Law. A Stockholder may revoke any proxy
that is not irrevocable by attending the meeting and voting in person or by
filing an instrument in writing revoking the proxy or by delivering a proxy in
accordance with applicable law bearing a later date to the Secretary.
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6
2.11 Voting Procedures and Inspectors of Election at Meetings
of Stockholders. The Corporation, in advance of any meeting of Stockholders,
shall appoint one or more inspectors to act at the meeting and make a written
report thereof. The Corporation may designate one or more persons as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate is able to act at a meeting, the person presiding at the meeting shall
appoint, one or more inspectors to act at the meeting. Each inspector, before
entering upon the discharge of his or her duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspectors shall (a) ascertain
the number of shares outstanding and the voting power of each, (b) determine the
shares represented at the meeting and the validity of proxies and ballots, (c)
count all votes and ballots, (d) determine and retain for a reasonable period a
record of the disposition of any challenges made to any determination by the
inspectors, and (e) certify their determination of the number of shares
represented at the meeting and their count of all votes and ballots. The
inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of their duties. The date and time of the opening
and the closing of the polls for each matter upon which the Stockholders will
vote at a meeting shall be determined by the person presiding at the meeting and
shall be announced at the meeting. No ballot, proxies or votes, or any
revocation thereof or change thereto, shall be accepted by the inspectors after
the closing of the polls unless the Court of Chancery of the State of Delaware
upon application by a Stockholder shall determine otherwise.
2.12 Conduct of Meetings. (a) At each meeting of Stockholders,
the President, or in the absence of the President, the Chairman, or if there is
no Chairman or if there be one and the Chairman is absent, a Vice President, and
in case more than one Vice President shall be present, that Vice President
designated by the Board (or in the absence of any such designation, the most
senior Vice President, based on age, present), shall act as chairman of the
meeting. The Secretary, or in his or her absence one of the Assistant
Secretaries, shall act as secretary of the meeting. In case none of the officers
above designated to act as chairman or secretary of the meeting, respectively,
shall be present, a chairman or a secretary of the meeting, as the case may be,
shall be chosen by a majority of the votes cast at such meeting by the holders
of shares of capital stock present in person or represented by proxy and
entitled to vote at the meeting.
(b) Only persons who are nominated in accordance
with the following procedures shall be eligible for election as Directors.
Nominations of persons for election to the Board may be made at an annual
meeting or special meeting of Stockholders (i) by or at the direction of the
Board, (ii) by any nominating committee or person appointed by the Board or
(iii) by any Stockholder of the Corporation entitled to vote for the election of
Directors at the meeting who complies with the provisions of the following
paragraph (persons nominated in accordance with (iii) above are referred to
herein as "Stockholder nominees").
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In addition to any other applicable requirements, all
nominations of Stockholder nominees must be made by written notice given by or
on behalf of a Stockholder of record of the Corporation (the "Notice of
Nomination"). The Notice of Nomination must be delivered personally to, or
mailed to, and received at the principal executive offices of the Corporation,
addressed to the attention of the Secretary, not less than 30 days nor more than
60 days prior to the annual meeting or special meeting of Stockholders;
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 disclosure was made. Such Notice of
Nomination shall set forth (i) the name and record address of the Stockholder
proposing to make nominations, (ii) the class and number of shares of capital
stock held of record, held beneficially and represented by proxy held by such
person as of the record date for the meeting and as of the date of such Notice
of Nomination, (iii) all information regarding each Stockholder nominee that
would be required to be set forth in a definitive proxy statement filed with the
Securities and Exchange Commission pursuant to Section 14 of the Securities
Exchange Act of 1934, as amended, or any successor statute thereto (the
"Exchange Act"), and the written consent of each such Stockholder nominee to
serve if elected, and (iv) all other information that would be required to be
filed with the Securities and Exchange Commission if the person proposing such
nominations were a participant in a solicitation subject to Section 14 of the
Exchange Act or any successor statute thereto. The chairman of the meeting
shall, if the facts warrant, determine and declare to the meeting, that any
proposed nomination of a Stockholder nominee was not made in accordance with the
foregoing procedures and, if he should so determine, he shall declare to the
meeting and the defective nomination shall be discarded. For purposes of
Sections 2.12(b) and (c) hereof, public disclosure shall be deemed to be first
made when disclosure of such date of the annual meeting of Stockholders is first
made in a press release reported by the Dow Jones News Services, Associated
Press or comparable national news service, or in a document publicly filed by
the Corporation with the Securities and Exchange Commission pursuant to Sections
13, 14 or 15(d) of the Exchange Act or any successor statute thereto.
(c) At any annual meeting of Stockholders, only
such business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting of Stockholders, (i)
business must be specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board, (ii) otherwise properly brought
before the meeting by or at the direction of the Board or (iii) otherwise
properly brought before the meeting by a Stockholder in accordance with the
terms of the following paragraph (business brought before the meeting in
accordance with (iii) above is referred to as "Stockholder business").
In addition to any other applicable requirements, all
proposals of Stockholder business must be made by written notice given by or on
behalf of a
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Stockholder of record of the Corporation (the "Notice of Business"). The Notice
of Business must be delivered personally to, or mailed to, and received at the
principal executive offices of the Corporation, addressed to the attention of
the Secretary, not less than 30 days nor more than 60 days prior to the annual
meeting of Stockholders; 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 disclosure was
made. Such Notice of Business shall set forth (i) the name and record address of
the Stockholder proposing such Stockholder business, (ii) the class and number
of shares of capital stock held of record, held beneficially and represented by
proxy held by such person as of the record date for the meeting and as of the
date of such Notice of Business, (iii) a brief description of the Stockholder
business desired to be brought before the annual meeting and the reasons for
conducting such Stockholder business at the annual meeting, (iv) any material
interest of the Stockholder in such Stockholder business and (v) all other
information that would be required to be filed with the Securities and Exchange
Commission if the person proposing such Stockholder business were a participant
in a solicitation subject to Section 14 of the Exchange Act. Notwithstanding
anything in these By-laws to the contrary, no business shall be conducted at the
annual meeting of Stockholders except in accordance with the procedures set
forth in this Section 2.12(c), provided, however, that nothing in this Section
2.12(c) shall be deemed to preclude discussion by any Stockholder of any
business properly brought before the annual meeting in accordance with said
procedure. The chairman of the meeting shall, if the facts warrant, determine
and declare to the meeting, that business was not properly brought before the
meeting in accordance with the foregoing procedures and, if he should so
determine, he shall declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
2.13 Order of Business. The order of business at all meetings
of Stockholders shall be as determined by the chairman of the meeting, but the
order of business to be followed at any meeting at which a quorum is present may
be changed by a majority of the votes cast at such meeting by the holders of
shares of capital stock present in person or represented by proxy and entitled
to vote at the meeting.
2.14 Action by Stockholders. Notwithstanding the provisions of
section 228 of the General Corporation Law (or any successor statute), any
action required or permitted by the General Corporation Law to be taken at any
annual or special meeting of Stockholders of the Corporation may be taken only
at such an annual or special meeting of Stockholders and cannot be taken by
written consent without a meeting.
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ARTICLE 3
Directors
3.1 General Powers. Except as otherwise provided in the
Certificate of Incorporation, the business and affairs of the Corporation shall
be managed by or under the direction of the Board. The Board may adopt such
rules and regulations, not inconsistent with the Certificate of Incorporation or
these By-laws or applicable laws, as it may deem proper for the conduct of its
meetings and the management of the Corporation. In addition to the powers
expressly conferred by these By-laws, the Board may exercise all powers and
perform all acts that are not required, by these By-laws or the Certificate of
Incorporation or by statute, to be exercised and performed by the Stockholders.
3.2 Number; Qualification; Term of Office. The Board shall
consist of not less than three or more than 15 members. The exact number of
Directors within the minimum and maximum limitations specified in the preceding
sentence shall be fixed from time to time by resolution adopted by a majority of
the entire Board then in office, whether or not present at a meeting. Directors
need not be Stockholders. The Directors shall be divided into three classes with
the term of office of the first class to expire at the first annual meeting of
Stockholders of the Corporation next following the end of the Corporation's
fiscal year ending December 31, 1997, the term of office of the second class to
expire at the first annual meeting of Stockholders of the Corporation next
following the end of the Corporation's fiscal year ending December 31, 1998 and
the term of office of the third class to expire at the annual meeting of
Stockholders of the Corporation next following the end of the Corporation's
fiscal year ending December 31, 1999. At each annual meeting of Stockholders
following such initial election as specified above, Directors elected to succeed
those Directors whose terms expire shall be elected for a term of office to
expire at the third succeeding annual meeting of Stockholders after their
election.
3.3 Tenure. Notwithstanding any provisions to the contrary
contained herein, (i) each Director shall hold office until his or successor is
elected and qualified, or until the earlier of such Director's death,
resignation or removal and (ii) the term of any director who is also an officer
of SMC shall terminate if he or she ceases to be an officer of SMC, unless the
Board shall determine to the contrary.
3.4 Election. Directors shall, except as otherwise required by
statute or by the Certificate of Incorporation, be elected by a plurality of the
votes cast at a meeting of Stockholders by the holders of shares present in
person or represented by proxy at the meeting and entitled to vote in the
election.
3.5 Newly Created Directorships and Vacancies. Subject to the
rights of the holders of any series of Preferred Stock then outstanding, newly
created directorships resulting from any increase in the authorized number of
Directors or any
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vacancies in the Board resulting from death, resignation, retirement,
disqualification, removal from office or other cause shall be filled by a
majority vote of the remaining Directors then in office although less than a
quorum, or by a sole remaining Director and Directors so chosen shall hold
office for a term expiring at the annual meeting of stockholders at which the
term of the class to which they have been elected expires or, in each case,
until their respective successors are duly elected and qualified. No decrease in
the number of Directors constituting the Board shall shorten the term of any
incumbent Director. When any Director shall give notice of resignation effective
at a future date, the Board may fill such vacancy to take effect when such
resignation shall become effective.
3.6 Resignation. Any Director may resign at any time by
written notice to the Corporation. Such resignation shall take effect at the
time therein specified, and, unless otherwise specified in such resignation, the
acceptance of such resignation shall not be necessary to make it effective.
3.7 Removal. Any one or more or all of the Directors may be
removed, at any time, but only for cause by the Stockholders having at least a
majority in voting power of the then issued and outstanding shares of capital
stock of the Corporation.
3.8 Compensation. Each Director, in consideration of his or
her service as such, shall be entitled to receive from the Corporation such
amount per annum or such fees for attendance at Directors' meetings, or both, as
the Board may from time to time determine, together with reimbursement for the
reasonable out-of-pocket expenses, if any, incurred by such Director in
connection with the performance of his or her duties. Each Director who shall
serve as a member of any committee of Directors in consideration of serving as
such shall be entitled to such additional amount per annum or such fees for
attendance at committee meetings, or both, as the Board may from time to time
determine, together with reimbursement for the reasonable out-of-pocket
expenses, if any, incurred by such Director in the performance of his or her
duties. Nothing contained in this Section 3.7 shall preclude any Director from
serving the Corporation or its subsidiaries in any other capacity and receiving
proper compensation therefor.
3.9 Times and Places of Meetings. The Board may hold meetings,
both regular and special, either within or without the State of Delaware. The
times and places for holding meetings of the Board may be fixed from time to
time by resolution of the Board or (unless contrary to a resolution of the
Board) in the notice of the meeting.
3.10 Annual Meetings. On the day when and at the place where
the annual meeting of Stockholders for the election of Directors is held, and as
soon as practicable thereafter, the Board may hold its annual meeting, without
notice of such meeting, for the purposes of organization, the election of
officers and the transaction of other business. The annual meeting of the Board
may be held at any other time
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and place specified in a notice given as provided in Section 3.11 hereof for
special meetings of the Board or in a waiver of notice thereof.
3.11 Regular Meetings. Regular meetings of the Board may be
held without notice at such times and at such places as shall from time to time
be determined by the Board.
3.12 Special Meetings. Special meetings of the Board may be
called by the Chairman, the President or the Secretary or by any two or more
Directors then serving on at least one day's notice to each Director given by
one of the means specified in Section 3.14 hereof other than by mail, or on at
least three days' notice if given by mail. Special meetings shall be called by
the Chairman, President or Secretary in like manner and on like notice on the
written request of any two or more of the Directors then serving.
3.13 Telephone Meetings. Directors or members of any committee
designated by the Board may participate in a meeting of the Board or of such
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 3.12 shall constitute
presence in person at such meeting.
3.14 Adjourned Meetings. A majority of the Directors present
at any meeting of the Board, including an adjourned meeting, whether or not a
quorum is present, may adjourn such meeting to another time and place. At least
one day's notice of any adjourned meeting of the Board shall be given to each
Director whether or not present at the time of the adjournment, if such notice
shall be given by one of the means specified in Section 3.14 hereof other than
by mail, or at least three days' notice if by mail. Any business may be
transacted at an adjourned meeting that might have been transacted at the
meeting as originally called.
3.15 Notice Procedure. Subject to Sections 3.11 and 3.15
hereof, whenever, under the provisions of any statute, the Certificate of
Incorporation or these By-laws, notice is required to be given to any Director,
such notice shall be deemed given effectively if given in person or by
telephone, by mail addressed to such Director at such Director's address as it
appears on the records of the Corporation, with postage thereon prepaid, or by
telegram, telex, telecopy or similar means addressed as aforesaid.
3.16 Waiver of Notice. Whenever the giving of any notice is
required by statute, the Certificate of Incorporation or these By-laws, a waiver
thereof, in writing, signed by the person or persons entitled to said notice,
whether before or after the event as to which such notice is required, shall be
deemed equivalent to notice. Attendance by a person at a meeting shall
constitute a waiver of notice of such meeting except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any
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business on the ground that the meeting has not been lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Directors or a committee of Directors need be
specified in any written waiver of notice unless so required by statute, the
Certificate of Incorporation or these By-laws.
3.17 Organization. At each meeting of the Board, the Chairman,
or in the absence of the Chairman the President, or in the absence of the
President a chairman chosen by a majority of the Directors present, shall
preside. The Secretary shall act as secretary at each meeting of the Board. In
case the Secretary shall be absent from any meeting of the Board, an Assistant
Secretary shall perform the duties of secretary at such meeting; and in the
absence from any such meeting of the Secretary and all Assistant Secretaries,
the person presiding at the meeting may appoint any person to act as secretary
of the meeting.
3.18 Quorum of Directors. The presence in person of a majority
of the entire Board shall be necessary and sufficient to constitute a quorum for
the transaction of business at any meeting of the Board, but a majority of a
smaller number may adjourn any such meeting to a later date.
3.19 Action by Majority Vote. Except as otherwise expressly
required by statute, the Certificate of Incorporation or these By-laws, the act
of a majority of the Directors present at a meeting at which a quorum is present
shall be the act of the Board.
3.20 Action Without Meeting. Unless otherwise restricted by
the Certificate of Incorporation or these By-laws, any action required or
permitted to be taken at any meeting of the Board or of any committee thereof
may be taken without a meeting if all Directors or members of such committee, as
the case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board or committee.
ARTICLE 4
COMMITTEES OF THE BOARD
The Board may designate one or more committees, each committee
to consist of one or more of the Directors of the Corporation. The Board may
designate one or more Directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of such committee. If a
member of a committee shall be absent from any meeting, or disqualified from
voting thereat, the remaining member or members present and not disqualified
from voting, whether or not such member or members constitute a quorum, may, by
a unanimous vote, appoint another member of the Board to act at the meeting in
the place of any such absent or disqualified member. Any such committee, to the
extent provided in the
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resolution of the Board or these By-laws, shall have and may exercise all the
powers and authority of the Board in the management of the business and affairs
of the Corporation, and may authorize the seal of the Corporation to be
impressed on all papers that may require it, but no such committee shall have
the power or authority of the Board in reference to: (i) approving or adopting,
or recommending to the Stockholders any matter expressly required by the General
Corporation Law to be submitted to the Stockholders for approval or (ii)
adopting, amending or repealing any By-law of the Corporation. Unless otherwise
specified in the resolution of the Board designating a committee, at all
meetings of such committee a majority of the total number of members of the
committee shall constitute a quorum for the transaction of business, and the
vote of a majority of the members of the committee present at any meeting at
which there is a quorum shall be the act of the committee. Each committee shall
keep regular minutes of its meetings. Unless the Board otherwise provides, each
committee designated by the Board may make, alter and repeal rules for the
conduct of its business. In the absence of such rules each committee shall
conduct its business in the same manner as the Board conducts its business
pursuant to Article 3 of these By-laws.
ARTICLE 5
OFFICERS
5.1 Positions. The officers of the Corporation shall be a
President, a Secretary, a Treasurer or a Chief Financial Officer and such other
officers as the Board may appoint, including a Chairman, one or more Vice
Presidents and one or more Assistant Secretaries and Assistant Treasurers, who
shall exercise such powers and perform such duties as shall be determined from
time to time by the Board. The Board may designate one or more Vice Presidents
as Executive Vice Presidents and may use descriptive words or phrases to
designate the standing, seniority or areas of special competence of the Vice
Presidents elected or appointed by it. Any number of offices may be held by the
same person unless the Certificate of Incorporation or these By-laws otherwise
provide.
5.2 Appointment. The officers of the Corporation shall be
chosen by the Board at its annual meeting or at such other time or times as the
Board shall determine.
5.3 Compensation. The compensation of all officers of the
Corporation shall be fixed by the Board. No officer shall be prevented from
receiving a salary or other compensation by reason of the fact that the officer
is also a Director.
5.4 Term of Office. Each officer of the Corporation shall
hold office for the term for which he or she is elected and until such officer's
successor is chosen and qualifies or until such officer's earlier death,
resignation or removal. Any
<PAGE>
14
officer may resign at any time upon written notice to the Corporation. Such
resignation shall take effect at the date of receipt of such notice or at such
later time as is therein specified, and, unless otherwise specified, the
acceptance of such resignation shall not be necessary to make it effective. The
resignation of an officer shall be without prejudice to the contract rights of
the Corporation, if any. Any officer elected or appointed by the Board may be
removed at any time, with or without cause, by vote of a majority of the entire
Board. Any vacancy occurring in any office of the Corporation shall be filled by
the Board. The removal of an officer without cause shall be without prejudice to
the officer's contract rights, if any. The election or appointment of an officer
shall not of itself create contract rights.
5.5 Fidelity Bonds. The Corporation may secure the fidelity
of any or all of its officers or agents by bond or otherwise.
5.6 Chairman. The Chairman, if one shall have been appointed,
shall preside at all meetings of the Board and shall exercise such powers and
perform such other duties as shall be determined from time to time by the Board.
5.7 President. The President shall be the Chief Executive
Officer of the Corporation and shall have general supervision over the business
of the Corporation, subject, however, to the control of the Board and of any
duly authorized committee of Directors. The President shall preside at all
meetings of the Stockholders and at all meetings of the Board at which the
Chairman (if there be one) is not present. The President may sign and execute in
the name of the Corporation deeds, mortgages, bonds, contracts and other
instruments except in cases in which the signing and execution thereof shall be
expressly delegated by the Board or by these By-laws to some other officer or
agent of the Corporation or shall be required by statute otherwise to be signed
or executed and, in general, the President shall perform all duties incident to
the office of President of a corporation and such other duties as may from time
to time be assigned to the President by the Board.
5.8 Vice Presidents. At the request of the President, or, in
the President's absence, at the request of the Board, the Vice Presidents shall
(in such order as may be designated by the Board or, in the absence of any such
designation, in order of seniority based on age) perform all of the duties of
the President and, in so performing, shall have all the powers of, and be
subject to all restrictions upon, the President. Any Vice President may sign and
execute in the name of the Corporation deeds, mortgages, bonds, contracts or
other instruments, except in cases in which the signing and execution thereof
shall be expressly delegated by the Board or by these By-laws to some other
officer or agent of the Corporation, or shall be required by statute otherwise
to be signed or executed, and each Vice President shall perform such other
duties as from time to time may be assigned to such Vice President by the Board
or by the President.
5.9 Secretary. The Secretary shall attend all meetings of the
Board and of the Stockholders and shall record all the proceedings of the
meetings of the
<PAGE>
15
Board and of the Stockholders in a book to be kept for that purpose, and shall
perform like duties for committees of the Board, when required. The Secretary
shall give, or cause to be given, notice of all special meetings of the Board
and of the Stockholders and shall perform such other duties as may be prescribed
by the Board or by the President, under whose supervision the Secretary shall
be. The Secretary shall have custody of the corporate seal of the Corporation,
and the Secretary, or an Assistant Secretary, shall have authority to impress
the same on any instrument requiring it, and when so impressed the seal may be
attested by the signature of the Secretary or by the signature of such Assistant
Secretary. The Board may give general authority to any other officer to impress
the seal of the Corporation and to attest the same by such officer's signature.
The Secretary or an Assistant Secretary may also attest all instruments signed
by the President or any Vice President. The Secretary shall have charge of all
the books, records and papers of the Corporation relating to its organization
and management, shall see that the reports, statements and other documents
required by statute are properly kept and filed and, in general, shall perform
all duties incident to the office of Secretary of a corporation and such other
duties as may from time to time be assigned to the Secretary by the Board or by
the President.
5.10 Treasurer or Chief Financial Officer. The Treasurer or
Chief Financial Officer shall have charge and custody of, and be responsible
for, all funds, securities and notes of the Corporation; receive and give
receipts for moneys due and payable to the Corporation from any sources
whatsoever; deposit all such moneys and valuable effects in the name and to the
credit of the Corporation in such depositaries as may be designated by the
Board; against proper vouchers, cause such funds to be disbursed by checks or
drafts on the authorized depositaries of the Corporation signed in such manner
as shall be determined by the Board and be responsible for the accuracy of the
amounts of all moneys so disbursed; regularly enter or cause to be entered in
books or other records maintained for the purpose full and adequate account of
all moneys received or paid for the account of the Corporation; have the right
to require from time to time reports or statements giving such information as
the Treasurer or Chief Financial Officer may desire with respect to any and all
financial transactions of the Corporation from the officers or agents
transacting the same; render to the President or the Board, whenever the
President or the Board shall require the Treasurer or Chief Financial Officer so
to do, an account of the financial condition of the Corporation and of all
financial transactions of the Corporation; exhibit at all reasonable times the
records and books of account to any of the Directors upon application at the
Office of the Corporation where such records and books are kept; disburse the
funds of the Corporation as ordered by the Board; and, in general, perform all
duties incident to the office of Treasurer or Chief Financial Officer of a
corporation and such other duties as may from time to time be assigned to the
Treasurer or Chief Financial Officer by the Board or the President.
5.11 Assistant Secretaries and Assistant Treasurers.
Assistant Secretaries and Assistant Treasurers shall perform such duties as
shall be assigned to
<PAGE>
16
them by the Secretary or by the Treasurer or Chief Financial Officer,
respectively, or by the Board or by the President.
ARTICLE 6
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
6.1 Execution of Contracts. The Board, except as otherwise
provided in these By-laws, may prospectively or retroactively authorize any
officer or officers, employee or employees or agent or agents, in the name and
on behalf of the Corporation, to enter into any contract or execute and deliver
any instrument, and any such authority may be general or confined to specific
instances, or otherwise limited.
6.2 Loans. The Board may prospectively or retroactively
authorize the President or any other officer, employee or agent of the
Corporation to effect loans and advances at any time for the Corporation from
any bank, trust company or other institution, or from any firm, corporation or
individual, and for such loans and advances the person so authorized may make,
execute and deliver promissory notes, bonds or other certificates or evidences
of indebtedness of the Corporation, and, when authorized by the Board so to do,
may pledge and hypothecate or transfer any securities or other property of the
Corporation as security for any such loans or advances. Such authority conferred
by the Board may be general or confined to specific instances, or otherwise
limited.
6.3 Checks, Drafts, Etc. All checks, drafts and other orders
for the payment of money out of the funds of the Corporation and all evidences
of indebtedness of the Corporation shall be signed on behalf of the Corporation
in such manner as shall from time to time be determined by resolution of the
Board.
6.4 Deposits. The funds of the Corporation not otherwise
employed shall be deposited from time to time to the order of the Corporation
with such banks, trust companies, investment banking firms, financial
institutions or other depositaries as the Board may select or as may be selected
by an officer, employee or agent of the Corporation to whom such power to select
may from time to time be delegated by the Board.
ARTICLE 7
STOCK AND DIVIDENDS
7.1 Certificates Representing Shares. The shares of capital
stock of the Corporation shall be represented by certificates in such form
(consistent with the provisions of Section 158 of the General Corporation Law)
as shall be approved by the Board. Such certificates shall be signed by the
Chairman, the President or a Vice
<PAGE>
17
President and by the Secretary or an Assistant Secretary or the Treasurer or
Chief Financial Officer or an Assistant Treasurer, and may be impressed with the
seal of the Corporation or a facsimile thereof. The signatures of the officers
upon a certificate may be facsimiles, if the certificate is countersigned by a
transfer agent or registrar other than the Corporation itself or its employee.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon any certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued,
such certificate may, unless otherwise ordered by the Board, be issued by the
Corporation with the same effect as if such person were such officer, transfer
agent or registrar at the date of issue.
7.2 Transfer of Shares. Transfers of shares of capital stock
of the Corporation shall be made only on the books of the Corporation by the
holder thereof or by the holder's duly authorized attorney appointed by a power
of attorney duly executed and filed with the Secretary or a transfer agent of
the Corporation, and on surrender of the certificate or certificates
representing such shares of capital stock properly endorsed for transfer and
upon payment of all necessary transfer taxes. Every certificate exchanged,
returned or surrendered to the Corporation shall be marked "Cancelled," with the
date of cancellation, by the Secretary or an Assistant Secretary or the transfer
agent of the Corporation. A person in whose name shares of capital stock shall
stand on the books of the Corporation shall be deemed the owner thereof to
receive dividends, to vote as such owner and for all other purposes as respects
the Corporation. No transfer of shares of capital stock shall be valid as
against the Corporation, its Stockholders and creditors for any purpose, except
to render the transferee liable for the debts of the Corporation to the extent
provided by law, until such transfer shall have been entered on the books of the
Corporation by an entry showing from and to whom transferred.
7.3 Transfer and Registry Agents. The Corporation may from
time to time maintain one or more transfer offices or agents and registry
offices or agents at such place or places as may be determined from time to time
by the Board.
7.4 Lost, Destroyed, Stolen and Mutilated Certificates. The
holder of any shares of capital stock of the Corporation shall immediately
notify the Corporation of any loss, destruction, theft or mutilation of the
certificate representing such shares, and the Corporation may issue a new
certificate to replace the certificate alleged to have been lost, destroyed,
stolen or mutilated. The Board may, in its discretion, as a condition to the
issue of any such new certificate, require the owner of the lost, destroyed,
stolen or mutilated certificate, or his or her legal representatives, to make
proof satisfactory to the Board of such loss, destruction, theft or mutilation
and to advertise such fact in such manner as the Board may require, and to give
the Corporation and its transfer agents and registrars, or such of them as the
Board may require, a bond in such form, in such sums and with such surety or
sureties as the Board may direct, to indemnify the Corporation and its transfer
agents and registrars against any claim that may be made against any of them on
account of
<PAGE>
18
the continued existence of any such certificate so alleged to have been lost,
destroyed, stolen or mutilated and against any expense in connection with such
claim.
7.5 Rules and Regulations. The Board may make such rules and
regulations as it may deem expedient, not inconsistent with these By-laws or
with the Certificate of Incorporation, concerning the issue, transfer and
registration of certif icates representing shares of its capital stock.
7.6 Restriction on Transfer of Stock. A written restriction on
the transfer or registration of transfer of capital stock of the Corporation, if
permitted by Section 202 of the General Corporation Law and noted conspicuously
on the certificate representing such capital stock, may be enforced against the
holder of the restricted capital stock or any successor or transferee of the
holder, including an executor, administrator, trustee, guardian or other
fiduciary entrusted with like responsibility for the person or estate of the
holder. Unless noted conspicuously on the certificate representing such capital
stock, a restriction, even though permitted by Section 202 of the General
Corporation Law, shall be ineffective except against a person with actual
knowledge of the restriction. A restriction on the transfer or registration of
transfer of capital stock of the Corporation may be imposed either by the
Certificate of Incorporation or by an agreement among any number of Stockholders
or among such Stockholders and the Corporation. No restriction so imposed shall
be binding with respect to capital stock issued prior to the adoption of the
restriction unless the holders of such capital stock are parties to an agreement
or voted in favor of the restriction.
7.7 Dividends, Surplus, Etc. Subject to the provisions of the
Certificate of Incorporation and of law, the Board:
7.7.1 may declare and pay dividends or make
other distributions on the outstanding shares of capital stock in such
amounts and at such time or times as it, in its discretion, shall deem
advisable giving due consideration to the condition of the affairs of
the Corporation;
7.7.2 may use and apply, in its discretion,
any of the surplus of the Corporation in purchasing or acquiring any
shares of capital stock of the Corporation, or purchase warrants
therefor, in accordance with law, or any of its bonds, debentures,
notes, scrip or other securities or evidences of indebtedness; and
7.7.3 may set aside from time to time out of
such surplus or net profits such sum or sums as, in its discretion, it
may think proper, as a reserve fund to meet contingencies, or for
equalizing dividends or for the purpose of maintaining or increasing
the property or business of the Corporation, or for any purpose it may
think conducive to the best interests of the Corporation.
<PAGE>
19
ARTICLE 8
INDEMNIFICATION
8.1 Indemnity Undertaking. To the extent not prohibited by
law, the Corporation shall indemnify any person who is or was made, or
threatened to be made, a party to any threatened, pending or completed action,
suit or proceeding (a "Proceeding"), whether civil, criminal, administrative or
investigative, including, without limitation, an action by or in the right of
the Corporation to procure a judgment in its favor, by reason of the fact that
such person, or a person of whom such person is the legal representative, is or
was a Director or officer of the Corporation, or, at the request of the
Corporation, is or was serving as a director or officer of any other corporation
or in a capacity with comparable authority or responsibilities for any
partnership, joint venture, trust, employee benefit plan or other enterprise (an
"Other Entity"), against judgments, fines, penalties, excise taxes, amounts paid
in settlement and costs, charges and expenses (including attorneys' fees,
disbursements and other charges). Persons who are not directors or officers of
the Corporation (or otherwise entitled to indemnification pursuant to the
preceding sentence) may be similarly indemnified in respect of service to the
Corporation or to an Other Entity at the request of the Corporation to the
extent the Board at any time specifies that such persons are entitled to the
benefits of this Article 8.
8.2 Advancement of Expenses. The Corporation shall, from time
to time, reimburse or advance to any Director or officer or other person
entitled to indemnification hereunder the funds necessary for payment of
expenses, including attorneys' fees and disbursements, incurred in connection
with any Proceeding, in advance of the final disposition of such Proceeding;
provided, however, that, if required by the General Corporation Law, such
expenses incurred by or on behalf of any Director or officer or other person may
be paid in advance of the final disposition of a Proceeding only upon receipt by
the Corporation of an undertaking, by or on behalf of such Director or officer
(or other person indemnified hereunder), to repay any such amount so advanced if
it shall ultimately be determined by final judicial decision from which there is
no further right of appeal that such Director, officer or other person is not
entitled to be indemnified for such expenses.
8.3 Rights Not Exclusive. The rights to indemnification and
reimbursement or advancement of expenses provided by, or granted pursuant to,
this Article 8 shall not be deemed exclusive of any other rights to which a
person seeking indemnification or reimbursement or advancement of expenses may
have or hereafter be entitled under any statute, the Certificate of
Incorporation, these By-laws, any agreement, any vote of stockholders or
disinterested Directors or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding such office.
<PAGE>
20
8.4 Continuation of Benefits. The rights to indemnification
and reimbursement or advancement of expenses provided by, or granted pursuant
to, this Article 8 shall continue as to a person who has ceased to be a Director
or officer (or other person indemnified hereunder) and shall inure to the
benefit of the executors, administrators, legatees and distributees of such
person.
8.5 Insurance. The Corporation shall have power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of an Other
Entity, against any liability asserted against such person and incurred by such
person in any such capacity, or arising out of such person's status as such,
whether or not the Corporation would have the power to indemnify such person
against such liability under the provisions of this Article 8, the Certificate
of Incorporation or under section 145 of the General Corporation Law or any
other provision of law.
8.6 Binding Effect. The provisions of this Article 8 shall be
a contract between the Corporation, on the one hand, and each Director and
officer who serves in such capacity at any time while this Article 8 is in
effect and any other person entitled to indemnification hereunder, on the other
hand, pursuant to which the Corporation and each such Director, officer or other
person intend to be, and shall be legally bound. No repeal or modification of
this Article 8 shall affect any rights or obligations with respect to any state
of facts then or theretofore existing or thereafter arising or any proceeding
theretofore or thereafter brought or threatened based in whole or in part upon
any such state of facts.
8.7 Procedural Rights. The rights to indemnification and
reimbursement or advancement of expenses provided by, or granted pursuant to,
this Article 8 shall be enforceable by any person entitled to such
indemnification or reimbursement or advancement of expenses in any court of
competent jurisdiction. The burden of proving that such indemnification or
reimbursement or advancement of expenses is not appropriate shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, its independent legal counsel and its stockholders) to have made a
determination prior to the commencement of such action that such indemnification
or reimbursement or advancement of expenses is proper in the circumstances nor
an actual determination by the Corporation (including its Board of Directors,
its independent legal counsel and its stockholders) that such person is not
entitled to such indemnification or reimbursement or advancement of expenses
shall constitute a defense to the action or create a presumption that such
person is not so entitled. Such a person shall also be indemnified for any
expenses incurred in connection with successfully establishing his or her right
to such indemnification or reimbursement or advancement of expenses, in whole or
in part, in any such proceeding.
8.8 Service Deemed at Corporation's Request. Any Director or
officer of the Corporation serving in any capacity (a) another corporation of
which a
<PAGE>
21
majority of the shares entitled to vote in the election of its directors is
held, directly or indirectly, by the Corporation or (b) any employee benefit
plan of the Corporation or any corporation referred to in clause (a) shall be
deemed to be doing so at the request of the Corporation.
8.9 Election of Applicable Law. Any person entitled to be
indemni fied or to reimbursement or advancement of expenses as a matter of right
pursuant to this Article 8 may elect to have the right to indemnification or
reimbursement or advancement of expenses interpreted on the basis of the
applicable law in effect at the time of the occurrence of the event or events
giving rise to the applicable Proceeding, to the extent permitted by law, or on
the basis of the applicable law in effect at the time such indemnification or
reimbursement or advancement of expenses is sought. Such election shall be made,
by a notice in writing to the Corporation, at the time indemnification or
reimbursement or advancement of expenses is sought; provided, however, that if
no such notice is given, the right to indemnification or reimbursement or
advancement of expenses shall be determined by the law in effect at the time
indemnification or reimbursement or advancement of expenses is sought.
ARTICLE 9
BOOKS AND RECORDS
9.1 Books and Records. There shall be kept at the Office of
the Corporation correct and complete records and books of account recording the
financial transactions of the Corporation and minutes of the proceedings of the
Stockholders, the Board and any committee of the Board. The Corporation shall
keep at its principal office, or at the office of the transfer agent or
registrar of the Corporation, a record containing the names and addresses of all
Stockholders, the number and class of shares held by each and the dates when
they respectively became the owners of record thereof.
9.2 Form of Records. Any records maintained by the Corporation
in the regular course of its business, including its stock ledger, books of
account, and minute books, may be kept on, or be in the form of, punch cards,
magnetic tape, photographs, microphotographs, or any other information storage
device, provided that the records so kept can be converted into clearly legible
written form within a reasonable time. The Corporation shall so convert any
records so kept upon the request of any person entitled to inspect the same.
9.3 Inspection of Books and Records. Except as otherwise
provided by law, the Board shall determine from time to time whether, and, if
allowed, when and under what conditions and regulations, the accounts, books,
minutes and other records of the Corporation, or any of them, shall be open to
the Stockholders for inspection.
<PAGE>
22
ARTICLE 10
SEAL
The corporate seal shall have inscribed thereon the name of
the Corporation, the year of its organization and the words "Corporate Seal,
Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.
ARTICLE 11
FISCAL YEAR
The fiscal year of the Corporation shall end on December 31 of
each calendar year, and may be changed, by resolution of the Board.
ARTICLE 12
PROXIES AND CONSENTS
Unless otherwise directed by the Board, the Chairman, the
President, any Vice President, the Secretary or the Treasurer or Chief Financial
Officer, or any one of them, may execute and deliver on behalf of the
Corporation proxies respecting any and all shares or other ownership interests
of any Other Entity owned by the Corporation appointing such person or persons
as the officer executing the same shall deem proper to represent and vote the
shares or other ownership interests so owned at any and all meetings of holders
of shares or other ownership interests, whether general or special, and/or to
execute and deliver consents respecting such shares or other ownership
interests; or any of the aforesaid officers may attend any meeting of the
holders of shares or other ownership interests of such Other Entity and thereat
vote or exercise any or all other powers of the Corporation as the holder of
such shares or other ownership interests.
ARTICLE 13
EMERGENCY BY-LAWS
Unless the Certificate of Incorporation provides otherwise, the
following provisions of this Article 13 shall be effective during an emergency,
which is defined as when a quorum of the Corporation's Directors cannot be
readily assembled because of some catastrophic event. During such emergency:
<PAGE>
23
13.1 Notice to Board Members. Any one member of the Board or
any one of the following officers: Chairman, President, any Vice President,
Secretary, or Treasurer or Chief Financial Officer, may call a meeting of the
Board. Notice of such meeting need be given only to those Directors whom it is
practicable to reach, and may be given in any practical manner, including by
publication and radio. Such notice shall be given at least six hours prior to
commencement of the meeting.
13.2 Temporary Directors and Quorum. One or more officers of
the Corporation present at the emergency Board meeting, as is necessary to
achieve a quorum, shall be considered to be Directors for the meeting, and shall
so serve in order of rank, and within the same rank, in order of seniority. In
the event that less than a quorum of the Directors are present (including any
officers who are to serve as Directors for the meeting), those Directors present
(including the officers serving as Directors) shall constitute a quorum.
13.3 Actions Permitted To Be Taken. The Board as constituted
in Section 13.2 hereof, and after notice as set forth in Section 13.1 hereof
may:
13.3.1 prescribe emergency powers to any officer of
the Corporation;
13.3.2 delegate to any officer or Director, any of
the powers of the Board;
13.3.3 designate lines of succession of officers and
agents, in the event that any of them are unable to discharge their
duties;
13.3.4 relocate the principal place of business, or
designate successive or simultaneous principal places of business; and
13.3.5 take any other convenient, helpful or
necessary action to carry on the business of the Corporation.
ARTICLE 14
AMENDMENTS
The Board may from time to time adopt, amend or repeal the
By-laws; provided, however, that any By-laws adopted or amended by the Board may
be amended or repealed, and any By-laws may be adopted, by a vote of the
Stockholders having at least a majority in voting power of the then issued and
outstanding shares of capital stock of the Corporation.
<PAGE>
EXHIBIT 4.2
Special Metals Corporation
4317 Middlesettlement Road
New Hartford, N.Y. 13413
January 29, 1997
Securities and Exchange Commission
450 Fifth Avenue, N.W.
Washington, D.C. 20549
Special Metals Corporation
Registration Statement on Form S-1
(Registration No. 333-18499)
Ladies and Gentlemen:
In accordance with Item 601(b)(4)(iii) of Regulation S-K, Special Metals
Corporation (the 'Registrant') has not filed herewith any instrument with
respect to long term debt not being registered where the total number of
securities authorized thereunder does not exceed ten percent (10%) of the total
assets of the Registrant and its subsidiaries on a consolidated basis. The
Registrant hereby agrees to furnish a copy of any such agreement to the
Securities and Exchange Commission upon request.
Very truly yours,
SPECIAL METALS CORPORATION
By: /s/ DONALD R. MUZYKA
---------------------------------
Donald R. Muzyka
President and Chief Executive
Officer
<PAGE>
Special Metals Corporation 1
February 3, 1997
Special Metals Corporation
4317 Middle Settlement Road
New Hartford, NY 13413
Special Metals Corporation
Registration Statement on Form S-1
Registration No. 333-18499
----------------------------------
Ladies and Gentlemen:
In connection with the above-captioned Registration
Statement, as amended (the "Registration Statement"), filed with the Securities
and Exchange Commission pursuant to the Securities Act of 1933, as amended (the
"Act"), and the rules and regulations promulgated thereunder (the "Rules"), we
have been requested by Special Metals Corporation, a Delaware corporation (the
"Company"), to furnish our opinion as to the legality of 3,555,000 shares (the
"Company Shares") offered by the Company (including up to 555,000 shares
issuable by the Company upon exercise of the Underwriters' over-allotment
option) and 700,000 shares (the "Stockholder Shares") offered by certain
selling stockholders of the Company's Common Stock, par value $.01 per share
(the "Common Stock"), registered for sale thereunder.
In connection with the furnishing of this opinion, we have
reviewed the Registration Statement (including all amendments thereto), the
form of the Underwriting
<PAGE>
Special Metals Corporation 2
Agreement included as Exhibit 1.1 to the Registration Statement (the
"Underwriting Agreement"), originals, or copies certified or otherwise
identified to our satisfaction, of the Company's Amended and Restated
Certificate of Incorporation included as Exhibit 3.1 to the Registration
Statement (the "Amended Certificate of Incorporation"), the Company's
Certificate of Incorporation as in effect on the date hereof, the Company's
Amended and Restated By-laws included as Exhibit 3.2 to the Registration
Statement, the Company's By-laws as in effect on the date hereof, the
Certificate of Ownership and Merger relating to the Merger of Special Metals
and Technologies Corporation ("SMTC") with and into the Company (the "Merger")
and records of certain corporate proceedings of the Company and SMTC. We have
also examined and relied upon representations as to factual matters contained
in certificates of officers of the Company, and have made such other
investigations of fact and law and have examined and relied upon the originals,
or copies certified or otherwise identified to our satisfaction, of such
documents, records, certificates or other instruments, and upon such factual
information otherwise supplied to us, as in our judgment are necessary or
appropriate to render the opinion expressed below. In addition, we have
assumed, without independent investigation, the genuineness of all signatures,
the authenticity of all documents submitted to us as originals and the
conformity of original documents to all documents submitted to us as certified,
photostatic, reproduced or conformed copies, the authenticity
<PAGE>
Special Metals Corporation 3
of all such latter documents and the legal capacity of all individuals who have
executed any of the documents.
Based upon the foregoing, we are of the opinion that (i) the
Company Shares, when issued, delivered and paid for as contemplated in the
Registration Statement and the Underwriting Agreement after the effective time
of the Amended Certificate of Incorporation, will be duly authorized, validly
issued, fully paid and nonassessable and (ii) the Stockholder Shares, when
issued upon effectiveness of the Merger, will be duly authorized, validly
issued, fully paid and nonassessable.
Our opinion expressed above is limited to the General
Corporation Law of the State of Delaware. Please be advised that no member of
this firm is admitted to practice in the State of Delaware. Our opinion is
rendered only with respect to laws, and the rules, regulations and orders
thereunder, which are currently in effect.
<PAGE>
Special Metals Corporation 4
We hereby consent to use of this opinion as an Exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" contained in the Prospectus included in the Registration Statement. In
giving this consent, we do not thereby admit that we come within the category
of persons whose consent is required by the Act or the Rules.
Very truly yours,
/s/ PAUL, WEISS, RIFKIND, WHARTON & GARRISON
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
<PAGE>
Exhibit 10.1
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of _________, 1997
(this "Agreement") among Societe Industrielle de Materiaux Avances ("SIMA"), LWH
Holding S.A. ("LWH"), Advanced Materials Investments Holding S.A. ("AMI" and,
together with SIMA and LWH, the "Principal Stockholders") and Special Metals
Corporation, a Delaware corporation (the "Company").
W I T N E S S E T H:
WHEREAS, as of the date hereof, the Principal Stockholders are
the owners of 12,400,000 shares of Common Stock (as defined below) of the
Company (the "Shares"), which constitute all of the issued and outstanding
capital stock of the Company;
WHEREAS, the parties have determined that the Company will
make an initial public offering of its Common Stock (the "Initial Public
Offering") and the Principal Stockholders have agreed to facilitate the Initial
Public Offering; and
WHEREAS, the parties desire to enter into this Agreement,
which sets forth certain registration rights applicable to the Registrable
Securities (as defined below) held from time to time by the Principal
Stockholders and/or any permitted transferees;
NOW, THEREFORE, in consideration of the mutual covenants set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and subject to the conditions and
upon the terms hereof, the parties hereto hereby agree as follows:
1. Definitions. As used herein, unless the context otherwise
requires, the following terms have the following respective meanings:
"Commission" means the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"Common Stock" shall mean and include (i) Common Stock, par
value $0.01 per share, of the Company, (ii) each other class of capital stock of
the Company that does not have a preference over any other class of capital
stock of the Company as to dividends or upon liquidation, dissolution or winding
up of the Company, (iii) any class of capital stock or securities into which or
for which shares of Common Stock or any other class of capital stock or
securities described in clauses (ii) or (iii) may hereafter be changed,
converted or exchanged or which are issued to holders of shares of Common Stock
or any other class of capital stock or securities
<PAGE>
2
described in clauses (ii) or (iii) upon any reorganization, recapitalization,
reclassification, share combination, share subdivision, share dividend, merger,
consolidation or similar transactions or events.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any superseding Federal statute, and the rules and regulations
promulgated thereunder, all as the same shall be in effect at the time.
Reference to a particular section of the Securities Exchange Act of 1934, as
amended, shall include a reference to the comparable section, if any, of any
such superseding Federal statute.
"a majority of the Registrable Securities" shall mean either
(i) more than 50% of the shares of the issued and outstanding Registrable
Securities if the Registrable Securities are shares of capital stock or rights
or warrants to acquire capital stock or (ii) more than 50% of the aggregate
principal amount of the issued and outstanding Registrable Securities if the
Registrable Securities are debt securities. If there is more than one class of
Registrable Securities, the term "a majority of the Registrable Securities"
shall mean a majority of each class of the Registrable Securities.
"Person" means any individual, firm, corporation, partnership,
limited liability company or partnership, trust, incorporated or unincorporated
association, joint venture, joint stock company, government (or an agency or
political subdivision thereof) or other entity of any kind and shall include any
successor (by merger or otherwise) of such entity.
"Registrable Securities" means the Shares and any other shares
of Common Stock beneficially owned by the Principal Stockholders or a permitted
assignee under this Agreement. As to any particular Registrable Securities, once
issued, such securities shall cease to be Registrable Securities when (a) a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (b) they shall have
been sold as permitted by Rule 144 (or any successor provision) under the
Securities Act, (c) they shall have been otherwise transferred, new certificates
for them not bearing a legend restricting further transfer shall have been
delivered by the Company and subsequent public distribution of them shall not
require registration of such distribution under the Securities Act or (d) they
shall have ceased to be outstanding. All references to percentages of
Registrable Securities shall be calculated pursuant to Section 12.
"Registration Expenses" means all expenses incident to the
Company's performance of or compliance with Section 2, including, without
limitation, all registration and filing fees, all fees of the NASDAQ National
Market, any national securities exchange or the National Association of
Securities Dealers, Inc., all fees and expenses of complying with securities or
blue sky laws (if any), all word processing, duplicating and printing expenses,
messenger and delivery expenses, the
<PAGE>
3
fees and disbursements of counsel for the Company and of its independent public
accountants, including the expenses of "comfort" letters required by or incident
to such performance and compliance, any fees and disbursements of underwriters
customarily paid by issuers or sellers of securities (excluding any underwriting
discounts or commissions with respect to the Registrable Securities) and the
reasonable fees and expenses of one counsel to Requesting Holders or the Selling
Shareholders, as the case may be (selected by the Requesting Holders or the
Selling Shareholders, as the case may be, representing a majority of the
Registrable Securities covered by such registration statement); provided,
however, that in the event the Company shall determine, in accordance with
Section 2.2(a) or Section 2.6, not to register any securities with respect to
which it had given written notice of its intention to so register to holders of
Registrable Securities, all of the costs of the type (and subject to any
limitation to the extent) set forth in this definition and incurred by
Requesting Holders or Selling Shareholders in connection with such registration
on or prior to the date the Company notifies the Requesting Holders or Selling
Shareholders of such determination shall be deemed Registration Expenses.
"Requesting Holder" is defined in Section 2.2
"Selling Shareholder" is defined in Section 2.1
"Securities Act" means the Securities Act of 1933, as amended,
or any superseding Federal statute, and the rules and regulations promulgated
thereunder, all as the same shall be in effect at the time. References to a
particular section of the Securities Act of 1933, as amended, shall include a
reference to the comparable section, if any, of any such superseding Federal
statute.
2. Registration Under Securities Act, etc.
2.1 Demand Registration
(a) Upon written notice provided at any
time after the date hereof from either (x) the holder or holders of a majority
of the Registrable Securities or (y) any Principal Stockholder who holds
Registrable Securities representing more than 5% of the outstanding Common Stock
(in each case, the "Initiating Holders") requesting that the Company effect the
registration under the Securities Act of the Registrable Securities held by the
Initiating Holders (which notice shall specify the Registrable Securities
intended to be disposed of and the intended method or methods of disposition of
such Registrable Securities), the Company promptly will give written notice of
such requested registration to all registered holders of Registrable Securities,
and thereupon the Company will use its best efforts to effect, at the earliest
possible date, the registration under the Securities Act, of
<PAGE>
4
(i) the Registrable Securities
which the Company has been so requested to register by such Initiating
Holders; and
(ii) all other Registrable
Securities which the Company has been requested to register by the
holders thereof (such holders together with the Initiating Holders
hereinafter are referred to as the "Selling Shareholders") by written
request given to the Company within 30 days after the giving of such
written notice by the Company, all to the extent necessary to permit
the disposition of the Registrable Securities so to be registered.
It is agreed that at any time after the Company is eligible to file a
registration statement on Form S-3 (or any successor form promulgated by the
Commission), the Initiating Holders may request that the Company file a
registration statement pursuant to Rule 415 under the Securities Act to permit
the offering of the Registrable Securities on a delayed or continuous basis;
provided, however, that no such offerings of the Registrable Securities may
include more than 10% of the issued and outstanding Common Stock at any time. It
is understood that an Initiating Holder may request a registration under this
Section 2.1(a) for the benefit of the other Initiating Holders or the other
holders of Registrable Securities and that such Initiating Holder shall not be
required to include any Registrable Securities held by it in any registration
requested by it under this Section 2.1(a).
(b) Registration of Other Securities.
Whenever the Company shall effect a registration pursuant to this Section 2.1,
no securities other than Registrable Securities shall be included among the
securities covered by such registration unless the Selling Shareholders holding
not less than a majority of the Registrable Securities to be included by such
registration shall have consented in writing to the inclusion of such other
securities.
(c) Registration Statement Form.
Registrations under this Section 2.1 shall be on such appropriate registration
form of the Commission as shall be reasonably selected by the Company.
(d) Effective Registration Statement. A
registration requested pursuant to this Section 2.1 shall not be deemed to have
been effected unless a registration statement with respect thereto has become
effective and remained effective in compliance with the provisions of the
Securities Act with respect to the disposition of all Registrable Securities
covered by such registration statement until such time as all of such
Registrable Securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof set forth in such
registration statement (unless the failure to so dispose of such Registrable
Securities shall be caused solely by reason of a failure on the part of the
Selling Shareholders), provided, that, except with respect to any registration
statement filed pursuant to Rule 415 under the Securities Act, such period need
not exceed 270 days.
<PAGE>
5
(e) Selection of Underwriters. The
underwriter or underwriters of each underwritten offering of the Registrable
Securities so to be registered shall be selected by Selling Shareholders holding
more than a majority of the Registrable Securities to be included in such
registration and shall be reasonably acceptable to the Company (it being
understood that any of the managing underwriters from the Initial Public
Offering shall be deemed acceptable to the Company).
(f) Priority Requested Registration. If
the managing underwriter of any underwritten offering shall advise the Company
in writing (and the Company shall so advise each Selling Shareholder of
Registrable Securities requesting registration of such advice) that, in its
opinion, the number of securities requested to be included in such registration
exceeds the number which can be sold in such offering within a price range
acceptable to the Selling Shareholders of a majority of the Registrable
Securities requested to be included in such registration, the Company, except as
provided in the following sentence, will include in such registration, to the
extent of the number and type of securities which the Company is so advised can
be sold in such offering, first, Registrable Securities requested to be included
in such registration, pro rata (based on the number of Registrable Securities
held by each of the Selling Shareholders) among the Selling Shareholders
requesting such registration, and second, all securities proposed to be sold by
the Company for its own account or for the account of a Person other than a
holder of Registrable Securities. Notwithstanding the foregoing, if the total
number of Registrable Securities requested to be included in any registration
cannot be included, the Selling Shareholders holding not less than a majority of
the Registrable Securities with respect to which registration has been
requested, shall have the right to withdraw the request for registration by
giving written notice to the Company within 20 days after receipt of the notice
from the managing underwriter described above by the Company and, in the event
of such withdrawal, such request shall not be counted for purposes of the
requests for registration to which holders of Registrable Securities are
entitled pursuant to this Section 2.1. If a request for registration is
withdrawn pursuant to the immediately preceding sentence and at least 90% of
each class of the Registrable Securities requested to be included in such
withdrawn registration could have been included therein, then, at the election
of the Selling Shareholders holding not less than a majority of the Registrable
Securities with respect to which registration has been requested, the
Registration Expenses incurred by the Company in connection with such withdrawn
registration shall be reimbursed by the Selling Shareholders, pro rata (based on
the number of Registrable Securities requested to be included therein) among the
Selling Shareholders or for the account of a person other than a holder of
Registrable Securities.
(g) Limitations on Registration
Requests. Notwithstanding anything in this Section 2.1 to the contrary, in no
event will the Company be required to (i) effect more than one registration
requested pursuant to Section 2.1(a)(y) by any Principal Stockholder (or in the
aggregate three such registrations), (ii) effect a registration pursuant to this
Section 2.1 within the
<PAGE>
6
12-month period occurring immediately subsequent to the effectiveness (within
the meaning of Section 2.1(d)) of a registration statement filed pursuant to
this Section 2.1, unless the Company determines that effecting a second
registration within the 12-month period is not likely to have a material adverse
effect on the market price of the Common Stock, or (iii) effect a registration
pursuant to Section 2.1 covering Registrable Securities with an aggregate
offering price of less than $15 million.
(h) Expenses. The Company will pay all
Registration Expenses in connection with any registrations requested pursuant to
this Section 2.1.
2.2 Piggy-back Registration.
(a) Right to Include Registrable
Securities. If the Company at any time proposes to register any of its Common
Stock under the Securities Act by registration on any form other than Forms S-4
or S-8, whether or not for sale for its own account, it will each such time give
prompt written notice to all registered holders of Registrable Securities of its
intention to do so and of such holders' rights under this Section 2.2. Upon the
written request of any such holder (a "Requesting Holder") made as promptly as
practicable and in any event within 30 days after the receipt of any such notice
from the Company (which request shall specify the Registrable Securities
intended to be disposed of by such Requesting Holder and the selling prices
which are acceptable to such Requesting Holder), the Company will use its best
efforts to effect the registration under the Securities Act of all Registrable
Securities which the Company has been so requested to register by the Requesting
Holders thereof; provided, that prior to the effective date of the registration
statement filed in connection with such registration, immediately upon
notification to the Company from the managing underwriter of the price at which
such securities are to be sold, if such price is below the price which any
Requesting Holder shall have indicated to be acceptable to such Requesting
Holder, the Company shall so advise such Requesting Holder of such price, and
such Requesting Holder shall then have the right to withdraw its request to have
its Registrable Securities included in such registration statement; and
provided, further, however, that if, at any time after giving written notice of
its intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register or to delay registration of such
securities, the Company shall give written notice of such determination to each
Requesting Holder of Registrable Securities and (x) in the case of a
determination not to register, shall be relieved of its obligation to register
any Registrable Securities in connection with such registration (but not from
any obligation of the Company to pay the Registration Expenses in connection
therewith), without prejudice, however, to the rights of any holder or holders
of Registrable Securities entitled to do so to cause such registration to be
effected as a registration under Section 2.1, and (y) in the case of a
determination to delay registering, shall be permitted to delay registering any
Registrable Securities, for the same period as the delay in registering such
other
<PAGE>
7
securities. No registration effected under this Section 2.2 shall relieve the
Company of its obligation to effect any registration upon request under Section
2.1.
(b) Priority in Piggy-back
Registrations. If the managing underwriter of any underwritten offering shall
inform the Company by letter of its opinion that the number or type of
Registrable Securities requested to be included in such registration would
materially adversely affect such offering, and the Company has so advised the
Requesting Holder in writing, then the Company will include in such
registration, to the extent of the number and type of securities which the
Company is so advised can be sold in (or during the time of) such offering,
first, all securities proposed by the Company to be sold for its own account or
for the account of a Person other than a holder of Registrable Securities, and
second, such Registrable Securities requested to be included in such
registration pursuant to this Agreement, pro rata (based on the number of
Registrable Securities requested to be included by each Requesting Holder) among
such Requesting Holders.
(c) Expenses. The Company will pay all
Registration Expenses in connection with any registration contemplated pursuant
to this Section 2.2.
(d) Initial Public Offering. The
Initial Public Offering shall be a registration contemplated by and subject to
this Section 2.2, except that the Company shall not be required to provide
written notice of its intention to register Common Stock in connection with the
Initial Public Offering nor shall any Requesting Holder be required to give
written notice of its intention to participate in the Initial Public Offering
(it being deemed that each of the Principal Stockholders who wish to participate
in the Initial Public Offering have given such notice to the Company).
2.3 Registration Procedures. If and when-ever
the Company is required to use its best efforts to effect the registration of
any Registrable Securities under the Securities Act as provided in Sections 2.1
and 2.2, the Company will, as expeditiously as possible:
(i) prepare and (within 90 days after
the end of the period within which requests for registration may be
given to the Company) file with the Commission the requisite
registration statement to effect such registration and thereafter use
its best efforts to cause such registration statement to become
effective; provided, however, that the Company may discontinue any
registration of its securities which are not Registrable Securities
(and, under the circumstances specified in Section 2.2(b), Registrable
Securities) at any time prior to the effective date of the registration
statement relating thereto;
<PAGE>
8
(ii) prepare and file with the Commission
such amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep
such registration statement effective in accordance with Section 2.1(d)
hereof and to comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities covered by
such registration statement until such time as all of such Registrable
Securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof set forth in
such registration statement; provided, that except with respect to any
such registration statement filed pursuant to Rule 415 under the
Securities Act, such period need not exceed 270 days;
(iii) furnish to each seller of
Registrable Securities, such number of conformed copies of such
registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of
the prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act, in conformity
with the requirements of the Securities Act, and such other documents,
as such seller may reasonably request;
(iv) make any filings (if any) required
under the blue sky or securities laws of such States of the United
States of America as the sellers of Registrable Securities covered by
such Registration Statement shall reasonably request;
(v) furnish at the effective date of
such registration statement to each seller of Registrable Securities,
and its underwriters, a signed counterpart of:
(x) an opinion of counsel for
the Company, dated the effective date of such registration
statement and, if applicable, the date of the closing under
the underwriting agreement, and
(y) a "comfort" letter signed
by the independent public accountants who have certified the
Company's financial statements included or incorporated by
reference in such registration statement,
covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in
the case of the accountants' comfort letter, with respect to events
subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' comfort
letters delivered to the underwriters in underwritten public offerings
of securities and, in the case of the accountants' comfort letter, such
other financial matters, and, in the case of the legal
<PAGE>
9
opinion, such other legal matters, as counsel for the seller or sellers
of Registrable Securities may reasonably request;
(vi) notify each seller of Registrable
Securities at any time when a prospectus relating thereto is required
to be delivered under the Securities Act, upon discovery that, or upon
the happening of any event as a result of which, the prospectus
included in such registration statement, as then in effect, includes an
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, in the light of the circumstances under which
they were made, and at the request of any such seller promptly prepare
and furnish to it a reasonable number of copies of a supplement to or
an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such securities, such
prospectus shall not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of
the circumstances under which they were made;
(vii) otherwise use its best efforts to
comply with all applicable rules and regulations of the Commission, and
make available to its security holders, as soon as reasonably
practicable (but not more than eighteen months after the effective date
of such registration statement), an earnings statement covering the
period of at least twelve months beginning with the first full calendar
month after the effective date of such registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 promulgated thereunder;
(viii) provide and cause to be maintained a
transfer agent and registrar (which, in each case, may be the Company)
for all Registrable Securities covered by such registration statement
from and after a date not later than the effective date of such
registration;
(ix) use its best efforts to list all
Registrable Securities covered by such registration statement on any
national market or national securities exchange on which Registrable
Securities of the same class covered by such registration statement are
then listed and, if no such Registrable Securities are so listed, on
any national market or national securities exchange on which the Common
Stock is then listed;
(x) the extent reasonably requested by
the managing underwriter of any underwritten offering, send appropriate
officers of the Company to attend "road shows" scheduled in connection
with any such registration; and
<PAGE>
10
(xi) furnished unlegended certificates
representing ownership of the Registrable Securities being sold in such
denominations as shall be requested by the sellers of Registrable
Securities or the underwriters.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish the Company (i) such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request in writing and (ii) if requested by the
Company, an executed custody agreement and power of attorney in form and
substance reasonably satisfactory to the Company with respect to the Registrable
Securities to be registered pursuant to this Agreement.
Each holder of Registrable Securities agrees that, upon
receipt of any notice from the Company of the happening of any event of the kind
described in subdivision (vi) of this Section 2.3, such holder will forthwith
discontinue such disposition of Registrable Securities pursuant to the
registration statement relating to such Registrable Securities until the receipt
of the copies of the supplemented or amended prospectus contemplated by
subdivision (vi) of this Section 2.3 and, if so directed by the Company, will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies, then in its possession of the prospectus relating to such
Registrable Securities current at the time of receipt of such notice.
2.4 Underwritten Offerings.
(a) Requested Underwritten Offerings. If
requested by the underwriters for any underwritten offering by holders of
Registrable Securities pursuant to a registration requested under Section 2.1,
the Company will enter into an underwriting agreement with such underwriters for
such offering, such agreement to be reasonably satisfactory in substance and
form to each such holder and the under writers and to contain such
representations and warranties by the Company and such other terms as are
generally prevailing in agreements of that type, including, without limitation,
indemnities to the effect and to the extent provided in Section 2.7 or such
other indemnities as are customarily received by underwriters in public
offerings of similar securities. The holder of the Registrable Securities
proposed to be distributed by such underwriters will reasonably cooperate with
the Company in the negotiation of the underwriting agreement. Such holders of
Registrable Securities to be distributed by such underwriters shall be parties
to such underwriting agreement and may, at the option of the holders of a
majority of the Registrable Securities to be distributed by such underwriters,
require that any or all of the representations and warranties by, and the other
agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such holders and that
any or all of the conditions precedent to the obligations of underwriters under
such underwriting agreement be conditions precedent to the obligations of such
holders of Registrable Securities. No holder of Registrable Securities shall be
required to make any representations or warranties to or agreements with the
<PAGE>
11
Company other than representations, warranties or agreements regarding such
holders and such holders' intended method of distribution or any other
representations required by applicable law.
(b) Incidental Underwritten Offerings.
If the Company proposes to register any of its securities under the Securities
Act as contemplated by Section 2.2 and such securities are to be distributed by
or through one or more underwriters, the Company will, if requested by any
Requesting Holder of Registrable Securities, use its best efforts to arrange for
such underwriters to include all the Registrable Securities to be offered and
sold by such Requesting Holder among the securities of the Company to be
distributed by such underwriters, subject to the provisions of Section 2.2(b).
The holders of Registrable Securities to be distributed by such underwriters
shall be parties to the underwriting agreement between the Company and such
underwriters and may, at the option of the holders of a majority of the
Registrable Securities to be distributed by such underwriters, require that any
or all of the representations and warranties by, and the other agreements on the
part of, the Company to and for the benefit of such underwriters shall also be
made to and for the benefit of such holders of Registrable Securities and that
any or all of the conditions precedent to the obligations of such underwriters
under such underwriting agreement be conditions precedent to the obligations of
such holders of Registrable Securities. Any such Requesting Holder of
Registrable Securities shall not be required to make any representations or
warranties to or agreements with the Company or the underwriters other than
representations, warranties or agreements regarding such Requesting Holder, such
Requesting Holder's Registrable Securities and such Requesting Holder's intended
method of distribution or any other representations required by applicable law.
(c) Holdback Agreements.
(i) To the extent not
inconsistent with applicable law, each holder of Registrable Securities
agrees not to effect any public sale or distribution of any Registrable
Securities of the Company, or any securities convertible into or
exchangeable or exercisable for such Registrable Securities, during the
seven days prior to and the 90 days after any registration relating to
such Registrable Securities pursuant to Section 2.1 or 2.2 has become
effective, except as part of such registration, if and to the extent
requested by the Company in the case of a non-underwritten public
offering or if and to the extent requested by the managing underwriter
or underwriters in the case of an underwritten public offering.
(ii) The Company agrees not to effect
any public sale or distribution of its Registrable Securities or
securities convertible into or exchangeable or exercisable for any of
such Registrable Securities during the seven days prior to and the 90
days after any registration relating to such Registrable Securities
pursuant to Section 2.1 or 2.2 has become effective,
<PAGE>
12
except as part of such registration and except pursuant to
registrations on Form S-4 or S-8 or any successor or similar forms
thereto; provided, however, that the provisions of this Section
2.4(c)(ii) shall not prevent the conversion or exchange of any
securities pursuant to their terms into or for other securities.
2.5 Preparation; Reasonable Investigation. In
connection with the preparation and filing of each registration statement under
the Securities Act pursuant to this Agreement, the Company will give such
holders of Registrable Securities to be registered under such registration
statement, their underwriters, if any, and their respective counsel the
opportunity to participate in the preparation of such registration statement,
each prospectus included therein or filed with the Commission, and each
amendment thereof or supplement thereto, and will give each of them such
reasonable access to its books and records and such opportunities to discuss the
business of the Company with its officers and the independent public accountants
who have certified its financial statements as shall be necessary, in the
opinion of such holders' and such underwriters' respective counsel, to conduct a
reasonable investigation within the meaning of the Securities Act.
2.6 Limitations, Conditions and Qualifications
to Obligations under Registration Covenants. The Company shall be entitled to
postpone for a reasonable period of time (but not exceeding 90 days) the filing
of any registration statement otherwise required to be prepared and filed by it
pursuant to Section 2.1 if the Company determines, in its reasonable judgment,
that such registration and offering would interfere in a material way with any
financing, acquisition, corporate reorganization or other material transaction
involving the Company and promptly gives the holders of Registrable Securities
pursuant to Section 2.1 written notice of such determination, containing a
general statement of the reasons for such postponement and an approximation of
the anticipated delay. If the Company shall so postpone the filing of a
registration statement, holders of Registrable Securities requesting
registration thereof pursuant to Section 2.1 representing not less than a
majority of the Registrable Securities with respect to which registration has
been requested, shall have the right to withdraw the request for registration by
giving written notice to the Company within 30 days after receipt of the notice
of post ponement and, in the event of such withdrawal, such request shall not be
counted for purposes of the requests for registration to which holders of
Registrable Securities are entitled pursuant to Section 2.1 hereof.
2.7 Indemnification.
(a) Indemnification by the Company. The
Company shall, and hereby does, indemnify and hold harmless, in the case of any
registration statement filed pursuant to Section 2.1 or 2.2, each seller of any
Registrable Securities and each other Person who participates as an underwriter
in the offering or sale of any securities covered by such registration statement
and each other Person, if
<PAGE>
13
any, who controls such seller or any such underwriter within the meaning of the
Securities Act or the Exchange Act, and their respective directors, officers,
partners, agents and affiliates, against any losses, claims, damages or
liabilities, joint or several, to which such seller or underwriter or any such
director, officer, partner, agent, affiliate or controlling person may become
subject under the Securities Act or otherwise, including, without limitation,
the reasonable fees and expenses of legal counsel, insofar as such losses,
claims, damages or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such Registrable Securities were registered
under the Securities Act, any preliminary prospectus, final prospectus or
summary prospectus contained therein, or any amendment or supplement thereto, or
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Company will reimburse such seller or underwriter and each such director,
officer, partner, agent, affiliate and controlling person for any reasonable
legal or any other expenses incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceeding; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement thereto in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
such seller or underwriter, as the case may be, specifically stating that it is
for use in the preparation thereof; and provided, further, that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus or summary prospectus, amendment or
supplement thereto if (i) such untrue statement or omission or alleged untrue
statement or omission is completely corrected in a prospectus or prospectus
supplement or in an amendment or supplement to such prospectus or prospectus
supplement, (ii) the seller of Registrable Securities or the underwriter of
Registrable Securities, as the case may be, has an obligation under the
Securities Act to deliver a prospectus or prospectus supplement in connection
with such sale of Registrable Securities and (iii) the seller of Registrable
Securities or the underwriter of Registrable Securities, as the case may be,
thereafter fails to deliver such prospectus or prospectus supplement or such
amendment or supplement to such prospectus or prospectus supplement prior to or
concurrently with the sale of Registrable Securities to the person asserting
such loss, claim, damage, liability or expense after the Company has furnished
the seller of Registrable Securities or the underwriter of Registrable
Securities, as the case may be, with a sufficient number of copies of the same.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such seller or underwriter or any such
<PAGE>
14
director, officer, partner, agent, affiliate or controlling person and shall
survive the transfer of such securities by such seller or underwriter.
(b) Indemnification by the Sellers. As
a condition to including any Registrable Securities in any registration
statement, the Company shall have received an undertaking reasonably
satisfactory to it from the prospective seller of such Registrable Securities to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in Section 2.7(a)) the Company, and each director of the Company, each
officer of the Company who signs the registration statement and each other
Person, if any, who participates as an underwriter in the offering or sale of
such securities and each other Person who controls the Company or any such
underwriter within the meaning of the Securities Act or the Exchange Act, with
respect to any statement or alleged statement in or omission or alleged omission
from such registration statement, any preliminary prospectus, final prospectus
or summary prospectus contained therein, or any amendment or supplement thereto,
if such statement or alleged statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company by such seller specifically stating that it is for use in the
preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement; provided, however, that
the liability of such indemnifying party under this Section 2.7(b) shall be
limited to the amount of proceeds received by such indemnifying party in the
offering giving rise to such liability. Such indemnity shall remain in full
force and effect, regardless of any investigation made by or on behalf of the
Company or any such director, officer or controlling person and shall survive
the transfer of such securities by such seller.
(c) Notices of Claims, etc. Promptly
after receipt by an indemnified party of notice of the commencement of any
action or proceeding involving a claim referred to in Section 2.7(a) or (b),
such indemnified party shall, if a claim in respect thereof is to be made
against an indemnifying party, give written notice to the latter of the
commencement of such action; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding subdivisions of this
Section 2.7, except to the extent that the indemnifying party is actually and
materially prejudiced by such failure to give notice. In case any such action
shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it may wish, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party; provided, however, that any indemnified party may, at its own expense,
retain separate counsel to participate in such defense. Notwithstanding the
foregoing, in any action or proceeding in which both the Company and an
indemnified party is, or is reasonably likely to become, a party, such
indemnified party shall have the right to employ separate counsel at the
Company's expense and to control its own defense of such action or proceeding
if, in the reasonable opinion of counsel to such indemnified party, (a) there
are or may be
<PAGE>
15
legal defenses available to such indemnified party or to other indemnified
parties that are different from or additional to those available to the Company
or (b) any conflict or potential conflict exists between the Company and such
indemnified party that would make such separate representation advisable;
provided, however, that in no event shall the Company be required to pay fees
and expenses under this Section 2.7 for more than one firm of attorneys
representing the indemnified parties (together, if appropriate, with one firm of
local counsel per jurisdiction) in any one legal action or group of related
legal actions. No indemnifying party shall be liable for any settlement of any
action or proceeding effected without its written consent, which consent shall
not be unreasonably withheld. No indemnifying party shall, without the consent
of the indemnified party, which consent shall not be unreasonably withheld,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability in respect to such
claim or litigation or which requires action other than the payment of money by
the indemnifying party.
(d) Contribution. If the
indemnification provided for in this Section 2.7 shall for any reason be held by
a court to be unavailable to an indemnified party under Section 2.7(a) or (b)
hereof in respect of any loss, claim, damage or liability, or any action in
respect thereof, then, in lieu of the amount paid or payable under Section
2.7(a) or (b), the indemnified party and the indemnifying party under Section
2.7(a) or (b) shall contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating the same), in such proportion as is appropriate to reflect
the relative fault of the Company and the prospective sellers which resulted in
such loss, claim, damage or liability, or action or proceeding in respect
thereof, with respect to the statements or omissions which resulted in such
loss, claim, damage or liability, or action or proceeding in respect thereof, as
well as any other relevant equitable considerations; provided, that for purposes
of this Section 2.7(d), no party shall be obligated to contribute to another
party any amount in excess of the amount that such party would have been
obligated to pay to such other party if the indemnity under Section 2.7(a) or
(b) were available. The relative fault shall be determined by reference to
whether an untrue statement or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party on one hand and the indemnified party on the
other hand, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or omission,
but not by a party's stock ownership in the Company. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. Such prospective seller's
obligations to contribute as provided in this Section 2.7(d) are several in
proportion to the relative value of their respective Registrable Securities
covered by such registration statement and not joint. In addition, no Person
shall be obligated to contribute hereunder any amounts in
<PAGE>
16
payment for any settlement of any action or claim effected without such Person's
consent, which consent shall not be unreasonably withheld.
(e) Indemnification Payments. The
indemnification and contribution required by this Section 2.7 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or expense, loss, damage or liability
is incurred.
3. Rule 144. The Company shall take all actions reasonably
necessary to enable holders of Registrable Securities to sell such securities
without registration under the Securities Act within the limitation of the
provisions of (a) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (b) any similar rules or regulations hereafter adopted by
the Commission. Upon the request of any holder of Registrable Securities, the
Company will deliver to such holder a written statement as to whether it has
complied with such requirements.
4. Amendments and Waivers. This Agreement may be amended with
the consent of the Company and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company shall have obtained the written consent to such amendment,
action or omission to act, of the holder or holders of at least a majority of
the Registrable Securities affected by such amendment, action or omission to
act. Each holder of any Registrable Securities at the time or thereafter
outstanding shall be bound by any consent authorized by this Section 4, whether
or not such Registrable Securities shall have been marked to indicate such
consent. No course of dealing between any parties or any delay on the part of
any party in exercising any rights hereunder or under any agreement contemplated
hereby shall operate as a waiver of any rights of any such party. No delay on
the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, or shall any waiver on the part of any party
of any such right, power or privilege, nor any single or partial exercise of any
such right, power or privilege, preclude any further exercise thereof or the
exercise of any other such right, power or privilege. The rights and remedies
herein provided are cumulative and are not exclusive of any rights or remedies
that any party may otherwise have at law or in equity.
5. Transfer of Registration Rights; Termination. Any holder of
Registrable Securities may transfer all or any portion of its rights under this
Agreement to any transferee (each, a "Transferee") of an amount of Registrable
Securities owned by such holder exceeding 5% of the outstanding class of such
securities at the time of transfer; provided that no Principal Stockholder may
transfer its right to request a registration under Section 2.1(a)(y). Any
transfer of rights pursuant to this Section 5 shall be effective upon receipt by
the Company of (i) written notice from such holder stating the name and address
of any Transferee and identifying the amount of Registrable Securities with
respect to which the rights under this Agreement are being transferred and the
nature of the rights so transferred and
<PAGE>
17
(ii) a written agreement from such Transferee to be bound by the terms of this
Agreement. The holders may exercise the rights hereunder in such priority as
they shall agree upon among themselves. The rights of any holder of Registrable
Securities under this Agreement shall terminate at such time that such holder
holds Registrable Securities representing less than 5% of the outstanding Common
Stock.
6. Nominees for Beneficial Owners. In the event that any
Registrable Securities are held by a nominee for the beneficial owner thereof,
the beneficial owner thereof may, at its election in writing delivered to the
Company, be treated as the holder of such Registrable Securities for purposes of
any request or other action by any holder or holders of Registrable Securities
pursuant to this Agreement or any determination of any number or percentage of
shares of Registrable Securities held by any holder or holders of Registrable
Securities contemplated by this Agreement. If the beneficial owner of any
Registrable Securities so elects, the Company may require assurances reasonably
satisfactory to it of such owner's beneficial ownership of such Registrable
Securities.
7. Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, telecopier,
courier service or personal delivery:
(a) If to SIMA at 41, Rue de Villiers, BP120,
92202 Neuilly Sur Seine, Cedex, France, attention: Edouard Duval, Directeur
General or at such other address as SIMA shall have furnished to the Company in
the manner set forth herein;
(b) If to LWH at Boulevard Royal 3, L-2449
Luxembourg, attention: _____________ or at such other address as LWH shall have
furnished to the Company in the manner set forth herein;
(c) If to AWI at 3A Rue Guillaume Kroll, L-1882
Luxembourg, attention: _______________ or at such other address as AWI shall
have furnished to the Company in the manner set forth herein;
(d) If to the Company, at 4317 Middlesettlement
Road, New Hartford, New York 13413, attention: Robert F. Dropkin, Vice
President, Secretary and Chief Legal Counsel or at such other address as the
Company shall have furnished to each holder of Registrable Securities at that
time outstanding in the manner set forth herein; or
(e) If to any other holder of Registrable
Securities, at the address that such holder shall have furnished to the Company
in writing in the manner set forth herein, or, until such holder so furnishes to
the company an address, then to
<PAGE>
18
and at the address of the last holder of such Registrable Securities who has
furnished an address to the Company.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; when delivered
by a courier, if delivered by overnight courier service; three business days
after being deposited in the mail, postage prepaid, if mailed; and when receipt
is acknowledged, if telecopied.
8. Successors and Assigns; Third Parties.
(a) Subject to Section 5, this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Except by operation of law, this
agreement shall not be assigned by the Company without the prior written consent
of the holders of a majority of the Registrable Securities outstanding at the
time such consent is required.
(b) Nothing in this Agreement, expressed or
implied, is intended or shall be construed to confer upon any Person (other than
the parties and their successors and permitted assigns and any Person entitled
to the benefit of Section 2.7) any right, remedy or claim under or by reason of
this Agreement.
9. No Inconsistent Agreements. The Company will not hereafter
enter into any agreement with respect to its securities which is inconsistent
with the rights granted to the holders of Registrable Securities in this
Agreement. Without limiting the generality of the foregoing, the Company will
not hereafter enter into any agreement with respect to its securities which
grants to any holder of its securities in connection with a piggy-back
registration of such securities equal or higher priority to the rights granted
to the holders of Registrable Securities under Section 2.
10. Remedies. Each holder of Registrable Securities, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
11. Severability. If any term or provision of this Agreement
is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms and provisions set forth herein shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated, and the parties hereto shall use their best efforts to find and
employ an alternative means to achieve the same or substantially the same result
as that contemplated by such term or provision.
<PAGE>
19
12. Calculation of Percentage Interests in Registrable
Securities. For purposes of this Agreement, all references to a percentage of
the Registrable Securities shall be calculated based upon the number of shares,
warrants or rights or the aggregate principal amount of Registrable Securities
outstanding at the time such calculation is made.
13. Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
14. Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
15. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, without
regard to principles of conflicts of law.
16. Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall
<PAGE>
20
be deemed an original and all of which taken together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the date first above written.
SOCIETE INDUSTRIELLE DE
MATERIAUX AVANCES
By:
-----------------------
Name:
Title:
LWH HOLDING S.A.
By:
-----------------------
Name:
Title:
ADVANCED MATERIALS
INVESTMENT HOLDING S.A.
By:
-----------------------
Name:
Title:
SPECIAL METALS CORPORATION
By:
-----------------------
Name:
Title:
<PAGE>
Exhibit 10.2
STOCKHOLDERS' AGREEMENT
AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT, dated as of
__________, 1997, among Special Metals Corporation, a Delaware corporation (the
"Corporation"), Societe Industrielle de Materiaux Avances, a societe anonyme
organized under the laws of the Republic of France ("SIMA"), Advanced Materials
Investments Holding S.A., a Luxembourg corporation ("AMI"), and LWH Holding
S.A., a Luxembourg corporation ("LWH" and, together with SIMA and AMI, the
"Stockholders").
WHEREAS, in order to provide for the continuity and stability
of the Corporation, the Stockholders and Special Metals and Technologies
Corporation ("SMTC") entered into a Stockholders' Agreement, dated as of January
15, 1990, to set forth the commercial relationship among them;
WHEREAS, the parties have determined that the Corporation will
make an initial public offering of its Common Stock (the "IPO") and in
connection with the IPO, prior thereto, SMTC will merge into the Corporation
(the "Merger") and the shares of common stock of SMTC owned by the Stockholders
will be automatically converted into shares of Common Stock of the Corporation;
WHEREAS, the Corporation and the Stockholders desire to amend
and restate the Stockholders' Agreement in order to facilitate the IPO and to
revise the provisions relating to the transfer and voting of shares of Common
Stock to be owned by the Stockholders following the Merger.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations hereinafter set forth, the parties hereto hereby agree as follows:
SECTION 1. Representations and Warranties; Consent.
(a) Each of the parties hereto represents and warrants
to, and agrees with, the other parties as follows:
(i) Such party is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, with full corporate power and authority to execute and deliver
this Agreement and perform its obligations hereunder. The execution, delivery
and performance of this Agreement have been duly authorized by all necessary
action of such party and this Agreement constitutes a valid and binding
obligation of such party, enforceable against it.
(ii) If a Stockholder, such party beneficially owns the
number of shares of common stock of SMTC set forth in Schedule 1 hereto.
<PAGE>
2
(iii) The execution and delivery of this Agreement will
not (a) violate any provision of the certificate of incorporation or by-laws (or
other governing instrument) of such party, (b) violate, or be in conflict with,
or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or excuse performance by any person or
entity of any or of its obligations under, or cause the acceleration of the
maturity of any debt or obligation pursuant to, or result in the creation or
imposition of any encumbrance upon any property or assets of such party under,
any agreement or commitment to which such party is a party or by which any of
its properties or assets is bound, or to which any of the properties or assets
of such party is subject, or (c) violate any statute or law or any judgment,
decree, order, regulation or rule of any court or other governmental body
applicable to such party. No consent, approval or authorization of, or
declaration, filing or registration with, any governmental body is required in
connection with the execution, delivery and performance by such party of this
Agreement. No consent of any person or entity is necessary to the execution,
delivery and performance by such party of this Agreement.
(b) Each Stockholder hereby consents to the merger of SMTC
with and into Special Metals Corporation pursuant to which each outstanding
share of common stock of SMTC will be automatically converted into 12,400 shares
of Common Stock of the Corporation and to the sale by the Corporation and
certain Stockholders of shares of Common Stock in the IPO and the other related
transactions all as described in the Corporation's Registration Statement on
Form S-1 (File No. 333-18499), as amended to the date hereof.
SECTION 2. Definitions.
Unless the context otherwise requires:
Affiliate, with respect to a person or entity, means a person
or entity that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such person or
entity. For the purpose of this definition, "control" (including, with
correlative meaning, the terms "controlled by" and "under common control with"),
as used with respect to any person or entity, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such person or entity, whether through the ownership
of voting securities or by contract or otherwise.
AMI shall have the meaning set forth in the first paragraph of
this Agreement.
AMI Stockholder means AMI and each Stockholder that acquired
shares of Stock either directly or indirectly from AMI pursuant to Section
3(a)(i) or (ii).
<PAGE>
3
Base Rate means, 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%. 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.
CLNY Base Rate means the rate of interest per annum
established by Credit Lyonnais, New York branch, from time to time as a
reference rate for short-term commercial loans in U.S. dollars to U.S. domestic
corporate borrowers.
Common Stock means Common Stock, par value $0.01 per share, of
the Corporation and each other class of Voting Shares of the Corporation. If
there is more than one outstanding class of Common Stock, references to
percentages of Common Stock in this Agreement refer to (and mean) the specified
percentage of each class of Common Stock.
Corporate Transaction shall have the meaning set forth in
Section 3(a)(iv).
Corporation shall have the meaning set forth in the first
paragraph of this Agreement.
Fair Market Price means, with respect to any class of Stock as
of any date of calculation, the per share price of such Stock equal to the
average (based on the 20 trading day period immediately prior to the date of
calculation) of (i) the closing prices of such class of Stock on the principal
national securities exchange on which such Stock is listed at the time (or if
there have been no sales on such exchange on any day during the period of
calculation, the average of the highest bid and lowest asked prices on such
exchange at the end of such day), or (ii) if the class of Stock is not listed on
a national securities exchange during the period of calculation, the sales
prices of such class of Stock as reported on the NASDAQ National Market as of
4:00 p.m., New York time, on each day during the period of calculation (or if
there is no reported sales price of such Stock on the NASDAQ National Market on
any day during the period of calculation, the average of the representative bid
and asked prices quoted on the NASDAQ National Market as of 4:00 p.m., New York
time, on such day), or (iii) if such Stock is not reported on the NASDAQ
National Market during the period of calculation, the averages of the
representative bid and asked prices quoted in the NASDAQ System as of 4:00 p.m.,
New York time, on each day during the period of calculation, or (iv) if the
class of Stock is not quoted on the NASDAQ System, the averages of the highest
bid and lowest asked prices on each day during the period of calculation in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated or any similar successor organization. If any class of Stock is not
listed on any national
<PAGE>
4
securities exchange or quoted on the NASDAQ National Market, in the NASDAQ
System or in the over-the-counter market, the Fair Market Price per share of
such Stock shall be determined by a nationally recognized, independent
investment bank or other appraiser (an "Independent Expert") selected by the
Board of Directors of the Corporation. The selection of the Independent Expert
and the calculation of the Fair Market Price shall be final and binding on all
parties to this Agreement. The Independent Expert shall determine the Fair
Market Price per share of the Stock within 20 days of its selection. The fees
and expenses of the Independent Expert shall be borne equally by (i) the Selling
Stockholders, on the one hand, and any Stockholders exercising their options, on
the other hand, in the case of a proposed sale of Stock under Section 4(a) or
(ii) AMI and SIMA in the case of a proposed sale of Stock under Section 4(d).
Federal Funds Effective Rate means the overnight cost of funds
of Credit Lyonnais, New York branch, as determined solely by Credit Lyonnais,
New York branch.
IPO shall have the meaning set forth in the third paragraph of
this Agreement.
LWH shall have the meaning set forth in the first paragraph of
this Agreement.
LWH Stockholder means LWH and each Stockholder that acquired
shares of Stock either directly or indirectly from LWH pursuant to Section
3(a)(i) or (ii).
Majority Stockholders means the Stockholders who hold at least
a majority of all shares of Common Stock held by all the Stockholders.
Notice of Acceptance shall have the meaning set forth in
Section 4(a).
Notice of Sale shall have the meaning set forth in Section
4(a).
Permitted Transferee means a person to whom Stock is
transferred by a Stockholder in accordance with Section 3(a)(i) or (ii).
Purchase Price shall have the meaning set forth in Section
4(a).
Securities Act means the Securities Act of 1933, as amended,
or any superseding Federal statute, and the rules and regulations promulgated
thereunder.
Selling Stockholder shall have the meaning set forth in
Section 4(a).
<PAGE>
5
SIMA shall have the meaning set forth in the first paragraph
of this Agreement.
SIMA Stockholder means SIMA and each Stockholder that acquired
shares of Stock either directly or indirectly from SIMA pursuant to Section
3(a)(i) or (ii).
Stock means shares of Common Stock and shares of each other
class of capital stock of the Corporation.
Stockholders shall have the meaning set forth in the first
paragraph of this Agreement and shall include any Permitted Transferees.
Transfer, as to any Stock, means to sell, or in any other way,
directly or indirectly, transfer, assign, distribute, encumber or otherwise
dispose of, either voluntarily or involuntarily, such Stock or any interest
therein.
Voting Shares of any corporation or entity means securities of
any class or classes (however designated) having ordinary voting power for the
election of at least a majority of the members of the Board of Directors (or
other governing body) of such corporation or entity, other than securities
having such power only by reason of the happening of a contingency which has not
occurred.
SECTION 3. Limitations on Transfers of Stock - General.
(a) Each Stockholder hereby agrees that it shall not at
any time Transfer any Stock except:
(i) in accordance with Section 4;
(ii) by Transfer to an Affiliate of such Stockholder;
(iii) by Transfer to another Stockholder; or
(iv) by Transfer (A) in accordance with Rule 144 (or any
successor provision) promulgated under the Securities Act or (B) pursuant to an
effective registration statement under the Securities Act; provided that each
Stockholder, together with its Permitted Transferees, may only Transfer up to
________ shares of Stock (as such number may be adjusted to reflect any
reorganization, recapitalization, reclassification, share combination, share
subdivision, share dividend, merger, consolidation or similar events or
transactions (each a "Corporate Transaction") occurring after the date hereof)
pursuant to this clause (iv).
(v) by Transfer in a tender offer, exchange offer or
Corporate Transaction if (A) the Board of Directors of the Corporation shall
have approved such
<PAGE>
6
tender offer, exchange offer or Corporate Transaction or (B) the Majority
Stockholders shall have approved such tender offer, exchange offer or Corporate
Transaction and notified the other Stockholders of their approval in writing.
(vi) in a bona fide pledge to bank or other financial
institution (each a "Lender"); provided that no Lender may foreclose upon or
otherwise acquire any Stock pledged to it unless it complies with the provisions
of this Agreement applicable to a Permitted Transferee acquiring the pledged
Stock (including, without limitation, becoming a party to this Agreement in
accordance with Section 3(b)).
(b) Each Permitted Transferee of a Stockholder shall be
deemed, upon Transfer to him or it of shares of Stock, a Stockholder for all
purposes of this Agreement (and shall be subject to the same restrictions or
benefits under this Agreement applicable to the Stockholder who transferred
Stock to him or it) and, prior to the Transfer of shares of Stock to him or it,
shall execute and deliver to the Stockholders and the Corporation a counterpart
of this Agreement in form and substance reasonably satisfactory to the Company.
(c) At least 20 days prior to any Transfer pursuant to Section
3(a)(iv), the transferring Stockholder shall deliver a written notice to the
other Stockholders stating the number and type of shares of Stock to be sold,
the manner of sale and the types and aggregate number of shares of Stock
previously sold and proposed to be sold by it and its Permitted Transferees
under Section 3(a)(iv).
(d) Any purported Transfer in violation of the provisions
hereof shall be void.
SECTION 4. Procedures on Sales of Stock to Third Parties.
Except as otherwise expressly provided in Section 3, each
Stockholder hereby agrees that it shall not Transfer any Stock except in
accordance with the following procedure:
(a) (i) No Stock may be sold pursuant to this Section 4 unless
the sale is pursuant to a bona fide written offer to purchase for cash and
follows compliance with this Section 4. If a Stockholder or Stockholders (a
"Selling Stockholder") receives a bona fide written offer from a financially
responsible person or entity to purchase for cash, such Stockholder or
Stockholders shall deliver to the other Stockholders a notice (the "Notice of
Sale") stating the name of the person or legal entity to whom the sale is
proposed to be made, the purchase price per share (the "Purchase Price") and the
other terms at which such sale is proposed to be made, which Notice of Sale
shall be accompanied by a copy of the bona fide offer.
(ii) Upon receipt of a Notice of Sale from a Selling
Stockholder who is either (a) a SIMA Stockholder or (b) a LWH Stockholder, (x)
the recipient
<PAGE>
7
LWH Stockholder or Stockholders (or any person or persons designated by such
recipient LWH Stockholder or Stockholders), if the Selling Stockholder is a SIMA
Stockholder, or (y) the recipient SIMA Stockholder or Stockholders (or any
person or persons designated by such recipient SIMA Stockholder or
Stockholders), if the Selling Stockholder is a LWH Stockholder, shall have the
right and option, for a period of 60 days after receipt of such notice, to
purchase all of the shares of Stock referred to in the Notice of Sale and, if
such option is not exercised within such 60 day period, the recipient AMI
Stockholder or Stockholders (or any person or persons designated by such
recipient AMI Stockholder or Stockholders) shall have the right and option, for
a period of 75 days after receipt of the Notice of Sale, to purchase all of the
shares of Stock referred to in the Notice of Sale, in each case at the terms
stated in such Notice (except that the purchase price per share shall be the
lesser of (i) the Purchase Price or (ii) the Fair Market Price calculated as of
the date of the Notice of Acceptance (as defined below). Such acceptance shall
be made by delivering to the Selling Stockholder, the other Stockholders and the
Corporation, within said 60-day or 75-day period, a written notice to such
effect (the "Notice of Acceptance"). If more than one Stockholder (or designee)
elects to purchase the Stock referred to in the Notice of Sale, the right to
purchase the Stock shall be allocated among them pro rata in accordance with the
respective ownership of shares of Common Stock of such Stockholders or, in the
case of a designee, of its designating Stockholder.
(iii) Upon receipt of a Notice of Sale from a Selling
Stockholder who is a AMI Stockholder, the recipient SIMA Stockholder or
Stockholders and LWH Stockholder or stockholders (or any person or persons
designated by such recipient holder or holders) shall have the right and option,
for a period of 60 days after receipt of such notice, to purchase all of the
shares of Stock referred to in the Notice of Sale at the terms stated in such
Notice (except that the purchase price per share shall be the lesser of (i) the
Purchase Price and (ii) the Fair Market Price calculated as of the date of the
Notice of Acceptance. Such acceptance shall be made by delivering to the Selling
Stockholder, the other Stockholders and the Corporation, within said 60-day
period, a Notice of Acceptance. If more than one Stockholder (or designee)
elects to purchase the Stock referred to in the Notice of Sale, the right to
purchase the Stock shall be allocated among them pro rata in accordance with the
respective ownership of shares of Common Stock of such Stockholders or, in the
case of a designee, of its designating Stockholder.
(b) Sales of Stock pursuant to Section 4(a) or 4(d) shall be
made at the offices of the Corporation on a mutually satisfactory business day
within 30 days after the later of (i) (A) the expiration of the period for
giving the Notice of Acceptance referred to in Section 4(a) or (B) the giving of
notice by SIMA referred to in Section 4(d) or (ii) the date on which the
Stockholders shall have received all requisite regulatory or third party
approvals and consents to necessary consummate the proposed sale of Stock under
Section 4(a) or 4(d). Delivery of certificates or other instruments evidencing
such Stock, duly endorsed for transfer, shall be made on
<PAGE>
8
such date against payment of the purchase price therefor due at the closing.
Each of the Stockholders and the Corporation shall use their best efforts to
execute and deliver such documents and take such actions as may be reasonably
requested in order to consummate any sale of Stock pursuant to Section 4(a) or
4(d), including, without limitation, obtaining any regulatory approvals or
consents or third party consents necessary to consummate any such sale.
(c) If a Notice of Acceptance shall not be received pursuant
to Section 4(a) with respect to all of the shares of Stock referred to in the
Notice of Sale, then the Stockholder giving the Notice of Sale may sell all (but
not part) of the shares of Stock referred to in the Notice of Sale on the terms
stated in the Notice of Sale, at any time within 90 days after the expiration of
the time period for giving the Notice of Acceptance referred to in Section 4(a).
In the event all of such shares are not sold during such period, the right of
the Stockholder giving the Notice of Sale to sell such Stock shall expire and
the obligations of this Section 4 shall be reinstated.
(d) If any person or entity (other than a person or entity
which is an Affiliate of AMI as of the date hereof) acquires a majority of the
Voting Shares of AMI or acquires a majority of the equity securities of AMI,
then AMI shall, as promptly as practicable after the occurrence of such event,
notify SIMA. SIMA shall have the right, exercisable by written notice to AMI
within 60 days after receipt of AMI's notice, to purchase all shares of Stock
owned by AMI for a price per share equal to the highest of (x) the per share
price paid for such shares by AMI and (y) the Fair Market Price calculated as of
the date of the written notice delivered by SIMA to exercise its right to
purchase the Stock owned by AMI. Fifty percent of the purchase price for AMI's
Stock shall be paid at the closing in accordance with Section 4(b) and the
remainder, together with interest at the average of the Base Rate during such
installment period, shall be paid in six equal quarterly installments commencing
90 days after the closing.
SECTION 5. Voting.
The Stockholders agree that all shares of Stock now
beneficially owned or hereafter acquired by the Stockholders shall be voted
unanimously as a unit, whether for the election of directors or for any other
matter submitted to a vote of stockholders of the Corporation, in accordance
with the instructions of the Majority Stockholders. The Majority Stockholders
shall deliver a written notice to all Stockholders at least 20 days prior to any
election setting forth the Majority Stockholders' voting instructions.
SECTION 6. Board Representation.
(a) At each election for directors of the Corporation, whether
at a stockholders meeting, by written action by the stockholders of the
Corporation or by an action taken by the Board of Directors of the Corporation,
the Stockholders shall
<PAGE>
9
be entitled to nominate to the Corporation's Board of Directors, a number of
directors, which, when added to the continuing directors on the Corporation's
Board of Directors who were previously designated by the Stockholders pursuant
to this Section 6(a) and Section 6(b), is equal to the Stockholder Percentage
multiplied by the total number of members of the Board of Directors of the
Corporation (rounded up to the nearest whole number) (the "Stockholder
Designees"). The "Stockholder Percentage" shall be determined in the following
manner:
Percentage of Outstanding Common
Stock Held by the Stockholders Stockholder Percentage
- ------------------------------------ ----------------------
35% or more 56%
27% or more but less than 35% 42%
19% or more but less than 27% 28%
10% or more but less than 19% 14%
less than 10% 0%
The Corporation shall cause the Stockholder Designees (unless, after customary
investigation of any Stockholder Designee's qualifications, the Board of
Directors of the Corporation reasonably determines in good faith that such
person is not qualified or acceptable under standards applied fairly and equally
to all nominees, in which event the Stockholders shall designate another person
that meets the foregoing standards) to be included in the slate of nominees
recommended by the Board of Directors of the Corporation or the nominating
committee of the Board of Directors to the Corporation's stockholders for
election as directors, and the Corporation shall use its best efforts to cause
the election of the Stockholder Designees in such stockholder elections,
including voting all shares for which the Corporation holds proxies (unless
otherwise directed by the stockholder submitting such proxy) or is otherwise
entitled to vote, in favor of the election of the Stockholder Designees.
(b) In the event any Stockholder Designee shall cease to serve
as a director by reason of the death, removal or resignation of such Stockholder
Designee (other than as a result of a reduction of the number of Stockholder
Designees entitled to be members of the Board of Directors), the remaining
directors of the Corporation, subject to their fiduciary duties, shall meet
within 20 days and cause the resulting vacancy to be filled by another
Stockholder Designee. If the size of the Board of Directors of the Corporation
is increased, then the directors of the Corporation, subject to their fiduciary
duties, shall meet within 20 days and cause any vacancies to be filled with an
appropriate number of Stockholder Designees as determined pursuant to Section
6(a).
<PAGE>
10
(c) The Corporation shall notify the stockholders of any
election for directors of the Corporation at least 75 days (20 days if directors
are to be elected by the Board of Directors) prior to the election. The Majority
Stockholders may designate the Stockholder Designees by delivering a written
notice to the Corporation within 30 days (10 days if directors are to be elected
by the Board of Directors) after receipt of the notice referred to in the
preceding sentence. The initial Stockholder Designees are listed on Schedule 6.
If the Majority Stockholders fail to deliver the written notice specifying the
Stockholder Designees, the Board of Directors of the Corporation (or its
nominating committee) may nominate or elect any persons to the Board of
Directors of the Corporation without regard to this Section 6.
SECTION 7. Additional Shares of Stock.
In the event additional shares of Stock are issued by the
Corporation to a Stockholder or otherwise purchased or acquired by a Stockholder
at any time during the term of this Agreement, either directly or upon the
exercise or exchange of securities of the Corporation exercisable for or
exchangeable into shares of Stock, such additional shares of Stock shall become
subject to the terms and provisions of this Agreement.
SECTION 8. Legend on Stock Certificates.
Each certificate representing shares of Stock subject to this
Agreement shall bear the following legend:
"THE SALE, TRANSFER, ASSIGNMENT, PLEDGE, OR ENCUMBRANCE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE RIGHTS OF
THE HOLDER OF SUCH SECURITIES ARE SUBJECT TO THE TERMS AND
CONDITIONS OF AN AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT,
DATED AS OF ____________________, 1997, AMONG THE CORPORATION
AND CERTAIN HOLDERS OF OUTSTANDING CAPITAL STOCK OF THE
CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO
COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS
CERTIFICATE TO THE SECRETARY OF THE CORPORATION."
SECTION 9. Duration of Agreement.
The rights and obligations of each Stockholder under this
Agreement shall terminate as to such Stockholder when it has transferred all
Stock owned by it in
<PAGE>
11
accordance with this Agreement. Subject to the foregoing, all rights and
obligations of all parties under this Agreement shall terminate on the date on
which all Stockholders cease, in the aggregate, to own 10% or more of the
outstanding Common Stock.
SECTION 10. Hiring of Employees.
Except as expressly contemplated hereby, no party hereto shall
hire, employ or engage the services of, nor offer to pay any commission,
compensation or any other form of incentive to, any employee of any party for
any purpose whatsoever, without the express prior consent of such other party.
SECTION 11. Severability; Governing Law.
If any provision of this Agreement shall be determined to be
illegal and unenforceable by any court of law, the remaining provisions shall be
severable and enforceable in accordance with their terms. This Agreement shall
be governed by, and construed in accordance with, the laws of the State of New
York, regardless of the laws that might otherwise govern under applicable
principles of conflict of laws thereof; provided, however, that the laws of the
State of Delaware shall govern the relative rights, obligations, powers, duties
and other internal affairs of the Corporation.
SECTION 12. Benefit of Agreement.
This Agreement shall be binding upon and inure to the benefit
of the parties and their respective successors and assigns.
SECTION 13. Notices.
All notices and other communications under this Agreement
shall be in writing and shall be considered given when delivered personally, or
by prepaid cable, telex or telecopy, confirmed by a registered or certified
airmail letter, postage prepaid, addressed to the parties at the following
addresses (or at such other address as a party may specify by notice hereunder):
If to AMI, to it at:
3A Rue Gillanmekroll
L-1882 Luxembourg
Telecopy: 352-47-18-80
<PAGE>
12
If to SIMA, to it at:
41, Rue de Villiers, BP 120
92202 Neuilly Sur Seine Cedex
France
Telecopy: (1) 47576939
If to LWH, to it at:
Boulevard Royal 3
L-2449 Luxembourg
Telecopy: 352-47-12-55
If to the Corporation, to it at:
Middle Settlement Road
New Hartford, New York 13413
Telecopy: (315) 798-2001
SECTION 14. Modification.
Except as otherwise provided herein, neither this Agreement
nor any provision hereof can be modified, changed, discharged or terminated
except by an instrument in writing signed by all the parties hereto. All waivers
must be in writing.
SECTION 15. Captions.
The captions herein are inserted for convenience only and
shall not define, limit, extend or describe the scope of this Agreement or
affect the construction hereof.
SECTION 16. Nouns and Pronouns.
Whenever the context may require, any pronouns used herein
shall include the corresponding masculine, feminine or neuter forms, and the
singular form of names and pronouns shall include the plural and vice versa.
SECTION 17. Survival; Merger Provision.
This Agreement constitutes the entire agreement among the
parties pertaining to the subject matter hereof and supersedes all prior and
contemporaneous arrangements and understandings of the parties in connection
therewith.
<PAGE>
13
SECTION 18. Counterparts.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which taken together
shall constitute one and the same instrument. This Agreement shall become
effective and binding upon each party hereto upon the execution and delivery of
a counterpart hereof by such party.
SECTION 19. Jurisdiction.
All disputes arising in connection with this Agreement and all
agreements entered into pursuant to this Agreement shall be finally settled
under the Rules of Conciliation and Arbitration of the International Chamber of
Commerce by three arbitrators appointed in accordance with said Rules. The
arbitrators shall be attorneys or judges of high repute. The place of
arbitration shall be Brussels, Belgium. The proceedings shall be conducted in
the English language. The expenses of the arbitration shall be borne between the
parties as determined by the arbitrators; each of the parties, however, shall
bear the expenses of its own legal counsel. This
<PAGE>
14
Agreement shall be enforceable and judgment upon any award rendered by the
arbitrators may be entered in any court of competent jurisdiction.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first above written.
SPECIAL METALS CORPORATION
By: _____________________________
Name:
Title:
SOCIETE INDUSTRIELLE DE MATERIAUX
AVANCES
By: _____________________________
Name:
Title:
ADVANCED MATERIALS INVESTMENTS
HOLDING S.A.
By: _____________________________
Name:
Title:
LWH HOLDING S.A.
By: _____________________________
Name:
Title:
<PAGE>
15
SCHEDULE 1
Number of shares of SMTC common
Stockholder Name stock beneficially owned
- ---------------- -------------------------------
Societe Industrielle de Materiaux 480
Avances
Advanced Materials Investments 320
Holding S.A.
LWH Holding S.A. 200
<PAGE>
Exhibit 10.3
TECHNICAL EXCHANGE AGREEMENT
THIS AGREEMENT, made as of the day of , 1997 by and
between SPECIAL METALS CORPORATION, a Delaware corporation, having its principal
office in New Hartford, New York, United States of America (hereinafter referred
to as "SMC"), and Societe Industrielle de Materiaux Avances, a societe anonyme
organized under the law of the Republic of France, having its principal office
in Neuilly Sur Seine, France (hereinafter referred to as "SIMA").
W I T N E S S E T H :
WHEREAS, SIMA and SMC possess technical information and
knowledge relating to: (a) vacuum melting induction furnaces, vacuum arc
remelting furnaces, electroslag remelting furnaces, argon-oxygen decarburization
furnaces, electron beam melting fur-naces, plasma melting furnaces and other
metallurgical furnaces, and the operation thereof; (b) rolling, forging,
pressing, ex-trusion, casting, and other metal working techniques; and (c) the
manufacture of high temperature alloys, tool steels, high strength steels, super
stainless steels and other metals and materials; and
WHEREAS, SIMA and SMC desire to obtain technical assistance
from each other pertaining to the manufacture of high temperature alloys, and
other alloys and materials, so as to further develop and diversify their
respective businesses and SIMA
1
<PAGE>
and SMC are willing to furnish such technical assistance to each other, all upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto, intending to be legally
bound, hereby mutually covenant and agree as follows:
l. For purposes of this Agreement,
(a) The term "High Temperature Alloys" shall mean
cobalt and/or nickel-base alloys strengthened by carbide,
nitride or intermetallic phases and/or by a precipitation
hardening mechanism.
(b) The term "Other Alloys and Materials" shall
in-clude tool steels, high strength steels, super stainless
steels and composite materials.
(c) The term "Technical Information" shall include:
(i) vacuum induction furnace melting procedures and equipment
therefore including design of coils and re-fractory components
and special techniques such as argon bubbling and
desulfurization; (ii) electric arc melting procedures and
equipment therefore; (iii) argon-oxygen decarburization
melting procedures and equipment there-fore; (iv) "clean"
metal programs including raw material control, bottom pouring
and mold preparation; (v) elec-tron beam melting procedures
and equipment therefore; (vi) plasma melting procedures and
equipment therefore; (vii) vacuum arc remelting procedures and
equipment therefore; (viii) electroslag remelting procedures
and equipment therefore; (ix) information on the design and
2
<PAGE>
use of new equipment; (x) information pertaining to metal
working techniques including rotary forging; (xi) infor-mation
as to the development of new alloys, materials and markets,
including powder metallurgical grades; (xii) information
pertaining to product improvement; and (xiii) information
pertaining to quality assurance.
2. During the term of this Agreement, the parties shall, to
the best of their ability, 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 party to further develop and diversify
their respective businesses, providing the assisting party is free of
contractual commitments preventing such disclosure to the other party.
3. Each party shall furnish Technical Information to the
other party in the following manner:
(a) Each party shall periodically provide technical
and manufacturing people in its employ at the facilities of
the other party to consult with and advise the other party.
(b) Each party shall regularly make technical and
manufacturing people in its employ available for consultation
with the other party by telephone and/or written
communication.
3
<PAGE>
(c) Each party shall permit employees of the other party to
visit its manufacturing facilities for the purpose of
consulting with technical and manufacturing people of the
other party.
4. All Technical Information of one party furnished to the
other party shall be exclusive and solely for the benefit of the other party and
the other party shall keep such knowledge and information confidential. The
employees of a party acquiring any such information shall be instructed to
retain the same as confidential and not to make disclosure thereof to any person
or persons, except to other employees of the acquiring party and then only to
the extent necessary to make use thereof in the acquiring party's operations;
provided, however, that the foregoing shall not apply to information which was
in the possession of the acquiring party at the time of receipt from the
assisting party, information which is or becomes available to the public from a
source other than the acquiring party and information the acquiring party
receives from a third party having the right to make such disclosure and without
any obligation of confidentiality on the part of the acquiring party to such
third party.
5. It is understood that neither party assumes any obligation
or responsibility for or with respect to the sufficiency of any information
furnished to or acquired by the other party to accomplish the desired results,
or the ability of the other party to use the same, or the quality or quantity of
products produced using the same. Neither party shall have an obligation or
responsibility with respect to the processes and
4
<PAGE>
apparatus used by the other party or the products made thereby or for the claims
of third parties with respect to such processes and apparatus or products.
6. Neither party shall receive any compensation from the other
party.
7. If and to the extent that the security and export control
laws of France or the United States and regulations thereunder, including the
regulations on Exportation of Technical Data promulgated by the United States
Department of Commerce, may be applicable to the furnishing of assistance or the
disclosure of information hereunder by either party, their respective
obligations hereunder shall be subject thereto.
8. This Agreement shall remain in effect until terminated by
either party upon thirty (30) days' advance written notice to the other party.
The obligations of confidentiality set forth in Section 4 shall survive any such
termination. Termination shall not affect either party's right to continue to
use Technical Information obtained from the other party.
9. All notices and other communications required to be given
under this Agreement shall be in writing and shall be given or made by facsimile
transmission, personal delivery, or registered or certified mail postage
prepaid, and addressed to the intended recipient at the address below or such
other address as shall be designated by either party in a notice to the other
party. Each notice delivered in accordance with this Section shall be deemed
effective (a) if personally delivered on the date of such delivery,
5
<PAGE>
(b) if given by facsimile transmission, on the date transmitted provided that an
appropriate confirmation is received by the sender, and (c) if given by
registered or certified mail, seven days after mailing.
To SMC: Special Metals Corporation
4317 Middle Settlement Road
New Hartford, New York 13413-5392
United States of America
Attention: Corporate Secretary
Telecopy: (315)798-2001
To SIMA: Societe Industrielle de Materiaux Avances
41 Rue De Villiers
Neuilly Sur Seine
France
Attention: Edouard Duval
Telecopy: 011-33-1 40882009
10. This Agreement supersedes any and all other Agreements,
either oral or written, between the parties hereto with respect to either party
providing technical assistance to the other party and contains all of the
covenants and agreements between the parties with respect to such. Any
modification of this Agreement shall be effective only if it be in writing,
signed by the party sought to be charged.
11. This Agreement may not be assigned without the express
written consent of the other party.
12. This Agreement shall be governed by the laws of the
State of New York, United States of America.
13. This Agreement may be separately executed in counterparts.
6
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed by its proper representatives as of the day and
year first above written.
SOCIETE INDUSTRIELLE DE MATERIAUX
AVANCES
Attest By________________________
_________________________ Title _____________________
SPECIAL METALS CORPORATION
Attest By _________________________
_________________________ Title _______________________
7
<PAGE>
Exhibit 10.4
MANAGERIAL ASSISTANCE AGREEMENT
THIS AGREEMENT, made as of the day of , 1997 by and between
SPECIAL METALS CORPORATION, a Delaware corporation, having its principal office
in New Hartford, New York, United States of America (hereinafter referred to as
"SMC"), and Societe Industrielle de Materiaux Avances, a societe anonyme
organized under the law of the Republic of France, having its principal office
in Neuilly Sur Seine, France (hereinafter referred to as "SIMA").
W I T N E S S E T H :
WHEREAS, SIMA and its affiliates possess managerial
information and knowledge relating to: (a) financial planning; (b) loan and
security agreements; (c) financial management; (d) business strategies and
planning; (e) business systems; (f) organizational planning; (g) insurance
matters; (h) equipment purchases; (i) utilization and procurement of raw
materials; (j) marketing; (k) sales programs; (l) distribution systems; and (m)
new market/product opportunities; and
WHEREAS, SMC desires to obtain managerial assistance from SIMA
to further develop its existing business and expand its business into new
products and markets and SIMA is willing to furnish such managerial assistance,
all upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto, intending to be legally
bound, hereby mutually covenant and agree as follows:
1
<PAGE>
1. For purposes of this Agreement,
The term "Managerial Information" shall include
information pertaining to: (i) financial planning; (ii) loan
and security agreements; (iii) financial management; (iv)
business strategies and planning; (v) business systems; (vi)
organization planning; (vii) insurance matters; (viii)
equipment purchases; (ix) utilization and procurement of raw
materials; (x) marketing; (xi) sales programs; (xii)
distribution systems; and (xiii) new market/product
opportunities.
2. During the term of this Agreement, SIMA shall, to
the best of its ability, furnish Managerial Information as, may be needed and
requested by SMC, to further develop SMC's existing business and expand SMC's
business into new products and markets.
3. SIMA shall furnish Managerial Information to SMC in
the following manner:
(a) SIMA shall periodically provide managerial,
financial, manufacturing and sales people in the employ of
SIMA and/or its affiliates at the facilities of SMC to consult
with and advise SMC.
(b) SIMA shall regularly make managerial, financial,
manufacturing and sales people in the employ of SIMA and/or
its affiliates available for consultation with SMC by
telephone and/or written communication.
(c) SIMA shall permit, at the expense of SMC,
employees of SMC to visit the facilities and offices of SIMA
and/or its affiliates for the purpose of consulting with
managerial, financial, manufacturing and sales people of SIMA
and/or its affiliates.
2
<PAGE>
4. All Managerial Information of SIMA and its affiliates
furnished to or used by SMC shall be exclusive and solely for the benefit of
SMC and SMC shall keep such knowledge and information confidential. The
employees of SMC acquiring any such information shall be instructed to retain
the same as confidential and not to make disclosure thereof to any person or
persons, except to other employees of SMC and then only to the extent necessary
to make use thereof in SMC's operations; provided, however, that the foregoing
shall not apply to information which was in the possession of SMC at the time
of receipt from SIMA and/or its affiliates, information which is or becomes
available to the public from a source other than SMC and information SMC
receives from a third party having the right to make such disclosure and
without obligation of confidentiality on the part of SMC to such third party.
5. All Managerial Information which SMC may disclose to SIMA
and/or its affiliates during the course of discussions with SIMA and/or its
affiliates shall be deemed to have been furnished to assist SIMA and/or its
affiliates in providing managerial assistance to SMC and SIMA and its affiliates
shall keep such knowledge and information confidential. The employees and SIMA
and its affiliates acquiring any such information shall be instructed to retain
the same as confidential and not to make disclosure thereof to any person or
persons except to other employees of SIMA and/or its affiliates; provided,
however, that the foregoing shall not apply to information which was in the
possession of SIMA and/or its affiliates at the time of receipt from SMC,
information which is or becomes available to the public from a source other than
SIMA and/or its affiliates and information SIMA and/or its affiliates receives
from a third party having the right to make such disclosure and without any
obligation of confidentiality on the part of SIMA and/or its affiliates to such
third party.
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6. It is understood that SIMA does not assume any obligation
or responsibility for or with respect to the sufficiency of any information
furnished to or acquired by SMC to accomplish the desired results or the ability
of SMC to use the same.
7. In consideration of its agreement to provide services
hereunder, so long as this agreement is in effect, SMC shall pay to SIMA, a fee
of $30,000 per month. In addition, SMC shall reimburse SIMA for out of pocket
telecommunication charges, travel costs and subsistence while travelling, to the
extent such expenses are reasonable and for the benefit of SMC. Payment shall be
made by SMC within thirty (30) days following receipt and acceptance by SMC of
an invoice along with appropriate expense documents. All payments are to be free
of tax and charges of governments other than the government of France.
8. SIMA shall provide to SMC, within thirty (30) days after
the end of each month in which managerial assistance is given to SMC, a written
report fully detailing the said managerial assistance and, without limitation,
the assistance, advice and recommendations given and made.
9. The parties recognize that SIMA may be requested to provide
services beyond the scope or level previously provided by SIMA, whether in
connection with potential acquisitions, financings or other matters involving
SMC. In such event, SIMA shall be entitled to compensation in addition to the
monthly fee referred to in Paragraph 7, based on the time spent and other
relative factors, as SIMA and SMC shall mutually agree.
10. In the event of any inconsistency between the terms of
this Agreement and a Credit Agreement to which SMC is a party, the terms of the
Credit Agreement will prevail.
11. This Agreement shall remain in effect until terminated by
either party upon thirty (30) days' advance written notice to the other party.
The obligations of confidentiality set forth in Sections 4 and 5 shall survive
any such termination. Termination
4
<PAGE>
shall not affect SMC's right to continue to use Managerial Information obtained
from SIMA and/or its affiliates.
12. All notices and other communications (except for Section 8
reports and Section 9 invoices) required to be given under this Agreement shall
be in writing and shall be given or made by facsimile transmission, personal
delivery, or registered or certified mail postage prepaid, and addressed to the
intended recipient at the address below or such other address as shall be
designated by either party in a notice to the other party. Each notice delivered
in accordance with this Section shall be deemed effective (a) if personally
delivered on the date of such delivery, (b) if given by facsimile transmission,
on the date transmitted provided that an appropriate confirmation is received by
the sender, and (c) if given by registered or certified mail, seven days after
mailing.
To SMC: Special Metals Corporation
4317 Middle Settlement Road
New Hartford, New York 13413-5392
United States of America
Attention: Corporate Secretary
Telecopy: (315)798-2001
To SIMA: Societe Industrielle de Materiaux Avances
41 Rue De Villiers
Neuilly Sur Seine
France
Attention: Edouard Duval
Telecopy: 011-33-1 40882009
Section 8 reports shall be sent to the President and Controller of SMC.
13. This Agreement supersedes any and all other
Agreements, either oral or written, between the parties hereto with respect to
SIMA providing managerial assistance to SMC and contains all of the covenants
and agreements between the parties with respect
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<PAGE>
to such. Any modification of this Agreement shall be effective only if it be in
writing, signed by the party sought to be charged.
14. This Agreement may not be assigned without the
express written consent of the other party.
15. This Agreement shall be governed by the laws of the
State of New York, United States of America.
16. This Agreement may be separately executed in
counterparts.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed by its proper representatives as of the day and
year first above written.
SOCIETE INDUSTRIELLE
DE MATERIAUX AVANCES
Attest By
-------------------------
- -------------------
Title
-----------------------
6
<PAGE>
SPECIAL METALS CORPORATION
Attest By
-------------------------
- -------------------
Title
-----------------------
7
<PAGE>
Exhibit 10.16
SPECIAL METALS CORPORATION
1997 Long-Term Stock Incentive Plan
SECTION 1. Purpose. The purposes of this Special Metals
Corporation 1997 Long-Term Stock Incentive Plan are to promote the interests of
Special Metals Corporation and its stockholders by (i) attracting and retaining
qualified key officers and key employees, directors and consultants of the
Company and its Subsidiaries, as defined below; (ii) motivating such individuals
by means of performance-related incentives to achieve longer-range performance
goals; and (iii) enabling such individuals to participate in the long-term
growth and financial success of the Company.
SECTION 2. Definitions. As used in the Plan, the following
terms shall have the meanings set forth below:
"Affiliate" shall mean (i) any entity that, directly or
indirectly, is controlled by or controls the Company and (ii) any entity in
which the Company has a significant equity interest, in either case as
determined by the Committee.
"Award" shall mean any Option, Stock Appreciation Right,
Restricted Stock Award, Restricted Stock Unit Award, Performance Award, Other
Stock-Based Award or Performance Compensation Award.
"Award Agreement" shall mean any written agreement, contract,
or other instrument or document evidencing any Award, which may, but need not,
be executed or acknowledged by a Participant.
"Board" shall mean the Board of Directors of the Company.
"Change of Control" shall mean the occurrence of any of the
following: (i) the sale, lease, transfer, conveyance or other disposition, in
one or a series of related transactions, of all or substantially all of the
assets of the Company to any "person" or "group" (as such terms are used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act), (ii) any person or group is
or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total voting power of the voting
stock of the Company, including by way of merger, consolidation or otherwise or
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board (together with any new directors
whose election by such Board or whose nomination for election by the
shareholders of the Company was approved by a vote of a majority of the
directors of the Company,
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2
then still in office, who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board; provided that in no event
shall the initial public offering of the Company's equity securities pursuant to
an effective registration statement under the Securities Act of 1933 be deemed
to constitute a Change of Control. Notwithstanding the foregoing, a "Change of
Control" shall not include any transaction or series of transactions with
Societe Industrielle Materiaux Avance ("SIMA") or between the shareholders or
affiliates of SIMA.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Committee" shall mean (i) a committee of the Board designated
by the Board to administer the Plan and composed of not less two directors, each
of whom is intended to be a "Non-Employee Director" (within the meaning of Rule
16b-3) and an "outside director" (within the meaning of Code section 162(m)) to
the extent Rule 16b-3 and Code section 162(m), respectively, are applicable to
the Company and to Awards issued under the Plan or (ii) if at any time such a
committee has not been so designated by the Board, the Board.
"Company" shall mean Special Metals Corporation, a Delaware
corporation, together with any successor thereto.
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
"Fair Market Value" shall mean, (A) with respect to any
property other than Shares, the fair market value of such property determined by
such methods or procedures as shall be established from time to time by the
Committee and (B) with respect to the Shares, as of any date, (i) the closing
price of the Shares on the principal national securities exchange on which the
Shares are listed at the time (or if there have been no sales on such exchange
on such day, the average of the highest bid and lowest asked prices on such
exchange at the end of such day), or (ii) if the Shares are not listed on a
national securities exchange at the time, the sale price of the Shares reported
on the NASDAQ National Market as of 4:00 p.m., New York time, on such day (or if
there is no reported sale price of the Shares on the NASDAQ National Market on
such day, the average of the representative bid and asked prices quoted on the
NASDAQ National Market as of 4:00 p.m., New York time, on such day), or (iii) if
the Shares are not reported on the NASDAQ National Market at the time, the
averages of the representative bid and asked prices quoted in the NASDAQ System
as of 4:00 p.m., New York time, on such day, or (iv) if the Shares are not
quoted on the NASDAQ System, the average of the highest bid and lowest asked
prices on such day in the over-the-counter market as reported by the National
Quotation Bureau Incorporated or any similar successor organization. If the
Shares are not listed on any national securities exchange or quoted on the
NASDAQ National Market, in the
<PAGE>
3
NASDAQ System or in the over-the-counter market, the fair market value of the
Shares as determined in good faith by the Committee.
"Incentive Stock Option" shall mean a right to purchase Shares
from the Company that is granted under Section 6 of the Plan and that is
intended to meet the requirements of Section 422 of the Code or any successor
provision thereto.
"Negative Discretion" shall mean the discretion authorized by
the Plan to be applied by the Committee to eliminate or reduce the size of a
Performance Compensation Award; provided that the exercise of such discretion
would not cause the Performance Compensation Award to fail to qualify as
"Performance-Based Compensation" under Section 162(m) of the Code. By way of
example and not by way of limitation, in no event shall any discretionary
authority granted to the Committee by the Plan including, but not limited to,
Negative Discretion, be used to (a) grant or provide payment in respect of
Performance Compensation Awards for a Performance Period if the Performance
Goals for such Performance Period have not been attained; or (b) increase a
Performance Compensation Award above the maximum amount payable under Sections
4(a) or 11(d)(vi) of the Plan.
"Non-Qualified Stock Option" shall mean a right to purchase
Shares from the Company that is granted under Section 6 of the Plan and that is
not intended to be an Incentive Stock Option.
"Option" shall mean an Incentive Stock Option or a
Non-Qualified Stock Option.
"Other Stock-Based Award" shall mean any right granted under
Section 10 of the Plan.
"Participant" shall mean any officer or other key employee,
director or consultant of the Company or its Subsidiaries eligible for an Award
under Section 5 and selected by the Committee to receive an Award under the
Plan.
"Performance Award" shall mean any right granted under Section
9 of the Plan.
"Performance Compensation Award" shall mean any Award
designated by the Committee as a Performance Compensation Award pursuant to
Section 11 of the Plan.
"Performance Criteria" shall mean the criterion or criteria
that the Committee shall select for purposes of establishing the Performance
Goal(s) for a Performance Period with respect to any Performance Compensation
Award under the Plan. The Performance Criteria that will be used to establish
the Performance Goal(s) shall be based on the attainment of specific levels of
performance of the Company (or Subsidiary, Affiliate, division or operational
unit of the Company) and
<PAGE>
4
shall be limited to the following: Return on net assets, return on shareholders'
equity, return on assets, return on capital, shareholder returns, earnings per
share, net earnings, operating earnings, price per share, cash flow, margin,
cost reductions, meeting of budget amount or project deadline, sales and market
share. To the extent required under Section 162(m) of the Code, the Committee
shall, within the first 90 days of a Performance Period (or, if longer, within
the maximum period allowed under Section 162(m) of the Code), define in an
objective fashion the manner of calculating the Performance Criteria it selects
to use for such Performance Period.
"Performance Formula" shall mean, for a Performance Period,
the one or more objective formulas applied against the relevant Performance Goal
to determine, with regard to the Performance Compensation Award of a particular
Participant, whether all, some portion but less than all, or none of the
Performance Compensation Award has been earned for the Performance Period.
"Performance Goals" shall mean, for a Performance Period, the
one or more goals established by the Committee for the Performance Period based
upon the Performance Criteria. The Committee is authorized at any time during
the first 90 days of a Performance Period, or at any time thereafter (but only
to the extent the exercise of such authority after the first 90 days of a
Performance Period would not cause the Performance Compensation Awards granted
to any Participant for the Performance Period to fail to qualify as
"performance-based compensation" under Section 162(m) of the Code), in its sole
and absolute discretion, to adjust or modify the calculation of a Performance
Goal for such Performance Period to the extent permitted under Section 162(m) of
the Code in order to prevent the dilution or enlargement of the rights of
Participants, (a) in the event of, or in anticipation of, any unusual or
extraordinary corporate item, transaction, event or development affecting the
Company; or (b) in recognition of, or in anticipation of, any other unusual or
nonrecurring events affecting the Company, or the financial statements of the
Company, or in response to, or in anticipation of, changes in applicable laws,
regulations, accounting principles, or business conditions.
"Performance Period" shall mean the one or more periods of
time (of at least one year in duration) as the Committee may select, over which
the attainment of one or more Performance Goals will be measured for the purpose
of determining a Participant's right to and the payment of a Performance
Compensation Award.
"Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, government
or political subdivision thereof or other entity.
"Plan" shall mean this Special Metals Corporation 1997
Long-Term Stock Incentive Plan.
"Restricted Stock" shall mean any Share granted under Section
8 of the Plan.
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5
"Restricted Stock Unit" shall mean any unit granted under
Section 8 of the Plan.
"Rule 16b-3" shall mean Rule 16b-3 as promulgated and
interpreted by the SEC under the Exchange Act, or any successor rule or
regulation thereto as in effect from time to time.
"SEC" shall mean the Securities and Exchange Commission or any
successor thereto and shall include the Staff thereof.
"Shares" shall mean the common shares of the Company, $.01 par
value, or such other securities of the Company (i) into which such common shares
shall be changed by reason of a recapitalization, merger, consolidation,
split-up, combination, exchange of shares or other similar transaction or (ii)
as may be determined by the Committee pursuant to Section 4(b).
"Stock Appreciation Right" shall mean any right granted under
Section 7 of the Plan.
"Subsidiary" shall mean (i) any entity that, directly or
indirectly, is controlled by the Company and (ii) any entity in which the
Company has a significant equity interest, in either case as determined by the
Committee
"Substitute Awards" shall have the meaning specified in
Section 4(c).
SECTION 3. Administration. (a) The Plan shall be administered
by the Committee. Subject to the terms of the Plan and applicable law, and in
addition to other express powers and authorizations conferred on the Committee
by the Plan, the Committee shall have full power and authority to: (i) designate
Participants; (ii) determine the type or types of Awards to be granted to a
Participant and designate those Awards which shall constitute Performance
Compensation Awards; (iii) determine the number of Shares to be covered by, or
with respect to which payments, rights, or other matters are to be calculated in
connection with, Awards; (iv) determine the terms and conditions of any Award;
(v) determine whether, to what extent, and under what circumstances Awards may
be settled or exercised in cash, Shares, other securities, other Awards or other
property, or canceled, forfeited, or suspended and the method or methods by
which Awards may be settled, exercised, canceled, forfeited, or suspended; (vi)
determine whether, to what extent, and under what circumstances cash, Shares,
other securities, other Awards, other property, and other amounts payable with
respect to an Award shall be deferred either automatically or at the election of
the holder thereof or of the Committee (subject to Section 162(m) of the Code
with respect to Performance Compensation Awards); (vii) interpret, administer
reconcile any inconsistency, correct any default and/or supply any omission in
the Plan and any instrument or agreement relating to, or Award made under, the
Plan; (viii) establish, amend, suspend, or waive such rules and regulations and
appoint such agents as it shall deem appropriate for the proper administration
of
<PAGE>
6
the Plan; (ix) establish and administer Performance Goals and certify whether,
and to what extent, they have been attained; and (x) make any other
determination and take any other action that the Committee deems necessary or
desirable for the administration of the Plan.
(b) Unless otherwise expressly provided in the Plan, all
designations, determinations, interpretations, and other decisions under or with
respect to the Plan or any Award shall be within the sole discretion of the
Committee, may be made at any time and shall be final, conclusive, and binding
upon all Persons, including the Company, any Affiliate, any Participant, any
holder or beneficiary of any Award, and any shareholder.
(c) The mere fact that a Committee member shall fail to
qualify as a "Non-Employee Director" or "outside director" within the meaning of
Rule 16b-3 and Code section 162(m), respectively, shall not invalidate any award
made by the Committee which award is otherwise validly made under the Plan.
(d) No member of the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any Award
hereunder.
(e) With respect to any Performance Compensation Award granted
to a Participant under the Plan, the Plan shall be interpreted and construed in
accordance with Section 162(m) of the Code.
SECTION 4. Shares Available for Awards.
(a) Shares Available. Subject to adjustment as provided in
Section 4(b), the aggregate number of Shares with respect to which Awards may be
granted under the Plan shall be 800,000; the maximum number of Shares with
respect to which Options and Stock Appreciation Rights may be granted to any
Participant in any fiscal year shall be 100,000 and the maximum number of Shares
which may be paid to a Participant in the Plan in connection with the settlement
of any Award(s) designated as "Performance Compensation Awards" in respect of a
single Performance Period shall be 100,000 or, in the event such Performance
Compensation Award is paid in cash, the equivalent cash value thereof. If, after
the effective date of the Plan, any Shares covered by an Award granted under the
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, to
the maximum extent permitted under Section 162(m) of the Code, again be, or
shall become, Shares with respect to which Awards may be granted hereunder.
(b) Adjustments. In the event that the Committee determines
that any dividend or other distribution (whether in the form of cash, Shares,
other securities, or other property), recapitalization, stock split, reverse
stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of
<PAGE>
7
Shares or other securities of the Company, issuance of warrants or other rights
to purchase Shares or other securities of the Company, or other similar
corporate transaction or event affects the Shares such that an adjustment is
determined by the Committee in its discretion to be appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan, then the Committee shall, in such manner as
it may deem equitable, adjust any or all of (i) the number of Shares or other
securities of the Company (or number and kind of other securities or property)
with respect to which Awards may be granted, (ii) the number of Shares or other
securities of the Company (or number and kind of other securities or property)
subject to outstanding Awards, and (iii) the grant or exercise price with
respect to any Award or, if deemed appropriate, make provision for a cash
payment to the holder of an outstanding Award in consideration for the
cancellation of such Award; provided, in each case, that no such adjustment
shall be authorized to the extent that such authority or adjustment would cause
an Award designated by the Committee as a Performance Compensation Award under
Section 11 of the Plan or an Option or Stock Appreciation Right with an exercise
price or grant price, as applicable, equal to the Fair Market Value per Share to
fail to qualify as "performance-based compensation" under Section 162(m) of the
Code.
(c) Substitute Awards. Awards may, in the discretion of the
Committee, be made under the Plan in assumption of, or in substitution for,
outstanding awards previously granted by the Company or its Affiliates or a
company acquired by the Company or with which the Company combines ("Substitute
Awards"). The number of Shares underlying any Substitute Awards shall be counted
against the aggregate number of Shares available for Awards under the Plan.
(d) Sources of Shares Deliverable Under Awards. Any Shares
delivered pursuant to an Award may consist, in whole or in part, of authorized
and unissued Shares or of treasury Shares.
SECTION 5. Eligibility. Any officer or other key employee,
director or consultant to the Company or any of its Subsidiaries (including any
prospective officer, key employee, director or consultant) shall be eligible to
be designated a Participant.
SECTION 6. Stock Options.
(a) Grant. Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to determine the Participants
to whom Options shall be granted, the number of Shares to be covered by each
Option, the exercise price therefor and the conditions and limitations
applicable to the exercise of the Option. The Committee shall have the authority
to grant Incentive Stock Options, or to grant Non-Qualified Stock Options, or to
grant both types of Options. In the case of Incentive Stock Options, the terms
and conditions of such grants shall be subject to and comply with such rules as
may be prescribed by Section 422 of the Code, as from time to time amended, and
any regulations implementing such statute. All Options
<PAGE>
8
when granted under the Plan are intended to be Non-Qualified Stock Options,
unless the applicable Award Agreement expressly states that the Option is
intended to be an Incentive Stock Option. If an Option is intended to be an
Incentive Stock Option, and if for any reason such Option (or any portion
thereof) shall not qualify as an Incentive Stock Option, then, to the extent of
such nonqualification, such Option (or portion thereof) shall be regarded as a
Non-Qualified Stock Option appropriately granted under the Plan; provided that
such Option (or portion thereof) otherwise complies with the Plan's requirements
relating to Non-Qualified Stock Options.
(b) Exercise Price. The Committee shall establish the
exercise price at the time each Option is granted, which exercise price shall
be set forth in the applicable Award Agreement.
(c) Exercise. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Committee may, in its sole
discretion, specify in the applicable Award Agreement or thereafter. The
Committee may impose such conditions with respect to the exercise of Options,
including without limitation, any relating to the application of federal or
state securities laws, as it may deem necessary or advisable. Options with an
exercise price equal to the Fair Market Value per Share as of the date of grant
are intended to qualify as "performance-based compensation" under Section 162(m)
of the Code. In the sole discretion of the Committee, Options may be granted
with an exercise price that is less than the Fair Market Value per Share and
such Options may, but need not, be intended to qualify as "performance-based
compensation" in accordance with Section 11 hereof.
(d) Payment. No Shares shall be delivered pursuant to any
exercise of an Option until payment in full of the aggregate exercise price
therefor is received by the Company. Such payment 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 6 months) or (ii) in the event there is a public
market for the Shares at such time, subject to such rules as may be established
by the Committee, through delivery of irrevocable instructions to a broker to
sell such shares and 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
any such Shares so tendered to the Company as of the date of such tender is at
least equal to such aggregate exercise price.
SECTION 7. Stock Appreciation Rights.
(a) Grant. Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to determine the Participants
to whom Stock Appreciation Rights shall be granted, the number of Shares to be
covered by each Stock Appreciation Right Award, the grant price thereof and the
conditions and limitations applicable to the exercise thereof. Stock
Appreciation Rights with a grant price equal to the Fair Market Value per Share
as of the date of grant are intended to
<PAGE>
9
qualify as "performance-based compensation" under Section 162(m) of the Code. In
the sole discretion of the Committee, Stock Appreciation Rights may be granted
with a grant price that is less than the Fair Market Value per Share and such
Stock Appreciation Rights may, but need not, be intended to qualify as
"performance-based compensation" in accordance with Section 11 hereof. Stock
Appreciation Rights may be granted in tandem with another Award, in addition to
another Award, or freestanding and unrelated to another Award. Stock
Appreciation Rights granted in tandem with or in addition to an Award may be
granted either at the same time as the Award or at a later time. Stock
Appreciation Rights shall not be exercisable earlier than six months after the
date of grant.
(b) Exercise and Payment. A Stock Appreciation Right shall
entitle the Participant to receive an amount equal to the excess of the Fair
Market Value of a Share on the date of exercise of the Stock Appreciation Right
over the grant price thereof. The Committee shall determine whether a Stock
Appreciation Right shall be settled in cash, Shares or a combination of cash and
Shares.
(c) Other Terms and Conditions. Subject to the terms of the
Plan and any applicable Award Agreement, the Committee shall determine, at or
after the grant of a Stock Appreciation Right, the term, methods of exercise,
methods and form of settlement, and any other terms and conditions of any Stock
Appreciation Right. Any such determination by the Committee may be changed by
the Committee from time to time and may govern the exercise of Stock
Appreciation Rights granted or exercised prior to such determination as well as
Stock Appreciation Rights granted or exercised thereafter. The Committee may
impose such conditions or restrictions on the exercise of any Stock Appreciation
Right as it shall deem appropriate.
SECTION 8. Restricted Stock and Restricted Stock Units.
(a) Grant. Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to determine the Participants
to whom Shares of Restricted Stock and Restricted Stock Units shall be granted,
the number of Shares of Restricted Stock and/or the number of Restricted Stock
Units to be granted to each Participant, the duration of the period during
which, and the conditions under which, the Restricted Stock and Restricted Stock
Units may be forfeited to the Company, and the other terms and conditions of
such Awards.
(b) Transfer Restrictions. Shares of Restricted Stock and
Restricted Stock Units may not be sold, assigned, transferred, pledged or
otherwise encumbered, except, in the case of Restricted Stock, as provided in
the Plan or the applicable Award Agreements. Certificates issued in respect of
Shares of Restricted Stock shall be registered in the name of the Participant
and deposited by such Participant, together with a stock power endorsed in
blank, with the Company. Upon the lapse of the restrictions applicable to such
Shares of Restricted Stock, the Company shall deliver such certificates to the
Participant or the Participant's legal representative.
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10
(c) Payment. Each Restricted Stock Unit shall have a value
equal to the Fair Market Value of a Share. Restricted Stock Units shall be paid
in cash, Shares, other securities or other property, as determined in the sole
discretion of the Committee, upon the lapse of the restrictions applicable
thereto, or otherwise in accordance with the applicable Award Agreement.
Dividends paid on any Shares of Restricted Stock may be paid directly to the
Participant, withheld by the Company subject to vesting of the Restricted Shares
pursuant to the terms of the applicable Award Agreement, or may be reinvested in
additional Shares of Restricted Stock or in additional Restricted Stock Units,
as determined by the Committee in its sole discretion.
SECTION 9. Performance Awards.
(a) Grant. The Committee shall have sole and complete
authority to determine the Participants who shall receive a "Performance Award",
which shall consist of a right which is (i) denominated in cash or Shares, (ii)
valued, as determined by the Committee, in accordance with the achievement of
such performance goals during such performance periods as the Committee shall
establish, and (iii) payable at such time and in such form as the Committee
shall determine.
(b) Terms and Conditions. Subject to the terms of the Plan and
any applicable Award Agreement, the Committee shall determine the performance
goals to be achieved during any performance period, the length of any
performance period, the amount of any Performance Award and the amount and kind
of any payment or transfer to be made pursuant to any Performance Award.
(c) Payment of Performance Awards. Performance Awards may
be paid in a lump sum or in installments following the close of the performance
period or, in accordance with procedures established by the Committee, on a
deferred basis.
SECTION 10. Other Stock-Based Awards.
(a) General. The Committee shall have authority to grant to
Participants an "Other Stock-Based Award", which shall consist of any right
which is (i) not an Award described in Sections 6 through 9 above and (ii) an
Award of Shares or an Award denominated or payable in, valued in whole or in
part by reference to, or otherwise based on or related to, Shares (including,
without limitation, securities convertible into Shares), as deemed by the
Committee to be consistent with the purposes of the Plan; provided that any such
rights must comply, to the extent deemed desirable by the Committee, with Rule
16b-3 and applicable law. Subject to the terms of the Plan and any applicable
Award Agreement, the Committee shall determine the terms and conditions of any
such Other Stock-Based Award, including the price, if any, at which securities
may be purchased pursuant to any Other Stock-Based Award granted under this
Plan.
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11
(b) Dividend Equivalents. In the sole and complete discretion
of the Committee, an Award, whether made as an Other Stock-Based Award under
this Section 10 or as an Award granted pursuant to Sections 6 through 9 hereof,
may provide the Participant with dividends or dividend equivalents, payable in
cash, Shares, other securities or other property on a current or deferred basis.
SECTION 11. Performance Compensation Awards.
(a) General. The Committee shall have the authority, at the
time of grant of any Award described in Sections 6 through 10 (other than
Options and Stock Appreciation Rights granted with an exercise price or grant
price, as the case may be, equal to the Fair Market Value per Share on the date
of grant), to designate such Award as a Performance Compensation Award in order
to qualify such Award as "Performance-Based Compensation" under Section 162(m)
of the Code. Options and Stock Appreciation Rights granted with an exercise
price or grant price, as the case may be, equal to the Fair Market Value per
Share on the date of grant shall not be subject to this Section 11 and
notwithstanding any provision of the Plan to the contrary, the Committee may not
exercise Negative Discretion with respect to any such Award.
(b) Eligibility. The Committee will, in its sole discretion,
designate within the first 90 days of a Performance Period (or, if longer,
within the maximum period allowed under Section 162(m) of the Code) which
Participants will be eligible to receive Performance Compensation Awards in
respect of such Performance Period. However, designation of a Participant
eligible to receive a Performance Compensation Award for a Performance Period
shall not in any manner entitle the Participant to receive payment in respect of
any Performance Compensation Award for such Performance Period. The
determination as to whether or not such Participant becomes entitled to payment
in respect of any Performance Compensation Award shall be decided solely in
accordance with the provisions of this Section 11. Moreover, designation of a
Participant eligible to receive a Performance Compensation Award for a
particular Performance Period shall not require designation of such Participant
as eligible to receive a Performance Compensation Award in any subsequent
Performance Period and designation of one Participant as eligible to receive a
Performance Compensation Award shall not require designation of any other
Participant as eligible to receive a Performance Compensation Award in such
period or in any other period.
(c) Discretion of Committee with Respect to Performance
Compensation Awards. With regard to a particular Performance Period, the
Committee shall have full discretion to select the length of such Performance
Period, the type(s) of Performance Compensation Awards to be issued, the
Performance Criteria that will be used to establish the Performance Goal(s), the
kind(s) and/or level(s) of the Performance Goals(s) that is(are) to apply to the
Company and the Performance Formula. Within the first 90 days of a Performance
Period (or, if longer, within the maximum period allowed under Section 162(m) of
the Code), the
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12
Committee shall, with regard to the Performance Compensation Awards to be issued
for such Performance Period, exercise its discretion with respect to each of the
matters enumerated in the immediately preceding sentence of this Section 11(c)
and record the same in writing.
(d) Payment of Performance Compensation Awards
(i) Condition to Receipt of Payment. Unless otherwise provided
in the relevant Award, a Participant must be employed by the Company on the last
day of a Performance Period to be eligible for payment in respect of a
Performance Compensation Award for such Performance Period.
(ii) Limitation. A Participant shall be eligible to receive
payment in respect of a Performance Compensation Award only to the extent that:
(1) the Performance Goals for such period are achieved; and (2) the Performance
Formula as applied against such Performance Goals determines that all or some
portion of such Participant's Performance Award has been earned for the
Performance Period.
(iii) Certification. Following the completion of a Performance
Period, the Committee shall meet to review and certify in writing whether, and
to what extent, the Performance Goals for the Performance Period have been
achieved and, if so, to calculate and certify in writing that amount of the
Performance Compensation Awards earned for the period based upon the Performance
Formula. The Committee shall then determine the actual size of each
Participant's Performance Compensation Award for the Performance Period and, in
so doing, may apply Negative Discretion, if and when it deems appropriate.
(iv) Negative Discretion In determining the actual size of an
individual Performance Award for a Performance Period, the Committee may reduce
or eliminate the amount of the Performance Compensation Award earned under the
Performance Formula in the Performance Period through the use of Negative
Discretion if, in its sole judgement, such reduction or elimination is
appropriate.
(v) Timing of Award Payments. The Awards granted for a
Performance Period shall be paid to Participants as soon as administratively
possible following completion of the certifications required by this Section 11.
(vi) Maximum Award Payable. Notwithstanding any provision
contained in this Plan to the contrary, the maximum Performance Compensation
Award payable to any one Participant under the Plan for a Performance Period is
100,000 Shares or, in the event the Performance Compensation Award is paid in
cash, the equivalent cash value thereof on the last day of the Performance
Period to which such Award relates. Furthermore, any Performance Compensation
Award that has been deferred shall not (between the date as of which the Award
is deferred and the payment date) increase (i) with respect to a Performance
Compensation Award that is payable in cash, by a measuring factor for each
fiscal year greater than a
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13
reasonable rate of interest set by the Committee or (ii) with respect to a
Performance Compensation Award that is payable in Shares, by an amount greater
than the appreciation of a Share from the date such Award is deferred to the
payment date.
SECTION 12. Amendment and Termination.
(a) Amendments to the Plan. The Board may amend, alter,
suspend, discontinue, or terminate the Plan or any portion thereof at any time;
provided that no such amendment, alteration, suspension, discontinuation or
termination shall be made without shareholder approval if such approval is
necessary to comply with any tax or regulatory requirement, including for these
purposes any approval requirement which is a prerequisite for exemptive relief
from Section 162(m) of the Code (provided that the Company is subject to the
requirements of Section 162 of the Code as of the date of such action); provided
further that no such amendment, alteration, suspension, discontinuation or
termination which impairs the rights of any Person with respect to any Award
theretofore granted shall to that extent be effective without the consent of the
affected Participant, holder or beneficiary.
(b) Amendments to Awards. The Committee may waive any
conditions or rights under, amend any terms of, or alter, suspend, discontinue,
cancel or terminate, any Award theretofore granted, prospectively or
retroactively; provided that any such waiver, amendment, alteration, suspension,
discontinuance, cancellation or termination that would impair the rights of any
Person with respect to any Award theretofore granted shall not to that extent be
effective without the consent of the affected Participant, holder or
beneficiary.
(c) Adjustment of Awards Upon the Occurrence of Certain
Unusual or Nonrecurring Events. The Committee is hereby authorized to make
adjustments in the terms and conditions of, and the criteria included in, Awards
in recognition of unusual or nonrecurring events (including, without limitation,
the events described in Section 4(b) hereof) affecting the Company, any
Affiliate, or the financial statements of the Company or any Affiliate, or of
changes in applicable laws, regulations, or accounting principles, whenever the
Committee determines that such adjustments are appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan; provided that no such adjustment shall be
authorized to the extent that such authority or adjustment would cause an Award
designated by the Committee as a Performance Compensation Award under Section 11
of the Plan to fail to qualify as "Performance-Based Compensation" under Section
162(m) of the Code.
SECTION 13. Change of Control. In the event of a Change of
Control after the date of the adoption of this Plan, any outstanding Awards then
held by Participants which are unexercisable or otherwise unvested shall
automatically be deemed exercisable or otherwise vested, as the case may be, as
of immediately prior to such Change of Control.
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14
SECTION 14. General Provisions.
(a) Nontransferability.
(i) Each Award, and each right under any Award, shall be
exercisable only by the Participant during the Participant's lifetime,
or, if permissible under applicable law, by the Participant's legal
guardian or representative.
(ii) No Award may be assigned, alienated, pledged, attached,
sold or otherwise transferred or encumbered by a Participant otherwise
than by will or by the laws of descent and distribution, and any such
purported assignment, alienation, pledge, attachment, sale, transfer or
encumbrance shall be void and unenforceable against the Company or any
Affiliate; provided that the designation of a beneficiary shall not
constitute an assignment, alienation, pledge, attachment, sale,
transfer or encumbrance.
(iii) Notwithstanding the foregoing, the Committee may
provide, in an applicable Award Agreement or at any time after the
grant of an Award, that an Award may be transferred without
consideration by the Participant, subject to such rules as the
Committee may adopt to preserve the purposes of the Plan, to (i) the
Participant's spouse, children or grandchildren (including adopted and
stepchildren and grandchildren) (collectively, the "Immediate Family");
(ii) a trust solely for the benefit of the Participant and his or her
Immediate Family; or (iii) a partnership or limited liability company
whose only partners or shareholders are the Participant and his or her
Immediate Family members (each transferee described in clauses (i),
(ii) and (iii) above is hereinafter referred to as a "Permitted
Transferee"); provided that Participant gives the Committee advance
written notice describing the terms and conditions of the proposed
transfer and the Committee notifies the Participant in writing that
such a transfer would comply with the requirements of the Plan. The
terms of the Plan and the Award transferred in accordance with the
immediately preceding sentence shall apply to the Permitted Transferee,
except that (a) Permitted Transferees shall not be entitled to transfer
the Award, other than by will or the laws of descent and distribution;
and (b) Permitted Transferees shall not be entitled to exercise all or
any portion of Award so transferred unless there shall be in effect a
registration statement on an appropriate form covering the shares, if
any, to be acquired pursuant to the exercise the Award if the Committee
determines that such a registration statement is necessary or
appropriate.
(b) No Rights to Awards. No Participant or other Person shall
have any claim to be granted any Award, and there is no obligation for
uniformity of treatment of Participants, or holders or beneficiaries of Awards.
The terms and conditions of Awards and the Committee's determinations and
interpretations with respect thereto need not be the same with respect to each
Participant (whether or not such Participants are similarly situated).
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15
(c) Share Certificates. All certificates for Shares or other
securities of the Company or any Affiliate delivered under the Plan pursuant to
any Award or the exercise thereof shall be subject to such stop transfer orders
and other restrictions as the Committee may deem advisable under the Plan or the
rules, regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which such Shares or other securities are
then listed, and any applicable Federal or state laws, and the Committee may
cause a legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
(e) Withholding. A Participant may be required to pay to the
Company or any Affiliate and the Company or any Affiliate shall have the right
and is hereby authorized to withhold from any Award, from any payment due or
transfer made under any Award or under the Plan or from any compensation or
other amount owing to a Participant the amount (in cash, Shares, other
securities, other Awards or other property) of any applicable withholding taxes
in respect of an Award, its exercise, or any payment or transfer under an Award
or under the Plan and to take such other action as may be necessary in the
opinion of the Company to satisfy all obligations for the payment of such taxes.
(f) Award Agreements. Each Award hereunder shall be evidenced
by an Award Agreement which shall be delivered to the Participant and shall
specify the terms and conditions of the Award and any rules applicable thereto,
including but not limited to the effect on such Award of the death, disability
or termination of employment or service of a Participant and the effect, if any,
of such other events as may be determined by the Committee.
(g) No Limit on Other Compensation Arrangements. Nothing
contained in the Plan shall prevent the Company or any Affiliate from adopting
or continuing in effect other compensation arrangements, which may, but need
not, provide for the grant of options, restricted stock, Shares and other types
of Awards provided for hereunder (subject to shareholder approval if such
approval is required), and such arrangements may be either generally applicable
or applicable only in specific cases.
(h) No Right to Employment. The grant of an Award shall not be
construed as giving a Participant the right to be retained in the employ of, or
in any consulting relationship to, the Company or any Affiliate. Further, the
Company or an Affiliate may at any time dismiss a Participant from employment or
discontinue any consulting relationship, free from any liability or any claim
under the Plan, unless otherwise expressly provided in the Plan or in any Award
Agreement.
(i) No Rights as Stockholder. Subject to the provisions of the
applicable Award, no Participant or holder or beneficiary of any Award shall
have any rights as a stockholder with respect to any Shares to be distributed
under the Plan until he or she has become the holder of such Shares.
Notwithstanding the foregoing, in connection with each grant of Restricted Stock
hereunder, the applicable Award
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16
shall specify if and to what extent the Participant shall not be entitled to the
rights of a stockholder in respect of such Restricted Stock.
(k) Governing Law. The validity, construction, and effect
of the Plan and any rules and regulations relating to the Plan and any Award
Agreement shall be determined in accordance with the laws of the State of
Delaware.
(l) Severability. If any provision of the Plan or any Award
is or becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction or as to any Person or Award, or would disqualify the Plan or any
Award under any law deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform the applicable laws, or if it cannot be
construed or deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan or the Award, such provision shall
be stricken as to such jurisdiction, Person or Award and the remainder of the
Plan and any such Award shall remain in full force and effect.
(m) Other Laws. The Committee may refuse to issue or transfer
any Shares or other consideration under an Award if, acting in its sole
discretion, it determines that the issuance or transfer of such Shares or such
other consideration might violate any applicable law or regulation or entitle
the Company to recover the same under Section 16(b) of the Exchange Act, and
any payment tendered to the Company by a Participant, other holder or
beneficiary in connection with the exercise of such Award shall be promptly
refunded to the relevant Participant, holder or beneficiary. Without limiting
the generality of the foregoing, no Award granted hereunder shall be construed
as an offer to sell securities of the Company, and no such offer shall be
outstanding, unless and until the Committee in its sole discretion has
determined that any such offer, if made, would be in compliance with all
applicable requirements of the U.S. federal securities laws.
(n) No Trust or Fund Created. Neither the Plan nor any Award
shall create or be construed to create a trust or separate fund of any kind or
a fiduciary relationship between the Company or any Affiliate and a Participant
or any other Person. To the extent that any Person acquires a right to receive
payments from the Company or any Affiliate pursuant to an Award, such right
shall be no greater than the right of any unsecured general creditor of the
Company or any Affiliate.
(o) No Fractional Shares. No fractional Shares shall be
issued or delivered pursuant to the Plan or any Award, and the Committee shall
determine whether cash, other securities, or other property shall be paid or
transferred in lieu of any fractional Shares or whether such fractional Shares
or any rights thereto shall be canceled, terminated, or otherwise eliminated.
(p) Headings. Headings are given to the Sections and
subsections of the Plan solely as a convenience to facilitate reference. Such
headings shall not be
<PAGE>
17
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
SECTION 15. Cancellation of Awards. Notwithstanding any other
provision of the Plan to the contrary and unless the Award Agreement specifies
otherwise, the Committee may cancel any unexpired, unpaid, deferred or
unexercised portion of an Award (whether or not vested) at any time if the
Participant is not in compliance with the following conditions:
(a) Participant shall not render services for
any organization or engage directly or indirectly in any business which, in the
judgment of the Committee, is or becomes competitive with the Company, or which
organization or business, or the rendering of services to such organization or
business, is or becomes otherwise prejudicial to or in conflict with the
interests of the Company. For a Participant whose employment has terminated,
the judgment of the Committee shall be based on the Participant's position and
responsibilities while employed by the Company, the Participant's
post-employment responsibilities and position with the other organization or
business, the extent of past, current and potential competition or conflict
between the Company and the other organization or business, the effect on the
Company's customers, suppliers and competitors of the Participant's assuming
the post-employment position, the guidelines established in any then current
employment policies of the Company and such other considerations as are deemed
relevant given the applicable facts and circumstances. A Participant shall be
free, however, to purchase as an investment or otherwise, stock or other
securities of such organization or business so long as they are listed upon a
recognized securities exchange or traded over-the-counter, and such investment
does not represent a substantial investment to the Participant or a greater
than 5 percent equity interest in the organization or business.
(b) Participant shall not, without prior
written authorization from the Company, disclose to anyone outside the Company,
or use in other than the Company's business, any confidential information or
material relating to the business of the Company, acquired by the Participant
either during or after employment with the Company.
(c) Participant shall disclose promptly and
assign to the Company all right, title, and interest in any invention or idea,
patentable or not, made or conceived by the Participant during employment by
the Company, relating in any manner to the actual or anticipated business,
research or development work of the Company and shall do anything reasonably
necessary to enable the Company to secure a patent where appropriate in the
United States and in other countries.
(d) Upon exercise, payment or delivery of an
Award, the Participant shall certify on a form acceptable to the Committee that
he or she is in compliance with the terms and conditions of the Plan. Failure
to comply with the provisions of paragraph (a), (b) or (c) above prior to, or
during the six months after,
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18
any exercise, payment or delivery pursuant to an Award shall cause such
exercise, payment or delivery to be rescinded. The Company shall notify the
Participant in writing of any such rescission within two years after such
exercise. Within 90 days after receiving such a notice from the Company, the
Participant shall pay to the Company the amount of any gain realized or payment
received as a result of the rescinded exercise, payment or delivery pursuant to
an Award. Such payment shall be made either in cash or by returning to the
Company the number of Shares that the Participant received in connection with
the rescinded exercise, payment or delivery.
SECTION 16. Term of the Plan.
(a) Effective Date. The Plan shall be effective as of the
date of its approval by the shareholders of the Company.
(b) Expiration Date. No Award shall be granted under the Plan
after December 31, 2007. Unless otherwise expressly provided in the Plan or in
an applicable Award Agreement, any Award granted hereunder may, and the
authority of the Board or the Committee to amend, alter, adjust, suspend,
discontinue, or terminate any such Award or to waive any conditions or rights
under any such Award shall, continue after December 31, 2007.
<PAGE>
[FORM AGREEMENT]
SPECIAL METALS CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT (the "Agreement"), is made effective as of the
__ day of ____________, 199_, (hereinafter called the "Date of Grant"), between
Special Metals Corporation, a Delaware corporation (hereinafter called the
"Company"), and __________________________ (hereinafter called the "Optionee"):
R E C I T A L S:
WHEREAS, the Company has adopted the Special Metals
Corporation 1997 Long Term Stock Incentive Plan (the "Plan"), which Plan is
incorporated herein by reference and made a part of this Agreement. Capitalized
terms not otherwise defined herein shall have the same meanings as in the Plan;
and
WHEREAS, the Committee has determined that it would be in the
best interests of the Company and its stockholders to grant the option provided
for herein (the "Option") to the Optionee pursuant to the Plan and the terms set
forth herein.
NOW THEREFORE, in consideration of the mutual covenants
hereinafter set forth, the parties hereto agree as follows:
1. Grant of the Option. The Company hereby grants to the Optionee the
right and option (the "Option") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate of __________ Shares,
subject to adjustment as set forth in the Plan. The purchase price of the Shares
subject to the Option shall be $______ per Share (the "Exercise Price"). The
Option is intended to be a non-qualified stock option, and is not intended to be
treated as an option that complies with Section 422 of the Internal Revenue Code
of 1986, as amended.
2. Vesting.
(a) Except as otherwise provided in this Section 2 or in
Section 4, the Option shall vest and become exercisable (i) with respect to one
half (1/2) of the aggregate number of Shares initially covered by the Option on
the second anniversary of the Date of Grant; (ii) with respect to one quarter
(1/4) of the aggregate number of Shares initially covered by the Option on the
third anniversary of the Date of Grant; and (iii) with respect to the remaing
one quarter (1/4) of the aggregate number of Shares initially covered by the
Option on the fourth anniversary of the Date of Grant.
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<PAGE>
(b) At any given time, the portion of the Option which has
become vested and exercisable as described above (or pursuant to Section 2(d),
2(e) or 2(f) below) is hereinafter referred to as the "Vested Portion".
(c) If the Optionee's employment with the Company is
terminated for any reason other than the Optionee's death, "Diability,"
"Retirement" or "Early Retirement" (each as defined below) prior to the fourth
anniversary of the Date of Grant, the Option shall, to the extent not then
vested, be canceled by the Company without consideration and the Vested Portion
of the Option shall remain exercisable for the period set forth in Section 3(a).
(d) If the Optionee's employment with the Company is
terminated because of the Optionee's death or Diability prior to the fourth
anniversary of the Date of Grant, the Option shall, to the extent not then
vested, immediately become fully vested and exercisable and shall remain
exercisable for the period set forth in Section 3(a).
(e) If the Optionee's employment with the Company is
terminated because of the Optionee's Retirement or Early Retirement prior to the
fourth anniversary of the Date of Grant, the Option shall, to the extent not
then vested, continue to vest in accordance with the schedule set forth in
Section 2(a) and, once vested, shall remain exercisable for the period set forth
in Section 3(a).
(f) Notwithstanding any other provision of this Agreement to
the contrary, in the event of a Change of Control (as defined in the Plan) the
Option shall, to the extent not then vested, immediately become fully vested and
exercisable as contemplated by Section 13 of the Plan.
3. Exercise of Option.
(a) Period of Exercise. Subject to the provisions of the
Plan, the Optionee may exercise all or any part of the Vested Portion of the
Option at any time only prior to the earliest to occur of:
(i) the tenth anniversary of the Date of Grant;
(ii) one year following the date of the Optionee's
termination of employment due to death;
(iii) three years following the date of the
Optionee's termination of employment due to Disability;
(iv) the date of the Optionee's termination of
employment by the Company for Cause; and
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<PAGE>
(v) 90 days following the date of the Optionee's
resignation of employment by the Optionee for any reason other than Retirement
or Early Retirement.
For purposes of this agreement:
"Cause" shall mean "Cause" as defined in any employment
agreement then in effect between the Optionee and the Company or if not defined
therein or, if there shall be no such agreement, (i) Optionee's engagement in
misconduct which is materially injurious to the Company or its affiliates, (ii)
Optionee's continued failure to substantially perform his or her duties to the
Company, (iii) Optionee's repeated dishonesty in the performance of his or her
duties to the Company, (iv) Optionee's commission of an act or acts constituting
(x) a fraud against, or misappropriation or embezzlement from, the Company or
any of its affiliates, (y) a crime involving moral turpitude, or (z) an offense
that could result in a jail sentence of at least 30 days or (v) Optionee's
material breach of any confidentiality or non-competition covenant entered into
between the Optionee and the Company. The determination of the existence of
Cause shall be made by the Committee in good faith, which determination shall be
conclusive for purposes of this Agreement; and
"Disability" shall mean "disability" as defined in any
employment agreement then in effect between the Optionee and the Company or if
not defined therein or if there shall be no such agreement, as defined in the
Company's long-term disability plan as in effect from time to time, or if there
shall be no plan or if not defined therein, the Optionee's becoming physically
or mentally incapacitated and consequent inability for a period of six (6)
months in any twelve (12) consecutive month period to perform his or her duties
to the Company.
"Retirement" and "Early Retirement" shall mean "retirement"
and "early retirement" as respectively defined under the Company's pension plan
for salaried employees, as amended from time to time, or if there shall be no
such plan or if not defined therein, as provided for in any successor plan or
employee policy of the Company.
(b) Method of Exercise.
(i) Subject to Section 3(a) and Section 8, the
Vested Portion of the Option may be exercised by delivering to the Company at
its principal office written notice of intent to so exercise; provided that,
the Option may be exercised with respect to whole Shares only. Such notice
shall specify the number of Shares for which the Option is being exercised and
shall be accompanied by payment in full of the Exercise Price. The payment of
the Exercise Price shall be made in cash or its equivalent, or (i) by
exchanging Shares owned by the Optionee (which are not the
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<PAGE>
subject of any pledge or other security interest and which have been owned by
the Optionee for at least 6 months), or (ii) through delivery to the Company of
irrevocable instructions to a broker to sell the securities issued upon exercise
of the Option and to deliver promptly to the Company an amount equal to the
aggregate exercise price upon the sale of such securities, subject to such
limitations and prohibitions as the Committee may adopt from time to time, or by
a combination of the foregoing, provided that the combined value of all cash and
cash equivalents and the Fair Market Value of any such Shares so tendered to the
Company as of the date of such tender is at least equal to the aggregate
Exercise Price.
(ii) Notwithstanding any other provision of the
Plan or this Agreement to the contrary, the Option may not be exercised prior
to the completion of any registration or qualification of the Option or the
Shares under applicable state and federal securities or other laws, or under
any ruling or regulation of any governmental body or national securities
exchange that the Committee shall in its sole discretion determine to be
necessary or advisable.
(iii) Upon the Company's determination that the
Option has been validly exercised as to any of the Shares, the Company shall
issue certificates in the Optionee's name for such Shares. However, the Company
shall not be liable to the Optionee for damages relating to any delays in
issuing the certificates to him or her, any loss of the certificates, or any
mistakes or errors in the issuance of the certificates or in the certificates
themselves.
(iv) In the event of the Optionee's death, the
Vested Portion of the Option shall remain exercisable by the Optionee's
executor or administrator, or the person or persons to whom the Optionee's
rights under this Agreement shall pass by will or by the laws of descent and
distribution as the case may be, to the extent set forth in Section 3(a). Any
heir or legatee of the Optionee shall take rights herein granted subject to the
terms and conditions hereof.
4. Cancellation of Option. Notwithstanding any other provision
of the Plan or this Agreement to the contrary, the Committee may cancel any
unexercised portion of the Option (whether or not vested) at any time if the
Optionee is not in compliance with the following conditions:
(a) Optionee shall not render services for any
organization or engage directly or indirectly in any business which, in the
judgment of the Committee, is or becomes competitive with the Company, or which
organization or business, or the rendering of services to such organization or
business, is or becomes otherwise prejudicial to or in conflict with the
interests of the Company. For an Optionee whose employment has terminated, the
judgment of the Committee shall be based on the Optionee's position and
responsibilities while employed by the Company, the Optionee's post-employment
responsibilities and position with the other
4
<PAGE>
organization or business, the extent of past, current and potential competition
or conflict between the Company and the other organization or business, the
effect on the Company's customers, suppliers and competitors of the Optionee's
assuming the post-employment position, the guidelines established in any then
current employment policies of the Company and such other considerations as are
deemed relevant given the applicable facts and circumstances. An Optionee shall
be free, however, to purchase as an investment or otherwise, stock or other
securities of such organization or business so long as they are listed upon a
recognized securities exchange or traded over-the-counter, and such investment
does not represent a substantial investment to the Optionee or a greater than 5
percent equity interest in the organization or business.
(b) Optionee shall not, without prior written
authorization from the Company, disclose to anyone outside the Company, or use
in other than the Company's business, any confidential information or material
relating to the business of the Company, acquired by the Optionee either during
or after employment with the Company.
(c) Optionee shall disclose promptly and assign
to the Company all right, title, and interest in any invention or idea,
patentable or not, made or conceived by the Optionee during employment by the
Company, relating in any manner to the actual or anticipated business, research
or development work of the Company and shall do anything reasonably necessary
to enable the Company to secure a patent where appropriate in the United States
and in other countries.
(d) Upon exercise or other settlement of all or
any portion of the Option pursuant to this Agreement, the Optionee shall
certify on a form acceptable to the Committee that he or she is in compliance
with the terms and conditions of this Agreement and the Plan. Failure to comply
with the provisions of paragraph (a), (b) or (c) above prior to, or during the
six months after, any exercise or other settlement of the Option shall cause
such exercise or other settlement to be rescinded. The Company shall notify the
Optionee in writing of any such rescission within two years after such exercise
or other settlement. Within 90 days after receiving such a notice from the
Company, the Optionee shall pay to the Company the amount of any gain realized
or payment received as a result of the rescinded exercise or other settlement.
Such payment shall be made either in cash or by returning to the Company the
number of Shares that the Optionee received in connection with the rescinded
exercise or other settlement.
5. No Right to Continued Employment. Neither the Plan nor this
Agreement shall be construed as giving the Optionee the right to be retained in
the employ of, or in any consulting relationship to, the Company or any
Affiliate. Further, the Company or an Affiliate may at any time dismiss the
Optionee or
5
<PAGE>
discontinue any consulting relationship, free from any liability or any claim
under the Plan or this Agreement, except as otherwise expressly provided herein.
6. Transferability of Option. The Option may not be assigned,
alienated, pledged, attached, sold or otherwise transferred or encumbered by the
Optionee otherwise than by will or by the laws of descent and distribution, and
any such purported assignment, alienation, pledge, attachment, sale, transfer or
encumbrance shall be void and unenforceable against the Company or any
Affiliate; provided that the designation of a beneficiary shall not constitute
an assignment, alienation, pledge, attachment, sale, transfer or encumbrance. No
such permitted transfer of the Option to heirs or legatees of the Optionee shall
be effective to bind the Company unless the Committee shall have been furnished
with written notice thereof and a copy of such evidence as the Committee may
deem necessary to establish the validity of the transfer and the acceptance by
the transferee or transferees of the terms and conditions hereof. During the
Optionee's lifetime, the Option is exercisable only by the Optionee, or if
permissabel under applicable law, by the Participant's legal guardian or
representative.
7. Transferability of Option Shares. Neither the Optionee nor any
transferee of the Optionee shall sell or otherwise transfer any Shares received
upon exercise of the Option, except in accordance with the following procedure.
The Optionee shall deliver to the Secretary of the Company a notice of sale (the
"Notice of Sale") stating the Optionee's name and the number of Shares he or she
desires to sell. Upon receipt of a Notice of Sale, the Company shall have the
right and option, for a period ending at 3:30 P.M. on the next business day
following receipt of the Notice of Sale, to purchase all or a portion of the
Shares referred to in the Notice of Sale at the Fair Market Value of the Shares
on the day that the Notice of Sale is received by the Company. In the event that
the Company exercises its right to purchase any or all of the Shares referred to
in the Notice of Sale, such purchase shall be made at the offices of the Company
on the third business day following the day on which the Company notifies
Optionee of the exercise of its right hereunder or on another mutually
satisfactory business day, provided that Optioneee has received all necessary
consents and other approvals and is able to transfer good title to the Shares to
be purchased by the Company. Delivery of certificates or other instruments
evidencing such Shares, duly endorsed for transfer, shall be made on such date
against payment of the purchase price therefor due at the closing.
8. Withholding. The Optionee agrees as a condition to the exercise of
the Option to make appropriate arrangements with the Company for satisfaction of
any applicable federal, state or local income tax, withholding requirements or
like requirements, including the payment to the Company at the time of exercise
of, or other settlement in respect of, the Option of all such taxes and
requirements and the Company shall be authorized to take such action as may be
necessary in the opinion of the Company's counsel (including, without
limitation, withholding Shares otherwise
6
<PAGE>
deliverable to the Optionee hereunder and/or withholding amounts from any
compensation or other amount owing from the Company to the Optionee) to satisfy
all obligations for the payment of such taxes.
9. Securities Laws. Upon the acquisition of any Shares pursuant to the
exercise of the Option, Optionee will make or enter into such written
representations, warranties and agreements as the Committee may reasonably
request in order to comply with applicable securities laws or with this
Agreement.
10. Legend on Certificates. The certificates representing the Shares
purchased by exercise of the Option shall be subject to such stop transfer
orders and other restrictions as the Committee may deem advisable under this
Agreement, the Plan or the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which such Shares
are listed, and any applicable Federal or state laws, and the Committee may
cause a legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
11. Notices. Any notice necessary under this Agreement shall be
addressed to the Company in care of its Secretary at the principal executive
office of the Company and to the Optionee at the address appearing in the
personnel records of the Company for such Optionee or to either party at such
other address as either party hereto may hereafter designate in writing to the
other. Any such notice shall be deemed effective upon receipt thereof by the
addressee.
12. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
13. Option Subject to Plan. By entering into this Agreement the
Optionee agrees and acknowledges that the Optionee has received and read a copy
of the Plan. The Option is subject to the Plan. The terms and provisions of the
Plan as it may be amended from time to time are hereby incorporated herein by
reference. In the event of a conflict between any term or provision contained
herein and a term or provision of the Plan, the applicable terms and provisions
of the Plan will govern and prevail.
7
<PAGE>
14. Signature in Counterparts. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement.
SPECIAL METALS CORPORATION
By:__________________________
----------------
[Optionee]
8
<PAGE>
Exhibit 10.17
December 30, 1994
Dr. Donald R. Muzyka
590 Galen Hall Road
Reinholds, Pennsylvania 17569
Re: Amended and Restated Employment Agreement
Dear Dr. Muzyka:
Reference is made to the employment agreement, dated December
6, 1989, as amended by letter agreements, dated January 23, 1993 and September
28, 1994, between Special Metals Corporation (hereinafter referred to as the
"Company") and you (as so amended, the "Employment Agreement"). The Board of
Director desires, and by your signature below you have indicated that you are
agreeable, to amend and restate the Employment Agreement to read as follows:
1. You shall serve the Company's President, and Chief
Operating Officer, or in such other senior executive positions reasonably
acceptable to you as the Company may direct, performing all duties reasonably or
necessarily relating to your position or as shall be assigned to you from time
to time by the Company, devoting your best energies and abilities to the
performance of such duties. If such positions are not reasonably acceptable to
you, you may terminate this Agreement and your employment hereunder by giving
the Company written notice and such termination shall be treated as a
termination for reasons other than cause under paragraph 10 and you shall be
entitled to the benefits described in paragraph 10 during the Severance Period
(as therein defined). You have been appointed to the Boards of Directors of the
Company and Special Metals and Technologies Corporation, its holding company,
and shall enjoy the duties and privileges of such directorships as provided by
the by-laws of these respective corporations. You shall serve on these Boards
without further compensation.
2. Your employment with the Company commenced on January 1,
1990 and shall continue, except as otherwise provided in paragraph 10, for
eighteen (18) months from the date you receive advance written notice of
termination from the Company.
3. Your base salary shall be One Hundred and Eighty-Three
Thousand Nine Hundred and Ninety-Six Dollars ($183,996) per annum (which is
presently subject to a temporary 6% reduction until such time as the Company may
determine otherwise), payable in periodic installments no less frequently than
on a monthly basis. You shall be eligible for a salary review based on your
performance periodically during the term of this Agreement. Salary reviews will
be in accordance with the Company's salary review policy then applicable.
<PAGE>
Dr. Donald R. Muzyka
4. During the term of this Agreement you shall be eligible to
participate in the Company's bonus and profit sharing plans to the extent that
such plans are offered by the Company to its employees and pursuant to such
plans' terms and conditions.
5. The Company has provided and shall continue to provide you
with the potential to receive an equity interest as described in the Special
Metals Corporation Equity Appreciation Rights Plan, dated December 6, 1989, a
copy of which has been previously provided to you and is incorporated herein. As
provided in Section 5.6(g) of such Plan, in the event of a "Change of Control"
(as such term is defined in Section 3.1(d) thereof), you will 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 such Section for a period of 60 days following the date of the Change of
Control.
6. The Company has offered and shall continue to offer you
participation in its Salaried Pension Plan in addition to a supplemental plan as
described in the documents entitled Supplemental Executive Retirement Program
Study and Special Metals Corporation Supplemental Retirement Income Plan, dated
December 6, 1989, a copy of which has been previously provided to you and is
incorporated herein. As provided in Article IV of such Plan, in the event you
terminate your employment by reason of a "Change of Control" (as such term is
defined in Section 2.1(D) thereof), your right to receive a benefit thereunder
will become 100% vested and payable pursuant thereto.
7. The Company shall provide you with those of its standard
employee benefits plans which have been previously explained to you. During the
term of this Agreement you will be eligible to participate in such employee
benefits plans, pursuant to their respective terms and conditions as they may be
modified from time to time.
8. The Company will reimburse you for your use of your
personal car for Company business when automobile transportation is called for
and it is reasonable to expect you to use your personal car. Such reimbursement
shall be at the mileage rate typically paid at the time by the Company for
reimbursement for use of a personal car for Company business. In addition, the
Company will reimburse you for club memberships pursuant to the terms of its
applicable policy relating to same.
9. The Company and any successor thereto shall honor the
provisions of this Agreement in the event that during its term a "change of
control" occurs. For the purposes of this Agreement, a "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
2
<PAGE>
Dr. Donald R. Muzyka
ownership or voting rights with respect to more than fifty percent of the then
outstanding capital stock of the Company to be transferred. Such transaction or
transactions shall include without limitation: (i) a consolidation or merger of
the Company with or into another corporation; (ii) the sale or transfer of (a)
all or substantially all of the Company's assets or (b) 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) the effective change of control from Aubert et Duval to
another entity. A "change of control" shall not include any trans action or
series of related transactions within Aubert et Duval or between the
shareholders of Aubert et Duval.
10. During the term of this Agreement, the Company may
terminate it and discharge you for cause upon 30 days written notice to you from
the Company. Upon written notice to you from the Company of a termination for
reasons other than other than cause during the term of this Agreement, the
Company shall provide you with: eighteen (18) months (the "Severance Period")
severance pay at your then current salary (but in no event less than $183,996
per annum), payable in accordance with the Company's normal payroll cycle; bonus
and profit sharing payments, subject to the terms of the Company's bonus and
profit sharing plans, if any; the continuance of employee benefits during the
Severance Period; and appropriate out-placement services for a reasonable period
of time in any event not to exceed six months. After providing notice of
termination of this Agreement for reasons other than cause during its term, the
Company may not assign you any duties or responsibilities (it being understood
that you shall have time to seek other suitable employment).
11. You agree that in consideration of your employment by the
Company and the salary and other values paid to you during the Employment
Period, you will (a) disclose to the Company all "inventions" of any class (as
hereafter defined) which you have made or may hereafter make, (b) make, at the
Company's expense, such applications for United States and foreign patents
covering said inventions as the Company may request, (c) assign to the Company
without further compensation to you the entire title and right to all said
inventions and applications, and (d) execute, acknowledge and deliver at the
request of the Company all papers, including patent applications, assignments
and applications for reissue and do all other rightful acts which the Company
may consider necessary to secure to the Company the fullest rights to said
inventions and to patents in the United States and foreign countries covering
the same. The "inventions" which shall come under this Agreement shall include
all inventions conceived or developed by you either solely or jointly with
others during the Employment Period and for one year thereafter which either (i)
are made in the performance of your duties to which you are assigned during the
Employment Period, (ii) are made with the use of the time, material or
facilities of the Company, or (iii) relate to any apparatus, method, process,
substance, or article of manufacture within the scope of or usable in connection
with the
3
<PAGE>
Dr. Donald R. Muzyka
Company's field of activity or contemplated field of activity, including the
subject matter of any manufacturing, selling, testing, research, or experimental
activity. You further agree to hold in strict confidence and not to divulge to
others nor to make use thereof, except for the purposes of the Company, both
during and after the Employment Period any and all confidential information
obtained in the course of your employment and concerning the Company's methods
of manufacture, machines, products, designs, drawings, patterns, formulas,
engineering or test data, inventions, patent applications, or other confidential
subject matter of the Company.
12. This Agreement is made and entered into in the State of
New York and the laws of New York State shall govern its validity and
interpretation and the performance by the parties hereto of their respective
duties and obligations hereunder. In the event that any provision or portion of
this Agreement shall be determined to be invalid or unenforceable for any
reason, the remaining provisions of this Agreement shall be unaffected thereby
and shall remain in full force and effect. This Agreement and its attachments
and the documents between the parties respecting your employment and there are
no representations, warranties or commitments, except as set forth herein. This
Agreement may be amended only by an instrument in writing executed by the
parties hereto.
If the foregoing is acceptable to you, please execute the
duplicate original of this letter in the space provided below and return one
fully executed original to me.
Very truly yours,
SPECIAL METALS CORPORATION
By: /s/ Robert D. Halverstadt
------------------------------
Robert D. Halverstadt
Chairman of the Board
ACCEPTED AND AGREED to
this 30th day of December, 1994.
/s/ Donald R. Muzyka
- --------------------------------
Donald R. Muzyka
4
<PAGE>
Exhibit 10.18
December 30, 1994
Mr. Robert F. Dropkin
Vice President, Secretary and
Chief Legal Counsel
Special Metals Corporation
4317 Middle Settlement Road
New Hartford, New York 13413-9576
Re: Amended and Restated Employment Agreement
Dear Mr. Dropkin:
Reference is made to the employment agreement, dated January
4, 1988, as amended by letter agreements, dated March 26, 1992 and April 21,
1994, between Special Metals Corporation (hereinafter referred to as the
"Company") and you (as so amended, the "Employment Agreement"). The Company
desires, and by your signature below you have indicated that you are agreeable,
to amend and restate the Employment Agreement to read as follows:
1. You shall serve the Company as Vice President, Secretary
and Chief Legal Counsel, or in such other executive positions as the
Company may direct, performing all duties relating to your position or
as shall be assigned to you from time to time by the Company, using
your best energies and abilities in the performance of such duties.
2. The employment period (hereinafter referred to as the
"Employment Period") shall continue for eighteen (18) months from the
date you receive advance written notice of termination from the
Company; or, alternatively, for ninety (90) days from the date the
Company receives advance written notice of termination from you. The
Employment Period shall, however, terminate upon two (2) months advance
written notice from the Company if you, in the Company's judgement,
with the Company acting in good faith and upon reasonable grounds, and
after advance written notice of failure from the Company, fail to
adhere to the terms and conditions of this Agreement or should you
engage in conduct which would injure the reputation of the Company or
otherwise materially and adversely affect its interest if you were
retained as an employee. The Employment Period shall, likewise,
terminate upon six (6) months advance written notice from the Company
if you, in the Company's judgement, with the Company acting in good
faith and upon reasonable grounds, are unable, for a period of six (6)
months, to effectively perform your duties by reason of illness or
incapacity, or if you should die. The date of death shall be construed
to be the date of advance written notice of termination. In the event
of death, all salary owed to you shall be paid to your widow, or, if
none, to your estate. Upon notice of
<PAGE>
2
termination from the Company for reasons other than cause during the
Employment Period, the Company shall provide you with eighteen (18)
months (the "Severance Period") severance pay at your then current
salary (but in no event less than $111,948 per annum), payable in
accordance with the Company's normal payroll cycle; bonus and profit
sharing payments, subject to the terms of the Company's bonus and
profit sharing plans, if any; the continuance of employee benefits
(including health, dental, vision care and life insurance) during the
Severance Period; and appropriate out-placement services for a
reasonable period of time in any event not to exceed six months. After
providing notice of termination of this Agreement for reasons other
than cause during its term, the Company may not assign you any duties
or responsibilities (it being understood that you shall have time to
seek other suitable employment).
A termination for cause is defined as: (i) your willful
misconduct in respect of your 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 county of
licensure) which in the opinion of the Company interferes with your
ability to perform your assigned duties and responsibilities.
3. During the Employment Period, you shall receive as
compensation for your services a salary, payable at a rate of One
Hundred Eleven Thousand Nine Hundred Forty Eight Dollars ($111,948) per
annum (which is presently subject to a temporary 6% reduction until
such time as the Company may determine otherwise) or such higher amount
as the Company, at its sole discretion, may determine. Your salary
shall be reviewed in accordance with standard Company policy for
adjustment during each successive January during the Employment Period.
You shall also be entitled to participate in such employee benefit
plans, including bonus and profit sharing plans, as the Company may,
from time to time, maintain for its salaried employees in grade level
33. In addition, you shall be entitled to reimbursement for use of your
personal car for Company business when automobile transportation is
called for and it is reasonable to expect you to use your personal car.
Such reimbursement shall be at the mileage rate typically paid at the
time by the Company for reimbursement for use of a personal car for
Company business.
<PAGE>
3
4. You shall not, so long as the Company is obligated to pay
you a salary, whether as principal or as agent, officer, director,
employee, consultant, or otherwise, alone or in association with any
other person, corporation or other entity, render services to any
person, corporation or other entity engaged in any business similar to
the business carried on by the Company, except in the course of your
employment by the Company or with the prior written consent of the
Company.
5. You agree that in consideration of your employment by the
Company and the salary and other values paid to you during the
Employment Period, you will (a) disclose to the Company all
"inventions" of any class (as hereafter defined) which you have made or
may hereafter make, (b) make, at the Company's expense, such
applications for United States and foreign patents covering said
inventions as the Company may request, (c) assign to the Company
without further compensation to you the entire title and right to all
said inventions and applications, and (d) execute, acknowledge and
deliver at the request of the Company all papers, including patent
applications, assignments and applications for reissue and do all other
rightful acts which the Company may consider necessary to secure to the
Company the fullest rights to said inventions and to patents in the
United States and foreign countries covering the same. The "inventions"
which shall come under this Agreement shall include all inventions
conceived or developed by you either solely or jointly with others
during the Employment Period and for one year thereafter which either
(i) are made in the performance of your duties to which you are
assigned during the Employment Period, (ii) are made with the use of
the time, material or facilities of the Company, or (iii) relate to any
apparatus, method, process, substance, or article of manufacture within
the scope of or usable in connection with the Company's field of
activity or contemplated field of activity, including the subject
matter of any manufacturing, selling, testing, research, or
experimental activity. You further agree to hold in strict confidence
and not to divulge to others nor to make use thereof, except for the
purposes of the Company, both during and after the Employment Period
any and all confidential information obtained in the course of your
employment and concerning the Company's methods of manufacture,
machines, products, designs, drawings, patterns, formulas, engineering
or test data, inventions, patent applications, or other confidential
subject matter of the Company.
6. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
7. This Agreement shall inure to the benefit of, and be
binding upon, the Company and its successors and assigns, and upon you
and your executors, administrators, heirs and legal representatives.
The Company and any successor thereto shall honor the provisions of
this Agreement in the event that during the Employment Period a "change
of control" occurs. For the
<PAGE>
4
purposes of this Agreement, a "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 of the then outstanding capital stock of the
Company to be transferred. Such transaction or transactions shall
include without limitation: (i) a consolidation or merger of the
Company with or into another corporation; (ii) the sale or transfer of
(a) all or substantially all of the Company's assets or (b) 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) the effective change
of control from Aubert et Duval to another entity. A "change of
control" shall not include any trans action or series of related
transactions within Aubert et Duval or between the shareholders of
Aubert et Duval.
If the foregoing is acceptable to you, please execute the
duplicate original of this letter in the space provided below and return one
fully executed original to us.
Very truly yours,
SPECIAL METALS CORPORATION
By: /s/ Donald R. Muzyka
-----------------------------
Donald R. Muzyka
President & Chief Operating
Officer
Accepted and agreed to this 30th
day of December, 1994.
/s/ Robert F. Dropkin
- ---------------------------------
Robert F. Dropkin
<PAGE>
Exhibit 10.19
January 4, 1988
Dr. Gernant E. Maurer
Vice President, Quality Assurance & Technology
Special Metals Corporation
Middle Settlement Road
New Hartford, NY 13413
Re: EMPLOYMENT AGREEMENT
Dear Dr. Maurer:
Special Metals Corporation (hereinafter referred to as the
"Company") is pleased to offer you employment for an employment period
(hereinafter referred to as the "Employment Period") commencing January 1, 1988,
in accordance with the following terms:
1. You shall serve the Company as Vice President, Quality
Assurance and Technology, or in such other executive positions as the Company
may direct, performing all duties relating to your position or as shall be
assigned to you from time to time by the Company, using your best energies and
abilities in the performance of such duties.
2. The Employment Period shall continue through the latter of
(a) December 31, 1989 or (b) one (1) year from the date you receive written
notice of termination from the Company; or, alternatively, for one hundred and
eighty (180) days from the date the Company receives advance written notice of
termination from you. The Employment Period shall, however, terminate upon two
(2) months advance written notice from the Company if you, in the Company's
judgment, with the Company acting in good faith and upon reasonable grounds, and
after-written notice of failure from the Company, fail to adhere to the terms
and conditions hereunder or should you engage in conduct which would injure the
reputation of the Company or otherwise materially and adversely affect its
interest if you were retained as an employee. The Employment Period shall,
likewise, terminate upon six (6) months advance written notice if you, in the
Company's judgment, with the Company acting in good faith and upon reasonable
grounds, are unable, for a period of six (6) months, to effectively perform your
duties by reason of illness or incapacity, or should you die. The date of death
shall be construed to be the date of written notice of termination. In the event
of death, all salary owed to you shall be paid to your widow, or, if none, to
your estate.
<PAGE>
Dr. Gernant E. Maurer
Vice President, Quality Assurance and Technology
Page -2-
3. During the Employment Period, you shall receive as
compensation for your services a salary, payable at a rate of Seventy Seven
Thousand Three Hundred Seventy-Six Dollars ($77,376.00) per annum or such higher
amount as the Company, at its sole discretion, may determine. You shall also be
entitled to participate in such employee benefit plans, including bonus plans,
as the Company may, from time to time, maintain for its salaried employees in
job level 34; and shall, in addition, receive the use of a Company car of the
Company's choosing and membership in the Yahnundasis Golf Club. Your salary
shall be reviewed in accordance with standard Company policy for adjustment
during FY88 and in January of 1989 and in each successive January during the
Employment Period.
4. You shall not, so long as the Company is obligated to pay
you a salary, whether as principal or as agent, officer, director, employee,
consultant, or otherwise, alone or in association with any other person,
corporation or other entity, render services to any person, corporation or other
entity engaged in any business similar to the business carried on by the
Company, except in the course of your employment by the Company or with the
prior written consent of the Company.
5. You shall abide by the terms of Special Metals standard
Employee Agreement pertaining to confidential information and inventions, a copy
of which is attached hereto.
6. The terms hereof shall be governed by and construed in
accordance with the laws of the State of New York.
If the foregoing is acceptable to you, please execute the
duplicate originals of this letter in the space provided below and return one
fully executed original to us.
Very truly yours,
SPECIAL METALS CORPORATION
/s/ Ronald L. Van Meter
----------------------------------
Ronald L. Van Meter
President & Chief Operating Officer
Accepted and agreed to this 22nd day of January, 1988.
/s/ Gernant E. Maurer
----------------------------
Gernant E. Maurer
<PAGE>
[Letterhead of Special Metals Corporation]
March 26, 1992
Dr. Gernant E. Maurer
Special Metals Corporation
4317 Middle Settlement Road
New Hartford, NY 13413-9576
Re: EMPLOYMENT AGREEMENT
Dear Gern:
Reference is made to your Employment Agreement dated January 4,
1988.
Special Metals Corporation proposes a revision to your Employment
Agreement. The Company is offering to pay you additional gross income of One
Thousand Fifty Dollars ($1,050.00) per month in return for surrendering your
Company car (and all benefits associated therewith) and your Company paid
Yahnundasis Golf Club membership.
The revision to your Employment Agreement shall be effective as of
May 1, 1992. You shall surrender your Company car by April 30, 1992 unless you
and the Company come to terms for the purchase thereof.
You shall use a personal car for Company business when automobile
transportation is called for and it is reasonable to expect you to use your
personal car. Reimbursement shall be made to you at fifty percent (50%) of the
mileage rate typically paid at the time by the Company for reimbursement for use
of a personal car for Company business.
As a One Hundred Dollar ($100.00) Yahnundasis Golf Club Membership
Certificate and a Fifteen Hundred Dollar ($1,500.00) Bond Certificate purchased
by the Company for you are refundable to you, you agree to reimburse the
Company for Sixteen Hundred Dollars ($1,600.00) in accordance with the attached
letter dated March 3, 1988.
<PAGE>
Dr. Gernant E. Maurer
March 26, 1992
Page -2-
If the proposed offer and terms in this letter are acceptable to
you, we ask that you execute the duplicate originals in the space provided
below, have your signature attested to, and return one fully executed original
to us.
Very truly yours,
SPECIAL METALS CORPORATION
/s/ Donald R. Muzyka
Donald R. Muzyka
President
Accepted and agreed to this 26 day of March, 1992.
Attested to:
/s/ S. L. Miazga /s/ Gernant E. Maurer
- ------------------------ ------------------------------
Gernant E. Maurer
<PAGE>
April 21, 1994
Memo to: G.E. Maurer
From: D. R. Muzyka
Subject: EMPLOYMENT AGREEMENT
Reference is made to a letter dated March 26, 1992 which
modified your Employment Agreement with respect to a Company car and Club
membership.
Special Metals is hereby modifying the fourth paragraph of the
March, 1992 letter to read as follows:
"You shall use a personal car for Company business when
automobile transportation is called for and it is reasonable
to expect you to use your personal car. Reimbursement shall be
made to you at the mileage rate typically paid at the time by
the Company for reimbursement for use of a personal car for
Company business."
effective May 1, 1994. The words "fifty percent (50%) of" appearing before "the
mileage rate" have been deleted.
/s/ D. R. Muzyka
D. R. Muzyka
<PAGE>
Exhibit 10.20
December 30, 1994
Mr. Donald C. Darling
Vice President, Administration and
Chief Financial Officer
Special Metals Corporation
4317 Middle Settlement Road
New Hartford, New York 13413-9576
Re: Amended and Restated Employment Agreement
Dear Mr. Darling:
Reference is made to the employment agreement, dated June 26,
1994, as amended by letter agreements, dated March 26, 1992 and April 21, 1994,
between Special Metals Corporation (hereinafter referred to as the "Company")
and you (as so amended, the "Employment Agreement"). The Company desires, and by
your signature below you have indicated that you are agreeable, to amend and
restate the Employment Agreement to read as follows:
1. You shall serve the Company as Vice President,
Administration and Chief Financial Officer, or in such other executive
positions as the Company may direct, performing all duties relating to
your position or as shall be assigned to you from time to time by the
Company, using your best energies and abilities in the performance of
such duties.
2. The employment period (hereinafter referred to as the
"Employment Period") shall continue for eighteen (18) months from the
date you receive advance written notice of termination from the
Company; or, alternatively, for ninety (90) days from the date the
Company receives advance written notice of termination from you. The
Employment Period shall, however, terminate upon two (2) months advance
written notice from the Company if you, in the Company's judgement,
with the Company acting in good faith and upon reasonable grounds, and
after advance written notice of failure from the Company, fail to
adhere to the terms and conditions of this Agreement or should you
engage in conduct which would injure the reputation of the Company or
otherwise materially and adversely affect its interest if you were
retained as an employee. The Employment Period shall, likewise,
terminate upon six (6) months advance written notice from the Company
if you, in the Company's judgement, with the Company acting in good
faith and upon reasonable grounds, are unable, for a period of six (6)
months, to effectively perform your duties by reason of illness or
incapacity, or if you should die. The date of death shall be construed
to be the date of advance written notice of termination. In the event
of death, all salary owed to you shall be paid to your widow, or, if
none, to your estate. Upon notice of
<PAGE>
2
termination from the Company for reasons other than cause during the
Employment Period, the Company shall provide you with eighteen (18)
months (the "Severance Period") severance pay at your then current
salary (but in no event less than $101,864 per annum), payable in
accordance with the Company's normal payroll cycle; bonus and profit
sharing payments, subject to the terms of the Company's bonus and
profit sharing plans, if any; the continuance of employee benefits
(including health, dental, vision care and life insurance) during the
Severance Period; and appropriate out-placement services for a
reasonable period of time in any event not to exceed six months. After
providing notice of termination of this Agreement for reasons other
than cause during its term, the Company may not assign you any duties
or responsibilities (it being understood that you shall have time to
seek other suitable employment).
A termination for cause is defined as: (i) your willful
misconduct in respect of your 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 county of
licensure) which in the opinion of the Company interferes with your
ability to perform your assigned duties and responsibilities.
3. During the Employment Period, you shall receive as
compensation for your services a salary, payable at a rate of One
Hundred One Thousand Eight Hundred Sixty Four Dollars ($101,864) per
annum (which is presently subject to a temporary 6% reduction until
such time as the Company may determine otherwise) or such higher amount
as the Company, at its sole discretion, may determine. Your salary
shall be reviewed in accordance with standard Company policy for
adjustment during each successive January during the Employment Period.
You shall also be entitled to participate in such employee benefit
plans, including bonus and profit sharing plans, as the Company may,
from time to time, maintain for its salaried employees in grade level
34. In addition, you shall be entitled to reimbursement for use of your
personal car for Company business when automobile transportation is
called for and it is reasonable to expect you to use your personal car.
Such reimbursement shall be at the mileage rate typically paid at the
time by the Company for reimbursement for use of a personal car for
Company business.
<PAGE>
3
4. You shall not, so long as the Company is obligated to pay
you a salary, whether as principal or as agent, officer, director,
employee, consultant, or otherwise, alone or in association with any
other person, corporation or other entity, render services to any
person, corporation or other entity engaged in any business similar to
the business carried on by the Company, except in the course of your
employment by the Company or with the prior written consent of the
Company.
5. You agree that in consideration of your employment by the
Company and the salary and other values paid to you during the
Employment Period, you will (a) disclose to the Company all
"inventions" of any class (as hereafter defined) which you have made or
may hereafter make, (b) make, at the Company's expense, such
applications for United States and foreign patents covering said
inventions as the Company may request, (c) assign to the Company
without further compensation to you the entire title and right to all
said inventions and applications, and (d) execute, acknowledge and
deliver at the request of the Company all papers, including patent
applications, assignments and applications for reissue and do all other
rightful acts which the Company may consider necessary to secure to the
Company the fullest rights to said inventions and to patents in the
United States and foreign countries covering the same. The "inventions"
which shall come under this Agreement shall include all inventions
conceived or developed by you either solely or jointly with others
during the Employment Period and for one year thereafter which either
(i) are made in the performance of your duties to which you are
assigned during the Employment Period, (ii) are made with the use of
the time, material or facilities of the Company, or (iii) relate to any
apparatus, method, process, substance, or article of manufacture within
the scope of or usable in connection with the Company's field of
activity or contemplated field of activity, including the subject
matter of any manufacturing, selling, testing, research, or
experimental activity. You further agree to hold in strict confidence
and not to divulge to others nor to make use thereof, except for the
purposes of the Company, both during and after the Employment Period
any and all confidential information obtained in the course of your
employment and concerning the Company's methods of manufacture,
machines, products, designs, drawings, patterns, formulas, engineering
or test data, inventions, patent applications, or other confidential
subject matter of the Company.
6. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
7. This Agreement shall inure to the benefit of, and be
binding upon, the Company and its successors and assigns, and upon you
and your executors, administrators, heirs and legal representatives.
The Company and any successor thereto shall honor the provisions of
this Agreement in the event that during the Employment Period a "change
of control" occurs. For the
<PAGE>
4
purposes of this Agreement, a "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 of the then outstanding capital stock of the
Company to be transferred. Such transaction or transactions shall
include without limitation: (i) a consolidation or merger of the
Company with or into another corporation; (ii) the sale or transfer of
(a) all or substantially all of the Company's assets or (b) 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) the effective change
of control from Aubert et Duval to another entity. A "change of
control" shall not include any trans action or series of related
transactions within Aubert et Duval or between the shareholders of
Aubert et Duval.
If the foregoing is acceptable to you, please execute the
duplicate original of this letter in the space provided below and return one
fully executed original to us.
Very truly yours,
SPECIAL METALS CORPORATION
By: /s/ Donald R. Muzyka
-------------------------------
Donald R. Muzyka
President & Chief Operating
Officer
Accepted and agreed to this 30th
day of December, 1994.
/s/ Donald C. Darling
- ---------------------------------
Donald C. Darling
<PAGE>
Exhibit 10.21
December 30, 1994
Mr. J. D. Page
Vice President, Operations
Special Metals Corporation
4317 Middle Settlement Road
New Hartford, New York 13413-9576
Re: Severance Agreement
Dear Mr. Page:
Special Metals Corporation (hereinafter referred to as the
"Company") desires, and by your signature below you have indicated that you are
agreeable, to set forth the terms and conditions under which the Company will
pay you severance in the event that during your employment with the Company a
"change of control" occurs.
Your employment with the Company shall continue for twelve
(12) months from the date you receive advance written notice of termination from
the Company following a "change of control" of the Company (the "Triggering
Event"). Commencing upon the occurrence of the Triggering Event, subject to the
terms of this Agreement, the Company shall provide you with twelve (12) months
(the "Severance Period") severance pay at your then current salary (but in no
event less than $112,007 per annum), payable in accordance with the Company's
normal payroll cycle; bonus and profit sharing payments, subject to the terms of
the Company's bonus and profit sharing plans, if any; the continuance of
employee benefits (including any group insurance coverage presently being
provided to you and your eligible dependents, including health, dental, vision
care and life insurance) during the Severance Period; and appropriate
out-placement services with a firm of the Company's choosing for a reasonable
period of time in any event not to exceed six months and at a cost of not more
than $10,000. After the occurrence of the Triggering Event, the Company, at its
sole discretion, may assign you appropriate duties and responsibilities
consistent with its needs during the first six months of the Severance Period
only but in no such event shall such duties and responsibilities require more
than 80 hours in any calendar month (it being understood that you shall have
time to seek other suitable employment).
In consideration of the severance benefits being provided to
you hereunder, you agree that you shall provide the Company with no less than
ninety (90) days advance written notice in the event you elect to terminate your
employment with the Company for any reason.
<PAGE>
2
This Agreement shall inure to the benefit of, and be binding
upon, the Company and its successors and assigns, and upon you and your
executors, administrators, heirs and legal representatives. The Company and any
successor thereto shall honor the provisions of this Agreement in the event that
during your employment with the Company a "change of control" occurs.
For the purposes of this Agreement, a "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 of the then outstanding capital stock of the Company to be
transferred. Such transaction or transactions shall include without limitation:
(i) a consolidation or merger of the Company with or into another corporation;
(ii) the sale or transfer of (a) all or substantially all of the Company's
assets or (b) 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) the effective change of control from Aubert
et Duval to another entity. A "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.
<PAGE>
3
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
If the foregoing is acceptable to you, please execute the
duplicate original of this letter in the space provided below and return one
fully executed original to us.
Very truly yours,
SPECIAL METALS CORPORATION
By: /s/ Donald R. Muzyka
-----------------------------
Donald R. Muzyka
President & Chief Operating
Officer
Accepted and agreed to this 30th
day of December, 1994.
/s/ J. D. Page
- ---------------------------------
J. D. Page
<PAGE>
Exhibit 10.22
December 30, 1994
Mr. T. E. MacDonald
Vice President, Sales and Marketing
Special Metals Corporation
4317 Middle Settlement Road
New Hartford, New York 13413-9576
Re: Severance Agreement
Dear Mr. MacDonald:
Special Metals Corporation (hereinafter referred to as the
"Company") desires, and by your signature below you have indicated that you are
agreeable, to set forth the terms and conditions under which the Company will
pay you severance in the event that during your employment with the Company a
"change of control" occurs.
Your employment with the Company shall continue for twelve
(12) months from the date you receive advance written notice of termination from
the Company following a "change of control" of the Company (the "Triggering
Event"). Commencing upon the occurrence of the Triggering Event, subject to the
terms of this Agreement, the Company shall provide you with twelve (12) months
(the "Severance Period") severance pay at your then current salary (but in no
event less than $109,007 per annum), payable in accordance with the Company's
normal payroll cycle; bonus and profit sharing payments, subject to the terms of
the Company's bonus and profit sharing plans, if any; the continuance of
employee benefits (including any group insurance coverage presently being
provided to you and your eligible dependents, including health, dental, vision
care and life insurance) during the Severance Period; and appropriate
out-placement services with a firm of the Company's choosing for a reasonable
period of time in any event not to exceed six months and at a cost of not more
than $10,000. After the occurrence of the Triggering Event, the Company, at its
sole discretion, may assign you appropriate duties and responsibilities
consistent with its needs during the first six months of the Severance Period
only but in no such event shall such duties and responsibilities require more
than 80 hours in any calendar month (it being understood that you shall have
time to seek other suitable employment).
In consideration of the severance benefits being provided to
you hereunder, you agree that you shall provide the Company with no less than
ninety (90) days advance written notice in the event you elect to terminate your
employment with the Company for any reason.
This Agreement shall inure to the benefit of, and be binding
upon, the Company and its successors and assigns, and upon you and your
executors,
<PAGE>
2
administrators, heirs and legal representatives. The Company and any successor
thereto shall honor the provisions of this Agreement in the event that during
your employment with the Company a "change of control" occurs.
For the purposes of this Agreement, a "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 of the then outstanding capital stock of the Company to be
transferred. Such transaction or transactions shall include without limitation:
(i) a consolidation or merger of the Company with or into another corporation;
(ii) the sale or transfer of (a) all or substantially all of the Company's
assets or (b) 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) the effective change of control from Aubert
et Duval to another entity. A "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.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
<PAGE>
3
If the foregoing is acceptable to you, please execute the
duplicate original of this letter in the space provided below and return one
fully executed original to us.
Very truly yours,
SPECIAL METALS CORPORATION
By: /s/ Donald R. Muzyka
------------------------------------
Donald R. Muzyka
President & Chief
Operating Officer
Accepted and agreed to this 30th
day of December, 1994.
/s/ T. E. MacDonald
- --------------------------------
T. E. MacDonald
<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 January 24, 1997 in Amendment No. 1 to the
Registration Statement (Form S-1 No. 333-18499) and related Prospectus of
Special Metals Corporation dated January 31, 1997.
/s/ Ernst & Young LLP
Buffalo, New York
January 31, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from Company's
Balance Sheets as of December 31, 1995 and 1996; Statements of Operations and
Retained Earnings (Accumulated Deficit) for the year ended December 31, 1994,
1995 and 1996; and Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,335,931
<SECURITIES> 0
<RECEIVABLES> 28,748,188
<ALLOWANCES> (120,000)
<INVENTORY> 42,739,042
<CURRENT-ASSETS> 78,080,511
<PP&E> 70,371,419
<DEPRECIATION> (37,139,965)
<TOTAL-ASSETS> 116,491,508
<CURRENT-LIABILITIES> 30,630,213
<BONDS> 0
0
0
<COMMON> 29,840,000
<OTHER-SE> 4,934,730
<TOTAL-LIABILITY-AND-EQUITY> 116,491,508
<SALES> 162,299,734
<TOTAL-REVENUES> 162,299,734
<CGS> 133,828,091
<TOTAL-COSTS> 139,236,528
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,078,632
<INCOME-PRETAX> 18,984,574
<INCOME-TAX> (96,486)
<INCOME-CONTINUING> 19,081,060
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,081,060
<EPS-PRIMARY> 1.54
<EPS-DILUTED> 1.54
</TABLE>
