<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 21, 1997
REGISTRATION NO. 333-37573
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 3 TO 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. [_]
----------------
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 November 21, 1997 15,000,000 Shares
COMMON STOCK
-----------
[LOGO OF HOWMET INTERNATIONAL INC.]
OF THE 15,000,000 SHARES OF COMMON STOCK BEING OFFERED, 12,000,000 SHARES ARE
BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND 3,000,000 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 $14 AND $16 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. THIOKOL WILL OWN 62% OF THE OUTSTANDING COMMON STOCK UPON ITS
INTENDED EXERCISE OF A PORTION OF AN OPTION GRANTED TO IT BY THE SELLING
SHAREHOLDER AND 85% OF THE OUTSTANDING COMMON STOCK IF IT ELECTS TO
EXERCISE IN FULL A SECOND OPTION (WHICH IS EXERCISABLE ONLY DURING THE
TWO-YEAR PERIOD BEGINNING ON THE SECOND ANNIVERSARY OF THE CLOSING OF
THE OFFERING) GRANTED TO IT BY THE SELLING SHAREHOLDER (ASSUMING NO
EXERCISE OF THE U.S. UNDERWRITERS' OVERALLOTMENT OPTION). SEE "CERTAIN
TRANSACTIONS IN CONNECTION WITH THE OFFERING."
-----------
THE COMMON STOCK HAS BEEN APPROVED FOR LISTING, SUBJECT TO OFFICIAL NOTICE OF
ISSUANCE, 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 $2,500,000, 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 2,250,000 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 APPEARS ON THIS PAGE IN PRINTED PROSPECTUS
DESCRIPTION:
The artwork is titled "Investment Cast Components."
Under the subheading "AEROSPACE" appear four photos showing (1) compressor
blades, (2) a compressor case, (3) hot section blades and vanes, and (4) hot
section vane segments, as well as a schematic drawing of a cross-section of an
aircraft turbine engine showing where each of such components fit in the
engine.
Under the subheading "INDUSTRIAL GAS TURBINE" appears a photograph of an
engine with callouts to two subphotos showing (1) a vane segment and (2)
blades, and where they fit in such engine.
<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>
<CAPTION>
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.............................................................. 36
Management............................................................ 49
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Principal Stockholders................................................ 58
Relationship with Thiokol............................................. 59
Arrangements between the Company, Carlyle and Thiokol................. 60
Description of Certain Indebtedness................................... 63
Description of Capital Stock.......................................... 68
Shares Eligible for Future Sale....................................... 71
Material United States Tax Consequences to Non-United States Holders.. 73
Underwriters.......................................................... 76
Legal Matters......................................................... 79
Experts............................................................... 79
Available Information................................................. 79
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..... 12,000,000 shares
International Offering..... 3,000,000 shares
Total Offering........... 15,000,000 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 2,250,000 shares subject to an overallotment 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. Thiokol has indicated to the Selling Shareholder that it intends to
exercise the First Thiokol Option to the extent of 2,000,000 shares. 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 14% of the total number of shares outstanding, 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 and (4) 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, the Sale and
Thiokol's intended purchase of 2,000,000 shares under the First Thiokol Option,
Thiokol will beneficially own 62% of the outstanding Common Stock and will own
all of the outstanding non-voting 9% Series A Cumulative Preferred Stock of the
Company ("Series A Preferred Stock"), and Carlyle will beneficially own between
20.75% and 23% of the outstanding Common Stock, depending upon the extent to
which the U.S. Underwriters elect to exercise their overallotment option. 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 85% (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 right under the
Shareholders Agreement to designate one director, 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 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
balance sheet 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 September 28, 1997 and for the thirty-nine weeks
ended September 29, 1996 and September 28, 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 unaudited pro forma financial data set
forth in the notes below are not necessarily indicative of the results of
operations or related effects on financial position 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 THIRTY-NINE
DECEMBER 31, JANUARY 1, DECEMBER 14, WEEKS ENDED
---------------------- 1995 TO 1995 TO YEAR ENDED ---------------------------
DECEMBER 13, DECEMBER 31, DECEMBER 31, SEPTEMBER 29, SEPTEMBER 28,
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 $823.4 $952.0
Cost of sales........... 688.0 603.4 647.3 681.4 38.0 803.6 600.7 661.6
Selling, general and
administrative
expense................ 116.1 104.5 90.9 105.0 4.6 117.3 84.5 106.6
Depreciation and
amortization expense... 30.7 31.0 33.1 32.6 2.8 59.7 45.0 44.7
Research and development
expense................ 24.3 23.3 19.2 25.0 1.4 24.2 18.4 16.1
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 74.8 123.0
Interest income
(expense) net--
affiliates............. 4.4 4.4 8.6 6.5 -- -- -- --
Interest income
(expense) net--third
parties (a)............ (2.2) (4.0) (3.4) (2.4) (3.1) (40.2) (31.7) (25.1)
Other--net.............. 0.5 (0.1) (0.1) (5.8) (1.0) (5.9) (5.9) (2.1)
------ ------ ------ ------ -------- -------- ------ ------
Income before income
taxes.................. 4.9 70.8 23.0 50.0 0.5 55.9 37.2 95.8
Income taxes............ 3.3 27.8 46.0 23.7 0.5 30.3 21.4 36.5
------ ------ ------ ------ -------- -------- ------ ------
Income (loss) before
cumulative effect
of change in
accounting (b)(c)...... 1.6 43.0 (23.0) 26.3 -- 25.6 15.8 59.3
Payment-in-kind
dividends on redeemable
preferred stock........ -- -- -- -- 0.2 4.7 3.5 3.8
-------- -------- ------ ------
Net income (loss)
applicable to common
shares (a)(c).......... -- -- -- -- $ (0.2) $ 20.9 $ 12.3 $ 55.5
======== ======== ====== ======
Net income per common
share (a)(c)(d)........ -- -- -- -- $ -- $ .21 $ .12 $ .56
======== ======== ====== ======
BALANCE SHEET DATA
(end of period) (e):
Cash and cash
equivalents............ $ 7.8 $ 6.4 $ 5.0 -- $ 9.6 $ 23.4 -- $ 9.1
Non-cash working
capital................ 110.2 67.7 26.4 -- 39.0 43.9 -- 15.2
Total assets, excluding
Restricted Trust (a)... 594.7 579.6 509.9 -- 1,127.8 1,052.5 -- 969.0
Restricted Trust (f).... -- -- -- -- 716.4 716.4 -- 727.1
Long-term debt,
including current
maturities, excluding
Pechiney Notes(a)...... 66.3 44.5 42.1 -- 488.6 350.7 -- 190.5
Pechiney Notes (f)...... -- -- -- -- 716.4 716.4 -- 727.1
Redeemable preferred
stock.................. -- -- -- -- 50.2 54.9 -- 58.7
Stockholders'
equity(a).............. 291.9 239.1 166.3 -- 196.9 218.8 -- 266.4
OTHER DATA (e):
EBITDA (g).............. 33.4 101.4 50.9 (h) 78.5 6.3 156.8 114.5 165.8
Net cash provided (used)
by operating
activities............. 138.8 95.4 91.4 35.2 (12.7) 184.5 142.6 126.1
Net cash provided (used)
by investing
activities............. (31.4) (31.7) (33.4) (43.8) (740.2) (29.8) (14.4) 23.1
Net cash provided (used)
by financing
activities............. (4.5) (8.5) 4.5 (20.0) 762.4 (140.9) (117.0) (161.7)
Capital expenditures.... 28.9 33.1 38.0 41.2 1.6 33.7 18.0 32.4
Number of employees (end
of period)............. 10,076 8,990 8,702 -- 9,577 10,035 -- 10,277
</TABLE>
See notes on following pages
11
<PAGE>
- --------
(a) On November 21, 1997, the Company announced that Howmet intends to make a
tender offer to repurchase all of the outstanding 10% senior subordinated
notes due 2003 (the "Senior Subordinated Notes"). Such tender offer is
conditioned upon completion of the New Credit Facility (as defined herein),
and, if fully subscribed, will be funded with approximately $140 million of
borrowings under the New Credit Facility. The Company expects the initial
interest rate under the New Credit Facility to be the Eurodollar rate plus
25 basis points. Completion of the New Credit Facility and of the tender
offer is expected to result in after tax interest expense savings
(exclusive of amortization of debt issuance costs) of approximately $3.0
million annually. The tender offer is expected to be completed by December
31, 1997, and will result in a one-time extraordinary after tax charge to
earnings preliminarily estimated to be $12 million to $13 million (assuming
the tender offer is fully subscribed) in the fourth quarter, including the
write-off of unamortized debt issuance costs. If the refinancing of the
Senior Subordinated Notes had been completed on September 28, 1997, the
effect on the Company's financial position would have been as follows
(unaudited): a net increase in long-term debt of $15 million, and
reductions in other assets of $6.8 million, income taxes payable of
approximately $8.8 million, and stockholders' equity of approximately
$13 million. If the refinancing of the Senior Subordinated Notes had been
completed as of January 1, 1996, for 1996 interest expense would have been
reduced by approximately $7.8 million (including amortization of $2.8
million of debt issuance costs), net income applicable to common shares
would have been approximately $25.6 million and net income per common share
would have been approximately $.26. If the refinancing of the Senior
Subordinated Notes had been completed as of January 1, 1997, for the
thirty-nine weeks ended September 28, 1997, interest expense would have
been reduced by approximately $10.2 million (including amortization of $6.4
million of debt issuance costs), net income applicable to common shares
would have been approximately $61.6 million and net income per common share
would have been approximately $.62. See "Management's Discussion and
Analysis of Financial Results of Operations--General--Fourth Quarter 1997
Results of Operations."
(b) 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.
(c) 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 $1.0 million and $12.6 million in the thirty-nine week periods
ended September 29, 1996 and September 28, 1997, respectively. If the
Offering is consummated, the Company's 1997 fourth quarter charge related
to its SARs plan will be based upon the lower of the initial public
offering price per share and the Company's stock price on December 31,
1997. Based upon an assumed initial public offering price of $15 per share,
the maximum after-tax charge would be $6.2 million, or $.06 per share. See
"Management--Stock Appreciation Rights; 1997 Stock Plan."
(d) 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.
(e) 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
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>
12
<PAGE>
(f) 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 September 28, 1997 balances include $10.7 million of accrued interest
income for the Restricted Trust and $10.7 million of accrued interest
expense for the Pechiney Notes. Both amounts were paid on September 30,
1997.
(g) 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, and (iv) interest income (expense), net. EBITDA
does not include adjustments for restructuring charges of $58.9 million in
1992 and $2.5 million in 1994, a restructuring credit of $1.6 million in
1995 and LIFO inventory valuation adjustments of $4.5, $(15.9), $4.0, $4.4,
$1.7, $2.2, and $2.6 million in 1992, 1993, 1994, 1995, 1996, and the
thirty-nine weeks ended September 29, 1996 and September 28, 1997,
respectively. EBITDA is not intended to represent cash flow from operations
and should not be considered as an alternative to operating or net income
computed in accordance with GAAP, as an indicator of the Company's
operating performance, as an alternative to cash flows from operating
activities (as determined in accordance with GAAP) or as a measure of
liquidity. The Company believes that EBITDA is a standard measure 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 using the same methods; therefore, the EBITDA figures set
forth above may not be comparable to EBITDA reported by other companies.
(h) 1994 EBITDA has not been adjusted upward for a $47.4 million accelerated
write-off of goodwill which was recorded in 1994. See Note 5 of Notes to
Financial Statements.
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.
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.
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.
15
<PAGE>
LIMITATIONS DUE TO RESTRICTIVE DEBT COVENANTS
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, among other things, 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).
LIMITATIONS DUE TO DEBT SERVICE REQUIREMENTS
As of September 28, 1997, the Company's consolidated total indebtedness
(excluding the Pechiney Notes), redeemable preferred stock and total
stockholders' equity were $190.5 million, $58.7 million and $266.4 million,
respectively. 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.
CONTROL BY AND RELATIONSHIP WITH THIOKOL
Upon completion of the Offering, the Sale and Thiokol's intended purchase of
2,000,000 shares under the First Thiokol Option, Thiokol will beneficially own
62% of the outstanding Common Stock and will own all of the outstanding non-
voting Series A Preferred Stock. See "Description of Capital Stock."
Accordingly, subject to Carlyle's right under the Shareholders Agreement to
designate one director,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, 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. See "Relationship with Thiokol" and "Arrangements between the
Company, Carlyle and Thiokol."
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."
POTENTIAL CONFLICTS OF INTEREST ARISING FROM THIOKOL RELATIONSHIPS
As a result of Thiokol's ownership of Common Stock and its intercompany
agreements with the Company 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 "Description of Capital
Stock--Certain Certificate of Incorporation and By-Law Provisions."
16
<PAGE>
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.
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."
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 Common Stock has been approved for listing, subject to official
notice of issuance, on The New York Stock Exchange, Inc. (the "NYSE"), there
can 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 per share. 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 15,000,000 will be freely
tradeable under the Securities Act (17,250,000 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, the Sale and Thiokol's intended purchase of
2,000,000 shares under the First Thiokol Option, Thiokol will beneficially own
62% of the outstanding Common Stock and hold 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 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 and 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
17
<PAGE>
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."
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.
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."
RISKS RELATED TO INTANGIBLE ASSETS
As of September 28, 1997, the Company had approximately $365 million of
intangible assets, representing approximately 137% of total stockholders'
equity and approximately 38% 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.
18
<PAGE>
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. Such provisions include provisions permitting the Board of
Directors, without stockholder approval, to issue one or more series of
Preferred Stock from time to time and to fix the voting and other rights of
such Preferred Stock. See "Description of Capital Stock--The Company--
Preferred Stock," "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%.
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.
Howmet, the Company's principal operating subsidiary, was founded in 1926
and was acquired by the Company on December 13, 1995 from Pechiney
International. During the past five years, Howmet's operations have focused
primarily on its core business of manufacturing investment cast components for
jet aircraft engines and IGT engines. Howmet has made one business acquisition
in the last five years (the 1995 acquisition of Turbine Components Corporation
("TCC"), a refurbishment/coating company), and in September 1997 it sold its
turbine component refurbishment business (see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--General") in order
to tighten its focus on its core business.
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 $(.99), 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 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. Thiokol has indicated to the Selling
Shareholder its intention to exercise the First Thiokol Option to the extent
of 2,000,000 shares. 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 14% of the total number of shares outstanding, 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
21
<PAGE>
shares Carlyle proposes to sell, in each case at market price, and (4) 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," "Risk Factors--Potential Conflicts of Interest
arising from Thiokol Relationships," "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 September 28, 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>
SEPTEMBER 28,
1997
-------------
(UNAUDITED)
(IN MILLIONS)
<S> <C>
Long-term debt, including current portion, excluding
Pechiney Notes (a):
Senior term facility (b).................................. $ 33.5
Senior revolving credit facility (b)...................... .5
Senior Subordinated Notes due 2003 (c).................... 125.0
Payment-in-kind junior subordinated note (d).............. 29.8
Other..................................................... 1.7
--------
Total................................................... 190.5
Pechiney Notes, including $10.7 of accrued interest (e)..... 727.1
Redeemable preferred stock (f).............................. 58.7
Total stockholders' equity (a).............................. 266.4
--------
Total capitalization (a).................................... $1,242.7
========
Total capitalization, excluding Pechiney Notes (a).......... $ 515.6
========
</TABLE>
- --------
(a) The Company is currently negotiating a new $300 million revolving credit
facility (the "New Credit Facility") to replace the senior term facility
and senior revolving credit facility (collectively, the Senior Credit
Facilities"). In expectation of the successful completion of the New
Credit Facility, on November 21, 1997, the Company announced that Howmet
intends to make a tender offer to repurchase all of the Senior
Subordinated Notes. Such tender offer is conditioned upon completion of
the New Credit Facility, and, if fully subscribed, will be funded with
approximately $140 million of borrowings under the New Credit Facility.
Completion of the New Credit Facility and of the tender offer is expected
to result in after tax interest expense savings (exclusive of amortization
of debt issuance costs) of approximately $3.0 million annually. The tender
offer is expected to be completed by December 31, 1997, and will result in
a one-time extraordinary after tax charge to earnings preliminarily
estimated to be $12 million to $13 million (assuming the tender offer is
fully subscribed) in the fourth quarter, including the write-off of
unamortized debt issuance costs. If the refinancings referred to above had
been completed on September 28, 1997, stockholders' equity would have been
reduced by $12 million to $13 million. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--General--Fourth
Quarter 1997 Results of Operations."
(b) 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 September 28, 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 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 $10.7 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 $8.7
million at September 28, 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
balance sheet 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 September 28, 1997 and for the thirty-nine weeks
ended September 29, 1996 and September 28, 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 unaudited pro forma financial data set forth in the
notes below are not necessarily indicative of the results of operations or
related effects on financial position 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 THIRTY-NINE
DECEMBER 31, JANUARY 1, DECEMBER 14, WEEKS ENDED
---------------------- 1995 TO 1995 TO YEAR ENDED ---------------------------
DECEMBER 13, DECEMBER 31, DECEMBER 31, SEPTEMBER 29, SEPTEMBER 28,
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 $823.4 $952.0
Cost of sales........... 688.0 603.4 647.3 681.4 38.0 803.6 600.7 661.6
Selling, general and
administrative
expense................ 116.1 104.5 90.9 105.0 4.6 117.3 84.5 106.6
Depreciation and
amortization expense... 30.7 31.0 33.1 32.6 2.8 59.7 45.0 44.7
Research and development
expense................ 24.3 23.3 19.2 25.0 1.4 24.2 18.4 16.1
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 74.8 123.0
Interest income
(expense) net--
affiliates............. 4.4 4.4 8.6 6.5 -- -- -- --
Interest income
(expense) net--third
parties(a)............. (2.2) (4.0) (3.4) (2.4) (3.1) (40.2) (31.7) (25.1)
Other--net.............. 0.5 (0.1) (0.1) (5.8) (1.0) (5.9) (5.9) (2.1)
------ ------ ------ ------ ------- -------- ------ ------
Income before income
taxes.................. 4.9 70.8 23.0 50.0 0.5 55.9 37.2 95.8
Income taxes............ 3.3 27.8 46.0 23.7 0.5 30.3 21.4 36.5
------ ------ ------ ------ ------- -------- ------ ------
Income (loss) before
cumulative effect
of change in
accounting (b)(c)...... 1.6 43.0 (23.0) 26.3 -- 25.6 15.8 59.3
Payment-in-kind
dividends on redeemable
preferred stock........ -- -- -- -- 0.2 4.7 3.5 3.8
------- -------- ------ ------
Net income (loss)
applicable to common
shares (a)(c).......... -- -- -- -- $ (0.2) $ 20.9 $ 12.3 $ 55.5
======= ======== ====== ======
Net income per common
share (a)(c)(d)........ -- -- -- -- $ -- $ .21 $ .12 $ .56
======= ======== ====== ======
BALANCE SHEET DATA (end
of period)(e):
Cash and cash
equivalents............ $ 7.8 $ 6.4 $ 5.0 -- $ 9.6 $ 23.4 -- $ 9.1
Non-cash working
capital................ 110.2 67.7 26.4 -- 39.0 43.9 -- 15.2
Total assets, excluding
Restricted Trust (a)... 594.7 579.6 509.9 -- 1,127.8 1,052.5 -- 969.0
Restricted Trust (f).... -- -- -- -- 716.4 716.4 -- 727.1
Long-term debt,
including current
maturities, excluding
Pechiney Notes(a) ..... 66.3 44.5 42.1 -- 488.6 350.7 -- 190.5
Pechiney Notes (f)...... -- -- -- -- 716.4 716.4 -- 727.1
Redeemable preferred
stock.................. -- -- -- -- 50.2 54.9 -- 58.7
Stockholders' equity
(a).................... 291.9 239.1 166.3 -- 196.9 218.8 -- 266.4
OTHER DATA (e):
EBITDA (g).............. 33.4 101.4 50.9 (h) 78.5 6.3 156.8 114.5 165.8
Net cash provided (used)
by operating
activities............. 138.8 95.4 91.4 35.2 (12.7) 184.5 142.6 126.1
Net cash provided (used)
by investing
activities............. (31.4) (31.7) (33.4) (43.8) (740.2) (29.8) (14.4) 23.1
Net cash provided (used)
by financing
activities............. (4.5) (8.5) 4.5 (20.0) 762.4 (140.9) (117.0) (161.7)
Capital expenditures.... 28.9 33.1 38.0 41.2 1.6 33.7 18.0 32.4
Number of employees (end
of period)............. 10,076 8,990 8,702 -- 9,577 10,035 -- 10,277
</TABLE>
See notes on following pages
25
<PAGE>
- --------
(a) On November 21, 1997, the Company announced that Howmet intends to make a
tender offer to repurchase all of the Senior Subordinated Notes. Such
tender offer is conditioned upon completion of the New Credit Facility,
and, if fully subscribed, will be funded with approximately $140 million
of borrowings under the New Credit Facility. The Company expects the
initial interest rate under the New Credit Facility to be the Eurodollar
rate plus 25 basis points. Completion of the New Credit Facility and of
the tender offer is expected to result in after tax interest expense
savings (exclusive of amortization of debt issuance costs) of
approximately $3.0 million annually. The tender offer is expected to be
completed by December 31, 1997, and will result in a one-time
extraordinary after tax charge to earnings preliminarily expected to be
$12 million to $13 million (assuming the tender offer is fully subscribed)
in the fourth quarter, including the write-off of unamortized debt
issuance costs. If the refinancing of the Senior Subordinated Notes had
been completed on September 28, 1997, the effect on the Company's
financial position would have been as follows (unaudited): a net increase
in long-term debt of $15 million, and reductions in other assets of $6.8
million, income taxes payable of approximately $8.8 million, and
stockholders' equity of approximately $13 million. If the refinancing of
the Senior Subordinated Notes had been completed as of January 1, 1996,
for 1996 interest expense would have been reduced by approximately $7.8
million (including amortization of $2.8 million of debt issuance costs),
net income applicable to common shares would have been approximately $25.6
million and net income per common share would have been approximately
$.26. If the refinancing of the Senior Subordinated Notes had been
completed as of January 1, 1997, for the thirty-nine weeks ended September
28, 1997, interest expense would have been reduced by approximately $10.2
million (including amortization of $6.4 million of debt issuance costs)
net income applicable to common shares would have been approximately $61.6
million and net income per common share would have been approximately
$.62. See "Management's Discussion and Analysis of Financial Results of
Operations--General--Fourth Quarter 1997 Results of Operations."
(b) 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.
(c) In connection with its SARs plan, the Company recorded after-tax expense
of $4.0 million in the year ended December 31, 1996 and $1.0 million and
$12.6 million in the thirty-nine week periods ended September 29, 1996 and
September 28, 1997, respectively. If the Offering is consummated, the
Company's 1997 fourth quarter charge related to its SARs plan will be
based upon the lower of the initial public offering price per share and
the Company's stock price on December 31, 1997. Based upon an assumed
initial public offering price of $15 per share, the maximum after-tax
charge would be $6.2, or $.06 per share. See "Management--Stock
Appreciation Rights; 1997 Stock Plan."
(d) 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.
(e) 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>
26
<PAGE>
(f) 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 September 28, 1997 balances include $10.7 million of accrued interest
income for the Restricted Trust and $10.7 million of accrued interest
expense for the Pechiney Notes. Both amounts were paid on September 30,
1997.
(g) 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, and (iv) interest income (expense), net. EBITDA
does not include adjustments for restructuring charges of $58.9 million in
1992 and $2.5 million in 1994, a restructuring credit of $1.6 million in
1995 and LIFO inventory valuation adjustments of $4.5, $(15.9), $4.0, $4.4,
$1.7, $2.2, and $2.6 million in 1992, 1993, 1994, 1995, 1996, and the
thirty-nine weeks ended September 29, 1996 and September 28, 1997,
respectively. EBITDA is not intended to represent cash flow from operations
and should not be considered as an alternative to operating or net income
computed in accordance with GAAP, as an indicator of the Company's
operating performance, as an alternative to cash flows from operating
activities (as determined in accordance with GAAP) or as a measure of
liquidity. The Company believes that EBITDA is a standard measure 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 using the same methods; therefore, the EBITDA figures set
forth above may not be comparable to EBITDA reported by other companies.
(h) 1994 EBITDA has not been adjusted upward for a $47.4 million accelerated
write-off of goodwill which was recorded in 1994. See Note 5 of Notes to
Financial Statements.
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
28
<PAGE>
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), 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
$53 million in the thirty-nine week period ended September 28, 1997,
approximately $53 million in the thirty-nine week period ended September 29,
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
September 28, 1997 were $648 million and $679 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.
Fourth Quarter 1997 Results of Operations. In the fourth quarter of 1997,
the Company will incur a charge related to its Amended SAR Program (as defined
herein) which will be based on the lower of the initial public offering price
per share or the Company's stock price at December 31, 1997. Based upon an
assumed initial public offering price of $15 per share, the maximum after-tax
charge would be $6.2 million or $.06 per share. See "Management--Stock
Appreciation Rights; 1997 Stock Plan."
The Company is currently negotiating the $300 million New Credit Facility to
replace the Senior Credit Facilities. The Company expects the initial interest
rate under the New Credit Facility to be the Eurodollar rate plus 25 basis
points. In expectation of the successful completion of the New Credit
Facility, on November 21, 1997, the Company announced that Howmet intends to
make a tender offer to repurchase all of the Senior Subordinated Notes. Such
tender offer is conditioned upon completion of the New Credit Facility, and,
if fully subscribed, will be funded with approximately $140 million of
borrowings under the New Credit Facility. Completion of the New Credit
Facility and of the tender offer is expected to result in after tax interest
expense savings (exclusive of amortization of debt issuance costs) of
approximately $3.0 million annually. The tender offer is expected to be
completed by December 31, 1997, and will result in a one-time extraordinary
after tax charge to earnings preliminarily estimated to be $12 million to $13
million (assuming the tender offer is fully subscribed) in the fourth quarter,
including the write-off of unamortized debt issuance costs. Subject to market
conditions, the Company will also consider using a portion of the New Credit
Facility to refinance or retire some or all of its outstanding 10% junior
subordinated notes. See "--Liquidity and Capital Resources."
In addition, one of the Company's IGT customers has recently asserted a
claim relating to a casting defect affecting the internal cored passages of
certain components manufactured by the Company specifically for such customer.
The components were designed by such customer. The Company is currently
evaluating the extent of the problem and expects to record a fourth quarter
charge, which preliminarily is expected to be in the range of $3 million to
$4.2 million after taxes.
These matters are expected to have a material adverse effect on results of
operations and, if the refinancing occurs in the 1997 fourth quarter, may
cause a net loss for such quarter.
29
<PAGE>
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, primarily due to volume increases. Revenues
increased approximately 7% for aerospace airfoils, approximately 30% for IGT
airfoils, approximately 18% for aluminum castings and approximately 22% for
component refurbishment. Price reductions reduced sales by less than 1%.
Gross profit increased by $77.1 million (34.1%) to $303.2 million for 1996
from $226.1 million for 1995. The principal reason for the improvement was the
effect of volume increases. Other contributing factors include a $2.6 million
lower LIFO charge in 1996 and a $5.4 million workers' compensation charge in
1995 for incurred but not reported claims (see 1995 versus 1994 comparison).
Price reductions were offset by variable cost reductions. A more favorable
sales mix improved the gross margin percentage by approximately one percentage
point. All of such factors resulted in a 1996 gross margin percentage of 27.4%
compared to 23.9% in 1995.
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.
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.
30
<PAGE>
As a result of the foregoing, net income was $25.6 million in 1996, compared
to $26.3 million in 1995.
Included in the aforementioned increase in consolidated sales is a $23.0
million increase (11%) for European operations due primarily to volume
increases. Earnings from operations for these European operations increased by
$4.7 million (51%) due principally to the higher volume.
In connection with the Acquisition in December 1995, management determined
that certain manufacturing operations would be eliminated. Accordingly, a
reserve of $21 million, principally for severance costs, was established. In
1996, as a result of increased customer orders for parts produced by such
operations, operational improvements and a general improvement of the prospects
of such operations, management re-evaluated its decision and concluded that
such operations should be retained. As a result of the decision to retain these
operations, in 1996 $19.1 million of the original accrual (principally relating
to severance costs) was reversed and goodwill was reduced by an equal amount.
See Note 17 of Notes to Financial Statements.
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, primarily due to volume increases. Revenues increased
approximately 9% for aerospace airfoils, approximately 18% for aluminum
castings and approximately 26% for component refurbishment. Also, approximately
$13.5 million of the increase resulted from the Company's April 1995
acquisition of TCC, a refurbishment operation. Price reductions reduced sales
by less than 1%.
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 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 the
aforementioned 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). All of these factors resulted in a 1995 gross margin
percentage of 23.9% compared to 24.6% for 1994.
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.
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 $600,000 because the move was completed more cost effectively than
originally anticipated. 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.
In 1994 the Company wrote off $47.4 million of goodwill. There were no
comparable write-offs in 1995. See Note 5 of Notes to Financial Statements.
31
<PAGE>
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.
Included in the aforementioned increase in consolidated sales is a $27.2
million increase (15%) for European operations due primarily to higher volume.
Earnings from operations for these European operations for 1995 were $9.1
million compared to a $12.3 million loss for 1994. The 1994 loss includes a
$10.5 million write-off of goodwill, a $2.0 million restructuring charge and a
$3.4 million adverse LIFO charge.
The impact of inflation on net sales and earnings from operations was not
significant.
Thirty-Nine Weeks Ended September 28, 1997 Compared to Thirty-Nine Weeks Ended
September 29, 1996
Net sales increased by $128.6 million (15.6%) to $952.0 million for the
thirty-nine week period ended September 28, 1997 ("the 1997 thirty-nine week
period") from $823.4 million for the thirty-nine week period ended September
29, 1996 ("the 1996 thirty-nine week period"), due primarily to volume
increases. Revenues increased approximately 28% for aerospace airfoils and
approximately 4% each for IGT airfoils, aluminum castings and component
refurbishment. The favorable effects of higher volume were partially offset by
lower prices which reduced sales by approximately 2%. These price reductions
were partially 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 $67.7 million (30.4%) to $290.4 million for the
1997 thirty-nine week period from $222.7 million for the 1996 thirty-nine week
period. The principal reason for the improvement was the effect of volume
increases. The adverse effect of the aforementioned price reductions were
offset by variable cost reductions, partly because price reductions are often
tied to achieved or anticipated cost reductions. The aforementioned $9.7
million of additional revenue, which is not expected to recur, had no
associated costs and, therefore, increased gross profits by the full $9.7
million. A more favorable sales mix improved the gross margin percentage by
approximately one percentage point. All of these factors resulted in a 1996
gross margin percentage of 30.5% compared to 27.0% in 1995.
Research and development expense decreased $2.3 million (12.3%) to $16.1
million for the 1997 thirty-nine week period. This decline was a function of
the timing of customer requirements and the normal progression of parts from
the development to production stages of their life cycle.
Selling, general and administrative expense increased by $22.1 million
(26.2%) to $106.6 million for the 1997 thirty-nine week period. The increase
was primarily due to $19.3 million of higher 1997 expense recorded in
connection with the SARs plan.
Net interest expense decreased $6.6 million for the 1997 thirty-nine week
period. Interest expense was reduced by $10.7 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 $4.1 million accelerated
write-off of debt issuance cost associated with debt that was repaid ahead of
schedule.
32
<PAGE>
Equity in income of unconsolidated affiliates of $1.0 million in the 1997
thirty-nine week period was a $3.4 million improvement over the $2.4 million
equity loss in the 1996 thirty-nine week period. The improvement reflects
better results for the Japanese joint venture.
Income taxes increased $15.0 million due to higher pre-tax income. The
effective income tax rate was 38.1% in the 1997 thirty-nine week period
compared to 57.6% in the 1996 thirty-nine week period. The lower 1997
effective tax rate is due principally to a lower state tax rate and a higher
estimate of annual earnings in 1997 compared to 1996. As a result of such
higher estimated 1997 annual earnings, nondeductible costs and expenses
represent a lower percentage of estimated annual earnings in 1997 than in
1996. See Note D of Notes to Consolidated Condensed Financial Statements for
the thirty-nine week periods ended September 28, 1997 and September 29, 1996
for a discussion of changes in the estimated 1996 effective rate.
As a result of the foregoing, net income was $59.3 million for the 1997
thirty-nine week period compared to $15.8 million for the 1996 thirty-nine
week period.
Sales for European operations were unchanged. Higher sales volume was offset
by a $5.0 million adverse foreign exchange translation effect. Earnings from
operations for these European operations increased by $3.2 million (29%) as
the favorable effects of higher volume and cost reductions more than offset
the adverse effects of foreign exchange translation.
The Company does not anticipate a significant disruption in operations as a
result of computer software issues associated with the Year 2000. The Company
initiated its Year 2000 software modification efforts in 1996. The Company
expects to incur incremental costs for such efforts of $1.0 million, $2.5
million, $2.5 million and $0.5 million, respectively, for the full years 1997,
1998, 1999 and 2000. In addition, the Company has diverted internal resources
with an annual cost of approximately $600,000 for each of 1997, 1998 and 1999.
QUARTERLY RESULTS OF OPERATIONS
The table below presents the Company's quarterly operating data for 1996 and
the first three 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 THIRD
------ ------ ------ ------ ------ ------ ------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales (a)........... $261.4 $283.4 $278.6 $283.4 $312.6 $330.4 $309.0
Operating costs and
expenses:
Cost of sales......... 190.0 208.8 201.9 202.9 220.0 226.8 214.7
Selling, general and
administrative
expense (b) ......... 29.5 27.5 27.5 32.8 36.5 36.3 33.8
Depreciation and
amortization
expense.............. 15.1 15.2 14.7 14.7 14.4 14.9 15.4
Research and
development expense.. 6.2 6.0 6.2 5.8 5.9 5.2 5.1
------ ------ ------ ------ ------ ------ ------
Earnings from
operations............. 20.6 25.9 28.3 27.2 35.8 47.2 40.0
Interest expense, net
(c).................... (11.7) (10.8) (9.2) (8.5) (7.6) (8.5) (9.0)
Other, net.............. (2.0) (2.8) (1.1) -- (.6) (.8) (.7)
------ ------ ------ ------ ------ ------ ------
Income before income
taxes.................. 6.9 12.3 18.0 18.7 27.6 37.9 30.3
Income taxes............ 5.3 7.3 8.8 8.9 12.0 15.4 9.1
------ ------ ------ ------ ------ ------ ------
Net income.............. 1.6 5.0 9.2 9.8 15.6 22.5 21.2
------ ------ ------ ------ ------ ------ ------
Payment-in-kind
dividends on redeemable
preferred stock........ 1.1 1.2 1.2 1.2 1.2 1.3 1.3
------ ------ ------ ------ ------ ------ ------
Net income applicable to
common shares.......... $ .5 $ 3.8 $ 8.0 $ 8.6 $ 14.4 $ 21.2 $19.9
====== ====== ====== ====== ====== ====== ======
</TABLE>
- --------
(a) Includes $3.4 million and $6.3 million of additional revenue (with no
associated costs) in the first and second quarters of 1997, respectively,
from a pricing adjustment with a customer that is not expected to recur in
future periods. There were no comparable amounts in the other quarters
presented.
(b) Includes expense related to the Company's SARs plan of $.9 million, $.9
million and $4.8 million in the second, third and fourth quarters of 1996,
respectively, and $7.9 million, $8.0 million and $5.1 million in the
first, second and third quarters of 1997, respectively.
(c) Includes expense of $1.3 million and $2.8 million in the second and third
quarters of 1997, respectively, for the accelerated write-off of debt
issuance cost associated with debt that was repaid ahead of schedule.
There were no comparable amounts in the other quarters presented.
33
<PAGE>
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, 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 debt principal payments,
capital expenditures and research and development for at least the next two
years, 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 September 28, 1997, there were $9.6 million of standby letters of credit
outstanding and $0.5 million outstanding borrowings under the $75.0 million
revolving credit facility. In the 1997 thirty-nine week period, the Company
reduced its debt outstanding by $161.7 million, including (i) repayment of
$8.7 million of borrowings under a subsidiary's revolving credit line, (ii)
repayment of $11.5 million of the Company's revolving credit facility
borrowings, and (iii) $26.3 million of mandatory scheduled repayments and
$115.2 million of voluntary repayments of senior term facility borrowings.
Partially offsetting the reductions was a $2.1 million increase of payment-in-
kind interest on the junior subordinated note.
The source of $57.5 million of the cash used for the aforementioned debt
repayments 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 the first half of 1997, interest rates on the Senior Credit Facilities
were reduced by 50 basis points as a result of the Company achieving certain
financial targets. An additional 25 basis point reduction occurred in November
1997 due to further achievements of financial targets. After these reductions,
interest rates are, at the Company's option, at Eurodollar rates plus 50 basis
points or at a bank's base rate plus no basis points.
The Company's maintains interest rate swap agreements which fix $200 million
of variable Eurodollar debt at 5% through February 1998. The effect of the
swap agreements reduced interest expense by approximately $1.0 million during
the year ended December 31, 1996 and by approximately $900,000 during the
thirty-nine weeks ended September 28, 1997.
Capital expenditures in the 1997 thirty-nine week period of $32.4 million
were for replacement of existing equipment and for capacity expansion. An
additional $25.0 million of expenditures are expected in the fourth quarter
primarily for capacity expansion. While not committed for all such amounts,
the Company believes such expenditures are necessary to meet currently
anticipated demand. 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.
For further description of the terms of the Senior Credit Facilities, see
"Description of Certain Indebtedness."
34
<PAGE>
The Company is currently negotiating the $300 million New Credit Facility to
replace the Senior Credit Facilities. The Company expects the initial interest
rate under the New Credit Facility to be the Eurodollar rate plus 25 basis
points. In expectation of the successful completion of the New Credit
Facility, on November 21, 1997, the Company announced that Howmet intends to
make a tender offer to repurchase all of the Senior Subordinated Notes. Such
tender offer is conditioned upon completion of the New Credit Facility, and,
if fully subscribed, will be funded with approximately $140 million of
borrowings under the New Credit Facility. Completion of the New Credit
Facility and of the tender offer is expected to result in after tax interest
expense savings (exclusive of amortization of debt issuance costs) of
approximately $3.0 million annually. The tender offer is expected to be
completed by December 31, 1997, and will result in a one-time extraordinary
after tax charge to earnings preliminarily estimated to be $12 million to $13
million (assuming the tender offer is fully subscribed) in the fourth quarter,
including the write-off of unamortized debt issuance costs. Subject to market
conditions, the Company will also consider using a portion of the New Credit
Facility to refinance or retire some or all of its outstanding 10% junior
subordinated notes.
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 September 28, 1997 the Company's balance sheet includes $716.4 million of
Pechiney Notes plus $10.7 million of accrued interest thereon and a $727.1
million Restricted Trust asset. See Note 8 of Notes to Financial Statements.
Since December 31, 1996, the cumulative translation adjustment, which is
included in stockholders' equity, changed by $8.0 million, resulting in a $5.9
million negative balance at September 28, 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
In view of the indemnification from the Company's previous owners granted in
connection with the Acquisition, the Company does not expect resolution of
environmental matters to have a material effect on its liquidity or results of
operations. See "Business--Environmental Matters," "Risk Factors--Governmental
Regulations and Environmental Matters" and Note 16 of Notes to Financial
Statements.
35
<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
36
<PAGE>
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 regulations requiring compliance with Stage III noise
restrictions by certain specified deadlines (which impact the approximately
3,500 aircraft worldwide that do not currently meet such restrictions) 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
37
<PAGE>
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:
Turbogenerator Components. 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. The Company is pursing a new approach to making such
investment cast components, including a more automated casting process.
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.
38
<PAGE>
Potential Acquisition. The Company is currently in preliminary
negotiations to purchase a substantial interest in an investment casting
foundry, with an option to increase its equity participation up to 100% in
the future. It is anticipated that the Company's initial investment would
be in the $35-$55 million range. Any such agreement is subject to the
consent of the Company's lenders under the Senior Credit Facilities and the
restrictions in the Senior Subordinated Notes.
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
39
<PAGE>
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 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 uses the investment casting process to
manufacture superalloy and titanium components 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, which redirect the energy in a turbine's hot gas path to rotate the
turbine's main shaft, 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
40
<PAGE>
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 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.
41
<PAGE>
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 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
42
<PAGE>
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.
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.
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<PAGE>
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 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 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. The amount spent during the same periods for customer-sponsored
research and development (primarily U.S. Government funded) was $2.8 million,
$4.8 million and $8.5 million, respectively.
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<PAGE>
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, 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.
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<PAGE>
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
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 September 28,
1997 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 $100,000 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 $300,000 to $1.0 million.
At September 28, 1997 the Company had accrued $6.0 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
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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 September 28, 1997, the Company had 10,277 employees. Approximately
1,200 of the employees at the Company's Whitehall, Michigan facilities 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.
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.
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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.
LEGAL MATTERS
On November 14, 1997, the former Vice President of Sales and Marketing of
Howmet served upon the Company, Howmet and the Selling Shareholder, a request
for a temporary injunction against the Offering to be heard in Connecticut
state court and a complaint alleging that this Prospectus contains false and
misleading information. The Company believes that the papers were served in
connection with former employee's effort to negotiate a favorable severance
package and that the allegations of the complaint are without merit. The
former employee agreed to withdraw his request for a temporary injunction and
terminate the lawsuit pursuant to an agreement that provides for the payment
by Howmet of certain severance benefits and amounts relating to his SARs (as
defined herein) and the redemption by Carlyle of his limited partnership
interest in the Selling Shareholder. The resolution of this matter will not
have a material effect on the Company's results of operations.
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.
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MANAGEMENT
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
General. As of the effective date of this Prospectus, the Company has 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 is 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 has been Chairman of the Board of the Company since October
1997. 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 has been President and Chief Executive Officer of the Company
since October 1997. 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 and was Chairman of the Board from the Acquisition until
October 1997. He has been a Managing Director of Carlyle since 1987. Mr.
Conway was Senior Vice President and Chief Financial Officer of MCI
Communications
49
<PAGE>
Corporation from 1984 until 1987, and was a Vice President and Treasurer of
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 has been Senior Vice President-International Operations of the
Company since October 1997. 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 and Chief Financial Officer of
Howmet since September 1997 and has been Senior Vice President and Chief
Financial Officer of the Company since October 1997. 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 has
been Senior Vice President-United States Operations of the Company since
October 1997. 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 has been Vice President-General Counsel and Secretary of the
Company since October 1997. 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 (or a subcommittee, in the case of the Compensation Committee) 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"). 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
50
<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
President and Chief Ex- 1995 325,000 352,109 7,971 11,997 175,481
ecutive Officer 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
and Chief Financial
Officer(4)
Roland A. Paul........... 1996 167,035 96,903 6,642 171,170 291,752
Vice President--General 1995 161,044 64,719 7,628 6,593 15,527
Counsel and Secretary 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") in the following amounts: 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
51
<PAGE>
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 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 plan in effect prior to 1997
provided an increased benefit for employees with final average pay above one-
half of the social security wage base. 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.
52
<PAGE>
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.
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 under this plan were made by Pechiney International.
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.
53
<PAGE>
STOCK APPRECIATION RIGHTS; 1997 STOCK PLAN
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; or (iv) 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 SAR TERM(2)
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 $13,000,000 $13,000,000
James R. Stanley........ 375,000 7.3 $2 3/31/01 $4,875,000 $4,875,000
Marklin Lasker.......... 250,000 4.9 $2 3/31/01 $3,250,000 $3,250,000
John Ritter............. 250,000 4.9 $2 3/31/01 $3,250,000 $3,250,000
Roland A. Paul.......... 150,000 2.9 $2 3/31/01 $1,950,000 $1,950,000
Ronald L. Wood.......... -- -- $2 (1) -- --
</TABLE>
- --------
(1) Expired.
(2) Based upon an assumed initial public offering price of $15 per share.
Pursuant to the Amended SAR Program described below, the maximum per share
value of the outstanding SARs will be limited to the difference between
the initial public offering price and the base price per share of the
SARs.
In connection with the Offering, the Company amended its SARs plan (the
"Amended SAR Program") and committed to grant stock options to certain
participants, including the Company's executive officers, pursuant to a newly
adopted stock-based awards plan (the "1997 Stock Plan"). Pursuant to the
Amended SAR Program, the maximum per share value of the outstanding SARs will
be limited to the difference between the initial public offering price and the
base price per share (generally $2) of the SARs and, in exchange for accepting
such limitation, each holder of SARs will be granted a non-qualified stock
option (an "NQSO") to purchase, at the initial public offering price, a number
of shares of Common Stock equal to the number of shares with respect to which
such employee has SARs. The NQSOs will vest and become exercisable in 25%
increments on January 1 of each year beginning in 1999, until fully vested,
and will expire on the eighth anniversary of their granting. In addition,
pursuant to the Amended SAR Program, the Company has offered holders of SARs
the opportunity to cash out 20% of their SARs (which represents the vested
portion of the SARs) at the initial public offering price. Employees making
this election will receive their cash payment within 30 days of the completion
of the Offering or January 1, 1998, whichever is later, and will receive NQSOs
representing 80% of the number of shares of Common Stock with respect to which
such employee had SARs immediately prior to making such election. As of the
date of this Prospectus, employees holding in excess of 80% of the outstanding
SARs have agreed to the Amended SAR Program.
54
<PAGE>
The 1997 Stock Plan will be adopted by the Board of Directors and approved
by Thiokol and Carlyle as the sole shareholders prior to the Offering. The
1997 Stock Plan provides for the grant of stock options, SARs and restricted
stock (collectively, "Awards") with respect to up to 5,000,000 shares of
Common Stock. Of this amount, approximately 4,400,000 will be the NQSOs
granted to participants under the Amended SAR Program. The 1997 Stock Plan
will be administered by the Compensation Committee (or a subcommittee
thereof), which consists of two or more directors of the Company who are
"outside directors" as the term is used in Code Section 162(m) and "non-
employee directors" for the purpose of Rule 16b-3 of the Securities Exchange
Act of 1934, as amended. The Compensation Committee has the authority, in its
sole discretion, to select participants (in addition to any employees who
become participants by virtue of the Amended SAR Program), to make such awards
in such form and amount it desires, and to impose limitations, restrictions
and conditions on the award granted and the exercise thereof not otherwise
inconsistent with the terms of the 1997 Stock Plan. The terms of the 1997
Stock Plan permit the Compensation Committee to make stock option grants which
may be Incentive Stock Options within the meaning of Code Section 422 or other
forms of nonqualified stock options as the Compensation Committee may
determine. The exercise price of all options granted must be at not less than
100 percent of the fair market value of the Common Stock on the date of grant.
The term of the option is set by the Compensation Committee and in the case of
Incentive Stock Options, the term shall not be more than 10 years. Options may
be exercised in whole or in part during the term of the grant in cash, Common
Stock with fair market value on the date of grant equal to the aggregate
exercise price, a combination of cash and Common Stock, or with other
consideration determined by the Compensation Committee pursuant to the terms
of the 1997 Stock Plan.
The 1997 Stock Plan permits the Compensation Committee to grant SARs,
subject to the shares remaining available under the plan, on terms and
conditions not inconsistent with the terms of the 1997 Stock Plan at not less
than 100 percent of the fair market value of the Common Stock on the date of
grant. SARs may be issued in tandem with an option. The amount payable by the
Company must be paid in Common Stock valued at the fair market value on the
date of exercise, cash, or a combination of both. The provisions of the 1997
Stock Plan relating to SARs do not affect the terms of any SARs outstanding
prior to the adoption of the 1997 Stock Plan, including those subject to the
Amended SAR Program.
The 1997 Stock Plan permits the Compensation Committee to issue restricted
stock on such terms and conditions as the Compensation Committee may determine
not inconsistent with the terms of the 1997 Stock Plan including shares of
Common Stock earned under any of the Company's compensation plans.
The maximum number of shares of Common Stock with respect to which awards
may be granted under the 1997 Stock Plan during any calendar year to a single
plan participant shall not exceed 400,000 shares, except in connection with
Options granted pursuant to the Amended SAR Program.
All awards made by the Compensation Committee shall be made by written
agreement which shall contain such terms and conditions that are consistent
with Sections 162(m) and 422 of the Code in respect to the award of incentive
stock options. No award made under the 1997 Stock Plan shall be transferable
by a participant except pursuant to the terms of a designation of beneficiary
and the laws of dissent and distribution or pursuant to a qualified domestic
relations order as defined by the Employee Retirement Income Security Act of
1974, as amended.
Awards are subject to adjustment to reflect any changes in the outstanding
Common Stock or other changes affecting shares, including adjustments in the
number of shares available for issuance, shares covered by an outstanding
Award, or adjustments in price that become necessary to prevent a dilution or
enlargement of benefits or potential benefits under the 1997 Stock Plan.
The Compensation Committee shall have such other administrative powers
conferred upon such committee by the 1997 Stock Plan including plan
interpretation and establishment of rules and procedures of plan
administration.
The Compensation Committee has the power to withhold taxes or require
participants to remit to the Company such amounts as required to satisfy tax
withholding obligations either in cash or Common Stock or a combination of
both.
55
<PAGE>
The 1997 Stock Plan will terminate on the tenth anniversary of the
completion of the Offering. The Board of Directors or Compensation Committee
may amend or terminate the 1997 Stock Plan, provided, however, that such
amendment or termination shall be subject to stockholder approval to the
extent required by law or the rules of any stock exchanges on which the Common
Stock is listed.
Federal Income Tax Consequences of the 1997 Stock Plan. The following
discussion is limited to federal income tax laws and does not discuss income
tax laws of any state. There is no assurance that such federal income tax laws
will not change. The 1997 Stock Plan is not a qualified plan under Code
Section 401(a) and is not subject to the provisions of the Employee Retirement
Income Security Act.
Stock Options. The grant of an incentive stock option or a nonqualified
stock option would not result in income for the participant or in a
deduction for the Company. The exercise of a nonqualified stock option
would result in ordinary income for the participant and a deduction for the
Company measured by the difference between the option price and the fair
market value of the shares received at the time of exercise. Income tax
withholding would be required.
The exercise of an incentive stock option would not result in income for
the participant if the participant does not dispose of the shares within
two years after the date of grant or one year after the transfer of shares
upon exercise. If these requirements are met, the basis of the shares upon
later disposition would be the option price. Any gain will be taxed to the
employee as long-term capital gain, and the Company would not be entitled
to a deduction. The excess of the market value on the exercise date over
the option price is an item of tax preference, potentially subject to the
alternative minimum tax. If the participant disposes of the shares prior to
the expiration of either of the holding periods (such as in the case of a
"cashless" stock option exercise or other disposition), the participant
would recognize ordinary income, and the Company would be entitled to a
deduction equal to the lesser of the fair market value of the shares on the
exercise date minus the option price or the amount realized on disposition
minus the option price. Any gain in excess of the ordinary income portion
would be taxable as long-term or short-term capital gain or additional
ordinary income as determined by the holding period.
Stock Appreciation Rights. The grant of a SAR would not result in income
for the participant or in a deduction for the Company. Upon the exercise of
a SAR, the participant would recognize ordinary income, and the Company
would be entitled to a deduction measured by the fair market value of the
shares plus any cash received. Income tax withholding would be required.
Restricted Stock Grants. The grant of restricted stock should not result
in income for the participant or in a deduction for the Company for federal
income tax purposes, assuming the shares transferred are subject to
restrictions resulting in a "substantial risk of forfeiture" as intended by
the Company. If there are no such restrictions (such as the issuance of
shares in connection with awards from other Company compensation plans),
the participant would recognize ordinary income upon receipt of the shares.
Dividends paid to the participant while the stock remained subject to
restriction would be treated as compensation for federal income tax
purposes. At the time the restrictions lapse, the participant would receive
ordinary income, and the Company would be entitled to a deduction measured
by the fair market value of the shares at the time of lapse. Income tax
withholding would be required.
THIOKOL OPTIONS
Since December 31, 1995, Thiokol has granted 230,000 contingent stock
options for Thiokol common stock ("Thiokol Stock Options") 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
56
<PAGE>
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 September 28, 1997, charges at that
date and in the subsequent two years would aggregate $5.5 million, after tax.
Thiokol has informed holders of the Thiokol Stock Options of Thiokol's
intention to adopt a plan that would allow such holders to benefit from such
options even if Thiokol does not acquire 100% of the Company prior to December
13, 2001. Specifically, Thiokol has indicated that it intends to adopt a plan
pursuant to which, in the event Thiokol does not acquire 100% of the Company
prior to December 13, 2001, then, with respect to each holder, the difference
as of December 13, 2001 between the aggregate market value of all of the
shares of Thiokol common stock represented by such holder's Thiokol Stock
Options and the aggregate exercise price of all such options shall become
vested and contributed to a deferred payment plan pursuant to which 25% would
be paid out immediately and the balance of which would be paid out over a
period (not less than five years) elected by the participant. Deferred
balances would accrue interest based on the change in Thiokol's stock price
over such period or, at the participant's election, based in part on the
change in Thiokol's stock price over such period and based in part on the
interest rate on specified U.S. government securities. Pursuant to such plan,
a holder of Thiokol Stock Options who retires before December 13, 2001 would
receive a pro rata portion of the benefits described in the foregoing
sentences based on the portion of time during the period from December 13,
1995 to December 13, 2001 during which such holder was employed by the
Company.
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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 Thiokol exercises the First Thiokol Option to the extent of
2,000,000 shares and assuming no exercise of the U.S. Underwriters' over-
allotment 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, the Sale and such exercise of the First Thiokol Option.
<TABLE>
<CAPTION>
PERCENTAGE NUMBER NUMBER OF PERCENTAGE OF
NUMBER OF OF SHARES SHARES TO BE OUTSTANDING
OF SHARES OUTSTANDING NUMBER OF TO BE OWNED COMMON
CURRENTLY COMMON SHARES TO SOLD TO AFTER STOCK TO
BENEFICIAL OWNER(1) OWNED STOCK BE OFFERED THIOKOL OFFERING BE OWNED
- ------------------- ---------- ----------- ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Carlyle-Blade
Acquisition Partners,
L.P.,
a Delaware limited 51,000,000 51.0% 15,000,000 13,000,000 23,000,000(3) 23.0%(3)
partnership
("CBAP")(2)............
c/o The Carlyle Group
1001 Pennsylvania
Avenue, N.W.
Washington, D.C. 20004
Thiokol Corporation(4).. 49,000,000 49.0% -- -- 62,000,000 62.0%
2475 Washington
Boulevard
Ogden, Utah 84401
William E. Conway, Jr... -- -- -- --
Richard L. Corbin....... -- -- -- --
Edsel D. Dunford........ -- -- -- --
David L. Squier(5)...... -- -- -- --
James R. Wilson......... -- -- -- --
Marklin Lasker(5)....... -- -- -- --
John C. Ritter.......... -- -- -- --
James R. Stanley(5)..... -- -- -- --
Roland A. Paul(5)....... -- -- -- --
All directors and
executive officers as a
group
(9 persons)(5)......... -- -- -- --
</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 23,000,000
and 20,750,000 shares of Common Stock, or between 23% and 20.75%
(depending upon whether and the extent to which the U.S.
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Underwriters' overallotment option is exercised). All of Carlyle's shares
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) 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%), Mr. Ritter (.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 the Selling Shareholder. Such loan
carries an interest rate of 9.0%, payable at maturity, and matures on
December 13, 2005 or earlier upon a distribution from the Selling
Shareholder. The Selling Shareholder has advised the Company that it
expects to distribute proceeds from the Offering to its partners (the
"CBAP Distribution"), which would include such executive officers of the
Company, on a pro rata basis, or as otherwise agreed by the parties. The
Selling Shareholder has also advised the Company that it may loan to
certain of such executive officers of the Company an amount not in excess
of the amount of such person's pro rata interest in the CBAP Distribution,
and the executive officers would use the proceeds of such loans solely for
the purpose of purchasing shares of Common Stock in the directed share
program. See "Underwriters--Directed Share Program." Such loans would be
repaid from the CBAP Distribution.
RELATIONSHIP WITH THIOKOL
Immediately prior to the Offering, Thiokol and Carlyle will be the only
stockholders of the Company. Upon completion of the Offering, the Sale and
Thiokol's intended purchase of 2,000,000 shares under the First Thiokol
Option, Thiokol will beneficially own 62% of the outstanding Common Stock and
will own all of the outstanding non-voting Series A Preferred Stock, and
Carlyle will beneficially own between 20.75% and 23% of the outstanding Common
Stock, depending upon the extent to which the U.S. Underwriters elect to
exercise their overallotment option. 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 85% (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 right under the Shareholders Agreement to designate one director,
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 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."
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<PAGE>
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 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 Agreement 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
To control administrative costs and avoid duplication of administrative
functions, the Company and Thiokol, upon consummation of the Offering, will
enter into an intercompany services agreement (the "Services Agreement") with
respect to the services to be provided by Thiokol to the Company. The Services
Agreement provides that Thiokol will furnish to the Company administrative
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. These intercompany services will be phased
in over time and their cost to the Company will increase as more services are
provided. These costs, when combined with the annual management fee reduction
described in the previous section and anticipated cost savings, are not
expected to result in material incremental costs to the Company.
The services provided to the Company by Thiokol will also include or involve
some services provided by third parties (such as insurance brokers and
carriers, actuaries and financial printers). Generally, such third party
services shall be billed directly to the Company with no "mark up" by Thiokol.
However, the cost of Thiokol's arranging for third parties' services shall be
billed to the Company along with a fee, as described above.
The services to be provided by Thiokol shall include but not be limited to
tax; control and audit; risk management and insurance advice and purchasing;
health, safety and environmental; treasury and cash management; human
resources and employee relations; employee benefit plan; in-house legal;
investor relations and public affairs; and Executive Department 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. 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."
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<PAGE>
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 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 14% of the total number of shares outstanding, 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.
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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 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.
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<PAGE>
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 September 28, 1997 there were outstanding $33.5
million principal amount of Term Loan, $9.6 million of standby letters of
credit, and $500,000 of 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. An additional 25
basis point reduction for Eurodollar Loans occurred in November 1997 due to
further achievements of financial targets.
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
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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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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, to 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, after December 1, 1997 and
before December 1, 1999, at the Make-Whole Price (as defined below). In
addition, 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 therein 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 Howmet (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 September 28, 1997 was 7.7:1.
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 September 28, 1997, there was $4.8 million of accrued
interest on the 10% PIK Notes. The 10% PIK Notes are prepayable without
penalty and are subject to mandatory prepayment upon a change of control of
Holdings other than to Thiokol. However, prepayment is prohibited by the terms
of the Senior Credit Facility, and is subject to certain restrictions under
the Senior Subordinated Notes. 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. Holders of Common Stock are entitled to one vote per share on
all matters to be voted on by the stockholders of the Company, and do not have
cumulative voting rights. 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, and not in cash. 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 15,000,000 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 85,000,000 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, will have the option to purchase up to an additional 4%
of the outstanding Common Stock from Carlyle following the Offering. Thiokol
has indicated its intention to exercise the First Thiokol Option to the extent
of 2,000,000 shares. 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 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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MATERIAL UNITED STATES TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
GENERAL
The following is a general discussion of the material 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.
73
<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
74
<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.
75
<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.................................................. 12,000,000
----------
International Underwriters:
Morgan Stanley & Co. International Limited................
Lehman Brothers International (Europe)....................
----------
Subtotal.................................................. 3,000,000
----------
Total................................................... 15,000,000
==========
</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
76
<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.
The Common Stock has been approved for listing, subject to official notice
of issuance, 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 2,250,000 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.
77
<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 900,000 shares offered hereby for
directors, officers, employees (including certain former directors and
officers and recently retired employees), business associates and related
persons of the Company and Carlyle. 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.
78
<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.
79
<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 September 28, 1997 (unaudited).. F-32
Consolidated Condensed Statements of Operations and Retained Earnings
for the thirty-nine weeks ended September 28, 1997 and September 29,
1996 (unaudited)....................................................... F-33
Consolidated Condensed Statements of Cash Flows for the thirty-nine
weeks ended September 28, 1997 and September 29, 1996 (unaudited)...... F-34
Notes to Consolidated Condensed Financial Statements (unaudited)........ F-35
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 period from December 14, 1995 to December 31,
1995 and the related combined statements of operations and retained earnings,
and cash flows for the period from January 1, 1995 to December 13, 1995
(Howmet Predecessor Company). 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
period from December 14, 1995 to December 31, 1995 and the combined results of
its operations and its cash flows for the period from January 1, 1995 to
December 13, 1995 (Howmet Predecessor Company), 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 November 12, 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.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are utilized by the Company to reduce
interest rate and foreign currency risks. The Company does not hold or issue
derivative financial instruments for trading purposes.
The Company enters into forward exchange contracts to hedge transactions,
primarily firm commitments relating to firm sales backlog and inventory
purchases denominated in foreign currencies. The gains and losses on foreign
currency transaction hedges are recognized in income and offset the foreign
exchange gains and losses on the underlying transactions. Gains and losses of
foreign currency firm commitment hedges are deferred and included in the basis
of the transaction underlying the commitments.
The Company enters into interest rate swap agreements to reduce the risk on
its floating rate debt. The differentials to be received or paid under such
contracts is recognized as an increase or decrease to interest expense. In the
event of an early termination of an interest rate swap, the resulting gain or
loss is deferred and amortized as an adjustment to interest expense over the
remaining life of the debt.
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.
F-13
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
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
F-14
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
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).
F-15
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 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 on a quarterly basis. The financial ratios are as follows:
(a) consolidated EBITDA (as defined) divided by consolidated net interest
expense,
F-16
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
minimum of 2.5:1, (b) consolidated EBITDA divided by consolidated net interest
expense plus principal payments on the Senior Credit Facilities, minimum of
1.5:1, (c) consolidated indebtedness, as defined, divided by consolidated
EBITDA, maximum of 3.5:1. In addition, they contain other restrictions
customarily found in such agreements, such as limits on indebtedness, payments
for acquisitions and capital expenditures, payments with respect to capital
stock and quarterly and annual financial reporting requirements. 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.
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. The Company has retained the responsibility for servicing
and collecting the accounts receivable sold or held in the master trust. Any
incremental additional costs related to such servicing and collection efforts
are not significant.
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.
F-17
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 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.
F-18
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
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>
F-19
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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-20
<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-21
<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>
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>
F-22
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
F-23
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
<TABLE>
<CAPTION>
NORTH AMERICA EUROPE TOTAL
------------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
HOWMET INTERNATIONAL INC. CONSOLIDATED:
1996
Sales to unaffiliated customers....... $876,914 $229,898 $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.............. 45,006 6,675 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. In 1996, 1995 and 1994,
approximately 50% to 60% of export sales of domestic operations were to
Western Europe, approximately 30% to 40% were to Canada and approximately 7%
to 11% were to the Far East.
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.
F-24
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
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
September 28, 1997, charges at that date and in the subsequent two years would
aggregate $5.5 million, after tax.
F-25
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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. 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
F-26
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
F-27
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
F-28
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 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 November 12, 1997, the Company filed a Registration Statement on Form S-1
(Amendment No. 2) to register 17,250,000 shares (including 2,250,000 shares
subject to an overallotment option granted to the U.S. Underwriters) of common
stock 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"). Thiokol has
indicated to the Selling Shareholder its intention to exercise the First
Thiokol Option to the extent of 2,000,000 shares. 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.
F-29
<PAGE>
HOWMET INTERNATIONAL INC. AND HOWMET PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Underwriters to exercise the U.S. Underwriters' overallotment option or the
30th day following the Offering. Upon completion of the Offering, Sale and
such exercise of the First Thiokol Option, Thiokol will beneficially own 62%
of the outstanding Common Stock 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 14% of the total number of shares outstanding, 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, and (4) 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.
F-30
<PAGE>
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 Program and Stock Option Plan
If the Offering is consummated, the Company's 1997 fourth quarter charge
related to its SARs program will be based upon the lower of the initial public
offering price per share and the Company's stock price on December 31, 1997.
Based upon an assumed initial public offering price of $15 per share, the
maximum after tax charge would be $6.2 million after tax or $.06 per share. As
a result of the stock split described above, the number of SARs was increased
to approximately 4.4 million, the SARs interest was changed to 100% of a share
of common stock, and the base price was reduced to $2.
In connection with the Offering, the Company amended its SARs plan (the
"Amended SAR Program") and committed to grant stock options to certain
participants, including the Company's executive officers, pursuant to a stock-
based awards plan (the "1997 Stock Plan"). Pursuant to the Amended SAR
Program, the maximum per share value of the outstanding SARs will be limited
to the difference between the initial public offering price and the base price
per share (generally $2) of the SARs and, in exchange for accepting such
limitation, each holder of SARs will be granted a non-qualified stock option
(an "Option") to purchase, at the initial public offering price, a number of
shares of Common Stock equal to the number of shares with respect to which
such employee has SARs (approximately 4.4 million Options in total). The
Options will vest and become exercisable in 25% increments on January 1 of
each year beginning in 1999, until fully vested, and will expire on the eighth
anniversary of their granting. In addition, pursuant to the Amended SAR
Program, the Company has offered holders of SARs the opportunity to cash out
20% of their SARs (which represents the vested portion of the SARs) at the
initial public offering price. Employees making this election will receive
their cash payment within 30 days of the completion of the Offering or January
1, 1998, whichever is later, and will receive Options representing 80% of the
number of shares of Common Stock with respect to which such employee had SARs
immediately prior to making such election. As of the date of this Prospectus,
employees holding in excess of 80% of the outstanding SARs have agreed to the
Amended SAR Program.
The 1997 Stock Plan is expected to be adopted by the Board of Directors and
approved by Thiokol and Carlyle as the sole shareholders prior to the
Offering. The 1997 Stock Plan provides for the grant of stock options, SARs
and restricted stock with respect to up to 5,000,000 shares of Common Stock.
Subsequent charges or credits related to the Amended SAR Program will be
based on changes to the Company's stock price, subject to the maximum total
value of each SAR as described above.
The Company intends to account for stock options granted using the intrinsic
value method under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25") and related Interpretations.
Accordingly, no compensation cost is recognized for the issuance of the above
stock options as the exercise price of the stock options is equal to the
market price of the underlying stock at the date of grant.
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 $53.0 million in
the thirty-nine week period ended September 28, 1997, approximately $53.0
million in the thirty-nine week period ended September 29, 1996 and
approximately $69 million for the full year 1996. Earnings from operations of
this business were immaterial in all periods.
F-31
<PAGE>
HOWMET INTERNATIONAL INC.
CONSOLIDATED CONDENSED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER
28, 1997
----------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 9,080
Accounts receivable (less allowance of $4,351)................... 70,313
Inventories...................................................... 142,370
Retained receivables............................................. 45,043
Deferred income taxes............................................ 9,301
Other current assets............................................. 2,777
----------
Total current assets........................................... 278,884
Property, plant and equipment, net................................. 264,218
Goodwill, net...................................................... 243,630
Acquisition intangibles and other assets, net...................... 182,290
Restricted Trust (a)............................................... 727,081
----------
Total assets................................................... $1,696,103
==========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. $ 59,857
Accrued liabilities.............................................. 159,750
Income taxes payable............................................. 34,991
Current portion of long-term debt................................ 34,198
----------
Total current liabilities...................................... 288,796
Accumulated postretirement benefit obligation...................... 92,096
Other liabilities.................................................. 99,396
Deferred income taxes.............................................. 7,370
Long-term debt, excluding Pechiney Notes........................... 156,306
Pechiney Notes, including $10,695 of accrued interest (a).......... 727,081
Contingencies (Note F)
Redeemable preferred stock......................................... 58,690
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................................................ 76,271
Cumulative translation adjustment................................ (5,903)
----------
Total stockholders' equity..................................... 266,368
----------
Total liabilities, redeemable preferred stock and stockholders'
equity........................................................ $1,696,103
==========
</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-32
<PAGE>
HOWMET INTERNATIONAL INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTY-
NINE WEEKS ENDED
--------------------
SEPTEMBER SEPTEMBER
28, 1997 29, 1996
--------- ---------
<S> <C> <C>
Net sales................................................ $951,990 $823,351
Operating costs and expenses:
Cost of sales.......................................... 661,559 600,658
Selling, general and administrative expense............ 106,589 84,450
Depreciation and amortization expense.................. 44,711 45,003
Research and development expense....................... 16,146 18,407
-------- --------
829,005 748,518
-------- --------
Earnings from operations................................. 122,985 74,833
Interest income (expense) from restricted trust and
Pechiney Notes, net (Note E)............................ -- --
Interest income.......................................... 799 1,203
Interest expense......................................... (25,874) (32,926)
Equity in income (loss) of unconsolidated affiliates..... 962 (2,431)
Losses on sales of receivables........................... (2,855) (3,297)
Other, net............................................... (241) (221)
-------- --------
Income before income taxes............................... 95,776 37,161
Income taxes............................................. 36,474 21,389
-------- --------
Net income............................................... 59,302 15,772
-------- --------
Payment-in-kind dividends on redeemable preferred stock.. (3,790) (3,457)
-------- --------
Net income applicable to common stock.................... $ 55,512 $ 12,315
======== ========
Net income per common share.............................. $ .56 $ .12
======== ========
Retained earnings (deficit) at beginning of period....... $ 20,759 $ (202)
Net income applicable to common shares................... 55,512 12,315
-------- --------
Retained earnings at end of period....................... $ 76,271 $ 12,113
======== ========
</TABLE>
See notes to consolidated condensed financial statements (unaudited).
F-33
<PAGE>
HOWMET INTERNATIONAL INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS
ENDED
--------------------
SEPTEMBER SEPTEMBER
28, 1997 29, 1996
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income............................................... $ 59,302 $ 15,772
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 51,412 47,466
Payment-in-kind interest............................... 2,100 1,902
Equity in (income) loss of unconsolidated affiliates... (962) 2,431
Changes in assets and liabilities:
Accounts receivable.................................. (8,207) 3,793
Inventories.......................................... (4,914) 14,627
Deferred income taxes................................ 2,144 (627)
Accounts payable..................................... (11,312) 4,831
Accrued liabilities.................................. (3,518) 18,286
Income taxes payable................................. 16,556 8,546
Stock appreciation rights noncurrent accrued
liability........................................... 21,007 1,706
Collection of long-term customer receivable.......... -- 21,138
Other, net........................................... 2,527 2,710
-------- --------
Net cash provided by operating activities.......... 126,135 142,581
INVESTING ACTIVITIES
Proceeds from sale of refurbishment business............. 57,502 --
Payments made for capital expenditures................... (32,415) (17,988)
Investment in joint venture.............................. (1,982) --
Post-closing adjustment relating to the Acquisition...... -- 3,634
-------- --------
Net cash provided (used) in investing activities... 23,105 (14,354)
FINANCING ACTIVITIES
Issuance of debt......................................... 102,300 100,400
Repayment of debt........................................ (264,000) (217,354)
-------- --------
Net cash used in financing activities.............. (161,700) (116,954)
Effect of exchange rate changes on cash.................. (1,858) (167)
-------- --------
Net (decrease) increase in cash.......................... (14,318) 11,106
Cash and cash equivalents at beginning of period......... 23,398 9,606
-------- --------
Cash and cash equivalents at end of period............... $ 9,080 $ 20,712
======== ========
</TABLE>
See notes to consolidated condensed financial statements (unaudited).
F-34
<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 and with the instructions to Form 10-2 and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation have been included. Operating results for the thirty-nine weeks
ended September 28, 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 September 28, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
Raw materials and supplies....................................... $52,695
Work in process and finished goods............................... 94,057
--------
FIFO inventory................................................... 146,752
LIFO valuation adjustment........................................ (4,382)
--------
$142,370
========
</TABLE>
The Company increased the LIFO valuation adjustment and thereby increased
cost of sales by $2.6 million and $2.2 million in the 1997 and 1996 thirty-
nine 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 $53 million in the
thirty-nine week period ending September 28, 1997, and approximately $53
million in the thirty-nine week period ended September 29, 1996. Earnings from
operations of this business were immaterial in both periods.
D. OTHER INFORMATION
Selling, general and administrative expense for the thirty-nine weeks ended
September 28, 1997 included $21.0 million of pre-tax expense recorded in
connection with the Company's Stock Appreciation Rights ("SARs") plan. The
thirty-nine weeks ended September 29, 1996 include $1.7 million of expense
related to the SARs plan. In the thirty-nine weeks ended September 28, 1997,
the Company realized a $9.7 million pre-tax benefit from finalization of a
pricing adjustment with a customer. Also, in the thirty-nine weeks ended
September 28, 1997, the Company recorded a $4.1 million interest expense for
the accelerated write-off of debt issuance cost associated with debt that was
repaid ahead of schedule. Results for the thirty-nine week period of 1996 did
not include any amounts for the items discussed in the two preceeding
sentences.
The 1997 effective tax rate includes permanent differences between book and
tax income (principally goodwill amortization), research and development
credits which offset the adverse effect of establishing valuation allowance
reserves for foreign tax credit carryforwards, and a state tax rate which is
substantially lower than that of 1996.
F-35
<PAGE>
HOWMET INTERNATIONAL INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
In 1996 the effective tax rate was reduced from an estimated 57.6% for the
first thirty-nine week period to 54.1% for the full year. Had the 54.1% rate
been applied to income before income taxes in the 1996 thirty-nine week
period, net income would have been $1.3 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 57.6% rate. The higher income reduced the percentage effect of
nondeductible costs and expenses.
The Company paid interest of $14.0 million and $26.1 million, and paid
income taxes, net of refunds, of $27.7 million and $14.5 million, during the
respective 1997 and 1996 thirty-nine 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 September 28, 1997 balances include $10.7 million of accrued interest
income for the Restricted Trust and $10.7 million of accrued interest expense
for the Pechiney Notes. Both amounts were paid on September 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 September 28,
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 September 28, 1997, $4.0 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
F-36
<PAGE>
HOWMET INTERNATIONAL INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
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 a minimum of $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
liabilities. In connection with these environmental matters, as of September
28, 1997, the Company has recorded a $29.3 million liability and an equal
$29.3 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 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 September 28, 1997, the Company guaranteed certain indebtedness
aggregating $10.3 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-37
<PAGE>
ARTWORK APPEARS HERE IN PRINTED PROSPECTUS
DESCRIPTION:
This page is titled "Investment Casting Process."
Four photos (two over two) show (1) a plastic/wax assembly, (2) a cross-
section of an assembly covered with ceramic shell material, (3) a cross-
section of an assembly with wax melted out, and (4) the cast component
positioned on a pouring cup.
<PAGE>
[LOGO OF HOWMET INTERNATIONAL INC.]
<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 November 21, 1997 15,000,000 Shares
[LOGO OF HOWMET INTERNATIONAL INC.]
COMMON STOCK
-----------
OF THE 15,000,000 SHARES OF COMMON STOCK BEING OFFERED, 3,000,000 SHARES ARE
BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND 12,000,000 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 $14 AND $16 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. THIOKOL WILL OWN 62% OF
THE OUTSTANDING COMMON STOCK UPON ITS INTENDED EXERCISE OF A PORTION
OF AN OPTION GRANTED TO IT BY THE SELLING SHAREHOLDER AND 85% OF THE
OUTSTANDING COMMON STOCK IF IT ELECTS TO EXERCISE IN FULL A SECOND
OPTION (WHICH IS EXERCISABLE ONLY DURING THE TWO-YEAR PERIOD
BEGINNING ON THE SECOND ANNIVERSARY OF THE CLOSING OF THE
OFFERING) GRANTED TO IT BY THE SELLING SHAREHOLDER (ASSUMING NO
EXERCISE OF THE U.S. UNDERWRITERS' OVERALLOTMENT OPTION). SEE
"CERTAIN TRANSACTIONS IN CONNECTION WITH THE OFFERING."
-----------
THE COMMON STOCK HAS BEEN APPROVED FOR LISTING, SUBJECT TO OFFICIAL NOTICE OF
ISSUANCE, 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 $2,500,000, 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 2,250,000 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.............................................. 434,600
Blue Sky fees and expenses.................................... 2,000
Printing expenses*............................................ 325,000
Legal fees and expenses*...................................... 1,325,000
Accounting fees*.............................................. 250,000
Miscellaneous*................................................ 19,263
----------
Total**................................................... $2,500,000
==========
</TABLE>
--------
* Estimated.
** 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 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 such corporation)
by reason of the fact that the person is or was a director, officer, employee
or agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other 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 person
acted in good faith and in a manner the person reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceedings, had no reasonable cause to believe the
person's conduct was unlawful. A Delaware corporation may indemnify directors,
officers, employees or agents of such corporation against expenses (including
attorneys' fees) actually and reasonably incurred by the person in connection
with the defense or settlement of such action by or in the right of the
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if such person 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 --Form of 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 Decem-
ber 7, 1995 (incorporated herein by reference to Exhibit 4.4 to
Howmet Corporation's Registration Statement on Form S-4 filed
January 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 docu-
ments attached thereto as exhibits, including the Subsidiary
Guaranty, Pledge Agreement and Security Agreement among the Com-
pany, 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 cer-
tain subsidiaries of Howmet Corporation, as Settlors, and Blade
Receivables Corporation as Buyer (incorporated herein by refer-
ence 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 Re-
ceivables Master Trust Amended and Restated Pooling and Servic-
ing Agreement dated April 18, 1996), among Howmet Corporation,
Howmet Cercast (U.S.A.), Inc., Howmet Refurbishment, Inc., How-
met-Tempcraft, Inc., Turbine Components Corporation, Blade Re-
ceivables Corporation, and Manufacturers and Traders Trust Com-
pany, as Trustee.**
4.15 --Amending Agreement dated August 29, 1997 (amending the Blade
Receivables Master Trust Amended and Restated Pooling and Ser-
vicing Agreement dated April 18, 1996), among Blade Receivables
Corporation, Howmet Corporation, Manufacturers and Traders Trust
Company, 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 Falcon Asset Securitization Corporation and Alpine
Securitization Corp.**
4.16(a) --Form of Amended Series A Note Due 1999*
4.16(b) --Form of Series B Note Due 1999*
4.16(c) --Form of Amendment No. 1 to Series B Notes*
4.16(d) --Form of Amended and Restated Series B Note Due 1999*
4.16(e) --Form of Amended Series C Note Due 1999*
5 --Opinion and Consent of Wachtell, Lipton, Rosen & Katz regarding
the legality of the Common Stock*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
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 Corpo-
ration'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 (incor-
porated 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 State-
ment on Form S-4 filed January 17, 1996 (registration no. 333-
00200)).
10.7 --1986 Howmet Corporation Deferred Compensation Plan (incorpo-
rated 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
Exhibit 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
Exhibit 10.16 to Amendment No. 1 to Howmet Corporation's Regis-
tration Statement on Form S-4 filed January 17, 1996 (registra-
tion 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)).
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)).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
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.**
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 Ex-
hibit 10.31 to Howmet Corporation's Quarterly Report on Form 10-
Q for the quarter ended June 29, 1996, filed August 28, 1996).
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
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.**
10.27 --Howmet International Inc. 1997 Stock Awards Plan*
10.28 --Form of Amendment to Stock Appreciation Rights Agreements with
certain officers of the Company*
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>
- --------
* Filed herewith.
** Previously filed.
(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 Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Greenwich, State of Connecticut, on the 21st day of November, 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 AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
* Chairman of the
- ------------------------------------- Board and Director November 21,
JAMES R. WILSON 1997
* Director, President
- ------------------------------------- and Chief Executive November 21,
DAVID L. SQUIER Officer (principal 1997
executive officer)
*
- ------------------------------------- Senior Vice November 21,
JOHN C. RITTER President and Chief 1997
Financial Officer
(principal
financial officer)
* Corporate Controller
- ------------------------------------- (principal November 21,
GEORGE T. MILANO accounting officer) 1997
* Director
- ------------------------------------- November 21,
WILLIAM E. CONWAY, JR. 1997
* Director
- ------------------------------------- November 21,
FRANK C. CARLUCCI 1997
* Director
- ------------------------------------- November 21,
RICHARD L. CORBIN 1997
* Director
- ------------------------------------- November 21,
EDSEL D. DUNFORD 1997
* Director
- ------------------------------------- November 21,
ALLAN M. HOLT 1997
/s/ Roland Paul
*By: ________________________________
ROLAND A. PAUL,
AS ATTORNEY-IN-FACT
II-13
<PAGE>
EXHIBIT 1.1
15,000,000 SHARES
HOWMET INTERNATIONAL INC.
COMMON STOCK, $0.01 PAR VALUE PER SHARE
FORM OF
UNDERWRITING AGREEMENT
. , 1997
<PAGE>
. , 1997
Morgan Stanley & Co. Incorporated
Lehman Brothers Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
Lehman Brothers International (Europe)
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
Carlyle-Blade Acquisition Partners, L.P., a Delaware limited partnership (the
"SELLING SHAREHOLDER"), proposes to sell to the several Underwriters (as defined
below) 15,000,000 shares of Common Stock, $0.01 par value per share (the "FIRM
SHARES"), of Howmet International Inc., a Delaware corporation (the "COMPANY").
It is understood that, subject to the conditions hereinafter stated,
12,000,000 Firm Shares (the "U.S. FIRM SHARES") will be sold by the Selling
Shareholder to the several U.S. Underwriters named in Schedule I hereto (the
"U.S. UNDERWRITERS") in connection with the offering and sale of such U.S. Firm
Shares in the United States and Canada to United States and Canadian Persons (as
such terms are defined in the Agreement Between U.S. and International
Underwriters of even date herewith), and 3,000,000 Firm Shares (the
"INTERNATIONAL SHARES") will be sold to the several International Underwriters
named in Schedule II hereto (the "INTERNATIONAL UNDERWRITERS") in connection
with the offering and sale of such International Shares outside the United
States and Canada to persons other than United States and Canadian Persons.
Morgan Stanley & Co. Incorporated and Lehman Brothers Inc. shall act as
representatives (the "U.S. REPRESENTATIVES") of the several U.S. Underwriters,
and Morgan Stanley & Co. International Limited and Lehman Brothers International
(Europe) shall act as representatives (the "INTERNATIONAL REPRESENTATIVES") of
the several International Underwriters. The U.S. Underwriters and the
International Underwriters are hereinafter collectively referred to as the
Underwriters.
1
<PAGE>
The Selling Shareholder also proposes to sell to the several U.S. Underwriters
not more than an additional 2,250,000 shares of Common Stock, $0.01 par value
per share, of the Company (the "ADDITIONAL SHARES"), if and to the extent that
the U.S. Representatives shall have determined to exercise, on behalf of the
U.S. Underwriters, the right to purchase such shares of common stock granted to
the U.S. Underwriters in Section 3 hereof. The Firm Shares and the Additional
Shares are hereinafter collectively referred to as the "SHARES". The
outstanding shares of Common Stock, $0.01 par value per share, of the Company
are hereinafter referred to as the "COMMON STOCK".
The Company has filed with the Securities and Exchange Commission (the
"COMMISSION") a registration statement relating to the Shares. The registration
statement contains two prospectuses to be used in connection with the offering
and sale of the Shares: the U.S. prospectus, to be used in connection with the
offering and sale of Shares in the United States and Canada to United States and
Canadian Persons, and the international prospectus, to be used in connection
with the offering and sale of Shares outside the United States and Canada to
persons other than United States and Canadian Persons. The international
prospectus is identical to the U.S. prospectus except for the outside front
cover page. The registration statement as amended at the time it becomes
effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), is hereinafter
referred to as the "REGISTRATION STATEMENT"; the U.S. prospectus and the
international prospectus in the respective forms first used to confirm sales of
Shares are hereinafter collectively referred to as the "PROSPECTUS". If the
Company has filed an abbreviated registration statement to register additional
shares of Common Stock pursuant to Rule 462(b) under the Securities Act (the
"RULE 462 REGISTRATION STATEMENT"), then any reference herein to the term
"Registration Statement" shall be deemed to include such Rule 462 Registration
Statement.
As part of the offering contemplated by this Agreement, Morgan Stanley & Co.
Incorporated ("MORGAN STANLEY") has agreed to reserve out of the Shares set
forth opposite its name on Schedule I to this Agreement, up to [900,000] shares,
for sale to the Company's employees, officers, and directors and other parties
associated with or related to the Company (collectively, "PARTICIPANTS"), as set
forth in the Prospectus under the heading "Underwriters--Directed Share Program"
(the "DIRECTED SHARE PROGRAM"). The Shares to be sold by Morgan Stanley
pursuant to the Directed Share Program (the "DIRECTED SHARES") will be sold by
Morgan Stanley pursuant to this Agreement at the public offering price. Any
Directed Shares not orally confirmed for purchase by any Participants by the end
of the first business day after the date on which this Agreement is executed
will be offered to the public by Morgan Stanley as set forth in the Prospectus.
1. Representations and Warranties of the Company. The Company represents and
warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.
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(b) (i) The Registration Statement, when it became effective, did not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, (ii) the Registration Statement and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all material
respects with the Securities Act and the applicable rules and regulations
of the Commission thereunder and (iii) the Prospectus does not contain and,
as amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and
warranties set forth in this paragraph do not apply to statements or
omissions in the Registration Statement or the Prospectus based upon
information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the failure
to be so qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(d) Each Significant Subsidiary (as defined in Regulation S-X
promulgated by the Commission) of the Company has been duly incorporated,
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own its property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole; all of the issued shares of capital stock of each Significant
Subsidiary of the Company have been duly and validly authorized and issued,
are fully paid and non-assessable and are owned directly by the Company or
indirectly by the Company through a subsidiary of the Company, free and
clear (except as otherwise disclosed in the Prospectus) of all liens,
encumbrances, equities or claims.
(e) This Agreement has been duly authorized, executed and delivered by
the Company.
(f) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
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(g) The outstanding shares of Common Stock (including the Shares to be
sold by the Selling Shareholder) have been duly authorized and are validly
issued, fully paid and non-assessable.
(h) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement do not and will not
contravene any provision of applicable law or the certificate of
incorporation or by-laws of the Company or any of its Significant
Subsidiaries or any agreement, contract, bond, indenture or other
instrument binding upon the Company or any of its subsidiaries that is
material to the Company and its subsidiaries, taken as a whole, or any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over the Company or any subsidiary, and no consent, approval,
authorization or order of, or qualification with, any governmental body or
agency is required for the performance by the Company of its obligations
under this Agreement, except such as may be required by the securities or
Blue Sky laws of the various states in connection with the offer and sale
of the Shares.
(i) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from that
set forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement).
(j) There are no legal or governmental proceedings pending or, to the
Company's knowledge, threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of the Company or
any of its subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or any
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required.
(k) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in
all material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.
(l) The Company is not an "investment company" as such term is defined
in the Investment Company Act of 1940, as amended.
(m) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (1) the Company and
its subsidiaries have not incurred any material liability or obligation,
direct or contingent, nor entered into any material transaction not in the
ordinary course of business; (2) the Company has not purchased any of its
outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock other than
ordinary and customary dividends; and (3) there has not been any material
change in the capital
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stock, short-term debt or long-term debt of the Company and its
consolidated subsidiaries, except in each case as described in or
contemplated by the Prospectus.
(n) The Company and its subsidiaries have good and marketable title in
fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the
Company and its subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries; and any real property and buildings held
under lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its subsidiaries, in each
case except as described in or contemplated by the Prospectus.
(o) The Company and its subsidiaries own or possess, or can acquire on
reasonable terms, all material patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names currently
employed by them in connection with the business now operated by them, and
neither the Company nor any of its subsidiaries has received any notice of
infringement of or conflict with asserted rights of others with respect to
any of the foregoing which, singly or in the aggregate, if the subject of
an unfavorable decision, ruling or finding, would have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(p) No material labor dispute with the employees of the Company or any
of its subsidiaries exists, except as described in or contemplated by the
Prospectus, or, to the knowledge of the Company or any of its subsidiaries,
is imminent; and the Company or any of its subsidiaries are not aware of
any existing, threatened or imminent labor disturbance by the employees of
any of its principal suppliers, manufacturers or contractors that could
have a material adverse effect on the Company and its subsidiaries, taken
as a whole.
(q) The Company and each of its subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in
such amounts as are prudent and customary in the businesses in which they
are engaged; neither the Company nor any such subsidiary has been refused
any insurance coverage sought or applied for; and neither the Company nor
any such subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or
to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole, except as
described in or contemplated by the Prospectus.
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(r) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or
foreign regulatory authorities necessary to conduct their respective
businesses (except for such failures to possess as would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole), and neither the Company nor any such subsidiary has received any
notice of proceedings relating to the revocation or modification of any
such certificate, authorization or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole, except as described in or contemplated by
the Prospectus.
(s) Except as set forth in the Prospectus, the Company and its
subsidiaries (i) are in compliance with any and all applicable foreign,
federal, state and local laws and regulations relating to the protection of
human health and safety, the environment or hazardous or toxic substances
or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii) have
received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and
(iii) are in compliance with all terms and conditions of any such permit,
license or approval, except where such noncompliance with Environmental
Laws, failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits, licenses
or approvals would not, singly or in the aggregate, have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(t) Except as set forth in the Prospectus, there are no costs or
liabilities associated with Environmental Laws (including, without
limitation, any capital or operating expenditures required for clean-up,
closure of properties or compliance with Environmental Laws or any permit,
license or approval, any related constraints on operating activities and
any potential liabilities to third parties) which would, singly or in the
aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(u) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (1) transactions are executed in accordance with management's general
or specific authorizations; and (2) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability.
(v) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Securities Act with
respect to any securities of the Company or to require the Company to
include such securities with the Shares registered pursuant to the
Registration Statement, except as described in the Prospectus.
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(w) The Company and each of its subsidiaries have complied with all
provisions of Section 517.075, Florida Statutes relating to doing business
with the Government of Cuba or with any person or affiliate located in
Cuba.
Furthermore, the Company represents and warrants to Morgan Stanley that (i)
the Registration Statement, the Prospectus and any preliminary prospectus
comply, and any further amendments or supplements thereto will comply, with any
applicable laws or regulations of foreign jurisdictions in which the Prospectus
or any preliminary prospectus, as amended or supplemented, if applicable, are
distributed in connection with the Directed Share Program, and that (ii) no
authorization, approval, consent, license, order, registration or qualification
of or with any government, governmental instrumentality or court, other than
such as have been obtained, is necessary under the securities laws and
regulations of foreign jurisdictions in which the Directed Shares are offered
outside the United States.
2. Representations and Warranties of the Selling Shareholder. The
Selling Shareholder represents and warrants to and agrees with each of the
Underwriters that:
(a) This Agreement has been duly authorized, executed and delivered by
the Selling Shareholder.
(b) The execution and delivery by the Selling Shareholder of, and the
performance by the Selling Shareholder of its obligations under, this
Agreement and the Letter of Transmittal and Custody Agreement (the "Custody
Agreement") signed by the Selling Shareholder and First Chicago Trust
Company of New York, as Custodian, relating to the deposit of the Shares
(the "CUSTODY AGREEMENT") will not contravene any provision of applicable
law, or the certificate of limited partnership, limited partnership
agreement or other organizational documents (if any) of the Selling
Shareholder, or any agreement or other instrument binding upon the Selling
Shareholder or any judgment, order or decree of any governmental body,
agency or court having jurisdiction over the Selling Shareholder, and no
consent, approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by the Selling
Shareholder of its obligations under this Agreement or the Custody
Agreement, except such as may be required by the securities or Blue Sky
laws of the various states in connection with the offer and sale of the
Shares.
(c) The Selling Shareholder is the registered owner of the Shares and
no person, other than the Selling Shareholder and the legal and beneficial
owners of limited and general partnership interests in the Selling
Shareholder, has any legal or beneficial interest in any of the Shares, and
the Selling Shareholder has, and on the Closing Date and any Option Closing
Date (as defined in Section 5) will have, valid title to the Shares and the
legal right and power, and all authorization and approval required by law
or other instruments binding upon the Selling Shareholder, to enter into
this Agreement and the Custody Agreement and to sell, transfer and deliver
the Shares.
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<PAGE>
(d) The Custody Agreement has been duly authorized, executed and
delivered by the Selling Shareholder and is a valid and binding agreement
of the Selling Shareholder.
(e) Delivery of the Shares will pass title to the Shares to the
Underwriters, free and clear of any security interests, claims, liens,
equities and other encumbrances.
(f) (i) The Registration Statement, when it became effective, did not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading and (ii) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, provided that the representations and warranties set
forth in this paragraph only apply to the information pertaining to the
Selling Shareholder or Carlyle under the captions "Prospectus Summary--
Certain Transactions in Connection with the Offering," "Prospectus Summary-
-Relationship with Thiokol," "Certain Transactions in Connection with the
Offering," "The Company," "Principal Stockholders," "Relationship with
Thiokol" and "Arrangements Between the Company, Carlyle and Thiokol."
3. Agreements to Sell and Purchase. The Selling Shareholder hereby
agrees to sell to the several Underwriters, and each Underwriter, upon the basis
of the representations and warranties herein contained, but subject to the
conditions hereinafter stated, agrees, severally and not jointly, to purchase
from the Selling Shareholder the respective numbers of Firm Shares set forth in
Schedules I and II hereto opposite its name at U.S.$. a share ("PURCHASE
PRICE").
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Selling Shareholder
agrees to sell to the U.S. Underwriters the Additional Shares, and the U.S.
Underwriters shall have a one-time right to purchase, severally and not jointly,
up to 2,250,000 Additional Shares at the Purchase Price. If the U.S.
Representatives, on behalf of the U.S. Underwriters, elect to exercise such
option, the U.S. Representatives shall so notify the Selling Shareholder in
writing not later than 30 days after the date of this Agreement, which notice
shall specify the number of Additional Shares to be purchased by the U.S.
Underwriters and the date on which such shares are to be purchased. Such date
may be the same as the Closing Date (as defined below) but not earlier than the
Closing Date nor later than ten business days after the date of such notice.
Additional Shares may be purchased as provided in Section 5 hereof solely for
the purpose of covering over-allotments made in connection with the offering of
the Firm Shares. If any Additional Shares are to be purchased, each U.S.
Underwriter agrees, severally and not jointly, to purchase the number of
Additional Shares (subject to such adjustments to eliminate fractional shares as
the U.S. Representatives may determine) that bears the same proportion to the
total number of Additional Shares to be purchased as the number of U.S. Firm
Shares set
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<PAGE>
forth in Schedule I hereto opposite the name of such U.S. Underwriter bears to
the total number of U.S. Firm Shares.
The Company hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period ending 180
days after the date of the Prospectus, (i) offer, issue, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option (except for options granted pursuant to the
Company's 1997 Stock Plan (as defined in the Prospectus)), 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 (ii) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The foregoing sentence shall not apply
to (A) the Shares to be sold hereunder, (B) the issuance by the Company of
shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof of which the
Underwriters have been advised in writing or (C) any shares of Common Stock
issued pursuant to existing employee benefit plans by the Company described in
the Prospectus.
The Selling Shareholder hereby agrees that, without the prior written
consent of Morgan Stanley on behalf of the Underwriters, it will not, and it
will cause its subsidiaries (if any) not to, during the period ending 180 days
after the date of the Prospectus, (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
(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 the Common Stock,
whether any such transaction described in clause (a) or (b) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to (A) the Shares to be sold
hereunder, (B) the sale of shares of Common Stock by the Selling Shareholder to
Thiokol Holding Company ("Holding"), a Delaware corporation and a wholly owned
subsidiary of Thiokol Corporation, a Delaware corporation ("Thiokol"), pursuant
to the FIRST THIOKOL OPTION (as defined in the Prospectus), (C) the execution
and delivery of the Amended and Restated Shareholders Agreement among the
Company, the Selling Shareholder, Thiokol and Holding, and the consummation of
the transactions contemplated by the IPO Agreement among the Company, the
Selling Shareholder, Thiokol and Holding or (D) transactions relating to shares
of Common Stock or other securities acquired in open market transactions after
the completion of the offering contemplated hereunder. In addition, the Selling
Shareholder agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, and it will cause its subsidiaries (if
any) not to, during the period ending 180 days after the date of the Prospectus,
make any demand for, or exercise any right with respect to, the registration of
any shares of Common Stock or any security convertible into or exercisable or
exchangeable for Common Stock.
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4. Terms of Public Offering. The Company and the Selling Shareholder are
advised by you that the Underwriters propose to make a public offering of their
respective portions of the Shares as soon after the Registration Statement and
this Agreement have become effective as in your judgment is advisable. The
Company and the Selling Shareholder are further advised by you that the Shares
are to be offered to the public initially at U.S.$. a share (the "PUBLIC
OFFERING PRICE") and to certain dealers selected by you at a price that
represents a concession not in excess of U.S.$. a share under the Public
Offering Price, and that any Underwriter may allow, and such dealers may
reallow, a concession, not in excess of U.S.$. a share, to any Underwriter or to
certain other dealers.
5. Payment and Delivery. Payment for the Firm Shares shall be made to
the Selling Shareholder in Federal or other funds immediately available in New
York City against delivery of such Firm Shares for the respective accounts of
the several Underwriters at 10:00 a.m., New York City time, on ., 1997, or at
such other time on the same or such other date, not later than ., 1997, as shall
be designated in writing by you. The time and date of such payment are
hereinafter referred to as the "CLOSING DATE".
Payment for any Additional Shares shall be made to the Selling Shareholder
in Federal or other funds immediately available in New York City against
delivery of such Additional Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on the date specified in the
notice described in Section 3 or at such other time on the same or on such other
date, in any event not later than ., 1997, as shall be designated in writing by
the U.S. Representatives. The time and date of such payment are hereinafter
referred to as the "OPTION CLOSING DATE".
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
6. Conditions to the Underwriters' Obligations. The obligations of the
Selling Shareholder to sell the Shares to the Underwriters and the several
obligations of the Underwriters to purchase and pay for the Shares on the
Closing Date are subject to the condition that the Registration Statement shall
have become effective not later than the date hereof.
The several obligations of the Underwriters are subject to the following
further conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
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(i) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of
any review for a possible change that does not indicate the direction
of the possible change, in the rating accorded any of the Company's
securities by any "nationally recognized statistical rating
organization," as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act; and
(ii) there shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations of the Company
and its subsidiaries, taken as a whole, from that set forth in the
Prospectus (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement) that, in your judgment, is
material and adverse and that makes it, in your judgment,
impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.
(b) (i) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer
of the Company, to the effect set forth in Section 6(a)(i) above and
to the effect that the representations and warranties of the Company
contained in this Agreement are true and correct as of the Closing
Date and that the Company has complied with all of the agreements and
satisfied all of the conditions on its part to be performed or
satisfied hereunder on or before the Closing Date; and
(ii) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by a general partner of
the Selling Shareholder, to the effect that the representations and
warranties of the Selling Shareholder contained in this Agreement are
true and correct as of the Closing Date and that the Selling
Shareholder has complied with all of the agreements and satisfied all
of the conditions on its part to be performed or satisfied hereunder
on or before the Closing Date.
The officer signing and delivering such certificate for the Company
may rely upon the best of his or her knowledge as to proceedings
threatened.
(c) The Underwriters shall have received on the Closing Date an
opinion of Wachtell, Lipton, Rosen & Katz, counsel for the Company, dated
the Closing Date, to the effect that:
(i) the Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the jurisdiction
of its incorporation, has the corporate power and authority to own its
property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except
to the extent that the failure to be so qualified or be in
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good standing would not have a material adverse effect on the Company
and its subsidiaries, taken as a whole;
(ii) the outstanding shares of Common Stock (including the Shares
to be sold by the Selling Shareholder) have been duly authorized and
are validly issued, fully paid and non-assessable;
(iii) this Agreement has been duly authorized, executed and
delivered by the Company;
(iv) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement do
not and will not contravene, to the best of such counsel's knowledge,
any applicable provision of the laws of New York (other than its
securities or Blue Sky laws), the Delaware General Corporation Law
(the "DGCL") or the federal laws of the United States, and do not and
will not contravene any provision of the certificate of incorporation
or by-laws of the Company, and no consent, approval, authorization or
order of, or filing with, any New York, Delaware or federal
governmental body or agency is required for the performance by the
Company of its obligations under this Agreement, except such as may
have been obtained under the Securities Act or as may be required by
the securities or Blue Sky laws of the various states or the United
States in connection with the purchase and distribution of the Shares
by the U.S. Underwriters;
(v) the statements (A) in the Prospectus under the captions
"Description of Capital Stock" and the second and third paragraphs
under "Shares Eligible for Future Sale" and (B) in the Registration
Statement in Items 14 and 15, in each case insofar as such statements
constitute summaries of the legal matters, documents or proceedings
referred to therein, accurately summarize the matters referred to
therein in all material respects;
(vi) the Company is not an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended; and
(vii) such counsel (A) is of the opinion that the Registration
Statement and Prospectus (except for financial statements and
schedules and other financial and statistical data included therein as
to which such counsel need not express any opinion) comply as to form
in all material respects with the Securities Act and the applicable
rules and regulations of the Commission thereunder, (B) shall state
that no facts have come to their attention that lead them to believe
that (except for financial statements and schedules and other
financial and statistical data as to which such counsel need not
express any belief) the Registration Statement or the prospectus
included therein at the time the Registration Statement became
effective contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading and (C) shall state that
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no facts have come to their attention that lead them to believe that
(except for financial statements and schedules and other financial and
statistical data as to which such counsel need not express any belief)
the Prospectus contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
The opinion of Wachtell, Lipton, Rosen & Katz described in paragraph
(c) above shall be rendered to the Underwriters at the request of the
Company and shall so state therein. In rendering such opinion, such counsel
shall state that such opinion is limited to matters arising under the laws
of the State of New York, the DGCL and the federal laws of the United
States of America.
(d) The Underwriters shall have received on the Closing Date an
opinion of Roland A. Paul, Vice President-General Counsel and Secretary of
the Company, dated the Closing Date, to the effect that:
(i) each Significant Subsidiary of the Company has been duly
incorporated, is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has the
corporate power and authority to own its property and to conduct its
business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in
which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the
failure to be so qualified or in good standing would not have a
material adverse effect on the Company and its subsidiaries, taken as
a whole;
(ii) all of the issued shares of capital stock of each
Significant Subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and are owned
directly by the Company or indirectly by the Company through a
subsidiary of the Company, free and clear (except as otherwise
disclosed in the Prospectus) of all liens, encumbrances, equities or
claims;
(iii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
do not and will not contravene any provision of the certificate of
incorporation or by-laws of any Significant Subsidiary of the Company
or, to the best of such counsel's knowledge, any agreement, contract,
bond, indenture, or other instrument binding upon the Company or any
of its subsidiaries that is material to the Company and its
subsidiaries, taken as a whole, or, to the best of such counsel's
knowledge, any judgment, order or decree of any governmental body,
agency or court having jurisdiction over the Company or any
subsidiary;
(iv) the statements in the Prospectus under the captions
"Description of Certain Indebtedness" and "Business--Legal Matters,"
in each case insofar as
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such statements constitute summaries of legal matters, documents or
proceedings referred to therein, accurately summarize the matters
referred to therein in all material respects; and
(v) after due inquiry, such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company or
any of its subsidiaries is a party or to which any of the properties
of the Company or any of its subsidiaries is subject that are required
to be described in the Registration Statement or the Prospectus and
are not so described or of any statutes, regulations, contracts or
other documents that are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required.
The opinion of Roland A. Paul described in paragraph (d) above shall
be rendered to the Underwriters at the request of the Company and shall so
state therein.
(e) The Underwriters shall have received on the Closing Date an
opinion of Latham & Watkins, counsel for the Selling Shareholder, dated the
Closing Date, to the effect that:
(i) this Agreement has been duly authorized, executed and
delivered by the Selling Shareholder;
(ii) the Custody Agreement has been duly authorized, executed and
delivered by the Selling Shareholder and is a valid and binding
agreement of the Selling Shareholder;
(iii) the Selling Shareholder was organized under and is subject
to the Delaware Revised Uniform Limited Partnership Act (the "Delaware
Act"); the execution and delivery by the Selling Shareholder of, and
the performance by the Selling Shareholder of its obligations under,
this Agreement and the Custody Agreement will not contravene any
federal or New York statute, rule or regulation which, to the best of
such counsel's knowledge, is applicable to the Selling Shareholder or
any provision of the Delaware Act or of the certificate of limited
partnership, limited partnership agreement or other organizational
documents (if any) of the Selling Shareholder or, to the best of such
counsel's knowledge, any material agreement or other material
instrument binding upon the Selling Shareholder or, to the best of
such counsel's knowledge, any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the
Selling Shareholder; and, to the best of such counsel's knowledge, no
consent, approval, authorization or order of, or filing with, any
federal, New York or Delaware governmental body or agency is required
for the performance by the Selling Shareholder of its obligations
under this Agreement or the Custody Agreement, except such as may have
been obtained under the Securities Act or such as may be required
under state
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securities laws in connection with the purchase and distribution of
the Shares by the Underwriters;
(iv) the Selling Shareholder has the legal right and power, and
all authorizations and approvals required by the Delaware Act or, to
the best knowledge of such counsel, by federal or New York law or any
instruments binding upon the Selling Shareholder, to enter into this
Agreement and the Custody Agreement and to sell, transfer and deliver
the Shares;
(v) the Selling Shareholder is the registered owner of the
Shares. Upon delivery of the Shares and payment of the consideration
therefor pursuant to this Agreement, the Underwriters will acquire all
of the rights of the Selling Shareholder in the Shares, free of any
adverse claim (as defined in Section 8-302 of the Uniform Commercial
Code as in effect in the State of New York (the "UCC")), assuming that
the Underwriters purchased such Shares in good faith and without
notice of any adverse claim (within the meaning of Section 8-302 of
the UCC).
In addition, such counsel shall state that they have participated
in conferences with officers and other representatives of the Company,
the Selling Shareholder and Thiokol, counsel to the Company and
Thiokol, representatives of the independent public accountants for the
Company, and your representatives, at which the contents of the
Registration Statement and the Prospectus and related matters were
discussed and, although they are not passing upon, and do not assume
any responsibility for, the accuracy, completeness or fairness of the
statements contained in the Registration Statement and the Prospectus
and have not made any independent check or verification thereof,
during the course of such participation (relying as to materiality to
a large extent upon statements of factual matters of officers and
other representatives of the Company), nothing came to their attention
that caused them to believe that the Registration Statement or the
prospectus included therein at the time the Registration Statement
became effective contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or that the
Prospectus contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, it being understood that such counsel need express no
belief with respect to the financial statements and schedules and
other financial and statistical data included in the Registration
Statement or the Prospectus; provided that the statements set forth in
this paragraph only apply to the information pertaining to the Selling
Shareholder and Carlyle under the captions "Prospectus Summary--
Certain Transactions in Connection with the Offering," "Prospectus
Summary--Relationship with Thiokol," "Certain Transactions in
Connection with the Offering," "The Company," "Principal
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<PAGE>
Stockholders," "Relationship with Thiokol" and "Arrangements Between
the Company, Carlyle and Thiokol."
The opinion of Latham & Watkins described in paragraph (e) above shall
be rendered to the Underwriters at the request of the Selling Shareholder
and shall so state therein.
(f) The Underwriters shall have received, on or prior to the date of
this Agreement, an agreement signed by an executive officer of Thiokol to
the effect set forth in Exhibit A hereto.
(g) The Underwriters shall have received on the Closing Date an
opinion of Brown & Wood LLP, counsel for the Underwriters, dated the
Closing Date, covering the matters referred to in Sections 6(c)(iii) and
6(c)(vii) above and to the effect that the statements in the Prospectus
under the captions "Prospectus Summary--Certain Transactions in Connection
with the Offering," "Prospectus Summary--Relationship with Thiokol,"
"Certain Transactions in Connection with the Offering," "Relationship with
Thiokol," "Arrangements Between the Company, Carlyle and Thiokol,"
"Description of Capital Stock" and "Underwriters," in each case insofar as
such statements constitute summaries of the legal matters, documents or
proceedings referred to therein, accurately summarize the matters referred
to therein in all material respects.
With respect to Section 6(c)(vii) above, Wachtell, Lipton, Rosen &
Katz and Brown & Wood llp may state that their opinion and belief are based
upon their participation in the preparation of the Registration Statement
and Prospectus and any amendments or supplements thereto and review and
discussion of the contents thereof, and that such counsel has not verified
and is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus (except as set forth in Section
6(c)(v) above).
(h) The Underwriters shall have received, on each of the date hereof
and the Closing Date, a letter dated the date hereof or the Closing Date,
as the case may be, in form and substance satisfactory to the Underwriters,
from Ernst & Young llp, independent auditors, containing statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement and
the Prospectus; provided that the letter delivered on the Closing Date
shall use a "cut-off date" not earlier than the date hereof.
(i) The Underwriters shall have received on the date hereof a letter
dated the date hereof, in form and substance satisfactory to the
Underwriters, from Price Waterhouse llp, independent accountants,
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the Howmet
Predecessor Company Combined Financial Statements.
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(j) The several obligations of the U.S. Underwriters to purchase Additional
Shares hereunder are subject to the delivery to the U.S. Representatives on
the Option Closing Date of such documents as they may reasonably request
with respect to the good standing of the Company, the due authorization and
issuance of the Additional Shares and other matters related to the issuance
of the Additional Shares.
7. Covenants of the Company. In further consideration of the agreements
of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, five signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City, without
charge, prior to 10:00 a.m. New York City time on the business day next
succeeding the date of this Agreement and during the period mentioned in
Section 7(c) below, as many copies of the Prospectus and any supplements
and amendments thereto or to the Registration Statement as you may
reasonably request.
(b) Before amending or supplementing the Registration Statement or the
Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to
which you reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public offering
of the Shares as in the opinion of counsel for the Underwriters the
Prospectus is required by law to be delivered in connection with sales by
an Underwriter or dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supple ment the Prospectus in
order to make the statements therein, in the light of the circum stances
when the Prospectus is delivered to a purchaser, not misleading, or if, for
any other reason, it is necessary to amend or supplement the Prospectus to
comply with applicable law, forthwith to prepare, file with the Commission
and furnish, at its own expense, to the Underwriters and to the dealers
(whose names and addresses you will furnish to the Company) to which Shares
may have been sold by you on behalf of the Underwriters and to any other
dealers upon request, either amendments or supplements to the Prospectus so
that the statements in the Prospectus as so amended or supplemented will
not, in the light of the circumstances when the Prospectus is delivered to
a purchaser, be misleading or so that the Prospectus, as amended or
supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request; provided that in connection therewith the Company shall not be
required to qualify as a foreign corporation in any jurisdiction in which
it was not qualified or to file a general consent to service of process in
any jurisdiction where it has not already filed a general
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consent to service of process or be obligated to subject itself to any
material additional tax or other liabilities.
(e) To make generally available to the Company's security holders and
to you as soon as practicable an earning statement covering the twelve-
month period ending December , 1998 that satisfies the provisions of
Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.
(f) In connection with the Directed Share Program, to ensure that the
Directed Shares will be restricted to the extent required by the National
Association of Securities Dealers, Inc. (the "NASD") or the NASD rules from
sale, transfer, assignment, pledge or hypothecation for a period of three
months following the date of the effectiveness of the Registration
Statement. Morgan Stanley will notify the Company as to which Participants
will need to be so restricted. The Company will direct the transfer agent
to place stop transfer restrictions upon such securities for such period of
time.
Furthermore, the Company covenants with Morgan Stanley that the Company
will comply with all applicable securities and other applicable laws, rules and
regulations in each foreign jurisdiction in which the Directed Shares are
offered in connection with the Directed Share Program.
8. Expenses. Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, the Company agrees to
pay or cause to be paid all expenses incident to the performance of the
obligations of the Company and the Selling Shareholder under this Agreement,
including: (i) the fees, disbursements and expenses of the Company's counsel,
the Company's accountants and the Selling Shareholder's counsel in connection
with the registration and delivery of the Shares under the Securities Act and
all other fees or expenses in connection with the preparation and filing of the
Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing costs
associated therewith, and the mailing and delivering of copies thereof to the
Under writers and dealers, in the quantities hereinabove specified, (ii) the
cost of printing or producing any Blue Sky or Legal Investment memorandum in
connection with the offer and sale of the Shares under state securities laws and
all expenses in connection with the qualification of the Shares for offer and
sale under state securities laws as provided in Section 7(d) hereof, including
filing fees and the reasonable fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with the
Blue Sky or Legal Investment memorandum (up to a maximum of $5,000), (iii) all
filing fees and the reasonable fees and disbursements of counsel to the
Underwriters incurred in connection with the review and qualification of the
offering of the Shares by the NASD, (iv) all fees and expenses in connection
with the preparation and filing of the registration statement on Form 8-A
relating to the Common Stock and all costs and expenses incident to listing the
Shares on the New York Stock Exchange, (v) the cost of printing certificates
representing the Shares, (vi) the costs and charges of any transfer agent,
registrar or depositary, (vii) the costs and expenses of the Company relating to
investor presentations on any "road show" undertaken in
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<PAGE>
connection with the marketing of the offering of the Shares, including, without
limitation, expenses associated with the production of road show slides and
graphics, fees and expenses of any consultants engaged in connection with the
road show presentations with the prior approval of the Company, travel and
lodging expenses of the representatives and officers of the Company and any such
consultants, and one-half of the cost of any aircraft chartered in connection
with the road show, (viii) all fees and disbursements of counsel incurred by the
Underwriters in connection with the Directed Share Program and stamp duties,
similar taxes or duties or other taxes, if any, incurred by the Underwriters in
connection with the Directed Share Program, (ix) all costs and expenses related
to the transfer and delivery of the Shares by the Selling Shareholder to the
Underwriters, including any transfer or other taxes payable thereon, and (x) all
other costs and expenses incident to the performance of the obligations of the
Company and the Selling Shareholder hereunder for which provision is not
otherwise made in this Section. It is understood, however, that except as
provided in this Section, Section 9 entitled "Indemnity and Contribution", and
the last paragraph of Section 11 below, the Underwriters will pay all of their
costs and expenses, including fees and disbursements of their counsel, stock
transfer taxes payable on resale of any of the Shares by them and any
advertising expenses connected with any offers they may make.
9. Indemnity and Contribution. (a) The Company agrees to indemnify and
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of either Section 15 of the Securities Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT"), from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim) caused
by any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto), or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or omission or alleged untrue statement or omission based
upon information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein; provided, however,
that the foregoing indemnity agreement with respect to any preliminary
prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any such losses, claims, damages or liabilities purchased
Shares, or any person controlling such Underwriter, if a copy of the Prospectus
(as then amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person, if required by law so to have been delivered, at or
prior to the written confirmation of the sale of the Shares to such person and
if the Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such losses, claims, damages or liabilities, unless such failure
is the result of noncompliance by the Company with Section 7(c) hereof.
(b) The Company agrees to indemnify and hold harmless Morgan Stanley and
each person, if any, who controls Morgan Stanley within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act
(collectively, including Morgan Stanley, the
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"MORGAN STANLEY ENTITIES"), from and against any and all losses, claims, damages
and liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) (i) caused by any untrue statement or alleged untrue statement
of a material fact contained in the prospectus wrapper material prepared by or
with consent of the Company for distribution in foreign jurisdictions in
connection with the Directed Share Program attached to the Prospectus or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, when considered in conjunction with the Prospectus or any
applicable preliminary prospectus, not misleading; (ii) caused by the failure of
any Participant to pay for and accept delivery of the shares which, immediately
following the effectiveness of the Registration Statement, were subject to a
properly confirmed agreement to purchase; or (iii) related to, arising out of,
or in connection with the Directed Share Program, provided that, the Company
shall not be responsible under this clause (iii) for any losses, claims, damages
or liabilities (or expenses relating thereto) that are finally judicially
determined to have resulted from the bad faith or gross negligence of Morgan
Stanley Entities.
(c) The Selling Shareholder agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act, and to indemnify and hold harmless the Company, the directors of the
Company and the officers of the Company who sign the Registration Statement and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act, in each case from and
against any and all losses, claims, damages and liabilities (including, without
limitation, any legal or other expenses reasonably incurred in connection with
defending or investigating any such action or claim) caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof, any preliminary prospectus or
the Prospectus (as amended or supplemented if the Company shall have furnished
any amendments or supplements thereto), or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only with reference
to information relating to the Selling Shareholder or Carlyle furnished in
writing by or on behalf of the Selling Shareholder expressly for use in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendments or supplements thereto.
(d) The Company agrees to indemnify and hold harmless the Selling
Shareholder and each person, if any, who controls the Selling Shareholder within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements
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therein not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information relating to the Selling
Shareholder or Carlyle furnished to the Company in writing by the Selling
Shareholder expressly for use therein.
(e) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Selling Shareholder, the Company, the directors of the Company
and the officers of the Company who sign the Registration Statement and each
person, if any, who controls the Selling Shareholder or the Company within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act to the same extent as the foregoing indemnity from the Company and the
Selling Shareholder to such Underwriter, but only with reference to information
relating to such Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use in the Registration Statement, any
preliminary prospectus, the Prospectus or any amendments or supplements thereto.
(f) In case any proceeding (including any governmental investigation) shall
be instituted involving any person in respect of which indemnity may be sought
pursuant to Sections 9(a), 9(b), 9(c), 9(d) or 9(e), such person (the
"INDEMNIFIED PARTY") shall promptly notify the person against whom such
indemnity may be sought (the "INDEMNIFYING PARTY") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm (in addition
to any local counsel) for all such indemnified parties and that all such fees
and expenses shall be reimbursed as they are incurred. Such firm shall be
designated in writing by Morgan Stanley, in the case of parties indemnified
pursuant to Sections 9(a), 9(b) and 9(c), by the Selling Shareholder in the case
of parties indemnified pursuant to Section 9(d), and by the Company, in the case
of parties indemnified pursuant to Section 9(e). The indemnifying party shall
not be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid
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request and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding. Notwithstanding anything contained herein to the contrary, if
indemnity may be sought pursuant to Section 9(b) hereof in respect of such
action or proceeding, then in addition to such separate firm for the indemnified
parties, the indemnifying party shall be liable for the reasonable fees and
expenses of not more than one separate firm (in addition to any local counsel)
for Morgan Stanley and all persons, if any, who control Morgan Stanley within
the meaning of either Section 15 of the Act or Section 20 of the Exchange Act
for the defense of any losses, claims, damages and liabilities arising out of
the Directed Share Program.
(g) To the extent the indemnification provided for in Sections 9(a), 9(b),
9(c), 9(d) or 9(e) is unavailable to an indemnified party (other than by the
express provisions thereof) or insufficient in respect of any losses, claims,
damages or liabilities referred to therein, then each indemnifying party under
such paragraph, in lieu of indemnifying such indemnified party thereunder, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the indemnifying party
or parties on the one hand and the indemnified party or parties on the other
hand from the offering of the Shares or (ii) if the allocation provided by
Section 9(g)(i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in Section
9(g)(i) above but also the relative fault of the indemnifying party or parties
on the one hand and of the indemnified party or parties on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Shareholder on the one hand and the Underwriters on the other hand in connection
with the offering of the Shares shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the Shares (before
deducting expenses) received by the Selling Shareholder and the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover of the Prospectus, bear to the
aggregate Public Offering Price of the Shares. The relative fault of the
Selling Shareholder and the Company on the one hand and the Underwriters on the
other hand shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Selling
Shareholder, the Company or by the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Underwriters' respective obligations to
contribute pursuant to this Section 9 are several in proportion to the
respective number of Shares they have purchased hereunder, and not joint.
(h) The Selling Shareholder, the Company and the Underwriters agree that it
would not be just or equitable if contribution pursuant to this Section 9 were
determined by pro rata
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allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in Section 9(g). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 9, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 9 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
(i) The indemnity and contribution provisions contained in this Section 9
and the representations, warranties and other statements of the Company and the
Selling Shareholder contained in this Agreement shall remain operative and in
full force and effect regardless of (i) any termination of this Agreement, (ii)
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Selling Shareholder or any person controlling
the Selling Shareholder, the Company, its officers or directors or any person
controlling the Company and (iii) acceptance of and payment for any of the
Shares.
(j) No partner of the Selling Shareholder or any successor general partner
of the Selling Shareholder shall have personal liability for the performance of
the Selling Shareholder's obligations hereunder, and any liability or obligation
of the Selling Shareholder arising hereunder shall be limited to and satisfied
out of the property of the Selling Shareholder.
10. Termination. This Agreement shall be subject to termination by notice
given by you to the Company and the Selling Shareholder, if (a) after the
execution and delivery of this Agreement and prior to the Closing Date (i)
trading generally shall have been suspended or materially limited on or by, as
the case may be, any of the New York Stock Exchange, the American Stock
Exchange, the National Association of Securities Dealers, Inc., the Chicago
Board of Options Exchange, the Chicago Mercantile Exchange or the Chicago Board
of Trade, (ii) trading of any securities of the Company shall have been
suspended on any exchange or in any over-the-counter market, (iii) a general
moratorium on commercial banking activities in New York shall have been declared
by either Federal or New York State authorities or (iv) there shall have
occurred any outbreak or escalation of hostilities or any change in financial
markets or any calamity or crisis that, in your judgment, is material and
adverse and (b) in the case of any of the events specified in clauses 10(a)(i)
through 10(a)(iv), such event, singly or together with any other such event,
makes it, in your judgment, impracticable to market the Shares on the terms and
in the manner contemplated in the Prospectus.
23
<PAGE>
11. Effectiveness; Defaulting Underwriters. This Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may be, any
one or more of the Underwriters shall fail or refuse to purchase Shares that it
has or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of the Shares to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Firm Shares set forth
opposite their respective names in Schedule I or Schedule II bears to the
aggregate number of Firm Shares set forth opposite the names of all such non-
defaulting Underwriters, or in such other proportions as you may specify, to
purchase the Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date; provided that in no event shall the
number of Shares that any Underwriter has agreed to purchase pursuant to this
Agreement be increased pursuant to this Section 11 by an amount in excess of
one-ninth of such number of Shares without the written consent of such
Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall
fail or refuse to purchase Firm Shares and the aggregate number of Firm Shares
with respect to which such default occurs is more than one-tenth of the
aggregate number of Firm Shares to be purchased, and arrangements satisfactory
to you, the Company and the Selling Shareholder for the purchase of such Firm
Shares are not made within 36 hours after such default, this Agreement shall
terminate without liability on the part of any non-defaulting Underwriter, the
Company or the Selling Shareholder. In any such case either you or the Selling
Shareholder shall have the right to postpone the Closing Date, but in no event
for longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. If, on the Option Closing Date, any Underwriter
or Underwriters shall fail or refuse to purchase Additional Shares and the
aggregate number of Additional Shares with respect to which such default occurs
is more than one-tenth of the aggregate number of Additional Shares to be
purchased, the non-defaulting Underwriters shall have the option to (i)
terminate their obligation hereunder to purchase Additional Shares or (ii)
purchase not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of them,
because of any failure or refusal on the part of the Selling Shareholder or the
Company to comply with the terms or to fulfill any of the conditions of this
Agreement, or if for any reason the Selling Shareholder or the Company shall be
unable to perform its obligations under this Agreement, the Selling Shareholder
or the Company, as the case may be, will reimburse the Underwriters or such
Underwriters as have so terminated this Agreement with respect to themselves,
severally, for all out-of-pocket expenses (including the fees and disbursements
of their counsel) reasonably incurred by such Underwriters in connection with
this Agreement or the offering contemplated hereunder.
24
<PAGE>
12. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
13. Successors and Assigns. This Agreement, shall be binding upon, and
inure solely to the benefit of, the Underwriters, the Company and the Selling
Shareholder and, to the extent provided for in Section 9, (i) the directors of
the Company and the officers of the Company who signed the Registration
Statement, (ii) each person, if any, controlling the Company, the Selling
Shareholder or any Underwriter and (iii) the Morgan Stanley Entities.
14. Applicable Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.
15. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
25
<PAGE>
Very truly yours,
HOWMET INTERNATIONAL INC.
By:
----------------------------------------
Name:
Title:
CARLYLE-BLADE ACQUISITION PARTNERS, L.P.
By: Carlyle Partners II, L.P.,
General Partner
By: TC Group, L.L.C.,
General Partner
By:
----------------------------------------
Allan H. Holt,
Managing Member
Accepted as of the date hereof
MORGAN STANLEY & CO. INCORPORATED
LEHMAN BROTHERS INC.
Acting severally on behalf of themselves
and the several U.S. Underwriters named
in Schedule I hereto.
By: Morgan Stanley & Co. Incorporated
By:
----------------------------------------
Name:
Title:
26
<PAGE>
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
Acting severally on behalf of themselves and
the several International Underwriters named
in Schedule II hereto.
By: Morgan Stanley & Co. International Limited
By:
----------------------------------------
Name:
Title:
27
<PAGE>
SCHEDULE I
U.S. UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF
FIRM
SHARES TO BE
UNDERWRITER PURCHASED
<S> <C>
Morgan Stanley & Co. Incorporated
Lehman Brothers Inc.
[NAMES OF OTHER U.S. UNDERWRITERS]
----------
Total U.S. Firm Shares......... 12,000,000
==========
</TABLE>
28
<PAGE>
SCHEDULE II
INTERNATIONAL UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF
FIRM
SHARES TO BE
UNDERWRITER PURCHASED
<S> <C>
Morgan Stanley & Co. International Limited
Lehman Brothers International (Europe)
[NAMES OF OTHER INTERNATIONAL CO-MANAGERS]
---------
Total International Shares............. 3,000,000
=========
</TABLE>
29
<PAGE>
EXHIBIT A
__________, 1997
Morgan Stanley & Co. Incorporated
Lehman Brothers Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
Lehman Brothers International (Europe)
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
The undersigned, a stockholder of Howmet International Inc., a Delaware
corporation (the "COMPANY"), understands that Morgan Stanley & Co. Incorporated
("MORGAN STANLEY"), Lehman Brothers Inc., Morgan Stanley & Co. International
Limited and Lehman Brothers International (Europe) propose to enter into an
Underwriting Agreement (the "UNDERWRITING AGREEMENT") with the Company and
Carlyle-Blade Acquisition Partners, L.P., a Delaware limited partnership (the
"SELLING SHAREHOLDER"), providing for the public offering (the "PUBLIC
OFFERING") by the several Underwriters, including Morgan Stanley, Lehman
Brothers Inc., Morgan Stanley & Co. International Limited and Lehman Brothers
International (Europe) (the "UNDERWRITERS"), of shares (the "SHARES") of the
common stock, par value $0.01 per share (the "COMMON STOCK"), of the Company.
To induce the Underwriters that may participate in the Public Offering to
continue their efforts in connection with the Public Offering, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the undersigned hereby agrees that, without the prior written
consent of Morgan Stanley on behalf of the Underwriters, the undersigned will
not, and it will cause its subsidiaries (other than the Company) not to, during
the period commencing on the date hereof and ending 180 days after the date of
the Prospectus (as defined in the Underwriting Agreement), (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,
<PAGE>
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 the Common Stock, whether any such
transaction described in clause (a) or (b) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (A) the execution and delivery of the Amended and
Restated Shareholders Agreement among the Company, the Selling Shareholder, the
undersigned and Thiokol Holding Company, a Delaware corporation ("Holding"), and
the consummation of the transactions contemplated by the IPO Agreement among the
Company, the Selling Shareholder, the undersigned and Holding or (B)
transactions relating to shares of Common Stock or other securities acquired in
open market transactions after the completion of the Public Offering. In
addition, the undersigned agrees that, without the prior written consent of
Morgan Stanley on behalf of the Underwriters, it will not, and it will cause its
subsidiaries (other than the Company) not to, during the period commencing on
the date hereof and ending 180 days after the date of the Prospectus, make any
demand for, or exercise any right with respect to, the registration of any
shares of Common Stock or any security convertible into or exercisable or
exchangeable for Common Stock.
Whether or not the Public Offering is consummated depends on a number of
factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company, the Selling Shareholder and the Underwriters.
This Agreement shall terminate on the tenth business day after the date of the
Underwriting Agreement if the Closing Date (as defined in the Underwriting
Agreement) shall not have occurred on or prior to such day.
Very truly yours,
THIOKOL CORPORATION
By:
---------------------------------------
Name:
Title:
A-2
<PAGE>
EXHIBIT 4.1
COMMON STOCK COMMON STOCK
PAR VALUE $.01 PER SHARE PAR VALUE $.01 PER SHARE
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 443208 10 3
CASTING A VISION
HOWMET INTERNATIONAL INC.
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK,
PAR VALUE $.01 PER SHARE, OF
Howmet International Inc. transferable on the books of the Corporation by the
holder hereof in person or by duly authorized attorney, on surrender of this
certificate properly endorsed.
This certificate is not valid until countersigned and registered by the
Transfer-Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated: (SEAL)
COUNTERSIGNED AND REGISTERED:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
BY
-------------------------------------------------
TRANSFER AGENT AND REGISTRAR AUTHORIZED SIGNATURE
PRESIDENT AND SECRETARY
CHIEF EXECUTIVE OFFICER
<PAGE>
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 authorized class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT-......Custodian.......
TEN ENT - as tenants by the (Cust) (Minor)
entireties under Uniform Gifts to Minors
JT TEN - as joint tenants with Act.............
right of survivorship (State)
and not as tenants in
common
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
| |
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------- shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ----------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
----------------------------------
--------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
- ----------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
Exhibit 4.16(a)
FORM OF AMENDED SERIES A NOTE DUE 1999
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933 AND MAY NOT BE OFFERED
OR SOLD IN CONTRAVENTION OF SUCH ACT.
PECHINEY CORPORATION
SERIES A NOTE DUE 1999
No. 1 $______________
FOR VALUE RECEIVED, PECHINEY CORPORATION, A Delaware corporation (the
"Company"), HEREBY PROMISES TO PAY to the order of ____________ (the "Payee"),
the principal sum of _________________________________ ($__________________)
on January 2, 1999, and to pay interest thereon for each Interest Period in each
year (payable on the last day of such Interest Period), from the date hereof or
from the most recent such interest payment date to which interest has been paid
or duly provided for, at the Applicable Interest Rate (as hereinafter defined),
until such principal amount is paid in full and on the day when such principal
amount becomes due.
All payments of principal and interest in respect of this Note and other
amounts owed by the Company hereunder shall be made in immediately available
funds to the order of the holder ("Holder") by wire transfer to such account as
may be specified from time to time by the Holder in writing, or at the option of
the Holder, in such other manner as the Holder shall have designated to the
Company in writing. If any payment of principal, interest, and any other amount
owed by the Company under this Note shall become due and payable on any day
other than a Business Day (as defined below), the maturity hereof shall be
extended to the next succeeding Business Day and interest due on the unpaid
prinicipal and any other amounts payable hereunder shall accrue during such
extension and shall be payable on such succeeding Business Day at the rate per
annum then in effect hereunder. All computations of interest under this Note
shall be made on the basis of a year of 365 or 366 days, as the case may be, for
the actual number of days (including the first but excluding the last day)
elapsed.
The principal amount of this Note may not be prepaid prior to the date of
maturity thereof.
This Note is entitled to the benefits of an irrevocable standby letter of
credit (the LC, dated of even date herewith and issued by Banque Nationale de
Paris.
<PAGE>
2
This Note, together with accrued interest and (so long as the Holder is
the Payee) the Tax Indemnity Amount (as defined below), shall become and be
immediately due and payable upon written demand of Holder if one or more of the
following events, herein called "Events of Default", shall have occurred and be
continuing at the time of such demand:
(a) a default by the Company in the due and punctual payment of any
interest on this Note or of any principal of this Note when and as such
amount shall become due and payable, such default having continued for a
period of five Business Days after notice thereof by Holder; or
(b) the LC shall cease to be in full force and effect or the stated
amount thereof is not reinstated after a drawing thereunder for interest
payable hereunder within five Business Days after such drawing; or
(c) an involuntary case or other proceeding shall be commenced against
the Company seeking liquidation, reorganization, readjustment, arrangement,
composition or similar relief with respect to it or its debts or other
liabilities under the Federal bankruptcy, insolvency, reorganization or
rehabilitation laws, or any other similar applicable Federal or state law,
seeking the appointment of a receiver, liquidator, custodian or trustee or
assignee or similar official of the Company, or for a substantial part of
the property of the Company, or for the winding up or liquidation of the
affairs of the Company, and such involuntary case or other proceeding shall
have remained undismissed or unstayed for a period of 60 days or more; or an
order for relief against the Company shall be entered in any such case
against the Federal Bankruptcy Code; or any substantial part of the property
of the Company shall be sequestered or attached and shall not be returned
from such attachment within 60 days thereafter; or
(d) the Company shall institute proceedings, or shall consent to file a
petition or answer seeking, liquidation, reorganization, readjustment,
arrangement, composition or similar relief under the Federal bankruptcy,
insolvency, reorganization or rehabilitation laws, [or any other similar
applicable Federal or state law,] or shall consent to the filing of any such
petition, or shall consent to the appointment of a receiver, liquidator,
trustee, custodian or assignee or similar official of it or of a substantial
part of the property, or shall take an assignment for the benefit of
creditors, or shall fail generally, or shall admit in writing its
<PAGE>
3
inability, to pay its debts generally as they become due, or shall
voluntarily suspend transaction of its usual business, or corporate action
shall be taken by the Company in furtherance of any of the aforesaid
purposes.
The occurrence of any of the Events of Default specified in paragraphs
(c) and (d) shall constitute an automatic Event of Default.
In the event that any of the Events of Default specified in paragraphs
(a) through (d) above shall have occurred and be continuing, or in the event of
a default in the due and punctual payment of any of the principal amount of this
Note when and as such principal amount shall become due and payable, Holder may
proceed to protect and enforce its rights either by suit in equity or by action
at law, or both, or by other appropriate proceedings. The Company hereby
waives presentment, demand, notice of protest and all other demands and notices
in connection with the delivery, acceptance, performance, default or enforcement
of this Note.
As used in this Note, the following terms shall have the following
meanings:
"Alternative LIBO Rate" means, for any Interest Period, an interest rate
---------------------
per annum equal to the arithmetic average of the rates at which United States
dollar deposits of $1,000,000 and for a maturity equal to such Interest Period
are offered by two major banks ("Reference Banks") in the London interbank
market (which Reference Banks shall be selected by the Calculation Agent for
such purpose) on the day that is two London Banking Days prior to the
commencement of such Interest Period, as determined by the Calculation Agent;
provided, however, that, if the Alternative LIBO Rate cannot for any reason be
- -------- -------
determined as aforesaid for an Interest Period, the Alternative LIBO Rate for
such Interest Period shall be, if available, the arithmetic average of the cost
to the Reference Banks of obtaining such deposits at such time from such other
sources as such Reference Banks shall select, as quoted to the Calculation
Agent, or, if not available, the Interest Rate for the preceding Interest
Period.
"Applicable Interest Rate" means, with respect to the period from the
------------------------
date hereof until December 31, 1991, 10% per annum, and each Interest Period
from January 1, 1992, until the principal amount of this Note is paid in full,
an interest rate equal to the sum of (i) 1/4% and (ii) the LIBO Rate for such
Interest Period.
"Business Day" means any day that is not a Saturday, a Sunday or a legal
------------
holiday in the State of New York on which banks are not authorized or required
to be closed in New York City.
<PAGE>
4
"Calculation Agent" means Citibank, N.A. and, if Citibank, N.A. shall
-----------------
decline or be unable to continue to act as the Calculation Agent hereunder, such
successor Calculation Agent as shall be a United States bank of nationally
recognized standing selected by the Company.
"Interest Period" means the period commencing on and including the last
---------------
day of the preceding Interest Period (or, in the case of the first Interest
Period, the period ending on March 31, 1989) and ending on the numerically
corresponding day (or, if there is no numerically corresponding day, the last
day) in the calendar month that is three months thereafter. Interest for each
Interest Period shall be payable for the period from and including the first day
thereof to but excluding the last day thereof. The determination of Interest
Periods shall be subject to the following provision: if any Interest Period
would otherwise expire on a day which is not a Business Day, such Interest
Period shall expire on the next succeeding Business Day; provided, however, that
-------- -------
if any Interest Period would otherwise expire on a day which is not a Business
Day but is a day of the month after which no further Business Day occurs in such
month, such Interest Period shall expire on the next preceding Business Day.
"LIBO Rate" means, for any Interest Period, the rate per annum equal to
---------
the arithmetic average of the offered rates for deposits in United States
dollars for a maturity equal to such Interest Period which appear on the Reuters
Screen LIBO Page as of 11:00 a.m., London time, on the day that is two London
Banking Days prior to the commencement of such Interest Period, as determined by
the Calculation Agent; provided, however, that, if no such rates so appear, the
-------- -------
LIBO Rate for such Interest Period shall be the Alternative LIBO Rate.
"London Banking Day" means any day on which dealings in deposits in
------------------
United States dollars are transacted in the London interbank market.
"Reuters Screen LIBO Page" means the display designated as Page "LIBO"
------------------------
on the Reuters Monitor Money Rates Service (or such other page as may replace
the LIBO page on that service for the purpose of displaying London interbank
offered rates of major banks).
<PAGE>
5
"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 the Payee's shares pursuant
to the NPM Stock Purchase Agreement (such tax liability to be determined based
upon the Holder's effective Federal, state and local income tax rate on
long-term capital gains in effect as of the date of payment under this Note)
over (ii) the present value, as of the date of payment, of such tax liability
assuming the principal amount of this Note were paid on the maturity date set
forth herein using a discount rate that would apply to obligations of
substantially the same creditworthiness as this Note and using the tax rate used
in clause (i) above (such excess to be determined by a nationally recognized
independent certified public accounting firm appointed by the Holder and
Company); provided that if the Holder and the Company cannot agree upon the
selection of such a firm, such firm shall be selected by three individuals
unaffiliated with either the Holder or the Company, one each of such individuals
to be selected by the Holder and the Company, and the third such individual to
be selected by the first two individuals.
"Merger Agreement" means the Agreement and Plan of Merger dated as of
----------------
November 20, 1988, among Pechiney, Pechiney Corporation and Triangle Industries,
Inc.
"NPM Stock Purchase Agreement" means the NPM Stock Purchase Agreement
----------------------------
dated as of November 20, 1988 among Nelson Peltz, Peter W. May, Pechiney and
Pechiney Corporation.
"P & M Stock Purchase Agreement" means the P & M Stock Purchase
------------------------------
Agreement dated November 20, 1988 among Pechiney, Pechiney Corporation, Nelson
Peltz and Peter W. May.
"Agreement" means the Agreement dated as of November 20, 1988, among
---------
Pechiney, Pechiney Corporation, Nelson Peltz and Peter W. May.
Payments of principal of, or interest on, this Note are not subject to
the right of the Company to set off or deduct from such payments the amount of
any claims which the Company may have against Holder or any other person or
entity. The Company hereby waives diligence, presentment, demand, notice of
protest, notice of dishonor and all other demands and notices of any kind
whatsoever in connection with the delivery, acceptance, performance, default or
enforcement of this Note.
<PAGE>
6
This Note shall be governed by, and construed in accordance with, the
laws of the State of New York.
All the covenants contained in this Note on behalf of the undersigned
shall bind its successors, whether so expressed or not.
This note may be sold, transferred or otherwise disposed of by the
Holder; provided, however, that the Note may be sold in the United States or to
-------- -------
any United States person only so long as such sale or transfer is made in
compliance with the federal securities laws and applicable state securities
laws; and provided further that the Note may be sold or transferred outside the
-------- -------
United States and to any non-United States person only so long as such sale or
transfer is made to a reputable financial institution or to an entity that is
wholly owned by a reputable financial institution or institutions, and provided,
--------
further, that the Holder shall furnish the Company with the name, address and
- -------
place of organization (if the transferee is an entity) or residence (if the
transferee is an individual) of the transferee who acquires beneficial ownership
of this Note as a result of such sale or transfer, within thirty days after the
date thereof.
The obligation of the Company to make payment under this Note shall be
unconditional and irrevocable and shall be paid strictly in accordance with the
terms hereof under all circumstances, irrespective of the existence of any
claim, set-off, defense or other right which the Company or any of its
affiliates may have at any time against the Payee or any of its affiliates or
any other person or entity.
Any amount due and payable to the Payee hereunder shall be free and
clear of, and without reduction for, or on account of, any present or future
taxes, levies, imposts, deductions, charges or withholdings imposed by any
Covered Jurisdiction (as defined below), excluding present or future taxes,
---------
levies, imposts, deductions, charges or withholdings that would not be imposed
but for a connection between the Payee hereunder and the Covered Jurisdiction
imposing such tax, levy, impost, deduction, charge or withholding, other than a
connection arising by virtue of the activities of such Payee in respect of the
transactions contemplated by the NPM Agreement, the Merger Agreement, the P & M
Stock Purchase Agreement and the Agreement or the holding of this Note (all such
non-excluded taxes, levies, imposts, deductions, charges or withholdings being
hereinafter referred to as "Withholdings"). If any Withholdings shall be
required by law to be deducted from or in respect of any sum payable to the
Payee hereunder, the sum so payable shall be increased as may be necessary so
that after making all required deductions (including deductions applicable to
additional sums payable under this paragraph) the Payee receives an amount equal
to the sum the Payee would have received had no such deductions been made.
Covered Jurisdiction shall mean any jurisdiction other than the United States,
any State, territory or
<PAGE>
7
political subdivision thereof. If any payment of tax is made on behalf of the
Payee pursuant to this paragraph, the Payee shall refund to the Company the
amount of any tax benefit that the Payee would not have realized if such payment
had not been made.
No failure on the part of Payee or Holder to exercise, and no delay in
exercising, any right under this Note shall operate as a waiver thereof; nor
shall any single or partial exercise of any such right preclude any other or
further exercise thereof or the exercise of any other right.
Dated: December 22, 1988
PECHINEY CORPORATION
By
--------------------------
Title:
<PAGE>
EXHIBIT 4.16(b)
FORM OF SERIES B NOTE DUE 1999
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933 AND MAY NOT BE OFFERED
OR SOLD IN CONTRAVENTION OF SUCH ACT.
PECHINEY CORPORATION
SERIES B NOTE DUE 1999
No. 1 $_____________
FOR VALUE RECEIVED, PECHINEY CORPORATION, a Delaware Corporation (the
"Company"), HEREBY PROMISES TO PAY to the order of _____________ (the "Payee"),
the principal sum of _____________________________________ ($______________)
on January 2, 1999, and to pay interest thereon for each Interest Period in each
year (payable on the last day of such Interest Period), from the date hereof or
from the most recent such interest payment date to which interest has been paid
or duly provided for, at the Applicable Interest Rate (as hereinafter defined),
until such principal amount is paid in full and on the day when such principal
amount becomes due.
All payments of principal and interest in respect of this Note and other
amounts owed by the Company hereunder shall be made in immediately available
funds to the order of the holder ("Holder") by wire transfer to such account as
may be specified from time to time by the Holder in writing, or at the option of
the Holder, in such other manner as the Holder shall have designated to the
Company in writing. If any payment of principal, interest, and any other amount
owed by the Company under this Note shall become due and payable on any day
other than a Business Day (as defined below), the maturity hereof shall be
extended to the next succeeding Business Day and interest due on the unpaid
principal and any other amounts payable hereunder shall accrue during such
extension and shall be payable on such succeeding Business Day at the rate per
annum then in effect hereunder. All computations of interest under this Note
shall be made on the basis of a year of 365 or 366 days, as the case may be, for
the actual number of days (including the first but excluding the last day)
elapsed.
The principal amount of this Note may not be prepaid prior to the date
of maturity thereof.
This Note is entitled to the benefits of an irrevocable standby letter
of credit (the "LC") dated of even date herewith and issued by Banque Nationale
de Paris.
<PAGE>
2
This Note, together with accrued interest and (so long as the Holder is
the Payee) the Tax Indemnity Amount (as defined below), shall become and be
immediately due and payable upon written demand of Holder if one or more of the
following events, herein called "Events of Default", shall have occurred and be
continuing at the time of such demand:
(a) a default by the Company in the due and punctual payment of
any interest on this Note or of any principal of this Note when and as
such amount shall become due and payable, such default having continued
for a period of five Business Days after notice thereof by Holder; or
(b) the LC shall cease to be in full force and effect or the
stated amount thereof is not reinstated after a drawing thereunder for
interest payable hereunder within five Business Days after such drawing;
or
(c) an involuntary case or other proceeding shall be commenced
against the Company seeking liquidation, reorganization, readjustment,
arrangement, composition or similar relief with respect to it or its
debts or other reorganization or rehabilitation laws, or any other
similar applicable Federal or state law, seeking the appointment of a
receiver, liquidator, custodian or trustee or assignee or similar
official of the Company, or for a substantial part of the property of
the Company, or for the winding up or liquidation of the affairs of the
Company, and such involuntary case or other proceeding shall have
remained undismissed or unstayed for a period of 60 days or more; or an
order for relief against the Company shall be entered in any such case
under the Federal Bankruptcy Code; or any substantial part of the
property of the Company shall be sequestered or attached and shall not
be returned from such attachment within 60 days thereafter; or
(d) the Company shall institute proceedings, or shall consent to
file a petition or answer seeking, liquidation, reorganization,
readjustment, arrangement, composition or similar relief under the
Federal bankruptcy , insolvency, reorganization or rehabilitation laws,
or any other similar applicable Federal or state law, or shall consent
to the filing of any such petition, or shall consent to the appointment
of a receiver, liquidator, trustee, custodian or assignee or similar
official of it or of a substantial part of its property, or shall make
an assignment for the benefit of creditors,
<PAGE>
3
or shall fail generally, or shall admit in writing its inability, to pay
its debts generally as they become due, or shall voluntarily suspend
transaction of its usual business, or corporate action shall be taken by
the Company in furtherance of any of the aforesaid purposes.
The occurrence of any of the Events of Default specified in
paragraphs (c) and (d) shall constitute an automatic Event of Default.
In the event that any of the Events of Default specified in
paragraphs (a) through (d) above shall have occurred and be continuing, or in
the event of a default in the due and punctual payment of any of the principal
amount of this Note when and as such principal amount shall become due and
payable, Holder may proceed to protect and enforce its rights either by suit in
equity or by action at law, or both, or by other appropriate proceedings. The
Company hereby waives presentment, demand, notice of protest and all other
demands and notices in connection with the delivery, acceptance, performance,
default or enforcement of this Note.
As used in this Note, the following terms shall have the
following meanings:
"Alternative LIBO Rate" means, for any Interest Period, an
---------------------
interest rate per annum equal to the arithmetic average of the rates at which
United States dollar deposits of $1,000,000 and for a maturity equal to such
Interest Period are offered by two major banks ("Reference Banks") in the London
interbank market (which Reference Banks shall be selected by the Calculation
Agent for such purpose) on the day that is two London Banking Days prior to the
commencement of such Interest Period, as determined by the Calculation Agent;
provided, however, that, if the Alternative LIBO Rate cannot for any reason be
- -------- -------
determined as aforesaid for an Interest Period, the Alternative LIBO Rate for
such Interest Period shall be, if available, the arithmetic average of the cost
to the Reference Banks of obtaining such deposits at such time from such other
sources as such Reference Banks shall select, as quoted to the Calculation
Agent, or, if not available, the Interest Rate for the preceding Interest
Period.
"Applicable Interest Rate" means, with respect to the period
------------------------
from the date hereof until December 31, 1991, 10% per annum, and for each
Interest Period from January 1, 1992, until the principal amount of this Note is
paid in full, an interest rate equal to the sum of (i) 1.4% and (ii) the LIBO
Rate for such Interest Period.
<PAGE>
4
"Business Day" means any day that is not a Saturday, a Sunday or a legal
------------
holiday in the State of New York on which banks are not authorized or required
to be closed in New York City.
"Calculation Agent" means Citibank, N.A. and, if Citibank, N.A. shall
-----------------
decline or be unable to continue to act as the Calculation Agent hereunder, such
successor Calculation Agent as shall be a United States bank of nationally
recognized standing selected by the Company.
"Interest Period" means the period commencing, on and including the last
---------------
day of the preceding Interest Period (or, in the case of the first Interest
Period, the period ending on March 31, 1989) and ending on the numerically
corresponding day (or, if there is no numerically corresponding day, the last
day) in the calendar month that is three months thereafter. Interest for each
Interest Period shall be payable for the period from and including the first day
thereof to but excluding the last day thereof. The determination of Interest
Periods shall be subject to the following provisions: if any Interest Period
would otherwise expire on a day which is not a Business Day, such Interest
Period shall expire on the next succeeding Business Day; provided, however,
-------- -------
that if any Interest Period would otherwise expire on a day which is not a
Business Day but is a day of the month after which no further Business Day
occurs in such month, such Interest Period shall expire on the next preceding
Business Day.
"LIBO Rate" means, for any Interest Period, the rate per annum equal to
---------
the arithmetic average of the offered rates for deposits in United States
dollars for a maturity equal to such Interest Period which appear on the Reuters
Screen LIBO Page as of 11:00 a.m., London time, on the day that is two London
Banking Days prior to the commencement of such Interest Period, as determined by
the Calculation Agent; provided, however, that, if no such rates so appear,
-------- -------
the LIBO Rate for such Interest Period shall be the Alternative LIBO Rate.
"London Banking Day" means any day on which dealings in deposits in
------------------
United States dollars are transacted in the London interbank market.
<PAGE>
5
"Reuters Screen LIBO Page" means the display designated as Page "LIBO" on
------------------------
the Reuters Monitor Money Rates Service (or such other page as may replace the
LIBO page on that service for the purpose of displaying London interbank offered
rates of major banks).
"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 the Payee's shares pursuant
to the NPM Stock Purchase Agreement (such tax liability to be determined based
upon the Holder's effective Federal, state and local income tax rate on
long-term capital gains in effect as of the date of payment under this Note)
over (ii) the present value, as of the date of payment, of such tax liability
assuming the principal amount of this Note were paid on the maturity date set
forth herein using a discount rate that would apply to obligations of
substantially the same creditworthiness as this Note and using the tax rate used
in clause (i) above (such excess to be determined by a nationally recognized
independent certified public accounting firm appointed by the Holder and
Company); provided that if the Holder and the Company cannot agree upon the
selection of such a firm, such firm shall be selected by three individuals
unaffiliated with either the Holder or the Company, one each of such
individuals to be selected by the Holder and the Company, and the third such
individual to be selected by the first two individuals.
"Merger Agreement" means the Agreement and Plan of Merger, dated as of
----------------
November 20, 1988, among Pechiney, Pechiney Corporation and Triangle Industries,
Inc.
"NPM Stock Purchase Agreement" means the NPM Stock Purchase Agreement dated
----------------------------
as of November 20, 1988 among Nelson Peltz, Peter W. May, Pechiney and Pechiney
Corporation.
"P & M Stock Purchase Agreement" means the P & M Stock Purchase Agreement
------------------------------
dated November 20, 1988 among Pechiney, Pechiney Corporation, Nelson Peltz and
Peter W. May.
"Agreement" means the Agreement, dated as of November 20, 1988, among
---------
Pechiney, Pechiney Corporation, Nelson Peltz and Peter W. May.
The obligation of the Company to make payments of principal hereon is
subject to certain rights of setoff and recoupment referred to in (i) the NPM
Stock Purchase Agreement, (ii) the P&M Stock Purchase Agreement and (iii) the
Agreement.
<PAGE>
6
This Note shall be governed by, and construed in accordance with, the
laws of the State of New York.
All the covenants contained in this Note on behalf of the undersigned
shall bind its successors, whether so expressed or not.
This Note may be sold, transferred or otherwise disposed of by the
Holder; provided, however, that the Note may be sold in the United States or to
-------- -------
any United States person only so long as such sale or transfer is made in
compliance with the federal securities laws and applicable state securities
laws; and provided further that the Note may be sold or transferred outside the
-------- -------
United States and to any non-United States person only so long as such sale or
transfer is made to a reputable financial institution.
Any amount due and payable to the Payee hereunder shall be free and
clear of, and without reduction for, or on account of, any present or future
taxes, levies, imposts, deductions, charges or withholdings imposed by any
Covered Jurisdiction (as defined below), excluding present or future taxes,
---------
levies, imposts, deductions, charges or withholdings that would not be imposed
but for a connection between the Payee hereunder and the Covered Jurisdiction
(as defined below) imposing such tax, levy, impost, deduction, charge or
withholding, other than a connection arising by virtue of the activities of such
Holder in respect of the transactions contemplated by the NPM Agreement, the
Merger Agreement, the P & M Stock Purchase Agreement and the Agreement or the
holding of this Note (all such non-excluded taxes, levies, imposts, deductions,
charges or withholdings being hereinafter referred to as "Withholdings"). If any
Withholdings shall be required by law to be deducted from or in respect of any
sum payable to the Payee hereunder, the sum so payable shall be increased as may
be necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this paragraph) the Payee receives
an amount equal to the sum the Payee would have received had no such deductions
been made. Covered Jurisdiction shall mean any jurisdiction other than the
United States, any State, territory or political subdivision thereof. Of any
payment of tax is made on behalf of the Payee pursuant to this paragraph, the
Payee shall refund to the Company the amount of any tax benefit that the Payee
would not have realized if such payment had not been made.
No failure on the part of Payee or Holder to exercise, and no delay in
exercising, any right under this
<PAGE>
7
Note shall operate as a waiver thereof; nor shall any single or partial exercise
of any such right preclude any other or further exercise thereof or the exercise
of any other right.
Dated: December 22, 1988
PECHINEY CORPORATION
By
------------------------
Title:
<PAGE>
Exhibit 4.16(c)
FORM OF
AMENDMENT NO. 1 TO THE
SERIES B NOTE (NO. __)
AMENDMENT NO. 1 dated as of October 30, 1992 to the Series B Note (No._)
due 1999 (the "Series B Note") issued by Pechiney Corporation ("Pechiney
Corporation"), a Delaware corporation, in favor of ___________ in the principal
amount of $____ dated December 22, 1988.
WHEREAS, pursuant to the Resolution Agreement dated as of May 1, 1992
among Nelson Peltz, Peter W. May, Pechiney, a company organized under the laws
of France, and Pechiney Corporation, as amended, the parties hereto agreed to
amend certain terms of the Series B Note;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. The first paragraph of the Series B Note is hereby amended in full
to read as follows:
"FOR VALUE RECEIVED, PECHINEY CORPORATION, a Delaware corporation (the
"Company"), HEREBY PROMISES TO PAY to the order of NELSON PELTZ (the
"Payee"), the principal sum of SEVEN MILLION, THREE HUNDRED THIRTY-TWO
THOUSAND, FOUR HUNDRED FIFTY-FIVE DOLLARS ($7,332,455) on January 2, 1999,
and to pay interest thereon for each Interest Period in each year (payable on
the last day of such Interest Period), from the date hereof or from the most
recent such interest payment date to which interest has been paid or duly
provided for, at the Applicable Interest Rate (as hereinafter defined), until
such principal amount is paid in full and on the day when such principal
amount becomes due."
2. The twenty-fifth paragraph of the Series B Note is hereby amended by
inserting after the word "institution" in the last line thereof, the
following:
"or to an entity that is wholly owned by a reputable financial
institution or institutions, and provided, further, that the Holder shall
-------- -------
furnish the Company with the name, address and place of organization (if
the transferee is
<PAGE>
2
an entity) or residence (if the transferee is an individual) of the
transferee who acquires beneficial ownership of this Note as a result of such
sale or transfer, within thirty days after the date thereof"
3. This Amendment shall be governed by and construed in accordance with
the laws of the State of New York.
4. Except as expressly modified herein, the Series B Note shall continue
in full force and effect in accordance with the provisions thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1
to be executed as of the date first above written.
PECHINEY CORPORATION
By:_________________________
Authorized Signatory
Acknowledged and Agreed
this 30th day of October, 1992
__________________________
[HOLDER]
<PAGE>
Exhibit 4.16(d)
FORM OF AMENDED AND RESTATED SERIES B NOTE DUE 1999
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933 AND MAY NOT BE OFFERED
OR SOLD IN CONTRAVENTION OF SUCH ACT.
PECHINEY CORPORATION
AMENDED AND RESTATED SERIES B NOTE DUE 1999
No. __ $__________
The Series B Note No. __ due 1999 dated December 22, 1988, in the principal
amount of $__________, issued by the Company to the Payee (as defined below) is
hereby amended and restated as of October 30, 1992 in full to read as follows:
FOR VALUE RECEIVED, PECHINEY CORPORATION, a Delaware Corporation (the
"Company"), HEREBY PROMISES TO PAY to the order of __________________ (the
"Payee"), the principal sum of ______________________ ($____________) on January
2, 1999, and to pay interest thereon for each Interest Period in each year
(payable on the last day of such Interest Period), from the date hereof or from
the most recent such interest payment date to which interest has been paid or
duly provided for, at the Applicable Interest Rate (as hereinafter defined),
until such principal amount is paid in full and on the day when such principal
amount becomes due.
All payments of principal and interest in respect of this Note and other
amounts owed by the Company hereunder shall be made in immediately available
funds to the order of the holder (the "Holder") by wire transfer to such account
as may be specified from time to time by the Holder in writing, or at the option
of the Holder, in such other manner as the Holder shall have designated to the
Company in writing. If any payment of principal, interest, and any other amount
owed by the Company under this Note shall become due and payable on any day
other than a Business Day (as defined below), the maturity hereof shall be
extended to the next succeeding Business Day and interest due on the unpaid
principal and any other amounts payable hereunder shall accrue during such
extension and shall be payable on such
<PAGE>
2
succeeding Business Day at the rate per annum then in effect hereunder. All
computations of interest under this Note shall be made on the basis of a year of
365 or 366 days, as the case may be, for the actual number of days (including
the first but excluding the last day) elapsed.
The principal amount of this Note may not be prepaid prior to the date of
maturity thereof.
This Note is entitled to the benefits of an irrevocable standby letter of
credit (the "LC") dated of even date herewith and issued by Banque Nationale de
Paris.
This Note, together with accrued interest and (so long as the Holder is the
Payee) the Tax Indemnity Amount (as defined below), shall become and be
immediately due and payable upon written demand of the Holder if one or more of
the following events, herein called "Events of Default", shall have occurred and
be continuing at the time of such demand:
(a) a default by the Company in the due and punctual payment of any
interest on this Note or of any principal of this Note when and as such
amount shall become due and payable, such default having continued for a
period of five Business Days after notice thereof by the Holder; or
(b) the LC shall cease to be in full force and effect or the stated
amount thereof is not reinstated after a drawing thereunder for interest
payable hereunder within five Business Days after such drawing; or
(c) an involuntary case or other proceeding shall be commenced
against the Company seeking liquidation, reorganization, readjustment,
arrangement, composition or similar relief with respect to it or its
debts or other liabilities under the Federal bankruptcy, insolvency,
reorganization or rehabilitation laws, or any other similar applicable
Federal or state law, seeking the appointment of a receiver, liquidator,
custodian or trustee or assignee or similar official of the Company, or
for a substantial part of the property of the Company, or for the
winding up or liquidation of the
<PAGE>
3
affairs of the Company, and such involuntary case or other proceeding
shall have remained undismissed or unstayed for a period of 60 days or
more; or an order for relief against the Company shall be entered in any
such case under the Federal Bankruptcy Code; or any substantial part of
the property of the Company shall be sequestered or attached and shall
not be returned from such attachment within 60 days thereafter; or
(d) the Company shall institute proceedings, or shall consent to
file a petition or answer, seeking liquidation, reorganization,
readjustment, arrangement, composition or similar relief under the
Federal bankruptcy, insolvency, reorganization or rehabilitation laws,
or any other similar applicable Federal or state law, or shall consent
to the filing of any such petition, or shall consent to the appointment
of a receiver, liquidator, trustee, custodian or assignee or similar
official of it or of a substantial part of its property, or shall make
an assignment for the benefit of creditors, or shall fail generally, or
shall admit in writing its inability, to pay its debts generally they
become due, or shall voluntarily suspend transaction of its usual
business, or corporate action shall be taken by the Company in
furtherance of any of the aforesaid purposes.
The occurrence of any of the Events of Default specified in paragraphs (c)
and (d) above shall constitute an automatic Event of Default.
In the event that any of the Events of Default specified in paragraphs (a)
through (d) above shall have occurred and be continuing, or in the event of a
default in the due and punctual payment of any of the principal amount of this
Note when and as such principal amount shall become due and payable, the Holder
may proceed to protect and enforce its rights either by suit in equity or by
action at law, or both, or by other appropriate proceedings. The Company hereby
waives diligence, presentment, demand, notice of protest, notice of dishonor and
all other demands and notices of any kind whatsoever in connection with the
delivery, acceptance, performance, default or enforcement of this Note.
<PAGE>
4
As used in this Note, the following terms shall have the following
meanings:
"Alternative LIBO Rate" means, for any Interest Period, an interest rate
---------------------
per annum equal to the arithmetic average of the rates at which United States
dollar deposits of $1,000,000 and for a maturity equal to such Interest Period
are offered by two major banks (the "Reference Banks") in the London interbank
market (which Reference Banks shall be selected by the Calculation Agent for
such purpose) on the day that is two London Banking Days prior to the
commencement of such Interest Period, as determined by the Calculation Agent;
provided, however, that, if the Alternative LIBO Rate cannot for any reason
- -----------------
be determined as aforesaid for an Interest Period, the Alternative LIBO Rate for
such Interest Period shall be, if available, the arithmetic average of the cost
to the Reference Banks of obtaining such deposits at such time from such other
sources as such Reference Banks shall select, as quoted to the Calculation
Agent, or, if not available, the Interest Rate for the preceding Interest
Period.
"Applicable Interest Rate" means, with respect to the period from the
------------------------
date hereof until December 31, 1991, 10% per annum, and for each Interest Period
from January 1, 1992 until the principal amount of this Note is paid in full, an
interest rate equal to the sum of (i) 1/4% and (ii) the LIBO Rate for such
Interest Period.
"Business Day" means any day that is not a Saturday, a Sunday or a legal
------------
holiday in the State of the New York on which banks are not authorized or
required to be closed in New York City.
"Calculation Agent" means Citibank, N.A. and, if Citibank, N.A. shall
-----------------
decline or be unable to continue to act as the Calculation Agent hereunder, such
successor Calculation Agent as shall be a United States bank of
nationally recognized standing selected by the Company.
"Interest Period" means the period commencing on and including the last day
---------------
of the preceding Interest Period (or, in the case of the first Interest Period,
the period ending on March 31,
<PAGE>
5
1989) and ending on the numerically corresponding day (or, if there is no
numerically corresponding day, the last day) in the calendar month that is three
months thereafter. Interest for each Interest Period shall be payable for the
period from and including the first day thereof to but excluding the last day
thereof. The determination of Interest Periods shall be subject to the following
provisions: if any Interest Period would otherwise expire on a day which is not
a Business Day, such Interest period shall expire on the next succeeding
Business Day; provided, however, that if any Interest Period would otherwise
-----------------
expire on a day which is not a Business Day but is a day of the month after
which no further Business Day occurs in such month, such Interest Period shall
expire on the next preceding Business Day.
"LIBO Rate" means, for any Interest Period, the rate per annum equal to
---------
the arithmetic average of the offered rates for deposits in United States
dollars for a maturity equal to such Interest Period which appear on the Reuters
Screen LIBO Page as of 11:00 a.m., London time, on the day that is two London
Banking Days prior to the commencement of such Interest Period, as determined by
the Calculation Agent; provided, however, that, if no such rates so appear, the
-----------------
LIBO Rate for such Interest Period shall be the Alternative LIBO Rate.
"London Banking Day" means any day on which dealings in deposits in United
------------------
State dollars are transacted in the London interbank market.
"Reuters Screen LIBO Page" means the display designated as Page "LIBO" on
------------------------
the Reuters Monitor Money Rates Service (or such other page as may replace the
LIBO page on that service for the purpose of displaying London interbank offered
rates of major banks).
"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 the Payee's shares pursuant
to the NPM Stock Purchase Agreement (such tax liability to be determined based
upon the Holder's effective Federal, state and local income tax rate on long-
term capital gains in effect as of the date of payment under this Note) over
<PAGE>
6
(ii) the present value, as of the date of payment, of such tax liability
assuming the principal amount of this Note were paid on the maturity date set
forth herein using a discount rate that would apply to obligations of
substantially the same creditworthiness as this Note and using the tax rate used
in clause (i) above (such excess to be determined by a nationally recognized
independent certified public accounting firm appointed by the Holder and the
Company); provided that if the Holder and the Company cannot agree upon the
--------
selection of such a firm, such firm shall be selected by three individuals
unaffiliated with either the Holder or the Company, one each of such individuals
to be selected by the Holder and the Company, and the third such individual to
be selected by the Holder and the Company, and the third such individual to be
selected by the first two individuals.
"Merger Agreement" means the Agreement and Plan of Merger, dated as of
----------------
November 20, 1988, among Pechiney, Pechiney Corporation and Triangle Industries,
Inc.
"NPM Stock Purchase Agreement" means the NPM Stock Purchase Agreement dated
----------------------------
as of November 20, 1988 among Nelson Peltz, Peter W. May, Pechiney and Pechiney
Corporation.
"P & M Stock Purchase Agreement" means the P & M Stock Purchase Agreement
------------------------------
dated November 20, 1988 among Pechiney, Pechiney Corporation, Nelson Peltz and
Peter W. May.
"Agreement" means the Agreement, dated as of November 20, 1988, among
---------
Pechiney, Pechniney Corporation, Nelson Peltz and Peter W. May.
Payments of principal of, or interest on, this Note are not subject to the
right of the Company to set off or deduct from such payments the amount of
any claims which the Company may have against the Holder or any other person or
entity.
This Note shall be governed by, and construed in accordance with, the laws
of the State of New York.
All the covenants contained in this Note on behalf of the undersigned
shall bind its successors, whether so expressed or not.
<PAGE>
7
This Note may be sold, transferred or otherwise disposed of by the Holder;
provided, however, that the Note may be sold in the United States or to any
- -----------------
United States person only so long as such sale or transfer is made in compliance
with the federal securities laws and applicable state securities laws; and
provided further that the Note may be sold or transferred outside the United
- ----------------
States and to any non-United States person only so long as such sale or transfer
is made to a reputable financial institution or to an entity wholly owned by a
reputable financial institution or institutions, and provided, further, that the
-----------------
Holder shall furnish the Company with the name, address and place of
organization (if the transferee is an entity) or residence (if the transferee is
an individual) of the transferee who acquires beneficial ownership of this Note
as a result of such sale or transfer, within thirty days after the date thereof.
The obligation of the Company to make payment under this Note shall be
unconditional and irrevocable and shall be paid strictly in accordance with the
terms hereof under all circumstances irrespective of the existence of any claim,
set-off, defense or other right which the Company or any of its affiliates
may have at any time against the Payee or any of its affiliates or any other
person or entity.
Any amount due and payable to the Payee hereunder shall be free and clear
of, and without reduction for, or on account of, any present or future taxes,
levies, imposts, deductions, charges or withholdings imposed by any Covered
Jurisdiction (as defined below), excluding present or future taxes, levies,
---------
imposts, deductions, charges or withholdings that would not be imposed but for a
connection between the Payee hereunder and the Covered Jurisdiction (as defined
below) imposing such tax, levy, impost, deduction, charge or withholding, other
than a connection arising by virtue of the activities of such Payee in respect
of the transactions contemplated by the NPM Agreement, the Merger Agreement, the
P & M Stock Purchase Agreement and the Agreement or the holding of this Note
(all such non-excluded taxes, levies, imposts, deductions, charges or
withholdings being hereinafter referred to as "Withholdings"). If any
Withholdings shall be
<PAGE>
8
required by law to be deducted from or in respect of any sum payable to the
Payee hereunder, the sum so payable shall be increased as may be necessary so
that after making all required deductions (including deductions applicable to
additional sums payable under this paragraph) the Payee receives an amount equal
to the sum the Payee would have received had not such deductions been made.
"Covered Jurisdiction" shall mean any jurisdiction other than the United States,
any State, territory or political subdivision thereof. If any payment of tax is
made on behalf of the Payee pursuant to this paragraph, the Payee shall refund
to the Company the amount of any tax benefit that the Payee would not have
realized if such payment had not been made.
No failure on the part of the Payee or the Holder to exercise, and no
delay in exercising, any right under this Note shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right preclude any
other or further exercise thereof or the exercise of any other right.
Dated: December 22, 1988 PECHINEY CORPORATION
as Amended and Restated
on October 30, 1992
By: ____________________________
Title:
Acknowledged and
Agreed this 30th day
of October, 1992
________________________
[Holder]
<PAGE>
Exhibit 4.16(e)
FORM OF AMENDED SERIES C NOTE DUE 1999
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933 AND MAY NOT BE OFFERED
OR SOLD IN CONTRAVENTION OF SUCH ACT.
PECHINEY CORPORATION
SERIES C NOTE DUE 1999
No. 1 $____________
FOR VALUE RECEIVED, PECHINEY CORPORATION, a Delaware corporation (the
"Company"), HEREBY PROMISES TO PAY to the order of _____________ (the "Payee"),
the principal sum of __________________________________ ($___________________)
on January 2, 1999, and to pay interest thereon for each Interest Period in each
year (payable on the last day of such Interest Period), from the date hereof or
from the most recent such interest payment date to which interest has been paid
or duly provided for, at the Applicable Interest Rate (as hereinafter defined),
until such principal amount is paid in full and on the day when such principal
amount becomes due.
All payments of principal and interest in respect of this Note and
other amounts owed by the Company hereunder shall be made in immediately
available funds to the order of the holder ("Holder") by wire transfer to such
account as may be specified from time to time by the Holder in writing, or at
the option of the Holder, in such other manner as the Holder shall be designated
to the Company in writing. If any payment of principal, interest, and any other
amount owed by the Company under this Note shall become due and payable on any
day other than a Business Day (as defined below), the maturity hereof shall be
extended to the next succeeding Business Day and interest due on the unpaid
principal and any other amounts payable hereunder shall accrue during such
extension and shall be payable on such succeeding Business Day at the rate per
annum then in effect hereunder. All computations of interest under this Note
shall be made on the basis of a year of 365 or 366 days, as the case may be, for
the actual number of days (including the first but excluding the last day)
elapsed.
The principal amount of this Note may not be prepaid prior to the date
of maturity thereof.
This Note is entitled to the benefits of an irrevocable standby letter
of credit (the "LC") dated of even
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2
date herewith and issued by Banque National de Paris.
This Note shall become and be immediately due and payable upon written
demand of Holder if one or more of the following events, herein called "Events
of Default", shall have occurred and be continuing at the time of such demand:
(a) a default by the Company in the due and punctual payment of any
interest on this Note or of any principal of this Note when and as such
amount shall become due and payable, such default having continued for a
period of five Business Days after notice thereof by Holder; or
(b) the LC shall cease to be in full force and effect or the stated
amount thereof is not reinstated after a drawing thereunder for interest
payable hereunder within five Business Days after such drawing; or
(c) an involuntary case or other proceeding shall be commenced
against the Company seeking liquidation, reorganization, readjustment,
arrangement, composition or similar relief with respect to it or its debts
or other liabilities under the Federal bankruptcy, insolvency,
reorganization or rehabilitation laws, or any other similar applicable
Federal or state law, seeking the appointment of a receiver, liquidator,
custodian or trustee or assignee or similar official of the Company, or for
a substantial part of the property of the Company, or for the winding up or
liquidation of the affairs of the Company, and such involuntary case or
other proceeding shall have remained undismissed or unstayed for a period
of 60 days or more; or an order for relief against the Company shall be
entered in any such case under the Federal Bankruptcy Code; or any
substantial part of the property of the Company shall be sequestered or
attached and shall not be returned from such attachment within 60 days
thereafter; or
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(d) the Company shall institute proceedings, or shall consent to file
a petition or answer seeking, liquidation, reorganization, readjustment,
arrangement, composition or similar relief under the Federal bankruptcy,
insolvency, reorganization or rehabilitation laws, or any other similar
applicable Federal or state law, or shall consent to the filing of any such
petition, or shall consent to the appointment of a receiver, liquidator,
trustee, custodian or assignee or similar official of it or of a
substantial part of its property, or shall make an assignment for the
benefit of creditors, or shall fail generally, or shall admit in writing
its inability, to pay its debts generally as they become due, or shall
voluntarily suspend transaction of its usual business, or corporate action
shall be taken by the Company in furtherance of any of the aforesaid
purposes.
The occurrence of any of the Events of Default specified in paragraphs
(c) and (d) shall constitute an automatic Event of Default.
In the event that any of the Events of Default specified in paragraphs
(a) through (d) above shall have occurred and be continuing, or in the event of
a default in the due and punctual payment of any of the principal amount of this
Note when and as such principal amount shall become due and payable, Holder may
proceed to protect and enforce its rights either by suit in equity or by action
at law, or both, or by other appropriate proceedings. The Company hereby waives
presentment, demand, notice of protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Note.
As used in this Note, the following terms shall have the following
meanings:
"Alternative LIBO Rate" means, for any Interest Period, an interest
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rate per annum equal to the arithmetic average of the rates at which United
States dollar deposits of $1,000,000 and for a maturity equal to such Interest
Period are offered by two major banks ("Reference Banks") in the London
interbank market (which Reference Banks shall be selected by the Calculation
Agent for such purpose) on the day that is two London Banking Days prior to the
commencement of such Interest Period, as determined by the Calculation Agent;
provided, however, that, if the Alternative LIBO Rate cannot for any reason be
- -------- -------
determined as aforesaid for an
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4
Interest Period, the Alternative LIBO Rate for such Interest Period shall be, if
available, the arithmetic average of the cost to the Reference Banks of
obtaining such deposits at such time from such other sources as such Reference
Banks shall select, as quoted to the Calculation Agent, or, if not available,
the Interest Rate for the preceding Interest Period.
"Applicable Interest Rate" means, with respect to the period from the
------------------------
date hereof until December 31, 1991, 10% per annum, and for each Interest Period
from January 1, 1992, until the principal amount of this Note is paid in full,
an interest rate equal to the sum of (i) 1/4% and (ii) the LIBO Rate for such
Interest Period.
"Business Day" means any day that is not a Saturday, a Sunday or a
------------
legal holiday in the State of New York on which banks are not authorized or
required to be closed in New York City.
"Calculation Agent" means Citibank, N.A. and, if Citibank, N.A. shall
-----------------
decline or be unable to continue to act as the Calculation Agent hereunder, such
successor Calculation Agent as shall be a United States bank of nationally
recognized standing selected by the Company.
"Interest Period" means the period commencing on and including the
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last day of the preceding Interest Period (or, in the case of the first Interest
Period, on the period ending March 31, 1989) and ending on the numerically
corresponding day (or, if there is no numerically corresponding day, the last
day) in the calendar month that is three months thereafter. Interest for each
Interest Period shall be payable for the period from and including the first day
thereof to but excluding the last day thereof. The determination of Interest
Periods shall be subject to the following provisions: if any Interest Period
would otherwise expire on a day which is not a Business Day, such Interest
Period shall expire on the next succeeding Business Day; provided, however, that
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if any Interest Period would otherwise expire on a day which is not a Business
Day but is a day of the month, after which no further Business Day occurs in
such month, such Interest Period shall expire on the next preceding Business
Day.
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5
"LIBO Rate" means, for any Interest Period, the rate per annum equal
---------
to the arithmetic average of the offered rates for deposits in United States
dollars for a maturity equal to such Interest Period which appear on the Reuters
Screen LIBO Page as of 11:00 a.m., London time, on the day that is two London
Banking Days prior to the commencement of such Interest Period, as determined by
the Calculation Agent; provided, however, that, if no such rates so appear, the
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LIBO Rate for such Interest Period shall be the Alternative LIBO Rate.
"London Banking Day" means any day on which dealings in deposits in
------------------
United States dollars are transacted in the London interbank market.
"Reuters Screen LIBO Page" means the display designated as Page "LIBO"
------------------------
on the Reuters Monitor Money Rates Service (or such other page as may replace
the LIBO page on that service for the purpose of displaying London interbank
offered rates of major banks).
"Meger Agreement" means the Agreement and Plan of Merger dated as of
---------------
November 20, 1988 among Pechiney, Pechiney Corporation and Triangle Industries,
Inc.
"NPM Stock Purchase Agreement" means the NPM Stock Purchase Agreement
----------------------------
dated as of November 20, 1988 among Nelson Peltz, Peter W. May, Pechiney and
Pechiney Corporation.
"P & M Stock Purchase Agreement" means the P & M Stock Purchase
------------------------------
Agreement dated November 20, 1988 among Pechiney, Pechiney Corporation, Nelson
Peltz and Peter W. May.
"Agreement" means the Agreement dated as of November 20, 1988, among
---------
Pechiney, Pechiney Corporation, Nelson Peltz and Peter W. May.
Payments of principal of, or interest on, this Note are not subject to
the right of the Company to set off or deduct from such payments the amount of
any claims which the Company may have against Holder or any other person or
entity. The Company hereby waives diligence, presentment,
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6
demand, notice of protest, notice of dishonor and all other demands and notices
of any kind whatsoever in connection with the delivery, acceptance,
performance, default or enforcement of this Note.
This Note shall be governed by, and construed in accordance with, the
laws of the State of New York.
All the covenants contained in this Note on behalf of the undersigned
shall bind its successors, whether so expressed or not.
This Note may be sold, transferred or otherwise disposed of by the
Holder; provided, however, that the Note may be sold in the United States or to
-------- -------
any United States person only so long as such sale or transfer is made in
compliance with the federal securities laws and applicable state securities
laws; and provided further that the Note may be sold or transferred outside the
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United States and to any non-United States person only so long as such sale or
transfer is made to a reputable financial institution or to an entity that is
wholly owned by a reputable financial institution or institutions, and provided,
--------
further, that the Holder shall furnish the Company with the name, address and
- -------
place of organization (if the transferee is an entity) or residence (if the
transferee is an individual) of the transferee who acquires beneficial ownership
of this Note as a result of such sale or transfer, within thirty days after the
date thereof.
The obligation of the Company to make payment under this Note shall be
unconditional and irrevocable and shall be paid strictly in accordance with the
terms hereof under all circumstances, irrespective of the existence of any
claim, set-off, defense or other right which the Company or any of its
affiliates may have at any time against the Payee or any of its affiliates or
any other person or entity.
Any amount due and payable to the Payee hereunder shall be free and
clear of, and without reduction for, or on account of, any present or future
taxes, levies, imposts, deductions, charges or withholdings imposed by any
Covered Jurisdiction (as defined below), excluding present or future taxes,
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levies, imposts, deductions, charges or withholdings that would not be imposed
but for a connection between the Payee hereunder and the Covered Jurisdiction
imposing such tax, levy, impost, deduction, charge or withholding, other than a
connection arising by virtue of the activities of such Payee in respect of the
transactions contemplated by the NPM Agreement, the Merger Agreement, the P&M
Stock Purchase
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7
Agreement and the Agreement or the holding of this Note (all such non-excluded
taxes, levies, imposts, deductions, charges or withholdings being hereinafter
referred to as "Withholdings"). If any Withholdings shall be required by law to
be deducted from or in respect of any sum payable to the Payee, the sum so
payable shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this paragraph) the Payee receives an amount equal to the sum the Payee would
have received had no such Withholdings been imposed. Covered Jurisdiction shall
mean any jurisdiction other than the United States, any State, territory or
political subdivision thereof. If any payment is made to or on behalf of the
Payee pursuant to this paragraph in respect of Withholding, the Payee shall
refund to the Company the amount of any tax benefit that the Payee would not
have realized if such Withholdings had not been imposed.
No failure on the part of Payee or Holder to exercise, and no delay in
exercising, any right under this Note shall operate as a waiver thereof; nor
shall any single or partial exercise of any such right preclude any other or
further exercise thereof or the exercise of any other right.
Dated: December 22, 1988
PECHINEY CORPORATION
By
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Title:
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EXHIBIT 5
November 20, 1997
Howmet International Inc.
475 Steamboat Road
Greenwich, Connecticut 06830
Ladies and Gentlemen:
In connection with the registration of up to 17,250,000 shares of
common stock, par value $.01 per share (the "Shares"), of Howmet International
Inc., a Delaware corporation (the "Company"), under the Securities Act of 1933,
as amended, on Form S-1 filed with the Securities and Exchange Commission (the
"Commission") on October 9, 1997 (File No. 333-37573), as amended by Amendment
No. 1 filed with the Commission on October 21, 1997 and Amendment No. 2 filed
with the Commission on November 12, 1997 (collectively, and as it may be further
amended, the "Registration Statement"), you have requested our opinion with
respect to the following matters.
In connection with the delivery of this opinion, we have made such
legal and factual examinations and inquiries as we have deemed necessary or
appropriate in connection with the opinions set forth herein. We are familiar
with the proceedings heretofore taken, and proposed to be taken, by the Company
in connection with the authorization, registration, issuance and sale of the
Shares. With respect to certain factual matters material to our opinion, we
have, with your consent, relied upon representations from, or certificates of,
officers of the Company. In making such examination and rendering the opinions
set forth below, we have assumed without verification the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, and
the conformity to originals of all documents submitted to us as copies.
Based on such examination and review, and subject to the foregoing, we
are of the opinion that the Shares have been duly authorized and, when sold
pursuant to the terms described in the Registration Statement, will be validly
issued, fully paid and non-assessable.
<PAGE>
Howmet International Inc.
November 20, 1997
Page 2
We are members of the Bar of the State of New York, and we have not
considered, and we express no opinion as to, the laws of any jurisdiction other
than the laws of the United States of America, the State of New York and the
General Corporation Law of the State of Delaware.
We consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus that is a part of the Registration Statement. In
giving such consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
/s/ Wachtell, Lipton, Rosen & Katz
<PAGE>
EXHIBIT 10.27
HOWMET INTERNATIONAL INC.
1997 STOCK AWARDS PLAN
1. PURPOSE. The purpose of the Howmet International Inc. 1997 Stock Awards
Plan (the "Plan") is to promote the long term financial interests and growth of
Howmet International Inc. (the "Company") by (a) attracting and retaining
executive personnel, (b) motivating executive personnel by means of growth-
related incentives, (c) providing incentive compensation opportunities that are
competitive with those of other major corporations; and (d) furthering the
identity of interests of Participants with those of the stockholders of the
Company.
2. DEFINITIONS. The following definitions are applicable to the Plan:
"Affiliate" means any entity in which the Company has a direct or
indirect equity interest which is so designated by the Committee.
"Award Limit" means 400,000 shares of Common Stock.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statue.
"Committee" means a committee of two or more directors of the Company
who are "outside directors" as such term is used in Section 162(m) of the
Code and Non-Employee Directors for purposes of Rule 16b-3; provided,
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however, that prior to the time at least two directors qualifying as
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"outside directors" pursuant to the first part of this sentence have been
appointed to the Board of Directors of the Company, the term "Committee"
shall refer to the Board of Directors of the Company.
"Common Stock" means the common stock, $.01 per share par value, of the
Company or such other securities as may be substituted therefore pursuant
to paragraph 6(e).
"Employee" means any officer or other employee (as defined in
accordance with Section 3401(c) of the Code) of the Company, or of any
Affiliate.
The "Fair Market Value" of a share of Common Stock means the average
between the highest and lowest quoted selling prices of the common stock on
the New York Stock Exchange on the pertinent option grant date or exercise
date.
The "IPO Closing Date" means the date on which the initial offering of
Common Stock, whether by the Company or by any stockholder of the Company,
to the public pursuant to an effective registration statement on Form S-1
under the Securities Act of 1933, as amended, is completed.
"Participant" means any Employee of the Company or an Affiliate
selected by the Committee.
<PAGE>
"QDRO" means a qualified domestic relations order as defined by the
Code or Title I of the Employee Retirement Income Security Act of 1974, as
amended, or the rules thereunder.
"Rule 16b-3" means such rule adopted under the Securities Exchange Act
of 1934, as such rule is amended from time to time, or any successor rule.
3. LIMITATION ON AGGREGATE SHARES. The number of shares of common stock
with respect to which awards may be granted under the Plan shall not exceed
5,000,000 shares. Such 5,000,000 shares of common stock may be either previously
authorized but unissued shares, treasury shares, or a combination thereof, as
the Committee shall determine. Other than in connection with the Amended SAR
Program, the maximum number of shares of common stock with respect to which
awards may be granted under the Plan during any calendar year to a single
Participant may not exceed the Award Limit. To the extent required by Section
162(m) of the Code, shares subject to Options which are canceled continue to be
counted against the Award Limit and if, after grant of an Option, the price of
shares subject to such Option is reduced, the transaction is treated as a
cancellation of the Option and a grant of a new Option and both the Option
deemed to be canceled and the Option deemed to be granted are counted against
the Award Limit. Furthermore, to the extent required by Section 162(m) of the
Code, if, after grant of a Stock Appreciation Right ("SAR"), the base amount on
which stock appreciation is calculated is reduced to reflect a reduction in the
Fair Market Value of the Company's Common Stock, the transaction is treated as a
cancellation of the SAR and a grant of a new SAR and both the SAR deemed to be
canceled and the SAR deemed to be granted are counted against the Award Limit.
4. ADD-BACK OF OPTIONS AND OTHER RIGHTS. If any Option, other right to
acquire shares of Common Stock under this Plan, or any other award, expires or
is canceled without having been fully exercised, or is exercised in whole or in
part for cash as permitted by this Plan, the number of shares subject to such
Option or other right but as to which such Option or other right was not
exercised prior to its expiration, cancellation or exercise may again be
optioned, granted or awarded hereunder, subject to the limitations of Section 3.
Furthermore, any shares subject to Options or other awards which are adjusted
pursuant to Section 6(e) and become exercisable with respect to shares of stock
of another corporation shall be considered canceled and may again be optioned,
granted or awarded hereunder, subject to the limitations of Section 3. Shares of
Common Stock which are delivered by the Participant or withheld by the Company
upon the exercise of any Option or other award under this Plan, in payment of
the exercise price thereof, may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 3. If any share of Restricted Stock is
forfeited by the Participant or repurchased by the Company pursuant to Section
5(c)(iii) hereof, such share may again be optioned, granted or awarded
hereunder, subject to the limitations of Section 3. Notwithstanding the
provisions of this Section 4, no shares of Common Stock may again be optioned,
granted or awarded if such action would cause an Incentive Stock Option to fail
to qualify as an incentive stock option under Section 422 of the Code.
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5. AWARDS. The Committee may grant stock options ("Options"), to
Participants, in accordance with this paragraph 5 and the other provisions of
the Plan.
(a) Options.
(i) Option Grants. Options granted under the Plan may be incentive
stock options ("ISOs") within the meaning of Section 422 of the Code
or any successor provision, or in such other form, consistent with the
Plan, as the Committee may determine.
(ii) Option Exercise Price. The exercise price of an Option shall be
fixed by the committee at not less than 100% of the Fair Market Value
of a share of common stock on the date of grant.
(iii) Option Term. The term of an Option shall be set by the Committee
in its discretion; provided, however, that in the case of ISOs, the
term shall not be more than ten (10) years from the date the ISO is
granted.
(iv) Exercisability. Options shall be exercisable at such time or
times as the Committee shall determine at or subsequent to grant.
(v) Exercise of Options. An exercisable Option may be exercised in
whole or in part. However, an Option shall not be exercisable with
respect to fractional shares and the Committee may require that, by
the terms of the Option, a partial exercise be with respect to a
minimum number of shares. Options shall be exercised in whole or in
part by providing (A) written notice to the Company (to the attention
of the Corporate Secretary) complying with the applicable rules
established by the Committee; (B) such representations and documents
as the Committee deems necessary or advisable to effect compliance
with all applicable laws or regulations; (C) in the event that the
Option shall be exercised pursuant to Section 6(d) by any person or
persons other than the optionee, appropriate proof of the right of
such person or persons to exercise the Option; and (D) payment in full
of the option price. Payment of the option price may be made, at the
discretion of the optionee, and to the extent permitted by the
Committee, (1) in cash (including check, bank draft, or money order),
(2) in Common Stock with a Fair Market Value on the date of delivery
equal to the aggregate exercise price of the Option or exercised
portion thereof, (3) by a combination of cash and common stock, or (4)
with any other good and valuable consideration.
(vi) Rights as Stockholders. The holders of Options shall not be, nor
have any of the rights or privileges of, stockholders of the Company
in respect of any shares purchasable upon the exercise of any part of
an Option unless and until certificates representing such shares have
been issued by the Company to such holders.
(vii) Ownership and Transfer Restrictions. The Committee may impose
such restrictions on the ownership and transferability of the shares
purchasable upon the
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exercise of an Option as it deems appropriate. Any such restriction
shall be set forth in the respective Stock Option Agreement and may be
referred to on the certificates evidencing such shares. The Committee
may require the Employee to give the company prompt notice of any
disposition of shares of Common Stock acquired by exercise of an ISO
within (i) two years from the date of granting such Option to such
Employee or (ii) one year after the transfer of such shares to such
Employee. The Committee may direct that the certificates evidencing
shares acquired by exercise of an Option refer to such requirement to
give prompt notice of disposition.
(b) Stock Appreciation Rights.
(i) Grant and Price of SAR. Subject to such terms and conditions not
inconsistent with this Plan as the Committee shall impose and shall be
evidenced by a written Stock Appreciation Right Agreement, an SAR
shall entitle its holder to receive from the Company, at the time of
exercise of such right, an amount equal to the excess of the Fair
Market Value (at the date of exercise) of a share of common stock over
the SAR price multiplied by the number of shares as to which the
holder is exercising the SAR. The SAR price shall be fixed by the
Committee at not less than 100% of the Fair Market Value of a share of
common stock on the date of grant. SARs may be in tandem with any
previously or contemporaneously granted Option or independent of any
Option.
(ii) Tandem SARs. An SAR in tandem with an Option shall be related to
a particular Option and shall be exercisable only when and to the
extent the related Option is exercisable. An SAR in tandem with an
Option may be granted to the Participant for no more than the number
of shares subject to the simultaneously or previously granted Option
to which it is coupled.
(iii) Amount Payable by Company. The amount payable may be paid by the
Company in common stock (valued at its Fair Market Value on the date
of exercise), cash or a combination thereof, as the Committee may
determine, which determination shall be made after considering any
preference expressed by the holder.
(c) Restricted Stock.
(i) Restricted Stock Award. The Committee may award to any Participant
shares of common stock, including shares earned under any of the
Company's compensation plans, subject to this paragraph 5(c) and such
other terms and conditions as the Committee may prescribe (such shares
being called "Restricted Stock"), which restrictions may include,
without limitation, restrictions concerning voting rights and
transferability and restrictions based on duration of employment with
the Company, Company performance and individual performance. Each
certificate for Restricted Stock shall be registered in the name of
the Participant and deposited, together with a stock power endorsed in
blank, with the Company.
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(ii) Restrictions. There shall be established for each Restricted
Stock award a restriction period (the "Restriction Period") of such
length as shall be determined by the Committee. Shares of Restricted
Stock may not be sold, assigned, transferred, pledged or otherwise
encumbered, except as hereinafter provided, during the Restriction
Period. Unless otherwise provided by the Committee, except for such
restrictions on transfer and such other restrictions as the Committee
may impose, the Participant shall have all the rights of a holder of
common stock as to such Restricted Stock. The Committee, in its sole
discretion, may permit or require the payment of cash dividends to be
deferred and, if the Committee so determines, reinvested in additional
Restricted Stock or otherwise invested. At the expiration of the
Restriction Period, the Corporation shall redeliver to the Participant
(or the Participant's or designated beneficiary under Section 6(h),
or, if none, the Participant's legal representative) the certificates
deposited pursuant to this paragraph.
(iii) Forfeiture/Repurchase of Restricted Stock. Except as provided by
the Committee at the time of grant or otherwise, upon a termination of
employment for any reason during the Restriction Period all shares
still subject to restriction shall be forfeited by the Participant or
at the discretion of the Committee may be repurchased by the Company
at a price to be determined by the Committee.
6. MISCELLANEOUS PROVISION.
(a) Administration. The Plan shall be administered by the Committee.
Subject to the limitations of the Plan, the Committee shall have the sole and
complete authority to: (i) select Participants in the plan; (ii) subject to
Section 3, to make awards in such forms and amounts as it shall determine,
including the determination as to whether such Options are to be ISOs; (iii) to
impose such limitations, restrictions and conditions upon such awards as it
shall deem appropriate; (iv) to interpret the Plan and the agreements pursuant
to which Options, Restricted Stock or SARs are granted or awarded, and to adopt,
amend and rescind administrative guidelines and other rules and regulations
relating to the Plan; (v) to correct any defect or omission or to reconcile any
inconsistency in the Plan or in any award granted hereunder; and (vi) to make
all other determinations and to take all other actions necessary or advisable
for the implementation and administration of the Plan. Any such interpretations
and rules with respect to ISOs shall be consistent with the provisions of
Section 422 of the Code. The actions and determinations of the Committee or its
delegates on matters within its authority shall be conclusive and binding upon
the Company, all the Participants and all other interested persons, subject to
such allocation to its Affiliates and operating units as it deems appropriate.
The Committee may, to the extent that any such action will not prevent the Plan
from complying with the Rule 16b-3 or Section 162(m) of the Code, delegate any
of its authority hereunder to such persons as it deems appropriate.
(b) Professional Assistance; Good Faith Actions. All expenses and
liabilities which members of the Committee incur in connection with the
administration of this Plan shall be borne by the Company. The Committee may
employ attorneys, consultants, accountants,
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<PAGE>
appraisers, brokers, or other persons. The Committee, the Company and the
Company's officers and Directors shall be entitled to rely upon the advice,
opinions or valuations of any such persons. No members of the Committee or Board
shall be personally liable for any action, determination or interpretation made
in good faith with respect to this Plan, Options, awards of Restricted Stock or
SARs, and all members of the Committee and the Board shall be fully protected by
the Company in respect of any such action, determination or interpretation.
(c) Written Agreement. Each award shall be evidenced by a written
agreement, which shall be executed by the Participant and an authorized officer
of the Company and which shall contain such terms and conditions as the
Committee shall determine, consistent with this Plan. Stock Option Agreements
evidencing Options intended to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code shall contain such terms and
conditions as may be necessary to meet the applicable provisions of Section
162(m) of the Code. Stock Option Agreements evidencing ISOs shall contain such
terms and conditions as may be necessary to meet the applicable provisions of
Section 422 of the Code.
(d) Non-Transferability. Subject to the provisions of paragraph 6(h) , no
award under the Plan and no interest therein, shall be transferable by the
Participant otherwise than (i) by will or the laws of descent and distribution,
(ii) pursuant to a QDRO or (iii) as expressly permitted under the applicable
option agreement including, if so permitted, pursuant to a gift to such
optionee's family, whether directly or indirectly or by means of a trust or
partnership or otherwise, unless and until such rights or awards have been
exercised, or the shares underlying such rights or awards have been issued, and
all restrictions applicable to such shares have lapsed. All awards shall be
exercisable or received during the Participant's lifetime only by the
Participant or the Participant's legal representative. Any purported transfer
contrary to this provision will nullify the award. During the lifetime of the
Participant, only he may exercise an Option or other right or award (or any
portion thereof) granted to him under the Plan, unless it has been disposed of
pursuant to a QDRO. After the death of the Participant, any exercisable portion
of an Option or other right or award may, prior to the time when such portion
becomes unexercisable under the Plan or the applicable Stock Option Agreement or
other agreement, be exercised by his beneficiary designated under 6(h) or, if
none, his personal representative or by any person empowered to do so under the
deceased Participant's will or under the then applicable laws of descent and
distribution.
(e) Adjustments Upon Certain Changes. In the event of a reorganization,
recapitalization, spin-off, stock dividend, stock split, combination,
reclassification, reverse stock split, merger, consolidation, split-up, spin-
off, repurchase, liquidation, dissolution, or sale, transfer, exchange or other
disposition of all or substantially all of the assets of the Company, or
exchange of Common Stock or other securities of the Company, issuance of
warrants or other rights to purchase Common Stock or other securities of the
Company, or other similar corporate transaction or event or other increase or
reduction in the number of issued shares of common stock, the Committee may, in
order to prevent the dilution or enlargement of rights under awards, make such
adjustments in the number and type of shares authorized by the Plan, the number
and type of shares covered by, or with respect to which payments are measured
under, outstanding awards and the exercise prices specified therein as may be
determined to be appropriate and
-6-
<PAGE>
equitable. In the event of any of the events or transactions described in the
preceding sentence, a change in control, or similar transaction by the Company
or any unusual or nonrecurring transactions or events affecting the Company, any
affiliate of the Company, or the financial statements of the Company or any
affiliate, or of changes in applicable laws, regulations, or accounting
principles, if the Committee determines that such action is appropriate in order
to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan or with respect to any option,
right or other award under this Plan, to facilitate such transactions or events
or to give effect to such changes in laws, regulations or principles, the
Committee in its discretion is hereby authorized to provide in the agreement
evidencing any award or by action taken prior to the occurrence of such
transaction or event: (i) for adjustments to such award in order to prevent the
dilution or enlargement of rights thereunder or to provide for acceleration of
benefits thereunder; (ii) for either the purchase of any such Option, SAR, or
any Restricted Stock for an amount of cash equal to the amount that could have
been attained upon the exercise of such option, right or award or realization of
the Participant's rights had such option, right or award been currently
exercisable or payable or fully vested or the replacement of such option, right
or award with other rights or property selected by the Committee in its sole
discretion; (iii) that it cannot be exercised after such event; (iv) that upon
such event, such option, right or award be assumed by the successor or survivor
corporation, or a parent or subsidiary thereof, or shall be substituted for by
similar options, rights or awards covering the stock of the successor survivor
corporation, or a parent or subsidiary thereof, with appropriate adjustments as
to the number and kind of shares and prices; and (v) that the restrictions
imposed under a Restricted Stock Agreement upon some or all shares of Restricted
Stock may be terminated, and some or all shares of such Restricted Stock may
cease to be subject to repurchase or forfeiture under Section 5(c)(iv) after
such event. With respect to Options and SARs intended to qualify as performance-
based compensation under Section162(m), no adjustment or action described in
this Section 6(e) or in any other provision of the Plan shall be authorized to
the extent that such adjustment or action would cause the Plan to violate
Section 422(b)(1) of the Code or would cause such Option or SAR to fail to so
qualify under Section 162(m), as the case may be, or any successor provisions
thereto. Furthermore, no such adjustment or action shall be authorized to the
extent such adjustment or action would result in short-swing profits liability
under Section 16 or violate the exemptive conditions of Rule 16b-3 unless the
Committee determines that the option or other award is not to comply with such
exemptive conditions.
(f) Tax Withholding. The Committee shall have the power to withhold, or
require a Participant to remit to the Company, an amount to satisfy any
withholding or other tax due with respect to any amount payable and/or shares
issuable under the Plan, and the Committee may defer such payment or issuance
unless indemnified to its satisfaction. Subject to the consent of the Committee,
a Participant may make an irrevocable election to have shares of common stock
otherwise issuable under an award withheld, tender back to the Company shares of
common stock received pursuant to an award or deliver to the Company previously-
acquired shares of common stock having a fair market value sufficient to satisfy
all or part of the Participant's estimated tax obligations associated with the
transaction. Such election must be made by a Participant prior to the date on
which the relevant tax obligation arises. The Committee may disapprove of any
election and may limit, suspend or terminate the right to make such elections.
-7-
<PAGE>
(g) Listing and Legal Compliance. The Committee may suspend the exercise or
payment of any award so long as it determines that securities exchange listing
or registration or qualification under any securities laws is required in
connection therewith and has not been completed on terms acceptable to the
Committee. The Company shall not be required to issue or deliver any certificate
or certificates for shares of stock purchased upon the exercise of any Option or
portion thereof prior to fulfillment of all of the following conditions:
(i) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed;
(ii) The completion of any registration or other qualification of such
shares under any state or federal law, or under the rulings or
regulations of the Securities and Exchange Commission or any other
governmental regulatory body which the Committee or Board shall, in
its absolute discretion, deem necessary or advisable;
(iii) The obtaining of any approval or other clearance from any state
or federal governmental agency which the Committee shall, in its
absolute discretion, determine to be necessary or advisable;
(iv) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may establish from time to
time for reasons of administrative convenience; and
(v) The receipt by the Company of full payment for such shares,
including payment of any applicable withholding tax.
The Committee may, in its absolute discretion, also take whatever
additional actions it deems appropriate to effect such compliance including,
without limitation, placing legends on share certificates and issuing stop-
transfer notices to agents and registrars.
(h) Beneficiary Designation. Subject to paragraph 6(d), Participants may
name, from time to time, beneficiaries (who may be named contingently or
successively) to whom benefits under the Plan are to be paid in the event of
their death before they receive any or all of such benefit. Each designation
will revoke all prior designations by the same Participant, shall be in a form
prescribed by the Committee, and will be effective only when filed by the
Participant in writing with the Committee during the Participant's lifetime. In
the absence of any such designation, benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.
(i) Rights of Participants. Nothing in the Plan shall interfere with or
limit in any way the right of the Company to terminate any Participant's
employment at any time, nor confer upon any Participant any right to continue in
the employ of the Company for any period of time or to continue his or her
present or any other rate of compensation. No employee shall have the right to
be selected as a Participant, or, having been so selected, to be selected again
as a Participant.
-8-
<PAGE>
(j) Amendment, Suspension and Termination of Plan. This Plan will terminate
on, and no Options, SARs or Restricted Stock may be granted after, the tenth
anniversary of the IPO Closing Date. The Board of Directors or the Committee may
suspend or terminate the Plan or any portion thereof at any time before the IPO
Closing Date and may amend it from time to time in such respects as the Board of
Directors or the Committee may deem advisable; provided, however, that no such
amendment shall be made without stockholder approval to the extent such approval
is required by law, agreement or the rules of any exchange upon which the common
stock is listed. No such amendment, suspension or termination shall impair the
rights of Participants under outstanding awards without the consent of the
Participants affected thereby or make any change that would disqualify the Plan,
or any other plan of the Company intended to be so qualified, from the exemption
provided by Rule 16b-3. No such amendment shall be made that would cause the
options and the SARs from qualifying as performance based compensation as that
term is used Section 162(m) of the Code.
The Committee may amend or modify any award in any manner to the extent
that the Committee would have had the authority under the Plan to initially
grant such award. No such amendment or modification shall impair the rights of
any Participant under any award without the consent of such Participant.
(k) Effective Date of Plan. The Plan shall become effective on November 20,
1997.
(l) Governing Law. This Plan and any agreements hereunder shall be
administered, interpreted and enforced under the internal laws of the State of
Delaware without regard to conflicts of laws thereof.
(m) Limitations Applicable to Section 16 Persons and Performance-Based
Compensation. Notwithstanding any other provision of this Plan, this Plan, and
any Option, SAR, or Restricted Stock granted, to any individual who is then
subject to Section 16 of the Exchange Act, shall be subject to any additional
limitations set forth in any applicable exemptive rule under Section 16 of the
Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that
are requirements for the application of such exemptive rule. To the extent
permitted by applicable law, the Plan, Options, SARs and Restricted Stock
granted hereunder shall be deemed amended to the extent necessary to conform to
such applicable exemptive rule. Furthermore, notwithstanding any other provision
of this Plan, any Option or SAR intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall be subject
to any additional limitations set forth in Section 162(m) of the Code (including
any amendment to Section 162(m) of the Code) or any regulations or rulings
issued thereunder that are requirements for qualification as performance-based
compensation as described in Section 162(m)(4)(C) of the Code, and this Plan
shall be deemed amended to the extent necessary to conform to such requirements.
-9-
<PAGE>
(n) Consideration. In all cases, legal consideration shall be required for
each issuance of Options, Restricted Stock and SARs.
-10-
<PAGE>
IN WITNESS WHEREOF, the Board of Directors has caused this Plan to be
signed by its duly appointed officers and its corporate seal to be hereunto
affixed as of this 15 day of August 1996.
By:
------------------------------------
Name:
Title:
Attested:
By:
------------------------------------
Name:
Title:
-11-
<PAGE>
EXHIBIT 10.28
FORM OF
AGREEMENT AND
AMENDMENT TO STOCK APPRECIATION RIGHT AGREEMENT
THIS AGREEMENT AND AMENDMENT (this "Amendment"), dated as of November
__, 1997, is made by and between Howmet Corporation, a Delaware corporation (the
"Company"), and _____________ (the "Executive") and amends that certain Stock
Appreciation Right Agreement by and between the Company and the Executive (the
"Agreement"). Defined terms used herein and not otherwise defined shall have
the meanings ascribed to them in the Agreement.
WHEREAS, the Company has previously granted to the Executive the Stock
Appreciation Rights provided for in the Agreement; and
WHEREAS, the Company desires to limit the potential value of the Stock
Appreciation Rights in exchange for certain options to purchase common stock of
Howmet International Inc. (formerly known as Blade Acquisition Corp.) to be
granted to the Executive in connection herewith;
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
---------
1. The provisions of Paragraph 2 of this Article I and Article II of this
Amendment shall become effective only upon the later to occur of (a) the first
date on which persons holding at least 80% of the Stock Appreciation Rights
granted by the Company prior to the date hereof have executed an agreement and
amendment in the same form as this Agreement and Amendment, and (b) the closing
of the IPO; provided that, in the event the events set forth in clauses (a) and
--------
(b) above shall not have occurred on or prior to January 31, 1998, this
Amendment shall be terminated, its provisions shall become null and void, and
the Agreement, as currently in effect, shall continue in effect in accordance
with its terms.
2. The Company agrees to grant to the Executive, on the closing date of
the IPO, options ("Options") to purchase a number of shares of Blade Common
Stock (as defined in the Agreement) equal to 50 times the number of Stock
Appreciation Rights granted to the Executive pursuant to the Agreement (or 80%
thereof, in the event the Executive elects to receive a 1998 Payout (as defined
below)), at an exercise price per share equal to the IPO Price (as defined
below). The Options shall vest and become exercisable in 25% increments on
January 1 each year beginning 1999 until fully vested. The Options shall expire
on the eighth anniversary date of their granting. The Options shall be subject
to additional terms and conditions to be set forth in a stock option plan to be
adopted by the Company or its corporate parent and/or a stock option grant
agreement to be entered into between the Executive and the Company or its
corporate parent, including, without limitation, terms and provisions that (a)
accelerate the vesting and/or exercisability of Options upon the occurrence of
certain events, and (b) freeze the vesting or
<PAGE>
require forfeiture of Options in the event of termination of the Executive's
employment with the Company.
3. By executing this Amendment, the Executive hereby acknowledges the
foregoing paragraphs and agrees to accept and be bound by the terms of any plan
or agreement containing terms and provisions relating to the Options not
inconsistent with the foregoing paragraph.
ARTICLE II
----------
1. Section 1.1 of the Agreement is hereby amended by deleting clauses (v)
and (vi) thereof and renumbering clause (vii) thereof to be clause (v).
2. Section 1.3 of the Agreement is hereby amended by deleting the words
"one two-hundredth (1/200) of the" and inserting thereat the words "fifty (50)
times the".
3. Section 1.5 of the Agreement is hereby amended in its entirety as
follows:
" `Blade' shall mean Howmet International Inc., a Delaware
corporation."
4. Section 1.7 of the Agreement is hereby amended in its entirety as
follows:
" `Board' shall mean the Board of Directors of Blade, or any committee
thereof to which such Board of Directors shall have delegated all or any
portion of its authority hereunder."
5. Section 1.13 of the Agreement is hereby amended in its entirety as
follows:
" `Fair Market Value' for purposes of this Agreement shall mean, as of
any given date, the lesser of (a) the mean between the highest and lowest
reported on such date (or, if there is no reported sale on such date, on
the last preceding date on which any reported sale occurred) sales prices
of Blade Common Stock on the New York Stock Exchange Composite Tape or, if
not listed on such exchange, on any other national securities exchange on
which the Blade Common Stock is listed or on NASDAQ (provided that if there
--------
is no regular public trading market for such stock, the Fair Market Value
of Blade Common Stock shall be determined by the Board of Directors in good
faith) and (b) the IPO Price."
6. Section 1.20 of the Agreement is hereby amended by deleting the words
"one two-hundredth (1/200) of a share" and inserting thereat the words "fifty
(50) shares".
7. Section 1.24 of the Agreement is hereby deleted.
8. Section 1.28 of the Agreement is hereby amended by adding at the end
thereof the following:
", less, in the event the Executive elects to receive a 1998 Payout, 20%."
-2-
<PAGE>
9. A new Section 1.30 and a new Section 1.31 shall be added to Article I
of the Agreement, and shall read in their respective entireties as follows:
"Section 1.30 -- IPO
-------------------
" `IPO' shall mean the initial offering of Blade Common Stock, whether
by Blade or by any stockholder of Blade, to the public pursuant to an
effective registration statement on Form S-1 under the Securities Act of
1933, as amended.
"Section 1.31 -- IPO Price
-------------------------
" `IPO Price' shall mean the per share price to public at which shares
of Blade Common Stock are sold in the IPO."
10. Section 2.1 of the Agreement is hereby amended by deleting the words
"one two-hundredth (1/200) of a share" and inserting thereat the words "fifty
(50) shares".
11. Section 2.3 of the Agreement is hereby amended by adding to the end
thereof the following:
"(d)(i) Any other provision of this Section 2.3 notwithstanding, the
Executive may irrevocably elect to receive the Appreciated Value of 20% of
the Stock Appreciation Rights granted hereby (the "1997 Vested
Percentage"), in a lump sum, in cash (a "1998 Payout"), on a date selected
by the Board in its discretion that is within 30 days of the closing of the
IPO, but not earlier than January 1, 1998.
"(ii) An election to receive a 1998 Payout shall be made in writing
and delivered to the Company. If the Executive does not make an election,
the Executive shall be deemed to have elected not to receive a 1998
Payout."
-3-
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed and delivered by
the parties hereto as of the date first written above.
HOWMET CORPORATION
By:
-----------------------------------
Name:
Title:
Sign:
---------------------------------
Print Name Here:
----------------------
- --------------------------------------
Address
- --------------------------------------
City State Zip
- --------------------------------------
Taxpayer Identification Number
1998 PAYOUT ELECTION
--------------------
By signing my name in the space provided below, I hereby elect, pursuant to
Section 2.3(d) of the Stock Appreciation Right Agreement, as amended, between
myself and the Company, to receive a 1998 Payout, as such term is defined in
such agreement. My election is irrevocable by me.
(Please sign only if you wish to receive a 1998 Payout. If you wish to decline
the 1998 Payout, please leave blank)
- ----------------------------------
Signature
-4-
<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 November 12, 1997, in Amendment No. 3 to the Registration
Statement (Form S-1 No. 333-37573) and related Prospectus of Howmet
International Inc. for the registration of 15 million shares of
its common stock. We also consent to the reference made to us under the
headings "Summary Historical Financial and Other Data" and "Selected
Historical and Other Data" in such Registration Statement and Prospectus.
/s/ Ernst & Young LLP
November 20, 1997
Stamford, Connecticut
<PAGE>
Exhibit 23.2
[LETTERHEAD OF PRICE WATERHOUSE]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Amendment No. 3 to Form S-1 of our report dated 11
July 1996, relating to the financial statements of Howmet Limited, which appears
in such Prospectus.
/s/ Price Waterhouse
PRICE WATERHOUSE
Bristol, United Kingdom
20 November 1997
<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 Amendment No. 3 to 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
November 20, 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 Amendment No. 3 to 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
November 20, 1997
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
Each of the undersigned officers and directors of Howmet International
Inc., 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.
<TABLE>
<S> <C> <C>
NAME TITLE DATE
---- ----- ----
/s/ William E. Conway, Jr. Director November 19, 1997
- -------------------------------
William E. Conway, Jr.
/s/ Frank C. Carlucci Director November 19, 1997
- -------------------------------
Frank C. Carlucci
/s/ Richard L. Corbin Director November 19, 1997
- -------------------------------
Richard L. Corbin
/s/ Edsel D. Dunford Director November 19, 1997
- -------------------------------
Edsel D. Dunford
/s/ Alan M. Holt Director November 19, 1997
- -------------------------------
Alan M. Holt
/s/ David L. Squier Director, President and November 19, 1997
- ------------------------------- Chief Executive Officer/1/
David L. Squier
/s/ James R. Wilson Chairman of the Board November 19, 1997
- ------------------------------- and Director
James R. Wilson
/s/ John C. Ritter Senior Vice President November 19, 1997
- ------------------------------- - Finance and Chief
John C. Ritter Financial Officer/2/
/s/ George T. Milano Corporate Controller/3/ November 19, 1997
- -------------------------------
George T. Milano
</TABLE>
/1/ Principal executive officer.
/2/ Principal financial officer.
/3/ Principal accounting officer.
