SPECIAL METALS CORP, DEF 14A, 1999-04-28

SPECIAL METALS CORP
DEF 14A, 1999-04-28
STEEL WORKS, BLAST FURNACES & ROLLING & FINISHING MILLS

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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, 1999

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 Genesse Street, Utica, NY 13502 at 11:00 a.m., May 28, 1999 to
consider and vote on the following matters described in this notice and the
accompanying Proxy Statement:

1. To elect two directors each to serve as a Class II 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, 1999.

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 19,
1999 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 noting that intention at the appropriate place on the enclosed
proxy card.

By Order of the Board of Directors,

Robert F. Dropkin
Secretary

New Hartford, New York
April 28, 1999
<PAGE>

SPECIAL METALS CORPORATION
4317 Middle Settlement Road
New Hartford, New York 13413

PROXY STATEMENT

ANNUAL MEETING OF STOCKHOLDERS

MEETING DATE: MAY 28, 1999

This Proxy Statement is being sent on or about April 28, 1999 in
connection with the solicitation of proxies by the Board of Directors of Special
Metals Corporation, a Delaware corporation (the "Company" or "Special Metals").
The proxies are for use at the 1999 Annual Meeting of the Stockholders of the
Company (the "Annual Meeting"), which will be held at the Radisson Hotel-Utica
Centre, 200 Genesse Street, Utica, NY 13502, on May 28, 1999, 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 19, 1999 (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 list of stockholders of record entitled to vote at
the Annual Meeting will be available for examination during normal business
hours by any Company stockholder, for purposes related to the Annual Meeting,
for a period of ten days prior to the Annual Meeting, at the Company's offices.

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.
<PAGE>

VOTING SECURITIES

As of the Record Date, there were 15,479,000 shares of Common Stock
issued and 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. 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. No other outstanding securities of the
Company are entitled to vote as of the Record Date. As of the record date, there
were 1,940,000 shares of Series A Convertible Preferred Stock (the "Convertible
Preferred Stock") outstanding. The holders of Convertible Preferred Stock are
not entitled to notice of, nor are they entitled to vote 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 1, 1999,
with respect to beneficial ownership of shares of Common Stock by (a) each
person (including any "group" as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder (the "Exchange Act")) known to the Company to be
beneficial owners of more than 5% of the Company's Common Stock, (b) each of the
Company's directors, (c) the Company's Chief Executive Officer and the four
other most highly compensated executive officers of the Company for the fiscal
year ended December 31, 1998, and (d) all persons serving as executive officers
and directors of the Company as of April 1, 1999 as a group.

Unless otherwise indicated in the table below, the address of each
beneficial owner is in care of Special Metals Corporation, 4317 Middle
Settlement Road, New Hartford, New York 13413. With respect to beneficial owners
of 5% or more of the shares of Common Stock, the following information is based
on a review, as of April 1, 1999, by the Company of statements filed with the
Securities and Exchange Commission under Sections 13(d) and 13(g) of the
Exchange Act. To the best knowledge of the Company, except as set forth above,
no person beneficially owns more than 5% of the outstanding Common Stock.

Unless otherwise indicated in the table below, each person listed below
has sole voting and investment power with respect to the shares of Common Stock
beneficially owned by such person except, in the case of SIMA, LWH and AMI (the
"Principal Stockholders"), to the extent voting power is shared pursuant to the
Stockholders Agreement and the Voting Agreement, both of which are described
after the table.
<PAGE>

3
<TABLE>
<CAPTION>

Shares of Common Stock
Beneficially Owned

Number
Names and Addresses of Shares Percent of Class
------------------- ------------------- ------------------
<S> <C> <C>
Societe Industrielle de Materiaux Avances ("SIMA")(1)(2)................... 5,952,000 38.5%
TIMET Finance Management Company(2)(3)(4) ("TFMC")......................... 4,848,484 23.9%
LWH Holding S.A. ("LWH")(2)(5)............................................. 3,580,500 23.1%
Advanced Materials Investments Holdings, S.A. ("AMI")(2)(6)................ 2,092,500 13.5%
Inco Ltd.(7)(4) ("Inco")................................................... 1,030,303 6.2%
Royce & Associates, Inc. and Royce Management Company(8)................... 944,500 6.1%
Donald R. Muzyka(9)(10).................................................... 37,833 *
Robert D. Halverstadt(9)................................................... 18,750 *
Donald C. Darling(9)....................................................... 18,417 *
Gernant Maurer(9).......................................................... 16,417 *
Robert F. Dropkin(9)....................................................... 14,917 *
Thomas E. MacDonald(9)..................................................... 14,617 *
Antoine G. Treuille(9)..................................................... 12,250 *
Raymond F. Decker(9)....................................................... 7,900 *
Andrew R. Dixey............................................................ -- --
Edouard Duval(1)........................................................... -- --
All Directors and Executive Officers as a Group (12 persons)............... 145,100 *

- ----------------------
</TABLE>

* Less than 1%

(1) SIMA's address is 41, Rue de Villiers, BP120, 92202 Neuilly-Sur-Seine,
Cedex, France. The common equity of SIMA is currently 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. Mr. Duval's address is in care of SIMA.
SIMA has entered into an agreement to be acquired by ERAMET, a French
mining group. The acquisition, which is subject to various approvals and
conditions, is expected to be completed by November, 1999. Upon completion
of the acquisition, SIMA will be a wholly-owned subsidiary of ERAMET.

(2) The Company, SIMA, AMI and LWH have entered into the Stockholders
Agreement, which provides for certain voting rights, nominating rights and
transfer restrictions. TFMC, Titanium Metals Corporation ("TMC"), SIMA,
AMI and LWH are parties to the Voting Agreement which provides that SIMA,
AMI and LWH will vote in favor of directors nominated by TFMC. The
Stockholders Agreement and the Voting Agreement are described following
this table. Each entity has sole voting and investment power with respect
to their shares of Common Stock except to the extent voting power is
shared pursuant to the Stockholders Agreement and the Voting Agreement.
<PAGE>

(3) TFMC's address is 300 Delaware Avenue, 9th floor, Wilmington, Delaware
19801.

TMC is the direct holder of 100% of the outstanding shares of TFMC and may
be deemed to control TFMC. Tremont Corporation ("Tremont") is the direct
holder of 39.1% of the outstanding common stock of TMC. Tremont may be
deemed to control TMC. Valhi, Inc. ("Valhi"), the Harold Simmons
Foundation, Inc. (the "Foundation"), NL Industries, Inc. ("NL"), Valmont
Insurance Company ("Valmont") and the Combined Master Retirement Trust
(the "CMRT") are the direct holders of approximately 48.4%, 3.9%, 0.6%,
0.5% and 0.1%, respectively, of the outstanding shares of common stock of
Tremont. Valhi may be deemed to control Tremont. Valhi and Tremont are the
direct holders of approximately 57.8% and 19.6%, respectively, of the
outstanding common stock of NL and together may be deemed to control NL.
Valhi is the direct holder of 100% of the outstanding common stock of
Valmont and may be deemed to control Valmont. Valhi Group, Inc. ("VGI"),
National City Lines, Inc. ("National"), Contran Corporation ("Contran"),
the Foundation and the CMRT are the direct holders of 81.9%, 9.5%, 0.9%,
0.5% and 0.1% of the common stock of Valhi. Together, VGI, National and
Contran may be deemed to control Valhi. National, NOA, Inc. ("NOA") and
Dixie Holding Company ("Dixie Holding") are the direct holders of
approximately 73.3%, 11.4% and 15.3%, respectively, of the outstanding
common stock of VGI. Together, National, NOA and Dixie Holding may be
deemed to control VGI. Contran and NOA are the direct holders of
approximately 85.7% and 14.3%, respectively, of the outstanding common
stock of National and together may be deemed to control National. Contran
and Southwest Louisiana Land Company, Inc. ("Southwest") are the direct
holders of approximately 49.9% and 50.1%, respectively, of the outstanding
common stock of NOA and together may be deemed to control NOA. Dixie Rice
Agricultural Corporation, Inc. ("Dixie Rice") is the holder of 100% of the
outstanding common stock of Dixie Holding and may be deemed to control
Dixie Holding. Contran is the holder of approximately 88.8% and 66.3% of
the outstanding common stock of Southwest and Dixie Rice, respectively,
and may be deemed to control Southwest and Dixie Rice.

Substantially all of Contran's outstanding voting stock is held either by
trusts established for the benefit of certain of Mr. Harold C. Simmons'
children and grandchildren (the "Trusts"), of which Mr. Simmons is the
sole trustee, or by Mr. Simmons directly. As sole trustee of each of the
Trusts, Mr. Simmons has the power to vote and direct the disposition of
the shares of Contran stock held by each of the Trusts. Mr. Simmons
however, disclaims beneficial ownership of such shares, except for those
he directly holds.

The CMRT directly holds approximately 0.1% of each of the outstanding
shares of Tremont and Valhi common stock. The CMRT is a trust formed by
Valhi to permit the collective investment by trusts that maintain the
assets of certain employee benefit plans adopted by Valhi and related
companies. Mr. Simmons is the sole trustee of the CMRT and a member of the
trust investment committee for the CMRT. Mr. Simmons is a participant in
one or more of the employee benefit plans that invest through the CMRT.

The Foundation directly holds approximately 3.9% of the outstanding
Tremont common stock and 0.5% of the outstanding Valhi common stock. The
Foundation is a tax-exempt foundation organized for charitable purposes.
Harold C. Simmons is the chairman of the board and chief executive officer
of the Foundation and may be deemed to control the Foundation.

The Contran Deferred Compensation Trust No. 2 (the "CDCT No. 2") directly
holds approximately 0.2% of Valhi common stock. Boston Safe Deposit and
Trust Company serves as the trustee of the CDCT No. 2. Contran established
the CDCT No. 2 as an irrevocable "rabbi trust" to assist Contran in
meeting certain deferred compensation obligations that it owed to Harold
C. Simmons. If the CDCT No. 2 assets are insufficient to satisfy such
obligations, Contran is obligated to satisfy the balance of such
obligations as they come due. Under the terms of the CDCT No. 2, Contran
(i) retains the power to vote the shares of Valhi common stock held
directly by the CDCT No. 2, (ii) retains dispositive power over such
shares and (iii) may be deemed the indirect beneficial owner of such
shares.

Valmont and NL directly own 1,000,000 shares and 1,186,200 shares,
respectively, of Valhi common stock. Pursuant to Delaware law, Valhi
treats the shares of Valhi common stock owned by Valmont and NL as
treasury stock for voting purposes and for the purposes hereof are not
deemed outstanding.

Mr. Harold C. Simmons is chairman of the board and chief executive officer
of Valhi, VGI, National, NOA, Dixie Holding, Dixie Rice, Southwest and
Contran. Mr. Simmons is also chairman of the board of NL and a director of
Tremont.
<PAGE>

By virtue of the holding of the offices, the stock ownership and his
services as trustee, all as described above, (a) Mr. Simmons may be deemed
to control the entities described above (excluding the Company) and (b)
Mr. Simmons and certain of such entities may be deemed to possess indirect
beneficial ownership of the shares of Convertible Preferred Stock
beneficially owned by TFMC. However, Mr. Simmons disclaims beneficial
ownership of the shares of Convertible Preferred Stock beneficially owned,
directly or indirectly, by any of such entities.

Harold C. Simmons' spouse is the direct owner of 3,747 shares of Tremont
common stock and 77,000 shares of Valhi common stock. Mr. Simmons may be
deemed to share indirect beneficial ownership of such shares. Mr. Simmons
disclaims all such beneficial ownership.

(4) Includes shares of Common Stock issuable upon conversion of the Company's
outstanding Convertible Preferred Stock. The Convertible Preferred Stock
is convertible at the election of the holder into the number of shares of
Common Stock shown for each of TMC and INCO. Holders of shares of
Convertible Preferred Stock are not entitled to vote at the Annual
Meeting.

If TFMC and Inco were to convert all of the Shares of Convertible
Preferred Stock owned by them into Common Stock, the percentage of the
Common Stock beneficially owned by SIMA, TFMC, LWH, AMI and INCO would be
27.9%, 22.7%, 16.8%, 9.8% and 4.8%, respectively.

(5) 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.

(6) 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.

(7) Inco's address is 145 King Street West, Suite 1500, Toronto, Ontario M5H
4B7, Canada.

(8) Includes 905,700 shares of Common Stock beneficially owned by Royce &
Associates, Inc. ("Royce") and 38,800 shares of Common Stock beneficially
owned by Royce Management Company ("RMC"). Charles M. Royce may be deemed
to be a controlling person of Royce and RMC, and as such may be deemed to
beneficially own the shares of Common Stock beneficially owned by Royce
and RMC. Mr. Royce disclaims beneficial ownership of the shares held by
Royce and RMC.

Royce's and RMC's address is 1414 Avenue of the Americas, New York, New
York 10019.

(9) In the case of Dr. Muzyka, Mr. Halverstadt, Mr. Darling, Dr. Maurer, Mr.
Dropkin, Mr. MacDonald, Mr. Treuille and Dr. Decker, includes 28,833,
11,250, 14,417, 14,417, 14,417, 14,417, 11,250 and 2,500 shares of Common
Stock, respectively, issuable upon exercise of currently exercisable
options.

(10) Dr. Muzyka shares voting and investment power with respect to 400 shares
of Common Stock with members of his family.

Stockholders Agreement

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 designated by
the Principal Stockholders for election as directors, based on the portion of
the aggregate Common Stock owned by the Principal Stockholders.
<PAGE>

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 nine, the Principal Stockholders are
able to designate six 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.

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.

Voting Agreement

On October 28, 1998 the Principal Stockholders entered into a Voting
Agreement (the "Voting Agreement") with TMFC and TMC. Pursuant to the Voting
Agreement, the Stockholders agreed to vote all of the Common Stock beneficially
owned by them in favor of the election of persons nominated as directors by TFMC
in accordance with the Investment Agreement among the Company, TMFC and TMC (the
"Timet Investment Agreement") and, if applicable, the Certificate of Designation
for the Convertible Preferred Stock.
<PAGE>

ELECTION OF DIRECTORS

The Company's Board of Directors currently consists of nine members and
is divided into three classes (each a "Class") serving staggered terms. One seat
on the Board of Directors is currently vacant. At the Annual Meeting, the
stockholders will elect two Class II 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, 2001 and until their
respective successors shall have been duly elected and qualified. The term of
the Class I Directors expires at the first annual meeting of the Company's
stockholders following the end of the Company's fiscal year ending December 31,
2000, 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 two nominees presently serve 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 II
Directors of Robert D. Halverstadt and Antoine G. Treuille. The Class II
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 THAT ARE RETURNED IN A
TIMELY MANNER WILL BE VOTED IN FAVOR OF SUCH NOMINEES.

NOMINEES

Class II Directors

Mr. Robert D. Halverstadt has been a member of the Board of Directors
and its Chairman 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 was previously 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,
<PAGE>

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.

CONTINUING DIRECTORS

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 over 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.

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 almost 50 years. Dr. Decker is also a director of Lindberg Corporation, a
heat treating company, and is an Adjunct Assistant Professor at the University
of Michigan.

Mr. Robert F. Dropkin has been Vice President and Chief Legal Counsel
of the Company since 1985 and its 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 over 31 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.

Class III Directors

Mr. Andrew R. Dixey, has been a director of the Company since 1998. He
has also been President, Chief Operating Officer and a director of TMC since
1996. Prior to that, Mr. Dixey was, from 1995, Managing Director of IMI Titanium
Ltd. ("IMI Titanium"), where he had responsibility for the titanium interests of
IMI Titanium in both Europe and North America. During 1995, Mr. Dixey was Chief
Executive Officer of Helix plc, which is engaged in the scholastic supplies
business, and from 1971 to 1994, Mr. Dixey held various executive positions in
the GKN plc Group of companies, a manufacturer of automobile components.
<PAGE>

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.

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 almost 40 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.

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, 1998, the Board of Directors
met four times and took action by unanimous written consent nine times. The
Compensation Committee met four times and the Audit Committee met once during
1998. Each Director attended all of the meetings of the Board and all of the
meetings held by the committees on which he served.
<PAGE>

MANAGEMENT

Executive Officers and Directors

The following persons are the executive officers and directors of the
Company as of the Record Date.

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Donald R. Muzyka.................... 60 President, Chief Executive Officer and Director
Donald C. Darling................... 47 Vice President-Administration, Chief Financial Officer and Director
Robert F. Dropkin................... 58 Vice President, Secretary, Chief Legal Counsel and Director
T. Grant John....................... 60 Executive Vice President, Chief Operating Officer
Gernant E. Maurer................... 49 Vice President-Technology
Thomas E. MacDonald................. 56 Vice President and Director of Product Management
David Ohl........................... 64 Vice President-Commercial
Frederick A. Schweizer.............. 49 Vice President-Operations
Robert D. Halverstadt............... 78 Chairman of the Board of Directors
Raymond F. Decker................... 68 Director
Andrew R. Dixey..................... 49 Director
Edouard Duval....................... 54 Director
Antoine G. Treuille................. 50 Director
</TABLE>

Set forth below are biographies of executive officers of the Company
who are not also directors.

Mr. T. Grant John became Executive Vice President and Chief Operating
Officer in April 1999. Before then, he was a Senior Vice President of Lukens,
Inc. responsible for strategic planning and commercial activities. He was
President and Chief Operating Officer of Washington Steel Corporation from 1993
until 1995 when it was integrated into its parent company. He has over 30 years
experience in the stainless, titanium and other specialty steel and metals
business and holds a degree in metallurgical engineering from the University of
British Columbia.

Mr. Thomas E. MacDonald has been Vice President and Director of Product
Management since 1998. Before then, he was 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 Carpenter Technology Corporation and LTV Steel Company, Inc., a subsidiary
of the LTV Corporation. He has over 30 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 over
<PAGE>

25 years of metals-related experience and holds several degrees, including a
Ph.D. in Materials Engineering from Rensselaer Polytechnic Institute.

Mr. David Ohl has been Vice President-Commercial, since October 1998.
Before then, he was responsible for marketing and sales at Inco Alloys
International, Inc. He began his career with Inco Alloys International Inc. in
1956 as metallurgical engineering assistant and worked in the materials and
manufacturing groups before moving to the marketing area.

Mr. Frederick A. Schweizer was appointed Vice President of Operations
of the Company in October 1998. Prior to that he served as the Company's
Director of Metallurgy and Quality since 1992. He joined Special Metals in 1984
and has held various management positions in Research & Development, Process &
Product Metallurgy, and Sales & Marketing. He has over 25 years of aerospace
materials experience including having worked at Pratt & Whitney Aircraft, Allied
Signal and Solar Turbines before joining the Company.

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 the fiscal year ended
December 31, 1998 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, 1998 except that Mr.
Schweizer, who became an executive officer of the Company on October 1, 1998
filed an Initial Statement of Beneficial Ownership on Form 3 on December 10,
1998.

Compensation of Members of the Board of Directors

For serving as a director of the Company, non-employee directors other
than Mr. Duval receive a $14,000 annual fee plus $1,000 for each meeting of the
Board of Directors or committee of the Board of Directors that they attend.

The Company 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 "Executive Compensation--Compensation
Committee Interlocks and Insider Participation--Consulting Arrangements" and
"Certain Transactions--Consulting Arrangements." In addition, the Company paid a
special bonus of $50,000 to Mr. Halverstadt in May 1998.

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, 1996, 1997
and 1998. 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.
<PAGE>

12
Summary Compensation Table

<TABLE>
<CAPTION>
Long term Compensation
Annual Compensation Awards
Restricted Securities
Stock Underly- All Other
Bonus ($) Awards ($) ing Options Compensa-
Name and Principal Position Year Salary ($) (1) (2) (#) tion ($) (3)
- ------------------------------------- ---- ---------- ------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Donald R. Muzyka.................... 1998 233,955 203,700 -- 24,000 7,692
President and Chief Executive 1997 219,996 130,900 36,000 45,000 6,344
Officer 1996 194,758 99,121 -- -- 6,118
Robert F. Dropkin................... 1998 123,878 110,200 -- 12,500 8,853
Vice President, Secretary and Chief 1997 116,424 72,992 -- 22,500 5,373
Legal Counsel 1996 116,625 44,183 -- -- 5,373
Donald C. Darling................... 1998 126,333 109,400 -- 12,500 6,777
Vice President-Administration 1997 120,000 67,200 36,000 22,500 6,503
and Chief Financial Officer 1996 108,156 44,183 -- -- 6,374
Thomas E. MacDonald................. 1998 120,831 40,200 -- 9,500 5,660
Vice President and Director of 1997 113,364 57,106 -- 22,500 5,130
Product Management 1996 113,102 44,183 -- -- 4,136
Gernant E. Maurer................... 1998 117,225 37,000 -- 9,500 5,244
Vice President-Technology 1997 111,384 59,702 -- 22,500 4,973
1996 111,162 44,183 -- -- 4,973
- ---------------------------
</TABLE>

(1) Includes discretionary bonuses earned by the Named Executive Officers and
amounts earned pursuant to the Company's 1996, 1997 and 1998 Profit
Sharing Plans. All salaried employees were eligible to participate in the
Company's 1996, 1997 and 1998 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. Also includes for Dr. Muzyka and Messrs. Dropkin
and Darling $100,000, $52,000 and $54,000, respectively, in special
bonuses, one half of which was paid in January 1999 and one half of which
will be paid upon the earlier of (i) the employee's retirement, death or
termination other than for cause by the Company, (ii) January 2000 if the
Company is in compliance with certain loan covenants as of the end of the
December 31, 1999 fiscal year or (iii) if such loan covenants are not met
as of the end of the December 31, 1999 fiscal year, following the end of
the first fiscal year for which the Company is in compliance with such
covenants.

(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.

(3) Includes for Dr. Muzyka, Messrs. Dropkin, Darling and MacDonald and Dr.
Maurer, $5,000 each for 1998; $4,750 each for 1997; and $4,750, $4,750,
$4,750, $3,873 and $4,750, respectively, for 1996 in Company match under
the Special Metals Corporation 401(k) Plan (Salaried Employees), a defined
contribution plan established under section 401(k) of the Internal Revenue
Code of 1986, as amended (the "Code"). Also includes for Dr. Muzyka,
Messrs. Dropkin, Darling and MacDonald and Dr. Maurer, $2,692, $692, $277,
$660 and $244, respectively, for 1998; $1,594, $623, $253, $380 and $223,
respectively, for 1997; and $1,368, $623, $124, $262 and $223,
respectively, for 1996 for the value of premiums paid for group term life
policies in excess of $50,000.
<PAGE>

The following table provides certain summary information concerning
individual grants of stock options made to each of the Named Executive Officers
during the fiscal year ended December 31, 1998.

Option Grants in Last Fiscal Year

Individual Grants Potential Realizable
----------------------------------------------------------------- Value at Assumed
% of Total Annual Rates of
Number of Options Stock Price
Securities Granted Appreciation for
Underlying to Employees Exercise or Option Term (1)
Options in Base Price Expiration ---------------------------
Name Granted(#) Fiscal Year ($/share) Date 5% 10%
- ------------------------ ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Donald R. Muzyka........ 19,000 16.2% $16.75 (2) $200,070 $507,300
5,000 4.3 8.25 (3) 25,950 65,750
Donald C. Darling....... 9,500 8.1 16.75 (2) 100,035 253,650
3,000 2.6 8.25 (3) 15,570 39,450
Robert F. Dropkin....... 9,500 8.1 16.75 (2) 100,035 253,650
3,000 2.6 8.25 (3) 15,570 39,450
Thomas E. MacDonald..... 9,500 8.1 16.75 (2) 100,035 253,650
Gernant E. Maurer....... 9,500 8.1 16.75 (2) 100,035 253,650

- ------------------------
</TABLE>

(1) Based hypothetical appreciation of the Common Stock at the indicated
compound annual rate from the date of grant until expiration of the
respective option.

(2) The options vest, with certain exceptions, in three equal installments on
February 25, 1999, 2000 and 2001. The options expire on February 25,
2008, with certain exceptions based on continued employment by the
Company.

(3) The options vest, with certain exceptions, in three equal installments on
December 17, 1999, 2000 and 2001. The options expire on December 17,
2008, 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, 1998 held by the Named Executive
Officers.

Aggregated Option Exercises in Last Fiscal Year
And Fiscal Year-end Option Values

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(1)
- -------------------------- ----------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Donald R. Muzyka.......... - - 28,833 / 42,167 - / 3,450
Donald C. Darling......... - - 14,417 / 22,583 - / 2,070
Robert F. Dropkin......... - - 14,417 / 20,583 - / 2,070
Thomas E. MacDonald....... - - 14,417 / 17,583 - / -
Gernant E. Maurer......... - - 14,417 / 17,583 - / -

- --------------------------
</TABLE>

(1) Based on a closing stock price at December 31, 1998 of $8.94 per share.
<PAGE>

Employment and Severance Agreements

The Company has entered into employment agreements with Dr. Muzyka, Mr.
Dropkin, Mr. Darling and Dr. Maurer. 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.
The Compensation Committee has separately determined that Mr. Dropkin's salary
shall be $175,000 in 1999, $185,000 in 2000 and $200,000 in 2001 and that his
bonus shall be at least $25,000 in 1999 and $15,000 in 2000. Dr. Muzyka's
employment agreement also provides that he may participate in the Special Metals
Corporation Equity Appreciation Rights Plan and the Special Metals Corporation
Supplemental Retirement Income Plan and that his rights and benefits under these
plans shall fully vest upon a change of control of the Company.

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 and Dr. Maurer provide that their respective terms of employment shall
continue for (i) 18 months following notice of termination from the Company
other than for "cause" (one year in the case of Dr. Maurer); (ii) 90 days (180
days in the case of Dr. Maurer) following notice of termination by the employee
(Mr. Dropkin has agreed with the Compensation Committee that he will provide 180
days notice to the Company if he decides to terminate his employment); (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 a severance agreement with Mr.
MacDonald. The agreement provides that the 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 agreement further provides that
the employee shall provide the Company with at least 90 days' advance written
notice before terminating his employment.
<PAGE>

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 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, 1998, 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 each plan year's earnings after January 1,
1998. 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 $29,617, $76,573, $73,539, $39,463 and $33,823 for each of Dr. Muzyka, Mr.
Darling, Dr. Maurer, Mr. Dropkin and Mr. 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 Appreciation 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,
<PAGE>

1998. As of December 31, 1998, 10,000 of such Rights are exercisable until 2000,
10,000 are exercisable until 2001, 10,000 are exercisable until 2002, and 10,000
are excercisable until 2003. The remaining 10,000 Rights will become exercisable
in 1999 and will be exercisable until 2004.

The following table summarizes the value of Dr. Muzyka's Rights under
the Equity Rights Plan as of December 31, 1998.

Number of Units Underlying Value of Unexercised In-the
Unexercised Options/SARS at Money Options/SARS at
December 31, 1998(#) December 31, 1998($)
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
- ---- ------------- -------------
Donald R. Muzyka..... 40,000/10,000 $186,700/$59,200

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 $82,675 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
<PAGE>

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 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
<PAGE>

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.

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 $360,000 to SIMA pursuant
to the Managerial Assistance Agreement in 1998.

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 paid $21,054 to CIMD pursuant
to the Encapsulating Services Agreement in 1998. 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.
<PAGE>

Affiliate Sales. During 1998, the Company sold superalloy and special
alloy products to affiliates of SIMA. The net revenues from such sales were $9.8
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.

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 $204,000 for such premiums in 1998. 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 1998, Mr. Halverstadt and AIME received
an aggregate of approximately $150,000 in fees and expense reimbursements. The
Company intends to continue to employ Mr. Halverstadt and AIME as consultants in
the future.

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,
bonus and benefit programs, an annual incentive program and an equity based
long-term incentive program.
<PAGE>

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 Compen
sation--Employment and Severance Agreements." Base salaries for most of the
Company's executive officers remained relatively constant in 1995 through 1997.
In 1997, the 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. Following the
Company's acquisition of the Inco Alloys International operations ("IAI") from
Inco, Ltd., the Compensation Committee began a new review process to consider
the compensation of the Company's executive officers compared to executives of
IAI and to other companies comparable to the Company after the acquisition. As
an initial result of this evaluation, the Compensation Committee has increased
Dr. Muzkya's and Mr. Darling's base salary effective December 1, 1998 and
determined minimum salary and bonus levels through 2001 for Mr. Dropkin. See
"Executive Compen sation--Employment and Severance Agreements."

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.

Special Bonus. In November 1998, the Compensation Committee determined
to pay a special bonus to those persons who played an important role in the
Company's acquisition of IAI. Dr. Muzyka, Mr. Dropkin and Mr. Darling each
received these special bonuses. One half of the bonus was paid in January 1999
and the remaining one half will be paid upon the earlier of (i) the employee's
retirement, death or termination other than for cause by the Company, (ii)
January 2000 if the Company is in compliance with certain loan covenants as of
the end of the December 31, 1999 fiscal year, or (iii) if such loan covenants
are not met as of the end of the December 31, 1999 fiscal year, following the
end of the first fiscal year for which the Company is in compliance with such
covenants.

Long Term Stock Incentive Program. In January 1997 the Company adopted
the Special Metals Corporation 1997 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,
<PAGE>

stock appreciation rights, restricted stock, performance awards and other stock
based awards. In February 1998 the Company awarded options to purchase a total
of 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 in equal portions on each of the first three anniversaries of
the date of grant. In December 1998, the Company awarded options to purchase
5,000 shares to Dr. Muzyka and options to purchase 3,000 shares to each of
Messrs. Dropkin and Darling in recognition of their work on the IAI acquisition.
Awards under the Stock Plan are approved by the Company's Board of Directors
with the advice of the Committee. Each option awarded to date has an exercise
price equal to the fair market value of the Common Stock on the date each option
was granted. 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 individual objectives used in determining Dr. Muzyka's bonus for
1998 included operational and strategic goals such as safety, customer
satisfaction and inventory improvements and the development of the Company's
Continuous Improvement Process and product quality program. 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 Appreciation Rights Plan" and "--Supplemental Retirement
Income Plan."

Compensation Committee

Edouard Duval
Robert D. Halverstadt

PERFORMANCE GRAPH

The following graph and table compares the cumulative total stockholder
return (assuming reinvestment of dividends, if any) from investing $100 on
February 26, 1997 (the date of the Company's initial public offering) in each of
(i) the Company's Common Stock; (ii) the NASDAQ Composite Index; and (iii) an
index (the "Peer Group Index") of companies that are engaged in the manufacture
of specialty metals. The companies in the Peer Group Index are: Allegheny
Teledyne Inc.; Carpenter Technology Corporation; Doncasters plc.; Precision
Castparts Corp.; RTI International Metals Inc. (formerly RMI Titanium Company);
SIFCO Industries, Inc.; SPS Technologies, Inc.; Titanium Metals Corporation; and
Wyman-Gordon Company. Oregon Metallurgical Corporation, which was included in
the Peer Group Index included in the Proxy Statement relating to the Company's
1998 Annual Meeting, was merged into Allegheny Teledyne Inc. effective March 25,
1998 and is therefore no longer included in the Peer Group Index.
<PAGE>

COMPARISON OF CUMULATIVE RETURN AMONG SPECIAL METALS
CORPORATION, NASDAQ COMPOSITE INDEX AND PEER GROUP INDEX

[GRAPHIC OMITTED]

2/26/97 12/31/97 12/31/98
------------- ------------- -------------
Special Metals Corporation 100.00 106.67 52.96
NASDAQ Composite Index 100.00 117.62 163.57
Peer Group Index 100.00 107.46 81.17

CERTAIN TRANSACTIONS

Transactions with SIMA, LWH and AMI

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).
<PAGE>

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 "piggyback
registration").

The Registration Rights Agreement provides that to the extent not
inconsistent with applicable law, each holder of Registrable Securities will not
effect any public sale or distribution of any Registrable Securities of the
Company, or any securities convertible into or exchangeable or exercisable for
such Registrable Securities, during the seven days prior to and the 90 days
after any registration relating to such Registrable Securities has become
effective, except as part of such registration, if requested by the Company or
the managing underwriter or underwriters of such offering. In addition, the
Company has agreed not to effect any public sale or distribution of its
Registrable Securities or securities convertible into or exchangeable or
exercisable for any of such Registrable Securities during the seven days prior
to and the 90 days after any registration relating to such Registrable
Securities has become effective, except as part of such registration and except
pursuant to registrations relating to employee benefit plans and certain other
offerings.

The Company is required to pay expenses (other than underwriting
discounts and commissions) incurred by the Principal Stockholders in connection
with the demand and piggy-back registrations. Subject to certain limitations
specified in the Registration Rights Agreement, the Principal Stockholders'
registration rights are assignable to third parties. The Registration Rights
Agreement contains indemnification and contribution provisions by the Company
for the benefit of the Principal Stockholders and their respective permitted
assigns and their related persons. Each Principal Stockholder's rights under the
Registration Rights Agreement will terminate if such Principal Stockholder
ceases to own at least 5% of the outstanding Common Stock.

Transactions with Inco and TFMC

On October 28, 1998, the Company acquired the Inco Alloys International
high performance nickel alloys business unit of Inco and entered into a
non-competition agreement with Inco for an aggregate consideration of $365
million, consisting of $348 million in cash and 340,000 shares of Convertible
Preferred Stock having an aggregate liquidation value of $17 million. The
Convertible Preferred Stock was issued pursuant to an Investment Agreement
between the Company and Inco (as amended, the "Inco Investment Agreement"). The
Company financed the cash portion of the consideration with funds drawn under
the Company's bank credit facility (the "Credit Facility") and with proceeds
from the issuance to TFMC of 1,600,000 shares of Convertible Preferred Stock
having an aggregate liquidation value of $80 million, pursuant to an Investment
Agreement between the Company and TFMC (the "TFMC Investment Agreement" and,
together with the Inco Investment Agreement, the "Investment Agreements"). Inco
and TFMC are referred to collectively as the "Investors."

Terms of the Convertible Preferred Stock

Conversion and Redemption. The shares of Convertible Preferred Stock
owned by TFMC are convertible into 4,848,484 shares of Common Stock,
representing 23.9% of the outstanding Common
<PAGE>

Stock following such conversion. The shares of Convertible Preferred Stock owned
by Inco are convertible into 1,030,303 shares of Common Stock, representing 6.2%
of the outstanding Common Stock following such conversion. The shares of Common
Stock issuable to Inco and TFMC upon such conversions are referred to as
"Conversion Shares."

At any time after October 28, 2001 and prior to conversion, the Company
has the option under the Certificate of Designations relating to the Convertible
Preferred Stock (the "Certificate of Designations") to redeem the outstanding
Convertible Preferred Stock, at decreasing redemption prices, starting at
103.975% if the shares are redeemed after October 28, 2001. In addition, the
Convertible Preferred Stock is mandatorily redeemable on or after April 28, 2006
and prior to conversion at a redemption price per share equal to 100% of the
liquidation amount thereof, plus all accumulated and unpaid dividends, if any,
to the redemption date.

The holders of Convertible Preferred Stock have the right to request
the Company to repurchase their shares upon the occurrence of a "change of
control" of the Company (as such term is defined in the Investment Agreements),
subject to the terms of the Credit Facility.

Board Representation. Pursuant to the TFMC Investment Agreement, TFMC
has the right to designate one director to be appointed to the Board of
Directors of the Company for so long as it owns securities representing at least
10% of the outstanding voting securities of the Company, subject to adjustments
if the size of the Board of Directors is increased. Pursuant to such agreement,
Mr. Andrew R. Dixey, President, Chief Operating Officer and director of TMC,
serves on the Board of Directors with a term of office ending at the annual
meeting of the Board of Directors in 2000.

Dividends. The holders of outstanding Convertible Preferred Stock are
entitled to receive cumulative cash dividends, when and as declared by the Board
of Directors, at a rate of 6.625% (subject to adjustment as set forth in the
Certificate of Designations) of the liquidation amount of each share of
Convertible Preferred Stock. The Company has the right at any time to defer
payment of accumulated dividends on the Convertible Preferred Stock (an
"Extension Period"). During any such Extension Period, dividends as well as
additional dividends on any accumulated and unpaid dividends will accrue at the
rate of 6.625% per annum. If the Company defers payment of accumulated dividends
for more than six quarters, then the Investors will be entitled to designate two
directors to the Board of Directors of the Company in addition to the director
already designated by TFMC.

Registration Rights. In connection with the TFMC Investment Agreement,
the Company and TFMC entered into a Registration Rights Agreement (the "TFMC
Registration Rights Agreement") which provides TFMC and any subsequent
transferees of TFMC's shares of Convertible Preferred Stock and/or Conversion
Shares with demand and piggyback registration rights for its shares of
Convertible Preferred Stock and the Conversion Shares issuable upon conversion
thereof. Demand registration rights may be exercised by the holder(s) of a
majority of the Convertible Preferred Stock or Conversion Shares issued upon
conversion of such Convertible Preferred Stock at any time after October 28,
2000 (the second anniversary of the date of original issuance of the Convertible
Preferred Stock). Demand registration rights may also be exercised after October
28, 2000 by TFMC alone so long as (i) TFMC holds Convertible Preferred Stock
and/or Conversion Shares representing more than 5% of the outstanding Common
Stock (assuming any shares of Convertible Preferred Stock held by TFMC have been
converted into Common Stock) or (ii) TFMC's request for registration covers all
shares of Convertible Preferred Stock and Conversion Shares issued upon
conversion thereof then held by TFMC. Pursuant to the
<PAGE>

provisions of the TFMC Investment Agreement and the TFMC Registration Rights
Agreement, the Company will have a prior right of first refusal and additional
purchase rights with respect to the shares of Convertible Preferred Stock or the
Conversion Shares that are proposed to be registered.

The Company has the right to reject (i) requests for more than two
demand registrations, (ii) a request for a registration within the 12 month
period immediately after a registration statement filed by the Company pursuant
to the TFMC Registration Rights Agreement becomes effective or a registration
statement filed by the Company regarding an offering of Common Stock (other than
with respect to an employee benefit plan) where the holders of Convertible
Preferred Stock or Conversion Shares elect not to exercise their piggyback
registration rights, or (iii) a request for a registration with an aggregate
offering price of less than $15 million.

Pursuant to the TFMC Registration Rights Agreement, TFMC and any
subsequent transferees of TFMC's shares of Convertible Preferred Stock or
Conversion Shares may also exercise piggyback registration rights in connection
with registrations by the Company of Common Stock other than registrations in
connection with the exercise of exclusive demand rights under the existing
registration rights agreement between the Company and the Principal
Stockholders, employee benefit plans and mergers or similar transactions.

In connection with the Inco Investment Agreement, the Company and Inco
entered into a Registration Rights Agreement (the "Inco Registration Rights
Agreement") which provides that Inco and any subsequent transferee of Inco's
shares of Convertible Preferred Stock or Conversion Shares may also exercise
piggyback registration rights with limitations that are similar to those
applicable under the TFMC Registration Rights Agreement. However, the exercise
by Inco or its transferees of their piggyback registration rights under the Inco
Registration Rights Agreement is subordinated to TFMC's or its transferees'
piggyback registration rights under the TFMC Registration Rights Agreement.

Standstill and Top-Up Rights. Pursuant to standstill provisions of the
TFMC Investment Agreement, TFMC, TMC and their affiliates may not acquire
beneficial ownership of additional securities of the Company, enter into a
business combination with the Company, enter into voting arrangements with
respect to securities of the Company, solicit proxies or otherwise seek to
influence or control the management or policies of the Company, participate in a
"group" (within the meaning of Section 13 (d)(3) of the Exchange Act) with
respect to any voting securities of the Company, act alone or in concert with
others to seek to control or influence the management, board of directors or
policies of the Company, disclose any intention, plan or arrangement
inconsistent with the foregoing, or assist, advise, participate with or
encourage any person to do the foregoing. The Company is similarly restricted
with respect to TMC. These standstill provisions remain in effect until the
earlier of (a) one year after TFMC ceases to own Common Stock and/or Convertible
Preferred Stock or other voting securities of the Company which together
represent more than 5% of the outstanding voting securities of the Company, (b)
the Company enters into an agreement (or announces an intention to enter into an
agreement) regarding a change of control of the Company and (c) the occurrence
of a change of control of the Company. However, the TFMC Investment Agreement
provides that if, following an issuance of voting securities by the Company,
other than pursuant to the Inco Investment Agreement, the voting securities
beneficially owned by TFMC represent less than 20% of the outstanding voting
securities of the Company, then TFMC may make purchases of equity securities of
the Company to restore its beneficial ownership to 20% of the outstanding voting
securities of the Company.
<PAGE>

Transfer Restrictions of Preferred Stock. Pursuant to the Investment
Agreements, the Investors will be able to dispose of their Convertible Preferred
Stock only (i) to subsidiaries, (ii) following October 28, 2000 (the second
anniversary of the issue date), in a public offering, or (iii) following the
earlier of October 28, 2001 (the third anniversary of the issue date) and a
"change of control" (as defined in the Investment Agreements), except that, in
the case of dispositions pursuant to (ii) and (iii) above, the Investors may not
sell to any person who is a significant competitor of the Company, engaged in
material litigation against the Company or who, after acquiring such interest in
Convertible Preferred Stock, would beneficially own voting securities
representing more than 10% of the outstanding voting securities of the Company.
The Company has a right of first refusal with respect to dispositions made
pursuant to (ii) and (iii) above and additional rights of first refusal with
respect to dispositions made pursuant to (ii) above under the TFMC Registration
Rights Agreement and the Inco Registration Rights Agreement (together, the
"Registration Rights Agreements"), if in connection with a registered offering
pursuant to the Registration Rights Agreements, the offering price of the
securities registered is less than 95% of the original price indicated by the
holders of the securities as an acceptable sale price at the time they exercised
their demand or piggyback registration rights.

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 1998, the fees
paid and expenses reimbursed to Mr. Treuille and Dr. Decker under such
consulting agreements were less than $5,000.

Product Purchases

During 1998, the Company sold toll services to TMC for approximately
$300,000. Andrew R. Dixey, President, Chief Operating Officer and a director of
TMC, is a director of the Company. During 1998, Thixomat Inc., purchased alloy
products from the Company for an aggregate of approximately $100,000 and began a
joint development project with Thixomat Inc. regarding one of the Company's
alloys. Dr. Decker, a director of the Company, is the Chairman and sole
stockholder of Thixomat Inc. Management believes that the terms of such
purchases and sales are no less favorable to the Company than the terms that it
would have obtained in transactions with unaffiliated third parties.

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, 1999. 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.
<PAGE>

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, 1999. UNLESS OTHERWISE INSTRUCTED,
SIGNED PROXIES THAT 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 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

AN ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1998,
INCLUDING FINANCIAL STATEMENTS AND A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM
10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WITHOUT EXHIBITS, IS
BEING CONCURRENTLY DISTRIBUTED TO STOCKHOLDERS OF RECORD AS OF THE RECORD DATE.

STOCKHOLDER PROPOSALS

Stockholders may submit proposals on matters appropriate for
stockholder action at the Company's annual stockholder meetings, consistent with
rules adopted by the Securities and Exchange Commission. Such proposals must be
received by the Company no later than December 16, 1999, to be considered for
inclusion in the proxy statement and form of proxy relating to the 2000 Annual
Meeting of Stockholders.
<PAGE>

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 28, 1999
<PAGE>

SPECIAL METALS CORPORATION
4317 Middle Settlement Road New Hartford, New York 13413

PROXY FOR ANNUAL MEETING OF STOCKHOLDERS -- May 28, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned stockholder of Special Metals Corporation (the
"Company") hereby appoints Donald R. Muzyka and Donald C. Darling, and each of
them, with full power of substitution in each, as proxies to cast all votes
which the undersigned stockholder is entitled to cast at the 1998 Annual Meeting
of Stockholders of the Company to be held on Friday, May 28, 1999, 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 2002.

FOR the nominees listed below (except as marked to the contrary below) [ ]
WITHHOLD AUTHORITY to vote for all the nominees listed below [ ]

Nominees: Robert D. Halverstadt and Antoine G. Treuille.

(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 for the Company for the fiscal year ended December 31, 1999.

FOR [ ]
AGAINST [ ]
WITHHOLD AUTHORITY to vote on 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)
<PAGE>

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.............1999
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.