<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 9, 1997
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
HOWMET INTERNATIONAL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3324 52-1946684
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S.
JURISDICTION OF CLASSIFICATION CODE NUMBER) EMPLOYER
INCORPORATION OR IDENTIFICATION
ORGANIZATION) NO.)
ROLAND PAUL
475 STEAMBOAT ROAD VICE PRESIDENT-GENERAL COUNSEL AND
GREENWICH, CONNECTICUT 06830 SECRETARY
(203) 661-4600 HOWMET INTERNATIONAL INC.
(ADDRESS, INCLUDING ZIP CODE, AND 475 STEAMBOAT ROAD
TELEPHONE NUMBER, INCLUDING AREA CODE, GREENWICH, CONNECTICUT 06830
OF REGISTRANT'S PRINCIPAL EXECUTIVE (203) 661-4600
OFFICES) (NAME, ADDRESS, INCLUDING ZIP CODE,
AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR
SERVICE)
----------------
COPIES TO:
ERIC S. ROBINSON PAUL C. PRINGLE
WACHTELL, LIPTON, ROSEN BROWN & WOOD LLP
& KATZ 555 CALIFORNIA STREET
51 WEST 52ND STREET SAN FRANCISCO,
NEW YORK, NEW YORK 10019 CALIFORNIA 94104
(212) 403-1000 (415) 772-1200
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE (1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, par value
$.01 per share........ $375,000,000 $113,637
</TABLE>
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(1) Estimated solely for the purpose of calculation of the registration fee
pursuant to Rule 457(o) promulgated under the Securities Act of 1933.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two separate prospectuses, one to be
used in connection with an offering of Common Stock in the United States and
Canada (the "U.S. Prospectus") and one to be used in a concurrent offering of
Common Stock outside the United States and Canada (the "International
Prospectus"). The U.S. Prospectus and the International Prospectus will be
identical in all respects except for the front cover page.
The form of the U.S. Prospectus is included herein and the form of the front
cover page of the International Prospectus follows the back cover page of the
U.S. Prospectus.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued 1997 [LOGO]
Shares
Howmet International Inc.
COMMON STOCK
-----------
OF THE SHARES OF COMMON STOCK BEING OFFERED, SHARES ARE BEING OFFERED
INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS AND
SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITERS." ALL OF THE SHARES OF COMMON
STOCK BEING OFFERED ARE BEING SOLD BY CARLYLE-BLADE ACQUISITION PARTNERS,
L.P. (THE "SELLING SHAREHOLDER"), AN AFFILIATE OF THE CARLYLE GROUP, WHICH
CURRENTLY OWNS 51% OF THE OUTSTANDING COMMON STOCK. PRIOR TO THE OFFERING,
THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK. IT IS CURRENTLY
ESTIMATED THAT THE INITIAL PRICE TO PUBLIC WILL BE BETWEEN $ AND $
PER SHARE. SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE
CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
SIMULTANEOUSLY WITH THE OFFERING, THE SELLING SHAREHOLDER HAS AGREED TO
SELL 11,000,000 SHARES OF COMMON STOCK TO THIOKOL HOLDING COMPANY, A
WHOLLY-OWNED SUBSIDIARY OF THIOKOL CORPORATION (COLLECTIVELY,
"THIOKOL"), AT THE INITIAL PRICE TO PUBLIC LESS UNDERWRITING DISCOUNTS
AND COMMISSIONS. THIOKOL CURRENTLY OWNS 49% OF THE OUTSTANDING COMMON
STOCK AND WILL OWN 60% OF THE OUTSTANDING COMMON STOCK AS A RESULT
OF SUCH PURCHASE. THE SELLING SHAREHOLDER HAS ALSO GRANTED
THIOKOL OPTIONS TO ACQUIRE ITS REMAINING SHARES OF COMMON STOCK
FOLLOWING THE OFFERING.
-----------
APPLICATION HAS BEEN MADE TO LIST THE COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE UNDER THE SYMBOL "HWM."
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) SHAREHOLDER(2)
-------- -------------- -------------------
<S> <C> <C> <C>
Per Share........................... $ $ $
Total(3)............................ $ $ $
</TABLE>
- -----
(1) The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
(2) The expenses of the Offering, estimated at $ , will be payable by the
Company.
(3) The Selling Shareholder has granted the U.S. Underwriters an option,
exercisable within 30 days of the date hereof, to purchase up to an
aggregate of additional shares of Common Stock at the price to
public less underwriting discounts and commissions for the purpose of
covering overallotments, if any. If the U.S. Underwriters exercise such
option in full, the total price to public, underwriting discounts and
commissions and proceeds to Selling Shareholder will be $ , $ and
$ , respectively. See "Underwriters."
-----------
The shares of Common Stock are offered, subject to prior sale, when, as and
if accepted by the Underwriters, and subject to approval of certain legal
matters by Brown & Wood LLP, counsel for the Underwriters. It is expected that
delivery of the shares will be made on or about , 1997, at the office of
Morgan Stanley & Co. Incorporated, New York, New York, against payment therefor
in immediately available funds.
-----------
MORGAN STANLEY DEAN WITTER LEHMAN BROTHERS
, 1997
<PAGE>
Artwork
[Description to come]
2
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDER OR BY
ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON
STOCK OFFERED HEREBY NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY OF THE SHARES OF COMMON STOCK OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE IN THE OFFERING SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
----------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
----------------
TABLE OF CONTENTS
<TABLE>
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PAGE
----
<S> <C>
Prospectus Summary.................................................... 4
Risk Factors.......................................................... 14
The Company........................................................... 20
Use of Proceeds....................................................... 20
Dividend Policy....................................................... 21
Book Value Dilution................................................... 21
Certain Transactions in Connection with the Offering.................. 21
Capitalization........................................................ 23
Selected Historical Financial and Other Data.......................... 24
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 28
Business.............................................................. 35
Management............................................................ 48
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Principal Stockholders................................................ 54
Relationship with Thiokol............................................. 55
Arrangements between the Company,
Carlyle and Thiokol.................................................. 55
Description of Certain Indebtedness................................... 58
Description of Capital Stock.......................................... 63
Shares Eligible for Future Sale....................................... 66
Certain United States Tax Consequences to Non-United States Holders... 68
Underwriters.......................................................... 71
Legal Matters......................................................... 74
Experts............................................................... 74
Available Information................................................. 74
Index to Financial Statements and Financial Statement Schedules....... F-1
</TABLE>
----------------
Management of the Company is not aware of any definitive independent
information about market shares for the Company's products. The market share
estimates contained in this Prospectus have been developed by the Company and
reflect the Company's current estimates. These estimates were based primarily
on (1) internal sales data, (2) information obtained from the Company's
customers with respect to the Company's share of their orders in the Company's
product categories, and (3) public information published by the Company's
competitors. The market for aerospace airfoils excludes the airfoils produced
by two of the Company's customers for their own use. Global or worldwide
market share estimates and references exclude former Soviet bloc countries and
the People's Republic of China.
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON
STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE
OFFERING AND MAY BID FOR, AND PURCHASE, SHARES OF COMMON STOCK IN THE OPEN
MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto included elsewhere in
this Prospectus. For purposes of this Prospectus, unless otherwise indicated or
the context otherwise requires, references to the "Company" refer to Howmet
International Inc. and its consolidated subsidiaries, and references to
"Howmet" refer to the Company's indirect wholly-owned subsidiary, Howmet
Corporation, and its consolidated subsidiaries after giving effect to the
Acquisition (as defined below), including the Cercast Group ("Cercast").
Certain capitalized terms used in this summary are defined elsewhere in this
Prospectus.
THE COMPANY
The Company is the largest manufacturer in the world of investment cast
turbine engine components for the jet aircraft and industrial gas power
generation markets. The Company uses investment casting techniques to produce
high-performance and high-reliability superalloy and titanium components to the
exacting specifications of the major aerospace and industrial gas turbine
("IGT") engine manufacturers. The Company is also the world's largest producer
of aluminum investment castings, which it produces principally for the
commercial aerospace and defense electronics industries.
The Company believes that its leading market position is based on its ability
to provide complex and technologically advanced products which meet its
customers' most demanding requirements, and that its strong leadership in
proprietary technology, its integrated manufacturing capabilities and its
substantial commitment to research and development provide the Company with
competitive advantages in developing and producing such products. Customers in
both the aerospace and IGT markets continually seek improvements in turbine
engine operating efficiencies through increased turbine operating temperatures
and other performance enhancements, requiring the development of stronger, more
heat-resistant and more corrosion-resistant engine components. The Company has
been at the forefront in the development and commercialization of numerous
technological breakthroughs in the investment casting industry, including
improved metallurgical structures and casting technologies. The Company
produces the technologically advanced directional solidification and single
crystal airfoils now required for advanced, higher efficiency engines, and it
plans to continue developing higher value, technologically advanced products,
which typically carry higher margins. The Company is also focused on using
investment casting to develop alternative products to those currently being
forged, fabricated or assembled. The Company believes such products represent a
significant growth opportunity.
Howmet, the Company's principal operating subsidiary, was founded in 1926 and
was acquired by the Company, a joint venture formed by Thiokol Corporation
(together with its subsidiaries, "Thiokol") and The Carlyle Group (collectively
with its affiliates, "Carlyle"), on December 13, 1995 (the "Acquisition") from
Pechiney International S.A., a French corporation ("Pechiney International").
The Company produces superalloy and titanium investment castings for the
aerospace and IGT industries as well as aluminum investment castings for the
aerospace and defense electronic industries, as described below:
Aerospace Castings. Aerospace casting revenues were approximately $576
million in 1996, or 52% of the Company's total revenues. The Company's
aerospace products consist principally of airfoils (both moving blades and
stationary vanes) used in the hot gas path of aircraft turbine engines, the
area of these engines with the most severe operating conditions. The Company
estimates that it has approximately a 56% worldwide market share for aerospace
turbine airfoils, and believes it manufactures airfoils for every major jet
aircraft turbine engine program currently in production or under development by
its major customers, primarily for commercial applications. The Company's
aerospace airfoil business is approximately equally divided between parts for
new engines and airfoil replacement parts. The Company also produces large
structural cast components for engine and airframe manufacturers. The Company's
major aerospace casting customers are the world's largest jet
4
<PAGE>
aircraft engine manufacturers, including General Electric Aircraft Engines
("GEAE"), Pratt & Whitney Aircraft division of United Technologies Corporation
("PWA"), AlliedSignal, Inc. ("AlliedSignal"), Rolls Royce plc ("Rolls Royce")
and SNECMA, S.A. ("SNECMA").
Demand for the Company's products is affected by trends in the commercial
aviation market, which are currently favorable. Worldwide output of large
commercial aviation engines increased 13% from 1995 to 1996 and is expected to
continue to increase with the expected increase in aircraft deliveries.
Scheduled aircraft deliveries give some indication of engine and component
requirements, although the deliveries of engine components precede actual
aircraft deliveries by approximately nine months. Approximately 495 large
aircraft (over 50 passengers) were delivered in 1996, and scheduled deliveries
(according to "The Airline Monitor," July 1997) are projected to be
approximately 715 units in 1997 and 905 units in 1998, although such deliveries
may be subject to deferral or cancellation. Spare part sales for engines in
service are also increasing as a result of the higher number of aircraft in
service and increased flight hours, among other factors.
Industrial Gas Turbine Castings. The Company's IGT casting revenues were
approximately $370 million in 1996, or 33% of its total revenues. The Company
is the largest producer in the world of airfoils for industrial gas turbine
engines, with an estimated 75% worldwide market share. These engines are
primarily used in utility power generation, as well as in mechanical drive
applications for oil and gas processing and off-shore drilling. The IGT airfoil
products manufactured by the Company have performance and reliability
requirements similar to those produced for the aerospace market, but the
products generally are significantly larger in size. The Company believes that
it is currently the only manufacturer in volume production of technologically
advanced directional solidification and single crystal airfoils for the IGT
market. The Company's major IGT customers are the largest IGT engine
manufacturers, including General Electric Power Systems ("GEPS"), European Gas
Turbine ("EGT"), Asea Brown Boveri AG ("ABB"), Siemens AG ("Siemens") and
Westinghouse Electric Corporation ("Westinghouse").
Growth in demand for efficient, lower cost electrical generation facilities
with shorter construction lead times has resulted in IGT engines now accounting
for approximately 25% of new electric utility generating capacity ordered
worldwide. Management believes that continued growth in global electric power
demand provides continued opportunity for the Company's IGT castings through
demand for new engines and for replacement part sales as the installed base of
IGT engines ages. Sales of spare parts currently represent approximately 38% of
total IGT revenues, but are expected to increase as the installed base of IGT
castings grows and ages.
Aluminum Castings. The Company, through its Cercast subsidiaries, is the
largest producer in the world of aluminum investment castings, which are
produced principally for the commercial aerospace and defense electronics
industries. During 1996, Cercast had revenues of $85 million, which represented
approximately 8% of the Company's total revenues. Cercast is pursuing a
strategy designed to increase its exposure to commercial aerospace and other
commercial markets, which together now account for more than half of Cercast's
revenues. As a result of its proprietary technology, Cercast's aluminum
investment castings have been able to penetrate component markets for
structural airframes and engines, displacing parts traditionally made by other
processes, such as forging, fabrication, welding and assembly. Management
expects that this trend, in addition to the favorable outlook for the
commercial aerospace industry in general, will increase Cercast's business in
this area.
Sale of Refurbishment Business. In order to focus its efforts on its core
casting business, in September 1997, the Company sold its aircraft engine
component refurbishment business (other than its coating operations), which
accounted for approximately 6% of its 1996 sales.
5
<PAGE>
COMPANY STRATEGY
The Company intends to aggressively pursue a strategy designed to achieve
future growth in revenues and profits. Key elements of the Company's strategy
are as follows:
Enhance Worldwide Market Leadership Position. The Company estimates that it
has an approximate 56% market share for aerospace turbine airfoils, and
believes it manufactures airfoils for every major jet aircraft turbine engine
program currently in production or under development by its major customers.
The Company also believes that it has an approximate 75% market share of IGT
cast airfoils. The Company seeks to enhance its worldwide leadership positions
through its technological leadership, integrated manufacturing capabilities and
established relationships with every major jet aircraft and IGT engine
manufacturer. The Company's substantial commitment to research and development
provides it with a competitive advantage in developing the capabilities to
manufacture the most complex parts as well as in developing new products,
alloys and processes. In addition, the Company has the capability to develop
and manufacture alloys and tooling, and finish, machine and coat cast parts.
The Company is taking steps to expand its coating and machining operations to
supply the aerospace and IGT markets with a full line of machined and coated
products. The Company believes this vertically integrated manufacturing
capability also enhances its ability to develop proprietary technology and
bring to market technologically advanced products quickly while achieving a
greater degree of quality control over its manufacturing processes. The
Company's leading position provides significant opportunity to supply products
for new engines as well as ongoing demand for replacement parts and to
participate with its customers in cooperative research and development
projects.
Leverage Technological Capabilities. The Company has been at the forefront in
the development and commercialization of numerous technological breakthroughs
in the investment casting industry. As a result of its technological
leadership, the Company has been able to produce the most technologically
advanced, highest quality products, which typically command higher margins and
result in strong financial performance and market position. The Company's
strategy is to continue its focus on developing more complex airfoils, which
can withstand even greater material stress and higher temperature environments,
thereby enabling its customers, most of whom are original equipment
manufacturers ("OEMs"), to design more efficient engines. The Company intends
to pursue this strategy in various ways, including by continuing to work
closely with customers to improve its directional solidification and single
crystal investment casting production techniques and by developing new
applications for those techniques.
Emphasize Growth through New Casting Applications and Technological
Innovations. The Company believes it has significant opportunities for growth
by developing new products and new applications which offer its customers
greater performance and significant cost savings. These opportunities include
(1) developing cast products that are alternatives to forged, fabricated and
assembled products, (2) developing superior new casting processes, and (3)
using new materials. Target applications for alternative cast products include
a broad array of titanium and aluminum airframe structural components that
reduce the number of parts and fasteners used and reduce machining
requirements. In developing new casting processes, the Company similarly seeks
to reduce the number of parts used and the amount of machining. An example of
such a new casting process is the Spraycast-X(R) technology, which the Company
is developing and commercializing in a joint venture with a subsidiary of
United Technologies Corporation. By this process, products such as cases and
rings can be manufactured at substantially lower cost. An example of a new
material being developed by the Company is titanium aluminides. Several jet
aircraft engine manufacturers are currently testing titanium aluminide
airfoils, which reduce the weight of selected airfoil components by
approximately 50%, thereby increasing efficiency. The Company believes such
products represent a significant growth opportunity for the Company.
Continue Cost Reductions and Productivity Improvements. Since 1992 the
Company has significantly reduced costs and improved productivity and delivery
and cycle times. On-time deliveries have increased from 68% in 1992 to 88% in
1996 and cycle times (measured by work-in-process inventory days) have fallen
from 44 days in 1992 to 19 days in 1996, in each case despite the fact that the
complexity and volume of the Company's products have increased significantly
during the same period. As a result of these programs, the Company has
6
<PAGE>
significantly improved its financial performance, and management believes
further improvements can be achieved. The Company employs specific programs
designed to achieve these improvements, including synchronous manufacturing,
kaizen events (in which solutions to specific operational problems are achieved
by teams of workers in concentrated time periods), quick shop intelligence
(daily meetings of plant staff in which product-specific manufacturing issues
are reviewed and solved), and standardization of manufacturing and business
processes throughout the Company's facilities worldwide, specialization by
plants in the production of certain families of castings and inter-facility
manufacturing and technical support, including the sharing of best practices,
under a "One Howmet" concept.
Provide the Highest Level of Customer Service. The Company seeks to provide
the highest possible level of customer service, including techniques for
achieving measurable improvement in customer satisfaction. For example, the
Company's marked improvement in delivery and cycle times referred to above has
enabled the Company to meet customer demands for "just in time" delivery. In
addition, the Company keeps its own engineers on-site at customer locations to
facilitate the integration of the Company's components into the OEMs' final
products and to work closely with OEMs as they develop new products. For
example, the Company has worked with GEAE over the last five years in the
development of the GE90 aircraft engine and is under contract to supply
airfoils for the GE90. In the IGT market, the Company has been selected by ABB,
Siemens and GEPS to help these customers develop airfoil components for their
existing and new generation IGT engines.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered(1)(2):
United States Offering..... shares
International Offering..... shares
Total Offering........... shares
Total Common Stock
Outstanding................. 100,000,000 shares
Dividend Policy.............. The Company does not expect to pay cash
dividends on the Common Stock in the foreseeable
future. In addition, certain of the Company's
debt instruments prohibit or restrict the
Company from paying dividends. See "Dividend
Policy."
Proposed New York Stock
Exchange Symbol............. HWM
</TABLE>
- --------
(1) All of the shares offered hereby are being offered by the Selling
Shareholder.
(2) Excludes up to shares subject to an over-allotment option granted by
the Selling Shareholder to the U.S. Underwriters. See "Underwriters."
CERTAIN TRANSACTIONS IN CONNECTION WITH THE OFFERING
Background. The Company was formed in October 1995 by Carlyle and Thiokol to
acquire Howmet from Pechiney International. Carlyle and Thiokol currently own
51% and 49%, respectively, of the Common Stock. Carlyle is a Washington D.C.-
based private merchant bank founded in 1987. Carlyle and its affiliates
currently manage private investment funds with equity capital in excess of $1.5
billion. Thiokol, a New York Stock Exchange-listed company, is a leader in the
development and production of high-technology solid rocket motors for
aerospace, defense and commercial applications and is a major manufacturer of
precision fastening systems for aerospace and industrial markets worldwide.
7
<PAGE>
The Sale. The Selling Shareholder has agreed to sell to Thiokol,
simultaneously with the closing of the Offering, 11,000,000 shares of Common
Stock, representing 11% of the outstanding Common Stock (the "Sale"), and to
grant Thiokol an option (the "First Thiokol Option") to purchase from the
Selling Shareholder up to an additional 4,000,000 shares of Common Stock,
representing 4% of the outstanding Common Stock. The First Thiokol Option will
be exercisable only on the first business day following the earlier of the date
Carlyle notifies Thiokol of the intention of the U.S. Underwriters to exercise
the U.S. Underwriters' overallotment option or the 30th day following the
Offering. See "Certain Transactions in Connection with the Offering." The Sale
and any exercise of the First Thiokol Option will be at the initial public
offering price per share less underwriting discounts and commissions.
Certain Other Agreements Between Thiokol, Carlyle and the Company. Thiokol
has agreed with the Company that, without the prior consent of the Carlyle
representative (if any) on the Company's Board of Directors and a majority (but
not less than two) of the non-employee directors of the Company who are not
directors or employees of Thiokol or Carlyle, neither Thiokol nor any of its
affiliates may acquire any Publicly Held Shares (as defined below) if, after
such acquisition, the number of Publicly Held Shares then outstanding would be
less than (adjusted for subsequent stock splits and stock dividends),
other than (x) pursuant to a tender offer to acquire all of the outstanding
shares of Common Stock not then beneficially owned by Thiokol, or (y) pursuant
to a merger or other business combination in which all holders of Publicly Held
Shares are treated equally. "Publicly Held Shares" means the outstanding shares
of Common Stock other than shares held by Thiokol, Carlyle or their respective
affiliates. Pursuant to an Amended and Restated Shareholders Agreement (the
"Shareholders Agreement") among Carlyle, Thiokol and the Company to be entered
into in connection with the Offering, (1) for so long as Carlyle continues to
own not less than 5% of the outstanding Common Stock, the Company has agreed to
nominate, and Thiokol has agreed to vote its shares of Common Stock in favor
of, one designee of Carlyle to the Company's Board of Directors, (2) Carlyle
has agreed with Thiokol that Carlyle will not dispose of any of its shares of
Common Stock until the earlier of the second anniversary of the closing of the
Offering or the occurrence of a change of control of Thiokol, (3) during the
two-year period starting on the second anniversary of the closing of the
Offering (the "Option Period"), Thiokol will have an option (the "Second
Thiokol Option") to acquire Carlyle's shares of Common Stock (all, or in
increments of 25%) and a right of first refusal to acquire any shares Carlyle
proposes to sell, in each case at market price, (4) the Company has agreed
that, prior to April 1, 1999 (or such earlier date as Carlyle owns less than 5%
of the outstanding shares of Common Stock), the Company will not take certain
actions without the approval of the director designated by Carlyle, including
with respect to issuing or repurchasing shares, declaring dividends, approving
the Company's capital budget and operating plan, purchasing or selling
substantial assets, appointing or terminating the Company's executive officers,
incurring indebtedness over $20 million or taking action relating to the
compensation of the Company's executive officers and (5) Thiokol has agreed
that, in the event Thiokol disposes of any of its shares of Common Stock to an
unaffiliated third party (other than pursuant to an effective registration
statement or under Rule 144) prior to the fourth anniversary of the closing of
the Offering, Carlyle will have the right to participate in such sale with
respect to a proportionate number of its shares on the same terms. The Company
has granted Carlyle certain registration rights (exercisable between the second
and the fifth anniversaries of the closing of the Offering) for Carlyle's
remaining shares of Common Stock and has granted Thiokol certain preemptive
rights. See "Risk Factors--Control by and Relationship with Thiokol,"
"Relationship with Thiokol," "Arrangements between the Company, Carlyle and
Thiokol" and "Underwriters."
8
<PAGE>
RELATIONSHIP WITH THIOKOL
Immediately prior to the Offering, Thiokol and Carlyle will be the only
stockholders of the Company. Upon completion of the Offering and the Sale,
Thiokol will beneficially own 60% of the outstanding Common Stock (or up to 64%
if it elects to exercise all or part of the First Thiokol Option) and will own
all of the outstanding non-voting 9% Series A Cumulative Preferred Stock of the
Company ("Series A Preferred Stock"). In addition, during the two year period
following the second anniversary of the closing of the Offering, Thiokol will
have the ability to increase its ownership stake up to approximately %
(assuming no exercise of the U.S. Underwriters' overallotment option) by
exercising the Second Thiokol Option, which gives Thiokol the right to purchase
up to all of the shares of Common Stock retained by Carlyle. Accordingly,
subject to Carlyle's rights under the Shareholders Agreement, Thiokol will be
able to control the election of the Company's Board of Directors and exercise a
controlling influence over the business and affairs of the Company and will be
able to do so as long as it continues to own more than 50% of the Common Stock.
Thiokol has advised the Company that it views the Company as an important
strategic investment and core long-term holding. In connection with the First
Thiokol Option and the Second Thiokol Option and through other means (subject
to the limitations described herein), Thiokol will consider increasing its
ownership stake over time. Nevertheless, Thiokol retains its full range of
alternatives with respect to its ownership position including maintaining its
current level of ownership, further increasing its ownership position (subject
to the limitations described herein) or selling or monetizing its position. In
connection with the Offering and Sale, the Company and Thiokol will enter into
certain intercompany agreements and the Company's Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation") will also include
certain provisions relating to the Company's relationship with Thiokol
following the Offering. In addition, the Company's Board of Directors will have
a Committee of Independent Directors, composed of non-employee directors of the
Company who are not employees or directors of Carlyle or Thiokol, which will be
responsible after the Offering for approving the terms of all material
agreements and transactions, and any material amendments to such agreements,
between the Company and Thiokol. See "Management--Board of Directors and
Executive Officers--Committees," "Relationship with Thiokol," "Arrangements
between the Company, Carlyle and Thiokol" and "Description of Capital Stock--
Certain Certificate of Incorporation and By-Law Provisions."
9
<PAGE>
SUMMARY HISTORICAL FINANCIAL AND OTHER DATA
The combined operations of Howmet and Cercast prior to the consummation of
the Acquisition are referred to as "Howmet Predecessor Company Combined" and
the consolidated operations of the Company and its subsidiaries after the
consummation of the Acquisition are referred to as "Howmet International Inc.
Consolidated." The following table sets forth summary historical combined
financial data of Howmet Predecessor Company Combined as of December 31, 1992,
which are unaudited, and summary historical combined financial data of Howmet
Predecessor Company Combined for each of the three years in the period ended
December 31, 1994, which have been derived from the Howmet Predecessor Company
Combined financial statements audited by Price Waterhouse LLP, independent
accountants. The summary financial data for the periods from January 1, 1995 to
December 13, 1995 and December 14, 1995 to December 31, 1995 have been derived
from the Howmet Predecessor Company Combined and the Howmet International Inc.
Consolidated financial statements, respectively, audited by Ernst & Young LLP,
independent auditors. The summary financial data as of December 31, 1995 and
December 31, 1996 and for the year ended December 31, 1996 have been derived
from the Howmet International Inc. Consolidated financial statements audited by
Ernst & Young LLP, independent auditors. The summary financial data as of June
29, 1997 and for the twenty-six weeks ended June 30, 1996 and June 29, 1997
have been derived from unaudited interim consolidated condensed financial
statements which, in the opinion of management, reflect all material
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the financial position and the results of operations for
these periods. The unaudited financial data set forth below are not necessarily
indicative of the results that may be achieved in the future. The following
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and the financial
statements of the Company, together with the related notes thereto, included
elsewhere in this Prospectus.
10
<PAGE>
<TABLE>
<CAPTION>
HOWMET PREDECESSOR COMPANY HOWMET INTERNATIONAL INC.
COMBINED CONSOLIDATED
------------------------------------ -------------------------------------------
YEAR ENDED PERIOD FROM PERIOD FROM TWENTY-SIX
DECEMBER 31, JANUARY 1, DECEMBER 14, WEEKS ENDED
---------------------- 1995 TO 1995 TO YEAR ENDED -----------------
DECEMBER 13, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 29,
1992 1993 1994 1995 1995 1996 1996 1997
------ ------ ------ ------------ ------------ ------------ -------- --------
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales............... $920.2 $832.7 $858.3 $894.1 $ 51.4 $1,106.8 $544.8 $ 643.0
Cost of sales........... 688.0 603.4 647.3 681.4 38.0 803.6 398.7 446.8
Selling, general and
administrative
expense................ 116.1 104.5 90.9 105.0 4.6 117.3 57.0 72.8
Depreciation and
amortization expense... 30.7 31.0 33.1 32.6 2.8 59.7 30.3 29.3
Research and development
expense................ 24.3 23.3 19.2 25.0 1.4 24.2 12.2 11.1
Restructuring expense
(credit)............... 58.9 -- 2.5 (1.6) -- -- -- --
Goodwill writeoff....... -- -- 47.4 -- -- -- -- --
------ ------ ------ ------ -------- -------- ------ --------
Earnings from operations
....................... 2.2 70.5 17.9 51.7 4.6 102.0 46.6 83.0
Interest income
(expense) net--
affiliates............. 4.4 4.4 8.6 6.5 -- -- -- --
Interest income
(expense) net--third
parties................ (2.2) (4.0) (3.4) (2.4) (3.1) (40.2) (22.5) (16.1)
Other--net.............. 0.5 (0.1) (0.1) (5.8) (1.0) (5.9) (4.9) (1.4)
------ ------ ------ ------ -------- -------- ------ --------
Income before income
taxes.................. 4.9 70.8 23.0 50.0 0.5 55.9 19.2 65.5
Income taxes............ 3.3 27.8 46.0 23.7 0.5 30.3 12.6 27.4
------ ------ ------ ------ -------- -------- ------ --------
Income (loss) before
cumulative effect of
change in
accounting (a)(b)...... 1.6 43.0 (23.0) 26.3 0.0 25.6 6.6 38.1
Payment-in-kind
dividends on redeemable
preferred stock........ -- -- -- -- 0.2 4.7 2.3 2.5
-------- -------- ------ --------
Net income (loss)
applicable to common
shares (b)............. -- -- -- -- $ (0.2) $ 20.9 $ 4.3 $ 35.6
======== ======== ====== ========
Net income per common
share (b)(c)........... -- -- -- -- $ .00 $ .21 $ .04 $ .36
======== ======== ====== ========
BALANCE SHEET DATA
(end of period) (d):
Cash and cash
equivalents............ $ 7.8 $ 6.4 $ 5.0 -- $ 9.6 $ 23.4 -- $ 3.0
Non-cash working
capital................ 110.2 67.7 26.4 -- 39.0 43.9 -- 61.8
Total assets, excluding
Restricted Trust....... 594.7 579.6 509.9 -- 1,127.8 1,052.5 -- 1,033.2
Restricted Trust (e).... -- -- -- -- 716.4 716.4 -- 727.0
Long-term debt,
including current
maturities, excluding
Pechiney Notes......... 66.3 44.5 42.1 -- 488.6 350.7 -- 288.3
Pechiney Notes (e)...... -- -- -- -- 716.4 716.4 -- 727.0
Redeemable preferred
stock.................. -- -- -- -- 50.2 54.9 -- 57.4
Stockholders' equity.... 291.9 239.1 166.3 -- 196.9 218.8 -- 246.3
OTHER DATA (d):
EBITDA (f).............. 33.4 101.4 98.3 78.5 6.3 156.8 72.7 111.1
Adjusted EBITDA (f)..... 96.8 85.5 104.8 81.3 6.4 158.4 73.9 113.8
Net cash provided (used)
by operating
activities............. 138.8 95.4 91.4 35.2 (12.7) 184.5 72.4 64.5
Net cash provided (used)
by investing
activities............. (31.4) (31.7) (33.4) (43.8) (740.2) (29.8) (7.2) (20.2)
Net cash provided (used)
by financing
activities............. (4.5) (8.5) 4.5 (20.0) 762.4 (140.9) (45.6) (63.2)
Capital expenditures.... 28.9 33.1 38.0 41.2 1.6 33.7 10.9 18.8
Number of employees
(end of period)........ 10,076 8,990 8,702 -- 9,577 10,035 -- 10,865
</TABLE>
11
<PAGE>
- --------
(a) In 1993, a $49.3 million charge (net of tax benefits of $31.5 million) was
recorded as a cumulative effect of a change in accounting. Effective
January 1, 1993, Howmet Predecessor Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions" which requires that the
estimated future cost of providing postretirement benefits such as health
care be recognized as an expense when employees render services instead of
when the benefits are paid. If SFAS No. 106 had been in effect for 1992,
net income would have been reduced by approximately $2.0 million.
(b) In connection with its stock appreciation rights ("SARs") plan, the Company
recorded after-tax expense of $4.0 million in the year ended December 31,
1996 and $.5 million and $9.5 million in the twenty-six week periods ended
June 30, 1996 and June 29, 1997, respectively. If the Offering is
consummated, the Company's 1997 fourth quarter charge related to its SARs
plan will be based upon the Company's stock price on December 31, 1997.
Assuming such stock price was equal to the midpoint of the range indicated
on the cover page of this Prospectus, such charge would be $ million
after-tax, or $ per share.
(c) Net income per common share amounts are calculated giving effect to the
100,000,000 shares of Common Stock outstanding after the October 8, 1997
stock split in the form of a stock dividend. See Note 18 of Notes to
Financial Statements.
(d) Excludes the amounts of advances to Pechiney Corporation, dividends to
Pechiney Corporation, and notes payable to Pechiney Corporation or its
affiliates prior to the Acquisition as set forth below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM
----------------------- JANUARY 1, 1995 TO
1992 1993 1994 DECEMBER 13, 1995
------- ------- ------- ------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA (end of peri-
od):
Advances to Pechiney Corpora-
tion......................... $ 160.7 $ 203.7 $ 238.7 --
Dividends payable............. -- 7.6 -- --
Notes payable................. -- 12.9 20.0 --
CASH FLOW DATA:
Increase (decrease) in ad-
vances to Pechiney Corpora-
tion......................... 89.1 43.0 34.9 $(237.4)
Payment of dividends.......... 22.7 11.5 28.6 200.0
</TABLE>
(e) In 1988, Pechiney Corporation, which was a wholly-owned subsidiary of
Pechiney International, issued indebtedness maturing in January 1999 in a
principal amount currently outstanding of $716.4 million (the "Pechiney
Notes") to third parties in connection with the purchase of American
National Can Company. As a result of the Acquisition, Pechiney Corporation
(now named Howmet Holdings Corporation ("Holdings")) became a wholly-owned
subsidiary of the Company. The Pechiney Notes remained the obligation of
Holdings, but Pechiney International, which retained American National Can
Company, agreed with the Company to be responsible for all payments due on
or in connection with the Pechiney Notes. Accordingly, Pechiney
International issued its own note to Holdings in an amount sufficient to
satisfy all obligations under the Pechiney Notes. The Pechiney
International note was deposited in a trust for the benefit of Holdings
(the "Restricted Trust"). If Pechiney International fails to make any
payments required by its note, the trustee under the Restricted Trust (the
"Trustee") has two separate sets of irrevocable letters of credit issued by
certain French banks to draw upon to satisfy the Pechiney Notes. Pechiney
International is solely responsible as reimbursement party for draws under
the letters of credit, and, by agreement with the banks, neither Holdings
nor the Company has any responsibility therefor. Management believes that
it is extremely remote that the Company will use any assets other than
those in the Restricted Trust to satisfy any payments related to the
Pechiney Notes. Upon repayment of the Pechiney Notes, the Restricted Trust
terminates and any assets of the Restricted Trust are to be returned to
Pechiney International. See "Description of Certain Indebtedness--Pechiney
Notes" and Note 8 of Notes to Financial Statements.
The June 29, 1997 balances include $10.6 million of accrued interest income
for the Restricted Trust and $10.6 million of accrued interest expense for
the Pechiney Notes. Both amounts were paid on June 30, 1997.
12
<PAGE>
(f) EBITDA is defined as the sum of (i) income before cumulative effect of
change in accounting, (ii) provision for income taxes, (iii) depreciation
and amortization expense, (iv) a goodwill write-off of $47.4 million in
1994, and (v) interest income (expense), net. Adjusted EBITDA is defined as
the sum of EBITDA and (x) restructuring charges of $58.9 million in 1992
and $2.5 million in 1994, and less a restructuring credit of $1.6 million
in 1995 and (y) LIFO inventory valuation adjustments of $4.5, $(15.9),
$4.0, $4.4, $1.7, $1.2, and $2.7 million in 1992, 1993, 1994, 1995, 1996,
and the twenty-six weeks ended June 30, 1996 and June 29, 1997,
respectively. EBITDA and Adjusted EBITDA are not intended to represent cash
flow from operations and should not be considered as alternatives to
operating or net income computed in accordance with GAAP, as indicators of
the Company's operating performance, as alternatives to cash flows from
operating activities (as determined in accordance with GAAP) or as measures
of liquidity. The Company believes that EBITDA and Adjusted EBITDA are
standard measures commonly reported and widely used by analysts, investors
and other interested parties. Accordingly, this information has been
disclosed herein to permit a more complete comparative analysis of the
Company's operating performance relative to other companies in the
industry. However, not all companies calculate EBITDA and Adjusted EBITDA
using the same methods; therefore, the EBITDA and Adjusted EBITDA figures
set forth above may not be comparable to EBITDA and Adjusted EBITDA
reported by other companies.
13
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following information in
conjunction with the other information contained in this Prospectus before
purchasing the shares of Common Stock offered hereby.
Certain statements contained in this section and elsewhere in this
Prospectus under "Prospectus Summary," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business," including,
without limitation, those concerning (i) the Company's strategy, (ii) the
Company's expansion plans, (iii) the effects on the Company of certain legal
proceedings and environmental matters, (iv) the effects on the Company of
changes in the businesses in which it operates or in economic conditions
generally, and (v) the effect on the Company of actions taken or not taken by
its customers, suppliers and competitors, contain certain forward-looking
statements concerning the Company's operations, economic performance and
financial condition. Because such statements involve risks and uncertainties,
actual results may differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause such differences include,
but are not limited to, those discussed below.
EFFECTS OF INDUSTRY ECONOMIC CONDITIONS AND CYCLICALITY
The Company derives approximately 46% of its revenues from the commercial
aerospace industry. The commercial aerospace industry is a cyclical business,
and the demand by commercial airlines for new aircraft historically has been
highly related to the stability and health of the United States and world
economies. Aircraft delivery trends vary in direct relation to the general
economic cycle, with an approximate two year lag. The United States airline
industry as a whole has reported a return to profitability in 1995 and 1996,
and excess capacity has been reduced after several years of operating losses
in the early 1990s. There can be no assurance, however, that the improved
operating performance of the commercial airlines will continue or that
deliveries of engines for large commercial aircraft will not decline in the
future. Any developments in the commercial aerospace market resulting in a
reduction in the rate of aircraft engine deliveries in the future, including
future cancellations and deferrals of scheduled deliveries, could materially
adversely affect the Company's financial condition and results of operations.
The Company's revenues from its IGT castings are subject to changes in global
electric power demand and other market factors.
CONCENTRATED CUSTOMER BASE
A substantial portion of the Company's business is conducted with a small
number of large aerospace and industrial gas turbine customers, including
GEAE, GEPS and PWA. The Company's top ten customers in the aggregate accounted
for approximately 62% of 1996 net sales. Nearly half of the Company's business
is based on multi-year contracts with its customers, which typically last
three years and generally give the Company the right and obligation to fill a
specified percentage of the customer's requirements but generally do not
provide the Company with any minimum order commitments. The Company typically
renegotiates these contracts during the last year of the contract period, and,
during the renegotiation process, customers frequently solicit bids from the
Company's competitors. Most of the contracts require specified price
reductions over the term of the contract based on lower production costs as
programs mature, shared benefits from other cost reductions resulting from
joint production decisions, and negotiated reductions.
Effective February 1997, GEPS exercised its right to terminate its prior
long-term sole source contract with the Company in connection with its
corporate-level policy decision to reduce sole sourcing, and GEPS has since
placed orders for certain components with the Company's principal competitor,
Precision Castparts Corp. ("PCC"). The Company has entered into a new long-
term agreement with GEPS for the period from February 1997 to February 2000
under which GEPS will place orders with the Company for at least 80% of GEPS's
annual airfoil casting purchases. The Company's most recent contract with PWA
expired on December 31, 1996, consistent with industry practice regarding
contract lifecycles. The Company is currently negotiating a new long-term
contract with PWA and is presently filling orders for PWA on pricing and other
material terms anticipated for the new contract.
14
<PAGE>
Military and defense contractor sales in North America comprised
approximately 12% of the Company's 1996 sales. United States defense spending
in markets served by the Company has been declining since the 1980s, and
continued reductions in defense budgets or military aircraft procurement could
adversely affect the Company's results of operations. Foreign military sales
were 2% of the Company's 1996 sales.
The Company's financial condition and results of operations could be
materially adversely affected if one or more of the Company's key customers
shifted a material amount of its work from the Company. In addition, the
Company could also be materially adversely affected by any substantial work
stoppage or interruption of production at any of its major customers or at any
of the major aircraft manufacturers, and could be materially adversely
affected if one or more key customers reduce or cease conducting operations.
COMPETITION
The Company competes against PCC, its principal competitor, and other
investment cast manufacturers. Competition in investment casting is based
primarily on technological sophistication, quality, price, service and
delivery for orders from large, well-capitalized customers with significant
market power. Management believes that the Company and PCC account for most of
the total aerospace turbine engine and IGT casting production. Because
competition is based to a significant extent on technological capabilities and
innovations, there can be no assurance that PCC or any other of the Company's
competitors will not develop products and/or processes that would give them a
competitive advantage in the Company's markets.
CAPACITY CONSTRAINTS
Due to a recent upturn in sales, the Company is experiencing capacity
constraints at several of its U.S. casting facilities. Plans are under way to
spend up to $17 million to increase the capacity at the Company's plants by
10% by the end of 1998. There can be no assurance that such additional
capacity will be sufficient to prevent the Company from experiencing capacity
constraints in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
AVAILABILITY AND COST OF RAW MATERIALS
Raw materials used by the Company include a number of metals and minerals
used to produce the alloys included in its castings, including titanium,
hafnium, aluminum, nickel, cobalt, molybdenum and copper, among others. Prices
of these materials can be volatile, and the Company engages in forward
purchases of some of these materials under certain market conditions, and
passes certain price fluctuations through to customers pursuant to its long-
term agreements. The Company ordinarily does not otherwise attempt to hedge
the price risk of its raw materials. The Company has no fixed price contracts
or arrangements for some of the supplies and raw materials it purchases,
including certain metals. Commercial deposits of certain metals, such as
cobalt, nickel, titanium, and molybdenum, that are required for the alloys
used in the Company's precision castings, are found in only a few parts of the
world. The availability and prices of these metals may be influenced by
private or governmental cartels, changes in world politics, unstable
governments in exporting nations and inflation. Although the Company has not
experienced significant shortages of its supplies and raw materials in the
past, there can be no assurance that such shortages will not occur in the
future. Any such shortages or price fluctuations in raw materials could have a
material adverse effect on the Company.
PRICING PRESSURES
The Company has experienced pressure from all of its major customers for
price reductions. This pressure is the result of the competitive environment
which the Company's OEM customers are facing in the selling of their products
in the worldwide market. Because winning an initial order by an OEM generally
provides it with a long-term profitable market for sales of spare parts,
fierce competition exists and has resulted in reduced prices which OEMs
receive in the market. Pressure for reduced prices is then exerted by OEMs on
their suppliers. The future profitability of the Company will depend upon,
among other things, its ability to continue to reduce its per unit costs and
maintain a cost structure that will enable it to remain cost-competitive.
15
<PAGE>
LIMITATIONS DUE TO RESTRICTIVE DEBT COVENANTS
As of June 29, 1997, the Company's consolidated total indebtedness
(excluding the Pechiney Notes), redeemable preferred stock and total
stockholders' equity were $288.3 million, $57.4 million and $246.3 million,
respectively. The Company's level and terms of its indebtedness have several
important effects on its future operations, including the following: (a) the
Company will have significant cash requirements to service debt, reducing
funds available for operations, capital expenditures and research and
development (which are important factors in the Company's technological
leadership role), and for acquisitions and future business opportunities, thus
possibly increasing the Company's vulnerability to adverse general economic
and industry conditions, and (b) the financial covenants and other
restrictions contained in certain of the agreements relating to the Company's
indebtedness require the Company to meet certain financial tests and will
prohibit or restrict the Company from paying cash dividends, making capital
expenditures, acquiring or disposing of assets or borrowing additional funds.
The Company's ability to make its planned level of capital expenditures in
1998 is subject to negotiating an amendment or waiver to its Senior Credit
Facilities (as defined below).
GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL MATTERS
Certain of the Company's products are manufactured and sold under U.S.
government contracts or subcontracts. Consequently, the Company is directly
and indirectly subject to various federal rules, regulations and orders
applicable to government contractors. Violation of applicable government rules
and regulations could result in civil liability, in cancellation or suspension
of existing contracts or in ineligibility for future contracts or subcontracts
funded in whole or in part with federal funds. Similarly, changes in the
regulations or other requirements relating to parts manufactured by the
Company could adversely affect the competitiveness of any Company part
affected by such changes.
The Company is subject to comprehensive and changing federal, state, local
and international laws, regulations and ordinances (together, "Environmental
Laws") that (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as
handling and disposal practices for solid and hazardous wastes, and (ii)
impose liability for the costs of cleaning up, and certain damages resulting
from, sites of past spills, disposals or other releases of hazardous
substances and materials, including liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA," the
federal "Superfund" statute), and similar state statutes for the investigation
and remediation of environmental contamination at properties owned and/or
operated by it and at off-site locations where it has arranged for the
disposal of hazardous substances. The Company is involved from time to time in
legal proceedings involving remediation of environmental contamination from
past or present operations, as well as compliance with environmental
requirements applicable to ongoing operations. There can be no assurance that
material costs or liabilities will not be incurred in connection with any such
proceedings, claims or compliance requirements or in connection with currently
unknown environmental liabilities.
If it is determined that the Company is not in compliance with current
Environmental Laws, the Company could be subject to penalties. The amount of
any such penalties could be material. In addition, the Company uses solvents,
waxes, metals, caustics, acids, oils and other hazardous substances, and as is
the case with manufacturers in general, if a release of hazardous substances
occurs on or from the Company's properties or from an off-site disposal
facility, the Company may be held liable and may be required to pay the cost
of remedying the condition. The amount of any such liability could be
material.
The Company's facilities have made, and will continue to make, expenditures
to comply with current and future Environmental Laws. The Company anticipates
that it could incur additional capital and operating costs in the future to
comply with existing Environmental Laws and new requirements arising from new
or amended statutes and regulations. In addition, because the applicable
regulatory agencies have not yet promulgated final standards for some existing
environmental programs, the Company cannot at this time reasonably estimate
the cost for compliance with these additional requirements. The amount of any
such compliance costs could be material.
16
<PAGE>
Certain potential sources of liability under the Environmental Laws, as well
as other information relating to environmental matters, are described below
under "Business--Environmental Matters."
CONTROL BY AND RELATIONSHIP WITH THIOKOL
Upon completion of the Offering and the Sale, Thiokol will beneficially own
60% of the outstanding Common Stock (or up to 64% if it elects to exercise all
or part of the First Thiokol Option) and will own all of the outstanding non-
voting Series A Preferred Stock. See "Description of Capital Stock."
Accordingly, subject to Carlyle's rights under the Shareholders Agreement,
Thiokol will be able to control the election of the Company's Board of
Directors and exercise a controlling influence over the business and affairs
of the Company (including any determinations with respect to mergers or other
business combinations involving the Company, the acquisition or disposition of
assets by the Company, the incurrence of indebtedness by the Company, the
issuance of any additional Common Stock or other equity securities of the
Company, the repurchase or redemption of Common Stock or preferred stock of
the Company and the payment of dividends with respect to the Common Stock),
and will be able to do so as long as it continues to own more than 50% of the
voting power of the Company's capital stock. Similarly, subject to certain
limitations set forth in the Shareholders Agreement, Thiokol will have the
power to determine matters submitted to a vote of the Company's stockholders
without the consent of the Company's other stockholders, will have the power
to prevent or cause a change in control of the Company and could take other
actions that might be favorable to Thiokol. In the foregoing situations or
otherwise, various conflicts of interest between the Company and Thiokol could
arise. Ownership interests of directors or officers of the Company in common
stock of Thiokol, if any, or service as a director or officer of both the
Company and Thiokol could create or appear to create potential conflicts of
interest when directors and officers are faced with decisions that could have
different implications for the Company and Thiokol. The Restated Certificate
of Incorporation includes certain provisions relating to the allocation of
business opportunities that may be suitable for both the Company and Thiokol.
In addition, under Delaware corporate law, officers, directors and controlling
stockholders of the Company have certain fiduciary duties to the Company's
stockholders. See "Relationship with Thiokol," "Arrangements between the
Company, Carlyle and Thiokol" and "Description of Capital Stock--Certain
Certificate of Incorporation and By-Law Provisions."
Certain intercompany agreements and arrangements between the Company and
Thiokol will be entered into in connection with the Offering. There can be no
assurance that the services and other benefits Thiokol will provide to the
Company under such agreements will continue to be provided, and if not,
whether, or on what terms, such services or other benefits provided to the
Company could be replicated. The Company's Board of Directors will have a
Committee of Independent Directors, composed of non-employee directors of the
Company who are not directors of or employees of Thiokol or Carlyle, which
will be responsible after the Offering for approving the terms of all material
agreements and transactions, and any material amendments to such agreements,
between the Company and Thiokol. See "Management--Board of Directors and
Executive Officers--Committees" and "Arrangements between the Company, Carlyle
and Thiokol."
CERTAIN ANTITAKEOVER EFFECTS
The Restated Certificate of Incorporation and the By-Laws of the Company,
and applicable provisions of the Delaware General Corporation Law (the
"DGCL"), contain provisions or have effects that may make more difficult the
acquisition of control of the Company without the approval of the Company's
Board of Directors. See "Description of Capital Stock--Certain Certificate of
Incorporation and By-Law Provisions--Provisions That May Have an Anti-Takeover
Effect" and "Description of Capital Stock--Section 203 of the Delaware General
Corporation Law." Although such provisions do not have a substantial practical
significance to investors while Thiokol controls the Company, such provisions
could have the effect of depriving stockholders of an opportunity to sell
their shares at a premium over prevailing market prices if Thiokol were to
reduce its ownership to less than 50%.
ABSENCE OF A PUBLIC MARKET FOR THE COMMON STOCK
Prior to the Offering, there has been no public market for the Common Stock.
Although the Company has filed an application to list the Common Stock on The
New York Stock Exchange, Inc. (the "NYSE"), there can
17
<PAGE>
be no assurance that an active public market for the Common Stock will develop
or that the price at which the Common Stock will trade will not be lower than
the initial public offering price. The initial public offering price will be
determined through negotiations between Carlyle and the Underwriters. See
"Underwriters."
SHARES AVAILABLE FOR FUTURE SALE
While the Offering will not increase the number of shares of Common Stock
outstanding, the Offering will increase the number of shares that are freely
tradeable under the Securities Act of 1933, as amended (the "Securities Act").
Upon the consummation of the Offering, the Company will have 100,000,000
shares of Common Stock outstanding, of which will be freely tradeable
under the Securities Act ( if the U.S. Underwriters' overallotment option
is exercised in full). All of the remaining outstanding shares are owned by
Thiokol and Carlyle and are subject to restrictions on disposition under the
Securities Act as well as certain contractual restrictions. After the
Offering, Thiokol will beneficially own 60% of the outstanding Common Stock
(or up to 64% if it elects to exercise all or part of the First Thiokol
Option), and has the Second Thiokol Option to purchase Carlyle's remaining
shares (all, or in increments of 25%) during the Option Period. Thiokol has
advised the Company that it views the Company as an important strategic
investment and core long-term holding. In connection with the First Thiokol
Option and the Second Thiokol Option and through other means (subject to the
limitations described herein), Thiokol will consider increasing its ownership
stake over time. Nevertheless, Thiokol retains its full range of alternatives
with respect to its ownership position including maintaining its current level
of ownership, further increasing its ownership position (subject to the
limitations described herein) or selling or monetizing its position. The
Company, Thiokol and Carlyle have agreed with the Underwriters, subject to
certain exceptions, not to issue, sell or otherwise dispose of any shares of
Common Stock for a period of 180 days after the date of this Prospectus
without the prior written consent of Morgan Stanley & Co. Incorporated
("Morgan Stanley"). In addition, Carlyle and Thiokol have agreed in the
Shareholders Agreement that Carlyle may not dispose of any of its shares of
Common Stock (other than in connection with the exercise of the U.S.
Underwriters' overallotment option or the First Thiokol Option) prior to the
earlier of the second anniversary of the closing of the Offering or the
occurrence of a change of control of Thiokol. The foregoing provisions of the
Shareholders Agreement are solely for the benefit of Thiokol and Carlyle and
could be amended by such parties without the consent of the Company or of any
other stockholders of the Company. The Company has granted the Selling
Shareholder certain rights with respect to the registration under the
Securities Act of its shares of Common Stock during the period beginning with
the earlier of the second anniversary of the closing of the Offering or the
occurrence of a change of control of Thiokol and ending on the fifth
anniversary of the closing of the Offering. Any dispositions by Carlyle prior
to the fourth anniversary of the closing of the Offering would be subject to
Thiokol's right of first refusal to acquire such shares at market price. Sales
of substantial amounts of shares of Common Stock in the public market, or the
perception that such sales may occur, could adversely affect the market price
of the Common Stock. See "Shares Eligible for Future Sale," "Arrangements
between the Company, Carlyle and Thiokol," and "Underwriters."
RISKS RELATED TO INTANGIBLE ASSETS
As of June 29, 1997, the Company had approximately $370 million of
intangible assets, representing approximately 150% of total stockholders'
equity and approximately 37% of the Company's total assets (excluding the
Restricted Trust). In the event of any sale or liquidation of the Company,
there can be no assurance that the value of such intangible assets would be
realized. Any significant decrease in the value of such intangible assets
could have a materially adverse effect on the Company's financial condition
and results of operations.
ABSENCE OF DIVIDENDS; HOLDING COMPANY STRUCTURE
The Company does not expect to pay cash dividends on the Common Stock for
the foreseeable future. Instead, the Company expects to use its available cash
for debt reduction, capital expenditures, acquisitions and other general
corporate purposes. Any future decisions as to the payment of dividends will
be at the discretion of the Company's Board of Directors, subject to
applicable law and the restrictions described in the following paragraph.
18
<PAGE>
The Company is a holding company which conducts its operations through
Howmet and its subsidiaries, and has no business operations of its own.
Accordingly, the Company is dependent on the receipt of cash from its
subsidiaries to meet its expenses and other obligations, and to pay any
dividends. Certain of the Company's debt instruments contain financial
covenants and other restrictions that prohibit or restrict the payment of
dividends and intercompany loans by Howmet to its corporate parents and by the
Company to its stockholders. See "Dividend Policy" and "Description of Certain
Indebtedness."
BOOK VALUE DILUTION
Purchasers of the Common Stock offered hereby will experience an immediate
and substantial dilution of $ . per share in the net tangible book value of
their shares of Common Stock from the initial public offering price. See "Book
Value Dilution."
FAILURE OF PECHINEY INTERNATIONAL TO REPAY THE PECHINEY NOTES
The payments required to be made under or in connection with the Pechiney
Notes are expected to be made (i) by Pechiney International, a French company
which had 1996 sales of approximately French Franc 23.4 billion and total
assets as of December 31, 1996 of approximately French Franc 28.6 billion,
pursuant to its agreements with Holdings and its note deposited in the
Restricted Trust, or (ii) if Pechiney International fails to make such
payments, by draws under letters of credit issued to the Restricted Trust in
the aggregate amount of $772 million issued by Banque Nationale de Paris
("BNP"), a French bank which has an A+ credit rating from Standard & Poor's
Ratings Group ("S&P"), or (iii) if there is an impediment to a draw under such
BNP letters of credit, by draws under substantially identical "back-up"
letters of credit issued to the Restricted Trust in the aggregate amount of
$772 million issued by Caisse des Depots et Consignations ("CDC"), a French
bank which has an AAA credit rating from S&P. In addition, if for any reason
required payments are not made with respect to the Pechiney Notes, the holders
could draw on a third set of letters of credit (also issued by BNP). Pechiney
International is solely responsible as reimbursement party for draws under the
various letters of credit referenced above, and, by agreement with the banks,
neither Holdings nor the Company has any responsibility therefor. However,
Holdings remains liable as the original issuer of the Pechiney Notes in the
event that Pechiney International and both banks fail to meet their
obligations under their respective letters of credit. Such event would have a
material adverse effect on the Company's financial condition. See "Description
of Certain Indebtedness--Pechiney Notes" and Note 8 of Notes to Financial
Statements.
19
<PAGE>
THE COMPANY
The Company was formed in October 1995 by Carlyle and Thiokol to acquire
Pechiney Corporation, the parent corporation of Howmet, from Pechiney
International and to acquire the Cercast group of companies from Howmet
Cercast S.A., a subsidiary of Pechiney International (the "Acquisition").
Prior to the Offering, Carlyle and Thiokol own 51% and 49%, respectively, of
the Common Stock. Carlyle is a Washington D.C.-based private merchant bank
founded in 1987. Carlyle and its affiliates currently manage private
investment funds with equity capital in excess of $1.5 billion. Since its
inception, Carlyle has made equity investments in more than 30 companies, many
of which are focused in the aerospace and defense industries. Thiokol, a New
York Stock Exchange-listed company, is a leader in the development and
production of high-technology solid rocket motors for aerospace, defense and
commercial applications and is a major manufacturer of precision fastening
systems for aerospace and industrial markets worldwide. Thiokol has advised
the Company that it desires to continue to expand its commercial and
industrial businesses and views its investment in Howmet as a key strategic
opportunity to achieve this goal.
The Acquisition, which occurred on December 13, 1995, was effected through a
series of transactions, including the purchase of Pechiney Corporation by
Howmet Holdings Acquisition Corp. ("HHAC"), the purchase of the capital stock
of certain Cercast companies by Howmet Acquisition Corp. ("HAC"), a wholly
owned subsidiary of HHAC, and the mergers of HHAC with and into Pechiney
Corporation and of HAC with and into Howmet. After the mergers, Pechiney
Corporation's name was changed to Howmet Holdings Corporation ("Holdings").
The only subsidiary of Holdings other than Howmet is Howmet Insurance Co.,
Inc., its captive insurance company, the business of which is in run-off
status.
The Company's principal executive offices are located at 475 Steamboat Road,
Greenwich, Connecticut 06830, and the Company's telephone number is (203) 661-
4600.
USE OF PROCEEDS
All of the shares being offered hereby are being offered by the Selling
Shareholder. Consequently, the Company will receive no proceeds from the
Offering.
20
<PAGE>
DIVIDEND POLICY
The Company does not expect to pay cash dividends on the Common Stock for
the foreseeable future. Instead, the Company expects to use its available cash
for debt reduction, capital expenditures, acquisitions and other general
corporate purposes. The Company's ability to pay cash dividends is limited by
its dependence upon the receipt of cash from its subsidiaries to make such
dividend payments. Certain of the Company's debt instruments contain financial
covenants and other restrictions that prohibit or restrict the payment of
dividends and intercompany loans by Howmet to its corporate parents and by the
Company to its stockholders. See "Risk Factors--Absence of Dividends; Holding
Company Structure," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Description of Certain Indebtedness."
BOOK VALUE DILUTION
Because the offering price is $ . greater than the Company's net tangible
book value (deficit) per share of $(1.24), purchasers of the Common Stock
offered hereby will experience an immediate dilution of $ . per share in
the net tangible book value of their shares of Common Stock from the initial
public offering price. Thiokol and the Selling Shareholder each acquired all
of their shares of Common Stock in connection with the Acquisition, at a price
of $1.96 per share, excluding fees and expenses (adjusted for subsequent stock
splits).
CERTAIN TRANSACTIONS IN CONNECTION WITH THE OFFERING
THE SALE
The Selling Shareholder has agreed to sell to Thiokol, simultaneously with
the closing of the Offering, 11,000,000 shares of Common Stock, representing
11% of the outstanding Common Stock, and to grant Thiokol the First Thiokol
Option to purchase from the Selling Shareholder up to an additional 4,000,000
shares of Common Stock, representing 4% of the outstanding Common Stock. The
First Thiokol Option will be exercisable only on the first business day
following earlier of the date Carlyle notifies Thiokol of the intention of the
U.S. Underwriters to exercise the U.S. Underwriters' overallotment option or
the 30th day following the Offering. The Sale and any exercise of the First
Thiokol Option will be at the initial public offering price per share less
underwriting discounts and commissions.
CERTAIN OTHER AGREEMENTS AMONG THIOKOL, CARLYLE AND THE COMPANY
Thiokol has agreed with the Company that, without the prior consent of the
Carlyle representative (if any) on the Company's Board of Directors and a
majority (but not less than two) of the non-employee directors of the Company
who are not directors or employees of Thiokol or Carlyle, neither Thiokol nor
any of its affiliates may acquire any Publicly Held Shares if, after such
acquisition, the number of Publicly Held Shares then outstanding would be less
than (adjusted for subsequent stock splits and stock dividends), other
than (x) pursuant to a tender offer to acquire all of the outstanding shares
of Common Stock not then beneficially owned by Thiokol, or (y) pursuant to a
merger or other business combination in which all holders of Publicly Held
Shares are treated equally. In addition, pursuant to the Shareholders
Agreement, (1) for so long as Carlyle continues to own not less than 5% of the
outstanding Common Stock, the Company has agreed to nominate, and Thiokol has
agreed to vote its shares of Common Stock in favor of, one designee of Carlyle
to the Company's Board of Directors, (2) Carlyle has agreed with Thiokol that
Carlyle will not dispose of any of its shares of Common Stock until the
earlier of the second anniversary of the closing of the Offering or the
occurrence of a change of control of Thiokol, (3) Carlyle has granted Thiokol
the Second Thiokol Option, which is exercisable during the Option Period, and,
prior to the fourth anniversary of the closing of the Offering, a right of
first refusal to acquire any shares Carlyle proposes to sell, in each case at
market price, (4) the Company has agreed that,
21
<PAGE>
prior to April 1, 1999 (or such earlier date as Carlyle owns less than 5% of
the outstanding shares of Common Stock), the Company will not take certain
actions without the approval of the director designated by Carlyle, including
with respect to issuing or repurchasing shares, declaring dividends, approving
the Company's capital budget and operating plan, purchasing or selling
substantial assets, appointing or terminating the Company's executive officers,
incurring indebtedness over $20 million or taking action relating to the
compensation of the Company's executive officers and (5) Thiokol has agreed
that, in the event Thiokol disposes of any of its shares of Common Stock to an
unaffiliated third party (other than pursuant to an effective registration
statement or under Rule 144) prior to the fourth anniversary of the closing of
the Offering, Carlyle will have the right to participate in such sale with
respect to a proportionate number of its shares on the same terms. The Company
has granted Carlyle certain registration rights (exercisable between the second
and the fifth anniversaries of the closing of the Offering) for Carlyle's
remaining shares of Common Stock and has granted Thiokol certain preemptive
rights. See "Risk Factors--Control by and Relationship with Thiokol,"
"Relationship with Thiokol," "Arrangements between the Company, Carlyle and
Thiokol" and "Underwriters."
22
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization (including the current
portion of long-term debt) of the Company at June 29, 1997. The information
presented below should be read in conjunction with the financial statements
and the notes thereto included elsewhere in this Prospectus. For additional
information concerning outstanding indebtedness and capital stock, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Description of Certain Indebtedness" and "Description of Capital
Stock."
<TABLE>
<CAPTION>
JUNE 29, 1997
-------------
(IN MILLIONS)
<S> <C>
Long-term debt, including current portion, excluding
Pechiney Notes:
Senior term facility (a)(b)............................... $ 132.5
Senior revolving credit facility (b)...................... --
Senior Subordinated Notes due 2003 (c).................... 125.0
Payment-in-kind junior subordinated note (d).............. 29.1
Other..................................................... 1.7
--------
Total................................................... 288.3
Pechiney Notes, including $10.6 of accrued interest (e)..... 727.0
Redeemable preferred stock (f).............................. 57.4
Total stockholders' equity.................................. 246.3
--------
Total capitalization........................................ $1,319.0
========
Total capitalization, excluding Pechiney Notes.............. $ 592.0
========
</TABLE>
- --------
(a) From June 30, 1997 to September 28, 1997, $99.0 million of senior term
facility borrowings was repaid. The source of $57.0 million of this amount
was the sale of the Company's refurbishment business. Subsequent tax
payments and other expenditures related to this asset sale are expected to
be funded with cash from operations and short-term borrowings under the
senior revolving credit facility. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(b) The senior term facility and senior revolving credit facility
(collectively, the "Senior Credit Facilities") provide a senior term loan
and $75.0 million of revolving credit capacity, including up to $50.0
million of standby letters of credit. At June 29, 1997, there were $9.6
million of letters of credit outstanding. The Senior Credit Facilities are
secured by a security interest in substantially all assets (other than
receivables sold pursuant to the receivables facility) owned by the
Company. The senior revolving credit facility expires in December 2001.
Scheduled payments of the senior term loan are $8.8 million per quarter;
however, because of voluntary prepayments, the Company has the option to
delay the next quarterly payment until December 1998. See "Description of
Certain Indebtedness--Senior Credit Facilities."
(c) The senior subordinated notes due 2003 ("Senior Subordinated Notes") are
unsecured and bear interest at 10% per annum. The Senior Subordinated
Notes are redeemable in whole or in part on December 1, 1999 at 105% of
principal amount, declining annually to 100% on December 1, 2002. See
"Description of Certain Indebtedness--Senior Subordinated Notes."
(d) The 10% payment-in-kind junior subordinated purchaser note is due December
13, 2006. Interest accumulates through the issuance of payment-in-kind
notes through December 13, 2003 and is payable in cash semi-annually
thereafter. See "Description of Certain Indebtedness--10% PIK Note."
(e) Pechiney International has agreed with the Company to repay the Pechiney
Notes. This agreement to repay is supported by a $716.4 million note
receivable from Pechiney International (and $10.6 million of accrued
interest on such note) which is held in the Restricted Trust. If Pechiney
International fails to make payments, the Trustee has two separate sets of
irrevocable letters of credit issued by certain French banks to draw upon
to satisfy the Pechiney Notes. Pechiney International is solely
responsible as reimbursement party for draws under the letters of credit,
and, by agreement with the banks, neither Holdings nor the Company has any
responsibility therefor. See "Description of Certain Indebtedness--
Pechiney Notes" and Note 8 of Notes to Financial Statements.
(f) The Company's Series A Preferred Stock has a liquidation value of $10,000
per share and is owned by Thiokol. The Company is obligated to redeem the
Series A Preferred Stock on December 13, 2005 or immediately prior to a
merger, consolidation or sale of the Company. Cumulative dividends of $7.4
million at June 29, 1997 are included in the carrying value of the Series
A Preferred Stock. See "Description of Capital Stock--Preferred Stock."
23
<PAGE>
SELECTED HISTORICAL FINANCIAL AND OTHER DATA
The combined operations of Howmet and Cercast prior to the consummation of
the Acquisition are referred to as "Howmet Predecessor Company Combined" and
the consolidated operations of the Company and its subsidiaries after the
consummation of the Acquisition are referred to as "Howmet International Inc.
Consolidated." The following table sets forth summary historical combined
financial data of Howmet Predecessor Company Combined as of December 31, 1992,
which are unaudited, and summary historical combined financial data of Howmet
Predecessor Company Combined for each of the three years in the period ended
December 31, 1994, which have been derived from the Howmet Predecessor Company
Combined financial statements audited by Price Waterhouse LLP, independent
accountants. The summary financial data for the periods from January 1, 1995 to
December 13, 1995 and December 14, 1995 to December 31, 1995 have been derived
from the Howmet Predecessor Company Combined and the Howmet International Inc.
Consolidated financial statements, respectively, audited by Ernst & Young LLP,
independent auditors. The summary financial data as of December 31, 1995 and
December 31, 1996 and for the year ended December 31, 1996 have been derived
from the Howmet International Inc. Consolidated financial statements audited by
Ernst & Young LLP, independent auditors. The summary financial data as of June
29, 1997 and for the twenty-six weeks ended June 30, 1996 and June 29, 1997
have been derived from unaudited interim consolidated condensed financial
statements which, in the opinion of management, reflect all material
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the financial position and the results operations for these
periods. The unaudited financial data set forth below are not necessarily
indicative of the results that may be achieved in the future. The following
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and the financial
statements of the Company, together with the related notes thereto, included
elsewhere in this Prospectus.
24
<PAGE>
<TABLE>
<CAPTION>
HOWMET PREDECESSOR COMPANY HOWMET INTERNATIONAL INC.
COMBINED CONSOLIDATED
------------------------------------ -------------------------------------------
YEAR ENDED PERIOD FROM PERIOD FROM TWENTY-SIX
DECEMBER 31, JANUARY 1, DECEMBER 14, WEEKS ENDED
---------------------- 1995 TO 1995 TO YEAR ENDED -----------------
DECEMBER 13, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 29,
1992 1993 1994 1995 1995 1996 1996 1997
------ ------ ------ ------------ ------------ ------------ -------- --------
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales............... $920.2 $832.7 $858.3 $894.1 $ 51.4 $1,106.8 $544.8 $ 643.0
Cost of sales........... 688.0 603.4 647.3 681.4 38.0 803.6 398.7 446.8
Selling, general and
administrative
expense................ 116.1 104.5 90.9 105.0 4.6 117.3 57.0 72.8
Depreciation and
amortization expense... 30.7 31.0 33.1 32.6 2.8 59.7 30.3 29.3
Research and development
expense................ 24.3 23.3 19.2 25.0 1.4 24.2 12.2 11.1
Restructuring expense
(credit)............... 58.9 -- 2.5 (1.6) -- -- -- --
Goodwill writeoff....... -- -- 47.4 -- -- -- -- --
------ ------ ------ ------ ------- -------- ------ -------
Earnings from
operations............. 2.2 70.5 17.9 51.7 4.6 102.0 46.6 83.0
Interest income
(expense) net--
affiliates............. 4.4 4.4 8.6 6.5 -- -- -- --
Interest income
(expense) net--third
parties................ (2.2) (4.0) (3.4) (2.4) (3.1) (40.2) (22.5) (16.1)
Other--net.............. 0.5 (0.1) (0.1) (5.8) (1.0) (5.9) (4.9) (1.4)
------ ------ ------ ------ ------- -------- ------ -------
Income before income
taxes.................. 4.9 70.8 23.0 50.0 0.5 55.9 19.2 65.5
Income taxes............ 3.3 27.8 46.0 23.7 0.5 30.3 12.6 27.4
------ ------ ------ ------ ------- -------- ------ -------
Income (loss) before
cumulative effect of
change in
accounting (a)(b)...... 1.6 43.0 (23.0) 26.3 0.0 25.6 6.6 38.1
Payment-in-kind
dividends on redeemable
preferred stock........ -- -- -- -- 0.2 4.7 2.3 2.5
------- -------- ------ -------
Net income (loss)
applicable to common
shares (b)............. -- -- -- -- $ (0.2) $ 20.9 $ 4.3 $ 35.6
======= ======== ====== =======
Net income per common
share (b)(c)........... -- -- -- -- $ .00 $ .21 $ .04 $ .36
======= ======== ====== =======
BALANCE SHEET DATA (end
of period)(d):
Cash and cash
equivalents............ $ 7.8 $ 6.4 $ 5.0 -- $ 9.6 $ 23.4 -- $ 3.0
Non-cash working
capital................ 110.2 67.7 26.4 -- 39.0 43.9 -- 61.8
Total assets, excluding
Restricted Trust....... 594.7 579.6 509.9 -- 1,127.8 1,052.5 -- 1,033.2
Restricted Trust (e).... -- -- -- -- 716.4 716.4 -- 727.0
Long-term debt,
including current
maturities, excluding
Pechiney Notes ........ 66.3 44.5 42.1 -- 488.6 350.7 -- 288.3
Pechiney Notes (e)...... -- -- -- -- 716.4 716.4 -- 727.0
Redeemable preferred
stock.................. -- -- -- -- 50.2 54.9 -- 57.4
Stockholders' equity.... 291.9 239.1 166.3 -- 196.9 218.8 -- 246.3
OTHER DATA (d):
EBITDA (f).............. 33.4 101.4 98.3 78.5 6.3 156.8 72.7 111.1
Adjusted EBITDA (f)..... 96.8 85.5 104.8 81.3 6.4 158.4 73.9 113.8
Net cash provided (used)
by operating
activities............. 138.8 95.4 91.4 35.2 (12.7) 184.5 72.4 64.5
Net cash provided (used)
by investing
activities............. (31.4) (31.7) (33.4) (43.8) (740.2) (29.8) (7.2) (20.2)
Net cash provided (used)
by financing
activities............. (4.5) (8.5) 4.5 (20.0) 762.4 (140.9) (45.6) (63.2)
Capital expenditures.... 28.9 33.1 38.0 41.2 1.6 33.7 10.9 18.8
Number of employees
(end of period)........ 10,076 8,990 8,702 -- 9,577 10,035 -- 10,865
</TABLE>
See notes on following pages
25
<PAGE>
- --------
(a) In 1993, a $49.3 million charge (net of tax benefits of $31.5 million) was
recorded as a cumulative effect of a change in accounting. Effective
January 1, 1993, Howmet Predecessor Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions" which requires that the
estimated future cost of providing postretirement benefits such as health
care be recognized as an expense when employees render services instead of
when the benefits are paid. If SFAS No. 106 had been in effect for 1992,
net income would have been reduced by approximately $2.0 million.
(b) In connection with its SARs plan, the Company recorded after-tax expense
of $4.0 million in the year ended December 31, 1996 and $.5 million and
$9.5 million in the twenty-six week periods ended June 30, 1996 and June
29, 1997, respectively. If the Offering is consummated, the Company's 1997
fourth quarter charge related to its SARs plan will be based upon the
Company's stock price on December 31, 1997. Assuming such stock price was
equal to the midpoint of the range indicated on the cover page of this
Prospectus, such charge would be $ million after-tax, or $ per
share.
(c) Net income per common share amounts are calculated giving effect to the
100,000,000 shares of Common Stock outstanding after the October 8, 1997
stock split in the form of a stock dividend. See Note 18 of Notes to
Financial Statements.
(d) Excludes the amounts of advances to Pechiney Corporation, dividends to
Pechiney Corporation, and notes payable to Pechiney or its affiliates as
set forth below:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED DECEMBER 31, 1995 TO
----------------------- DECEMBER 13,
1992 1993 1994 1995
------- ------- ------- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA (END OF PERIOD):
Advances to Pechiney Corporation.... $ 160.7 $ 203.7 $ 238.7 --
Dividends payable................... -- 7.6 -- --
Notes payable....................... -- 12.9 20.0 --
CASH FLOW DATA:
Increase (decrease) in advances to
Pechiney Corporation............... 89.1 43.0 34.9 $(237.4)
Payment of dividends................ 22.7 11.5 28.6 200.0
</TABLE>
(e) In 1988, Pechiney Corporation, which was a wholly-owned subsidiary of
Pechiney International, issued the Pechiney Notes maturing in January 1999
in a principal amount currently outstanding of $716.4 million to third
parties in connection with the purchase of American National Can Company.
As a result of the Acquisition, Pechiney Corporation (now named Howmet
Holdings Corporation) became a wholly-owned subsidiary of the Company. The
Pechiney Notes remained the obligation of Holdings, but Pechiney
International, which retained American National Can Company, agreed with
the Company to be responsible for all payments due on or in connection
with the Pechiney Notes. Accordingly, Pechiney International issued its
own note to Holdings in an amount sufficient to satisfy all obligations
under the Pechiney Notes. The Pechiney International note was deposited in
the Restricted Trust for the benefit of Holdings. If Pechiney
International fails to make any payments required by its note, the Trustee
has two separate sets of irrevocable letters of credit issued by certain
French banks to draw upon to satisfy the Pechiney Notes. Pechiney
International is solely responsible as reimbursement party for draws under
the letters of credit, and, by agreement with the banks, neither Holdings
nor the Company has any responsibility therefor. Management believes that
it is extremely remote that the Company will use any assets other than
those in the Restricted Trust to satisfy any payments related to the
Pechiney Notes. Upon repayment of the Pechiney Notes, the Restricted Trust
terminates and any assets of the Restricted Trust are to be returned to
Pechiney International. See "Description of Certain Indebtedness--Pechiney
Notes" and Note 8 of Notes to Financial Statements.
The June 29, 1997 balances include $10.6 million of accrued interest income
for the Restricted Trust and $10.6 million of accrued interest expense for
the Pechiney Notes. Both amounts were paid on June 30, 1997.
26
<PAGE>
(f) EBITDA is defined as the sum of (i) income before cumulative effect of
change in accounting, (ii) provision for income taxes, (iii) depreciation
and amortization expense, (iv) a goodwill write-off of $47.4 million in
1994, and (v) interest income (expense), net. Adjusted EBITDA is defined as
the sum of EBITDA and (x) restructuring charges of $58.9 million in 1992
and $2.5 million in 1994, and less a restructuring credit of $1.6 million
in 1995 and (y) LIFO inventory valuation adjustments of $4.5, $(15.9),
$4.0, $4.4, $1.7, $1.2, and $2.7 million in 1992, 1993, 1994, 1995, 1996,
and the twenty-six weeks ended June 30, 1996 and June 29, 1997,
respectively. EBITDA and Adjusted EBITDA are not intended to represent cash
flow from operations and should not be considered as alternatives to
operating or net income computed in accordance with GAAP, as indicators of
the Company's operating performance, as alternatives to cash flows from
operating activities (as determined in accordance with GAAP) or as measures
of liquidity. The Company believes that EBITDA and Adjusted EBITDA are
standard measures commonly reported and widely used by analysts, investors
and other interested parties. Accordingly, this information has been
disclosed herein to permit a more complete comparative analysis of the
Company's operating performance relative to other companies in the
industry. However, not all companies calculate EBITDA and Adjusted EBITDA
using the same methods; therefore, the EBITDA and Adjusted EBITDA figures
set forth above may not be comparable to EBITDA and Adjusted EBITDA
reported by other companies.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by reference to, the Financial Statements of the
Company and the notes thereto included elsewhere in this Prospectus. Certain
information contained below includes forward-looking statements. See "Risk
Factors" for a discussion of important factors which could cause actual
results to differ materially from the forward-looking statements contained
herein.
GENERAL
The Company is a manufacturer of investment cast components for the
aerospace and industrial gas turbine industries through operating companies
located in the United States, France, the United Kingdom and Canada. See Note
13 of Notes to Financial Statements.
Operating Performance. The Company's operating performance is affected by
general economic trends and by the following key factors:
Industry Trends. The Company manufactures superalloy, titanium and aluminum
castings for turbine engines and airframe applications for customers
worldwide in the commercial and military aviation and the IGT markets.
Demand for the Company's products is affected by trends in the commercial
aviation market, which are currently favorable. Worldwide output of large
commercial aviation engines, for which the Company makes the majority share
of airfoils, increased 13% from 1995 to 1996 and is expected to continue to
increase with the expected increase in aircraft deliveries. Scheduled
aircraft deliveries give some indication of engine and component
requirements, although the deliveries of engine components precede actual
aircraft deliveries by approximately nine months. Approximately 495 large
aircraft (over 50 passengers) were delivered in 1996, and scheduled
deliveries (according to "The Airline Monitor," July 1997) are projected to
be approximately 715 units in 1997 and 905 units in 1998, although such
deliveries may be subject to deferral or cancellation. Spare part sales for
engines in service are also increasing, as a result of the higher number of
aircraft in service and increased flight hours, among other factors.
Military and defense contractor sales comprised approximately 14% of the
Company's total 1996 sales. Such sales are principally in North America and
are affected by a portion of United States defense spending, which has been
declining since the 1980s. In the near term, the Company expects its
military and defense contractor sales to remain stable.
Growth in demand for efficient, lower cost electrical generation facilities
with shorter construction lead times has resulted in IGT engines now
accounting for approximately 25% of new electric utility generating
capacity ordered worldwide. Management believes that continued growth in
global electric power demand provides continued opportunity for the
Company's IGT castings through demand for new engines and for replacement
part sales as the installed base of IGT engines ages. Sales of spare parts
currently represent approximately 38% of total IGT revenues, but are
expected to increase as the installed base of IGT castings grows and ages.
Pricing. The Company has experienced pressure from all of its major
customers for price reductions. This pressure is the result of the
competitive environment which the Company's OEM customers are facing in the
selling of their products in the worldwide market. Because winning an
initial order generally assures a long term profitable market for spare
parts for OEMs, fierce competition exists and has resulted in reduced
prices which OEMs receive in the market. Pressure for reduced prices is
then exerted by OEMs on their suppliers.
Cost Reduction and Productivity Programs. Since 1992 the Company has
significantly reduced costs and improved productivity and delivery and
cycle times. On-time deliveries have increased from 68% in 1992 to 88% in
1996 and cycle times (measured by work-in-process inventory days) have
fallen from 44 days in 1992 to 19 days in 1996, in each case despite the
fact that the complexity and volume of the Company's
28
<PAGE>
products have increased significantly during the same period. As a result
of these programs, the Company has significantly improved its financial
performance, and management believes further improvements can be achieved.
The Company employs specific programs designed to achieve these
improvements, including synchronous manufacturing, kaizen events (in which
solutions to specific operational problems are achieved by teams of workers
in concentrated time periods), quick shop intelligence (daily meetings of
plant staff in which product-specific manufacturing issues are reviewed and
solved), and standardization of manufacturing and business processes
throughout the Company's facilities worldwide, specialization by plants in
the production of certain families of castings and inter-facility
manufacturing and technical support, including the sharing of best
practices, under a "One Howmet" concept.
Sale of Refurbishment Business. In September 1997, the Company sold its
aircraft engine component refurbishment business (other than its coating
operations). The Company expects net cash proceeds of approximately $43
million after tax payments and transaction related expenses. The sale had an
immaterial effect on net income. Net sales of such business were approximately
$38 million in the twenty-six week period ended June 29, 1997, approximately
$35 million in the twenty-six week period ended June 30, 1996 and
approximately $69 million for the full year 1996. Earnings from operations of
this business were immaterial in all periods.
Backlog. The Company's backlog of orders as of December 31, 1996 and June
26, 1997 were $648 million and $673 million, respectively. Because of the
short lead and delivery times often involved and because the Company's orders
are often affected by deferrals and cancellations, backlog may not be a
significant indicator of future performance of the Company.
RESULTS OF OPERATIONS
See Note 1 of Notes to Financial Statements for a discussion of the October
11, 1995 formation of the Company and its December 13, 1995 acquisition of
Howmet and its parent. The Company had no operations prior to December 13,
1995. For periods prior to December 14, 1995, results of Howmet Predecessor
Company are used for comparison purposes below. This is appropriate because
all of the Company's sales and pre-interest, pre-tax earnings since December
13, 1995 are those of the entities which comprised Howmet prior to the
Acquisition.
For the purpose of comparing the Company's results of operations for the
year ended December 31, 1995, the results of the Company for the period from
December 14, 1995 to December 31, 1995 and the results of Howmet for the
period from January 1, 1995 to December 13, 1995 have been combined.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net sales increased by $161.3 million (17.1%) to $1,106.8 million for 1996
from $945.5 million for 1995. The increase was primarily due to volume
increases resulting from increased demand for aerospace and IGT airfoils,
aluminum castings and component repairs.
Gross profit increased by $77.1 million (34.1%) to $303.2 million for 1996
from $226.1 million for 1995. The principal reasons for the improvement were
the effects of volume increases and, to a lesser extent, operational
improvements, partially offset by price reductions. Other contributing factors
include a $2.6 million lower LIFO charge in 1996 and a 1995 $5.4 million
workers' compensation charge in 1995 for incurred but not reported claims (see
1995 versus 1994 comparison).
Selling, general and administrative expense increased by $7.8 million (7.1%)
to $117.3 million for 1996. The increase was due primarily to performance-
based incentive costs.
Depreciation and amortization expense increased by $24.3 million (68.6%) to
$59.7 million for 1996 from $35.4 million for 1995. Most of the increase
relates to the December 13, 1995 acquisition asset additions and revaluations
including goodwill, patents, non-compete agreements, and step-ups of property,
plant and equipment.
29
<PAGE>
Research and development expense decreased by $2.2 million (8.3%) to $24.2
million for 1996 from $26.4 million for 1995. A slight decline in the level of
new part development work was the principal reason for the decrease.
Net interest expense (interest expense less interest income) was $40.2
million in 1996, and net interest income (interest income less interest
expense) was $1.2 million for 1995. The expense in 1996 resulted principally
from the December 13, 1995 acquisition financing-related debt. In 1995, the
Company recorded net interest income on loans to/from its former owner, which
are no longer outstanding. The 1995 interest income was partially offset by
$3.1 million of third party interest expense recorded in the December 14, 1995
to December 31, 1995 period, which was related primarily to acquisition
financing.
Equity in loss of unconsolidated affiliates declined to a $1.4 million loss
in 1996 versus a $4.5 million loss in 1995. The decline is due to improved
results for the Japanese joint venture.
The Company has an agreement to sell, on a revolving basis, an undivided
interest in a defined pool of accounts receivable. Losses on sales of
receivables increased to $4.5 million in 1996 compared to $.7 million in 1995.
The increased loss is due to a full year of sales activity in 1996 versus 1995
sales activity for only the December 14, 1995 to December 31, 1995 period,
since sales of receivables did not begin until after the Acquisition.
The effective tax rate for 1996 was 54.1%, compared to an effective tax rate
of 47.7% for 1995. The higher rate in the current period reflects certain
losses and expenses for which there were no associated tax benefits,
principally goodwill amortization.
As a result of the foregoing, net income was $25.6 million in 1996, compared
to $26.3 million in 1995.
The impact of inflation on net sales and earnings from operations was not
significant.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net sales increased by $87.2 million (10.2%) to $945.5 million in 1995 from
$858.3 million for 1994. The increase was primarily due to increased demand
for aerospace airfoils, aluminum castings and component repairs, offset in
part by selling price reductions. Approximately $13.5 million of the increase
resulted from the Company's April 1995 acquisition of TCC, a refurbishment
operation.
Gross profit increased by $15.1 million (7.2%) to $226.1 million for 1995
from $211.0 million for 1994, primarily due to the income effect of volume
increases aggregating $26.6 million, of which approximately $2.5 million
resulted from the acquisition of TCC. The favorable volume effect was
partially offset by price reductions. The year 1995 also included a $5.4
million charge for workers' compensation claims incurred but not reported
(incurred during the period due to the cessation of future insurance
underwriting by a self-insurance subsidiary of Holdings, and an evaluation of
such entity's remaining obligations).
Selling, general and administrative expense increased by $18.7 million
(20.6%) to $109.6 million for 1995. The increase was due primarily to expenses
associated with the Company's promotion of new products and applications of
casting technology consistent with its strategy, and increased consulting and
employee benefit and compensation costs. In addition, credits, representing
adjustments of prior years' accruals (primarily for employee benefit
programs), were recorded in 1994.
Depreciation and amortization expense increased by $2.3 million (6.9%) to
$35.4 million for 1995 from $33.1 million for 1994. Of the increase, $1.3
million was a result of the acquisition of TCC in April 1995. The balance of
the increase is attributable to depreciation resulting from the step-up of the
value of fixed assets in connection with the December 13, 1995 acquisition,
and amortization of goodwill, patents and non-compete agreements in the period
from December 14, 1995 to December 31, 1995.
30
<PAGE>
Research and development expense increased by $7.2 million (37.5%) to $26.4
million for 1995 from $19.2 million for 1994. The increase is largely
attributable to additional development work on new IGT products in response to
customer development schedules.
During 1995, the Company canceled its plan for the closure of its Dover
alloy airmelt operation, and accordingly, reversed the related restructuring
reserve of $1.0 million previously provided. The Company also reduced a
reserve for moving administrative services to a central location for its
operations in France by $.6 million. In 1994 the Company took a $1.0 million
charge for the Dover alloy airmelt operation and a $1.5 million charge for
closure of the Morristown, Tennessee wax manufacturing facility. See Note 17
of Notes to Financial Statements.
Interest expense--affiliates for 1995 increased to $2.1 million, $1.3
million higher than the $.8 million of expense incurred for 1994. The increase
was due to higher borrowings by the Company's casting operations in France
from Pechiney S.A. The borrowings were used to finance working capital
additions and capital expenditures.
Interest expense--third parties increased to $6.6 million for 1995 from $4.0
million for 1994. The increase of $2.6 million is primarily attributable to
borrowings incurred in the Acquisition.
Equity in loss of unconsolidated subsidiaries increased by $3.0 million. The
higher losses are attributable to results for the period for the Japanese
joint venture.
Despite higher pre-tax earnings, income tax expense was $21.8 million lower
in 1995 primarily due to certain non-recurring 1994 losses for which there was
no associated tax benefit, including $47.4 million of goodwill write-downs,
1994 tax provisions triggered by developments related to examination by
Federal and state taxing authorities of prior years' income tax returns,
deferred tax adjustments for changes in overall estimated state income tax
rates and other adjustments relating to permanent differences.
As a result of the foregoing, net income was $26.3 million in 1995, compared
to a $23.0 million loss for 1994.
The impact of inflation on net sales and earnings from operations was not
significant.
Twenty-Six Weeks Ended June 29, 1997 Compared to Twenty-Six Weeks Ended June
30, 1996
Net sales increased by $98.2 million (18.0%) to $643.0 million for the
twenty-six week period ended June 29, 1997 ("the 1997 twenty-six week period")
from $544.8 million for the twenty-six week period ended June 30, 1996 ("the
1996 twenty-six week period"). The increase was primarily due to volume
increases resulting from increased demand for aerospace engine airfoils and
continued strength in the industrial gas turbine airfoils market. Sales in the
1997 twenty-six week period reflect continued pricing pressures, offset by
$9.7 million of additional revenue from a pricing adjustment with a customer
that is not expected to recur in future periods.
Gross profit increased by $50.1 million (34.3%) to $196.1 million for the
1997 twenty-six week period from $146.0 million for the 1996 twenty-six week
period. The principal reason for the improvement was the effect of volume
increases. Continued pricing pressures, the aforementioned $9.7 million of
additional revenue with no associated cost, fixed cost containment, variable
cost reductions and other operational improvements were also significant
factors in the 1997 versus 1996 comparison.
Selling, general and administrative expense increased by $15.8 million
(27.7%) to $72.8 million for the 1997 twenty-six week period. The increase was
primarily due to $15.0 million of higher 1997 expense recorded in connection
with the SARs plan.
31
<PAGE>
Net interest expense decreased $6.5 million for the 1997 twenty-six week
period. Interest expense was reduced by $7.8 million due to lower debt levels
and, to a lesser extent, lower rates resulting from achievements of financial
targets. Partially offsetting this reduction is a $1.3 million accelerated
write-off of debt issuance cost associated with debt that was repaid ahead of
schedule.
Equity in income of unconsolidated affiliates of $.6 million in the 1997
twenty-six week period was a $2.7 million improvement over the $2.1 million
equity loss in the 1996 twenty-six week period. The improvement reflects
better results for the Japanese joint venture.
Income taxes increased $14.8 million due to higher pre-tax income. The
effective income tax rate was 41.8% in the 1997 twenty-six week period
compared to 65.6% in the 1996 twenty-six week period. The lower 1997 effective
rate is due principally to a higher estimate of annual earnings in 1997
compared to 1996. As a result, nondeductible costs and expenses represented a
lower percentage of estimated annual earnings in 1997 than in 1996. See Note D
of Notes to Consolidated Condensed Financial Statements for the twenty-six
week periods ended June 29, 1997 and June 30, 1996 for a discussion of changes
in the estimated 1996 effective rate.
As a result of the foregoing, net income was $38.1 million for the 1997
twenty-six week period compared to $6.6 million for the 1996 twenty-six week
period.
QUARTERLY RESULTS OF OPERATIONS
The table below presents the Company's quarterly operating data for 1996 and
the first two quarters of 1997. The Company's business is generally not
seasonal. However, the timing of customer inventory needs in relation to
engine production and delivery schedules can cause quarterly fluctuations in
the Company's operating performance that are not necessarily related to
underlying business conditions.
<TABLE>
<CAPTION>
1996 QUARTERS 1997 QUARTERS
------------------------------ --------------
FIRST SECOND THIRD FOURTH FIRST SECOND
------ ------ ------ ------ ------ ------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales..................... $261.4 $283.4 $278.5 $283.5 $312.6 $330.4
Operating costs and expenses:
Cost of sales............... 190.0 208.8 201.9 202.9 220.0 226.8
Selling, general and
administrative expense .... 29.5 27.5 27.4 32.9 36.5 36.3
Depreciation and
amortization expense....... 15.1 15.2 14.7 14.7 14.4 14.9
Research and development
expense.................... 6.2 6.0 6.2 5.8 5.9 5.2
------ ------ ------ ------ ------ ------
Earnings from operations...... 20.6 25.9 28.3 27.2 35.8 47.2
Interest expense, net......... (11.7) (10.8) (8.9) (8.8) (7.6) (8.5)
Other, net.................... (2.0) (2.8) (1.2) 0.1 (0.6) (0.8)
------ ------ ------ ------ ------ ------
Income before income taxes.... 6.9 12.3 18.2 18.5 27.6 37.9
Income taxes.................. 5.3 7.3 8.9 8.8 12.0 15.4
------ ------ ------ ------ ------ ------
Net income.................... 1.6 5.0 9.3 9.7 15.6 22.5
------ ------ ------ ------ ------ ------
Payment-in-kind dividends on
redeemable preferred stock... (1.1) (1.2) (1.2) (1.2) (1.2) (1.3)
------ ------ ------ ------ ------ ------
Net income applicable to
common shares................ $ 0.5 $ 3.8 $ 8.1 $ 8.5 $ 14.4 $ 21.2
====== ====== ====== ====== ====== ======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are cash flow from operations
and borrowings under its revolving credit facility. The Company's principal
requirements for cash are to provide working capital, service debt, finance
capital expenditures and fund research and development. Based upon the current
level of operations,
32
<PAGE>
management believes that cash from the aforementioned sources will be adequate
to meet the Company's anticipated requirements for working capital, interest
payments and scheduled principal payments under the Senior Credit Facilities,
capital expenditures and research and development, although there can be no
assurance in this regard. To date, cash available after satisfaction of these
requirements has been used to voluntarily repay debt prior to mandatory due
dates.
At June 29, 1997, there were $9.6 million of standby letters of credit
outstanding and no outstanding borrowings under the $75.0 million revolving
credit facility. In the 1997 twenty-six week period, the Company reduced its
debt outstanding by $63.2 million, including (i) repayment of $8.7 million of
borrowings under a subsidiary's revolving credit line, (ii) repayment of $12.0
million of the Company's revolving credit facility borrowings, and (iii) $17.5
million of mandatory scheduled repayments and $25.0 million of voluntary
repayments of senior term facility borrowings. Partially offsetting the
reductions was a $1.4 million increase of payment-in-kind interest on the
junior subordinated note.
From June 30 to September 28, 1997, the Company repaid an additional $99.0
million of senior term facility borrowings. The source of $57.0 million of
this amount was the sale of the aircraft engine component refurbishment
business, discussed above. Subsequent tax payments and other expenditures
related to this asset sale are expected to be funded with cash from operations
and short-term senior revolving credit facility borrowings. Apart from the
benefit of the net cash proceeds from the sale of the refurbishment business,
the impact of this sale has not had a material effect on liquidity.
In February 1997, interest rates on the Senior Credit Facilities were
reduced by 25 basis points as a result of the Company achieving certain
financial targets. An additional 25 basis point reduction occurred in May 1997
due to further achievements of financial targets. After these reductions,
interest rates are, at the Company's option, at Eurodollar rates plus 75 basis
points or at a bank's base rate plus no basis points.
Capital expenditures in the 1997 twenty-six week period were $18.8 million,
and are expected to be approximately $60.0 million for the full year. Terms of
the Senior Credit Facilities allow capital expenditures of up to $55.0 million
per year. If less than $55.0 million is spent in any year, up to $10.0 million
of the underspending may be carried forward and added to the spending
limitation of the subsequent year but not beyond. The 1998 limit is expected
to be $55.0 million. Spending beyond this limit requires lender approval, and
the Company expects to seek such approval in 1998.
The Company's Senior Credit Facilities prohibit payment of dividends and
stock redemptions and restrict intercompany loans. Expenditures for future
acquisitions of businesses are limited to a total of $20.0 million in 1997
(including $10.0 million of allowable capacity carried forward from 1996) and
$10.0 million per year thereafter. If less is spent in any year, up to $10.0
million of the underspending may be carried forward and added to the spending
limitation of the subsequent year but not beyond. The Senior Credit Facilities
also limit future contributions to joint ventures to a total of $5.4 million.
While the terms of the Senior Credit Facilities are more restrictive than the
terms of the Senior Subordinated Notes, these notes also restrict, among other
things, payment of dividends, redemptions of shares, sales of assets, mergers
and incurrence of additional debt.
The Company is a holding company which conducts its operations through
Howmet and its subsidiaries, and has no business operations of its own.
Accordingly, the Company is dependent on the receipt of cash from its
subsidiaries to meet its expenses and other obligations. Terms of both the
Senior Credit Facilities and the Senior Subordinated Notes restrict transfers
of cash to the Company from its subsidiaries.
At June 29, 1997 the Company's balance sheet includes $716.4 million of
Pechiney Notes, $10.6 million of accrued interest thereon and a $727.0 million
Restricted Trust asset. See Note 8 of Notes to Financial Statements.
33
<PAGE>
An $8.2 million change in the cumulative translation adjustment included in
stockholders' equity resulted in a $6.1 million negative balance at June 29,
1997. The change is primarily due to the strengthening of the U.S. dollar
relative to the French Franc.
NEW ACCOUNTING STANDARDS
In February 1997, Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share" was issued. This statement changes the methodology
of calculating earnings per share. Under current circumstances this standard
will not have an effect on the Company's financial statements. In June 1997,
SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information" were issued. Adoption
of SFAS No. 131 is not expected to have a significant impact on the Company's
financial statements. Adoption of SFAS No. 130 will not have an effect on the
Company's reported cash flows, financial position or net income. However,
adoption of SFAS No. 130 will require the Company to report comprehensive
income, which will include net income and the change in the cumulative
translation adjustment reported in stockholders' equity.
ENVIRONMENTAL MATTERS
See "Business--Environmental Matters," "Risk Factors--Governmental
Regulations and Environmental Matters" and Note 16 of Notes to Financial
Statements.
34
<PAGE>
BUSINESS
OVERVIEW
The Company is the largest manufacturer in the world of investment cast
turbine engine components for the jet aircraft and industrial gas power
generation markets. The Company uses investment casting techniques to produce
high-performance and high-reliability superalloy and titanium components to
the exacting specifications of the major aerospace and IGT engine
manufacturers. The Company is also the world's largest producer of aluminum
investment castings, which it produces principally for the commercial
aerospace and defense electronics industries.
The Company believes that its leading market position is based on its
ability to provide complex and technologically advanced products which meet
its customers' most demanding requirements, and that its strong leadership in
proprietary technology, its integrated manufacturing capabilities and its
substantial commitment to research and development provide the Company with
competitive advantages in developing and producing such products. Customers in
both the aerospace and IGT markets continually seek improvements in turbine
engine operating efficiencies through increased turbine operating temperatures
and other performance enhancements, requiring the development of stronger,
more heat-resistant and corrosion-resistant engine components. The Company has
been at the forefront in the development and commercialization of numerous
technological breakthroughs in the investment casting industry, including
improved metallurgical structures and casting technologies. The Company
produces the technologically advanced directional solidification and single
crystal airfoils now required for the advanced, higher efficiency engines, and
it plans to continue developing higher value, technologically advanced
products, which typically carry higher margins. The Company is also focused on
using investment casting to develop alternative products to those currently
being forged, fabricated or assembled. The Company believes such products
represent a significant growth opportunity.
Howmet, the Company's principal operating subsidiary, was founded in 1926
and was acquired by the Company, a joint venture formed by Thiokol and
Carlyle, on December 13, 1995 from Pechiney International.
The Company produces superalloy and titanium investment castings for the
aerospace and IGT industries as well as aluminum investment castings for the
aerospace and defense electronic industries, as described below:
Aerospace Castings. Aerospace casting revenues were approximately $576
million in 1996, or 52% of the Company's total revenues. The Company's
aerospace products consist principally of airfoils (both moving blades and
stationary vanes) used in the hot gas path of aircraft turbine engines, the
area of these engines with the most severe operating conditions. The Company
estimates that it has approximately a 56% worldwide market share for aerospace
turbine airfoils, and believes it manufactures airfoils for every major jet
aircraft turbine engine program currently in production or under development
by its major customers, primarily for commercial applications. The Company's
aerospace airfoil business is approximately equally divided between parts for
new engines and airfoil replacement parts. The Company also produces large
structural cast components and integral castings for engine and airframe
manufacturers. The Company's major aerospace casting customers are the world's
largest jet aircraft engine manufacturers, including GEAE, PWA, AlliedSignal,
Rolls-Royce and SNECMA.
Demand for the Company's products is affected by trends in the commercial
aviation market, which are currently favorable. Worldwide output of large
commercial aviation engines, increased 13% from 1995 to 1996 and is expected
to continue to increase with the expected increase in aircraft deliveries.
Scheduled aircraft deliveries give some indication of engine and component
requirements, although the deliveries of engine components precede actual
aircraft deliveries by approximately nine months. Approximately 495 large
aircraft (over 50 passengers) were delivered in 1996, and scheduled deliveries
(according to "The Airline Monitor," July 1997) are projected to be
approximately 715 units in 1997 and 905 units in 1998, although such
deliveries may be subject to deferral or cancellation. Spare part sales for
engines in service are also increasing as a result of the higher number of
aircraft in service and increased flight hours, among other factors. The
Company believes that the
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principal causes of the recent increase in new aircraft orders include the
improved profitability of U.S. commercial airlines, aging of the existing
fleet, government Stage III noise regulations (which impact the approximately
3,500 Stage II aircraft worldwide) and increased air travel.
Industrial Gas Turbine Castings. The Company's IGT casting revenues were
approximately $370 million in 1996, or 33% of its total revenues. The Company
is the largest producer in the world of airfoils for industrial gas turbine
engines, with an estimated 75% worldwide market share. These engines are
primarily used in utility power generation, as well as in mechanical drive
applications for oil and gas processing and off-shore drilling. The IGT
airfoil products manufactured by the Company have performance and reliability
requirements similar to those produced for the aerospace market, but the
products generally are significantly larger in size. The Company believes that
it is currently the only manufacturer in volume production of technologically
advanced directional solidification and single crystal airfoils for the IGT
market. The Company's major IGT customers are the largest IGT engine
manufacturers, including GEPS, EGT, ABB, Siemens and Westinghouse.
Growth in demand for efficient, lower cost electrical generation facilities
with shorter construction lead times has resulted in IGT engines now
accounting for approximately 25% of new electric utility generating capacity
ordered worldwide. Management believes that continued growth in global
electric power demand provides continued opportunity for the Company's IGT
castings through demand for new engines and for replacement part sales as the
installed base of IGT engines ages. Sale of spare parts currently represent
approximately 38% of total IGT revenues, but are expected to increase as the
installed base of IGT castings grows and ages.
Aluminum Castings. The Company, through its Cercast subsidiaries, is the
largest producer in the world of aluminum investment castings, which are
produced principally for the commercial aerospace and defense electronics
industries. During 1996, Cercast had revenues of $85 million, which
represented approximately 8% of the Company's total revenues. Cercast is
pursuing a strategy designed to increase its exposure to commercial aerospace
and other commercial markets, which together now account for more than half of
Cercast's revenues. As a result of its proprietary technology, Cercast's
aluminum investment castings have been able to penetrate component markets for
structural airframes and engines, displacing parts traditionally made by other
processes, such as forging, fabrication, welding and assembly. Management
expects that this trend, in addition to the favorable outlook for the
commercial aerospace industry in general, will increase Cercast's business in
this area.
Sale of Refurbishment Business. In order to focus its effort on its core
casting business, in September 1997, the Company sold its aircraft engine
component refurbishment business (other than its coating operations), which
accounted for approximately 6% of its 1996 sales.
COMPANY STRATEGY
The Company intends to aggressively pursue a strategy designed to achieve
future growth in revenues and profits. Key elements of the Company's strategy
are as follows:
Enhance Worldwide Market Leadership Position. The Company estimates that it
has an approximate 56% market share for aerospace turbine airfoils, and
believes it manufactures airfoils for every major jet aircraft turbine engine
program currently in production or under development by its major customers.
The Company also believes that it has an approximate 75% market share of IGT
cast components. The Company seeks to enhance its worldwide leadership
positions through its technological leadership, integrated manufacturing
capabilities and established relationships with every major jet aircraft and
IGT engine manufacturer. The Company's substantial commitment to research and
development provides it with a competitive advantage in developing the
capabilities to manufacture the most complex parts as well as in developing
new products, alloys and processes. In addition, the Company has the
capability to develop and manufacture alloys and tooling, and finish, machine
and coat cast parts. The Company is taking steps to expand its coating and
machining operations to supply the aerospace and IGT markets with a full line
of machined and coated products. The Company believes this vertically
integrated manufacturing capability also enhances its ability to develop
proprietary technology and bring to market technologically advanced products
quickly while achieving a greater degree of quality control over its
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manufacturing processes. The Company's leading position provides significant
opportunity to supply products for new engines as well as ongoing demand for
replacement parts and to participate with its customers in cooperative
research and development projects.
Leverage Technological Capabilities. The Company has been at the forefront
in the development and commercialization of numerous technological
breakthroughs in the investment casting industry. As a result of its
technological leadership, the Company has been able to produce the most
technologically advanced, highest quality products, which typically command
higher margins and result in strong financial performance and market position.
The Company's strategy is to continue its focus on developing more complex
airfoils, which can withstand even greater material stress and higher
temperature environments, thereby enabling its customers, most of whom are
OEMs, to design more efficient engines. The Company intends to pursue this
strategy in various ways, including by continuing to work closely with
customers to improve its directional solidification and single crystal
investment casting production techniques and by developing new applications
for those techniques.
Emphasize Growth through New Casting Applications and Technological
Innovations. The Company believes it has significant opportunities for growth
by developing new products and new applications which offer its customers
greater performance and significant cost savings. These opportunities include
(1) developing cast products that are alternatives to forged, fabricated and
assembled products, (2) developing superior new casting processes, and (3)
using new materials. Target applications for alternative cast products include
a broad array of titanium and aluminum airframe structural components that
reduce the number of parts and fasteners used and reduce machining
requirements. In developing new casting processes, the Company similarly seeks
to reduce the number of parts used and the amount of machining. An example of
such a new casting process is the Spraycast-X(R) technology, which the Company
is developing and commercializing in a joint venture with a subsidiary of
United Technologies Corporation. By this process, products such as cases and
rings can be manufactured at substantially lower cost. An example of a new
material being developed by the Company is titanium aluminides. Several jet
aircraft engine manufacturers are currently testing titanium aluminide
airfoils, which reduce the weight of selected airfoil components by
approximately 50%, thereby increasing efficiency. The Company believes such
products represent a significant growth opportunity for the Company.
Additional new products or processes include:
Turbogenerators. Turbogenerators are small, efficient gas turbines
designed to produce from 20 to 200 kilowatts of power. Uses range from
vehicle propulsion to electric power generation. The technology calls for
low cost, high quality investment castings for various components, and the
Company is working with several manufacturers on "Lean Manufacturing"
processes (which reduce manpower and inventory requirements) to produce
these components. A completely new approach to making investment castings
is being developed including new pattern materials and new automated
casting equipment.
Amorphous Alloys. Amorphous or metallic glass materials are alloys that
solidify such that their atoms are "frozen" in a totally random, non-
crystalline manner, which is similar to that of window glass. The zirconium
based amorphous alloys that the Company casts are very strong and hard and
have an energy storage density five times that of titanium or steel. The
Company is currently using this material to produce inserts for golf club
heads. The Company's vacuum die casting process is uniquely suited to
producing these materials for a variety of applications.
Vacuum Die Casting ("VDC"). VDC is a vacuum casting process by which
molten metal is injected at high pressure and high speed into a metal mold
cavity configured in the shape of the desired component. VDC components
have minimum thicknesses of approximately 0.15^ and have been cast in
titanium, steel, nickel and amorphous alloys.
Gravity Metal Molding ("GMM"). GMM is a vacuum casting process that uses
the force of gravity to flow molten metal into a metal mold cavity
configured in the shape of the desired component. GMM components that have
minimum thicknesses of approximately 0.100^ have been cast in titanium,
steel, nickel, cobalt and amorphous alloys. The Company is seeking to
develop the VDC and GMM processes to produce selected products at lower
cost.
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Continue Cost Reductions and Productivity Improvements. Since 1992 the
Company has significantly reduced costs and improved productivity, and
delivery and cycle times. On-time deliveries have increased from 68% in 1992
to 88% in 1996 and cycle times (measured by work-in-process inventory days)
have fallen from 44 days in 1992 to 19 days in 1996, in each case despite the
fact that the complexity and volume of the Company's products have increased
significantly during the same period. As a result of these programs, the
Company has significantly improved its financial performance, and management
believes further improvements can be achieved. The Company employs specific
programs designed to achieve these improvements, including synchronous
manufacturing, kaizen events (in which solutions to specific operational
problems are achieved by teams of workers in concentrated time periods), quick
shop intelligence (daily meetings of plant staff in which product-specific
manufacturing issues are reviewed and solved), standardization of
manufacturing and business processes throughout the Company's facilities
worldwide, specialization by plants in the production of certain families of
castings and inter-facility manufacturing and technical support, including the
sharing of best practices, under a "One Howmet" concept.
Provide the Highest Level of Customer Service. The Company seeks to provide
the highest possible level of customer service, including techniques for
achieving measurable improvement in customer satisfaction. For example, the
Company's marked improvement in delivery and cycle times referred to above has
enabled the Company to meet customer demands for "just in time" delivery. In
addition, the Company also keeps its own engineers on-site at customer
locations to facilitate the integration of the Company's components into the
OEMs' final products and to work closely with OEMs as they develop new
products. For example, the Company has worked with GEAE over the last five
years in the development of the GE90 aircraft engine and is under contract to
supply airfoils for the GE90. In the IGT market, the Company has been selected
by ABB, Siemens and GEPS to help these customers develop airfoil components
for their existing and new generation IGT engines.
INVESTMENT CASTING INDUSTRY OVERVIEW
Investment casting is a highly specialized business requiring significant
investment in technology and facilities. The investment casting process is a
complex and technologically sophisticated multi-step process. One of the
primary uses of investment castings has been in turbine engines, which operate
most efficiently at high temperatures and require extremely reliable
performance. The turbine engine business is greatly influenced by conditions
in the aerospace and IGT markets, which are described below. Customers in both
the aerospace and IGT markets continually seek improvement in turbine engine
operating efficiencies through increased turbine operating temperatures and
other performance enhancements, requiring the development of stronger, more
heat-resistant and corrosion-resistant engine components. Most segments of the
turbine engine market are characterized by a limited number of large
manufacturers of engines. Turbine engine manufacturers generally have long-
term relationships with a small number of investment cast component suppliers
because of the significant technology and facility investments required and
complex qualification requirements as well as such suppliers' involvement in
new product development initiatives. Once customers have qualified a supplier
(or in certain cases two suppliers) with respect to a particular product, they
are typically reluctant to add suppliers due to the tooling, sampling and
testing costs that accompany the process of qualifying an alternate supplier.
Management believes that the Company and PCC account for most of the total
aerospace turbine engine and IGT casting production.
Aerospace Market. The rate of component sales for aircraft engines depends
on the rate at which new engines are being built and on the demand for
airfoils as replacement parts on aircraft engines in service. The demand for
airfoils therefore reflects the new aircraft requirements of airlines, the
utilization rates and aging of existing airline fleets and the demand for
military aircraft engines. The industry's airfoil sales include significant
volume in both the original equipment and replacement part markets, although
in both instances OEMs are the principal customers. Structural components are
sold almost exclusively to OEM customers for use on original equipment, with
virtually no replacement part market.
IGT Market. Component sales for new industrial gas turbine engines are
related primarily to the growth of global electricity consumption and pumping
and transportation equipment requirements, while demand for
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replacement parts depends on the size and usage rate of the installed base of
IGT engines. Growth in demand for efficient, lower cost electrical generation
facilities with shorter construction lead times has resulted in IGT engines
now accounting for approximately 25% of new electric utility power generation
ordered worldwide. Management believes that the market will continue to grow
at a rate of 2% to 3% per year, and, accordingly, the Company believes such
growth in electricity consumption provides opportunities for the Company to
increase new engine and replacement part sales.
Aluminum Casting. Aluminum investment castings are designed for applications
such as electronics packaging, electro-optical devices, microwave systems,
compressor pumps, air and hydraulic equipment, and components for airframe and
aero-engine structural elements. As investment casting technology has evolved,
techniques such as controlled solidification have augmented the mechanical
properties of these aluminum components and have led to the production of
increasingly complex castings capable of a wide array of applications,
displacing parts traditionally made by other processes, such as forging,
fabrication, welding and assembly. The market for aluminum investment castings
in North America and Europe declined significantly in the early 1990s due to
weak defense and commercial aerospace markets; however, the market stabilized
somewhat in the defense sector and rebounded strongly in 1996 and 1997 in the
commercial sector. Management believes the military market for aluminum
investment castings will continue to be flat, while the commercial sector will
continue to benefit from a favorable aircraft order outlook and an increasing
number of aerospace applications for aluminum investment casting.
PRODUCTS AND SERVICES
Aerospace Castings. The Company manufactures superalloy and titanium
castings for aircraft turbine engines and airframe applications for customers
worldwide. Aerospace products are manufactured to precise specifications
provided by customers. The Company's principal aerospace product group is
airfoils for jet aircraft engines. Airfoils consist of blades (rotating
airfoils) and vanes (non-rotating airfoils) as well as integral castings such
as turbine rotors and nozzle rings, which are assemblies of vanes cast in one
piece for smaller engines. The Company also produces structural components, or
"structurals," for both engine and airframe applications. Structurals are
support components of engines, such as engine casings, frames and bearing
housings, and airframe components. These products are described in more detail
below.
Airfoils. The Company was a pioneer in the development of airfoil casting
processes, by casting intricate internal and external features in numerous
sophisticated alloys while maintaining stringent quality requirements.
Investment casting improves component quality by maintaining a high degree
of control over the crystal structure of components for strength, heat
resistance and durability. Airfoils manufactured by the Company operate in
the hot gas section of jet aircraft and IGT engines, where they must
operate for prolonged periods of time at temperatures that can exceed 2,000
degrees Fahrenheit. Airfoils can be either cored (hollow) or non-cored
(solid), depending on customer specifications. Cores allow the flow of
cooling air through the inside of the airfoil's structure to help maintain
a lower temperature on the surface of the airfoil. Vanes are made in either
single airfoils or in groups of clustered airfoils cast simultaneously.
The Company believes that it has become a leading supplier of airfoils
for virtually every aerospace gas turbine engine manufacturer. Airfoils are
uniquely designed for each engine model, and for each stage of that engine.
Typically, there are three to eight turbine stages, each one with 60 to 90
identical sets of airfoils. Because of the hot gas path location of the
airfoils (as opposed to structural parts), a predictable degradation of
airfoils occurs with elapsed engine operation time. This severe environment
necessitates demanding product requirements and ultimately the need for
replacement parts. The Company's airfoil business is approximately equally
divided between sales to OEMs for new engines and sales of airfoils that
are resold by OEMs as replacement parts.
Integrals. Integral castings are turbine rotors, nozzle rings and
compressor stators with circular rings of airfoils. As these are cast
contiguously with their supporting structures, integrals replace several
fabricated assemblies and provide cost efficiencies in machining, fixtures,
joining and inspection, in-house
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inventories and lead times. Cast integrals have greater dimensional
consistency than many fabricated or forged products. Integrals are found on
smaller engines designed for use on helicopters, trainers and regional
aircraft, and in the business and personal aircraft market as well as
compressor stators for larger engines.
Structurals. Structurals are support components of engines, such as
engine casings, frames and bearing housings, and airframe components. The
Company entered the market for structural castings in the early 1980s after
aircraft manufacturers began using such cast components in aircraft
engines. The Company saw this market as an opportunity to increase its
participation in engine component sales through an extension of its casting
technology. The structurals market is separated into engine and airframe
segments with a further division between large (up to 60^ in dimension) and
small (24^ maximum dimension) superalloy and titanium castings in each of
these categories.
Structurals are usually made of lighter weight titanium (for use in
colder engine sections) and superalloys (for use in hot sections) for their
strength and temperature performance properties. Engine structurals are
circular engine components such as fan frames, compressor cases and bearing
housings that support and surround the various internal working components
of a turbine engine. Airframe structurals are of various dimensions and
form part of the airframe structure. Most airframe structural components
are made from titanium alloys for their weight and strength advantages.
Industrial Gas Turbine Castings. The Company is the leading manufacturer of
superalloy components for gas turbine engines worldwide. These IGT products
principally consist of airfoils (which, like airfoils for aircraft, include
moving blades and stationary vanes) for gas turbines used in utility power
generation and mechanical drive applications for industrial and pipeline
operations, oil and gas processing and off-shore drilling. The Company's
products can be found in a wide range of industrial gas turbines, from small
units with capacities of as little as 1,500 kilowatts to large systems
producing in excess of 200 megawatts. In addition to IGT airfoils, the Company
also manufactures IGT shroud blocks, which are vane holders that provide a
seal to fix each vane into its proper position.
IGT airfoils are similar in composition to those produced for aerospace
turbines except that they are often significantly larger. IGT airfoils for
large turbines can be as long as 30 inches and weigh as much as 300 pounds.
Their size makes many IGT airfoils more difficult to cast than smaller
aerospace airfoils with the same mechanical properties. Management believes
that the Company is the only company currently capable of volume production of
large directional solidification and single crystal cast components for the
IGT market and that this expertise provides the Company with significant
opportunities. Management also believes that other combustion and compressor
components of IGT engines represent a future market opportunity for the
Company.
Aluminum Castings. Through its Cercast subsidiaries, the Company produces
aluminum investment castings for the commercial aerospace and defense
electronics markets. Applications include electronic packaging, electro-
optical system housings, engine parts, pumps and compressors. In addition, as
a result of Cercast's technological leadership, Cercast's aluminum investment
castings have been able to penetrate component markets for structural
airframes and engines, displacing parts traditionally made by other processes,
such as forging, fabrication, welding and assembly.
MAJOR CUSTOMERS
The Company is the leading supplier of precision investment casting
components to the producers of aircraft and industrial gas turbine engines.
Most segments of the turbine engine market are characterized by a limited
number of large manufacturers of engines. The Company's top ten customers
represented approximately 62% of the Company's net sales in 1996. The
Company's principal customers are General Electric Company (GEAE and GEPS) and
Pratt & Whitney (PWA and Pratt & Whitney Aircraft Canada ("PWAC")). Sales to
these customers represented 19% and 14%, respectively, of the Company's 1996
net sales. The Company's principal other aerospace engine customers (none of
which represented more than 10% of 1996 net sales) include AlliedSignal, Fiat,
Allison, MTU, Rolls-Royce, Walbar (a division of Coltec) and SNECMA. The
Company's
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principal other IGT customers (none of which represented more than 10% of 1996
net sales) include EGT (which manufactures GEPS-designed engines), ABB,
Siemens AG, Westinghouse, Nuovo Pignone, Solar, and Westinghouse-Canada.
Turbine engine manufacturers generally have long-term relationships with a
small number of precision cast component suppliers because of the significant
technology and facility investments required and complex customer
qualification requirements, as well as such suppliers' involvement in new
product development initiatives. Once customers have qualified a supplier with
respect to a particular product, they are typically reluctant to switch
suppliers due to the tooling, sampling and testing costs that accompany the
process of qualifying an alternate supplier. Historically, many of the
Company's customers have chosen to single source components due to the high
cost of supplier qualification.
Contractual relationships with the Company's principal customers vary.
Nearly half of the Company's casting business is derived from multi-year
contracts, typically three years in length. Under these contracts, the
Company's customers agree to order from the Company, and the Company agrees to
supply, specified percentages of specified parts at specified pricing over the
life of the contracts. The customers are not required to order fixed numbers
of parts, although pricing may be subject to certain threshold quantities.
Some of these contracts include provisions requiring specified price
reductions over the term of the contract, based on lower production costs as
programs mature, shared benefits from other cost reductions resulting from
joint production decisions, and negotiated reductions. See "Risk Factors--
Concentrated Customer Base" and "Risk Factors--Competition."
BACKLOG
The Company's backlog of orders as of December 31, 1996 was $648 million and
as of December 31, 1995 was $485 million. Because of the short lead and
delivery times often involved and because the Company's orders are often
affected by year-end deferrals and from time to time by other deferrals and
cancellations, backlog may not be a significant indicator of future
performance of the Company.
SALES AND MARKETING
The Company sells its aerospace and IGT castings through a sales force of
thirty-two salaried sales representatives and two commissioned
representatives, supervised by senior vice presidents. Cercast sells its
products through a network of fifteen independent representatives, plus one
direct sales person.
Management believes the technical nature of the turbine business has
fostered close working relationships between the Company and its customers,
which are necessary to help shorten development lead times on new components
and to insure quality and cost control over the final product. Maintaining and
expanding such relationships is one of the Company's principal strategies. The
Company's four domestic regional sales offices are generally located near
major customers. For example, the eastern United States office is located in
East Hartford, Connecticut, near PWA; the midwestern office is located in Blue
Ash, Ohio, close to the GEAE plant; and the western United States office is in
Phoenix, Arizona, near the AlliedSignal aircraft engine operation. In the
United States, relationships with the large IGT product customers are
coordinated by the business center manager in the Hampton, Virginia, casting
plant, where most IGT products are manufactured. In addition, several field
representatives maintain offices within customers' plants. These
representatives are often engineers with plant experience, who are invited by
the Company's customers to locate within their facilities. The Company's
international sales are coordinated from a sales office in Paris, France.
Orders for components are primarily awarded through a competitive bidding
process, and drawings and specifications for each part to be bid are sent to
the appropriate manufacturing plant, which consults with engineering, quality
and business center managers in the plant as part of the formal bid process.
Following an extensive qualification process, customers generally designate an
"approved source," usually one supplier per part, for the life of the
contract.
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MANUFACTURING
In the investment casting process, an exact replica, or pattern, is produced
by injecting wax or plastic materials into a die. If the part contains
internal passages, a pre-formed ceramic core is inserted in the die cavity,
around which the pattern material is injected. A ceramic shell mold is then
produced by dipping, or "investing" (hence the term "investment casting"), the
pattern assembly into a ceramic slurry, draining it, and then coating it with
coarse ceramic stucco to strengthen the shell. After drying, this process is
repeated several times, using progressively coarser grades of ceramic
material, until a self-supporting shell has been formed. The coated assembly
is then placed in a high-temperature furnace, where the wax or plastic is
removed from the shell through melting. Next, the ceramic shell mold is fired
to burn out traces of pattern material and to increase its strength. Then the
pre-heated ceramic shell mold is filled with molten metal, typically nickel-
base, cobalt-base, titanium or aluminum alloy, which is poured into the mold
under vacuum, pressure and/or centrifugal force. Once the poured mold has
cooled, the residual shell and core are removed by a variety of methods and
the parts are separated. The resulting near-net-shape components require only
cleaning, finishing and inspection to become the final cast product.
Customers in both the aerospace and IGT markets continually seek improvement
in turbine engine operating efficiencies through increased turbine operating
temperatures and other performance enhancements, requiring the development of
stronger, more heat resistant and more corrosion resistant engine components.
The Company has responded to these requirements with improved metallurgical
structures and casting technologies. The Company currently utilizes the equiax
method, as well as the directional solidification and single crystal methods.
Equiax is the conventional investment casting technology characterized by a
random grain structure and non-directional strength properties. Much of the
advancement in investment casting technology has involved controlling the
formation of grain boundaries, which result as a metal solidifies, and
manipulating the effects of such formation on properties such as strength and
heat resistance. Aligning grains can also increase ductility and strength in
particular directions, such as along the length of a blade or vane, where
stress is greatest. This alignment process also has significant beneficial
effects on thermal fatigue properties. The directional solidification casting
process was originally developed by OEM customers to facilitate the formation
of unidirectional grain boundaries. Single crystal castings, also originally
developed by customers, are composed of a single crystal and represent the
most advanced castings available. Directional solidification and single
crystal components are priced substantially higher than the equiax parts they
replace. One single crystal airfoil may cost well in excess of $5,000 for a
large IGT application. The directional solidification and single crystal
technologies represented more than 23% of the Company's 1996 total casting
sales.
Because of the strict performance required of its final products, the
Company carefully controls its manufacturing processes and materials and
relies on vertical integration to assure a consistent and reliable source for
such materials. Vertical integration also permits a greater level of
protection for the proprietary techniques, materials and processes the Company
uses to produce its castings. The Company's vertical integration includes the
production of waxes for casting patterns and the ceramic cores and alloys the
Company uses in its castings, as well as machining of castings and coating of
finished products.
As a manufacturer of sophisticated OEM components, the Company has met or
surpassed all major OEM quality certifications and received all necessary
approvals for jet aircraft engines. In addition, each of the Company's major
casting facilities has been awarded ISO 9002 certification, an internationally
recognized quality assurance standard.
Aluminum castings are created using the basic casting procedures described
above. For certain products, Cercast utilizes a unique rapid solidification
technology, which achieves static and dynamic metal properties that are
superior to the properties produced by traditional processes. This has allowed
the production of increasingly complex castings capable of a wide array of
applications. As a result of its technological leadership, Cercast's aluminum
investment castings have been able to penetrate component markets for
structural airframes and
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engines, displacing parts traditionally made by other processes, such as
forging, fabrication, welding and assembly. Each of Cercast's facilities has
been awarded ISO 9002 certification.
RESEARCH AND DEVELOPMENT
The Company has made a substantial investment in research and development to
establish a technology leadership position in the investment casting industry.
The Company believes it has significant opportunities for growth by developing
new products and new applications which offer its customers greater
performance and significant cost savings. These opportunities include (1)
developing cast products that are alternatives to forged, fabricated and
assembled products, (2) developing superior new casting processes, and (3)
using new materials. Target applications for alternative cast products include
a broad array of titanium and aluminum airframe structural components that
reduce the number of parts and fasteners used and reduce machining
requirements. In developing new casting processes, the Company similarly seeks
to reduce the number of parts used and the amount of machining. An example of
such a new casting process is the Spraycast-X(R) technology, which the Company
is developing and commercializing in a joint venture with a subsidiary of
United Technologies Corporation. By this process, products such as cases and
rings can be manufactured at substantially lower cost. An example of a new
material being developed by the Company is titanium aluminides. Several jet
aircraft engine manufacturers are currently testing titanium aluminide
airfoils, which reduce the weight of selected airfoil components by
approximately 50% while increasing efficiency.
A portion of the Company's total research and development budget comes from
the Company's customers, who regularly retain the Company for specific
projects. The Company also provides research and development services by
contract to governmental agencies.
The Company's research center staff of 170 individuals includes 69 degreed
engineers and scientists. The center includes seven departments. Foundry
Technology develops new foundry materials, melting and casting processes, and
rapid prototyping of new products. Ceramic Technology develops new pattern,
core and shell materials essential to the production of high quality
investment castings. Advanced Technology concentrates on new materials,
processes and products, with a view toward both current and long term customer
requirements. Surface Technology supports the requirements of the Company's
coatings business. Quality and Technical Services oversees corporate quality
and mechanical, physical, and chemical property testing of materials.
Manufacturing Technology designs and builds proprietary equipment for the
Company's plants. Environmental Engineering Group oversees the Company's
compliance with applicable environmental laws and regulations.
Cercast also maintains a research and development staff to improve the
aluminum investment casting process. This staff develops casting processes and
specialty materials, including stable pattern waxes and hybrid ceramic shell
molds, as well as the use of pre-formed ceramic coring, which enables Cercast
to produce a diverse range of large, thin wall and complex geometry castings.
The Company's aggregate research and development expense for the years ended
December 31, 1994, 1995 and 1996 were $19.2 million, $26.4 million, and $24.2
million respectively.
RAW MATERIALS
The Company's raw materials include a number of metals and minerals used to
produce the alloys included in its castings, including titanium, hafnium,
aluminum, nickel, cobalt, molybdenum and copper, among others. The Company has
multiple sources of supply for most of these metals and has not experienced
any material supply interruption for more than twenty years. Prices of these
materials, however, can be volatile, and the Company engages in forward
purchases of some of these materials under certain market conditions, and
passes certain price fluctuations through to customers pursuant to its long-
term agreements. The Company ordinarily does not otherwise attempt to hedge
the price risk of its raw materials.
COMPETITION
The Company believes it has a majority market share in the overall turbine
engine investment casting market. PCC, a public company with reported sales of
$972.8 million for its fiscal year ended March 31, 1997,
43
<PAGE>
is the Company's primary competitor. Management believes that the Company and
PCC account for most of the total aerospace turbine engine and IGT casting
production. The Company competes with PCC and other smaller participants
primarily on technological sophistication, quality, price, service and
delivery speed for orders from large, well-capitalized customers with
significant market power. Aluminum casting manufacturers also compete on the
basis of price, quality and service.
Superalloy castings represent a substantial cost component of customers'
engines, and customers are increasingly focused on reducing costs and
responding to increasing competition in their markets. The Company's major
customers for these castings are intensely price competitive with each other,
and this price competition in turn increases their incentives to reduce costs
from their suppliers.
Orders for components are primarily awarded through a competitive bidding
process. Nearly half of the Company's business is based on multi-year
contracts with its customers, which typically last three years and generally
give the Company the right and obligation to fill a specified percentage of
the customer's requirements, but generally do not provide the Company with any
minimum order commitments. The Company typically renegotiates these contracts
during the last year of the contract period and, during the process, customers
frequently solicit bids from the Company's competitors.
ENVIRONMENTAL MATTERS
The Company is subject to comprehensive and changing Environmental Laws. Due
to the nature of the Company's operations, the Company is involved from time
to time in legal proceedings involving remediation of environmental
contamination from past or present operations, as well as compliance with
environmental requirements applicable to ongoing operations. There can be no
assurance that material costs or liabilities will not be incurred in
connection with any such proceedings, claims or compliance requirements or in
connection with currently unknown environmental liabilities.
If it is determined that the Company is not in compliance with Environmental
Laws, the Company could be subject to penalties. The amount of any such
penalties could be material. In addition, the Company uses solvents, waxes,
metals, caustics, acids, oils and other hazardous substances, and as is the
case with manufacturers in general, if a release of hazardous substances
occurs on or from the Company's properties or from an off-site disposal
facility, the Company may be held liable and may be required to pay the cost
of remedying the condition. The amount of any such liability could be
material.
The Company's facilities have made, and will continue to make, expenditures
to comply with current and future Environmental Laws. The Company anticipates
that it could incur additional capital and operating costs in the future to
comply with existing Environmental Laws and new requirements arising from new
or amended statutes and regulations. In addition, because the applicable
regulatory agencies have not yet promulgated final standards for some existing
environmental programs, the Company cannot at this time reasonably estimate
the cost for compliance with these additional requirements. The amount of any
such compliance costs could be material.
The Company is subject to liability under CERCLA (the federal "Superfund"
statute) and similar state statutes for the investigation and remediation of
environmental contamination at properties owned and/or operated by it and at
off-site locations where it has arranged for the disposal of hazardous
substances. Courts have determined that liability under CERCLA is, in most
cases, joint and several, meaning that any responsible party could be held
liable for all costs necessary for investigating and remediating a release or
threatened release of hazardous substances. As a practical matter, liability
at most CERCLA (and similar) sites is shared among all the solvent Potentially
Responsible Parties ("PRPs"). The most relevant factors in determining the
probable liability of a PRP usually are the cost of the investigation and
remediation, the relative amount of hazardous substances contributed by the
PRP to the site, and the number of solvent PRPs.
The Company has received recent test results indicating levels of
polychlorinated biphenyls ("PCBs") at its Dover, New Jersey facility which
will require remediation. These levels have been reported to the New Jersey
44
<PAGE>
Department of Environmental Protection ("NJDEP"). The Company is preparing a
work plan to define the risk and to test possible clean-up options. The
statement of work must be approved by the NJDEP pursuant to an Administrative
Consent Order entered into between the Company and NJDEP on May 20, 1991
regarding clean-up of the site. Various remedies are possible and could
involve expenditures ranging from $2.0 million to $22.0 million or more. The
Company has recorded a $2.0 million long-term liability as of December 31,
1996 for this matter. Given the uncertainties, it is possible that the
estimated range of this cost and the amount accrued will change in the near
future.
The Company is also currently investigating other possible or known
contamination (including soil and groundwater contamination) at the following
North American facilities currently or previously owned and operated by the
Company: Whitehall, Michigan; Dover, New Jersey; Branford, Connecticut;
Hillsboro, Texas; and Farmington, Connecticut. The Company currently estimates
that the total investigation and remediation costs at these facilities will be
approximately $1.2 million.
The Company is also remediating environmental contamination at five European
facilities. The Company has conducted an assessment and estimates actual
expenditures at these properties to be $.1 million to $1.3 million.
As a result of off-site waste disposal prior to the Acquisition, the Company
is subject to liability for, and is currently involved in certain matters
relating to the investigation and/or remediation of environmental
contamination at properties not owned or operated by the Company. The Company
has been or may be named a PRP at the following sites: Barkhampstead Landfill,
Connecticut; Combe Fill South Landfill, New Jersey; PJP Landfill, New Jersey;
Solvent Recovery Service, Connecticut; PCB Treatment Inc. Site, Missouri;
Omega Chemical Corporation Site, California; and SCA Independent Landfill,
Michigan. The Company currently estimates that its total liability at these
sites will be approximately $2.4 million. The Company has also recently been
named as a PRP with respect to the Materials Recovery Enterprises, Texas site,
for which the Company preliminarily estimates its liability could range from
approximately $.3 million to $1.0 million.
At June 29, 1997 the Company had accrued $6.6 million for all of the matters
described in the four preceding paragraphs. In connection with the
Acquisition, Pechiney International and Pechiney S.A. are required to
indemnify the Company for environmental liabilities and obligations relating
to Howmet stemming from events occurring or conditions existing prior to the
December 13, 1995 Acquisition, to the extent that such liabilities exceed a
cumulative $6.0 million. This indemnification applies to all of the
aforementioned environmental matters. There can be no assurance, however, that
Pechiney International and Pechiney S.A. will indemnify the Company for all
such environmental matters set forth when demanded by the Company. If Pechiney
International and Pechiney S.A. do not honor their indemnification
obligations, the Company likely would be responsible for such matters, and the
cost of addressing such matters could be material.
In addition, unrelated to Howmet's operations, the Company and Pechiney S.A.
are jointly and severally liable for environmental contamination and related
costs associated with certain discontinued mining operations owned and/or
operated by a predecessor-in-interest until the early 1960s. These liabilities
include approximately $21.3 million in remediation and natural resource damage
liabilities at the Blackbird Mine Site in Idaho and at least $8.0 million in
investigation and remediation costs at the Holden Mine Site in Washington.
Pechiney International and Pechiney S.A. have agreed to indemnify the Company
for such environmental liabilities. There can be no assurance, however, that
Pechiney International and Pechiney S.A. will indemnify the Company for all
such environmental matters when demanded by the Company. If Pechiney
International and Pechiney S.A. do not honor their indemnification
obligations, the Company likely would be responsible for such matters. The
Company has recorded a liability and an asset for an equal amount related to
these matters.
EMPLOYEES
As of June 29, 1997, the Company had 10,865 employees. Approximately 1,200
of the employees at the Company's Whitehall, Michigan facility are represented
by the United Auto Workers Union. The current collective bargaining agreement
expires on June 1, 2002. Management believes that the Company's relationship
with its employees is good.
45
<PAGE>
Labor unions also represent 609 of the 753 employees (excluding
approximately 100 temporary employees) at the Company's facility in Exeter,
England, and most of the approximately 1,050 employees at the Company's plants
in France. Management believes relations at each of these European facilities
are good.
PATENTS
The Company has obtained numerous patents, licenses and other forms of
proprietary information, which it believes provide it with competitive
advantages, including proprietary modifications and applications of the
directional solidification and single crystal processes. To protect its
proprietary information, the Company requires employees to sign
confidentiality agreements, reminds each such employee of his or her
confidentiality obligation upon his or her departure from the Company, and
builds some of its own specialized equipment, such as casting furnaces, to
prevent competitors from learning about the Company's newly developed
processes. Competitors of the Company also hold patents and other forms of
proprietary information, and there is active technical competition. There can
be no assurance that one or more of the Company's competitors will not develop
products and/or processes that would give them a competitive advantage in the
Company's markets.
PROPERTIES
The Company has 20 facilities in the United States, four in France, two in
Canada and two in the United Kingdom. Except as indicated, the facilities
described below are all owned by the Company or its subsidiaries:
<TABLE>
<CAPTION>
LOCATION
(NUMBER OF FACILITIES) SIZE (SQUARE FEET)
---------------------- ------------------
<S> <C>
Bethlehem, Pennsylvania............................. 47,200(leased)
Branford, Connecticut............................... 138,420
City of Industry, California........................ 50,000(leased)
Cleveland, Ohio..................................... 100,000
Dover, New Jersey(2)................................ 240,737
115,292
Hampton, Virginia(2)................................ 284,800
4,090(leased)
Hillsboro, Texas.................................... 51,000(leased)
LaPorte, Indiana(2)................................. 186,100
132,748(a)
Morristown, Tennessee............................... 85,000
Whitehall, Michigan(6).............................. 253,018
114,270
89,461
83,208
57,605
43,029
Wichita Falls, Texas................................ 206,300
Winsted, Connecticut................................ 81,000
Dives, France (capital lease)....................... 255,858
Evron, France....................................... 81,000
Gennevilliers, France............................... 47,361
Le Creusot, France.................................. 156,077
Georgetown, Ontario................................. 37,000
Montreal, Quebec.................................... 107,000(b)
Exeter, U.K.(2)..................................... 184,350
65,650
Terai, Japan........................................ 53,000(c)
</TABLE>
- --------
(a) Howmet Transport Services Warehouse.
(b) 95,800 square feet are leased.
(c) Factory owned by Komatsu-Howmet Ltd., a 50-50 joint venture between Howmet
and Komatsu Ltd.
46
<PAGE>
LEGAL MATTERS
The Company is a party to certain pending proceedings regarding
environmental matters. See "--Environmental Matters." The Company, in its
ordinary course of business, is party to various other legal actions.
Management believes these are routine in nature and incidental to its
operations. Management believes that the outcome of any proceedings to which
the Company currently is a party will not have a material adverse effect upon
its operations, financial condition or liquidity.
47
<PAGE>
MANAGEMENT
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
General. Upon the closing of the Offering, the Company will initially have a
five-member Board of Directors consisting of three designees of Thiokol
(Richard L. Corbin, Edsel D. Dunford and James R. Wilson, Chairman and Chief
Executive Officer of Thiokol, who will be Chairman of the Board of the
Company), an officer of the Company (David L. Squier, President and Chief
Executive Officer of the Company) and a designee of Carlyle (William E.
Conway, Jr.). The Company and Thiokol have agreed to use their good faith
efforts, as promptly as practicable but in any event within three months
following the closing of the Offering, to elect at least two additional
directors who will be independent directors within the meaning of the NYSE's
rules regarding who may serve on an audit committee. In addition, the Company
expects to elect one additional designee of Thiokol to the Board of Directors.
Pursuant to the Shareholders Agreement, the Company has agreed to nominate,
and Thiokol has agreed to vote its shares of Common Stock for, one designee of
Carlyle to the Company's Board of Directors for so long as Carlyle continues
to own at least 5% of the outstanding shares. Subject to the foregoing, as
long as Thiokol beneficially owns more than 50% of the outstanding Common
Stock, Thiokol will have the power to change the size and composition of the
Board of Directors and of its committees. See "Certain Transactions in
Connection with the Offering" and "Relationship with Thiokol."
The following table sets forth certain information with respect to the
members of the Board of Directors and executive officers of the Company as of
the effective date of this Prospectus.
<TABLE>
<CAPTION>
NAME TITLE AGE
---- ----- ---
<S> <C> <C>
James R. Wilson......... Director and Chairman of the Board 56
David L. Squier......... Director, President and Chief Executive Officer 52
William E. Conway, Director 48
Jr. ...................
Richard L. Corbin....... Director 51
Edsel D. Dunford........ Director 62
Marklin Lasker.......... Senior Vice President, International Operations 60
John C. Ritter.......... Senior Vice President and Chief Financial Officer 49
James R. Stanley........ Senior Vice President, United States Operations 56
Roland Paul............. Vice President, General Counsel and Secretary 60
</TABLE>
The By-Laws of the Company provide that the directors will be elected
annually. All directors of the Company hold office until the election and
qualification of their successors. Executive officers of the Company are
chosen by the Board of Directors of the Company and serve at its discretion.
James R. Wilson has been a Director of the Company since consummation of the
Acquisition and will become Chairman of the Board of the Company upon
completion of the Offering. He became Chairman of the Board of Thiokol in
October 1995 and has served as a Director, President and Chief Executive
Officer of Thiokol since 1993. He was Chief Financial Officer from 1989
through 1993, Senior Vice President from 1989 to 1992, and Executive Vice
President from 1992 to 1993. Mr. Wilson is also a director of Rohr, Inc.,
Cooper Industries, Inc. and First Security Corp.
David L. Squier has been President and Chief Executive Officer of Howmet
since 1992 and will become President and Chief Executive Officer of the
Company upon completion of the Offering. Mr. Squier began his association with
Howmet when he joined the Corporate Planning department of its predecessor in
December 1971. He was involved in manufacturing management from 1976 to 1978,
became General Manager of Howmet's Wichita Falls casting facility in 1979, and
was promoted to Vice President of Operations in 1983. He has been a Director
of the Company since consummation of the Acquisition.
William E. Conway, Jr. has been a Director of the Company since consummation
of the Acquisition. He has been a Managing Director of Carlyle since 1987. Mr.
Conway was Senior Vice President and Chief Financial Officer of MCI
Communications Corporation from 1984 until 1987, and was a Vice President and
Treasurer of
48
<PAGE>
MCI from 1981 to 1984. Mr. Conway presently serves on the Board of Directors
of BDM International, Inc., Tracor Inc., GTS Duratek, Inc., Nextel
Communications, Inc. and several privately held companies.
Richard L. Corbin has been a Director of the Company since consummation of
the Acquisition. He has been the Senior Vice President and Chief Financial
Officer of Thiokol since May of 1994. In 1974, he joined General Dynamics
Corporation; he subsequently served from 1991 to 1994 as Chief Financial
Officer and Vice President of Administration of the Space Systems Division of
General Dynamics Corporation.
Edsel D. Dunford has been a Director of the Company since consummation of
the Acquisition. He served as President and Chief Operating Officer of TRW
Inc. from 1991 until his retirement in December 1994. He served as Executive
Vice President and General Manager of TRW Space and Defense Business from 1987
to 1991. Mr. Dunford is a director of Thiokol Corporation and Cooper Tire &
Rubber Company and is a trustee at the University of California, Los Angeles.
Marklin Lasker has been a Senior Vice President of Howmet since February
1992 and will become Senior Vice President, International Operations of the
Company upon completion of the Offering. Before joining Howmet, Mr. Lasker was
Vice President and General Manager of North American, Far East and Latin
American operations for the AlliedSignal Turbocharger Division from April 1989
to September 1991.
John C. Ritter has been Senior Vice President, Finance and Chief Financial
Officer of Howmet since September 1997 and will become Senior Vice President,
Finance and Chief Financial Officer of the Company upon completion of the
Offering. From April 1996 until September 1997, Mr. Ritter was Vice President,
Finance and Chief Financial Officer of Howmet. Prior to his employment at
Howmet, he served as Vice President, Finance and Contracts, for AlliedSignal
Government Electronics Division from 1994 to 1996, and as Vice President,
Finance and Administration of Norden Systems Division of United Technologies
Corporation from 1991 to 1994. He has also held the positions of Vice
President, Finance and Administration, Chemical Systems Division, and Manager,
Business Analysis, Pratt & Whitney Aircraft-Government Products Division of
United Technologies Corporation.
James R. Stanley has been Senior Vice President of Howmet since 1992 and
will become Senior Vice President, United States Operations of the Company
upon completion of the Offering. Previous to his employment at Howmet, Mr.
Stanley was the Vice President and General Manager of Customer Support and
Marketing at the Textron Turbine Engine Division of Textron, Inc. from August
1990 to January 1992. He also held the position of Vice President of
Operations for Textron Lycoming and held numerous managerial positions for
nearly 20 years at GEAE.
Roland Paul has been Vice President, General Counsel and Secretary of Howmet
since 1976 and is Vice President, General Counsel and Secretary of the
Company. Mr. Paul was previously in private practice as an attorney at law
firms in New York and Paris and served as counsel to the United States Senate
Foreign Relations Subcommittee on United States Security Commitments Abroad.
Compensation of Directors. Directors of the Company who are employees of the
Company are not paid any fees or additional compensation for service as
members of the Board of Directors or any committee thereof. Directors who are
not employees of the Company, Thiokol or Carlyle will receive an annual
retainer of $30,000 and a fee of $1,000 for each meeting of the Board of
Directors or any committee thereof attended, plus any expenses incurred, where
appropriate.
Committees. Following the Offering, the Board of Directors will have three
standing committees: an Audit Committee, a Compensation Committee and a
Committee of Independent Directors. The Company intends to appoint to such
committees only persons who qualify as an "independent" director for purposes
of the rules and regulations of the NYSE, as a "non-employee director" for
purposes of Rule 16b-3 under the Exchange Act and as an "outside" director for
purposes of Rule 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"). Subject to Carlyle's rights under the Shareholders Agreement, the
Compensation Committee will establish remuneration levels for certain officers
of the Company and will perform such functions as provided under the Company's
employee benefit programs and executive compensation programs. The Audit
Committee will select and engage, on behalf of the Company, the independent
public accountants to audit the Company's
49
<PAGE>
annual financial statements, and will review and approve the planned scope of
the annual audit. The Committee of Independent Directors will be responsible
for approving the terms of all material agreements and transactions, and any
material amendments to such agreements, between the Company and Thiokol. The
Board of Directors may, from time to time, establish certain other committees
to facilitate the management of the Company.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation
paid by Howmet for services rendered during the years ended December 31, 1996,
December 31, 1995, and December 31, 1994, to the Chief Executive Officer and
to each of the five other most highly compensated executive officers of Howmet
(the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------ ------------
OTHER ANNUAL LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION PAYOUTS(2) COMPENSATION(3)
- --------------------------- ---- -------- -------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
David L. Squier.......... 1996 $350,000 $540,926 $ 5,902 $500,179 $1,178,347
Chief Executive Officer 1995 325,000 352,109 7,971 11,997 175,481
1994 300,000 268,860 12,425 -- 24,080
James R. Stanley......... 1996 215,000 257,674 4,476 252,045 491,031
Senior Vice President, 1995 200,000 186,100 5,722 -- 18,055
United States Operations 1994 193,000 136,221 6,399 -- 7,580
Marklin Lasker........... 1996 200,004 214,686 1,621 237,757 506,115
Senior Vice President, 1995 190,800 150,745 5,006 -- 19,406
International Operations 1994 184,800 129,746 4,451 -- 8,106
John Ritter.............. 1996 157,603 -- 2,772 -- 7,125
Senior Vice President, -- -- -- -- --
Finance and Chief
Financial Officer(4) -- -- --
Roland A. Paul........... 1996 167,035 96,903 6,642 171,170 291,752
Vice President, General
Counsel 1995 161,044 64,719 7,628 6,593 15,527
1994 161,500 70,048 5,626 -- 6,759
Ronald L. Wood........... 1996 135,629 190,829 6,471 158,736 331,701
Vice President, Finance 1995 170,355 123,367 5,746 -- 20,202
(employment ended 9/96) 1994 166,200 99,855 3,627 -- 6,121
</TABLE>
- --------
(1) Includes payments under Howmet's Annual Bonus Plan and under its
Restructuring Plan, a three year annual incentive plan which began in 1992
and ended in 1995, which allowed for payments to be made to the Named
Executive Officers in conjunction with the Company's restructuring
efforts.
(2) Howmet's Long-Term Incentive Plan allowed for annual payments based on
threshold, target and maximum goals tied to Howmet's performance with
respect to profits and return on net assets over rolling three-year
periods, beginning in 1991. The Long-Term Incentive plan terminated in
connection with the Acquisition, and the listed amounts were determined
and paid in 1996 to give effect to that termination.
(3) A one time Sale Bonus was awarded to certain executives, including the
Named Executive Officers, upon consummation of the Acquisition (See "--
Transaction Incentive Payments"). The following amounts were paid to the
Named Executive Officers: David L. Squier, $1,157,813; James Stanley,
$475,000; Marklin Lasker, $453,625; Roland J. Paul, $281,438; and Ronald
L. Wood, $302,813. Howmet makes matching contributions for the first five
percent of each employee's compensation paid into Howmet's savings plan.
Company contributions with respect to pre-tax compensation are matched
dollar for dollar. Company contributions with respect to post-tax
compensation are matched at fifty cents per dollar of employee
contribution. Howmet maintains excess non-qualified plans that provide for
payment of amounts in the form
50
<PAGE>
of taxable compensation equal to the amounts that would have been otherwise
paid to employees under the foregoing formulas absent the benefit
limitations of the Code. These contributions are included. During 1995
Howmet made payments in lieu of vacation not taken by certain executive
officers due to activities related to the Acquisition. The following
amounts were paid to the Named Executive Officers: James R. Stanley,
$7,692; Marklin Lasker, $11,008; Roland A. Paul, $3,744; and Ronald L.
Wood, $7,863. The figures for David L. Squier also reflect payment,
provided by Pechiney, of premiums for a life insurance policy in 1994 of
$10,789 and in 1995 of $153,488; the 1995 payment by Pechiney prepaid all
future premiums on the policy. The 1996 figure for Ronald L. Wood reflects
payment for relocation of $18,218. In 1996, Thiokol granted 230,000
contingent stock options for Thiokol common stock to certain Howmet
employees, including certain of the Named Executive Officers (see "Thiokol
Options").
(4) Mr. Ritter joined Howmet in 1996.
RETIREMENT PLANS
The Company maintains defined benefit pension plans for substantially all of
its employees. Effective January 2, 1996, the Company adopted the Howmet
Corporation Salaried Employees Pension Plan (the "SEPP"), a defined benefit
plan that covers most salaried employees, and provides for continuing benefits
that had been provided under another defined benefit plan (the "Pechiney
Plan") prior to the Acquisition. The following table shows the estimated
annual pension benefits for salaried employees payable upon retirement
(including amounts attributable to the SEPP, the excess benefit plans and the
supplemental retirement plans, as described below, and including any benefit
payable under the Pechiney Plan) for the specified compensation level and
years of service.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------------
REMUNERATION 15 20 25 30 35 40
- ------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$200,000.................. $ 43,164 $ 57,552 $ 71,940 $ 86,328 $100,716 $111,716
$400,000.................. $ 88,164 $117,552 $146,940 $176,328 $205,716 $227,716
$600,000.................. $133,164 $177,552 $221,940 $266,328 $310,716 $343,716
$800,000.................. $178,164 $237,552 $296,940 $356,328 $415,715 $459,716
</TABLE>
As of December 31, 1996, the Named Executive Officers had the following
credited service for determining pension benefits: David L. Squier, 25 years;
James R. Stanley, 4 years; Marklin Lasker, 4 years; John Ritter, less than one
year; Roland A. Paul, 20 years; and Ronald L. Wood, 26 years.
All employees named in the Summary Compensation Table participate in the
SEPP. For employees who retired before 1997, pension benefits were based on
the average earnings for the highest five consecutive years of the final ten
years of service. Compensation included in the final average earnings for the
pension benefit computation included base annual salary and annual bonuses but
excluded payments for all other compensation. The SEPP benefit prior to 1997
took into account the service and compensation earned at Pechiney
International and was reduced by any benefit payable under the Pechiney Plan.
Effective January 1, 1997, the SEPP's design was changed to that of a cash
balance plan. The cash balance plan maintains hypothetical individual accounts
for participants. Amounts credited to the accounts are based on compensation
and age. Benefits earned before 1997 under the final average earnings formula
have been converted to opening account balances.
As of January 1, 1997, SEPP benefits are payable at retirement or
termination. Benefits may be payable as a single life annuity, a joint and
survivor annuity, a ten year certain option, or a lump sum.
Because the SEPP is subject to the benefit and compensation limits under the
Code, the Company has established two unfunded Excess Benefit Plans that
provide for payment of amounts that would have been paid to employees under
the pension formula absent the benefit and compensation limits of the Code.
51
<PAGE>
The Company also maintains several Supplemental Executive Retirement Plans
("SERPs") designed to provide unfunded supplemental retirement benefits to
certain employees of the Company. The first is designed to provide the
selected employees a benefit at retirement equal to that which they would have
earned under the SEPP and the Excess Benefit Plans, had the SEPP not been
converted to a cash balance plan. Benefits under this SERP are offset by
benefits received under the SEPP and the Excess Benefit Plans. As of December
31, 1996, Messrs. Squier, Stanley, Lasker, Ritter and Paul were participants
in this SERP.
The second SERP is designed to provide the selected employees a benefit at
retirement equal to 50% of the participant's average three highest consecutive
years of compensation during the last ten years. SERP benefits are offset by
amounts the participant receives from certain other plans and social security.
Currently, Mr. Squier is the only employee participating in this SERP.
TRANSACTION INCENTIVE PAYMENTS
Howmet instituted an additional incentive plan in 1995 for the Named
Executive Officers granting them significant incentive bonuses upon the
successful sale of Howmet by Pechiney International. The incentives provided
for a bonus payment equal to a multiple (ranging from one-and-one-half times
to three times) of the officer's 1995 base salary plus an additional payment
equal to .75% of the guaranteed payment for each million dollars by which the
final sale price exceeded Pechiney International's threshold price. Payments
earned and paid under this plan were the obligations of Pechiney International
and were paid in 1996.
EMPLOYMENT AGREEMENTS
In October, 1995 Howmet entered into employment agreements (the
"Agreements") with thirteen management employees, including each Named
Executive Officer other than Mr. Ritter, who joined Howmet in April 1996. The
Agreements set base salary levels and provide a specified percentage
(generally from 30%-60%) of base salary as a target annual bonus amount. The
Agreements also generally provide each Named Executive Officer (the
"Executive") with the use of a Howmet-owned automobile and participation in
benefit plans and programs available to the Howmet management employees
generally. The Agreements generally provide that in the event the Executive's
employment is terminated by Howmet other than for "cause" or by the Executive
with "good reason" (each as defined therein) within 18 months following the
Acquisition (or prior to the Executive's 62nd birthday in the case of Mr.
Squier and Mr. Paul), the Executive will be entitled to (i) the amount of the
Executive's base pay and target bonus for a specified period ranging from 18
to 36 months, (ii) a prorated portion of the annual bonus and any long-term
incentive awards that would have been payable in the year of termination,
(iii) Company-paid outplacement services, (iv) transfer to the Executive of
the Howmet-owned car he was using, (v) accelerated vesting under certain of
Howmet's retirement plans, and (vi) the right to continue to participate in
Howmet's medical benefits plan for up to two years at the rates in effect for
active employees, and the right to be treated as a retiree for purposes of
continued coverage thereafter. The severance benefits described above are
generally conditioned on the Executive's agreement not to compete with the
business of Howmet for a period of twelve months following the participant's
termination of employment. In the event of the Executive's death or
disability, the Agreements generally provide for the payment of prorated
annual bonus and long-term incentive plan awards, but not other severance
amounts. Mr. Squier's agreement provides that he is entitled to a supplemental
annual pension payment equal to the excess of 50% of his average base pay
during his final three years of employment over the amounts provided to him
under certain of Howmet's retirement plans and under social security. In
February 1996 Howmet entered into an employment agreement with Mr. Ritter that
sets a base salary and an annual bonus targeted at 40% of that amount. Half of
the bonus is based upon achievement of personal objectives and half is based
upon the performance of Howmet. Mr. Ritter is eligible for Thiokol stock
option awards, stock appreciation rights and an opportunity to purchase an
interest in Howmet. Mr. Ritter is also entitled to use of a company car. In
the event Mr. Ritter is terminated within the first 24 months of his
employment, he is entitled to receive, in lieu of any other severance
arrangements, 12 months base pay and target bonus, paid in a lump sum.
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STOCK APPRECIATION RIGHTS
In May 1996, the Company introduced a Stock Appreciation Rights ("SARs")
plan. Under the plan, SARs representing approximately 5% of the Company's
equity value were issued to certain executive officers. The SARs, similar to
phantom stock options, are generally payable on the earliest to occur of the
following: (i) March 31, 2001; (ii) a merger, sale of substantially all of the
assets, or liquidation of the Company or Howmet; (iii) the acquisition by an
unaffiliated entity of more than 50% of the Company's or Howmet's common
stock; (iv) disposition by Carlyle of all of its interest in the Common Stock,
through the exercise of the option granted to Thiokol at the time of the
Acquisition or otherwise; or (v) a public offering of more than 50% of the
Company's or Howmet's Common Stock. The SARs are valued based on appreciation
in the value of the Common Stock, as defined in the plan, from the date of
adoption of the plan to the earliest of the foregoing dates. The SARs vest
over a five-year period based upon the passage of time and the operating
performance of Howmet, with acceleration in the event of one of the earlier
triggering events referred to above. Neither the consummation of the Offering
nor the consummation of the Sale will accelerate the vesting of the SARs. The
following table shows the number and value of SARs granted to the Named
Executive Officers during 1996.
STOCK APPRECIATION RIGHT GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL SARS APPRECIATION
UNDERLYING GRANTED TO BASE FOR OPTION TERM
NAME AND SARS EMPLOYEES PRICE EXPIRATION ---------------------
PRINCIPAL POSITION GRANTED IN FISCAL YEAR ($/SARS) DATE 5% 10%
------------------ ---------- -------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
David L. Squier......... 1,000,000 19.5% $ 2 3/31/01
James R. Stanley........ 375,000 7.3 $2 3/31/01
Marklin Lasker.......... 250,000 4.9 $2 3/31/01
John Ritter............. 250,000 4.9 $2 3/31/01
Roland A. Paul.......... 150,000 2.9 $2 3/31/01
Ronald L. Wood.......... -- -- $2 (1)
</TABLE>
- --------
(1) Expired.
THIOKOL OPTIONS
Since December 31, 1995, Thiokol has granted 230,000 contingent stock
options for Thiokol common stock to certain Company employees, including
certain of the Named Executive Officers. The options granted to the Named
Executive Officers have an exercise price of between $35.50 and $40.94 per
option, the market price of Thiokol stock on the date of the grant. The
options will vest only if Thiokol acquires 100% of the Company prior to
December 13, 2001 unless otherwise modified by the Compensation Committee of
the Board of Directors of Thiokol. The options vest, and are exercisable, 50%
on the date of such acquisition and 25% each year thereafter. The options
expire not later than ten years after the date of the grant. In the event that
Thiokol acquires 100% of the Company before December 13, 2001, there will be a
charge to the Company's earnings upon such acquisition and in the subsequent
two years of the vesting period. The total charges will be equal to the
product of (x) any increase in price of Thiokol's stock from date of grant to
the date when Thiokol acquires 100% of the Company, times (y) the number of
options outstanding. If Thiokol had acquired 100% of the Company as of June
29, 1997, charges at that date and in the subsequent two years would aggregate
$4.0 million, after tax.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The only classes of capital stock of the Company outstanding are the Common
Stock and the Series A Preferred Stock. Thiokol currently beneficially owns
all 5,843 outstanding shares of Series A Preferred Stock and will continue to
own all of the outstanding shares of Series A Preferred Stock after the
Offering. The following table sets forth the ownership of Common Stock
(assuming no exercise of the U.S. Underwriters' over-allotment option or the
First Thiokol Option) by each person known by the Company to be the owner of
5% or more of the Common Stock, by each person who is a director or a Named
Executive Officer of the Company and by all directors and executive officers
as a group as of the date of this Prospectus and after giving effect to the
Offering and the Sale.
<TABLE>
<CAPTION>
NUMBER OF POST
PERCENTAGE NUMBER SHARES TO BE OFFERING/SALE
NUMBER OF OF SHARES OWNED PERCENTAGE OF
OF SHARES OUTSTANDING NUMBER OF TO BE AFTER OUTSTANDING
CURRENTLY COMMON SHARES TO SOLD IN OFFERING COMMON
BENEFICIAL OWNER(1) OWNED STOCK BE OFFERED THE SALE AND SALE STOCK
- ------------------- ---------- ----------- ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Carlyle-Blade
Acquisition Partners,
L.P., a Delaware
limited partnership
("CBAP")(2)............ 51,000,000 51.0% 11,000,000 (3) %(3)
c/o The Carlyle Group
1001 Pennsylvania
Avenue, N.W.
Washington, D.C. 20004
Thiokol Corporation(4).. 49,000,000 49.0% -- -- 60,000,000(5) 60.0%(5)
2475 Washington
Boulevard
Ogden, Utah 84401
William E. Conway, Jr... -- -- -- --
Richard L. Corbin....... -- -- -- --
Edsel D. Dunford........ -- -- -- --
David L. Squier(6)...... -- -- -- --
James R. Wilson......... -- -- -- --
Marklin Lasker(6)....... -- -- -- --
John C. Ritter.......... -- -- -- --
James R. Stanley(6)..... -- -- -- --
Roland A. Paul(6)....... -- -- -- --
All directors and
executive officers as a
group (9 persons)(6).... -- -- -- --
</TABLE>
- --------
(1) Except as otherwise indicated, each beneficial owner has the sole power to
vote, as applicable, and to dispose of all shares of Common Stock owned by
such beneficial owner. Upon the consummation of the Offering, Carlyle and
Thiokol will enter into the Shareholders Agreement governing, among other
matters, voting of Common Stock in the election of directors.
(2) CBAP is the record owner of the shares beneficially owned by Carlyle.
Carlyle Partners II, L.P. and Carlyle Partners III, L.P. (the "General
Partners") are the general partners of CBAP. TC Group, L.L.C., a Delaware
limited liability company, is the sole general partner of each of the
General Partners, and TCG Holdings, L.L.C., a Delaware limited liability
company, is the sole managing member of TC Group, L.L.C. The General
Partners, TC Group, L.L.C. and TCG Holdings could therefore be deemed to
be beneficial owners of the shares owned by CBAP. TC Group, L.L.C. is also
the general partner of certain limited partners of CBAP.
(3) Carlyle's actual post-Offering ownership level will be between and
shares of Common Stock, or between % and % (depending upon
whether the U.S. Underwriters' over-allotment option and/or the First
Thiokol Option are exercised in whole or in part). All of Carlyle's shares
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<PAGE>
are subject to the Second Thiokol Option, which is exercisable by Thiokol
during the two-year period beginning on the second anniversary of the
closing of the Offering.
(4) Thiokol's investment in the Company is owned of record by Thiokol's
wholly-owned subsidiary, Thiokol Holding Company.
(5) Thiokol's actual post-Offering ownership level may be up to 64,000,000
shares, or 64% of the outstanding shares, if it elects to exercise all or
part of the First Thiokol Option.
(6) Certain executive officers of the Company hold an aggregate interest in
the Selling Shareholder of 4.5%, including Mr. Squier (2.3%), Mr. Stanley
(.4%), Mr. Lasker (.3%) and Mr. Paul (.03%). Such interests are held
directly or indirectly through a rabbi trust. Mr. Squier acquired part of
his interest in the Selling Shareholder using the proceeds of a $1.0
million loan from CBAP. Such loan carries an interest rate of 9.0%,
payable at maturity, and matures on December 13, 2005 or earlier upon a
distribution from CBAP. The Selling Shareholder has advised the Company
that it expects to distribute proceeds from the Offering to its partners,
which would include such executive officers of the Company, on a pro rata
basis, or as otherwise agreed by the parties.
RELATIONSHIP WITH THIOKOL
Immediately prior to the Offering, Thiokol and Carlyle will be the only
stockholders of the Company. Upon completion of the Offering and the Sale,
Thiokol will beneficially own 60% of the outstanding Common Stock (or up to
64% if it elects to exercise all or part of the First Thiokol Option) and will
own all of the outstanding non-voting Series A Preferred Stock. In addition,
during the two year period following the second anniversary of the Offering,
Thiokol will have the ability to increase its ownership stake up to
approximately % (assuming no exercise of the U.S. Underwriters'
overallotment option) by exercising the Second Thiokol Option, which gives
Thiokol the right to purchase up to all of the shares of Common Stock retained
by Carlyle. Accordingly, subject to Carlyle's rights under the Shareholders
Agreement, Thiokol will be able to control the election of the Company's Board
of Directors and exercise a controlling influence over the business and
affairs of the Company and will be able to do so as long as it continues to
own more than 50% of the Common Stock. Thiokol has advised the Company that it
views the Company as an important strategic investment and core long-term
holding. In connection with the First Thiokol Option and the Second Thiokol
Option and through other means (subject to the limitations described herein),
Thiokol will consider increasing its ownership stake over time. Nevertheless,
Thiokol retains its full range of alternatives with respect to its ownership
position including maintaining its current level of ownership, further
increasing its ownership position (subject to the limitations described
herein) or selling or monetizing its position. In connection with the Offering
and Sale, the Company and Thiokol will enter into certain intercompany
agreements, and the Restated Certificate of Incorporation will include certain
provisions relating to the Company's relationship with Thiokol following the
Offering. In addition, the Company's Board of Directors will have a Committee
of Independent Directors, composed of non-employee directors of the Company
who are not directors or employees of Carlyle or Thiokol, which will be
responsible after the Offering for approving the terms of all material
agreements and transactions, and any material amendments to such agreements,
between the Company and Thiokol. See "Management--Board of Directors and
Executive Officers--Committees," "Arrangements between the Company, Carlyle
and Thiokol" and "Description of Capital Stock--Certain Certificate of
Incorporation and By-Law Provisions."
ARRANGEMENTS BETWEEN
THE COMPANY, CARLYLE AND THIOKOL
MANAGEMENT AGREEMENTS
Concurrently with the closing of the Acquisition, Howmet entered into
management agreements ("Management Agreements") with TCG Holdings, L.L.C. (an
affiliate of Carlyle) and Thiokol for certain management and financial
advisory services to be provided to the Company and its subsidiaries. The
Management Agreements provide for the payment to each of TCG Holdings, L.L.C.
and Thiokol of annual
55
<PAGE>
management fees in an amount equal to $1.0 million. Also concurrently with the
closing of the Acquisition, a predecessor to Holdings entered into transaction
fee agreements with TCG Holdings, L.L.C. and Thiokol for the provision of
advisory services relating to the negotiation, structuring and financing of
the Acquisition, for fees of $2.0 million, which were paid to each of TCG
Holdings, L.L.C. and Thiokol. Upon consummation of the Offering, the
Management Agreements with Thiokol will be terminated and the Management
Agreement with TCG Holdings, L.L.C. will be amended to reduce the annual
management fee to $500,000 and to provide that such agreement will expire on
the second anniversary of the closing of the Offering.
SERVICES AGREEMENT
Upon consummation of the Offering, the Company and Thiokol will enter into
an intercompany services agreement (the "Services Agreement") with respect to
the services to be provided by Thiokol. The Services Agreement provides that
Thiokol will furnish to the Company a package of services for which the
Company shall generally pay Thiokol its costs plus a fee, both amounts to be
determined by Thiokol from time to time on a basis consistent with its past
practices.
The services to be provided by Thiokol comprise certain tax services;
control and audit services; risk management and insurance advice and
purchasing; health, safety and environmental services; treasury and cash
management services; human resources and employee relations services; employee
benefit plan services; and in-house legal services.
SHAREHOLDERS AGREEMENT
Upon consummation of the Offering, the Company, Thiokol and Carlyle will
enter into the Shareholders Agreement, which amends and restates a
shareholders agreement entered into by such parties as of December 13, 1995.
Pursuant to the Shareholders Agreement, (1) for so long as Carlyle continues
to own not less than 5% of the outstanding Common Stock, the Company has
agreed to nominate, and Thiokol has agreed to vote its shares of Common Stock
in favor of, one designee of Carlyle to the Company's Board of Directors, (2)
Carlyle has agreed with Thiokol that Carlyle will not dispose of any of its
shares of Common Stock until the earlier of the second anniversary of the
closing of the Offering or the occurrence of a change of control of Thiokol
and (3) Carlyle has granted Thiokol the Second Thiokol Option, which is
exercisable during the Option Period, and, prior to the fourth anniversary of
the closing of the Offering, a right of first refusal to acquire any shares
Carlyle proposes to sell, in each case at market price. In addition, the
Shareholders Agreement provides that prior to June 29, 1999 (or such earlier
date as Carlyle owns less than 5% of the outstanding shares of Common Stock),
the Company will not, without the approval of the director designated by
Carlyle, (i) issue or repurchase its shares, (ii) declare dividends other than
dividends payable in kind on the Series A Preferred Stock, (iii) engage in a
business other than the business in which the Company is currently engaged,
(iv) approve the Company's capital budget, operating plan or three-year
business plan, (v) purchase or sell substantial assets, (vi) merge or
consolidate with another person, (vii) dissolve, liquidate or file for
bankruptcy, (viii) settle legal actions or tax claims in excess of $1.0
million, (ix) elect, appoint or terminate the Company's executive officers,
(x) amend the Restated Certificate of Incorporation or By-Laws, (xi) incur or
refinance indebtedness over $20.0 million, (xii) select independent
accountants or make a significant change in accounting or tax principles or
(xiii) adopt, establish or materially amend the Company's employment,
compensation and benefit arrangements with its executive officers. Pursuant to
the Shareholders Agreement, Thiokol has agreed that, in the event Thiokol
disposes of any of its shares of Common Stock to an unaffiliated third party
(other than pursuant to an effective registration statement or under Rule 144)
prior to the fourth anniversary of the closing of the Offering, Carlyle will
have the right to participate in such sale with respect to a proportionate
number of its shares on the same terms. See "Risk Factors--Control by and
Relationship with Thiokol," "Certain Transactions in Connection with the
Offering," "Relationship with Thiokol" and "Underwriters."
CORPORATE AGREEMENT
Upon consummation of the Offering, the Company and Thiokol will enter into a
corporate agreement (the "Corporate Agreement"). Under the Corporate
Agreement, the Company will grant preemptive rights to Thiokol which will give
Thiokol the right, upon any issuance or sale by the Company of its shares of
capital stock, to
56
<PAGE>
acquire a number of such shares sufficient to maintain Thiokol's percentage
ownership of the Company's outstanding voting power and equity as of
immediately prior to such issuance or sale. The purchase of shares of Common
Stock pursuant to the exercise of a preemptive right will be at market price,
or, in the case of a public offering by the Company for cash, at a price per
share equal to the net proceeds per share to the Company in such offering. The
preemptive rights expire in the event Thiokol reduces its ownership interest
to less than 20%.
The Corporate Agreement obligates Thiokol and the Company to use their good
faith efforts to elect to the Board of Directors of the Company, as promptly
as practicable but in any event within three months following the closing of
the Offering, at least two persons who would be independent directors within
the meaning of the NYSE rules regarding who may serve on the audit committee
of a company listed on such exchange. The Company will also establish a
Committee of Independent Directors of the Company's Board of Directors, which
will be responsible for approving the terms of all material agreements and
transactions, and any material amendments to such agreements, between the
Company and Thiokol. See "Management--Board of Directors and Executive
Officers--Committees."
In addition, under the Corporate Agreement, Thiokol has also agreed that
without the prior consent of the Carlyle representative on the Company's Board
of Directors and a majority (but not less than two) of the non-employee
directors of the Company who are not directors or employees of Thiokol or
Carlyle, neither Thiokol nor any of its affiliates may acquire Publicly Held
Shares if such acquisition would reduce the number of Publicly Held Shares to
less than (adjusted for subsequent stock splits and stock dividends),
other than (x) pursuant to a tender offer to acquire all of the outstanding
shares of Common Stock not then beneficially owned by Thiokol or (y) pursuant
to a merger or other business combination in which holders of all outstanding
Publicly Held Shares are treated equally. The foregoing provisions of the
Corporate Agreement may not be amended or waived by the Company without the
consent of the Carlyle representative on the Company's Board of Directors and
a majority (but not less than two) of the non-employee directors of the
Company who are not directors or employees of Thiokol or Carlyle.
REGISTRATION RIGHTS AGREEMENT
Upon the closing of the Offering, the Company and Carlyle will enter into a
Registration Rights Agreement (the "Registration Rights Agreement") pursuant
to which the Company will grant certain rights (the "Registration Rights") to
Carlyle with respect to the registration under the Securities Act of the
shares of Common Stock owned by Carlyle after the closing of the Offering.
Pursuant to the Registration Rights Agreement, Carlyle will be able to require
the Company, at any time following the earlier of the second anniversary of
the closing of the Offering or the occurrence of a change of control of
Thiokol and prior to the fifth anniversary thereof (the "Registration
Period"), on not more than two occasions (plus up to an additional two
registrations on Form S-3) (the "Demand Registration Rights"), to file a
registration statement under the Securities Act covering the registration of
the Registrable Securities (as defined in the Registration Rights Agreement).
The Demand Registration Rights are subject to certain limitations, including
that any such registration cover a minimum number of Registrable Securities
equal to 25% of the Registrable Securities held by Carlyle immediately after
giving effect to the Offering, the Sale and any exercise of the First Thiokol
Option and the overallotment option granted to the U.S. Underwriters. In
addition, the Company may be able to temporarily defer a Demand Registration
to the extent it conflicts with another underwritten public offering or if the
Company is engaged in any other activity which, in the good faith
determination of the Board of Directors of the Company, would be adversely
affected by the Demand Registration to the substantial detriment of the
Company. During the Registration Period, Carlyle will also be able to require
the Company to include Registrable Securities in a registration by the Company
of its securities, subject to certain conditions, including the ability of the
underwriters to limit or exclude Registrable Securities from such an offering.
The Company will pay all expenses associated with any registration other
than underwriting discounts and commissions relating to the Registrable
Securities, which will be paid by Carlyle. The Registration Rights Agreement
contains certain indemnification and contribution provisions (i) by the
Company for the benefit of Carlyle and related persons, as well as any
potential underwriter, and (ii) by Carlyle for the benefit of the
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<PAGE>
Company and related persons, as well as any potential underwriter. Carlyle may
transfer its Registration Rights to any affiliate of Carlyle or to any
transferee acquiring Registrable Securities representing at least 5% of the
then outstanding shares of Common Stock.
DESCRIPTION OF CERTAIN INDEBTEDNESS
SENIOR CREDIT FACILITIES
In connection with the Acquisition, the Company entered into the Senior
Credit Facilities with a syndicate of financial institutions for whom Bankers
Trust Company, the First National Bank of Chicago and Citicorp USA, Inc. are
acting as managing agents (the "Managing Agents"). The original facility, which
provided for up to $425.0 million of financing, was amended and restated as of
December 5, 1996 to provide reduced financing in the amount of $250.0 million
(as amended and restated, the "Senior Credit Facilities"). The following is a
summary of certain terms and conditions of the Senior Credit Facilities and is
qualified in its entirety by reference to the provisions of the credit
agreement (the "Credit Agreement"), a copy which has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part.
General. The Senior Credit Facilities consist of (i) a senior term facility
in the original aggregate principal amount of $175.0 million ("Term Loan"), and
(ii) a revolving credit facility that provides $75.0 million of revolving
credit capacity, including up to $50.0 million of standby and trade letters of
credit to support obligations of the Company and its subsidiaries ("Revolving
Credit Facility"). As of June 29, 1997 there were outstanding $132.5 million
principal amount of Term Loan, $9.6 million of standby letters of credit, and
no borrowings under the Revolving Credit Facility.
Interest Rates; Fees. The Senior Credit Facilities may be maintained from
time to time, at the Company's option, as either (i) Base Rate Loans which bear
interest at the Base Rate (as defined in the Credit Agreement) plus an
Applicable Margin (as defined in the Credit Agreement), or (ii) Eurodollar
Loans bearing interest at the Eurodollar Rate for the applicable interest
period plus the Applicable Margin. Under the Credit Agreement, the Applicable
Margin is tied to a grid pricing matrix based on an interest coverage ratio
provided in the Credit Agreement. As of August 29, 1997, the Applicable Margin
was zero basis points for borrowings maintained as Base Rate Loans and 75 basis
points for borrowings maintained as Eurodollar Loans.
Interest is payable on Base Rate Loans on the last business day of each
calendar quarter. Eurodollar Loans may have 1, 2, 3 and 6 month interest
periods. Interest on Eurodollar Loans is payable in arrears at the end of the
applicable interest period and every three months where the applicable period
exceeds three months.
The Company is required to pay a commitment fee and fees associated with
letters of credit, payable quarterly in arrears. Commitment fees are calculated
at a rate of .2% per annum of the unutilized commitments of each Lender under
the Revolving Credit Facility.
Amortization; Prepayments. The Term Loan is scheduled to mature on December
5, 2001 and is currently subject to a quarterly amortization payment of $8.75
million.
Voluntary prepayments may be made at any time on one day's notice for Base
Rate Loans and five business days' notice for Eurodollar Loans without premium
or penalty (other than the payment of breakage costs for Eurodollar Loans
prepaid on a day other than the last day of an interest period).
The Company is required to apply net proceeds from certain events toward
mandatory repayments of the Term Loan. Such events include, subject to certain
exceptions, asset sales by the Company or any of its subsidiaries, the issuance
of certain debt by the Company or any of its subsidiaries, certain equity
issues, and insurance or condemnation recovery events by the Company or any of
its subsidiaries.
Guarantees and Collateral. The Company and each domestic direct and indirect
subsidiary (excluding the Company's insurance subsidiary and any Receivables
Subsidiary (as defined below) (collectively, the "Guarantors") have guaranteed
all of the amounts owed under the Senior Credit Facilities. All amounts owed
58
<PAGE>
under the Senior Credit Facilities (including amounts owed under the
guarantees) are secured by a first priority perfected security interest
(subject to certain permitted liens and encumbrances) in all stock and
promissory notes owned by the Company and the Guarantors (with certain
exceptions relating to stock or promissory notes issued by foreign
subsidiaries), and in all or substantially all other tangible and intangible
assets (other than receivables sold pursuant to the Receivables Facility (as
defined below) owned by the Company and each Guarantor.
Covenants; Conditions. The Company and each of its subsidiaries are subject
to certain affirmative and negative covenants contained in the Senior Credit
Facilities, including without limitation covenants that restrict, subject to
specified exceptions, (i) the incurrence of additional indebtedness and other
obligations and the granting of additional liens, (ii) mergers, acquisitions,
investments, and acquisitions and dispositions of assets, (iii) the incurrence
of capitalized lease obligations, (iv) dividends, (v) prepayment or repurchase
of other indebtedness and amendments to certain agreements governing
indebtedness, (vi) engaging in transactions with affiliates, (vii) capital
expenditures, (viii) the use of proceeds from asset sales, and (ix) changes of
lines of business. There are also covenants relating to compliance with the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") and
environmental and other laws, payment of taxes, maintenance of corporate
existence and rights, maintenance of insurance and financial reporting. In
addition, the Senior Credit Facilities require the Company to maintain
compliance with certain specified financial covenants, including covenants
relating to minimum interest coverage, minimum fixed charge coverage and
maximum leverage. The obligations of the lenders under the Senior Credit
Facilities are subject to the satisfaction of certain conditions precedent.
Events of Default. The Senior Credit Facilities also include events of
default that are customary in acquisition credit facilities, including,
without limitation, cross defaults with other financing facilities, including
the Receivables Facility, and a change of control of the Company (with the
exception of certain changes in control between Thiokol and Carlyle
investors). The occurrence of any of such events of default could result in
acceleration of the Company's and Guarantors' obligations under the Senior
Credit Facilities and foreclosure on the collateral securing such obligations.
The Offering and the Sale do not constitute a change of control of the Company
under the Senior Credit Facilities.
RECEIVABLES FACILITY
Blade Receivables Corporation, a wholly owned subsidiary of Howmet (the
"Receivables Subsidiary"), is party to a receivables facility (the
"Receivables Facility") that is currently scheduled to terminate on December
15, 2001. Pursuant to the terms of the Receivables Facility, all of the
accounts receivable (the "Receivables") originated by Howmet and certain of
its U.S. subsidiaries (collectively, the "Receivables Sellers") prior to the
termination of the Receivables Facility are sold or contributed to the
Receivables Subsidiary, which in turn sells them to a trust (the "Trust").
Certificates evidencing the entire beneficial interest in the Trust were
issued to the Receivables Subsidiary, which then sold certain of those
certificates (the "Purchaser Certificates") to certain institutional investors
for $55.0 million in cash (the "Invested Amount"). Holders of the Purchaser
Certificates are entitled to receive from the collections on the Receivables
(i) on a monthly basis, interest and all other amounts, if any, due on the
certificate, and (ii) upon the termination of the Receivables Facility, the
Invested Amount plus all accrued and unpaid interest and other amounts. To the
extent that collections from the Receivables are not required to be allocated
to the payment of the Purchaser Certificates, the collections from the
Receivables are distributed from the Trust to the Receivables Subsidiary on a
daily basis.
The Receivables Subsidiary does not have recourse against the Receivables
Sellers for credit-related defaults by the obligors on the Receivables.
However, each Receivables Seller has made certain representations and
warranties with respect to the Receivables sold or contributed by such
Receivables Seller and any breach of such representations and warranties may
require such Receivables Seller to pay the Receivables Subsidiary for any
damages it suffers as result of such breach. Howmet has guaranteed certain
obligations of the other Receivables Sellers. Howmet has been appointed as the
servicer of the Receivables and, in consideration for servicing the
Receivables, Howmet is entitled to receive a monthly fee equal to one-twelfth
of 2% of the outstanding balance of the Receivables at the beginning of each
month.
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<PAGE>
Interest Rates; Fees. At the option of the Receivables Subsidiary, the
Purchaser Certificate will bear interest at a per annum rate equal to either
(A) the reserve adjusted Eurodollar rate plus .5% and/or (B) the applicable
prime rate. A non-usage fee (the "Non-Usage Fee") will be payable monthly on
the unused part of the Commitment Amount at a rate per annum of .5%.
SENIOR SUBORDINATED NOTES
In connection with the Acquisition, Howmet issued $125.0 million principal
amount of 10% Senior Subordinated Notes due 2003, which were subsequently
exchanged for the Senior Subordinated Notes having identical terms but
registered under the Securities Act. The Senior Subordinated Notes are
entitled to the benefits of an indenture, dated as of December 7, 1995 and
amended by a supplemental indenture dated as of December 13, 1995, between
Howmet and Marine Midland Bank, as Trustee (the "Indenture").
The Senior Subordinated Notes are general unsecured obligations of Howmet
and are subordinated in right of payment to all existing and future Senior
Indebtedness (as defined in the Indenture). The Senior Subordinated Notes
mature on December 1, 2003, and bear interest at an annual rate of 10%,
payable semiannually on June 1 and December 1, beginning June 1, 1996.
The Senior Subordinated Notes may be redeemed at the option of Howmet, in
whole or in part, on or after December 1, 1999, at redemption prices ranging
from 105% of the principal amount during the 12-month period beginning
December 1, 1999 to 100% of the principal amount on or after December 1, 2002,
plus accrued and unpaid interest, if any, through the redemption date. If
Thiokol acquires Howmet, whether directly or indirectly (excluding up to 10%
ownership of the common stock of Howmet or of a holding company which directly
or indirectly owns the entire equity interest in Howmet), the Senior
Subordinated Notes will be prepayable, at Thiokol's option, on or after
December 1, 1997 and before December 1, 1999, at the Make-Whole Price (as
defined below). In addition, on or prior to December 1, 1998, Howmet may, at
its option, redeem up to $45.0 million of the aggregate principal amount of
the Senior Subordinated Notes originally issued with the net cash proceeds
received from one or more Public Equity Offerings by Howmet (as defined in the
Indenture) at the redemption prices set forth herein plus accrued interest to
the date of redemption, provided that at least $80.0 million aggregate
principal amount of Senior Subordinated Notes remains outstanding after any
such redemption. Any prepayment summarized above would require the consent of
Howmet's lenders under the Credit Agreement.
In the event of a Change of Control, Howmet will be obligated to offer to
purchase all outstanding Senior Subordinated Notes at a price equal to 101% of
the principal amount thereof plus accrued and unpaid interest to the date of
purchase. A "Change of Control" includes the occurrence of one or more of the
following events: (i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all
of the assets of Howmet to any person or group; (ii) the approval of any plan
or proposal for the liquidation or dissolution of Howmet; or (iii) the
acquisition in one or more transactions, of beneficial ownership by (x) any
person or entity (other than any Permitted Holder, as defined) or (y) any
group of persons or entities (excluding any Permitted Holders), in either
case, of any securities of Howmet such that, as a result of such acquisition,
such person, entity or group either (A) beneficially owns at least 35% of
Howmet's then outstanding voting securities entitled to vote on a regular
basis for the Board of Directors of the Company (but only to the extent that
(x) such beneficial ownership is not shared with any Permitted Holder who has
the power to direct the vote thereof and (y) Permitted Holders beneficially
own less than a majority of such voting securities), or (B) otherwise has the
ability to elect, directly or indirectly, a majority of the members of
Howmet's Board of Directors. Thiokol is a Permitted Holder and therefore the
Offering, the Sale and Thiokol's exercise of the First Thiokol Option and/or
the Second Thiokol Option will not constitute a Change of Control under the
Indenture. Payments upon a Change of Control are limited by requirements that
payments or offers thereof be made, or consents obtained, under Howmet's
Credit Agreement; however, failure to make payments when required by the
Indenture would constitute an Event of Default.
The Indenture contains certain covenants that, among other things, limit the
ability of Howmet and its subsidiaries to incur additional indebtedness and
issue preferred stock, pay dividends or make other distributions, repurchase
equity interests or subordinated indebtedness, create certain Liens (as
defined in the Indenture), enter
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into certain transactions with affiliates, sell assets of Howmet or its
subsidiaries, issue or sell equity interests in Howmet's subsidiaries or enter
into certain mergers and consolidations. In addition, under certain
circumstances, Howmet will be required to offer to purchase Senior
Subordinated Notes at a price equal to 100% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the date of purchase, with the
proceeds of certain asset sales. Under the Indenture, subject to limited
exceptions, Howmet and its Restricted Subsidiaries (as defined in the
Indenture) may not incur additional indebtedness unless Howmet maintains a 2.0
to 1.0 Operating Coverage Ratio (as defined in the Indenture). The Operating
Coverage Ratio for the 12 months ended June 29, 1997 was 7.4:1.
The "Make-Whole Price" is defined as the greater of (i) the sum of the
principal amount of the Senior Subordinated Notes and the Make-Whole Amount
and (ii) the optional redemption price of the Senior Subordinated Notes on
December 1, 1999. The "Make-Whole Amount" with respect to a Senior
Subordinated Note means an amount equal to the excess, if any, of (i) the
present value of the remaining interest, premium and principal payments due on
such Senior Subordinated Note as if such Senior Subordinated Note were
redeemed on December 1, 1999, computed using a discount rate equal to the
Treasury Rate (as defined) plus 150 basis points, over (ii) the outstanding
principal amount of such Senior Subordinated Note.
10% PIK NOTES
As part of the financing for the Acquisition, HHAC issued junior
subordinated 10% payment-in-kind debt due December 13, 2006, in the principal
amount of $25.0 million (the "10% PIK Notes"), which became the obligation of
Holdings upon the merger of HHAC into Holdings in connection with the
Acquisition. As of June 29, 1997, there was $4.1 million of accrued interest
on the 10% PIK Notes. The 10% PIK Notes are prepayable without penalty
(subject to certain restrictions under the Senior Subordinated Notes) and are
subject to mandatory prepayment upon a change of control of Holdings other
than to Thiokol. Interest is payable in the form of additional notes payable
through December 13, 2003, and in cash thereafter.
PECHINEY NOTES
In 1988, Pechiney Corporation, which was a wholly-owned subsidiary of
Pechiney International, issued the Pechiney Notes to third parties in
connection with the purchase of American National Can Company. As a result of
the Acquisition, Pechiney Corporation (now named Howmet Holdings Corporation)
became a wholly-owned subsidiary of the Company. The Pechiney Notes remained
the obligation of Holdings, but Pechiney International, which retained
American National Can Company, agreed with the Company to be responsible for
all payments due on or in connection with the Pechiney Notes. Accordingly,
Pechiney International issued its own note to Holdings in an amount sufficient
to satisfy all obligations under the Pechiney Notes. The Pechiney
International note was deposited in the Restricted Trust for the benefit of
Holdings. If Pechiney International fails to make any payments required by its
note, the Trustee has irrevocable letters of credit in the aggregate amount of
$772 million issued to the Restricted Trust by BNP to draw upon to satisfy
such payments. In the event that there is an impediment to a draw under the
BNP letters of credit held by the Trustee, the Trustee has substantially
identical "back-up" letters of credit in the aggregate amount of $772 million
issued to the Restricted Trust by CDC. In addition, the holders of the
Pechiney Notes have a third set of letters of credit (also issued by BNP),
which can be drawn upon by such holders in the event that payments on the
Pechiney Notes are not made. Pechiney International is solely responsible as
reimbursement party for draws under the various letters of credit referenced
above, and, by agreement with the banks, neither Holdings nor the Company has
any responsibility therefor. However, Holdings remains liable as the original
issuer of the Pechiney Notes in the event that Pechiney International and both
banks fail to meet their obligations. See "Risk Factors--Failure of Pechiney
International to Repay the Pechiney Notes." Management believes that it is
extremely remote that the Company will be required to use any of its assets
other than those in the Restricted Trust to satisfy any payments due on or in
connection with the Pechiney Notes. Upon repayment of the Pechiney Notes, the
Restricted Trust terminates and any assets of the Restricted Trust are to be
returned to Pechiney International. See Note 8 of Notes to Financial
Statements.
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The following is a summary of certain terms of the Pechiney Notes and is
qualified in its entirety by reference to the provisions of the Pechiney
Notes, copies of which have been filed as exhibits to the Registration
Statement of which this Prospectus is a part.
The Pechiney Notes mature on January 2, 1999 and are not prepayable prior to
maturity. The Pechiney Notes bear interest at the rate equal to the sum of (i)
25 basis points and (ii) three-month LIBOR (as defined therein) for such
quarterly interest period. Interest is payable on the last business day of
each calendar quarter. The principal amount of the Pechiney Notes, together
with accrued interest and, so long as the holder thereof is the original
payee, the Tax Indemnity Amount (as defined below) become immediately due and
payable upon written demand of the holder upon the occurrence of any event of
default, which is defined to include (i) a default by Holdings in the punctual
payment of any interest on the Pechiney Notes or any principal thereof when
and as such amount shall become due and payable, such default having continued
for a period of five Business Days (as defined) after notice thereof to the
holder; (ii) the irrevocable standby letters of credit issued by BNP at the
time of the issuance of the Pechiney Notes shall cease to be in full force and
effect or the stated amount thereof is not reinstated after a drawing
thereunder for interest payable under the Pechiney Notes within five Business
Days after such drawing; or (iii) certain events of bankruptcy or insolvency
relating to Holdings. For purposes of the Pechiney Notes, the "Tax Indemnity
Amount" means an amount equal to the excess of (i) the Federal, state and
local income tax liability of the holder in respect of his gain that had not
yet been recognized on the sale of American National Can Company over (ii) the
present value, as of the date of payment, of such tax liability assuming the
principal amount of the Pechiney Notes were paid on the maturity date using a
discount rate that would apply to obligations of substantially the same
creditworthiness as the Pechiney Notes.
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DESCRIPTION OF CAPITAL STOCK
THE COMPANY
Pursuant to the terms of the Restated Certificate of Incorporation, the
Company's authorized capital stock consists of (i) 400,000,000 shares of
Common Stock, par value $.01 per share, and (ii) 10,000,000 shares of
preferred stock, par value $0.01 per share ("Preferred Stock"), of which
15,000 shares are designated as Series A Preferred Stock. Immediately prior to
the Offering and Sale, the outstanding capital stock of the Company consists
of (i) 100,000,000 shares of Common Stock, of which Thiokol beneficially owns
49,000,000 shares, or 49% of the total outstanding, and Carlyle beneficially
owns 51,000,000 shares, or 51% of the total outstanding, and (ii) 5,843 shares
of Series A Preferred Stock, of which Thiokol owns 100% of the total
outstanding.
Common Stock. All holders of shares of Common Stock are entitled to receive
such dividends, if any, as may be declared from time to time by the Company's
Board of Directors in its discretion from funds legally available therefor,
and upon liquidation or dissolution are entitled to receive all assets
available for distribution to the holders of Common Stock. All of the
outstanding shares of Common Stock are fully paid and nonassessable. Holders
of Common Stock have no preemptive or other rights to subscribe for additional
shares, other than the right granted to Thiokol by the Company. See
"Arrangements between the Company, Carlyle and Thiokol--Corporate Agreement."
No shares of Common Stock are subject to redemption or a sinking fund. The
Company's ability to pay cash dividends is limited by its dependence upon the
receipt of cash from its subsidiaries and by the financial covenants and other
restrictions contained in the Company's debt instruments which prohibit or
restrict the payment of dividends by Howmet to its corporate parents and by
the Company to its stockholders. See "Risk Factors--Absence of Dividends;
Holding Company Structure," "Dividend Policy," "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources," "Description of Certain Indebtedness--Senior Credit
Facilities" and "Description of Certain Indebtedness--Senior Subordinated
Notes."
Preferred Stock. The Preferred Stock is issuable from time to time in one or
more series and with such designations and preferences for each series as
shall be stated in the Restated Certificate of Incorporation or the
resolutions providing for the designation and issue of each such series
adopted by the Board of Directors of the Company. The Board of Directors is
authorized by the Restated Certificate of Incorporation to determine, among
other things, the voting, dividend, redemption, conversion and liquidation
powers, rights and preferences and the limitations thereon pertaining to those
series designated by resolution. The Board of Directors, without stockholder
approval, may issue Preferred Stock with voting and other rights that could
adversely affect the voting power and other rights of the holders of the
Common Stock and could have certain anti-takeover effects. The Company has no
present plans to issue any shares of Preferred Stock, other than in connection
with payment of in-kind dividends on the Series A Preferred Stock. The ability
of the Board of Directors to issue Preferred Stock without stockholder
approval could have the effect of delaying, deferring or preventing a change
in control of the Company or the removal of existing management.
Holders of Series A Preferred Stock are entitled to receive cumulative
dividends at a rate equal to 9% per annum, payable quarterly in in-kind
additional shares of Series A Preferred Stock. In the event of liquidation,
dissolution or winding up of the Company, the Series A Preferred Stock will be
entitled to receive $10,000 per share, plus an amount equal to any accrued or
unpaid dividends and distributions thereon, before any distribution may be
made to holders of shares of stock of the Company ranking junior to the Series
A Preferred Stock. The Company is obligated to redeem all of the issued and
outstanding Series A Preferred Stock at a redemption price equal to the
liquidation preference of $10,000 per share, plus any accrued or unpaid
dividends (i) ten years from the date of issuance or (ii) immediately prior to
a merger, consolidation or sale of assets. Holders of Series A Preferred Stock
are not entitled to vote in the election of directors except in the case where
a mandatory redemption has been missed by the Company. The Series A Preferred
Stock is not convertible into any other security.
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CERTAIN CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS
Corporate Opportunities
The Restated Certificate of Incorporation provides that Thiokol will have no
duty to refrain from engaging in the same or similar activities or lines of
business as the Company, and neither Thiokol nor any officer or director
thereof (except as provided below) will be liable to the Company or its
stockholders for breach of any fiduciary duty by reason of any such activities
of Thiokol. In the event that Thiokol acquires knowledge of a potential
transaction or matter which may be a corporate opportunity for both Thiokol
and the Company, Thiokol shall have no duty to communicate or offer such
corporate opportunity to the Company and shall not be liable to the Company or
its stockholders for breach of any fiduciary duty as a stockholder of the
Company by reason of the fact that Thiokol pursues or acquires such corporate
opportunity for itself, directs such corporate opportunity to another person,
or does not communicate information regarding such corporate opportunity to
the Company.
In the event that a director or officer of the Company who is also a
director or officer of Thiokol acquires knowledge of a potential transaction
or matter which may be a corporate opportunity for both the Company and
Thiokol, such director or officer of the Company shall have fully satisfied
the fiduciary duty of such director or officer to the Company and its
stockholders with respect to such corporate opportunity if such director or
officer acts in a manner consistent with the following policy:
(i) a corporate opportunity offered to any person who is an officer of
the Company, and who is also a director but not an officer of Thiokol,
shall belong to the Company;
(ii) a corporate opportunity offered to any person who is a director but
not an officer of the Company, and who is also a director or officer of
Thiokol, shall belong to the Company if such opportunity is expressly
offered to such person in his or her capacity as a director of the Company,
and otherwise shall belong to Thiokol; and
(iii) a corporate opportunity offered to any person who is an officer of
both the Company and Thiokol shall belong to the Company if such
opportunity is expressly offered to such person in his or her capacity as
an officer of the Company, and otherwise shall belong to Thiokol.
For purposes of the foregoing:
(i) A director of the Company who is Chairman of the Board of Directors
of the Company or of a committee thereof shall not be deemed to be an
officer of the Company by reason of holding such position (without regard
to whether such position is deemed an officer of the Company under the By-
Laws of the Company), unless such person is a full-time employee of the
Company; and
(ii) (A) The term "Company" shall mean the Company and all corporations,
partnerships, joint ventures, associations and other entities in which the
Company beneficially owns (directly or indirectly) 50% or more of the
outstanding voting stock, voting power, partnership interests or similar
voting interests, and (B) the term "Thiokol" shall mean Thiokol and all
corporations, partnerships, joint ventures, associations and other entities
(other than the Company, defined in accordance with clause (A) of this
section (ii)) in which Thiokol beneficially owns (directly or indirectly)
50% or more of the outstanding voting stock, voting power, partnership
interests or similar voting interests.
The foregoing provisions of the Restated Certificate of Incorporation will
expire on the date that Thiokol ceases to own beneficially Common Stock
representing at least 20% of the total voting power of all classes of
outstanding Common Stock and no person who is a director or officer of the
Company is also a director or officer of Thiokol or any of its subsidiaries
(other than the Company).
In addition to any vote of the stockholders required by the Restated
Certificate of Incorporation, until the time that Thiokol ceases to own
beneficially Common Stock representing at least 20% of the total voting power
of all classes of outstanding Common Stock, the affirmative vote of the
holders of more than 80% of the total voting power of all classes of
outstanding Common Stock shall be required to alter, amend or repeal the
corporate opportunity provisions described above in a manner adverse to the
interests of Thiokol and its subsidiaries (other
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than the Company), or to adopt any provision adverse to the interests of
Thiokol and its subsidiaries (other than the Company) and inconsistent with
the corporate opportunity provisions described above. Accordingly, so long as
Thiokol beneficially owns Common Stock representing at least 20% of the total
voting power of all classes of outstanding Common Stock, it can prevent any
such alteration, amendment, repeal or adoption.
Any person purchasing or otherwise acquiring Common Stock will be deemed to
have notice of, and to have consented to, the foregoing provisions of the
Restated Certificate of Incorporation.
Provisions That May Have an Anti-Takeover Effect
Certain provisions of the Restated Certificate of Incorporation and By-Laws
summarized below may be deemed to have an anti-takeover effect and may delay,
deter or prevent a tender offer or takeover attempt that a stockholder might
consider to be in its best interest, including attempts that might result in a
premium being paid over the market price for the shares held by stockholders.
The Company's By-Laws provide that, subject to any rights of holders of
Preferred Stock to elect directors under specified circumstances, the number
of directors will be fixed from time to time exclusively by resolution of the
Board of Directors adopted by the vote of directors constituting a majority of
the total number of directors that the Company would have if there were no
vacancies on the Company's Board of Directors, but shall consist of not more
than twelve nor less than three directors. In addition, the Company's By-Laws
provide that, subject to any rights of holders of Preferred Stock, and unless
the Board of Directors otherwise determines, any vacancies will be filled by
the affirmative vote of a majority of the remaining members of the Board of
Directors, though less than a quorum, or by a sole remaining director; except
as otherwise provided by law, any such vacancy may not be filled by the
stockholders.
The Company's By-Laws provide for an advance notice procedure for the
nomination, other than by or at the direction of the Board of Directors, of
candidates for election as directors as well as for other stockholder
proposals to be considered at annual meetings of stockholders. In general,
notice of intent to nominate a director or raise matters at such meetings will
have to be received in writing by the Company not less than 60 nor more than
90 days prior to the anniversary of the previous year's annual meeting of
stockholders, and must contain certain information concerning the person to be
nominated or the matters to be brought before the meeting and concerning the
stockholder submitting the proposal. The Company's By-Laws also provide that
special meetings of stockholders may be called only by the Chairman of the
Board or the Board of Directors; special meetings of stockholders cannot be
called by stockholders. In addition, the Restated Certificate of Incorporation
provides that any action required or permitted to be taken by stockholders may
be effected by written consent; provided, however, that on and after the date
on which Thiokol ceases to beneficially own 50% or more of the total voting
power of the outstanding Common Stock, any action required or permitted to be
taken by stockholders may be effected only at a duly called annual or special
meeting of stockholders and may not be effected by a written consent by
stockholders in lieu of such a meeting.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is a Delaware corporation subject to Section 203 of the DGCL.
Section 203 provides that, subject to certain exceptions specified therein, a
corporation shall not engage in any business combination with any "interested
stockholder" for a three-year period following the time that such stockholder
becomes an interested stockholder unless (i) prior to such time, the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding certain shares) or (iii) on or
subsequent to such time, the business combination is approved by the board of
directors of the corporation and by the affirmative vote of at least 66 2/3%
of the outstanding voting stock which is not owned by the interested
stockholder. Except as specified in Section 203 of the DGCL, an interested
stockholder is defined to include (x) any person that is the owner of 15% or
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more of the outstanding voting stock of the corporation, or is an affiliate or
associate of the corporation and was the owner of 15% or more of the
outstanding voting stock of the corporation, at any time within three years
immediately prior to the relevant date and (y) the affiliates and associates
of any such person. Under certain circumstances, Section 203 of the DGCL makes
it more difficult for an "interested stockholder" to effect various business
combinations with a corporation for a three-year period, although the
stockholders may elect to exclude a corporation from the restrictions imposed
thereunder. Thiokol is not subject to any restriction under Section 203 of the
DGCL since its acquisition of 15% or more of the Common Stock was approved in
advance by the Board of Directors of the Company.
LIMITATIONS ON DIRECTORS' LIABILITY
The Restated Certificate of Incorporation provides that no director of the
Company shall be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases or (iv)
for any transaction from which the director derived an improper personal
benefit. The effect of these provisions will be to eliminate the rights of the
Company and its stockholders (through stockholders' derivative suits on behalf
of the Company) to recover monetary damages against a director for breach of
fiduciary duty as a director (including breaches resulting from grossly
negligent behavior), except in the situations described above.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock will be First Chicago
Trust Company of New York.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to completion of the Offering, there has been no public market for the
Common Stock. Sales of substantial amounts of Common Stock in the public
market, or the perception that such sales may occur, could have an adverse
effect on the price of the Common Stock.
The Company has 100,000,000 shares of Common Stock issued and outstanding.
All of the shares of Common Stock to be sold in the Offering (and any
shares sold upon exercise of the U.S. Underwriters' overallotment option) will
be freely tradeable without restrictions or further registration under the
Securities Act, except for any shares purchased by an "affiliate" of the
Company (as that term is defined in Rule 144 adopted under the Securities Act
("Rule 144")), which will be subject to the resale limitations of Rule 144.
The remaining shares of Common Stock outstanding are "restricted
securities" as that term is defined in Rule 144 and are also subject to
certain restrictions on disposition pursuant to contractual lock-up agreements
between the holders of such shares and the Underwriters. Restricted securities
may be sold in the public market only if registered or if they qualify for an
exemption from registration under Rule 144 or Rule 701 under the Securities
Act. Sales of restricted securities in the public market, or the availability
of such shares for sale, could have an adverse effect on the price of the
Common Stock.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned shares
of Common Stock for at least one year, including a person who may be deemed an
"affiliate," is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of one percent of the total number of
shares of the class of stock sold or the average weekly reported trading
volume of the class of stock being sold during the four calendar weeks
preceding such sale. A person who is not deemed an "affiliate" of the Company
at any time during the three months preceding a sale and who has beneficially
owned shares for at least two years is entitled to sell such shares under Rule
144 without regard to the volume limitations described above. As defined in
Rule 144, an "affiliate" of an issuer is a person that directly or indirectly
through the use of one or more intermediaries controls, is controlled by, or
is
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under common control with, such issuer. The foregoing summary of Rule 144 is
not intended to be a complete description thereof.
The Company, Thiokol and Carlyle have entered into contractual lock-up
agreements with the Underwriters providing that they will not offer, sell,
contract to sell or sell any option or consent to purchase, purchase any
option to sell, grant any option, right or warrant to purchase, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exchangeable for Common Stock or enter into
any swap or similar agreement that transfers, in whole or in part, the
economic risk of ownership of the Common Stock, whether any of the foregoing
transactions are to be settled by delivery of Common Stock or other such
securities, in cash or otherwise, for a period of 180 days after the date of
this Prospectus without the prior written consent of Morgan Stanley, except
(i) in the case of the Company, the grant of certain employee stock options,
(ii) in the case of Carlyle, (a) the shares of Common Stock to be sold to
Thiokol in the Sale, (b) the shares of Common Stock that may be sold pursuant
to the U.S. Underwriters' overallotment option and the First Thiokol Option
and (c) the grant of the Second Thiokol Option by Carlyle, and (iii) in the
case of either Thiokol or Carlyle, transactions in securities acquired in the
open market following completion of the Offering. As a result of these
contractual restrictions, notwithstanding possible earlier eligibility for
sale under the provisions of Rule 144 or Rule 701, or otherwise, shares
subject to lock-up agreements will not be saleable until such agreements
expire.
In addition, Carlyle has agreed with Thiokol pursuant to the Shareholders
Agreement not to dispose of any of its shares of Common Stock following the
Offering (other than in connection with the exercise of the U.S. Underwriters'
overallotment option or the First Thiokol Option) for a period of two years
following the close of the Offering. The foregoing provisions of the
Shareholders Agreement are solely for the benefit of Thiokol and Carlyle and
could be amended by such parties without the consent of the Company or of any
other stockholders of the Company. The Company has granted Carlyle certain
rights with respect to the registration under the Securities Act of its shares
of Common Stock during the period beginning with the earlier of the second
anniversary of the closing of the Offering or the occurrence of a change of
control of Thiokol and ending on the fifth anniversary of the closing of the
Offering. Any dispositions by Carlyle prior to the fourth anniversary of the
closing of the Offering would be subject to Thiokol's right of first refusal
to acquire such shares at market price.
Thiokol currently owns 49% of the outstanding Common Stock. As discussed
more fully herein, in connection with the Offering Thiokol will purchase 11%
of the outstanding shares of Common Stock from Carlyle and, pursuant to the
First Thiokol Option, have the option to purchase up to an additional 4% of
the outstanding Common Stock from Carlyle following the Offering. In addition,
pursuant to the Shareholders Agreement, Carlyle has also granted the Second
Thiokol Option and a right of first refusal to Thiokol, both of which are
exercisable during the Option Period. See "Certain Transactions in Connection
with the Offering." Thiokol has advised the Company that it views the Company
as an important strategic investment and core long-term holding. In connection
with the Carlyle First Thiokol Option and Second Thiokol Option and through
other means (subject to the limitations described herein) Thiokol will
consider increasing its ownership stake over time. Nevertheless, Thiokol
retains its full range of alternatives with respect to its ownership position
including maintenance of its current level of ownership, a further increase in
its ownership position (subject to the limitations described herein) or the
sale or monetization of its position.
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<PAGE>
CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
GENERAL
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a holder who is not a United States person (a "Non-U.S. Holder"). For
this purpose, the term Non-U.S. Holder is defined as any person who is, for
U.S. federal income tax purposes, a foreign corporation, a non-resident alien
individual, a foreign estate or trust, or a foreign partnership. This
discussion does not address all aspects of United States federal income and
estate taxes and does not deal with foreign, state and local consequences that
may be relevant to such Non-U.S. Holders in light of their personal
circumstances. Furthermore, this discussion is based on current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), regulations
promulgated thereunder and administrative and judicial interpretations
thereof, all of which are subject to change including changes with retroactive
effect. EACH PROSPECTIVE PURCHASER OF COMMON STOCK IS ADVISED TO CONSULT A TAX
ADVISOR WITH RESPECT TO CURRENT AND POSSIBLE FUTURE TAX CONSEQUENCES OF
ACQUIRING, HOLDING AND DISPOSING OF COMMON STOCK AS WELL AS ANY TAX
CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY UNITED STATES STATE, LOCAL
OR OTHER TAXING JURISDICTION.
An individual may, subject to certain exceptions, be deemed to be a resident
alien (as opposed to a non-resident alien) by virtue of being present in the
United States on at least 31 days in the calendar year and for an aggregate of
at least 183 days during a three-year period ending in the current calendar
year (counting for such purposes all of the days present in the current year,
one-third of the days present in the immediately preceding year and one-sixth
of the days present in the second preceding year). Resident aliens are subject
to United States federal tax as if they were United States citizens and
residents.
DIVIDENDS
The Company does not expect to pay cash dividends on shares of Common Stock
for the foreseeable future. See "Dividend Policy." In the event that dividends
are paid on shares of Common Stock, except as described below, such dividends
paid to a Non-U.S. Holder of Common Stock will be subject to withholding of
United States federal income tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty, unless the dividends are
effectively connected with the conduct of a trade or business of the Non-U.S.
Holder within the United States. If the dividend is effectively connected with
the conduct of a trade or business of the Non-U.S. Holder within the United
States, the dividend would be subject to United States federal income tax on a
net income basis at applicable graduated individual or corporate rates,
provided that Form 4224 is filed with the paying agent, and would be exempt
from the 30% withholding tax described above. Any such effectively connected
dividends received by a foreign corporation may, under certain circumstances,
be subject to an additional "branch profits tax" at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty.
Under currently effective United States Treasury regulations, dividends paid
to an address outside the United States are presumed to be paid to a resident
of such country (unless the payor has knowledge to the contrary) for purposes
of the withholding discussed above and, under the current interpretation of
United States Treasury regulations, for purposes of determining the
applicability of a tax treaty rate. Under United States Treasury regulations
released on October 6, 1997 (the "New Regulations") and effective for payments
made after December 31, 1998, however, a Non-U.S. Holder of Common Stock (or,
in the case of Non-U.S. Holder that is a fiscally transparent entity, the
owner or owners of such entity) who wishes to claim the benefit of an
applicable treaty rate will be required to provide a "beneficial owner
withholding certificate" representing that such Non-U.S. Holder (or such owner
or owners) is a foreign person and claiming a reduced rate of withholding.
Certification and disclosure requirements relating to the exemption from
withholding under the effectively connected income exemption discussed above
are slightly modified under the New Regulations.
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<PAGE>
A Non-U.S. Holder of Common Stock that is eligible for a reduced rate of
United States withholding tax pursuant to a tax treaty may obtain a refund of
any excess amounts currently withheld by filing an appropriate claim for
refund with the United States Internal Revenue Service (the "Service").
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to United States federal
income tax on any gain recognized on a disposition of a share of Common Stock
unless (i) the gain is effectively connected with the conduct of a trade or
business within the United States of the Non-U.S. Holder and, if a tax treaty
applies, attributable to a permanent establishment maintained by the Non-U.S.
Holder, (ii) the Non-U.S. Holder is an individual who holds the share of
Common Stock as a capital asset and is present in the United States for 183
days or more in the taxable year of the disposition and either (a) such
individual has a "tax home" (as defined for United States federal income tax
purposes) in the United States or (b) the gain is attributable to an office or
other fixed place of business maintained in the United States by such
individual, (iii) the Non-U.S. Holder is subject to tax pursuant to the Code
provisions applicable to certain United States expatriates or (iv) (a) the
Company is or has been a "United States real property holding corporation"
within the meaning of Section 897(c)(2) of the Code at any time within the
shorter of the five-year period preceding such disposition or such Non-U.S.
Holder's holding period and (b) assuming that the Common Stock continues to be
"regularly traded on an established securities market" for tax purposes, the
Non-U.S. Holder holds, directly or indirectly, at any time during the five-
year period ending on the date of disposition, more than 5% of the outstanding
Common Stock. The Company believes it is not and does not anticipate becoming
a "U.S. real property holding corporation" for U.S. federal income tax
purposes. If an individual Non-U.S. Holder falls under clauses (i) or (iii)
above, he or she will be taxed on his or her net gain derived from the sale
under regular United States federal income tax rates. If the individual Non-
U.S. Holder falls under clause (ii) above, he or she will be subject to a flat
30% tax on the gain derived from the sale which may be offset by United States
capital losses (notwithstanding the fact that he or she is not considered a
resident of the United States). If a Non-U.S. Holder that is a foreign
corporation falls under clause (i) above, it will be taxed on its gain under
regular United States federal income tax rates and, in addition, will under
certain circumstances be subject to the branch profits tax equal to 30% of its
"effectively connected earnings and profits" within the meaning of the Code
for the taxable year, as adjusted for certain terms, unless it qualifies for a
lower rate under an applicable income tax treaty.
FEDERAL ESTATE TAXES
Common Stock owned, or treated as owned, by a non-resident alien individual
(as specifically determined for United States federal estate tax purposes) at
the time of death will be included in such holder's gross estate for United
States federal estate tax purposes, unless an applicable estate tax treaty
provides otherwise.
UNITED STATES INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
The Company must report annually to the Service and to each Non-U.S. Holder
the amount of dividends paid to such holder and the tax withheld with respect
to such dividends. These information reporting requirements apply regardless
of whether withholding is required. Copies of the information returns
reporting such dividends and withholding may also be made available to the tax
authorities in the country in which the Non-U.S. Holder resides under the
provisions of an applicable income tax treaty.
United States backup withholding tax (which generally is a withholding tax
imposed at the rate of 31% on certain payments to persons that fail to furnish
certain information under the United States information reporting
requirements) generally will not apply to (a) the payment of dividends paid on
Common Stock to a Non-U.S. Holder at an address outside the United States
(unless the payor has knowledge that the payee is a U.S. person) or (b) the
payment of the proceeds of the sale of Common Stock to or through the foreign
office of a foreign broker. In the case of the payment of proceeds from such a
sale of Common Stock through a foreign office of a broker that is a United
States person or a "U.S. related person," however, information reporting (but
not backup withholding) is required with respect to the payment unless the
broker has documentary evidence in its files that
69
<PAGE>
the owner is a Non-U.S. Holder and certain other requirements are met or the
holder otherwise establishes an exemption. For this purpose, a "U.S. related
person" is (i) a "controlled foreign corporation for United States federal
income tax purposes, or (ii) a foreign person 50% or more of whose gross
income from all sources for the three-year period ending with the close of its
taxable year preceding the payment (or for such part of the period that the
broker has been in existence) is derived from activities that are effectively
connected with the conduct of a United States trade or business. The payment
of the proceeds of a sale of shares of Common Stock to or through a United
States office of a broker is subject to information reporting and possible
backup withholding unless the owner certifies its non-United States status
under penalties of perjury or otherwise establishes an exemption. Any amounts
withheld under the backup withholding rules from a payment to a Non-U.S.
Holder will be allowed as a refund or a credit against such Non-U.S. Holder's
United States federal income tax liability, provided that the required
information is furnished to the Service.
The New Regulations unify current certification procedures and forms and
clarify and modify reliance standards but generally do not alter the
substantive withholding and information reporting requirements described
above. The New Regulations will generally be effective for payments made after
December 31, 1998, subject to certain transition rules.
70
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the U.S.
Underwriters named below, for whom Morgan Stanley & Co. Incorporated and
Lehman Brothers Inc. are acting as U.S. Representatives, and the International
Underwriters named below, for whom Morgan Stanley & Co. International Limited
and Lehman Brothers International (Europe) are acting as International
Representatives, have severally agreed to purchase, and the Selling
Shareholder has agreed to sell to them, severally, the respective numbers of
shares of Common Stock set forth opposite the names of such Underwriters
below:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.........................
Lehman Brothers Inc.......................................
-----
Subtotal..................................................
-----
International Underwriters:
Morgan Stanley & Co. International Limited................
Lehman Brothers International (Europe)....................
-----
Subtotal..................................................
-----
Total...................................................
=====
</TABLE>
The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively
referred to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to
take and pay for all of the shares of Common Stock offered hereby (other than
those covered by the U.S. Underwriters' overallotment option described below),
if any such shares are taken.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any Shares (as defined herein) for the account of anyone
other than a United States or Canadian Person (as defined herein) and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly,
any Shares or distribute any prospectus relating to the Shares outside of the
United States or Canada or to anyone other than a United States or Canadian
Person. Pursuant to the Agreement Between U.S. and International Underwriters,
each International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any Shares for the account of any United
States or Canadian Person and (ii) it has not offered or sold, and will not
offer or sell, directly or indirectly, any Shares or distribute any prospectus
relating to the Shares in the United States or Canada or to any United States
or Canadian Person. With respect to any Underwriter that is a U.S. Underwriter
and an International Underwriter, the foregoing representations and agreements
(i) made by it in its capacity as a U.S. Underwriter apply only to it in its
capacity as a U.S. Underwriter and (ii) made by it in its capacity as an
International Underwriter apply only to it in its capacity as an International
Underwriter. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions specified in the Agreement
Between U.S. and International Underwriters. As used herein, "United States or
Canadian Person" means any
71
<PAGE>
national or resident of the United States or Canada, or any corporation,
pension, profit-sharing or other trust or other entity organized under the
laws of the United States or Canada or of any political subdivision thereof
(other than a branch located outside the United States and Canada of any
United States or Canadian Person), and includes any United States or Canadian
branch of a person who is otherwise not a United States or Canadian Person.
All shares of Common Stock to be purchased by the Underwriters under the
Underwriting Agreement are referred to herein as the "Shares."
Pursuant to the Agreement Between U.S. and International Underwriters, sales
may be made between the U.S. Underwriters and International Underwriters of
any number of Shares as may be mutually agreed. The per share price of any
Shares so sold shall be the public offering price set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per
share amount of the concession to dealers set forth below.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has
agreed not to offer or sell, any Shares, directly or indirectly, in any
province or territory of Canada or to, or for the benefit of, any resident of
any province or territory of Canada in contravention of the securities laws
thereof and has represented that any offer or sale of Shares in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus
in the province or territory of Canada in which offer or sale is made. Each
U.S. Underwriter has further agreed to send to any dealer who purchases from
it any of the Shares a notice stating in substance that, by purchasing such
Shares, such dealer represents and agrees that it has not offered or sold, and
will not offer or sell, directly or indirectly, any of such Shares in any
province or territory of Canada or to, or for the benefit of, any resident of
any province or territory of Canada in contravention of the securities laws
thereof and that any offer or sale of Shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made, and that
such dealer will deliver to any other dealer to whom it sells any of such
Shares a notice containing substantially the same statement as is contained in
this sentence.
Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not
offered or sold and, prior to the date six months after the closing date for
the sale of the Shares to International Underwriters, will not offer or sell,
any Shares to persons in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995 (the "U.K. Regulations"); (ii) it has
complied and will comply with all applicable provisions of the Financial
Services Act 1986 and the U.K. Regulations with respect to anything done by it
in relation to the Shares in, from or otherwise involving the United Kingdom;
and (iii) it has only issued or passed on and will only issue or pass on in
the United Kingdom any document received by it in connection with the offering
of the Shares to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1996 or is a person to whom such document may otherwise lawfully be issued or
passed on.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the
cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ a share below the public offering price. Any
Underwriter may allow, and such dealers may reallow, a concession not in
excess of $ a share to other Underwriters or to certain dealers. After the
initial offering of the shares of Common Stock, the offering price and other
selling terms may from time to time be varied by the Representatives.
Application has been made to have the Common Stock approved for listing on
the NYSE under the symbol HWM.
The Selling Shareholder has granted to the U.S. Underwriters an option,
exercisable for 30 days from the date of this Prospectus, to purchase up to an
aggregate of additional shares of Common Stock at the public offering
price set forth on the cover page hereof, less underwriting discounts and
commissions. The U.S.
72
<PAGE>
Underwriters may exercise such option solely for the purpose of covering
overallotments, if any, made in connection with the Offering. To the extent
such option is exercised, each U.S. Underwriter will become obligated, subject
to certain conditions, to purchase approximately the same percentage of such
additional shares of Common Stock as the number set forth next to such U.S.
Underwriter's name in the preceding table bears to the total number of shares
of Common Stock set forth next to the names of all U.S. Underwriters in the
preceding table.
The Company has agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the Underwriters, it will not, during
the period ending 180 days after the date of this Prospectus, (a) offer,
issue, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, lend or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or (b) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of Common Stock, whether any such
transaction described in clause (a) or (b) of this sentence is to be settled
by delivery of Common Stock or other securities, in cash or otherwise. The
restrictions described in this paragraph do not apply to the grant of certain
employee stock options. In addition, except as set forth above, Thiokol and
the Selling Shareholder have agreed not to (a) offer, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase, lend or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock or (b) enter into any swap or other arrangement that
transfers, in whole or in part, the economic consequences of ownership of
Common Stock, whether any such transaction described in clause (a) or (b) of
this sentence is to be settled by delivery of Common Stock or other
securities, in cash or otherwise, for a period of 180 days after the date of
this Prospectus without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the Underwriters, other than (i) the shares of
Common Stock offered hereby or (ii) in connection with the Sale, the First
Thiokol Option or the grant of the Second Thiokol Option.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the offering, creating a short position in the Common Stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the Common Stock, the Underwriters may bid for, and purchase,
shares of Common Stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an Underwriter or a dealer for
distributing the Common Stock in the Offering, if the syndicate repurchases
previously distributed Common Stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in
these activities and may end any of these activities at any time.
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
The Company, the Selling Shareholder and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
DIRECTED SHARE PROGRAM
At the request of the Company, the Underwriters have reserved for sale, at
the initial public offering price, up to shares offered hereby for
directors, officers, employees, business associates and related persons of the
Company, Carlyle and Thiokol. The number of shares of Common Stock available
for sale to the general public will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares which are not so purchased
will be offered by the Underwriters to the general public on the same basis as
the other shares offered hereby.
73
<PAGE>
PRICING OF THE OFFERING
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price will be determined by negotiations between
the Selling Shareholder and the Representatives. Among the factors to be
considered in determining the initial public offering price will be the
information set forth in this Prospectus, the sales, earnings and certain
other financial and operating information of the Company in recent periods,
the future prospects of the Company and its industry in general, and certain
ratios, market prices of securities, profitability and certain financial and
operating information of companies engaged in activities similar to those of
the Company. The estimated initial public offering price range set forth on
the cover page of this Preliminary Prospectus is subject to change as a result
of market conditions and other factors.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Wachtell, Lipton, Rosen & Katz, New York, New York and for the
Underwriters by Brown & Wood LLP, San Francisco, California. Wachtell, Lipton,
Rosen & Katz also provides legal services to Thiokol.
EXPERTS
The Howmet Predecessor Company combined financial statements for the year
ended December 31, 1994, included in this Prospectus and Registration
Statement, have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts
in auditing and accounting.
The Howmet International Inc. consolidated financial statements and
financial statement schedules at December 31, 1996 and 1995, and for the year
ended December 31, 1996 and the period from December 14, 1995 to December 31,
1995, and the Howmet Predecessor Company combined financial statements and
financial statement schedule for the period from January 1, 1995 to December
13, 1995, appearing in this Prospectus and Registration Statement, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein and in the Registration Statement,
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, exhibits, schedules and supplements thereto, the "Registration
Statement"), under the Securities Act and the rules and regulations
thereunder, for the registration of the Common Stock offered hereby. This
Prospectus, which forms a part of the Registration Statement, does not contain
all the information set forth in the Registration Statement, certain parts of
which have been omitted as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to herein are not necessarily complete and, where such
contract or other document is an exhibit to the Registration Statement, each
such statement is qualified in all respects by the provisions of such exhibit,
to which reference is hereby made. The Registration Statement can be inspected
and copied at prescribed rates at the public reference facilities maintained
by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's regional offices at Seven World Trade Center,
13th Floor, New York, New York 10048 and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. In addition, the
Registration Statement is publicly available through the Commission's site on
the Internet's World Wide Web, located at http://www.sec.gov. Following the
Offering, the Company's future public filings are expected to be available for
inspection at the offices of the NYSE, 20 Broad Street, New York, New York
10005.
The Company intends to furnish its stockholders with annual reports
containing consolidated financial statements examined by an independent
accounting firm.
74
<PAGE>
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
Report of Independent Auditors.......................................... F-2
Report of Independent Accountants....................................... F-3
Auditors' Report on the Annual Accounts of Howmet SA.................... F-4
Auditors' Report on the Annual Accounts of Ciral SNC.................... F-5
Report of Independent Accountants....................................... F-6
Howmet International Inc. Consolidated Balance Sheets at December 31,
1996 and 1995.......................................................... F-7
Statements of Operations and Retained Earnings (Deficit) for the year
ended December 31, 1996 and the period from December 14, 1995 to
December 31, 1995 (Howmet International Inc. Consolidated), and for the
period from January 1, 1995 to December 13, 1995 and the year ended
December 31, 1994 (Howmet Predecessor Company Combined)................ F-8
Statements of Cash Flows for the year ended December 31, 1996 and the
period from December 14, 1995 to December 31, 1995 (Howmet
International Inc. Consolidated), and for the period from January 1,
1995 to December 13, 1995 and the year ended December 31, 1994 (Howmet
Predecessor Company Combined).......................................... F-9
Notes to Financial Statements........................................... F-10
Consolidated Condensed Balance Sheet at June 29, 1997 (unaudited)....... F-31
Consolidated Condensed Statements of Operations and Retained Earnings
(Deficit) for the twenty-six week periods ended June 29, 1997 and June
30, 1996 (unaudited)................................................... F-32
Consolidated Condensed Statements of Cash Flows for the twenty-six week
periods ended June 29, 1997 and June 30, 1996 (unaudited).............. F-33
Notes to Consolidated Condensed Financial Statements (unaudited)........ F-34
Schedule I--Condensed Financial Information of Registrant............... II-7
Schedule II--Valuation and Qualifying Accounts.......................... II-12
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Howmet International Inc.
We have audited the consolidated balance sheets of Howmet International Inc.
as of December 31, 1996 and 1995, and the related consolidated statements of
operations and retained earnings (deficit), and cash flows for the year ended
December 31, 1996, and for the periods from January 1, 1995 to December 13,
1995 (Howmet Predecessor Company) and December 14, 1995 to December 31, 1995.
Our audits also included the financial statement schedules listed in the Index
to Financial Statements and Financial Statement Schedules of this Prospectus
and Registration Statement. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits. We did not audit the 1995
financial statements of Howmet SA, CIRAL SNC and Howmet Limited (UK), wholly-
owned subsidiaries, which statements reflect total assets of $201 million as
of December 31, 1995, and total revenues of $221 million for the year ended
December 31, 1995. Those statements were audited by other auditors whose
reports have been furnished to us, and our opinion, insofar as it relates to
data included for Howmet SA, CIRAL SNC and Howmet Limited (UK), is based
solely on the reports of the other auditors. The combined financial statements
of Howmet Corporation and Howmet Cercast Group for the year ended December 31,
1994 were audited by other auditors whose report dated October 27, 1995
expressed an unqualified opinion on those statements.
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 (including the allocation of the results of operations
of Howmet SA, CIRAL SNC and Howmet Limited (UK) between the period from
December 14, 1995 to December 31, 1995) and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits and the
reports of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and, for 1995, the reports of other
auditors, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Howmet International
Inc. as of December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for the year ended December 31, 1996, for the
periods from January 1, 1995 to December 13, 1995 (Howmet Predecessor Company)
and December 14, 1995 to December 31, 1995, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
/s/ ERNST & YOUNG LLP
Stamford, Connecticut
January 27, 1997, except for
Notes 14 and 18, as to which
the date is October 9, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
11 July 1996
To the Board of Directors of Howmet Limited
We have audited the balance sheet of Howmet Limited ("the Company") as of 31
December 1995, and the related profit and loss account and statements of
changes in cash flows and changes in stockholders' equity for the year ended
31 December 1995, all expressed in pounds sterling and prepared on the basis
set forth in the financial statements (not separately presented herein). 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 in accordance with United Kingdom generally accepted
auditing standards which do not differ in any material respect from auditing
standards generally accepted in the United States. These standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company at 31 December
1995 and the results of the Company's operations and its cash flows for the
year ended 31 December 1995 in conformity with generally accepted accounting
principles in the United Kingdom.
Price Waterhouse
Bristol, England
F-3
<PAGE>
AUDITOR'S REPORT ON THE ANNUAL ACCOUNTS
(YEAR ENDED DECEMBER 31, 1995)
To the Stockholders
Howmet SA
68 Rue du Moulin du Cage
92230 Gennevilliers
The following report is a free translation of the statutory auditor's report
issued in France except with respect to the reference to generally accepted
auditing standards in the United States (see paragraph 1, below).
In accordance with the terms of our appointment by the General Meeting, we
hereby present our report for the year ended December 31, 1995 on:
--the audit of the annual accounts (balance sheet and income statement) of
Howmet SA (not separately presented herein);
--the specific procedures and disclosures required by law.
The Board of Directors is responsible for the preparation of the annual
accounts. Our responsibility is to express an opinion on these accounts based
on our audit.
1. OPINION ON THE ANNUAL ACCOUNTS
We conducted our audit in accordance with generally accepted auditing
standards (GAAS) in France (which are substantially similar to generally
accepted auditing standards in the United States). These standards require the
auditor to perform such tests and procedures as give reasonable assurance that
the annual accounts are free from material misstatement. An audit includes
examination, on a test basis, of evidence relevant to the information
contained in these accounts. It also includes an assessment of the accounting
policies used and of significant estimates made by the Board of Directors in
the preparation of the annual accounts, and an evaluation of the overall
adequacy of the presentation of these accounts. We believe that our audit
provides a reasonable basis for the opinion expressed below.
In our opinion, the annual accounts have been properly prepared and present
fairly the company's results for the year ended December 31, 1995, and its
assets, liabilities and financial position as at that date in accordance with
accounting principles generally accepted in France.
2. SPECIFIC PROCEDURES AND DISCLOSURES
We have also performed the specific procedures required by the law, in
accordance with auditing standards.
We have no comments to make on the fair presentation or on the consistency
with the annual accounts of the information given in the Management Report of
the Board of Directors or in documents sent to the stockholders on the
company's financial position and annual accounts.
In accordance with the law, we have ensured that the necessary disclosures
on acquisitions of participating and controlling interests and on the identity
of stockholders have been provided in the Management Report.
Signed in Paris on May 23, 1996
The Auditor
/s/ Befec--Price Waterhouse
F-4
<PAGE>
AUDITOR'S REPORT ON THE ANNUAL ACCOUNTS
(YEAR ENDED DECEMBER 31, 1995)
To the Stockholders
CIRAL SNC
ZAC de la Presaie
53600 Evron
The following report is a free translation of the statutory auditor's report
issued in France except with respect to the reference to generally accepted
auditing standards in the United States (see paragraph 1, below).
In accordance with the terms of our appointment by the General Meeting, we
hereby present our report for the year ended December 31, 1995 on:
--the audit of the annual accounts (balance sheet and income statement) of
Ciral SNC (not separately presented herein);
--the specific procedures and disclosures required by law.
The manager is responsible for the preparation of the annual accounts. Our
responsibility is to express an opinion on these accounts based on our audit.
1. OPINION ON THE ANNUAL ACCOUNTS
We conducted our audit in accordance with generally accepted auditing
standards (GAAS) in France (which are substantially similar to generally
accepted auditing standards in the United States). These standards require the
auditor to perform such tests and procedures as give reasonable assurance that
the annual accounts are free from material misstatement. An audit includes
examination, on a test basis, of evidence relevant to the information
contained in these accounts. It also includes an assessment of the accounting
policies used and of significant estimates made by the manager in the
preparation of the annual accounts, and an evaluation of the overall adequacy
of the presentation of these accounts. We believe that our audit provides a
reasonable basis for the opinion expressed below.
In our opinion, the annual accounts have been properly prepared and present
fairly the company's results for the year ended December 31, 1995, and its
assets, liabilities and financial position as at that date in accordance with
accounting principles generally accepted in France.
2. SPECIFIC PROCEDURES AND DISCLOSURES
We have also performed the specific procedures required by the law, in
accordance with auditing standards.
We have no comments to make on the fair presentation or on the consistency
with the annual accounts of the information given in the Management Report of
the manager or in documents sent to the stockholders on the company's
financial position and annual accounts.
Signed in Paris on May 15, 1996
The Auditor
/s/ Befec--Price Waterhouse
F-5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Boards of Directors of
Howmet Corporation and Howmet Cercast Group
In our opinion, the accompanying combined statements of operations and
retained earnings and of cash flows for the year ended December 31, 1994
present fairly, in all material respects, the results of operations and cash
flows of Howmet Corporation and Howmet Cercast Group (collectively, "Howmet
Predecessor Company") and each of their consolidated subsidiaries, affiliated
by common ownership and management, for the year ended December 31, 1994 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of Howmet Predecessor 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.
We have not audited the combined financial statements of Howmet Predecessor
Company for any period subsequent to December 31, 1994.
/s/ PRICE WATERHOUSE LLP
Price Waterhouse LLP
Stamford, Connecticut
October 27, 1995
F-6
<PAGE>
HOWMET INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 23,398 $ 9,606
Accounts receivable (less allowance of $5,623 and
$8,258).............................................. 76,870 88,533
Inventories........................................... 149,419 150,288
Retained receivables.................................. 46,132 42,690
Deferred income taxes................................. 20,957 --
Other current assets.................................. 2,982 3,481
---------- ----------
Total current assets................................ 319,758 294,598
Property, plant and equipment, net...................... 291,086 301,563
Goodwill, net........................................... 249,055 304,670
Acquisition intangibles and other assets, net........... 192,560 226,974
Restricted Trust (a).................................... 716,386 716,386
---------- ----------
Total assets........................................ $1,768,845 $1,844,191
========== ==========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 76,515 $ 58,662
Accrued liabilities................................... 157,408 150,957
Income taxes payable.................................. 18,561 13,830
Long-term debt due within one year.................... 56,106 45,303
Deferred income taxes................................. -- 22,516
---------- ----------
Total current liabilities........................... 308,590 291,268
Accumulated postretirement benefit obligation........... 88,569 84,421
Other liabilities....................................... 70,133 54,981
Deferred income taxes................................... 16,876 6,663
Long-term debt, excluding the Pechiney Notes............ 294,576 443,316
Pechiney Notes (a)...................................... 716,386 716,386
Commitments and contingencies (Notes 9 and 16)
Redeemable preferred stock, 9% Series A Cumulative
payment-in-kind, $.01 par value; liquidation value
$10,000 per share; authorized--15,000 shares; issued
and outstanding: 5,490 shares--1996, 5,024 shares--1995
(Note 18).............................................. 54,900 50,235
Stockholders' equity:
Common stock, $.01 par value; authorized--400,000,000
shares; issued and outstanding--100,000,000 shares... 1,000 1,000
Capital surplus....................................... 195,000 195,000
Retained earnings (deficit)........................... 20,759 (202)
Cumulative translation adjustment..................... 2,056 1,123
---------- ----------
Total stockholders' equity.......................... 218,815 196,921
---------- ----------
Total liabilities, redeemable preferred stock and
stockholders' equity............................... $1,768,845 $1,844,191
========== ==========
</TABLE>
- --------
(a) The Restricted Trust holds a note receivable from Pechiney International
that secures Pechiney International's agreement to repay the Pechiney
Notes. Management believes that it is extremely remote that the Company
will use any assets other than those in the Restricted Trust to satisfy
any payments related to the Pechiney Notes. See Note 8.
See notes to the financial statements.
F-7
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HOWMET INTERNATIONAL INC. HOWMET PREDECESSOR COMPANY
CONSOLIDATED COMBINED
------------------------------ ------------------------------
PERIOD FROM PERIOD FROM
YEAR ENDED DECEMBER 14, 1995 JANUARY 1, 1995 YEAR ENDED
DECEMBER 31, TO TO DECEMBER 31,
1996 DECEMBER 31, 1995 DECEMBER 13, 1995 1994
------------ ----------------- ----------------- ------------
<S> <C> <C> <C> <C>
Net sales............... $1,106,812 $51,366 $ 894,132 $858,251
Operating costs and
expenses:
Cost of sales......... 803,624 38,021 681,427 647,272
Selling, general and
administrative
expense.............. 117,342 4,591 104,990 90,894
Depreciation and
amortization
expense.............. 59,686 2,777 32,654 33,089
Research and
development expense.. 24,207 1,425 25,004 19,169
Restructuring expense
(credit)............. -- -- (1,624) 2,546
Goodwill writeoff..... -- -- -- 47,400
---------- ------- --------- --------
1,004,859 46,814 842,451 840,370
---------- ------- --------- --------
Earnings from
operations............. 101,953 4,552 51,681 17,881
Interest income
(expense) from
Restricted Trust and
Pechiney Notes, net
(Note 8)............... -- -- -- --
Interest income,
affiliates............. -- -- 8,628 9,462
Interest income, third
parties................ 1,665 23 1,297 552
Interest expense,
affiliates............. -- -- (2,155) (843)
Interest expense, third
parties................ (41,877) (3,055) (3,713) (3,948)
Equity in loss of
unconsolidated
affiliates............. (1,390) (159) (4,315) (1,434)
Losses on sales of
receivables............ (4,450) (657) -- --
Other, net.............. (16) (190) (1,477) 1,324
---------- ------- --------- --------
Income before income
taxes.................. 55,885 514 49,946 22,994
Income taxes............ 30,259 481 23,662 45,984
---------- ------- --------- --------
Net income (loss)....... 25,626 33 26,284 (22,990)
Payment-in-kind
dividends on redeemable
preferred stock........ (4,665) (235) -- --
---------- ------- --------- --------
Net income (loss)
applicable to common
stock.................. $ 20,961 $ (202) $ 26,284 $(22,990)
========== ======= ========= ========
Net income (loss) per
common share........... $ .21 $ .00 $ .26 $ (.23)
========== ======= ========= ========
Retained (deficit)
earnings at beginning
of period.............. $ (202) $ -- $ 297,914 $340,665
Net income (loss)
applicable to common
shares................. 20,961 (202) 26,284 (22,990)
Dividends declared on
common stock........... -- -- (200,000) (19,761)
---------- ------- --------- --------
Retained earnings
(deficit) at end of
period................. $ 20,759 $ (202) $ 124,198 $297,914
========== ======= ========= ========
</TABLE>
See notes to the financial statements.
F-8
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HOWMET INTERNATIONAL INC. HOWMET PREDECESSOR COMPANY
CONSOLIDATED COMBINED
------------------------------ ------------------------------
PERIOD FROM PERIOD FROM
YEAR ENDED DECEMBER 14, 1995 JANUARY 1, 1995 YEAR ENDED
DECEMBER 31, TO TO DECEMBER 31,
1996 DECEMBER 31, 1995 DECEMBER 13, 1995 1994
------------ ----------------- ----------------- ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)...... $ 25,626 $ 33 $ 26,284 $(22,990)
Adjustments to
reconcile net income
(loss) to net cash
provided (used) by
operating activities:
Depreciation and
amortization........ 63,326 2,962 32,654 33,089
Payment-in-kind
interest............ 2,576 130 -- --
Equity in loss of
unconsolidated
affiliates.......... 1,390 159 4,315 1,434
Goodwill writeoff.... -- -- -- 47,400
Changes in assets and
liabilities:
Accounts
receivable......... 8,790 (19,793) (11,431) 7,847
Inventories......... 17,145 12,382 (1,655) 15,608
Deferred income
taxes.............. (3,193) 167 (2,650) 9,770
Accounts payable.... 17,213 (5,452) (23,111) 9,992
Accrued liabilities
and other
liabilities........ 21,880 (2,723) 17,246 (6,714)
Income taxes
payable............ 6,135 (594) (18,738) (519)
Long-term customer
receivable......... 21,138 -- -- --
Other--net.......... 2,460 -- 12,325 (3,525)
-------- -------- --------- --------
Net cash provided
(used) by
operating
activities....... 184,486 (12,729) 35,239 91,392
INVESTING ACTIVITIES
Proceeds from disposal
of fixed assets....... 283 13 3,217 5,027
Payments made for
capital expenditures.. (33,686) (1,613) (41,203) (37,991)
Decrease (increase) in
advances to Pechiney.. -- -- 237,368 (34,914)
Payments made for
investments and other
assets................ -- (1,076) (5,790) (454)
Acquisition of
business, net of cash
acquired.............. 3,634 (737,546) -- --
-------- -------- --------- --------
Net cash (used)
provided by
investing
activities....... (29,769) (740,222) 193,592 (68,332)
FINANCING ACTIVITIES
Issuance of debt....... 147,250 50,842 37,013 8,534
Repayment of debt...... (288,100) (40,000) (56,986) (4,021)
Payment of dividends... -- -- (200,000) (28,613)
Proceeds from
acquisition financing:
Sale of accounts
receivable........... -- 51,400 -- --
Issuance of debt...... -- 450,200 -- --
Issuance of equity.... -- 250,000 -- --
-------- -------- --------- --------
Net cash (used)
provided by
financing
activities....... (140,850) 762,442 (219,973) (24,100)
Effect of exchange rate
changes on cash....... (75) 115 234 (439)
-------- -------- --------- --------
Net increase (decrease)
in cash............... 13,792 9,606 9,092 (1,479)
Cash and cash
equivalents at
beginning of period... 9,606 -- 4,962 6,441
-------- -------- --------- --------
Cash and cash
equivalents at end of
period................ $ 23,398 $ 9,606 $ 14,054 $ 4,962
======== ======== ========= ========
Supplemental
disclosures of cash
flow information:
Cash paid during the
period for:
Income taxes......... $ 28,427 $ 876 $ 42,646 $ 34,643
Interest............. $ 36,190 $ 37 $ 5,265 $ 4,425
</TABLE>
See notes to the financial statements.
F-9
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Howmet International Inc. ("HII") was formed on October 11, 1995 to acquire
the group of companies which subsequently comprised Howmet Corporation and its
parent. See "The Acquisition" below. The acquisition occurred on December 13,
1995. Prior to December 14, 1995 HII had no operations. Consequently, HII's
results of operations and cash flows for the period from December 14, 1995 to
December 31, 1995 were the same as HII's results for the period from October
11, 1995 to December 31, 1995.
These financial statements include the consolidated statements of
operations, retained earnings (deficit) and cash flows of HII for the year
ended December 31, 1996 and for the period from December 14, 1995 to December
31, 1995. For periods prior to December 14, 1995 (prior to the Acquisition
when HII began operations), these financial statements include the combined
statements of operations, retained earnings and cash flows for the Howmet
Predecessor Company. The entities which comprise the Howmet Predecessor
Company are those which generated all HII sales and pre-interest, pre-tax
earnings for the year ended December 31, 1996 and for the period from December
14, 1995 to December 31, 1995. See "Howmet Predecessor Company" below.
THE ACQUISITION
HII was formed on October 11, 1995 to acquire Pechiney Corporation from
Pechiney International, S.A. ("Pechiney International") and the Cercast group
of companies from Howmet Cercast S.A., a subsidiary of Pechiney International
(the "Acquisition"). Carlyle-Blade Acquisition Partners, L.P., an affiliate of
The Carlyle Group ("Carlyle") and Thiokol Holding Company, a wholly-owned
subsidiary of Thiokol Corporation ("Thiokol"), own 51% and 49%, respectively,
of HII's common stock. Thiokol owns 100% of the Company's 9% Series A
Cumulative payment-in-kind preferred stock.
The Acquisition was effected through a series of transactions, including the
purchase of Pechiney Corporation by Howmet Holdings Acquisition Corp.
("HHAC"), a wholly-owned subsidiary of HII; the purchase of the capital stock
of certain Cercast companies by Howmet Acquisition Corp. ("HAC"), a wholly-
owned subsidiary of HHAC; and the mergers of HHAC with and into Pechiney
Corporation and of HAC with and into Howmet Corporation. After the mergers,
Pechiney Corporation's name was changed to Howmet Holdings Corporation
("Holdings"). Howmet Corporation is a wholly-owned subsidiary of Holdings.
Howmet Corporation and its subsidiaries, including the Cercast group of
companies, is the only operating subsidiary of Holdings. The Stock Purchase
Agreement ("SPA") provides HII with indemnities for certain pre-closing tax,
environmental and product liability matters.
In December 1995, Carlyle and Thiokol entered into a shareholders agreement
(the "Original Shareholders Agreement"). Such agreement provides that Thiokol
Holding Company may purchase all of Carlyle's interest in HII, from December
13, 1998 to December 13, 2001. At any time after December 13, 2001, Thiokol
Holding Company and Carlyle will have the right to compel the participation of
the other in sales of all the outstanding shares of HII's common stock.
Thiokol Holding Company or Carlyle may, with the consent of the other,
initiate a public offering. See Note 18.
The Acquisition was completed on December 13, 1995 for a total purchase
price, including transaction fees and expenses, of approximately $771.6
million (after agreed upon 1996 post-closing adjustments). Financing for the
acquisition included (i) borrowing of $300.0 million under a senior term loan
facility, (ii) the sale of $125.0 million aggregate principal amount of senior
subordinated notes, (iii) $51.4 million of proceeds from a special purpose
receivables facility, (iv) $10.2 million in borrowings under a $125.0 million
revolving credit facility, (v) $10.0 million of borrowings through a Canadian
facility, and (vi) a $250.0 million cash equity investment from the proceeds
of the issuance of $200.0 million of HII common stock and $50.0 million of HII
payment-in-
F-10
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
kind preferred stock. The acquisition financing also included a $25.0 million
payment-in-kind junior subordinated purchaser note issued to Pechiney
International by HHAC.
The Acquisition was accounted for in accordance with the purchase method of
accounting and, accordingly, the consolidated financial statements reflect the
allocation of the purchase price and related acquisition costs to the assets
acquired and liabilities assumed based on their fair values. The following
unaudited condensed financial information gives effect, on a pro forma basis,
to the acquisition as if it had occurred at the beginning of the years ended
December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
PRO FORMA
------------------------
YEAR ENDED DECEMBER 31,
------------------------
1995 1994
----------- -----------
(UNAUDITED)
<S> <C> <C>
Net sales....................................... $ 945,498 $ 858,251
Net loss........................................ (19,277) (58,560)
Net loss per common share....................... $ (.19) $ (.59)
</TABLE>
The pro forma net loss in 1994 includes a $47.4 million write-off of
goodwill as discussed in Note 5. The pro forma information does not
necessarily represent what the actual consolidated results would have been for
these periods and is not intended to be indicative of future results.
HOWMET PREDECESSOR COMPANY
The combined statements of operations and retained earnings and cash flows
have been prepared to present the combined operations of Howmet Corporation
and Howmet Cercast Group ("Cercast") (collectively, the "Howmet Predecessor
Company") on a historical cost basis prior to their acquisition by HII. All
transactions between Howmet Corporation and Cercast have been eliminated.
The entities which comprise the Howmet Predecessor Company are those which
generated all HII sales and pre-interest, pre-tax earnings for the year ended
December 31, 1996 and for the period from December 14, 1995 to December 31,
1995. These entities were affiliated with common ownership and management.
The Howmet Predecessor Company had significant transactions with Pechiney
International and its majority owner, Pechiney S.A., a French corporation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
References to the "Company" relate to both HII and Howmet Predecessor
Company.
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include all subsidiary companies and
reflect the use of the equity method of accounting for 50%-owned joint
ventures. All significant intercompany accounts and transactions have been
eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the carrying amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the respective period.
F-11
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Amounts affected include, but are not limited to, allowances for doubtful
accounts, reserves for contract losses and other accruals. Actual results
could differ from those estimates.
PER SHARE CALCULATIONS
Net income per common share is based on 100,000,000 shares. See Note 18.
REVENUE RECOGNITION
The Company recognizes revenue from the sale of its products upon shipment.
Provision for estimated losses on sales commitments are recorded when
identified.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
investment instruments with a maturity of three months or less when acquired
to be cash equivalents.
INVENTORIES
Inventories are stated at cost, which approximates or is less than
replacement value. The Company values a substantial portion of its inventories
on the last-in, first-out ("LIFO") method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is computed
principally on the straight-line method over the estimated useful lives of the
respective assets, ranging from 4 to 8 years for machinery and equipment and
from 19 to 30 years for buildings.
GOODWILL
Goodwill is the excess of the purchase price over the fair value of tangible
and identifiable intangible net assets acquired and is amortized on a
straight-line basis over 40 years. The carrying value of goodwill is reviewed
when facts and circumstances suggest that it may be impaired. The Company
assesses its recoverability by determining whether the amortization of the
goodwill balance over its remaining life can be recovered through undiscounted
projected future cash flows. If it cannot be fully recovered, goodwill is
considered to be impaired. The amount of impairment is measured based upon the
present value of these projected future cash flows at appropriate discount
rates less the book value of goodwill.
ACQUISITION INTANGIBLES
Other acquisition intangible assets consist of the fair value, at the
Acquisition date (Note 1), of patents, technology and a noncompete agreement.
They are being amortized on a straight-line basis over 10 to 15 years.
TRANSLATION OF FOREIGN CURRENCIES
All assets and liabilities of the Company's subsidiaries outside of the
U.S., except for Canada, are translated into U.S. dollars at year-end exchange
rates. Revenues and expenses are translated into U.S. dollars at average rates
of exchange prevailing during the period. Unrealized currency translation
adjustments are deferred in the balance sheet, whereas transaction gains and
losses are recognized currently in the statement of operations.
F-12
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Canadian operation's functional currency is the U.S. dollar. Therefore,
Canadian monetary assets and liabilities are translated at period end exchange
rates and inventories and other nonmonetary assets and liabilities are
translated at historical rates. Adjustments resulting from translation of
Canadian monetary assets and liabilities at year-end exchange rates are
included in the statements of operations.
INCOME TAXES
Except for items representing permanent differences between pretax book
income and taxable income, income taxes are provided on all revenue and
expense items included in the statements of operations, regardless of the
period in which such items are recognized for income tax purposes. Deferred
income taxes result from the future tax consequences associated with temporary
differences between the carrying amounts of assets and liabilities for
financial and tax reporting purposes.
IMPAIRMENT OF LONG-LIVED ASSETS
In 1996, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets to be
Disposed Of." The standard requires the Company to review long-lived and
intangible assets for impairment whenever events or circumstances indicate
that the carrying value of an asset may not be recoverable. Adoption did not
have a material effect on the results of operations or financial position of
the Company.
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENT
OF LIABILITIES
In January 1997, the Company adopted SFAS No. 125 "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities". The
standard establishes accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities, including
the sale of receivables. Adoption did not have a material effect on the
results of operations or financial position of the Company.
RECLASSIFICATION OF PRIOR PERIOD FINANCIAL STATEMENTS
Certain 1995 and 1994 amounts have been reclassified to be consistent with
the 1996 presentation.
3. INVENTORIES
Inventories are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
Raw materials and supplies............................. $ 56,121 $ 63,281
Work in progress and finished goods.................... 95,041 87,078
-------- --------
FIFO inventory......................................... 151,162 150,359
LIFO valuation adjustment.............................. (1,743) (71)
-------- --------
$149,419 $150,288
======== ========
</TABLE>
At December 31, 1996 and 1995, inventories include $48.2 million and $39.7
million, respectively, that are not valued using LIFO.
In 1996 and 1994, inventory levels were reduced. This resulted in the
liquidation of LIFO inventory carried at lower costs compared with costs of
current purchases. The effect of charging these lower LIFO costs to cost of
sales rather than the cost of current purchases was not significant in 1996
and decreased cost of sales by $9 million and increased net income by $5.5
million in 1994.
F-13
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment includes the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
Land................................................... $ 14,601 $ 14,502
Buildings.............................................. 70,665 67,603
Machinery and equipment................................ 246,781 221,305
-------- --------
332,047 303,410
Accumulated depreciation............................... (40,961) (1,847)
-------- --------
$291,086 $301,563
======== ========
</TABLE>
Depreciation expense was $39.6 million in 1996, $1.8 million in the period
from December 14 to 31, 1995, $31.9 million in the period from January 1 to
December 13, 1995 and $31.0 million in 1994.
5. GOODWILL
Goodwill relates to the Acquisition (Note 1). Accumulated amortization was
$8.1 million and $.4 million at December 31, 1996 and 1995. The $55.6 million
1996 reduction in goodwill was due to $7.7 million of amortization, the
recognition of $30.5 million of preacquisition U.S. net operating loss
carryforward benefits and alternative minimum tax credits (Note 10) that were
not estimable at the acquisition date, the reversal of $22.3 million of
restructuring accruals (Note 17), the 1996 $3.6 million settlement reduction
of the acquisition price, and finalization of the carrying value of certain
other assets and liabilities upon completion of the data collection and
estimation process.
As a result of the acquisition of Cercast in 1989, goodwill of approximately
$67.0 million was recorded. During 1994, the Howmet Predecessor Company
recorded goodwill write-offs totaling $47.4 million, the principal component
of which, $42.4 million, related to Cercast. Cercast is a producer of aluminum
investment castings for the defense electronics and commercial aerospace
industries which are primarily North American and European based. Management
estimated that the market for aluminum investment castings in North America
had declined significantly due to downsizing in the defense industry sector
and a then existing downturn in commercial aerospace orders. As a result, the
industry had shifted from a seller's market to a buyer's market with pricing
under severe pressure. Similarly, the European market for aluminum casting had
experienced a decline due to weakness in both sectors of the aerospace
industry. These conditions resulted in Cercast achieving lower than expected
sales and related profitability. The Howmet Predecessor Company determined
that the defense industry sector decline was permanent in nature and that
based on its estimate of expected future operating results, the entire
remaining goodwill balance would not be recoverable. The methodology used by
management to evaluate the recoverability of goodwill was to discount 10 years
of projected cash flows at 12% (the Howmet Predecessor Company's estimated
long term cost of capital) together with an associated discounted earnings
valuation for the remaining amortization period. The amount of impairment was
measured on this basis as well. The forward projections made by management
were based on approved budgets and related information and represented
management's belief of the most likely future scenario.
Also in 1994, $5.0 million of goodwill related to the Company's Tempcraft
tooling subsidiary was written off. The evaluation and measurement criteria
used in making this determination were similar to that described above for
Cercast.
F-14
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. ACQUISITION INTANGIBLES AND OTHER ASSETS, NET
Acquisition intangibles and other assets, net include the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
-------- --------
<S> <C> <C>
Patents and technology, net of accumulated amortization
of $7,077 and $337.................................... $ 60,323 $ 67,063
Non-compete agreement, net of accumulated amortization
of $5,242 and $242.................................... 69,758 74,758
Deferred financing costs, net of accumulated
amortization of $3,827 and $185....................... 13,844 16,186
Other assets........................................... 48,635 68,967
-------- --------
$192,560 $226,974
======== ========
</TABLE>
Patents and technology and the non-compete agreement are being amortized
over their estimated useful lives of 10 years and 15 years, respectively. The
deferred financing costs are being amortized over the life of the financings.
At December 31, 1996 and 1995 "Other assets" in the above table include $8.2
million and $10.0 million, respectively, for indemnification receivables from
Pechiney International and Pechiney S.A. related to insurance claims. Equal
amounts are included in the amounts captioned "Other liabilities" on the
consolidated balance sheets. The December 31, 1996 and 1995 "Other assets"
amounts above also include indemnification receivables of $26.7 million and
$24.7 million, respectively, related to environmental matters (Note 16).
7. FINANCING ARRANGEMENTS
Long-term debt, excluding Pechiney Notes (Note 8), is summarized as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
-------- --------
<S> <C> <C>
Senior term facility.................................... $175,000 $300,000
Senior revolving credit facility........................ 12,000 26,000
Senior subordinated notes............................... 125,000 125,000
Payment-in-kind junior subordinated note................ 27,706 25,130
Other................................................... 10,976 12,489
-------- --------
350,682 488,619
Less current portion.................................... 56,106 45,303
-------- --------
$294,576 $443,316
======== ========
</TABLE>
Principal maturities for the succeeding five years ended December 31 are as
follows: 1997--$56.1 million, 1998--$35.2 million, 1999--$35.2 million, 2000--
$35.2 million and 2001--$35.2 million. At December 31, 1996, $9.7 million of
letters of credit were outstanding and $53.4 million of borrowing capacity was
available under the revolving credit facility.
In December 1996, the senior term facility and senior revolving credit
facility (collectively, the "Senior Credit Facilities") were amended to
reflect more favorable terms and conditions. Under the amended agreement, the
$185.0 million of outstanding principal in the three tranches of the former
senior term facility was converted into a $175.0 million single tranche senior
term loan and $10.0 million of borrowings under the revolving credit
F-15
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
facility. The $175.0 million senior term loan is due in equal $8.8 million
quarterly payments and matures in December 2001. The senior revolving credit
facility, which expires in December 2001, provides $75.0 million of revolving
credit capacity, including up to $50.0 million of standby letters of credit.
Excluding the effects of the swap agreements discussed below, interest on
borrowings under the Senior Credit Facilities is, at the Company's option, at
a bank's base rate (8.25% at December 31, 1996) plus .25% or at Eurodollar
rates (approximately 5.7% at December 31, 1996) plus 1.25%. The Eurodollar
pricing option requires a minimum commitment of thirty days. Rates will
decline if the Company achieves certain financial targets. There is a .25%
commitment fee on the unutilized portion of the revolving credit facility and
a 1.5% fee on the outstanding letters of credit. At December 31, 1995, the
three tranches of the senior term facility were comprised of: $145.0 million
Tranche A, at base rate plus 1.5% or Eurodollar rate plus 2.5%; $100 million
Tranche B, at base rate plus 2% or Eurodollar rate plus 3%; $55 million
Tranche C, at base rate plus 2.25% or Eurodollar rate plus 3.25%.
The Company has interest rate swap agreements, based on long term treasury
rates, that effectively fix $200.0 million of variable rate Eurodollar debt
through February 1998. The swap agreements have fixed the Company's ninety day
Eurodollar borrowing rate at 5%. As of December 31, 1996, the fair value of
these swap agreements is $1.8 million as a result of ninety day Eurodollar
interest rate increases. The counterparties to these transactions are major
financial institutions. The Company does not anticipate nonperformance by the
counterparties.
The Senior Credit Facilities are secured by a security interest in all stock
owned by the Company (with certain exceptions) and in substantially all other
assets (other than receivables sold pursuant to the receivables facility)
owned by the Company. The Senior Credit Facilities prohibit cash dividends and
contain financial covenants that require Howmet Corporation to meet certain
financial ratios and tests. In addition, they contain other restrictions
customarily found in such agreements, such as limits on indebtedness, payments
for acquisitions and capital expenditures and payments with respect to capital
stock. The Senior Credit Facilities contain events of default including cross
defaults with respect to other debt and the receivables facility, and a change
of control (as defined) of the Company, Holdings or Howmet Corporation (with
the exception of certain changes in control between Thiokol Holding Company
and Carlyle).
The senior subordinated notes ("Notes") are due in 2003, are unsecured and
bear interest at 10% per annum. The Notes are redeemable in whole or in part
on December 1, 1999 at 105% of principal amount, declining annually to 100% on
December 1, 2002. Prior to December 1, 1998, the Company may redeem up to
$45.0 million principal amount with the net proceeds of one or more equity
offerings. Also, after December 1, 1997 the Notes may be redeemed if Thiokol
Holding Company acquires the entire equity interest of the Company. The Notes
limit the Company's ability to incur additional indebtedness, sell assets and
enter into mergers and certain other transactions. Noteholders have the right
to require the Company to repurchase their Notes at 101% if there is a change
in control (as defined) of the Company.
The Company is a holding company which conducts its operations through
Howmet Corporation and its subsidiaries, and has no business operations of its
own. Accordingly, the Company is dependent on the receipt of cash from its
subsidiaries to meet its expenses and other obligations. Terms of both the
Senior Credit Facilities and the Notes restrict transfers of cash to the
Company from its subsidiaries.
The 10% payment-in-kind junior subordinated purchaser note is due December
13, 2006. Interest accumulates through the issuance of PIK notes through
December 13, 2003 and is payable in cash semi-annually thereafter. The notes
may be prepaid at any time without penalty or notice, subject to certain
restrictions set forth in the Notes.
F-16
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company has an agreement to sell, on a revolving basis, an undivided
interest in a defined pool of accounts receivable. At December 31, 1996 the
defined pool of outstanding accounts receivable amounted to $101.1 million.
The Company received $55.0 million from the sale of such eligible receivables
to a master trust and has deducted this amount from accounts receivable in the
December 31, 1996 consolidated balance sheet. Losses on the sale of
receivables are included in the line so captioned in the statements of income.
The $46.1 million difference between the total eligible pool and the $55.0
million sold represents retainage on the sale in the event the receivables are
not fully collected.
Because the Senior Credit Facilities are comprised of loans with variable
interest rates, the carrying value approximates fair value at December 31,
1996. The senior subordinated notes are thinly traded; fair value of $135.0
million is based on management's knowledge of recent trading prices.
The Company's 9% Series A Cumulative payment-in-kind preferred stock has a
liquidation value of $10,000 per share. The Company is obligated to redeem the
preferred stock after ten years from the date of issuance or immediately prior
to a merger, consolidation or sale of the Company, or upon sale by Carlyle of
more than 25% of the outstanding common stock of the Company to non-Carlyle
affiliates. See Note 18. Cumulative dividends of $4.9 million in 1996 and $.2
million in 1995 are included in the carrying value of the preferred stock.
8. RESTRICTED TRUST AND RELATED PECHINEY NOTES PAYABLE
In 1988, Pechiney Corporation, which was a wholly-owned subsidiary of
Pechiney International, issued indebtedness maturing in 1999 (the "Pechiney
Notes") to third parties in connection with the purchase of American National
Can Company. As a result of the Acquisition, Pechiney Corporation (now named
Howmet Holdings Corporation) became a wholly-owned subsidiary of the Company.
The Pechiney Notes remained at Holdings, but Pechiney International, which
retained American National Can Company, agreed with the Company to be
responsible for all payments due on or in connection with the Pechiney Notes.
Accordingly, Pechiney International issued its own note to Holdings in an
amount sufficient to satisfy all obligations under the Pechiney Notes. The
Pechiney International note was deposited in a trust for the benefit of
Holdings (the "Restricted Trust"). If Pechiney International fails to make any
payments required by its note, the trustee under the Restricted Trust (the
"Trustee") has irrevocable letters of credit in the aggregate amount of $772
million issued to the Restricted Trust by Banque Nationale de Paris ("BNP"), a
French bank which has an A+ credit rating from Standard & Poors Ratings Group
("S&P"), to draw upon to make such payments. In the event that there is an
impediment to a draw under the BNP letters of credit held by the Trustee, the
Trustee has substantially identical "back-up" letters of credit in the
aggregate amount of $772 million issued to the Restricted Trust by Caisse des
Depots et Consignations, a French bank which has an AAA credit rating from
S&P. In addition, the holders of the Pechiney Notes have a third set of
letters of credit (also issued by BNP), which can be drawn upon by such
holders in the event that principal and/or interest payments on the Pechiney
Notes are not made. Pechiney International is solely responsible as
reimbursement party for draws under the various letters of credit referenced
above, and by agreement with the banks neither Holdings nor the Company has
any responsibility therefor. However, Holdings remains liable as the original
issuer of the Pechiney Notes in the event that Pechiney International and both
banks fail to meet their obligations under their respective letters of credit.
Management believes that it is extremely remote that the Company will be
required to use any of its assets other than those in the Restricted Trust to
satisfy any payments due on or in connection with the Pechiney Notes. Upon
repayment of the Pechiney Notes, the Restricted Trust terminates and any
assets of the Restricted Trust are to be returned to Pechiney International.
The Pechiney Notes are due on January 2, 1999 and may not be prepaid prior
to that date. Interest is at three-month LIBOR plus 25 basis points (6.2% for
the quarter ended December 31, 1996). Interest is paid
F-17
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
on the last business day of each calendar quarter. Interest expense on these
notes was $42.1 million for the year ended December 31, 1996 and $2.2 million
for the period from December 14, 1995 to December 31, 1995. Interest income
from the Restricted Trust for the aforementioned periods was equal to the
interest expense.
9. COMMITMENTS
The Company and its subsidiaries have noncancellable operating leases
relating principally to manufacturing and office facilities and certain
equipment. Future minimum payments under noncancellable leases as of December
31, 1996 are as follows: 1997--$5.4 million, 1998--$3.7 million, 1999--$2.7
million, 2000--$2.1 million, 2001--$1.1 million and thereafter $2.8 million.
Total rental expense for all operating leases was $8.0 million in 1996, $.4
million in the period from December 14 to 31, 1995, $6.7 million in the period
from January 1 to December 13, 1995 and $6.1 million in 1994.
As of December 31, 1996 the Company is committed to spend $15.0 million for
1997 capital expenditures.
10. INCOME TAXES
On December 13, 1995, HII entered into a tax sharing agreement (the "Tax
Sharing Agreement") with its subsidiaries ("Subsidiary"). The Tax Sharing
Agreement provides that in any year in which a Subsidiary is included in any
consolidated Federal income tax return of HII, and the Subsidiary has taxable
income, the Subsidiary will pay to HII the amount of the Federal income tax
liability the Subsidiary would have had if it filed a separate tax return (the
"Separate Income Tax Liability"). In the event that the amount of Separate
Income Tax Liability for a Subsidiary in any taxable year in which it is
filing a consolidated Federal income tax return with HII exceeds the amount
equal to the product of (a) the income tax liability of the group of
corporations filing on a consolidated basis for the taxable year (the "HII
Group Tax Liability") and (b) a fraction, the numerator of which is equal to
the Subsidiary's Separate Income Tax Liability and the denominator of which is
equal to the aggregate total of the Separate Income Tax Liability of all
Subsidiaries which are included in HII's consolidated tax return, then the
Subsidiary will not be obligated to pay HII the amount of such excess. In the
event that the HII Group Tax Liability exceeds the sum of all Subsidiaries'
Separate Income Tax Liability for such year, HII may collect from the
Subsidiaries the amount of such excess, provided, however, that no Subsidiary
shall be required to pay HII an amount that exceeds the excess of (i) the sum
of such Subsidiary's Separate Income Tax Liability for the period beginning
when such Subsidiary was first included in HII's consolidated Federal income
return and ending in the tax years at issue less (ii) the cumulative total of
all amounts previously paid pursuant to the Tax Sharing Agreement. Adjustments
to income arising from events occurring subsequent to the filing of the
consolidated Federal income tax return attributable to matters such as amended
returns, carrybacks, audit adjustments and refund claims will be given effect
between HII and the Subsidiaries as soon as practicable after determination of
such adjustments. The Tax Sharing Agreement provides for a similar allocation
between HII and the Subsidiaries in the event that any state, local or foreign
income taxes of HII and the Subsidiaries are determined on a combined,
consolidated or unitary basis.
Prior to the acquisition, the Howmet Predecessor Company and Pechiney
Corporation were parties to a tax-sharing agreement requiring the Howmet
Predecessor Company to pay to Pechiney Corporation an amount equal to U.S.
income taxes that would be payable if the Howmet Predecessor Company was a
stand alone taxpayer. The Howmet Predecessor Company is included in a U.S.
consolidated tax return with Pechiney Corporation and other related entities.
Accordingly, the tax strategies reflected in Pechiney Corporation's U.S.
consolidated tax return are not necessarily consistent with the basis of
preparation for the Howmet Predecessor Company's tax provision in the
accompanying financial statements.
F-18
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Income taxes were provided in the following amounts (in thousands):
<TABLE>
<CAPTION>
HOWMET INTERNATIONAL INC. HOWMET PREDECESSOR COMPANY
CONSOLIDATED COMBINED
------------------------------ ------------------------------
PERIOD FROM PERIOD FROM
YEAR ENDED DECEMBER 14, 1995 JANUARY 1, 1995 YEAR ENDED
DECEMBER 31, TO TO DECEMBER 31,
1996 DECEMBER 31, 1995 DECEMBER 13, 1995 1994
------------ ----------------- ----------------- ------------
<S> <C> <C> <C> <C>
Current income taxes:
U.S. Federal........... $15,474 $166 $22,900 $24,352
State.................. 11,700 43 3,976 3,474
Foreign................ 6,278 313 2,809 4,039
------- ---- ------- -------
33,452 522 29,685 31,865
Deferred income taxes... (3,193) (41) (6,023) 14,119
------- ---- ------- -------
$30,259 $481 $23,662 $45,984
======= ==== ======= =======
</TABLE>
The provision for income taxes differs from the amount of income taxes
determined by applying the U.S. statutory Federal tax rate (35%) to pretax
income as follows (in thousands):
<TABLE>
<CAPTION>
HOWMET INTERNATIONAL INC. HOWMET PREDECESSOR COMPANY
CONSOLIDATED COMBINED
------------------------------ ------------------------------
PERIOD FROM PERIOD FROM
YEAR ENDED DECEMBER 14, 1995 JANUARY 1, 1995 YEAR ENDED
DECEMBER 31, TO TO DECEMBER 31,
1996 DECEMBER 31, 1995 DECEMBER 13, 1995 1994
------------ ----------------- ----------------- ------------
<S> <C> <C> <C> <C>
U.S. Federal income tax
at statutory rate...... $19,560 $195 $17,481 $ 8,048
State income taxes, net
of Federal benefit..... 5,637 52 2,009 3,001
Foreign tax
differential........... 163 88 2,483 16,166
Goodwill................ 2,694 237 598 4,669
Additional tax
reserves............... -- -- -- 6,092
Deferred tax
adjustments............ -- -- -- 6,712
Adjustment to prior
years' provision....... -- -- 1,144 --
Other................... 2,205 (91) (53) 1,296
------- ---- ------- -------
$30,259 $481 $23,662 $45,984
======= ==== ======= =======
</TABLE>
In 1994 a provision for potential tax exposures was provided due to
developments related to examinations by Federal and state taxing authorities
of the Howmet Predecessor Company's prior years' income tax returns. Deferred
tax adjustments in 1994 represent a change in the Howmet Predecessor Company's
overall estimated state income tax rate and other adjustments relating to
permanent differences.
Domestic and foreign components of pre-tax income are as follows (in
thousands):
<TABLE>
<CAPTION>
HOWMET INTERNATIONAL INC. HOWMET PREDECESSOR COMPANY
CONSOLIDATED COMBINED
------------------------------ ------------------------------
PERIOD FROM PERIOD FROM
YEAR ENDED DECEMBER 14, 1995 JANUARY 1, 1995 YEAR ENDED
DECEMBER 31, TO TO DECEMBER 31,
1996 DECEMBER 31, 1995 DECEMBER 13, 1995 1994
------------ ----------------- ----------------- ------------
<S> <C> <C> <C> <C>
United States.... $36,978 $(2,006) $37,877 $ 57,629
Foreign.......... 18,907 2,520 12,069 (34,635)
------- ------- ------- --------
$55,885 $ 514 $49,946 $ 22,994
======= ======= ======= ========
</TABLE>
F-19
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The components of the net deferred income tax asset (liability) are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Alternative minimum tax credits and foreign net
operating losses................................... $ 31,848 $ 17,652
Other post retirement benefits...................... 38,017 35,504
Vacation and deferred compensation accruals......... 9,926 8,054
Pension liability................................... 6,711 3,470
Restructuring accrual............................... 341 9,263
Other accruals...................................... 24,784 14,071
--------- ---------
Gross deferred tax asset.......................... 111,627 88,014
Valuation allowance................................. (5,855) (8,105)
--------- ---------
Total deferred tax asset.......................... 105,772 79,909
--------- ---------
Inventory........................................... (27,334) (34,375)
Property, plant and equipment....................... (50,107) (47,754)
Patents and technology.............................. (24,250) (26,959)
--------- ---------
Total deferred tax liability...................... (101,691) (109,088)
--------- ---------
Net deferred tax asset (liability)................ $ 4,081 $ (29,179)
========= =========
</TABLE>
The change in net deferred tax asset/liability includes a $3.2 million
deferred tax benefit which is included in the net 1996 income tax expense.
Also, in 1996 net deferred tax liabilities were reduced by $30.1 million, and
goodwill was reduced by the same amount. The principal reason for this
reduction was recognition of $30.5 million of preacquisition U.S. net
operating loss carryforward benefits and alternative minimum tax credits,
which were acquired as part of the December 13, 1995 acquisition and that were
not estimable at the acquisition date. All the U.S. net operating loss
carryforwards have been used to offset U.S. Federal taxes that would have
otherwise been payable in 1996. The alternative minimum tax credits have no
expiration date.
During the period from December 14 to December 31, 1995, and the period from
January 1 to December 13, 1995, the Company's deferred tax valuation allowance
increased by $.1 million and $4.1 million, respectively. During 1996 the
Company's deferred tax valuation allowance decreased by $2.2 million,
principally due to a change in estimated foreign net operating losses. At
December 31, 1996 and 1995, the Company had available approximately $15.8
million and $23.3 million, respectively, of foreign net operating loss
carryforwards which can only be used to offset foreign taxable income. A
majority of these carryforwards expire over the next four years. At December
31, 1996 and 1995, the Company carried a valuation allowance equal to the
deferred tax asset associated with these foreign net operating loss
carryforwards. Management believes it is more likely than not that future
operations will generate sufficient taxable income to realize the other
deferred tax assets. A continuation of the 1996 level of earnings will provide
ample taxable income for such realizations.
11. PENSIONS
Howmet Corporation and Cercast had trusteed noncontributory defined benefit
retirement plans covering substantially all of its employees in the U.S. and
Canada. All plans became plans of Howmet Corporation as part of the
acquisition (Note 1) except the Howmet Combined Pension Plan, which covered
nonunion hourly and salaried employees. In accordance with the SPA, an
affiliate of Pechiney International assumed sponsorship of the Howmet Combined
Pension Plan and transferred assets related to the active nonunion hourly
employees to Howmet Corporation's new defined benefit plan, which has
substantially the same provisions and benefits as the Howmet Combined Pension
Plan with respect to those nonunion hourly employees. The Pechiney
International
F-20
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
affiliate has no liability to pay benefits to the active hourly group. In
addition, in accordance with the SPA, the Howmet Combined Pension Plan
benefits related to salaried employees were frozen as of January 6, 1996. The
liabilities to the salaried group for service prior to the Acquisition and
related assets continue to be administered by that Pechiney International
affiliate. Howmet Corporation has designed a replacement defined benefit
retirement plan for its salaried employees to cover periods after the former
plan was frozen. Effective January 1, 1997, Howmet Corporation has amended the
salaried plan to change the formula from "final pay" to "cash balance." This
change will result in a 1997 reduction in plan obligations of an estimated
$35.0 to $40.0 million, and 1997 expense will be an estimated $2.0 million
less than it would have been using the prior plan formula. The tables
presented below reflect the salaried plan before the 1997 changes. The Company
intends to make annual contributions to the retirement plans in amounts up to
the maximum allowable for tax deduction purposes.
The following items are the components of the net periodic pension cost for
the U.S. and Canadian plans (in thousands):
<TABLE>
<CAPTION>
HOWMET INTERNATIONAL INC. HOWMET PREDECESSOR COMPANY
CONSOLIDATED COMBINED
------------------------------ ------------------------------
PERIOD FROM PERIOD FROM
YEAR ENDED DECEMBER 14, 1995 JANUARY 1, 1995 YEAR ENDED
DECEMBER 31, TO TO DECEMBER 31,
1996 DECEMBER 31, 1995 DECEMBER 13, 1995 1994
------------ ----------------- ----------------- ------------
<S> <C> <C> <C> <C>
Service cost--benefits
earned during the
period................. $ 8,589 $ 397 $ 7,779 $ 7,889
Interest cost on the
projected benefit
obligation............. 9,682 474 8,003 13,786
Actual return on plan
assets................. (10,876) (437) (12,780) 548
Net amortization of
unrecognized net assets
and prior service
cost................... 1,040 -- -- 177
Deferral of actual vs.
expected return on plan
assets................. -- -- 4,703 (18,091)
-------- ----- -------- --------
Net periodic pension
cost................... $ 8,435 $ 434 $ 7,705 $ 4,309
======== ===== ======== ========
</TABLE>
F-21
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the U.S. and Canadian plans' funded status
and amounts recognized in the balance sheets (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996
ACTUARIAL BENEFIT OBLIGATION
--------------------------------
EXCEED LESS THAN DECEMBER 31,
PLAN ASSETS PLAN ASSETS 1995
-------------- -------------- ------------
<S> <C> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit
obligation............. $ (8,882) $ (80,277) $ (80,216)
Nonvested benefit
obligation............. (2,532) (3,375) (6,219)
-------------- -------------- ---------
Accumulated benefit
obligation............. (11,414) (83,652) (86,435)
Additional benefits
based on estimated
future salary
increases.............. (41,195) (1,120) (41,820)
-------------- -------------- ---------
Projected benefit
obligation............. (52,609) (84,772) (128,255)
Fair value of plan
assets................. 2,435 112,211 107,256
-------------- -------------- ---------
Projected benefit
obligation (in excess
of) less than plan
assets................. (50,174) 27,439 (20,999)
Unrecognized net loss or
(gain)................. 2,002 (1,548) --
-------------- -------------- ---------
Accrued pension
liability.............. $ (48,172) $ 25,891 $ (20,999)
============== ============== =========
</TABLE>
The discount rate used to determine the actuarial present value of the
projected benefit obligation was 7.5% at December 31, 1996 and 1995. The
expected rate of return was 9% at December 31, 1996 and 9.5% at December 31,
1995 for U.S. plan assets and 8% for Canadian plan assets at December 31, 1996
and 1995. The expected increase in future salaries for those plans using
future compensation assumptions was 5% at December 31, 1996 and 1995 for the
U.S. plans and 6% for the Canadian plans at December 31, 1996 and 1995. The
unrecognized net asset and the unrecognized prior service cost are being
amortized based on the projected future service lives of employees, which
range from 15-25 years. Plan assets are primarily invested in equity
securities, debt securities and temporary cash investments. Accrued pension
cost is included in the amounts captioned "Accrued liabilities" and "Other
liabilities" in the consolidated balance sheets.
The net pension expense for the Company's United Kingdom operations was $.7
million in each of 1996, 1995 and 1994. The Company sponsors a 401(k) plan for
domestic salaried employees in which the Company matches the employee's
contribution for up to 5% of the employee's base salary and bonus. The Company
contributed approximately $4.0 million to the plan in each of 1996, 1995 and
1994.
F-22
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
12. POSTRETIREMENT BENEFITS
The Company provides postretirement health care and life insurance benefits
to its eligible active and retired employees, including certain union,
nonunion and salaried employees. Components of the net periodic postretirement
benefit cost were as follows (in thousands):
<TABLE>
<CAPTION>
HOWMET INTERNATIONAL INC. HOWMET PREDECESSOR COMPANY
CONSOLIDATED COMBINED
------------------------------ ------------------------------
PERIOD FROM PERIOD FROM
YEAR ENDED DECEMBER 14, 1995 JANUARY 1, 1995 YEAR ENDED
DECEMBER 31, TO TO DECEMBER 31,
1996 DECEMBER 31, 1995 DECEMBER 13, 1995 1994
------------ ----------------- ----------------- ------------
<S> <C> <C> <C> <C>
Service cost--benefits
attributable to service
during the period...... $2,939 $135 $2,454 $2,397
Interest cost on
accumulated
postretirement benefit
obligation............. 6,588 345 6,281 6,442
------ ---- ------ ------
Net periodic
postretirement benefit
cost................... $9,527 $480 $8,735 $8,839
====== ==== ====== ======
</TABLE>
The amounts recognized as a liability in the Company's consolidated balance
sheets are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1995
------- -------
<S> <C> <C>
Retirees................................................. $49,820 $52,006
Fully-eligible active plan participants.................. 14,062 11,912
Other plan participants.................................. 32,130 26,854
Unrealized net loss...................................... (1,443) --
------- -------
Total.................................................. 94,569 90,772
Less current portion..................................... 6,000 6,351
------- -------
$88,569 $84,421
======= =======
</TABLE>
The accumulated postretirement benefit obligation was determined using
weighted average discount rates of 7.5% for 1996 and 1995. The health care
cost trend rate assumption for pre-age 65 benefits was 12% in 1995 and 11% in
1996 and was assumed to decline 1% annually to 6% in the year 2001 and remain
constant thereafter. The health care cost trend rate for post-age 65 benefits
was 10% in 1995 and 9% in 1996 and was assumed to decline gradually to 5% in
the year 2001 and remain constant thereafter. A 1% increase in the health care
cost trend rate would have increased the accumulated postretirement benefit
obligation by $6.1 million and $6.0 million at December 31, 1996 and 1995,
respectively, and the net periodic cost by $.7 million in both 1996 and 1995.
13. GEOGRAPHIC INFORMATION
The Company operates predominantly in a single industry as a manufacturer of
investment cast components primarily for sale to the defense and commercial
aircraft and industrial gas turbine engine industries. The Company is a
multinational entity with operating subsidiaries in two geographic regions,
North America (including the United States and Canada) and Europe (including
France and the United Kingdom). Intercompany transfers between geographic
areas are not significant. In computing earnings from operations for
subsidiaries outside of the United States, no allocations of general corporate
expenses have been made.
F-23
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
NORTH AMERICA EUROPE TOTAL
------------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
HOWMET INTERNATIONAL INC. CONSOLIDATED:
1996
Sales to unaffiliated customers....... $867,548 $239,264 $1,106,812
Earnings from operations.............. 88,197 13,756 101,953
Identifiable assets................... 789,680 238,079 1,027,759
Period from December 14, 1995 to Decem-
ber 31, 1995
Sales to unaffiliated customers....... 34,894 16,472 51,366
Earnings from operations.............. 2,121 2,431 4,552
Identifiable assets................... 862,306 240,799 1,103,105
HOWMET PREDECESSOR COMPANY COMBINED:
Period from January 1, 1995 to December
13, 1995
Sales to unaffiliated customers....... 703,657 190,475 894,132
Earnings from operations.............. 31,831 19,850 51,681
1994
Sales to unaffiliated customers....... 678,481 179,770 858,251
Earnings (loss) from operations....... 30,135 (12,254) 17,881
</TABLE>
Sales to unaffiliated customers include export sales of $330.1 million in
1996, $19.3 million in the period from December 14 to December 31, 1995,
$278.1 million in the period from January 1 to December 13, 1995 and $176.9
million in 1994. Export sales of domestic operations, included in total export
sales, were $235.0 million in 1996, $10.1 million in the period from December
14 to December 31, 1995, $160.4 million in the period from January 1 to
December 13, 1995, and $126.2 million in 1994.
The Company's sales to its two largest customers were $206.0 million and
$159.5 million in 1996, $10.5 million and $7.9 million in the period from
December 14 to December 31, 1995, $184.0 million and $138.1 million in the
period from January 1, 1995 to December 13, 1995 and $229.2 million and $123.7
million in 1994. Receivables from these customers were $16.5 million and $12.7
million at December 31, 1996 and $17.1 million and $12.2 million at December
31, 1995.
Stockholders' equity reflects a $.9 million increase in cumulative
translation adjustment in 1996; $5.1 million of such amount is attributable to
United Kingdom operations, offset by a $4.2 million decrease attributable to
French operations.
14. TRANSACTIONS WITH AFFILIATES
The Howmet Predecessor Company had financing and other transactions with
Pechiney Corporation. Interest income earned from advances to Pechiney
Corporation was based on short-term borrowing rates obtained by Pechiney
Corporation. The average advance balance was $148.7 million for the period
from January 1 to December 13, 1995 and $217.9 million in 1994.
HII has management agreements with an affiliate of The Carlyle Group and
with Thiokol Holding Company for certain management and financial advisory
services. Each agreement provides for the payment of an annual management fee
of $1.0 million. In addition, in 1995 The Carlyle Group and Thiokol Holding
Company each received $2.0 million for services provided in connection with
the Acquisition of the Company. This transaction was reflected as a reduction
of capital surplus in the consolidated balance sheet.
F-24
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In December 1995, certain executives of the Howmet Predecessor Company
invested $4.7 million in Carlyle. Certain of the investments were funded with
all or a portion of a bonus earned in connection with the Acquisition (Note
1). The partnership interests are subordinated to the claims of creditors of
the Company, and certain of the partnership interests are expected to receive
a cash distribution upon a sale of Carlyle's interest in the Company, and the
executives will receive shares of such distribution, pro rata to their capital
contributions in the partnership.
In early 1996, the Company adopted a Stock Appreciation Rights ("SARs")
plan. Under the plan, SARs representing up to 5% of the Company's equity value
may be issued to executive officers of the Company. The SARs are similar to
phantom stock options and are valued based on appreciation of the value of the
Company's common stock, as defined, from the date of adoption of the plan to
the earlier of (i) five years, (ii) a merger, sale of substantially all of the
assets or liquidation of the Company or Howmet, (iii) the acquisition by an
unaffiliated entity of more than 50% of the Company's or Howmet's common
stock, (iv) disposition by Carlyle of all of its interest in the Common Stock,
through the exercise of the option granted to Thiokol at the time of the
Acquisition or otherwise, or (v) a public offering of more than 50% of the
Company's or Howmet's common stock. The SARs vest over a five-year period
based upon the passage of time, the operating performance of the Company and
the tenure of the executive officers, with acceleration in the event of sale
or one of the earlier triggering events identified above. During 1996, 102,550
SARs were granted, each of which had an interest in 0.5% of one share of HII
stock and a base price of $100 per appreciation right. See Note 18.
Compensation cost of $6.6 million was charged against income for this plan in
1996 and is included in the amount captioned "Other liabilities" in the
December 31, 1996 consolidated balance sheet.
During 1996, 230,000 contingent stock options for Thiokol stock were granted
to certain executives of the Company. The options are contingent on Thiokol's
purchase of Carlyle's total interest in the Company, unless otherwise modified
by the compensation committee of the Board of Directors of Thiokol. 50% of
such options vest and become exercisable on the date of such purchase; 25%
vest and become exercisable on both of the subsequent two anniversaries
following the first vesting date. If Thiokol does not obtain 100% of the
equity ownership of the Company prior to December 13, 2001, the options become
void. The options expire not later than 10 years after the date of grant. The
exercise price of the options is the price of Thiokol stock on the first
trading date after the dates of grant (range of $35.50-$40.94). In the event
that Thiokol acquires 100% of the Company before December 13, 2001, there will
be a charge to the Company's earnings upon such acquisition and in the
subsequent two years of the vesting period. The total charges will be equal to
the product of (x) any increase in price of Thiokol's stock from date of grant
to the date when Thiokol acquires 100% of the Company, times (y) the number of
options outstanding. If Thiokol had acquired 100% of the Company as of June
29, 1997, charges at that date and in the subsequent two years would aggregate
$4.0 million, after tax.
15. FINANCIAL INSTRUMENTS
Financial instruments which potentially subject the Company to credit risk
consist principally of trade receivables. The Company does not require
collateral and maintains reserves for potential credit losses for trade
accounts receivable. The Company's accounts receivable are principally due
from companies in the aerospace and industrial gas turbine engine industries.
The fair values of the Company's trade receivables and payables approximate
their carrying amounts. For information pertaining to the fair values of the
Company's interest rate swap agreements and other debt instruments, refer to
Note 7.
The Company enters into forward exchange contracts as a hedge against
currency fluctuations of certain foreign currency transactions. At December
31, 1996, the following were outstanding: contracts to purchase 8.6 million
Canadian dollars with maturity dates from January to November 1997 for $6.5
million; contracts to sell 6.1 million pound sterling with maturity dates from
January to June 1997 for $10.0 million. At December 31, 1996, the fair value
of the Canadian contracts was $6.3 million and the pound sterling contracts
was $9.7 million.
F-25
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The fair value of foreign currency contracts was estimated by obtaining quotes
from brokers. The market value gains or losses arising from foreign exchange
contracts offset foreign exchange gains or losses on the underlying hedged
assets. The Company's exposure to currency risk is limited to currency rate
movement and is considered to be negligible.
During 1994, the Company entered into an option contract to purchase up to
$1.3 million Canadian dollars as a hedge against currency fluctuations of
certain foreign currency transactions. These options were exercisable from
June 1995 through December 1996. The market value gains or losses arising from
currency exchange options offset foreign exchange gains or losses on the
underlying hedged assets. The Company's exposure to currency risk in these
options was limited to currency rate movements and was considered to be
negligible.
The counterparties to the foreign exchange transactions are major financial
institutions. The Company does not anticipate nonperformance by the
counterparties.
16. CONTINGENCIES
The Company has received recent test results indicating levels of
polychlorinated biphenyls ("PCBs") at its Dover, New Jersey facility which
will require remediation. These levels have been reported to the New Jersey
Department of Environmental Protection ("NJDEP"), and the Company is preparing
a work plan to define the risk and to test possible clean-up options. The
statement of work must be approved by the NJDEP pursuant to an Administrative
Consent Order entered into between the Company and NJDEP on May 20, 1991
regarding clean-up of the site. Various remedies are possible and could
involve expenditures ranging from $2.0 million to $22.0 million or more. The
Company has recorded a $2.0 million long-term liability as of December 31,
1996 for this matter. Given the uncertainties, it is possible that the
estimated range of this cost and the amount accrued will change within a one
to two year period. The indemnification discussed below applies to the costs
associated with this matter.
In addition to the above, liabilities arising for cleanup costs associated
with hazardous types of materials in several waste disposal facilities exist.
In particular, the Company has been or may be named a potentially responsible
party under the Comprehensive Environmental Response, Compensation and
Liability Act or similar state laws at thirteen on-site and off-site
locations. At December 31, 1996, $4.4 million of accrued environmental
liabilities are included in the consolidated balance sheet for such matters.
In connection with the Acquisition, Pechiney International and Pechiney S.A.
indemnified the Company for environmental liabilities relating to Howmet
Corporation and stemming from events occurring or conditions existing on or
prior to the Acquisition, to the extent that such liabilities exceed a
cumulative $6.0 million. This indemnification applies to all of the
aforementioned environmental matters. Pursuant to this indemnification, at
December 31, 1996 the Company has recorded a receivable from Pechiney
International and Pechiney S.A. of $2.0 million. Changes in any of the
aforementioned accrued liabilities will result in an equal change in the
amount receivable from Pechiney International and Pechiney S.A.
In addition to the above environmental matters, and unrelated to Howmet
Corporation, Holdings and Pechiney S.A. are jointly and severally liable for
environmental contamination and related costs associated with certain
discontinued mining operations owned and/or operated by a predecessor-in-
interest until the early 1960s. These liabilities include approximately $20.7
million in remediation and natural resource damage liabilities at the
Blackbird Mine site in Idaho and a minimum of $4.0 million in investigation
and remediation costs at the Holden Mine site in Washington. Pechiney
International and Pechiney S.A. have agreed to indemnify the Company for such
liabilities. In connection with these environmental matters, the Company has
recorded a $24.7 million liability and an equal $24.7 million receivable from
Pechiney International and Pechiney S.A.
F-26
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Estimated environmental costs are not expected to materially impact the
financial position or the results of the Company's operations in future
periods. However, environmental clean-up periods are protracted in length and
environmental costs in future periods are subject to changes in environmental
remediation regulations. Any losses which are not covered by the Pechiney
International and Pechiney S.A. indemnifications and which are in excess of
amounts currently accrued will be charged to operations in the periods in
which they occur.
The Company, in its ordinary course of business, is involved in other
litigation, administrative proceedings and investigations of various types in
several jurisdictions. The Company believes these are routine in nature and
incidental to its operations, and that the outcome of any proceedings to which
the Company currently is a party will not have a material adverse effect upon
its operations or financial condition.
At December 31, 1996, the Company guaranteed certain indebtedness
aggregating $11.5 million of its 50%-owned entities.
17. RESTRUCTURING
1992 RESTRUCTURING PROVISION
Reengineering programs: In 1992, the Howmet Predecessor Company recorded a
$39.8 million restructuring charge associated with reengineering certain of
its business processes and related activities. The costs include severance and
relocation for approximately 1,835 employees ($13.4 million), consulting fees
($3.1 million) and expenses related to the evaluation, design and
implementation of a company wide synchronous manufacturing environment with
cellular work stations, uniform work instructions and business center
management and reporting ($23.3 million).
Capacity rationalization: Also, in 1992, the Howmet Predecessor Company
recorded a $19.1 million restructuring charge for streamlining operations,
including expenses related to severance and relocation for approximately 562
employees ($8.8 million), asset writedowns ($1.3 million) and the transfer and
reinstallation of equipment ($9.0 million).
Management periodically reevaluated the adequacy of the remaining
restructuring accrual. Based upon these reevaluations, in 1994, the Howmet
Predecessor Company reversed the portion of the accrual related to a U.S.
plant shutdown ($1.8 million) and a French social plan ($1.4 million) due to
improved business conditions; in addition, other minor components of the 1992
restructuring accrual were adjusted to reflect revised estimates. In 1996 the
accrual was reevaluated and reduced by $2.8 million. Goodwill was reduced by
the same amount.
The following tables set forth the 1994, 1995 and 1996 activity for the
restructuring provision established in 1992 (in thousands):
<TABLE>
<CAPTION>
REENGINEERING CAPACITY
PROGRAMS RATIONALIZATION TOTAL
------------- --------------- --------
<S> <C> <C> <C>
December 31, 1993 balance............ $ 18,770 $10,673 $ 29,443
Cash costs......................... (11,657) (3,312) (14,969)
Non-cash costs..................... -- (165) (165)
Changes in estimate................ 1,434 (3,320) (1,886)
-------- ------- --------
December 31, 1994 balance............ 8,547 3,876 12,423
Cash costs......................... (6,368) (2,815) (9,183)
Non-cash costs..................... -- (92) (92)
-------- ------- --------
December 31, 1995 balance............ 2,179 969 3,148
Changes in estimate................ (2,179) (619) (2,798)
-------- ------- --------
December 31, 1996 balance............ $ -- $ 350 $ 350
======== ======= ========
</TABLE>
Costs for the December 14 to 31, 1995 period were not significant and are
included in the above 1995 activity. Restructuring accruals are included in
the amounts captioned "Accrued liabilities" in the consolidated balance sheet.
F-27
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1994 RESTRUCTURING PROVISION
Morristown Wax Closure: In 1994, the Howmet Predecessor Company recorded a
$1.5 million restructuring charge in connection with its plan to close its
Morristown, Tennessee wax facility. The closure was effected in order to
reduce excess capacity and enhance coordination and lead time at Howmet's
casting plants. The restructuring provision was primarily comprised of exit
costs ($1.0 million), termination benefits ($.2 million) and other items ($.3
million). In 1996 the accrual was reevaluated and reduced by $.1 million.
Goodwill was reduced by the same amount.
Dover Airmelt Closure: Also in 1994, the Howmet Predecessor Company recorded
a $1.0 million restructuring provision in connection with its plan to exit its
airmelt business at its Dover Alloy plant in New Jersey. The decision to exit
the airmelt business was primarily due to the unprofitability of the airmelt
product line which was not considered an essential part of the Company's alloy
operations. The restructuring charge was entirely comprised of exit costs.
This decision was reversed in 1995 because a buyer could not be found. The
Company has since increased airmelt business and generated improved returns.
Howmet S.A. Administrative Office Closure: Also in 1994, the Howmet
Predecessor Company recorded a $2.0 million restructuring charge related to
the closure of its administrative office in Asnieres, France and the opening
of an administrative office in Dives, France. The restructuring charge was
comprised of termination benefits ($.6 million), exit costs ($1.2 million) and
other items ($.2 million). A portion of the accrual deemed to be excess was
reversed and credited to income in 1995. In 1996 the accrual was reevaluated
and reduced by $.3 million. Goodwill was reduced by the same amount.
The following is an analysis related to the restructuring reserve activities
for the 1994 restructuring programs (in thousands):
<TABLE>
<CAPTION>
DOVER HOWMET
MORRISTOWN AIRMELT S.A. TOTAL
---------- ------- ------- -------
<S> <C> <C> <C> <C>
1994 restructuring provision........... $1,450 $ 1,000 $ 1,982 $ 4,432
Cash costs........................... (176) -- -- (176)
Non-cash costs....................... (239) -- -- (239)
------ ------- ------- -------
December 31, 1994 balance.............. 1,035 1,000 1,982 4,017
Cash costs........................... (706) -- (1,279) (1,985)
Non-cash costs....................... (132) -- 262 130
Changes in estimate.................. -- (1,000) (624) (1,624)
------ ------- ------- -------
December 31, 1995 balance.............. 197 0 341 538
Cash costs........................... (93) -- -- (93)
Changes in estimate.................. (104) -- (341) (445)
------ ------- ------- -------
December 31, 1996 balance.............. $ -- $ -- $ -- $ --
====== ======= ======= =======
</TABLE>
Costs for the December 14 to 31, 1995 period were not significant and are
included in the above 1995 activity. Restructuring accruals are included in
the amounts captioned "Accrued liabilities" in the consolidated balance sheet.
1995/1996 RESTRUCTURING PROVISION
In connection with the Acquisition, management determined that certain
manufacturing capabilities would be eliminated and the related facilities
would be utilized for purposes other than for manufacturing. Accordingly, a
reserve of $21.0 million (including $5.0 million in "Accrued liabilities"),
principally for severance costs, was
F-28
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
recorded. The extent of the restructuring was less than initially anticipated;
consequently, in 1996 $19.1 million of the accrual was reversed and goodwill
was reduced by an equal amount. 1996 expenditures for this restructuring
effort were $1.0 million, principally for termination costs for 45 permanent
and temporary employees. The $.9 million December 31, 1996 accrual balance is
included in amounts captioned "Accrued liabilities" in the consolidated
balance sheet. This amount is expected to be spent in 1997, principally for
termination costs related to 15 employees.
18. SUBSEQUENT EVENTS
The Offering
On October 9, 1997, the Company filed a Registration Statement on Form S-1
to register $375 million of common shares to be offered and sold by Carlyle
(the "Offering"). In connection with the Offering, the Company's Restated
Certificate of Incorporation will be amended to delete the provision
obligating the Company to redeem the Series A Preferred Stock upon a sale by
Carlyle of more than 25% of the outstanding shares of the Company other than
to an affiliate of Carlyle.
Carlyle has agreed to sell to Thiokol, simultaneously with the closing of
the Offering, 11,000,000 shares of common stock, representing 11% of the
outstanding common stock, and to grant Thiokol an option to purchase from
Carlyle up to an additional 4,000,000 shares of common stock, representing 4%
of the outstanding common stock (the "First Thiokol Option"). The First
Thiokol Option will be exercisable only on the first business day following
the earlier of the date Carlyle notifies Thiokol of the intention of the U.S.
underwriters to exercise the U.S. underwriters' overallotment option or the
30th day following the Offering. Upon completion of the Offering and the Sale,
Thiokol will beneficially own 60% of the outstanding Common Stock (or up to
64% if it elects to exercise all or part of the First Thiokol Option) and will
own all of the outstanding non-voting 9% Series A Preferred Stock.
Agreements Between Thiokol, Carlyle and the Company
In connection with the Offering, the Shareholders have agreed to amend and
restate the Original Shareholders Agreement described in Note 1 (as amended
and restated, the "Shareholders Agreement"). Pursuant to such agreement,
Thiokol has agreed with the Company that, without prior consent of the Carlyle
representative (if any) on the Company's Board of Directors and a majority
(but not less than two) of the non-employee directors of the Company who are
not directors or employees of Thiokol or Carlyle, neither Thiokol nor any of
its affiliates may acquire any Publicly Held Shares (as defined below) if,
after such acquisition, the number of Publicly Held Shares then outstanding
would be less than (adjusted for subsequent stock splits and stock
dividends), other than (x) pursuant to a tender offer to acquire all of the
outstanding shares of common stock not then beneficially owned by Thiokol, or
(y) pursuant to a merger or other business combination in which all holders of
Publicly Held Shares are treated equally. "Publicly Held Shares" means the
outstanding shares of common stock other than shares held by Thiokol, Carlyle
or their respective affiliates. In addition, pursuant to the Shareholders
Agreement, (1) for so long as Carlyle continues to own not less than 5% of the
outstanding common stock, the Company has agreed to nominate, and Thiokol has
agreed to vote its shares of common stock in favor of, one designee of Carlyle
to the Company's Board of Directors, (2) Carlyle has agreed with Thiokol that
Carlyle will not dispose of any of its shares of common stock prior to the
earlier of the second anniversary of the closing of the Offering or the
occurrence of a change of control of Thiokol, (3) during the two-year period
starting on the second anniversary of the closing of the Offering (the "Option
Period"), Thiokol will have an option (the "Second Thiokol Option") to acquire
Carlyle's shares of common stock (all, or in increments of 25%) and a right of
first refusal to acquire any shares Carlyle proposes to sell, in each case at
market price, (4) the Company has agreed that, prior to April 1, 1999 (or such
earlier date as Carlyle owns less than 5% of the outstanding shares of common
stock), the Company will not take certain actions without the approval of the
F-29
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
director designated by Carlyle, including with respect to issuing or
repurchasing shares, declaring dividends, approving the Company's capital
budget and operating plan, purchasing or selling substantial assets, appointing
or terminating the Company's executive officers, incurring indebtedness over
$20 million or taking action relating to the compensation of the Company's
executive officers and (5) Thiokol has agreed that, in the event Thiokol
disposes of any of its shares of common stock to an unaffiliated third party
(other than pursuant to an effective registration statement or under Rule 144)
prior to the fourth anniversary of the closing of the Offering, Carlyle will
have the right to participate in such sale with respect to a proportionate
number of its shares on the same terms. The Company has granted Carlyle certain
registration rights (exercisable between the second and the fifth anniversaries
of the closing of the Offering) for Carlyle's remaining shares of common stock
and has granted Thiokol certain preemptive rights.
Amendment to Restated Certificate of Incorporation and Stock Dividend
An amendment to the Company's Restated Certificate of Incorporation was
approved by the Board of Directors and the stockholders of the Company on
October 8, 1997. The amendment increased authorized common stock to 400,000,000
shares and authorized 10,000,000 shares of preferred stock, $.01 par value per
share. The Board of Directors is authorized to determine the terms of any new
series of preferred stock. Of the 10,000,000 shares of authorized preferred
stock, 15,000 shares are designated as Series A Preferred Stock, the terms of
which are described on the December 31, 1996 balance sheet and in Note 7.
On October 8, 1997, the Board of Directors also approved a 10,000-to-1 stock
split in the form of a stock dividend, which increased outstanding common stock
from 10,000 to 100,000,000 shares. All share and per share data in the
accompanying financial statements have been retroactively adjusted to reflect
the aforementioned changes.
SARs Plan
If the Offering is consummated, the Company's 1997 fourth quarter charge
related to its SARs plan will be based upon the Company's stock price on
December 31, 1997. Assuming such stock price was equal to the midpoint of the
range indicated on the cover page to this Prospectus, such charge would be $
million after tax or $ per share. Subsequent charges or credits related to
the SARs plan will be based on changes to the Company's stock price. As a
result of the stock split described above, the number of SARs was increased to
approximately 4.7 million, the SARs interest was changed to 100% of a share of
common stock, and the base price was reduced to $2.
Sale of Refurbishment Business
In September 1997, the Company sold its aircraft engine component
refurbishment business (other than its coating operations). The Company expects
net cash proceeds of approximately $43.0 million after tax and transaction
related expenses. The sales transaction had an immaterial effect on net income.
Net sales of such business were approximately $38 million in the twenty-six
week period ended June 29, 1997, approximately $35 million in the twenty-six
week period ended June 30, 1996 and approximately $69 million for the full year
1996. Earnings from operations of this business were immaterial in all periods.
F-30
<PAGE>
HOWMET INTERNATIONAL INC.
CONSOLIDATED CONDENSED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 29, 1997
-------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 3,020
Accounts receivable (less allowance of $5,531)................. 88,450
Inventories.................................................... 151,405
Retained receivables........................................... 47,414
Deferred income taxes.......................................... 23,854
Other current assets........................................... 2,506
----------
Total current assets......................................... 316,649
Property, plant and equipment, net............................... 286,874
Goodwill, net.................................................... 245,810
Acquisition intangibles and other assets, net.................... 183,921
Restricted Trust (a)............................................. 727,038
----------
Total assets................................................. $1,760,292
==========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................... $ 63,044
Accrued liabilities............................................ 157,782
Income taxes payable........................................... 30,999
Current portion of long-term debt.............................. 50,200
----------
Total current liabilities.................................... 302,025
Accumulated postretirement benefit obligation.................... 91,370
Other liabilities................................................ 83,386
Deferred income taxes............................................ 14,685
Long-term debt, excluding Pechiney Notes......................... 238,137
Pechiney Notes, including $10,652 of accrued interest (a)........ 727,038
Contingencies (Note F)
Redeemable preferred stock....................................... 57,398
Stockholders' equity:
Common stock, $.01 par value; 400,000,000 shares authorized;
100,000,000 shares issued and outstanding..................... 1,000
Capital surplus................................................ 195,000
Retained earnings.............................................. 56,362
Cumulative translation adjustment.............................. (6,109)
----------
Total stockholders' equity................................... 246,253
----------
Total liabilities, redeemable preferred stock and
stockholders' equity........................................ $1,760,292
==========
</TABLE>
- --------
(a) The Restricted Trust holds a note receivable from Pechiney International
that secures Pechiney International's agreement to repay the Pechiney
Notes. Management believes that it is extremely remote that the Company
will use any assets other than those in the Restricted Trust to satisfy
any payments related to the Pechiney Notes. See Note E.
See notes to consolidated condensed financial statements (unaudited).
F-31
<PAGE>
HOWMET INTERNATIONAL INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
------------------------
JUNE 29, JUNE 30,
1997 1996
----------- -----------
<S> <C> <C>
Net sales........................................... $ 642,985 $ 544,814
Operating costs and expenses:
Cost of sales..................................... 446,842 398,750
Selling, general and administrative expense....... 72,793 57,001
Depreciation and amortization expense............. 29,272 30,280
Research and development expense.................. 11,074 12,166
----------- -----------
559,981 498,197
----------- -----------
Earnings from operations............................ 83,004 46,617
Interest income (expense) from restricted trust and
Pechiney Notes, net (Note E)....................... -- --
Interest income..................................... 749 961
Interest expense.................................... (16,838) (23,515)
Equity in income (loss) of unconsolidated
affiliates......................................... 600 (2,078)
Losses on sales of receivables...................... (1,957) (2,412)
Other, net.......................................... (43) (323)
----------- -----------
Income before income taxes.......................... 65,515 19,250
Income taxes........................................ 27,414 12,622
----------- -----------
Net income.......................................... 38,101 6,628
----------- -----------
Payment-in-kind dividends on redeemable preferred
stock.............................................. (2,498) (2,276)
----------- -----------
Net income applicable to common stock............... $ 35,603 $ 4,352
=========== ===========
Net income per common share......................... $ .36 $ .04
=========== ===========
Retained earnings (deficit) at beginning of period.. $ 20,759 $ (202)
Net income applicable to common shares.............. 35,603 4,352
----------- -----------
Retained earnings at end of period.................. $ 56,362 $ 4,150
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements (unaudited).
F-32
<PAGE>
HOWMET INTERNATIONAL INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
---------------------------
JUNE 29, 1997 JUNE 30, 1996
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income........................................ $ 38,101 $ 6,628
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 32,313 31,713
Payment-in-kind interest........................ 1,374 1,250
Equity in (income) loss of unconsolidated
affiliates..................................... (600) 2,078
Changes in assets and liabilities:
Accounts receivable........................... (18,031) 4,595
Inventories................................... (3,903) 4,980
Deferred income taxes......................... (6,211) (2,177)
Accounts payable.............................. (11,669) 6,541
Accrued liabilities and other liabilities..... 20,891 15,554
Income taxes payable.......................... 12,497 3,081
Other, net.................................... (254) (1,819)
--------- ---------
Net cash provided by operating activities... 64,508 72,424
INVESTING ACTIVITIES
Payments made for capital expenditures............ (18,793) (10,876)
Investment in joint venture....................... (1,450) --
Post-closing adjustment relating to the
Acquisition...................................... -- 3,634
--------- ---------
Net cash used in investing activities....... (20,243) (7,242)
FINANCING ACTIVITIES
Issuance of debt.................................. 89,400 95,500
Repayment of debt................................. (152,600) (141,069)
--------- ---------
Net cash used in financing activities....... (63,200) (45,569)
Effect of exchange rate changes on cash........... (1,443) 101
--------- ---------
Net (decrease) increase in cash................... (20,378) 19,714
Cash and cash equivalents at beginning of period.. 23,398 9,606
--------- ---------
Cash and cash equivalents at end of period........ $ 3,020 $ 29,320
========= =========
</TABLE>
See notes to consolidated condensed financial statements (unaudited).
F-33
<PAGE>
HOWMET INTERNATIONAL INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. In the opinion of management all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation
have been included. Operating results for the twenty-six weeks ended June 29,
1997 are not necessarily indicative of the results to be expected for the year
ending December 31, 1997. The financial statements should be read in
conjunction with the Consolidated Financial Statements and notes thereto for
Howmet International Inc. and Howmet Predecessor Company for the years ended
December 31, 1996 and 1994 and the two periods comprising the year ended
December 31, 1995, included elsewhere in this Prospectus.
B. INVENTORIES
Inventories at June 29, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
Raw materials and supplies....................................... $ 62,297
Work in process and finished goods............................... 93,584
FIFO inventory................................................... 155,881
LIFO valuation adjustment........................................ (4,476)
--------
$151,405
========
</TABLE>
The Company increased the LIFO valuation adjustment and thereby increased
cost of sales by $2.7 million and $1.3 million in the 1997 and 1996 twenty-six
week periods, respectively.
C. SALE OF REFURBISHMENT BUSINESS
In September 1997 the Company sold its aircraft engine component
refurbishment business (other than its coating operations). The Company
expects net cash proceeds of approximately $43 million after tax payments and
transaction related expenses. The sale transaction had an immaterial effect on
net income. Net sales of such business were approximately $38 million in the
twenty-six week period ending June 29, 1997, and approximately $35 million in
the twenty-six week period ended June 30, 1996. Earnings from operations of
this business were immaterial in both periods.
D. OTHER INFORMATION
Selling, general and administrative expense for the twenty-six weeks ended
June 29, 1997 included $15.9 million of pre-tax expense recorded in connection
with the Company's Stock Appreciation Rights ("SARs") plan. The twenty-six
weeks ended June 30, 1996 include $0.9 million of expense related to the SARs
plan. In the twenty-six weeks ended June 29, 1997, the Company realized a $9.7
million pre-tax benefit from finalization of a pricing adjustment with a
customer. Results for the twenty-six week period of 1996 did not include any
amount for the aforementioned item.
In 1996 the effective tax rate was reduced from an estimated 66% for the
first twenty-six week period to 54% for the full year. Had the 54% rate been
applied to income before income taxes in the 1996 twenty-six week period, net
income would have been $2.2 million higher. The change in the income tax rate
in 1996 resulted from actual annual income that was substantially higher than
the estimate of annual income contemplated in determining the 66% rate. The
higher income reduced the percentage effect of nondeductible costs and
expenses.
F-34
<PAGE>
HOWMET INTERNATIONAL INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
The Company paid interest of $12.1 million and $18.4 million, and paid
income taxes, net of refunds, of $23.3 million and $11.4 million, during the
respective 1997 and 1996 twenty-six week periods.
E. RESTRICTED TRUST AND RELATED PECHINEY NOTES
For a discussion of the Restricted Trust and the related Pechiney Notes, see
Note 8 to the Consolidated Financial Statements for Howmet International Inc.
and Howmet Predecessor Company for the years ended December 31, 1996 and 1994
and the two periods comprising the year ended December 31, 1995, included
elsewhere in this Prospectus.
The June 29, 1997 balances include $10.7 million of accrued interest income
for the trust and $10.7 million of accrued interest expense for the Pechiney
Notes. Both amounts were paid on June 30, 1997.
F. CONTINGENCIES
The Company has received recent test results indicating levels of
polychlorinated biphenyls ("PCBs") at its Dover, New Jersey facility which
will require remediation. These levels have been reported to the New Jersey
Department of Environmental Protection ("NJDEP"), and the Company is preparing
a work plan to define the risk and to test possible clean-up options. The
statement of work must be approved by the NJDEP pursuant to an Administrative
Consent Order entered into between the Company and NJDEP on May 20, 1991
regarding clean-up of the site. Various remedies are possible and could
involve expenditures ranging from $2.0 million to $22.0 million or more. The
Company has recorded a $2.0 million long-term liability as of June 29, 1997
for this matter. Given the uncertainties, it is possible that the estimated
range of this cost and the amount accrued will change within a one to two year
period. The indemnification discussed below applies to the costs associated
with this matter.
In addition to the above, liabilities arising for clean-up costs associated
with hazardous types of materials in several waste disposal facilities exist.
In particular, the Company has been or may be named a potentially responsible
party under the Comprehensive Environmental Response, Compensation and
Liability Act or similar state laws at thirteen on-site and off-site
locations. At June 29, 1997, $4.6 million of accrued environmental liabilities
are included in the consolidated condensed balance sheet for such matters.
In connection with the Acquisition, Pechiney International and Pechiney S.A.
indemnified the Company for environmental liabilities relating to Howmet
Corporation and stemming from events occurring or conditions existing on or
prior to the Acquisition date, to the extent that such liabilities exceed a
cumulative $6.0 million. This indemnification applies to all of the
aforementioned environmental matters. It is highly probable that changes in
any of the aforementioned accrued liabilities will result in an equal change
in the amount receivable from Pechiney International and Pechiney S.A.
pursuant to this indemnification.
In addition to the above environmental matters, and unrelated to Howmet
Corporation, Holdings and Pechiney S.A. are jointly and severally liable for
environmental contamination and related costs associated with certain
discontinued mining operations owned and/or operated by a predecessor-in-
interest until the early 1960s. These liabilities include approximately $20.7
million in remediation and natural resource damage liabilities at the
Blackbird Mine site in Idaho and a minimum of $4.0 million in investigation
and remediation costs at the Holden Mine site in Washington. Pechiney
International and Pechiney S.A. have agreed to indemnify the Company for such
liabilities. In connection with these environmental matters, the Company has
recorded a $24.7 million liability and an equal $24.7 million receivable from
Pechiney International and Pechiney S.A.
Estimated environmental costs are not expected to materially impact the
financial position or the results of the Company's operations in future
periods. However, environmental clean-up periods are protracted in length
F-35
<PAGE>
HOWMET INTERNATIONAL INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
and environmental costs in future periods are subject to changes in
environmental remediation regulations. Any losses which are not covered by the
Pechiney International and Pechiney S.A. indemnifications and which are in
excess of amounts currently accrued will be charged to operations in the
periods in which they occur.
The Company, in its ordinary course of business, is involved in other
litigation, administrative proceedings and investigations of various types in
several jurisdictions. The Company believes these are routine in nature and
incidental to its operations, and that the outcome of any proceedings to which
the Company currently is a party will not have a material adverse effect upon
its operations or financial condition.
At June 29, 1997, the Company guaranteed certain indebtedness aggregating
$10.7 million of its 50%-owned entities.
G. SUBSEQUENT EVENTS
See Note 18 to the Consolidated Financial Statements for Howmet
International Inc. and Howmet Predecessor Company for the years ended December
31, 1996 and 1994 and the two periods comprising the year ended December 31,
1995, included elsewhere in this Prospectus.
F-36
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued 1997 [LOGO]
Shares
Howmet International Inc.
COMMON STOCK
-----------
OF THE SHARES OF COMMON STOCK BEING OFFERED, SHARES ARE
BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND SHARES ARE BEING OFFERED INITIALLY
IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE "UNDERWRITERS."
ALL OF THE SHARES OF COMMON STOCK BEING OFFERED ARE BEING SOLD BY CARLYLE-
BLADE ACQUISITION PARTNERS, L.P. (THE "SELLING SHAREHOLDER"), AN AFFILIATE
OF THE CARLYLE GROUP, WHICH CURRENTLY OWNS 51% OF THE OUTSTANDING COMMON
STOCK. PRIOR TO THE OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE
COMMON STOCK. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PRICE TO PUBLIC
WILL BE BETWEEN $ AND $ PER SHARE. SEE "UNDERWRITERS" FOR A
DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL
PUBLIC OFFERING PRICE. SIMULTANEOUSLY WITH THE OFFERING, THE SELLING
SHAREHOLDER HAS AGREED TO SELL 11,000,000 SHARES OF COMMON STOCK TO
THIOKOL HOLDING COMPANY, A WHOLLY-OWNED SUBSIDIARY OF THIOKOL
CORPORATION (COLLECTIVELY, "THIOKOL"), AT THE INITIAL PRICE TO PUBLIC
LESS UNDERWRITING DISCOUNTS AND COMMISSIONS. THIOKOL CURRENTLY OWNS
49% OF THE OUTSTANDING COMMON STOCK AND WILL OWN 60% OF THE
OUTSTANDING COMMON STOCK AS A RESULT OF SUCH PURCHASE. THE SELLING
SHAREHOLDER HAS ALSO GRANTED THIOKOL OPTIONS TO ACQUIRE ITS
REMAINING SHARES OF COMMON STOCK FOLLOWING THE OFFERING.
-----------
APPLICATION HAS BEEN MADE TO LIST THE COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE UNDER THE SYMBOL "HWM."
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) SHAREHOLDER(2)
-------- -------------- -------------------
<S> <C> <C> <C>
Per Share........................... $ $ $
Total(3)............................ $ $ $
</TABLE>
- -----
(1) The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
(2) The expenses of the Offering, estimated at $ , will be payable by the
Company.
(3) The Selling Shareholder has granted the U.S. Underwriters an option,
exercisable within 30 days of the date hereof, to purchase up to an
aggregate of additional shares of Common Stock at the price to
public less underwriting discounts and commissions for the purpose of
covering overallotments, if any. If the U.S. Underwriters exercise such
option in full, the total price to public, underwriting discounts and
commissions and proceeds to Selling Shareholder will be $ , $ and
$ , respectively. See "Underwriters."
-----------
The shares of Common Stock are offered, subject to prior sale, when, as and
if accepted by the Underwriters, and subject to approval of certain legal
matters by Brown & Wood LLP, counsel for the Underwriters. It is expected that
delivery of the shares will be made on or about , 1997, at the office of
Morgan Stanley & Co. Incorporated, New York, New York, against payment therefor
in immediately available funds.
-----------
MORGAN STANLEY DEAN WITTER LEHMAN BROTHERS
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $113,637
NASD fee........................................................ 30,500
NYSE listing fee................................................ *
Blue Sky fees and expenses...................................... *
Printing expenses............................................... *
Legal fees and expenses......................................... *
Accounting fees................................................. *
Miscellaneous................................................... *
--------
Total**..................................................... $ *
========
</TABLE>
--------
* To be filed by amendment.
** All of such expenses are being borne by the Company.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") empowers a Delaware corporation to indemnify any persons who are, or
are threatened to be made, parties to any threatened, pending or completed
legal action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation),
by reason of the fact that such person was an officer or director of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding, provided that such officer
or director acted in good faith and in a manner he or she reasonably believed
to be in or not opposed to the corporation's best interests, and, for criminal
proceedings, had no reasonable cause to believe his or her conduct was
illegal. A Delaware corporation may indemnify officers and directors against
expenses (including attorneys' fees) in connection with the defense or
settlement of an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him or her against the expenses which such officer or director
actually and reasonably incurred.
The Restated Certificate of Incorporation of the Company provides for
indemnification of the officers and directors of the Company to the full
extent permitted by applicable law.
In accordance with the DGCL, the Restated Certificate of Incorporation of
the Company contains a provision to limit the personal liability of the
directors of the Company for violations of their fiduciary duty. This
provision eliminates each director's liability to the Company or its
stockholders for monetary damages except (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware Law providing for
liability of directors for unlawful payment of dividends or unlawful stock
purchases or redemptions or (iv) for any transaction from which a director
derived an improper personal benefit. The effect of this provision is to
eliminate the personal liability of directors for monetary damages for actions
involving a breach of their fiduciary duty of care, including any such actions
involving gross negligence.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On December 13, 1995, Carlyle Blade Acquisition Partners, L.P. ("CBAP")
purchased 51,000,000 (adjusted for subsequent stock split) shares of Common
Stock for an aggregate purchase price of $102 million and Thiokol Holding
Company ("Thiokol Holding") purchased 49,000,000 (adjusted for subsequent
stock split) shares of Common Stock for an aggregate purchase price of $96
million and 5,000 shares of Series A Preferred Stock for an aggregate purchase
price of $48 million, net of amounts paid to them by the Company in connection
with the Acquisition. As CBAP and Thiokol Holding were the only persons
offered the opportunity to purchase such shares of capital stock of the
Corporation, such sales were exempt from registration under the Securities Act
of 1933, as amended, pursuant to Section 4(2) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
1 --Form of Underwriting Agreement*
3.1 --Form of Restated Certificate of Incorporation of the Company**
3.2 --Form of Restated By-laws of the Company**
4.1 --Specimen Certificate of Common Stock of the Company*
4.2 --IPO Agreement dated as of October 8 , 1997 by and among the Com-
pany, Thiokol Corporation, Thiokol Holding Company and Carlyle-
Blade Acquisition Partners, L.P.*
4.3 --Amended and Restated Shareholders Agreement by and among the
Company, Thiokol Corporation, Thiokol Holding Company and
Carlyle-Blade Acquisition Partners, L.P.*
4.4 --Form of Corporate Agreement by and among the Company, Thiokol
Corporation and Thiokol Holding Company*
4.5 --Form of Registration Rights Agreement by and between the Company
and Carlyle-Blade Acquisition Partners, L.P.*
4.6 --Registration Rights Agreement dated as of December 7, 1995,
among Howmet Corporation, BT Securities Corporation, and Lehman
Brothers Inc. (incorporated herein by reference to Exhibit 4.1 to
Howmet Corporation's Registration Statement on Form S-4 filed
January 9, 1996 (registration no. 333-00200)).
4.7 --Indenture dated as of December 7, 1995 between Howmet Corpora-
tion and Marine Midland Bank, as Trustee (incorporated herein by
reference to Exhibit 4.2(a) to Howmet Corporation's Registration
Statement on Form S-4 filed January 9, 1996 (registration no.
333-00200)).
4.8 --Supplemental Indenture dated as of December 13, 1995 between
Howmet Corporation and Marine Midland Bank, as Trustee (incorpo-
rated herein by reference to Exhibit 4.2 to Amendment no. 2 to
Howmet Corporation's Registration Statement on Form S-4 filed
April 1, 1996 (registration no. 333-00200)).
4.9 --Credit Agreement dated as of December 13, 1995 among the Compa-
ny, Howmet Holdings Acquisition Corp., Howmet Acquisition Corp.,
Bankers Trust Company, various banks, Citicorp USA, Inc., and The
First National Bank of Chicago as Managing Agents. Bankers Trust
Company as Syndication Agent, Citicorp USA, Inc. as Documentation
Agent and The First National Bank of Chicago, as Administrative
Agent, together with certain collateral documents attached
thereto as exhibits, including the Subsidiary Guaranty, Pledge
Agreement and Security Agreement among the Company, Pechiney Cor-
poration, Howmet Corporation, certain subsidiaries and affiliates
of Howmet Corporation and the First National Bank of Chicago (in-
corporated herein by reference to Exhibit 4.3 to Amendment no. 2
to Howmet Registration Statement on Form S-4 filed April 1, 1996
(registration no. 333-00200)).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
4.10 --Copies of the executed original 10% Senior Subordinated Notes
due 2003 of Howmet Corporation (the "Original Notes"), authenti-
cated and delivered by Marine Midland Bank as Trustee on December
7, 1995 (incorporated herein by reference to Exhibit 4.4 to How-
met Corporation's Registration Statement on Form S-4 filed Janu-
ary 9, 1996 (registration no. 333-00200)).
4.11 --Form of 10% Senior Subordinated Notes due 2003 of Howmet Corpo-
ration offered in exchange for the Original Notes (included in
Exhibit 4.7).
4.12 --Amended and Restated Credit Agreement dated as of December 5,
1996 among the Company, Howmet Holdings Corporation, Howmet Cor-
poration, Bankers Trust Company, various banks, Citicorp USA,
Inc., and The First National Bank of Chicago as Managing Agents,
Bankers Trust Company as Syndication Agent, Citicorp USA, Inc.,
as Documentation Agent and The First National Bank of Chicago, as
Administrative Agent, together with certain collateral documents
attached thereto as exhibits, including the Subsidiary Guaranty,
Pledge Agreement and Security Agreement among the Company, Howmet
Holdings Corporation, Howmet Corporation, certain subsidiaries
and affiliates of Howmet Corporation and the First National Bank
of Chicago (incorporated herein by reference to Exhibit 4.6 to
Howmet Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, filed March 31, 1997).
4.13 --Blade Receivables Master Trust Amended and Restated Pooling and
Servicing Agreement dated April 18, 1996 among Blade Receivables
Corporation as Transferor, Howmet Corporation as Servicer and
Manufacturers and Traders Trust Company as Trustee together with
certain collateral documents attached thereto as exhibits, in-
cluding the Amended and Restated Receivables Purchase Agreement
dated as of April 18, 1996 between Howmet Corporation and certain
subsidiaries of Howmet Corporation, as Settlors, and Blade Re-
ceivables Corporation as Buyer (incorporated herein by reference
to Exhibit 4.7 to Howmet Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, filed March 31,
1997).
4.14 --Repurchase Agreement dated May 16, 1997 (under the Blade Receiv-
ables Master Trust Amended and Restated Pooling and Servicing
Agreement dated April 18, 1996), among Howmet Corporation, Howmet
Cercast (U.S.A.), Inc., Howmet Refurbishment, Inc., Howmet-
Tempcraft, Inc., Turbine Components Corporation, Blade Receiv-
ables Corporation, and Manufacturers and Traders Trust Company,
as Trustee.**
4.15 --Amending Agreement dated August 29, 1997 (amending the Blade Re-
ceivables Master Trust Amended and Restated Pooling and Servicing
Agreement dated April 18, 1996), among Blade Receivables Corpora-
tion, Howmet Corporation, Manufacturers and Traders Trust Compa-
ny, as Trustee, Falcon Asset Securitization Corporation, Alpine
Securitization Corp., Credit Suisse First Boston, New York
Branch, and The First National Bank of Chicago, as Agent for Fal-
con Asset Securitization Corporation and Alpine Securitization
Corp.**
4.16 --Pechiney Notes.*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
5 --Opinion and Consent of Wachtell, Lipton, Rosen & Katz regarding
the legality of the Common Stock*
10.1 --Form of Intercompany Services Agreement by and between the Com-
pany and Thiokol Corporation*
10.2 --Howmet Corporation Annual Bonus Plan (incorporated herein by
reference to Exhibit 10.1 to Amendment No. 1 to Howmet Corpora-
tion's Registration Statement on Form S-4 filed January 17, 1996
(registration no. 333-00200)).
10.3 --Howmet Restructuring Cash Incentive Plan (incorporated herein by
reference to Exhibit 10.2 to Amendment No. 1 to Howmet Corpora-
tion's Registration Statement on Form S-4 filed January 17, 1996
(registration no. 333-00200)).
10.4(a) --Howmet Corporation Amended and Restated Retirement Income Make-
Up Plan A, effective January 1, 1996.**
10.4(b) --Howmet Corporation Amended and Restated Retirement Income Make-
Up Plan B, effective January 1, 1996.**
10.5 --Howmet Corporation Transaction Incentive Payments Plan (incorpo-
rated herein by reference to Exhibit 10.5 to Amendment No. 1 to
Howmet Corporation's Registration Statement on Form S-4 filed
January 17, 1996 (registration no. 333-00200)).
10.6 --Howmet Corporation Enhanced Bonus Program for Employees Grade 22
and Above (incorporated herein by reference to Exhibit 10.6 to
Amendment No. 1 to Howmet Corporation's Registration Statement on
Form S-4 filed January 17, 1996 (registration no. 333-00200)).
10.7 --1986 Howmet Corporation Deferred Compensation Plan (incorporated
herein by reference to Exhibit 10.7 to Amendment No. 1 to Howmet
Corporation's Registration Statement on Form S-4 filed January
17, 1996 (registration no. 333-00200)).
10.8 --Howmet Corporation 1995 Executive Deferred Compensation Plan
(incorporated herein by reference to Exhibit 10.8 to Amendment
No. 1 to Howmet Corporation's Registration Statement on Form S-4
filed January 17, 1996 (registration no. 333-00200)).
10.9 --Employment Agreement dated October 4, 1995, between Howmet Cor-
poration and Mark Lasker (incorporated herein by reference to Ex-
hibit 10.11 to Howmet Corporation's Registration Statement on
Form S-4 filed January 9, 1996 (registration no. 333-00200)).
10.10 --Employment Agreement dated October 4, 1995, between Howmet Cor-
poration and James Stanley (incorporated herein by reference to
Exhibit 10.13 to Howmet Corporation's Registration Statement on
Form S-4 filed January 9, 1996 (registration no. 333-00200)).
10.11 --Employment Agreement dated October 4, 1995, between Howmet Cor-
poration and Roland Paul (incorporated herein by reference to Ex-
hibit 10.16 to Amendment No. 1 to Howmet Corporation's Registra-
tion Statement on Form S-4 filed January 17, 1996 (registration
no. 333-00200)).
10.12 --Employment Agreement dated October 4, 1995, between Howmet Cor-
poration and David Squier (incorporated herein by reference to
Exhibit 10.17 to Howmet Corporation's Registration Statement on
Form S-4 filed January 9, 1996 (registration no. 333-00200)).
10.13 --Letter Agreement regarding payment of life insurance between
Howmet Corporation and David L. Squier (incorporated herein by
reference to Exhibit 10.19 to Amendment No. 1 to Howmet Corpora-
tion's Registration Statement on Form S-4 filed January 17, 1996
(registration no. 333-00200)).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
10.14(a) --Tax Sharing Agreement among Howmet Corporation, Howmet Manage-
ment Services, Inc., Howmet-Tempcraft Inc., Howmet Thermatech
Canada, Inc., Howmet Transport Services, Inc., Howmet Sales
Inc., Howmet Refurbishment, Inc., Turbine Components Corpora-
tion, Blade Receivables Corporation, a Nevada corporation, and
Howmet Cercast (USA), Inc., dated as of December 13, 1995 (in-
corporated herein by reference to Exhibit 10.20(a) to Howmet
Corporation's Registration Statement on Form S-4 filed January
9, 1996 (registration no. 333-00200)).
10.14(b) --Tax Sharing Agreement among the Company, Pechiney Corporation,
Howmet Insurance Co., Inc., Howmet Corporation and all of its
directly and indirectly owned subsidiaries, dated as of December
13, 1995 (incorporated herein by reference to Exhibit 10.20(b)
to Howmet Corporation's Registration Statement on Form S-4 filed
January 9, 1996 (registration no. 333-00200)).
10.15 --Management Agreement between Howmet Corporation and Thiokol
Holding Company dated as of December 13, 1995 (incorporated
herein by reference to Exhibit 10.21 to Howmet Corporation's
Registration Statement on Form S-4 filed January 9, 1996 (regis-
tration no. 333-00200)).
10.16 --Management Agreement between Howmet Corporation and TCG Hold-
ings, L.L.C., dated as of December 13, 1995 (incorporated herein
by reference to Exhibit 10.22 to Howmet Corporation's Registra-
tion Statement on Form S-4 filed January 9, 1996 (registration
no. 333-00200)).
10.17 --Assignment and Assumption Agreement between Howmet Holdings Ac-
quisition Corp. and Howmet Acquisition Corp., dated as of Decem-
ber 6, 1995 and Indemnification Provisions of the Stock Purchase
Agreement among Pechiney, Pechiney International S.A., Howmet
Cercast S.A. and the Company, dated as of October 12, 1995 (in-
corporated herein by reference to Exhibit 10.23 to Amendment No.
1 to Howmet Corporation's Registration Statement on Form S-4
filed January 17, 1996 (registration no. 333-00200)).
10.18 --Revised Employment Letter dated February 13, 1996, between How-
met Corporation and John C. Ritter (incorporated herein by ref-
erence to Exhibit 10.24 to Amendment No. 3 to Howmet Corpora-
tion's Registration Statement on Form S-4 filed June 11, 1996
(registration no. 333-00200)).
10.19 --Stock Appreciation Right Agreement between Howmet Corporation
and David L. Squier dated May 17, 1996 (incorporated herein by
reference to Exhibit 10.24 to Howmet Corporation's Quarterly Re-
port on Form 10-Q for the quarter ended June 29, 1996, filed Au-
gust 28, 1996).
10.20 --Stock Appreciation Right Agreement between Howmet Corporation
and James Stanley dated May 17, 1996 (incorporated herein by
reference to Exhibit 10.25 to Howmet Corporation's Quarterly Re-
port on Form 10-Q for the quarter ended June 29, 1996, filed Au-
gust 28, 1996).
10.21 --Stock Appreciation Right Agreement between Howmet Corporation
and Mark Lasker dated May 17, 1996 (incorporated herein by ref-
erence to Exhibit 10.26 to Howmet Corporation's Quarterly Report
on Form 10-Q for the quarter ended June 29, 1996, filed August
28, 1996).
10.22 --Stock Appreciation Right Agreement between Howmet Corporation
and John C. Ritter dated May 17, 1996 (incorporated herein by
reference to Exhibit 10.27 to Howmet Corporation's Quarterly Re-
port on Form 10-Q for the quarter ended June 29, 1996, filed Au-
gust 28, 1996).
10.23 --Stock Appreciation Right Agreement between Howmet Corporation
and Roland Paul dated May 17, 1996.**
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
10.24 --Howmet Corporation Amended and Restated Special 1995 Executive
Deferred Compensation Plan effective as of November 1, 1995 (in-
corporated herein by reference to Exhibit 10.30 to Howmet Corpo-
ration's Quarterly Report on Form 10-Q for the quarter ended June
29, 1996, filed August 28, 1996).
10.25 --The Howmet Corporation Nonqualified Deferred Compensation Trust
dated April 29, 1996 (incorporated herein by reference to Exhibit
10.31 to Howmet Corporation's Quarterly Report on Form 10-Q for
the quarter ended June 29, 1996, filed August 28, 1996).
10.26 --Trust Agreement, dated as of December 13, 1995, among Pechiney
Corporation (now Howmet Holdings Corporation), Pechiney Interna-
tional and The First National Bank of Chicago.**
21 --Significant Subsidiaries of the Company**
23.1 --Consent of Ernst & Young LLP**
23.2 --Consent of Price Waterhouse
23.3 --Consent of Befec-Price Waterhouse
23.4 --Consent of Price Waterhouse LLP**
23.5 --Consent of Wachtell, Lipton, Rosen & Katz (included in Exhibit
5(a))
24 --Powers of Attorney**
27 --Financial Data Schedule**
</TABLE>
- --------
* To be filed by amendment.
** Filed herewith.
(B) FINANCIAL STATEMENT SCHEDULES
The following schedules to the Financial Statements of the Company and its
subsidiaries are included in this Registration Statement:
<TABLE>
<CAPTION>
SCHEDULE
--------
<S> <C>
I-- Condensed Financial Information of Howmet International Inc. ..... II- 8
II -- Valuation and Qualifying Accounts and Reserves.................. II-12
</TABLE>
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant undertakes to provide to the underwriter at
the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
(b) The undersigned hereby undertakes that:
1. For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act of 1933 shall be deemed to be part of
this registration statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-7
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF
HOWMET INTERNATIONAL INC. (PARENT COMPANY)
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Investment in subsidiaries................................... $273,715 $247,156
-------- --------
Total assets................................................. $273,715 $247,156
======== ========
REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Redeemable preferred stock................................... $ 54,900 $ 50,235
Stockholders' equity......................................... 218,815 196,921
-------- --------
Total redeemable preferred stock and stockholders' equity.... $273,715 $247,156
======== ========
</TABLE>
See notes to the condensed financial statements.
II-8
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF
HOWMET INTERNATIONAL INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 11, 1995
YEAR ENDED (INCEPTION) TO
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Equity in earnings of subsidiaries........ $25,626 $33
------- -----
Net income................................ 25,626 --
Payment-in-kind dividends on redeemable
preferred stock ......................... (4,665) (235)
------- -----
Net income (loss) applicable to common
stock.................................... $20,961 $(202)
======= =====
</TABLE>
See notes to the condensed financial statements.
II-9
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF
HOWMET INTERNATIONAL INC. (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In the parent company only financial statements, Howmet International Inc.'s
("HII") investments in its wholly-owned subsidiaries are stated at cost plus
the undistributed earnings and cumulative translation adjustments of the
subsidiaries, net of a $4 million payable to a subsidiary.
The parent company only financial statements should be read in conjunction
with HII's consolidated financial statements, included elsewhere in this
Registration Statement.
2. GUARANTEE
At December 31, 1996, HII's subsidiary, Howmet Corporation, had $187 million
of borrowing under its senior credit facilities which were guaranteed by HII
and secured by a security interest in all of the stock owned by HII, except
for 35% of certain foreign subsidiaries.
3. CONTINGENCIES
HII's wholly-owned subsidiary, Howmet Corporation, has received recent test
results indicating levels of polychlorinated biphenyls ("PCBs") at its Dover,
New Jersey facility which will require remediation. These levels have been
reported to the New Jersey Department of Environmental Protection ("NJDEP"),
and Howmet Corporation is preparing a work plan to define the risk and to test
possible clean-up options. The statement of work must be approved by the NJDEP
pursuant to an Administrative Consent Order entered into between Howmet
Corporation and NJDEP on May 20, 1991 regarding clean-up of the site. Various
remedies are possible and could involve expenditures ranging from $2.0 million
to $22.0 million or more. Howmet Corporation has recorded a $2.0 million long-
term liability as of December 31, 1996 for this matter. Given the
uncertainties, it is possible that the estimated range of this cost and the
amount accrued will change within a one to two year period. The
indemnification discussed below applies to the costs associated with this
matter.
In addition to the above, liabilities arising for clean-up costs associated
with hazardous types of materials in several waste disposal facilities exist.
In particular, Howmet Corporation has been or may be named a potentially
responsible party under the Comprehensive Environmental Response, Compensation
and Liability Act or similar state laws at thirteen on-site and off-site
locations. At December 31, 1996, $4.4 million of accrued environmental
liabilities are included in the consolidated balance sheet for such matters.
In connection with the Acquisition, Pechiney International and Pechiney S.A.
indemnified HII for environmental liabilities stemming from events occurring
or conditions existing on or prior to the Acquisition date, to the extent that
such liabilities exceed a cumulative $6.0 million. HII has assigned this
indemnification to Howmet Corporation. This indemnification applies to all of
the aforementioned environmental matters. Pursuant to this indemnification, at
December 31, 1996 Howmet Corporation has recorded a receivable from Pechiney
International and Pechiney S.A. of $2.0 million. Changes in any of the
aforementioned accrued liabilities will result in an equal change in the
amount receivable from Pechiney International and Pechiney S.A.
In addition to the above environmental matters, and unrelated to Howmet
Corporation, HII's wholly-owned subsidiary, Howmet Holdings Corporation, and
Pechiney S.A. are jointly and severally liable for environmental contamination
and related costs associated with certain discontinued mining operations owned
and/or operated by a predecessor-in-interest until the early 1960s. These
liabilities include approximately $20.7 million in remediation and natural
resource damage liabilities at the Blackbird Mine site in Idaho and a minimum
of $4.0 million in investigation and remediation costs at the Holden Mine site
in Washington. Pechiney International and Pechiney S.A. have agreed to
indemnify HII for such liabilities. HII has assigned this indemnification to
II-10
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF
HOWMET INTERNATIONAL INC. (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
Howmet Holdings Corporation. In connection with these environmental matters,
Howmet Holdings Corporation has recorded a $24.7 million liability and an
equal $24.7 million receivable from Pechiney International and Pechiney S.A.
Estimated environmental costs are not expected to materially impact the
financial position or the results of HII's subsidiaries' operations in future
periods. However, environmental clean-up periods are protracted in length and
environmental costs in future periods are subject to changes in environmental
remediation regulations. Any losses which are not covered by the Pechiney
International and Pechiney S.A. indemnifications, and which are in excess of
amounts currently accrued, will be charged to operations in the periods in
which they occur.
4. CASH FLOWS INFORMATION
HII had no cash flows for the year ended December 31, 1996. In the October
11, 1995 to December 31, 1995 period, HII: (i) received $50 million from the
issuance of redeemable preferred stock, (ii) received $200 million from the
issuance of common stock, (iii) returned $4 million to common stockholders and
(iv) invested $246 million in its subsidiaries.
II-11
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
HOWMET INTERNATIONAL INC.
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING TO COSTS OTHER FROM END OF
DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS RESERVES PERIOD
----------- ---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
HOWMET INTERNATIONAL
INC. CONSOLIDATED:
FOR THE YEAR ENDED
DECEMBER 31, 1996
Reserves:
Accounts receivable... $ 8,258 $ 4,385 $ 15 $ (7,035) $ 5,623
Inventories........... 24,351 13,631 (2,233) (12,889) 22,860
Deferred income tax
valuation allowance.. 8,105 (2,250) -- -- 5,855
PERIOD FROM DECEMBER 14,
1995 TO DECEMBER 31,
1995
Reserves:
Accounts receivable... $ 8,375 $ -- $ (96) $ (21) $ 8,258
Inventories........... 20,872 4,850 1,792 (3,163) 24,351
Deferred income tax
valuation allowance.. 7,995 110 -- -- 8,105
HOWMET PREDECESSOR
COMPANY COMBINED:
PERIOD FROM JANUARY 1,
1995 TO DECEMBER 13,
1995
Reserves:
Accounts receivable... $ 6,107 $ 1,288 $ 1,931 $ (951) $ 8,375
Inventories........... 13,501 14,922 (1,342) (6,209) 20,872
Deferred income tax
valuation allowance.. 2,957 5,038 -- -- 7,995
FOR THE YEAR ENDED
DECEMBER 31, 1994
Reserves:
Accounts receivable... $ 6,757 $ 300 $ 1,641 $ (2,571) $ 6,107
Inventories........... 16,294 13,744 1,520 (18,057) 13,501
Deferred income tax
valuation allowance.. 1,415 2,241 -- (699) 2,957
</TABLE>
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Greenwich, State of
Connecticut, on the 9th day of October, 1997.
HOWMET INTERNATIONAL INC.
/s/ Roland Paul
By: _________________________________
NAME: ROLAND A. PAUL
TITLE: VICE PRESIDENT--GENERAL
COUNSEL AND SECRETARY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
* Chairman, Director October 9, 1997
- ------------------------------------- and President
WILLIAM E. CONWAY, JR. (principal
executive officer)
* Director October 9, 1997
- -------------------------------------
FRANK C. CARLUCCI
* Director and October 9, 1997
- ------------------------------------- Treasurer
RICHARD L. CORBIN (principal
financial and
accounting officer)
* Director October 9, 1997
- -------------------------------------
EDSEL D. DUNFORD
* Director October 9, 1997
- -------------------------------------
ALLAN M. HOLT
* Director October 9, 1997
- -------------------------------------
DAVID L. SQUIER
* Director October 9, 1997
- -------------------------------------
JAMES R. WILSON
/s/ Roland Paul
*By: ________________________________
ROLAND A. PAUL,
AS ATTORNEY-IN-FACT
II-13
<PAGE>
Exhibit 3.1
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF HOWMET INTERNATIONAL INC.
Howmet International Inc., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
1. The name of the Corporation is Howmet International Inc. The date of
filing of the Corporation's original Certificate of Incorporation with the
Secretary of State was October 11, 1995, and the original name of the
Corporation was Blade Acquisition Corp.
2. This Amended and Restated Certificate of Incorporation amends and
restates the Amended and Restated Certificate of Incorporation of this
Corporation dated December 7, 1995, which amended and restated the Amended and
Restated Certificate of Incorporation of this Corporation dated November 30,
1995, which amended and restated the original Certificate of Incorporation dated
October 11, 1995.
3. This Amended and Restated Certificate of Incorporation was duly
approved and adopted by the Board of Directors of the Corporation at a meeting
of the Board of Directors held on October 8, 1997 and by the stockholders of
the Corporation by unanimous written consent dated October 8, 1997, in each
case in accordance with the applicable provisions of Sections 242 and 245 of the
General Corporation Law of the State of Delaware.
4. The text of the Certificate of Incorporation is hereby amended and
restated to read as herein set forth in full:
ARTICLE I
NAME
----
The name of the corporation (hereinafter referred to as the
"Corporation") is:
Howmet International Inc.
1
<PAGE>
ARTICLE II
REGISTERED OFFICE
-----------------
The address of the registered office of the Corporation in the State of
Delaware is The Corporation Trust Company, Corporation Trust Center, 1209 Orange
Street, Wilmington, Delaware 19801. The name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE III
PURPOSE
-------
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
ARTICLE IV
CAPITAL STOCK
-------------
Section 4.1 The aggregate number of all classes of stock which the
-----------
Corporation shall have authority to issue is 410,000,000 shares, consisting of
two classes of stock:
(a) 400,000,000 shares of common stock with a par value of $.01 per
share (the "Common Stock"); and
(b) 10,000,000 shares of preferred stock with a par value of $.01 per
share (the "Preferred Stock").
Section 4.2 No holder of shares of the Corporation of any class, now
-----------
or hereafter authorized, shall have any preferential or preemptive right to
subscribe for, purchase or receive any share of the Corporation of any class,
now or hereafter authorized, or any options or warrants for such shares, or any
rights to subscribe to or purchase such shares, or any securities convertible
into or exchangeable for such shares, which may at any time or from time to time
be issued, sold or offered for sale by the Corporation; provided, however, that
-------- -------
in connection with the issuance or sale of any such shares or securities, the
Board of Directors of the Corporation may, in its sole discretion, offer such
shares or securities, or any part thereof, for purchase or subscription by the
holders of shares of the Corporation, except as may otherwise be provided by
this Certificate of Incorporation as from time to amended; and provided,
--------
further, that the Board of Directors may, in its sole discretion, grant
- -------
preferential or preemptive rights to subscribe for or purchase shares of capital
stock of the Corporation to Thiokol Corporation, a Delaware corporation
("Thiokol"), or any
2
<PAGE>
of its subsidiaries in respect of shares of Common Stock held by Thiokol or any
such subsidiary.
Section 4.3 At all times, each holder of Common Stock of the
-----------
Corporation shall be entitled to one vote for each share of common stock held by
such stockholder standing in the name of such stockholder on the books of the
Corporation.
Section 4.4 (a) Shares of Preferred Stock may be issued from time to
-----------
time in one or more series as may be determined by the Board of Directors.
Subject to this Certificate of Incorporation, the Board of Directors is
authorized to determine or alter the rights, preferences, privileges, and
restrictions granted to or imposed upon any wholly unissued series of Preferred
Stock and, within the limits and restrictions stated in any resolution or
resolutions of the Board of Directors originally fixing the number of shares
constituting any such additional series, to increase or decrease (but not below
the number of shares of such series then outstanding and that may be required to
pay stock dividends) the number of shares of any such additional series
subsequent to the issue of shares of that series. Authorized and unissued
shares of Preferred Stock may be issued with such designations, voting powers,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations and restrictions on such rights, as the Board of
Directors may authorize by resolutions duly adopted prior to the issuance of any
shares of a series of Preferred Stock. No provision of this paragraph may be
amended without the vote of a majority of the Preferred Stock.
(b) Of the 10,000,000 shares of Preferred Stock which the Corporation
shall have authority to issue, 15,000 shall be designated "9.0% Series A Senior
Cumulative Preferred Stock," and shall have the following preferences and
relative, participating, optional and other special rights and qualifications,
limitations and restrictions:
1. Certain Definitions.
-------------------
Unless the context otherwise requires, the terms defined in this
Paragraph 1 shall have, for all purposes of this Section 4.4(b), the
meanings herein specified (with terms defined in the singular having
comparable meanings when used in the plural).
"Affiliate" or "Affiliates" as applied to any Person, means any Person
-------------------------
directly or indirectly controlling, controlled by, or under common control
with, that person. For the purposes of this definition, "control"
(including with correlative meanings, the terms "controlling,"
3
<PAGE>
"controlled by" and "under common control with"), as applied to any Person,
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of voting securities or by contract or otherwise.
"Beneficial Ownership" shall have the meanings given to these terms or
--------------------
words in Rules 13(d)(3) and 13(d)(5) of the Rules and Regulations of the
Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended, as in effect on the date hereof.
"Business Day" shall mean a day other than a Saturday, a Sunday or any
------------
other day on which banking institutions in New York, New York are
authorized or obligated by law to close.
"Common Equity" shall mean all shares now or hereafter authorized of
-------------
any class of common stock of the Corporation, however designated, including
the Common Stock, and any other stock of the Corporation, howsoever
designated, authorized after the Initial Issue Date, which has the right
(subject always to prior rights of any class or series of preferred stock)
to participate in the distribution of the assets and earnings of the
Corporation without limit as to per share amount.
"Delinquent Mandatory Redemption Price" shall mean, with respect to
-------------------------------------
each share of Series A Preferred Stock, $10,000 (adjusted for stock splits,
subdivisions, combinations and similar transactions), plus an amount equal
to $10,000 multiplied by the number or fraction of a share of Series A
Preferred Stock representing accrued and unpaid PIK Dividends in respect of
such share of Series A Preferred Stock (adjusted for stock splits,
subdivisions, combinations and similar transactions), plus an amount
thereon accruing from the Mandatory Redemption Date relating thereto at the
Increasing Rate.
"Holding" shall mean Thiokol Holding Company, a Delaware corporation.
-------
"Increasing Rate" shall mean, with respect to any obligation, an
---------------
annual rate equal to eleven percent (11%), compounded quarterly.
"Initial Issue Date" shall mean the date that shares of Series A
------------------
Preferred Stock were first issued by the Corporation.
4
<PAGE>
"Junior Stock" shall mean, for purposes of Paragraph 2 below, Common
------------
Equity and any class or series of capital stock of the Corporation, however
designated, which is not entitled to receive any dividends unless all
dividends required to have been paid or declared and set apart for payment
on the Series A Preferred Stock shall have been so paid or declared and set
apart for payment or the Series A Preferred Stock has been redeemed, and
for purposes of Paragraph 3 below, shall mean Common Equity and any class
or series of capital stock of the Corporation, however designated, which is
not entitled to receive any assets upon liquidation, dissolution or winding
up of the affairs of the Corporation until the Series A Preferred Stock
shall have received the entire amount to which such stock is entitled upon
such liquidation, dissolution or winding up.
"Liquidation Price" shall mean $10,000 per share of Series A Preferred
------------------
Stock, plus an amount equal to $10,000 multiplied by the number or fraction
of a share of Series A Preferred Stock representing accrued and unpaid PIK
Dividends in respect of such share of Series A Preferred Stock, adjusted
for stock splits, subdivisions, combinations and similar transactions.
"Mandatory Redemption Date" shall have the meaning set forth in
-------------------------
subparagraph 4(a) below.
"Mandatory Redemption Obligation" shall have the meaning set forth in
-------------------------------
subparagraph 4(c) below.
"Optional Redemption Date" shall have the meaning set forth in
------------------------
subparagraph 5(a) below.
"Person" shall mean and include natural persons, corporations, limited
------
partnerships, general partnerships, limited liability partnerships, limited
liability companies, joint stock companies, joint ventures, associations,
companies, trusts or other organizations, whether or not legal entities,
and governments and agencies and political subdivisions thereof.
"PIK Dividends" shall mean the "paid-in-kind" dividends as set forth
-------------
in Paragraph 2 below.
"PIK Dividend Payment Date" shall mean the 13th day of each March,
-------------------------
June, September and December, commencing March 13, 1996, in each year
during the PIK Dividend Payment Period.
5
<PAGE>
"PIK Dividend Payment Period" shall mean the period from, and
---------------------------
including, the Initial Issue Date to, but not including, the date the
Series A Preferred Stock is redeemed and the redemption price is paid in
full.
"PIK Dividend Period" shall mean the period from, and including, the
-------------------
Initial Issue Date, to, but not including, the first PIK Dividend Payment
Date and thereafter, each quarterly period, including any PIK Dividend
Payment Date to, but not including, the next PIK Dividend Payment Date.
"PIK Record Date" shall mean the date that is ten business days prior
---------------
to any PIK Dividend Payment Date.
"Quarterly Per Share PIK Dividend Amount" shall mean a fraction of one
---------------------------------------
share of Series A Preferred Stock equal to nine percent (9.0%) per annum of
one share, divided by four (e.g., 2.25% per quarter), of the Series A
Preferred Stock.
"Redemption Price" shall mean, with respect to each share of Series A
----------------
Preferred Stock, $10,000 plus an amount equal to $10,000 multiplied by the
fraction of a share of Series A Preferred Stock representing accrued and
unpaid PIK Dividends in respect of such share of Series A Preferred Stock,
adjusted for stock splits, subdivisions, combinations and similar
transactions.
"Subsidiary" shall mean any corporation, association partnership,
----------
limited partnership, limited liability partnership, limited liability
company, business trust or other business entity of which 50% or more of
the total voting power of shares of stock entitled to vote in the election
of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by the Corporation or one or more of
the other subsidiaries of the Corporation or a combination thereof.
2. Dividends.
---------
(a) The record holders of Series A Preferred Stock on each PIK Record
Date shall receive on each PIK Dividend Payment Date during the PIK
Dividend Payment Period per share dividends in additional fully paid and
nonassessable shares of Series A Preferred Stock legally available for such
purpose (such dividends being herein called "PIK Dividends"). PIK
-------------
Dividends shall be paid by delivering to the record holders of Series A
Preferred Stock a number of shares of Series A Preferred Stock (which
number of shares shall be rounded to the nearest one thousandth of a share)
equal to (i) the number of shares of Series A Preferred
6
<PAGE>
Stock held by such holder on the applicable PIK Record Date, multiplied by
-------------
(ii) the Quarterly Per Share PIK Dividend Amount. Any additional shares of
Series A Preferred Stock issued pursuant to this Paragraph shall be
governed by this resolution and shall be subject in all respects, except as
to the date of issuance and date from which PIK Dividends accrue and
cumulate as set forth below, to the same terms as the shares of Series A
Preferred Stock originally issued hereunder.
(b) Prior to each PIK Record Date immediately preceding each PIK
Dividend Payment Date, the Board of Directors of the Corporation shall
declare PIK Dividends on the Series A Preferred Stock in accordance with
Paragraph 2(a) above, payable on the next PIK Dividend Payment Date. PIK
Dividends on shares of Series A Preferred Stock shall accrue on a daily
basis at a rate per annum equal to nine percent (9%) of one share of Series
A Preferred Stock, cumulated quarterly (based on the assumption of a 360
day year composed of twelve 30 day months and four 90 day quarters), and be
cumulative from the date of issuance of such shares through the PIK
Dividend Payment Period. PIK Dividends shall be payable in arrears during
the PIK Dividend Payment Period on each PIK Dividend Payment Date,
commencing on the first PIK Dividend Payment Date, and for shares issued as
PIK Dividends, commencing on the first PIK Dividend Payment Date after such
shares are issued. If any PIK Dividend Payment Date occurs on a day that is
not a Business Day, any accrued PIK Dividends otherwise payable on such PIK
Dividend Payment Date shall be paid on the next succeeding Business Day.
PIK Dividends shall be paid to the holders of record of the Series A
Preferred Stock on each PIK Dividend Payment Date as their names shall
appear on the share register of the Corporation on the PIK Record Date
immediately preceding such PIK Dividend Payment Date. PIK Dividends on PIK
Dividends that are in arrears for any past PIK Dividend Periods shall
accumulate as if the earlier PIK Dividends were issued as provided above,
and shall be accrued. Unpaid dividends may be declared and paid at any time
to holders of record on the PIK Record Date therefor.
(c) So long as any shares of Series A Preferred Stock shall be
outstanding, the Corporation shall not declare, pay or set apart for
payment on any Junior Stock any dividends or distributions whatsoever,
whether in cash, property or otherwise (other than dividends payable in
shares of the class or series upon which such dividends are declared or
paid, or payable in shares of Common Stock with respect to Junior Stock
other than Common Stock), nor shall any Junior Stock be purchased, redeemed
or otherwise acquired by the
7
<PAGE>
Corporation or any of its Subsidiaries, nor shall any monies be paid or
made available for a sinking fund for any purchase or redemption not
permitted by the foregoing.
(d) In the event that full dividends are not paid or made available
to the holders of all outstanding shares of Series A Preferred Stock and
funds available for payment of dividends shall be insufficient to permit
payment in full to holders of all such stock of the full preferential
amounts to which they are then entitled, then the entire amount available
for payment of dividends shall be distributed ratably among all such
holders of Series A Preferred Stock in proportion to the full amount to
which they would otherwise be respectively entitled.
(e) Notwithstanding anything contained herein to the contrary, no
dividends on shares of Series A Preferred Stock shall be declared by the
Board of Directors of the Corporation or paid or set apart for payment by
the Corporation at such time if such declaration or payment shall be
restricted or prohibited by law.
3. Distributions Upon Liquidation, Dissolution or Winding Up.
---------------------------------------------------------
(a) In the event of any voluntary or involuntary liquidation,
dissolution or other winding up of the affairs of the Corporation, before
any payment or distribution shall be made to the holders of Junior Stock,
the holders of Series A Preferred Stock shall be entitled to be paid out of
the assets of the Corporation in cash, or, if the Corporation does not have
sufficient cash on hand to pay such amounts, property of the Corporation at
its fair market value as determined by the Board of Directors of the
Corporation, the Liquidation Price per share of Series A Preferred Stock.
No holder shall be entitled to payment until such holder has delivered
certificates for the Series A Preferred Stock held by such holder and
instruments acceptable to the Corporation transferring title to such
shares, or shall have delivered a duly executed affidavit of lost
certificate to the Corporation.
(b) If, upon any such liquidation, dissolution or other winding up of
the affairs of the Corporation, the assets of the Corporation shall be
insufficient to permit the payment in full of the Liquidation Price for
each share of the Series A Preferred Stock, then the assets of the
Corporation shall be ratably distributed among the holders of Series A
Preferred Stock in proportion to the full amounts to which they would
otherwise be respectively
8
<PAGE>
entitled if all amounts thereon were paid in full. The consolidation or
merger of the Corporation into or with another corporation or corporations
that is not a wholly-owned Subsidiary of the Corporation, or the sale,
lease, transfer or conveyance of all or substantially all of the assets of
the Corporation to another Person that is not a wholly-owned Subsidiary of
the Corporation shall be deemed a liquidation, dissolution or winding up of
the affairs of the Corporation within the meaning of this Paragraph 3.
4. Mandatory Redemption by the Corporation.
---------------------------------------
(a) The Corporation shall redeem, on the date (the "Mandatory
Redemption Date") that is the earlier of (i) ten years after the Initial
Issue Date or (ii) immediately prior to a merger, consolidation or sale of
assets of the Corporation that is deemed to be a liquidation under
Paragraph 3(b) above, all of the then outstanding shares of Series A
Preferred Stock at the Redemption Price.
(b) Shares of Series A Preferred Stock which have been issued and
reacquired in any manner, including as a result of redemption, shall (upon
compliance with any applicable provisions of law) have the status of
authorized and unissued shares of the class of preferred stock of the
Corporation undesignated as to series, and may be redesignated and reissued
as part of any series of preferred stock of the Corporation; provided,
however, that no such issued and reacquired shares of Series A Preferred
Stock shall be reissued as Series A Preferred Stock.
(c) If on the Mandatory Redemption Date the Corporation is unable or
shall fail to discharge its obligation to redeem all outstanding shares of
Series A Preferred Stock required to be redeemed on such date pursuant to
Paragraph 4(a) (the "Mandatory Redemption Obligation"), the Corporation
-------------------------------
shall redeem on such Mandatory Redemption Date the number of shares of
Series A Preferred Stock which it is able to redeem, ratably among the
holders of Series A Preferred Stock in proportion to the full amounts to
which they would otherwise be respectively entitled if all shares of Series
A Preferred Stock required to be redeemed on such date were redeemed. In
such a case, the remainder of the Redemption Price payable but not paid at
the Mandatory Redemption Date shall be converted into the Delinquent
Mandatory Redemption Price and shall be discharged as soon as the
Corporation is able to discharge such Delinquent Mandatory Redemption Price
out of funds legally available therefor.
9
<PAGE>
(d) Notice of any redemption shall be sent by or on behalf of the
Corporation not more than sixty (60) days nor less than thirty (30) days
prior to any Mandatory Redemption Date, by registered mail, postage
prepaid, return receipt requested, and facsimile transmission, if known to
the Corporation to be available at the office of the recipient, to all
holders of record of the Series A Preferred Stock at their respective last
addresses as they shall appear on the books of the Corporation; provided,
however, that no failure to give such notice or any defect therein or in
the mailing thereof shall affect the validity of the proceedings for the
redemption of any shares of Series A Preferred Stock except as to the
holder to whom the Corporation has failed to give notice or except as to
the holder to whom notice was defective. In addition to any information
required by law or by the applicable rules of any exchange upon which
Series A Preferred Stock may be listed or admitted to trading, such notice
shall state: (i) the Mandatory Redemption Date; (ii) the Redemption Price;
(iii) the number of shares of Series A Preferred Stock to be redeemed; (iv)
the place or places where certificates for such shares are to be
surrendered for payment of the Redemption Price; and (v) that dividends on
the shares to be redeemed will cease to accrue on the Mandatory Redemption
Date. Upon the mailing of any such notices of redemption, the Corporation
shall become obligated to redeem at the time of redemption specified
therein all shares called for redemption.
(e) If notice has been mailed in accordance with subparagraph 4(d)
above, and provided that, on or before the Mandatory Redemption Date
specified in such notice, all funds necessary for such redemption shall
have been set aside by the Corporation, separate and apart from its other
funds in trust for the pro rata benefit of the holders of the shares so
called for redemption, so as to be, and to continue to be, available
therefor, then, from and after the Mandatory Redemption Date, dividends on
the shares of the Series A Preferred Stock so called for redemption shall
cease to accrue, and said shares shall no longer be deemed to be
outstanding and shall not have the status of shares of Series A Preferred
Stock, and all rights of the holders thereof as stockholders of the
Corporation (except the right to receive from the Corporation the
Redemption Price) shall cease, irrespective of whether any certificates for
shares called for redemption have been surrendered to the Corporation. Upon
surrender, in accordance with said notice, of the certificates for any
shares so redeemed (properly endorsed or assigned for transfer), such
shares shall be redeemed by the Corporation at the Redemption Price and no
holder of shares called for redemption shall be
10
<PAGE>
entitled to receive payment of the Redemption Price therefor until such
surrender to the Corporation has been accomplished or a duly executed
affidavit of lost certificate shall have been delivered to the Corporation.
In case fewer than all the shares represented by any such certificate are
redeemed, a new certificate or certificates shall be issued representing
the unredeemed shares without cost to the holder thereof (so long as such
certificate is issued to the holder).
(f) Any funds deposited with a bank or trust company for the purpose
of redeeming Series A Preferred Stock and interest thereon shall be
irrevocable except that any balance of monies so deposited by the
Corporation and unclaimed by the holders of the Series A Preferred Stock
entitled thereto at the expiration of two (2) years from the applicable
Mandatory Redemption Date shall be repaid, together with any interest or
other earnings earned thereon, to the Corporation, and after any such
repayment, the holders of the shares entitled to the funds so repaid to the
Corporation shall look only to the Corporation for payment without interest
or other earnings accruing after return to the Corporation. Interest and
earnings accruing prior thereto on such deposited funds will be paid to the
stockholders whose Series A Preferred Stock is being redeemed pro rata in
accordance with the number of shares being redeemed.
(g) Notwithstanding anything to the contrary herein, no Series A
Preferred Stock may be redeemed except with funds legally available for the
payment of the Redemption Price.
(h) Notwithstanding anything to the contrary herein, no redemption
need be made by the Corporation on any Mandatory Redemption Date if prior
to such date holders of a majority of the outstanding shares of Series A
Preferred Stock shall have waived in writing their right to a redemption on
such Mandatory Redemption Date.
5. Optional Redemption.
-------------------
(a) To the extent the Corporation shall have funds legally available
for such payment, the Corporation may redeem, at any time after the Initial
Issue Date, all or any portion of the then outstanding shares of Series A
Preferred Stock at the Redemption Price. The date selected for such
redemption in accordance with this Paragraph 5 shall be referred to as the
"Optional Redemption Date."
------------------------
11
<PAGE>
(b) In the case of a partial redemption of the outstanding Series A
Preferred Stock in accordance with this Paragraph 5, shares of Series A
Preferred Stock shall be redeemed pro rata in accordance with each holder's
ownership of Series A Preferred Stock.
(c) Notice of any redemption shall be sent by or on behalf of the
Corporation not more than sixty (60) days nor less than thirty (30) days
prior to any Optional Redemption Date, by registered mail, postage prepaid,
return receipt requested and facsimile transmission, if known to the
Corporation to be available at the office of the recipient, to all holders
of record of the Series A Preferred Stock at their respective last
addresses as they shall appear on the books of the Corporation; provided,
however, that no failure to give such notice or any defect therein or in
the mailing thereof shall affect the validity of the proceedings for the
redemption of any shares of Series A Preferred Stock except as to the
holder to whom the Corporation has failed to give notice or except as to
the holder to whom notice was defective. In addition to any information
required by law or by the applicable rules of any exchange upon which
Series A Preferred Stock may be listed or admitted to trading, such notice
shall state: (i) the Optional Redemption Date; (ii) the Redemption Price;
(iii) the number of shares of Series A Preferred Stock to be redeemed; (iv)
the place or places where certificates for such shares are to be
surrendered for payment of the Redemption Price; and (v) that dividends on
the shares to be redeemed will cease to accrue on the Optional Redemption
Date. Upon the mailing of any such notices of redemption, the Corporation
shall become obligated to redeem at the time of redemption specified
therein all shares called for redemption.
(d) If notice has been mailed in accordance with subparagraph 5(c)
above, and provided that, on or before the Optional Redemption Date
specified in such notice, all funds necessary for such redemption shall
have been set aside by the Corporation, separate and apart from its other
funds in trust for the pro rata benefit of the holders of the shares so
called for redemption, so as to be, and to continue to be, available
therefor, then, from and after the Optional Redemption Date, dividends on
the shares of the Series A Preferred Stock so called for redemption shall
cease to accrue, and said shares shall no longer be deemed to be
outstanding and shall not have the status of shares of Series A Preferred
Stock, and all rights of the holders thereof as stockholders of the
Corporation (except the right to receive from the Corporation the
Redemption Price) shall cease, irrespective of whether any certificates for
shares
12
<PAGE>
called for redemption have been surrendered to the Corporation. Upon
surrender, in accordance with said notice, of the certificates for any
shares so redeemed (properly endorsed or assigned for transfer), such
shares shall be redeemed by the Corporation at the Redemption Price and no
holder of shares called for redemption shall be entitled to receive payment
of the Redemption Price therefor until such surrender to the Corporation
has been accomplished or a duly executed affidavit of lost certificate
shall have been delivered to the Corporation. In case fewer than all the
shares represented by any such certificate are redeemed, a new certificate
or certificates shall be issued representing the unredeemed shares without
cost to the holder thereof (so long as such certificate is issued to the
holder).
(e) Any funds deposited with a bank or trust company for the purpose
of redeeming Series A Preferred Stock and interest thereon shall be
irrevocable except that any balance of monies so deposited by the
Corporation and unclaimed by the holders of the Series A Preferred Stock
entitled thereto at the expiration of two (2) years from the applicable
Optional Redemption Date shall be repaid, together with any interest or
other earnings earned thereon, to the Corporation, and after any such
repayment, the holders of the shares entitled to the funds so repaid to the
Corporation shall look only to the Corporation for payment without interest
or other earnings accruing after return to the Corporation. Interest and
earnings accruing prior thereto on such deposited funds will be paid to the
stockholders whose Series A Preferred Stock is being redeemed, pro rata in
accordance with the number of shares being redeemed.
(f) Notwithstanding anything to the contrary herein, no Series A
Preferred Stock may be redeemed except with funds legally available for the
payment of the Redemption Price.
6. Voting Rights.
-------------
(a) Holders of shares of Series A Preferred Stock shall have no
voting rights, except as may be required by law or as otherwise set forth
in this Paragraph 6.
(b) In addition to any vote or consent of stockholders required by
law, the affirmative consent of the holders of a majority of the issued and
outstanding shares of Series A Preferred Stock at the time outstanding
(voting as a single class), given in person or by proxy, either in writing
13
<PAGE>
without a meeting or by vote at any meeting called for the purpose, shall be
necessary for effecting or validating:
(i) Any amendment, alteration or repeal of any of the provisions
of this Certificate of Incorporation or the by-laws of the Corporation
which affects the voting powers, preferences and relative,
participating, optional and other special rights of the holders of
shares of Series A Preferred Stock; and
(ii) Any authorization, issuance or creation of, or increase in
the amount of, any class (or any security of any class) with
preferences on dividend and liquidation rights pari passu with or
senior to those of holders of Series A Preferred Stock.
(c) If the Company has not redeemed all of the Series A Preferred Stock on
the Mandatory Redemption Date, the holders of shares of Series A Preferred
Stock, voting separately as a class and without cumulative voting, shall
thereupon be entitled to elect (i) if Holding and its Affiliates then own all or
substantially all of the Common Stock (as adjusted for reclassifications and
substitutions) initially issued to Holding for $98,000,000, the minimum number
of directors of the Corporation so that the number so elected, plus the number
of directors, if any, that Holding and its Affiliates, voting together, then
have the power to elect by voting such Common Stock, constitute a majority of
the Board of Directors or (ii) otherwise, two directors. Upon election, such
directors shall become additional directors of the Corporation and, immediately
prior to or upon election, the authorized number of directors of the Corporation
shall be automatically increased by such number of additional directors.
(d) Whenever the voting rights under Paragraph 6(c) shall have vested,
such right may be exercised without a meeting by the written consent of the
number of shares of Preferred Stock necessary to elect the directors thereby
elected, or at a special meeting of the holders of Series A Preferred Stock,
called as hereinafter provided, or at any annual meeting of stockholders held
for the purpose of electing directors. Such right of the holders of Series A
Preferred Stock to elect directors may be exercised until all such stock has
been redeemed.
(e) At any time when the voting rights described in Paragraph 6(c) shall
have vested in the holders of shares of Series A Preferred Stock and if such
right shall not already have been initially exercised, the Secretary of the
14
<PAGE>
Corporation shall, upon the written request of holders of record of at least ten
percent (10%) of the shares of Series A Preferred Stock then outstanding,
addressed to the Secretary of the Corporation, call a special meeting of holders
of Series A Preferred Stock. Such meeting shall be held in accordance with
Delaware law at the earliest practicable date at a place designated by the
Secretary of the Corporation. If such meeting shall not be called by the
Secretary of the Corporation within thirty (30) days after personal service of
such written request upon the Secretary of the Corporation, or within thirty
(30) days after mailing the same within the United States, by registered mail,
addressed to the Secretary of the Corporation at its principal office (such
mailing to be evidenced by the registry receipt issued by the postal
authorities), then the holders of record of at least ten percent (10%) of the
shares of Series A Preferred Stock then outstanding may designate in writing a
holder of Series A Preferred Stock to call such meeting at the expense of the
Corporation, and such meeting may be called by such person so designated upon
the notice required for annual meetings of stockholders and shall be in
accordance with Delaware law at a place designated by such holder. Nothing in
this Paragraph 6(d) shall affect the right of holders of the Preferred Stock to
take action by written consent and without a meeting.
(f) If any director so elected by the holders of shares of Series A
Preferred Stock shall cease to serve as a director before such director's term
shall expire, the holders of shares of Series A Preferred Stock then outstanding
may, at the special meeting of the holders called as provided above, elect a
successor to hold office for the unexpired term of the director whose place will
be vacant.
(g) In any matter in which holders of shares of Series A Preferred Stock
may vote, including any action by written consent, each share of Series A
Preferred Stock shall be entitled to one (1) vote (except as expressly provided
herein or as may be required by law).
(h) Except as required by law, the holders of Series A Preferred Stock
shall not be entitled to elect directors as provided in this Paragraph 6, the
directors so elected by the holders of the Series A Preferred Stock shall cease
to be directors, and the size of the Board of Directors shall be reduced by the
number of directors elected by the holders of Series A Preferred Stock
immediately following the time that all outstanding shares of the Series A
Preferred Stock shall have been redeemed or shall have been called for
15
<PAGE>
redemption upon proper notice and sufficient funds shall be deposited in trust
as provided above to effect such redemption.
(i) A majority of the Board of Directors may, at any time after holders of
the Series A Preferred Stock become entitled to vote, call or notice meetings of
the Board of Directors at such time and place as they specify. At all such
times, a majority of the Board of Directors shall constitute a quorum and all
then existing committees of the Board of Directors may be dissolved by a
majority of the Board of Directors.
7. Exclusion of Other Rights.
-------------------------
Except as may otherwise be required by law, the shares of Series A
Preferred Stock shall not have any preferences and relative, participating,
optional or other special rights, other than those specifically set forth this
Certificate of Incorporation.
8. Severability of Provisions.
--------------------------
If any voting powers, preferences and relative, participating, optional and
other special rights of the Series A Preferred Stock and qualifications,
limitations and restrictions thereof set forth in this Certificate of
Incorporation is invalid, unlawful or incapable of being enforced by reason of
any rule of law or public policy, all other voting powers, preferences and
relative, participating, optional and other special rights of Series A Preferred
Stock and qualifications, limitations and restrictions thereof set forth in this
Certificate of Incorporation which can be given effect without the invalid,
unlawful or unenforceable voting powers, preferences and relative,
participating, optional and other special rights of Series A Preferred Stock and
qualifications, limitations and restrictions thereof shall, nevertheless, remain
in full force and effect, and no voting powers, preferences and relative,
participating, optional or other special rights of Series A Preferred Stock and
qualifications, limitations and restrictions thereof herein set forth shall be
deemed dependent upon any other such voting powers, preferences and relative,
participating, optional or other special rights of Series A Preferred Stock and
qualifications, limitations and restrictions thereof unless so expressed herein.
9. Bylaws.
------
16
<PAGE>
No Bylaw of the Corporation may be inconsistent with, limit in any way, or
conflict with any of the foregoing provisions.
ARTICLE V
CONDUCT OF CERTAIN AFFAIRS OF THE CORPORATION
---------------------------------------------
Section 5.1 In anticipation of the possibility that the Corporation
-----------
and Thiokol (as defined below) may engage in the same or similar activities or
lines of business and have an interest in the same areas of corporate
opportunities, and in recognition of the benefits to be derived by the
Corporation through its continued contractual, corporate and business relations
with Thiokol (including possible service of officers and directors of Thiokol as
officers and directors of the Corporation), the provisions of this Article V are
set forth to regulate and define the conduct of certain affairs of the
Corporation as they may involve Thiokol and its officers and directors, and the
powers, rights, duties and liabilities of the Corporation and its officers,
directors and stockholders in connection therewith.
Section 5.2 Thiokol shall have no duty to refrain from engaging in
-----------
the same or similar activities or lines of business as the Corporation, and
neither Thiokol nor any officer or director thereof (except as provided in
Section 5.3 below) shall be liable to the Corporation or its stockholders for
breach of any fiduciary duty by reason of any such activities of Thiokol. In
the event that Thiokol acquires knowledge of a potential transaction or matter
which may be a corporate opportunity for both Thiokol and the Corporation,
Thiokol shall have no duty to communicate or offer such corporate opportunity to
the Corporation and shall not be liable to the Corporation or its stockholders
for breach of any fiduciary duty as a stockholder of the Corporation by reason
of the fact that Thiokol pursues or acquires such corporate opportunity for
itself, directs such corporate opportunity to another person, or does not
communicate information regarding such corporate opportunity to the Corporation.
Section 5.3 In the event that a director or officer of the
-----------
Corporation who is also a director or officer of Thiokol acquires knowledge of a
potential transaction or matter which may be a corporate opportunity for both
the Corporation and Thiokol, such director or officer of the Corporation shall
have fully satisfied and fulfilled the fiduciary duty of such director or
officer to the Corporation and its stockholders with respect to such corporate
opportunity, if such director or officer acts in a manner consistent with the
following policy:
17
<PAGE>
(a) A corporate opportunity offered to any person who is an
officer of the Corporation, and who is also a director but not an
officer of Thiokol, shall belong to the Corporation;
(b) a corporate opportunity offered to any person who is a
director but not an officer of the Corporation, and who is also a
director or officer of Thiokol shall belong to the Corporation if such
opportunity is expressly offered to such person in his or her capacity
as a director of the Corporation, and otherwise shall belong to
Thiokol; and
(c) a corporate opportunity offered to any person who is an
officer of both the Corporation and Thiokol shall belong to the
Corporation if such opportunity is expressly offered to such person in
his or her capacity as an officer of the Corporation, and otherwise
shall belong to Thiokol.
Section 5.4 Any person purchasing or otherwise acquiring any interest
-----------
in shares of the capital stock of the Corporation shall be deemed to have notice
of and to have consented to the provisions of this Article V.
Section 5.5 For purposes of this Article V only:
-----------
(a) A director of the Corporation who is Chairman of the
Board of Directors of the Corporation or of a committee thereof shall
not be deemed to be an officer of the Corporation by reason of holding
such position (without regard to whether such position is deemed an
office of the Corporation under the By-Laws of the Corporation),
unless such person is a full-time employee of the Corporation; and
(b) The term "Corporation" shall mean the Corporation and
all corporations, partnerships, joint ventures, associations and other
entities in which the Corporation beneficially owns (directly or
indirectly) 50% or more of the outstanding voting stock, voting power,
partnership interests or similar voting interests. The term "Thiokol"
shall mean Thiokol Corporation, a Delaware corporation, and all
corporations, partnerships, joint ventures, associations and other
entities (other than the Corporation, as defined in accordance with
this paragraph) in which Thiokol beneficially owns (directly or
indirectly) 50% or more of the outstanding voting
18
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stock, voting power, partnership interests or similar voting
interests.
Section 5.6 Anything in this Certificate of Incorporation to the
-----------
contrary notwithstanding, (a) the foregoing provisions of this Article V shall
expire on the date that Thiokol ceases to beneficially own Common Stock
representing at least 20% of the total voting power of all classes of
outstanding capital stock of the Corporation entitled to vote in the election of
directors and no person who is a director or officer of the Corporation is also
a director or officer of Thiokol; and (b) in addition to any vote of the
stockholders required by law, until the time that Thiokol ceases to beneficially
own Common Stock representing at least 20% of the total voting power of all
classes of outstanding capital stock of the Corporation entitled to vote in the
election of directors, the affirmative vote of the holders of more than 80% of
the total voting power of all such classes of outstanding capital stock of the
Corporation shall be required to alter, amend or repeal in a manner adverse to
the interests of Thiokol, or adopt any provision adverse to the interests of
Thiokol and inconsistent with, any provision of this Article V. Neither the
alteration, amendment or repeal of this Article V nor the adoption of any
provision of this Certificate of Incorporation inconsistent with this Article V
shall eliminate or reduce the effect of this Article V in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Article V,
would accrue or arise, prior to such alteration, amendment, repeal or adoption.
ARTICLE VI
BYLAWS
------
In furtherance and not in limitation of the power conferred by
statute, but subject to the provisions of this Certificate of Incorporation, the
Board of Directors is expressly authorized to make, alter or repeal the Bylaws
of the Corporation.
ARTICLE VII
LIABILITY OF DIRECTORS
----------------------
No director of the Corporation shall be liable to the Corporation or
its stockholders for monetary damages for the breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involved intentional misconduct or a
19
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knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit.
If the Delaware General Corporation Law is amended to authorize
corporate actions further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended. Any repeal or modification of this Article VII
by the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification. The Corporation may adopt such provisions with respect to
indemnification of directors, officers or employees of the Corporation,
consistent with this Article VII, as may be set forth from time to time in the
Bylaws of the Corporation or a resolution adopted by the Board of Directors.
ARTICLE VIII
STOCKHOLDER ACTION BY WRITTEN CONSENT
-------------------------------------
Any action required or permitted to be taken at any annual or special
meeting of stockholders may be taken without a meeting, without prior notice and
without a vote, if a consent or consents in writing, setting forth the action so
taken, shall be signed by the holders of outstanding capital stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares of capital stock entitled to
vote thereon were present and voted; and provided, however, that on and after
-------- -------
the date on which Thiokol and its affiliates cease to beneficially own 50% or
more of the total voting power of all classes of capital stock entitled to vote
in the election of directors, any action required or permitted to be taken by
stockholders may be effected only at a duly called annual or special meeting of
stockholders and may not be effected by a written consent or consents by
stockholders in lieu of such a meeting.
ARTICLE IX
Election of directors need not be by written ballot unless, subject to
the other provisions of this Certificate of Incorporation, the Bylaws of the
Corporation shall so provide.
ARTICLE X
20
<PAGE>
The Corporation reserves the right to amend, alter, change or repeal
any provisions contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by the law of the State of Delaware, this Certificate of
Incorporation or the resolution of the Board of Directors establishing any class
of Preferred Stock as long as any shares of that class are outstanding. All
rights conferred upon stockholders herein are granted subject to this
reservation.
IN WITNESS WHEREOF, the undersigned officer of Howmet International
Inc. has duly executed this Certificate as of this ___ day of ____________,
1997.
HOWMET INTERNATIONAL INC.
By:
---------------------
Name:
Title:
21
<PAGE>
Exhibit 3.2
-----------
FORM OF
AMENDED AND RESTATED BY-LAWS
OF
HOWMET INTERNATIONAL INC.
As of ____________ __, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I - OFFICES................................................................... 1
Section 1. Registered Office................................................. 1
Section 2. Other Offices..................................................... 1
ARTICLE II - MEETINGS OF STOCKHOLDERS................................................. 1
Section 1. Place of Meetings................................................. 1
Section 2. Annual Meeting of Stockholders.................................... 1
Section 3. Quorum; Adjourned Meetings and Notice Thereof..................... 1
Section 4. Voting............................................................ 2
Section 5. Proxies........................................................... 2
Section 6. Special Meetings.................................................. 2
Section 7. Notice of Stockholder's Meetings.................................. 2
Section 8. Notice of Stockholder Business and Nominations.................... 3
Section 9. Maintenance and Inspection of Stockholder List.................... 5
Section 10. Stockholder Action by Written Consent............................. 5
ARTICLE III - DIRECTORS............................................................... 6
Section 1. Number of directors............................................... 6
Section 2. Vacancies......................................................... 6
Section 3. Powers............................................................ 6
Section 4. Place of Directors' Meetings...................................... 7
Section 5. Regular Meetings.................................................. 7
Section 6. Special Meetings.................................................. 7
Section 7. Quorum............................................................ 7
Section 8. Action Without Meeting............................................ 7
Section 9. Telephonic Meetings............................................... 7
Section 10. Committees of Directors........................................... 8
Section 11. Compensation...................................................... 8
ARTICLE IV - OFFICERS................................................................. 9
Section 1. Officers.......................................................... 9
Section 2. Election of Officers.............................................. 9
Section 3. Subordinate Officers.............................................. 9
Section 4. Compensation of Officers.......................................... 9
Section 5. Term of Office; Removal and Vacancies............................. 9
Section 6. Chairman of the Board............................................. 9
Section 7. President.........................................................10
Section 8. Vice Presidents...................................................10
</TABLE>
i
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<TABLE>
<S> <C>
Section 9. Secretary.........................................................10
Section 10. Assistant Secretaries.............................................11
Section 11. Treasurer.........................................................11
Section 12. Assistant Treasurer...............................................11
ARTICLE V - CERTIFICATES OF STOCK.....................................................11
Section 1. Certificates......................................................11
Section 2. Signatures on Certificates........................................12
Section 3. Statement of Stock Rights, Preferences, Privileges................12
Section 4. Lost Certificates.................................................12
Section 5. Transfers of Stock................................................12
Section 6. Fixing Record Date................................................13
Section 7. Registered Stockholders...........................................13
ARTICLE VI - INDEMNIFICATION..........................................................13
Section 1. Actions by Others.................................................13
Section 2. Actions by or in the Right of the Corporation.....................14
Section 3. Successful Defense................................................14
Section 4. Right to Indemnification..........................................15
Section 5. Specific Authorization............................................15
Section 6. Suit Against Corporation..........................................15
Section 7. Corporation Bound.................................................16
Section 8. Preclusion........................................................16
Section 9. Right of Indemnity not Exclusive..................................16
Section 10. Insurance.........................................................17
Section 11. Invalidity of any Provisions of this Article......................17
Section 12. Definitions.......................................................17
Section 13. Notice............................................................19
ARTICLE VII - GENERAL PROVISIONS......................................................20
Section 1. Dividends.........................................................20
Section 2. Funds Available for Contigencies..................................20
Section 3. Checks............................................................20
Section 4. Fiscal Year.......................................................20
Section 5. Corporate Seal....................................................20
Section 6. Manner of Giving Notice...........................................20
Section 7. Waiver of Notice..................................................21
Section 8. Annual Statement..................................................21
ARTICLE VIII - AMENDMENTS.............................................................21
Section 1. Amendment by Directors or Stockholders............................21
</TABLE>
ii
<PAGE>
ARTICLE I
OFFICES
-------
Section 1. Registered Office. The address of the registered office of
-----------------
the Corporation in the State of Delaware is The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. The
name of its registered agent at such address is The Corporation Trust Company.
Section 2. Other Offices. The Corporation may also have offices at such
-------------
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Place of Meetings. Meetings of stockholders shall be held
-----------------
at any place within or outside the State of Delaware designated by the Board of
Directors. In the absence of any such designation, stockholders' meetings shall
be held at the principal executive office of the Corporation.
Section 2. Annual Meeting of Stockholders. The annual meeting of
------------------------------
stockholders shall be held each year on a date and a time designated by the
Board of Directors. At each annual meeting directors shall be elected and any
other proper business may be transacted.
Section 3. Quorum; Adjourned Meetings and Notice Thereof. A majority of
---------------------------------------------
the stock issued and outstanding and entitled to vote at any meeting of
stockholders, the holders of which are present in person or represented by
proxy, shall constitute a quorum for the transaction of business except as
otherwise provided by law, by the Certificate of Incorporation, or by these By-
Laws. A quorum, once established, shall not be broken by the withdrawal of
enough votes to leave less than a quorum and the votes present may continue to
transact business until adjournment. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, the Chairman of a
meeting or a majority of the voting stock represented in person or by proxy may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the ad-
1
<PAGE>
journed meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote thereat.
Section 4. Voting. When a quorum is present at any meeting, the vote of
------
the holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes, or
the Certificate of Incorporation, or these By-Laws, a different vote is
required, in which case such express provision shall govern and control the
decision of such question.
Section 5. Proxies. At each meeting of the stockholders, each
-------
stockholder having the right to vote may vote in person or may authorize another
person or persons to act for him by proxy appointed by an instrument in writing
subscribed by such stockholder and bearing a date not more than three years
prior to said meeting, unless said instrument provides for a longer period. All
proxies must be filed with the Secretary of the Corporation at the beginning of
each meeting in order to be counted in any vote at the meeting. Each stockholder
shall have one vote for each share of stock having voting power (unless a
different number of votes is specified in the Certificate of Incorporation with
respect to the class or series of stock represented by such share), registered
in his name on the books of the Corporation on the record date set by the Board
of Directors as provided in Article V, Section 6 hereof. All elections shall be
had and all questions decided by a plurality vote.
Section 6. Special Meetings. Special meetings of the stockholders, for
----------------
any purpose, or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called only by the Chairman of the Board of
Directors or by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of directors which the Corporation would have if
there were no vacancies. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
Section 7. Notice of Stockholder's Meetings. Whenever stockholders are
--------------------------------
required or permitted to take any action at a meeting, a written notice of the
meeting shall be given which notice shall state the place, date and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. The written notice of any meeting shall be given
to each stockholder entitled to vote at such meeting not less than ten nor more
than sixty days before the date of the meeting. If mailed, notice is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the Corporation.
2
<PAGE>
Section 8. Notice of Stockholder Business and Nominations. (A) Annual
---------------------------------------------- ------
Meeting of Stockholders. (1) Nominations of persons for election to the Board
- -----------------------
of Directors of the Corporation and the proposal of business to be considered by
the stockholders may be made at an annual meeting of stockholders (a) pursuant
to the Corporation's notice of meeting, (b) by or at the direction of the Board
of Directors or (c) by any stockholder of the Corporation who was a stockholder
of record at the time of giving of notice provided for in this Section 8, who is
entitled to vote at the meeting and who complies with the notice procedures set
forth in this Section 8.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of
this Section 8, the stockholder must have given timely notice thereof in writing
to the Secretary of the Corporation and such other business must otherwise be a
proper matter for stockholder action. To be timely, a stockholder's notice shall
be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 60th day nor earlier
than the close of business on the 90th day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is more than 30 days before or more than 60 days
after such anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the 90th day prior to such
annual meeting and not later than the close of business on the later of the 60th
day prior to such annual meeting or the 10th day following the day on which
public announcement of the date of such meeting is first made by the
Corporation. In no event shall the public announcement of an adjournment of an
annual meeting commence a new time period for the giving of a stockholder's
notice as described above. Such stockholder's notice shall set forth (a) as to
each person whom the stockholder proposes to nominate for election or reelection
as a director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors in an election
contest, or is otherwise required, in each case pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule
14a-11 thereunder (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected); (b) as to
any other business that the stockholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the
3
<PAGE>
nomination or proposal is made (i) the name and address of such stockholder, as
they appear on the Corporation's books, and of such beneficial owner and (ii)
the class and number of shares of the Corporation which are owned beneficially
and of record by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2) of
this Section 8 to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Corporation is increased and there is
no public announcement by the Corporation naming all of the nominees for
director or specifying the size of the increased Board of Directors at least 70
days prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice required by this By-Law shall also be considered timely,
but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary at the principal executive
offices of the Corporation not later than the close of business on the 10th day
following the day on which such public announcement is first made by the
Corporation.
(B) Special Meeting of Stockholders. Only such business shall be
-------------------------------
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice
provided for in this Section 8, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this Section 8. In the
event the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by paragraph (A)(2) of this Section 8 shall be
delivered to the Secretary at the principal executive offices of the Corporation
not earlier than the close of business on the 90th day prior to such special
meeting and not later than the close of business on the later of the 60th day
prior to such special meeting or the 10th day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting. In no
event shall the public announcement of an adjournment of a special meeting
commence a new time period for the giving of a stockholder's notice as described
above.
4
<PAGE>
(C) General. (1) Only such persons who are nominated in accordance with
-------
the procedures set forth in this Section 8 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this By-Law. Except as otherwise provided by law, the Certificate
of Incorporation or these By-Laws, the Chairman of the meeting shall have the
power and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in this By-Law and, if any proposed
nomination or business is not in compliance with this By-Law, to declare that
such defective proposal or nomination shall be disregarded.
(2) For purposes of this Section 8, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 8, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this By-Law. Nothing in this Section 8 shall be deemed to affect any
rights (i) of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) of the holders of any series of Preferred Stock to elect directors under
specified circumstances.
(4) Maintenance and Inspection of Stockholder List. The officer who has
----------------------------------------------
charge of the stock ledger of the Corporation shall prepare and make, at least
ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
5
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Section 10. Stockholder Action by Written Consent. Stockholders may act
-------------------------------------
by written consent in lieu of a meeting only in accordance with Article VIII
of the Certificate of Incorporation.
ARTICLE III
DIRECTORS
---------
Section 1. Number of Directors. The number of directors which shall
-------------------
constitute the whole Board of Directors shall be not less than three (3) and not
more than twelve (12). The exact number of directors shall be determined by
resolution adopted by a majority of the number of directors the Board would have
if there were no vacancies, and the initial number of directors shall be [eight
(8)]. The directors need not be stockholders. The directors shall be elected
at the annual meeting of the stockholders and, except as provided in Section 2
of this Article III, each director elected shall hold office until his successor
is elected and qualified; provided, however, that unless otherwise restricted by
-------- -------
the Certificate of Incorporation or By-Laws, any director or the entire Board of
Directors may be removed, either with or without cause, from the Board of
Directors by holders of a majority of the voting power of the shares of capital
stock of the Corporation entitled to vote at an election of directors.
Section 2. Vacancies. Vacancies on the Board of Directors by reason of
---------
death, resignation, retirement, disqualification, removal from office, or
otherwise, and newly created directorships resulting from any increase in the
authorized number of directors may be filled by a majority of the directors then
in office, although less than a quorum, or by a sole remaining director. The
directors so chosen shall hold office until the next annual election of
directors and until their successors are duly elected and shall qualify, unless
sooner replaced by a vote of the shareholders. If there are no directors in
office, then an election of directors may be held in the manner provided by
statute.
Section 3. Powers. The property and business of the Corporation shall
------
be managed by or under the direction of its Board of Directors. In addition to
the powers and authorities by these By-Laws expressly conferred upon them, the
Board may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute or by the Certificate of Incorporation or
by these By-Laws directed or required to be exercised or done by the
stockholders.
6
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Section 4. Place of Directors' Meetings. The directors may hold their
----------------------------
meetings and have one or more offices, and keep the books of the Corporation
outside of the State of Delaware.
Section 5. Regular Meetings. Regular meetings of the Board of Directors
----------------
may be held without notice at such time and place as shall from time to time be
determined by the Board.
Section 6. Special Meetings. Special meetings of the Board of Directors
----------------
may be called by the Chairman of the Board on forty-eight hours' notice to each
director, sent personally, by mail, by telegram, by telecopier, by electronic
mail or by courier service; special meetings shall be called by the Chairman of
the Board or the Secretary in like manner and on like notice on the written
request of two directors.
Section 7. Quorum. At all meetings of the Board of Directors a majority
------
of the authorized number of directors shall be necessary and sufficient to
constitute a quorum for the transaction of business, and the vote of a majority
of the directors present at any meeting at which there is a quorum, shall be the
act of the Board of Directors, except as may be otherwise specifically provided
by statute, by the Certificate of Incorporation or by these By-Laws. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
If only one director is authorized, such sole director shall constitute a
quorum. At any meeting, a director shall have the right to be accompanied by
counsel, provided that such counsel shall agree to any confidentiality
restrictions reasonably imposed by the Corporation.
Section 8. Action Without Meeting. Unless otherwise restricted by the
----------------------
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee.
Section 9. Telephonic Meetings. Unless otherwise restricted by the
-------------------
Certificate of Incorporation or these By-Laws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any committee, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such par-
7
<PAGE>
ticipation in a meeting shall constitute presence in person at such meeting.
Section 10. Committees of Directors. (a) The Board of Directors may, by
-----------------------
resolution passed by a majority of the whole Board, designate one or more
committees, each such committee to consist of one or more of the directors of
the Corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member of
a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to amending the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, recommending
to the stockholders a dissolution of the Corporation or a revocation of a
dissolution, or amending the By-Laws of the Corporation; and, unless the
resolution or the Certificate of Incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
(b) Each committee shall keep regular minutes of its meetings and report
the same to the Board of Directors when required.
Section 11. Compensation. Unless otherwise restricted by the Certificate
------------
of Incorporation or these By-Laws, the Board of Directors shall have the
authority to fix the compensation of directors. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
8
<PAGE>
ARTICLE IV
OFFICERS
--------
Section 1. Officers. The officers of this corporation shall be chosen
--------
by the Board of Directors and shall include a President, a Secretary, and a
Treasurer. The Corporation may also have, at the discretion of the Board of
Directors, such other officers as are desired, including a Chairman of the
Board, one or more Vice Presidents, one or more Assistant Secretaries and
Assistant Treasurers, and such other officers as may be appointed in accordance
with the provisions of Section 3 hereof. In the event there are two or more Vice
Presidents, then one or more may be designated as Executive Vice President,
Senior Vice President, or other similar or dissimilar title. At the time of the
election of officers, the directors may by resolution determine the order of
their rank. Any number of offices may be held by the same person unless the
Certificate of Incorporation or these By-Laws otherwise provide.
Section 2. Election of Officers. The Board of Directors, at its first
--------------------
meeting after each annual meeting of stockholders, shall choose the officers of
the Corporation.
Section 3. Subordinate Officers. The Board of Directors or the
--------------------
President may appoint such other officers and agents as it shall deem necessary
who shall hold their offices for such terms and shall exercise such powers and
perform such duties as shall be determined from time to time by the Board.
Section 4. Compensation of Officers. The salaries of all officers and
------------------------
agents of the Corporation shall be fixed by the Board of Directors.
Section 5. Term of Office; Removal and Vacancies. The officers of the
-------------------------------------
Corporation shall hold office until their successors are chosen and qualify in
their stead. Any officer elected or appointed by the Board of Directors may be
removed at any time by the affirmative vote of a majority of the Board of
Directors. If the office of any officer or officers elected or appointed by the
Board of Directors becomes vacant for any reason, the vacancy shall be filled by
the Board of Directors.
Section 6. Chairman of the Board. The Chairman of the Board, if any,
---------------------
shall, if present, preside at all meetings of the Board of Directors and of
stockholders and exercise and perform such other powers and duties as may be
from time to time assigned to him by the Board of Directors or prescribed by
these By-Laws. If there is no President, the Chairman of the Board shall in
addition be the Chief Executive Officer of the Corporation and
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shall have the powers and duties prescribed in Section 7 of this Article IV.
Section 7. President. Subject to such supervisory powers, if any, as
---------
may be given by the Board of Directors to the Chairman of the Board, if there be
such an officer, the President shall be the Chief Executive Officer of the
Corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
Corporation. In the absence of the Chairman of the Board, or if there be none,
the President shall preside at all meetings of stockholders and at all meetings
of the Board of Directors. He shall be an ex-officio member of all committees
and shall have the general powers and duties of management usually vested in the
office of President and Chief Executive Officer of corporations, and shall have
such other powers and duties as may be prescribed by the Board of Directors or
these By-Laws.
Section 8. Vice Presidents. In the absence or disability of the
---------------
President, the Vice Presidents in order of their rank as fixed by the Board of
Directors, or if not ranked, the Vice President designated by the Board of
Directors or the President, or if not so designated, in the order of their
seniority of service in the position, shall perform all the duties of the
President, and when so acting shall have all the powers of and be subject to all
the restrictions upon the President. Without limiting the authority of any other
officer, each Vice President shall have authority to execute contracts and
similar documents on behalf of the Corporation and shall have such other duties
as from time to time may be prescribed for him or her by the Board of Directors.
Section 9. Secretary. The Secretary shall attend all sessions of the
---------
Board of Directors and all meetings of the stockholders and record all votes and
the minutes of all proceedings in a book to be kept for that purpose; and shall
perform like duties for the standing committees when required by the Board of
Directors. He shall give, or cause to be given, notice of all meetings of the
stockholders and of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or these By-Laws.
He shall keep in safe custody the seal of the Corporation, and when
authorized by the Board, affix the same to any instrument requiring it, and when
so affixed it shall be attested by his signature or by the signature of an
Assistant Secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the Corporation and to attest the affixing by
his signature.
10
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Section 10. Assistant Secretaries. The Assistant Secretary, or if there
---------------------
be more than one, any Assistant Secretary shall, in the absence or disability of
the Secretary, perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
Section 11. Treasurer. The Treasurer shall have the custody of the
---------
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys, and other valuable effects in the name and to the credit of
the Corporation, in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements, and shall
render to the Board of Directors, at its regular meetings, or when the Board of
Directors so requires, an account of all his transactions as Treasurer and of
the financial condition of the Corporation. If required by the Board of
Directors, he shall give the Corporation a bond, in such sum and with such
surety or sureties as shall be satisfactory to the Board of Directors, for the
faithful performance of the duties of his office and for the restoration to the
Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
Section 12. Assistant Treasurer. The Assistant Treasurer, or if there
-------------------
shall be more than one, any Assistant Treasurer shall, in the absence or
disability of the Treasurer, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
ARTICLE V
CERTIFICATES OF STOCK
---------------------
Section 1. Certificates. Every holder of stock of the Corporation shall
------------
be entitled to have a certificate signed by, or in the name of the Corporation
by, the Chairman or Vice Chairman of the Board of Directors, or the President or
a Vice President, and by the Secretary or an Assistant Secretary, or the
Treasurer or an Assistant Treasurer of the Corporation, certifying the number of
shares represented by the certificate owned by such stockholder in the
Corporation.
Section 2. Signature on Certificates. Any or all of the signatures on
-------------------------
the certificate may be a facsimile. In case
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any officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue.
Section 3. Statement of Stock Rights, Preferences, Privileges. If the
--------------------------------------------------
Corporation shall be authorized to issue more than one class of stock or more
than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualification, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the Corporation shall issue to represent such
class or series of stock, provided that, except as otherwise provided in Section
202 of the General Corporation Law of Delaware (the "DGCL"), in lieu of the
foregoing requirements, there may be set forth on the face or back of the
certificate which the Corporation shall issue to represent such class or series
of stock, a statement that the Corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Section 4. Lost Certificates. The Board of Directors may direct a new
-----------------
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 5. Transfer of Stock. Upon surrender to the Corporation, or the
-----------------
transfer agent of the Corporation, of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, the Corporation shall issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its book.
12
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Section 6. Fixing Record Date. In order that the Corporation may
------------------
determine the stockholders entitled to notice of or to vote at any meeting of
the stockholders, or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date which shall not be more than sixty nor less than ten days before the
date of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 7. Registered Stockholders. The Corporation shall
-----------------------
be entitled to treat the holder of record of any share or shares of stock as
the holder in fact thereof and accordingly shall not be bound to recognize any
equitable or other claim or interest in such share on the part of any other
person, whether or not it shall have express or other notice thereof, save as
expressly provided by the laws of the State of Delaware.
ARTICLE VI
INDEMNIFICATION
---------------
Section 1. Actions by Others. The Corporation (1) shall
-----------------
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that he is or was a director
or an officer of the Corporation and (2) except as otherwise required by Section
3 of this Article VI, may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was an employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee,
agent of or participant in another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no
13
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reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
---- ----------
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 2. Actions by or in the Right of the Corporation.
---------------------------------------------
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he or she is or was a director or officer of the
Corporation, and the Corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he or she is or was an employee or agent of
the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee, agent of or participant in another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection with the defense or settlement of such action or suit if he or she
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his or her duty to the Corporation unless and
only to the extent that the Delaware Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Delaware Court of Chancery or such other court shall deem proper.
Section 3. Successful Defense. To the extent that a person
------------------
who is or was a director, officer, employee or agent of the Corporation has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1 or Section 2 of this Article, or in defense
of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
14
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Section 4. Right to Indemnification. The right to
------------------------
indemnification conferred in this Article VI shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition, such expenses
to be paid by the Corporation within 20 days after the receipt by the
Corporation of a statement or statements from the claimant requesting such
payment or payments of expenses from time to time; provided, however, that if
-------- -------
the DGCL requires, the payment of such expenses incurred by a director or
officer in his or her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding, shall be made only upon
delivery to the Corporation of an undertaking by or on behalf of such director
or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Article VI or otherwise.
Section 5. Specific Authorization. To obtain
----------------------
indemnification under this Article VI, a claimant shall submit to the
Corporation a written request, including therein or therewith such documentation
and information as is reasonably available to the claimant and is reasonably
necessary to determine whether and to what extent the claimant is entitled to
indemnification. Any indemnification under Section 1 or Section 2 of this
Article VI (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in said Sections 1 and 2 of
this Article VI. Such determination shall be made by (a) the stockholders, (b)
the Board of Directors by a majority vote of a quorum that includes all of the
Disinterested Directors, or (c) (1) even if such quorum is not obtainable, if a
quorum of Disinterested Directors so directs or (2) if a Change of Control shall
have occurred, then, in the case of either of clauses (1) and (2) of this clause
(c), by an Independent Counsel in a written opinion, which Independent Counsel
shall be selected by a majority vote of a quorum of Disinterested Directors or,
if a Change of Control shall have occurred, by the claimant. If it is so
determined that the claimant is entitled to indemnification, payment to the
claimant shall be made within 10 days after such determination.
Section 6. Suit Against Corporation. If a claim under
------------------------
Section 1 or 2 of this Article VI is not paid in full by the Corporation within
30 days after a written claim pursuant to Section 5 of this Article VI has been
received by the Corporation, the
15
<PAGE>
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought
to enforce a claim for expenses incurred in defending any proceeding in advance
of its final disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has not met the standard of
conduct which makes it permissible under the DGCL or this Article VI for the
Corporation to indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, Independent Counsel or
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
DGCL or this Article VI, nor an actual determination by the Corporation
(including its Board of Directors, Independent Counsel or stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
Section 7. Corporation Bound. If a determination shall
-----------------
have been made pursuant to Section 5 of this Article VI that the claimant is
entitled to indemnification, the Corporation shall be bound by such
determination in any judicial proceeding commenced pursuant to Section 6 of this
Article VI.
Section 8. Preclusion. The Corporation shall be precluded
----------
from asserting in any judicial proceeding commenced pursuant to Section 6 of
this Article VI that the procedures and presumptions of this Article VI are not
valid, binding and enforceable and shall stipulate in such proceeding that the
Corporation is bound by all the provisions of this Article VI.
Section 9. Right of Indemnity Not Exclusive. The
--------------------------------
indemnification and advancement of expenses provided by this Article shall not
be deemed exclusive of any other rights to which those seeking indemnification
may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.
Section 10. Insurance. The Corporation may purchase and
---------
maintain insurance on behalf of any person who is or was a
16
<PAGE>
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of or
participant in another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this Article, Section 145 of the DGCL or otherwise.
Section 11. Invalidity of any Provisions of this Article.
--------------------------------------------
The invalidity or unenforceability of any provision of this Article VI shall
not affect the validity or enforceability of the remaining provisions of this
Article VI, and, to the fullest extent possible, such provisions of this Article
VI (including, without limitation, each such portion of any Section of this
Article VI containing any such provision held to be invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
Section 12. Definitions. For purposes of this Article VI:
-----------
(A) "Change of Control" means:
(1) the acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of voting securities of the Corporation
where such acquisition causes such Person to own 20% or more of the
combined voting power of the then outstanding voting securities of the
Corporation entitled to vote generally in the election of directors (the
"Outstanding Corporation Voting Securities"); provided, however, that for
-------- -------
purposes of this paragraph (1), the following acquisitions shall not be
deemed to result in a Change of Control: (i) any acquisition by Thiokol
Corporation, a Delaware corporation("Thiokol"), (ii) any acquisition
directly from the Corporation, (iii) any acquisition by the Corporation,
(iv) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Corporation or any corporation controlled by
the Corporation or (v) any acquisition by any corporation pursuant to a
transaction that complies with clauses (i), ( ii) and (iii) of paragraph
(3) below; provided, further, that if any Person's beneficial ownership of
-------- -------
the Outstanding Corporation Voting Securities reaches or exceeds 20% as a
result of a transaction described in clause (ii) or (iii) above, and such
Person subsequently acquires
17
<PAGE>
beneficial ownership of additional voting securities of the Corporation,
such subsequent acquisition shall be treated as an acquisition that causes
such Person to own 20% or more of the Outstanding Corporation Voting
Securities; and provided, further, that if at least a majority of the
-------- -------
members of the Incumbent Board (as defined below) determines in good faith
that a Person has acquired beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of the Outstanding
Corporation Voting Securities inadvertently, and such Person divests as
promptly as practicable a sufficient number of shares so that such Person
beneficially owns (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) less than 20% of the Outstanding Corporation Voting
Securities, then no Change of Control shall have occurred as a result of
such Person's acquisition; or
(2) individuals who, as of ___________, 1997, constitute the
Board of Directors (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board of Directors; provided,
--------
however, that any individual becoming a director subsequent to __________
-------
__, 1997, whose election, or nomination for election by the Corporation's
stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board, or by Thiokol, shall be
considered a member of the Incumbent Board, except that, for this purpose,
any such individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board of Directors
shall not be considered a member of the Incumbent Board; or
(3) the consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of
the assets of the Corporation or the acquisition of assets of another
corporation ("Business Combination"); excluding, however, such a Business
Combination (i) involving Thiokol or any of its affiliates or (ii) pursuant
to which (A) all or substantially all of the individuals and entities who
were the beneficial owners of the Outstanding Corporation Voting Securities
immediately prior to such Business Combination beneficially own, directly
or indirectly, more than 60% of, respectively, the then outstanding shares
of common stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors,
as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation that as a
18
<PAGE>
result of such transaction owns the Corporation or all or substantially all
of the Corporation's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding
Corporation Voting Securities, (B) no Person (excluding any employee
benefit plan (or related trust) of the Corporation or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such Business Combination or
the combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (C) at least a majority of the members of the
board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board of
Directors, providing for such Business Combination; or
(4) approval by the stockholders of the Corporation of a
complete liquidation or dissolution of the Corporation.
(B) "Disinterested Director" means a director of the Corporation who is
not and was not a party to the matter in respect of which indemnification is
sought by the claimant.
(C) "Independent Counsel" means a law firm, a member of a law firm, or
an independent practitioner, that is experienced in matters of corporation law
and shall include any person who, under the applicable standards of professional
conduct then prevailing, would not have a conflict of interest in representing
either the Corporation or the claimant in an action to determine the claimant's
rights under this Article VI.
Section 13. Notice. Any notice, request or other communication
------
required or permitted to be given to the Corporation under this Article VI
shall be in writing and either delivered in person or sent by telecopy, telex,
telegram, overnight mail or courier service, or certified or registered mail,
postage prepaid, return receipt requested, to the Secretary of the Corporation
and shall be effective only upon receipt by the Secretary.
19
<PAGE>
ARTICLE VII
GENERAL PROVISIONS
------------------
Section 1. Dividends. Dividends upon the capital stock of
---------
the Corporation, subject to the provisions of the Certificate of Incorporation,
if any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 2. Funds Available for Contigencies. Before payment of
--------------------------------
any dividend there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the directors from time to time, in
their absolute discretion, think proper as a reserve fund to meet contingencies,
or for equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the directors shall think conducive to
the interests of the Corporation, and the directors may abolish any such
reserve.
Section 3. Checks. All checks or demands for money and notes of
------
the Corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
Section 4. Fiscal Year. The fiscal year of the Corporation
-----------
shall be the calendar year.
Section 5. Corporate Seal. The corporate seal shall have
--------------
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware". Said seal may be used by causing it, a
facsimile thereof or a recitation of the words on it to be impressed or affixed
or reproduced or otherwise.
Section 6. Manner of Giving Notice. Whenever, under the
-----------------------
provisions of the statutes or of the Certificate of Incorporation or of these
By-Laws, notice is required to be given to any director or stockholder, it shall
not be construed to mean personal notice, but such notice may be given in
writing, by mail, addressed to such director or stockholder, at his address as
it appears on the records of the Corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Notice to directors may also be given by
telegram, telecopier, electronic mail or courier service.
20
<PAGE>
Section 7. Waiver of Notice. Whenever any notice is required to
----------------
be given under the provisions of the statutes or of the Certificate of
Incorporation or of these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. Presence at a meeting
without objection to the absence or form of notice shall also constitute a
waiver of such notice.
Section 8. Annual Statement. The Board of Directors shall
----------------
present at each annual meeting, and at any special meeting of the stockholders
when called for by vote of the stockholders, a full and clear statement of the
business and condition of the Corporation.
ARTICLE VIII
AMENDMENTS
----------
Section 1. Amendment by Directors or Stockholders. These By-Laws
--------------------------------------
may be altered, amended or repealed or new By-Laws may be adopted by the
stockholders or by the Board of Directors at any regular meeting of the
stockholders or of the Board of Directors or at any special meeting of the
stockholders or of the Board of Directors if notice of such alteration,
amendment, repeal or adoption of new By-Laws be contained in the notice of such
special meeting. If the power to adopt, amend or repeal By-Laws is conferred
upon the Board of Directors by the Certificate of Incorporation it shall not
divest or limit the power of the stockholders to adopt, amend or repeal By-Laws.
21
<PAGE>
EXHIBIT 4.14
REPURCHASE AGREEMENT
This REPURCHASE AGREEMENT, dated as of May 16, 1997 (this "Agreement"), is
among HOWMET CORPORATION ("Howmet"), HOWMET CERCAST (U.S.A.), INC., ("HCI"),
HOWMET REFURBISHMENT, INC.("HRI"), HOWMET-TEMPCRAFT, INC. ("HTI"), TURBINE
COMPONENTS CORPORATION ("TCC", and together with HCI, HRI and HTI, collectively,
the "Terminating Sellers", and each a "Terminating Seller") BLADE RECEIVABLES
CORPORATION ("BRC"), and MANUFACTURERS AND TRADERS TRUST COMPANY, as trustee
under the Pooling Agreement (as defined below)(in such capacity, the "Trustee")
(capitalized terms not otherwise defined herein shall have the meanings
specified in Appendix A to the Pooling Agreement).
WHEREAS, Howmet and the Terminating Sellers, as Sellers, and BRC, as Buyer,
are parties to an Amended and Restated Receivables Purchase Agreement, dated as
of April 18, 1996 (the "Purchase Agreement"), pursuant to which the Sellers have
agreed to sell to Buyer and Buyer has agreed to purchase from the Sellers
Receivables and other Purchased Assets from time to time owned by the Sellers;
WHEREAS, BRC, as Transferor, Howmet, as Servicer, and the Trustee are
parties to a Blade Receivables Master Trust Amended and Restated Pooling and
Servicing Agreement, dated as of April 18, 1996 (the "Pooling Agreement"),
pursuant to which BRC has transferred and assigned to Trustee, in its capacity
as representative of the Certificate holders and Purchasers, all of the right,
title and interests of BRC in the Transferred Assets; and
WHEREAS, the parties wish to end the Terminating Sellers' participation in
the Program on the terms hereinafter provided;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1 Reassignment to BRC. Effective upon the occurrence of the
-------------------
Effective Date (as defined below), the Trustee, at the written direction of BRC,
hereby reassigns, retransfers and reconveys to BRC all of the Trustee's right,
title and interest in the Transferred Assets that are (a) Receivables that were
originated by the Terminating Sellers that were outstanding as of the close of
the Business Day preceding the Effective Date (the "Measurement Date"), (b) the
Related Security with respect to such Receivables, and (c) Collections and other
moneys due or to become due with respect to the foregoing and all proceeds of
the foregoing (collectively, the "Retransferred Assets"). In connection with
the foregoing, the parties hereto waive the requirement (set forth in the last
sentence of Section
<PAGE>
13.19 of the Pooling Agreement and Section 1.8(e) of the Purchase Agreement)
that any release and reconveyance of Receivables be to a Person other than a
Howmet Person.
The reassignment, retransfer and reconveyance of its interest in the
Retransferred Assets by the Trustee to BRC pursuant to this Section is without
recourse to the Trustee or representation or warranty of any kind by the
Trustee, except that the Trustee represents that it has not sold, transferred or
encumbered any of the Retransferred Assets.
SECTION 2 Repurchase by Terminating Sellers. Effective upon the sale of
---------------------------------
the Retransferred Assets to BRC pursuant to Section 1 hereof, (a) BRC hereby
resells to each Terminating Seller, and each Terminating Seller repurchases from
BRC, all of BRC's right, title and interest in and to (i) all Receivables that
were originated by such Terminating Seller that were sold to BRC pursuant to the
Purchase Agreement that were outstanding as of the close of the Measurement
Date, (ii) the Related Security for such Receivables, and (iii) Collections with
respect to and other proceeds of such Receivables and Related Security
(collectively, the "Repurchased Assets"), and (b) the Buyer Note of each
Terminating Seller is cancelled. The purchase price for the Repurchased Assets
shall be equal to the aggregate Unpaid Balance of the Receivables included in
the Retransferred Assets as of the Measurement Date (less the amount of the
Buyer Note of each Terminating Seller prior to the cancellation thereof) (the
"Repurchase Price"), and shall be paid on the Effective Date means of an
appropriate adjustment in the inter-company cash management system maintained by
Howmet and the Terminating Sellers. On the Effective Date each Terminating
Seller shall cease to be a Seller under the Purchase Agreement.
The resale of the Repurchased Assets by BRC to the Terminating Sellers
pursuant to this Section is without recourse to BRC or representation or
warranty of any kind by BRC.
SECTION 3 Release of Lockboxes and Lockbox Accounts. Each of the
-----------------------------------------
Terminating Sellers, Howmet and BRC represents and warrants to the Trustee that
no Collections, other than Collections on Transferred Assets originated by the
Terminating Sellers, are sent to the Lockboxes listed and described on Schedule
A attached hereto (collectively, the "Lockboxes") or deposited in the Lockbox
Accounts listed and described on Schedule A attached hereto (collectively, the
"Lockbox Accounts"), each of which Lockboxes and Lockbox Accounts are subject to
the Lockbox Agreements described on Schedule A attached hereto. Effective upon
the occurrence of the Effective Date, each of the Trustee, BRC and Howmet
releases all of its interest in the Lockboxes and the Lockbox Accounts; provided
any amounts on deposit in the Lockbox Accounts or any items in the Lockboxes
that are not Repurchased Assets shall be deposited in the Collection Account.
SECTION 4 Conditions to Effectiveness.
---------------------------
SECTION 4.1 Effective Date. The "Effective Date" shall occur on the date
--------------
when all of the following conditions have been satisfied:
<PAGE>
(a) Agreement. The Trustee shall have received counterparts of this
---------
Agreement executed by all of the parties hereto.
(b) Certifications. The Trustee shall have received certificates, executed
--------------
by appropriate officers of BRC, Howmet and each Terminating Seller, to the
effect that:
(i) All conditions to the termination of each Terminating Seller as a
Seller in subclauses (i), (ii) and (iii) of Section 1.8(b) of the Purchase
Agreement have been satisfied.
(ii) No such termination (either individually or in the aggregate) will
have a Material Adverse Effect.
(iii) At the time of the Trustee's delivery of the UCC termination
statements described in Section 4.2 below, the Trustee will no longer hold
any right, title or interest in the Retransferred Assets.
(iv) No Early Amortization Event or Unmatured Early Amortization Event
is continuing or will reasonably be expected to result from the termination
of any one or all of the Terminating Sellers.
(v) Each Terminating Seller is a Permitted Terminating Seller.
c) Opinion of Counsel. The Trustee shall have received an opinion of
------------------
Paul, Hastings, Janofsky & Walker LLP, special Connecticut counsel to Howmet,
the Terminating Sellers and BRC, dated as of the date hereof and substantially
in the form of Exhibit A hereto.
(d) Payment of Repurchase Price. The Repurchase Price shall have been paid
---------------------------
by means of an appropriate adjustment in the inter-company cash management
system maintained by Howmet and the Terminating Sellers.
SECTION 4.2 UCC Releases. On or promptly after the Effective Date, the
------------
Trustee shall execute and deliver (at the joint and several expense of the
Terminating Sellers) such UCC termination statements and releases as the
Terminating Sellers shall reasonably request to evidence the release of the
Trustee's interests in the Retransferred Assets.
SECTION 5 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
-------------
WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY
OR PERFECTION OF THE TRANSFER OF THE RETRANSFERRED ASSETS TO BRC OR THE TRANSFER
OF THE REPURCHASED ASSETS TO ANY TERMINATING SELLER, ARE GOVERNED BY THE LAWS OF
A JURISDICTION OTHER THAN THE STATE OF NEW YORK.
<PAGE>
SECTION 6 Execution in Counterparts. This Agreement may be executed in
-------------------------
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
agreement.
SECTION 7 Confirmation of Transaction Documents. Except as modified
-------------------------------------
hereby, each Transaction Document is ratified and confirmed in all respects.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers and delivered as of the day and
year first above written.
HOWMET CORPORATION
By: /s/
---------------------------
Name:
Title:
HOWMET CERCAST (U.S.A.), INC.
By: /s/
---------------------------
Name:
Title:
HOWMET REFURBISHMENT, INC.
By: /s/
---------------------------
Name:
Title:
HOWMET-TEMPCRAFT, INC.
By: /s/
---------------------------
Name:
Title:
TURBINE COMPONENTS CORPORATION
By: /s/
---------------------------
Name:
Title:
<PAGE>
BLADE RECEIVABLES CORPORATION
By: /s/
----------------------------
Name:
Title:
MANUFACTURERS AND TRADERS TRUST
COMPANY, as Trustee
By: /s/
----------------------------
Name:
Title:
<PAGE>
SCHEDULE A
Lockboxes and Lockbox Accounts
Howmet Cercast (U.S.A.), Inc.
- -----------------------------
1. Lockboxes numbered 951378, 951386 and 951391 and the corresponding demand
deposit account numbered 1867-075365 at Wachovia Bank ("Wachovia"), subject
to the Lockbox Account Letter Agreement dated December 13, 1995, among
Howmet Cercast (U.S.A.), Inc. ("HCI"), Blade Receivables Corporation
("BRC"), Wachovia and Manufacturers and Traders Trust Company, as Trustee
(in such capacity, the "Trustee").
2. Lockboxes numbered 71916, 71966 and 71866 and the corresponding demand
deposit account numbered 292-075-9 at Harris Bank ("Harris"), subject to
the Lockbox Account Letter Agreement dated December 13, 1995, among HCI,
BRC, Harris and the Trustee.
Howmet Refurbishment, Inc.
- --------------------------
1. EDI collections account numbered 1-000-312-295 at PNC Bank, N.A. ("PNC"),
subject to the Lockbox Account Letter Agreement dated December 13, 1995,
among Howmet Refurbishment, Inc. ("HRI"), BRC, PNC and the Trustee.
2. Demand deposit account numbered 910-2-698959 at The Chase Manhattan Bank
("Chase"), subject to the Account Letter Agreement dated December 13, 1995,
among HRI, BRC, Chase and the Trustee.
3. Lockbox numbered 70231 and the corresponding demand deposit account
numbered 4613-606 at Bank of Montreal ("BOM"), subject to the Lockbox
Account Letter Agreement dated December 13, 1995, among HRI, BRC, BOM and
the Trustee.
4. Lockboxes numbered 75096 and 951294 and the corresponding demand deposit
account numbered 8735-071434 at Wachovia, subject to the Lockbox Account
Letter Agreement dated December 13, 1995, among HRI, BRC, Wachovia and the
Trustee.
5. Lockbox numbered 71250 and the corresponding demand deposit account
numbered 292-077-5 at Harris, subject to the Lockbox Account Letter
Agreement dated December 13, 1995, among HRI, BRC, Harris and the Trustee.
<PAGE>
Howmet-Tempcraft, Inc.
- ----------------------
1. Lockbox numbered 71284 and the corresponding demand deposit account
numbered 0010994587 at Society National Bank ("Society"), subject to the
Lockbox Account Letter Agreement dated December 13, 1995, among HRI, BRC,
Society and the Trustee.
Turbine Components Corporation
- ------------------------------
1. Lockbox numbered 30815 and the corresponding demand deposit account
numbered 00-5044-4115 at Fleet National Bank of Connecticut ("Fleet"),
subject to the Lockbox Account Letter Agreement dated December 13, 1995,
among HRI, BRC, Fleet and the Trustee.
2. Lockbox numbered 9512 and the corresponding demand deposit account numbered
1310968 at Bank of New Haven ("BNH"), subject to (i) the Lockbox Account
Letter Agreement dated December 13, 1995 (the "Agreement"), among HRI,
BRC, BNH and the Trustee and (ii) the Addendum to the Agreement dated as of
December 13, 1995.
<PAGE>
EXHIBIT A
[Opinion of Paul, Hastings, Janofsky & Walker LLP]
<PAGE>
EXHIBIT 4.15
AMENDING AGREEMENT
This Amending Agreement, dated as of August 29, 1997 (this "Agreement"), is
among Blade Receivables Corporation ("Transferor"), Howmet Corporation
("Howmet"), in its individual capacity and as Servicer (in such capacity, the
"Servicer"), Manufacturers and Traders Trust Company, as Trustee (in such
capacity, the "Trustee"), Falcon Asset Securitization Corporation (the "Class A
Purchaser"), Alpine Securitization Corp. (the "Class B Purchaser"; and together
with the Class A Purchaser, the "Purchasers"), Credit Suisse First Boston, New
York Branch ("Credit Suisse") and The First National Bank of Chicago, as Agent
for the Purchasers (in such capacity, the "Agent").
BACKGROUND:
A. Transferor, the Servicer and the Trustee have entered into the Amended
and Restated Pooling and Servicing Agreement, dated as of April 18, 1996 and
heretofore amended (as so amended, the "Pooling Agreement"), pursuant to which
the Blade Receivables Master Trust (the "Trust") was formed.
B. Howmet and Transferor have entered into the Amended and Restated
Receivables Purchase Agreement, dated as of April 18, 1996 and heretofore
amended (as so amended, the "Purchase Agreement"), pursuant to which Howmet
sells Receivables and Related Assets to Transferor.
C. Transferor, the Servicer and the Trustee have entered into the Series
1996-1 Supplement, dated as of April 18, 1996 (the "Supplement"), pursuant to
which (i) a Variable Rate Class A Trade Receivables Backed Certificate, Series
1996-1 (the "Class A Certificate") was issued to the Class A Purchaser in the
principal amount of $47,500,000, and (ii) a Variable Rate Class B Trade
Receivables Backed Certificate, Series 1996-1 (the "Class B Certificate") was
issued to the Class B Purchaser in the principal amount of $7,500,000.
D. Transferor and Howmet have requested the parties hereto to amend the
Transaction Documents described above so as to permit the Class B Certificate to
be repaid prior to repayment of the Class A Certificate, and to reduce certain
reporting requirements. The other parties hereto are willing to enter into such
amendments, subject to the terms and conditions contained herein.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration (the receipt of which is hereby acknowledged), the
parties hereto agree as follows:
SECTION 1 Definitions. Capitalized terms used but not otherwise
defined herein shall have the meanings assigned thereto in Appendix A to the
Pooling Agreement or in Section 1.1 to
<PAGE>
the Supplement (as applicable). In addition, the following terms shall have
the meanings ascribed to them below:
"Cash Flow Report" shall mean a report substantially in the form of
----------------
Schedule I to this Agreement, or such other form as is acceptable to the
- ----------
Servicer, Transferor and the Agent.
"Effective Date" means August 29, 1997.
--------------
"Interim Report" shall mean a report substantially in the form of Schedule
-------------- --------
II to this Agreement, or such other form as is acceptable to the Servicer,
- --
Transferor and the Agent.
"Interim Report Date" means (i) each Report Date, (ii) the Final
-------------------
Distribution Date, (iii) the first day of the Group Amortization Period, (iv)
the Refinancing Date, and (v) such other Business Days as shall be specified by
the Agent upon not less than two Business Days prior written notice to the
Servicer.
SECTION 2 Change In Reporting Dates.
-------------------------
(a) The provisions of Section 3.5(c) of the Pooling Agreement are hereby
modified so as to require the Servicer to prepare and deliver to the Trustee and
the Agent a report in the form of the Interim Report prior to 11:00 A.M., New
York City time, on each Interim Report Date, in lieu of preparing a Daily Report
on each Business Day. The provisions in such Section 3.5(c) regarding the
Servicer's inability to prepare a report due to a force majeure event specified
therein shall continue to apply, provided that the Servicer shall be required to
prepare an Interim Report using actual data required by the form of such report
no later than the sixth Business Day following oethe occurrence of such force
oemajeure event. The provisions in such section regarding Exempt Holidays shall
cease to apply.
(b) References in the Transaction Documents to information described in the
Daily Report for any day shall be deemed to refer to information shown in the
Servicer's records regarding the Receivables and the Trust as of such day,
including, without limitation, references in Section 3.1(b) of the Purchase
Agreement, and the definitions (in Section 1.1 of the Supplement) of Adjusted
Eligible Receivables, Base Amount, Deferred Portion, Required Receivables, and
Unapplied Cash.
(c) Servicer shall remain responsible for determining whether allocations
are required to be made on any day, pursuant to Section 4.3 or Section 4.4 of
the Supplement, to the Carrying Cost Account, the Equalization Account, the
Principal Funding Account or the Holdback Account, and whether funds need to be
transferred from any such account to the Agent or the Purchasers, and to
instruct the Trustee accordingly. Absent such instructions (or contrary written
instructions from the Agent, in which event the Trustee shall follow the Agent's
instructions), the Trustee shall be entitled to assume that no such transfers
are required and that all funds in the Master Collection Account may be
transferred each day to Transferor in accordance with the Servicer' s
instructions. Failure by the Servicer to give such instruction shall constitute
a failure
<PAGE>
to perform its obligations under the Transaction Documents and shall
give rise to indemnification obligations of the Servicer under Section 8.4 of
the Pooling Agreement. It is understood and agreed that the Agent, the Trustee
and the Purchasers shall be Indemnified Parties for purposes of such
indemnification obligations.
(d) References to Daily Reports in Section 3.7 of the Pooling Agreement,
and in the related agreed-upon procedures, shall be deemed to be references to
Interim Reports.
(e) Notwithstanding Section 2.1(a) of the Purchase Agreement, the Servicer
shall not be required to deliver to the Buyer, the Trustee or Howmet a Daily
Report showing the Purchase Price for Receivables purchased on each Business
Day. However, the Servicer shall maintain such records as would enable any such
Person to determine such Purchase Price without undue expense or delay. In
addition, each Interim Report shall show how Transferor and Howmet have settled
all Purchase Price amounts payable by Transferor to Howmet, and any related Non-
Complying Receivables and Dilution Adjustments, during the preceding Calculation
Period.
(f) On each Business Day, the Servicer shall prepare and deliver to the
Trustee a Cash Flow Report.
SECTION 3 Repayment of Class B Certificate.
--------------------------------
(a) The provisions of Section 4.9(d) of the Supplement and 3.1 of the
Certificate Purchase Agreement for the Class B Certificate are hereby waived by
the Purchasers, so as to enable the Class B Certificate to be prepaid in full on
the Effective Date. The parties acknowledge that funds have been accumulated in
the Principal Funding Account in respect of such prepayment, and waive the
requirement of three Business Days' prior notice set forth in Section 4.9(a) of
the Supplement.
(b) Credit Suisse represents and warrants that the original of the Class B
Certificate was destroyed in a fire, and therefore cannot be surrendered for
cancellation. Credit Suisse (i) represents and warrants that the Class B
Purchaser is the only holder of the Class B Certificate and has not transferred
any interest therein to any other Person, and (ii) agrees to defend, indemnify
and hold harmless the other parties hereto from and against any actual loss,
claim, liability, damage, or expense (including reasonable attorneys' fees and
legal expenses) which such other parties may suffer in good faith or incur as a
result of the Class B Certificate being presented for payment by a third party.
(c) On the Effective Date, the Class B Purchaser shall be paid
$7,538,817.71, representing the unpaid principal amount of the Class B
Certificate, interest accrued thereon through the date of prepayment and all
other applicable Additional Amounts. After receipt of such amount, the Class B
Purchaser shall have no further rights with respect to the Transferred Assets.
<PAGE>
SECTION 4 Increase of Class A Certificate. The Stated Amount of the Class
-------------------------------
A Certificate is hereby increased from $47,500,000 to $55,000,000.
Contemporaneously with the execution hereof, Transferor shall cause the Trustee
to authenticate and deliver a substitute Certificate (the "Substitute
----------
Certificate") in the Stated Amount of $55,000,000 and otherwise substantially in
- -----------
the form of the Class A Certificate. Promptly following receipt of the
Substitute Certificate, the Class A Purchaser shall mark the Class A Certificate
"cancelled" and return it to Transferor. All references in any instrument or
document to the Class A Certificate shall be deemed to be a reference to the
Substitute Certificate.
SECTION 5 Miscellaneous.
-------------
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES.
(b) This Agreement may be executed in any number of counterparts (which may
include facsimiles) and by the different parties hereto on separate
counterparts, each of which when so executed shall be deemed to be an original,
and all of which together shall constitute one and the same instrument.
(c) Except as expressly modified hereby, each of the Transaction Documents
is hereby ratified and confirmed in all respects. All references to any
Transaction Document in any other instrument or document shall be deemed to be a
reference to such Transaction Document as modified hereby.
(d) Each of Howmet and Transferor hereby represent and warrant that (i) no
Early Amortization Event or Unmatured Early Amortization Event has occurred or
will result from the transactions contemplated by this Agreement, and (ii) all
of the representations and warranties made by it in the Transaction Documents
are true and correct as of the date hereof, except to the extent that such
representations and warranties expressly relate to an earlier date.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date specified above.
BLADE RECEIVABLES CORPORATION
By: /s/ Jeffrey A. Jankowski
Title: Treasurer
HOWMET CORPORATION, individually
and as Servicer
By: /s/ Jeffrey A. Jankowski
Title: Treasurer
MANUFACTURERS AND TRADERS
TRUST COMPANY, as Trustee
<PAGE>
By: /s/
Title:
THE FIRST NATIONAL BANK OF
CHICAGO, as Agent
By: /s/
Title:
FALCON ASSET SECURITIZATION
CORPORATION
By: /s/
Title:
CREDIT SUISSE FIRST BOSTON,
NEW YORK BRANCH
By: /s/
Title:
ALPINE SECURITIZATION CORP.
By: Credit Suisse First Boston, New York
Branch, attorney-in-fact
By: /s/
Title:
<PAGE>
Schedule I
CASH FLOW REPORT
----------------
TO: Manufacturers and Traders Trust Company, as Trustee
FROM: Howmet Corporation, as Servicer
RE: Blade Receivables Master Trust
DATE: _____________________, 199_
A. Master Collection Account.
-------------------------
1. Opening balance in Master Collection Account $
------------
2. Funds to be transferred by Account Banks
to Master Collection Account ------------
3. Funds to be transferred from Master Collection
Account to Carrying Cost Account ------------
4. Funds to be transferred from Master Collection
Account to Principal Funding Account ------------
5. Funds to be transferred from Master Collection
Account to Equalization Account ------------
6. Funds to be held in Master Collection
Account on account of Additional Amounts ------------
7. Funds to be transferred from Master Collection
Account to Transferor ------------
8. Ending balance in Master Collection Account ------------
B. Principal Funding Account.
-------------------------
1. Opening balance in Principal Funding Account ------------
<PAGE>
2. Funds to be transferred to Principal
Account from Master Collection Account -------------
3. Funds to be transferred from Principal
Funding Account to the Agent -------------
4. Closing balance in Principal Funding
Account -------------
C. Carrying Cost Account.
---------------------
1. Opening Balance in Carrying Cost Account -------------
2. Funds transferred to Carrying Cost Account
from Master Collection Account -------------
3. Funds to be transferred for Carrying Cost
Account to the Agent -------------
4. Funds to be transferred from Carrying Cost
Account to other Persons [include payment
instructions] -------------
5. Closing Balance in Carrying Cost Account -------------
D. Equalization Account.
--------------------
1. Opening balance in Equalization Account -------------
<PAGE>
Schedule II
Form of Interim Report is attached.
<PAGE>
EXHIBIT 10.4(a)
HOWMET CORPORATION
RETIREMENT INCOME MAKE-UP PLAN "A"
AMENDED & RESTATED
EFFECTIVE JANUARY 1, 1996
================================================================================
SECTION 1. INTRODUCTION AND BACKGROUND.
Section 415 of the Internal Revenue Code of 1986, as amended (the
"Code"), limits the amount of the benefit that may be provided to an individual
under a tax-qualified retirement plan. On February 13, 1989, Pechiney
Corporation adopted this Retirement Income Make Up-Plan "A" (the "Plan") as an
unfunded "excess benefit" plan within the meaning of section 3(36) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The
purpose of the Plan was to provide participants and beneficiaries under the
Pechiney Corporation and Howmet Corporation Salaried Employees' Savings Plan
(the "Savings Plan") and under Part IX of the Howmet Combined Pension Plan (the
"Combined Plan") with that part of their retirement benefits that would have
been provided under those plans but for the limitations imposed by section 415
of the Code. Pechiney Corporation also adopted Retirement Income Make-Up Plan
"B" ("Plan B") to provide participants and beneficiaries under the Savings Plan
and under Part IX of the Combined Plan with that part of their retirement
benefits that would have been provided under those plans but for the limitations
imposed by Section 401 (a)(17) and certain other provisions of the Code.
A large number of changes have occurred in the intervening years since
this Plan and Plan B were adopted. In January 1991, the Combined Plan was
amended to add a new Part IX-A thereto to cover the future service of employees
previously covered under Part IX of that plan. In December 1995, Blade
Acquisition Corp. acquired 100 percent of the stock of Pechiney Corporation, the
immediate parent and sole shareholder of Howmet Corporation (the "Change in
Ownership"). In connection with the Change in Ownership, Pechiney Corporation
changed its name to Howmet Holdings Corporation, sponsorship of the Combined
Plan was transferred to an affiliate of the seller, benefits under Parts IX and
IX-A of the Combined Plan were frozen (subject to certain limited exceptions),
and Howmet Corporation established the Howmet Corporation Salaried Employees'
Pension Plan (the "Pension Plan") as a "mirror wrap-around" plan to provide
those benefits that would have been provided to participants and beneficiaries
under Parts IX and IX-A of the Combined Plan had those Parts not been frozen in
connection with the Change in Ownership.
Howmet Holding Corporation and Howmet Corporation have caused this
instrument to be adopted as an amendment and restatement of the Plan, effective
as of January 1, 1996. The purposes of the amendment and restatement are (1) to
reflect the intervening changes in the names of the employers and plans
referenced in the Plan, (2) to reflect the fact that participants' tax-qualified
pension benefits will now be paid partly out of the new Pension Plan and partly
out of the now frozen Parts IX and IX-A of the Combined Plan, (3) to transfer
principal sponsorship of the Plan from Howmet Holdings Corporation to Howmet
Corporation, and (4) to limit the scope of this Plan to the provision of
benefits that participants and beneficiaries cannot otherwise receive under the
Pension Plan and Parts IX and IX-A of the Combined Plan because of the
limitations imposed by section 415 of the Code.
<PAGE>
Howmet Corporation Page 2
Retirement Income Make-up Plan "A" January 1, 1996
===============================================================================
SECTION 2. OPERATION AND ADMINISTRATION.
The Plan shall be operated under the direction of the Board of
Directors of the Howmet Corporation and shall be administered by the Vice
President-Human Resources of Howmet Corporation or his designee (the "Plan
Administrator") in a manner consistent with the operation and administration of
the Pension Plan. The Plan Administrator's decision in any matter involving the
interpretation and application of this Plan shall be final and binding for all
purposes and upon all interested persons, their heirs, and personal
representatives. For this purpose, the Plan Administrator shall have the
discretionary power to interpret the Plan and to decide all matters arising
thereunder, including the right to remedy possible ambiguities, inconsistencies,
and omissions.
SECTION 3. ELIGIBILITY.
All participants and beneficiaries under the Pension Plan and under
Parts IX and IX-A of the Combined Plan whose retirement benefits under either
plan are limited, directly or indirectly, by the provisions of section 415 of
the Code, or by the provisions in those plans that implement that section
(together, the "Section 415 Limits"), shall receive benefits pursuant to this
Plan. In no event shall a participant or beneficiary be eligible for, or
receive, a benefit under this Plan that is not based upon a benefit under the
Pension Plan or under Part IX or IX-A of the Combined Plan to which such
participant or beneficiary is entitled.
SECTION 4. AMOUNT OF BENEFIT.
The benefit that Howmet Corporation and the other participating
employers in the Pension Plan shall pay to a participant or beneficiary under
this Plan shall equal the excess, if any, of (a) over (b), where:
(a) is the sum of the benefits that would have been received by such
participant or beneficiary under the Pension Plan and Parts IX and IX-A of the
Combined Plan, if the Section 415 Limits did not and never had applied to either
plan, and
(b) is the sum of the benefits that actually are receivable by such
participant or beneficiary under the Pension Plan and Parts IX and IX-A of the
Combined Plan, taking into account the Section 415 Limits (and any other limits
that apply under such plans).
SECTION 5. FORM AND TIMING OF BENEFITS.
(a) The time and form of payment of benefits to a participant or
beneficiary under this Plan shall be the same as the time and form of payment of
benefits that the participant or beneficiary receives under the Pension Plan.
(b) The Plan Administrator may make any appropriate arrangements for
the deduction from all amounts provided under this Plan (or from cash
compensation or other sources, if the amounts provided under this Plan are
subject to tax before they are paid) of any taxes or other amounts
<PAGE>
Howmet Corporation Page 3
Retirement Income Make-Up Plan "A" January 1, 1996
================================================================================
required to be withheld by any government or government agency. The participant
or beneficiary shall bear the employee portion of all taxes on amounts provided
under this Plan to the extent that no taxes are withheld, irrespective of
whether withholding is required.
SECTION 6. NON-DUPLICATION AND FORFEITURE.
(a) To the extent a benefit could be provided under the terms of
Plan B as well as under the terms of this Plan (without regard to this
subsection (a)), the benefit shall be provided solely under this Plan.
(b) Subject to the right of the Corporation to amend or discontinue
this Plan, as provided in Section 9 below, a participant or beneficiary shall
have a nonforfeitable interest in benefits payable under this Plan to the same
extent as he has a nonforfeitable right to the benefits to which they relate
under the Pension Plan or Parts IX and IX-A of the Combined Plan. However,
amounts otherwise payable under this Plan to a participant shall be forfeited to
the extent that the participant engages in willful misconduct or gross
negligence in the performance of his duties, where such conduct is detrimental
to the interests of Howmet Corporation or any of its affiliates, as determined
by the Plan Administrator in his sole discretion, before the participant's
retirement.
SECTION 7. NO FUNDING.
Benefits under this Plan shall be paid from the general assets of
Howmet Corporation and the other participating employers in the Pension Plan.
This Plan shall be administered as an unfunded "excess benefit" plan within the
meaning of section 3(36) of ERISA which is not intended to meet the
qualification requirements of section 401 of the Code. No participant or
beneficiary shall be entitled to receive any payment for benefits under this
Plan from the qualified trusts maintained for the Pension Plan or the Combined
Plan. Participation in this Plan shall not create, in favor of any participant
or beneficiary, any interest in or lien against any of the assets of Howmet
Corporation or the other participating employers in the Pension Plan. The
promise of Howmet Corporation and the other participating employers to pay
benefits hereunder shall at all times remain unfunded as to the participant or
beneficiary, whose rights hereunder shall be limited to those of a general and
unsecured creditor.
SECTION 8. DEFINITIONS.
Except to the extent otherwise provided herein, all terms under this
Plan shall have the same meaning as they have under the Pension Plan or under
Parts IX and IX-A of the Combined Plan, as the case may be. References to the
Combined Plan shall include a reference to any successor plan thereto.
SECTION 9. AMENDMENT AND DISCONTINUANCE.
Howmet Corporation expects to continue the Plan indefinitely but
reserves the right to amend or discontinue it if, in its sole judgment, such a
change is deemed necessary or desirable. Any amendment or discontinuance of the
Plan shall be adopted by action of the Board of Directors
<PAGE>
Howmet Corporation Page 4
Retirement Income Make-Up Plan "A" January 1, 1996
================================================================================
of Howmet Corporation or its designee. Such action may be taken on a retroactive
or prospective basis, with or without notice, on a group or individual basis, as
the Board of Directors or its designee determines in its sole discretion.
Notwithstanding the preceding provisions of this Section, no amendment or
discontinuance of the Plan shall deprive a participant or beneficiary of any
benefits or rights earned or accrued hereunder before the later of the effective
date or the adoption date thereof, except to the extent such benefits or rights
are provided for by other means.
SECTION 10. SPECIAL AGREEMENTS.
To the extent Howmet Corporation or any of the other participating
employers in the Pension Plan has entered into a special agreement or
arrangement with a participant with respect to providing him with benefits
substantially equivalent to or better than those provided hereunder (as
determined by the Plan Administrator in his sole discretion), this Plan shall be
deemed to have been superseded by such special agreement or arrangement in his
case.
SECTION 11. SUCCESSORS.
The provisions of this Plan shall bind the parties hereto and their
successors and assigns and shall inure to their benefit. The term successors as
used herein with respect to Howmet Corporation or any other participating
employer in the Pension Plan shall include any corporation or other business
entity that shall, whether by merger, consolidation, purchase, or otherwise,
acquire all or a substantial portion of the business and assets of Howmet
Corporation or such other employer, or that portion of its business in which the
relevant participant is employed.
SECTION 12. MISCELLANEOUS.
(a) The expenses incident to the operation of the Plan, including
the compensation of attorneys, advisors, actuaries, and such other persons
providing technical and clerical assistance as may be required, shall be paid
directly by Howmet Corporation.
(b) Nothing contained herein shall be deemed to give any employee
the right to be retained in the service of Howmet Corporation or any of its
affiliates or to interfere with the right of Howmet Corporation and its
affiliates to discharge any employee at any time without regard to the effect
that such discharge might have upon the employee under this Plan.
(c) A participant's or beneficiary's rights to benefits payable
under the Plan are not subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, or encumbrance.
(d) Any masculine terminology herein shall also include the feminine
and neuter, except when otherwise indicated by the context.
(e) This Plan shall be construed, administered, and regulated in
accordance with the laws of the State of New York, except to the extent that
such laws are preempted by federal law.
<PAGE>
Howmet Corporation Page 5
Retirement Income Make-Up Plan "A" January 1, 1996
================================================================================
SECTION 13. EFFECTIVE DATE.
The Plan, as amended and restated herein, shall apply to all
benefits payable under the Plan on or after January 1, 1996.
<PAGE>
EXHIBIT 10.4(b)
HOWMET CORPORATION
RETIREMENT INCOME MAKE-UP PLAN "B"
AMENDED & RESTATED
EFFECTIVE JANUARY 1, 1996
================================================================================
SECTION 1. INTRODUCTION AND BACKGROUND.
Section 401(a)(17) of the Internal Revenue Code of 1986, as amended
(the "Code"), limits the amount of annual compensation that may be taken into
account with respect to an individual under a tax-qualified retirement plan.
Pechiney Corporation adopted this Retirement Income Make Up-Plan "B" (the
"Plan") primarily for the purpose of providing unfunded deferred compensation
to a select group of management or highly compensated employees within the
meaning of Title I of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). The purpose of the Plan was to provide participants and
beneficiaries under the Pechiney Corporation and Howmet Corporation Salaried
Employees' Savings Plan (the "Savings Plan") and under Part IX of the Howmet
Combined Pension Plan (the "Combined Plan") with that part of their retirement
benefits that would have been provided under those plans but for the limitations
imposed by section 401(a)(17) and certain other provisions of the Code.
Pechiney Corporation also adopted Retirement Income Make-Up Plan "A" ("Plan A")
to provide participants and beneficiaries under the Savings Plan and under Part
IX of the Combined Plan with that part of their retirement benefits that would
have been provided under those plans but for the limitations imposed by Section
415 of the Code.
A large number of changes have occurred in the intervening years since
this Plan and Plan A were adopted. In January 1991, the Combined Plan was
amended to add a new Part IX-A thereto to cover the future service of employees
previously covered under Part IX of that plan. In December 1995, Blade
Acquisition Corp. acquired 100 percent of the stock of Pechiney Corporation, the
immediate parent and sole shareholder of Howmet Corporation (the "Change in
Ownership"). In connection with the Change in Ownership, Pechiney Corporation
changed its name to Howmet Holdings Corporation, sponsorship of the Combined
Plan was transferred to an affiliate of the seller, benefits under Parts IX and
IX-A of the Combined Plan were frozen (subject to certain limited exceptions),
and Howmet Corporation established the Howmet Corporation Salaried Employees'
Pension Plan (the "Pension Plan") as a "mirror wrap-around" plan to provide
those benefits that would have been provided to participants and beneficiaries
under Parts IX and IX-A of the Combined Plan had those Parts not been frozen in
connection with the Change in Ownership.
Howmet Holding Corporation and Howmet Corporation have caused this
instrument to be adopted as an amendment and restatement of the Plan, effective
as of January 1, 1996. The purposes of the amendment and restatement are (1) to
reflect the intervening changes in the names of the employers and plans
referenced in the Plan, (2) to reflect the fact that participants' tax-qualified
pension benefits will now be paid partly out of the new Pension Plan and partly
out of the now frozen Parts IX and IX-A of the Combined Plan, (3) to transfer
principal sponsorship of the Plan from Howmet Holdings Corporation to Howmet
Corporation, and (4) to limit the scope of this Plan to the provision of
benefits that
<PAGE>
HOWMET CORPORATION PAGE 2
RETIREMENT INCOME MAKE-UP PLAN "B" JANUARY 1, 1996
================================================================================
participants and beneficiaries cannot otherwise receive under the Pension Plan
and Parts IX and IX-A of the Combined Plan because of the limitations imposed by
section 401(a)(17) of the Code.
SECTION 2. OPERATION AND ADMINISTRATION.
The Plan shall be operated under the direction of the Board of
Directors of the Howmet Corporation and shall be administered by the Vice
President-Human Resources of Howmet Corporation or his designee (the "Plan
Administrator") in a manner consistent with the operation and administration of
the Pension Plan. The Plan Administrator's decision in any matter involving the
interpretation and application of this Plan shall be final and binding for all
purposes and upon all interested persons, their heirs, and personal
representatives. For this purpose, the Plan Administrator shall have the
discretionary power to interpret the Plan and to decide all matters arising
thereunder, including the right to remedy possible ambiguities, inconsistencies,
and omissions.
SECTION 3. ELIGIBILITY.
All participants and beneficiaries under the Pension Plan and under
Parts IX and IX-A of the Combined Plan whose retirement benefits under either
plan are limited, directly or indirectly, by the provisions of section
401(a)(17) of the Code, or by the provisions in those plans that implement that
section (together, the "Section 401(a)(17) Limits"), shall receive benefits
pursuant to this Plan. In no event shall a participant or beneficiary be
eligible for, or receive, a benefit under this Plan that is not based upon a
benefit under the Pension Plan or under Part IX or IX-A of the Combined Plan to
which such participant or beneficiary is entitled.
SECTION 4. AMOUNT OF BENEFIT.
The benefit that Howmet Corporation and the other participating
employers in the Pension Plan shall pay to a participant or beneficiary under
this Plan shall equal the excess, if any, of (a) over (b), where:
(a) is the sum of the benefits that would have been received by such
participant or beneficiary under the Pension Plan and Parts IX and IX-A of the
Combined Plan, if the Section 415 Limits did not and never had applied to either
plan, and
(b) is the sum of the benefits that actually are receivable by such
participant or beneficiary under Plan A, the Pension Plan and Parts IX and IX-A
of the Combined Plan, taking into account the Section 415 Limits and the Section
401(a)(17) Limits (and any other limits that apply under such plans).
SECTION 5. FORM AND TIMING OF BENEFITS.
<PAGE>
HOWMET CORPORATION PAGE 3
RETIREMENT INCOME MAKE-UP PLAN "B" JANUARY 1, 1996
================================================================================
(a) The time and form of payment of benefits to a participant or
beneficiary under this Plan shall be the same as the time and form of payment of
benefits that the participant or beneficiary receives under the Pension Plan.
(b) The Plan Administrator may make any appropriate arrangements for the
deduction from all amounts provided under this Plan (or from cash compensation
or other sources, if the amounts provided under this Plan are subject to tax
before they are paid) of any taxes or other amounts required to be withheld by
any government or government agency. The participant or beneficiary shall bear
the employee portion of all taxes on amounts provided under this Plan to the
extent that no taxes are withheld, irrespective of whether withholding is
required.
SECTION 6. NON-DUPLICATION AND FORFEITURE.
(a) To the extent a benefit could be provided under the terms of Plan B as
well as under the terms of this Plan (without regard to this subsection (a)),
the benefit shall be provided solely under this Plan.
(b) Subject to the right of the Corporation to amend or discontinue this
Plan, as provided in Section 9 below, a participant or beneficiary shall have a
nonforfeitable interest in benefits payable under this Plan to the same extent
as he has a nonforfeitable right to the benefits to which they relate under the
Pension Plan or Parts IX and IX-A of the Combined Plan. However, amounts
otherwise payable under this Plan to a participant shall be forfeited to the
extent that the participant engages in willful misconduct or gross negligence in
the performance of his duties, where such conduct is detrimental to the
interests of Howmet Corporation or any of its affiliates, as determined by the
Plan Administrator in his sole discretion, before the participant's retirement.
SECTION 7. NO FUNDING.
Benefits under this Plan shall be paid from the general assets of
Howmet Corporation and the other participating employers in the Pension Plan.
This Plan shall be administered as an unfunded plan of deferred compensation for
a select group of management or highly compensated employees within the meaning
of Title I of ERISA, which is not intended to meet the qualification
requirements of section 401 of the Code. No participant or beneficiary shall be
entitled to receive any payment for benefits under this Plan from the qualified
trusts maintained for the Pension Plan or the Combined Plan. Participation in
this Plan shall not create, in favor of any participant or beneficiary, any
interest in or lien against any of the assets of Howmet Corporation or the other
participating employers in the Pension Plan. The promise of Howmet Corporation
and the other participating employers to pay benefits hereunder shall at all
times remain unfunded as to the participant or beneficiary, whose rights
hereunder shall be limited to those of a general and unsecured creditor.
SECTION 8. DEFINITIONS.
<PAGE>
HOWMET CORPORATION PAGE 4
RETIREMENT INCOME MAKE-UP PLAN "B" JANUARY 1, 1996
================================================================================
Except to the extent otherwise provided herein, all terms under this
Plan shall have the same meaning as they have under the Pension Plan or under
Parts IX and IX-A of the Combined Plan, as the case may be. References to the
Combined Plan shall include a reference to any successor plan thereto.
SECTION 9. AMENDMENT AND DISCONTINUANCE.
Howmet Corporation expects to continue the Plan indefinitely but
reserves the right to amend or discontinue it if, in its sole judgment, such a
change is deemed necessary or desirable. Any amendment or discontinuance of the
Plan shall be adopted by action of the Board of Directors of Howmet Corporation
or its designee. Such action may be taken on a retroactive or prospective
basis, with or without notice, on a group or individual basis, as this Board of
Directors or its designee determines in its sole discretion. Notwithstanding
the preceding provisions of this Section, no amendment or discontinuance of the
Plan shall deprive a participant or beneficiary of any benefits or rights earned
or accrued hereunder before the later of the effective date or the adoption date
thereof, except to the extent such benefits or rights are provided for by other
means.
SECTION 10. SPECIAL AGREEMENTS.
To the extent Howmet Corporation or any of the other participating
employers in the Pension Plan has entered into a special agreement or
arrangement with a participant with respect to providing him with benefits
substantially equivalent to or better than those provided hereunder (as
determined by the Plan Administrator in his sole discretion), this Plan shall be
deemed to have been superseded by such special agreement or arrangement in his
case.
SECTION 11. SUCCESSORS.
The provisions of this Plan shall bind the parties hereto and their
successors and assigns and shall inure to their benefit. The term successors as
used herein with respect to Howmet Corporation or any other participating
employer in the Pension Plan shall include any corporation or other business
entity that shall, whether by merger, consolidation, purchase, or otherwise,
acquire all or a substantial portion of the business and assets of Howmet
Corporation or such other employer, or that portion of its business in which the
relevant participant is employed.
<PAGE>
HOWMET CORPORATION PAGE 5
RETIREMENT INCOME MAKE-UP PLAN "B" JANUARY 1, 1996
================================================================================
SECTION 12. MISCELLANEOUS.
(a) The expenses incident to the operation of the Plan, including the
compensation of attorneys, advisors, actuaries, and such other persons providing
technical and clerical assistance as may be required, shall be paid directly by
Howmet Corporation.
(b) Nothing contained herein shall be deemed to give any employee the right
to be retained in the service of Howmet Corporation or any of its affiliates or
to interfere with the right of Howmet Corporation and its affiliates to
discharge any employee at any time without regard to the effect that such
discharge might have upon the employee under this Plan.
(c) A participant's or beneficiary's rights to benefits payable under the
Plan are not subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, or encumbrance.
(d) Any masculine terminology herein shall also include the feminine and
neuter, except when otherwise indicated by the context.
(e) This Plan shall be construed, administered, and regulated in accordance
with the laws of the State of New York, except to the extent that such laws are
preempted by federal law.
SECTION 13. EFFECTIVE DATE.
The Plan, as amended and restated herein, shall apply to all benefits
payable under the Plan on or after January 1, 1996.
<PAGE>
Exhibit 10.23
-------------
STOCK APPRECIATION RIGHT AGREEMENT
----------------------------------
THIS AGREEMENT dated as of May 17, 1996, is made by and between Howmet
Corporation, a Delaware corporation (the "Company"), and Roland Paul, (the
"Executive"):
WHEREAS, Executive is a key management employee of the Company or one of
the Company's Subsidiaries,
WHEREAS, the Board has determined that it would be to the advantage and
best interest of the Company, and the shareholders of the Company to grant the
Stock Appreciation Rights provided for herein to the Executive as an inducement
to remain in the service of the Company, its Parent Corporation or its
Subsidiaries and as an incentive for increased efforts during such service;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, receipt of which is hereby
acknowledged, the Company and the Executive do hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
The following terms shall have the meanings specified below. Other
capitalized terms are defined elsewhere in this Agreement and shall have the
meanings there specified.
Section 1.1 - Acceleration Event
- ----------- ------------------
"Acceleration Event" shall mean one of the following events occurring prior
to March 31, 2001: (i) a Merger, (ii) a Sale, (iii) the acquisition by an
unaffiliated entity or person, of more than fifty percent (50%) of Blade Common
Stock then outstanding or of Company Common Stock then outstanding, (iv) the
liquidation, dissolution or winding up of the Company or Blade (other than in a
restructuring transaction which results in the continuation of the Company's (or
Blade's) business by an affiliated entity), (v) exercise of the Thiokol Option
and the transfer pursuant thereto of Blade Common Stock owned by Carlyle-Blade
Acquisition Partners, L.P. to Thiokol Holding Company, (vi) disposition by
Carlyle-Blade and its Affiliates (including, without limitation, in a series of
transactions) of the entirety of their interest in Blade Common Stock, or (vii)
a public offering of more than fifty percent (50%) of Blade Common Stock or
Company Common Stock then outstanding pursuant to a registration statement
(other than pursuant to Form S-8) filed under the Securities Act of 1933.
<PAGE>
Section 1.2 - Affiliate
- ----------- ---------
"Affiliate" with respect to any entity, shall mean a person or entity
directly or indirectly controlling, controlled by, or under common control with,
such entity, where "control" has the meaning given such term under Rule 405 of
the Securities Act of 1933.
Section 1.3 - Appreciated Value
- ----------- -----------------
"Appreciated Value" per Stock Appreciation Right shall mean (i) one
two-hundredth (1/200th) of the Fair Market Value per share of Blade Common Stock
as of the applicable Valuation Date minus (ii) the Base Value of the Stock
-----
Appreciation Right, but not less than zero.
Section 1.4 - Base Value
- ----------- ----------
"Base Value" shall mean One Hundred Dollars ($100) (subject to adjustment
pursuant to the provisions set forth in Section 2.4).
Section 1.5 - Blade
- ----------- -----
"Blade" shall mean Blade Acquisition Corp., a Delaware corporation.
Section 1.6 - Blade Common Stock
- ----------- ------------------
"Blade Common Stock" shall mean the common stock, par value $0.01 per
share, of Blade.
Section 1.7 - Board
- ----------- -----
"Board" shall mean the Board of Directors of the Company.
Section 1.8 - Cash Flow
- ----------- ---------
"Cash Flow" shall mean, for any period, the difference between the level of
Net Debt as of the day prior to the first day of such period and the level of
Net Debt as of the last day of such period, without giving effect to any changes
in Net Debt resulting from extraordinary transactions, including the sale or
acquisition of assets or inventory not in the ordinary course of business, and
without giving effect to any changes in Net Debt resulting from any payment
pursuant to purchase price adjustment under the Stock Purchase Agreement dated
as of October 12, 1995 among Pechiney, Pechiney International, S.A. and Blade.
"Net Debt" shall equal the difference between "Consolidated Total Indebtedness"
and the total cash balance reported as a current asset on the Company's balance
sheet. "Consolidated Total Indebtedness" shall include outstanding balances,
including current portions, of all long-term indebtedness of the Company, its
Parent Corporations and its Subsidiaries including off-
2
<PAGE>
balance sheet financings, including, but not limited to, balances due to third
parties through accounts receivables securitization agreements.
Section 1.9 - Code
- ----------- ----
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.10 - Company Common Stock
- ------------ --------------------
"Company Common Stock" shall mean the common stock par value $0.01 per
share, of the Company.
Section 1.11 - Cumulative Cash Flow
- ------------ --------------------
"Cumulative Cash Flow" shall mean, with respect to a determination of the
vesting of any portion of the Stock Appreciation Rights pursuant to the
"deferred vesting" provisions of Section 3.1(c), the sum of Cash Flow for each
fiscal year within the period (i) commencing on the first day of the fiscal year
preceding the fiscal year in which falls the Vesting Date on which the
applicable portion of the Stock Appreciation Rights failed to vest pursuant to
the "performance related vesting" provisions of Section 3.1(b) and (ii) ending
on the last day of the fiscal year preceding the fiscal year in which falls the
applicable Deferred Vesting Date.
Section 1.12 - Cumulative Target Cash Flow
- ------------ ---------------------------
"Cumulative Target Cash Flow" shall mean, with respect to a determination
of the vesting of any portion of the Stock Appreciation Rights pursuant to the
"deferred vesting" provisions of Section 3.1(c), the sum of Target Cash Flow for
each fiscal year within the period (i) commencing on the first day of the fiscal
year preceding the fiscal year in which falls the Vesting Date on which the
applicable portion of the Stock Appreciation Rights failed to vest pursuant to
the "performance related vesting" provisions of Section 3.1(b) and (ii) ending
on the last day of the fiscal year preceding the fiscal year in which falls the
applicable Deferred Vesting Date.
Section 1.13 - Fair Market Value
- ------------ -----------------
"Fair Market Value" shall mean the fair market value of a share of Blade
Common Stock, which shall be equal to, at the Board's discretion either (i) the
value determined by a reputable firm experienced in valuation of similar
businesses, and selected by the Board, which firm's determination shall be final
and binding on the parties hereto or (ii) the per share value determined
pursuant to an Acceleration Event. Fair Market Value shall be determined as of
the applicable Valuation Date.
3
<PAGE>
Section 1.14 - GAAP
- ------------ ----
"GAAP" shall mean generally accepted accounting principles, applied on a
basis consistent with prior periods.
Section 1.15 - Merger
- ------------ ------
"Merger" shall mean a merger or consolidation of the Company or Blade
with another unaffiliated entity in which the stockholders of the Company or
Blade (as applicable) receive cash, securities and/or other marketable property
in exchange for their Company Common Stock or Blade Common Stock.
Section 1.16 - Parent Corporation
- ------------ ------------------
"Parent Corporation" shall mean any corporation in an unbroken chain of
corporations ending with the Company if each of the corporations other than the
Company then owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
Section 1.17 - Payment Date(s)
- ------------ ---------------
"Payment Date(s)" shall mean the date (or dates) on which the Executive is
entitled to receive payments with respect to the Stock Appreciation Rights, in
accordance with the provisions of Section 2.3(b).
Section 1.18 - Permitted Transfer
- ------------ ------------------
"Permitted Transfer" shall mean the Transfer of Stock Appreciation Rights
by will or intestate succession to the Executive's executors, administrators,
testamentary trustees legatees or beneficiaries.
Section 1.19 - Sale
- ------------ ----
"Sale" shall mean a sale to an unaffiliated entity of all or substantially
all of the assets of the Company or of Blade.
Section 1.20 - Stock Appreciation Rights
- ------------ -------------------------
"Stock Appreciation Rights" shall mean the rights granted under this
Agreement to receive the payments set forth in Section 2.3, hereof, calculated
with respect to each Stock Appreciation Right based on the appreciation in value
of one two-hundredth (1/200) of a share of Blade Common Stock over the Base
Value, subject to the limitations and conditions provided in this Stock
Appreciation Right Agreement.
4
<PAGE>
Section 1.21 - Subsidiary
- ------------ ----------
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company, if each such corporation, other than
the last corporation in the unbroken chain, then owns 50% or more of the total
combined voting power in one of the other corporations in such chain.
Section 1.22 - Target Cash Flow
- ------------ ----------------
"Target Cash Flow" shall mean, for each of the five fiscal years identified
on Exhibit A hereto, the amount specified for such year on such Exhibit;
provided, however, that in the case of divestiture or acquisition of a business
- -------- -------
unit by the Company or any of its Subsidiaries, the Board shall determine in
good faith an appropriate and equitable adjustment to Target Cash Flow for the
fiscal year in which such event occurs and each subsequent fiscal year, in the
case of a divestiture to reduce Target Cash Flow by the estimated contribution,
if any, that would have been made thereto by the divested unit during the
remainder of such periods, and in the case of an acquisition to increase Target
Cash Flow by the estimated contribution, if any, to be made thereto by the
acquired unit. In the event of such an adjustment, the Board shall notify the
Executive thereof; and any such adjustment made by the Board in good faith shall
be final and binding upon the parties.
Section 1.23 - Termination of Employment
- ------------ -------------------------
"Termination of Employment" shall mean the time when, for any reason, there
ceases to be an employee-employer relationship between the Executive, on the one
hand, and the Company, a Parent Corporation and/or one or more Subsidiaries of
the Company, on the other hand, including, without limitation, by reason of
resignation, discharge (with or without cause), termination, death, disability
or retirement. The Board, in its absolute discretion, shall determine the effect
of all matters and questions relating to Termination of Employment, including,
but not limited to, all questions of whether a particular leave of absence
constitutes a Termination of Employment.
Section 1.24 - Thiokol Option
- ------------ --------------
"Thiokol Option" shall mean the right granted to Thiokol Holding Company to
purchase Blade Common Stock from Carlyle-Blade Acquisition Partnership. L.P.,
pursuant to the Shareholders Agreement dated December 13, 1995.
Section 1.25 - Transfer
- ------------ --------
"Transfer" when used in reference to the Stock Appreciation Rights shall
mean any sale, encumbrance, pledge, gift, assignment, alienation or other form
of disposition or transfer of the Stock Appreciation Rights, or any portion
thereof, or of
5
<PAGE>
any legal, beneficial or equitable interest therein or part thereof, whether
voluntary or involuntary or by operation of law. The terms "Transferred,"
"Transferring" and the like shall have similar meanings.
Section 1.26 - Unvested Percentage
- ------------ -------------------
"Unvested Percentage" shall mean that percentage of the Stock Appreciation
Rights that has not become "vested" pursuant to Section 3.1 or Section 4.1
hereof.
Section 1.27 - Valuation Date
- ------------ --------------
"Valuation Date" shall mean the date as of which Appreciated Value is
determined, as set forth in Section 2.3.
Section 1.28 - Vested Percentage
- ------------ -----------------
"Vested Percentage" shall mean that percentage of the Stock Appreciation
Rights that has become vested pursuant to Section 3.1 or Section 4.1 hereof.
Section 1.29 - Vesting Date
- ------------ ------------
"Vesting Date" shall mean a date on which a portion of the Stock
Appreciation Rights may become "Vested" pursuant to Section 3.1 hereof.
ARTICLE II
GRANT OF STOCK APPRECIATION RIGHT
---------------------------------
Section 2.1 - Grant of Stock Appreciation Right
- ----------- ---------------------------------
In consideration of the Executive's promises set forth in Section 2.2, and
for other good and valuable consideration, on the date hereof the Company grants
to the Executive, subject to the terms and conditions set forth in this
Agreement, 3,000 Stock Appreciation Rights, each with respect to one two-
hundredth (1/200th) of a share of Blade Common Stock.
Section 2.2 - Consideration to the Company
- ----------- ----------------------------
In consideration of the granting of the Stock Appreciation Rights, the
Executive agrees to render faithful and efficient services to the Company or a
Parent Corporation or a Subsidiary of the Company, with such duties and
responsibilities as such employer shall from time to time prescribe. Nothing in
this Agreement shall confer upon the Executive any right to continue in the
employ of the Company, any Parent Corporation or any Subsidiary or shall
interfere with or restrict in any way the rights of the Company, any Parent
Corporation or any Subsidiary of the Company to discharge the Executive. The
Executive also agrees that he shall not assert that any event occurring prior to
the date of execution
6
<PAGE>
thereof (including without limitation, the termination of the Company's 1993,
1994 and 1995 Long-Term Incentive plans and its Restructuring Cash Incentive
Plan) constitutes "Good Reason" as defined in the Employment Agreement dated as
of October 4, 1995 to which the Executive, the Company and Pechiney are parties.
Section 2.3 - Determination and Method of Payment
- ----------- -----------------------------------
(a) (i) Subject to the provisions of Section 3.1(e), the Stock
Appreciation Rights shall entitle the Executive to receive
payment, on the applicable Payment Date(s) set forth below, of
an aggregate amount (the "Aggregate Payment Amount") equal to
the product of
(A) the number of Stock Appreciation Rights granted pursuant to
Section 2.1,
(B) the Vested Percentage, and
(C) the Appreciated Value.
(ii) For purposes of determining Appreciated Value, the Valuation Date
shall be the earliest of
(A) March 31, 2001,
(B) the date on which an Acceleration Event occurs, and
(C) a date selected by the Board in its discretion that is not
more than twelve months prior to, or more than six months
subsequent to the date of the Executive's first Termination
of Employment which precedes the earlier of the dates
described in (A) and (B) above (it being understood that the
Company does not intend to conduct a valuation of the Blade
Common Stock more frequently than once per fiscal year).
(b) The Aggregate Payment Amount shall be paid in cash, at the election of
the Company, either:
(i) in a lump sum on a date selected by the Board in its discretion
that is no more that sixty (60) days subsequent to the earlier of the
dates described in subsections(a)(ii)(A) and (B) above or
--
(ii) in three equal installments, the first such installment to be
paid on a date (the "Initial Installment Date") selected by the Board in
its discretion that is no more than sixty (60) days subsequent to the
earlier of the dates described in subsections (a)(ii)(A) and (B) above,
and the remaining two installments (the "Deferred Installments")
7
<PAGE>
to be paid on the first and second anniversaries of the Initial
Installment Date, respectively. Each Deferred Installment shall be paid
together with interest thereon, at the Applicable Federal Rate for short
term obligations (as set forth in Section 1274(d) of the Code or the
Treasury Regulations promulgated thereunder), calculated from the Initial
Installment Date to the date such Deferred Installment is actually paid.
(c) Notwithstanding anything to the contrary in the foregoing, the
Company's obligation to make any payment provided for in Section 2.3(b) shall be
suspended if:
(i) Such payment would render the Company unable to meet its
obligations in the ordinary course of business;
(ii) The Company is prohibited by applicable law from making such
payment; or
(iii) Such payment would constitute an unwaived breach of, or default
or event of default under, or is otherwise prohibited by, the terms of any
loan agreement or other agreement or instrument to which the Company or any
of the Company's Affiliates is a party,
any of such events constituting a "Payment Disability." In the event of a
Payment Disability, the Company shall make such payment as soon as reasonably
possible after all Payment Disabilities cease to exist. In the event that the
Company suspends its payment obligations pursuant to this Section 2.3(c), the
Company shall pay to the Executive an additional amount equal to interest
calculated on the amount of the suspended payment at the Applicable Federal Rate
for short term obligations (as set forth in Section 1274(d) of the Code or the
Treasury Regulations promulgated thereunder) from the date the payment would
have occurred but for the Payment Disability to (but not including) the date
such payment actually occurs (provided that no interest shall be due pursuant to
the foregoing to the extent that interest on account of such delay in payment
has accrued on such payment pursuant to Section 2.3(b).
Section 2.4 - Certain Adjustments
- ----------- -------------------
In the event that Blade Common Stock is changed into or exchanged for a
different number or kind of shares of Blade or securities of another company by
reason of merger, consolidation, recapitalization, reclassification, stock split
up, stock dividend or combination of shares, then the Board shall make an
appropriate and equitable adjustment in the definition of Base Value and/or
Appreciated Value and/or the number of Stock Appreciation Rights to reflect such
event. Any such adjustment made by the Board in good faith shall be final and
binding upon the Executive, the Company and all other interested persons.
8
<PAGE>
Section 2.5 - Stock Appreciation Right Not Transferable
- ----------- -----------------------------------------
No Stock Appreciation Right nor any interest or right therein or part
thereof shall be liable for the debts, contracts or engagements of the Executive
or his successors in interest or shall be subject to Transfer, whether by
alienation, anticipation, pledge, encumbrance, assignment or any other means,
and whether such Transfer be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted Transfer thereof shall be
null and void and of no effect; provided, however, that this Section 2.5 shall
-------- -------
not prevent a Permitted Transfer upon the Executive's death (and in the event of
a Permitted Transfer, payments to be made hereunder to the Executive shall
thereafter be made to the Executive's personal representative or such other
person as is empowered under the Executive's will or the then applicable laws of
descent and distribution to enforce the Executive's rights hereunder).
ARTICLE III
VESTING
-------
Section 3.1 - Vesting
- ----------- -------
Fifty percent of the Stock Appreciation Rights shall be subject to Time
Vesting and fifty percent shall be subject to Performance Vesting as follows:
(a) Time Vesting. Provided in each case that no Termination of Employment
------------
has occurred prior to the applicable Vesting Date, fifty percent of the Stock
Appreciation Rights shall become vested as follows:
(i) As of March 31, 1997 10% of the Stock Appreciation Rights
shall become Vested,
(ii) As of March 31, 1998, an additional 10% of the Stock
Appreciation Rights shall become vested,
(iii) As of March 31, 1999, an additional 10% of the Stock
Appreciation Rights shall become vested,
(iv) As of March 31, 2000, an additional 10% of the Stock
Appreciation Rights shall become vested, and
(v) As of March 31, 2001, an additional 10% of the Stock
Appreciation Rights shall become vested.
(b) Performance Related Vesting. Provided in each case that
---------------------------
9
<PAGE>
(i) no Termination of Employment has occurred prior to the
applicable Vesting Date, and
(ii) Cash Flow for the fiscal year immediately preceding the
fiscal year in which falls the applicable Vesting Date equals or exceeds
Target Cash Flow for such year,
the remaining fifty percent of the Stock Appreciation Right shall become vested
as follows:
(A) As of March 31, 1997, 10% of the Stock Appreciation
Rights shall become vested,
(B) As of March 31, 1998, an additional 10% of the Stock
Appreciation Rights shall become vested,
(C) As of the March 31, 1999, an additional 10% of the Stock
Appreciation Rights shall become vested,
(D) As of March 31, 2000, an additional 10% of the Stock
Appreciation Rights shall become vested, and
(E) As of March 31, 2001, an additional 10% of the Stock
Appreciation Rights shall become vested.
(c) Deferred Vesting. If any portion of the Stock Appreciation Rights does
----------------
not become vested pursuant to the "performance related vesting" provisions of
Section 3.1(b) on the scheduled Vesting Date due to the failure of Cash Flow to
equal or exceed Target Cash Flow in the applicable fiscal year, then such
portion of the Stock Appreciation Rights shall become vested on the next Vesting
Date thereafter (the "Deferred Vesting Date") as of which Cumulative Cash Flow
equals or exceeds Cumulative Target Cash Flow, provided that (i) as of the last
day of the fiscal year preceding the fiscal year in which falls the Deferred
Vesting Date, all material obligations of the Company and Blade (including,
without limitation, satisfaction of financial covenants) under all outstanding
debt agreements have been satisfied and (ii) the Executive shall not have
incurred a Termination of Employment prior to such Deferred Vesting Date and
provided further that the last Deferred Vesting Date shall be March 31, 2001,
after which date the Unvested Percentage of the Stock Appreciation Rights as of
such date shall expire. That portion of the Stock Appreciation Rights that does
not become vested on the scheduled Deferred Vesting Date due to the failure of
the Company or Blade to satisfy debt agreement obligations in accordance with
clause (i) above shall expire and be cancelled as of such Deferred Vesting Date
and shall not be subject to vesting pursuant to Section 4.1.
10
<PAGE>
(d) Discretion of the Board. The Board may elect, in its discretion, to
-----------------------
cause any portion of the Stock Appreciation Rights to become vested prior to the
date on which it would otherwise become vested pursuant to the provisions of
this Section 3.1 (and whether or not any other conditions to such vesting have
been met); provided, however that the Board shall have no obligation to cause
-------- -------
any portion of the Stock Appreciation Rights to become vested pursuant to this
Section 3.1(d)).
(e) Effect of Termination of Employment.
-----------------------------------
(i) No portion of the Stock Appreciation Rights shall become
vested (whether pursuant to this Section 3.1, Section 4.1, or otherwise)
following a Termination of Employment, except pursuant to an exercise of
the Board's discretion under Section 3.1(d) and then only in the event such
Termination of Employment is due to the Executive's death or disability,
(ii) If a Termination of Employment has occurred other than for
cause (as determined by the Board in its discretion), the Executive will
retain ownership of the portion of the Stock Appreciation Rights that has
become vested prior to the date of such Termination of Employment, but no
payments will be made to the Executive with respect to such Stock
Appreciation Rights prior to the applicable Payment Date(s) specified in
Section 2.3 provided, that, except as the Board may elect otherwise in its
discretion, all Stock Appreciation Rights granted to the Executive (vested
and unvested) shall be forfeited and cancelled as of any date on which the
Executive violates any provision of the Employment Agreement between the
Executive, the Company and Pechiney dated October 4, 1995, and
(iii) Except as the Board may elect otherwise, in its discretion,
in the event of the Executive's Termination of Employment for cause (as
determined by the Board in its discretion), all Stock Appreciation Rights
granted to the Executive (vested and unvested) shall be forfeited and
cancelled as of the date of Termination of Employment and the Executive
shall not be entitled to any payment with respect to such Stock
Appreciation Rights.
ARTICLE IV
ACCELERATION
------------
Section 4.1 - Acceleration Event
- ----------- ------------------
(a) If an Acceleration Event shall occur, then the Stock Appreciation
Rights that have not been forfeited or cancelled shall be deemed to be vested to
the extent set forth in Section 4.1(b) below, notwithstanding that the Stock
Appreciation Rights may not yet have become vested to such extent under Section
3.1.
11
<PAGE>
Any "accelerated vesting" pursuant to this Section 4.1 shall be effective as of
the date the applicable Acceleration Event occurs; and thereafter, all further
vesting (pursuant to Section 3.1 or otherwise) shall cease.
(b) The portion of the Stock Appreciation Rights that shall be deemed to be
vested pursuant to Section 4.1(a) shall be (i) the entire portion of the Stock
Appreciation Rights subject to vesting pursuant to Section 3.1(a), plus (ii) the
----
portion of the Stock Appreciation Rights subject to vesting pursuant to Section
3.1(b) that has not expired pursuant to Section 3.1(c), multiplied by a fraction
the numerator of which is the portion of the Stock Appreciation Rights that has
already become vested pursuant to the terms of Section 3.1(b) and Section
3.1(c), and the denominator of which is the portion of the Stock Appreciation
Rights that would have become vested pursuant to Section 3.1(b) and Section
3.1(c) on or prior to the date of the Acceleration Event had all applicable
performance tests been met. See the example on Exhibit B.
ARTICLE V
MISCELLANEOUS
-------------
Section 5.1 - Stockholder Approval
- ----------- --------------------
This Agreement shall be effective upon approval by the stockholders of the
Company as provided in Section 280G(b)(5)(A)(ii) of the Code and regulations
thereunder.
Section 5.2 - Notices
- ----------- -------
Any and all notices and any other communications provided for herein shall
be given in writing and shall be delivered either personally, by registered or
certified mail, postage prepaid, or by courier service which shall be addressed,
(i) in the case of the Company to the Chief Executive Officer of the Company
(with a copy to the General Counsel of the Company) at the principal office of
the Company at 475 Steamboat Road, Greenwich, Connecticut, 06836, (203)
661-4600, or such other address as the Company may supply by notice from time to
time, and (ii) in the case of the Executive, to his address appearing in the
records of the Company or to such other address as may be designated in writing
by him. Any notice mailed as provided in this Section shall, unless provided to
the contrary elsewhere in this Agreement, be deemed effective four business days
after having been delivered to the U.S. Postal Service, postage prepaid, return
receipt requested, two business days after been delivered to a courier service,
or if earlier, when actually received.
12
<PAGE>
Section 5.3 - Invalid Provision
- ----------- -----------------
The invalidity or unenforceability of any particular provision hereof shall
not affect the other provisions hereof, and this Agreement shall be construed in
all respects as if such invalid or unenforceable provision was omitted.
Section 5.4 - Modifications
- ----------- -------------
No change or modification of this Agreement shall be valid unless the same
is in writing and signed by the parties hereto.
Section 5.5 - Counterparts
- ----------- ------------
This Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
Section 5.6 - Assignment
- ----------- ----------
Except as otherwise provided herein, no party may assign this Agreement
or any of his or its rights, interests or obligations hereunder without the
prior written consent of the other parties, provided that the Company's rights
and obligations hereunder may be assigned to any Parent Corporation or
Subsidiary or to any successor pursuant to a merger, consolidation or similar
event. Subject to the foregoing, this Agreement and the respective rights and
obligations of the parties hereto shall inure to the benefit of and be binding
upon, the successors and assigns of the parties.
Section 5.7 - Administration
- ----------- --------------
The Board shall have the power to interpret this Agreement and to adopt
such rules for the administration, interpretation and application of this
Agreement as are consistent herewith and to interpret or revoke any such rules.
All actions taken and all interpretations and determinations made by the Board
in good faith shall be final and binding upon the Executive, the Company and all
other interested persons. No member of the Board shall be personally liable for
any action, determination or interpretation made in good faith with respect to
this Agreement or the Stock Appreciation Rights.
Section 5.8 - Withholding
- ----------- -----------
The Executive acknowledges that the Company, a Parent Corporation or a
Subsidiary may have an obligation to withhold a portion of the amounts otherwise
payable to the Executive hereunder pursuant to federal, state and local income
tax laws and regulations, and the Company, any Parent Corporation and any such
Subsidiary are hereby authorized to withhold any such required amount.
13
<PAGE>
Section 5.9 - Titles
- ----------- ------
Titles are provided herein for convenience only and are not to serve an a
basis for interpretation or construction of this Agreement.
Section 5.10 - Law Governing
- ------------ -------------
The laws of the State of New York shall govern the interpretation, validity
and performance of the terms hereof, regardless of the law that might be applied
under principles of conflicts of law.
Section 5.11 - Entire Agreement
- ------------ ----------------
This Agreement embodies the entire agreement and understanding of the
parties hereto with respect to the subject matter contained herein.
Section 5.12 - No Rights as Stockholder
- ------------ ------------------------
The parties acknowledge and agree that the provisions of this Agreement
shall not be construed as conferring upon the Executive any rights or privileges
of a stockholder of the Company, any Parent Corporation or any Subsidiary, the
rights and privileges of the Executive being limited to those expressly set
forth in this Agreement.
Section 5.13 - Effect of Plan Upon Other Compensation Plans
- ------------ --------------------------------------------
(a) The implementation of this Stock Appreciation Right Agreement shall not
affect any other compensation or incentive plans in effect for the Company, any
Parent Corporation or any Subsidiary. Nothing in this Agreement shall be
construed to limit the right of the Company, any Parent Corporation or any
Subsidiary (i) to establish any other forms of incentives or compensation for
employees of the Company, any Parent Corporation or any Subsidiary or (ii) to
grant or assume options or stock appreciation rights otherwise than under this
Plan in connection with any proper corporate purpose, including, but not by way
of limitation, the grant or assumption of options or stock appreciation rights
in connection with the acquisition by purchase, lease, merger, consolidation or
otherwise, of the business, stock or assets of any corporation, firm or
association.
(b) Grants of Stock Appreciation Rights and any payments with respect
thereto shall not constitute "compensation" for purposes of any pension, welfare
or other benefit plan or policy of the Company unless provided for therein.
14
<PAGE>
Section 5.14 - Arbitration
- ------------ -----------
Any dispute or controversy arising under, out of, in connection with or in
relation to this Agreement and the Stock Appreciation Rights shall be finally
determined and settled by arbitration in the city of the New York in accordance
with the rules and procedures of the American Arbitration Association, and
judgment upon the award may be entered in any court having jurisdiction thereof.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto.
HOWMET CORPORATION
By /s/
---------------------------
President
Sign: /s/ Roland Paul
--------------------------
Print Name Here: Roland Paul
8 Ellery Lane
- -------------------------------
Address
Westport, CT 06880-5202
- -------------------------------
City State Zip Code
###-##-####
- -------------------------------
Executive's Taxpayer Identification Number
15
<PAGE>
Exhibit A
---------
TARGET CASH FLOW
----------------
<TABLE>
<CAPTION>
($ Millions)
----------
Fiscal Year Target Cash Flow
----------- ----------------
<S> <C>
1996* 22.3
1997 35.3
1998 41.3
1999 47.6
2000 54.4
</TABLE>
- --------
* For purposes of this Agreement, fiscal year 1996 shall include the
period from December 13, 1995 through December 31, 1995 and the first
day of fiscal year 1996 shall be deemed to be December 13, 1995.
16
<PAGE>
Exhibit B
---------
EXAMPLE OF ACCELERATED VESTING:
Assume: Cash Flow for 1996 and 1997 exceed Cash Flow Targets for those years
and Cash Flow for 1998 is less than Target Cash Flow for 1998.
Acceleration Event occurs on June 1, 1999.
As of May 31, 1999, 50% of SARs vested: 30% pursuant to Time Vesting
and 20% pursuant to Performance Vesting.
Accelerated Vesting: Pursuant to Section 4.1(b)(i), all of the
20% of the SARs remaining subject to Time
Vesting becomes vested upon June 1, 1999.
Pursuant to Section 4.1(b)(ii), two thirds of the 30% of
the SARs remaining subject to Performance Vesting
becomes vested upon June 1, 1999 as follows:
Unexpired Performance Performance Vesting SARs
that have vested -------------------------
- ----------------
Vesting SARs X Performance Vesting SARs that
would have vested if all
targets met
= 30% X 20%
------------
30%
= 20%.
As of June 1, 1999, 50% + 20% + 20% = 90% of SARs vested.
17
<PAGE>
Exhibit 10.26
TRUST AGREEMENT
---------------
THIS AGREEMENT dated as of December 13, 1995, among PECHINEY
CORPORATION, a Delaware corporation, (the "Settlor"), PECHINEY INTERNATIONAL
-------
S.A., a societe anonyme organized under the laws of the Republic of France
("Pechiney International"), and The First National Bank of Chicago, a national
----------------------
banking association organized under the laws of the United States of America
(the "Trustee").
-------
PRELIMINARY STATEMENTS:
WHEREAS, Pechiney International owns all of the issued and outstanding
shares of common stock, par value $1.00 per share (the "Pechiney Corporation
--------------------
Shares"), of the Settlor;
- ------
WHEREAS, the Settlor is the obligor on its Series A, Series B and
Series C promissory notes (as amended), originally payable to the order of
Nelson Peltz and Peter W. May (together with their successors and assigns, the
"Noteholders"), in an aggregate outstanding principal amount as of the date
-----------
hereof of $716,386,477.12 (the "Pechiney Corporation Notes") (as set forth on
--------------------------
Schedule 1 attached hereto);
WHEREAS, the Settlor has agreed to create a trust of property (the
"Trust") for the purpose of making payments owing under, with respect to, or in
-----
connection with the Pechiney Corporation Notes, including, without limitation,
payments of principal, interest, fees, penalties, if any, expenses and any
indemnification obligations (all such obligations being, collectively, the "Note
----
Obligations");
- -----------
NOW, THEREFORE, the Settlor hereby irrevocably assigns transfers and
conveys all right, title and interest in, to and under the Trust Assets (as such
term is defined in Section 1.02 of this Agreement) for the following purposes
and subject to the terms hereof:
ARTICLE I
ORGANIZATIONAL MATTERS
SECTION 1.01. Purpose. The purpose of the Trust is to hold and collect
-------
the Trust Assets and to make payments as specified herein. The Trustee shall not
have the power to engage in any activity or perform any act except in pursuit of
the foregoing purpose and any activity that is necessary or incidental to the
foregoing purpose.
<PAGE>
2
SECTION 1.02. Trust Property. The Settlor has irrevocably
--------------
transferred or caused to be transferred to the Trust the following property (all
such property, together with all proceeds, earnings, accretions and additions
thereon or thereto, being the "Trust Assets"): (i) a Note due 1999 dated
------------
December 12, 1995, made by Pechiney International to the order of the Settlor
and endorsed by the Settlor to the Trustee in the aggregate principal amount of
$716,386,477.12 (the "Trust Note"), (ii) a Standby Letter of Credit dated
----------
December 13, 1995, letter of credit number S703104, issued by Banque Nationale
de Paris ("BNP") for the benefit of the Trustee and the Settlor (the "Mirror
--- ------
Letter of Credit"), (iii) a Standby Letter of Credit dated December 13, 1995,
- ----------------
letter of credit number S703105, issued by BNP for the benefit of the Trustee
and the Settlor (the "Additional Letter of Credit"), and (iv) two Standby
---------------------------
Letters of Credit, each dated December 13, 1995, letter of credit numbers FBI
101 and FBI 102, respectively, and each issued by Caisse des Depots et
Consignations ("CDC") and having substantially the same terms and conditions as
---
the Mirror Letter of Credit and the Additional Letter of Credit, respectively
(together, the "Secondary Letters of Credit," and together with the Mirror
---------------------------
Letter of Credit, the Additional Letter of Credit, and any Substitute Letters of
Credit (as defined hereinafter) actually issued and deposited in the Trust, the
"Letters of Credit"). Neither the Settlor nor any other party shall transfer
-----------------
additional property (other than payments on the Trust Note, funds drawn under
the Letters of Credit, Permitted Investments and proceeds of Permitted
Investments hereunder) to the Trust or, except in the case of a Substitute
Letter of Credit pursuant to Section 4.02(c) of this Agreement, substitute
property for any or all of the Trust Assets.
SECTION 1.03. Appointment of the Trustee: Acceptance of Trust. The
-----------------------------------------------
Settlor hereby appoints The First National Bank of Chicago as Trustee of the
Trust effective as of the date hereof to have all rights, powers and duties set
forth herein. The Trustee accepts the Trust on the terms set forth herein and
acknowledges receipt in the trust from the Settlor of the Trust Note and the
Letters of Credit, together constituting the initial Trust Assets.
SECTION 1.04. Trust Account. The Trustee shall deposit the initial
-------------
Trust Assets at The First National Bank of Chicago, ABA number 071000013,
Corporate Trust Clearing Account 48115377, for credit to trust number 19-203310
(the "Trust Account").
-------------
SECTION 1.05. Declaration of Trustee. The Trustee hereby declares
----------------------
that it will hold, invest and preserve the Trust Assets and will use Trust
Assets and the proceeds thereof only as contemplated by this Agreement.
SECTION 1.06. Beneficiaries. The Settlor agrees that, in
-------------
consideration of transferring the Trust Assets to the Trust, the Settlor shall
have a 99.999% beneficial interest in the Trust and Pechiney International shall
have a 0.001% beneficial interest in the Trust. Pechiney International and the
Settlor collectively shall be "Beneficiaries" and individually shall be a
-------------
"Beneficiary" under this Agreement.
-----------
<PAGE>
3
SECTION 1.07. BNP. References herein to "BNP" shall mean, unless the
---
context otherwise requires, the issuer of the Letter of Credit on which a
drawing has been made.
ARTICLE II
DISTRIBUTIONS
SECTION 2.01. Payment of Note Obligations. (a) Set forth on Schedule
---------------------------
2 attached hereto are the dates on which payments of principal and interest are
scheduled to be due and owing under the Pechiney Corporation Notes. Interest
payments are due and owing in accordance with the Rate Quotation Agreement,
dated as of December 27, 1991, as amended, (the "Citibank Rate Quotation
----------------------
Agreement"), by and between Citibank, N.A. and the Settlor (a copy of which is
- ---------
attached hereto as Exhibit A) under the Note Obligations. Any notice provided to
a Beneficiary by a Noteholder regarding acceleration of payments under any
Pechiney Corporation Note shall be immediately forwarded by such Beneficiary to
the Trustee and to the other Beneficiary. Each principal and interest payment
obligation with respect to the Pechiney Corporation Notes, whether payable due
to acceleration or otherwise, hereinafter is referred to as a "Scheduled
---------
Obligation." Any notice provided to a Beneficiary through the Citibank Rate
- ----------
Quotation Agreement regarding the interest payment due and owing under the Note
Obligations, or any other notification of payment information or instructions
provided to a Beneficiary by the Noteholders (or their pledgees and assigns, or
anyone acting on their behalf) under the Note Obligations, shall be immediately
forwarded by such Beneficiary to the Trustee and to the other Beneficiary.
Subject to Section 2.01(c), to the extent that proceeds of payments on the Trust
Note have been transferred to the Trust Account and are available to the
Trustee, the Trustee shall pay each Scheduled Obligation, on behalf of the
Settlor, when due with such proceeds. If, and to the extent that, proceeds of
payments on the Trust Note are not available as of the fourth Banking Day (as
defined in the Mirror Letter of Credit) prior to the next Scheduled Obligation
becoming due, the Trustee shall , to the extent available, draw under the Mirror
Letter of Credit an amount sufficient to pay such Scheduled Obligation, and the
Trustee shall use the proceeds of such drawing to pay such Scheduled Obligation,
on behalf of the Settlor, when due; provided, however, that no drawing on the
-------- -------
Mirror Letter of Credit by the Trustee to pay the final scheduled principal
payment (absent an acceleration thereof) under the Pechiney Corporation Notes
shall be made prior to January 4, 1999. To the extent that Trust Assets or draw
proceeds under the Mirror Letter of Credit are insufficient to make full payment
of a Scheduled Obligation comprising interest, the Trustee shall, upon the
written direction of the Settlor and in the Settlor's sole discretion (but not
otherwise), draw under the Additional Letter of Credit in the amount of such
insufficiency so as to make full payment under such Scheduled Obligation. If the
Trustee receives proceeds of payments on the Trust Note from Pechiney
International for payment of any Scheduled Obligation after paying such
Scheduled Obligation with the
<PAGE>
PAGE>
4
proceeds of a drawing of the Mirror Letter of Credit or Additional Letter of
Credit as described above, the Trustee shall promptly remit such proceeds to
BNP, unless Pechiney International and BNP have notified the Trustee that BNP
has been reimbursed by Pechiney International for such draw of the Mirror Letter
of Credit or Additional Letter of Credit, as the case may be, in which case the
Trustee shall promptly remit such proceeds to Pechiney International. If the
Trustee receives proceeds of payments on the Trust Note, or draws under the
Mirror Letter of Credit or Additional Letter of Credit, for payment of any
Scheduled Obligation, and has not made payment to the Noteholders or reimbursed
the Settlor, and subsequently receives evidence reasonably satisfactory to the
Settlor from Pechiney International or BNP that such Scheduled Obligation has
been paid through a draw or draws on the Standby Letters of Credit dated
December 22, 1988, issued by BNP for the benefit of the Noteholders (the
"Existing Letters of Credit"), the Trustee shall promptly remit the proceeds of
--------------------------
such payment to Pechiney International in the case of payment on the Trust Note
or to BNP in the case of a draw under the Mirror Letter of Credit or Additional
Letter of Credit, unless Pechiney International and BNP have notified the
Trustee that BNP has been reimbursed by Pechiney International for such draw of
the Mirror Letter of Credit or Additional Letter of Credit, as the case may be,
in which case the Trustee shall promptly remit such proceeds to Pechiney
International.
(b) The Trustee shall pay all amounts other than the Scheduled
Obligations in respect of the Note Obligations (such amounts being the
"Unscheduled Obligations") after receiving (i) a written notice from Pechiney
-----------------------
International that an Unscheduled Obligation is due and owing and specifying in
such notice the amount that is due and the date on which such payment is due or
(ii) a written notice from the Settlor stating that (x) it has received a
demand for payment of an Unscheduled Obligation from a Noteholder and has
determined in good faith that such demand (or the specified portion thereof) is
not without merit and that satisfaction of such demand (or the specified portion
thereof) is necessary to protect the Settlor from loss, (y) specifying a date
for the Trustee to make payment of such Unscheduled Obligation, and (z)
certifying that the Settlor has furnished to Pechiney International the written
materials required to be delivered pursuant to Section 8.06(a) at least six
Banking Days prior to the specified payment date. Unless instructed in writing
to the contrary by Pechiney International, the Trustee shall make any payment
pursuant to clause (ii) of this sub-paragraph (b) expressly without prejudice
and with reservation of all rights. The Trustee shall pay the Unscheduled
Obligation at such time as directed by Pechiney International or the settlor, as
the case may be, with the proceeds of payments on the Trust Note. If, and to the
extent that, proceeds of payments on the Trust Note are not available when the
Trustee is required to make any payment of an Unscheduled Obligation, the
Trustee shall, to the extent available, draw under the Additional Letter of
Credit an amount sufficient to pay such Unscheduled Obligation, and the Trustee
shall use the proceeds of such drawing to pay such Unscheduled Obligation. If
the Trustee receives proceeds of payments on the Trust Note from Pechiney
International for payment of any Unscheduled Obligation after paying such
Unscheduled Obligation with the proceeds of a drawing on the Additional Letter
of Credit as
<PAGE>
5
described above, the Trustee shall promptly remit such Trust Note proceeds to
BNP, unless Pechiney International and BNP have notified the Trustee that BNP
has been reimbursed by Pechiney International for such draw of the Additional
Letter of Credit, in which case the Trustee shall promptly remit to Pechiney
International such proceeds. If the Trustee receives proceeds of payments on
the Trust Note, or draws under the Additional Letter of Credit, for payment of
any Unscheduled Obligation, and has not made payment to the Noteholders or
reimbursed the Settlor, and subsequently receives evidence reasonably
satisfactory to the Settlor from Pechiney International or BNP that such
Unscheduled Obligation has been paid through a draw on the Existing Letters of
Credit, the Trustee shall promptly remit the proceeds of such payment to
Pechiney International in the case of payment on the Trust Note or to BNP in the
case of a draw under the Additional Letter of Credit, unless Pechiney
International and BNP have notified the Trustee that BNP has been reimbursed by
Pechiney International for such draw of the Additional Letter of Credit, in
which case the Trustee shall promptly remit such proceeds to Pechiney
International. Pechiney International shall promptly provide the notice
specified in clause (i) of the first sentence of this section 2.01(b) whenever
it has determined in good faith that an Unscheduled Obligation has become due
and owing. Pechiney International shall promptly furnish the Settlor, and the
Settlor shall promptly furnish Pechiney International, with a copy of any notice
given to the Trustee under this Section 2.01(b).
(c) (i) Not less than 90 days before the scheduled due date, or
within 10 days after the acceleration, of any Applicable Principal Amount (as
defined below), Pechiney International may furnish to the Settlor such evidence
and legal opinions as, in the view of Pechiney International, are sufficient to
establish that Pechiney International is not, as of such time, insolvent, will
not be rendered insolvent by the payment of the Applicable Principal Amount, and
that there would be no basis for a payment of such Applicable Principal Amount
made by Pechiney International to be recovered by Pechiney International
or any receiver, trustee or other person or entity in an insolvency or similar
proceeding of, by, or relating to Pechiney International (the "Solvency
--------
Evidence"). The Settlor shall consider the Solvency Evidence in good faith. The
- --------
Settlor shall determine, in its sole discretion, whether the evidence is
sufficient to establish that (A) Pechiney International is not, as of the time
of such determination, insolvent and will not be rendered insolvent by making
payment of the Applicable Principal Amount and/or any other payment then due and
owing by Pechiney International, and (B) there would be no basis for a payment
of such Applicable Principal Amount made by Pechiney International to be
recovered by Pechiney International or any receiver, trustee or other person
or entity in an insolvency or similar proceeding of, by, or relating to Pechiney
International (a "Determination," and any Determination that the evidence is
sufficient to establish both (A) and (B) above being an "Affirmative
-----------
Determination"). The Settlor shall notify Pechiney International and the Trustee
- -------------
as promptly as practicable, and in any event 10 days prior to the scheduled due
date of the Applicable Principal Amount, or, in the event of a due date
resulting from an acceleration, within 10 days after the Solvency Evidence was
supplied to Settlor, of its
<PAGE>
6
Determination (the "Applicable Principal Payment Notification"). Until the
-----------------------------------------
applicable time period for providing the Applicable Principal Payment
Notification has expired, the parties shall act as if such an Applicable
Principal Payment Notification was provided without an Affirmative
Determination.
(ii) In the event that (A) the Settlor has furnished Pechiney
International and the Trustee with an Affirmative Determination, or (B) Pechiney
International has provided the Solvency Evidence and the Settlor has not given
an Applicable Principal Payment Notification, in each case within the
applicable time period referenced in sub-paragraph (c)(i) above, then Pechiney
International shall make payment of the Applicable Principal Amount to the
Trustee when due.
(iii) In the event that either (A) Pechiney International has not
provided the Solvency Evidence within the time period set forth in sub-paragraph
(c)(i) above or (B) an Applicable Principal Payment Notification shall have been
delivered within the time period set forth in sub-paragraph (c)(i) above and the
Settlor has not made an Affirmative Determination, then (w) Pechiney
International shall not make direct payment of the Applicable Principal Amount,
(x) if Pechiney International proffers or attempts to make a payment on the
Trust Note, the Trustee shall reject such payment and shall promptly return to
Pechiney International any proceeds received by the Trustee with respect to such
proffered or attempted payment, (y) regardless of such proffered or attempted
payment, the Trustee shall be entitled to certify in a draw certificate with
respect to a Letter of Credit that such payment has not been made and is due and
owing, and (z) the Trustee shall draw on the Mirror Letter of Credit in
satisfaction of the Applicable Principal Amount due and owing under the Trust
Note. Pechiney International shall reimburse BNP for any such draw on the Mirror
Letter of Credit pursuant to the Reimbursement Agreement dated as of December
13, 1995 between Pechiney International and BNP.
(iv) In the event that a payment is made by Pechiney International
in violation of Section 2.01(c)(iii)(w), the Settlor shall be entitled to have
the expiry date of the Letters of Credit extended for a period of six months.
(v) The term "Applicable Principal Amount" means (A) so long as the
covenant contained in Section 8(h) of the Substituted, Amended and Restated
Reimbursement Agreement dated as of December 13, 1995 (the "Reimbursement
Agreement") among Pechiney International, the Settlor and BNP has not been
violated, or would not be violated as such covenant was originally in effect, if
there has been any modification or termination thereof, any payment of principal
on the Trust Note which would cause all payments of principal in any period of
12 consecutive months to exceed US$100 million, or (B) otherwise, any payment of
principal which would cause all payments of principal in any period of 12
consecutive months to exceeds US$25 million.
<PAGE>
7
(vi) The Trustee shall follow the instructions of the Settlor in
regard to drawing under the Mirror Letter of Credit to make payments of
principal as provided in Section 2.01(c)(i) - (v) above.
(d) Except as provided in this subsection, the Settlor shall not
pay any of the Note Obligations. Only in the event that the Trustee shall
have failed to make the payment of a Note Obligation, the Settlor shall, subject
to Section 2.01(c) and the last sentence of this subsection (d), be entitled
to pay directly or indirectly (i) any Scheduled Obligation that becomes due and
owing or (ii) any Unscheduled Obligation for which a demand has been made by a
Noteholder if the Settlor has determined in good faith that such demand (or the
specified portion thereof) is not without merit and the satisfaction of such
demand (or the specified portion thereof) is necessary to protect the Settlor
from loss, upon giving the Trustee and Pechiney International not less than two
Banking Days written notice of its intention to make such payment; provided,
--------
however, that no such notice shall be provided with respect to payments
- -------
under clause (i) of this subsection (d) until two Banking Days prior to the
due date; no such payment under clause (i) of this subsection (d) shall be
made prior to 3:00 p.m. (New York City time) on the due date under the Note
Obligations; and payment under clause (i) of this subsection (d) shall be
made by the Settlor only if the Settlor has not received notice from the
Trustee by 1:30 p.m. (New York City time) on the due date that payment on the
Note Obligation has been made; provided, futher, however, that no payment
-------- ------ -------
under clause (ii) shall be made unless the Settlor has complied with Section
2.01(b)(ii). Notwithstanding the above, the Settlor shall not pay any Scheduled
Obligation comprising principal until two Banking Days following the due date of
such Scheduled Obligation on such date, the Settlor may not pay such Scheduled
Obligation prior to 3:00 p.m. (New York City time), and may pay such Scheduled
Obligation only if it has not received notice from the Trustee by 1:30 p.m. (New
York City time) on such date that payment on such Scheduled Obligation has been
made. If the Trustee has received payment of an Applicable Principal Amount from
Pechiney International in accordance with Section 2.01(c)(ii), and has not made
payment to the Noteholders, and subsequently receives (x) notice from the
Settlor pursuant to Section 2.01(e) that the Settlor has made payment of such
Applicable Principal Amount and (y) evidence reasonably satisfactory to the
Settlor from Pechiney International or BNP that the Settlor has been reimbursed
for the payment of such Applicable Principal through a draw on the Mirror Letter
of Credit, the Trustee shall promptly remit the proceeds of the payment by
Pechiney International of the Applicable Principal Amount to BNP, unless
Pechiney International and BNP have notified the Trustee that BNP has been
reimbursed by Pechiney International for such draw of the Mirror Letter of
Credit, in which case the Trustee shall promptly remit such proceeds to Pechiney
International.
(e) Upon payment by the Settlor of any Note Obligations, the
Settlor shall provide prompt notice to the Trustee and Pechiney International
of such payment. The Trustee shall reimburse the Settlor from the Trust
Assets for any amount of the Note Obligations actually paid by the Settlor
except to the extent that such reimbursement has been
<PAGE>
8
made through a drawing by the Settlor on a Letter of Credit. In the event that
the Trust Assets are insufficient to make such reimbursement, the Trustee shall,
to the extent permitted thereunder, make a draw under the appropriate Letter of
Credit for such purpose. The Trustee shall so reimburse the Settlor upon
written demand made by the Settlor with a copy to Pechiney International.
(f) Pechiney International shall provide prompt notice to the
Trustee, the Settlor, and BNP that it has transferred payments on the Trust Note
to the Trust Account.
(g) The Trustee shall provide prompt notice to the Beneficiaries and
BNP that the proceeds of payments on the Trust Note have been received by it in
the Trust Account; that the Trustee has drawn on any of the Letters of Credit;
and immediate notice (prior to 1:30 p.m. (New York City time) in the case of
payment of Note Obligations) that the payment of (or reimbursement of the
Settlor for) each Note Obligation has been made.
(h) All payments made by the Trustee or the Settlor, as the case may
be, to the Noteholders shall be made without offset or reduction of any kind.
(i) In the circumstances described in paragraph 7 of the form of
drawing certificate attached to the applicable Secondary Letter of Credit, at
the time a draw under the Mirror Letter of Credit or Additional Letter of
Credit, as the case may be, is permitted or required to be made under this
Section 2.01, the Trustee shall, to the extent permitted under the applicable
Secondary Letter of Credit, make such draw under such Secondary Letter of
Credit.
SECTION 2.02. Beneficiaries Authorization. Each Beneficiary hereby
---------------------------
authorizes and directs the Trustee to use the proceeds of the Trust Assets to
pay the Note Obligations or to reimburse the Settlor as provided in Section 2.01
of this Agreement.
SECTION 2.03. Trustee Not Liable for Note Obligations. All payments to
---------------------------------------
be made by the Trustee under this Agreement shall be made only from the proceeds
of the Trust Assets. The Trustee shall not be personally liable for any Note
Obligation payment.
SECTION 2.04. Method of Payment. All amounts payable to or for the
-----------------
account of the Noteholders under this Agreement shall be paid by the Trustee by
wire transfer to such account or accounts of the Noteholders in the continental
United States as either Beneficiary may designate from time to time in
accordance with Section 3.02 of this Agreement, accompanies by such
certifications as may be reasonably requested by the Trustee. The initial bank
accounts into which the Trustee shall make or cause to be made wire transfers of
the payment of Note Obligations are set forth on Schedule 3.
<PAGE>
9
ARTICLE III
CONCERNING THE TRUSTEE
SECTION 3.01. In General. It shall be the duty of the Trustee, and the
----------
Trustee is authorized and directed:
(a) to enforce its rights under the Trust Note;
(b) to make drawings under the Letters of Credit to the extent
obligated to do so under this Agreement, or permitted to do so under the terms
of the Letters of Credit;
(c) to pay or cause to be paid the Note Obligations when the same
shall become due and payable (except as otherwise specified herein) and to
reimburse the Settlor as contemplated by Section 2.01 of this Agreement;
(d) to present the necessary certificate and to take or cause to be
taken all other action required to be taken so as to enable the Trustee to draw
on any of the Letters of Credit, as and to the extent necessary to pay the Note
Obligations or to reimburse the Settlor;
(e) to discharge or cause to be discharged all other responsibilities
assigned to it pursuant to the terms of this Agreement;
(f) to invest any cash, including any income on investments, that
comprises the Trust Assets in Permitted Investments (as defined in Section 3.05
of this Agreement) as directed by the Beneficiaries from time to time, provided,
--------
however, that such Permitted Investments shall be held until maturity or until
- -------
any sale thereof is required to pay any amounts payable on the Note Obligations
or to reimburse the Settlor; provided, further, however, that (i) if the
-------- ------- -------
Beneficiaries are unable to agree on how such cash shall be invested, the
Trustee shall invest such cash in the Permitted Investments identified in clause
(a) of the definition of "Permitted Investments," and (ii) upon default under
the Trust Note or the Trust Agreement or the Letters of Credit by any party
other than the Settlor, the Settlor shall have the exclusive right to direct the
Trustee's investment in Permitted Investments; and
(g) to sell any Permitted Investments, to the extent needed, to pay
any amounts due on the Note Obligations. Any loss of principal or otherwise
resulting from the sale of Permitted Investments shall be borne by the Trust
Assets.
SECTION 3.02. Action upon Instructions. (a) In addition to (but not in
------------------------
limitation of) the duties of the Trustee to take certain actions and/or to
respond to the directions of Pechiney International or the Settlor as set forth
elsewhere in this Agreement, the Beneficiaries jointly and not severally may
direct the Trustee in the administration of the
<PAGE>
10
Trust by giving the Trustee written instructions duly signed by an officer of
each Beneficiary, with evidence of the authority of such officer in the form of
an incumbency certificate. No such instructions shall be inconsistent with the
purpose of the Trust. Each of the Beneficiaries agrees to in good faith provide
such instructions as may be necessary to enable the Trustee to carry out the
purpose of this Trust.
(b) The Trustee will take or refrain from taking such action or
actions as may be specified in any joint written instructions delivered to the
Trustee by the Beneficiaries, provided that the Trustee shall not be required to
--------
take or refrain from taking any such action if the Trustee shall reasonably
determine, or shall have been advised by counsel, that such action or inaction
is likely to result in personal liability on the part of the Trustee, or is
contrary to the terms hereof or of any document contemplated hereby to which the
Trustee is a party or otherwise contrary to law.
(c) Whenever the terms of this Agreement do not require the Trustee
to pursue a specific course of action and the Trustee is unable to decide
between alternative courses of action or conflicting instructions from the
Beneficiaries, the Trustee may give notice to the Beneficiaries requesting
instructions or clarification (to be given in such form as shall be appropriate
under the circumstances) as to the course of action to be adopted and, to the
extent the Trustee acts in good faith in accordance with instructions received
from the Beneficiaries, the Trustee shall not be liable to any person, provided
--------
that in the event the Trustee does not receive such instructions within ten days
of such notice (or within such shorter period of time as may be specified in
such notice) or continues to receive conflicting instructions, it may, but shall
be under no duty to, take or refrain from taking such action, not inconsistent
with this Agreement, as it shall deem to be in the best interests of the
Beneficiaries, or seek instructions from a court of competent jurisdiction.
(d) The Trustee may consult with counsel and the written advice of
such counsel shall be full and complete authorization and protection in respect
of any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
SECTION 3.03. No Action Except Under Agreement or Instructions. The
------------------------------------------------
Trustee agrees that it will not manage, control, use, sell, pledge, encumber,
dispose or otherwise deal with the Trust Assets, except as permitted or required
by the terms of this Agreement.
SECTION 3.04. Further Assurances. The Trustee shall execute and
------------------
deliver all such other instruments, documents or certificates as the
Beneficiaries may deem necessary or advisable in connection with the
transactions contemplated hereby.
<PAGE>
11
SECTION 3.05. Restrictions. Except as may otherwise be required under
------------
this Agreement, or pursuant to the joint written instructions of the
Beneficiaries as provided in Section 3.02 above, the Trustee shall take no
action or cause any action to be taken:
(a) to modify, waive, repeal, supplement, alter, amend or terminate
any of the terms and conditions of the Trust Note;
(b) to create, incur, assume or suffer to exist any lien, security
interest or other charge or encumbrance, or any other type of preferential
arrangement, upon or with respect to the Trust or any of the Trust Assets
or assign any right to receive income, in each case to secure or provide
for the payment of any debt of any person or entity (other than proper
charges against the Trust Assets for fees and expenses for administering
the Trust);
(c) to create, incur, assume or suffer to exist any Debt (as
hereinafter defined) of the Trust or with recourse to the Trust Assets,
whether directly or indirectly;
(d) to create, incur, assume or suffer to exist any obligations of
any trust created hereunder for the payment of rental for any property
under leases or agreements to lease; or
(e) to institute any proceeding by or against the Trust seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation,
rehabilitation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking
the entry of an order for relief or the appointment of a receiver, trustee,
custodian or other similar official for it or all or any substantial part
of its property, or making a general assignment for the benefit of its
creditors.
"Debt" shall mean (A) all indebtedness for borrowed money, (B) all
----
obligations evidenced by notes, bonds, debentures or other similar instruments,
(C) all obligations for the deferred purchase price of property or services, (D)
all obligations created or arising under any conditional sale or other title
retention agreement with respect to property acquired by any trust created
hereunder (even though the rights and remedies of the seller or lender under
such agreement in the event of default are limited to repossession or sale of
such property), (E) all obligations as lessee under leases that have been or
should be, in accordance with generally accepted accounting principles, recorded
as capital leases, (F) all obligations, contingent or otherwise, under
acceptance, letter of credit or similar facilities, (G) all Debt of others
referred to in clauses (A) through (F) above guaranteed directly or indirectly
by any trust created hereunder through an agreement (I) to pay or purchase such
Debt or to advance or supply funds for the payment or purchase of such Debt,
<PAGE>
12
(II) to purchase, sell or lease (as lessee or lessor) property, or to purchase
or sell services, primarily for the purpose of enabling the debtor to make
payment of such Debt or to assure the holder of such Debt against loss, (III) to
supply funds to or in any other manner invest in the debtor (including any
agreement to pay for property or services irrespective of whether such property
is received or such services are rendered) or (IV) otherwise to assure a
creditor against loss, and (H) all Debt referred to in clauses (A) through (F)
above secured by (or for which the holder of such Debt has an existing right,
contingent or otherwise, to be secured by) any lien on property (including,
without limitation, accounts and contract rights) owned by any trust created
hereunder, even though it has not assumed or become liable for the payment of
such Debt; and
"Permitted Investment" shall mean any of the following: (a) readily
--------------------
marketable direct obligations of the Government of the United States or any
agency or instrumentality thereof supported by, or other obligations
unconditionally guaranteed by, the full faith and credit of the United States;
(b) certificates of deposit or bankers' acceptances of, or time deposits with,
any commercial bank (which may include the Trustee individually if it otherwise
qualifies hereunder) that (i) is a member of the Federal Reserve System, (ii)
issues (or the parent of which issues) commercial paper rated as described in
clause (c) below, (iii) is organized under the laws of the United States or any
State thereof and (iv) has combined capital and surplus of at least
U.S.$500,000,000; or (c) commercial paper issued by any corporation organized
under the laws of any State of the United States and rated at least "Prime-1"
(or the then equivalent grade) by Moody's Investor Service, Inc. or "A-1" (or
the then equivalent grade) by Standard & Poor's Corporation Rating Group, each
of (a) through (c) having a remaining maturity of less than 180 days.
SECTION 3.06. Power and Authority. (a) The Trustee shall have all the
-------------------
requisite power, authority and discretion as shall be necessary or appropriate
to enable it to take all such actions as it is required to take pursuant to this
Agreement. The Trustee shall have no liability hereunder except for its own bad
faith, gross negligence or willful misconduct.
(b) The Trustee shall be protected and shall incur no liability for
or in respect of any action taken or omitted to be taken or anything suffered by
it in reliance upon any notice, direction, consent, certificate, affidavit,
statement or other paper or document reasonably believed by it to be genuine and
to have been presented or signed by the proper parties.
(c) The Trustee shall be obligated to perform such duties and only
such duties as are herein specifically set forth, and no implied duties or
obligations shall be read into this Agreement. The Trustee shall not be under
any obligation to take any action hereunder which may tend to involve it in any
expense or liability the payment of which within a reasonable time is not, in
its reasonable opinion, assured to it.
<PAGE>
13
(d) The provisions of this Agreement, to the extent they restrict the
duties and liabilities of a trustee at law or in equity, are agreed by the
parties hereto to replace such other duties and liabilities of the Trustee.
SECTION 3.07 Trustee Reports. On the last day of each calendar
---------------
quarter, the Trustee shall furnish to each Beneficiary and BNP a written report
setting forth the receipt of payments by the Trustee under the Trust Note, the
payments made by the Trustee on the Pechiney Corporation Notes, drawings under
any of the Letters of Credit, if any, during such quarter, and a statement of
cash on hand and Permitted Investments as of the end of each quarter. At any
time at the request of either Beneficiary, the Trustee shall report to each
Beneficiary and BNP the Available Amounts (as defined in the Letters of Credit)
and such other information as is reasonably requested by either Beneficiary.
SECTION 3.08. Trustee Notice. The Trustee shall promptly forward to
--------------
each Beneficiary and BNP a copy of any notices it receives under this Agreement.
ARTICLE IV
LETTERS OF CREDIT
SECTION 4.01. Conditions to Drawing. If the Trustee shall be required
---------------------
to draw on any of the Letters of Credit under this Agreement or shall be
permitted to draw under any such Letter of Credit and directed to do so by the
Settlor, the Trustee shall take or cause to be taken all actions necessary to
satisfy any condition to drawing under such Letter of Credit. Each Beneficiary
shall, to the extent available to such Beneficiary, furnish the Trustee with
such certificates, documents or other information required by any of the Letters
of Credit in connection with any drawing under such Letter of Credit. The
Trustee shall be entitled to rely on a certificate of any officer of either
Beneficiary as to any factual matter required to be set forth in a certificate
to be presented to the issuer of any of the Letters of Credit as a condition to
drawing.
SECTION 4.02. Drawings. (a) Subject to Section 4.02(b) below, the
--------
Trustee shall draw on the Letters of Credit to pay the Note Obligations or to
reimburse the Settlor as provided in Section 2.01 of this Agreement, and shall
not draw on the Letters of Credit for any other purpose.
(b) If and when the Trustee receives written notice from either
Beneficiary that the conditions for drawing by the Trustee under any Letter of
Credit have been satisfied, the Trustee shall make a drawing under such Letter
of Credit to the extent permitted thereunder.
<PAGE>
14
(c) Should an acceptable Substitute Letter of Credit (as defined in
Section 5.16 of the Stock Purchase Agreement, dated as of October 12, 1995,
among Pechiney International, Pechiney, a societe anonyme organized under the
laws of the Republic of France ("Pechiney"), Howmet Cercast S.A., a societe
--------
anonyme organized under the laws of the Republic of France, and Blade
Acquisition Corp., a Delaware corporation, hereinafter referred to as the "Stock
Purchase Agreement") be provided by Pechiney or Pechiney International to the
Settlor, the Settlor shall deposit such Substitute Letter of Credit into the
Trust Account. Upon its receipt of such Substitute Letter of Credit, the Trustee
shall promptly return the Letter of Credit for which the Substitute Letter of
Credit was provided to the issuer of such Letter of Credit. Should such
Substitute Letter of Credit be deposited after a drawing has been made on a
Letter of Credit in accordance with the penultimate sentence of Section 5.16 of
the Stock Purchase Agreement but prior to the payment of such funds by the
Trustee, the Trustee shall remit the proceeds of such drawing to the issuer of
such Letter of Credit, unless Pechiney International and the issuer of such
Letter of Credit have notified the Trustee that such issuer has been reimbursed
by Pechiney International for such draw of such Letter of Credit, in which case
the Trustee shall remit such proceeds to Pechiney International.
(d) If the Trustee receives notice from the Settlor that the Settlor
intends to draw on any of the Letters of Credit, the Trustee shall draw on such
Letter of Credit to the extent permitted thereunder.
(e) The Trustee and Pechiney International acknowledge and agree that
if, for any reason, the Trustee fails to draw on any Letter of Credit in the
circumstances and on the terms and conditions therein, the Settlor shall be
entitled to make such drawing on behalf of the Trustee. The Settlor shall give
prompt notice to the Trustee and Pechiney International that the Settlor has
drawn upon any Letter of Credit. The Settlor agrees that it will cause any
funds drawn under any Letter of Credit to pay Note Obligations to be deposited
directly into the Trust for the sole purpose of making payment of the Note
Obligations as the Note Obligations become due and payable.
ARTICLE V
TERMINATION OF TRUST AGREEMENT
SECTION 5.01. Termination of Trust Agreement. (a) This Agreement and
------------------------------
the trust created hereby are irrevocable and shall terminate, and the Trust
Assets (other than the Letter of Credit) shall be, subject to any obligation of
the Trustee to return funds to the issuer of a Letter of Credit or to Pechiney
International as provided herein, distributed to the Settlor (99.999%) and
Pechiney International (0.001%), and this Agreement shall be of no further force
or effect, solely upon the earlier of (i) a date which is not earlier than the
date
<PAGE>
15
that all of the Note Obligations shall have been indefeasibly paid in full,
provided that in no event shall the Trust Agreement terminate prior to a date 10
- --------
days after the expiry of all Letters of Credit, (ii) upon receipt by the Trustee
of a notice terminating this Agreement duly signed by each of the Beneficiaries,
and (iii) upon the expiration of a period ending twenty-one (21) years after the
death of the survivor of the directors of Pechiney International as of the date
of this Agreement. The bankruptcy or incapacity of the Beneficiaries or the
Trustee shall not operate to terminate this Agreement, nor entitle the
Beneficiaries' legal representatives to claim an accounting or to take any
action or proceeding in any court for a partition or winding up of the Trust, or
otherwise affect the rights, obligations and liabilities of the parties hereto.
(b) Upon return of the Pechiney Corporation Notes to the Settlor for
cancellation, upon payment in full, the Settlor shall promptly provide copies of
such cancelled Pechiney Corporation Notes to Pechiney International.
(c) Upon termination of the Trust, the Trustee shall promptly return
each Letter of Credit to its issuer for cancellation.
ARTICLE VI
SUCCESSOR TRUSTEES AND ADDITIONAL TRUSTEES
SECTION 6.01. Resignation of Trustee; Appointment of Successor. (a)
------------------------------------------------
The Trustee may resign at any time without cause by giving at least 60 days'
prior written notice to the Beneficiaries, such resignation to be effective on
the acceptance of appointment by a successor Trustee under Section 6.01(b). In
case of the resignation of the Trustee, Pechiney International and the Settlor
shall jointly appoint a successor Trustee by an instrument signed by the Settlor
and Pechiney International. If a successor Trustee shall not have been appointed
within 30 days after the giving of written notice of such resignation, the
Settlor may appoint a successor Trustee; if the Settlor does not make such an
appointment within an additional 60 days, then Pechiney International or the
Trustee may apply to any court of competent jurisdiction to appoint a successor
Trustee to act until such time, if any, as a successor shall have been appointed
as above provided. Any successor Trustee so appointed by such court shall
immediately and without further act be superseded by any successor Trustee
appointed as above provided within one year from the date of the appointment by
such court.
(b) Any successor Trustee, however appointed, shall execute and
deliver to the predecessor Trustee an instrument accepting such appointment, and
thereupon such successor Trustee, without further act, shall become vested with
all the estates, properties, rights, powers, duties and trusts of the
predecessor Trustee in the trusts hereunder with like
<PAGE>
16
effect as if originally named the Trustee herein; but nevertheless, upon the
written request of such successor Trustee, such predecessor Trustee shall
execute and deliver an instrument transferring to such successor Trustee, upon
the trusts herein expressed, all the estates, properties, rights, powers, duties
and trusts of such predecessor Trustee, and such predecessor Trustee shall duly
assign, transfer, deliver and pay over to such successor Trustee all moneys or
other property then held or subsequently received by such predecessor Trustee
upon the trusts herein expressed.
(c) Any successor Trustee, however appointed, shall be a bank or
trust company incorporated under the laws of the United States or any state
thereof, having a combined capital and surplus of at least US$500,000,000, and
rated at least "A-3" (or the then equivalent grade) by Moody's Investor Service,
Inc. or "A-" (or the then equivalent grade) by Standard & Poor's Corporation
Rating Group, in each case at the time of appointment.
(d) Any corporation into which the Trustee may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation to which substantially all the corporate trust business of the
Trustee may be transferred, shall, be the Trustee under this Agreement without
further act; provided, however, that if such resulting corporation does not
-------- -------
conform to the requirements of Section 6.01(c), such Trustee shall give notice
of resignation pursuant to Section 6.01(a) effective upon such merger,
conversion or consolidation.
SECTION 6.02. Removal of Trustee. At any time Pechiney International
------------------
and the Settlor may jointly agree to remove the Trustee for any reason, with or
without cause, and appoint a successor trustee of the kind described in Section
6.01(c) of this Agreement, such removal to be effective on the acceptance of
appointment by a successor Trustee under Section 6.01(b). The Settlor shall have
the right unilaterally to remove the Trustee in the event that the Settlor
determines in good faith that the Trustee has not acceptably performed its
duties under this Agreement and appoint a successor Trustee of the kind
described in Section 6.01(c) of this Agreement, such removal to be effective on
the acceptance of appointment by a successor Trustee under Section 6.01(b). Upon
acceptance in writing by a successor trustee of the appointment as trustee
hereunder, such successor Trustee shall succeed to and become vested with, all
of the rights, powers, privileges and duties of the removed Trustee, and the
removed Trustee shall pay to the successor Trustee any unearned compensation
that had been prepaid to the removed Trustee. Upon such acceptance, the removed
Trustee shall be discharged from further responsibilities under this Agreement.
<PAGE>
17
ARTICLE VII
INDEMNIFICATION BY PECHINEY INTERNATIONAL
SECTION 7.01. Trust Expense. Pechiney International shall pay (or
-------------
reimburse the Trustee for) all reasonable expenses of the Trustee hereunder,
including, without limitation, the reasonable compensation, expenses and
disbursements of such agents, representatives experts and counsel as the Trustee
may employ in connection with the exercise and performance of its rights and
duties under this Agreement.
SECTION 7.02. Indemnification. Pechiney International hereby agrees to
---------------
assume liability for, and indemnify the Trustee and its successors, assigns, and
agents, against and from, any and all liabilities, obligations, losses, damages,
taxes, claims, actions, suits, costs, expenses and disbursements (including
legal fees and expenses) of any kind and nature whatsoever (collectively,
"Expenses") which may be imposed on, incurred by or asserted at any time against
--------
the Trustee (whether or not indemnified against by other parties) in any way
relating to or arising out of this Agreement, the administration of the Trust or
the action or inaction of the Trustee hereunder, except that Pechiney
International shall not be required to indemnify the Trustee for Expenses
arising or resulting from (i) its own bad faith, gross negligence or willful
misconduct in the performance of its duties hereunder or (ii) for taxes, fees or
other charges on, based on or measured by any fees, commissions or compensation
received by the Trustee in connection with any of the transactions contemplated
by this Agreement.
SECTION 7.03. Compensation. The Trustee shall receive as compensation
------------
for the Trustee's services hereunder such ordinary fees as are fair, reasonable
and customary for the performance of such services and as may heretofore and
from time to time hereafter be agreed upon between Pechiney International and
the Trustee; provided, that in the absence of such an agreement, the Trustee's
--------
standard rates shall apply.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Supplements and Amendments. (a) At the written request
--------------------------
of each Beneficiary, this Agreement shall be amended by a written instrument
signed by the Trustee and each Beneficiary; provided, however, that if in the
-------- -------
opinion of the Trustee any instrument required to be so executed adversely
affects any right, duty or liability of, or immunity or indemnity in favor or,
the Trustee under this Agreement or any of the documents contemplated hereby to
which the Trustee is a party, or would cause or result in any conflict with or
breach of any terms, conditions or provisions of, or default under, the
<PAGE>
18
charter documents or by-laws of the Trustee or any document contemplated hereby
to which the Trustee is a party, the Trustee may in its sole discretion decline
to execute such instrument. Nothing herein shall imply that either Beneficiary
has any obligation to consent to any request for an amendment by the other
Beneficiary, and either Beneficiary may, if it should choose to consider any
such request, require such other Beneficiary to furnish assurances, opinions and
indemnities in connection with such proposed amendment as a condition to its
consent thereto.
(b) The Trustee shall furnish the Settlor, Pechiney International,
and any Settlor Transferee (as defined in the Letters of Credit) with certified
copies of any supplements or amendments to any Letters of Credit pursuant to the
provisions of Section 8.09(c).
SECTION 8.02. No Legal Title to Trust Estate in Beneficiaries. The
-----------------------------------------------
Beneficiaries shall not have legal title to any part of the Trust Assets and
shall not be entitled to receive any distributions from the Trust, except the
Beneficiaries will be entitled to receive any residual Trust Assets pursuant to
Section 5.01 of this Agreement and the Settlor shall be entitled to
reimbursement for payments made by it on the Note Obligations.
SECTION 8.03. Limitations on Rights of Others. Except as otherwise
-------------------------------
provided herein with respect to the issuer of any Letter of Credit, nothing in
this Agreement, whether express or implied, shall be construed to give to any
person other than the Trustee, and the Beneficiaries any legal or equitable
right in the Trust Assets or under or in respect of this Agreement or any
covenants, conditions or provisions contained herein.
SECTION 8.04. Tax Reporting. The parties hereto agree that the
-------------
Settlor shall include in its gross income all taxable income earned on Trust
Assets and any gain therefrom in accordance with Treasury Regulation 1.61-13(b).
SECTION 8.05. Notices. (a) Each Beneficiary shall promptly furnish to
-------
the Trustee and the other Beneficiary copies of all written materials relating
to the Pechiney Corporation Notes received from the Noteholders or persons
acting on their behalf.
(b) Unless otherwise expressly specified or permitted by the terms
hereof, all notices shall be in writing and delivered by hand or mailed by
certified mail, postage prepaid or by facsimile with telephonic confirmation by
the designated recipient, if to the Trustee, at its office at The First National
Bank of Chicago, One First National Plaza, Suite 0126, Chicago, Illinois,
60670-0126, Attention: Corporate Trust Administration, Fax: (312)407-4656 or to
such other address or facsimile number as the Trustee may have set forth in a
written notice to each Beneficiary; if to Settlor, at its address at Pechiney
Corporation, 475 Steamboat Road, Greenwich, Connecticut, 06836-1960, Attention:
General Counsel and Chief Financial Officer, Fax: (203) 625-8771; if to Pechiney
International at its address at
<PAGE>
19
Pechiney International S.A., 10, place des Vosges, Cedex 68, 92048 Paris La
Defense, France, Attention: Directeur Financier, Fax: 011-331-4691-4677; if to
BNP at its New York Branch at its address at One World Financial Center, 20th
Floor, Tower A, 200 Liberty Street, New York, New York, 10281-1062, Attention:
Vice President-Standby Letters of Credit, Fax: (212)415-9606 or, in each case,
such other address or facsimile number as set forth in a written notice to the
other Beneficiary and to the Trustee. Whenever any notice in writing is required
to be given by the Trustee or either Beneficiary, such notice shall be deemed
given and such requirement satisfied if such notice is received within the
required notice period.
SECTION 8.06. Certain Matters Regarding Noteholders. (a) Pechiney
-------------------------------------
International shall have the sole right to control the resolution of any dispute
with the Noteholders relating to the Pechiney Corporation Notes and the Note
Obligations, provided, however, that nothing in this Section will affect the
-------- -------
right of the Trustee or Settlor to make payments to the Noteholders or
reimbursements to the Settlor for such payments, and to make drawings under the
Letters of Credit for such purpose, as set forth in this Agreement. The Settlor
agrees that any payment made by the Settlor of a Note Obligation pursuant to
Section 2.01(d)(ii) shall be made expressly without prejudice and with
reservation of all rights. In connection with any demand for payment by the
Noteholders, the Settlor shall furnish to Pechiney International all written
materials relating to such demand received from the Noteholders (or their
pledgees and assigns, or anyone acting in their behalf) at the time of their
initial demand, as soon as practicable after the Settlor shall have received
such materials, but in any event not less than six Banking Days before
satisfaction of such demand (or the specified portion thereof) by the Settlor
pursuant to Section 2.01(d)(ii).
(b) In addition, the Settlor shall promptly furnish to Pechiney
International all written materials received from the Noteholders from time to
time after the initial demand referred to in Section 8.06(a).
(c) (i) In the event that Pechiney International desires that Settlor
exercise rights of offset under the Pechiney Corporation Series B Notes (the
"Series B Notes"), it shall so notify Settlor and the Trustee no later than 60
days prior to the maturity date of the Series B Notes, specifying (x) the
aggregate amount that Pechiney International proposes to offset against the
Series B Notes (the "Offset Amount"), which Offset Amount shall in no event
exceed $12 million, (y) the specific Notes against which Pechiney International
proposes to make such offset and amount proposed to be offset against each such
Note and (z) in reasonable detail, the basis for such proposed offset (the
"Offset Notification"). Concurrent with the delivery of the Offset Notification,
Pechiney International will deliver to Settlor and the Trustee an opinion of
counsel of national repute that Settlor is entitled to claim the proposed offset
under the terms of the Series B Notes (the "Offset Opinion").
<PAGE>
20
(ii) If (x) Pechiney International has delivered the Offset
Notification and the Offset Opinion within the time period set forth above, (y)
Pechiney International has not failed to pay to Settlor any amount then due to
Settlor from Pechiney International under the Stock Purchase Agreement and (z)
Pechiney International has delivered to Settlor a letter of credit in the form
described in subsection (iii) below (the "Offset Letter of Credit"), then,
subject to the provisions of this Section 8.06(c), upon payment in full of the
Trust Note, the Trustee shall retain in the Trust (and not pay to the
Noteholders of the Series B Notes specified in the Offset Notification except
pursuant to the provisions of subsection (v) or (vi) below) an amount equal to
the Offset Amount (such retained amount, together with increases thereto under
Section 8.06(c)(v) and earnings thereon, the "Retained Amount").
(iii) The Offset Letter of Credit shall (x) name Settlor as the
beneficiary, be in an amount equal to one-third of the Offset Amount and support
the payment of all obligations of Pechiney International to Settlor under this
Section 8.06(c), (y) be issued by a financial institution meeting the Credit
Standard (as defined in the Letters of Credit), and (z) contain terms and
conditions substantially similar to the Letter of Credit issued pursuant to
Section 7.09 of the Stock Purchase Agreement, except that (A) the obligations of
Pechiney International under this Section 8.06(c) shall be substituted for the
"Tax Indemnity Obligations" therein, (B) there shall be no requirement for the
proceeds of draws under Option Three thereof to be placed into escrow pursuant
to an escrow agreement, (C) there shall be no requirement for consultation with
a law firm prior to draws under Options One or Two thereof and (D) the
beneficiary shall be entitled to make draws under the circumstances specified in
subsection (v) below.
(iv) Pechiney International shall attempt in good faith and
consistent with its own interests to resolve any disputes with the Noteholders
concerning the offset made pursuant to subsection (ii) above and will provide
the Noteholders with all materials as may be necessary to establish Settlor's
entitlement to make such offset. Pechiney International shall promptly reimburse
Settlor for all costs and expenses of compliance with the provisions of this
Section 8.06(c), and indemnify and hold harmless Settlor, its affiliates and
their respective officers, directors, representatives and agents ("Settlor
Indemnities") from and against any and all losses, liabilities, damages, claims
awards, judgments, costs and expenses (including, without limitation, attorneys'
fees and expenses) arising out of or relating to any actions taken pursuant to
this Section 8.06(c) or any claims by the Noteholders in connection with the
offset against the Series B Notes.
(v) In the event that Settlor determines in good faith that the
Retained Amount and the Offset Letter of Credit are insufficient to cover (x)
the principal amount of any offset against the Series B Notes that is disputed
by the Noteholders, (y) the interest that would have accrued on such amount
under the Series B Notes had such offset not been made and (z) any unpaid
amounts owing or reasonably likely to become owing under Section 8.06(c) (iv)
above, it shall so notify Pechiney International and request an increase in
<PAGE>
21
the amount of the Offset Letter of Credit and/or an increase in the Retained
Amount. If Pechiney International does not provide such increase(s) within ten
(10) Banking Days following such request, Settlor shall be entitled to request
the Trustee to pay to the appropriate Noteholders such portion of the Retained
Amount as is then sought by such Noteholders (and upon receipt of such notice,
the Trustee shall make such payment); and if such amount is insufficient to pay
the full amount demanded by such Noteholders, Settlor shall be entitled to draw
on the Offset Letter of Credit for purposes of paying such deficiency.
(vi) In the event Pechiney International determines that any portion
of the Retained Amount is payable to the Noteholders under the Series B Notes,
it shall so notify the Trustee and the Trustee shall make payments to the
Noteholders in accordance with such notice. Upon receipt of joint instructions
of the Beneficiaries prior to the termination of this Trust Agreement, the
Trustee shall promptly remit the Retained Amount (or the specified portion
thereof) in accordance with such instructions. The Settlor shall respond in good
faith to a request from Pechiney International to instruct the Trustee jointly
to so remit the Retained Amount (or the specified portion thereof).
(vii) Until final resolution of any and all disputes with the holders
of the Series B Notes regarding the offsets under this Section 8.06(c), the
Series B Notes shall not be deemed to have been indefeasibly paid in full and
this Trust Agreement shall not terminate.
(d) Prompt written notice shall be given to the Trustee and the
Settlor by Pechiney International in the event of any reduction in the Note
Obligations.
SECTION 8.07. Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not be invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 8.08. Separate Counterparts. This Agreement may be executed
---------------------
by the parties hereto in separate counterparts, each of which when so executed
and delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 8.09. Successors. (a) All covenants and agreements contained
----------
herein shall be binding upon, and inure to the benefit of, the Trustee and its
successors and each Beneficiary and its successors. Any request, notice,
direction, consent, waiver or other instrument or action by such Beneficiary
shall bind the successors of such Beneficiary. It is acknowledged and agreed
that the Settlor may assign its rights hereunder to a Settlor
<PAGE>
22
Transferee as described below as collateral security, and in such event, the
Settlor Transferee may, to the extent provided in the respective security
documents, directly exercise any or all rights of the Settlor hereunder.
(b) The Letters of Credit are not transferable by either Beneficiary,
except by the Trustee to a successor Trustee as provided in Section 6.01(b), and
by the Settlor as a whole and not in part to a lender or an agent acting on
behalf of one or more lenders to Settlor or any of its affiliates as collateral
security (a "Settler Transferee"), and a Settlor Transferee may further transfer
------------------
any Letter of Credit back to the Settlor or to another Settlor Transferee. The
transfer described above may be made successively without limitation as to the
number of transfers.
(c) The Trustee and Pechiney International acknowledge that the
Settlor intends to initially assign its beneficial interest in the Letters of
Credit to The First National Bank of Chicago, as agent and as collateral agent
(the "Agent"), for its own benefit and for the benefit of the lenders that will
be party to a Credit Agreement among the Settlor, such lenders and the Agent,
and agree that the Agent is a Settlor Transferee. The Trustee and Pechiney
International further agree that the Settlor Transferee shall be permitted, upon
delivery of a valid Transfer Certificate (as defined in the Letters of Credit)
to the Trustee and Pechiney International, to draw under the Letters of Credit
in the place and stead of the Settlor and on the same terms and conditions that
the Settlor would have been entitled to draw. No Settler Transferee will have
any greater rights under or with respect to any of the Letters of Credit than
the Settlor would have had. The Settlor Transferee shall not receive any of the
Letters of Credit, which shall be held at all times by the Trustee, but shall be
entitled to rely for purposes of drawing on any of the Letters of Credit on a
photocopy thereof certified by the Trustee to be a true and correct copy
thereof. The Trustee shall furnish to the Settlor, Pechiney International and
the Settlor Transferee, and to any successor identified in a written notice from
the Settlor to the Trustee (with a copy to Pechiney International), certified
copies of each of the Letters of Credit and certified copies of all amendments
to any of the Letters of Credit promptly after receipt by the Trustee thereof.
(d) If a Settlor Transferee or successor Trustee shall deliver a
valid Transfer Certificate to an issuer of a Letter of Credit, such issuer shall
issue replacement Letters of Credit (the "Replacement Letters of Credit") to the
-----------------------------
Trustee modified to reflect the relevant Settlor Transferee or successor
Trustee, as the case may be, with otherwise identical terms and conditions as
the Letters of Credit. Simultaneously with its receipt of and in exchange for
such Replacement Letters of Credit, the Trustee shall return each Letter of
Credit to the issuer of such Letter of Credit.
SECTION 8.10. Headings. The headings of the various Articles and
--------
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
<PAGE>
23
SECTION 8.11. Governing Law. This Agreement shall in all respect be
-------------
governed by, and construed in accordance with, the laws of the State of New
York, including all matters of construction, validity and performance.
SECTION 8.12. Entire Agreement. This Trust Agreement embodies the
----------------
final, entire agreement of the Settlor, the Trustee and Pechiney International
with respect to the Trust and supersedes any and all prior commitments,
agreements, representations, and understandings, whether written or oral,
relating to the subject matter hereof and may not be contradicted or varied by
evidence of prior, contemporaneous or subsequent oral agreements or discussions
of the parties hereto; provided, however, that nothing herein supersedes the
-------- -------
commitments, agreements, representations, and understandings set forth in the
Stock Purchase Agreement (other than Section 5.08 and Exhibits 5.08(a) and (b),
and such Section 5.08 and Exhibits 5.08(a) and (b) are expressly superseded), as
amended, and as may be modified and amended from time to time. There are no oral
agreements among the parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be duly executed by their respective officers hereunto duly
authorized, as of the day and year first above written.
The Settlor
-----------
PECHINEY CORPORATION
By /s/
------------------
Title:
PECHINEY INTERNATIONAL S.A.
By /s/
------------------
Title:
The Trustee
-----------
THE FIRST NATIONAL BANK OF
CHICAGO
By /s/
------------------
Title:
<PAGE>
Exhibit 21
Subsidiaries of the Howmet International Inc.
State or Country
of Incorporation
----------------
Howmet Holdings Corporation Delaware
Howmet Insurance Company, Inc. Vermont
Howmet Corporation Delaware
Blade Receivables Corporation Nevada
Howmet Cercast (Canada), Inc. Canada
Howmet Cercast (U.S.A.), Inc. Delaware
Howmet Ltd. United Kingdom
Howmet Refurbishment Inc. Delaware
Howmet Research Corporation Delaware
Howmet S.A. France
Howmet-Tempcraft, Inc. Ohio
Warner Commerce Corporation Delaware
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 27, 1997, except for Notes 14 and 18, as to
which the date is October 9, 1997, in the Registration Statement (Form S-1)
and related Prospectus of Howmet International Inc. for the registration of
approximately $375 million of its common stock.
/s/ Ernst & Young LLP
Stamford, Connecticut
October 9, 1997
<PAGE>
EXHIBIT 23.2
[LETTERHEAD OF PRICE WATERHOUSE]
CONSENT OF INDEPENDENT ACCOUNTANTS
8 October 1997
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated July 11, 1996, relating
to the financial statements of Howmet Limited, which appears in such Prospectus.
/s/ Price Waterhouse
Price Waterhouse
Bristol, England
<PAGE>
EXHIBIT 23.3
[LETTERHEAD OF BEFEC-PRICE WATERHOUSE]
Consent of Independent Accountants
----------------------------------
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our reports dated May 23, 1996 and May 15,
1996 relating to the financial statements of Howmet SA and Ciral SNC,
respectively, which appear in such Prospectus.
Befec-Price Waterhouse
/s/ Paul Onillon
Paul Onillon
Paris, France
October 8, 1997
<PAGE>
EXHIBIT 23.4
Consent of Independent Accountants
----------------------------------
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated October 27, 1995 relating
to the combined financial statements of Howmet Corporation and Howmet Cercast
Group which appears in such Prospectus. We also consent to the application of
such report to the Financial Statement Schedule for the year ended December 31,
1994 listed under Item 16(b) of this Registration Statement when such schedule
is read in conjunction with the financial statements referred to in our report.
The audit referred to in such report also included this schedule. We also
consent to the references to us under the headings "Experts", "Summary
Historical Financial and Other Data" and "Selected Historical Financial and
Other Data" in such Prospectus. However, it should be noted that Price
Waterhouse LLP has not prepared or certified such "Summary Historical
Financial and Other Data" and "Selected Historical Financial and Other Data."
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Stamford, CT
October 8, 1997
<PAGE>
Exhibit 24
POWER OF ATTORNEY
Each of the undersigned officers and directors of Blade Acquisition Corp.,
a Delaware corporation (the "Corporation"), hereby constitutes and appoints
David L. Squier, Richard L. Corbin, John C. Ritter, and Roland A. Paul, and each
of them, severally, as his attorney-in-fact and agent, with full power of
substitution and resubstitution, in his name and on his behalf, to sign in any
and all capacities a registration statement on Form S-1 relating to the initial
public offering of shares of common stock, par value $.01 per share, of the
Corporation (the "Registration Statement") and any and all amendments (including
post-effective amendments) and exhibits to the Registration Statement, any
subsequent Registration Statement for the same offering which may be filed under
Rule 462(b) under the Securities Act of 1933, as amended, and any and all
amendments (including post-effective amendments) and exhibits thereto, and any
and all applications and other documents relating thereto, with the Securities
and Exchange Commission, with full power and authority to perform and do any and
all acts and things whatsoever which any such attorney or substitute may deem
necessary or advisable to be performed or done in connection with any or all of
the above-described matters, as fully as each of the undersigned could do if
personally present and acting, hereby ratifying and approving all acts of any
such attorney or substitute.
NAME TITLE DATE
---- ----- ----
/s/ William E. Conway, Jr. Chairman, Director October 8, 1997
- -------------------------
William E. Conway, Jr. and President/1/
/s/ Frank C. Carlucci Director October 8, 1997
- -------------------------
Frank C. Carlucci
/s/ Richard L. Corbin Director and October 8, 1997
- -------------------------
Richard L. Corbin Treasurer/2/
/s/ Edsel D. Dunford Director October 8, 1997
- -------------------------
Edsel D. Dunford
/s/ Alan M. Holt Director October 8, 1997
- -------------------------
Alan M. Holt
/s/ David L. Squier Director October 8, 1997
- -------------------------
David L. Squier
/s/ James R. Wilson Director October 3, 1997
- -------------------------
James R. Wilson
- ----------------------
/1/ Principal executive officer
/2/ Principal financial and accounting officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEETS AND STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT) OF
HOWMET INTERNATIONAL INC. INCLUDED IN FORM S-1 FOR THE YEAR ENDED DECEMBER 31,
1996 AND FOR THE TWENTY-SIX WEEK PERIOD ENDED JUNE 29, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FORM S-1.
</LEGEND>
<CIK> 0001047378
<NAME> HOWMET INTERNATIONAL INC.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 JUN-29-1997
<EXCHANGE-RATE> 1 1
<CASH> 23,398 3,020
<SECURITIES> 0 0
<RECEIVABLES> 128,625 141,395
<ALLOWANCES> 5,623 5,531
<INVENTORY> 149,419 151,405
<CURRENT-ASSETS> 319,758 316,649
<PP&E> 332,047 347,987
<DEPRECIATION> 40,961 61,113
<TOTAL-ASSETS> 1,768,845 1,760,292
<CURRENT-LIABILITIES> 308,590 302,025
<BONDS> 1,010,962 965,175
54,900 57,398
0 0
<COMMON> 1,000 1,000
<OTHER-SE> 217,815 245,253
<TOTAL-LIABILITY-AND-EQUITY> 1,768,845 1,760,292
<SALES> 1,106,812 642,985
<TOTAL-REVENUES> 1,106,812 642,985
<CGS> 803,624 446,842
<TOTAL-COSTS> 803,624 446,842
<OTHER-EXPENSES> 83,893 40,346
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 41,877 16,838
<INCOME-PRETAX> 55,885 65,515
<INCOME-TAX> 30,259 27,414
<INCOME-CONTINUING> 25,626 38,101
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 25,626 38,101
<EPS-PRIMARY> 0.21 0.36
<EPS-DILUTED> 0.21 0.36
</TABLE>
