SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 28, 1998
SPECIAL METALS CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 000-22029 25-1445468
---------------- ------------- ----------------------------
(State or other (Commission (IRS Employer Identification
jurisdiction of File Number) Number)
incorporation)
4317 Middle Settlement Road
New Hartford, New York 13413
----------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (315) 798-2900
<PAGE>
Item 2. Acquisition or Disposition of Assets
On October 28, 1998, Special Metals Corporation, a Delaware
corporation ("SMC"), completed the acquisition of the Inco Alloys International
high performance nickel alloys and related business (the "Acquisition") pursuant
to a previously announced Stock Purchase Agreement, dated as of July 8, 1998
(the "Stock Purchase Agreement"), between SMC and Inco Limited, a corporation
continued under the laws of Canada ("Inco"), and certain of its subsidiaries.
The Stock Purchase Agreement was amended by a letter agreement, dated October
28, 1998 (the "Letter Agreement"). Pursuant to the Letter Agreement, among other
things, the total consideration paid at the closing by SMC to Inco and its
subsidiaries for the Acquisition and the Noncompetition Agreement, dated as of
October 28, 1998 (the "Noncompetition Agreement"), between Inco and SMC, was
reduced from $408 million to $365 million, of which $348 million was paid in
cash and $17 million was paid in preferred stock through the issuance of Series
A Preferred Stock described below.
SMC financed the transaction with proceeds (i) from the Credit
Agreement, dated October 28, 1998, among SMC, certain Lenders and Credit
Lyonnais New York Branch a s Issuing Bank and Agent (the "Credit Agreement"),
which establishes a $375 million bank credit facility (the "Credit Facility")
and (ii) made available through the concurrent sale to a wholly-owned subsidiary
of Titanium Metals Corporation of 1,600,000 shares of 6.625% Series A Senior
Convertible Preferred Stock of SMC (the "Series A Preferred Stock") having an
aggregate liquidation amount of $80 million. Additionally, SMC issued 340,000
shares of Series A Preferred Stock to Inco as part of the consideration for the
Noncompetition Agreement. For additional information regarding the Series A
Preferred Stock, see Item 5 (Other Events).
The foregoing description is qualified in its entirety by
reference to the Stock Purchase Agreement, the Letter Agreement, the
Noncompetition Agreement and the Credit Agreement, copies of which are attached
hereto as Exhibits 2.1, 2.2, 10.3 and 4.1 respectively and each of which is
incorporated herein by reference. A copy of the press release announcing the
Acquisition, the Credit Facility and the issuance of the Series A Preferred
Stock is attached hereto as Exhibit 99.1 and is also incorporated herein by
reference.
The press release filed as an exhibit to this report includes
"safe harbor" language, pursuant to the Private Securities Litigation Reform Act
of 1995, indicating that certain statements about SMC's business contained in
the press release are matters that are not historical facts and that are
"forward-looking" that involve risks and uncertainties, including, but not
limited to, the cyclicality of the aerospace industry, future global economic
conditions, global productive capacity, competitive products and other risks and
uncertainties detailed in SMC's Securities and Exchange Commission filings.
2
<PAGE>
Item 5. Other Events.
On October 28, 1998, in connection with the Acquisition, SMC
issued 1,600,000 shares of Series A Preferred Stock having an aggregate
liquidation amount of $80 million to TIMET Finance Management Company ("TIMET"),
a wholly-owned subsidiary of Titanium Metals Corporation ("TMC"), pursuant to an
Investment Agreement, dated as of July 8, 1998, as amended (the "TIMET
Investment Agreement"), among SMC, TIMET and TMC, and 340,000 shares of Series A
Preferred Stock having an aggregate liquidation amount of $17 million to Inco
pursuant to an Investment Agreement, dated October 28, 1998 (the "Inco
Investment Agreement"), between SMC and Inco and in accordance with the Letter
Agreement.
The terms of the Series A Preferred Stock are set forth in a
Certificate of Designations for the Series A Preferred Stock that was filed on
October 28, 1998 with the Secretary of State of the State of Delaware (the
"Certificate of Designations").
The holders of the Series A Preferred Stock are entitled to
receive cumulative cash dividends, when and as declared by the board of
directors of SMC, at the rate of 6.625%, payable quarterly, subject to certain
adjustments set forth in the Certificate of Designations in certain events of
non-payment for more than six quarters. SMC may redeem the Series A Preferred
Stock at any time after October 28, 2001, at decreasing redemption prices
starting with 103.975% of the liquidation amount if the Series A Preferred Stock
is redeemed after October 28, 2001. The Series A Preferred Stock is subject to
mandatory redemption on April 28, 2006, at 100% of the liquidation amount, plus
accumulated and unpaid dividends. SMC is also obligated to repurchase the Series
A Preferred Stock upon a change of control of SMC, subject to the terms set
forth in the Credit Agreement.
So long as it holds shares of Series A Preferred Stock
representing at least 10% of the outstanding voting securities of SMC, assuming
for such purpose that the Series A Preferred Stock held by TIMET has been
converted into shares of Common Stock as described below, TIMET will be entitled
to designate one nominee to be appointed to the board of directors of SMC.
The Series A Preferred Stock will, subject to the favorable vote
(the "Conversion Vote") of a majority of the holders of the common stock of SMC
(the "Common Stock"), be convertible into shares of Common Stock at a conversion
price of $16.50 per share of Common Stock, subject to certain adjustments set
forth in the Certificate of Designations. Pursuant to a Voting Agreement, dated
October 28, 1998 (the "Voting Agreement"), SMC's three principal stockholders,
which collectively own a majority of the outstanding Common Stock, have agreed
to vote their shares of
3
<PAGE>
Common Stock in favor of the Conversion Vote and in favor of the designee that
TIMET is entitled to nominate to the board of directors of SMC.
TIMET is entitled to certain demand registration rights for its
Series A Preferred Stock pursuant to a registration rights agreement, dated
October 28, 1998 (the "TIMET Registration Rights Agreement"), between TIMET and
SMC and both TIMET and Inco are entitled to certain piggy-back registration
rights for their Series A Preferred Stock pursuant to the TIMET Registration
Rights Agreement and a registration rights agreement, dated October 28, 1998
(the "Inco Registration Rights Agreement"), between SMC and Inco.
Concurrent with the closing of the Acquisition, SMC expanded its
board of directors from seven to nine members and Francis J. Petro, President of
the Inco Alloys International business unit, was elected to fill one of the
newly created directorships as a Class II director with a term expiring at the
next annual meeting of the board of directors. An additional director, to be
nominated by TIMET, is expected to be appointed at the next regularly scheduled
meeting of the board of directors of SMC.
The foregoing description is qualified in its entirety by
reference to the TIMET Investment Agreement, the Amendment to Investment
Agreement, dated October 28, 1998, among SMC, TIMET and TMC, the Inco Investment
Agreement, the Certificate of Designations, the Voting Agreement, the TIMET
Registration Rights Agreement and the Inco Registration Rights Agreement, copies
of which are attached hereto as Exhibits 4.2, 4.3, 4.4, 4.5, 99.3, 10.1 and 10.2
respectively and each of which is incorporated herein by reference. A copy of
the press release announcing the Acquisition, the Credit Facility and the
issuance of the Series A Preferred Stock is attached hereto as Exhibit 99.1 and
is also incorporated herein by reference.
4
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Businesses Acquired
The financial statements of Inco Alloys
International are attached hereto as Appendix A.
(b) Pro Forma Financial Information
The pro forma financial information for SMC is
attached hereto as Appendix B.
(c) The following are exhibits to this Report:
Exhibit 2.1 Stock Purchase Agreement, dated as of July 8,
1998, between Special Metals Corporation and Inco
Limited, Inco United States, Inc., Inco Europe
Limited and Inco S.A. **
Exhibit 2.2 Letter Agreement, dated October 28, 1998, between
SMC, Special Metals S.A.R.L., IAII Acquisition
Co., IACL Acquisition Inc. and IAL Holdings
Limited and Inco, Inco United States, Inc., Inco
Europe Limited, Inco S.A. and Inco Alloys
International, Inc. *
Exhibit 4.1 Agreement, dated October 28, 1998, among SMC, the
Lenders and Credit Lyonnais New York Branch as
Issuing Bank and Agent *
Exhibit 4.2 Investment Agreement, dated as of July 8, 1998,
among SMC, TIMET and TMC **
Exhibit 4.3 Amendment to Investment Agreement, dated October
28, 1998, among SMC, TIMET and TMC*
Exhibit 4.4 Investment Agreement, dated October 28, 1998,
between SMC and Inco *
5
<PAGE>
Exhibit 4.5 Certificate of Designations for the Series A
Preferred Stock, filed on October 28, 1998, with
the Secretary of State of Delaware *
Exhibit 10.1 Registration Rights Agreement, dated October 28,
1998, between TIMET and SMC *
Exhibit 10.2 Registration Rights Agreement, dated October 28,
1998, between Inco and SMC *
Exhibit 10.3 Noncompetition Agreement, dated as of October 28,
1998, between Inco and SMC *
Exhibit 99.1 Press Release dated October 28, 1998 of SMC *
Exhibit 99.2 Agreement in Principle, dated July 8, 1998,
between Special Metals Corporation and TMC **
Exhibit 99.3 Voting Agreement, dated October 28, 1998, among
TIMET, TMC, Societe Industrielle de Materiaux
Avances, LWH Holding S.A. and Advanced Materials
Investments Holding S.A. *
* Exhibit filed herewith
** Exhibit incorporated by reference for SMC's current report on Form 8-K filed
with the Securities and Exchange Commission on July 10, 1998 (file no. 000-
22029)
6
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
SPECIAL METALS CORPORATION
By: /s/ Donald R. Muzyka
--------------------
Name: Donald R. Muzyka
Title: President and Chief
Executive Officer
Dated: November 12, 1998
<PAGE>
EXHIBIT INDEX
SPECIAL METALS CORPORATION
Current Report on Form 8-K
Dated November 12, 1998
Exhibit No. Description
----------- -----------
Exhibit 2.1 Stock Purchase Agreement, dated as of July 8,
1998, between SMC and Inco Limited, Inco United
States, Inc., Inco Europe Limited and Inco S.A. **
Exhibit 2.2 Letter Agreement, dated October 28, 1998, between
SMC, Special Metals S.A.R.L., IAII Acquisition
Co., IACL Acquisition Inc. and IAL Holdings
Limited and Inco, Inco United States, Inc., Inco
Europe Limited, Inco S.A. and Inco Alloys
International, Inc. *
Exhibit 4.1 Agreement, dated October 28, 1998, among SMC, the
Lenders and Credit Lyonnais New York Branch as
Issuing Bank and Agent *
Exhibit 4.2 Investment Agreement, dated as of July 8, 1998,
among SMC, TIMET and TMC **
Exhibit 4.3 Amendment to Investment Agreement, dated October
28, 1998, among SMC, TIMET and TMC *
Exhibit 4.4 Investment Agreement, dated October 28, 1998,
between SMC and Inco *
Exhibit 4.5 Certificate of Designations for the Series A
Preferred Stock, filed on October 28, 1998, with
the Secretary of State of Delaware *
Exhibit 10.1 Registration Rights Agreement, dated October 28,
1998, between TIMET and SMC *
Exhibit 10.2 Registration Rights Agreement, dated October 28,
1998, between Inco and SMC *
Exhibit 10.3 Noncompetition Agreement, dated as of October 28,
1998, between Inco and SMC*
Exhibit 99.1 Press Release dated October 28, 1998 of SMC *
<PAGE>
Exhibit 99.2 Agreement in Principle, dated July 8, 1998,
between Special Metals Corporation and TMC **
Exhibit 99.3 Voting Agreement, dated October 28, 1998, among
TIMET, TMC, Societe Industrielle de Materiaux
Avances, LWH Holding S.A. and Advanced Materials
Investments Holding S.A. *
* Exhibit filed herewith
** Exhibit incorporated by reference for SMC's current report on
Form 8-K filed with the Securities and Exchange Commission on
July 10, 1998 (file no. 000-22029)
<PAGE>
Appendix A
[PRICE WATERHOUSE LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Inco Limited
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations and cash flows present fairly, in all material
respects, the financial position of Inco Alloys International (as defined in
Note 1 to the combined financial statements or the "Company") at December 31,
1997 and 1996, and the results of their operations and their cash flows for the
three years then ended in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
- ------------------------
New York, New York
March 25, 1998
<PAGE>
2
INCO ALLOYS INTERNATIONAL
COMBINED INCOME STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1996 1997
---- ---- ----
(IN THOUSANDS)
Revenues
<S> <C> <C> <C>
Net sales..............................................$ 569,597 $ 660,505 $ 668,470
Other income (Note 3).................................. 2,293 2,385 907
--------- --------- ---------
571,890 662,890 669,377
--------- --------- ---------
Costs and expenses
Cost of sales.......................................... 514,407 587,410 591,040
Selling, general and administrative.................... 31,605 39,061 39,461
2,953 3,721 2,337
Research and development...............................--------- --------- ---------
548,965 630,192 632,838
--------- --------- ---------
Operating income....................................... 22,925 32,698 36,539
- 1,668 2,078
Interest expense.......................................--------- --------- ---------
Income before income taxes............................. 22,925 31,030 34,461
9,132 13,249 5,028
Income taxes (Note 4)..................................--------- --------- ---------
Net income before cumulative effect of change in
accounting principles, net of taxes.............. 13,793 17,781 29,433
Cumulative effect of change in accounting principles
(Note 18)........................................ - - 673
Net income.............................................$ 13,793 $ 17,781 $ 28,760
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
<PAGE>
3
INCO ALLOYS INTERNATIONAL
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
---- ----
(IN THOUSANDS)
Assets
Current assets:
<S> <C> <C>
Cash..........................................................$ 7,243 $ 3,874
Accounts receivable, net (Note 5)............................. 136,435 129,237
Inventories (Note 6).......................................... 208,682 209,045
Income taxes receivable....................................... - 3,682
Due from affiliates (Note 13)................................. - 30,687
--------- ---------
Total current assets.......................................... 352,360 376,525
Property, plant and equipment (Note 7)........................ 173,970 185,477
--------- ---------
Deferred income taxes (Note 4)................................ 20,326 23,730
Other assets (Note 8)......................................... 40,392 32,941
--------- ---------
$ 587,048 $ 618,673
========= =========
Liabilities and shareholder's equity
Current liabilities:
Notes payable.................................................$ 1,447 $ 3,680
Long-term debt due within one year (Note 9)................... 3,859 730
Accounts payable and accrued liabilities (Note 10)............ 111,133 110,391
Income taxes payable.......................................... 4,769 -
--------- ---------
Total current liabilities..................................... 121,208 114,801
--------- ---------
Long-term debt (Note 9)....................................... 2,386 3,117
Post-retirement benefits (Note 11)............................ 189,014 186,412
Other......................................................... 255 164
--------- ---------
Total liabilities............................................. 312,863 304,494
--------- ---------
Commitments and contingencies (Note 16)....................... - -
Shareholder's equity (Note 13)................................ 274,185 314,179
--------- ---------
$ 587,048 $ 618,673
========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
<PAGE>
4
INCO ALLOYS INTERNATIONAL
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
1995 1996 1997
---- ---- ----
(IN THOUSANDS)
Operation activities
Net income before cumulative effect of change in accounting
<S> <C> <C> <C>
principles...................................................$ 13,793 $ 17,781 $ 29,433
Adjustments to reconcile net income before cumulative effect
of change in accounting principles to net cash provided by
(used in) operating activities:
Depreciation and amortization................................ 21,217 21,219 21,848
Deferred income taxes........................................ 4,857 6,308 (2,537)
Other........................................................ 2,396 12,027 (1,081)
--------- --------- ----------
42,263 57,335 47,663
Changes in operating assets and liabilities:
Accounts receivable.......................................... (40,463) 28,314 7,198
Inventories.................................................. (25,124) (894) (363)
Accounts payable and accrued liabilities..................... 872 8,805 (742)
Income taxes payable, net.................................... 4,054 (1,515) (8,451)
--------- --------- ----------
Net cash provided by (used in) operating activities................ (18,398) 92,045 45,305
--------- --------- ----------
Investing activities
Capital expenditures............................................... (15,038) (24,417) (32,458)
Acquisitions, net.................................................. (11,533) (5,462) (1,255)
Other.............................................................. (130) (1,518) (1,271)
--------- --------- ----------
Net cash used in investing activities.............................. (26,701) (31,397) (34,984)
--------- --------- ----------
Financing activities
Notes payable...................................................... 2,822 (1,739) 2,233
Long-term borrowing (repayments), net.............................. 1,722 1,312 (2,398)
Contributions from (distributions to) Inco, net (Note 13).......... 41,303 (60,151) (13,525)
--------- --------- ----------
Net cash provided by (used in) financing activities................ 45,847 (60,578) (13,690)
--------- --------- ----------
Net increase (decrease) in cash.................................... 748 70 (3,369)
Cash at beginning of year.......................................... 6,425 7,173 7,243
--------- --------- ----------
Cash at end of year................................................$ 7,173 $ 7,243 $ 3,874
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
<PAGE>
5
INCO ALLOYS INTERNATIONAL
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The business of Inco Alloys International ("IAI" or the
"Company"), an unincorporated business unit, is operated through several direct
and indirect wholly-owned subsidiaries and joint venture interests of Inco
Limited ("Inco"). The U.S. operations are conducted through Inco Alloys
International, Inc. ("IAII"), a wholly-owned subsidiary of Inco United States,
Inc. ("Inco U.S."), and the European operations are conducted through Inco
Alloys Limited ("IAL") and Inco Alloys International Limited ("IAIL"), each a
wholly-owned subsidiary of Inco Europe Limited ("Inco Europe") as well as Rescal
S.A. ("Rescal"), an indirect subsidiary of Inco Europe. The Canadian operations
are conducted through Inco Alloys Canada Limited ("IACL"), a wholly-owned
subsidiary of Inco, and the Asian operations are conducted through a 50% joint
venture between Inco and Daido Steel Company Limited, Daido Inco Alloys Ltd.,
Inco Alloys Services (Pacific) Pte. Ltd. ("IAS(P)PL") and formerly Inco Alloys
Pte. Ltd., both wholly-owned subsidiaries of Inco in Singapore. IAII, IAIL, IAL,
Rescal and IACL in turn hold direct subsidiaries and interests in certain joint
ventures.
IAI develops, manufactures and markets high-performance nickel
alloys for demanding applications. Products are sold worldwide primarily in the
aerospace, chemical processing, power generation and pollution control, oil and
gas and other markets including welding products, thermal processing and
electrical and heating elements, among others. Alloys produced by IAI come in
various forms, including sheet, strip, foil, plate, tubing, pipe, billet, bar,
rod, extruded shapes, wire rod, wire and welding products.
Note 2. Summary of Significant Accounting Policies
(a) Principles of combination
The combined financial statements have been prepared in
accordance with generally accepted accounting principles in the U.S. and
comprise the combined financial position, results of operations and cash flows
of the Company. The combination has been reflected in these combined financial
statements as if it had taken place on January 1, 1994. All significant
intercompany transactions and balances have been eliminated. Investments in
affiliated companies over which the Company has significant control or ownership
of more than 20% but less than or equal to 50% are accounted for using the
equity method. Investments in companies less than 20% owned are accounted for
using the cost method.
(b) Revenue recognition
Sales are recognized at the time products are shipped to the
customer.
<PAGE>
6
(c) Inventories
Inventories are stated at the lower of cost, including an
appropriate allocation of labor and manufacturing overheads, or net realizable
value. In the U.S. operations, inventories of nickel and all processing costs
are valued at cost determined on the last-in, first-out method. Cost of other
metals and supplies, is at average purchase cost. For all non-U.S. operations,
inventories are valued at average purchase cost.
(d) Foreign currency translation
These combined financial statements are expressed in U.S.
dollars. The Company's foreign operating entities' financial statements are
expressed in their functional currencies, which are their local currencies. The
assets and liabilities of the Company's foreign operations are translated to
U.S. dollars at year-end exchange rates and revenues and expenses are translated
at the average exchange rate for the year. The related currency translation
gains and losses are included in shareholder's equity.
The Company periodically uses forward currency contracts to hedge
the effect of exchange rate fluctuations on future known foreign currency cash
flows. Unrealized gains and losses are deferred and recognized in income in
conjunction with the transaction being hedged.
(e) Commodities contracts
The Company periodically uses forward purchase contracts to hedge
the effect of price changes on a portion of raw materials, principally nickel,
used in the manufacturing process. Unrealized gains and losses are deferred and
recognized in income in conjunction with the transaction being hedged.
(f) Post-retirement benefits
The cost of providing benefits through defined benefit pensions
and post-retirement benefits other than pensions is actuarially determined and
recorded in the combined income statements using the projected benefit method
prorated on service. Differences arising from plan amendments, changes in
assumptions and experience gains and losses are recorded in the combined income
statements over the expected average remaining service life of employees.
The cost of providing benefits through defined contribution
pensions is charged to the combined income statements in the period in respect
of which contributions become payable.
(g) Property, plant and equipment
Property, plant and equipment is stated at cost and depreciated
using the straight-line method over the estimated useful lives of the assets,
principally 10-50 years for buildings and improvements, 5-20 years for machinery
and equipment, and 5-20 years for furniture and fixtures. Repairs and
maintenance expenditures are expensed as incurred.
<PAGE>
7
(h) Research and development
Research and development expenditures are expensed as incurred.
(i) Environmental expenditures
Environmental expenditures that relate to current operations or
future revenues are expensed as incurred or capitalized and depreciated
depending on their future economic benefits. Expenditures that relate to an
existing condition caused by past operations and that do not contribute 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.
Operating costs associated with environmental programs were $6
million in 1995, $7 million in 1996 and $6 million in 1997. Capital expenditures
on environmental projects were $1 million each in 1995 and 1996 and $3 million
in 1997.
(j) Income taxes
In addition to recognizing income taxes which have been actually
paid or are payable, deferred income taxes are recognized to reflect the tax
consequences of temporary differences between the amounts of assets and
liabilities recognized for financial statement purposes and such amounts
recognized for tax purposes, as measured by applying currently enacted tax laws.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting For Income Taxes," the effect on deferred income taxes of a change
in statutory tax rates is recognized in income in the period that includes the
enactment date. IAII and its domestic subsidiary have been included in the
consolidated federal, state and local income tax returns filed by Inco U.S.
However, the income tax expense reflected in the combined income statements and
income tax liabilities reflected in the combined balance sheets have been
prepared on a separate-return basis as though IAII and its domestic subsidiary
had filed stand-alone U.S. federal, state and local income tax returns.
(k) Other assets
Goodwill represents the excess cost over the fair value of
identifiable net assets of acquired businesses and is amortized on a
straight-line basis over periods of 5 to 10 years. Deferred charges are
amortized on a straight-line basis over periods of 3 to 5 years. In accordance
with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," which was adopted by the Company effective
January 1, 1996, the Company evaluates, for impairment, its goodwill and other
long-term assets including property, plant and equipment when events or changes
in economic circumstances indicate the carrying amount of such assets may not be
recoverable.
(l) Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of any contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
<PAGE>
8
Note 3. Other Income
Other income consists of the following:
YEAR ENDED DECEMBER 31,
------- ------- -------
1995 1996 1997
---- ---- ----
(IN THOUSANDS)
Royalty income....................................$ 557 $ 549 $ 713
Rental income..................................... 445 299 284
Gains (losses) from foreign currency contracts.... 128 629 (98)
1,163 908 8
Other.............................................------- ------- -------
$ 2,293 $ 2,385 $ 907
======= ======= =======
Note 4. Income Taxes
Income tax expense (benefit) by component consists of the
following:
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
---- ---- ----
(IN THOUSANDS)
Current:
Federal............................$ 524 $ 393 $ 6,188
State.............................. - - 1,489
Foreign............................ 4,864 6,071 267
-------- -------- --------
$ 5,388 $ 6,464 $ 7,944
-------- -------- --------
Deferred:
Federal............................$ 2,818 $ 5,323 $ (1,584)
State.............................. 645 1,141 (331)
Foreign............................ 281 321 (1,001)
-------- -------- --------
3,744 6,785 (2,916)
-------- -------- --------
$ 9,132 $ 13,249 $ 5,028
======== ======== ========
Current deferred..................................$ (1,113) $ 477 $ (379)
Future deferred................................... 4,857 6,308 (2,537)
Deferred income taxes.............................$ 3,744 $ 6,785 $ (2,916)
======== ======== ========
<PAGE>
9
A reconciliation between the U.S. federal statutory tax rate and
the Company's effective income tax rate on income before income taxes is as
follows:
YEAR ENDED DECEMBER 31,
------------------------------
1995 1996 1997
---- ---- ----
U.S. federal statutory rate....................... 35.0% 35.0% 35.0%
Permanent income tax disallowances................ 1.6 - (0.7)
State income taxes, net of federal benefit........ 1.8 2.7 4.2
General business credits realized................. - - (8.7)
Benefit from foreign sales corporation............ - - (12.9)
Foreign tax rate differences...................... 1.4 5.0 0.3
- - (2.6)
Other -------- ------- -------
Effective income tax rate......................... 39.8% 42.7% 14.6%
======== ======= =======
Income (loss) before income taxes by geographic source is as
follows:
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
---- ---- ----
(IN THOUSANDS)
U.S. ......................................$ 8,312 $ 17,897 $ 34,493
Foreign.................................... 14,613 13,133 (32)
$ 22,925 $ 31,030 $ 34,461
======== ========= ========
<PAGE>
10
The tax effects of temporary differences that give rise to
significant deferred tax assets and liabilities comprise the following:
DECEMBER 31,
-----------------------
1996 1997
---- ----
(IN THOUSANDS)
Deferred tax assets:
Post-retirement benefits........$ 75,119 $ 76,511
Other........................... 15,932 16,746
-------- --------
91,051 93,257
-------- --------
Deferred tax liabilities:
Post-retirement benefits........ 11,029 10,452
Depreciation.................... 44,631 44,143
Other........................... 2,395 1,940
-------- --------
58,055 56,535
-------- --------
Current deferred...................... 12,670 12,992
Future deferred....................... 20,326 23,730
-------- --------
Net deferred assets...................$ 32,996 $ 36,722
======== ========
The lower effective income tax rate in 1997 was primarily due to
tax recoveries in the U.S. in respect of general business credits and refiling
of prior years' income tax returns. The 1997 income tax expense also includes a
benefit of $2,693,000 resulting from the filing of amended income tax returns in
the U.S. to claim refunds attributable to lower U.S. income tax rates on
qualifying export sales. The factors described as "other" principally include
the effect of a corporate tax rate reduction in the U.K.
Deferred income taxes have not been provided on the undistributed
earnings of foreign subsidiaries which are considered to be reinvested
indefinitely outside of the U.S. of $58,657,000 at December 31, 1996 and
$59,295,000 at December 31, 1997.
<PAGE>
11
Note 5. Accounts Receivable
Accounts receivable consist of the following:
DECEMBER 31,
-------------------------
1996 1997
---- ----
(IN THOUSANDS)
Trade accounts receivable...................$ 115,930 $ 109,169
Other....................................... 23,319 24,161
--------- ---------
139,249 133,330
Less: allowance for doubtful accounts....... 2,814 4,093
--------- ---------
$ 136,435 $ 129,237
========= =========
Note 6. Inventories
Inventories consist of the following:
DECEMBER 31,
--------------------------
1996 1997
---- ----
(IN THOUSANDS)
Raw materials and work in process...........$ 145,862 $ 151,863
Finished goods.............................. 48,772 41,812
Supplies.................................... 14,048 15,370
--------- ---------
$ 208,682 $ 209,045
========= =========
The cost of 30% of 1996 inventories and 31% of 1997 inventories
was valued using the last-in, first-out ("LIFO") method. Inventories valued by
the LIFO method would have been greater if valued at current costs by
approximately $53 million and $44 million at December 31, 1996 and 1997,
respectively.
<PAGE>
12
Note 7. Property, Plant and Equipment
Property, plant and equipment consist of the following:
DECEMBER 31,
---------------------------
1996 1997
---- ----
(IN THOUSANDS)
Land................................$ 2,340 $ 2,332
Buildings and improvements.......... 74,242 77,249
Machinery and equipment............. 444,619 461,617
Furniture and fixtures.............. 19,643 20,055
--------- ---------
540,844 561,253
Less: accumulated depreciation..... 366,874 375,776
--------- ---------
$ 173,970 $ 185,477
========= =========
Depreciation expense was $20,920,000 in 1995, $19,529,000 in 1996
and $19,881,000 in 1997.
Note 8. Other Assets
Other assets consist of the following:
DECEMBER 31,
-----------------------
1996 1997
---- ----
(IN THOUSANDS)
Goodwill.................................$ 13,873 $ 13,611
Deferred charges......................... 3,018 4,444
-------- --------
16,891 18,055
Less: accumulated amortization.......... 2,246 4,218
-------- --------
14,645 13,837
Investments in affiliates................ 7,228 6,104
Intangible pension asset................. 18,519 13,000
-------- --------
$ 40,392 $ 32,941
======== ========
<PAGE>
13
Note 9. Long-Term Debt
Long-term debt consists of the following (weighted average
interest rates and repayment periods at December 31, 1997 are shown in
parentheses):
DECEMBER 31,
--------------------
1996 1997
---- ----
(IN THOUSANDS)
Long-term notes payable (7.4%) (1998-2001)...$ 6,245 $ 2,194
Other (8.7%) (1998-2006)..................... - 1,653
------- -------
6,245 3,847
Less: long-term debt due within one year.... 3,859 730
------- -------
Long-term debt...............................$ 2,386 $ 3,117
======= =======
The annual maturities of long-term debt outstanding at December
31, 1997 are as follows (in thousands):
1998......................................... $ 730
1999......................................... 573
2000......................................... 573
2001......................................... 476
After 2001................................... 1,495
-------
$ 3,847
=======
Note 10. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the
following:
DECEMBER 31,
----------------------
1996 1997
---- ----
(IN THOUSANDS)
Trade accounts payable.......................$ 35,159 $ 35,324
Trade accounts payable to affiliates......... 31,140 36,311
Accrued payroll and employee benefits........ 22,840 21,908
Accrued purchases............................ 12,855 9,056
Other........................................ 9,139 7,792
--------- ---------
$ 111,133 $ 110,391
========= =========
<PAGE>
14
Note 11. Post-retirement Benefits
(a) Pension benefits
Substantially all of the Company's employees are covered by
non-contributory defined benefit pension plans.
Retirement benefits for most non-union employees of the Company
in the U.S. were provided, before August 1, 1997, by defined benefit pension
plans administered by Inco U.S. Costs associated with these plans were allocated
by Inco U.S. to the Company. One plan separately covers all of the Company's
hourly union employees in the U.S Retirement benefits for employees of the
Company in the U.K. were provided by a defined benefit plan that also covered
employees of Inco Europe up to May 31, 1997. Costs associated with this U.K.
plan were allocated to the Company.
Effective August 1, 1997 and June 1, 1997, the Company
transferred the U.S. and U.K. projected pension benefit obligations of $81
million and $88 million, and assets of $94 million and $111 million from the
Inco U.S. non-union and Inco Europe plans, respectively, to separately
administered pension plans of the Company. The pension expense for 1997 includes
amounts allocated to the Company up to July 31, 1997 and May 31, 1997,
respectively. In addition, effective January 1, 1997, the Company transferred
projected pension benefit obligations of $15 million in respect of unfunded
supplemental pension plans to separately administered plans of the Company.
Pension costs, by component, for the newly-created plans of the Company were
prorated from the date of inception of each new plan and included in the 1997
pension plan expense. The new plans are administered by IAII and IAL,
respectively.
Benefits for these plans are based primarily on either years of
service and employees' final average pay or a stated amount for each year of
service. Pension costs are calculated and funded based on annual actuarial
estimates, except that funding is subject to limitations under applicable tax
regulations.
Assets of the pension plans consist principally of cash, equity
securities and fixed income securities. Differences between actual returns and
the related expected return on plan assets, prior service costs associated with
plan amendments and net actuarial gains or losses are amortized to pension
expense over the expected average remaining service life of employees.
The projected benefit obligation was determined at December 31,
1996 and 1997 using a discount rate of 7.5% for the U.S. plans and 8.5% for the
U.K. plan. The assumed long-term rates of compensation increase, where
applicable, ranged from 3.5% to 5.5% in 1996 and 1997. The assumed long-term
rate of return on plan assets was 9.0%.
Because the U.S. non-union plans and the U.K. plan were not
separate plans prior to the creation of separately administered plans of the
Company in 1997, but were instead part of Inco U.S. and Inco Europe plans,
respectively, certain disclosures in respect of the amount of market value of
plan assets, actuarial present value of benefit obligation and pension costs are
not reflected in the following presentation for 1995 and 1996.
<PAGE>
15
Pension expense of the Company includes the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost of benefits earned.....................$ 1,501 $ 1,422 $ 3,874
Interest cost on projected benefit obligation....... 3,727 4,443 12,244
Assumed return on plan assets....................... (3,709) (4,150) (12,975)
Amortization of net asset at January 1, 1986........ 156 156 66
Amortization of deferred net (gains) losses......... 184 127 (1,047)
Amortization of unrecognized prior service costs.... 677 926 1,826
--------- --------- ---------
2,536 2,924 3,988
Defined benefit pension expense allocated by
Inco U.S...................................... 4,763 4,846 1,404
Defined benefit pension income allocated by
Inco Europe......................................... (1,703) (980) (68)
--------- --------- ---------
Defined benefit expense............................. 5,596 6,790 5,324
Defined contribution pension expense................ 1,854 2,080 2,180
--------- --------- ---------
Pension expense.....................................$ 7,450 $ 8,870 $ 7,504
========= ========= =========
</TABLE>
<PAGE>
16
The funded status of the Company's separate defined benefit
pension plans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1996 1997
---- ----
(IN THOUSANDS)
------------- ------------- -------------
Plans where Plans where Plans where
accumulated assets exceed accumulated
benefits accumulated benefits
exceed assets benefits exceed assets
------------- ------------- -------------
<S> <C> <C> <C>
Plan assets at market value...........................$ 58,636 $ 279,164 $ -
-------- --------- ---------
Projected benefits based on employment
service to date and present pay levels:.........
Vested.......................................... 51,258 210,529 13,103
Nonvested....................................... 10,421 16,651 450
-------- --------- ---------
Accumulated benefit obligation........................ 61,679 227,180 13,553
Additional amounts related to compensation
increases....................................... 588 11,474 250
-------- --------- ---------
Total projected benefit obligation.................... 62,267 238,654 13,803
-------- --------- ---------
Plan assets in excess of (less than) projected
benefit obligation..............................$ (3,631) $ 40,510 $ (13,803)
======== ========= =========
Comprised of:
Credits (charges) to future operations................
Balance of January 1, 1986 net asset............$ (309) $ (26) $ -
Investment and actuarial gains (losses)......... 310 42,555 (8,938)
Prior service costs............................. (6,382) (16,884) -
Pension asset (liability) (exclusive of minimum
additional pension liability) at December 31.... 2,750 14,865 (4,865)
-------- --------- ---------
$ (3,631) $ 40,510 $ (13,803)
======== ========= =========
</TABLE>
<PAGE>
17
Pension asset (liability) amounts are recorded in the combined
balance sheets as follows:
DECEMBER 31,
--------------------------
1996 1997
---- ----
(IN THOUSANDS)
Accounts payable and accrued liabilities $ (3,000) $ (3,000)
Post-retirement benefits (minimum additional
pension liability)........................ (5,793) -
--------- ----------
(8,793) (3,000)
Other assets..................................... 18,519 13,000
Net pension asset................................$ 9,726 $ 10,000
========= ==========
The Company also sponsors a defined voluntary contribution plan
covering substantially all employees. Participants may elect to contribute basic
contributions between 1% and 6% of base compensation. A participant may also
elect to contribute additional contributions up to 10% of base compensation. The
Company may, at its discretion, contribute, as a matching contribution, an
amount between 50% and 100% of the participants' basic contributions up to a
maximum of 6%.
(b) Post-retirement benefits other than pensions
The Company provides certain health care and life insurance
benefits for retired employees in the U.S. Substantially all domestic employees
may become eligible for these benefits upon retirement from the Company.
Effective January 1, 1993, the Company adopted SFAS No. 106, "Employers'
Accounting for Post-retirement Benefits Other Than Pensions," which requires the
cost of health care and other post-retirement benefits other than pensions to be
accrued over the years employees provide services to the date of their full
eligibility for such benefits. Previously, the Company expensed the cost of
these benefits on a pay-as-you-go basis after employees retired. The Company
elected to immediately recognize the accumulated post-retirement benefits
obligation attributable to the services of retired and active employees prior to
1993, the transition obligation, as an expense in 1993 rather than amortizing it
over future service periods.
The accumulated post-retirement benefits obligation is determined
by application of the terms of health care and life insurance plans, together
with relevant actuarial assumptions and health care cost trend rates. The
composite health care cost trend rate used in measuring these post-retirement
benefits was assumed to begin at 9% gradually declining to 6% by 2005 and
remaining at this level thereafter. A 1% increase in the assumed composite
health care cost trend rate would increase the accumulated post-retirement
benefits obligation at December 31, 1997 and annual net periodic post-retirement
benefits expense by $15 million and $1 million, respectively. The discount rate
used in determining the accumulated post-retirement benefits obligation at
December 31, 1996 and 1997 was 7.5%. The Company has not funded this obligation.
<PAGE>
18
Post-retirement benefits expense includes the following components:
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
---- ---- ----
(IN THOUSANDS)
Service cost of benefits earned..................$ 2,162 $ 2,006 $ 1,831
Interest cost on accumulated post-retirement
benefits obligation........................... 11,895 11,968 11,784
Amortization of deferred net gains............... - (1,868) (2,569)
-------- --------- ---------
Post-retirement benefits expense.................$ 14,057 $ 12,106 $ 11,046
======== ========= =========
The accrued post-retirement benefits other than pensions obligation is
comprised of:
DECEMBER 31,
-------------------------
1996 1997
---- ----
(IN THOUSANDS)
Retirees...........................................$ 113,738 $ 113,752
Fully eligible active plan participants............ 14,485 15,466
Other active plan participants..................... 30,478 29,693
--------- ---------
Accumulated post-retirement benefits obligation.... 158,701 158,911
Unrecognized net gains............................. 31,520 34,501
--------- ---------
Accrued post-retirement benefits obligation........ 190,221 193,412
Less: current portion............................. 7,000 7,000
Long-term obligation...............................$ 183,221 $ 186,412
========= =========
<PAGE>
19
Note 12. Segment Information
Financial information by geographic area is as follows:
YEAR ENDED DECEMBER 31,
-------------------------------------------
1995 1996 1997
---- ---- ----
(IN THOUSANDS)
Net sales to customers
United States..................$ 374,599 $ 403,504 $ 412,267
Canada......................... 12,147 20,152 17,049
Europe ........................ 128,807 177,465 172,726
Asia........................... 54,044 59,384 66,428
--------- --------- ---------
569,597 660,505 668,470
--------- --------- ---------
Sales between geographic areas
United States.................. 1,736 4,590 6,848
Canada......................... 7,750 14,151 8,343
Europe......................... 41,528 35,945 35,605
Asia........................... 15,843 17,202 30,207
--------- --------- ---------
66,857 71,888 81,003
--------- --------- ---------
Total net sales
United States.................. 376,335 408,094 419,115
Canada......................... 19,897 34,303 25,392
Europe......................... 170,335 213,410 208,331
Asia........................... 69,887 76,586 96,635
Eliminations................... (66,857) (71,888) (81,003)
--------- --------- ---------
$ 569,597 $ 660,505 $ 668,470
========= ========== =========
Operating income (loss)
United States..................$ 8,312 $ 17,899 $ 34,493
Canada......................... 506 1,070 755
Europe......................... 14,297 14,191 1,088
Asia........................... (190) (462) 203
--------- --------- ---------
$ 22,925 $ 32,698 $ 36,539
========= ========== =========
Identifiable assets at December 31
United States..................$ 387,619 $ 338,034 $ 376,007
Canada......................... 2,276 12,807 10,562
Europe......................... 176,936 194,882 186,051
Asia........................... 37,791 41,325 46,053
--------- --------- ---------
$ 604,622 $ 587,048 $ 618,673
========= ========== =========
Sales between geographic areas are generally made at prevailing market
prices.
<PAGE>
20
Export sales from the U.S., by geographic area, are as follows:
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
---- ---- ----
(IN THOUSANDS)
Europe .....$ 46,458 $ 46,905 $ 38,175
Asia........ 30,855 28,581 42,932
Other....... 10,879 16,874 11,041
-------- -------- ---------
$ 88,192 $ 92,360 $ 92,148
======== ======== =========
Note 13. Related Party Transactions
The Company purchases nickel from affiliates priced on a basis
which management believes to be substantially similar to the prices that could
be negotiated among unrelated third parties.
The Company sells alloy products to Doncasters plc (formerly Inco
Engineered Products) which was an affiliate until February 3, 1997.
Inco, together with Inco U.S. and Inco Europe, has provided the
Company with certain general services, including financial reporting, treasury,
taxation, legal, insurance and other corporate services. The cost of these
services was charged back to the Company by way of a management fee. Charges for
these services, which are included in selling, general and administrative
expenses, have been primarily based on the average of certain ratios of net
sales, net income, net assets and total assets. Management believes that the
methodologies used to allocate these charges are reasonable.
The Company periodically enters into forward commodity and
currency contracts with Inco and Inco Europe which are intended to reduce the
adverse effects of raw materials price and foreign currency fluctuations as
further explained in Note 14.
The following tables summarize the above-noted related party
transactions and balances.
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1996 1997
---- ---- ----
(IN THOUSANDS)
Purchases from affiliates............$ 148,944 $ 132,754 $ 143,550
Net sales to affiliates.............. 11,038 14,781 2,479
Management fees...................... 3,500 2,800 2,800
<PAGE>
21
Changes in shareholder's equity are as follows:
Year ended December 31,
----------------------------------
1995 1996 1997
---- ---- ----
(IN THOUSANDS)
Balance at beginning of year......$ 251,651 $ 307,618 $ 274,185
Net income........................ 13,793 17,781 28,760
Dividends......................... (9,249) (8,237) (5,559)
Cash distributions to Inco........ (131,557) (192,134) (41,750)
Cash contributions from Inco...... 146,592 110,165 51,712
Allocated charges from Inco....... 35,517 30,055 12,759
Currency translation adjustments.. 871 8,937 (5,928)
---------- ---------- ----------
Balance at end of year............$ 307,618 $ 274,185 $ 314,179
========== ========== ==========
In connection with Inco's decision to dispose of IAI, the Company
has recorded, effective April 1, 1997, cash distributions to and cash
contributions from Inco together with allocated charges from Inco in due from
affiliates and in trade accounts payable to affiliates, except for a
contribution of $1,828,000, to reimburse the Company for certain income tax
expenses incurred, which was included in shareholder's equity.
Inco funds the working capital requirements of its businesses
based upon a centralized cash management system. Shareholder's equity of the
Company includes accumulated equity together with amounts due to and from Inco
resulting from cash transfers and other intercompany activity. The following
table summarizes the allocated charges from Inco that are reflected in the
foregoing table of changes in shareholder's equity:
YEAR ENDED DECEMBER 31,
------------------------------
1995 1996 1997
---- ---- ----
(IN THOUSANDS)
Overhead allocation.................$ 26,756 $ 14,353 $ 6,798
Income tax allocation............... 8,261 14,802 5,736
Financing costs allocation.......... 500 900 225
-------- -------- --------
$ 35,517 $ 30,055 $ 12,759
======== ======== ========
Total charges allocated by Inco to the Company in 1997 amounted
to $33 million which included overhead of $17 million, income taxes of $15
million and financing costs of $1 million.
The amount due from affiliates, at December 31, 1997, resulted
from cash distributions to Inco U.S. under Inco's centralized cash management
system. Inco may elect to settle such amounts by way of an intercompany dividend
declaration.
In 1992, International Nickel Inc. ("International Nickel"), an
affiliate, entered into five-year agreements with subsidiaries of a major
financial institution under which International Nickel has the right to sell, on
a limited recourse basis, up to $50 million of undivided interests in certain
accounts receivable.
<PAGE>
22
In 1993, the $50 million limit was increased to $60 million. In connection with
this agreement, the Company assigned a portion of its accounts receivable to the
affiliate. At both December 31, 1996 and 1997, accounts receivable of the
Company were net of $35 million receivable interests assigned to International
Nickel.
In addition to the interest expense recorded by the Company in
1997 on the borrowings from an affiliate, Inco allocated financing costs of
$500,000 in 1995, $900,000 in 1996, and $900,000 in 1997 in connection with the
assignment of accounts receivable of the Company to International Nickel. These
additional costs, which are included in selling, general and administrative
expenses, were allocated based on the portion of accounts receivable assigned by
the Company to the total accounts receivable sold by International Nickel.
Management believes that the methodology used to allocate this charge is
reasonable. Inco has not allocated any interest expense related to its corporate
debt.
Note 14. Financial Instruments
The carrying amounts for all financial instruments approximated
fair values, except for outstanding forward commodity contracts. The Company
periodically uses forward commodity contracts to hedge the effect of price
changes on a portion of raw materials, principally nickel, used in the
manufacturing process. Such contracts are entered into only when firm order
commitments are received from customers and the forward commodity purchase
contract is designated as a hedge. The Company does not engage in any forward
commodity purchase activities which have not been specifically identified as
hedges. At December 31, 1996 and 1997, the fair value of outstanding forward
commodity contracts, based on the cash price quoted on the London Metal Exchange
at December 31, 1996 and 1997, was a liability of $5,139,000 and $5,694,000,
respectively.
The Company periodically enters into forward currency and
currency option contracts to hedge certain recorded transactions, firm
commitments and other anticipated transactions denominated in foreign
currencies. The objective of the Company's foreign currency hedging activities
is to protect the Company from the risk that the eventual equivalent U.S. dollar
cash flows resulting from transactions denominated in foreign currencies will be
adversely affected by changes in exchange rates. The Company does not engage in
any foreign currency activities which have not been specifically identified as
hedges. At December 31, 1996, the Company had outstanding forward currency
contracts to sell $13 million at an average rate to pounds sterling of $1.61. At
December 31, 1997, the Company had outstanding forward currency contracts to
sell $545,000 at an average rate to pounds sterling of $1.63. In addition, the
Company had outstanding put options, giving it the right, but not the
obligation, to sell DM8 million at an average rate to pounds sterling of DM2.93,
FF12 million at an average rate to pounds sterling of FF9.8, and ITL3 billion at
an average rate to pounds sterling of ITL2,892. In addition, the Company had
outstanding written call options giving the buyer the right but not the
obligation to purchase from the Company, at the same rates, DM4 million, FF6
million and ITL1.5 billion. The Company had outstanding forward currency
contracts to purchase DM3 million at an average rate to DM of (pound)0.44 at
December 31, 1996 and to purchase DM0.2 million at a rate of (pound)0.35 at
December 31, 1997. Also at December 31, 1997, the Company had outstanding call
options giving the Company the right but not the obligation, to purchase $7
million at an average rate to pounds sterling of $1.619, and had outstanding
written put options, giving the buyer the right but not the obligation, to sell
to the Company $3.5 million at $1.619. The fair values of these foreign currency
contracts is not significant.
The fair value of the Company's financial instruments at December
31, 1996 and 1997 is based on relevant market information and generally reflects
the estimated amounts that the Company would
<PAGE>
23
receive or pay to terminate such contracts at the reporting date, thereby taking
into account the current unrealized gains or losses in respect of open
contracts.
The Company is exposed to credit risk in the event of
non-performance by counterparties in connection with its forward commodity and
currency contracts. The Company does not obtain collateral or other security to
support financial instruments subject to credit risk but mitigates this risk by
dealing only with financially sound counterparties and, accordingly, does not
anticipate loss for non-performance. There is no substantial concentration of
credit risk resulting from these contracts.
Financial instruments that potentially subject the Company to
concentration of credit risk consist primarily of trade accounts receivable. The
Company has many active customers. However, trade accounts receivable are
principally concentrated with a small number of large customers with whom the
Company has long-standing relationships. Accordingly, the Company considers
credit risk to be low. For the year ended December 31, 1995, net sales to one
customer accounted for 10.8% of the Company's net sales. For the year ended
December 31, 1997, net sales to one customer accounted for 10.7% of the
Company's net sales. No other customers represented more than 10% of the
Company's net sales in 1995, 1996 and 1997. At December 31, 1996, trade accounts
receivable from two customers represented 14.1% and 13.6% of the Company's trade
accounts receivable. At December 31, 1997, trade accounts receivable from one
customer represented 14.1% of the Company's trade accounts receivable. No other
customers accounted for more than 10% of the Company's trade accounts receivable
at December 31, 1996 and 1997.
Note 15. Acquisitions
In 1996, the Company acquired Spectech Alloys Limited (100%),
which distributes welding products in Canada, for an aggregate consideration of
$5,455,000.
In 1997, the Company acquired Gerard de Bruyn BV, a
long-established Netherlands distributor of IAI nickel alloys for cash
consideration of $580,000.
In 1997, the Company acquired the remaining 10% interest in A-1
Wire Tech, Inc. ("A-1 Wire Tech"), which the Company did not previously own, for
cash consideration of $675,000. A-1 Wire Tech is a U.S. company that draws and
sells wire products.
These acquisitions have been accounted for by the purchase method
and, accordingly, their results are included in these combined financial
statements from their respective dates of acquisition. The aggregate impact of
acquisitions was not material to the Company's net sales or net income and,
accordingly, no related pro forma information is provided.
Note 16. Commitments and Contingencies
(a) Commitments
The Company leases certain equipment and facilities under
operating leases which contain renewal options and escalation clauses in some
cases. Rental expense under these leases amounted to $2 million in each of 1995
and 1996 and $3 million in 1997.
<PAGE>
24
Future minimum payments under operating leases with initial or
remaining non-cancellable terms extending beyond one year are as follows (in
thousands):
1998................................ $ 2,982
1999................................ 2,838
2000................................ 1,618
2001................................ 588
2002................................ -
(b) Contingencies
The Company's activities are subject to a number of environmental
laws and regulations in each of the jurisdictions in which it operates
governing, among other things, air emissions, wastewater discharges, the
treatment, storage and disposal of hazardous substances and wastes and employee
health and safety. The Company believes its operations are currently in
compliance, in all material respects, with applicable environmental laws and
regulations.
A risk of environmental liability is inherent in current and
former activities and some of the Company's facilities could require additional
environmental investigation or remediation in the future. While the Company does
not believe that compliance with environmental requirements is likely to have a
material adverse effect on its financial condition or results of operations, it
is not able to determine the impact, if any, of environmental laws and
regulations that may be enacted in the future on its financial position due to
the uncertainty surrounding the ultimate form that these laws and regulations
may take. However, based on currently available information, the Company
believes that there are no significant remediation activities required for the
Company's facilities which could have a material adverse effect on its financial
condition, results of operations or cash flows.
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.
The Company has a limited recourse liability in respect of the
sale of undivided interests in certain accounts receivable in the amount of $35
million at December 31, 1997.
<PAGE>
25
Note 17. Supplemental Information
Supplemental information in connection with the combined
statements of cash flows follows:
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1996 1997
---- ---- ----
(IN THOUSANDS)
Interest paid.......................... $ - $ 1,668 $ 2,078
Income taxes paid, net................. 686 7,979 15,008
Note 18. Change in Accounting Principles
Business process reengineering costs previously incurred of
$673,000, net of taxes, were expensed in the fourth quarter of 1997, in
accordance with the Emerging Issues Task Force consensus (EITF No. 97-13) with
respect to "Accounting for Costs Incurred in Connection with a Consulting
Contract or Internal Project that Combines Business Process Reengineering and
Information Technology Transformation."
<PAGE>
26
INCO ALLOYS INTERNATIONAL
INTERIM COMBINED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------- ---------------------
1997 1998 1997 1998
---- ---- ---- ----
(in thousands)
Revenues
<S> <C> <C> <C> <C>
Net Sales...............................$ 162,195 $ 137,179 $ 509,039 $ 455,905
Other income, net....................... 423 222 1,472 2,272
--------- --------- --------- ---------
162,618 137,401 510,511 458,177
--------- --------- --------- ---------
Costs and expenses
Cost of sales........................... 143,165 129,346 446,090 408,010
Selling, general and administrative..... 9,697 8,925 30,716 29,103
Research and development................ 602 674 1,742 1,856
--------- --------- --------- ---------
153,464 138,945 478,548 438,969
--------- --------- --------- ---------
Operating income (loss)................. 9,154 (1,544) 31,963 19,208
Interest expense........................ 418 509 1,237 1,598
--------- --------- --------- ---------
Income (loss) before income taxes....... 8,736 (2,053) 30,726 17,610
Income taxes............................ 12 (929) 7,263 5,726
--------- --------- --------- ---------
Net income (loss).......................$ 8,724 $ (1,124) $ 23,463 $ 11,884
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
<PAGE>
27
INCO ALLOYS INTERNATIONAL
INTERIM COMBINED BALANCE SHEETS
(Unaudited)
December 31, 1997 September 30, 1998
----------------- ------------------
(in thousands)
ASSETS
Current assets:
Cash........................................$ 3,874 $ 17,808
Accounts receivable, net.................... 129,237 117,801
Inventories................................. 209,045 206,008
Income taxes receivable..................... 3,682 -
Due from affiliates......................... 30,687 12,495
--------- ---------
Total current assets........................ 376,525 354,112
Property, plant and equipment............... 185,477 190,170
Deferred income taxes....................... 23,730 24,642
Other assets................................ 32,941 35,095
--------- ---------
$ 618,673 $ 604,019
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable...............................$ 3,680 $ 3,166
Long-term debt due within one year.......... 730 720
Accounts payable and accrued liabilities.... 74,080 66,409
Trade payables due to affiliates............ 36,311 34,498
Income taxes payable........................ - 1,247
--------- ---------
Total current liabilities................... 114,801 106,040
Long-term debt.............................. 3,117 2,999
Post-retirement benefits.................... 186,412 188,887
Other....................................... 164 222
--------- ---------
Total liabilities........................... 304,494 298,148
Shareholders' equity (Note 2)............... 314,179 305,871
--------- ---------
$ 618,673 $ 604,019
========= =========
The accompanying notes are an integral part of these combined financial
statements.
<PAGE>
28
INCO ALLOYS INTERNATIONAL
INTERIM COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------ --------------------
1997 1988 1997 1998
--------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES $ 8,724 $ (1,124) $ 23,463 $ 11,884
Net income (loss)......................................
Adjustments to reconcile net income to net cash
provided by (used in) operating activities: 5,463 5,628 16,868 16,792
Depreciation and amortization....................... (3,026) (369) (2,088) (1,328)
Deferred income taxes............................... 311 115 (2,859) (908)
--------- -------- -------- --------
Other............................................... 11,672 4,250 35,384 26,440
Changes in operating assets and liabilities:
Accounts receivable amd due from affiliates....... 12,609 3,516 13,750 29,628
Inventories....................................... 6,130 3,697 1,225 3,037
Accounts payable and accrued liabilities
and trade payables due to affiliates........... (21,586) 3,422 (25,209) (9,484)
Income taxes payable, net......................... (2,511) (1,255) (1,900) 4,929
--------- -------- -------- --------
Net cash provided by (used in) operating activities.... 6,314 13,630 (4,475) 54,550
--------- -------- -------- --------
INVESTING ACTIVITIES
Capital expenditures................................... (8,245) (7,618) (17,024) (18,518)
Other.................................................. (612) (107) (1,417) 283
--------- -------- -------- --------
Net cash used in investing activities.................. (8,857) (7,725) (18,441) (18,235)
--------- -------- -------- --------
FINANCING ACTIVITIES
Long-term borrowings (repayments), net................. (110) (734) 1,379 (642)
Contributions from (distributions to) Inco, net........ 1,828 - 22,721 (21,739)
--------- -------- -------- --------
Net cash provided by (used in) financing activities.... 1,718 (734) 24,100 (22,381)
--------- -------- -------- --------
Net increase (decrease) in cash........................ (825) 5,171 1,184 13,934
Cash at beginning of period............................ 9,252 12,637 7,243 3,874
--------- -------- -------- --------
Cash at end of period..................................$ 8,427 $ 17,808 $ 8,427 $ 17,808
========= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
<PAGE>
29
INCO ALLOYS INTERNATIONAL
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS
Nine Months Ended September 30, 1998
(Unaudited)
Note 1. Basis of Presentation
The business of Inco Alloys International ("IAI" or the
"Company"), an unincorporated business unit, is operated through several direct
and indirect wholly-owned subsidiaries and joint venture interests of Inco
Limited ("Inco"). The U.S. operations are conducted through Inco Alloys
International, Inc. ("IAII"), a wholly-owned subsidiary of Inco United States,
Inc. ("Inco U.S."), and the European operations are conducted through Inco
Alloys Limited ("IAL") and Inco Alloys International Limited ("IAIL"), each a
wholly-owned subsidiary of Inco Europe Limited ("Inco Europe") as well as Rescal
S.A. ("Rescal"), an indirect subsidiary of Inco Europe. The Canadian operations
are conducted through Inco Alloys Canada Limited ("IACL"), a wholly owned
subsidiary of Inco, and the Asian operations are conducted through a 50% joint
venture bewteen Inco and Daido Steel Company Limited, Daido Inco Alloys Ltd.,
Inco Alloys Services (Pacific) Pte. Ltd. ("IAS(P)PL") and formerly Inco Alloys
Pte. Ltd., both wholloy-owned subsidiaries of Inco in Singapore. IAII, IAIL,
IAL, Rescal and IACL in turn hold direct subsidiaries and interests in certain
joint ventures.
The unaudited interim combined financial statements have been
prepared in accordance with generally accepted accounting principles in the
United States for interim financial information. In the opinion of management
all adjustments considered necessary for a fair presentation of results for the
periods reported have been incluced. These adjustments consist only of normal
recurring adjustments. The results of operations for the three-month and
nine-month periods ended September 30, 1998 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1998 or any
other interim period. For furhter information, reference is made to the audited
combined financial statements.
Note 2. Shareholder's Equity
Changes in shareholder's equity are as follows (in thousands):
Three months ended Nine months ended
September 30, 1998 September 30, 1998
------------------ ------------------
Balance at begining of period $ 305,032 $ 314,179
Net income (loss) (1,124) 11,884
Dividend - (21,739)
Currency translation adjustments 1,963 1,547
--------- ----------
Balance at end of period $ 305,871 $ 305,871
========= ==========
<PAGE>
Appendix B
Special Metals Corporation
Pro Forma Balance Sheet (Unaudited)
June 30, 1998
(In thousands of U.S. dollars)
<TABLE>
<CAPTION>
Pro Forma
---------------------------
Special
Metals Inco Alloys Acquisition
Corporation International Adjustments Combined
------------ ------------- ------------- ------------
Assets
Current assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 4,825 $ 12,637 $ - $ 17,462
Restricted deposits 1,982 - - 1,982
Accounts receivable - trade 32,485 127,134 23,775 a 183,394
Accounts receivable - affiliates - 6,678 (6,678) b -
Inventories 58,222 209,705 44,000 c 311,927
Deferred income taxes 2,375 - (2,375) d -
Prepaid expenses and other current assets 541 - 5,148 e 5,689
--------- --------- --------- ----------
Total current assets 100,430 356,154 63,870 520,454
Property, plant and equipment 44,158 186,955 (12,312) f 218,801
Deferred income taxes 1,279 24,626 (13,458) d 12,447
Other assets 3,757 33,233 43,706 g 80,696
--------- --------- --------- ----------
Total assets $ 149,624 $ 600,968 $ 81,806 $ 832,398
========= ========= ========= ==========
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable $ - $ 3,816 $ - $ 3,816
Accounts payable and accrued liabilities 25,975 61,196 36,289 i 123,460
Accounts payable - affiliates - 36,289 (36,289) i -
Income taxes payable (1,436) 2,502 - 1,066
Deferred income taxes - - 1,810 d 1,810
Current portion of long-term debt - 732 - 732
Current obligation under capital leases 319 - - 319
--------- --------- --------- ----------
Total current liabilities 24,858 104,535 1,810 131,203
Long-term debt - 3,071 322,529 h 325,600
Long-term obligation under capital leases 25 - - 25
Post-retirement benefits 2,613 188,151 (34,501) j 156,263
Deferred income taxes - - - d -
Other long-term liabilities 7,178 179 - 7,357
--------- --------- --------- ----------
Total liabilities 34,674 295,936 289,838 620,448
Redeemable preferred stock - - 97,000 k 97,000
Shareholders' equity:
Preferred stock (par) - - - -
Common stock (par) 155 - - 155
Paid-in surplus 75,711 - - 75,711
Net parent company investment - 305,032 (305,032) l -
Pension adjustment (496) - - (496)
Retained earnings 39,580 - - 39,580
--------- --------- --------- ----------
Total shareholders' equity 114,950 305,032 (305,032) 114,950
--------- --------- --------- ----------
Total liabilities and shareholders' equity $ 149,624 $ 600,968 $ 81,806 $ 832,398
========= ========= ========= ==========
</TABLE>
See accompanying notes.
1
<PAGE>
Special Metals Corporation
Notes to Pro Forma Balance Sheet (Unaudited)
June 30, 1998
(In thousands of U.S. dollars)
a Reflects the following:
<TABLE>
<CAPTION>
<S> <C>
Reinstatement of accounts receivable previously factored with an affiliate $ 35,000
Reclassification of accounts receivable from former affiliates $ 6,678
Reclassification of current deferred income taxes (12,755)
Reclassification of other current assets (5,148)
----------
$ 23,775
==========
</TABLE>
b Reflects the reclassification of accounts receivable from former affiliates.
c Reflects the adjustment of inventory to estimated fair value.
d Reflects the adjustments to deferred income taxes resulting from the
acquisition and the related adjustments to the assets and liabilities and, for
current deferred income taxes, the reclassification from accounts receivable.
e Reflects the reclassification of other current assets from accounts
receivable.
f Reflects the adjustment of property, plant and equipment for purchase
accounting.
g Reflects the following:
<TABLE>
<CAPTION>
<S> <C>
Elimination of historical goodwill $ (9,560)
Adjustment of intangible pension asset to estimated fair value 16,000
Capitalization of 10 year Noncompetition Agreement 37,000
Elimination of deferred charges related to retired credit agreement (3,234)
Capitalization of financing fees related to the acquisition 3,500
---------
$ 43,706
=========
</TABLE>
h Reflects the issuance of new debt to finance, in part, the acquisition.
i Reflects the reclassification of accounts payable to former affiliates of Inco
Alloys.
j Reflects the adjustment of post-retirement benefits to estimated current
value.
k Reflects the issuance of $97 million of redeemable, convertible preferred
stock.
l Reflects the elimination of historical equity (parent company investment) of
acquired company.
2
<PAGE>
Special Metals Corporation
Pro Forma Statement of Operations (Unaudited)
For the Year Ended December 31, 1997
(In thousands of U.S. dollars)
<TABLE>
<CAPTION>
Pro Forma
-----------------------------
Special
Metals Inco Alloys Acquisition
Corporation Interational Adjustments Combined
----------- ------------ ------------- ---------
<S> <C> <C> <C> <C>
Net sales $ 186,071 $ 668,470 $ - $ 854,541
Cost of goods sold 142,029 591,040 (5,451) i 727,618
--------- --------- --------- ---------
Gross profit 44,042 77,430 5,451 126,923
Selling, general and administrative 6,958 41,798 1,442 ii 50,198
--------- --------- --------- ---------
Operating income 37,084 35,632 4,009 73,725
Other (income) expense
Interest expense 670 2,078 22,043 iii 24,791
Abandoned acquisition costs 554 - - 554
Other (661) (907) - (1,568)
--------- --------- --------- ---------
563 1,171 22,043 23,777
--------- --------- --------- ---------
Income before income taxes 33,521 34,461 (18,034) 52,948
Income tax expense (benefit) 13,519 5,028 (6,943) iv 11,604
--------- --------- --------- ---------
Income before cumulative effect of change
in accounting principle 23,002 29,433 (11,091) 41,344
Cumulative effect of change in accounting principle,
net of tax - 673 - 673
--------- --------- --------- ---------
Net income $ 23,002 $ 28,760 $ (11,091) $ 40,671
========= ========= ========= =========
Earnings per common share:
Basic 1.53 2.28
Diluted 1.53 1.95
Weighted average shares outstanding:
Basic 15,004 15,004
Diluted 15,016 20,895
</TABLE>
- --------------------------------------------
i Reflects the adjustment to depreciation expense for the revised
post-acquisition accounting for property, plant and equipment.
ii Reflects the following:
<TABLE>
<CAPTION>
<S> <C>
Decreased amortization of pre-acquisition goodwill and deferred charges $ (1,967)
Amortization of deferred financing costs 609
Amortization of non-compete agreement 3,700
Decreased interest expense on factored accounts receivable (900)
----------
$ 1,442
==========
</TABLE>
iii Reflects the interest expense on the pro forma debt instruments as follows:
<TABLE>
<CAPTION>
<S> <C>
Senior bank facilities $ 23,248
Notes payable and long-term debt assumed 611
Commitment fee on unused portion of Senior bank facilities 262
Elimination of historical interest expense (2,078)
---------
$ 22,043
=========
</TABLE>
iv Reflects the income tax effects of the pro forma adjustments.
3
<PAGE>
Special Metals Corporation
Pro Forma Statement of Operations (Unaudited)
For the Six Months Ended June 30, 1998
(In thousands of U.S. dollars)
<TABLE>
<CAPTION>
Pro Forma
---------------------------
Special
Metals Inco Alloys Acquisition
Corporation Interational Adjustments Combined
----------- ------------ ------------- ---------
<S> <C> <C> <C> <C>
Net sales $ 93,043 $ 318,726 $ - $ 411,769
Cost of goods sold 72,551 278,664 (2,607) i 348,608
--------- --------- -------- ---------
Gross profit 20,492 40,062 2,607 63,161
Selling, general and administrative 3,769 21,360 589 ii 25,718
--------- --------- -------- ---------
Operating income 16,723 18,702 2,018 37,443
Other (income) expense
Interest expense 64 1,089 10,972 iii 12,125
Other (376) (2,050) - (2,426)
--------- --------- -------- ---------
(312) (961) 10,972 9,699
--------- --------- -------- ---------
Income before income taxes 17,035 19,663 (8,954) 27,744
Income tax expense (benefit) 6,089 6,655 (3,447) iv 9,297
--------- --------- -------- ---------
Net income $ 10,946 $ 13,008 $ (5,507) $ 18,447
========= ========= ======== =========
Earnings per common share:
Basic 0.71 0.98
Diluted 0.71 0.86
Weighted average shares outstanding:
Basic 15,478 15,478
Diluted 15,478 21,357
- --------------------------------------------
</TABLE>
i Reflects the adjustment to depreciation expense for the revised
post-acquisition accounting for property, plant and equipment.
ii Reflects the following:
<TABLE>
<CAPTION>
<S> <C>
Decreased amortization of pre-acquisition goodwill and deferred charges $ (1,115)
Amortization of deferred financing costs 304
Amortization of non-compete agreement 1,850
Decreased interest expense on factored accounts receivable (450)
--------
$ 589
========
</TABLE>
iii Reflects the interest expense on the pro forma debt instruments as follows:
<TABLE>
<CAPTION>
<S> <C>
Senior bank facilities $ 11,624
Notes payable and long-term debt assumed 306
Commitment fee on unused portion of Senior bank facilities 131
Elimination of historical interest expense (1,089)
--------
$ 10,972
========
</TABLE>
iv Reflects the income tax effects of the pro forma adjustments.
4
SPECIAL METALS CORPORATION
4317 MIDDLE SETTLEMENT ROAD
NEW HARTFORD, NY 13413
October 28, 1998
To: Inco Limited Inco Europe Limited
145 King Street West 5th Floor
Suite 1500 Windsor House
Toronto, Ontario M5H 4B7 50 Victoria Street
Canada London 5W1H 0XB
England
Inco United States, Inc.
Park 80 West-Plaza Two Inco S.A.
Saddle Brook, NJ 07663 38 Rue du Collisee
75008 Paris
France
Ladies and Gentlemen:
Reference is made to the Stock Purchase Agreement, dated as of July 8,
1998 (the "Stock Purchase Agreement") between Inco Limited, Inco United States,
Inc., Inco Europe Limited, and Inco S.A. (collectively, the "Sellers") and
Special Metals Corporation (the "Purchaser").
The purpose of this letter agreement is to confirm certain
understandings of the parties hereto relating to the Stock Purchase Agreement
and the transactions contemplated thereby. Capitalized terms used herein and not
otherwise defined shall have the respective meanings ascribed thereto in the
Stock Purchase Agreement. For good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereby agree as follows:
1. Definitions.
(a) The definition in Section 1.1 of the Stock Purchase
Agreement of "Ancillary Agreements" shall be amended and restated in its
entirety as follows:
"Ancillary Agreements" means the Noncompetition Agreement, the
Tradename and Trademark License Agreement, the Transitional Services Agreement,
the Quitclaim Assignment, the Merger Agreement (including the Certificate of
Merger
<PAGE>
attached thereto), and the Inco Investment Agreement attached hereto as Exhibits
A, B, C, D, E and F, respectively.
(b) Section 1.1 of the Stock Purchase Agreement shall be
amended to include the following definitions:
"Canadian Holdco" means IACL Acquisition Inc., a Canadian corporation
and a wholly-owned subsidiary of Purchaser.
"Delaware Merger Sub" means IAII Acquisition Co., a Delaware
corporation and a wholly-owned subsidiary of Purchaser.
"French Holdco" means Special Metals S.A.R.L., a French limited
liability company and a wholly-owned subsidiary of UK Holdco.
"Inco Investment Agreement" means the Investment Agreement, to be dated
as of the Closing Date, between Inco and Purchaser, the form of which is
attached hereto as Exhibit F.
"Merger" shall have the meaning ascribed thereto in the Merger
Agreement.
"Merger Agreement" means the Agreement and Plan of Merger, to be dated
as of the Closing Date, among Inco U.S., IAII, Purchaser and Delaware Merger
Sub, the form of which is attached hereto as Exhibit E.
"Preferred Shares" means the shares of Series A Senior Convertible
Preferred Stock, having an aggregate liquidation value of $17 million, to be
issued to Inco at Closing pursuant to the Inco Investment Agreement.
"Purchased Shares" means all Shares other than the IAII Shares.
"UK Holdco" means IAL Holdings Limited, a corporation organized in
England and Wales and a wholly-owned subsidiary of Purchaser.
2. Acquisition of IAII through Merger.
(a) Section 2.1 of the Stock Purchase Agreement is hereby
amended and restated in its entirety as follows:
Section 2.1 Purchase and Sale of the Shares; Non-competition
Payment. On the terms and subject to the conditions set forth herein,
at the Closing:
(a) the Merger shall be consummated, the Sellers shall cause
Inco U.S. and IAII to perform their obligations under the
Merger Agreement and Purchaser shall cause Delaware Merger
Sub to perform its obligations under the Merger Agreement,
including the payment to Inco U.S. of $196 million (the
"Merger Price") pursuant to the Merger Agreement;
<PAGE>
(b) Inco shall sell and transfer to Canadian Holdco, and
Canadian Holdco shall, and Purchaser shall cause Canadian
Holdco to, purchase from Inco all of the IACL Shares for
$6.5 million (the "IACL Purchase Price");
(c) Inco shall, immediately following the consummation of the
Merger, sell and transfer to IAII, and IAII shall, and
Purchaser shall cause IAII to, purchase from Inco all of
the DIAL Shares for a purchase price of $7.0 million (the
"DIAL Purchase Price");
(d) Inco Europe shall, and the Sellers shall cause Inco Europe
to, sell and transfer to UK Holdco, and UK Holdco shall,
Purchaser shall cause UK Holdco to, purchase from Inco
Europe the IAIL Shares, the IAL Shares and the Incotherm
Share for an aggregate purchase price of $112 million (the
"IAIL/IAL Purchase Price");
(e) Inco S.A. shall, and Sellers shall cause Inco S.A. to,
sell and transfer to French Holdco, and French Holdco
shall, and Purchaser shall cause French Holdco to,
purchase from Inco S.A. the Rescal Shares for a purchase
price of $6.5 million (the "Rescal Purchase Price" and,
collectively with the IACL Purchase Price, the DIAL
Purchase Price, the IAIL/IAL Purchase Price, the Rescal
Purchase Price and the Merger Price, the "Purchase
Price"); and
(f) Purchaser agrees to pay Inco $20 million in cash and issue
to Inco the Preferred Shares in accordance with the Inco
Investment Agreement as consideration for Inco entering
into the Noncompetition Agreement (such cash payment and
share issuance being collectively referred to as the
"Noncompetition Payment").
For the avoidance of doubt, the allocation of the Purchase Price is set
forth on Schedule 2.1. The Purchase Price shall be subject to adjustment in
accordance with Sections 2.4 and 5.4(a)(iv). Unless the context otherwise
requires, the term "Purchaser" shall include French Holdco, UK Holdco, Canadian
Holdco and Delaware Merger Sub for all purposes under this Agreement. For
purposes of this Agreement, the terms "IACL Shares", "DIAL Shares", "IAIL
Shares", "IAL Shares" and "Rescal Shares" shall be deemed to include any
additional shares of IACL, DIAL, IAIL, IAL or Rescal, respectively, that may be
issued to any Seller pursuant to Quitclaim Assignment, in accordance with
Section 5.13(d)(iv) or otherwise.
(b) Section 2.2(b) of the Stock Purchase Agreement is hereby
amended by deleting all words after the word "Closing" first appears in clause
(iv) of Section 2.2(b) and inserting in lieu thereof the following:
"pay to the appropriate Seller its allocable share of the
Purchase Price (as allocated among the Purchased Shares and
the IAII
<PAGE>
Shares pursuant to Section 2.1 of this Agreement and the
Merger Agreement, as applicable) by wire transfer of
immediately available funds to an account designated by such
Seller not less than two Business Days prior to the Closing,
net of any and all applicable withholding taxes calculated on
the assumption that the actual purchaser of any Shares is a
U.S. corporation, and Purchaser shall deliver to the Sellers
the instruments and opinions required to be delivered pursuant
to Section 6.3."
(c) Section 2.4(f) of the Stock Purchase Agreement is hereby
amended by deleting the words following "pro rata basis" and inserting in lieu
thereof the following:
"between the Merger Price and the IAIL/IAL Purchase Price".
(d) Section 3.2 of the Stock Purchase Agreement is hereby
amended by deleting the word "Supply" in the second line thereof and by
replacing it with the word "Ancillary."
(e) Article III of the Stock Purchase Agreement is amended by
adding the following at the end thereof:
"Section 3.27 No Breach as a Result of Merger. Notwithstanding
anything herein to the contrary, the Sellers shall not be
deemed to have breached any of the representations or
warranties set forth in this Article III solely as a result of
IAII and/or Inco U.S. entering into the Merger Agreement
and/or the consummation of the transactions contemplated
thereby, if such representation or warranty would not have
been breached had Purchaser, or a wholly-owned U.S. subsidiary
of Purchaser, purchased the IAII Shares from Inco U.S."
(f) Section 5.13 of the Stock Purchase Agreement is hereby
amended by inserting the following after clause (e) thereof:
"(f) On or prior to Closing, Inco U.S., IAII, Purchaser and
Delaware Merger Sub shall enter into the Merger Agreement in
the form attached hereto as Exhibit E."
(g) Section 6.2(j) of the Stock Purchase Agreement shall be
amended by adding "or Delaware Merger Sub" immediately following "Purchaser."
(h) Section 7.2 of the Stock Purchase Agreement shall be
amended by deleting the word "and" immediately preceding clause (e) thereof and
adding after clause (e) and before the parenthetical following clause (e)
thereof the following:
"and (f) IAII or Inco U.S. entering into the Merger Agreement
and/or the consummation of the transactions contemplated
thereby, to the extent such Loss would not have been suffered
<PAGE>
had Purchaser, or a wholly-owned U.S. subsidiary of Purchaser,
purchased the IAII Shares from Inco U.S."
(i) Section 9.1 of the Stock Purchase Agreement shall be
amended by deleting the following under "To the Seller:":
"Richard L. Guido
President
Inco United States, Inc.
One New York Plaza
New York, New York 10004
Telephone: (212) 612-5874
Facsimile: (212) 612-5873"
3. Completion of Investment and Merger.
Sections 6.2(j) and 6.3(f) of the Stock Purchase Agreement shall each
be amended by adding the following: ",and the covenants and agreements required
therein to be performed on or before Closing shall have been duly performed in
all material respects," immediately after the word "delivered" therein.
4. Intercompany Debt. The parties acknowledge and agree that:
(a) The asterisk next to item (c) on Schedule 3.16(a)(ix) of
the Disclosure Schedule to the Stock Purchase Agreement (referencing a credit
agreement between A-1 Wire Tech and IAII) shall be deleted;
(b) The asterisk next to item (h) on Schedule 3.16(a)(ix) of
the Disclosure Schedule to the Stock Purchase Agreement (referencing a credit
agreement between Inco Limited and Spectech Alloys Limited) shall be deleted
and, in lieu thereof, the following words shall be added to the end of item (h):
", which indebtedness was assigned by Inco Limited to Inco Alloys Canada Limited
pursuant to the Debt Purchase Agreement dated October 1, 1998 between Inco
Limited and Inco Alloys Canada Limited;" and
(c) The asterisk next to item (i) on Schedule 3.16(a)(ix) of
the Disclosure Schedule to the Stock Purchase Agreement (referencing a credit
agreement between Inco Alloys Services SpA and Inco Europe Limited) shall be
deleted and, in lieu thereof, the following words shall be added to the end of
item (i): ", which indebtedness shall be repaid in full by Inco Alloys Services
SpA with the proceeds of a loan, equal to the outstanding amount of such
indebtedness and accrued interest, to be advanced by Inco Europe Limited to Inco
Alloys Limited, which loan proceeds shall, in turn, be loaned by Inco Alloys
Limited to Inco Alloys Services SpA."
5. Amendments to Ancillary Agreements. Every reference in the Ancillary
Agreements to the Stock Purchase Agreement shall be deemed to mean the Stock
Purchase Agreement as amended by this letter agreement.
6. Schedules/Exhibits
<PAGE>
(a) Schedule 2.1 of the Stock Purchase Agreement shall be
replaced with Schedule 2.1 attached hereto.
(b) Exhibit A to the Stock Purchase Agreement shall be
replaced in its entirety with Exhibit A attached hereto.
(c) Exhibit E shall be added to the Stock Purchase Agreement,
the form of which is attached hereto as Exhibit E.
(d) Exhibit F shall be added to the Stock Purchase Agreement,
the form which is attached hereto as Exhibit F.
7. Collateral Assignment. Notwithstanding anything to the contrary
contained in the Stock Purchase Agreement, the Purchaser and its subsidiaries
may execute and deliver the Collateral Assignment of Purchase Agreement in the
form attached hereto as Exhibit B and Inco and Inco U.S. agree to execute and
deliver the Consent to Assignment attached thereto at Closing.
8. Governing Law. This letter agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State, without regard
to choice of law principles thereof.
9. Counterparts. This letter agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
If the foregoing correctly sets forth the agreement reached between the
parties hereto with respect to the subject matter hereof, kindly execute a copy
of this letter agreement in the space below at which time this Letter Agreement
shall serve as a binding and enforceable agreement between the parties hereto
effective as of the date first above written.
Very truly yours,
SPECIAL METALS CORPORATION
By: _______________________________
Name
Title:
SPECIAL METALS S.A.R.L.
By: _______________________________
Name
Title:
<PAGE>
IAII ACQUISITION CO.
By: _______________________________
Name
Title:
IAL HOLDINGS LIMITED
By: _______________________________
Name
Title:
IACL ACQUISITION INC.
By: _______________________________
Name
Title:
<PAGE>
Accepted and Agreed to as of the date first written above:
INCO LIMITED
By: _______________________________
Name
Title:
INCO UNITED STATES, INC.
By: _______________________________
Name
Title:
INCO EUROPE LIMITED
By: _______________________________
Name
Title:
INCO S.A.
By: _______________________________
Name
Title:
INCO ALLOYS INTERNATIONAL, INC.
By: _______________________________
Name
Title:
<PAGE>
Schedule 2.1
Purchase Price Allocation
Consideration for Noncompetition $20 million in
Agreement: cash, plus the
Preferred Shares
Merger Price: $196 million
Purchased Shares Price:
o IAL, IAIL (U.K.): $112 million
o IACL (Canada): $6.5 million
o Rescal (France): $6.5 million
o DIAL (Japan): $7.0 million
----------------
Total: $348 million
in cash, plus the
Preferred Shares
SPECIAL METALS CORPORATION
$375,000,000
SENIOR SECURED CREDIT AGREEMENT
DATED AS OF OCTOBER 28, 1998
CREDIT LYONNAIS NEW YORK BRANCH,
AS AGENT
CREDIT LYONNAIS NEW YORK BRANCH,
AS ARRANGER
MANUFACTURERS & TRADERS TRUST COMPANY,
AS DOCUMENTATION AGENT
MELLON BANK, N.A.,
AS SYNDICATION AGENT
AND
THE BANK OF NOVA SCOTIA,
AS CO-AGENT
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS
1.1. DEFINED TERMS
1.2. OTHER DEFINITIONAL PROVISIONS
SECTION 2. AMOUNT AND TERMS OF TERM LOAN COMMITMENTS
2.1. TERM LOANS
2.2. PROCEDURE FOR TERM LOAN BORROWING
2.3. REPAYMENT OF TRANCHE A TERM LOANS
2.4. REPAYMENT OF TRANCHE B TERM LOANS
2.5. EVIDENCE OF TERM LOAN DEBT
2.6. USE OF PROCEEDS OF TERM LOANS
SECTION 3. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS
3.1. REVOLVING CREDIT COMMITMENTS
3.2. PROCEDURE FOR REVOLVING CREDIT BORROWING
3.3. REPAYMENT OF REVOLVING CREDIT LOANS; EVIDENCE OF DEBT
3.4. COMMITMENT FEE
3.5. TERMINATION OR REDUCTION OF REVOLVING CREDIT COMMITMENTS
3.6. USE OF PROCEEDS OF REVOLVING CREDIT LOANS
SECTION 4. LETTERS OF CREDIT
4.1. ISSUANCE
4.2. PARTICIPATION BY REVOLVING CREDIT LENDERS
4.3. DRAWINGS
4.4. OBLIGATIONS ABSOLUTE
4.5. OTHER LENDERS
4.6. INDEMNIFICATION
4.7. LIABILITY OF THE ISSUING BANK
4.8. LETTER OF CREDIT FEE
SECTION 5. GENERAL PROVISIONS APPLICABLE TO COMMITMENTS AND LOANS
5.1. PREPAYMENTS
5.2. CONVERSION AND CONTINUATION OPTIONS
5.3. MINIMUM AMOUNTS OF TRANCHES
5.4. INTEREST RATES AND PAYMENT DATES
5.5. COMPUTATION OF INTEREST AND FEES
5.6. INABILITY TO DETERMINE INTEREST RATE
5.7. PRO RATA TREATMENT AND PAYMENTS
5.8. ILLEGALITY
5.9. REQUIREMENTS OF LAW
5.10. TAXES
5.11. INDEMNITY
5.12. CHANGE OF LENDING OFFICE
<PAGE>
SECTION 6. REPRESENTATIONS AND WARRANTIES
6.1. FINANCIAL CONDITION
6.2. NO CHANGE
6.3. CORPORATE EXISTENCE; COMPLIANCE WITH LAW
6.4. CORPORATE POWER, AUTHORIZATION; ENFORCEABLE OBLIGATIONS
6.5. NO LEGAL BAR
6.6. NO MATERIAL LITIGATION
6.7. NO DEFAULT
6.8. OWNERSHIP OF PROPERTY; LIENS
6.9. INTELLECTUAL PROPERTY
6.10. NO BURDENSOME RESTRICTIONS
6.11. TAXES
6.12. FEDERAL REGULATIONS
6.13. ERISA
6.14. INVESTMENT COMPANY ACT; OTHER REGULATIONS
6.15. CAPITAL STOCK; SUBSIDIARIES; INVESTMENTS
6.16. ENVIRONMENTAL MATTERS
6.17. REGULATION H
6.18. SECURITY DOCUMENTS
6.19. ACQUISITION APPROVALS
6.20. ACCURACY OF INFORMATION
6.21. INSURANCE
6.22. SOLVENCY
6.23. LABOR RELATIONS
6.24. INDEBTEDNESS
6.25. BANK ACCOUNTS
6.26. REPRESENTATIONS AND WARRANTIES IN TRANSACTION DOCUMENTS
6.27. YEAR 2000 PROBLEM
SECTION 7. CONDITIONS PRECEDENT
7.1. CONDITIONS TO INITIAL LOANS
(A) LOAN DOCUMENTS
(B) ACQUISITION DOCUMENTS
(C) ACQUISITION CLOSING
(E) REFINANCING
(F) CLOSING CERTIFICATE
(G) CORPORATE PROCEEDINGS OF THE BORROWER
(H) BORROWER INCUMBENCY CERTIFICATE
(I) CORPORATE PROCEEDINGS OF SUBSIDIARIES
(J) SUBSIDIARY INCUMBENCY CERTIFICATES
(K) CORPORATE DOCUMENTS
(L) FINANCIAL STATEMENTS OF INCO ENTITIES
(M) BORROWER FINANCIAL STATEMENTS
(N) CLOSING FINANCIAL CERTIFICATE
(O) CORPORATE AND CAPITAL STRUCTURE
<PAGE>
(P) CONSENTS, APPROVALS, ETC.
(Q) FEES AND EXPENSES
(R) FILINGS
(S) LIEN SEARCHES
(T) PLEDGED COLLATERAL
(U) TITLE INSURANCE POLICIES; SURVEYS
(V) FLOOD INSURANCE
(W) COPIES OF DOCUMENTS
(X) INSURANCE
(Y) LEGAL OPINIONS
(Z) AGENT'S FEES AND EXPENSES
(AA) OUTSTANDING INDEBTEDNESS
(BB) ENVIRONMENTAL AUDITS
(CC) NO MATERIAL ADVERSE CHANGE
(DD) NO LITIGATION
(EE) SOLVENCY CERTIFICATE
(FF) ERISA; RETIREE BENEFITS
(GG) TERMINATION OF RECEIVABLES FROM RECEIVABLES PROGRAM
7.2. CONDITIONS TO EACH LOAN
(A) REPRESENTATIONS AND WARRANTIES
(B) NO DEFAULT
(C) ADDITIONAL MATTERS
SECTION 8. AFFIRMATIVE COVENANTS
8.1. FINANCIAL STATEMENTS
8.2. CERTIFICATES; OTHER INFORMATION
8.3. PAYMENT OF TAXES AND OTHER OBLIGATIONS
8.4. CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE
8.5. MAINTENANCE OF PROPERTY; INSURANCE
8.6. INSPECTION OF PROPERTY, BOOKS AND RECORDS; DISCUSSIONS
8.7. NOTICES
8.8. ENVIRONMENTAL LAW
8.9. MAINTENANCE OF LIENS OF THE SECURITY DOCUMENTS
8.10. PLEDGE OF AFTER ACQUIRED PROPERTY
8.11. INTEREST RATE PROTECTION
8.12. FOREIGN SUBSIDIARIES SECURITY
8.13. COLLATERAL ACCOUNT
8.14. BANK ACCOUNTS
8.15. YEAR 2000
SECTION 9. NEGATIVE COVENANTS
9.1. FINANCIAL CONDITION COVENANTS
(A) EBITDA MAINTENANCE
(B) LEVERAGE RATIO
(C) INTEREST COVERAGE RATIO
(D) FIXED CHARGE RATIO
9.2. LIMITATION ON INDEBTEDNESS
9.3. LIMITATION ON LIENS
9.4. LIMITATION ON GUARANTEE OBLIGATIONS
9.5. LIMITATION ON FUNDAMENTAL CHANGES
<PAGE>
9.6. LIMITATION ON SALE OF ASSETS
9.7. RESTRICTED PAYMENTS
9.8. LIMITATION ON CAPITAL EXPENDITURES
9.9. LIMITATION ON INVESTMENTS, LOANS AND ADVANCES
9.10. LIMITATION ON OPTIONAL PAYMENTS AND MODIFICATIONS OF DEBT INSTRUMENTS
AND CAPITAL STOCK
9.11. LIMITATION ON TRANSACTIONS WITH AFFILIATES
9.12. LIMITATION ON SALES AND LEASEBACKS
9.13. LIMITATION ON CHANGES IN FISCAL YEAR AND ACCOUNTING POLICIES
9.14. LIMITATION ON NEGATIVE PLEDGE CLAUSES
9.15. LIMITATION ON LINES OF BUSINESS
9.16. LIMITATION ON ENTERING INTO CERTAIN HEDGING AGREEMENTS
9.17. LIMITATION ON NEW BANK ACCOUNTS
9.18. LIMITATION ON ISSUANCE OF CAPITAL STOCK
9.19. MODIFICATIONS TO ACQUISITION DOCUMENTS, PREFERRED STOCK DOCUMENTS AND
SUPPLY CONTRACTS
SECTION 10. EVENTS OF DEFAULT
SECTION 11. THE AGENT
11.1. APPOINTMENT
11.2. DELEGATION OF DUTIES
11.3. EXCULPATORY PROVISIONS
11.4. RELIANCE BY AGENT
11.5. NOTICE OF DEFAULT
11.6. NON-RELIANCE ON AGENT AND OTHER LENDERS
11.7. INDEMNIFICATION
11.8. AGENT IN ITS INDIVIDUAL CAPACITY
11.9. SUCCESSOR AGENT
11.10. CONCERNING THE COLLATERAL
SECTION 12. MISCELLANEOUS
12.1. AMENDMENTS AND WAIVERS
12.2. NOTICES
12.3. NO WAIVER; CUMULATIVE REMEDIES
12.4. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
12.5. PAYMENT OF EXPENSES AND TAXES; INDEMNITY
12.6. SUCCESSORS AND ASSIGNS; PARTICIPATIONS AND ASSIGNMENTS
12.7. ADJUSTMENTS; SET-OFF
12.8. COUNTERPARTS
12.9. SEVERABILITY
12.10. INTEGRATION
12.11. GOVERNING LAW
12.12. SUBMISSION TO JURISDICTION; WAIVERS
12.13. ACKNOWLEDGMENTS
12.14. WAIVERS OF JURY TRIAL
12.15. INTEREST RATE LIMITATION
12.16. CONFIDENTIALITY
<PAGE>
SCHEDULES:
Schedule I Lenders, Notice Addresses, Commitments, Commitment Percentages
Schedule II Closing Date Mortgaged Property
Schedule III Bilateral Mortgages
Schedule 6.1(c) Guaranteed Obligations; Sales or Transfers
Schedule 6.4 Consents, Authorizations, Filings
Schedule 6.9 Intellectual Property
Schedule 6.11 Taxes
Schedule 6.15 Subsidiaries
Schedule 6.16 Environmental Matters
Schedule 6.18 Filing Offices
Schedule 6.21 Insurance
Schedule 6.23 Labor Matters
Schedule 6.24 Indebtedness to Remain Outstanding
Schedule 6.25 Bank Accounts
Schedule 7.1(u) Title Insurance Policies
Schedule 9.2 Permitted Indebtedness
Schedule 9.3(i) Existing Liens
Schedule 9.9 Investments
<PAGE>
EXHIBITS:
Exhibit A-1 Form of Borrower Security Agreement
Exhibit A-2 Forms of Borrower Patent and Trademark Security Agreement and
Copyright Security Agreement
Exhibit B Form of Collateral Assignment
Exhibit C Form of Bilateral Mortgage
Exhibit D Form of Mortgage/Deed of Trust
Exhibit E Form of Subsidiaries Guarantee
Exhibit F-1 Form of Subsidiary Security Agreement
Exhibit F-2 Forms of Subsidiary Patent and Trademark Security Agreement
and Copyright Security Agreement
Exhibit G-1 Form of Tranche A Term Note
Exhibit G-2 Form of Tranche B Term Note
Exhibit H Form of Revolving Credit Note
Exhibit I Form of Letter of Credit Request
Exhibit J Form of Closing Certificate
Exhibit K Form of Closing Financial Certificate
Exhibit L-1 Form of Opinion of Counsel to Borrower
Exhibit L-2 Form of Opinion of Local Counsel to Borrower
Exhibit M Form of Compliance Certificate
Exhibit N Form of Assignment and Acceptance
<PAGE>
CREDIT AGREEMENT
CREDIT AGREEMENT, dated as of October 28, 1998, among SPECIAL METALS
CORPORATION, a Delaware corporation (the "BORROWER"), the several banks and
other financial institutions from time to time parties to this Agreement
(collectively, the "LENDERS"), CREDIT LYONNAIS NEW YORK BRANCH, as Issuing Bank
with respect to the Letters of Credit, and CREDIT LYONNAIS NEW YORK BRANCH, as
agent for the Lenders and the Issuing Bank hereunder (in such capacity, the
"AGENT").
The parties hereto hereby agree as follows:
SECTION
DEFINITIONS
DEFINED TERMS.
As used in this Agreement, the following terms shall have the following
meanings:
"ACQUISITION": the acquisition of the shares of the Inco Entities owned
by the Sellers pursuant to the Purchase Agreement.
"ACQUISITION DOCUMENTS": the Purchase Agreement, the Noncompetition
Agreement dated as of the Closing Date between the Borrower and Inco Inc., the
Tradename and Trademark License Agreement dated as of the Closing Date between
the Borrower and Inco Limited, the Transitional Services Agreement dated as of
the Closing Date between Inco United States, Inc. and Inco Alloys International,
Inc., the Quitclaim Assignment effective as of the Closing Date between Inco
Limited and Inco Alloys Canada Limited, and any other agreements, instruments
and other documents delivered in connection therewith, as amended, supplemented
or otherwise modified in accordance with the terms of this Agreement.
"AFFILIATE": with respect to any Person, any other Person (other than,
in the case of the Borrower, a Wholly-Owned Domestic Subsidiary) which, directly
or indirectly, is in control of, is controlled by, or is under common control
with, such Person, (including, but not limited to, all directors and officers of
such Person). For purposes of this definition, "control" of a Person means the
power, directly or indirectly, either to (a) vote 5% or more of the securities
having ordinary voting power for the election of directors or other governing
body of such Person or (b) direct or cause the direction of the management and
policies of such Person, through the ownership of Voting Stock or other
ownership interests, by contract or otherwise.
"AGENT": Credit Lyonnais New York Branch, together with its affiliates,
as the arranger of the Commitments and as the agent for itself, the Lenders and
the Issuing Bank under this Agreement and the other Loan Documents or its
successor appointed pursuant to subsection 11.9.
<PAGE>
2
"AGREEMENT": this Credit Agreement, including the schedules and
exhibits hereto, as amended, supplemented, amended and restated or otherwise
modified from time to time.
"APPLICABLE MARGIN": (a) with respect to Revolving Credit Loans and the
Tranche A Term Loans, the amount set forth below for the applicable Type of Loan
(with X being the Leverage Ratio), as of the last day of the most recent fiscal
quarter:
Level Leverage Ratio Base Rate Eurodollar Rate
- ----- -------------- --------- ---------------
I X<2.00 0.00% 0.75%
II 2.00<=X<2.50 0.00% 1.00%
III 2.50<=X<3.00 0.00% 1.25%
IV 3.00<=X<3.50 0.25% 1.50%
V 3.50<=X<4.00 0.50% 1.75%
VI X>=4.00 0.75% 2.00%
provided that, notwithstanding the foregoing, (i) during the period commencing
on the Closing Date and ending on the six month anniversary of the Closing Date,
the Applicable Margin shall be 0.50% if such Loans are Base Rate Loans and 1.75%
if such Loans are Eurodollar Loans, (ii) during any period in which an Event of
Default shall have occurred and be continuing, the Applicable Margin shall be
0.75% if such Loans are Base Rate Loans and 2.00% if such Loans are Eurodollar
Loans, and (iii) if the Borrower shall have failed to deliver the financial
statements required by subsection 8.1(a) or (b) when due (without giving effect
to any grace period or notice requirement), the Applicable Margins shall be as
set forth in clause (ii) above until such time as such delivery shall have been
made; and
(b) with respect to the Tranche B Term Loans, 1.00% if such Loans are
Base Rate Loans and 2.25% if such Loans are Eurodollar Loans; PROVIDED that when
and so long as no Default or Event of Default has occurred and is continuing,
and the Leverage Ratio as of the last day of the most recent fiscal quarter is
less than or equal to 2.75:1, the Applicable Margin for Tranche B Term Loans
shall be 0.75% if such Loans are Base Rate Loans and 2.00% if such Loans are
Eurodollar Loans; PROVIDED FURTHER that (i) during any period in which an Event
of Default shall have occurred and be continuing, the Applicable Margin shall be
1.00% if such Loans are Base Rate Loans and 2.25% if such Loans are Eurodollar
Loans, and (ii) if the Borrower shall have failed to deliver the financial
statements required by subsection 8.1(a) or (b) (without giving effect to any
grace period or notice requirement), the Applicable Margin shall be as set forth
in clause (i) above until such time as such delivery shall have been made.
Any change in the Applicable Margin shall be effective on the Business
Day following delivery of the financial statements under subsection 8.1(a) or
(b), subject to clauses (a)(iii) and (b)(ii) above.
"ASSET SALE": any sale or other disposition (including any sale and
leaseback of assets, and any mortgage or lease of real property) (other than a
mortgage in favor of the
<PAGE>
3
Agent or a Permitted Asset Sale) subsequent to the Closing Date of any property
of the Borrower or any of its Subsidiaries
"ASSIGNEE": as defined in subsection 12.6(c).
"ASSIGNMENT AND ACCEPTANCE": as defined in subsection 12.6(c).
"BASE RATE": for any day, a rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in
effect on such day or (b) the Federal Funds Rate in effect on such day PLUS 1/2
of 1%. For purposes hereof: "PRIME RATE" shall mean the rate of interest per
annum publicly announced from time to time by Credit Lyonnais New York Branch as
its prime rate in effect at its principal office in New York City (the Prime
Rate is not intended to be the lowest rate of interest charged by Credit
Lyonnais New York Branch in connection with extensions of credit to debtors);
and "FEDERAL FUNDS RATE" shall mean, for any day, the weighted average of the
per annum rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as published on the
next succeeding Business Day by the Federal Reserve Bank of New York, or, if
such rates are not so published for any day which is a Business Day, the average
of the quotations for the day of such transactions received by the Agent from
three federal funds brokers of recognized standing selected by it. Any change in
the Base Rate due to a change in the Prime Rate or the Federal Funds Rate shall
be effective as of the opening of business on the effective day of such change
in the Prime Rate or the Federal Funds Rate.
"BASE RATE LOANS": Loans the rate of interest applicable to which is
based upon the Base Rate.
"BILATERAL MORTGAGE": each Bilateral Mortgage executed or to be
executed and delivered by the Borrower and a Governmental Authority,
substantially in the form of Exhibit C (with any changes required by applicable
Requirements of Law), covering the property listed on Schedule III, subject to
the receipt of all required consents, and any real property hereafter owned by a
Governmental Authority and leased to the Borrower or any Domestic Subsidiary for
which the Agent requests a Bilateral Mortgage, in each case as the same may be
amended, supplemented, amended and restated or otherwise modified from time to
time.
"BOARD OF GOVERNORS": the Board of Governors of the Federal Reserve
System or any successor to the functions and powers thereof.
"BORROWER PRO FORMA FINANCIAL STATEMENTS": as defined in subsection
6.1(d).
"BORROWER SECURITY AGREEMENT": collectively, the Borrower Pledge and
Security Agreement to be executed and delivered by the Borrower, substantially
in the form of Exhibit A-1, as the same may be amended, supplemented, amended
and restated or otherwise modified from time to time, and the Patent and
Trademark Security Agreement and the Copyright Security Agreement to be executed
and delivered by the Borrower,
<PAGE>
4
substantially in the forms of Exhibit A-2(a) and (b), as the same may be
amended, supplemented, amended and restated or otherwise modified from time to
time.
"BORROWING DATE": any Business Day specified in a notice delivered
pursuant to subsection 2.2, 3.2 or 4.1 as a date on which the Borrower requests
the Lenders to make Loans hereunder or the Issuing Bank to issue a Letter of
Credit hereunder.
"BUSINESS": as defined in subsection 6.16.
"BUSINESS DAY": a day other than a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law to
close; PROVIDED, HOWEVER, that, when used in connection with a Eurodollar Loan,
the term "Business Day" shall also exclude any day on which banks are not open
for dealings in the New York interbank market.
"CAPITAL EXPENDITURES": with respect to any Person for any period, the
sum of (a) all expenditures of such Person in respect of the purchase or other
acquisition of fixed or capital assets (excluding any such asset acquired in
connection with normal replacement and maintenance programs properly charged to
current operations) that are paid or due and payable in cash during such period
and (b) all Financing Lease expenses of such Person that are paid or (without
duplication) due and payable in cash during such period; PROVIDED, HOWEVER, that
Capital Expenditures of the Borrower and its consolidated Subsidiaries for the
fiscal quarter ended March 31, 1998 shall be $7,199,000 and for the fiscal
quarter ended June 30, 1998 shall be $10,091,000.
"CAPITAL STOCK": any and all shares, interests, participations or other
equivalents (however designated) of capital stock of a corporation, regardless
of type, class, preference or designation, any and all equivalent ownership
interests in a Person other than a corporation, including membership interests,
partnership interests or other equity interests, and any and all warrants,
options, purchase rights, conversion or exchange rights, voting rights, calls or
claims of any character with respect thereto.
"CASH EQUIVALENTS": any of the following in which the Agent holds a
duly perfected first priority security interest: (a) securities issued or
directly and fully guaranteed or insured by the United States Government or any
agency or instrumentality thereof having maturities of not more than one year
from the date of acquisition, (b) time deposits and certificates of deposit,
having maturities of not more than one year from the date of acquisition, of any
Lender or of any domestic commercial bank the long-term debt of which is rated
at the date of acquisition thereof at least A or the equivalent thereof by
Standard & Poor's Corporation or A-2 or the equivalent thereof by Moody's
Investors Service, Inc. and having capital and surplus in excess of
$500,000,000, (c) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clauses (a) and (b) entered
into with any bank meeting the qualifications specified in clause (b) above and
(c) commercial paper rated at the date of acquisition thereof at least A-2 or
the equivalent thereof by Standard & Poor's Corporation or P-2 or the equivalent
thereof by
<PAGE>
5
Moody's Investors Service, Inc. and in either case maturing within 270 days
after the date of acquisition.
"CASUALTY LOSS": with respect to any asset owned or used by the
Borrower or any of its Subsidiaries: (a) any damage to or loss or destruction of
such asset; or (b) any actual condemnation or taking, by exercise of the power
of eminent domain or otherwise.
"CERCLA": the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as the same may be amended from time to time, 42 U.S.C.
ss. 9601 et seq.
"CHANGE OF CONTROL": one or more of the following events: (a) in any
three year period, a majority of the members of the Board of Directors of the
Borrower elected during such three year period shall have been elected against
the recommendation of the management of the Borrower or the Board of Directors
in office immediately prior to such election; (b) any Person other than SIMA and
its Affiliates (each, a "DESIGNATED PERSON") or Persons acting in concert with
them shall, except as provided in clause (c) below, acquire (whether by merger,
consolidation, sale, assignment, lease, transfer or otherwise, in one
transaction or any series of related transactions) or otherwise beneficially own
a majority of the Voting Stock of the Borrower; (c) upon consummation of a
consolidation or merger of a Person with a Designated Person in which the
holders of the Voting Stock of the Borrower immediately prior to such
consolidation or merger would not own Voting Stock representing at least a
majority of the outstanding Voting Stock of such Designated Person or its
ultimate parent upon consummation of such consolidation or merger; or (d) upon
the sale, transfer or assignment (it being understood that the pledge of, or the
granting of a security interest in, assets of the Borrower or its Subsidiaries
shall not be deemed a sale, transfer or assignment hereunder) of all or
substantially all of the assets of the Borrower to any Person in a single
transaction or series of related transactions; PROVIDED, HOWEVER, that a sale,
transfer or assignment of all or substantially all of the assets of the Borrower
to the Principal Shareholders or to any entity the holders of at least a
majority of the Voting Stock of which (or of such entity's ultimate parent) were
holders of Voting Stock of the Borrower immediately prior to such sale, transfer
or assignment shall not constitute a "change of control" hereunder; or (e) at
such time as the Principal Shareholders fail to beneficially own, in the
aggregate, at least 30% of the voting power of the outstanding Voting Stock of
the Borrower.
"CLOSING BALANCE SHEETS": the "Preliminary Closing Balance Sheet" and
the "Final Closing Balance Sheet," each as defined in the Purchase Agreement.
"CLOSING DATE": the date (which may be no later than October 30, 1998)
on which the conditions precedent set forth in subsection 7.1 shall be satisfied
or waived in accordance with this Agreement and the initial Loans are made or
the initial Letters of Credit are issued.
"CLOSING LETTER": that certain letter dated of even date with this
Agreement executed by the Borrower in favor of the Agent with respect to certain
post-closing matters.
<PAGE>
6
"CODE": the Internal Revenue Code of 1986, as amended from time to
time, and any successor statute.
"COLLATERAL": all assets of the Loan Parties, whether now owned or
hereafter acquired, upon which a Lien is purported to be created by any Security
Document.
"COLLATERAL ACCOUNT": as defined in subsection 8.13.
"COLLATERAL ASSIGNMENT": the Collateral Assignment of Purchase
Agreement and Tradename and Trademark License Agreement, to be executed and
delivered by the Borrower or its Subsidiary which is party thereto, and
acknowledged by the Sellers, substantially in the form of Exhibit B, as the same
may be amended, supplemented, amended and restated or otherwise modified from
time to time.
"COMMITMENT": with respect to any Lender, the collective reference to
such Lender's Tranche A Term Loan Commitment, Tranche B Term Loan Commitment,
and/or Revolving Credit Commitment; collectively, as to all the Lenders, the
"COMMITMENTS".
"COMMITMENT PERCENTAGE": as to any Lender at any time, the percentage
which (a) the sum of (i) such Lender's then unused Commitments PLUS (ii) such
Lender's Loans then outstanding (assuming, in the case of each Revolving Credit
Lender, that such Lender has made a Loan in an amount equal to its Pro Rata
Share of the Letters of Credit Outstanding) then constitutes of (b) the sum of
(x) the aggregate outstanding then unused Commitments of all the Lenders PLUS
(y) the aggregate principal amount of Loans of all the Lenders then outstanding
(assuming, in the case of the Revolving Credit Lenders, that such Lenders have
made Loans in an aggregate principal amount equal to the Letters of Credit
Outstanding).
"COMMONLY CONTROLLED ENTITY": an entity, whether or not incorporated,
which is under common control with the Borrower within the meaning of Section
4001 of ERISA or is part of a group which includes the Borrower and which is
treated as a single employer under Section 414 of the Code.
"CONSOLIDATED CURRENT ASSETS": with respect to any Person at any date
of determination, all assets which would, in accordance with GAAP, be classified
on a consolidated balance sheet of such Person and its Subsidiaries as current
assets.
"CONSOLIDATED CURRENT LIABILITIES": with respect to any Person at any
date of determination, all liabilities which would, in accordance with GAAP, be
classified on a consolidated balance sheet of such Person and its Subsidiaries
as current liabilities.
"CONSOLIDATED EBITDA": with respect to any Person for any period, the
sum of (a) Consolidated Net Income PLUS (b) to the extent deducted in computing
such Consolidated Net Income, the sum of (i) Consolidated Income Tax Expense,
(ii) Consolidated Interest Expense, (iii) depreciation and amortization expense,
(iv) Preferred Stock Dividends, (v) non-cash charges which will not result in a
cash payment and (vi) any
<PAGE>
7
loss which did not result in a cash payment, MINUS, (c) to the extent added in
computing such Consolidated Net Income, the sum of (x) any interest income, (y)
all non-cash income and (z) any gain which did not result from a cash payment,
and plus losses or minus gains incurred by a Person which are either unusual in
nature or infrequent in occurrence, all as determined on a consolidated basis
with respect to such Person and its Subsidiaries in accordance with GAAP;
PROVIDED, HOWEVER, that EBITDA of the Borrower and its consolidated Subsidiaries
for the fiscal quarter ended March 31, 1998 shall be $25,350,000 and for the
fiscal quarter ended June 30, 1998 shall be $25,274,000.
"CONSOLIDATED INCOME TAX EXPENSE": with respect to any Person for any
period, income taxes (and other taxes of a similar nature or imposed in lieu
thereof) paid in cash by such Person and its consolidated Subsidiaries;
PROVIDED, HOWEVER, that Consolidated Income Tax Expense for the Borrower and its
consolidated Subsidiaries for the fiscal quarter ended March 31, 1998 shall be $
0 and for the fiscal quarter ended June 30, 1998 shall be $ 0.
"CONSOLIDATED INTEREST EXPENSE": with respect to any Person for any
period, interest and fees paid or (without duplication) due and payable (whether
or not paid) in cash by such Person and its consolidated Subsidiaries during
such period in respect of Total Debt plus net payments paid or (without
duplication) due and payable (whether or not paid) in cash by such Person and
its consolidated Subsidiaries in respect of interest rate Hedging Agreements,
all determined on a consolidated basis in accordance with GAAP; PROVIDED,
HOWEVER, that Consolidated Interest Expense of the Borrower and its consolidated
Subsidiaries for the fiscal quarter ended March 31, 1998 shall be $ 0 and for
the fiscal quarter ended June 30, 1998 shall be $ 0.
"CONSOLIDATED NET INCOME": with respect to any Person for any period
the net income or loss of such Person and its Subsidiaries on a consolidated
basis for such period taken as a single accounting period determined in
conformity with GAAP (PROVIDED that there shall be excluded (a) the income or
loss of any Person in which any other Person (other than the Borrower or any of
its Subsidiaries) has an interest, except to the extent of the amount of
dividends or other distributions actually paid to the Borrower or any of its
Subsidiaries or the amount of any capital calls or contributions or other
fundings of losses actually required from the Borrower or any of its
Subsidiaries during such period; (b) the income of any of the Borrower's
Subsidiaries to the extent that the declaration or payment of dividends or other
distributions by that Subsidiary is not at the time permitted by operation of
the terms of its charter or other governing documents, or any agreement,
instrument, judgment, decree, order, or Requirements of Law applicable to such
Subsidiary except to the extent of dividends or other distributions actually
paid to the Borrower or any Wholly-Owned Subsidiary that is not subject to the
restrictions described in this clause (b); and (c) the net income or loss of any
Person accrued prior to the date on which it becomes a Subsidiary (other than
the Inco Entities and their Subsidiaries) or is merged into or consolidated with
such Person or any of its Subsidiaries or the date such Person's assets are
acquired by the Borrower or any of its Subsidiaries).
<PAGE>
8
"CONSOLIDATED WORKING CAPITAL": with respect to any Person at any date
of determination, Consolidated Current Assets (exclusive of cash and Cash
Equivalents) of such Person and its consolidated Subsidiaries MINUS Consolidated
Current Liabilities (excluding the current portion of any long term debt) of
such Person and its consolidated Subsidiaries.
"DEBT SERVICE": with respect to any Person for any period, the sum of
the following for such Person and its consolidated Subsidiaries (a) Consolidated
Interest Expense for such period PLUS (b) scheduled principal amortization of
Total Debt for such period (whether or not such payments are made).
"DEFAULT": any of the events specified in Section 10, whether or not
any requirement for the giving of notice, the lapse of time, or both, has been
satisfied.
"DOLLARS" and "$": dollars in lawful currency of the United States of
America.
"DOMESTIC BANK ACCOUNTS": as defined in subsection 6.25.
"DOMESTIC SUBSIDIARY": any Subsidiary of the Borrower which is
incorporated in any state or other jurisdiction of the United States of America.
"EBITDA THRESHOLD": as defined in subsection 9.8.
"ENVIRONMENTAL CLAIMS": any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, directives, claims, Liens,
notices of noncompliance or violation, investigations or proceedings relating in
any way to any Environmental Law or any permit issued, or any approval given,
under any such Environmental Law (hereafter, "CLAIMS"), including, without
limitation, (a) any and all Claims by governmental or regulatory authorities for
enforcement, cleanup, removal, response, remedial or other actions or damages
pursuant to any applicable Environmental Law, (b) any and all Claims by any
third party seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief in connection with alleged injury or threat of
injury to health, safety or the environment due to the presence of Materials of
Environmental Concern, (c) any fact, circumstance, condition or occurrence
forming the basis of any violation, or alleged violation, of any Environmental
Law and (d) any alleged injury or threat of injury to health, safety or the
environment due to the presence of Materials of Environmental Concern.
"ENVIRONMENTAL LAWS": any and all foreign, federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes or
decrees of any Governmental Authority or other Requirements of Law (including
common law) regulating, relating to or imposing liability or standards of
conduct concerning Materials of Environmental Concern or protection of human
health or the environment, as now or may at any time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
<PAGE>
9
"EUROCURRENCY RESERVE REQUIREMENTS": for any day as applied to a
Eurodollar Loan, the aggregate (without duplication) of the rates (expressed as
a decimal) of reserve requirements in effect on such day (including, without
limitation, basic, supplemental, marginal and emergency reserves under any
regulations of the Board of Governors or other Governmental Authority having
jurisdiction with respect thereto) dealing with reserve requirements prescribed
for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Board of Governors) maintained by a member bank of the
Federal Reserve System.
"EURODOLLAR BASE RATE": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, the rate per annum equal to the rate at
which Credit Lyonnais New York Branch is offered Dollar deposits in the New York
interbank market at or about 10:00 A.M., New York time, two Business Days prior
to the beginning of such Interest Period for delivery in immediately available
funds on the first day of such Interest Period for the number of days comprised
therein and in an amount comparable to the amount of its Eurodollar Loan to be
outstanding during such Interest Period.
"EURODOLLAR LOANS": Loans the rate of interest applicable to which is
based upon the Eurodollar Rate.
"EURODOLLAR RATE": with respect to each day during each Interest Period
pertaining to a Eurodollar Loan, a rate per annum determined for such day in
accordance with the following formula (rounded upward to the nearest 1/100th of
1%):
Eurodollar Base Rate
--------------------
1.00 - Eurocurrency Reserve Requirements
"EVENT OF DEFAULT": any of the events specified in Section 10, PROVIDED
that any requirement for the giving of notice, the lapse of time, or both has
been satisfied.
"EXCESS CASH FLOW": with respect to the Borrower and its Subsidiaries
on a consolidated basis for any fiscal year, (a) Consolidated EBITDA for such
fiscal year MINUS (b) the sum of (i) Debt Service for such fiscal year actually
paid in cash, (ii) any voluntary prepayments of Term Loans during such fiscal
year, (iii) Capital Expenditures during such fiscal year permitted under
subsection 9.8, (iv) Consolidated Income Tax Expense paid during such fiscal
year, (v) Restricted Payments paid in cash during such fiscal year, (vi)
consideration for Permitted Acquisitions paid in cash during such fiscal year,
and (vii) an amount equal to any increase in Consolidated Working Capital during
such fiscal year, PLUS (c) an amount equal to any decrease in Consolidated
Working Capital during such fiscal year, excluding decreases attributable to
pension or other post-retirement benefits reflected as current liabilities but
not paid in cash during such fiscal year.
"EXISTING CREDIT AGREEMENT": the Credit Agreement dated as of October
18, 1996 among the Borrower, certain lenders, and Credit Lyonnais New York
Branch as issuing lender and agent, as amended.
<PAGE>
10
"EXISTING LETTERS OF CREDIT": as defined in subsection 4.1(b).
"FDIC": the Federal Deposit Insurance Corporation or any successor to
the functions and powers thereof.
"FEDERAL FUNDS RATE": as defined in the definition of "Base Rate."
"FINANCING LEASE": any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance with
GAAP to be capitalized on a balance sheet of the lessee.
"FIXED CHARGES": with respect to any Person for any fiscal period, the
sum of the following for such Person and its consolidated Subsidiaries (a) Debt
Service for such period, (b) Capital Expenditures by such Person and its
consolidated Subsidiaries during such period, (c) Consolidated Income Tax
Expense paid during such period and (d) Preferred Stock Dividends paid during
such period, all determined on a consolidated basis in accordance with GAAP.
"FOREIGN SUBSIDIARY": any Subsidiary of the Borrower which is not a
Domestic Subsidiary.
"GAAP": generally accepted accounting principles in the United States
of America in effect on the Closing Date.
"GOVERNMENTAL AUTHORITY": any supranational, national, foreign,
federal, state or other court or governmental agency, authority, instrumentality
or regulatory body.
"GUARANTEE": any guarantee by any Loan Party of the Obligations,
including the Subsidiaries' Guarantees.
"GUARANTEE OBLIGATION": as to any Person (the "GUARANTEEING PERSON"),
any obligation of (a) the guaranteeing person or (b) another Person (including,
without limitation, any bank under any letter of credit) to induce the creation
of which the guaranteeing person has issued a reimbursement, counter indemnity
or similar obligation, in either case guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends or other obligations (the "PRIMARY OBLIGATIONS")
of any other third Person (the "PRIMARY OBLIGOR") in any manner, whether
directly or indirectly, including, without limitation, any obligation of the
guaranteeing person, whether or not contingent, (i) to purchase any such primary
obligation or any property constituting direct or indirect security therefor,
(ii) to advance or supply funds (1) for the purchase or payment of any such
primary obligation or (2) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation or
(iv) otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof; PROVIDED, HOWEVER, that the term
Guarantee Obligation shall not include
<PAGE>
11
(A) endorsements of instruments for deposit or collection in the ordinary course
of business; (B) customary and reasonable indemnity obligations of the Borrower
and its Subsidiaries (x) under any agreement or document and (y) under
Acquisition Documents pursuant to which, in any such case described in clauses
(x) and (y), the Borrower or a Subsidiary thereof may indemnify a party to any
such agreement or document with respect to losses incurred by such party as a
result of the failure of a representation or warranty of the Borrower or such
Subsidiary to be true or as a result of an event occurring after the effective
date of such agreement or document or acquisition by the Borrower or such
Subsidiary or to indemnify such party as a result of the negligence or other
culpable conduct of the Borrower or its Subsidiary, as the case may be; (C)
customary "comfort letters" which do not require a Person to make payments or to
maintain working capital, equity capital, net worth or solvency of the primary
obligor; or (D) product warranties incurred in the ordinary course of business.
The amount of any Guarantee Obligation of any guaranteeing person shall be
deemed to be the lower of (i) an amount equal to the stated or determinable
amount of the primary obligation in respect of which such Guarantee Obligation
is made and (ii) the maximum amount for which such guaranteeing person may be
liable pursuant to the terms of the instrument embodying such Guarantee
Obligation, unless such primary obligation and the maximum amount for which such
guaranteeing person may liable are not stated or determinable, in which case the
amount of such Guarantee Obligation shall be such guaranteeing person's maximum
reasonably anticipated liability in respect thereof as determined by the
Borrower in good faith.
"GUARANTOR": any Person executing and delivering a Guarantee pursuant
to this Agreement.
"HEDGING AGREEMENT": any interest rate protection agreement, interest
rate future, interest rate option, interest rate swap, cap or collar agreement
or other interest rate hedge arrangement, currency swap agreement, foreign
exchange agreement or other agreement or arrangement with respect to foreign
exchange or any foreign currency, or forward contracts for the purchase of
commodities, selected by the Borrower and, with respect to interest rate Hedging
Agreements, with a counterparty acceptable to the Agent, to or under which the
Borrower or any of its Subsidiaries is a party or a beneficiary on the date
hereof or becomes a party or a beneficiary after the date hereof.
"INCO ENTITIES": collectively, Inco Alloys International, Inc., a
Delaware corporation, Rescal S.A., a French societe anonyme, Inco Alloys
Limited, a limited company incorporated under the laws of England and Wales,
Inco Alloys International Ltd., a limited company incorporated under the laws of
England and Wales, Inco Alloys Canada Limited, a Canadian corporation, and Daido
Inco Alloys Ltd., a corporation incorporated under the laws of Japan.
"INDEBTEDNESS": of any Person at any date, without duplication, (a) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services (other than unsecured current liabilities not the
result of the borrowing of money or the obtaining of credit or the leasing of
property for accounts payable and
<PAGE>
12
expense accruals incurred or assumed in the ordinary course of business for
current purposes and not represented by a note or other evidence of indebtedness
and payable in accordance with customary practices), (b) any other indebtedness
of such Person which is evidenced by a note, bond, debenture or similar
instrument, (c) the principal component of all obligations of such Person under
Financing Leases, (d) all liabilities secured (or for which the holder has an
existing right, contingent or otherwise to be secured by) by any Lien on any
property owned by such Person even though such Person has not assumed or
otherwise become liable for the payment thereof and (e) the net obligations of
such Person under all Hedging Agreements to the extent required to be recognized
as a liability under GAAP. Indebtedness of a Person shall include any
Indebtedness of a partnership in which such Person is a general partner, unless
such partnership Indebtedness is without recourse to such general partner.
"INSOLVENCY": with respect to any Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"INSOLVENT": pertaining to a condition of Insolvency.
"INTELLECTUAL PROPERTY": with respect to any Person, such Person's
intellectual property, including United States and foreign patents, patent
applications, registered and common law trademarks, trademark applications,
service names, service marks, service mark applications, logos, trade names,
trade secrets, proprietary technology, research records, technical knowledge and
processes, inventions (whether or not patentable and whether or not reduced to
practice), invention disclosures and improvements thereto, know-how, formal or
informal licensing arrangements, technical specifications, computer software,
registered and unregistered copyrights, copyright applications, and all
embodiments of the foregoing and all rights with respect thereto, together with
the goodwill of the business symbolized by or connected with any of the
foregoing.
"INTERCOMPANY NOTE(S)": any promissory note executed by a Subsidiary of
the Borrower in favor of the Borrower or any Domestic Subsidiary, each of which
shall be in form and substance satisfactory to the Agent, and shall be pledged
to the Agent for the benefit of the Lenders pursuant to the terms of the
Security Agreement, including without limitation the SMC Acquisition Note, the
SMC (UK) Notes, the SMC (France) Note and the SMC (Canada) Note.
"INTEREST PAYMENT DATE": (a) as to any Base Rate Loan, the last day of
each March, June, September and December to occur while such Loan is
outstanding, and, in the case of Term Loans, on each scheduled payment date of
principal thereof, (b) as to any Eurodollar Loan having an Interest Period of
three months or less, the last day of such Interest Period, and (c) as to any
Eurodollar Loan having an Interest Period longer than three months, the day
which is three months after the first day of such Interest Period and the last
day of such Interest Period.
"INTEREST PERIOD": with respect to any Eurodollar Loan: (a) initially,
the period commencing on the borrowing or conversion date, as the case may be,
with respect to such Eurodollar Loan and ending one, two, three or six months
thereafter, as selected by
<PAGE>
13
the Borrower in its notice of borrowing or notice of conversion, as the case may
be, given with respect thereto; and (b) thereafter, each period commencing on
the last day of the immediately preceding Interest Period applicable to such
Eurodollar Loan and ending one, two, three or six months thereafter, as selected
by the Borrower by irrevocable notice to the Agent not less than three Business
Days prior to the last day of the then current Interest Period with respect
thereto (subject to availability from each Lender); PROVIDED, that all of the
foregoing provisions relating to Interest Periods are subject to the following:
(i) if any Interest Period pertaining to a Eurodollar Loan
would otherwise end on a day that is not a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless the
result of such extension would be to carry such Interest Period into
another calendar month in which event such Interest Period shall end on
the immediately preceding Business Day;
(ii) any Interest Period that would otherwise extend (A) in
the case of Revolving Credit Loans which are Eurodollar Loans, beyond
the Tranche A and Revolver Termination Date or (B) in the case of Term
Loans which are Eurodollar Loans, beyond the date final payment is due
on such Term Loans, shall end on the Tranche A and Revolver Termination
Date or such date of final payment, as the case may be;
(iii) any Interest Period pertaining to a Eurodollar Loan that
begins on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall end on the last Business Day
of a calendar month; and
(iv) the Borrower shall select Interest Periods so as not to
require a payment or prepayment of any Eurodollar Loan during an
Interest Period for such Loan.
"INVESTMENT": as defined in subsection 9.9.
"IRB CONSENTS": any and all consents required under the IRB Documents
in connection with this Agreement and the transactions contemplated thereby,
including the approvals of the Bilateral Mortgages by the Oneida County
Industrial Development Agency, the County of Chautauqua Industrial Development
Agency and the City of Princeton, Kentucky.
"IRB DOCUMENTS": collectively, (a) the Lease Agreement by and between
Oneida County Industrial Development Agency ("ONEIDA IDA") and Borrower, dated
February 1, 1994, as modified and amended by agreements dated February 28, 1997
and January 22, 1998; (b) the Amended and Restated Payment in Lieu of Tax
Agreement, dated as of February 28, 1997, by and between Oneida IDA and
Borrower, as amended by a First Amendment to Amended and Restated Payment in
Lieu of Tax Agreement, dated January 22, 1998; (c) the Lease between County of
Chautauqua Industrial Development Agency
<PAGE>
14
("CHAUTAUQUA IDA"), as lessor, and Borrower, as lessee, dated as of November 1,
1990; (d) the Payment in Lieu of Taxes Agreement, dated as of November 1, 1990,
by and between Chautauqua IDA and Borrower; and (e) the Amended and Restated
Lease between City of Princeton, Kentucky, as landlord, and Borrower, as tenant,
dated as of September 1, 1990, in each case as the same may be amended,
supplemented or otherwise modified from time to time.
"ISSUING BANK": Credit Lyonnais New York Branch or any Lender which,
with the approval of the Agent, may at any time issue or be requested to issue a
Letter of Credit for the account of the Borrower. If there is more than one
Issuing Bank, all references to "the Issuing Bank" shall be deemed to refer to
each Issuing Bank or all Issuing Banks, as the context requires.
"JOINT VENTURE": a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form; provided
that all liabilities of such Person shall be non-recourse to Borrower.
"LENDERS": as defined in the first paragraph of this Agreement. When
used with reference to the Security Documents and the Collateral, the term
"Lender" includes the Issuing Bank.
"LETTER OF CREDIT": a letter of credit issued by, and subject to terms
and conditions acceptable to, the Issuing Bank on behalf of the Borrower
pursuant to Section 4, which letter of credit shall have an expiration date no
later than the earlier of (a) one year after its date of issuance or (b) 30 days
prior to the Tranche A and Revolver Termination Date.
"LETTER OF CREDIT REQUEST": as defined in subsection 4.1.
"LETTERS OF CREDIT OUTSTANDING": any time, the sum of (a) the aggregate
stated amount of all outstanding Letters of Credit PLUS (without duplication)
(b) the aggregate amount of all drawings made under any Letter of Credit for
which the Issuing Bank has not received reimbursement from the Borrower by means
of a borrowing of Revolving Credit Loans pursuant to Section 3 or otherwise.
"LEVEL": as specified in the definition of Applicable Margin.
"LEVERAGE RATIO": as of any date of determination, the ratio of Total
Debt of the Borrower and its consolidated Subsidiaries as of the last day of the
most recent fiscal quarter of the Borrower prior to such date with respect to
which the Borrower has delivered to the Agent financial statements of the
Borrower and its consolidated Subsidiaries in conformity with the requirements
of subsection 8.1 to Consolidated EBITDA of the Borrower and its consolidated
Subsidiaries for the most recent four fiscal quarters of the Borrower ending on
such date.
<PAGE>
15
"LIEN": with respect to any asset, (a) any mortgage, deed of trust,
lien, pledge, encumbrance, hypothecation, preference, charge or security
interest in or on such asset, (b) the interest of a vendor or a lessor under any
conditional sale agreement, Financing Lease or title retention agreement
relating to such asset and (c) in addition, in the case of securities, any
purchase option, call or similar right of a third party with respect to such
securities.
"LOAN": any Revolving Credit Loan or Term Loan made by any Lender
pursuant to this Agreement.
"LOAN DOCUMENTS": this Agreement, the Notes, the Letters of Credit, the
Letter of Credit Requests (including the related reimbursement agreements), the
Guarantees, the Security Documents, the Closing Letter, any agreement between a
Loan Party and the Agent with respect to the payment of fees, and any interest
rate Hedging Agreement (if entered into with a Lender or an Affiliate of a
Lender), and each other document, agreement, instrument or certificate delivered
pursuant to the terms hereof or thereof, as the same may be amended,
supplemented, amended and restated or otherwise modified from time to time.
"LOAN PARTIES": the Borrower and each Subsidiary of the Borrower (after
giving effect to the Acquisition) which is a party to a Loan Document, and any
other Person which guarantees all or any portion of the Obligations and/or
grants a Lien on any of its assets to secure payment and/or performance of the
Obligations.
"MATERIAL ADVERSE EFFECT": a material adverse effect on (a) the
business, operations, assets, liabilities, property, performance or condition
(financial or otherwise) or prospects of the Borrower or any Material Subsidiary
or the Borrower and its Subsidiaries, taken as a whole, or (b) the validity or
enforceability of this Agreement, any Note or any of the other Loan Documents or
(c) the rights or remedies of the Agent, the Issuing Bank or the Lenders
hereunder or thereunder.
"MATERIAL SUBSIDIARY": any Subsidiary whose assets, as of the end of
the most recent fiscal quarter, were at least 10% of the total assets of the
Borrower and its Subsidiaries, taken as a whole, determined in accordance with
GAAP.
"MATERIALS OF ENVIRONMENTAL CONCERN": any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated as such
in or under any Environmental Law, including, without limitation, asbestos,
polychlorinated biphenyls, urea-formaldehyde insulation, lead-based paint,
radiation, radioactive materials and electromagnetic fields.
"MORTGAGE": each Mortgage or Deed of Trust executed or to be executed
and delivered by any Loan Party, substantially in the form of Exhibit D (with
any changes required by applicable Requirements of Law), covering the interests
in real property listed on Schedule II and any interests in real property
located in the United States hereafter acquired by the Borrower or any Domestic
Subsidiary of the Borrower for which the Agent
<PAGE>
16
requests a Mortgage, in each case as the same may be amended, supplemented,
amended and restated or otherwise modified from time to time.
"MORTGAGED PROPERTIES": all of the interests in real estate in which
Liens are purported to be granted to the Agent pursuant to the Mortgages and the
Bilateral Mortgages.
"MULTIEMPLOYER PLAN": a Plan which is a multiemployer plan as defined
in Section 3(37) or 4001(a)(3) of ERISA.
"NET PROCEEDS": (a) 100% of the cash proceeds of any Asset Sale by the
Borrower or any of its Subsidiaries (including any cash payments received by way
of deferred payment of principal pursuant to a note or installment receivable or
purchase price adjustment receivable or otherwise, but only as and when
received) of such Asset Sale net of (i) reasonable attorneys' fees, accountants'
fees, investment banking fees, survey costs, title insurance premiums, and
related search and recording charges, transfer taxes, deed or mortgage recording
taxes, required debt payments secured by Liens on such assets (other than
pursuant hereto), other customary expenses and brokerage, consultant and other
customary fees actually incurred in connection therewith and (ii) taxes paid or
payable as a result thereof; (b) 100% of Qualifying Insurance and Other
Proceeds; (c) 100% of all Pension Plan Reversion Proceeds; (d) 100% of the cash
proceeds of any issuance of equity securities of the Borrower after the Closing
Date, net of reasonable attorneys' and accounting fees, investment banking or
underwriting fees or discounts and other customary expenses actually incurred in
connection therewith; and (e) 100% of the cash proceeds of any issuance of debt
securities by the Borrower or any of its Subsidiaries after the Closing Date
(other than Indebtedness permitted by subsection 9.2), net of reasonable
attorneys' fees and other customary expenses actually incurred in connection
therewith.
"NEW SUBSIDIARY": each Subsidiary of the Borrower organized, formed or
acquired after the Closing Date.
"NEW YORK MORTGAGE LOANS": the loans from the County of Oneida and the
State of New York to the Borrower in aggregate principal amount of $2,000,000,
secured by a first priority Lien on a portion of the real property and equipment
located in New Hartford, New York.
"NON-EXCLUDED TAXES": as defined in subsection 5.10(a).
"NOTES": the collective reference to the Revolving Credit Notes and the
Term Notes.
"OBLIGATIONS": means all direct or indirect debts, liabilities and
obligations of any Person of any and every type and description at any time
arising under or in connection with the Credit Agreement or any other Loan
Document, to the Agent, the Issuing Bank, Credit Lyonnais, any Lender (including
in its capacity as a counterparty to an interest rate Hedging Agreement), or any
other Person entitled to indemnification pursuant to the Credit Agreement or any
other Loan Document, in each case whether now outstanding
<PAGE>
17
or hereafter created or incurred, whether or not the right to payment in respect
of any such debts, liabilities or obligations is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured or unsecured and whether or not such claim
is discharged, stayed or otherwise affected by any bankruptcy case or
insolvency, reorganization, receivership, dissolution or liquidation proceeding,
and shall include (a) all liabilities of such Person for principal of and
interest on any and all Loans at any time outstanding under the Credit
Agreement, (b) all liabilities of such Person in respect of Letters of Credit at
any time issued pursuant to the Credit Agreement, (c) all liabilities of such
Person under the Loan Documents for any fees, costs, taxes, expenses,
indemnification and other amounts payable thereunder, (d) all liabilities of
such Person under any interest rate Hedging Agreement entered into with any
Lender or any of its Affiliates, and (e) all other liabilities of such Person
under or in respect of any of the Loan Documents or any of the transactions
contemplated thereby.
"OTHER TAXES": as defined in subsection 5.10(a).
"PARTICIPANT": as defined in subsection 12.6(b).
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA.
"PENSION PLAN REVERSION PROCEEDS": the amount of the cash and the fair
market value of any and all other property received (directly or indirectly) by
the Borrower or any Commonly Controlled Entity after the Closing Date from the
termination of any stock, bonus, pension or profit-sharing plan (or trust
thereunder) which was treated by the Borrower or such Commonly Controlled Entity
as a plan qualified under Code Section 401(a) which shall not have been applied
by the Borrower or such Commonly Controlled Entity to payment of (a) taxes, if
any, imposed with respect to the receipt of such cash or other property or (b)
the payment of reasonable costs and expenses (including legal, actuarial and
accounting fees) actually incurred in obtaining such cash or other proceeds.
"PERMITTED ACQUISITION": (a) the acquisition by the Borrower or one of
its Subsidiaries of the minority shares of Rescal S.A. resulting in Rescal S.A.
being a Wholly- Owned Subsidiary, for an aggregate price of not more than
$1,000,000; and (b) the acquisition by Borrower or any Wholly-Owned Subsidiary
of the Capital Stock of a Person that becomes a Wholly-Owned Subsidiary or all
or substantially all of the assets or line of business of a Person or the
acquisition of an interest in a Joint Venture if (i) after giving effect to such
acquisition, the Borrower and its Subsidiaries have complied with subsections
8.10 and 9.15; (ii) before and after giving effect to such acquisition, Borrower
and its Subsidiaries are in compliance on a PRO FORMA basis with the covenants
contained in subsection 9.1 for the most recent period; (iii) no Default or
Event of Default has occurred and is continuing or will result from such
acquisition; (iv) the Person or assets to be acquired or (if the Joint Venture
has had prior operations) the Joint Venture, as the case may be, shall have had
a positive Consolidated EBITDA for the most recent 12 month period for which
financial statements are available; and (v) the aggregate consideration for all
acquisitions
<PAGE>
18
permitted under this clause (b) does not exceed $20,000,000 in each of 1999 and
2000, $30,000,000 in each of 2001 and 2002 or $40,000,000 in any year
thereafter.
"PERMITTED ASSET SALE": an Asset Sale permitted by any of subsections
9.6(a), (b), (c), (e), (f), (g), or (h).
"PERMITTED LIENS": as defined in subsection 9.3.
"PERSON": an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated association,
joint venture, Governmental Authority or other entity of whatever nature.
"PLAN": at a particular time, any employee benefit plan which is
covered by ERISA and in respect of which the Borrower or a Commonly Controlled
Entity is (or, if such plan were terminated at such time, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"PREFERRED STOCK": 1,940,000 shares of the Borrower's 6.625% Series A
Senior Convertible Preferred Stock (subject to adjustment in accordance with the
terms of the Preferred Stock Documents).
"PREFERRED STOCK DIVIDENDS": with respect to any period, dividends paid
in cash on the Preferred Stock.
"PREFERRED STOCK DOCUMENTS": the Investment Agreement dated as of July
8, 1998 among the Borrower, Titanium Metals Corporation and TIMET Finance
Management Company, as amended by Amendment to Investment Agreement dated as of
the Closing Date, the Investment Agreement dated as of the Closing Date between
the Borrower and Inco Limited, the Registration Rights Agreements each dated as
of the Closing Date between the Borrower and TIMET Management Finance Company
and between the Borrower and Inco Limited, the Certificate of Designations of
the Preferred Stock, and the Preferred Stock, as amended, supplemented or
otherwise modified from time to time to the extent permitted under subsection
9.19.
"PRINCIPAL SHAREHOLDERS": SIMA, LWH Holdings S.A. and Advanced
Materials Investments Holdings S.A. and their Affiliates.
"PRO RATA REVOLVING SHARE": with respect to any Revolving Credit Lender
at any time, that percentage equal to the Revolving Credit Commitment Percentage
of such Revolving Credit Lender at such time.
"PURCHASE AGREEMENT": the Stock Purchase Agreement, dated as of July 8,
1998, by and among the Sellers and the Borrower, as amended by a letter
agreement, dated as of the Closing Date, together with all exhibits and
schedules thereto, as amended, supplemented or otherwise modified to the extent
permitted under subsection 9.19.
<PAGE>
19
"QUALIFYING INSURANCE AND OTHER PROCEEDS": any (a) insurance proceeds
payable to the Borrower or any of its Subsidiaries after the Closing Date on
account of a Casualty Loss which shall not have been applied by the Borrower or
such Subsidiary to the payment of the cost of repair or replacement of the
property subject to such Casualty Loss within six months of the date such
insurance proceeds are actually received by the Borrower or such Subsidiary, or
committed to such repair or replacement which has commenced within such six
months and has been completed within the next six months and (b) payments made
by any Seller to the Borrower or any of its Subsidiaries pursuant to the
Purchase Agreement after the Closing Date (other than payments made by any
Seller to the Borrower or any of its Subsidiaries on account of a liability
incurred by the Borrower or any of its Subsidiaries to a third party, for
reimbursement of costs and expenses paid by the Borrower or any of its
Subsidiaries or for services rendered by the Borrower or any of its
Subsidiaries), including any payment receivable by the Borrower from any Seller
as a result of a downward adjustment to the purchase price under the Purchase
Agreement, MINUS, in the case of clauses (a) and (b), reasonable costs and
expenses (including legal and accounting fees) actually incurred by the Borrower
or its Subsidiaries in recovering such proceeds or payments.
"RECEIVABLES PROGRAM": as defined in the Purchase Agreement.
"REFINANCING": as defined in subsection 7.1(e).
"REGISTER": as defined in subsection 12.6(d).
"REGULATION U": Regulation U of the Board of Governors as in effect
from time to time.
"REORGANIZATION": with respect to any Multiemployer Plan, the condition
that such plan is in reorganization within the meaning of Section 4241 of ERISA,
"REPORTABLE EVENT": any of the events set forth in Section 4043(b) of
ERISA, other than those events as to which the thirty day notice period is
waived pursuant to PBGC Reg. ss. 4043.
"REQUIRED LENDERS": at any time, Lenders the Commitment Percentages of
which aggregate in excess of 50%.
"REQUIRED REVOLVING CREDIT LENDERS": at any time, Revolving Credit
Lenders the Revolving Credit Commitment Percentages of which aggregate in excess
of 50%.
"REQUIRED TRANCHE A LENDERS": at any time, Tranche A Lenders the
Tranche A Commitment Percentages of which aggregate in excess of 50%.
"REQUIRED TRANCHE B LENDERS": at any time, Tranche B Lenders the
Tranche B Commitment Percentages of which aggregate in excess of 50%.
<PAGE>
20
"REQUIREMENT OF LAW": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"RESPONSIBLE OFFICER": with respect to the Borrower or any Subsidiary,
any one of the chairman of the board, the chief executive officer, the president
and any vice president of the Borrower or such Subsidiary or, with respect to
financial matters, the chief financial officer or treasurer of the Borrower or
such Subsidiary.
"RESTRICTED PAYMENT": as defined in subsection 9.7.
"REVOLVING CREDIT COMMITMENT": with respect to each Revolving Credit
Lender, the amount set forth opposite such Revolving Credit Lender's name on
Schedule I under the heading "Revolving Credit Commitment" or in the applicable
Assignment and Acceptance, as such amount may be reduced from time to time
pursuant to this Agreement; collectively, as to all the Revolving Credit
Lenders, the "REVOLVING CREDIT COMMITMENTS".
"REVOLVING CREDIT COMMITMENT PERCENTAGE": as to any Revolving Credit
Lender at any time, the percentage of such Revolving Credit Lender's Revolving
Credit Commitment of the aggregate outstanding Revolving Credit Commitments of
all the Revolving Credit Lenders or if the Revolving Credit Commitments have
been terminated, the percentage which the sum of its outstanding Revolving
Credit Loans PLUS its proportionate share of the Letters of Credit Outstanding
constitutes of the aggregate outstanding Revolving Credit Loans and Letters of
Credit Outstanding of all Revolving Credit Lenders.
"REVOLVING CREDIT COMMITMENT PERIOD": the period from and including the
Closing Date to but not including the Tranche A and Revolver Termination Date or
such earlier date on which the Revolving Credit Commitments shall terminate as
provided herein.
"REVOLVING CREDIT LENDER": any Lender with an unused Revolving Credit
Commitment hereunder and/or any Revolving Credit Loans outstanding hereunder or
participations in any Letters of Credit Outstanding; collectively, the
"REVOLVING CREDIT LENDERS".
"REVOLVING CREDIT LOANS": as defined in subsection 3.1(a).
"REVOLVING CREDIT NOTE": as defined in subsection 3.3(e).
"SEC": the United States Securities and Exchange Commission or any
successor thereto.
"SECURITY AGREEMENTS": collectively, the Borrower Security Agreement
and the Subsidiary Security Agreements.
<PAGE>
21
"SECURITY DOCUMENTS": collectively, the Bilateral Mortgages, the
Mortgages, the Security Agreements, and all other security documents hereafter
delivered to the Agent granting or purporting to grant a Lien on any asset or
assets of any Person to secure the Obligations of the Borrower and/or any other
Loan Party hereunder and/or under any of the other Loan Documents or to secure
any guarantee of any such obligations and liabilities.
"SELLERS": collectively, Inco Limited, a corporation continued under
the laws of Canada, Inco United States, Inc., a Delaware corporation, Inco
Europe Limited, a limited company incorporated under the laws of England and
Wales, and Inco S.A., a French societe anonyme.
"SIMA": Societe Industrielle de Materiaux Avances, as societe anonyme
organized under the laws of the Republic of France.
"SINGLE EMPLOYER PLAN": any Plan which is covered by Title IV of ERISA,
but which is not a Multiemployer Plan.
"SMC ACQUISITION": IAII Acquisition Co., a Delaware corporation, a
Wholly-Owned Subsidiary of the Borrower, which will be merged with and into Inco
Alloys International, Inc. in connection with the Acquisition.
"SMC (CANADA)": IACL Acquisition Inc., a Canadian corporation, a
Wholly- Owned Subsidiary of the Borrower, which will be amalgamated with and
into Inco Alloys Canada Limited. in connection with the Acquisition.
"SMC (FRANCE)": Special Metals S.A.R.L., a French soci,t, ...
responsabilit, limit,e, a Wholly-Owned Subsidiary of SMC (UK).
"SMC (UK)": IAL Holdings Limited, a corporation established under the
laws of England, a Wholly-Owned Subsidiary of the Borrower.
"SMC ACQUISITION NOTE": the promissory note dated October 28, 1998 in
the original principal amount of $178,000,000, executed by SMC Acquisition in
favor of the Borrower.
"SMC (CANADA) NOTE": the promissory note dated October 28, 1998 in the
original principal amount of $4,875,000, executed by SMC (Canada) in favor of
the Borrower.
"SMC (FRANCE) NOTE": the promissory note(s) in an original principal
amount not to exceed $7,000,000, executed by SMC (France) in favor of the
Borrower, or in favor of SMC (UK) and assigned to the Borrower after the Closing
Date.
"SMC (UK) NOTES": collectively, (a) the promissory note dated October
28, 1998 in the original principal amount of $64,400,000, (b) the promissory
note(s) dated October 28, 1998 in an original principal amount not to exceed
$7,000,000, and (c) the
<PAGE>
22
promissory note in the original principal amount of $1,000,000 issued by SMC
(UK) in connection with the assignment of the note issued to SMC (UK) by SMC
(France), each executed by SMC (UK) in favor of the Borrower.
"SOLVENT": when used with respect to any Person, means that, as of any
date of determination, (a) the "fair value" of the property of such Person will,
as of such date, exceed such Person's "total liabilities" (as such quoted terms
are determined in accordance with applicable federal, state or foreign laws
governing insolvency of debtors), (b) the amount of the "present fair saleable
value" of the assets of such Person will, as of such date, exceed the amount
that will be required to pay all "liabilities of such Person, contingent or
otherwise", as of such date (as such quoted terms are determined in accordance
with applicable federal, state or foreign laws governing determinations of the
insolvency of debtors) as such debts become absolute and matured, (c) such
Person will not have, as of such date, an unreasonably small amount of capital
with which to conduct its business, and (d) such Person will be able to pay its
debts as they mature, taking into account the timing of and amounts of cash to
be received by such Person and the timing of and amounts of cash to be payable
on or in respect of indebtedness of such Person; in each case after giving
effect to (i) as of the Closing Date, the making of the Loans to be made on the
Closing Date and the application of the proceeds of such Loans, and the
consummation of the Transactions and (ii) on any date after the Closing Date,
the making of any Revolving Credit Loan to be made on such date, and to the
application of the proceeds of such Revolving Credit Loan, or the issuance of
any Letter of Credit on such date. For purposes of this definition, "debt" means
liability on a "claim", and "claim" means any (x) right to payment, whether or
not such a right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal equitable, secured
or unsecured or (y) right to an equitable remedy for breach of performance if
such breach gives rise to a right to payment, whether or not such right to an
equitable remedy is reduced to judgment, fixed, contingent, matured or
unmatured, disputed, undisputed, secured or unsecured.
"SUBSIDIARY": as to any Person, a corporation, partnership or other
entity of which shares of Capital Stock having ordinary voting power (excluding
Capital Stock having such power only as a result of the occurrence of a
contingency) to elect a majority of the board of directors or other managers of
such corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries, or both, by such Person. Unless otherwise qualified, all
references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer
to a Subsidiary or Subsidiaries of the Borrower, and shall include all Domestic
Subsidiaries and Foreign Subsidiaries of the Borrower after giving effect to the
Acquisition.
"SUBSIDIARIES' GUARANTEE": the Guarantee executed or to be executed and
delivered by each Domestic Subsidiary of the Borrower substantially in the form
of Exhibit E, in each case as the same may be amended, supplemented, amended and
restated or otherwise modified from time to time.
<PAGE>
23
"SUBSIDIARY SECURITY AGREEMENT": collectively, (a) the Subsidiary
Pledge and Security Agreement executed or to be executed and delivered by each
Domestic Subsidiary of the Borrower in favor of the Agent, substantially in the
form of Exhibit F-1, in each case as the same may be amended, supplemented,
amended and restated or otherwise modified from time to time and (b) the Patent
and Trademark Security Agreement and the Copyright Security Agreement executed
or to be executed by each Domestic Subsidiary in favor of the Agent,
substantially in the forms of Exhibit F-2(a) and (b) in each case as the same
may be amended, supplemented, amended and restated or otherwise modified from
time to time.
"SUPPLY CONTRACTS": collectively, (a) the nickel supply contracts and
cobalt supply contract(s) entered into on or prior to the Closing Date between
Inco Alloys International, Inc., or Inco Alloys Limited and one or more of the
Sellers or its Affiliates in each case as such agreement or understanding may be
amended, supplemented, amended and restated or otherwise modified from time to
time.
"TERM LOAN": a Tranche A Term Loan or a Tranche B Term Loan, as the
context shall require; collectively, the "TERM LOANS".
"TERM LOAN COMMITMENTS": the collective reference to the Tranche A
Commitments and the Tranche B Commitments; individually, a "TERM LOAN
COMMITMENT".
"TERM LOAN COMMITMENT PERCENTAGE": as to any Term Loan Lender at any
time, the percentage of the Term Loan Commitments then constituted by such Term
Loan Lender's Term Loan Commitments (or, after the Term Loans are made, the
percentage of the aggregate Term Loans then constituted by such Term Loan
Lender's Term Loans).
"TERM LOAN LENDER": any Lender with an unused Term Loan Commitment
hereunder and/or any Term Loans outstanding hereunder; collectively, the "TERM
LOAN LENDERS".
"TERM NOTE": a Tranche A Term Note or a Tranche B Term Note, as the
context shall require; collectively, the "TERM NOTES".
"TOTAL DEBT": with respect to any Person at any time, all Indebtedness
of such Person and its Subsidiaries as determined on a consolidated basis in
accordance with GAAP, including (without duplication), if such Person is the
Borrower, the aggregate principal amount of all outstanding Loans.
"TRANCHE": the collective reference to Eurodollar Loans the then
current Interest Periods with respect to all of which begin on the same date and
end on the same later date (whether or not such Loans shall originally have been
made on the same day).
"TRANCHE A AND REVOLVER TERMINATION DATE": the fifth anniversary of the
Closing Date.
<PAGE>
24
"TRANCHE A COMMITMENT": as to any Tranche A Lender, its obligation to
make a Tranche A Term Loan to the Borrower in an amount equal to the amount set
forth opposite such Tranche A Lender's name in Schedule I under the heading
"Tranche A Commitment", or in the applicable Assignment and Acceptance, as such
amount may be reduced from time to time pursuant to this Agreement;
collectively, as to all the Tranche A Lenders, the "TRANCHE A COMMITMENTS".
"TRANCHE A COMMITMENT PERCENTAGE": as to any Tranche A Lender at any
time, the percentage of the Tranche A Commitments then constituted by such
Tranche A Lender's Tranche A Commitment (or, after the Tranche A Term Loans are
made, the percentage of the aggregate Tranche A Term Loans then constituted by
such Tranche A Lender's Tranche A Term Loan).
"TRANCHE A LENDER": any Lender with an unused Tranche A Commitment
hereunder and/or any Tranche A Term Loans outstanding hereunder, collectively,
the "TRANCHE A LENDERS".
"TRANCHE A TERM LOAN": as defined in subsection 2.1(a).
"TRANCHE A TERM NOTE": as defined in subsection 2.5(d)(i).
"TRANCHE B COMMITMENT": as to any Tranche B Lender, its obligation to
make a Tranche B Term Loan to the Borrower in an amount equal to the amount set
forth opposite such Tranche B Lender's name in Schedule I under the heading
"Tranche B Commitment", or in the applicable Assignment and Acceptance, as such
amount may be reduced from time to time pursuant to this Agreement;
collectively, as to all the Tranche B Lenders, the "TRANCHE B COMMITMENTS".
"TRANCHE B COMMITMENT PERCENTAGE": as to any Tranche B Lender at any
time, the percentage of the Tranche B Commitments then constituted by such
Tranche B Lender's Tranche B Commitment (or, after the Tranche B Term Loans are
made, the percentage of the aggregate Tranche B Term Loans then constituted by
such Tranche B Lender's Tranche B Term Loan).
"TRANCHE B LENDER": any Lender with an unused Tranche B Commitment
hereunder and/or any Tranche B Term Loans outstanding hereunder; collectively,
the "TRANCHE B LENDERS".
"TRANCHE B MATURITY DATE": the seventh anniversary of the Closing Date.
"TRANCHE B TERM LOAN": as defined in subsection 2.1(a).
"TRANCHE B TERM NOTE": as defined in subsection 2.5(d)(ii).
<PAGE>
25
"TRANSACTIONS": the Loans and Letters of Credit issued on the Closing
Date, the Acquisition, the Refinancing and the purchase and sale of the
Preferred Stock, and all other related transactions.
"TRANSACTION DOCUMENTS": the Loan Documents, the Acquisition Documents,
the Preferred Stock Documents, and the Supply Contracts.
"TRANSFEREE": as defined in subsection 12.6(f).
"TYPE": as to any Loan, its nature as a Base Rate Loan or a Eurodollar
Loan.
"UNUSED REVOLVING CREDIT COMMITMENT": as to any Revolving Credit Lender
at any time, an amount equal to the excess, if any, of (a) the amount of such
Revolving Credit Lender's Revolving Credit Commitment at such time over (b)(i)
the aggregate principal amount of all Revolving Credit Loans made by such Lender
then outstanding PLUS (ii) such Lender's Pro Rata Revolving Share of Letters of
Credit Outstanding at such time.
"VOTING STOCK": as to any Person, the Capital Stock of such Person
normally entitled to vote in the election of directors or other governing body
of such Person, and securities convertible into such Capital Stock.
"WHOLLY OWNED SUBSIDIARY": a Subsidiary of the Borrower of which the
Borrower owns, directly or indirectly, all of the Capital Stock, exclusive of
Capital Stock of a Foreign Subsidiary required to be owned by residents of the
jurisdiction in which such Foreign Subsidiary is organized or located and
commonly referred to as "director's qualifying shares."
"YEAR 2000 PROBLEM": any significant risk that computer hardware,
software or equipment containing embedded microchips material to the business or
operations of the Borrower or any of its Subsidiaries (or, prior to the Closing
Date, of the Inco Entities and their Subsidiaries) will not, in the case of
dates or time periods occurring after December 31, 1999, function at least as
effectively and reliably as in the case of times or time periods occurring
before January 1, 2000, including the making of accurate leap year calculations.
OTHER DEFINITIONAL PROVISIONS.
(a) Unless otherwise specified therein, all terms defined in this
Agreement shall have the defined meanings when used in any Loan Document or any
certificate or other document made or delivered pursuant hereto.
(b) As used herein and in any Loan Document and any certificate or
other document made or delivered pursuant hereto, accounting terms relating to
the Borrower and its Subsidiaries not defined in subsection 1.1 and accounting
terms partly defined in subsection 1.1, to the extent not defined, shall have
the respective meanings given to them under GAAP.
<PAGE>
26
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, subsection,
Schedule and Exhibit references in this Agreement are to this Agreement unless
otherwise specified. The terms "including" "include" and "includes" when used in
this Agreement or any other Loan Document shall be deemed to mean "including
without limitation," and the word "will" shall be construed to have the meaning
and effect as "shall."
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
(e) Sections and subsections headings in this Agreement are included
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or in any way affect the meaning or construction
of any provision of this Agreement.
(f) Unless otherwise specified herein or the context otherwise
requires, all references to (i) any Requirement of Law defined or referred to
herein shall be deemed to refer to such Requirement of Law or any successor
Requirement of Law, as the same may have been or may be amended or supplemented
from time to time and (ii) to any document, instrument or agreement defined or
referred to herein shall be deemed to refer to such document, instrument or
agreement (and in the case of any Note or other instrument, any instrument
issued in substitution therefor), as the same may have been or may be amended,
supplemented, amended and restated, waived or otherwise modified from time to
time (subject, however, to any restrictions on amendments or other modifications
herein).
SECTION
AMOUNT AND TERMS OF TERM LOAN COMMITMENTS
TERM LOANS. Subject to the terms and conditions hereof, (a) each
Tranche A Lender severally (and not jointly) agrees to make a term loan (a
"TRANCHE A TERM LOAN") to the Borrower on the Closing Date in an amount equal to
the Tranche A Commitment of such Tranche A Lender and (b) each Tranche B Lender
severally (and not jointly) agrees to make a term loan (a "TRANCHE B TERM LOAN")
to the Borrower on the Closing Date in an amount equal to the Tranche B
Commitment of such Tranche B Lender. The Term Loans may from time to time be
Eurodollar Loans, Base Rate Loans or a combination thereof, as determined by the
Borrower and notified to the Agent in accordance with subsections 2.2 and 5.2.
No portion of the Term Loan Commitments which has not been borrowed on the
Closing Date may be borrowed thereafter, and no portion of any Term Loan which
is repaid or prepaid may be reborrowed.
PROCEDURE FOR TERM LOAN BORROWING. The Borrower hereby requests a
Tranche A Term Loan borrowing on the Closing Date in an amount equal to the
aggregate amount of the Tranche A Commitments of the Tranche A Lenders and a
Tranche B Term Loan borrowing on the Closing Date in an amount equal to the
aggregate amount of the Tranche B Commitments of the Tranche B
<PAGE>
27
Lenders. The Borrower shall give the Agent irrevocable notice prior to 10:00
A.M., New York City time, at least three Business Days prior to the Closing Date
if all or any part of the Term Loans are to be initially Eurodollar Loans,
specifying the respective amounts of each such Type of Loan and the respective
lengths of the initial Interest Periods therefor. If no such notice is given by
the Borrower, the Term Loans shall initially be Base Rate Loans. Upon receipt of
such notice the Agent shall promptly notify the Term Loan Lenders thereof. Each
Term Loan Lender will make the amount of its PRO RATA share of each borrowing of
Term Loans available to the Agent for the account of the Borrower at the office
of the Agent specified in subsection 12.2 prior to 10:00 A.M., New York City
time, on the Closing Date in Dollars and in funds immediately available to the
Agent. The Agent shall, by 12:00 noon, New York City time, on the Closing Date
credit the account of the Borrower on the books of such office of the Agent or
such other account as specified by the Borrower with the aggregate of the
amounts made available to the Agent by the Term Loan Lenders and in like funds
as received by the Agent.
REPAYMENT OF TRANCHE A TERM LOANS. The Borrower hereby unconditionally
promises to pay to the Agent for the account of the Tranche A Lenders in
repayment of the principal amount of the Tranche A Term Loans made by such
Tranche A Lenders the amounts set forth below on the last Business Day of each
month and year set forth below; PROVIDED that, notwithstanding the foregoing,
the aggregate then unpaid principal amount of the Tranche A Term Loans shall be
payable on the Tranche A and Revolver Termination Date (or such earlier date on
which the Tranche A Term Loans become due and payable pursuant to Section 5 or
10):
Month, Year Amount
- ----------- ------
December, 1998 $2,500,000
March, 1999 $2,500,000
June, 1999 $2,500,000
September, 1999 $2,500,000
December, 1999 $3,750,000
March, 2000 $3,750,000
June, 2000 $3,750,000
September, 2000 $3,750,000
December, 2000 $6,250,000
March, 2001 $6,250,000
June, 2001 $6,250,000
September, 2001 $6,250,000
December, 2001 $8,750,000
March, 2002 $8,750,000
June, 2002 $8,750,000
September, 2002 $8,750,000
December, 2002 $10,000,000
March, 2003 $10,000,000
<PAGE>
28
June, 2003 $10,000,000
Tranche A and Revolver
Termination Date $10,000,000
The Borrower hereby further agrees to pay interest on the unpaid principal
amount of the Tranche A Term Loans from time to time outstanding from the date
hereof until payment in full thereof at the rates per annum, and on the dates,
set forth in subsection 5.4.
REPAYMENT OF TRANCHE B TERM LOANS. The Borrower hereby unconditionally
promises to pay to the Agent for the account of the Tranche B Lenders in
repayment of the principal amount of the Tranche B Term Loans made by such
Tranche B Lenders the amounts set forth below on the last Business Day of each
month and year set forth below; PROVIDED that, notwithstanding the foregoing,
the aggregate then unpaid principal amount of the Tranche B Term Loans shall be
payable on the Tranche B Maturity Date (or such earlier date on which the
Tranche B Term Loans become due and payable pursuant to Section 5 or 10):
Month, Year Amount
- ----------- ------
December, 1998 $250,000
March, 1999 $250,000
June, 1999 $250,000
September, 1999 $250,000
December, 1999 $250,000
March, 2000 $250,000
June, 2000 $250,000
September, 2000 $250,000
December, 2000 $250,000
March, 2001 $250,000
June, 2001 $250,000
September, 2001 $250,000
December, 2001 $250,000
March, 2002 $250,000
June, 2002 $250,000
September, 2002 $250,000
December, 2002 $250,000
March, 2003 $250,000
June, 2003 $250,000
September, 2003 $250,000
December, 2003 $11,875,000
March, 2004 $11,875,000
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29
June, 2004 $11,875,000
September, 2004 $11,875,000
December, 2004 $11,875,000
March, 2005 $11,875,000
June, 2005 $11,875,000
Tranche B Maturity Date $11,875,000
The Borrower hereby further agrees to pay interest on the unpaid principal
amount of the Tranche B Term Loans from time to time outstanding from the date
hereof until payment in full thereof at the rates per annum, and on the dates,
set forth in subsection 5.4.
EVIDENCE OF TERM LOAN DEBT. (a) Each Term Loan Lender shall maintain in
accordance with its usual practice an account or accounts evidencing
indebtedness of the Borrower to such Term Loan Lender resulting from the Tranche
A Term Loans and/or Tranche B Term Loans made by such Term Loan Lender from time
to time, including the amounts of principal and interest payable and paid to
such Term Loan Lender from time to time under this Agreement.
(b) The Agent shall maintain the Register pursuant to subsection
12.6(d), and a subaccount therein for each Term Loan Lender, in which shall be
recorded (i) the amount of each Tranche A Term Loan and Tranche B Term Loan made
hereunder, the Type thereof and, in the case of Eurodollar Loans, each Interest
Period applicable thereto, (ii) the amount of any principal or interest due and
payable or to become due and payable from the Borrower to each Term Loan Lender
hereunder and (iii) both the amount of any sum received by the Agent hereunder
from the Borrower and each Term Loan Lender's share thereof, if any.
(c) The entries made in the Register and the accounts of each Term Loan
Lender maintained by the Agent pursuant to subsection 2.5(b) shall, to the
extent permitted by applicable law, be PRIMA FACIE evidence of the existence and
amounts of the obligations of the Borrower therein recorded; PROVIDED, HOWEVER,
that the failure of any Term Loan Lender or the Agent to maintain any such
account or the Register, or any error therein, shall not in any manner affect
the obligation of the Borrower to repay (with applicable interest) the Tranche A
Term Loans and/or Tranche B Term Loans made to the Borrower by such Term Loan
Lender in accordance with the terms of this Agreement.
(d) The Borrower agrees that at the closing on the Closing Date the
Borrower will execute and deliver to such Term Loan Lender (i) a promissory note
of the Borrower evidencing the Tranche A Term Loans made by such Tranche A
Lender, substantially in the form of Exhibit G-1 (a "TRANCHE A TERM NOTE"),
payable to the order of such Tranche A Lender and in a principal amount equal
to, the lesser of (A) the initial Tranche A Commitment of such Tranche A Lender
or (B) the aggregate unpaid principal amount of all Tranche A Term Loans made by
such Tranche A Lender, and/or (ii) a promissory note of the Borrower evidencing
the Tranche B Term Loan made by such Tranche B Lender, substantially in the form
of Exhibit G-2 (a "TRANCHE B TERM NOTE"), payable to the order of
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30
such Tranche B Lender and in a principal amount equal to the lesser of (i) the
initial Tranche B Commitment of such Tranche B Lender or (ii) the aggregate
unpaid principal amount of all Tranche B Term Loans made by such Tranche B
Lender. Each Term Loan Lender is hereby authorized to record the date, Type and
amount of each Tranche A Term Loan or Tranche B Term Loan, as the case may be,
made by such Term Loan Lender, the date and amount of each payment or prepayment
of principal thereof, each continuation thereof, each conversion of all or a
portion thereof to another Type and, in the case of Eurodollar Loans, the length
of each Interest Period and Eurodollar Rate with respect thereto, on the
schedule annexed to and constituting a part of its Tranche A Term Note or
Tranche B Term Note, as the case may be; PROVIDED, HOWEVER, that the failure to
make any such recordation (or any error therein) shall not in any manner affect
the obligation of the Borrower to repay (with applicable interest) the Tranche A
Term Loans and/or Tranche B Term Loans made to the Borrower in accordance with
the terms of this Agreement.
USE OF PROCEEDS OF TERM LOANS. The proceeds of the Term Loans shall be
used by the Borrower on the Closing Date to (a) finance the prepayment of
certain outstanding Indebtedness, including any Indebtedness under the Existing
Credit Agreement, and to pay related fees and expenses and (b) to finance a
portion of the Acquisition, including funding the loans evidenced by the
Intercompany Notes, and/or to pay related fees and expenses.
SECTION
AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS
REVOLVING CREDIT COMMITMENTS. (a) Subject to the terms and conditions
hereof, each Revolving Credit Lender severally (and not jointly) agrees to make
revolving credit loans ("REVOLVING CREDIT LOANS") to the Borrower from time to
time during the Revolving Credit Commitment Period in an aggregate principal
amount at any one time outstanding which, when added to its Pro Rata Revolving
Share of Letters of Credit Outstanding, does not exceed the amount of such
Revolving Credit Lender's Revolving Credit Commitment. Subject to the foregoing
and to the satisfaction of all conditions for borrowing, during the Revolving
Credit Commitment Period, the Borrower may use the Revolving Credit Commitments
within the limits set forth herein by borrowing and prepaying the Revolving
Credit Loans in whole or in part, and reborrowing, all in accordance with the
terms and conditions hereof.
(b) The Revolving Credit Loans may from time to time be (i) Eurodollar
Loans, (ii) Base Rate Loans or (iii) a combination thereof, as determined by the
Borrower and notified to the Agent in accordance with subsections 3.2 and 5.2;
PROVIDED that no Revolving Credit Loan shall be made as a Eurodollar Loan after
the day that is one month prior to the Tranche A and Revolver Termination Date.
PROCEDURE FOR REVOLVING CREDIT BORROWING. The Borrower may borrow under
the Revolving Credit Commitments during the Revolving Credit Commitment Period
on any Business Day; PROVIDED that the Borrower shall give the Agent irrevocable
notice (which notice must be received by the
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31
Agent (a) prior to 10:00 A.M., New York City time, three Business Days prior to
the requested Borrowing Date, if all or any part of the requested Revolving
Credit Loans are to be initially Eurodollar Loans or (b) prior to 12:00 noon New
York City time, one Business Day prior to the requested Borrowing Date,
otherwise), specifying (i) the amount to be borrowed, (ii) the requested
Borrowing Date, (iii) whether the borrowing is to be of Eurodollar Loans, Base
Rate Loans or a combination thereof and (iv) if the borrowing is to be entirely
or partly of Eurodollar Loans, the respective amounts of such Type of Loan and
the respective lengths of the initial Interest Periods therefor. Each borrowing
under the Revolving Credit Commitments shall be in an amount equal to (x) in the
case of Base Rate Loans, $100,000 or a whole multiple thereof and (y) in the
case of Eurodollar Loans, $1,000,000 or a whole multiple of $100,000 in excess
thereof. Upon receipt of any such notice from the Borrower, the Agent shall
promptly notify each Revolving Credit Lender thereof. Each Revolving Credit
Lender will make the amount of its PRO RATA share of each borrowing available to
the Agent for the account of the Borrower at the office of the Agent specified
in subsection 12.2 prior to 11:00 A.M., New York City time, on the Borrowing
Date requested by the Borrower and in funds immediately available to the Agent.
Such borrowing will then be made available by 1:00 P.M., New York City time, to
the Borrower by the Agent crediting the account of the Borrower on the books of
such office or such other account as specified by the Borrower with the
aggregate of the amounts made available to the Agent by the Revolving Credit
Lenders and in like funds as received by the Agent.
REPAYMENT OF REVOLVING CREDIT LOANS; EVIDENCE OF DEBT. (a) The Borrower
hereby unconditionally promises to pay to the Agent for the account of each
Revolving Credit Lender the then unpaid principal amount of each Revolving
Credit Loan made by such Lender on the Tranche A and Revolver Termination Date
(or such earlier date on which the Revolving Credit Loans become due and payable
pursuant to Section 5 or 10). The Borrower hereby further agrees to pay interest
on the unpaid principal amount of the Revolving Credit Loans from time to time
outstanding from the date hereof until payment in full thereof at the rates per
annum, and on the dates, set forth in subsection 5.4.
(b) Each Revolving Credit Lender shall maintain in accordance with its
usual practice an account or accounts evidencing indebtedness of the Borrower to
such Revolving Credit Lender resulting from each Revolving Credit Loan made by
such Revolving Credit Lender from time to time, including the amounts of
principal and interest payable and paid to such Revolving Credit Lender from
time to time under this Agreement.
(c) The Agent shall maintain the Register pursuant to subsection
12.6(d), and a subaccount therein for each Revolving Credit Lender, in which
shall be recorded (i) the amount of each Revolving Credit Loan made hereunder,
the Type thereof and, in the case of Eurodollar Loans, each Interest Period
applicable thereto, (ii) the amount of any principal or interest due and payable
or to become due and payable from the Borrower to each Revolving Credit Lender
hereunder and (iii) both the amount of any sum received by the Agent hereunder
from the Borrower and each Revolving Credit Lender's share thereof, if any.
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32
(d) The entries made in the Register and the accounts of each Revolving
Credit Lender maintained by the Agent pursuant to subsection 3.3(c) shall, to
the extent permitted by applicable law, be PRIMA FACIE evidence of the existence
and amounts of the obligations of the Borrower therein recorded; PROVIDED,
HOWEVER, that the failure of any Revolving Credit Lender or the Agent to
maintain any such account or the Register, or any error therein, shall not in
any manner affect the obligation of the Borrower to repay (with applicable
interest) the Revolving Credit Loans made to the Borrower by such Revolving
Credit Lender in accordance with the terms of this Agreement.
(e) The Borrower agrees that at the closing on the Closing Date, the
Borrower will execute and deliver to such Revolving Credit Lender a promissory
note of the Borrower evidencing the Revolving Credit Loans made by such
Revolving Credit Lender, substantially in the form of Exhibit H (a "REVOLVING
CREDIT NOTE"), dated the Closing Date and payable to the order of such Revolving
Credit Lender and in a principal amount equal to the amount of the Revolving
Credit Commitment of such Revolving Credit Lender. Each Revolving Credit Lender
is hereby authorized to record the date, Type and amount of each Revolving
Credit Loan made by such Revolving Credit Lender, each continuation thereof,
each conversion of all or a portion thereof to another Type, the date and amount
of each payment or prepayment of principal thereof and, in the case of
Eurodollar Loans, the length of each Interest Period and Eurodollar Rate with
respect thereto, on the schedule annexed to and constituting a part of its
Revolving Credit Note; PROVIDED, HOWEVER, that the failure to make any such
recordation (or any error therein) shall not in any manner affect the obligation
of the Borrower to repay (with applicable interest) the Revolving Credit Loans
made to the Borrower in accordance with the term of this Agreement.
COMMITMENT FEE. The Borrower agrees to pay to the Agent for the account
of each Revolving Credit Lender during the Revolving Credit Commitment Period a
commitment fee, payable quarterly in arrears on the last day of each March,
June, September and December and on the Tranche A and Revolver Termination Date
or such earlier date as the Revolving Credit Commitments shall terminate as
provided herein, commencing on the first of such dates to occur after the date
hereof, such fee to be computed at the rate of (a) 0.375% per annum for the
number of days that either Level I or Level II is in effect during the period
for which payment is made and (b) 0.500% per annum for the number of days that
any one of Level III, Level IV, Level V or Level VI is in effect during the
period for which payment is made, on the average daily amount of the Unused
Revolving Credit Commitment of such Revolving Credit Lender during the period
for which payment is made; PROVIDED that Level V shall be deemed in effect
during the period specified in (a) (i) of the proviso to the definition of
Applicable Margin and Level VI shall be deemed in effect in the circumstances
contemplated by clause (a)(ii) or (iii) of said proviso.
TERMINATION OR REDUCTION OF REVOLVING CREDIT COMMITMENTS. The Borrower
shall have the right, upon not less than five Business Days' prior written
notice to the Agent, which notice shall be irrevocable, to terminate the
Revolving Credit Commitments or, from time to time, to reduce the amount of the
Revolving Credit Commitments. Any such reduction shall be in a minimum amount
equal to $500,000
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33
or an integral multiple of $100,000 in excess thereof or, if less, the entire
remaining balance of the Revolving Credit Commitments and shall reduce
permanently the Revolving Credit Commitments then in effect; PROVIDED, that no
such termination or reduction shall be permitted if, after giving effect thereto
and to any prepayments of the Revolving Credit Loans made on the effective date
thereof, the aggregate principal amount of the Revolving Credit Loans PLUS the
aggregate Letters of Credit Outstanding then outstanding would exceed the
Revolving Credit Commitments then in effect. All reductions shall be made
ratably among all Revolving Credit Lenders in accordance with their respective
Revolving Credit Commitments
USE OF PROCEEDS OF REVOLVING CREDIT LOANS. The proceeds of the
Revolving Credit Loans shall be used by the Borrower to finance a portion of the
Acquisition, including funding the loans evidenced by the Intercompany Notes,
and/or to pay related fees and expenses, for working capital and general
corporate purposes (including capital expenditures, Permitted Acquisitions and
Investments permitted hereunder) in the ordinary course of the Borrower's and
its Subsidiaries' business.
SECTION
LETTERS OF CREDIT
ISSUANCE. (a) Subject to the terms and conditions hereof, the Issuing
Bank on behalf of the Revolving Credit Lenders agrees to issue on any Business
Day any Letter of Credit (or amendments thereof) requested by the Borrower
during the period from the Closing Date until the date 60 days prior to the
Tranche A and Revolver Termination Date; PROVIDED, HOWEVER, that the Issuing
Bank shall have no obligation to issue any such Letter of Credit (or amendments
thereof) if (i) the Closing Date shall not have previously occurred, or (ii)
such issuance would cause the aggregate amount outstanding at any time of all
Letters of Credit Outstanding to exceed $25,000,000. Each Letter of Credit shall
be issued pursuant to a request, given not later than 12:00 noon., New York City
time, on the fourth Business Day prior to the date of any proposed issuance, by
the Borrower to the Agent, which shall give to the Issuing Bank and each
Revolving Credit Lender prompt notice thereof by telecopy, telex or cable. Such
request by the Borrower for the issuance of a Letter of Credit (or amendments
thereof) shall be made by telephone, telecopy, telex or cable, confirmed
immediately in writing if by telephone, in substantially the form of Exhibit I,
together with a signed letter of credit application (including the related
reimbursement agreement) on the Issuing Bank's then-standard form (or other form
acceptable to the Issuing Bank and appropriate, in the sole opinion of the
Issuing Bank, in the circumstances) (a "LETTER OF CREDIT REQUEST") duly executed
by the Borrower and may be cancelled by notice thereof prior to issuance of such
Letter of Credit by telephone, telecopy, telex or cable, confirmed immediately
in writing if by telephone, to the Issuing Bank and the Agent. Within the limits
of each Revolving Credit Lender's Unused Revolving Credit Commitment and the
other restrictions set forth herein, the Borrower's ability to request the
issuance of Letters of Credit shall be fully revolving.
(b) All letters of credit issued under the Existing Credit Agreement
and outstanding on the Closing Date (the "EXISTING LETTERS OF CREDIT") shall
automatically be
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34
deemed Letters of Credit under this Agreement, and subject to the terms hereof
for all purposes.
PARTICIPATION BY REVOLVING CREDIT LENDERS. Immediately upon issuance or
amendment by the Issuing Bank of any Letter of Credit in accordance with the
procedures set forth in this Section 4, each Revolving Credit Lender shall be
deemed to have irrevocably and unconditionally purchased and received from the
Issuing Bank, without recourse or warranty, an undivided interest and
participation to the extent of such Revolving Credit Lender's Pro Rata Revolving
Share of such Letter of Credit (including, without limitation, all Obligations
of the Borrower with respect thereto, other than amounts owing to the Issuing
Bank under subsection 4.8, and any security therefor or guaranty pertaining
thereto).
DRAWINGS. In the event that any drawing shall be made under a Letter of
Credit, by demand or claim (including, without limitation, any draft), the
Issuing Bank shall notify the Borrower via telephone, telecopy or telex of such
drawing and the Borrower shall (whether or not the Issuing Bank has notified the
Borrower of such drawing) reimburse the Issuing Bank in immediately available
funds for any amount paid or to be paid by the Issuing Bank under such Letter of
Credit on the date of such payment. In the event that any drawing under a Letter
of Credit is not reimbursed by the Borrower on the date of payment by the
Issuing Bank, and, pursuant to Section 3, the Borrower is then permitted to
obtain Revolving Credit Loans hereunder (without regard to the Dollar limitation
set forth in subsection 3.2 on the minimum amount of any borrowing), the
Borrower shall be deemed to have requested a borrowing of Revolving Credit Loans
consisting of Base Rate Loans in an aggregate amount equal to such unreimbursed
payment. Unless an Event of Default under subsection 10(f) exists, the Revolving
Credit Lenders shall make the requested Revolving Credit Loans as of the date of
such payment by the Issuing Bank, and the proceeds of such Revolving Credit
Loans shall automatically be applied to repay the Issuing Bank for such drawing
in full. In the event that any drawing under a Letter of Credit is not
reimbursed by the Borrower on the date of payment by the Issuing Bank and such
Revolving Credit Loans are not made hereunder for any reason, a default
specified in subsection 10(a) shall have occurred and the Issuing Bank shall
promptly notify the Agent thereof, and the Agent shall promptly notify each
Lender. Immediately upon receipt of such notice, the Revolving Credit Lenders
will pay to the Issuing Bank the amount of their respective participations in
the Letter of Credit. In the event that any Revolving Credit Lender fails timely
to make the Revolving Credit Loan or pay the amount of its participation as
required by this subsection 4.3, interest shall accrue thereon at the Federal
Funds Rate for the first three Business Days following the date of payment by
the Issuing Bank and the Federal Funds Rate plus 1% for the period thereafter to
the date of payment thereof by such Revolving Credit Lender. The Issuing Bank
shall distribute to each Revolving Credit Lender which has paid all amounts
payable by it under this subsection 4.3 with respect to any Letter of Credit
such Revolving Credit Lender's Pro Rata Revolving Share of all payments received
by the Issuing Bank in reimbursement of drawings honored by the Issuing Bank
under such Letter of Credit when such payments are received.
OBLIGATIONS ABSOLUTE. The obligations of the Borrower and the Revolving
Credit Lenders under subsection 4.3 shall be absolute, unconditional and
irrevocable, and shall be performed strictly in accordance with the terms
hereof, under all circumstances whatsoever, including, without limitation, the
circumstances listed below:
(a) any lack of validity or enforceability of this Agreement, any of
the other Loan Documents, any Letter of Credit, any drawings thereunder or any
related contract;
(b) any amendment or waiver of or any consent to any departure from all
or any of this Agreement or any of the other Loan Documents;
(c) the existence of any claim, set-off, defense or other right which
the Borrower at any time may have against the Issuing Bank, the Agent, any of
the Lenders, any beneficiary or transferee of any Letter of Credit, or any other
Person, whether in connection with this Agreement, the other Loan Documents, any
Letter of Credit or any unrelated transactions;
(d) any statement or any other document presented under any Letter of
Credit that proves to be forged, fraudulent or invalid or insufficient in any
respect or any statement therein that proves to be untrue or inaccurate in any
respect whatsoever;
(e) payment by the Issuing Bank under any Letter of Credit against
presentation of a draft or certificate or other document that does not comply
with the terms of such Letter of Credit; or
(f) any other circumstances or happening whatsoever whether or not
similar to any of the foregoing;
PROVIDED, HOWEVER, that neither the Borrower nor the Revolving Credit Lenders
shall have any obligation to the Issuing Bank pursuant to subsection 4.3 if, but
for the willful misconduct or gross negligence of the Issuing Bank (as
determined in a final, non-appealable judgment by a court of competent
jurisdiction), the obligations for which the Issuing Bank seeks reimbursement or
payment would not have arisen.
OTHER LENDERS. Any action taken or omitted to be taken by the Issuing
Bank under or in connection with any Letter of Credit, if taken or omitted in
the absence of gross negligence or willful misconduct, shall not put the Issuing
Bank under any resulting liability to any Lender or relieve any Revolving Credit
Lender of its obligations hereunder to the Issuing Bank. In determining whether
to pay under any Letter of Credit, the Issuing Bank shall have no obligation to
the Lenders other than to confirm that any documents required to be delivered
under such Letter of Credit appear to have been delivered and that they appear
to comply on their face with the requirements of such Letter of Credit.
INDEMNIFICATION. The Borrower shall indemnify and hold harmless the
Issuing Bank from and against any and all claims, damages, losses, liabilities,
reasonable costs and expenses of any kind whatsoever, including reasonable fees
and expenses of attorneys and paralegals that the
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35
Issuing Bank may incur (or that may be claimed against the Issuing Bank by any
Person), together with all reasonable costs and expenses resulting from the
compromise or defense of any claims or liabilities hereinafter described, by
reason of or in connection with (a) the execution and delivery or transfer of,
or payment or failure to pay under, any Letter of Credit, (b) any suit, action
or proceeding brought by any person to require or prevent payment under any
Letter of Credit, or (c) any breach by the Borrower of any warranty, covenant,
term or condition in, or the occurrence of any default under, any of the Loan
Documents (to the extent related to Letters of Credit), any Letter of Credit or
any related contract, together with all reasonable expenses resulting from the
compromise or defense of any claims or liabilities arising as a result of any
such breach or default and defense against any legal action commenced to
challenge the validity of any of such documents; PROVIDED, HOWEVER, that the
Borrower shall not be required to indemnify the Issuing Bank for any claims,
damages, losses, liabilities, costs or expenses to the extent, but only to the
extent, caused by (i) the gross negligence or willful misconduct (as determined
in a final, non-appealable judgment in a court of competent jurisdiction) of the
Issuing Bank in determining whether a draft, certificate or other documents
presented under any Letter of Credit complied with the terms of such Letter of
Credit, or (ii) the Issuing Bank's willful failure to pay under any Letter of
Credit after the presentation to it by the beneficiary thereof of a draft,
certificate or other document strictly complying with the terms and conditions
of such Letter of Credit. Nothing in this subsection 4.6 is intended to limit or
modify in any way the reimbursement obligations of the Borrower set forth in
subsection 4.3. In case any action or proceeding is brought against the Issuing
Bank in respect of which indemnity may be sought under this Agreement, the
Issuing Bank shall promptly give notice of any such action or proceeding to the
Borrower and may require the Borrower, upon such notice, to assume the defense
of the action or proceeding; PROVIDED that failure of the Issuing Bank to give
such notice shall not relieve the Borrower of any of its obligations under this
subsection 4.6. Upon receipt of such notice from the Issuing Bank requesting
that the Borrower assume such defense, the Borrower shall resist and defend such
action or proceeding at the Borrower's sole cost and expense. The obligations of
the Borrower under this subsection 4.6 shall survive the termination of the
Letters of Credit and this Agreement.
LIABILITY OF THE ISSUING BANK. The Borrower assumes all risks of the
acts or omissions of the users of any Letter of Credit and all risks of the
misuse of any Letter of Credit. Neither the Issuing Bank, nor any of its
officers, directors, employees or agents shall be liable or responsible for: (a)
the use which may be made of any Letter of Credit or for any acts or omissions
of any Person and any transferee in connection therewith; (b) the validity,
sufficiency or genuineness of documents, or of any endorsement or endorsements
thereon, even if such documents should in fact prove to be in any or all
respects invalid, insufficient, fraudulent or forged; (c) payment against
presentation of documents which do not comply with the terms of the applicable
Letter of Credit, including failure of any documents to bear any reference or
adequate reference to such Letter of Credit; or (d) any other circumstances
whatsoever in making or failing to make payment under any Letter of Credit,
except only that the Borrower shall have a claim against the Issuing Bank, and
the Issuing Bank shall be liable to the Borrower to the extent, but only to the
extent, of damages suffered by the Borrower which were caused by (i) the Issuing
Bank's gross negligence or willful
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36
misconduct (as determined in a final, non-appealable judgment by a court of
competent jurisdiction) in determining whether documents presented under any
Letter of Credit comply with the terms of such Letter of Credit (it being
understood that any such noncompliance in any immaterial respect shall not be
deemed gross negligence or willful misconduct of the Issuing Bank) or (ii) the
Issuing Bank's willful failure to pay under any Letter of Credit after the
presentation to it by the beneficiary thereof of a draft, certificate or other
document strictly complying with the terms and conditions of such Letter of
Credit. In furtherance and not in limitation of the foregoing, the Issuing Bank
may accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary unless the Issuing Bank shall have been ordered not
to accept such documents by a court of competent jurisdiction.
LETTER OF CREDIT FEE. The Borrower agrees to pay to the Agent a
non-refundable letter of credit fee, to be distributed by the Agent to each
Revolving Credit Lender according to its Revolving Credit Commitment Percentage,
equal to the L/C Rate (as defined below) on the daily amount of outstanding
issued Letters of Credit, payable quarterly on the last day of each September,
December, March and June, and on the Tranche A and Revolver Termination Date.
With respect to each Letter of Credit, the Borrower agrees to pay to the Issuing
Bank, solely for the account of the Issuing Bank, (a) a non-refundable issuing
fee of 1/4 of 1% per annum on the face amount of such Letter of Credit for the
term of such Letter of Credit, payable in advance on the date of issuance
thereof for the three-month period following the date of issuance and on each
date occurring every three-months after the date of issuance; and (b) the
Issuing Bank's customary administrative fee. "L/C RATE", as used above, means an
interest rate per annum equal to the Applicable Margin for Revolving Credit
Loans which are Eurodollar Loans.
SECTION
GENERAL PROVISIONS APPLICABLE TO COMMITMENTS AND LOANS
PREPAYMENTS. (a) The Borrower may on the last day of any Interest
Period with respect thereto, upon at least three Business Days' irrevocable
written notice to the Agent, in the case of Eurodollar Loans, or at any time and
from time to time, upon at least one Business Days' irrevocable written notice
to the Agent in the case of Base Rate Loans, prepay the Loans, in whole or in
part, without premium or penalty, which notices shall specify the date and
amount of prepayment and whether the prepayment is of Term Loans or Revolving
Credit Loans or a combination thereof, of Eurodollar Loans, Base Rate Loans or a
combination thereof, and, if of a combination thereof, the amount allocable to
each. Upon receipt of any such notice the Agent shall promptly notify each
affected Lender. If any such notice is given, the amount specified in such
notice shall be due and payable on the date specified therein, together with any
amounts payable pursuant to subsection 5.11, if any, and, in the case of
prepayments of the Term Loans, accrued interest to such date on the amount
prepaid. Subject to the provisions of subsection 5.1(d), partial prepayments of
the Term Loans shall be applied on a PRO RATA basis between the Term Loans and
shall be applied to the remaining installments of principal thereof in the
inverse order of their maturities. Such
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37
partial prepayments shall be in an aggregate principal amount of $500,000 or a
whole multiple thereof.
(b) If with respect to any of its fiscal years, commencing with its
fiscal year ending December 31, 1998, the Borrower shall have Excess Cash Flow
for such fiscal year, the Loans shall be prepaid in an aggregate amount equal to
75% of such Excess Cash Flow or, with respect to any fiscal year as to which the
Leverage Ratio as of the end of the last fiscal quarter of such fiscal year was
less than or equal to 2.75:1, 50% of such Excess Cash Flow as set forth in the
second succeeding sentence; PROVIDED that, with respect to the period ending
December 31, 1998, Excess Cash Flow shall, notwithstanding anything to the
contrary herein, be determined with respect to the period beginning on the
Closing Date and ending on December 31, 1998. Each such prepayment shall be made
on or before the date which is 90 days after the end of such fiscal year. All
amounts used to prepay Loans pursuant to this subsection 5.l(b) shall be applied
as follows:
FIRST, subject to subsection 5.1(d), to the prepayment in full of all
outstanding Term Loans, PRO RATA between the Tranche A Term Loans and Tranche B
Term Loans, and in each case ratably among the applicable Lenders, and applied
to the remaining installments in inverse order of their maturities;
SECOND, to the prepayment in full of all outstanding Revolving Credit
Loans ratably among the Revolving Credit Lenders, and
THIRD, to a cash collateral account maintained with the Agent in
respect of the Letters of Credit Outstanding.
(c) All Net Proceeds shall be applied toward the prepayment of the
Loans, and deposited in the cash collateral account in the order specified in
subsection 5.1(b), and, to the extent applied to the Revolving Credit Loans or
to the cash collateral account as specified therein, shall permanently reduce
the Revolving Credit Commitments.
(d) Any Tranche B Lender may (i) so long as any Tranche A Term Loans
are outstanding, elect not to have any optional prepayment made pursuant to
subsection 5.1(a) applied to such Lender's Tranche B Term Loan until all Tranche
A Term Loans have been paid in full, in which case the amount not so applied
shall be utilized to prepay the Tranche A Term Loans in the manner specified in
subsection 5.1(a); and (ii) so long as any Tranche A Term Loans are outstanding,
elect not to have any mandatory prepayment made pursuant to subsection 5.1(b) or
subsection 5.1(c) applied to such Lender's Tranche B Term Loan until all such
Tranche A Term Loans have been paid in full, in which case the amount not so
applied shall be utilized to prepay the Tranche A Term Loans in the manner
specified in subsection 5.1(b) or subsection 5.1(c), as the case may be. The
Agent shall notify each Tranche B Lender of any proposed prepayment, and each
Tranche B Lender shall have 3 Business Days following such notification to
advise the Agent in writing that it elects not to have any prepayment applied to
its Tranche B Loan. Failure to deliver such notice to the Agent within the time
provided shall be deemed an election by such Tranche B Lender to accept such
prepayment.
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38
CONVERSION AND CONTINUATION OPTIONS. (a) The Borrower may elect from
time to time to convert Eurodollar Loans to Base Rate Loans by giving the Agent
at least two Business Days' prior irrevocable notice of such election; PROVIDED
that any such conversion of Eurodollar Loans may only be made on the last day of
an Interest Period with respect thereto. The Borrower may elect from time to
time to convert Base Rate Loans to Eurodollar Loans by giving the Agent at least
three Business Days' prior irrevocable notice of such election. Any such notice
of conversion to Eurodollar Loans shall specify the length of the initial
Interest Period or Interest Periods therefor. Upon receipt of any such notice
the Agent shall promptly notify each affected Lender thereof. All or any part of
outstanding Eurodollar Loans and Base Rate Loans may be converted as provided
herein; PROVIDED that (i) no Loan may be converted into a Eurodollar Loan when
any Event of Default has occurred and is continuing and the Agent has, or the
Required Revolving Credit Lenders (in the case of conversions of Revolving
Credit Loans), Required Tranche A Lenders (in the case of conversions of Tranche
A Term Loans) or Required Tranche B Lenders (in the case of conversions of
Tranche B Term Loans) have, determined that such a conversion is not
appropriate, and (ii) no Loan may be converted into a Eurodollar Loan after the
date that is one month prior to the Tranche A and Revolver Termination Date (in
the case of conversions of Revolving Credit Loans) or the date of the final
installment of principal of the Term Loans (in the case of conversions of Term
Loans).
(b) Any Eurodollar Loans may be continued as such upon the expiration
of the then current Interest Period with respect thereto by the Borrower giving
notice to the Agent, in accordance with the applicable provisions of the
definition of the term "INTEREST PERIOD" set forth in subsection 1.1, of the
length of the next Interest Period to be applicable to such Loans; PROVIDED
that, no Eurodollar Loan may be continued as such (i) when any Event of Default
has occurred and is continuing and the Agent has, or the Required Revolving
Credit Lenders (in the case of continuations of Revolving Credit Loans),
Required Tranche A Lenders (in the case of continuations of Tranche A Term
Loans) or Required Tranche B Lenders (in the case of continuations of Tranche B
Term Loans) have, determined that such a continuation is not appropriate or (ii)
after the date that is one month prior to the Tranche A and Revolver Termination
Date (in the case of continuations of Revolving Credit Loans) or the date of the
final installment of principal of the Term Loans (in the case of continuations
of Term Loans); and PROVIDED, FURTHER, that if the Borrower shall fail to give
any required notice as described above in this paragraph or if such continuation
is not permitted pursuant to the preceding proviso, such Loans shall be
automatically converted to Base Rate Loans on the last day of such then expiring
Interest Period.
MINIMUM AMOUNTS OF TRANCHES. All borrowings, conversions and
continuations of Loans hereunder and all selections of Interest Periods
hereunder shall be in such amounts and be made pursuant to such elections so
that, after giving effect thereto (a) the aggregate principal amount of the
Loans comprising each Tranche shall be equal to $1,000,000 or a whole multiple
of $100,000 in excess thereof and (b) no more than seven separate Tranches shall
be outstanding at any time.
INTEREST RATES AND PAYMENT DATES.
(a) Subject to the provisions of subsection 5.4(c), each Eurodollar
Loan shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such day
PLUS the Applicable Margin.
(b) Subject to the provisions of subsection 5.4(c), each Base Rate Loan
shall bear interest at a rate per annum equal to the Base Rate PLUS the
Applicable Margin.
(c) If all or a portion of (i) the principal amount of any Loan, (ii)
any interest payable thereon or (iii) any commitment fee or other amount payable
hereunder or under any other Loan Document shall not be paid when due (whether
at the stated maturity, by acceleration or otherwise), such overdue amount shall
bear interest at a rate per annum which is 2% over the rate otherwise applicable
thereto, in each case from the date of such non-payment until such amount is
paid in full (before as well as after the applicable judgment, if any).
(d) Interest shall be payable in arrears on each Interest Payment Date;
PROVIDED that interest accruing pursuant to paragraph (c) of this subsection
shall be payable from time to time on demand.
COMPUTATION OF INTEREST AND FEES. (a) Commitment fees, Letter of Credit
fees and interest shall be calculated on the basis of a 360-day year for the
actual days elapsed. The Agent shall as soon as practicable notify the Borrower
and the affected Lenders of each determination of a Eurodollar Rate. Any change
in the interest rate on a Loan resulting from a change in the Base Rate or the
Eurocurrency Reserve Requirements shall become effective as of the opening of
business on the day on which such change becomes effective. The Agent shall as
soon as practicable notify the Borrower and the affected Lenders of the
effective date and the amount of each such change in interest rate. (b) Each
determination of an interest rate by the Agent pursuant to any provision of this
Agreement shall be conclusive and binding on the Borrower and the affected
Lenders in the absence of manifest error.
INABILITY TO DETERMINE INTEREST RATE. If on the day which is two
Business Days prior to the first day of any Interest Period:
(a) the Agent shall have determined that, by reason of circumstances
affecting the relevant market, adequate and reasonable means do not exist for
ascertaining the Eurodollar Rate with respect to any Eurodollar Loan to be
outstanding during such Interest Period, or
(b) the Agent shall have determined that the Eurodollar Rate with
respect to any Eurodollar Loan to be outstanding during such Interest Period
will not adequately and fairly reflect the cost to the Lenders of making or
maintaining their affected Eurodollar Loans during such Interest Period, or
(c) Dollar deposits in the principal amount of the Eurodollar Loans are
not generally available in the relevant interbank market,
<PAGE>
39
the Agent shall give telecopy or telephonic notice thereof to the Borrower and
the Lenders as soon as practicable thereafter. If such notice is given (x) any
affected Eurodollar Loans requested to be made on the first day of such Interest
Period shall be made as Base Rate Loans, (y) any affected Loans that were to
have been converted on the first day of such Interest Period to Eurodollar Loans
shall be continued as Base Rate Loans and (z) any affected outstanding
Eurodollar Loans that were to have been continued as such shall be converted on
the first day of such Interest Period to Base Rate Loans. Until such time as the
Agent shall have advised the Borrower and the Lenders that the circumstances
giving rise to such notice no longer exist, no further Eurodollar Loans shall be
made or continued as such, nor shall the Borrower have the right to convert Base
Rate Loans to Eurodollar Loans. Each determination by the Agent hereunder shall
be conclusive absent manifest error.
PRO RATA TREATMENT AND PAYMENTS. (a) All payments (including
prepayments) to be made by the Borrower hereunder, whether on account of
principal, interest, fees or otherwise, shall be made without set-off or
counterclaim and shall be made prior to 12:00 Noon, New York City time, on the
due date thereof to the Agent, for the account of the Revolving Credit Lenders,
the Term Loan Lenders, the Issuing Bank or the Agent, as the case may be, at the
Agent's office specified in subsection 12.2, in Dollars and in immediately
available funds. Payments received by the Agent after such time shall be deemed
to have been received on the next Business Day. The Agent shall distribute such
payments to the Lenders entitled to receive the same promptly upon receipt in
like funds as received. If any payment hereunder (other than payments on the
Eurodollar Loans) becomes due and payable on a day other than a Business Day,
such payment shall be extended to the next succeeding Business Day, and, with
respect to payments of principal, interest thereon shall be payable at the then
applicable rate during such extension. If any payment on a Eurodollar Loan
becomes due and payable on a day other than a Business Day, the maturity thereof
shall be extended to the next succeeding Business Day (and, with respect to
payments of principal, interest shall be payable thereon at the then applicable
rate during such extension) unless the result of such extension would be to
extend such payment into another calendar month, in which event such payment
shall be made on the immediately preceding Business Day.
(b) Unless the Agent shall have been notified in writing by any
Revolving Credit Lender or Term Loan Lender prior to a Borrowing Date for
Revolving Credit Loans or Term Loans, as the case may be, that such Lender will
not make the amount that would constitute its share of such borrowing on such
Borrowing Date available to the Agent, the Agent may assume that such Lender is
making such amount available to the Agent, and the Agent may, in reliance upon
such assumption, make available to the Borrower a corresponding amount. If such
amount is not made available to the Agent by the required time on the Borrowing
Date therefor, such Lender shall pay to the Agent, on demand, such amount with
interest thereon at a rate equal to the daily average Federal Funds Rate for the
period until such Lender makes such amount immediately available to the Agent. A
certificate of the Agent submitted to any Lender with respect to any amounts
owing under this subsection shall be conclusive in the absence of manifest
error. If such Lender's share of such borrowing is not made available to the
Agent by such Lender within three Business Days of such Borrowing Date, the
Agent shall also be entitled to recover such amount with
<PAGE>
40
interest thereon at the rate per annum applicable to Base Rate Loans hereunder,
on demand, from the Borrower, without prejudice to any rights of the Borrower
against the Lender which has failed to make its share of any borrowing available
to the Agent.
(c) Each borrowing by the Borrower of Tranche A Term Loans, Tranche B
Term Loans, and Revolving Credit Loans shall be made ratably from the Tranche A
Lenders, Tranche B Lenders, and Revolving Credit Lenders, respectively, in
accordance with their respective Term Loan Commitment Percentages and Revolving
Credit Commitment Percentages.
ILLEGALITY. (a) Notwithstanding any other provision herein, if at any
time any Lender determines (which determination, if made in good faith, shall be
final and conclusive and binding upon all parties) that the adoption of or any
change in any law or regulation or in the interpretation thereof by any
Governmental Authority charged with the administration or interpretation thereof
makes it unlawful for any Lender to make or maintain Eurodollar Loans as
contemplated by this Agreement, or to give effect to its obligations as
contemplated hereby with respect to any Eurodollar Loan, then, by written notice
to the Borrower and to the Agent, such Lender may:
(i) declare that Eurodollar Loans will not thereafter be made
by such Lender hereunder, whereupon any request by the Borrower for a
Eurodollar Loan shall, as to such Lender only, be deemed a request for
a Base Rate Loan unless such declaration is subsequently withdrawn; and
(ii) require that all outstanding Eurodollar Loans made by
such Lender be converted to Base Rate Loans, in which event all such
Eurodollar Loans shall be automatically converted to Base Rate Loans as
of the effective date of such notice as provided if paragraph (b)
below.
In the event any Lender shall exercise its rights under (i) or (ii)
above, all payments and prepayments of principal which would otherwise have been
applied to repay the Eurodollar Loans that would have been made by such Lender
or the converted Eurodollar Loans of such Lender shall instead be applied to
repay the Base Rate Loans made by such Lender in lieu of, or resulting from the
conversion of, such Eurodollar Loans.
(b) For purposes of this subsection 5.8, a notice to the Borrower by
any Lender shall be effective, if lawful, on the last day of the then current
Interest Period; in all other cases such notice shall be effective on the date
of receipt by the Borrower.
REQUIREMENTS OF LAW. (a) If after the date of this Agreement the
adoption of or any change in applicable law or regulation or in the
interpretation or administration thereof by any Governmental Authority charged
with the administration or interpretation thereof (whether or not having the
force of law):
(i) shall change the basis of taxation of payments to any
Lender in respect of the principal of or interest on any Eurodollar
Loan made by such
<PAGE>
41
Lender or such Lender's issuance of any Letter of Credit or
participation in Letters of Credit Outstanding or any fees or other
amounts payable hereunder (other than taxes imposed on or measured by
the overall net income of such Lender by the jurisdiction in which such
Lender has its principal office (or lending office) or by any political
subdivision or taxing authority therein);
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or other similar requirement against
assets of, deposits with or for the account of, or other extensions of
credit by, any office of such Lender (which requirement is not
otherwise included in the determination of the Eurodollar Rate); or
(iii) shall impose on such Lender any other condition
affecting this Agreement or Eurodollar Loans made by such Lender or
such Lender's issuance of any Letter of Credit or participation in
Letters of Credit Outstanding;
and the result of any of the foregoing is to increase the cost to such Lender by
an amount which such Lender deems to be material of making, converting into,
continuing or maintaining Eurodollar Loans, or issuing Letters of Credit or
participations in Letters of Credit Outstanding or to reduce any amount
receivable hereunder in respect thereof by an amount deemed by such Lender to be
material, then, in any such case, the Borrower shall pay to such Lender within 2
Business Days after demand, any additional amounts necessary to compensate such
Lender for such increased cost incurred or reduction suffered. If any Lender
becomes entitled to claim any additional amounts pursuant to this subsection, it
shall promptly notify the Borrower, with a copy to the Agent, of the event by
reason of which it has become so entitled. This covenant shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
(b) If any Lender shall have determined that the applicability of any
law, rule, regulation or guideline adopted after the date hereof pursuant to or
arising out of the July 1988 report of the Basic Committee on Banking
Regulations and Supervisory Practices entitled "International Convergence of
Capital Measurement and Capital Standards", or the adoption after the date
hereof of any other law, rule, regulation or guideline regarding capital
adequacy, or any change in any of the foregoing or in the interpretation or
administration of any of the foregoing by any Governmental Authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Lender or any Lender's holding company with any
request or directive regarding capital adequacy (whether or not having the force
of law) of any such Governmental Authority, central bank or comparable agency,
has or would have the effect of increasing the amount or cost of capital
required to be maintained by such Lender or such holding company or reducing the
rate of return on such Lender's or such holding company's capital as a
consequence of its obligations hereunder to a level below that which such Lender
or such holding company could have achieved but for such adoption, change or
compliance (taking into consideration such Lender's or such holding company's
policies with respect to capital adequacy) by an
<PAGE>
42
amount deemed by such Lender to be material, then from time to time, within 2
Business Days after submission by such Lender to the Borrower (with a copy to
the Agent) of a written request therefor, the Borrower shall pay to such Lender
such additional amount or amounts as will compensate such Lender for any such
reduction suffered. This covenant shall survive the termination of this
Agreement and the payment of the Loans and all other amounts payable hereunder.
(c) A certificate of each Lender setting forth such amount or amounts
as shall be necessary to compensate such Lender or its holding company as
specified in subsection 5.9(a) or (b) above, as the case may be, shall be
delivered to the Borrower (with a copy to the Agent) and shall be conclusive
absent manifest error. The Borrower shall pay each Lender the amount shown as
due on any such certificate delivered by it within 10 Business Days after its
receipt of the same.
TAXES. (a) All payments made by the Borrower under this Agreement and
the Notes shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future taxes, levies, imposts, duties,
charges, fees, deductions or withholdings, now or hereafter imposed, levied,
collected, withheld or assessed by any Governmental Authority, EXCLUDING (i) net
income taxes, franchise taxes, or any other taxes imposed on or measured by the
net income or profits of the Agent or such Lender, in each case by the
jurisdiction under the laws of which the Agent or such Lender is organized or
any political subdivision thereof or by the jurisdiction in which the applicable
lending or issuing office of the Agent or such Lender is located or any
political subdivision thereof and (ii) U.S. withholding taxes payable with
respect to payments hereunder under laws (including any treaty, ruling,
determination or regulation) in effect on the date hereof, but not any increase
in U.S. withholding tax resulting from any subsequent change in such laws
occurring (x) after the date hereof in the case of the Agent and any Lender as
of the date of this Agreement, and (y) in the case of any other Lender, the date
of Assignment and Acceptance pursuant to which it became a Lender (all such
non-excluded taxes, levies, imposts, duties, charges, fees, deductions and
withholdings the "NON-EXCLUDED TAXES"). In addition, the Borrower agrees to pay
to the relevant Governmental Authority in accordance with applicable law any
current or future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies that arise from any payment made hereunder or
from the execution, delivery or registration of, or otherwise with respect to,
this Agreement ("OTHER TAXES"). If any Non-Excluded Taxes or Other Taxes are
required by law to be withheld from any amounts payable to the Agent or any
Lender hereunder (including with respect to Letters of Credit) or under the
Notes, the amounts so payable to the Agent or such Lender shall be increased to
the extent necessary to yield to the Agent or such Lender interest or any such
other amounts payable hereunder at the rates or in the amounts specified in this
Agreement and the Notes. Whenever any Non-Excluded Taxes or Other Taxes are
payable by the Borrower, upon receipt thereof the Borrower shall send to the
Agent for its own account or for the account of such Lender, as the case may be,
a certified copy of any original official receipt received by the Borrower
showing payment thereof. The Borrower shall indemnify the Agent and the Lenders
for the full amount of Non-Excluded Taxes,
<PAGE>
43
Other Taxes and any taxes imposed by any jurisdiction on amounts payable under
this subsection 5.10(a) that are paid by such Lender or Agent, (including
penalties, incremental taxes, interest and expenses arising therefrom or with
respect thereto), whether or not such Non-Excluded Taxes or Other Taxes were
correctly or legally imposed. If the Borrower determines in good faith that a
reasonable basis exists for contesting any Non-Excluded Taxes or Other Taxes,
such Lender or the Agent shall cooperate with the Borrower in challenging such
Non-Excluded Taxes or Other Taxes at the Borrower's expense if requested by the
Borrower (it being understood and agreed that the Agent or such Lender shall
have no obligation to contest or responsibility for contesting such Non-Excluded
Taxes or Other Taxes). If any Lender receives a refund in respect of any
Non-Excluded Taxes or Other Taxes for which such Lender has received payment
from the Borrower hereunder, such Lender shall, within 30 days of receipt by
such Lender, repay such refund to the Borrower, PROVIDED that the Borrower, upon
the request of such Lender, agrees to return such refund (plus any penalties,
interest or other charges) to the Lender in the event such Lender is required to
repay such refund. The agreements in this subsection shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
(b) Each Lender that is not incorporated under the laws of the United
States of America or a state thereof shall:
(i) in the case of a Lender that is a "bank" under Section
881(c)(3)(A) of the Code;
(1) on or before the date of the first payment to
such Lender pursuant to this Agreement following the Closing
Date or on or before the effective date of the Assignment and
Acceptance, deliver to the Borrower and the Agent (x) two duly
completed copies of United States Internal Revenue Service
Form 1001 or 4224, or successor applicable form, as the case
may be, and (y) an Internal Revenue Service Form W-8 or W-9,
or successor applicable form, as the case may be;
(2) deliver to the Borrower and the Agent two further
copies of any such form or certification on or before the date
that any such form or certification expires or becomes
obsolete and promptly upon the occurrence of any event
requiring a change in the most recent form previously
delivered by it to the Borrower; and
(3) obtain such extensions of time for filing and
complete such forms or certifications as may reasonably be
requested by the Borrower or the Agent; or
(ii) in the case of a Lender that is not a "bank" under
Section 881(c)(3)(A) of the Code:
(1) deliver to the Borrower and the Agent (A) a
statement under penalties of perjury that such Lender (x) is
not a "bank" under Section
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44
881(c)(3)(A) of the Code, is not subject to regulatory or
other legal requirements as a bank in any jurisdiction, and
has not been treated as a bank for purposes of any tax,
securities law or other filing or submission made to any
Governmental Authority, any application made to a rating
agency or qualification for any exemption from tax, securities
law or other legal requirements, (y) is not a 10-percent
shareholder within the meaning of Section 881(c)(3)(B) of the
Code and (z) is not a controlled foreign corporation receiving
interest from a related person within the meaning of Section
881(c)(3)(C) of the Code and (B) an Internal Revenue Service
Form W-8;
(2) deliver to the Borrower and the Agent a further
copy of said Form W-8, or any successor applicable form or
other manner of certification on or before the date that any
such Form W-8 expires or becomes obsolete or after the
occurrence of any event requiring a change in the most recent
form previously delivered by such Lender; and
(3) obtain such extensions of time for filing and
complete such forms or certifications as may be reasonably
requested by the Borrower or the Agent;
unless in any such case an event (including, without limitation, any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders any such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender so advises the Borrower and the Agent.
Such Lender shall certify (i) in the case of a Form 1001 or 4224, that it is
entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes and (ii) in the case of a
Form W-8 or W-9, that it is entitled to an exemption from United States backup
withholding tax. Each Person that shall become a Participant pursuant to
subsection 12.6 shall, upon the effectiveness of the related transfer, be
required to provide all of the forms and statements required pursuant to this
subsection to the Lender from which the related participation shall have been
purchased.
INDEMNITY. The Borrower agrees to indemnify each Lender and to hold
each Lender harmless from any loss or expense which such Lender may sustain or
incur as a consequence of (a) default by the Borrower for any reason in making a
borrowing of, conversion into or continuation of Eurodollar Loans after the
Borrower has given a notice requesting the same in accordance with the
provisions of this Agreement, (b) default by the Borrower for any reason in
making any payment when due, including after the Borrower has given a notice of
prepayment in accordance with the provisions of this Agreement, (c) the making
of a payment (whether voluntary or mandatory) of Eurodollar Loans on a day which
is not the last day of an Interest Period with respect thereto for any reason,
or (d) the conversion of any Eurodollar Loan to a Base Rate Loan on a day which
is not the last day of an Interest Period
<PAGE>
45
with respect thereto. Such loss or expense may include any loss, including loss
of anticipated profits, costs or expenses incurred by reason of the liquidation
or reemployment of deposits or other funds in order to fund or maintain such
Loans. This covenant shall survive the termination of this Agreement and the
payment of the Loans and all other amounts payable hereunder.
CHANGE OF LENDING OFFICE. Each Lender agrees that it will use all
reasonable efforts (so long as such designation would not be adverse to it, as
determined in its sole judgment) to designate a lending office or a different
lending office if the making of such a designation would reduce or obviate the
need for the Borrower to make payments under subsection 5.9 or 5.10(a), or would
eliminate or reduce the effect of any adoption or change described in subsection
5.8.
SECTION
REPRESENTATIONS AND WARRANTIES
To induce the Agent, the Issuing Bank and the Lenders to enter into
this Agreement, to make the Loans and to issue Letters of Credit, the Borrower
hereby represents and warrants to the Agent, the Issuing Bank and each Lender
(after giving effect to the Acquisition except as otherwise noted below and
subject to the limitations of subsection 7.2(a) with respect to certain
representations and warranties made on the Closing Date) that:
FINANCIAL CONDITION. (a)(i) The audited consolidated balance sheets of
the Borrower and its consolidated Subsidiaries (without giving effect to the
Acquisition), as of December 31, 1996 and 1997 and the related audited
consolidated statements of income, shareholders' equity and cash flows for the
two years then ended, copies of which have heretofore been furnished to the
Agent, have been certified by Ernst & Young, L.L.P. and present fairly the
consolidated financial condition of the Borrower and its consolidated
Subsidiaries as at such dates and the consolidated results of their operations
and their cash flows for the two years then ended in conformity with GAAP.
(ii) The audited combined balance sheets of the Inco Entities as of
December 31, 1996 and December 31, 1997, and the related audited combined
statements of income, shareholders' equity and cash flows for the two years then
ended, copies of which have heretofore been furnished to the Agent, have been
certified by Price Waterhouse LLP and present fairly the combined financial
condition of the Inco Entities and their Subsidiaries as at such dates and the
results of their operations and their cash flows for the two years then ended in
conformity GAAP.
(b)(i) The unaudited consolidated balance sheets of the Borrower and
its consolidated Subsidiaries (without giving effect to the Acquisition), for
(i) the fiscal quarters ended March 31, 1998 and June 30, 1998, and the related
unaudited consolidated statements of income for such fiscal quarter certified by
a Responsible Officer, copies of which have heretofore been furnished to the
Agent, present fairly the consolidated financial condition of the Borrower and
its consolidated Subsidiaries as at such date, and the consolidated results of
their operations for the period then ended (subject to normal year-end audit
adjustments and the
<PAGE>
46
absence of certain notes thereto). All such financial statements, including the
related schedules and notes thereto, have been prepared on a basis consistent
with the December 31, 1997 financial statements of the Borrower and its
consolidated Subsidiaries.
(ii) The unaudited combined balance sheets of the Inco Entities and
their Subsidiaries for the fiscal quarter ended March 31, 1998, and the related
unaudited combined statement of income for such fiscal quarter, copies of which
have heretofore been furnished to the Agent, present fairly the combined
financial condition of the Inco Entities and their Subsidiaries as at such date,
and the results of their operations for the period then ended (subject to normal
year-end audit adjustments and the absence of certain notes thereto). All such
financial statements, including the related schedules and notes thereto, have
been prepared on a basis consistent with the December 31, 1997 combined
financial statements of the Inco Entities and their Subsidiaries.
(c) Neither the Borrower nor any of its consolidated Subsidiaries nor
any of the Inco Entities nor any of their consolidated Subsidiaries had, at
December 31, 1997 or March 31, 1998 any material Guarantee Obligation,
contingent liability or liability for taxes, or any long-term Financing Lease or
unusual forward or long-term commitment, including, without limitation, any
Hedging Agreement required to be reflected on a balance sheet (or in the notes
thereto) prepared in accordance with GAAP, which is not reflected in the
foregoing statements or in the notes thereto or disclosed on Schedule 6.1(c).
Except as set forth on Schedule 6.1(c), during the period from December 31, 1997
to and including the date hereof there has been no sale, transfer or other
disposition by the Borrower or any of its consolidated Subsidiaries or by any of
the Inco Entities or any of their Subsidiaries of any material part of its
business or property and no purchase or other acquisition of any business or
property (including any Capital Stock of any other Person) material in relation
to the consolidated financial condition of the Borrower and its consolidated
Subsidiaries at December 31, 1997, other than the Acquisition.
(d) The PRO FORMA balance sheet of the Borrower and its consolidated
Subsidiaries as at June 30, 1998, and the PRO FORMA statements of income of the
Borrower and its consolidated Subsidiaries for the six-month period ended on
June 30, 1998 (all such PRO FORMA financial statements, the "BORROWER PRO FORMA
FINANCIAL STATEMENTS"), copies of which have been heretofore furnished to each
Lender, adjusted to give effect to (as if such events had occurred on such date)
(i) in the case of the PRO FORMA balance sheet, the Refinancing, the issuance of
the Preferred Stock and the initial borrowings (including borrowings in
connection with the Acquisition) by the Borrower hereunder, and (ii) in the case
of the PRO FORMA balance sheet and the PRO FORMA statement of income, the
Acquisition, were prepared based on good faith assumptions and on the best
information available to the Borrower as of the date of delivery thereof and
fairly presents on a PRO FORMA basis the consolidated financial position of the
Borrower and its consolidated Subsidiaries as at June 30, 1998, as adjusted, as
described above, assuming such events had occurred at such date.
(e) The Borrower has delivered to each Lender projected financial
statements for the Borrower and its Subsidiaries dated September 16, 1998,
including projected income
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47
statements, cash flow statements and balance sheets, for the fiscal years ending
1998-2007. Such projections were prepared by the Borrower in good faith and on
the basis of the best information available at that time and on the assumptions
stated therein, which assumptions the Borrower believes to be reasonable.
NO CHANGE. Since March 31, 1998 (a) there has been no material adverse
change, or any development involving a prospective material adverse change, in
the business, operations, properties, assets, liabilities, performance or
condition (financial or otherwise) or prospects of the Borrower or any of its
Material Subsidiaries or as of the Closing Date, of any of the Inco Entities or
any of their Material Subsidiaries, except to the extent that a reduction in
projected sales of the Borrower and its Subsidiaries is reflected in the
projections dated September 16, 1998 delivered to Agent and the Lenders prior to
the Closing Date, and (b) no dividends or other distributions have been
declared, paid or made upon the Capital Stock of the Borrower nor has any of the
Capital Stock of the Borrower been redeemed, retired, purchased or otherwise
acquired for value by the Borrower or any of its Subsidiaries except as
permitted by subsection 9.7.
CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each of Borrower and each of
its Subsidiaries (a) is duly organized, validly existing and (where applicable)
in good standing under the laws of the jurisdiction of its organization, (b) has
the corporate power and authority and all licenses, permits and other approvals
of any Governmental Authority to own and operate its property, to lease the
property it operates as lessee and to conduct the business in which it is
currently engaged, (c) is duly qualified as a foreign corporation and (where
applicable) in good standing under the laws of each jurisdiction where its
ownership, lease or operation of property or the conduct of its business
requires such qualification except where the failure to so qualify or be in good
standing could not, individually or in the aggregate, have a Material Adverse
Effect and (d) is in compliance with all Requirements of Law except to the
extent that the failure to comply therewith could not, individually or in the
aggregate, have a Material Adverse Effect.
CORPORATE POWER, AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The Borrower
and each of its Subsidiaries has the corporate power and authority to make,
deliver and perform the Transaction Documents to which it is a party, in the
case of the Borrower, to borrow hereunder and to issue the Preferred Stock and
to enter into Letter of Credit Requests, and has taken all necessary corporate
action to authorize the borrowings on the terms and conditions of this Agreement
and any Notes, to issue the Preferred Stock and to authorize the execution,
delivery and performance of the Transaction Documents to which it is a party. No
consent, approval or authorization of, filing with, notice to or other act by
any Governmental Authority or any other Person is required in connection with
the Transactions, other than (a) with respect to (i) the Acquisition, the
filings listed on Schedule 6.4, (ii) the Refinancing, the filings listed on
Schedule 6.4 in order to release all outstanding Liens on the properties and
assets of the Borrower and its Subsidiaries (other than Permitted Liens), and
(iii) the issuance of the Preferred Stock, the filings listed on Schedule 6.4C,
(b) filings and recordings in order to perfect the Liens in favor of the Agent
for the benefit of the Lenders created by the Mortgages and the Bilateral
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48
Mortgages and the recording of the Mortgages and the Bilateral Mortgages in the
appropriate recording office, (c) such orders, consents, approvals and
authorizations of, and all notices and all written assumptions of obligations
to, Governmental Authorities and any other Persons which have been heretofore
obtained, made or given and are in full force and effect, and complete and
correct copies of which have heretofore been furnished to the Agent, (d) any
consent, approval, authorization, filing or notice, the failure of which to
obtain would not have a Material Adverse Effect or subject the Borrower or any
of its Subsidiaries to criminal penalty or sanction, (e) filings of Uniform
Commercial Code financing statements listed on Schedule 6.18 in the filing
offices designated thereon in favor of the Agent for the benefit of the Lenders
in order to perfect the Liens of the Agent for the benefit of the Lenders
created by the Security Documents and (f) filings related to any Intellectual
Property of the Borrower or its Subsidiaries to perfect the Liens of the Agent
for the benefit of the Lenders created by any Security Document. This Agreement,
the Preferred Stock Agreement , the Purchase Agreement and the Supply Contracts
each has been, and each other Transaction Document to which any of the Borrower
or any of its Subsidiaries is or will be a party will be, duly executed and
delivered on behalf of such Person that is a party thereto. This Agreement, the
Preferred Stock Agreement, the Purchase Agreement and the Supply Contracts each
constitutes, and each other Transaction Document to which any of the Borrower or
any of its Subsidiaries is or will be a party when executed and delivered will
constitute, a legal, valid and binding obligation of each such Person
enforceable against it in accordance with its terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles (whether enforcement is sought by proceedings in
equity or at law).
NO LEGAL BAR. The execution, delivery and performance of the
Transaction Documents to which the Borrower or any of its Subsidiaries is a
party, the borrowings hereunder and the use of the proceeds thereof and the
issuance of the Preferred Stock and consummation of the Transactions will not
violate any Requirement of Law or result in a material violation of any
indenture, agreement or other instrument to which the Borrower or any of its
Subsidiaries is a party or by which it or any of its property is bound and will
not result in, or require, the creation or imposition of any Lien (except in
favor of the Agent) on any of their respective properties or revenues pursuant
to any such Requirement of Law or any such indenture, agreement or other
instrument.
NO MATERIAL LITIGATION. Except as set forth on Schedule 6.6, no
litigation, investigation or proceeding of or before any arbitrator or
Governmental Authority is pending or, to the knowledge of any Loan Party,
threatened by or against the Borrower or any of its Subsidiaries or against any
of their respective properties or revenues (a) with respect to any of the
Transaction Documents or any of the Transactions contemplated hereby or thereby
or (b) which could reasonably be expected to have a Material Adverse Effect.
NO DEFAULT. Neither the Borrower nor any of its Subsidiaries is in
default under or with respect to any indenture, agreement or other instrument to
which such Person is a party or by which it or any of its property is bound in
any respect which could reasonably be
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49
expected to have a Material Adverse Effect except for any such indenture,
agreement or other instrument related to Indebtedness that will be satisfied and
from which the relevant Person will be released on the Closing Date. No default
or event of default has occurred and is continuing under the IRB Documents. No
Default or Event of Default has occurred and is continuing.
OWNERSHIP OF PROPERTY; LIENS. The Borrower and each of its Subsidiaries
has good record and marketable title in fee simple to, or a valid leasehold
interest in, all its real property, and good title to, or a valid leasehold
interest in, all its other material property except for such minor defects in
title and other matters disclosed in the title insurance policies delivered to
the Agent pursuant to subsection 7.1(u) that do not affect the ability to use
such property in the conduct of its business, and none of such property is
subject to any Lien except Permitted Liens.
INTELLECTUAL PROPERTY. The Borrower and each of its Subsidiaries owns,
or is licensed to use, all Intellectual Property necessary for the conduct of
its business as currently conducted except for those the failure to own or
license could not reasonably be expected to have a Material Adverse Effect.
Schedule 6.9 sets forth all interests of the Borrower and its Subsidiaries in
all material Intellectual Property existing as of the Closing Date and the
registration information for all such Intellectual Property. To the best of the
Borrower's knowledge, except as set forth on Schedule 6.6, no claim has been
asserted or is pending by any Person challenging or questioning the use of any
such material Intellectual Property by the Borrower or any of its Subsidiaries
or the validity or effectiveness of any such Intellectual Property except for
such claims which even if successful could not reasonably be expected to have a
Material Adverse Effect, nor does the Borrower know of any valid basis for any
such claim. To the best knowledge of the Borrower, the use of such Intellectual
Property by the Borrower or any of its Subsidiaries does not infringe on the
rights of any Person, except for such claims and infringements that, in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
NO BURDENSOME RESTRICTIONS. After giving effect to the Transactions, no
indenture, agreement or other instrument to which the Borrower or any of its
Subsidiaries is a party or by which it or any of its property is bound could
reasonably be expected to have a Material Adverse Effect.
TAXES. Except as set forth on Schedule 6.11, each of the Borrower and
its Subsidiaries has filed or caused to be filed all material foreign, federal,
state and local tax returns which, to the knowledge of the Borrower, are
required to be filed, taking into account all applicable extensions, and has
paid all taxes shown to be due and payable on said returns or on any assessments
made against it or any of its property and all other material taxes, fees or
other charges imposed on it or any of its property by any Governmental Authority
(other than any such taxes or assessments the amount or validity of which are
currently being contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been provided on the
books of such Person). No tax Lien has been filed against the Borrower or any of
its Subsidiaries and, to the knowledge of the Borrower, except as set forth on
Schedule 6.11, no claim is being asserted with respect to any taxes, fees, or
other charges.
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50
FEDERAL REGULATIONS. No part of the proceeds of any Loans will be used
for "purchasing" or "carrying" any "margin stock" within the respective meanings
of each of the quoted terms under Regulation U as now and from time to time
hereafter in effect. Neither the making of any Loan nor the use of the proceeds
thereof will violate or be inconsistent with the provisions of Regulation T, U
or X of the Board of Governors. If requested by any Lender or the Agent, the
Borrower will furnish to the Agent and each Lender a statement to the foregoing
effect in conformity with the requirements of FR Form U-1 referred to in said
Regulation U.
ERISA. Neither a Reportable Event (other than the Acquisition) nor an
"accumulated funding deficiency" (within the meaning of Section 412 of the Code
or Section 302 of ERISA and whether or not waived) has occurred during the
five-year period prior to the date on which this representation is made or
deemed made with respect to any Plan that remains outstanding in any respect and
that could reasonably be expected to have a Material Adverse Effect, and each
Plan has complied in all material respects with the applicable provisions of
ERISA and the Code. No termination of a Single Employer Plan has occurred, and
no Lien in favor of the PBGC or a Plan has arisen, during such five-year period
that has resulted in any material liability. The present value of all accrued
benefits under each Single Employer Plan (based on those assumptions used to
fund such Plans) did not, as of the last annual valuation date prior to the date
on which this representation is made or deemed made, exceed the value of the
assets of such Plan allocable to such accrued benefits. Neither the Borrower nor
any Commonly Controlled Entity has had a complete or partial withdrawal from any
Multiemployer Plan, and neither the Borrower nor any Commonly Controlled Entity
would become subject to any liability under ERISA if the Borrower or any such
Commonly Controlled Entity were to withdraw completely from all Multiemployer
Plans as of the valuation date most closely preceding the date on which this
representation is made or deemed made and no such Multiemployer Plan is in
Reorganization or Insolvent, except in each instance where such liability,
reorganization or insolvency could not reasonably be expected to have a Material
Adverse Effect. The present value (determined using actuarial and other
assumptions which are reasonable in respect of the benefits provided and the
employees participating) of the liability of the Borrower for post retirement
benefits to be provided to its current and former employees under Plans which
are welfare benefit plans (as defined in Section 3(l) of ERISA) does not, in the
aggregate, exceed the assets under all such Plans allocable to such benefits by
an amount which could reasonably be expected to have a Material Adverse Effect.
Each Commonly Controlled Entity that has liability for post-retirement benefits
has adopted Financial Accounting Standard No. 106. All benefit plans or
arrangements covering non-U.S. employees comply in all material respects with
applicable Requirements of Law. Each benefit plan or arrangement covering
non-U.S. employees, including expatriate employees, has been funded, if required
by local law, in accordance with reasonable actuarial assumptions and methods in
the relevant jurisdiction, to provide all benefits accrued thereunder by
reference to service completed prior to the date hereof. Each benefit plan or
arrangement covering non-U.S. employees has received all applicable approvals or
certifications of appropriate Governmental Authorities (other than with respect
to the Inco Alloys Limited Pension Plan, for which Inland Revenue approval
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51
is pending), and no events or circumstances have occurred, to the best knowledge
of Borrower, which are likely to prejudice such approval or certification.
INVESTMENT COMPANY ACT; OTHER REGULATIONS. The Borrower is not an
"investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940 as amended. The
Borrower is not subject to regulation under any Requirement of Law which limits
its ability to incur Indebtedness.
CAPITAL STOCK; SUBSIDIARIES; INVESTMENTS.
(a) The authorized, issued and outstanding shares of Capital Stock of
the Borrower are as set forth on Schedule 6.15. All such outstanding shares have
been duly authorized, are validly issued and outstanding and are fully paid and
non-assessable. To the best of the Borrower's knowledge, there are no
outstanding options or other rights pertaining to the Capital Stock of the
Borrower, other than as set forth on Schedule 6.15. The Borrower has no
obligation to repurchase or redeem any shares of its Capital Stock.
(b) The Persons listed on Schedule 6.15 constitute all the Subsidiaries
of the Borrower and all other Persons constituting Investments by the Borrower
and its Subsidiaries in Capital Stock at the date hereof after giving effect to
the Acquisition. Such Schedule identifies the state or country of organization
of each such Subsidiary or Investment and the percentage ownership of such
Subsidiary or Investment directly or indirectly owned by the Borrower and the
ownership chain for such Subsidiary or Investment, and the number of authorized
and outstanding shares of Capital Stock. Except as set forth on Schedule 6.15,
there are no preemptive rights with respect to the Capital Stock of such
Subsidiaries or Investments and no options, warrants or other rights to acquire
the Capital Stock of any such Subsidiary or Investment, and no securities
convertible into such Capital Stock.
ENVIRONMENTAL MATTERS.
(a) Except as disclosed on Schedule 6.16, no real estate currently or
formerly owned or leased by the Borrower or any or its Subsidiaries contains,
nor, to the best of the Borrower's knowledge, has previously contained, any
Materials of Environmental Concern in amounts or concentrations which could
reasonably be expected to give rise to a material liability under any
Environmental Law.
(b) Except as disclosed in Schedule 6.16, all real estate currently or
formerly owned or leased by the Borrower and its Subsidiaries and all operations
thereon are in material compliance with all applicable Environmental Laws, and
there is no contamination at, under or about such real estate or violation of
any Environmental Law with respect to such real estate or the business operated
by the Borrower or any of its Subsidiaries (the "BUSINESS") which could
reasonably be expected to have a Material Adverse Effect or interfere with the
continued operation of such real estate.
(c) Except as disclosed in Schedule 6.16, there are no existing or, to
the knowledge of the Borrower, threatened Environmental Claims against the
Borrower or any of its Subsidiaries, and neither the Borrower nor any of its
Subsidiaries has received any notice of violation, alleged violation,
non-compliance, liability or potential liability regarding environmental matters
or compliance with Environmental Laws with regard to any of the real estate
currently or formerly owned, leased or operated by the Borrower or any of
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52
its Subsidiaries or the Business, which in either case could reasonably be
expected to have a Material Adverse Effect.
(d) Except as disclosed in Schedule 6.16, Materials of Environmental
Concern have not been transported or disposed of from the real estate currently
or formerly owned, leased or operated by the Borrower or any of its Subsidiaries
by the Borrower or any of such Subsidiaries in violation of, or in a manner or
to a location which could give rise to material liability under, any
Environmental Law, nor have any Materials of Environmental Concern been
generated, treated, released, stored or disposed of at, on or under any of such
real estate in violation of, or in a manner that could reasonably be expected to
give rise to liability under, any applicable Environmental Law which could
reasonably be expected to have a Material Adverse Effect.
(e) Except as disclosed in Schedule 6.16, no judicial proceeding or
governmental or administrative action is pending or, to the knowledge of the
Borrower, threatened, under any Environmental Law to which the Borrower or any
of its Subsidiaries is or will be named as a party with respect to any real
estate currently or formerly owned, leased or operated by the Borrower or any of
its Subsidiaries or the Business which could reasonably be expected to have a
Material Adverse Effect, nor are there any consent decrees or other decrees,
consent orders, administrative orders or other orders, or other administrative
or judicial requirements outstanding under any Environmental Law with respect to
such real estate or the Business which could reasonably be expected to have a
Material Adverse Effect.
REGULATION H. No Mortgage or Bilateral Mortgage encumbers improved real
property which is located in an area that has been identified by the Secretary
of Housing and Urban Development as an area having special flood hazards and in
which flood insurance has been made available under the National Flood Insurance
Act of 1968, except for the real property located in Huntington, West Virginia
as to which the Borrower has obtained and maintains such flood insurance in the
amount and for the term described in subsection 7.1(v).
SECURITY DOCUMENTS. (a) After giving effect to the Acquisition and the
Refinancing and the release of the related Liens, the security interests created
by the Security Agreements will be effective to create in favor of the Agent,
for the ratable benefit of the Lenders, a legal, valid and enforceable security
interest in accordance with their respective terms in the Capital Stock and
instruments described therein and proceeds thereof and shall constitute a
perfected first Lien on, and security interest in, all right, title and interest
of the pledgor party thereto in such pledged collateral, subject to no other
Liens.
(b) After giving effect to the Acquisition and the Refinancing and the
release of the related Liens, the security interest created by the Mortgages and
Bilateral Mortgages will be effective to grant to the Agent, for the ratable
benefit of the Lenders, legal, valid and enforceable mortgage Liens in
accordance with their respective terms on all of the right, title and interest
of each Loan Party thereto in the Mortgaged Property described therein. Such
Mortgages and Bilateral Mortgages, when recorded in the appropriate recording
office, will
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53
constitute perfected first Liens on, and security interests in, such Mortgaged
Property, subject to no other Liens, other than Permitted Liens.
(c) After giving effect to the Acquisition and the Refinancing and the
release of the related Liens, the security interests created by the Security
Agreements will be effective to create in favor of the Agent, for the ratable
benefit of the Lenders, a legal, valid and enforceable fully perfected security
interest of first priority in accordance with their respective terms in all
right, title and interest of each Loan Party in the Collateral described
therein, subject to no other Liens, other than Permitted Liens. Schedule 6.18
sets forth all filing offices in each jurisdiction in which a financing
statement is required to be filed to perfect the Agent's security interest in
such Collateral.
(d) The Agent, for the ratable benefit of the Lenders, has a legal,
valid and enforceable fully perfected security interest of first priority in the
deposit accounts of the Borrower and its Domestic Subsidiaries.
ACQUISITION APPROVALS. The Borrower and each of its Subsidiaries and
the Sellers have duly and timely filed all filings which are required to be
filed by it in connection with the Acquisition and all approvals and consents
required to consummate the Acquisition have been received, and all waiting
periods have expired.
ACCURACY OF INFORMATION. All factual information furnished by or on
behalf of the Borrower or any of its Subsidiaries in writing to the Agent or any
Lender on or prior to the Closing Date in connection with this Agreement, the
other Transaction Documents and the Transactions is, and all other factual
information hereafter furnished by or on behalf of the Borrower or any of its
Subsidiaries in writing to the Agent or any Lender will be, true and accurate in
all material respects on the date as of which such information is dated or
furnished and not incomplete by omitting to state any material fact necessary to
make such information not misleading.
INSURANCE. Schedule 6.21 lists all insurance maintained by the Loan
Parties as of the Closing Date.
SOLVENCY. As of the Closing Date each Loan Party is Solvent and on each
date on which a Revolving Credit Loan will be made or Letter of Credit issued
(after giving effect to the transactions being consummated on such day) will be
Solvent.
LABOR RELATIONS. Neither the Borrower nor any of its Subsidiaries is
engaged in any unfair labor practice that could reasonably be expected to have a
Material Adverse Effect and, except as set forth on Schedule 6.23, there is (a)
no unfair labor practice complaint pending against the Borrower or any of its
Subsidiaries or, to the best knowledge of the Borrower, threatened against any
of them, before the National Labor Relations Board or any other Governmental
Authority, and no material grievance or arbitration proceeding arising out of or
under any collective bargaining agreement is so pending against the Borrower or
any of
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54
its Subsidiaries or, to the best knowledge of the Borrower, threatened against
any of them, (b) no strike, labor dispute, slow down or stoppage pending against
the Borrower or any of its Subsidiaries or, to the best knowledge of the
Borrower, threatened against the Borrower or any of its Subsidiaries and (c)
neither the Borrower nor any of its Subsidiaries is subject to a collective
bargaining agreement and, to the best knowledge of the Borrower, no union
representation proceeding is pending with respect to the employees of the
Borrower or any of its Subsidiaries, except (with respect to any matter
specified in clause (a), (b) or (c) above, either individually or in the
aggregate) such as could not reasonably be expected to have a Material Adverse
Effect.
INDEBTEDNESS. Schedule 6.24 sets forth a true and complete list of all
Indebtedness (excluding the Term Loans, the Revolving Credit Loans, the Letters
of Credit Outstanding , Indebtedness to Inco, Inc. in connection with the
Receivables Program, and currency and commodity Hedging Agreements entered into
in the ordinary course of business) of the Borrower and its respective
Subsidiaries as of the initial Borrowing Date and which is to remain outstanding
after giving effect to the Transactions, in each case showing the aggregate
principal amount thereof and the name of the respective Borrower and any other
entity which directly or indirectly guaranteed such debt.
BANK ACCOUNTS. Schedule 6.25 (as the same may be updated pursuant to
the provisions of subsection 8.15 after the Closing Date) sets forth a true and
complete list of all accounts of whatever nature maintained with a bank or other
financial institution by each of the Borrower and its Domestic Subsidiaries (the
"DOMESTIC BANK ACCOUNTS") and by each of its Foreign Subsidiaries, after giving
effect to the Transactions.
REPRESENTATIONS AND WARRANTIES IN TRANSACTION DOCUMENTS. All
representations and warranties of the Borrower and its Subsidiaries contained in
the Acquisition Documents, all representations and warranties of the Borrower
contained in the Preferred Stock Documents and to the best knowledge of the
Borrower, all representations and warranties of the Inco Entities and their
Subsidiaries and the Sellers contained in the Acquisition Documents were or are
true and correct in all material respects as of the date made or deemed made;
PROVIDED that for all times after the Closing Date the foregoing representation
and warranty as to the Inco Entities and their Subsidiaries and the Sellers
shall not be untrue or incorrect in any material respect if the failure of such
representation and warranty to be true and correct could not have a Material
Adverse Effect, taking into account all rights to indemnity under the Purchase
Agreement.
YEAR 2000 PROBLEM.
(a) The Borrower has reviewed, or caused a review to be conducted of,
its operations and those of its Subsidiaries existing prior to consummation of
the Acquisition with a view to assessing whether the business or operations of
the Borrower or any of such Subsidiaries will be vulnerable to a Year 2000
Problem, or to the effects of a Year 2000 Problem suffered by any of their
material suppliers or vendors, and has determined that no Year 2000 Problem can
reasonably be expected to have a Material Adverse Effect on Borrower and such
Subsidiaries taken as a whole.
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55
(b) Based upon its due diligence investigation conducted prior to the
Closing Date, Borrower has determined that a Year 2000 Problem exists at one or
more of the Inco Entities. The Inco Entities have hired Ernst & Young to
implement a program to address their Year 2000 Problem, including overall
project management and implementation of Borrower's Oracle software code at the
Inco Entities. With this engagement of Ernst & Young, Borrower reasonably
believes that the Year 2000 Problem at the Inco Entities will be addressed in
such a manner that no Material Adverse Effect is likely to occur.
SECTION
CONDITIONS PRECEDENT
CONDITIONS TO INITIAL LOANS. The agreement of each Lender to make the
initial Loans requested to be made by it and of the Issuing Bank to issue the
initial Letters of Credit requested to be issued hereunder are subject to the
satisfaction, immediately prior to or concurrently with the making of any such
Loan on the Closing Date, of the following conditions precedent:
(a) LOAN DOCUMENTS. The Agent shall have received (i) this Agreement,
executed and delivered by a duly authorized officer of the Borrower, with a
counterpart for each Lender, (ii) for the account of each Revolving Credit
Lender, a Revolving Credit Note conforming to the requirements hereof and
executed by a duly authorized officer of the Borrower, (iii) for the account of
each Tranche A Lender, a Tranche A Term Note conforming to the requirements
hereof and executed by a duly authorized officer of the Borrower, (iv) for the
account of each Tranche B Lender, a Tranche B Term Note conforming to the
requirements hereof and executed by a duly authorized officer of the Borrower,
(v) each of the Security Agreements, each executed and delivered by a duly
authorized officer of each Domestic Subsidiary, with a counterpart for the Agent
and a counterpart or a conformed copy for each Lender, (vi) each of the
Guarantees, each executed and delivered by a duly authorized officer of Domestic
Subsidiary, with a counterpart for the Agent and a counterpart or a conformed
copy for each Lender, (vii) each of the Mortgages covering the Mortgaged
Properties listed on Schedule II, each executed and delivered by a duly
authorized officer of each Loan Party party thereto, with a counterpart for the
Agent and a counterpart or a conformed copy for each Lender, (viii) each of the
Bilateral Mortgages covering the leased properties listed on Schedule III, each
executed and delivered by a duly authorized officer of each Loan Party party
thereto, with a counterpart for the Agent and a counterpart or a conformed copy
for each Lender and (ix) the Closing Letter, executed by a duly authorized
officer of the Borrower, with a counterpart for the Agent and a counterpart or
conformed copy for each Lender. In the event that any Letters of Credit are to
be issued on the Closing Date, the Agent shall have received a Letter of Credit
Request from the Borrower with respect to each such Letter of Credit as provided
in Section 4.1.
(b) ACQUISITION DOCUMENTS. The Agent shall have received, with a copy
for each Lender, true and correct copies, certified as to authenticity by the
Borrower, of the Purchase Agreement and the other material Acquisition
Documents, and such other documents or instruments as may
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56
be reasonably requested by the Agent, including, without limitation, the Supply
Contracts and a copy of any debt instrument or security agreement to which the
Borrower or its Subsidiaries may be a party upon the consummation of the
Acquisition, and all such documents shall be in form and substance satisfactory
to the Agent and the Lenders. No material term of any Acquisition Document or
Supply Contract shall have been amended, waived, or otherwise modified without
the consent of the Agent and the Required Lenders; PROVIDED that the Purchase
Agreement shall have been amended to permit the assignment by the Borrower to
the Agent for the benefit of the Lenders, the Issuing Bank and the Agent of all
of the rights (but not the obligations) of the Borrower and its Subsidiaries
thereunder, or the Borrower shall have delivered a consent of the Sellers
thereto, in form and substance satisfactory to the Agent.
(c) ACQUISITION CLOSING. The Agent shall have received, with a copy for
each Lender, a certificate of a Responsible Officer of the Borrower attaching a
true and correct copy of each governmental and material third-party approval
(including landlords' and other consents) necessary for the Acquisition and
certifying that such approvals have not been rescinded, amended or modified in
any manner. Each approval necessary in connection with Acquisition shall have
been obtained (without imposition of conditions not satisfactory to the Agent),
be in full force and effect and no longer subject to appeal or challenge, and
all applicable waiting periods shall have expired without any action being taken
or threatened by any competent Governmental Authority, and no Requirement of Law
shall (in the judgment of the Agent) be applicable, which would restrain,
prevent or otherwise impose materially adverse conditions on the Acquisition or
the Borrower or any of its Subsidiaries.
(d) PREFERRED STOCK DOCUMENTS; ISSUANCE OF PREFERRED STOCK. The Agent
shall have received, with a copy for each Lender, true and correct copies,
certified as to authenticity by the Borrower, of the Preferred Stock Documents,
and each Preferred Stock Document shall be in form and substance satisfactory to
the Agent and the Lenders. No material term of any Preferred Stock Document
shall have been amended, waived or otherwise modified without the consent of the
Agent and the Required Lenders. The Borrower shall have issued and sold the
Preferred Stock in consideration of not less than $97,000,000, of which
$80,000,000 is in cash.
(e) REFINANCING. The Agent shall have received evidence satisfactory to
it that all of the Indebtedness of the Borrower and its Subsidiaries (other than
the Indebtedness described in Schedule 6.24, Indebtedness to Inco, Inc. with
respect to the Receivables Program and currency and commodity Hedging Agreements
entered into in the ordinary course of business) shall contemporaneously be
repaid with the proceeds of Term Loans and Revolving Credit Loans (the
"REFINANCING"). The Agent shall have received, with a copy for each Lender,
executed copies of all payout or assignment letters, Lien releases or
assignments, termination or assignment statements, satisfactions, agreements,
certificates and other documents entered into in connection with the
Refinancing, all of which payout letters, Lien releases or assignments,
termination or assignment statements, satisfactions, agreements, certificates
and other documents shall be in form and substance satisfactory to the Agent.
(f) CLOSING CERTIFICATE. The Agent shall have received, with a
counterpart for each Lender, a certificate of the Borrower, dated the Closing
Date, substantially in the form of Exhibit J, with appropriate insertions and
attachments, executed by a Responsible Officer of the Borrower.
(g) CORPORATE PROCEEDINGS OF THE BORROWER. The Agent shall have
received, with a counterpart for each Lender, a copy of the resolutions, in form
and substance reasonably satisfactory to the Agent, of the Board of Directors of
the Borrower authorizing (i) the execution, delivery and performance of (w) this
Agreement and the other Loan Documents to which it is a party, (x) the
Acquisition Documents, (y) all agreements and other documents to effect the
Refinancing, (z) the Preferred Stock Documents, (ii) the borrowings contemplated
hereunder, (iii) the granting by it of the Liens created pursuant to the
Security Documents to which the Borrower is a party, and (iv) consummation of
the Transactions, certified by the Secretary or an Assistant Secretary of the
Borrower as of the Closing Date, which certificate shall be in form and
substance reasonably satisfactory to the Agent and shall state that the
resolutions thereby certified have not been amended, modified, revoked or
rescinded.
(h) BORROWER INCUMBENCY CERTIFICATE. The Agent shall have received,
with a counterpart for each Lender, a certificate of the Borrower, dated the
Closing Date, as to the incumbency and signature of the officers of the Borrower
executing any Loan Document, reasonably satisfactory in form and substance to
the Agent, executed by a Responsible Officer and the Secretary or any Assistant
Secretary of the Borrower.
(i) CORPORATE PROCEEDINGS OF SUBSIDIARIES. The Agent shall have
received, with a counterpart for each Lender, a copy of the resolutions, in form
and substance reasonably satisfactory to the Agent, of the Board of Directors or
other governing body of each Subsidiary of the Borrower which is a party to a
Loan Document authorizing (i) the execution, delivery and performance of the
Loan Documents to which it is a party and (ii) the granting by it of the Liens
created pursuant to the Security Documents to which it is a party, certified by
the Secretary or an Assistant Secretary of each such Subsidiary as of the
Closing Date, which certificate shall be in form and substance reasonably
satisfactory to the Agent and shall state that the resolutions thereby certified
have not been amended, modified, revoked or rescinded.
(j) SUBSIDIARY INCUMBENCY CERTIFICATES. The Agent shall have received,
with a counterpart for each Lender, a certificate of each Subsidiary of the
Borrower which is a Loan Party, dated the Closing Date, as to the incumbency and
signature of the officers of such Subsidiaries executing any Loan Document,
reasonably satisfactory in form and substance to the Agent, executed by a
Responsible Officer and the Secretary or any Assistant Secretary of each such
Subsidiary.
(k) CORPORATE DOCUMENTS. The Agent shall have received, with a copy for
each Lender, such documents as the Agent or any Lender may reasonably request
relating to the organization, existence and good standing of the Borrower and
its Domestic Subsidiaries and any material Foreign Subsidiary whose Capital
Stock is pledged pursuant to any Security Agreement, including true and complete
copies of the certificate of incorporation and by-laws (or other governing
documents) of the Borrower and each of such Subsidiaries, certified as of the
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57
Closing Date as complete and correct copies thereof by an officer of such
Person, and all such documents shall be satisfactory to the Agent and the
Lenders.
(l) FINANCIAL STATEMENTS OF INCO ENTITIES. The Lenders shall have
received a copies of the audited combined financial statements of the Inco
Entities for the fiscal years ended December 31, 1996 and 1997 and the unaudited
combined financial statements of the Inco Entities for the first quarter ended
March 31, 1998, and June 30, 1998, which financial statements shall have been
prepared in accordance with GAAP and shall not reflect any material adverse
change in the financial condition of the Inco Entities as reflected in the
financial statements or projections previously delivered to the Lenders.
(m) BORROWER FINANCIAL STATEMENTS. The Lenders shall have received
copies of the audited consolidated financial statements of the Borrower for the
fiscal years ended December 31, 1996 and 1997 and the unaudited consolidated
financial statements of the Borrower for the fiscal quarter ended March 31, 1998
and June 30, 1998, in each case without giving effect to the Acquisition, which
financial statements shall have been prepared in accordance with GAAP and shall
not reflect any material adverse change in the consolidated financial condition
of the Borrower as reflected in the financial statements or projections
previously delivered to the Lenders.
(n) CLOSING FINANCIAL CERTIFICATE. The Agent shall have received, with
a copy for each Lender, a certificate of a Responsible Officer, substantially in
the form of Exhibit K, based upon the Borrower Pro Forma Financial Statements,
certifying that PRO FORMA Consolidated EBITDA of the Borrower and its
Subsidiaries, after giving effect to the Acquisition, for the twelve-month
period ended June 30 equals at least $90,000,000. The PRO FORMA capital
structure shall be acceptable to the Agent and shall not differ materially from
the PRO FORMA capital structure shown in the projections furnished to the Agent
and the Lenders contained in the Confidential Memorandum dated July 1998, other
than a reduction in the amount of Preferred Stock.
(o) CORPORATE AND CAPITAL STRUCTURE. The corporate, legal and capital
structure of the Borrower and each of its Subsidiaries after giving effect to
the Transactions shall be satisfactory to the Agent and the Lenders.
(p) CONSENTS, APPROVALS, ETC. The Agent shall have received, with a
copy for each Lender, a certificate of a Responsible Officer of the Borrower
attaching a true and correct copy of each governmental and third-party approval
(including any consents required to pledge the Capital Stock of the Subsidiaries
and Investments of the Borrower and its Subsidiaries pledged pursuant to the
Security Agreements, each in form and substance satisfactory to the Agent)
necessary in connection with the Refinancing and the transactions contemplated
by the Loan Documents or certifying that true and correct copies of all such
approvals have been delivered by the Borrower to the Agent, with a copy for each
of the Lenders, and that such approvals have not been rescinded, amended or
modified in any manner. Each such approval shall have been obtained, be in full
force and effect and no action shall have been taken or threatened by any
competent authority, and no Requirement of Law shall (in the judgment of the
Agent) be applicable, which would restrain, prevent or otherwise impose
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58
materially adverse conditions on the Refinancing or the transactions
contemplated by the Loan Documents. The Loans shall be in compliance with
Regulations T, U and X of the Board of Governors.
(q) FEES AND EXPENSES. The Agent shall have received reasonably
satisfactory evidence that the fees and expenses to be incurred by the Borrower
and its Subsidiaries in connection with the Transactions will not exceed an
aggregate amount reasonably acceptable to the Agent.
(r) FILINGS. All filings and other actions required to create and
perfect a first priority security interest in favor of the Agent for the benefit
of the Lenders on all Collateral owned or to be owned by the Loan Parties shall
have been duly made or taken, and all such Collateral shall be free and clear of
other Liens except Permitted Liens, or to the extent that all filings and other
actions required to create and perfect a first priority security interest in the
Collateral are not made or taken on or prior to the Closing Date, the Agent and
the Lenders shall be reasonably satisfied that the filings or other actions made
or taken on or prior to the Closing Date are sufficient to give the Lenders the
practical benefit of the Collateral and that all other filings and other actions
which have not been made or taken on or prior to the Closing Date will be
completed as soon as practicable after the Closing Date.
(s) LIEN SEARCHES. The Agent shall have received the results of a
recent search by a Person satisfactory to the Agent of the Uniform Commercial
Code, judgment and tax lien filings (or equivalent searches with respect to
material Foreign Subsidiaries) which may have been filed with respect to
personal property of the Borrower and such Subsidiaries, and the results of such
search shall reveal no Liens on any of the assets of the Borrower or its
Subsidiaries except for Permitted Liens and Liens to be released on the Closing
Date.
(t) PLEDGED COLLATERAL. The Agent shall have received the certificates
representing the shares of Capital Stock pledged pursuant to each of the
Security Agreements, together with an undated stock power for each such
certificate executed in blank by a duly authorized officer of the pledgor
thereof (or, in the case of the Foreign Subsidiaries, the applicable action
required to perfect the Agent's pledge shall have been taken). The Agent shall
have received the SMC Acquisition Note, the SMC (UK) Notes and the SMC (Canada)
Note and all other instruments required to be pledged pursuant to the Security
Agreements, together with an undated endorsement for each such instrument
executed in blank by a duly authorized officer of the pledgor thereof.
(u) TITLE INSURANCE POLICIES; SURVEYS. The Agent shall have received in
respect of each parcel covered by each Mortgage and Bilateral Mortgage to be
delivered on the Closing Date a mortgagee's title policy (or policies) or marked
up unconditional binder for such insurance dated the Closing Date. Each such
policy shall (i) be in an amount set forth on Schedule 7.1(u); (ii) be issued at
ordinary rates; (iii) insure that the Mortgage or Bilateral Mortgage insured
thereby creates a valid first Lien on such parcel free and clear of all defects
and encumbrances, except as approved by Agent; (iv) name the Agent for the
benefit of the Lenders as the insured thereunder; (v) be in the form of ALTA
Loan Policy - 1990 (Amended 10/17/92); (vi) contain such endorsements and
affirmative coverage as the Agent may request; and (vii) be
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59
issued by title companies reasonably satisfactory to the Agent (including any
such title companies acting as co-insurers or reinsurers, at the option of the
Agent). The Agent shall have received evidence reasonably satisfactory to it
that all premiums in respect of each such policy, and all charges for mortgage
recording tax, if any, have been paid. The Agent shall have received in respect
of each parcel covered by each Mortgage and Bilateral Mortgage to be delivered
on the Closing Date a certified ALTA/ACSM survey prepared by a registered
independent surveyor and in form and substance satisfactory to the Agent and the
company issuing the title insurance policy for such parcel.
(v) FLOOD INSURANCE. The Agent shall have received (i) a policy of
flood insurance which (A) covers any parcel of improved real property which is
encumbered by any Mortgage or Bilateral Mortgage to be delivered on the Closing
Date and located in a flood plain, (B) is written in an amount not more than the
fair market value of the property subject to such Mortgage or Bilateral Mortgage
or the maximum limit of coverage made available with respect to the particular
type of property under the National Flood Insurance Act, whichever is less, and
(C) has a term ending not earlier than the maturity of the Indebtedness secured
by such or Mortgage or Bilateral Mortgage and (ii) confirmation that the
Borrower has received the notice required pursuant to Section 208(e)(3) of
Regulation H of the Board of Governors.
(w) COPIES OF DOCUMENTS. The Agent shall have received a copy of all
recorded documents referred to, or listed as exceptions to title in, the title
policy or policies referred to in subsection 7.1(u) and a copy, certified by
such parties as the Agent may reasonably deem appropriate, of all other
documents affecting the property covered by each Mortgage or Bilateral Mortgage
to be delivered on the Closing Date.
(x) INSURANCE. The Agent shall have received evidence in form and
substance reasonably satisfactory to it that all of the requirements of
subsection 8.5, and the Mortgages or Bilateral Mortgages shall have been
satisfied.
(y) LEGAL OPINIONS. The Agent shall have received, with a counterpart
for each Lender, the following executed legal opinions:
(i) the executed legal opinion of Bond, Schoeneck & King, LLP,
counsel to the Borrower and the other Loan Parties, substantially in
the form of Exhibit L-1, and covering such other matters as the Agent
may request;
(ii) the executed legal opinion of such special local counsel
to the Borrower and the other Loan Parties as the Agent shall request,
substantially in the form of Exhibit L-2, and covering such other
matters as the Agent may request;
(iii) the executed legal opinion of foreign counsel to the
Borrower and the Foreign Subsidiaries with respect to such matters as
the Agent may request; and
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(iv) the executed legal opinion of counsel to each of the
Sellers and the Borrower delivered pursuant to the Purchase Agreement,
addressed to the Agent and the Lenders (or a duly executed reliance
letter).
(z) AGENT'S FEES AND EXPENSES. The Agent shall have received all fees,
expenses and other consideration required to be paid or delivered on or prior to
the Closing Date under any Loan Document, and all fees and expenses of counsel
to the Agent, including any local or foreign counsel.
(aa) OUTSTANDING INDEBTEDNESS. The Agent shall have received, with a
counterpart for each Lender, a certificate of a Responsible Officer of the
Borrower, in form and substance reasonably satisfactory to the Agent, certifying
that none of the Borrower or any of its Subsidiaries shall have any outstanding
Indebtedness after giving effect to the Refinancing, other than as permitted by
subsection 9.2.
(bb) ENVIRONMENTAL AUDITS. The Borrower shall have provided to the
Agent, with a copy for each Lender, copies of the results of all Phase I
environmental audits of such of the properties and operations of the Borrower
and its Subsidiaries as the Agent shall specify (including properties to be
acquired in the Acquisition as specified by the Agent) (for purposes of this
clause, the "REPORTS"), from an environmental consulting firm satisfactory to
the Agent, such Reports to be in form and substance satisfactory to the Agent.
The Agent shall be satisfied with the amount and nature of any Environmental
Claims and the actions the Borrower or the applicable Subsidiary plans to take
with respect thereto
(cc) NO MATERIAL ADVERSE CHANGE. There shall have occurred no material
adverse change, and no development involving a prospective material adverse
change, (i) in the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Borrower or any of its Material
Subsidiaries (determined after giving effect to consummation of the Acquisition)
or (ii) in the loan syndication or financial or capital market conditions
generally, and all information provided to the Agent and the Lenders by or on
behalf of the Borrower with respect to the Transactions and the business,
condition (financial or otherwise), operations, performance, and properties of
the Borrower and its Subsidiaries and the Inco Entities and their Subsidiaries
shall be true and correct in all material respects.
(dd) NO LITIGATION. There shall exist no action, suit, investigation,
litigation or proceeding pending or threatened in any court or before any
arbitrator or Governmental Authority that (i) would reasonably be likely to have
a Material Adverse Effect or (ii) purports to materially affect any of the
Transactions or the rights and remedies of the Agent and the Lenders.
(ee) SOLVENCY CERTIFICATE. The Borrower shall have delivered to the
Agent, with a counterpart or a conformed copy for each Lender, a certificate of
its chief financial officer attesting that, after giving effect to the
Transactions, each Loan Party will be Solvent, which certificate shall be in
form and substance satisfactory to the Agent.
(ff) ERISA; RETIREE BENEFITS. The Lenders shall be satisfied that the
Borrower and its Subsidiaries will be able to meet their respective obligations
under all employee and retiree welfare benefit plans, that such plans are in all
material respects funded in accordance with the minimum statutory requirements
under ERISA or other applicable Requirements of Law, that no material Reportable
Event has occurred as to any such plan and that no termination of, or withdrawal
from, any such employee benefit plan has occurred or is contemplated that could
result in a material liability of the Borrower or any of its Subsidiaries.
(gg) TERMINATION OF RECEIVABLES FROM RECEIVABLES PROGRAM. All
obligations and liabilities of Inco Alloys International, Inc. relating to the
Receivables Program shall have been terminated, and Inco Inc. shall have
repurchased the receivables of Inco Alloys International Inc. from such
Receivables Program and assigned such receivables to the Borrower, free and
clear of all Liens, all on terms and conditions, and pursuant to documentation,
satisfactory to the Agent and the Lenders.
CONDITIONS TO EACH LOAN. The agreement of each Lender to make any Loan
requested to be made by it on any date (including, without limitation, its
initial Loan, but excluding at all times Loans made pursuant to subsection 4.3),
and of the Issuing Bank to issue any Letter of Credit, is subject to (i) the
making of such Loans complying in all respects with the margin regulations of
the Board of Governors and (ii) the satisfaction of the following conditions
precedent:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties made by the Borrower or any of its Subsidiaries in or pursuant to the
Loan Documents shall be true and correct in all material respects on and as of
such date immediately prior to, and after giving effect to the Loan or Letter of
Credit as if made on and as of such date (except that any such representation or
warranty that is expressly stated as being made only as of a specified earlier
date shall be true and correct in all material respects as of such earlier date
and that the representations and warranties made on the Closing Date relating to
the Inco Entities and their Subsidiaries shall be deemed limited to those set
forth in the Purchase Agreement).
(b) NO DEFAULT. No Default or Event of Default shall have occurred and
be continuing on such date or after giving effect to the Loans requested to be
made on such date or to the issuance of the Letter of Credit to be issued on
such date.
(c) ADDITIONAL MATTERS. The timely receipt of a notice of borrowing or
request for a Letter of Credit. Each borrowing by the Borrower hereunder and
each issuance of a Letter of Credit shall constitute a representation and
warranty by the Borrower as of the date of such Loan or Letter of Credit that
the conditions contained in this subsection 7.2 have been satisfied. Each Lender
agrees to make Loans in the circumstances contemplated by subsection 4.3 whether
or not the conditions contained in this subsection 7.2 have been satisfied.
SECTION
AFFIRMATIVE COVENANTS
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61
The Borrower hereby agrees that, from and after the Closing Date, so
long as the Commitments remain in effect, any Letter of Credit remains
outstanding, any Loan remains outstanding and unpaid or any other amount is
owing to any Lender, the Issuing Bank or the Agent hereunder unless the Required
Lenders, and the Issuing Bank if any Letter of Credit shall be outstanding,
shall have otherwise consented in writing, the Borrower shall and (where
applicable) shall cause each of its Subsidiaries to:
FINANCIAL STATEMENTS. Furnish to the Agent, with a copy for each
Lender:
(a) as soon as available, but in any event within 90 days after the end
of each fiscal year of the Borrower, a copy of the consolidated and
consolidating balance sheet of the Borrower and its consolidated Subsidiaries as
at the end of such year and the related consolidated and consolidating
statements of income and retained earnings and of cash flows for such year,
setting forth in each case in comparative form the figures for the previous year
with the unqualified opinion of Ernst & Young LLP or other independent certified
public accountants of nationally recognized standing acceptable to the Agent;
and
(b) as soon as available, but in any event not later than 45 days after
the end of each of the first three quarterly periods of each fiscal year of the
Borrower, the unaudited consolidated and consolidating balance sheet of the
Borrower and its consolidated Subsidiaries as at the end of such quarter and the
related unaudited consolidated and consolidating statements of income and
retained earnings and of cash flows of the Borrower and its consolidated
Subsidiaries for such quarter and the portion of the fiscal year through the end
of such quarter, setting forth in each case in comparative form the figures for
the previous year, certified by a Responsible Officer as fairly presenting the
financial condition and results of operations of the Borrower and its
consolidated Subsidiaries (subject to normal year-end audit adjustments and the
absence of certain notes).
All such financial statements shall be prepared in accordance with
generally accepted accounting principles (subject, in the case of interim
financial statements, to normal year-end audit adjustments and the absence of
certain notes) applied consistently throughout the periods reflected therein and
with prior periods (except as approved by such accountants or officer, as the
case may be, and disclosed therein). Notwithstanding the foregoing, so long as
the Borrower is required to file periodic and other reports with the SEC under
the Securities Exchange Act of 1934, as amended, (x) it may satisfy the
requirements of this subsection 8.1(b) by delivering to the Lenders within two
Business Days after the filing thereof with the SEC but in any event no later
than 45 days after the end of each of the first three quarterly periods of each
fiscal year of the Borrower, the Borrower's Quarterly Report on Form 10-Q for
such quarter and (y) it may satisfy the requirement of subsection 8.1(a) by
delivering to the Lenders within two Business Days after the filing thereof with
the SEC but in any event no later than 90 days after the end of each fiscal year
of the Borrower, the Borrower's Annual Report on Form 10-K for such fiscal year,
and the Borrower's annual report to shareholders, when available.
CERTIFICATES; OTHER INFORMATION. Furnish to the Agent, with a copy for
each Lender:
(a) concurrently with the delivery of the financial statements referred
to in subsection 8.1(a), a written statement of the independent certified public
accountants reporting on such financial statements (unless such accountants are
prohibited by law or the Financial Accounting Standards Board (or any successor)
from providing such statement) to the effect that in the course of the audit
upon which their certification of such financial statements was based (but
without any special or additional audit procedures for the purpose) they
obtained knowledge of no condition or event relating to the financial covenants
set forth in Section 9.1 which constitutes a Default or an Event of Default or,
if such accountants shall have obtained in the course of such audit knowledge of
any Default or Event of Default, disclosing in such written statement the nature
and period of existence thereof, it being understood that such accountants shall
be under no liability, directly or indirectly, to the Lenders for failure to
obtain knowledge of any such condition or event;
(b) concurrently with the delivery of the financial statements referred
to in subsections 8.1(a) and 8.1(b), a certificate of a Responsible Officer
certifying that, to the best of such officer's knowledge, each of the Borrower
and its Subsidiaries during such period has observed or performed all of its
covenants and other agreements, and satisfied every condition contained in this
Agreement and the other Loan Documents to which it is a party to be observed,
performed or satisfied by it, and that such officer has no knowledge of any
Default or Event of Default except as specified in such certificate;
(c) concurrently with the delivery of the financial statements referred
to in subsections 8.1(a) and 8.1(b), a certificate of a Responsible Officer,
substantially in the form of Exhibit M hereto (the "COMPLIANCE CERTIFICATE"),
showing in detail satisfactory to the Agent (including, where applicable,
differences in the application of generally accepted accounting principles used
in such financial statements and the application of GAAP) compliance by the
Borrower with the covenants contained in subsections 9.1, 9.2, 9.6, 9.7, 9.8,
and 9.9 hereof and a computation of the amount of the Borrower's and its
Subsidiaries' Capital Expenditures made during such period and during the
portion of the fiscal year through the end of the period covered by such
Compliance Certificate;
(d) not later than 90 days after the end of each fiscal year of the
Borrower, subject to the provisions of subsection 12.16, a copy of the
projections by the Borrower of the budget of the Borrower and its Subsidiaries
for the current fiscal year, which shall included projected quarterly income
statements, cash flow statements and balance sheets, such projections to be
accompanied by a certificate of a Responsible Officer to the effect that such
projections have been prepared in good faith and based upon reasonable
assumptions and that such officer has no reason to believe they are incorrect or
misleading in any material respect;
(e) within two Business Days after the same are sent, copies of all
financial statements and other financial information, proxy materials and other
information and reports (including reports on Form 8K) which the Borrower files
with the SEC or any securities exchange on which the Borrower's common stock is
traded or delivers to its
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stockholders or to holders of its Indebtedness (or any trustee, agent or other
representative therefor);
(f) promptly upon receipt, copies of (i) the Closing Balance Sheets,
(ii) all correspondence regarding any post-closing adjustment to the purchase
price payable by the Borrower under the Purchase Agreement and all payments to
the Sellers with respect to the receivables repurchased from the Receivables
Program, (iii) all correspondence regarding any indemnification claim made by
the Borrower or any Seller pursuant to the Purchase Agreement, and (iv) notice
of receipt of any payment made by any Seller pursuant to the Purchase Agreement;
(g) promptly after the receipt thereof by the Borrower or any of its
Subsidiaries, subject to the provisions of subsection 12.16, a copy of any
"management letter" received by any such Person from its certified public
accountants and the management's responses thereto;
(h) promptly upon, and in any event within ten Business Days after, an
officer of the Borrower or any of its Subsidiaries obtains knowledge thereof,
notice of one or more of the following environmental matters, unless such
officer reasonably concludes that such environmental matters would not,
individually or when aggregated with all other such environmental matters except
those matters disclosed on Schedule 6.16, have a Material Adverse Effect:
(i) any pending or threatened Environmental Claim against the
Borrower or any of its Subsidiaries or any real property owned or
operated, or formerly owned or operated, by the Borrower or any of its
Subsidiaries;
(ii) any condition or occurrence on or arising from any real
property currently or formerly owned or operated by the Borrower or any
of its Subsidiaries that (a) results in noncompliance by the Borrower
or any of its Subsidiaries with any applicable Environmental Law or (b)
could reasonably be expected to form the basis of an Environmental
Claim against the Borrower or any of its Subsidiaries or any such real
property;
(iii) any condition or occurrence on any real property
currently or formerly owned or operated by the Borrower or any of its
Subsidiaries that could reasonably be expected to cause such real
property to be subject to any restrictions on the ownership, occupancy,
use or transferability by the Borrower or any of its Subsidiaries of
such real property under any Environmental Laws; and
(iv) the taking of any removal or remedial action in response
to the actual or alleged presence of any Material of Environmental
Concern on any real property currently or formerly owned or operated by
the Borrower or any of its Subsidiaries as required by any
Environmental Law or any Governmental Authority except the removal of
any Material of
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63
Environmental Concern in the ordinary course of business; PROVIDED that
in any event the Borrower shall deliver to each Lender all material
notices received by it or any of its Subsidiaries from any Governmental
Authority under, or pursuant to, CERCLA;
All such notices shall describe in reasonable detail the nature of the
claim, investigation, condition, occurrence or removal or remedial action and
the Borrower's or such Subsidiary's response thereto. In addition, the Borrower
will provide the Lenders with copies of all material communications with any
Governmental Authority relating to Environmental Laws, all communications with
any Person (other than its attorneys) relating to any Environmental Claim of
which notice is required to be given pursuant to this Section 8.2(h), and such
detailed reports (not subject to attorney-client or attorney work product
privileges) of any such Environmental Claim as may reasonably be requested by
any Lender; and
(i) promptly, such additional financial and other information which is
in the Borrower's possession as any Lender may from time to time reasonably
request through the Agent.
PAYMENT OF TAXES AND OTHER OBLIGATIONS. Pay, discharge or otherwise
satisfy at or before maturity or before they become delinquent, as the case may
be, all of its taxes and other obligations of whatever nature, except where the
amount or validity thereof is currently being contested in good faith by
appropriate proceedings and reserves in conformity with generally accepted
accounting principles with respect thereto have been provided on the books of
the Borrower or its Subsidiaries, as the case may be.
CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. Continue to engage in
business of the same general type as now conducted by the Borrower and its
Subsidiaries (after giving effect to the Acquisition) and preserve, renew and
keep in full force and effect its corporate existence and take all reasonable
action to maintain all rights, privileges and franchises necessary or desirable
in the normal conduct of its business except as otherwise permitted pursuant to
subsection 9.5; comply with all Requirements of Law and any indenture, agreement
or other instrument to which the Borrower or any of its Subsidiaries is a party
or by which it or any of its property is bound except where such non-compliance
could not have a Material Adverse Effect.
MAINTENANCE OF PROPERTY; INSURANCE. Keep all property including,
without limitation, all Collateral useful and necessary in its business in good
working order and condition, normal wear and tear excepted; maintain with
financially sound and reputable insurance companies insurance with respect to
the Mortgaged Properties as required by the Mortgages and Bilateral Mortgages
and otherwise with respect to its properties including, without limitation, all
Collateral , business and potential liabilities in at least such amounts and
against at least such risks (but including in any event public liability,
product liability and business interruption) as are usually insured against in
the same general area by companies engaged in the same or a similar business;
deliver to the Agent and the Lenders a report of a reputable insurance broker
with respect to such insurance during the month of December in each calendar
year
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64
commencing in 1998, and furnish to each Lender such supplemental reports with
respect thereto as such Lender may from time to time reasonably request, all of
which shall be in form and substance satisfactory to the Agent or the applicable
Lender. All such insurance shall provide that no cancellations, material
reduction in amount or material change in coverage thereof shall be effective
until at least 30 days after receipt by the Agent of written notice thereof, and
shall name the Agent as an additional insured and loss payee on all casualty
insurance with respect to any Collateral and as an additional insured on all
business interruption insurance (including, with respect to the casualty
insurance for any Mortgaged Property, a standard noncontributory mortgagee
clause or endorsement naming the Agent (and/or such other party as may be
designated by the Agent) as the party to which all payments made by such
insurance company shall be paid) and the Agent and the Lenders as additional
insureds on all commercial general liability insurance.
INSPECTION OF PROPERTY, BOOKS AND RECORDS; DISCUSSIONS. Keep proper
books of records and account in conformity with generally accepted accounting
principles and applicable regulatory standards; and permit representatives of
any Lender to visit and inspect any of its properties and examine and make
copies of or abstracts from any of its books and records at any reasonable time
upon reasonable prior notice and as often as may be reasonably required and to
discuss the business, operations, properties and financial and other condition
of the Borrower and its Subsidiaries with officers of the Borrower and its
Subsidiaries and with its independent certified public accountants.
NOTICES. Promptly give written notice to the Agent and each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any indenture, agreement
or other instrument to which the Borrower or any of its Subsidiaries is a party
or by which it or any of its property is bound which is material to the Borrower
or to any Material Subsidiary or to the Borrower and its Subsidiaries taken as a
whole, or (ii) litigation, investigation or proceeding which may exist at any
time between the Borrower or any of its Subsidiaries and any Governmental
Authority, which in either case of clauses (i) or (ii) of this paragraph (b), if
not cured or if adversely determined, as the case may be, could reasonably be
expected to have a Material Adverse Effect;
(c) any litigation or other proceeding affecting the Borrower or any of
its Subsidiaries in which the amount involved is $5,000,000 or more and not
covered by insurance or in which injunctive or similar relief is sought or which
could reasonably be expected to have a Material Adverse Effect;
(d) the following events, as soon as possible and in any event within
30 days after an officer of the Borrower knows thereof: (i) the occurrence or
expected occurrence of any Reportable Event with respect to any Plan, a failure
to make any required contribution to a Plan, the creation of any lien (within
the meaning of Section 4068 of ERISA) in favor of the PBGC or a Plan or any
withdrawal from, or the termination, Reorganization or Insolvency of, any
Multiemployer Plan, (ii) the institution of proceedings
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65
or the taking of any other action by the PBGC or the Borrower or any Commonly
Controlled Entity or any Multiemployer Plan with respect to the withdrawal from,
or the terminating, Reorganization or Insolvency of, any Plan or (iii) analogous
events (if any) under any foreign Requirement of Law, in each case which could
result in a liability of the Borrower or any of its Subsidiaries greater than
$5,000,000;
(e) any development or event which in the reasonable judgment of the
Borrower has had or could reasonably be expected to have a Material Adverse
Effect;
(f) any Environmental Claim asserted by any Governmental Authority or
third party or any discovery by Borrower or any Subsidiary of any occurrence or
condition with respect to any Material of Environmental Concern that is
reasonably likely to involve remediation costs or liability greater than
$5,000,000; and
(g) any Casualty Loss with respect to any material portion of the
Collateral.
Each notice pursuant to the foregoing paragraphs of this subsection
shall be accompanied by a statement of a Responsible Officer setting forth
details of the occurrence referred to therein and stating what action the
Borrower or the relevant Subsidiary proposes to take with respect thereto.
ENVIRONMENTAL LAW. (a) Comply in all material respects with, and use
reasonable efforts to ensure compliance in all material respects by all tenants
and subtenants, if any, with, all applicable Environmental Laws and obtain and
comply in all material respects with and maintain, and ensure that all tenants
and subtenants, if any, obtain and comply in all material respects with and
maintain, any and all material licenses, approvals, notifications, registrations
or permits required by applicable Environmental Laws.
(b) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws (the "REMEDIAL WORK") and diligently comply in all material
respects with all lawful orders and directives of all Governmental Authorities
regarding Environmental Laws except to the extent that the same are being
contested in good faith and with due diligence by appropriate proceedings and
the pendency of such proceedings could not reasonably be expected to have a
Material Adverse Effect and reserves in conformity with generally accepted
accounting principles with respect thereto have been provided on the books of
the Borrower or the applicable Subsidiary, as the case may be.
(c) If the Borrower or any of its Subsidiaries does not within a
reasonable period of time (and in any event within such period as required by
any Requirement of Law) commence and diligently prosecute to completion the
Remedial Work, and is not contesting the need to perform Remedial Work as
provided in subsection 8.8(b) above, the Agent may (but shall not be obligated
to), upon 30 days prior written notice to the Borrower of its intention to do
so, cause such Remedial Work to be performed. The Borrower shall pay or
reimburse the Agent on demand for all expenses (including attorneys' fees and
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66
disbursements), reasonably relating to or incurred by the Agent in connection
with monitoring, reviewing or performing any Remedial Work.
MAINTENANCE OF LIENS OF THE SECURITY DOCUMENTS. (a) Promptly, upon the
reasonable request of the Agent, at the Borrower's expense, execute, acknowledge
and deliver, or cause the execution, acknowledgment and delivery of, and
thereafter register, file or record, or cause to be registered, filed or
recorded, in an appropriate governmental office, any document or instrument
supplemental to or confirmatory of the Security Documents or otherwise
reasonably deemed by the Agent necessary or desirable for the continued
validity, perfection and priority of the Liens on the Collateral covered
thereby; and (b) promptly, written notice of any change (i) in any Loan Party's
corporate name or in any trade name used to identify it in the conduct of its
business or in the ownership of its properties, (ii) in the location of any Loan
Party's chief executive office, its principal place of business, any office in
which it maintains books or records relating to Collateral or any office or
facility at which Collateral is located (including the establishment of any such
new office or facility), (iii) in any Loan Party's identity or corporate
structure, (iv) resulting in any tangible Collateral being located in any
jurisdiction in which a financing statement must be, but has not been, filed in
order to perfect the Agent's Liens, (v) in respect of any newly acquired
Intellectual Property or applications therefor in the United States owned by or
licensed to any Loan Party, or (vi) in any Loan Party's federal taxpayer
identification number. The Loan Parties will not effect or permit any change
referred to in the preceding sentence unless all filings have been made under
the Uniform Commercial Code or otherwise that are required in order for the
Agent to continue at all times following such change to have a valid, legal and
perfected security interest in all the Collateral and will promptly notify the
Agent if any material portion of the Collateral is damaged or destroyed.
PLEDGE OF AFTER ACQUIRED PROPERTY. If at any time following the Closing
Date the Borrower or any of its Domestic Subsidiaries shall acquire at any time
property of any nature whatsoever which is required by the terms hereof or of
the applicable Security Document to be and is not otherwise subject to the Lien
created by each Security Document, as soon as possible and in no event later
than 30 days after the relevant acquisition date grant to the Agent for the
ratable benefit of the Lenders a first priority Lien on such property as
collateral security for the Obligations pursuant to documentation reasonably
satisfactory in form and substance to the Agent. The Borrower, at its own
expense, shall execute, acknowledge and deliver, or cause the execution,
acknowledgment and delivery of, and thereafter register, file or record in an
appropriate governmental office, any document or instrument (including legal
opinions, title insurance, consents and corporate documents) and take all such
actions reasonably deemed by the Agent to be necessary or desirable to ensure
the creation, priority and perfection of such Lien. Without limiting the
generality of the foregoing, the Borrower will deliver to the Agent the SMC
(France) Note promptly following issuance thereof to Borrower, duly endorsed in
blank, and an opinion of French counsel in form and substance satisfactory to
the Agent. The Borrower shall cause each New Subsidiary of the Borrower which is
a Wholly-Owned Domestic Subsidiary created or acquired after the date hereof,
immediately upon such creation or acquisition, to execute instruments in form
and substance
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67
reasonably satisfactory to the Agent pursuant to which such New Subsidiary shall
become a party to the Subsidiary Security Agreements and the Subsidiaries'
Guarantee as a guarantor thereunder. With respect to each New Subsidiary which
is a direct Subsidiary of the Borrower or a Domestic Subsidiary, the Borrower
shall execute and deliver a supplement to the Borrower Security Agreement in
form and substance reasonably satisfactory to the Agent, or shall cause any
Wholly-Owned Domestic Subsidiary of the Borrower which holds the Capital Stock
of any New Subsidiary to execute and deliver a Subsidiary Security Agreement or
a supplement to the Subsidiary Security Agreement to which it is a party,
providing for the pledge of 100% of the issued and outstanding Capital Stock of
such New Subsidiary to the Agent for the benefit of the Lenders (65% in the case
of a New Foreign Subsidiary), and the Borrower shall deliver to the Agent the
stock certificates evidencing such Capital Stock together with undated stock
powers for each such certificate, duly executed in blank (or, in the case of a
New Foreign Subsidiary, take such other action as has the same substantive
effect under applicable law) and execute, or cause its Subsidiary to execute,
such financing statements as may be required to perfect all Liens in favor of
the Agent.
INTEREST RATE PROTECTION. Within 30 days following the Closing Date,
enter into a Hedging Agreement or Agreements providing to the Borrower interest
rate protection reasonably satisfactory to the Agent with respect to not less
than 50% of the aggregate outstanding principal amount of the Term Loans, and
having an expiry date from the Closing Date acceptable to the Agent, and the
Borrower agrees and confirms that the Borrower Security Agreement grants to the
Agent, for the benefit of the Lenders, a first priority perfected security
interest in its rights under any such Hedging Agreements.
FOREIGN SUBSIDIARIES SECURITY. If, following a change in the relevant
sections of the Code or the regulations, rules, rulings, notices or other
official pronouncements issued or promulgated thereunder, counsel for the
Borrower reasonably acceptable to the Agent and the Required Lenders does not
within 30 days after a request from the Agent or the Required Lenders deliver
evidence, in form and substance reasonably satisfactory to the Agent and the
Required Lenders, with respect to any Foreign Subsidiary which has not already
had all of its stock pledged pursuant to the applicable Pledge Agreement that
Section 956 of the Code does not apply to the pledge of more than 66 2/3% of the
Capital Stock and no other materially adverse consequences would result, under
applicable tax laws from a pledge of such Capital Stock, then that portion of
such Foreign Subsidiary's outstanding Capital Stock not theretofore pledged
pursuant to such Pledge Agreement shall be pledged to the Agent for the benefit
of the Lenders pursuant to a pledge agreement in form and substance reasonably
satisfactory to the Agent and the Required Lenders, to the extent that the
entering into such pledge agreement is permitted by the laws of the respective
foreign jurisdiction, and with all other related documents to be delivered
pursuant to this subsection 8.12 to be in form and substance reasonably
satisfactory to the Agent and the Required Lenders.
COLLATERAL ACCOUNT. In the event that the Borrower or any of its
Subsidiaries (a) receives any insurance proceeds on account of Casualty Losses
in excess of $1,000,000 in the aggregate in any fiscal year (provided that such
first $1,000,000 shall be used solely to repair or
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68
replace, or to commence the repair or replacement of, the asset subject to such
Casualty Loss within six months of the date received or be deposited in the
Collateral Account (as defined below) and provided further that such first
$1,000,000 shall be paid to the Agent if an Event of Default shall have occurred
and be continuing), or (b) receives any payments made by any Seller to the
Borrower pursuant to the Purchase Agreement or (c) is required to deposit cash
in a cash collateral account on account of the Letters of Credit as contemplated
herein, all such proceeds and payments shall promptly be deposited in a bank
account or accounts (the "COLLATERAL ACCOUNT") maintained by, and under the
control of, the Agent all as provided in the Security Agreement. The amounts
deposited into the Collateral Account pursuant to clause (a) or (b) shall be
released to the Borrower upon receipt by the Agent of a certificate from the
Borrower certifying that (i) such amounts under clause (a) shall be used
immediately upon receipt to repair or replace property subject to a Casualty
Loss or (ii) such amounts under clause (b) shall be used immediately upon
receipt to satisfy obligations to any third parties that resulted in a payment
by the Sellers pursuant to the Purchase Agreement, as applicable or to reimburse
the Borrower for losses, costs and expenses sustained or incurred by the
Borrower or one of its Subsidiaries. Any Qualifying Insurance and Other Proceeds
in the Collateral Account shall be applied in accordance with subsection 5.1(c).
BANK ACCOUNTS. The Borrower and its Subsidiaries shall, at their
expense, take all such actions, or cause such actions to be taken, as are
necessary or desirable in the judgment of the Agent to cause the Agent for the
benefit of the Lenders to have a legal, valid and enforceable fully perfected
security interest of first priority in all of the Domestic Bank Accounts of the
Borrower and its Domestic Subsidiaries, including the Collateral Account. If
under the laws of any state, the Agent shall not be able to take such a security
interest in a checking or similar account, then the Borrower shall not permit
the account balance in any such account to exceed $1,000,000 at any time (after
payment of all checks payable on such date) or the account balances in all such
accounts collectively to exceed $1,000,000 in the aggregate at any time.
YEAR 2000. The Borrower shall promptly implement a program to assess
the computer hardware, software or equipment containing embedded microchips
essential to the business or operations of the Inco Entities in order to
determine the steps to be taken with respect to any Year 2000 Problem for any of
the Inco Entities. The Borrower will diligently pursue any reprogramming,
upgrading or maintenance of computer hardware, software or equipment required in
order to address any Year 2000 Problem of the Borrower and its Subsidiaries
(including the Inco Entities and their Subsidiaries). The Borrower will report
on the status of its program to assess and ameliorate any Year 2000 Problem in
each Quarterly Report on Form 10-Q and each Annual Report on Form 10-K filed
with the SEC (copies of which will be provided to the Agent in accordance with
subsection 8.1) in accordance with applicable rules and interpretive release of
the SEC, and on the request of the Agent or any Lender will provide such
additional information with respect to any Year 2000 Problem as may be
reasonably requested.
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69
SECTION
NEGATIVE COVENANTS
The Borrower hereby agrees that, from and after the Closing Date, so
long as the Commitments remain in effect, any Letter of Credit remains
outstanding, any Loan remains outstanding and unpaid or any other amount is
owing to any Lender, the Issuing Bank or the Agent hereunder, unless the
Required Lenders, and the Issuing Bank if any Letter of Credit is outstanding,
shall have otherwise consented in writing the Borrower shall not, and shall not
permit any of the Borrower's Subsidiaries to, directly or indirectly:
FINANCIAL CONDITION COVENANTS.
(a) EBITDA MAINTENANCE. Permit Consolidated EBITDA of the Borrower and
its consolidated Subsidiaries for any period of four consecutive fiscal quarters
ending on a date specified below to be less than the amount set forth opposite
such period below:
PERIOD ENDING Consolidated EBITDA
12/31/98 $ 85,000,000
3/31/99 87,500,000
6/30/99 87,500,000
9/30/99 90,000,000
12/31/99 95,000,000
3/31/2000 100,000,000
6/30/2000 100,000,000
9/30/2000 100,000,000
12/31/2000 105,000,000
3/31/2001 110,000,000
6/30/2001 110,000,000
9/30/2001 115,000,000
12/31/2001 120,000,000
3/31/2002 120,000,000
6/30/2002 125,000,000
9/30/2002 130,000,000
12/31/2002 135,000,000
3/31/2003 135,000,000
6/30/2003 135,000,000
9/30/2003 140,000,000
12/31/2003 145,000,000
and thereafter
(b) LEVERAGE RATIO. Permit the Leverage Ratio as of the last day of
each fiscal quarter set forth below to exceed the ratio set forth opposite such
fiscal quarter below:
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70
PERIOD ENDING Ratio
12/31/98 4.35
3/31/99 4.00
6/30/99 4.00
9/30/99 4.00
12/31/99 3.50
3/31/2000 3.50
6/30/2000 3.50
9/30/2000 3.50
12/31/2000 3.00
3/31/2001 3.00
6/30/2001 3.00
9/30/2001 3.00
12/31/2001 2.75
3/31/2002 2.75
6/30/2002 2.75
9/30/2002 2.75
12/31/2002 2.50
3/31/2003 2.50
6/30/2003 2.50
9/30/2003 2.50
12/31/2003 2.25
3/31/2004 2.25
6/30/2004 2.25
9/30/2004 2.25
12/31/2004 2.00
and thereafter
(c) INTEREST COVERAGE RATIO. Commencing the fiscal quarter ended
December 31, 1998, permit the ratio of Consolidated EBITDA of the Borrower and
its consolidated Subsidiaries for any period of four consecutive fiscal quarters
of the Borrower and its consolidated Subsidiaries to Consolidated Interest
Expense of the Borrower and its consolidated Subsidiaries for such period to be
less than 2.75 to 1.
(d) FIXED CHARGE RATIO. Commencing the fiscal quarter ended December
31, 1998, permit the ratio of Consolidated EBITDA of the Borrower and its
consolidated Subsidiaries for any period of four consecutive fiscal quarters
ending on the last day of such quarter, to Fixed Charges of the Borrower and its
consolidated Subsidiaries for such period to be less than 1.00 to 1.
LIMITATION ON INDEBTEDNESS. Create, incur, assume or suffer to exist
any Indebtedness, except:
(a) Indebtedness of the Borrower under this Agreement;
(b) Indebtedness (i) of the Borrower to any Subsidiary and (ii) of any
Wholly-Owned Domestic Subsidiary of the Borrower to the Borrower or any other
Subsidiary; PROVIDED that any such Indebtedness referred to in clause (i) of
this subsection 9.2(b) or of any such Wholly Owned Domestic Subsidiary to any
other Subsidiary shall be expressly subordinated to the Loans and the Guarantees
on terms and conditions reasonably satisfactory to the Agent and (iii) of any
Wholly-Owned Foreign Subsidiary of the Borrower to the Borrower or Wholly-Owned
Subsidiary of the Borrower which, together with Indebtedness outstanding under
subsections 9.2(e) and (g) below, does not exceed, individually or in the
aggregate, the amounts set forth on Schedule 9.2; PROVIDED that each such
Domestic or Foreign Subsidiary which is a borrower shall have executed a note in
favor of the Borrower or such Domestic Subsidiary evidencing such Indebtedness
and such note has been pledged to the Agent (for the ratable benefit of the
Lenders) pursuant to the applicable Security Agreement.
(c) Indebtedness of the Borrower and any of its Subsidiaries incurred
solely in order to finance the acquisition of fixed or capital assets (whether
pursuant to a loan, a Financing Lease or otherwise) in an aggregate principal
amount not exceeding as to the Borrower and its Subsidiaries $10,000,000 at any
time outstanding;
(d) Indebtedness under Hedging Agreements required under subsection
8.11 or permitted under subsection 9.16, and under currency and commodity
Hedging Agreements entered into the ordinary course of business to hedge
currency fluctuations and commodity prices (and not for speculation), in the
case of interest rate Hedging Agreements with a counterparty approved by the
Agent;
(e) With respect to each Foreign Subsidiary, Indebtedness of such
Foreign Subsidiary to one or more lenders located in such Foreign Subsidiary's
place of business under a revolving credit line entered into for working capital
purposes, or bank overdraft lines entered into in the ordinary course of
business; PROVIDED that such Indebtedness, together with Indebtedness
outstanding under subsection 9.2(b)(iii) above and 9.2(g) below, may not at any
time (i) exceed for any Foreign Subsidiary individually or all Foreign
Subsidiaries in the aggregate the amounts set forth on Schedule 9.2 or (ii) be
secured by any assets (real, personal or mixed) of such Foreign Subsidiary other
than current assets or of any other Person, or (iii) be supported by any
Guarantee Obligation of the Borrower or any Domestic Subsidiary;
(f) Indebtedness evidenced by the SMC Acquisition Note, the SMC
(Canada) Note, the SMC (France) Note and the SMC (UK) Notes; PROVIDED that each
such note is pledged to the Agent (for the ratable benefit of the Lenders)
pursuant to the applicable Security Agreement and any amounts repaid under such
notes may not be reborrowered;
(g) Indebtedness described on Schedule 6.24;
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71
(h) the New York Mortgage Loans;
(i) from the Closing Date until February 1, 1999, Indebtedness to Inco,
Inc. with respect to the Receivables Program in a principal amount not to exceed
$35,000,000;
(j) intercompany Indebtedness of one or more Foreign Subsidiaries to
the Borrower or a Domestic Subsidiary in a principal amount not to exceed
$15,000,000 arising out of intercompany Indebtedness of one or more of the Inco
Entities existing as of the Closing Date which is being assumed as part of the
Acquisition;
(k) Indebtedness of a Foreign Subsidiary to another Foreign Subsidiary;
and
(l) other unsecured Indebtedness of the Borrower or any Domestic
Subsidiary in an aggregate amount outstanding not to exceed $5,000,000.
LIMITATION ON LIENS. Create, incur, assume or suffer to exist any Lien
upon any of its property, assets or revenues, whether now owned or hereafter
acquired, except for the following (collectively, the "PERMITTED LIENS"):
(a) Liens imposed by law for taxes not yet due or which are being
contested in good faith by appropriate proceedings, provided that adequate
reserves with respect thereto are maintained on the books of the Borrower or its
Subsidiaries, as the case may be, in conformity with generally accepted
accounting principles;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's,
lessors', landlords' or other like Liens arising in the ordinary course of
business which are not overdue for a period of more than 30 days or which are
being contested in good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation and deposits
securing liability to insurance carriers under insurance or self-insurance
arrangements;
(d) deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature, in each case
incurred in the ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case materially
detract from the value of the property subject thereto or materially interfere
with the ordinary conduct of the business of the Borrower or such Subsidiary;
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72
(f) Liens securing Indebtedness of the Borrower and its Wholly Owned
Subsidiaries permitted by subsection 9.2(c) incurred to finance the acquisition
of fixed or capital assets; PROVIDED that (i) such Liens shall be created
substantially simultaneously with the acquisition of such fixed or capital
assets, (ii) such Liens do not at any time encumber any property other than the
property financed by such Indebtedness and the proceeds thereof, (iii) the
amount of Indebtedness secured thereby is not increased and (iv) the principal
amount of Indebtedness secured by any such Lien shall at no time exceed 100% of
the original purchase price of such property;
(g) Liens on the property or assets of a Person which becomes a
Subsidiary after the Closing Date or on assets purchased from any Person after
the Closing Date securing Indebtedness permitted by subsection 9.2(c); PROVIDED
that (i) such Liens existed at the time such Person became a Subsidiary and were
not created in anticipation thereof, (ii) any such Lien does not cover any
property or assets of such Person not covered immediately prior thereto, and
(iii) the amount of Indebtedness secured thereby is not increased;
(h) Liens created pursuant to the Security Documents;
(i) Liens existing on the Closing Date securing Indebtedness permitted
by subsection 9.2(g), and covering only the assets set forth on Schedule 9.3,
and not otherwise required to be released by reason of the Refinancing, PROVIDED
(i) that such Lien is not enforceable against any other property or asset, (ii)
that such Lien secures only those obligations that it secures on the date
hereof, and (iii) that no such Lien is amended after the Closing Date to cover
any additional property or to secure additional Indebtedness;
(j) any Lien arising by operation of law pursuant to Section 107(l) of
the Comprehensive Environmental Response, Compensation and Liability Act, or
pursuant to analogous state law, for costs or damages (i) which are not yet due
(by virtue of a written demand for payment by a Governmental Authority) or (ii)
which are being contested in good faith by appropriate proceedings or (iii)
which are on property that the Borrower or one of its Subsidiaries has
determined to abandon if the sole recourse for such costs or damages is such
property; PROVIDED, in any case, that the liability of the Borrower (or the
Subsidiary of the Borrower that directly owns or operates the affected property)
with respect to the matter giving rise to such Lien shall not, in the reasonable
estimate of the Agent (in light of all attendant circumstances, including the
likelihood of contribution by third parties), exceed $5,000,000 for all such
Liens;
(k) the mortgages securing the New York Mortgage Loans; and
(l) Liens permitted by subsection 9.2(e)(ii).
LIMITATION ON GUARANTEE OBLIGATIONS. Create, incur, assume or suffer to
exist any Guarantee Obligation except:
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73
(a) the Guarantees, including any Guarantee Obligations arising under
any rights of contribution thereunder;
(b) Guarantee Obligations made in the ordinary course of its business
by (i) the Borrower of Indebtedness or liabilities of any Wholly Owned Domestic
Subsidiary or (ii) by any Foreign Subsidiary of the Indebtedness or liabilities
of any other Foreign Subsidiary, in each case which Indebtedness and liabilities
are otherwise permitted hereunder.; and
(c) those Guarantee Obligations listed on Schedule 6.1(c).
LIMITATION ON FUNDAMENTAL CHANGES. Enter into any merger, consolidation
or amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell, lease, assign, transfer or
otherwise dispose of, all or substantially all of its property, business or
assets, except:
(a) any Wholly Owned Subsidiary of the Borrower may be merged or
consolidated with or into the Borrower (PROVIDED that the Borrower shall be the
continuing or surviving corporation) or with or into any one or more Wholly
Owned Subsidiaries of the Borrower; PROVIDED that in each case, after giving
effect to such merger or consolidation, (i) the continuing or surviving
corporation's net worth shall not be less than that of either of the
corporations so consolidated or merged immediately prior to such merger or
consolidation and (ii) no Default or Event of Default exists;
(b) any Wholly Owned Subsidiary may sell, lease, transfer or otherwise
dispose of any or all of its assets (upon voluntary liquidation or otherwise) to
the Borrower or any other Wholly Owned Domestic Subsidiary of the Borrower that
is a Guarantor;
(c) any Foreign Subsidiary may sell, lease, transfer or otherwise
dispose of any or all of its assets (upon voluntary liquidation or otherwise) to
the Borrower or any Wholly-Owned Subsidiary of the Borrower;
(d) mergers, consolidations or amalgamations occurring in connection
with the Acquisition; and
(e) a merger, consolidation or amalgamation effected in connection with
a Permitted Acquisition.
LIMITATION ON SALE OF ASSETS. Convey, sell, lease, assign, transfer or
otherwise dispose of any of its property, business or assets (including, without
limitation, receivables and leasehold interests), whether now owned or hereafter
acquired, or, in the case of any Subsidiary, issue or sell any shares of such
Subsidiary's Capital Stock to any Person other than the Borrower or any Wholly
Owned Domestic Subsidiary that is a Guarantor, except:
(a) the sale of inventory in the ordinary course of business;
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(b) the sale or discount without recourse of accounts receivable
arising in the ordinary course of business in connection with the compromise or
collection thereof;
(c) as permitted by subsection 9.5;
(d) Asset Sales, PROVIDED that (x) the consideration received for such
Asset Sale is in cash or Cash Equivalents in an amount at least equal to the
fair market value of the property, business or assets sold in connection
therewith (as determined in good faith by the Board of Directors of the
Borrower), and (y) the Net Proceeds of such Asset Sales are applied in
accordance with subsection 5.1(c) and PROVIDED, FURTHER, that neither the
Borrower nor any of its Subsidiaries may sell Capital Stock issued by any of
their respective Subsidiaries unless, as a result of such sale, neither the
Borrower nor any of its Subsidiaries shall own, directly or indirectly, any
interest whatsoever in the Subsidiary whose Capital Stock is being sold;
(e) sales of equipment and other property, including leasehold
interests, in the ordinary course of business;
(f) the sale, transfer or other disposition of any asset in the
ordinary course of business which is obsolete for its intended use;
(g) the New York Mortgage Loans; and
(h) leases or subleases of excess space in any facility of the Borrower
or any of its Subsidiaries entered into in the ordinary course of business for
space which is not material in area to such facility.
RESTRICTED PAYMENTS. Declare or pay any dividend (other than dividends
payable solely in common stock of the Borrower and other than dividends payable
by any Subsidiary to the Borrower or another Subsidiary, directly or indirectly)
on, or make any payment on account of, or set apart assets for a sinking or
other analogous fund for, the purchase, redemption, defeasance, retirement or
other acquisition of, any shares of any class of Capital Stock or any warrants
or options to purchase any such Capital Stock, whether now or hereafter
outstanding, or make any other distribution in respect thereof, either directly
or indirectly, whether in cash or property or in obligations of the Borrower or
any Subsidiary (each, a "RESTRICTED PAYMENT"); PROVIDED that so long as no
Default or Event of Default has occurred and is continuing or would result from
the making of such payment, (a) the Borrower may declare and pay cash dividends
on its Preferred Stock in accordance with the terms of the Preferred Stock
Documents as in effect on the Closing Date; (b) the Borrower may repurchase its
Capital Stock from employees in accordance with the Borrower's Long Term Stock
Incentive Plan in an aggregate amount in any fiscal year not to exceed
$2,000,000; and (c) the Borrower or its Subsidiary may purchase the minority
shares of Rescal S.A. for an aggregate amount not to exceed $1,000,000.
LIMITATION ON CAPITAL EXPENDITURES. Make (by way of the acquisition of
securities of a Person or otherwise) any Capital Expenditures, except for
expenditures in the ordinary course of business not exceeding, in the aggregate
for the Borrower and its consolidated Subsidiaries, during any fiscal year of
the Borrower an amount equal to:
(a) $44,000,000 in the fiscal year ending December 31, 1998;
(b) the amount set forth below if the EBITDA Threshold was met for the
immediately preceding fiscal year:
FISCAL YEAR Amount
----------- ------
1999 $40,000,000
2000 40,000,000
2001 35,000,000
2002 40,000,000
2003 40,000,000
2004 and thereafter 40,000,000
(c) if the EBITDA Threshold was not met for the immediately preceding
fiscal year, the amount set forth in the table above for the applicable fiscal
year less the amount by which the actual Consolidated EBITDA for the immediately
preceding fiscal year was less than the applicable EBITDA Threshold; and
(d) in the case of clause (a) or (b), up to 100% of the amount of
permitted Capital Expenditures not expended in the immediately preceding fiscal
year. Notwithstanding the foregoing, in any event the Borrower and its
Subsidiaries shall be permitted to make Capital Expenditures in each fiscal year
of up to $15,000,000.
(e) "EBITDA THRESHOLD": for any fiscal year set forth below,
Consolidated EBITDA of at least the amount set forth below:
FISCAL YEAR Amount
----------- ------
1998 $ 95,000,000
1999 105,000,000
2000 120,000,000
2001 130,000,000
2002 145,000,000
2003 and thereafter 150,000,000
LIMITATION ON INVESTMENTS, LOANS AND ADVANCES. Make any advance, loan,
extension of credit or capital contribution to, or purchase or acquire any
Capital Stock, bonds, notes, debentures or other securities of or any
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assets constituting a business unit of, or make any other investment in, any
Person (collectively, "INVESTMENTS"), except:
(a) extensions of trade credit and accounts receivable generated in the
ordinary course of business;
(b) Investments in Cash Equivalents in which the Agent has a duly
perfected first priority Lien;
(c) in connection with the Acquisition in the amounts of debt and
equity Investments set forth on Schedule 9.9;
(d) Investments by the Borrower in its Wholly-Owned Domestic
Subsidiaries which are Guarantors and Investments by such Subsidiaries in the
Borrower and in other Wholly-Owned Domestic Subsidiaries which are Guarantors;
PROVIDED that no Investment may be made by the Borrower and its Domestic
Subsidiaries in any Foreign Subsidiary (other than the Indebtedness permitted to
be incurred under subsections 9.2(b)(iii), 9.2(f) and 9.2(j) and transactions
permitted under subsections 9.9(a) and (f));
(e) Permitted Acquisitions; and
(f) other Investments in an aggregate amount not in excess of
$1,000,000.
LIMITATION ON OPTIONAL PAYMENTS AND MODIFICATIONS OF DEBT INSTRUMENTS
AND CAPITAL STOCK.
(a) Make any optional payment or prepayment or any purchase or
redemption of any Indebtedness for borrowed money (other than the Loans and the
Refinancing and the repayment of working capital lines and overdraft facilities
permitted under subsection 9.2(e) or any Intercompany Notes) or (b) amend,
modify or change, or consent or agree to any amendment, modification or change
to any of the terms of any such Indebtedness for borrowed money (other than any
such amendment, modification or change which would extend the maturity or reduce
the amount of any payment of principal thereof or which would reduce the rate or
extend the date for payment of interest thereon) or (c) amend the Certificate of
Incorporation (or other governing document) of the Borrower or any Material
Subsidiary.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. Enter into any transaction,
including, without limitation, any purchase, sale, lease or exchange of property
or the rendering of any service, with any Affiliate unless such transaction is
(a) otherwise permitted under this Agreement, (b) in the ordinary course of the
Borrower's or such Subsidiary's business and (c) upon fair and reasonable terms
no less favorable to the Borrower or such Subsidiary, as the case may be, than
it would obtain in a comparable arm's-length transaction with a Person which is
not an Affiliate, PROVIDED that the foregoing restriction shall not apply to (i)
the indemnification of directors of the Borrower and its Subsidiaries in
accordance with customary practice, or (ii) the granting of extended payment
terms to Subsidiaries or Affiliates of the Borrower in the ordinary course of
business or (iii) payments to SIMA not to exceed $500,000 in any fiscal year
under the terms of the Managerial Assistance Agreement dated as of February 25,
1997.
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LIMITATION ON SALES AND LEASEBACKS. Enter into any arrangement with any
Person providing for the leasing by the Borrower or any Subsidiary of real or
personal property which has been or is to be sold or transferred by the Borrower
or such Subsidiary to such Person or to any other Person to whom funds have been
or are to be advanced by such Person on the security of such property or rental
obligations of the Borrower or such Subsidiary.
LIMITATION ON CHANGES IN FISCAL YEAR AND ACCOUNTING POLICIES. Permit
the fiscal year of the Borrower to end on a day other than December 31, or
change its accounting policies or reporting practices from those of the Borrower
in effect on the Closing Date, except to the extent such change is required by
generally accepted accounting principles.
LIMITATION ON NEGATIVE PLEDGE CLAUSES. Enter into with any Person any
agreement after the Closing Date, other than (a) this Agreement, (b) operating
leases with respect to any leased asset, (c) purchase money mortgages or
Financing Leases permitted by this Agreement (in the case of clauses (b) and
(c), any prohibition or limitation shall only be effective against the assets
financed thereby), which prohibits or limits the ability of the Borrower or any
of its Subsidiaries to create, incur, assume or suffer to exist any Lien upon
any of its property, assets or revenues, whether now owned or hereafter acquired
or of any of the Subsidiaries to declare or pay dividends or to make loans or
other advances to the Borrower, directly or indirectly.
LIMITATION ON LINES OF BUSINESS. Enter into any business either
directly or through any Subsidiary, except for those businesses in which the
Borrower and its Subsidiaries are engaged on the date of this Agreement, after
giving effect to the Acquisition, the manufacture and sale of engineered ceramic
materials and composites and other similar businesses which are directly related
thereto and, with respect to any Permitted Acquisition, a business that uses the
products manufactured by Borrower or its Subsidiaries in its manufacturing
business or any distributor of such products.
LIMITATION ON ENTERING INTO CERTAIN HEDGING AGREEMENTS. Enter into any
interest rate Hedging Agreement which would cause the aggregate notional amount
of all such Hedging Agreements to which the Borrower and its Subsidiaries are
parties to exceed 100% of the aggregate original outstanding principal amount of
the Term Loans.
LIMITATION ON NEW BANK ACCOUNTS. Open any new Domestic Bank Account
unless the Agent shall have a perfected first priority Lien therein.
LIMITATION ON ISSUANCE OF CAPITAL STOCK. Issue any additional preferred
stock (other than as required by the Preferred Stock Documents as in effect on
the Closing Date) or permit any direct or indirect Subsidiary of the Borrower to
issue or grant any Capital Stock of such Subsidiary to any Person, other than
the Borrower or a Wholly Owned Subsidiary of the Borrower, and with respect to
Foreign Subsidiaries, as required by applicable Requirements of Law.
MODIFICATIONS TO ACQUISITION DOCUMENTS AND PREFERRED STOCK DOCUMENTS.
(a) Amend, supplement or otherwise modify any Acquisition Document except
changes that are effective only after 20 days' prior written notice to the Agent
and the
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Lenders and if the Required Lenders have not delivered a notice to the Borrower
that such change would, in the opinion of the Required Lenders, be adverse to
the interests of the Lenders, or fail to enforce the rights of the Borrower and
its Subsidiaries thereunder if such failure to enforce such rights would be
adverse to the Borrower or any of its Subsidiaries or the Lenders; or (b) amend,
supplement or otherwise modify the provisions of any Preferred Stock Document
relating to redemption of, or the payment of dividends on, the Preferred Stock.
SECTION
EVENTS OF DEFAULT
If any of the following events shall occur and be continuing ("EVENT OF
DEFAULT"):
(a) The Borrower shall fail to pay any principal of any Loan when due;
or the Borrower shall fail (i) to reimburse any drawing on any Letter of Credit
when due or (ii) to provide any or all of the cash collateral required to be
deposited with the Issuing Bank pursuant to a Letter of Credit Request strictly
in accordance with the terms thereof; or the Borrower shall fail to pay any
interest on any Loan, or any fee or other amount payable hereunder within three
days after any such interest, fees or other amount becomes due; or
(b) Any representation or warranty made or deemed made by or on behalf
of the Borrower or any of its Subsidiaries herein or in any other Loan Document
or which is contained in any certificate, document or financial or other written
statement furnished by it pursuant to the Loan Documents shall prove to have
been false or misleading in any material respect on or as of the date made or
deemed made; or
(c) The Borrower or any of its Subsidiaries shall default in the
observance or performance of any agreement contained in subsections 8.1, 8.2(b)
or (c), 8.7(a), Section 9, or Section 3.4 of each of the Security Agreements; or
(d) The Borrower or any other Loan Party shall default in the
observance or performance of any other agreement contained in this Agreement or
any other Loan Document (other than as provided in paragraphs (a) through (c)
and paragraph (m) of this Section), and such default shall continue unremedied
for a period of 30 days after notice thereof from the Agent or any Lender to the
Borrower; or
(e) The Borrower or any of its Subsidiaries shall (i) default in any
payment of principal of or interest on any Indebtedness (other than the Loans)
or in the payment of any Guarantee Obligation, beyond the period of grace, if
any, provided in the instrument or agreement under which such Indebtedness or
Guarantee Obligation was created, if the aggregate amount of the Indebtedness
and/or Guarantee Obligations in respect of which such default or defaults shall
have occurred is at least $5,000,000 in the aggregate; or (ii) default in the
observance or performance of any other agreement or condition relating to any
such Indebtedness or Guarantee Obligation or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event
(including, without
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limitation, any mandatory prepayment event) shall occur or condition exist, the
effect of which default or other event or condition is to cause, or to permit
the holder or holders of such Indebtedness or beneficiary or beneficiaries of
such Guarantee Obligation (or a trustee or agent on behalf of such holder or
holders or beneficiary or beneficiaries) to cause, after the giving of notice if
required, such Indebtedness to become due (whether by acceleration, mandatory
prepayment or otherwise) prior to its stated maturity or such Guarantee
Obligation to become payable; or
(f) (i) The Borrower or any of its Subsidiaries shall commence any
case, proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts, or (B)
seeking appointment of a receiver, trustee, custodian, conservator or other
similar official for it or for all or any substantial part of its assets, or any
the Borrower or any of its Subsidiaries shall make a general assignment for the
benefit of its creditors; or (ii) there shall be commenced against the Borrower
or any of its Subsidiaries any case, proceeding or other action of a nature
referred to in clause (i) above which (A) results in the entry of an order for
relief or any such adjudication or appointment or (B) remains undismissed,
undischarged or unbonded for a period of 60 days; or (iii) there shall be
commenced against the Borrower or any of its Subsidiaries any case, proceeding
or other action seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial part of its assets
which results in the entry of an order for any such relief which shall not have
been vacated, discharged, or stayed or bonded pending appeal within 60 days from
the entry thereof; or (iv) the Borrower or any of its Subsidiaries shall take
any action in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above;
or (v) the Borrower or any of its Subsidiaries shall generally not, or shall be
unable to, or shall admit in writing its inability to, pay its debts as they
become due; or
(g) (i) Any "accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect to any Plan or any
Lien in favor of the PBGC or a Plan shall arise on the assets of the Borrower or
any Commonly Controlled Entity, (ii) Any Person shall engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code)
involving any Plan, (iii) a Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a trustee shall be
appointed, to administer or to terminate, any Single Employer Plan, (iv) any
Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the
Borrower or any Commonly Controlled Entity shall, or in the reasonable opinion
of the Required Lenders is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or
(vi) any other similar event or condition shall occur or exist with respect to
any foreign employee benefit plan, program or arrangement; and in each case in
clauses (ii) through (vi) above, such event or condition,
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79
together with all other such events or conditions, if any, could reasonably be
expected to have a Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered against the
Borrower or any of its Subsidiaries involving in the aggregate a liability (to
the extent not paid or covered by insurance) of $5,000,000 or more, and all such
judgments or decrees shall not have been satisfied, vacated, discharged, stayed
or bonded pending appeal within 60 days from the entry thereof; or
(i) (i) Except in connection with an Asset Sale permitted under
subsection 9.6, any of the Security Documents shall cease, for any reason, to be
in full force and effect, or the Borrower or any other Loan Party which is a
party to any of the Security Documents shall so assert or (ii) the Lien created
by any of the Security Documents shall cease to be enforceable and of the same
effect and priority purported to be created thereby (except as expressly
provided by such Security Document); or
(j) Any Guarantee shall cease, for any reason (except as expressly
provided in such Guarantee), to be in full force and effect or any Guarantor
shall so assert; or
(k) A Change of Control shall have occurred; or
(l) The Borrower's Voting Stock shall cease to be traded on a principal
securities exchange or Borrower shall fail to make a material filing with the
SEC when due (after giving effect to any extension granted by the SEC in the
ordinary course); or
(m) The Borrower or any other Loan Party shall fail timely to comply
with any of its agreements and covenants in the Closing Letter and the Agent
shall have delivered to the Borrower written notice that such failure
constitutes an "Event of Default" under this paragraph (m);
then, and in any such event and at any time thereafter during the continuation
of such an Event of Default, (A) if such event is an Event of Default specified
in paragraph (f) above with respect to the Borrower, automatically the
Commitments shall immediately terminate and the Loans hereunder (with accrued
interest thereon) and all other amounts owing under this Agreement shall
immediately become due and payable, and (B) if such event is any other Event of
Default, either or both of the following actions may be taken: (i) with the
consent of the Required Lenders, the Agent may, or upon the request of the
Required Lenders, the Agent shall, by written notice to the Borrower declare the
Commitments to be terminated forthwith, whereupon the Commitments shall
immediately terminate; and (ii) with the consent of the Required Lenders, the
Agent may, or upon the request of the Required Lenders, the Agent shall, by
written notice to the Borrower, declare the Loans hereunder (with accrued
interest thereon) and all other amounts owing under this Agreement to be due and
payable forthwith, whereupon the same shall immediately become due and payable.
Except as expressly provided above in this Section, presentment, demand, protest
and all other notices of any kind are hereby expressly waived.
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In addition, upon demand by the Issuing Bank, the Agent or the Required
Revolving Credit Lenders after the occurrence of any Event of Default, the
Borrower shall deposit with the Agent for the benefit of the Revolving Credit
Lenders with respect to each Letter of Credit then outstanding, promptly upon
such demand, cash or Cash Equivalents in an amount equal to the greatest amount
for which such Letter of Credit may be drawn. Such deposit shall be held by the
Agent for the benefit of the Issuing Bank and the Revolving Credit Lenders as
security for, and to provide for the payment of, the Letters of Credit
Outstanding.
SECTION
THE AGENT
APPOINTMENT. Each Lender and the Issuing Bank hereby irrevocably
designates and appoints Credit Lyonnais New York Branch as the Agent of such
Lender and the Issuing Bank under this Agreement and the other Loan Documents,
and each such Lender and the Issuing Bank irrevocably authorizes Credit Lyonnais
New York Branch, as the Agent for such Lender and the Issuing Bank, to take such
action on its behalf under the provisions of this Agreement and the other Loan
Documents and to exercise such powers and perform such duties as are expressly
delegated to the Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Agent shall not have any duties or responsibilities, except those expressly set
forth herein, or any fiduciary relationship with any Lender or the Issuing Bank,
and no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Agent. None of the Documentation Agent, the
Syndication Agent or the Co-Agent shall have any duties or responsibilities
hereunder or any fiduciary relationship with any Lender, the Agent or the
Issuing Bank, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against such Persons.
DELEGATION OF DUTIES. The Agent may execute any of its duties under
this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys in-fact selected by it with
reasonable care.
EXCULPATORY PROVISIONS. Neither the Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or Affiliates shall be (i)
liable for any action lawfully taken or omitted to be taken by it or such Person
under or in connection with this Agreement or any other Loan Document (except
for its or such Person's own gross negligence or willful misconduct) or (ii)
responsible in any manner to any of the Lenders and the Issuing Bank for, or
have any duty to ascertain or inquire as to, any recitals, statements,
representations or warranties made
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81
by the Borrower or any of its Subsidiaries or any officer thereof contained in
this Agreement or any other Loan Document or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Agent under or in connection with, this Agreement or any other Loan Document or
for the value, validity, effectiveness, genuineness, enforceability or
sufficiency of this Agreement or any other Loan Document or the creation,
enforceability, perfection or priority of any Lien or for any failure of the
Borrower or any of its Subsidiaries to perform its obligations hereunder or
thereunder. The Agent shall not be under any obligation to any Lender and the
Issuing Bank to ascertain or to inquire as to the observance or performance of
any of the agreements contained in, or conditions of, this Agreement or any
other Loan Document, or to inspect the properties, books or records of the
Borrower or any of its Subsidiaries, or, except as expressly set forth in any
Loan Document, to disclose (and shall not be liable for any failure to disclose)
any information relating to the Borrower or any of its Subsidiaries or
Affiliates that is communicated to the Agent or any of its Affiliates in any
capacity.
RELIANCE BY AGENT. The Agent shall be entitled to rely, and shall be
fully protected in relying, upon any Note, writing, resolution, notice, consent,
certificate, affidavit, letter, telecopy, telex or teletype message, statement,
order or other document or conversation believed by it to be genuine and correct
and to have been signed, sent or made by the proper Person or Persons and upon
advice and statements of legal counsel (including, without limitation, counsel
to the Borrower), independent accountants and other experts selected by the
Agent. The Agent shall treat the payee of any Note as the owner thereof for all
purposes unless the assignment or transfer shall have been recorded in the
Register. The Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Required Lenders as it deems
appropriate or it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement
and the other Loan Documents in accordance with a request of the Required
Lenders, and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Lenders and the Issuing Bank and all
future holders of the Notes.
NOTICE OF DEFAULT. The Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default hereunder unless the
Agent has received notice from a Lender or the Borrower referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default". In the event that the Agent receives such a
notice, the Agent shall promptly give notice thereof to the Lenders and the
Issuing Bank. The Agent shall take such action with respect to such Default or
Event of Default as shall be reasonably directed by the Required Lenders;
PROVIDED that unless and until the Agent shall have received such directions,
the Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable in the best interests of the Lenders and the Issuing Bank.
NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender and the Issuing
Bank expressly acknowledges that neither the Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or Affiliates has made any
representations or warranties to it and that no act by the Agent hereinafter
taken, including any review of the affairs of the Borrower and/or any of its
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Subsidiaries, shall be deemed to constitute any representation or warranty by
the Agent to any Lender and the Issuing Bank. Each Lender and the Issuing Bank
represents to the Agent that it has, independently and without reliance upon the
Agent or any other Lender, and based on such documents and information as it has
deemed appropriate, made its own appraisal of and investigation into the
business, operations, property, financial and other condition and
creditworthiness of the Borrower and its Subsidiaries and made its own decision
to make its Loans hereunder and enter into this Agreement. Each Lender and the
Issuing Bank also represents that it will, independently and without reliance
upon the Agent or any other Lender, and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
analysis, appraisals and decisions in taking or not taking action under this
Agreement and the other Loan Documents, and to make such investigation as it
deems necessary to inform itself as to the business, operations, property,
financial and other condition and creditworthiness of the Borrower and its
Subsidiaries. Except for notices, reports and other documents expressly required
to be furnished to the Lenders or the Issuing Bank by the Agent hereunder, the
Agent shall not have any duty or responsibility to provide any Lender or the
Issuing Bank with any credit or other information concerning the business,
operations, property, condition (financial or otherwise), prospects or
creditworthiness of the Borrower and its Subsidiaries which may come into the
possession of the Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates.
INDEMNIFICATION. The Lenders agree to indemnify the Agent in its
capacity as such (to the extent not reimbursed by the Borrower and without
limiting the obligation of the Borrower to do so to the extent required by the
terms of any Loan Document), ratably according to their respective Commitment
Percentages in effect on the date on which indemnification is sought under this
subsection (or, if indemnification is sought after the date upon which the
Commitments shall have terminated and the Loans shall have been paid in full,
ratably in accordance with their Commitment Percentages immediately prior to
such date), from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind whatsoever which may at any time (including, without limitation, at
any time following the payment of the Notes) be imposed on, incurred by or
asserted against the Agent in any way relating to or arising out of this
Agreement, any of the other Loan Documents or any documents contemplated by or
referred to herein or therein or the transactions contemplated hereby or thereby
or any action taken or omitted by the Agent under or in connection with any of
the foregoing; PROVIDED that no Lender shall be liable for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting solely from the
Agent's gross negligence or willful misconduct (as determined in a final,
non-appealable judgment by a court of competent jurisdiction). The agreements in
this subsection shall survive the payment of the Notes and all other amounts
payable hereunder.
AGENT IN ITS INDIVIDUAL CAPACITY. The Agent and its Affiliates may make
loans to, accept deposits from and generally engage in any kind of business with
the Borrower and its Subsidiaries and Affiliates as though the Agent were not
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the Agent hereunder and under the other Loan Documents. With respect to its
Loans made or renewed by it, the Agent shall have the same rights and powers
under this Agreement and the other Loan Documents as any Lender and may exercise
the same as though it were not the Agent, and the terms "Lender" and "Lenders"
shall include the Agent in its individual capacity.
SUCCESSOR AGENT. The Agent may resign as Agent upon 30 days' written
notice to the Lenders. If the Agent shall resign as Agent under this Agreement
and the other Loan Documents, then the Required Lenders shall appoint from among
the Lenders a successor agent for the Lenders, with the consent of the Borrower
(which consent will not be unreasonably withheld or delayed) whereupon such
successor agent shall succeed to the rights, powers and duties of the Agent, and
the term "Agent" shall mean such successor agent effective upon such appointment
and approval, and the former Agent's rights, powers and duties as Agent shall be
terminated, without any other or further act or deed on the part of such former
Agent or any of the parties to this Agreement or any holders of the Notes. If no
successor shall have been appointed by the Required Lenders and shall have
accepted such appointment within 30 days after the retiring Agent's notice
hereunder, then the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent, which shall be a bank with an office in New York City or an
Affiliate of such bank. After any retiring Agent's resignation as Agent, the
provisions of this subsection shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Agent under this Agreement and the
other Loan Documents.
CONCERNING THE COLLATERAL.
(a) The Agent, the Issuing Bank and each of the Lenders authorizes and
directs the Agent to enter into the Security Documents for its benefit and the
benefit of the Lenders and the Issuing Bank and to perform all obligations of
the Agent thereunder, including (without limitation) obligations to release
Collateral. Each holder of any Obligations agrees that any action taken by the
Required Lenders (or, where required by the express terms of this Agreement, a
greater or lesser proportion of the Lenders) in accordance with the provisions
of this Agreement or the Security Documents, and the exercise by the Required
Lenders (or, where so required, such greater or lesser proportion) of the powers
set forth herein or therein, together with such other powers as are reasonably
incidental thereto, shall be authorized and binding upon all of the holders of
Obligations.
(b) Each Lender hereby agrees that it will, upon request of the
Borrower or the Agent, confirm the Agent's authority to release, or direct the
Agent to release, any Lien held by the Agent:
(i) against all of the Collateral, upon payment in full of the
Obligations and expiration or termination of the obligations of the
Lenders under this Agreement;
(ii) against any part of the Collateral sold or disposed of by
the Borrower or any Subsidiary, if such sale or disposition is
permitted by and is made in accordance with this Agreement; and
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(iii) against any Collateral which the Agent is required to
release pursuant to the Security Documents or applicable law.
(c) The Agent shall not be accountable or liable for any release of
Collateral which (i) the Agent in good faith believes is required under the
Security Documents or any other Loan Document, or (ii) results from any failure
to give, or delay in giving, any notice of termination of any rights of the
Borrower pursuant to the Security Documents or any other Loan Document.
SECTION
MISCELLANEOUS
AMENDMENTS AND WAIVERS. Neither this Agreement, any Note or any other
Loan Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this subsection. The
Required Lenders may or, with the written consent of the Required Lenders, the
Agent may, from time to time, (a) enter into with the Borrower or any applicable
Loan Party written amendments, supplements or modifications hereto and to the
other Loan Documents for the purpose of adding any provisions to this Agreement
or the other Loan Documents or changing in any manner the rights of the Lenders
or of the Borrower or any applicable Loan Party hereunder or thereunder or
otherwise amending the terms of this Agreement or any other Loan Document or (b)
waive, on such terms and conditions as the Required Lenders or the Agent, as the
case may be, may specify in such instrument, any of the requirements of this
Agreement or the other Loan Documents or any Default or Event of Default and its
consequences; PROVIDED, HOWEVER, that no such waiver and no such amendment,
supplement or modification shall (i) reduce the amount or extend the scheduled
date of maturity of any Loan or of any installment thereof, or extend any Letter
of Credit beyond the Tranche A and Revolver Termination Date, or reduce the
stated rate of any interest or fee payable hereunder or extend the scheduled
date of any payment thereof or increase the aggregate amount or extend the
expiration date of any Lender's Commitments, in each case without the consent of
each Lender affected thereby, (ii) amend, modify or waive any provision of
subsection 2.2, 2.3, 2.4, 3.3, 3.4 or 12.1 or reduce the percentage specified in
the definition of Required Lenders, or consent to the assignment or transfer by
the Borrower of any of its rights and obligations under this Agreement and the
other Loan Documents or release all or any substantial portion of the Collateral
(except as otherwise provided in any Loan Document) or release any Guarantor
from its obligations under any Guarantee or modify the terms of any Loan
Document to change the ratable sharing of Collateral among the Lenders, in each
case without the written consent of all the Lenders and the Issuing Bank, (iii)
amend, modify or waive any provision of Section 2 or the order of application of
prepayments in subsection 5.1 without the written consent of the Required
Tranche A Lenders or reduce the percentage in the definition of Required Tranche
A Lenders without the consent of all the Tranche A Lenders, (iv) amend, modify
or waive any provision of Section 2 or the order of application of prepayments
in subsection 5.1 without the written consent of the Required Tranche B Lenders
or reduce the
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percentage in the definition of Required Tranche B Lenders without the consent
of all the Tranche B Lenders, (v) amend, modify or waive any provision of
Section 3 or the order of application of prepayments in subsection 5.1 without
the prior written consent of the Required Revolving Credit Lenders or reduce the
percentage in the definition of Required Revolving Credit Lenders without the
consent of all the Revolving Credit Lenders, (vi) amend, modify or waive any
provision of Section 4 without the prior written consent of both the Issuing
Bank and the Required Revolving Credit Lenders or (vii) amend, modify or waive
any provision of Section 11 without the written consent of the then Agent
(PROVIDED that the rights of any prior Agent or Agents shall not be adversely
affected thereby). Any such waiver and any such amendment, supplement or
modification shall apply equally to each of the Lenders and the Issuing Bank,
and shall be binding upon the Borrower, or any applicable Loan Party, the
Lenders, the Issuing Bank and the Agent. In the case of any waiver, the
Borrower, or any applicable Loan Party, the Lenders, the Issuing Bank and the
Agent shall be restored to their former position and rights hereunder and under
the outstanding Notes and any other Loan Documents, and any Default or Event of
Default waived shall be deemed to be cured and not continuing; but no such
waiver shall extend to any subsequent or other Default or Event of Default, or
impair any right consequent thereon.
NOTICES. All notices, requests and demands to or upon the respective
parties hereto to be effective shall be in writing (including by telecopy), and,
unless otherwise expressly provided herein, shall be deemed to have been duly
given or made when delivered by hand, one Business Day after being deposited
with an overnight courier, or five Business Days after being deposited in the
mail, postage prepaid, or, in the case of telecopy notice, when received,
addressed as follows in the case of the Borrower and the Agent, and as set forth
in Schedule I in the case of the other parties hereto, or to such other address
as may be hereafter notified by the respective parties hereto and any future
holders of the Notes:
The Borrower: Special Metals Corporation
4317 Middle Settlement Road
New Hartford, New York 13413
Attention: Chief Financial Officer
Telecopy: (315) 798-6877
Telephone: (315) 798-2900
The Agent: Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, New York 10019
Attention: Leveraged Finance (Mark
Koneval)
Telecopy: (212) 459-3176
Telephone: (212) 261-7869
PROVIDED that any notice, request or demand to or upon the Agent or the Lenders
pursuant to subsections 2.2, 3.2, 3.5, 4.1, 4.5, 5.1, 5.2 or 5.7 shall not be
effective until received.
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NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay in
exercising, on the part of the Agent or any Lender, any right, remedy, power or
privilege hereunder or under the other Loan Documents shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the making of the
Loans hereunder.
PAYMENT OF EXPENSES AND TAXES; INDEMNITY. The Borrower agrees (a) to
pay or reimburse the Agent for all its out-of-pocket costs and expenses incurred
in connection with the preparation and execution of, and any amendment,
supplement, modification or waiver to, this Agreement and the other Loan
Documents and any other documents prepared in connection herewith or therewith,
including, without limitation, the fees and disbursements of Latham & Watkins,
special counsel to the Agent, as well as local and foreign counsel to the Agent,
(b) to pay or reimburse each Lender, the Issuing Bank and the Agent for all its
costs and expenses incurred in connection with the enforcement or preservation
of any rights under this Agreement, the other Loan Documents or the Transactions
(including during any work-out or restructuring of the Loans or during the
pendency of any bankruptcy, insolvency or similar proceeding), including,
without limitation, the fees and disbursements of counsel to the Agent and to
each Lender and any advisors, appraisers, consultants or other professionals
engaged by them or such counsel, and (without duplication) allocated costs of
in-house counsel, and (c) to pay, indemnify, and hold each Lender, the Issuing
Bank and the Agent harmless from, any and all recording and filing fees and any
and all liabilities with respect to, or resulting from any delay in paying,
documentary stamp, excise and other taxes, if any, which may be payable or
determined to be payable by reason of the execution and delivery of this
Agreement and the other Loan Documents and any such other documents, or any
amendment, supplement or modification of, or any waiver or consent under or in
respect thereof and (d) to indemnify, and hold each Lender, the Issuing Bank and
the Agent and their respective affiliates, officers, directors, employees,
agents and advisors (each, an "INDEMNIFIED PARTY") harmless from and against any
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87
and all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever (including legal fees and other charges) with respect to the
execution, delivery, performance and consummation of this Agreement, the other
Loan Documents and any such other documents, including, without limitation, any
of the foregoing relating to, or arising out of (i) the preparation for a
defense of, or participation in, any investigation, litigation, proceeding or
other action related to or arising out of the Loan Documents or any other such
documents, or any of the Transactions (whether or not such Indemnified Party is
a party to such proceeding or other action and whether any such investigation,
litigation or proceeding or other action is brought by the Borrower, its
stockholders or creditors, by an Indemnified Party or by any other Person) or
(ii) the violation of, noncompliance with or liability under, any Environmental
Law applicable to the Borrower, any of its Subsidiaries or any of the Mortgaged
Properties (all the foregoing in this clause (d), collectively, the "INDEMNIFIED
LIABILITIES"), PROVIDED, that the Borrower shall have no obligation hereunder to
an Indemnified Party with respect to indemnified liabilities arising solely from
the gross negligence or willful misconduct of such Indemnified Party (as
determined in a final non-appealable judgment by a court of competent
jurisdiction). A certificate as to any amounts payable pursuant to this
subsection 12.5 submitted to the Borrower by the Agent, any Lender or an
Indemnified Party shall be conclusive in the absence of manifest error. The
Borrower further agrees that no Indemnified Party shall have any liability
(whether direct or indirect, in contract or tort or otherwise) to the Borrower
or any of its Affiliates, security holders or creditors except to the extent
such liability is found in a final non-appealable judgment by a court of
competent jurisdiction to have resulted from such Indemnified Party's gross
negligence or willful misconduct or the Indemnified Party's breach of its
obligations under the Loan Documents. The agreements in this subsection shall
survive repayment of the Loans and all other amounts payable hereunder.
SUCCESSORS AND ASSIGNS; PARTICIPATIONS AND ASSIGNMENTS. (a) This
Agreement shall be binding upon and inure to the benefit of the Borrower, the
Lenders, the Issuing Bank, the Agent and their respective successors and
assigns, except that the Borrower may not assign or transfer any of its rights
or obligations under this Agreement without the prior written consent of each
Lender and the Issuing Bank.
(b) Any Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time sell to one or more banks or other
entities ("PARTICIPANTS") participating interests in any Loan owing to such
Lender, any Commitment of such Lender or any other interest of such Lender
hereunder and under the other Loan Documents (which participations may be on a
non-pro rata basis) without the consent of the Agent or the Borrower. In the
event of any such sale by a Lender of a participating interest to a Participant,
such Lender's obligations under this Agreement to the other parties to this
Agreement shall remain unchanged, such Lender shall remain solely responsible to
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88
the other parties for the performance thereof, such Lender shall remain the
holder of any such Loan for all purposes under this Agreement and the other Loan
Documents, and the Borrower, the Agent and the Lenders shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the other Loan Documents. The Borrower also
agrees that each Participant shall be entitled to the benefits of subsections
5.9, 5.10 and 5.11 with respect to its participation in the Commitments and the
Loans outstanding from time to time as if it was a Lender; PROVIDED that no
Participant shall be entitled to any greater payment under such subsections than
the applicable Lender would have been entitled to receive with respect to the
interest sold. The Borrower agrees that if any Obligations are due and unpaid,
or shall have been declared or shall have become due and payable upon the
occurrence and during the continuance of an Event of Default, each Participant
shall be deemed to have the right of setoff in respect of its participating
interest in amounts owing under this Agreement and any Note to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement or any Note; PROVIDED that such right of setoff
shall be subject to the obligations of such Participant to share with the
Lenders, and the Lenders agree to share with such Participant, as provided in
subsection 12.7. Each Lender agrees that any agreement between such Lender and
any such Participant in respect of such participating interest shall not
restrict such Lender's right to agree to any amendment, supplement, waiver or
modification to this Agreement or any other Loan Document, except where the
result of any of the foregoing would be to extend the final maturity of any Loan
in which the Participant has an interest or reduce the rate or extend the time
of payment of interest thereon or reduce the principal amount thereof or release
all or substantially all of the Collateral (except as expressly provided in the
Loan Documents).
(c) Any Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time and from time to time assign to any
Lender or any Affiliate thereof or, with the consent of the Agent and (so long
as no Event of Default shall have occurred and be continuing) the Borrower
(which consents shall not be unreasonably withheld or delayed), to another
Person (an "ASSIGNEE") all or any part of its rights and obligations under this
Agreement and the other Loan Documents (which assignments may be on a non-pro
rata basis) pursuant to an Assignment and Acceptance, substantially in the form
of Exhibit N (an "ASSIGNMENT AND ACCEPTANCE"), executed by such Assignee, such
assigning Lender (and, in the case of an Assignee that is not then a Lender or
an affiliate thereof, by the Agent) and delivered to the Agent for its
acceptance and recording in the Register, PROVIDED that, in the case of any such
assignment to an additional Assignee, the sum of the aggregate principal amount
of the Loans and the aggregate amount of the unused Commitments being assigned
and, if such assignment is of less than all of the rights and obligations of the
assigning Lender, the sum of the aggregate principal amount of the Loans and the
aggregate amount of the unused Commitments remaining with the assigning Lender
are each not less than $5,000,000. Assignments may be made on a non pro rata
basis of a Lender's Revolving Credit Commitment and Revolving Credit Loans,
Tranche A Term Loans and Tranche B Term Loans. Upon such execution, delivery,
acceptance and recording, from and after the effective date determined pursuant
to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party
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89
hereto and, to the extent of the interest assigned to it in such Assignment and
Acceptance, have the rights and obligations of a Lender hereunder with a
Commitment as set forth therein, and (y) the assigning Lender thereunder shall,
to the extent of the interest assigned to it in such Assignment and Acceptance,
be released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such assigning Lender
shall cease to be a party hereto), (but shall continue to be entitled to the
benefits of subsections 5.9, 5.10, 5.11 and 12.5). Notwithstanding any provision
of paragraph (e) of this subsection, unless requested by the Assignee and/or the
assigning Lender, Notes shall not be required to be executed and delivered by
the Borrower, for any assignment which occurs at any time when any of the events
described in Section 10(f) shall have occurred and be continuing.
(d) The Agent, on behalf of the Borrower, shall maintain at the address
of the Agent referred to in subsection 12.2 a copy of each Assignment and
Acceptance delivered to it and a register (the "REGISTER") for the recordation
of the names and addresses of the Lenders and the Commitments of, and principal
amounts of the Loans owing to, each Lender from time to time. The entries in the
Register shall be conclusive, in the absence of manifest error, and the
Borrower, the Agent and the Lenders shall treat each Person whose name is
recorded in the Register as the owner of a Loan or other obligation hereunder as
the owner thereof for all purposes of this Agreement and the other Loan
Documents, notwithstanding any notice to the contrary. Any assignment of any
Loan or other obligation hereunder shall be effective only upon appropriate
entries with respect thereto being made in the Register. The Register shall be
available for inspection by the Borrower or any Lender at any reasonable time
and from time to time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee (and, in the case of an Assignee that is not
then a Lender or an Affiliate thereof, by the Agent) together with payment by
the Assignee or the assigning Lender to the Agent of a registration and
processing fee of $5,000, the Agent shall (i) promptly accept such Assignment
and Acceptance and (ii) on the effective date determined pursuant thereto record
the information contained therein in the Register and give notice of such
acceptance and recordation to the Lenders and the Borrower.
(f) Subject to the provisions of subsection 12.16, the Borrower
authorizes each Lender to disclose to any Participant or Assignee (each, a
"TRANSFEREE") and any prospective Transferee any and all financial information
in such Lender's possession concerning the Borrower, its Subsidiaries and its
Affiliates which has been delivered to such Lender by or on behalf of the
Borrower pursuant to this Agreement or which has been delivered to such Lender
by or on behalf of the Borrower in connection with such Lender's credit
evaluation of the Borrower, its Subsidiaries and its Affiliates prior to
becoming a party to this Agreement.
(g) For avoidance of doubt, the parties to this Agreement acknowledge
that the provisions of this subsection concerning assignments of Loans and Notes
relate only to absolute assignments and that such provisions do not prohibit
assignments creating security interests, including, without limitation, any
pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank
in accordance with applicable law, PROVIDED that no such assignment shall
release a Lender from any of its obligations hereunder.
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ADJUSTMENTS; SET-OFF. (a) If any Lender (a "BENEFITED LENDER") shall at
any time receive any payment of all or part of its Loans, or interest thereon,
or receive any collateral in respect thereof (whether voluntarily or
involuntarily, by set-off, pursuant to events or proceedings of the nature
referred to in Section 10(f), or otherwise), in a greater proportion than any
such payment to or collateral received by any other Lender, if any, in respect
of such other Lender's Loans, or interest thereon, such Benefited Lender shall
purchase for cash from the other Lenders a participating interest in such
portion of each such other Lender's Loan, or shall provide such other Lenders
with the benefits of any such collateral, or the proceeds thereof, as shall be
necessary to cause such Benefited Lender to share the excess payment or benefits
of such collateral or proceeds ratably with each of the Lenders; PROVIDED,
HOWEVER, that if all or any portion of such excess payment or benefits is
thereafter recovered from such Benefited Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest. The provisions of this subsection 12.7(a) shall
not be construed to apply to any payment made by the Borrower pursuant to and in
accordance with the express terms of this Agreement or any payment obtained by a
Lender as consideration for the assignment of or sale of a participation in any
of its Loans to any assignee or participant, other than to the Borrower or any
of its Subsidiaries or Affiliate thereof (as to which the provisions of this
subsection 12.7(a) shall apply). The Borrower agrees that each Lender so
purchasing a portion of another Lender's Loan may exercise all rights of payment
(including, without limitation, rights of set-off) with respect to such portion
as fully as if such Lender were the direct holder of such portion.
(b) In addition to any rights and remedies of the Lenders provided by
law, each Lender shall have the right, without prior notice to the Borrower, any
such notice being expressly waived by the Borrower to the extent permitted by
applicable law, upon any amount becoming due and payable by the Borrower
hereunder (whether at the stated maturity, by acceleration or otherwise after
the occurrence of an Event of Default) to set-off and appropriate and apply
against such amount any and all deposits (general or special, time or demand,
provisional or final), in any currency, and any other credits, indebtedness or
claims, in any currency, in each case whether direct or indirect, absolute or
contingent, matured or unmatured, at any time held or owing by such Lender or
any branch or agency thereof to or for the credit or the account of the
Borrower. Each Lender agrees promptly to notify the Borrower and the Agent after
any such set-off and application made by such Lender, PROVIDED that the failure
to give such notice shall not affect the validity of such set-off and
application.
COUNTERPARTS. This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts (including by
telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of the copies of this Agreement
signed by all the parties shall be lodged with the Borrower and the Agent.
SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
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INTEGRATION. This Agreement and the other Loan Documents represent the
agreement of the Borrower and the Subsidiaries, the Agent, the Issuing Bank and
the Lenders with respect to the subject matter hereof, and there are no
promises, undertakings, representations or warranties of any party hereto
relative to the subject matter hereof not expressly set forth or referred to
herein or in the other Loan Documents. Any previous agreement with respect to
the subject matter hereof is superseded by this Agreement and the other Loan
Documents.
GOVERNING LAW. THIS AGREEMENT AND THE LOANS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE LOANS SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAW OF THE
STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PROVISIONS
THEREOF.
SUBMISSION TO JURISDICTION; WAIVERS. The Borrower hereby irrevocably
and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which it
is a party, or for recognition and enforcement of any judgment in respect
thereof, to the non-exclusive general jurisdiction of the courts of the State of
New York, the courts of the United States of America for the Southern District
of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the venue
of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;
(c) agrees that service of process in any such action or proceeding may
be effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to it at its address set
forth in subsection 12.2 or at such other address of which the Agent shall have
been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect service
of process in any other manner permitted by law or shall limit the right to sue
in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to in
this subsection any special, exemplary, punitive or consequential damages.
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ACKNOWLEDGMENTS. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
(b) neither the Agent nor the Issuing Bank nor any Lender has any
fiduciary relationship with or duty to it arising out of or in connection with
this Agreement or any of the other Loan Documents, and the relationship between
Agent, Issuing Bank and Lenders, on one hand, and it, on the other hand, in
connection herewith or therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions contemplated hereby among the
Lenders (including the Issuing Bank) or among it and the Lenders (including the
Issuing Bank).
WAIVERS OF JURY TRIAL. THE BORROWER, THE AGENT, THE ISSUING BANK AND
THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY AND FOR ANY COUNTERCLAIM THEREIN. The scope of this waiver is intended
to be all-encompassing of any and all disputes that may be filed in any court
and that relate to the subject matter of this transaction, including without
limitation contract claims, tort claims, breach of duty claims, and all other
common law and statutory claims. Each of the parties to this Agreement
acknowledges that this waiver is a material inducement for each of the parties
to this Agreement to enter into a business relationship, that each of the
parties to this Agreement have already relied on this waiver in entering into
this Agreement and that each will continue to rely on this waiver in their
related future dealings. Each party hereto further warrants and represents that
it has reviewed this waiver with its legal counsel and that it knowingly and
voluntarily waives its jury trial rights following consultation with legal
counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. In the event of
litigation, this Agreement may be filed as a written consent to a trial by the
court.
INTEREST RATE LIMITATION. Notwithstanding anything herein or in the
Notes to the contrary, if at any time the applicable interest rate, together
with all fees and charges which are treated as interest under applicable law
(collectively, the "CHARGES"), as provided for herein or in any other document
executed in connection herewith, or otherwise contracted for, charged, received,
taken or reserved by any Lender, shall exceed the maximum lawful rate (the
"MAXIMUM RATE") which may be contracted for, charged, taken, received or
reserved by such Lender in accordance with applicable law, the rate of interest
payable under the Note held by such Lender, together with all Charges payable to
such Lender, shall be limited to the Maximum Rate.
<PAGE>
93
CONFIDENTIALITY. The Lenders shall hold in confidence all non-public
information obtained pursuant to the requirements of this Agreement or furnished
at the request of a Lender which has been identified as such in writing by the
Borrower, PROVIDED that any Lender may make disclosure (i) reasonably required
by any Transferee or prospective Transferee pursuant to subsection 12.6 (subject
to the execution by such Transferee or prospective Transferee of a
confidentiality letter of the same scope as this subsection 12.16) or (ii) as
required or requested by any governmental agency or representative thereof or
required by law, rule or regulation or (iii) pursuant to legal process or (iv)
to its employees, directors, agents, attorneys, accountants and other
professional advisors; PROVIDED, FURTHER, that in no event shall any Lender be
obligated or required to return any materials furnished by the Borrower.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
SPECIAL METALS CORPORATION
By:________________________________
Name:___________________________
Title:__________________________
CREDIT LYONNAIS NEW YORK BRANCH,
as Agent, as a Lender and as Issuing Bank
By:________________________________
Name:___________________________
Title:__________________________
MANUFACTURERS & TRADERS TRUST
COMPANY,
as Documentation Agent and as a Lender
By:________________________________
Name:___________________________
Title:__________________________
MELLON BANK, N.A.,
as Syndication Agent and as a Lender
By:________________________________
Name:___________________________
Title:__________________________
<PAGE>
94
THE BANK OF NOVA SCOTIA,
as Co-Agent and as a Lender
By:________________________________
Name:___________________________
Title:__________________________
KEYBANK NATIONAL ASSOCIATION,
as Lender
By:________________________________
Name:___________________________
Title:__________________________
BANK UNITED,
as Lender
By:________________________________
Name:___________________________
Title:__________________________
BANQUE NATIONALE DE PARIS,
as Lender
By:________________________________
Name:___________________________
Title:__________________________
<PAGE>
95
SOCIETE GENERALE, NEW YORK
BRANCH,
as Lender
By:________________________________
Name:___________________________
Title:__________________________
FLEET NATIONAL BANK,
as Lender
By:________________________________
Name:___________________________
Title:__________________________
NATIONAL BANK OF CANADA,
as Lender
By:________________________________
Name:___________________________
Title:__________________________
CREDIT AGRICOLE - INDOSUEZ,
as Lender
By:________________________________
Name:___________________________
Title:__________________________
<PAGE>
96
NATEXIS BANQUE,
as Lender
By:________________________________
Name:___________________________
Title:__________________________
1,600,000 Shares
6.625% Series A Senior Convertible Preferred Stock
(Liquidation Amount $50.00 per Share)
AMENDMENT TO INVESTMENT AGREEMENT
October 28, 1998
Titanium Metals Corporation
TIMET Finance Management Company
1999 Broadway, Suite 4300
Denver, Colorado 80202
Ladies and Gentlemen:
Reference is made to the Investment Agreement, dated July 8, 1998 (the
"Investment Agreement"), among Special Metals Corporation, a Delaware
corporation (the "Company"), Titanium Metals Corporation, a Delaware corporation
("TMC"), and TIMET Finance Management Company, a Delaware corporation and a
wholly-owned subsidiary of TMC (the "Investor"), relating to the proposed
issuance and sale by the Company to the Investor of shares (the "Shares") of the
Company's 6.625% Series A Senior Convertible Preferred Stock, liquidation amount
$50.00 per share (the "Convertible Preferred Securities").
In consideration of the premises and mutual agreements contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree to amend
the Investment Agreement pursuant to Section 19 thereof as follows:
1. Defined Terms. Except as otherwise provided herein, capitalized
terms used herein and not otherwise defined herein shall have the meanings
ascribed to such terms in the Investment Agreement. References herein to this
"Amendment" shall mean this Amendment to the Investment Agreement. Unless the
context otherwise requires, references in the Investment Agreement to
"Convertible Preferred Securities" shall refer solely to the Shares of the
Company's 6.625% Series A Senior Convertible Preferred Stock being purchased by
the Investor pursuant to the Investment Agreement, as amended hereby, and shall
not include any shares being purchased by Inco Limited pursuant to the Inco
Investment Agreement (as hereinafter defined).
<PAGE>
2. Amendments to Investment Agreement.
(a) The first paragraph of the Investment Agreement is hereby
amended by deleting such paragraph in its entirety and replacing it with a new
paragraph as follows:
"Special Metals Corporation, a Delaware corporation (the
"Company"), proposes to issue and sell to TIMET Finance Management
Company, a Delaware corporation (the "Investor"), and a wholly-owned
subsidiary of Titanium Metals Corporation, a Delaware corporation
("TMC"), 1,600,000 shares of its 6.625% Series A Senior Convertible
Preferred Stock, liquidation amount $50.00 per share (the "Convertible
Preferred Securities"). The Convertible Preferred Securities will be
convertible into shares of the common stock, par value $.01 per share
(the "Common Stock"), of the Company initially at the conversion price
set forth herein and will rank, with respect to dividend rights and
rights upon liquidation, winding up and dissolution, senior to the
Common Stock, and each other class of capital stock or series of
preferred stock of the Company established after the original issuance
of the Convertible Preferred Securities, and PARI PASSU with the
Convertible Preferred Securities to be issued under the Certificate of
Designation referred to in Section 1 below to Inco Limited, a
corporation continued under the laws of Canada ("Inco Limited),
pursuant to the Investment Agreement to be entered into between Inco
Limited and the Company (the "Inco Investment Agreement").
(b) Section 1 of the Investment Agreement is hereby amended by
deleting such Section in its entirety and replacing it with a new Section 1 as
follows:
"1. Purchase and Sale. On the terms and subject to the
conditions and in reliance upon the representations and warranties set
forth in this Agreement, the Company agrees to issue, sell and deliver
to the Investor, and the Investor agrees to purchase from the Company,
1,600,000 Convertible Preferred Securities, at a purchase price of
$50.00 per Convertible Preferred Security, for an aggregate purchase
price of $80,000,000 (the "Purchase Price"). Each Convertible Preferred
Security shall be convertible at the option of the holder into shares
of Common Stock of the Company following the Initial Conversion Date
(as defined herein) at a conversion price equal to $16.50 per share.
Such conversion price will be subject to adjustment from time to time
as set forth in the Certificate of Designation of Rights and
Preferences establishing the terms and relative rights and preferences
of the Convertible Preferred Securities substantially in the form set
forth in Exhibit C hereto (the "Certificate of Designation"). The term
"Initial Conversion Date" shall mean the latest of (i) 90 days
following the date of original issuance of the Convertible Preferred
Securities, (ii) the date on which approval is obtained in accordance
with Regulation 14A of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), by the stockholders of the Company entitled to
vote thereon (the "Stockholders Conversion Vote") of the issuance of
Common Stock
2
<PAGE>
upon the conversion of the Convertible Preferred Securities upon the
terms and conditions set forth in the Certificate of Designation and
(iii) the date upon which all waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"Hart-Scott-Rodino Act"), have expired or been terminated."
(c) Section 3 of the Investment Agreement is hereby amended by
deleting Section 3(h) in its entirety and replacing it with a new Section 3(h)
as follows:
"(h) The financing contemplated by (i) the new credit facility
to be entered into by the Company, Credit Lyonnais New York Branch as
agent and various lenders with respect to the Acquisition (the "New
Credit Agreement"), (ii) the Investor's investment in the Convertible
Preferred Securities as contemplated by this Agreement, (iii) Inco
Limited's investment in $17,000,000 aggregate liquidation amount of
Convertible Preferred Securities as contemplated by the Inco Investment
Agreement, and (iv) Inco's agreement to pay Credit Lyonnais New York
Branch, as agent, a fee of $10,000,000 pursuant to the letter agreement
dated October 5, 1998 constitute the only financing arrangements to be
entered into by or on behalf of the Company or any of its Subsidiaries
in connection with the financing of the Acquisition other than
indebtedness of Inco and/or its subsidiaries to be assumed in
connection with the Acquisition."
(d) Section 3(q) of the Investment Agreement is hereby amended
by inserting the words ", the Inco Investment Agreement" immediately after the
words "this Agreement" on the 2nd line of such Section.
(e) Section 5 of the Investment Agreement is hereby amended by
deleting such Section 5 in its entirety and replacing it with a new Section 5 as
follows:
"5. Governance. The Company agrees with the Investor and TMC
that:
(a) Immediately following the Closing Time, the Board of
Directors of the Company (the "Board") shall increase the authorized
number of Directors of the Board by a number sufficient to include as
an additional director of the Company one Investor Nominee (as defined
in Section 5(b) hereof) who has been designated by the Investor in the
Investor Nominee Notice (as defined in Section 5(b) hereof) and shall
appoint such Investor Nominees to the Board as a Class III Director in
accordance with the Company's procedures for the appointment of
directors. Such Investor Nominee shall hold office for a term expiring
at the annual meeting of stockholders at which the term of the class to
which he or she has been elected expires or until his or her successor
is duly elected and qualified. So long as the Investor (together with
TMC and any wholly-owned subsidiary of TMC) beneficially owns voting
securities of the Company representing at least 10% of the outstanding
voting securities of the
3
<PAGE>
Company (assuming for purposes of this Section 5, that any Convertible
Preferred Securities owned by the Investor, TMC or such subsidiary have
been converted into Common Stock), the Investor shall be entitled to
designate one Investor Nominee to the Board. If at any time the number
of members constituting the entire Board shall exceed 10, including the
Investor Nominee appointed pursuant to this Section 5 but excluding all
directors elected by holders of the Convertible Preferred Securities
pursuant to Section 9 of the Certificate of Designation, the Investor
shall be entitled to designate pursuant to an Investor Nominee Notice,
and the Board shall appoint to the Board, one additional Investor
Nominee in accordance with the provisions of this Section 5. In the
event of a vacancy caused by the disqualification, removal, resignation
or other cessation of service of any Investor Nominee from the Board,
the Board shall elect as a director (to serve until the Company's
immediately succeeding annual meeting of shareholders at which the term
of the class to which such Investor Nominee has been elected expires) a
new Investor Nominee who has been designated by the Investor in an
additional Investor Nominee Notice that has been provided to the
Company at least five days prior to the date of a regular meeting of
the Board. The Investor shall nominate each Investor Nominee pursuant
to an additional Investor Nominee Notice in advance of each meeting of
shareholders at which such Investor Nominee is to be elected. If the
beneficial ownership by the Investor (together with the beneficial
ownership by TMC or any wholly-owned subsidiary of TMC) of the
outstanding voting securities of the Company decreases below 10% of the
outstanding voting securities of the Company (assuming for purposes of
this Section 5, that any Convertible Preferred Securities owned by the
Investor, TMC and any such wholly-owned subsidiary of TMC have been
converted into Common Stock) the Investor shall, at the request of the
Company, cause all its Investor Nominees to resign from the Board, in
accordance with the Company's procedures for the resignation of
directors and applicable laws and regulations.
(b) The Investor shall provide a designation notice to the
Company (the "Investor Nominee Notice") as required by Section 5(a)
above for each Investor Nominee, which notice shall contain the
following information: (i) the name of the person(s) it has designated
to become director(s) of the Company (each, an "Investor Nominee"), and
(ii) all information required by Regulation 14A and Schedule 14A under
the Exchange Act with respect to each such Investor Nominee. Such
Investor Nominee may be any person designated by the Investor,
including, but not limited to, persons who are officers, directors or
employees of the Investor.
Notwithstanding the above, the Company shall not be obligated
to perform the obligations under this Section 5 with respect to any
Investor Nominee designated by the Investor if such Investor Nominee is
(i) a director, officer, employee, shareholder, controlling person or
otherwise affiliated with a Significant Competitor (as hereinafter
defined), other than TMC or its affiliates, (ii) a person that is or
theretofore has been engaged in material litigation adverse to the
Company or any of its affiliates, (iii) a person (other than TMC and/or
its wholly owned subsidiaries)
4
<PAGE>
who beneficially owns voting securities of the Company representing
more than 10% of the outstanding voting securities of the Company, or
(iv) a person (x) other than the person then serving as chief executive
officer, chief financial officer or chief operating officer of TMC
and/or as a director of TMC or (y) who the Board, after customary
investigation of such person's qualifications, reasonably determines in
good faith is not qualified or acceptable under standards applied
fairly and equally to all nominees (it being understood that any person
listed on Schedule 5(b) hereto or falling within subclause (x) of this
clause (iii) shall be deemed qualified and acceptable hereunder).
(c) The Company agrees to cause to include the Investor
Nominee which the Investor is entitled to designate pursuant to this
Agreement in the slate of nominees recommended by the Board to the
Company's shareholders for election as directors and shall use its
reasonable best efforts to cause the election or reelection of each
such Investor Nominee to the Board at each meeting of shareholders at
which such Investor Nominee is up for election, including soliciting
proxies in favor of the election of such persons. At the direction of
the Investor, the Company shall use reasonable efforts to cause the
removal from the Board of any Investor Nominee.
(d) Each Investor Nominee shall be reimbursed for his or her
out-of-pocket expenses incurred in attending regular and special Board
meetings and any meeting of any Board committee by the Company to the
extent of, and in accordance with, the policies of the Company
generally applicable to the reimbursement of expenses of directors of
the Company.
(e) The Board will not establish an executive committee
authorized to exercise the power of the Board generally unless the
Investor is granted representation on such committee proportional to
its representation on the Board, nor will the Board establish or employ
committees (unless the Investor is granted proportional representation
thereon) as a means designed to circumvent or having the effect of
circumventing the rights of the Investor under this Agreement to
representation on the Board."
(f) Section 7(c) of the Investment Agreement is hereby amended
by inserting the words ", Inco" immediately after the word "TMC."
(g) Section 7(d) of the Investment Agreement is hereby amended
by inserting the words ", Inco" immediately after the word "TMC" on the
7th line of such Section.
(h) Section 9 of the Investment Agreement is hereby amended by
inserting the words "(other than the Convertible Preferred Securities
or Conversion Shares that are to be issued under the Inco Investment
Agreement)" immediately after the words "or other voting securities" on
the 3rd line from the top of such Section.
5
<PAGE>
(i) Section 11 of the Investment Agreement is hereby amended
by adding subsection (l) thereto as follows:
"(l) The terms of the Convertible Preferred Stock to
be issued and sold to Inco Limited pursuant to the Inco
Investment Agreement, and any additional rights granted to
Inco with respect thereto or in connection therewith, shall be
in all material respects as set forth in the attached
Certificate of Designation, Inco Investment Agreement and
registration rights agreement between the Company and Inco
Limited."
(j) Section 12 of the Investment Agreement is hereby amended
by deleting Section 12(b) in its entirety.
(k) The Investment Agreement is hereby amended by adding a
Section 31 thereto as follows:
"31. Acknowledgment of Inco Investment Agreement. The
Investor hereby acknowledges that the Company has advised the
Investor that, at the Closing Time, the Company and Inco
Limited will enter into the Inco Investment Agreement pursuant
to which the Company will issue under the Certificate of
Designation, sell and deliver to Inco Limited 340,000
Convertible Preferred Securities, at a purchase price of
$50.00 per Convertible Preferred Security, for an aggregate
purchase price of $17,000,000, and the Investor has agreed to
such issuance to Inco Limited."
3. Confirmation of Investment Agreement. Except as otherwise expressly
provided herein, the Investment Agreement is and shall remain in full force and
effect and is hereby ratified and confirmed.
4. Governing Law. This Amendment shall be governed by, and construed,
in accordance with, the laws of the State of New York applicable to contracts
made and to be performed in that state.
5. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be deemed to constitute an original, but all
of which together shall constitute one and the same instrument.
6
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement with respect to the amendment of the Investment Agreement, please sign
and return to us the enclosed duplicate hereof, whereupon this Amendment and
your acceptance shall represent a binding agreement between the Company, on the
one hand, and the Investor and TMC, on the other hand.
Very truly yours,
SPECIAL METALS CORPORATION
By: /s/ Donald R. Muzyka
------------------------
Name: Donald R. Muzyka
Title: President
The foregoing Amendment is hereby confirmed and accepted as of the date first
above written:
TIMET FINANCE MANAGEMENT COMPANY
By: /s/ Susan E. Alderton
- -------------------------
Name: Susan E. Alderton
Title: Treasurer
TITANIUM METALS CORPORATION
By: /s/ J. Landis Martin
- ------------------------
Name: J. Landis Martin
Title: Chief Executive Officer
SPECIAL METALS CORPORATION
340,000 Shares
6.625% Series A Senior Convertible Preferred Stock
(Liquidation Amount $50.00 per Share)
INVESTMENT AGREEMENT
October 28, 1998
Inco Limited
145 King Street West, Suite 1500
Toronto, Ontario M5H 4B7, Canada
Ladies and Gentlemen:
Special Metals Corporation, a Delaware corporation (the "Company"),
proposes to issue and sell to Inco Limited, a corporation continued under the
laws of Canada (the "Investor"), 340,000 shares of its 6.625% Series A Senior
Convertible Preferred Stock, liquidation amount $50.00 per share (the
"Convertible Preferred Securities"). The Convertible Preferred Securities will
be convertible into shares of the common stock, par value $.01 per share (the
"Common Stock"), of the Company initially at the conversion price set forth
herein and will rank, with respect to dividend rights and rights upon
liquidation, winding up and dissolution, senior to the Common Stock, and each
other class of capital stock or series of preferred stock of the Company
established after the original issuance of the Convertible Preferred Securities,
and PARI PASSU with the Convertible Preferred Securities issued to Timet Finance
Management Company ("Timet") pursuant to the Investment Agreement, dated as of
July 8, 1998, as amended on October 28, 1998, among Timet, Titanium Metals
Corporation and the Company (the "Timet Investment Agreement").
The Investor, Inco United States, Inc., Inco Europe Limited and Inco
S.A. (collectively, "Inco") and the Company have entered into a stock purchase
agreement, dated as of July 8, 1998, as amended (the "Acquisition Agreement"),
pursuant to which the Company has agreed to acquire (the "Acquisition") the Inco
Alloys International division ("IAI") of the Investor. In connection with the
amendment to the Acquisition Agreement and the closing of the Acquisition, the
parties hereto have agreed to enter into this Agreement pursuant to which the
Company has agreed to issue the Convertible Preferred Securities as part of the
consideration to be paid to Inco in connection with the Non- Competition
Agreement (as defined in the Acquisition Agreement.)
The sale of the Convertible Preferred Securities to the Investor will
be made without registration of the Convertible Preferred Securities under the
Securities Act of 1933,
<PAGE>
as amended (the "Securities Act"), in reliance upon exemptions from the
registration requirements of the Securities Act. However, the Investor (and
subsequent permitted transferees) of the Convertible Preferred Securities (and
the Common Stock issued upon conversion thereof) will have the registration
rights set forth in the Registration Rights Agreement in the form attached as
Exhibit A hereto (the "Registration Rights Agreement") to be entered into
between the Company and the Investor.
1. Purchase and Sale. On the terms and in reliance upon the
representations and warranties set forth in this Agreement, the Company agrees
to issue, sell and deliver to the Investor, and the Investor agrees to acquire
from the Company, 340,000 Convertible Preferred Securities with an aggregate
liquidation amount of $17,000,000 as partial payment of the consideration to be
paid to Inco for the Non-Competition Agreement to be entered into in connection
with the Acquisition Agreement. Each Convertible Preferred Security shall be
convertible at the option of the holder into shares of Common Stock of the
Company following the Initial Conversion Date (as defined herein) at a
conversion price equal to $16.50 per share. Such conversion price will be
subject to adjustment from time to time as set forth in the Certificate of
Designation of Rights and Preferences establishing the terms and relative rights
and preferences of the Convertible Preferred Securities substantially in the
form set forth in Exhibit B hereto (the "Certificate of Designation"). The term
"Initial Conversion Date" shall mean the latest of (i) 90 days following the
date of original issuance of the Convertible Preferred Securities, (ii) the date
on which approval is obtained in accordance with Regulation 14A of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), by the
stockholders of the Company entitled to vote thereon (the "Stockholders
Conversion Vote") of the issuance of Common Stock upon the conversion of the
Convertible Preferred Securities upon the terms and conditions set forth in the
Certificate of Designation and (iii) the date upon which all waiting periods
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, have
expired or been terminated.
2. Delivery. Delivery of the Convertible Preferred Securities shall be
made at the offices of Paul, Weiss, Rifkind, Wharton & Garrison at 10:00 a.m.,
New York City time, on the date hereof (the "Closing Time").
3. Representations and Warranties of the Company. The Company
represents and warrants to the Investor as follows:
(a) 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 under such laws 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 (as defined below), taken as a whole.
(b) Each subsidiary of the Company that is listed on Schedule
3(b) attached hereto (collectively, the "Subsidiaries") has been duly
incorporated, is validly existing as a
2
<PAGE>
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority under such laws 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; except as described in the
annual reports on Form 10-K, quarterly reports on Form 10-Q, registration
statements, reports on Form 8-K and Form 8-A, proxy statements, information
statements or other forms, schedules, documents, reports or statements filed by
the Company or any of its Subsidiaries with the Securities and Exchange
Commission since March 3, 1997 and prior to the date hereof (collectively, the
"SEC Reports"), 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, except to the extent that
such liens, encumbrances, equities or claims would not, singly or in the
aggregate, have a material adverse effect on the Company and its Subsidiaries,
taken as a whole; the Subsidiaries are the only subsidiaries of the Company
required to be listed on Exhibit 21 to the SEC Reports.
(c) The Convertible Preferred Securities have been duly
authorized by the Company and, when issued and delivered by the Company to the
Investor against payment of the Purchase Price therefor, will be validly issued
and fully paid and non-assessable and the issuance of the Convertible Preferred
Securities will not be subject to any preemptive or other similar rights.
(d) This Agreement has been duly authorized, executed and
delivered by the Company and, assuming the due authorization, execution and
delivery of this Agreement by the Investor, constitutes a valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms, except to the extent that enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
similar laws affecting creditors' rights generally and general principles of
equity, regardless of whether enforceability is considered in a proceeding in
equity or at law.
(e) The Registration Rights Agreement has been duly
authorized, executed and delivered by the Company and, assuming the due
authorization, execution and delivery of the Registration Rights Agreement by
the Investor, will be a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except to the extent that (i)
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or similar laws affecting creditors' rights
generally and general principles of equity, regardless of whether enforceability
is considered in a proceeding in equity or at law and (ii) the enforceability of
indemnification and contribution provisions may be limited by federal and state
securities laws and the policies underlying such laws.
3
<PAGE>
(f) Except as set forth on Schedule 3(f) hereto, (i) the
execution and delivery by the Company of, and the performance by the Company of
its obligations under, this Agreement and the Registration Rights Agreement, and
the consummation of the transactions contemplated hereby and thereby, will not
contravene any provision of applicable law material to the Company, the
Certificate of Designation, the articles of incorporation or the by-laws of the
Company, or any agreement or other instrument binding upon the Company or any of
its Subsidiaries, except where such contravention of any such agreement or
instrument would not have a material adverse effect on the Company and its
Subsidiaries, taken as a whole, or any judgment, order or decree of any
governmental body or agency or court having jurisdiction over the Company or any
of its Subsidiaries and material to it, and (ii) no consent, approval,
authorization, waiver or order of, or qualification with, any court or
governmental body or agency or any other person is required for the performance
by the Company of its obligations under this Agreement and the Registration
Rights Agreement, except such as may be required by federal, state or foreign
securities laws in connection with the offer and sale of the Convertible
Preferred Securities and the Conversion Shares (as defined below) and the
registration of such securities pursuant to the terms of the Registration Rights
Agreement, and except for any such consent, approval, authorization, waiver,
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 Company and its Subsidiaries, taken as a
whole, and would not materially impair the ability of the Company to effect the
transactions contemplated hereby and pursuant to the Registration Rights
Agreement.
(g) The authorized capital stock of the Company consists of
(i) 35,000,000 shares of Common Stock, par value $0.01 per share, of which, as
of the date hereof, 15,479,000 shares are issued and outstanding and 7,600,000
shares have been reserved for issuance upon conversion of the Convertible
Preferred Securities and (ii) 10,000,000 shares of preferred stock, par value
$0.01 per share, of which, as of the date hereof, no shares are outstanding. All
of the outstanding shares of Common Stock of the Company have been duly
authorized and validly issued and are fully paid and non-assessable.
(h) The shares of Common Stock initially issuable upon
conversion of the Convertible Preferred Securities (the "Conversion Shares")
have been duly authorized and, when issued upon such conversion in accordance
with the provisions of the Certificate of Designation, will be validly issued,
fully paid and non-assessable; the issuance of the Conversion Shares will not be
subject to any preemptive or similar rights.
(i) The financing contemplated by (i) the new credit facility
to be entered into by the Company, Credit Lyonnais New York Branch as agent and
various lenders with respect to the Acquisition, (ii) the Investor's investment
in the Convertible Preferred Securities as contemplated by this Agreement, (iii)
Timet's investment in $80,000,000 aggregate liquidation amount of Convertible
Preferred Securities as contemplated by the Timet Investment Agreement and (iv)
Inco's agreement to pay Credit Lyonnais New York Branch, as agent, a fee of
$10,000,000 pursuant to the letter agreement dated October 5, 1998, constitute
the only financing arrangements to be entered into by the Company or any
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of its Subsidiaries in connection with the financing of the Acquisition other
than indebtedness of Inco and/or its subsidiaries to be assumed in connection
with the Acquisition.
4. Representations and Warranties of the Investor. The Investor
represents and warrants to the Company as follows:
(a) The Investor has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation.
(b) This Agreement has been duly authorized, executed and
delivered by the Investor and, assuming due authorization, execution and
delivery of this Agreement by the Company constitutes a valid and binding
agreement of the Investor, enforceable against the Investor in accordance with
its terms, except to the extent that enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
similar laws affecting creditors' rights generally and general principles of
equity, regardless of whether enforceability is considered in a proceeding in
equity or at law.
(c) The Registration Rights Agreement has been duly
authorized, executed and delivered by the Investor and, assuming the due
authorization, execution and delivery of the Registration Rights Agreement by
the Company, will be a valid and binding agreement of the Investor, enforceable
against the Investor in accordance with its terms, except to the extent that (i)
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or similar laws affecting creditors' rights
generally and general principles of equity, regardless of whether enforceability
is considered in a proceeding in equity or at law and (ii) the enforceability of
indemnification and contribution provisions may be limited by federal and state
securities laws and the policies underlying such laws.
(d) Except as set forth on Schedule 4(d), (i) the execution
and delivery by the Investor of, and the performance by the Investor of its
obligations under, this Agreement and the Registration Rights Agreement and the
consummation of the transactions contemplated hereby and thereby will not
contravene any provision of applicable law material to the Investor or the
articles of incorporation or by-laws of the Investor or any agreement or other
instrument binding upon the Investor, except where such contravention of any
such agreement or instrument would not have any material adverse effect on the
Investor and its subsidiaries, taken as a whole, or any judgement, order or
decree of any governmental body, agency or court having jurisdiction over the
Investor that is material to it, and (ii) no consent, approval, authorization,
waiver or order of, or qualification with, any court or governmental body or
agency or any other person is required for the performance by the Investor of
its obligations under this Agreement, except such as may be required by federal,
state or foreign securities laws in connection with the offer and sale of the
Convertible Preferred Securities, the Conversion Shares and the registration of
such securities pursuant to the terms of the Registration Rights Agreement, and
except for any such consent, approval, authorization, waiver, 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,
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business or operations of the Investor and its subsidiaries, taken as a whole,
or materially impair the ability of the Investor to perform its obligations
hereunder.
(e) The Investor is acquiring the Convertible Preferred
Securities under this Agreement for its own account solely for the purpose of
investment and not with a view to, or for offer or sale in connection with, any
distribution thereof in violation of the Securities Act. The Investor has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of an investment in the Convertible Preferred
Securities and the Conversion Shares and is able to bear the economic risk of
such investment. The Investor acknowledges that none of the Convertible
Preferred Securities or the Conversion Shares have been registered under the
Securities Act and such securities may be sold or disposed of in the absence of
such registration only pursuant to an exemption from such registration and in
accordance with the terms of this Agreement.
5. Dispositions. The Investor shall not, directly or indirectly, sell,
assign, transfer, pledge, hypothecate or otherwise dispose of any interest in
any Convertible Preferred Securities or any Conversion Shares (a "Disposition"),
except as set forth in this Section 5.
(a) Dispositions may be made at any time and from time to time
following the Closing Time, to one or more wholly-owned subsidiaries of the
Investor, provided that each such subsidiary agrees in writing to be bound by
this Agreement to the same extent as the Investor.
(b) Dispositions may be made (i) following the second
anniversary of the Closing Time, in a bona fide public offering effected in
accordance with the provisions of the Registration Rights Agreement; and (ii)
following the earlier of the third anniversary of the Closing Time and the
occurrence of a "change of control" (as hereinafter defined), provided, however,
that Dispositions shall not be made pursuant to clauses (i) and (ii) of this
Section 5(b) to any person who, to the actual knowledge of the Investor (without
any duty of inquiry) in the case of Dispositions to be made pursuant to bona
fide open market "brokers transactions" as permitted pursuant to the provisions
of Rule 144 promulgated under the Securities Act and to the knowledge of the
Investor (after reasonable inquiry) in all other cases, is (x) a Significant
Competitor of the Company (as hereinafter defined), (y) a person that is or
theretofore had been engaged in any material litigation adverse to the Company
or any of its affiliates or (z) a person (other than any underwriter who is in
the business of underwriting securities and who, in the ordinary course of its
business as an underwriter, acquired Convertible Preferred Securities or
Conversion Shares in connection with a public offering with the bona fide
intention of reselling all of the securities so acquired pursuant to such public
offering) who, after acquiring such interest in Convertible Preferred Securities
or Common Stock, would beneficially own voting securities of the Company
representing more than 10% of the outstanding shares of voting securities of the
Company (assuming any Convertible Preferred Securities owned by such person were
converted into Common Stock); provided that any Disposition proposed to be made
by the Investor pursuant to this Section 5(b) shall be subject to the Company's
prior right of first refusal as set forth in Section 6 of this Agreement and, in
the case of Dispositions to be made pursuant to
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Section 5(b)(i) hereof, shall be subject to the additional purchase rights of
the Company set forth in Section 2.6(b) of the Registration Rights Agreement.
As used in this Section 5(b), "change of control" means the occurrence
of any of the following events.
(A) in any three-year period, a majority of the members of the
Board elected during such three-year period shall have been so elected against
the recommendation of the management of the Company or the Board in office
immediately prior to such election; or
(B) any Designated Person (as defined herein) or Persons
acting in concert shall, except as provided in clause (C) below, acquire
(whether by merger, consolidation, sale, assignment, lease, transfer or
otherwise, in one transaction or any related series of transactions) or
otherwise beneficially own a majority of the voting power of the outstanding
securities of the Company generally entitled to vote for the election of
directors ("Voting Securities"); or
(C) upon consummation of a consolidation or merger of the
party with another Designated Person in which the holders of the Voting
Securities of the Company immediately prior to such consolidation or merger
would not own Voting Securities representing at least a majority of the
outstanding voting power of such Designated Person or its ultimate parent upon
consummation of such consolidation or merger; or
(D) upon the sale, transfer or assignment (it being understood
that the pledge of, or the granting of a security interest in, assets of the
Company or its subsidiaries shall not be deemed a sale, transfer or assignment)
of all or substantially all of the assets of the Company to any person in a
single transaction or a series of related transactions; provided, however, that
a sale, transfer or assignment of all or substantially all of the assets of the
Company, to (x) the Principal Stockholders (as defined herein), or to (y) any
entity the holders of at least a majority of the Voting Securities of which (or
of such entity's ultimate parent) were holders of Voting Securities of the
Company immediately prior to such sale, transfer or assignment shall not
constitute a "change of control" hereunder; or
(E) at such time as the Principal Stockholders fail to
beneficially own, in the aggregate, at least 30% of the voting power of the
outstanding Voting Securities of the Company.
For purposes hereunder, "Designated Person" shall mean any person, corporation,
partnership or other entity other than Societe Industrielle de Materiaux Avances
("SIMA") and its affiliates and "Principal Stockholders" shall mean SIMA, LWH
Holdings S.A. and their respective affiliates. Reference to a "Significant
Competitor" of the Company means any person identified in writing to the
Investor (as provided below) that manufactures or sells high performance nickel
base alloys, cobalt base alloys, stainless steels or other similar based alloys
where annual sales of such alloys for such person's most recently completed
fiscal year exceeded $75 million (which term shall exclude Inco Limited and its
subsidiaries). The
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Company shall provide to the Investor prior to the date of this Agreement a
written list of such Significant Competitors (which list the Company may, by
notice to the Investor, amend or supplement at any time or from time to time),
which Significant Competitors shall conform to the provisions of the definition
of Significant Competitor contained herein. The Significant Competitors so
designated on such list shall constitute the Significant Competitors hereunder.
(c) Dispositions may be made pursuant to a bona fide pledge
not intended to circumvent the provisions of this Section 5 to one or more banks
or other lending institutions (or any agent on their behalf) (each a "Lender"),
provided that prior to any foreclosure upon or other acquisition by such Lender
of any Convertible Preferred Securities or Conversion Shares pledged to it such
Lender agrees in writing to be bound by the provisions of Sections 5(d) (to the
extent set forth therein) and 6 of this Agreement to the same extent as the
Investor. Upon any such foreclosure or other acquisition by a Lender of any
Convertible Preferred Securities or Conversion Shares pledged to it, such Lender
shall succeed to the rights and (to the extent set forth under Section 6 and
Section 5(d)) the obligations of the Investor hereunder and, following a
Disposition of such Convertible Preferred Securities or Conversion Shares by
such Lender, the subsequent transferee shall succeed to the same rights and
obligations hereunder as such Lender; provided, however, that if such Lender
makes a Disposition of such Convertible Preferred Securities or Conversion
Shares to the Investor, Timet or any of their affiliates, such transferees shall
agree in writing to be bound by the terms of this Agreement and the Registration
Rights Agreement to the same extent as the Investor hereunder.
(d) Notwithstanding any other provision of this Agreement, no
Disposition may be made pursuant to this Section 5 unless (i) the transfer
complies in all respects with the applicable provisions of this Agreement and
applicable federal and state securities laws, including, without limitation, the
Securities Act, (ii) except for Dispositions made pursuant to Section 5(b)(i) of
this Agreement, pursuant to foreclosures or other acquisitions by a Lender
pursuant to Section 5(c) of this Agreement or by a Lender's transferee (unless
such transferee is the Investor, Timet or any of their affiliates), or pursuant
to a brokers transaction under Rule 144 (other than Rule 144(k)) promulgated
under the Securities Act, the transferee agrees in writing to be bound by the
terms and conditions of this Agreement, to the extent applicable, and the
Registration Rights Agreement (whereupon such transferee shall be substituted
for, and shall enjoy the same rights and be subject to the same obligations, as
its predecessor hereunder except as contemplated below) and (iii) if requested
by the Company in its sole judgment, an opinion of counsel (reasonably
acceptable to the Company) to such transferring holder (or with respect to any
Disposition under Section 5(c) of this Agreement, an opinion of counsel
(reasonably acceptable to the Company) to such transferring holder or any
Lender) shall be supplied to the Company, at such transferring holder's expense,
to the effect that such transfer complies with applicable federal and state
securities laws. Any attempt to transfer any Convertible Preferred Securities or
any Conversion Shares hereunder in violation of this Agreement shall be null and
void ab initio and the Company shall not register such transfer.
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6. Right of First Refusal. Prior to any Disposition by the Investor
pursuant to Section 5(b), the Company shall have the right, exercisable in
accordance with this Section 6, to purchase all, but not less than all, of the
Convertible Preferred Securities or Conversion Shares intended to be subject to
such Disposition by the Investor.
(a) The Investor shall give notice (a "Transfer Notice") to
the Company of such intended Disposition, specifying the Convertible Preferred
Securities or Conversion Shares, as the case may be (the "Offered Securities"),
to be subject to a Disposition and the intended method of Disposition. The
Transfer Notice shall specify the cash price (the "First Offer Price") at or
above which the Investor intends to effect such Disposition and, in the case of
a privately negotiated Disposition, the terms of the bona fide third party offer
(a "Third Party Offer") to purchase such Offered Securities theretofore received
by the Investor and then remaining open (including the identity and address of
the offeror and the price offered).
(b) If the Company wishes to purchase the Offered Securities
specified in the Transfer Notice, then within thirty days following receipt of
the Transfer Notice, the Company shall deliver a written notice (an "Acceptance
Notice") to the Investor indicating that the Company wishes to purchase such
Offered Securities, a date for the closing of such purchase, which shall not be
more than ten business days after delivery of such Acceptance Notice (subject to
extension as provided in Section 6(f) hereof), and a place for the closing of
such purchase. Upon delivery of an Acceptance Notice, a binding agreement shall
be deemed to exist providing for the purchase by the Company of the Offered
Securities to which such Acceptance Notice relates, upon the terms and subject
to the conditions set forth in this Section 6 and the Company shall use its
reasonable best efforts to secure all approvals required in connection
therewith.
(c) The cash purchase price to be paid by the Company
hereunder for any Offered Securities (the "Designated Price") shall be
determined as set forth below.
(i) With respect to any Offered Securities for which
a First Offer Price or a Third Party Offer consisting solely of cash
and/or readily marketable securities is disclosed in the applicable
Transfer Notice, the Designated Price per share of such Offered
Securities shall equal the per share price specified in such First
Offer Price or Third Party Offer; provided, however, that, in the event
the Market Price (as defined in Section 6(c)(iii)) per share on the
last business day prior to the date the Acceptance Notice is delivered
is more than 10% greater than or is less than 10% lower than the per
share price specified by such First Offer Price or Third Party Offer,
then the price per share shall equal the Market Price per share on the
last business day prior to the date the Acceptance Notice is delivered.
The value of any readily marketable securities identified in such Third
Party Offer shall equal the average Market Price per share of such
securities during the ten consecutive trading days immediately
preceding the Company's receipt of the Transfer Notice. In the case of
any securities not theretofore traded, such securities must be issued
or proposed to be issued by an entity which has been subject to the
reporting requirements of the Exchange Act for at least one year, and
the value of such securities shall be
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determined by two nationally recognized investment banking firms, one
firm to be selected by each of the Investor and the Company, or in the
event such firms are unable to agree, by a third nationally recognized
investment banking firm selected by such firms. The Investor and the
Company shall use their reasonable best efforts to cause any such
determination of value to be made within five business days following
the Company's receipt of the applicable Transfer Notice. In connection
with any determination of value pursuant to this Section 6(c)(i), each
party will bear the fees and expenses of the investment banking firm
selected by it and the parties will bear equally the fees and expenses
of any third investment banking firm.
(ii) With respect to any Offered Securities for which
a Third Party Offer consisting of other than solely cash and/or readily
marketable securities is disclosed in the applicable Transfer Notice,
the Designated Price per share of such Offered Securities (which shall
refer, in the case of shares of Convertible Preferred Securities that
are Offered Securities, to the applicable number of Conversion Shares
issuable upon conversion of such Convertible Preferred Securities)
shall equal the average Market Price per share during the twenty
consecutive trading days immediately preceding the Company's receipt of
the Transfer Notice.
(iii) "Market Price" of any security on any trading
day shall mean (i) the closing price of such security on the principal
national securities exchange on which such security is 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 on
such day), or (ii) if the security is not listed on a national
securities exchange at the time, the sales price of such security as
reported on the NASDAQ National Market as of 4:00 p.m., New York time,
on such day (or, if there is no reported sales price of such security
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 such
security is not reported on the NASDAQ National Market at the time, the
average 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
security is not quoted on the NASDAQ System at the time, 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.
(d) At any closing pursuant to this Section 6, the Company
shall pay to the Investor (or its designees) the aggregate Designated Price for
the Offered Securities by wire transfer of immediately available funds, and the
Investor shall deliver or cause to be delivered to the Company such Offered
Securities, with documentation satisfactory to the Company evidencing the
transfer of such Offered Securities, in form acceptable for transfer on the
Company's books. The Company may assign its right to purchase the Offered
Securities pursuant to this Section 6 to an affiliate of the Company or an
unrelated third party, provided that such affiliate or other third party agrees
in writing to be bound by the provisions of this Section 6 to the same extent as
the Company, and provided further that the
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Company shall remain liable for the obligations of such affiliate or other third
party under this Section 6.
(e) If the Company does not exercise its right to purchase
Offered Securities specified in a Transfer Notice, then the party giving such
Transfer Notice shall be free to effect the Disposition of such Offered
Securities on terms no less favorable than those set forth in such Transfer
Notice, subject to any other requirements applicable to such Disposition
pursuant to Section 6(b) and (c) hereof and, in the case of a Disposition
pursuant to Section 6(b)(i), the additional purchase rights of the Company set
forth in Section 2.6(b) of the Registration Rights Agreement; provided, that any
such Disposition is completed within 180 days, in the case of a Disposition
pursuant to Section 6(b)(i), and 75 days, in the case of a Disposition pursuant
to Section 6(b)(ii), in each case following the expiration of the period in
which the Company had the right to elect to purchase such Offered Securities on
terms no less favorable than those set forth in such Transfer Notice. In the
event that such sale is not consummated within such 180 or 75-day period for any
reason, then the restrictions on transfers provided for herein shall again
become effective, and no transfer of such Offered Securities may be made
thereafter by the Investor without again offering the same to the Company in
accordance with this Section 6.
(f) The obligations of the parties to effect any closing
pursuant to this Section 6 shall be subject to the satisfaction of the following
conditions: (i) all requisite regulatory or third party approvals and consents
necessary to effect the purchase and sale of the Offered Securities shall have
been received and (ii) no statute, rule, regulation, executive order, decree,
ruling, injunction or other order shall have been enacted, entered, promulgated
or enforced by any court or governmental authority of competent jurisdiction
which prohibits such transaction or makes such transaction illegal. If, as of
any date on which a closing under this Section 6 is scheduled to occur, the
foregoing conditions relating thereto have not been satisfied, then such closing
shall occur as promptly as practicable following such satisfaction, and the
parties shall use their reasonable best efforts to cause the satisfaction of
such conditions; provided that if the foregoing conditions relating to any
closing hereunder are not satisfied within 60 days following delivery of the
applicable Acceptance Notice (or in the case of an order or injunction arising
out of any proceeding initiated by the Investor, such later date on which such
order or injunction becomes final and nonappealable), then the Investor or the
Company may terminate the agreement deemed to exist upon delivery of the
applicable Acceptance Notice; provided that no such termination shall excuse any
party for a breach of its obligations thereunder.
(g) Pursuant to Section 2.6(a) of the Registration Rights
Agreement, the sale of Registrable Securities by Selling Holders (as such terms
are defined in the Registration Rights Agreement), in addition to the Investor,
shall be subject to the Company's prior right of first refusal set forth in this
Section 6, and the additional purchase rights of the Company set forth in
Section 2.6(b) of the Registration Rights Agreement.
7. NASDAQ Quotation. As soon as practicable, but in any event prior to
the Initial Conversion Date, the Company shall take such action as is required
to cause the Conversion Shares into which the Convertible Preferred Securities
are convertible to be listed
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for trading on the NASDAQ National Market or such other exchange on which the
Company's securities are listed, as applicable.
8. Legend. The Investor agrees to the placement on certificates
representing Convertible Preferred Securities purchased by the Investor pursuant
hereto, of a legend substantially as set forth below (except that (i) the first
sentence of such legend shall not be placed on any Convertible Preferred
Securities or Conversion Shares that have been registered under the Securities
Act or if, in the opinion of counsel, such sentence is not required under the
Securities Act and (ii) the second sentence of such legend relating to
restrictions on transfer provided in this Agreement shall not be placed on any
Convertible Preferred Securities or Conversion Shares acquired by a transferee
pursuant to Section 5(b)(i) of this Agreement, 5(c) or pursuant to brokers
transactions under Rule 144 of the Securities Act), unless the Company
determines otherwise, in accordance with the opinion of counsel:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES OR NON-U.S. JURISDICTION AND MAY NOT BE OFFERED, SOLD, PLEDGED,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND ANY APPLICABLE SECURITIES LAWS OF SUCH OTHER STATE
OR NON-U.S. JURISDICTIONS. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO THE PROVISIONS (INCLUDING PROVISIONS THAT
RESTRICT THE TRANSFER OF SUCH SECURITIES) OF AN INVESTMENT AGREEMENT
DATED AS OF OCTOBER 28, 1998 BETWEEN SPECIAL METALS CORPORATION (THE
"COMPANY") AND INCO LIMITED, COPIES OF WHICH ARE ON FILE AT THE OFFICES
OF THE SECRETARY OF THE COMPANY. THE HOLDER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE AGREES THAT IT WILL COMPLY WITH THE
FOREGOING RESTRICTIONS."
9. Fees and Expenses. Each party shall bear its own expenses, including
the fees and expenses of counsel, accountants, financial or other advisors or
representatives engaged by it, incurred in connection with this Agreement and
the transactions contemplated hereby.
10. Survival. The representations and warranties and agreements
contained in or made pursuant to this Agreement shall survive without limitation
and the covenants and agreements contained in or made pursuant to this Agreement
which by their terms are to survive after the Closing Time shall survive for the
period specified therein, provided, that if a claim or notice is given with
respect to any representation, warranty, covenant or agreement prior to any such
expiration date, the claim with respect to such representation, warranty,
covenant or agreement shall continue in definitely until such claim is finally
resolved.
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11. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given, if delivered personally, by
telecopier or sent by first class mail, postage prepaid, as follows:
(a) If to the Company, to:
Special Metals Corporation
Middle Settlement Road
New Hartford, New York 13413
Attention: Robert F. Dropkin
Telecopier: (315) 798-2001
With a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: Robert B. Schumer
Telecopier: (212) 757-3990
(b) If to the Investor, to:
Inco Limited
145 King Street West, Suite 1500
Toronto, Ontario M5H 4B7, Canada
Attention: Stuart F. Feiner
Telecopier: (416) 361-7734
With a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Donald R. Crawshaw
Telecopier: (212) 558-3588
(c) If to any other holder of Convertible Preferred Securities
of the Company, addressed to such holder at the address of such holder in the
record books of the Company; or to such other address or addresses as shall be
designated in writing. All notices shall be effective when received.
12. Entire Agreement; Amendment. This Agreement and the documents
described herein or delivered pursuant hereto (including, without limitation,
the Registration Rights Agreement) set forth the entire agreement between the
parties hereto with respect to the matters provided herein and therein. Any
provision of this Agreement may be amended or modified in whole or in part at
any time by an agreement in writing among the parties hereto executed in the
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same manner as this Agreement; provided, however that the provisions set forth
in Sections 5(c), 5(d), 6 and 17 hereof may not, directly or indirectly, be
amended or modified without the prior written consent of each Lender affected
thereby.
13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to constitute an original, but all
of which together shall constitute one and the same instrument.
14. Governing Law. This Agreement shall be governed by, and construed,
in accordance with, the laws of the State of New York applicable to contracts
made and to be performed in that state.
15. Successors. Except as otherwise expressly provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
parties hereto and their respective successors.
16. Stockholder Vote. The Company shall, in accordance with applicable
law and the Company's Certificate of Incorporation and By-laws, (a) duly call,
give notice of and convene and hold a special meeting of its stockholders as
promptly as practicable following the Closing Time for the purpose of
considering and taking action on the Stockholder Conversion Vote and (b) subject
to the fiduciary obligations of the Board of the Company, include in the Proxy
Statement for such stockholders' meeting the recommendation of the Board that
the stockholders of the Company approve the Stockholder Conversion Vote and,
subject to such fiduciary duty, use all reasonable efforts to obtain such
approval. If a favorable vote of the Company's stockholders is not obtained (i)
within 120 days following the Closing Time, then the dividend rate on the
Convertible Preferred Securities shall increase automatically from and including
the 121st day following such Closing Time to, but not including, the date a
favorable vote of the Company's stockholders is obtained on the Stockholder
Conversion Vote by an additional increment of one-quarter of one percent (.25%)
per annum of the liquidation amount thereof and (ii) prior to the 270th day
following the Closing Time, the dividend rate on the Convertible Preferred
Securities shall increase automatically from and including such 270th day to,
but not including, the date a favorable vote of the Company's stockholders on
the Stockholder Conversion Vote is obtained by an additional increment (which
shall be in addition to the incremental increase provided in clause (i) of this
Section 16) of one-quarter of one percent (.25%) per annum (or one-half of one
percent (.50%) per annum when combined with the incremental increase set forth
in clause (i) of this Section 16) of the liquidation amount thereof, upon the
terms and conditions set forth in the Certificate of Designation.
17. Assignment. Except as otherwise expressly provided in Section 5 or
7 hereof, neither this Agreement nor any rights or obligations of the parties
hereunder shall be assignable; provided, however, the rights of the Investor
under this Agreement may be assigned to a wholly-owned subsidiary of the
Investor, without the consent of the Company, provided that the Investor shall
remain liable for the obligations of the assignee hereunder to the same extent
as the Investor; and provided, further, that the Investor and assignee may
assign its rights and obligations under this Agreement (as well as the
Registration Rights Agreement) to one or more Lenders or their transferees in
connection with a bona fide pledge or Disposition permitted by Section 5(c).
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18. Remedies; Waiver. To the extent permitted by law, all rights and
remedies existing under this Agreement and any related agreements or documents
are cumulative to, and are exclusive of, any rights or remedies otherwise
available under applicable law. No failure on the part of any party to exercise,
or delay in exercising, any right hereunder shall be deemed a waiver thereof,
nor shall any single or partial exercise preclude any further or other exercise
of such or any other right.
19. Specific Performance. Each party hereto acknowledges that, in view
of the uniqueness of the transactions contemplated by this Agreement, the other
party would not have an adequate remedy at law for money damages in the event
that this Agreement has not been performed in accordance with its terms. Each
party therefore agrees that the other party shall be entitled to specific
enforcement of the terms hereof in addition to any other remedy to which it may
be entitled, at law or in equity.
20. Severability. If any provision of this Agreement is determined to
be invalid, illegal, or unenforceable, the remaining provisions of this
Agreement shall remain in full force and effect provided that the economic and
legal substance of the transactions contemplated is not affected in any manner
materially adverse to any party. In the event of any such determination, the
parties agree to negotiate in good faith to modify this Agreement to fulfill as
closely as possible the original intent and purpose hereof. To the extent
permitted by law, the parties hereby to the same extent waive any provision of
law that renders any provision hereof prohibited or unenforceable in any
respect.
21. Business Day. For purposes of this Agreement, "business day" means
each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which
banking institutions in The City of New York, New York are authorized or
obligated by law, executive order or regulation to close.
22. Acknowledgment. The Investor hereby acknowledges that the Company
has advised the Investor that, at the Closing Time, the Company will issue under
the Certificate of Designation, sell and deliver to Timet 1,600,000 Convertible
Preferred Securities at a purchase price of $50.00 per Convertible Preferred
Security and for an aggregate purchase price of $80,000,000 pursuant to the
terms of the Timet Investment Agreement and the Investor has agreed to such
issuance to Timet.
23. Further Assurances. Each of the parties hereto agrees to use its
reasonable best efforts promptly to take or cause to be taken all action and
promptly to do or cause to be done all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
closing of the transactions contemplated by this Agreement.
15
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this Agreement and your acceptance shall represent a binding agreement between
the parties hereto.
Very truly yours,
SPECIAL METALS CORPORATION
By:___________________________
Name: Donald R. Muzyka
Title: President and Chief Executive Officer
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written:
INCO LIMITED
By:_____________________________
Name:
Title:
16
<PAGE>
SCHEDULE 3(B)
Name of Subsidiary: State of Incorporation
- ------------------- ----------------------
Udimet Special Metals Ltd. United Kingdom
Special Metals Foreign Sales Corporation Barbados
Special Metals Domestic Sales Corporation Delaware
<PAGE>
SCHEDULE 3(F)
Consent is required under the Credit Agreement, dated as of October 18,
1996, as amended, among the Company, the several lenders from time to time party
thereto and Credit Lyonnais New York Branch, as agent.
Stockholder approval is required for the issuance of the Conversion
Shares under NASDAQ rules.
Filing and waiting period are required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
<PAGE>
SCHEDULE 4(D)
Filing and waiting period are required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
CERTIFICATE OF DESIGNATIONS
6.625 % SERIES A SENIOR CONVERTIBLE PREFERRED STOCK
(Liquidation Amount $50.00 Per Share)
of
SPECIAL METALS CORPORATION
- --------------------------------------------------------------------------------
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
- --------------------------------------------------------------------------------
Special Metals Corporation, a Delaware corporation (hereinafter called
the "Company"), pursuant to Section 151 of the General Corporation Law of the
State of Delaware (the "GCL") does hereby make this Certificate of Designations
and does hereby state and certify that, pursuant to the authority expressly
vested in the Board of Directors of the Company (the Board of Directors") by the
Amended and Restated Certificate of Incorporation of the Company (the
"Certificate of Incorporation"), the following resolution has been duly adopted:
RESOLVED, that pursuant to Articles 4 and 5 of the Certificate of
Incorporation (which authorize 10,000,000 shares of preferred stock, $0.01 par
value), the designations, powers and preferences, and the relative
participating, optional and other special rights, and the qualifications,
limitations and restrictions thereof, of a series of preferred stock are fixed
as stated herein.
Section 1. Designation; Rank. This series of preferred stock shall be
designated "Series A Senior Convertible Preferred Stock" (the "Convertible
Preferred"). Each share of Convertible Preferred shall be identical in all
respects with all other shares of Convertible Preferred. The Convertible
Preferred will rank, with respect to dividend rights and rights upon
liquidation, winding up and dissolution, senior to the Common Stock, par value
$0.01 per share (the "Common Stock"), of the Company and each other class of
capital stock or series of preferred stock established after the original
issuance of the Convertible Preferred by the Board of Directors which, by the
terms of the Certificate of Incorporation or of the instrument by which the
Board of Directors, acting pursuant to authority granted in the Certificate of
Incorporation, shall fix the relative rights, preferences and limitations
thereof, shall be junior to the Convertible Preferred in respect of dividend
rights and rights upon liquidation, winding up and dissolution (collectively
referred to with the Common Stock of the Company as "Junior Securities") and
pari passu with each other class of capital stock or series of preferred stock
established after the original issuance of the Convertible Preferred by the
Board of Directors which, by the terms of the Certificate of Incorporation or of
the instrument by which the Board of Directors, acting pursuant to authority
granted in
<PAGE>
the Certificate of Incorporation, shall, subject to Section 6(c), fix the
relative rights, preferences and limitations thereof, shall be entitled to share
ratably with the Convertible Preferred in respect of dividend rights and rights
under liquidation, winding up and dissolution (collectively referred to as
"Parity Securities"). Certain other capitalized terms used herein are defined in
Section 11.
Section 2. Authorized Number. The number of shares constituting the
Convertible Preferred shall be 1,940,000 shares.
Section 3. Dividends.
(a) General Obligation. Holders of shares of the Convertible
Preferred, in preference to holders of Junior Securities, shall be entitled to
receive, and the Company shall pay, when and as declared by the Board of
Directors and to the extent permitted under the GCL, cash dividends at a rate of
6.625% per annum (subject to adjustment as set forth herein) of the Liquidation
Amount of each share of Convertible Preferred, plus all accumulated and unpaid
dividends on such share (such dividends on accumulated and unpaid dividends
sometimes referred to herein as "additional dividends"), from and including the
date of original issuance of such share of Convertible Preferred to but not
including the date on which the Liquidation Amount of such share (plus all
accumulated and unpaid dividends on such share) is paid or the date on which
such share is converted into shares of Common Stock; provided, however, that
additional dividends shall cease to accrue on all shares of the Convertible
Preferred on the date of the consummation of a public offering of any shares
pursuant to an effective registration statement under the Securities Act. Such
dividends shall accumulate whether or not they have been declared and whether or
not there are profits, surplus or other property of the Company legally
available for the payment of dividends. The date on which the Company initially
issues shares of Convertible Preferred shall be the "date of original issuance"
regardless of the number of times transfer of such shares is made on the stock
register of the Company and regardless of the number of certificates which may
be issued to evidence such shares.
(b) Dividend Payment Dates. Dividends on the Convertible
Preferred will be payable quarterly (subject to deferral as set forth herein) in
arrears on January 28, April 28, July 28 and October 28 of each year (each a
"Dividend Payment Date") as fixed by the Board of Directors, commencing January
28, 1999, to holders of record thereof as they appear on the stock register of
the Company on the regular record date for such dividends, which shall be on
January 15, April 15, July 15 and October 15 prior to the next succeeding
Dividend Payment Date, as fixed by the Board of Directors. The amount of
dividends payable for any period will be computed for any full quarterly
dividend period on the basis of a 360-day year of twelve 30-day months and, for
any period shorter than a full quarterly dividend period for which dividends are
computed, dividends will be computed on the basis of the actual number of days
elapsed. If any date on which dividends are payable on the Convertible Preferred
is not a Business Day, then payment of the dividend payable on such date will be
made on the next succeeding day that is a Business Day (and without any
interest, additional dividend or other payment in respect of any such delay),
except that, if such Business Day is in the next succeeding calendar year, such
payment shall
2
<PAGE>
be made on the immediately preceding Business Day, in each case with the same
force and effect as if made on such date.
(c) Deferral of Dividends. The Company shall have the right at
any time to defer payment of accumulated dividends on the Convertible Preferred
(an "Extension Period"), during which Extension Period the Company shall have
the right to make partial payments of dividends on any Dividend Payment Date,
and at the end of which the Company shall pay all dividends then accumulated and
unpaid, including additional dividends, provided, however, that during any
Extension Period, the Company shall not declare or pay any dividends on, or make
a distribution with respect to, or redeem, or purchase or acquire, or make a
liquidation payment with respect to, any Junior Securities or Parity Securities,
other than (i) dividends or distributions in shares of, or options, warrants or
rights to subscribe for or purchase shares of Junior Securities, (ii) any
declaration of a dividend in connection with the implementation of a rights plan
or the issuance of stock under any such rights plan in the future, or the
redemption or repurchase of any rights distributed pursuant to a rights plan,
(iii) purchases of Common Stock related to the issuance of Common Stock or
rights or options under any of the Company's benefit plans for its directors,
officers, employees or other persons within the definition of "employee" for
purposes of a registration of shares for an employee benefit plan of the Company
or related to the issuance of Common Stock or rights under a dividend
reinvestment or stock purchase plan, up to an aggregate amount not to exceed $3
million, (iv) purchases of Common Stock as consideration in an acquisition
transaction that was entered into prior to the commencement of such Extension
Period, (v) as a result of a reclassification of the Company's capital stock or
the exchange or conversion of one class or series of the Company's capital stock
for another class or series of the Company's capital stock and (vi) the purchase
of fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock being converted or
exchanged. Dividends, as well as additional dividends on any accumulated and
unpaid dividends, will accrue during the Extension Period at the rate of 6.625%
per annum, subject to adjustment as provided in Sections 3(d) and 9(b)(ii). In
addition, in the event the Company elects to defer payment of accumulated
dividends on the Convertible Preferred for more than six quarterly dividend
periods, then the maximum authorized number of directors of the Company will be
increased and the holders of Convertible Preferred shall be entitled to elect
additional directors to the Company's Board of Directors in accordance with
Section 9(b)(iii).
The Company shall use its reasonable best efforts to give holders of
shares of Convertible Preferred notice of its election to begin any Extension
Period (or extension thereof) at least fifteen days prior to the earlier of (i)
the next succeeding Dividend Payment Date on which dividends on the Convertible
Preferred would be payable but for such deferral and (ii) the date the Company
is required to give notice to any securities exchange or other applicable
self-regulatory organization or to holders of shares of Convertible Preferred of
the record date or the date such dividends are payable.
Dividends on the Convertible Preferred shall be payable at the office
or agency of the Company in the United States maintained for such purpose and at
any other office or agency maintained by the Company for such purpose in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private
3
<PAGE>
debts; provided, however, that at the option of the Company, payment of
dividends may be made by check mailed to the address of the holder entitled
thereto as such address shall appear in the stock register of the Company or by
wire transfer or direct deposit in immediately available funds at such place and
to such account as may be designated in writing by the relevant regular record
date by the holder entitled thereto as specified in the stock register.
(d) Additional Dividend Rate Adjustments. The rate at which
dividends on the Convertible Preferred accrues is subject to adjustment in the
event the Stockholder Conversion Vote has not been obtained within the time
period provided in the immediately succeeding sentence. If a favorable vote of
the Company's stockholders with respect to the Stockholder Conversion Vote is
not obtained (i) within 120 days following the closing time under the Investment
Agreements (the "Closing Time"), then the dividend rate on the Convertible
Preferred shall increase automatically from and including the 121st day
following such Closing Time to, but not including, the date a favorable vote of
the Company's stockholders with respect to the Stockholder Conversion Vote is
obtained by an additional increment of one-quarter of one percent (.25%) per
annum of the Liquidation Amount and (ii) prior to the 270th day following the
Closing Time, the dividend rate on the Convertible Preferred shall increase
automatically from and including such 270th day to, but not including, the date
a favorable vote of the Company's stockholders with respect to the Stockholder
Conversion Vote is obtained by an additional increment (which shall be in
addition to the incremental increase provided in clause (i) of this subsection
(d)) of one-quarter of one percent (.25%) per annum of the Liquidation Amount
(or one-half of one percent (.50%) per annum of the Liquidation Amount when
combined with the incremental increase set forth in clause (i) of this
subsection (d)).
Section 4. Liquidation Rights. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company, before any
payment or distribution of assets is made on any Junior Securities, including,
without limitation, the Common Stock of the Company, but after payment or
provision for payment of the Company's debts and other liabilities to creditors,
the then holders of the Convertible Preferred shall be entitled to receive an
amount in cash equal to the aggregate of the stated Liquidation Amount of $50.00
per share and all accumulated and unpaid dividends (including any additional
dividends), whether or not declared, through the date of distribution. After
payment of any such aggregate Liquidation Amount and accumulated dividends
(including any additional dividends), the shares of Convertible Preferred will
not be entitled to any further participation in any distribution of assets by
the Company. If, upon such a voluntary or involuntary liquidation, dissolution
or winding up of the Company, the assets of the Company are insufficient to
permit payment in full to such holders of (a) the aggregate Liquidation Amount,
then the entire assets to be distributed will be distributed ratably among such
holders based upon the aggregate Liquidation Amount held by each such holder and
proportionate distributive amounts shall be paid on account of principal or
liquidation amounts of outstanding shares of Parity Securities, if any, ratably,
in proportion to the full distributable amounts to which such holders of Parity
Securities are entitled upon such liquidation, dissolution or winding up, or (b)
the aggregate accumulated and unpaid dividends on all shares of Convertible
Preferred outstanding, then any assets remaining to be distributed will be
distributed ratably among such holders based upon the aggregate
4
<PAGE>
accumulated and unpaid dividends owed to each such holder and proportionate
distributive amounts shall be paid on account of unpaid dividends or interest on
outstanding shares of Parity Securities, if any, ratably, in proportion to the
full distributable amounts to which such holders of Parity Securities are
entitled upon such liquidation, dissolution or winding up. The Company shall
mail written notice of such liquidation, dissolution or winding up not less than
30 days nor more than 60 days prior to the distribution date stated therein, to
each record holder of shares of Convertible Preferred. Such notice shall
describe in reasonable detail the definitive terms and date of consummation of
such liquidation, dissolution or winding up.
Section 5. Redemption.
(a) Option of Company. Shares of the Convertible Preferred may
not be redeemed by the Company on or prior to October 28, 2001. After October
28, 2001, the Company, at its option, may redeem the shares of Convertible
Preferred, in whole or in part, out of funds legally available therefor, at any
time or from time to time, at the following redemption prices (expressed as a
percentage of the Liquidation Amount of each share to be redeemed), plus, in
each case, accrued and unpaid dividends (including additional dividends), if
any, up to but excluding the date fixed for redemption (the "Redemption Date"),
whether or not declared (the "Redemption Price"), if redeemed during the
12-month period beginning October 28 (or April 28 if redeemed in 2006):
Year Redemption Price
---- ----------------
2001 103.975%
2002 103.092%
2003 102.208%
2004 101.325%
2005 100.442%
2006 or thereafter 100.000%
Notwithstanding the foregoing, the Company may not redeem any
Convertible Preferred pursuant to this Section 5(a), unless all dividends
(including additional dividends) accumulated on all of the outstanding
Convertible Preferred through the immediately preceding Dividend Payment Date
have been paid in full.
(b) Mandatory Redemption. The Company shall redeem all then
outstanding shares of Convertible Preferred in whole on April 28, 2006, at a
Redemption Price per share equal to 100% of the Liquidation Amount thereof,
plus, without duplication, all accrued and unpaid dividends (including
additional dividends), if any, thereon to the Redemption Date.
(c) Redemption Procedures. In the event the Company shall
redeem shares of Convertible Preferred, notice of such redemption shall be given
by first-class mail, postage prepaid, not less than 30 days nor more than 60
days prior to the Redemption Date, to each holder of record of the shares of
Convertible Preferred to be redeemed, at such holder's address as the same
appears in the stock register of the Company. Each such notice
5
<PAGE>
shall state (i) the Redemption Date, (ii) the number of shares of Convertible
Preferred to be redeemed and, if less than all the shares held by such holder is
to be redeemed, the number of such shares to be redeemed from such holder, (iii)
the applicable Redemption Price, (iv) the place or places where certificates for
such shares of Convertible Preferred are to be surrendered for payment of the
Redemption Price, (v) the then current Conversion Price (as defined in Section 7
hereof) and (vi) that dividends on the shares of Convertible Preferred to be
redeemed shall cease to accrue on such Redemption Date. In order to facilitate
the redemption of the Convertible Preferred, the Board of Directors may fix a
record date for determination of holders of shares of Convertible Preferred to
be redeemed, which shall not be less than 30 days nor more than 60 days prior to
the Redemption Date with respect thereto.
If a notice of redemption of Convertible Preferred has been given in
accordance with Section 5(c) above and funds necessary for the redemption shall
be available therefor, and shall have been irrevocably deposited or set aside,
then, unless the Company shall have exercised its rescission rights as set forth
below, notwithstanding that the certificates evidencing any shares of
Convertible Preferred so called for redemption shall not have been surrendered
(unless the Company defaults in making payment of the Redemption Price or
exercises its rescission rights), the dividends with respect to the shares so
called for redemption shall cease to accrue after the Redemption Date, such
shares shall no longer be deemed outstanding, all rights of the holders of such
shares as stockholders of the Company shall cease, and all rights whatsoever
with respect to the shares so called for redemption (except the right of the
holders to receive the Redemption Price without interest upon surrender of their
certificates therefor and except with respect to the right of such holders to
convert their Convertible Preferred as set forth in Section 5(d) below) shall
terminate either (i) from and after the Redemption Date or (ii) if the Company
shall so elect and state in the notice of redemption, from and after the time
and date (which date shall be the Redemption Date or an earlier date not less
than 15 days after the date of mailing of the notice of redemption) on which the
Company shall irrevocably deposit with a designated bank or trust company as
paying agent money sufficient to pay at the office of such paying agent, on the
Redemption Date, the Redemption Price. Upon surrender in accordance with said
notice of the certificates for any such shares of Convertible Preferred so
redeemed (properly endorsed or assigned for transfer, if the Board of Directors
shall so require and the notice shall so state), such shares shall be redeemed
by the Company at the applicable Redemption Price. If any date fixed for
redemption of shares of Convertible Preferred is not a Business Day, then
payment of the amount payable on such date will be made on the next succeeding
day that is a Business Day (without any interest or other payment in respect of
any such delay) except that, if such Business Day falls in the next calendar
year, such payment will be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on such date fixed for
redemption.
If fewer than all of the outstanding shares of Convertible Preferred
are to be redeemed, the shares to be redeemed shall be redeemed pro rata from
each holder of Convertible Preferred Shares. If fewer than all the shares of
Convertible Preferred represented by any certificate are redeemed, a new
certificate (which shall be no less than the minimum Liquidation Amount of $50)
shall be issued representing the unredeemed shares
6
<PAGE>
without cost to the holder thereof, together with the amount of cash, if any, in
lieu of fractional shares.
If the funds of the Company legally available for redemption of shares
of Convertible Preferred on any Redemption Date are insufficient to redeem the
total number of shares to be redeemed on such date, those funds which are
legally available shall be used to redeem the maximum possible number of shares
of Convertible Preferred ratably among the holders of the shares to be redeemed
based upon the aggregate Liquidation Amount of such shares (plus all accrued and
unpaid dividends and any applicable premium on such shares) held by each such
holder. At any time thereafter when additional funds of the Company are legally
available for the redemption of shares of Convertible Preferred, such funds
shall immediately be used to redeem the balance of the shares of Convertible
Preferred which the Company has become obligated to redeem on any Redemption
Date but which it has not redeemed. Notwithstanding the foregoing, the Company
shall not be obligated to redeem shares of Convertible Preferred on any
Redemption Date, if, and for so long as, a material Bank Event of Default has
occurred and is continuing or a Bank Event of Default would occur as a result
thereof. In such event, the Company will act in good faith and use its
reasonable best efforts to cure any Bank Event of Default or obtain a waiver
thereof by or the consent of its lenders to enable the Company to redeem shares
of Convertible Preferred that it has become obligated to redeem on any
Redemption Date in accordance with the provisions of this Section 5. The
obligation of the Company to redeem shares of the Convertible Preferred shall be
automatically suspended and deferred, without any limitation as to time and
without any other consequence whatsoever (except that the right of the holders
of Convertible Preferred to seek specific enforcement of the provisions of the
preceding sentence shall not be suspended or deferred or otherwise abated or
impaired) until the date of the earliest to occur of (x) such Bank Event of
Default is cured, (y) such consent or waiver is granted by the lenders under the
Credit Agreement, or (z) all indebtedness outstanding under such Credit
Agreement is retired and repaid in full and in cash. Dividends (including
additional dividends) shall continue to accrue on all shares of Convertible
Preferred which the Company would be obligated to redeem, but for the provisions
of this paragraph, until such shares have been redeemed in full in cash as
provided herein.
Subject to applicable escheat laws, any moneys so set aside by the
Company and unclaimed at the end of one year from the Redemption Date shall
revert to the general funds of the Company, after which reversion the holders of
such shares so called for redemption shall only look to the general funds of the
Company for the payment of the Redemption Price without interest. Any interest
accrued on funds so deposited shall be paid to the Company from time to time.
In the event that a Redemption Rescission Event shall occur following
any day on which a notice of redemption pursuant to Section 5(a) shall have been
given pursuant to this Section but at or prior to the earlier of (a) the
Redemption Date as set forth in such notice of redemption and (b) the time and
date at which the Company shall have irrevocably deposited funds with a
designated bank or trust company pursuant to this Section, the Company may, at
its sole option, at any time prior to the earliest of (i) the close of business
(New York City time) on that day which is two (2) Trading Days following such
Redemption Rescission Event, (ii) the Redemption Date as set forth in such
notice and (iii) the time and
7
<PAGE>
date on which the Company shall have irrevocably deposited such funds with a
designated bank or trust company, rescind the redemption to which such notice of
redemption shall have related by making a public announcement of such rescission
(the date on which such public announcement shall have been made being
hereinafter referred to as the "Rescission Date"). The Company shall be deemed
to have made such announcement if it shall issue a release to the Dow Jones News
Service, Reuters Information Services or any successor news wire service. From
and after the making of such announcement, the Company shall have no obligation
to redeem shares of Convertible Preferred called for redemption pursuant to such
notice of redemption or to pay the Redemption Price therefor and all rights of
holders of shares of Convertible Preferred shall be restored as if such notice
of redemption had not been given. The Company shall give notice of any such
rescission by first-class mail, postage prepaid, mailed as promptly as
practicable, but in no event later than the close of business (New York City
time) on that date which is five (5) Trading Days following the Rescission Date
to each record holder of shares of Convertible Preferred at the close of
business (New York City time) on the Rescission Date and to any other person or
entity that was a record holder of shares of Convertible Preferred and that
shall have surrendered shares of Convertible Preferred for conversion following
the giving of notice of the subsequently rescinded redemption. Each notice of
rescission shall (w) state that the redemption described in the notice of
redemption has been rescinded, (x) state that any holder converting shares shall
be entitled to rescind the conversion of shares of Convertible Preferred
surrendered for conversion following the day on which notice of redemption was
given but on or prior to the date of the mailing of the Company's notice of
rescission, (y) be accompanied by a form prescribed by the Company to be used by
any converting holder rescinding the conversion of shares so surrendered for
conversion (and instructions for the completion and delivery of such form,
including instructions with respect to payments that may be required to
accompany such delivery) and (z) state that such form must be properly completed
and received by the Company no later than the close of business (New York City
time) on a date that shall be fifteen (15) Trading Days following the date of
the mailing of such notice of rescission.
(d) Right to Convert Shares. Notwithstanding the foregoing, if
notice of redemption has been given pursuant to subsection (c) and any holder of
shares of Convertible Preferred shall, prior to the close of business (New York
City time) on the Business Day immediately preceding the Redemption Date, give
written notice to the Company pursuant to Section 7(d) hereof of the conversion
of any or all of the shares to be redeemed held by such holder (accompanied by a
certificate or certificates for such shares, duly endorsed or assigned to the
Company), which notice has not been rescinded as set forth in Section 5(c)
above, then (i) the Company shall not have the right to redeem such shares, (ii)
the conversion of such shares to be redeemed shall become effective as provided
in Section 7, and (iii) any funds that shall have been deposited for the payment
of the Redemption Price for such shares shall be returned to the Company
immediately after such conversion (subject to declared dividends payable to
holders of shares of Convertible Preferred on the dividend payment record date
for such dividends being so payable, to the extent set forth in Section 7
hereof, regardless of whether such shares are converted subsequent to such
dividend payment record date and prior to the related Dividend Payment Date);
provided, however, that shares of Convertible Preferred called for redemption
will not be convertible after the close of business (New York City time) on the
Business Day
8
<PAGE>
immediately preceding the Redemption Date, unless the Company defaults in the
payment of the Redemption Price.
Section 6. Voting Rights.
(a) Required by Law or Charter. Except as otherwise provided
herein, in the Certificate of Incorporation or as may be required by law, the
holders of shares of Convertible Preferred will have no voting rights.
(b) Amendment of Convertible Preferred. The vote or consent of
the holders of at least a majority in aggregate Liquidation Amount of the
outstanding shares of Convertible Preferred, voting as a class, will be required
to authorize an amendment to the terms of the Convertible Preferred, whether or
not such holders are entitled to vote thereon by the Certificate of
Incorporation; provided, however, that the vote or consent of the holders of at
least 90% in aggregate Liquidation Amount of the outstanding shares of
Convertible Preferred, voting as a class, will be required to amend the
provisions governing the payment of dividends on, or the conversion into Common
Stock of, the shares of such class.
(c) Issuance of Senior or Parity Securities. So long as any
shares of Convertible Preferred are outstanding, the vote or consent of the
holders of at least two-thirds in aggregate Liquidation Amount of the
outstanding shares of Convertible Preferred shall be necessary to issue,
authorize or increase the authorized amount of, or issue or authorize or
increase any obligation or security convertible into or evidencing a right to
purchase, any additional class or series of equity securities ranking senior to
the Convertible Preferred as to dividend rights and rights on liquidation,
winding up and dissolution ("Senior Securities") or reclassify any Junior
Securities or Parity Securities as Senior Securities. Furthermore, the vote or
consent of the holders of a majority in aggregate Liquidation Amount of the
outstanding shares of Convertible Preferred shall be necessary to issue,
authorize or increase the authorized amount of, or issue or authorize or
increase any obligation or security convertible into or evidencing a right to
purchase, any Parity Securities or reclassify any Junior Securities as Parity
Securities. However, the Company may create any additional classes of Junior
Securities, increase the amount of any indebtedness or the authorized number of
shares of any Junior Security or issue any indebtedness or any Junior Securities
without the consent of any holder of the Convertible Preferred. No such vote or
consent of the holders of the Convertible Preferred is required if, at or prior
to the time when the issuance of any such Senior Securities or Parity Securities
or reclassification of any such Junior Securities or Parity Securities as Senior
Securities or reclassification of such Junior Securities as Parity Securities,
as the case may be, is to be made or any such change is to take effect, as the
case may be, provision is made for the redemption of all of the Convertible
Preferred at the time outstanding pursuant to the terms of the Convertible
Preferred.
Section 7. Conversion.
(a) Right To Convert. The holders of Convertible Preferred
shares shall have the right at any time following the Initial Conversion Date
and prior to the close
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<PAGE>
of business (New York City time) on the Business Day immediately preceding the
date of repayment of such Convertible Preferred shares, whether at maturity or
upon redemption (unless the Company defaults in the payment of the Redemption
Price), at their option, to convert shares of Convertible Preferred (having a
Liquidation Amount of $50.00 or any multiple thereof and provided the
non-converted portion of the aggregate Liquidation Amount of Convertible
Preferred held by such holder shall be in denominations of $50.00 or any
integral multiple thereof) into shares of Common Stock of the Company in the
manner described herein on and subject to the following terms and conditions.
The term "Initial Conversion Date" shall mean the later of (i) 90 days following
the date of original issuance of the Convertible Preferred shares, (ii) the date
on which the Stockholder Conversion Vote is obtained, and (iii) the date upon
which any applicable waiting period under the Hart-Scott- Rodino Antitrust
Improvements Act of 1976, as amended, has expired or been terminated.
(b) Conversion Price. Shares of Convertible Preferred will be
convertible into such number of fully paid and nonassessable whole shares of
Common Stock of the Company as is equal to the aggregate Liquidation Amount of
such shares of Convertible Preferred surrendered for conversion divided by the
initial conversion price of $16.50 per share of Common Stock subject to certain
adjustments set forth in Section 7(g) below (as so adjusted, the "Conversion
Price").
(c) Accumulated Dividends. In the case of any share of
Convertible Preferred that is converted after any record date with respect to
the payment of a dividend on the Convertible Preferred and on or prior to the
Dividend Payment Date with respect to such dividend, the dividend due on such
Dividend Payment Date shall be payable to the holder of record of such share of
Convertible Preferred as of such record date, notwithstanding such conversion,
on or prior to the Dividend Payment Date or the default by the Company in the
payment of the dividends due on such Dividend Payment Date. Shares of
Convertible Preferred surrendered for conversion during the period from the
close of business (New York City time) on any record date with respect to the
payment of a dividend on the Convertible Preferred to the opening of business
(New York City time) on the Dividend Payment Date with respect to such dividend
shall be accompanied by payment in immediately available funds or other funds
acceptable to the Company of an amount equal to the dividend payable on such
Dividend Payment Date on the shares of Convertible Preferred being surrendered
for conversion. If shares of Convertible Preferred are converted during an
Extension Period and the Company is unable to pay any portion of the accumulated
dividends on such Convertible Preferred being converted, at the converting
holder's option (i) such unpaid dividends may be converted into an additional
number of shares of Common Stock determined by dividing the amount of the unpaid
dividends to be applied for such purpose by the Conversion Price then in effect,
or (ii) the Company shall pay such dividends to the converting holder at the end
of such Extension Period or such earlier date as funds of the Company are
legally available for such payment, and in each case the Company shall provide
such holder with written evidence of its obligation to such holder.
(d) Conversion Procedures. Before any holder of Convertible
Preferred shall be entitled to convert the same into shares of Common Stock and
to receive certificates therefor, such holder shall surrender the certificate or
certificates for the Convertible Preferred to be converted, duly endorsed and
accompanied by any transfer instrument as
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reasonably requested by the Company to transfer the Convertible Preferred being
converted, to the Company free of any adverse interest, at the office of the
Transfer Agent for the Convertible Preferred, and shall give written notice of
conversion to the Company at such office specifying the aggregate Liquidation
Amount of shares of Convertible Preferred to be converted (which aggregate
Liquidation Amount shall be equal to $50.00 or any integral multiples thereof,
and provided that the non-converted portion of the aggregate Liquidation Amount
of any Convertible Preferred shares shall be in denominations of $50.00 or any
integral multiple thereof) and the name or names, if other than the holder, in
which such holder wishes the certificate or certificates of Common Stock to be
issued. The Company shall as promptly as practicable (but not later than fifteen
days) after such delivery, deliver to the converting holder (or to any other
person specified in the notice delivered by such holder) (i) a certificate or
certificates representing the number of shares of Common Stock to which such
holder shall be entitled as aforesaid, (ii) if applicable, payment in cash of an
amount equal to all accumulated and unpaid dividends (including additional
dividends) with respect to each share of Convertible Preferred converted plus
any amounts payable as the result of a conversion into fractional shares of
Common Stock (which cash amount shall be based on the last reported sale price
of the Common Stock on the conversion date) and (iii) a certificate or
certificates for the number of shares of Convertible Preferred represented by
such surrendered certificate that are not being converted. Such conversion shall
be deemed to have been effected immediately prior to the close of business (New
York City time) on the date on which the Company receives notice and the shares
of Convertible Preferred to be converted, and the Person or Persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on such date of conversion, unless the stock register of the
Company shall be closed on that date, in which event such conversion shall be
deemed to have been effected immediately prior to the close of business (New
York City time) on the next succeeding day on which such stock register is open,
and such Person or Persons shall be deemed to have become a holder or holders of
record of Common Stock at the close of business (New York City time) on such
later date, but such conversion shall be at the Conversion Price in effect on
the date upon which such shares shall have been surrendered and such notice
received by the Company. Notwithstanding the foregoing, the Company shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon such conversion unless the certificates evidencing the Convertible
Preferred are either delivered to the Company or the Transfer Agent for the
Convertible Preferred or the Company or the Transfer Agent for the Convertible
Preferred shall have received evidence satisfactory to it evidencing that such
certificates have been lost, stolen or destroyed and the holder of such
Convertible Preferred executes an agreement satisfactory to the Company to
indemnify the Company from any loss incurred by it in connection with such
certificates.
(e) Payment of Taxes. The Company will pay any and all
documentary stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Common Stock upon conversions of shares of
Convertible Preferred pursuant hereto; provided, however, that the Company shall
not be required to pay any tax that may be payable in respect of any transfer
involved in the issue or delivery of shares of Common Stock in a name other than
that of the holder of the shares of Convertible Preferred to be converted, and
no such issue or delivery shall be made unless and until the person
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requesting such issue or delivery has paid to the Company the amount of any such
tax or has established, to the satisfaction of the Company, that such tax has
been paid.
(f) Reservation and Issuance of Shares. The Company shall at
all times reserve and keep available out of its authorized and unissued Common
Stock, solely for issuance upon the conversion of the Convertible Preferred,
free from any preemptive or other similar rights, such number of shares of
Common Stock as shall from time to time be issuable upon the conversion of all
the Convertible Preferred shares then outstanding. Notwithstanding the
foregoing, the Company shall be entitled to deliver upon conversion of shares of
Convertible Preferred, shares of Common Stock reacquired and held in the
treasury of the Company (in lieu of the issuance of authorized and unissued
shares of Common Stock), so long as any such treasury shares are free and clear
of all liens, charges, security interests or encumbrances. Any shares of Common
Stock issued upon conversion of the Convertible Preferred shall be duly
authorized, validly issued, fully paid and nonassessable. The shares of Common
Stock received by converting holders upon conversion of their shares of
Convertible Preferred shall be free and clear of all liens, charges, security
interests and encumbrances, except for United States withholding taxes. The
Company shall prepare and shall use its best efforts to obtain and keep in force
such governmental or regulatory permits or other authorizations as may be
required by law, and shall comply with all applicable requirements as to
registration or qualification of the Common Stock (and all requirements to list
the Common Stock issuable upon conversion of Convertible Preferred that are at
the time applicable), in order to enable the Company to lawfully issue and
deliver Common Stock to each holder.
(g) Conversion Price Adjustments. The Conversion Price shall
be subject to adjustment (without duplication) from time to time as follows:
(i) In case the Company shall, while any shares of
Convertible Preferred are outstanding, (i) pay a dividend or make a
distribution with respect to any class of capital stock of the Company
in shares of Common Stock, (ii) subdivide its outstanding shares of
Common Stock, (iii) combine its outstanding shares of Common Stock into
a smaller number of shares or (iv) issue by reclassification of its
shares of Common Stock any shares of capital stock of the Company, the
Conversion Price in effect immediately prior to such action shall be
proportionately adjusted so that the holder of any shares of
Convertible Preferred thereafter surrendered for conversion shall be
entitled to receive, upon payment of the same aggregate amount as would
have been payable before such date, the number and kind of shares of
capital stock of the Company which such holder would have owned
immediately following such action had such Convertible Preferred shares
been converted immediately prior thereto. An adjustment made pursuant
to this Section 7(g)(i) shall become effective immediately after the
record date in the case of a dividend or other distribution and shall
become effective immediately after the effective date in case of a
subdivision, combination or reclassification (or immediately after the
record date if a record date shall have been established for such
event). If a dividend, distribution, subdivision, combination or
reclassification is declared and such dividend or distribution is not
paid or made or such subdivision, combination or reclassification is
not consummated, the Conversion Price shall again be adjusted to be the
Conversion
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Price in effect immediately prior to such record date or effective
date, as the case may be. If, as a result of an adjustment made
pursuant to this Section 7(g)(i), the holder of any share of
Convertible Preferred thereafter surrendered for conversion shall
become entitled to receive shares of two or more classes or series of
capital stock of the Company, the Board of Directors (whose
determination shall be conclusive and shall be described in a
resolution duly adopted by the Board of Directors) shall determine the
allocation of the adjusted Conversion Price between or among shares of
such classes or series of capital stock.
(ii) In case the Company shall, while any shares of
Convertible Preferred are outstanding, issue rights or warrants to all
holders of its Common Stock entitling them (for a period expiring
within 45 days after the record date mentioned in this Section
7(g)(ii)) to subscribe for or purchase shares of Common Stock at a
price per share less than the Current Market Price per share of Common
Stock (as determined pursuant to 7(g)(vi) below) on such record date,
the Conversion Price for the Convertible Preferred shall be adjusted so
that such Conversion Price shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the
date of issuance of such rights or warrants by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding on
the date of issuance of such rights or warrants plus the number of
additional shares of Common Stock which the aggregate offering price of
the total number of shares of Common Stock so offered for subscription
or purchase would purchase at such Current Market Price, and of which
the denominator shall be the number of shares of Common Stock
outstanding on the date of issuance of such rights or warrants plus the
number of additional shares of Common Stock offered for subscription or
purchase. Such adjustment shall become effective immediately after the
record date for the determination of stockholders entitled to receive
such rights or warrants. In case such price for subscription or
purchase may be paid in a consideration part or all of which shall be
in a form other than cash, the value of such consideration shall be
determined in good faith by the Board of Directors of the Company based
on the written opinion of a nationally recognized investment banking
firm. For the purposes of this subsection, the number of shares of
Common Stock at any time outstanding shall not include shares held in
the treasury of the Company. The Company shall not issue any rights or
warrants in respect of shares of Common Stock held in the treasury of
the Company. In case any rights or warrants referred to in this
subsection in respect of which an adjustment shall have been made shall
expire unexercised within 45 days after the same shall have been
distributed or issued by the Company, the Conversion Price shall be
readjusted at the time of such expiration to the Conversion Price that
would have been in effect if no adjustment had been made on account of
the distribution or issuance of such expired rights or warrants.
(iii) Subject to the last sentence of this Section
7(g)(iii), in case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock evidences of its
indebtedness, shares of any class or series of capital stock, cash or
assets (including securities, but excluding any rights or warrants
referred to in Section 7(g)(ii), any dividend or distribution referred
to in Section 7(g)(i) and any dividend or distribution paid exclusively
in cash or any dividend of a "right" in
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<PAGE>
connection with a rights plan or "poison pill"), the Conversion Price
shall be reduced so that such Conversion Price shall equal the price
determined by multiplying the Conversion Price in effect immediately
prior to the effectiveness of the Conversion Price reduction
contemplated by this Section 7(g)(iii) by a fraction of which the
numerator shall be the Current Market Price per share (determined as
provided in Section 7(g)(vi)) of the Common Stock on the date fixed for
the payment of such distribution (the "Reference Date") less the fair
market value (as determined in good faith by the Board of Directors,
whose determination shall be conclusive and described in a resolution
of the Board of Directors), on the Reference Date, of the portion of
the evidences of indebtedness, shares of capital stock, cash and assets
so distributed applicable to one share of Common Stock and the
denominator shall be such Current Market Price per share of the Common
Stock, such reduction to become effective immediately prior to the
opening of business on the day following the Reference Date. In the
event that such dividend or distribution is not so paid or made, the
Conversion Price shall again be adjusted to be the Conversion Price
which would then be in effect if such dividend or distribution had not
occurred. If the Board of Directors determines the fair market value of
any distribution for purposes of this Section 7(g)(iii) by reference to
the actual or when issued trading market for any securities comprising
such distribution, it must in doing so consider the prices in such
market over the same period used in computing the Current Market Price
per share of Common Stock (determined as provided in Section 7(g)(vi));
provided, however, that no adjustment shall be made with respect to any
distribution of rights to purchase securities of the Company if the
holder of shares of Convertible Preferred would otherwise be entitled
to receive such rights upon conversion at any time of shares of
Convertible Preferred into Common Stock unless such rights are
subsequently redeemed by the Company, in which case such redemption
shall be treated for purposes of this Section as a dividend on the
Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective retroactively
immediately after the record date for the determination of stockholders
entitled to receive such distribution. For purposes of this Section
7(g)(iii), any dividend or distribution that includes shares of Common
Stock or rights or warrants to subscribe for or purchase shares of
Common Stock shall be deemed instead to be (i) a dividend or
distribution of the evidences of indebtedness, shares of capital stock,
cash or assets other than such shares of Common Stock or such rights or
warrants (making any Conversion Price reduction required by this
Section 7(g)(iii)) immediately followed by (ii) a dividend or
distribution of such shares of Common Stock or such rights or warrants
(making any further Conversion Price reduction required by Section
7(g)(i) or 7(g)(ii)), except (A) the Reference Date of such dividend or
distribution as defined in this Section 7(g)(iii) shall be substituted
as (1) "the record date in the case of a dividend or other
distribution," and (2) "the record date for the determination of
stockholders entitled to receive such rights or warrants" and (3) "the
date fixed for such determination" within the meaning of Sections
7(g)(i) and 7(g)(ii) and (B) any shares of Common Stock included in
such dividend or distribution shall not be deemed outstanding for
purposes of computing any adjustment of the Conversion Price in Section
7(g)(i).
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<PAGE>
(iv) In case the Company shall pay or make a dividend
or other distribution on its Common Stock exclusively in cash
(excluding all regular cash dividends, to the extent that the
annualized amount thereof per share of Common Stock does not exceed 8%
of the Current Market Price per share determined as provided in Section
7(g)(vi) of the Common Stock on the Trading Day immediately preceding
the date of declaration of such dividend), the Conversion Price shall
be reduced so that such Conversion Price shall equal the price
determined by multiplying the Conversion Price in effect immediately
prior to the effectiveness of the Conversion Price reduction
contemplated by this Section 7(g)(iv) by a fraction of which the
numerator shall be the Current Market Price per share (determined as
provided in Section 7(g)(vi)) of the Common Stock on the date fixed for
the payment of such distribution less the amount of cash so distributed
and not excluded as provided applicable to one share of Common Stock
and the denominator shall be such Current Market Price per share of the
Common Stock, such reduction to become effective immediately prior to
the opening of business on the day following the date fixed for the
payment of such distribution; provided, however, that in the event the
portion of the cash so distributed applicable to one share of Common
Stock is equal to or greater than the Current Market Price per share
(as defined in Section 7(g)(vi)) of the Common Stock on the record date
mentioned above, in lieu of the foregoing adjustment, adequate
provision shall be made so that each holder of Convertible Preferred
shall have the right to receive upon conversion the amount of cash such
holder would have received had such holder converted each share of
Convertible Preferred immediately prior to the record date for the
distribution of the cash. In the event that such dividend or
distribution is not so paid or made, the Conversion Price shall again
be adjusted to be the Conversion Price which would then be in effect if
such record date had not been fixed.
(v) In case a tender or exchange offer (other than an
odd-lot offer) made by the Company or any Subsidiary of the Company for
all or any portion of the Company's Common Stock shall expire and such
tender or exchange offer shall involve the payment by the Company or
such Subsidiary of consideration per share of Common Stock having a
fair market value (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and described in a
resolution of the Board of Directors) at the last time (the "Expiration
Time") tenders or exchanges may be made pursuant to such tender or
exchange offer (as it shall have been amended) that exceeds 101% of the
Current Market Price per share (determined as provided in Section
7(g)(vi)) of the Common Stock on the Trading Day next succeeding the
Expiration Time, the Conversion Price shall be reduced so that such
Conversion Price shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the effectiveness of
the Conversion Price reduction contemplated by this Section 7(g)(v) by
a fraction of which the numerator shall be the number of shares of
Common Stock outstanding (including any tendered or exchanged shares)
at the Expiration Time multiplied by the Current Market Price per share
(determined as provided in Section 7(g)(vi)) of the Common Stock on the
Trading Day next succeeding the Expiration Time and the denominator
shall be the sum of (x) the fair market value (determined as aforesaid)
of the aggregate consideration payable to stockholders based on the
acceptance (up to any maximum
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<PAGE>
specified in the terms of the tender or exchange offer) of all shares
validly tendered or exchanged and not withdrawn as of the Expiration
Time (the shares deemed so accepted, up to any such maximum, being
referred to as the "Purchased Shares") and (y) the product of the
number of shares of Common Stock outstanding (less any Purchased
Shares) at the Expiration Time and the Current Market Price per share
(determined as provided in Section 7(g)(vi)) of the Common Stock on the
Trading Day next succeeding the Expiration Time, such reduction to
become effective immediately prior to the opening of business on the
day following the Expiration Time.
(vi) For the purpose of any computation under Section
7(g)(ii), 7(g)(iii), 7(g)(iv) and 7(g)(v), the "Current Market Price"
per share of Common Stock on any date in question shall be deemed to be
the average of the daily Closing Prices per share of Common Stock for
the five consecutive Trading Days selected by the Company commencing
not more than 20 Trading Days before, and ending not later than, the
earlier of the day in question or, if applicable, the day before the
"ex" date with respect to the issuance or distribution requiring such
computation; provided, however, that if another event occurs that would
require an adjustment pursuant to Section 7(g)(i) through (v),
inclusive, the Board of Directors may make such adjustments to the
Closing Prices during such five Trading Day period as it deems
appropriate to effectuate the intent of the adjustments in this Section
7(g), in which case any such determination by the Board of Directors
shall be set forth in a Board Resolution and shall be conclusive. For
purposes of this paragraph, the term "ex" date, (i) when used with
respect to any issuance or distribution, means the first date on which
the Common Stock trades regular way on the Nasdaq National Market or on
such successor quotation system or securities exchange as the Common
Stock may be quoted or listed or in the relevant market from which the
Closing Prices were obtained without the right to receive such issuance
or distribution, and (ii) when used with respect to any tender or
exchange offer, means the first date on which the Common Stock trades
regular way on such quotation system or securities exchange or in such
market after the Expiration Time of such offer.
(vii) The Company may make such reductions in the
Conversion Price, in addition to those required by Sections 7(g)(i)
through (v), as it considers to be advisable to avoid or diminish any
income tax to holders of Common Stock or rights to purchase Common
Stock resulting from any dividend or distribution of capital stock (or
rights to acquire capital stock) or from any event treated as such for
income tax purposes.
(viii) No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or decrease
of at least 1% in the Conversion Price; provided, however, that any
adjustments which by reason of this Section 7(g)(viii) are not required
to be made shall be carried forward and taken into account in
determining whether any subsequent adjustment shall be required.
(ix) If any action would require adjustment of the
Conversion Price pursuant to more than one of the provisions described
above, only one
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<PAGE>
adjustment shall be made and such adjustment shall be the amount of
adjustment that has the highest absolute value to the holder of
Convertible Preferred.
(h) Reclassification, Consolidation, Merger or Sale of Assets.
In the event that the Company shall be a party to any transaction (including
without limitation (i) any recapitalization or reclassification of the Common
Stock (other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision or combination
of the Common Stock), (ii) any consolidation of the Company with, or merger of
the Company into, any other person, or any merger of another Person into the
Company (other than a consolidation or merger which does not result in a
reclassification, conversion, exchange or cancellation of outstanding shares of
Common Stock of the Company), (iii) any sale, transfer or lease of all or
substantially all of the assets of the Company or (iv) any compulsory share
exchange pursuant to which the Common Stock is converted into the right to
receive other securities, cash or other property or, in the case of a sale,
transfer or lease of all or substantially all of the assets of the Company, then
the holders of Convertible Preferred will thereafter be entitled to convert
their shares in accordance with the terms hereof, into the same kind and amounts
of securities (including shares of stock), cash or other assets, or any
combination thereof, which were issuable or distributable to the holders of
outstanding Common Stock of the Company upon such recapitalization,
reclassification, consolidation, merger, sale, transfer, lease or share
exchange, in respect of that number of shares of Common Stock then deliverable
upon conversion of such shares of Convertible Preferred if the shares had been
converted immediately prior to such recapitalization, reclassification,
consolidation, merger, sale, transfer, lease or share exchange; and, in any such
case, appropriate adjustments (as determined in good faith by the Board of
Directors of the Company) shall be made to assure that the provisions hereof
(including provisions with respect to changes in, and other adjustments of, the
Conversion Price) shall thereafter be applicable, as nearly as reasonably may be
practicable, in relation to any securities or other assets thereafter
deliverable upon conversion of the Convertible Preferred.
The Company or the Person formed by such consolidation or resulting
from such merger or which acquired such assets or which acquires the Company's
shares, as the case may be, shall make provision in its certificate or articles
of incorporation or other constituent document to establish such right. Such
certificate or articles of incorporation or other constituent document shall
provide for adjustments which, for events subsequent to the effective date of
such certificate or articles of incorporation or other constituent document,
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Section 7. The above provisions shall similarly apply to successive
transactions of the foregoing type.
(i) Notice of Adjustments of Conversion Price. Whenever the
Conversion Price is adjusted as herein provided: (a) the Company shall compute
the adjusted Conversion Price and shall prepare a certificate signed by the
Chief Financial Officer or the Treasurer of the Company setting forth the
adjusted Conversion Price and showing in reasonable detail the facts upon which
such adjustment is based, and such certificate shall forthwith be filed with the
Transfer Agent for the Convertible Preferred Securities; and (b) a notice
stating that the Conversion Price has been adjusted and setting
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<PAGE>
forth the adjusted Conversion Price shall as soon as practicable be mailed in
accordance with Section 12 by the Company to all record holders of Convertible
Preferred Securities at their last addresses as they appear upon the stock
register of the Company.
(j) Prior Notice of Certain Events. In case (a) the Company
shall (i) declare any dividend (or any other distribution) on its Common Stock,
other than (A) a dividend payable in shares of Common Stock, (B) a dividend
payable in cash that would not require an adjustment pursuant to Section
7(g)(iii) or 7(g)(iv) or (ii) authorize a tender or exchange offer that would
require an adjustment pursuant to Section 7(g)(v); (b) the Company shall
authorize the granting to all holders of Common Stock of rights or warrants to
subscribe for or purchase any shares of stock of any class or series or of any
other rights or warrants; (c) of any reclassification of Common Stock (other
than a subdivision or combination of the outstanding Common Stock, or a change
in par value, or from par value to no par value, or from no par value to par
value), or of any consolidation or merger to which the Company is a party and
for which approval of any stockholders of the Company shall be required, or of
the sale or transfer of all or substantially all of the assets of the Company or
of any compulsory share exchange whereby the Common Stock is converted into
other securities, cash or other property; or (d) of the voluntary or involuntary
dissolution, liquidation or winding up of the Company; then the Company shall
cause to be filed with the Transfer Agent for the Convertible Preferred, and
shall cause to be mailed to the holders of record of the Convertible Preferred,
at their last addresses as they shall appear upon the stock register of the
Company, at least 5 days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a record (if any)
is to be taken for the purpose of such dividend, distribution, rights or
warrants or, if a record is not to be taken, the date as of which the holders of
Common Stock of record to be entitled to such dividend, distribution, rights or
warrants are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up is expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer, share
exchange, dissolution, liquidation or winding up (but no failure to mail such
notice or any defect therein or in the mailing thereof shall affect the validity
of the corporate action required to be specified in such notice).
(k) Dividend or Interest Reinvestment Plans. Notwithstanding
the foregoing provisions, the issuance of any shares of Common Stock pursuant to
any plan providing for the reinvestment of dividends or interest payable on
securities of the Company and the investment of additional optional amounts in
shares of Common Stock under any such plan, and the issuance of any shares of
Common Stock or options or rights to purchase such shares pursuant to any
employee benefit plan or program of the Company or pursuant to any option,
warrant, right or exercisable, exchangeable or convertible security outstanding
as of the date of original issuance of the Convertible Preferred, shall not be
deemed to constitute an issuance of Common Stock or exercisable, exchangeable or
convertible securities by the Company to which any of the adjustment provisions
described above applies. There shall be no adjustment of the Conversion Price in
case of the issuance of any
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stock (or securities convertible into or exchangeable for stock) of the Company
except as specifically described in this Section 7.
(l) Certain Additional Rights. In case the Company shall, by
dividend or otherwise, declare or make a distribution on its Common Stock
referred to in Section 7(g)(iii) or 7(g)(iv) (including, without limitation,
dividends or distributions referred to in the last sentence of Section
7(g)(iii)), the holder of shares of Convertible Preferred, upon the conversion
thereof subsequent to the close of business (New York City time) on the date
fixed for the determination of stockholders entitled to receive such
distribution and prior to the effectiveness of the Conversion Price adjustment
in respect of such distribution, shall instead of receiving the benefit of such
adjustment and at the Company's election be entitled to receive for each share
of Common Stock into which the shares of Convertible Preferred are converted,
the portion of the shares of Common Stock, rights, warrants, evidences of
indebtedness, shares of capital stock, cash and assets so distributed applicable
to one share of Common Stock; provided, however, that, at the election of the
Company (whose election shall be evidenced by a resolution of the Board of
Directors) with respect to all Holders so converting, the Company may, in lieu
of distributing to such holder any portion of such distribution not consisting
of cash or securities of the Company, pay such holder an amount in cash equal to
the fair market value thereof (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and described in a resolution
of the Board of Directors). If any conversion of Convertible Preferred described
in the immediately preceding sentence occurs prior to the payment date for a
distribution to holders of Common Stock which the holder of shares of
Convertible Preferred so converted is entitled to receive in accordance with the
immediately preceding sentence, the Company may elect (such election to be
evidenced by a resolution of the Board of Directors) to distribute to such
holder a due bill for the shares of Common Stock, rights, warrants, evidences of
indebtedness, shares of capital stock, cash or assets to which such holder is so
entitled; provided that such due bill (i) meets any applicable requirements of
the principal national securities exchange, quotation system or other market on
which the Common Stock is then traded and (ii) requires payment or delivery of
such shares of Common Stock, rights, warrants, evidences of indebtedness, shares
of capital stock, cash or assets no later than the date of payment or delivery
thereof to holders of shares of Common Stock receiving such distribution.
(m) No Impairment. The Company will not, through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company but will at all times in good faith assist in the
carrying out of all the provisions of this Section 7 and in the taking of all
such action as may be necessary or appropriate in order to protect the
conversion rights of the holders of the Convertible Preferred against
impairment.
Section 8. Repurchase Upon Change of Control.
(a) Change of Control Offer. Upon the occurrence of a Change
of Control, each holder of Convertible Preferred shall have the right to require
the Company to repurchase such holder's shares of Convertible Preferred, in
whole or in part (provided that
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the Liquidation Amount of the shares tendered shall be equal to $50.00 or any
integral multiples thereof and provided that the non-tendered portion of the
Liquidation Amount of any shares shall be in denominations of $50.00 or any
integral multiple thereof), pursuant to the offer described in Section 8(b) (the
"Change of Control Offer") for cash at a purchase price (the "Repurchase Price")
equal to 100% of the aggregate Liquidation Amount of such shares of Convertible
Preferred (or portions thereof), plus accumulated and unpaid dividends
(including additional dividends) to the Repurchase Date (as defined below);
provided, however, that if such Change of Control occurs on or prior to October
28, 2001, and such Change of Control would alter or change the powers,
preferences or special rights of the Convertible Preferred so as to adversely
affect the Convertible Preferred, then the Repurchase Price shall equal 103.975%
of the aggregate Liquidation Amount of such shares of Convertible Preferred (or
portions thereof), plus accumulated and unpaid dividends (including additional
dividends) to the Repurchase Date; provided, further, however, that in the case
of any share of Convertible Preferred that is tendered for repurchase after any
record date with respect to the payment of a dividend on the Convertible
Preferred and on or prior to the Dividend Payment Date with respect to such
dividend, the dividend due on such Dividend Payment Date shall be payable to the
holder of record of such share of Convertible Preferred as of such record date,
notwithstanding such repurchase, on or prior to the Dividend Payment Date.
(b) Change of Control Offer Procedures. Within 30 days
following the date of any Change of Control (or, if a Bank Event of Default has
occurred and is continuing, or would occur as a result thereof, within 5 days
following the date such Bank Event of Default is cured or waived), the Company
shall send by first-class mail, postage prepaid, to each holder as of the record
date, if any, of Convertible Preferred and to the Transfer Agent for the
Convertible Preferred, a notice (the "Notice of Change of Control") stating: (i)
that a Change of Control has occurred and a Change of Control Offer is being
made pursuant to this Section 8(b) and that all shares of Convertible Preferred
that are timely tendered will be accepted for payment; (ii) the Repurchase Price
and the repurchase date, which shall be a date occurring no earlier than 30 days
and no later than 60 days subsequent to the date on which such notice is mailed
(the "Repurchase Date"); (iii) that dividends will continue to accrue on any
shares of Convertible Preferred not tendered; (iv) that dividends will cease to
accrue on and after the Repurchase Date on any shares of Convertible Preferred
accepted for payment pursuant to the Change of Control Offer; (v) that any
holder electing to have shares of Convertible Preferred repurchased pursuant to
a Change of Control Offer will be required to surrender such shares, together
with a notice of such holder's election which sets forth the aggregate
Liquidation Amount to be repurchased, to the Company (or a duly appointed agent
thereof) at the address specified in the Notice of Change of Control on or prior
to the close of business (New York City time) on the Repurchase Date; (vi) that
any holder will be entitled to withdraw, in whole but not in part, such election
if the Company (or such agent) receives, not later than the close of business
(New York City time) on the third Business Day preceding the Repurchase Date, a
telegram, facsimile transmission or letter setting forth the name of the holder,
the aggregate Liquidation Amount of shares of Convertible Preferred the holder
delivered for repurchase and a statement that such holder is withdrawing the
holder's election to have such shares repurchased; and (vii) any other
information necessary to enable holders to tender Convertible Preferred and to
have such shares repurchased pursuant to this Section 8(b). The Notice of Change
of Control if mailed
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in the manner herein provided shall be conclusively presumed to have been duly
given, whether or not the holder receives such notice. In any case, a failure to
give such notice by mail or any defect in the notice to the holder of any
Convertible Preferred shall not limit any holder's right to exercise a
repurchase right during the applicable time periods set forth in this Section
8(b) or affect the validity of the proceedings for the repurchase of any other
shares. On the Repurchase Date, the Company shall accept for payment, and pay
for, all shares of Convertible Preferred duly tendered pursuant to the Change of
Control Offer. Notwithstanding the foregoing, if any shares of Convertible
Preferred accepted for payment shall not be so paid in accordance with this
Section 8, then, from the Repurchase Date until the aggregate Liquidation Amount
of and accumulated dividends on such shares is paid in full, dividends shall be
paid on the unpaid Liquidation Amount and, to the extent permitted by law, on
any accumulated but unpaid dividends thereon, in each case at the prescribed
rate set forth herein.
If fewer than all the shares of Convertible Preferred represented by
any certificate are repurchased, a new certificate (which shall be no less than
the minimum Liquidation Amount of $50) shall be issued representing the
unredeemed shares without cost to the holder thereof.
Notwithstanding the foregoing, the Company shall not be obligated to
make a Change of Control Offer or repurchase shares of Convertible Preferred
tendered pursuant to a Change of Control Offer so long as a Bank Event of
Default has occurred and is continuing or would occur as a result thereof. In
such event, the Company will act in good faith and use its reasonable best
efforts to cure any Bank Event of Default or obtain a waiver thereof by or the
consent of its lenders to enable the Company to make a Change of Control Offer
in accordance with the provisions of this Section 8 upon the occurrence of a
Change of Control. The obligation of the Company to offer to purchase the
Convertible Preferred shall be automatically suspended and deferred, without any
limitation as to time and without any other consequence whatsoever (except that
the right of the holders of Convertible Preferred to seek specific enforcement
of the provisions of the preceding sentence shall not be suspended or deferred
or otherwise abated or impaired) until the date of the earliest to occur of (x)
such Bank Event of Default is cured, (y) such consent or waiver is granted by
the lenders under the Credit Agreement, or (z) all indebtedness outstanding
under such Credit Agreement is retired and repaid in full and in cash.
The Company shall comply, in all material respects, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations, to the extent applicable, in connection with the repurchase of
securities under the circumstances described in this Section 8. To the extent
that any provisions of any securities laws or regulations conflict with this
Section 8, the Company shall comply in all material respects with the applicable
securities laws and regulations and shall not be deemed to have breached an
agreement or covenant of the Company under this Certificate of Designation by
virtue thereof. The Company shall publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Repurchase Date.
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Section 9. Events of Noncompliance.
(a) Definition. "Event of Noncompliance," wherever used
herein, means any one of the following events that has occurred and is
continuing (whatever the reason for such Event of Noncompliance and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body): (i) the failure by the Company to
pay on any Dividend Payment Date the full amount of dividends then accumulated
on the Convertible Preferred, including any additional dividends in respect
thereof, if any, when due; (ii) the failure by the Company to pay all or any
part of the aggregate Liquidation Amount (including any redemption premium) on
the Convertible Preferred when due, whether at maturity, upon redemption or
repurchase, whether or not such payment is legally permissible or is prohibited
by any agreement to which the Company is subject; or (iii) the failure by the
Company to deliver shares of its Common Stock within 30 days of an election by a
holder of shares of Convertible Preferred to convert such shares in accordance
with Section 7, which election has not been rescinded as set forth in Section
5(d).
(b) Additional Rights Upon Certain Events of Noncompliance.
(i) If an Event of Noncompliance has occurred and is
continuing, then the Company shall not declare or pay any dividends on,
or make a distribution with respect to, or redeem, or purchase or
acquire, or make a liquidation payment with respect to, any Parity
Securities or Junior Securities, except, in the case of an Event of
Noncompliance in respect of the payment of accumulated dividends during
an Extension Period, for such dividends, distribution and purchases
permitted pursuant to clauses (i) through (vi) of Section 3(c).
(ii) If any Event of Noncompliance of the type
described in Section 9(a)(i) has occurred and has continued for six
quarterly dividend periods or any other Event of Noncompliance has
occurred and is continuing, the dividend rate on the Convertible
Preferred shall increase immediately by an increment of one-quarter of
one percent (.25%) per annum; provided, however, that no increase in
the dividend rate shall be made pursuant to this Section 9(b)(ii) if,
and for so long as, a material Bank Event of Default shall have
occurred and is continuing or a Bank Event of Default would result from
such payment. Any increase of the dividend rate resulting from the
operation of this Section 9 shall terminate as of the close of business
(New York City time) on the date on which no Event of Noncompliance
exists, subject to subsequent increases pursuant to this Section.
(iii) If any Event of Noncompliance of the type
described in Section 9(a)(i) has occurred and has continued for six
quarterly dividend periods or any other Event of Noncompliance has
occurred and is continuing, the number of directors constituting the
Company's Board of Directors will be increased by a number sufficient
to include as additional directors of the Company two members
designated by the holders of Convertible Preferred (which directors
shall be in addition to any directors designated pursuant to Section 5
of the Timet Investment
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Agreement and shall satisfy the qualifications for Investor Nominees
(as defined under the Timet Investment Agreement) set forth under
Section 5(b) of the Timet Investment Agreement). The holders of
Convertible Preferred will have the special right, voting separately as
a single class (with each share of Convertible Preferred being entitled
to one vote) and to the exclusion of all other classes of the Company's
capital stock, to elect two individuals to fill such newly created
directorships, to fill any vacancies in such directorships and to
remove any individuals elected to such directorships. The special right
of the holders of Convertible Preferred to elect members of the Board
of Directors may be exercised at the special meeting called pursuant to
this subsection, at any annual or other special meeting of stockholders
and, to the extent and in the manner permitted by applicable law and
the Certificate of Incorporation as then in effect, pursuant to a
written consent in lieu of a stockholders meeting. Such special right
shall continue until such time as the Event of Noncompliance that
triggered this right ceases to exist, at which time such special right
shall terminate subject to revesting upon the occurrence and
continuation of any Event of Noncompliance which gives rise to such
special right under the terms of this subparagraph (iii).
At any time when such special right has vested in the holders of
Convertible Preferred, the Board of Directors may order, or any holder or
holders owning in the aggregate not less than 10% in aggregate Liquidation
Amount of the outstanding shares of Convertible Preferred may request, the
calling of a special meeting of holders of Convertible Preferred for the purpose
of electing directors pursuant to this subsection, which meeting shall thereupon
be called by the President, a Vice President or the Secretary of the Company.
Notice of such meeting and of any annual meeting at which holders of Convertible
Preferred are entitled to vote pursuant to this paragraph shall be given to each
holder of record of Convertible Preferred by mailing a copy of such notice to
such holder at such holder's last address as the same appears in the stock
register of the Company. Such special meeting shall be called for a time not
later than 60 days after such order or request, or in default of the calling of
such meeting within 60 days after such order or request, such meeting may be
called on similar notice by any holder or holders owning in the aggregate not
less than 10% in aggregate Liquidation Amount of the outstanding shares of
Convertible Preferred, and such holder or holders of Convertible Preferred shall
be given access to the stock register of the Company for the purpose of causing
a meeting of stockholders to be called pursuant to this paragraph.
Notwithstanding the provisions of this Section 9, no such special meeting shall
be called during the period within 60 days immediately preceding the date fixed
for the next annual meeting of stockholders.
At any meeting or at any adjournment of such meeting at which the
holders of Convertible Preferred have the special right to elect directors, the
presence, in person or by proxy, of the holders of a majority of the Convertible
Preferred then outstanding shall be required to constitute a quorum for the
election or removal of any director by the holders of the Convertible Preferred
exercising such special right. The vote of a majority of such quorum shall be
required to elect or remove any such director. The absence of a quorum of
holders of Common Stock, however, shall not affect the exercise of such voting
rights by the holders of Convertible Preferred.
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Immediately upon the termination of the Event of Noncompliance that
gave rise to such special right, (x) the right of the holders of Convertible
Preferred to elect directors shall cease, (y) the term of any directors elected
by the holders of Convertible Preferred shall terminate, and (z) the holders of
Convertible Preferred shall cause such directors to resign as promptly as
practicable in accordance with the Company's procedures for resignation of
directors and applicable laws and regulations.
Section 10. Status of Reacquired Shares. If shares of the Convertible
Preferred are redeemed pursuant to Section 5 hereof, converted pursuant to
Section 7 hereof or repurchased pursuant to Section 8 hereof, the shares so
redeemed, converted or repurchased shall, upon compliance with any statutory
requirements, assume the status of authorized but unissued shares of preferred
stock of the Company.
Section 11. Definitions.
"at least 35% of the total assets of the Company and its consolidated
subsidiaries, taken as a whole" shall mean assets having a fair market value
equal to or greater than 35% of the fair market value of the total assets of the
Company and its consolidated subsidiaries, taken as a whole, as reasonably
determined by the Board of Directors of the Company based on the written opinion
of a nationally recognized investment banking firm.
"Bank Event of Default" shall mean the occurrence and continuation of
an event of default under the Credit Agreement (including the failure to pay
when due any indebtedness outstanding thereunder or the occurrence of any event
described therein upon the occurrence of which such indebtedness becomes or may
become due).
"Business Day" shall mean any day other than a Saturday, Sunday or day
on which banking institutions in The City of New York are authorized or required
by law to close.
"Change of Control" means the occurrence of any of the following
events: (i) in any three-year period, a majority of the members of the Board of
Directors elected during such three-year period shall have been so elected
against the recommendation of the management of the Company or the Board of
Directors in office immediately prior to such election; (ii) any Designated
Person (as defined herein) or Persons acting in concert shall, except as
provided in clause (iii) below, acquire (whether by merger, consolidation, sale,
assignment, lease, transfer or otherwise, in one transaction or any related
series of transactions) or otherwise beneficially own a majority of the voting
power of the outstanding Voting Securities of the Company; (iii) upon
consummation of a consolidation or merger of the party with another Designated
Person in which the holders of at least a majority of the Voting Securities of
the Company immediately prior to such consolidation or merger would not own
Voting Securities representing at least a majority of the outstanding voting
power of such Designated Person or its ultimate parent upon consummation of such
consolidation or merger; or (iv) upon the sale, transfer or assignment (it being
understood that the pledge of, or the granting of a security interest in, assets
of the Company or its subsidiaries shall not be deemed a sale, transfer or
assignment) of assets constituting at least 35% of the total assets
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of the Company and its consolidated subsidiaries, taken as a whole, to any
person in a single transaction or a series of related transactions; provided,
however, that a sale, transfer or assignment of at least 35% of the total assets
of the Company and its consolidated subsidiaries, taken as a whole, to (x) the
Principal Stockholders, or to (y) any entity the holders of at least a majority
of the Voting Securities of which (or of such entity's ultimate parent) were
holders of Voting Securities of the Company immediately prior to such sale,
transfer or assignment shall not constitute a "Change of Control" hereunder; or
(v) at such time as the Principal Stockholders fail to beneficially own, in the
aggregate, at least 30% of the voting power of the outstanding Voting Securities
of the Company.
"Closing Price" of any Common Stock on any day shall mean the closing
price of the Common Stock on the principal national securities exchange on which
such security is 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 on such day), or (ii) if the security is not listed on a national
securities exchange at the time, the sales price of such security as reported on
the Nasdaq National Market as of 4:00 p.m., New York City time, on such day (or,
if there is no reported sales price of such security 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 City time on such
day), or (iii) if such security is not reported on the Nasdaq National Market at
the time, the average of the representative bid and asked prices quoted in the
Nasdaq System as of 4:00 p.m., New York City time, on such day, or (iv) if the
security is not quoted on the Nasdaq System at the time, 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.
"Common Stock" shall mean the Common Stock, par value $0.01, of the
Company.
"Credit Agreement" shall mean the Credit Agreement, dated October 28,
1998, as amended or restated from time to time, among the Company, Credit
Lyonnais New York Branch as agent and the lenders named therein or, after said
credit agreement is retired and the indebtedness thereunder has been repaid in
full, any other loan or credit agreement pursuant to which senior indebtedness
of the Company is outstanding, if such other loan or credit agreement is
designated by the Company as a Credit Agreement for the purposes hereof.
"Designated Person" shall mean any person, corporation, partnership or
other entity other than Societe Industrielle de Materiaux Avances and its
affiliates.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and the rules and regulations promulgated thereunder, or any
successor legislation thereto.
"Inco Investment Agreement" shall mean the Investment Agreement, dated
October 28, 1998, between the Company and Inco Limited, a corporation continued
under the laws of Canada.
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"Investment Agreements" shall mean collectively, the Timet Investment
Agreement and the Inco Investment Agreement.
"Liquidation Amount" of any share of Convertible Preferred as of any
particular date shall be equal to $50.00.
"Person" shall mean any legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated organization or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"Principal Stockholders" shall mean Societe Industrielle de Materiaux
Avances, LWH Holdings S.A. and their respective affiliates.
"Redemption Rescission Event" shall mean the occurrence of (a) any
general suspension of trading in, or limitation on prices for, securities on the
principal national securities exchange on which shares of Common Stock are
registered and listed for trading (or, if shares of Common Stock are not
registered and listed for trading on any such exchange, in the over-the-counter
market) for more than six-and-one-half (6 1/2) consecutive trading hours, (b)
any decline in either the Dow Jones Industrial Average or the Standard & Poor's
Index of 400 Industrial Companies (or any successor index published by Dow Jones
& Company, Inc. or Standard & Poor's Corporation) by either (i) an amount in
excess of 5%, measured from the close of business (New York City time) on any
Trading Day to the close of business (New York City time) on the next succeeding
Trade Day during the period commencing on the Trading Day preceding the date
notice of any redemption of shares of Convertible Preferred is given (or, if
such notice is given after the close of business (New York City time) on a
Trading Day, commencing on such Trading Day) and ending at the earlier of (x)
the time and date fixed for redemption in such notice and (y) the time and date
at which the Company shall have irrevocably deposited funds with a designated
bank or trust company pursuant to Section 5 or (ii) an amount in excess of 8%
(or, if the time and date fixed for redemption is more than 15 days following
the date on which notice of redemption is given, 12%), measured from the close
of business (New York City time) on the Trading Day preceding the day notice of
such redemption is given (or, if such notice is given after the close of
business (New York City time) on a Trading Day, from such Trading Day) to the
close of business (New York City time) on any Trading Day on or prior to the
earlier of the dates specified in clauses (x) and (y) above, (c) a declaration
of a banking moratorium or any suspension of payments in respect of banks by
Federal or state authorities in the United States or (d) the commencement of a
war or armed hostilities or other national or international calamity directly or
indirectly involving the United States which in the reasonable judgment of the
Company could have a material adverse effect on the market for the Common Stock.
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time, and the rules and regulations promulgated thereunder, or any
successor legislation thereto.
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"Stockholder Conversion Vote" shall mean the approval, as obtained in
accordance with Regulation 14A of the Exchange Act, by the stockholders of the
Company entitled to vote thereon of the issuance of Common Stock upon the
conversion of the Convertible Preferred upon the terms and conditions set forth
in Section 7.
"Subsidiary" of any Person means (i) a corporation more than 50% of the
outstanding Voting Securities of which are owned, directly or indirectly, by
such Person and one or more other Subsidiaries of such Person or by such Person
and one or more Subsidiaries thereof or (ii) any other Person (other than a
corporation) in which such Person and/or one or more other Subsidiaries of such
Person, directly or indirectly, has at least a majority ownership and power to
direct the policies, management and affairs thereof.
"Timet Investment Agreement" shall mean the Investment Agreement, dated
as of July 8, 1998, as amended on October 28, 1998, among the Company, Timet
Finance Management Company, a Delaware corporation, and Titanium Metals
Corporation, a Delaware corporation.
"Trading Day" shall mean a day on which securities are traded on the
national securities exchange, quotation system or over-the-counter market used
to determine the Closing Price.
"Voting Securities" of any person shall mean capital stock of such
person which ordinarily has voting power for the election of directors (or
persons performing similar functions) of such person, whether at all times or
only so long as no senior class of securities has such voting power by reason of
any contingency.
Section 12. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if delivered by hand or when sent by telex or telecopier (with
receipt confirmed), provided a copy is also sent by express (overnight, if
possible) courier, addressed, (a) in the case of a holder of the Convertible
Preferred, to such holder's address of record and, (b) in the case of the
Company, to the Company's principal executive offices to the attention of the
Company's Secretary.
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IN WITNESS WHEREOF, Special Metals Corporation has caused this
Certificate of Designations to be duly executed by its duly authorized officer
and attested by its Secretary this day of , 1998.
SPECIAL METALS CORPORATION
By: ______________________________
Name: Donald R. Muzyka
Title: President and Chief Executive Officer
ATTEST:
______________________________
Name: Robert F. Dropkin
Title: Vice President, Chief Legal
Counsel and Secretary
28
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of October 28, 1998 (this
"Agreement") between TIMET Finance Management Company, a Delaware corporation
(the "Investor"), and Special Metals Corporation, a Delaware corporation (the
"Company").
W I T N E S S E T H:
WHEREAS, in connection with, and as a condition to, the closing of the
transactions contemplated by the Investment Agreement, dated as of July 8, 1998,
as amended on October 28, 1998 (as so amended, the "Investment Agreement"),
among the Company, the Investor and Titanium Metals Corporation, a Delaware
corporation ("TMC"), the parties have agreed to enter into this Agreement, which
sets forth certain registration rights applicable to the Registrable Securities
(as defined below) held from time to time by the Investor and/or certain
permitted transferees;
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and subject to the conditions and
upon the terms hereof, the parties hereto hereby agree as follows:
1. Definitions. Capitalized terms used herein without definition shall
have their respective meanings set forth in the Investment Agreement. As used
herein, unless the context otherwise requires, the following terms have the
following respective meanings:
"Certificate of Designation" shall mean the Certificate of Designation
of Rights and Preferences establishing the terms and relative rights and
preferences of the Convertible Preferred Securities.
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Common Stock" shall mean and include (i) Common Stock, par value $0.01
per share, of the Company, (ii) each other class of capital stock of the Company
that does not have a preference over any other class of capital stock of the
Company as to dividends or upon liquidation, dissolution or winding up of the
Company, and (iii) any class of capital stock or securities into which or for
which shares of Common Stock or any other class of capital stock or securities
described in clauses (ii) or (iii) may hereafter be changed, converted or
exchanged or which are issued to holders of shares of Common Stock or any other
class of capital stock or securities described in clauses (ii) or (iii) upon any
<PAGE>
reorganization, recapitalization, reclassification, share combination, share
subdivision, share dividend, merger, consolidation or similar transactions or
events.
"Conversion Shares" shall mean and include the shares of Common Stock
issuable upon conversion of the Convertible Preferred Securities in accordance
with the terms of the Certificate of Designation.
"Convertible Preferred Securities" shall mean and include (i) the
6.625% Series A Senior Convertible Preferred Stock (Liquidation Amount $50.00
per Convertible Preferred Security) of the Company and (ii) any class of capital
stock or securities into which or for which Convertible Preferred Securities or
any other class of capital stock or securities described in this clause (ii) may
hereafter be changed, converted or exchanged (in each case, other than pursuant
to its terms) or which are issued to holders of Convertible Preferred Securities
or any other class of capital stock or securities described in this clause (ii)
upon any reorganization, recapitalization, reclassification, share combination,
share subdivision, share dividend, merger, consolidation or similar transactions
or events.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any superseding Federal statute, and the rules and regulations promulgated
thereunder, all as the same shall be in effect at the time. Reference to a
particular section of the Securities Exchange Act of 1934, as amended, shall
include a reference to the comparable section, if any, of any such superseding
Federal statute.
"First Offer Price" is defined in Section 2.1(a).
"Inco" means Inco Limited, a corporation continued under the laws of
Canada.
"Inco Registration Rights Agreement" means the Registration Rights
Agreement, dated the date hereof, between Inco and the Company, as amended from
time to time.
"Initiating Holder" is defined in Section 2.1(a).
"a majority of the Registrable Securities" shall mean (i) more than 50%
of the shares of the issued and outstanding Registrable Securities if the
Registrable Securities are shares of capital stock or rights or warrants to
acquire capital stock, (ii) more than 50% of the aggregate principal amount of
the issued and outstanding Registrable Securities if the Registrable Securities
are debt securities or (iii) more than 50% of the aggregate liquidation amount
of the issued and outstanding Registrable Securities if the Registrable
Securities are Convertible Preferred Securities. If there is more than one class
of Registrable Securities, the term "a majority of the Registrable Securities"
shall mean a majority of the Registrable Securities, assuming for purposes of
this definition, that all such securities have been converted into securities of
the same class.
"Offered Securities" is defined in Section 2.8(a).
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"Person" means any individual, firm, corporation, partnership, limited
liability company or partnership, trust, incorporated or unincorporated
association, joint venture, joint stock company, government (or an agency or
political subdivision thereof) or other entity of any kind and shall include any
successor (by merger or otherwise) of such entity.
"Principal Stockholders" is defined in Section 2.1(b).
"Principal Stockholders' Registration Agreement" is defined in Section
2.1(b).
"Principal Stockholders' Securities" is defined in Section 2.2(b).
"Registrable Securities" means the Convertible Preferred Securities,
the Conversion Shares and any other securities of the Company acquired pursuant
to the terms of the Investment Agreement. As to any particular Registrable
Securities, once issued, such securities shall cease to be Registrable
Securities when (a) a registration statement with respect to the sale of such
securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such registration
statement, (b) they shall have been sold as permitted by Rule 144 (or any
successor provision) under the Securities Act, (c) they shall have been
otherwise transferred, new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent public distribution of them shall not require registration of such
distribution under the Securities Act or (d) they shall have ceased to be
outstanding. All references to percentages of Registrable Securities shall be
calculated pursuant to Section 12.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with Section 2, including, without limitation, all
registration and filing fees, all fees of the NASDAQ National Market, any
national securities exchange or the National Association of Securities Dealers,
Inc., all fees and expenses of the Company of complying with securities or blue
sky laws (if any), all word processing, duplicating and printing expenses,
messenger and delivery expenses of the Company, the fees and disbursements of
counsel for the Company and of the Company's independent public accountants,
including the expenses of "comfort" letters required by or incident to such
performance and compliance, any fees and disbursements of underwriters
customarily paid by issuers or sellers of securities (excluding any underwriting
discounts or commissions or transfer taxes with respect to the Registrable
Securities) and the reasonable fees and expenses of one counsel to the Selling
Holders (selected by the Selling Holders representing a majority of the
Registrable Securities covered by such registration statement); provided,
however, that in the event the Company shall determine, in accordance with
Section 2.2(a) or Section 2.6, not to register any securities with respect to
which it had given written notice of its intention to so register to holders of
Registrable Securities, all of the costs of the type (and subject to any
limitation to the extent) set forth in this definition and incurred by Selling
Holders in connection with such registration on or prior to the date the Company
notifies the Selling Holders of such determination shall be deemed Registration
Expenses.
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"Second Offer Price" is defined in Section 2.8(b).
"Selling Holder" is defined in Section 2.1(a).
"Securities Act" means the Securities Act of 1933, as amended, or any
superseding Federal statute, and the rules and regulations promulgated
thereunder, all as the same shall be in effect at the time. References to a
particular section of the Securities Act of 1933, as amended, shall include a
reference to the comparable section, if any, of any such superseding Federal
statute.
2. Registration Under Securities Act, etc.
2.1 Demand Registration
(a) At any time after the second anniversary of the date of
this Agreement, upon written notice provided to the Company from either (x) the
holder or holders of a majority of the Registrable Securities or (y) the
Investor so long as (1) the Investor holds Registrable Securities representing
more than 5% of the outstanding Common Stock (assuming any Convertible Preferred
Securities held by the Investor have been converted into Conversion Shares) or
(2) the Investor's request for registration covers all Registrable Securities
then held by the Investor (in each case, the "Initiating Holders") requesting
that the Company effect the registration under the Securities Act of the
Registrable Securities held by the Initiating Holders (which notice shall
specify (i) the Registrable Securities intended to be disposed of, (ii) the
intended method or methods of disposition of such Registrable Securities and
(iii) the selling price (the "First Offer Price") acceptable to the Initiating
Holders, as determined in good faith by the Initiating Holders), the Company
promptly will give written notice of such requested registration to all
registered holders of Registrable Securities, and thereupon the Company will use
its best efforts to effect, at the earliest practicable date, the registration
under the Securities Act of
(i) the Registrable Securities which the Company has
been so requested to register by such Initiating Holders; and
(ii) all other Registrable Securities which the
Company has been requested to register by the holders thereof (such holders,
together with the Initiating Holders, hereinafter are referred to as the
"Selling Holders") by written request given to the Company within 15 days after
the giving of such written notice by the Company, all to the extent necessary to
permit the disposition of the Registrable Securities so to be registered;
provided, however, that any sale of Offered Securities pursuant to the
registration provisions of this Section 2.1 shall, pursuant to the provisions of
Section 2.8(a), be subject to the Company's prior right of first refusal set
forth in Section 8 of the Investment Agreement and shall be subject to the
additional purchase rights of the Company set forth in Section 2.8(b).
(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
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be included among the securities covered by such registration (except for such
securities that are registrable securities under the Registration Rights
Agreement (the "Principal Stockholders' Registration Agreement"), dated as of
February 25, 1997, among Societe Industrielle de Materiaux Avances, LWH Holding
S.A. and Advanced Materials Investments Holding S.A. (collectively, the
"Principal Stockholders"), which securities shall be subject to the priority
provisions of Section 2.2(b) of the Principal Stockholders' Registration
Agreement as in effect on the date hereof), unless the Selling Holders holding
not less than a majority of the Registrable Securities to be included by such
registration shall have consented in writing to the inclusion of such other
securities.
(c) Registration Statement Form. Registrations under this
Section 2.1 shall be on such appropriate registration form of the Commission as
shall be reasonably selected by the Company.
(d) Effective Registration Statement. A registration requested
pursuant to this Section 2.1 shall not be deemed to have been effected unless a
registration statement with respect thereto has become effective and remained
effective in compliance with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities covered by such registration
statement until such time as all of such Registrable Securities have been
disposed of in accordance with the intended methods of disposition by the seller
or sellers thereof set forth in such registration statement (unless the failure
to so dispose of such Registrable Securities shall be caused solely by reason of
a failure on the part of the Selling Holders), provided, that, except with
respect to any registration statement filed pursuant to Rule 415 under the
Securities Act, such period need not exceed 180 days.
(e) Selection of Underwriters. The underwriter or underwriters
of each underwritten offering of the Registrable Securities so to be registered
shall be selected by the Company, subject to the reasonable consent of Selling
Holders holding more than a majority of the Registrable Securities to be
included in such registration.
(f) Priority Requested Registration. If the managing
underwriter of any underwritten offering or, in the case of any offering which
is not underwritten, a nationally recognized investment banking firm shall
advise the Company in writing (and the Company shall in each case so advise each
Selling Holder of Registrable Securities requesting registration of such advice
in writing) that, in its opinion, the number of securities requested to be
included in such registration exceeds the number which can be sold in such
offering without adversely affecting the market for the Company's securities or
within a price range acceptable to the Selling Holders of a majority of the
Registrable Securities requested to be included in such registration, the
Company, except as provided in the following sentence, will include in such
registration, to the extent of the number and type of securities which the
Company is so advised can be sold in such offering, first, Registrable
Securities requested to be included in such registration, pro rata (based on the
number of Registrable Securities held by each of the Selling Holders) among the
Selling Holders requesting such registration, and second, all securities of the
Company proposed to be sold by the Company for its own account or for the
account of a Person other than a holder of Registrable Securities.
Notwithstanding the foregoing, if the total number of Registrable Securities
requested to be
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included in any registration cannot be included, the Selling Holders holding not
less than a majority of the Registrable Securities with respect to which
registration has been requested, shall have the right to withdraw the request
for registration of all or a portion of their Registrable Securities requested
to be included in such registration by giving written notice to the Company
within 20 days after receipt of the notice from the managing underwriter
described above by the Company and, in the event of such withdrawal, such
request shall not be counted for purposes of the requests for registration to
which holders of Registrable Securities are entitled pursuant to this Section
2.1. If a request for registration is withdrawn pursuant to the immediately
preceding sentence and at least 90% of each class of the Registrable Securities
requested to be included in such withdrawn registration could have been included
therein, then, the Registration Expenses incurred by the Company in connection
with such withdrawn registration shall be reimbursed by the Selling Holders, pro
rata (based on the number of Registrable Securities requested to be included
therein) among the Selling Holders or for the account of a person other than a
holder of Registrable Securities.
(g) Limitations on Registration Requests. Notwithstanding
anything in this Section 2.1 to the contrary, in no event will the Company be
required to (i) effect more than two registrations requested pursuant to Section
2.1(a) (ii) effect a registration pursuant to this Section 2.1 within the
12-month period occurring immediately subsequent to the effectiveness (within
the meaning of Section 2.1(d)) of a registration statement filed pursuant to
this Section 2.1 or a registration statement filed by the Company offering its
shares of Common Stock (other than a registration statement on Form S-8 with
respect to an employee benefit plan) with respect to which holders of
Registrable Securities were notified of their right to participate pursuant to
Section 2.2(a), but elected not to exercise their piggy-back rights (except
where such registration statement was filed by the Company in connection with an
exclusive demand registration pursuant to Section 2.1 of the Principal
Stockholders Registration Agreement as in effect on the date hereof), unless the
Company determines that effecting a second registration within the 12-month
period is not likely to have a material adverse effect on the Company or the
market for the Company's securities, or (iii) effect a registration pursuant to
Section 2.1 covering Registrable Securities with an aggregate offering price of
less than $15 million based upon the then current market price or fair market
values as estimated by the Company's Board of Directors in good faith based upon
the written advice of the Company's managing underwriter in the case of an
underwritten offering, or the written opinion of a nationally recognized
investment banking firm in the case of any offering which is not underwritten.
(h) Expenses. The Company will pay all Registration Expenses
in connection with any registrations requested pursuant to this Section 2.1.
2.2 Piggy-back Registration.
(a) Right to Include Registrable Securities. Except in
connection with an exclusive demand registration pursuant to Section 2.1 of the
Principal Stockholders' Registration Agreement as in effect on the date hereof,
if the Company at any time after the second anniversary of the date of this
Agreement, proposes to register any of its Common
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Stock under the Securities Act by registration on any form other than Forms S-4
or S-8 or a Form S-1 relating to securities to be issued in connection with a
merger or similar transaction, whether or not for sale for its own account, it
will each such time give prompt written notice to all registered holders of
Registrable Securities of its intention to do so and of such holders' rights
under this Section 2.2. Upon the written request of any such holder made as
promptly as practicable and in any event within 20 days after the receipt of any
such notice from the Company (which request shall specify the Registrable
Securities intended to be disposed of by such holder and the First Offer Price
which is acceptable to such holder, as determined in good faith by the
Initiating Holders), the Company will use its best efforts to effect the
registration under the Securities Act of all Registrable Securities which the
Company has been so requested to register by the Selling Holders thereof;
provided, that prior to the effective date of the registration statement filed
in connection with such registration, immediately upon notification to the
Company from the managing underwriter of the price at which such securities are
to be sold, if such price is below the First Offer Price which any Selling
Holder shall have indicated to be acceptable to such Selling Holder, the Company
shall so advise such Selling Holder of such price, and such Selling Holder shall
then have the right to withdraw its request to have its Registrable Securities
included in such registration statement; and provided, further, however, that
any sale of Offered Securities pursuant to the registration provisions of this
Section 2.2 shall, pursuant to Section 2.8(a), be subject to the Company's prior
right of first refusal set forth in Section 8 of the Investment Agreement and
shall be subject to the additional purchase rights of the Company set forth in
Section 2.8(b). If, at any time after giving written notice of its intention to
register any securities and prior to the effective date of the registration
statement filed in connection with such registration, the Company shall
determine for any reason not to register or to delay registration of such
securities, the Company shall give written notice of such determination to each
Selling Holder of Registrable Securities and (x) in the case of a determination
not to register, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from any obligation of
the Company to pay the Registration Expenses in connection therewith), without
prejudice, however, to the rights of any holder or holders of Registrable
Securities entitled to do so to cause a registration to be effected under
Section 2.1, and (y) in the case of a determination to delay registering, shall
be permitted to delay registering any Registrable Securities, for the same
period as the delay in registering such other securities. No registration
effected under this Section 2.2 shall relieve the Company of its obligation to
effect any registration upon request under Section 2.1.
(b) Priority in Piggy-back Registrations. If the managing
underwriter of any underwritten offering or, in the case of any offering that is
not underwritten, a nationally recognized investment banking firm shall advise
the Company (and the Company shall in each case so advise each Selling Holder of
Registrable Securities requesting registration of such advice in writing) that,
in its opinion, the number or type of Registrable Securities requested to be
included in such registration would materially adversely affect such offering or
the market for the Company's securities, then the Company will include in such
registration, to the extent of the number and type of securities which the
Company is so advised can be sold in (or during the time of) such offering,
first, all securities of the Company proposed by the Company to be sold for its
own account, or, in the case of a secondary offering made pursuant to demand
registration rights granted to any Person other
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than a holder of Registrable Securities, all securities of the Company that such
Person proposes to sell; second, all securities, if any (the "Principal
Stockholders' Securities"), proposed by the Company to be sold for the account
of the Principal Stockholders pursuant to the exercise of their piggy-back
registration rights under the Principal Stockholders' Registration Rights
agreement; third, such Registrable Securities requested to be included in such
registration pursuant to this Agreement (pro rata, based on the number of
Registrable Securities requested to be included by each Selling Holder
hereunder) among such Selling Holders; fourth, such Registrable Securities
requested to be included in such registration pursuant to the Inco Registration
Rights Agreement (pro rata, based on the number of Registrable Securities
requested to be included by each holder thereunder); and fifth, all securities
of the Company to be sold for the account of a Person other than a holder of
Registrable Securities or Principal Stockholders' Securities, as the case may
be.
(c) Expenses. The Company will pay all Registration Expenses
in connection with any registration contemplated pursuant to this Section 2.2.
2.3 Registration Procedures. If and whenever the Company is
required to use its best efforts to effect the registration of any Registrable
Securities under the Securities Act as provided in Sections 2.1 and 2.2, the
Company will, as expeditiously as possible:
(i) subject to Section 2.6, prepare and (within 90
days after the end of the period within which requests for registration may be
given to the Company) file with the Commission the requisite registration
statement to effect such registration and thereafter use its commercially
reasonable best efforts to cause such registration statement to become
effective; provided, however, that the Company may discontinue any registration
of securities that are not Registrable Securities (and, under the circumstances
specified in Section 2.1(f) and 2.2(a) and (b), Registrable Securities) at any
time prior to the effective date of the registration statement relating thereto;
(ii) subject to Section 2.6, prepare and file with
the Commission such amendments and supplements to such registration statement
and the prospectus used in connection therewith as may be necessary to keep such
registration statement effective in accordance with Section 2.1(d) hereof and to
comply with the provisions of the Securities Act with respect to the disposition
of all Registrable Securities covered by such registration statement until such
time as all of such Registrable Securities have been disposed of in accordance
with the intended methods of disposition by the seller or sellers thereof set
forth in such registration statement; provided, that except with respect to any
such registration statement filed pursuant to Rule 415 under the Securities Act,
such period need not exceed 180 days;
(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,
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in conformity with the requirements of the Securities Act, and such other
documents, as such seller may reasonably request;
(iv) make any filings (if any) required under the
blue sky or securities laws of such States of the United States of America as
the sellers of Registrable Securities covered by such registration statement
shall reasonably request;
(v) furnish at the effective date of such
registration statement and/or on the date of closing under the underwriting
agreement, as the case may be, to each seller of Registrable Securities, and to
the underwriters, if any, a signed counterpart of:
(x) an opinion of counsel for the Company dated the
effective date of such registration statement and, if applicable, the
date of the closing under the underwriting agreement, and
(y) a "comfort" letter signed by the independent
public accountants who have certified the Company's financial
statements included or incorporated by reference in such registration
statement, covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in
the case of the accountants' comfort letter, with respect to events
subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' comfort
letters delivered to the underwriters in underwritten public offerings
of securities and, in the case of the accountants' comfort letter, such
other financial matters, and, in the case of the legal opinion, such
other legal matters, as counsel for the seller or sellers of
Registrable Securities may reasonably request;
(vi) notify each seller of Registrable Securities at
any time when a prospectus relating thereto is required to be delivered under
the Securities Act, upon discovery that, or upon the happening of any event as a
result of which, the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, in the light of the circumstances under which they were
made, and at the request of any such seller promptly prepare and furnish to it a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made;
(vii) otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and make available to
security holders, as soon as reasonably practicable (but not more than sixteen
months after the effective date of such
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registration statement), an earnings statement covering the period of at least
twelve months beginning with the first full calendar month after the effective
date of such registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 promulgated
thereunder;
(viii) provide and cause to be maintained a transfer
agent and registrar (which, in each case, may be the Company) for all
Registrable Securities covered by such registration statement from and after a
date not later than the effective date of such registration;
(ix) use its best efforts to list all Registrable
Securities covered by such registration statement on any national market or
national securities exchange on which Registrable Securities of the same class
covered by such registration statement are then listed and, if no such
Registrable Securities are so listed, on any national market or national
securities exchange on which the Common Stock is then listed;
(x) to the extent reasonably requested by the
managing underwriter of any underwritten offering, send appropriate officers of
the Company to attend "road shows" scheduled in connection with any such
registration; and
(xi) furnish unlegended certificates representing
ownership of the Registrable Securities being sold in such denominations as
shall be requested by the sellers of Registrable Securities or the underwriters.
As a condition precedent of the Company's obligations under this
Section 2.3, the Company may require each seller of Registrable Securities as to
which any registration is being effected to agree to comply with the Securities
Act and the Exchange Act in connection with the registration of such seller's
Registrable Securities and to provide the Company with such information required
under such Acts as the Company may reasonably request in connection therewith.
Each holder of Registrable Securities agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
subdivision (vi) of this Section 2.3, such holder will forthwith discontinue
such disposition of Registrable Securities pursuant to the registration
statement relating to such Registrable Securities until the receipt of the
copies of the supplemented or amended prospectus contemplated by subdivision
(vi) of this Section 2.3 and, if so directed by the Company, will deliver to the
Company (at the Company's expense) all copies, other than permanent file copies,
then in its possession of the prospectus relating to such Registrable Securities
current at the time of receipt of such notice.
2.4 Underwritten Offerings.
(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
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substance and form to each such holder and the underwriters and to contain such
representations and warranties by the Company and such other terms as are
generally prevailing in agreements of that type, including, without limitation,
indemnities to the effect and to the extent provided in Section 2.7 or such
other indemnities as are customarily received by underwriters in public
offerings of similar securities. The holder of the Registrable Securities
proposed to be distributed by such underwriters will reasonably cooperate with
the Company in the negotiation of the underwriting agreement. Such holders of
Registrable Securities to be distributed by such underwriters shall be parties
to such underwriting agreement and may, at the option of the holders of a
majority of the Registrable Securities to be distributed by such underwriters,
require that any or all of the representations and warranties by, and the other
agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such holders and that
any or all of the conditions precedent to the obligations of underwriters under
such underwriting agreement be conditions precedent to the obligations of such
holders of Registrable Securities. No holder of Registrable Securities shall be
required to make any representations or warranties to or agreements with the
Company other than representations, warranties or agreements regarding such
holders and such holders' intended method of distribution or any other
representations required by applicable law.
(b) Incidental Underwritten Offerings. If the Company proposes
to register any of its securities under the Securities Act as contemplated by
Section 2.2 and such securities are to be distributed by or through one or more
underwriters, the Company will, if requested by any Selling Holder of
Registrable Securities, use its best efforts to arrange for such underwriters to
include all the Registrable Securities to be offered and sold by such Selling
Holder among the securities of the Company to be distributed by such
underwriters, subject to the provisions of Section 2.2(b). The holders of
Registrable Securities to be distributed by such underwriters shall be parties
to the underwriting agreement between the Company and such underwriters and such
holders of Registrable Securities may, at the option of the holders of a
majority of the Registrable Securities to be distributed by such underwriters,
require that any or all of the representations and warranties by, and the other
agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such holders of
Registrable Securities and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to the obligations of such holders of Registrable Securities. Any such
Selling Holder of Registrable Securities shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding such
Selling Holder, such Selling Holder's Registrable Securities and such Selling
Holder's intended method of distribution or any other representations required
by applicable law.
(c) Holdback Agreements.
(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
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registration relating to such Registrable Securities pursuant to Sections 2.1
and 2.2 has become effective, except as part of such registration, if and to the
extent requested by the Company in the case of a non-underwritten public
offering or if and to the extent requested by the managing underwriter or
underwriters in the case of an underwritten public offering.
(ii) The Company agrees not to effect any public sale
or distribution of its Registrable Securities or securities convertible into or
exchangeable or exercisable for any of such Registrable Securities during the
seven days prior to and the 90 days after any registration relating to such
Registrable Securities pursuant to Section 2.1 or 2.2 has become effective,
except as part of such registration and except pursuant to registrations on Form
S-4 or S-8 or any successor or similar forms thereto; provided, however, that
the provisions of this Section 2.4(c)(ii) shall not prevent the conversion or
exchange of any securities pursuant to their terms into or for other securities.
2.5 Preparation; Reasonable Investigation. In connection with
the preparation and filing of each registration statement under the Securities
Act pursuant to this Agreement, the Company will give a representative holder
(the "Representative") designated in writing to the Company by a majority of the
holders of Registrable Securities to be registered under such registration
statement, the underwriters designated by the Representative, if any, and
counsel designated by the Representative the opportunity to participate in the
preparation of such registration statement, each prospectus included therein or
filed with the Commission, and each amendment thereof or supplement thereto, and
will give each of them such reasonable access to its books and records and such
opportunities to discuss the business of the Company and its subsidiaries with
officers of the Company and the independent public accountants of the Company
who have certified its financial statements as shall be necessary, in the
opinion of such Representative and such underwriters and counsel, to conduct a
reasonable investigation within the meaning of the Securities Act.
2.6 Limitations, Conditions and Qualifications to Obligations
under Registration Covenants. The Company shall be entitled to postpone for a
reasonable period of time (but not exceeding 120 days) the filing of any
registration statement otherwise required to be prepared and filed by it
pursuant to Section 2.1 if the Company determines, in its reasonable judgment,
that such registration and offering would interfere in a material way with any
financing, acquisition, corporate reorganization or other material transaction
or event involving or being considered by the Company and, in each case,
promptly gives the holders of Registrable Securities pursuant to Section 2.1
written notice of such determination, containing a general statement of the
reasons for such postponement and an approximation of the anticipated delay. If
the Company shall so postpone the filing of a registration statement, holders of
Registrable Securities requesting registration thereof pursuant to Section 2.1
representing not less than a majority of the Registrable Securities with respect
to which registration has been requested, shall have the right to withdraw the
request for registration by giving written notice to the Company within 30 days
after the expiration of such postponement and, in the event of such withdrawal,
such request shall not be counted for purposes of the requests for registration
to which holders of Registrable Securities are entitled pursuant to Section 2.1
hereof.
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2.7 Indemnification.
(a) Indemnification by the Company. The Company shall, and
hereby does, indemnify and hold harmless, in the case of any registration
statement filed pursuant to Section 2.1 or 2.2, each seller of any Registrable
Securities covered by such registration statement and each other Person who
participates as an underwriter in the offering or sale of any securities covered
by such registration statement and each other Person, if any, who controls such
seller or any such underwriter within the meaning of the Securities Act or the
Exchange Act, and their respective directors, officers, partners, agents and
affiliates, against any losses, claims, damages or liabilities, joint or
several, to which such seller or underwriter or any such director, officer,
partner, agent, affiliate or controlling person may become subject under the
Securities Act or otherwise, including, without limitation, the reasonable fees
and expenses of legal counsel, insofar as such losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities were registered under the Securities
Act, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein (in light of the circumstances under
which they were made) not misleading, and the Company will reimburse such seller
or underwriter and each such director, officer, partner, agent, affiliate and
controlling person for any reasonable legal or any other expenses incurred by
them in connection with investigating or defending any such loss, claim,
liability, action or proceeding; provided, however, that the Company shall not
be liable in any case to the extent that any such loss, claim, damage, liability
(or action or proceeding in respect thereof) or expense arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement
thereto in reliance upon and in conformity with written information furnished to
the Company by or on 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
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Registrable Securities or the underwriter of Registrable Securities, as the case
may be, with a sufficient number of copies of the same. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of such seller or underwriter or any such director, officer, partner,
agent, affiliate or controlling person and shall survive the transfer of such
securities by such seller or underwriter.
(b) Indemnification by the Sellers. As a condition to
including any Registrable Securities in any registration statement, the Company
shall have received an undertaking reasonably satisfactory to it from the
prospective seller of such Registrable Securities to indemnify and hold harmless
(in the same manner and to the same extent as set forth in Section 2.7(a)) the
Company and each director of the Company, each officer of the Company who signs
the registration statement and each other Person, if any, who participates as an
underwriter in the offering or sale of such securities and each other Person who
controls the Company or any such underwriter within the meaning of the
Securities Act or the Exchange Act, with respect to any statement or alleged
untrue statement of a material fact in or omission or alleged omission from such
registration statement, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, if such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
the Company by such seller specifically stating that it is for use in the
preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement; provided, however, that
the liability of such indemnifying party under this Section 2.7(b) shall be
limited to the amount of proceeds received by such indemnifying party in the
offering giving rise to such liability. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Company or any such director, officer, employee, shareholder, controlling person
or other Person. Such indemnity shall survive the transfer of such securities by
such seller.
(c) Notices of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in Section 2.7(a) or (b), such indemnified party
shall, if a claim in respect thereof is to be made against an indemnifying
party, give written notice to the latter of the commencement of such action;
provided, however, that the failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party of its obligations
under the preceding subdivisions of this Section 2.7, except to the extent that
the indemnifying party is actually and materially prejudiced by such failure to
give notice. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate therein and, to the
extent that it may wish, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
for legal or other expenses subsequently incurred by the latter in connection
with the defense thereof; provided, however, that any indemnified party may, at
its own expense, retain separate counsel to participate in such defense.
Notwithstanding the foregoing, in any action or proceeding in which the Company
as well as
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an indemnified party is, or is reasonably likely to become, a party, such
indemnified party shall have the right to employ separate counsel at the expense
of the Company, and to control its own defense of such action or proceeding if,
in the reasonable opinion of counsel to such indemnified party, (a) there are or
may be any legal defenses available to such indemnified party or to other
indemnified parties that are different from or additional to those available to
the Company, or (b) any conflict or potential conflict exist between the Company
and such indemnified party that would make such separate representation
advisable in the opinion of the indemnified party. No indemnifying party shall
be liable for any settlement of any action or proceeding effected without its
written consent, which consent shall not be unreasonably withheld. No
indemnifying party shall, without the consent of the indemnified party, which
consent shall not be unreasonably withheld, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect to such claim or litigation or which
requires action other than the payment of money by the indemnifying party or
which otherwise adversely affects the indemnified party. No indemnifying party
shall be liable for any settlement of any action or proceeding effected without
its written consent, which consent shall not be unreasonable withheld.
(d) Contribution. If the indemnification provided for in this
Section 2.7 shall for any reason be held by a court to be unavailable to an
indemnified party under Section 2.7(a) or (b) hereof in respect of any loss,
claim, damage or liability, or any action in respect thereof, then, in lieu of
the amount paid or payable under Section 2.7(a) or (b), the indemnified party
and the indemnifying party under Section 2.7(a) or (b) shall contribute to the
aggregate losses, claims, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating the same), in such
proportion as is appropriate to reflect the relative fault of the Company on one
hand, and the prospective sellers on the other hand, which resulted in such
loss, claim, damage or liability, or action or proceeding in respect thereof,
with respect to the statements or omissions which resulted in such loss, claim,
damage or liability, or action or proceeding in respect thereof, as well as any
other relevant equitable considerations; provided, that for purposes of this
Section 2.7(d), no seller shall be obligated to contribute to another party any
amount in excess of the amount that such seller would have been obligated to pay
to such other party if the indemnity under Section 2.7(a) or (b) were available.
The relative fault shall be determined by reference to whether an untrue
statement or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the
indemnifying party on one hand and the indemnified party on the other hand, the
intent of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission, but not by a
party's security ownership in the Company. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation. Such prospective seller's obligations to
contribute as provided in this Section 2.7(d) are several in proportion to the
relative value of such seller's respective Registrable Securities covered by
such registration statement and not joint. In addition, no Person shall be
obligated to contribute hereunder any amounts in payment for any settlement of
any action or claim effected without such Person's consent, which consent shall
not be unreasonably withheld.
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(e) Indemnification Payments. The indemnification and
contribution required by this Section 2.7 shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as and
when bills are received or expense, loss, damage or liability is incurred.
2.8 Company's Right of First Refusal
(a) Section 8 of Investment Agreement. Prior to any sale of
Registrable Securities by any Selling Holders pursuant to the registration
provisions of Section 2.1 and Section 2.2, respectively, the Company shall have
the right, exercisable in accordance with Section 8 of the Investment Agreement,
to purchase all, but not less than all, of the Registrable Securities to be
subject to such sale by all such Selling Holders (the "Offered Securities") at a
purchase price in cash equal to the First Offer Price per share of Common Stock
of the Offered Securities (assuming for this purpose that such Convertible
Preferred Securities have been converted into Common Stock). For purposes of
this Section 2.8, (i) references in Section 8 of the Investment Agreement to the
term "Investor" shall include, as the context requires, the Selling Holders,
(ii) the demand for registration or request for registration provided for in
this Agreement shall be deemed to be the Transfer Notice required by Section
8(a) of the Investment Agreement, (iii) the date for the closing of a purchase
by the Company of specified Registrable Securities from a Selling Holder shall
not be more than 10 business days after the delivery by the Company of an
Acceptance Notice (as such term is defined in the Investment Agreement) to such
Selling Holder, subject to extension as provided in Section 8(f) of the
Investment Agreement, and (iv) in the event the Company does not exercise its
right to purchase Registrable Securities, and such Registrable Securities are to
be sold pursuant to an underwritten offering, then the Selling Holders or the
Requesting Holders, as the case may be, shall cause the managing underwriter to
use its commercially reasonable efforts not to sell any such shares to any of
the persons described in clauses (x), (y) or (z) of Section 7(b) of the
Investment Agreement, subject to the exceptions and qualifications set forth
therein.
(b) Additional Purchase Rights. In the event the Company
elects not to exercise its right to purchase the Offered Securities from the
Selling Holders as provided in Section 2.8(a) and the offering price at which
such Offered Securities to be registered with the Commission pursuant to Section
2.1 or Section 2.2 and purchased from the Selling Holders (the "Second Offer
Price") is less than 95% of the First Offer Price, then the Company shall have
the additional right to cancel the proposed public offering and purchase all
such Offered Securities from such Selling Holders, at the Second Offer Price
(less any underwriting discounts and commissions). The Company and the Selling
Holders shall cause any underwriting agreement entered into in connection with
the offer and sale of the Offered Securities to reflect such purchase right of
the Company. Immediately, and in no event less than three business days, prior
to the time the registration statement filed by the Company for the registration
of the Offered Securities becomes effective under the Securities Act, (x) the
Representative shall, or shall cause the managing underwriter to, notify the
Company, in the case of a registration requested pursuant to Section 2.1, and
(y) the Company shall, or shall cause the managing underwriter to, notify the
Selling Holders, in the case of a registration requested pursuant to Section
2.2, of the Second Offer Price. If the Company
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<PAGE>
elects to exercise its right to purchase the Offered Securities at the Second
Offer Price (less any underwriting discounts and commissions), the Company shall
promptly (and prior to the effectiveness of the registration statement for such
Offered Securities) deliver an Acceptance Notice (as defined in the Investment
Agreement) to each Selling Holder of its intention to purchase the Offered
Securities owned by such Selling Holder at the Second Offer Price (less any
underwriting discounts and commissions), on a date not more than five business
days after delivery of such Acceptance Notice (subject to extension as provided
in Section 8(f) of the Investment Agreement). If the Company elects to exercise
its purchase rights hereunder and purchases the Offered Securities, the Company
shall pay all fees (including all underwriting discounts and commissions which
would have been given or retained by such underwriters had the proposed public
offering been consummated) of the underwriters in connection with the
preparation and filing of the registration statement and the Company shall pay
all Registration Expenses of the Selling Holders which would have been payable
by it pursuant to Sections 2.1 or 2.2 had the Company not exercised its purchase
rights hereunder.
3. Rule 144. The Company shall take all actions reasonably necessary to
enable holders of Registrable Securities to sell such securities without
registration under the Securities Act within the limitation of the exceptions
provided by (a) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (b) any similar rules or regulations hereafter adopted by
the Commission, and subject to the limitations on transfer set forth in Section
7 of the Investment Agreement. Upon the request of any holder of Registrable
Securities, the Company will deliver to such holder a written statement as to
whether such requirements have been complied with.
4. Amendments and Waivers. This Agreement may be amended with the
written consent of the Company and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company shall have obtained the written consent to such amendment,
action or omission to act, of the holder or holders of at least a majority in
aggregate principal amount or liquidation amount, as the case may be, of the
Registrable Securities affected by such amendment, action or omission to act;
provided, however, that the provisions set forth in the third sentence of
Section 5 may not, directly or indirectly, be amended or modified without the
prior written consent of each Lender (as defined in Section 7(c) of the
Investment Agreement) affected thereby. Each holder of any Registrable
Securities at the time or thereafter outstanding shall be bound by any consent
authorized by this Section 4, whether or not such Registrable Securities shall
have been marked to indicate such consent. No course of dealing between any
parties or any delay on the part of any party in exercising any rights hereunder
or under any agreement contemplated hereby shall operate as a waiver of any
rights of any such party. No delay on the part of any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, or shall
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.
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5. Transfer of Registration Rights; Termination. Any holder of
Registrable Securities may transfer all or any portion of its rights under this
Agreement to any transferee (each, a "Transferee") of Registrable Securities
owned by such holder, subject to the limitations on transfers of Convertible
Preferred Securities and Conversion Shares set forth in Section 7 of the
Investment Agreement and the Company's rights of purchase set forth in Section 8
of the Investment Agreement and Section 2.8 of this Agreement; provided,
however, that the rights of the Investor under this Agreement may be assigned to
a wholly-owned subsidiary of TMC, without the consent of the Company, provided
that TMC shall remain liable for the obligations of the Investor hereunder. Any
transfer of rights pursuant to this Section 5 shall be effective upon receipt by
the Company of (i) a written notice from such holder stating the name and
address of any Transferee and identifying the amount of Registrable Securities
with respect to which the rights under this Agreement are being transferred and
the nature of the rights so transferred and (ii) a written agreement from such
Transferee to be bound by the terms of this Agreement and the Investment
Agreement. In addition to the foregoing, and notwithstanding any other provision
of this Agreement or the Investment Agreement, the Investor may transfer all or
any portion of its rights under this Agreement to any Lender (as defined in
Section 7(c) of the Investment Agreement), subject to the Company's rights of
purchase set forth in Section 8 of the Investment Agreement and Section 2.8 of
this Agreement (other than Section 2.8(a)(iv). The holders of Registrable
Securities may exercise the rights hereunder in such priority as they shall
agree upon among themselves.
6. Nominees for Beneficial Owners. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election in writing delivered to the
Company, be treated as the holder of such Registrable Securities for purposes of
any request or other action by any holder or holders of Registrable Securities
pursuant to this Agreement or any determination of any number or percentage of
Registrable Securities held by any holder or holders of Registrable Securities
contemplated by this Agreement. If the beneficial owner of any Registrable
Securities so elects, the Company may require assurances reasonably satisfactory
to it of such owner's beneficial ownership of such Registrable Securities.
7. Notices. All notices, demands and other communications provided for
or permitted hereunder shall be made in writing and shall be sent by registered
or certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:
(a) If to the Investor, at 1999 Broadway, Suite 4300, Denver,
Colorado 80202, attention: General Counsel or at such other address as the
Investor shall have furnished to the Company in the manner set forth herein;
(b) If to the Company, at 4317 Middle Settlement Road, New
Hartford, New York 13413, attention: Robert F. Dropkin, Vice President,
Secretary and Chief Legal Counsel or at such other address as the Company shall
have furnished to each holder of Registrable Securities at that time outstanding
in the manner set forth herein; or
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<PAGE>
(c) If to any other holder of Registrable Securities, at the
address that such holder shall have furnished to the Company in writing in the
manner set forth herein, or, until such holder so furnishes to the Company an
address, then to and at the address of the last holder of such Registrable
Securities who has furnished an address to the Company.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by a
courier, if delivered by overnight courier service; three business days after
being deposited in the mail, postage prepaid, if mailed; and when receipt is
acknowledged, if telecopied.
8. Successors and Assigns; Third Parties.
(a) Subject to Section 5, this Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns. Except by operation of law, this agreement shall not be
assigned by the Company without the prior written consent of the holders of a
majority of the Registrable Securities outstanding at the time such consent is
required.
(b) Nothing in this Agreement, expressed or implied, is
intended or shall be construed to confer upon any Person (other than the parties
and their successors and permitted assigns and any Person entitled to the
benefit of Section 2.7) any right, remedy or claim under or by reason of this
Agreement.
9. No Inconsistent Agreements; Acknowledgment. The Company will not
hereafter enter into any agreement with respect to its securities which is
inconsistent with the rights granted to the holders of Registrable Securities in
this Agreement. Without limiting the generality of the foregoing, the Company
will not hereafter enter into any agreement with respect to its securities which
grants to any holder of its securities in connection with a piggy-back
registration of such securities equal or higher priority to the rights granted
to the holders of Registrable Securities under Section 2. The parties hereby
acknowledge that, on the date hereof, the Company and Inco will enter into the
Inco Registration Rights Agreement pursuant to which the Company will grant to
Inco certain piggy-back registration rights for the Registrable Securities held
by it, which rights will be subordinate to the piggyback rights granted pursuant
to Section 2.2.
10. Remedies. Each holder of Registrable Securities, in addition to
being entitled to exercise all rights granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
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
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employ an alternative means to achieve the same or substantially the same result
as that contemplated by such term or provision.
12. Calculation of Percentage Interests in Registrable Securities. For
purposes of this Agreement, all references to a percentage of the Registrable
Securities shall be calculated based upon the number of shares, warrants or
rights or the aggregate principal amount or liquidation amount, as applicable,
of Registrable Securities outstanding at the time such calculation is made.
13. Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein.
This Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
14. Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed in that State, without regard to principles of conflicts of
law.
16. Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed an original and all of which taken together
shall constitute one and the same instrument.
17. Acknowledgment. The parties hereto hereby acknowledge that, at the
Closing Time, the Investor and TMC shall assign their rights under this
agreement to Bankers Trust Company or its agent ("BTC"), as collateral security
for certain obligations owed by the Investor and TMC to BTC and certain other
parties, and that BTC, in its individual capacity and as agent for the other
Lenders (as defined in Section 7(c) of the Investment Agreement), shall
constitute a Lender for purposes of Sections 4 and 5 hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
TIMET MANAGEMENT FINANCE COMPANY
By: ______________________________________
Name:
Title:
SPECIAL METALS CORPORATION
By: ______________________________________
Name: Donald R. Muzyka
Title: President and Chief Executive Officer
21
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of October 28, 1998 (this
"Agreement") between Inco Limited, a corporation continued under the laws of
Canada (the "Investor"), and Special Metals Corporation, a Delaware corporation
(the "Company").
W I T N E S S E T H:
WHEREAS, in connection with the closing of the transactions
contemplated by the Investment Agreement, dated as of the date hereof (the
"Investment Agreement"), between the Company and the Investor, the parties have
agreed to enter into this Agreement, which sets forth certain registration
rights applicable to the Registrable Securities (as defined below) held from
time to time by the Investor and/or certain permitted transferees;
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and subject to the conditions and
upon the terms hereof, the parties hereto hereby agree as follows:
1. Definitions. Capitalized terms used herein without definition shall
have their respective meanings set forth in the Investment Agreement. As used
herein, unless the context otherwise requires, the following terms have the
following respective meanings:
"Certificate of Designation" shall mean the Certificate of Designation
of Rights and Preferences establishing the terms and relative rights and
preferences of the Convertible Preferred Securities.
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Common Stock" shall mean and include (i) Common Stock, par value $0.01
per share, of the Company, (ii) each other class of capital stock of the Company
that does not have a preference over any other class of capital stock of the
Company as to dividends or upon liquidation, dissolution or winding up of the
Company, and (iii) any class of capital stock or securities into which or for
which shares of Common Stock or any other class of capital stock or securities
described in clauses (ii) or (iii) may hereafter be changed, converted or
exchanged or which are issued to holders of shares of Common Stock or any other
class of capital stock or securities described in clauses (ii) or (iii) upon any
reorganization, recapitalization, reclassification, share combination, share
subdivision, share dividend, merger, consolidation or similar transactions or
events.
<PAGE>
"Conversion Shares" shall mean and include the shares of Common Stock
issuable upon conversion of the Convertible Preferred Securities in accordance
with the terms of the Certificate of Designation.
"Convertible Preferred Securities" shall mean and include (i) the
6.625% Series A Senior Convertible Preferred Stock (Liquidation Amount $50.00
per Convertible Preferred Security) of the Company and (ii) any class of capital
stock or securities into which or for which Convertible Preferred Securities or
any other class of capital stock or securities described in this clause (ii) may
hereafter be changed, converted or exchanged (in each case, other than pursuant
to its terms) or which are issued to holders of Convertible Preferred Securities
or any other class of capital stock or securities described in this clause (ii)
upon any reorganization, recapitalization, reclassification, share combination,
share subdivision, share dividend, merger, consolidation or similar transactions
or events.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any superseding Federal statute, and the rules and regulations promulgated
thereunder, all as the same shall be in effect at the time. Reference to a
particular section of the Securities Exchange Act of 1934, as amended, shall
include a reference to the comparable section, if any, of any such superseding
Federal statute.
"First Offer Price" is defined in Section 2.1(a).
"a majority of the Registrable Securities" shall mean (i) more than 50%
of the shares of the issued and outstanding Registrable Securities if the
Registrable Securities are shares of capital stock or rights or warrants to
acquire capital stock, (ii) more than 50% of the aggregate principal amount of
the issued and outstanding Registrable Securities if the Registrable Securities
are debt securities or (iii) more than 50% of the aggregate liquidation amount
of the issued and outstanding Registrable Securities if the Registrable
Securities are Convertible Preferred Securities. If there is more than one class
of Registrable Securities, the term "a majority of the Registrable Securities"
shall mean a majority of the Registrable Securities, assuming for purposes of
this definition, that all such securities have been converted into securities of
the same class.
"Offered Securities" is defined in Section 2.6(a).
"Person" means any individual, firm, corporation, partnership, limited
liability company or partnership, trust, incorporated or unincorporated
association, joint venture, joint stock company, government (or an agency or
political subdivision thereof) or other entity of any kind and shall include any
successor (by merger or otherwise) of such entity.
"Principal Stockholders" is defined in Section 2.1(a).
"Principal Stockholders' Registration Agreement" is defined in Section
2.1(a).
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"Principal Stockholders' Securities" is defined in Section 2.1(b).
"Registrable Securities" means the Convertible Preferred Securities,
the Conversion Shares and any other securities of the Company, in each case,
acquired pursuant to the terms of the Investment Agreement. As to any particular
Registrable Securities, once issued, such securities shall cease to be
Registrable Securities when (a) a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities shall have been disposed of in accordance with such registration
statement, (b) they shall have been sold as permitted by Rule 144 (or any
successor provision) under the Securities Act, (c) they shall have been
otherwise transferred, new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent public distribution of them shall not require registration of such
distribution under the Securities Act or (d) they shall have ceased to be
outstanding. All references to percentages of Registrable Securities shall be
calculated pursuant to Section 12.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with Section 2, including, without limitation, all
registration and filing fees, all fees of the NASDAQ National Market, any
national securities exchange or the National Association of Securities Dealers,
Inc., all fees and expenses of the Company of complying with securities or blue
sky laws (if any), all word processing, duplicating and printing expenses,
messenger and delivery expenses of the Company, the fees and disbursements of
counsel for the Company and of the Company's independent public accountants,
including the expenses of "comfort" letters required by or incident to such
performance and compliance, any fees and disbursements of underwriters
customarily paid by issuers or sellers of securities (excluding any underwriting
discounts or commissions or transfer taxes with respect to the Registrable
Securities) and the reasonable fees and expenses of one counsel to the Selling
Holders (selected by the Selling Holders representing a majority of the
Registrable Securities covered by such registration statement); provided,
however, that in the event the Company shall determine, in accordance with
Section 2.1(a), not to register any securities with respect to which it had
given written notice of its intention to so register to holders of Registrable
Securities, all of the costs of the type (and subject to any limitation to the
extent) set forth in this definition and incurred by Selling Holders in
connection with such registration on or prior to the date the Company notifies
the Selling Holders of such determination shall be deemed Registration Expenses.
"Second Offer Price" is defined in Section 2.6(b).
"Selling Holders" is defined in Section 2.1(a).
"Securities Act" means the Securities Act of 1933, as amended, or any
superseding Federal statute, and the rules and regulations promulgated
thereunder, all as the same shall be in effect at the time. References to a
particular section of the Securities Act of 1933, as amended, shall include a
reference to the comparable section, if any, of any such superseding Federal
statute.
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"Timet" means Timet Finance Management Company, a Delaware corporation.
"Timet Registration Rights Agreement" means the Registration Rights
Agreement, dated the date hereof, between Timet Finance Management Company and
the Company, as amended from time to time.
2. Registration Under Securities Act, etc.
2.1 Piggy-back Registration.
(a) Right to Include Registrable Securities. Except in
connection with an exclusive demand registration pursuant to Section 2.1 of the
Timet Registration Rights Agreement or Section 2.1 of the Registration Rights
Agreement (the "Principal Stockholders' Registration Agreement"), dated as of
February 25, 1997, among Societe Industrielle de Materiaux Avances, LWH Holding
S.A. and Advanced Materials Investments Holding S.A. (collectively, the
"Principal Stockholders"), as in effect on the date hereof, if the Company at
any time after the second anniversary of the date of this Agreement, proposes to
register any of its Common Stock under the Securities Act by registration on any
form other than Forms S-4 or S-8, or a Form S-1 relating to securities to be
issued in connection with a merger or similar transaction, whether or not for
sale for its own account, it will each such time give prompt written notice to
all registered holders of Registrable Securities of its intention to do so and
of such holders' rights under this Section 2.1(a). Upon the written request of
any such holder made as promptly as practicable and in any event within 10 days
after the receipt of any such notice from the Company (which request shall
specify the Registrable Securities intended to be disposed of by such holder and
the selling price (the "First Offer Price") which is acceptable to such holder,
as determined in good faith by such 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 holders
thereof (all such holders are referred to herein as the "Selling Holders");
provided, that prior to the effective date of the registration statement filed
in connection with such registration, immediately upon notification to the
Company from the managing underwriter of the price at which such securities are
to be sold, if such price is below the First Offer Price which any Selling
Holder shall have indicated to be acceptable to such Selling Holder, the Company
shall so advise such Selling Holder of such price, and such Selling Holder shall
then have the right to withdraw its request to have its Registrable Securities
included in such registration statement; and provided, further, however, that
any sale of Offered Securities pursuant to the registration provisions of this
Section 2.1(a) shall, pursuant to Section 2.6(a), be subject to the Company's
prior right of first refusal set forth in Section 6 of the Investment Agreement
and shall be subject to the additional purchase rights of the Company set forth
in Section 2.6(b). If, at any time after giving written notice of its intention
to register any securities and prior to the effective date of the registration
statement filed in connection with such 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
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determination to each Selling Holder of Registrable Securities and (x) in the
case of a determination not to register, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration (but
not from any obligation of the Company to pay the Registration Expenses in
connection therewith), and (y) in the case of a determination to delay
registering, shall be permitted to delay registering any Registrable Securities,
for the same period as the delay in registering such other securities.
(b) Priority in Piggy-back Registrations. If the managing
underwriter of any underwritten offering or, in the case of any offering that is
not underwritten, a nationally recognized investment banking firm shall advise
the Company (and the Company shall in each case so advise each Selling Holder of
Registrable Securities requesting registration of such advice in writing) that,
in its opinion, the number or type of Registrable Securities requested to be
included in such registration would materially adversely affect such offering or
the market for the Company's securities, then the Company will include in such
registration, to the extent of the number and type of securities which the
Company is so advised can be sold in (or during the time of) such offering,
first, all securities of the Company proposed by the Company to be sold for its
own account, or, in the case of a secondary offering made pursuant to demand
registration rights granted to any Person other than a holder of Registrable
Securities, all securities of the Company that such Person proposes to sell;
second, all securities, if any (the "Principal Stockholders' Securities"),
proposed by the Company to be sold for the account of the Principal Stockholders
pursuant to the exercise of their piggy-back registration rights under the
Principal Stockholders' Registration Rights agreement; third, all Registrable
Securities, if any, requested to be included in such registration pursuant to
the Timet Registration Rights Agreement (pro rata, based on the number of
Registrable Securities requested to be included by each holder thereunder);
fourth, such Registrable Securities requested to be included in such
registration pursuant to this Agreement (pro rata, based on the number of
Registrable Securities requested to be included by each Selling Holder
hereunder) among such Selling Holders; and fifth, all securities of the Company
to be sold for the account of a Person other than a holder of Registrable
Securities or Principal Stockholder Securities, as the case may be.
(c) Expenses. The Company will pay all Registration Expenses
in connection with any registration contemplated pursuant to this Section 2.1.
2.2 Registration Procedures. If and whenever the Company is required to
use its best efforts to effect the registration of any Registrable Securities
under the Securities Act as provided in Section 2.1, 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 commercially reasonable best
efforts to cause such
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registration statement to become effective; provided, however, that the
Company may discontinue any registration of securities that are not
Registrable Securities (and, under the circumstances specified in
Section 2.1(a) and (b), Registrable Securities) at any time prior to
the effective date of the registration statement relating thereto;
(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 and to comply with the provisions of the Securities
Act with respect to the disposition of all Registrable Securities
covered by such registration statement until such time as all of such
Registrable Securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof set
forth in such registration statement; provided, that except with
respect to any such registration statement filed pursuant to Rule 415
under the Securities Act, such period need not exceed 180 days;
(iii) furnish to each seller of Registrable Securities, such
number of conformed copies of such registration statement and of each
such amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus contained in such
registration statement (including each preliminary prospectus and any
summary prospectus) and any other prospectus filed under Rule 424 under
the Securities Act, in conformity with the requirements of the
Securities Act, and such other documents, as such seller may reasonably
request;
(iv) make any filings (if any) required under the blue sky or
securities laws of such States of the United States of America as the
sellers of Registrable Securities covered by such registration
statement shall reasonably request;
(v) furnish at the effective date of such registration
statement and/or on the date of closing under the underwriting
agreement, as the case may be, to each seller of Registrable
Securities, and to the underwriters, if any, a signed counterpart of:
(x) an opinion of counsel for the Company dated the
effective date of such registration statement and, if
applicable, the date of the closing under the underwriting
agreement, and
(y) a "comfort" letter signed by the independent
public accountants who have certified the Company's financial
statements included or incorporated by reference in such
registration statement, covering substantially the same
matters with respect to such registration statement (and the
prospectus included
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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 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 security holders, as soon as reasonably practicable (but not more
than sixteen months after the effective date of such registration
statement), an earnings statement covering the period of at least
twelve months beginning with the first full calendar month after the
effective date of such registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act and
Rule 158 promulgated thereunder;
(viii) provide and cause to be maintained a transfer agent and
registrar (which, in each case, may be the Company) for all Registrable
Securities covered by such registration statement from and after a date
not later than the effective date of such registration;
(ix) use its best efforts to list all Registrable Securities
covered by such registration statement on any national market or
national securities exchange on which Registrable Securities of the
same class covered by such registration statement are then listed and,
if no such Registrable Securities are so listed, on any national market
or national securities exchange on which the Common Stock is then
listed;
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(x) to the extent reasonably requested by the managing
underwriter of any underwritten offering, send appropriate officers of
the Company to attend "road shows" scheduled in connection with any
such registration; and
(xi) furnish unlegended certificates representing ownership of
the Registrable Securities being sold in such denominations as shall be
requested by the sellers of Registrable Securities or the underwriters.
As a condition precedent of the Company's obligations under this
Section 2.2, the Company may require each seller of Registrable Securities as to
which any registration is being effected to agree to comply with the Securities
Act and the Exchange Act in connection with the registration of such seller's
Registrable Securities and to provide the Company with such information required
under such Acts as the Company may reasonably request in connection therewith.
Each holder of Registrable Securities agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
subdivision (vi) of this Section 2.2, 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 2.2 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.
2.3 Underwritten Offerings.
(a) Incidental Underwritten Offerings. If the Company proposes
to register any of its securities under the Securities Act as contemplated by
Section 2.1 and such securities are to be distributed by or through one or more
underwriters, the Company will, if requested by any Selling Holder of
Registrable Securities, use its best efforts to arrange for such underwriters to
include all the Registrable Securities to be offered and sold by such Selling
Holder among the securities of the Company to be distributed by such
underwriters, subject to the provisions of Section 2.1(b). The holders of
Registrable Securities to be distributed by such underwriters shall be parties
to the underwriting agreement between the Company and such underwriters and such
holders of Registrable Securities may, at the option of the holders of a
majority of the Registrable Securities to be distributed by such underwriters,
require that any or all of the representations and warranties by, and the other
agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such holders of
Registrable Securities and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to the obligations of such holders of Registrable Securities. Any such
Selling Holder of Registrable Securities shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters other than representations,
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warranties or agreements regarding such Selling Holder, such Selling Holder's
Registrable Securities and such Selling Holder's intended method of distribution
or any other representations required by applicable law.
(b) 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 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 has become effective, except as part of such registration
and except pursuant to registrations on Form S-4 or S-8 or any
successor or similar forms thereto; provided, however, that the
provisions of this Section 2.3(b)(ii) shall not prevent the conversion
or exchange of any securities pursuant to their terms into or for other
securities.
2.4 Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give a representative holder (the
"Representative") designated in writing to the Company by a majority of the
holders of Registrable Securities to be registered under such registration
statement and counsel designated by the Representative the opportunity to
participate in the preparation of such registration statement, each prospectus
included therein or filed with the Commission, and each amendment thereof or
supplement thereto, and will give each of them such reasonable access to its
books and records and such opportunities to discuss the business of the Company
and its subsidiaries with officers of the Company and the independent public
accountants of the Company who have certified its financial statements as shall
be necessary, in the opinion of such Representative and such counsel, to conduct
a reasonable investigation within the meaning of the Securities Act.
2.5 Indemnification.
(a) Indemnification by the Company. The Company shall, and
hereby does, indemnify and hold harmless, in the case of any registration
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statement filed pursuant to Section 2.1, each seller of any Registrable
Securities covered by such registration statement and each other Person who
participates as an underwriter in the offering or sale of any securities covered
by such registration statement and each other Person, if any, who controls such
seller or any such underwriter within the meaning of the Securities Act or the
Exchange Act, and their respective directors, officers, partners, agents and
affiliates, against any losses, claims, damages or liabilities, joint or
several, to which such seller or underwriter or any such director, officer,
partner, agent, affiliate or controlling person may become subject under the
Securities Act or otherwise, including, without limitation, the reasonable fees
and expenses of legal counsel, insofar as such losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities were registered under the Securities
Act, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein (in light of the circumstances under
which they were made) not misleading, and the Company will reimburse such seller
or underwriter and each such director, officer, partner, agent, affiliate and
controlling person for any reasonable legal or any other expenses incurred by
them in connection with investigating or defending any such loss, claim,
liability, action or proceeding; provided, however, that the Company shall not
be liable in any case to the extent that any such loss, claim, damage, liability
(or action or proceeding in respect thereof) or expense arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement
thereto in reliance upon and in conformity with written information furnished to
the Company by or on 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
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sufficient number of copies of the same. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
seller or underwriter or any such director, officer, partner, agent, affiliate
or controlling person and shall survive the transfer of such securities by such
seller or underwriter.
(b) Indemnification by the Sellers. As a condition to
including any Registrable Securities in any registration statement, the Company
shall have received an undertaking reasonably satisfactory to it from the
prospective seller of such Registrable Securities to indemnify and hold harmless
(in the same manner and to the same extent as set forth in Section 2.5(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
untrue statement of a material fact in or omission or alleged omission from such
registration statement, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, if such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
the Company by such seller specifically stating that it is for use in the
preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement; provided, however, that
the liability of such indemnifying party under this Section 2.5(b) shall be
limited to the amount of proceeds received by such indemnifying party in the
offering giving rise to such liability. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Company or any such director, officer, employee, shareholder, controlling person
or other Person. Such indemnity shall survive the transfer of such securities by
such seller.
(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 2.5(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 2.5, except to the extent that
the indemnifying party is actually and materially prejudiced by such failure to
give notice. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate therein and, to the
extent that it may wish, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
for legal or other expenses subsequently incurred by the latter in connection
with the defense thereof; provided, however, that any indemnified party may, at
its own expense, retain separate counsel to participate in such defense.
Notwithstanding the foregoing,
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in any action or proceeding in which the Company as well as an indemnified party
is, or is reasonably likely to become, a party, such indemnified party shall
have the right to employ separate counsel at the expense of the Company, and to
control its own defense of such action or proceeding if, in the reasonable
opinion of counsel to such indemnified party, (a) there are or may be any legal
defenses available to such indemnified party or to other indemnified parties
that are different from or additional to those available to the Company, or (b)
any conflict or potential conflict exist between the Company and such
indemnified party that would make such separate representation advisable in the
opinion of the indemnified party. No indemnifying party shall be liable for any
settlement of any action or proceeding effected without its written consent,
which consent shall not be unreasonably withheld. No indemnifying party shall,
without the consent of the indemnified party, which consent shall not be
unreasonably withheld, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect to such claim or litigation or which requires action other
than the payment of money by the indemnifying party or which otherwise adversely
affects the indemnified party. No indemnifying party shall be liable for any
settlement of any action or proceeding effected without its written consent,
which consent shall not be unreasonably withheld.
(d) Contribution. If the indemnification provided for in this
Section 2.5 shall for any reason be held by a court to be unavailable to an
indemnified party under Section 2.5(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 2.5(a) or (b), the indemnified party
and the indemnifying party under Section 2.5(a) or (b) shall contribute to the
aggregate losses, claims, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating the same), in such
proportion as is appropriate to reflect the relative fault of the Company on one
hand, and the prospective sellers on the other hand, which resulted in such
loss, claim, damage or liability, or action or proceeding in respect thereof,
with respect to the statements or omissions which resulted in such loss, claim,
damage or liability, or action or proceeding in respect thereof, as well as any
other relevant equitable considerations; provided, that for purposes of this
Section 2.5(d), no seller shall be obligated to contribute to another party any
amount in excess of the amount that such seller would have been obligated to pay
to such other party if the indemnity under Section 2.5(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 security ownership in the Company. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation. Such prospective seller's obligations to
contribute as provided in this Section 2.5(d) are several in proportion to the
relative value of such seller's
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respective Registrable Securities covered by such registration statement and not
joint. In addition, no Person shall be obligated to contribute hereunder any
amounts in payment for any settlement of any action or claim effected without
such Person's consent, which consent shall not be unreasonably withheld.
(e) Indemnification Payments. The indemnification and
contribution required by this Section 2.5 shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as and
when bills are received or expense, loss, damage or liability is incurred.
2.6 Company's Right of First Refusal
(a) Section 6 of Investment Agreement. Prior to any sale of
Registrable Securities by any Selling Holders pursuant to the registration
provisions of Section 2.1, the Company shall have the right, exercisable in
accordance with Section 6 of the Investment Agreement, to purchase all, but not
less than all, of the Registrable Securities to be subject to such sale by all
such Selling Holders (the "Offered Securities") at a purchase price in cash
equal to the First Offer Price per share of Common Stock of the Offered
Securities (assuming for this purpose that such Convertible Preferred Securities
have been converted into Common Stock). For purposes of this Section 2.6, (i)
references in Section 6 of the Investment Agreement to the term "Investor" shall
include, as the context requires, the Selling Holders, (ii) the demand for
registration or request for registration provided for in this Agreement shall be
deemed to be the Transfer Notice required by Section 6(a) of the Investment
Agreement, (iii) the date for the closing of a purchase by the Company of
specified Registrable Securities from a Selling Holder shall not be more than 10
business days after the delivery by the Company of an Acceptance Notice (as such
term is defined in the Investment Agreement) to such Selling Holder, subject to
extension as provided in Section 6(f) of the Investment Agreement, and (iv) in
the event the Company does not exercise its right to purchase Registrable
Securities, and such Registrable Securities are to be sold pursuant to an
underwritten offering, then the Selling Holders or the Requesting Holders, as
the case may be, shall cause the managing underwriter to use its commercially
reasonable efforts not to sell any such shares to any of the persons described
in clauses (x), (y) or (z) of Section 5(b) of the Investment Agreement, subject
to the exceptions and qualifications set forth therein.
(b) Additional Purchase Rights. In the event the Company
elects not to exercise its right to purchase the Offered Securities from the
Selling Holders as provided in Section 2.6(a) and the offering price at which
such Offered Securities to be registered with the Commission pursuant to Section
2.1 and purchased from the Selling Holders (the "Second Offer Price") is less
than 95% of the First Offer Price, then the Company shall have the additional
right to cancel the proposed public offering and purchase all such Offered
Securities from such Selling Holders, at the Second Offer Price (less any
underwriting discounts and commissions). The Company and the Selling Holders
shall cause any underwriting agreement entered into in connection with the offer
and sale of the Offered Securities to reflect such purchase right of the
Company. Immediately, and in no event less than three business days,
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prior to the time the registration statement filed by the Company for the
registration of the Offered Securities becomes effective under the Securities
Act, the Company shall, or shall cause the managing underwriter to, notify the
Selling Holders, in the case of a registration requested pursuant to Section
2.1, of the Second Offer Price. If the Company elects to exercise its right to
purchase the Offered Securities at the Second Offer Price (less any underwriting
discounts and commissions), the Company shall promptly (and prior to the
effectiveness of the registration statement for such Offered Securities) deliver
an Acceptance Notice (as defined in the Investment Agreement) to each Selling
Holder of its intention to purchase the Offered Securities owned by such Selling
Holder at the Second Offer Price (less any underwriting discounts and
commissions), on a date not more than five business days after delivery of such
Acceptance Notice (subject to extension as provided in Section 6(f) of the
Investment Agreement). If the Company elects to exercise its purchase rights
hereunder and purchases the Offered Securities, the Company shall pay all fees
(including all underwriting discounts and commissions which would have been
given or retained by such underwriters had the proposed public offering been
consummated) of the underwriters in connection with the preparation and filing
of the registration statement and the Company shall pay all Registration
Expenses of the Selling Holders which would have been payable by it pursuant to
Section 2.1 had the Company not exercised its purchase rights hereunder.
3. Rule 144. The Company shall take all actions reasonably necessary to
enable holders of Registrable Securities to sell such securities without
registration under the Securities Act within the limitation of the exceptions
provided by (a) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (b) any similar rules or regulations hereafter adopted by
the Commission, and subject to the limitations on transfer set forth in Section
5 of the Investment Agreement. Upon the request of any holder of Registrable
Securities, the Company will deliver to such holder a written statement as to
whether such requirements have been complied with.
4. Amendments and Waivers. This Agreement may be amended with the
written consent of the Company and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company shall have obtained the written consent to such amendment,
action or omission to act, of the holder or holders of at least a majority in
aggregate principal amount or liquidation amount, as the case may be, of the
Registrable Securities affected by such amendment, action or omission to act;
provided, however, that the provisions set forth in the third sentence of
Section 5 may not, directly or indirectly, be amended or modified without the
prior written consent of each Lender (as defined in Section 6(c) of the
Investment Agreement) affected thereby. Each holder of any Registrable
Securities at the time or thereafter outstanding shall be bound by any consent
authorized by this Section 4, whether or not such Registrable Securities shall
have been marked to indicate such consent. No course of dealing between any
parties or any delay on the part of any party in exercising any rights hereunder
or under any agreement contemplated hereby shall operate as a waiver of any
rights of any such party. No delay on the part of any party in exercising any
right, power or privilege
14
<PAGE>
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 Registrable Securities
owned by such holder, subject to the limitations on transfers of Convertible
Preferred Securities and Conversion Shares set forth in Section 5 of the
Investment Agreement and the Company's rights of purchase set forth in Section 6
of the Investment Agreement and Section 2.6 of this Agreement; provided,
however, that the rights of the Investor under this Agreement may be assigned to
a wholly-owned subsidiary of the Investor, without the consent of the Company,
provided that the Investor shall remain liable for the obligations of the
Investor hereunder. Any transfer of rights pursuant to this Section 5 shall be
effective upon receipt by the Company of (i) a written notice from such holder
stating the name and address of any Transferee and identifying the amount of
Registrable Securities with respect to which the rights under this Agreement are
being transferred and the nature of the rights so transferred and (ii) a written
agreement from such Transferee to be bound by the terms of this Agreement and
the Investment Agreement. In addition to the foregoing, and notwithstanding any
other provision of this Agreement or the Investment Agreement, the Investor may
transfer all or any portion of its rights under this Agreement to any Lender (as
defined in Section 5(c) of the Investment Agreement), subject to the Company's
rights of purchase set forth in Section 6 of the Investment Agreement and
Section 2.6 of this Agreement (other than Section 2.6(a)(iv). The holders of
Registrable Securities may exercise the rights hereunder in such priority as
they shall agree upon among themselves.
6. Nominees for Beneficial Owners. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election in writing delivered to the
Company, be treated as the holder of such Registrable Securities for purposes of
any request or other action by any holder or holders of Registrable Securities
pursuant to this Agreement or any determination of any number or percentage of
Registrable Securities held by any holder or holders of Registrable Securities
contemplated by this Agreement. If the beneficial owner of any Registrable
Securities so elects, the Company may require assurances reasonably satisfactory
to it of such owner's beneficial ownership of such Registrable Securities.
7. Notices. All notices, demands and other communications provided for
or permitted hereunder shall be made in writing and shall be sent by registered
or certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:
15
<PAGE>
(a) If to the Investor, at 145 King Street West, Suite 1500,
Toronto, Ontario M5H 4B7, Canada, attention: Stuart F. Feiner, General Counsel
or at such other address as the Investor shall have furnished to the Company in
the manner set forth herein;
(b) If to the Company, at 4317 Middle Settlement Road, New
Hartford, New York 13413, attention: Robert F. Dropkin, Vice President,
Secretary and Chief Legal Counsel or at such other address as the Company shall
have furnished to each holder of Registrable Securities at that time outstanding
in the manner set forth herein; or
(c) If to any other holder of Registrable Securities, at the
address that such holder shall have furnished to the Company in writing in the
manner set forth herein, or, until such holder so furnishes to the Company an
address, then to and at the address of the last holder of such Registrable
Securities who has furnished an address to the Company.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by a
courier, if delivered by overnight courier service; three business days after
being deposited in the mail, postage prepaid, if mailed; and when receipt is
acknowledged, if telecopied.
8. Successors and Assigns; Third Parties.
(a) Subject to Section 5, this Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns. Except by operation of law, this agreement shall not be
assigned by the Company without the prior written consent of the holders of a
majority of the Registrable Securities outstanding at the time such consent is
required.
(b) Nothing in this Agreement, expressed or implied, is
intended or shall be construed to confer upon any Person (other than the parties
and their successors and permitted assigns and any Person entitled to the
benefit of Section 2.5) any right, remedy or claim under or by reason of this
Agreement.
9. No Inconsistent Agreements; Acknowledgment. The Company will not
hereafter enter into any agreement with respect to its securities which is
inconsistent with the rights granted to the holders of Registrable Securities in
this Agreement. Without limiting the generality of the foregoing, the Company
will not hereafter enter into any agreement with respect to its securities which
grants to any holder of its securities in connection with a piggy-back
registration of such securities equal or higher priority to the rights granted
to the holders of Registrable Securities under Section 2. The parties hereby
acknowledge that, on the date hereof, the Company and Timet will enter into the
Timet Registration Rights Agreement pursuant to which the Company will grant to
Timet certain demand and priority piggy-back registration rights for the
Registrable Securities held by it.
16
<PAGE>
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.
12. Calculation of Percentage Interests in Registrable Securities. For
purposes of this Agreement, all references to a percentage of the Registrable
Securities shall be calculated based upon the number of shares, warrants or
rights or the aggregate principal amount or liquidation amount, as applicable,
of Registrable Securities outstanding at the time such calculation is made.
13. Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein.
This Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
14. Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed in that State, without regard to principles of conflicts of
law.
16. Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed an original and all of which taken together
shall constitute one and the same instrument.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
INCO LIMITED
By: ______________________________________
Name:
Title:
SPECIAL METALS CORPORATION
By: _______________________________________
Name: Donald R. Muzyka
Title: President and Chief Executive Officer
18
Noncompetition Agreement
October 28, 1998
Special Metals Corporation
4317 Middle Settlement Road
New Hartford, NY 13413
Dear Sirs:
As you know, Inco Limited ("Inco") has for many years conducted its
nickel alloys business through a number of subsidiaries. This business currently
consists of the development, manufacture and marketing of high-performance
nickel- containing alloys, wrought nickel products (including anodes) ("Wrought
Products"), electroformed nickel foil and electroformed nickel strip except
electroformed nickel foil for solar-power or any other power panel applications,
mechanically alloyed powders except powders that would represent Battery Grade
Material (as defined below) or powders which would be used in any flake form,
and the operation of subsidiary wire drawing and processing facilities, welding
product manufacturers and distributors (the "Current Business").
By virtue of its relationship with the Current Business, Inco has
obtained know-how and other confidential or proprietary information regarding
the Current Business which is not available to unrelated parties; Inco
acknowledges that the covenants contained in this Agreement are essential to
protect the value of the Current Business being acquired by Special Metals
Corporation.
In connection with your purchase of the Current Business pursuant to
the Stock Purchase Agreement dated as of July 8, 1998, as amended as of October
28, 1998, between Inco, Special Metals Corporation and certain other parties
referred to therein (the "Stock Purchase Agreement"), Inco agrees that, in
consideration for (a) your payment to Inco of $20 million in cash to be paid at
the Closing and (b) your issuance to Inco of the Preferred Shares in accordance
with, and as defined in, the Stock Purchase Agreement, it will not (and will not
permit its subsidiaries or any other company or other entity it controls (as
defined below) (a "Controlled Affiliate") to), for a period of ten years from
the Closing Date under the Stock Purchase Agreement, directly or indirectly,
anywhere in the word, engage in the business of manufacturing, developing,
marketing, distributing or selling the same or substantially similar types of
nickel-containing alloy products, Wrought Products, electroformed nickel foil
and electroformed nickel strip (excluding electroformed nickel foil for
solar-power or any other power panel applications), mechanically alloyed powders
except powders that would represent Battery Grade Material (as herein defined),
wire or welding products, in each case as currently manufactured by the Current
Business for the same or similar markets in and to which the Current Business
currently markets its products. However, nothing in this
<PAGE>
2
Agreement, including the non-competition covenant in the preceding sentence,
shall affect, limit or restrict in any way the business, operations or products
which have been developed and/or are currently being marketed, distributed or
sold, or are under development as of the date hereof or may be developed in the
future, by Inco or any subsidiary of Inco (other than by any subsidiary which as
of the date hereof is part of the Current Business) or any Controlled Affiliate
in respect of their continuing businesses and operations that are not part of
the Current Business, including, but not limited to, their worldwide primary
metals business, which includes the development, production, marketing,
distribution and sale of nickel, copper, precious metals, cobalt, and their
respective nickel and other metals smelting and refining businesses, as well as
the development, production, marketing, distribution and sale of (1) any forms
of pellet or electronickel strip material currently marketed, distributed or
sold or to be developed by Inco or any of its subsidiaries or Controlled
Affiliates which has competed in any way, or may directly or indirectly compete,
with any Wrought Products, (2) any metal matrix composites with aluminum and
nickel, zinc and nickel or with any other metals, (3) any metal products in
foam, felt or fiber form, whether graphitic or non-graphitic in nature or in any
way organic, (4) any foundry additive products or master alloys, including those
marketed or sold under the registered or unregistered trademarks INCOMAG #1,
INCOMAG 3LC, INCOCAL 10 as well as F shot, (5) any product in foam, felt or
fiber form or particulate which is coated with or converted into nickel or
nickel alloys during any processing, (6) any metal- containing material
developed for use in any automotive or other vehicle, industrial or dry cell
battery or other power source applications ("Battery Grade Material") and (7)
sulphuric acid and liquid sulphur dioxide.
In addition, from the Closing Date under the Stock Purchase Agreement
until the fifth anniversary of the Closing, Inco shall not, and shall not permit
any of its subsidiaries to, directly or indirectly, anywhere in the world, (i)
license or permit any person or entity to use confidential or proprietary
information or trade secrets currently used by the Current Business or (ii)
employ or solicit to hire, or otherwise receive the services of, any Employee
(as defined in the Stock Purchase Agreement) (x) so long as such Employee is
employed by the Current Business and (y) within six months after the termination
of such employment of such Employee; provided that general solicitation not
specifically directed at any such Employee by a disinterested third party
through published notices, advertisements or the like shall not be considered a
violation of this paragraph.
In the event this Agreement is held to be in any respect an
unreasonable restriction upon Inco or any of its subsidiaries or Controlled
Affiliates by any court having competent jurisdiction, the court so holding may
reduce the territory to which this Agreement pertains and/or the period of time
for which it is intended to operate, or effect any other change to the extent
necessary to render this Agreement enforceable by such court. As so modified,
this Agreement will continue in full force and effect. Such a decision by any
such court shall not invalidate this
<PAGE>
3
Agreement, but this Agreement shall be interpreted, construed and enforced as
not containing such invalidated provision.
For purposes of this Agreement, (i) a "subsidiary" of any entity shall
mean any corporation or other entity of which at least a majority of the
outstanding stock voting power under ordinary circumstances to elect a majority
of the board of directors of such entity shall at the time be beneficially owned
by such entity or by such entity and one or more subsidiaries or by one or more
subsidiaries and (ii) "controls" means the exercise of the power, through
ownership of voting securities or other interests, by contract or otherwise, to
direct or cause the direction of the businesses that such entity will engage in.
If this Agreement is subject to registration under the Restrictive
Trade Practices Act of 1976, none of the parties to this Agreement who carry on
business within the United Kingdom should give effect to, or enforce or purport
to enforce, this Agreement until the day after particulars of the Agreement have
been furnished to the Director General of Fair Trading under Section 24 of such
Act.
The parties agree that a remedy at law for any breach of any obligation
under this Agreement will be inadequate and that in addition to any other rights
and remedies to which they may be entitled hereunder, at law or in equity,
Special Metals Corporation shall be entitled to injunctive relief and
reimbursement for all reasonable attorney's fees and other expenses incurred in
connection with the enforcement hereof.
This Agreement shall be governed by and construed in accordance with
the laws of the Province of Ontario; shall be binding upon and enure to the
benefit of the parties hereto and their respective successors and assigns;
contains the entire understanding of the parties hereto in respect of the
subject matter contained herein; and may be signed in one or more counterparts,
each of which shall be deemed to be an original and all of which together shall
constitute one and the same instrument.
<PAGE>
4
Please confirm our agreement by signing and returning the enclosed copy
of this letter whereupon such letter will constitute a binding agreement between
us.
Yours truly,
INCO LIMITED
By: ____________________________
Its: ___________________________
Accepted and Agreed
SPECIAL METALS CORPORATION
By: _____________________________
Its: ____________________________
Date: ___________________________
Contact: Donald C. Darling
Vice President Administration
& Chief Financial Officer
(315) 798-2058
SPECIAL METALS COMPLETES INCO ALLOYS ACQUISITION
TERMS RE-NEGOTIATED TO REFLECT RECENT FINANCIAL MARKET CONDITIONS
NEW HARTFORD, N.Y. - Oct. 28, 1998 - With today's successful completion
of the Inco Alloys International acquisition, Special Metals Corporation
(NASDAQ: SMCX) becomes the world's largest and most-diversified producer of
high-performance nickel-based alloys.
The Company now supplies over 5,000 customers and every major market in
the world for nickel-based alloys. Non-aerospace revenues are about 61 percent
of sales, up from 19 percent prior to the acquisition. Its largest customer
accounts for less than 9 percent of net sales, down from more than 20 percent
prior to the acquisition.
Effective on Oct. 28, the $365 million purchase of Inco Alloys
International (IAI) from Inco Limited (NYSE/TSE: N) was first announced in early
July. The final price is $43 million lower than the amount first announced. The
$365 million purchase price includes $17 million liquidation value Series A
Convertible Preferred Shares issued by Special Metals to Inco Limited.
"This is the ideal combination of two specialty metals leaders in their
respective markets," President and Chief Executive Officer Dr. Donald R. Muzyka
said. "We think our shareholders should be very excited by the investment
potential of the new Special Metals."
Special Metals is the global leader in premium-grade, nickel-based
alloys used primarily in aircraft jet engines. IAI is the
single-most-comprehensive producer of other nickel-based alloys and forms - with
particular strength in commercial-grade flat products - for the world's most
diverse array of end-use applications.
On a pro forma basis, assuming that IAI was acquired as of Jan. 1,
1997, the 1997 net sales of Special Metals would have been $854.5 million, and
pro forma EBITDA would have been $96.5 million compared to Special Metals'
actual 1997 EBITDA of $40.8 million.
"By focusing each Special Metals and IAI facility on what it does best,
we can profitably increase sales and volume throughout the Corporation," Muzyka
explained.
"The creative and sensible allocation of capacity will be crucial to
deriving operating synergies of about $30 million to $40 million over the first
four years. This is also one of the most exciting possibilities we see for
increasing shareholder value," he added.
<PAGE>
Special Metals Completes IAI Acquisition
Page Two
Management continues to expect the deal to be accretive in the first
full year of Special Metals and Inco Alloys' combined operations. The deal has
successfully cleared all required domestic and international antitrust reviews.
The Company will finance the transaction with proceeds from a $375
million bank credit facility, with Credit Lyonnais as lead banker. Concurrent
with the acquisition, Special Metals will sell $80 million liquidation value
Series A Convertible Preferred Shares to Titanium Metals Corporation (NYSE:
TIE).
The preferred securities issued to Inco Limited and Titanium Metals
Corporation are convertible into Special Metals' common stock at a price of
$16.50 per common share. The issuance of common stock upon the conversion of the
convertible preferred securities is subject to the approval of Special Metals'
shareholders. A special meeting to consider such matter is expected to be held
in January 1999.
As was previously announced in July, Special Metals and Titanium Metals
signed an agreement in principle to form a strategic alliance in connection with
the preferred stock sale. The proposed alliance would include collaborative
development of new uses for the titanium produced by Titanium Metals and the
high-performance nickel-based alloys produced by Special Metals. It may also
present opportunities for marketing efficiencies and joint processing of
Titanium Metals products at Special Metals facilities.
The World Wide Web site of Special Metals
("http://www.specialmetals.com") features substantial detail on the acquisition,
as well as general Company information.
Special Metals is the world's largest and most-diversified producer of
high-performance nickel-based alloys. Its specialty metals are used in some of
the world's most technically demanding industries and applications, including:
aerospace, power generation, chemical processing, oil exploration and
medical/dental devices. Through its New Hartford, N.Y. headquarters, 11 U.S. and
European production facilities and a global distribution network, Special Metals
supplies over 5,000 customers and every major world market for high-performance
nickel-based alloys.
The statements in this release relating to matters that are not
historical facts are forward-looking statements that involve risks and
uncertainties, including, but not limited to, satisfaction of conditions to
acquisition closing, the cyclicality of the aerospace industry, raw material
pricing, future global economic conditions, global productive capacity,
competitive products and other risks and uncertainties detailed in the Company's
Securities and Exchange Commission filings.
VOTING AGREEMENT
VOTING AGREEMENT, dated as of October 28, 1998 (this "Agreement"),
among TIMET Finance Management Company, a Delaware corporation (the "Investor"),
Titanium Metals Corporation, a Delaware corporation ("TMC"), Societe
Industrielle de Materiaux Avances, a societe anonyme organized under the laws of
the Republic of France ("SIMA"), LWH Holding S.A., a Luxembourg corporation
("LWH"), and Advanced Materials Investments Holding S.A., a Luxembourg
corporation ("AMI" and together with SIMA and LWH, the "Stockholders");
WHEREAS, Special Metals Corporation, a Delaware corporation (the
"Company"), the Investor and TMC have entered into an Investment Agreement,
dated as of July 8, 1998, as amended on October 28, 1998 (as so amended, the
"Investment Agreement"), which provides for, among other things, the issuance
and sale by the Company to the Investor of 1,600,000 shares of its 6.625% Series
A Senior Convertible Preferred Stock, having a liquidation amount of $50.00 per
share (the "Preferred Securities");
WHEREAS, as of the date hereof, SIMA owns 5,952,000 shares of Common
Stock, par value $.01 per share, of the Company ("Common Stock"), LWH owns
3,580,000 shares of Common Stock and AMI owns 2,092,500 shares of Common Stock;
WHEREAS, as a condition to the willingness of the Investor and TMC to
enter into the Investment Agreement, the Investor and TMC have required that the
Stockholders agree, and in order to induce the Investor and TMC to enter into
the Investment Agreement, the Stockholders have agreed, to enter into this
Agreement with respect to all the shares of Common Stock now owned and which may
hereafter be acquired by the Stockholders (the "Shares").
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
ARTICLE I
Section Section 1.1 Voting Agreement. Each of the Stockholders hereby
agrees that during the time this Agreement is in effect, at any meeting of the
stockholders of the Company, however called, and in any action by consent of the
stockholders of the Company, the Stockholder shall vote the Shares: (a) in favor
of the issuance of shares of the Company's Common Stock upon conversion of the
Preferred Securities, upon the terms and conditions set forth in the Investment
Agreement and the Certificate of Designation (as such term is defined in the
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2
Investment Agreement) (such vote is referred to herein as the "Conversion
Vote"), and (b) in favor of the election to the Board of Directors of the
Company of the Investor Nominees (as defined under the Investment Agreement)
selected by the Investor in accordance with Section 5 of the Investment
Agreement and, if applicable, Section 9(b)(iii) of the Certificate of
Designation. Each of the Stockholders acknowledges receipt and review of a copy
of the Investment Agreement and the Certificate of Designation.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each of the Stockholders hereby represents and warrants to each of the
Investor and TMC as follows:
Section Section 2.1 Authority Relative to This Agreement. The
Stockholder has all necessary power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by the Stockholder and the consummation by the Stockholder of the transactions
contemplated hereby have been duly and validly authorized by the Stockholder,
and no other proceedings on the part of the Stockholder are necessary to
authorize this Agreement or to consummate such transactions.
Section Section 2.2 Enforceability. This Agreement has been duly
authorized, executed and delivered by the Stockholder and, assuming the due
authorization, execution an delivery by the Investor and TMC, constitutes a
valid and binding agreement of the Stockholder, enforceable against the
Stockholder in accordance with its terms.
Section Section 2.3 No Conflict. (a) The execution and delivery of this
Agreement by the Stockholder do not, and the performance of this Agreement by
the Stockholder shall not, (i) conflict with or violate the organizational
documents of the Stockholder, (ii) conflict with or violate any material law,
rule, regulation, order, judgment or decree applicable to the Stockholder or by
which the Shares are bound or affected or (iii) result in any breach of or
constitute a default (or an event that with notice or lapse or time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or encumbrance on any of the Shares pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Stockholder is a party or by which the
Stockholder or the Shares are bound or affected, except, in the case of clauses
(ii) and (iii), for any such conflicts, violations, breaches, defaults or other
occurrences which would not materially prevent or delay the performance by the
Stockholder of its obligations under this Agreement.
<PAGE>
3
(b) The execution and delivery of this Agreement by the
Stockholder do not, and the performance of this Agreement by the Stockholder
shall not, require any consent, approval, authorization or permit of, or filing
with or notification to, any governmental entity or agency except for applicable
requirements, if any, of the Securities Exchange Act of 1934, as amended, and
except where the failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not materially prevent
or delay the performance by the Stockholder of its obligations under this
Agreement.
Section Section 2.4 Title to the Shares. As of the date hereof, the
Stockholder is the record and beneficial owner of 5,952,000 shares of Common
Stock in the case of SIMA, 3,580,000 shares of Common Stock in the case of LWH,
and 2,092,500 shares of Common Stock in the case of AMI. Such Shares are all the
securities of the Company owned, either of record or beneficially, by the
Stockholder. The Stockholder has not appointed or granted any proxy, which
appointment or grant is still effective, with respect to the Shares, except to
the extent set forth in the Stockholders' Agreement, dated as of February 25,
1997, as amended, among the Company and the Stockholders (the "Stockholders'
Agreement").
ARTICLE III
COVENANTS OF THE STOCKHOLDERS
Section Section 3.1 No Inconsistent Agreement. Each of the Stockholders
hereby covenants and agrees that, except as contemplated by this Agreement, the
Stockholders' Agreement and the Investment Agreement, the Stockholder shall not
enter into any voting agreement or grant a proxy or power of attorney with
respect to the Shares which is inconsistent with this Agreement or commit any
other act that could restrict or otherwise affect such Stockholders' legal
power, authority and right to vote all shares in accordance with this Agreement;
provided, however, that nothing in this Section 3.1 shall prevent the transfer,
sale, pledge or other disposition by any Stockholder of its Shares, subject to
the provisions of Section 3.2.
Section Section 3.2 Transfer of Title. Each of the Stockholders hereby
covenants and agrees that until such time as the Stockholder has satisfied its
obligations with respect to the Conversion Vote as provided under Section 1.1,
the Stockholder shall not transfer record or beneficial ownership of any of its
Shares unless (i) the transferee agrees in writing to be bound by the terms and
conditions of this Agreement, or (ii) immediately following such transfer the
Stockholders collectively own Shares representing in the aggregate at least 51%
of the voting power of the outstanding voting securities of the Company.
<PAGE>
4
ARTICLE IV
MISCELLANEOUS
Section Section 4.1 Termination. This Agreement shall terminate upon
the earlier of (i) the termination of the Investment Agreement, or (ii) the
first day upon which the Investor, TMC or their subsidiaries are no longer
entitled to designate any Investor Nominee to the Board of Directors of the
Company in accordance with the Investment Agreement or, if applicable, the
Certificate of Designation.
Section Section 4.2 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
Section Section 4.3 Entire Agreement. This Agreement constitutes the
entire agreement among the Company and the Stockholders with respect to the
subject matter hereof and supersedes all prior agreements and understandings,
both written and oral, among the Company and the Stockholders with respect to
the subject matter hereof.
Section Section 4.4 Amendment. This Agreement may not be amended except
by an instrument in writing signed by the parties hereto. All waivers must be in
writing.
Section Section 4.5 Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule or
law, or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of this Agreement is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereby shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible to the fullest extent permitted by
applicable law in a mutually acceptable manner in order that the terms of this
Agreement remain as originally contemplated.
Section Section 4.6 Governing Law. 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 conflicts
of law; provided, however, that the laws of the State of Delaware shall govern
the relative rights, obligations, powers, duties and other internal affairs of
the Company.
Section Section 4.7 Jurisdiction. All disputes arising in connection
with this Agreement and all agreements entered into pursuant to this Agreement
shall
<PAGE>
5
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 Agreement shall
be enforceable and judgment upon any award rendered by the arbitrators may be
entered in any court of competent jurisdiction.
Section Section 4.8 Benefit of Agreement. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns.
Section Section 4.9 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 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
<PAGE>
6
If to AMI, to it at:
3A Rue Guillaume Kroll
L-1882 Luxembourg
Telecopy: 352-47-18-80
If to the Investor or TMC, to it at:
1999 Broadway, Suite 4300
Denver, Colorado 80202
Telecopy: (303) 291-2990
Section Section 4.10 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 Section 4.11 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.
<PAGE>
7
IN WITNESS WHEREOF, the Stockholders, the Investor and TMC have caused
this Agreement to be duly executed on the date hereof.
TIMET FINANCE MANAGEMENT COMPANY
By: _________________________________
Name:
Title:
TITANIUM METALS CORPORATION
By: _________________________________
Name:
Title:
SOCIETE INDUSTRIELLE DE MATERIAUX
AVANCES
By: _________________________________
Name:
Title:
LWH HOLDING S.A.
By: _________________________________
Name:
Title:
ADVANCED MATERIALS INVESTMENTS
HOLDING S.A.
By: _________________________________
Name:
Title:
