<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
METALLURG, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
DELAWARE 13-1661467
- ------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
</TABLE>
6 EAST 43RD STREET
NEW YORK, NEW YORK 10017
----------------------------------------
(Address of Principal Executive Offices)
(Zip Code)
(212) 835-0200
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
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 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 [ ]
The number of shares of common stock, $0.01 par value, issued and outstanding as
of June 15, 1999 was 5,000,000.
<PAGE> 2
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
-------
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Condensed Statement of Consolidated Operations
for the Quarters Ended April 30, 1999 and 1998 3
Condensed Consolidated Balance Sheets at April 30,
1999 and January 31, 1999 4
Condensed Statements of Consolidated Cash Flows
for the Quarters Ended April 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Part II. OTHER INFORMATION
Item 6. (a) EXHIBITS 17
Item 6. (b) REPORT ON FORM 8-K 17
Signature Page 18
</TABLE>
2
<PAGE> 3
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
(IN THOUSANDS)
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Quarter
Ended Ended
April 30, April 30,
1999 1998
--------- ---------
<S> <C> <C>
Sales .................................... $ 117,679 $ 167,675
Commission income ........................ 134 155
--------- ---------
Total revenue ......................... 117,813 167,830
--------- ---------
Operating costs and expenses:
Cost of sales ......................... 108,039 139,008
Selling, general and administrative
expenses............................ 14,408 14,761
--------- ---------
Total operating costs and expenses . 122,447 153,769
--------- ---------
Operating (loss) income ............ (4,634) 14,061
Other income (expense):
Other income, net ..................... 32 878
Interest expense, net ................. (2,966) (2,072)
--------- ---------
(Loss) income before income tax
provision .......................... (7,568) 12,867
Income tax provision ..................... 976 6,077
--------- ---------
Net (loss) income ........................ (8,544) 6,790
Other comprehensive (loss) income:
Foreign currency translation adjustment (1,684) 76
--------- ---------
Comprehensive (loss) income ........... $ (10,228) $ 6,866
========= =========
</TABLE>
- ----------------------------------------------------------------------------
See notes to condensed unaudited consolidated financial statements
3
<PAGE> 4
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
April 30, January 31,
1999 1999
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ......... $ 39,945 $ 37,293
Accounts and notes receivable, net 74,007 63,680
Inventories ....................... 103,065 120,658
Other assets ...................... 16,960 16,759
--------- ---------
Total current assets ........... 233,977 238,390
Property, plant and equipment, net ... 47,751 49,018
Other assets ......................... 21,979 23,709
--------- ---------
TOTAL .......................... $ 303,707 $ 311,117
========= =========
LIABILITIES
Current liabilities:
Short-term debt and current portion
of long-term debt .............. $ 5,663 $ 4,945
Trade payables .................... 44,352 37,460
Accrued expenses .................. 27,178 25,801
Other current liabilities ......... 2,611 3,955
--------- ---------
Total current liabilities ...... 79,804 72,161
--------- ---------
Long-term debt ....................... 107,861 109,185
Accrued pension liabilities .......... 37,915 41,062
Environmental liabilities, net ....... 34,399 35,463
Other liabilities .................... 6,007 5,556
--------- ---------
Total long-term liabilities .... 186,182 191,266
--------- ---------
Total liabilities .............. 265,986 263,427
--------- ---------
SHAREHOLDERS' EQUITY
Common stock ......................... 50 50
Additional paid-in capital ........... 45,516 45,257
Accumulated other comprehensive loss.. (2,072) (388)
Retained (deficit) earnings .......... (5,773) 2,771
--------- ---------
Total shareholders' equity ..... 37,721 47,690
--------- ---------
TOTAL .......................... $ 303,707 $ 311,117
========= =========
</TABLE>
- -----------------------------------------------------------------------
See notes to condensed unaudited consolidated financial statements.
4
<PAGE> 5
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Quarter
Ended Ended
April 30, April 30,
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ............................... $ (8,544) $ 6,790
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Executive stock awards ........................ -- 293
Depreciation and amortization ................. 1,945 2,188
Gain on sale of assets ........................ (7) (493)
Deferred income taxes ......................... 580 1,387
Provision for doubtful accounts ............... 135 289
Other, net .................................... 4,316 4,123
-------- --------
Total ....................................... (1,575) 14,577
Change in operating assets and liabilities:
Increase in trade receivables ................. (14,982) (11,353)
Decrease (increase) in inventories ............ 13,754 (297)
Decrease in other current assets .............. 1,024 1,328
Increase in trade payables and accrued expenses 8,118 8,633
Payments for environmental remediation ........ (713) (558)
Other assets and liabilities, net ............. (924) (1,286)
-------- --------
Net cash provided by operating activities ... 4,702 11,044
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment .... (2,340) (2,929)
Proceeds from asset sales ..................... 13 1,143
Other, net .................................... (293) (1,781)
-------- --------
Net cash used in investing activities ....... (2,620) (3,567)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings ..................... 1,296 146
Repayment of long-term debt ................... (392) (419)
-------- --------
Net cash provided by (used in) financing
activities ............................... 904 (273)
-------- --------
Effects of exchange rate changes on cash and cash
equivalents................................... (334) 14
-------- --------
Net increase in cash and cash equivalents ....... 2,652 7,218
Cash and cash equivalents - beginning of period . 37,293 43,003
-------- --------
Cash and cash equivalents - end of period ....... $ 39,945 $ 50,221
======== ========
</TABLE>
- -----------------------------------------------------------------------------
See notes to condensed unaudited consolidated financial statements.
5
<PAGE> 6
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed unaudited consolidated financial statements
include the accounts of Metallurg, Inc. ("Metallurg") and its majority-owned
subsidiaries (collectively, the "Company"). These financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information pursuant to Accounting Principles Board
Opinion No. 28. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The condensed consolidated balance sheet as of January
31, 1999 was derived from audited financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the interim periods presented are not necessarily indicative of
the results to be expected for a full year.
The Company is a wholly owned subsidiary of Metallurg Holdings, Inc.
("Metallurg Holdings") since the acquisition date of July 13, 1998. The
financial statements do not reflect the pushdown of purchase accounting
adjustments recorded by Metallurg Holdings.
For further information, see the financial statements and footnotes thereto
included in the Company's audited consolidated financial statements for the
year ended January 31, 1999.
The Company reports the results of its operating subsidiaries on a one-month
lag. Accordingly, the quarters ended April 30, 1999 and 1998 include
worldwide operating results of the operating subsidiaries for the three
months ended March 31, 1999 and 1998 and operating results of Metallurg,
Inc., the parent holding company, for the three months ended April 30, 1999
and 1998. Balance sheet data at April 30, 1999 reflect the financial
position of Metallurg, Inc. at April 30, 1999 and of its operating
subsidiaries at March 31, 1999. Balance sheet data at January 31, 1999
reflect the financial position of Metallurg, Inc. at January 31, 1999 and
of its operating subsidiaries at December 31, 1998.
2. INVENTORIES
Inventories, net of reserves, consist of the following (in thousands):
<TABLE>
<CAPTION>
April 30, January 31,
1999 1999
-------- --------
<S> <C> <C>
Raw materials ..................... $ 20,468 $ 29,096
Work in process ................... 2,862 3,249
Finished goods .................... 74,877 83,116
Other ............................. 4,858 5,197
-------- --------
Total .......................... $103,065 $120,658
======== ========
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
The Company continues defending various claims and legal actions arising in
the normal course of business, including those relating to environmental
matters. Management believes, based on the advice of counsel, that the
outcome of such litigation will not have a material adverse effect on the
Company's consolidated financial 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.
6
<PAGE> 7
4. EARNINGS PER COMMON SHARE
The presentation of earnings per share is not presented since the
Company is a wholly owned subsidiary of Metallurg Holdings.
5. 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, 2000. The
Company is currently evaluating the impact SFAS No. 133 will have on its
financial statements.
7
<PAGE> 8
6. SUPPLEMENTAL GUARANTOR INFORMATION
In November 1997, the Company issued $100 million principal amount of its
11% Senior Notes due 2007. Under the terms of the Senior Notes, Shieldalloy
Metallurgical Corporation ("Shieldalloy"), Metallurg Holdings Corporation,
Metallurg Services, Inc., Metallurg International Resources, Inc. and MIR
(China), Inc. (collectively, the "Guarantors"), wholly owned subsidiaries
of the Company, have fully and unconditionally guaranteed on a joint and
several basis the Company's obligations to pay principal, premium and
interest relative to the Senior Notes. 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 (UNAUDITED)
FOR THE QUARTER ENDED APRIL 30, 1999
(In thousands)
<TABLE>
<CAPTION>
Metallurg, Combined Combined
Inc. Guarantor Non-Guarantor
("Parent Company") Subsidiaries Subsidiaries Eliminations Consolidated
------------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales ....................... $ 7,297 $ 32,741 $ 96,653 $ (19,012) $ 117,679
Commission income ........... -- 2 177 (45) 134
--------- --------- --------- --------- ---------
Total revenue ............ 7,297 32,743 96,830 (19,057) 117,813
--------- --------- --------- --------- ---------
Operating costs and expenses:
Cost of sales ............ 6,572 35,244 85,120 (18,897) 108,039
Selling, general and
administrative expenses 1,926 2,191 10,291 -- 14,408
--------- --------- --------- --------- ---------
Total operating costs
and expenses .......... 8,498 37,435 95,411 (18,897) 122,447
--------- --------- --------- --------- ---------
Operating (loss) income ..... (1,201) (4,692) 1,419 (160) (4,634)
Other income (expense):
Other income, net ........ -- 7 25 -- 32
Interest (expense) income,
net...................... (2,931) 426 (461) -- (2,966)
Equity in loss
of subsidiaries.. (2,986) (675) -- 3,661 --
--------- --------- --------- --------- ---------
(Loss) income before
income tax provision ..... (7,118) (4,934) 983 3,501 (7,568)
Income tax provision
(benefit) ................ 1,426 (1,623) 1,173 -- 976
--------- --------- --------- --------- ---------
Net (loss) income ........... (8,544) (3,311) (190) 3,501 (8,544)
Other comprehensive (loss)
income:
Foreign currency
translation adjustment .... (1,684) (1,199) (1,676) 2,875 (1,684)
--------- --------- --------- --------- ---------
Comprehensive (loss) income .. $ (10,228) $ (4,510) $ (1,866) $ 6,376 $ (10,228)
========= ========= ========= ========= =========
</TABLE>
8
<PAGE> 9
CONDENSED CONSOLIDATING BALANCE SHEET AT APRIL 30, 1999 (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Metallurg, Combined Combined
Inc. Guarantor Non-Guarantor
("Parent Company") Subsidiaries Subsidiaries Eliminations Consolidated
----------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents ............... $ 28,998 $ 1,131 $ 15,374 $ (5,558) $ 39,945
Accounts, notes and loans
receivable, net ........... 28,754 39,946 58,019 (52,712) 74,007
Inventories .................. -- 36,840 69,503 (3,278) 103,065
Other assets ................. 8,224 2,036 8,193 (1,493) 16,960
--------- --------- --------- --------- ---------
Total current assets...... 65,976 79,953 151,089 (63,041) 233,977
Investments - intergroup ....... 103,762 55,248 -- (159,010) --
Property, plant and
equipment, net ............... 1,026 7,962 38,763 -- 47,751
Other assets .................... 5,167 17,618 16,408 (17,214) 21,979
--------- --------- --------- --------- ---------
Total ..................... $ 175,931 $ 160,781 $ 206,260 $(239,265) $ 303,707
========= ========= ========= ========= =========
LIABILITIES
Current liabilities:
Short-term debt and current
portion of long-term debt .. $ 11,221 $ (5,558) $ 5,663
Accounts and loans
payable ................... $ 13,176 $ 29,560 64,328 (62,712) 44,352
Accrued expenses ............. 6,290 8,085 12,803 -- 27,178
Other current liabilities .... -- 1,519 2,585 (1,493) 2,611
--------- --------- --------- --------- ---------
Total current liabilities . 19,466 39,164 90,937 (69,763) 79,804
--------- --------- --------- --------- ---------
Long-term liabilities:
Long-term debt ............... 100,000 -- 7,861 -- 107,861
Accrued pension liabilities .. 173 1,795 35,947 -- 37,915
Environmental liabilities,
net....................... -- 31,986 2,413 -- 34,399
Other liabilities ............ 18,571 -- 4,650 (17,214) 6,007
--------- --------- --------- --------- ---------
Total long-term liabilities 118,744 33,781 50,871 (17,214) 186,182
--------- --------- --------- --------- ---------
Total liabilities ......... 138,210 72,945 141,808 (86,977) 265,986
--------- --------- --------- --------- ---------
SHAREHOLDERS' EQUITY:
Common stock outstanding ..... 50 1,227 52,191 (53,418) 50
Additional paid-in capital ... 45,516 90,867 1,014 (91,881) 45,516
Accumulated other
comprehensive (loss) income. (2,072) (1,385) 19,669 (18,284) (2,072)
Retained (deficit) earnings... (5,773) (2,873) (8,422) 11,295 (5,773)
--------- --------- --------- --------- ---------
Shareholders' equity ...... 37,721 87,836 64,452 (152,288) 37,721
--------- --------- --------- --------- ---------
Total ..................... $ 175,931 $ 160,781 $ 206,260 $(239,265) $ 303,707
========= ========= ========= ========= =========
</TABLE>
9
<PAGE> 10
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE QUARTER ENDED APRIL 30, 1999
(In thousands)
<TABLE>
<CAPTION>
Metallurg, Combined Combined
Inc. Guarantor Non-Guarantor
("Parent Company") Subsidiaries Subsidiaries Eliminations Consolidated
------------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS FROM
OPERATING ACTIVITIES ................ $ 448 $ 2,915 $ 1,323 $ 16 $ 4,702
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to property, plant
and equipment ..................... (129) (604) (1,607) -- (2,340)
Proceeds from asset sales ........... -- 13 -- -- 13
Other, net .......................... (312) -- 19 -- (293)
-------- -------- -------- -------- --------
Net cash used in investing
activities .......................... (441) (591) (1,588) -- (2,620)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Intergroup borrowings (repayments) .. 3,238 (2,288) (934) (16) --
Net short-term borrowings ........... -- -- 776 520 1,296
Repayment of long-term debt ......... -- -- (392) -- (392)
Dividends received (paid) ........... 140 -- (140) -- --
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities ................ 3,378 (2,288) (690) 504 904
-------- -------- -------- -------- --------
Effects of exchange rate changes on cash
and cash equivalents................. -- -- (334) -- (334)
-------- -------- -------- -------- --------
Net increase (decrease) in cash
and cash equivalents ................ 3,385 36 (1,289) 520 2,652
Cash and cash equivalents -
beginning of period ................. 25,613 1,095 16,663 (6,078) 37,293
-------- -------- -------- -------- --------
Cash and cash equivalents -
end of period ....................... $ 28,998 $ 1,131 $ 15,374 $ (5,558) $ 39,945
======== ======== ======== ======== ========
</TABLE>
10
<PAGE> 11
7. SUBSEQUENT EVENT
In June 1999, the Company received proceeds in the amount of $6.5 million
from an insurance company upon settlement of environmental claims relating
to periods dating back to the 1960's. These claims relate to historical
costs of remedial activities at the Company's Newfield, New Jersey site.
11
<PAGE> 12
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain matters discussed under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in this Form 10-Q 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 that the Company supplies are cyclical. 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 and into 1999. The Company believes that
the declines were the result of economic turmoil seen in Asia, Latin America
and Russia in 1997 and 1998. In the steel industry, this led to lower
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 and into 1999 with only very
slow improvement beginning to show towards the end of the quarter. In addition,
civilian airliner production in 1998 did not reach the levels forecast by a
major producer, and the economic turmoil already mentioned 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, which had been left
holding vastly excessive inventories of their aerospace related products. The
aluminum industry had sustained satisfactory levels of demand for the Company's
products throughout 1998, and this has continued in 1999.
RESULTS OF OPERATIONS
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.
12
<PAGE> 13
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. There have been no material changes in segment assets from
the amounts disclosed in the last annual report.
<TABLE>
<CAPTION>
London and Gesellschaft
Scandinavian fur Elektro- Elektrowerk
Metallurgical metallurgie Weisweiler
Co., Ltd. mbH GmbH
Shieldalloy ("LSM") ("GfE") ("EWW") Other
----------- ------------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
FOR THE QUARTER ENDED APRIL 30, 1999
Revenues from external customers ............ $ 31,712 $ 26,955 $ 19,950 $ 3,290 $ 35,906
Intergroup revenue .......................... 1,029 8,653 3,652 5,437 11,282
Income tax (benefit) provision .............. (1,669) 256 141 226 2,022
Net (loss) income............................ (2,704) 386 (1,083) 224 (8,193)
FOR THE QUARTER ENDED APRIL 30, 1998
Revenues from external customers ............ $ 54,375 $ 31,031 $ 29,457 $ 5,298 $ 47,669
Intergroup revenue .......................... 1,158 15,746 2,770 9,872 13,880
Income tax provision ........................ 3,113 605 601 861 897
Net income .................................. 4,409 1,327 876 791 8,050
</TABLE>
<TABLE>
<CAPTION>
Intersegment Consolidated
Eliminations Totals
------------ ------------
<S> <C>
FOR THE QUARTER ENDED APRIL 30, 1999
Revenues from external customers ............... $ 117,813
Intergroup revenue ............................. $ (30,053) --
Income tax provision (benefit) ................. -- 976
Net (loss) income............................... 2,826 (8,544)
FOR THE QUARTER ENDED APRIL 30, 1998
Revenues from external customers ............... $ 167,830
Intergroup revenue ............................. $ (43,426) --
Income tax provision ........................... -- 6,077
Net income ..................................... (8,663) 6,790
</TABLE>
Total Revenues
Total revenues decreased from $167.8 million in the quarter ended
April 30, 1998 to $117.8 million in the quarter ended April 30, 1999 due to
decreases in the selling prices and volumes of the Company's primary products.
Shieldalloy revenues were $22.8 million (41%) below the first quarter of 1998.
As a result of the negative developments in the steel industry, the market price
of ferrovanadium, a significant product for Shieldalloy, declined from
approximately $13.75 per pound during April 1998 to approximately $5.25 per
pound during April 1999. Decreased volume and selling prices of ferrovanadium
during the first quarter of 1999 resulted in a revenue decrease of approximately
$10.0 million. Volume and selling prices of ferrosilicon, chrome metal and low
carbon ferrochrome also declined in 1999.
The developments in the aerospace industry led to a reduction in superalloy and
titanium alloy demand that impacted negatively on price, and particularly on
volumes, of the Company's specialty low carbon ferrochrome, chromium and
vanadium aluminum products. As a result of negative developments in the steel
and aerospace industries, LSM total revenues were $11.2 million (24%) below the
first quarter of 1998 due primarily to decreased volume of ferrotitanium and
chromium metal sales. GfE total revenues were $8.6 million (27%) below 1998 due
primarily to decreased selling prices and volumes of vanadium aluminum and
ferrovanadium. Total revenues of EWW were $6.4 million (42%) below the first
quarter of 1998 due primarily to reduced demand for low carbon ferrochrome.
Gross Margins
Total gross margin decreased from $28.8 million in the quarter ended April 30,
1998 to $9.8 million in the quarter ended April 30, 1999, a decrease of 66.1%,
due principally to price and volume decreases in ferrovanadium, ferrotitanium
and chromium. In addition, Shieldalloy recognized a lower of cost or market
adjustment of $3.6 million relating to ferrovanadium in 1999. 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 of low carbon
ferrochrome declined in 1999, resulting from lower selling prices and less
favorable product mix.
13
<PAGE> 14
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") decreased slightly from
$14.8 million in the quarter ended April 30, 1998 to $14.4 million in the
quarter ended April 30, 1999. For the quarter ended April 30, 1998, SG&A
represented 8.8% of the Company's sales compared to 12.2% for the quarter ended
April 30, 1999, as a result of decreased revenues.
Operating Income
Operating income decreased from $14.1 million in the quarter ended April 30,
1998 to a loss of $4.6 million in the quarter ended April 30, 1999, due to the
decrease in gross margin, discussed above.
Other Income, Net
In March 1998, the Company sold its minority investment in a Luxembourg
affiliate and realized a gain of approximately $0.9 million.
Interest Expense, Net
Interest expense, net, is as follows (in thousands):
<TABLE>
<CAPTION>
Quarter Quarter
Ended Ended
April 30, April 30,
1999 1998
--------- ---------
<S> <C> <C>
Interest income ...... $ 492 $ 828
Interest expense ..... (3,458) (2,900)
------- -------
Income expense, net $(2,966) $(2,072)
======= =======
</TABLE>
Interest expense increased $0.6 million in the quarter ended April 30, 1999
reflecting primarily higher effective interest rates and increased external
borrowing levels during the current period.
Income Tax Provision
Income tax provision, net of tax benefits, is as follows (in thousands):
<TABLE>
<CAPTION>
Quarter Quarter
Ended Ended
April 30, April 30,
1999 1998
------ ------
<S> <C> <C>
Total current .............. $ 396 $4,690
Total deferred ............. 580 1,387
------ ------
Income tax provision, net $ 976 $6,077
====== ======
</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 foreign tax rates over the statutory Federal
income tax rate; (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 $0.2 million in the quarter ended April
30, 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 $0.3 million in the quarter ended April 30, 1999. The deferred tax
expenses referred to in items (iv) and (v) above will not result in cash
payments in future periods.
14
<PAGE> 15
Net Income
Net income decreased from $6.8 million for the quarter ended April 30, 1998 to a
loss of $8.5 million for the quarter ended April 30, 1999. The decrease in 1999
results primarily from reduced gross margins and increased interest expense, as
noted above.
LIQUIDITY AND FINANCIAL RESOURCES
General
The Company's sources of liquidity include cash from operations and amounts
available under credit facilities. In addition, the Company has $39.9 million of
cash and cash equivalents at April 30, 1999. 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 April 30, 1999, the Company had working capital of $154.2 million, as
compared to $166.2 million at January 31, 1999. For the first quarter of 1999,
the Company generated $4.7 million in cash from operations. Capital expenditures
approximated $2.3 million in the first quarter of 1999.
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 U.S. At April 30,
1999, there were no outstanding loans and $25.1 million of letters of credit
outstanding in the U.S. under the Revolving Credit Facility. On October 20,
1997, BankBoston, N.A., through its Frankfurt office, made available up to DM
20.5 million (approximately $11.3 million) of financing to certain of its German
subsidiaries (the "German Subfacility"), which is guaranteed by Metallurg and
the other U.S. borrowers under the Revolving Credit Facility. At April 30, 1999,
no loans were outstanding in Germany under this Facility.
In addition, certain 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 that vary from company to company. At April 30, 1999, there were
$4.5 million of outstanding loans under these local credit facilities.
CAPITAL EXPENDITURES
The Company invested $2.3 million in capital expenditures during the first
quarter of 1999. Capital expenditures are expected to total approximately $18.0
million in 1999. Although the Company has budgeted these items in 1999, the
Company has not committed to complete these projects which are contingent on
senior management approval and other conditions. The Company believes that these
projects will be funded through internally generated cash, borrowings under the
Revolving Credit Facility and local credit lines.
ENVIRONMENTAL REMEDIATION COSTS
AICPA Statement of Position 96-1, "Environmental Remediation Liabilities",
requires 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
15
<PAGE> 16
and are adjusted as further information develops or circumstances change. Costs
of future expenditures for environmental remediation obligations are generally
not discounted by the Company to their present value. During the first quarter
of 1999, the Company expended $0.7 million for environmental remediation.
In 1997, 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 April 30, 1999, had an estimated cost of completion of $36.7 million. Of
this amount, approximately $2.9 million is expected to be expended in the last
three quarters of 1999, $5.7 million in 2000 and $7.4 million in 2001. In
addition, the Company estimates it will make expenditures of $4.3 million with
respect to environmental remediation at its foreign facilities. Of this amount,
approximately $1.9 million is expected to be expended in the last three quarters
of 1999, $0.9 million in 2000 and $0.8 million in 2001.
YEAR 2000 READINESS
Metallurg has completed an internal review of its and 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. Metallurg 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.
16
<PAGE> 17
PART II. OTHER INFORMATION
<TABLE>
<CAPTION>
ITEM 6. (a) EXHIBITS
<S> <C>
10. Employment Agreement dated as of June 1, 1999 between Metallurg, Inc.
and Dennis P. Kelly.
27. Financial Data Schedule
6. (b) REPORT ON FORM 8-K
None
</TABLE>
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on June 15, 1999 on its
behalf by the undersigned thereunto duly authorized.
METALLURG, INC.
/s/ BARRY C. NUSS
----------------------------------
Barry C. Nuss
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
18
<PAGE> 1
Exhibit 10
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 1st day of June, 1999, by
and between Metallurg, Inc., a Delaware corporation (together with its
successors and assigns permitted under this Agreement, the "Company"), and
Dennis P. Kelly (the "Executive").
W I T N E S S E T H :
WHEREAS, the Company desires to enter into an employment agreement (the
"Agreement") embodying the terms of employment between the Executive and the
Company; and
WHEREAS, the Executive desires to enter into the Agreement and to
accept such employment, subject to the terms and provisions of the Agreement;
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 business that was being
conducted by the Company or any Subsidiary during the Term of
1
<PAGE> 2
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 June 1, 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
2
<PAGE> 3
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, Group
Strategic Development 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 $220,000. 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 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. [Intentionally omitted]
3
<PAGE> 4
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.
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;
4
<PAGE> 5
(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 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
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.
5
<PAGE> 6
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").
(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
6
<PAGE> 7
(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
eighteen months, payable in equal monthly
installments over such period;
(4) continued accrual of credited service
through a period ending on that date that
would have been 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; however, other than
the foregoing, all rights to continue to
participate in such program shall terminate
on the date of termination of employment;
(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 (excluding long-term
disability programs) 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
7
<PAGE> 8
(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;
(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.
8
<PAGE> 9
(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, attached
hereto and made a part hereof, 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, 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
1becomes 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.
9
<PAGE> 10
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
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.
10
<PAGE> 11
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 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
11
<PAGE> 12
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 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.
12
<PAGE> 13
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
If to the Executive: Dennis P. Kelly
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.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
METALLURG, INC.
By:_________________________
Name: Alan D. Ewart
Title: President and Chief
Executive Officer
AGREED AND ACCEPTED
__________________________
Dennis P. Kelly
13
<PAGE> 14
SCHEDULE A
Years of Service Severance Period
---------------- ----------------
Up To 15 6 months
More Than 15 9 months
More Than 20 12 months
14
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<PERIOD-END> APR-30-1999
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<PP&E> 60759
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0
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<INCOME-TAX> 976
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