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 19, 2000
TO OUR STOCKHOLDERS:
The Annual Meeting of the stockholders of Special Metals Corporation, a
Delaware corporation (the "Company"), will be held at the Radisson Hotel-Utica
Centre, 200 Genesee Street, Utica, NY 13502 at 11:00 a.m., May 19, 2000 to
consider and vote on the following matters described in this notice and the
accompanying Proxy Statement:
1. To elect three directors each to serve as a Class III Director for
the ensuing three years and until their successors are duly elected and
qualified.
2. To approve an amendment to the Company's 1997 Long-Term Stock
Incentive Plan increasing the number of shares of common stock issuable
thereunder to 2,050,000.
3. To ratify the appointment of Ernst & Young LLP as independent
accountants for the Company for the fiscal year ending December 31, 2000.
4. 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 10, 2000
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 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 26, 2000
<PAGE>
SPECIAL METALS CORPORATION
4317 Middle Settlement Road
New Hartford, New York 13413
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MEETING DATE: MAY 19, 2000
This Proxy Statement is being sent on or about April 26, 2000 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 2000 Annual Meeting of the Stockholders of the
Company (the "Annual Meeting"), which will be held at the Radisson Hotel-Utica
Centre, 200 Genesee Street, Utica, NY 13502, on May 19, 2000, 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 10, 2000 (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 approval of the
amendment to the Company's 1997 Long-Term Stock Incentive Plan, (iii) the
ratification of the appointment of Ernst & Young LLP as independent accountants
for the Company and (iv) 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>
2
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 amendment to the Company's 1997 Long-Term Stock Incentive Plan and the
ratification of the appointment of the independent accountants must each 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, 2000,
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 a
beneficial owner 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, 1999, and (d) all persons serving as executive officers
and directors of the Company as of April 1, 2000 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, 2000, 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.
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3
Shares of Common Stock
Beneficially Owned
------------------
Percent
Number of
Names and Addresses of Shares Class
------------------- --------- -----
Societe Industrielle de Materiaux Avances ("SIMA")(1)(2)...... 5,952,000 38.5%
TIMET Finance Management Company ("TFMC")(2)(3)(4)............ 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. ("Inco")(4)(7)...................................... 1,030,303 6.2%
Royce & Associates, Inc. ("Royce")(8)......................... 843,700 5.5%
Donald R. Muzyka(9)(10)....................................... 59,930 *
T. Grant John(9).............................................. 42,344 *
Donald C. Darling(9).......................................... 29,230 *
Robert F. Dropkin(9).......................................... 24,730 *
Robert D. Halverstadt(9)...................................... 24,375 *
Antoine G. Treuille(9)........................................ 17,875 *
Raymond F. Decker(9).......................................... 9,150 *
Andrew R. Dixey............................................... -- --
Edouard Duval(1).............................................. -- --
J. Landis Martin(3)........................................... -- --
David W. Ohl.................................................. -- --
All Directors and Executive Officers as a Group (15 persons).. 264,829 1.69%
- ----------------------
* 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
ERAMET, a French mining and metallurgical group. Edouard Duval, a director
of the Company, is a Directeur General of SIMA, has a minority equity
interest in ERAMET and is a director of ERAMET. Mr. Duval's address is in
care of SIMA.
(2) The Company, SIMA, AMI and LWH have entered into the Stockholders
Agreement, which provides for certain voting rights, nominating rights and
transfer restrictions. 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.
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4
(3) The following information was furnished to the Company by TMC. 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 and certain other entities
related to Mr. Harold C. Simmons hold, in the aggregate, approximately
47.6% of the outstanding common stock of TMC. By virtue of such
relationships, 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. J.
Landis Martin, a nominee for election as a director, is the Chairman,
President and a director of TMC. Mr. Martin is also Chairman, Chief
Executive Officer, President and a director of Tremont and Chief Executive
Officer, President and a director of NL Industries, Inc., one of the
Simmons-related entities referred to above.
(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 TFMC 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) Charles M. Royce may be deemed to be a controlling person of Royce, and as
such may be deemed to beneficially own the shares of Common Stock
beneficially owned by Royce. Mr. Royce disclaims beneficial ownership of
the shares held by Royce. Royce's address is 1414 Avenue of the Americas,
New York, New York 10019.
(9) In the case of Dr. Muzyka, Dr. John, Mr. Darling, Mr. Dropkin, Mr.
Halverstadt, Mr. Treuille and Dr. Decker, includes 48,130, 25,344, 24,230,
24,230, 16,875, 16,875 and 3,750 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.
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
<PAGE>
5
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 TFMC 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, TFMC and TMC (the
"Timet Investment Agreement") and, if applicable, the Certificate of Designation
for the Convertible Preferred Stock.
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 three Class III 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, 2002 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 II Directors expires at the first annual meeting
of the Company's stockholders following the end of the Company's fiscal year
ending December 31, 2001, at which times Directors of the appropriate Class will
be elected for three-year terms. Mr. Duval and Dr. Muzyka presently serve
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6
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 III Directors of J. Landis Martin, Edouard Duval and Donald R. Muzyka. The
Class III 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
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. He is also a director of ERAMET. Mr. Duval has more than 20 years
experience with Aubert & Duval and SIMA in the marketing, sale and management of
superalloy and special metallurgical products for both aerospace and industrial
applications.
Mr. J. Landis Martin, has been Chairman and a director of TMC, an
integrated producer of titanium, since 1995 and President since January 2000 and
previously from 1995 to 1996. Mr. Martin has served as President and Chief
Executive Officer of NL Industries, Inc. ("NL"), a manufacturer of titanium
dioxide, since 1987, and as a director of NL since 1986. Mr. Martin has served
as Chairman of Tremont Corporation ("Tremont") a holding company operating
through its affiliates, TMC and NL, since 1990, as Chief Executive Officer and a
director of Tremont since 1988 and as President of Tremont since 1987 (except
for a period in 1990). Mr. Martin is also a director of Halliburton Company,
which is engaged in the petroleum services, hydrocarbon and engineering
industries, Apartment Investment and Management Company, a real estate
investment trust, and Crown Castle International Corporation, a
telecommunications company.
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 and high-performance metals
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 Materials Science from the Thayer
School of Engineering-Dartmouth College. Dr. Muzyka is also a director of
Aviall, Inc., an aviation parts and supplies distributor, and CSM Industries,
Inc., a metals company.
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.................... 61 President, Chief Executive Officer and Director
T. Grant John....................... 61 Executive Vice President, Chief Operating Officer
Teresa A. Daniel.................... 42 Vice President and Chief Human Resources Officer
</TABLE>
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7
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Donald C. Darling................... 48 Vice President-Administration, Chief Financial Officer and Director
Robert F. Dropkin................... 59 Vice President, Secretary, Chief Legal Counsel and Director
Ronald M. Haeberle, Jr.............. 55 Vice President-Specialty Businesses and Director-Strategic Planning
Gernant E. Maurer................... 50 Vice President-Technology
Thomas E. MacDonald................. 57 Vice President-Commercial
Frederick A. Schweizer.............. 50 Vice President-Operations
Robert D. Halverstadt............... 80 Chairman of the Board of Directors
Raymond F. Decker................... 69 Director
Andrew R. Dixey..................... 50 Director
Edouard Duval....................... 55 Director
J. Landis Martin.................... 54 Director nominee
Antoine G. Treuille................. 51 Director
</TABLE>
Set forth below are biographies of executive officers and directors of
the Company other than those nominated for election as director at the Annual
Meeting.
Ms. Teresa A. Daniel was appointed Vice President and Chief Human
Resources Officer in January 2000. Before joining the Company, she was the
Managing Partner of InsideOut HR Solutions PLLC, an independent human resources
and employment law consulting firm. Prior to that, she spent 15 years with
Ashland Inc. and its subsidiaries during which time she served as Vice
President, Human Resources for several Ashland operating subsidiaries. Ms.
Daniel holds a J.D. degree from the Salmon P. Chase College of Law.
Mr. Donald C. Darling is a Class I director and has been Vice
President--Administration and Chief Financial Officer of the Company since
September, 1993 and has 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
23 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 is a Class I director and has served as 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 of Research for Michigan Technological University from 1982 to 1986
and Vice President of Corporate Technology for 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 Professor at
the University of Michigan.
Mr. Andrew R. Dixey, currently a Class III director, has been a director
of the Company since 1998. He served as President, Chief Operating Officer and a
director of TMC from 1996 to 1999. 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,
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8
Mr. Dixey held various executive positions in the GKN plc Group of companies, a
manufacturer of automobile components.
Mr. Robert F. Dropkin is a Class I director and has served as 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 32 years of metals-related experience. Mr. Dropkin holds a Metallurgical
Engineering degree and a J.D. degree from George Washington University. Mr.
Dropkin has been a director of the Company since 1987.
Mr. Robert D. Halverstadt is a Class II director and has been a member
of the Board of Directors and its Chairman since 1987. He served as 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. Ronald M. Haeberle, Jr. was appointed Vice President-Specialty
Businesses and Director-Strategic Planning in March 2000. Mr. Haeberle joined
Inco Alloys International in 1968 as an Associate Metallurgist and held a number
of positions in the Technology group. During the past ten years, he has served
as Business Planning Manager, Director-Technology and General Manager-Subsidiary
Businesses.
Dr. T. Grant John became Executive Vice President and Chief Operating
Officer in April 1999. Before then, he served as 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 Ph.D. in Metallurgical Engineering from the University of
British Columbia.
Mr. Thomas E. MacDonald was appointed Vice President-Commercial in April
2000. He was previously 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 25 years of metals-related
experience and holds several degrees, including a Ph.D. in Materials Engineering
from Rensselaer Polytechnic Institute.
Mr. Frederick A. Schweizer was appointed Vice President of Operations 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.
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9
Mr. Antoine G. Treuille is a Class II director and has been a director
of the Company since 1987. He has been a Managing Partner of Mercantile Capital
Partners, a private equity investment fund, since 1999. He was previously a
Managing Director of Financo, Inc., an investment banking firm, from 1998 to
1999 and has been President of Charter Pacific Corporation, a financial services
company, since 1996. From 1993 to 1996, he was a Senior Vice President of Desai
Capital Management, Inc., an investment management company, and, from 1985 to
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 ERAMET.
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,
1999 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, 1999.
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, with Dr. Decker for technical advice and with 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."
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, Mr. Dixey and
Mr. Treuille, oversees the Company's independent public accountants and,
together with the Company's independent public accountants, 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, 1999, the Board of Directors
met ten times and took action by unanimous written consent 20 times. The
Compensation Committee met four times and the Audit Committee met three times
during 1999. Each Director attended at least 75% of the meetings of the Board
and all of the meetings held by the committees on which he served.
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
<PAGE>
10
(collectively, the "Named Executive Officers") for the fiscal years ended
December 31, 1997, 1998 and 1999. The principal components of such individuals'
current cash compensation are the annual base salary and annual bonus included
in the Summary Compensation Table. Also described below is the estimated future
compensation such individuals can receive under the Company's retirement plans.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long term Compensation Awards
------------------- -----------------------------
Restricted Securities
Stock Underlying All Other
Awards ($) Options LTIP Compensa-
Name and Principal Position Year Salary ($) Bonus ($) (1) (2) (#) Payouts tion ($) (3)
- --------------------------- ---- ---------- ------------- ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Donald R. Muzyka........... 1999 305,000 14,874 -- 20,000 192,500 7,800
President and Chief 1998 233,955 203,700 -- 24,000 -- 7,692
Executive Officer 1997 219,996 130,900 36,000 45,000 -- 6,344
T. Grant John (4).......... 1999 194,791 -- 110,000 40,000 -- 146,947
Executive Vice President
and Chief Operating
Officer
Donald C. Darling.......... 1999 160,000 7,803 -- 9,000 -- 11,713
Vice President- 1998 126,333 109,400 -- 12,500 -- 6,777
Administration 1997 120,000 67,200 36,000 22,500 -- 6,503
and Chief Financial
Officer
Robert F. Dropkin.......... 1999 175,000 33,730 -- 9,000 -- 8,684
Vice President, Secretary 1998 123,878 110,200 -- 12,500 -- 8,853
and Chief Legal Counsel 1997 116,424 72,992 -- 22,500 -- 5,373
David W. Ohl (5)........... 1999 185,000 -- -- 9,000 -- 70,758
Vice President-Commercial
</TABLE>
- ------------
(1) Includes discretionary bonuses earned by the Named Executive Officers and
amounts earned pursuant to the Company's 1997, 1998 and 1999 Profit Sharing
Plans. No discretionary bonuses were earned in 1999. All salaried employees
in the Company's Premium Alloys Division (which is comprised of the
Company's businesses prior to the acquisition of Inco Alloys International)
were eligible to participate in the Company's 1997, 1998 and 1999 Profit
Sharing Plans. The plans provided for a profit sharing pool based on the
division'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, for 1998 special bonuses, one half of which was paid in 1999
and one half of which has been deferred.
(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. Dr. John received an
award of 20,465 shares of restricted stock on April 16, 1999. The value of
the award is based on a closing stock price of $5.375 on that date.
One-half of Dr. John's restricted stock vests over time and the other half
vests based upon the achievement of performance goals. The time vested
portion vests in one-third portions on each of April 19, 2000, 2001 and
2002. The performance-based portion vested with respect to 8,600 shares on
April 16, 2000.
(3) Includes for Drs. Muzyka and John and Messrs. Darling, Dropkin and Ohl,
$5,000, $5,000, $5,000, $5,000 and $10,051, respectively, for 1999, $5,000,
zero, $5,000, $5,000 and zero, respectively, for 1998 and $4,750, zero,
$4,750, $4,750 and zero, respectively, for 1997 in Company match under
defined contribution plans established under section 401(k) of the Internal
Revenue Code. Includes for Drs. Muzyka and John and Messrs. Darling,
Dropkin and Ohl, $2,800, $1,549, $290, $829 and $9,995, respectively, for
1999, $2,692, zero, $277, $692 and zero, respectively, for 1998 and $1,594,
zero, $253, $623 and zero, respectively, for 1997 for the value of premiums
paid for group term life policies in excess of $50,000. Also includes for
Dr. John $133,648 for 1999 in relocation allowance.
(4) Dr. John commenced employment with the Company on April 19, 1999.
(5) Mr. Ohl commenced employment with the Company in November, 1998 and retired
effective January 1, 2000.
<PAGE>
11
The following table provides certain summary information concerning
individual grants of stock options made to each of the Named Executive Officers
during the fiscal year ended December 31, 1999.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
------------------------------------------------------- Value at Assumed
% of Total Annual Rates of
Number of Options Stock Price
Securities Granted Appreciation for
Underlying to Employees Exercise or Option Term (1)
Options in Base Price Expiration ------------------------
Name Granted (#) Fiscal Year ($/share) Date 5% 10%
- ------------------- ----------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Donald R. Muzyka... 20,000 5.8% $5.59 (2) $70,310 $178,180
T. Grant John...... 40,000 11.6 5.38 (3) 135,212 342,655
Donald C. Darling.. 9,000 2.6 5.59 (2) 31,640 80,181
Robert F. Dropkin.. 9,000 2.6 5.59 (2) 31,640 80,181
David W. Ohl....... 9,000 2.6 5.59 (2) 31,640 80,181
</TABLE>
- -----------
(1) Based on hypothetical appreciation of the Common Stock at the indicated
compound annual rate from the date of grant until expiration of the
respective option.
(2) The options vest, with certain exceptions based on continued employment by
the Company, in three equal installments on July 1, 2000, 2001 and 2002.
The options expire on July 1, 2009.
(3) The options vest, with certain exceptions based on continued employment by
the Company, in three equal installments on April 16, 2000, 2001 and 2002.
The options expire on April 16, 2009.
The following table sets forth information concerning the value of
unexercised options as of December 31, 1999 held by the Named Executive
Officers.
Aggregated Option Exercises in Last Fiscal Year
And Fiscal Year-end Option Values
<TABLE>
<CAPTION>
Number of Securities
Shares Underlying Value of Unexercised
Acquired Value Unexercised Options In the Money Options
on Exercise Realized at Fiscal Year End (#) at Fiscal Year End ($)
(#) ($) Exercisable/Unexercisable Exercisable/Unexercisable (1)
----------- -------- ------------------------- -----------------------------
<S> <C> <C> <C> <C>
Donald R. Muzyka..... - - 30,500/58,500 - / -
T. Grant John........ - - - / 40,000 - / -
Donald C. Darling.... - - 15,417 / 28,583 - / -
Robert F. Dropkin.... - - 15,417 / 28,583 - / -
David W. Ohl......... - - - / 9,000 - / -
</TABLE>
- -----------
(1) Based on a closing stock price at December 31, 1999 of $3.19 per share.
<PAGE>
12
Employment and Severance Agreements
The Company has entered into employment agreements with Dr. Muzyka, Dr.
John, Mr. Dropkin and Mr. Darling. Dr. John's employment contract calls for an
initial three year term ending April 19, 2002 and shall automatically be renewed
for successive one year terms unless either party notifies the other of its or
his desire not to renew. 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 $185,000
in 2000 and $200,000 in 2001 and that his bonus shall be at least $15,000 in
2000. Dr. Muzyka's employment agreement also provides that he may participate in
the Special Metals Corporation Supplemental Retirement Income Plan and that his
rights and benefits under this plan shall fully vest upon a change of control of
the Company. Dr. John's employment contract provides that he is eligible to
receive 20,465 shares of restricted stock, one half of which will vest subject
to continued employment on each of April 16, 2000, 2001 and 2002 in equal
installments. Vesting of the other half is dependent upon the attainment of
performance goals and vested with respect to 8,600 shares on April 16, 2000. Dr.
John's employment agreement also provides for supplemental retirement benefits
as described under "-- Supplemental Retirement Income Plans" below.
Dr. Muzyka's employment agreement provides that he shall continue to
receive his salary, bonus and other employee benefits for a period of 18 months
following notice of termination other than for "cause" (as defined in the
agreement). The Company may terminate Dr. Muzyka's employment for "cause" upon
30 days' written notice. The employment agreements with Messrs. Darling and
Dropkin provide that their respective terms of employment shall continue for (i)
18 months following notice of termination from the Company other than for
"cause"; (ii) 90 days 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. Dr. John's employment agreement provides that the Company may
terminate his employment without notice for "cause" and that he may terminate
his employment upon 90 days' notice. In either of these events, Dr. John will be
entitled to receive salary and benefits that have vested through the date of
termination. The Company may terminate Dr. John's employment without cause and
Dr. John may terminate his employment for "good reason," in each case on 90
days' notice. In either of these events Dr. John will be entitled to continue to
receive his salary until the later of the end of his employment term or one year
from his termination date and his incentive compensation shall be accelerated to
his termination date. In the event of Dr. John's death, disability or
termination of employment by him upon a change of control, Dr. John shall be
entitled to receive his salary and benefits through the termination date without
any acceleration of 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 or severance and that
the Company will retain all rights to any inventions and innovations developed
by the employee during his respective employment with the Company.
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.
<PAGE>
13
Salaried Employee Retirement Plans
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, 1999, the retirement benefit equals the sum of: (i) 1.25% of final
average earnings as of December 31, 1998 multiplied by years of service as of
December 31, 1998; and (ii) 1.25% of each plan year's earnings after January 1,
1999. 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, 1998.
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, $10,542, $76,448 and $39,400 for each of Dr. Muzyka, Dr. John,
Mr. Darling and Mr. Dropkin, respectively, assuming annual salary increases of
5.0% and 3.0% annual increases in the compensation limit under Code Section
401(a)(17).
The Retirement Plan of Inco Alloys International, Inc. Applicable to
Non-Union Employees Paid in U.S. Dollars ("IAI Non-Union Plan") covers full-time
and part-time non-union employees of Inco Alloys International's U.S.
operations, and is intended to meet the requirements of Section 401(a) of the
Code. Generally, under the IAI Non-Union Plan, participants with five years of
service become entitled to receive a basic retirement benefit upon retirement at
age 65. Benefits under the IAI Non-Union Plan are calculated using a final
average benefit formula. For participants who retire or terminate their
employment after December 31, 1999, their retirement benefit equals the greater
of (A) the sum of (i) 1% of final average earnings not in excess of one-half of
the Social Security wage base plus 1.5% of this final average earnings in excess
of one-half of the Social Security wage base, times the participant's years of
credited service, up to 35; and (ii) 1.5% of final average earnings for service
over 35 years; and (B) $420 times years of credited service.
Earnings taken into account for calculating benefits under the plan
include base salary, and deferred compensation, including any Code Section
401(k) savings plan or Code Section 125 cafeteria plan, but excluding bonuses,
overtime, or other extra or special compensation, and are subject to limits
imposed by the Code, including Code Section 401(a)(17) (generally, limiting
compensation to $150,000 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, payments upon disability and spousal death
benefits. The only Named Executive Officer for 1999 participating in the IAI
Non-Union Plan is David W. Ohl. His annual benefit payable under the IAI
Non-Union Plan at age 65 is $95,095 (Mr. Ohl was age 65 at December 31, 1999).
<PAGE>
14
Supplemental Retirement Income Plans
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 $71,251 under the SRIP upon normal retirement at
age 65.
Under his employment agreement with the Company, Dr. John is also
entitled to supplemental retirement benefits. Dr. John's supplemental benefit is
the difference between his benefit under the Company's Salaried Retirement Plan
based on actual years of service and the amount he would receive under that plan
if his benefit were calculated using five years of service credit as of the end
of his third year of actual employment and 12/3 years of service credit for each
actual year of service after that. Based on Dr. John's compensation and years of
service, he would be entitled to an estimated annual supplemental benefit of
$7,028 upon normal retirement at age 65.
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 was the only participant in the Equity
Rights Plan. He has received 50,000 Rights, none of which were granted in the
fiscal year ended December 31, 1999. Dr. Muzyka's rights under the plan became
fully vested during 1999, at which time he exercised all of his rights under the
plan and received a payout totaling $192,500.
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.
Subordinated Loans. During 1999, the Company entered into a Subordinated
Loan Agreement with SIMA, whereby SIMA agreed to provide up to $50 million of
subordinated loans, including $20 million of term loans and up to an additional
$30 million on a revolving basis. Amounts outstanding under the Subordinated
Loan Agreement accrue interest at a rate per annum equal to LIBOR plus 1.0%.
Accrued interest on both the term loan
<PAGE>
15
and revolving loan is paid in kind by addition to the principal of the term loan
on a quarterly basis. This debt is unsecured and is subordinate to the Company's
obligations under its credit agreement with a syndicate of banks. In addition,
the Company's senior lenders have placed restrictions on the repayment of
principal due under the subordinated loans. The amount outstanding at March 31,
2000 under the term loan portion was $20.3 million. The amount outstanding under
the revolving loan portion at that date was $7.0 million.
Technology Exchange Agreement. The Company and ERAMET are parties to a
technical information exchange agreement (the "Technology Exchange Agreement").
During the term of the Technology Exchange Agreement, subject to certain
exceptions, ERAMET, the Company and their respective subsidiaries 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,
ERAMET and the Company will periodically provide technical and manufacturing
persons to consult and advise each other. A research committee established by
the Company and ERAMET will direct joint research activities and the exchange of
technical information. 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 one year's 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 was charged $360,000 by SIMA
pursuant to the Managerial Assistance Agreement in 1999.
Encapsulating Services Agreement. The Company and Compagnie Industrielle
Des Metaux Durs ("CIMD"), an 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 $30,305 to CIMD pursuant to the
Encapsulating Services Agreement in 1999. The
<PAGE>
16
Encapsulating Services Agreement has a term of five years or until terminated by
either party in the event of the other party's material breach of the agreement.
All confidential information provided to CIMD by the Company in connection with
the Encapsulating Services Agreement will be kept confidential.
Affiliate Sales. During 1999, the Company sold superalloy and special
alloy products to affiliates of SIMA. The net revenues from such sales were
$34.7 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. In 1999, raw materials
purchases from SIMA and its affiliates totaled $2.7 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 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 $1.1 million for such premiums in 1999. 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 1999, Mr. Halverstadt and AIME received
an aggregate of approximately $196,000 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 any
filing 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.
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.
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
<PAGE>
17
severance agreements with most of its executive officers. See "Executive
Compensation--Employment and Severance Agreements." In 1997, the Company
retained an independent outside consulting firm to prepare a report which
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 a result of this
evaluation, the Compensation Committee increased Dr. Muzyka's and Mr. Darling's
base salary effective December 1, 1998 and determined minimum salary and bonus
levels through 2001 for Mr. Dropkin. The Company has undertaken a new study and
it expects to use the results of that study to make changes to salary
compensation that will become effective at the end of 2000. See "Executive
Compensation--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. Due to the financial performance of the Company none of the Named
Executive Officers received compensation under this program for 1999. Dr.
Muzyka, Mr. Darling and Mr. Dropkin were eligible for a profit sharing payment
related to the performance of the Company's Premium Alloys Division, which
consists of the Company's business conducted prior to the Inco Alloys
International Acquisition. Of the Named Executive Officers, Dr. Muzyka and Mr.
Dropkin have elected to defer receipt of their amounts until the Company returns
to profitability or they retire.
Long-Term Stock Incentive Program. In January 1997 the Company adopted
the Special Metals Corporation 1997 Long-Term Stock Incentive Plan ("Stock
Incentive Plan") in which officers, other key employees and directors of the
Company are eligible to participate. Awards may be made in the form of stock
options, stock appreciation rights, restricted stock, performance awards and
other stock based awards. In 1999 the Company awarded options to purchase a
total of 344,100 shares of common stock to its executive officers, directors and
other employees, of which 87,000 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 addition, in April 1999 the Company awarded 20,465 shares
of restricted stock to T. Grant John in connection with the commencement of his
employment. One-half of Dr. John's restricted stock vests over a three year
period starting in 2000 and the other half vests based upon the achievement of
performance goals. Awards under the Stock Incentive 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.
<PAGE>
18
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
1999 included operational and strategic goals such as safety, customer
satisfaction, cost reduction, implementation of a new business information
system and successful handling of the year 2000 transition. Dr. Muzyka is the
sole participant in the Company's Equity Appreciation Rights Plan and the
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
Technologies, Inc. (formerly 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
separately included in the Peer Group Index. Wyman-Gordon Company was acquired
by Precision Castparts Corp. in November 1999 and its value as of December 31,
1999 in the Peer Group Index is the value of the consideration received by a
Wyman-Gordon stockholder in the acquisition. In November 1999, Allegheny
Teledyne Inc. underwent a recapitalization which included it spinning off two of
its businesses into separate publicly traded companies. The value of Allegheny
Technologies as of December 31, 1999 in the Peer Group Index reflects the value
of the securities to which a former Allegheny Teledyne stockholder is entitled
as of December 31, 1999.
<PAGE>
19
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 12/31/99
----------- ----------- ----------- -----------
Special Metals Corporation 100.00 106.67 52.96 18.89
NASDAQ Composite Index 100.00 117.14 163.57 303.56
Peer Group Index 100.00 108.11 80.36 51.29
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 ERAMET, SIMA's parent. See "Executive
Compensation--Compensation Committee Interlocks and Insider
Participation--Subordinated Loans" "--Technology Exchange Agreement,"
"--Managerial Assistance Agreement," "--Encapsulating Services Agreement,"
"--Affiliate Sales," "--Raw Materials" and "--Insurance."
Registration Rights. Under a registration rights agreement (the
"Registration Rights Agreement") among the Company and the Principal
Stockholders, the Company has granted the Principal Stockholders the right to
require, subject to the terms and conditions set forth therein, the Company to
register shares of Common Stock held by the Principal Stockholders (the
"Registrable Securities") for sale in accordance with their intended method of
disposition thereof (a "demand registration"). The holders of a majority of the
Registrable Securities may request one demand registration per year (except in
certain circumstances). In addition, so long as any Principal Stockholder
continues to hold at least 5% of the outstanding Common Stock, such Principal
Stockholder shall also have the right to request one demand registration. The
Principal Stockholders may not require more than one demand registration each
year. Additionally, the Company has granted to each Principal Stockholder the
right, subject to certain
<PAGE>
20
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 piggyback 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. The aggregate consideration paid to Inco
included 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 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.
<PAGE>
21
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 has served on the Board of Directors since 1998 and Mr. J.
Landis Martin has been nominated for election at the Annual Meeting.
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 at
least 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 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
<PAGE>
22
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.
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 1999, the fees
paid and expenses reimbursed to each of Mr. Treuille and Dr. Decker under such
consulting agreements did not exceed $10,000.
<PAGE>
23
Product Purchases
During 1999, the Company's revenue from sales to TMC were approximately
$57,000. During 1999, Thixomat Inc., purchased alloy products from the Company
for an aggregate of approximately $40,000 and conducted a joint development
project with the Company regarding one of the Company's alloys. Dr. Decker, a
director of the Company, is the Chairman and a minority 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.
AMENDMENT TO LONG-TERM STOCK INCENTIVE PLAN
The Company has adopted an amendment (the "Amendment") to the 1997
Long-Term Stock Incentive Plan (the "Stock Incentive Plan"), effective on May
19, 2000, subject to stockholder approval. The Amendment increases by 1,250,000
(from 800,000 to 2,050,000) the maximum number of shares of the Company's Common
Stock from which awards may be made. This amendment to the Stock Incentive Plan
is being submitted to shareholders in view of the Company's desire that options
granted under the Stock Incentive Plan will qualify as "performance based
compensation" for purposes of Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"). Approval of the amendment by stockholders
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.
Description of Stock Incentive Plan, as Amended
Purpose. The purposes of the Stock Incentive Plan are to promote the
interests of the Company by (i) attracting and retaining qualified key officers,
directors and other employees of the Company and its subsidiaries, (ii)
motivating such individuals by means of performance-related incentives to
achieve long-range performance goals and (iii) enabling such individuals to
participate in the long-term growth and financial success of the Company. The
approximate number of persons participating in the Stock Incentive Plan is 900.
Administration. The Stock Incentive Plan may be administered by the
Board of Directors of the Company or by a committee comprised of Directors who
are "Non-Employee directors" (within the meaning of Rule 16b-3 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) and "outside directors"
(within the meaning of section 162(m) of the Code.) The Board of Directors or
such committee is referred to as the "Stock Plan Committee."
Eligibility. Any officer, employee, or director (including any
prospective officer, employee or director) of the Company or any of its
subsidiaries shall be eligible to be designated as a participant under the Stock
Incentive Plan. The Stock Plan Committee has the sole and complete authority to
determine the participants to whom awards shall be granted under the Stock
Incentive Plan.
Number of Shares Authorized. Subject to antidilution 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
2,050,000 shares (increased from 800,000 shares by the proposed amendment) of
the Company's Common Stock ("Shares"), which awards may be made in the form of
(i) nonqualified stock options ("NSOs"); (ii) stock options intended to qualify
as incentive stock options under section 422 of the Code ("ISOs"); (iii) stock
appreciation rights ("SARs"); (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 SARs 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
<PAGE>
24
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. As of April 3, 2000, the closing price of one
Share on the Nasdaq National Market was $2.75.
Terms and Conditions of Awards. Awards of options, SARs, restricted
stock units, performance awards and other stock based awards (collectively
"Awards") granted under the Stock Incentive Plan shall be subject to such terms,
including exercise price, circumstances of forfeiture and conditions and timing
of exercise (if applicable), as may be determined by the Stock Plan Committee.
Stock options that are intended to qualify as ISOs will be subject to terms and
conditions that comply with such rules as may be prescribed by section 422 of
the Code. Payment in respect of the exercise of an option granted under the
Stock Incentive Plan may be made in cash, or its equivalent, or (i) by
exchanging Shares owned by the optionee which are not the subject of any pledge
or other security interest and which have been owned by such optionee for at
least six months or (ii) if there is a public market for the Shares through
delivery of irrevocable instructions to a broker to sell the Shares and deliver
promptly to the Company an amount equal to the aggregate exercise price, or by a
combination of the foregoing, provided that the combined value of all cash and
cash equivalents and the fair market value of such Shares so tendered to the
Company as of the date of such tender is at least equal to the aggregate
exercise price of the options.
Change of Control and Reorganization Events. 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.
Amendment and Termination. 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.
Federal Income Tax Consequences.
The following discussion is a brief summary of the principal United
States federal income tax consequences under current federal income tax laws
relating to awards under the Stock Incentive Plan. This summary is not intended
to be a complete statement of applicable law, nor does it address state and
local tax considerations. Moreover, the federal income tax consequences to any
particular participant may differ from those described herein by reason of,
among other things, the particular circumstances of such participant. For these
reasons, participants are urged to consult their own tax advisors with respect
to the consequences of their participation in the Plan.
NSOs. No income will be realized by an optionee upon grant of an NSO.
Upon exercise of an NSO, the optionee will recognize ordinary compensation
income in an amount equal to the excess, if any, of the fair market value of the
underlying stock over the option exercise price (the "Spread") at the time of
exercise. The Spread will be deductible by the Company for federal income tax
purposes, subject to the possible limitations on deductibility under sections
280G and 162(m) of the Code of compensation paid to executives designated in
those sections. The optionee's tax basis in the underlying Shares acquired by
exercise of an NSO will equal the exercise price plus the amount taxable as
compensation to the optionee. Upon sale of the Shares received by the optionee
upon exercise of the NSO, any gain or loss is generally long-term or short-term
capital gain or loss, depending on the holding period. The optionee's holding
period for Shares acquired pursuant to the exercise of an NSO will begin on the
date of exercise of such option.
<PAGE>
25
Pursuant to currently applicable rules under section 16(b) of the
Exchange Act, the grant of an option (and not its exercise) to a person who is
subject to the reporting and short-swing profit provisions under section 16 of
the Exchange Act (a "Section 16 Person") begins the six-month period of
potential short-swing liability. The taxable event for the exercise of an option
that has been outstanding at least six months ordinarily will be the date of
exercise. If an option is exercised by a Section 16 Person within six months
after the date of grant, however, taxation ordinarily will be deferred until the
date which is six months after the date of grant, unless the person has filed a
timely election pursuant to section 83(b) of the Code to be taxed on the date of
exercise. Under current rules promulgated under Section 16(b) of the Exchange
Act, the six month period of potential short-swing liability may be eliminated
if the option grant (i) is approved in advance by the Company's Board of
Directors (or a committee composed solely of two or more non-employee Directors)
or (ii) approved in advance, or subsequently ratified by the Company's
shareholders no later than the next annual meeting of shareholders.
Consequently, the taxable event for the exercise of an option that satisfies
either of the conditions described in clauses (i) or (ii) above will be the date
of exercise.
ISOs. The Code requires that, for ISO treatment, Shares acquired through
exercise of an ISO cannot be disposed of before two years from the date of grant
of the option and one year from the date of exercise. ISO holders will generally
incur no federal income tax liability at the time of grant or upon exercise of
such options. However, the spread at exercise will be an "item of tax
preference" which may give rise to "alternative minimum tax" liability for the
taxable year in which the exercise occurs at the time of exercise. If the
optionee does not dispose of the Shares before two years following the date of
grant and one year following the date of exercise, the difference between the
exercise price and the amount realized upon disposition of the Shares will
constitute long-term capital gain or loss, as the case may be. Assuming both
holding periods are satisfied, no deduction will be allowed to the Company for
federal income tax purposes in connection with the grant or exercise of the
option. If, within two years following the date of grant or within one year
following the date of exercise, the holder of Shares acquired through the
exercise of an ISO disposes of such Shares, the optionee will generally realize
ordinary taxable compensation at the time of such disposition equal to the
difference between the exercise price and the lesser of the fair market value of
the stock on the date of initial exercise or the amount realized on the
subsequent disposition, and such amount will generally be deductible by the
Company for federal income tax purposes, subject to the possible limitations on
deductibility under sections 280G and 162(m) of the Code for compensation paid
to executives designated in those sections.
The payment by an optionee of the exercise price, in full or in part,
with previously acquired Shares will not affect the tax treatment of the
exercise described above. No gain or loss generally will be recognized by the
optionee upon the surrender of the previously acquired Shares to the Company,
and Shares received by the optionee, equal in number to the previously
surrendered Shares, will have the same tax basis as the Shares surrendered to
the Company and will have a holding period that includes the holding period of
the Shares surrendered. The value of Shares received by the optionee in excess
of the number of Shares surrendered to the Company will be taxable to the
optionee. Such additional Shares will have a tax basis equal to the fair market
value of such additional Shares as of the date ordinary income is recognized,
and will have a holding period that begins on the date ordinary income is
recognized.
Restricted Stock. Generally, a grantee will not recognize any income
upon the receipt of restricted stock unless the holder elects under Section
83(b) of the Code, within 30 days of such receipt, to recognize ordinary income
in an amount equal to the fair market value of the restricted stock at the time
of receipt, less any amount paid for the shares. If the election is made, the
holder will not be allowed a deduction for amounts subsequently required to be
returned to the Company. If the election is not made, the holder will generally
recognize ordinary income, on the date that the restrictions to which the
restricted stock are subject are removed, in an amount equal to the fair market
value of such shares on such date, less any amount paid for the shares. At the
time the holder recognizes ordinary income, the Company generally will be
entitled to a deduction in the same amount.
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26
Generally, upon a sale or other dispositions of restricted stock with
respect to which the holder has recognized ordinary income (i.e., a Section
83(b) election was previously made or the restrictions were previously removed),
the holder will recognize capital gain or loss in an amount equal to the
difference between the amount realized on such sale or other disposition and the
holder's basis in such shares. Such gain or loss will be long-term capital gain
or loss if the holding period for such shares is more than one year.
SARs. The grant of a SAR will not result in income for the grantee or in
a tax deduction for the Company. Upon the settlement of such a right, the
grantee generally will recognize ordinary income equal to the aggregate value of
the payment received, and the Company generally will be entitled to a tax
deduction in the same amount.
Performance Awards. Generally, the grant of performance awards has no
federal income tax consequences at the time of grant. Rather, at the time the
shares are no longer subject to a substantial risk of forfeiture, as defined in
the Code, the holder will recognize ordinary income in an amount equal to the
fair market value of such shares. A holder may, however, elect to be taxed at
the time of the grant in accordance with Section 83(b) of the Code. The Company
generally will be entitled to a deduction at the time and in the amount that the
holder recognizes ordinary income.
Change of Control Payments. If any payments under the Plan are
"contingent on a change of control" within the meaning of Code section 280G
(which could include, for example and without limitation, the accelerated
vesting of stock options upon a change of control), then the Company may be
denied an income tax deduction for all or a portion of such payments, and the
recipient thereof may be subject to a 20% excise tax in addition to income tax
otherwise imposed.
Section 162(m). In general, Section 162(m) of the Code denies a publicly
held corporation a deduction for federal income tax purposes for compensation in
excess of $1,000,000 per year per person to its chief executive officer and the
four other officers whose compensation is disclosed in its proxy statement,
subject to certain exceptions. Options will generally qualify under one of these
exceptions if they are granted under a plan that states the maximum number of
shares with respect to which options may be granted to any employee during a
specified period, the exercise price is not less than the fair market value of
the common stock at the time of grant, and the plan under which the options are
granted is approved by stockholders and is administered by a compensation
committee comprised of outside directors. The Stock Incentive Plan is intended
to satisfy these requirements with respect to grants of options to Stock
Incentive covered employees.
New Plan Benefits
No Awards from the Shares added by the amendment have yet been made.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS APPROVAL OF THE AMENDMENTS
TO THE 1997 LONG-TERM STOCK INCENTIVE PLAN. UNLESS OTHERWISE INSTRUCTED, SIGNED
PROXIES THAT ARE RETURNED IN A TIMELY MANNER WILL BE VOTED IN FAVOR OF SUCH
APPROVAL.
RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
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, 2000. 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.
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27
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, 2000. 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, 1999,
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. Such proposals must be
received by the Company no later than December 26, 2000, to be considered for
inclusion in the proxy statement and form of proxy relating to the 2001 Annual
Meeting of Stockholders.
If a stockholder of the Corporation wishes to present a proposal before
the 2001 Annual Meeting of Stockholders, but does not wish to have the proposal
considered for inclusion in the Corporation's proxy statement and proxy card,
such stockholder must also give written notice to the Company. The Company's
By-laws provide that to be timely, a stockholder's notice must be received at
the principal executive offices of the Company not less than 30 days nor more
than 60 days prior to the meeting.
OTHER INFORMATION
The cost of preparing, assembling, printing and mailing this Proxy
Statement and the accompanying form of proxy, and the cost of soliciting proxies
relating to the Annual Meeting, will be borne by the Company.
By order of the Board of Directors,
Robert F. Dropkin
Secretary
New Hartford, New York
April 26, 2000
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28
APPENDIX A
SPECIAL METALS CORPORATION
4317 Middle Settlement Road New Hartford, New York 13413
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS -- May 19, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Special Metals Corporation (the "Company")
hereby appoints Robert D. Halverstadt and Donald 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 Annual Meeting of
Stockholders of the Company to be held on, May 19, 2000, 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 2003.
FOR the nominees listed below (except as marked to the contrary below) [ ]
WITHHOLD AUTHORITY to vote for all the nominees listed below [ ]
Nominees: Edouard Duval, J. Landis Martin and Donald R. Muzyka.
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, please
cross out that nominee's name.)
2. Proposal to amend the Company's 1997 Long-Term Stock Incentive Plan.
FOR [ ]
AGAINST [ ]
WITHHOLD AUTHORITY to vote on Proposal 2 [ ]
3. Proposal to ratify the appointment of Ernst & Young LLP as independent
accountants for the Company for the fiscal year ended December 31, 2000.
FOR [ ]
AGAINST [ ]
WITHHOLD AUTHORITY to vote on Proposal 3 [ ]
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
Please check here if you plan to attend the meeting [ ]
(Please Sign on Other Side)
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29
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"
PROPOSALS 2 AND 3, AND WILL BE VOTED IN THE DISCRETION OF THE PROXIES WITH
RESPECT TO ANY OTHER MATTER THAT IS PROPERLY PRESENTED AT THE MEETING.
..................... ................................. Dated............., 2000
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.
<PAGE>
30
APPENDIX B
SPECIAL METALS CORPORATION
1997 LONG-TERM STOCK INCENTIVE PLAN
(As amended)
SECTION 1. Purpose. The purposes of this Special Metals Corporation 1997
Long-Term Stock Incentive Plan are to promote the interests of Special Metals
Corporation and its stockholders by (i) attracting and retaining qualified
officers and employees and directors of the Company and its Subsidiaries, as
defined below; (ii) motivating such individuals by means of performance-related
incentives to achieve longer-range performance goals; and (iii) enabling such
individuals to participate in the long-term growth and financial success of the
Company.
SECTION 2. Definitions. As used in the Plan, the following terms shall have
the meanings set forth below:
"Affiliate" shall mean (i) any entity that, directly or indirectly, is
controlled by, controls or is under common control with the Company and (ii) any
entity in which the Company has a significant equity interest, in either case as
determined by the Committee.
"Award" shall mean any Option, Stock Appreciation Right, Restricted Stock
Award, Restricted Stock Unit Award, Performance Award, Other Stock-Based Award
or Performance Compensation Award.
"Award Agreement" shall mean any written agreement, contract, or other
instrument or document evidencing any Award, which may, but need not, be
executed or acknowledged by a Participant.
"Board" shall mean the Board of Directors of the Company.
"Change of Control" shall mean the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition, in one or a series
of related transactions, of all or substantially all of the assets of the
Company to any "person" or "group" (as such terms are used in Sections 13(d)(3)
and 14(d)(2) of the Exchange Act), (ii) any person or group is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a person shall be deemed to have "beneficial ownership" of all
shares that any such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total voting power of
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31
the voting stock of the Company, including by way of merger, consolidation or
otherwise or (iii) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board (together with any new
directors whose election by such Board or whose nomination for election by the
shareholders of the Company was approved by a vote of a majority of the
directors of the Company, then still in office, who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board; provided that in no event shall the first initial public offering of the
Company's equity securities pursuant to an effective registration statement
under the Securities Act of 1933 be deemed to constitute a Change of Control.
Notwithstanding the foregoing, a "Change of Control" shall not include any
acquisition of voting securities or assets of the Company by Societe
Industrielle Materiaux Avance, LWH Holding S.A., Advanced Materials Investments
Holding S.A. or any of their respective affiliates or stockholders.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Committee" shall mean (i) a committee of the Board designated by the Board
to administer the Plan and composed of not less two directors, each of whom is
intended to be a "Non-Employee Director" (within the meaning of Rule 16b-3) and
an "outside director" (within the meaning of Code section 162(m)) to the extent
Rule 16b-3 and Code section 162(m), respectively, are applicable to the Company
and to Awards issued under the Plan or (ii) if at any time such a committee has
not been so designated by the Board, the Board.
"Company" shall mean Special Metals Corporation, a Delaware corporation,
together with any successor thereto.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" shall mean, (A) with respect to any property other than
Shares, the fair market value of such property determined by such methods or
procedures as shall be established from time to time by the Committee and (B)
with respect to the Shares, as of any date, (i) the closing price of the Shares
on the principal national securities exchange on which the Shares are listed at
the time (or if there have been no sales on such exchange on such day, the
average of the highest bid and lowest asked prices on such exchange at the end
of such day), or (ii) if the Shares are not listed on a national securities
exchange at the time, the sale price of the Shares reported on the NASDAQ
National Market as of 4:00 p.m., New York time, on such day (or if there is no
reported sale price of the Shares on the NASDAQ National Market on such day, the
average of the representative bid and asked prices quoted on the NASDAQ National
Market as of 4:00 p.m., New York time, on such day), or (iii) if the
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32
Shares are not reported on the NASDAQ National Market at the time, the averages
of the representative bid and asked prices quoted in the NASDAQ System as of
4:00 p.m., New York time, on such day, or (iv) if the Shares are not quoted on
the NASDAQ System, the average of the highest bid and lowest asked prices on
such day in the over-the-counter market as reported by the National Quotation
Bureau Incorporated or any similar successor organization. If the Shares are not
listed on any national securities exchange or quoted on the NASDAQ National
Market, in the NASDAQ System or in the over-the-counter market, the fair market
value of the Shares as determined in good faith by the Committee.
"Incentive Stock Option" shall mean a right to purchase Shares from the
Company that is granted under Section 6 of the Plan and that is intended to meet
the requirements of Section 422 of the Code or any successor provision thereto.
"Negative Discretion" shall mean the discretion authorized by the Plan to
be applied by the Committee to eliminate or reduce the size of a Performance
Compensation Award; provided that the exercise of such discretion would not
cause the Performance Compensation Award to fail to qualify as
"performance-based compensation" under Section 162(m) of the Code. By way of
example and not by way of limitation, in no event shall any discretionary
authority granted to the Committee by the Plan including, but not limited to,
Negative Discretion, be used to (a) grant or provide payment in respect of
Performance Compensation Awards for a Performance Period if the Performance
Goals for such Performance Period have not been attained; or (b) increase a
Performance Compensation Award above the maximum amount payable under Sections
4(a) or 11(d)(vi) of the Plan.
"Non-Qualified Stock Option" shall mean a right to purchase Shares from the
Company that is granted under Section 6 of the Plan and that is not intended to
be an Incentive Stock Option.
"Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option.
"Other Stock-Based Award" shall mean any right granted under Section 10 of
the Plan.
"Participant" shall mean any officer or other employee or director of the
Company or its Subsidiaries eligible for an Award under Section 5 and selected
by the Committee to receive an Award under the Plan.
"Performance Award" shall mean any right granted under Section 9 of the
Plan.
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33
"Performance Compensation Award" shall mean any Award designated by the
Committee as a Performance Compensation Award pursuant to Section 11 of the
Plan.
"Performance Criteria" shall mean the criterion or criteria that the
Committee shall select for purposes of establishing the Performance Goal(s) for
a Performance Period with respect to any Performance Compensation Award under
the Plan. The Performance Criteria that will be used to establish the
Performance Goal(s) shall be based on the attainment of specific levels of
performance of the Company (or Subsidiary, Affiliate, division or operational
unit of the Company) and shall be limited to the following: Return on net
assets, return on shareholders' equity, return on assets, return on capital,
shareholder returns, earnings per share, net earnings, operating earnings, price
per share, cash flow, margin, cost reductions, meeting of budget amount or
project deadline, sales and market share. To the extent required under Section
162(m) of the Code, the Committee shall, within the first 90 days of a
Performance Period (or, if longer, within the maximum period allowed under
Section 162(m) of the Code), define in an objective fashion the manner of
calculating the Performance Criteria it selects to use for such Performance
Period.
"Performance Formula" shall mean, for a Performance Period, the one or more
objective formulas applied against the relevant Performance Goal to determine,
with regard to the Performance Compensation Award of a particular Participant,
whether all, some portion but less than all, or none of the Performance
Compensation Award has been earned for the Performance Period.
"Performance Goals" shall mean, for a Performance Period, the one or more
goals established by the Committee for the Performance Period based upon the
Performance Criteria. The Committee is authorized at any time during the first
90 days of a Performance Period, or at any time thereafter (but only to the
extent the exercise of such authority after the first 90 days of a Performance
Period would not cause the Performance Compensation Awards granted to any
Participant for the Performance Period to fail to qualify as "performance-based
compensation" under Section 162(m) of the Code), in its sole and absolute
discretion, to adjust or modify the calculation of a Performance Goal for such
Performance Period to the extent permitted under Section 162(m) of the Code in
order to prevent the dilution or enlargement of the rights of Participants, (a)
in the event of, or in anticipation of, any unusual or extraordinary corporate
item, transaction, event or development affecting the Company; or (b) in
recognition of, or in anticipation of, any other unusual or nonrecurring events
affecting the Company, or the financial statements of the Company, or in
response to, or in anticipation of, changes in applicable laws, regulations,
accounting principles, or business conditions.
"Performance Period" shall mean the one or more periods of time (of at
least one year in duration) as the Committee may select, over which the
attainment of one or more
<PAGE>
34
Performance Goals will be measured for the purpose of determining a
Participant's right to and the payment of a Performance Compensation Award.
"Person" shall mean any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, government or political
subdivision thereof or other entity.
"Plan" shall mean this Special Metals Corporation 1997 Long-Term Stock
Incentive Plan.
"Restricted Stock" shall mean any Share granted under Section 8 of the
Plan.
"Restricted Stock Unit" shall mean any unit granted under Section 8 of the
Plan.
"Rule 16b-3" shall mean Rule 16b-3 as promulgated and interpreted by the
SEC under the Exchange Act, or any successor rule or regulation thereto as in
effect from time to time.
"SEC" shall mean the Securities and Exchange Commission or any successor
thereto and shall include the Staff thereof.
"Shares" shall mean the common shares of the Company, $.01 par value, or
such other securities of the Company (i) into which such common shares shall be
changed by reason of a recapitalization, merger, consolidation, split-up,
combination, exchange of shares or other similar transaction or (ii) as may be
determined by the Committee pursuant to Section 4(b).
"Stock Appreciation Right" shall mean any right granted under Section 7 of
the Plan.
"Subsidiary" shall mean (i) any entity that, directly or indirectly, is
controlled by the Company and (ii) any entity in which the Company has a
significant equity interest, in either case as determined by the Committee
"Substitute Awards" shall have the meaning specified in Section 4(c).
SECTION 3. Administration. (a) The Plan shall be administered by the
Committee. Subject to the terms of the Plan and applicable law, and in addition
to other express powers and authorizations conferred on the Committee by the
Plan, the Committee shall have full power and authority to: (i) designate
Participants; (ii) determine the type or
<PAGE>
35
types of Awards to be granted to a Participant and designate those Awards which
shall constitute Performance Compensation Awards; (iii) determine the number of
Shares to be covered by, or with respect to which payments, rights, or other
matters are to be calculated in connection with, Awards; (iv) determine the
terms and conditions of any Award; (v) determine whether, to what extent, and
under what circumstances Awards may be settled or exercised in cash, Shares,
other securities, other Awards or other property, or canceled, forfeited, or
suspended and the method or methods by which Awards may be settled, exercised,
canceled, forfeited, or suspended; (vi) determine whether, to what extent, and
under what circumstances cash, Shares, other securities, other Awards, other
property, and other amounts payable with respect to an Award shall be deferred
either automatically or at the election of the holder thereof or of the
Committee (subject to Section 162(m) of the Code with respect to Performance
Compensation Awards); (vii) interpret, administer reconcile any inconsistency,
correct any default and/or supply any omission in the Plan and any instrument or
agreement relating to, or Award made under, the Plan; (viii) establish, amend,
suspend, or waive such rules and regulations and appoint such agents as it shall
deem appropriate for the proper administration of the Plan; (ix) establish and
administer Performance Goals and certify whether, and to what extent, they have
been attained; and (x) make any other determination and take any other action
that the Committee deems necessary or desirable for the administration of the
Plan.
(b) Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations, and other decisions under or with respect to
the Plan or any Award shall be within the sole discretion of the Committee, may
be made at any time and shall be final, conclusive, and binding upon all
Persons, including the Company, any Affiliate, any Participant, any holder or
beneficiary of any Award, and any shareholder.
(c) The mere fact that a Committee member shall fail to qualify as a
"Non-Employee Director" or "outside director" within the meaning of Rule 16b-3
and Code section 162(m), respectively, shall not invalidate any award made by
the Committee which award is otherwise validly made under the Plan.
(d) No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Award
hereunder.
(e) With respect to any Performance Compensation Award granted to a
Participant under the Plan, the Plan shall be interpreted and construed in
accordance with Section 162(m) of the Code.
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36
SECTION 4. Shares Available for Awards.
(a) Shares Available. Subject to adjustment as provided in Section 4(b),
the aggregate number of Shares with respect to which Awards may be granted under
the Plan shall be 2,050,000; the maximum number of Shares with respect to which
Options and Stock Appreciation Rights may be granted to any Participant in any
fiscal year shall be 100,000 and the maximum number of Shares which may be paid
to a Participant in the Plan in connection with the settlement of any Award(s)
designated as "Performance Compensation Awards" in respect of a single
Performance Period shall be 100,000 or, in the event such Performance
Compensation Award is paid in cash, the equivalent cash value thereof. If, after
the effective date of the Plan, any Shares covered by an Award granted under the
Plan, or to which such an Award relates, are forfeited, or if an Award has
expired, terminated or been canceled for any reason whatsoever (other than by
reason of exercise or vesting), then the Shares covered by such Award shall, to
the maximum extent permitted under Section 162(m) of the Code, again be, or
shall become, Shares with respect to which Awards may be granted hereunder.
(b) Adjustments. In the event that the Committee determines that any
dividend or other distribution (whether in the form of cash, Shares, other
securities, or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Shares or other securities of the Company, issuance
of warrants or other rights to purchase Shares or other securities of the
Company, or other similar corporate transaction or event affects the Shares such
that an adjustment is determined by the Committee in its discretion to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number of Shares or other securities of the Company (or number and kind
of other securities or property) with respect to which Awards may be granted,
(ii) the number of Shares or other securities of the Company (or number and kind
of other securities or property) subject to outstanding Awards, and (iii) the
grant or exercise price with respect to any Award or, if deemed appropriate,
make provision for a cash payment to the holder of an outstanding Award in
consideration for the cancellation of such Award; provided, in each case, that
no such adjustment shall be authorized to the extent that such authority or
adjustment would cause an Award designated by the Committee as a Performance
Compensation Award under Section 11 of the Plan or an Option or Stock
Appreciation Right with an exercise price or grant price, as applicable, equal
to the Fair Market Value per Share to fail to qualify as "performance-based
compensation" under Section 162(m) of the Code.
(c) Substitute Awards. Awards may, in the discretion of the Committee, be
made under the Plan in assumption of, or in substitution for, outstanding awards
previously granted by the Company or its Affiliates or a company acquired by the
Company or with which
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37
the Company combines ("Substitute Awards"). The number of Shares underlying any
Substitute Awards shall be counted against the aggregate number of Shares
available for Awards under the Plan.
(d) Sources of Shares Deliverable Under Awards. Any Shares delivered
pursuant to an Award may consist, in whole or in part, of authorized and
unissued Shares or of treasury Shares.
SECTION 5. Eligibility. Any officer or other employee or director of the
Company or any of its Subsidiaries (including any prospective officer, employee
or director) shall be eligible to be designated a Participant.
SECTION 6. Stock Options.
(a) Grant. Subject to the provisions of the Plan, the Committee shall have
sole and complete authority to determine the Participants to whom Options shall
be granted, the number of Shares to be covered by each Option, the exercise
price therefor and the conditions and limitations applicable to the exercise of
the Option. The Committee shall have the authority to grant Incentive Stock
Options, or to grant Non-Qualified Stock Options, or to grant both types of
Options. In the case of Incentive Stock Options, the terms and conditions of
such grants shall be subject to and comply with such rules as may be prescribed
by Section 422 of the Code, as from time to time amended, and any regulations
implementing such statute. All Options when granted under the Plan are intended
to be Non-Qualified Stock Options, unless the applicable Award Agreement
expressly states that the Option is intended to be an Incentive Stock Option. If
an Option is intended to be an Incentive Stock Option, and if for any reason
such Option (or any portion thereof) shall not qualify as an Incentive Stock
Option, then, to the extent of such nonqualification, such Option (or portion
thereof) shall be regarded as a Non-Qualified Stock Option appropriately granted
under the Plan; provided that such Option (or portion thereof) otherwise
complies with the Plan's requirements relating to Non-Qualified Stock Options.
(b) Exercise Price. The Committee shall establish the exercise price at the
time each Option is granted, which exercise price shall be set forth in the
applicable Award Agreement.
(c) Exercise. Each Option shall be exercisable at such times and subject to
such terms and conditions as the Committee may, in its sole discretion, specify
in the applicable Award Agreement or thereafter. The Committee may impose such
conditions with respect to the exercise of Options, including without
limitation, any relating to the application of federal or state securities laws,
as it may deem necessary or advisable. Options with an exercise price
<PAGE>
38
equal to the Fair Market Value per Share as of the date of grant are intended to
qualify as "performance-based compensation" under Section 162(m) of the Code. In
the sole discretion of the Committee, Options may be granted with an exercise
price that is less than the Fair Market Value per Share and such Options may,
but need not, be intended to qualify as "performance-based compensation" in
accordance with Section 11 hereof.
(d) Payment. No Shares shall be delivered pursuant to any exercise of an
Option until payment in full of the aggregate exercise price therefor is
received by the Company. Such payment may be made in cash, or its equivalent, or
(i) by exchanging Shares owned by the optionee (which are not the subject of any
pledge or other security interest and which have been owned by such optionee for
at least 6 months) or (ii) in the event there is a public market for the Shares
at such time, subject to such rules as may be established by the Committee,
through delivery of irrevocable instructions to a broker to sell such shares and
deliver promptly to the Company an amount equal to the aggregate exercise price,
or by a combination of the foregoing, provided that the combined value of all
cash and cash equivalents and the Fair Market Value of any such Shares so
tendered to the Company as of the date of such tender is at least equal to such
aggregate exercise price.
SECTION 7. Stock Appreciation Rights.
(a) Grant. Subject to the provisions of the Plan, the Committee shall have
sole and complete authority to determine the Participants to whom Stock
Appreciation Rights shall be granted, the number of Shares to be covered by each
Stock Appreciation Right Award, the grant price thereof and the conditions and
limitations applicable to the exercise thereof; provided, however that no Stock
Appreciation Right shall be exercisable earlier than six months after the date
of grant. Stock Appreciation Rights with a grant price equal to the Fair Market
Value per Share as of the date of grant are intended to qualify as
"performance-based compensation" under Section 162(m) of the Code. In the sole
discretion of the Committee, Stock Appreciation Rights may be granted with a
grant price that is less than the Fair Market Value per Share and such Stock
Appreciation Rights may, but need not, be intended to qualify as
"performance-based compensation" in accordance with Section 11 hereof. Stock
Appreciation Rights may be granted in tandem with another Award, in addition to
another Award, or freestanding and unrelated to another Award. Stock
Appreciation Rights granted in tandem with or in addition to an Award may be
granted either at the same time as the Award or at a later time.
(b) Exercise and Payment. A Stock Appreciation Right shall entitle the
Participant to receive an amount equal to the excess of the Fair Market Value of
a Share on the date of exercise of the Stock Appreciation Right over the grant
price thereof. The Committee
<PAGE>
39
shall determine whether a Stock Appreciation Right shall be settled in cash,
Shares or a combination of cash and Shares.
(c) Other Terms and Conditions. Subject to the terms of the Plan and any
applicable Award Agreement, the Committee shall determine, at or after the grant
of a Stock Appreciation Right, the term, methods of exercise, methods and form
of settlement, and any other terms and conditions of any Stock Appreciation
Right. Any such determination by the Committee may be changed by the Committee
from time to time and may govern the exercise of Stock Appreciation Rights
granted or exercised prior to such determination as well as Stock Appreciation
Rights granted or exercised thereafter. The Committee may impose such conditions
or restrictions on the exercise of any Stock Appreciation Right as it shall deem
appropriate.
SECTION 8. Restricted Stock and Restricted Stock Units.
(a) Grant. Subject to the provisions of the Plan, the Committee shall have
sole and complete authority to determine the Participants to whom Shares of
Restricted Stock and Restricted Stock Units shall be granted, the number of
Shares of Restricted Stock and/or the number of Restricted Stock Units to be
granted to each Participant, the duration of the period during which, and the
conditions under which, the Restricted Stock and Restricted Stock Units may be
forfeited to the Company, and the other terms and conditions of such Awards.
(b) Transfer Restrictions. Shares of Restricted Stock and Restricted Stock
Units may not be sold, assigned, transferred, pledged or otherwise encumbered,
except, in the case of Restricted Stock, as provided in the Plan or the
applicable Award Agreements. Certificates issued in respect of Shares of
Restricted Stock shall be registered in the name of the Participant and
deposited by such Participant, together with a stock power endorsed in blank,
with the Company. Upon the lapse of the restrictions applicable to such Shares
of Restricted Stock, the Company shall deliver such certificates to the
Participant or the Participant's legal representative.
(c) Payment. Each Restricted Stock Unit shall have a value equal to the
Fair Market Value of a Share. Restricted Stock Units shall be paid in cash,
Shares, other securities or other property, as determined in the sole discretion
of the Committee, upon the lapse of the restrictions applicable thereto, or
otherwise in accordance with the applicable Award Agreement. Dividends paid on
any Shares of Restricted Stock may be paid directly to the Participant, withheld
by the Company subject to vesting of the Restricted Shares pursuant to the terms
of the applicable Award Agreement, or may be reinvested in additional Shares of
Restricted Stock or in additional Restricted Stock Units, as determined by the
Committee in its sole discretion.
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SECTION 9. Performance Awards.
(a) Grant. The Committee shall have sole and complete authority to
determine the Participants who shall receive a "Performance Award," which shall
consist of a right which is (i) denominated in cash or Shares, (ii) valued, as
determined by the Committee, in accordance with the achievement of such
performance goals during such performance periods as the Committee shall
establish, and (iii) payable at such time and in such form as the Committee
shall determine.
(b) Terms and Conditions. Subject to the terms of the Plan and any
applicable Award Agreement, the Committee shall determine the performance goals
to be achieved during any performance period, the length of any performance
period, the amount of any Performance Award and the amount and kind of any
payment or transfer to be made pursuant to any Performance Award.
(c) Payment of Performance Awards. Performance Awards may be paid in a lump
sum or in installments following the close of the performance period or, in
accordance with procedures established by the Committee, on a deferred basis.
SECTION 10. Other Stock-Based Awards.
(a) General. The Committee shall have authority to grant to Participants an
"Other Stock-Based Award," which shall consist of any right which is (i) not an
Award described in Sections 6 through 9 above and (ii) an Award of Shares or an
Award denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to, Shares (including, without limitation,
securities convertible into Shares), as deemed by the Committee to be consistent
with the purposes of the Plan; provided that any such rights must comply, to the
extent deemed desirable by the Committee, with Rule 16b-3 and applicable law.
Subject to the terms of the Plan and any applicable Award Agreement, the
Committee shall determine the terms and conditions of any such Other Stock-Based
Award, including the price, if any, at which securities may be purchased
pursuant to any Other Stock-Based Award granted under this Plan.
(b) Dividend Equivalents. In the sole and complete discretion of the
Committee, an Award, whether made as an Other Stock-Based Award under this
Section 10 or as an Award granted pursuant to Sections 6 through 9 hereof, may
provide the Participant with dividends or dividend equivalents, payable in cash,
Shares, other securities or other property on a current or deferred basis.
SECTION 11. Performance Compensation Awards.
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(a) General. The Committee shall have the authority, at the time of grant
of any Award described in Sections 6 through 10 (other than Options and Stock
Appreciation Rights granted with an exercise price or grant price, as the case
may be, equal to the Fair Market Value per Share on the date of grant), to
designate such Award as a Performance Compensation Award in order to qualify
such Award as "performance-based compensation" under Section 162(m) of the Code.
Options and Stock Appreciation Rights granted with an exercise price or grant
price, as the case may be, equal to the Fair Market Value per Share on the date
of grant shall not be subject to this Section 11 and notwithstanding any
provision of the Plan to the contrary, the Committee may not exercise Negative
Discretion with respect to any such Award.
(b) Eligibility. The Committee will, in its sole discretion, designate
within the first 90 days of a Performance Period (or, if longer, within the
maximum period allowed under Section 162(m) of the Code) which Participants will
be eligible to receive Performance Compensation Awards in respect of such
Performance Period. However, designation of a Participant eligible to receive a
Performance Compensation Award for a Performance Period shall not in any manner
entitle the Participant to receive payment in respect of any Performance
Compensation Award for such Performance Period. The determination as to whether
or not such Participant becomes entitled to payment in respect of any
Performance Compensation Award shall be decided solely in accordance with the
provisions of this Section 11. Moreover, designation of a Participant eligible
to receive a Performance Compensation Award for a particular Performance Period
shall not require designation of such Participant as eligible to receive a
Performance Compensation Award in any subsequent Performance Period and
designation of one Participant as eligible to receive a Performance Compensation
Award shall not require designation of any other Participant as eligible to
receive a Performance Compensation Award in such period or in any other period.
(c) Discretion of Committee with Respect to Performance Compensation
Awards. With regard to a particular Performance Period, the Committee shall have
full discretion to select the length of such Performance Period, the type(s) of
Performance Compensation Awards to be issued, the Performance Criteria that will
be used to establish the Performance Goal(s), the kind(s) and/or level(s) of the
Performance Goals(s) that is(are) to apply to the Company and the Performance
Formula. Within the first 90 days of a Performance Period (or, if longer, within
the maximum period allowed under Section 162(m) of the Code), the Committee
shall, with regard to the Performance Compensation Awards to be issued for such
Performance Period, exercise its discretion with respect to each of the matters
enumerated in the immediately preceding sentence of this Section 11(c) and
record the same in writing.
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(d) Payment of Performance Compensation Awards
(i) Condition to Receipt of Payment. Unless otherwise
provided in the relevant Award, a Participant must be employed by the
Company on the last day of a Performance Period to be eligible for
payment in respect of a Performance Compensation Award for such
Performance Period.
(ii) Limitation. A Participant shall be eligible to
receive payment in respect of a Performance Compensation Award only to
the extent that: (1) the Performance Goals for such period are achieved;
and (2) the Performance Formula as applied against such Performance
Goals determines that all or some portion of such Participant's
Performance Award has been earned for the Performance Period.
(iii) Certification. Following the completion of a
Performance Period, the Committee shall meet to review and certify in
writing whether, and to what extent, the Performance Goals for the
Performance Period have been achieved and, if so, to calculate and
certify in writing that amount of the Performance Compensation Awards
earned for the period based upon the Performance Formula. The Committee
shall then determine the actual size of each Participant's Performance
Compensation Award for the Performance Period and, in so doing, may
apply Negative Discretion, if and when it deems appropriate.
(iv) Negative Discretion In determining the actual size of
an individual Performance Award for a Performance Period, the Committee
may reduce or eliminate the amount of the Performance Compensation Award
earned under the Performance Formula in the Performance Period through
the use of Negative Discretion if, in its sole judgement, such reduction
or elimination is appropriate.
(v) Timing of Award Payments. The Awards granted for a
Performance Period shall be paid to Participants as soon as
administratively possible following completion of the certifications
required by this Section 11.
(vi) Maximum Award Payable. Notwithstanding any provision
contained in this Plan to the contrary, the maximum Performance
Compensation Award payable to any one Participant under the Plan for a
Performance Period is 100,000 Shares or, in the event the Performance
Compensation Award is paid in cash, the equivalent cash value thereof on
the last day of the Performance Period to which such Award relates.
Furthermore, any Performance Compensation Award that has been deferred
shall not (between the date as of which the Award is deferred and the
payment date) increase (i) with respect to a Performance Compensation
Award that is payable in
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43
cash, by a measuring factor for each fiscal year greater than a
reasonable rate of interest set by the Committee or (ii) with respect to
a Performance Compensation Award that is payable in Shares, by an amount
greater than the appreciation of a Share from the date such Award is
deferred to the payment date.
SECTION 12. Amendment and Termination.
(a) Amendments to the Plan. The Board may amend, alter, suspend,
discontinue, or terminate the Plan or any portion thereof at any time; provided
that no such amendment, alteration, suspension, discontinuation or termination
shall be made without shareholder approval if such approval is necessary to
comply with any tax or regulatory requirement, including for these purposes any
approval requirement which is a prerequisite for exemptive relief from Section
162(m) of the Code (provided that the Company is subject to the requirements of
Section 162 of the Code as of the date of such action); provided further that no
such amendment, alteration, suspension, discontinuation or termination which
impairs the rights of any Person with respect to any Award theretofore granted
shall to that extent be effective without the consent of the affected
Participant, holder or beneficiary.
(b) Amendments to Awards. The Committee may waive any conditions or rights
under, amend any terms of, or alter, suspend, discontinue, cancel or terminate,
any Award theretofore granted, prospectively or retroactively; provided that any
such waiver, amendment, alteration, suspension, discontinuance, cancellation or
termination that would impair the rights of any Person with respect to any Award
theretofore granted shall not to that extent be effective without the consent of
the affected Participant, holder or beneficiary.
(c) Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee is hereby authorized to make adjustments in
the terms and conditions of, and the criteria included in, Awards in recognition
of unusual or nonrecurring events (including, without limitation, the events
described in Section 4(b) hereof) affecting the Company, any Affiliate, or the
financial statements of the Company or any Affiliate, or of changes in
applicable laws, regulations, or accounting principles, whenever the Committee
determines that such adjustments are appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan; provided that no such adjustment shall be authorized to the
extent that such authority or adjustment would cause an Award designated by the
Committee as a Performance Compensation Award under Section 11 of the Plan to
fail to qualify as "performance-based compensation" under Section 162(m) of the
Code.
SECTION 13. Change of Control.
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In the event of a Change of Control after the date of the adoption of this
Plan, any outstanding Awards then held by Participants or their permitted
transferees 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.
SECTION 14. General Provisions.
(a) Nontransferability.
(i) Each Award, and each right under any Award, shall be
exercisable only by the Participant during the Participant's lifetime,
or, if permissible under applicable law, by the Participant's legal
guardian or representative.
(ii) No Award may be assigned, alienated, pledged,
attached, sold or otherwise transferred or encumbered by a Participant
otherwise than by will or by the laws of descent and distribution, and
any such purported assignment, alienation, pledge, attachment, sale,
transfer or encumbrance shall be void and unenforceable against the
Company or any Affiliate; provided that the designation of a beneficiary
shall not constitute an assignment, alienation, pledge, attachment,
sale, transfer or encumbrance.
(iii) Notwithstanding the foregoing, the Committee may
provide, in an applicable Award Agreement or at any time after the grant
of an Award, that an Award may be transferred without consideration by
the Participant, subject to such rules as the Committee may adopt to
preserve the purposes of the Plan, to (i) the Participant's spouse,
children or grandchildren (collectively, the "Immediate Family"); (ii) a
trust solely for the benefit of the Participant or his or her Immediate
Family; or (iii) a partnership or limited liability company whose only
partners or shareholders are one or more of the Participant and his or
her Immediate Family members (each transferee described in clauses (i),
(ii) and (iii) above is hereinafter referred to as a "Permitted
Transferee"); provided that Participant gives the Committee advance
written notice describing the terms and conditions of the proposed
transfer and the Committee notifies the Participant in writing that such
a transfer would comply with the requirements of the Plan. The terms of
the Plan and the Award transferred in accordance with the immediately
preceding sentence shall apply to the Permitted Transferee (including
the Permitted Transferee's beneficiary, executor or administrator)
except that (a) Permitted Transferees shall not be entitled to transfer
the Award, other than by will or the laws of descent and distribution;
and (b) Permitted Transferees shall not be entitled to exercise all or
any portion of Award so transferred unless there shall be in effect a
registration statement on an appropriate form covering the shares, if
any, to be acquired pursuant to
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45
the exercise the Award if the Committee determines that such a
registration statement is necessary or appropriate.
(b) No Rights to Awards. No Participant or other Person shall have any
claim to be granted any Award, and there is no obligation for uniformity of
treatment of Participants, or holders or beneficiaries of Awards. The terms and
conditions of Awards and the Committee's determinations and interpretations with
respect thereto need not be the same with respect to each Participant (whether
or not such Participants are similarly situated).
(c) Share Certificates. All certificates for Shares or other securities of
the Company or any Affiliate delivered under the Plan pursuant to any Award or
the exercise thereof shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the Plan or the rules,
regulations, and other requirements of the Securities and Exchange Commission,
any stock exchange upon which such Shares or other securities are then listed,
and any applicable Federal or state laws, and the Committee may cause a legend
or legends to be put on any such certificates to make appropriate reference to
such restrictions.
(e) Withholding. A Participant may be required to pay to the Company or any
Affiliate and the Company or any Affiliate shall have the right and is hereby
authorized to withhold from any Award, from any payment due or transfer made
under any Award or under the Plan or from any compensation or other amount owing
to a Participant the amount (in cash, Shares, other securities, other Awards or
other property) of any applicable withholding taxes in respect of an Award, its
exercise, or any payment or transfer under an Award or under the Plan and to
take such other action as may be necessary in the opinion of the Company to
satisfy all obligations for the payment of such taxes.
(f) Award Agreements. Each Award hereunder shall be evidenced by an Award
Agreement which shall be delivered to the Participant and shall specify the
terms and conditions of the Award and any rules applicable thereto, including
but not limited to the effect on such Award of the death, disability or
termination of employment or service of a Participant and the effect, if any, of
such other events as may be determined by the Committee.
(g) No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other compensation arrangements, which may, but need not, provide for the
grant of options, restricted stock, Shares and other types of Awards provided
for hereunder (subject to shareholder approval if such approval is required),
and such arrangements may be either generally applicable or applicable only in
specific cases.
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46
(h) No Right to Employment. The grant of an Award shall not be construed as
giving a Participant the right to be retained in the employ of, or in any
consulting relationship to, the Company or any Affiliate. Further, the Company
or an Affiliate may at any time dismiss a Participant from employment or
discontinue any consulting relationship, free from any liability or any claim
under the Plan, unless otherwise expressly provided in the Plan or in any Award
Agreement.
(i) No Rights as Stockholder. Subject to the provisions of the applicable
Award, no Participant or holder or beneficiary of any Award shall have any
rights as a stockholder with respect to any Shares to be distributed under the
Plan until he or she has become the holder of such Shares. Notwithstanding the
foregoing, in connection with each grant of Restricted Stock hereunder, the
applicable Award shall specify if and to what extent the Participant shall not
be entitled to the rights of a stockholder in respect of such Restricted Stock.
(k) Governing Law. The validity, construction, and effect of the Plan and
any rules and regulations relating to the Plan and any Award Agreement shall be
determined in accordance with the laws of the State of Delaware.
(l) Severability. If any provision of the Plan or any Award is or becomes
or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as
to any Person or Award, or would disqualify the Plan or any Award under any law
deemed applicable by the Committee, such provision shall be construed or deemed
amended to conform the applicable laws, or if it cannot be construed or deemed
amended without, in the determination of the Committee, materially altering the
intent of the Plan or the Award, such provision shall be stricken as to such
jurisdiction, Person or Award and the remainder of the Plan and any such Award
shall remain in full force and effect.
(m) Other Laws. The Committee may refuse to issue or transfer any Shares or
other consideration under an Award if, acting in its sole discretion, it
determines that the issuance or transfer of such Shares or such other
consideration might violate any applicable law or regulation or entitle the
Company to recover the same under Section 16(b) of the Exchange Act, and any
payment tendered to the Company by a Participant, other holder or beneficiary in
connection with the exercise of such Award shall be promptly refunded to the
relevant Participant, holder or beneficiary. Without limiting the generality of
the foregoing, no Award granted hereunder shall be construed as an offer to sell
securities of the Company, and no such offer shall be outstanding, unless and
until the Committee in its sole discretion has determined that any such offer,
if made, would be in compliance with all applicable requirements of the U.S.
federal securities laws.
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47
(n) No Trust or Fund Created. Neither the Plan nor any Award shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Affiliate and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments from
the Company or any Affiliate pursuant to an Award, such right shall be no
greater than the right of any unsecured general creditor of the Company or any
Affiliate.
(o) No Fractional Shares. No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award, and the Committee shall determine whether
cash, other securities, or other property shall be paid or transferred in lieu
of any fractional Shares or whether such fractional Shares or any rights thereto
shall be canceled, terminated, or otherwise eliminated.
(p) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
SECTION 15. Cancellation of Awards. Notwithstanding any other provision of
the Plan to the contrary and unless the Award Agreement specifies otherwise, the
Committee may cancel any unexpired, unpaid, deferred or unexercised portion of
an Award (whether or not vested) at any time if the Participant is not in
compliance with the following conditions:
(a) Participant shall not render services for any organization or engage
directly or indirectly in any business which, in the judgment of the Committee,
is or becomes competitive with the Company, or which organization or business,
or the rendering of services to such organization or business, is or becomes
otherwise prejudicial to or in conflict with the interests of the Company (such
organization is referred to herein as a "competing organization"). For a
Participant whose employment has terminated, the judgment of the Committee shall
be based on the Participant's position and responsibilities while employed by
the Company, the Participant's post-employment responsibilities and position
with the competing organization or business, the extent of past, current and
potential competition or conflict between the Company and the competing
organization or business, the effect on the Company's customers, suppliers and
competitors of the Participant's assuming the post- employment position, the
guidelines established in any then current employment policies of the Company
and such other considerations as are deemed relevant given the applicable facts
and circumstances. A Participant shall be free, however, to (i) purchase as an
investment or otherwise, stock or other securities of such competing
organization or business so long as they are listed upon a recognized securities
exchange or traded over-the-counter, and such
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48
investment does not represent a substantial investment to the Participant or a
greater than 5 percent equity interest in the competing organization or business
and (ii) serve as a director of a competing organization if such service is
approved by the Committee.
(b) Participant shall not, without prior written authorization from the
Company, disclose to anyone outside the Company, or use in other than the
Company's business, any confidential information or material relating to the
business of the Company, acquired by the Participant either during or after
employment with the Company.
(c) Participant shall disclose promptly and assign to the Company all
right, title, and interest in any invention or idea, patentable or not, made or
conceived by the Participant during employment by the Company, relating in any
manner to the actual or anticipated business, research or development work of
the Company and shall do anything reasonably necessary to enable the Company to
secure a patent where appropriate in the United States and in other countries.
(d) Participant shall comply with the terms and conditions of any other
written agreement between the Company and the Participant relating to
non-competition, confidentiality, intellectual property and non-solicitation.
(e) Upon exercise, payment or delivery of an Award, the Participant shall
certify on a form acceptable to the Committee that he or she is in compliance
with the terms and conditions of the Plan. Failure to comply with the provisions
of paragraph (a), (b), (c) or (d) above prior to, or during the six months
after, any exercise, payment or delivery pursuant to an Award shall cause such
exercise, payment or delivery to be rescinded. The Company shall notify the
Participant in writing of any such rescission within two years after such
exercise. Within 90 days after receiving such a notice from the Company, the
Participant shall pay to the Company the amount of any gain realized or payment
received as a result of the rescinded exercise, payment or delivery pursuant to
an Award. Such payment shall be made either in cash or by returning to the
Company the number of Shares that the Participant received in connection with
the rescinded exercise, payment or delivery.
SECTION 16. Term of the Plan.
(a) Effective Date. The Plan shall be effective as of the date of its
approval by the shareholders of the Company.
(b) Expiration Date. No Award shall be granted under the Plan after
December 31, 2007. Unless otherwise expressly provided in the Plan or in an
applicable Award Agreement, any Award granted hereunder may, and the authority
of the Board or the Committee to amend, alter, adjust, suspend, discontinue, or
terminate any such Award or to waive any conditions or rights under any such
Award shall, continue after December 31, 2007.
