<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER , 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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METALLURG, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3398 13-1661467
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
6 EAST 43RD STREET
NEW YORK, NEW YORK 10017
(212) 835-0200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ERIC L. SCHONDORF, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
METALLURG, INC.
6 EAST 43RD STREET
NEW YORK, NEW YORK 10017
(212) 835-0200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
SAMUEL M. FEDER, ESQ.
ROGERS & WELLS
200 PARK AVENUE
NEW YORK, NEW YORK 10166
(212) 878-8000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the exchange offer ("Exchange Offer") pursuant to the registration
agreement (the "Registration Agreement") described in the enclosed Prospectus
have been satisfied or waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
BE REGISTERED REGISTERED PER NOTE(1) OFFERING PRICE(1) FEE(2)
<S> <C> <C> <C> <C>
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11% Series B Senior Notes
due 2007(3).............. $100,000,000 100% $100,000,000 $30,303.03
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee under the
Securities Act of 1933.
(2) Calculated pursuant to Rule 457(f)(2).
(3) Guaranteed by Shieldalloy Metallurgical Corporation, Metallurg Holdings
Corporation, Metallurg Services, Inc. and MIR (China), Inc., which
Guaranties shall not require a separate registration fee pursuant to Rule
457(n).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED DECEMBER 12, 1997
OFFER TO EXCHANGE 11% SERIES B SENIOR NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT FOR
ANY AND ALL OUTSTANDING 11% SERIES A SENIOR NOTES DUE 2007
($100,000,000 PRINCIPAL AMOUNT OUTSTANDING)
[METALLURG, INC. LOGO]
OF
METALLURG, INC.
UNCONDITIONALLY GUARANTEED BY
SHIELDALLOY METALLURGICAL CORPORATION, METALLURG HOLDINGS CORPORATION, METALLURG
SERVICES, INC. AND MIR (CHINA), INC.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M. NEW YORK CITY
TIME,
ON , 1998 (AS SUCH DATE MAY BE EXTENDED, THE "EXPIRATION DATE").
Metallurg, Inc. ("Metallurg" or the "Company") hereby offers (the "Exchange
Offer"), upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal"), to exchange an aggregate of up to $100,000,000 principal amount
of 11% Series B Senior Notes due 2007 (the "New Notes") for an identical face
amount of the outstanding 11% Series A Senior Notes due 2007 (the "Old Notes"
and, with the New Notes, the "Notes"). The Old Notes were, and the New Notes
will be, fully and unconditionally guaranteed (the "Guaranties") on a general
unsecured basis by Shieldalloy Metallurgical Corporation ("Shieldalloy"),
Metallurg Holdings Corporation, Metallurg Services, Inc. and MIR (China), Inc.
(the "Guarantors"). The terms of the New Notes are identical in all material
respects to the terms of the Old Notes except that the rights relating to the
exchange of Old Notes for New Notes and the restrictions on transfer set forth
on the Old Notes will not appear on the New Notes. See "The Exchange Offer." The
New Notes are being offered hereunder in order to satisfy certain obligations of
the Company under a Registration Agreement dated as of November 20, 1997 (the
"Registration Agreement") among the Company, the Guarantors, Salomon Brothers
Inc and BancBoston Securities Inc. (the "Initial Purchasers"). Based on an
interpretation by the staff of the Securities and Exchange Commission (the
"Commission") set forth in no-action letters issued to third parties unrelated
to the Company, New Notes issued pursuant to the Exchange Offer in exchange for
Old Notes may be offered for resale, resold, and otherwise transferred by a
holder thereof (other than a holder which is an "affiliate" of the Company
within the meaning of Rule 405, under the Securities Act of 1933, as amended
(the "Securities Act"), without compliance with the registration and the
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business and such
holder has no arrangement with any person to participate in or is engaged in the
distribution of such New Notes.
The New Notes will mature on December 1, 2007. Interest on the New Notes will
be payable semiannually on June 1 and December 1 of each year, commencing June
1, 1998. The New Notes will be redeemable at the option of the Company, in whole
or in part, at any time on or after December 1, 2002, at the redemption prices
set forth herein, plus accrued and unpaid interest, if any, to the date of
redemption. In addition, prior to December 1, 2000, up to 34% of the aggregate
principal amount of the New Notes originally issued may be redeemed at the
option of the Company, in whole or in part, at any time and from time to time,
at 111% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the date of redemption, with the net proceeds of one or more Public
Equity Offerings (as defined) following which there is a Public Market (as
defined), provided that at least 66% of the aggregate principal amount of the
New Notes originally issued remains outstanding immediately after such
redemption. In the event of a Change of Control (as defined), the Company will
be required to make an offer to repurchase all or any part of each holder's New
Notes at a cash purchase price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the date of purchase. See
"Description of the New Notes."
The New Notes will be general unsecured obligations of the Company,
effectively subordinated in right of payment to all existing and future secured
indebtedness of the Company to the extent of the value of the assets securing
such indebtedness. The New Notes will rank pari passu with all senior
indebtedness of the Company and senior to all subordinated indebtedness of the
Company. The Guaranties will effectively rank subordinate in right of payment to
all secured indebtedness of the Guarantors to the extent of the value of the
assets securing such indebtedness. The Guaranties will rank pari passu with all
senior indebtedness of the Guarantors and senior to all subordinated
indebtedness of the Guarantors. The New Notes will be effectively subordinated
in right of payment to all existing and future liabilities of the Company's
subsidiaries which are not guaranteeing the Notes. The Guaranties could also be
effectively subordinated to all the obligations of the Guarantors under certain
circumstances. The Company's subsidiaries may incur significant additional
indebtedness and other liabilities in the future. As of July 31, 1997, after
giving effect to the offering of the Old Notes (the "Offering") and the
application of the estimated net proceeds therefrom, the secured obligations of
the Company and the Guarantors would have consisted of approximately $24.6
million of contingent obligations in respect of outstanding letters of credit
under the Revolving Credit Facility (as defined). As of July 31, 1997, after
giving effect to the Offering and the application of the estimated net proceeds
therefrom, the Guarantors would have had approximately $92.0 million of balance
sheet liabilities (including trade payables, accrued liabilities and
intercompany amounts), none of which would have been indebtedness, and
subsidiaries of the Company which are not guaranteeing the Notes would have had
approximately $168.4 million of balance sheet liabilities (including trade
payables, accrued liabilities and intercompany amounts), of which $5.5 million
would have been indebtedness. Furthermore, the indenture governing the Notes
(the "Indenture") permits the Company's subsidiaries to incur additional
indebtedness, which may be substantial.
The Company will accept for exchange from an Eligible Holder any and all Old
Notes that are validly tendered prior to 5:00 p.m., New York City time, on the
Expiration Date. For purposes of the Exchange Offer, "Eligible Holder" shall
mean the registered owner of any Old Notes that remain Transfer Restricted
Securities, as reflected on the records of IBJ Schroder Bank & Trust Company, as
registrar for the Old Notes (in such capacity, the "Registrar"), or any person
whose Old Notes are held of record by the depositary of the Old Notes. Tenders
of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City
time, on the Expiration Date. For purposes of the Exchange Offer, "Transfer
Restricted Securities" means each Old Note until the earliest to occur of (i)
the date on which such Old Note is exchanged in this Exchange Offer and entitled
to be resold to the public by the holder thereof without complying with the
prospectus delivery provisions of the Securities Act, (ii) the date on which
such Old Note is registered under the Securities Act and is disposed of in a
shelf registration statement, if applicable, or (iii) the date on which such Old
Note has been distributed to the public pursuant to Rule 144 under the
Securities Act or by a broker-dealer pursuant to the plan of distribution
described herein. See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer and will
pay all the expenses incident to the Exchange Offer. If the Company terminates
the Exchange Offer and does not accept for exchange any Old Notes, it will
promptly return the Old Notes to the holders thereof. See "The Exchange Offer."
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company and the Guarantors have agreed that it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale beginning on the date hereof ("Expiration Date") and ending on the close
of business on the first anniversary of the Expiration Date. See "The Exchange
Offer" and "Plan of Distribution." Any broker-dealer that acquired Old Notes
directly from the Company and not as a result of market-making activities or
other trading activities, in the absence of an exemption from the registration
requirements of the Securities Act, must comply with such registration
requirements and the prospectus delivery requirements of the Securities Act in
connection with any secondary resales of New Notes received in exchange for such
Old Notes.
Prior to this Exchange Offer, there has been no public market for the Notes.
To the extent that Old Notes are tendered and accepted in the Exchange Offer, a
holder's ability to sell untendered Old Notes could be adversely affected. If a
market for the New Notes should develop, the New Notes could trade at a discount
from their principal amount. The Company does not currently intend to list the
New Notes on any securities exchange or to seek approval for quotation through
any automated quotation system. There can be no assurance that an active public
market for the New Notes will develop.
The Exchange Agent for the Exchange Offer is IBJ Schroder Bank & Trust
Company.
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY ELIGIBLE HOLDERS IN EVALUATING THE EXCHANGE OFFER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS , 1997.
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AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement (which
term shall include any amendments thereto) on Form S-4 under the Securities Act
with respect to the securities offered by this Prospectus. This Prospectus,
which constitutes a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto, to which reference is hereby made. Each statement made in
this Prospectus referring to a document filed as an exhibit or schedule to the
Registration Statement is qualified in its entirety by reference to the exhibit
or schedule for a complete statement of its terms and conditions, although all
of the material terms of the Company's contracts and agreements that would be
material to an investor have been summarized in this Prospectus. In addition,
upon the effectiveness of the Registration Statement filed with the Commission,
the Company will be subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith the Company will file periodic reports and other information with the
Commission relating to its business, financial statements and other matters. Any
interested parties may inspect and/or copy the Registration Statement, its
schedules and exhibits, and the periodic reports and other information filed in
connection therewith, at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices located at Citicorp Center,
500 W. Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such materials can be
obtained at prescribed rates by addressing written requests for such copies to
the Public Reference Section of the Commission at its principal office at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. The
Commission also maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants. The
Commission's Web site can be accessed on the World Wide Web at
http://www.sec.gov. The obligations of the Company under the Exchange Act to
file periodic reports and other information with the Commission may be
suspended, under certain circumstances, if the New Notes are held of record by
fewer than 300 holders at the beginning of any fiscal year and are not listed on
a national securities exchange. The Company has agreed that, whether or not it
is required to do so by the rules and regulations of the Commission, for so long
as any of the New Notes remain outstanding it will furnish to the holders of the
New Notes, and if required by the Exchange Act, file with the Commission all
annual, quarterly and current reports that the Company is or would be required
to file with the Commission pursuant to Section 13(a) or 15(d) of the Exchange
Act. In addition, for so long as any of the Old Notes remain outstanding, the
Company has agreed to make available to any prospective purchaser of the Old
Notes or beneficial owner of the Old Notes in connection with any sale thereof
the information required by Rule 144A(d)(4) under the Securities Act.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MAY NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION WITH RESPECT TO ANY SECURITY OTHER THAN THE SECURITIES OFFERED
HEREBY OR AN OFFER TO OR SOLICITATION OF ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes to the financial
statements, appearing elsewhere in this Prospectus. References in this
Prospectus to the "Company" and "Metallurg" refer to Metallurg, Inc. and its
subsidiaries, unless the context indicates otherwise. Financial information
contained in this Prospectus for periods and dates after March 31, 1997 reflect
the effects of the Company's Reorganization Plan (as defined herein), including
the implementation of fresh-start reporting, as of March 31, 1997. Accordingly,
the Company's consolidated financial statements for periods and dates prior to
March 31, 1997 are not comparable to subsequent consolidated financial
statements. In addition, as a result of Metallurg, Inc.'s change in its fiscal
year from a calendar year to January 31 (beginning with the fiscal year ending
January 31, 1998 (the "1997 fiscal year")), effective as of April 1, 1997, the
consolidated operating results of the Company for periods which include the
quarter ended July 31, 1997 contained in this Prospectus include the results of
Metallurg, Inc. for the four-month period ended July 31, 1997 and the results of
its operating subsidiaries (whose fiscal years remain the calendar year) for the
three-month period ended June 30, 1997, and the consolidated balance sheet data
of the Company at July 31, 1997 reflects the financial position of Metallurg,
Inc. at July 31, 1997 and of the operating subsidiaries at June 30, 1997. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
THE COMPANY
GENERAL
Metallurg is a leading international producer and seller of high quality
metal alloys and specialty metals used by manufacturers of steel, aluminum,
superalloys and chemicals and other metal consuming industries. The Company
sells more than 500 different products to over 3,000 customers worldwide. In
addition to selling products manufactured by the Company, Metallurg also
distributes products manufactured by third parties ("Merchanted Products")
through its global sales force. For the year ended December 31, 1996, the
Company had $648.8 million in sales, $365.1 million of which were from products
manufactured by the Company and $283.7 million of which were from Merchanted
Products. Giving effect to the Pro Forma Transactions (as defined), for the four
quarters ended July 31, 1997, Metallurg had sales of $639.9 million and EBITDA
(as defined under "Summary Financial Data") of $39.8 million.
The Company sells products principally to customers in the iron and steel
industry, the aluminum industry and the superalloy and titanium industries.
Approximately 51% of the Company's 1996 sales were made to the iron and steel
industry, 15% to the aluminum industry, 11% to the superalloy and titanium alloy
industries, 4% to the chemicals industry, and the remaining 19% were made to
other industries, none of which was individually significant to the Company.
Based on customer location, for the year ended December 31, 1996, approximately
40% of the Company's sales were made in North America, 45% in Europe, 5% in
Asia, 2% in South America and 8% throughout the rest of the world.
Iron and Steel Industry; Specialty Ferroalloys. The Company manufactures
and sells specialty ferroalloys for use in the iron and steel industry.
Metallurg's principal specialty ferroalloy products are ferrovanadium and
standard grades of low carbon ferrochrome. The Company also manufactures and
sells ferrosilicon, ferrotitanium, ferrocolumbium and ferroboron. These products
are used by iron and steel producers to increase temperature and corrosion
resistance and strength-to-weight ratios in the end-use products. Ferroalloys
are found in many end-use products in a wide variety of industries such as the
aerospace, automotive, energy and construction industries. The Company's iron
and steel industry customers include some of the world's largest producers, such
as Algoma Steel Inc., British Steel plc, Nucor Corporation, Sandvik AB, Thyssen
AG and US Steel Group. For the year ended December 31, 1996, the Company had
sales to the iron and steel industry of approximately $328.1 million,
representing 50.6% of the Company's total sales.
3
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Aluminum Industry; Aluminum Master Alloys and Compacted Products. The
Company manufactures a series of grain refining and other alloys for sale to the
primary aluminum industry. Metallurg's principal products in this category
include titanium boron tertiary alloys, strontium master alloys and chrome, iron
and manganese briquettes and tablets. The Company also manufactures binary
master alloys containing boron, zirconium or titanium. Master alloys containing
boron improve the conductivity of aluminum alloys for electric cable, while
master alloys containing strontium modify silicon-containing foundry alloys for
improved mechanical properties, as in automotive wheels. Compacted products in
the form of briquettes containing chrome, iron, manganese or other metals
maximize the efficiency of recovery and enhance rapid solubility when added to
aluminum melt in order to provide ductility for can sheet or strength for
aerospace applications. Titanium binary master alloys and titanium boron
tertiary alloys are widely utilized for the grain refining of cast aluminum
alloy rolling ingots, billets and continuously cast sheet. This grain refinement
improves the castability and the mechanical properties of the aluminum. The
Company sells aluminum master alloys and compacted products worldwide to major
aluminum producers, including Alcan Aluminum Limited, Alcoa Aluminum Co. of
America, Aluminium Pechiney, Reynolds Metals Co. and Sumitomo Metals Industries
Ltd. For the year ended December 31, 1996, the Company had sales to the aluminum
industry of $96.6 million, representing 14.9% of the Company's total sales.
Superalloy and Titanium Alloy Industries; Specialty Metals and Alloys. The
Company manufactures and sells specialty metals and alloys used by producers of
superalloys and titanium alloys to enhance the performance of finished metal
products. Metallurg's principal products in this category include chromium
metal, special grades of low carbon ferrochrome and vanadium aluminum. The
Company also manufactures and sells high purity ferrocolumbium and nickel
columbium. Use of these specialty metals and alloys results in elevated
temperature strength and oxidation resistance. End-uses for specialty metals
include high performance castings and forgings for aircraft engines and frames,
gas turbines and boiler tubes. While the aerospace and defense industries are
the largest consumers of these specialty metals and alloys, many new
applications for these metals and alloys have been developed for use in the
power generation, oil and gas, chemical, consumer goods and biomedical
industries. The Company's customers for specialty metals and alloys include
Allegheny Teledyne, Inc., Carpenter Technology Corp., INCO Alloys, Kanthal AB,
Oregon Metallurgical Corp., RMI Titanium Company, Special Metals Corporation and
Titanium Metals Corp. For the year ended December 31, 1996, the Company had
sales of metals and alloys to these industries of $71.3 million, representing
11.0% of the Company's total sales.
Other Industries and Products. In addition to the product lines described
above, Metallurg manufactures and distributes a number of products used outside
of the steel, aluminum and superalloy industries. These products include coating
materials, which are sold to electronic and tool manufacturers, vanadium
oxytrichloride for use in the synthetic rubber industry and polishing powders
used by the glass polishing industry. These products generally are
higher-margin, technically sophisticated products. For the year ended December
31, 1996, the Company had $152.8 million in sales of these products,
representing 23.5% of the Company's total sales. The most significant customer
industry for products in this category is the chemicals industry, which
accounted for $29.4 million of the Company's 1996 sales in this category,
representing 4.5% of the Company's total sales.
The merchanting of products manufactured by third parties is a natural
complement to the Company's manufacturing operations. Merchanted Products
leverage the Company's global 124 member sales staff by providing a broader
product offering to its existing customers without incurring significant
additional overhead. As a result of offering a broader product line, Metallurg
becomes more important to its customers, as they can more conveniently procure
supplies and decrease their sourcing costs by reducing their number of vendors
and optimizing freight costs. In addition, merchanting activities provide the
Company with greater access to raw materials and to products for resale. The
Company's merchanting revenues are from three sources: "back-to-back" purchases
and sales which eliminate price risk to the Company, purchases of stocks for the
Company's own account for subsequent resale to customers and agency sales for
the account of another party where the Company receives a commission and does
not take title to the inventory. For the year ended December 31, 1996 the
Company received
4
<PAGE> 6
commissions of $1.2 million for acting as agent with regard to third party sales
of $46.3 million. Commission revenues are not included in the sales figures
contained herein.
Metallurg, a Delaware corporation, operates smelting and refining
facilities in the United States, the United Kingdom, Germany and Brazil, mines
chrome ore in Turkey for use in its production facilities, and operates 17
separate sales offices in most of the world's major metals consuming markets.
Metallurg employs approximately 1,500 people worldwide. Metallurg's executive
office is located at 6 East 43rd Street, New York, New York 10017, and its
telephone number is (212) 835-0200.
BUSINESS STRATEGIES
The Company's business objective is to maximize the long-term profitability
of its operations while maintaining a strong financial position through the
various business and market cycles. The Company's continuing strategies for
achieving this objective are as follows:
Focus on Core Businesses. The Company seeks to achieve high market shares
in markets where the Company can differentiate itself on the basis of technical
expertise and production quality. As part of this strategy, the Company is
focusing its production and sales efforts on higher margin specialized alloy
businesses, and is investing in capital projects that will expand its capacity
or lower its costs in those areas. The Company recently completed construction
of a chromium metal plant in the United Kingdom that will increase its
production capacity of chromium metal for use in the steel, aluminum and
superalloy industries. The Company has also expanded its vacuum furnace capacity
at its German facilities, which will enhance its production of vanadium aluminum
and molybdenum aluminum for use by the titanium industry, and has undertaken an
upgrade of its aluminum furnace facilities at its United Kingdom plant. In
recent years, the Company has divested certain non-core and lower margin
businesses, including its tantalum carbide, U.S. titanium scrap processing and
tin and aluminum trading businesses.
Maintain Leading Market Position in Niche Products. The Company believes
that it maintains leading global market shares in special grades of low carbon
ferrochrome consumed by the superalloy industry, chromium metal and aluminum
master alloys. The Company believes that its competitive advantages include
strong relationships with its customers and suppliers and a field sales force
comprised primarily of metallurgists who are knowledgeable about the products
and their many applications. In addition, the Company's access to high quality
and continuing supplies of chrome ore through its ownership of mines in Turkey
gives the Company a significant competitive advantage over other low carbon
ferrochrome producers.
Improve Financial Flexibility. With the Offering, the Company has improved
its financial position by increasing liquidity and extending the maturities and
the amortization schedule of its debt. Metallurg and Shieldalloy also have
recently increased the maximum amount of their Revolving Credit Facility (as
defined) from $40.0 million to $50.0 million. Management believes that the
Company's capital structure
following the Offering and the increase in availability of funds under the
Revolving Credit Facility will improve the Company's ability to withstand future
cyclical downturns in the steel, aluminum and superalloy industries. See "Risk
Factors -- Dependence on Cyclical Markets." At July 31, 1997, after giving
effect to the Offering and the application of the estimated net proceeds
therefrom, the Company would have had approximately $44.7 million of cash and
cash equivalents on hand. After giving effect to the Offering and the
application of the estimated net proceeds therefrom, Metallurg expects to have
available borrowing capacity under the Revolving Credit Facility of
approximately $25.0 million. See "Description of Credit Facilities and Other
Financing Arrangements." In addition, in order to increase dividends from its
foreign subsidiaries, the Company (i) has taken steps to enable its German
operating subsidiaries to make dividend payments by late 1998, and (ii) has
obtained consent from its working capital lender at its United Kingdom operating
subsidiaries to permit increased dividends to the Company of up to 100% of such
subsidiaries' annual net income, contingent upon repayment of the LSM Term Loan
Facility (as defined). The Company has repaid the LSM Term Loan Facility with
proceeds from the Offering. See "Risk Factors -- Holding Company Structure;
Restrictions on Dividend Payments by Subsidiaries."
5
<PAGE> 7
Aggressively Manage Costs. In recent years, Metallurg has instituted
measures to reduce operating costs and enhance profitability. Through a
combination of divesting non-core businesses, using contractors and improving
productivity, the Company has reduced headcount from 2,508 at the end of 1992 to
1,523 as of June 30, 1997, while sales have grown from $591.1 million in 1992 to
$639.9 million for the four quarters ended July 31, 1997. The Company has
established representation offices in Russia and China which have enabled the
Company to develop new sources of product supply for the Company's manufacturing
and distribution businesses, as it seeks to have as many low cost providers of
raw materials as possible. The Company has achieved certain savings through this
process, particularly in procuring chromium-, titanium- and vanadium-containing
materials. In addition, the Company has restructured its operations into
individual business units focused on particular customer groups in order to
better manage costs and improve profitability.
The Company expects to spend approximately $10.4 million of its $24.5
million of 1998 budgeted capital expenditures on capital projects which the
Company believes will improve production efficiencies, lower manufacturing costs
and expand production capacities. The remaining capital expenditures planned for
1998 are primarily for replacement and major repairs of existing facilities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Capital Expenditures."
Improve Product Mix. The Company continually pursues opportunities to
maximize sales through the Company's existing distribution network by improving
its product mix. The Company realizes improvements in its product mix by (i)
divesting low margin products, (ii) developing value added products such as
titanium carbide, which the Company sells to the forging industry, and vanadium
tetrachloride, which the Company sells to the synthetic rubber industry, and
(iii) acquiring, or entering into merchanting arrangements for, product lines
which complement the Company's core product offerings.
EMERGENCE FROM CHAPTER 11
In April 1997, Metallurg and Shieldalloy consummated their Joint Plan of
Reorganization dated December 18, 1996, pursuant to Chapter 11 of the United
States Bankruptcy Code (the "Reorganization Plan"). Metallurg and Shieldalloy
sought Chapter 11 protection in September 1993 following the Company's inability
to restructure or refinance its long-term indebtedness and revolving credit
facility in light of a confluence of negative economic factors which caused the
Company to default on certain of its then outstanding indebtedness. The Company
was particularly affected by (i) "dumping" by exporters from the former Soviet
Union of excess stocks of metals and alloys, which drove prices of ferroalloys
in Europe and the United States to very low levels and (ii) the general economic
recession that began in 1989 in the end-use markets of the Company's customers.
As part of the Reorganization Plan, Shieldalloy entered into settlement
agreements with various environmental regulatory authorities relating to all of
Shieldalloy's significant known environmental liabilities. Pursuant to these
agreements, Shieldalloy has agreed to perform environmental remediation which,
as of July 31, 1997, had an estimated cost of completion of $44.5 million.
Shieldalloy expects to expend $2.5 million in the second half of 1997, $4.5
million in 1998, $4.3 million in 1999 and $8.1 million in 2000. See "Risk
Factors -- Environmental Regulation" and "Business -- Environmental Matters."
The Company has sought to stabilize and strengthen its business since the
bankruptcy filing through the implementation of the business strategies
described above. As a result of the consummation of the Offering and other
financial arrangements made by the Company, the Company believes that its
financial position has improved from 1993 with enhanced liquidity and extended
maturities of its debt. In addition, the Company believes that the flow of
competitive products from the former Soviet Union has slowed due to reduced
stockpiles of inventory and temporary anti-dumping duties imposed in the United
States on ferrovanadium from Russia and duties imposed in Europe on low carbon
ferrochrome from several former Soviet states. See "Risk Factors -- End of
Anti-dumping Duties." These factors, as well as increased steel and aluminum
consumption, particularly in the aerospace industry and automotive and durable
6
<PAGE> 8
goods sectors, have contributed to the strength of the steel, aluminum and
superalloy markets since 1993.
ISSUANCE OF THE OLD NOTES
The outstanding $100.0 million principal amount of 11% Series A Senior
Notes due 2007 (the "Old Notes") were sold by the Company to Salomon Brothers
Inc and BancBoston Securities Inc. (the "Initial Purchasers") on November 25,
1997 (the "Closing Date") pursuant to a Purchase Agreement, dated as of November
20, 1997 (the "Purchase Agreement"), between the Company and the Initial
Purchasers. The Initial Purchasers subsequently resold the Old Notes in reliance
on Rule 144A under the Securities Act and other available exemptions under the
Securities Act on or about November 25, 1997. The Company and the Initial
Purchasers also entered into the Registration Agreement pursuant to which the
Company granted certain registration rights for the benefit of the holders of
the Old Notes. The Exchange Offer is intended to satisfy certain of the
Company's obligations under the Registration Agreement with respect to the Old
Notes. See "The Exchange Offer -- Purpose and Effects."
The Old Notes were issued under an indenture, dated as of November 25, 1997
(the "Indenture"), between the Company, the Guarantors and IBJ Schroder Bank and
Trust Company as trustee (in such capacity, the "Trustee"). The New Notes are
also being issued under the Indenture and are entitled to the benefits of the
Indenture. The Old Notes were, and the New Notes will be, fully and
unconditionally guaranteed on a general unsecured basis by the Guarantors. The
form and terms of the New Notes will be identical in all material respects to
the form and terms of the Old Notes except that (i) the New Notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof, and (ii) holders of New Notes will not be, and
upon the consummation of the Exchange Offer, Eligible Holders of Old Notes will
no longer be, entitled to certain rights under the Registration Agreement
intended for the holders of unregistered securities. The Exchange Offer shall be
deemed consummated upon the delivery by the Company to the Exchange Agent under
the Indenture of New Notes in the same aggregate principal amount as the
aggregate principal amount of Old Notes that are validly tendered by holders
thereof pursuant to the Exchange Offer. See "The Exchange Offer -- Termination
of Certain Rights" and "-- Procedures for Tendering" and "Description of New
Notes -- General."
The proceeds received by the Company from the issuance of the Old Notes
were used to fund an overall recapitalization of the Company (the
"Recapitalization"), pursuant to which the Company (i) retired its 12% Senior
Notes due 2007 (the "12% Senior Notes"), (ii) repaid the outstanding balance on
the German Subfacility (as defined in "Description of Credit Facilities and
Other Financing Arrangements") (but did not reduce the commitment thereunder),
(iii) retired the LSM Term Loan Facility (as defined in "Description of Credit
Facilities and Other Financing Arrangements") and (iv) paid a cash dividend and
dividend equivalent (the "Dividend") to the holders of the Company's common
stock, $.01 par value ("Common Stock") and stock options of approximately $20.0
million in the aggregate. The balance of the net proceeds will be used for
general corporate purposes. There will be no proceeds to the Company from any
exchange pursuant to the Exchange Offer.
7
<PAGE> 9
THE EXCHANGE OFFER
The Exchange Offer............ The Company is offering, upon the terms and
subject to the conditions set forth herein and
in the accompanying letter of transmittal (the
"Letter of Transmittal"), to exchange its 11%
Series B Senior Notes due 2007 (the "New
Notes," and, with the Old Notes, the "Notes")
for an identical face amount of the outstanding
Old Notes (the "Exchange Offer"). As of the
date of this Prospectus, $100.0 million in
aggregate principal amount of the Old Notes is
outstanding, the maximum amount authorized by
the Indenture for all Notes. As of
, 1997, there were registered
holders of the Old Notes, which held $100.0
million of aggregate principal amount of the
Old Notes. See "The Exchange Offer -- Terms of
the Exchange Offer."
Expiration Date............... 5:00 p.m., New York City time, on ,
1998, as the same may be extended. See "The
Exchange Offer -- Expiration Date; Extension;
Termination; Amendments."
Conditions of the Exchange
Offer......................... The Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being
tendered for exchange. However, the Exchange
Offer is subject to certain customary
conditions, which may be waived by the Company.
See "The Exchange Offer -- Conditions of the
Exchange Offer."
Accrued Interest on the Old
Notes......................... The New Notes will bear interest at a rate
equal to 11% per annum from and including their
date of issuance. Eligible Holders whose Old
Notes are accepted for exchange will have the
right to receive interest accrued thereon from
the date of original issuance of the Old Notes
or the last Interest Payment Date, as
applicable, to, but not including, the date of
issuance of the New Notes, such interest to be
payable with the first interest payment on the
New Notes. Interest on the Old Notes accepted
for exchange, which accrues at the rate of 11%
per annum, will cease to accrue on the day
prior to the issuance of the New Notes. The
interest rate on the Old Notes may increase
under certain circumstances if the Company is
not in compliance with its obligations under
the Registration Agreement. See "Description of
New Notes -- General."
Procedures for Tendering Old
Notes....................... Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof,
in accordance with the instructions contained
herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile, together with the Old Notes and any
other required documentation to the exchange
agent (as defined herein) at the address set
forth herein. Old Notes may be physically
delivered, but physical delivery is not
required if a confirmation of a book-entry of
such Old Notes to the Exchange Agent's account
at The Depository Trust Company ("DTC") is
delivered in a timely fashion. By executing the
Letter of Transmittal, each holder will
represent to the Company that, among other
things, the New Notes acquired pursuant to the
Exchange Offer are being obtained in the
ordinary course of
8
<PAGE> 10
business of the person receiving such New
Notes, whether or not such person is the
holder, that neither the holder nor any such
other person is engaged in, or intends to
engage in, or has an arrangement or
understanding with any person to participate
in, the distribution of such New Notes and that
neither the holder nor any such other person is
an "affiliate," as defined under Rule 405 of
the Securities Act, of the Company. Each broker
or dealer that receives New Notes for its own
account in exchange for Old Notes, where such
Old Notes were acquired by such broker or
dealer as a result of market-making activities
or other trading activities, must acknowledge
that it will deliver a prospectus in connection
with any resale of such New Notes. See "The
Exchange Offer -- Procedures for Tendering" and
"Plan of Distribution."
Guaranteed Delivery
Procedures.................... Eligible Holders of Old Notes who wish to
tender their Old Notes and (i) whose Old Notes
are not immediately available or (ii) who
cannot deliver their Old Notes or any other
documents required by the Letter of Transmittal
to the Exchange Agent prior to the Expiration
Date (or complete the procedure for book-entry
transfer on a timely basis), may tender their
Old Notes according to the guaranteed delivery
procedures set forth in the Letter of
Transmittal. See "The Exchange
Offer -- Guaranteed Delivery Procedures."
Acceptance of Old Notes and
Delivery of New Notes....... Upon satisfaction or waiver of all conditions
of the Exchange Offer, the Company will accept
any and all Old Notes that are properly
tendered in the Exchange Offer prior to 5:00
p.m., New York City time, on the Expiration
Date. The New Notes issued pursuant to the
Exchange Offer will be delivered promptly after
acceptance of the Old Notes. See "The Exchange
Offer -- Procedures for Tendering."
Withdrawal Rights............. Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on
the Expiration Date. See "The Exchange
Offer -- Withdrawal of Tenders."
The Exchange Agent............ IBJ Schroder Bank & Trust Company is the
exchange agent (in such capacity, the "Exchange
Agent"). The address and telephone number of
the Exchange Agent are set forth in "The
Exchange Offer -- Exchange Agent."
Fees and Expenses............. All expenses incident to the Company's
consummation of the Exchange Offer and
compliance with the Registration Agreement will
be borne by the Company. The Company will also
pay certain transfer taxes applicable to the
Exchange Offer. See "The Exchange Offer -- Fees
and Expenses."
Resales of the New Notes...... Based on interpretations by the staff of the
Commission set forth in no-action letters
issued to third parties, the Company believes
that New Notes issued pursuant to the Exchange
Offer to an Eligible Holder in exchange for Old
Notes may be offered for resale, resold and
otherwise transferred by such Eligible Holder
(other than (i) a broker-dealer who purchased
the Old Notes directly from the Company for
resale pursuant to
9
<PAGE> 11
Rule 144A under the Securities Act or any other
available exemption under the Securities Act or
(ii) a person that is an affiliate of the
Company within the meaning of Rule 405 under
the Securities Act), without compliance with
the registration and prospectus delivery
provisions of the Securities Act, provided that
the Eligible Holder is acquiring the New Notes
in the ordinary course of business and is not
participating, and has no arrangement or
understanding with any person to participate,
in a distribution of the New Notes. Each
broker-dealer that receives New Notes for its
own account in exchange for Old Notes, where
such Old Notes were acquired by such broker as
a result of market-making or other trading
activities, must acknowledge that it will
deliver a prospectus in connection with any
resale of such New Notes. See "The Exchange
Offer -- Purpose and Effects" and "Plan of
Distribution."
DESCRIPTION OF NEW NOTES
The Exchange Offer applies to $100.0 million aggregate principal amount of
Old Notes. The terms of the New Notes are identical in all material respects to
the Old Notes, except for certain transfer restrictions and other rights
relating to the exchange of the Old Notes for New Notes. The New Notes will
evidence the same debt as the Old Notes and will be entitled to the benefits of
the Indenture under which both the Old Notes were, and the New Notes will be,
issued. See "Description of New Notes."
Notes Offered................. $100,000,000 aggregate principal amount of 11%
Series B Senior Notes due 2007 (the "Notes").
Maturity Date................. December 1, 2007.
Interest Payment Dates........ June 1 and December 1 of each year, commencing
June 1, 1998.
Optional Redemption........... The New Notes will be redeemable at the option
of the Company in whole or in part, in cash, at
any time on or after December 1, 2002, at the
redemption prices set forth herein, together
with accrued and unpaid interest, if any, to
the date of redemption. In addition, at the
option of the Company, up to 34% of the New
Notes may be redeemed prior to December 1, 2000
at the redemption price set forth herein with
the net proceeds of one or more Public Equity
Offerings of the Company following which there
is a Public Market; provided that at least 66%
of the aggregate principal amount of the New
Notes remain outstanding following such
redemption. See "Description of the New
Notes -- Optional Redemption."
Sinking Fund.................. None.
Change of Control............. Upon the occurrence of a Change of Control each
holder of the New Notes will have the right to
require the Company to purchase all or a
portion of such holder's New Notes at a cash
purchase price equal to 101% of the principal
amount thereof plus accrued and unpaid
interest, if any, thereon to the date of
purchase. See "Description of the New
Notes -- Repurchase at the Option of Holders
Upon a Change of Control."
10
<PAGE> 12
Guaranties.................... The New Notes are fully and unconditionally
guaranteed by Shieldalloy, Metallurg Holdings
Corporation, Metallurg Services, Inc. and MIR
(China), Inc. on a senior unsecured basis. See
"Description of the New Notes -- Guaranties."
Ranking....................... The New Notes will be general unsecured
obligations of the Company. The New Notes will
be effectively subordinated in right of payment
to all existing and future secured indebtedness
of the Company to the extent of the value of
the assets securing such indebtedness. The New
Notes will rank pari passu with all senior
indebtedness of the Company and senior to all
subordinated indebtedness of the Company. The
Guaranties will effectively rank subordinate in
right of payment to all secured indebtedness of
the Guarantors to the extent of the value of
the assets securing such indebtedness. The
Guaranties will rank pari passu with all senior
indebtedness of the Guarantors and senior to
all subordinated indebtedness of the
Guarantors. The New Notes will be effectively
subordinated in right of payment to all
existing and future liabilities of the
Company's subsidiaries which are not
guaranteeing the Notes. The Guaranties could
also be effectively subordinated to all the
obligations of the Guarantors under certain
circumstances. As of July 31, 1997, after
giving effect to the Offering and the
application of the estimated net proceeds
therefrom, the secured obligations of the
Company and the Guarantors would have consisted
of approximately $24.6 million of contingent
obligations in respect to outstanding letters
of credit under the Revolving Credit Facility.
As of July 31, 1997, after giving effect to the
Offering and the application of the estimated
net proceeds therefrom, the Guarantors would
have had approximately $92.0 million of balance
sheet liabilities (including trade payables,
accrued liabilities and intercompany amounts),
none of which would have been indebtedness, and
subsidiaries of the Company which are not
guaranteeing the Notes would have had
approximately $168.4 million of balance sheet
liabilities (including trade payables, accrued
liabilities and intercompany amounts), of which
$5.5 million would have been indebtedness. See
"Risk Factors -- Asset Encumbrance,"
"-- Holding Company Structure; Restrictions on
Dividend Payments by Subsidiaries,"
"-- Fraudulent Conveyance Considerations," and
"Description of the New Notes -- Ranking."
Certain Covenants............. The Indenture will contain limitations on,
among other things, the ability of the Company
and the Restricted Subsidiaries (as defined)
to: (i) incur indebtedness; (ii) make
restricted payments; (iii) enter into certain
transactions with affiliates; (iv) dispose of
assets; (v) create liens; (vi) enter into sale
and leaseback transactions; (vii) restrict
dividends and other payments from subsidiaries;
(viii) issue capital stock of subsidiaries; and
(ix) enter into certain mergers, consolidations
or asset sales. All of such covenants are
subject to significant exceptions. See
"Description of the New Notes -- Certain
Covenants."
11
<PAGE> 13
Use of Proceeds............... There will be no proceeds to the Company from
any exchange pursuant to the Exchange Offer.
The net proceeds to the Company from the sale
of the Old Notes were used to fund the
Recapitalization, including payment of a $20.0
million dividend, and for general corporate
purposes.
Absence of Public Market...... The New Notes and the Guaranties will be new
securities for for the New Notes which there is
currently no established trading market.
Although the Initial Purchasers have informed
the Company that they currently intend to make
a market in the Notes, they are not obligated
to do so and they may discontinue market-making
activity at any time without notice. In
addition, such marketmaking activities may be
limited during the Exchange Offer or the
pendency of the Shelf Registration Statement,
if it is filed. Accordingly, no assurance can
be given that an active trading market for the
New Notes will develop or, if such a market
develops, as to the liquidity of such market.
Following the Exchange Offer, the Company does
not intend to list the New Notes on any
securities exchange or to arrange for the New
Notes to be quoted on the Nasdaq National
Market or other quotation system.
RISK FACTORS
See "Risk Factors" beginning on page 15 for a discussion of certain factors
which should be considered by Eligible Holders in evaluating the Exchange Offer.
12
<PAGE> 14
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following table presents summary historical financial data of the
Company for each of the fiscal years in the three-year period ended December 31,
1996 and the quarters ended March 31 and July 31, 1997 and pro forma financial
data for the year ended December 31, 1996 and the quarters ended March 31, 1997
and July 31, 1997. The historical year end and March 31, 1997 information is
derived from the consolidated financial statements of the Company, which have
been audited by Deloitte & Touche LLP, independent public accountants. The data
for the quarter ended July 31, 1997 are unaudited and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the results of operations for
such periods. The unaudited pro forma data were prepared to illustrate the
estimated effects of (i) the adoption of fresh-start reporting following the
consummation of the Reorganization Plan and (ii) the Recapitalization (as
defined) as if such transactions had occurred, in the case of the statement of
operations data and other data, as of January 1, 1996 (except that the pro forma
statement of operations data for the quarter ended July 31, 1997 illustrates the
estimated effects of the Recapitalization only), and in the case of balance
sheet data, as of the date of the balance sheet data presented. The pro forma
data do not purport to be indicative of the results of operations or financial
position of the Company that actually would have been obtained if such
transactions had been completed as of such dates or to project the results of
operations or financial position of the Company for any future date or period.
Historical financial information contained in this Prospectus for periods and
dates after March 31, 1997 reflect the effects of the Reorganization Plan,
including the implementation of fresh-start reporting, as of March 31, 1997.
Accordingly, the Company's consolidated financial statements for periods and
dates prior to March 31, 1997 are not comparable to subsequent consolidated
financial statements. The information should be read in conjunction with "Pro
Forma Financial Information," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
of the Company, and related notes thereto, included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PRE-CONFIRMATION POST-CONFIRMATION
------------------------------------------------------------------------- --------------------
PRO FORMA PRO FORMA
PRO FORMA QUARTER QUARTER QUARTER QUARTER
YEARS ENDED DECEMBER 31, YEAR ENDED ENDED ENDED ENDED ENDED
---------------------------------- DECEMBER 31, MARCH 31, MARCH 31, JULY 31, JULY 31,
1994 1995 1996 1996 1997 1997 1997 1997
-------- -------- -------- ------------ --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales...................... $553,479 $688,002 $648,816 $648,816 $155,427 $155,427 $166,718 $166,718
Commission income.......... 838 1,362 1,186 1,186 160 160 161 161
Total revenue.............. 554,317 689,364 650,002 650,002 155,587 155,587 166,879 166,879
Gross margin............... 58,099 85,829 83,464 83,662 21,527 21,889 24,744 24,744
Operating income (loss).... 2,712 15,705 (11,221) 24,294 6,481 7,348 10,317 10,317
Earnings (loss) before
reorganization items,
interest, taxes and
extraordinary items....... 10,189 15,712 (17,980) 27,720 9,660 7,674 10,241 10,241
Reorganization items,
net....................... 7,118 3,927 3,535 -- (2,444) -- -- --
Earnings (loss) before
interest, taxes and
extraordinary items....... 3,071 11,785 (21,515) 27,720 12,104 7,674 10,241 10,241
Interest expense (income),
net ...................... 2,555 1,949 (1,473) 10,674 245 2,696 1,479 3,133
Income taxes (benefit)..... 2,507 8,171 8,453 8,260 (3,063) (1,193) 5,111 4,711
Earnings (loss) before
extraordinary item........ (1,991) 1,665 (28,495) 8,786 14,922 6,171 3,651 2,397
Net income (loss).......... (1,991) 1,665 (28,495) 8,786 57,954 6,171 3,651 2,397
Earnings per share(a)...... $(0.40) $0.34 $(5.75) $1.77 $11.69 $1.25 $0.74 $0.48
</TABLE>
- ---------------
(a) The computation of earnings per share for all periods presented prior to
April 1, 1997 is based on 4,956,406 common shares and common stock
equivalents which were outstanding as of the Effective Date.
13
<PAGE> 15
<TABLE>
<CAPTION>
POST-CONFIRMATION
PRE-CONFIRMATION --------------------------------------------
------------------------------------------------- PRO FORMA PRO FORMA
PRO FORMA QUARTER QUARTER QUARTER QUARTER
YEARS ENDED DECEMBER 31, YEAR ENDED ENDED ENDED ENDED ENDED
---------------------------------- DECEMBER 31, MARCH 31, MARCH 31, JULY 31, JULY 31,
1994 1995 1996 1996 1997 1997 1997 1997
-------- -------- -------- ------------ --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT
PERIOD END):
Cash and cash
equivalents............... $ 28,158 $ 36,828 $ 63,274 $ 30,340 $ 29,163 $ 44,675
Trade receivables.......... 93,733 101,237 88,595 94,150 85,277 85,277
Inventories................ 116,016 129,049 106,363 109,258 117,002 117,002
Total assets............... 326,981 342,610 331,626 305,704 299,816 319,328
Total debt................. 37,719 37,625 19,869 66,488 64,304 105,478
Pension liabilities........ 43,921 47,409 43,926 41,090 39,623 39,623
Environmental
liabilities............... 17,762 12,780 44,011 48,135 47,504 47,504
Liabilities subject to
compromise................ 162,042 169,519 179,897
Total shareholders' equity
(deficit)................. (18,561) (17,952) (42,179) 50,000 56,381 35,114
</TABLE>
<TABLE>
<CAPTION>
PRE-CONFIRMATION POST-CONFIRMATION
-------------------------------------------------------------------- --------------------
PRO FORMA PRO FORMA
PRO FORMA QUARTER QUARTER QUARTER QUARTER
YEARS ENDED DECEMBER 31, YEAR ENDED ENDED ENDED ENDED ENDED
----------------------------- DECEMBER 31, MARCH 31, MARCH 31, JULY 31, JULY 31,
1994 1995 1996 1996 1997 1997 1997 1997
------- ------- ------- ------------ --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(a)..................... $25,715 $47,149 $38,928 $ 37,150 $10,498 $ 9,880 $13,644 $13,701
Environmental remediation
expenditures(b).............. 814 2,769 2,282 2,282 1,729 1,729 393 393
Capital expenditures.......... 7,566 6,712 9,531 9,531 2,774 2,774 3,309 3,309
Gross margin as percentage of
sales........................ 10.5% 12.5% 12.9% 12.9% 13.9% 14.1 % 14.8 % 14.8%
EBITDA as percentage of
sales........................ 4.6% 6.9% 6.0% 5.7% 6.8% 6.4 % 8.2 % 8.2%
Ratio of earnings to fixed
charges(c)................... NM 1.0x NM 2.9x 3.4x 3.3 x 4.4 x 3.5x
Ratio of EBITDA to interest
expense...................... 2.8x 2.9x(d)
Ratio of total debt to
EBITDA....................... 2.9x 2.7x(d)
Cash flow from operating
activities................... (589) 5,658 47,665 6,416 2,510
Cash flow from investing
activities................... (3,700) (3,945) (5,019) 2,167 (2,071)
Cash flow from financing and
reorganization activities.... 3,673 6,182 (16,117) (40,991) (1,691)
</TABLE>
- ---------------
(a) For purposes of this Prospectus, "EBITDA" is defined as income (loss) before
(i) income taxes; (ii) interest expense; (iii) extraordinary gain; (iv)
depreciation; (v) amortization; (vi) non-cash stock compensation; (vii) loss
(gain) on sale of fixed assets; (viii) restructuring expenses; (ix)
reorganization items; (x) non-cash fresh-start adjustments; and (xi)
non-cash environmental provisions. EBITDA should not be considered an
alternative to operating income determined in accordance with GAAP as an
indicator of operating performance or to cash flows from operating
activities determined in accordance with GAAP as a measure of liquidity.
EBITDA has not been reduced to reflect environmental remediation
expenditures. This definition of EBITDA differs from the definition of
EBITDA used in the indenture governing the Notes. The Company's use of
EBITDA may not be comparable to similarly titled measures due to the use by
other companies of different financial statement components in calculating
EBITDA. See "Description of the Notes."
(b) Environmental remediation expenditures represent the costs associated with
certain remedial activities and do not include expenditures associated with
environmental compliance related to ongoing operations. Such remediation
expenditures are charged to previously established accruals and are
therefore excluded from the calculation of EBITDA.
(c) The ratio of earnings to fixed charges is computed by dividing pretax income
from operations before fixed charges (other than capitalized interest) by
fixed charges. Fixed charges consist of interest charges (including
contractual interest stayed pursuant to the Chapter 11 proceedings) and that
portion of rental expense Metallurg believes to be representative of
interest. For the years ended December 31, 1994 and 1996, earnings were
insufficient to cover fixed charges by $7.8 million and $28.6 million,
respectively.
(d) Ratios are calculated based on pro forma EBITDA of $39.8 million and
interest expense of $13.6 million for the last four quarters ended July 31,
1997. Because of the Company's change in fiscal year, EBITDA and interest
expense include 13 months of operating results of Metallurg, Inc. If the
change in fiscal year had not been made, EBITDA and interest expense would
have been $40.1 million and $12.7 million, respectively, for the 12 month
period ended June 30, 1997.
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FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). All statements other than statements
of historical facts included in this Prospectus, including, without limitation,
statements under "Summary," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business"
regarding budgeted capital expenditures, the Company's financial position,
chrome ore reserve estimates, estimated environmental expenditures, business
strategy and other plans and objectives for future operations, are
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct, particularly
given the cyclical nature of the Company's businesses and the inherent
uncertainty in estimating future expenditures for environmental remediation.
There are numerous uncertainties inherent in estimating quantities of proved
chrome ore reserves and in projecting future rates of production and timing of
development expenditures, including many factors beyond the control of the
Company, such as general economic, business and market conditions, changes in
product demand, changes in competition and interest rate fluctuations.
Additional important factors that could cause actual results to differ
materially from the Company's expectations are disclosed under "Risk Factors"
and elsewhere in this Prospectus. Should one or more of these risks or
uncertainties occur, the Company's actual results and plans for 1997 and beyond
could differ materially from those expressed in forward-looking statements. All
subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by such factors.
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating an investment in
the Notes.
SUBSTANTIAL LEVERAGE
As of July 31, 1997, after giving effect to the Recapitalization, the
Company would have had $104.0 million of long-term indebtedness outstanding,
representing approximately 74.8% of its total capitalization. See
"Capitalization." The significant indebtedness to be incurred as a result of the
Offering will have several important consequences to the holders of the New
Notes, including, but not limited to, the following: (i) a substantial portion
of the Company's and its subsidiaries' cash flow from operations must be
dedicated to servicing their indebtedness; (ii) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
development of new products, acquisitions or other purposes may be impaired;
(iii) the Company's flexibility to expand, make capital expenditures and respond
to changes in industry and general economic conditions may be limited; (iv) the
Revolving Credit Facility and credit facilities of the Company's subsidiaries
contain and the Indenture will contain numerous financial and other restrictive
covenants, including, among other things, limitations on the ability of the
Company and its subsidiaries to incur additional indebtedness, to create liens
and other encumbrances, to make certain payments and investments, to sell or
otherwise dispose of assets, or to merge or consolidate with another entity; and
(v) indebtedness under the Revolving Credit Facility and credit facilities of
the Company's subsidiaries are at variable rates of interest, which will cause
the Company and its subsidiaries to be vulnerable to increases in interest
rates. See "Description of Credit Facilities and Other Financing Arrangements,"
"Description of the New Notes" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The Company also has substantial
environmental and pension liabilities, which could further restrict its
financial flexibility. See "Consolidated Balance Sheets at March 31, 1997 and
December 31, 1996 and 1995" and Notes 8 and 13 thereto.
The ability of the Company to satisfy its debt service obligations,
including the obligations under the New Notes, will depend upon the Company's
future performance which, in turn, will be subject to
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management, financial, business, regulatory and other factors affecting the
business and operations of the Company, many of which are beyond its control. If
the Company is unable to generate sufficient cash flow to meet its debt
obligations, the Company will have to adopt one or more alternatives, such as
restructuring its debt, reducing or delaying capital expenditures, selling
assets or obtaining additional equity or debt financing. There can be no
assurance that any of these actions could be effected on a timely basis or on
satisfactory terms, if at all, or that these actions would enable the Company to
continue to satisfy its capital requirements. The terms of the Company's
indebtedness, including the Revolving Credit Facility and the Indenture, also
may prohibit the Company from taking such actions. If the Company is unable to
satisfy its obligations related to its indebtedness, substantially all of its
long-term debt could be declared immediately due and payable.
RECENT BANKRUPTCY
Metallurg and Shieldalloy sought protection under Chapter 11 of the United
States Bankruptcy Code in September 1993 following the Company's inability to
restructure or refinance its long-term indebtedness and revolving credit
facility in light of the confluence of several negative economic factors which
caused the Company to default on certain then-outstanding indebtedness. The
Company was particularly affected by recessionary conditions in the end-markets
for its products and "dumping" by certain foreign competitors. There can be no
assurance that such economic factors will not recur in the future. See
"-- Dependence on Cyclical Markets" and "-- End of Anti-dumping Duties."
The Company consummated its Reorganization Plan in April 1997. While in
Chapter 11 proceedings, the Company substantially reduced its debt, restructured
significant obligations, restructured its operations and made certain management
changes, reduced expenses and entered into settlement agreements with various
environmental regulatory authorities. Certain of these activities, particularly
reducing debt and restructuring obligations, could only have been accomplished
in the context of Chapter 11 and should not be viewed as indicative of the
Company's performance in the future.
ASSET ENCUMBRANCE
Although the New Notes and the Guaranties will be senior obligations
ranking pari passu in right of payment with all other existing and future senior
obligations of the Company and the Guarantors, respectively, the New Notes and
the Guaranties will not be secured by any of the Company's or any Guarantor's
assets. The Revolving Credit Facility is secured by virtually all of the assets
of Metallurg, Shieldalloy and the other Guarantors, including liens on their
inventory, accounts receivable, machinery and stock of all subsidiaries.
Accordingly, the New Notes and the Guaranties will be effectively subordinated
to any indebtedness under the Revolving Credit Facility to the extent of the
value of the assets securing the Revolving Credit Facility. If an event of
default occurs under the Revolving Credit Facility, the lenders under the
Revolving Credit Facility will have a prior right to substantially all of the
assets of the Company and the Guarantors, and may foreclose upon such assets to
the exclusion of the holders of the New Notes, notwithstanding the existence of
an event of default under the Indenture. In such event, the assets of the
Company and the Guarantors securing the Revolving Credit Facility would first be
used to repay in full amounts outstanding under the Revolving Credit Facility,
resulting in all or a portion of such assets being unavailable to satisfy the
claims of holders of the New Notes and other unsecured indebtedness. See
"Description of the New Notes -- Ranking."
HOLDING COMPANY STRUCTURE; RESTRICTIONS ON DIVIDEND PAYMENTS BY SUBSIDIARIES
Metallurg is a holding company with limited operations of its own.
Substantially all of the Company's operating income is generated by its
subsidiaries. As a result, the Company will rely upon distributions or advances
from its subsidiaries to provide the funds necessary to meet its debt service
obligations, including the payment of principal and interest on the New Notes.
The holders of the New Notes will have no direct claim against such subsidiaries
other than the claim created by the Guaranties, which may be subject to legal
challenge. See "-- Fraudulent Conveyance Considerations." If the Guaranties were
to be held to be invalid, claims of the holders of the New Notes would also be
effectively subordinated to claims
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of the creditors of the Guarantors. As of July 31, 1997, after giving effect to
the Offering and the application of the estimated net proceeds therefrom, the
Guarantors would have had approximately $92.0 million of balance sheet
liabilities (including trade payables, accrued liabilities and intercompany
amounts), none of which would have been indebtedness. In addition, the claims of
holders of the New Notes will be effectively subordinated to the claims of
creditors of subsidiaries of the Company which do not guarantee the Notes. The
Company's subsidiaries which are not guaranteeing the Notes generate a majority
of the Company's revenues and EBITDA. As of July 31, 1997, the Company's
subsidiaries which are not guaranteeing the Notes would have had approximately
$168.4 million of balance sheet liabilities (including trade payables, accrued
liabilities and intercompany amounts), of which $5.5 million would have been
indebtedness. These subsidiaries may also have other liabilities, including
contingent liabilities, which could be substantial. Under the Indenture, the
Company's subsidiaries are permitted to incur additional indebtedness, which may
be substantial.
In some cases, local law applicable to the Company's subsidiaries restricts
the ability of companies to pay dividends. The Company's German subsidiaries,
Elektrowerk Weisweiler GmbH ("EWW"), in which the Company owns a 98.0% interest,
and GfE Gesellschaft fur Elektrometallurgie mbH ("GfE"), in which the Company
owns a 99.2% interest, are currently prohibited from paying dividends under
German law because their stated capital as reported in the commercial register
is higher than their actual capital as reported under German accounting
principles. The Company has made certain filings to reduce the stated capital of
its German operating subsidiaries which should enable such German operating
subsidiaries to make dividend payments by late 1998. However, there can be no
assurance that the Company's subsidiaries will be permitted or able to pay to
the Company dividends necessary to service its indebtedness, including the New
Notes. See "Description of Credit Facilities and Other Financing Arrangements."
In addition, the Company's Turkish subsidiary is limited in its ability to pay
dividends from retained earnings, as a result of historical currency
devaluation. The Company's South African subsidiary must obtain central bank
approval prior to paying dividends.
In addition, working capital facilities and other financing arrangements at
the Company's subsidiaries restrict such subsidiaries' ability to pay dividends.
For example, EWW must obtain the consent of a German governmental authority,
which guarantees a portion of EWW's $8.6 million working capital facility, in
order to pay dividends to Metallurg. EWW's ability to pay dividends to Metallurg
is also restricted by the terms of a settlement arrangement entered into with a
German state pension board with regard to its pension liability. The stock of
EWW has been pledged to secure obligations owed by EWW to the German
governmental authority and the German state pension board. London & Scandinavian
Metallurgical Co., Limited ("LSM") was party to a working capital facility which
limited its ability to pay dividends and management fees to Metallurg. LSM has
obtained consent from its working capital lender to permit increased dividends
to the Company in an amount of up to 100% of LSM's annual net income, contingent
upon the repayment of the LSM Term Loan Facility. The Company repaid the LSM
Term Loan Facility with proceeds from the Offering. In addition, the Company's
Swiss merchanting subsidiary may only pay dividends to the Company in amounts up
to 50% of its net income. In the event that the Company is prohibited from
receiving dividends from these subsidiaries, the Company's ability to make
required principal and interest payments on the New Notes will be adversely
effected. See "Description of Credit Facilities and Other Financing
Arrangements."
The contribution to EBITDA generated by GfE and EWW for the four quarters
ended July 31, 1997 was $21.8 million, or 52.4% of the Company's EBITDA.
Although the Company may seek, subject to compliance with applicable laws and
other restrictions, to repatriate funds from these subsidiaries through means
other than dividend payments, such as by causing those subsidiaries to repay
principal and interest on outstanding obligations to Metallurg or to make loans
to Metallurg, there can be no assurance that any such arrangements could be
made.
FRAUDULENT CONVEYANCE CONSIDERATIONS
Under fraudulent conveyance laws, the New Notes and the Guaranties might,
under certain circumstances, be subordinated to existing or future indebtedness
of the Company or the Guarantors or
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found not to be enforceable in accordance with their terms. Under such laws, if
a court in a lawsuit by an unpaid creditor or representative of creditors of the
Company or the Guarantors, such as a trustee in bankruptcy or the Company or any
Guarantor as debtor-in-possession, were to find that the Company or such
Guarantor (a) received less than a reasonably equivalent value or fair
consideration for the New Notes or the Guaranties and the Company or such
Guarantor, as applicable, (b)(i) was insolvent immediately prior to the time the
New Notes were issued and the Guaranties were incurred, (ii) was rendered
insolvent by the issuance of the New Notes or its Guaranty, (iii) was engaged in
a business or transaction for which the assets remaining with the Company or
such Guarantor constituted unreasonably small capital or (iv) intended to incur,
or believed that it would incur, debts beyond its ability to pay such debts as
they matured, such court could void the Company's and such Guarantor's
obligations under the New Notes and the Guaranties, subordinate the New Notes
and the Guaranties to all other indebtedness of the Company and the Guarantors,
or direct the return of any payments made thereunder to the Company or the
Guarantors or to a fund for the benefit of the creditors of the Company or the
Guarantors. Among other things, a legal challenge of the Guaranties on
fraudulent conveyance grounds may allege an absence of benefits, if any,
realized by the Guarantors as a result of the issuance by the Company of the New
Notes. In addition, a legal challenge of the issuance of the New Notes may
allege an absence of benefits, if any, realized by the Company as a result of
the payment of a cash dividend to the holders of Common Stock and stock options
out of the proceeds of the Offering. Moreover, regardless of the factors
identified in the foregoing clauses (i) through (iv), such court could avoid
such obligation and direct such repayment if it found that the obligation was
incurred with an intent to hinder, delay or defraud such creditors of the
Company or the Guarantors. In that event, there would be no assurance that any
repayment on the New Notes would ever be recovered by the holders of the New
Notes and the Guaranties.
Although the definition of insolvency varies among the jurisdictions,
generally, a person would be considered insolvent if the sum of its debts were
then greater than all of its property at a fair valuation, or if the fair
saleable value of its assets was less than the amount that was then required to
pay its probable liability on its existing debts as they become absolute and
matured. There can be no assurance as to what standard a court would apply in
order to determine whether the Company or any Guarantor was "insolvent" as of
the date the New Notes were issued, or that, regardless of the method of
valuation, a court would not determine that the Company or any Guarantor was
insolvent on that date. Nor can there be any assurance that a court would not
determine, regardless of whether the Company or any Guarantor was insolvent on
the date the New Notes were issued, that the payments constituted fraudulent
transfers on another ground.
DEPENDENCE ON CYCLICAL MARKETS
The performance of the Company's businesses is directly related to the
production levels of the Company's customers, which are mainly steel, aluminum,
superalloy and titanium alloy producers whose businesses are dependent on highly
cyclical markets, such as the automotive, construction, consumer durables and
aerospace markets. The iron and steel, aluminum, superalloy and titanium
industries have all exhibited a high degree of cyclicality. Consequently, the
Company's financial performance could fluctuate with the general economic cycle,
which could have a material adverse effect on the Company's business, financial
condition, and results of operations. In addition, many of the Company's
products are internationally traded products with prices that are significantly
affected by worldwide supply and demand. Although there has been an economic
recovery in certain of the Company's markets beginning in 1993, there can be no
assurance that the current recovery will continue for any extended period of
time.
LIMITED SOURCES FOR RAW MATERIALS
Certain of Metallurg's subsidiaries are dependent on third parties for raw
material supplies. Shieldalloy's production unit in Cambridge, Ohio currently
obtains a majority of its raw materials requirements for the manufacture of
ferrovanadium from two sources. Although alternative sources of
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ferrovanadium raw materials exist, there can be no assurance that the Company
would be able to obtain adequate supplies of such materials, if at all, on
acceptable terms from other sources. Titanium and boron salts for the
manufacture of sophisticated aluminum master alloys are sourced from long-time
suppliers who in certain instances also supply competitive producers with these
raw materials. Although these and other raw materials are generally priced with
reference to perceived related market prices, any increase in demand could cause
raw material costs to rise. To the extent the Company is unable to recover its
increased costs, operating results would be adversely affected.
END OF ANTI-DUMPING DUTIES
Since July 1995, the Department of Commerce has imposed incremental
anti-dumping duties of 3.8% to 108% on imports of Russian ferrovanadium and
nitrided vanadium into the United States. These duties are subject to review in
2000, after which time the International Trade Commission will determine whether
to terminate or extend them. If the incremental duties are not maintained at
their current levels, the Company may be materially adversely affected. Normal
duties on these products are 4.2%.
Since 1993, the Council of the European Communities has imposed duties on
imports of ferrochrome from Russia, Kazakhstan and Ukraine as high as 0.276 ECU
per kilogram of material. These duties will expire in October 1998. The
expiration of these duties may have a material adverse effect on the Company.
HIGHLY COMPETITIVE INDUSTRY
The metals industry is highly competitive on a worldwide basis. Competition
is primarily based on price, quality and timely delivery. In recent years, price
competition has intensified as a result of excess capacity in certain products.
In addition, export sales from the former Soviet Union of excess stocks of metal
and alloy additives severely hurt the price of ferroalloys in Europe and the
United States, which in turn exerted a negative impact on the price of the
Company's products. Although Metallurg believes that the downward effect of this
increased competition has abated, there can be no assurance that excessive price
competition will not recur. There can be no assurance that new entrants will not
increase competition in the metals industry, which could materially adversely
affect the Company. An increase in the use of substitutes for metal alloys also
could have a material adverse effect on the financial condition and operations
of the Company.
ENVIRONMENTAL REGULATION
The Company's manufacturing businesses are subject to extensive regulation
governing, among other things, emissions to air, discharges and releases to land
and water, the generation, handling, storage, transportation, treatment and
disposal of wastes and other materials, including materials containing low
levels of radioactivity, and the remediation of contamination caused by releases
of wastes and other material, as well as worker exposure to hazardous or toxic
substances. There can be no assurance that the requirements of these regulations
will not result in future liabilities and obligations that would be material to
the Company's business operations, financial condition or cash flow. The
Company's cost of compliance with environmental laws and remediation obligations
under such laws has been and is expected to continue to be significant. In
addition to its ongoing compliance obligations in connection with the
Reorganization Plan, Shieldalloy entered into environmental settlement
agreements with Federal and state regulators pursuant to which it has agreed to
remediate historical contamination at the Shieldalloy facilities in Newfield,
New Jersey and Cambridge, Ohio, which will require the Company to make
significant expenditures in coming years. Although the scope of Shieldalloy's
remediation obligations relating to the historical contamination at these
facilities has been defined, there can be no assurance that the ultimate cost of
fulfilling these obligations will not materially exceed Shieldalloy's current
estimates. Such expenditures are currently estimated at $44.5 million, of which
approximately $2.5 million is expected to be expended in the second half of
1997, $4.5 million in 1998, $4.3 million in 1999 and $8.1 million in 2000. In
addition, the Company estimates it will make expenditures of $5.8 million for
remediation at its foreign facilities. Of this amount, approximately $2.2
million is expected to be
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expended in 1998, $0.7 million in 1999 and $0.7 million in 2000. For a detailed
discussion of these matters, see "Business -- Environmental Matters."
FOREIGN OPERATIONS AND CURRENCY FLUCTUATIONS
The Company has substantial operations outside the United States. At
December 31, 1996, the Company's operations located outside the United States
represented approximately 59% (based on book values) of the Company's assets.
Approximately 80% of the Company's employees were outside the United States.
Based on customer location, for the year ended December 31, 1996, approximately
40% of the Company's sales were made in North America, 45% in Europe, 5% in
Asia, 2% in South America and 8% throughout the rest of the world. Foreign
operations are subject to special risks that can materially affect the sales,
profits, cash flows and financial position of the Company, including taxes on
distributions or deemed distributions to the Company or any U.S. subsidiary,
currency exchange rate fluctuations, limitations on repatriation of funds,
maintenance of minimum capital requirements, and import and export controls. In
general, the Company's cost of sales for products manufactured in certain
foreign locations has in the past been adversely impacted by the appreciation of
the respective local currencies of those locations relative to the U.S. dollar
and other currencies in which it sells. While the Company engages in hedging
transactions to reduce certain of the risks of currency rate fluctuations, there
can be no assurances regarding the effectiveness or adequacy of those
transactions.
LABOR RELATIONS
Approximately 50% of the Company's employees are covered by collective
bargaining or similar agreements. Many of these agreements are renewable on an
annual basis. There can be no assurance that new labor agreements will be
reached without a work stoppage or strike or will be reached on terms
satisfactory to the Company. See "Business -- Labor Relations."
PAYMENT UPON A CHANGE OF CONTROL
Under the terms of the Indenture, upon the occurrence of a Change of
Control (as defined), the Company is required to offer to repurchase all of the
outstanding New Notes at 101% of the principal amount thereof, plus accrued and
unpaid interest thereon. The provisions of the Indenture relating to a Change of
Control in and of themselves may not afford holders of the New Notes protection
in the event of a highly leveraged transaction, reorganization, restructuring,
merger or similar transaction involving the Company that may adversely affect
holders of the New Notes, if such transaction is not the type of transaction
included within the definition of a Change of Control. Furthermore, there can be
no assurance that the Company will have adequate resources to repurchase or
refinance all indebtedness owing under the New Notes in the event a Change of
Control offer is required to be made. If the Company does not have sufficient
financial resources to effect a Change of Control offer, it would be required to
seek additional financing from outside sources to enable it to repurchase the
New Notes. There can be no assurance that such financing would be available to
the Company on satisfactory terms. Any failure of the Company to pay the
purchase price with respect to such Change of Control offer when due will give
the Trustee (as defined) and the holders of the New Notes the rights described
under "Description of the New Notes -- Events of Default." See "Description of
the New Notes -- Repurchase at the Option of Holders Upon a Change of Control."
The events that constitute a Change of Control under the Indenture may also
be events of default under the Revolving Credit Facility or other indebtedness
of the Company or its subsidiaries. Such events may permit the lenders under
such debt instruments to accelerate the indebtedness and, if the indebtedness is
not paid, to enforce security interests on substantially all the assets of the
Company, thereby limiting the Company's ability to raise cash to repurchase the
New Notes.
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ABSENCE OF PUBLIC MARKET FOR THE NEW NOTES
If the New Notes are traded after their initial issuance, they may trade at
a discount from their initial offering price, depending upon prevailing interest
rates, the market for similar securities, the performance of the Company and
certain other factors. Historically, the market for noninvestment grade debt has
been subject to disruptions that have caused substantial volatility in the
prices of securities similar to the New Notes. There can be no assurance that
the market, if any, for the New Notes will not be subject to similar
disruptions. Any such disruptions may have an adverse effect on holders of the
New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register the Old Notes under the Securities Act. New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold or otherwise transferred by Holders thereof (other than any such
holder which is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act provided that such New
Notes are acquired in the ordinary course of such holders' business and such
holders have no arrangement with any person to participate in the distribution
of such Notes. Each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that, by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that it will make
this Prospectus available to any such broker-dealer for use in connection with
any such resale. See "Plan of Distribution." However, to comply with the
securities laws of certain jurisdictions, if applicable, the New Notes may not
be offered or sold unless they have been registered or qualified for sale in
such jurisdictions or an exemption from registration or qualification is
available and is complied with. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Old Notes will be adversely affected.
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THE EXCHANGE OFFER
PURPOSE AND EFFECTS
The Old Notes were sold by the Company on November 25, 1997 to the Initial
Purchasers, who resold the Old Notes to "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act) and other institutional
"accredited investors" (as defined in Rule 501(a) under the Securities Act). In
connection with the sale of the Old Notes, the Company and the Initial
Purchasers entered into the Registration Agreement pursuant to which the Company
agreed to file with the Commission a registration statement (the "Exchange Offer
Registration Statement") with respect to an offer to exchange the Old Notes for
New Notes within 60 days following the closing date of the Old Notes. In
addition, the Company agreed to cause the Exchange Offer Registration Statement
to become effective under the Securities Act and to issue the New Notes pursuant
to the Exchange Offer. A copy of the Registration Agreement has been filed as an
exhibit to the Exchange Offer Registration Statement.
The Exchange Offer is being made pursuant to the Registration Agreement to
satisfy the Company's obligations thereunder. For purposes of the Exchange
Offer, the term "Eligible Holder" shall mean the registered owner of any Old
Notes that remain Transfer Restricted Securities, as reflected on the records of
IBJ Schroder Bank and Trust Company as registrar for the Old Notes (in such
capacity, the "Registrar"), or any person whose Old Notes are held of record by
the depositary of the Old Notes. The Company is not required to include any
securities other than the New Notes in the Exchange Offer Registration
Statement. Holders of Old Notes who do not tender their Old Notes or whose Old
Notes are tendered but not accepted would have to rely on exemptions from
registration requirements under the securities laws, including the Securities
Act, if they wish to sell their Old Notes.
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties unrelated to the Company, the Company
believes that the New Notes issued pursuant to the Exchange Offer in exchange
for Old Notes may be offered for resale, resold and otherwise transferred by any
holder of such New Notes (other than a person that is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act and except as
set forth in the next paragraph) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business and such
holder is not participating and does not intend to participate, and has no
arrangement or understanding with any person to participate, in the distribution
of such New Notes.
If any person were to be participating in the Exchange Offer for the
purpose of distributing securities in a manner not permitted by the Commission's
interpretation, (i) the position of the staff of the Commission enunciated in
interpretive letters would be inapplicable to such person and (ii) such person
would be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives New Notes for its own account in exchange for
Old Notes, where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such New Notes.
See "Plan of Distribution."
The Exchange Offer is not being made to, nor will the Company accept
surrenders for exchange from, holders of Old Notes in any jurisdiction in which
the Exchange Offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction. Prior to the Exchange Offer,
however, the Company will register or qualify or cooperate with the holders of
the Old Notes and their respective counsel in connection with the registration
or qualification of the New Notes for offer and sale under the securities or
blue sky laws of such jurisdictions as is necessary to permit consummation of
the Exchange Offer and do any and all other acts or things necessary or
advisable to enable the offer and sale in such jurisdictions of the New Notes.
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<PAGE> 24
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept any and
all Old Notes validly tendered prior to 5:00 p.m., New York City time, on the
Expiration Date (as defined below). The Company will issue up to $100,000,000
aggregate principal amount of New Notes in exchange for a like principal amount
of outstanding Old Notes which are validly tendered and accepted in the Exchange
Offer. Subject to the conditions of the Exchange Offer described below, the
Company will accept any and all Old Notes which are so tendered. Holders may
tender some or all of their Old Notes pursuant to the Exchange Offer; however,
the Old Notes may be tendered only in multiples of $1,000. See "Description of
New Notes."
The form and terms of the New Notes will be the same in all material
respects as the form and terms of the Old Notes, except that (i) the New Notes
will be registered under the Securities Act and hence will not bear legends
restricting the transfer thereof and (ii) because the New Notes will be
registered, holders of New Notes will not be, and upon the consummation of the
Exchange Offer, Eligible Holders of Old Notes will no longer be, entitled to
certain rights under the Registration Agreement intended for the holders of
unregistered securities.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of the State of Delaware or the Indenture in
connection with the Exchange Offer. The Company intends to conduct the Exchange
Offer in accordance with the provisions of the Registration Agreement. Old Notes
which are not tendered for exchange or are tendered but not accepted in the
Exchange Offer will remain outstanding and be entitled to the benefits of the
Indenture, but will not be entitled to any registration rights under the
Registration Agreement.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent for the Exchange Offer. The Exchange Agent will act as agent for
the tendering holders for the purposes of receiving the New Notes from the
Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Eligible Holders who tender Old Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENTS
The Exchange Offer will expire at 5:00 p.m., New York City time, on
, 1998, subject to extension by the Company by notice to the
Exchange Agent as herein provided. The Company reserves the right to so extend
the Exchange Offer at its discretion, in which event the term "Expiration Date"
shall mean the time and date on which the Exchange Offer as so extended shall
expire. The Company will notify the Exchange Agent of any extension by oral or
written notice and will make a public announcement thereof, each prior to 9:00
a.m., New York City time, on the next business day after the previously
scheduled Expiration Date.
The Company reserves the right (i) to delay accepting for exchange any Old
Notes for any New Notes or to extend or terminate the Exchange Offer and not
accept for exchange any Old Notes for any New Notes if any of the events set
forth below under the caption "Conditions of the Exchange Offer" shall have
occurred and shall not have been waived by the Company by giving oral or written
notice of such delay or termination to the Exchange Agent, or (ii) to amend the
terms of the Exchange Offer in any manner. Any such delay in acceptance for
exchange, extension or amendment will be followed as
23
<PAGE> 25
promptly as practicable by public announcement thereof. If the Exchange Offer is
amended in a manner determined by the Company to constitute a material change,
the Company will promptly disclose such amendment in a manner reasonably
calculated to inform the holders of Old Notes of such amendment, and the Company
will extend the Exchange Offer for a minimum of five business days, depending
upon the significance of the amendment and the manner of disclosure to the
holders of Old Notes, if the Exchange Offer would otherwise expire during such
five business-day period. The rights reserved by the Company in this paragraph
are in addition to the Company's rights set forth below under the caption
"Conditions of the Exchange Offer."
TERMINATION OF CERTAIN RIGHTS
The Registration Agreement provides that, subject to certain exceptions, in
the event that (i) neither the Exchange Offer Registration Statement nor the
Shelf Registration Statement has been filed with the Commission on or prior to
the 60th calendar day following the date of original issue of the Old Notes,
(ii) neither the Exchange Offer Registration Statement nor the Shelf
Registration Statement has been declared effective on or prior to the 120th
calendar day following the date of original issue of the Old Notes, (iii) the
Exchange Offer is not consummated or, if an Exchange Offer has not been
consummated, a Shelf Registration Statement is not declared effective, in either
case, on or prior to the 150th day following the date of original issue of the
Old Notes, or (iv) after the Shelf Registration Statement has been declared
effective, such Registration Statement thereafter ceases to be effective or
usable in connection with resales of the Notes at any time that the Company is
obligated to maintain the effectiveness thereof pursuant to the Registration
Agreement (each such event referred to in clauses (i) through (iv) above, a
"Registration Default"), the interest rate borne by the Old Notes shall be
increased by one quarter of one percent per annum upon the occurrence of any
Registration Default, which rate will increase by an additional one quarter of
one percent each 90-day period that such additional interest continues to accrue
under any such circumstance, with an aggregate maximum increase in the interest
rate equal to one percent (1%) per annum. Following the cure of all Registration
Defaults the accrual of additional interest will cease and the interest rate
will revert to the original rate.
Holders of New Notes will not be and, upon consummation of the Exchange
Offer, Eligible Holders of Old Notes will no longer be, entitled to certain
other rights under the Registration Agreement intended for holders of Transfer
Restricted Securities. The Exchange Offer shall be deemed consummated upon the
occurrence of the delivery by the Company to the Registrar under the Indenture
of New Notes in the same aggregate principal amount as the aggregate principal
amount of Old Notes that are tendered by holders thereof pursuant to the
Exchange Offer.
PROCEDURES FOR TENDERING
Only an Eligible Holder of Old Notes may tender such Old Notes in the
Exchange Offer. To tender in the Exchange Offer, an Eligible Holder must
complete, sign and date the Letter of Transmittal, or a facsimile thereof, have
the signatures thereon guaranteed if required by the Letter of Transmittal, and
mail or otherwise deliver such Letter of Transmittal or such facsimile, together
with the Old Notes (unless such tender is being effected pursuant to the
procedure for book-entry transfer described below) and any other required
documents, to the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date.
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility System may make book-entry delivery of the Old Notes by
causing DTC to transfer such Old Notes into the Exchange Agent's account in
accordance with DTC's procedure for such transfer. Although delivery of Old
Notes may be effected through book-entry transfer into the Exchange Agent's
account at DTC, the Letter of Transmittal (or facsimile thereof), with any
required signature guarantees and any other required documents, must, in any
case, be transmitted to and received or confirmed by the Exchange Agent at its
addresses as set forth under the caption "Exchange Agent" below prior to 5:00
p.m., New York City time, on the Expiration Date. DELIVERY OF DOCUMENTS TO DTC
IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
24
<PAGE> 26
The tender by an Eligible Holder of Old Notes will constitute an agreement
between such holder and the Company in accordance with the terms and subject to
the conditions set forth herein and in the Letter of Transmittal.
The method of delivery of Old Notes and the Letter of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the Eligible Holders. Instead of delivery by mail, it is recommended that
Eligible Holders use an overnight or hand delivery service. In all cases,
sufficient time should be allowed to assure delivery to the Exchange Agent on or
before the Expiration Date. No Letter of Transmittal or Old Notes should be sent
to the Company. Eligible Holders may request their respective brokers, dealers,
commercial banks, trust companies or nominees to effect the tenders for such
holders.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old Notes tendered pursuant thereto are tendered for the account of
an Eligible Institution. In the event that signatures on a Letter of Transmittal
or a notice of withdrawal, as the case may be, are required to be guaranteed,
such guarantee must be by a member of a signature guarantee program within the
meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance and withdrawal of tendered Old Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which might,
in the judgment of the Company or its counsel, be unlawful. The Company also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such times as the Company in its sole discretion shall determine.
Although the Company intends to request the Exchange Agent to notify holders of
defects or irregularities with respect to tenders of Old Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Old Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Old Notes received by the Exchange Agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
In addition, the Company reserves the right in its sole discretion (subject
to limitations contained in the Indenture) (i) to purchase or make offers for
any Old Notes that remain outstanding subsequent to the Expiration Date and (ii)
to the extent permitted by applicable law, to purchase Old Notes in privately
negotiated transactions or otherwise. The terms of any such purchases or offers
could differ from the terms of the Exchange Offer.
By tendering, each Eligible Holder will represent to the Company that,
among other things, the New Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business by the person receiving such
New Notes, whether or not such person is the holder and that neither the
Eligible Holder nor any such other person has an arrangement or understanding
with any person to participate in the distribution of such New Notes and that
neither the Eligible Holder nor any such other person is an "affiliate," as
defined in Rule 405 under the Securities Act, of the Company. If the holder is a
broker-dealer that will receive New Notes for its own account in exchange for
Old Notes that were
25
<PAGE> 27
acquired as a result of market-making activities or other trading activities,
such holder by tendering will acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes.
GUARANTEED DELIVERY PROCEDURES
Eligible Holders who wish to tender their Old Notes and (i) whose Old Notes
are not immediately available, or (ii) who cannot deliver their Old Notes and
other required documents to the Exchange Agent or cannot complete the procedure
for book-entry transfer prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand) setting forth
the name and address of the Eligible Holder, the certificate number(s) of
such Old Notes (if available) and the principal amount of Old Notes
tendered together with a duly executed Letter of Transmittal (or a
facsimile thereof), stating that the tender is being made thereby and
guaranteeing that, within three business days after the Expiration Date,
the certificate(s) representing the Old Notes to be tendered in proper form
for transfer (or a confirmation of a book entry transfer into the Exchange
Agent's account at the depositary of the Old Notes delivered
electronically) and any other documents required by the Letter of
Transmittal will be deposited by the Eligible Institution with the Exchange
Agent; and
(c) Such certificate(s) representing all tendered Old Notes in proper
form for transfer (or confirmation of a book-entry transfer into the
Exchange Agent's account at the depositary of the Old Notes delivered
electronically) and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within five business days
after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Eligible Holders who wish to tender their Old Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date,
unless previously accepted for exchange.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date, and prior to acceptance for exchange thereof by the
Company. Any such notice of withdrawal must (i) specify the name of the person
having deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify
the Old Notes to be withdrawn (including the certificate number or numbers and
principal amount of such Old Notes), (iii) be signed by the Depositor in the
same manner as the original signature on the Letter of Transmittal by which such
Old Notes were tendered (including any required signature guarantees) or be
accompanied by documents of transfer sufficient to have the Trustee with respect
to the Old Notes register the transfer of such Old Notes into the name of the
person withdrawing the tender, and (iv) specify the name in which any such Old
Notes are to be registered, if different from that of the Depositor. All
questions as to the validity, form and eligibility (including time of receipt)
of such withdrawal notices will be determined by the Company in its sole
discretion, whose determination shall be final and binding on all parties. Any
Old Notes so withdrawn will be deemed not to have been validly tendered for
purposes of the Exchange Offer, and no New Notes will be issued with respect
thereto unless the Old Notes so withdrawn are validly re-tendered. Any Old Notes
which have been tendered but which are not accepted for exchange or which are
withdrawn will be returned to the holder thereof without cost to such holder as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be re-tendered by following one
of the procedures described above under "Procedures for Tendering" at any time
prior to the Expiration Date.
26
<PAGE> 28
CONDITIONS OF THE EXCHANGE OFFER
In addition, and notwithstanding any other term of the Exchange Offer, the
Company will not be required to accept for exchange any Old Notes tendered for
any New Notes and may terminate or amend the Exchange Offer as provided herein
before the acceptance of such Old Notes, if any of the following conditions
exist:
(a) Any action or proceeding is instituted or threatened in any court
or by or before any governmental agency or regulatory authority with
respect to the Exchange Offer which, in the sole judgment of the Company,
might materially impair the ability of the Company to proceed with the
Exchange Offer or have a material adverse effect on the contemplated
benefits of the Exchange Offer to the Company; or
(b) There shall have occurred any change, or any development involving
a prospective change, in the business or financial affairs of the Company,
which in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or materially
impair the contemplated benefits of the Exchange Offer to the Company; or
(c) There shall have been proposed, adopted or enacted any law,
statute, rule or regulation which, in the sole judgment of the Company,
might materially impair the ability of the Company to proceed with the
Exchange Offer or have a material adverse effect on the contemplated
benefits of the Exchange Offer to the Company; or
(d) There shall have occurred (i) any general suspension of,
shortening of hours for, or limitation on prices for, trading in securities
on the New York Stock Exchange (whether or not mandatory), (ii) a
declaration of a banking moratorium or any suspension of payments in
respect of banks by Federal or state authorities in the United States
(whether or not mandatory), (iii) a commencement of a war, armed
hostilities or other international or national crisis directly or
indirectly involving the United States, (iv) any limitation (whether or not
mandatory) by any governmental authority on, or other event having a
reasonable likelihood of affecting, the extension of credit by banks or
other lending institutions in the United States, or (v) in the case of any
of the foregoing existing at the time of the commencement of the Exchange
Offer, a material acceleration or worsening thereof.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to such
conditions or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. If the Company waives or amends the
foregoing conditions, the Company will, if required by applicable law, extend
the Exchange Offer for a minimum of five business days from the date that the
Company first gives notice, by public announcement or otherwise, of such waiver
or amendment, if the Exchange Offer would otherwise expire within such five
business-day period. Any determination by the Company concerning the events
described above will be final and binding upon all parties.
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail; however, additional solicitation may be
made by telecopy, telephone or in person by officers and regular employees of
the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith. The
Company may also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of this Prospectus, Letters of Transmittal and related documents to the
beneficial owners of the Old Notes and in handling or forwarding tenders for
exchange.
27
<PAGE> 29
The Company will pay the other expenses to be incurred in connection with the
Exchange Offer, including fees and expenses of the Trustee, accounting and legal
fees and printing costs.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered holder of the Old Notes tendered, or if
tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The exchange of the Old Notes for the New Notes in the Exchange Offer
should not constitute an exchange for federal income tax purposes. Consequently,
(i) no gain or loss should be realized by a U.S. Holder upon receipt of a New
Note; (ii) the holding period of the New Note should include the holding period
of the Old Note exchanged therefor and (iii) the adjusted tax basis of the New
Note should be the same as the adjusted tax basis of the Old Note exchanged
therefor immediately before the exchange. Even if the exchange of an Old Note
for a New Note were treated as an exchange, however, such an exchange should
constitute a tax-free recapitalization for federal income tax purposes.
Accordingly, a New Note should have the same issue price as an Old Note and a
U.S. Holder should have the same adjusted basis and holding period in the New
Note as it had in an Old Note immediately before the exchange. As used herein,
the term "U.S. Holder" means a person who is, for United States federal income
tax purposes, (i) a citizen or resident of the United States; (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof; or (iii) an
estate or trust the income of which is subject to United States federal income
taxation regardless of its source.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Generally, Eligible Holders (other than any holder who is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act) who
exchange their Old Notes for New Notes pursuant to the Exchange Offer may offer
such New Notes for resale, resell such New Notes, and otherwise transfer such
New Notes without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided such New Notes are acquired in the
ordinary course of the holders' business, and such holders have no arrangement
with any person to participate in a distribution of such New Notes. Each
broker-dealer that receives New Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution." To comply with the securities laws of certain
jurisdictions, it may be necessary to qualify for sale or register the New Notes
prior to offering or selling such New Notes. Upon request by Eligible Holders
prior to the Exchange Offer, the Company will register or qualify the New Notes
in certain jurisdictions subject to the conditions in the Registration
Agreement. If an Eligible Holder does not exchange such Old Notes for New Notes
pursuant to the Exchange Offer, such Old Notes will continue to be subject to
the restrictions on transfer contained in the legend thereon and will not have
the benefit of any covenant regarding registration under the Securities Act. In
general, the Old Notes may not be offered or sold, unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. To the
extent that Old Notes are tendered and accepted in the Exchange Offer, a
holder's ability to sell untendered Old Notes could be adversely affected.
28
<PAGE> 30
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept the Exchange Offer and tender their Old
Notes. Holders of Old Notes are urged to consult their financial and tax
advisors in making their own decisions on what action to take.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
as reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Company upon the consummation of the Exchange Offer. The expenses of the
Exchange Offer will be amortized by the Company over the term of the New Notes.
EXCHANGE AGENT
IBJ Schroder Bank and Trust Company has been appointed as Exchange Agent
for the Exchange Offer. All correspondence in connection with the Exchange Offer
and the Letter of Transmittal should be addressed to the Exchange Agent, as
follows:
<TABLE>
<S> <C> <C>
By Facsimile: By Overnight Courier: By Registered or
(212) 858-2611 IBJ Schroder Bank and Trust Certified Mail:
Corporate Trust Department Corporate Trust Department P.O. Box 84
Company Attn: Securities Processing Bowling Green Station
Attn: Reorganization Window, SC-1 New York, New York 10274-0084
Operations Department One State Street Attn: Reorganization
Confirm by telephone: New York, New York 10004 Operations Department
(212) 858-2103
</TABLE>
Requests for additional copies of this Prospectus or the Letter of
Transmittal should be directed to the Exchange Agent.
29
<PAGE> 31
CAPITALIZATION
The following table sets forth as of July 31, 1997 the Company's (i) cash
and cash equivalents, (ii) short-term debt and (iii) capitalization, in each
case on an historical basis (unaudited) and as adjusted to give effect to the
Recapitalization. This table should be read in conjunction with the information
set forth under "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the other financial information appearing elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
AS OF JULY 31, 1997
--------------------------
HISTORICAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents........................................... $ 29,163 $ 44,675
-------- --------
Short-term debt:
Bank debt......................................................... $ 11,460 $ 418(a)
Current portion of long-term debt................................. 1,022 1,022(a)
-------- --------
Total short-term debt............................................... $ 12,482 $ 1,440
======== ========
Long-term debt, less current maturities:
U.S.:
Revolving Credit Facility(b)................................... -- --
12% Senior Notes............................................... $ 39,461 --
Notes offered hereby........................................... -- $ 100,000
Foreign:(a)
Germany........................................................ 3,903 3,903
United Kingdom................................................. 8,323 --
Other.......................................................... 135 135
-------- --------
Total long-term debt, less current maturities....................... 51,822 104,038
-------- --------
Shareholders' equity:
Common stock, $.01 par value per share, authorized 15,000,000
shares, 4,956,406 shares issued and outstanding................ 50 50
Additional paid-in capital........................................ 51,435 33,819(c)
Cumulative foreign currency translation adjustment................ 1,245 1,245
Retained earnings................................................. 3,651 --(c)
-------- --------
Total shareholders' equity.......................................... 56,381 35,114
-------- --------
Total capitalization................................................ $ 108,203 $ 139,152
======== ========
</TABLE>
- ---------------
(a) Represents debt of foreign subsidiaries which are not guarantors of the
Notes.
(b) Commitments under the $50 million Revolving Credit Facility were not reduced
following the Offering. After the consummation of the Offering, the Company
had approximately $25.0 million of available borrowing capacity under the
Revolving Credit Facility, subject to certain limitations. See "Description
of Credit Facilities and Other Financing Arrangements -- Revolving Credit
Facility" for a description of the Revolving Credit Facility.
(c) Reflects the payment of a dividend of $20.0 million and prepayment penalties
of $1.3 million out of retained earnings and additional paid-in capital.
30
<PAGE> 32
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information (the "Pro Forma
Financial Information") of the Company is based on the historical financial
statements of the Company included elsewhere herein. The pro forma condensed
statements of operations for the quarter ended March 31, 1997 and the year ended
December 31, 1996 illustrate the estimated effects of (i) the adoption of
fresh-start reporting following the consummation of the Reorganization Plan and
(ii) the Recapitalization (collectively, the "Pro Forma Transactions"). The pro
forma condensed statement of operations for the quarter ended July 31, 1997
illustrates the estimated effects of the Recapitalization only.
The Pro Forma Financial Information has been prepared as if the Pro Forma
Transactions had occurred as of January 1, 1996. The Pro Forma Financial
Information does not purport to represent what the Company's results of
operations would have been had the transactions in fact occurred on such dates,
nor does it give effect to any transactions other than those discussed in the
notes to the Pro Forma Financial Information set forth below.
The pro forma adjustments are based upon available information and upon
certain assumptions that management of the Company believes are reasonable under
the circumstances. The Pro Forma Financial Information and accompanying notes
should be read in conjunction with the consolidated financial statements of the
Company included elsewhere in this Prospectus.
31
<PAGE> 33
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
EFFECTS OF
REORGANIZATION
PLAN AND
FRESH-START OTHER OFFERING
HISTORICAL REPORTING ADJUSTMENTS SUBTOTAL ADJUSTMENTS PRO FORMA
-------- -------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Total revenue............. $650,002 $ 650,002 $ 650,002
Cost of sales............. (566,538) $ 1,450(a) $(1,252)(h) (566,340) (566,340)
--------- ------- ------- --------- ---------
Gross margin............ 83,464 1,450 (1,252) 83,662 83,662
Selling, general and
administrative
expenses................ (57,103) (1,111)(b) (58,214) (58,214)
Environmental expenses.... (37,582) 35,176(c) 1,252(h) (1,154) (1,154)
--------- ------- ------- --------- ---------
Operating income
(loss)................ (11,221) 35,515 24,294 24,294
Other income (expense),
net..................... (6,759) (362)(d) 10,547(i) 3,426 3,426
Reorganization items...... (3,535) 3,535(e)
Interest income (expense),
net..................... 1,473 (2,984)(f) (1,511) $(9,163)(j) (10,674)
--------- ------- ------- --------- ------- ---------
Income (loss) before
income tax
provision............. (20,042) 35,704 10,547 26,209 (9,163) 17,046
Income tax provision...... 8,453 (420)(g) 8,033 227(k) 8,260
--------- ------- ------- --------- ------- ---------
Income before
extraordinary item.... $(28,495) $ 36,124 $10,547 $ 18,176 $(9,390) $ 8,786
========= ======= ======= ========= ======= =========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
(a) Reflects amortization of fresh-start adjustments.
(b) Reflects the following:
Amortization of executive stock awards.............................................................. $ (1,500)
Reversal of historical amortization of goodwill and deferred charges written off in fresh-start..... 345
Amortization of fresh-start adjustments............................................................. 44
---------
$ (1,111)
=========
(c) Removal, for presentation purposes, of the environmental provision recorded by the Company
reflecting the terms of various environmental settlement agreements with federal and state
regulators, in accordance with the terms of the Reorganization Plan.
(d) Reflects the following:
Finalization of prepetition claims to the amounts allowed pursuant to the Chapter 11 proceedings.... $ (454)
Amortization of fresh-start adjustments............................................................. 92
---------
$ (362)
=========
(e) To reverse reorganization expenses recorded after the assumed consummation date of January 1, 1996.
</TABLE>
32
<PAGE> 34
<TABLE>
<S> <C> <C>
(f) Reflects the following:
Amortization of bank fees related to the Revolving Credit Facility entered into pursuant to the
Reorganization Plan............................................................................. $ (251)
Reversal of historical interest earned on environmental trust funds withdrawn and transferred to
the Company pursuant to the Reorganization Plan................................................. (440)
Reversal of historical interest earned on cash balances in 1996 assumed eliminated upon
consummation of the Reorganization Plan on January 1, 1996...................................... (1,628)
Pro forma interest on the LSM Term Loan Facility (as defined under "Description of Credit
Facilities and Other Financing Arrangements") incurred pursuant to the Reorganization Plan to
pay a dividend at consummation.................................................................. (689)
Other loan interest............................................................................... 24
---------
$ (2,984)
=========
(g) Reflects the following:
Tax effect of Reorganization Plan and fresh-start adjustments recorded at the assumed consummation
date of January 1, 1996. Pro forma income taxes have been provided at local statutory rates by
tax jurisdiction. The benefit of pre-bankruptcy net operating loss carryforwards would be
reflected as an addition to paid-in capital rather than a reduction of the tax provision........ $ (873)
Tax effect related to the amortization of fresh-start adjustments................................... 680
Tax effect of pro forma interest expense on the LSM Term Loan Facility incurred pursuant to the
Reorganization Plan............................................................................. (227)
---------
$ (420)
=========
(h) Certain reclassifications have been made to the historical amounts to present them on a basis
consistent with the current year.
(i) To remove, for presentation purposes, non-recurring charges resulting from settlement with various
prepetition creditors in 1996, as follows:
District 65 Pension Plan withdrawal liability claim................................................. $ 5,050
Prepetition environmental settlement claims....................................................... 3,791
Additional institutional debt claims.............................................................. 1,706
---------
$ 10,547
=========
(j) Reflects the following:
Interest on the Notes............................................................................... $(11,000)
Amortization of deferred issuance costs on the Notes.............................................. (400)
Reversal of historical interest expense on the prior GfE credit facility which was replaced with
the German Subfacility.......................................................................... 1,548
Reversal of pro forma interest expense on the LSM Term Loan Facility replaced with a Company loan
at the time of the Offering..................................................................... 689
---------
$ (9,163)
=========
(k) Reflects tax effect of the reversal of pro forma interest expense on the LSM Term Loan Facility
replaced with a Company loan at the time of the Offering.
</TABLE>
33
<PAGE> 35
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
EFFECTS OF
REORGANIZATION
PLAN AND
FRESH-START OTHER OFFERING
HISTORICAL REPORTING ADJUSTMENTS SUBTOTAL ADJUSTMENTS PRO FORMA
--------- -------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Total revenue......... $ 155,587 $ 155,587 $ 155,587
Cost of sales......... (134,060) $ 362(a) (133,698) (133,698)
--------- ------- --------- ---------
Gross margin........ 21,527 362 21,889 21,889
Selling, general and
administrative
expenses............ (15,046) (305)(b) $ 810(f) (14,541) (14,541)
--------- ------- ------- --------- ---------
Operating income.... 6,481 57 810 7,348 7,348
Other income
(expense), net...... 3,179 24(a) (2,877)(g) 326 326
Reorganization
items............... 2,444 (2,444)(c)
Interest income
(expense) net....... (245) (1,237)(d) (1,482) $(1,214)(h) (2,696)
--------- ------- ------- --------- ------- ---------
Income before income
tax provision..... 11,859 (3,600) (2,067) 6,192 (1,214) 4,978
Income tax provision
(benefit)........... (3,063) 1,814(e) (1,249) 56(i) (1,193)
--------- ------- ------- --------- ------- ---------
Income before
extraordinary
item.............. $ 14,922 $ (5,414) $(2,067) $ 7,441 $(1,270) $ 6,171
========= ======= ======= ========= ======= =========
</TABLE>
- ---------------
<TABLE>
<C> <S> <C>
(a) Reflects amortization of fresh-start adjustments.
(b) Reflects the following:
$ (375)
Amortization of executive stock awards.............................................................
59
Reversal of historical amortization of goodwill and deferred charges written off in fresh-start....
11
Amortization of fresh-start adjustments............................................................
-------
$ (305)
=======
(c) To reverse reorganization expenses and fresh-start adjustments recorded after the assumed
consummation date of January 1, 1996.
(d) Reflects the following:
$ (85)
Amortization of bank fees related to the Revolving Credit Facility entered into pursuant to the
Reorganization Plan............................................................................
(367)
Reversal of historical interest earned on environmental trust funds withdrawn and transferred to
the Company pursuant to the Reorganization Plan................................................
(619)
Reversal of historical interest earned on cash balances assumed eliminated upon consummation of
the Reorganization Plan on January 1, 1996.....................................................
(172)
Pro forma interest on the LSM Term Loan Facility incurred pursuant to the Reorganization Plan to
pay a dividend at consummation.................................................................
6
Other loan interest................................................................................
-------
$(1,237)
=======
(e) Reflects the following:
$ 1,700
Tax effect of the Reorganization Plan and fresh-start adjustments recorded as of the assumed
consummation date of January 1, 1996...........................................................
170
Tax effect related to the amortization of fresh-start adjustments..................................
(56)
Tax effect of pro forma interest expense on the LSM Term Loan Facility incurred pursuant to the
Reorganization Plan............................................................................
-------
$ 1,814
=======
</TABLE>
34
<PAGE> 36
<TABLE>
<C> <S> <C>
(f) To remove, for presentation purposes, non-recurring charges incurred pursuant to the Reorganization
Plan for stock awards and bonuses.
(g) To remove, for presentation purposes, non-recurring credits recorded pursuant to the Reorganization
Plan, as follows:
$(2,747)
Gain on the sale of commercial real estate property................................................
(130)
Gain on the sale of an investment in a joint venture...............................................
-------
$(2,877)
=======
(h) Reflects the following:
$(2,750)
Interest on the Notes..............................................................................
(100)
Amortization of deferred issuance costs on the Notes...............................................
1,184
Reversal of historical interest expense on the 12% Senior Notes being repaid.....................
280
Reversal of historical interest expense on the prior GfE credit facility which was replaced with
the German Subfacility.........................................................................
172
Reversal of pro forma interest expense on the LSM Term Loan Facility replaced with a Company loan
at the time of the Offering....................................................................
-------
$(1,214)
=======
(i) Reflects tax effect of the reversal of pro forma interest expense on the LSM Term Loan Facility
replaced with a Company loan at the time of the Offering.
</TABLE>
35
<PAGE> 37
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED JULY 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
OFFERING
HISTORICAL ADJUSTMENT PRO FORMA
---------- ---------- ---------
<S> <C> <C> <C>
Total revenue......................................... $ 166,879 $ 166,879
Cost of sales......................................... (142,135) (142,135)
--------- ---------
Gross margin........................................ 24,744 24,744
Selling, general and administrative expenses.......... (14,427) (14,427)
--------- ---------
Operating income.................................... 10,317 10,317
Other income (expense), net........................... (76) (76)
Interest income (expense), net........................ (1,479) $ (1,654)(a) (3,133)
--------- ------- ---------
Income before income tax provision.................. 8,762 (1,654) 7,108
Income tax provision.................................. 5,111 (400)(b) 4,711
--------- ------- ---------
Income before extraordinary item.................... $ 3,651 $ (1,254) $ 2,397
========= ======= =========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
(a) Reflects the following Offering adjustments:
Interest on the Notes................................................................................ $(3,667)
Reversal of historical interest expense on the 12% Senior Notes being repaid......................... 1,580
Amortization of deferred issuance costs on the Notes................................................. (133)
Reversal of historical interest expense on prior GfE credit facility loans and the LSM Term Loan 566
Facility.............................................................................................
$(1,654)
(b) Tax effect of Offering adjustments.
</TABLE>
36
<PAGE> 38
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following table presents selected historical financial data of the
Company for each of the years in the five-year period ended December 31, 1996,
the six months ended June 30, 1996, and the quarters ended March 31 and July 31,
1997. Information as of December 31, 1992, 1993 and 1994 and for the years ended
December 31, 1992 and 1993 is derived from the consolidated financial statements
of the Company, which have been audited by Deloitte & Touche LLP, independent
public accountants. The information as of December 31, 1995 and 1996 and March
31, 1997 and for each of the three years in the period ended December 31, 1996
and for the quarter ended March 31, 1997 is derived from the consolidated
financial statements of the Company included elsewhere herein, which have been
audited by Deloitte & Touche LLP, independent public accountants. The selected
financial data for the Company as of June 30, 1996 and for the Company's six
months ended June 30, 1996, and as of July 31, 1997 and for the quarter ended
July 31, 1997, are unaudited and reflect all adjustments (consisting only of
normal recurring adjustments) which are, in the opinion of management, necessary
for a fair presentation of the results of operations for such periods. Financial
information contained in this Prospectus for periods after March 31, 1997
reflect the effects of the Reorganization Plan, including the implementation of
fresh-start reporting, as of March 31, 1997. Accordingly, the Company's
consolidated financial statements for periods and dates prior to March 31, 1997
are not comparable to subsequent consolidated financial statements. The results
of operations for the quarters ended March 31 and July 31, 1997 are not
necessarily indicative of results for the full year. The information in this
table should be read in conjunction with "Pro Forma Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of the Company, and
related notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
POST-
PRE-CONFIRMATION CONFIRMATION
----------------------------------------------------------------------------- ------------
QUARTER
SIX MONTHS ENDED QUARTER
YEARS ENDED DECEMBER 31, ENDED MARCH ENDED
---------------------------------------------------- JUNE 30, 31, JULY 31,
1992 1993 1994 1995 1996 1996 1997 1997
-------- -------- -------- -------- -------- ----------- -------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales.............................. $591,072 $541,188 $553,479 $688,002 $648,816 $ 331,097 $155,427 $166,718
Commission income.................. 862 674 838 1,362 1,186 658 160 161
-------- -------- -------- -------- -------- -------- -------- --------
Total revenue.................... 591,934 541,862 554,317 689,364 650,002 331,755 155,587 166,879
Cost of sales...................... 559,107 508,424 496,218 603,535 566,538 288,675 134,060 142,135
-------- -------- -------- -------- -------- -------- -------- --------
Gross margin..................... 32,827 33,438 58,099 85,829 83,464 43,080 21,527 24,744
Selling, general and administrative
expenses......................... 60,829 55,735 50,652 52,842 57,103 27,375 15,046 14,427
Environmental expenses(a).......... 2,992 2,342 2,082 2,072 37,582 1,160 -- --
Restructuring charges.............. 4,349 -- 2,653 15,210 -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Operating income (loss).......... (35,343) (24,639) 2,712 15,705 (11,221) 14,545 6,481 10,317
Other:
Other income (expense), net...... 1,928 (27,682) 7,477 7 (6,759) 3,420 3,179 (76)
Interest income (expense), net... (8,157) (7,027) (2,555) (1,949) 1,473 247 (245) (1,479)
Reorganization expense........... -- (3,409) (7,118) (3,927) (3,535) (1,430) (2,663) --
Fresh-start revaluation.......... -- -- -- -- -- -- 5,107 --
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income tax
provision and extraordinary
item............................. (41,572) (62,757) 516 9,836 (20,042) 16,782 11,859 8,762
Income tax provision (benefit)..... (102) 225 2,507 8,171 8,453 5,344 (3,063) 5,111
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
item............................. (41,470) (62,982) (1,991) 1,665 (28,495) 11,438 14,922 3,651
Extraordinary item, net of
tax(b)........................... -- -- -- -- -- -- 43,032 --
Cumulative effect of change in
accounting principle............. (8,088) (2,496) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss).................. $(49,558) $(65,478) $ (1,991) $ 1,665 $(28,495) $ 11,438 $ 57,954 $ 3,651
======== ======== ======== ======== ======== ======== ======== ========
Earnings per share(c).............. $(10.00) $(13.21) $(0.40) $0.34 $(5.75) $2.31 $11.69 $0.74
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
37
<PAGE> 39
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
POST-CONFIRMATION
----------------------
PRE-CONFIRMATION
------------------------------------------------------------------ QUARTER
SIX MONTHS ENDED QUARTER
YEARS ENDED DECEMBER 31, ENDED MARCH ENDED
---------------------------------------------------- JUNE 30, 31, JULY 31,
1992 1993 1994 1995 1996 1996 1997 1997
-------- -------- -------- -------- -------- ----------- -------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
(AT PERIOD END):
Total assets........... $380,646 $306,948 $326,981 $342,610 $331,626 $ 362,488 $305,704 $ 299,816
Working capital........ 71,398 140,857 152,627 166,823 173,734 168,428 143,316 148,552
Property, plant and
equipment............ 109,459 81,254 65,921 53,516 47,885 50,190 38,907 40,210
Total debt............. 147,470 29,212 37,719 37,625 19,869 26,400 66,488 64,304
Pension liabilities.... 57,873 46,750 43,921 47,409 43,926 44,964 41,090 39,623
Environmental
liabilities.......... 12,262 18,497 17,762 12,780 44,011 15,128 48,135 47,504
Liabilities subject to
compromise........... -- 162,320 162,042 169,519 179,897 171,747 -- --
</TABLE>
- ---------------
(a) As part of the Reorganization Plan, Shieldalloy entered into settlement
agreements with various environmental regulatory authorities with regard to
all of Shieldalloy's known significant environmental remediation
liabilities. Pursuant to these agreements, Shieldalloy has agreed to perform
environmental remediation which as of July 31, 1997 had an estimated cost of
completion of $44.5 million, including approximately $19.4 million to be
incurred by Shieldalloy through the end of 2000. See "Risk
Factors -- Environmental Regulation."
(b) Reflects discharge of indebtedness income, net of tax effects, relating to
the consummation of the Reorganization Plan.
(c) The computation of earnings per share for all periods presented prior to
April 1, 1997 is based on 4,956,406 common shares and common stock
equivalents which were outstanding as of the Effective Date.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
POST-
PRE-CONFIRMATION CONFIRMATION
----------------------------------------------------------------------------- ------------
QUARTER
SIX MONTHS ENDED QUARTER
YEARS ENDED DECEMBER 31, ENDED MARCH ENDED
---------------------------------------------------- JUNE 30, 31, JULY 31,
1992 1993 1994 1995 1996 1996 1997 1997
-------- -------- -------- -------- -------- ----------- -------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(a)............ $ (8,255) $ (3,768) $ 25,715 $ 47,149 $ 38,928 $ 21,466 $ 10,498 $ 13,644
Environmental
remediation
expenditures(b).... 365 751 814 2,769 2,282 1,394 1,729 393
Capital
expenditures....... 17,343 6,280 7,566 6,712 9,531 2,668 2,774 3,309
Gross margin
as percentage
of sales........... 5.6% 6.2% 10.5% 12.5% 12.9% 13.0 % 13.9% 14.8 %
EBITDA as percentage
of sales........... NM NM 4.6% 6.9% 6.0% 6.5 % 6.8% 8.2 %
Ratio of earnings to
fixed charges(c)... NM NM NM 1.0x NM 3.0x 3.4x 4.4x
Cash flow from
operating
activities......... (4,819) 22,247 (589) 5,658 47,665 29,195 6,416 2,510
Cash flow from
investing
activities......... (14,646) (6,785) (3,700) (3,945) (5,019) 1,333 2,167 (2,071)
Cash flow from
financing and
reorganization
activities......... 32,859 (11,371) 3,673 6,182 (16,117) (9,302) (40,991) (1,691)
</TABLE>
- ---------------
(a) For purposes of this Prospectus, "EBITDA" is defined as income (loss) before
(i) income taxes; (ii) interest expense; (iii) extraordinary gain; (iv)
depreciation; (v) amortization; (vi) non-cash stock compensation; (vii) loss
(gain) on sale of fixed assets; (viii) restructuring expenses; (ix)
reorganization items; (x) non-cash fresh-start adjustments; and (xi)
non-cash environmental provisions. EBITDA should not be considered an
alternative to operating income determined in accordance with GAAP as an
indicator of operating performance or to cash flows from operating
activities determined in accordance with GAAP as a measure of liquidity.
EBITDA has not been reduced to reflect environmental remediation
expenditures. The definition of EBITDA differs from the definition of EBITDA
used in the indenture governing the Notes. The Company's use of EBITDA may
not be comparable to similarly titled measures due to the use by other
companies of different financial statement components in calculating EBITDA.
See "Description of New Notes."
38
<PAGE> 40
(b) Environmental remediation expenditures represent the costs associated with
certain remedial activities and do not include expenditures associated with
environmental compliance related to ongoing operations. Such remediation
expenditures are charged to previously established accruals and are
therefore excluded from the calculation of EBITDA.
(c) The ratio of earnings to fixed charges is computed by dividing pretax income
from operations before fixed charges (other than capitalized interest) by
fixed charges. Fixed charges consist of interest charges (including
contractual interest deferred pursuant to the Chapter 11 proceedings) and
that portion of rental expense Metallurg believes to be representative of
interest. For the years ended December 31, 1992, 1993, 1994 and 1996,
earnings were insufficient to cover fixed charges by $41.6 million, $65.4
million, $7.8 million and $28.6 million, respectively.
CALCULATION OF EBITDA
<TABLE>
<CAPTION>
POST-
CONFIRMATION
PRE-CONFIRMATION ------------
----------------------------------------------------------------------------
SIX MONTHS QUARTER QUARTER
YEARS ENDED DECEMBER 31, ENDED ENDED ENDED
-------------------------------------------------- JUNE 30, MARCH 31, JULY 31,
1992 1993 1994 1995 1996 1996 1997 1997
-------- -------- ------- ------- -------- ----------- --------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income (loss)........... $(49,558) $(65,478) $(1,991) $ 1,665 $(28,495) $11,438 $ 57,954 $ 3,651
------- ------- ------ ------ ------- ------ ------- ------
Adjustments:
Income tax provision
(benefit)............... (102) 225 2,507 8,171 8,453 5,344 (3,063) 5,111
Interest expense.......... 11,455 9,434 4,815 4,851 3,043 1,772 1,706 2,426
Depreciation and
amortization............ 17,960 20,294 12,986 15,296 10,688 4,746 2,143 1,962
Non-cash charges:
Environmental
provisions.............. -- 6,400 -- -- 34,754 -- -- --
Provision for allowed
claims.................. -- -- -- -- 10,547 -- -- --
Fresh-start revaluation... -- -- -- -- -- -- (5,107) --
Writedown of investment in
subsidiaries............ -- 5,732 -- -- -- -- -- --
Extraordinary item, net of
tax..................... -- -- -- -- -- -- (43,032) --
Restructuring provision... 4,349 13,616 2,653 15,210 -- -- -- --
Non-cash cumulative effect
of accounting changes... 8,088 2,496 -- -- -- -- -- --
(Gains) losses on asset
sales................... (447) 104 (2,373) (1,971) (3,597) (3,264) (3,266) (6)
Reorganization expense.... -- 3,409 7,118 3,927 3,535 1,430 2,663 --
Stock awards.............. -- -- -- -- -- -- 500 500
------- ------- ------ ------ ------- ------ ------- ------
41,303 61,710 27,706 45,484 67,423 10,028 (47,456) 9,993
------- ------- ------ ------ ------- ------ ------- ------
EBITDA...................... $ (8,255) $ (3,768) $25,715 $47,149 $ 38,928 $21,466 $ 10,498 $ 13,644
======= ======= ====== ====== ======= ====== ======= ======
</TABLE>
39
<PAGE> 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and the related notes thereto included
elsewhere in this Prospectus.
OVERVIEW
In 1994, the Company began to recover from the effects of depressed
industry conditions principally caused by (i) a recession in the iron and steel
industry which lasted from 1989 to 1993 and particularly affected the aerospace,
automotive, durable goods, construction and defense sectors in North America and
Europe and (ii) the impact of the "dumping" of low-priced vanadium and
ferrochrome products by former Soviet Union exporters. The Company's recovery
started approximately two years after the recovery of its customers because the
stockpiles of metals being sold by those exporters took some time to be
consumed. The subsequent reduction of stockpiles of metals in the former Soviet
Union, the implementation of duties from successful anti-dumping petitions by
the Company and increased production by the steel, aluminum and superalloy
industries since 1993, have contributed to the Company's operating performance
beginning in 1994. See "Risk Factors -- End of Anti-dumping Duties."
The industries which the Company supplies are cyclical. See "Risk
Factors -- Dependence on Cyclical Markets." Worldwide steel and aluminum
consumption levels were significantly higher in 1996 than they were in 1992, and
the strength of the aerospace industry has positively impacted superalloy
producers. Significant price competition among aluminum master alloy producers
has reduced the Company's profitability in that area of its operations. The
Company has substantial operations outside the United States. At December 31,
1996, the Company's operations located outside the United States represented
approximately 59% of the Company's assets based on book values. Approximately
80% of the Company's employees were outside the United States. Approximately 40%
of the Company's sales (based on customer location) for the year ended December
31, 1996 were made in North America, 45% in Europe, 5% in Asia, 2% in South
America and 8% throughout the rest of the world. See "Risk Factors -- Foreign
Operations and Currency Fluctuations."
In April 1997, Metallurg and Shieldalloy consummated the Reorganization
Plan. The Company settled its prepetition liabilities by distributing cash and
issuing shares of its Common Stock and its 12% Senior Notes. As a result of the
Reorganization Plan, the Company reduced its indebtedness and shareholder
obligations (including undrawn letters of credit) from approximately $170.0
million to approximately $66.5 million. As part of the Reorganization Plan,
Shieldalloy entered into various settlements with the relevant environmental
authorities with regard to its obligations to remediate certain conditions at
its New Jersey and Ohio facilities.
Effective March 31, 1997, the Company implemented fresh-start reporting
relating to its emergence from bankruptcy. Accordingly, all assets and
liabilities were restated to reflect their respective fair values, and the
consolidated financial statements subsequent to that date include the related
amortization credits associated with the fair value adjustments. The
consolidated financial statements after that date are those of a new reporting
entity and are not comparable to the pre-confirmation periods. However, for
purposes of the discussion below of the Company's results of operations for the
first two quarters of 1997 compared to the first two quarters of 1996, the
quarter ended March 31, 1997 (pre-confirmation) was combined with the quarter
ended July 31, 1997 (post-confirmation) and then compared to 1996. Significant
differences between periods due to fresh-start reporting adjustments are
explained below where necessary. For example, the adoption of fresh-start
reporting resulted in a reduction of depreciation expense for the 1997 period,
thus increasing gross margin and operating income. Additionally, the adoption of
fresh-start reporting will result in an increase in additional paid-in capital,
rather than an income tax benefit, as the benefits relating to existing net loss
carryforwards are recognized in the future.
In addition, as a result of Metallurg, Inc.'s change in its fiscal year
from a calendar year to January 31 (beginning with the 1997 fiscal year)
effective as of April 1, 1997, the consolidated operating results of
40
<PAGE> 42
the Company for periods which include the quarter ended July 31, 1997 contained
in this Prospectus include the results of Metallurg, Inc. for the four-month
period ended July 31, 1997 and the results of its operating subsidiaries (whose
fiscal years remain the calendar year) for the three-month period ended June 30,
1997, and the consolidated balance sheet data of the Company at July 31, 1997
reflect the financial position of Metallurg, Inc. at July 31, 1997 and of the
operating subsidiaries at June 30, 1997. Consequently, an extra month of
Metallurg, Inc.'s results are included in the Company's results of operations
for the first two quarters of 1997.
RESULTS OF OPERATIONS -- FIRST TWO QUARTERS OF 1997 COMPARED TO FIRST TWO
QUARTERS OF 1996
Total revenues for Metallurg and its subsidiaries decreased by 2.8% from
$331.8 million to $322.5 million in the first two quarters of 1997 compared to
the prior period. The sale of Frankel Metal Company, the Company's former
titanium scrap processing subsidiary, in December 1996 accounted for $6.9
million of the decrease, and a reduction in the Company's sales of manganese and
ferrochrome products manufactured by third parties principally accounted for the
balance of the decrease. Tonnages shipped of manganese products were 8% lower
due to a shortage of raw materials from China resulting from anti-dumping
duties, while prices fell 20% because of a change in product mix to lower
grades. The Company's sales volume of high carbon ferrochrome distributed for
third parties fell by $1.8 million because of restricted availability of this
product to the Company. In the first two quarters of 1997, the price of
ferrovanadium increased in the United States and the price of low carbon
ferrochrome remained strong.
Gross margins increased by 7.4% in the first two quarters of 1997 compared
to the first two quarters of 1996, due principally to the price increases in
ferrovanadium and low carbon ferrochrome discussed above. In aluminum master
alloys and compacted products, increased volumes of 21% improved production
variances and significantly offset a decrease in margins at the Company's United
Kingdom operations caused by the impact of a strong sterling. Although the
Company's United Kingdom aluminum powder producing division recorded a 30%
decrease in sales in the first two quarters of 1997 compared to 1996, margins
increased by 45%, due to a change in product mix. The values of the Company's
assets were reduced pursuant to fresh-start reporting, reducing depreciation
expense in the second quarter of 1997 by $0.4 million and increasing gross
margin by an equal amount.
Selling, general and administrative expenses ("SG&A") increased from $27.4
million for the first two quarters of 1996 to $29.5 million for the first two
quarters of 1997, an increase of 7.7%. For the first two quarters of 1997, SG&A
represented 9.1% of the Company's sales compared to 8.3% for the first two
quarters of 1996. SG&A increased as a result of the inclusion of an extra month
(July 1997) of the holding company's operations, increased bonus accruals and
awards under the Stock Award and Stock Option Plan of Metallurg incurred in
connection with the consummation of the Reorganization Plan, and additional
costs related to the audit of the March 31, 1997 financial statements.
Operating income was $16.8 million for the first two quarters of 1997
compared to $14.5 million for the first two quarters of 1996, an increase of
15.5%, including the $0.4 million reduction in depreciation expense due to
freshstart reporting as described above. The improvement resulted from an
increase in margins on sales of ferrovanadium, low carbon ferrochrome and
aluminum powders due to the strength of
the steel, superalloy and chemicals industries, offset by a decrease in margins
on aluminum master alloys and briquettes resulting from a highly competitive
marketplace. Operating income for the first two quarters of 1996 included $1.2
million of environmental expenses related to the operation of the water
remediation facility at the Company's Newfield site. As a result of the
Company's adoption of SOP 96-1 (as defined below), operating income in the first
two quarters of 1997 does not include such water remediation expenses. In
addition, as discussed above, as a result of the change of the holding company's
fiscal year, 1997 operating income of $16.8 million included approximately $0.4
million of expenses related to the operations of the holding company for the
month of July 1997.
Net income was $61.6 million for the first two quarters of 1997 compared to
$11.4 million for the first two quarters of 1996. Net income for the first two
quarters of 1997 included a loss of approximately $0.8
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<PAGE> 43
million related to the operations of Metallurg, Inc. for the month of July 1997.
Included in 1997 net income is an extraordinary item of $43.0 million
representing the cancellation of debt resulting from the consummation of the
Company's Reorganization Plan and a $5.1 million credit representing the effects
of revaluing the Company's assets and liabilities under fresh-start reporting.
Reorganization expenses for the first two quarters of 1997 and 1996 were $2.7
million and $1.4 million, respectively. Other income included gains on the sales
of the Company's New York office building of $2.7 million for the first two
quarters of 1997 and $3.2 million on the sale of land in Turkey in 1996.
RESULTS OF OPERATIONS -- 1996 COMPARED TO 1995
Total revenues for Metallurg and its subsidiaries decreased by 5.7%, from
$689.4 million in 1995 to $650.0 million in 1996, due to a significant decrease
in prices of certain products, particularly ferrovanadium and ferrotitanium, and
a decrease in the availability to the Company of raw materials from the former
Soviet Union. As described below, worldwide consumption of aluminum was
unchanged from 1995, but pricing competition among suppliers adversely affected
Metallurg's sales.
Gross margins decreased by 2.8% in 1996 compared to 1995. The price
increase of ferrovanadium in the first quarter of 1995 was not repeated in 1996,
as quoted prices stayed relatively steady throughout 1996. As a result, margins
on vanadium products fell by 45% in 1996, compared to the prior year. Tonnage
sales and prices of low carbon ferrochrome continued to improve in 1996 as
demand from the expanding aerospace industry increased, resulting in a 20% rise
in margins from 1995. Chromium metal margins increased by almost 80% due to
price improvements resulting from the strength of the aerospace industry and the
closure of an important competitor. Sales of aluminum products fell by 8% and
margins by 40%, as LSM declined to compete at some of the very low prices
offered by competitors. In the fourth quarter of 1996 a sharp appreciation of
sterling by almost 20% against the European currencies also negatively impacted
LSM. Gross margins on aluminum products at the Company's Brazilian operations
fell by 40% as overseas competition cut prices in an effort to penetrate the
South American market.
SG&A increased by 8.1% from $52.8 million in 1995 to $57.1 million in 1996
due to the restructuring of German operations into a holding company with
subsidiaries and a resulting reclassification of certain fixed personnel costs
from production costs to SG&A. SG&A represented 8.8% of the Company's sales in
1996, compared to 7.7% in 1995.
Operating loss was $11.2 million in 1996, compared to operating income of
$15.7 million in 1995. The loss in 1996 was principally due to an environmental
provision of $37.6 million, representing the anticipated future costs of
remediation and maintenance of various environmental projects at Shieldalloy. In
1995, operating income included a charge of $15.2 million for a restructuring of
the Company's principal German subsidiary into separate business units, and a
restructuring of the Company's mining operations in Brazil. Operating income in
1996 also was negatively impacted by the increase in SG&A and decrease in gross
margins in 1996, compared to 1995 as described above.
Other expense for 1996 was $6.8 million. The significant items included in
this expense consisted of the allowance of additional unsecured prepetition
claims of $10.5 million relating to withdrawal by Shieldalloy from a
multiemployer pension plan, the settlement of certain environmental claims and
additional claims by institutional debtholders. This was partially offset by the
gain on the sale in 1996 of a parcel of land owned by the Company's Turkish
subsidiary.
Net loss was $28.5 million in 1996, compared to net income of $1.7 million
in 1995. As discussed above, the principal reasons for this net loss were the
environmental provision of $37.6 million and the other expense of $6.8 million,
offset partially by $15.2 million in restructuring charges relating to the
Company's German and Brazilian subsidiaries recorded in 1995.
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<PAGE> 44
RESULTS OF OPERATIONS -- 1995 COMPARED TO 1994
Total revenues for Metallurg and its subsidiaries increased in 1995 by
24.4% from $554.3 million in 1994 to $689.4 million in 1995 because of increased
sales tonnages and prices of ferrochrome and master alloys and prices for
ferrovanadium. The major customer industries of aluminum, steel and superalloys
had strong production in 1995.
Gross margins increased by 47.7% from 1994 levels. Margins on vanadium
products increased by 250% as a perceived shortage of material at the end of
1994 and in the first quarter of 1995 caused prices to climb from an average of
$6.50/lb vanadium in the United States at the end of 1994 to $12.35/lb vanadium
by March 1995. By June 1995, prices averaged $7.75/lb vanadium. Margins on low
carbon ferrochrome rose by 170% due to the effect of anti-dumping duties imposed
on such products. Aluminum master alloys and compacted products also experienced
an increase in margins of 70%, as prices and volumes improved in the first three
quarters with increased aluminum consumption worldwide.
SG&A increased by 4.3% from $50.7 million in 1994 to $52.8 million in 1995
mainly due to the dollar weakening against European currencies. SG&A represented
7.7% of the Company's sales in 1995, compared to 9.2% in 1994. Reorganization
expenses in connection with the Company's Chapter 11 proceedings fell by $3.2
million from 1994 to 1995.
Operating income increased from $2.7 million in 1994 to $15.7 million in
1995. This increase resulted from significantly improved gross margins (an
increase of 47.7%), partially offset by increased restructuring charges relating
to the Company's German and Brazilian operations described above.
Included in other income for 1995 was a gain of $0.8 million on the sale of
property in New York. Also in 1995, the Company's Turkish subsidiary received
the first $1.0 million tranche of its gain on the sale of land that was no
longer in productive use. Other income for 1994 totaled $7.5 million and
included a gain on the sale of a building in New York and the gain on the
abandonment of a mining project in Zaire.
Net income was $1.7 million in 1995, compared to a loss of $2.0 million in
1994. As discussed above, the principal reasons were an increase of $27.7
million in gross margin and a decrease in reorganization expense of $3.2
million, partially offset by an increase of $12.6 million in restructuring
charges relating to the Company's German and Brazilian subsidiaries and $7.5
million in other income recognized in 1994.
LIQUIDITY AND FINANCIAL RESOURCES
General. The Company's sources of liquidity include cash and cash
equivalents, cash from operations and amounts available under credit facilities
including the proceeds of the Offering. Management believes that these sources
are sufficient to fund the current and anticipated future requirements of
working capital, capital expenditures, pension benefits, potential acquisitions
and environmental expenditures through at least 1998.
At July 31, 1997, the Company had $29.2 million in cash and cash
equivalents, and working capital of $148.6 million, as compared to $63.3 million
and $173.7 million, respectively, at December 31, 1996. For the two quarters
ended July 31, 1997, the Company generated $8.9 million in cash from operations.
In connection with the Reorganization Plan, however, the Company distributed
$59.4 million in cash, offset by a drawdown of prepetition letters of credit of
$9.7 million and proceeds from LSM debt of $8.1 million.
In connection with the Recapitalization, the Company paid a dividend of
$20.0 million.
Credit Facilities and Other Financing Arrangements. The Company has a
credit facility with certain financial institutions led by BankBoston, N.A., an
affiliate of BancBoston Securities Inc., as agent (the "Revolving Credit
Facility") which provides Metallurg, Shieldalloy and certain of their
subsidiaries with up to $50.0 million of financing resources at a rate per annum
equal to (i) the Alternate Base Rate plus 1.0% per annum, (the Alternate Base
Rate is the greater of the Base Rate or the Federal Funds Effective Rate plus
0.5%) or (ii) the reserve adjusted Eurodollar rate plus 2.5% for interest
periods of one, two or three months. The Revolving Credit Facility permits
borrowings of up to $50.0 million for working capital
43
<PAGE> 45
requirements and general corporate purposes, up to $30.0 million of which may be
used for letters of credit in the United States. Pursuant to the Revolving
Credit Facility, BankBoston, N.A. through its Frankfurt office, is providing up
to DM 20.5 million (approximately $11.7 million) of financing to GfE and its
subsidiaries (the "German Subfacility"), which is guaranteed by Metallurg, Inc.
and the other U.S. borrowers. Outstanding obligations under the Revolving Credit
Facility are limited to a borrowing base based on eligible accounts receivable,
eligible inventory and certain equipment. To the extent that the outstanding
amounts to GfE and its subsidiaries exceed the borrowing base of those
companies, a reserve will be established against the U.S. borrowing base. At
October 31, 1997, there were no outstanding loans and $23.6 million of letters
of credit outstanding in the United States under the Revolving Credit Facility
and approximately DM 20.5 million (approximately $11.7 million) of outstanding
loans under the German Subfacility. The Revolving Credit Facility and the German
Subfacility contain various covenants that restrict, among other things,
payments of dividends, share repurchases, capital expenditures, investments in
subsidiaries and borrowings. Substantially all of the assets of the U.S.
borrowers and guarantors under the Revolving Credit Facility are pledged to
secure all of the obligations under the Revolving Credit Facility (including the
German Subfacility), and all accounts receivable, inventory, the stock of GfE's
subsidiaries and certain other assets are pledged to secure the German
Subfacility. See "Description of Credit Facilities and Other Financing
Arrangements." The Company used a portion of the proceeds of the Offering to
repay outstanding loans under the German Subfacility (but not to reduce the
related commitment thereunder).
LSM has several credit facilities with Barclays Bank plc which provide LSM
and its subsidiaries with up to L7.0 million (approximately $11.3 million) of
borrowings, up to L3.0 million (approximately $4.9 million) of foreign exchange
exposure and up to L2.2 million (approximately $3.6 million) for other ancillary
banking arrangements including bank guarantees (the "LSM Credit Facility"). At
July 31, 1997, there were no outstanding borrowings under the LSM Credit
Facility. Borrowings under the LSM Credit Facility are payable on demand. The
outstanding loans under the LSM Credit Facility bear interest at the lender's
base rate plus 1.0%.
On April 11, 1997, LSM entered into a term loan facility with NM Rothschild
& Sons Limited in the amount of L5.0 million (approximately $8.1 million) (the
"LSM Term Loan Facility"), the proceeds of which were used to make a dividend to
Metallurg in order to fund the Reorganization Plan.
The LSM Credit Facility, together with the LSM Term Loan Facility, were
secured by substantially all of the assets of LSM and its subsidiaries. The LSM
Credit Facility restricted LSM's ability to pay dividends and management fees to
Metallurg. LSM has obtained consent from its working capital lender to permit
increased dividends to the Company in an amount up to 100% of LSM's annual net
income, contingent upon repayment of the LSM Term Loan Facility. The Company
used proceeds from the Offering to repay the LSM Term Loan Facility. As a
result, the lender under the LSM Credit Facility released the security pledged
for its benefit and permitted increased dividends to the Company in an amount up
to 100% of LSM's annual net income. See "Description of Credit Facilities and
Other Financing Arrangements."
EWW has committed lines of credit with several banks in the aggregate
amount of DM 15.0 million (approximately $8.6 million). The credit facilities
expire July 1, 1999 and bear interest at a rate from 7.0% to 7.5%. As of July
31, 1997, there were no outstanding borrowings under this facility. See
"Description of Credit Facilities and Other Financing Arrangements."
In addition, several of the other foreign subsidiaries of Metallurg, have
credit facility arrangements with local banking institutions to provide funds
for working capital and general corporate purposes. These local credit
facilities contain restrictions which vary from company to company. At July 31,
1997, there were $0.4 million of outstanding loans under these local credit
facilities. See "Description of Credit Facilities and Other Financing
Arrangements."
The Company's subsidiaries are, in certain circumstances, subject to
restrictions under local law and under their credit facilities that limit their
ability to pay dividends to Metallurg. See "Risk Factors -- Holding Company
Structure; Restrictions on Dividend Payments by Subsidiaries" and "Description
of Credit Facilities and Other Financing Arrangements."
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<PAGE> 46
EWW has a contingent obligation to a German state pension authority which
as of July 31, 1997, was DM 8.2 million (approximately $4.7 million). The
Company expects that EWW will pay approximately DM 6.5 million (approximately
$3.7 million) to the pension authority in 1998 in respect of this obligation.
See "Description of Credit Facilities and Other Financing Arrangements -- EWW
Financial Arrangement with German State Pension Board."
Capital Expenditures. The Company invested $9.5 million in capital
expenditures during 1996 and $6.1 million during the first two quarters of 1997.
The Company's capital expenditures include projects related to improving the
Company's operations and productivity improvements, and replacement projects and
ongoing environmental requirements (which are in addition to expenditures
discussed in "-- Environmental Remediation Costs"). The Company anticipates
capital expenditures will be approximately $12.3 million during 1997, including
approximately $3.0 million to install a new plant for the production of chromium
metal. Capital expenditures are expected to increase significantly over 1997
levels to approximately $24.5 million in 1998, including $10.4 million of
capital investments which the Company believes will result in decreased costs of
production, improved efficiency and expanded production capacities. The
remaining capital expenditures planned for 1998 are primarily for replacement
and major repairs of existing facilities, some of which were deferred from
earlier periods. Although the Company has budgeted these items in 1998, the
Company has not committed to complete these projects which are contingent on
senior management approval and other conditions. The Company believes that these
projects will be funded through internally generated cash, borrowings under the
Revolving Credit Facility and local credit lines.
Environmental Remediation Costs. In 1996, the Company elected early
adoption of the American Institute of Certified Public Accountants Statement of
Position ("SOP") 96-1, "Environmental Remediation Liabilities," which among
other requirements, states that losses associated with environmental remediation
obligations are accrued when such losses are deemed probable and reasonably
estimable. Such accruals generally are recognized no later than the completion
of the remedial feasibility study and are adjusted as further information
develops or circumstances change. Costs of future expenditures for environmental
remediation obligations are generally not discounted to their present value.
During the first two quarters of 1997, the Company expended $2.1 million for
environmental remediation.
As part of the Reorganization Plan, Shieldalloy entered into settlement
agreements with various environmental regulatory authorities with regard to all
of the significant environmental remediation liabilities of which it is aware.
Pursuant to these agreements, Shieldalloy has agreed to perform environmental
remediation which, as of July 31, 1997, had an estimated cost of completion of
$44.5 million. Of this amount, approximately $2.5 million is expected to be
expended in the second half of 1997, $4.5 million in 1998, $4.3 million in 1999
and $8.1 million in 2000. In addition, the Company estimates it will make
expenditures of $5.8 million with respect to environmental remediation at its
foreign facilities. Of this amount, approximately $2.2 million is expected to be
expended in 1998, $0.7 million in 1999 and $0.7 million in 2000. These amounts
are not included in the calculation of operating income.
Effects of Recent Issued Accounting Standards. In February 1997, the
Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share." This statement is
effective for financial statements issued for periods ending after December 15,
1997. Management has evaluated the effect on its financial reporting from the
adoption of this statement and does not believe it to be significant.
In February 1997, the FASB also issued SFAS No. 129, "Disclosure of
Information about Capital Structure." This statement is effective for financial
statements issued for periods ending after December 15, 1997. Management has
evaluated the effect on its financial reporting and, as it contains no change in
disclosure requirements of Opinions 10 and 15 and Statement 47, no further
disclosures are needed.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement is effective for financial statements issued for periods
ending after December 15, 1997. Management has
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<PAGE> 47
evaluated the effect on its financial reporting from the adoption of this
statement and has found the majority of required disclosures to be not
applicable and the remainder to be not significant.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information." SFAS No. 131 requires the reporting of
profit and loss, specific revenue and expense items, and assets for reportable
segments. It also requires the reconciliation of total segment revenues, total
segment profit or loss, total segment assets, and other amounts disclosed for
segments to the corresponding amounts in the general purpose financial
statements. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. Management has not yet determined what additional disclosures may be
required in connection with adopting SFAS No. 131.
EFFECTS OF INFLATION
Inflation has not had a significant effect on the Company's operations.
However, there can be no assurance that inflation will not have a material
effect on the Company's operations in the future. The Company is subject to
price fluctuations in its raw materials and products. These fluctuations have
affected and will continue to affect the Company's results of operations. See
"-- Results of Operations."
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<PAGE> 48
BUSINESS
OVERVIEW
Metallurg is a leading international producer and seller of high quality
metal alloys and specialty metals used by manufacturers of steel, aluminum,
superalloys and chemicals and other metal consuming industries. The Company
sells more than 500 different products to over 3,000 customers worldwide. In
addition to selling products manufactured by the Company, Metallurg also
distributes products manufactured by third parties ("Merchanted Products")
through its global sales force. For the year ended December 31, 1996, the
Company had $648.8 million in sales, $365.1 million of which were from products
manufactured by the Company and $283.7 million of which were from Merchanted
Products. The Company sells products principally to customers in the iron and
steel industry, the aluminum industry and the superalloy and titanium
industries. Approximately 51% of the Company's 1996 sales were made to the iron
and steel industry, 15% to the aluminum industry, 11% to the superalloy and
titanium alloy industries, 4% to the chemicals industry, and the remaining 19%
were made to other industries, none of which was individually significant to the
Company.
The Metallurg group was founded in 1911 with the construction of a vanadium
alloy and chemical producing plant in Nuremberg, Germany. The Company began
mining chrome ore in Turkey in 1916, and constructed a ferrochrome manufacturing
plant in Weisweiler, Germany in 1917. In subsequent years, the Company's
customer base grew throughout Europe and, in 1938, the Company added its first
subsidiary in the United Kingdom and a sales and distribution subsidiary in
Switzerland. Metallurg was established as a New York holding company in 1947 and
reincorporated as a Delaware corporation in 1997.
BUSINESS STRATEGIES
The Company's business objective is to maximize the long-term profitability
of its operations while maintaining a strong financial position through the
various business and market cycles. The Company's continuing strategies for
achieving this objective are as follows:
Focus on Core Businesses. The Company seeks to achieve high market shares
in markets where the Company can differentiate itself on the basis of technical
expertise and production quality. As part of this strategy, the Company is
focusing its production and sales efforts on higher margin specialized alloy
businesses, and is investing in capital projects that will expand its capacity
or lower its costs in those areas. The Company recently completed construction
of a chromium metal plant in the United Kingdom that will increase its
production capacity of chromium metal for use in the steel, aluminum and
superalloy industries. The Company has also expanded its vacuum furnace capacity
at its German facilities, which will enhance its production of vanadium aluminum
and molybdenum aluminum for use by the titanium industry, and has undertaken an
upgrade of its aluminum furnace facilities at its United Kingdom plant. In
recent years, the Company has divested certain non-core and lower margin
businesses, including its tantalum carbide, U.S. titanium scrap processing and
tin and aluminum trading businesses.
Maintain Leading Market Position in Niche Products. The Company believes
that it maintains leading global market shares in special grades of low carbon
ferrochrome consumed by the superalloy industry, chromium metal and aluminum
master alloys. The Company believes that its competitive advantages include
strong relationships with its customers and suppliers and a field sales force
comprised primarily of metallurgists who are knowledgeable about the products
and their many applications. In addition, the Company's access to high quality
and continuing supplies of chrome ore through its ownership of mines in Turkey
gives the Company a significant competitive advantage over other low carbon
ferrochrome producers.
Improve Financial Flexibility. With the Offering, the Company has improved
its financial position by increasing liquidity and extending the maturities and
the amortization schedule of its debt. Metallurg and Shieldalloy also have
recently increased the maximum amount of their Revolving Credit Facility from
$40.0 million to $50.0 million. Management believes that the Company's capital
structure following the Offering and the increase in availability of funds under
the Revolving Credit Facility will improve the
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<PAGE> 49
Company's ability to withstand future cyclical downturns in the steel, aluminum
and superalloy industries. See "Risk Factors -- Dependence on Cyclical Markets."
At July 31, 1997, after giving effect to the Offering and the application of the
estimated net proceeds therefrom, the Company would have had approximately $44.7
million of cash and cash equivalents on hand. After giving effect to the
Offering and the application of the estimated net proceeds therefrom, Metallurg
expects to have available borrowing capacity under the Revolving Credit Facility
of approximately $25 million. See "Description of Credit Facilities and Other
Financing Arrangements." In addition, in order to increase dividends from its
foreign subsidiaries, the Company (i) has taken steps to enable its German
operating subsidiaries to make dividend payments by late 1998, and (ii) has
obtained consent from its working capital lender at its United Kingdom operating
subsidiaries to permit increased dividends to the Company in an amount up to
100% of such subsidiaries' net income in any year, contingent upon repayment of
the LSM Term Loan Facility. The Company repaid the LSM Term Loan Facility with
proceeds from the Offering. See "Risk Factors -- Holding Company Structure;
Restrictions on Dividend Payments by Subsidiaries."
Aggressively Manage Costs. In recent years, Metallurg has instituted
measures to reduce operating costs and enhance profitability. Through a
combination of divesting non-core businesses, using contractors and improving
productivity, the Company has reduced headcount from 2,508 at the end of 1992 to
1,523 as of June 30, 1997, while sales have grown from $591.1 million in 1992 to
$639.9 million for the four quarters ended July 31, 1997. The Company has
established representation offices in Russia and China which have enabled the
Company to develop new sources of product supply for the Company's manufacturing
and distribution businesses, as it seeks to have as many low cost providers of
raw materials as possible. The Company has achieved certain savings through this
process, particularly in procuring chromium-, titanium- and vanadium-containing
materials. In addition, the Company has restructured its operations into
individual business units focused on particular customer groups in order to
better manage costs and improve profitability.
The Company expects to spend approximately $10.4 million of its $24.5
million of 1998 budgeted capital expenditures on capital projects which the
Company believes will improve production efficiencies, lower manufacturing costs
and expand production capacities. The remaining capital expenditures planned for
1998 are primarily for replacement and major repairs of existing facilities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Capital Expenditures."
Improve Product Mix. The Company continually pursues opportunities to
maximize sales through the Company's existing distribution network by improving
its product mix. The Company realizes improvements in its product mix by (i)
divesting low margin products, (ii) developing value added products such as
titanium carbide, which the Company sells to the forging industry, and vanadium
tetrachloride, which the Company sells to the synthetic rubber industry, and
(iii) acquiring, or entering into merchanting arrangements for, product lines
which complement the Company's core product offerings.
The Company believes that there may be attractive opportunities for it to
acquire product lines or businesses in the future. Although the Company has no
existing arrangements or understandings with regard to any acquisitions, to the
extent that the Company determines to acquire any product lines or businesses,
the Company currently expects that it would fund those acquisitions from its
available cash and credit lines and, possibly, from additional third party
financing.
PRODUCTS AND MARKETS
The Company sells more than 500 different products to over 3,000 customers
worldwide. The following table sets forth the dollar amounts and percentages of
the Company's sales attributable to the
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<PAGE> 50
Company's various markets for the periods presented, exclusive of commissions
earned by the Company:
<TABLE>
<CAPTION>
TWO QUARTERS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------------------- JULY 31,
SECTOR 1994 1995 1996 1997
- ----------------------------- ------------- ------------- ------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Steel........................ $286.1 51.7% $369.8 53.8% $328.1 50.6% $150.6 46.7%
Aluminum..................... 85.4 15.4 105.9 15.4 96.6 14.9 49.2 15.3
Superalloy................... 58.0 10.5 61.7 9.0 71.3 11.0 49.0 15.2
Chemicals.................... 23.9 4.3 35.7 5.2 29.4 4.5 14.4 4.5
Other........................ 100.1 18.1 114.9 16.6 123.4 19.0 58.9 18.3
------ ---- ------ ---- ------ ---- ------ ----
Total................... $553.5 100% $688.0 100% $648.8 100% $322.1 100%
====== ==== ====== ==== ====== ==== ====== ====
</TABLE>
The following table sets forth the most significant product groups based on
the Company's sales for the year ended December 31, 1996:
TOP TEN PRODUCT GROUPS BY SALES
----------------------------------------
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PERCENT
NAME OF PRODUCT GROUP 1996 SALES OF TOTAL
------------------------------------- ---------- ---------
<S> <C> <C>
Chrome products...................... $111.0 17.1%
Aluminum products.................... 88.6 13.7
Vanadium products.................... 76.0 11.7
Silicon products..................... 60.3 9.3
Columbium products................... 43.8 6.8
Metal powders........................ 31.3 4.8
Boron products....................... 15.0 2.3
Nickel products...................... 14.8 2.3
Titanium products.................... 14.5 2.2
Tantalum products.................... 10.6 1.6
------ -----
Total...................... $465.9 71.8%
====== =====
Total sales.......................... $648.8 100.0%
====== =====
</TABLE>
Iron and Steel Industry; Specialty Ferroalloys. The Company manufactures
and sells specialty ferroalloys for use in the iron and steel industry.
Metallurg's principal specialty ferroalloy products are ferrovanadium and
standard grades of low carbon ferrochrome. The Company also manufactures and
sells ferrosilicon, ferrotitanium, ferrocolumbium and ferroboron. These products
are used by iron and steel producers to increase temperature and corrosion
resistance and strength-to-weight ratios in the end-use products. Ferroalloys
are found in many end-use products in a wide variety of industries such as the
aerospace, automotive, energy and construction industries. The Company's iron
and steel industry customers include some of the world's largest producers, such
as Algoma Steel Inc., British Steel plc, Nucor Corporation, Sandvik AB, Thyssen
AG and US Steel Group. For the year ended December 31, 1996, the Company had
sales to the iron and steel industry of approximately $328.1 million,
representing 50.6% of the Company's total sales.
The iron and steel industry is cyclical, with iron and steel consumption
depending greatly on demand for durable goods, such as automobiles, construction
materials, machinery, appliances and miscellaneous manufactured products. The
Company believes that the iron and steel industry is currently strong, having
emerged from a prolonged recession, particularly in North America and Europe,
which lasted from 1989 to 1992. The recession resulted in negative pressures on
alloy prices and volumes and in iron and
49
<PAGE> 51
steel production cutbacks. In addition, the Company's markets were disrupted in
recent years by large flows of competing products from the former Soviet Union.
The end of the Cold War and the resulting decrease in United States and Russian
defense spending also contributed to a reduced demand for the Company's products
and low levels in the prices of ferroalloys. Specifically, global raw steel
production declined from a peak of 786 million tons in 1989 to 722 million tons
in 1992. Production then increased to 752 million tons in 1996.
The Company's profitability has improved due to increases in production
volumes and sales prices as demand for steel has increased. Furthermore, during
the prolonged industry recession, the Company achieved significant reductions in
costs that have contributed to improvements in profitability and cash flow and
increased stabilization in its business. Management also believes that the flow
of competitive products from the former Soviet Union has slowed due to reduced
stockpiles of inventory and anti-dumping actions affecting imports of low carbon
ferrochrome and ferrovanadium from the former Soviet Union.
According to Resource Strategies, Inc. ("RSI"), growth of approximately
3.7% per year is forecast for Asian raw steel production from 1996 through 2001,
while the growth in output in North America and Europe is projected to remain
stable at approximately 0.6% per year for that period. If actual results reflect
the forecasted growth and stability, the Company would not expect a recurrence
of the severe price cutting which took place in the 1980's when steel production
fell. The Company believes that it is well positioned to take advantage of
opportunities in Eastern Europe, with its offices in Poland and Yugoslavia,
where growth rates of raw steel production of approximately 2.8% per year from
1996 through 2001 are forecast by RSI, and of a more stable and developing Latin
America, with its operations in Mexico and Brazil, where RSI forecasts growth
rates of raw steel production of approximately 3.3% per year from 1996 through
2001. Worldwide 1997 raw steel production through August is running at an annual
rate of 770 million tons, up 18 million tons from 1996.
Aluminum Industry; Aluminum Master Alloys and Compacted Products. The
Company manufactures a series of grain refining and other alloys for sale to the
primary aluminum industry. Metallurg's principal products in this category
include titanium boron tertiary alloys, strontium master alloys and chrome, iron
and manganese briquettes and tablets. The Company also manufactures binary
master alloys containing boron, zirconium or titanium. Master alloys containing
boron improve the conductivity of aluminum alloys for electric cable, while
master alloys containing strontium modify silicon-containing foundry alloys for
improved mechanical properties, as in automotive wheels. Compacted products in
the form of briquettes containing chrome, iron, manganese or other metals
maximize the efficiency of recovery and enhance rapid solubility when added to
aluminum melt in order to provide ductility for can sheet or strength for
aerospace applications. Titanium binary master alloys and titanium boron
tertiary alloys are widely utilized for the grain refining of cast aluminum
alloy rolling ingots, billets and continuously cast sheet. This grain refinement
improves the castability and the mechanical properties of the aluminum. The
Company sells aluminum master alloys and compacted products worldwide to major
aluminum producers, including Alcan Aluminum Limited, Alcoa Aluminum Co. of
America, Aluminium Pechiney, Reynolds Metals Co. and Sumitomo Metals Industries
Ltd. For the year ended December 31, 1996, the Company had sales to the aluminum
industry of $96.6 million, representing 14.9% of the Company's total sales.
Like the iron and steel industry, the aluminum industry is cyclical.
Aluminum consumption fluctuates with demand for durable goods, such as
construction materials, machinery, transportation and miscellaneous manufactured
products. Global demand for aluminum is heavily concentrated in the economically
advanced regions of North America, Europe and Japan. In 1996, these markets
collectively accounted for 70% of the western world demand for primary aluminum.
According to RSI, western world primary aluminum production is expected to
increase by 4.4% per year from 1996 through 2001.
Although exports of primary aluminum from the former Soviet Union have
contributed to increased supply and reduced prices in the industry since 1989,
the Company was less affected by the recession in this industry than in the iron
and steel industry. This is because the Company's products are not used in
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<PAGE> 52
the primary metal stage, but instead are used in the downstream processing of
aluminum products. Increases in the substitution of aluminum for steel, such as
in automobile manufacturing, have a significant positive impact on the aluminum
industry, but only a small effect on the iron and steel industry. The Company
believes that it is well positioned to capitalize on future growth areas in the
aluminum industry, such as transportation, due to the increased use of aluminum
in forging and casting applications, and building and construction.
Superalloy and Titanium Alloy Industries; Specialty Metals and Alloys. The
Company manufactures and sells specialty metals and alloys used by producers of
superalloys and titanium alloys to enhance the performance of finished metal
products. Metallurg's principal products in this category include chromium
metal, special grades of low carbon ferrochrome and vanadium aluminum. The
Company also manufactures and sells high purity ferrocolumbium and nickel
columbium. Use of these specialty metals and alloys results in elevated
temperature strength and oxidation resistance. End-uses for specialty metals
include high performance castings and forgings for aircraft engines and frames,
gas turbines and boiler tubes. While the aerospace and defense industries are
the largest consumers of these specialty metals and alloys, many new
applications for these metals and alloys have been developed for use in the
power generation, oil and gas, chemical, consumer goods and biomedical
industries. The Company's customers for specialty metals and alloys include
Allegheny Teledyne, Inc., Carpenter Technology Corp., INCO Alloys, Kanthal AB,
Oregon Metallurgical Corp., RMI Titanium Company, Special Metals Corporation and
Titanium Metals Corp. For the year ended December 31, 1996, the Company had
sales of metals and alloys to these industries of $71.3 million, representing
11.0% of the Company's total sales.
The aerospace industry is the largest user of superalloys. A significant
reduction in the manufacture of military and civilian aircraft between 1989 and
1992 resulted in a 30% decrease in global demand for superalloys and a resulting
adverse impact on the Company and other superalloy producers. The producers of
superalloys have partly counteracted this decline by finding new consumers in
the power generation, oil and gas, chemical, consumer goods and biomedical
industries.
Since 1994, however, demand by the aerospace industry has positively
impacted the titanium and superalloy producers. According to the Aerospace
Industries Association, there were 595 orders for commercial transports in 1996
while in 1993 there were 31 orders. Superalloy and titanium producers are adding
capacity to cope with demand and shorter lead times. The industry built 496
airliners in 1996 and expects to deliver 701 in 1997 and a further 15,000
between 1997 and 2015. Additionally, the number of surplus airplanes declined
from 800 in 1991 to 250 in 1996 and is expected to reach zero in 1997 or 1998.
If these forecasts prove to be accurate, the Company believes that it will
experience continued profitability of its chromium metal, low carbon
ferrochrome, vanadium aluminum and high purity nickel and ferrocolumbium which
are produced in the Company's U.S., UK and German facilities.
Other Industries and Products. In addition to the product lines described
above, Metallurg manufactures and distributes a number of products used outside
of the steel, aluminum and superalloy industries. These products include coating
materials, which are sold to electronic and tool manufacturers, vanadium
oxytrichloride for use in the synthetic rubber industry and polishing powders
used by the glass polishing industry. These products generally are
higher-margin, technically sophisticated products. For the year ended December
31, 1996, the Company had $152.8 million in sales of these products,
representing 23.5% of the Company's total sales. The most significant customer
industry for products in this category is the chemicals industry, which
accounted for $29.4 million of the Company's 1996 sales in this category,
representing 4.5% of the Company's total sales.
MANUFACTURING PROCESSES
The Company's manufacturing processes involve melting, refining, casting,
sizing, blending and packaging operations, which vary from product to product.
For example, in the manufacture of low carbon ferrochrome, EWW consumes raw
materials including chrome ore, predominantly from the Company's Turkish mines,
and silicochrome. The raw materials are melted and reductants are added to
refine the chemistry of the production batch. The batch is poured into casting
molds which are cooled
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and then crushed, sized, blended and packaged. The manufacture of ferrovanadium
at the Company's Cambridge, Ohio, plant follows an analogous process of melting,
casting and crushing, except that vanadium-containing raw materials are used. In
general, the manufacture of aluminum master alloys also follows similar
principles using aluminum and other additives; however, these master alloys are
generally cast as waffle plate or processed to a solid rod form for delivery to
the customer. The manufacture of briquettes and tablets involves the grinding
and blending of raw materials, the compression of these materials into a
compacted form and packaging for delivery to the customer. More sophisticated
production routes are used for highly specialized products which can require
chemical processing or the use of vacuum furnaces and a variety of other
equipment.
CUSTOMERS
For the year ended December 31, 1996, approximately 51% of the Company's
sales were made to the iron and steel industry, 15% to the aluminum industry,
11% to the superalloy and titanium alloy industries, 4% to the chemicals
industry, and the remaining 19% were made to other industries, none of which was
individually significant to the Company. No single customer accounted for more
than 5% of the Company's sales in 1996.
The following table sets forth a representative sample of the Company's
significant customers in each of its customer industry categories:
<TABLE>
<CAPTION>
IRON AND STEEL ALUMINUM SUPERALLOY AND TITANIUM OTHER
- --------------------------- ----------------------- --------------------------- -------------------------------
<S> <C> <C> <C>
Algoma Steel Inc. Alcan Aluminum Limited Allegheny Teledyne, Inc. AKZO Chemical Company
Allegheny Teledyne, Inc. Alcoa Aluminum Co. of Carpenter Technology Corp. BASF Corporation
Armco Inc. America INCO Alloys Cabot Corp.
Avesta AB Aluminium Pechiney Kanthal AB Treibacher Schleifmittel Corp.
British Steel plc Reynolds Metals Co. Oregon Metallurgical Corp. Rwe Dea
Inland Steel Co. Sumitomo Metals RMI Titanium Company
Iscor Limited Industries Ltd. Sandvik AB
The LTV Corporation Shinwa Bussan Titanium Metals Corp.
Northwest Steel & Wire Co.
Nucor Corporation
Outokumpu OY
Svenskt Stal AB
Sandvik AB
Thyssen AG
US Steel Group
</TABLE>
MERCHANTED PRODUCTS
The merchanting of products manufactured by third parties is a natural
complement to the Company's manufacturing operations. Merchanted Products
leverage the Company's global 124 member sales staff by providing a broader
product offering to its existing customers without incurring significant
additional overhead. As a result of offering a broader product line, Metallurg
becomes more important to its customers, as they can more conveniently procure
supplies and decrease their sourcing costs by reducing their number of vendors
and optimizing freight costs. In addition, merchanting activities provide the
Company with greater access to raw materials and to products for resale. The
Company's merchanting revenues are from three sources: "back-to-back" purchases
and sales which eliminate price risk to the Company, purchases of stocks for the
Company's own account for subsequent resale to customers and agency sales for
the account of another party where the Company receives a commission and does
not take title to the inventory. For the year ended December 31, 1996, the
Company received commissions of $1.2 million for acting as agent with regard to
third party sales of $46.3 million. Commission revenues are not included in the
sales figures contained herein.
FACILITIES AND OPERATIONS
Production Facilities. Metallurg is organized geographically, having
established a worldwide sales network built around the Company's core production
facilities in the United States, the United Kingdom and Germany. These
production units have sophisticated laboratories providing analytical, research
and
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<PAGE> 54
development support to in-house operations, as well as analytical services to
customers and third parties. The Company owns all of the facilities listed.
The following table sets forth for each Metallurg operating subsidiary the
location of its facilities, the key products manufactured by such subsidiary and
each facility's 1996 sales of manufactured products and Merchanted Products:
<TABLE>
<CAPTION>
SALES FOR THE
YEAR ENDED
DECEMBER 31,
OPERATING SUBSIDIARY LOCATION KEY PRODUCTS 1996(A)
- ------------------------- ------------------ ----------------------------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Shieldalloy Newfield, New Aluminum Briquettes and $ 163.9
Jersey Tablets
(Plant) Aluminum Master Alloys
Ferrotitanium
Metal Powders
Cambridge, Ohio Ferrovanadium 35.8
(Plant) Grainal
Vanadium Chemicals
LSM Rotherham, UK Aluminum Alloying Tablets 147.6
(Plant) Aluminum Master Alloys
Chromium Metal
Ferroboron
Ferrotitanium
Glass Polishing Powders
Metal Powders
Nickel Boron
Nickel Cobalt Magnet
Alloys
GfE Nuremberg, Germany Chromium Metal 91.7
(Plant) Columbium Alloys
Magnet Alloys
Special Master Alloys
Vanadium Aluminum
Vanadium Chemicals
EWW Eschweiler- Low Carbon Ferrochrome 71.2
Weisweiler,
Germany
(Plant)
Aluminium Powder Co. Ltd. Holyhead, UK Atomized Aluminum 19.2
(Plant) Powder
Companhia Industrial Sao Joao del Rei, Aluminum Master Alloys 13.0
Fluminense Brazil Columbium Oxide
(Plant) Tantalum Oxide
Turk Maadin Sirketi A.S. Kavak, Tavas and Chrome Ore 7.1
Gocek, Turkey
(Mines)
</TABLE>
- ---------------
(a) Includes external and intercompany sales, except for sales by Aluminium
Powder Co. Ltd., which do not include sales to its parent company LSM.
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<PAGE> 55
Sales. The Company has sales personnel both at its production facilities
and at its 17 separate sales offices. Set forth below is a list of sales
personnel by the country in which they are located as of June 30, 1997.
<TABLE>
<CAPTION>
NUMBER OF SALES
LOCATION PERSONNEL
--------------------------------------------- ---------------
<S> <C>
Brazil....................................... 5
Canada....................................... 2
Germany...................................... 39
Italy........................................ 3
Japan........................................ 1
Mexico....................................... 3
Poland....................................... 3
South Africa................................. 8
Sweden....................................... 6
Switzerland.................................. 4
United Kingdom............................... 24
United States................................ 25
Yugoslavia................................... 1
---
Total.............................. 124
===
</TABLE>
RAW MATERIALS
Metallurg produces a wide variety of products which are sold into a number
of different metals industries. The Company also has followed a strategy of
specializing in products which command higher premiums because of their relative
technical sophistication; consequently, there is no single raw material which
makes up the basis of the Company's entire production.
The Company's Turkish subsidiary mines chrome ore which is supplied to EWW
for the production of low carbon ferrochrome. Management believes the mines have
identifiable reserves of 1.3 million tons and probable reserves of 700,000 tons
that would last until 2013.
For the production of chromium metal, the Company's UK-based subsidiary
purchases chromium oxide from the world's major producer, British Chrome
Chemicals, and supplements this supply with additional quantities from the
former Soviet Union. This product also requires large quantities of aluminum
powder substantially sourced from an affiliate of the Company.
The Company's four aluminum processing plants in the U.S., UK and Brazil
buy approximately 30,000 tons of virgin aluminum from producers worldwide while
important alloying chemicals are sourced from five different suppliers around
the world.
Titanium scrap is sourced in significant quantities for the production of
ferrotitanium and other titanium containing products from countries active in
the aerospace industry, such as the U.S., Russia and the UK, and from sellers of
surplus military equipment.
Vanadium pentoxide in its various forms is the source of raw material for
the Company's production of ferrovanadium, vanadium chemicals and vanadium
aluminum. For ferrovanadium production, the Company purchases slag containing
vanadium resulting from steel-making in South Africa and residues from
petrochemical companies resulting from the refining of petrochemical products
and from electric utilities which generate ash containing vanadium as a result
of burning fuel oil. The Company currently obtains a majority of these raw
materials from two sources. See "Risk Factors -- Limited Sources for Raw
Materials." Vanadium chemicals and vanadium aluminum are produced from vanadium
pentoxide which is purchased on the open market and from vanadium residues which
are consumed in the Company's own production.
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<PAGE> 56
Niobium (columbium) oxide which is used as a raw material for the
production of sophisticated alloys by GfE and Shieldalloy is principally
supplied by the Company's Brazilian subsidiary which processes a variety of
tantalum- and niobium containing minerals, ores and residues through its
chemical plant.
The Company also utilizes a host of other raw materials such as cobalt,
nickel, boric acid, mischmetal, manganese, chrome silicide, etc., in the
manufacture of its wide product range which are purchased as required from
producers or traders. Most purchases are made on a spot basis at market price to
minimize the risk of exposure to market fluctuations.
COMPETITION
Although the Company faces competition in each of its markets, the Company
does not believe that any single competitor competes with Metallurg in all of
its products or markets.
Iron and Steel Industry. In North America, products manufactured by
Strategic Minerals Corp. (Stratcor) and Masterloy Products Ltd. (Aimcor) compete
with the Company's ferrovanadium products. In Europe and the rest of the world,
Treibacher Industrie AG competes with the Company in its ferrovanadium products,
and a number of small producers and products from Russia compete with
Metallurg's ferrotitanium products. In standard grades of low carbon
ferrochrome, competition comes worldwide from Samancor Ltd. and Zimbabwe Alloys
Ltd. (Zimalloys).
Aluminum Industry. Competition is becoming more international because of
the growing number of master alloy and compacted product manufacturers. In
Europe and the Far East, KBM Affilips Ltd., Hydelko, Anglo Blackwells and
Aleastur-Asturiana de Aleaciones SA compete against products manufactured by
LSM, while in North and South America, KB Alloys and Milward Alloys Inc. (a
distribution agent of KBM Affilips Ltd.) compete against the Company in master
alloys. Competition in compacted products comes mainly from Elkem SA in North
America and Hoesch in the rest of the world.
Superalloy and Titanium Alloy Industries. Strategic Minerals Corp.
(Stratcor) and Reading Alloys Inc. compete internationally with the Company in
vanadium aluminum. Reading Alloys Inc. also competes in sophisticated alloys for
the superalloy industry, as do CBMM-Cia Brasileira de Metalurgica e Mineracao,
Cabot Corporation and H.C. Starck GmbH in certain products. The Company has no
significant competitor in special grades of low carbon ferrochrome. Delachaux
Division Metaux and, to a limited extent, Elkem SA compete with the Company in
chromium metal.
RESEARCH AND DEVELOPMENT
Research and development ("R&D") is carried out on behalf of the Company in
its two Technical Centers by a 15-member team at LSM and a five-member team at
GfE, both supported as necessary by staff drawn from production. The Technical
Centers have furnaces, laboratories, milling and testing equipment with R&D
efforts linked to product and process improvement as well as the development of
new product lines. Strong relationships are maintained with customers and
materials departments of universities. Recently, successful projects in LSM
include a new carbon-based grain refiner for the aluminum industry developed
jointly with Shieldalloy, titanium carbide alloys for addition to rolls in the
iron and steel industry and Raney type catalysts for the chemical industry. In
Germany the research and development is focused on advanced intermetallic phases
for structural and functional applications as well as development recently of
nickel aluminum sputtering targets, improvement of granulation techniques for
metal alloy powders and development of multinary master alloys.
EMPLOYEES
As of June 30, 1997, the Company employed over 1,500 people worldwide.
Labor unions represent approximately 50% of the Company's employees. Employees
are represented by unions at seven locations in the United States, the United
Kingdom, Germany and Brazil. The Company's bargaining agreement with the United
Steel Workers, which covers approximately 70 employees at the Cambridge, Ohio
plant, is scheduled to be renegotiated in June 1998. Many of the collective
bargaining agreements covering the Company's union employees at its foreign
subsidiaries are renewable on an annual basis. The Company's relationships with
its unions are managed at the local level and are considered by
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<PAGE> 57
management to be good. The Company has not been affected by strikes in the last
ten years (other than one in Turkey which occurred in 1988), and there has not
been a strike at any of the Company's United States facilities for over twenty
years.
BANKRUPTCY
On April 14, 1997, Metallurg and Shieldalloy consummated the Reorganization
Plan. Metallurg and Shieldalloy sought Chapter 11 protection in September 1993
following the Company's inability to restructure or refinance its long-term
indebtedness and revolving credit facility in light of the confluence of
numerous economic factors which negatively impacted the Metallurg Group's
businesses and caused the Company to default on certain then-outstanding
indebtedness. In particular, the economic recession that began in 1989 in
end-use markets, such as the aerospace, automotive, durable goods, construction
and defense sectors, placed significant downward pressure on alloy prices and
volumes. In addition, increased competition as a result of sales by exporters
from the former Soviet Union of excess stocks of metals and alloys precipitated
by the economic collapse of the former Soviet Union and the end of the Cold War
drove prices of ferroalloys in Europe to very low levels. Moreover, in the wake
of reductions in United States defense spending, there was a reduction in demand
in the market for superalloys.
The Company has sought to stabilize and strengthen its business since the
bankruptcy filing through the implementation of the business strategies
described above. As a result of the consummation of the Offering and the other
financial arrangements made by the Company, the Company believes that its
financial position has improved from 1993 with enhanced liquidity and extended
maturities of its debt. In response to the dumping by the former Soviet Union,
the Company sought and obtained anti-dumping orders against Russia for imports
of ferrovanadium into the United States and against Russia, Kazakhstan and
Ukraine for imports of low carbon ferrochrome into Europe. See "Risk
Factors -- End of Anti-dumping Duties." The Company believes that most of the
stockpiles in the former Soviet Union have been depleted and, therefore, if the
anti-dumping duties are reduced, the impact will be less than that experienced
by the Company in the early 1990's.
ENVIRONMENTAL MATTERS
The operations of the Company's alloy manufacturing business are subject to
extensive regulation concerning, among other things, emissions to air,
discharges and releases to land and water, the generation, handling, storage,
transportation, treatment and disposal of wastes and other materials, including
materials containing low levels of radioactivity and the remediation of
contamination caused by releases of wastes and other material, as well as worker
exposure to hazardous or toxic substances. There can be no assurance that these
requirements will not result in future liabilities and obligations that would be
material to the Company's business operations, financial condition or cash flow.
Management believes that the Company is faced with a number of environmental
issues which have largely resulted from changing environmental regulations,
particularly in the area of solid and hazardous waste removal. To fulfill the
terms of comprehensive settlement agreements with the environmental regulatory
authorities described more fully below, Shieldalloy expects to make
environmental remediation expenditures of approximately $2.5 million in the
second half of 1997, $4.5 million in 1998, $4.3 million in 1999 and $8.1 million
in 2000. Although the scope of Shieldalloy's remediation obligations has been
defined pursuant to such settlement agreements, there can be no assurance that
the ultimate cost of fulfilling these obligations will not materially exceed
Shieldalloy's current estimates.
The historical manufacture of several products in Newfield, New Jersey and
Cambridge, Ohio resulted in the production of various by-products which
Shieldalloy is obligated to remediate under Federal and state environmental laws
and regulations. The release or threatened release of hazardous substances
contained in these by-products at the Newfield facility led that facility to be
placed on the National Priorities List for cleanup under the Federal Superfund
law. Pursuant to the Reorganization Plan, all known off-site liabilities for
disposal of solid and hazardous wastes were discharged. Shieldalloy also entered
into comprehensive settlement agreements with governmental authorities covering
remediation of various on-site and facility-related environmental conditions at
its Newfield and Cambridge facilities.
56
<PAGE> 58
The Company has also provided for certain estimated costs associated with its
operating sites in Germany and Brazil. The Company believes that total
environmental remediation and monitoring liabilities consist of the following:
<TABLE>
<CAPTION>
AS OF JULY 31, 1997
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Domestic:
Shieldalloy -- New Jersey.................................. $ 32,343
Shieldalloy -- Ohio........................................ 12,156
-------
44,499
Foreign......................................................... 5,817
-------
Total environmental liabilities................................. 50,316
Less: trust funds............................................... 2,812
-------
Net environmental liabilities.............................. $ 47,504
=======
</TABLE>
As part of the Reorganization Plan, the Company and Shieldalloy entered
into an Environmental Settlement Agreement with the Environmental Protection
Agency (the "EPA"), the Department of the Interior (the "DOI") and the Nuclear
Regulatory Commission (the "NRC") with respect to the Newfield and Cambridge
sites and with the New Jersey Department of Environmental Protection (the
"NJDEP") with respect to the Newfield site (the "U.S. and NJDEP Environmental
Settlement Agreement"). In addition to settling claims with federal authorities,
the U.S. and NJDEP Environmental Settlement Agreement memorialized prior
commitments to the State of New Jersey pursuant to Administrative Consent Orders
("ACOs") issued on September 5, 1984 and October 5, 1988. The U.S. and NJDEP
Environmental Settlement Agreement obligates Shieldalloy to complete a number of
environmental projects, including groundwater, soils and sediment remediation,
closure of nine wastewater and treatment lagoons, and related operation and
maintenance activities. The cost of fulfilling these obligations is currently
estimated to be approximately $32.3 million. The Company and Shieldalloy have
agreed to provide, create or make available financial assurance in this amount
for these projects through a combination of letters of credit and cash reserves.
At July 31, 1997, outstanding letters of credit issued as financial assurance in
favor of various environmental agencies were $21.4 million, and cash reserves
established as financial assurance total $0.8 million. The costs of providing
financial assurance over the term of the remediation activities have been
included in the accrued amounts to be disbursed over the next fifteen years.
The Company, Shieldalloy and Cyprus Foote Mineral Company ("Cyprus Foote"),
the former owner of the Cambridge site, have entered into a Permanent Injunction
Consent Order (the "Consent Order") with the State of Ohio resolving known
environmental remediation claims relating to the Cambridge site. The terms of
the Consent Order are incorporated by reference into the Settlement Agreement
entered into among the Company, Shieldalloy, Cyprus Foote, the Ohio
Environmental Protection Agency (the "OEPA") and the Ohio Department of Health
(the "ODH") (the "Ohio Environmental Settlement Agreement," and together with
the U.S. and NJDEP Environmental Settlement Agreement, the "Settlement
Agreements"). Under the Ohio Environmental Settlement Agreement, Shieldalloy and
Cyprus Foote will perform remedial design and remedial action at the Cambridge
site, estimated to cost approximately $8.7 million. Additionally, Shieldalloy
and Cyprus Foote will enhance, restore and preserve certain wetlands in the
vicinity of the Cambridge site. The Consent Order requires Shieldalloy and
Cyprus Foote to provide financial assurance for the above remediation projects
in an initial amount of $9.0 million. Pursuant to an agreement between
Shieldalloy and Cyprus Foote, Cyprus Foote will satisfy this requirement. In
addition, the Consent Order requires Shieldalloy to provide financial assurance
for the long-term operation and maintenance of the east and west slag piles at
the Cambridge site, in the amount of approximately $1.2 million, which was
funded as part of the Reorganization Plan, and an additional $0.1 million to
fund extension of the annuity for an additional 900 years. The Company has
accrued its best estimate of associated costs which it expects to substantially
disburse over the next six years.
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<PAGE> 59
As a result of historic manufacturing activities, slag piles which contain
low levels of naturally occurring radioactivity have accumulated at the
Cambridge and Newfield sites. These slag piles are subject to regulation by the
NRC and state agencies. As related production has ceased at the Cambridge
location, Shieldalloy is required to decommission the two slag piles at that
facility and obtain approval from the State of Ohio and the NRC to stabilize and
cap the slag piles. Authorization to cap on-site the larger slag pile at the
Cambridge site has been approved as protective of human health and the
environment by the State of Ohio. The NRC is expected to issue its final
environmental impact statements for Cambridge in January or February of 1998. As
Ohio did before it selected the cap on-site remedy, the NRC has considered a
range of remedial alternatives including removal of the slag pile to an off-site
disposal facility in previously issued draft environmental impact statements
which have been circulated to the public. The estimated costs for off-site
disposal approached $100.0 million; however, in the two draft environmental
impact statements for Cambridge issued in 1996 and 1997 and presented for public
comment at two public meetings in Cambridge, the NRC stated its current
intention to accept the cap on-site alternative already adopted by Ohio. As long
as Shieldalloy continues its ongoing efforts to sell the slag located at the
Newfield location, the NRC will allow the slag pile to remain in place, subject
to submission of a conceptual decommissioning plan and financial assurance for
implementation of that plan. The Company's obligation for decommissioning costs
for these sites is partially assured by cash funds held in trust. As a condition
precedent to consummation of the Reorganization Plan, draws aggregating $1.5
million were made under prepetition letters of credit relating to both the
Newfield and Cambridge facilities, and the proceeds were deposited in a trust
fund for purposes of NRC decommissions.
The Company is defending an action brought by local residents alleging
personal injury and property damage from groundwater contamination and other
exposure to hazardous materials allegedly originating from the Company's
Newfield, New Jersey plant. The Company is vigorously defending this action. The
Company believes that this matter is covered by its insurance and the costs of
such defense are being borne by the Company's insurance carriers. The Company
does not believe that the outcome of this litigation or the ongoing costs of
defense will have a material adverse effect on the Company's operations or
financial position.
The Company has also provided for certain estimated costs associated with
its sites in Germany and Brazil. The Company's German subsidiaries have accrued
environmental liabilities in the amount of $5.4 million at July 31, 1997 to
cover the costs of closing an off-site dump and for certain environmental
conditions at a site in Nuremberg owned by a subsidiary. In Brazil, $0.4 million
has been accrued at July 31, 1997 to cover reclamation costs of the closed mine
sites.
In addition to its substantial remediation and monitoring obligations for
historical contamination, the Company's ongoing operations at its Cambridge
facility continue to be affected by actual and proposed changes to environmental
laws and regulations involving the treatment, storage and disposal of classified
hazardous wastes under the Resource Conservation and Recovery Act ("RCRA") and
control of air emissions under the Clean Air Act Amendments of 1990 ("CAAA"). In
particular, the Company is currently considering various options in connection
with its production of ferrovanadium, which may be affected by increasingly
stringent sulfur dioxide emission limitations under the CAAA, and by the
proposed reclassification of spent catalyst, one of the Company's raw materials,
as a hazardous waste under RCRA. Spent catalyst currently makes up approximately
8.0% of the Company's raw materials. The combination of these pending regulatory
requirements will compel the Company to monitor the cost and constituents of its
raw product slate with increased care, and may require substantial capital
expenditures at the Cambridge facility in order to install appropriate pollution
control devices, reconfigure material handling facilities, or both, to allow the
Company to process the most cost-effective raw product mix.
LEGAL PROCEEDINGS
The Company and certain of its subsidiaries are parties to a variety of
legal proceedings relating to their operations. Management does not expect that
these matters, individually or in the aggregate, would have a material adverse
impact on the Company's operations or financial position.
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<PAGE> 60
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information with respect to the
individuals who are the directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- ---------------------------------------------
<S> <C> <C>
Michael A. Standen............... 60 Chairman, President and Chief Executive
Officer
Alan D. Ewart.................... 50 Joint Managing Director of LSM and Director
J. Richard Budd III.............. 45 Senior Vice President
Michael A. Banks................. 59 Vice President-Administration
Barry C. Nuss.................... 44 Vice President-Finance and Chief Financial
Officer
Eric L. Schondorf................ 34 Vice President, General Counsel and Secretary
Jon R. Bauer..................... 41 Director
Peter A. Langerman............... 42 Director
Herbert E. Seif.................. 48 Director
</TABLE>
Each director of the Company holds office until the next annual meeting of
stockholders of the Company or until his or her successor has been elected and
qualified. Officers of the Company are selected by the Board of Directors and
serve at the discretion of the Board of Directors.
Michael A. Standen -- Mr. Standen has worked at Metallurg for his entire
professional career. He was appointed President and Chief Executive Officer in
1983 and Chairman in 1992. Mr. Standen joined LSM in 1961 and held positions in
sales and purchasing management before he was appointed Joint Managing Director
of LSM in 1977. He was elected to the Board of Directors of the Company in 1977.
Mr. Standen has a B.A. degree in languages from Oxford University.
Alan D. Ewart -- Mr. Ewart joined LSM in 1969 and held several positions in
sales and purchasing management before he was appointed Joint Managing Director
of LSM in 1984. He was elected to the Board of Directors of the Company in 1987.
Prior to joining LSM, Mr. Ewart worked in the British Civil Service as a Patent
Examiner. Mr. Ewart has a BSc degree in metallurgy from the University of Wales.
J. Richard Budd III -- Mr. Budd has served as Senior Vice President of
Metallurg since January 1996. Mr. Budd was previously employed as a consultant
to Metallurg since 1994 while serving as a Vice President and Director of
Cityscape Corp. From 1992 to 1994, Mr. Budd worked as a consultant with Zolfo
Cooper LLC. Prior to 1992, Mr. Budd was Executive Vice President of European
American Bank and President and Chief Executive Officer of Euram Management,
Inc. Mr. Budd has a B.S. degree in finance from Rider College.
Michael A. Banks -- Mr. Banks joined Metallurg as Director of Management
Services in 1985 and was appointed to his current position in 1989. Prior to
joining the Company, he held several positions in production and sales
management in cement, refractory and steel industries, and qualified as a member
of the Institute of Refractory Engineers in 1966. From 1975 to 1985, Mr. Banks
worked as a consultant for B.V. Shaw Associates and was appointed Deputy
Managing Director of its subsidiary Europa International Consultants in 1980.
Mr. Banks has a B.A. degree in German and French from Bristol University.
Barry C. Nuss -- Mr. Nuss joined Metallurg as financial controller in 1983,
was appointed Vice President-Finance of SMC in 1988, and assumed his current
position as Vice President-Finance of Metallurg in 1994. He was previously
employed as an auditor at Deloitte Haskins & Sells (now known as Deloitte &
Touche LLP) from 1976 to 1981 and as a Financial Analyst at Cabot Mineral
Resources from 1981 to 1983. Mr. Nuss is a Certified Public Accountant and has a
B.S. degree in accounting from Fairleigh Dickinson University.
59
<PAGE> 61
Eric L. Schondorf -- Mr. Schondorf was appointed Vice President and General
Counsel in April 1996 and became Secretary in December 1996. He was previously
employed as an associate with the law firm of Weil, Gotshal & Manges LLP from
1988 to 1996. Mr. Schondorf received a B.A. degree in economics from Yale
University and a J.D. degree from the New York University School of Law.
Jon R. Bauer -- Mr. Bauer joined the Board in April 1997. He is a Managing
Partner of Contrarian Capital Management, L.L.C., an investment management firm
founded in May 1995 and located in Greenwich, Connecticut. From 1986 to 1995,
Mr. Bauer was at Oppenheimer & Co., Inc. where he was a Managing Director, head
of the High Yield Department, and co-manager of the Horizon series of
Partnerships. Before joining Oppenheimer, Mr. Bauer worked for Bear, Stearns &
Co., Inc. for five years in the High Yield Bond Department's bankruptcy area.
Prior to that, he spent two years in the Credit Department's bankruptcy area and
two years in the Credit Audit area of Chase Manhattan Bank, analyzing and
identifying companies in the bank's portfolio that were likely to default. He
received a B.A. from Rutgers University in 1977 and an M.B.A. degree from
Harvard Business School in 1981.
Peter A. Langerman -- Mr. Langerman joined the Board in April 1997. He is
Executive Vice President of Franklin Mutual Advisers, Inc., investment adviser
to Franklin Mutual Series Fund, Inc., a mutual fund group. Mr. Langerman is also
Director and Executive Vice President of Franklin Mutual Series Fund, Inc. He
joined the Mutual Series Fund group in 1986, prior to which time he was an
associate with Weil, Gotshal & Manges LLP. Mr. Langerman received a B.A. degree
from Yale University, M.S. degree from New York University Graduate School of
Business and J.D. degree from Stanford University Law School. Mr. Langerman also
serves on the board of directors of Franklin Mutual Series Fund, Inc. (since
1989) and Sunbeam Oster (since 1990).
Herbert E. Seif -- Mr. Seif joined the Board in April 1997. He has been a
Managing Director of SBC Warburg Dillon Read since May 1996. Mr. Seif became a
managing Director of SBC Capital Markets Inc. in January 1995, when Swiss Bank
Corporation consummated the acquisition of O'Connor & Associates, a general
partnership of which Mr. Seif was the Senior Partner. Mr. Seif joined O'Connor &
Associates in 1980 and three months later was named a General Partner. During
his tenure at O'Connor & Associates, he established and led the development of
the firm's risk arbitrage and special situations business. In 1987, Mr. Seif was
named Co-Managing Partner and held that title until 1989, when he became Senior
Partner and Chairman of the Executive Committee of O'Connor & Associates. Prior
to joining O'Connor & Associates, he was President of Herbert E. Seif & Company,
where he traded options on the American Stock Exchange. Mr. Seif has a B.A.
degree in economics and political science from Brooklyn College.
The Board of Directors has compensation and audit committees which include
Messrs. Langerman, Bauer and Seif.
60
<PAGE> 62
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned, whether paid or
deferred, by the Company's Chief Executive Officer and four other most highly
compensated executive officers during 1996 (collectively, the "Named Officers")
for services rendered in all capacities to the Company during that fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------
NAME AND PRINCIPAL POSITION SALARY($) BONUS($)
-------------------------------------------------------------- ------- --------
<S> <C> <C>
Michael A. Standen Chairman, President and Chief Executive
Officer....................................................... 617,364(a) 195,000
J. Richard Budd III Senior Vice President..................... 300,000 77,500
Michael A. Banks Vice President, Administration............... 202,000 55,000
Barry C. Nuss Vice President, Finance and Chief Financial
Officer....................................................... 200,000 62,500
Robin A. Brumwell President of Metallurg International
Resources, a division of Metallurg, Inc....................... 215,000 37,500
</TABLE>
- ---------------
(a) Includes approximately $70,000 paid for directors' fees for the Company and
certain of its subsidiaries.
1997 STOCK AWARD AND STOCK OPTION PLAN
The Board of Directors of Metallurg adopted the Metallurg, Inc. Management
Stock Award and Stock Option Plan ("SASOP") in 1997. The purpose of the SASOP is
to motivate certain employees of Metallurg and Shieldalloy and their
subsidiaries to put forth maximum efforts toward the growth, profitability and
success of the companies by providing incentives to those employees through the
ownership and performance of Common Stock. The SASOP will terminate in 2007,
unless terminated earlier by the Board.
The following is a summary of the SASOP. The summary does not purport to be
complete and is qualified in its entirety by reference to the SASOP.
Eligibility and Administration. All employees of Metallurg and its
subsidiaries are eligible to participate in the SASOP. The Compensation
Committee is comprised solely of two or more non-employee directors each of whom
qualifies as a "disinterested person" (as such term is used in Rule 16b-3 under
the Securities Exchange Act of 1934, as amended) and as an "outside director"
(as such term is used in Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Tax Code")), and will have the responsibility to control and
administer the SASOP in accordance with its terms.
Shares Subject to the SASOP. There are 500,000 shares of Common Stock
available for grants of stock awards and stock options under the SASOP
(including incentive stock options ("ISOs") as defined in Section 422 of the Tax
Code) during its term. The maximum aggregate number of shares of Common Stock
underlying stock awards and stock options that may be granted to any single
participant during the life of the SASOP is 200,000 and 100,000, respectively.
Generally, if there is any change in the number of outstanding shares of Common
Stock due to stock dividends, stock splits, reorganization, etc.,
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<PAGE> 63
the number of shares underlying stock awards and the number of shares subject to
any stock option and the exercise prices of stock options will be adjusted to
reflect such change.
Stock Awards. The Compensation Committee is authorized to grant stock
awards to employees subject to such terms, conditions, restrictions and/or
limitations, if any, as the Compensation Committee deems appropriate, including,
but not limited to, restrictions on transferability and continued employment.
The Compensation Committee may accelerate the date a stock award becomes
transferable under such circumstances as it deems appropriate. During the period
in which any shares of Common Stock are subject to restrictions, the
Compensation Committee may, in its sole discretion, grant to the participant to
whom such restricted shares have been awarded all or any of the rights of a
shareholder with respect to such shares, including, but not limited to, the
right to vote such shares and the right to receive dividends.
Initial Stock Awards. At the commencement of the SASOP, the Compensation
Committee granted to certain eligible executives an aggregate of 250,000 shares
of Common Stock (the "Initial Stock Awards"). Twenty percent of each Initial
Stock Award will be transferable on the date of grant, and 40% will become
transferable on the day which precedes the first and second anniversaries of the
date of grant.
Stock Options. The Compensation Committee is authorized to grant stock
options to employees under the SASOP. These stock options may be ISOs or
nonqualified stock options, or a combination of both. The Compensation Committee
will, in its sole discretion but after having taken into account the
recommendations of the Chief Executive Officer of Metallurg ("CEO"), determine
the recipients of stock option grants and the number of shares of Common Stock
underlying each stock option. The Compensation Committee will set the exercise
price of each stock option; provided that the exercise price of an ISO will not
be less than 100% of Fair Market Value (as defined in the SASOP) on the date of
grant. The Compensation Committee will set the term of each stock option;
provided that no stock option will be exercisable later than the 10th
anniversary of the date of grant. Stock options will vest as follows: 33 1/3% on
the date of the grant; 33 1/3% on the first anniversary of the date of grant;
and 33 1/3% on the second anniversary of the date of grant. In addition to being
subject to the above terms and conditions, ISOs will comply with all other
requirements under Section 422 of the Tax Code. The Compensation Committee may
establish such other terms, conditions, restrictions and/or limitations, if any,
of any stock option, provided they are not inconsistent with the SASOP. Upon
exercise, the exercise price of a stock option may be paid in cash, shares of
Common Stock, a combination of the foregoing, or such other consideration as the
Compensation Committee may deem appropriate. The Compensation Committee will
establish appropriate methods for accepting Common Stock, whether restricted or
unrestricted, and may impose such conditions as it deems appropriate on the use
of such Common Stock to exercise a stock option. The Compensation Committee may
permit a participant to satisfy any amounts required to be withheld under
applicable federal, state and local tax laws, in effect from time to time, by
electing to have Metallurg withhold a portion of the shares of Common Stock to
be delivered for the payment of such taxes. The recipient of the stock options
is entitled to the payment of dividend equivalents at the time the dividend is
paid to the holder of Common Stock whether or not such stock option has vested.
Termination of Employment. In the event of a participant's termination of
employment for any reason, nontransferable stock awards and/or unexercisable
stock options held by the participant on the date of termination of employment
will immediately be forfeited unless (i) otherwise provided in such
participant's Stock Award Agreement or Stock Option Agreement, as the case may
be, or (ii) as the Compensation Committee may, in its sole discretion but
subject to certain restrictions relating to ISOs, provide for stock awards
and/or stock options to become transferable and/or exercisable on any
termination of employment.
Pursuant to the Company's SASOP, the Compensation Committee of Metallurg's
board of directors awarded options to purchase 167,000 shares of Common Stock at
$11.38, effective as of September 1, 1997. Mr. Standen, Mr. Budd, Mr. Banks, Mr.
Nuss and Mr. Brumwell received stock options in the amount of 50,000, 17,500,
12,500, 17,500 and 5,000, respectively.
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<PAGE> 64
Pursuant to the terms of the SASOP and/or the individual employment
agreements, the Company may make loans to employees in order to pay any federal,
state or local taxes with respect to any Stock Award granted under the SASOP.
Each of Messrs. Standen, Budd, Banks, Nuss, Brumwell and Schondorf were given
loans of $320,250, $22,875, $25,162, $29,737, $16,012 and $14,484, respectively,
with respect to their stock awards. Such loans bear interest at 5.91% and are
payable on April 14, 2000.
PROFIT SHARING PLAN
The Company has a profit sharing plan for the employees of Metallurg and
Shieldalloy (the "Profit Sharing Plan") pursuant to which it may deposit a
percentage of the employee's annual salary in a segregated account. Such profit
sharing percentage is determined by the management of the Company based on the
prior year's results. The employee vests in his or her participation in the
Profit Sharing Plan over a five-year period. In 1996, the Company made a 3%
contribution pursuant to the Profit Sharing Plan or $0.2 million in the
aggregate.
PENSION PLAN
The Pension Plan of Metallurg, Inc., effective as of January 1, 1989 (the
"Pension Plan") covers substantially all of Metallurg and Shieldalloy's U.S.
salaried employees. The Pension Plan is maintained as a tax-qualified defined
benefit plan, which covers most officers and salaried employees on a
noncontributory basis. Such employees generally become eligible to receive a
vested retirement benefit under such plan after completion of five years of
service. Benefits under the Pension Plan are generally based upon the number of
years of service credit, up to 30 years, the final average compensation of each
individual employee, and a percentage of such employee's eligible earnings.
Final average compensation is calculated using the highest 60 consecutive
calendar months of compensation during the last 120 months prior to the date of
calculation. Normal retirement is age 65.
The following table shows the estimated annual retirement benefits payable
at age 65 under the Pension Plan to participating employees, including the Named
Officers, in the remuneration and years of service classifications indicated.
The following table reflects benefits payable under the Pension Plan:
<TABLE>
<CAPTION>
PENSION PLAN TABLE (YEARS OF SERVICE)
----------------------------------------------------
RENUMERATION 10 15 20 25 30
- ------------ ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
$100,000 17,095 25,643 34,190 42,738 51,286
$125,000 21,845 32,768 43,690 54,613 65,536
$150,000 26,595 39,893 53,190 66,488 79,786
$175,000 31,345 47,018 62,690 78,363 94,036
$200,000 36,095 54,143 72,190 90,238 108,286
</TABLE>
The respective years of service credited for pension purposes as of
December 31, 1996 and the estimated years of service at age 65 for each of the
Named Officers are as follows:
<TABLE>
<CAPTION>
COMPLETED
YEARS OF SERVICE COMPLETED
AT YEARS OF SERVICE AT
NAMED OFFICER DECEMBER 31, 1996 NORMAL RETIREMENT
-------------------------------------------------- ----------------- -------------------
<S> <C> <C>
Michael A. Standen................................ 30 30
J. Richard Budd III............................... 1 21
Robin A. Brumwell................................. 5 17
Michael A. Banks.................................. 11 18
Barry C. Nuss..................................... 13 30
</TABLE>
In addition, Mr. Standen is entitled to an annual estimated benefit of
approximately $80,000 per year under LSM's pension plan, based on his 22 years
of credited service with LSM. In 1996, Mr. Standen accrued $327,550 under a
senior executive retirement plan which was cancelled as of June 30, 1996. This
amount was paid to Mr. Standen upon the consummation of the Reorganization Plan.
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<PAGE> 65
EXECUTIVE EMPLOYMENT AGREEMENTS
Metallurg has entered into employment agreements with the following
executives: Michael A. Standen, Michael A. Banks, Robin A. Brumwell, J. Richard
Budd III, Barry C. Nuss, and Eric L. Schondorf (individually, an "Executive,"
and collectively, the "Executives"). Each agreement is for an initial term of
two years, or in Mr. Standen's case, three years. In all cases, the term of
employment automatically renews for a one-year period on each expiration date
unless the Executive or Metallurg notifies the other in writing at least one
year prior to the next scheduled expiration date that the term will not be
extended. Each Executive has agreed not to compete against Metallurg during the
employment term and for a six-month period thereafter.
Each Executive receives an annual base salary equal to his or her annual
base salary in effect on the date of the agreement, plus an annual increase
determined by the Compensation Committee, but not less than the percentage
increase in the Consumer Price Index (as defined in the agreements). Each
Executive is entitled to participate in the compensation incentive and employee
benefit plans generally made available to Metallurg's senior-level employees.
If the Executive's employment is terminated for any reason other than for
Cause (as defined in the agreements) or without Good Reason (as defined in the
agreements), restricted stock and/or stock options held by the Executive will
become transferable and/or exercisable, and for the year in which the
termination occurs, the Executive will receive an award under the Metallurg
Management Incentive Compensation Plan if Metallurg achieves its performance
goal for the year. If the Executive's employment is terminated by Metallurg due
to Disability (as defined in the agreements), the Executive will receive
disability pay of 50% of his base salary until he becomes 65, less any other
disability benefits provided to the Executive by Metallurg under any disability
plan. If the Executive is terminated for Cause, the Executive terminates his or
her employment without Good Reason or the Executive does not renew the term of
employment, the Executive will only be entitled to base salary earned but not
paid prior to the date of termination of employment, and certain other amounts
earned but not yet paid. In addition, there will be no termination of employment
for Cause without the Executive first being given written notice and an
opportunity to be heard. If the Executive is terminated by Metallurg without
Cause, or Metallurg fails to renew the employment agreement, the Executive
terminates his employment for Good Reason, he will be entitled to a lump sum
payment of his base salary for a period equal to the longer of (i) the remaining
term of employment or (ii) the corresponding severance period under Metallurg's
existing severance plan, and continued coverage under Metallurg's employee
benefit plans during such period (or the after tax cost equivalent as a cash
payment). If the Executive is terminated following a Change in Control (as
defined in the agreements), the Executive will generally be entitled to the same
benefits as for a termination without Cause except that the severance period
will be the longer of (i) the end of the term of employment or (ii) 18 months
(24 months in the Chief Executive Officer's case only). The Executive will
receive a tax gross-up if he is required to pay any golden parachute excise tax
under Section 4999 of the Tax Code.
Alan Ewart entered into an employment agreement with LSM in 1992 which
extends his original employment agreement originally entered into in 1983. The
new employment agreement provides that Mr. Ewart shall be the Managing Director
of LSM until age 65 provided that if Mr. Ewart's employment is terminated by
LSM, LSM is required to pay him two years salary. Mr. Ewart has also entered
into a consulting agreement with Metallurg. See "Certain Transactions." Mr.
Ewart is entitled to a pension under a pension plan with LSM based on a
percentage of his final salary for each year of service up to a maximum of 40
years. Mr. Ewart has 28 years of service with LSM.
MANAGEMENT INCENTIVE COMPENSATION PLANS
The Board has adopted the Metallurg, Inc. Management Incentive Compensation
Plan ("MICP"). The purpose of the MICP is to provide an annual cash incentive,
in the form of Bonus Pool Cash Awards and Cash Awards, to certain employees of
Metallurg and its subsidiaries to put forth maximum efforts
64
<PAGE> 66
toward the growth, profitability and success of Metallurg and its subsidiaries
and to encourage such employees to remain in the employ of Metallurg and/or its
subsidiaries.
Participation and Administration. All of the Executives participate in the
MICP. In addition, the Compensation Committee may select other employees to
participate in the Plan. Whether a participant will be paid a Bonus Pool Cash
Award or Cash Award under the MICP for a performance period will be decided
solely in accordance with the terms of the MICP. The Compensation Committee is
responsible for the control and administration of the MICP.
Bonus Pool. The amount in the Bonus Pool available for Awards will be
equal to the sum of (i) 40% of the CEO's actual base salary paid during a
specific performance period and (ii) 30% of the sum of all other participants'
actual base salaries paid during the same specific performance period. In
addition, if the actual EBITDA (as defined in the MICP) with respect to a
specific performance period exceeds the target worldwide EBITDA, the Bonus Pool,
as determined by the preceding sentence, will be increased by the same
percentage by which the actual EBITDA exceeds the target worldwide EBITDA.
Performance Goals. The Performance Goal with respect to the performance
period corresponding to Metallurg's fiscal year ending December 31, 1996 was
based on the projected EBITDA for the fiscal year ending December 31, 1996. For
the performance periods corresponding to Metallurg's fiscal years beginning
after December 31, 1996, the target worldwide EBITDA will be established by the
Board in writing within the first 90 days of the performance period. Generally,
in certain circumstances, the Board is authorized to adjust or modify the
calculation of a Performance Goal for such performance period at any time in
order to prevent the dilution or enlargement of the rights of participants.
Certification and Payment of Awards by Compensation Committee. After each
performance period, the Compensation Committee will meet to review and certify
in writing whether, and to what extent, the Performance Goal for such
performance period has been achieved. If the Compensation Committee certifies
that the Performance Goal for a performance period has been achieved, the
Compensation Committee will (i) pay the CEO a Bonus Pool Cash Award in an amount
equal to 40% of the CEO's salary plus an additional amount (if any) equal to 40%
of the CEO's salary times the same percentage by which the actual EBITDA exceeds
the worldwide target EBITDA and (ii) pay all or some of the participants (other
than the CEO) a Bonus Pool Cash Award in an amount determined by the
Compensation Committee in its sole discretion, after taking into account the
recommendations of the CEO. The Compensation Committee may, in its sole
discretion, distribute less than 100% of the Bonus Pool and such undistributed
amounts will be reserved for, and applied to, future Bonus Pool Cash Awards as
the Compensation Committee may determine in its sole discretion. If the
Performance Goal with respect to a performance period is not achieved, the
Compensation Committee, in its sole discretion, will determine and pay Cash
Awards (if any) to the CEO and each other participant; provided, however, that
the aggregate of all Cash Awards will be less than the Bonus Pool for such
performance period. At the discretion of the Compensation Committee, a
participant may elect to defer payment of all or any part of his or her Bonus
Pool Cash Award or Cash Award complying with such procedures as the Compensation
Committee may prescribe.
Participants Other Than the CEO. If any participant terminates employment
with Metallurg and its subsidiaries during or after the end of a performance
period, the Compensation Committee, in its sole discretion, may pay such
participant a Bonus Pool Cash Award or a Cash Award with respect to such
performance period subject to the terms of any separate written agreement
between Metallurg and such participant.
EXECUTIVE RETENTION PLANS
On December 15, 1993, the Bankruptcy Court approved the Metallurg, Inc.
Executive Retention Plan and the Shieldalloy Metallurgical Corporation Executive
Retention Plan (generally, "Retention Plans"). The Retention Plans protect a
select group of key executives against an involuntary loss of employment so as
to attract and retain such employees during the Chapter 11 proceedings and
shortly thereafter. The Retention Plans will terminate in January, 1998.
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<PAGE> 67
PRINCIPAL STOCKHOLDERS
The Company is authorized to issue 15,000,000 shares of Common Stock, par
value $.01 per share ("Common Stock"). As of September 1, 1997, 5,012,073 shares
of Common Stock were issued and outstanding, including 55,667 shares issuable on
exercise of stock options.
The following table sets forth certain information as of August 31, 1997,
with respect to the shares of Common Stock of the Company beneficially owned by
each person or group that is known by the Company to be a beneficial owner of
more than 5% of the outstanding Common Stock and all directors and executive
officers of the Company.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF TITLE OF BENEFICIAL OWNERSHIP PERCENTAGE
BENEFICIAL OWNER CLASS (NUMBER OF SHARES) OF TOTAL
- ------------------------------------------- ------------- -------------------- ----------
<S> <C> <C> <C>
Franklin Mutual Advisors, Inc.............. Common Stock 1,371,883 27.4%
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078
Contrarian Capital Advisors L.L.C.......... Common Stock 853,738 17.0
411 West Putnam Avenue
Suite 225
Greenwich, Connecticut 06830
Cerberus Partners, L.P..................... Common Stock 709,271 14.2
450 Park Avenue
New York, New York 10022
Morgens, Waterfall Overseas Partners....... Common Stock 704,116 14.1
10 East 50th Street
26th Floor
New York, New York 10022
SBC Warburg Dillon Read.................... Common Stock 544,870 10.9
222 Broadway
New York, New York 10006
Michael A. Standen(a)...................... Common Stock 155,888 3.1
Alan D. Ewart(b)........................... Common Stock 56,120 1.1
J. Richard Budd III(c)..................... Common Stock 30,833 *
Michael A. Banks(d)........................ Common Stock 32,401 *
Barry C. Nuss(e)........................... Common Stock 39,894 *
Eric L. Schondorf(f)....................... Common Stock 17,500 *
Robin A. Brumwell(g)....................... Common Stock 19,167 *
All executive officers and directors as
group
(10 persons)............................. Common Stock 351,803 7.0
</TABLE>
- ---------------
(*) Less than 1%.
(a) Such person's stockholding includes 70,000 shares of stock as a stock award
under the SASOP and options to purchase 50,000 shares as an option award
under the SASOP. The stock awards vested 20% on April 14, 1997 and vest 40%
on each of April 13, 1998 and 1999. The options vested 33 1/3% on September
1, 1997 and vest 33 1/3% on each of September 1, 1998 and 1999.
(b) Such person's stockholding includes 40,000 shares of stock as a stock award
under the SASOP and options to purchase 25,000 shares as an option award
under the SASOP. The stock awards vested 20% on April 14, 1997 and vest 40%
on each of April 13, 1998 and 1999. The options vested 33 1/3% on September
1, 1997 and vest 33 1/3% on each of September 1, 1998 and 1999.
(c) Such person's stockholding includes 25,000 shares of stock as a stock award
under the SASOP and options to purchase 17,500 shares as an option award
under the SASOP. The stock awards vested 20% on April 14, 1997 and vest 40%
on each of April 13, 1998 and 1999. The options vested 33 1/3% on September
1, 1997 and vest 33 1/3% on each of September 1, 1998 and 1999.
(d) Such person's stockholding includes 27,500 shares of stock as a stock award
under the SASOP and options to purchase 12,500 shares as an option award
under the SASOP. The stock awards vested 20% on April 14, 1997 and vest 40%
on each of April 13, 1998 and 1999. The options vested 33 1/3% on September
1, 1997 and vest 33 1/3% on each of September 1, 1998 and 1999.
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(e) Such person's stockholding includes 32,500 shares of stock as a stock award
under the SASOP and options to purchase 17,500 shares as an option award
under the SASOP. The stock awards vested 20% on April 14, 1997 and vest 40%
on each of April 13, 1998 and 1999. The options vested 33 1/3% on September
1, 1997 and vest 33 1/3% on each of September 1, 1998 and 1999.
(f) Such person's stockholding includes 15,000 shares of stock as a stock award
under the SASOP and options to purchase 7,500 shares as an option award
under the SASOP. The stock awards vested 20% on April 14, 1997 and vest 40%
on each of April 13, 1998 and 1999. The options vested 33 1/3% on September
1, 1997 and vest 33 1/3% on each of September 1, 1998 and 1999.
(g) Such person's stockholding includes 17,500 shares of stock as a stock award
under the SASOP and options to purchase 5,000 shares as an option award
under the SASOP. The stock awards vested 20% on April 14, 1997 and vest 40%
on each of April 13, 1998 and 1999. The options vested 33 1/3% on September
1, 1997 and vest 33 1/3% on each of September 1, 1998 and 1999.
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CERTAIN TRANSACTIONS
The Company has a consulting agreement with Alan D. Ewart, one of its
Directors. Pursuant to this agreement, Mr. Ewart provides consulting services as
a director of Metallurg and management advice with respect to the Company's
European operation. The Company pays Mr. Ewart $20,000 annually for his
services. The consulting agreement may be terminated by the Company after notice
to Mr. Ewart.
The Company has a Registration Rights Agreement with the holders of 5% or
more of its Common Stock issued and outstanding as of April 14, 1997 (the
"Effective Date") of the Reorganization Plan (each a "Qualified Holder"). This
Agreement covers all of the shares of Common Stock owned by such Qualified
Holders as of the Effective Date and gives the Qualified Holders the right to
demand registration at any time beginning with the earlier to occur of (i) the
first anniversary of the Effective Date and (ii) the consummation of an initial
public offering of the Company and ending on the earlier to occur of (i) the
first date there are no Qualified Holders and (ii) the fifth anniversary of the
Effective Date, upon the written request of one or more Qualified Holders which,
in the aggregate, constitute at least 20% of the outstanding Common Stock on the
date of the request. However, the Company is not required to comply with any
request if less than one million registrable securities are proposed to be
registered, and it is not required to effect more than two registrations during
the above mentioned period. In addition, this Agreement gives the holders
"piggyback" registration rights beginning in April 1998.
Owners of more than 5% of the Common Stock of the Company, directors and
executive officers beneficially own approximately $30.0 million aggregate
principal amount of the outstanding 12% Senior Notes which are to be repaid,
together with accrued interest and prepayment penalty of 3% with the proceeds of
the Offering. In addition, as part of the Recapitalization, holders of the
Common Stock, or options with respect thereto, including certain directors and
officers of the Company, will receive a dividend of $3.90 per share and stock
option.
Pursuant to the terms of the employment agreements between the Company and
certain executive officers, those officers have received loans from the Company
with regard to their Initial Stock Awards. See "Management -- 1997 Stock Award
and Stock Option Plan."
DESCRIPTION OF CREDIT FACILITIES AND OTHER FINANCING ARRANGEMENTS
Revolving Credit Facility. In April 1997, the Company and Shieldalloy
entered into a senior secured credit facility ("Revolving Credit Facility") with
BankBoston, N.A., an affiliate of one of the Initial Purchasers, and a syndicate
of financial institutions (collectively, the "Lenders") providing for a $40
million three-year revolving credit loan facility. In October 1997, the maximum
amount available under the Revolving Credit Facility was increased to $50.0
million, of which approximately $12.0 million is a subfacility for GfE.
The Revolving Credit Facility matures on April 14, 2000 and bears interest
at a rate per annum equal to (i) the Alternate Base Rate plus 1.00% per annum,
(the Alternate Base Rate is the greater of BankBoston, N.A.'s base rate or the
Federal Funds Effective Rate plus 0.5%) or (ii) the reserve adjusted Eurodollar
rate plus 2.5% for interest periods of one, two or three months. The Revolving
Credit Facility has a $30.0 million sublimit for letters of credit. The
Revolving Credit Facility is available (subject to borrowing base availability)
to fund working capital requirements and for general corporate purposes.
The obligations of the Company and Shieldalloy under the Revolving Credit
Facility are secured by first priority security interests in virtually all
assets of the Company, Shieldalloy and their U.S. subsidiaries, including, among
other things, all goods, accounts, instruments, documents, chattel paper,
investment property, intellectual property and other general intangibles. The
capital stock of all direct subsidiaries of the Company and Shieldalloy other
than EWW are also pledged.
Revolving credit loans under the Revolving Credit Facility are subject to
maintenance by the Company of a borrowing base, which is equal to the sum of
specified fixed percentages of eligible
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accounts receivable, eligible inventory and eligible equipment. The Company is
required to make immediate mandatory prepayments if and to the extent that loans
exceed availability.
The Company is required to pay Lenders under the Revolving Credit Facility,
on a quarterly basis, a commitment fee equal to 0.375% per annum on the average
amount by which the maximum commitment exceeds the sum of (i) the outstanding
revolving credit loans under the Revolving Credit Facility, plus (ii) the
maximum drawing amount and all unpaid reimbursement obligations in respect of
all Letters of Credit issued under the Revolving Credit Facility net of any
unused commitment fees paid under the German Subfacility. The Company is also
required to pay a Collateral Administration Fee of $30,000 per annum.
The Revolving Credit Facility contains a number of covenants that, among
other things, restrict the ability of the Company and Shieldalloy to engage in
mergers or consolidations, create new liens on assets, incur additional
indebtedness, issue guarantees, pay dividends, conduct business with affiliates
on anything but an arms' length basis, make investments, and make acquisitions
and/or sell assets. The Revolving Credit Facility also contains customary events
of default, including defaults relating to payment defaults, change in
ownership/control, uninsured judgments or insured judgments where a dispute
exists with the insurance carrier in excess of an amount to be determined,
breach of any representation or warranty, and certain events of bankruptcy and
insolvency.
The German Subfacility. GfE and certain other subsidiaries of the Company
(collectively, the "German Borrowers"), severally and not jointly, are parties
to a Metallurg German Credit Facility (the "German Subfacility") with
BankBoston, N.A. (the "German Subfacility Lender") providing for an
approximately $12.0 million revolving credit facility. The German Subfacility is
structured as a subfacility of the Revolving Credit Facility.
The German Subfacility will mature on April 14, 2000 and bears interest at
a rate per annum equal to (i) the Overdraft Rate as determined by the German
Subfacility Lender from time to time or (ii) an alternative rate equal to the
reserve adjusted DM Frankfurt interbank offered rate plus 2.5% for interest
periods of one, two or three months (an "Interbank Rate Loan"). The German
Subfacility has a $0.6 million sublimit for letters of credit and bank
guarantees. The German Subfacility is available (subject to borrowing base
availability) to repay all existing bank overdraft and revolver indebtedness and
to finance the German Borrowers' working capital needs.
The obligations of the German Borrowers under the German Subfacility are
secured by a first priority perfected security interest in all of the German
Borrowers' existing and future accounts, instruments, chattel paper, inventory,
documents, investments and general intangibles and all proceeds, including
insurance proceeds, of the foregoing. In addition, the obligations of GfE are
further secured by a pledge of the stock of each other German Borrower.
The German Borrowers are required to make mandatory prepayments of loans
under the German Subfacility, subject to certain exceptions, (i) if loans and
other credit extended exceed the maximum commitment, (ii) from net cash proceeds
of asset sales other than sales of inventory and obsolete equipment in the
ordinary course of business and from net cash proceeds of up to $5.0 million of
intercompany cash investments in the German Borrowers by the Company and (iii)
on the last day of each interest period related to the Interbank Rate Loan, to
the extent that any German Borrower's overdraft account credit balance exceeds
prescribed limits.
The German Borrowers are required to pay the German Subfacility Lender on a
quarterly basis a commitment fee equal to 0.375% per annum on the unutilized
portion of the revolving credit facility. The German Borrowers are also required
to pay administration fees, to be computed on an annual basis and paid
quarterly.
The German Subfacility contains a number of covenants that, among other
things, restrict the ability of the German Borrowers to dispose of assets, incur
additional indebtedness, create liens on assets, make investments, guaranties,
capital expenditures or acquisitions, or engage in mergers. In addition, the
German Borrowers are required to comply with a net worth test defined in the
German Subfacility. The
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German Subfacility contains customary events of default, including defaults
relating to payments, breach of representations and warranties, covenants,
cross-defaults and cross-acceleration to certain other indebtedness, certain
events of bankruptcy and insolvency, actual or asserted invalidity of security
and change of control.
The German Subfacility is guaranteed by Metallurg, Shieldalloy and
Metallurg's other U.S. subsidiaries under the Revolving Credit Facility. If
obligations under the German Subfacility exceed the borrowing base generated by
the German Borrowers (which is based on accounts receivable and inventory), the
excess is reserved from the borrowing base available to the U.S. borrowers under
the Revolving Credit Facility.
LSM Credit Facility and LSM Term Loan Facility. LSM has several bank
credit facilities which provide LSM and its subsidiaries with up to L7.0 million
(approximately $11.3 million) of borrowings, up to 3.0 million (approximately
$4.9 million) of foreign exchange exposure and up to L2.2 million (approximately
$3.6 million) for other ancillary banking arrangements including bank guarantees
(the "LSM Credit Facility"). At July 31, 1997, there were no outstanding loans
under the LSM Credit Facility. Borrowings under the LSM Credit Facility are
payable on demand. The outstanding loans under the LSM Credit Facility bear
interest at the lender's base rate plus 1.0%.
On April 11, 1997, LSM entered into a term loan facility with NM Rothschild
& Sons Limited in the amount of L5.0 million (approximately $8.1 million) (the
"LSM Term Loan Facility"), the proceeds of which were used to make a dividend to
Metallurg in order to fund the Reorganization Plan. The LSM Term Loan Facility
expires on April 28, 2000 and bears interest at 2.0% above LIBOR. LSM has
entered into an interest rate swap which effectively fixes the interest rate at
9.4%.
The LSM Credit Facility, together with the LSM Term Loan Facility, are
secured by substantially all of the assets of LSM and its subsidiaries. The LSM
Credit Facility and the LSM Term Loan Facility limit LSM's ability to pay
dividends and management fees to Metallurg. Under the terms of these facilities,
LSM is currently (a) permitted to pay dividends to Metallurg in fiscal year 1998
and each year thereafter in an amount not to exceed the lesser of $1.6 million
and the Profit After Tax (as defined in the LSM Term Loan Facility) for that
fiscal year (such dividends are payable only after the preparation of the
audited financial statements by LSM for such fiscal year) and (b) permitted to
pay management fees in any fiscal year in an amount not to exceed $0.8 million
in fiscal year 1997 and 1998 and $1.0 million per fiscal year thereafter. In
addition, if there is a default under either of the LSM credit facilities, LSM
is prohibited from paying any dividends or management fees to Metallurg.
LSM has obtained consent from its working capital lender to modify the
limitations described above to (i) permit LSM to pay dividends to the Company of
up to 100% of LSM's annual net income and (ii) eliminate the limitations on
management fees, in each case contingent upon repayment of the LSM Term Loan
Facility. The Company repaid the LSM Term Loan Facility with proceeds from the
Offering. As a result, the lender under the LSM Credit Facility released the
security pledged for its benefit and permitted increased dividends to the
Company in an amount up to 100% of LSM's annual net income. On October 9, 1997,
LSM entered into a L1.0 million (approximately $1.6 million) facility for
borrowings and foreign exchange exposure.
EWW Credit Facility. EWW has committed lines of credit with several banks
in the aggregate amount of DM 15.0 million (approximately $8.6 million). The
credit facilities expire July 1, 1999 and bear interest at a rate from 7.0% to
7.5%. EWW's accounts receivable, inventory and certain fixed assets are pledged
to secure the credit facilities. A portion of these credit facilities are also
guaranteed by a regional German governmental authority (the "State Guaranty"),
which guaranty is secured by a pledge on the stock of EWW. The State Guaranty
requires that the governmental authority consent to certain transactions by EWW,
including the making of dividends and the reduction of its stated capital. There
are no amounts currently outstanding under this working capital facility.
Although the Company believes that if EWW were otherwise in a position to pay
dividends, either the guarantor would consent to such payment or the working
capital facility at EWW could be refinanced or terminated, there can be no
assurance that this will be the case.
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In addition, EWW has a term loan outstanding to a German state pension
authority in the amount of DM 3.6 million (approximately $2.1 million) as of
July 31, 1997, which is secured by a mortgage on certain real property and bears
interest at 4.5%.
EWW Financial Arrangement with German State Pension Board. EWW's ability
to pay dividends to Metallurg is further restricted by the terms of a settlement
agreement entered into with a German State pension board with regard to a
portion of its pension liability. As of July 31, 1997, EWW's contingent
obligation to the German state pension authority was DM 8.2 million
(approximately $4.7 million). Pursuant to the terms of its settlement agreement,
EWW is required to pay 75% of its net income to satisfy such contingent
obligation, and 25% of its net income may be dividended to Metallurg, subject to
other contractual and statutory restrictions. The obligations to the German
state pension board are secured by the capital stock of EWW.
Other GfE Credit Facilities. In addition to the German Subfacility
described above, GfE has long term debt of DM 3.2 million (approximately $1.8
million) due to Dresdner Bank which is secured by a lien on certain property of
GfE which bears interest at a weighted average rate of 6.0% and DM 1.1 million
(approximately $0.6 million) which is secured by a lien on certain property of a
GfE subsidiary ("Keramed"). Keramed also has an overdraft facility in the amount
of DM 0.5 million, which has no outstanding balance as of July 31, 1997.
Ferrolegeringar Aktiengesellschaft ("FAG") Credit Facility. FAG, the
Company's trading and merchanting subsidiary in Switzerland, has an uncommitted
credit facility with Union Bank of Switzerland in the amount of CHF 7.0 million
(approximately $5.0 million), one-third of which is used for letters of credit
and foreign exchange and two-thirds of which is used for loans and overdrafts.
Usage under the line is limited to 50% of eligible accounts receivable of FAG as
defined in the agreement. The line of credit is secured by the accounts
receivable of FAG. As of July 31, 1997, the outstanding amount under the credit
facility was CHF 0.5 million (approximately $0.3 million). This facility
restricts dividend payments to no more than 50% of FAG's net income.
Other Credit Facilities. The Company's other foreign subsidiaries maintain
short-term secured and unsecured borrowing arrangements, generally in local
currencies, with various banks. Borrowings under these arrangements aggregated
$0.4 million at July 31, 1997.
DESCRIPTION OF THE NEW NOTES
The New Notes offered hereby will be issued under an indenture to be dated
as of November 25, 1997 (the "Indenture"), among the Company, the Guarantors and
IBJ Schroder Bank & Trust Company, as trustee (the "Trustee"). A copy of the
Indenture is available upon request to the Company at the address set forth
under "Available Information." The following summaries of certain provisions of
the Indenture do not purport to be complete and are subject, and are qualified
in their entirety by reference, to the Trust Indenture Act of 1939 (the "Trust
Indenture Act") and to all the provisions of the New Notes and the Indenture,
including the definitions therein of certain terms. For purposes of this
Section, references to the "Company" shall mean Metallurg, Inc., excluding its
subsidiaries. Capitalized terms used in this Section and not otherwise defined
below have the respective meanings assigned to them in the Indenture.
GENERAL
The New Notes will mature on December 1, 2007, and will be limited to an
aggregate principal amount of $100.0 million. The New Notes will bear interest
at the rate set forth on the cover page hereof from November 25, 1997, or from
the most recent interest payment date to which interest has been paid, payable
semiannually on June 1 and December 1 of each year, beginning on June 1, 1998,
to the Persons who are registered holders of the New Notes at the close of
business on the preceding May 15 or November 15, as the case may be. Interest
will be computed on the basis of a 360-day year comprised of twelve 30-day
months.
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Principal of, and premium, if any, and interest on, the New Notes will be
payable in immediately available funds, and the New Notes will be exchangeable
and transferable, at an office or agency of the Company, one of which will be
maintained for such purpose in The City of New York (which initially will be the
corporate trust office of the Trustee); provided, however, that payment of
interest may be made at the option of the Company by check mailed to the Person
entitled thereto as shown on the Security Register. The New Notes will be issued
only in fully registered form without coupons, in denominations of $1,000 or any
integral multiple thereof. No service charge will be made for any registration
of transfer or exchange of New Notes, except for any tax or other governmental
charge that may be imposed in connection therewith.
Pursuant to the Registration Agreement, the Company has agreed to file with
the Commission the Exchange Offer Registration Statement relating to an offer to
exchange the Old Notes for New Notes. The interest rate on the Old Notes is
subject to increase in certain circumstances if the Company does not file such
registration statement or, in lieu thereof, a resale shelf registration
statement for the Old Notes, if such registration statement is not declared
effective on a timely basis or if certain other conditions are not satisfied,
all as further described under "The Exchange Offer."
GUARANTIES
The obligations of the Company under the Indenture, including the
repurchase obligation resulting from a Change of Control, will be
unconditionally guaranteed, jointly and severally, on a senior unsecured basis,
by each of the Guarantors.
Upon the sale or other disposition of a Guarantor or the sale or
disposition of all or substantially all the assets of a Guarantor permitted by
the Indenture, such Guarantor will be released from all its obligations under
its Guaranty. See "-- Certain Covenants -- Limitation on Issuance or Sale of
Capital Stock of Restricted Subsidiaries" and "-- Merger, Consolidation and Sale
of Property." Any Guarantor that is designated an Unrestricted Subsidiary in
accordance with the terms of the Indenture will be released from all its
obligations under its Guaranty upon execution and delivery of a supplemental
indenture in form satisfactory to the Trustee.
Each of the Company and the Guarantors will agree to contribute to any
other Guarantor which makes payments pursuant to its Guaranty an amount equal to
the Company's or such Guarantor's proportionate share of such payment, based on
the net worth of the Company or such Guarantor relative to the aggregate net
worth of the Company and the Guarantors.
RANKING
The New Notes will be senior unsecured obligations of the Company,
effectively subordinated in right of payment to all existing and future secured
indebtedness of the Company to the extent of the value of the assets securing
such indebtedness. The New Notes will rank pari passu with all senior
indebtedness of the Company and senior to all subordinated indebtedness of the
Company. The New Notes will be guaranteed on a senior unsecured basis by certain
domestic Restricted Subsidiaries of the Company which, for the fiscal quarter
ended July 31, 1997, generated 31.2% of the Company's revenue and certain future
domestic Restricted Subsidiaries of the Company. The Guaranties will be senior
unsecured obligations of the Guarantors and will effectively rank subordinate in
right of payment to all secured indebtedness of the Guarantors to the extent of
the value of the assets securing such indebtedness. The Guaranties will rank
pari passu with all senior indebtedness of the Guarantors and senior to all
subordinated indebtedness of the Guarantors. As of July 31, 1997, after giving
effect to the Offering and the application of the estimated net proceeds
therefrom, the secured obligations of the Company and the Guarantors would have
consisted of approximately $24.6 million of contingent obligations in respect of
outstanding letters of credit under the Credit Facility. None of the Company's
or any Guarantor's debt as of such date, after giving such effect, would have
been subordinated to the New Notes or the Guaranties.
All debt and other liabilities of the Company's Subsidiaries which are not
Guarantors, including the claims of trade creditors, secured creditors and
creditors holding debt and guarantees issued by such
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Subsidiaries, and claims of preferred stockholders, if any, of such
Subsidiaries, will be effectively senior to the New Notes. The Guaranties could
also be effectively subordinated to all of the obligations of the Guarantors
under certain circumstances. As of July 31, 1997, after giving effect to the
Offering and the application of the estimated net proceeds therefrom, the
Company's Subsidiaries which are not Guarantors would have had approximately
$168.4 million of balance sheet liabilities (including trade payables, accrued
liabilities and intercompany amounts), of which $5.5 million would have been
indebtedness, and the Guarantors would have had approximately $92.0 million of
balance sheet liabilities (including trade payables, accrued liabilities and
intercompany amounts), none of which would have been indebtedness.
The Company and its Subsidiaries have other liabilities, including
contingent liabilities, which may be significant. Although the Indenture
contains limitations on the amount of additional Debt which the Company and the
Restricted Subsidiaries may Incur, all such Debt may be Incurred by Subsidiaries
and the amounts of such Debt could be substantial. See "-- Certain
Covenants -- Limitation on Debt."
See "Risk Factors -- Asset Encumbrance," "-- Holding Company Structure;
Restrictions on Dividend Payments by Subsidiaries," "-- Fraudulent Conveyance
Considerations" and "-- Substantial Leverage" and "Description of Credit
Facilities and Other Financing Arrangements."
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the New Notes will not be
redeemable at the option of the Company prior to December 1, 2002. Thereafter,
the New Notes will be redeemable at the option of the Company, in whole or in
part, on not less than 30 nor more than 60 days' prior notice, at the following
redemption prices (expressed as percentages of principal amount), plus accrued
and unpaid interest (if any) to the redemption date (subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date), if redeemed during the 12-month period
commencing on December 1 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
----------------------------------------------------------------- ----------
<S> <C>
2002............................................................. 105.500%
2003............................................................. 103.667%
2004............................................................. 101.833%
2005 and thereafter.............................................. 100.000%
</TABLE>
In addition, prior to December 1, 2000, the Company may redeem up to a
maximum of 34% of the original aggregate principal amount of the New Notes with
the proceeds of one or more Public Equity Offerings following which there is a
Public Market, at a redemption price equal to 111% of the principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the redemption
date (subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date); provided, however,
that after giving effect to any such redemption, at least 66% of the original
aggregate principal amount of the New Notes remains outstanding. Any such
redemption shall be made within 60 days of such Public Equity Offering upon not
less than 30 nor more than 60 days' notice mailed to each holder of New Notes
being redeemed and otherwise in accordance with the procedures set forth in the
Indenture.
SINKING FUND
There are no sinking fund payments for the New Notes.
REPURCHASE AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of New Notes shall
have the right to require the Company to repurchase all or any part of such
holder's New Notes pursuant to the offer described below (the "Change of Control
Offer") at a purchase price (the "Change of Control Purchase Price")
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equal to 101% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the purchase date (subject to the right of holders of record
on the relevant record date to receive interest due on the relevant interest
payment date).
Within 30 days following any Change of Control, the Company shall (a) cause
a notice of the Change of Control Offer to be sent at least once to the Dow
Jones News Service or similar business news service in the United States and (b)
send, by first-class mail, with a copy to the Trustee, to each holder of New
Notes, at such holder's address appearing in the Security Register, a notice
stating: (i) that a Change of Control has occurred and a Change of Control Offer
is being made pursuant to the covenant entitled "Repurchase at the Option of
Holders Upon a Change of Control" and that all New Notes timely tendered will be
accepted for payment; (ii) the Change of Control Purchase Price and the purchase
date, which shall be, subject to any contrary requirements of applicable law, a
business day no earlier than 30 days nor later than 60 days from the date such
notice is mailed; (iii) the circumstances and relevant facts regarding such
Change of Control (including information with respect to pro forma historical
income, cash flow and capitalization after giving effect to the Change of
Control); and (iv) the procedures that holders of New Notes must follow in order
to tender their New Notes (or portions thereof) for payment, and the procedures
that holders of New Notes must follow in order to withdraw an election to tender
New Notes (or portions thereof) for payment.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of New Notes pursuant to a Change of Control
Offer. To the extent that the provisions of any securities laws or regulations
conflict with the provisions of the covenant described hereunder, the Company
will comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under the covenant described hereunder
by virtue of such compliance.
The Change of Control repurchase feature is a result of negotiations
between the Company and the Initial Purchasers. Management has no present
intention to engage in a transaction involving a Change of Control, although it
is possible that the Company would decide to do so in the future. Subject to
certain covenants described below, the Company could, in the future, enter into
certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of debt outstanding at such time
or otherwise affect the Company's capital structure or credit ratings.
The definition of Change of Control includes a phrase relating to the sale,
assignment, lease, conveyance, disposition or transfer of "all or substantially
all" the Company's assets. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of New Notes to require the Company to repurchase such New Notes as a
result of a sale, assignment, lease, conveyance, disposition or transfer of less
than all the assets of the Company may be uncertain.
The Credit Facility prohibits the Company from purchasing any Notes, and
also provides that the occurrence of a Change of Control would constitute a
default under such existing debt. Other future debt of the Company may contain
prohibitions of certain events which would constitute a Change of Control or
require such debt to be repurchased upon a Change of Control. Moreover, the
exercise by holders of New Notes of their right to require the Company to
repurchase such New Notes could cause a default under existing or future debt of
the Company, even if the Change of Control itself does not, due to the financial
effect of such repurchase on the Company. Finally, the Company's ability to pay
cash to holders of New Notes upon a repurchase may be limited by the Company's
then existing financial resources. There can be no assurance that sufficient
funds will be available when necessary to make any required repurchases. The
Company's failure to purchase the New Notes in connection with a Change of
Control would result in a default under the Indenture which would, in turn,
constitute a default under the existing or future debt of the Company. The
provisions under the Indenture relative to the Company's obligation to make an
offer to repurchase the New Notes as a result of a Change of Control may be
waived or modified (at any time prior to the occurrence of such Change of
Control) with the written consent of the holders of a majority in principal
amount of the New Notes.
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CERTAIN COVENANTS
Limitation on Debt. The Company shall not, and shall not permit any
Restricted Subsidiary to, Incur, directly or indirectly, any Debt (which
includes, in the case of Restricted Subsidiaries, Preferred Stock) unless, after
giving pro forma effect to the application of the proceeds thereof, no Default
or Event of Default would occur as a consequence of such Incurrence or be
continuing following such Incurrence and either (a) after giving effect to the
Incurrence of such Debt and the application of the proceeds thereof, the
Consolidated Coverage Ratio would be greater than 2.00 to 1.00 or (b) such Debt
is Permitted Debt.
The term "Permitted Debt" is defined to include the following:
(a) Debt of the Company evidenced by the New Notes and of Guarantors
evidenced by Guaranties;
(b) Debt under the Credit Facility, provided that the aggregate
principal amount of all such Debt under the Credit Facility at any one time
outstanding shall not exceed the greater of (i) $50.0 million, which amount
shall be permanently reduced by the amount of Net Available Cash used to
repay Debt under the Credit Facility, and not subsequently reinvested in
Additional Assets or used to purchase Notes, pursuant to the covenant
described under "-- Limitation on Asset Sales" and (ii) the sum of the
amounts equal to (x) 65% of the book value of the inventory of the Company
and the Restricted Subsidiaries and (y) 90% of the book value of the
accounts receivable of the Company and the Restricted Subsidiaries, in each
case as of the most recently ended quarter of the Company for which
financial statements of the Company have been provided to the holders of
New Notes (the greater of (i) and (ii) being the "Permitted Debt Amount");
provided, further, that the aggregate amount of Debt Incurred pursuant to
this clause (b), together with the aggregate amount of Debt Incurred
pursuant to clause (c) below shall not exceed an amount equal to the
Permitted Debt Amount at any one time outstanding;
(c) Debt of any Restricted Subsidiary under one or more debt
facilities with banks or other institutional lenders providing for
revolving credit loans, term loans, receivables financing (including
through the sale of receivables to such lenders or to special purpose
entities formed to borrow from such lenders against such receivables),
letters of credit, foreign exchange, bankers acceptances or similar
financial arrangements, and any Permitted Refinancing Debt Incurred with
respect thereto, provided that the aggregate principal amount of all such
Debt at any one time outstanding shall not exceed the sum of (i) 65% of the
book value of the inventory of such Restricted Subsidiary and (ii) 90% of
the book value of the accounts receivable of such Restricted Subsidiary, in
each case as of the most recently ended quarter of the Company for which
financial statements of the Company have been provided to the holders of
the New Notes; provided, further, that the aggregate amount of Debt
Incurred pursuant to this clause (c), together with the aggregate amount of
Debt Incurred pursuant to clause (b) above shall not exceed the Permitted
Debt Amount at any one time outstanding;
(d) Debt in respect of Capital Lease Obligations and Purchase Money
Debt, provided that (i) the aggregate principal amount of such Debt does
not exceed the Fair Market Value (on the date of the Incurrence thereof) of
the Property acquired, constructed or leased and (ii) the aggregate
principal amount of all Debt Incurred and then outstanding pursuant to this
clause (d) (together with all Permitted Refinancing Debt Incurred in
respect of Debt previously Incurred pursuant to such clause (d) does not
exceed $15.0 million;
(e) Debt of the Company owing to and held by any Restricted Subsidiary
or Debt of a Restricted Subsidiary owed to and held by the Company or
another Restricted Subsidiary; provided, however, that any subsequent
transfer of Capital Stock or other event that results in any such
Restricted Subsidiary ceasing to be a Restricted Subsidiary or any
subsequent transfer of any such Debt (except to the Company or a Restricted
Subsidiary) shall be deemed, in each case, to constitute the Incurrence of
such Debt by the issuer thereof;
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(f) Debt under Interest Rate Agreements entered into by the Company or
a Restricted Subsidiary for the purpose of limiting interest rate risk in
the ordinary course of the financial management of the Company or such
Restricted Subsidiary and not for speculative purposes, provided that the
obligations under such agreements are directly related to payment
obligations on Debt otherwise permitted by the terms of this covenant;
(g) Debt under Currency Exchange Protection Agreements entered into by
the Company or a Restricted Subsidiary for the purpose of limiting currency
exchange rate risks directly related to transactions entered into by the
Company or such Restricted Subsidiary in the ordinary course of business
and not for speculative purposes;
(h) Debt Incurred in connection with cash pooling arrangements by and
among the Company and its Restricted Subsidiaries, provided that no
liability is required under GAAP to be reflected in the consolidated
financial statements of the Company with respect thereto;
(i) Debt outstanding on the Issue Date not otherwise described in
clauses (a) through (h) above;
(j) Debt (other than Debt permitted by the immediately preceding
paragraph or the other clauses of this paragraph) in an aggregate principal
amount outstanding at any one time not to exceed $25.0 million; and
(k) Permitted Refinancing Debt Incurred in respect of Debt Incurred
pursuant to clause (a) of the immediately preceding paragraph and clauses
(a) and (i) above.
Notwithstanding the immediately foregoing two paragraphs, the Company shall
not, and shall not permit any Restricted Subsidiary to, Incur any Debt pursuant
to such paragraphs if the proceeds thereof are used, directly or indirectly, to
Refinance any Subordinated Obligations unless such Debt shall be subordinated to
the New Notes and the Guaranties, as applicable, to at least the same extent as
such Subordinated Obligations.
Limitation on Restricted Payments. The Company shall not make, and shall
not permit any Restricted Subsidiary to make, directly or indirectly, any
Restricted Payment if at the time of, and after giving pro forma effect to, such
proposed Restricted Payment,
(a) a Default or Event of Default shall have occurred and be continuing,
(b) the Company could not Incur at least $1.00 of additional Debt pursuant
to clause (a) of the first paragraph of the covenant described under
"-- Limitation on Debt" or
(c) the aggregate amount of such Restricted Payment and all other
Restricted Payments declared or made since the Issue Date (the amount of any
Restricted Payment, if made other than in cash, to be based upon Fair Market
Value) would exceed an amount equal to the sum of:
(i) 50% of the aggregate amount of Consolidated Net Income accrued
during the period (treated as one accounting period) from and after the
first day of the fiscal quarter following the end of the most recent fiscal
quarter ended immediately prior to the Issue Date to the end of the most
recent fiscal quarter ending at least 45 days prior to the date of such
Restricted Payment (or if the aggregate amount of Consolidated Net Income
for such period shall be a deficit, minus 100% of such deficit),
(ii) Capital Stock Sale Proceeds,
(iii) the amount by which Debt (other than Subordinated Obligations)
of the Company or any Guarantor or any other Restricted Subsidiary is
reduced on the Company's balance sheet upon the conversion or exchange
(other than by a Subsidiary of the Company) subsequent to the Issue Date of
any Debt of the Company or any Guarantor or any other Restricted Subsidiary
convertible or exchangeable for Capital Stock (other than Disqualified
Stock) of the Company (less the amount of any cash or other Property
distributed by the Company or any Restricted Subsidiary upon such
conversion or exchange),
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(iv) an amount equal to the sum of (A) the net reduction in
Investments in any Person other than a Restricted Subsidiary resulting from
dividends, repayments of loans or advances or other transfers of assets, in
each case to the Company or any Restricted Subsidiary from such Person, and
(B) the portion (proportionate to the Company's equity interest in such
Unrestricted Subsidiary) of the Fair Market Value of the net assets of an
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary; provided, however, that the foregoing
sum shall not exceed, in the case of any Person, the amount of Investments
previously made (and treated as a Restricted Payment) by the Company or any
Restricted Subsidiary in such Person, and
(v) $5.0 million.
Notwithstanding the foregoing limitation, the Company may:
(a) pay dividends on its Capital Stock within 60 days of the
declaration thereof if, on said declaration date, such dividends could have
been paid in compliance with the Indenture; provided, however, that such
dividend shall be included in the calculation of the amount of Restricted
Payments;
(b) purchase, repurchase, redeem, legally defease, acquire or retire
for value Capital Stock of the Company or Subordinated Obligations in
exchange for, or out of the proceeds of the substantially concurrent sale
of, Capital Stock of the Company (other than Disqualified Stock and other
than Capital Stock issued or sold to a Subsidiary of the Company or an
employee stock ownership plan or trust established by the Company or any of
its Subsidiaries for the benefit of their employees); provided, however,
that (i) such purchase, repurchase, redemption, legal defeasance,
acquisition or retirement shall be excluded in the calculation of the
amount of Restricted Payments and (ii) the Capital Stock Sale Proceeds from
such exchange or sale shall be excluded from the calculation pursuant to
clause (c)(ii) above;
(c) purchase, repurchase, redeem, legally defease, acquire or retire
for value any Subordinated Obligations in exchange for, or out of the
proceeds of the substantially concurrent sale of, Permitted Refinancing
Debt; provided, however, that such purchase, repurchase, redemption, legal
defeasance, acquisition or retirement shall be excluded in the calculation
of the amount of Restricted Payments;
(d) make Investments in an aggregate amount not to exceed $20.0
million; provided, however, that such Investments shall be excluded in the
calculation of the amount of Restricted Payments;
(e) repurchase shares of, or options to purchase shares of, common
stock of the Company or any of its Subsidiaries from employees or former
employees of the Company or any of its Subsidiaries, pursuant to the terms
of agreements (including employment agreements) or plans (or amendments
thereto) approved by the Board of Directors under which such individuals
purchase or sell, or are granted the option to purchase or sell, shares of
such common stock; provided, however, that the aggregate amount of such
repurchases shall not exceed $2.0 million in any calendar year; provided
further, however, that such repurchases shall be excluded in the
calculation of the amount of Restricted Payments;
(f) expend up to $10.0 million for Restricted Payments in addition to
amounts permitted pursuant to clauses (a) through (e) above; provided,
however, that at the time of, and after giving pro forma effect to, any
such expenditure, no Default or Event of Default shall have occurred and be
continuing; provided further, however, that such expenditures shall be
excluded in the calculation of the amount of Restricted Payments;
(g) make Restricted Payments, including a cash dividend in an
aggregate amount not to exceed $20.0 million, in connection with the
Recapitalization; provided, however, that such Restricted Payments shall be
excluded in the calculation of the amount of Restricted Payments; and
(h) make Restricted Payments required pursuant to the Joint Plan of
Reorganization of the Company and Shieldalloy Metallurgical Corporation
dated December 18, 1996, in an aggregate
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amount not to exceed the lesser of (i) the amount held in reserve
thereunder and (ii) $4.0 million, plus, in each case, interest and
dividends thereon; provided, however, that such Restricted Payments shall
be excluded in the calculation of the amount of Restricted Payments.
Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur or suffer to exist, any
Lien (other than Permitted Liens) upon any of its Property (including Capital
Stock of a Restricted Subsidiary), whether owned at the Issue Date or thereafter
acquired, or any interest therein or any income or profits therefrom, unless it
has made or will make effective provision whereby the New Notes or the
applicable Guaranty will be secured by such Lien equally and ratably with (or
prior to) all other Debt of the Company or any Restricted Subsidiary secured by
such Lien.
Limitation on Issuance or Sale of Capital Stock of Restricted
Subsidiaries. The Company shall not (a) sell or otherwise dispose of any shares
of Capital Stock of a Restricted Subsidiary or (b) permit any Restricted
Subsidiary to, directly or indirectly, issue or sell or otherwise dispose of any
shares of its Capital Stock other than (i) directors' qualifying shares, (ii) to
the Company or a Wholly Owned Subsidiary or (iii) if, immediately after giving
effect to such disposition, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary; provided, however, that, in the case of this
clause (iii), such disposition is effected in compliance with the covenant
described under "-- Limitation on Asset Sales."
Limitation on Asset Sales. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, consummate any Asset Sale
unless (a) the Company or such Restricted Subsidiary receives consideration at
the time of such Asset Sale at least equal to the Fair Market Value of the
Property subject to such Asset Sale; (b) at least 75% of the consideration paid
to the Company or such Restricted Subsidiary in connection with such Asset Sale
is in the form of cash or cash equivalents; and (c) the Company delivers an
Officers' Certificate to the Trustee certifying that such Asset Sale complies
with the foregoing clauses (a) and (b). For purposes of this covenant, the
following are deemed to be cash: (x) the amount of any liabilities (other than
liabilities that are by their terms subordinated to any other Debt of the
Company or such Restricted Subsidiary, as the case may be) of the Company or
such Restricted Subsidiary (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet or in the notes thereto) that are assumed
by the transferee of any such assets or other property in such Asset Sale, as a
result of which the Company or the Restricted Subsidiaries are no longer
obligated with respect to such liabilities and (y) securities received by the
Company or any Restricted Subsidiary from the transferee that are immediately
converted by the Company or such Restricted Subsidiary into cash.
The Net Available Cash (or any portion thereof) from Asset Sales (or an
amount equal thereto) may be applied by the Company or a Restricted Subsidiary,
to the extent the Company or such Restricted Subsidiary elects (or is required
by the terms of any Debt): (a) to prepay, repay, legally defease or purchase
Senior Debt of the Company or any Guarantor or Debt of any Restricted Subsidiary
that is not a Guarantor (excluding, in any such case, any Debt owed to the
Company or an Affiliate of the Company); or (b) to reinvest in Additional Assets
(including by means of an Investment in Additional Assets by a Restricted
Subsidiary in an amount equal to such Net Available Cash received by the Company
or another Restricted Subsidiary); provided, however, that in connection with
any prepayment, repayment, legal defeasance or purchase of Debt pursuant to
clause (a) above, the Company or such Guarantor or other Restricted Subsidiary
shall retire such Debt and shall cause the related loan commitment (if any) to
be permanently reduced by an amount equal to the principal amount so prepaid,
repaid, legally defeased or purchased.
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In the event that any Net Available Cash from an Asset Sale (or an amount
equal thereto) is not applied in accordance with the preceding paragraph within
270 days from the date of the receipt of such Net Available Cash, such Net
Available Cash shall constitute "Excess Proceeds." When the aggregate amount of
Excess Proceeds exceeds $5.0 million (taking into account income earned on such
Excess Proceeds, if any), the Company will be required to make an offer to
purchase (the "Prepayment Offer") the New Notes which offer shall be in the
amount of the Excess Proceeds, on a pro rata basis according to principal
amount, at a purchase price equal to 100% of the principal amount thereof plus
accrued and unpaid interest thereon, if any, to the purchase date (subject to
the right of holders of record on the relevant record date to receive interest
due on the relevant interest payment date) in accordance with the procedures
(including prorating in the event of oversubscription) set forth in the
Indenture. To the extent that any portion of the amount of Net Available Cash
remains after compliance with the preceding sentence and provided that all
holders of New Notes have been given the opportunity to tender their New Notes
for purchase in accordance with the Indenture, the Company may use such
remaining amount for any purpose permitted by the Indenture and the amount of
Excess Proceeds will be reset to zero.
Within ten business days after the Company is obligated to make a
Prepayment Offer as described in the preceding paragraph, the Company shall send
a written notice, by first-class mail, to the holders of New Notes, accompanied
by such information regarding the Company and its Subsidiaries as the Company in
good faith believes will enable such holders to make an informed decision with
respect to such Prepayment Offer. Such notice shall state, among other things,
the purchase price and the purchase date, which shall be, subject to any
contrary requirements of applicable law, a business day no earlier than 30 days
nor later than 60 days from the date such notice is mailed.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of New Notes pursuant to the covenant
described hereunder. To the extent that the provisions of any securities laws or
regulations conflict with provisions of the covenant described hereunder, the
Company will comply with the applicable securities laws and regulations and will
not be deemed to have breached its obligations under the covenant described
hereunder by virtue thereof.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist any consensual restriction on the right of any Restricted Subsidiary to
(a) pay dividends, in cash or otherwise, or make any other distributions on or
in respect of its Capital Stock, or pay any Debt or other obligation owed, to
the Company or any other Restricted Subsidiary, except that any Debt owed by a
Restricted Subsidiary to the Company or any other Restricted Subsidiary may be
subordinated in right of payment to other Debt obligations of such Restricted
Subsidiary, (b) make any loans or advances to the Company or any other
Restricted Subsidiary, except that any repayment obligations of the Company or
any other Restricted Subsidiary in respect of such loans or advances may be
subordinated in right of payment to other Debt obligations of the Company or
such other Restricted Subsidiary or (c) transfer any of its Property to the
Company or any other Restricted Subsidiary. The foregoing limitations will not
apply (i) with respect to clauses (a), (b) and (c), to restrictions (A) in
effect on the Issue Date, (B) relating to Debt of a Restricted Subsidiary and
existing at the time it became a Restricted Subsidiary if such restriction was
not created in connection with or in anticipation of the transaction or series
of transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by the Company or (C) which result from the
Refinancing of Debt Incurred pursuant to an agreement referred to in the
immediately preceding clause (i)(A) or (B) above or in clause (ii)(A) or (B)
below, provided such restriction is not materially less favorable to the holders
of New Notes than those under the agreement evidencing the Debt so Refinanced,
and (ii) with respect to clause (c) only, to restrictions (A) relating to Debt
that is permitted to be Incurred and is not prohibited from being secured
without also securing the New Notes or the Guaranties pursuant to the covenants
described under "-- Limitation on Debt" and "-- Limitation on Liens" that limit
the right of the debtor to dispose of the Property securing such Debt, (B)
encumbering Property at the time such Property was acquired by the Company or
any Restricted Subsidiary, so long as such restriction relates solely to the
Property so
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acquired and was not created in connection with or in anticipation of such
acquisition, (C) resulting from customary provisions restricting subletting or
assignment of leases or customary provisions in other agreements that restrict
assignment of such agreements or rights thereunder, (D) customary restrictions
contained in asset sale or stock purchase agreements limiting the transfer of
such Property pending the closing of such transaction or (E) any restriction
imposed by applicable law.
Limitation on Transactions with Affiliates. The Company shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly, conduct
any business or enter into or suffer to exist any transaction or series of
transactions (including the purchase, sale, transfer, assignment, lease,
conveyance or exchange of any Property or the rendering of any service) with, or
for the benefit of, any Affiliate of the Company (an "Affiliate Transaction"),
unless (a) the terms of such Affiliate Transaction are (i) set forth in writing
and (ii) no less favorable to the Company or such Restricted Subsidiary, as the
case may be, than those that could be obtained in a comparable arm's-length
transaction with a Person that is not an Affiliate of the Company, (b) if such
Affiliate Transaction involves aggregate payments or value in excess of $2.0
million, the Board of Directors (including a majority of the disinterested
members of the Board of Directors) approves such Affiliate Transaction and, in
its good faith judgment, believes that such Affiliate Transaction complies with
clause (a) (ii) of this paragraph as evidenced by a Board Resolution promptly
delivered to the Trustee and (c) if such Affiliate Transaction involves
aggregate payments or value in excess of $15.0 million, the Company obtains a
written opinion from an Independent Appraiser to the effect that the
consideration to be paid or received in connection with such Affiliate
Transaction is fair, from a financial point of view, to the Company or such
Restricted Subsidiary, as the case may be.
Notwithstanding the foregoing limitation, the Company or any Restricted
Subsidiary may enter into or suffer to exist the following:
(i) any transaction or series of transactions between the Company and
one or more Restricted Subsidiaries or between two or more Restricted
Subsidiaries in the ordinary course of business, provided that no more than
5% of the total voting power of the Voting Stock (on a fully diluted basis)
of any such Restricted Subsidiary is owned by an Affiliate of the Company
(other than a Restricted Subsidiary);
(ii) any Restricted Payment permitted to be made pursuant to the
covenant described under "-- Limitation on Restricted Payments";
(iii) the payment of compensation (including amounts paid pursuant to
employee benefit plans) for the personal services of officers, directors
and employees of the Company or any of the Restricted Subsidiaries, so long
as the Board of Directors in good faith shall have approved the terms
thereof and deemed the services theretofore or thereafter to be performed
for such compensation to be fair consideration therefor; and
(iv) the payment of reasonable fees to directors of the Company or
such Restricted Subsidiary (x) who are not employees of the Company or any
Restricted Subsidiary or (y) who are employees of the Company or any
Restricted Subsidiary, provided that such fees are consistent with the past
practices of the Company or such Restricted Subsidiary.
Limitation on Sale and Leaseback Transactions. The Company shall not, and
shall not permit any Restricted Subsidiary to, enter into any Sale and Leaseback
Transaction with respect to any Property unless (a) the Company or such
Restricted Subsidiary would be entitled to (i) Incur Debt in an amount equal to
the Attributable Debt with respect to such Sale and Leaseback Transaction
pursuant to the covenant described under "-- Limitation on Debt" and (ii) create
a Lien on such Property securing such Attributable Debt without securing the New
Notes pursuant to the covenant described under "-- Limitation on Liens" and (b)
such Sale and Leaseback Transaction is effected in compliance with the covenant
described under "-- Limitation on Asset Sales."
Designation of Restricted and Unrestricted Subsidiaries. The Board of
Directors may designate any Subsidiary of the Company to be an Unrestricted
Subsidiary if (a) the Subsidiary to be so designated
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does not own any Capital Stock or Debt of, or own or hold any Lien on any
Property of, the Company or any other Restricted Subsidiary, (b) the Subsidiary
to be so designated is not obligated under any Debt, Lien or other obligation
that, if in default, would result (with the passage of time or notice or
otherwise) in a default on any Debt of the Company or of any Restricted
Subsidiary and (c) either (i) the Subsidiary to be so designated has total
assets of $1,000 or less or (ii) such designation is effective immediately upon
such entity becoming a Subsidiary of the Company. Unless so designated as an
Unrestricted Subsidiary, any Person that becomes a Subsidiary of the Company
will be classified as a Restricted Subsidiary; provided, however, that such
Subsidiary shall not be designated a Restricted Subsidiary and shall be
automatically classified as an Unrestricted Subsidiary if either of the
requirements set forth in clauses (x) and (y) of the immediately following
paragraph will not be satisfied after giving pro forma effect to such
classification. Except as provided in the first sentence of this paragraph, no
Restricted Subsidiary may be redesignated as an Unrestricted Subsidiary.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary if, immediately after giving pro forma effect to such
designation, (x) the Company could Incur at least $1.00 of additional Debt
pursuant to clause (a) of the first paragraph of the covenant described under
"-- Limitation on Debt" and (y) no Default or Event of Default shall have
occurred and be continuing or would result therefrom.
Any such designation or redesignation by the Board of Directors will be
evidenced to the Trustee by filing with the Trustee a Board Resolution giving
effect to such designation or redesignation and an Officers' Certificate (a)
certifying that such designation or redesignation complies with the foregoing
provisions and (b) giving the effective date of such designation or
redesignation, such filing with the Trustee to occur within 45 days after the
end of the fiscal quarter of the Company in which such designation or
redesignation is made (or, in the case of a designation or redesignation made
during the last fiscal quarter of the Company's fiscal year, within 90 days
after the end of such fiscal year).
Future Guarantors. The Company shall cause each domestic Restricted
Subsidiary of the Company that Incurs Debt, including pursuant to a Guarantee of
the Credit Facility, following the Issue Date to execute and deliver to the
Trustee a Guaranty.
MERGER, CONSOLIDATION AND SALE OF PROPERTY
The Company shall not merge, consolidate or amalgamate with or into any
other Person (other than a merger of a Wholly Owned Subsidiary into the Company)
or sell, transfer, assign, lease, convey or otherwise dispose of all or
substantially all its Property in any one transaction or series of transactions
unless: (a) the Company shall be the surviving Person (the "Surviving Person")
or the Surviving Person (if other than the Company) formed by such merger,
consolidation or amalgamation or to which such sale, transfer, assignment,
lease, conveyance or disposition is made shall be a corporation organized and
existing under the laws of the United States of America, any State thereof or
the District of Columbia; (b) the Surviving Person (if other than the Company)
expressly assumes, by supplemental indenture in form satisfactory to the
Trustee, executed and delivered to the Trustee by such Surviving Person, the due
and punctual payment of the principal of, and premium, if any, and interest on,
all the New Notes, according to their tenor, and the due and punctual
performance and observance of all the covenants and conditions of the Indenture
to be performed by the Company; (c) in the case of a sale, transfer, assignment,
lease, conveyance or other disposition of all or substantially all the Property
of the Company, such Property shall have been transferred as an entirety or
virtually as an entirety to one Person; (d) immediately before and after giving
effect to such transaction or series of transactions on a pro forma basis (and
treating, for purposes of this clause (d) and clauses (e) and (f) below, any
Debt which becomes, or is anticipated to become, an obligation of the Surviving
Person or any Restricted Subsidiary as a result of such transaction or series of
transactions as having been Incurred by the Surviving Person or such Restricted
Subsidiary at the time of such transaction or series of transactions), no
Default or Event of Default shall have occurred and be continuing; (e)
immediately after giving effect to such transaction or series of transactions on
a pro forma basis, the Company or the Surviving Person, as the case may be,
would be able to Incur at least $1.00 of additional Debt under clause (a) of the
first
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paragraph of the covenant described under "-- Certain Covenants -- Limitation on
Debt"; (f) immediately after giving effect to such transaction or series of
transactions on a pro forma basis, the Surviving Person shall have a
Consolidated Net Worth in an amount which is not less than the Consolidated Net
Worth of the Company immediately prior to such transaction or series of
transactions; and (g) the Company shall deliver, or cause to be delivered, to
the Trustee, in form and substance reasonably satisfactory to the Trustee, an
Officers' Certificate and an Opinion of Counsel, each stating that such
transaction and the supplemental indenture, if any, in respect thereto comply
with this covenant and that all conditions precedent herein provided for
relating to such transaction have been satisfied.
The Surviving Person shall succeed to, and be substituted for, and may
exercise every right and power of the Company under the Indenture, but the
predecessor Company in the case of a sale, transfer, assignment, lease,
conveyance or other disposition shall not be released from the obligation to pay
the principal of, and premium, if any, and interest on, the New Notes.
SEC REPORTS
Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file
with the Commission and provide the Trustee and holders of New Notes with such
annual reports and such information, documents and other reports as are
specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S.
corporation subject to such Sections, such information, documents and reports to
be so filed and provided within 15 days after the times specified for the filing
of such information, documents and reports under such Sections; provided,
however, that the Company shall not be so obligated to file such information,
documents and reports with the Commission if the Commission does not permit such
filings. The Company shall file with the Commission and provide the Trustee and
holders of New Notes with the information, documents and reports described
herein whether or not the Exchange Offer Registration Statement (as defined
under "Exchange Offer; Registration Rights") has been filed or declared
effective.
EVENTS OF DEFAULT
Events of Default in respect of the New Notes as set forth in the Indenture
include: (a) failure to make the payment of any interest on the New Notes when
the same becomes due and payable, and such failure continues for a period of 30
days; (b) failure to make the payment of any principal of, or premium, if any,
on, any of the New Notes when the same becomes due and payable at its Stated
Maturity, upon acceleration, redemption, optional redemption, required
repurchase or otherwise; (c) failure to comply with the covenant described above
under "-- Merger, Consolidation and Sale of Property"; (d) failure to comply
with any other covenant or agreement in the New Notes or in the Indenture (other
than a failure which is the subject of the foregoing clause (a), (b) or (c)) and
such failure continues for 30 days after written notice is given to the Company
as provided below; (e) a default under any Debt by the Company or any Restricted
Subsidiary which results in acceleration of the maturity of such Debt, or
failure to pay any such Debt at maturity, in an aggregate amount greater than
$5.0 million (the "cross-acceleration provisions"); (f) any judgment or
judgments for the payment of money in an aggregate amount in excess of $5.0
million shall be rendered against the Company or any Restricted Subsidiary and
shall not be waived, satisfied or discharged for any period of 30 consecutive
days during which a stay of enforcement shall not be in effect (the "judgment
default provisions"); (g) certain events involving bankruptcy, insolvency or
reorganization of the Company or any Significant Subsidiary (the "bankruptcy
provisions"); and (h) any Guaranty ceases to be in full force and effect (other
than in accordance with the terms of such Guaranty) or any Guarantor denies or
disaffirms its obligations under its Guaranty (the "guaranty provisions").
A Default under clause (d) is not an Event of Default until the Trustee or
the holders of not less than 25% in principal amount of the New Notes then
outstanding notify the Company of the Default and the Company does not cure such
Default within the time specified after receipt of such notice. Such notice must
specify the Default, demand that it be remedied and state that such notice is a
"Notice of Default."
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The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any event which with the giving of notice and the lapse of time would become an
Event of Default, its status and what action the Company is taking or proposes
to take with respect thereto.
The Indenture provides that if an Event of Default with respect to the New
Notes (other than an Event of Default resulting from certain events involving
bankruptcy, insolvency or reorganization with respect to the Company or any
Significant Subsidiary) shall have occurred and be continuing, the Trustee or
the registered holders of not less than 25% in aggregate principal amount of the
New Notes then outstanding may declare to be immediately due and payable the
principal amount of all the New Notes then outstanding, plus accrued but unpaid
interest to the date of acceleration. In case an Event of Default resulting from
certain events of bankruptcy, insolvency or reorganization with respect to the
Company or any Significant Subsidiary shall occur, such amount with respect to
all the New Notes shall be due and payable immediately without any declaration
or other act on the part of the Trustee or the holders of the New Notes. After
any such acceleration, but before a judgment or decree based on acceleration is
obtained by the Trustee, the registered holders of a majority in aggregate
principal amount of the New Notes then outstanding may, under certain
circumstances, rescind and annul such acceleration if all Events of Default,
other than the nonpayment of accelerated principal, premium or interest, have
been cured or waived as provided in the Indenture.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the holders of the New Notes,
unless such holders shall have offered to the Trustee reasonable indemnity.
Subject to such provisions for the indemnification of the Trustee, the holders
of a majority in aggregate principal amount of the New Notes then outstanding
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee with respect to the New Notes.
No holder of New Notes will have any right to institute any proceeding with
respect to the Indenture, or for the appointment of a receiver or trustee, or
for any remedy thereunder, unless (a) such holder has previously given to the
Trustee written notice of a continuing Event of Default, (b) the registered
holders of at least 25% in aggregate principal amount of the New Notes then
outstanding have made written request and offered reasonable indemnity to the
Trustee to institute such proceeding as trustee and (c) the Trustee shall not
have received from the registered holders of a majority in aggregate principal
amount of the New Notes then outstanding a direction inconsistent with such
request and shall have failed to institute such proceeding within 60 days.
However, such limitations do not apply to a suit instituted by a holder of any
Note for enforcement of payment of the principal of, and premium, if any, or
interest on, such Note on or after the respective due dates expressed in such
Note.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the registered holders of a majority in aggregate principal amount of
the New Notes then outstanding (including consents obtained in connection with a
tender offer or exchange offer for the New Notes) and any past default or
compliance with any provisions may also be waived (except a default in the
payment of principal, premium or interest and certain covenants and provisions
of the Indenture which cannot be amended without the consent of each holder of
an outstanding Note) with the consent of the registered holders of at least a
majority in aggregate principal amount of the New Notes then outstanding.
However, without the consent of each holder of an outstanding Note, no amendment
may, among other things, (a) reduce the amount of New Notes whose holders must
consent to an amendment or waiver, (b) reduce the rate of or extend the time for
payment of interest on any Note, (c) reduce the principal of or extend the
Stated Maturity of any Note, (d) make any Note payable in money other than that
stated in the Note, (e) impair the right of any holder of the New Notes to
institute suit for the enforcement of any payment on or with respect to such
holder's New Notes or any Guaranty, (f) subordinate the New Notes
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to any other obligation of the Company, (g) release any security interest that
may have been granted in favor of the holders of the New Notes, (h) reduce the
premium payable upon the redemption or repurchase of any Note as described under
"-- Optional Redemption," or "-- Purchase at the Option of Holders Upon a Change
of Control," (i) at any time after a Change of Control or Asset Sale has
occurred, change the time at which the Change of Control Offer or any Prepayment
Offer relating thereto must be made or at which the New Notes must be
repurchased pursuant to such Change of Control Offer or Prepayment Offer, or (j)
make any change in any Guaranty that would adversely affect the holders of the
New Notes.
Without the consent of any holder of the New Notes, the Company and the
Trustee may amend the Indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of the
obligations of the Company under the Indenture, to provide for uncertificated
New Notes in addition to or in place of certificated New Notes (provided that
the uncertificated New Notes are issued in registered form for purposes of
Section 163(f) of the Code, or in a manner such that the uncertificated New
Notes are described in Section 163(f)(2)(B) of the Code), to add additional
Guaranties with respect to the New Notes or to release Guarantors from
Guaranties as provided by the terms of the Indenture, to secure the New Notes,
to add to the covenants of the Company for the benefit of the holders of the New
Notes or to surrender any right or power conferred upon the Company, to make any
change that does not adversely affect the rights of any holder of the New Notes,
or to comply with any requirement of the Commission in connection with the
qualification of the Indenture under the Trust Indenture Act.
The consent of the holders of the New Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to each registered holder of the New Notes at such holder's
address appearing in the Security Register a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the New
Notes, or any defect therein, will not impair or affect the validity of the
amendment.
DEFEASANCE
The Company at any time may terminate all its obligations under the New
Notes and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the New Notes, to replace mutilated, destroyed, lost or
stolen New Notes and to maintain a registrar and paying agent in respect of the
New Notes. The Company at any time may terminate its obligations under the
covenants described under "-- Repurchase at the Option of Holders Upon a Change
of Control" and "-- Certain Covenants," the operation of the cross-acceleration
provisions, the judgment default provisions, the bankruptcy provisions with
respect to Significant Subsidiaries, the guaranty provisions described under
"-- Events of Default" above and the limitations contained in clauses (d) (with
respect to the covenants described under "-- Certain Covenants"), (e) and (f)
under the first paragraph of "-- Merger, Consolidation and Sale of Property"
above ("covenant defeasance"). The Company may exercise its legal defeasance
option notwithstanding its prior exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the New
Notes may not be accelerated because of an Event of Default with respect
thereto. If the Company exercises its covenant defeasance option, payment of the
New Notes may not be accelerated because of an Event of Default specified in
clause (d) (with respect to the covenants described under "-- Certain
Covenants"), (e), (f), (g) (with respect only to Significant Subsidiaries) or
(h) under "-- Events of Default" above or because of the failure of the Company
to comply with clauses (d) (with respect to the covenants described under
"-- Certain Covenants"), (e) and (f) under the first paragraph of "-- Merger,
Consolidation and Sale of Property" above. If the Company exercises its legal
defeasance option or its covenant defeasance option, each Guarantor will be
released from all its obligations under its Guaranty.
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In order to exercise either defeasance option, the Company must, among
other things, irrevocably deposit in trust (the "defeasance trust") with the
Trustee money or U.S. Government Obligations for the payment of principal and
interest on the New Notes to maturity or redemption, as the case may be, and
must comply with certain other conditions, including delivery to the Trustee of
an Opinion of Counsel to the effect that holders of the New Notes will not
recognize income, gain or loss for Federal income tax purposes as a result of
such deposit and defeasance and will be subject to Federal income tax on the
same amounts and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred (and, in the case of legal
defeasance only, such Opinion of Counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable Federal income tax law).
GOVERNING LAW
The Indenture and the New Notes are governed by the internal laws of the
State of New York without reference to principles of conflicts of law.
THE TRUSTEE
IBJ Schroder Bank & Trust Company is the Trustee under the Indenture.
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such of the rights and powers vested in it under the Indenture and use
the same degree of care and skill in its exercise as a prudent Person would
exercise under the circumstances in the conduct of such Person's own affairs.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms as well as any other capitalized terms used herein for which no
definition is provided.
"Additional Assets" means (a) any Property (other than cash, cash
equivalents and securities) to be owned by the Company or any Restricted
Subsidiary and used in a Related Business; (b) the costs of improving or
developing any Property owned by the Company or a Restricted Subsidiary which is
used in a Related Business; or (c) Capital Stock of a Person that becomes a
Restricted Subsidiary as a result of the acquisition of such Capital Stock by
the Company or another Restricted Subsidiary from any Person other than an
Affiliate of the Company; provided, however, that, in the case of clause (c),
such Restricted Subsidiary is primarily engaged in a Related Business.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the covenant described under "-- Certain Covenants -- Limitation on
Transactions with Affiliates," "-- Limitation on Asset Sales" and the definition
of "Additional Assets" only, "Affiliate" shall also mean any beneficial owner of
shares representing 10% or more of the total voting power of the Voting Stock
(on a fully diluted basis) of the Company or of rights or warrants to purchase
such Voting Stock (whether or not currently exercisable) and any Person who
would be an Affiliate of any such beneficial owner pursuant to the first
sentence hereof.
"Asset Sale" means any sale, lease, transfer, issuance or other disposition
(or series of related sales, leases, transfers, issuances or dispositions)
(other than the grant of a security interest) by the Company or any Restricted
Subsidiary, including any disposition by means of a merger, consolidation or
similar transaction (each referred to for the purposes of this definition as a
"disposition"), of (a) any
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shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares) or (b) any other assets of the Company or any Restricted
Subsidiary outside of the ordinary course of business of the Company or such
Restricted Subsidiary (other than, in the case of clauses (a) and (b) above, (i)
any disposition by a Restricted Subsidiary to the Company or by the Company or a
Restricted Subsidiary to a Restricted Subsidiary, (ii) for purposes of the
covenant described under "-- Certain Covenants -- Limitation on Asset Sales"
only, any disposition that constitutes a Permitted Investment or Restricted
Payment permitted by the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments," (iii) any disposition effected
in compliance with the first paragraph of the covenant described under
"-- Merger, Consolidation and Sale of Property," (iv) any disposition of
Property or equipment that has become obsolete or otherwise unsuitable for use
in connection with the business of the Company or such Restricted Subsidiary or
(v) any disposition or series of related dispositions of assets having a Fair
Market Value and sale price of less than $500,000).
"Attributable Debt" in respect of a Sale and Leaseback Transaction means,
at any date of determination, (a) if such Sale and Leaseback Transaction is a
Capital Lease Obligation, the amount of Debt represented thereby according to
the definition of "Capital Lease Obligation" and (b) in all other instances, the
present value (discounted at the interest rate borne by the New Notes,
compounded annually), of the total obligations of the lessee for rental payments
during the remaining term of the lease included in such Sale and Leaseback
Transaction (including any period for which such lease has been extended).
"Average Life" means, as of any date of determination, with respect to any
Debt or Preferred Stock, the quotient obtained by dividing (a) the sum of the
product of the numbers of years (rounded to the nearest one-twelfth of one year)
from the date of determination to the dates of each successive scheduled
principal payment of such Debt or redemption or similar payment with respect to
such Preferred Stock multiplied by the amount of such payment by (b) the sum of
all such payments.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Capital Lease Obligations" means any obligation under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP; and the amount of Debt represented by such obligation shall be the
capitalized amount of such obligations determined in accordance with GAAP; and
the Stated Maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty. For purposes of
"-- Certain Covenants -- Limitation on Liens," a Capital Lease Obligation shall
be deemed secured by a Lien on the Property being leased.
"Capital Stock" means, with respect to any Person, any shares or other
equivalents (however designated) of corporate stock, partnership interests,
membership interests in limited liability companies or any other participations,
rights, warrants, options or other interests in the nature of an equity interest
in such Person, including Preferred Stock, but excluding any debt security
convertible or exchangeable into such equity interest.
"Capital Stock Sale Proceeds" means the aggregate cash proceeds received by
the Company from the issuance or sale (other than to a Subsidiary of the Company
or an employee stock ownership plan or trust established by the Company or any
of its Subsidiaries for the benefit of their employees) by the Company of any
class of its Capital Stock (other than Disqualified Stock) after the Issue Date,
net of attorneys' fees, accountants' fees, underwriters' or placement agents'
fees, discounts or commissions and brokerage, consultant and other fees incurred
in connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Change of Control" means the occurrence of any of the following events:
(a) if (i) any "Person" or "group" (as such terms are used in Sections
13(d)(3) and 14(d)(2) of the Exchange Act or any successor provisions to
either of the foregoing) becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act, except that a Person will be
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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 35% or more of
the voting power of the Voting Stock of the Company and (ii) the Permitted
Holders are "beneficial owners" (as defined in Rule 13d-3 under the
Exchange Act except that a Person will 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, in the aggregate of a lesser percentage of
the total voting power of all classes of the Voting Stock of the Company
than such other Person or group referred to in clause (i) (for purposes of
this clause (a), such Person or group, and the Permitted Holders, shall be
deemed to beneficially own any Voting Stock of a corporation (the
"specified corporation") held by any other corporation (the "parent
corporation") so long as such Person or group beneficially owns, directly
or indirectly, in the aggregate a majority of the voting power of the
Voting Stock of such parent corporation); or
(b) the sale, transfer, assignment, lease, conveyance or other
disposition, directly or indirectly, of all or substantially all the assets
of the Company and the Restricted Subsidiaries, considered as a whole
(other than a disposition of such assets as an entirety or virtually as an
entirety to a Wholly Owned Subsidiary) shall have occurred, or the Company
merges, consolidates or amalgamates with or into any other Person or any
other Person merges, consolidates or amalgamates with or into the Company,
in any such event pursuant to a transaction in which the outstanding Voting
Stock of the Company is reclassified into or exchanged for cash, securities
or other Property, other than any such transaction where (i) the
outstanding Voting Stock of the Company is reclassified into or exchanged
for Voting Stock of the surviving corporation and (ii) the holders of the
Voting Stock of the Company immediately prior to such transaction own,
directly or indirectly, not less than a majority of the Voting Stock of the
surviving corporation immediately after such transaction and in
substantially the same proportion as before the transaction; or
(c) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with
any new directors whose election or appointment by such Board or whose
nomination for election by the shareholders of the Company was approved by
a vote of 66 2/3% of the directors 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 of Directors then in office; or
(d) the shareholders of the Company shall have approved any plan of
liquidation or dissolution of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" means, as of any date of determination, the
ratio of (a) the aggregate amount of EBITDA for the most recent four consecutive
fiscal quarters ending at least 45 days prior to such determination date to (b)
Consolidated Fixed Charges for such four fiscal quarters; provided, however,
that (i) if the Company or any Restricted Subsidiary has Incurred any Debt since
the beginning of such period that remains outstanding or if the transaction
giving rise to the need to calculate the Consolidated Coverage Ratio is an
Incurrence of Debt, or both, Consolidated Fixed Charges for such period shall be
calculated after giving effect on a pro forma basis to such Debt as if such Debt
had been Incurred on the first day of such period and the discharge of any other
Debt repaid, repurchased, defeased or otherwise discharged with the proceeds of
such new Debt as if such discharge had occurred on the first day of such period,
(ii) if since the beginning of such period the Company or any Restricted
Subsidiary shall have made any Asset Sale or if the transaction giving rise to
the need to calculate the Consolidated Coverage Ratio is an Asset Sale, or both,
EBITDA for such period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the Property which is the subject of such
Asset Sale for such period, or increased by an amount equal to the EBITDA (if
negative) directly attributable thereto for such period, in either case as if
such Asset Sale had occurred on the first day of such period, and Consolidated
Fixed Charges for such period shall be reduced by an amount equal to the
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Consolidated Fixed Charges directly attributable to any Debt of the Company or
any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged
with respect to the Company and its continuing Restricted Subsidiaries in
connection with such Asset Sale, as if such Asset Sale had occurred on the first
day of such period (or, if the Capital Stock of any Restricted Subsidiary is
sold, by an amount equal to the Consolidated Fixed Charges for such period
directly attributable to the Debt of such Restricted Subsidiary to the extent
the Company and its continuing Restricted Subsidiaries are no longer liable for
such Debt after such sale), (iii) if since the beginning of such period the
Company shall have consummated a Public Equity Offering following which there is
a Public Market, Consolidated Fixed Charges for such period shall be reduced by
an amount equal to the Consolidated Fixed Charges directly attributable to any
Debt of the Company or any Restricted Subsidiary repaid, repurchased, defeased
or otherwise discharged with respect to the Company and its Restricted
Subsidiaries in connection with such Public Equity Offering for such period,
(iv) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or
an acquisition of Property, including any acquisition of Property occurring in
connection with a transaction causing a calculation to be made hereunder, which
constitutes all or substantially all of an operating unit of a business, EBITDA
and Consolidated Fixed Charges for such period shall be calculated after giving
pro forma effect thereto (including the Incurrence of any Debt) as if such
Investment or acquisition occurred on the first day of such period, (v) if since
the beginning of such period any Person that subsequently became a Restricted
Subsidiary or was merged with or into the Company or any Restricted Subsidiary
since the beginning of such period shall have made any Asset Sale, Investment or
acquisition of Property that would have required an adjustment pursuant to
clause (ii), (iii) or (iv) above if made by the Company or a Restricted
Subsidiary during such period, EBITDA and Consolidated Fixed Charges for such
period shall be calculated after giving pro forma effect thereto as if such
Asset Sale, Investment or acquisition of Property occurred on the first day of
such period and (vi) if since the beginning of such period any Restricted
Subsidiary shall have obtained relief from any limitation on the ability of such
Restricted Subsidiary to pay dividends to the Company, EBITDA and Consolidated
Fixed Charges for such period shall be calculated after giving pro forma effect
thereto as if the ability of such Restricted Subsidiary to pay dividends to the
Company had not been so limited from the first day of such period. For purposes
of this definition, pro forma calculations shall be determined in good faith by
a responsible financial or accounting Officer of the Company and as further
contemplated by the definition of the term "pro forma." If any Debt bears a
floating rate of interest and is being given pro forma effect, the interest
expense on such Debt shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any Interest Rate Agreement applicable to such Debt if such Interest
Rate Agreement has a remaining term in excess of 12 months).
"Consolidated Fixed Charges" means, for any period, the sum (without
duplication) of (a) Consolidated Interest Expense for such period plus (b) all
Preferred Stock Dividends (other than to the Company or a Wholly Owned
Subsidiary, and other than Redeemable Dividends) paid, accrued, declared or
accumulated during such period.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, (a) interest expense
attributable to capital leases, (b) amortization of debt discount and debt
issuance cost, including commitment fees, (c) capitalized interest, (d) noncash
interest expenses, (e) to the extent required under GAAP to be reflected as
interest expense in the consolidated financial statements of the Company,
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing, (f) to the extent required under
GAAP to be reflected as an expense in the consolidated financial statements of
the Company, net costs associated with Hedging Obligations (including
amortization of fees), (g) Redeemable Dividends, (h) interest incurred in
connection with Investments in discontinued operations, (i) interest accruing on
any Debt of any other Person to the extent such Debt is Guaranteed by the
Company or any Restricted Subsidiary and (j) the cash contributions to any
employee stock ownership plan or similar trust to the extent such contributions
are
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used by such plan or trust to pay interest or fees to any Person (other than the
Company) in connection with Debt Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income (loss) of
the Company and its consolidated Subsidiaries, less the aggregate amount of
recurring expenditures made by the Company and its consolidated Subsidiaries
during such period with respect to environmental matters which were not deducted
in determining such net income (loss) as a result of the adoption of American
Institute of Certified Public Accountants Statement of Position 96-1,
"Environmental Remediation Liabilities"; provided, however, that there shall not
be included in such Consolidated Net Income (a) any net income (loss) of any
Person (other than the Company) if such Person is not a Restricted Subsidiary,
except that (i) subject to the exclusion contained in clause (d) below, the
Company's equity in the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
distributed by such Person during such period to the Company or a Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution to a Restricted Subsidiary, to the limitations
contained in clause (c) below) and (ii) the Company's equity in a net loss of
any such Person other than an Unrestricted Subsidiary for such period shall be
included in determining such Consolidated Net Income to the extent of the
Company's obligation to fund such net loss in cash, (b) any net income (loss) of
any Person acquired by the Company or any of its consolidated Subsidiaries in a
pooling of interests transaction for any period prior to the date of such
acquisition, (c) any net income (but not loss) of any Restricted Subsidiary, to
the extent that the payment of dividends or the making of distributions by such
Restricted Subsidiary to the Company is not at the time permitted, directly or
indirectly, without prior approval (that has not been obtained), pursuant to the
terms of its charter or any agreement, instrument or governmental regulation
applicable to such Restricted Subsidiary, (d) any gain (loss) realized upon the
sale or other disposition of any Property of the Company or any of its
consolidated Subsidiaries (including pursuant to any Sale and Leaseback
Transaction) which is not sold or otherwise disposed of in the ordinary course
of business, (e) any extraordinary gain or loss and (f) the cumulative effect of
a change in accounting principles. Notwithstanding the foregoing, for the
purposes of the covenant described under "-- Certain Covenants -- Limitation on
Restricted Payments" only, there shall be excluded from Consolidated Net Income
any dividends, repayments of loans or advances or other transfers of assets from
Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the
extent such dividends, repayments or transfers increase the amount of Restricted
Payments permitted under such covenant pursuant to clause (c)(iv) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the
consolidated balance sheet of the Company and its Restricted Subsidiaries as of
the end of the most recent fiscal quarter of the Company ending at least 45 days
prior to the taking of any action for the purpose of which the determination is
being made, as (a) the par or stated value of all outstanding Capital Stock of
the Company plus (b) paid-in capital or capital surplus relating to such Capital
Stock plus (c) any retained earnings or earned surplus less (i) any accumulated
deficit and (ii) any amounts attributable to Disqualified Stock.
"Credit Facility" means one or more debt facilities with banks or other
institutional lenders (including pursuant to (a) the Loan Agreement dated April
14, 1997, by and among the Company, the Guarantors, BankBoston, N.A. and the
other Banks party thereto, and BankBoston, N.A. as agent for such Banks, (b) the
Loan Agreement dated October 20, 1997, by and among GfE, certain of its
subsidiaries and BankBoston, N.A., Frankfurt Branch and (c) each of the Loan
Documents (as defined in such Loan Agreements) relating to such Loan Agreements)
providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special purpose
entities formed to borrow from such lenders against such receivables) or letters
of credit, foreign exchange, bankers' acceptances or similar financial
arrangements, in each case as amended, restated, supplemented or modified and in
effect from time to time, together with any extensions, revisions, refinancings
or replacements thereof by a lender or syndicate of lenders.
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"Currency Exchange Protection Agreement" means, in respect of a Person, any
foreign exchange contract, currency swap agreement, currency option or other
similar agreement or arrangement designed to protect such Person against
fluctuations in currency exchange rates.
"Debt" means, with respect to any Person on any date of determination
(without duplication), (a) the principal of and premium (if any) in respect of
(i) debt of such Person for money borrowed and (ii) debt evidenced by notes,
debentures, bonds or other similar instruments for the payment of which such
Person is responsible or liable; (b) all Capital Lease Obligations of such
Person and all Attributable Debt in respect of Sale and Leaseback Transactions
entered into by such Person; (c) all obligations of such Person issued or
assumed as the deferred purchase price of Property, all conditional sale
obligations of such Person and all obligations of such Person under any title
retention agreement (but excluding trade accounts payable and customer advance
payments or deposits arising in the ordinary course of business); (d) all
obligations of such Person for the reimbursement of any obligor on any letter of
credit, banker's acceptance or similar credit transaction (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in (a) through (c) above) entered into in the ordinary
course of business of such Person to the extent such letters of credit are not
drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no
later than the third Business Day following receipt by such Person of a demand
for reimbursement following payment on the letter of credit); (e) the amount of
all obligations of such Person with respect to the redemption, repayment or
other repurchase of any Disqualified Stock or, with respect to any Subsidiary of
such Person, any Preferred Stock (but excluding, in each case, any accrued
dividends); (f) all obligations of the type referred to in clauses (a) through
(e) of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee; (g) all obligations of the type referred to in clauses (a) through
(f) of other Persons secured by any Lien on any Property of such Person (whether
or not such obligation is assumed by such Person), the amount of such obligation
being deemed to be the lesser of the value of such Property or the amount of the
obligation so secured; and (h) to the extent not otherwise included in this
definition, Hedging Obligations of such Person. The amount of Debt of any Person
at any date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability, upon the occurrence of
the contingency giving rise to the obligation, of any contingent obligations at
such date; provided that the amount outstanding at any time of any Debt issued
with original issue discount is the face amount of such Debt less the remaining
unamortized portion of the original issue discount of such Debt at such time as
determined in accordance with GAAP.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, Redeemable Stock of
such Person as to which (a) the maturity, (b) mandatory redemption or (c)
redemption, conversion or exchange at the option of the holder thereof occurs,
or may occur, on or prior to the first anniversary of the Stated Maturity of the
New Notes; provided, however, that Redeemable Stock of such Person that would
not otherwise be characterized as Disqualified Stock under this definition shall
not constitute Disqualified Stock if such Redeemable Stock is convertible or
exchangeable into Debt or Disqualified Stock solely at the option of the issuer
thereof.
"EBITDA" means, for any period, an amount equal to, for the Company and its
consolidated Restricted Subsidiaries, (a) the sum of Consolidated Net Income for
such period, plus the following to the extent reducing Consolidated Net Income
for such period: (i) the provision for taxes based on income or profits or
utilized in computing net loss, (ii) Consolidated Interest Expense, (iii)
depreciation, (iv) amortization of intangibles and (v) any other non-cash items
(other than any such non-cash item to the extent that it represents an accrual
of or reserve for cash expenditures in any future period), minus (b) all
non-cash items increasing Consolidated Net Income for such period (other than
any such non-cash item to the extent that it will result in the receipt of cash
payments in any future period). Notwithstanding the foregoing, the provision for
taxes based on the income or profits of, and the
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depreciation and amortization of, a Restricted Subsidiary shall be added to
Consolidated Net Income to compute EBITDA only to the extent (and in the same
proportion) that the net income of such Restricted Subsidiary was included in
calculating Consolidated Net Income and only if a corresponding amount would be
permitted at the date of determination to be dividended to the Company by such
Restricted Subsidiary without prior approval (that has not been obtained),
pursuant to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its stockholders.
"Event of Default" has the meaning set forth under "-- Events of Default."
"Exchange Act" means the Securities Exchange Act of 1934.
"Fair Market Value" means, with respect to any Property, the price which
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value will be
determined, except as otherwise provided, (a) if such Property has a Fair Market
Value of less than $5.0 million, by any Officer of the Company or (b) if such
Property has a Fair Market Value in excess of $5.0 million, by a majority of the
Board of Directors and evidenced by a Board Resolution, dated within 30 days of
the relevant transaction, delivered to the Trustee.
"GAAP" means United States generally accepted accounting principles as in
effect on the Issue Date, including those set forth (a) in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants, (b) in the statements and pronouncements of the
Financial Accounting Standards Board, (c) in such other statements by such other
entity as approved by a significant segment of the accounting profession and (d)
the rules and regulations of the Commission governing the inclusion of financial
statements (including pro forma financial statements) in periodic reports
required to be filed pursuant to Section 13 of the Exchange Act, including
opinions and pronouncements in staff accounting bulletins and similar written
statements from the accounting staff of the Commission.
"GfE" means GfE Gesellschaft fur Elektrometallurgie mbH.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Debt of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (a) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt of such other Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (b) entered into for the purpose of assuring in any
other manner the obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Guarantor" means each domestic Restricted Subsidiary designated as such on
the signature pages of the Indenture and any other domestic Restricted
Subsidiary that becomes a Guarantor pursuant to the covenant described under
"-- Certain Covenants -- Future Guarantors," in each case, until such Restricted
Subsidiary is released from its Guaranty.
"Guaranty" means a Guarantee on the terms set forth in the Indenture by a
Guarantor of the Company's obligations with respect to the New Notes.
"Hedging Obligation" of any Person means any obligation of such Person
pursuant to any Interest Rate Agreement, Currency Exchange Protection Agreement
or any other similar agreement or arrangement.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by merger, conversion, exchange or otherwise), extend,
assume, Guarantee or become liable in respect of such Debt or other obligation
or the recording, as required pursuant to GAAP or otherwise, of any such Debt or
obligation on the balance sheet of such Person (and "Incurrence" and "Incurred"
shall have
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meanings correlative to the foregoing); provided, however, that a change in GAAP
that results in an obligation of such Person that exists at such time, and is
not theretofore classified as Debt, becoming Debt shall not be deemed an
incurrence of such Debt; provided further, however, that solely for purposes of
determining compliance with "-- Certain Covenants -- Limitation on Debt,"
amortization of debt discount shall not be deemed to be the Incurrence of Debt,
provided that in the case of Debt sold at a discount, the amount of such Debt
Incurred shall at all times be the aggregate principal amount at Stated
Maturity.
"Independent Appraiser" means an investment banking firm of national
standing or any third party appraiser of national standing, provided that such
firm or appraiser is not an Affiliate of the Company.
"Interest Rate Agreement" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or other
similar agreement designed to protect against fluctuations in interest rates.
"Investment" by any Person means any direct or indirect loan (other than
advances to customers in the ordinary course of business that are recorded as
accounts receivable on the balance sheet of such Person), advance or other
extension of credit or capital contribution (by means of transfers of cash or
other Property to others or payments for Property or services for the account or
use of others, or otherwise) to, or Incurrence of a Guarantee of any obligation
of, or purchase or acquisition of Capital Stock, bonds, notes, debentures or
other securities or evidence of Debt issued by, any other Person. For purposes
of the covenants described under "-- Certain Covenants -- Limitation on
Restricted Payments," "-- Designation of Restricted and Unrestricted
Subsidiaries" and the definition of "Restricted Payment," "Investment" shall
include the portion (proportionate to the Company's equity interest in such
Subsidiary) of the Fair Market Value of the net assets of any Subsidiary of the
Company at the time that such Subsidiary is designated an Unrestricted
Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a
Restricted Subsidiary, the Company shall be deemed to continue to have a
permanent "Investment" in an Unrestricted Subsidiary equal to an amount (if
positive) equal to (a) the Company's "Investment" in such Subsidiary at the time
of such redesignation less (b) the portion (proportionate to the Company's
equity interest in such Subsidiary) of the Fair Market Value of the net assets
of such Subsidiary at the time of such redesignation. In determining the amount
of any Investment made by transfer of any Property other than cash, such
Property shall be valued at its Fair Market Value at the time of such
investment.
"Issue Date" means the date on which the New Notes are initially issued.
"Lien" means, with respect to any Property of any Person, any mortgage or
deed of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than any easement not materially
impairing usefulness or marketability), encumbrance, preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such Property (including any Capital Lease
Obligation, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing or any Sale and
Leaseback Transaction).
"LSM" means London & Scandinavian Metallurgical Co., Limited.
"Moody's" means Moody's Investors Service, Inc. or any successor to the
rating agency business thereof.
"Net Available Cash" from any Asset Sale means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Debt or other obligations relating to the
Property that is the subject of such Asset Sale or received in any other noncash
form), in each case net of (a) all legal, title and recording tax expenses,
commissions and other fees and expenses incurred, and all Federal, state,
provincial, foreign and local taxes required to be accrued as a liability under
GAAP, as a consequence of such Asset Sale, whether paid or payable, (b) all
payments made on any Debt which is
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secured by any Property subject to such Asset Sale, in accordance with the terms
of any Lien upon or other security agreement of any kind with respect to such
Property, or which must by its terms, or in order to obtain a necessary consent
to such Asset Sale, or by applicable law, be repaid out of the proceeds from
such Asset Sale, (c) all distributions and other payments required to be made to
minority interest holders in Subsidiaries or joint ventures as a result of such
Asset Sale, and (d) the deduction of appropriate amounts provided by the seller
as a reserve, in accordance with GAAP, against any liabilities associated with
the Property disposed in such Asset Sale and retained by the Company or any
Restricted Subsidiary after such Asset Sale.
"Officer" means the Chairman, President and Chief Executive Officer, the
Vice President, Finance and Chief Financial Officer or any Vice President of the
Company.
"Officers' Certificate" means a certificate signed by two Officers of the
Company, at least one of whom shall be the principal executive officer or
principal financial officer of the Company, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Permitted Holders" means Franklin Mutual Advisors, Inc., Contrarian
Capital Management, L.L.C., Cerberus Partners, L.P., Morgens, Waterfall Overseas
Partners and SBC Warburg Dillon Read, or any Person of which any of the
foregoing "beneficially owns" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act) voting securities representing at least 51% of the voting power of
all classes of Voting Stock of such Person (exclusive of any matters as to which
class voting rights exist) or any Person which "beneficially owns" (as defined
above) voting securities representing at least 51% of the voting power of all
classes of Voting Stock of any of the foregoing (exclusive of any matters as to
which class voting rights exist).
"Permitted Investment" means any Investment by the Company or a Restricted
Subsidiary in (a) the Company, any Restricted Subsidiary or any Person that
will, upon the making of such Investment, become a Restricted Subsidiary,
provided that the primary business of such Restricted Subsidiary is a Related
Business; (b) any Person if as a result of such Investment such Person is merged
or consolidated with or into, or transfers or conveys all or substantially all
its Property to, the Company or a Restricted Subsidiary, provided that such
Person's primary business is a Related Business; (c) Temporary Cash Investments;
(d) receivables owing to the Company or a Restricted Subsidiary, if created or
acquired in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms; provided, however, that such trade terms
may include such concessionary trade terms as the Company or such Restricted
Subsidiary deems reasonable under the circumstances; (e) payroll, travel or
similar advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses for accounting purposes and that are made
in the ordinary course of business; (f) loans and advances to employees made in
the ordinary course of business consistent with past practices of the Company or
such Restricted Subsidiary, as the case may be, provided that such loans and
advances do not exceed $2.5 million at any one time outstanding; (g) stock,
obligations or other securities received in settlement of debts created in the
ordinary course of business and owing to the Company or a Restricted Subsidiary
or in satisfaction of judgments; and (h) any Person to the extent such
Investment represents the non-cash portion of the consideration received in
connection with an Asset Sale consummated in compliance with the convenant
described under "-- Certain Covenants Limitation on Asset Sales."
"Permitted Liens" means:
(a) Liens to secure Debt permitted to be Incurred under clause (b) or
(c) of the second paragraph of the covenant described under "-- Certain
Covenants -- Limitation on Debt.";
(b) Liens to secure Debt permitted to be Incurred under clause (d) of
the second paragraph of the covenant described "-- Certain
Covenants -- Limitation on Debt," provided that any such Lien may not
extend to any Property of the Company or any Restricted Subsidiary, other
than the
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Property acquired, constructed or leased with the proceeds of such Debt and
any improvements or accessions to such Property;
(c) Liens for taxes, assessments or governmental charges or levies on
the Property of the Company or any Restricted Subsidiary if the same shall
not at the time be delinquent or thereafter can be paid without penalty, or
are being contested in good faith and by appropriate proceedings promptly
instituted and diligently concluded, provided that any reserve or other
appropriate provision that shall be required in conformity with GAAP shall
have been made therefor;
(d) Liens imposed by law, such as carriers', warehousemen's and
mechanics' Liens, on the Property of the Company or any Restricted
Subsidiary arising in the ordinary course of business and securing payment
of obligations which are not more than 60 days past due or are being
contested in good faith and by appropriate proceedings;
(e) Liens on the Property of the Company or any Restricted Subsidiary
Incurred in the ordinary course of business to secure performance of
obligations with respect to statutory or regulatory requirements,
performance or return-of-money bonds, surety bonds or other obligations of
a like nature and Incurred in a manner consistent with industry practice,
in each case which are not incurred in connection with the borrowing of
money, the obtaining of advances or credit or the payment of the deferred
purchase price of Property and which do not in the aggregate impair in any
material respect the use of Property in the operation of the business of
the Company and the Restricted Subsidiaries taken as a whole;
(f) Liens on Property at the time the Company or any Restricted
Subsidiary acquired such Property, including any acquisition by means of a
merger or consolidation with or into the Company or any Restricted
Subsidiary; provided, however, that any such Lien may not extend to any
other Property of the Company or any Restricted Subsidiary; provided
further, however, that such Liens shall not have been Incurred in
anticipation or in connection with the transaction or series of
transactions pursuant to which such Property was acquired by the Company or
any Restricted Subsidiary;
(g) Liens on the Property of a Person at the time such Person becomes
a Restricted Subsidiary; provided, however, that any such Lien may not
extend to any other Property of the Company or any other Restricted
Subsidiary which is not a direct Subsidiary of such Person; provided
further, however, that any such Lien was not Incurred in anticipation of or
in connection with the transaction or series of transactions pursuant to
which such Person became a Restricted Subsidiary;
(h) pledges or deposits by the Company or any Restricted Subsidiary
under workmen's compensation laws, unemployment insurance laws or similar
legislation, or good faith deposits in connection with bids, tenders,
contracts (other than for the payment of Debt) or leases to which the
Company or any Restricted Subsidiary is party, or deposits to secure public
or statutory obligations of the Company, or deposits for the payment of
rent, in each case Incurred in the ordinary course of business;
(i) utility easements, building restrictions and such other
encumbrances or charges against real Property as are of a nature generally
existing with respect to properties of a similar character;
(j) Liens in favor of the Company or any Guarantor;
(k) Liens existing on the Issue Date not otherwise described in
clauses (a) through (j) above;
(l) Liens on the Property of the Company or any Restricted Subsidiary
to secure any Refinancing, in whole or in part, of any Debt secured by
Liens referred to in clause (b), (f), (g) or (k) above; provided, however,
that any such Lien shall be limited to all or part of the same Property
that secured the original Lien (together with improvements and accessions
to such Property) and the aggregate principal amount of Debt that is
secured by such Lien shall not be increased to an amount greater than the
sum of (i) the outstanding principal amount, or, if greater, the committed
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amount, of the Debt secured by Liens described under clause (b), (f), (g)
or (k) above, as the case may be, at the time the original Lien became a
Permitted Lien under the Indenture and (ii) an amount necessary to pay any
premiums, fees and other expenses incurred by the Company or a Restricted
Subsidiary in connection with such Refinancing; or
(m) Liens not otherwise permitted by clauses (a) through (l) above
encumbering assets having an aggregate Fair Market Value not in excess of
$25.0 million.
"Permitted Refinancing Debt" means any Debt that Refinances any other Debt,
including any successive Refinancings, so long as (a) such Debt is in an
aggregate principal amount (or if Incurred with original issue discount, an
aggregate issue price) not in excess of the sum of (i) the aggregate principal
amount (or if Incurred with original issue discount, the aggregate accreted
value) then outstanding of the Debt being Refinanced and (ii) an amount
necessary to pay any fees and expenses, including premiums and defeasance costs,
related to such Refinancing, (b) the Average Life of such Debt is equal to or
greater than the Average Life of the Debt being Refinanced and (c) the Stated
Maturity of such Debt is no earlier than the Stated Maturity of the Debt being
Refinanced and (d) the new Debt shall not be senior in right of payment to the
Debt that is being Refinanced; provided, however, that Permitted Refinancing
Debt shall not include (x) Debt of a Subsidiary that Refinances Debt of the
Company or (y) Debt of the Company or a Restricted Subsidiary that Refinances
Debt of an Unrestricted Subsidiary.
"Person" means any individual, corporation, company (including any limited
liability company), partnership, joint venture, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Plan of Reorganization" means the Joint Plan of Reorganization dated
December 18, 1996, of the Company and Shieldalloy Metallurgical Corporation.
"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to the payment of
dividends, or as to the distribution of assets upon any voluntary or involuntary
liquidation or dissolution of such Person, over shares of any other class of
Capital Stock issued by such Person.
"Preferred Stock Dividends" means for any dividend with respect to
Preferred Stock, the quotient of the dividend divided by the difference between
one and the maximum statutory federal income rate (expressed as a decimal number
between 1 and 0) then applicable to the issuer of such Preferred Stock.
"pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms hereof, a calculation performed in accordance with
Article 11 of Regulation S-X promulgated under the Securities Act, as
interpreted in good faith by the Board of Directors after consultation with the
independent certified public accountants of the Company, or otherwise a
calculation made in good faith by the Board of Directors after consultation with
the independent certified public accountants of the Company, as the case may be.
"Property" means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, including Capital Stock in, and other securities of, any other
Person. For purposes of any calculation required pursuant to the Indenture, the
value of any Property shall be its Fair Market Value.
"Public Equity Offering" means an underwritten public offering of common
stock of the Company pursuant to an effective registration statement under the
Securities Act.
"Public Market" means any time after (a) a Public Equity Offering has been
consummated and (b) at least 10% of the total issued and outstanding common
stock of the Company has been distributed by means of an effective registration
statement under the Securities Act or sales pursuant to Rule 144 under the
Securities Act.
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"Purchase Money Debt" means Debt (a) consisting of the deferred purchase
price of property, conditional sale obligations, obligations under any title
retention agreement, other purchase money obligations and obligations in respect
of industrial revenue bonds, in each case where the maturity of such Debt does
not exceed the anticipated useful life of the asset being financed and (b)
Incurred to finance the acquisition (including costs of design and installation)
by the Company or a Restricted Subsidiary of such asset, including additions and
improvements; provided, however, that such Debt is incurred within 180 days
after such acquisition of such asset by the Company or a Restricted Subsidiary.
"Recapitalization" means the consummation of the following transactions in
connection with the sale of the Old Notes: (a) the satisfaction and discharge of
the Company's 12% Senior Secured Old Notes due 2007, (b) the repayment of
outstanding Debt under the Credit Facility, (c) the retirement of the
outstanding Debt of LSM under the term loan agreement dated April 11, 1997,
between LSM and NM Rothschild & Sons Limited and (d) payment of a dividend and
dividend equivalent in an aggregate amount of $20.0 million to holders of the
Company's common stock, par value $.01 per share, and common stock equivalents.
"Redeemable Dividend" means, for any dividend with respect to Redeemable
Stock, the quotient of the dividend divided by the difference between one and
the maximum statutory federal income tax rate (expressed as a decimal number
between 1 and 0) then applicable to the issuer of such Redeemable Stock.
"Redeemable Stock" means, with respect to any Person, any Capital Stock
that by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable, in either case, at the option of the holder
thereof) or otherwise (a) matures or is mandatorily redeemable pursuant to a
sinking fund obligation or otherwise, (b) is or may become redeemable or
repurchaseable at the option of the holder thereof, in whole or in part, or (c)
is convertible or exchangeable at the option of the holder thereof for Debt or
Disqualified Stock.
"Refinance" means, in respect of any Debt, to refinance, extend, renew,
refund, replace, prepay, redeem, defease or retire, or to issue other Debt, in
exchange or replacement for, such Debt. "Refinanced" and "Refinancing" shall
have correlative meanings.
"Related Business" means any business that is related, ancillary or
complementary to the businesses of the Company and the Restricted Subsidiaries
on the Issue Date.
"Restricted Payment" means (a) any dividend or distribution (whether made
in cash, securities or other Property) declared or paid on or with respect to
any shares of Capital Stock of the Company or any Restricted Subsidiary
(including any payment in connection with any merger or consolidation with or
into the Company or any Restricted Subsidiary), except for any dividend or
distribution which is made solely to the Company or a Restricted Subsidiary
(and, if such Restricted Subsidiary is not a Wholly Owned Subsidiary, to the
other shareholders of such Restricted Subsidiary on a pro rata basis or on a
basis that results in the receipt by the Company or a Restricted Subsidiary of
dividends or distributions of greater value than it would receive on a pro rata
basis) or any dividend or distribution payable solely in shares of Capital Stock
(other than Redeemable Stock) of the Company; (b) the purchase, repurchase,
redemption, acquisition or retirement for value of any Capital Stock of the
Company or any Affiliate of the Company (other than from the Company or a
Restricted Subsidiary) or any warrants, rights or options to directly or
indirectly purchase or acquire any such Capital Stock or any securities
exchangeable for or convertible into any such Capital Stock, including the
exercise of any option to exchange any Capital Stock (other than for or into
Capital Stock of the Company that is not Disqualified Stock); (c) the purchase,
repurchase, redemption, acquisition, defeasance or retirement for value, prior
to any scheduled maturity, scheduled sinking fund or mandatory redemption
payment, any Subordinated Obligation (other than the purchase, repurchase or
other acquisition of any Subordinated Obligation purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of acquisition); or (d) any
Investment (other than Permitted Investments) in any Person.
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"Restricted Subsidiary" means (a) any Subsidiary of the Company unless such
Subsidiary shall have been designated an Unrestricted Subsidiary as permitted or
required pursuant to the covenant described under "-- Certain
Covenants -- Designation of Restricted and Unrestricted Subsidiaries" and (b) an
Unrestricted Subsidiary which is redesignated as a Restricted Subsidiary as
permitted pursuant to the covenant described under "-- Certain
Covenants -- Designation of Restricted and Unrestricted Subsidiaries."
"S&P" means Standard & Poor's Ratings Service or any successor to the
rating agency business thereof.
"Sale and Leaseback Transaction" means any arrangement relating to Property
now owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such Property to another Person and the Company or a Restricted
Subsidiary leases it from such Person.
"Securities Act" means the Securities Act of 1933.
"Senior Debt" of the Company means (a) all obligations consisting of the
principal, premium, if any, and accrued and unpaid interest in respect of (i)
Debt of the Company for borrowed money and (ii) Debt of the Company evidenced by
notes, debentures, bonds or other similar instruments permitted under the
Indenture for the payment of which the Company is responsible or liable; (b) all
Capital Lease Obligations of the Company; (c) all obligations of the Company (i)
for the reimbursement of any obligor on any letter of credit, bankers'
acceptance or similar credit transaction, (ii) under Hedging Obligations or
(iii) issued or assumed as the deferred purchase price of Property and all
conditional sale obligations of the Company and all obligations under any title
retention agreement permitted under the Indenture; and (d) all obligations of
other Persons of the type referred to in clauses (a), (b) and (c) for the
payment of which the Company is responsible or liable as Guarantor; provided,
however, that Senior Debt shall not include (a) Debt of the Company that is by
its terms subordinate in right of payment to the New Notes; (B) any Debt
Incurred in violation of the provisions of the Indenture; (C) accounts payable
or any other obligations of the Company to trade creditors created or assumed by
the Company in the ordinary course of business in connection with the obtaining
of materials or services (including Guarantees thereof or instruments evidencing
such liabilities); (D) any liability for Federal, state, local or other taxes
owed or owing by the Company; (E) any obligation of the Company to any
Subsidiary; or (F) any obligations with respect to any Capital Stock of the
Company. "Senior Debt" of any Guarantor has a correlative meaning, provided that
clause (E) above shall be deemed to refer to any obligations of such Guarantor
to the Company or any Subsidiary of the Company.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the Commission.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligation" means any Debt of the Company or any Guarantor
(whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the New Notes or the applicable
Guaranty pursuant to a written agreement to that effect.
"Subsidiary" means, in respect of any Person, any corporation, company,
association, partnership, joint venture or other business entity of which more
than 50% of the total voting power of shares of Capital Stock or other interests
(including partnership interests) entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled directly or indirectly, by (i) such
Person, (ii) such Person and one or more Subsidiaries of such Person or (iii)
one or more Subsidiaries of such Person.
97
<PAGE> 99
"Temporary Cash Investments" means any of the following: (a) Investments
in U.S. Government Obligations maturing within one year of the date of
acquisition thereof; (b) Investments in time deposit accounts, certificates of
deposit and money market deposits maturing within one year of the date of
acquisition thereof issued by a bank or trust company which is organized under
the laws of the United States of America or any state thereof or any foreign
country recognized by the United States having capital, surplus and undivided
profits aggregating in excess of $500.0 million (or the foreign currency
equivalent thereof) and whose long-term debt is rated "A-3" or "A-" or higher
according to Moody's or S&P (or such similar equivalent rating by at least one
"nationally recognized statistical rating organization" (as defined in Rule 436
under the Securities Act)); (c) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (a)
entered into with a bank meeting the qualifications described in clause (b)
above; and (d) Investments in commercial paper, maturing not more than 270 days
after the date of acquisition, issued by a corporation (other than an Affiliate
of the Company) organized and in existence under the laws of the United States
of America with a rating at the time as of which any Investment therein is made
of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P
(or such similar equivalent rating by at least one "nationally recognized
statistical rating organization" (as defined in Rule 436 under the Securities
Act)).
"Unrestricted Subsidiary" means (a) any Subsidiary of the Company that is
designated after the Issue Date as an Unrestricted Subsidiary as permitted
pursuant to the covenant described under "-- Certain Covenants -- Designation of
Restricted and Unrestricted Subsidiaries" and not thereafter redesignated as a
Restricted Subsidiary as permitted pursuant thereto and (b) any Subsidiary of an
Unrestricted Subsidiary.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of any Person means all shares or other equivalents of
Capital Stock of such Person then outstanding and normally entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means, at any time, a Restricted Subsidiary all
the Voting Stock of which (except directors' qualifying shares and shares held
by third parties which, in the aggregate, represent no more than 2% of the
outstanding Voting Stock of such Restricted Subsidiary) is at such time owned,
directly or indirectly, by the Company and its other Wholly Owned Subsidiaries.
BOOK-ENTRY SYSTEM
The certificates representing the New Notes will be issued in fully
registered form. The New Notes initially will be represented by a single,
permanent global New Note, in definitive, fully registered form without interest
coupons (the "Global Note") and will be deposited with the Trustee as custodian
for DTC and registered in the name of Cede & Co., as DTC's nominee.
Upon the issuance of a Global Note, DTC or its nominee will credit the
accounts of Persons holding through it with the respective principal amounts of
the New Notes represented by such Global Note purchased by such Persons in the
Offering. Such accounts shall be designated by the Initial Purchasers. Ownership
of beneficial interests in a Global Note will be limited to Persons that have
accounts with DTC ("participants") or Persons that may hold interests through
participants. Any Person acquiring an interest in a Global Note through an
offshore transaction in reliance on Regulation S of the Securities Act may hold
such interest through Cedel or Euroclear. Ownership of beneficial interests in a
Global Note will be shown on, and the transfer of that ownership interest will
be effected only through, records maintained by DTC (with respect to
participants' interests) and such participants (with respect to the owners of
beneficial interests in such Global Note other than participants). The laws of
some jurisdictions require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to transfer beneficial interests in a Global Note.
98
<PAGE> 100
Payment of principal of and interest on New Notes represented by a Global
Note will be made in immediately available funds to DTC or its nominee, as the
case may be, as the sole registered owner and the sole holder of the New Notes
represented thereby for all purposes under the Indenture. The Company has been
advised by DTC that upon receipt of any payment of principal of or interest on
any Global Note, DTC will immediately credit, on its book-entry registration and
transfer system, the accounts of participants with payments in amounts
proportionate to their respective beneficial interests in the principal or face
amount of such Global Note as shown on the records of DTC. Payments by
participants to owners of beneficial interests in a Global Note held through
such participants will be governed by standing instructions and customary
practices as is now the case with securities held for customer accounts
registered in "street name" and will be the sole responsibility of such
participants.
A Global Note may not be transferred except as a whole by DTC or a nominee
of DTC to a nominee of DTC or to DTC. A Global Note is exchangeable for
certificated New Notes only if (a) DTC notifies the Company that it is unwilling
or unable to continue as a depositary for such Global Note or if at any time DTC
ceases to be a clearing agency registered under the Exchange Act, (b) the
Company in its discretion at any time determines not to have all the New Notes
represented by such Global Note, or (c) there shall have occurred and be
continuing a Default or an Event of Default with respect to the New Notes
represented by such Global Note. Any Global Note that is exchangeable for
certificated New Notes pursuant to the preceding sentence will be exchanged for
certificated New Notes in authorized denominations and registered in such names
as DTC or any successor depositary holding such Global Note may direct. Subject
to the foregoing, a Global Note is not exchangeable, except for a Global Note of
like denomination to be registered in the name of DTC or any successor
depositary or its nominee. In the event that a Global Note becomes exchangeable
for certificated New Notes, (a) certificated New Notes will be issued only in
fully registered form in denominations of $1,000 or integral multiples thereof,
(b) payment of principal of, and premium, if any, and interest on, the
certificated New Notes will be payable, and the transfer of the certificated New
Notes will be registerable, at the office or agency of the Company maintained
for such purposes and (c) no service charge will be made for any registration of
transfer or exchange of the certificated New Notes, although the Company may
require payment of a sum sufficient to cover any tax or governmental charge
imposed in connection therewith.
So long as DTC or any successor depositary for a Global Note, or any
nominee, is the registered owner of such Global Note, DTC or such successor
depositary or nominee, as the case may be, will be considered the sole owner or
holder of the New Notes represented by such Global Note for all purposes under
the Indenture and the New Notes. Except as set forth above, owners of beneficial
interests in a Global Note will not be entitled to have the New Notes
represented by such Global Note registered in their names, will not receive or
be entitled to receive physical delivery of certificated New Notes in definitive
form and will not be considered to be the owners or holders of any New Notes
under such Global Note. Accordingly, each Person owning a beneficial interest in
a Global Note must rely on the procedures of DTC or any successor depositary,
and, if such Person is not a participant, on the procedures of the participant
through which such Person owns its interest, to exercise any rights of a holder
under the Indenture. The Company understands that under existing industry
practices, in the event that the Company requests any action of holders or that
an owner of a beneficial interest in a Global Note desires to give or take any
action which a holder is entitled to give or take under the Indenture, DTC or
any successor depositary would authorize the participants holding the relevant
beneficial interest to give or take such action and such participants would
authorize beneficial owners owning through such participants to give or take
such action or would otherwise act upon the instructions of beneficial owners
owning through them.
DTC has advised the Company that DTC is a limited-purpose trust company
organized under the Banking Law of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered under the
Exchange Act. DTC was created to hold the securities of its participants and to
facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for
99
<PAGE> 101
physical movement of securities certificates. DTC's participants include
securities brokers and dealers (which may include the Initial Purchasers),
banks, trust companies, clearing corporations and certain other organizations
some of whom (or their representatives) own DTC. Access to DTC's book-entry
system is also available to others, such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in Global Securities among participants of DTC, it is
under no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. None of the Company, the Trustee or
the Initial Purchasers will have any responsibility for the performance by DTC
or its participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. Each of the Company and the Guarantors has agreed that,
starting on the Expiration Date and ending on the close of business on the first
anniversary following the Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until , 1998, all dealers
effecting transactions in the Exchange Securities may be required to deliver a
prospectus.
Neither the Company nor any Guarantor will receive any proceeds from any
sale of New Notes by broker-dealers. New Notes received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Notes or a combination
of such methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such New Notes. Any
broker-dealer that resells New Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit of any
such resale of New Notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of one year after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company and the Guarantors, jointly and
severally have agreed to pay all expenses incident to the Exchange Offer
(including the expenses of one counsel for the holders of the Old Notes) other
than commissions or concessions of any brokers or dealers and will indemnify the
holders of the Old Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
100
<PAGE> 102
LEGAL MATTERS
The legality of the New Notes being offered hereby will be passed upon for
the Company by Rogers & Wells, New York, New York.
EXPERTS
The financial statements of the Company at March 31, 1997 and December 31,
1996 and 1995 and for the three months ended March 31, 1997 and for each of the
three years in the period ended December 31, 1996 included in this Prospectus
and Registration Statement have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
101
<PAGE> 103
INDEX TO FINANCIAL STATEMENTS
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
AUDITED AND UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following audited and unaudited consolidated financial statements of
Metallurg, Inc. and Consolidated Subsidiaries are presented herein on the pages
indicated below:
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AUDITED FINANCIAL STATEMENTS:
Independent Auditors' Report.................................................... F-2
Statements of Consolidated Operations for the Quarter Ended March 31, 1997 and
Years Ended December 31, 1996, 1995 and 1994................................... F-3
Consolidated Balance Sheets at March 31, 1997 and December 31, 1996 and 1995.... F-4
Statements of Consolidated Cash Flows for the Quarter Ended March 31, 1997 and
Years Ended December 31, 1996, 1995 and 1994................................... F-5
Notes to Consolidated Financial Statements for the Quarter Ended March 31, 1997
and Years Ended December 31, 1996, 1995 and 1994............................... F-6
UNAUDITED FINANCIAL STATEMENTS:
Condensed Statements of Consolidated Operations for the Quarter Ended July 31,
1997, the Quarter ended March 31, 1997, the Three Months Ended June 30, 1996
and the Six Months Ended June 30, 1996......................................... F-35
Condensed Consolidated Balance Sheets at July 31, 1997, March 31, 1997 and
December 31, 1996.............................................................. F-36
Condensed Statements of Consolidated Cash Flows for the Quarter Ended July 31,
1997, the Quarter ended March 31, 1997, the Three Months Ended June 30, 1996
and the Six Months Ended June 30, 1996......................................... F-37
Notes to Condensed Consolidated Financial Statements............................ F-38
</TABLE>
F-1
<PAGE> 104
INDEPENDENT AUDITORS' REPORT
Metallurg, Inc.:
We have audited the accompanying consolidated balance sheets of Metallurg, Inc.
and consolidated subsidiaries as of March 31, 1997 and December 31, 1996 and
1995 and the related statements of consolidated operations and of consolidated
cash flows for the quarter ended March 31, 1997 and for each of the three years
in the period ended December 31, 1996. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Metallurg, Inc. and
consolidated subsidiaries at March 31, 1997 and December 31, 1996 and 1995 and
the results of their consolidated operations and their consolidated cash flows
for the quarter ended March 31, 1997 and for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted accounting
principles.
As discussed in Notes 1 and 2 to the consolidated financial statements, on April
14, 1997, the U.S. Bankruptcy Court for the Southern District of New York
entered an order confirming the Company's plan of reorganization which became
effective after the close of business on this day. Accordingly, the accompanying
consolidated financial statements for the quarter ended March 31, 1997 have been
prepared in conformity with the American Institute of Certified Public
Accountants Statement of Position No. 90-7, "Financial Reporting for Entities in
Reorganization Under the Bankruptcy Code," for the Company as a new entity with
assets, liabilities, and a capital structure having carrying values not
comparable with prior periods as described in Notes 1 and 2.
As discussed in Note 1 to the consolidated financial statements, effective
January 1, 1996, the Company elected early adoption of the American Institute of
Certified Public Accountants Statement of Position No. 96-1, "Environmental
Remediation Liabilities."
DELOITTE & TOUCHE LLP
New York, New York
July 11, 1997 (November 25, 1997 as to Notes 16 and 17)
F-2
<PAGE> 105
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 1997 AND
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER
ENDED YEARS ENDED DECEMBER 31,
MARCH 31, --------------------------------
NOTES 1997 1996 1995 1994
----- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
Gross volume........................... 1 $162,337 $695,095 $755,927 $586,881
======== ======== ======== ========
Sales.................................. 1 $155,427 $648,816 $688,002 $553,479
Commission income...................... 1 160 1,186 1,362 838
-------- -------- -------- --------
Total revenue..................... 155,587 650,002 689,364 554,317
Cost of sales.......................... 1 134,060 566,538 603,535 496,218
-------- -------- -------- --------
Gross margin...................... 21,527 83,464 85,829 58,099
Selling, general and administrative
expenses............................. 15,046 57,103 52,842 50,652
Environmental expenses................. 1 -- 37,582 2,072 2,082
Restructuring charges.................. 1 -- -- 15,210 2,653
-------- -------- -------- --------
Operating income (loss)........... 6,481 (11,221) 15,705 2,712
Other:
Other income (expense), net.......... 12 3,179 (6,759) 7 7,477
Interest income (expense), net....... 2,9 (245) 1,473 (1,949) (2,555)
Reorganization expense............... 2 (2,663) (3,535) (3,927) (7,118)
Fresh-start revaluation.............. 2 5,107 -- -- --
-------- -------- -------- --------
Income (loss) before income tax
provision and extraordinary item..... 11,859 (20,042) 9,836 516
Income tax provision (benefit)......... 1,10 (3,063) 8,453 8,171 2,507
-------- -------- -------- --------
Income (loss) before extraordinary
item................................. 14,922 (28,495) 1,665 (1,991)
Extraordinary item, net of tax......... 2 43,032 -- -- --
-------- -------- -------- --------
Net income (loss)...................... $ 57,954 $(28,495) $ 1,665 $ (1,991)
======== ======== ======== ========
Pro forma common shares and common
share equivalents.................... 1 4,956 4,956 4,956 4,956
Pro forma earnings per common share:
Income (loss) before extraordinary
item................................. $ 3.01 $ (5.75) $ 0.34 $ (0.40)
Extraordinary item, net of tax......... 8.68 -- -- --
-------- -------- -------- --------
Net income............................. $ 11.69 $ (5.75) $ 0.34 $ (0.40)
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 106
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31,
NOTES 1997 1996 1995
------ --------- ------------ ------------
(NOTE 2)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents..................... 1 $ 30,340 $ 63,274 $ 36,828
Trade receivables, less allowance for doubtful
accounts (1997, $-0-; 1996, $4,303,000;
1995, $3,995,000).......................... 1 94,150 88,595 101,237
Inventories................................... 1,5 109,258 106,363 129,049
Prepaid expenses and other current assets..... 16,312 14,315 15,388
Assets held for sale.......................... 1 1,180 1,843 --
--------- ------------ ------------
Total current assets....................... 251,240 274,390 282,502
Investments in affiliates....................... 1 1,461 2,938 3,058
Property, plant and equipment, net 1,6... 38,907 47,885 53,516
Other assets.................................... 13 14,096 6,413 3,534
--------- ------------ ------------
Total................................. $ 305,704 $331,626 $342,610
========= =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Short-term debt............................... 9 $ 13,500 $ 13,468 $ 29,663
Current portion of long-term debt............. 9 1,277 1,352 989
Trade payables................................ 55,947 48,264 49,916
Accrued expenses.............................. 25,351 21,599 26,581
Current portion of environmental
liabilities................................ 1,13 5,270 9,374 2,200
Taxes payable................................. 10 6,579 6,599 6,330
--------- ------------ ------------
Total current liabilities.................. 107,924 100,656 115,679
--------- ------------ ------------
Long-term Liabilities:
Long-term debt................................ 9 51,711 5,049 6,973
Accrued pension liabilities................... 1,8 41,090 43,926 47,409
Environmental liabilities, net................ 1,13 42,865 34,637 10,580
Other liabilities............................. 12,114 9,640 10,402
--------- ------------ ------------
Total long-term liabilities................ 147,780 93,252 75,364
--------- ------------ ------------
Liabilities Subject to Compromise............... 7 -- 179,897 169,519
--------- ------------ ------------
Total liabilities.......................... 255,704 373,805 360,562
--------- ------------ ------------
Commitments and Contingencies................... 14
Shareholders' Equity (Deficit):
Common stock -- 1997: par value $.01 per
share, authorized 15,000,000 shares, issued
and outstanding 4,956,406 shares; 1996 and
1995: stated value $10 per share,
authorized 10,000 shares, issued and
outstanding 2,005 shares
Preferred stock -- 1996 and 1995: par value
$100 per share, authorized 300,000 shares,
no shares issued and outstanding........... 11 50 20 20
Additional paid-in capital.................... 11 49,950 -- --
Cumulative foreign currency translation
adjustment................................. 11 -- 15,755 11,487
Deficit....................................... -- (57,954) (29,459)
--------- ------------ ------------
Total shareholders' equity (deficit)....... 50,000 (42,179) (17,952)
--------- ------------ ------------
Total................................. $ 305,704 $331,626 $342,610
========= =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 107
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE QUARTER ENDED MARCH 31, 1997 AND
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER
ENDED YEARS ENDED DECEMBER 31,
MARCH 31, --------------------------------
1997 1996 1995 1994
------------ -------- -------- --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................... $ 57,954 $(28,495) $ 1,665 $ (1,991)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Issuance of executive stock awards.................. 500 -- -- --
Extraordinary item, net of taxes.................... (43,032) -- -- --
Fresh-start revaluation............................. (5,107) -- -- --
Depreciation and amortization....................... 2,143 10,688 15,296 12,986
Gain on sales of assets............................. (3,266) (3,597) (1,971) (2,373)
Reorganization expense, net of payments............. 1,538 894 (609) 1,087
Deferred income taxes............................... (3,767) (51) (229) (1,584)
Provision for doubtful accounts..................... 162 696 1,669 1,541
Provision for environmental costs, net of
payments.......................................... (256) 32,473 (2,769) (814)
Provision for restructuring costs................... -- -- 15,210 2,653
Provision for allowed claims........................ -- 10,547 -- --
Other, net.......................................... 3,057 5,961 (9,032) (1,291)
-------- -------- -------- --------
Total........................................ 9,926 29,116 19,230 10,214
Change in operating assets and liabilities:
(Increase) decrease in trade receivables............ (20,272) 9,916 (1,917) (23,690)
(Increase) decrease in inventories.................. (6,120) 14,308 (10,517) (4,225)
(Increase) decrease in other current assets......... (355) (1,210) 5,850 (3,842)
Increase in trade payables and accrued expenses..... 18,895 1,412 2,857 20,631
Decrease in prepetition liabilities................. (39) (189) (263) (181)
Receipt from environmental trust, net............... 5,928 -- -- --
Other assets and liabilities, net................... (1,547) (5,688) (9,582) 504
-------- -------- -------- --------
Net cash provided by (used in) operating
activities................................. 6,416 47,665 5,658 (589)
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment, net..... (2,774) (9,531) (6,712) (7,566)
Proceeds from asset sales........................... 4,966 5,806 2,663 3,843
Other, net.......................................... (25) (1,294) 104 23
-------- -------- -------- --------
Net cash provided by (used in) investing
activities................................. 2,167 (5,019) (3,945) (3,700)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING AND REORGANIZATION
ACTIVITIES:
Cash distribution pursuant to plan of
reorganization.................................... (59,366) -- -- --
Drawdown of prepetition letters of credit........... 9,700 -- 8,000 --
Proceeds from long-term debt, net................... 8,100 -- -- 2,731
Net borrowing (repayment) of short-term debt........ 1,062 (14,709) 420 1,077
Repayment of long-term debt......................... (487) (1,408) (2,238) (135)
-------- -------- -------- --------
Net cash provided by (used in) financing and
reorganization activities.................. (40,991) (16,117) 6,182 3,673
-------- -------- -------- --------
Effects of exchange rate changes on cash and cash
equivalents......................................... (526) (83) 774 110
-------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents....................................... (32,934) 26,446 8,669 (506)
Cash and cash equivalents -- beginning of period...... 63,274 36,828 28,159 28,665
-------- -------- -------- --------
Cash and cash equivalents -- end of period............ $ 30,340 $ 63,274 $ 36,828 $ 28,159
======== ======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes............................ $ 1,524 $ 5,817 $ 6,031 $ 1,634
======== ======== ======== ========
Cash paid for interest................................ $ 619 $ 3,021 $ 4,777 $ 4,812
======== ======== ======== ========
Cash paid for reorganization expense.................. $ 1,125 $ 2,641 $ 4,536 $ 6,031
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 108
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 1997 AND
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation -- The consolidated financial
statements include the accounts of Metallurg, Inc. ("Metallurg") and its
majority-owned subsidiaries (collectively, the "Company"). All intercompany
transactions and balances have been eliminated in consolidation. The
accounts of foreign subsidiaries have been translated into U.S. dollars in
accordance with Statement of Financial Accounting Standards ("SFAS") No.
52.
On February 26, 1997, the Fourth Amended and Restated Joint Plan of
Reorganization (the "Plan") of Metallurg and one of its subsidiaries,
Shieldalloy Metallurgical Corporation ("SMC") (collectively, the
"Debtors"), was confirmed by the U.S. Bankruptcy Court for the Southern
District of New York. Transactions contemplated by the Plan were
consummated on April 14, 1997 (the "Effective Date"). For financial
reporting purposes, the Company has reflected the effects of the Plan
consummation as of March 31, 1997. In accordance with Statement of Position
No. 90-7 ("SOP 90-7") of the American Institute of Certified Public
Accountants, the Company was required to account for the reorganization
using fresh-start reporting (see Note 2). Accordingly, a black line is
shown to separate the March 31, 1997 consolidated balance sheet from the
prior periods since they are not prepared on a comparable basis.
Accounting Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amount
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Cash and Cash Equivalents -- The Company considers all highly liquid
instruments maturing within 30 days or less when purchased to be cash
equivalents. The carrying amount of cash and cash equivalents approximates
fair value because of the short maturities of these instruments.
Inventories -- Inventories are stated at the lower of cost or market. The
cost of inventories is determined using principally the average cost and
specific identification methods.
Assets Held for Sale -- Assets held for sale are stated at the lower of
cost or estimated net realizable value. At March 31, 1997, office buildings
owned by the Company's United Kingdom subsidiary, valued at approximately
$1,180,000, were held for sale. At December 31, 1996, Metallurg's
investments in a joint venture and a building were held for sale in the
amounts of $1,200,000 and $643,000, respectively.
Investments in Affiliates -- Investments in affiliates in which the Company
has a 20% to 50% ownership interest and exercises significant management
influence are accounted for in accordance with the equity method.
Property and Depreciation -- In accordance with fresh-start reporting,
property, plant and equipment previously stated at cost have been restated
to the estimated fair value as of March 31, 1997 and historical accumulated
depreciation has been eliminated. Major renewals and improvements are
capitalized, while maintenance and repairs are expensed when incurred.
Depreciation is computed using the straight-line and declining-balance
methods over the estimated useful lives of the assets. Upon sale or
retirement, the costs and related accumulated depreciation are eliminated
from the respective accounts and any resulting gain or loss is included in
income.
F-6
<PAGE> 109
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Gross Volume and Sales -- Sales represent amounts invoiced to customers by
the Company. In certain instances, the Company arranges sales for which the
supplier invoices the customer directly ("agency sales"). In such cases,
the Company receives commission income. Gross volume represents the sum of
sales and agency sales. The Company sells manufactured and merchanted
products primarily to the steel, aluminum, superalloy, hard metal and
foundry industries.
Environmental Remediation Costs -- In 1996, the Company elected early
adoption of the American Institute of Certified Public Accountants
Statement of Position No. 96-1, "Environmental Remediation Liabilities."
Losses associated with environmental remediation obligations are accrued
when such losses are deemed probable and reasonably estimable. Such
accruals generally are recognized no later than the completion of the
remedial feasibility study and are adjusted as further information develops
or circumstances change. Costs of future expenditures for environmental
remediation obligations are generally not discounted to their present
value.
Impairment of Assets -- In 1995, the Company implemented Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ." This
standard prescribes the method of asset impairment evaluation for long-
lived assets and certain identifiable intangibles that are either held and
used or to be disposed of. Such impairment losses have been included in
restructuring charges for the respective periods.
Restructuring Charges -- Restructuring charges represent severance pay and
other costs provided in connection with the reduction and restructuring of
certain operations. During 1995, the Brazilian operating subsidiary adopted
a plan to restructure mining operations along with certain other
operations. Analysis of remaining ore deposits indicated that such ore
deposits contained insufficient material to provide continued economic
feasibility. The restructuring expenses reflect severance costs and losses
expected in connection with the disposal of mining property and equipment.
Also during 1995, the principal German subsidiary adopted a plan to
restructure the company into separate business units and to exit certain
unprofitable manufacturing processes. The restructuring expenses reflect
severance for workforce reductions and impairment losses on assets which
are no longer expected to be used in the Company's operations.
Income Taxes -- The Company uses the liability method whereby deferred
income taxes are provided for the temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities. The Company does not provide for U.S. Federal income taxes on
the accumulated earnings considered permanently reinvested in its foreign
subsidiaries which approximated $38,000,000, $53,000,000 and $87,000,000 at
March 31, 1997 and December 31, 1996 and 1995, respectively. These earnings
have been invested in facilities and other assets and have been subject to
substantial foreign income taxes, which may or could offset a major portion
of any tax liability resulting from their inclusion in U.S. taxable income.
Retirement Plans -- Pension costs of Metallurg and its domestic
consolidated subsidiaries are funded or accrued currently. The Company's
foreign subsidiaries maintain separate pension plans for their employees.
Such foreign plans are either funded currently or accruals are recorded in
the respective balance sheets to reflect pension plan liabilities.
Foreign Exchange Gains and Losses -- Foreign exchange gains (losses) of
$712,000, $1,853,000, $(904,000) and $(619,000) were recorded for the
quarter ended March 31, 1997 and the years ended December 31, 1996, 1995
and 1994, respectively. Such amounts usually arise from foreign currency
hedging programs designed to minimize the negative effects of changes in
exchange rates on operations and are therefore included in cost of sales.
The Company enters into foreign exchange contracts with various major
financial institutions in connection with the above-mentioned hedging
programs and to hedge receivables and payables
F-7
<PAGE> 110
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
denominated in foreign currencies. At March 31, 1997, the Company had
foreign exchange contracts, substantially maturing through August 1999,
with a notional amount of approximately $42,000,000, which approximates
market value.
Financial Instruments -- The Company's financial instruments consist
principally of cash and cash equivalents, trade receivables, debt and
payables. The carrying amounts of such financial instruments approximate
their fair values.
Extraordinary Item -- Discharge of indebtedness income relating to the
consummation of the Plan of Metallurg and SMC is reported as an
extraordinary item, net of tax effects, in the Statements of Consolidated
Operations.
Earnings per Share -- The computation of pro forma earnings per share is
based on the number of common shares and common stock equivalents,
consisting of restricted stock awards, outstanding as of the Effective
Date.
Recently Issued Accounting Pronouncements -- In February 1997, the
Financial Accounting Standards Board ("FASB") issued SFAS No. 128,
"Earnings per Share." This statement is effective for financial statements
issued for periods ending after December 15, 1997. Management has evaluated
the effect on its financial reporting from the adoption of this statement
and does not believe it to be significant.
In February 1997, the FASB also issued SFAS No. 129 "Disclosure of
Information about Capital Structure." This statement is effective for
financial statements issued for periods ending after December 15, 1997.
Management has evaluated the effect on its financial reporting and as it
contains no change in the disclosure requirements of Accounting Principles
Board Opinions 10 and 15 and SFAS No. 47, no further disclosures are
needed.
2. PLAN OF REORGANIZATION AND FRESH-START REPORTING
Costs of administration of the Chapter 11 proceedings approximating
$2,663,000, $3,535,000, $3,927,000 and $7,118,000 were recorded by the
Debtors during the quarter ended March 31, 1997 and the years ended
December 31, 1996, 1995 and 1994, respectively, and have been included as
reorganization expense in the Statements of Consolidated Operations. Those
expenses consisted primarily of legal, administration, consulting and other
similar expenses.
Selected financial data for the Debtors is as follows (in thousands):
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
AS OF MARCH 31, ---------------------
1997 1996 1995
--------------- -------- --------
<S> <C> <C> <C>
Assets...................................... $ 181,503 $209,542 $227,267
Liabilities................................. 111,844 247,053 206,259
-------- -------- --------
Net assets(deficit)......................... $ 69,659 $(37,511) $ 21,008
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE QUARTER FOR THE YEARS ENDED DECEMBER 31,
ENDED MARCH 31, ----------------------------------
1997 1996 1995 1994
--------------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue........................ $56,858 $224,572 $230,988 $229,626
======= ======== ======== ========
Net income (loss).............. $57,954 $(28,495) $ 1,665 $ (1,991)
======= ======== ======== ========
</TABLE>
On the Effective Date, claims related to prepetition liabilities and
administrative expenses were discharged through distributions of
$59,366,000 in cash, the issuance of $39,461,000 of senior-
F-8
<PAGE> 111
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
secured notes and 4,706,406 shares of new common stock. The value of the
cash and securities distributed was less than the recorded liabilities and
the resultant gain was recorded as an extraordinary item, net of tax
effects.
The Company was required to adopt fresh-start reporting because the holders
of the existing voting shares immediately prior to filing and confirmation
of the Plan received less than 50% of the voting shares of the emerging
entity and its reorganization value was less than the total of its
post-petition liabilities and allowed claims. SOP 90-7 required the Company
to revalue its assets and liabilities to their estimated fair value and to
recognize as a reduction of long-term assets the excess of the fair value
of its identifiable net assets over its total reorganization value as of
the Effective Date. Accordingly, the Company's property, plant and
equipment and other noncurrent assets were reduced by approximately
$5,520,000. In addition, the Company's accumulated equity of approximately
$4,733,000 and cumulative foreign currency translation adjustment of
approximately $14,587,000 were eliminated.
The total reorganization value assigned to the Company's assets was
estimated by calculating projected cash flows before debt service
requirements for a three-year period, plus an estimated terminal value of
the Company calculated using an estimate of normalized operating
performance and discount rates ranging from 13.5% to 16.5%. This amount was
increased by (i) the estimated net realizable value of assets to be sold
and (ii) estimated cash in excess of normal operating requirements. The
above calculations resulted in an estimated reorganization equity value,
after distributions, of approximately $50,000,000.
F-9
<PAGE> 112
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effect of the Plan and the implementation of fresh-start reporting on
the Company's consolidated balance sheet as of March 31, 1997 was as
follows (in thousands):
<TABLE>
<CAPTION>
PRIOR TO ADOPTION OF OPENING
JOINT PLAN EFFECTS OF FRESH-START BALANCE
EFFECTIVENESS JOINT PLAN(A) REPORTING SHEET
------------- ------------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......... $ 66,670 $ (36,330) $ 30,340
Trade receivables, less allowance
for doubtful accounts........... 94,255 (105) 94,150
Inventories........................ 109,258 -- 109,258
Prepaid expenses and other current
assets.......................... 16,382 180 $ (250)(b) 16,312
Assets held for sale............... 341 -- 839(b) 1,180
-------- --------- -------- ---------
Total current assets............ 286,906 (36,255) 589 251,240
Investments in affiliates............ 2,779 -- (1,318)(c) 1,461
Property, plant and equipment, net... 42,348 -- (3,441)(c) 38,907
Other assets......................... 14,243 614 (761)(c) 14,096
-------- --------- -------- ---------
Total...................... $ 346,276 $ (35,641) $ (4,931) $305,704
======== ========= ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Short-term debt.................... $ 13,500 $ 13,500
Current portion of long-term
debt............................ 1,277 1,277
Trade payables..................... 55,947 55,947
Accrued expenses................... 22,736 $ 2,338 $ 277(b) 25,351
Current portion of environmental
liabilities..................... 5,270 -- -- 5,270
Taxes payable...................... 7,136 (557) -- 6,579
-------- --------- -------- ---------
Total current liabilities....... 105,866 1,781 277 107,924
-------- --------- -------- ---------
Long-term Liabilities:
Long-term debt..................... 4,248 47,463 -- 51,711
Accrued pension liabilities........ 39,610 (1,345) 2,825(b) 41,090
Environmental liabilities, net..... 37,495 5,370 -- 42,865
Other liabilities.................. 10,293 -- 1,821(b) 12,114
-------- --------- -------- ---------
Total long-term liabilities..... 91,646 51,488 4,646 147,780
-------- --------- -------- ---------
Liabilities Subject to Compromise.... 180,247 (180,247) -- --
-------- --------- -------- ---------
Total liabilities............... 377,759 (126,978) 4,923 255,704
-------- --------- -------- ---------
Commitments and Contingencies........
Shareholders' Equity (Deficit):
Common stock....................... 20 30 -- 50
Additional paid-in capital......... -- 49,950 -- 49,950
Cumulative foreign currency
translation adjustment.......... 14,531 56 (14,587)(d) --
Deficit............................ (46,034) 41,301 4,733(d) --
-------- --------- -------- ---------
Total shareholders' equity
(deficit)..................... (31,483) 91,337 (9,854) 50,000
-------- --------- -------- ---------
Total...................... $ 346,276 $ (35,641) $ (4,931) $305,704
======== ========= ======== =========
</TABLE>
- ---------------
Notes:
(a) To record the distribution of cash and securities, the settlement of
liabilities subject to compromise and other transactions in accordance
with the Plan.
(b) To adjust assets and liabilities to their estimated fair value.
(c) To reduce long-term assets for the excess of the fair value of
identifiable net assets over the total reorganization value as of the
Effective Date.
(d) To eliminate the accumulated deficit and cumulative foreign currency
translation adjustment in accordance with fresh-start reporting.
F-10
<PAGE> 113
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. GEOGRAPHIC DATA
The Company operates in one significant industry segment, the manufacture
and sale of ferrous and non-ferrous metals and alloys. Data by geographical
area is as follows (in thousands):
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
AS OF MARCH 31, ----------------------------------
1997 1996 1995 1994
-------------------- -------- -------- --------
<S> <C> <C> <C> <C>
Identifiable assets
North America................. $107,254 $148,719 $150,281 $139,940
Foreign....................... 228,668 214,953 219,460 214,298
Eliminations.................. (30,218) (32,046) (27,131) (27,257)
-------- -------- -------- --------
Total................. $305,704 $331,626 $342,610 $326,981
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE QUARTER FOR THE YEARS ENDED DECEMBER 31,
ENDED MARCH 31, ----------------------------------
1997 1996 1995 1994
--------------- -------- -------- --------
<S> <C> <C> <C> <C>
Total revenue from unaffiliated
customers
North America................. $ 68,540 $294,843 $300,200 $260,580
Foreign....................... 87,047 355,159 389,164 293,737
-------- -------- -------- --------
Total................. $ 155,587 $650,002 $689,364 $554,317
======== ======== ======== ========
Net income (loss)
North America................. $ 48,262 $(56,506) $ 8,160 $ (2,887)
Foreign....................... 9,692 28,011 (6,495) 896
-------- -------- -------- --------
Total................. $ 57,954 $(28,495) $ 1,665 $ (1,991)
======== ======== ======== ========
</TABLE>
4. INVESTMENT ACTIVITIES
On March 20, 1997, Metallurg sold its 50% interest in AMPAL, Inc. for
proceeds approximating book value of $1,200,000.
In August 1996, the Company purchased approximately 5% of the outstanding
stock of Solikamsk Magnesium Works ("SMW"), a Russian magnesium metal
producer, for approximately $1,000,000. The acquisition has allowed the
Company and its subsidiaries to strengthen existing business ties with SMW
and secure a continuing supply of materials from Russia.
In December 1996, SMC sold its wholly-owned subsidiary, Frankel Metal
Company ("FMC"), a processor of titanium scrap, to FMC's management for a
purchase price which was based on an adjusted net book value formula. SMC
recorded a net loss on the sale of this business of $460,000. The sale
followed SMC's decision that FMC's operations no longer produced the
strategic benefits which had been envisaged for it.
5. INVENTORIES
Inventories, net of reserves, consist of the following (in thousands):
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
AS OF MARCH 31, ---------------------
1997 1996 1995
--------------- -------- --------
<S> <C> <C> <C>
Raw materials............................... $ 21,769 $ 25,181 $ 26,996
Work in process............................. 2,330 2,237 4,243
Finished goods.............................. 80,500 75,478 94,183
Other....................................... 4,659 3,467 3,627
-------- -------- --------
Total............................. $ 109,258 $106,363 $129,049
======== ======== ========
</TABLE>
F-11
<PAGE> 114
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. PROPERTY, PLANT AND EQUIPMENT
The major classes of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
ESTIMATED
AS OF DECEMBER 31, LIVES
AS OF MARCH 31, --------------------- ----------
1997 1996 1995
--------------- -------- -------- (IN YEARS)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Land............................ $ 3,019 $ 6,177 $ 7,569
Buildings and leasehold
improvements.................. 13,205 43,826 47,260 10 - 32
Machinery....................... 17,729 181,172 183,820 5 - 17
Office furniture and
equipment..................... 2,046 6,940 7,045 3 - 17
Transportation equipment........ 1,588 6,992 6,222 3 - 5
Construction in progress........ 1,320 1,142 2,440
------- -------- --------
Total................. 38,907 246,249 254,356
Less accumulated depreciation... -- 198,364 200,840
------- -------- --------
Property, plant and equipment,
net........................... $38,907 $ 47,885 $ 53,516
======= ======== ========
</TABLE>
Depreciation expense related to property, plant and equipment charged to
operations for the quarter ended March 31, 1997 and the years ended
December 31, 1996, 1995 and 1994 was $2,126,000, $10,621,000, $15,227,000
and $12,921,000, respectively.
7. LIABILITIES SUBJECT TO COMPROMISE
Pursuant to the provisions of the Bankruptcy Code, certain liabilities
attributable to the period prior to the Petition Date could not be paid
without prior approval of the Bankruptcy Court and were reclassified to
liabilities subject to compromise. Substantially all of these claims were
settled at the Effective Date in accordance with the Plan of
Reorganization. The liabilities subject to compromise at December 31, 1996
and 1995 consisted of the following (in thousands):
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Long-term debt.............................................. $112,158 $112,349
Trade payables and other accrued liabilities................ 22,520 20,792
Prepetition environmental liabilities....................... 4,070 279
Accrued pension liabilities................................. 12,030 6,980
Accrued interest payable.................................... 3,412 3,412
Liabilities to former shareholders.......................... 25,707 25,707
-------- --------
Total liabilities subject to compromise........... $179,897 $169,519
======== ========
</TABLE>
In 1996, after an extended reconciliation process and upon reaching
settlement with a number of prepetition creditors, the Debtors recorded
additional prepetition claims in the amount of $1,706,000. As part of an
agreement with various environmental regulatory authorities, SMC agreed to
allow certain unsecured claims in its Chapter 11 proceedings in the amount
of $4,070,000.
In addition, during 1996, SMC completed the withdrawal from a multiemployer
pension plan which covered certain union employees at its Newfield, New
Jersey site. In connection with this withdrawal, the Debtors negotiated a
settlement with the District 65 Pension Plan in which SMC agreed to allow
an unsecured prepetition claim in the amount of $5,000,000 and an
administrative claim of $50,000.
As discussed in more detail in Note 13, the Debtors entered into settlement
agreements with certain of the relevant environmental agencies during 1996.
Therefore, accrued environmental liabilities of $14,343,000, reported as a
component of liabilities subject to compromise at December 31, 1995, were
reclassified as current and noncurrent to conform with the 1996
presentation.
F-12
<PAGE> 115
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. RETIREMENT PLANS
Defined Benefit Plans
Metallurg and its domestic consolidated subsidiaries have defined benefit
pension plans covering substantially all salaried and certain hourly paid
employees. The plans generally provide benefit payments using a formula
based on an employee's compensation and length of service. These plans are
funded in amounts equal to the minimum funding requirements of the Employee
Retirement Income Security Act. Substantially all plan assets are invested
in cash and short-term investments or listed stocks and bonds.
Net periodic pension cost for the domestic defined benefit plans included
the following components (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
FOR THE QUARTER DECEMBER 31,
ENDED MARCH 31, ---------------------------
1997 1996 1995 1994
-------------------- ------- ----- -----
<S> <C> <C> <C> <C>
Service cost -- benefits earned
during the period............... $ 107 $ 493 $ 476 $ 531
Interest cost on projected benefit
obligation...................... 280 964 939 908
Return on plan assets............. (309) (1,074) (862) (872)
Net amortization and deferral..... 32 (18) 180 76
----- ------- ----- -----
Net periodic pension cost......... $ 110 $ 365 $ 733 $ 643
===== ======= ===== =====
</TABLE>
Assumptions used to calculate pension costs and projected benefit
obligations are as follows:
<TABLE>
<CAPTION>
FOR THE QUARTER FOR THE YEARS ENDED DECEMBER 31,
ENDED MARCH 31, ----------------------------------
1997 1996 1995 1994
-------------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Discount rate................ 7.0% 7.0% 7.0% 7.5%
Rate of increase in future
compensation levels........ 4.0% 4.0% 4.0% 5.5%
Expected long-term rate of
return on plan assets...... 7.5%-9.0% 7.5%-9.0% 7.5%-9.0% 7.5%-9.0%
</TABLE>
A reconciliation of the funded status to the amounts recorded in the balance
sheet is set forth below (in thousands):
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
AS OF MARCH 31, ---------------------
1997 1996 1995
--------------- -------- --------
<S> <C> <C> <C>
Vested benefit obligation................... $ (15,037) $(13,166) $(13,115)
Nonvested benefit obligation................ (396) (912) (171)
-------- -------- --------
Accumulated benefit obligation............ (15,433) (14,078) (13,286)
Effect of projected future compensation..... (1,056) (767) (1,138)
-------- -------- --------
Projected benefit obligation.............. (16,489) (14,845) (14,424)
Plan assets at fair value................... 14,346 14,284 11,813
-------- -------- --------
Funded status............................. (2,143) (561) (2,611)
Unrecognized net transition obligation...... -- 7 (100)
Unrecognized prior service cost............. -- 128 195
Unrecognized net loss....................... -- 211 1,499
-------- -------- --------
Accrued pension cost recorded............... $ (2,143) $ (215) $ (1,017)
======== ======== ========
</TABLE>
F-13
<PAGE> 116
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's United Kingdom subsidiary maintains a defined benefit pension
plan covering all eligible employees. The net periodic pension cost for the
defined benefit plan included the following components (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
FOR THE QUARTER 31,
ENDED MARCH 31, -------------------------------
1997 1996 1995 1994
-------------------- ------- ------- -------
<S> <C> <C> <C> <C>
Service cost -- benefits
earned during the period.... $ 250 $ 954 $ 918 $ 889
Interest cost on projected
benefit obligation.......... 839 3,004 2,781 2,354
Return on plan assets......... (1,669) (4,586) (5,174) 1,071
Net amortization and
deferral.................... 286 1,093 2,120 (3,975)
------- ------- ------- -------
Net periodic pension cost
(credit).................... $ (294) $ 465 $ 645 $ 339
======= ======= ======= =======
</TABLE>
Assumptions used to calculate pension costs and projected benefit
obligations are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
FOR THE QUARTER DECEMBER 31,
ENDED MARCH 31, ------------------------
1997 1996 1995 1994
-------------------- ---- ---- ----
<S> <C> <C> <C> <C>
Discount rate.......................... 8.5% 8.5 % 8.5 % 8.0 %
Rate of increase in future compensation
levels............................... 6.5% 6.5 % 6.5 % 6.5 %
Expected long-term rate of return on
plan assets.......................... 8.5% 8.5 % 8.5 % 8.5 %
</TABLE>
A reconciliation of the funded status to the amounts recorded in the
balance sheet is set forth below (in thousands):
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
AS OF MARCH 31, ---------------------
1997 1996 1995
--------------- -------- --------
<S> <C> <C> <C>
Vested benefit obligation................... $ (39,869) $(37,238) $(32,024)
Nonvested benefit obligation................ -- -- --
-------- -------- --------
Accumulated benefit obligation............ (39,869) (37,238) (32,024)
Effect of projected future compensation..... (4,153) (3,879) (3,337)
-------- -------- --------
Projected benefit obligation.............. (44,022) (41,117) (35,361)
Plan assets at fair value................... 51,677 48,479 39,821
-------- -------- --------
Funded status............................. 7,655 7,362 4,460
Unrecognized net transition asset........... -- (1,361) (1,370)
Unrecognized net gain....................... -- (3,244) (973)
-------- -------- --------
Prepaid pension cost recorded............... $ 7,655 $ 2,757 $ 2,117
======== ======== ========
</TABLE>
The Company's German subsidiaries maintain unfunded defined benefit pension
plans covering substantially all eligible employees. The plans were amended
in 1992 in a manner that terminated any credit for future service. Pension
expense, therefore, is related primarily to interest cost on the projected
benefit obligation and approximated $591,000, $2,531,000, $2,991,000 and
$2,630,000 in the quarter ended March 31, 1997 and the years ended December
31, 1996, 1995 and 1994, respectively. Assumptions used to calculate
pension costs and projected benefit obligations included discount rates of
6% for the quarter ended March 31, 1997 and the year ended December 31,
1996 and 6.5% and 7.5% for the years ended December 31, 1995 and 1994,
respectively. Increases in future compensation levels were assumed at rates
of 3% in 1997, 1996 and 1995 and 4.5% in 1994.
F-14
<PAGE> 117
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the funded status to the amounts recorded in the
balance sheet is set forth below (in thousands):
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
AS OF MARCH 31, ---------------------
1997 1996 1995
--------------- -------- --------
<S> <C> <C> <C>
Vested benefit obligation................... $ (37,014) $(39,855) $(40,477)
Nonvested benefit obligation................ -- -- --
-------- -------- --------
Accumulated benefit obligation............ (37,014) (39,855) (40,477)
Effect of projected future compensation..... (1,514) (2,025) (2,100)
-------- -------- --------
Projected benefit obligation.............. (38,528) (41,880) (42,577)
Unrecognized net (gain) loss................ -- 942 (1,349)
-------- -------- --------
Accrued pension cost recorded............... $ (38,528) $(40,938) $(43,926)
======== ======== ========
</TABLE>
Other Benefit Plans
The Company maintained certain non-qualified retirement benefit
arrangements for certain individuals. As of the Petition Date, amounts due
by the Debtors related to certain of those executory contracts were
rejected and reflected as liabilities subject to compromise. Pension
expense relating to certain of those arrangements was $300,000, $509,000
and $268,000 in the years ended December 31, 1996, 1995 and 1994,
respectively. No expense was recorded for these arrangements in the quarter
ended March 31, 1997.
Metallurg maintains a discretionary defined contribution profit-sharing
plan covering substantially all of the salaried employees of Metallurg and
its domestic consolidated subsidiaries. The related expense was $62,000,
$229,000 and $208,000 in the quarter ended March 31, 1997 and the years
ended December 31, 1996 and 1995, respectively. No expense was recorded for
this plan in 1994.
Balance sheet accruals for the pension plans of the Company's other foreign
subsidiaries approximate or exceed the related actuarially computed value
of accumulated benefit obligations. Pension expense relating to the
Company's other foreign subsidiaries' pension plans was $96,000, $228,000,
$209,000 and $704,000 for the quarter ended March 31, 1997 and the years
ended December 31, 1996, 1995 and 1994, respectively.
9. BORROWINGS
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
AS OF DECEMBER
31,
AS OF MARCH 31, -----------------
1997 1996 1995
--------------- ------ ------
<S> <C> <C> <C>
Parent company and domestic subsidiaries:
12% senior-secured notes...................... $39,461
-------
Foreign subsidiaries:
Germany....................................... 5,133 $6,061 $7,811
United Kingdom................................ 8,100 -- --
Other......................................... 294 340 151
------- ------ ------
Long-term debt -- foreign subsidiaries..... 13,527 6,401 7,962
-------
Less: Amounts due within one year............... 1,277 1,352 989
------- ------ ------
Total long-term debt............................ $51,711 $5,049 $6,973
======= ====== ======
</TABLE>
Parent Company and Domestic Subsidiaries
On the Effective Date, Metallurg issued $39,461,000 of senior-secured notes
which mature in 2007 and accrue interest at a rate of 12% per annum,
payable semi-annually. Metallurg will be required to make mandatory
redemptions or sinking fund payments in the amount of $2,500,000 in 2004,
2005
F-15
<PAGE> 118
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and 2006, respectively. All assets of Metallurg are pledged as collateral
(with a second lien on those assets pledged pursuant to the revolving
credit facility, i.e. accounts receivable and inventory), including a
second lien on 100% of all domestic subsidiaries and 66 2/3% less one share
of the stock of substantially all foreign subsidiaries of Metallurg.
Approximately $30,000,000 principal amount of the senior-secured notes are
held by related parties.
Pursuant to the Plan, Metallurg and SMC (the "Borrowers") entered into an
agreement with BankBoston, N.A. for a revolving credit facility, in the
amount of $40,000,000, to provide working capital and to finance other
general corporate purposes. Borrowings under this facility bear interest at
a rate per annum equal to (i) the Base Rate plus 1% per annum (the Base
Rate is the greater of BankBoston N.A.'s base rate or the Federal Funds
Effective Rate plus 0.5%) or (ii) the reserve adjusted Eurodollar rate plus
2.5% for interest periods of one, two or three months. The Company is
required to pay a fee of 0.375% per annum on the unused portion of the
commitment. The total amount the Borrowers may borrow at any time is
limited to a borrowing base calculation which includes accounts receivable,
inventory and fixed assets. The revolving credit agreement, which expires
on April 14, 2000, requires the Borrowers to comply with various covenants,
including restrictions on dividends and the maintenance of minimum levels
of earnings before interest, taxes, depreciation and amortization.
Substantially all assets of the Borrowers are pledged as collateral under
this agreement. At March 31, 1997, there were no borrowings under this
facility; however, outstanding letters of credit approximated $7,092,000.
In October 1997, this facility was increased to $50,000,000.
At the Petition Date, the Debtors were in default of certain provisions of
certain debt agreements. With minor exceptions, repayment of the amounts
outstanding at that date had been deferred pursuant to the Chapter 11
proceedings. Subsequent to the Chapter 11 filings, the Debtors did not
accrue interest on any of these obligations, except for secured debt,
incurred on or before the Petition Date. Contractual interest on these
unsecured obligations approximated $2,136,000, $8,600,000, $9,200,000 and
$8,300,000 in excess of interest expense reflected in the Statements of
Consolidated Operations for the quarter ended March 31, 1997 and years
ended December 31, 1996, 1995 and 1994, respectively.
Foreign Subsidiaries
London & Scandinavian Metallurgical Co., Limited ("LSM"), a United Kingdom
subsidiary, has a revolving credit facility agreement approximating
$11,500,000 which bears interest at the lender's base rate plus 1.0%. In
addition, LSM maintains a term loan, in the amount of approximately
$8,100,000, which funded a dividend in connection with the consummation of
the Plan. The term loan bears interest at 2.0% above LIBOR. LSM has entered
into an interest rate swap which effectively fixes the interest rate at
9.4%. Both of these facilities have a tenure of three years, are secured by
essentially all of LSM's assets and are subject to various financial
covenants, including minimum tangible net worth and restrictions on
dividends. At March 31, 1997, there were no borrowings under the revolving
credit facility and $8,100,000 was outstanding under the term loan.
Elektrowerk Weisweiler GmbH ("EWW"), a German subsidiary, had committed
lines of credit with several banks approximating $9,000,000. The credit
facilities expire in 1999 and bear interest at a rate from 7.0% to 7.5%.
The credit agreements require EWW to pledge certain assets, which include
accounts receivable, inventory and fixed assets. At March 31, 1997, there
were no borrowings under these agreements. EWW also has a term loan
approximating $2,200,000 maturing in 2001. The term loan is secured by a
mortgage on certain real property and bears interest at 4.5%.
GfE Gesellschaft fur Elektrometallurgie mbH ("GfE"), a German subsidiary,
and its subsidiaries have uncommitted bank lines of credit with a number of
financial institutions amounting to
F-16
<PAGE> 119
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$12,567,000 at March 31, 1997. The credit agreements require GfE to pledge
certain assets, including accounts receivable and inventory. At March 31,
1997, borrowings under these agreements approximated $11,883,000 at a
weighted average interest rate of 9.1%. The GfE group also have term loans
approximating $2,900,000 maturing through 2004 and bearing interest at a
weighted average rate of 6.0%.
The Company's other foreign subsidiaries maintain short-term secured and
unsecured borrowing arrangements, generally in local currencies, with
various banks. Borrowings under these arrangements aggregated $1,617,000 at
March 31, 1997 at a weighted average interest rate of 19.3%.
Interest expense totaled $1,706,000, $3,043,000, $4,851,000 and $4,815,000
for the quarter ended March 31, 1997 and the years ended December 31, 1996,
1995 and 1994, respectively.
The scheduled maturities of long-term debt during the next five years are
$1,277,000 in 1998, $960,000 in 1999, $8,720,000 in 2000, $1,277,000 in
2001, $650,000 in 2002 and $40,104,000 thereafter.
10. INCOME TAXES
For financial reporting purposes, income (loss) before income tax provision
and extraordinary item includes the following components (in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED FOR THE YEAR ENDED DECEMBER 31,
MARCH 31, -------------------------------
1997 1996 1995 1994
------------- -------- ------ -------
<S> <C> <C> <C> <C>
United States........................ $ 1,472 $(45,882) $7,158 $(5,211)
Foreign.............................. 10,387 25,840 2,678 5,727
------- -------- ------ -------
Total........................... $11,859 $(20,042) $9,836 $ 516
======= ======== ====== =======
</TABLE>
The reconciliation of income tax from continuing operations computed at the
U.S. Federal statutory tax rate to the Company's effective tax rate is as
follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
QUARTER ENDED
MARCH 31, 1997 1996 1995 1994
------------------ ------------------- ------------------- -------------------
TAX TAX TAX TAX
PROVISION PROVISION PROVISION PROVISION
(BENEFIT) PERCENT (BENEFIT) PERCENT (BENEFIT) PERCENT (BENEFIT) PERCENT
-------- ------ -------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income tax provision at
statutory rate............... $ 4,032 34.0% $ (6,814) 34.0% $ 3,344 34.0% $ 175 34.0%
State and local income taxes,
net of federal income tax
effect....................... 86 0.7 280 (1.4) 98 1.0 183 35.4
Foreign rates and foreign
dividends.................... (6,886) (58.1) (757) 3.8 7,061 71.8 2,146 415.9
Changes in domestic valuation
allowance.................... (500) (4.2) 15,600 (77.8) (2,434) (24.7) (353) (68.5)
Other.......................... 205 1.7 144 (0.7) 102 1.0 356 69.1
-------- ------ -------- ------ -------- ------ -------- ------
Total...................... $ (3,063) (25.9%) $ 8,453 (42.1%) $ 8,171 83.1% $ 2,507 485.9%
======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
F-17
<PAGE> 120
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The income tax provision (benefit) represents the following (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
FOR THE QUARTER 31,
ENDED MARCH 31, -----------------------------
1997 1996 1995 1994
-------------------- ------ ------ -------
<S> <C> <C> <C> <C>
Current:
U.S............................ $ 175
Foreign........................ $ 573 $8,080 $8,251 3,639
State and local................ 131 424 149 277
------- ------ ------ -------
Total current............... 704 8,504 8,400 4,091
------- ------ ------ -------
Deferred:
U.S............................ 160 -- 50 (2,038)
Foreign........................ (3,927) (51) (279) 454
------- ------ ------ -------
Total deferred.............. (3,767) (51) (229) (1,584)
------- ------ ------ -------
Total income tax (benefit)
provision...................... $ (3,063) $8,453 $8,171 $ 2,507
======= ====== ====== =======
</TABLE>
The Internal Revenue Service has completed the examination of the
consolidated U.S. Federal tax returns for years through 1992. U.S. Federal
income tax refunds receivable of $1,043,000 at March 31, 1997 and December
31, 1996 and $618,000 at December 31, 1995, relating primarily to the
carryback effect of net operating losses, are reflected in prepaid expenses
in the accompanying Consolidated Balance Sheets.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities are as
follows (in thousands):
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
MARCH 31, -------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Deferred Tax Assets:
NOL and other credit carryforwards........ $ 39,160 $ 47,996 $ 62,292
Retirement benefits....................... 18,359 25,950 9,677
Environmental liabilities................. 16,976 20,139 6,004
Tax intangibles........................... 7,188 9,570 13,914
Allowance for doubtful accounts........... 2,762 445 258
Fixed assets.............................. 1,848 -- --
Other..................................... 3,907 1,800 655
--------- --------- ---------
Total deferred assets.................. 90,200 105,900 92,800
Deferred tax asset valuation allowance.... (76,400) (95,100) (88,200)
--------- --------- ---------
Net deferred tax assets................ 13,800 10,800 4,600
--------- --------- ---------
Deferred Tax Liabilities:
Tax writeoffs and reserves................ (3,339) (3,329) (2,905)
Pension credits........................... (2,968) (128) --
Fixed assets.............................. (2,088) (2,785) (1,697)
Earnings of foreign subsidiaries expected
to be remitted......................... (558) (5,851) --
Other..................................... (2,547) (1,007) (1,298)
--------- --------- ---------
Total deferred liabilities............. (11,500) (13,100) (5,900)
--------- --------- ---------
Net deferred tax asset (liability)..... $ 2,300 $ (2,300) $ (1,300)
========= ========= =========
</TABLE>
As of March 31, 1997, the Company has net operating loss carryforwards
relating to domestic operations of approximately $9,900,000 (subject to
certain limitations relative to utilization) which
F-18
<PAGE> 121
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
expire through 2009 and Alternative Minimum Tax Credit carryforwards of
approximately $860,000 which can be carried forward indefinitely. The
Company's consolidated foreign subsidiaries have income tax loss
carryforwards aggregating approximately $79,000,000, a substantial portion
of which relates to certain Brazilian and German operations which do not
expire under current regulations. Due to significant uncertainties
surrounding the realization of certain loss carryforwards, the related
deferred tax assets have been substantially provided for in the valuation
allowances at March 31, 1997.
The adoption of fresh-start reporting will result in an increase of
additional paid-in capital, rather than an income tax benefit, as the
benefits relating to existing net operating loss carryforwards are
recognized in the future.
11. SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN TOTAL
ADDITIONAL CURRENCY RETAINED SHAREHOLDERS'
COMMON PAID-IN TRANSLATION EARNINGS EQUITY
STOCK CAPITAL ADJUSTMENT (DEFICIT) (DEFICIT)
------ --------- ----------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at January 1,
1994...................... $ 20 -- $ 12,124 $(29,133) $ (16,989)
Net loss.................... -- -- -- (1,991) (1,991)
Change in translation
adjustment................ -- -- 419 -- 419
------ --------- ----------- -------- -------------
Balance at December 31,
1994...................... 20 -- 12,543 (31,124) (18,561)
Net income.................. -- -- -- 1,665 1,665
Change in translation
adjustment................ -- -- (1,056) -- (1,056)
------ --------- ----------- -------- -------------
Balance at December 31,
1995...................... 20 -- 11,487 (29,459) (17,952)
Net loss.................... -- -- -- (28,495) (28,495)
Change in translation
adjustment................ -- -- 4,268 -- 4,268
------ --------- ----------- -------- -------------
Balance at December 31,
1996...................... 20 -- 15,755 (57,954) (42,179)
Net income (excluding
effects of the
consummation)............. -- -- -- 11,920 11,920
Change in translation
adjustment................ -- -- (1,224) -- (1,224)
Issuance of new common stock
and consummation
adjustments............... 30 $ 49,950 (14,531) 46,034 81,483
------ --------- ----------- -------- -------------
Balance at March 31, 1997... $ 50 $ 49,950 -- -- $ 50,000
======= ======== ========= ========= ===========
</TABLE>
Effective April 14, 1997, the Certificate of Incorporation of the Company
was amended, whereby the authorized number of shares of common stock was
increased to 15,000,000 shares with a par value of $.01 per share, and each
original outstanding share of common stock of the Company was canceled. In
addition, in accordance with the Plan, 4,706,406 shares were issued to
prepetition unsecured claimholders. The Company was subsequently merged
into a new corporation, organized
F-19
<PAGE> 122
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
under the laws of the State of Delaware, and all common shares then
outstanding were exchanged on a one-for-one basis for shares in the new
corporation.
On the Effective Date, the Company adopted the Metallurg, Inc. Management
Stock Award and Stock Option Plan (the "SASOP"), which is to be
administered by the Compensation Committee of the Board of Directors for a
term of 10 years. Under terms of the SASOP, the Board may grant stock
awards and stock options (including incentive stock options, nonqualified
stock options or a combination of both) to officers and key employees of
the Company. Under the SASOP, 500,000 shares of common stock were made
available for stock awards and stock options. Pursuant to the Plan, the
Board granted to eligible executives 250,000 shares of common stock (the
"Initial Stock Awards"). Twenty percent of each Initial Stock Award was
transferable on the date of grant and 40 percent will become transferable
on the first and second anniversary of the date of grant. Additionally, the
Board granted to eligible employees options to purchase 167,000 shares of
common stock at $11.38 (fair market value on the date of grant), effective
as of September 1, 1997. Such options vest 33 1/3% on the date of grant and
33 1/3% will vest on the first and second anniversary of the date of grant.
At December 31, 1996 and 1995, 10,000 shares of common stock were
authorized, of which 2,005 shares were outstanding. This stock had no par
value and a stated value of $10 per share. In addition, 300,000 shares of
preferred stock were authorized, having a par value of $100 per share, of
which no shares were outstanding at December 31, 1996 or 1995.
12. OTHER INCOME (EXPENSE), NET
Other income (expense), net consists of the following (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
FOR THE QUARTER 31,
ENDED MARCH 31, ------------------------------
1997 1996 1995 1994
-------------------- ------- ------- ------
<S> <C> <C> <C> <C>
Additional institutional
claims....................... $(1,706)
District 65 Pension Plan
claims....................... (5,050)
Prepetition environmental
claims....................... (3,791)
Net gain on asset sales........ $3,266 3,597 $ 1,971 $2,373
Other, net..................... (87) 191 (1,964) 5,104
------ ------- ------- ------
Total................ $3,179 $(6,759) $ 7 $7,477
====== ======= ======= ======
</TABLE>
During 1997, 1995 and 1994, Metallurg sold three of its commercial real
estate properties located in New York City in contemplation of the Plan.
Gains of $2,747,000, $765,000 and $2,185,000 are reflected in other income
in the quarter ended March 31, 1997 and the years ended December 31, 1995
and 1994, respectively.
Upon reaching settlement in 1996 with various prepetition creditors, the
District 65 Pension Plan and certain environmental regulatory authorities,
the Debtors recorded additional expenses of approximately $10,500,000 which
are discussed further in Notes 7 and 13.
During 1995, Turk Maadin Sirketi A.S., a Turkish chrome ore mining
operation, entered into an agreement to sell a parcel of land no longer in
productive use in an installment sale arrangement. As a result, gains on
this transaction of $3,787,000 in 1996 and $960,000 in 1995 have been
reflected in other income.
13. ENVIRONMENTAL LIABILITIES
SMC operates manufacturing facilities in Newfield, New Jersey and
Cambridge, Ohio which produce alloys and other specialty products. The
historical manufacture of several products at the two
F-20
<PAGE> 123
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
facilities has resulted in the production of various by-products which SMC
is obligated to clean up under Federal and state environmental laws and
regulations. These clean-up obligations are under the jurisdiction of the
United States Environmental Protection Agency, the New Jersey Department of
Environmental Protection, the Ohio Environmental Protection Agency, the
United States Nuclear Regulatory Commission ("NRC"), the United States
Department of Interior and the Ohio Department of Health. The Company has
also provided for certain estimated costs associated with its sites in
Germany and Brazil. Total environmental liabilities consist of the
following (in thousands):
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
AS OF MARCH 31, -------------------
1997 1996 1995
---------------- ------- -------
<S> <C> <C> <C>
Domestic:
SMC -- New Jersey............................ $ 32,584 $33,540 $ 9,721
SMC -- Ohio.................................. 12,264 12,600 4,622
------- ------- -------
44,848 46,140 14,343
Foreign........................................ 6,086 6,598 6,724
------- ------- -------
Total environmental liabilities.............. 50,934 52,738 21,067
Less: trust funds.............................. 2,799 8,727 8,287
------- ------- -------
Net environmental liabilities................ 48,135 44,011 12,780
Less: current portion.......................... 5,270 9,374 2,200
------- ------- -------
Environmental liabilities.................... $ 42,865 $34,637 $10,580
======= ======= =======
</TABLE>
SMC entered into Administrative Consent Orders ("ACO's") with the State of
New Jersey, dated October 5, 1988 and September 5, 1984, under which SMC,
as required, has conducted a remedial investigation and feasibility study
("RI/FS") of alternatives to remedy groundwater contamination at the
Newfield facility. The ACO's also require SMC to evaluate, and where
appropriate, remediate certain additional environmental conditions pursuant
to state laws and regulations. These activities include the closure of nine
wastewater lagoons, soil remediation, surface water and sediment clean up,
as well as miscellaneous operation and maintenance activities and onsite
controls. The Company accrued its best estimate of the associated costs
with respect to remedial activities at the site which it expects to
disburse over the next fifteen years. During 1995, $8,000,000 in a
prepetition letter of credit was drawn upon and deposited in a trust fund.
During 1997, remaining prepetition letters of credit, in the amount of
$8,200,000, were drawn upon and deposited in a trust fund. Subsequently,
pursuant to an agreement with the State of New Jersey, the Company was
permitted to withdraw cash from the environmental trust and substitute
letters of credit in an equivalent dollar amount. At March 31, 1997,
outstanding letters of credit issued as financial assurances in favor of
various environmental agencies total $21,400,000. The costs of providing
financial assurance over the term of the remediation activities have been
contemplated in the accrued amounts.
As a result of NRC-regulated manufacturing activities, slag piles have
accumulated at the Cambridge and Newfield sites which contain low levels of
naturally occurring radioactivity. As related production has ceased at the
Cambridge location, SMC is required to decommission the slag piles. SMC
obtained approval from the State of Ohio and is currently awaiting approval
from the NRC to stabilize and cap the slag piles in situ. As long as
production continues at the Newfield location, the NRC will allow the slag
pile to remain in place, subject to submission of a conceptual
decommissioning plan and financial assurance for implementation of that
plan. The Company's obligation for decommissioning costs for these sites is
partially assured by cash funds held in trust. As a condition
F-21
<PAGE> 124
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
precedent to consummation of the Plan, $1,500,000 in a prepetition letter
of credit, relating to both the Newfield and Cambridge facilities, was
drawn upon and deposited in a trust fund.
In 1987, SMC purchased the Cambridge manufacturing facility from Foote
Mineral Company. Cyprus Foote Mineral Company ("Cyprus Foote") is the
successor in interest to Foote. During 1995, SMC, Cyprus Foote and the
State of Ohio entered into a Consent Order for Permanent Injunction (the
"Consent Order") under which SMC and Cyprus Foote agreed to conduct an
RI/FS of the Cambridge site and the State of Ohio agreed to review such
information on an expedited basis and issue a Preferred Plan setting forth
a final remedy for the site. On December 16, 1996, the State of Ohio issued
its Preferred Plan and, subsequently, SMC and Cyprus Foote agreed to
perform remedial design and remedial action at the site. These activities
include remediation of slag piles, clean up of wetland soils and clean up
of on-site and off-site sediments. The Company has accrued its best
estimate of associated costs which it expects to substantially disburse
over the next 6 years. Cyprus Foote has agreed to provide financial
assurance of approximately $9,000,000 as required by the State of Ohio. SMC
has purchased an annuity contract which will provide for future payments
into the trust fund to cover certain of the estimated operation and
maintenance costs over the next 100 years.
The Company has also provided for certain estimated costs associated with
its sites in Germany and Brazil. The Company's German subsidiaries have
accrued environmental liabilities in the amounts of $5,611,000, $5,918,000
and $6,151,000 at March 31, 1997, December 31, 1996 and 1995, respectively,
to cover the costs of closing an off-site dump and for certain
environmental conditions at a subsidiary's Nuremburg site. In Brazil, costs
of $475,000, $506,000 and $573,000 have been accrued at March 31, 1997,
December 31, 1996 and 1995, respectively, to cover reclamation costs of the
closed mine sites.
14. CONTINGENT LIABILITIES
In addition to environmental matters which are discussed in Note 13, the
Company continues defending various claims and legal actions arising in the
normal course of business. Management believes, based on the advice of
counsel, that the outcome of such litigation will not have a material
adverse effect on the Company's consolidated financial position or results
of operations.
15. LEASES
The Company leases office space, facilities and equipment. The leases
generally provide that the Company pay the tax, insurance and maintenance
expenses related to the leased assets. At March 31, 1997, future minimum
lease payments required under noncancelable operating leases having
remaining lease terms in excess of one year are as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------------------------------------------
<S> <C>
1998............................................................. $1,038
1999............................................................. 1,005
2000............................................................. 883
2001............................................................. 763
2002............................................................. 696
Thereafter....................................................... 3,942
------
Total.................................................. $8,327
======
</TABLE>
F-22
<PAGE> 125
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Rent expense under operating leases for the quarter ended March 31, 1997
and the years ended December 31, 1996, 1995 and 1994 was $511,000,
$868,000, $815,000 and $813,000, respectively.
In December 1996, Metallurg entered into a fifteen year lease for its new
headquarters location. No rent payments are required for the first 15
months of the lease. Such rental concessions are being amortized over the
lease term on a straight-line basis.
16. SUBSEQUENT EVENTS
On June 23, 1997, LSM sold its office building located in Wimbledon, United
Kingdom, for proceeds of $1,180,000, which approximated book value. LSM
will lease these facilities for a term of five years at a cost of
approximately $74,000 per annum.
On November 25, 1997, Metallurg sold $100,000,000 principal amount of 11%
Senior Notes due 2007 (the "Senior Notes") to Salomon Brothers Inc and
BancBoston Securities Inc. (the "Initial Purchasers") pursuant to a
Purchase Agreement dated as of November 20, 1997. Metallurg and the Initial
Purchasers also entered into a Registration Agreement, dated as of November
20, 1997, whereby the Company agreed to file with the Securities and
Exchange Commission a registration statement with respect to an offer to
exchange the Senior Notes for notes of the Company with substantially
identical terms.
The proceeds received by Metallurg from the issuance of the Senior Notes
were used to fund an overall recapitalization of Metallurg, pursuant to
which Metallurg retired the 12% senior-secured notes, repaid the
outstanding balance on its German borrowings, retired the LSM term loan and
paid a cash dividend and dividend equivalent (aggregating approximately
$20,000,000) to the holders of Metallurg's common stock and stock options.
The balance of the net proceeds will be used for general corporate
purposes.
F-23
<PAGE> 126
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. SUPPLEMENTAL GUARANTOR INFORMATION
Under the terms of the Senior Notes, SMC, Metallurg Holdings Corporation,
Metallurg Services, Inc., and MIR (China), Inc. (collectively, the
"Guarantors"), wholly-owned subsidiaries of the Company, will fully and
unconditionally guarantee on a joint and several basis the Company's
obligations to pay principal, premium and interest in respect of the Senior
Notes due 2007. Management has determined that separate, full financial
statements of the Guarantors would not be material to potential investors
and, accordingly, such financial statements are not provided. Supplemental
financial information of the Guarantors is presented below:
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
METALLURG, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenue................... $10,578 $ 52,475 $ 117,652 $(25,118) $155,587
------- ------- -------- -------- --------
Operating costs and expenses:
Cost of sales................. 10,219 47,590 100,709 (24,458) 134,060
Selling, general and
administrative expenses.... 2,662 2,118 10,266 -- 15,046
------- ------- -------- -------- --------
Total operating costs and
expenses...................... 12,881 49,708 110,975 (24,458) 149,106
------- ------- -------- -------- --------
Operating income (loss)......... (2,303) 2,767 6,677 (660) 6,481
Other income (expense):
Other income (expense), net... (7,041) 9,903 317 -- 3,179
Reorganization expense, net... (1,698) (965) -- -- (2,663)
Fresh-start revaluation....... 5,769 (4,719) 4,057 -- 5,107
Interest income (expense),
net........................ (795) 554 (4) -- (245)
Equity in earnings of
subsidiaries............... (8,756) -- -- 8,756 --
Dividend income............... 8,423 -- -- (8,423) --
------- ------- -------- -------- --------
Income (loss) before income tax
provision and extraordinary
item.......................... (6,401) 7,540 11,047 (327) 11,859
Income tax provision
(benefit)..................... (241) 30 (2,852) -- (3,063)
------- ------- -------- -------- --------
Income (loss) before
extraordinary item............ (6,160) 7,510 13,899 (327) 14,922
Extraordinary item.............. 64,114 (17,036) (4,046) -- 43,032
------- ------- -------- -------- --------
Net income (loss)............... $57,954 $ (9,526) $ 9,853 $ (327) $ 57,954
======= ======= ======== ======== ========
</TABLE>
F-24
<PAGE> 127
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET AT MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
METALLURG, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents... $ 8,363 $ 1,645 $ 20,332 $ 30,340
Accounts and notes
receivable, net.......... 16,664 43,011 79,068 $ (44,593) 94,150
Inventories................. 4,300 31,900 75,733 (2,675) 109,258
Other assets................ 4,342 308 11,662 -- 16,312
Assets held for sale........ -- -- 1,180 -- 1,180
-------- -------- -------- --------- --------
Total current
assets............ 33,669 76,864 187,975 (47,268) 251,240
Investments -- intergroup..... 84,431 49,632 -- (134,063) --
Investments -- other.......... 244 -- 1,217 -- 1,461
Property, plant and equipment,
net......................... 828 6,967 31,112 -- 38,907
Other assets.................. (4,177) 1,586 16,740 (53) 14,096
-------- -------- -------- --------- --------
Total............... $ 114,995 $135,049 $ 237,044 $ (181,384) $305,704
======== ======== ======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt and current
portion of long-term
debt..................... $ 14,777 $ 14,777
Trade payables.............. $ 16,992 $ 17,708 56,386 $ (35,139) 55,947
Accrued expenses............ 6,389 4,517 14,445 -- 25,351
Loans
payable -- intergroup.... -- 1,353 18,101 (19,454) --
Other current liabilities... 236 5,429 6,184 -- 11,849
-------- -------- -------- --------- --------
Total current
liabilities....... 23,617 29,007 109,893 (54,593) 107,924
-------- -------- -------- --------- --------
Long-term liabilities:
Long-term debt.............. 39,461 -- 12,250 -- 51,711
Accrued pension liability... 522 1,621 38,947 -- 41,090
Environmental liabilities,
net...................... -- 36,949 5,916 -- 42,865
Other liabilities........... 1,395 -- 10,772 (53) 12,114
-------- -------- -------- --------- --------
Total long-term
liabilities....... 41,378 38,570 67,885 (53) 147,780
-------- -------- -------- --------- --------
Total liabilities... 64,995 67,577 177,778 (54,646) 255,704
-------- -------- -------- --------- --------
Shareholders' Equity:
Common stock outstanding.... 50 1,227 80,226 (81,453) 50
Additional paid-in
capital.................. 49,950 90,867 222 (91,089) 49,950
Cumulative foreign currency
translation adjustment... -- -- 21,704 (21,704) --
Retained (deficit)
earnings................. -- (24,622) (42,886) 67,508 --
-------- -------- -------- --------- --------
Shareholders' equity........ 50,000 67,472 59,266 (126,738) 50,000
-------- -------- -------- --------- --------
Total............... $ 114,995 $135,049 $ 237,044 $ (181,384) $305,704
======== ======== ======== ========= ========
</TABLE>
F-25
<PAGE> 128
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE QUARTER ENDED MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
METALLURG, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating
Activities................... $ (1,796) $ 7,677 $ 535 -- $ 6,416
-------- -------- -------- --------- --------
Cash Flows from Investing
Activities:
Additions to property, plant
and equipment, net........ (711) (311) (1,752) -- (2,774)
Proceeds from asset sales.... 4,215 -- 751 -- 4,966
Other, net................... -- -- (25) -- (25)
-------- -------- -------- --------- --------
Net cash provided by (used in)
investing activities......... 3,504 (311) (1,026) -- 2,167
-------- -------- -------- --------- --------
Cash Flows from Financing and
Reorganization Activities:
Cash distribution pursuant to
plan of reorganization.... (55,865) (3,501) -- -- (59,366)
Drawdown of prepetition
letters of credit......... 9,700 -- -- -- 9,700
Intergroup borrowings
(repayments).............. 2,088 (2,652) 564 -- --
Proceeds from long-term debt,
net....................... -- -- 8,100 -- 8,100
Net repayment of short-term
debt...................... -- -- 1,062 -- 1,062
Repayment of long-term
debt...................... -- -- (487) -- (487)
Dividends received (paid).... 9,423 -- (9,423) --
-------- -------- -------- --------- --------
Net cash used in financing and
reorganization activities.... (34,654) (6,153) (184) -- (40,991)
-------- -------- -------- --------- --------
Effects of exchange rate
changes on cash and cash
equivalents............... -- -- (526) -- (526)
-------- -------- -------- --------- --------
Net increase (decrease) in cash
and cash equivalents......... (32,946) 1,213 (1,201) -- (32,934)
Cash and cash equivalents --
beginning of quarter......... 41,309 432 21,533 -- 63,274
-------- -------- -------- --------- --------
Cash and cash equivalents --
end of quarter............... $ 8,363 $ 1,645 $ 20,332 -- $ 30,340
======== ======== ======== ========= ========
</TABLE>
F-26
<PAGE> 129
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
METALLURG, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenue................. $ 35,536 $199,864 $ 489,110 $ (74,508) $650,002
-------- -------- -------- -------- --------
Operating costs and expenses:
Cost of sales............... 33,640 185,827 420,929 (73,858) 566,538
Selling, general and
administrative
expenses................. 5,150 9,363 42,590 -- 57,103
Environmental expenses...... -- 35,176 2,406 -- 37,582
-------- -------- -------- -------- --------
Total operating costs and
expenses.................... 38,790 230,366 465,925 (73,858) 661,223
-------- -------- -------- -------- --------
Operating income (loss)....... (3,254) (30,502) 23,185 (650) (11,221)
Other income (expense):
Other income (expense),
net...................... (11,881) (9,897) 11,200 3,819 (6,759)
Interest income (expense),
net...................... 1,254 1,517 (1,298) -- 1,473
Reorganization expense...... (1,500) (2,035) -- -- (3,535)
Dividend income............. 6,091 -- -- (6,091) --
Equity in earnings of
subsidiaries............. (19,132) 231 -- 18,901 --
-------- -------- -------- -------- --------
Income (loss) before income
tax provision............... (28,422) (40,686) 33,087 15,979 (20,042)
Income tax provision.......... 73 128 8,252 -- 8,453
-------- -------- -------- -------- --------
Net income (loss)............. $ (28,495) $(40,814) $ 24,835 $ 15,979 $(28,495)
======== ======== ======== ======== ========
</TABLE>
F-27
<PAGE> 130
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET AT DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
METALLURG, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.... $ 41,309 $ 432 $ 21,533 $ 63,274
Accounts and notes
receivable, net........... 40,613 60,521 75,135 $ (87,674) 88,595
Inventories.................. 6,392 29,155 72,831 (2,015) 106,363
Other assets................. 3,996 255 10,064 -- 14,315
Assets held for sale......... 1,843 -- -- -- 1,843
-------- -------- -------- --------- --------
Total current
assets............. 94,153 90,363 179,563 (89,689) 274,390
Investments -- intergroup...... 52,622 -- -- (52,622) --
Investments -- other........... 1,530 -- 1,408 -- 2,938
Property, plant and equipment,
net.......................... 364 11,053 36,468 -- 47,885
Other assets................... 10,030 4,699 4,841 (13,157) 6,413
-------- -------- -------- --------- --------
Total................ $ 158,699 $106,115 $ 222,280 $ (155,468) $331,626
======== ======== ======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Short-term debt and current
portion of long-term
debt...................... $ 14,820 $ 14,820
Trade payables............... $ 22,296 $ 16,249 48,405 $ (38,686) 48,264
Accrued expenses............. 4,913 3,531 13,155 -- 21,599
Loans
payable -- intergroup..... -- 10,101 17,268 (27,369) --
Other current liabilities.... 235 9,501 7,237 (1,000) 15,973
-------- -------- -------- --------- --------
Total current
liabilities........ 27,444 39,382 100,885 (67,055) 100,656
-------- -------- -------- --------- --------
Long-term Liabilities:
Long-term debt............... -- -- 5,049 -- 5,049
Accrued pension liability.... 1,441 -- 42,485 -- 43,926
Environmental liabilities,
net....................... -- 28,213 6,424 -- 34,637
Other liabilities............ -- 8,727 9,690 (8,777) 9,640
-------- -------- -------- --------- --------
Total long-term
liabilities........ 1,441 36,940 63,648 (8,777) 93,252
-------- -------- -------- --------- --------
Liabilities Subject To
Compromise................... 171,993 42,902 -- (34,998) 179,897
-------- -------- -------- --------- --------
Total liabilities.... 200,878 119,224 164,533 (110,830) 373,805
-------- -------- -------- --------- --------
Shareholders' Equity (Deficit):
Common stock outstanding..... 20 1,987 80,424 (82,411) 20
Cumulative foreign currency
translation adjustment.... 15,755 -- 21,816 (21,816) 15,755
Retained earnings
(deficit)................. (57,954) (15,096) (44,493) 59,589 (57,954)
-------- -------- -------- --------- --------
Shareholders' equity
(deficit)................. (42,179) (13,109) 57,747 (44,638) (42,179)
-------- -------- -------- --------- --------
Total................ $ 158,699 $106,115 $ 222,280 $ (155,468) $331,626
======== ======== ======== ========= ========
</TABLE>
F-28
<PAGE> 131
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
METALLURG, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Cash Flows from Operating
Activities................... $ 1,922 $ 9,748 $ 35,995 -- $ 47,665
------- -------- -------- --------
Cash Flows from Investing
Activities:
Additions to property, plant
and equipment, net........ (90) (599) (8,842) -- (9,531)
Proceeds from asset sales.... -- 493 5,313 -- 5,806
Other, net................... (6,192) 25 4,873 -- (1,294)
------- -------- -------- --------
Net cash provided by (used in)
investing activities......... (6,282) (81) 1,344 -- (5,019)
------- -------- -------- --------
Cash Flows from Financing
Activities:
Intergroup borrowings
(repayments).............. 16,108 (10,223) (5,885) -- --
Net repayment of short-term
debt...................... -- -- (14,709) -- (14,709)
Repayment of long-term
debt...................... -- -- (1,408) -- (1,408)
Dividends received (paid).... 5,091 -- (5,091) -- --
------- -------- -------- --------
Net cash provided by (used in)
financing activities......... 21,199 (10,223) (27,093) -- (16,117)
------- -------- -------- --------
Effects of exchange rate
changes on cash and cash
equivalents............... -- -- (83) -- (83)
------- -------- -------- --------
Net increase (decrease) in cash
and cash equivalents......... 16,839 (556) 10,163 -- 26,446
Cash and cash equivalents --
beginning of year............ 24,470 988 11,370 -- 36,828
------- -------- -------- --------
Cash and cash equivalents --
end of year.................. $41,309 $ 432 $ 21,533 -- $ 63,274
======= ======== ======== ========
</TABLE>
F-29
<PAGE> 132
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
METALLURG, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenue.................. $40,858 $190,417 $ 534,687 $(76,598) $689,364
------- -------- -------- -------- --------
Operating costs and expenses:
Cost of sales................ 39,385 170,504 470,244 (76,598) 603,535
Selling, general and
administrative expenses... 4,600 8,745 39,497 -- 52,842
Environmental expenses....... -- 1,657 415 -- 2,072
Restructuring charges........ -- -- 15,210 -- 15,210
------- -------- -------- -------- --------
Total operating costs and
expenses..................... 43,985 180,906 525,366 (76,598) 673,659
------- -------- -------- -------- --------
Operating income (loss)........ (3,127) 9,511 9,321 -- 15,705
Other income (expense):
Other income (expense),
net....................... 1,270 (339) (924) -- 7
Interest income (expense),
net....................... 900 1,026 (3,875) -- (1,949)
Reorganization expense....... (1,615) (2,312) -- -- (3,927)
Equity in earnings of
subsidiaries.............. (3,095) 1,203 -- 1,892 --
Dividend income.............. 6,407 -- -- (6,407) --
------- -------- -------- -------- --------
Income (loss) before income tax
provision.................... 740 9,089 4,522 (4,515) 9,836
Income tax provision
(benefit).................... (925) 308 8,788 -- 8,171
------- -------- -------- -------- --------
Net income (loss).............. $ 1,665 $ 8,781 $ (4,266) $ (4,515) $ 1,665
======= ======== ======== ======== ========
</TABLE>
F-30
<PAGE> 133
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
METALLURG, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents..... $ 24,470 $ 988 $ 11,370 $ 36,828
Accounts and notes receivable,
net........................ 53,679 50,568 80,603 $ (83,613) 101,237
Inventories................... 7,068 30,432 92,914 (1,365) 129,049
Other assets.................. 4,514 254 10,620 -- 15,388
-------- -------- -------- --------- --------
Total current
assets.............. 89,731 82,242 195,507 (84,978) 282,502
Investments -- intergroup....... 61,282 657 -- (61,939) --
Investments -- other............ 2,459 -- 599 -- 3,058
Property, plant and equipment,
net........................... 1,033 13,599 38,884 -- 53,516
Other assets.................... 12,446 4,047 2,241 (15,200) 3,534
-------- -------- -------- --------- --------
Total................. $ 166,951 $100,545 $ 237,231 $ (162,117) $342,610
======== ======== ======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Short-term debt and current
portion of long-term
debt....................... $ 30,652 $ 30,652
Trade payables................ $ 10,463 $ 10,286 51,592 $ (22,425) 49,916
Accrued expenses.............. 3,012 3,375 20,194 -- 26,581
Loans payable -- intergroup... -- 10,051 20,350 (30,401) --
Other current liabilities..... -- 2,381 6,149 -- 8,530
-------- -------- -------- --------- --------
Total current
liabilities......... 13,475 26,093 128,937 (52,826) 115,679
-------- -------- -------- --------- --------
Long-term Liabilities:
Long-term debt................ -- -- 6,973 -- 6,973
Accrued pension liability..... 1,287 389 45,733 -- 47,409
Environmental liabilities,
net........................ -- 3,856 6,724 -- 10,580
Other liabilities............. 28 8,287 13,240 (11,153) 10,402
-------- -------- -------- --------- --------
Total long-term
liabilities......... 1,315 12,532 72,670 (11,153) 75,364
-------- -------- -------- --------- --------
Liabilities Subject to
Compromise.................... 170,113 34,240 -- (34,834) 169,519
-------- -------- -------- --------- --------
Total liabilities..... 184,903 72,865 201,607 (98,813) 360,562
-------- -------- -------- --------- --------
Shareholders' Equity (Deficit):
Common stock outstanding...... 20 1,962 76,933 (78,895) 20
Cumulative foreign currency
translation adjustment..... 11,487 -- 11,445 (11,445) 11,487
Retained earnings (deficit)... (29,459) 25,718 (52,754) 27,036 (29,459)
-------- -------- -------- --------- --------
Shareholders' equity
(deficit).................. (17,952) 27,680 35,624 (63,304) (17,952)
-------- -------- -------- --------- --------
Total................. $ 166,951 $100,545 $ 237,231 $ (162,117) $342,610
======== ======== ======== ========= ========
</TABLE>
F-31
<PAGE> 134
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
METALLURG, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Cash Flows from Operating
Activities.................... $ (2,571) $ (1,685) $ 9,914 -- $ 5,658
------- ------- ------- ------ -------
Cash Flows from Investing
Activities:
Additions to property, plant
and equipment, net......... (116) (1,461) (5,135) -- (6,712)
Proceeds from asset sales..... 940 54 1,669 -- 2,663
Other, net.................... -- -- 104 -- 104
------- ------- ------- ------ -------
Net cash provided by (used in)
investing activities.......... 824 (1,407) (3,362) -- (3,945)
------- ------- ------- ------ -------
Cash Flows from Financing
Activities:
Drawdown of prepetition
letters of credit.......... 8,000 -- -- -- 8,000
Intergroup borrowings
(repayments)............... (1,107) 2,175 (1,068) -- --
Net repayment of short-term
debt....................... -- -- 420 -- 420
Repayment of long-term debt... -- -- (2,238) -- (2,238)
Dividends received (paid)..... 6,407 -- (6,407) -- --
------- ------- ------- ------ -------
Net cash provided by (used in)
financing activities.......... 13,300 2,175 (9,293) -- 6,182
------- ------- ------- ------ -------
Effects of exchange rate
changes on cash and cash
equivalents................ -- -- 774 -- 774
------- ------- ------- ------ -------
Net increase (decrease) in cash
and cash equivalents.......... 11,553 (917) (1,967) -- 8,669
Cash and cash equivalents --
beginning of year............. 12,917 1,905 13,337 -- 28,159
------- ------- ------- ------ -------
Cash and cash equivalents -- end
of year....................... $ 24,470 $ 988 $11,370 -- $ 36,828
======= ======= ======= ====== =======
</TABLE>
F-32
<PAGE> 135
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
METALLURG, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenue.............. $66,572 $163,255 $ 414,612 $(90,122) $554,317
--------------- ------------ ------------- ------------ ------------
Operating costs and
expenses:
Cost of sales............ 64,644 150,289 371,407 (90,122) 496,218
Selling, general and
administrative
expenses.............. 4,574 8,593 37,485 -- 50,652
Environmental expenses... -- 1,784 298 -- 2,082
Restructuring charges.... -- 343 2,310 -- 2,653
--------------- ------------ ------------- ------------ ------------
Total operating costs and
expenses................. 69,218 161,009 411,500 (90,122) 551,605
--------------- ------------ ------------- ------------ ------------
Operating income (loss).... (2,646) 2,246 3,112 -- 2,712
Other income (expense):
Other income (expense),
net................... 1,531 (159) 2,578 3,527 7,477
Interest income
(expense), net........ 469 268 (3,292) -- (2,555)
Reorganization expense... (3,163) (3,955) (7,118)
Dividend income.......... 3,785 -- -- (3,785) --
Equity in earnings of
subsidiaries.......... (3,612) 150 -- 3,462 --
--------------- ------------ ------------- ------------ ------------
Income (loss) before income
tax provision............ (3,636) (1,450) 2,398 3,204 516
Income tax provision
(benefit)................ (1,645) 143 4,009 -- 2,507
--------------- ------------ ------------- ------------ ------------
Net income (loss).......... $(1,991) $ (1,593) $ (1,611) $ 3,204 $ (1,991)
=========== ========== ============ ========== ==========
</TABLE>
F-33
<PAGE> 136
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
METALLURG, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Cash Flows from Operating
Activities................... $ 309 $ 4,006 $(4,904) -- $ (589)
------- ------ ------- ------ -------
Cash Flows from Investing
Activities:
Additions to property, plant
and equipment, net........ (324) (401) (6,841) -- (7,566)
Proceeds from asset sales.... 2,690 90 1,063 -- 3,843
Other, net................... 1,055 (1,055) 23 -- 23
------- ------ ------- ------ -------
Net cash provided by (used in)
investing activities......... 3,421 (1,366) (5,755) -- (3,700)
------- ------ ------- ------ -------
Cash Flows from Financing
Activities:
Intergroup borrowings
(repayments).............. 576 (1,998) 1,422 -- --
Proceeds from long-term debt,
net....................... -- -- 2,731 -- 2,731
Net repayment of short-term
debt...................... -- -- 1,077 -- 1,077
Repayment of long-term
debt...................... -- -- (135) -- (135)
------- ------ ------- ------ -------
Net cash provided by (used in)
financing activities......... 576 (1,998) 5,095 -- 3,673
------- ------ ------- ------ -------
Effects of exchange rate
changes on cash and cash
equivalents............... -- -- 110 -- 110
------- ------ ------- ------ -------
Net increase (decrease) in cash
and cash equivalents......... 4,306 642 (5,454) -- (506)
Cash and cash equivalents --
beginning of year............ 8,611 1,263 18,791 -- 28,665
------- ------ ------- ------ -------
Cash and cash equivalents --
end of year.................. $12,917 $ 1,905 $13,337 -- $ 28,159
======= ====== ======= ====== =======
</TABLE>
F-34
<PAGE> 137
UNAUDITED FINANCIAL STATEMENTS
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
REORGANIZED PREDECESSOR PREDECESSOR COMPANY
COMPANY COMPANY ---------------------------------
------------- -------------- THREE MONTHS SIX MONTHS
QUARTER QUARTER ENDED ENDED
ENDED ENDED JUNE 30, JUNE 30,
JULY 31, 1997 MARCH 31, 1997 1996 1996
------------- -------------- ------------ ----------------
<S> <C> <C> <C> <C>
Total revenue.................... $ 166,879 $155,587 $184,933 $331,755
-------- -------- -------- --------
Operating costs and expenses:
Cost of sales.................. 142,135 134,060 163,003 288,675
Selling, general and
administrative expenses..... 14,427 15,046 13,094 27,375
Other operating expenses....... -- -- 914 1,160
-------- -------- -------- --------
Total operating costs and
expenses.................. 156,562 149,106 177,011 317,210
-------- -------- -------- --------
Operating income.......... 10,317 6,481 7,922 14,545
Other income (expense):
Other income (expense), net.... (76) 3,179 1,765 3,420
Interest income (expense),
net......................... (1,479) (245) 701 247
Reorganization expense......... -- (2,663) (820) (1,430)
Fresh-start revaluation........ -- 5,107 -- --
-------- -------- -------- --------
Income before income tax
provision and extraordinary
item........................... 8,762 11,859 9,568 16,782
Income tax provision (benefit)... 5,111 (3,063) 2,695 5,344
-------- -------- -------- --------
Income before extraordinary
item........................... 3,651 14,922 6,873 11,438
Extraordinary item, net of tax... -- 43,032 -- --
-------- -------- -------- --------
Net income....................... $ 3,651 $ 57,954 $ 6,873 $ 11,438
======== ======== ======== ========
Pro forma common shares and
common share equivalents....... 4,956 4,956 4,956 4,956
Pro forma earnings per common
share:
Income before extraordinary
item........................... $ 0.74 $ 3.01 $ 1.39 $ 2.31
Extraordinary item, net of tax... -- 8.68 -- --
-------- -------- -------- --------
Net income....................... $ 0.74 $ 11.69 $ 1.39 $ 2.31
======== ======== ======== ========
</TABLE>
See notes to condensed unaudited consolidated financial statements.
F-35
<PAGE> 138
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
REORGANIZED COMPANY COMPANY
-------------------------- ------------
JULY 31, MARCH 31, DECEMBER 31,
1997 1997 1996
------------ --------- ------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......................... $ 29,163 $ 30,340 $ 63,274
Accounts and notes receivable, net................. 85,277 94,150 88,595
Inventories........................................ 117,002 109,258 106,363
Other assets....................................... 14,471 17,492 16,158
-------- -------- --------
Total current assets....................... 245,913 251,240 274,390
Property, plant and equipment, net................... 40,210 38,907 47,885
Other assets......................................... 13,693 15,557 9,351
-------- -------- --------
Total...................................... $299,816 $ 305,704 $331,626
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Short-term debt and current portion of long-term
debt............................................ $ 12,482 $ 14,777 $ 14,820
Trade payables..................................... 52,583 55,947 48,264
Accrued expenses................................... 19,861 25,351 21,599
Other current liabilities.......................... 12,435 11,849 15,973
-------- -------- --------
Total current liabilities.................. 97,361 107,924 100,656
-------- -------- --------
Long-term Liabilities:
Long-term debt..................................... 51,822 51,711 5,049
Accrued pension liabilities........................ 39,623 41,090 43,926
Environmental liabilities, net..................... 42,641 42,865 34,637
Other liabilities.................................. 11,988 12,114 9,640
-------- -------- --------
Total long-term liabilities................ 146,074 147,780 93,252
-------- -------- --------
Liabilities Subject to Compromise.................... -- -- 179,897
-------- -------- --------
Total liabilities.......................... 243,435 255,704 373,805
-------- -------- --------
Shareholders' Equity (Deficit)
Common stock....................................... 50 50 20
Additional paid-in capital......................... 51,435 49,950 --
Cumulative foreign currency translation
adjustment...................................... 1,245 -- 15,755
Retained earnings (deficit)........................ 3,651 -- (57,954)
-------- -------- --------
Total shareholders' equity (deficit)....... 56,381 50,000 (42,179)
-------- -------- --------
Total...................................... $299,816 $ 305,704 $331,626
======== ======== ========
</TABLE>
See notes to condensed unaudited consolidated financial statements.
F-36
<PAGE> 139
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
REORGANIZED PREDECESSOR PREDECESSOR COMPANY
COMPANY COMPANY -----------------------------
------------- -------------- THREE MONTHS
QUARTER QUARTER ENDED SIX MONTHS
ENDED ENDED JUNE 30, ENDED
JULY 31, 1997 MARCH 31, 1997 1996 JUNE 30, 1996
------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $ 3,651 $ 57,954 $ 6,873 $11,438
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Executive stock awards.............................. 500 500 -- --
Extraordinary item.................................. -- (43,032) -- --
Fresh-start revaluation............................. -- (5,107) -- --
Depreciation and amortization....................... 1,962 2,143 2,332 4,746
Gain on sales of assets............................. (6) (3,266) (1,341) (3,264)
Reorganization expense, net of payments............. (3,989) 1,538 630 795
Deferred income taxes............................... 1,661 (3,767) -- --
Provision for doubtful accounts..................... 61 162 118 237
Provision for environmental costs, net of
payments.......................................... (393) (256) (822) (1,394)
Other, net.......................................... 1,628 3,057 (9,143) (8,251)
------- -------- ------- -------
Total............................................. 5,075 9,926 (1,353) 4,307
Change in operating assets and liabilities:
Decrease (increase) in trade receivables............ 8,032 (20,272) 6,890 3,034
(Increase) decrease in inventories.................. (8,953) (6,120) 4,591 14,117
Decrease (increase) in other current assets......... 1,769 (355) (2,957) (1,981)
(Decrease) increase in trade payables and accrued
expenses.......................................... (2,890) 18,895 8,776 11,701
Decrease in prepetition liabilities................. -- (39) (52) (106)
Receipt from environmental trust, net............... -- 5,928 -- --
Other assets and liabilities, net................... (523) (1,547) (1,583) (1,877)
------- -------- ------- -------
Net cash provided by operating activities......... 2,510 6,416 14,312 29,195
------- -------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment, net..... (3,309) (2,774) (1,654) (2,668)
Proceeds from asset sales........................... 1,205 4,966 1,858 3,967
Other, net.......................................... 33 (25) (22) 34
------- -------- ------- -------
Net cash (used in) provided by investing
activities..................................... (2,071) 2,167 182 1,333
------- -------- ------- -------
CASH FLOWS FROM FINANCING AND REORGANIZATION
ACTIVITIES:
Cash distribution pursuant to plan of
reorganization.................................... -- (59,366) -- --
Drawdown of prepetition letters of credit........... -- 9,700 -- --
Proceeds from long-term debt, net................... -- 8,100 -- --
Net borrowing (repayment) of short-term debt........ (1,608) 1,062 (4,475) (8,575)
Repayment of long-term debt......................... (83) (487) (203) (727)
------- -------- ------- -------
Net cash used in financing and reorganization
activities..................................... (1,691) (40,991) (4,678) (9,302)
------- -------- ------- -------
Effects of exchange rate changes on cash and cash
equivalents......................................... 75 (526) (257) (380)
------- -------- ------- -------
Net (decrease) increase in cash and cash
equivalents.................................... (1,177) (32,934) 9,559 20,846
Cash and cash equivalents -- beginning of period...... 30,340 63,274 48,115 36,828
------- -------- ------- -------
Cash and cash equivalents -- end of period............ $29,163 $ 30,340 $ 57,674 $57,674
======= ======== ======= =======
</TABLE>
See notes to condensed unaudited consolidated financial statements.
F-37
<PAGE> 140
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed unaudited consolidated financial statements
include the accounts of Metallurg, Inc. ("Metallurg") and its majority-owned
subsidiaries (collectively, the "Company"). These financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information pursuant to Accounting Principles Board
Opinion No. 28. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The condensed consolidated balance sheets as of March
31, 1997 and December 31, 1996 and the related condensed statements of
consolidated operations and of consolidated cash flows for the quarter ended
March 31, 1997 were derived from audited financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been
included. Operating results for the interim periods presented are not
necessarily indicative of the results to be expected for a full year.
On February 26, 1997, the Fourth Amended and Restated Joint Plan of
Reorganization (the "Plan") of Metallurg and one of its subsidiaries,
Shieldalloy Metallurgical Corporation, was confirmed by the U.S. Bankruptcy
Court. Transactions contemplated by the Plan were consummated on April 14,
1997, the effective date. For financial reporting purposes, the Company has
reflected the effects of the Plan consummation as of March 31, 1997. As a
result of the consummation of the Plan and the adoption of fresh-start
reporting under the American Institute of Certified Public Accountants'
Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code," the Company was required to
report its financial results for the period ending July 31, 1997 in two
separate periods. One period contains financial statements for the quarter
ended March 31, 1997, which includes the effects of the adoption of
fresh-start reporting and consummation of the Plan and is referred to as the
"Predecessor Company." The other period contains financial statements for
the quarter ended July 31, 1997 for the reorganized Company. The financial
statements of the Company after consummation of the Plan are not comparable
to the Company's financial statements of prior periods and accordingly, a
black line has been used to separate the periods.
For further information, see the financial statements and footnotes thereto
included in the Company's audited consolidated financial statements for the
quarter ended March 31, 1997 and the year ended December 31, 1996.
Effective April 1, 1997, the Company changed the reporting period of
Metallurg from a calendar year ending December 31 to a fiscal year ending
January 31 and has begun reporting the results of its operating subsidiaries
on a one-month lag to facilitate financial reporting capabilities for its
worldwide consolidation. Accordingly, the quarter ended July 31, 1997
includes three months of worldwide operating results plus, in this
transitional period, an additional month of operating results of Metallurg,
the parent holding company, in the amount of an $803,000 loss.
F-38
<PAGE> 141
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. INVENTORIES
Inventories, net of reserves, consist of the following (in thousands):
<TABLE>
<CAPTION>
JULY 31, DECEMBER 31,
1997 1996
-------- ------------
<S> <C> <C>
Raw materials............................................... $ 22,577 $ 25,181
Work in process............................................. 2,198 2,237
Finished goods.............................................. 87,807 75,478
Other....................................................... 4,420 3,467
-------- --------
Total............................................. $117,002 $106,363
======== ========
</TABLE>
3. INCOME TAXES
The Company's income tax provision for the fiscal quarter ended July 31,
1997 approximated $5,111,000. The differences between the statutory Federal
income tax rate and the Company's effective rate results primarily because
of: (i) the excess of foreign tax rates over the statutory Federal income
tax rate; (ii) certain deductible temporary differences which, in other
circumstances would have generated a deferred tax benefit, have been fully
provided for in a valuation allowance; (iii) the deferred tax effects of
certain tax assets, primarily foreign NOL's, for which the benefit had been
previously recognized approximating $1,989,000; and (iv) the deferred tax
effects of certain deferred tax assets for which a corresponding credit has
been recorded to "Additional paid-in capital" approximating $985,000. The
deferred tax expenses referred to in items (iii) and (iv) above will not
result in cash payments in future periods.
4. COMMITMENTS AND CONTINGENCIES
The Company continues defending various claims and legal actions arising in
the normal course of business, including those relating to environmental
matters. Management believes, based on the advice of counsel, that the
outcome of such litigation will not have a material adverse effect on the
Company's consolidated financial statements.
5. NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting
Comprehensive Income." This statement is effective for financial statements
issued for periods ending after December 15, 1997. Management has evaluated
the effect on its financial reporting from the adoption of this statement
and has found the majority of required disclosures to be not applicable and
the remainder to be not significant.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS No. 131 requires the reporting of
profit and loss, specific revenue and expense items, and assets for
reportable segments. It also requires the reconciliation of total segment
revenues, total segment profit or loss, total segment assets, and other
amounts disclosed for segments to the corresponding amounts in the general
purpose financial statements. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997. Management has not yet determined what
additional disclosures may be required in connection with adopting SFAS No.
131.
F-39
<PAGE> 142
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. SUPPLEMENTAL GUARANTOR INFORMATION
Under the terms of the Senior Notes, SMC, Metallurg Holdings Corporation,
Metallurg Services, Inc., and MIR (China), Inc. (collectively, the
"Guarantors"), wholly-owned subsidiaries of the Company, will fully and
unconditionally guarantee on a joint and several basis the Company's
obligations to pay principal, premium and interest in respect of the Senior
Notes due 2007. Management has determined that separate, full financial
statements of the Guarantors would not be material to potential investors
and, accordingly, such financial statements are not provided. Supplemental
financial information of the Guarantors is presented below:
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED JULY 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
METALLURG, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenue.................. $18,740 $ 52,006 $ 127,459 $(31,326) $166,879
-------- -------- -------- --------- --------
Operating costs and expenses:
Cost of sales................ 17,463 46,704 108,224 (30,256) 142,135
Selling, general and
administrative expenses... 2,552 2,452 9,423 -- 14,427
-------- -------- -------- --------- --------
Total operating costs and
expenses..................... 20,015 49,156 117,647 (30,256) 156,562
-------- -------- -------- --------- --------
Operating income (loss)........ (1,275) 2,850 9,812 (1,070) 10,317
Other income (expense):
Other income (expense),
net....................... 23 (17) (82) -- (76)
Interest income (expense),
net....................... (1,427) 301 (353) -- (1,479)
Equity in earnings of
subsidiaries.............. 5,755 1,880 -- (7,635) --
-------- -------- -------- --------- --------
Income before income tax
provision.................... 3,076 5,014 9,377 (8,705) 8,762
Income tax provision
(benefit).................... (575) 1,081 4,605 -- 5,111
-------- -------- -------- --------- --------
Net income..................... $ 3,651 $ 3,933 $ 4,772 $ (8,705) $ 3,651
======== ======== ======== ========= ========
</TABLE>
F-40
<PAGE> 143
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET AT JULY 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
METALLURG, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.... $ 3,860 $ 3,109 $ 22,194 $ 29,163
Accounts and notes
receivable, net........... 18,680 41,028 75,998 $ (50,429) 85,277
Inventories.................. 5,353 39,802 75,592 (3,745) 117,002
Other assets................. 4,523 237 9,711 -- 14,471
-------- -------- -------- --------- --------
Total current
assets............. 32,416 84,176 183,495 (54,174) 245,913
Investments -- intergroup...... 89,410 50,400 (568) (139,242) --
Investments -- other........... 244 -- 1,278 -- 1,522
Property, plant and equipment,
net.......................... 914 6,814 32,482 -- 40,210
Other assets................... (3,735) 1,586 14,372 (52) 12,171
-------- -------- -------- --------- --------
Total................ $ 119,249 $142,976 $ 231,059 $ (193,468) $299,816
======== ======== ======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt and current
portion of long-term
debt...................... $ 12,482 $ 12,482
Trade payables............... $ 1,569 $ 22,724 51,881 $ (23,591) 52,583
Accrued expenses............. 2,161 4,505 13,195 -- 19,861
Loans
payable -- intergroup..... 17,175 1,618 18,045 (36,838) --
Other current liabilities.... 636 5,054 6,745 -- 12,435
-------- -------- -------- --------- --------
Total current
liabilities........ 21,541 33,901 102,348 (60,429) 97,361
-------- -------- -------- --------- --------
Long-term Liabilities:
Long-term debt............... 39,461 -- 12,361 -- 51,822
Accrued pension
liabilities............... 471 1,745 37,407 -- 39,623
Environmental liabilities,
net....................... -- 36,987 5,654 -- 42,641
Other liabilities............ 1,395 -- 10,645 (52) 11,988
-------- -------- -------- --------- --------
Total long-term
liabilities........ 41,327 38,732 66,067 (52) 146,074
-------- -------- -------- --------- --------
Total liabilities.... 62,868 72,633 168,415 (60,481) 243,435
-------- -------- -------- --------- --------
Shareholders' Equity:
Common stock outstanding..... 50 1,227 80,226 (81,453) 50
Additional paid-in capital... 51,435 90,867 222 (91,089) 51,435
Cumulative foreign currency
translation adjustment.... 1,245 1,188 22,949 (24,137) 1,245
Retained earnings
(deficit)................. 3,651 (22,939) (40,753) 63,692 3,651
-------- -------- -------- --------- --------
Shareholders' equity......... 56,381 70,343 62,644 (132,987) 56,381
-------- -------- -------- --------- --------
Total................ $ 119,249 $142,976 $ 231,059 $ (193,468) $299,816
======== ======== ======== ========= ========
</TABLE>
F-41
<PAGE> 144
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE QUARTER ENDED JULY 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
METALLURG, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Cash Flows from Operating
Activities................... $(7,062) $2,720 $ 7,556 $ (704) $ 2,510
------- ------ ------- ----- -------
Cash Flows from Investing
Activities:
Additions to property, plant
and equipment, net........ (137) (279) (2,893) -- (3,309)
Proceeds from asset sales.... 8 1,197 -- 1,205
Other, net................... 31 -- 2 -- 33
------- ------ ------- ----- -------
Net cash used in investing
activities................... (106) (271) (1,694) -- (2,071)
------- ------ ------- ----- -------
Cash Flows from Financing
Activities:
Intergroup borrowings
(repayments)............ 27 (985) 254 704 --
Net repayment of
short-term debt......... -- -- (1,608) -- (1,608)
Repayment of long-term
debt.................... -- -- (83) -- (83)
Dividends received
(paid).................. 2,638 -- (2,638) -- --
------- ------ ------- ----- -------
Net cash provided by (used in)
financing activities......... 2,665 (985) (4,075) 704 (1,691)
------- ------ ------- ----- -------
Effects of exchange rate
changes on cash and cash
equivalents............... -- -- 75 -- 75
------- ------ ------- ----- -------
Net increase (decrease) in cash
and cash equivalents......... (4,503) 1,464 1,862 -- (1,177)
Cash and cash equivalents --
beginning of quarter......... 8,363 1,645 20,332 -- 30,340
------- ------ ------- ----- -------
Cash and cash equivalents --
end of quarter............... $ 3,860 $3,109 $22,194 $ -- $ 29,163
======= ====== ======= ===== =======
</TABLE>
F-42
<PAGE> 145
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE INITIAL PURCHASERS. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE AN OFFER OR SOLICITATION.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information................. 2
Prospectus Summary.................... 3
Forward Looking Statements............ 16
Risk Factors.......................... 16
The Exchange Offer.................... 23
Capitalization........................ 31
Pro Forma Financial Information....... 32
Selected Financial Data............... 38
Management's Discussions and Analysis
of Financial Condition and Results
of Operations....................... 41
Business.............................. 48
Management............................ 61
Principal Stockholders................ 68
Certain Transactions.................. 70
Description of Credit Facilities and
Other Financing Arrangements........ 70
Description of the New Notes.......... 73
Plan of Distribution.................. 102
Legal Matters......................... 103
Experts............................... 103
Index to Financial Statements......... F-1
</TABLE>
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW
NOTES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
$100,000,000
METALLURG, INC.
OFFER TO EXCHANGE 11% SERIES B
SENIOR NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT FOR ANY AND ALL
OUTSTANDING 11% SERIES A
SENIOR NOTES DUE 2007
[METALLURG, INC. LOGO]
PROSPECTUS
DATED , 1997
<PAGE> 146
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to Section 102(b)(7) of the Delaware General Corporation
Law (the "DGCL"), which enables a corporation in its original certificate of
incorporation or an amendment thereto to eliminate or limit the personal
liability of a director for violations of the director's fiduciary duty, except
(i) for any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) pursuant to Section
174 of the DGCL (providing for liability of directors for the unlawful payment
of dividends or unlawful stock purchases or redemptions) or (iv) for any
transaction from which a director derived an improper personal benefit.
Section 145 of the DGCL empowers the Company to indemnify, subject to the
standards set forth therein, any person in connection with any action, suit or
proceeding brought before or threatened by reason of the fact that the person
was a director, officer, employee or agent of such company, or is or was serving
as such with respect to another entity at the request of such company. The DGCL
also provides that the Company may purchase insurance of behalf of any such
director, officer, employee or agent.
The Company's Certificate of Incorporation provides in effect for the
indemnification by the Company of each director and officer of the Company to
the fullest extent permitted by applicable law.
ITEM 21. EXHIBITS AND FINANCIAL SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
<C> <S>
1.1 Purchase Agreement, dated as of November 20, 1997, by and among Metallurg, Inc. (the
"Company"), Shieldalloy Metallurgical Corporation ("Shieldalloy"), Metallurg
Holdings Corporation, Metallurg Services, Inc. and MIR (China), Inc. (collectively,
the "Guarantors") and Salomon Brothers Inc and BancBoston Securities Inc. (the
"Initial Purchasers").*
3.1 Certificate of Incorporation of the Company.*
3.2 By-laws of the Company.*
3.3 Certificate of Incorporation of Shieldalloy.*
3.4 By-laws of Shieldalloy.*
3.5 Certificate of Incorporation of Metallurg Holdings Corporation.*
3.6 By-laws of Metallurg Holdings Corporation.*
3.7 Certificate of Incorporation of Metallurg Services, Inc.*
3.8 By-laws of Metallurg Services, Inc.*
3.9 Certificate of Incorporation of MIR (China), Inc.*
3.10 By-laws of MIR (China), Inc.*
4.1 Indenture, dated as of November 25, 1997, by and among the Company, the Guarantors
and IBJ Schroder Bank & Trust Company (the "Trustee").*
4.2 Form of 11% Series A and Series B Senior Notes due 2007, dated as of November 25,
1997 (incorporated by reference to Exhibit 4.1).*
4.3 Registration Agreement, dated as of November 20, 1997, by and among the Company, the
Guarantors and the Initial Purchasers.*
5.1 Opinion of Rogers & Wells.*
</TABLE>
II-1
<PAGE> 147
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
<C> <S>
10.1 Loan Agreement dated April 14, 1997 among Metallurg, Inc. and Shieldalloy
Metallurgical Corporation as borrowers, Metallurg Services, Inc., MIR (China), Inc.
and Metallurg Holdings Corporation, as Guarantors and BankBoston, N.A. as Agent for
the lending institutions, as amended by the First, Second and Third Amendments
thereto.*
10.2 German Loan Agreement, dated October 20, 1997, by and among GfE Gesellschaft fur
Elektrometallurgic GmbH, GfE Umwelttechnik GmbH, GfE Giessrei und Stahlwerksbedarf,
GfE Metalle und Metarielien and Keramed Medizintechnik GmbH and BankBoston, N.A.
acting through its Frankfurt, Germany branch.*
10.3 Joint Disclosure Statement for the Fourth Amended and Restated Joint Plan of
Reorganization dated December 18, 1996 (incorporated herein by reference to Exhibit
T3E.1 to the Form T-3 filed by the Company with the Securities and Exchange
Commission on March 21, 1997 (File No. 022-22265)).
10.4 Supplement to Joint Disclosure Statement for the Fourth Amended and Restated Joint
Plan of Reorganization dated December 18, 1996 (incorporated herein by reference to
Exhibit T3E.3 to the Form T-3 filed by the Company with the Securities and Exchange
Commission on March 21, 1997 (File No. 022-22265).
10.5 Settlement Agreement dated December 27, 1996 between MI, SMC, the Environmental
Protection Agency, the Department of the Interior, the Nuclear Regulatory Commission
and the New Jersey Department of Environmental Protection.*
10.6 Permanent Injunction Consent Order dated December 23, 1996 between the State of
Ohio, SMC, and Cyprus Foote Mineral Company.*
10.7 Registration Rights Agreement dated April 14, 1997 among the Company and certain
holders of the Company's common stock.*
10.8 1997 Stock Award and Stock Option Plan.*
10.9 Management Incentive Compensation Plan.*
10.10 EWW Agreement with PSV and additions dated March 7, 1994.*
10.11 Employment Agreements dated April 14, 1997 with Michael A. Standen, Michael A.
Banks, Barry C. Nuss, Eric L. Schondorf, J. Richard Budd III, and Robin A.
Brumwell.*
10.12 Agreement dated December 20, 1983 between LSM and Alan D. Ewart.*
12.1 Statement re computation of ratio of earnings to fixed charges.*
21.1 Subsidiaries of Metallurg, Shieldalloy, Metallurg Holdings Corporation, Metallurg
Services, Inc. and MIR (China), Inc.*
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Rogers & Wells (to be contained in the opinion filed as Exhibit 5.1).*
24.1 Power of attorney (incorporated by reference in the signature pages).*
25.1 Form T-1 Statement of Eligibility and Qualification of IBJ Schroder Bank & Trust
Company, as trustee.*
27.1 Financial Data Schedule.*
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Exchange Agent Agreement.*
</TABLE>
- ---------------
* To be filed by pre-effective amendment.
ITEM 22. UNDERTAKING.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing
II-2
<PAGE> 148
provisions, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(b) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) The undersigned registrants hereby undertake:
(i) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement
(ii) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(iii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iv) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
II-3
<PAGE> 149
SIGNATURES
Pursuant to the requirements of the Securities Act, the undersigned
registrant has duly caused this registration statement or amendment to be signed
on its behalf by the undersigned, thereto duly authorized, in the City of New
York, New York, on December , 1997.
METALLURG, INC.
By: /s/ ERIC L. SCHONDORF
------------------------------------
Eric L. Schondorf
Vice President, General
Counsel and Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Eric L. Schondorf his true and lawful
attorney-in-fact and agent, each acting alone, with full powers of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this registration statement and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, each acting alone, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
- ------------------------------------------ --------------------------- ------------------
<C> <S> <C>
/s/ MICHAEL A. STANDEN Chairman, President, Chief December 12, 1997
- ------------------------------------------ Executive Officer and
Michael A. Standen Director
/s/ ALAN D. EWART Joint Managing Director of December 12, 1997
- ------------------------------------------ LSM and Director
Alan D. Ewart
/s/ BARRY C. NUSS Vice President -- Finance December 12, 1997
- ------------------------------------------ and Chief Financial Officer
Barry C. Nuss
/s/ JON R. BAUER Director December 12, 1997
- ------------------------------------------
Jon R. Bauer
/s/ PETER A. LANGERMAN Director December 12, 1997
- ------------------------------------------
Peter A. Langerman
/s/ HERBERT E. SEIF Director December 12, 1997
- ------------------------------------------
Herbert E. Seif
</TABLE>
II-4
<PAGE> 150
Pursuant to the requirements of the Securities Act, the undersigned
registrant has duly caused this registration statement or amendment to be signed
on its behalf by the undersigned, thereto duly authorized, in the City of New
York, New York, on December , 1997.
SHIELDALLOY METALLURGICAL CORPORATION
By: /s/ ERIC L. SCHONDORF
------------------------------------
Eric L. Schondorf
Vice President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Eric L. Schondorf his true and lawful
attorney-in-fact and agent, each acting alone, with full powers of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this registration statement and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, each acting alone, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
- ------------------------- ---------------------------------------------- ------------------
<C> <C> <S>
/s/ MICHAEL A. STANDEN Director December 12, 1997
- -------------------------
Michael A. Standen
/s/ J. RICHARD BUDD III Director December 12, 1997
- -------------------------
J. Richard Budd III
/s/ MICHAEL A. BANKS Director December 12, 1997
- -------------------------
Michael A. Banks
/s/ BARRY C. NUSS Director December 12, 1997
- -------------------------
Barry C. Nuss
/s/ ERIC E. JACKSON Director December 12, 1997
- -------------------------
Eric E. Jackson
</TABLE>
II-5
<PAGE> 151
Pursuant to the requirements of the Securities Act, the undersigned
registrant has duly caused this registration statement or amendment to be signed
on its behalf by the undersigned, thereto duly authorized, in the City of New
York, New York, on December , 1997.
METALLURG HOLDINGS CORPORATION
By: /s/ ERIC L. SCHONDORF
------------------------------------
Eric L. Schondorf
Vice President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Eric L. Schondorf his true and lawful
attorney-in-fact and agent, each acting alone, with full powers of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this registration statement and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, each acting alone, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
- ------------------------- ---------------------------------------------- ------------------
<C> <C> <S>
/s/ MICHAEL A. STANDEN Director December 12, 1997
- -------------------------
Michael A. Standen
/s/ BARRY C. NUSS Director December 12, 1997
- -------------------------
Barry C. Nuss
/s/ ERIC L. SCHONDORF Director December 12, 1997
- -------------------------
Eric L. Schondorf
</TABLE>
II-6
<PAGE> 152
Pursuant to the requirements of the Securities Act, the undersigned
registrant has duly caused this registration statement or amendment to be signed
on its behalf by the undersigned, thereto duly authorized, in the City of New
York, New York, on December , 1997.
METALLURG SERVICES, INC.
By: /s/ ERIC L. SCHONDORF
------------------------------------
Eric L. Schondorf
Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Eric L. Schondorf his true and lawful
attorney-in-fact and agent, each acting alone, with full powers of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this registration statement and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, each acting alone, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
- ------------------------------------------ ----------------------------- ------------------
<C> <S> <C>
/s/ MICHAEL A. STANDEN Director December 12, 1997
- ------------------------------------------
Michael A. Standen
/s/ MICHAEL A. BANKS Director December 12, 1997
- ------------------------------------------
Michael A. Banks
/s/ BARRY C. NUSS Director December 12, 1997
- ------------------------------------------
Barry C. Nuss
/s/ ERIC L. SCHONDORF Director December 12, 1997
- ------------------------------------------
Eric L. Schondorf
</TABLE>
II-7
<PAGE> 153
Pursuant to the requirements of the Securities Act, the undersigned
registrant has duly caused this registration statement or amendment to be signed
on its behalf by the undersigned, thereto duly authorized, in the City of New
York, New York, on December , 1997.
MIR (CHINA), INC.
By: /s/ ERIC L. SCHONDORF
------------------------------------
Eric L. Schondorf
Assistant Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Eric L. Schondorf his true and lawful
attorney-in-fact and agent, each acting alone, with full powers of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this registration statement and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, each acting alone, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
- ------------------------------------------ ----------------------------- ------------------
<C> <S> <C>
/s/ MICHAEL A. STANDEN Director December 12, 1997
- ------------------------------------------
Michael A. Standen
/s/ ROBIN A. BRUMWELL Director December 12, 1997
- ------------------------------------------
Robin A. Brumwell
/s/ BARRY C. NUSS Director December 12, 1997
- ------------------------------------------
Barry C. Nuss
</TABLE>
II-8
<PAGE> 154
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
<C> <S>
1.1 Purchase Agreement, dated as of November 20, 1997, by and among Metallurg, Inc. (the
"Company"), Shieldalloy Metallurgical Corporation ("Shieldalloy"), Metallurg
Holdings Corporation, Metallurg Services, Inc. and MIR (China), Inc. (collectively,
the "Guarantors") and Salomon Brothers Inc and BancBoston Securities Inc. (the
"Initial Purchasers").*
3.1 Certificate of Incorporation of the Company.*
3.2 By-laws of the Company.*
3.3 Certificate of Incorporation of Shieldalloy.*
3.4 By-laws of Shieldalloy.*
3.5 Certificate of Incorporation of Metallurg Holdings Corporation.*
3.6 By-laws of Metallurg Holdings Corporation.*
3.7 Certificate of Incorporation of Metallurg Services, Inc.*
3.8 By-laws of Metallurg Services, Inc.*
3.9 Certificate of Incorporation of MIR (China), Inc.*
3.10 By-laws of MIR (China), Inc.*
4.1 Indenture, dated as of November 25, 1997, by and among the Company, the Guarantors
and IBJ Schroder Bank & Trust Company (the "Trustee").*
4.2 Form of 11% Series A and Series B Senior Notes due 2007, dated as of November 25,
1997 (incorporated by reference to Exhibit 4.1).*
4.3 Registration Agreement, dated as of November 20, 1997, by and among the Company, the
Guarantors and the Initial Purchasers.*
5.1 Opinion of Rogers & Wells.*
10.1 Loan Agreement dated April 14, 1997 among Metallurg, Inc. and Shieldalloy
Metallurgical Corporation as borrowers, Metallurg Services, Inc., MIR (China), Inc.
and Metallurg Holdings Corporation, as Guarantors and BankBoston, N.A. as Agent for
the lending institutions, as amended by the First, Second and Third Amendments
thereto.*
10.2 German Loan Agreement, dated October 20, 1997, by and among GfE Gesellschaft fur
Elektrometallurgic GmbH, GfE Umwelttechnik GmbH, GfE Giessrei und Stahlwerksbedarf,
GfE Metalle und Metarielien and Keramed Medizintechnik GmbH and BankBoston, N.A.
acting through its Frankfurt, Germany branch.*
10.3 Joint Disclosure Statement for the Fourth Amended and Restated Joint Plan of
Reorganization dated December 18, 1996 (incorporated herein by reference to Exhibit
T3E.1 to the Form T-3 filed by the Company with the Securities and Exchange
Commission on March 21, 1997 (File No. 022-22265)).
10.4 Supplement to Joint Disclosure Statement for the Fourth Amended and Restated Joint
Plan of Reorganization dated December 18, 1996 (incorporated herein by reference to
Exhibit T3E.3 to the Form T-3 filed by the Company with the Securities and Exchange
Commission on March 21, 1997 (File No. 022-22265).
10.5 Settlement Agreement dated December 27, 1996 between MI, SMC, the Environmental
Protection Agency, the Department of the Interior, the Nuclear Regulatory Commission
and the New Jersey Department of Environmental Protection.*
10.6 Permanent Injunction Consent Order dated December 23, 1996 between the State of
Ohio, SMC, and Cyprus Foote Mineral Company.*
10.7 Registration Rights Agreement dated April 14, 1997 among the Company and certain
holders of the Company's common stock.*
10.8 1997 Stock Award and Stock Option Plan.*
10.9 Management Incentive Compensation Plan.*
10.10 EWW Agreement with PSV and additions dated March 7, 1994.*
10.11 Employment Agreements dated April 14, 1997 with Michael A. Standen, Michael A.
Banks, Barry C. Nuss, Eric L. Schondorf, J. Richard Budd III, and Robin A.
Brumwell.*
10.12 Agreement dated December 20, 1983 between LSM and Alan D. Ewart.*
</TABLE>
II-9
<PAGE> 155
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
<C> <S>
12.1 Statement re computation of ratio of earnings to fixed charges.*
21.1 Subsidiaries of Metallurg, Shieldalloy, Metallurg Holdings Corporation, Metallurg
Services, Inc. and MIR (China), Inc.*
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Rogers & Wells (to be contained in the opinion filed as Exhibit 5.1).*
24.1 Power of attorney (incorporated by reference in the signature pages).*
25.1 Form T-1 Statement of Eligibility and Qualification of IBJ Schroder Bank & Trust
Company, as trustee.*
27.1 Financial Data Schedule.*
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Exchange Agent Agreement.*
</TABLE>
- ---------------
* To be filed by pre-effective amendment.
II-10
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Metallurg, Inc. on
Form S-4 of our report dated July 11, 1997 (November 25, 1997 as to Notes 16
and 17), appearing in the Prospectus, which is part of this Registration
Statement and to the reference to us under the headings "Summary Financial
Data", "Selected Financial Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
New York, New York
December 12, 1997
