<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the fiscal year ended January 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _________ to __________
METALLURG, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-1661467
(State of organization) (I.R.S. Employer Identification No.)
6 EAST 43RD STREET (212) 835-0200
NEW YORK, NEW YORK 10017 (Registrant's telephone number,
(Address of principal executive offices) including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [X] No [ ]
There are no equity securities of the Company held by non-affiliates
Shares Outstanding at April 15, 1999: 5,000,000 Shares of Common Stock, par
value $.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES.
OVERVIEW
Metallurg, Inc. ("Metallurg" or the "Company") 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, based on the Company's internal data and its knowledge of
the markets for its products. 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 January 31, 1999, the Company had $607.2 million in revenues, $361.1
million of which were from products manufactured by the Company and $246.1
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
sales in the year ended January 31, 1999 were made to the iron and steel
industry, 18% to the aluminum industry, 10% to the superalloy and titanium alloy
industries, 3% to the chemicals industry and the remaining 18% were made to
other industries, none of which was individually significant to the Company.
Based on customer location, for the year ended January 31, 1999, approximately
41% of the Company's sales were made in North America, 46% in Europe, 4% in
Asia, 2% in South America and 7% throughout the rest of the world. See the
consolidated financial statements of the Company, and related notes thereto,
included elsewhere in this report.
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. During the 1950's, the Company began operations in the United
States and during the 1980's, production operations in Brazil were added.
Metallurg was established as a New York holding company in 1947 and
reincorporated as a Delaware corporation in 1997.
PRODUCTS AND MARKETS
The Company operates in one significant industry segment, the manufacture and
sale of ferrous and non-ferrous metals and alloys. The Company 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. In addition to selling products manufactured by the Company, the
Company distributes complementary products manufactured by third parties. The
table below sets forth, for the periods indicated, information concerning
revenue from the Company's five reportable segments, as described below (in
millions):
<TABLE>
<CAPTION>
THREE
YEAR QUARTERS QUARTER YEAR
ENDED ENDED ENDED ENDED
JANUARY 31, JANUARY 31, MARCH 31, DECEMBER 31,
1999 1998 1997 1996
-----------------------------------------------------
Segments:
<S> <C> <C> <C> <C>
Shieldalloy ..... $ 186.1 $ 147.3 $ 51.8 $ 197.0
LSM ............. 119.2 93.1 32.6 125.6
GfE ............. 109.8 65.3 21.2 79.0
EWW ............. 17.1 14.8 5.4 28.8
Other ........... 175.0 156.5 44.6 219.6
----- ----- ---- -----
Total revenue $ 607.2 $ 477.0 $ 155.6 $ 650.0
======== ======== ======== ========
</TABLE>
Shieldalloy Metallurgical Corporation ("Shieldalloy"): This unit is comprised of
two production facilities in the U.S. The New Jersey plant manufactures and
sells aluminum alloy grain refiners and alloying tablets for the aluminum
industry, metal powders for the welding industry and specialty ferroalloys for
the superalloy and steel industries. The Ohio plant manufactures and sells
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ferrovanadium and vanadium-based chemicals used mostly in the steel and
petrochemical industries. In addition to its manufacturing operations,
Shieldalloy imports and distributes complementary products manufactured by
affiliates and third parties.
London & Scandinavian Metallurgical Co., Ltd. ("LSM"): This unit is comprised
mainly of three production facilities in the U.K. which manufacture and sell
aluminum alloy grain refiners and alloying tablets for the aluminum industry,
chromium metal and specialty ferroalloys for the steel and superalloy industries
and aluminum powder for various metal powder consuming industries.
Gesellschaft fur Elektrometallurgie mbH ("GfE"): This unit is comprised of two
production facilities and a sales office in Germany. The Nuremburg plant
manufactures and sells a wide variety of specialty products, including vanadium
based chemicals and sophisticated metals, alloys and powders used in the
titanium, superalloy, electronics, steel, biomedical and optics industries. The
Morsdorf plant produces medical prostheses, implants and surgical instruments
for orthopedic applications.
Elektrowerk Weisweiler GmbH ("EWW"): This unit, also located in Germany,
produces various grades of low carbon ferrochrome used in the superalloy,
welding and steel industries.
Other: Includes corporate related items and results of subsidiaries not meeting
the quantitative thresholds prescribed by applicable accounting rules. The
Company does not allocate general corporate overhead expenses to operating
segments.
The following table sets forth, for the periods presented, the most significant
product groups based on the Company's revenue:
TOP TEN PRODUCT GROUPS BY REVENUE
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR THREE QUARTERS QUARTER YEAR
ENDED ENDED ENDED ENDED
JANUARY 31, JANUARY 31, MARCH 31, DECEMBER 31,
1999 1998 1997 1996
---------------- -------------- ---------------- ---------------
REVENUE % REVENUE % REVENUE % REVENUE %
---------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Name of Product Group
Vanadium products $111.6 18.4 $ 67.0 14.0 $ 23.7 15.2 $ 76.0 11.7
Chrome products 99.7 16.4 86.0 18.0 31.5 20.2 111.0 17.1
Aluminum products 89.3 14.7 71.8 15.1 22.8 14.7 88.6 13.6
Columbium products 49.9 8.2 35.4 7.4 12.6 8.1 43.8 6.7
Silicon products 26.1 4.3 35.2 7.4 11.5 7.4 60.3 9.3
Metal powders 20.6 3.4 21.8 4.6 6.3 4.1 31.3 4.8
Titanium products 18.8 3.1 16.2 3.4 3.9 2.5 14.5 2.2
Boron products 11.0 1.8 10.3 2.1 4.9 3.2 15.0 2.3
Nickel products 10.6 1.7 12.4 2.6 3.5 2.2 14.8 2.3
Tantalum products 10.1 1.7 7.0 1.5 1.7 1.1 10.6 1.6
------ ----- ----- ----- ----- ----- ------ -----
Total product group 447.7 73.7 363.1 76.1 122.4 78.7 465.9 71.6
Other 159.5 26.3 113.9 23.9 33.2 21.3 184.1 28.4
------ ----- ----- ----- ----- ----- ------ -----
Total revenue $607.2 100.0 $477.0 100.0 $155.6 100.0 $650.0 100.0
====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
Approximately 51% of the Company's sales in the year ended January 31, 1999 were
made to the iron and steel industry, 18% to the aluminum industry, 10% to the
superalloy and titanium alloy industries, 3% to the chemicals industry and the
remaining 18% were made to other industries, none of which was individually
significant to the Company.
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 ferrotitanium,
ferrocolumbium and ferroboron, and markets ferrosilicon. These products are used
by iron and steel producers to increase temperature and corrosion resistance and
improve mechanical properties 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.
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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
iron and steel industry began to emerge in 1993 from the deepest recession in
decades and for the following four years enjoyed strong growth. In 1998,
however, the effects of financial crises in Japan, Asia, Latin America and
Russia sharply reduced consumption of steel in those regions, as well as
effecting consumption in Europe where durable goods are produced for these
markets. U.S. steel manufacturers significantly cut back
production in the second half of 1998 in response to high levels of imports,
especially from Asia and Japan. As a result of these negative industry factors,
demand and prices for several of the Company's products decreased in the second
half of 1998. See "Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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. Titanium binary master alloys
and titanium boron tertiary alloys are widely utilized for grain refining when
casting aluminum alloy rolling ingots, billets and continuously cast sheet. This
grain refinement improves the castability and mechanical properties of the
aluminum. Compacted products in the form of briquettes containing chromium,
iron, manganese or other metals maximize the efficiency of recovery and enhance
rapid solubility when added to the aluminum melt in order to provide ductility
for can sheet or strength for aerospace applications. 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. The Company sells
aluminum master alloys and compacted products worldwide to major aluminum
producers including Alcan Aluminum Limited, Alcoa Aluminum Co. of America,
Aluminum Pechiney, Reynolds Metals Co., Norsk Hydro and Sumitomo Metal
Industries Ltd.
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 as
well as competition between aluminum and other packaging materials such as
plastics and glass. Global demand for aluminum is heavily concentrated in the
economically advanced regions of North America, Europe and Japan. Although the
price of primary aluminum can vary widely as traded on the terminal markets,
this in itself does not greatly affect the Company because its products are used
in the transformation of primary aluminum into downstream alloyed 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.
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, vanadium aluminum, 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 materials containing the Company's products include high performance
castings and forgings for aircraft engines and frames, gas turbines and boiler
tubes. The aerospace and defense industries are the largest consumers of these
specialty materials but many new applications for them have been and continue to
be 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, RMI Titanium Company, Special Metals Corporation and
Titanium Metals Corp.
The aerospace industry is the largest user of superalloys and titanium alloys. A
significant reduction in the manufacture of military and civilian aircraft
between 1989 and 1992 resulted in a 30% decrease in global demand for these
materials and a resulting adverse impact on the Company. Since then, civilian
airliner production has increased annually, although not as much as forecast by
one major manufacturer and the economic turmoil abroad caused postponements and
cancellation of orders for airlines as trans-Pacific and Asian Air passenger
volumes fell sharply. In an effort to reduce dependence on the aerospace
industry, the superalloy and titanium alloy producers have actively sought to
broaden the use of their products in power generation, oil and gas, chemical,
consumer goods and biomedical industries.
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 electronics and tool manufacturers, vanadium
oxytrichloride for use in the synthetic rubber industry, medical prostheses,
implants, and surgical tools used in orthopedic applications, polishing powders
used by the glass polishing industry and metal powders used in the manufacture
of rocket fuel, automotive paints, chemical and metallurgical products. These
products generally are higher-margin, technically sophisticated products.
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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, as well as cycles in the markets for the
Company's products, 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
strong economic activity in certain of the Company's markets in recent years,
there can be no assurance that this will continue for any extended period of
time.
Foreign Operations and Currency Fluctuations. The Company has substantial
operations outside the United States. At January 31, 1999, the Company's
operations located outside the United States represented approximately 62%
(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 January 31, 1999, approximately 41% of the Company's sales
were made in North America, 46% in Europe, 4% in Asia, 2% in South America and
7% throughout the rest of the world. Foreign operations are subject to certain
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.
Export Sales. Export sales from the Company's domestic operations totaled $10.9
million, $9.1 million, $1.9 million and $13.8 million for the year ended
January 31, 1999, the three quarters ended January 31, 1998, the quarter ended
March 31, 1997 and the year ended December 31, 1996, respectively.
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 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 January 31, 1999, approximately 51% of the Company's sales
were made to the iron and steel industry, 18% to the aluminum industry, 10% to
the superalloy and titanium alloy industries, 3% to the chemicals industry and
the remaining 18% 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 the year ended January 31, 1999.
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 sales staff by providing a broader product
offering to its existing customers without incurring significant additional
overhead. Merchanting activities provide the Company with 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 risk and account
for subsequent resale to
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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 January 31, 1999, the Company earned commission income of $0.8 million for
acting as agent with regard to third party sales of $37.6 million. Such sales
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 laboratories providing analytical, research and development support to
in-house operations, as well as analytical services to customers and third
parties. The Company owns all of the facilities listed.
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The following table sets forth for each Metallurg producing subsidiary the
location of its facilities and the key products manufactured by such subsidiary:
<TABLE>
<CAPTION>
MANUFACTURING SUBSIDIARY LOCATION KEY PRODUCTS
------------------------ -------- ------------
<S> <C> <C>
Shieldalloy Newfield, New Jersey Aluminum Briquettes and Tablets
(Plant) Aluminum Master Alloys
Ferrotitanium
Metal Powders
Cambridge, Ohio Ferrovanadium
(Plant) Grainal
Vanadium Chemicals
LSM Rotherham, UK Aluminum Alloying Tablets
(Plant) Aluminum Master Alloys
Chromium Metal
Coating Materials
Ferroboron
Ferrotitanium
Glass Polishing Powders
Metal Powders
Nickel Boron
Nickel Cobalt Magnet Alloys
GfE Nuremberg, Germany Battery Alloys
(Plant) Chromium Metal
Columbium Alloys
Magnet Alloys
Special Master Alloys
Vanadium Aluminum
Vanadium Chemicals
Morsdorf, Germany (Plant) Orthopedic Prostheses and
Implants
EWW Eschweiler-Weisweiler, Low Carbon Ferrochrome
Germany
(Plant)
The Aluminium Powder Company Holyhead, UK (Plant) Atomized Aluminum Powder
Limited Minworth, UK (Plant) Granulated Aluminum
Companhia Industrial Fluminense Sao Joao del Rei, Brazil Aluminum Master Alloys
(Plant) Columbium Oxide
Tantalum Oxide
Turk Maadin Sirketi A.S. Kavak, Tavas and Gocek, Chrome Ore
Turkey
(Mines)
</TABLE>
Sales Offices. The Company has sales personnel both at its production
facilities and at its 15 separate representative offices in the following
countries: Brazil, Canada, China, Germany, Italy, Japan, Mexico, Poland, Russia,
South Africa, Sweden, Switzerland, United Kingdom and the United States.
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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, Elementis, plc., and
supplements this supply with additional quantities from Russia and Kazakhstan.
This product also requires large quantities of aluminum powder substantially
sourced from an affiliate of the Company.
The Company's five 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 several 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 "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.
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.
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 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
chemicals 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.
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COMPETITION
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 and China of metals and
alloys produced in excess of local demand can severely hurt the price of
ferroalloys in Europe and the United States, which in turn exerts a negative
impact on the price of some of the Company's products. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations." New entrants may also 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. 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), Masterloy Products Ltd. (Aimcor), Treibacher
Industrie AG and Glencore AG compete with the Company's ferrovanadium products,
while several U.S., UK and Russian companies compete worldwide with the
Company'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.
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 limited
competition in special grades of low carbon ferrochrome from South Africa and
the CIS. 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 by 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. Relationships are maintained with customers' technical facilities
and materials departments of universities which supplement the Company's R&D
efforts. Recent projects in LSM include a new carbon-based grain refiner for the
aluminum industry developed jointly with Shieldalloy, superfine aluminum powders
for automotive paints and metal catalysts for the chemical industry. In Germany,
R&D is focused on advanced metallic phases for structural and functional
applications as well as sputtering targets of a variety of advanced materials,
biomedical coatings and various alloys for high-performance batteries.
EMPLOYEES
As of January 31, 1999, the Company employed approximately 1,478 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 Automobile, Aerospace and Agricultural Implement Workers of America (UAW,
Local 2327), which covers approximately 70 employees at the Newfield, New Jersey
plant, is scheduled to be renegotiated in May 1999. 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 management to be
satisfactory. The Company has not been affected by strikes in the last ten years
and there has not been a strike at any of the Company's United States facilities
for over twenty years.
9
<PAGE> 10
MERGER
On July 13, 1998, Metallurg, Inc. was acquired by a group of investors led by
Safeguard International. The acquisition was accomplished by Metallurg
Acquisition Corp., a wholly owned subsidiary of Metallurg Holdings, a Delaware
corporation, merging with and into Metallurg, with Metallurg being the surviving
company and Metallurg Holdings becoming the sole parent of Metallurg (the
"Merger"). Metallurg Holdings was formed on June 10, 1998 and is owned by
Safeguard International (an international private equity fund that invests
primarily in equity securities of companies in process industries), certain
limited partners of Safeguard International, certain individuals and a private
equity fund. At the time of the Merger, each outstanding share of Metallurg
common stock was converted into the right to receive $30 in cash. In connection
with the Merger, Metallurg received the consents of 100% of the registered
holders of its Senior Notes to a one-time waiver of the change of control
provisions of the Senior Note Indenture to make such provisions inapplicable to
the Merger and to amend the definition of "Permitted Holders" under the Senior
Note Indenture to reflect the post-merger ownership of Metallurg. No other
modifications to terms of outstanding debt were affected in this regard. As of
July 13, 1998, in connection with the Merger, all of the then outstanding shares
of common stock of Metallurg were cancelled and 100 shares of common stock,
$0.01 par value, were issued to Metallurg Holdings. On November 20, 1998,
Metallurg consummated a 50,000 for 1 stock split and, as a result, Metallurg has
5,000,000 shares of common stock, $0.01 par value, outstanding, all of which are
owned by Metallurg Holdings and are pledged as security to the holders of
Metallurg Holdings' 12-3/4% Series B Senior Discount Notes due 2008.
BANKRUPTCY
Metallurg and Shieldalloy sought Chapter 11 of the United States Bankruptcy Code
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 on the
Company'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.
In April 1997, Metallurg and Shieldalloy consummated their Joint Plan of
Reorganization dated December 18, 1996, pursuant to Chapter 11 (the
"Reorganization Plan"). The Company has sought to stabilize and strengthen its
business since the bankruptcy filing. 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. As a result of the consummation of the offering of the
Company's 11% Senior Notes due 2007 in November 1997 (the "Senior Notes
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.
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 a "sunset" review in 2000,
after which time the International Trade Commission and the Department of
Commerce will determine whether to terminate or extend them. In addition, all
anti-dumping duty rates are subject to annual review by the Department of
Commerce. Metallurg had revenues of approximately $50 million from sales of
ferrovanadium produced by it and sold in the United States for the year ended
January 31, 1999. If the incremental duties are not maintained at their current
levels, the Company may be materially adversely affected. Normal duties on
ferrovanadium imports are 4.2%.
Since 1993, the Council of the European Community has imposed duties on
imports of low carbon ferrochrome from Russia, Kazakhstan and Ukraine as high as
0.31 ECU per kilogram of material. The anti-dumping duties on imports of low
carbon ferrochrome from Ukraine lapsed in October 1998, since it is no longer
produced in Ukraine. The anti-dumping duties on imports from Russia and
Kazakhstan have been extended pending a review by the Council of the European
Community of such anti-
10
<PAGE> 11
dumping measures. A decision is expected sometime between mid-1999 and mid-2000.
Metallurg had revenues of approximately $46 million from sales of ferrochrome
produced in Europe for the year ended January 31, 1999. While EWW is seeking to
extend these duties by applying to the relevant authorities, there is no
assurance that they will be further extended. The expiration of these duties may
have a material adverse effect on the Company.
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 naturally occurring 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, including future liability for other disposal or contamination at
both domestic and foreign facilities, 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 and increased environmental
controls and cleanup requirements, 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 has agreed to perform environmental remediation which, as of
January 31, 1999, had an estimated cost of completion of $40.4 million. Of this
amount, Shieldalloy expects to expend approximately $3.6 million in 1999, $5.7
million in 2000 and $7.4 million in 2001. 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 or currently
established reserves.
While its remediation obligations and other environmental costs will, in the
aggregate, reduce its liquidity, the Company believes its cash balances, cash
from operations and cash available under its credit facilities are sufficient to
fund its current and anticipated future requirements for environmental
expenditures.
The historical manufacture of several products in Newfield, New Jersey and
Cambridge, Ohio resulted in the production of various by-products and wastes
that Shieldalloy is obligated to remediate under Federal and state environmental
laws and regulations. The release or threatened release of hazardous substances
and wastes at the Newfield facility led that facility to be placed on the
National Priorities List for cleanup under the Federal Comprehensive
Environmental Response, Compensation and Liability Act (also known as
"Superfund"). 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. The Company has also provided for certain estimated costs associated
with its operating sites in Germany and Brazil, although there can be no
assurance that such estimates will prove to be accurate. The Company believes
that total environmental remediation and monitoring liabilities consist of the
following (in thousands) and has recorded them as such:
<TABLE>
<CAPTION>
January 31,
1999
----
Domestic:
<S> <C>
Shieldalloy - New Jersey $28,876
Shieldalloy - Ohio 11,557
------
40,433
Foreign 4,832
------
Total environmental liabilities 45,265
Less: trust funds 3,064
------
Net environmental liabilities $42,201
=======
</TABLE>
As part of the Reorganization Plan, the Company and Shieldalloy entered into an
Environmental Settlement Agreement with the U.S. 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 the 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
11
<PAGE> 12
nine wastewater and treatment lagoons, and related operation and maintenance
activities. The cost of fulfilling these obligations is currently estimated to
be approximately $28.9 million. The Company and Shieldalloy have agreed to
provide, create or make available financial assurance for these projects through
a combination of letters of credit and cash reserves. At January 31, 1999,
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 totaled $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 thirteen 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 $8.1 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 additional associated costs of $2.2 million which, in addition to the amounts
described above, it expects to substantially disburse over the next five years.
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. 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 a previously issued draft environmental
impact statement and feasibility study which were circulated to the public. The
estimated costs for off-site disposal approached $100.0 million; however, in the
two documents referred to above, 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 a defendant in 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 intends to vigorously defend this action
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 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 $4.4 million at January 31, 1999 to
cover the costs of closing an off-site dump and for certain environmental
conditions at a site in Nuremberg owned by a subsidiary. Additionally, in
Brazil, $0.4 million has been accrued at January 31, 1999 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
12
<PAGE> 13
stringent sulfur dioxide emission limitations under the CAAA, and by the EPA's
reclassification in February 1999 of spent catalyst, one of the Company's raw
materials, as a hazardous waste under RCRA. The Company has submitted a RCRA
application to the EPA for storage and processing of hazardous wastes, to
reclaim vanadium from the hazardous wastes, on-site at its Cambridge facility.
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.
ITEM 3. LEGAL PROCEEDINGS.
The Company and certain of its subsidiaries are parties to a variety of legal
proceedings relating to their operations. The ultimate legal and financial
liability of the Company in respect of all legal proceedings in which it is
involved cannot be estimated with any certainty. However, based upon examination
of such matters and consultation with counsel, management does not expect that
the ultimate outcome of these contingencies, net of liabilities already accrued
in the Company's Consolidated Balance Sheet, will have a material adverse effect
on the Company's consolidated financial position, although the resolution in any
reporting period of one or more of these matters could have a significant impact
on the Company's results of operations and/or cash flows for that period. For
discussion of environmental matters, see "Items 1 and 2. Business and Properties
- - Environmental Matters."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during the fourth
quarter of the fiscal year ended January 31, 1999.
13
<PAGE> 14
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
On July 13, 1998, Metallurg, Inc. was acquired by a group of investors led by
Safeguard International. The acquisition was accomplished by Metallurg
Acquisition Corp., a wholly owned subsidiary of Metallurg Holdings, a Delaware
corporation, merging with and into Metallurg, with Metallurg being the surviving
company and Metallurg Holdings becoming the sole parent of Metallurg. Metallurg
Holdings was formed on June 10, 1998 and is owned by Safeguard International (an
international private equity fund that invests primarily in equity securities of
companies in process industries), certain limited partners of Safeguard
International, certain individuals and a private equity fund. At the time of the
Merger, each outstanding share of Metallurg common stock was converted into the
right to receive $30 in cash. In connection with the Merger, Metallurg received
the consents of 100% of the registered holders of its Senior Notes to a one-time
waiver of the change of control provisions of the Senior Note Indenture to make
such provisions inapplicable to the Merger and to amend the definition of
"Permitted Holders" under the Senior Note Indenture to reflect the post-merger
ownership of Metallurg. No other modifications to terms of outstanding debt were
affected in this regard. As of July 13, 1998, in connection with the Merger, all
of the then outstanding shares of common stock of Metallurg were cancelled and
100 shares of common stock, $0.01 par value, were issued to Metallurg Holdings.
On November 20, 1998, Metallurg consummated a 50,000 for 1 stock split and, as a
result, Metallurg has 5,000,000 shares of common stock, $0.01 par value,
outstanding, all of which are owned by Metallurg Holdings and all of which are
pledged as security to the holders of Metallurg Holdings' 12-3/4% Series B
Senior Discount Notes due 2008. There is no public trading market for the
Company's equity securities.
On November 20, 1998, the Board of Directors adopted the Metallurg, Inc.
1998 Equity Compensation Plan (the "ECP"), to provide (i) designated employees
of Metallurg and its subsidiaries, (ii) certain Key Advisors, as defined in the
plan, and advisors who perform services for the Company or its subsidiaries and
(iii) non-employee members of the Board of Directors of the Company (the
"Board") with the opportunity to receive grants of incentive stock options,
nonqualified stock options, stock appreciation rights, restricted stock and
performance units. Under the ECP, 500,000 shares of common stock were made
available for stock awards and stock options. The Company believes that the ECP
will encourage the participants to contribute materially to the growth of the
Company, thereby benefiting the Company's shareholders, and will align the
economic interests of the participants with those of the shareholders. Pursuant
to the Company's ECP, Metallurg's Board awarded to eligible executives and
non-employee Board members options to purchase up to 450,000 and 12,500 shares
of common stock at an exercise price of $30.00 per share, effective as of
November 20, 1998 and January 4, 1999, respectively. Such options have a term of
ten years and vest 20% on the date of grant and will vest 20% on each of the
first four anniversaries of the date of grant.
Prior to the Merger, 15,000,000 shares of common stock were authorized;
subsequent to November 1998, 10,000,000 shares of common stock were authorized.
On April 14, 1997, the Company issued 4,706,406 shares of new common stock to
prepetition unsecured claimholders and $39,461,000 of senior-secured notes
pursuant to the Reorganization Plan. These 12% senior-secured notes were retired
with the proceeds of the Senior Notes Offering described below.
On April 14, 1997, the Company adopted the Metallurg, Inc. Management
Stock Award and Stock Option Plan (the "SASOP"), which was 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 was to 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") which had a fair value at the date of
grant of $10 per share. Twenty percent of each Initial Stock Award was
transferable on the date of grant and the Company recognized compensation
expense of $500,000 at March 31, 1997. An additional 40% was to become
transferable on each of the first and second anniversary of the date of grant
and compensation expense was to be charged to earnings ratably over this
restriction period. Additionally, the Board granted to eligible employees
options to purchase 167,000 shares of common stock at an exercise price of
$11.38 (fair market value on the date of grant), effective as of September 1,
1997 and 20,000 shares of common stock at $8.43 (fair market value on the date
of grant), effective as of April 1, 1998. Such options vested 33 1/3% on the
date of grant and another 33 1/3% were to vest on each of the first and second
anniversary of the date of grant. At the time of the Merger, the Initial Stock
Awards then outstanding became fully vested and the Company recorded additional
compensation expense of approximately $355,000. In addition, outstanding stock
options became fully vested and holders were therefore entitled to receive $30
per share as part of the purchase of Metallurg. The Company recorded
compensation expense of $3,541,000 which represents the excess of the $30 per
share purchase price over the exercise price noted above. The Company
14
<PAGE> 15
was reimbursed for such stock option cancellation costs by a capital
contribution from Safeguard International at the time of the Merger.
On November 20, 1997, the Company paid a special dividend of $3.90 per share to
the holders of the Company's common stock and a dividend equivalent to the
holders of stock options then outstanding. Also on November 20, 1997, the
Company sold $100,000,000 of Senior Notes due 2007. The offering was made
pursuant to Rule 144A under the Securities Act of 1933, as amended,through
Salomon Brothers, Inc. and BancBoston Securities, Inc. as initial purchasers.
The Rule 144A notes were subsequently exchanged for similar notes registered
under the Securities Act of 1933, as amended. The net proceeds of the Senior
Notes Offering were approximately $96,000,000. The Company used the proceeds to
(i) retire the Company's 12% senior-secured notes due 2007 ($42,953,000), (ii)
repay the outstanding balance of the German Subfacility (but not reduce the
commitment thereunder) ($11,666,000), (iii) retire the LSM Term Loan Facility
($8,529,000) and (iv) pay a cash dividend and dividend equivalent to the holders
of the Company's common stock and stock options ($19,891,000). The remaining net
proceeds of the 11% Series A Senior Notes due 2007 were for general corporate
purposes. "German Subfacility" and "LSM Term Loan Facility" are defined in "Item
8. Financial Statements and Supplementary Data."
Other than as set forth above in this section, the Company issued no
securities during 1998.
The Company does not presently intend to pay any dividends, although it
may choose to do so in the future. The Company is restricted from paying
dividends to its shareholders as a result of the Indenture related to the Senior
Notes Offering, which, in general, prohibits the Company from making dividends
in an amount greater than 50% of its net income, as defined in the Indenture. In
addition, the Company's revolving credit facility with BankBoston prohibits the
payment of dividends.
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. In some cases, however, the Company's subsidiaries are restricted
in their ability to pay dividends. Prior to 1998, the Company's German
subsidiaries, EWW, in which the Company owns a 98.0% interest, and GfE, in which
the Company owns a 99.2% interest, were prohibited from paying dividends under
German law because their stated capital as reported in the commercial register
was higher than their actual capital as reported under German accounting
principles. In 1998, the Company made certain filings to reduce the stated
capital of its German operating subsidiaries which eliminated such statutory
restrictions on the payment of dividends. The Company's Turkish subsidiary is
limited in its ability to pay dividends from retained earnings, as a result of
historical currency devaluation. 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 DM 15
million (approximately $9 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. LSM is party to a working capital
facility which limits its ability to pay dividends in an amount of up to 100% of
LSM's annual net income. In addition, the Company's Swiss merchanting subsidiary
may only pay dividends to the Company in amounts up to 50% of its net income.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected historical financial data (dollars
in thousands) of the Company for each of the years in the three-year period
ended December 31, 1996, the three months ended March 31, 1996, the nine months
ended December 31, 1996, the quarter ended March 31, 1997, the three quarters
ended January 31, 1998 and the year ended January 31, 1999. Information as of
December 31, 1994 and 1995 and for the year ended December 31, 1994 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 March 31, 1997 and January 31, 1998 and for the year ended
December 31, 1996, for the quarter ended March 31, 1997 and for the three
quarters ended January 31, 1998 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 information as of
January 31, 1999 and for the year ended January 31, 1999 is derived from the
consolidated financial statements of the Company included elsewhere herein,
which have been audited by PricewaterhouseCoopers LLP, independent accountants.
The selected financial data for the Company as of March 31, 1996 and for the
three months ended March 31, 1996, and for the nine months ended December 31,
1996 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 herein for periods after March 31, 1997 reflects 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
directly comparable to subsequent consolidated financial
15
<PAGE> 16
statements. The results of operations for the quarter ended March 31, 1997 and
the three quarters ended January 31, 1998 are not necessarily indicative of
results for the full year. The information in this table should be read in
conjunction with "Item 7". 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 in "Item 8. Financial
Statements and Supplementary Data."
SELECTED FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
Pre-Confirmation Post-Confirmation
-------------------------------------------------------------- -------------------------
Three Nine Three
Months Months Quarter Quarters Year
Years Ended December 31, Ended Ended Ended Ended Ended
------------------------ March 31, December 31, March 31 January 31, January 31,
1994 1995 1996 1996 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales ............................. $ 553,479 $ 688,002 $ 648,816 165,294 $ 483,522 $ 155,427 $ 476,426 $ 606,334
Commission income ................. 838 1,362 1,186 329 857 160 541 835
--------- --------- --------- ------- --------- --------- --------- ---------
Total revenue ................... 554,317 689,364 650,002 165,623 484,379 155,587 476,967 607,169
Cost of sales ..................... 496,218 603,535 566,538 144,474 422,064 134,060 410,033 525,861
--------- --------- --------- ------- --------- --------- --------- ---------
Gross margin .................... 58,099 85,829 83,464 21,149 62,315 21,527 66,934 81,308
Selling, general and
administrative expenses ...... 50,652 52,842 57,103 13,922 43,181 15,046 43,563 58,638
Environmental expenses (a) ........ 2,082 5,624 37,582 606 36,976 -- -- --
Merger-related costs .............. -- -- -- -- -- -- -- 7,888
Restructuring charges ............. 2,653 11,658 -- -- -- -- -- --
--------- --------- --------- ------- --------- --------- --------- ---------
Operating income (loss) ........... 2,712 15,705 (11,221) 6,621 (17,842) 6,481 23,371 14,782
Other:
Other income (expense), net ...... 7,477 7 (6,759) 1,656 (8,415) 3,179 1,805 1,808
Interest income (expense), net ... (2,555) (1,949) 1,473 (452) 1,925 (245) (5,653) (9,870)
Reorganization expense ........... (7,118) (3,927) (3,535) (610) (2,925) (2,663) -- --
Fresh-start revaluation .......... -- -- -- -- -- 5,107 -- --
--------- --------- --------- ------- --------- --------- --------- ---------
Income (loss) before income tax .. 516 9,836 (20,042) 7,215 (27,257) 11,859 19,523 6,720
provision and extraordinary item
Income tax provision (benefit) .... 2,507 8,171 8,453 2,649 5,804 (3,063) 12,459 4,788
--------- --------- --------- ------- --------- --------- --------- ---------
Income (loss) before
extraordinary item ............ (1,991) 1,665 (28,495) 4,566 (33,061) 14,922 7,064 1,932
Extraordinary item, net of tax (b) -- -- -- -- -- 43,032 (792) --
--------- --------- --------- ------- --------- --------- --------- ---------
Net income (loss) $ (1,991) $ 1,665 $ (28,495) $ 4,566 $ (33,061) $ 57,954 $ 6,272 $ 1,932
========= ========= ========= ======= ========== ======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
Pre-Confirmation Post-Confirmation
------------------------------------------- -----------------------------------
December 31,
----------------------------- March 31, March 31, January 31, January 31,
1994 1995 1996 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ----
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets ..................... $326,981 $342,610 $331,626 $348,420 $305,704 $319,786 $311,117
Working capital .................. 152,627 166,823 173,734 167,037 143,316 167,757 166,229
Property, plant and equipment, net 65,921 53,516 47,885 51,664 38,907 41,502 49,018
Total debt ....................... 37,719 37,625 19,869 32,005 66,488 107,149 114,130
Pension liabilities .............. 43,921 47,409 43,926 46,524 41,090 38,351 41,062
Environmental liabilities ........ 17,762 12,780 44,011 2,516 48,135 45,080 42,201
Liabilities subject to compromise 162,042 169,519 179,897 183,291 -- -- --
</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 January 31, 1999, had an
estimated cost of completion of $40.4 million, including approximately
$16.7 million to be incurred by Shieldalloy through the end of 2001. See
"Items 1 and 2. Business and Properties-Environmental Regulation."
(b) Reflects (in 1997) discharge of indebtedness income, net of tax effects,
relating to the consummation of the Reorganization Plan and (in 1998) the
early extinguishment of debt.
16
<PAGE> 17
ITEM 7. 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 report.
FORWARD-LOOKING STATEMENTS
Certain matters discussed under the captions "Business and Properties" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this Annual Report on Form 10-K may constitute
forward-looking statements for purposes of Section 21E of the Securities
Exchange Act of 1934, as amended, and as such may involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance and achievements of the Company to be materially different from
future results, performance or achievements expressed or implied by such
forward-looking statements. Factors which may cause the Company's results to be
materially different include the cyclical nature of the Company's business, the
Company's dependence on foreign customers (particularly customers in Europe),
the economic strength of the Company's markets generally and particularly the
strength of the demand for iron, steel, aluminum and superalloys and titanium
alloy industries in those markets, the accuracy of the Company's estimates of
the costs of environmental remediation and the extension or expiration of
existing anti-dumping duties.
OVERVIEW
The industries which the Company supplies are cyclical. See "Items 1 and 2.
Business and Properties -- Products and Markets -- Dependence on Cyclical
Markets." Throughout 1997 and into 1998, market conditions for most of the
Company's products were favorable. However, sales prices and demand for several
of the Company's major products declined during the second half of 1998. The
Company believes that the price declines were the result of the economic turmoil
seen in Asia, Latin America and Russia in 1997 and 1998. This led to lower steel
production almost everywhere except in the U.S. during the first half of 1998.
In the second half of 1998, Japan, Russia, Brazil and some other Asian countries
exported large volumes of steel to the U.S. causing domestic production to be
drastically curtailed in the latter months of 1998. In addition, civilian
airliner production did not reach the levels forecast by a major producer, and
the economic turmoil abroad caused postponements and cancellation of orders for
airliners as trans-Pacific and Asian air passenger volumes fell sharply. These
factors contributed to lower sales of products to the superalloy and titanium
alloy industries.
As a result of the negative developments in the steel industry, the market
price of ferrovanadium, a significant product for the Company, declined from
approximately $13 per pound in the middle of 1998 to approximately $6 per pound
at the end of January 1999. The developments in the aerospace industry led to a
reduction in superalloy and titanium alloy demand which impacted negatively on
price and particularly on volumes of the Company's chromium and vanadium
aluminum products. During the two quarters ended January 31, 1999, the Company
recognized lower of cost or market inventory provisions of approximately $7.9
million relating to ferrovanadium and several chrome products. The market price
of ferrovanadium has declined to approximately $5.25 per pound at mid-April 1999
and management anticipates additional inventory writedowns during the first
quarter, the amount of which is indeterminable at this time because it is
dependent on future market conditions.
The Company has substantial operations outside the United States. At
January 31, 1999, the Company's operations located outside the United States
represented approximately 62% of the Company's assets based on book values.
Approximately 80% of the Company's employees were outside the United States.
Approximately 41% of the Company's sales (based on customer location) for the
year ended January 31, 1999 were made in North America, 46% in Europe, 4% in
Asia, 2% in South America and 7% throughout the rest of the world. See "Items 1
and 2. Business and Properties--Products and Markets -- Foreign Operations and
Currency Fluctuations."
On July 13, 1998, Metallurg, Inc. was acquired by a group of investors led by
Safeguard International Fund, L.P.. The acquisition was accomplished by
Metallurg Acquisition Corp., a wholly owned subsidiary of Metallurg Holdings, a
Delaware corporation, merging with and into Metallurg, with Metallurg being the
surviving company and Metallurg Holdings becoming the sole parent of Metallurg.
Metallurg Holdings was formed on June 10, 1998 and is owned by Safeguard
International (an international private equity fund that invests primarily in
equity securities of companies in process industries), certain limited partners
of Safeguard International, certain individuals and a private equity fund. At
the time of the Merger, each outstanding share of Metallurg common stock was
converted into the right to receive $30 in cash. In connection with the Merger,
Metallurg received the consents of 100% of the registered holders of its Senior
Notes to a one-time waiver of the change of control provisions of the Senior
Note Indenture to make such provisions inapplicable to the Merger and to amend
the definition of "Permitted Holders" under the Senior Note Indenture to reflect
the post-merger ownership of Metallurg. No other modifications to terms of
outstanding debt were affected in this regard. As of July 13, 1998, in
connection with the Merger, all of the then outstanding shares of common stock
of Metallurg were cancelled and 100 shares of common stock, $0.01 par value,
were issued to Metallurg Holdings. On November 20, 1998, Metallurg consummated a
50,000 for 1 stock split and, as a result, Metallurg has 5,000,000
17
<PAGE> 18
shares of common stock, $0.01 par value, outstanding, all of which are owned by
Metallurg Holdings and pledged as security to the holders of Metallurg Holdings'
12-3/4% Series B Senior Discount Notes due 2008.
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, $.01 par value, and its 12% senior-secured
notes. As a result of the Reorganization Plan, Metallurg and Shieldalloy reduced
their indebtedness and shareholder obligations (including undrawn letters of
credit) from approximately $151.0 million to approximately $39.5 million. In
addition, as part of the Reorganization Plan, LSM incurred an additional $8.1
million of indebtedness to fund a portion of the Reorganization Plan. 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.
As a result of Metallurg's change in its fiscal year from a calendar year
to January 31, effective as of April 1, 1997, the consolidated operating results
of the Company for the year ending January 31, 1999 include the results of
Metallurg, Inc., the parent holding company, for the year ended January 31, 1999
and the results of its operating subsidiaries (whose fiscal years remain the
calendar year) for the year ended December 31, 1998. The consolidated balance
sheet data of the Company at January 31, 1999 reflect the financial position of
Metallurg, Inc. at January 31, 1999 and of the operating subsidiaries at
December 31, 1998. The consolidated operating results of the Company for the
four quarters ended January 31, 1998 include the results of Metallurg, Inc. for
the thirteen months ended January 31, 1998 and the results of its operating
subsidiaries for the year ended December 31, 1997. The consolidated balance
sheet data of the Company at January 31, 1998 reflect the financial position of
Metallurg, Inc. at January 31, 1998 and of the operating subsidiaries at
December 31, 1997.
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 after that date are those of a new reporting
entity and are not directly comparable to the pre-confirmation periods. The
amounts presented below for the Company for the four quarters ended January 31,
1998 represent the mathematical addition of the historical amounts for the
predecessor company and the reorganized company only for purposes of the
discussion below. Significant differences between periods due to fresh-start
reporting adjustments are explained below, when necessary.
(in thousands)
<TABLE>
<CAPTION>
Year Four Quarters Year
Ended Ended Ended
January 31, January 31, December 31,
1999 1998 1996
---- ---- ----
<S> <C> <C> <C>
Total revenue ................................. $ 607,169 $ 632,554 $ 650,002
--------- --------- ---------
Operating costs and expenses:
Cost of sales ............................... 525,861 544,093 566,538
Selling, general and administrative expenses 58,638 58,609 57,103
Merger-related costs ........................ 7,888 -- --
Environmental expenses ...................... -- -- 37,582
--------- --------- ---------
Total operating costs and expenses .......... 592,387 602,702 661,223
--------- --------- ---------
Operating income ............................ 14,782 29,852 (11,221)
Other income (expense), net ................... 1,808 4,984 (6,759)
Interest income (expense), net ............. (9,870) (5,898) 1,473
Reorganization expense, net ................ -- (2,663) (3,535)
Fresh-start revaluation ..................... -- 5,107 --
--------- --------- ---------
Income before tax (provision) benefit and
extraordinary item ....................... 6,720 31,382 (20,042)
Income tax provision .......................... (4,788) (9,396) (8,453)
--------- --------- ---------
Income before extraordinary item .............. 1,932 21,986 (28,495)
Extraordinary item, net of tax ................ -- 42,240 --
--------- --------- ---------
Net income .................................... $ 1,932 $ 64,226 $ (28,495)
========= ========= =========
</TABLE>
18
<PAGE> 19
RESULTS OF OPERATIONS - YEAR ENDED JANUARY 31, 1999 COMPARED TO THE FOUR
QUARTERS ENDED JANUARY 31, 1998
Total revenues decreased by 4.0%, from $632.6 million in the four quarters
ended January 31, 1998 to $607.2 million in the year ended January 31, 1999.
Although volume and selling prices of ferrovanadium increased significantly in
the first half of 1998, market prices then declined by over 30% in the fourth
quarter of 1998, reducing the overall growth in revenues from ferrovanadium
sales during the year. Revenues from sales of chromium metal increased in the
year ended January 31, 1999, due primarily to increased volume. These increases
were more than offset, however, by a reduction in sales of low carbon
ferrochrome, ferroboron, aluminum master alloys and compacted products, due
primarily to lower volumes. Revenues from sales of products not produced by the
Company, primarily cobalt, silicon and manganese products, also declined during
this period, due primarily to lower volumes.
Gross margins decreased from $88.5 million in the four quarters ended
January 31, 1998 to $81.3 million in the year ended January 31, 1999, a decrease
of 8.1%, due principally to the decreases in low carbon ferrochrome margins
resulting from lower selling prices and less favorable product mix. In aluminum
master alloys and compacted products, a decrease in volume was more than offset
by improvements in product mix and cost reductions. Gross margins also reflect
lower of cost or market inventory provisions of approximately $7.9 million
relating to ferrovanadium and several chrome products, which the Company
recognized during the last two quarters ended January 31, 1999. The values of
the Company's assets were reduced pursuant to fresh-start reporting, reducing
depreciation expense by $1.4 million and $1.1 million in the year ended January
31, 1999 and the four quarters ended January 31, 1998, respectively, and
increasing gross margins by equal amounts.
Selling, general and administrative expenses (SG&A) were comparable in the
two periods. For the four quarters ended January 31, 1998, SG&A represented 9.3%
of the Company's sales compared to 9.7% for the year ended January 31, 1999.
Operating income decreased from $29.9 million in the four quarters ended
January 31, 1998 to $14.8 million in the year ended January 31, 1999, a decrease
of 50.5%. The decrease in operating income reflected the decrease in gross
margin, discussed above, as well as Merger-related costs of $7.9 million
incurred in the year ended January 31, 1999. These costs included: (a) $3.5
million for payments to cancel compensatory options; (b) $0.6 million in consent
fees incurred in order to obtain a one-time waiver of the change of control
provisions of the Indenture with regard to the Company's Senior Notes and to
amend the Indenture to reflect the post-Merger ownership of Metallurg, Inc.; (c)
$2.8 million for payments made pursuant to existing employment agreements with
Metallurg management; and (d) approximately $1.0 million of other Merger-related
costs.
Interest income (expense), net is as follows (in thousands):
<TABLE>
<CAPTION>
Year Four Quarters
Ended Ended
January 31, January 31,
1999 1998
---- ----
<S> <C> <C>
Interest income $ 2,963 $ 4,078
Interest expense (12,833) (9,976)
------- ------
Interest expense, net $ (9,870) $(5,898)
======== =======
</TABLE>
Interest expense increased significantly in the year ended January 31, 1999, as
the Company accrued approximately $11 million of interest expense on its $100
million aggregate principal amount of 11% Senior Notes due 2007, which were
issued in November 1997. The Company used a portion of the proceeds from the 11%
Senior Notes to retire $39.5 million of the then outstanding 12% Senior-Secured
Notes of Metallurg, Inc. due 2007. In the four quarters ended January 31, 1998,
the Company accrued approximately $4.6 million of interest expense on these 12%
Senior-Secured Notes and approximately $2.0 million of interest expense on the
11% Senior Notes. The Company did not accrue interest on debt incurred prior to
entering Chapter 11 proceedings. As a result, approximately $2.1 million of
contractual interest on these unsecured obligations, which were reported as part
of liabilities subject to compromise, was not reflected in the quarter ended
March 31, 1997.
19
<PAGE> 20
Income tax provision, net of tax benefits, is as follows (in thousands):
<TABLE>
<CAPTION>
Year Year
Ended Ended
January 31, January 31,
1999 1998
---- ----
<S> <C> <C>
Total current $(5,489) $(7,825)
Total deferred 701 (1,571)
------- -------
Income tax provision, net $(4,788) $(9,396)
======= =======
</TABLE>
The differences between the statutory Federal income tax rate and the
Company's effective rate result primarily because of: (i) the U.S. taxability of
foreign dividends; (ii) the excess of the statutory Federal income tax rate over
foreign tax rates; (iii) certain deductible temporary differences which, in
other circumstances would have generated a deferred tax benefit, have been fully
provided for in a valuation allowance; (iv) the deferred tax effects of certain
tax assets, primarily foreign net operating losses, for which the benefit had
been previously recognized approximating $0.1 million in the year ended January
31, 1999; and (v) the deferred tax effects of certain deferred tax assets for
which a corresponding credit has been recorded to "Additional paid-in capital"
approximating $0.7 million the year ended January 31, 1999. The deferred tax
expenses referred to in items (iv) and (v) above will not result in cash
payments in future periods.
Net income decreased from $64.2 million for the four quarters ended
January 31, 1998 to $1.9 million for the year ended January 31, 1999. Included
in prior year net income is an extraordinary item of $42.2 million, representing
primarily 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. In addition, other income included gains on the sales of the
Company's New York office building and of certain plant assets of one of the
Company's German subsidiaries totaling $4.4 million. The decrease in the current
year results from reduced gross margins, Merger-related costs and increased
interest expenses, is noted above.
RESULTS OF OPERATIONS -- FOUR QUARTERS ENDED JANUARY 31, 1998 COMPARED TO THE
YEAR ENDED DECEMBER 31, 1996
Total revenues for Metallurg and its subsidiaries decreased from $650.0
million in the year ended December 31, 1996 to $632.6 million in the four
quarters ended January 31, 1998, a decrease of 2.7%. Sales attributable to
Frankel Metal Company ("FMC"), the Company's former titanium scrap processing
subsidiary, accounted for a decrease of $10.3 million. Reduced volumes and
selling prices for manganese and ferrosilicon products in the U.S., resulting
from strong competition and lack of supply at competitive prices, respectively,
accounted for a decrease in sales. In addition, sales of low carbon ferrochrome
20
<PAGE> 21
declined as customers slowed down their buying in the quarter ended January 31,
1998. Offsetting this decrease, however, were increased volumes and selling
prices for ferrovanadium and ferrotitanium, resulting from a strong steel
market. In addition, the installation in 1997 of a new plant for the production
of chromium metal in the U.K. contributed to an increase in sales.
Gross margins increased from $83.5 million in the year ended December 31,
1996 to $88.5 million in the four quarters ended January 31, 1998, an increase
of 6.0%. Increases in volumes and selling prices of ferrovanadium and
ferrotitanium, as discussed above, accounted for much of the increase. Although
the Company's United Kingdom aluminum powder producing division recorded
decreased sales in the four quarters ended January 31, 1998 compared to the year
ended December 31, 1996, margins relating to such division increased 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 four quarters
ended January 31, 1998 by $1.1 million and increasing gross margin by an equal
amount. Gross margins related to ferrosilicon products, however, declined as a
result of reduced volumes and selling prices, as discussed above. In aluminum
master alloys and compacted products, increased volumes improved production
variances and significantly offset a decrease in margins at the Company's United
Kingdom operations caused by the impact of a strong British pound. Gross margins
related to FMC accounted for a further decrease in gross margins of $1.6 million
during this period.
SG&A increased from $57.1 million in the year ended December 31, 1996 to
$58.6 million in the four quarters ended January 31, 1998, an increase of 2.6%.
For the year ended December 31, 1996, SG&A represented 8.8% of the Company's
sales compared to 9.3% for the four quarters ended January 31, 1998. SG&A
increased principally as a result of 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, additional costs related to the
audit of the March 31, 1997 financial statements and the inclusion of an extra
month of the holding company's operations.
Operating loss was $11.2 million in the year ended December 31, 1996,
compared to operating income of $29.9 million in the four quarters ended January
31, 1998. The loss in 1996 was due principally to an environmental provision of
$37.6 million, representing the anticipated future costs of remediation and
maintenance of various environmental projects, primarily at Shieldalloy. The
improvement resulted from an increase in margins on sales of ferrovanadium,
ferrotitanium and aluminum powders due to the strength of the steel, superalloy
and chemical industries, partially offset by a decrease in margins on aluminum
master alloys and briquettes resulting from a highly competitive marketplace.
Operating income for the year ended December 31, 1996 included $1.5 million of
environmental expenses related to the operation of the water remediation
facility at the Company's Newfield NJ site. As a result of the Company's
adoption of SOP 96-1, "Environmental Remediation Liabilities", operating income
in the four quarters ended January 31, 1998 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, operating income of $29.9 million in the
four quarters ended January 31, 1998 included approximately $0.4 million of
expenses related to the operations of the holding company for the month of
January 1998.
Interest income (expense), net is as follows (in thousands):
<TABLE>
<CAPTION>
FOUR QUARTERS YEAR
ENDED ENDED
JANUARY 31, DECEMBER 31,
1998 1996
---- ----
<S> <C> <C>
Interest income .................. $ 4,078 $ 4,516
Interest expense ................. (9,976) (3,043)
------- -------
Interest (expense) income, net ... $(5,898) $ 1,473
======= =======
</TABLE>
Interest expense increased in the four quarters ended January 31, 1998, as the
Company recognized interest expense of $4.6 million on its 12% senior-secured
notes through November 1997 and accrued interest expense of $2.0 million on its
11% Senior Notes which were issued in November 1997. As a result of the change
in the fiscal year, the four quarters ended January 31, 1998 contain an
additional month of interest expense of approximately $0.9 million. The Company
did not accrue interest on debt incurred prior to entering Chapter 11
proceedings and therefore, approximately $2.1 million and $8.6 million of
contractual interest on these unsecured obligations, which were reported as part
of liabilities subject to compromise, were not reflected in the four quarters
ended January 31, 1998 and the year ended December 31, 1996, respectively.
21
<PAGE> 22
Income tax provision, net of tax benefits is as follows (in thousands):
<TABLE>
<CAPTION>
FOUR QUARTERS YEAR
ENDED ENDED
JANUARY 31, DECEMBER 31,
1998 1996
---- ----
<S> <C> <C>
Total current .................. $ (7,825) $ (8,504)
Total deferred ................. (1,571) 51
------ ---------
Income tax provision , net ..... $(9,396) $ (8,453)
======= ========
</TABLE>
The differences between the statutory Federal income tax rate and the Company's
effective rate are principally due to: (i) the excess of foreign tax rates over
the statutory Federal income tax rate (ii) certain deductible temporary
differences which, in the absence of fresh-start reporting 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 net
operating losses, for which the benefit had been previously recognized
approximating $2.3 million in the four quarters ended January 31, 1998 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 $2.9 million in the four quarters ended January 31, 1998. The
deferred tax expenses referred to in items (iii) and (iv) above will not result
in cash payments in future periods.
Net income was $64.2 million for the four quarters ended January 31, 1998
compared to a loss of $28.5 million for the year ended December 31, 1996 due
primarily to an extraordinary item of $42.2 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. Net
income for the four quarters ended January 31, 1998 included a loss of
approximately $1.2 million related to the operations of Metallurg, Inc. for the
month of January 1998. Reorganization expenses for the year ended December 31,
1996 totaled $3.5 million compared to $2.7 million in the four quarters ended
January 31, 1998. In the four quarters ended January 31, 1998, other income
included gains on the sales of the Company's New York office building and of
certain plant assets of one of the Company's German subsidiaries. In the year
ended December 31, 1996, other income included an additional gain on the sale of
land in Turkey.
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 currencie's also negatively impacted
LSM. Gross margins of 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
principally to the restructuring of German operations into a holding company
with several operating subsidiaries. In connection with this restructuring,
certain personnel who had previously concentrated solely on production aspects
of the business became more involved in general management and administrative
functions. This resulted in lower costs of production and increased SG&A
expenses being reported in 1996. SG&A represented 8.8% of the Company's sales in
1996, compared to 7.7% in 1995.
22
<PAGE> 23
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, primarily at
Shieldalloy. In 1995, operating income included a charge of $11.7 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.
In connection with the restructuring of the Company's principal German
subsidiary into separate business units, certain manufacturing facilities were
decommissioned and environmental expenses of $3.6 million were recognized
representing the estimated costs of remedial cleanup of the decommissioned
areas. 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.
For the years ended December 31, 1996 and 1995, the Company recorded tax
provisions of $8.5 million and $8.2 million, respectively, including current
foreign tax provisions of $8.1 million and $8.3 million, respectively, on net
foreign income of $25.8 million and $2.7 million, respectively. These foreign
tax provisions were calculated on a jurisdiction by jurisdiction basis and
resulted from income producing jurisdictions aggregating income of $36.1 million
and $27.1 million in the years ended December 31, 1996 and 1995, respectively.
Due to domestic losses in 1996 and utilization of net operating loss
carryforwards in 1995, no U.S. current tax provisions were recorded in each of
the years. The Company did not record benefits for foreign operations with
losses based on the uncertainty of realization of such benefits.
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 $11.7 million in restructuring charges relating to the
Company's German and Brazilian subsidiaries recorded in 1995.
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. In November
1997, the Company issued $100 million principal amount of 11% Senior Notes due
2007, the proceeds of which were used to retire the Company's then existing 12%
senior-secured notes (approximately $39.5 million), repay certain debt of the UK
and German subsidiaries (approximately $20.0 million) and to pay a cash dividend
(approximately $20.0 million). The balance of the net proceeds were for general
corporate purposes. The Company 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 January 31, 2000.
At January 31, 1999, the Company had $37.3 million in cash and cash equivalents
and working capital of $166.2 million, as compared to $43.0 million and $167.8
million, respectively, at January 31, 1998. For the year ended January 31, 1999,
the Company generated $3.6 million in cash from operations and received proceeds
of approximately $1.1 million on the sale of its Luxembourg affiliate. Capital
expenditures approximated $15.7 million and in February 1998, the Company
purchased an additional 5% interest in a Russian magnesium metal producer for
approximately $2.0 million.
Credit Facilities and Other Financing Arrangements. The Company has a credit
facility with certain financial institutions led by BankBoston, N.A. 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
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 $12.3 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
January 31, 1999, there were no outstanding loans; however, there were $23.8
million of letters of credit outstanding in the U.S. under the Revolving Credit
Facility and immaterial amounts
23
<PAGE> 24
outstanding under the German Subfacility. 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. 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. The revolving credit agreement, which expires on April 14, 2000,
also requires Metallurg and certain subsidiaries to comply with various
covenants, including the maintenance of minimum levels of quarterly earnings
before interest, taxes, depreciation and amortization, as defined in the
Indenture ("Adjusted EBITDA"). These companies were required to maintain
quarterly Adjusted EBITDA of $1,000,000. For the quarter ended December 31,
1998, Adjusted EBITDA of such companies was a loss of $7,300,000; at the
Company's request, BankBoston waived that requirement of the agreement as of,
and for the quarter, ended December 31, 1998 and amended the agreement to
eliminate the Adjusted EBITDA quantitative covenants so long as certain other
defined cash positions are maintained as prescribed in the agreement.
In August 1998, GfE entered into a term loan with IKB Deutsche Industriebank in
the amount of DM 10.0 million (approximately $6.0 million). The loan, which
matures in 2008, bears interest at a rate of 4.5% and is secured by certain
property of the German subsidiary. The GfE group also has unsecured term loans
approximating DM 3.0 million (approximately $1.8 million) maturing through 2004
and bearing interest at a weighted average rate of 6%.
LSM has several credit facilities which provide LSM and its subsidiaries with up
to pound sterling 7.0 million (approximately $11.6 million) of borrowings, up to
pound sterling 3.3 million (approximately $5.5 million) of foreign exchange
exposure and up to pound sterling 2.3 million (approximately $3.8 million) for
other ancillary banking arrangements including bank guarantees (the "LSM Credit
Facility"). Borrowings under the LSM Credit Facility are payable on demand. The
facility expires in October 1999 and outstanding loans under the LSM Credit
Facility bear interest at the lender's base rate plus 1.0%. At January 31, 1999,
there were no outstanding borrowings under the LSM Credit Facility. In 1998, LSM
increased a facility for borrowings and foreign exchange exposure to pound
sterling 4.0 million (approximately $6.6 million). This facility, which expires
in December 1999, is unsecured and borrowings bear interest at a rate of 1% over
the bank's base rate. At January 31, 1999, there were no borrowings under these
facilities.
On April 11, 1997, LSM entered into a term loan facility with NM Rothschild &
Sons Limited in the amount of pound sterling 5.0 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.
EWW has committed lines of credit with several banks in the aggregate amount of
DM 15.2 million (approximately $9.1 million) which reduce on an annual basis by
DM 3.0 million beginning July 1, 1999 and currently bear interest at rates from
7.5% to 8.5%. As of January 31, 1999, there was DM 3.6 million (approximately
$2.1 million) outstanding under this facility.
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 January 31, 1999,
there were $1.0 million of outstanding loans under these local credit
facilities.
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.
EWW has a contingent obligation to a German state pension authority which as of
January 31, 1999, was DM 1.7 million (approximately $1.0 million). The Company
expects that EWW will pay approximately DM 0.8 million (approximately $0.5
million) to the pension authority in 1999 in respect of this obligation.
Capital Expenditures. The Company invested $15.7 million in capital projects
during the year ended January 31, 1999. The Company's capital expenditures
include projects related to improving the Company's operations, productivity
improvements, replacement projects and ongoing environmental requirements (which
are in addition to expenditures discussed in "Environmental Remediation Costs").
Capital expenditures are budgeted to increase significantly over prior year
levels to approximately $23.2 million in the year ended January 31, 2000,
including $13.8 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 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
the year ended January 31, 2000, the Company has not committed to complete these
projects during that period as such commitments are contingent on senior
management
24
<PAGE> 25
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.
Market Risk. The Company uses financial instruments to manage the impact of
foreign exchange rate changes on earnings and cash flows. Accordingly, the
Company enters into forward exchange contracts to protect the value of existing
foreign currency assets and liabilities and to hedge future foreign currency
product costs. Gains and losses on these contracts are offset by the gains and
losses on the underlying transactions.
The Company uses sensitivity analysis to assess the market risk associated with
its foreign currency transactions. Market risk here is defined as the potential
change in fair value resulting from an adverse movement in foreign currency
exchange rates. A 10% depreciation movement in foreign currency rates could
result in a net loss of $3.2 million on the Company's foreign currency exchange
contracts and a 10% appreciation movement in foreign currency rates could result
in a net gain of $2.8 million on the Company's contracts. In either scenario,
the gain or loss on the forward contract is offset by the gain or loss on the
underlying transaction and therefore, has no impact on future earnings and cash
flows. The Company does not enter into financial instruments for trading or
speculative purposes.
Year 2000 Readiness.
Metallurg has completed an internal review of its subsidiaries' information
technology systems in connection with its assessment of Year 2000 readiness and
is in the process of replacing or modifying some of the management and
accounting systems at its subsidiaries to upgrade them generally and to make
them Year 2000 ready. Metallurg expects to spend between $1.0 million and $2.0
million on these systems changes. The Company expects that the information
technology systems for all of its subsidiaries will be Year 2000 ready by August
31, 1999, and a substantial percentage has been completed to date. Those systems
that are not being replaced are being, or have been, modified by Company
personnel to assure that they are Year 2000 ready. Accordingly, no additional
cost has been recognized for such internal upgrades. Metallurg is currently
assessing whether any of its non-information technology will need to be modified
to become Year 2000 ready.
Metallurg has not received written assurances from its significant suppliers and
customers to determine the state of their readiness with regard to Year 2000 .
The Company believes that they will be prepared for Year 2000 based on its
normal interactions with its customers and suppliers and because of the wide
attention that the issue has received. Metallurg has not yet seen the need for
contingency plans for the Year 2000 issue, but this need will continue to be
monitored as it obtains more information about the state of readiness of its
suppliers and customers.
Metallurg presently believes that the Year 2000 issue will not pose significant
operational problems for its business systems as it believes that all needed
modifications and conversions will be timely made. If any of Metallurg's
suppliers or customers do not, or if Metallurg itself does not, successfully
deal with the Year 2000 issue, the Company could experience delays in receiving
or shipping products and in receiving payments. The severity of these possible
problems would depend on the nature of the problem and how quickly it could be
corrected or an alternative implemented, which is unknown at this time.
The anticipated costs for Metallurg to become Year 2000 ready and the
anticipated timing to complete the Year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events, including timely performance by third parties who will provide
Metallurg with the software for its new systems. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the ability to locate and
correct all relevant computer codes, the ability to successfully integrate new
business systems with existing operations and similar uncertainties. Some risks
of the Year 2000 issue are beyond the control of Metallurg and its suppliers and
customers. In particular, Metallurg cannot predict the effect that the Year 2000
issue will have on the general economy.
25
<PAGE> 26
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 year ended January 31, 1999, the Company expended $3.0 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 January 31, 1999, had an estimated cost of completion
of $40.4 million. Of this amount, approximately $3.6 million is expected to be
expended in 1999, $5.7 million in 2000 and $7.4 million in 2001. In addition,
the Company estimates it will make expenditures of $4.8 million with respect to
environmental remediation at its foreign facilities. Of this amount,
approximately $2.0 million is expected to be expended in 1999, $0.9 million in
2000 and $0.8 million in 2001. These amounts are not included in the calculation
of operating income.
The Company believes that while its remediation obligations and other
environmental costs, in the aggregate, will reduce its liquidity, the Company
believes its cash balances, cash from operations and cash available under its
credit facilities is sufficient to fund its current and anticipated future
requirements for environmental expenditures.
Effects of Recently Issued Accounting Standards. In June 1998, the FASB issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities".
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999. The
Company is currently evaluating the impact SFAS No. 133 will have on its
financial statements.
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."
26
<PAGE> 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following audited consolidated financial statements of Metallurg, Inc. and
Consolidated Subsidiaries are presented herein pursuant to the requirements of
Item 8 on the pages indicated below:
<TABLE>
<CAPTION>
AUDITED FINANCIAL STATEMENTS:
PAGE
<S> <C>
Report of Independent Accountants -- PricewaterhouseCoopers LLP for the Year
Ended January 31,1999.......................................................................... 28
Independent Auditors' Report -- Deloitte & Touche LLP for the Three Quarters Ended
January 31,1998, the Quarter End March 31,1997 and the Year Ended
December 31,1996............................................................................... 29
Statements of Consolidated Operations for the Year Ended January 31, 1999,
the Three Quarters Ended January 31, 1998, the Quarter Ended March 31, 1997 and
the Year Ended December 31, 1996............................................................... 30
Consolidated Balance Sheets at January 31, 1999, January 31, 1998 and March 31, 1997 ................ 31
Statements of Consolidated Cash Flows for the Year Ended January 31, 1999, the
Three Quarters Ended January 31, 1998, the Quarter Ended March 31, 1997
and the Year Ended December 31, 1996 ......................................................... 32
Notes to Consolidated Financial Statements for the Year Ended January 31, 1999,
the Three Quarters Ended January 31, 1998, the Quarter Ended March 31, 1997
and the Year Ended December 31, 1996 ......................................................... 33-71
Selected Quarterly Financial Data (unaudited) for the Years Ended January 31, 1999
and January 31, 1998 ......................................................................... 72
AUDITED FINANCIAL STATEMENT SCHEDULE:
Report of Independent Accountants--PricewaterhouseCoopers LLP
for the Year Ended January 31, 1999 .......................................................... 73
Schedule VIII - Valuation and Qualifying Accounts and Reserves ..................................... 74
</TABLE>
27
<PAGE> 28
[PWC OFFICE LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Metallurg, Inc.
In our opinion, the accompanying consolidated balance sheet as of January 31,
1999 and the related statements of consolidated operations and of consolidated
cash flows present fairly, in all material respects, the financial position of
Metallurg, Inc. and its subsidiaries (the "Company") at January 31, 1999, and
the results of its operations and its cash flows for the year then ended, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above. The consolidated balance sheet of the Company as of January 31, 1998 and
March 31, 1997 and the related statements of consolidated operations and
consolidated cash flows for the three quarters ended January 31, 1998
(Reorganized Company), the quarter ended March 31, 1997 and the year ended
December 31, 1996 (Predecessor Company) were audited by other independent
accountants whose report dated April 1, 1998 expressed an unqualified opinion on
those statements.
PricewaterhouseCoopers LLP
New York, New York
March 31, 1999
28
<PAGE> 29
INDEPENDENT AUDITORS' REPORT
Metallurg, Inc.:
We have audited the accompanying consolidated balance sheets of Metallurg, Inc.
and consolidated subsidiaries as of January 31, 1998 and March 31, 1997
(Reorganized Company balance sheets) and the related statements of consolidated
operations and of consolidated cash flows for the three quarters ended January
31, 1998 (Reorganized Company operations), the quarter ended March 31, 1997 and
the year ended December 31, 1996 (Predecessor Company operations). Our audits
also included the financial statement schedule, Schedule VIII--Valuation and
Qualifying Accounts and Reserves for the three quarters ended January 31, 1998
and the quarter ended March 31, 1997 (Reorganized Company) and the year ended
December 31, 1996 (Predecessor Company), appearing on page 74, for the three
quarters ended January 31, 1998, the quarter ended March 31, 1997 and the year
ended December 31, 1996. These consolidated financial statements and financial
schedule 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 the principles used and significant
estimates made by management, as well as evaluating the overall financial
statements presentation. We believe our audits provide a reasonable basis for
our opinion.
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 that day. Accordingly, the accompanying
consolidated balance sheets as of January 31, 1998 and March 31, 1997 and the
statements of consolidated operations and of consolidated cash flows for the
three quarters ended January 31,1998 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.
In our opinion, the Reorganized Company's balance sheets present fairly, in all
material respects, the financial position of Metallurg, Inc. and consolidated
subsidiaries at January 31, 1998 and March 31, 1997 and the results of their
consolidated operations and their consolidated cash flows for the three quarters
ended January 31, 1998, and the Predecessor Company consolidated financial
statements, referred to above, present fairly, in all material respects, the
results of their consolidated operations and their consolidated cash flows for
the quarter ended March 31, 1997 and for the year ended December 31, 1996 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
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
April 1, 1998
29
<PAGE> 30
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
------------------- -------------------
Year Three Quarters Quarter Year
Ended Ended Ended Ended
January 31, January 31, March 31, December 31,
Notes 1999 1998 1997 1996
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sales .................................... 1 $606,334 $476,426 $155,427 $648,816
Commission income ........................ 1 835 541 160 1,186
-------- -------- -------- --------
Total revenue .......................... 607,169 476,967 155,587 650,002
Cost of sales ............................ 1 525,861 410,033 134,060 566,538
-------- -------- -------- --------
Gross margin ........................... 81,308 66,934 21,527 83,464
Selling, general, and
administrative expenses ................ 58,638 43,563 15,046 57,103
Environmental expenses ................... 1 - - - 37,582
Merger-related costs ..................... 2 7,888 - - -
-------- -------- -------- --------
Operating income (loss) ................ 14,782 23,371 6,481 (11,221)
Other:
Other income (expense), net ............ 13 1,808 1,805 3,179 (6,759)
Interest income (expense), net ......... 3,9 (9,870) (5,653) (245) 1,473
Reorganization expense ................. 3 - - (2,663) (3,535)
Fresh-start revaluation ................ 3 - - 5,107 -
-------- -------- -------- --------
Income (loss) before income tax
provision and extraordinary item ......... 6,720 19,523 11,859 (20,042)
Income tax provision (benefit) ........... 1,11 4,788 12,459 (3,063) 8,453
-------- -------- -------- --------
Income (loss) before extraordinary
item .................................. 1,932 7,064 14,922 (28,495)
Extraordinary item, net of tax ........... 1,3 - (792) 43,032 -
-------- -------- -------- --------
Net income (loss) ........................ 1,932 6,272 57,954 (28,495)
Other comprehensive income:
Foreign currency translation adjustment 1,12 (1,004) 673 (1,224) 4,268
Minimum pension liability adjustment .. (57) - - -
-------- -------- -------- --------
Comprehensive income (loss) ............ $ 871 $ 6,945 $ 56,730 $ (24,227)
========= ========= ======== =========
</TABLE>
See notes to consolidated financial statements.
30
<PAGE> 31
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
January 31, January 31, March 31,
Notes 1999 1998 1997
----- ---- ---- ----
ASSETS (Note 3)
Current Assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents ................................. 1 $ 37,293 $ 43,003 $ 30,340
Trade receivables, less allowance for doubtful
accounts (1999: $1,770; 1998: $1,700; 1997 $-0-) ..... 1 63,680 83,931 94,150
Inventories ............................................... 1,6 120,658 117,589 109,258
Prepaid expenses and other current assets ................. 16,048 14,239 16,312
Assets held for sale ...................................... 1 711 - 1,180
------- -------- ---------
Total current assets .................................... 238,390 258,762 251,240
Investments in affiliates .................................... 1,5 5,396 1,610 1,461
Property, plant and equipment, net ........................... 1,7 49,018 41,502 38,907
Other assets ................................................. 18,313 17,912 14,096
------- -------- ---------
Total ...................................................... $311,117 $319,786 $305,704
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt ........................................... 9 $ 3,871 $ 2,836 $ 13,500
Current portion of long-term debt ......................... 9 1,074 1,180 1,277
Trade payables 37,460 51,308 55,947
Accrued expenses .......................................... 19,063 24,022 25,351
Current portion of environmental liabilities .............. 1,14 6,738 6,553 5,270
Taxes payable ............................................. 11 3,955 5,106 6,579
------- -------- ---------
Total current liabilities ............................... 72,161 91,005 107,924
------- -------- ---------
Long-term Liabilities:
Long-term debt ............................................ 9 109,185 103,133 51,711
Accrued pension liabilities ............................... 1,8 41,062 38,351 41,090
Environmental liabilities, net ............................ 1,14 35,463 38,527 42,865
Other liabilities ......................................... 5,556 6,999 12,114
------- -------- ---------
Total long-term liabilities ................................ 191,266 187,010 147,780
------- -------- ---------
Total liabilities .......................................... 263,427 278,015 255,704
------- -------- ---------
Commitments and Contingencies ................................ 15
Shareholders' Equity:
Common stock - 1999: par value $.01 per share,
authorized 10,000,000 shares, issued and outstanding
5,000,000 shares; 1998 and 1997: par value $.01 per
share, authorized 15,000,000 shares, issued and
outstanding 4,956,406 shares ................................. 12 50 50 50
Additional paid-in capital ................................... 12 45,257 40,209 49,950
Accumulated other comprehensive income ....................... 12 (388) 673 -
Retained earnings ............................................ 2,771 839 -
------- -------- ---------
Total shareholders' equity ................................. 47,690 41,771 50,000
------- -------- ---------
Total .................................................... $311,117 $319,786 $305,704
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
31
<PAGE> 32
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
------------------- -------------------
Year Three Quarters Quarter Year
Ended Ended Ended Ended
January 31, January 31, March 31, December 31,
1999 1998 1997 1996
---- ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net income (loss) ...................................... $ 1,932 $ 6,272 $ 57,954 $ (28,495)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Executive stock awards ............................... 750 1,250 500 --
Extraordinary item, net of taxes ..................... -- -- (43,032) --
Fresh-start revaluation .............................. -- -- (5,107) --
Depreciation and amortization ........................ 8,580 5,320 2,143 10,688
Gain on sales of assets .............................. (326) (1,848) (3,266) (3,597)
Reorganization expense, net of payments .............. -- (4,298) 1,538 894
Deferred income taxes ................................ (701) 5,338 (3,767) (51)
Provision for doubtful accounts ...................... 109 1,100 162 696
Environmental payments, net of provision in 1996 ..... (3,029) (2,468) (256) 32,473
Provision for allowed claims ......................... -- -- -- 10,547
Other, net ........................................... 1,858 3,659 3,057 5,961
--------- --------- --------- ---------
Total .............................................. 9,173 14,325 9,926 29,116
Changes in operating assets and liabilities:
Decrease (increase) in trade receivables .............. 22,230 8,791 (20,272) 9,916
(Increase) decrease in inventories .................... (975) (14,853) (6,120) 14,308
(Increase) decrease in other current assets ........... (1,424) 1,961 (355) (1,210)
(Decrease) increase in trade payables and
accrued expenses .................................... (17,253) (5,650) 18,895 1,412
Decrease in prepetition liabilities ................... -- -- (39) (189)
Receipt from environmental trust, net ................. -- -- 5,928 --
Other assets and liabilities, net ..................... (8,134) (4,920) (1,547) (5,688)
--------- --------- --------- ---------
Net cash provided by (used in) operating activities 3,617 (346) 6,416 47,665
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment ............. (15,682) (9,447) (2,774) (9,531)
Proceeds from asset sales .............................. 1,419 3,747 4,966 5,806
Other, net ............................................. (3,901) 14 (25) (1,294)
--------- --------- --------- ---------
Net cash (used in) provided by investing activities ... (18,164) (5,686) 2,167 (5,019)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING AND REORGANIZATION ACTIVITIES:
Capital contribution from Safeguard International ...... 3,541 -- -- --
Cash distribution pursuant to Plan of .................. -- -- (59,366) --
Reorganization
Drawdown of prepetition letters of credit .............. -- -- 9,700 --
Proceeds from long-term debt ........................... 6,598 100,000 8,100 --
Fees paid to issue long-term debt ...................... -- (4,000) -- --
Net borrowing (repayment) of short-term debt ........... 632 (9,313) 1,062 (14,709)
Repayment of long-term debt ............................ (2,089) (48,309) (487) (1,408)
Payment of dividends ................................... -- (19,330) -- --
--------- --------- --------- ---------
Net cash provided by (used in) financing
and reorganization activities ...................... 8,682 19,048 (40,991) (16,117)
--------- --------- --------- ---------
Effects of exchange rate changes on cash and
cash equivalents....................................... 155 (353) (526) (83)
--------- --------- --------- ---------
Net (decrease) increase in cash and cash equivalents.... (5,710) 12,663 (32,934) 26,446
Cash and cash equivalents-beginning of period .......... 43,003 30,340 63,274 36,828
--------- --------- --------- ---------
Cash and cash equivalents-end of period ................ $ 37,293 $ 43,003 $ 30,340 $ 63,274
========= ========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes ............................. $ 7,939 $ 6,859 $ 1,524 $ 5,817
========= ========= ========= =========
Cash paid for interest ................................. $ 12,372 $ 6,715 $ 619 $ 3,021
========= ========= ========= =========
Cash paid for reorganization expense ................... $ 186 $ 5,423 $ 1,125 $ 2,641
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
32
<PAGE> 33
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Metallurg, Inc. ("Metallurg") and its majority-owned subsidiaries (collectively,
the "Company") manufacture and sell 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 (primarily in North America and
Europe).
Basis of Presentation and Consolidation - The consolidated financial statements
include the accounts of Metallurg, Inc. and its majority-owned subsidiaries. All
material 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 July 13, 1998, Metallurg was acquired by a group of institutional
co-investors led by Safeguard International Fund, L.P. ("Safeguard
International"). Metallurg is now a wholly owned subsidiary of Metallurg
Holdings, Inc., ("Metallurg Holdings") a Delaware corporation formed on June 10,
1998 by Safeguard International to effect the acquisition. The financial
statements do not reflect the pushdown of purchase accounting adjustments
recorded by Metallurg Holdings.
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. 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
("SOP") No. 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code", the Company was required to report its financial results for
the period ended January 31, 1998 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 three quarters ended January 31, 1998 for the
reorganized Company. The financial statements of the Company after consummation
of the Plan are not directly comparable to the Company's financial statements of
prior periods.
Effective April 1, 1997, the reporting period of Metallurg, Inc. was changed
from a calendar year ending December 31 to a fiscal year ending January 31 and
began reporting the results of its operating subsidiaries, which retained a
calendar year-end, on a one-month lag. As a result of this change, the three
quarters ended January 31, 1998 include the results of Metallurg, Inc. for the
ten months ended January 31, 1998 and the results of its operating subsidiaries
for the nine months ended December 31, 1997.
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 presents all highly liquid instruments,
maturing within 30 days or less when purchased, as cash equivalents.
33
<PAGE> 34
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 which, for long-lived assets, is calculated in
accordance with SFAS No. 121, as discussed below. The Company's Brazilian
operating subsidiary adopted a plan to restructure mining and certain other
operations in 1995. The remaining carrying amount of assets no longer needed in
these operations, and which are being held for sale in 1999, totaled $711,000.
At March 31, 1997, an office building owned by the Company's United Kingdom
subsidiary, valued at approximately $1,180,000 was held for sale.
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. Investments in which the
Company has less than a 20% interest are carried at cost.
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 or 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.
Revenue Recognition - Sales represent amounts invoiced to customers by the
Company and such revenue is recognized when the product is shipped and title to
the product passes to the customer. 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, which is recognized when the
supplier passes title to the customer.
Environmental Remediation Costs - In accordance with SOP 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. Cost of future expenditures for
environmental remediation obligations are generally not discounted to their
present value.
Valuation of Long-Lived Assets - In 1995, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of". In accordance with this standard, the Company periodically
evaluates the carrying value of long-lived assets to be held and used, including
goodwill and other intangible assets, when events and circumstances warrant such
a review. The carrying value of a long-lived asset is considered impaired when
the anticipated undiscounted cash flow from such asset is separately
identifiable and is less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair
market value of the long-lived asset. Fair market value is determined primarily
using the anticipated cash flows discounted at a rate commensurate with the risk
involved. Losses on long-lived assets to be disposed of are determined in a
similar manner, except that fair market values are reduced for the cost to
dispose.
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 certain of its foreign subsidiaries which
approximated $40,000,000, $37,000,000 and $38,000,000 at January 31, 1999,
January 31, 1998 and March 31, 1997, 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 remittance and inclusion in
U.S. taxable income. Accordingly, the Company does not provide for U.S. income
taxes on foreign currency translation adjustments related to these foreign
subsidiaries.
34
<PAGE> 35
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
Stock-Based Compensation - The Company accounts for stock-based compensation
using the intrinsic value method, in accordance with Accounting Principles Board
Opinion No. 25. Accordingly, compensation cost for stock options is measured as
the excess, if any, of the market price of the Company's common stock at the
date of grant over the amount an employee must pay to acquire the stock.
Disclosures required with respect to alternative fair value measurement and
recognition methods prescribed by SFAS No. 123, "Accounting for Stock-Based
Compensation" are presented in Note 12.
Foreign Exchange Gains and Losses - Foreign exchange transaction gains of
$618,000, $987,000, $712,000 and $1,853,000 were recorded for the year ended
January 31, 1999, the three quarters ended January 31, 1998, the quarter ended
March 31, 1997 and the year ended December 31, 1996, respectively. Translation
gains and losses resulting from reporting foreign subsidiaries in U.S. dollars
are recorded directly to shareholders' equity.
Financial Instruments - The Company enters into foreign exchange contracts in
the regular course of business to manage exposure against fluctuations on sales
and raw material purchase transactions denominated in currencies other than the
functional currencies of its businesses. Unrealized gains and losses are
deferred and recognized in income or as adjustments of carrying amounts when the
hedged transactions are included in income. Gains and losses on unhedged foreign
currency transactions are included in income. The Company does not hold or issue
financial instruments for trading purposes. The counterparties to these
contractual arrangements are a diverse group of major financial institutions
with which the Company also has other financial relationships. The Company is
exposed to credit risk generally limited to unrealized gains in such contracts
in the event of nonperformance by counterparties of those financial instruments,
but it does not expect any counterparties to fail to meet their obligations
given their high credit ratings.
Extraordinary Item - In November 1997, the Company recognized an extraordinary
charge of $792,000, net of tax of $473,600, as a result of the early retirement
of the Company's 12% senior-secured notes due 2007 and the United Kingdom
subsidiary's term loan due 2000. The notes were redeemed at 103% and 101% of
principal amount, respectively, with accrued interest to the date of redemption.
In the quarter ended March 31, 1997, the Company recognized an extraordinary
gain of $43,032,000, net of tax of nil, relating to the discharge of
indebtedness at the consummation of the Plan of Metallurg and SMC.
Recently Issued Accounting Pronouncements - In June 1998, the FASB issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999. The
Company is currently evaluating the impact SFAS No. 133 will have on its
financial statements.
Reclassification - Certain prior year amounts were reclassified to conform to
1999 presentations.
35
<PAGE> 36
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. MERGER
On July 13, 1998, Metallurg was acquired by a group of investors led by
Safeguard International. The acquisition was accomplished by Metallurg
Acquisition Corp., a wholly owned subsidiary of Metallurg Holdings, a Delaware
corporation, merging with and into Metallurg, with Metallurg being the surviving
company and Metallurg Holdings becoming the sole parent of Metallurg (the
"Merger"). Metallurg Holdings was formed on June 10, 1998 and is owned by
Safeguard International, an international private equity fund that invests
primarily in equity securities of companies in process industries, certain
limited partners of Safeguard International, certain individuals and a private
equity fund.
In connection with the Merger, Metallurg received the consents of 100% of the
registered holders of its $100,000,000 senior notes (the "Senior Notes") to a
one-time waiver of the change of control provisions of the Senior Note Indenture
to make such provisions inapplicable to the Merger and to amend the definition
of "Permitted Holders" under the Senior Note Indenture to reflect the
post-merger ownership of Metallurg. No other modifications to terms of
outstanding debt were affected in this regard. At the time of the Merger, each
outstanding share of Metallurg common stock was converted into the right to
receive $30 in cash. As of July 13, 1998, in connection with the Merger, all of
the then outstanding shares of common stock of Metallurg were cancelled and 100
shares of common stock, $0.01 par value, were issued to Metallurg Holdings.
Merger-related costs of $7,888,000 were incurred, and recorded as expense by
Metallurg, in the year ended January 31, 1999 and included (a) $3,541,000 for
payments to cancel compensatory stock options; (b) $625,000 in consent fees
incurred in order to obtain the one-time waiver of the change of control
provisions of the Senior Note Indenture; (c) $2,822,000 for payments made
pursuant to existing employment agreements with Metallurg management and (d)
$900,000 of other merger-related costs.
3. PLAN OF REORGANIZATION AND FRESH-START REPORTING
Costs of administration of the Chapter 11 proceedings approximating $2,663,000
and $3,535,000 were recorded by the Debtors during the quarter ended March 31,
1997 and the year ended December 31, 1996, 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.
36
<PAGE> 37
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Condensed financial statements for the Debtors follow (in thousands):
METALLURG, INC. AND SHIELDALLOY METALLURGICAL CORP.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Quarter For the Year
Ended Ended
March 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Total revenue ................................ $ 56,858 $ 224,572
--------- ---------
Operating costs and expenses:
Cost of sales .............................. 51,630 208,733
Selling, general and administrative expenses 4,942 14,440
Environmental expenses ..................... -- 35,176
--------- ---------
Total operating costs and expenses ...... 56,572 258,349
--------- ---------
Operating income (loss) ...................... 286 (33,777)
Other:
Other income (expense), net ................ (7,269) (21,778)
Interest (expense) income, net ............. (239) 2,775
Reorganization expense ..................... (2,663) (3,535)
Fresh-start revaluation .................... 1,050 --
Equity in earnings of subsidiaries ......... 19,367 28,012
--------- ---------
Income (loss) before income tax provision and
extraordinary item 10,532 (28,303)
Income tax (benefit) provision ............... (211) 192
--------- ---------
Income (loss) before extraordinary item ...... 10,743 (28,495)
Extraordinary item, net of tax ............... 47,211 --
--------- ---------
Net income (loss) ............................ $ 57,954 $ (28,495)
========= =========
</TABLE>
37
<PAGE> 38
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
METALLURG, INC. AND SHIELDALLOY METALLURGICAL CORP.
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
March 31,
1997
----
ASSETS
Current Assets:
<S> <C>
Cash and cash equivalents ........ $ 9,991
Accounts and notes receivable, net 40,796
Inventories ...................... 36,200
Other assets ..................... 4,643
---------
Total current assets .............. 91,630
Property, plant and equipment, net .. 9,375
Investments - intergroup ............ 64,773
Investments - other ................. 244
Other assets ........................ (4,177)
---------
Total ........................... $ 161,845
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade payables ................... $ 15,326
Accrued expenses ................. 16,006
Other current liabilities ........ 565
---------
Total current liabilities ......... 31,897
---------
Long-term Liabilities:
Long-term debt .................. 39,461
Accrued pension liabilities ..... 2,143
Environmental liabilities, net .. 36,949
Other liabilities ............... 1,395
---------
Total long-term liabilities ....... 79,948
---------
Total liabilities ................ 111,845
---------
Shareholders' Equity:
Common stock outstanding .......... 50
Additional paid-in capital ........ 49,950
Retained earnings ................. --
---------
Total shareholders' equity ........ 50,000
---------
Total ........................... $ 161,845
=========
</TABLE>
38
<PAGE> 39
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
METALLURG, INC. AND SHIELDALLOY METALLURGICAL CORP.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Quarter For the Year
Ended Ended
March 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Net Cash Flows from Operating Activities ............... $ 5,891 $ 11,723
-------- --------
Cash Flows from Investing Activities:
Additions to property, plant and equipment ........... (1,022) (679)
Proceeds from asset sales ............................ 4,215 493
Other, net ........................................... -- (6,192)
-------- --------
Net cash provided by (used in) investing activities 3,193 (6,378)
-------- --------
Cash Flows from Financing and Reorganization Activities:
Cash distribution pursuant to Plan of Reorganization . (59,366) --
Drawdown of prepetition letters of credit ............ 9,700 --
Intergroup (repayments) borrowings ................... (579) 5,835
Dividends received ................................... 9,423 5,091
-------- --------
Net cash (used in) provided by financing and
reorganization activities ........................ (40,822) 10,926
-------- --------
Net (decrease) increase in cash and cash equivalents ... (31,738) 16,271
Cash and cash equivalents - beginning of period ........ 41,729 25,458
-------- --------
Cash and cash equivalents - end of period .............. $ 9,991 $ 41,729
======== ========
</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-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 net gain of $47,211,000 was
recorded as an extraordinary item, net of tax effects of nil due to statutory
exemption and utilization of net operating loss carryforwards. Such net
operating loss carryforwards had previously been offset in full by a valuation
allowance.
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 assets over
the total reorganization value of its assets 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. As a result
of the adjustments made to reflect fresh-start reporting, a pre-tax revaluation
credit of $5,107,000 is included in the Company's results of operations for the
quarter ended March 31, 1997.
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.
39
<PAGE> 40
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 were as follows (in
thousands):
<TABLE>
<CAPTION>
Prior to Effects Adoption of Opening
Joint Plan of Fresh-Start Balance
Effectiveness Joint Plan (a) Reporting Sheet
------------- -------------- --------- -----
ASSETS
Current Assets:
<S> <C> <C> <C> <C>
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) --
Retained (deficit) earnings ...................... (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.
40
<PAGE> 41
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. SEGMENTS AND RELATED INFORMATION
The Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information" in the year ended January 31, 1999 which changes the
way the Company reports information about its reportable segments. The
accounting policies of the reportable segments are the same as those described
in Note 1 of the Notes to Consolidated Financial Statements. Information for
prior periods presented have been restated in order to conform to the current
year presentation.
The Company operates in one significant industry segment, the manufacture and
sale of ferrous and non-ferrous metals and alloys. The Company 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. In addition to selling products manufactured by the Company, the
Company distributes complementary products manufactured by third parties.
Reportable Segments
Shieldalloy: This unit is comprised of two production facilities in the U.S. The
New Jersey plant manufactures and sells aluminum alloy grain refiners and
alloying tablets for the aluminum industry, metal powders for the welding
industry and specialty ferroalloys for the superalloy and steel industries. The
Ohio plant manufactures and sells ferrovanadium and vanadium based chemicals
used mostly in the steel and petrochemical industries. In addition to its
manufacturing operations, Shieldalloy imports and distributes complementary
products manufactured by affiliates and third parties.
London & Scandinavian Metallurgical Co., Ltd. ("LSM"): This unit is comprised
mainly of three production facilities in the UK which manufacture and sell
aluminum alloy grain refiners and alloying tablets for the aluminum industry,
chromium metal and specialty ferroalloys for the steel and superalloy industries
and aluminum powder for various metal powder consuming industries.
Gesellschaft fur Elektrometallurgie mbH ("GfE"): This unit is comprised of two
production facilities and a sales office in Germany. The Nuremburg plant
manufactures and sells a wide variety of specialty products, including vanadium
based chemicals and sophisticated metals, alloys and powders used in the
titanium, superalloy, electronics, steel, biomedical and optics industries. The
Morsdorf plant produces medical protheses, implants and surgical instruments for
orthopedic applications.
Elektrowerk Weisweiler GmbH ("EWW"): This production unit, also located in
Germany, produces various grades of low carbon ferrochrome used in the
superalloy, welding and steel industries.
41
<PAGE> 42
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Summarized financial information concerning the Company's reportable segments is
shown in the following table (in thousands). Each segment records direct
expenses related to its employees and operations. The "Other" column includes
corporate related items, fresh start adjustments and results of subsidiaries not
meeting the quantitative thresholds as prescribed by applicable accounting
rules. The Company does not allocate general corporate overhead expenses to
operating segments.
<TABLE>
<CAPTION>
Intersegment Consolidated
Shieldalloy LSM GfE EWW Other Eliminations Totals
----------- --- --- --- ----- ------------ ------
FOR THE YEAR
ENDED JANUARY 31, 1999
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues from external customers $ 186,062 $ 119,158 $ 109,817 $ 17,140 $ 174,992 $ 607,169
Intergroup revenue ............. 5,214 52,039 20,382 30,645 55,293 $(163,573) --
Interest income ................ 1,507 286 242 105 4,630 (3,807) 2,963
Interest expense ............... 208 614 1,331 120 14,367 (3,807) 12,833
Depreciation and amortization .. 1,669 2,515 2,433 1,044 919 -- 8,580
amortization
Income tax provision (benefit) . 3,529 1,835 174 (857) 107 -- 4,788
Net income ..................... 7,617 5,301 2,985 429 4,739 (19,139) 1,932
Assets ......................... 88,601 75,221 43,927 36,148 245,063 (177,843) 311,117
Capital expenditures ........... 2,310 4,594 4,560 1,527 2,691 -- 15,682
FOR THE THREE QUARTERS
ENDED JANUARY 31, 1998
Revenues from external customers $ 147,332 $ 93,100 $ 65,327 $ 14,841 $ 156,367 $ 476,967
Intergroup revenue ............. 3,178 40,016 8,686 27,117 57,491 $(136,488) --
Interest income ................ 841 187 46 40 3,412 (1,909) 2,617
Interest expense ............... 230 829 1,020 71 8,029 (1,909) 8,270
Depreciation and amortization .. 1,553 1,626 1,039 935 167 -- 5,320
Income tax provision ........... 2,757 1,630 2,097 2,613 3,362 -- 12,459
Extraordinary items ............ -- (82) -- -- (710) -- (792)
Net income ..................... 5,575 5,695 1,380 747 1,953 (9,078) 6,272
Assets ......................... 91,969 83,711 40,889 37,239 245,230 (179,252) 319,786
Capital expenditures ........... 1,086 4,795 1,363 792 1,411 -- 9,447
</TABLE>
42
<PAGE> 43
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
Intersegment Consolidated
Shieldalloy LSM GfE EWW Other Eliminations Totals
----------- --- --- --- ----- ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE QUARTER
ENDED MARCH 31, 1997
Revenues from external
customers.................... $ 51,757 $ 32,621 $ 21,192 $ 5,380 $ 44,637 $ 155,587
Intergroup revenue ............. 704 12,236 2,445 9,217 18,338 $ (42,940) --
Interest income ................ 808 61 7 24 1,692 (1,131) 1,461
Interest expense ............... 252 8 408 48 2,121 (1,131) 1,706
Depreciation and amortization... 560 470 409 329 375 -- 2,143
Income tax provision (benefit) . 30 2,998 (428) (6,176) 513 -- (3,063)
Extraordinary items ............ (16,903) (1,985) (1,573) (420) 63,913 -- 43,032
Net income (loss) .............. (19,700) 1,826 (1,547) 8,999 68,716 (340) 57,954
Assets ......................... 85,161 84,885 41,422 40,209 200,408 (146,381) 305,704
Capital expenditures ........... 311 1,294 130 94 945 -- 2,774
Significant non-cash item:
Fresh start revaluation ...... (4,719) 5,739 (1,040) 1,216 3,911 -- 5,107
FOR THE YEAR
ENDED DECEMBER 31, 1996
Revenues from external
customers................... $ 197,057 $ 125,583 $ 78,988 $ 28,805 $ 219,569 $ 650,002
Intergroup revenue ............. 2,714 41,390 13,112 42,392 49,520 $(149,128) --
Interest income ................ 2,160 209 37 113 5,488 (3,491) 4,516
Interest expense ............... 639 105 2,755 678 2,357 (3,491) 3,043
Depreciation and amortization .. 3,016 2,391 2,661 2,526 94 -- 10,688
Income tax provision ........... 119 1,752 915 -- 5,667 -- 8,453
Net income (loss) .............. (40,822) 3,558 8,917 10,574 (26,701) 15,979 (28,495)
Assets ......................... 105,260 78,729 64,225 52,154 201,760 (170,502) 331,626
Capital expenditures ........... 589 4,593 2,772 754 823 -- 9,531
Significant non-cash items:
Environmental provision ...... 33,600 -- -- -- -- -- 33,600
Provision for allowed claims . 8,983 -- -- -- 1,564 -- 10,547
</TABLE>
The following table presents revenue by region based on the location of the user
of the product.
<TABLE>
<CAPTION>
For the
For the Year Three Quarters For the Quarter For the Year
Ended Ended Ended Ended
January 31, January 31, March 31, December 31,
1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
North America ..... $249,151 $181,042 $ 59,062 $259,526
Europe ............ 281,206 223,920 73,051 291,967
Asia .............. 26,057 23,821 7,771 32,441
South America ..... 9,602 9,529 3,109 12,976
Other ............. 40,318 38,114 12,434 51,906
Commission income . 835 541 160 1,186
-------- -------- -------- --------
Total revenues $607,169 $476,967 $155,587 $650,002
======== ======== ======== ========
</TABLE>
43
<PAGE> 44
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company sells its products in over fifty countries. Information regarding
sales by country is not readily available for prior periods. In the year ended
January 31, 1999, however, sales by country include:
<TABLE>
<S> <C>
United States ...................................... $206,958
Germany ............................................ 83,911
United Kingdom ..................................... 53,974
Canada ............................................. 37,695
Sweden ............................................. 28,557
South Africa ....................................... 28,520
Italy .............................................. 18,029
Other .............................................. 148,690
Commission income .................................. 835
--------
Total revenues .................................. $607,169
========
</TABLE>
The following table presents property, plant and equipment by country based on
the location of the assets.
<TABLE>
<CAPTION>
January 31, January 31, March 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
United Kingdom $18,260 $16,265 $12,867
Germany ...... 14,783 10,892 11,390
United States 8,563 7,825 7,789
Brazil ....... 4,406 2,970 3,225
Other ........ 3,006 3,550 3,636
----- ----- -----
Total ........ $49,018 $41,502 $38,907
======= ======= =======
</TABLE>
5. INVESTMENT IN AFFILIATES
In February 1998 and in August 1996, the Company purchased 5% interests,
respectively, in Solikamsk Magnesium Works, a Russian magnesium metal producer,
for approximately $2,000,000 and $1,000,000, respectively. Also during March
1998, the Company sold its minority investment in Compagnie des Mines et Metaux
S.A., a Luxembourg affiliate, for proceeds of approximately $1,100,000,
resulting in a gain of approximately $900,000.
In March 1997, Metallurg sold its 50% interest in AMPAL for proceeds
approximating book value of $1,200,000.
In December 1996, SMC sold its wholly owned subsidiary, Frankel Metal Company, a
processor of titanium scrap, to FMC's management and recorded a net loss on the
sale of $460,000.
44
<PAGE> 45
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
6. INVENTORIES
Inventories, net of reserves, consist of the following (in thousands):
<TABLE>
<CAPTION>
January 31, January 31, March 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Raw materials . $ 29,096 $ 32,938 $ 21,769
Work in process 3,249 1,981 2,330
Finished goods 83,116 77,473 80,500
Other ......... 5,197 5,197 4,659
-------- -------- --------
Total .... $120,658 $117,589 $109,258
======== ======== ========
</TABLE>
7. PROPERTY, PLANT AND EQUIPMENT
The major classes of property, plant and equipment are as follows (in
thousands):
<TABLE>
<CAPTION>
January 31, January 31, March 31, Estimated
1999 1998 1997 Lives
---- ---- ---- -----
(in years)
<S> <C> <C> <C> <C>
Land ............................... $ 2,937 $ 2,899 $ 3,019
Buildings and leasehold improvements 14,872 13,766 13,205 10-32
Machinery .......................... 33,440 22,388 17,729 3-17
Office furniture and equipment ..... 4,177 2,797 2,046 3-17
Transportation equipment ........... 1,981 1,844 1,588 3-5
Construction in progress ........... 3,529 3,106 1,320
------- ------- -------
Total ............................ 60,936 46,800 38,907
Less: accumulated depreciation ..... 11,918 5,298 --
------- ------- -------
Property, plant and equipment, net . $49,018 $41,502 $38,907
======= ======= =======
</TABLE>
Depreciation expense related to property, plant and equipment charged to
operations for the year ended January 31, 1999, the three quarters ended January
31, 1998, the quarter ended March 31, 1997 and the year ended December 31, 1996
was $7,959,000, $5,320,000, $2,126,000 and $10,621,000, respectively.
45
<PAGE> 46
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. RETIREMENT PLANS
The Company adopted SFAS No. 132, "Employers' Disclosure about Pensions and
other Postretirement Benefits" in the year ended January 31, 1999. SFAS No. 132
changes current financial disclosure requirements from those that were required
under SFAS No. 87, "Employers' Accounting for Pensions", SFAS No. 88,
"Employers' Accounting for Settlement and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits" and SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions".
Defined Benefit Plans
The following table summarizes the changes in benefit obligation and changes in
plan assets for the periods presented (in thousands):
<TABLE>
<CAPTION>
January 31, January 31, March 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year .......... $ 106,285 $ 99,039 $ 96,900
Service cost ..................................... 1,970 1,152 357
Interest cost .................................... 7,104 5,096 1,710
Actuarial gain ................................... 11,339 6,609 6,303
Employee contributions ........................... 336 326 --
Benefits paid .................................... (4,684) (3,660) (1,139)
Foreign currency translation adjustment .......... 3,081 (2,277) (5,092)
--------- --------- ---------
Benefit obligation at end of year ................ 125,431 106,285 99,039
--------- --------- ---------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year ... 77,216 66,023 62,763
Actual return on plan assets ..................... 14,308 11,176 5,684
Employer/employee contributions .................. 1,590 1,620 --
Plan administrative expenses ..................... (56) (47) (5)
Benefits paid .................................... (2,397) (1,966) (332)
Foreign currency translation adjustment .......... 328 410 (2,087)
--------- --------- ---------
Fair value of plan assets at end of year ......... 90,989 77,216 66,023
--------- --------- ---------
Funded status .................................... (34,442) (29,069) (33,016)
Unrecognized net actuarial loss (gain) ........... 2,773 (659) --
--------- --------- ---------
Accrued benefit cost, net ........................ $ (31,669) $ (29,728) $ (33,016)
========= ========= =========
Amounts recognized in the statement of financial
position consist of:
Accrued pension liabilities .................... $ (31,669) $ (29,728) $ (33,016)
Adjustment required to recognize minimum
liability .................................... (57) -- --
--------- --------- ---------
Net amount recognized in balance sheet ........... $ (31,726) $ (29,728) $ (33,016)
========= ========= =========
</TABLE>
46
<PAGE> 47
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
For the Year For the Three For the Quarter For the Year
Ended Quarters Ended Ended Ended
January 31, January 31, March 31, December 31,
1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
WEIGHTED-AVERAGE ASSUMPTIONS
Discount rate .............................. 5.5% - 6.5% 6.0% - 7.5% 6.0% - 8.5% 6.0% - 8.5%
Rate of compensation increase .............. 3.0% - 4.5% 3.0% - 6.0% 3.0% - 6.5% 3.0% - 6.5%
Expected return on plan assets ............. 8.0% - 9.0% 7.5% - 9.0% 7.5% - 9.0% 7.5% - 9.0%
</TABLE>
The following table summarizes the components of net periodic benefit cost (in
thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost ................. $ 1,970 $ 1,152 $ 357 $ 1,447
Interest cost ................ 7,104 5,096 1,710 6,499
Expected return on plan assets (11,164) (10,803) (1,978) (5,660)
Net amortization and deferral 4,613 6,807 1,204 1,075
-------- -------- -------- --------
Net periodic benefit cost .... $ 2,523 $ 2,252 $ 1,293 $ 3,361
======== ======== ======== ========
</TABLE>
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. The funded status of these
plans are as follows (in thousands):
<TABLE>
<CAPTION>
January 31, January 31, March 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Benefit obligation ...................... $(19,297) $(17,071) $(16,489)
Plan assets ............................. 20,055 17,543 14,346
-------- -------- --------
Net .................................. 758 472 (2,143)
Unrecognized actuarial gain ............. (2,681) (2,555) --
Adjustment to recognize minimum liability (57) -- --
-------- -------- --------
Accrued pension liability ............ $ (1,980) $ (2,083) $ (2,143)
======== ======== ========
</TABLE>
The Company's United Kingdom subsidiary maintains a defined benefit pension plan
covering all eligible employees. Substantially all plan assets are invested in
listed stocks and bonds. The funded status of this plan is as follows (in
thousands):
<TABLE>
<CAPTION>
January 31, January 31, March 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Benefit obligation ........ $(67,558) $(53,331) $(44,022)
Plan assets ............... 70,934 59,673 51,677
-------- -------- --------
Net .................... 3,376 6,342 7,655
Unrecognized actuarial loss 5,454 1,896 --
-------- -------- --------
Prepaid pension cost ... $ 8,830 $ 8,238 $ 7,655
======== ======== ========
</TABLE>
47
<PAGE> 48
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company's German subsidiaries maintain unfunded defined benefit pension
plans covering substantially all eligible employees. The plans had been amended
in 1992 in a manner that terminated any credit for future service. These plans
were amended in 1998 and accordingly, (i) credit for future service was
reinstated, retroactive to January 1, 1993, for certain employees and (ii)
benefits were adjusted for cost of living increases not recognized subsequent to
1992. Accrued pension liabilities were $38,576,000, $35,883,000 and $38,528,000
at January 31, 1999, January 31, 1998 and March 31, 1997, respectively.
Other Benefit Plans
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 $207,000, $165,000,
$62,000 and $229,000 in the year ended January 31, 1999, the three quarters
ended January 31,1998, the quarter ended March 31, 1997 and the year ended
December 31, 1996, respectively.
Balance sheet accruals for pension plans of the Company's other foreign
subsidiaries approximate or exceed the related actuarially computed value of
accumulated benefit obligations. Accrued pension liabilities for these plans
were $506,000, $385,000 and $419,000 at January 31, 1999, January 31, 1998 and
March 31, 1997, respectively. Pension expense relating to the Company's other
foreign subsidiaries' pension plans was $213,000, $353,000, $96,000 and $228,000
for the year ended January 31, 1999, the three quarters ended January 31, 1998,
the quarter ended March 31, 1997 and the year ended December 31, 1996.
The Company maintained certain non-qualified retirement benefit arrangements for
certain individuals. Pension expense relating to certain of those arrangements
was $300,000 in the year ended December 31, 1996. No expense was recorded for
these arrangements subsequent to 1996.
48
<PAGE> 49
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. BORROWINGS
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
January 31, January 31, March 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Parent company and domestic subsidiaries:
11% senior notes ...................... $100,000 $100,000
12% senior-secured notes .............. -- -- $ 39,461
-------- -------- --------
Subtotal ........................... 100,000 100,000 39,461
-------- -------- --------
Foreign subsidiaries:
Germany ............................... 10,151 4,123 5,133
United Kingdom ........................ -- -- 8,100
Other ................................. 108 190 294
-------- -------- --------
Subtotal ........................... 10,259 4,313 13,527
-------- -------- --------
Less: amounts due within one year ....... 1,074 1,180 1,277
-------- -------- --------
Total long-term debt .............. $109,185 $103,133 $ 51,711
======== ======== ========
</TABLE>
Parent Company and Domestic Subsidiaries
In November 1997, Metallurg sold the $100,000,000 Senior Notes which mature in
2007 and accrue interest at a rate of 11% per annum, payable semi-annually
commencing in June 1998. The Senior Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after December 2002. Prior to
December 1, 2000, a maximum of 34% of the Senior Notes may be redeemed with net
proceeds of one or more public equity offerings of the Company. The Senior Notes
are fully and unconditionally guaranteed by the U.S. subsidiaries of Metallurg
on a senior unsecured basis. The Indenture contains limitations on, among other
things, the ability of the Company to incur indebtedness and enter into certain
mergers, consolidations or asset sales. In addition, the Company is prohibited
from making dividends in an amount greater than 50% of its net income under
terms of the Indenture.
Pursuant to the Plan, Metallurg and SMC (the "Borrowers") entered into an
agreement with certain financial institutions led by BankBoston, N.A., as agent,
for a revolving credit facility (the "Revolving Credit Facility"), in the amount
of $40,000,000, to provide working capital and to finance other general
corporate purposes. In October 1997, this facility was increased to $50,000,000
and the German Subfacility (as discussed below) was established. 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 that is based on eligible accounts
receivable, inventory and certain fixed assets. At January 31, 1999, there were
no borrowings under this facility; however, outstanding letters of credit
approximated $23,789,000. Substantially all assets of the Borrowers are pledged
as collateral under this agreement. The revolving credit agreement, which
expires on April 14, 2000, prohibits the Company from making dividends and
requires the Borrowers and certain subsidiaries to comply with various
covenants, including the maintenance of minimum levels of quarterly earnings
before interest, taxes, depreciation and amortization, as defined in the
Indenture ("Adjusted EBITDA"). These companies were required to maintain
quarterly Adjusted EBITDA of $1,000,000. For the quarter ended December 31,
1998, Adjusted EBITDA of such companies was a loss of $7,300,000; accordingly,
BankBoston waived that requirement of the agreement as of, and for the quarter,
ended December 31, 1998 and amended the agreement to eliminate the Adjusted
EBITDA quantitative covenants so long as certain other defined cash positions
are maintained as prescribed in the agreement.
49
<PAGE> 50
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
At September 2, 1993 (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 and $8,600,000 in excess of interest expense
reflected in the Statements of Consolidated Operations for the quarter ended
March 31, 1997 and the year ended December 31, 1996, respectively.
Foreign Subsidiaries
Pursuant to the Revolving Credit Facility, BankBoston, N.A., through its
Frankfurt office, is providing to GfE and its subsidiaries, up to DM 20,500,000
(approximately $12,300,000) of financing (the "German Subfacility"). The German
Subfacility is guaranteed by Metallurg, Inc. and the other U.S. borrowers and
outstanding obligations are limited to a borrowing base which is based on
eligible accounts receivable, eligible inventory and certain equipment. The
German Subfacility contains various covenants that restrict, among other things,
the payment of dividends, share repurchases, capital expenditures, investments
to subsidiaries and borrowings. All accounts receivable, inventory, the stock of
GfE's subsidiaries and certain other assets are pledged to secure the German
Subfacility. At January 31, 1999, borrowings under the German Subfacility were
immaterial. Short-term unsecured borrowings of the GfE group with local banks
totaled DM 1,200,000 (approximately $700,000) at January 31, 1999. In August
1998, GfE entered into a term loan with IKB Deutsche Industrie Bank in the
amount of DM 10,000,000 (approximately $6,000,000). The loan, which matures in
2008, bears interest at a rate of 4.5% and is secured by certain property of
GfE. The GfE group also has term loans approximating DM 3,027,000 (approximately
$1,800,000) maturing through 2004 and bearing interest at a weighted average
rate of 6.0%.
LSM, a United Kingdom subsidiary, has several credit facilities which provide
LSM and its subsidiaries up to pound sterling 7,000,000 (approximately
$11,600,000) of borrowings, up to pound sterling 3,300,000 (approximately
$5,500,000) of foreign exchange exposure and up to pound sterling 2,300,000
(approximately $3,800,000) for other ancillary banking arrangements, including
bank guarantees. The facility expires in October 1999 and bears interest at the
lender's base rate plus 1.0%. The facility is unsecured and contains
restrictions on dividends. In 1998, LSM increased a facility for borrowings and
foreign exchange exposure to pound sterling 4,000,000 (approximately
$6,600,000). This facility, which expires in December 1999, is unsecured and
borrowings bear interest at a rate of 1% over the bank's base rate. At January
31, 1999, there were no borrowings under these facilities.
EWW, a German subsidiary, has committed lines of credit with several banks in
the aggregate amount of DM 15,200,000 (approximately $9,100,000). The credit
facilities decrease by DM 3,000,000 per year beginning in 1999 and currently
bear interest at rates from 7.5% to 8.5%. The credit agreements require EWW to
pledge certain assets, which include accounts receivable, inventory and fixed
assets. At January 31, 1999, there were DM 3,600,000 (approximately $2,100,000)
of borrowings under these agreements. EWW also has a term loan of DM 2,400,000
(approximately $1,400,000) maturing in 2001. The term loan is secured by a
mortgage on certain real property and bears interest at 4.5%.
50
<PAGE> 51
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In 1998, EWW borrowed DM 1,500,000 (approximately $900,000) to fund capital
additions. The loan, which matures in 2008, bears interest at 4.25%.
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 $1,021,000 at January 31,
1999 at a weighted average interest rate of 10.9%.
Interest expense totaled $12,833,000, $8,270,000, $1,706,000 and $3,043,000 for
the year ended January 31, 1999, the three quarters ended January 31, 1998, the
quarter ended March 31, 1997 and the year ended December 31, 1996.
The scheduled maturities of long-term debt during the next five years are
$1,074,000 in 1999, $989,000 in 2000, $963,000 in 2001, $413,000 in 2002,
$285,000 in 2003 and $106,535,000 thereafter.
10. FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, trade receivables, other
current assets, accounts payable and accrued liabilities approximate fair value
due to the short-term maturities of these assets and liabilities.
Fair values for investments in affiliates are not readily available.
The aggregate fair value of short-term bank debt approximates its carrying
amount because of recent and frequent repricing based on market conditions.
Based on quoted market prices, the fair value of the Company's $100,000,000
Senior Notes, issued in November 1997, approximates $89,000,000 and $103,700,000
at January 31, 1999 and 1998, respectively. The carrying amount of other
long-term debt approximates fair value.
The Company enters into foreign exchange contracts in the regular course of
business to manage exposure against fluctuations on sales and raw material
purchase transactions denominated in currencies other than the functional
currencies of its businesses. The contracts generally mature within 12 months
and are principally unsecured foreign exchange contracts with carefully selected
banks. The aggregate notional amounts of the contracts outstanding as of January
31, 1999, January 31, 1998 and March 31, 1997 were approximately $29,800,000,
$44,200,000 and $42,000,000, respectively. The contracts are predominately
denominated in the following currencies: Deutsche Marks, Pounds Sterling and
U.S. Dollars. The notional values provide an indication of the extent of the
Company's involvement in such instruments but do not represent its exposure to
market risk, which is essentially limited to risk related to currency rate
movements. Unrealized gains on these contracts at January 31, 1999, January 31,
1998 and March 31, 1997 were approximately $117,000, $231,000 and $1,493,000,
respectively.
51
<PAGE> 52
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
11. INCOME TAXES
For financial reporting purposes, income (loss) before income tax provision and
extraordinary item includes the following components (in thousands):
<TABLE>
<CAPTION>
For the Year For the Three For the Quarter For the Year
Ended Quarters Ended Ended Ended
January 31, January 31, March 31, December 31,
1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
United States $ (9,546) $ 3,871 $ 1,472 $(45,882)
Foreign ..... 16,266 15,652 10,387 25,840
-------- -------- -------- --------
Total ... $ 6,720 $ 19,523 $ 11,859 $(20,042)
======== ======== ======== ========
</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 For the Three Quarters For the Quarter
Ended Ended Ended
January 31, 1999 January 31, 1998 March 31, 1997
Tax Tax Tax
Provision Provision Provision
(Benefit) Percent (Benefit) Percent (Benefit) Percent
--------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Income tax provision at
statutory rate ................. $ 2,285 34.0% $ 6,833 35.0% $ 4,032 34.0%
State and local income taxes,
net of federal income tax effect 346 5.1 163 0.8 86 0.7
Effect of net increase of
foreign valuation allowance
and differences between U.S.
and foreign rates .............. (1,085) (16.2) 5,190 26.6 (6,886) (58.1)
Foreign dividends, less benefit
of foreign tax credit .......... 3,254 48.4 185 0.9 -- --
Changes in domestic
valuation allowance ............ 290 4.3 -- -- (500) (4.2)
Other ............................ (302) (4.4) 88 0.5 205 1.7
-------- ---- -------- ---- -------- -----
Total ............................ $ 4,788 71.2% $ 12,459 63.8% $ (3,063) (25.9%)
======== ==== ======== ==== ======== =====
</TABLE>
<TABLE>
<CAPTION>
For the Year
Ended
December 31, 1996
Tax
Provision
(Benefit) Percent
--------- -------
<S> <C> <C>
Income tax provision at
statutory rate ................. $ (6,814) 34.0%
State and local income taxes,
net of federal income tax effect 280 (1.4)
Effect of net increase of
foreign valuation allowance
and differences between U.S.
and foreign rates .............. (757) 3.8
Foreign dividends, less benefit
of foreign tax credit .......... -- --
Changes in domestic
valuation allowance ............ 15,600 (77.8)
Other ............................ 144 (0.7)
-------- -----
Total ............................ $ 8,453 (42.1%)
======== =====
</TABLE>
52
<PAGE> 53
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 Year For the Three For the Quarter For the Year
Ended Quarters Ended Ended Ended
January 31, January 31, March 31, December 31,
1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Current:
U.S. Federal .......................... $ (340) $ 600
Foreign ............................... 5,512 6,270 $ 573 $ 8,080
State and local ....................... 317 251 131 424
------- ------- ------- -------
Total current ....................... 5,489 7,121 704 8,504
------- ------- ------- -------
Deferred:
U.S Federal and state ................. 366 940 160 --
Foreign ............................... (1,067) 4,398 (3,927) (51)
------- ------- ------- -------
Total deferred ..................... (701) 5,338 (3,767) (51)
------- ------- ------- -------
Total income tax provision (benefit) $ 4,788 $12,459 $(3,063) $ 8,453
======= ======= ======= =======
</TABLE>
U.S. Federal income tax refunds receivable of $4,180,000, $2,070,000 and
$1,043,000 at January 31, 1999, January 31, 1998, and March 31, 1997,
respectively, relate primarily to the Federal tax deposits in excess of
estimated liabilities and carryback claims related to environmental expenses and
net operating losses, and are reflected in prepaid expenses in the accompanying
Consolidated Balance Sheets.
53
<PAGE> 54
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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>
January 31, January 31, March 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Deferred Tax Assets:
NOL and other credit carryforwards ............ $ 40,957 $ 37,295 $ 39,160
Retirement benefits ........................... 17,366 17,193 18,359
Environmental liabilities ..................... 13,760 16,090 16,976
Goodwill ...................................... 7,233 6,574 7,188
Allowance for doubtful accounts ............... 2,302 3,646 2,762
Fixed assets .................................. 307 309 1,848
Other ......................................... 775 1,393 3,907
-------- -------- --------
Total deferred assets ........................... 82,700 82,500 90,200
Deferred tax asset valuation allowance .......... (73,200) (72,300) (76,400)
-------- -------- --------
9,500 10,200 13,800
-------- -------- --------
Deferred Tax Liabilities:
Pension credits ............................... (2,595) (2,549) (2,968)
Tax write-offs and reserves ................... (2,268) (1,790) (3,339)
Fixed assets .................................. (1,710) (2,827) (2,088)
Inventories ................................... (827) (1,461) (712)
Earnings of foreign subsidiaries expected to be
remitted ...................................... -- -- (558)
Other ......................................... (400) (1,673) (1,835)
-------- -------- --------
Total deferred tax liabilities .................. (7,800) (10,300) (11,500)
-------- -------- --------
Net deferred tax asset (liability) .............. $ 1,700 $ (100) $ 2,300
======== ======== ========
</TABLE>
At January 31, 1999, the Company has net operating loss carryforwards relating
to domestic operations of approximately $4,637,000 (subject to certain
limitations relative to utilization) which expire through 2010 and Alternative
Minimum Tax Credit carryforwards of approximately $700,000 which can be carried
forward indefinitely. The Company's consolidated foreign subsidiaries have
income tax loss carryforwards aggregating approximately $76,973,000, a
substantial portion of which relates to German operations which do not expire
under current regulations and certain Brazilian operations which partially
expire through 2004. 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 January 31, 1999.
However, during the period ended March 31, 1997, the Company determined that a
German subsidiary has sufficiently demonstrated the ability to generate earnings
and the valuation allowance of $6,032,000 relating to that subsidiary was
appropriately reversed. Such benefit from a reduction in valuation allowance was
partly offset by a deferred tax provision relating to an adjustment of U.K.
pension liabilities. Included within the deferred tax benefit are the deferred
tax effects of certain deferred tax assets for which a corresponding credit has
been recorded to "Additional paid-in capital" approximating $700,000 and the
deferred tax effects of certain deferred tax assets, primarily foreign net
operating losses, for which a benefit has previously been recognized in the
amount of $130,000.
The adoption of fresh-start reporting results in an increase of additional
paid-in capital, rather than an income tax benefit, as the benefits relating to
existing deferred tax assets are recognized.
54
<PAGE> 55
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Accumulated Total
Additional Other Retained Shareholders'
Common Stock Paid-In Comprehensive Earnings Equity
Shares Amount Capital Income (Deficit) (Deficit)
------ ------ ------- ------ --------- ---------
(in thousands, except share and per share amounts)
<S> <C> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY:
Balance at December 31, 1995 ... 2,005 $ 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 ... 2,005 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 4,954,401 30 $49,950 (14,531) 46,034 81,483
---------- ------- -------- -------- -------- --------
REORGANIZED COMPANY:
Balance at March 31, 1997 ...... 4,956,406 50 49,950 -- -- 50,000
Net income ................... -- -- -- -- 6,272 6,272
Change in translation
adjustment ................. -- -- -- 673 -- 673
Amortization of stock awards . -- -- 1,250 -- -- 1,250
Deferred tax effects of fresh- --
start adjustments, certain
deferred tax assets and NOL
carryforwards .............. -- -- 2,906 -- -- 2,906
Dividends paid ($3.90 per share) -- -- (13,897) -- (5,433) (19,330)
---------- ------- -------- -------- -------- --------
Balance at January 31, 1998 .... 4,956,406 50 40,209 673 839 41,771
Net income ................... -- -- -- -- 1,932 1,932
Change in translation
adjustment .................. -- -- -- (1,004) -- (1,004)
Minimum pension liability .... -- -- -- (57) -- (57)
adjustment
Amortization of stock awards . -- -- 750 -- -- 750
Deferred tax effects of fresh- --
start adjustments ............ -- -- 757 -- -- 757
Capital contribution from .... -- --
Safeguard International ...... -- -- 3,541 3,541
Merger adjustments ........... (4,956,306) (50) 50 -- -- --
Stock split .................. 4,999,900 50 (50) -- -- --
---------- ------- -------- -------- -------- --------
Balance at January 31, 1999 .... 5,000,000 $ 50 $ 45,257 $ (388) $ 2,771 $ 47,690
========== ======= ======== ======== ======== ========
</TABLE>
At December 31, 1996, 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.
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 subsequently 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 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.
55
<PAGE> 56
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
At the time of the Merger, each outstanding share of Metallurg common stock was
converted into the right to receive $30 in cash. As of July 13, 1998, in
connection with the Merger, all of the then outstanding shares of common stock
of Metallurg were cancelled and 100 shares of common stock, $0.01 par value,
were issued to Metallurg Holdings. In November 1998, the Certificate of
Incorporation of the Company was amended to provide for 10,000,000 authorized
shares of common stock and Metallurg consummated a 50,000 for 1 stock split and,
as a result, Metallurg has 5,000,000 shares of common stock, $0.01 par value,
outstanding, all of which are owned by Metallurg Holdings.
Total comprehensive income (loss) totaled $871,000, $6,945,000, $56,730,000 and
$(24,227,000) for the year ended January 31, 1999, the three quarters ended
January 31, 1998, the quarter ended March 31, 1997 and the year ended December
31, 1996, respectively.
Stock Compensation Plans
On November 20, 1998, the Board of Directors adopted the Metallurg, Inc. 1998
Equity Compensation Plan (the "ECP"), to provide (i) designated employees of
Metallurg and its subsidiaries, (ii) certain advisors who perform services for
the Company or its subsidiaries and (iii) non-employee members of the Board of
Directors of the Company (the "Board") with the opportunity to receive grants of
incentive stock options, nonqualified stock options, stock appreciation rights,
restricted stock and performance units. Under the ECP, 500,000 shares of common
stock were made available for stock awards and stock options. The Company
believes that the ECP will encourage the participants to contribute materially
to the growth of the Company, thereby benefiting the Company's shareholders, and
will align the economic interests of the participants with those of the
shareholders. Pursuant to the Company's ECP, the Compensation Committee of
Metallurg's Board awarded to eligible executives and non-employee Board members
options to purchase up to 450,000 and 12,500 shares of common stock at an
exercise price of $30.00 per share, effective as of November 20, 1998 and
January 4, 1999, respectively. Such options have a term of ten years and vest
20% on the date of grant and will vest 20% on each of the first four
anniversaries of the date of grant.
On April 14, 1997, the Company had adopted the Metallurg, Inc. Management Stock
Award and Stock Option Plan (the "SASOP"), which was to be administered by the
Compensation Committee of the Board of Directors for a term of 10 years. Under
the terms of the SASOP, the Board was to 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 was to 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, and 20,000 shares of common stock at
$8.43 (fair market value on the date of grant), effective as of April 1, 1998.
Such options vested 33 1/3% on the date of grant and 33 1/3% were to vest on the
first and second anniversary of the date of grant. At the time of the Merger,
the Initial Stock Awards then outstanding became fully vested and the Company
recorded additional compensation expense of approximately $355,000. In addition,
outstanding stock options became fully vested and holders were therefore
entitled to receive $30 per share as part of the purchase of Metallurg. The
Company recorded compensation expense of $3,541,000, which represents the excess
of the $30 per share purchase price over the exercise prices noted above. The
Company was reimbursed for such stock option cancellation costs by a capital
contribution from Safeguard International at the time of the Merger.
The Company accounted for the SASOP using the intrinsic value method in
accordance with APB No. 25. Accordingly, compensation expense related to the
Initial Stock Awards of $750,000, $1,250,000 and $500,000 was recognized in the
year ended January 31, 1999, the three quarters ended January 31, 1998 and the
quarter ended March 31, 1997, respectively, and no compensation expense was
recognized for the stock options granted. The Company has elected the
disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation".
56
5
<PAGE> 57
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Had the Company used the fair value method at the date of grant of the stock
options, additional compensation expense would have been recorded, resulting in
the following pro forma amounts (in thousands):
<TABLE>
<CAPTION>
Year Three Quarters
Ended Ended
January 31, 1999 January 31, 1998
---------------- ----------------
<S> <C> <C>
Pro forma net income:
Earnings before extraordinary item $ (303) $ 6,818
Extraordinary item, net of tax ... -- (792)
------- -------
Net income (loss) ................ $ (303) $ 6,026
======= =======
</TABLE>
The weighted average fair value of options granted were $4.83 and $1.47 per
share at January 31, 1999 and 1998, respectively. This fair value was estimated
at the grant date using the Black-Scholes option pricing model with the
following weighted average assumptions:
<TABLE>
<CAPTION>
<S> <C> <C>
Expected volatility ...................... 0% 13%
Expected dividend yield .................. Not Applicable Not Applicable
Expected life ............................ 4 years 2 years
Risk-free interest rate .................. 4.49% 5.25%
</TABLE>
57
<PAGE> 58
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
13. OTHER INCOME (EXPENSE), NET
Other income (expense), net consists of the following (in thousands):
<TABLE>
<CAPTION>
Three Quarters Quarter
Year Ended Ended Ended Year Ended
January 31, January 31, March 31, December 31,
1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net gain on asset sales ............ $ 324 $ 1,888 $ 3,266 $ 3,597
Gain on settlement of German lawsuit 1,351 -- -- --
Additional institutional claims .... -- -- -- (1,706)
District 65 pension plan claims .... -- -- -- (5,050)
Prepetition environmental claims ... -- -- -- (3,791)
Other, net ......................... 133 (83) (87) 191
------- ------- ------- -------
Total ........................... $ 1,808 $ 1,805 $ 3,179 $(6,759)
======= ======= ======= =======
</TABLE>
In the year ended January 31, 1999, one of the Company's German subsidiaries was
successful in recovering approximately $1,351,000 of additional proceeds from a
government-owned insurance agency representing final settlement for claims under
the company's political risk insurance policy related to an investment in the
former Zaire.
In the three quarters ended January 31, 1998, one of the Company's German
subsidiaries sold certain plant assets no longer in productive use and recorded
a gain of approximately $1,700,000.
During 1997, Metallurg sold one of its commercial real estate properties located
in New York City in contemplation of the Plan. A gain of $2,747,000 is reflected
in other income in the quarter ended March 31, 1997.
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. Turk Maadin
Sirketi A.S., a Turkish chrome ore mining operation, entered into an agreement
in 1995 to sell a parcel of land no longer in productive use in an installment
sale arrangement. As a result, a gain on this transaction of $3,787,000 has been
reflected in other income in 1996.
14. 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 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.
58
<PAGE> 59
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Total environmental liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
January 31 January 31 March 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Domestic:
SMC - New Jersey .............. $28,876 $30,925 $32,584
SMC - Ohio .................... 11,557 11,797 12,264
------- ------- -------
40,433 42,722 44,848
Foreign ......................... 4,832 5,201 6,086
------- ------- -------
Total environmental liabilities 45,265 47,923 50,934
Less: trust funds ............... 3,064 2,843 2,799
------- ------- -------
Net environmental liabilities . 42,201 45,080 48,135
Less: current portion ........... 6,738 6,553 5,270
------- ------- -------
Environmental liabilities ..... $35,463 $38,527 $42,865
======= ======= =======
</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 thirteen years. During 1995,
$8,000,000 in a prepetition letter of credit was drawn upon and deposited in a
trust fund. During the quarter ended March 31, 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 January 31,
1999, outstanding letters of credit issued as financial assurances in favor of
various environmental agencies total $21,419,000. 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 obligation of the
decommissioning plan and financial assurance for implementation of that plan for
these sites is partially assured by cash funds held in trust. As a condition
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. Pursuant to the Consent Order,
SMC and Cyprus Foote are jointly and severally liable to the State of Ohio in
respect of these obligations. However, SMC has agreed with Cyprus Foote that it
shall perform and be liable for the performance of these remedial obligations.
Therefore, the Company has accrued its best estimate of associated costs which
it expects to substantially disburse over the next five years.
59
<PAGE> 60
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
With respect to the financial assurance obligations to the State of Ohio, Cyprus
Foote has agreed to provide financial assurance of approximately $9,000,000 as
required by the State of Ohio and 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's German subsidiaries have accrued environmental liabilities in the
amounts of $4,443,000, $4,827,000, and $5,611,000 at January 31, 1999, January
31, 1998 and March 31, 1997, respectively, to cover the costs of closing an
off-site dump and for certain environmental conditions at a subsidiary's
Nuremberg site. In Brazil, costs of $389,000, $374,000 and $475,000 have been
accrued at January 31, 1999, January 31, 1998 and March 31, 1997, respectively,
to cover reclamation costs of the closed mine sites.
15. CONTINGENT LIABILITIES
In addition to environmental matters, which are discussed in Note 14, 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, results of operations or
liquidity. There can be no assurance, however, that existing or future
litigation will not result in an adverse judgment against the Company which
could have a material adverse effect on the Company's future results of
operations or cash flows.
16. LEASES
The Company leases office space, facilities and equipment. The leases generally
provide that the Company pays the tax, insurance and maintenance expenses
related to the leased assets. At January 31, 1999, future minimum lease payments
required under non-cancelable operating leases having remaining lease terms in
excess of one year are as follows (in thousands):
<TABLE>
<CAPTION>
January 31,
-----------
<S> <C>
2000 .......................... $1,530
2001 .......................... 1,365
2002 .......................... 1,167
2003 .......................... 844
2004 .......................... 418
Thereafter .................... 3,607
------
Total ........................ $8,931
======
</TABLE>
Rent expense under operating leases for the year ended January 31, 1999, the
three quarters ended January 31, 1998, the quarter ended March 31, 1997 and the
year ended December 31, 1996 was $1,756,000, $938,000, $511,000 and $868,000,
respectively.
60
<PAGE> 61
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 domestic 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 YEAR ENDED JANUARY 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
Combined Combined
Metallurg, Guarantor Non-Guarantor
Inc. Subsidiaries Subsidiaries Eliminations Consolidated
---- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenue ..................... $ 47,264 $ 191,401 $ 460,468 $ (91,964) $ 607,169
--------- --------- --------- --------- ---------
Operating costs and expenses:
Cost of sales ................... 43,826 170,762 403,864 (92,591) 525,861
Selling, general and
administrative expenses ....... 7,894 9,987 40,757 -- 58,638
Merger-related costs ............ 7,888 -- -- -- 7,888
--------- --------- --------- --------- ---------
Total operating costs and expenses 59,608 180,749 444,621 (92,591) 592,387
--------- --------- --------- --------- ---------
Operating income (loss) ........... (12,344) 10,652 15,847 627 14,782
Other:
Other income (expense), net ..... 878 (258) 1,188 -- 1,808
Interest income (expense), net .. (9,767) 1,293 (1,396) -- (9,870)
Equity in earnings of
subsidiaries .................. 19,755 11,189 -- (30,944) --
--------- --------- --------- --------- ---------
Income before income tax provision (1,478) 22,876 15,639 (30,317) 6,720
Income tax (benefit) provision .... (3,410) 3,736 4,462 -- 4,788
--------- --------- --------- --------- ---------
Net income ........................ $ 1,932 $ 19,140 $ 11,177 $ (30,317) $ 1,932
========= ========= ========= ========= =========
</TABLE>
61
<PAGE> 62
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET AT JANUARY 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
Combined Combined
Metallurg, Guarantor Non-Guarantor
Inc. Subsidiaries Subsidiaries Eliminations Consolidated
---- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........ $ 25,613 $ 1,095 $ 16,663 $ (6,078) $ 37,293
Accounts and notes receivables,
net ............................ 24,180 28,178 51,373 (40,051) 63,680
Inventories ...................... 9,459 38,405 75,912 (3,118) 120,658
Assets held for sale ............. -- -- 711 -- 711
Other assets ..................... 10,807 105 8,125 (2,989) 16,048
--------- --------- --------- --------- ---------
Total current assets .......... 70,059 67,783 152,784 (52,236) 238,390
Investments - intergroup ........... 102,102 53,965 -- (156,067) --
Investments - other ................ 304 -- 5,092 -- 5,396
Property, plant and equipment, net . 1,016 7,547 40,455 -- 49,018
Other assets ....................... 5,052 17,179 13,298 (17,216) 18,313
--------- --------- --------- --------- ---------
Total ......................... $ 178,533 $ 146,474 $ 211,629 $(225,519) $ 311,117
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt and current
portion of long-term debt...... $ 11,023 $ (6,078) $ 4,945
Accounts and notes payables ...... $ 8,952 $ 15,078 63,481 (50,051) 37,460
Accrued expenses ................. 3,100 8,426 14,275 -- 25,801
Other current liabilities ........ -- 3,111 3,833 (2,989) 3,955
--------- --------- --------- --------- ---------
Total current liabilities ... 12,052 26,615 92,612 (59,118) 72,161
--------- --------- --------- --------- ---------
Long-term Liabilities:
Long-term debt .................. 100,000 -- 9,185 -- 109,185
Accrued pension liabilities ..... 220 1,760 39,082 -- 41,062
Environmental liabilities, net .. -- 32,669 2,794 -- 35,463
Other liabilities ............... 18,571 -- 4,201 (17,216) 5,556
--------- --------- --------- --------- ---------
Total long-term liabilities . 118,791 34,429 55,262 (17,216) 191,266
--------- --------- --------- --------- ---------
Total liabilities ........... 130,843 61,044 147,874 (76,334) 263,427
--------- --------- --------- --------- ---------
Shareholders' Equity:
Common stock .................... 50 1,227 49,691 (50,918) 50
Additional paid-in capital ...... 45,257 90,867 1,014 (91,881) 45,257
Cumulative foreign currency
translation adjustment ........ (388) (928) 21,345 (20,417) (388)
Retained earnings (deficit) ..... 2,771 (5,736) (8,295) 14,031 2,771
--------- --------- --------- --------- ---------
Shareholders' equity .......... 47,690 85,430 63,755 (149,185) 47,690
--------- --------- --------- --------- ---------
Total ................... $ 178,533 $ 146,474 $ 211,629 $(225,519) $ 311,117
========= ========= ========= ========= =========
</TABLE>
62
<PAGE> 63
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR YEAR ENDED JANUARY 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
Combined Combined
Metallurg, Guarantor Non-Guarantor
Inc. Subsidiaries Subsidiaries Eliminations Consolidated
---- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities $(27,297) $ 13,707 $ 17,207 $ 3,617
-------- -------- -------- --------
Cash Flows from Investing Activities:
Additions to property plant and
equipment ..................... (133) (2,310) (13,239) (15,682)
Proceeds from asset sales ......... 1,135 170 114 1,419
Other, net ........................ (231) -- (3,670) (3,901)
-------- -------- -------- --------
Net cash (used in) provided by
investing activities .............. 771 (2,140) (16,795) (18,164)
-------- -------- -------- --------
Cash Flows From Financing Activities:
Capital contribution from Safeguard
International ................. 3,541 -- -- 3,541
Intergroup borrowings (repayments) 23,822 (11,196) (12,626) --
Proceeds from long-term debt, net . -- -- 4,509 4,509
Net short-term debt borrowings .... -- -- 6,710 $ (6,078) 632
Intergroup dividends received (paid) 8,893 -- (8,893) -- --
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities .............. 36,256 (11,196) (10,300) (6,078) 8,682
-------- -------- -------- -------- --------
Effects of exchange rate changes on
cash and cash equivalents ......... -- -- 155 -- 155
-------- -------- -------- -------- --------
Net increase (decrease) in cash and
cash equivalents .................. 9,730 371 (9,733) (6,078) (5,710)
Cash and cash equivalents - beginning
of period ......................... 15,883 724 26,396 -- 43,003
-------- -------- -------- -------- --------
Cash and cash equivalents -
end of period ..................... $ 25,613 $ 1,095 $ 16,663 $ (6,078) $ 37,293
======== ======== ======== ======== ========
</TABLE>
63
<PAGE> 64
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE QUARTERS ENDED JANUARY 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Combined Combined
Metallurg, Guarantor Non-Guarantor
Inc. Subsidiaries Subsidiaries Eliminations Consolidated
---- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenue ...................... $43,047 $150,569 $364,611 $(81,260) $476,967
------- -------- -------- -------- --------
Operating costs and expenses:
Cost of sales .................... 39,279 134,990 315,954 (80,190) 410,033
Selling, general and administrative
expenses ....................... 7,187 7,552 28,824 -- 43,563
------- -------- -------- -------- --------
Total operating costs and expenses . 46,466 142,542 344,778 (80,190) 453,596
------- -------- -------- -------- --------
Operating income (loss) ............ (3,419) 8,027 19,833 (1,070) 23,371
Other:
Other income (expense), net ....... (28) 158 1,675 -- 1,805
Interest income (expense), net .... (4,639) 605 (1,619) -- (5,653)
Equity in earnings of subsidiaries. 13,903 2,530 -- (16,433) --
------- -------- -------- -------- --------
Income before income tax provision
and extraordinary item ........... 5,817 11,320 19,889 (17,503) 19,523
Income tax (benefit) provision ..... (1,165) 2,910 10,714 -- 12,459
------- -------- -------- -------- --------
Net income before extraordinary item 6,982 8,410 9,175 (17,503) 7,064
Extraordinary item, net of tax ..... (710) -- (82) -- (792)
------- -------- -------- -------- --------
Net income ......................... $ 6,272 $ 8,410 $ 9,093 $(17,503) $ 6,272
======= ======== ======== ======== ========
</TABLE>
64
<PAGE> 65
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET AT JANUARY 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Combined Combined
Metallurg, Guarantor Non-Guarantor
Inc. Subsidiaries Subsidiaries Eliminations Consolidated
---- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ......... $ 15,883 $ 724 $ 26,396 -- $ 43,003
Accounts and notes receivable, net 31,713 43,665 67,403 $ (58,850) 83,931
Inventories ....................... 6,122 39,823 75,389 (3,745) 117,589
Other assets ...................... 6,400 230 7,609 -- 14,239
--------- --------- --------- --------- ---------
Total current assets ........... 60,118 84,442 176,797 (62,595) 258,762
Investments - intergroup ............ 91,464 50,666 -- (142,130) --
Investments - other ................. 244 -- 1,366 -- 1,610
Property, plant and equipment, net .. 1,024 6,805 33,673 -- 41,502
Other assets ........................ 13,790 4 12,666 (8,548) 17,912
--------- --------- --------- --------- ---------
Total .......................... $ 166,640 $ 141,917 $ 224,502 $(213,273) $ 319,786
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt and current portion
of long-term debt ............... $ 4,016 $ 4,016
Trade payables .................... $ 964 $ 18,198 51,075 $ (18,929) 51,308
Accrued expenses .................. 4,543 4,022 15,457 -- 24,022
Loans payable - intergroup ........ 17,175 3,925 28,820 (49,920) --
Other current liabilities ......... 400 5,165 6,094 -- 11,659
--------- --------- --------- --------- ---------
Total current liabilities .... 23,082 31,310 105,462 (68,849) 91,005
--------- --------- --------- --------- ---------
Long-term Liabilities:
Long-term debt ................... 100,000 -- 3,133 -- 103,133
Accrued pension liabilities ...... 392 1,691 36,268 -- 38,351
Environmental liabilities, net ... -- 35,179 3,348 -- 38,527
Other liabilities ................ 1,395 -- 14,153 (8,549) 6,999
--------- --------- --------- --------- ---------
Total long-term liabilities .. 101,787 36,870 56,902 (8,549) 187,010
--------- --------- --------- --------- ---------
Total liabilities ............ 124,869 68,180 162,364 (77,398) 278,015
--------- --------- --------- --------- ---------
Shareholders' Equity:
Common stock ..................... 50 1,227 80,358 (81,585) 50
Additional paid-in capital ....... 40,209 90,867 1,104 (91,971) 40,209
Cumulative foreign currency
Translation adjustment ........... 673 1,109 22,386 (23,495) 673
Retained earnings (deficit) ...... 839 (19,466) (41,710) 61,176 839
--------- --------- --------- --------- ---------
Shareholders' equity ........... 41,771 73,737 62,138 (135,875) 41,771
--------- --------- --------- --------- ---------
Total .................... $ 166,640 $ 141,917 $ 224,502 $(213,273) $ 319,786
========= ========= ========= ========= =========
</TABLE>
65
<PAGE> 66
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE QUARTER ENDED JANUARY 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Combined Combined
Guarantor Non-Guarantor
Metallurg, Inc. Subsidiaries Subsidiaries Consolidated
--------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities $ (13,977) $ (1,263) $ 14,894 $ (346)
--------- --------- --------- ---------
Cash Flows from Investing Activities:
Additions to property plant and
equipment ....................... (330) (1,086) (8,031) (9,447)
Proceeds from asset sales ......... 9 106 3,632 3,747
Other, net ........................ 77 -- (63) 14
--------- --------- --------- ---------
Net cash (used in) provided by
investing activities ............. (244) (980) (4,462) (5,686)
--------- --------- --------- ---------
Cash Flows From Financing Activities:
Intergroup borrowings (repayments) (21,053) 1,322 20,544 813
Proceeds from long-term debt ...... 100,000 -- -- 100,000
Fees paid to issue long-term debt . (4,000) -- -- (4,000)
Net repayment of short-term debt .. -- -- (10,l26) (10,126)
Repayment of long-term debt ....... (39,461) -- (8,848) (48,309)
Intergroup dividends received
(paid) .......................... 5,585 -- (5,585) --
Dividends paid .................... (19,330) -- -- (19,330)
--------- --------- --------- ---------
Net cash provided by (used in)
financing activities .............. 21,741 1,322 (4,015) 19,048
--------- --------- --------- ---------
Effects of exchange rate changes on
cash and cash equivalents ......... -- -- (353) (353)
--------- --------- --------- ---------
Net increase (decrease) in cash and
cash equivalents .................. 7,520 (921) 6,064 12,663
Cash and cash equivalents-beginning
of period ......................... 8,363 1,645 20,332 30,340
--------- --------- --------- ---------
Cash and cash equivalents -
end of period ..................... $ 15,883 $ 724 $ 26,396 $ 43,003
========= ========= ========= =========
</TABLE>
66
<PAGE> 67
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
Combined Combined
Metallurg, Guarantor Non-Guarantor
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 (loss) income ........... (2,303) 2,767 6,677 (660) 6,481
Other:
Other (expense) income, net ....... (7,041) 9,903 317 -- 3,179
Interest (expense) income, net .... (795) 554 (4) -- (245)
Reorganization expense ............ (1,698) (965) -- -- (2,663)
Fresh-start revaluation ........... 11,652 (6,305) (240) -- 5,107
Equity in earnings of subsidiaries (6,216) -- -- 6,216 --
--------- --------- --------- --------- ---------
Income before income tax provision
and extraordinary item ............ (6,401) 5,954 6,750 5,556 11,859
Income tax provision (benefit) .... (241) 30 (2,852) -- (3,063)
--------- --------- --------- --------- ---------
Income (loss) before extraordinary
item ............................ (6,160) 5,924 9,602 5,556 $ 14,922
Extraordinary item, net of tax .... 64,114 (17,036) (4,046) -- 43,032
--------- --------- --------- --------- ---------
Net income ........................ $ 57,954 $ (11,112) $ 5,556 $ 5,556 $ 57,954
========= ========= ========= ========= =========
</TABLE>
67
<PAGE> 68
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
Metallurg, Guarantor Non-Guarantor
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 ............. 78,591 49,632 (128,223) --
Investments - other .................. 244 -- 1,217 -- 1,461
Property, plant and equipment, net ... 828 6,967 31,112 38,907
Other assets ......................... 1,663 12,433 14,096
--------- --------- --------- --------- ---------
Total .......................... $ 114,995 $ 133,463 $ 232,737 $(175,491) $ 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 liabilities ........ 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 ....................... 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 earnings (deficit) ........ -- (26,208) (47,193) 73,401 --
--------- --------- --------- --------- ---------
Shareholders' equity ............... 50,000 65,886 54,959 (120,845) 50,000
--------- --------- --------- --------- ---------
Total .......................... $ 114,995 $ 133,463 $ 232,737 $(175,491) $ 305,704
========= ========= ========= ========= =========
</TABLE>
68
<PAGE> 69
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 Consolidated
--------------- ------------ ------------ ------------
<S> <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 ................... (711) (311) (1,752) (2,774)
Proceeds from assets 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 letter of
credit .......................... 9,700 -- -- 9,700
Intergroup borrowings (repayments) 2,088 (2,652) 564 --
Proceeds from long-term debt ...... -- -- 8,100 8,100
Net short-term borrowing .......... -- -- 1,062 1,062
Repayment of long-term debt ....... -- -- (487) (487)
Dividends received (paid) ......... 9,423 -- (9,423) --
-------- -------- -------- --------
Net cash used in financing and re-
Organization activities .......... (34,654) (6,153) (184) (40,991)
-------- -------- -------- --------
Effects of exchange rate changes on
cash and cash equivalents .......... -- -- (526) (526)
-------- -------- -------- --------
Net (decrease) increase in cash and
cash equivalents .................... (32,946) 1,213 (1,201) (32,934)
Cash and cash equivalents -
beginning of quarter 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>
69
<PAGE> 70
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
Metallurg, Guarantor Non-Guarantor
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:
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)
Equity in earnings (losses)
of subsidiaries ............... (13,041) 231 -- 12,810 --
--------- --------- --------- --------- ---------
Income (loss) before income
tax provision ................... (28,422) (40,686) 33,087 15,979 (20,042)
Income tax provision (benefit) ...... 73 128 8,252 -- 8,453
--------- --------- --------- --------- ---------
Net income ........................ $ (28,495) $ (40,814) $ 24,835 $ 15,979 $ (28,495)
========= ========= ========= ========= =========
</TABLE>
70
<PAGE> 71
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 Consolidated
--------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities ... $ 1,922 $ 9,748 $ 35,995 $ 47,665
-------- -------- -------- --------
Cash Flows from Investing Activities:
Additions to property, plant and ...... (90) (599) (8,842) (9,531)
equipment
Proceeds from assets sales ............ -- 493 5,313 5,806
Other, net ............................ (6,192) 25 4,873 (1,294)
-------- -------- -------- --------
Net cash (used in) provided by 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>
71
<PAGE> 72
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
YEAR ENDED JANUARY 31, 1999
Sales ..................... $167,675 $169,754 $142,522 $126,383 $606,334
Gross profit .............. 28,822 27,342 18,307 6,837 81,308
Net income (loss)(a) ...... 6,790 1,498 38 (6,394) 1,932
</TABLE>
<TABLE>
<CAPTION>
Predecessor Reorganized Company
Company
------- ---------------------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
YEAR ENDED JANUARY 31, 1998
Sales .......................... $155,427 $166,718 $148,169 $161,539 $631,853
Gross profit ................... 21,527 24,744 21,049 21,141 88,461
Profit before extraordinary item 14,922(b) 3,651 1,714 1,699 21,986
Net income ..................... 57,954(c) 3,651 1,714 907(d) 64,226
</TABLE>
(a) Includes Merger-related costs of $4,416, $2,607 and $865 in the 2nd, 3rd
and 4th quarters, respectively.
(b) Includes a $5,107 fresh-start revaluation.
(c) Includes an extraordinary gain of $43,032, net of tax, reflecting the
discharge of indebtedness income relating to the consummation of the
Reorganization Plan.
(d) Includes an extraordinary loss of $792, net of tax, reflecting the early
extinguishment of debt.
72
<PAGE> 73
[PWC OFFICE LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Metallurg Inc.
Our audit of the consolidated financial statements referred to in our report
dated March 31, 1999 appearing in this Annual Report on Form 10-K also included
an audit of Financial Statement Schedule VIII of this Form 10-K. In our opinion,
this Financial Statement Schedule VIII presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. The consolidated financial statements
and financial statement schedule VIII for periods prior to the period ended
January 31, 1999 were audited by other independent accountants whose report
dated April 1, 1998 expressed an unqualified opinion on those statements and
related financial statement schedule.
PricewaterhouseCoopers LLP
New York, New York
March 31, 1999
<PAGE> 74
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
IN THOUSANDS:
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and Charged to Deductions End
of Period Expenses Other Accounts --Describe-- of Period
--------- -------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
DESCRIPTION
YEAR ENDED DECEMBER 31, 1996:
Accounts receivables
allowance for doubtful accounts .... $3,995 $696 - $ (388)(a) $4,303
QUARTER ENDED MARCH 31,1997:
Accounts receivable
allowance for doubtful accounts .... $4,303 $162 - $(4,465)(b) $-0-
THREE QUARTERS ENDED
JANUARY 31, 1998:
Accounts receivable
allowance for doubtful accounts .... $-0- $1,700 - - $1,700
YEAR ENDED JANUARY 31, 1999
Accounts receivable
allowance for doubtful accounts .... $1,700 $70 - - $1,770
NOTES:
(a) Uncollectible accounts written
off, less recoveries
(b) Uncollectible accounts
written off, less recoveries ....... $(376)
Elimination of historical
allowance account upon
revaluation of assets to fair
value in accordance with fresh-
start reporting at March 31,
1997 ................................ (4,089)
-------
$(4,465)
=======
</TABLE>
74
<PAGE> 75
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The change in the Company's independent certifying accountants has been
previously reported in the Company's report on Form 8-K, filed on November 20,
1998.
ITEM 10. 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>
Heinz C. Schimmelbusch ............ 54 Chairman and Director
Alan D. Ewart ..................... 51 President and Chief Executive Officer
Michael A. Standen ................ 62 Vice Chairman and Director
Eric E. Jackson ................... 47 Senior Vice President and Chief Operating Officer
Robin A. Brumwell ................. 54 Senior Vice President
Barry C. Nuss ..................... 46 Vice President-Finance and Chief Financial Officer
Ellen T. Harmon ................... 44 Vice President, General Counsel and Secretary
Douglas A. Fastuca ................ 34 Vice President, Corporate Development
Nils A. Kindwall .................. 75 Director
Jack L. Messman ................... 59 Director
Samuel A. Plum .................... 54 Director
Arthur R. Spector ................. 58 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, or, in the case of officers
other than the President and Chief Executive Officer, at the discretion of the
President and Chief Executive Officer.
Heinz C. Schimmelbusch -- Dr. Schimmelbusch became Chairman of the Board and a
Director of Metallurg, Inc. in July 1998, as well as President, Chief Executive
Officer and a Director of Metallurg's parent company, Metallurg Holdings, Inc.
He is a Managing Director of the general partner and of the management company
of Safeguard International Fund, L.P. He is also Chairman of Allied Resource
Corporation, a company he founded in 1994 to invest in mining, advanced
materials and recycling. Until 1994, Dr. Schimmelbusch was Chairman of the
Management Board of Metallgesellschaft AG, Germany, a multibillion dollar,
multinational company in the process industries, and Chairman of the Supervisory
Board of LURGI AG, Germany's leading process engineering firm; of Buderus AG, a
leading manufacturer of commercial and residential heating equipment; of Dynamit
Nobel AG, a leading manufacturer of explosives and specialty chemicals; and of
Norddeutsche Affinerie AG, Europe's largest copper producer. Dr. Schimmelbusch
has also served on the Boards of several German and other foreign corporations
and institutions, including Allianz Versicherungs AG, Munich; Philipp Holzmann
AG, Frankfurt; Mobil Oil AG, Hamburg; Teck Corporation, Vancouver; and on the
Advisory Boards of Dresdner Bank AG and the European Bank of Reconstruction and
Development. Dr. Schimmelbusch has been the founder and Chairman of a number of
public companies in the process industries, including: Inmet Corporation,
Toronto (formerly, Metall Mining Corporation); Methanex Corporation, Vancouver;
and B.U.S. Umweltservice AG, Frankfurt. Dr. Schimmelbusch is a director of
Safeguard Scientifics, Inc., a diversified information technology company, a
position he has held since 1989, and of Systems & Computer Technology
Corporation, a systems integration services and software company.
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 was Chairman from 1992 through July 1998. 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 became sole Managing
Director of LSM in 1980. He was elected to the Board of Directors of the Company
in 1977. Mr. Standen was appointed Vice Chairman of Metallurg in August 1998 and
is retained as an advisor to the Company. He also serves on the Boards of
Metallurg's German subsidiaries. Mr. Standen has a B.A. degree in languages from
Oxford University.
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<PAGE> 76
Alan D. Ewart -- Mr. Ewart was appointed President and Chief Executive Officer
of Metallurg in August 1998. Prior thereto, he was Joint Managing Director of
LSM. Mr. Ewart joined LSM in 1969 and held several positions in sales and
purchasing management before he was appointed Joint Managing Director in 1984.
He was elected to the Board of Directors of the Company in 1987 and served in
that capacity until July 1998. 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.
Eric E. Jackson -- Mr. Jackson was appointed Senior Vice President and Chief
Operating Officer of Metallurg in August 1998. He also serves as an officer and
director of certain subsidiaries of Metallurg. Mr. Jackson was Senior Vice
President and then President of Shieldalloy from September 1996 and retains the
position of President currently. From 1993 to 1995, he was Assistant Director at
Phibro, a division of Salomon, Inc., where he directed trading and distribution
operations. Prior thereto, he was a Vice President at Louis Dreyfus Corporation
from 1989 to 1993, where he managed trading and soft physical commodities
operations. From 1979 to 1989, Mr. Jackson served in various capacities at
Cargill Incorporated in Canada and the United States. Mr. Jackson received a
B.S. degree and an M.B.A. from the University of Saskatchewan.
Robin A. Brumwell -- Mr. Brumwell was appointed Senior Vice President of
Metallurg in August 1998. He has served as President of Metallurg International
Resources, which distributes products manufactured by third parties, since 1992.
Mr. Brumwell also is an officer and director of various subsidiaries of
Metallurg. He served in a number of capacities at Cabot Corporation from 1976
through 1991, including Vice President of the Stellite Division, Group Vice
President for certain chemical companies and President of Cabot Safety, Inc.
(manufacturer of industrial safety products). Mr. Brumwell became a British
chartered accountant in 1966 and received a masters degree in science/business
administration from the Cranfield Institute of Technology and an M.B.A. from the
Harvard Graduate School of Business Administration.
Barry C. Nuss -- Mr. Nuss joined Metallurg as financial controller in 1983, was
appointed Vice President-Finance of Shieldalloy in 1988, and assumed his current
position as Vice President-Finance and Chief Financial Officer of Metallurg in
1994. He serves as an officer and director of various subsidiaries of Metallurg.
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.
Ellen T. Harmon -- Ms. Harmon was appointed Vice President, General Counsel and
Secretary of Metallurg in January 1999. She also serves as an officer and
director of certain subsidiaries of Metallurg. Ms. Harmon was a corporate
associate at the law firm of Kronish, Lieb, Weiner & Hellman in New York from
1979 to 1984, when she joined Savin Corporation, an equipment distribution
company, as Associate General Counsel and Assistant Secretary until 1988. She
served at Sequa Corporation, a diversified, publicly-held industrial company
with interests primarily in aerospace, machinery and metal coatings, from 1988
through 1998, where she held the positions of Senior Associate General Counsel
and Secretary. Ms. Harmon has a J.D. from Brooklyn Law School and a B.A. degree
from Sarah Lawrence College.
Douglas A. Fastuca -- Mr. Fastuca was appointed Vice President, Corporate
Development of Metallurg in August 1998. He is Chief Financial Officer and
Treasurer of Metallurg Holdings, Inc. and a Director of the management company
of Safeguard International. Before joining Safeguard International, Mr. Fastuca
was Director of Business Development in SEI Investment's Global Asset Management
Unit from 1993 to 1997. He started his business career with General Electric
holding financial assignments in manufacturing and international operations at
GE Lighting and as a corporate auditor at GE Capital. Mr. Fastuca has a B.A.
degree from Bucknell University and an M.B.A. from the Harvard Graduate School
of Business Administration.
Nils A. Kindwall -- Mr. Kindwall was elected a Director of Metallurg in August
1998. He is the retired Vice Chairman of Freeport McMoRan, Inc. At Freeport, he
was one of the founders of Freeport Indonesia, a producer of copper and gold. He
has been involved in the financing of varied projects within the mining
industry. He is also a former member of Chemical Bank's Advisory Board, a former
Director of Inmet Mining Corporation and John Wiley & Sons (publishers). He is
currently a Director of Allied Resource Corporation. Mr. Kindwall received his
B.A. from Princeton University and an M.B.A. from the Columbia University
Graduate School of Business.
Jack L. Messman -- Mr. Messman was elected a Director of Metallurg in November
1998. He has been Chairman of the Board and Chief Executive Officer of Union
Pacific Resources Group Inc. (UPRG) since 1996. Prior to becoming Chairman and
CEO of UPRG, Mr. Messman was President of UPRG. Prior to joining UPRG in 1991,
Mr. Messman had been Chairman and CEO of U.S. Pollution Control, Inc., Union
Pacific's environmental services company, since 1988. Prior thereto, he was
managing director of Mason Best Company of Houston, an investment banking firm,
from 1986 to 1988, and simultaneously served as
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<PAGE> 77
Chairman and CEO of Somerset House Corporation, a publishing company owned by
Mason Best. He was Executive Vice President-Chief Financial Officer and a member
of the Board of Directors of Warner Amex Cable Communications, Inc. from 1983 to
1986. From 1981 to 1983, he was Executive Vice President and a Director of
Safeguard Scientifics, Inc. and also served as President and CEO of Novell,
Inc., a company controlled by Safeguard, from 1982-1983. He was President and
CEO of Norcross, Inc., a consumer products company, from 1979 to 1983. Prior
thereto, he was a partner in a Philadelphia investment banking firm. Mr. Messman
is a graduate of the University of Delaware, with a B.S. degree in chemical
engineering, and received his M.B.A. from the Harvard Graduate School of
Business Administration. He was also a Director of Union Pacific Corporation
(former parent of UPRG) and MTV Networks, Inc. Mr. Messman currently serves on
the Board of Directors of Safeguard Scientifics, Inc., Novell, Inc., USData,
Cambridge Technology Partners, Inc. and Tandy Corporation.
Samuel A. Plum -- Mr. Plum was elected to serve as a Director of Metallurg in
November 1998 and as a Director of Metallurg Holdings, Inc. in October 1998. He
has been a Managing General Partner of the general partner of SCP Private Equity
Partners, L.P. since its commencement in August 1996 and was a Managing Director
of Safeguard Scientifics, Inc. from 1993 to 1996. From February 1989 to January
1993, Mr. Plum served as President of Charterhouse, Inc. and Charterhouse North
American Securities, Inc., the U.S. investment banking and broker-dealer
divisions of Charterhouse PLC, a merchant bank located in the United Kingdom.
From 1973 to 1989, he served in various capacities, including Managing Director
and partner, at the investment banking divisions of PaineWebber Inc. and Blyth
Eastman Dillon & Co., Inc., respectively. Mr. Plum is Chairman of Vortex Sound
Communications, Inc. and also serves as a director of Index Stock Photography,
Inc., PacWest Telecomm, Inc. and the Philadelphia Zoological Society. Past
directorships include Tishman Holdings Corporation, Icon CMT Corp., Quaker
Fabrics Corporation and the National Audubon Society, the latter two as
Chairman. Mr. Plum holds a B.A. degree in history from Harvard University and an
M.B.A. degree from the Harvard Graduate School of Business Administration.
Arthur R. Spector -- Mr. Spector was elected to serve as a Director of Metallurg
in July 1998 and as a Director of Metallurg Holdings, Inc., of which he is
Executive Vice President. He is a Managing Director of the general partner and
of the management company of Safeguard International. From January 1997 to March
1998, Mr. Spector served as Managing Director of TL Ventures LLC, a venture
capital management company organized to manage day-to-day operations of TL
Ventures III L.P. and TL Ventures III Offshore L.P. From January 1995 through
December 1996, Mr. Spector served as Director of Acquisitions of Safeguard
Scientifics, Inc. From July 1992 until May 1995, Mr. Spector served as Vice
Chairman and Secretary of Casino & Credit Services, Inc. From October 1991 to
December 1994, Mr. Spector was Chief Executive Officer and a Director of
Perpetual Capital Corporation, a merchant banking organization. He has also been
an officer of Abraham Lincoln Federal Savings Bank and State National Bank of
Maryland. Mr. Spector serves as Chairman of Neoware Systems, Inc., a
manufacturer of network computers; and as a Director of USDATA Corporation, a
company which produces factory and process automation software; and Docucorp
International, a document automation company. Mr. Spector holds a B.S. degree in
electronics from the Wharton School of the University of Pennsylvania and a J.D.
from the University of Pennsylvania Law School.
The Board of Directors has compensation and audit committees, which include
Messrs. Schimmelbusch and Kindwall, and Messrs. Spector and Plum, respectively.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Company's two
Chief Executive Officers during 1998, the four other most highly compensated
executive officers and one former executive officer who would have been among
the four but for the fact that he resigned his employment prior to the end of
the year (collectively, the "Named Officers") during the calendar years 1996,
1997, and 1998, for services rendered in all capacities to the Company during
each of those periods. The compensation information is presented on a calendar
year basis. Notwithstanding the foregoing, information is only provided with
respect to those years in which an individual served as an executive officer of
the Company.
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<PAGE> 78
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------- -----------------------------------------------
SECURITIES
RESTRICTED UNDERLYING
STOCK OPTIONS/ ALL OTHER
SALARY BONUS AWARD(S) SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
- --------------------------- ---- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Michael A. Standen ...................... 1998 483,231(b) 198,000 1,400,000(d) 15,000 1,236,240(f)
Chairman, President and 1997 645,986(b) 380,000(c) 700,000(d) 50,000(e) --
Chief Executive Officer (a) 1996 617,364(b) 195,000 -- -- --
Alan D. Ewart ........................... 1998 262,476(g) 135,000 1,200,000(d) 75,000 --
President and Chief Executive Officer (a)
Eric E. Jackson ......................... 1998 243,500 100,000 -- 35,000 --
Senior Vice President and
Chief Operating Officer (a)
Barry C. Nuss ........................... 1998 224,378 70,000 650,000(d) 25,000 150,000(f)
Vice President-Finance and 1997 210,000 135,000(c) 325,000(d) 17,500(e) --
Chief Financial Officer 1996 202,000 62,500 -- -- --
Robin A. Brumwell ....................... 1998 238,444 15,000 525,000(d) 30,000 150,000(f)
Senior Vice President (a)
Michael A. Banks ........................ 1998 214,200 53,000 550,000(d) -- 369,033(f)
Vice President, Administration (a) 1997 210,000 135,000(c) 275,000(d) 12,500(e) --
1996 202,000 55,000 -- -- --
J. Richard Budd III ..................... 1998 263,500 -- 500,000(d) -- 474,300(f)
Senior Vice President (a) 1997 310,000 159,000(c) 250,000(d) 17,500(e) --
1996 300,000 77,500 -- -- --
</TABLE>
- ------------
(a) On August 10, 1998, Mr. Standen resigned as Chairman, President and Chief
Executive Officer of Metallurg and was elected Vice Chairman thereof; and
Messrs. Ewart, Jackson and Brumwell became executive officers of Metallurg
upon their elections as President and Chief Executive Officer, Senior Vice
President and Chief Operating Officer, and Senior Vice President,
respectively. On January 5, 1999, Mr. Banks resigned his employment with
the Company, as did Mr. Budd on October 31, 1998.
(b) Includes approximately $30,680, $47,486 and $70,000 paid for directors'
fees for the Company and certain of its subsidiaries, in 1998, 1997 and
1996, respectively. Amount shown for 1998 also includes $77,717 in
consulting fees for the latter part of the year.
(c) These amounts represent bonuses paid in connection with the consummation of
the Reorganization Plan and bonuses payable in respect of fiscal 1997 under
the Management Incentive Compensation Plan applicable to 1997.
(d) The number of the aggregate restricted stock holdings at December 31, 1997
was 250,000 shares and the value of such holdings at December 31, 1997 was
$2.1 million (based on a book value of $8.43 per share). The value shown in
the table for 1997 represents the book value of $10.00 per share on the
grant date of April 14, 1997. In connection with the Company's Senior Notes
Offering in November of 1997, a dividend of $3.90 per share was paid on the
Company's common stock (including these stock awards), which had the effect
of reducing the book value of the Company stock. The vesting schedule for
all of the stock awards shown above was originally as follows: 20% on April
14, 1997, 40% on April 13, 1998 and the remaining 40% on April 13, 1999.
Dividends were to be paid on restricted stock. Upon consummation of the
Merger on July 13, 1998, the restricted stock vested in its entirety and
was cancelled in exchange for the following Merger consideration: Mr.
Standen, $2,100,000 with respect to 70,000 shares; Mr. Ewart, $1,200,000
with respect to 40,000 shares; Mr. Nuss, $975,000 with respect to 32,500
shares; Mr. Banks, $825,000 with respect to 27,500 shares; Mr. Budd,
$750,000 with respect to 25,000 shares; and Mr. Brumwell, $525,000 with
respect to 17,500 shares. The amounts shown in the table for 1998 represent
the actual cash consideration paid to each Named Officer in 1998 by
Safeguard International in consideration of the cancellation of such stock
awards ($30.00 per share), less the value shown in the table for 1997 with
respect to the same awards.
(e) In connection with the Senior Notes Offering of November 1997, a dividend
equivalent of $3.90 per share was paid on outstanding stock options. In
1998, in connection with the acquisition of the Company, these stock
options were cancelled (see "Aggregated Option/SAR Exercises in Last Fiscal
Year and Fiscal Year-End Option/SAR Values", below).
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<PAGE> 79
(f) These amounts consist of payments made: in connection with the change of
control of the Company (as provided by the terms of previous employment
agreements) to Mr. Standen, Mr. Banks (which was actually paid in early
1999, immediately following his resignation), and Mr. Budd; and in
consideration of waiving their right to such payment (as per the terms of
their previous employment agreements) and in consideration for entering
into new employment agreements effective August 1998, to Messrs. Nuss and
Brumwell.
(g) Includes $20,000 in consulting fees earned by Mr. Ewart pursuant to his
Employment Agreement with the Company.
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<PAGE> 80
OPTION GRANTS IN THE LAST FISCAL YEAR
The following table provides information on grants of options made during fiscal
1998 to the Named Officers. These options vest 20% on the date of grant and 20%
on each of the first four anniversaries of the date of grant.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term
------------------------------------------------------------- ----------------------
Percent of
Number of Total
Securities Options/SARs Exercise
Underlying Granted to or
Option/SARs Employees in Base Price Expiration 5% 10%
Granted (#) Fiscal Year(a) ($/Sh) Date ($) ($)
----------- -------------- ------ ---- --- ---
NAMED OFFICER
<S> <C> <C> <C> <C> <C> <C>
Michael A. Standen .. 15,000 (b) 3.24% 30.00 11/20/08 283,002 717,184
Alan D. Ewart ....... 75,000 16.21% 30.00 11/20/08 1,415,012 3,585,920
J. Richard Budd III . -- -- -- -- -- --
Eric E. Jackson ..... 35,000 7.56% 30.00 11/20/08 660,338 1,673,429
Michael A. Banks .... -- -- -- -- -- --
Barry C. Nuss ....... 25,000 5.40% 30.00 11/20/08 471,670 1,195,306
Robin A. Brumwell ... 30,000 6.48% 30.00 11/20/08 566,004 1,434,367
</TABLE>
- --------------
(a) An aggregate of 462,500 shares was granted to directors and employees
pursuant to the 1998 Equity Compensation Plan (described below).
(b) Mr.Standen's stock option grant in 1998 was made in his capacity as a
director of Metallurg. Each director received a grant of options to
purchase 15,000 shares, except the Chairman, Dr. Schimmelbusch, who was
granted options to purchase 25,000 shares.
The following table provides information on the valuation of stock options held
by the Named Officers. All options that had been granted to the Named Officers
in 1997 were vested and cancelled in 1998 in consideration for payments in the
Merger equal to the difference between the option exercise price of $11.38 per
share and the Merger consideration price of $30.00 per share ($18.62 per share)
pursuant to the terms of the options and the terms of the Merger. Such
cancellations are treated in this table as exercises of the options. Values of
unexercised outstanding options granted in 1998 are not provided since the
Company's equity securities are not traded.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised
Options/SARs at
Shares Acquired on Fiscal Year-End (#)
NAMED OFFICER Exercise Value Realized Exercisable/Unexercisable
- ------------- -------- -------------- -------------------------
<S> <C> <C> <C>
Michael A. Standen........................... 50,000 $931,000 3,000/12,000
Alan D. Ewart................................ 25,000 465,500 15,000/60,000
Eric E. Jackson.............................. 25,000 465,500 7,000/28,000
Barry C. Nuss................................ 17,500 325,850 5,000/20,000
Robin A. Brumwell............................ 5,000 93,100 6,000/24,000
Michael A. Banks............................. 12,500 232,750 -
J. Richard Budd III.......................... 17,500 325,850 -
</TABLE>
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<PAGE> 81
1997 STOCK AWARD AND STOCK OPTION PLAN
The Board of Directors of the Company terminated the Metallurg Management Stock
Award and Stock Option Plan ("SASOP") in 1998 in connection with the Merger and
the cancellation of all outstanding stock and stock options.
Pursuant to the terms of the SASOP and/or the individual employment agreements
with the Named Officers, the Company made loans in order to pay any federal,
state or local taxes with respect to any stock award granted under the SASOP. In
April 1997, each of Messrs. Standen, Budd, Banks, Nuss, and Brumwell were given
loans of $320,250, $22,875, $25,162, $29,737 and $16,012, respectively, with
respect to their stock awards. Such loans bear interest at a rate of 5.91% and
are payable on April 14, 2000. In April 1998, each of Messrs. Budd, Banks, Nuss
and Brumwell were given loans of $38,567, $42,424, $50,137 and $26,997,
respectively, with respect to their stock awards. Such loans bear interest at a
rate of 5.7% and are payable on April 14, 2001. In July 1998, each of Messrs.
Budd, Banks, Nuss and Brumwell were given loans of $137,250, $150,975, $178,425
and $96,075, respectively, with respect to their stock awards. Such loans bear
interest at a rate of 5.68% and are payable on July 12, 2001. Messrs. Nuss and
Banks repaid all of their respective loans (together with all accrued interest)
in December 1998. Although interest is not required to be paid prior to
repayment of the loan, Mr. Standen paid interest of $13,533 in 1997 and $18,926
in 1998; and Mr. Banks paid interest of $1,063 in 1997.
The compensation received by the Named Officers in exchange for cancellation of
their outstanding stock awards and stock options is shown in the Summary
Compensation Table, above.
1998 EQUITY COMPENSATION PLAN
On November 20, 1998, the Board of Directors adopted the Metallurg, Inc. 1998
Equity Compensation Plan (the "ECP") to provide (i) designated employees of
Metallurg and its subsidiaries, (ii) certain advisors who perform services for
the Company or its subsidiaries, and (iii) non-employee members of the Board of
Directors of the Company (the "Board") with the opportunity to receive grants of
incentive stock options, nonqualified stock options, stock appreciation rights,
restricted stock and performance units. The Company believes that the ECP will
encourage the participants to contribute materially to the growth of the Company
and will align the economic interests of the participants with those of the
shareholders.
The following is a summary of the ECP. The summary does not purport to be
complete and is qualified in its entirety by reference to the ECP.
Eligibility and Administration. All employees of the Company and its
subsidiaries ("Employees"), including employees who are officers or members of
the Board, and members of the Board who are not Employees ("Non-Employee
Directors"), are eligible to participate in the ECP. Key advisors and advisors
who perform services for the Company or any of its subsidiaries ("Key Advisors")
are eligible to participate in the ECP if the Key Advisors render bona fide
services and such services are not in connection with the offer or sale of
securities in a capital-raising transaction.
The ECP is administered and interpreted by a committee appointed by the
Board (the "Committee"). Prior to the effective date of an initial public
offering of the Company's stock as described in the ECP (a "Public Offering"),
the Board may exercise any power or authority of the Committee under the ECP
and, in such case, references to the Committee hereunder, as they relate to Plan
administration, shall be deemed to include the Board as a whole. After a Public
Offering, the Committee shall consist of two or more persons appointed by the
Board, all of whom may be "outside directors" as defined under section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code") and related Treasury
regulations and may be "non-employee directors" as defined under Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Types of Awards. Awards under the ECP may consist of grants of incentive
stock options ("Incentive Stock Options"), nonqualified stock options
("Nonqualified Stock Options"; it being understood that Incentive Stock Options
and Nonqualified Stock Options are collectively referred to as "Options"),
restricted stock (Restricted Stock"), stock appreciation rights ("SARs"), and
performance units ("Performance Units") (hereinafter collectively referred to as
"Grants").
Shares Subject to the ECP. As of November 20, 1998, the number of
authorized and outstanding shares of the common stock of the Company ("Company
Stock") was 5,000,000 shares (the number of authorized shares was changed on
November 30, 1998 to 10,000,000 shares). Subject to the adjustment specified
below, the aggregate number of shares of Company Stock that may be issued or
transferred under the ECP is 500,000 shares. After a Public Offering, the
maximum aggregate number of shares of Company Stock that shall be subject to
Grants made under the ECP to any individual during any calendar year shall be
100,000 shares. The shares may be authorized but unissued shares of Company
Stock or reacquired shares of Company Stock, including
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shares purchased by the Company on the open market for purposes of the ECP. If
and to the extent Options or SARs granted under the ECP terminate, expire, or
are canceled, forfeited, exchanged or surrendered without having been exercised,
or if any shares of Restricted Stock or Performance Units are forfeited, the
shares subject to such Grants shall again be available for purposes of the ECP.
Generally, if there is any change in the number of outstanding shares Common
Stock due to stock dividends, stock splits, reorganization, etc., 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.
Type of Option and Price. The Committee may grant Incentive Stock Options that
are intended to qualify as "incentive stock options" within the meaning of
section 422 of the Code or Nonqualified Stock Options that are not intended so
to qualify or any combination of Incentive Stock Options and Nonqualified Stock
Options, all in accordance with the terms and conditions set forth herein.
Incentive Stock Options may be granted only to Employees. Nonqualified Stock
Options may be granted to Employees, Non- Employee Directors and Key Advisors.
The purchase price (the "Exercise Price") of Company Stock subject to an Option
shall be determined by the Committee and may be equal to, greater than, or less
than the Fair Market Value (as defined below) of a share of Company Stock on the
date the Option is granted, provided, however, that (x) the Exercise Price of an
Incentive Stock Option shall be equal to, or greater than, the Fair Market Value
of a share of Company Stock on the date the Incentive Stock Option is granted
and (y) an Incentive Stock Option may not be granted to an Employee who, at the
time of grant, owns stock possessing more than 10 percent of the total combined
voting power of all classes of stock of the Company or any parent or subsidiary
of the Company, unless the Exercise Price per share is not less than 110% of the
Fair Market Value of Company Stock on the date of grant.
If the Company Stock is publicly traded, then the Fair Market Value per share
shall be determined as follows: (x) if the principal trading market for the
Company Stock is a national securities exchange or the Nasdaq National Market,
the last reported sale price thereof on the relevant date or (if there were no
trades on that date) the latest preceding date upon which a sale was reported,
or (y) if the Company Stock is not principally traded on such exchange or
market, the mean between the last reported "bid" and "asked" prices of Company
Stock on the relevant date, as reported on Nasdaq or, if not so reported, as
reported by the National Daily Quotation Bureau, Inc. or as reported in a
customary financial reporting service, as applicable and as the Committee
determines. If the Company Stock is not publicly traded or, if publicly traded,
is not subject to reported transactions or "bid" or "asked" quotations as set
forth above, the Full Market Value per share shall be as determined by the
Committee.
Option Term. The Committee shall determine the term of each Option. The term of
any Option shall not exceed ten years from the date of grant. However, an
Incentive Stock Option that is granted to an Employee who, at the time of grant,
owns stock possessing more than 10 percent of the total combined voting power of
all classes of stock of the Company, or any parent or subsidiary of the Company
not have a term that exceeds five years from the date of grant.
Termination of Employment, Disability or Death. Except as provided below, an
Option may only be exercised while the Grantee is employed by the Company as an
Employee, Key Advisor or member of the Board. In the event that a Grantee ceases
to be employed by the Company for any reason other than a "disability", death or
"termination for cause", any Option which is otherwise exercisable by the
Grantee shall terminate unless exercised within 90 days after the date on which
the Grantee ceases to be employed by the Company (or within such other period of
time as may be specified by the Committee), but in any event no later than the
date of expiration of the Option term. Any of the Grantee's Options that are not
otherwise exercisable as of the date on which the Grantee ceases to be employed
by the Company shall terminate as of such date.
In the event the Grantee ceases to be employed by the Company on account of a
"termination for cause", any Option held by the Grantee shall terminate
as of the date the Grantee ceases to be employed by the Company.
In the event the Grantee ceases to be employed by the Company because the
Grantee is "disabled", any Option which is otherwise exercisable by the Grantee
shall terminate unless exercised within one year after the date on which the
Grantee ceases to be employed by the Company (or within such other period of
time as may be specified by the Committee), but in any event no later than the
date of expiration of the Option term. Any of the Grantee's Options which are
not otherwise exercisable as of the date on which the Grantee ceases to be
employed by the Company shall terminate as of such date.
If the Grantee dies while employed by the Company or within 90 days after the
date on which the Grantee ceases to be employed on account of a termination of
employment (or within such other period of time as may be specified by the
Committee), any Option that is otherwise exercisable by the Grantee shall
terminate unless exercised within one year after the date on which the Grantee
ceases to be employed by the Company (or within such other period of time as may
be specified by the Committee), but in any event no later than the date of
expiration of the Option term. Any of the Grantee's Options that are not
otherwise
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<PAGE> 83
exercisable as of the date on which the Grantee ceases to be employed by the
Company shall terminate as of such date.
Exercise of Options. A Grantee may exercise an Option that has become
exercisable, in whole or in part, by delivering a notice of exercise to the
Company with payment of the Exercise Price. The Grantee shall pay the Exercise
Price for an Option as specified by the Committee (x) in cash, (y) with the
approval of the Committee, by delivering shares of Company Stock owned by the
Grantee for the period necessary to avoid a charge to the Company's earnings for
financial reporting purposes (including Company stock acquired in connection
with the exercise of an Option, subject to such restrictions as the Committee
deems appropriate) and having a Fair Market Value on the date of exercise equal
to the Exercise Price or (z) by such other method as the Committee may approve,
including after a Public Offering payment through a broker in accordance with
procedures permitted by Regulation T of the Federal Reserve Board. Shares of
Company Stock used to exercise an Option shall have been held by the Grantee for
the requisite period of time to avoid adverse accounting consequences to the
Company with respect to the Option. The Grantee shall pay the Exercise Price and
the amount of any withholding tax due at the time of exercise.
Right of First Refusal. Prior to a Public Offering, if at any time an individual
desires to sell, encumber, or otherwise dispose of shares of Company Stock
distributed to him under this ECP, the individual shall first offer the shares
to the Company by giving the Company notice disclosing: (a) the name of the
proposed transferee of the Company Stock; (b) the certificate number and number
of shares of Company Stock proposed to be transferred or encumbered; (c) the
proposed price; (d) all other terms of the proposed transfer; and (e) a written
copy of the proposed offer. Within 30 days after receipt of such notice, the
Company shall have the option to purchase all or part of such Company Stock at
the same price and on terms as contained in such notice.
In the event the Company (or a shareholder, as described below) does not
exercise the option to purchase Company Stock, as provided above, the individual
shall have the right to sell, encumber or otherwise dispose of his shares of
Company Stock on the terms of the transfer set forth in the written notice to
the Company, provided such transfer is effected within 30 days after the
expiration of the option period. If the transfer is not effected within such
period, the Company must again be given an option to purchase, as provided
above.
Purchase by the Company. Prior to a Public Offering, if a Grantee ceases to be
employed by the Company, whether terminated for cause or voluntarily, the
Company shall have the right to purchase all or part of any Company Stock
distributed to him under this ECP at the exercise price paid by the Grantee
(unless otherwise determined by the Board or the Committee), and in all other
cases at its then current Fair Market Value; provided, however, that such
repurchase shall be made in accordance with applicable accounting rules to
avoid adverse accounting treatment.
Awards Made During 1998-1999. Pursuant to the Company's ECP, Metallurg's Board
of Directors awarded options to purchase up to 462,500 shares of Common Stock at
an exercise price of $30.00 per share, effective as of November 20, 1998 and
January 4, 1999. Each member of the Board of Directors received options to
purchase 15,000 shares, except that Dr. Schimmelbusch received options to
purchase 25,000 shares. Messrs. Ewart, Jackson, Brumwell and Nuss received stock
options in the amounts of 75,000, 35,000, 30,000 and 25,000, respectively. The
Options have a term of 10 years and vest as follows: 20% on the date of the
grant and 20% on the each of the first four anniversaries of the date of grant.
PROFIT SHARING PLAN
The Company has a profit sharing plan for the salaried employees of Metallurg
and Shieldalloy (the "Profit Sharing Plan") pursuant to which it may deposit an
amount equal to 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 1998, the
Company made a 3% contribution pursuant to the Profit Sharing Plan for
approximately $200,000 in the aggregate.
PENSION PLAN
The Pension Plan of Metallurg, Inc., effective as of January 1, 1989, as amended
(the "Pension Plan"), covers substantially all of Metallurg's 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 (base
salary only) of each individual employee, and a percentage of such employee's
eligible earnings. Final average compensation is calculated using
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<PAGE> 84
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 Company does not currently have a supplemental executive retirement plan.
<TABLE>
<CAPTION>
PENSION PLAN TABLE (YEARS OF SERVICE)
Remuneration 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 to pension purposes as of December 31,
1998 and the estimated years of service at age 65 for each of the Named Officers
are as follows:
<TABLE>
<CAPTION>
COMPLETED COMPLETED
YEARS OF SERVICE AT YEARS OF SERVICE AT
NAMED OFFICER DECEMBER 31, 1998 NORMAL RETIREMENT
------------- ----------------- -----------------
<S> <C> <C>
Michael A. Standen ................... 30 30
Alan D. Ewart ........................ 29 30
Eric E. Jackson ...................... 2 20
Barry C. Nuss ........................ 14 30
Robin A. Brumwell .................... 6 17
J. Richard Budd III .................. 3 21
Michael A. Banks ..................... 13 18
</TABLE>
In addition, Mr. Standen is entitled to an annual estimated benefit of
approximately $97,000 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.
Mr. Standen became a consultant to the Company, effective August 1998.
Mr. Ewart is also entitled to an annual estimated benefit of approximately
$127,000 under LSM's pension plan at age 65 pursuant to 29 years of credited
service with LSM.
Messrs. Budd and Banks resigned their employment with the Company effective
October 31, 1998 and January 5, 1999, respectively.
COMPENSATION OF DIRECTORS
Directors of Metallurg receive an annual retainer of $10,000 and a fee of $1,000
for each Board meeting attended. The Board meets each quarter and may act by
unanimous written consent or call special meetings between regularly scheduled
meetings, as necessary. The Chairman of the Compensation Committee, Mr.
Kindwall, and the Chairman of the Audit Committee, Mr. Spector, will each
receive an additional $1,000 for each committee meeting attended. Additional
compensation may be paid to Directors in connection with special assignments, as
determined by the Compensation Committee. In November 1998, each Director was
awarded 15,000 stock options, except for the Chairman of the Board, Dr.
Schimmelbusch who was awarded 25,000 stock options. The options have ten year
terms, vest 20% on date of grant and 20% on each of the first four anniversaries
of the date of grant, and have an exercise price of $30.00 per share.
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<PAGE> 85
EXECUTIVE EMPLOYMENT AGREEMENTS
Effective August 10, 1998, Metallurg entered into employment agreements with the
following Named Officers: Alan D. Ewart, Eric E. Jackson, Barry C. Nuss and
Robin A. Brumwell (individually, an "Executive," and collectively, the
"Executives"). Each agreement is for an initial term of two years; 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 ninety
days 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 period of twelve to eighteen months thereafter,
depending on certain circumstances.
Each Executive receives an annual base salary equal to his or her annual base
salary in effect on the date of the agreement, which may be increased by the
Board or by the President and Chief Executive Officer in consultation with the
Chairman (except with respect to himself). Each Executive is entitled to
participate in the employee benefit plans generally made available to
Metallurg's senior-level executives.
The agreements contain customary provisions concerning termination of employment
by the Company with and without cause, by the Executive with and without "good
reason" (as defined therein), upon a change in control and as a result of death
or disability. Depending upon the basis for termination, severance may be paid
for a period up to eighteen months after termination or not at all. Bonuses may
be paid, at the discretion of the Chief Executive Officer in consultation with
the Chairman (or the Board, in the case of Mr. Ewart), in an amount between 30%
and 50% of base salary, but no formal bonus plan has been adopted.
Pursuant to the executive employment agreements, the base salaries set forth
therein are: $450,000 for Mr. Ewart (plus a $20,000 annual consulting fee);
$280,000 for Mr. Jackson, $260,000 for Mr. Brumwell and $240,000 for Mr. Nuss.
MANAGEMENT INCENTIVE COMPENSATION PLAN
The Metallurg Management Incentive Compensation Plan that had previously been in
existence is no longer effective. Bonuses paid to Named Officers (as shown in
the Summary Compensation Table) in respect of 1998 were discretionary.
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<PAGE> 86
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
All of the issued and outstanding voting securities of the Company are owned by
Metallurg Holdings, Inc., whose voting securities are owned by Safeguard
International Fund, L.P., certain limited partners of Safeguard International,
certain individuals and a private equity fund.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company entered into a consulting agreement with Michael A. Standen, one
of its Directors, effective August 1998. Pursuant to this agreement, Mr. Standen
provides consulting services through June 30, 1999 (renewable upon mutual
agreement) at a rate of $50,000 per calendar quarter. Mr. Standen has agreed not
to compete against the Company for a period of six months following termination
of the consulting period.
Pursuant to the terms of previous and current employment agreements between
the Company and certain Named Officers, those officers have received loans from
the Company with regard to stock awards and were paid amounts in connection with
the change in control of Metallurg in 1998. All of such loans and payments are
set forth in the Summary Compensation Table, above, and in the section entitled
"1997 Stock Award and Stock Option Plan," above.
The management company of Safeguard International Fund was paid a one-time
financial advisory fee by Metallurg Holdings, Inc. in 1998 of $2.5 million for
services performed, and reimbursed for various expenses incurred, in connection
with the acquisition of the Company.
Messrs. Schimmelbusch, Plum, Messman, Spector and Kindwall, all of whom are
Directors of the Company, and Mr. Fastuca, an executive officer of the Company,
are directors and/or officers of various companies that are associated, directly
or indirectly, with Safeguard Scientifics, Inc., which has an ownership interest
in Safeguard International Fund. Pursuant to these positions, they receive
compensation from such entities.
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<PAGE> 87
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
Documents filed as part of this report:
(1) A list of the financial statements filed as part of
this report appears on page 27.
(2) The financial statement schedule required to be filed
as part of this report appears on page 74.
(3) The following exhibits are filed as part of this
report:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
<S> <C>
3.1 Certificate of Incorporation of the Company (incorporated
herein by reference to Exhibit T3A.3 to the Form T-3 filed by
the Company with the Securities and Exchange Commission on
March 21, 1997 (File No. 022-22265)).
3.2 Certificate of Amendment to Certificate of Incorporation of
the Company, filed in the State of Delaware on November 30,
1998.
3.3 By-laws of the Company (incorporated herein by reference to
Exhibit T3B.2 to the Form T-3 filed by the Company with the
Securities and Exchange Commission on March 21, 1997 (File No.
022-22265)).
4.1 Indenture, dated as of November 25, 1997, by and among the
Company, the Guarantors and IBJ Schroder Bank & Trust Company
(the "Trustee") (incorporated herein by reference to Exhibit
S44.1 to the Form S-4 Registration Statement filed by the
Company with the Securities and Exchange Commission on
December 30, 1997 (File No. 333-42141)).
4.2 Form of 11% Series A Senior Notes due 2007, dated as of
November 25, 1997 (incorporated herein by reference to Exhibit
S44.2 to the Form S-4 Registration Statement filed by the
Company with the Securities and Exchange Commission on
December 30, 1997 (File No. 333-42141)).
4.3 Form of 11% Series B Senior Notes due 2007 (incorporated
herein by reference to Exhibit S44.3 to the Form S-4
Registration Statement filed by the Company with the
Securities and Exchange Commission on December 30, 1997 (File
No. 333-42141)).
4.4 Registration Agreement, dated as of November 20, 1997, by and
among the Company, the Guarantors and the Initial Purchasers
(incorporated herein by reference to Exhibit S44.4 to the form
S-4 Registration Statement filed by the Company with the
Securities and Exchange Commission on December 30, 1997 and
Amendments No. 1 through 4 thereto, filed through March 13,
1998 (File No. 333-42141)).
</TABLE>
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<PAGE> 88
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
<S> <C>
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 (incorporated herein by reference to
Exhibit S410.1 to the Form S-4 Registration Statement filed by
the Company with the Securities and Exchange Commission on
December 30, 1997 (File No. 333-42141)) and as amended by the
Fourth Amendment thereto (incorporated herein by reference to
Exhibit 10.3 to the Form S-4 Registration Statement filed by
Metallurg Holdings, Inc. with the Securities and Exchange
Commission on October 14, 1998 (File No. 333-60077)).
10.2 Fifth and Sixth Amendments to the 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.
10.3 German Loan Agreement, dated October 20, 1997, by and among
GfE Gesellschaft fur Elektrometallurgie mbH, GfE Umwelttechnik
GmbH, GfE Giesserei-und Stahlwerksbedarf GmbH, GfE Metalle und
Materialien GmbH and Keramed Medizintechnik GmbH and
BankBoston, N.A. acting through its Frankfurt, Germany branch
(incorporated herein by reference to Exhibit S410.2 to the
Form S-4 Registration Statement filed by the Company with the
Securities and Exchange Commission on December 30, 1997 (File
No. 333-42141)).
10.4 First and Second Amendments to German Loan Agreement, dated
October 20, 1997, by and among GfE Gesellschaft fur
Elektrometallurgie GmbH, GfE Umwelttechnik GmbH, GfE
Giesserei-und Stahlwerksbedarf GmbH, GfE Metalle und
Materialien Gmbh and Keramed Medizintechnik GmbH and
BankBoston, N.A. acting through its Frankfurt, Germany branch.
10.5 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)).
10.6 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)).
10.7 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 (incorporated herein by
reference to Exhibit S410.5 to the Form S-4 Registration
Statement filed by the Company with the Securities and
Exchange Commission on December 30, 1997 (File No.
333-42141)).
10.8 Permanent Injunction Consent Order dated December 23, 1996
between the State of Ohio, SMC and Cyprus Foote Mineral
Company (incorporated herein by reference to Exhibit S410.6 to
the Form S-4 Registration Statement filed by the Company with
the Securities Exchange Commission on December 30, 1997 (File
No. 333-42141)).
</TABLE>
87
<PAGE> 89
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
<S> <C>
10.9 Merger Agreement, dated June 15, 1998, among Metallurg, Inc.,
Metallurg Holdings, Inc. and Metallurg Acquisition Corp.
(incorporated herein by reference to Exhibit 2 to Current
Report on From 8-K filed by the Company with the Securities
and Exchange Commission on June 16, 1998 (File No.
333-42141)).
10.10 1997 Stock Award and Stock Option Plan (incorporated herein by
reference to Exhibit S410.8 to the Form S-4 Registration
Statement filed by the Company with the Securities and
Exchange Commission on December 30, 1997 (File No.
333-42141)).
10.11 1998 Equity Compensation Plan of Metallurg, Inc.
10.12 Management Incentive Compensation Plan (incorporated herein by
reference to Exhibit S410.9 to the Form S-4 Registration
Statement filed by the Company with the Securities and
Exchange Commission on December 30, 1997 (File No.
333-42141)).
10.13 Employment Agreements dated April 14, 1997 with Michael A.
Banks and J. Richard Budd III (incorporated herein by
reference to Exhibit S410.10 to the Form S-4 Registration
Statement filed by the Company with the Securities and
Exchange Commission on December 30, 1997 (File No.
333-42141)).
10.14 Employment Agreements dated October 30, 1998; November 19,
1998; November 19, 1998; November 20, 1998; and January 4,
1999; by and between the Company and each of Alan D. Ewart,
Eric E. Jackson, Robin A. Brumwell, Barry C. Nuss and Ellen T.
Harmon, respectively.
10.15 Consulting Agreement, dated as of October 30, 1998, and
Agreement, dated August 9, 1998, each by and between the
Company and Michael A. Standen.
10.16 Notes dated April 15, 1997, April 15, 1998, and July 13, 1998,
by and between the Company, as Lender, and each of Robin A.
Brumwell, Barry C. Nuss, J. Richard Budd III and Michael A.
Banks, respectively, as Borrowers; Note dated April 15, 1997,
by and between the Company, as Lender, and Michael A. Standen,
as Borrower.
10.17 Intercompany Tax Allocation Agreement, dated July 13, 1998, by
and among Metallurg, Holdings, Inc., Metallurg, Inc. and
various subsidiaries thereof.
16.1 Letter from Deloitte & Touche LLP to the Securities and
Exchange Commission re agreement with Company's comments
concerning change in certifying accountant (incorporated
herein by reference to Exhibit 16 to the Company's Current
Report on Form 8-K/A filed with the Securities and Exchange
Commission on December 3, 1998 (File No. 333-42141)).
21.1 Subsidiaries of Metallurg, Inc.
</TABLE>
89
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
<S> <C>
27.1 Financial Data Schedule.
(b) The Company filed a Current Report on Form 8-K and amendments
thereto on Form 8-K/A on November 20, 1998, November 25, 1998
and December 3, 1998, reporting a change in certifying
accountant and the appointment of three directors to the
Company's Board of Directors.
(c) The exhibits listed under Item 14(a)(3) are filed herewith or
incorporated herein by reference.
(d) The Consolidated Financial Statements and the financial
statement schedules listed under Item 14(a)(2) are filed
herewith.
</TABLE>
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<PAGE> 91
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant has duly caused this report to
be signed on its behalf by the undersigned, thereto duly authorized as of the
30th day of April, 1999.
METALLURG, INC.
By: /s/ Barry C. Nuss
-----------------
Barry C. Nuss
Vice President-Finance and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title(s) Date
--------- -------- ----
<S> <C> <C>
/s/ HEINZ C. SCHIMMELBUSCH Chairman and Director April 30, 1999
- ----------------------------------
Heinz C. Schimmelbusch
/s/ MICHAEL A. STANDEN Vice Chairman and Director April 30, 1999
- ----------------------------------
Michael A. Standen
/s/ ALAN D. EWART President and Chief Executive April 30, 1999
- ---------------------------------- Officer
Alan D. Ewart
/s/ BARRY C. NUSS Vice President-Finance and April 30, 1999
- ---------------------------------- Chief Financial Officer
Barry C. Nuss
/s/ NILS A. KINDWALL Director April 30, 1999
- ----------------------------------
Nils A. Kindwall
/s/ JACK L. MESSMAN Director April 30, 1999
- ----------------------------------
Jack L. Messman
/s/ SAMUEL A. PLUM Director April 30, 1999
- ----------------------------------
Samuel A. Plum
/s/ ARTHUR R. SPECTOR Director April 30, 1999
- ----------------------------------
Arthur R. Spector
</TABLE>
91
<PAGE> 1
Exhibit 3.2
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
OF
METALLURG, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter the "corporation") is
Metallurg, Inc.
2. The certificate of incorporation is hereby amended by striking out
Paragraph Fourth thereof and substituting in lieu of said Paragraph the
following new Paragraph:
"FOURTH: The total number of shares of capital stock which the
Corporation shall have authority to issue is 10,000,000, all of
which shares shall be Common Stock having a par value of $0.01.
Pursuant to the requirements of Section 1123(a)(6) of Title 11 of
the United States Code, the Corporation shall not issue any shares
of non-voting stock, subject, however, to further amendment of this
certificate as and to the event permitted by applicable law."
3. The amendment of the certificate of incorporation herein certified has
been duly adopted in accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware and written consent has been
given in accordance with Sections 141 and 228 of the General Corporation Law of
the State of Delaware.
Signed on the 20th day of November, 1998.
By: /s/ Eric Schondorf
----------------------------------
Name: Eric Schondorf
Title: Vice President and Secretary
<PAGE> 1
EXHIBIT 10.2
<PAGE> 2
FIFTH AMENDMENT
FIFTH AMENDMENT dated as of November 16, 1998 (this "Amendment"), by and
among (a) METALLURG, INC., a Delaware corporation ("MI"), having its principal
place of business at 6 East 43rd Street, New York, New York 10017, and
SHIELDALLOY METALLURGICAL CORPORATION, a Delaware corporation ("SMC"), having
its principal place of business at 12 West Boulevard, Newfield, New Jersey 08344
(MI and SMC are collectively referred to herein as the "Borrowers"); (b)
METALLURG SERVICES, INC., a New York corporation ("MSI"), having its principal
place of business at 6 East 43rd Street, New York, New York 10017, MIR (CHINA),
INC., a Delaware corporation ("MIR China"), having its principal place of
business at 6 East 43rd Street, New York, New York 10017, and METALLURG HOLDINGS
CORPORATION, a New Jersey corporation ("MHC"), having its principal place of
business at 12 West Boulevard, Newfield, New Jersey 08344 (MSI, MIR China and
MHC are collectively referred to herein as the "Guarantors"); (c) BANKBOSTON,
N.A. (formerly known as The First National Bank of Boston), a national banking
association, as agent (in such capacity the "Agent") for itself and the other
financial institutions from time to time parties to the Loan Agreement referred
to below (collectively, the "Banks"); and (d) the BANKS, amending certain
provisions of the Loan Agreement dated as of April 14, 1997, by and among the
Borrowers, the Guarantors, the Agent and the Banks (as amended or modified and
in effect from time to time, the "Loan Agreement"). Terms not otherwise defined
herein which are defined in the Loan Agreement shall have the respective
meanings herein assigned to such terms in the Loan Agreement. Terms not
otherwise defined herein or in the Loan Agreement but which are defined in ss.1
of this Amendment shall have the respective meanings in this Amendment assigned
to such terms in ss.1.
WHEREAS, the Borrowers and the Guarantors have requested that the Agent
and the Banks agree to amend the terms of the Loan Agreement in certain respects
and to consent to certain amendments to the German Loan Agreement, in each case
in order to permit MI to enter into a set-off system for the calculation of
interest with respect to bank accounts of MI and GfE maintained with Bank
Mendes; and
WHEREAS, the Agent and the Banks are willing to so amend the terms of the
Loan Agreement in such respects as hereinafter more fully set forth and to
consent to such amendments to the German Loan Agreement, in each case, upon the
terms and subject to the conditions contained herein;
NOW, THEREFORE, in consideration of the mutual agreements contained in the
Loan Agreement, herein and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto hereby
agree as follows:
ss.1. Amendment of ss.1 of the Loan Agreement. Section 1 of the Loan
Agreement is hereby amended by inserting the following new definitions in proper
alphabetical order:
<PAGE> 3
-2-
"Bank Mendes: Bank Mendes Gans N.V., a company limited by shares
incorporated under the laws of The Netherlands."
"Bank Mendes Accounts: The bank accounts maintained by MI and GfE
with Bank Mendes and subject to the Interest Set-Off Agreement. "
"Fifth Amendment: The Fifth Amendment hereto dated as of November
__, 1998, among the Borrowers, the Guarantors, the Agent and the Banks."
"Fifth Amendment Effective Date: The date on which the conditions to
the effectiveness of the Fifth Amendment (such conditions being set forth
in Section 5 thereof) shall have been satisfied."
"GfE: GfE-Gesellschaft fur Elektrometallurgie MBH, a company
incorporated under the laws of Germany and a German Borrower."
"Interest Set-Off Agreement. The Interest Set-Off
Agreement-Guarantee dated as of September 30, 1998 between MI, GfE and
Bank Mendes, in the form delivered to the Agent on or prior to the Fifth
Amendment Effective Date."
ss.2. Amendment of ss.9 of the Loan Agreement. Section 9 of the Loan
Agreement is hereby amended as follows:
(a) by amending Section 9.2(b) of the Loan Agreement by deleting the word
"and" at the end of clause (x) thereof and inserting before the semi-colon at
the end of clause (xi) thereof the following new clause (xii):
"(xii) Indebtedness of MI in respect of its guaranty of the
obligations of GfE under the Interest Set-Off Agreement not to exceed the
amount permitted under ss.9.2(d)(xiii) at any time."
(b) by amending Section 9.2(c) of the Loan Agreement by deleting the word
"and" at the end of clause (ix) thereof and inserting before the semi-colon at
the end of clause (x) thereof the following new clause (xi):
"(xi) Liens on any and all present and future claims of MI on Bank
Mendes arising from or in connection with the Bank Mendes Account securing
the Indebtedness permitted by ss.9.2(b)(xii)."
(c) by amending Section 9.2(d)(vii) of the Loan Agreement by replacing
such clause with the following clause (vii):
"(vii) in the Operating Accounts, the Lock Box Accounts, operating
bank accounts of the Guarantors and, subject to ss.9.2(d)(xiii) hereof,
the Bank Mendes Accounts,"
<PAGE> 4
-3-
(d) by further amending Section 9.2(d) of the Loan Agreement by deleting
the word "and" at the end of clause (xi) thereof and inserting before the
semi-colon at the end of clause (xii) thereof the following new clause (xiii):
"(xiii) in GfE consisting of deposits in the Bank Mendes Accounts or
MI's guaranty of the obligations of GfE under the Interest Set-Off
Agreement, provided, however, that (A) the aggregate amount of such
investments, together with any investments in the German Borrowers made
pursuant to ss.9.2(d)(vi)(C) and (D)(ii) hereof, shall not exceed
$16,500,000 at any time and (B) MI shall use its best efforts not to cause
or permit the credit balance in its Bank Mendes Account(s), determined not
less frequently than once per week, to exceed the debit balance in GfE's
Bank Mendes Account(s), determined at such time."
ss.3. Limited Consents.
Consent to Amendment of German Loan Agreement. The German Borrowers and
the German Lender have agreed to amend the German Loan Agreement. Pursuant to
Section 15 of the Loan Agreement, such amendment under the German Loan Agreement
and other German Loan Documents requires the written consent of the Majority
Banks. Accordingly, each of the undersigned Banks hereby consents to the Second
Amendment to the German Loan Agreement in substantially the form attached hereto
as Exhibit A.
Consent to Other Intercompany Interest Set-off Arrangements. The Borrowers
have advised the Agent and the Banks that they may, in the future, wish to enter
into interest set-off arrangements on behalf of one or more of their
Subsidiaries similar to the arrangement with Bank Mendes contemplated under this
Amendment (the "Intercompany Interest Set-off Arrangements"). Notwithstanding
that certain provisions of the Intercompany Interest Set-off Arrangements would
not be permitted under the Loan Agreement, the Borrowers have requested that the
Banks consent to such Intercompany Interest Set-off Arrangements as set forth
herein. The Banks hereby consent to such Intercompany Interest Set-off
Arrangements provided that (a) prior to the Borrowers entering into any such
Intercompany Interest Set-off Arrangement, the Agent shall have been provided
copies of all documentation relating thereto and shall have given its written
consent to such arrangements (including its consent to the institution at which
such Intercompany Interest Set-off Arrangement is to be maintained), (b) the sum
of (i) the aggregate amount of investments made in connection with all such
Intercompany Set-off Arrangements with respect to any Subsidiary, plus (ii) all
other investments in such Subsidiary made pursuant to Section 9.2(d)(vi) plus
(iii) all other investments in any other Subsidiary treated under the same
investment limitation in Section 9.2(d)(vi), shall not exceed the investment
limitation relating to such Subsidiary and such other Subsidiaries set forth in
Section 9.2(d)(vi), (c) immediately prior to and after, and after giving effect
to the institution of such Intercompany Setoff Arrangement, no Default or Event
of Default shall have occurred and be continuing, and (d) the Borrowers shall
use their best efforts not to cause or permit the credit balance in its bank
account(s) maintained in connection with any such Intercompany Interest Set-off
Arrangement, determined not less frequently than once per week, to exceed the
debit balance in the Subsidiary's bank account(s) maintained in connection with
such Intercompany Interest Set-off Arrangement, determined at such time.
<PAGE> 5
-4-
Limitations. The foregoing consents are limited strictly to their terms,
shall apply only to the specific actions described herein, shall not extend to
or affect any of the Borrowers', the Guarantors' or MCL's other obligations
contained in the Loan Agreement or any other Loan Document and shall not impair
any rights consequent thereon. None of the Agent or the Banks shall have any
obligation to issue any further consent with respect to the subject matter of
hereof or any other matter. Except as expressly set forth herein, nothing
contained herein shall be deemed to be a waiver of, or shall in any way impair
or prejudice, any rights of the Agent or the Banks under the Loan Agreement or
any other Loan Document.
ss.4. Representations, Warranties and Covenants; No Default;
Authorization. Each of the Borrowers and Guarantors hereby represents, warrants
and covenants to the Agent and the Banks as follows:
(a) Each of the representations and warranties of such Borrower or
Guarantor contained in the Loan Agreement was true as of the date as of which it
was made and is true as and at the date of this Amendment, and no Default or
Event of Default has occurred and is continuing as of the date of this
Amendment;
(b) This Amendment has been duly authorized, executed and delivered by
each of the Borrowers and Guarantors and is in full force and effect; and
(c) Upon the execution and delivery of this Amendment by the respective
parties hereto, this Amendment shall constitute the legal, valid and binding
obligation of the Borrowers and the Guarantors, enforceable in accordance with
its terms, except that the enforceability thereof may be subject to any
applicable bankruptcy, reorganization, insolvency or other laws affecting
creditors' rights generally.
ss.5. Conditions to Effectiveness. The effectiveness of this Amendment,
including the amendments and limited consent contained herein, shall be subject
to the satisfaction of the following conditions precedent:
(a) This Amendment shall have been duly executed and delivered by the
respective parties hereto and shall be in full force and effect;
(b) The Agent shall have received a fully executed copy of the Interest
Set-Off Agreement; and
(c) MI shall have delivered to Bank Mendes a letter, in form and substance
satisfactory to the Agent, instructing Bank Mendes, in the event it enforces its
rights under the Interest Set-Off Agreement, to pay to the Agent any surplus
amounts in the Bank Mendes Accounts.
ss.6. Ratification, etc. Except as expressly amended hereby, the Loan
Agreement and all documents, instruments and agreements related thereto are
hereby ratified and confirmed in all
<PAGE> 6
-5-
respects. All references in the Loan Agreement or any related agreement or
instrument to the Loan Agreement shall hereafter refer to the Loan Agreement as
amended hereby.
ss.7. No Implied Waiver. Except as expressly provided herein, nothing
contained herein shall constitute a waiver of, impair or otherwise affect any
Obligations, any other obligations of any of the Borrowers or Guarantors or any
right of the Agent or any Bank consequent thereon.
ss.8. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but which together shall
constitute one and the same instrument.
ss.9. Governing Law. THIS AMENDMENT SHALL FOR ALL PURPOSES BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
(WITHOUT REFERENCE TO CONFLICTS OF LAW).
<PAGE> 7
-6-
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment as a
sealed instrument as of the date first above written.
METALLURG, INC.
By: /s/ Barry C. Nuss
----------------------------------------
Name: Barry C. Nuss
Title: Vice President, Finance
SHIELDALLOY METALLURGICAL
CORPORATION
By: /s/ Barry C. Nuss
----------------------------------------
Name: Barry C. Nuss
Title: Secretary
METALLURG SERVICES, INC.
By: /s/ Barry C. Nuss
----------------------------------------
Name: Barry C. Nuss
Title: Vice President
MIR (CHINA), INC.
By: /s/ Barry C. Nuss
----------------------------------------
Name: Barry C. Nuss
Title: Vice President
METALLURG HOLDINGS CORPORATION
By: /s/ Barry C. Nuss
----------------------------------------
Name: Barry C. Nuss
Title: Vice President, Treasurer
<PAGE> 8
-7-
BANKBOSTON, N.A. (formerly known as
The First National Bank of Boston),
individually and as Agent
By: /s/ James J. Ward
----------------------------------------
Name: James J. Ward
Title: Director
BANK OF SCOTLAND
By: /s/ Annie Chin Tat
----------------------------------------
Name: Annie Chin Tat
Title: Senior Vice President
NATIONAL BANK OF CANADA
By: /s/ Gaetan R. Frosina
----------------------------------------
Name: Gaetan R. Frosina
Title: V.P.
By: /s/ Theresa Wirte
----------------------------------------
Name: Theresa Wirte
Title: V.P.
<PAGE> 9
SIXTH AMENDMENT
SIXTH AMENDMENT dated as of March 31, 1999 (this "Amendment"), by and
among (a) METALLURG, INC., a Delaware corporation ("MI"), having its principal
place of business at 6 East 43rd Street, New York, New York 10017, and
SHIELDALLOY METALLURGICAL CORPORATION, a Delaware corporation ("SMC"), having
its principal place of business at 12 West Boulevard, Newfield, New Jersey 08344
(MI and SMC are collectively referred to herein as the "Borrowers"); (b)
METALLURG SERVICES, INC., a New York corporation ("MSI"), having its principal
place of business at 6 East 43rd Street, New York, New York 10017, MIR (CHINA),
INC., a Delaware corporation ("MIR China"), having its principal place of
business at 6 East 43rd Street, New York, New York 10017, and METALLURG HOLDINGS
CORPORATION, a New Jersey corporation ("MHC"), having its principal place of
business at 12 West Boulevard, Newfield, New Jersey 08344 (MSI, MIR China and
MHC are collectively referred to herein as the "Guarantors"); (c) BANKBOSTON,
N.A. (formerly known as The First National Bank of Boston), a national banking
association, as agent (in such capacity the "Agent") for itself and the other
financial institutions from time to time parties to the Loan Agreement referred
to below (collectively, the "Banks"); and (d) the BANKS, amending certain
provisions of the Loan Agreement dated as of April 14, 1997, by and among the
Borrowers, the Guarantors, the Agent and the Banks (as amended or modified and
in effect from time to time, the "Loan Agreement"). Terms not otherwise defined
herein which are defined in the Loan Agreement shall have the respective
meanings herein assigned to such terms in the Loan Agreement. Terms not
otherwise defined herein or in the Loan Agreement but which are defined in
ss.1.1 of this Amendment shall have the respective meanings in this Amendment
assigned to such terms in ss.1.1.
WHEREAS, the Borrowers and the Guarantors have requested that the Agent
and the Banks amend the terms of the Loan Agreement in order to provide for
certain changes to the financial covenants set forth therein, as provided in
this Amendment;
NOW, THEREFORE, in consideration of the mutual agreements contained in the
Loan Agreement and in this Amendment and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
ss.1. Amendments to the Loan Agreement. Subject to the satisfaction of the
conditions set forth in ss.4 below, the Loan Agreement is hereby amended as
follows:
<PAGE> 10
-2-
ss.1.1 Amendments to Definitions. Section 1 of the Loan Agreement is
hereby amended by inserting the following new definitions in the appropriate
places in the alphabetical order:
"Average Liquidity Level. With respect to the Borrowers and the
Guarantors and any particular fiscal period, the average daily Liquidity
Level for such fiscal period determined by reference to the Liquidity
Level on each Business Day during such fiscal period."
"Borrowing Base Availability. On any Business Day of determination,
the excess of (a) the sum of (i) the aggregate amount of Total
Outstandings (excluding German Outstandings) at the close of business on
such day plus (ii) the sum of the German Facility Reserves, if any, of
each of the German Borrowers at the close of business on such day, over
(b) the Borrowing Base, determined by reference to the most recent
Borrowing Base Report and appraisal of Eligible Fixed Assets delivered to
the Banks and the Agent."
"Cash Equivalents. Investments of the types referred to in
ss.9.2(d)(ii)."
"Daily Cash Balance. With respect to the Borrowers and the
Guarantors on any Business Day of determination, the aggregate amount of
all cash and Cash Equivalents on the books of account of the Borrowers and
the Guarantors maintained in accordance with past practices consistently
applied, determined at the close of business on such day."
"Liquidity Level. An amount determined for each Business Day equal
to the sum of the Borrowing Base Availability on such day plus the Daily
Cash Balance on such day."
ss.1.2 Amendment to Conditions Precedent. Section 8 of the Loan Agreement
is hereby amended by inserting therein the following new ss.8(b)(v) immediately
after ss.8(b)(iv) thereof:
"(v) If requested by the Agent, the Agent and each of the Banks
shall have received a Borrowing Base Report dated as of the last day of
the calendar week then most recently ended, together with such supporting
details of receivable aging as of the last day of such week and inventory
designations as of the end of the applicable calendar month (in accordance
with the requirements of ss.9.1(a)(v)) as the Agent or any Bank may
reasonably request."
ss.1.3 Amendment to Affirmative Covenants. Section 9.1 of the Loan
Agreement is hereby amended by deleting the words "within eight (8) Business
Days after" appearing in the fifteenth line of ss.9.1(a)(v) and by substituting
therefor
<PAGE> 11
-3-
the words "no later than Wednesday of the calendar week immediately following
and as of".
ss.1.4 Amendment to Financial Covenants. Section 9.3 of the Loan Agreement
is hereby amended as follows:
(a) By inserting, at the end of Section 9.3(a), the following proviso:
"; provided that the Borrowers shall not be required to comply with
the requirements of the foregoing covenant with respect to any
period of four consecutive fiscal quarters of the Subsidiaries of MI
if the Borrowers shall have demonstrated that they are in compliance
with the requirements of ss.9.3(d) below with respect to the fiscal
quarter ending on the last day of such period."
(b) By inserting, at the end of Section 9.3(b), the following proviso:
"; provided that the Borrowers shall not be required to comply with
the requirements of the foregoing covenant with respect to any
fiscal quarter of the Subsidiaries of MI if the Borrowers shall have
demonstrated that they are in compliance with the requirements of
ss.9.3(d) below with respect to such fiscal quarter."
(c) By inserting, immediately after ss.9.3(c), the following new
ss.9.3(d):
"(d) permit the Average Liquidity Level for any fiscal quarter of
the Subsidiaries of MI to be less than the minimum level set forth
opposite each such fiscal quarter ending date in the table below:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Minimum Average
Fiscal Quarter Ending Liquidity Level
--------------------------------------------------------------------
<S> <C>
3/31/1999 $15,000,000
--------------------------------------------------------------------
6/30/1999 $15,000,000
--------------------------------------------------------------------
9/30/1999 $10,000,000
--------------------------------------------------------------------
12/31/1999 $10,000,000
--------------------------------------------------------------------
3/31/2000 $10,000,000
--------------------------------------------------------------------
</TABLE>
provided that the Borrowers shall not be required to comply with the
requirements of the foregoing covenant with respect to any fiscal
quarter of the Subsidiaries of MI if the Borrowers shall have
demonstrated that they are in compliance with the requirements of
ss.ss.9.3(a) and 9.3(b) above with respect to such fiscal quarter or
the period of four fiscal quarters ending on such date, as the case
may be."
<PAGE> 12
-4-
ss.2. Guarantors' Consent. Each of the Guarantors hereby consents to the
amendments to the Loan Agreement set forth in this Amendment, and each confirms
its obligation to the Agent and the Banks under ss.6.4 of the Loan Agreement and
agrees that its guaranty of the Obligations thereunder shall extend to and
include the Loan Agreement as amended by this Amendment.
ss.3. Representations, Warranties and Covenants; No Default;
Authorization. Each of the Borrowers and Guarantors hereby represents, warrants
and covenants to the Agent and the Banks as follows:
(a) each of the representations and warranties of such Borrower or
Guarantor contained in the Loan Agreement was true as of the date as
of which it was made and is true as and at the date of this
Amendment, and no Default or Event of Default has occurred and is
continuing as of the date of this Amendment;
(b) this Amendment has been duly authorized, executed and delivered by
each of the Borrowers and Guarantors and is in full force and
effect; and
(c) upon the execution and delivery of this Amendment by the respective
parties hereto, this Amendment shall constitute the legal, valid and
binding obligation of the Borrowers and the Guarantors, enforceable
in accordance with its terms, except that the enforceability thereof
may be subject to any applicable bankruptcy, reorganization,
insolvency or other laws affecting creditors' rights generally.
ss.4. Conditions to Effectiveness. The effectiveness of this Amendment
shall be subject to the satisfaction of the following conditions precedent:
(a) this Amendment shall have been duly executed and delivered by the
respective parties hereto and shall be in full force and effect;
(b) the Borrowers shall have paid an amendment fee in the amount of
$50,000.00 to the Agent for the accounts of the Banks in accordance
with their respective Commitment Percentages; and
(c) after giving effect to this Amendment, no Default or Event of
Default shall have occurred and be continuing.
ss.5. Ratification, etc. Except as expressly amended hereby, the Loan
Agreement and all documents, instruments and agreements related thereto are
hereby ratified and confirmed in all respects. All references in the Loan
Agreement
<PAGE> 13
-5-
or any related agreement or instrument to the Loan Agreement shall hereafter
refer to the Loan Agreement as amended hereby.
ss.6. No Implied Waiver. Except as expressly provided herein, nothing
contained herein shall constitute a waiver of, impair or otherwise affect any
Obligations, any other obligations of any of the Borrowers or Guarantors or any
right of the Agent or any Bank consequent thereon.
ss.7. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but which together shall
constitute one and the same instrument.
ss.8. Governing Law. THIS AMENDMENT SHALL FOR ALL PURPOSES BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
(WITHOUT REFERENCE TO CONFLICTS OF LAW).
[Remainder of page intentionally left blank]
<PAGE> 14
-6-
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment as a
sealed instrument as of the date first above written.
METALLURG, INC.
By: /s/ Barry C. Nuss
----------------------------------------
Name: Barry C. Nuss
Title: Vice President, Finance
SHIELDALLOY METALLURGICAL
CORPORATION
By: /s/ Barry C. Nuss
----------------------------------------
Name: Barry C. Nuss
Title: Vice President, Finance
METALLURG SERVICES, INC.
By: /s/ Barry C. Nuss
----------------------------------------
Name: Barry C. Nuss
Title: Vice President
MIR (CHINA), INC.
By: /s/ Barry C. Nuss
----------------------------------------
Name: Barry C. Nuss
Title: Vice President
METALLURG HOLDINGS
CORPORATION
By: /s/ Barry C. Nuss
----------------------------------------
Name: Barry C. Nuss
Title: Vice President, Treasurer
<PAGE> 15
-7-
BANKBOSTON, N.A. (formerly known
as The First National Bank of Boston),
individually and as Agent
By: /s/ Marwan Isbaih
----------------------------------------
Name: Marwan Isbaih
Title: V.P.
BANK OF SCOTLAND
By: /s/ Janet Taffe
----------------------------------------
Name: Janet Taffe
Title: Asst. Vice President
NATIONAL BANK OF CANADA
By: /s/ Gaetan R. Frosina
----------------------------------------
Name: Gaetan R. Frosina
Title: VP and Manager
By: /s/ Michael F. McIntyre
----------------------------------------
Name: Michael F. McIntyre
Title: Assistant Vice President
<PAGE> 1
EXHIBIT 10.4
<PAGE> 2
FIRST AMENDMENT
to
LOAN AGREEMENT
This FIRST AMENDMENT (this "Amendment"), dated as of 15 August 1998 by and
among (a) GfE Gesellschaft fur Elektrometallurgie mit beschrankter Haftung, a
German corporation having its principal place of business at Hofener Stra(beta)e
45, 90431 Nurnberg ("GfE Holding Company"), GfE Umwelttechnik GmbH, a German
corporation having its principal place of business at Hofener Stra(beta)e 45,
90431 Nurnberg ("GfE UT") GfE Gie(beta)erei- und Stahlwerksbedarf GmbH, a German
corporation having its principal place of business at KreuzStra(beta)e 34, 40210
Dusseldorf ("GfE G&S"), GfE Metalle und Materialien GmbH, a German corporation
having its principal place of business at Hofener Stra(beta)e 45, 90431 Nurnberg
("GfE M&M"), KERAMED Medizintechnik GmbH, a German corporation having its
principal place of business at An den Trillers Buschen 2, 07646
Morsdorf/Thuringen ("KERAMED"), and collectively with GfE Holding Company, GfE
UT, GfE G&S and GfE M&M, the ("Borrowers"), and (b) BankBoston, N.A., London
Branch (the "Bank") is an amendment of the Loan Agreement dated 22 July 1998 by
and among the Borrowers and the Bank (as so amended, the "Loan Agreement").
WHEREAS, the Borrowers have requested, and the Bank has agreed, subject to
the terms and conditions set forth herein, to make certain amendments to the
Loan Agreement as specifically set forth in this Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ss.1. Defined Terms. Capitalised terms used herein without definition and
defined in the Loan Agreement shall have the same meanings herein as in the Loan
Agreement.
ss.2. Amendment to Loan Agreement. The parties hereby agree to amend
ss.9.2(a) of the Loan Agreement, to be effective on the Effective Date (as
defined in ss.6 hereof), by deleting ss.9.2(a)(ix) in its entirety and
substituting therefor the following:
"(ix) long-term Indebtedness to IKB Deutsche Industriebank
which does not exceed DM 10,000,000 in cumulative aggregate amount
and refinancings thereof which do not exceed the amount refinanced
provided that such Indebtedness is secured only by the fixed assets
of the Borrowers,".
ss.3. Waivers, Ratifications, Etc.
(a) Nothing contained in this Amendment shall constitute a waiver of,
impair or otherwise affect any Obligations, any other obligation of the
Borrowers or any rights of the Bank consequent thereon.
(b) Except as expressly amended hereby, the Loan Agreement and all
documents, instruments and agreements related thereto, including, but not
limited to the Loan Documents, are hereby ratified and confirmed in all respects
and shall continue in full force and effect.
(c) GfE Holding Company, as Guarantor under and as defined in the Holding
Guarantee, hereby (a) consents for all purposes to the amendment of the Loan
Agreement as provided herein, (b) consents to the waiver provided by the Bank
contained herein, (c) confirms that all obligations of the Guarantor under the
Holding Guarantee includes all of the indebtedness, obligations and liabilities
under
<PAGE> 3
the Loan Agreement, as the same may be further amended, varied, substituted,
supplemented, restated or novated and in effect from time to time, and (d)
acknowledges that all references to the "Loan Agreement" in the Holding
Guarantee shall refer to the Loan Agreement as amended by this Amendment.
ss.4. Representations and Warranties. Each of the Borrowers hereby
represents and warrants (as a Zusicherung im Wege eines Garantieversprechens) to
the Bank as follows:
(a) The execution and delivery by such Borrower of this Amendment, and the
performance by such Borrower of its obligations and agreements under the Loan
Agreement as amended and confirmed hereby, are within the corporate authority of
such Borrower, have been authorised by all necessary corporate proceedings on
behalf of each of them, and do not contravene any provision of law or the
charter, other incorporation papers, by-laws or any stock provision or any
amendment thereof to which any of them are a party or of any indenture,
agreement, instrument or undertaking binding upon any or all of them.
(b) This Amendment and the Loan Agreement as amended hereby constitute
legal, valid and binding obligations of the relevant parties thereto,
enforceable in accordance with their respective terms, except as limited by
bankruptcy, insolvency, reorganisation, moratorium or similar laws relating to
or affecting generally the enforcement of creditors' rights.
(c) No approval or consent of, or filing with, any governmental agency or
authority is required to make valid and legally binding the execution, delivery
or performance by any of them of this Amendment, or the performance by the
Borrowers of the Loan Agreement as amended hereby.
(d) The representations and warranties contained in ss.7 of the Loan
Agreement were correct at and as of the date made and are correct as of the date
hereof except to the extent of changes resulting from transactions contemplated
or permitted by this Amendment or the Loan Agreement and changes occurring in
the ordinary course of business that singly or in the aggregate are not
materially adverse and except to the extent that such representations and
warranties relate expressly to an earlier date; provided that all references
therein to the Loan Agreement shall refer to such Loan Agreement as amended
hereby.
(e) As of the date hereof, after giving effect to the provisions hereof,
there exists no Event of Default.
ss.5. Conditions to Effectiveness. The effectiveness of this Amendment
shall be subject to the following conditions precedent:
(a) Corporate Action. All corporate action necessary for the valid
execution, delivery and performance by each of the Borrowers of this Amendment
shall have been duly and effectively taken, and evidence thereof satisfactory to
the Bank shall have been provided to the Bank.
(b) Delivery. The Borrowers and the Bank shall have executed and delivered
this Amendment and all other documents (in form and substance satisfactory to
the Bank in its sole discretion) contemplated thereby and incident thereto.
(c) Proceedings and Documents. All proceedings in connection with the
transactions contemplated by this Amendment and all documents incident thereto
shall be reasonably satisfactory in substance and form to the Bank, and the Bank
shall have received all information and such counterpart originals or certified
or other copies of such documents as the Bank may reasonably request.
2
<PAGE> 4
ss.6. Effective Date. The provisions of this Amendment shall become
effective as of the date (the "Effective Date") which is the later of the date
hereof and the date when the last of the conditions set out in ss.5 has been
satisfied.
ss.7. Miscellaneous Provisions.
(a) Except as otherwise expressly provided by this Amendment, all of the
terms, conditions and provisions of the Loan Agreement shall remain the same. It
is declared and agreed by each of the parties hereto that the Loan Agreement, as
amended hereby, shall continue in full force and effect, and that this Amendment
and the Loan Agreement shall be read and construed as one instrument, and that
all references in the Loan Agreement or any of the other Loan Documents to the
Loan Agreement shall refer to the Loan Agreement as amended by this Amendment.
(b) This Amendment is a contract under the laws of the Federal Republic of
Germany and shall be construed in accordance therewith and governed thereby.
(c) This Amendment may be executed in any number of counterparts, but all
such counterparts shall together constitute but one instrument. In making proof
of this Amendment it shall not be necessary to produce or account for more than
one counterpart signed by each party hereto by and against which enforcement
hereof is sought.
3
<PAGE> 5
AS WITNESS the hands of the authorized signatories of the parties hereto the day
and year first above written.
SIGNED by for and on behalf of )
GfE Gesellschaft fur Elektrometallurgie ) /s/ Authorized Signatory
mit beschrankter Haftung in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
SIGNED by for and on behalf of )
GfE Umwelttechnik GmbH ) /s/ Authorized Signatory
in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
SIGNED by for and on behalf of )
GfE Gie(beta)erei- und Stahlwerksbedarf GmbH ) /s/ Authorized Signatory
in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
All above signatures of the Managing Directors are
witnessed by:
/s/ Susanne Kramm
__________________________________________________
Susanne Kramm, Sudetenstr. 2c, D-90614 Neuhof
Secretary
4
<PAGE> 6
SIGNED by for and on behalf of )
GfE Metalle und Materialien GmbH ) /s/ Authorized Signatory
in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
SIGNED by for and on behalf of )
KERAMED Medizintechnik GmbH ) /s/ Authorized Signatory
in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
SIGNED by for and on behalf of )
BankBoston, N.A., London Branch ) /s/ Authorized Signatory
in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
All above signatures of the Managing Directors are
witnessed by:
/s/ Susanne Kramm
__________________________________________________
Susanne Kramm, Sudetenstr. 2c, D-90614 Neuhof
Secretary
5
<PAGE> 7
SECOND AMENDMENT
to
LOAN AGREEMENT
This SECOND AMENDMENT (this "Amendment"), dated as of 16th November 1998
by and among (a) GfE Gesellschaft fur Elektrometallurgie mit beschrankter
Haftung, a German corporation having its principal place of business at Hofener
Stra(beta)e 45, 90431 Nurnberg ("GfE Holding Company"), GfE Umwelttechnik GmbH,
a German corporation having its principal place of business at Hofener
Stra(beta)e 45, 90431 Nurnberg, ("GfE UT"), GfE Gie(beta)erei- und
Stahlwerksbedarf GmbH, a German corporation having its principal place of
business at KreuzStra(beta)e 45, 40210 Dusseldorf ("GfE G&S"), GfE Metalle und
Materialien GmbH, a German corporation having its principal place of business at
Hofener Stra(beta)e 45, 90431 Nurnberg ("GfE M&M"), KERAMED Medizintechnik GmbH,
a German corporation having its principal place of business at An den Trillers
Buschen 2, 07646 Morsdorf/Thuringen ("KERAMED", and collectively with GfE
Holding Company, GfE UT, GfE G&S and GfE M&M, the "Borrowers"), and (b)
BankBoston, N.A., London Branch (the "Bank") is an amendment of the Loan
Agreement dated 22 July 1998 by among the Borrowers and the Bank (as so amended,
the "Loan Agreement").
WHEREAS, the Borrowers have requested, and the Bank has agreed, subject to
the terms and conditions set forth herein, to make certain amendments to the
Loan Agreement as specifically set forth in this Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ss.1. Defined Terms. Capitalized terms used herein without definition and
defined in the Loan Agreement shall have the same meanings herein as in the Loan
Agreement.
ss.2. Amendments to Loan Agreement. The parties hereby agree to amend the
Loan Agreement, to be effective on the Effective Date (as defined in ss.6
hereof), as follows:
(a) ss.7(o) of the Loan Agreement is hereby deleted in its entirety and
replaced with the following:
"(o) Schedule 7(o) sets forth the account numbers and location of
all bank accounts of such Borrower and each of its Subsidiaries
(excluding the bank account maintained by GfE Holding Company with
Bank Mendes and subject to the ISO Agreement (as such terms are
defined in ss.9.2(a)(xii)))."
(b) ss.9.2(a) of the Loan Agreement is hereby amended as follows:
(i) by deleting the word "and" from the end of ss.9.2(a)(x);
(ii) by inserting at the end of ss.9.2(a)(xi) the word "and"; and
(iii) by inserting at the end of ss.9.2(a) the following:
"(xii) unsecured Indebtedness owed (A) by any Borrower to
Metallurg, Inc., and (B) by GfE Holding Company to Bank Mendes Gans
N.V. ("Bank Mendes") in respect of its borrowings under that certain
Interest Set-Off Agreement with Bank Mendes dated 30
<PAGE> 8
September 1998 in the form delivered to the Bank prior to the
Effective Date (the "ISO Agreement") provided that all such
Indebtedness permitted under this ss.9.2(a)(xii) does not exceed at
any time the Deutschemark Equivalent of $16,500,000 in cumulative
aggregate amount;"
ss.3. Waivers, Ratifications, Etc.
(a) Nothing contained in this Amendment shall constitute a waiver of,
impair or otherwise affect any Obligations, any other obligation of the
Borrowers or any rights of the Bank consequent thereon.
(b) Except as expressly amended hereby, the Loan Agreement and all
documents, instruments and agreements related thereto, including, but not
limited to the Loan Documents, are hereby ratified and confirmed in all respects
and shall continue in full force and effect.
(c) GfE Holding Company, as Guarantor under and as defined in the Holding
Guarantee, hereby (i) consents for all purposes to the amendment of the Loan
Agreement as provided herein, (ii) consents to the waiver provided by the Bank
contained herein, (iii) confirms that all obligations of the Guarantor under the
Holding Guarantee includes all of the indebtedness, obligations and liabilities
under the Loan Agreement, as the same may be further amended, varied,
substituted, supplemented, restated or novated and in effect from time to time,
and (iv) acknowledges that all references to the "Loan Agreement" in the Holding
Guarantee shall refer to the Loan Agreement as amended by this Amendment.
ss.4. Representations and Warranties. Each of the Borrowers hereby
represents and warrants (as a Zusicherung im Wege eines Garantieversprechens) to
the Bank as follows:
(a) The execution and delivery by such Borrower of this Amendment, and the
performance by such Borrower of its obligations and agreements under the Loan
Agreement as amended and confirmed hereby, are within the corporate authority of
such Borrower, have been authorised by all necessary corporate proceedings on
behalf of each of them, and do not contravene any provision of law or the
charter, other incorporation papers, by-laws or any stock provision or any
amendment thereof to which any of them are a party or of any indenture,
agreement, instrument or undertaking binding upon any or all of them.
(b) This Amendment and the Loan Agreement as amended hereby constitute
legal, valid and binding obligations of the relevant parties thereto,
enforceable in accordance with their respective terms, except as limited by
bankruptcy, insolvency, reorganisation, moratorium or similar laws relating to
or affecting generally the enforcement of creditors' rights.
(c) No approval or consent of, or filing with, any governmental agency or
authority is required to make valid and legally binding the execution, delivery
or performance by any of them of this Amendment, or the performance by the
Borrowers of the Loan Agreement as amended hereby.
(d) The representations and warranties contained in ss.7 of the Loan
Agreement were correct at and as of the date made and are correct as of the date
hereof except to the extent of changes resulting from transactions contemplated
or permitted by this Amendment or the Loan Agreement and changes occurring in
the ordinary course of business that singly or in the aggregate are not
materially adverse and except to the extent that such representations and
warranties relate expressly to an earlier date; provided that all references
therein to the Loan Agreement shall refer to such Loan Agreement as amended
hereby.
(e) As of the date hereof, after giving effect to the provisions hereof,
there exists no Event of Default.
2
<PAGE> 9
ss.5. Conditions to Effectiveness. The effectiveness of this Amendment
shall be subject to the following conditions precedent:
(a) Corporate Action. All corporate action necessary for the valid
execution, delivery and performance by each of the Borrowers of this Amendment
shall have been duly and effectively taken, and evidence thereof satisfactory to
the Bank shall have been provided to the Bank.
(b) Delivery. The Borrowers and the Bank shall have executed and delivered
this Amendment and all other documents (in form and substance satisfactory to
the Bank in its sole discretion) contemplated thereby and incident thereto.
(c) ISO Agreement. The Bank shall have received a fully executed copy of
the ISO Agreement.
(d) Bank Mendes Letter. GfE Holding Company shall have delivered to Bank
Mendes a letter, in form and substance satisfactory to the Bank, instructing
Bank Mendes, in the event it enforces its rights under the ISO Agreement, to pay
to the Bank any surplus amounts in the account that GfE Holding Company has with
Bank Mendes.
(e) Proceedings and Documents. All proceedings in connection with the
transactions contemplated by this Amendment and all documents incident thereto
shall be reasonably satisfactory in substance and form to the Bank, and the Bank
shall have received all information and such counterpart originals or certified
or other copies of such documents as the Bank may reasonably request.
ss.6. Effective Date. The provisions of this Amendment shall become
effective as of the date (the "Effective Date") which is the later of the date
hereof and the date when the last of the conditions set out in ss.5 has been
satisfied.
ss.7. Miscellaneous Provisions.
(a) Except as otherwise expressly provided by this Amendment, all of the
terms, conditions and provisions of the Loan Agreement shall remain the same. It
is declared and agreed by each of the parties hereto that the Loan Agreement, as
amended hereby, shall continue in full force and effect, and that this Amendment
and the Loan Agreement shall be read and construed as one instrument, and that
all references in the Loan Agreement or any of the other Loan Documents to the
Loan Agreement shall refer to the Loan Agreement as amended by this Amendment.
(b) This Amendment is a contract under the laws of the Federal Republic of
Germany and shall be construed in accordance therewith and governed thereby.
(c) This Amendment may be executed in any number of counterparts, but all
such counterparts shall together constitute but one instrument. In making proof
of this Amendment it shall not be necessary to produce or account for more than
one counterpart signed by each party hereto by and against which enforcement
hereof is sought.
3
<PAGE> 10
AS WITNESS the hands of the authorised signatories of the parties hereto the day
and year first above written.
SIGNED by for and on behalf of )
GfE Gesellschaft fur Elektrometallurgie ) /s/ Authorized Signatory
mit beschrankter Haftung in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
SIGNED by for and on behalf of )
GfE Umwelttechnik GmbH ) /s/ Authorized Signatory
in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
SIGNED by for and on behalf of )
GfE Gie(beta)erei- und Stahlwerksbedarf GmbH ) /s/ Authorized Signatory
in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
All above signatures of the Managing Directors of
the borrowers are witnessed by:
/s/ Susanne Kramm
__________________________________________________
Susanne Kramm, Sudetenstr. 2c, D-90614 Neuhof
Secretary
4
<PAGE> 11
SIGNED by for and on behalf of )
GfE Metalle und Materialien GmbH ) /s/ Authorized Signatory
in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
SIGNED by for and on behalf of )
KERAMED Medizintechnik GmbH ) /s/ Authorized Signatory
in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
SIGNED by for and on behalf of )
BankBoston, N.A., London Branch ) /s/ Authorized Signatory
in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
All above signatures of the Managing Directors of
the borrowers are witnessed by:
/s/ Susanne Kramm
__________________________________________________
Susanne Kramm, Sudetennstr. 2c, D-90614 Neuhof
Secretary
5
<PAGE> 12
Exhibit A
SECOND AMENDMENT
to
LOAN AGREEMENT
This SECOND AMENDMENT (this "Amendment"), dated as of November 1998 by and
among (a) GfE Gesellschaft fur Elektrometallurgie mit beschrankter Haftung, a
German corporation having its principal place of business at Hofener Straae 45,
90431 N?rnberg ("GfE Holding Company"), GfE Umwelttechnik GmbH, a German
corporation having its principal place of business at Hofener Stra(beta)e 45,
90431 Nurnberg ("GfE UT"), GfE Gieaerei- und Stahlwerksbedarf GmbH, a German
corporation having its principal place of business at KreuzStraae 34, 40210
D?sseldorf ("GfE G&S"), GfE Metalle und Matrialien GmbH, a German corporation
having its principal place of business at Hofener Stra(beta)e 45, 90431 Nurnberg
("GfE M&M"), KERAMED Medizintechnik GmbH, a German corporation having its
principal place of business at An den Trillers Buschen 2, 07646
Morsdorf/Thuringen ("KERAMED," and collectively with GfE Holding Company, GfE
UT, GfE G&S and GfE M&M, the "Borrowers"), and (b) BankBoston, N.A., London
Branch (the "Bank") is an amendment of the Loan Agreement dated 22 July 1998 by
and among the Borrowers and the Bank (as so amended, the "Loan Agreement").
WHEREAS, the Borrowers have requested, and the Bank has agreed, subject to
the terms and conditions set forth herein, to make certain amendments to the
Loan Agreement as specifically set forth in this Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ss. 1. Defined Terms. Capitalised terms used herein without definition and
defined in the Loan Agreement shall have the same meanings herein as in the Loan
Agreement.
ss. 2. Amendments to Loan Agreement. The parties hereby agree to amend the
Loan Agreement, to be effective on the Effective Date (as defined in ss.6
hereof), as follows:
(a) ss.7(o) of the Loan Agreement is hereby deleted in its entirety and
replaced with the following:
"(o) Schedule 7(o) sets forth the account numbers and location
of all bank accounts of such Borrower and each of its Subsidiaries
(excluding the bank account maintained by GfE Holding Company with
Bank Mendes and subject to the ISO Agreement (as such terms are
defined in ss.9.2(a)(xii)))."
(b) ss.9.2(a) of the Loan Agreement is hereby amended as follows:
(i) by deleting the word "and" from the end of ss.9.2(a)(x);
(ii) by inserting at the end of ss.9.2(a)(xi) the word "and"; and
<PAGE> 13
-2-
(iii) by inserting at the end of ss.9.2(a) the following:
"(xii) unsecured Indebtedness owed (A) by any Borrower to
Metallurg, Inc., and (B) by GfE Holding Company to Bank Mendes Gans
N.V. ("Bank Mendes") in respect of its borrowings under that certain
Interest Set-Off Agreement with Bank Mendes dated 30 September 1998
in the form delivered to the Bank prior to the Effective Date (the
"ISO Agreement") provided that all such Indebtedness permitted under
this ss.9.2(a)(xii) does not exceed at any time the Deutschemark
Equivalent of $16,500,000 in cumulative aggregate amount;"
ss. 3. Waivers, Ratifications, Etc.
(a) Nothing contained in this Amendment shall constitute a waiver of,
impair or otherwise affect any Obligations, any other obligation of the
Borrowers or any rights of the Bank consequent thereon.
(b) Except as expressly amended hereby, the Loan Agreement and all
documents, instruments and agreements related thereto, including, but not
limited to the Loan Documents, are hereby ratified and confirmed in all respects
and shall continue in full force and effect.
(c) GfE Holding Company, as Guarantor under and as defined in the Holding
guarantee, hereby (i) consents for all purposes to the amendment of the Loan
Agreement as provided herein, (ii) consents to the waiver provided by the Bank
contained herein, (iii) confirms that all obligations of the Guarantor under the
Holding Guarantee includes all of the indebtedness, obligations and liabilities
under the Loan agreement, as the same may be further amended, varied,
substituted, supplemented, restated or novated and in effect from time to time,
and (iv) acknowledges that all references to the "Loan Agreement" in the Holding
Guarantee shall refer to the Loan Agreement as amended by this Amendment.
ss. 4. Representations and Warranties. Each of the Borrowers hereby
represents and warrants (as a Zusicherung im Wege eines Garantieversprechens) to
the Bank as follows:
(a) The execution and delivery by such Borrower of this Amendment, and the
performance by such Borrower of its obligations and agreements under the Loan
Agreement as amended and confirmed hereby, are within the corporate authority of
such Borrower, have been authorised by all necessary corporate proceedings on
behalf of each of them, and do not contravene any provision of law or the
charter, other incorporation papers, by-laws or any stock provision or any
amendment thereof to which any of them are a party or of any indenture,
agreement, instrument or undertaking binding upon any or all of them
(b) This Amendment and the Loan Agreement as amended hereby constitute
legal, valid and binding obligations of the relevant parties thereto,
enforceable in accordance with their respective terms, except as limited by
bankruptcy, insolvency, reorganisation, moratorium or similar laws relating to
or affecting generally the enforcement of creditors' rights.
(c) No approval or consent of, or filing with, any governmental agency or
authority is required to make valid and legally binding the execution, delivery
or performance by any of them of this Amendment, or the performance by the
Borrowers of the Loan Agreement as amended hereby.
(d) The representations and warranties contained in ss.7 of the Loan
Agreement were correct at and as of the date made and are correct as of the date
hereof except to the extent of changes resulting from transactions contemplated
or permitted by this Amendment or the Loan Agreement and changes
<PAGE> 14
-3-
occurring in the ordinary course of business that singly or in the aggregate are
not materially adverse and except to the extent that such representations and
warranties relate expressly to an earlier date; provided that all references
therein to the Loan Agreement shall refer to such Loan Agreement as amended
hereby.
(e) As of the date hereof, after giving effect to the provisions hereof,
there exists no Event of Default.
ss. 5. Conditions to Effectiveness. The effectiveness of this Amendment
shall be subject to the following conditions precedent:
(a) Corporate Action. All corporate action necessary for the valid
execution, delivery and performance by each of the Borrowers of this Amendment
shall have been duly and effectively taken, and evidence thereof satisfactory to
the Bank shall have been provided to the Bank.
(b) Delivery. The Borrowers and the Bank shall have executed and delivered
this Amendment and all other documents (in form and substance satisfactory to
the Bank in its sole discretion) contemplated thereby and incident thereto.
(c) ISO Agreement. The Bank shall have received a fully executed copy of
the ISO Agreement.
(d) Bank Mendes Letter. GfE Holding Company shall have delivered to Bank
Mendes a letter, in form and substance satisfactory to the Bank, instructing
Bank Mendes, in the event it enforces its rights under the ISO Agreement, to pay
to the Bank any surplus amounts in the account that GfE Holding Company has with
Bank Mendes.
(e) Proceedings and Documents. All proceedings in connection with the
transactions contemplated by this Amendment and all documents incident thereto
shall be reasonably satisfactory in substance and form to the Bank, and the Bank
shall have received all information and such counterpart originals or certified
or other copies of such documents as the Bank may reasonably request.
ss. 6. Effective Date. The provisions of this Amendment shall become
effective as of the date (the "Effective Date") which is the later of the date
hereof and the date when the last of the conditions set out in ss.5 has been
satisfied.
ss. 7. Miscellaneous Provisions.
(a) Except as otherwise expressly provided by this Amendment, all of the
terms, conditions and provisions of the Loan Agreement shall remain the same. It
is declared and agreed by each of the parties hereto that the Loan Agreement, as
amended hereby, shall continue in full force and effect, and that this Amendment
and the Loan Agreement shall be read and construed as one instrument, and that
all references in the Loan Agreement or any of the other Loan Documents to the
Loan Agreement shall refer to the Loan Agreement as amended by this Amendment.
(b) This Amendment is a contract under the laws of the Federal Republic of
Germany and shall be construed in accordance therewith and governed thereby.
(c) This Amendment may be executed in any number of counterparts, but all
such counterparts shall together constitute but one instrument. In making proof
of this Amendment it shall not be necessary to produce or account for more than
one counterpart signed by each party hereto by and against which enforcement
hereof is sought.
<PAGE> 15
-4-
AS WITNESS the hands of the authorised signatories of the parties hereto
the day and year first above written.
SIGNED by for and on behalf of )
GfE Gesellschaft fur Elektrometallurgie ) /s/ Authorized Signatory
mit beschrankter Haftung in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
SIGNED by for and on behalf of )
GfE Umwelttechnik GmbH ) /s/ Authorized Signatory
in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
SIGNED by for and on behalf of )
GfE Gie(beta)erei- und Stahlwerksbedarf GmbH ) /s/ Authorized Signatory
in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
<PAGE> 16
-5-
SIGNED by for and on behalf of )
GfE Metalle und Materialien GmbH ) /s/ Authorized Signatory
in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
SIGNED by for and on behalf of )
KERAMED Medizintechnik GmbH ) /s/ Authorized Signatory
in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
SIGNED by for and on behalf of )
BankBoston, N.A., London Branch ) /s/ Authorized Signatory
in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
<PAGE> 1
Exhibit 10.11
METALLURG [LOGO]
1998
EQUITY COMPENSATION PLAN
<PAGE> 2
METALLURG, INC.
EQUITY COMPENSATION PLAN
The purpose of the Metallurg, Inc. 1998 Equity Compensation Plan (the
"Plan") is to provide (i) designated employees of Metallurg, Inc. (the
"Company") and its subsidiaries, (ii) certain Key Advisors and advisors who
perform services for the Company or its subsidiaries and (iii) non-employee
members of the Board of Directors of the Company (the "Board") with the
opportunity to receive grants of incentive stock options, nonqualified stock
options, stock appreciation rights, restricted stock and performance units. The
Company believes that the Plan will encourage the participants to contribute
materially to the growth of the Company, thereby benefiting the Company's
shareholders, and will align the economic interests of the participants with
those of the shareholders.
1. Administration
(a) Committee. The Plan shall be administered and interpreted by a
committee appointed by the Board (the "Committee"). Prior to the effective date
of an initial public offering of the Company's stock as described in Section 20
(a "Public Offering"), the Board may exercise any power or authority of the
Committee under the Plan and, in such case, references to the Committee
hereunder, as they relate to Plan administration, shall be deemed to include the
Board as a whole. After a Public Offering, the Committee shall consist of two or
more persons appointed by the Board, all of whom may be "outside directors" as
defined under section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code") and related Treasury regulations and may be "non-employee
directors" as defined under Rule l6b-3 under the Securities Exchange Act of
1934, as amended (the "Exchange Act").
(b) Committee Authority. The Committee shall have the sole authority
to (i) determine the individuals to whom grants shall be made under the Plan,
(ii) determine the type, size and terms of the grants to be made to each such
individual, (iii) determine the time when the grants will be made and the
duration of any applicable exercise or restriction period, including the
criteria for exercisability and the acceleration of exercisability and (iv) deal
with any other matters arising under the Plan.
(c) Committee Determinations. The Committee shall have full power
and authority to administer and interpret the Plan, to make factual
determinations and to adopt or amend such rules, regulations, agreements and
instruments for implementing the Plan and for the conduct of its business as it
deems necessary or advisable, in its sole discretion. The Committee's
interpretations of the Plan and all determinations made by the Committee
pursuant to the powers vested in it hereunder shall be conclusive and binding on
all persons having any interest in the Plan or in any awards granted hereunder.
All powers of the Committee shall be executed in its sole discretion, in the
best interest of the Company, not as a fiduciary, and in keeping with the
objectives of the Plan and need not be uniform as to similarly situated
individuals.
2
<PAGE> 3
2. Grants
Awards under the Plan may consist of grants of incentive stock options as
described in Section 5 ("Incentive Stock Options"), nonqualified stock options
as described in Section 5 ("Nonqualified Stock Options"; it being understood
that Incentive Stock Options and Nonqualified Stock Options are collectively
referred to as "Options"), restricted stock as described in Section 6
(Restricted Stock"), stock appreciation rights as described in Section 7
("SARs"), and performance units as described in Section 8 ("Performance Units")
(hereinafter collectively referred to as "Grants"). All Grants shall be subject
to the terms and conditions set forth herein and to such other terms and
conditions consistent with this Plan as the Committee deems appropriate and as
are specified in writing by the Committee to the individual in a grant
instrument (the "Grant Instrument") or an amendment to the Grant Instrument. The
Committee shall approve the form and provisions of each Grant Instrument. Grants
under a particular Section of the Plan need not be uniform as among the
grantees.
3. Shares Subject to the Plan
(a) Shares Authorized. As of the effective date of the Plan, the
number of authorized and outstanding shares of the common stock of the Company
("Company Stock") was 5,000,000 shares. Subject to the adjustment specified
below, the aggregate number of shares of Company Stock that may be issued or
transferred under the Plan is 500,000 shares. After a Public Offering, the
maximum aggregate number of shares of Company Stock that shall be subject to
Grants made under the Plan to any individual during any calendar year shall be
100,000 shares. The shares may be authorized but unissued shares of Company
Stock or reacquired shares of Company Stock, including shares purchased by the
Company on the open market for purposes of the Plan. If and to the extent
Options or SARs granted under the Plan terminate, expire, or are canceled,
forfeited, exchanged or surrendered without having been exercised, or if any
shares of Restricted Stock or Performance Units are forfeited, the shares
subject to such Grants shall again be available for purposes of the Plan.
(b) Adjustments. If there is any change in the number or kind of
shares of Company Stock outstanding (i) by reason of a stock dividend, spinoff,
recapitalization, stock split or combination or exchange of shares, (ii) by
reason of a merger, reorganization or consolidation in which the Company is the
surviving corporation, (iii) by reason of a reclassification or change in par
value, or (iv) by reason of any other extraordinary or unusual event affecting
the outstanding Company Stock as a class without the Company's receipt of
consideration, or if the value of outstanding shares of Company Stock is
substantially reduced as a result of a spinoff or the Company's payment of an
extraordinary dividend or distribution, the maximum number of shares of Company
Stock available for Grants, the maximum number of shares of Company Stock that
any individual participating in the Plan may be granted in any year, the number
of shares covered by outstanding Grants, the kind of shares issued under the
Plan, and the price per share or the applicable market value of such Grants
shall be appropriately adjusted by the Committee to reflect any increase or
decrease in the number of, or change in the kind or value of, issued shares of
Company Stock to preclude, to the extent practicable, the enlargement or
dilution of rights and benefits under such Grants; provided, however, that any
3
<PAGE> 4
fractional shares resulting from such adjustment shall be eliminated. Any
adjustments determined by the Committee shall be final, binding and conclusive.
4. Eligibility for Participation
(a) Eligible Persons. All employees of the Company and its
subsidiaries ("Employees"), including Employees who are officers or members of
the Board, and members of the Board who are not Employees ("Non-Employee
Directors") shall be eligible to participate in the Plan. Key Advisors and
advisors who perform services to the Company or any of its subsidiaries ("Key
Advisors") shall be eligible to participate in the Plan if the Key Advisors
render bona fide services and such services are not in connection with the offer
or sale of securities in a capital-raising transaction.
(b) Selection of Grantees. The Committee shall select the Employees,
Non-Employee Directors and Key Advisors to receive Grants and shall determine
the number of shares of Company Stock subject to a particular Grant in such
manner as the Committee determines. Employees, Key Advisors and Non-Employee
Directors who receive Grants under this Plan shall hereinafter be referred to as
"Grantees".
5. Granting of Options
(a) Number of Shares. The Committee shall determine the number of
shares of Company Stock that will be subject to each Grant of Options to
Employees, Non-Employee Directors and Key Advisors.
(b) Type of Option and Price.
(i) The Committee may grant Incentive Stock Options that are
intended to qualify as "incentive stock options" within the meaning of section
422 of the Code or Nonqualified Stock Options that are not intended so to
qualify or any combination of Incentive Stock Options and Nonqualified Stock
Options, all in accordance with the terms and conditions set forth herein.
Incentive Stock Options may be granted only to Employees. Nonqualified Stock
Options may be granted to Employees, Non-Employee Directors and Key Advisors.
(ii) The purchase price (the "Exercise Price") of Company
Stock subject to an Option shall be determined by the Committee and may be equal
to, greater than, or less than the Fair Market Value (as defined below) of a
share of Company Stock on the date the Option is granted, provided, however,
that (x) the Exercise Price of an Incentive Stock Option shall be equal to, or
greater than, the Fair Market Value of a share of Company Stock on the date the
Incentive Stock Option is granted and (y) an Incentive Stock Option may not be
granted to an Employee who, at the time of grant, owns stock possessing more
than 10 percent of the total combined voting power of all classes of stock of
the Company or any parent or subsidiary of the Company, unless the Exercise
Price per share is not less than 110% of the Fair Market Value of Company Stock
on the date of grant.
(iii) If the Company Stock is publicly traded, then the Fair
Market Value per share shall be determined as follows: (x) if the principal
trading market for the Company Stock is a national securities exchange or the
Nasdaq National Market, the last reported sale price thereof on the relevant
date or (if there were no trades on that date) the latest preceding date upon
which a sale was reported, or (y) if the Company Stock is not principally traded
on such exchange or
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<PAGE> 5
market, the mean between the last reported "bid" and "asked" prices of Company
Stock on the relevant date, as reported on Nasdaq or, if not so reported, as
reported by the National Daily Quotation Bureau, Inc. or as reported in a
customary financial reporting service, as applicable and as the Committee
determines. If the Company Stock is not publicly traded or, if publicly traded,
is not subject to reported transactions or "bid" or "asked" quotations as set
forth above, the Fair Market Value per share shall be as determined by the
Committee.
(c) Option Term. The Committee shall determine the term of each
Option. The term of any Option shall not exceed ten years from the date of
grant. However, an Incentive Stock Option that is granted to an Employee who, at
the time of grant, owns stock possessing more than 10 percent of the total
combined voting power of all classes of stock of the Company, or any parent or
subsidiary of the Company, may not have a term that exceeds five years from the
date of grant.
(d) Exercisability of Options. Options shall become exercisable in
accordance with such terms and conditions, consistent with the Plan, as may be
determined by the Committee and specified in the Grant Instrument or an
amendment to the Grant Instrument. The Committee may accelerate the
exercisability of any or all outstanding Options at any time for any reason.
(e) Termination of Employment, Disability or Death.
(i) Except as provided below, an Option may only be exercised
while the Grantee is employed by the Company as an Employee, Key Advisor or
member of the Board. In the event that a Grantee ceases to be employed by the
Company for any reason other than a "disability", death or "termination for
cause", any Option which is otherwise exercisable by the Grantee shall terminate
unless exercised within 90 days after the date on which the Grantee ceases to be
employed by the Company (or within such other period of time as may be specified
by the Committee), but in any event no later than the date of expiration of the
Option term. Any of the Grantee's Options that are not otherwise exercisable as
of the date on which the Grantee ceases to be employed by the Company shall
terminate as of such date.
(ii) In the event the Grantee ceases to be employed by the
Company on account of a "termination for cause" by the Company, any Option held
by the Grantee shall terminate as of the date the Grantee ceases to be employed
by the Company.
(iii) In the event the Grantee ceases to be employed by the
Company because the Grantee is "disabled", any Option which is otherwise
exercisable by the Grantee shall terminate unless exercised within one year
after the date on which the Grantee ceases to be
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<PAGE> 6
employed by the Company (or within such other period of time as may be specified
by the Committee), but in any event no later than the date of expiration of the
Option term. Any of the Grantee's Options which are not otherwise exercisable as
of the date on which the Grantee ceases to be employed by the Company shall
terminate as of such date.
(iv) If the Grantee dies while employed by the Company or
within 90 days after the date on which the Grantee ceases to be employed on
account of a termination of employment specified in Section 5(e)(i) above (or
within such other period of time as may be specified by the Committee), any
Option that is otherwise exercisable by the Grantee shall terminate unless
exercised within one year after the date on which the Grantee ceases to be
employed by the Company (or within such other period of time as may be specified
by the Committee), but in any event no later than the date of expiration of the
Option term. Any of the Grantee's Options that are not otherwise exercisable as
of the date on which the Grantee ceases to be employed by the Company shall
terminate as of such date.
(v) For purposes of Sections 5(e), 6, 7, 8 and 12:
(A) "Company," when used in the phrase "employed by the Company,"
shall mean the Company and its parent and subsidiary corporations.
(B) "Employed by the Company" shall mean employment or service as an
Employee, Key Advisor or member of the Board (so that, for purposes of
exercising Options and SARs and satisfying conditions with respect to
Restricted Stock and Performance Units, a Grantee shall not be considered
to have terminated employment or service until the Grantee ceases to be an
Employee, Key Advisor and member of the Board), unless the Committee
determines otherwise.
(C) "Disability" shall mean a Grantee's becoming disabled within the
meaning of section 22(e)(3) of the Code.
(D) "Termination for cause" shall mean, except to the extent
specified otherwise by the Committee, a finding by the Committee that the
Grantee has (1) breached his or her employment, service, non-competition,
non-solicitation or other similar contract with the Company, or (2) has
been engaged in disloyalty to the Company, including, without limitation,
fraud, embezzlement, theft, commission of a felony or dishonesty in the
course of his or her employment or service which, if the Grantee had
entered into an employment agreement or similar contract with the Company
would constitute "cause" under such employment agreement or similar
contract, or (3) has disclosed trade secrets or confidential information
of the Company to persons not entitled to receive such information. In the
event a Grantee's employment is terminated for cause, in addition to the
immediate termination of all Grants, the Grantee shall automatically
forfeit all shares underlying any exercised portion of an Option, upon
refund by the Company of the Exercise Price paid by the Grantee for such
shares.
(f) Exercise of Options. A Grantee may exercise an Option that has
become exercisable, in whole or in part, by delivering a notice of exercise to
the Company with payment
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<PAGE> 7
of the Exercise Price. The Grantee shall pay the Exercise Price for an Option as
specified by the Committee (x) in cash, (y) with the approval of the Committee,
by delivering shares of Company Stock owned by the Grantee for the period
necessary to avoid a charge to the Company's earnings for financial reporting
purposes (including Company Stock acquired in connection with the exercise of an
Option, subject to such restrictions as the Committee deems appropriate) and
having a Fair Market Value on the date of exercise equal to the Exercise Price
or (z) by such other method as the Committee may approve, including after a
Public Offering payment through a broker in accordance with procedures permitted
by Regulation T of the Federal Reserve Board. Shares of Company Stock used to
exercise an Option shall have been held by the Grantee for the requisite period
of time to avoid adverse accounting consequences to the Company with respect to
the Option. The Grantee shall pay the Exercise Price and the amount of any
withholding tax due (pursuant to Section 9) at the time of exercise.
(g) Limits on Incentive Stock Options. Each Incentive Stock Option
shall provide that, if the aggregate Fair Market Value of the stock on the date
of the grant with respect to which Incentive Stock Options are exercisable for
the first time by a Grantee during any calendar year, under the Plan or any
other stock option plan of the Company or a parent or subsidiary, exceeds
$100,000, then the option, as to the excess, shall be treated as a Nonqualified
Stock Option. An Incentive Stock Option shall not be granted to any person who
is not an Employee of the Company or a parent or subsidiary (within the meaning
of section 424(f) of the Code).
6. Restricted Stock Grants
The Committee may issue or transfer shares of Company Stock to an Employee
or Key Advisor under a Grant of Restricted Stock, upon such terms as the
Committee deems appropriate. The following provisions are applicable to
Restricted Stock:
(a) General Requirements. Shares of Company Stock issued or
transferred pursuant to Restricted Stock Grants may be issued or transferred for
consideration or for no consideration, as determined by the Committee. The
Committee may establish conditions under which restrictions on shares of
Restricted Stock shall lapse over a period of time or according to such other
criteria as the Committee deems appropriate. The period of time during which the
Restricted Stock will remain subject to restrictions will be designated in the
Grant Instrument as the "Restriction Period."
(b) Number of Shares. The Committee shall determine the number of
shares of Company Stock to be issued or transferred pursuant to a Restricted
Stock Grant and the restrictions applicable to such shares.
(c) Requirement of Employment. If the Grantee ceases to be employed
by the Company (as defined in Section 5(e)) during a period designated in the
Grant Instrument as the Restriction Period, or if other specified conditions are
not met, the Restricted Stock Grant shall terminate as to all shares covered by
the Grant as to which the restrictions have not lapsed, and those shares of
Company Stock must be immediately returned to the Company. The Committee may,
however, provide for complete or partial exceptions to this requirement as it
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<PAGE> 8
deems appropriate.
(d) Restrictions on Transfer and Legend on Stock Certificate. During
the Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Restricted Stock except to a Successor
Grantee under Section 10(a). Each certificate for a share of Restricted Stock
shall contain a legend giving appropriate notice of the restrictions in the
Grant. The Grantee shall be entitled to have the legend removed from the stock
certificate covering the shares subject to restrictions when all restrictions on
such shares have lapsed. The Committee may determine that the Company will not
issue certificates for shares of Restricted Stock until all restrictions on such
shares have lapsed, or that the Company will retain possession of certificates
for shares of Restricted Stock until all restrictions on such shares have
lapsed.
(e) Right to Vote and to Receive Dividends. Unless the Committee
determines otherwise, during the Restriction Period, the Grantee shall have the
right to vote shares of Restricted Stock and to receive any dividends or other
distributions paid on such shares, subject to any restrictions deemed
appropriate by the Committee.
(f) Lapse of Restrictions. All restrictions imposed on Restricted
Stock shall lapse upon the expiration of the applicable Restriction Period and
the satisfaction of all conditions imposed by the Committee. The Committee may
determine, as to any or all Restricted Stock Grants, that the restrictions shall
lapse without regard to any Restriction Period.
7. Stock Appreciation Rights
(a) General Requirements. The Committee may grant stock appreciation
rights ("SARs") to an Employee or Key Advisor separately or in tandem with any
Option (for all or a portion of the applicable Option). Tandem SARs may be
granted either at the time the Option is granted or at any time thereafter while
the Option remains outstanding; provided, however, that, in the case of an
Incentive Stock Option, SARs may be granted only at the time of the Grant of the
Incentive Stock Option. The Committee shall establish the base amount of the SAR
at the time the SAR is granted. Unless the Committee determines otherwise, the
base amount of each SAR shall be equal to the per share Exercise Pi-ice of the
related Option or, if there is no related Option, the Fair Market Value of a
share of Company Stock as of the date of Grant of the SAR.
(b) Tandem SARs. In the case of tandem SARs, the number of SARs
granted to a Grantee that shall be exercisable during a specified period shall
not exceed the number of shares of Company Stock that the Grantee may purchase
upon the exercise of the related Option during such period. Upon the exercise of
an Option, the SARs relating to the Company Stock covered by such Option shall
terminate. Upon the exercise of SARs, the related Option shall terminate to the
extent of an equal number of shares of Company Stock.
(c) Exercisability. An SAR shall be exercisable during the period
specified by the Committee in the Grant Instrument and shall be subject to such
vesting and other restrictions as may be specified in the Grant Instrument. The
Committee may accelerate the exercisability of any or all outstanding SARs at
any time for any reason. SARs may only
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<PAGE> 9
be exercised while the Grantee is employed by the Company or during the
applicable period after termination of employment as described in Section 5(e).
A tandem SAR shall be exercisable only during the period when the Option to
which it is related is also exercisable. No SAR may be exercised for cash by an
officer or director of the Company or any of its subsidiaries who is subject to
Section 16 of the Exchange Act, except in accordance with Rule 16b - 3 under the
Exchange Act.
(d) Value of SARs. When a Grantee exercises SARs, the Grantee shall
receive in settlement of such SARs an amount equal to the value of the stock
appreciation for the number of SARs exercised, payable in cash, Company Stock or
a combination thereof. The stock appreciation for an SAR is the amount by which
the Fair Market Value of the underlying Company Stock on the date of exercise of
the SAR exceeds the base amount of the SAR as described in Subsection (a).
(e) Form of Payment. The Committee shall determine whether the
appreciation in an SAR shall be paid in the form of cash, shares of Company
Stock, or a combination of the two, in such proportion as the Committee deems
appropriate. For purposes of calculating the number of shares of Company Stock
to be received, shares of Company Stock shall be valued at their Fair Market
Value on the date of exercise of the SAR. If shares of Company Stock are to be
received upon exercise of an SAR, cash shall be delivered in lieu of any
fractional share.
8. Performance Units
(a) General Requirements. The Committee may grant performance units
("Performance Units") to an Employee or Key Advisor. Each Performance Unit shall
represent the right of the Grantee to receive an amount based on the value of
the Performance Unit, if performance goals established by the Committee are met.
A Performance Unit shall be based on the Fair Market Value of a share of Company
Stock or on such other measurement base as the Committee deems appropriate. The
Committee shall determine the number of Performance Units to be granted and the
requirements applicable to such Units.
(b) Performance Period and Performance Goals. When Performance Units
are granted, the Committee shall establish the performance period during which
performance shall be measured (the "Performance Period"), performance goals
applicable to the Units ("Performance Goals") and such other conditions of the
Grant as the Committee deems appropriate. Performance Goals may relate to the
financial performance of the Company or its operating units, the performance of
Company Stock, individual performance, or such other criteria as the Committee
deems appropriate.
(c) Payment with respect to Performance Units. At the end of each
Performance Period, the Committee shall determine to what extent the Performance
Goals and other conditions of the Performance Units are met and the amount, if
any, to be paid with respect to the Performance Units. Payments with respect to
Performance Units shall be made in cash, in Company Stock, or in a combination
of the two, as determined by the Committee.
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<PAGE> 10
(d) Requirement of Employment. If the Grantee ceases to be employed
by the Company (as defined in Section 5(e)) during a Performance Period, or if
other conditions established by the Committee are not met, the Grantee's
Performance Units shall be forfeited. The Committee may, however, provide for
complete or partial exceptions to this requirement as it deems appropriate.
9. Withholding of Taxes
(a) Required Withholding. All Grants under the Plan shall be subject
to applicable federal (including FICA), state and local tax withholding
requirements. The Company shall have the right to deduct from all Grants paid in
cash, or from other wages paid to the Grantee, any federal, state or local taxes
required by law to be withheld with respect to such Grants. In the case of
Options and other Grants paid in Company Stock, the Company may require the
Grantee or other person receiving such shares to pay to the Company the amount
of any such taxes that the Company is required to withhold with respect to such
Grants, or the Company may deduct from other wages paid by the Company the
amount of any withholding taxes due with respect to such Grants.
(b) Election to Withhold Shares. If the Committee so permits, a
Grantee may elect to satisfy the Company's income tax withholding obligation
with respect to an Option, SAR, Restricted Stock or Performance Units paid in
Company Stock by having shares withheld up to an amount that does not exceed the
Grantee's maximum marginal tax rate for federal (including FICA), state and
local tax liabilities. The election must be in a form and manner prescribed by
the Committee and shall be subject to the prior approval of the Committee.
10. Transferability of Grants
(a) Nontransferability of Grants. Except as provided below, only the
Grantee may exercise rights under a Grant during the Grantee's lifetime. A
Grantee may not transfer those rights except by will or by the laws of descent
and distribution or, with respect to Grants other than Incentive Stock Options,
if permitted in any specific case by the Committee, pursuant to a domestic
relations order (as defined under the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the regulations thereunder). When a
Grantee dies, the personal representative or other person entitled to succeed to
the rights of the Grantee ("Successor Grantee") may exercise such rights. A
Successor Grantee must furnish proof satisfactory to the Company of his or her
right to receive the Grant under the Grantee's will or under the applicable laws
of descent and distribution.
(b) Transfer of Nonqualified Stock Options. Notwithstanding the
foregoing, the Committee may provide, in a Grant Instrument, that a Grantee may
transfer Nonqualified Stock Options to family members or other persons or
entities according to such terms as the Committee may determine; provided that
the Grantee receives no consideration for the transfer of an Option and the
transferred Option shall continue to be subject to the same terms and conditions
as were applicable to the Option immediately before the transfer.
11. Right of First Refusal
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Prior to a Public Offering, if at any time an individual desires to sell,
encumber, or otherwise dispose of shares of Company Stock distributed to him
under this Plan, the individual shall first offer the shares to the Company by
giving the Company written notice disclosing: (a) the name of the proposed
transferee of the Company Stock; (b) the certificate number and number of shares
of Company Stock proposed to be transferred or encumbered; (c) the proposed
price; (d) all other terms of the proposed transfer; and (e) a written copy of
the proposed offer. Within 30 days after receipt of such notice, the Company
shall have the option to purchase all or part of such Company Stock at the same
price and on the same terms as contained in such notice.
In the event the Company (or a shareholder, as described below) does not
exercise the option to purchase Company Stock, as provided above, the individual
shall have the right to sell, encumber or otherwise dispose of his shares of
Company Stock on the terms of the transfer set forth in the written notice to
the Company, provided such transfer is effected within 30 days after the
expiration of the option period. If the transfer is not effected within such
period, the Company must again be given an option to purchase, as provided
above.
The Board, in its sole discretion, may waive the Company's right of first
refusal pursuant to this Section 11 and the Company's repurchase right pursuant
to Section 12 below. If the Company's right of first refusal or repurchase right
is so waived, the Board may, in its sole discretion, pass through such right to
the remaining shareholders of the Company in the same proportion that each
shareholder's stock ownership bears to the stock ownership of all the
shareholders of the Company, as determined by the Board. To the extent that a
shareholder has been given such right and does not purchase his or her
allotment, the other shareholders shall have the right to purchase such
allotment on the same basis.
On and after a Public Offering, the Company shall have no further right to
purchase shares of Company Stock under this Section 11 and Section 12 below, and
its limitations shall be null and void.
Notwithstanding the foregoing, the Committee may require that a Grantee
execute a shareholder's agreement, with such terms as the Committee deems
appropriate, with respect to any Company Stock distributed pursuant to this
Plan. Such agreement may provide that the provisions of this Section 11 and
Section 12 below shall not apply to such Company Stock.
12. Purchase by the Company
Prior to a Public Offering, if a Grantee ceases to be employed by the
Company, whether terminated for cause or voluntarily, the Company shall have the
right to purchase all or part of any Company Stock distributed to him under this
Plan at the exercise price paid by the Grantee (unless otherwise determined by
the Board or the Committee), and in all other cases at its then current Fair
Market Value (as defined in Section 5(b)); provided, however, that such
repurchase shall be made in accordance with applicable accounting rules to avoid
adverse accounting treatment.
13. Reorganization of the Company.
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(a) Reorganization. As used herein, a "Reorganization" shall be
deemed to have occurred if the shareholders of the Company approve (or, if
shareholder approval is not required, the Board approves) an agreement providing
for (i) the merger or consolidation of the Company with another corporation
where the shareholders of the Company, immediately prior to the merger or
consolidation, will not beneficially own, immediately after the merger or
consolidation, shares entitling such shareholders to more than 50% of all votes
to which all shareholders of the surviving corporation would be entitled in the
election of directors (without consideration of the rights of any class of stock
to elect directors by a separate class vote), (ii) the sale or other disposition
of all or substantially all of the assets of the Company, or (iii) a liquidation
or dissolution of the Company.
(b) Assumption of Grants. Upon a Reorganization where the Company is
not the surviving corporation (or survives only as a subsidiary of another
corporation), unless the Committee determines otherwise, all outstanding Options
and SARs that are not exercised shall be assumed by, or replaced with comparable
options or rights by, the surviving corporation.
(c) Other Alternatives. Notwithstanding the foregoing, in the event
of a Reorganization, the Committee may take one or both of the following
actions: the Committee may (i) require that Grantees surrender their outstanding
Options and SARs in exchange for a payment by the Company, in cash or Company
Stock as determined by the Committee, in an amount equal to the amount by which
the then Fair Market Value of the shares of Company Stock subject to the
Grantee's unexercised Options and SARs exceeds the Exercise Pi-ice of the
Options or the base amount of the SARs, as applicable, or (ii) after giving
Grantees an opportunity to exercise their outstanding Options and SARs,
terminate any or all unexercised Options and SARs at such time as the Committee
deems appropriate. Such surrender or termination shall take place as of the date
of the Reorganization or such other date as the Committee may specify.
(d) Committee. The Committee making the determinations under this
Section 13 following a Reorganization must be comprised of the same members as
those on the Committee immediately before the Reorganization. If the Committee
members do not meet this requirement, the automatic provisions of Subsection (b)
of Section 13 shall apply in the case of such a Reorganization, and the
Committee shall not have discretion to vary them.
(e) Limitations. Notwithstanding anything in the Plan to the
contrary, in the event of a Reorganization, the Committee shall not have the
right to take any actions described in the Plan (including without limitation
actions described in Subsection (b) above) that would make the Reorganization
ineligible for pooling of interests accounting treatment or that would make the
Reorganization ineligible for desired tax treatment if, in the absence of such
right, the Reorganization would qualify for such treatment and the Company
intends to use such treatment with respect to the Reorganization.
14. Requirements for Issuance or Transfer of Shares
(a) Shareholder's Agreement. The Committee may require that a
Grantee
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execute a shareholder's agreement, with such terms as the Committee deems
appropriate, with respect to any Company Stock distributed pursuant to this
Plan.
(b) Limitations on Issuance or Transfer of Shares. No Company Stock
shall be issued or transferred in connection with any Grant hereunder unless and
until all legal requirements applicable to the issuance or transfer of such
Company Stock have been complied with to the satisfaction of the Committee. The
Committee shall have the right to condition any Grant made to any Grantee
hereunder on such Grantee's undertaking in writing to comply with such
restrictions on his or her subsequent disposition of such shares of Company
Stock as the Committee shall deem necessary or advisable as a result of any
applicable law, regulation or official interpretation thereof, and certificates
representing such shares may be legended to reflect any such restrictions.
Certificates representing shares of Company Stock issued or transferred under
the Plan will be subject to such stop-transfer orders and other restrictions as
may be required by applicable laws, regulations and interpretations, including
any requirement that a legend be placed thereon.
15. Amendment and Termination of the Plan
(a) Amendment. The Board may amend or terminate the Plan at any
time; provided, however, that the Board shall not amend the Plan without
shareholder approval if such approval is required by Section 162(m) of the Code.
(b) Termination of Plan. The Plan shall terminate on the day
immediately preceding the tenth anniversary of its effective date, unless the
Plan is terminated earlier by the Board or is extended by the Board with the
approval of the shareholders.
(c) Termination and Amendment of Outstanding Grants. A termination
or amendment of the Plan that occurs after a Grant is made shall not materially
impair the rights of a Grantee unless the Grantee consents. The termination of
the Plan shall not impair the power and authority of the Committee with respect
to an outstanding Grant. Whether or not the Plan has terminated, an outstanding
Grant may be terminated or amended in accordance with the Plan or, may be
amended by agreement of the Company and the Grantee consistent with the Plan.
(d) Governing Document. The Plan shall be the controlling document.
No other statements, representations, explanatory materials or examples, oral or
written, may amend the Plan in any manner. The Plan shall be binding upon and
enforceable against the Company and its successors and assigns.
16. Funding of the Plan
This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Grants under this Plan. In no event shall
interest be paid or accrued on any Grant, including unpaid installments of
Grants.
17. Rights of Participants
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Nothing in this Plan shall entitle any Employee, Key Advisor or other
person to any claim or right to be granted a Grant under this Plan. Neither this
Plan nor any action taken hereunder shall be construed as giving any individual
any rights to be retained by or in the employ of the Company or any other
employment rights.
18. No Fractional Shares
No fractional shares of Company Stock shall be issued or delivered
pursuant to the Plan or any Grant. The Committee shall determine whether cash,
other awards or other property shall be issued or paid in lieu of such
fractional shares or whether such fractional shares or any rights thereto shall
be forfeited or otherwise eliminated.
19. Headings
Section headings are for reference only. In the event of a conflict
between a title and the content of a Section, the content of the Section shall
control.
20. Effective Date of the Plan
(a) Effective Date. Subject to the approval of the Company's
shareholders, the Plan shall be effective on November 20, 1998.
(b) Public Offering. The provisions of the Plan that refer to a
Public Offering, or that refer to, or are applicable to persons subject to,
section 16 of the Exchange Act or section 162(m) of the Code, shall be
effective, if at all, upon the initial registration of the Company Stock under
section 12(g) of the Exchange Act, and shall remain effective thereafter for so
long as such stock is so registered.
21. Miscellaneous
(a) Grants in Connection with Corporate Transactions and Otherwise.
Nothing contained in this Plan shall be construed to (i) limit the right of the
Committee to make Grants under this Plan in connection with the acquisition, by
purchase, lease, merger, consolidation or otherwise, of the business or assets
of any corporation, firm or association, including Grants to employees thereof
who become Employees of the Company, or for other proper corporate purposes, or
(ii) limit the right of the Company to grant stock options or make other awards
outside of this Plan. Without limiting the foregoing, the Committee may make a
Grant to an employee of another corporation who becomes an Employee by reason of
a corporate merger, consolidation, acquisition of stock or property,
reorganization or liquidation involving the Company or any of its subsidiaries
in substitution for a stock option or restricted stock grant made by such
corporation. The terms and conditions of the substitute grants may vary from the
terms and conditions required by the Plan and from those of the substituted
stock incentives. The Committee shall prescribe the provisions of the substitute
grants.
(b) Compliance with Law. The Plan, the exercise of Options and SARs
and
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the obligations of the Company to issue or transfer shares of Company Stock
under Grants shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. With respect to persons
subject to section 16 of the Exchange Act, it is the intent of the Company that
the Plan and all transactions under the Plan comply with all applicable
provisions of Rule 16b-3 or its successors under the Exchange Act. The Committee
may revoke any Grant if it is contrary to law or modify a Grant to bring it into
compliance with any valid and mandatory government regulation. The Committee may
also adopt rules regarding the withholding of taxes on payments to Grantees. The
Committee may, in its sole discretion, agree to limit its authority under this
Section.
(c) Governing Law. The validity, construction, interpretation and
effect of the Plan and Grant Instruments issued under the Plan shall exclusively
be governed by and determined in accordance with the law of the State of New
York.
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EXHIBIT 10.14
<PAGE> 2
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 30th day of October, 1998, by
and between Metallurg, Inc., a Delaware corporation (together with its
successors and assigns permitted under this Agreement, the "Company"), and Alan
D. Ewart (the "Executive").
W I T N E S S E T H :
WHEREAS, the Executive is a Joint Managing Director of London &
Scandinavian Metallurgical Co. Limited ("LSM"), a wholly owned subsidiary of the
Company incorporated under the laws of England; and
WHEREAS, the Company and the Executive entered into an employment
agreement, dated December 21, 1983 which is currently in effect (the "Existing
Employment Agreement"); and
WHEREAS, as of the Effective Date (as defined below), the Executive was
appointed a Chief Executive Officer of the Company; and
WHEREAS, the Company desires to enter into a new employment agreement (the
"Agreement") embodying the terms of such employment; and
WHEREAS, the Executive desires to enter into the Agreement and to accept
such employment, subject to the terms and provisions of the Agreement; and
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
1. Definitions.
(a) "Base Salary" shall mean the Executive's base salary in
accordance with Section 4 below.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Business Day" shall mean any day other than a Saturday, Sunday
or any other day on which commercial banks in New York, New York are required or
authorized to be closed.
(d) "Cause" shall mean:
(1) the Executive is convicted of (or pleads nolo contendere
to) a felony or crime of moral turpitude, dishonesty,
breach of trust or unethical business conduct involving
the Company;
(2) the Executive engages in willful misconduct, willful or
gross neglect, fraud, insubordination, misappropriation
or embezzlement to the material and demonstrable
detriment of the Company; or
(3) the Executive breaches in any material respect the terms
and provisions of this Agreement and fails to cure such
breach within 20 days following written notice from the
Company specifying such breach.
(e) "Change in Control" shall mean the first to occur of the
following events:
<PAGE> 3
(1) any "person" (as such term is used in Sections 3(a)(9)
and 13(d) of the Exchange Act) or group of persons
becomes a "beneficial owner" (as such term is used in
Rule 13d-3 under the Exchange Act) of more than 50
percent of the Voting Stock of the Company;
(2) the majority of the Board consists of individuals other
than Incumbent Directors;
(3) the Company adopts any plan of liquidation providing for
the distribution of all or substantially all of its
assets;
(4) the sale or other disposition of all or substantially
all of the assets or business of the Company and its
Subsidiaries taken as a whole; or
(5) the merger, consolidation or combination of the Company
with or into another company (the "Other Company");
provided, however, that immediately after the merger,
consolidation or combination, the shareholders of the
Company immediately prior to the merger, consolidation
or combination hold, directly or indirectly, 50 percent
or less of the Voting Stock of the surviving company
(there being excluded from the number of shares held by
such shareholders, but not from the Voting Stock of the
surviving company, any shares received by any
"affiliate" (as such term is defined in Rule 12b-2 under
the Exchange Act) of the Other Company in exchange for
stock of the Other Company).
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, including applicable regulations thereunder.
(g) "Competitive Activity" shall mean any activity engaged in by the
Executive, whether as an employee, principal, sole proprietor, consultant,
agent, officer, director, partner or shareholder (except as a less than
one-percent shareholder of a publicly traded company or a less than five-percent
shareholder of a privately held company), which directly competes with the
Company or any Subsidiary. For this purpose, an activity which directly competes
with the Company or any Subsidiary shall mean a business that was being
conducted by the Company or any Subsidiary during the Term of Employment.
Notwithstanding anything to the contrary in this Section 1(g), an activity shall
not be deemed to be a Competitive Activity (x) solely as a result of the
Executive's being employed by or otherwise associated with a business of which a
unit is in competition with the Company or any Subsidiary but as to which unit
the Executive does not have direct or indirect responsibilities for the products
or product lines involved or (y) if the activity contributes less than 5 percent
of the revenues for the fiscal year in question of the business by which the
Executive is employed or with which he is otherwise associated.
(h) "Disability" shall mean a disability as determined under the
Company's long-term disability plans, programs and/or arrangements in effect on
the date such disability first occurs.
(i) "Effective Date" shall mean August 10, 1998.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time, including applicable regulations thereunder.
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<PAGE> 4
(k) "Good Reason" shall mean the occurrence of any of the following
events:
(1) the material change of the Executive's authority, duties
and responsibilities, or the assignment to the Executive
of duties materially different from the Executive's
position or positions with the Company;
(2) a reduction in Annual Salary of the Executive;
(3) the failure by the Company to obtain an agreement in
form and substance reasonably satisfactory to the
Executive from any successor to the business of the
Company to assume and agree to perform this Agreement;
or
(4) the Company breaches in any material respect the terms
and provisions of this Agreement and fails to cure such
breach within 20 days following written notice from the
Executive specifying such breach.
(l) "Incumbent Directors" shall mean the members of the Board as of
the Effective Date; provided, however, that any person becoming a director
subsequent to such date whose election or nomination for election was supported
by a majority of the directors who then comprised the Incumbent Directors shall
be considered to be an Incumbent Director.
(m) "Subsidiary" of the Company shall mean any corporation of which
the Company owns, directly or indirectly, more than 50 percent of the Voting
Stock or any other business entity in which the Company directly or indirectly
has an ownership interest of more than 50 percent.
(n) "Term of Employment" shall mean the period specified in Section
2 below.
(o) "Voting Stock" shall mean capital stock of any class or classes
having general voting power under ordinary circumstances, in the absence of
contingencies, to elect the directors of a corporation.
2. Term of Employment.
The Company hereby employs the Executive, and the Executive hereby
accepts such employment, for the period commencing on the Effective Date and
ending on the second anniversary of the Effective Date (the "Term of
Employment"), subject to earlier termination of the Term of Employment in
accordance with the terms of the Agreement. The Term of Employment shall be
automatically renewed for a one-year period on the second anniversary of the
Effective Date and on each anniversary of the Effective Date thereafter, unless
either Party has notified the other Party in writing in accordance with Section
26 below at least 90 days prior to the expiration of the then Term of Employment
that he or it does not want the Term of Employment to so renew.
3. Position, Duties and Responsibilities.
The Executive, in his capacity as Chief Executive Officer, shall
faithfully perform for the Company the duties of said office and shall perform
such other duties of an executive, managerial or administrative nature as shall
be specified and designated from time to time by the Board consistent with such
office. The Executive shall devote substantially all of his business time and
effort to the performance of his duties hereunder. The Executive, in carrying
out his duties under this Agreement,
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<PAGE> 5
shall report to the Board. Notwithstanding anything in this Section 3 to the
contrary, nothing shall preclude the Executive from:
(1) serving on the boards of directors of a reasonable
number of other corporations or the boards of a
reasonable number of trade associations and/or
charitable organizations;
(2) engaging in charitable activities and community affairs;
and
(3) managing his personal investments and affairs;
provided, however, that such activities do not materially interfere with the
proper performance of his duties and responsibilities hereunder.
4. Base Salary and Consulting Fee.
(a) From the Effective Date until the date on which the Executive
commences carrying out his duties as Chief Executive Officer from the Company's
headquarters, the Executive shall be paid an annual Base Salary, payable in
accordance with the regular payroll practices of the Company, of $320,000. From
the date on which the Executive has relocated to the United States and during
the remainder of the Term of Employment, the Executive's annual Base Salary
shall be increased to $450,000. The Base Salary may be increased (but not
decreased) at any time and from time to time by action of the Board or by any
committee thereof or any individual having authority to take such action in
accordance with the Company's regular practices. Once increased, any reference
to Base Salary herein shall be a reference to such increased amount.
(b) During the Term of Employment, the Executive shall be paid an
annual Consulting Fee, payable in accordance with the regular payroll practices
of the Company, of $20,000. The Consulting Fee may be increased (but not
decreased) at any time and from time to time by action of the Board or by any
committee thereof or any individual having authority to take such action in
accordance with the Company's regular practices. Once increased, any reference
to Consulting Fee herein shall be a reference to such increased amount.
5. Bonus.
During the Term of Employment, in addition to the Base Salary, for
each fiscal year of the Company ending during the Term of Employment, the
Executive shall have the opportunity to receive an annual bonus (an "Annual
Bonus") in an amount of between 30 and 50 percent of Base Salary as of the last
day of the fiscal year of the Company, as determined by the Board. Payment of
Annual Bonus shall be made at the same time that other senior-level executives
receive their annual incentive compensation awards.
6. Long-Term Incentive Compensation Programs.
The Executive shall be eligible to participate in the Company's
stock option plans applicable to senior-level executives, the terms, conditions
and eligibility of such plans to be determined by the Board.
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<PAGE> 6
7. Employee Benefit Programs.
(a) During the Term of Employment, the Executive, to the extent he
is eligible, shall be entitled to participate in those employee pension and
welfare benefit plans, programs and/or arrangements applicable to the Executive
and made available to the Company's senior-level executives or to its employees
generally, as such plans, programs and/or arrangements may be in effect from
time to time, including, without limitation, pension, profit-sharing, savings,
medical, dental, hospitalization, short-term disability, long-term disability,
life insurance, accidental death and dismemberment protection, travel accident
insurance, and other employee pension and welfare benefit plans, programs and/or
arrangements that may be sponsored by the Company from time to time.
(b) During the Term of Employment, the Company shall provide the
Executive with term life insurance with a death benefit of at least two times
Base Salary. The Company shall pay all premiums with respect to such life
insurance. Such life insurance may be provided either through the Company's
group life insurance programs, by an individual policy, or by a combination of
both group and individual policies.
8. Reimbursement of Business Expenses.
The Executive is authorized to incur ordinary and reasonable
business expenses in carrying out his duties and responsibilities under the
Agreement, and the Company shall reimburse him for all such ordinary and
reasonable business expenses incurred in connection with carrying out the
business of the Company, subject to documentation in accordance with the
Company's policy. All Agreements relating to the Executive's obligation to repay
relocation expenses of the Executive previously paid by the Company shall remain
unaffected by the terms hereof.
9. Relocation Expenses.
The Company shall reimburse Executive, upon Executive's submission
of proof of such expenses, for the following costs of relocating from England to
the New York area: direct costs associated with (i) the sale of Executive's
current residence, including any brokers fees related thereto (excluding any
loss that may have been incurred in connection therewith), (ii) the purchase or
rental of a new residence in the New York area, including any brokers fees
related thereto (excluding the actual price of the residence), (iii) the
provision of temporary housing, for up to three months, and (iv) the actual
moving from England to the New York area.
10. Perquisites.
(a) During the Term of Employment, the Executive shall be entitled
to participate in the Company's executive fringe benefits applicable to the
Company's senior-level executive in accordance with the terms and conditions of
such arrangements as are in effect from time to time.
(b) Notwithstanding anything herein to the contrary, the Company
shall pay for the membership fees (including any bond requirement) and dues at
two clubs which the Executive determines are appropriate.
(c) During the Term of Employment, the Company shall provide a car
owned by the Company, appropriate to the position of the Executive in the
Company, to the Executive or, at the option of the Executive, the Company shall
pay for the hire by the Executive of a car for personal or business use at such
times as the Executive deems appropriate.
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<PAGE> 7
11. Vacation.
The Executive shall be entitled to paid vacation in accordance with
the Company's vacation policy; provided, however, that the Executive shall be
entitled to not less than five weeks of vacation each year.
12. Termination of Employment.
(a) Termination of Employment Due to Death. In the event of the
Executive's death during the Term of Employment, the Term of Employment shall
end as of the date of the Executive's death and his estate and/or beneficiaries,
as the case may be, shall be entitled to the following:
(1) Base Salary earned but not paid prior to the date of
his death;
(2) Annual Bonus with respect to any year prior to the year
of his death which has been earned but not paid;
(3) any amounts earned, accrued or owing to the Executive
but not yet paid under Section 6, 7, 8, 9, 10 or 11
above; and
(4) other or additional benefits in accordance with
applicable plans, programs and/or arrangements of the
Company.
(b) Termination of Employment Due to Disability. If the Executive's
employment is terminated due to Disability during the Term of Employment, either
by the Company or by the Executive, the Term of Employment shall end as of the
date of the Executive's termination of employment and the Executive shall be
entitled to the following (but in no event shall the Executive be entitled to
less than the benefits due him under any disability program of the Company for
which he becomes eligible):
(1) Base Salary earned but not paid prior to the date of the
termination of the Executive's employment;
(2) Annual Bonus with respect to any year prior to the year
of the termination of the Executive's employment which
has been earned but not paid;
(3) an amount equal to the sum of 50 percent of Base Salary,
at the annual rate in effect on the date of the
termination of the Executive's employment, payable in
monthly installments for a period ending on the first
day of the month following the month in which the
Executive attains age 65 or recovers from his
Disability, whichever occurs earlier, less the amount of
any disability benefits provided to the Executive under
the Company's disability program;
(4) any amounts earned, accrued or owing to the Executive
but not yet paid under Section 6, 7, 8, 9, 10 or 11
above;
(5) continued participation, as if the Executive were still
an employee, in the Company's medical, dental,
hospitalization and life insurance plans, programs
and/or arrangements and in those other employee plans,
programs and/or arrangements in which he was
participating on the date
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<PAGE> 8
of the termination of his employment until he attains
age 65 or recovers from his Disability, whichever occurs
earlier; and
provided, however, that:
(X) if the Executive is precluded from continuing
his participation in any employee benefit plan,
program or arrangement as provided in this
Section 12(b)(5), he shall be provided with the
after-tax economic equivalent of the benefits
provided under the plan, program or arrangement
in which he is unable to participate for the
period specified in this Section 12(b)(5); and
(Y) the economic equivalent of any benefit foregone
shall be deemed to be the lowest cost that would
be incurred by the Executive in obtaining such
benefit himself on an individual basis; and
(6) other or additional benefits in accordance with
applicable plans, programs and/or arrangements of the
Company.
If the Executive is precluded from continuing his participation in
any employee benefit plan, program or arrangement as provided in Section
12(b)(6) above, he shall be provided the after-tax economic equivalent of the
benefits provided under the plan, program or arrangement in which he is unable
to participate. The economic equivalent of any benefit foregone shall be deemed
to be the lowest cost that would be incurred by the Executive in obtaining such
benefit himself on an individual basis.
In no event shall a termination of the Executive's employment for
Disability occur unless the Party terminating his employment gives written
notice to the other Party in accordance with Section 26 below.
(c) Termination of Employment by the Company for Cause. A
termination of the Executive's employment by the Company for Cause shall not
take effect unless the provisions of this Section 12(c) are complied with and
the Board issues a written determination that the Executive's employment should
be terminated for Cause (a "Determination").
(1) In accordance with Section 26 below, the Chairman of the
Board shall give the Executive a written notice stating
his intention to terminate the Executive's employment
for Cause (the "Cause Notice"). The Cause Notice shall:
(A) state in detail the particular act or acts or
failure or failures to act that constitute the
grounds on which the proposed termination of
employment for Cause is based; and
(B) be given within four months of the Chairman of the
Board learning of such act or acts or failure or
failures to act.
(2) The Chairman of the Board may temporarily relieve the
Executive of his duties and responsibilities described
in Section 3 above during the period commencing on the
date the Cause Notice is issued by the Chairman of the
Board and ending on the date the Determination is issued
by the Board (the "Determination Period").
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<PAGE> 9
(3) The Executive shall have 20 days after the date the
Cause Notice is actually received by him in which to
cure his conduct on which the termination of employment
for Cause is based, to the extent such cure is possible.
If the Executive fails to cure such conduct, he shall
then be entitled to a hearing before the Board. Such
hearing shall be held during the 20-day period following
the date the Executive receives the Cause Notice;
provided, however, that the Executive requests such
hearing during the 10-day period following the date the
Executive receives the Cause Notice. Within five days
following the completion of such hearing, the Board
shall issue a Determination stating whether, in its
judgment, grounds for Cause as detailed in the Cause
Notice exist. If the Determination states that such
grounds exist, the Executive's employment shall be
immediately terminated for Cause and the Term of
Employment shall end as of the date of the termination
of the Executive's employment.
(4) If the Company terminates the Executive's employment for
Cause, the Executive shall be entitled to the following:
(A) Base Salary earned but not paid prior to the date
of the termination of his employment;
(B) any amounts earned, accrued or owing to the
Executive but not yet paid under Section 6, 7, 8,
9, 10 or 11 above; and
(C) other or additional benefits in accordance with
applicable plans, programs and/or arrangements of
the Company.
(5) Notwithstanding anything herein to the contrary, if,
following a termination of the Executive's employment by
the Company for Cause based upon the conviction of the
Executive for a felony, such conviction is overturned in
a final determination on appeal, the Executive shall be
entitled to the payments and the economic equivalent of
the benefits the Executive would have received if his
employment had been terminated by the Company without
Cause.
(d) Termination of Employment by the Company Without Cause. If the
Executive's employment is terminated by the Company without Cause, other than
due to death or Disability, the Executive shall be entitled to the following:
(1) Base Salary earned but not paid prior to the date of
the termination of his employment;
(2) Annual Bonus with respect to any year prior to the year
of the termination of the Executive's employment which
has been earned but not paid;
(3) an amount equal to the aggregate Base Salary (based on
the Base Salary in effect on the date of the termination
of the Executive's employment) (the "Salary Continuation
Benefits") with respect to a period equal to
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<PAGE> 10
eighteen months, payable in equal monthly installments
during such period;
(4) continued accrual of credited service through the end of
the Term of Employment for the purpose of any Company
pension plan, program or arrangement;
(5) the right to purchase, at fair market value, the
Executive's automobile (if any) provided to him by the
Company under the Company's automobile perquisite
program for senior-level executives;
(6) any amounts earned, accrued or owing to the Executive
but not yet paid under Section 6, 7, 8, 9, 10 or 11
above;
(7) continued participation, as if he were still an
employee, in the Company's medical, dental,
hospitalization and life insurance plans, programs
and/or arrangements and in other employee benefit plans,
programs and/or arrangements in which he was
participating on the date of the termination of his
employment until the earlier of:
(A) the end of the period used to determine the
Salary Continuation Benefits; or
(B) the date, or dates, he receives equivalent
coverage and benefits under the plans, programs
and/or arrangements of a subsequent employer (such
coverage and benefits to be determined on a
coverage-by-coverage or benefit-by-benefit basis);
provided, however, that:
(X) if the Executive is precluded from continuing
his participation in any employee benefit plan,
program or arrangement as provided in Section
12(d)(7)(A) above, he shall be provided with
the after-tax economic equivalent of the
benefits provided under the plan, program or
arrangement in which he is unable to
participate for the period specified in this
Section 12(d)(7);
(Y) the economic equivalent of any benefit foregone
shall be deemed to be the lowest cost that would
be incurred by the Executive in obtaining such
benefit himself on an individual basis; and
(8) other or additional benefits in accordance with
applicable plans, programs and/or arrangements of the
Company.
(e) Termination of Employment by the Executive for Good Reason. The
Executive may terminate his employment for Good Reason, but only if:
(1) the Executive notifies the Board during the 60-day
period following the date of the first occurrence of an
event which constitutes Good Reason (the "Good Reason
Event Date") of his intention to terminate his
employment for Good Reason;
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<PAGE> 11
(2) the Executive terminates his employment for Good Reason
during the 120-day period following the Good Reason
Event Date;
(3) the termination of employment for Good Reason does not
occur during a Determination Period described in Section
12(c)(2) above; and
(4) the Good Reason first occurs before or after a
Determination Period, or, if the Good Reason first
occurs during a Determination Period, such event
constituting Good Reason continues to occur after the
Determination Period.
Upon a termination by the Executive of his employment for Good Reason, the
Executive shall be entitled to the same payments and benefits as provided in
Section 12(d) above; provided, however, that if the Executive terminates his
employment for Good Reason based on a reduction in Base Salary under Section
1(k)(2) above, then the Base Salary to be used in determining the Salary
Continuation Benefits in accordance with Section 12(d)(2) above shall be the
Base Salary in effect immediately prior to such reduction.
(f) Termination of Employment Following a Change in Control. If,
following a Change in Control, (i) the Executive's employment is terminated by
the Company without Cause, (ii) the Executive terminates his employment for Good
Reason, or (iii) upon prior written notice to the Company, the Executive
terminates his employment for any reason during the 60-day period following the
date of the Change in Control, the Executive shall be entitled to the same
payments and benefits as provided in Section 12(d) above, except that the Salary
Continuation Benefits under Section 12(d)(3) above shall be determined with
respect to a period equal to 18 months. A failure by the Executive to exercise
his rights with respect to a Change in Control shall not be deemed a waiver of
any rights under this Agreement.
(g) Termination of Employment by the Executive Without Good Reason.
If the Executive terminates his employment without Good Reason, other than a
termination of employment (i) due to death or retirement or Disability or (ii)
by the Executive during the 60-day period following the date of the Change in
Control, the Executive shall have the same entitlements as provided in Section
12(c)(4) above. A termination of the Executive's employment under this Section
12(g) shall be effective upon 30 days prior written notice to the Company and
shall not be deemed a breach of this Agreement.
(h) Non Renewal of Agreement by Company. If the Company notifies the
Executive, pursuant to Section 2 above, that it does not want the Term of
Employment to renew, the Executive shall have the same entitlements as provided
in Section 12(d) above as if the Executive had been terminated as of the last
day of the then Term of Employment.
(i) Termination of Employment by Executive due to Relocation of
Principal Offices. In the event that the Company's principal offices are moved
outside of the States of New York, New Jersey, Connecticut, Pennsylvania,
Delaware, Maryland or the District of Columbia and such relocation is contrary
to Executive's recommendation to the Board regarding such relocation, the
Executive may terminate his employment with the Company. If the Executive
terminates his employment pursuant to this Section 12(i), he shall be entitled
an amount equal to his aggregate Base Salary (based on the Base Salary in effect
on the date of the termination of the Executive's employment) with respect to a
period equal to eighteen months, payable in equal monthly installments during
such period.
(j) No Mitigation; No Offset. If the Executive's employment
terminates under this Section 12, the Executive shall be under no obligation to
seek other employment and there shall be no offset against amounts due the
Executive under this Agreement on account of any remuneration
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<PAGE> 12
attributable to any subsequent employment that he may obtain except as
specifically provided in this Section 12.
(k) Nature of Payments. Any amounts due under this Section 12 are in
the nature of severance payments considered to be reasonable by the Company and
are not in the nature of a penalty.
13. Confidentiality: Assignment of Rights.
(a) During the Term of Employment and thereafter, the Executive
shall not disclose to anyone or make use of any trade secret or proprietary or
confidential information of the Company, including such trade secret or
proprietary or confidential information of any customer or other entity to which
the Company owes an obligation not to disclose such information, which he
acquires during the Term of Employment, including but not limited to records
kept in the ordinary course of business, except (i) as such disclosure or use
may be required or appropriate in connection with his work as an employee of the
Company, (ii) when required to do so by a court of law, by any governmental
agency having supervisory authority over the business of the Company or by any
administrative or legislative body (including a committee thereof) with apparent
jurisdiction to order him to divulge, disclose or make accessible such
information, or (iii) as to such confidential information that becomes generally
known to the public or trade without violation of this Section 13(a).
(b) The Executive hereby sells, assigns and transfers to the Company
all of his right, title and interest in and to all inventions, discoveries,
improvements and copyrightable subject matter (the "rights") which during the
Term of Employment are made or conceived by him, alone or with others, and which
are within or arise out of any general field of the Company's business or arise
out of any work he performs or information he receives regarding the business of
the Company while employed by the Company. The Executive shall fully disclose to
the Company as promptly as available all information known or possessed by him
concerning the rights referred to in the preceding sentence, and upon request by
the Company and without any further remuneration in any form to him by the
Company, but at the expense of the Company, execute all applications for patents
and for copyright registration, assignments thereof and other instruments and do
all things which the Company may deem necessary to vest and maintain in it the
entire right, title and interest in and to all such rights.
14. Noncompetition.
(a) The Executive covenants and agrees that during the Term of
Employment and following the termination of the Executive's employment with the
Company, for a period of eighteen months, he shall not at any time, without the
prior written consent of the Company, directly or indirectly, engage in a
Competitive Activity.
(b) The Parties acknowledge that in the event of a breach or
threatened breach of Section 14(a) above, the Company shall not have an adequate
remedy at law. Accordingly, in the event of any breach or threatened breach of
Section 14(a) above, the Company shall be entitled to such equitable and
injunctive relief as may be available to restrain the Executive and any
business, firm, partnership, individual, corporation or entity participating in
the breach or threatened breach from the violation of the provisions of Section
14(a) above. Nothing in this Agreement shall be construed as prohibiting the
Company from pursuing any other remedies available at law or in equity for
breach or threatened breach of Section 14(a) above, including the recovery of
damages.
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15. Indemnification.
(a) The Company agrees that if the Executive is made a party, or is
threatened to be made a party, to any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "Proceeding"), by reason of the
fact that he is or was a director, officer or employee of the Company or is or
was serving at the request of the Company as a director, officer, member,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
whether or not the basis of such Proceeding is the Executive's alleged action in
an official capacity while serving as a director, officer, member, employee or
agent, the Executive shall be indemnified and held harmless by the Company to
the fullest extent legally permitted or authorized by the Company's certificate
of incorporation or bylaws or resolutions of the Company's Board of Directors
or, if greater, by the laws of the State of Delaware, against all cost, expense,
liability and loss (including, without limitation, attorney's fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by the Executive in connection
therewith, and such indemnification shall continue as to the Executive even if
he has ceased to be a director, member, employee or agent of the Company or
other entity and shall inure to the benefit of the Executive's heirs, executors
and administrators. The Company shall advance to the Executive all reasonable
costs and expenses incurred by him in connection with a Proceeding within 20
days after receipt by the Company of a written request for such advance. Such
request shall include an undertaking by the Executive to repay the amount of
such advance if it shall ultimately be determined that he is not entitled to be
indemnified against such costs and expenses.
(b) Neither the failure of the Company (including the Board,
independent legal counsel or stockholders) to have made a determination prior to
the commencement of any Proceeding concerning payment of amounts claimed by the
Executive under Section 15(a) above that indemnification of the Executive is
proper because he has met the applicable standard of conduct, nor a
determination by the Company (including the Board, independent legal counsel or
stockholders) that the Executive has not met such applicable standard of
conduct, shall create a presumption that the Executive has not met the
applicable standard of conduct.
(c) The Company agrees to continue and maintain a directors and
officers' liability insurance policy covering the Executive to the extent the
Company provides such coverage for its other executive officers.
16. Effect of Agreement on Other Benefits.
Except as specifically provided in this Agreement, the existence of
this Agreement shall not prohibit or restrict the Executive's entitlement to
full participation in the Company's employee benefit plans, programs and
arrangements applicable to the Company's senior-level executives.
17. Assignability; Binding Nature.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs (in the case of the Executive)
and assigns. No rights or obligations of the Company under this Agreement may be
assigned or transferred by the Company except that such rights or obligations
may be assigned or transferred pursuant to a merger or consolidation in which
the Company is not the continuing entity, or the sale or liquidation of all or
substantially all of the assets of the Company; provided, however, that the
assignee or transferee is the successor to all or substantially all of the
assets of the Company and such assignee or transferee assumes the liabilities,
obligations and duties of the Company, as contained in this Agreement, either
contractually or as a matter of law. The Company further agrees that, in the
event of a sale of assets or liquidation as described in the preceding sentence,
it
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shall take whatever action it legally can in order to cause such assignee or
transferee to expressly assume the liabilities, obligations and duties of the
Company hereunder or under any other plan or benefit program referred to herein.
No rights or obligations of the Executive under this Agreement may be assigned
or transferred by the Executive other than his rights to compensation and
benefits, which may be transferred only by will or operation of law, except as
provided in Section 23 below.
18. Representation.
The Company represents and warrants that it is fully authorized and
empowered to enter into this Agreement and that the performance of its
obligations under this Agreement will not violate any agreement between it and
any other person, firm or organization. The Executive represents that he knows
of no agreement between him and any other person, firm or organization that
would be violated by the performance of his obligations under this Agreement.
19. Entire Agreement.
This Agreement contains the entire understanding and agreement
between the Parties concerning the subject matter hereof and supersedes all
prior agreements, understandings, discussions, negotiations and undertakings,
whether written or oral, between the Parties, including, without limitation, the
Existing Employment Agreement, with respect thereto.
20. Amendment or Waiver.
No provision in this Agreement may be amended unless such amendment
is agreed to in writing and signed by the Executive and an authorized officer of
the Company. No waiver by either Party of any breach by the other Party of any
condition or provision contained in this Agreement to be performed by such other
Party shall be deemed a waiver of a similar or dissimilar condition or provision
at the same or any prior or subsequent time. Any waiver must be in writing and
signed by the Executive or an authorized officer of the Company, as the case may
be.
21. Severability.
In the event that any provision or portion of this Agreement shall
be determined to be invalid or unenforceable for any reason, in whole or in
part, the remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect and such provision or portion of this
Agreement shall remain in effect to the fullest extent permitted by law.
22. Survivorship.
The respective rights and obligations of the Parties hereunder shall
survive any termination of the Executive's employment to the extent necessary to
the intended preservation of such rights and obligations.
23. Beneficiaries/References.
The Executive shall be entitled, to the extent permitted under any
applicable law, to select and change a beneficiary or beneficiaries to receive
any compensation or benefit payable hereunder following the Executive's death by
giving the Company written notice thereof. In the event of the Executive's death
or a judicial determination of his incompetence, reference in this Agreement to
the Executive shall be deemed, where appropriate, to refer to his beneficiary,
estate or other legal representative.
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24. Governing Law/Submission to Jurisdiction.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of New York without reference to principles of conflict
of laws. Each of the Company and the Executive hereby irrevocably and
unconditionally: (i) submits for itself or himself, as applicable, and its or
his property in any legal action or proceeding relating to this Agreement, or
for recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the courts of the State of New York, the
courts of the United States of America for the Southern District of New York,
and appellate courts from any thereof; (ii) consents that any such action or
proceeding may be brought in such courts, and waives any objection that it or he
may now or hereafter have to the venue of any such action or proceeding in any
such court or that such action or proceeding was brought in an inconvenient
forum and agrees not to plead or claim the same; (iii) agrees that service of
process in any such action or proceeding may be effected by mailing a copy
thereof by registered or certified mail (or any substantially similar form of
mail), postage prepaid, to its or his address set forth in or designated
pursuant to Section 26 hereof; and (iv) agrees that nothing herein shall affect
the right to effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction.
25. Resolution of Disputes.
Any disputes arising under or in connection with the Agreement,
other than disputes arising in connection with Sections 13 and 14 hereof, may,
at the election of the Executive or the Company, be resolved by binding
arbitration, to be held in New York City in accordance with the rules and
procedures of the American Arbitration Association. If arbitration is elected,
the Executive and the Company shall mutually select the arbitrator. If the
Executive and the Company cannot agree on the selection of an arbitrator, each
Party shall select an arbitrator and the two arbitrators shall select a third
arbitrator, and the three arbitrators shall form an arbitration panel which
shall resolve the dispute by majority vote. Judgment upon the award rendered by
the arbitrator(s) may be entered in any court having jurisdiction thereof. Costs
of the arbitration or litigation, including, without limitation, reasonable
attorneys' fees of both Parties, shall be borne by the Company; provided,
however, that if a dispute is resolved in favor of the Company, the Executive
shall bear his own costs of the arbitration or litigation and shall reimburse
the Company for the Executive's cost of the arbitration or litigation previously
paid by the Company. Pending the resolution of any arbitration or court
proceeding, the Company shall continue payment of all amounts due the Executive
under this Agreement and all benefits to which the Executive is entitled at the
time the dispute arises.
26. Notices.
Any notice given to a Party shall be in writing and shall be deemed
to have been given when delivered personally or sent by certified or registered
mail, postage prepaid, return receipt requested, duly addressed to the Party
concerned at the address indicated below or to such changed address as such
Party may subsequently give such notice of:
If to the Company: Metallurg, Inc.
6 East 43rd Street, 12th floor
New York, New York 10017
Attention: General Counsel
With a copy to: Rogers & Wells LLP
200 Park Avenue
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New York, New York 10166
Attention: Samuel M. Feder
If to the Executive: Alan D. Ewart
c/o Metallurg, Inc.
6 East 43rd Street, 12th Floor
New York, New York 10017
27. Headings.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
28. Counterparts.
This Agreement may be executed in two or more counterparts.
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<PAGE> 17
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
METALLURG, INC.
By: /s/ Heinz C. Schimmelbusch
----------------------------------------
Name: Heinz C. Schimmelbusch
Title: Chairman
/s/ Alan D. Ewart
--------------------------------------------
Alan D. Ewart
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<PAGE> 18
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 19th day of November, 1998, by
and between Metallurg, Inc., a Delaware corporation (together with its
successors and assigns permitted under this Agreement, the "Company"), and Eric
E. Jackson (the "Executive").
W I T N E S S E T H :
WHEREAS, prior to the Effective Date (as defined below), the Executive was
the President of Shieldalloy Metallurgical Corporation, a wholly-owned
subsidiary of the Company; and
WHEREAS, the Company and the Executive entered into an employment
agreement, dated December 31, 1997 which is currently in effect (the "Existing
Employment Agreement"); and
WHEREAS, as of the Effective Date, the Executive was appointed a Senior
Vice President and the Chief Operating Officer of the Company; and
WHEREAS, the Company desires to enter into a new employment agreement (the
"Agreement") embodying the terms of such employment; and
WHEREAS, the Executive desires to enter into the Agreement and to accept
such employment, subject to the terms and provisions of the Agreement; and
WHEREAS, the Company and the Executive desire to cancel the Existing
Employment Agreement as of the Effective Date;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
1. Definitions.
(a) "Base Salary" shall mean the Executive's base salary in
accordance with Section 4 below.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Business Day" shall mean any day other than a Saturday, Sunday
or any other day on which commercial banks in New York, New York are required or
authorized to be closed.
(d) "Cause" shall mean:
(1) the Executive is convicted of (or pleads nolo contendere
to) a felony or a crime of moral turpitude, dishonesty,
breach of trust or unethical business conduct involving
the Company;
(2) the Executive engages in willful misconduct, willful or
gross neglect, fraud, insubordination, misappropriation
or embezzlement to the material and demonstrable
detriment of the Company; or
(3) the Executive breaches in any material respect the terms
and provisions of this Agreement and fails to cure such
breach within 20 days following written notice from the
Company specifying such breach.
<PAGE> 19
(e) "CEO" shall mean the chief executive officer of the Company.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, including applicable regulations thereunder.
(g) "Competitive Activity" shall mean any activity engaged in by the
Executive, whether as an employee, principal, sole proprietor, consultant,
agent, officer, director, partner or shareholder (except as a less than
one-percent shareholder of a publicly traded company or a less than five-percent
shareholder of a privately held company), which directly competes with the
Company or any Subsidiary. For this purpose, an activity which directly competes
with the Company or any Subsidiary shall mean a business that was being
conducted by the Company or any Subsidiary during the Term of Employment.
Notwithstanding anything to the contrary in this Section 1(g), an activity shall
not be deemed to be a Competitive Activity (x) solely as a result of the
Executive's being employed by or otherwise associated with a business of which a
unit is in competition with the Company or any Subsidiary but as to which unit
the Executive does not have direct or indirect responsibilities for the products
or product lines involved or (y) if the activity contributes less than 5 percent
of the revenues for the fiscal year in question of the business by which the
Executive is employed or with which he is otherwise associated.
(h) "Disability" shall mean a disability as determined under the
Company's long-term disability plans, programs and/or arrangements in effect on
the date such disability first occurs.
(i) "Effective Date" shall mean August 10, 1998.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time, including applicable regulations thereunder.
(k) "Good Reason" shall mean the occurrence of any of the following
events:
(1) the material change of the Executive's authority, duties
and responsibilities, or the assignment to the Executive
of duties materially different from the Executive's
position or positions with the Company;
(2) a reduction in Base Salary of the Executive;
(3) the failure by the Company to obtain an agreement in
form and substance reasonably satisfactory to the
Executive from any successor to the business of the
Company to assume and agree to perform this Agreement;
or
(4) the Company breaches in any material respect the terms
and provisions of this Agreement and fails to cure such
breach within 20 days following written notice from the
Executive specifying such breach.
(l) "Subsidiary" of the Company shall mean any corporation of which
the Company owns, directly or indirectly, more than 50 percent of the Voting
Stock or any other business entity in which the Company directly or indirectly
has an ownership interest of more than 50 percent.
(m) "Term of Employment" shall mean the period specified in Section
2 below.
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(n) "Voting Stock" shall mean capital stock of any class or classes
having general voting power under ordinary circumstances, in the absence of
contingencies, to elect the directors of a corporation.
2. Term of Employment.
The Company hereby employs the Executive, and the Executive hereby
accepts such employment, for the period commencing on the Effective Date and
ending on the second anniversary of the Effective Date (the "Term of
Employment"), subject to earlier termination of the Term of Employment in
accordance with the terms of the Agreement. The Term of Employment shall be
automatically renewed for a one-year period on the second anniversary of the
Effective Date and on each anniversary of the Effective Date thereafter, unless
either Party has notified the other Party in writing in accordance with Section
26 below at least 90 days prior to the expiration of the then Term of Employment
that he or it does not want the Term of Employment to so renew.
3. Position, Duties and Responsibilities.
The Executive, in his capacity as a Senior Vice President and Chief
Operating Officer, shall faithfully perform for the Company the duties of said
office and shall perform such other duties of an executive, managerial or
administrative nature as shall be specified and designated from time to time by
the CEO consistent with such office. The Executive shall devote substantially
all of his business time and effort to the performance of his duties hereunder.
The Executive, in carrying out his duties under this Agreement, shall report to
the CEO. Notwithstanding anything in this Section 3 to the contrary, nothing
shall preclude the Executive from:
(1) serving on the boards of directors of a reasonable
number of other corporations or the boards of a
reasonable number of trade associations and/or
charitable organizations;
(2) engaging in charitable activities and community affairs;
and
(3) managing his personal investments and affairs;
provided, however, that such activities do not materially interfere with the
proper performance of his duties and responsibilities hereunder.
4. Base Salary.
During the Term of Employment, the Executive shall be paid an annual
Base Salary, payable in accordance with the regular payroll practices of the
Company, of $280,000. The Base Salary may be increased (but not decreased) at
any time and from time to time by action of the Board or by any committee
thereof or any individual having authority to take such action in accordance
with the Company's regular practices. Once increased, any reference to Base
Salary herein shall be a reference to such increased amount.
5. Bonus.
During the Term of Employment, in addition to the Base Salary, for
each fiscal year of the Company ending during the Term of Employment, the
Executive shall have the opportunity to receive an annual bonus (an "Annual
Bonus") in an amount of between 30 and 50 percent of Base Salary, as determined
by the CEO, in consultation with the Chairman of the Board. Payment of Annual
Bonus shall
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be made at the same time that other senior-level executives receive their annual
incentive compensation awards.
6. Long-Term Incentive Compensation Programs.
The Executive shall be eligible to participate in the Company's
stock option plans applicable to senior-level executives, the terms, conditions
and eligibility of such plans to be determined by the Board.
7. Employee Benefit Programs.
(a) During the Term of Employment, the Executive, to the extent he
is eligible, shall be entitled to participate in those employee pension and
welfare benefit plans, programs and/or arrangements applicable to the Executive
and made available to the Company's senior-level executives or to its employees
generally, as such plans, programs and/or arrangements may be in effect from
time to time, including, without limitation, pension, profit-sharing, savings,
medical, dental, hospitalization, short-term disability, long-term disability,
life insurance, accidental death and dismemberment protection, travel accident
insurance, and other employee pension and welfare benefit plans, programs and/or
arrangements that may be sponsored by the Company from time to time.
(b) During the Term of Employment, the Company shall provide the
Executive with term life insurance with a death benefit of at least two times
Base Salary. The Company shall pay all premiums with respect to such life
insurance. Such life insurance may be provided either through the Company's
group life insurance programs, by an individual policy, or by a combination of
both group and individual policies.
8. Reimbursement of Business Expenses.
The Executive is authorized to incur ordinary and reasonable
business expenses in carrying out his duties and responsibilities under the
Agreement, and the Company shall reimburse him for all such ordinary and
reasonable business expenses incurred in connection with carrying out the
business of the Company, subject to documentation in accordance with the
Company's policy. All Agreements relating to the Executive's obligation to repay
relocation expenses of the Executive previously paid by the Company shall remain
unaffected by the terms hereof.
9. Relocation Expenses.
The Company shall reimburse Executive, upon Executive's submission
of proof of such expenses, for the following costs of relocating from
Moorestown, New Jersey to the New York metropolitan area: direct costs
associated with (i) the sale of Executive's current residence (excluding any
loss that may have been incurred in connection therewith), (ii) the purchase of
a new residence in the New York metropolitan area (excluding the actual price of
the residence), (iii) the provision of temporary housing, for up to three
months, and (iv) the actual moving from Moorestown, New Jersey to the New York
metropolitan area.
10. Perquisites.
(a) During the Term of Employment, the Executive shall be entitled
to participate in the Company's executive fringe benefits applicable to the
Company's senior-level executive in accordance with the terms and conditions of
such arrangements as are in effect from time to time.
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(b) Notwithstanding anything herein to the contrary, the Company
shall pay for the membership fees (including any bond requirement) and dues at
one club which the Executive determines is appropriate.
(c) During the Term of Employment, the Company shall provide a car
to the Executive.
11. Vacation.
The Executive shall be entitled to paid vacation in accordance with
the Company's vacation policy; provided, however, that the Executive shall be
entitled to not less than four weeks of vacation each year.
12. Termination of Employment.
(a) Termination of Employment Due to Death. In the event of the
Executive's death during the Term of Employment, the Term of Employment shall
end as of the date of the Executive's death and his estate and/or beneficiaries,
as the case may be, shall be entitled to the following:
(1) Base Salary earned but not paid prior to the date of
his death;
(2) Annual Bonus with respect to any year prior to the year
of his death which has been earned but not paid;
(3) any amounts earned, accrued or owing to the Executive
but not yet paid under Section 6, 7, 8, 9, 10 or 11
above; and
(4) other or additional benefits in accordance with
applicable plans, programs and/or arrangements of the
Company.
(b) Termination of Employment Due to Disability. If the Executive's
employment is terminated due to Disability during the Term of Employment, either
by the Company or by the Executive, the Term of Employment shall end as of the
date of the Executive's termination of employment and the Executive shall be
entitled to the following (but in no event shall the Executive be entitled to
less than the benefits due him under any disability program of the Company for
which he becomes eligible):
(1) Base Salary earned but not paid prior to the date of the
termination of the Executive's employment;
(2) Annual Bonus with respect to any year prior to the year
of the termination of the Executive's employment which
has been earned but not paid;
(3) an amount equal to the sum of 50 percent of Base Salary,
at the annual rate in effect on the date of the
termination of the Executive's employment, payable in
monthly installments for a period ending on the first
day of the month following the month in which the
Executive attains age 65 or recovers from his
Disability, whichever occurs earlier, less the amount of
any disability benefits provided to the Executive under
the Company's disability program;
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(4) any amounts earned, accrued or owing to the Executive
but not yet paid under Section 6, 7, 8, 9, 10 or 11
above;
(5) continued participation, as if the Executive were still
an employee, in the Company's medical, dental,
hospitalization and life insurance plans, programs
and/or arrangements and in those other employee plans,
programs and/or arrangements in which he was
participating on the date of the termination of his
employment until he attains age 65 or recovers from his
Disability, whichever occurs earlier; `
provided, however, that:
(X) if the Executive is precluded from continuing
his participation in any employee benefit plan,
program or arrangement as provided in this
Section 12(b)(5), he shall be provided with the
after-tax economic equivalent of the benefits
provided under the plan, program or arrangement
in which he is unable to participate for the
period specified in this Section 12(b)(5); and
(Y) the economic equivalent of any benefit foregone
shall be deemed to be the lowest cost that would
be incurred by the Executive in obtaining such
benefit himself on an individual basis; and
(6) other or additional benefits in accordance with
applicable plans, programs and/or arrangements of the
Company.
In no event shall a termination of the Executive's employment for
Disability occur unless the Party terminating his employment gives written
notice to the other Party in accordance with Section 26 below.
(c) Termination of Employment by the Company for Cause. A
termination of the Executive's employment by the Company for Cause shall not
take effect unless the provisions of this Section 12(c) are complied with and
the Board issues a written determination that the Executive's employment should
be terminated for Cause (a "Determination").
(1) In accordance with Section 26 below, the CEO shall give
the Executive a written notice stating his intention to
terminate the Executive's employment for Cause (the
"Cause Notice"). The Cause Notice shall:
(A) state in detail the particular act or acts or
failure or failures to act that constitute the
grounds on which the proposed termination of
employment for Cause is based; and
(B) be given within four months of the CEO learning of
such act or acts or failure or failures to act.
(2) The CEO may temporarily relieve the Executive of his
duties and responsibilities described in Section 3 above
during the period commencing on the date the Cause
Notice is issued by the CEO and ending on the date the
Determination is issued by the Board (the "Determination
Period").
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(3) The Executive shall have 20 days after the date the
Cause Notice is actually received by him in which to
cure his conduct on which the termination of employment
for Cause is based, to the extent such cure is possible.
If the Executive fails to cure such conduct, he shall
then be entitled to a hearing before the Board. Such
hearing shall be held during the 20-day period following
the date the Executive receives the Cause Notice;
provided, however, that the Executive requests such
hearing during the 10-day period following the date the
Executive receives the Cause Notice. Within five days
following the completion of such hearing, the Board
shall issue a Determination stating whether, in its
judgment, grounds for Cause as detailed in the Cause
Notice exist. If the Determination states that such
grounds exist, the Executive's employment shall be
immediately terminated for Cause and the Term of
Employment shall end as of the date of the termination
of the Executive's employment.
(4) If the Company terminates the Executive's employment for
Cause, the Executive shall be entitled to the following:
(A) Base Salary earned but not paid prior to the
date of the termination of his employment;
(B) any amounts earned, accrued or owing to the
Executive but not yet paid under Section 6, 7, 8,
9, 10 or 11 above; and
(C) other or additional benefits in accordance with
applicable plans, programs and/or arrangements of
the Company.
(5) Notwithstanding anything herein to the contrary, if,
following a termination of the Executive's employment by
the Company for Cause based upon the conviction of the
Executive for a felony, such conviction is overturned in
a final determination on appeal, the Executive shall be
entitled to the payments and the economic equivalent of
the benefits the Executive would have received if his
employment had been terminated by the Company without
Cause.
(d) Termination of Employment by the Company Without Cause. If the
Executive's employment is terminated by the Company without Cause, other than
due to death or Disability, the Executive shall be entitled to the following:
(1) Base Salary earned but not paid prior to the date of
the termination of his employment;
(2) Annual Bonus with respect to any year prior to the year
of the termination of the Executive's employment which
has been earned but not paid;
(3) an amount equal to the aggregate Base Salary (based on
the Base Salary in effect on the date of the termination
of the Executive's employment) (the "Salary Continuation
Benefits") with respect to a period equal to
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eighteen months, payable in equal monthly installments
over such period;
(4) continued accrual of credited service through the end of
the Term of Employment for the purpose of any Company
pension plan, program or arrangement;
(5) the right to purchase, at fair market value, the
Executive's automobile (if any) provided to him by the
Company under the Company's automobile perquisite
program for senior-level executives;
(6) any amounts earned, accrued or owing to the Executive
but not yet paid under Section 6, 7, 8, 9, 10 or 11
above;
(7) continued participation, as if he were still an
employee, in the Company's medical, dental,
hospitalization and life insurance plans, programs
and/or arrangements and in other employee benefit plans,
programs and/or arrangements in which he was
participating on the date of the termination of his
employment until the earlier of:
(A) the end of the period used to determine the
Salary Continuation Benefits; or
(B) the date, or dates, he receives equivalent
coverage and benefits under the plans, programs
and/or arrangements of a subsequent employer (such
coverage and benefits to be determined on a
coverage-by-coverage or benefit-by-benefit basis);
provided, however, that:
(X) if the Executive is precluded from continuing
his participation in any employee benefit plan,
program or arrangement as provided in Section
12(d)(7) above, he shall be provided with the
after-tax economic equivalent of the benefits
provided under the plan, program or arrangement
in which he is unable to participate for the
period specified in this Section 12(d)(7); and
(Y) the economic equivalent of any benefit foregone
shall be deemed to be the lowest cost that would
be incurred by the Executive in obtaining such
benefit himself on an individual basis; and
(8) other or additional benefits in accordance with
applicable plans, programs and/or arrangements of the
Company.
(e) Termination of Employment by the Executive for Good Reason. The
Executive may terminate his employment for Good Reason, but only if:
(1) the Executive notifies the Board during the 60-day
period following the date of the first occurrence of an
event which constitutes Good Reason (the "Good Reason
Event Date") of his intention to terminate his
employment for Good Reason;
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(2) the Executive terminates his employment for Good Reason
during the 120-day period following the Good Reason
Event Date;
(3) the termination of employment for Good Reason does not
occur during a Determination Period described in Section
12(c)(2) above; and
(4) the Good Reason first occurs before or after a
Determination Period, or, if the Good Reason first
occurs during a Determination Period, such event
constituting Good Reason continues to occur after the
Determination Period.
Upon a termination by the Executive of his employment for Good Reason, the
Executive shall be entitled to the same payments and benefits as provided in
Section 12(d) above; provided, however, that if the Executive terminates his
employment for Good Reason based on a reduction in Base Salary under Section
1(k)(2) above, then the Base Salary to be used in determining the Salary
Continuation Benefits in accordance with Section 12(d)(3) above shall be the
Base Salary in effect immediately prior to such reduction.
(f) Termination of Employment by the Executive Without Good Reason.
If the Executive terminates his employment without Good Reason, other than a
termination of employment due to death or retirement or Disability, the
Executive shall have the same entitlements as provided in Section 12(c)(4)
above. A termination of the Executive's employment under this Section 12(f)
shall be effective upon 30 days prior written notice to the Company and shall
not be deemed a breach of this Agreement.
(g) Non Renewal of Agreement by Company. If the Company notifies the
Executive, pursuant to Section 2 above, that it does not want the Term of
Employment to renew, the Executive shall have the same entitlements as provided
in Section 12(d) above as if the Executive had been terminated without cause as
of the last day of the then Term of Employment.
(h) Termination of Employment by Executive due to Relocation of Work
Location. In the event that the Executive's principal work location is moved
outside of the States of New York, New Jersey, Connecticut, Pennsylvania,
Delaware, Maryland or the District of Columbia, the Executive may terminate his
employment with the Company. If the Executive terminates his employment pursuant
to this Section 12(h), he shall have the same entitlements as provided in
Section 12(d) above; provided, that all such benefits, including, without
limitation, the Salary Continuation Benefits, shall be provided for a period
equal to the corresponding severance period listed on Schedule A, payable in
equal monthly installments during such period.
(i) No Mitigation; No Offset. If the Executive's employment
terminates under this Section 12, the Executive shall be under no obligation to
seek other employment and there shall be no offset against amounts due the
Executive under this Agreement on account of any remuneration attributable to
any subsequent employment that he may obtain except as specifically provided in
this Section 12.
(j) Nature of Payments. Any amounts due under this Section 12 are in
the nature of severance payments considered to be reasonable by the Company and
are not in the nature of a penalty.
13. Confidentiality: Assignment of Rights.
(a) During the Term of Employment and thereafter, the Executive
shall not disclose to anyone or make use of any trade secret or proprietary or
confidential information of the Company,
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including such trade secret or proprietary or confidential information of any
customer or other entity to which the Company owes an obligation not to disclose
such information, which he acquires during the Term of Employment, including but
not limited to records kept in the ordinary course of business, except (i) as
such disclosure or use may be required or appropriate in connection with his
work as an employee of the Company, (ii) when required to do so by a court of
law, by any governmental agency having supervisory authority over the business
of the Company or by any administrative or legislative body (including a
committee thereof) with apparent jurisdiction to order him to divulge, disclose
or make accessible such information, or (iii) as to such confidential
information that becomes generally known to the public or trade without
violation of this Section 13(a).
(b) The Executive hereby sells, assigns and transfers to the Company
all of his right, title and interest in and to all inventions, discoveries,
improvements and copyrightable subject matter (the "rights") which during the
Term of Employment are made or conceived by him, alone or with others, and which
are within or arise out of any general field of the Company's business or arise
out of any work he performs or information he receives regarding the business of
the Company while employed by the Company. The Executive shall fully disclose to
the Company as promptly as available all information known or possessed by him
concerning the rights referred to in the preceding sentence, and upon request by
the Company and without any further remuneration in any form to him by the
Company, but at the expense of the Company, execute all applications for patents
and for copyright registration, assignments thereof and other instruments and do
all things which the Company may deem necessary to vest and maintain in it the
entire right, title and interest in and to all such rights.
14. Noncompetition.
(a) The Executive covenants and agrees that during the Term of
Employment and following the termination of the Executive's employment with the
Company, for a period of eighteen months or, in the case of a termination
pursuant to Section 12(h), a period equal to the shorter of (i) twice the
corresponding severance period listed on Schedule A and (ii) eighteen months, he
shall not at any time, without the prior written consent of the Company,
directly or indirectly, engage in a Competitive Activity.
(b) The Parties acknowledge that in the event of a breach or
threatened breach of Section 14(a) above, the Company shall not have an adequate
remedy at law. Accordingly, in the event of any breach or threatened breach of
Section 14(a) above, the Company shall be entitled to such equitable and
injunctive relief as may be available to restrain the Executive and any
business, firm, partnership, individual, corporation or entity participating in
the breach or threatened breach from the violation of the provisions of Section
14(a) above. Nothing in this Agreement shall be construed as prohibiting the
Company from pursuing any other remedies available at law or in equity for
breach or threatened breach of Section 14(a) above, including the recovery of
damages.
15. Indemnification.
(a) The Company agrees that if the Executive is made a party, or is
threatened to be made a party, to any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "Proceeding"), by reason of the
fact that he is or was a director, officer or employee of the Company or is or
was serving at the request of the Company as a director, officer, member,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
whether or not the basis of such Proceeding is the Executive's alleged action in
an official capacity while serving as a director, officer, member, employee or
agent, the Executive shall be indemnified and held harmless by the Company to
the fullest extent legally permitted or authorized by the Company's certificate
of incorporation or bylaws or resolutions of the Company's Board of Directors
10
<PAGE> 28
or, if greater, by the laws of the State of Delaware, against all cost, expense,
liability and loss (including, without limitation, attorney's fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by the Executive in connection
therewith, and such indemnification shall continue as to the Executive even if
he has ceased to be a director, member, employee or agent of the Company or
other entity and shall inure to the benefit of the Executive's heirs, executors
and administrators. The Company shall advance to the Executive all reasonable
costs and expenses incurred by him in connection with a Proceeding within 20
days after receipt by the Company of a written request for such advance. Such
request shall include an undertaking by the Executive to repay the amount of
such advance if it shall ultimately be determined that he is not entitled to be
indemnified against such costs and expenses.
(b) Neither the failure of the Company (including the Board,
independent legal counsel or stockholders) to have made a determination prior to
the commencement of any Proceeding concerning payment of amounts claimed by the
Executive under Section 15(a) above that indemnification of the Executive is
proper because he has met the applicable standard of conduct, nor a
determination by the Company (including the Board, independent legal counsel or
stockholders) that the Executive has not met such applicable standard of
conduct, shall create a presumption that the Executive has not met the
applicable standard of conduct.
(c) The Company agrees to continue and maintain a directors and
officers' liability insurance policy covering the Executive to the extent the
Company provides such coverage for its other executive officers.
16. Effect of Agreement on Other Benefits.
Except as specifically provided in this Agreement, the existence of
this Agreement shall not prohibit or restrict the Executive's entitlement to
full participation in the Company's employee benefit plans, programs and
arrangements applicable to the Company's senior-level executives.
17. Assignability; Binding Nature.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs (in the case of the Executive)
and assigns. No rights or obligations of the Company under this Agreement may be
assigned or transferred by the Company except that such rights or obligations
may be assigned or transferred pursuant to a merger or consolidation in which
the Company is not the continuing entity, or the sale or liquidation of all or
substantially all of the assets of the Company; provided, however, that the
assignee or transferee is the successor to all or substantially all of the
assets of the Company and such assignee or transferee assumes the liabilities,
obligations and duties of the Company, as contained in this Agreement, either
contractually or as a matter of law. The Company further agrees that, in the
event of a sale of assets or liquidation as described in the preceding sentence,
it shall take whatever action it legally can in order to cause such assignee or
transferee to expressly assume the liabilities, obligations and duties of the
Company hereunder or under any other plan or benefit program referred to herein.
No rights or obligations of the Executive under this Agreement may be assigned
or transferred by the Executive other than his rights to compensation and
benefits, which may be transferred only by will or operation of law, except as
provided in Section 23 below.
18. Representation.
The Company represents and warrants that it is fully authorized and
empowered to enter into this Agreement and that the performance of its
obligations under this Agreement will not violate any agreement between it and
any other person, firm or organization. The Executive represents that he knows
11
<PAGE> 29
of no agreement between him and any other person, firm or organization that
would be violated by the performance of his obligations under this Agreement.
19. Entire Agreement.
This Agreement contains the entire understanding and agreement
between the Parties concerning the subject matter hereof and supersedes all
prior agreements, understandings, discussions, negotiations and undertakings,
whether written or oral, between the Parties, including, without limitation, the
Existing Employment Agreement, with respect thereto.
20. Amendment or Waiver.
No provision in this Agreement may be amended unless such amendment
is agreed to in writing and signed by the Executive and an authorized officer of
the Company. No waiver by either Party of any breach by the other Party of any
condition or provision contained in this Agreement to be performed by such other
Party shall be deemed a waiver of a similar or dissimilar condition or provision
at the same or any prior or subsequent time. Any waiver must be in writing and
signed by the Executive or an authorized officer of the Company, as the case may
be.
21. Severability.
In the event that any provision or portion of this Agreement shall
be determined to be invalid or unenforceable for any reason, in whole or in
part, the remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect and such provision or portion of this
Agreement shall remain in effect to the fullest extent permitted by law.
22. Survivorship.
The respective rights and obligations of the Parties hereunder shall
survive any termination of the Executive's employment to the extent necessary to
the intended preservation of such rights and obligations.
23. Beneficiaries/References.
The Executive shall be entitled, to the extent permitted under any
applicable law, to select and change a beneficiary or beneficiaries to receive
any compensation or benefit payable hereunder following the Executive's death by
giving the Company written notice thereof. In the event of the Executive's death
or a judicial determination of his incompetence, reference in this Agreement to
the Executive shall be deemed, where appropriate, to refer to his beneficiary,
estate or other legal representative.
24. Governing Law/Submission to Jurisdiction.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of New York without reference to principles of conflict
of laws. Each of the Company and the Executive hereby irrevocably and
unconditionally: (i) submits for itself or himself, as applicable, and its or
his property in any legal action or proceeding relating to this Agreement, or
for recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the courts of the State of New York, the
courts of the United States of America for the Southern District of New York,
and appellate courts from any thereof; (ii) consents that any such action or
proceeding may be brought in such courts, and waives any objection that it or he
may now or hereafter have to the venue of any such
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<PAGE> 30
action or proceeding in any such court or that such action or proceeding was
brought in an inconvenient forum and agrees not to plead or claim the same;
(iii) agrees that service of process in any such action or proceeding may be
effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to its or his address set
forth in or designated pursuant to Section 26 hereof; and (iv) agrees that
nothing herein shall affect the right to effect service of process in any other
manner permitted by law or shall limit the right to sue in any other
jurisdiction.
25. Resolution of Disputes.
Any disputes arising under or in connection with the Agreement,
other than disputes arising in connection with Sections 13 and 14 hereof, may,
at the election of the Executive or the Company, be resolved by binding
arbitration, to be held in New York City in accordance with the rules and
procedures of the American Arbitration Association. If arbitration is elected,
the Executive and the Company shall mutually select the arbitrator. If the
Executive and the Company cannot agree on the selection of an arbitrator, each
Party shall select an arbitrator and the two arbitrators shall select a third
arbitrator, and the three arbitrators shall form an arbitration panel which
shall resolve the dispute by majority vote. Judgment upon the award rendered by
the arbitrator(s) may be entered in any court having jurisdiction thereof. Costs
of the arbitration or litigation, including, without limitation, reasonable
attorneys' fees of both Parties, shall be borne by the Company; provided,
however, that, if a dispute is resolved in favor of the Company, the Executive
shall bear his own costs of the arbitration or litigation and shall reimburse
the Company for the Executive's costs of the arbitration or litigation
previously paid by the Company. Pending the resolution of any arbitration or
court proceeding, the Company shall continue payment of all amounts due the
Executive under this Agreement and all benefits to which the Executive is
entitled at the time the dispute arises.
26. Notices.
Any notice given to a Party shall be in writing and shall be deemed
to have been given when delivered personally or sent by certified or registered
mail, postage prepaid, return receipt requested, duly addressed to the Party
concerned at the address indicated below or to such changed address as such
Party may subsequently give such notice of:
If to the Company: Metallurg, Inc.
6 East 43rd Street, 12th floor
New York, New York 10017
Attention: General Counsel
With a copy to: Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
Attention: Samuel M. Feder
If to the Executive: Eric E. Jackson
c/o Metallurg, Inc.
6 East 43rd Street, 12th floor
New York, New York 10017
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<PAGE> 31
27. Headings.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
28. Counterparts.
This Agreement may be executed in two or more counterparts.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
METALLURG, INC.
By: /s/ Alan D. Ewart
----------------------------------------
Name: Alan D. Ewart
Title: President and CEO
/s/ Eric E. Jackson
----------------------------------------
Eric E. Jackson
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<PAGE> 32
SCHEDULE A
<TABLE>
<CAPTION>
Years of Service Severance Period
---------------- ----------------
<S> <C>
Up To 15 6 months
More Than 15 9 months
More Than 20 12 months
</TABLE>
15
<PAGE> 33
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 19th day of November, 1998, by
and between Metallurg, Inc., a Delaware corporation (together with its
successors and assigns permitted under this Agreement, the "Company"), and Robin
Brumwell (the "Executive").
W I T N E S S E T H :
WHEREAS, the Executive is the President of Metallurg International
Resources ("MIR"), a division of the Company; and
WHEREAS, the Company and the Executive entered into an employment
agreement, dated April 14, 1997 which is currently in effect (the "Existing
Employment Agreement"); and
WHEREAS, as of the Effective Date (as defined below), the Executive, in
addition to his existing position, was appointed as a Senior Vice President of
the Company; and
WHEREAS, the Company desires to enter into a new employment agreement (the
"Agreement") embodying the terms of such employment; and
WHEREAS, the Executive desires to enter into the Agreement and to accept
such employment, subject to the terms and provisions of the Agreement; and
WHEREAS, the Company and the Executive desire to cancel the Existing
Employment Agreement as of the Effective Date;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
1. Definitions.
(a) "Base Salary" shall mean the Executive's base salary in
accordance with Section 4 below.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Business Day" shall mean any day other than a Saturday, Sunday
or any other day on which commercial banks in New York, New York are required or
authorized to be closed.
(d) "Cause" shall mean:
(1) the Executive is convicted of (or pleads nolo contendere
to) a felony or a crime of moral turpitude, dishonesty,
breach of trust or unethical business conduct involving
the Company;
(2) the Executive engages in willful misconduct, willful or
gross neglect, fraud, insubordination, misappropriation
or embezzlement to the material and demonstrable
detriment of the Company; or
(3) the Executive breaches in any material respect the terms
and provisions of this Agreement and fails to cure such
breach within 20 days following written notice from the
Company specifying such breach.
<PAGE> 34
(e) "CEO" shall mean the chief executive officer of the Company.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, including applicable regulations thereunder.
(g) "Competitive Activity" shall mean any activity engaged in by the
Executive, whether as an employee, principal, sole proprietor, consultant,
agent, officer, director, partner or shareholder (except as a less than
one-percent shareholder of a publicly traded company or a less than five-percent
shareholder of a privately held company), which directly competes with the
Company or any Subsidiary. For this purpose, an activity which directly competes
with the Company or any Subsidiary shall mean a business that was being
conducted by the Company or any Subsidiary during the Term of Employment.
Notwithstanding anything to the contrary in this Section 1(g), an activity shall
not be deemed to be a Competitive Activity (x) solely as a result of the
Executive's being employed by or otherwise associated with a business of which a
unit is in competition with the Company or any Subsidiary but as to which unit
the Executive does not have direct or indirect responsibilities for the products
or product lines involved or (y) if the activity contributes less than 5 percent
of the revenues for the fiscal year in question of the business by which the
Executive is employed or with which he is otherwise associated.
(h) "Disability" shall mean a disability as determined under the
Company's long-term disability plans, programs and/or arrangements in effect on
the date such disability first occurs.
(i) "Effective Date" shall mean August 10, 1998.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time, including applicable regulations thereunder.
(k) "Good Reason" shall mean the occurrence of any of the following
events:
(1) the material change of the Executive's authority, duties
and responsibilities, or the assignment to the Executive
of duties materially different from the Executive's
position or positions with the Company;
(2) a reduction in Base Salary of the Executive;
(3) the failure by the Company to obtain an agreement in
form and substance reasonably satisfactory to the
Executive from any successor to the business of the
Company to assume and agree to perform this Agreement;
or
(4) the Company breaches in any material respect the terms
and provisions of this Agreement and fails to cure such
breach within 20 days following written notice from the
Executive specifying such breach.
(l) "Subsidiary" of the Company shall mean any corporation of which
the Company owns, directly or indirectly, more than 50 percent of the Voting
Stock or any other business entity in which the Company directly or indirectly
has an ownership interest of more than 50 percent.
(m) "Tax Loans" shall mean all of the outstanding loans made by the
Company to the Executive pursuant to Section 6(c) of the Existing Employment
Agreement in respect of federal, state or local tax due to a portion of the
17,500 shares of common stock of the Company awarded to the Executive
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<PAGE> 35
under the Company's 1997 Stock Award and Stock Option Plan (the "1997 Stock
Award") becoming transferable or the Executive making an election under Code
Section 83(b) with respect to the 1997 Stock Award.
(n) "Term of Employment" shall mean the period specified in Section
2 below.
(o) "Voting Stock" shall mean capital stock of any class or classes
having general voting power under ordinary circumstances, in the absence of
contingencies, to elect the directors of a corporation.
2. Term of Employment.
The Company hereby employs the Executive, and the Executive hereby
accepts such employment, for the period commencing on the Effective Date and
ending on the second anniversary of the Effective Date (the "Term of
Employment"), subject to earlier termination of the Term of Employment in
accordance with the terms of the Agreement. The Term of Employment shall be
automatically renewed for a one-year period on the second anniversary of the
Effective Date and on each anniversary of the Effective Date thereafter, unless
either Party has notified the other Party in writing in accordance with Section
26 below at least 90 days prior to the expiration of the then Term of Employment
that he or it does not want the Term of Employment to so renew.
3. Position, Duties and Responsibilities.
The Executive, in his capacity as President of MIR and a Senior
Vice-President of the Company shall faithfully perform for the Company the
duties of said office and shall perform such other duties of an executive,
managerial or administrative nature as shall be specified and designated from
time to time by the CEO consistent with such office. The Executive shall devote
substantially all of his business time and effort to the performance of his
duties hereunder. The Executive, in carrying out his duties under this
Agreement, shall report to the CEO. Notwithstanding anything in this Section 3
to the contrary, nothing shall preclude the Executive from:
(1) serving on the boards of directors of a reasonable
number of other corporations or the boards of a
reasonable number of trade associations and/or
charitable organizations;
(2) engaging in charitable activities and community affairs;
and
(3) managing his personal investments and affairs;
provided, however, that such activities do not materially interfere with the
proper performance of his duties and responsibilities hereunder.
4. Base Salary.
During the Term of Employment, the Executive shall be paid an annual
Base Salary, payable in accordance with the regular payroll practices of the
Company, of $260,000. The Base Salary may be increased (but not decreased) at
any time and from time to time by action of the Board or by any committee
thereof or any individual having authority to take such action in accordance
with the Company's regular practices. Once increased, any reference to Base
Salary herein shall be a reference to such increased amount.
3
<PAGE> 36
5. Bonus.
(a) During the Term of Employment, in addition to the Base Salary,
for each fiscal year of the Company ending during the Term of Employment, the
Executive shall have the opportunity to receive an annual bonus (an "Annual
Bonus") in an amount of between 30 and 50 percent of Base Salary, as determined
by the CEO, in consultation with the Chairman of the Board. Payment of Annual
Bonus shall be made at the same time that other senior-level executives receive
their annual incentive compensation awards.
(b) Within 10 days of the date of the execution of this Agreement,
the Executive will receive a one-time payment in the amount of $150,000 in
consideration for the termination of the Executive's right to receive a change
of control payment pursuant to Section 11(f) of the Existing Employment
Agreement.
6. Long-Term Incentive Compensation Programs.
The Executive shall be eligible to participate in the Company's
stock option plans applicable to senior-level executives, the terms, conditions
and eligibility of such plans to be determined by the Board.
7. Repayment of Tax Loans.
The Executive shall pay to the Company in a lump sum the principal
and all accrued interest with respect to each outstanding Tax Loan on the day
which precedes the third anniversary of the date of such Tax Loan, or, at the
Executives's election, on any date which precedes the third anniversary of the
date of such Tax Loan.
8. Employee Benefit Programs.
(a) During the Term of Employment, the Executive, to the extent he
is eligible, shall be entitled to participate in those employee pension and
welfare benefit plans, programs and/or arrangements applicable to the Executive
and made available to the Company's senior-level executives or to its employees
generally, as such plans, programs and/or arrangements may be in effect from
time to time, including, without limitation, pension, profit-sharing, savings,
medical, dental, hospitalization, short-term disability, long-term disability,
life insurance, accidental death and dismemberment protection, travel accident
insurance, and other employee pension and welfare benefit plans, programs and/or
arrangements that may be sponsored by the Company from time to time.
(b) During the Term of Employment, the Company shall provide the
Executive with term life insurance with a death benefit of at least two times
Base Salary. The Company shall pay all premiums with respect to such life
insurance. Such life insurance may be provided either through the Company's
group life insurance programs, by an individual policy, or by a combination of
both group and individual policies.
9. Reimbursement of Business Expenses.
The Executive is authorized to incur ordinary and reasonable
business expenses in carrying out his duties and responsibilities under the
Agreement, and the Company shall reimburse him for all such ordinary and
reasonable business expenses incurred in connection with carrying out the
business of the Company, subject to documentation in accordance with the
Company's policy.
4
<PAGE> 37
10. Perquisites.
(a) During the Term of Employment, the Executive shall be entitled
to participate in the Company's executive fringe benefits applicable to the
Company's senior-level executive in accordance with the terms and conditions of
such arrangements as are in effect from time to time.
(b) Notwithstanding anything herein to the contrary, the Company
shall pay for the membership fees (including any bond requirement) and dues at
one club which the Executive determines is appropriate.
(c) During the Term of Employment, the Company shall provide a car
to the Executive.
11. Vacation.
The Executive shall be entitled to paid vacation in accordance with
the Company's vacation policy; provided, however, that the Executive shall be
entitled to not less than four weeks of vacation each year.
12. Termination of Employment.
(a) Termination of Employment Due to Death. In the event of the
Executive's death during the Term of Employment, the Term of Employment shall
end as of the date of the Executive's death and his estate and/or beneficiaries,
as the case may be, shall be entitled to the following:
(1) Base Salary earned but not paid prior to the date of
his death;
(2) Annual Bonus with respect to any year prior to the year
of his death which has been earned but not paid;
(3) any amounts earned, accrued or owing to the Executive
but not yet paid under Section 6, 8, 9 or 10 above; and
(4) other or additional benefits in accordance with
applicable plans, programs and/or arrangements of the
Company.
(b) Termination of Employment Due to Disability. If the Executive's
employment is terminated due to Disability during the Term of Employment, either
by the Company or by the Executive, the Term of Employment shall end as of the
date of the Executive's termination of employment and the Executive shall be
entitled to the following (but in no event shall the Executive be entitled to
less than the benefits due him under any disability program of the Company for
which he becomes eligible):
(1) Base Salary earned but not paid prior to the date of the
termination of the Executive's employment;
(2) Annual Bonus with respect to any year prior to the year
of the termination of the Executive's employment which
has been earned but not paid;
(3) an amount equal to the sum of 50 percent of Base Salary,
at the annual rate in effect on the date of the
termination of the Executive's
5
<PAGE> 38
employment, payable in monthly installments for a period
ending on the first day of the month following the month
in which the Executive attains age 65 or recovers from
his Disability, whichever occurs earlier, less the
amount of any disability benefits provided to the
Executive under the Company's disability program;
(4) any amounts earned, accrued or owing to the Executive
but not yet paid under Section 6, 8, 9 or 10 above;
(5) continued participation, as if the Executive were still
an employee, in the Company's medical, dental,
hospitalization and life insurance plans, programs
and/or arrangements and in those other employee plans,
programs and/or arrangements in which he was
participating on the date of the termination of his
employment until he attains age 65 or recovers from his
Disability, whichever occurs earlier;
provided, however, that:
(X) if the Executive is precluded from continuing
his participation in any employee benefit plan,
program or arrangement as provided in this
Section 12(b)(5), he shall be provided with the
after-tax economic equivalent of the benefits
provided under the plan, program or arrangement
in which he is unable to participate for the
period specified in this Section 12(b)(5); and
(Y) the economic equivalent of any benefit foregone
shall be deemed to be the lowest cost that would
be incurred by the Executive in obtaining such
benefit himself on an individual basis; and
(6) other or additional benefits in accordance with
applicable plans, programs and/or arrangements of the
Company.
In no event shall a termination of the Executive's employment for
Disability occur unless the Party terminating his employment gives written
notice to the other Party in accordance with Section 26 below.
(c) Termination of Employment by the Company for Cause. A
termination of the Executive's employment by the Company for Cause shall not
take effect unless the provisions of this Section 12(c) are complied with and
the Board issues a written determination that the Executive's employment should
be terminated for Cause (a "Determination").
(1) In accordance with Section 26 below, the CEO shall give
the Executive a written notice stating his intention to
terminate the Executive's employment for Cause (the
"Cause Notice"). The Cause Notice shall:
(A) state in detail the particular act or acts or
failure or failures to act that constitute the
grounds on which the proposed termination of
employment for Cause is based; and
(B) be given within four months of the CEO learning of
such act or acts or failure or failures to act.
6
<PAGE> 39
(2) The CEO may temporarily relieve the Executive of his
duties and responsibilities described in Section 3 above
during the period commencing on the date the Cause
Notice is issued by the CEO and ending on the date the
Determination is issued by the Board (the "Determination
Period").
(3) The Executive shall have 20 days after the date the
Cause Notice is actually received by him in which to
cure his conduct on which the termination of employment
for Cause is based, to the extent such cure is possible.
If the Executive fails to cure such conduct, he shall
then be entitled to a hearing before the Board. Such
hearing shall be held during the 20-day period following
the date the Executive receives the Cause Notice;
provided, however, that the Executive requests such
hearing during the 10-day period following the date the
Executive receives the Cause Notice. Within five days
following the completion of such hearing, the Board
shall issue a Determination stating whether, in its
judgment, grounds for Cause as detailed in the Cause
Notice exist. If the Determination states that such
grounds exist, the Executive's employment shall be
immediately terminated for Cause and the Term of
Employment shall end as of the date of the termination
of the Executive's employment.
(4) If the Company terminates the Executive's employment for
Cause, the Executive shall be entitled to the following:
(A) Base Salary earned but not paid prior to the date
of the termination of his employment;
(B) any amounts earned, accrued or owing to the
Executive but not yet paid under Section 6, 8, 9
or 10 above; and
(C) other or additional benefits in accordance with
applicable plans, programs and/or arrangements of
the Company.
(5) Notwithstanding anything herein to the contrary, if,
following a termination of the Executive's employment by
the Company for Cause based upon the conviction of the
Executive for a felony, such conviction is overturned in
a final determination on appeal, the Executive shall be
entitled to the payments and the economic equivalent of
the benefits the Executive would have received if his
employment had been terminated by the Company without
Cause.
(d) Termination of Employment by the Company Without Cause. If the
Executive's employment is terminated by the Company without Cause, other than
due to death or Disability, the Executive shall be entitled to the following:
(1) Base Salary earned but not paid prior to the date of
the termination of his employment;
7
<PAGE> 40
(2) Annual Bonus with respect to any year prior to the year
of the termination of the Executive's employment which
has been earned but not paid;
(3) an amount equal to the aggregate Base Salary (based on
the Base Salary in effect on the date of the termination
of the Executive's employment) (the "Salary Continuation
Benefits") with respect to a period equal to eighteen
months, payable in equal monthly installments over such
period;
(4) continued accrual of credited service through the end of
the Term of Employment for the purpose of any Company
pension plan, program or arrangement;
(5) the right to purchase, at fair market value, the
Executive's automobile (if any) provided to him by the
Company under the Company's automobile perquisite
program for senior-level executives;
(6) any amounts earned, accrued or owing to the Executive
but not yet paid under Section 6, 8, 9 or 10 above;
(7) continued participation, as if he were still an
employee, in the Company's medical, dental,
hospitalization and life insurance plans, programs
and/or arrangements and in other employee benefit plans,
programs and/or arrangements in which he was
participating on the date of the termination of his
employment until the earlier of:
(A) the end of the period used to determine the
Salary Continuation Benefits; or
(B) the date, or dates, he receives equivalent
coverage and benefits under the plans, programs
and/or arrangements of a subsequent employer (such
coverage and benefits to be determined on a
coverage-by-coverage or benefit-by-benefit basis);
provided, however, that:
(X) if the Executive is precluded from continuing
his participation in any employee benefit plan,
program or arrangement as provided in Section
12(d)(7) above, he shall be provided with the
after-tax economic equivalent of the benefits
provided under the plan, program or arrangement
in which he is unable to participate for the
period specified in this Section 12(d)(7); and
(Y) the economic equivalent of any benefit foregone
shall be deemed to be the lowest cost that would
be incurred by the Executive in obtaining such
benefit himself on an individual basis; and
(8) other or additional benefits in accordance with
applicable plans, programs and/or arrangements of the
Company.
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(e) Termination of Employment by the Executive for Good Reason. The
Executive may terminate his employment for Good Reason, but only if:
(1) the Executive notifies the Board during the 60-day
period following the date of the first occurrence of an
event which constitutes Good Reason (the "Good Reason
Event Date") of his intention to terminate his
employment for Good Reason;
(2) the Executive terminates his employment for Good Reason
during the 120-day period following the Good Reason
Event Date;
(3) the termination of employment for Good Reason does not
occur during a Determination Period described in Section
12(c)(2) above; and
(4) the Good Reason first occurs before or after a
Determination Period, or, if the Good Reason first
occurs during a Determination Period, such event
constituting Good Reason continues to occur after the
Determination Period.
Upon a termination by the Executive of his employment for Good Reason, the
Executive shall be entitled to the same payments and benefits as provided in
Section 12(d) above; provided, however, that if the Executive terminates his
employment for Good Reason based on a reduction in Base Salary under Section
1(k)(2) above, then the Base Salary to be used in determining the Salary
Continuation Benefits in accordance with Section 12(d)(3) above shall be the
Base Salary in effect immediately prior to such reduction.
(f) Termination of Employment by the Executive Without Good Reason.
If the Executive terminates his employment without Good Reason, other than a
termination of employment due to death or retirement or Disability, the
Executive shall have the same entitlements as provided in Section 12(c)(4)
above. A termination of the Executive's employment under this Section 12(f)
shall be effective upon 30 days prior written notice to the Company and shall
not be deemed a breach of this Agreement.
(g) Non Renewal of Agreement by Company. If the Company notifies the
Executive, pursuant to Section 2 above, that it does not want the Term of
Employment to renew, the Executive shall have the same entitlements as provided
in Section 12(d) above as if the Executive had been terminated without cause as
of the last day of the then Term of Employment.
(h) Termination of Employment by Executive due to Relocation of Work
Location. In the event that the Executive's principal work location is moved
outside of the States of New York, New Jersey, Connecticut, Pennsylvania,
Delaware, Maryland or the District of Columbia, the Executive may terminate his
employment with the Company. If the Executive terminates his employment pursuant
to this Section 12(h), he shall have the same entitlements as provided in
Section 12(d) above; provided, that all such benefits, including, without
limitation, the Salary Continuation Benefits, shall be provided for a period
equal to the corresponding severance period listed on Schedule A, payable in
equal monthly installments during such period.
(i) No Mitigation; No Offset. If the Executive's employment
terminates under this Section 12, the Executive shall be under no obligation to
seek other employment and there shall be no offset against amounts due the
Executive under this Agreement on account of any remuneration attributable to
any subsequent employment that he may obtain except as specifically provided in
this Section 12.
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<PAGE> 42
(j) Nature of Payments. Any amounts due under this Section 12 are in
the nature of severance payments considered to be reasonable by the Company and
are not in the nature of a penalty.
13. Confidentiality: Assignment of Rights.
(a) During the Term of Employment and thereafter, the Executive
shall not disclose to anyone or make use of any trade secret or proprietary or
confidential information of the Company, including such trade secret or
proprietary or confidential information of any customer or other entity to which
the Company owes an obligation not to disclose such information, which he
acquires during the Term of Employment, including but not limited to records
kept in the ordinary course of business, except (i) as such disclosure or use
may be required or appropriate in connection with his work as an employee of the
Company, (ii) when required to do so by a court of law, by any governmental
agency having supervisory authority over the business of the Company or by any
administrative or legislative body (including a committee thereof) with apparent
jurisdiction to order him to divulge, disclose or make accessible such
information, or (iii) as to such confidential information that becomes generally
known to the public or trade without violation of this Section 13(a).
(b) The Executive hereby sells, assigns and transfers to the Company
all of his right, title and interest in and to all inventions, discoveries,
improvements and copyrightable subject matter (the "rights") which during the
Term of Employment are made or conceived by him, alone or with others, and which
are within or arise out of any general field of the Company's business or arise
out of any work he performs or information he receives regarding the business of
the Company while employed by the Company. The Executive shall fully disclose to
the Company as promptly as available all information known or possessed by him
concerning the rights referred to in the preceding sentence, and upon request by
the Company and without any further remuneration in any form to him by the
Company, but at the expense of the Company, execute all applications for patents
and for copyright registration, assignments thereof and other instruments and do
all things which the Company may deem necessary to vest and maintain in it the
entire right, title and interest in and to all such rights.
14. Noncompetition.
(a) The Executive covenants and agrees that during the Term of
Employment and, following the termination of the Executive's employment with the
Company, for a period of eighteen months or, in the case of a termination
pursuant to Section 12(h), a period equal to the shorter of (i) twice the
corresponding severance period listed on Schedule A and (ii) eighteen months, he
shall not at any time, without the prior written consent of the Company,
directly or indirectly, engage in a Competitive Activity.
(b) The Parties acknowledge that in the event of a breach or
threatened breach of Section 14(a) above, the Company shall not have an adequate
remedy at law. Accordingly, in the event of any breach or threatened breach of
Section 14(a) above, the Company shall be entitled to such equitable and
injunctive relief as may be available to restrain the Executive and any
business, firm, partnership, individual, corporation or entity participating in
the breach or threatened breach from the violation of the provisions of Section
14(a) above. Nothing in this Agreement shall be construed as prohibiting the
Company from pursuing any other remedies available at law or in equity for
breach or threatened breach of Section 14(a) above, including the recovery of
damages.
15. Indemnification.
(a) The Company agrees that if the Executive is made a party, or is
threatened to be made a party, to any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a
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<PAGE> 43
"Proceeding"), by reason of the fact that he is or was a director, officer or
employee of the Company or is or was serving at the request of the Company as a
director, officer, member, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether or not the basis of such Proceeding
is the Executive's alleged action in an official capacity while serving as a
director, officer, member, employee or agent, the Executive shall be indemnified
and held harmless by the Company to the fullest extent legally permitted or
authorized by the Company's certificate of incorporation or bylaws or
resolutions of the Company's Board of Directors or, if greater, by the laws of
the State of Delaware, against all cost, expense, liability and loss (including,
without limitation, attorney's fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by the Executive in connection therewith, and such indemnification
shall continue as to the Executive even if he has ceased to be a director,
member, employee or agent of the Company or other entity and shall inure to the
benefit of the Executive's heirs, executors and administrators. The Company
shall advance to the Executive all reasonable costs and expenses incurred by him
in connection with a Proceeding within 20 days after receipt by the Company of a
written request for such advance. Such request shall include an undertaking by
the Executive to repay the amount of such advance if it shall ultimately be
determined that he is not entitled to be indemnified against such costs and
expenses.
(b) Neither the failure of the Company (including the Board,
independent legal counsel or stockholders) to have made a determination prior to
the commencement of any Proceeding concerning payment of amounts claimed by the
Executive under Section 15(a) above that indemnification of the Executive is
proper because he has met the applicable standard of conduct, nor a
determination by the Company (including the Board, independent legal counsel or
stockholders) that the Executive has not met such applicable standard of
conduct, shall create a presumption that the Executive has not met the
applicable standard of conduct.
(c) The Company agrees to continue and maintain a directors and
officers' liability insurance policy covering the Executive to the extent the
Company provides such coverage for its other executive officers.
16. Effect of Agreement on Other Benefits.
Except as specifically provided in this Agreement, the existence of
this Agreement shall not prohibit or restrict the Executive's entitlement to
full participation in the Company's employee benefit plans, programs and
arrangements applicable to the Company's senior-level executives.
17. Assignability; Binding Nature.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs (in the case of the Executive)
and assigns. No rights or obligations of the Company under this Agreement may be
assigned or transferred by the Company except that such rights or obligations
may be assigned or transferred pursuant to a merger or consolidation in which
the Company is not the continuing entity, or the sale or liquidation of all or
substantially all of the assets of the Company; provided, however, that the
assignee or transferee is the successor to all or substantially all of the
assets of the Company and such assignee or transferee assumes the liabilities,
obligations and duties of the Company, as contained in this Agreement, either
contractually or as a matter of law. The Company further agrees that, in the
event of a sale of assets or liquidation as described in the preceding sentence,
it shall take whatever action it legally can in order to cause such assignee or
transferee to expressly assume the liabilities, obligations and duties of the
Company hereunder or under any other plan or benefit program referred to herein.
No rights or obligations of the Executive under this Agreement may be
11
<PAGE> 44
assigned or transferred by the Executive other than his rights to compensation
and benefits, which may be transferred only by will or operation of law, except
as provided in Section 23 below.
18. Representation.
The Company represents and warrants that it is fully authorized and
empowered to enter into this Agreement and that the performance of its
obligations under this Agreement will not violate any agreement between it and
any other person, firm or organization. The Executive represents that he knows
of no agreement between him and any other person, firm or organization that
would be violated by the performance of his obligations under this Agreement.
19. Entire Agreement.
This Agreement contains the entire understanding and agreement
between the Parties concerning the subject matter hereof and supersedes all
prior agreements, understandings, discussions, negotiations and undertakings,
whether written or oral, between the Parties, including, without limitation, the
Existing Employment Agreement, with respect thereto.
20. Amendment or Waiver.
No provision in this Agreement may be amended unless such amendment
is agreed to in writing and signed by the Executive and an authorized officer of
the Company. No waiver by either Party of any breach by the other Party of any
condition or provision contained in this Agreement to be performed by such other
Party shall be deemed a waiver of a similar or dissimilar condition or provision
at the same or any prior or subsequent time. Any waiver must be in writing and
signed by the Executive or an authorized officer of the Company, as the case may
be.
21. Severability.
In the event that any provision or portion of this Agreement shall
be determined to be invalid or unenforceable for any reason, in whole or in
part, the remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect and such provision or portion of this
Agreement shall remain in effect to the fullest extent permitted by law.
22. Survivorship.
The respective rights and obligations of the Parties hereunder shall
survive any termination of the Executive's employment to the extent necessary to
the intended preservation of such rights and obligations.
23. Beneficiaries/References.
The Executive shall be entitled, to the extent permitted under any
applicable law, to select and change a beneficiary or beneficiaries to receive
any compensation or benefit payable hereunder following the Executive's death by
giving the Company written notice thereof. In the event of the Executive's death
or a judicial determination of his incompetence, reference in this Agreement to
the Executive shall be deemed, where appropriate, to refer to his beneficiary,
estate or other legal representative.
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<PAGE> 45
24. Governing Law/Submission to Jurisdiction.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of New York without reference to principles of conflict
of laws. Each of the Company and the Executive hereby irrevocably and
unconditionally: (i) submits for itself or himself, as applicable, and its or
his property in any legal action or proceeding relating to this Agreement, or
for recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the courts of the State of New York, the
courts of the United States of America for the Southern District of New York,
and appellate courts from any thereof; (ii) consents that any such action or
proceeding may be brought in such courts, and waives any objection that it or he
may now or hereafter have to the venue of any such action or proceeding in any
such court or that such action or proceeding was brought in an inconvenient
forum and agrees not to plead or claim the same; (iii) agrees that service of
process in any such action or proceeding may be effected by mailing a copy
thereof by registered or certified mail (or any substantially similar form of
mail), postage prepaid, at its or his address set forth in or designated
pursuant to Section 26 hereof; and (iv) agrees that nothing herein shall affect
the right to effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction.
25. Resolution of Disputes.
Any disputes arising under or in connection with the Agreement,
other than disputes arising in connection with Sections 14 or 15 hereof, may, at
the election of the Executive or the Company, be resolved by binding
arbitration, to be held in New York City in accordance with the rules and
procedures of the American Arbitration Association. If arbitration is elected,
the Executive and the Company shall mutually select the arbitrator. If the
Executive and the Company cannot agree on the selection of an arbitrator, each
Party shall select an arbitrator and the two arbitrators shall select a third
arbitrator, and the three arbitrators shall form an arbitration panel which
shall resolve the dispute by majority vote. Judgment upon the award rendered by
the arbitrator(s) may be entered in any court having jurisdiction thereof. Costs
of the arbitration or litigation, including, without limitation, reasonable
attorneys' fees of both Parties, shall be borne by the Company; provided,
however, that, if a dispute is resolved in favor of the Company, the Executive
shall bear his own costs of the arbitration or litigation and shall reimburse
the Company for the Executive's costs of the arbitration or litigation
previously paid by the Company. Pending the resolution of any arbitration or
court proceeding, the Company shall continue payment of all amounts due the
Executive under this Agreement and all benefits to which the Executive is
entitled at the time the dispute arises.
26. Notices.
Any notice given to a Party shall be in writing and shall be deemed
to have been given when delivered personally or sent by certified or registered
mail, postage prepaid, return receipt requested, duly addressed to the Party
concerned at the address indicated below or to such changed address as such
Party may subsequently give such notice of:
If to the Company: Metallurg, Inc.
6 East 43rd Street, 12th floor
New York, New York 10017
Attention: General Counsel
With a copy to: Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
Attention: Samuel M. Feder
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<PAGE> 46
If to the Executive: Robin Brumwell
c/o Metallurg, Inc.
6 East 43rd Street, 12th floor
New York, New York 10017
27. Headings.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
28. Counterparts.
This Agreement may be executed in two or more counterparts.
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<PAGE> 47
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
METALLURG, INC.
By: /s/ Alan D. Ewart
--------------------------------------
Name: Alan D. Ewart
Title: President and CEO
/s/ Robin Brumwell
--------------------------------------
Robin Brumwell
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<PAGE> 48
SCHEDULE A
<TABLE>
<CAPTION>
Years of Service Severance Period
---------------- ----------------
<S> <C>
Up To 15 6 months
More Than 15 9 months
More Than 20 12 months
</TABLE>
16
<PAGE> 49
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 20th day of November, 1998, by
and between Metallurg, Inc., a Delaware corporation (together with its
successors and assigns permitted under this Agreement, the "Company"), and Barry
C. Nuss (the "Executive").
W I T N E S S E T H :
WHEREAS, the Executive is the Vice President, Finance and Chief
Financial Officer of the Company; and
WHEREAS, the Company and the Executive entered into an employment
agreement, dated April 14, 1997 which is currently in effect (the "Existing
Employment Agreement"); and
WHEREAS, the Company desires to continue the employment of the Executive
and to enter into a new employment agreement (the "Agreement") embodying the
terms of such employment; and
WHEREAS, the Executive desires to enter into the Agreement and to accept
such employment, subject to the terms and provisions of the Agreement; and
WHEREAS, the Company and the Executive desire to cancel the Existing
Employment Agreement as of the Effective Date (as defined below);
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
1. Definitions.
(a) "Base Salary" shall mean the Executive's base salary in
accordance with Section 4 below.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Business Day" shall mean any day other than a Saturday, Sunday
or any other day on which commercial banks in New York, New York are required or
authorized to be closed.
(d) "Cause" shall mean:
(1) the Executive is convicted of (or pleads nolo contendere
to) a felony or a crime of moral turpitude, dishonesty,
breach of trust or unethical business conduct involving
the Company;
(2) the Executive engages in willful misconduct, willful or
gross neglect, fraud, insubordination, misappropriation
or embezzlement to the material and demonstrable
detriment of the Company; or
(3) the Executive breaches in any material respect the terms
and provisions of this Agreement and fails to cure such
breach within 20 days following written notice from the
Company specifying such breach.
(e) "CEO" shall mean the chief executive officer of the Company.
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<PAGE> 50
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, including applicable regulations thereunder.
(g) "Competitive Activity" shall mean any activity engaged in by the
Executive, whether as an employee, principal, sole proprietor, consultant,
agent, officer, director, partner or shareholder (except as a less than
one-percent shareholder of a publicly traded company or a less than five-percent
shareholder of a privately held company), which directly competes with the
Company or any Subsidiary. For this purpose, an activity which directly competes
with the Company or any Subsidiary shall mean a business that was being
conducted by the Company or any Subsidiary during the Term of Employment.
Notwithstanding anything to the contrary in this Section 1(g), an activity shall
not be deemed to be a Competitive Activity (x) solely as a result of the
Executive's being employed by or otherwise associated with a business of which a
unit is in competition with the Company or any Subsidiary but as to which unit
the Executive does not have direct or indirect responsibilities for the products
or product lines involved or (y) if the activity contributes less than 5 percent
of the revenues for the fiscal year in question of the business by which the
Executive is employed or with which he is otherwise associated.
(h) "Disability" shall mean a disability as determined under the
Company's long-term disability plans, programs and/or arrangements in effect on
the date such disability first occurs.
(i) "Effective Date" shall mean August 10, 1998.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time, including applicable regulations thereunder.
(k) "Good Reason" shall mean the occurrence of any of the following
events:
(1) the material change of the Executive's authority, duties
and responsibilities, or the assignment to the Executive
of duties materially different from the Executive's
position or positions with the Company;
(2) a reduction in Base Salary of the Executive;
(3) the failure by the Company to obtain an agreement in
form and substance reasonably satisfactory to the
Executive from any successor to the business of the
Company to assume and agree to perform this Agreement;
or
(4) the Company breaches in any material respect the terms
and provisions of this Agreement and fails to cure such
breach within 20 days following written notice from the
Executive specifying such breach.
(l) "Subsidiary" of the Company shall mean any corporation of which
the Company owns, directly or indirectly, more than 50 percent of the Voting
Stock or any other business entity in which the Company directly or indirectly
has an ownership interest of more than 50 percent.
(m) "Tax Loans" shall mean all of the outstanding loans made by the
Company to the Executive pursuant to Section 6(c) of the Existing Employment
Agreement in respect of federal, state or local tax due to a portion of the
32,500 shares of common stock of the Company awarded to the Executive under the
Company's 1997 Stock Award and Stock Option Plan (the "1997 Stock Award")
becoming
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<PAGE> 51
transferable or the Executive making an election under Code Section 83(b) with
respect to the 1997 Stock Award.
(n) "Term of Employment" shall mean the period specified in Section
2 below.
(o) "Voting Stock" shall mean capital stock of any class or classes
having general voting power under ordinary circumstances, in the absence of
contingencies, to elect the directors of a corporation.
2. Term of Employment.
The Company hereby employs the Executive, and the Executive hereby
accepts such employment, for the period commencing on the Effective Date and
ending on the second anniversary of the Effective Date (the "Term of
Employment"), subject to earlier termination of the Term of Employment in
accordance with the terms of the Agreement. The Term of Employment shall be
automatically renewed for a one-year period on the second anniversary of the
Effective Date and on each anniversary of the Effective Date thereafter, unless
either Party has notified the other Party in writing in accordance with Section
26 below at least 90 days prior to the expiration of the then Term of Employment
that he or it does not want the Term of Employment to so renew.
3. Position, Duties and Responsibilities.
The Executive, in his capacity as Vice President, Finance and Chief
Financial Officer, shall faithfully perform for the Company the duties of said
office and shall perform such other duties of an executive, managerial or
administrative nature as shall be specified and designated from time to time by
the CEO consistent with such office. The Executive shall devote substantially
all of his business time and effort to the performance of his duties hereunder.
The Executive, in carrying out his duties under this Agreement, shall report to
the CEO. Notwithstanding anything in this Section 3 to the contrary, nothing
shall preclude the Executive from:
(1) serving on the boards of directors of a reasonable
number of other corporations or the boards of a
reasonable number of trade associations and/or
charitable organizations;
(2) engaging in charitable activities and community affairs;
and
(3) managing his personal investments and affairs;
provided, however, that such activities do not materially interfere with the
proper performance of his duties and responsibilities hereunder.
4. Base Salary.
During the Term of Employment, the Executive shall be paid an annual
Base Salary, payable in accordance with the regular payroll practices of the
Company, of $240,000. The Base Salary may be increased (but not decreased) at
any time and from time to time by action of the Board or by any committee
thereof or any individual having authority to take such action in accordance
with the Company's regular practices. Once increased, any reference to Base
Salary herein shall be a reference to such increased amount.
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<PAGE> 52
5. Bonus.
(a) During the Term of Employment, in addition to the Base Salary,
for each fiscal year of the Company ending during the Term of Employment, the
Executive shall have the opportunity to receive an annual bonus (an "Annual
Bonus") in an amount of between 30 and 50 percent of Base Salary, as determined
by the CEO, in consultation with the Chairman of the Board. Payment of Annual
Bonus shall be made at the same time that other senior-level executives receive
their annual incentive compensation awards.
(b) Within 10 days of the date of the execution of this Agreement,
the Executive will receive a one-time payment in the amount of $150,000 in
consideration for the termination of the Executive's right to receive a change
of control payment pursuant to Section 11(f) of the Existing Employment
Agreement.
6. Long-Term Incentive Compensation Programs.
The Executive shall be eligible to participate in the Company's
stock option plans applicable to senior-level executives, the terms, conditions
and eligibility of such plans to be determined by the Board.
7. Repayment of Tax Loans.
The Executive shall pay to the Company in a lump sum the principal
and all accrued interest with respect to each outstanding Tax Loan on the day
which precedes the third anniversary of the date of such Tax Loan, or, at the
Executives's election, on any date which precedes the third anniversary of the
date of such Tax Loan.
8. Employee Benefit Programs.
(a) During the Term of Employment, the Executive, to the extent he
is eligible, shall be entitled to participate in those employee pension and
welfare benefit plans, programs and/or arrangements applicable to the Executive
and made available to the Company's senior-level executives or to its employees
generally, as such plans, programs and/or arrangements may be in effect from
time to time, including, without limitation, pension, profit-sharing, savings,
medical, dental, hospitalization, short-term disability, long-term disability,
life insurance, accidental death and dismemberment protection, travel accident
insurance, and other employee pension and welfare benefit plans, programs and/or
arrangements that may be sponsored by the Company from time to time.
(b) During the Term of Employment, the Company shall provide the
Executive with term life insurance with a death benefit of at least two times
Base Salary. The Company shall pay all premiums with respect to such life
insurance. Such life insurance may be provided either through the Company's
group life insurance programs, by an individual policy, or by a combination of
both group and individual policies.
9. Reimbursement of Business Expenses.
The Executive is authorized to incur ordinary and reasonable
business expenses in carrying out his duties and responsibilities under the
Agreement, and the Company shall reimburse him for all such ordinary and
reasonable business expenses incurred in connection with carrying out the
business of the Company, subject to documentation in accordance with the
Company's policy.
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<PAGE> 53
10. Perquisites.
(a) During the Term of Employment, the Executive shall be entitled
to participate in the Company's executive fringe benefits applicable to the
Company's senior-level executive in accordance with the terms and conditions of
such arrangements as are in effect from time to time.
(b) During the Term of Employment, the Company shall provide a car
to the Executive.
11. Vacation.
The Executive shall be entitled to paid vacation in accordance with
the Company's vacation policy; provided, however, that the Executive shall be
entitled to not less than four weeks of vacation each year.
12. Termination of Employment.
(a) Termination of Employment Due to Death. In the event of the
Executive's death during the Term of Employment, the Term of Employment shall
end as of the date of the Executive's death and his estate and/or beneficiaries,
as the case may be, shall be entitled to the following:
(1) Base Salary earned but not paid prior to the date of
his death;
(2) Annual Bonus with respect to any year prior to the year
of his death which has been earned but not paid;
(3) any amounts earned, accrued or owing to the Executive
but not yet paid under Section 6, 8, 9, 10 or 11 above;
and
(4) other or additional benefits in accordance with
applicable plans, programs and/or arrangements of the
Company.
(b) Termination of Employment Due to Disability. If the Executive's
employment is terminated due to Disability during the Term of Employment, either
by the Company or by the Executive, the Term of Employment shall end as of the
date of the Executive's termination of employment and the Executive shall be
entitled to the following (but in no event shall the Executive be entitled to
less than the benefits due him under any disability program of the Company for
which he becomes eligible):
(1) Base Salary earned but not paid prior to the date of the
termination of the Executive's employment;
(2) Annual Bonus with respect to any year prior to the year
of the termination of the Executive's employment which
has been earned but not paid;
(3) an amount equal to the sum of 50 percent of Base Salary,
at the annual rate in effect on the date of the
termination of the Executive's employment, payable in
monthly installments for a period ending on the first
day of the month following the month in which the
Executive attains age 65 or recovers from his
Disability, whichever occurs earlier, less the
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<PAGE> 54
amount of any disability benefits provided to the
Executive under the Company's disability program;
(4) any amounts earned, accrued or owing to the Executive
but not yet paid under Section 6, 8, 9, 10 or 11 above;
and
(5) continued participation, as if the Executive were still
an employee, in the Company's medical, dental,
hospitalization and life insurance plans, programs
and/or arrangements and in those other employee plans,
programs and/or arrangements in which he was
participating on the date of the termination of his
employment until he attains age 65 or recovers from his
Disability, whichever occurs earlier; and
provided, however, that:
(X) if the Executive is precluded from continuing
his participation in any employee benefit plan,
program or arrangement as provided in this
Section 12(b)(5), he shall be provided with the
after-tax economic equivalent of the benefits
provided under the plan, program or arrangement
in which he is unable to participate for the
period specified in this Section 12(b)(5); and
(Y) the economic equivalent of any benefit foregone
shall be deemed to be the lowest cost that would
be incurred by the Executive in obtaining such
benefit himself on an individual basis; and
(6) other or additional benefits in accordance with
applicable plans, programs and/or arrangements of the
Company.
In no event shall a termination of the Executive's employment for
Disability occur unless the Party terminating his employment gives written
notice to the other Party in accordance with Section 26 below.
(c) Termination of Employment by the Company for Cause. A
termination of the Executive's employment by the Company for Cause shall not
take effect unless the provisions of this Section 12(c) are complied with and
the Board issues a written determination that the Executive's employment should
be terminated for Cause (a "Determination").
(1) In accordance with Section 26 below, the CEO shall give
the Executive a written notice stating his intention to
terminate the Executive's employment for Cause (the
"Cause Notice"). The Cause Notice shall:
(A) state in detail the particular act or acts or
failure or failures to act that constitute the
grounds on which the proposed termination of
employment for Cause is based; and
(B) be given within four months of the CEO learning of
such act or acts or failure or failures to act.
(2) The CEO may temporarily relieve the Executive of his
duties and responsibilities described in Section 3 above
during the period
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commencing on the date the Cause Notice is issued by the
CEO and ending on the date the Determination is issued
by the Board (the "Determination Period").
(3) The Executive shall have 20 days after the date the
Cause Notice is actually received by him in which to
cure his conduct on which the termination of employment
for Cause is based, to the extent such cure is possible.
If the Executive fails to cure such conduct, he shall
then be entitled to a hearing before the Board. Such
hearing shall be held during the 20-day period following
the date the Executive receives the Cause Notice;
provided, however, that the Executive requests such
hearing during the 10-day period following the date the
Executive receives the Cause Notice. Within five days
following the completion of such hearing, the Board
shall issue a Determination stating whether, in its
judgment, grounds for Cause as detailed in the Cause
Notice exist. If the Determination states that such
grounds exist, the Executive's employment shall be
immediately terminated for Cause and the Term of
Employment shall end as of the date of the termination
of the Executive's employment.
(4) If the Company terminates the Executive's employment for
Cause, the Executive shall be entitled to the following:
(A) Base Salary earned but not paid prior to the date
of the termination of his employment;
(B) any amounts earned, accrued or owing to the
Executive but not yet paid under Section 6, 8, 9,
10 or 11 above; and
(C) other or additional benefits in accordance with
applicable plans, programs and/or arrangements of
the Company.
(5) Notwithstanding anything herein to the contrary, if,
following a termination of the Executive's employment by
the Company for Cause based upon the conviction of the
Executive for a felony, such conviction is overturned in
a final determination on appeal, the Executive shall be
entitled to the payments and the economic equivalent of
the benefits the Executive would have received if his
employment had been terminated by the Company without
Cause.
(d) Termination of Employment by the Company Without Cause. If the
Executive's employment is terminated by the Company without Cause, other than
due to death or Disability, the Executive shall be entitled to the following:
(1) Base Salary earned but not paid prior to the date of
the termination of his employment;
(2) Annual Bonus with respect to any year prior to the year
of the termination of the Executive's employment which
has been earned but not paid;
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<PAGE> 56
(3) an amount equal to the aggregate Base Salary (based on
the Base Salary in effect on the date of the termination
of the Executive's employment) (the "Salary Continuation
Benefits") with respect to a period equal to eighteen
months, payable in equal monthly installments over such
period;
(4) continued accrual of credited service through the end of
the Term of Employment for the purpose of any Company
pension plan, program or arrangement;
(5) the right to purchase, at fair market value, the
Executive's automobile (if any) provided to him by the
Company under the Company's automobile perquisite
program for senior-level executives;
(6) any amounts earned, accrued or owing to the Executive
but not yet paid under Section 6, 8, 9, 10 or 11 above;
(7) continued participation, as if he were still an
employee, in the Company's medical, dental,
hospitalization and life insurance plans, programs
and/or arrangements and in other employee benefit plans,
programs and/or arrangements in which he was
participating on the date of the termination of his
employment until the earlier of:
(A) the end of the period used to determine the
Salary Continuation Benefits; or
(B) the date, or dates, he receives equivalent
coverage and benefits under the plans, programs
and/or arrangements of a subsequent employer (such
coverage and benefits to be determined on a
coverage-by-coverage or benefit-by-benefit basis);
provided, however, that:
(X) if the Executive is precluded from continuing
his participation in any employee benefit plan,
program or arrangement as provided in Section
12(d)(7) above, he shall be provided with the
after-tax economic equivalent of the benefits
provided under the plan, program or arrangement
in which he is unable to participate for the
period specified in this Section 12(d)(7); and
(Y) the economic equivalent of any benefit foregone
shall be deemed to be the lowest cost that would
be incurred by the Executive in obtaining such
benefit himself on an individual basis; and
(8) other or additional benefits in accordance with
applicable plans, programs and/or arrangements of the
Company.
(e) Termination of Employment by the Executive for Good Reason. The
Executive may terminate his employment for Good Reason, but only if:
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<PAGE> 57
(1) the Executive notifies the Board during the 60-day
period following the date of the first occurrence of an
event which constitutes Good Reason (the "Good Reason
Event Date") of his intention to terminate his
employment for Good Reason;
(2) the Executive terminates his employment for Good Reason
during the 120-day period following the Good Reason
Event Date;
(3) the termination of employment for Good Reason does not
occur during a Determination Period described in Section
12(c)(2) above; and
(4) the Good Reason first occurs before or after a
Determination Period, or, if the Good Reason first
occurs during a Determination Period, such event
constituting Good Reason continues to occur after the
Determination Period.
Upon a termination by the Executive of his employment for Good Reason, the
Executive shall be entitled to the same payments and benefits as provided in
Section 12(d) above; provided, however, that if the Executive terminates his
employment for Good Reason based on a reduction in Base Salary under Section
1(k)(2) above, then the Base Salary to be used in determining the Salary
Continuation Benefits in accordance with Section 12(d)(3) above shall be the
Base Salary in effect immediately prior to such reduction.
(f) Termination of Employment by the Executive Without Good Reason.
If the Executive terminates his employment without Good Reason, other than a
termination of employment due to death or retirement or Disability, the
Executive shall have the same entitlements as provided in Section 12(c)(4)
above. A termination of the Executive's employment under this Section 12(f)
shall be effective upon 30 days prior written notice to the Company and shall
not be deemed a breach of this Agreement.
(g) Non Renewal of Agreement by Company. If the Company notifies the
Executive, pursuant to Section 2 above, that it does not want the Term of
Employment to renew, the Executive shall have the same entitlements as provided
in Section 12(d) above as if the Executive had been terminated without cause as
of the last day of the then Term of Employment.
(h) Termination of Employment by Executive due to Relocation of Work
Location. In the event that the Executive's principal work location is moved
outside of the States of New York, New Jersey, Connecticut, Pennsylvania,
Delaware, Maryland or the District of Columbia, the Executive may terminate his
employment with the Company. If the Executive terminates his employment pursuant
to this Section 12(h), he shall have the same entitlements as provided in
Section 12(d) above; provided, that all such benefits, including without
limitation, the Salary Continuation Benefits, shall be provided for a period
equal to the corresponding severance period listed on Schedule A, payable in
equal monthly installments during such period.
(i) No Mitigation; No Offset. If the Executive's employment
terminates under this Section 12, the Executive shall be under no obligation to
seek other employment and there shall be no offset against amounts due the
Executive under this Agreement on account of any remuneration attributable to
any subsequent employment that he may obtain except as specifically provided in
this Section 12.
(j) Nature of Payments. Any amounts due under this Section 12 are in
the nature of severance payments considered to be reasonable by the Company and
are not in the nature of a penalty.
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13. Confidentiality: Assignment of Rights.
(a) During the Term of Employment and thereafter, the Executive
shall not disclose to anyone or make use of any trade secret or proprietary or
confidential information of the Company, including such trade secret or
proprietary or confidential information of any customer or other entity to which
the Company owes an obligation not to disclose such information, which he
acquires during the Term of Employment, including but not limited to records
kept in the ordinary course of business, except (i) as such disclosure or use
may be required or appropriate in connection with his work as an employee of the
Company, (ii) when required to do so by a court of law, by any governmental
agency having supervisory authority over the business of the Company or by any
administrative or legislative body (including a committee thereof) with apparent
jurisdiction to order him to divulge, disclose or make accessible such
information, or (iii) as to such confidential information that becomes generally
known to the public or trade without violation of this Section 13(a).
(b) The Executive hereby sells, assigns and transfers to the Company
all of his right, title and interest in and to all inventions, discoveries,
improvements and copyrightable subject matter (the "rights") which during the
Term of Employment are made or conceived by him, alone or with others, and which
are within or arise out of any general field of the Company's business or arise
out of any work he performs or information he receives regarding the business of
the Company while employed by the Company. The Executive shall fully disclose to
the Company as promptly as available all information known or possessed by him
concerning the rights referred to in the preceding sentence, and upon request by
the Company and without any further remuneration in any form to him by the
Company, but at the expense of the Company, execute all applications for patents
and for copyright registration, assignments thereof and other instruments and do
all things which the Company may deem necessary to vest and maintain in it the
entire right, title and interest in and to all such rights.
14. Noncompetition.
(a) The Executive covenants and agrees that during the Term of
Employment and following the termination of the Executive's employment with the
Company, for a period of eighteen months or, in the case of a termination
pursuant to Section 12(h), a period equal to the shorter of (i) twice the
corresponding severance period listed on Schedule A and (ii) eighteen months, he
shall not at any time, without the prior written consent of the Company,
directly or indirectly, engage in a Competitive Activity.
(b) The Parties acknowledge that in the event of a breach or
threatened breach of Section 14(a) above, the Company shall not have an adequate
remedy at law. Accordingly, in the event of any breach or threatened breach of
Section 14(a) above, the Company shall be entitled to such equitable and
injunctive relief as may be available to restrain the Executive and any
business, firm, partnership, individual, corporation or entity participating in
the breach or threatened breach from the violation of the provisions of Section
14(a) above. Nothing in this Agreement shall be construed as prohibiting the
Company from pursuing any other remedies available at law or in equity for
breach or threatened breach of Section 14(a) above, including the recovery of
damages.
15. Indemnification.
(a) The Company agrees that if the Executive is made a party, or is
threatened to be made a party, to any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "Proceeding"), by reason of the
fact that he is or was a director, officer or employee of the Company or is or
was serving at the request of the Company as a director, officer, member,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, including service with respect to
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<PAGE> 59
employee benefit plans, whether or not the basis of such Proceeding is the
Executive's alleged action in an official capacity while serving as a director,
officer, member, employee or agent, the Executive shall be indemnified and held
harmless by the Company to the fullest extent legally permitted or authorized by
the Company's certificate of incorporation or bylaws or resolutions of the
Company's Board of Directors or, if greater, by the laws of the State of
Delaware, against all cost, expense, liability and loss (including, without
limitation, attorney's fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
the Executive in connection therewith, and such indemnification shall continue
as to the Executive even if he has ceased to be a director, member, employee or
agent of the Company or other entity and shall inure to the benefit of the
Executive's heirs, executors and administrators. The Company shall advance to
the Executive all reasonable costs and expenses incurred by him in connection
with a Proceeding within 20 days after receipt by the Company of a written
request for such advance. Such request shall include an undertaking by the
Executive to repay the amount of such advance if it shall ultimately be
determined that he is not entitled to be indemnified against such costs and
expenses.
(b) Neither the failure of the Company (including the Board,
independent legal counsel or stockholders) to have made a determination prior to
the commencement of any Proceeding concerning payment of amounts claimed by the
Executive under Section 15(a) above that indemnification of the Executive is
proper because he has met the applicable standard of conduct, nor a
determination by the Company (including the Board, independent legal counsel or
stockholders) that the Executive has not met such applicable standard of
conduct, shall create a presumption that the Executive has not met the
applicable standard of conduct.
(c) The Company agrees to continue and maintain a directors and
officers' liability insurance policy covering the Executive to the extent the
Company provides such coverage for its other executive officers.
16. Effect of Agreement on Other Benefits.
Except as specifically provided in this Agreement, the existence of
this Agreement shall not prohibit or restrict the Executive's entitlement to
full participation in the Company's employee benefit plans, programs and
arrangements applicable to the Company's senior-level executives.
17. Assignability; Binding Nature.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs (in the case of the Executive)
and assigns. No rights or obligations of the Company under this Agreement may be
assigned or transferred by the Company except that such rights or obligations
may be assigned or transferred pursuant to a merger or consolidation in which
the Company is not the continuing entity, or the sale or liquidation of all or
substantially all of the assets of the Company; provided, however, that the
assignee or transferee is the successor to all or substantially all of the
assets of the Company and such assignee or transferee assumes the liabilities,
obligations and duties of the Company, as contained in this Agreement, either
contractually or as a matter of law. The Company further agrees that, in the
event of a sale of assets or liquidation as described in the preceding sentence,
it shall take whatever action it legally can in order to cause such assignee or
transferee to expressly assume the liabilities, obligations and duties of the
Company hereunder or under any other plan or benefit program referred to herein.
No rights or obligations of the Executive under this Agreement may be assigned
or transferred by the Executive other than his rights to compensation and
benefits, which may be transferred only by will or operation of law, except as
provided in Section 23 below.
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18. Representation.
The Company represents and warrants that it is fully authorized and
empowered to enter into this Agreement and that the performance of its
obligations under this Agreement will not violate any agreement between it and
any other person, firm or organization. The Executive represents that he knows
of no agreement between him and any other person, firm or organization that
would be violated by the performance of his obligations under this Agreement.
19. Entire Agreement.
This Agreement contains the entire understanding and agreement
between the Parties concerning the subject matter hereof and supersedes all
prior agreements, understandings, discussions, negotiations and undertakings,
whether written or oral, between the Parties, including, without limitation, the
Existing Employment Agreement, with respect thereto.
20. Amendment or Waiver.
No provision in this Agreement may be amended unless such amendment
is agreed to in writing and signed by the Executive and an authorized officer of
the Company. No waiver by either Party of any breach by the other Party of any
condition or provision contained in this Agreement to be performed by such other
Party shall be deemed a waiver of a similar or dissimilar condition or provision
at the same or any prior or subsequent time. Any waiver must be in writing and
signed by the Executive or an authorized officer of the Company, as the case may
be.
21. Severability.
In the event that any provision or portion of this Agreement shall
be determined to be invalid or unenforceable for any reason, in whole or in
part, the remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect and such provision or portion of this
Agreement shall remain in effect to the fullest extent permitted by law.
22. Survivorship.
The respective rights and obligations of the Parties hereunder shall
survive any termination of the Executive's employment to the extent necessary to
the intended preservation of such rights and obligations.
23. Beneficiaries/References.
The Executive shall be entitled, to the extent permitted under any
applicable law, to select and change a beneficiary or beneficiaries to receive
any compensation or benefit payable hereunder following the Executive's death by
giving the Company written notice thereof. In the event of the Executive's death
or a judicial determination of his incompetence, reference in this Agreement to
the Executive shall be deemed, where appropriate, to refer to his beneficiary,
estate or other legal representative.
24. Governing Law/Submission to Jurisdiction.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of New York without reference to principles of conflict
of laws. Each of the Company and the Executive hereby irrevocably and
unconditionally: (i) submits for itself or himself, as applicable, and its
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<PAGE> 61
or his property in any legal action or proceeding relating to this Agreement, or
for recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the courts of the State of New York, the
courts of the United States of America for the Southern District of New York,
and appellate courts from any thereof; (ii) consents that any such action or
proceeding may be brought in such courts, and waives any objection that it or he
may now or hereafter have to the venue of any such action or proceeding in any
such court or that such action or proceeding was brought in an inconvenient
forum and agrees not to plead or claim the same; (iii) agrees that service of
process in any such action or proceeding may be effected by mailing a copy
thereof by registered or certified mail (or any substantially similar form of
mail), postage prepaid, to its or his address set forth in or designated
pursuant to Section 26 hereof; and (iv) agrees that nothing herein shall affect
the right to effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction.
25. Resolution of Disputes.
Any disputes arising under or in connection with the Agreement,
other than disputes arising in connection with Sections 13 and 14 hereof, may,
at the election of the Executive or the Company, be resolved by binding
arbitration, to be held in New York City in accordance with the rules and
procedures of the American Arbitration Association. If arbitration is elected,
the Executive and the Company shall mutually select the arbitrator. If the
Executive and the Company cannot agree on the selection of an arbitrator, each
Party shall select an arbitrator and the two arbitrators shall select a third
arbitrator, and the three arbitrators shall form an arbitration panel which
shall resolve the dispute by majority vote. Judgment upon the award rendered by
the arbitrator(s) may be entered in any court having jurisdiction thereof. Costs
of the arbitration or litigation, including, without limitation, reasonable
attorneys' fees of both Parties, shall be borne by the Company; provided,
however, that, if a dispute is resolved in favor of the Company, the Executive
shall bear his own costs of the arbitration or litigation and shall reimburse
the Company for the Executive's costs of the arbitration or litigation
previously paid by the Company. Pending the resolution of any arbitration or
court proceeding, the Company shall continue payment of all amounts due the
Executive under this Agreement and all benefits to which the Executive is
entitled at the time the dispute arises.
26. Notices.
Any notice given to a Party shall be in writing and shall be deemed
to have been given when delivered personally or sent by certified or registered
mail, postage prepaid, return receipt requested, duly addressed to the Party
concerned at the address indicated below or to such changed address as such
Party may subsequently give such notice of:
If to the Company: Metallurg, Inc.
6 East 43rd Street, 12th floor
New York, New York 10017
Attention: General Counsel
With a copy to: Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
Attention: Samuel M. Feder
If to the Executive: Barry C. Nuss
c/o Metallurg, Inc.
6 East 43rd Street, 12th floor
New York, New York 10017
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27. Headings.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
28. Counterparts.
This Agreement may be executed in two or more counterparts.
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<PAGE> 63
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
METALLURG, INC.
By: /s/ Alan D. Ewart
------------------------------------
Name: Alan D. Ewart
Title: President and CEO
/s/ Barry C. Nuss
------------------------------------
Barry C. Nuss
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<PAGE> 64
SCHEDULE A
<TABLE>
<CAPTION>
Years of Service Severance Period
---------------- ----------------
<S> <C>
Up To 15 6 months
More Than 15 9 months
More Than 20 12 months
</TABLE>
16
<PAGE> 65
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 4th day of January, 1999, by
and between Metallurg, Inc., a Delaware corporation (together with its
successors and assigns permitted under this Agreement, the "Company"), and Ellen
T. Harmon (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to enter into a employment agreement (the
"Agreement") embodying the terms of such employment; and
WHEREAS, the Executive desires to enter into the Agreement and to accept
such employment, subject to the terms and provisions of the Agreement; and
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
1. Definitions.
(a) "Base Salary" shall mean the Executive's base salary in accordance
with Section 4 below.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Business Day" shall mean any day other than a Saturday, Sunday or any
other day on which commercial banks in New York, New York are required or
authorized to be closed.
(d) "Cause" shall mean:
(1) the Executive is convicted of (or pleads nolo contendere to) a
felony or a crime of moral turpitude, dishonesty, breach of trust or
unethical business conduct involving the Company;
(2) the Executive engages in willful misconduct, willful or gross
neglect, fraud, insubordination , misappropriation or embezzlement to the
material and demonstrable detriment of the Company; or
(3) the Executive breaches in any material respect the terms and
provisions of this Agreement and fails to cure such breach within 20 days
following written notice from the Company specifying such breach.
(e) "CEO" shall mean the chief executive officer of the Company.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, including applicable regulations thereunder.
(g) "Competitive Activity" shall mean any activity engaged in by the
Executive, whether as an employee, principal, sole proprietor, consultant,
agent, officer, director, partner or shareholder (except as a less than
one-percent shareholder of a publicly traded company or a less than five-percent
shareholder of a privately held company), which directly competes with the
Company or any Subsidiary. For this purpose, an activity which directly competes
with the Company or any Subsidiary shall mean a
<PAGE> 66
business that was being conducted by the Company or any Subsidiary during the
Term of Employment. Notwithstanding anything to the contrary in this Section
1(g), an activity shall not be deemed to be a Competitive Activity (x) solely as
a result of the Executive's being employed by or otherwise associated with a
business of which a unit is in competition with the Company or any Subsidiary
but as to which unit the Executive does not have direct or indirect
responsibilities for the products or product lines involved or (y) if the
activity contributes less than 5 percent of the revenues for the fiscal year in
question of the business by which the Executive is employed or with which she is
otherwise associated.
(h) "Disability" shall mean a disability as determined under the Company's
long-term disability plans, programs and/or arrangements in effect on the date
such disability first occurs.
(i) "Effective Date" shall mean January 4, 1999.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, including applicable regulations thereunder.
(k) "Good Reason" shall mean the occurrence of any of the following
events:
(1) the material change of the Executive's authority, duties and
responsibilities, or the assignment to the Executive of duties materially
different from the Executive's position or positions with the Company;
(2) a reduction in Base Salary of the Executive;
(3) the failure by the Company to obtain an agreement in form and
substance reasonably satisfactory to the Executive from any successor to
the business of the Company to assume and agree to perform this Agreement;
or
(4) the Company breaches in any material respect the terms and
provisions of this Agreement and fails to cure such breach within 20 days
following written notice from the Executive specifying such breach.
(l) "Subsidiary" of the Company shall mean any corporation of which the
Company owns, directly or indirectly, more than 50 percent of the Voting Stock
or any other business entity in which the Company directly or indirectly has an
ownership interest of more than 50 percent.
(m) "Term of Employment" shall mean the period specified in Section 2
below.
(n) "Voting Stock" shall mean capital stock of any class or classes having
general voting power under ordinary circumstances, in the absence of
contingencies, to elect the directors of a corporation.
2. Term of Employment.
The Company hereby employs the Executive, and the Executive hereby accepts
such employment, for the period commencing on the Effective Date and ending on
the first anniversary of the Effective Date (the "Term of Employment"), subject
to earlier termination of the Term of Employment in accordance with the terms of
the Agreement. The Term of Employment shall be automatically renewed for a
two-year period on the first anniversary of the Effective Date and thereafter,
the Term of Employment shall be automatically renewed for a one-year period on
each anniversary of the Effective Date thereafter, unless, in each case, either
Party has notified the other Party in writing in accordance with
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<PAGE> 67
Section 26 below at least 90 days prior to the expiration of the then Term of
Employment that she or it does not want the Term of Employment to so renew.
3. Position, Duties and Responsibilities.
The Executive, in her capacity as Vice President, General Counsel and
Secretary of the Company shall faithfully perform for the Company the duties of
said office and shall perform such other duties of an executive, managerial or
administrative nature as shall be specified and designated from time to time by
the CEO consistent with such office. The Executive shall devote substantially
all of her business time and effort to the performance of her duties hereunder.
The Executive, in carrying out her duties under this Agreement, shall report to
the CEO. Notwithstanding anything in this Section 3 to the contrary, nothing
shall preclude the Executive from:
(1) serving on the boards of directors of a reasonable number of
other corporations or the boards of a reasonable number of trade
associations and/or charitable organizations;
(2) engaging in charitable activities and community affairs; and
(3) managing her personal investments and affairs;
provided, however, that such activities do not materially interfere with the
proper performance of her duties and responsibilities hereunder.
4. Base Salary.
During the Term of Employment, the Executive shall be paid an annual Base
Salary, payable in accordance with the regular payroll practices of the Company,
of $230,000. The Base Salary may be increased (but not decreased) at any time
and from time to time by action of the Board or by any committee thereof or any
individual having authority to take such action in accordance with the Company's
regular practices. Once increased, any reference to Base Salary herein shall be
a reference to such increased amount.
5. Bonus.
(a) During the Term of Employment, in addition to the Base Salary, for
each fiscal year of the Company ending during the Term of Employment, the
Executive shall have the opportunity to receive an annual bonus (an "Annual
Bonus") in an amount of between 30 and 50 percent of Base Salary, as determined
by the CEO, in consultation with the Chairman of the Board. Payment of Annual
Bonus shall be made at the same time that other senior-level executives receive
their annual incentive compensation awards.
(b) In addition, Executive shall be paid a signing bonus payable at the
end of March 1999, equal in amount, if any, to the difference between $144,000
(representing a bonus of 75% of the Executive's 1998 base salary at Sequa
Corporation, her previous employer, to which she would have been entitled had
she not resigned therefrom) and the amount actually paid by Sequa Corporation
for such bonus; provided, however, that the Company shall in no event pay a
bonus pursuant to this subparagraph (b) in excess of $70,000.
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6. Long-Term Incentive Compensation Programs.
The Executive shall be eligible to participate in the Company's stock
option plans applicable to senior-level executives, the terms, conditions and
eligibility of such plans to be determined by the Board.
7. [Intentionally omitted]
8. Employee Benefit Programs.
(a) During the Term of Employment, the Executive, to the extent she is
eligible, shall be entitled to participate in those employee pension and welfare
benefit plans, programs and/or arrangements applicable to the Executive and made
available to the Company's senior-level executives or to its employees
generally, as such plans, programs and/or arrangements may be in effect from
time to time, including, without limitation, pension, profit-sharing, savings,
medical, dental, hospitalization, short-term disability, long-term disability,
life insurance, accidental death and dismemberment protection, travel accident
insurance, and other employee pension and welfare benefit plans, programs and/or
arrangements that may be sponsored by the Company from time to time.
(b) During the Term of Employment, the Company shall provide the Executive
with term life insurance with a death benefit of at least two times Base Salary.
The Company shall pay all premiums with respect to such life insurance. Such
life insurance may be provided either through the Company's group life insurance
programs, by an individual policy, or by a combination of both group and
individual policies.
9. Reimbursement of Business Expenses.
The Executive is authorized to incur ordinary and reasonable business
expenses in carrying out her duties and responsibilities under the Agreement,
and the Company shall reimburse her for all such ordinary and reasonable
business expenses incurred in connection with carrying out the business of the
Company, subject to documentation in accordance with the Company's policy.
10. Perquisites.
(a) During the Term of Employment, the Executive shall be entitled to
participate in the Company's executive fringe benefits applicable to the
Company's senior-level executives in accordance with the terms and conditions of
such arrangements as are in effect from time to time.
(b) During the Term of Employment, the Company shall provide a car to the
Executive.
11. Vacation.
The Executive shall be entitled to paid vacation in accordance with the
Company's vacation policy; provided, however, that the Executive shall be
entitled to not less than four weeks of vacation each year.
12. Termination of Employment.
(a) Termination of Employment Due to Death. In the event of the
Executive's death during the Term of Employment, the Term of Employment shall
end as of the date of the Executive's death and her estate and/or beneficiaries,
as the case may be, shall be entitled to the following:
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<PAGE> 69
(1) Base Salary earned but not paid prior to the date of her death;
(2) Annual Bonus with respect to any year prior to the year of her
death which has been earned but not paid;
(3) any amounts earned, accrued or owing to the Executive but not
yet paid under Section 6, 8, 9, 10 or 11 above; and
(4) other or additional benefits in accordance with applicable
plans, programs and/or arrangements of the Company.
(b) Termination of Employment Due to Disability. If the Executive's
employment is terminated due to Disability during the Term of Employment, either
by the Company or by the Executive, the Term of Employment shall end as of the
date of the Executive's termination of employment and the Executive shall be
entitled to the following (but in no event shall the Executive be entitled to
less than the benefits due her under any disability program of the Company for
which she becomes eligible):
(1) Base Salary earned but not paid prior to the date of the
termination of the Executive's employment;
(2) Annual Bonus with respect to any year prior to the year of the
termination of the Executive's employment which has been earned but not
paid;
(3) an amount equal to the sum of 50 percent of Base Salary, at the
annual rate in effect on the date of the termination of the Executive's
employment, payable in monthly installments for a period ending on the
first day of the month following the month in which the Executive attains
age 65 or recovers from her Disability, whichever occurs earlier, less the
amount of any disability benefits provided to the Executive under the
Company's disability program;
(4) any amounts earned, accrued or owing to the Executive but not
yet paid under Section 6, 8, 9, 10 or 11 above;
(5) continued participation, as if the Executive were still an
employee, in the Company's medical, dental, hospitalization and life
insurance plans, programs and/or arrangements and in those other employee
plans, programs and/or arrangements in which she was participating on the
date of the termination of her employment until she attains age 65 or
recovers from her Disability, whichever occurs earlier;
provided, however, that:
(X) if the Executive is precluded from continuing her
participation in any employee benefit plan, program
or arrangement as provided in this Section 12(b)(5),
she shall be provided with the after-tax economic
equivalent of the benefits provided under the plan,
program or arrangement in which she is unable to
participate for the period specified in this Section
12(b)(5); and
(Y) the economic equivalent of any benefit foregone shall be
deemed to be the lowest cost that would be incurred by
the Executive in obtaining such benefit herself on an
individual basis; and
5
<PAGE> 70
(6) other or additional benefits in accordance with applicable
plans, programs and/or arrangements of the Company.
In no event shall a termination of the Executive's employment for
Disability occur unless the Party terminating her employment gives written
notice to the other Party in accordance with Section 26 below.
(c) Termination of Employment by the Company for Cause. A termination of
the Executive's employment by the Company for Cause shall not take effect unless
the provisions of this Section 12(c) are complied with and the Board issues a
written determination that the Executive's employment should be terminated for
Cause (a "Determination").
(1) In accordance with Section 26 below, the CEO shall give the
Executive a written notice stating his intention to terminate the
Executive's employment for Cause (the "Cause Notice"). The Cause Notice
shall:
(A) state in detail the particular act or acts or failure or
failures to act that constitute the grounds on which the proposed
termination of employment for Cause is based; and
(B) be given within four months of the CEO learning of such
act or acts or failure or failures to act.
(2) The CEO may temporarily relieve the Executive of her duties and
responsibilities described in Section 3 above during the period commencing
on the date the Cause Notice is issued by the CEO and ending on the date
the Determination is issued by the Board (the "Determination Period").
(3) The Executive shall have 20 days after the date the Cause Notice
is actually received by her in which to cure her conduct on which the
termination of employment for Cause is based, to the extent such cure is
possible. If the Executive fails to cure such conduct, she shall then be
entitled to a hearing before the Board. Such hearing shall be held during
the 20-day period following the date the Executive receives the Cause
Notice; provided, however, that the Executive requests such hearing during
the 10-day period following the date the Executive receives the Cause
Notice. Within five days following the completion of such hearing, the
Board shall issue a Determination stating whether, in its judgment,
grounds for Cause as detailed in the Cause Notice exist. If the
Determination states that such grounds exist, the Executive's employment
shall be immediately terminated for Cause and the Term of Employment shall
end as of the date of the termination of the Executive's employment.
(4) If the Company terminates the Executive's employment for Cause,
the Executive shall be entitled to the following:
(A) Base Salary earned but not paid prior to the date of the
termination of her employment;
(B) any amounts earned, accrued or owing to the Executive but
not yet paid under Section 6, 8, 9, 10 or 11 above; and
(C) other or additional benefits in accordance with applicable
plans, programs and/or arrangements of the Company.
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<PAGE> 71
(5) Notwithstanding anything herein to the contrary, if, following a
termination of the Executive's employment by the Company for Cause based
upon the conviction of the Executive for a felony, such conviction is
overturned in a final determination on appeal, the Executive shall be
entitled to the payments and the economic equivalent of the benefits the
Executive would have received if her employment had been terminated by the
Company without Cause.
(d) Termination of Employment by the Company Without Cause. If the
Executive's employment is terminated by the Company without Cause, other than
due to death or Disability, the Executive shall be entitled to the following:
(1) Base Salary earned but not paid prior to the date of the
termination of her employment;
(2) Annual Bonus with respect to any year prior to the year of the
termination of the Executive's employment which has been earned but not
paid;
(3) an amount equal to the aggregate Base Salary (based on the Base
Salary in effect on the date of the termination of the Executive's
employment) (the "Salary Continuation Benefits") with respect to a period
equal to twelve months, if such termination occurs prior to the first
anniversary of the initial Effective Date or eighteen months, thereafter,
in each case payable in equal monthly installments over such period;
(4) continued accrual of credited service through the end of the
Term of Employment for the purpose of any Company pension plan, program or
arrangement;
(5) the right to purchase, at fair market value, the Executive's
automobile (if any) provided to him by the Company under the Company's
automobile perquisite program for senior-level executives;
(6) any amounts earned, accrued or owing to the Executive but not
yet paid under Section 6, 8, 9, 10 or 11 above;
(7) continued participation, as if she were still an employee, in
the Company's medical, dental, hospitalization and life insurance plans,
programs and/or arrangements and in other employee benefit plans, programs
and/or arrangements in which she was participating on the date of the
termination of her employment until the earlier of:
(A) the end of the period used to determine the Salary
Continuation Benefits; or
(B) the date, or dates, she receives equivalent coverage and
benefits under the plans, programs and/or arrangements of a
subsequent employer (such coverage and benefits to be determined on
a coverage-by-coverage or benefit-by-benefit basis);
provided, however, that:
(X) if the Executive is precluded from continuing her
participation in any employee benefit plan,
program or arrangement as provided in Section
12(d)(7) above, she shall be provided with the
after-tax economic equivalent of the benefits
provided under the plan,
7
<PAGE> 72
program or arrangement in which she is unable to
participate for the period specified in this
Section 12(d)(7); and
(Y) the economic equivalent of any benefit foregone
shall be deemed to be the lowest cost that would
be incurred by the Executive in obtaining such
benefit herself on an individual basis; and
(8) other or additional benefits in accordance with applicable
plans, programs and/or arrangements of the Company.
(e) Termination of Employment by the Executive for Good Reason. The
Executive may terminate her employment for Good Reason, but only if:
(1) the Executive notifies the Board during the 60-day period
following the date of the first occurrence of an event which constitutes
Good Reason (the "Good Reason Event Date") of her intention to terminate
her employment for Good Reason;
(2) the Executive terminates her employment for Good Reason during
the 120-day period following the Good Reason Event Date;
(3) the termination of employment for Good Reason does not occur
during a Determination Period described in Section 12(c)(2) above; and
(4) the Good Reason first occurs before or after a Determination
Period, or, if the Good Reason first occurs during a Determination Period,
such event constituting Good Reason continues to occur after the
Determination Period.
Upon a termination by the Executive of her employment for Good Reason, the
Executive shall be entitled to the same payments and benefits as provided in
Section 12(d) above; provided, however, that if the Executive terminates her
employment for Good Reason based on a reduction in Base Salary under Section
l(k)(2) above, then the Base Salary to be used in determining the Salary
Continuation Benefits in accordance with Section 12(d)(3) above shall be the
Base Salary in effect immediately prior to such reduction.
(f) Termination of Employment by the Executive Without Good Reason. If the
Executive terminates her employment without Good Reason, other than a
termination of employment due to death or retirement or Disability, the
Executive shall have the same entitlements as provided in Section 12(c)(4)
above. A termination of the Executive's employment under this Section 12(f)
shall be effective upon 30 days prior written notice to the Company and shall
not be deemed a breach of this Agreement.
(g) Non Renewal of Agreement by Company. If the Company notifies the
Executive, pursuant to Section 2 above, that it does not want the Term of
Employment to renew, the Executive shall have the same entitlements as provided
in Section 12(d) above as if the Executive had been terminated without cause as
of the last day of the then Term of Employment.
(h) Termination of Employment by Executive due to Relocation of Work
Location. In the event that the Executive's principal work location is moved
outside of the States of New York, New Jersey, Connecticut, Pennsylvania,
Delaware, Maryland or the District of Columbia, the Executive may terminate her
employment with the Company. If the Executive terminates her employment pursuant
to this Section 12(h), she shall have the same entitlements as provided in
Section 12(d) above; provided, that all such benefits, including, without
limitation, the Salary Continuation Benefits, shall be provided for a
8
<PAGE> 73
period equal to the corresponding severance period listed on Schedule A, payable
in equal monthly installments during such period.
(i) No Mitigation; No Offset. If the Executive's employment terminates
under this Section 12, the Executive shall be under no obligation to seek other
employment and there shall be no offset against amounts due the Executive under
this Agreement on account of any remuneration attributable to any subsequent
employment that she may obtain except as specifically provided in this Section
12.
(j) Nature of Payments. Any amounts due under this Section 12 are in the
nature of severance payments considered to be reasonable by the Company and are
not in the nature of a penalty.
13. Confidentiality; Assignment of Rights.
(a) During the Term of Employment and thereafter, the Executive shall not
disclose to anyone or make use of any trade secret or proprietary or
confidential information of the Company, including such trade secret or
proprietary or confidential information of any customer or other entity to which
the Company owes an obligation not to disclose such information, which she
acquires during the Term of Employment, including but not limited to records
kept in the ordinary course of business, except (i) as such disclosure or use
may be required or appropriate in connection with her work as an employee of the
Company, (ii) when required to do so by a court of law, by any governmental
agency having supervisory authority over the business of the Company or by any
administrative or legislative body (including a committee thereof) with apparent
jurisdiction to order her to divulge, disclose or make accessible such
information, or (iii) as to such confidential information that becomes generally
known to the public or trade without violation of this Section 13(a).
(b) The Executive hereby sells, assigns and transfers to the Company all
of her right, title and interest in and to all inventions, discoveries,
improvements and copyrightable subject matter (the "rights") which during the
Term of Employment are made or conceived by her, alone or with others, and which
are within or arise out of any general field of the Company's business or arise
out of any work she performs or information she receives regarding the business
of the Company while employed by the Company. The Executive shall fully disclose
to the Company as promptly as available all information known or possessed by
her concerning the rights referred to in the preceding sentence, and upon
request by the Company and without any further remuneration in any form to her
by the Company, but at the expense of the Company, execute all applications for
patents and for copyright registration, assignments thereof and other
instruments and do all things which the Company may deem necessary to vest and
maintain in it the entire right, title and interest in and to all such rights.
14. Noncompetition.
(a) The Executive covenants and agrees that during the Term of Employment
and, following the termination of the Executive's employment with the Company,
for a period of eighteen months or, in the case of a termination pursuant to
Section 12(h), a period equal to the shorter of (i) twice the corresponding
severance period listed on Schedule A and (ii) eighteen months, she shall not at
any time, without the prior written consent of the Company, directly or
indirectly, engage in a Competitive Activity.
(b) The Parties acknowledge that in the event of a breach or threatened
breach of Section 14(a) above, the Company shall not have an adequate remedy at
law. Accordingly, in the event of any breach or threatened breach of Section
14(a) above, the Company shall be entitled to such equitable and injunctive
relief as may be available to restrain the Executive and any business, firm,
partnership, individual, corporation or entity participating in the breach or
threatened breach from the violation of the provisions of Section 14(a) above.
Nothing in this Agreement shall be construed as prohibiting the
9
<PAGE> 74
Company from pursuing any other remedies available at law or in equity for
breach or threatened breach of Section 14(a) above, including the recovery of
damages.
15. Indemnification.
(a) The Company agrees that if the Executive is made a party, or is
threatened to be made a party, to any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "Proceeding"), by reason of the
fact that she is or was a director, officer or employee of the Company or is or
was serving at the request of the Company as a director, officer, member,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
whether or not the basis of such Proceeding is the Executive's alleged action in
an official capacity while serving as a director, officer, member, employee or
agent, the Executive shall be indemnified and held harmless by the Company to
the fullest extent legally permitted or authorized by the Company's certificate
of incorporation or bylaws or resolutions of the Company's Board of Directors
or, if greater, by the laws of the State of Delaware, against all cost, expense,
liability and loss (including, without limitation, attorney's fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by the Executive in connection
therewith, and such indemnification shall continue as to the Executive even if
she has ceased to be a director, member, employee or agent of the Company or
other entity and shall inure to the benefit of the Executive's heirs, executors
and administrators. The Company shall advance to the Executive all reasonable
costs and expenses incurred by her in connection with a Proceeding within 20
days after receipt by the Company of a written request for such advance. Such
request shall include an undertaking by the Executive to repay the amount of
such advance if it shall ultimately be determined that she is not entitled to be
indemnified against such costs and expenses.
(b) Neither the failure of the Company (including the Board, independent
legal counsel or stockholders) to have made a determination prior to the
commencement of any Proceeding concerning payment of amounts claimed by the
Executive under Section 15(a) above that indemnification of the Executive is
proper because she has met the applicable standard of conduct, nor a
determination by the Company (including the Board, independent legal counsel or
stockholders) that the Executive has not met such applicable standard of
conduct, shall create a presumption that the Executive has not met the
applicable standard of conduct.
(c) The Company agrees to continue and maintain a directors and officers'
liability insurance policy covering the Executive to the extent the Company
provides such coverage for its other executive officers.
16. Effect of Agreement on Other Benefits.
Except as specifically provided in this Agreement, the existence of this
Agreement shall not prohibit or restrict the Executive's entitlement to full
participation in the Company's employee benefit plans, programs and arrangements
applicable to the Company's senior-level executives.
17. Assignability; Binding Nature.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs (in the case of the Executive)
and assigns. No rights or obligations of the Company under this Agreement may be
assigned or transferred by the Company except that such rights or obligations
may be assigned or transferred pursuant to a merger or consolidation in which
the Company is not the continuing entity, or the sale or liquidation of all or
substantially all of the assets of the Company; provided, however, that the
assignee or transferee is the successor to all or substantially all of the
assets of
10
<PAGE> 75
the Company and such assignee or transferee assumes the liabilities, obligations
and duties of the Company, as contained in this Agreement, either contractually
or as a matter of law. The Company further agrees that, in the event of a sale
of assets or liquidation as described in the preceding sentence, it shall take
whatever action it legally can in order to cause such assignee or transferee to
expressly assume the liabilities, obligations and duties of the Company
hereunder or under any other plan or benefit program referred to herein. No
rights or obligations of the Executive under this Agreement may be assigned or
transferred by the Executive other than her rights to compensation and benefits,
which may be transferred only by will or operation of law, except as provided in
Section 23 below.
18. Representation.
The Company represents and warrants that it is fully authorized and
empowered to enter into this Agreement and that the performance of its
obligations under this Agreement will not violate any agreement between it and
any other person, firm or organization. The Executive represents that she knows
of no agreement between her and any other person, firm or organization that
would be violated by the performance of her obligations under this Agreement.
19. Entire Agreement.
This Agreement contains the entire understanding and agreement between the
Parties concerning the subject matter hereof and supersedes all prior
agreements, understandings, discussions, negotiations and undertakings, whether
written or oral, between the Parties, including, without limitation, a certain
offer letter, dated November 16, 1998, by and between the Parties, with respect
thereto.
20. Amendment or Waiver.
No provision in this Agreement may be amended unless such amendment is
agreed to in writing and signed by the Executive and an authorized officer of
the Company. No waiver by either Party of any breach by the other Party of any
condition or provision contained in this Agreement to be performed by such other
Party shall be deemed a waiver of a similar or dissimilar condition or provision
at the same or any prior or subsequent time. Any waiver must be in writing and
signed by the Executive or an authorized officer of the Company, as the case may
be.
21. Severability.
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, in whole or in part,
the remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect and such provision or portion of this Agreement
shall remain in effect to the fullest extent permitted by law.
22. Survivorship.
The respective rights and obligations of the Parties hereunder shall
survive any termination of the Executive's employment to the extent necessary to
the intended preservation of such rights and obligations.
23. Beneficiaries/References.
The Executive shall be entitled, to the extent permitted under any
applicable law, to select and change a beneficiary or beneficiaries to receive
any compensation or benefit payable hereunder following the Executive's death by
giving the Company written notice thereof. In the event of the Executive's death
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or a judicial determination of her incompetence, reference in this Agreement to
the Executive shall be deemed, where appropriate, to refer to her beneficiary,
estate or other legal representative.
24. Governing Law/Submission to Jurisdiction.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of New York without reference to principles of conflict
of laws. Each of the Company and the Executive hereby irrevocably and
unconditionally: (i) submits for itself or herself, as applicable, and its or
her property in any legal action or proceeding relating to this Agreement, or
for recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the courts of the State of New York, the
courts of the United States of America for the Southern District of New York,
and appellate courts from any thereof; (ii) consents that any such action or
proceeding may be brought in such courts, and waives any objection that it or
she may now or hereafter have to the venue of any such action or proceeding in
any such court or that such action or proceeding was brought in an inconvenient
forum and agrees not to plead or claim the same; (iii) agrees that service of
process in any such action or proceeding may be effected by mailing a copy
thereof by registered or certified mail (or any substantially similar form of
mail), postage prepaid, at its or her address set forth in or designated
pursuant to Section 26 hereof; and (iv) agrees that nothing herein shall affect
the right to effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction.
25. Resolution of Disputes.
Any disputes arising under or in connection with the Agreement, other than
disputes arising in connection with Sections 14 or 15 hereof, may, at the
election of the Executive or the Company, be resolved by binding arbitration, to
be held in New York City in accordance with the rules and procedures of the
American Arbitration Association. If arbitration is elected, the Executive and
the Company shall mutually select the arbitrator. If the Executive and the
Company cannot agree on the selection of an arbitrator, each Party shall select
an arbitrator and the two arbitrators shall select a third arbitrator, and the
three arbitrators shall form an arbitration panel which shall resolve the
dispute by majority vote. Judgment upon the award rendered by the arbitrator(s)
may be entered in any court having jurisdiction thereof. Costs of the
arbitration or litigation, including, without limitation, reasonable attorneys'
fees of both Parties, shall be borne by the Company; provided, however, that, if
a dispute is resolved in favor of the Company, the Executive shall bear her own
costs of the arbitration or litigation and shall reimburse the Company for the
Executive's costs of the arbitration or litigation previously paid by the
Company. Pending the resolution of any arbitration or court proceeding, the
Company shall continue payment of all amounts due the Executive under this
Agreement and all benefits to which the Executive is entitled at the time the
dispute arises.
26. Notices.
Any notice given to a Party shall be in writing and shall be deemed to
have been given when delivered personally or sent by certified or registered
mail, postage prepaid, return receipt requested, duly addressed to the Party
concerned at the address indicated below or to such changed address as such
Party may subsequently give such notice of:
If to the Company: Metallurg, Inc.
6 East 43rd Street, 12th floor
New York, New York 10017
Attention: President and Chief Executive Officer
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With a copy to: Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
Attention: Samuel M. Feder
If to the Executive: Ellen T. Harmon
c/o Metallurg, Inc.
6 East 43rd Street, 12th Floor
New York, New York 10017
27. Headings.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
28. Counterparts.
This Agreement may be executed in two or more counterparts.
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<PAGE> 78
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
METALLURG, INC.
By: /s/ Alan D. Ewart
----------------------------------
Name: Alan D. Ewart
Title: President
AGREED AND ACCEPTED
/s/ Ellen T. Harmon
- -------------------------------
Ellen T. Harmon
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SCHEDULE A
<TABLE>
<CAPTION>
Years of Service Severance Period
---------------- ----------------
<S> <C>
Up To 15 6 months
More Than 15 9 months
More Than 20 12 months
</TABLE>
15
<PAGE> 1
Exhibit 10.15
August 9, 1998
VIA FAX AND FEDEX
Mr. Michael Alan Standen
290 Stuyvesant Avenue
Rye, New York 10580
Dear Mr. Standen:
You and Metallurg, Inc., its parents, affiliates, successors and assigns
("Company") agree to the following terms in connection with your resignation
from employment with the Company following a change in control and the Company's
proposal to you for a consulting arrangement:
1. Your employment as President and CEO of Metallurg, Inc. will terminate
effective August 10, 1998 ("Date of Termination"). You will be entitled to
receive all payments and benefits in paragraphs 11(d) and 11(f) of your April
14, 1997 Employment Agreement ("Employment Agreement") which paragraph along
with the applicable definitions are incorporated into this Letter. The lump sum
payment in paragraph 11(d)(3), as modified by paragraph 11(f), namely,
$1,236,240, will be paid within fifteen (15) calendar days of the date of this
Letter, to be transmitted in immediately available U.S. dollars in a manner
agreed upon by the parties. The other payments and benefits in paragraph 11(d)
of the Employment Agreement will be paid in immediately available funds in the
manner specified in the Employment Agreement.
2. The Company intends to retain you as a consultant until June 30, 1999
with an option to renew such arrangement by mutual written agreement for
additional specified periods as appropriate. You will receive $50,000 per
calendar quarter for your services as a consultant or a pro-rated portion
thereof if you work less than the calendar quarter.
3. As a consultant, you will dedicate your best efforts and skills to
assist in the ownership transition including helping to establish and implement
the new executive team, working with key employees in the Company's
subsidiaries, contacting and solidifying relationships with key suppliers and
customers and similar responsibilities assigned to you by the new President, CEO
or Board of Directors. Your services will be rendered on an as-needed basis with
the expectation that you will consult two or three days a week and with the
understanding that this commitment may be more or less depending on the
circumstances and needs of the Company.
4. You will also be appointed as Vice Chairman of the Company's Board of
Directors, with your compensation to be determined by the Board of Director's
compensation committee, to serve until the next meeting of stockholders or until
your successor is chosen and has qualified. You will continue as Chairman of the
Elektrowerk Weisweiler GmbH and Gesellschaft fur Elektrometallurgie GmbH Boards
at your current compensation level, to serve until the next meeting of
stockholders and until your successor is chosen and has qualified.
5. Except as set forth in paragraph 4 above, effective August 10, 1998,
you will resign from all other board or committee positions you hold with the
Company.
<PAGE> 2
6. You will continue to be obligated to repay your management loan(s) in
accordance with those prior agreements which are incorporated herein.
7. Paragraphs 12 and 13 of the April 14, 1997 Employment Agreement
relating to Confidentiality, Assignment of Rights and Noncompetition are
incorporated into this Letter Agreement as if set forth in full, except that the
restrictions stated therein will apply during any consulting period and the
six-month post-employment noncompetition period specified in paragraph 13(a)
will begin upon termination of the consulting period.
8. Paragraphs 2, 3 and 4 of this Letter set forth the proposed basic terms
for your new relationship with the Company which will be set forth in documents
and agreements to be drafted and which are to contain terms and provisions
mutually acceptable to you and the Company. Paragraphs 1, 6 and 7 acknowledge
and affirm the existing duties and obligations of you and the Company under the
Employment Agreement. This Letter does not create any rights, except the express
acknowledgements of rights and obligations under the Employment Agreement stated
in paragraphs 1, 6 and 7. Except as specified herein, all of the terms and
provisions of the Employment Agreement remain in full force and effect.
2
<PAGE> 3
We look forward to continuing our relationship with you and truly
appreciate your assistance in the transition. Please indicate your acceptance of
this Letter by signing below and returning a copy to me by August 9, 1998. Upon
receipt of your signature, we shall immediately instruct the Company's counsel
to prepare the documents and agreements specified in paragraphs 2, 3 and 4. We
understand that you will work promptly and diligently to finalize them and
execute them.
Yours truly,
Metallurg, Inc.
By: /s/ Eric Schondorf
-------------------------------------
Eric Schondorf
Title: Vice President and General Counsel
AGREED TO AND ACCEPTED BY:
/s/ Michael Alan Standen
- -----------------------------------
Michael Alan Standen
PARENT COMPANY UNDERTAKING:
Metallurg Holdings, Inc., the owner of all of the outstanding capital stock of
Metallurg, Inc., hereby agrees to cause Metallurg, Inc. to approve this Letter
at its next Board of Directors meeting and to cause this Letter to be duly
executed by an authorized officer of Metallurg, Inc.
Metallurg Holdings, Inc.
By: /s/ Heinz Schimmelbusch
-------------------------------
Heinz Schimmelbusch, President
cc: John Hortsman, Esq. (via fax)
3
<PAGE> 4
CONSULTING AGREEMENT
CONSULTING AGREEMENT dated as of October 30th, 1998, by and between
Metallurg, Inc., a Delaware corporation (the "Company"), and Michael Alan
Standen (the "Consultant").
W I T N E S S E T H:
WHEREAS, prior to August 10, 1998 (the "Effective Date") Consultant
was the President and Chief Executive Officer of the Company;
WHEREAS, the Company and Consultant entered into an employment
agreement, dated April 14, 1997 (the "Employment Agreement");
WHEREAS, on July 13, 1998, Metallurg Holdings, Inc. purchased all of
the issued and outstanding shares of the Company;
WHEREAS, as of the Effective Date, the Consultant resigned as
President and Chief Executive Officer of the Company pursuant to the Employment
Agreement;
WHEREAS, the Company desires to engage the services of Consultant in
a consulting capacity and Consultant is willing to be engaged by the Company in
a consulting capacity as an independent contractor upon the terms and conditions
set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
receipt of which is mutually acknowledged, the Company and Consultant
(individually a "Party" and together the "Parties") agree as follows:
1. Engagement. The Company hereby engages Consultant and Consultant
hereby accepts such engagement on the terms and conditions set forth herein to
serve the Company in a consulting capacity.
2. Term. The period of service of Consultant to the Company will be
for a term commencing on the Effective Date and terminating on June 30, 1999
(the "Consulting Period"). The Consulting Period may be renewed for additional
periods mutually agreed upon by the Parties by a written agreement signed by
both Parties.
3. Duties.
(a) During his engagement hereunder, Consultant shall provide
such consulting services as the Company requires of him from time to time to
assist the Company through the transition relating to the change in ownership of
the Company, and Consultant shall use his best efforts and skill to perform
these services on the terms and conditions set forth herein. The duties of
Consultant shall include, but not be limited to, helping to establish and
implement the Company's new executive team; working with key employees in the
Company's subsidiaries; contacting and solidifying relationships with key
suppliers and customers and similar responsibilities assigned to Consultant by
the President, Chief Executive Officer or the board of directors of the Company
(the "Board"). The Parties hereby
1
<PAGE> 5
acknowledge that Consultant's services will generally by required two days per
week, however, Consultant may be obliged to provide consulting services for more
or fewer days per week as requested by the Company.
(b) Consultant was elected Vice Chairman of the Board at the
last meeting of the Board. It is the intention of the parties that Consultant
will hold such position until the next meeting of the Company's stockholders or
until his successor is chosen and qualified, Consultant will be appointed and
will serve as Vice Chairman of the Board.
(c) Consultant will continue to hold the position of Chairman
of the board of directors of Elektrowerk Weisweiler GmbH, a subsidiary of the
Company ("EWW") until the next meeting of EWW's stockholders and until his
successor is chosen and qualified.
(d) Consultant will continue to hold the position of Chairman
of the board of directors of Gesellschaft fur Elektrometallurgie mbH, a
subsidiary of the Company ("GfE") until the next meeting of GfE's stockholders
and until his successor is chosen and qualified.
(e) It is hereby acknowledged and agreed that as of the
Effective Date, Consultant resigned from all board or committee positions, other
than as described in clauses (b) through (d) above, which he formerly held with
the Company and its subsidiaries.
4. Compensation.
(a) As total and exclusive compensation for consulting
services rendered pursuant to this Agreement, the Company agrees to pay
Consultant $50,000 per calendar quarter payable in arrears on the last day of
each calendar quarter. If Consultant provides consulting services for a period
which is less than a calendar quarter, Consultant shall be paid a proportionate
share of $50,000, based on the number of days in such period compared to the
total number of days in the calendar quarter containing such period.
(b) As total and exclusive compensation for Consultant's
position as Vice Chairman of the Board, the Company will pay Consultant such
compensation as is determined by the Board or the Board's compensation
committee.
(c) As total and exclusive compensation for Consultant's
position on the board of directors of each of EWW and GfE, Consultant shall be
paid the amount currently received by Consultant in respect of such positions,
as amended from time to time by the board of directors of EWW and GfE,
respectively.
5. Expenses. All reasonable and customary expenses incurred by
Consultant in the performance of the services required by this Agreement,
including, but not limited to, all related out-of-pocket expenses, shall be
reimbursed by the Company upon appropriate documentation by Consultant in
accordance with the Company's policy for the reimbursement of expenses, as it
exists from time to time.
6. Confidentiality. During the Consulting Period and thereafter,
Consultant shall not disclose to anyone or make use of any trade secret or
proprietary or confidential information of the Company, including any trade
secret or proprietary or confidential information of any customer or other
entity to which the Company owes an obligation not to disclose such information,
which he acquires during the Consulting Period, including but not limited to
records kept in the ordinary course of business, except (i) as such disclosure
or use may be required or appropriate in connection with his work as a
consultant to the Company, (ii) when required to do so by a court of law, by any
governmental agency
2
<PAGE> 6
having supervisory authority over the business of the Company or by any
administrative or legislative body (including a committee thereof) with apparent
jurisdiction to order him to divulge, disclose or make accessible such
information, or (iii) as to such confidential information that becomes generally
known to the public or trade without violation of this Section 6.
7. Noncompetition.
(a) Consultant covenants and agrees that during the Consulting
Period and during the six-month period following the end of the Consulting
Period, he shall not at any time, without the prior written consent of the
Company, directly or indirectly, engage in a Competitive Activity. As used
herein, Competitive Activity means any activity engaged in by Consultant,
whether as an employee, principal, sole proprietor, consultant, agent, officer,
director, partner or shareholder (except as a less than one-percent shareholder
of a publicly traded company or a less than five-percent shareholder of a
privately held company), which directly competes with the Company or any
subsidiary. For this purpose, an activity which directly competes with the
Company or any subsidiary shall mean a business that was being conducted by the
Company or any subsidiary during the Consulting Period. Notwithstanding anything
to the contrary in this Section 7(a), an activity shall not be deemed to be a
Competitive Activity (x) solely as a result of Consultant's being employed by or
otherwise associated with a business of which a unit is in competition with the
Company or any subsidiary but as to which unit Consultant does not have direct
or indirect responsibilities for the products or product lines involved or (y)
if the activity contributes less than 5 percent of the revenues for the fiscal
year in question of the business by which Consultant is employed or with which
he is otherwise associated.
(b) The Parties acknowledge that in the event of a breach or
threatened breach of Section 7(a) above, the Company shall not have an adequate
remedy at law. Accordingly, in the event of any breach or threatened breach of
Section 7(a) above, the Company shall be entitled to such equitable and
injunctive relief as may be available to restrain Consultant and any business,
firm, partnership, individual, corporation or entity participating in the breach
or threatened breach from the violation of the provisions of Section 7(a) above.
Nothing in this Agreement shall be construed as prohibiting the Company from
pursuing any other remedies available at law or in equity for breach or
threatened breach of Section 7(a) above, including the recovery of damages.
8. Limitations on Authority. Consultant shall have no authority to
bind the Company by or to any obligation, agreement, promise or representation
without first obtaining the Company's prior written approval.
9. Arbitration. Any disputes arising under or in connection with the
Agreement, other than disputes arising in connection with Sections 6 or 7
hereof, may, at the election of Consultant or the Company, be resolved by
binding arbitration, to be held in New York City in accordance with the rules
and procedures of the American Arbitration Association. If arbitration is
elected, Consultant and the Company shall mutually select the arbitrator. If
Consultant and the Company cannot agree on the selection of an arbitrator, each
Party shall select an arbitrator and the two arbitrators shall select a third
arbitrator, and the three arbitrators shall form an arbitration panel which
shall resolve the dispute by majority vote. Judgment upon the award rendered by
the arbitrator(s) may be entered in any court having jurisdiction thereof. Costs
of the arbitration or litigation, including, without limitation, reasonable
attorneys' fees of both Parties, shall be borne by the Company. Pending the
resolution of any arbitration or court proceeding, the Company shall continue
payment of all amounts due Consultant under this Agreement and all benefits to
which Consultant is entitled at the time the dispute arises.
10. Entire Agreement. This instrument contains the entire agreement
of the Parties with respect to the subject matter hereof. Any other oral or
written agreements entered into with respect
3
<PAGE> 7
hereto are hereby revoked and superseded by this Agreement. No modifications
shall be made hereto except by agreement in writing signed by both Parties.
11. Paragraph Headings. The paragraph headings of this Agreement are
for convenience of reference only and shall not limit or define the text
thereof.
12. Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect and such provision or portion
of this Agreement shall remain in effect to the fullest extent permitted by law.
13. Notices. All notices and other communications which are required
or permitted hereunder shall be in writing and shall be sufficient if mailed by
registered or certified mail, postage prepaid to the following addresses:
If to Consultant:
Michael A. Standen
290 Stuyvesant Avenue
Rye, New York 10580
If to the Company:
Metallurg, Inc.
6 East 43rd Street, 12th floor
New York, New York 10017
Attention: General Counsel
with a copy to:
Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
Attention: Samuel M. Feder, Esq.
or such other address as any Party hereto shall have specified by notice in
writing to the other Party hereto. All such notices and communications shall be
deemed to have been received on the date of delivery thereof or the third
business day after the mailing thereof, whichever is earlier.
14. Amendments and Waivers. This Agreement may not be modified or
amended except by an instrument or instruments in writing signed by the Party
against whom enforcement or any such modification or amendment is sought. Either
Party hereto may, by an instrument in writing, waive compliance by the other
Party with any term or provision of this Agreement on the part of such other
Party hereto to be performed or complied with. The waiver by any Party hereto of
a breach of any term or provision of this Agreement shall not be construed as a
waiver of any subsequent or other breach, whether or not similar to the breach
waived.
15. Counterparts. This Agreement may be executed in one or more
counterparts and all such counterparts so executed shall constitute an original
agreement binding on all the Parties but together shall constitute but one
instrument.
4
<PAGE> 8
16. Successors. This Agreement shall inure to the benefit of, and
shall be binding upon, the Parties hereto and their respective successors,
assigns, heirs and legal representatives. Insofar as Consultant is concerned,
this Agreement, being personal, cannot be assigned. This Agreement shall not be
assignable by the Company unless there shall occur (i) a sale of all or
substantially all of the assets of the Company, (ii) a dissolution or
liquidation of the Company or (iii) a merger of the Company into another entity
in which the Company is not the surviving corporation.
17. Governing Law. This Agreement shall be construed and governed in
accordance with the laws of the State of New York, without giving effect to the
conflicts of laws principles thereof.
5
<PAGE> 9
IN WITNESS WHEREOF, Consultant and the Company have executed this
Agreement on the date first above set forth.
METALLURG, INC.
By: /s/ Alan D. Ewart
----------------------------------
Name: Alan D. Ewart
Title: President
CONSULTANT
By: /s/ Michael A. Standen
----------------------------------
Michael A. Standen
6
<PAGE> 1
EXHIBIT 10.16
<PAGE> 2
NOTE
US $16,012.50 April 15, 1997
Subject to the terms and conditions of this Note (this "Note"), Robin A.
Brumwell ("Borrower"), for value received, the receipt and sufficiency of which
is hereby acknowledged, hereby promises to pay to the order of Metallurg, Inc.,
a Delaware corporation, or its successors or assigns ("MI"), in lawful money of
the United States of America in immediately available funds, the principal sum
of Sixteen Thousand Twelve Dollars and Fifty Cents ($16,012.50) payable together
with accrued interest thereon on the business day prior to the third anniversary
of the date hereof (the "Maturity Date").
1. Interest. From the date hereof through the Maturity Date and until the
Note is paid in full, this Note shall accrue interest on the unpaid principal
amount of this Note at a rate equal to 5.91% per annum compounded annually. All
interest shall be calculated on the basis of a three hundred sixty five or six
(365/6) day year and the actual number of days elapsed (including the first day
but excluding the last day) in the period for which interest is payable and
shall be payable in cash.
2. Events of Default. This Note and all accrued and unpaid interest hereon
shall become immediately due and payable if any one or more of the following
events, hereinafter called "Events of Default," shall occur and be continuing:
(a) there is a default in the payment of the principal of, or interest on,
this Note when the same becomes due and payable, at maturity or otherwise;
(b) Borrower shall (i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its assets, (ii) make a general assignment
for the benefit of creditors, (iv) file a voluntary petition in bankruptcy or
(v) be adjudicated a bankrupt or insolvent, or (y) an order for relief under any
relevant bankruptcy code shall have been entered in respect of Borrower; or
(c) without the application, approval or consent of Borrower, a case or
proceeding shall be instituted, in any court of competent jurisdiction, seeking
in respect of Borrower reorganization, dissolution, winding up or liquidation, a
composition or arrangement with creditors, the appointment of a trustee,
receiver, custodian, liquidator or the like of Borrower or of all or a
substantial part of the assets of Borrower, the issuance or levying of any writ,
judgment, warrant of attachment, execution or similar process against all or a
substantial part of the assets or business of Borrower; and, the same shall
continue undismissed, or unstayed and in effect, for any period of sixty (60)
consecutive days.
If there shall occur and be continuing an Event of Default, MI may, by
notice to Borrower, declare the principal under this Note and all interest
thereon payable, whereupon all principal under this Note and all such interest
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by Borrower; provided, however, that upon the occurrence of the Event of Default
specified in subparagraph (b) or (c) above, the principal under this Note and
all such interest shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by Borrower. In addition to the remedies set forth above, MI
may exercise any remedies provided by applicable law.
3. Prepayment. Borrower may prepay, without premium or penalty, all or any
portion of the outstanding principal amount of this Note together with accrued
and unpaid interest to such date of prepayment on such amount so prepaid.
4. Waiver. No failure or delay on the part of MI or any holder in
exercising any right, power or privilege hereunder and no course of dealing
between Borrower, MI or any holder shall operate as a
<PAGE> 3
waiver thereof nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other exercise thereof or the exercise of any
other right, power, or privilege. The rights and remedies herein expressly
provided are cumulative and not exclusive of any rights or remedies which a
holder would otherwise have.
5. Amendment. This Note may not be amended except by an agreement in
writing signed by Borrower and MI or the holder hereof.
6. Notices. All notices and other communications under this Agreement
shall be in writing and shall be deemed given when delivered personally or
mailed by certified mail, return receipt requested, to the parties (and shall
also be transmitted by facsimile to the Persons receiving copies thereof) at the
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision):
If to MI, to:
Metallurg, Inc.
6 East 43rd Street
New York, New York 10017
U.S.A.
Attention: Barry C. Nuss
If to Borrower, to:
Robin A. Brumwell
19 Spriteview Avenue
Westport, CT 06880
7. Submission to Jurisdiction. Borrower hereby irrevocably submits to the
jurisdiction of any New York State or federal court sitting in New York City,
and the undersigned hereby irrevocably agrees that any action may be heard and
determined in such New York State court or in such federal court. Borrower
hereby irrevocably waives, to the fullest extent he may effectively do so, the
defense of an inconvenient forum to the maintenance of any action in any
jurisdiction. Borrower hereby irrevocably agrees that the summons and complaint
or any other process in any action in any jurisdiction may be served by mailing
in accordance with the provision set forth in Section 6. Borrower may also be
served in any other manner permitted by law, in which event Borrower's time to
respond shall be the time provided by law.
8. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be wholly performed in such State and without giving
effect to the conflict of laws principles thereof.
2
<PAGE> 4
IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be duly
executed as of the date first above written.
By: /s/ Robin A. Brumwell
---------------------------------
Robin A. Brumwell
3
<PAGE> 5
NOTE
US $29,737.50 April 15, 1997
Subject to the terms and conditions of this Note (this "Note"), Barry C.
Nuss ("Borrower"), for value received, the receipt and sufficiency of which is
hereby acknowledged, hereby promises to pay to the order of Metallurg, Inc., a
Delaware corporation, or its successors or assigns ("MI"), in lawful money of
the United States of America in immediately available funds, the principal sum
of Twenty Nine Thousand Seven Hundred Thirty Seven Dollars and Fifty Cents
($29,737.50) payable together with accrued interest thereon on the business day
prior to the third anniversary of the date hereof (the "Maturity Date").
1. Interest. From the date hereof through the Maturity Date and until the
Note is paid in full, this Note shall accrue interest on the unpaid principal
amount of this Note at a rate equal to 5.91% per annum compounded annually. All
interest shall be calculated on the basis of a three hundred sixty five or six
(365/6) day year and the actual number of days elapsed (including the first day
but excluding the last day) in the period for which interest is payable and
shall be payable in cash.
2. Events of Default. This Note and all accrued and unpaid interest hereon
shall become immediately due and payable if any one or more of the following
events, hereinafter called "Events of Default," shall occur and be continuing:
(a) there is a default in the payment of the principal of, or interest on,
this Note when the same becomes due and payable, at maturity or otherwise;
(b) Borrower shall (i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its assets, (ii) make a general assignment
for the benefit of creditors, (iv) file a voluntary petition in bankruptcy or
(v) be adjudicated a bankrupt or insolvent, or (y) an order for relief under any
relevant bankruptcy code shall have been entered in respect of Borrower; or
(c) without the application, approval or consent of Borrower, a case or
proceeding shall be instituted, in any court of competent jurisdiction, seeking
in respect of Borrower reorganization, dissolution, winding up or liquidation, a
composition or arrangement with creditors, the appointment of a trustee,
receiver, custodian, liquidator or the like of Borrower or of all or a
substantial part of the assets of Borrower, the issuance or levying of any writ,
judgment, warrant of attachment, execution or similar process against all or a
substantial part of the assets or business of Borrower; and, the same shall
continue undismissed, or unstayed and in effect, for any period of sixty (60)
consecutive days.
If there shall occur and be continuing an Event of Default, MI may, by
notice to Borrower, declare the principal under this Note and all interest
thereon payable, whereupon all principal under this Note and all such interest
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by Borrower; provided, however, that upon the occurrence of the Event of Default
specified in subparagraph (b) or (c) above, the principal under this Note and
all such interest shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by Borrower. In addition to the remedies set forth above, MI
may exercise any remedies provided by applicable law.
3. Prepayment. Borrower may prepay, without premium or penalty, all or any
portion of the outstanding principal amount of this Note together with accrued
and unpaid interest to such date of prepayment on such amount so prepaid.
4. Waiver. No failure or delay on the part of MI or any holder in
exercising any right, power or privilege hereunder and no course of dealing
between Borrower, MI or any holder shall operate as a
<PAGE> 6
waiver thereof nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other exercise thereof or the exercise of any
other right, power, or privilege. The rights and remedies herein expressly
provided are cumulative and not exclusive of any rights or remedies which a
holder would otherwise have.
5. Amendment. This Note may not be amended except by an agreement in
writing signed by Borrower and MI or the holder hereof.
6. Notices. All notices and other communications under this Agreement
shall be in writing and shall be deemed given when delivered personally or
mailed by certified mail, return receipt requested, to the parties (and shall
also be transmitted by facsimile to the Persons receiving copies thereof) at the
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision):
If to MI, to:
Metallurg, Inc.
6 East 43rd Street
New York, New York 10017
U.S.A.
Attention: Barry C. Nuss
If to Borrower, to:
Barry C. Nuss
9 Norman Place
Tenafly, New Jersey 07670
7. Submission to Jurisdiction. Borrower hereby irrevocably submits to the
jurisdiction of any New York State or federal court sitting in New York City,
and the undersigned hereby irrevocably agrees that any action may be heard and
determined in such New York State court or in such federal court. Borrower
hereby irrevocably waives, to the fullest extent he may effectively do so, the
defense of an inconvenient forum to the maintenance of any action in any
jurisdiction. Borrower hereby irrevocably agrees that the summons and complaint
or any other process in any action in any jurisdiction may be served by mailing
in accordance with the provision set forth in Section 6. Borrower may also be
served in any other manner permitted by law, in which event Borrower's time to
respond shall be the time provided by law.
8. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be wholly performed in such State and without giving
effect to the conflict of laws principles thereof.
2
<PAGE> 7
IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be duly
executed as of the date first above written.
By: /s/ Barry C. Nuss
-------------------------------
Barry C. Nuss
3
<PAGE> 8
NOTE
US $22,875.00 April 15, 1997
Subject to the terms and conditions of this Note (this "Note"), J. Richard
Budd ("Borrower"), for value received, the receipt and sufficiency of which is
hereby acknowledged, hereby promises to pay to the order of Metallurg, Inc., a
Delaware corporation, or its successors or assigns ("MI"), in lawful money of
the United States of America in immediately available funds, the principal sum
of Twenty Two Thousand Eight Hundred Seventy Five Dollars ($22,875.00) payable
together with accrued interest thereon on the business day prior to the third
anniversary of the date hereof (the "Maturity Date").
1. Interest. From the date hereof through the Maturity Date and until the
Note is paid in full, this Note shall accrue interest on the unpaid principal
amount of this Note at a rate equal to 5.91% per annum compounded annually. All
interest shall be calculated on the basis of a three hundred sixty five or six
(365/6) day year and the actual number of days elapsed (including the first day
but excluding the last day) in the period for which interest is payable and
shall be payable in cash.
2. Events of Default. This Note and all accrued and unpaid interest hereon
shall become immediately due and payable if any one or more of the following
events, hereinafter called "Events of Default," shall occur and be continuing:
(a) there is a default in the payment of the principal of, or interest on,
this Note when the same becomes due and payable, at maturity or otherwise;
(b) Borrower shall (i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its assets, (ii) make a general assignment
for the benefit of creditors, (iv) file a voluntary petition in bankruptcy or
(v) be adjudicated a bankrupt or insolvent, or (y) an order for relief under any
relevant bankruptcy code shall have been entered in respect of Borrower; or
(c) without the application, approval or consent of Borrower, a case or
proceeding shall be instituted, in any court of competent jurisdiction, seeking
in respect of Borrower reorganization, dissolution, winding up or liquidation, a
composition or arrangement with creditors, the appointment of a trustee,
receiver, custodian, liquidator or the like of Borrower or of all or a
substantial part of the assets of Borrower, the issuance or levying of any writ,
judgment, warrant of attachment, execution or similar process against all or a
substantial part of the assets or business of Borrower; and, the same shall
continue undismissed, or unstayed and in effect, for any period of sixty (60)
consecutive days.
If there shall occur and be continuing an Event of Default, MI may, by
notice to Borrower, declare the principal under this Note and all interest
thereon payable, whereupon all principal under this Note and all such interest
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by Borrower; provided, however, that upon the occurrence of the Event of Default
specified in subparagraph (b) or (c) above, the principal under this Note and
all such interest shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by Borrower. In addition to the remedies set forth above, MI
may exercise any remedies provided by applicable law.
3. Prepayment. Borrower may prepay, without premium or penalty, all or any
portion of the outstanding principal amount of this Note together with accrued
and unpaid interest to such date of prepayment on such amount so prepaid.
4. Waiver. No failure or delay on the part of MI or any holder in
exercising any right, power or privilege hereunder and no course of dealing
between Borrower, MI or any holder shall operate as a
<PAGE> 9
waiver thereof nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other exercise thereof or the exercise of any
other right, power, or privilege. The rights and remedies herein expressly
provided are cumulative and not exclusive of any rights or remedies which a
holder would otherwise have.
5. Amendment. This Note may not be amended except by an agreement in
writing signed by Borrower and MI or the holder hereof.
6. Notices. All notices and other communications under this Agreement
shall be in writing and shall be deemed given when delivered personally or
mailed by certified mail, return receipt requested, to the parties (and shall
also be transmitted by facsimile to the Persons receiving copies thereof) at the
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision):
If to MI, to:
Metallurg, Inc.
6 East 43rd Street
New York, New York 10017
U.S.A.
Attention: Barry C. Nuss
If to Borrower, to:
J. Richard Budd
332 National Court
North Hills, NY 11576
7. Submission to Jurisdiction. Borrower hereby irrevocably submits to the
jurisdiction of any New York State or federal court sitting in New York City,
and the undersigned hereby irrevocably agrees that any action may be heard and
determined in such New York State court or in such federal court. Borrower
hereby irrevocably waives, to the fullest extent he may effectively do so, the
defense of an inconvenient forum to the maintenance of any action in any
jurisdiction. Borrower hereby irrevocably agrees that the summons and complaint
or any other process in any action in any jurisdiction may be served by mailing
in accordance with the provision set forth in Section 6. Borrower may also be
served in any other manner permitted by law, in which event Borrower's time to
respond shall be the time provided by law.
8. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be wholly performed in such State and without giving
effect to the conflict of laws principles thereof.
2
<PAGE> 10
IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be duly
executed as of the date first above written.
By: /s/ J. Richard Budd
--------------------------
J. Richard Budd
3
<PAGE> 11
NOTE
US $25,162.50 April 15, 1997
Subject to the terms and conditions of this Note (this "Note"), Michael A.
Banks ("Borrower"), for value received, the receipt and sufficiency of which is
hereby acknowledged, hereby promises to pay to the order of Metallurg, Inc., a
Delaware corporation, or its successors or assigns ("MI"), in lawful money of
the United States of America in immediately available funds, the principal sum
of Twenty Five Thousand One Hundred Sixty Two Dollars and Fifty Cents
($25,162.50) payable together with accrued interest thereon on the business day
prior to the third anniversary of the date hereof (the "Maturity Date").
1. Interest. From the date hereof through the Maturity Date and until the
Note is paid in full, this Note shall accrue interest on the unpaid principal
amount of this Note at a rate equal to 5.91% per annum compounded annually. All
interest shall be calculated on the basis of a three hundred sixty five or six
(365/6) day year and the actual number of days elapsed (including the first day
but excluding the last day) in the period for which interest is payable and
shall be payable in cash.
2. Events of Default. This Note and all accrued and unpaid interest hereon
shall become immediately due and payable if any one or more of the following
events, hereinafter called "Events of Default," shall occur and be continuing:
(a) there is a default in the payment of the principal of, or interest on,
this Note when the same becomes due and payable, at maturity or otherwise;
(b) Borrower shall (i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its assets, (ii) make a general assignment
for the benefit of creditors, (iv) file a voluntary petition in bankruptcy or
(v) be adjudicated a bankrupt or insolvent, or (y) an order for relief under any
relevant bankruptcy code shall have been entered in respect of Borrower; or
(c) without the application, approval or consent of Borrower, a case or
proceeding shall be instituted, in any court of competent jurisdiction, seeking
in respect of Borrower reorganization, dissolution, winding up or liquidation, a
composition or arrangement with creditors, the appointment of a trustee,
receiver, custodian, liquidator or the like of Borrower or of all or a
substantial part of the assets of Borrower, the issuance or levying of any writ,
judgment, warrant of attachment, execution or similar process against all or a
substantial part of the assets or business of Borrower; and, the same shall
continue undismissed, or unstayed and in effect, for any period of sixty (60)
consecutive days.
If there shall occur and be continuing an Event of Default, MI may, by
notice to Borrower, declare the principal under this Note and all interest
thereon payable, whereupon all principal under this Note and all such interest
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by Borrower; provided, however, that upon the occurrence of the Event of Default
specified in subparagraph (b) or (c) above, the principal under this Note and
all such interest shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by Borrower. In addition to the remedies set forth above, MI
may exercise any remedies provided by applicable law.
3. Prepayment. Borrower may prepay, without premium or penalty, all or any
portion of the outstanding principal amount of this Note together with accrued
and unpaid interest to such date of prepayment on such amount so prepaid.
4. Waiver. No failure or delay on the part of MI or any holder in
exercising any right, power or privilege hereunder and no course of dealing
between Borrower, MI or any holder shall operate as a
<PAGE> 12
waiver thereof nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other exercise thereof or the exercise of any
other right, power, or privilege. The rights and remedies herein expressly
provided are cumulative and not exclusive of any rights or remedies which a
holder would otherwise have.
5. Amendment. This Note may not be amended except by an agreement in
writing signed by Borrower and MI or the holder hereof. 6. Notice. All notices
and other communications under this Agreement shall
be in writing and shall be deemed given when delivered personally or
mailed by certified mail, return receipt requested, to the parties (and shall
also be transmitted by facsimile to the Persons receiving copies thereof) at the
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision):
If to MI, to:
Metallurg, Inc.
6 East 43rd Street
New York, New York 10017
U.S.A.
Attention: Barry C. Nuss
If to Borrower, to:
Michael A. Banks
232 Bryam Lake Road
Mount Kisco, NY 10549
7. Submission to Jurisdiction. Borrower hereby irrevocably submits to the
jurisdiction of any New York State or federal court sitting in New York City,
and the undersigned hereby irrevocably agrees that any action may be heard and
determined in such New York State court or in such federal court. Borrower
hereby irrevocably waives, to the fullest extent he may effectively do so, the
defense of an inconvenient forum to the maintenance of any action in any
jurisdiction. Borrower hereby irrevocably agrees that the summons and complaint
or any other process in any action in any jurisdiction may be served by mailing
in accordance with the provision set forth in Section 6. Borrower may also be
served in any other manner permitted by law, in which event Borrower's time to
respond shall be the time provided by law.
8. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be wholly performed in such State and without giving
effect to the conflict of laws principles thereof.
2
<PAGE> 13
IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be duly
executed as of the date first above written.
By: /s/ Michael A. Banks
-------------------------
Michael A. Banks
3
<PAGE> 14
NOTE
US $26,997.08 April 15, 1998
Subject to the terms and conditions of this Note (this "Note"), Robin A.
Brumwell ("Borrower"), for value received, the receipt and sufficiency of which
is hereby acknowledged, hereby promises to pay to the order of Metallurg, Inc.,
a Delaware corporation, or its successors or assigns ("MI"), in lawful money of
the United States of America in immediately available funds, the principal sum
of Twenty Six Thousand Nine Hundred Ninety Seven Dollars and eight cents
($26,997.08) payable together with accrued interest thereon on April 14, 2001
(the "Maturity Date").
1. Interest. From the date hereof through the Maturity Date and until the
Note is paid in full, this Note shall accrue interest on the unpaid principal
amount of this Note at a rate equal to 5.7% per annum compounded annually. All
interest shall be calculated on the basis of a three hundred sixty five or six
(365/6) day year and the actual number of days elapsed (including the first day
but excluding the last day) in the period for which interest is payable and
shall be payable in cash.
2. Events of Default. This Note and all accrued and unpaid interest hereon
shall become immediately due and payable if any one or more of the following
events, hereinafter called "Events of Default," shall occur and be continuing:
(a) there is a default in the payment of the principal of, or interest on,
this Note when the same becomes due and payable, at maturity or otherwise;
(b) Borrower shall (i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its assets, (ii) make a general assignment
for the benefit of creditors, (iv) file a voluntary petition in bankruptcy or
(v) be adjudicated a bankrupt or insolvent, or (y) an order for relief under any
relevant bankruptcy code shall have been entered in respect of Borrower; or
(c) without the application, approval or consent of Borrower, a case or
proceeding shall be instituted, in any court of competent jurisdiction, seeking
in respect of Borrower reorganization, dissolution, winding up or liquidation, a
composition or arrangement with creditors, the appointment of a trustee,
receiver, custodian, liquidator or the like of Borrower or of all or a
substantial part of the assets of Borrower, the issuance or levying of any writ,
judgment, warrant of attachment, execution or similar process against all or a
substantial part of the assets or business of Borrower; and, the same shall
continue undismissed, or unstayed and in effect, for any period of sixty (60)
consecutive days.
If there shall occur and be continuing an Event of Default, MI may, by
notice to Borrower, declare the principal under this Note and all interest
thereon payable, whereupon all principal under this Note and all such interest
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by Borrower; provided, however, that upon the occurrence of the Event of Default
specified in subparagraph (b) or (c) above, the principal under this Note and
all such interest shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by Borrower. In addition to the remedies set forth above, MI
may exercise any remedies provided by applicable law.
3. Prepayment. Borrower may prepay, without premium or penalty, all or any
portion of the outstanding principal amount of this Note together with accrued
and unpaid interest to such date of prepayment on such amount so prepaid.
<PAGE> 15
4. Waiver. No failure or delay on the part of MI or any holder in
exercising any right, power or privilege hereunder and no course of dealing
between Borrower, MI or any holder shall operate as a waiver thereof nor shall
any single or partial exercise of any right, power or privilege hereunder
preclude any other exercise thereof or the exercise of any other right, power,
or privilege. The rights and remedies herein expressly provided are cumulative
and not exclusive of any rights or remedies which a holder would otherwise have.
5. Amendment. This Note may not be amended except by an agreement in
writing signed by Borrower and MI or the holder hereof.
6. Notices. All notices and other communications under this Agreement
shall be in writing and shall be deemed given when delivered personally or
mailed by certified mail, return receipt requested, to the parties (and shall
also be transmitted by facsimile to the Persons receiving copies thereof) at the
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision):
If to MI, to:
Metallurg, Inc.
6 East 43rd Street
New York, New York 10017
U.S.A.
Attention: Barry C. Nuss
If to Borrower, to:
Robin A. Brumwell
19 Spriteview Avenue
Westport, CT 06880
7. Submission to Jurisdiction. Borrower hereby irrevocably submits to the
jurisdiction of any New York State or federal court sitting in New York City,
and the undersigned hereby irrevocably agrees that any action may be heard and
determined in such New York State court or in such federal court. Borrower
hereby irrevocably waives, to the fullest extent he may effectively do so, the
defense of an inconvenient forum to the maintenance of any action in any
jurisdiction. Borrower hereby irrevocably agrees that the summons and complaint
or any other process in any action in any jurisdiction may be served by mailing
in accordance with the provision set forth in Section 6. Borrower may also be
served in any other manner permitted by law, in which event Borrower's time to
respond shall be the time provided by law.
8. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be wholly performed in such State and without giving
effect to the conflict of laws principles thereof.
2
<PAGE> 16
IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be duly
executed as of the date first above written.
/s/ Robin A. Brumwell
---------------------------
Robin A. Brumwell
3
<PAGE> 17
NOTE
US $50,137.43 April 15, 1998
Subject to the terms and conditions of this Note (this "Note"), Barry C.
Nuss ("Borrower"), for value received, the receipt and sufficiency of which is
hereby acknowledged, hereby promises to pay to the order of Metallurg, Inc., a
Delaware corporation, or its successors or assigns ("MI"), in lawful money of
the United States of America in immediately available funds, the principal sum
of Fifty Thousand One Hundred Thirty Seven Dollars and forty three cents
($50,137.43) payable together with accrued interest thereon on April 14, 2001
(the "Maturity Date").
1. Interest. From the date hereof through the Maturity Date and until the
Note is paid in full, this Note shall accrue interest on the unpaid principal
amount of this Note at a rate equal to 5.7% per annum compounded annually. All
interest shall be calculated on the basis of a three hundred sixty five or six
(365/6) day year and the actual number of days elapsed (including the first day
but excluding the last day) in the period for which interest is payable and
shall be payable in cash.
2. Events of Default. This Note and all accrued and unpaid interest hereon
shall become immediately due and payable if any one or more of the following
events, hereinafter called "Events of Default," shall occur and be continuing:
(a) there is a default in the payment of the principal of, or interest on,
this Note when the same becomes due and payable, at maturity or otherwise;
(b) Borrower shall (i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its assets, (ii) make a general assignment
for the benefit of creditors, (iv) file a voluntary petition in bankruptcy or
(v) be adjudicated a bankrupt or insolvent, or (y) an order for relief under any
relevant bankruptcy code shall have been entered in respect of Borrower; or
(c) without the application, approval or consent of Borrower, a case or
proceeding shall be instituted, in any court of competent jurisdiction, seeking
in respect of Borrower reorganization, dissolution, winding up or liquidation, a
composition or arrangement with creditors, the appointment of a trustee,
receiver, custodian, liquidator or the like of Borrower or of all or a
substantial part of the assets of Borrower, the issuance or levying of any writ,
judgment, warrant of attachment, execution or similar process against all or a
substantial part of the assets or business of Borrower; and, the same shall
continue undismissed, or unstayed and in effect, for any period of sixty (60)
consecutive days.
If there shall occur and be continuing an Event of Default, MI may, by
notice to Borrower, declare the principal under this Note and all interest
thereon payable, whereupon all principal under this Note and all such interest
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by Borrower; provided, however, that upon the occurrence of the Event of Default
specified in subparagraph (b) or (c) above, the principal under this Note and
all such interest shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by Borrower. In addition to the remedies set forth above, MI
may exercise any remedies provided by applicable law.
3. Prepayment. Borrower may prepay, without premium or penalty, all or any
portion of the outstanding principal amount of this Note together with accrued
and unpaid interest to such date of prepayment on such amount so prepaid.
<PAGE> 18
4. Waiver. No failure or delay on the part of MI or any holder in
exercising any right, power or privilege hereunder and no course of dealing
between Borrower, MI or any holder shall operate as a waiver thereof nor shall
any single or partial exercise of any right, power or privilege hereunder
preclude any other exercise thereof or the exercise of any other right, power,
or privilege. The rights and remedies herein expressly provided are cumulative
and not exclusive of any rights or remedies which a holder would otherwise have.
5. Amendment. This Note may not be amended except by an agreement in
writing signed by Borrower and MI or the holder hereof.
6. Notices. All notices and other communications under this Agreement
shall be in writing and shall be deemed given when delivered personally or
mailed by certified mail, return receipt requested, to the parties (and shall
also be transmitted by facsimile to the Persons receiving copies thereof) at the
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision):
If to MI, to:
Metallurg, Inc.
6 East 43rd Street
New York, New York 10017
U.S.A.
Attention: Barry C. Nuss
If to Borrower, to:
Barry C. Nuss
9 Norman Place
Tenafly, New Jersey 07670
7. Submission to Jurisdiction. Borrower hereby irrevocably submits to the
jurisdiction of any New York State or federal court sitting in New York City,
and the undersigned hereby irrevocably agrees that any action may be heard and
determined in such New York State court or in such federal court. Borrower
hereby irrevocably waives, to the fullest extent he may effectively do so, the
defense of an inconvenient forum to the maintenance of any action in any
jurisdiction. Borrower hereby irrevocably agrees that the summons and complaint
or any other process in any action in any jurisdiction may be served by mailing
in accordance with the provision set forth in Section 6. Borrower may also be
served in any other manner permitted by law, in which event Borrower's time to
respond shall be the time provided by law.
8. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be wholly performed in such State and without giving
effect to the conflict of laws principles thereof.
2
<PAGE> 19
IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be duly
executed as of the date first above written.
/s/ Barry C. Nuss
-----------------------------
Barry C. Nuss
3
<PAGE> 20
NOTE
US $38,567.25 April 15, 1998
Subject to the terms and conditions of this Note (this "Note"), J. Richard
Budd ("Borrower"), for value received, the receipt and sufficiency of which is
hereby acknowledged, hereby promises to pay to the order of Metallurg, Inc., a
Delaware corporation, or its successors or assigns ("MI"), in lawful money of
the United States of America in immediately available funds, the principal sum
of Thirty Eight Thousand Five Hundred Sixty Seven Dollars and twenty five cents
($38,567.25) payable together with accrued interest thereon on April 14, 2001
(the "Maturity Date").
1. Interest. From the date hereof through the Maturity Date and until the
Note is paid in full, this Note shall accrue interest on the unpaid principal
amount of this Note at a rate equal to 5.7% per annum compounded annually. All
interest shall be calculated on the basis of a three hundred sixty five or six
(365/6) day year and the actual number of days elapsed (including the first day
but excluding the last day) in the period for which interest is payable and
shall be payable in cash.
2. Events of Default. This Note and all accrued and unpaid interest hereon
shall become immediately due and payable if any one or more of the following
events, hereinafter called "Events of Default," shall occur and be continuing:
(a) there is a default in the payment of the principal of, or interest on,
this Note when the same becomes due and payable, at maturity or otherwise;
(b) Borrower shall (i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its assets, (ii) make a general assignment
for the benefit of creditors, (iv) file a voluntary petition in bankruptcy or
(v) be adjudicated a bankrupt or insolvent, or (y) an order for relief under any
relevant bankruptcy code shall have been entered in respect of Borrower; or
(c) without the application, approval or consent of Borrower, a case or
proceeding shall be instituted, in any court of competent jurisdiction, seeking
in respect of Borrower reorganization, dissolution, winding up or liquidation, a
composition or arrangement with creditors, the appointment of a trustee,
receiver, custodian, liquidator or the like of Borrower or of all or a
substantial part of the assets of Borrower, the issuance or levying of any writ,
judgment, warrant of attachment, execution or similar process against all or a
substantial part of the assets or business of Borrower; and, the same shall
continue undismissed, or unstayed and in effect, for any period of sixty (60)
consecutive days.
If there shall occur and be continuing an Event of Default, MI may, by
notice to Borrower, declare the principal under this Note and all interest
thereon payable, whereupon all principal under this Note and all such interest
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by Borrower; provided, however, that upon the occurrence of the Event of Default
specified in subparagraph (b) or (c) above, the principal under this Note and
all such interest shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by Borrower. In addition to the remedies set forth above, MI
may exercise any remedies provided by applicable law.
3. Prepayment. Borrower may prepay, without premium or penalty, all or any
portion of the outstanding principal amount of this Note together with accrued
and unpaid interest to such date of prepayment on such amount so prepaid.
<PAGE> 21
4. Waiver. No failure or delay on the part of MI or any holder in
exercising any right, power or privilege hereunder and no course of dealing
between Borrower, MI or any holder shall operate as a waiver thereof nor shall
any single or partial exercise of any right, power or privilege hereunder
preclude any other exercise thereof or the exercise of any other right, power,
or privilege. The rights and remedies herein expressly provided are cumulative
and not exclusive of any rights or remedies which a holder would otherwise have.
5. Amendment. This Note may not be amended except by an agreement in
writing signed by Borrower and MI or the holder hereof.
6. Notices. All notices and other communications under this Agreement
shall be in writing and shall be deemed given when delivered personally or
mailed by certified mail, return receipt requested, to the parties (and shall
also be transmitted by facsimile to the Persons receiving copies thereof) at the
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision):
If to MI, to:
Metallurg, Inc.
6 East 43rd Street
New York, New York 10017
U.S.A.
Attention: Barry C. Nuss
If to Borrower, to:
J. Richard Budd
58 Piping Rock Road
Locust Valley, NY 11560
7. Submission to Jurisdiction. Borrower hereby irrevocably submits to the
jurisdiction of any New York State or federal court sitting in New York City,
and the undersigned hereby irrevocably agrees that any action may be heard and
determined in such New York State court or in such federal court. Borrower
hereby irrevocably waives, to the fullest extent he may effectively do so, the
defense of an inconvenient forum to the maintenance of any action in any
jurisdiction. Borrower hereby irrevocably agrees that the summons and complaint
or any other process in any action in any jurisdiction may be served by mailing
in accordance with the provision set forth in Section 6. Borrower may also be
served in any other manner permitted by law, in which event Borrower's time to
respond shall be the time provided by law.
8. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be wholly performed in such State and without giving
effect to the conflict of laws principles thereof.
2
<PAGE> 22
IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be duly
executed as of the date first above written.
/s/ J. Richard Budd
-------------------------
J. Richard Budd
3
<PAGE> 23
NOTE
US $42,423.98 April 15, 1998
Subject to the terms and conditions of this Note (this "Note"), Michael A.
Banks ("Borrower"), for value received, the receipt and sufficiency of which is
hereby acknowledged, hereby promises to pay to the order of Metallurg, Inc., a
Delaware corporation, or its successors or assigns ("MI"), in lawful money of
the United States of America in immediately available funds, the principal sum
of Forty Two Thousand Four Hundred Twenty Three Dollars and ninety eight cents
($42,423.98) payable together with accrued interest thereon on April 14, 2001
(the "Maturity Date").
1. Interest. From the date hereof through the Maturity Date and until the
Note is paid in full, this Note shall accrue interest on the unpaid principal
amount of this Note at a rate equal to 5.7% per annum compounded annually. All
interest shall be calculated on the basis of a three hundred sixty five or six
(365/6) day year and the actual number of days elapsed (including the first day
but excluding the last day) in the period for which interest is payable and
shall be payable in cash.
2. Events of Default. This Note and all accrued and unpaid interest hereon
shall become immediately due and payable if any one or more of the following
events, hereinafter called "Events of Default," shall occur and be continuing:
(a) there is a default in the payment of the principal of, or interest on,
this Note when the same becomes due and payable, at maturity or otherwise;
(b) Borrower shall (i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its assets, (ii) make a general assignment
for the benefit of creditors, (iv) file a voluntary petition in bankruptcy or
(v) be adjudicated a bankrupt or insolvent, or (y) an order for relief under any
relevant bankruptcy code shall have been entered in respect of Borrower; or
(c) without the application, approval or consent of Borrower, a case or
proceeding shall be instituted, in any court of competent jurisdiction, seeking
in respect of Borrower reorganization, dissolution, winding up or liquidation, a
composition or arrangement with creditors, the appointment of a trustee,
receiver, custodian, liquidator or the like of Borrower or of all or a
substantial part of the assets of Borrower, the issuance or levying of any writ,
judgment, warrant of attachment, execution or similar process against all or a
substantial part of the assets or business of Borrower; and, the same shall
continue undismissed, or unstayed and in effect, for any period of sixty (60)
consecutive days.
If there shall occur and be continuing an Event of Default, MI may, by
notice to Borrower, declare the principal under this Note and all interest
thereon payable, whereupon all principal under this Note and all such interest
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by Borrower; provided, however, that upon the occurrence of the Event of Default
specified in subparagraph (b) or (c) above, the principal under this Note and
all such interest shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by Borrower. In addition to the remedies set forth above, MI
may exercise any remedies provided by applicable law.
3. Prepayment. Borrower may prepay, without premium or penalty, all or any
portion of the outstanding principal amount of this Note together with accrued
and unpaid interest to such date of prepayment on such amount so prepaid.
<PAGE> 24
4. Waiver. No failure or delay on the part of MI or any holder in
exercising any right, power or privilege hereunder and no course of dealing
between Borrower, MI or any holder shall operate as a waiver thereof nor shall
any single or partial exercise of any right, power or privilege hereunder
preclude any other exercise thereof or the exercise of any other right, power,
or privilege. The rights and remedies herein expressly provided are cumulative
and not exclusive of any rights or remedies which a holder would otherwise have.
5. Amendment. This Note may not be amended except by an agreement in
writing signed by Borrower and MI or the holder hereof.
6. Notices. All notices and other communications under this Agreement
shall be in writing and shall be deemed given when delivered personally or
mailed by certified mail, return receipt requested, to the parties (and shall
also be transmitted by facsimile to the Persons receiving copies thereof) at the
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision):
If to MI, to:
Metallurg, Inc.
6 East 43rd Street
New York, New York 10017
U.S.A.
Attention: Barry C. Nuss
If to Borrower, to:
Michael A. Banks
232 Byram Lake Road
Mount Kisco, NY 10549
7. Submission to Jurisdiction. Borrower hereby irrevocably submits to the
jurisdiction of any New York State or federal court sitting in New York City,
and the undersigned hereby irrevocably agrees that any action may be heard and
determined in such New York State court or in such federal court. Borrower
hereby irrevocably waives, to the fullest extent he may effectively do so, the
defense of an inconvenient forum to the maintenance of any action in any
jurisdiction. Borrower hereby irrevocably agrees that the summons and complaint
or any other process in any action in any jurisdiction may be served by mailing
in accordance with the provision set forth in Section 6. Borrower may also be
served in any other manner permitted by law, in which event Borrower's time to
respond shall be the time provided by law.
8. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be wholly performed in such State and without giving
effect to the conflict of laws principles thereof.
2
<PAGE> 25
IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be duly
executed as of the date first above written.
/s/ Michael A. Banks
----------------------------
Michael A. Banks
3
<PAGE> 26
NOTE
US $96,075.00 July 13, 1998
Subject to the terms and conditions of this Note (this "Note"), Robin A.
Brumwell ("Borrower"), for value received, the receipt and sufficiency of which
is hereby acknowledged, hereby promises to pay to the order of Metallurg, Inc.,
a Delaware corporation, or its successors or assigns ("MI") in lawful money of
the United States of America in immediately available funds, the principal sum
of Ninety Six Thousand Seventy Five dollars ($96,075.00) payable together with
accrued interest thereon on July 12, 2001 (the "Maturity Date").
1. Interest. From the date hereof through the Maturity Date and until the
Note is paid in full, this Note shall accrue interest on the unpaid principal
amount of this Note at a rate equal to 5.68% per annum compounded annually. All
interest shall be calculated on the basis of a three hundred sixty five or six
(365/6) day year and the actual number of days elapsed (including the first day
but excluding the last day) in the period for which interest is payable and
shall be payable in cash.
2. Events of Default. This Note and all accrued and unpaid interest hereon
shall become immediately due and payable if any one or more of the following
events, hereinafter called "Events of Default", shall occur and be continuing:
(a) there is a default in the payment of the principal of, or
interest on, this Note when the same becomes due and payable, at maturity or
otherwise;
(b) Borrower shall (i) apply for or consent to the appointment of,
or the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its assets, (ii) make a general
assignment for the benefit of creditors, (iv) file a voluntary petition in
bankruptcy or (v) be adjudicated a bankrupt or insolvent, or (y) an order for
relief under any relevant bankruptcy code shall have been entered in respect of
Borrower; or
(c) without the application, approval or consent of Borrower, a case
or proceeding shall be instituted, in any court of competent jurisdiction,
seeking in respect of Borrower reorganization, dissolution, winding up or
liquidation, a composition or arrangement with creditors, the appointment of a
trustee, receiver, custodian, liquidator or the like of Borrower or of all or a
substantial part of the assets of Borrower, the issuance or levying of any writ,
judgment, warrant of attachment, execution or similar process against all or a
substantial part of the assets or business of Borrower; and, the same shall
continue undismissed, or unstayed and in effect, for any period of sixty (60)
consecutive days.
If there shall occur and be continuing an Event of Default, MI may, by
notice to Borrower, declare the principal under this Note and all interest
thereon payable, whereupon all principal under this Note and all such interest
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by Borrower; provided, however, that upon the occurrence of the Event of Default
specified in subparagraph (b) or (c) above, the principal under this Note and
all such interest shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by Borrower. In addition to the remedies set forth above, MI
may exercise any remedies provided by applicable law.
<PAGE> 27
3. Prepayment. Borrower may prepay, without premium or penalty, all or any
portion of the outstanding principal amount of this Note together with accrued
and unpaid interest to such date of prepayment on such amount so prepaid.
4. Waiver. No failure or delay on the part of MI or any holder in
exercising any right, power or privilege hereunder and no course of dealing
between Borrower, MI or any holder shall operate as a waiver thereof nor shall
any single or partial exercise of any right, power or privilege hereunder
preclude any other exercise thereof or the exercise of any other right, power,
or privilege. The rights and remedies herein expressly provided are cumulative
and not exclusive of any rights or remedies which a holder would otherwise have.
5. Amendment. This Note may not be amended except by an agreement in
writing signed by Borrower and MI or the holder hereof.
6. Notice. All notices and other communications under this Agreement shall
be in writing and shall be deemed given when delivered personally or mailed by
certified mail, return receipt requested, to the parties (and shall also be
transmitted by facsimile to the Persons receiving copies thereof) at the
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision):
If to MI, to:
Metallurg, Inc.
6 East 43rd Street
New York, New York 10017
U.S.A.
Attention: Barry C. Nuss
If to Borrower, to:
Robin A. Brumwell
19 Spriteview Avenue
Westport, CT 06880
7. Submission to Jurisdiction. Borrower hereby irrevocably submits to the
jurisdiction of any New York State or federal court sitting in New York City,
and the undersigned hereby irrevocably agrees that any action may be heard and
determined in such New York State court or in such federal court. Borrower
hereby irrevocably waives, to the fullest extent he may effectively do so, the
defense of an inconvenient forum to the maintenance of any action in any
jurisdiction. Borrower hereby irrevocably agrees that the summons and complaint
or any other process in any action in any jurisdiction may be served by mailing
in accordance with the provision set forth in Section 6. Borrower may also be
served in any other manner permitted by law, in which event Borrower's time to
respond shall be the time provided by law.
8. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be wholly performed in such State and without giving
effect to the conflict of laws principles thereof.
2
<PAGE> 28
IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be duly
executed as of the date first above written.
By: /s/ Robin A. Brumwell
-----------------------------------
Robin A. Brumwell
3
<PAGE> 29
NOTE
US $178,425.00 July 13, 1998
Subject to the terms and conditions of this Note (this "Note"), Barry C.
Nuss ("Borrower"), for value received, the receipt and sufficiency of which is
hereby acknowledged, hereby promises to pay to the order of Metallurg, Inc., a
Delaware corporation, or its successors or assigns ("MI") in lawful money of the
United States of America in immediately available funds, the principal sum of
One Hundred Seventy Eight Thousand Four Hundred Twenty Five dollars
($178,425.00) payable together with accrued interest thereon on July 12, 2001
(the "Maturity Date").
1. Interest. From the date hereof through the Maturity Date and until the
Note is paid in full, this Note shall accrue interest on the unpaid principal
amount of this Note at a rate equal to 5.68% per annum compounded annually. All
interest shall be calculated on the basis of a three hundred sixty five or six
(365/6) day year and the actual number of days elapsed (including the first day
but excluding the last day) in the period for which interest is payable and
shall be payable in cash.
2. Events of Default. This Note and all accrued and unpaid interest hereon
shall become immediately due and payable if any one or more of the following
events, hereinafter called "Events of Default", shall occur and be continuing:
(a) there is a default in the payment of the principal of, or
interest on, this Note when the same becomes due and payable, at maturity or
otherwise;
(b) Borrower shall (i) apply for or consent to the appointment of,
or the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its assets, (ii) make a general
assignment for the benefit of creditors, (iv) file a voluntary petition in
bankruptcy or (v) be adjudicated a bankrupt or insolvent, or (y) an order for
relief under any relevant bankruptcy code shall have been entered in respect of
Borrower; or
(c) without the application, approval or consent of Borrower, a case
or proceeding shall be instituted, in any court of competent jurisdiction,
seeking in respect of Borrower reorganization, dissolution, winding up or
liquidation, a composition or arrangement with creditors, the appointment of a
trustee, receiver, custodian, liquidator or the like of Borrower or of all or a
substantial part of the assets of Borrower, the issuance or levying of any writ,
judgment, warrant of attachment, execution or similar process against all or a
substantial part of the assets or business of Borrower; and, the same shall
continue undismissed, or unstayed and in effect, for any period of sixty (60)
consecutive days.
If there shall occur and be continuing an Event of Default, MI may, by
notice to Borrower, declare the principal under this Note and all interest
thereon payable, whereupon all principal under this Note and all such interest
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by Borrower; provided, however, that upon the occurrence of the Event of Default
specified in subparagraph (b) or (c) above, the principal under this Note and
all such interest shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by Borrower. In addition to the remedies set forth above, MI
may exercise any remedies provided by applicable law.
<PAGE> 30
3. Prepayment. Borrower may prepay, without premium or penalty, all or any
portion of the outstanding principal amount of this Note together with accrued
and unpaid interest to such date of prepayment on such amount so prepaid.
4. Waiver. No failure or delay on the part of MI or any holder in
exercising any right, power or privilege hereunder and no course of dealing
between Borrower, MI or any holder shall operate as a waiver thereof nor shall
any single or partial exercise of any right, power or privilege hereunder
preclude any other exercise thereof or the exercise of any other right, power,
or privilege. The rights and remedies herein expressly provided are cumulative
and not exclusive of any rights or remedies which a holder would otherwise have.
5. Amendment. This Note may not be amended except by an agreement in
writing signed by Borrower and MI or the holder hereof.
6. Notice. All notices and other communications under this Agreement shall
be in writing and shall be deemed given when delivered personally or mailed by
certified mail, return receipt requested, to the parties (and shall also be
transmitted by facsimile to the Persons receiving copies thereof) at the
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision):
If to MI, to:
Metallurg, Inc.
6 East 43rd Street
New York, New York 10017
U.S.A.
Attention: Barry C. Nuss
If to Borrower, to:
Barry C. Nuss
9 Norman Place
Tenafly, New Jersey 07670
7. Submission to Jurisdiction. Borrower hereby irrevocably submits to the
jurisdiction of any New York State or federal court sitting in New York City,
and the undersigned hereby irrevocably agrees that any action may be heard and
determined in such New York State court or in such federal court. Borrower
hereby irrevocably waives, to the fullest extent he may effectively do so, the
defense of an inconvenient forum to the maintenance of any action in any
jurisdiction. Borrower hereby irrevocably agrees that the summons and complaint
or any other process in any action in any jurisdiction may be served by mailing
in accordance with the provision set forth in Section 6. Borrower may also be
served in any other manner permitted by law, in which event Borrower's time to
respond shall be the time provided by law.
8. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be wholly performed in such State and without giving
effect to the conflict of laws principles thereof.
2
<PAGE> 31
IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be duly
executed as of the date first above written.
By: /s/ Barry C. Nuss
---------------------------
Barry C. Nuss
3
<PAGE> 32
NOTE
US $137,250.00 July 13, 1998
Subject to the terms and conditions of this Note (this "Note"), J. Richard
Budd ("Borrower"), for value received, the receipt and sufficiency of which is
hereby acknowledged, hereby promises to pay to the order of Metallurg, Inc., a
Delaware corporation, or its successors or assigns ("MI"), in lawful money of
the United States of America in immediately available funds, the principal sum
of One Hundred Thirty Seven Thousand Two Hundred Fifty dollars ($137,250.00)
payable together with accrued interest thereon on July 12, 2001 (the "Maturity
Date").
1. Interest. From the date hereof through the Maturity Date and until the
Note is paid in full, this Note shall accrue interest on the unpaid principal
amount of this Note at a rate equal to 5.68% per annum compounded annually. All
interest shall be calculated on the basis of a three hundred sixty five or six
(365/6) day year and the actual number of days elapsed (including the first day
but excluding the last day) in the period for which interest is payable and
shall be payable in cash.
2. Events of Default. This Note and all accrued and unpaid interest hereon
shall become immediately due and payable if any one or more of the following
events, hereinafter called "Events of Default", shall occur and be continuing:
(a) there is a default in the payment of the principal of, or
interest on, this Note when the same becomes due and payable, at maturity or
otherwise;
(b) Borrower shall (i) apply for or consent to the appointment of,
or the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its assets, (ii) make a general
assignment for the benefit of creditors, (iv) file a voluntary petition in
bankruptcy or (v) be adjudicated a bankrupt or insolvent, or (y) an order for
relief under any relevant bankruptcy code shall have been entered in respect of
Borrower; or
(c) without the application, approval or consent of Borrower, a case
or proceeding shall be instituted, in any court of competent jurisdiction,
seeking in respect of Borrower reorganization, dissolution, winding up or
liquidation, a composition or arrangement with creditors, the appointment of a
trustee, receiver, custodian, liquidator or the like of Borrower or of all or a
substantial part of the assets of Borrower, the issuance or levying of any writ,
judgment, warrant of attachment, execution or similar process against all or a
substantial part of the assets or business of Borrower; and, the same shall
continue undismissed, or unstayed and in effect, for any period of sixty (60)
consecutive days.
If there shall occur and be continuing an Event of Default, MI may, by
notice to Borrower, declare the principal under this Note and all interest
thereon payable, whereupon all principal under this Note and all such interest
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by Borrower; provided, however, that upon the occurrence of the Event of Default
specified in subparagraph (b) or (c) above, the principal under this Note and
all such interest shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by Borrower. In addition to the remedies set forth above, MI
may exercise any remedies provided by applicable law.
<PAGE> 33
3. Prepayment. Borrower may prepay, without premium or penalty, all or any
portion of the outstanding principal amount of this Note together with accrued
and unpaid interest to such date of prepayment on such amount so prepaid.
4. Waiver. No failure or delay on the part of MI or any holder in
exercising any right, power or privilege hereunder and no course of dealing
between Borrower, MI or any holder shall operate as a waiver thereof nor shall
any single or partial exercise of any right, power or privilege hereunder
preclude any other exercise thereof or the exercise of any other right, power,
or privilege. The rights and remedies herein expressly provided are cumulative
and not exclusive of any rights or remedies which a holder would otherwise have.
5. Amendment. This Note may not be amended except by an agreement in
writing signed by Borrower and MI or the holder hereof.
6. Notice. All notices and other communications under this Agreement shall
be in writing and shall be deemed given when delivered personally or mailed by
certified mail, return receipt requested, to the parties (and shall also be
transmitted by facsimile to the Persons receiving copies thereof) at the
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision):
If to MI, to:
Metallurg, Inc.
6 East 43rd Street
New York, New York 10017
U.S.A.
Attention: Barry C. Nuss
If to Borrower, to:
J. Richard Budd
58 Piping Rock Road
Locust Valley, NY 11560
7. Submission to Jurisdiction. Borrower hereby irrevocably submits to the
jurisdiction of any New York State or federal court sitting in New York City,
and the undersigned hereby irrevocably agrees that any action may be heard and
determined in such New York State court or in such federal court. Borrower
hereby irrevocably waives, to the fullest extent he may effectively do so, the
defense of an inconvenient forum to the maintenance of any action in any
jurisdiction. Borrower hereby irrevocably agrees that the summons and complaint
or any other process in any action in any jurisdiction may be served by mailing
in accordance with the provision set forth in Section 6. Borrower may also be
served in any other manner permitted by law, in which event Borrower's time to
respond shall be the time provided by law.
8. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be wholly performed in such State and without giving
effect to the conflict of laws principles thereof.
2
<PAGE> 34
IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be duly
executed as of the date first above written.
By: /s/ J. Richard Budd
---------------------------
J. Richard Budd
3
<PAGE> 35
NOTE
US $150,975.00 July 13, 1998
Subject to the terms and conditions of this Note (this "Note"), Michael A.
Banks ("Borrower"), for value received, the receipt and sufficiency of which is
hereby acknowledged, hereby promises to pay to the order of Metallurg, Inc., a
Delaware corporation, or its successors or assigns ("MI") in lawful money of the
United States of America in immediately available funds, the principal sum of
One Hundred Fifty Thousand Nine Hundred Seventy Five dollars ($150,975.00)
payable together with accrued interest thereon on July 12, 2001 (the "Maturity
Date").
1. Interest. From the date hereof through the Maturity Date and until the
Note is paid in full, this Note shall accrue interest on the unpaid principal
amount of this Note at a rate equal to 5.68% per annum compounded annually. All
interest shall be calculated on the basis of a three hundred sixty five or six
(365/6) day year and the actual number of days elapsed (including the first day
but excluding the last day) in the period for which interest is payable and
shall be payable in cash.
2. Events of Default. This Note and all accrued and unpaid interest hereon
shall become immediately due and payable if any one or more of the following
events, hereinafter called "Events of Default", shall occur and be continuing:
(a) there is a default in the payment of the principal of, or
interest on, this Note when the same becomes due and payable, at maturity or
otherwise;
(b) Borrower shall (i) apply for or consent to the appointment of,
or the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its assets, (ii) make a general
assignment for the benefit of creditors, (iv) file a voluntary petition in
bankruptcy or (v) be adjudicated a bankrupt or insolvent, or (y) an order for
relief under any relevant bankruptcy code shall have been entered in respect of
Borrower; or
(c) without the application, approval or consent of Borrower, a case
or proceeding shall be instituted, in any court of competent jurisdiction,
seeking in respect of Borrower reorganization, dissolution, winding up or
liquidation, a composition or arrangement with creditors, the appointment of a
trustee, receiver, custodian, liquidator or the like of Borrower or of all or a
substantial part of the assets of Borrower, the issuance or levying of any writ,
judgment, warrant of attachment, execution or similar process against all or a
substantial part of the assets or business of Borrower; and, the same shall
continue undismissed, or unstayed and in effect, for any period of sixty (60)
consecutive days.
If there shall occur and be continuing an Event of Default, MI may, by
notice to Borrower, declare the principal under this Note and all interest
thereon payable, whereupon all principal under this Note and all such interest
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by Borrower; provided, however, that upon the occurrence of the Event of Default
specified in subparagraph (b) or (c) above, the principal under this Note and
all such interest shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by Borrower. In addition to the remedies set forth above, MI
may exercise any remedies provided by applicable law.
<PAGE> 36
3. Prepayment. Borrower may prepay, without premium or penalty, all or any
portion of the outstanding principal amount of this Note together with accrued
and unpaid interest to such date of prepayment on such amount so prepaid.
4. Waiver. No failure or delay on the part of MI or any holder in
exercising any right, power or privilege hereunder and no course of dealing
between Borrower, MI or any holder shall operate as a waiver thereof nor shall
any single or partial exercise of any right, power or privilege hereunder
preclude any other exercise thereof or the exercise of any other right, power,
or privilege. The rights and remedies herein expressly provided are cumulative
and not exclusive of any rights or remedies which a holder would otherwise have.
5. Amendment. This Note may not be amended except by an agreement in
writing signed by Borrower and MI or the holder hereof.
6. Notice. All notices and other communications under this Agreement shall
be in writing and shall be deemed given when delivered personally or mailed by
certified mail, return receipt requested, to the parties (and shall also be
transmitted by facsimile to the Persons receiving copies thereof) at the
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision):
If to MI, to:
Metallurg, Inc.
6 East 43rd Street
New York, New York 10017
U.S.A.
Attention: Barry C. Nuss
If to Borrower, to:
Michael A. Banks
232 Bryam Lake Road
Mount Kisco, NY 10549
7. Submission to Jurisdiction. Borrower hereby irrevocably submits to the
jurisdiction of any New York State or federal court sitting in New York City,
and the undersigned hereby irrevocably agrees that any action may be heard and
determined in such New York State court or in such federal court. Borrower
hereby irrevocably waives, to the fullest extent he may effectively do so, the
defense of an inconvenient forum to the maintenance of any action in any
jurisdiction. Borrower hereby irrevocably agrees that the summons and complaint
or any other process in any action in any jurisdiction may be served by mailing
in accordance with the provision set forth in Section 6. Borrower may also be
served in any other manner permitted by law, in which event Borrower's time to
respond shall be the time provided by law.
8. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be wholly performed in such State and without giving
effect to the conflict of laws principles thereof.
2
<PAGE> 37
IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be duly
executed as of the date first above written.
By: /s/ Michael A. Banks
--------------------------------
Michael A. Banks
3
<PAGE> 38
NOTE
US $320,250.00 April 15, 1997
Subject to the terms and conditions of this Note (this "Note"), Michael A.
Standen ("Borrower"), for value received, the receipt and sufficiency of which
is hereby acknowledged, hereby promises to pay to the order of Metallurg, Inc.,
a Delaware corporation, or its successors or assigns ("MI"), in lawful money of
the United States of America in immediately available funds, the principal sum
of Three Hundred Twenty Thousand Two Hundred Fifty Dollars ($320,250.00) payable
with accrued interest thereon on the business day prior to the third anniversary
of the date hereof (the "Maturity Date").
1. Interest. From the date hereof through the Maturity Date and until the
Note is paid in full, this Note shall accrue interest on the unpaid principal
amount of this Note at a rate equal to 5.91% per annum compounded annually. All
interest shall be calculated on the basis of a three hundred sixty five or six
(365/6) day year and the actual number of days elapsed (including the first day
but excluding the last day) in the period for which interest is payable and
shall be payable in cash.
2. Events of Default. This Note and all accrued and unpaid interest hereon
shall become immediately due and payable if any one or more of the following
events, hereinafter called "Events of Default," shall occur and be continuing:
(a) there is a default in the payment of the principal of, or interest on,
this Note when the same becomes due and payable, at maturity or otherwise;
(b) Borrower shall (i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its assets, (ii) make a general assignment
for the benefit of creditors, (iv) file a voluntary petition in bankruptcy or
(v) be adjudicated a bankrupt or insolvent, or (y) an order for relief under any
relevant bankruptcy code shall have been entered in respect of Borrower; or
(c) without the application, approval or consent of Borrower, a case or
proceeding shall be instituted, in any court of competent jurisdiction, seeking
in respect of Borrower reorganization, dissolution, winding up or liquidation, a
composition or arrangement with creditors, the appointment of a trustee,
receiver, custodian, liquidator or the like of Borrower or of all or a
substantial part of the assets of Borrower, the issuance or levying of any writ,
judgment, warrant of attachment, execution or similar process against all or a
substantial part of the assets or business of Borrower; and, the same shall
continue undismissed, or unstayed and in effect, for any period of sixty (60)
consecutive days.
If there shall occur and be continuing an Event of Default, MI may, by
notice to Borrower, declare the principal under this Note and all interest
thereon payable, whereupon all principal under this Note and all such interest
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by Borrower; provided, however, that upon the occurrence of the Event of Default
specified in subparagraph (b) or (c) above, the principal under this Note and
all such interest shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by Borrower. In addition to the remedies set forth above, MI
may exercise any remedies provided by applicable law.
3. Prepayment. Borrower may prepay, without premium or penalty, all or any
portion of the outstanding principal amount of this Note together with accrued
and unpaid interest to such date of prepayment on such amount so prepaid.
4. Waiver. No failure or delay on the part of MI or any holder in
exercising any right, power or privilege hereunder and no course of dealing
between Borrower, MI or any holder shall operate as a
<PAGE> 39
waiver thereof nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other exercise thereof or the exercise of any
other right, power, or privilege. The rights and remedies herein expressly
provided are cumulative and not exclusive of any rights or remedies which a
holder would otherwise have.
5. Amendment. This Note may not be amended except by an agreement in
writing signed by Borrower and MI or the holder hereof.
6. Notice. All notices and other communications under this Agreement shall
be in writing and shall be deemed given when delivered personally or mailed by
certified mail, return receipt requested, to the parties (and shall also be
transmitted by facsimile to the Persons receiving copies thereof) at the
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision):
If to MI, to:
Metallurg, Inc.
6 East 43rd Street
New York, New York 10017
U.S.A.
Attention: Barry C. Nuss
If to Borrower, to:
Michael A. Standen
81 Oakland Beach Avenue
Rye, New York 10580-2613
7. Submission to Jurisdiction. Borrower hereby irrevocably submits to the
jurisdiction of any New York State or federal court sitting in New York City,
and the undersigned hereby irrevocably agrees that any action may be heard and
determined in such New York State court or in such federal court. Borrower
hereby irrevocably waives, to the fullest extent he may effectively do so, the
defense of an inconvenient forum to the maintenance of any action in any
jurisdiction. Borrower hereby irrevocably agrees that the summons and complaint
or any other process in any action in any jurisdiction may be served by mailing
in accordance with the provision set forth in Section 6. Borrower may also be
served in any other manner permitted by law, in which event Borrower's time to
respond shall be the time provided by law.
8. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be wholly performed in such State and without giving
effect to the conflict of laws principles thereof.
2
<PAGE> 40
IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be duly
executed as of the date first above written.
By: /s/ Michael A. Standen
----------------------------
Michael A. Standen
3
<PAGE> 1
Exhibit 10.17
Metallurg Holdings, Inc.
Intercompany Tax Allocation Agreement
The purpose of this agreement (the "Agreement") is to determine the
amount of federal and (where applicable) state, local and foreign income tax
allocated to members of the affiliated Group (as described below) and the amount
each member will pay to or receive from Metallurg Holdings, Inc., a Delaware
corporation ("Parent"). This Agreement is between Parent and the undersigned
subsidiary corporations (hereinafter collectively referred to as the
"Subsidiaries" or each individually as a "Subsidiary"). Parent and the
Subsidiaries are sometimes hereinafter collectively referred to as the "Group".
1. The members of the Group are affiliated corporations and will
elect to file a consolidated federal income tax return under the provisions of
Section 1 501, et seq., of the Internal Revenue Code of 1 986, as amended, (the
"Code") for the tax year ending December 31, 1 998 and for each subsequent tax
year for which this Agreement is in effect. Parent will compute and timely pay
the consolidated federal income tax liability for the Group in accordance with
the Code and the regulations promulgated thereunder and will prepare, or cause
to be prepared, and will timely file the consolidated federal income tax return
for the Group. Parent and the Subsidiaries shall each review the consolidated
federal income tax return and make any necessary adjustments no later than
fifteen (15) days before the filing of the return, and Parent will provide a
draft of each such return to each Subsidiary sufficiently before that deadline
to permit the Subsidiary to make its review.
2. Each Subsidiary shall compute and pay in cash to Parent (in the
manner provided for in paragraph 8 of this Agreement) an amount equal to the
federal income tax liability
<PAGE> 2
that would have been payable for such year determined as if each Subsidiary had
filed a separate federal income tax return for the taxable year ended December
31, 1998, and all taxable years thereafter, including any accrued interest
thereon ("Separate Return Tax Liability").
3. If a Subsidiary, other than a Metallurg Subsidiary (defined
below), would not have a Separate Return Tax Liability but instead would have a
claim for refund of federal income taxes, Parent will pay in cash to such
Subsidiary (in the manner provided for in paragraph 8 of this Agreement) an
amount equal to the refund such Subsidiary would have been entitled to obtain
from the Internal Revenue Service, determined as if such Subsidiary had filed a
separate federal income tax return for the taxable year ended December 31, 1998
and all taxable years thereafter, including any accrued interest thereon
("Separate Return Tax Refund").
4. Parent shall pay in cash to Metallurg, Inc. ("Metallurg") (in the
manner provided for in paragraph 8 of this Agreement) an amount (not less than
zero) equal to (i) the sum of (a) the Separate Return Tax Liability of Metallurg
paid to Parent and (b) the Separate Return Tax Liability of each Subsidiary
owned, directly or indirectly, by Metallurg (each a "Metallurg Subsidiary" and
collectively, the Metallurg Subsidiaries") paid to Parent, minus (ii) the amount
of federal income tax that Metallurg and the Metallurg Subsidiaries
(collectively, the "Metallurg SubGroup") would have been required to pay (the
"Metallurg Consolidated Amount") if (a) Metallurg was never owned by Parent, (b)
Metallurg continued to be the common parent of the Metallurg Sub-Group, and (c)
the Metallurg Sub-Group filed a consolidated federal income tax return (the
"Metallurg Sub-Group Excess Payment"). An additional payment (the "Metallurg
Sub-Group Refund Payment") shall be made by Parent to Metallurg (in the manner
provided for in paragraph 8 of this Agreement) equal to the amount of any refund
of federal income tax that the Metallurg Sub-Group would have been entitled to
receive if the Metallurg SubGroup filed a
2
<PAGE> 3
separate consolidated federal income tax return, provided, however, that the
Metallurg Sub-Group Refund Payment shall be reduced by the amount of any such
refund paid by the Internal Revenue Service directly to any member of the
Metallurg Sub-Group.
5. If, on a separate return basis, a Metallurg Subsidiary would have
had a claim for refund of federal or state income taxes resulting from a
carryback of any net operating loss, capital loss, tax credit or similar tax
benefit (each a "Separate Company Tax Benefit Item") or would have been entitled
to reduce its federal or state income tax liability as a result of a
carryforward of a Separate Company Tax Benefit then, Metallurg will pay in cash
to such Metallurg Subsidiary (in the manner provided for in paragraph 8 of this
Agreement) an amount equal to such refund or reduction in tax ("Metallurg
Subsidiary Separate Return Tax Refund").
6. If requested by Parent, each Subsidiary shall make payments in
cash of estimated tax to Parent three (3) business days before the normal
quarterly due dates for the payment of the applicable tax. The amounts of any
estimated payments shall be determined under the rules in the relevant taxing
jurisdiction to which such Subsidiary would be subject if it filed a separate
return consistent with paragraph 2 of this Agreement. Payments of estimated tax
made under this paragraph shall reduce and offset any payments required to be
made to Parent under paragraph 8 of this Agreement.
7. Except as otherwise provided in the following sentence, the
calculation of the Separate Return Tax Liability for each Subsidiary shall be
made pursuant to the Code and its regulations as well as applicable cases,
rulings, etc. ("Applicable Law"). The calculation of the Separate Return Tax
Liability for each Subsidiary shall be made without taking into account any
carryforward or carryback of a Separate Company Tax Benefit Item available to
such Subsidiary; provided that Separate Company Tax Benefit Items shall be taken
into account to the fullest extent
3
<PAGE> 4
permitted by Applicable Law in computing the Metallurg Consolidated Amount and
any Metallurg Sub-Group Refund Payment under paragraph 4 of this Agreement.
8. Each Subsidiary shall pay in cash its Separate Return Tax
Liability to Parent by no later than the applicable due date or dates that the
consolidated federal income tax liability is due. Parent shall make the payment
in cash to (i) a Subsidiary of a Separate Return Tax Refund and (ii) Metallurg
of a Metallurg Sub-Group Excess Payment and a Metallurg Sub-Group Refund Payment
by no later than 45 days after the filing of the consolidated federal income tax
return. Metallurg shall make the payment in cash to a Metallurg Subsidiary of a
Metallurg Subsidiary Separate Return Tax Refund by no later than 10 days after
the receipt of a Metallurg Sub-Group Excess Payment from Parent.
9. Notwithstanding the provisions of paragraphs 6 and 8 of this
Agreement, all payments due hereunder from any Metallurg Subsidiary shall be
made by Metallurg on behalf of the applicable Metallurg Subsidiary. Payments of
estimated tax on behalf of the members of the Metallurg Sub-Group under
paragraph 6 of this Agreement shall be based solely on the Metallurg
Consolidated Amount and not based on the separate return liabilities of the
members of the Metallurg Sub-Group, and such payments shall be taken into
account in the same manner as payments of Separate Return Tax Liabilities in
computing any Metallurg Sub-Group Excess Payment under paragraph 4 of this
Agreement.
10. If all or a portion of the Group is required or has elected to
file a consolidated, unitary or combined state income tax return (each such
Group will hereafter be referred to as a "State Group"), the parent of the
particular State Group will compute, timely report and timely pay the State
Group's state income tax liability in accordance with the applicable state laws
and regulations and will timely file the State Group's required annual return.
No later than
4
<PAGE> 5
fifteen (15) days prior to the filing of the State Group's annual return, the
parent of the State Group will calculate and assess each member's share of the
State Group's state income tax liability based on each member's tax liability
computed on a separate basis under the tax laws of the applicable jurisdiction.
Not more than ten (10) days after such assessment, each member will pay to the
parent of the particular State Group its agreed share of the state income tax
liability in cash. With respect to any refunds, use of any Separate Company Tax
Benefit Item and the treatment of excess payments to the parent of a sub-group,
the provisions of this Agreement, to the extent relevant, shall similarly apply
to any state, local or foreign consolidated, combined or unitary group and its
members.
11. If after the filing of a return it is determined that any
liability computed hereunder, or the aggregate amount paid by any party to this
Agreement, is incorrect, whether by reason of an Internal Revenue Service or
state audit, underpayment by any party hereto, discovery of error, the learning
of new information, or otherwise, payment shall be made to other members of the
Group as appropriate so that the net amount paid by all such parties to this
Agreement equals the amount that should have been paid by each such party to
this Agreement if the correct amount of such tax had been paid as provided by
this Agreement when originally due. In addition, any additional expenses
incurred (including, for example, interest, penalties and attorney's fees) shall
be allocable to and payable by the member of the Group that is liable for the
underlying relevant tax liability (or that is responsible for any underpayment
of any amount required to be paid to a tax authority) pursuant to the terms of
this Agreement. In the event that tax liabilities are allocable under this
paragraph to more than one party to this Agreement, expenses related to such tax
liabilities shall be allocated to each such party pro rata in proportion to the
amount of such tax liabilities attributable to each such party in relation to
the aggregate amount of such tax liabilities.
5
<PAGE> 6
12. Parent agrees to indemnify any member of the Group (and the
parent of a State Group agrees to indemnify any member of its State Group) for
any and all claims, demands and expenses, including interest, penalties and
reasonable attorney's fees, in the event that the Internal Revenue Service (or
State taxing authority, if relevant) levies upon the assets of any such member
for unpaid taxes that Parent (or the parent of a State Group, as applicable) is
required to pay under this Agreement.
13. All payments required to be made pursuant to the terms of this
Agreement, including subsequent changes in the amount of a Subsidiary's Separate
Return Tax Liability or Separate Return Tax Refund, or the Metallurg Sub-Group
Excess Payment or Metallurg Sub-Group Refund Payment, shall be considered an
intercompany payable or receivable, as the case may be, until such payment is
made in cash, and shall not be considered a dividend or surplus contribution.
Such intercompany receivables if not timely paid shall bear interest from the
due date at the base rate as announced from time to time by BankBoston, N.A. at
its home office in Boston, Massachusetts.
14. Parent shall inform each Subsidiary of any audit or other
administrative or judicial proceeding that may affect the Subsidiary's Separate
Return Tax Liability, Separate Return Tax Refund or, in the case of Metallurg,
the Metallurg Sub-Group Excess Payment or any Metallurg Sub-Group Refund
Payment. No such proceeding shall be settled in a manner adverse to a Subsidiary
without the consent of the Subsidiary, such consent not to be unreasonably
withheld.
15. This Agreement shall be applicable only with respect to periods
for which the parties are members of the same affiliated Group filing a
consolidated federal income tax (or
6
<PAGE> 7
other relevant) return. No payment hereunder shall be made by or on behalf of a
Subsidiary with respect to periods for which such Subsidiary files a separate
return or is a member of another affiliated Group filing a consolidated federal
income tax (or other relevant) return.
16. This Agreement shall take effect as of July 1 3, 1 998, and
shall continue until terminated by the mutual written agreement of all of the
parties. In the event any party ceases to be affiliated with the Group or any
State Group, as may be relevant, this Agreement automatically terminates only
with respect to that member and only with respect to such Group or State Group
as may be relevant. Notwithstanding the termination of this Agreement, in whole
or as to any member, its provisions will remain in effect, with respect to any
full or partial tax period, for which the income of the terminating party must
be included in the consolidated federal income tax (or other relevant State
Group) return.
17. This Agreement may, from time to time, be amended, modified, and
supplemented in such manner as may be mutually agreed upon by the parties,
subject to the approval of any regulatory authorities as required by law. Any
amendment, modification or supplement to this Agreement shall be in writing and
shall be executed by a duly appointed representative of each of the parties.
18. Every article, term condition and provision of this Agreement is
declared to be independent of and severable from all other articles, terms,
conditions and provisions of the Agreement. Invalidation, whether judicial or
otherwise, of any article, term, condition or provision contained in this
Agreement shall in no way affect any other provision of this Agreement, all of
which shall remain in full force and effect.
19. The books, accounts, tax returns and records of Parent and each
Subsidiary shall be maintained so as to clearly and adequately disclose the
precise nature and details of the
7
<PAGE> 8
obligations and liabilities under this Agreement. All materials relating to the
tax returns, including but not limited to the returns, supporting schedules,
work papers, and correspondence, shall be available for inspection at any time
during normal business hours by Parent or any Subsidiary. Each party to this
Agreement shall maintain, at its principal or home office, records of all tax
allocations, and any subsequent Internal Revenue Service or state review or
adjustment. The provisions of this paragraph shall survive termination of this
Agreement.
20. This Agreement is not assignable by any party without the prior
written consent of the other parties.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by duly authorized officers to be effective July 1 3, 1998.
Metallurg Holdings, Inc., Tantalum Corporation,
a Delaware corporation a New Jersey corporation
By: /s/ Douglas A. Fastuca By: /s/ Michael A. Banks
------------------------------------ -----------------------------
Name: Douglas A. Fastuca Name: Michael A. Banks
Chief Financial Officer Vice President
Metallurg, Inc., MIR (China), Inc.,
a Delaware corporation a Delaware corporation
By: /s/ Barry C. Nuss By: /s/ Barry C. Nuss
------------------------------------ -----------------------------
Name: Barry C Nuss Name: Barry C. Nuss
Vice President, Finance Vice President
Shieldalloy Metallurgical Corporation,
a Delaware corporation
By: /s/ Barry C. Nuss
------------------------------------
Name: Barry C. Nuss
Secretary
Metallurg Services, Inc.,
a New York corporation
By: /s/ Barry C. Nuss
------------------------------------
Name: Barry C. Nuss
Controller
Metallurg Holdings Corporation,
a New Jersey corporation
By: /s/ Barry C. Nuss
------------------------------------
Name: Barry C. Nuss
Vice President, Treasurer
9
<PAGE> 1
EXHIBIT 21.1
LISTING OF SUBSIDIARIES
Subsidiaries of Country, State or Province
Metallurg, Inc. of Incorporation
- --------------- ----------------
Shieldalloy Metallurgical Corporation Delaware
Elektrowerk Weisweiler GmbH Germany
Metallurg (Canada) Limited Quebec
MIR (China), Inc. Delaware
Metallurg International Resources, Inc. New York
Shawdon Enterprises Ltd. Cyprus
Metallurg Holdings Corporation New Jersey
Metallurg Services, Inc. New York
Subsidiaries of Country or State
Metallurg Holdings Corporation of Incorporation
- ------------------------------ ----------------
London & Scandinavian Metallurgical Co Limited England
S. A. Vickers Limited (dormant) England
H. M. I. Limited (dormant) England
Metal Alloys (South Wales) Limited (dormant) England
The Aluminum Powder Company Limited England
Alpoco Developments Limited (dormant) England
Metalloys Limited (dormant) England
M & A Powders Limited (dormant) England
Metallurg South Africa (Pty.) Limited South Africa
W.T. Mines Limited (dormant) South Africa
Stand 359 Wadeville Extension 4 (Pty.) Limited South Africa
Turk Maadin Sirketi Turkey
Gesellschaft fur Elektometallurgie mbH Germany
Societe Miniere du Kivu (dormant) Congo
GfE Umwelttechnik GmbH Germany
Keramed Medizintechnik Gmbh Germany
GfE Metalle und Materialien GmbH Germany
GfE Giesserei- und Stahlwerksbedarf Germany
RZM-Recyclingzentrum Mittelfranken GmbH Germany
Companhia Industrial Fluminense Brazil
Ferrolegeringar Aktiengesellschaft Zurich, Switzerland
Metalchimica S. r. l. Italy
FAG Poland Sp. z. o. o. Poland
5
<PAGE> 2
Aktiebolaget Ferrolegeringar Sweden
Metallurg International Resources GmbH Germany
Metallurg International Resources Russia Limited Russia
Metallurg (Far East) Limited Japan
Montanistica S. A. Zug, Switzerland
Metallurg Mexico S. A. de C. V. Mexico
Atlantic Alloys and Chemicals Limited (dormant) Jersey, CI
Caribbean Metals & Alloys Limited (dormant) Grand Cayman
Metallurgische Gesellschaft AG (dormant) Zurich, Switzerland
Brandau y Cia S. A. (dormant) Spain
Aleaciones Metalurgicas Venezolanas C. A. (dormant) Venezuela
Montan Aktiengesellschaft (dormant) Liechtenstein
Notes
Dormant subsidiaries have no operations.
As of April 1, 1999
6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
AS OF APRIL 1, 1997, THE COMPANY CHANGED ITS FISCAL YEAR TO JANUARY 31.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 37293
<SECURITIES> 0
<RECEIVABLES> 65450
<ALLOWANCES> 1770
<INVENTORY> 120658
<CURRENT-ASSETS> 238390
<PP&E> 60936
<DEPRECIATION> 11918
<TOTAL-ASSETS> 311117
<CURRENT-LIABILITIES> 72161
<BONDS> 109185
0
0
<COMMON> 50
<OTHER-SE> 47640
<TOTAL-LIABILITY-AND-EQUITY> 311117
<SALES> 606334
<TOTAL-REVENUES> 607169
<CGS> 525861
<TOTAL-COSTS> 592387
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12833
<INCOME-PRETAX> 6720
<INCOME-TAX> 4788
<INCOME-CONTINUING> 1932
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1932
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
