SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, For Use of Commission Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240, 14a-11(c) or 240, 14a-12
SPECIAL METALS CORPORATION
(Name of Registrant Specified in its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee:
(Check the appropriate box)
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or
schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
SPECIAL METALS CORPORATION
4317 MIDDLE SETTLEMENT ROAD
NEW HARTFORD, NEW YORK 13413
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
MAY 28, 1998
TO OUR STOCKHOLDERS:
The Annual Meeting of the stockholders of Special Metals Corporation, a
Delaware corporation (the "Company"), will be held at the Radisson Hotel - Utica
Centre, 200 Genesee Street, Utica, NY 13502 at 11:00 a.m., May 28, 1998 to
consider and vote on the following matters described in this notice and the
accompanying Proxy Statement:
1. To elect three directors each to serve as a Class I Director for the
ensuing three years and until their successors are duly elected and qualified.
2. To ratify the appointment of Ernst & Young LLP as independent
accountants for the Company for the fiscal year ending December 31, 1998.
3. To transact such other business as may properly come before the
meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on April 13,
1998 as the record date for determination of stockholders entitled to vote at
the Annual Meeting, or any adjournments thereof, and only record holders of
Common Stock at the close of business on that day will be entitled to vote.
TO ASSURE REPRESENTATION AT THE ANNUAL MEETING, STOCKHOLDERS ARE URGED
TO SIGN AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE
POSTAGE-PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE. Any stockholder attending
the Annual Meeting may vote in person even if he or she previously returned a
proxy.
If you do plan to attend the Annual Meeting in person, we would
appreciate your response by indicating at the appropriate place on the proxy
card enclosed.
By Order of the Board of Directors,
Robert F. Dropkin
Secretary
New Hartford, New York
April 15, 1998
<PAGE>
SPECIAL METALS CORPORATION
4317 MIDDLE SETTLEMENT ROAD
NEW HARTFORD, NEW YORK 13413
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MEETING DATE: MAY 28, 1998
This Proxy Statement is being sent on or about April 15, 1998 in
connection with the solicitation of proxies by the Board of Directors of Special
Metals Corporation, a Delaware corporation (the "Company"). The proxies are for
use at the 1998 Annual Meeting of the Stockholders of the Company (the "Annual
Meeting"), which will be held at the Radisson Hotel - Utica Centre, 200 Genesee
Street, Utica, NY 13502, on May 28, 1998, at 11:00 a.m., and at any meetings
held upon adjournment thereof (the "Annual Meeting"). The record date for the
Annual Meeting is the close of business on April 13, 1998 (the "Record Date").
Only holders of record of the Company's Common Stock, $0.01 par value per share
(the "Common Stock"), on the Record Date are entitled to notice of the Annual
Meeting and to vote at the Annual Meeting and at any meetings held upon
adjournment thereof.
A proxy card is enclosed. Whether or not you plan to attend the Annual
Meeting in person, please date, sign and return the enclosed proxy card as
promptly as possible, in the postage-prepaid envelope provided, to ensure that
your shares will be voted at the Annual Meeting. Any stockholder who returns a
proxy in such form has the power to revoke it at any time prior to its effective
use by filing an instrument revoking it or a duly executed proxy bearing a later
date with the Secretary of the Company or by attending the Annual Meeting and
voting in person. Unless contrary instructions are given, any such proxy, if not
revoked, will be voted at the Annual Meeting for (i) the nominees for election
as directors as set forth in this Proxy Statement, (ii) the ratification of the
appointment of Ernst & Young LLP as independent accountants for the Company and
(iii) with regard to all other matters which may properly come before the Annual
Meeting, for or against such matters as recommended by the Board of Directors,
in its discretion.
An Annual Report to Stockholders for the year ended December 31, 1997,
including financial statements, is being concurrently distributed to
stockholders of record as of the Record Date. The date of this Proxy Statement
is the approximate date on which the Proxy Statement and form of proxy were
first sent or given to stockholders.
<PAGE>
VOTING SECURITIES
At the Record Date, there were 15,479,000 shares of Common Stock
outstanding. The presence, either in person or by proxy, of persons entitled to
vote a majority of the Company's outstanding Common Stock is necessary to
constitute a quorum for the transaction of business at the Annual Meeting.
Abstentions and broker non-votes are counted for purposes of determining a
quorum, but are not considered as having voted for purposes of determining the
outcome of a vote. No other voting securities of the Company were outstanding at
the Record Date. Holders of Common Stock have one vote for each share on any
matter that may be presented for consideration and action by the stockholders at
the Annual Meeting. Each director will be elected by a plurality of the votes
cast by the stockholders present in person or represented by proxy at the Annual
Meeting. The ratification of the appointment of the independent accountants must
be approved by a majority vote of the stockholders present in person or
represented by proxy at the Annual Meeting.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of April 13, 1998
with respect to beneficial ownership of shares of the Common Stock by (i) all
stockholders known by the Company to be beneficial owners of more than 5% of
such class, (ii) each director, (iii) each executive officer named in the
Summary Compensation Table included in this Proxy Statement and (iv) all
directors and executive officers as a group. Unless otherwise indicated in the
notes below, the address of each beneficial owner is in care of Special Metals
Corporation, 4317 Middle Settlement Road, New Hartford, New York 13413.
<PAGE>
3
Shares of Common Stock
Beneficially Owned
-----------------------------
Number Percentage
Name and Address of Beneficial Owner of Shares of Class
- - ------------------------------------ --------- --------
Societe Industrielle de Materiaux Avances
("SIMA") (1)(2).................................. 5,952,000 38.5%
LWH Holding S.A. ("LWH")(2)(3)................... 3,580,500 23.1%
Advanced Materials Investments Holding,
S.A. ("AMI")(2)(4)............................... 2,092,500 13.5%
Donald R. Muzyka(5).............................. 4,000 *
Donald C. Darling(5)............................. 3,000 *
Robert D. Halverstadt(5)......................... 1,500 *
Raymond F. Decker(5)............................. 1,000 *
Antoine G. Treuille(5)........................... 1,000 *
Robert F. Dropkin(5)............................. 500 *
Thomas E. MacDonald(5)........................... 200 *
James D. Page(5)................................. -- *
Edouard Duval(1)................................. -- *
All Directors and Executive Officers as a
group (10 persons)............................... 12,200 *
- - -----------------
* less than 1%
(1) SIMA's address is 41, Rue de Villiers, BP120, 92202 Neuilly Sur Seine,
Cedex, France. Mr. Duval's address is in care of SIMA. The common equity of
SIMA is beneficially owned by members of the Duval family and certain
related parties. Edouard Duval, a director of the Company, is a Directeur
General of SIMA and has a minority equity interest in SIMA.
(2) The Company, SIMA, AMI and LWH have entered into the Stockholders
Agreement, which provides for certain voting rights, nominating rights and
transfer restrictions. See "Stockholders Agreement."
(3) LWH's address is Boulevard Royal 3, L-2449 Luxembourg. Carlos Luis Landin
beneficially owns 100% of the capital stock of LWH and may be deemed to
beneficially own the shares of Common Stock owned of record by LWH. Mr.
Landin's address is in care of LWH.
(4) AMI's address is 3A Rue Guillaume Kroll, L-1882 Luxembourg. Jean Chauveau
beneficially owns 100% of the capital stock of AMI and may be deemed to
beneficially own the shares of Common Stock owned of record by AMI. Mr.
Chauveau's address is in care of AMI.
(5) In the case of Drs. Muzyka and Decker and Messrs. Darling, Halverstadt,
Treuille, Dropkin, MacDonald and Page, excludes shares of Common Stock
issuable upon exercise of options, none of which are exercisable until
February 25, 1999.
<PAGE>
4
STOCKHOLDERS AGREEMENT
SIMA, LWH and AMI (the "Principal Stockholders") and the Company are
parties to a Stockholders Agreement (the "Stockholders Agreement"). Under the
Stockholders Agreement, the Company has agreed to nominate a number of persons
for election as directors who are designated by the Principal Stockholders
(based on the aggregate Common Stock ownership percentage of the Principal
Stockholders).
Percentage Of Director Nominees Outstanding Common Stock
Designated By Principal Stockholders(1) Held By Principal Stockholders
--------------------------------------- ------------------------------
56% 35% or more
42% 27% or more but less than 35%
28% 19% or more but less than 27%
14% 10% or more but less than 19%
0% Less than 10%
- - ---------------------
(1) Percentage rounded up to the nearest whole number of directors.
In addition, the Principal Stockholders have agreed, in connection with
a vote relating to any matter other than the election of directors, to vote all
shares of Common Stock beneficially owned by them (the "Principal Shareholder
Shares") unanimously as a group in accordance with the instructions of the
holders of a majority of the Principal Stockholder Shares (the "Majority
Stockholders"). In the case of a vote for the election of directors, the
Principal Stockholders have agreed to vote the Principal Stockholder Shares (a)
in accordance with the instructions of the Majority Stockholders as to that
number of directors equal to the maximum number of directors that is less than
50% of the directors then in office and (b) in accordance with the instructions
of the SuperMajority Stockholders (defined below) as to all other directors. If
the SuperMajority Stockholders are unable to agree as to any such vote, each
Stockholder shall be entitled to vote its shares with respect to such vote in
its discretion. "SuperMajority Stockholders" means the Stockholders who hold a
number of shares of common stock at least equal to one plus the number of shares
of common stock beneficially owned by SIMA; provided that if such Shares do not
equal 50% of the voting shares of the Corporation's capital stock entitled to
vote for directors ("Voting Shares"), SuperMajority Stockholders shall mean the
Majority Stockholders. At such time as the Principal Stockholders no longer hold
50% of the outstanding Voting Shares, all Principal Stockholder Shares shall be
voted unanimously as a group in accordance with the instructions of the Majority
Stockholders, including with respect to the election of directors.
Based on the present board size of seven, the Principal Stockholders
are able to designate at least four nominees for election to the Board of
Directors of the Company. The Company has agreed to use its best efforts to
cause the election of such nominees. If a director who is designated by the
Principal Stockholders resigns, is removed or dies, the Company has agreed to
elect another director designated by the Principal Stockholders to the extent
that the Principal Stockholders are entitled to designate such director
according to the procedures described above.
<PAGE>
5
The Stockholders Agreement also contains transfer restrictions relating
to the Principal Stockholder Shares. A Principal Stockholder may not sell its
shares of Common Stock unless it first offers such shares to one or both of the
other Principal Stockholders at a price equal to the lower of (i) the proposed
sale price and (ii) the average sales price of the Common Stock over the
20-trading- day period prior to the exercise date of the right of first refusal.
Under the Stockholders Agreement, each of the Principal Stockholders and the
Company has agreed not to hire any employee of any other party to the
Stockholders Agreement without the prior consent of such other party. The
Stockholders Agreement will terminate when the Principal Stockholders
beneficially own, in the aggregate, less than 10% of the outstanding Common
Stock of the Company.
ELECTION OF DIRECTORS
The Company's Board of Directors currently consists of seven members
and is divided into three classes (each a "Class") serving staggered terms. At
the Annual Meeting, the stockholders will elect three Class I Directors for a
term of three years expiring at the first annual meeting of the Company's
stockholders following the end of the Company's fiscal year ending December 31,
2000 and until their respective successors shall have been duly elected and
qualified. The term of the Class II Directors expires at the first annual
meeting of the Company's stockholders following the end of the Company's fiscal
year ending December 31, 1998, and the term of the Class III Directors expires
at the first annual meeting of the Company's stockholders following the end of
the Company's fiscal year ending December 31, 1999, at which times Directors of
the appropriate Class will be elected for three-year terms. The three nominees
are presently serving as Directors of the Company. If no direction to the
contrary is given, all proxies received by the Board of Directors will be voted
"FOR" the election as Class I Directors of Donald C. Darling, Raymond F. Decker,
and Robert F. Dropkin. The Class I Directors will be elected by a plurality of
the votes cast. In the event that any nominee is unable or declines to serve,
the proxy solicited herewith may be voted for the election of another person in
his stead at the discretion of the proxies. The Board of Directors knows of no
reason to anticipate that this will occur.
Biographical information follows for each person nominated and each
Director whose term of office continues after the meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE NOMINEES
NAMED BELOW. UNLESS OTHERWISE INSTRUCTED, SIGNED PROXIES WHICH ARE RETURNED IN A
TIMELY MANNER WILL BE VOTED IN FAVOR OF SUCH NOMINEES.
NOMINEES
CLASS I DIRECTORS
Mr. Donald C. Darling has been Vice President--Administration and Chief
Financial Officer of the Company since September, 1993 and served as Vice
President and Chief Financial Officer of the Company since 1989. He joined
Specials Metals in 1980, serving in supervisory, financial planning, and
strategic management positions. He has 21 years of metals-related experience and
holds degrees in Business Management, including a Masters in Accounting, from
the School of Management-SUNY/Binghamton. Mr. Darling has been a director of the
Company since 1991.
<PAGE>
6
Mr. Robert F. Dropkin has been Vice President and Chief Legal Counsel
since 1985 and Secretary since 1987. He joined Special Metals in 1984. Prior to
that, he held various legal positions with Cabot Corporation and Allegheny
Ludlum Industries and has 29 years of metals-related experience. Mr. Dropkin
holds a metallurgical engineering degree and a J.D. degree from George
Washington University. Mr. Dropkin has been a director of the Company since
1987.
Dr. Raymond F. Decker has been a director of the Company since 1990. He
is founder of USP Holdings, Inc. and Thixomat, Inc., companies that
commercialize materials technology, and has been the Chairman of the Board of
such companies since 1989. Dr. Decker was Vice President for Research of
Michigan Technological University from 1982 to 1986 and Vice President for
Corporate Technology of Inco, Ltd. from 1978 to 1982. He was President of ASM
International, the largest technical society for metals, in 1987. Dr. Decker
holds a Ph.D. from the University of Michigan and has specialized in superalloys
for 47 years. Dr. Decker is also a director of Lindberg Corporation, a heat
treating company, and Wavemat, Inc., a microwave equipment manufacturer.
CONTINUING DIRECTORS
CLASS II DIRECTORS
Mr. Robert D. Halverstadt has been Chairman of the Board since 1987 and
was President of the Company from 1974 to 1982. Prior to that, he was Group Vice
President of the Product and Process Group at Booz Allen and Hamilton with
responsibility for its contract research and engineering businesses, including
Foster D. Snell, Inc., the biological and chemical company, Design and
Development, Inc., the electro-mechanical engineering company, and the
Environmental Resources Group. Earlier he was Manager of the Thomson Engineering
Laboratory at General Electric Company in Lynn, Massachusetts, responsible for
materials development and application in the General Electric line of small gas
turbine engines. He holds a degree from Case Institute of Technology and is a
director of Carus Corporation, a manufacturer of manganese-based chemicals.
Mr. Antoine G. Treuille has been a director of the Company since 1987.
He has been a Managing Director of Financo, Inc., an investment banking firm,
since March 1998 and has been President of Charter Pacific Corporation, a
financial services company, since 1996. From May 1993 to March 1996, he was a
Senior Vice President of Desai Capital Management, Inc., an investment
management company, and, from August 1985 to April 1993, he was an Executive
Vice President at Entrecanales Inc., a private investment company. He currently
serves as a director of Eye Care Center of America, Inc. and Societe Bic, a
publicly traded French company.
CLASS III DIRECTORS
Dr. Donald R. Muzyka has been President and a director of Special
Metals since joining the Company in 1990. He was appointed Chief Executive
Officer in October 1996. Before joining the Company, Dr. Muzyka held several
executive positions serving the aerospace industries. He has 37 years of
metals-related experience, including service with Cabot Corporation, Carpenter
Technology Corporation ("Cartech"), and the Pratt & Whitney Division of United
Technologies Corporation. Dr. Muzyka holds several degrees, including a Ph.D. in
Material Science from the Thayer School of Engineering-Dartmouth College. Dr.
Muzyka is also a director of Aviall, Inc., an aircraft parts distributor, and
CSM Industries, Inc., a metals company.
<PAGE>
7
Mr. Edouard Duval has been a director of the Company since 1987. He is
a Directeur General of Aubert & Duval, a French steel and alloy producer, and
SIMA, a holding company which controls Aubert & Duval and other industrial
firms. Mr. Duval has more than 20 years experience at Aubert & Duval and SIMA in
the marketing, sale and management of superalloy and special metallurgical
products for both aerospace and industrial applications.
MEETINGS AND COMMITTEES
The Company has an Audit Committee and a Compensation Committee. There
is no standing nominating committee.
The Audit Committee, currently comprised of Dr. Decker and Mr.
Treuille, oversees the Company's independent auditors and, together with the
Company's independent auditors, reviews the Company's accounting practices,
internal accounting controls and financial results. The Compensation Committee,
currently comprised of Mr. Halverstadt and Mr. Duval, establishes salaries,
incentives, and other forms of compensation for the Company's directors and
officers and recommends policies relating to the Company's benefit plans.
During the fiscal year ended December 31, 1997, there were three
meetings of the Board of Directors, three meetings of the Compensation Committee
and no meetings of the Audit Committee. Each Director attended all of the
meetings of the Board and the meetings held by all committees on which he
served.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following persons are the executive officers and directors of the
Company.
NAME AGE POSITION
---- --- --------
Donald R. Muzyka.......... 59 President, Chief Executive Officer and Director
Donald C. Darling......... 45 Vice President-Administration, Chief Financial
Officer and Director
Robert F. Dropkin......... 57 Vice President, Secretary, Chief Legal Counsel
and Director
Gernant E. Maurer......... 48 Vice President-Technology
Thomas E. MacDonald....... 55 Vice President-Sales/Marketing and Product
Management
James D. Page............. 55 Vice President-Operations
Robert D. Halverstadt..... 77 Chairman of the Board of Directors
Raymond F. Decker......... 67 Director
Edouard Duval............. 53 Director
Antoine G. Treuille....... 49 Director
<PAGE>
8
Set forth below are biographies of executive officers of the Company
who are not also directors.
Mr. Thomas E. MacDonald has been Vice President--Sales/Marketing and
Product Management since joining the Company in 1991. Prior to that he was Vice
President of Market Development with Slater Steel Corporation and held positions
with Cartech and LTV Steel Company, Inc., a subsidiary of the LTV Corporation.
He has 31 years of metals-related experience and holds a degree in Metallurgical
Engineering, with a Masters in Business Administration, from the University of
Michigan.
Dr. Gernant E. Maurer has been Vice President--Technology since 1987
and has served in several management positions, including Director of
Technology, since joining Special Metals in 1976. He has 26 years of
metals-related experience and holds several degrees, including a Ph.D. in
Materials Engineering from Rensselaer Polytechnic Institute.
Mr. James D. Page has been Vice President--Operations since joining the
Company in August 1993. Prior to that he was Vice President of Operations with
the RMI Titanium Company from July 1990 to August 1993 and held positions with
Titanium Metals Corporation, Howmet Corporation, and NF&M Corporations. He has
29 years of metals-related experience, and holds a degree in Engineering Physics
and a Masters in Aeronautical Engineering from Cornell University.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based upon a review of Forms 3, 4 and 5 and amendments thereto
furnished to the Company during and with respect to its most recent fiscal year
and upon written representations from persons known to the Company to be subject
to Section 16 of the Exchange Act (a "reporting person"), no reporting person
did not file when due reports required by Section 16(a) of the Exchange Act
during the fiscal year ended December 31, 1997.
COMPENSATION OF MEMBERS OF THE BOARD OF DIRECTORS
For serving as a director of the Company, non-employee directors
receive a $14,000 annual fee plus $1,000 for each meeting of the Board of
Directors or committee of the Board of Directors that they attend. In addition,
Messrs. Halverstadt and Treuille and Dr. Decker received options to purchase
22,500, 22,500 and 5,000 shares of common stock, respectively, during fiscal
1997.
The Company also has consulting agreements with Mr. Treuille for
financial services advice, Dr. Decker for technical advice and Mr. Halverstadt
and a sole proprietorship of Mr. Halverstadt. See "Certain
Transactions--Consulting Arrangements." Upon completion of the Company's initial
public offering ("the Offering") in February 1997, Messrs. Treuille and
Halverstadt each received a $70,000 success fee for advice rendered in
connection with the Offering.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the
compensation of the Company's Chief Executive Officer and each of the four other
most highly compensated executive officers of the Company (collectively, the
"Named Executive Officers") for the fiscal years ended December 31,
<PAGE>
9
1995, 1996 and 1997. The principal components of such individuals' current cash
compensation are the annual base salary and annual bonus included in the Summary
Compensation Table. Also described below is the estimated future compensation
such individuals can receive under the Company's retirement plans.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- ----------------------
SECURITIES
RESTRICTED UNDERLY-
STOCK ING ALL OTHER
BONUS ($) AWARDS ($) OPTIONS COMPENSA-
YEAR SALARY ($) (1) (2) (#) TION ($)(3)
NAME AND PRINCIPAL POSITION ---- ---------- --------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Donald R. Muzyka............................. 1997 $219,996 $130,900 36,000 45,000 $6,344
President and Chief Executive Officer 1996 194,758 99,121 -- -- 6,118
1995 185,558 53,288 -- -- 5,820
Donald C. Darling............................ 1997 120,000 67,200 36,000 22,500 6,503
Vice President-Administration 1996 108,156 44,183 -- -- 6,374
and Chief Financial Officer 1995 102,728 29,830 -- -- 5,845
James D. Page................................ 1997 116,484 55,912 -- 22,500 5,373
Vice President-Operations 1996 116,085 44,183 -- -- 5,149
1995 112,958 30,269 -- -- 4,959
Robert F. Dropkin............................ 1997 116,424 72,992 -- 22,500 5,373
Vice President, Secretary and Chief 1996 116,625 44,183 -- -- 5,373
Legal Counsel 1995 112,899 33,766 -- -- 4,975
Thomas E. MacDonald.......................... 1997 113,364 57,106 -- 22,500 5,130
Vice President-Sales & Marketing 1996 113,102 44,183 -- -- 4,136
and Product Management 1995 112,488 30,139 -- -- 4,588
</TABLE>
- - --------------------------
(1) Includes discretionary bonuses earned by the Named Executive Officers
and amounts earned pursuant to the Company's 1995, 1996 and 1997 Profit
Sharing Plans. All salaried employees were eligible to participate in
the Company's 1995, 1996 and 1997 Profit Sharing Plans. The plans
provided for a profit sharing pool based on the Company's financial
performance. The profit sharing pool was divided among participants
based on the midpoint of their salary grade.
(2) Dr. Muzyka and Mr. Darling each received an award of 2,000 shares of
restricted stock on July 24, 1997. The value of each award was $36,000
based on a closing stock price of $18.00 on that date. At December 31,
1997, Dr. Muzyka and Mr. Darling each held 1,000 shares of unvested
restricted stock with a value of $18,000 based on a closing stock price
of $18.00 per share on that date. Such restricted stock vested in full
on February 25, 1998.
(3) Includes for Dr. Muzyka and Messrs. Darling, Page, Dropkin and MacDonald
$4,750, $4,750, $4,750, $4,750 and $4,750, respectively, for 1997;
$4,750, $4,750, $4,750, $4,750 and $3,873, respectively, for 1996 and
$4,620, $4,240, $4,589, $4,620 and $4,468, respectively, for 1995 in
Company match under the Special Metals Corporation 401(k) Plan (Salaried
Employees), a defined contribution plan established under section 401(k)
of the Internal Revenue Code of 1986, as amended (the "Code"). Also
includes for Dr. Muzyka and Messrs. Darling, Page, Dropkin and MacDonald
$1,594, $253, $623, $623 and $380, respectively, for 1997; $1,368, $124,
$399, $623 and $262, respectively, for 1996 and $1,200, $105, $370, $355
and $120, respectively, for 1995 for the value of premiums paid for
group term life policies in excess of $50,000.
<PAGE>
10
The following table provides certain summary information concerning
individual grants of stock options made to each of the executives named in the
Summary Compensation Table above during the fiscal year ended December 31, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------
POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES % OF TOTAL ANNUAL RATES OF
UNDERLYING OPTIONS STOCK PRICE
---------- GRANTED APPRECIATION
TO EMPLOYEES EXERCISE OF ---------------------------
OPTIONS IN BASE PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR ($/SHARE) DATE 5% 10%
- - --------------------------- ---------- ----------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Donald R. Muzyka........... 45,000 15.2% $16.50 (1) 467,100 1,183,500
Donald C. Darling.......... 22,500 7.6% $16.50 (1) 233,550 591,750
James D. Page.............. 22,500 7.6% $16.50 (1) 233,550 591,750
Robert F. Dropkin.......... 22,500 7.6% $16.50 (1) 233,550 591,750
Thomas E. MacDonald........ 22,500 7.6% $16.50 (1) 233,550 591,750
</TABLE>
- - ---------------------------
(1) One half of these options vest in fiscal 1999, one fourth vest in fiscal
2000, and one fourth vest in fiscal 2001. All options expire on February
25, 2007 with certain exceptions based on continued employment by the
Company.
The following table sets forth information concerning the value of
unexercised options as of December 31, 1997 held by the executives named in the
Summary Compensation Table above.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING VALUE OF UNEXERCISED
ACQUIRED VALUE UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ON EXERCISE REALIZED AT-FISCAL-YEAR END(#) AT-FISCAL-YEAR-END ($)
NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- - ------------------------- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Donald R. Muzyka......... - - 0 45,000 0 67,500
Donald C. Darling........ - - 0 22,500 0 33,750
James D. Page............ - - 0 22,500 0 33,750
Robert F. Dropkin........ - - 0 22,500 0 33,750
Thomas E. MacDonald...... - - 0 22,500 0 33,750
</TABLE>
- - -------------------------
(1) Based on a closing stock price at December 31, 1997 of $18.00 per share.
EMPLOYMENT AND SEVERANCE AGREEMENTS
The Company has entered into employment agreements with Dr. Muzyka, Mr.
Dropkin and Mr. Darling. The agreements provide for an annual salary which is
subject to adjustment based on periodic performance review and for participation
in employee benefit plans made available to salaried employees. Dr. Muzyka's
employment agreement also provides that he may participate in the Special Metals
Corporation Equity Appreciation Rights Plan and the Special Metals Corporation
<PAGE>
11
Supplemental Retirement Income Plan and that his rights and benefits under these
plans shall fully vest upon a "change of control" of the Company (as defined
below).
Dr. Muzyka's employment agreement provides that he shall continue to
receive his salary, bonus and other employee benefits for a period of 18 months
following notice of termination other than for "cause" (as defined in the
agreement). The Company may terminate Dr. Muzyka's employment for "cause" upon
30 days' written notice. The employment agreements with Messrs. Darling and
Dropkin provide that their respective terms of employment shall continue for (i)
18 months following notice of termination from the Company other than for
"cause" (as defined in their respective employment agreements); (ii) 90 days
following notice of termination by the employee; (iii) six months following the
employee's death or disability; or (iv) two months if the Company, in good faith
and after advance written notice to the employee, determines that the employee
has failed to adhere to the terms of his employment agreement or has engaged in
conduct which would injure the reputation of the Company or otherwise materially
adversely affect the Company's interest if the employee remained employed by the
Company. In addition, in the event that Mr. Darling or Mr. Dropkin is terminated
by the Company for reasons other than for "cause," for a period of 18 months
after his employment terminates, the Company will continue to pay his salary and
bonus and provide him with continued employee benefits. Each of the employment
agreements provides that the employee shall not engage in any business similar
to the business carried on by the Company so long as the Company is obligated to
pay the employee a salary and that the Company will retain all rights to any
inventions and innovations developed by the employee during his respective
employment with the Company.
The Company has also entered into severance agreements with Messrs.
MacDonald and Page. These agreements provide that employee's employment shall
continue for a period of twelve months following a "change of control" of the
Company (the "Severance Period") at the employee's then-current salary and such
employee will receive bonus and profit sharing payments and employee benefits
during such period. The Company shall also provide the employee with
out-placement services. The Company may continue to assign duties to the
employee during the first six months of the Severance Period, provided that such
duties do not require more than 80 hours of work in any calendar month. The
agreements further provide that the employee shall provide the Company with at
least 90 days' advance written notice before terminating his employment.
In each of the employment and severance agreements described above, a
"change of control" is defined to mean any transaction or series of related
transactions which causes beneficial ownership or voting rights with respect to
more than 50% of the capital stock or all or substantially all of the assets of
the Company to be transferred, except for transactions within Aubert & Duval or
between the shareholders of Aubert & Duval.
SALARIED EMPLOYEE RETIREMENT PLAN
The Amended and Restated Pension Plan for Salaried Employees of Special
Metals Corporation (the "Salaried Retirement Plan") covers full-time and
part-time salaried employees of Special Metals and is intended to meet the
requirements of section 401(a) of the Code. Generally, under the Salaried
Retirement Plan participants with five years of service become entitled to
receive
<PAGE>
12
a basic retirement benefit upon retirement at age 65. Benefits under the
Salaried Retirement Plan are calculated using a career average benefit formula
which has been updated, from time to time, to make adjustments for final average
earnings. For participants who retire or terminate their employment after
December 31, 1997, the retirement benefit equals the sum of: (i) 1.25% of final
average earnings as of December 31, 1997 multiplied by years of service as of
December 31, 1997; and (ii) 1.25% of average monthly earnings commencing January
1, 1998 multiplied by years of service after December 31, 1997. In calculating
benefits, "final average earnings' is the average of the highest five
consecutive years of earnings out of the last ten years, as of December 31,
1997. Earnings taken into account for calculating benefits under the plan
include base salary, bonuses, profit sharing, overtime, commissions and
deferrals made under certain plans maintained by the Company, including any Code
section 401(k) savings plan or Code section 125 cafeteria plan, and are subject
to limits imposed by the Code, including Code section 401(a)(17) (generally,
limiting compensation to $150,000 per year, as indexed). Payments are made in
the form of a joint and survivor annuity (for married employees) or single life
annuity (for single employees), unless another form of benefit is elected by the
participant in accordance with the terms of the plan. The plan contains
provisions for early retirement benefits and supplements, special retirement
benefits and supplements for termination due to a plant or department
reorganization or closing, payments upon disability and spousal death benefits.
The estimated annual benefit payable under the Salaried Retirement Plan at age
65 is $30,357, $79,544, $30,051, $40,685 and $35,090 for each of Dr. Muzyka and
Messrs. Darling, Page, Dropkin and MacDonald, respectively, assuming annual
salary increases of 5.0% and 3.0% annual increases in the compensation limit
under Code Section 401(a)(17).
EQUITY RIGHTS PLAN
The Special Metals Corporation Equity Appreciation Rights Plan (the
"Equity Rights Plan") provides for the grant of rights to receive cash payments
based on the appreciation of the book value of the Company, as defined in the
Equity Rights Plan ("Rights"). Each Right is based on the total book value of
the Company at the date of grant, divided by 10,000,000 and appreciation is
calculated using aggregate after-tax profits after the date of grant. Rights are
generally exercisable from the fifth anniversary of the date of grant until the
tenth anniversary of the date of grant, or earlier in the event of a "change of
control" of the Company (as defined in the Equity Rights Plan), termination
without "cause" (as defined in the Equity Rights Plan), retirement at age 65,
death or disability. Rights are forfeited in the event the holder is terminated
by the Company for cause. Dr. Muzyka is the only current participant in the
Equity Rights Plan. He has received 50,000 Rights, none of which were granted in
the fiscal year ended December 31, 1997. As of December 31, 1997, 10,000 of such
Rights are exercisable until 2000, 10,000 are exercisable until 2001 and 10,000
are exercisable until 2002. The remaining 20,000 Rights will become exercisable
in 10,000 Right increments in 1998 and 1999 and will be exercisable for five
years after becoming exercisable.
The following table summarizes the value of Dr. Muzyka's Rights under
the Equity Rights Plan as of December 31, 1997.
<PAGE>
13
Number of Units Underlying Value of Unexercised In-the
Unexercised Options/SARS at Money Options/SARS at
December 31, 1997 (#) December 31, 1997 ($)
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
- - ---- ------------- -------------
Donald R. Muzyka...... 30,000/20,000 $84,100/$71,300
SUPPLEMENTAL RETIREMENT INCOME PLAN
The Company has adopted the Special Metals Corporation Supplemental
Retirement Income Plan (the "SRIP") which covers only Dr. Muzyka. The SRIP is
intended to grant Dr. Muzyka supplemental retirement benefits equal to the
difference between (i) the benefits that Dr. Muzyka would have received under
his prior employer's pension plan had he remained at his prior employer until he
was age 65, based on his "average compensation" (as defined in the SRIP) at
Special Metals and (ii) his vested accrued benefits under the prior employer's
pension plan and the Salaried Retirement Plan. Compensation for purposes of the
SRIP includes bonus and profit sharing payments and amounts of income deferred
under deferred compensation plans of the Company. Benefits under the SRIP will
ratably vest over a 10-year period subject to immediate vesting upon a "change
of control" of the Company (as defined in the SRIP) and special and accelerated
vesting in the event of death, disability or other termination of employment.
Based on Dr. Muzyka's compensation and years of service, he would be entitled to
estimated annual benefits of $70,431 under the SRIP at normal retirement age 65.
STOCK INCENTIVE PLAN
In January 1997, the Board of Directors of the Company adopted, and the
Company's stockholders approved, the Special Metals Corporation 1997 Long-Term
Stock Incentive Plan (the "Stock Incentive Plan"). The Stock Incentive Plan is
administered by the Board of Directors of the Company. The Board of Directors is
referred to in such capacity as the "Stock Plan Committee." Officers, other key
employees and directors of the Company or any of its subsidiaries are eligible
to be designated as a participant under the Stock Incentive Plan (a
"Participant"). The Stock Plan Committee has the sole and complete authority to
determine the Participants to whom awards shall be granted under the Stock
Incentive Plan.
Subject to anti-dilution provisions for stock splits, stock dividends
and other corporate events, the Stock Incentive Plan authorizes the grant of
awards to Participants with respect to a maximum of 800,000 shares of the
Company's Common Stock ("Shares"), which awards may be made in the form of (i)
nonqualified stock options; (ii) stock options intended to qualify as incentive
stock options under section 422 of the Code; (iii) stock appreciation rights;
(iv) restricted stock and/or restricted stock units; (v) performance awards and
(vi) other stock based awards; provided, that the maximum number of Shares that
may be awarded to any Participant in any fiscal year in the form of stock
options and stock appreciation rights may not exceed 100,000 and the maximum
number of Shares which may be paid to any Participant in connection with certain
awards designated as "performance compensation awards" for purposes of Section
162(m) of the Code in respect of a single performance
<PAGE>
14
period shall be 100,000 Shares. If, after the effective date of the Stock
Incentive Plan, any Shares covered by an award granted under the Stock Incentive
Plan, or to which such an award relates, are forfeited, or if an award has
expired, terminated or been canceled for any reason whatsoever (other than by
reason of exercise or vesting), then the Shares covered by such award shall
again be, or shall become, Shares with respect to which awards may be granted
under the Stock Incentive Plan.
In the event of a "change of control" of the Company (as defined in the
Stock Incentive Plan), any outstanding Awards then held by Participants which
are unexercisable or otherwise unvested shall automatically be deemed
exercisable or otherwise vested, as the case may be, as of immediately prior to
such change of control. Unless otherwise specified in the grant of a particular
Award, Awards under the Stock Incentive Plan are subject to cancellation or
rescission in the event that the Participant engages in activities that are
competitive with the Company or if the Participant fails to comply with
provisions regarding the confidentiality of Company information and the
Company's ownership of inventions and innovations.
The Board of Directors of the Company may amend, alter, suspend,
discontinue, or terminate the Stock Incentive Plan or any portion thereof at any
time; provided that no such amendment, alteration, suspension, discontinuation
or termination shall be made without stockholder approval if such approval is
necessary to comply with any tax or regulatory requirement; and provided further
that no such amendment may materially and adversely affect any Participant in
the Stock Incentive Plan without such Participant's consent.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors consists of Robert
D. Halverstadt, Chairman of the Board of Directors and Edouard Duval, a director
of the Company. The Company has entered into or expects to enter into the
following transactions with SIMA and its subsidiaries, including Aubert & Duval,
and Mr. Halverstadt and Applied Innovative Management Engineering ("AIME"), a
sole proprietorship of Mr. Halverstadt. Edouard Duval is a Directeur General of
SIMA and has a minority equity interest in SIMA.
TECHNOLOGY EXCHANGE AGREEMENT. The Company and SIMA are parties to a
technical information exchange agreement (the "Technology Exchange Agreement").
During the term of the Technology Exchange Agreement, subject to certain
exceptions, SIMA and the Company are required, to the best of their ability and
subject to government controls and other limitations imposed by preexisting
agreements with third parties, to furnish all technical information pertaining
to the manufacture of high temperature alloys and other alloys and materials, as
may be needed and requested by the other to further develop and diversify its
respective business. Under the agreement, SIMA and the Company will periodically
provide technical and manufacturing persons to consult and advise each other.
Neither party will receive compensation from the other for the information and
assistance provided, and all information provided under the Technology Exchange
Agreement shall be kept confidential by the recipient. The Technology Exchange
Agreement will remain in effect until terminated by either party upon 30 days'
advance written notice to the other party. Termination will not affect either
party's right to continue to use information received from the other.
<PAGE>
15
MANAGERIAL ASSISTANCE AGREEMENT. The Company and SIMA are parties to a
managerial assistance agreement (the "Managerial Assistance Agreement"). The
Managerial Assistance Agreement provides that SIMA will provide the Company with
information and advice regarding the management of its existing business and the
expansion of the Company's business into new products and markets. Under the
terms of the Managerial Assistance Agreement, the Company (i) compensates SIMA
for managerial assistance at a rate of $30,000 per month and (ii) reimburses
SIMA for out-of-pocket telecommunication charges, travel costs and subsistence
while traveling, to the extent that such expenses are reasonable and for the
benefit of the Company. SIMA will provide the Company, within 30 days after the
end of each month in which managerial assistance is provided, a written report
fully detailing the managerial assistance furnished, including the assistance,
advice and recommendations given and made. Payment to SIMA will be made within
30 days following receipt and acceptance by the Company of an invoice and
appropriate expense documents. All payments are to be free of tax and charges of
governments other than the government of France. The Managerial Assistance
Agreement provides that SIMA may be requested to provide services beyond the
scope or level previously provided by SIMA, whether in connection with potential
acquisitions, financings or other matters involving the Company. In such event,
SIMA shall be entitled to compensation in addition to the monthly fee referred
to above, based on the time spent and other relative factors, as SIMA and the
Company will mutually agree. The Managerial Assistance Agreement will remain in
effect until terminated by either party upon 30 days' advance written notice to
the other party. All information and advice provided by SIMA and all information
provided to SIMA by the Company in connection with the Managerial Assistance
Agreement will be kept confidential. The Company paid $270,000 to SIMA pursuant
to the Managerial Assistance Agreement in 1997.
ENCAPSULATING SERVICES AGREEMENT. The Company and Compagnie
Industrielle Des Metaux Durs ("CIMD"), a indirect subsidiary of SIMA, are
parties to an encapsulating services agreement (the "Encapsulating Services
Agreement"). The Encapsulating Services Agreement provides that the Company will
consign its encapsulating machine, capsules, dental alloy and mercury pillows to
CIMD and purchase encapsulating services from CIMD. The Company will retain
ownership of such materials at all times. CIMD will encapsulate the dental alloy
and mercury pillows for resale by the Company and will ship the filled capsules
directly to the Company's customers. The Company will pay CIMD (i) $0.094 per
capsule for the first 2,000,000 capsules shipped in any calendar year; (ii)
$0.057 per capsule for the second 2,000,000 capsules shipped in any calendar
year; and (iii) $0.05 per capsule for capsules shipped in excess of 4,000,000
capsules in any calendar year. No amounts were paid in 1997. The Encapsulating
Services Agreement has a term of five years or until terminated by either party
in the event of the other party's material breach of the agreement. All
confidential information provided to CIMD by the Company in connection with the
Encapsulating Services Agreement will be kept confidential.
AFFILIATE SALES. During 1997, the Company sold superalloy and special
alloy products to affiliates of SIMA. The net revenues from such sales were
$10.5 million. Management believes that the terms of such sales are no less
favorable to the Company than the terms that it would have obtained in
transactions with unaffiliated third parties. The Company may sell superalloy
and special alloy products to affiliates of SIMA in the future.
<PAGE>
16
RAW MATERIALS. In the past, from time to time, the Company and
affiliates of SIMA have sold raw materials to each other. Management believes
that the terms of such sales are no less favorable to the Company than the terms
that it would have obtained in transactions with unaffiliated third parties. The
Company and SIMA expect that such sales may occur in the future.
INSURANCE. The Company and Aubert & Duval, a subsidiary of SIMA, share
common insurance coverage for aircraft/space liabilities, contingent liabilities
and excess liabilities greater than $10 million but less than $50 million. The
Company is charged a pro rata premium based on the net sales of the covered
parties. The Company was charged $200,840 for such premiums in 1997. The Company
believes that the insurance coverage provided to it is more favorable than the
insurance coverage that it could obtain as a stand-alone entity.
CONSULTING ARRANGEMENTS. The Company has regularly engaged Robert D.
Halverstadt and AIME as consultants. In 1997, Mr. Halverstadt and AIME received
approximately $212,000 in fees and expense reimbursements. The Company intends
to continue to employ Mr. Halverstadt and AIME as consultants in the future. In
addition, Mr. Halverstadt received a $70,000 success fee for advice rendered in
connection with the Company's initial public offering in the first quarter of
1997.
REPORT OF COMPENSATION COMMITTEE
THE REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS AND
THE PERFORMANCE GRAPH FOLLOWING IT SHALL NOT BE DEEMED TO BE INCORPORATED BY
REFERENCE BY ANY GENERAL STATEMENT INCORPORATING BY REFERENCE THIS PROXY
STATEMENT INTO ANY FILING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, EXCEPT TO THE EXTENT THAT THE
COMPANY SPECIFICALLY INCORPORATES THIS INFORMATION BY REFERENCE, AND WILL NOT
OTHERWISE BE DEEMED FILED UNDER SUCH ACTS.
The Committee advises the Board of Directors on compensation matters,
which reviews and approves all compensation determinations made by the
Committee. Dr. Muzyka, President and Chief Executive Officer, attends meetings
of the Committee and provides input on employee goals and objectives and
participates in evaluations of employee performance. All determinations of the
Committee are made by Messrs. Halverstadt and Duval. The Committee's policy is
to review and establish executive compensation to ensure that base pay and
incentive compensation are sufficient to attract and retain qualified executive
officers, and to provide incentive systems reflecting both financial and
operating performance as well as an alignment with shareholder interests. The
Committee implements these principles through a combination of base salary and
benefit programs, an annual incentive program and an equity based long-term
incentive program.
ELEMENTS OF EXECUTIVE COMPENSATION
BASE PAY. The Company seeks to provide compensation packages that it
believes are competitive with other companies in order to attract and retain
qualified executives. The Company has employment agreements or severance
agreements with certain of its executive officers. See "Executive
Compensation--Employment and Severance Agreements." Base salaries for most of
the Company's executive officers remained relatively constant in 1995 through
1997. In 1997, the
<PAGE>
17
Company retained an independent outside consulting firm to prepare a report that
compared the base salary and benefits programs of the Company to those of peer
companies ("Report"). The Committee utilized the Report and input from Dr.
Muzyka and his staff to adjust the Company's executive base compensation to
remain consistent with competitive levels.
ANNUAL INCENTIVE PROGRAM. The Company has established an incentive
compensation program based on the financial performance of the Company and on
performance goals determined in conjunction with the Company's executives. The
Company's incentive compensation program ties one half of an executive's bonus
to overall Company financial performance and one half to objectives tailored to
the individual executive's position. Individual objectives are developed for
each executive at the beginning of the year by the Committee with the
participation and input of the particular executive, the executive's supervisor
and the Company's President and Chief Executive Officer. In developing these
objectives, the Committee seeks to establish functional standards that are as
specific and measurable as possible. At the end of the year, an executive's
performance is evaluated by the executive's supervisor against these functional
standards using a scoring system to determine the extent to which an executive's
objectives have been met. An executive's bonus is then determined by the
Committee using a formula which utilizes the executive's performance score and
is weighted by the executive's position grade. An additional component of bonus
compensation may be awarded at the Committee's discretion for outstanding
performance.
LONG TERM STOCK INCENTIVE PROGRAM. In January 1997 the Company adopted
the Special Metals Corporation Long Term Stock Incentive Plan ("Stock Plan") in
which officers, other key employees and directors of the Company are eligible to
participate. Awards may be made in the form of stock options, stock appreciation
rights, restricted stock, performance awards and other stock based awards. In
February 1997 the Company awarded options to purchase a total of 295,500 shares
of common stock to its executive officers, directors and other key employees, of
which 135,000 were awarded to the Named Executive Officers. These options vest
one half on the second anniversary of the date of grant and one quarter on each
of the third and fourth anniversaries of the date of grant. In July 1997, the
Company awarded 2,000 shares of restricted stock to each of Dr. Muzyka and Mr.
Darling. In February 1998, the Company awarded options to purchase a total
103,500 shares of common stock to its executive officers, directors and other
key employees, of which 57,000 were awarded to the Named Executive Officers.
These options vest one-third on each of the first three anniversaries following
the date of grant. Awards under the Stock Plan are approved by the Company's
Board of Directors with the advice of the Committee. The Committee believes that
providing Company's executives with stock-based compensation will help link
executive compensation to the creation of stockholder value. Decisions regarding
the number of options granted to a particular executive were based on the
executive's current performance as well as the expected impact of stock-based
compensation on the executive's future performance.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Committee uses the same policies with respect to the compensation
of all of its executives, including Dr. Muzyka, the Company's Chief Executive
Officer. The functional objectives used in determining Dr. Muzyka's bonus for
1997 included the successful completion of the Offering, an increase in the
Company's stockholders equity and the development of strategic plans for the
<PAGE>
18
Company. Dr. Muzyka is the sole participant in the Company's Equity Appreciation
Rights Plan and Company's Supplemental Retirement Income Plan. These two plans
were established specifically for Dr. Muzyka and were designed to compensate Dr.
Muzyka for similar long term and retirement compensation that he forfeited when
he left his former employer to join Special Metals in 1990. See "Executive
Compensation--Equity Rights Plan" and "--Supplemental Retirement Income Plan."
Compensation Committee
Edouard Duval
Robert D. Halverstadt
<PAGE>
19
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return
(assuming reinvestment of dividends, if any) from investing $100 on February 26,
1997 (the date of the Corporation's initial public offering) in each of (i) the
Corporation's Common Stock; (ii) the NASDAQ Composite Index; and (iii) a Peer
Group Index of ten companies that are engaged in the manufacture of specialty
metals (Allegheny Teledyne Inc.; Carpenter Technology Corporation; Doncasters
plc.; Oregon Metallurgical Corporation; Precision Castparts Corp.; RMI Titanium
Company; SIFCO Industries, Inc.; SPS Technologies, Inc.; Titanium Metals
Corporation; and Wyman-Gordon Company (the "Peer Group Index")).
COMPARISON OF CUMULATIVE RETURN AMONG SPECIAL METALS
CORPORATION, NASDAQ COMPOSITE INDEX AND PEER GROUP INDEX
[Graph]
2/26/97 12/31/97
------- --------
Special Metals Corporation 100.00 106.67
NASDAQ Composite Index 100.00 117.62
Peer Group Index 100.00 108.94
<PAGE>
20
CERTAIN TRANSACTIONS
TRANSACTIONS WITH PRINCIPAL STOCKHOLDERS
The Company and the Principal Stockholders have from time to time
entered into various business transactions and agreements, and the Company and
the Principal Stockholders may from time to time enter into additional
transactions and agreements in the future. The following is a summary of certain
agreements and transactions between the Company and the Principal Stockholders.
TRANSACTIONS WITH SIMA. The Company is party and may, in the future,
become a party to transactions with SIMA, of which Edouard Duval, a director of
the Company, is a Directeur General and owns a minority equity interest. See
"Executive Compensation--Compensation Committee Interlocks and Insider
Participation--Technology Exchange Agreement," "--Managerial Assistance
Agreement," "--Encapsulating Services Agreement," "--Affiliate Sales," "--Raw
Materials" and "--Insurance."
REGISTRATION RIGHTS. Under a registration rights agreement (the
"Registration Rights Agreement") among the Company and the Principal
Stockholders, the Company has granted the Principal Stockholders the right to
require, subject to the terms and conditions set forth therein, the Company to
register shares of Common Stock held by the Principal Stockholders (the
"Registrable Securities") for sale in accordance with their intended method of
disposition thereof (a "demand registration"). The holders of a majority of the
Registrable Securities may request one demand registration per year (except in
certain circumstances). In addition, so long as any Principal Stockholder
continues to hold at least 5% of the outstanding Common Stock, such Principal
Stockholder shall also have the right to request one demand registration. The
Principal Stockholders may not require more than one demand registration each
year. Additionally, the Company has granted to each Principal Stockholder the
right, subject to certain exceptions, to participate in registrations of Common
Stock initiated by the Company on its own behalf or on behalf of its
stockholders (a "piggy-back registration").
The Registration Rights Agreement provides that to the extent not
inconsistent with applicable law, each holder of Registrable Securities will not
effect any public sale or distribution of any Registrable Securities of the
Company, or any securities convertible into or exchangeable or exercisable for
such Registrable Securities, during the seven days prior to and the 90 days
after any registration relating to such Registrable Securities has become
effective, except as part of such registration, if requested by the Company or
the managing underwriter or underwriters of such offering. In addition, the
Company has agreed not to effect any public sale or distribution of its
Registrable Securities or securities convertible into or exchangeable or
exercisable for any of such Registrable Securities during the seven days prior
to and the 90 days after any registration relating to such Registrable
Securities has become effective, except as part of such registration and except
pursuant to registrations relating to employee benefit plans and certain other
offerings.
The Company is required to pay expenses (other than underwriting
discounts and commissions) incurred by the Principal Stockholders in connection
with the demand and piggy-back registrations. Subject to certain limitations
specified in the Registration Rights Agreement, the Principal Stockholders'
registration rights are assignable to third parties. The Registration Rights
<PAGE>
21
Agreement contains indemnification and contribution provisions by the Company
for the benefit of the Principal Stockholders and their respective permitted
assigns and their related persons. Each Principal Stockholder's rights under the
Registration Rights Agreement will terminate if such Principal Stockholder
ceases to own at least 5% of the outstanding Common Stock. AMI and LWH exercised
their piggy-back rights in the Company's initial public offering in the first
quarter of 1997 with respect to 775,000 shares of Common Stock. The Company
incurred approximately $700,000 of expenses in connection with the Company's
initial public offering and indemnified the Selling Stockholders for certain
liabilities, including liabilities under the Securities Act.
CONSULTING ARRANGEMENTS
The Company has regularly engaged Robert D. Halverstadt, Chairman of
the Board of Directors, and AIME, a sole proprietorship of Mr. Halverstadt, as
consultants. See "Executive Compensation--Compensation Committee Interlocks and
Insider Participation--Consulting Arrangements."
The Company also has consulting agreements with Mr. Treuille, a member
of the Board of Directors, for financial services advice and Dr. Decker, a
member of the Board of Directors, for technical advice. During 1997, the fees
paid and expenses reimbursed to Mr. Treuille and Dr. Decker under these
consulting agreements were $54,680 and $12,000, respectively.
In addition, Messrs. Treuille and Halverstadt each also received a
$70,000 success fee for advice rendered in connection with the Company's initial
public offering in the first quarter of 1997.
RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTS
The Board of Directors has selected the firm of Ernst & Young LLP as
the Company's independent certified public accountants for the fiscal year
ending December 31, 1998. Ratification of such appointment requires the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock represented and voting in person or by proxy at the Annual Meeting
or any adjournment thereof.
Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting, at which time they will have the opportunity to make a statement
if they desire to do so and to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE
COMPANY FOR THE YEAR ENDING DECEMBER 31, 1998. UNLESS OTHERWISE INSTRUCTED,
SIGNED PROXIES WHICH ARE RETURNED IN A TIMELY MANNER WILL BE VOTED IN FAVOR OF
SUCH APPOINTMENT.
OTHER BUSINESS
As of the date of this Proxy Statement, the only business which the
Board of Directors intends to present, and knows that others will present, at
the Annual Meeting is that set forth herein. If any
<PAGE>
22
other matter or matters are properly brought before the Annual Meeting or any
adjournments thereof, it is the intention of the persons named in the
accompanying form of proxy to vote the proxy on such matter as recommended by
the Board of Directors.
ANNUAL REPORT
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, WITHOUT EXHIBITS, WILL BE FURNISHED WITHOUT
CHARGE TO ANY PERSON FROM WHOM THE ACCOMPANYING PROXY IS SOLICITED UPON WRITTEN
REQUEST TO THE COMPANY'S SECRETARY AT SPECIAL METALS CORPORATION, 4317 MIDDLE
SETTLEMENT ROAD, NEW HARTFORD, NEW YORK 13413.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the Company's
1999 Annual Meeting of Stockholders must be received by the Company on or prior
to December 16, 1998 to be eligible for inclusion in the Company's Proxy
Statement and form of Proxy to be used in connection with the 1999 Annual
Meeting.
OTHER INFORMATION
The cost of preparing, assembling, printing and mailing this Proxy
Statement and the accompanying form of proxy, and the cost of soliciting proxies
relating to the Annual Meeting, will be borne by the Company.
By order of the Board of Directors,
Robert F. Dropkin
Secretary
New Hartford, New York
April 15, 1998
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23
SPECIAL METALS CORPORATION
4317 MIDDLE SETTLEMENT ROAD NEW HARTFORD, NEW YORK 13413
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS -- MAY 28, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Special Metals Corporation (the
"Company") hereby appoints Robert D. Halverstadt and Donald R. Muzyka, and each
of them, with full power of substitution in each, as proxies to cast all votes,
as designated on the reverse side, which the undersigned stockholder is entitled
to cast at the 1998 Annual Meeting of Stockholders of the Company to be held on
Thursday, May 28, 1998, at 11:00 a.m., at the Radisson Hotel - Utica Centre, 200
Genesee Street, Utica, NY 13502, and at any adjournments thereof, upon the
following matters:
1. Proposal to elect as directors of the Company the following persons, to
hold office for a term of three years expiring at the annual meeting to be held
in 2001.
FOR the nominees listed below (except as marked to the contrary below)
WITHHOLD AUTHORITY to vote for all the nominees listed below
NOMINEES: Donald C. Darling, Raymond F. Decker and Robert F. Dropkin.
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, please
cross out that nominee's name.)
2. Proposal to ratify the appointment of Ernst & Young LLP as independent
accountants of the Company for calendar year 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(INSTRUCTIONS: Check appropriate box. Proxies returned with no box checked
will be voted for Proposal 2.)
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
Please check here if you plan to attend the meeting [ ].
(PLEASE SIGN ON OTHER SIDE)
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24
This proxy, when properly executed, will be voted in the manner
directed herein by the undersigned stockholder(s). IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED "FOR" THE ELECTION OF THE NOMINEES UNDER PROPOSAL 1, "FOR"
PROPOSAL 2, AND WILL BE VOTED IN THE DISCRETION OF THE PROXIES WITH RESPECT TO
ANY OTHER MATTER THAT IS PROPERLY PRESENTED AT THE MEETING.
.................. .................................... Dated...........1998
Signature Signature if Held Jointly
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
Please execute this proxy as your name appears hereon. When shares are
held by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by the president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
