<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1997
REGISTRATION NO. 333-37573
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2 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 12, 1997
15,000,000 Shares
[LOGO OF HOWMET CORPORATION]
COMMON STOCK
-----------
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."
-----------
APPLICATION WILL BE MADE TO LIST THE COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE UNDER THE SYMBOL "HWM."
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) SHAREHOLDER(2)
-------- -------------- -------------------
<S> <C> <C> <C>
Per Share........................... $ $ $
Total(3)............................ $ $ $
</TABLE>
- -----
(1) The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
(2) The expenses of the Offering, estimated at $ , will be payable by the
Company.
(3) The Selling Shareholder has granted the U.S. Underwriters an option,
exercisable within 30 days of the date hereof, to purchase up to an
aggregate of 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
----
<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 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................ (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 (a)(b)...... 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 (b)............. -- -- -- -- $ (0.2) $ 20.9 $ 12.3 $ 55.5
======== ======== ====== ======
Net income per common
share (b)(c)........... -- -- -- -- $ -- $ .21 $ .12 $ .56
======== ======== ====== ======
BALANCE SHEET DATA
(end of period) (d):
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....... 594.7 579.6 509.9 -- 1,127.8 1,052.5 -- 969.0
Restricted Trust (e).... -- -- -- -- 716.4 716.4 -- 727.1
Long-term debt,
including current
maturities, excluding
Pechiney Notes......... 66.3 44.5 42.1 -- 488.6 350.7 -- 190.5
Pechiney Notes (e)...... -- -- -- -- 716.4 716.4 -- 727.1
Redeemable preferred
stock.................. -- -- -- -- 50.2 54.9 -- 58.7
Stockholders' equity.... 291.9 239.1 166.3 -- 196.9 218.8 -- 266.4
OTHER DATA (d):
EBITDA (f).............. 33.4 101.4 98.3 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) In 1993, a $49.3 million charge (net of tax benefits of $31.5 million) was
recorded as a cumulative effect of a change in accounting. Effective
January 1, 1993, Howmet Predecessor Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions" which requires that the
estimated future cost of providing postretirement benefits such as health
care be recognized as an expense when employees render services instead of
when the benefits are paid. If SFAS No. 106 had been in effect for 1992,
net income would have been reduced by approximately $2.0 million.
(b) In connection with its stock appreciation rights ("SARs") plan, the Company
recorded after-tax expense of $4.0 million in the year ended December 31,
1996 and $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. Assuming such initial public offering price was equal to the midpoint
of the range indicated on the cover page of this Prospectus, the maximum
after-tax charge would be $6.2 million, or $.06 per share. See
"Management--Stock Appreciation Rights; 1997 Stock Plan."
(c) Net income per common share amounts are calculated giving effect to the
100,000,000 shares of Common Stock outstanding after the October 8, 1997
stock split in the form of a stock dividend. See Note 18 of Notes to
Financial Statements.
(d) Excludes the amounts of advances to Pechiney Corporation, dividends to
Pechiney Corporation, and notes payable to Pechiney Corporation or its
affiliates prior to the Acquisition as set forth below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM
----------------------- JANUARY 1, 1995 TO
1992 1993 1994 DECEMBER 13, 1995
------- ------- ------- ------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA (end of peri-
od):
Advances to Pechiney Corpora-
tion......................... $ 160.7 $ 203.7 $ 238.7 --
Dividends payable............. -- 7.6 -- --
Notes payable................. -- 12.9 20.0 --
CASH FLOW DATA:
Increase (decrease) in
advances to Pechiney
Corporation.................. 89.1 43.0 34.9 $(237.4)
Payment of dividends.......... 22.7 11.5 28.6 200.0
</TABLE>
(e) In 1988, Pechiney Corporation, which was a wholly-owned subsidiary of
Pechiney International, issued 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.
12
<PAGE>
(f) EBITDA is defined as the sum of (i) income before cumulative effect of
change in accounting, (ii) provision for income taxes, (iii) depreciation
and amortization expense, (iv) a goodwill write-off of $47.4 million in
1994 and (v) interest income (expense), net. 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.
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 Company will file an application to list the Common Stock 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:
Senior term facility (a).................................. $ 33.5
Senior revolving credit facility (a)...................... .5
Senior Subordinated Notes due 2003 (b).................... 125.0
Payment-in-kind junior subordinated note (c).............. 29.8
Other..................................................... 1.7
--------
Total................................................... 190.5
Pechiney Notes, including $10.7 of accrued interest (d)..... 727.1
Redeemable preferred stock (e).............................. 58.7
Total stockholders' equity.................................. 266.4
--------
Total capitalization........................................ $1,242.7
========
Total capitalization, excluding Pechiney Notes.............. $ 515.6
========
</TABLE>
- --------
(a) The senior term facility and senior revolving credit facility
(collectively, the "Senior Credit Facilities") provide a senior term loan
and $75.0 million of revolving credit capacity, including up to $50.0
million of standby letters of credit. At 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."
(b) The senior subordinated notes due 2003 ("Senior Subordinated Notes") are
unsecured and bear interest at 10% per annum. The Senior Subordinated
Notes are redeemable in whole or in part on December 1, 1999 at 105% of
principal amount, declining annually to 100% on December 1, 2002. See
"Description of Certain Indebtedness--Senior Subordinated Notes."
(c) 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."
(d) 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.
(e) 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 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................ (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 (a)(b)...... 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 (b)............. -- -- -- -- $ (0.2) $ 20.9 $ 12.3 $ 55.5
======= ======== ====== ======
Net income per common
share (b)(c)........... -- -- -- -- $ -- $ .21 $ .12 $ .56
======= ======== ====== ======
BALANCE SHEET DATA (end
of period)(d):
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....... 594.7 579.6 509.9 -- 1,127.8 1,052.5 -- 969.0
Restricted Trust (e).... -- -- -- -- 716.4 716.4 -- 727.1
Long-term debt,
including current
maturities, excluding
Pechiney Notes ........ 66.3 44.5 42.1 -- 488.6 350.7 -- 190.5
Pechiney Notes (e)...... -- -- -- -- 716.4 716.4 -- 727.1
Redeemable preferred
stock.................. -- -- -- -- 50.2 54.9 -- 58.7
Stockholders' equity.... 291.9 239.1 166.3 -- 196.9 218.8 -- 266.4
OTHER DATA (d):
EBITDA (f).............. 33.4 101.4 98.3 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) In 1993, a $49.3 million charge (net of tax benefits of $31.5 million) was
recorded as a cumulative effect of a change in accounting. Effective
January 1, 1993, Howmet Predecessor Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions" which requires that the
estimated future cost of providing postretirement benefits such as health
care be recognized as an expense when employees render services instead of
when the benefits are paid. If SFAS No. 106 had been in effect for 1992,
net income would have been reduced by approximately $2.0 million.
(b) In connection with its SARs plan, the Company recorded after-tax expense
of $4.0 million in the year ended December 31, 1996 and $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. Assuming such initial
public offering price was equal to the midpoint of the range indicated on
the cover page of this Prospectus, the maximum after-tax charge would be
$6.2, or $.06 per share. See "Management--Stock Appreciation Rights; 1997
Stock Plan."
(c) Net income per common share amounts are calculated giving effect to the
100,000,000 shares of Common Stock outstanding after the October 8, 1997
stock split in the form of a stock dividend. See Note 18 of Notes to
Financial Statements.
(d) Excludes the amounts of advances to Pechiney Corporation, dividends to
Pechiney Corporation, and notes payable to Pechiney or its affiliates as
set forth below:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED DECEMBER 31, 1995 TO
----------------------- DECEMBER 13,
1992 1993 1994 1995
------- ------- ------- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA (END OF PERIOD):
Advances to Pechiney Corporation.... $ 160.7 $ 203.7 $ 238.7 --
Dividends payable................... -- 7.6 -- --
Notes payable....................... -- 12.9 20.0 --
CASH FLOW DATA:
Increase (decrease) in advances to
Pechiney Corporation............... 89.1 43.0 34.9 $(237.4)
Payment of dividends................ 22.7 11.5 28.6 200.0
</TABLE>
(e) In 1988, Pechiney Corporation, which was a wholly-owned subsidiary of
Pechiney International, issued the Pechiney Notes maturing in January 1999
in a principal amount currently outstanding of $716.4 million to third
parties in connection with the purchase of American National Can Company.
As a result of the Acquisition, Pechiney Corporation (now named Howmet
Holdings Corporation) became a wholly-owned subsidiary of the Company. The
Pechiney Notes remained the obligation of Holdings, but Pechiney
International, which retained American National Can Company, agreed with
the Company to be responsible for all payments due on or in connection
with the Pechiney Notes. Accordingly, Pechiney International issued its
own note to Holdings in an amount sufficient to satisfy all obligations
under the Pechiney Notes. The Pechiney International note was deposited in
the Restricted Trust for the benefit of Holdings. If Pechiney
International fails to make any payments required by its note, the Trustee
has two separate sets of irrevocable letters of credit issued by certain
French banks to draw upon to satisfy the Pechiney Notes. Pechiney
International is solely responsible as reimbursement party for draws under
the letters of credit, and, by agreement with the banks, neither Holdings
nor the Company has any responsibility therefor. Management believes that
it is extremely remote that the Company will use any assets other than
those in the Restricted Trust to satisfy any payments related to the
Pechiney Notes. Upon repayment of the Pechiney Notes, the Restricted Trust
terminates and any assets of the Restricted Trust are to be returned to
Pechiney International. See "Description of Certain Indebtedness--Pechiney
Notes" and Note 8 of Notes to Financial Statements.
26
<PAGE>
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) EBITDA is defined as the sum of (i) income before cumulative effect of
change in accounting, (ii) provision for income taxes, (iii) depreciation
and amortization expense, (iv) a goodwill write-off of $47.4 million in
1994 and (v) interest income (expense), net. 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.
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. Assuming the
initial public offering price is equal to the midpoint of the range indicated
on the cover page of this Prospectus, 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 a new credit facility to replace the
Senior Credit Facilities. The new facility is expected to have sufficient
borrowing capacity to enable the Company to refinance or retire some or all of
its outstanding 10% Senior Subordinated Notes and/or its 10% junior
subordinated notes. Such refinancing may occur as early as the fourth quarter
of 1997. The one-time cost of such refinancing would result in an
extraordinary charge to earnings. See "--Liquidity and Capital Resources."
In addition, one of the Company's IGT customers has recently asserted a
claim relating to defects in 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 yet to be determined charge in the fourth quarter.
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.
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.
29
<PAGE>
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.
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.
The impact of inflation on net sales and earnings from operations was not
significant.
30
<PAGE>
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.
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
31
<PAGE>
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.
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.
32
<PAGE>
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.
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
33
<PAGE>
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."
The Company is currently negotiating a new credit facility to replace the
Senior Credit Facilities. The terms of the new facility are expected to be
significantly less restrictive than the existing facility and interest rates
are
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expected to be lower. The new facility is expected to have sufficient
borrowing capacity to enable the Company to refinance much of the Company's
higher cost debt. Such refinancing may occur as early as the fourth quarter of
1997 and would result in an extraordinary charge to earnings. Subject to
market conditions, the Company intends to use a portion of the new credit
facility to refinance or retire some or all of its outstanding 10% Senior
Subordinated Notes and/or 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.
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BUSINESS
OVERVIEW
The Company is the largest manufacturer in the world of investment cast
turbine engine components for the jet aircraft and industrial gas power
generation markets. The Company uses investment casting techniques to produce
high-performance and high-reliability superalloy and titanium components to
the exacting specifications of the major aerospace and IGT engine
manufacturers. The Company is also the world's largest producer of aluminum
investment castings, which it produces principally for the commercial
aerospace and defense electronics industries.
The Company believes that its leading market position is based on its
ability to provide complex and technologically advanced products which meet
its customers' most demanding requirements, and that its strong leadership in
proprietary technology, its integrated manufacturing capabilities and its
substantial commitment to research and development provide the Company with
competitive advantages in developing and producing such products. Customers in
both the aerospace and IGT markets continually seek improvements in turbine
engine operating efficiencies through increased turbine operating temperatures
and other performance enhancements, requiring the development of stronger,
more heat-resistant and corrosion-resistant engine components. The Company has
been at the forefront in the development and commercialization of numerous
technological breakthroughs in the investment casting industry, including
improved metallurgical structures and casting technologies. The Company
produces the technologically advanced directional solidification and single
crystal airfoils now required for the advanced, higher efficiency engines, and
it plans to continue developing higher value, technologically advanced
products, which typically carry higher margins. The Company is also focused on
using investment casting to develop alternative products to those currently
being forged, fabricated or assembled. The Company believes such products
represent a significant growth opportunity.
Howmet, the Company's principal operating subsidiary, was founded in 1926
and was acquired by the Company, a joint venture formed by Thiokol and
Carlyle, on December 13, 1995 from Pechiney International.
The Company produces superalloy and titanium investment castings for the
aerospace and IGT industries as well as aluminum investment castings for the
aerospace and defense electronic industries, as described below:
Aerospace Castings. Aerospace casting revenues were approximately $576
million in 1996, or 52% of the Company's total revenues. The Company's
aerospace products consist principally of airfoils (both moving blades and
stationary vanes) used in the hot gas path of aircraft turbine engines, the
area of these engines with the most severe operating conditions. The Company
estimates that it has approximately a 56% worldwide market share for aerospace
turbine airfoils, and believes it manufactures airfoils for every major jet
aircraft turbine engine program currently in production or under development
by its major customers, primarily for commercial applications. The Company's
aerospace airfoil business is approximately equally divided between parts for
new engines and airfoil replacement parts. The Company also produces large
structural cast components and integral castings for engine and airframe
manufacturers. The Company's major aerospace casting customers are the world's
largest jet aircraft engine manufacturers, including GEAE, PWA, AlliedSignal,
Rolls-Royce and SNECMA.
Demand for the Company's products is affected by trends in the commercial
aviation market, which are currently favorable. Worldwide output of large
commercial aviation engines, increased 13% from 1995 to 1996 and is expected
to continue to increase with the expected increase in aircraft deliveries.
Scheduled aircraft deliveries give some indication of engine and component
requirements, although the deliveries of engine components precede actual
aircraft deliveries by approximately nine months. Approximately 495 large
aircraft (over 50 passengers) were delivered in 1996, and scheduled deliveries
(according to "The Airline Monitor," July 1997) are projected to be
approximately 715 units in 1997 and 905 units in 1998, although such
deliveries may be subject to deferral or cancellation. Spare part sales for
engines in service are also increasing as a result of the higher number of
aircraft in service and increased flight hours, among other factors. The
Company believes that the
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principal causes of the recent increase in new aircraft orders include the
improved profitability of U.S. commercial airlines, aging of the existing
fleet, government 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
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manufacturing processes. The Company's leading position provides significant
opportunity to supply products for new engines as well as ongoing demand for
replacement parts and to participate with its customers in cooperative
research and development projects.
Leverage Technological Capabilities. The Company has been at the forefront
in the development and commercialization of numerous technological
breakthroughs in the investment casting industry. As a result of its
technological leadership, the Company has been able to produce the most
technologically advanced, highest quality products, which typically command
higher margins and result in strong financial performance and market position.
The Company's strategy is to continue its focus on developing more complex
airfoils, which can withstand even greater material stress and higher
temperature environments, thereby enabling its customers, most of whom are
OEMs, to design more efficient engines. The Company intends to pursue this
strategy in various ways, including by continuing to work closely with
customers to improve its directional solidification and single crystal
investment casting production techniques and by developing new applications
for those techniques.
Emphasize Growth through New Casting Applications and Technological
Innovations. The Company believes it has significant opportunities for growth
by developing new products and new applications which offer its customers
greater performance and significant cost savings. These opportunities include
(1) developing cast products that are alternatives to forged, fabricated and
assembled products, (2) developing superior new casting processes, and (3)
using new materials. Target applications for alternative cast products include
a broad array of titanium and aluminum airframe structural components that
reduce the number of parts and fasteners used and reduce machining
requirements. In developing new casting processes, the Company similarly seeks
to reduce the number of parts used and the amount of machining. An example of
such a new casting process is the Spraycast-X(R) technology, which the Company
is developing and commercializing in a joint venture with a subsidiary of
United Technologies Corporation. By this process, products such as cases and
rings can be manufactured at substantially lower cost. An example of a new
material being developed by the Company is titanium aluminides. Several jet
aircraft engine manufacturers are currently testing titanium aluminide
airfoils, which reduce the weight of selected airfoil components by
approximately 50%, thereby increasing efficiency. The Company believes such
products represent a significant growth opportunity for the Company.
Additional new products or processes include:
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.
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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
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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
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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.
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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
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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.
43
<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.
44
<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.
45
<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
46
<PAGE>
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.
47
<PAGE>
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
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.
48
<PAGE>
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 1995 325,000 352,109 7,971 11,997 175,481
Executive 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) Assumes the initial public offering price will be equal to the midpoint of
the range indicated on the cover page of this Prospectus. 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.
57
<PAGE>
PRINCIPAL STOCKHOLDERS
The only classes of capital stock of the Company outstanding are the Common
Stock and the Series A Preferred Stock. Thiokol currently beneficially owns
all 5,843 outstanding shares of Series A Preferred Stock and will continue to
own all of the outstanding shares of Series A Preferred Stock after the
Offering. The following table sets forth the ownership of Common Stock
(assuming 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
partnership
("CBAP")(2)............ 51,000,000 51.0% 15,000,000 13,000,000 23,000,000(3) 23.0%(3)
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.
58
<PAGE>
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%) and Mr. Paul (.03%). Such interests are held
directly or indirectly through a rabbi trust. Mr. Squier acquired part of
his interest in the Selling Shareholder using the proceeds of a $1.0
million loan from CBAP. Such loan carries an interest rate of 9.0%,
payable at maturity, and matures on December 13, 2005 or earlier upon a
distribution from CBAP. The Selling Shareholder has advised the Company
that it expects to distribute proceeds from the Offering to its partners,
which would include such executive officers of the Company, on a pro rata
basis, or as otherwise agreed by the parties.
RELATIONSHIP WITH THIOKOL
Immediately prior to the Offering, Thiokol and Carlyle will be the only
stockholders of the Company. Upon completion of the Offering, 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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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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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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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 June 29, 1997 was 7.4:1.
The "Make-Whole Price" is defined as the greater of (i) the sum of the
principal amount of the Senior Subordinated Notes and the Make-Whole Amount
and (ii) the optional redemption price of the Senior Subordinated Notes on
December 1, 1999. The "Make-Whole Amount" with respect to a Senior
Subordinated Note means an amount equal to the excess, if any, of (i) the
present value of the remaining interest, premium and principal payments due on
such Senior Subordinated Note as if such Senior Subordinated Note were
redeemed on December 1, 1999, computed using a discount rate equal to the
Treasury Rate (as defined) plus 150 basis points, over (ii) the outstanding
principal amount of such Senior Subordinated Note.
10% PIK NOTES
As part of the financing for the Acquisition, HHAC issued junior
subordinated 10% payment-in-kind debt due December 13, 2006, in the principal
amount of $25.0 million (the "10% PIK Notes"), which became the obligation of
Holdings upon the merger of HHAC into Holdings in connection with the
Acquisition. As of 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.
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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
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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.
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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.
Application will be made to list the Common Stock 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 periods from January 1, 1995 to December 13,
1995 (Howmet Predecessor Company) and December 14, 1995 to December 31, 1995.
Our audits also included the financial statement schedules listed in the Index
to Financial Statements and Financial Statement Schedules of this Prospectus
and Registration Statement. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits. We did not audit the 1995
financial statements of Howmet SA, CIRAL SNC and Howmet Limited (UK), wholly-
owned subsidiaries, which statements reflect total assets of $201 million as
of December 31, 1995, and total revenues of $221 million for the year ended
December 31, 1995. Those statements were audited by other auditors whose
reports have been furnished to us, and our opinion, insofar as it relates to
data included for Howmet SA, CIRAL SNC and Howmet Limited (UK), is based
solely on the reports of the other auditors. The combined financial statements
of Howmet Corporation and Howmet Cercast Group for the year ended December 31,
1994 were audited by other auditors whose report dated October 27, 1995
expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts (including the allocation of the results of operations
of Howmet SA, CIRAL SNC and Howmet Limited (UK) between the period from
December 14, 1995 to December 31, 1995) and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits and the
reports of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and, for 1995, the reports of other
auditors, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Howmet International
Inc. as of December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for the year ended December 31, 1996, for the
periods from January 1, 1995 to December 13, 1995 (Howmet Predecessor Company)
and December 14, 1995 to December 31, 1995, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
/s/ ERNST & YOUNG LLP
Stamford, Connecticut
January 27, 1997, except for
Notes 14 and 18, as to which
the date is 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.
Assuming the initial public offering price was equal to the midpoint of the
range indicated on the cover page to this Prospectus, such 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 CORPORATION]
<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 12, 1997
15,000,000 Shares
[LOGO OF HOWMET CORPORATION]
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."
-----------
APPLICATION WILL BE MADE TO LIST THE COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE UNDER THE SYMBOL "HWM."
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) SHAREHOLDER(2)
-------- -------------- -------------------
<S> <C> <C> <C>
Per Share........................... $ $ $
Total(3)............................ $ $ $
</TABLE>
- -----
(1) The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
(2) The expenses of the Offering, estimated at $ , will be payable by the
Company.
(3) The Selling Shareholder has granted the U.S. Underwriters an option,
exercisable within 30 days of the date hereof, to purchase up to an
aggregate of 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................................................ *
Blue Sky fees and expenses...................................... *
Printing expenses............................................... *
Legal fees and expenses......................................... *
Accounting fees................................................. *
Miscellaneous................................................... *
--------
Total**..................................................... $ *
========
</TABLE>
--------
* To be filed by amendment.
** All of such expenses are being borne by the Company.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") empowers a Delaware corporation to indemnify any 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 December
7, 1995 (incorporated herein by reference to Exhibit 4.4 to How-
met Corporation's Registration Statement on Form S-4 filed Janu-
ary 9, 1996 (registration no. 333-00200)).
4.11 --Form of 10% Senior Subordinated Notes due 2003 of Howmet Corpo-
ration offered in exchange for the Original Notes (included in
Exhibit 4.7).
4.12 --Amended and Restated Credit Agreement dated as of December 5,
1996 among the Company, Howmet Holdings Corporation, Howmet Cor-
poration, Bankers Trust Company, various banks, Citicorp USA,
Inc., and The First National Bank of Chicago as Managing Agents,
Bankers Trust Company as Syndication Agent, Citicorp USA, Inc.,
as Documentation Agent and The First National Bank of Chicago, as
Administrative Agent, together with certain collateral documents
attached thereto as exhibits, including the Subsidiary Guaranty,
Pledge Agreement and Security Agreement among the Company, Howmet
Holdings Corporation, Howmet Corporation, certain subsidiaries
and affiliates of Howmet Corporation and the First National Bank
of Chicago (incorporated herein by reference to Exhibit 4.6 to
Howmet Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, filed March 31, 1997).
4.13 --Blade Receivables Master Trust Amended and Restated Pooling and
Servicing Agreement dated April 18, 1996 among Blade Receivables
Corporation as Transferor, Howmet Corporation as Servicer and
Manufacturers and Traders Trust Company as Trustee together with
certain collateral documents attached thereto as exhibits, in-
cluding the Amended and Restated Receivables Purchase Agreement
dated as of April 18, 1996 between Howmet Corporation and certain
subsidiaries of Howmet Corporation, as Settlors, and Blade Re-
ceivables Corporation as Buyer (incorporated herein by reference
to Exhibit 4.7 to Howmet Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, filed March 31,
1997).
4.14 --Repurchase Agreement dated May 16, 1997 (under the Blade Receiv-
ables Master Trust Amended and Restated Pooling and Servicing
Agreement dated April 18, 1996), among Howmet Corporation, Howmet
Cercast (U.S.A.), Inc., Howmet Refurbishment, Inc., Howmet-
Tempcraft, Inc., Turbine Components Corporation, Blade Receiv-
ables Corporation, and Manufacturers and Traders Trust Company,
as Trustee.**
4.15 --Amending Agreement dated August 29, 1997 (amending the Blade Re-
ceivables Master Trust Amended and Restated Pooling and Servicing
Agreement dated April 18, 1996), among Blade Receivables Corpora-
tion, Howmet Corporation, Manufacturers and Traders Trust Compa-
ny, as Trustee, Falcon Asset Securitization Corporation, Alpine
Securitization Corp., Credit Suisse First Boston, New York
Branch, and The First National Bank of Chicago, as Agent for Fal-
con Asset Securitization Corporation and Alpine Securitization
Corp.**
4.16 --Pechiney Notes.*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
5 --Opinion and Consent of Wachtell, Lipton, Rosen & Katz regarding
the legality of the Common Stock*
10.1 --Form of Intercompany Services Agreement by and between the Com-
pany and Thiokol Corporation***
10.2 --Howmet Corporation Annual Bonus Plan (incorporated herein by
reference to Exhibit 10.1 to Amendment No. 1 to Howmet Corpora-
tion's Registration Statement on Form S-4 filed January 17, 1996
(registration no. 333-00200)).
10.3 --Howmet Restructuring Cash Incentive Plan (incorporated herein by
reference to Exhibit 10.2 to Amendment No. 1 to Howmet Corpora-
tion's Registration Statement on Form S-4 filed January 17, 1996
(registration no. 333-00200)).
10.4(a) --Howmet Corporation Amended and Restated Retirement Income Make-
Up Plan A, effective January 1, 1996.**
10.4(b) --Howmet Corporation Amended and Restated Retirement Income Make-
Up Plan B, effective January 1, 1996.**
10.5 --Howmet Corporation Transaction Incentive Payments Plan (incorpo-
rated herein by reference to Exhibit 10.5 to Amendment No. 1 to
Howmet Corporation's Registration Statement on Form S-4 filed
January 17, 1996 (registration no. 333-00200)).
10.6 --Howmet Corporation Enhanced Bonus Program for Employees Grade 22
and Above (incorporated herein by reference to Exhibit 10.6 to
Amendment No. 1 to Howmet Corporation's Registration Statement on
Form S-4 filed January 17, 1996 (registration no. 333-00200)).
10.7 --1986 Howmet Corporation Deferred Compensation Plan (incorporated
herein by reference to Exhibit 10.7 to Amendment No. 1 to Howmet
Corporation's Registration Statement on Form S-4 filed January
17, 1996 (registration no. 333-00200)).
10.8 --Howmet Corporation 1995 Executive Deferred Compensation Plan
(incorporated herein by reference to Exhibit 10.8 to Amendment
No. 1 to Howmet Corporation's Registration Statement on Form S-4
filed January 17, 1996 (registration no. 333-00200)).
10.9 --Employment Agreement dated October 4, 1995, between Howmet Cor-
poration and Mark Lasker (incorporated herein by reference to Ex-
hibit 10.11 to Howmet Corporation's Registration Statement on
Form S-4 filed January 9, 1996 (registration no. 333-00200)).
10.10 --Employment Agreement dated October 4, 1995, between Howmet Cor-
poration and James Stanley (incorporated herein by reference to
Exhibit 10.13 to Howmet Corporation's Registration Statement on
Form S-4 filed January 9, 1996 (registration no. 333-00200)).
10.11 --Employment Agreement dated October 4, 1995, between Howmet Cor-
poration and Roland Paul (incorporated herein by reference to Ex-
hibit 10.16 to Amendment No. 1 to Howmet Corporation's Registra-
tion Statement on Form S-4 filed January 17, 1996 (registration
no. 333-00200)).
10.12 --Employment Agreement dated October 4, 1995, between Howmet Cor-
poration and David Squier (incorporated herein by reference to
Exhibit 10.17 to Howmet Corporation's Registration Statement on
Form S-4 filed January 9, 1996 (registration no. 333-00200)).
10.13 --Letter Agreement regarding payment of life insurance between
Howmet Corporation and David L. Squier (incorporated herein by
reference to Exhibit 10.19 to Amendment No. 1 to Howmet Corpora-
tion's Registration Statement on Form S-4 filed January 17, 1996
(registration no. 333-00200)).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
10.14(a) --Tax Sharing Agreement among Howmet Corporation, Howmet Manage-
ment Services, Inc., Howmet-Tempcraft Inc., Howmet Thermatech
Canada, Inc., Howmet Transport Services, Inc., Howmet Sales
Inc., Howmet Refurbishment, Inc., Turbine Components Corpora-
tion, Blade Receivables Corporation, a Nevada corporation, and
Howmet Cercast (USA), Inc., dated as of December 13, 1995 (in-
corporated herein by reference to Exhibit 10.20(a) to Howmet
Corporation's Registration Statement on Form S-4 filed January
9, 1996 (registration no. 333-00200)).
10.14(b) --Tax Sharing Agreement among the Company, Pechiney Corporation,
Howmet Insurance Co., Inc., Howmet Corporation and all of its
directly and indirectly owned subsidiaries, dated as of December
13, 1995 (incorporated herein by reference to Exhibit 10.20(b)
to Howmet Corporation's Registration Statement on Form S-4 filed
January 9, 1996 (registration no. 333-00200)).
10.15 --Management Agreement between Howmet Corporation and Thiokol
Holding Company dated as of December 13, 1995 (incorporated
herein by reference to Exhibit 10.21 to Howmet Corporation's
Registration Statement on Form S-4 filed January 9, 1996 (regis-
tration no. 333-00200)).
10.16 --Management Agreement between Howmet Corporation and TCG Hold-
ings, L.L.C., dated as of December 13, 1995 (incorporated herein
by reference to Exhibit 10.22 to Howmet Corporation's Registra-
tion Statement on Form S-4 filed January 9, 1996 (registration
no. 333-00200)).
10.17 --Assignment and Assumption Agreement between Howmet Holdings Ac-
quisition Corp. and Howmet Acquisition Corp., dated as of Decem-
ber 6, 1995 and Indemnification Provisions of the Stock Purchase
Agreement among Pechiney, Pechiney International S.A., Howmet
Cercast S.A. and the Company, dated as of October 12, 1995 (in-
corporated herein by reference to Exhibit 10.23 to Amendment No.
1 to Howmet Corporation's Registration Statement on Form S-4
filed January 17, 1996 (registration no. 333-00200)).
10.18 --Revised Employment Letter dated February 13, 1996, between How-
met Corporation and John C. Ritter (incorporated herein by ref-
erence to Exhibit 10.24 to Amendment No. 3 to Howmet Corpora-
tion's Registration Statement on Form S-4 filed June 11, 1996
(registration no. 333-00200)).
10.19 --Stock Appreciation Right Agreement between Howmet Corporation
and David L. Squier dated May 17, 1996 (incorporated herein by
reference to Exhibit 10.24 to Howmet Corporation's Quarterly Re-
port on Form 10-Q for the quarter ended June 29, 1996, filed Au-
gust 28, 1996).
10.20 --Stock Appreciation Right Agreement between Howmet Corporation
and James Stanley dated May 17, 1996 (incorporated herein by
reference to Exhibit 10.25 to Howmet Corporation's Quarterly Re-
port on Form 10-Q for the quarter ended June 29, 1996, filed Au-
gust 28, 1996).
10.21 --Stock Appreciation Right Agreement between Howmet Corporation
and Mark Lasker dated May 17, 1996 (incorporated herein by ref-
erence to Exhibit 10.26 to Howmet Corporation's Quarterly Report
on Form 10-Q for the quarter ended June 29, 1996, filed August
28, 1996).
10.22 --Stock Appreciation Right Agreement between Howmet Corporation
and John C. Ritter dated May 17, 1996 (incorporated herein by
reference to Exhibit 10.27 to Howmet Corporation's Quarterly Re-
port on Form 10-Q for the quarter ended June 29, 1996, filed Au-
gust 28, 1996).
10.23 --Stock Appreciation Right Agreement between Howmet Corporation
and Roland Paul dated May 17, 1996.**
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
10.24 --Howmet Corporation Amended and Restated Special 1995 Executive
Deferred Compensation Plan effective as of November 1, 1995 (in-
corporated herein by reference to Exhibit 10.30 to Howmet Corpo-
ration's Quarterly Report on Form 10-Q for the quarter ended June
29, 1996, filed August 28, 1996).
10.25 --The Howmet Corporation Nonqualified Deferred Compensation Trust
dated April 29, 1996 (incorporated herein by reference to Exhibit
10.31 to Howmet Corporation's Quarterly Report on Form 10-Q for
the quarter ended June 29, 1996, filed August 28, 1996).
10.26 --Trust Agreement, dated as of December 13, 1995, among Pechiney
Corporation (now Howmet Holdings Corporation), Pechiney Interna-
tional and The First National Bank of Chicago.**
10.27 --Howmet International Inc. 1997 Stock 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>
- --------
* To be filed by amendment.
** Previously filed.
*** Filed herewith.
(B) FINANCIAL STATEMENT SCHEDULES
The following schedules to the Financial Statements of the Company and its
subsidiaries are included in this Registration Statement:
<TABLE>
<CAPTION>
SCHEDULE
--------
<S> <C>
I-- Condensed Financial Information of Howmet International Inc. ..... II- 8
II -- Valuation and Qualifying Accounts and Reserves.................. II-12
</TABLE>
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant undertakes to provide to the underwriter at
the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
(b) The undersigned hereby undertakes that:
1. For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act of 1933 shall be deemed to be part of
this registration statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-7
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF
HOWMET INTERNATIONAL INC. (PARENT COMPANY)
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Investment in subsidiaries................................... $273,715 $247,156
-------- --------
Total assets................................................. $273,715 $247,156
======== ========
REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Redeemable preferred stock................................... $ 54,900 $ 50,235
Stockholders' equity......................................... 218,815 196,921
-------- --------
Total redeemable preferred stock and stockholders' equity.... $273,715 $247,156
======== ========
</TABLE>
See notes to the condensed financial statements.
II-8
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF
HOWMET INTERNATIONAL INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 11, 1995
YEAR ENDED (INCEPTION) TO
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Equity in earnings of subsidiaries........ $25,626 $33
------- -----
Net income................................ 25,626 --
Payment-in-kind dividends on redeemable
preferred stock ......................... (4,665) (235)
------- -----
Net income (loss) applicable to common
stock.................................... $20,961 $(202)
======= =====
</TABLE>
See notes to the condensed financial statements.
II-9
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF
HOWMET INTERNATIONAL INC. (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In the parent company only financial statements, Howmet International Inc.'s
("HII") investments in its wholly-owned subsidiaries are stated at cost plus
the undistributed earnings and cumulative translation adjustments of the
subsidiaries, net of a $4 million payable to a subsidiary.
The parent company only financial statements should be read in conjunction
with HII's consolidated financial statements, included elsewhere in this
Registration Statement.
2. GUARANTEE
At December 31, 1996, HII's subsidiary, Howmet Corporation, had $187 million
of borrowing under its senior credit facilities which were guaranteed by HII
and secured by a security interest in all of the stock owned by HII, except
for 35% of certain foreign subsidiaries.
3. CONTINGENCIES
HII's wholly-owned subsidiary, Howmet Corporation, has received recent test
results indicating levels of polychlorinated biphenyls ("PCBs") at its Dover,
New Jersey facility which will require remediation. These levels have been
reported to the New Jersey Department of Environmental Protection ("NJDEP"),
and Howmet Corporation is preparing a work plan to define the risk and to test
possible clean-up options. The statement of work must be approved by the NJDEP
pursuant to an Administrative Consent Order entered into between Howmet
Corporation and NJDEP on May 20, 1991 regarding clean-up of the site. Various
remedies are possible and could involve expenditures ranging from $2.0 million
to $22.0 million or more. Howmet Corporation has recorded a $2.0 million long-
term liability as of December 31, 1996 for this matter. Given the
uncertainties, it is possible that the estimated range of this cost and the
amount accrued will change within a one to two year period. The
indemnification discussed below applies to the costs associated with this
matter.
In addition to the above, liabilities arising for clean-up costs associated
with hazardous types of materials in several waste disposal facilities exist.
In particular, Howmet Corporation has been or may be named a potentially
responsible party under the Comprehensive Environmental Response, Compensation
and Liability Act or similar state laws at thirteen on-site and off-site
locations. At December 31, 1996, $4.4 million of accrued environmental
liabilities are included in the consolidated balance sheet for such matters.
In connection with the Acquisition, Pechiney International and Pechiney S.A.
indemnified HII for environmental liabilities stemming from events occurring
or conditions existing on or prior to the Acquisition date, to the extent that
such liabilities exceed a cumulative $6.0 million. HII has assigned this
indemnification to Howmet Corporation. This indemnification applies to all of
the aforementioned environmental matters. Pursuant to this indemnification, at
December 31, 1996 Howmet Corporation has recorded a receivable from Pechiney
International and Pechiney S.A. of $2.0 million. Changes in any of the
aforementioned accrued liabilities will result in an equal change in the
amount receivable from Pechiney International and Pechiney S.A.
In addition to the above environmental matters, and unrelated to Howmet
Corporation, HII's wholly-owned subsidiary, Howmet Holdings Corporation, and
Pechiney S.A. are jointly and severally liable for environmental contamination
and related costs associated with certain discontinued mining operations owned
and/or operated by a predecessor-in-interest until the early 1960s. These
liabilities include approximately $20.7 million in remediation and natural
resource damage liabilities at the Blackbird Mine site in Idaho and a minimum
of $4.0 million in investigation and remediation costs at the Holden Mine site
in Washington. Pechiney International and Pechiney S.A. have agreed to
indemnify HII for such liabilities. HII has assigned this indemnification to
II-10
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF
HOWMET INTERNATIONAL INC. (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
Howmet Holdings Corporation. In connection with these environmental matters,
Howmet Holdings Corporation has recorded a $24.7 million liability and an
equal $24.7 million receivable from Pechiney International and Pechiney S.A.
Estimated environmental costs are not expected to materially impact the
financial position or the results of HII's subsidiaries' operations in future
periods. However, environmental clean-up periods are protracted in length and
environmental costs in future periods are subject to changes in environmental
remediation regulations. Any losses which are not covered by the Pechiney
International and Pechiney S.A. indemnifications, and which are in excess of
amounts currently accrued, will be charged to operations in the periods in
which they occur.
4. CASH FLOWS INFORMATION
HII had no cash flows for the year ended December 31, 1996. In the October
11, 1995 to December 31, 1995 period, HII: (i) received $50 million from the
issuance of redeemable preferred stock, (ii) received $200 million from the
issuance of common stock, (iii) returned $4 million to common stockholders and
(iv) invested $246 million in its subsidiaries.
II-11
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
HOWMET INTERNATIONAL INC.
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING TO COSTS OTHER FROM END OF
DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS RESERVES PERIOD
----------- ---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
HOWMET INTERNATIONAL
INC. CONSOLIDATED:
FOR THE YEAR ENDED
DECEMBER 31, 1996
Reserves:
Accounts receivable... $ 8,258 $ 4,385 $ 15 $ (7,035) $ 5,623
Inventories........... 24,351 13,631 (2,233) (12,889) 22,860
Deferred income tax
valuation allowance.. 8,105 (2,250) -- -- 5,855
PERIOD FROM DECEMBER 14,
1995 TO DECEMBER 31,
1995
Reserves:
Accounts receivable... $ 8,375 $ -- $ (96) $ (21) $ 8,258
Inventories........... 20,872 4,850 1,792 (3,163) 24,351
Deferred income tax
valuation allowance.. 7,995 110 -- -- 8,105
HOWMET PREDECESSOR
COMPANY COMBINED:
PERIOD FROM JANUARY 1,
1995 TO DECEMBER 13,
1995
Reserves:
Accounts receivable... $ 6,107 $ 1,288 $ 1,931 $ (951) $ 8,375
Inventories........... 13,501 14,922 (1,342) (6,209) 20,872
Deferred income tax
valuation allowance.. 2,957 5,038 -- -- 7,995
FOR THE YEAR ENDED
DECEMBER 31, 1994
Reserves:
Accounts receivable... $ 6,757 $ 300 $ 1,641 $ (2,571) $ 6,107
Inventories........... 16,294 13,744 1,520 (18,057) 13,501
Deferred income tax
valuation allowance.. 1,415 2,241 -- (699) 2,957
</TABLE>
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this 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 12th 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 12,
JAMES R. WILSON 1997
* Director, President
- ------------------------------------- and Chief Executive November 12,
DAVID L. SQUIER Officer (principal 1997
executive officer)
* Senior Vice
- ------------------------------------- President-- Finance November 12,
JOHN C. RITTER and Chief Financial 1997
Officer (principal
financial officer)
* Corporate Controller
- ------------------------------------- (principal November 12,
GEORGE T. MILANO accounting officer) 1997
* Director
- ------------------------------------- November 12,
WILLIAM E. CONWAY, JR. 1997
* Director
- ------------------------------------- November 12,
FRANK C. CARLUCCI 1997
* Director
- ------------------------------------- November 12,
RICHARD L. CORBIN 1997
* Director
- ------------------------------------- November 12,
EDSEL D. DUNFORD 1997
* Director
- ------------------------------------- November 12,
ALLAN M. HOLT 1997
/s/ Roland Paul
*By: ________________________________
ROLAND A. PAUL,
AS ATTORNEY-IN-FACT
II-13
<PAGE>
Exhibit 3.2
-----------
FORM OF
AMENDED AND RESTATED BY-LAWS
OF
HOWMET INTERNATIONAL INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I - OFFICES................................................................... 1
Section 1. Registered Office................................................. 1
Section 2. Other Offices..................................................... 1
ARTICLE II - MEETINGS OF STOCKHOLDERS................................................. 1
Section 1. Place of Meetings................................................. 1
Section 2. Annual Meeting of Stockholders.................................... 1
Section 3. Quorum; Adjourned Meetings and Notice Thereof..................... 1
Section 4. Voting............................................................ 2
Section 5. Proxies........................................................... 2
Section 6. Special Meetings.................................................. 2
Section 7. Notice of Stockholder's Meetings.................................. 2
Section 8. Notice of Stockholder Business and Nominations.................... 3
Section 9. Maintenance and Inspection of Stockholder List.................... 5
Section 10. Stockholder Action by Written Consent............................. 5
ARTICLE III - DIRECTORS............................................................... 6
Section 1. Number of directors............................................... 6
Section 2. Vacancies......................................................... 6
Section 3. Powers............................................................ 6
Section 4. Place of Directors' Meetings...................................... 7
Section 5. Regular Meetings.................................................. 7
Section 6. Special Meetings.................................................. 7
Section 7. Quorum............................................................ 7
Section 8. Action Without Meeting............................................ 7
Section 9. Telephonic Meetings............................................... 7
Section 10. Committees of Directors........................................... 8
Section 11. Compensation...................................................... 8
ARTICLE IV - OFFICERS................................................................. 9
Section 1. Officers.......................................................... 9
Section 2. Election of Officers.............................................. 9
Section 3. Subordinate Officers.............................................. 9
Section 4. Compensation of Officers.......................................... 9
Section 5. Term of Office; Removal and Vacancies............................. 9
Section 6. Chairman of the Board............................................. 9
Section 7. President.........................................................10
Section 8. Vice Presidents...................................................10
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 9. Secretary.........................................................10
Section 10. Assistant Secretaries.............................................11
Section 11. Treasurer.........................................................11
Section 12. Assistant Treasurer...............................................11
ARTICLE V - CERTIFICATES OF STOCK.....................................................11
Section 1. Certificates......................................................11
Section 2. Signatures on Certificates........................................12
Section 3. Statement of Stock Rights, Preferences, Privileges................12
Section 4. Lost Certificates.................................................12
Section 5. Transfers of Stock................................................12
Section 6. Fixing Record Date................................................13
Section 7. Registered Stockholders...........................................13
ARTICLE VI - INDEMNIFICATION..........................................................13
Section 1. Actions by Others.................................................13
Section 2. Actions by or in the Right of the Corporation.....................14
Section 3. Successful Defense................................................14
Section 4. Right to Indemnification..........................................15
Section 5. Specific Authorization............................................15
Section 6. Suit Against Corporation..........................................15
Section 7. Corporation Bound.................................................16
Section 8. Preclusion........................................................16
Section 9. Right of Indemnity not Exclusive..................................16
Section 10. Insurance.........................................................17
Section 11. Invalidity of any Provisions of this Article......................17
Section 12. Definitions.......................................................17
Section 13. Notice............................................................19
ARTICLE VII - GENERAL PROVISIONS......................................................20
Section 1. Dividends.........................................................20
Section 2. Funds Available for Contigencies..................................20
Section 3. Checks............................................................20
Section 4. Fiscal Year.......................................................20
Section 5. Corporate Seal....................................................20
Section 6. Manner of Giving Notice...........................................20
Section 7. Waiver of Notice..................................................21
Section 8. Annual Statement..................................................21
ARTICLE VIII - AMENDMENTS.............................................................21
Section 1. Amendment by Directors or Stockholders............................21
</TABLE>
ii
<PAGE>
ARTICLE I
OFFICES
-------
Section 1. Registered Office. The address of the registered office of
-----------------
the Corporation in the State of Delaware is The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. The
name of its registered agent at such address is The Corporation Trust Company.
Section 2. Other Offices. The Corporation may also have offices at such
-------------
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Place of Meetings. Meetings of stockholders shall be held
-----------------
at any place within or outside the State of Delaware designated by the Board of
Directors. In the absence of any such designation, stockholders' meetings shall
be held at the principal executive office of the Corporation.
Section 2. Annual Meeting of Stockholders. The annual meeting of
------------------------------
stockholders shall be held each year on a date and a time designated by the
Board of Directors. At each annual meeting directors shall be elected and any
other proper business may be transacted.
Section 3. Quorum; Adjourned Meetings and Notice Thereof. A majority of
---------------------------------------------
the stock issued and outstanding and entitled to vote at any meeting of
stockholders, the holders of which are present in person or represented by
proxy, shall constitute a quorum for the transaction of business except as
otherwise provided by law, by the Certificate of Incorporation, or by these By-
Laws. A quorum, once established, shall not be broken by the withdrawal of
enough votes to leave less than a quorum and the votes present may continue to
transact business until adjournment. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, the Chairman of a
meeting or a majority of the voting stock represented in person or by proxy may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the ad-
1
<PAGE>
journed meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote thereat.
Section 4. Voting. When a quorum is present at any meeting, the vote of
------
the holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes, or
the Certificate of Incorporation, or these By-Laws, a different vote is
required, in which case such express provision shall govern and control the
decision of such question.
Section 5. Proxies. At each meeting of the stockholders, each
-------
stockholder having the right to vote may vote in person or may authorize another
person or persons to act for him by proxy appointed by an instrument in writing
subscribed by such stockholder and bearing a date not more than three years
prior to said meeting, unless said instrument provides for a longer period. All
proxies must be filed with the Secretary of the Corporation at the beginning of
each meeting in order to be counted in any vote at the meeting. Each stockholder
shall have one vote for each share of stock having voting power (unless a
different number of votes is specified in the Certificate of Incorporation with
respect to the class or series of stock represented by such share), registered
in his name on the books of the Corporation on the record date set by the Board
of Directors as provided in Article V, Section 6 hereof. All elections shall be
had and all questions decided by a plurality vote.
Section 6. Special Meetings. Special meetings of the stockholders, for
----------------
any purpose, or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called only by the Chairman of the Board of
Directors or by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of directors which the Corporation would have if
there were no vacancies. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
Section 7. Notice of Stockholder's Meetings. Whenever stockholders are
--------------------------------
required or permitted to take any action at a meeting, a written notice of the
meeting shall be given which notice shall state the place, date and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. The written notice of any meeting shall be given
to each stockholder entitled to vote at such meeting not less than ten nor more
than sixty days before the date of the meeting. If mailed, notice is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the Corporation.
2
<PAGE>
Section 8. Notice of Stockholder Business and Nominations. (A) Annual
---------------------------------------------- ------
Meeting of Stockholders. (1) Nominations of persons for election to the Board
- -----------------------
of Directors of the Corporation and the proposal of business to be considered by
the stockholders may be made at an annual meeting of stockholders (a) pursuant
to the Corporation's notice of meeting, (b) by or at the direction of the Board
of Directors or (c) by any stockholder of the Corporation who was a stockholder
of record at the time of giving of notice provided for in this Section 8, who is
entitled to vote at the meeting and who complies with the notice procedures set
forth in this Section 8.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of
this Section 8, the stockholder must have given timely notice thereof in writing
to the Secretary of the Corporation and such other business must otherwise be a
proper matter for stockholder action. To be timely, a stockholder's notice shall
be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 60th day nor earlier
than the close of business on the 90th day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is more than 30 days before or more than 60 days
after such anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the 90th day prior to such
annual meeting and not later than the close of business on the later of the 60th
day prior to such annual meeting or the 10th day following the day on which
public announcement of the date of such meeting is first made by the
Corporation. In no event shall the public announcement of an adjournment of an
annual meeting commence a new time period for the giving of a stockholder's
notice as described above. Such stockholder's notice shall set forth (a) as to
each person whom the stockholder proposes to nominate for election or reelection
as a director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors in an election
contest, or is otherwise required, in each case pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule
14a-11 thereunder (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected); (b) as to
any other business that the stockholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the
3
<PAGE>
nomination or proposal is made (i) the name and address of such stockholder, as
they appear on the Corporation's books, and of such beneficial owner and (ii)
the class and number of shares of the Corporation which are owned beneficially
and of record by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2) of
this Section 8 to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Corporation is increased and there is
no public announcement by the Corporation naming all of the nominees for
director or specifying the size of the increased Board of Directors at least 70
days prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice required by this By-Law shall also be considered timely,
but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary at the principal executive
offices of the Corporation not later than the close of business on the 10th day
following the day on which such public announcement is first made by the
Corporation.
(B) Special Meeting of Stockholders. Only such business shall be
-------------------------------
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice
provided for in this Section 8, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this Section 8. In the
event the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by paragraph (A)(2) of this Section 8 shall be
delivered to the Secretary at the principal executive offices of the Corporation
not earlier than the close of business on the 90th day prior to such special
meeting and not later than the close of business on the later of the 60th day
prior to such special meeting or the 10th day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting. In no
event shall the public announcement of an adjournment of a special meeting
commence a new time period for the giving of a stockholder's notice as described
above.
4
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(C) General. (1) Only such persons who are nominated in accordance with
-------
the procedures set forth in this Section 8 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this By-Law. Except as otherwise provided by law, the Certificate
of Incorporation or these By-Laws, the Chairman of the meeting shall have the
power and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in this By-Law and, if any proposed
nomination or business is not in compliance with this By-Law, to declare that
such defective proposal or nomination shall be disregarded.
(2) For purposes of this Section 8, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 8, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this By-Law. Nothing in this Section 8 shall be deemed to affect any
rights (i) of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) of the holders of any series of Preferred Stock to elect directors under
specified circumstances.
(4) Maintenance and Inspection of Stockholder List. The officer who has
----------------------------------------------
charge of the stock ledger of the Corporation shall prepare and make, at least
ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
5
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Section 10. Stockholder Action by Written Consent. Stockholders may act
-------------------------------------
by written consent in lieu of a meeting only in accordance with Article VIII
of the Certificate of Incorporation.
ARTICLE III
DIRECTORS
---------
Section 1. Number of Directors. The number of directors which shall
-------------------
constitute the whole Board of Directors shall be not less than three (3) and not
more than twelve (12). The exact number of directors shall be determined by
resolution adopted by a majority of the number of directors the Board would have
if there were no vacancies, and the initial number of directors shall be [eight
(8)]. The directors need not be stockholders. The directors shall be elected
at the annual meeting of the stockholders and, except as provided in Section 2
of this Article III, each director elected shall hold office until his successor
is elected and qualified; provided, however, that unless otherwise restricted by
-------- -------
the Certificate of Incorporation or By-Laws, any director or the entire Board of
Directors may be removed, either with or without cause, from the Board of
Directors by holders of a majority of the voting power of the shares of capital
stock of the Corporation entitled to vote at an election of directors.
Section 2. Vacancies. Vacancies on the Board of Directors by reason of
---------
death, resignation, retirement, disqualification, removal from office, or
otherwise, and newly created directorships resulting from any increase in the
authorized number of directors may be filled by a majority of the directors then
in office, although less than a quorum, or by a sole remaining director. The
directors so chosen shall hold office until the next annual election of
directors and until their successors are duly elected and shall qualify, unless
sooner replaced by a vote of the shareholders. If there are no directors in
office, then an election of directors may be held in the manner provided by
statute.
Section 3. Powers. The property and business of the Corporation shall
------
be managed by or under the direction of its Board of Directors. In addition to
the powers and authorities by these By-Laws expressly conferred upon them, the
Board may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute or by the Certificate of Incorporation or
by these By-Laws directed or required to be exercised or done by the
stockholders.
6
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Section 4. Place of Directors' Meetings. The directors may hold their
----------------------------
meetings and have one or more offices, and keep the books of the Corporation
outside of the State of Delaware.
Section 5. Regular Meetings. Regular meetings of the Board of Directors
----------------
may be held without notice at such time and place as shall from time to time be
determined by the Board.
Section 6. Special Meetings. Special meetings of the Board of Directors
----------------
may be called by the Chairman of the Board on forty-eight hours' notice to each
director, sent personally, by mail, by telegram, by telecopier, by electronic
mail or by courier service; special meetings shall be called by the Chairman of
the Board or the Secretary in like manner and on like notice on the written
request of two directors.
Section 7. Quorum. At all meetings of the Board of Directors a majority
------
of the authorized number of directors shall be necessary and sufficient to
constitute a quorum for the transaction of business, and the vote of a majority
of the directors present at any meeting at which there is a quorum, shall be the
act of the Board of Directors, except as may be otherwise specifically provided
by statute, by the Certificate of Incorporation or by these By-Laws. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
If only one director is authorized, such sole director shall constitute a
quorum. At any meeting, a director shall have the right to be accompanied by
counsel, provided that such counsel shall agree to any confidentiality
restrictions reasonably imposed by the Corporation.
Section 8. Action Without Meeting. Unless otherwise restricted by the
----------------------
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee.
Section 9. Telephonic Meetings. Unless otherwise restricted by the
-------------------
Certificate of Incorporation or these By-Laws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any committee, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such par-
7
<PAGE>
ticipation in a meeting shall constitute presence in person at such meeting.
Section 10. Committees of Directors. (a) The Board of Directors may, by
-----------------------
resolution passed by a majority of the whole Board, designate one or more
committees, each such committee to consist of one or more of the directors of
the Corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member of
a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to amending the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, recommending
to the stockholders a dissolution of the Corporation or a revocation of a
dissolution, or amending the By-Laws of the Corporation; and, unless the
resolution or the Certificate of Incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
(b) Each committee shall keep regular minutes of its meetings and report
the same to the Board of Directors when required.
Section 11. Compensation. Unless otherwise restricted by the Certificate
------------
of Incorporation or these By-Laws, the Board of Directors shall have the
authority to fix the compensation of directors. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
8
<PAGE>
ARTICLE IV
OFFICERS
--------
Section 1. Officers. The officers of this corporation shall be chosen
--------
by the Board of Directors and shall include a President, a Secretary, and a
Treasurer. The Corporation may also have, at the discretion of the Board of
Directors, such other officers as are desired, including a Chairman of the
Board, one or more Vice Presidents, one or more Assistant Secretaries and
Assistant Treasurers, and such other officers as may be appointed in accordance
with the provisions of Section 3 hereof. In the event there are two or more Vice
Presidents, then one or more may be designated as Executive Vice President,
Senior Vice President, or other similar or dissimilar title. At the time of the
election of officers, the directors may by resolution determine the order of
their rank. Any number of offices may be held by the same person unless the
Certificate of Incorporation or these By-Laws otherwise provide.
Section 2. Election of Officers. The Board of Directors, at its first
--------------------
meeting after each annual meeting of stockholders, shall choose the officers of
the Corporation.
Section 3. Subordinate Officers. The Board of Directors or the
--------------------
President may appoint such other officers and agents as it shall deem necessary
who shall hold their offices for such terms and shall exercise such powers and
perform such duties as shall be determined from time to time by the Board.
Section 4. Compensation of Officers. The salaries of all officers and
------------------------
agents of the Corporation shall be fixed by the Board of Directors.
Section 5. Term of Office; Removal and Vacancies. The officers of the
-------------------------------------
Corporation shall hold office until their successors are chosen and qualify in
their stead. Any officer elected or appointed by the Board of Directors may be
removed at any time by the affirmative vote of a majority of the Board of
Directors. If the office of any officer or officers elected or appointed by the
Board of Directors becomes vacant for any reason, the vacancy shall be filled by
the Board of Directors.
Section 6. Chairman of the Board. The Chairman of the Board, if any,
---------------------
shall, if present, preside at all meetings of the Board of Directors and of
stockholders and exercise and perform such other powers and duties as may be
from time to time assigned to him by the Board of Directors or prescribed by
these By-Laws. If there is no President, the Chairman of the Board shall in
addition be the Chief Executive Officer of the Corporation and
9
<PAGE>
shall have the powers and duties prescribed in Section 7 of this Article IV.
Section 7. President. Subject to such supervisory powers, if any, as
---------
may be given by the Board of Directors to the Chairman of the Board, if there be
such an officer, the President shall be the Chief Executive Officer of the
Corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
Corporation. In the absence of the Chairman of the Board, or if there be none,
the President shall preside at all meetings of stockholders and at all meetings
of the Board of Directors. He shall be an ex-officio member of all committees
and shall have the general powers and duties of management usually vested in the
office of President and Chief Executive Officer of corporations, and shall have
such other powers and duties as may be prescribed by the Board of Directors or
these By-Laws.
Section 8. Vice Presidents. In the absence or disability of the
---------------
President, the Vice Presidents in order of their rank as fixed by the Board of
Directors, or if not ranked, the Vice President designated by the Board of
Directors or the President, or if not so designated, in the order of their
seniority of service in the position, shall perform all the duties of the
President, and when so acting shall have all the powers of and be subject to all
the restrictions upon the President. Without limiting the authority of any other
officer, each Vice President shall have authority to execute contracts and
similar documents on behalf of the Corporation and shall have such other duties
as from time to time may be prescribed for him or her by the Board of Directors.
Section 9. Secretary. The Secretary shall attend all sessions of the
---------
Board of Directors and all meetings of the stockholders and record all votes and
the minutes of all proceedings in a book to be kept for that purpose; and shall
perform like duties for the standing committees when required by the Board of
Directors. He shall give, or cause to be given, notice of all meetings of the
stockholders and of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or these By-Laws.
He shall keep in safe custody the seal of the Corporation, and when
authorized by the Board, affix the same to any instrument requiring it, and when
so affixed it shall be attested by his signature or by the signature of an
Assistant Secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the Corporation and to attest the affixing by
his signature.
10
<PAGE>
Section 10. Assistant Secretaries. The Assistant Secretary, or if there
---------------------
be more than one, any Assistant Secretary shall, in the absence or disability of
the Secretary, perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
Section 11. Treasurer. The Treasurer shall have the custody of the
---------
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys, and other valuable effects in the name and to the credit of
the Corporation, in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements, and shall
render to the Board of Directors, at its regular meetings, or when the Board of
Directors so requires, an account of all his transactions as Treasurer and of
the financial condition of the Corporation. If required by the Board of
Directors, he shall give the Corporation a bond, in such sum and with such
surety or sureties as shall be satisfactory to the Board of Directors, for the
faithful performance of the duties of his office and for the restoration to the
Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
Section 12. Assistant Treasurer. The Assistant Treasurer, or if there
-------------------
shall be more than one, any Assistant Treasurer shall, in the absence or
disability of the Treasurer, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
ARTICLE V
CERTIFICATES OF STOCK
---------------------
Section 1. Certificates. Every holder of stock of the Corporation shall
------------
be entitled to have a certificate signed by, or in the name of the Corporation
by, the Chairman or Vice Chairman of the Board of Directors, or the President or
a Vice President, and by the Secretary or an Assistant Secretary, or the
Treasurer or an Assistant Treasurer of the Corporation, certifying the number of
shares represented by the certificate owned by such stockholder in the
Corporation.
Section 2. Signature on Certificates. Any or all of the signatures on
-------------------------
the certificate may be a facsimile. In case
11
<PAGE>
any officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue.
Section 3. Statement of Stock Rights, Preferences, Privileges. If the
--------------------------------------------------
Corporation shall be authorized to issue more than one class of stock or more
than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualification, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the Corporation shall issue to represent such
class or series of stock, provided that, except as otherwise provided in Section
202 of the General Corporation Law of Delaware (the "DGCL"), in lieu of the
foregoing requirements, there may be set forth on the face or back of the
certificate which the Corporation shall issue to represent such class or series
of stock, a statement that the Corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Section 4. Lost Certificates. The Board of Directors may direct a new
-----------------
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 5. Transfer of Stock. Upon surrender to the Corporation, or the
-----------------
transfer agent of the Corporation, of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, the Corporation shall issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its book.
12
<PAGE>
Section 6. Fixing Record Date. In order that the Corporation may
------------------
determine the stockholders entitled to notice of or to vote at any meeting of
the stockholders, or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date which shall not be more than sixty nor less than ten days before the
date of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 7. Registered Stockholders. The Corporation shall
-----------------------
be entitled to treat the holder of record of any share or shares of stock as
the holder in fact thereof and accordingly shall not be bound to recognize any
equitable or other claim or interest in such share on the part of any other
person, whether or not it shall have express or other notice thereof, save as
expressly provided by the laws of the State of Delaware.
ARTICLE VI
INDEMNIFICATION
---------------
Section 1. Actions by Others. The Corporation (1) shall
-----------------
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that he is or was a director
or an officer of the Corporation and (2) except as otherwise required by Section
3 of this Article VI, may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was an employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee,
agent of or participant in another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no
13
<PAGE>
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
---- ----------
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 2. Actions by or in the Right of the Corporation.
---------------------------------------------
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he or she is or was a director or officer of the
Corporation, and the Corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he or she is or was an employee or agent of
the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee, agent of or participant in another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection with the defense or settlement of such action or suit if he or she
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his or her duty to the Corporation unless and
only to the extent that the Delaware Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Delaware Court of Chancery or such other court shall deem proper.
Section 3. Successful Defense. To the extent that a person
------------------
who is or was a director, officer, employee or agent of the Corporation has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1 or Section 2 of this Article, or in defense
of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
14
<PAGE>
Section 4. Right to Indemnification. The right to
------------------------
indemnification conferred in this Article VI shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition, such expenses
to be paid by the Corporation within 20 days after the receipt by the
Corporation of a statement or statements from the claimant requesting such
payment or payments of expenses from time to time; provided, however, that if
-------- -------
the DGCL requires, the payment of such expenses incurred by a director or
officer in his or her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding, shall be made only upon
delivery to the Corporation of an undertaking by or on behalf of such director
or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Article VI or otherwise.
Section 5. Specific Authorization. To obtain
----------------------
indemnification under this Article VI, a claimant shall submit to the
Corporation a written request, including therein or therewith such documentation
and information as is reasonably available to the claimant and is reasonably
necessary to determine whether and to what extent the claimant is entitled to
indemnification. Any indemnification under Section 1 or Section 2 of this
Article VI (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in said Sections 1 and 2 of
this Article VI. Such determination shall be made by (a) the stockholders, (b)
the Disinterested Directors or a committee of such Disinterested Directors
designated by the Disinterested Directors by majority vote, in either case even
though less than a quorum, or (c) if (1) there are no Disinterested Directors or
if the Disinterested Directors by majority vote so direct, or (2) a Change of
Control shall have occurred, then, in the case of either of clauses (1) and (2)
of this clause (c), by an Independent Counsel in a written opinion, which
Independent Counsel shall be selected by a majority vote of a quorum of
Disinterested Directors or, if there are no Disinterested Directors or if a
Change of Control shall have occurred, by the claimant. If it is so determined
that the claimant is entitled to indemnification, payment to the claimant shall
be made within 10 days after such determination.
Section 6. Suit Against Corporation. If a claim under
------------------------
Section 1 or 2 of this Article VI is not paid in full by the Corporation within
30 days after a written claim pursuant to Section 5 of this Article VI has been
received by the Corporation, the
15
<PAGE>
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought
to enforce a claim for expenses incurred in defending any proceeding in advance
of its final disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has not met the standard of
conduct which makes it permissible under the DGCL or this Article VI for the
Corporation to indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, Independent Counsel or
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
DGCL or this Article VI, nor an actual determination by the Corporation
(including its Board of Directors, Independent Counsel or stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
Section 7. Corporation Bound. If a determination shall
-----------------
have been made pursuant to Section 5 of this Article VI that the claimant is
entitled to indemnification, the Corporation shall be bound by such
determination in any judicial proceeding commenced pursuant to Section 6 of this
Article VI.
Section 8. Preclusion. The Corporation shall be precluded
----------
from asserting in any judicial proceeding commenced pursuant to Section 6 of
this Article VI that the procedures and presumptions of this Article VI are not
valid, binding and enforceable and shall stipulate in such proceeding that the
Corporation is bound by all the provisions of this Article VI.
Section 9. Right of Indemnity Not Exclusive. The
--------------------------------
indemnification and advancement of expenses provided by this Article shall not
be deemed exclusive of any other rights to which those seeking indemnification
may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.
Section 10. Insurance. The Corporation may purchase and
---------
maintain insurance on behalf of any person who is or was a
16
<PAGE>
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of or
participant in another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this Article, Section 145 of the DGCL or otherwise.
Section 11. Invalidity of any Provisions of this Article.
--------------------------------------------
The invalidity or unenforceability of any provision of this Article VI shall
not affect the validity or enforceability of the remaining provisions of this
Article VI, and, to the fullest extent possible, such provisions of this Article
VI (including, without limitation, each such portion of any Section of this
Article VI containing any such provision held to be invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
Section 12. Definitions. For purposes of this Article VI:
-----------
(A) "Change of Control" means:
(1) the acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of voting securities of the Corporation
where such acquisition causes such Person to own 20% or more of the
combined voting power of the then outstanding voting securities of the
Corporation entitled to vote generally in the election of directors (the
"Outstanding Corporation Voting Securities"); provided, however, that for
-------- -------
purposes of this paragraph (1), the following acquisitions shall not be
deemed to result in a Change of Control: (i) any acquisition by Thiokol
Corporation, a Delaware corporation("Thiokol"), (ii) any acquisition
directly from the Corporation, (iii) any acquisition by the Corporation,
(iv) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Corporation or any corporation controlled by
the Corporation or (v) any acquisition by any corporation pursuant to a
transaction that complies with clauses (i), ( ii) and (iii) of paragraph
(3) below; provided, further, that if any Person's beneficial ownership of
-------- -------
the Outstanding Corporation Voting Securities reaches or exceeds 20% as a
result of a transaction described in clause (ii) or (iii) above, and such
Person subsequently acquires
17
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beneficial ownership of additional voting securities of the Corporation,
such subsequent acquisition shall be treated as an acquisition that causes
such Person to own 20% or more of the Outstanding Corporation Voting
Securities; and provided, further, that if at least a majority of the
-------- -------
members of the Incumbent Board (as defined below) determines in good faith
that a Person has acquired beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of the Outstanding
Corporation Voting Securities inadvertently, and such Person divests as
promptly as practicable a sufficient number of shares so that such Person
beneficially owns (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) less than 20% of the Outstanding Corporation Voting
Securities, then no Change of Control shall have occurred as a result of
such Person's acquisition; or
(2) individuals who, as of ___________, 1997, constitute the
Board of Directors (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board of Directors; provided,
--------
however, that any individual becoming a director subsequent to __________
-------
__, 1997, whose election, or nomination for election by the Corporation's
stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board, or by Thiokol, shall be
considered a member of the Incumbent Board, except that, for this purpose,
any such individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board of Directors
shall not be considered a member of the Incumbent Board; or
(3) the consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of
the assets of the Corporation or the acquisition of assets of another
corporation ("Business Combination"); excluding, however, such a Business
Combination (i) involving Thiokol or any of its affiliates or (ii) pursuant
to which (A) all or substantially all of the individuals and entities who
were the beneficial owners of the Outstanding Corporation Voting Securities
immediately prior to such Business Combination beneficially own, directly
or indirectly, more than 60% of, respectively, the then outstanding shares
of common stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors,
as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation that as a
18
<PAGE>
result of such transaction owns the Corporation or all or substantially all
of the Corporation's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding
Corporation Voting Securities, (B) no Person (excluding any employee
benefit plan (or related trust) of the Corporation or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such Business Combination or
the combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (C) at least a majority of the members of the
board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board of
Directors, providing for such Business Combination; or
(4) approval by the stockholders of the Corporation of a
complete liquidation or dissolution of the Corporation.
(B) "Disinterested Director" means a director of the Corporation who is
not and was not a party to the matter in respect of which indemnification is
sought by the claimant.
(C) "Independent Counsel" means a law firm, a member of a law firm, or
an independent practitioner, that is experienced in matters of corporation law
and shall include any person who, under the applicable standards of professional
conduct then prevailing, would not have a conflict of interest in representing
either the Corporation or the claimant in an action to determine the claimant's
rights under this Article VI.
Section 13. Notice. Any notice, request or other communication
------
required or permitted to be given to the Corporation under this Article VI
shall be in writing and either delivered in person or sent by telecopy, telex,
telegram, overnight mail or courier service, or certified or registered mail,
postage prepaid, return receipt requested, to the Secretary of the Corporation
and shall be effective only upon receipt by the Secretary.
19
<PAGE>
ARTICLE VII
GENERAL PROVISIONS
------------------
Section 1. Dividends. Dividends upon the capital stock of
---------
the Corporation, subject to the provisions of the Certificate of Incorporation,
if any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 2. Funds Available for Contigencies. Before payment of
--------------------------------
any dividend there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the directors from time to time, in
their absolute discretion, think proper as a reserve fund to meet contingencies,
or for equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the directors shall think conducive to
the interests of the Corporation, and the directors may abolish any such
reserve.
Section 3. Checks. All checks or demands for money and notes of
------
the Corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
Section 4. Fiscal Year. The fiscal year of the Corporation
-----------
shall be the calendar year.
Section 5. Corporate Seal. The corporate seal shall have
--------------
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware". Said seal may be used by causing it, a
facsimile thereof or a recitation of the words on it to be impressed or affixed
or reproduced or otherwise.
Section 6. Manner of Giving Notice. Whenever, under the
-----------------------
provisions of the statutes or of the Certificate of Incorporation or of these
By-Laws, notice is required to be given to any director or stockholder, it shall
not be construed to mean personal notice, but such notice may be given in
writing, by mail, addressed to such director or stockholder, at his address as
it appears on the records of the Corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Notice to directors may also be given, and
shall be given in case of any notice of meeting sent less than 96 hours prior to
such meeting, by telegram, telecopier, electronic mail or courier service.
20
<PAGE>
Section 7. Waiver of Notice. Whenever any notice is required to
----------------
be given under the provisions of the statutes or of the Certificate of
Incorporation or of these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. Presence at a meeting
without objection to the absence or form of notice shall also constitute a
waiver of such notice.
Section 8. Annual Statement. The Board of Directors shall
----------------
present at each annual meeting, and at any special meeting of the stockholders
when called for by vote of the stockholders, a full and clear statement of the
business and condition of the Corporation.
ARTICLE VIII
AMENDMENTS
----------
Section 1. Amendment by Directors or Stockholders. These By-Laws
--------------------------------------
may be altered, amended or repealed or new By-Laws may be adopted by the
stockholders or by the Board of Directors at any regular meeting of the
stockholders or of the Board of Directors or at any special meeting of the
stockholders or of the Board of Directors if notice of such alteration,
amendment, repeal or adoption of new By-Laws be contained in the notice of such
special meeting. If the power to adopt, amend or repeal By-Laws is conferred
upon the Board of Directors by the Certificate of Incorporation it shall not
divest or limit the power of the stockholders to adopt, amend or repeal By-Laws.
21
<PAGE>
EXHIBIT 4.2
IPO AGREEMENT
IPO Agreement, dated as of October 8, 1997 ("this Agreement"), by and among
Thiokol Corporation, a Delaware corporation ("Thiokol"), Thiokol Holding
Company, a Delaware corporation and a wholly owned subsidiary of Thiokol
("Holding"), Carlyle-Blade Acquisition Partners, L.P., a Delaware limited
partnership ("Carlyle") and Howmet International Inc., a Delaware corporation
formerly named Blade Acquisition Corp. (the "Company") (individually, a "Party"
and collectively, the "Parties").
WHEREAS, after giving effect to a 10,000-for-1 stock split (the "Stock
Split") of the outstanding shares of Common Stock, par value $.01 per share (the
"Common Stock"), of the Company, Carlyle owns 51,000,000 shares of Common Stock
and Holding owns 49,000,000 shares of Common Stock;
WHEREAS, Carlyle, Holding, the Company and Thiokol desire to engage in
certain transactions pursuant to which, among other things:
(i) Carlyle would offer shares of Common Stock for sale through an initial
public offering (the "IPO"); and
(ii) Holding would purchase from Carlyle and Carlyle would sell to Holding
11,000,000 shares of Common Stock with an option for Holding to purchase from
Carlyle up to an additional 4,000,000 shares of Common Stock upon the earlier of
(a) Holding's receipt of a notice from Carlyle that the underwriters of the IPO
have elected to exercise the underwriters' over-allotment option for additional
shares of Common Stock pursuant to the U.S. Underwriting Agreement (the
"Underwriting Agreement") or (b) 30 days after the date of the Underwriting
Agreement;
NOW THEREFORE, in consideration of the above premises and mutual agreements
set forth in this Agreement and subject to the terms and conditions stated
herein, the Parties hereby agree as follows:
<PAGE>
ARTICLE I
IPO
1.01 ACTIONS TO BE TAKEN PRIOR TO CLOSING OF IPO.
Thiokol, Holding, Carlyle and the Company shall each take all required
corporate action to cause the Company to file a Registration Statement on Form
S-1 (the "Registration Statement") to register the sale of shares of Common
Stock to be sold by Carlyle in the IPO equal to the greater of 20% of the
outstanding shares of Common Stock or $325 million (the "Offered Shares"), plus
an option for an additional number shares of Common Stock equal to 15% of the
Offered Shares (collectively, the "IPO Shares") that may be sold by Carlyle in
connection with the exercise by the underwriters for the IPO of an over-
allotment option (the "Over-allotment Option") pursuant to the terms of the
Underwriting Agreement. The Parties agree that Morgan Stanley & Co. Incorporated
and Lehman Brothers shall act as the co-managers for the IPO. The Parties agree
to use their respective best efforts to list the Common Stock for trading on the
New York Stock Exchange, Inc. and to make any filings required under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"). In
connection with the IPO, the Parties shall effect the Stock Split. All
references to numbers of shares of Common Stock in this Agreement assume
completion of the Stock Split.
1.02 ACTIONS TO BE TAKEN ON THE IPO CLOSING DATE.
(a) Effective as of the closing date of the IPO (the "Closing Date"), the
Parties hereby agree to effect the following transactions:
(i) The Certificate of Incorporation of the Company shall be amended and
restated in the form set forth as EXHIBIT A hereof, including, among
other things, to eliminate the provisions for mandatory redemption of
the 9% Series A Cumulative Preferred Stock of the Company upon the
sale by Carlyle or its Affiliates of more than 25% of the outstanding
Common Stock, and filed with the Secretary of State of Delaware;
(ii) The Bylaws of the Company shall be amended and restated in the form
set forth in EXHIBIT B hereof;
(iii) The Boards of Directors of the Company, Howmet Holdings Corporation
and Howmet Corporation ("Howmet") shall each be reconstituted in the
manner set forth in EXHIBIT C hereof;
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<PAGE>
(iv) The Shareholders' Agreement dated as of December 13, 1995 by and
among Holding, Carlyle and the Company (the "1995 Shareholders
Agreement") shall be amended and restated in the form set forth as
EXHIBIT D hereof (the "Amended and Restated Shareholders Agreement");
(v) The Registration Rights Agreement dated December 13, 1995 by and
among the Company, Holding and Carlyle ("1995 Registration Rights
Agreement") shall be terminated, and the Company and Carlyle shall
execute and deliver the 1997 Registration Rights Agreement in the
form set forth as EXHIBIT E hereof;
(vi) The Standstill Agreement dated as of December 13, 1995 by and among
Holding, Carlyle, TC Group L.L.C., TCG Holdings L.L.C., Carlyle
Partners II, L.P. and Carlyle Partners III, L.P. ("1995 Standstill
Agreement") shall be terminated, and such parties shall execute and
deliver to each of the respective parties set forth therein the 1997
Standstill Agreement set forth in EXHIBIT F hereof;
(vii) The TCG Management Agreement, dated December 13, 1995 by and between
Howmet, and TCG Holdings L.L.C. ("1995 TCG Management Agreement")
shall be amended and restated in the form set forth in EXHIBIT G;
(viii) The Amended and Restated Holding Management Agreement, dated as of
December 13, 1995, by and among Howmet, Holding and Thiokol ("1995
Holding Management Agreement") shall be terminated, and the Company
and Thiokol shall enter into the Intercompany Services Agreement in
the form reasonably approved by the Parties;
(ix) The Company, Thiokol and Holding shall execute and deliver the
Corporate Agreement in the form set forth as EXHIBIT H hereof; and
(x) Carlyle and Holding shall consummate the Stock Purchase (as defined
in ARTICLE II).
(b) In connection with the IPO, (i) the Company agrees to indemnify and
hold harmless Carlyle and each of its officers, directors, employees and agents
and each Person who controls Carlyle within the meaning of either Section 15 of
the Securities Act of 1933, as amended (the "Securities Act"), or Section 20 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), (each such
person constituting an "Indemnified Holder") to the extent set forth in Section
7(a) of the 1997 Registration Rights Agreement; (ii) Carlyle agrees to indemnify
the Company, its officers and directors and each Person
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<PAGE>
who controls the Company within the meaning of either Section 15 of the
Securities Act, or Section 20 of the Exchange Act, to the extent set forth in
Section 7(b) of the 1997 Registration Rights Agreement; and (iii) if the
foregoing indemnification is unavailable (other than by reason of exceptions
provided in Section 7(a) or Section 7(b) of the 1997 Registration Rights
Agreement), the parties shall make contribution to the extent set forth in
Section 7(c) of the 1997 Registration Rights Agreement. For purposes of the
foregoing, (x) the terms "Registration Statement" and "Prospectus" as used in
Section 7 of the 1997 Registration Rights Agreement, shall have the meanings
assigned to such terms in the Underwriting Agreement; and (y) any amounts
payable to or for the benefit of the underwriters pursuant to the
indemnification or contribution provisions of the Underwriting Agreement or the
International Underwriting Agreement, shall constitute "losses, claims, damages,
liabilities and expenses" covered by the indemnification and contribution
provisions of the preceding sentence.
ARTICLE II
STOCK PURCHASE
2.01 STOCK PURCHASE.
As of the Closing Date, and simultaneously with the IPO, Carlyle shall sell
to Holding and Holding shall purchase from Carlyle (the "Stock Purchase")
11,000,000 shares of Common Stock (the "Purchased Shares"), representing 11% of
the issued and outstanding shares of Common Stock. The purchase price per
Purchased Share shall equal the initial public offering price for the IPO
Shares, less an amount equal to the underwriting discounts and commissions
applicable to an IPO Share.
2.02 DELIVERIES.
On the Closing Date, Holding and Carlyle shall make the deliveries set
forth in ARTICLE VI.
ARTICLE III
4% OPTION
3.01 GRANT OF OPTION.
Carlyle hereby grants to Holding an option (the "4% Option") to purchase
from Carlyle up to an additional 4,000,000 shares of Common Stock (the "Option
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<PAGE>
Shares"), representing up to an additional 4% of the issued and outstanding
Common Stock at the same purchase price per share as paid by Holding for the
Purchased Shares pursuant to SECTION 2.01 above. Carlyle shall give prompt
written notice (the "Over-allotment Notice") to Holding of any notice given by
the underwriters of their election to exercise the Over-allotment Option.
3.02 EXERCISE OF 4% OPTION.
Holding may exercise the 4% Option in whole or in part only on the first
business day (the "Exercise Period") following the earlier of (i) Holding's
receipt of the Over-allotment Notice or (ii) 30 days after the date of the
Underwriting Agreement. If Holdings elects to exercise the 4% Option, it shall
send written notice (the "4% Option Exercise Notice") to Carlyle (which notice
shall be received by Carlyle prior to the expiration of the Exercise Period) of
its intention to exercise such 4% Option setting forth the number of Option
Shares (up to 4,000,000 shares of Common Stock) that Holding elects to purchase
and the closing date (the "Option Closing Date") for such purchase (which date
shall not be less than three business days nor more than ten business days
following the date of the 4% Option Exercise Notice).
3.03 DELIVERIES.
On the Option Closing Date Carlyle and Holding shall make the deliveries
specified in ARTICLE VI.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.01 CARLYLE REPRESENTATIONS AND WARRANTIES.
Carlyle represents and warrants to Holding that it owns all of the
Purchased Shares and Option Shares free and clear of all liens, encumbrances,
security agreements, options, claims, charges, restrictions and rights of third
parties of any type whatsoever (except restrictions of general applicability
imposed by federal and state securities laws and those restrictions and the
security interest created by the 1995 Shareholders Agreement or the Amended and
Restated Shareholders Agreement, as the case may be) ("Liens"). Carlyle agrees
that it will not create any Lien on the Purchased Shares or the Option Shares
until after the last day that the Option Shares can be purchased by Holding
under the 4% Option; and Carlyle represents and warrants that (i) upon the
purchase by Holding of the Purchased Shares or the Option Shares, as the case
may be, and payment in full of the purchase price therefor, Holding will acquire
such shares free and clear of any Liens and (ii) the sale of the
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<PAGE>
Purchased Shares and the Option Shares will not result in a default under or
breach of or conflict with any agreement to which Carlyle is a party or by which
it or any of its assets is bound or result in the violation of any law, rule or
regulation applicable to Carlyle. Except as expressly set forth above, Carlyle
is making no representations and warranties, express or implied, regarding the
sale of the Purchased Shares and the Option Shares, and Carlyle is making no
representations and warranties regarding the Company.
4.02 HOLDING REPRESENTATIONS AND WARRANTIES.
Holding represents and warrants to Carlyle that (i) Holding is acquiring
the Purchased Shares, the 4% Option and the Option Shares for its own account
and not with a view to distribution and (ii) the purchase of the Purchased
Shares and the Option Shares by Holding will not result in a default under or
breach of or conflict with any agreement to which Holding is a party or by which
it or any of its assets is bound or result in the violation of any law, rule or
regulation applicable to Holding. Holding acknowledges that the Purchased
Shares, the 4% Option and the Option Shares have not been registered under the
Securities Act of 1933 or any state securities law, and therefore cannot be
resold by Holding unless they have been so registered or qualified or an
exemption from registration and qualification is available.
ARTICLE V
CONDITIONS
5.01 CONDITIONS TO IPO
It shall be a condition to the obligation of each of Holding, Carlyle, and
the Company to consummate the IPO that:
(i) the Underwriting Agreement shall have been executed in form and
substance satisfactory to Holding, Carlyle and the Company and all conditions
specified in the Underwriting Agreement shall have been satisfied; and
(ii) all of the conditions to the consummation of the Stock Purchase
specified in SECTION 5.02 shall have been satisfied.
5.02 CONDITIONS TO CLOSING OF PURCHASED SHARES AND OPTION SHARES.
(a) It shall be a condition of Holding's obligation to purchase the
Purchased Shares or the Option Shares, as the case may be, that (i) the
representations and warranties set forth in clause (i) of the second sentence of
SECTION 4.01 hereof shall be true and correct as of such closing date, (ii)
Holding
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<PAGE>
shall have received a certificate of Carlyle, signed by each of its
general partners, to such effect, and (iii) Holding shall have received the
opinion of counsel of national repute to Carlyle as to the matters set forth in
clauses (i) and (ii) of the second sentence of SECTION 4.01 hereof, which
counsel and opinion shall be reasonably satisfactory to Holding (it being
understood that an opinion of counsel in the form delivered to the underwriters
under the Underwriting Agreement by counsel to Carlyle shall be deemed to be
satisfactory).
(b) It shall be a condition to the obligation of each of Holding and
Carlyle to consummate the sale of the Purchased Shares and the Option Shares, as
the case may be, being sold to Holding that (i) the IPO shall have been
consummated simultaneously with Holdings' acquisition of the Purchased Shares
and (ii) all necessary consents, approvals and authorizations of third parties
and governmental agencies required to be obtained with respect to the
acquisition of the Purchased Shares and the Option Shares, respectively
(including compliance with all necessary requirements under the HSR Act), shall
have been obtained as of the respective closing dates; provided that each of the
Company, Holding and Carlyle shall take whatever steps are reasonably necessary
to obtain such consents, approvals and authorizations to permit the legal
transfer to Holding of the Purchased Shares and the Option Shares, as the case
may be, and to ensure that Holding's consummation of such purchases will not
create an event of default under the Company's or any of its Subsidiaries'
credit agreements or give rise to an acceleration or requirement to make a
change of control offer with respect to any indebtedness of the Company or any
of its Subsidiaries (provided that Holding shall not be obligated to dispose of
any assets to obtain any such consent, authorization or approval).
ARTICLE VI
DELIVERIES
The closing of Holding's acquisition of the Purchased Shares or the Option
Shares shall take place at the offices of counsel to Holding at 10:00 a.m. on
the Closing Date and the Option Closing Date, respectively, or at such other
place and time as Holding and Carlyle may agree. At such closing, (i) Holding
shall deliver to Carlyle the purchase price for the Purchased Shares or the
Option Shares, as the case may be, by wire transfer of immediately available
funds to the account number specified by Carlyle at least two business days
prior to such closing and (ii) Carlyle shall deliver to Holding certificates of
Common Stock being acquired by Holding duly endorsed for transfer.
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<PAGE>
ARTICLE VII
TERMINATION
7.01 TERMINATION.
This Agreement may be terminated, and the Registration Statement shall be
withdrawn:
(i) by mutual written consent of the Parties prior to the Closing Date;
(ii) by Carlyle prior to the date the Registration Statement is declared
effective by the Securities and Exchange Commission and the Underwriting
Agreement is executed, upon written notice to Thiokol and the Company; or
(iii) by any Party upon written notice to the other Parties, if the
Closing Date shall not have occurred on or before January 31, 1998;
provided however, that the Party seeking to terminate this Agreement
pursuant to this clause (iii) shall not be in any material breach of its
obligations hereunder.
7.02 EFFECT OF TERMINATION.
In the event of termination of this Agreement as provided in SECTION 7.01,
this Agreement shall forthwith become void and no Party or their respective
directors, officers, partners or shareholders shall have any liability to any
other Party for the termination of this Agreement except to the extent such
termination is due to the willful breach of such Party's representations,
warranties, covenants or agreements prior to such termination. The covenants
set forth in SECTION 8.05 and SECTION 8.11 shall survive the termination of this
Agreement.
ARTICLE VIII
MISCELLANEOUS
8.01 NOTICES.
Any notice or other communication required or permitted hereunder shall be
in writing and shall be delivered personally, or sent by facsimile transmission
or sent by certified, registered or express mail, postage prepaid. Any such
notice shall be deemed given when so delivered personally, or sent by facsimile
transmission or, if mailed, three (3) business days after the date of deposit in
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<PAGE>
the United States mail, by certified mail return receipt requested (if also sent
by facsimile if available at the office of the recipient), as follows:
If to Carlyle, to:
Carlyle-Blade Acquisition Partners, L.P.
1001 Pennsylvania Avenue
Suite 200 South
Washington, D.C. 20004-2505
Attention: William E. Conway, Jr.
Telecopier: (202) 347-1818
With a copy to:
Latham & Watkins
1001 Pennsylvania Avenue, N.W.
Suite 1300
Washington, D.C. 20004
Attention: Bruce E. Rosenblum
Telecopier: (202) 637-2201
If to the Company, to:
Howmet International Inc.
475 Steamboat Road
Greenwich, CT 06830
Attention: Roland Paul
Vice President and
General Counsel
Telecopier: (203) 625-8771
With a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019-6150
Attention: Eric S. Robinson
Telecopier: (212) 403-2000
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<PAGE>
If to Thiokol, to:
Thiokol Corporation
2475 Washington Boulevard
Ogden, UT 84401-2398
Attention: Daniel S. Hapke, Jr.
Corporate Vice President
and General Counsel
Telecopier: (801) 629-2279
With a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019-6150
Attention: Eric S. Robinson
Telecopier: (212) 403-2000
If to Holding, to:
Thiokol Holding Company
1105 North Market Street
Suite 1132
Wilmington, Delaware 19899
Attention: Edward T. Hendrixson
Director
Telecopier: (302) 427-4605
With copies to:
Thiokol Corporation
2475 Washington Boulevard
Ogden, UT 84401-2398
Attention: Daniel S. Hapke, Jr.
Corporate Vice President
and General Counsel
Telecopier: (801) 629-2279
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<PAGE>
and:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019-6150
Attention: Eric S. Robinson
Telecopier: (212) 403-2000
Any Party, by notice given in accordance with this SECTION 8.01 to the
other Parties, may designate another address or person for receipt of notices
hereunder.
8.02 RECLASSIFICATION, REORGANIZATION, MERGER, ETC.
The rights and restrictions contained in this Agreement with respect
to the Common Stock apply to all Securities held on the date hereof and any
Securities acquired in the future whether by purchase, exchange,
reclassification, reorganization, stock split, dividend, any other change in the
Company's capital structure or otherwise.
8.03 WAIVERS AND AMENDMENTS; NON-CONTRACTUAL REMEDIES; PRESERVATION OF
REMEDIES.
This Agreement may be amended, superseded, cancelled, renewed or
extended, and the terms hereof may be waived only by a written instrument signed
by the Parties or in the case of a waiver, by the Party waiving compliance. No
delay on the part of any Party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof except as expressly provided herein.
No waiver on the part of any Party of any right, power or privilege, nor any
single or partial exercise of any such right, power or privilege, shall preclude
any further exercise thereof or the exercise of any other such right, power or
privilege. The rights and remedies herein provided are cumulative and are not
exclusive of any rights or remedies that any party may otherwise have at law or
in equity.
8.04 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
substantive and procedural laws of the State of New York applicable to
agreements made and to be performed entirely within such State (without giving
effect to any conflict of laws principles which might require application of the
law of a different jurisdiction), except as to any matters relating to the
corporate governance or the capital stock of the Company, which shall be
governed by the law of the State of Delaware.
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<PAGE>
8.05 ARBITRATION OF DISPUTES.
Any controversy or claim arising out of this Agreement, or any other
breach of this Agreement, including any controversy or claim as to arbitrability
or recission, shall be settled by arbitration in accordance with the commercial
arbitration rules of the Judicial Arbitration and Mediation Service.
(a) Such arbitration shall be conducted in the District of Columbia.
(b) Any judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof. The arbitrators shall not, under any
circumstances, have any authority to award punitive, exemplary or similar
damages.
(c) Any Party may pursue the remedy of specific performance of the
Agreement or seek a preliminary or permanent injunction against the breach of
the Agreement or in aid of the exercise of any power granted hereunder, or any
combination thereof in any of the federal courts located within the District of
Columbia without resort to arbitration.
(d) For the purposes of the enforcement of the Arbitration of Dispute in
this SECTION 8.05, the Parties hereby consent to the jurisdiction of the federal
courts located within the District of Columbia.
8.06 BINDING EFFECT; NO ASSIGNMENT; NO THIRD PARTY BENEFICIARIES.
Except as expressly provided herein, neither this Agreement, nor any right
hereunder, may be assigned by any Party without the written consent of the other
Parties; provided however, Holding may assign to Thiokol or any other Affiliate
of Holding or Thiokol any of Holding's rights under this Agreement. Any such
assignment or attempted assignment in violation of the foregoing shall be void.
This Agreement shall be binding upon and inure solely to the benefit of the
Parties hereto and their permitted successors and assigns and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
8.07 COUNTERPARTS.
This Agreement may be executed by the Parties in separate counterparts,
each of which when so executed and delivered shall be an original, but all such
counterparts shall together constitute one and the same instrument. Each
counterpart may consist of a number of copies hereof each signed by less than
all, but together signed by all of the Parties.
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8.08 HEADINGS.
The headings in the Agreement are for reference only, and shall not affect
the interpretation of this Agreement.
8.09 SEVERABILITY.
If any portion of this Agreement shall be deemed unenforceable, the
remaining portions shall be valid and enforceable.
8.10 TIME OF ESSENCE.
Time is of the essence for each and every provision of this Agreement.
8.11 LEGAL COUNSEL; EXPENSES.
(a) Thiokol, Holding and Carlyle each consent to (i) Wachtell, Lipton,
Rosen & Katz ("Wachtell, Lipton") serving as legal counsel to the Company in
connection with the IPO and serving as legal counsel for Thiokol and Holding in
connection with the transactions contemplated by this Agreement, and (ii) Latham
& Watkins serving as counsel to Carlyle in connection with the IPO and other
matters and as counsel to the Company and Thiokol regarding various corporate
and legal matters other than the IPO.
(b) Thiokol, Carlyle and the Company shall bear the costs, fees and
expenses of this Agreement and the transactions contemplated hereby as follows:
(i) The Company shall bear the costs, fees and expenses in connection
with the preparation of the Registration Statement pursuant to the
Securities Act and the IPO, including Securities and Exchange Commission
registration fees, blue sky fees and expenses, NYSE Listing Application
fees, printing and delivery expenses, stock certificates, transfer agent
fees, fees and disbursements of counsel for the Company, Thiokol and
Carlyle, fees and disbursements of the Company's accountants and any NASD
filing fees.
(ii) Carlyle shall bear the costs, fees and expenses of its investment
bankers (if any) and the underwriting discounts and commissions in
connection with the IPO.
(iii) Holding shall pay any filing fee under the HSR Act arising from
the Stock Purchase.
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(c) If any legal action, arbitration or other proceeding is brought for the
enforcement of this Agreement, or because of an alleged dispute, breach, default
or misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing party shall be entitled to recover reasonable
attorneys' fees and other costs incurred in that action or proceeding, in
addition to any other relief to which it may be entitled.
8.12 SURVIVAL.
All representations, warranties, covenants and agreements of the parties
shall survive the consummation of the transactions contemplated by this
Agreement.
8.13 DEFINITIONS.
As used in this Agreement, the following terms shall have the meanings set
forth below:
(a) "Affiliate" or "Affiliates", as applied to any Person, shall mean
any other Person directly or indirectly controlling, controlled by, or
under common control with that Person. For the purposes of this definition,
"control" (including with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as applied to any Person,
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that person, whether
through the ownership of voting securities or by contract or otherwise.
(b) "Beneficially Own" and "Beneficial Ownership" have the meanings
given to these terms in Rule 13d-3 of the Rules and Regulations of the
Securities and Exchange Commission under the Exchange Act, as in effect on
the date hereof.
(c) "Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts or other organizations, whether or not
legal entities, and governments and agencies and political subdivisions
thereof.
(d) "Securities" shall mean any shares of capital stock of the Company
(other than the 9% Series A Cumulative Preferred Stock of the Company),
whether now authorized or not, and any rights, options or warrants to
purchase securities of any type which are, or may become, convertible into
such capital stock of the Company.
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(e) "Subsidiary" means any corporation, association partnership, limited
partnership, limited liability partnership, limited liability company,
business trust or other business entity of which 50% or more of the total
voting power of shares of stock entitled to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by the Company or one or more of the other
subsidiaries of the Company or a combination thereof.
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed on the date first above written.
CARLYLE-BLADE ACQUISITON PARTNERS, L.P.,
a Delaware limited partnership.
By: Carlyle Partners II, L.P.
Its: General Partner
By: TC Group, L.L.C.
Its: General Partner
By: TCG Holdings, L.L.C.
Its: Managing Member
By: /s/ Allan M. Holt
Its: Managing Director
HOWMET INTERNATIONAL INC.
a Delaware corporation
By: /s/ Roland Paul
Its: Vice President-General Counsel
and Secretary
THIOKOL HOLDING COMPANY
a Delaware corporation
By: /s/ Richard L. Corbin
Its: President
THIOKOL CORPORATION
a Delaware corporation
By: /s/ Richard L. Corbin
Its: Senior Vice President and
Chief Financial Officer
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Exhibit 4.3
FORM OF
AMENDED AND RESTATED SHAREHOLDERS AGREEMENT
Amended and Restated Shareholders Agreement (the "Agreement"), dated as of
_________, 1997, by and among Howmet International Inc., a Delaware corporation
(the "Company"), Thiokol Corporation, a Delaware corporation ("Thiokol"),
Thiokol Holding Company ("Holding"), a Delaware corporation and a wholly-owned
subsidiary of Thiokol, and Carlyle-Blade Acquisition Partners, L.P., a Delaware
limited partnership ("Carlyle") (individually, a "Party" and collectively, the
"Parties").
WHEREAS, the Parties entered into a Shareholders Agreement dated as of
December 13, 1995 (the "Shareholders Agreement") in connection with the
acquisition by Carlyle of 51% of the outstanding shares of Common Stock, par
value $.01 per share (the "Common Stock"), of the Company and by Holding of 49%
of the outstanding shares of Common Stock and all of the outstanding shares of
9% Series A Senior Cumulative Preferred Stock (the "Preferred Stock") of the
Company;
WHEREAS, Holding, Thiokol, the Company and Carlyle entered into the IPO
Agreement, dated as of October 8, 1997 (the "IPO Agreement"), in connection
with, among other things, an initial public offering (the "IPO") of Common Stock
by Carlyle;
WHEREAS, in connection with the transactions contemplated by the IPO
Agreement, and effective as of this date (the "IPO Closing Date"), Carlyle and
Holding desire to amend and restate the Shareholders Agreement;
NOW THEREFORE, in consideration of the above premises and mutual agreements
set forth in this Agreement and subject to the terms and conditions stated
herein, the Parties hereby agree as follows:
<PAGE>
ARTICLE I
CARLYLE NOMINEE
So long as Carlyle or an Affiliate of Carlyle has Beneficial Ownership
of 5% or more of the issued and outstanding Common Stock, the Company shall
nominate, and Holding shall vote its shares of Common Stock for, a duly
qualified Director nominee selected by Carlyle (or such Affiliate) and
reasonably acceptable to Holding and the Board of Directors of the Company (the
"Carlyle Director"). The Carlyle Director shall be either a director or
managing director of Carlyle or an Affiliate of Carlyle. The Carlyle Director
shall have no director interlocks with material customers, suppliers, or
competitors of the Company.
ARTICLE II
TRANSFERS OF SECURITIES
2.01 General Restriction.
(a) Carlyle shall not sell, transfer, assign, pledge, hypothecate, or
otherwise alienate ("Transfer") any Securities until the first business day
following the date of the fourth anniversary of the IPO Closing (or, with
respect to any Securities as to which Holding has theretofore exercised the Call
Option (as defined below), the Option Closing Date with respect to such
exercise, if later) (the "Free Transfer Date") other than (i) a Transfer to an
Affiliate of Carlyle made in compliance with Section 2.04(a), (ii) pursuant to
Section 2.04(c), (iii) pursuant to Article III of this Agreement or (iv)
pursuant to the transactions contemplated by the IPO Agreement.
(b) Holding shall not Transfer any Securities prior to the Free Transfer
Date other than (i) a Transfer to an Affiliate of Holding made in compliance
with Section 2.04(b), (ii) pursuant to Section 2.04(c) or (iii) in compliance
with Section 3.05.
2.02 Legend.
(a) The certificates of Common Stock held by Carlyle and Holding
subsequent to the IPO Closing Date will be endorsed with the following legends:
"THE SALE, TRANSFER, ASSIGNMENT, PLEDGE OR ENCUMBRANCE OR ANY OTHER
ALIENATION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE RIGHTS OF
THE HOLDERS OF SUCH SECURITIES IN RESPECT OF THE ELECTION OF DIRECTORS ARE
SUBJECT TO THE TERMS AND CONDITIONS OF AN AMENDED AND
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RESTATED SHAREHOLDERS AGREEMENT DATED AS OF __________, 1997. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF
THIS CERTIFICATE TO THE SECRETARY OF HOWMET INTERNATIONAL INC."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED OR SOLD
WITHOUT COMPLIANCE WITH SUCH ACT."
(b) Upon the delivery to the Company by Carlyle or its Affiliates or
Holding or its Affiliates of such legended certificate in connection with a sale
under Rule 144 (including the delivery of customary documents with respect to
the applicability of an exemption from registration) or pursuant to an effective
registration statement, the Company shall issue in exchange therefor a
certificate for such shares without such legend.
2.03 Certain Restrictions.
Notwithstanding any other provision of this Agreement to the contrary, no
Transfer of Securities pursuant to Section 2.04(a) of this Agreement may be
effected by Carlyle prior to the Free Transfer Date unless and until the
intended transferee(s) has acknowledged that the Securities to be transferred
are being transferred subject to provisions of this Agreement and the IPO
Agreement, and the intended transferee(s) has agreed to be bound by the
provisions of this Agreement (including, without limitation, those related to
Security Interests under Article V, the 4% Option (as defined in the IPO
Agreement), the Call Option (as defined below), the Right of First Refusal (as
defined below) and Transfers to the extent then applicable), in writing in a
form reasonably satisfactory to Holding. In addition, until the Free Transfer
Date (or, if later, the day after the last day on which Holding may purchase the
Call Option Shares pursuant to the Call Option), no Transfer of Securities
pursuant to Section 2.04(a) of this Agreement may be effected unless and until
(i) the Security Interest in the transferred Securities continues and remains
after the Transfer a perfected, first priority security interest in the
transferred Securities, securing the obligations under Article II and Article
III of this Agreement and Article III of the IPO Agreement and (ii) Holding
receives an opinion of counsel of national repute to Carlyle (or its transferee)
to the effect that the agreement of the transferee is enforceable against it in
accordance with its terms and as to matters set forth in clause (i) above
(subject to customary qualifications and exceptions). Each such transferee
shall succeed to the obligations, and the rights, of the transferring
shareholder hereunder; provided, however, that Carlyle's right to designate a
director under Article I will not be transferable other than to an Affiliate of
Carlyle as provided in Article I.
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2.04 Exempt Transfers.
(a) The provisions of Section 2.01(a) shall not apply to the Transfer of
Securities by Carlyle to any of its Affiliates (provided that the provisions of
Section 2.03 have been strictly complied with and that no more than ten (10)
Affiliates of Carlyle own Securities at any one time).
(b) The provisions of Section 2.01(b) shall not apply to the Transfer of
Securities by Holding to any of its Affiliates; provided that no more than ten
(10) Affiliates of Holding own Securities at any one time; and provided,
further, that the intended transferee(s) has acknowledged that the Securities to
be transferred are being transferred subject to the provisions of this
Agreement, and the intended transferee(s) has agreed to be bound by the
provisions of this Agreement (including, without limitation, Article I and
Section 3.05), in writing in a form reasonably satisfactory to Carlyle. Each
such transferee shall succeed to the obligations, and the rights, of the
transferring shareholder hereunder; provided, however, that the rights under the
Call Option or the Right of First Refusal may be transferred only in strict
compliance with Section 3.04.
(c) The provisions of Section 2.01 shall not apply to the Transfer of
Securities to the public pursuant to an effective registration statement under
the Securities Act of 1933, as amended, or Rule 144 (provided, in the case of a
Transfer by Carlyle or any of its Affiliates prior to the Free Transfer Date,
that the provisions of Section 3.02 have been strictly complied with).
2.05 Improper Transfer.
Any attempted transfer of any Securities by Carlyle or Holding (or their
respective transferees) not in accordance with Section 2.01 shall be null and
void. The Parties shall cause the Company to provide stop transfer instructions
to any transfer agent for the Common Stock.
ARTICLE III
CALL OPTION; RIGHT OF FIRST REFUSAL; TAG-ALONG
3.01 Holding's Call Option.
(a) Carlyle hereby grants to Holding an option (the "Call Option"),
exercisable from time to time during the Option Period (as defined below), to
purchase up to all of the shares of Common Stock owned by Carlyle not otherwise
purchased by Holding or the underwriters of the IPO pursuant to the IPO
Agreement. Holding may exercise its Call Option in whole or in part (in
increments of 25% of the Common Stock owned by Carlyle at the beginning of the
Option Period or any multiple of 25%) at any time during the period (the
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"Option Period") beginning on the date of the second anniversary of the IPO
Closing Date and ending at the close of business on the date of the fourth
anniversary of the IPO Closing Date; provided, however, that if there occurs a
change in the ultimate Beneficial Ownership of TCG Holdings, L.L.C. of more than
50% as a result of a single transaction (or series of related transactions),
from and after such Change of Beneficial Ownership until the end of the Option
Period, Holding shall have the right to exercise the Call Option in accordance
with this Section 3.01; and provided, further, that Holding may not exercise its
Call Option if, at the time of such exercise, senior management of Thiokol is
engaged in serious discussions with a third party (other than an Affiliate of
Thiokol) relating to the sale, transfer or assignment by Thiokol and its
Subsidiaries (other than the Company) of 10% or more of the outstanding
Securities of the Company thereto.
(b) The purchase price of the Option Shares shall be equal to the Market
Price (as defined below) of the Common Stock as of the date the Option Exercise
Notice (as defined below) is delivered to Carlyle. "Market Price" shall mean,
as of any date of determination, the volume-weighted average of the prices per
share of Common Stock for all trades reported on the New York Stock Exchange,
Inc. ("NYSE") during the 20 consecutive trading days ending immediately prior to
the date of determination. Consecutive trading days shall include such dates
that shares of Common Stock do not trade on a NYSE regularly scheduled trading
day.
(c) The Call Option may be exercised during the Option Period by Holding
delivering a written notice of exercise (the "Option Exercise Notice") to
Carlyle specifying the number of Shares of Common Stock to be purchased and the
date (the "Exercise Date"), which date shall be at least five days after the
date of the Option Exercise Notice but no later than 15 business days after such
date, upon which Holding shall acquire the Option Shares specified in the Option
Exercise Notice (the "Option Closing Date"). Any exercise of the Call Option
may be subject to the conditions set forth in Section 3.03 below. If the Option
Shares are not purchased because any of the conditions in Section 3.03 are not
met, none of the rights and remedies of any Person will be lost as a result of
the purchase not occurring.
3.02 Holding's First Right of Refusal.
(a) During the period beginning at the earlier of (i) the second
anniversary of the IPO Closing Date or (ii) a Change of Control of Thiokol and
ending at the fourth anniversary of the IPO Closing Date, Carlyle may Transfer
shares of Common Stock provided that it shall have delivered to Holding during
the Option Period a written notice (the "Right of First Refusal Notice") of
Carlyle's intent to Transfer up to all of the remaining shares of Common Stock
(in increments of 25% of the outstanding shares of Common Stock owned by Carlyle
on the first
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day of the Option Period or any multiple of 25%) then owned by Carlyle. The
Right of First Refusal Notice shall specify the number of shares proposed to be
Transferred (the "Transfer Shares"), the identity of the proposed transferee
(other than in connection with the exercise of its registration rights pursuant
to the Registration Rights Agreement dated as of the date hereof between Carlyle
and the Company (the "Registration Rights Agreement") or in connection with
sales under Rule 144) and the proposed purchase price (which may simply be
"market price" in the case of sales under a registration statement or pursuant
to Rule 144).
(b) Holding shall have the right (the "Right of First Refusal"),
exercisable at any time within 10 business days (the "Refusal Period") from the
date that Holding receives the Right of First Refusal Notice from Carlyle
("Right of First Refusal Date"), to purchase all, but not less than all, of the
Transfer Shares at the Market Price determined as of the Right of First Refusal
Date. The Right of First Refusal may be exercised by Holding delivering a
written notice of exercise (the "Refusal Exercise Notice") during the Refusal
Period specifying the date, which date shall be at least five business days
after the date of the Refusal Exercise Notice but no later than 20 business days
after such date, upon which Holding shall acquire the Transfer Shares specified
in the Refusal Exercise Notice (the "Refusal Closing Date"). Any exercise of
the Right of First Refusal may be subject to the conditions set forth in Section
3.03 below. If the Transfer Shares are not purchased because any of the
conditions in Section 3.03 are not met, none of the rights and remedies of any
Person will be lost as a result of the purchase not occurring.
(c) In the event Holding does not exercise the Right of First Refusal (or
fails to consummate any purchase during the specified periods following such
exercise other than due to a breach by Carlyle), Carlyle shall have the right to
consummate the Transfer specified in the Right of First Refusal Notice within 90
days after the expiration of the Refusal Period or, in the case of sales
pursuant to the Registration Rights Agreement, until such sales are made or the
registration statement is withdrawn.
3.03 Closing of the Call Option or the Right of First Refusal.
The closing of Holding's acquisition of Option Shares pursuant to Holding's
exercise of the Call Option or the Transfer Shares pursuant to Holding's
exercise of the Right of First Refusal shall take place at the office of counsel
to Holding at 10:00 a.m. on the Option Closing Date or the Refusal Closing Date,
as the case may be. Holding shall deliver to Carlyle the purchase price of the
Option Shares or the Transfer Shares by wire transfer of immediately available
funds to the account number specified by Carlyle at least two business days
prior to the closing, and Carlyle shall deliver to Holding certificates
evidencing the shares being acquired by Holding, duly endorsed for transfer. It
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shall be a condition of Holding's obligation at such closing that (i) the
representations and warranties set forth in clause (i) of the second sentence of
Section 4.01 shall be true and correct as of the Option Closing Date or the
Refusal Closing Date, as the case may be, (ii) Holding shall have received a
certificate of Carlyle, signed by each of its general partners, to such effect,
and (iii) Holding shall have received the opinion of counsel of national repute
to Carlyle as to the matters set forth in clauses (i) and (ii) of the second
sentence of Section 4.01, which counsel and opinion shall be reasonably
satisfactory to Holding (it being agreed that an opinion of counsel in the form
provided by Carlyle's counsel to the underwriters of the IPO shall be deemed
satisfactory). It shall be a condition to the obligation of each of Holding and
Carlyle to consummate the sale of the Option Shares or the Transfer Shares being
sold to Holding that all necessary consents, approvals and authorizations of
third parties and governmental agencies required to be obtained with respect to
such acquisition shall have been obtained as of the Option Closing Date or the
Refusal Closing Date, as the case may be; provided that each of Holding and
Carlyle shall take whatever steps are reasonably necessary to obtain such
consents, approvals and authorizations to permit the legal transfer to Holding
of such shares and to ensure that Holding's consummation of such purchases will
not create an event of default under the Company's or any of its Subsidiaries'
credit agreements or give rise to an acceleration or requirement to make a
change of control offer with respect to any indebtedness of the Company or any
of its Subsidiaries (provided that Holding shall not be obligated to dispose of
any assets to obtain any such consent, authorization or approval). Holding and
Carlyle shall share equally all reasonable expenses incurred in connection with
obtaining such consents, approvals and authorizations. Holding and Carlyle
shall share equally all U.S. federal, state and local transfer taxes (which term
shall include any governmental fees or assessments generally applicable to
capital stock transfers), if any, attributable to the delivery of the Option
Shares or the Transfer Shares, as the case may be. Any foreign transfer taxes
shall be paid (i) by Carlyle, if such taxes are imposed by virtue of Carlyle's
foreign residence or activities or removal of the Option Shares or the Transfer
Shares to a foreign jurisdiction, and (ii) by Holding, if such taxes are imposed
by virtue of Holding's (or its transferee's) foreign residence or activities.
3.04 Non-Assignment of Call Option and First Right of Refusal.
Holding shall not assign or transfer its rights under the Call Option or
First Right of Refusal without Carlyle's prior written consent (which consent
may be withheld by Carlyle in its sole and absolute discretion), provided that
Holding may so transfer the Call Option and Right of First Refusal to any
parent corporation or any direct or indirect wholly owned Affiliate of Thiokol
without such consent.
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3.05 Tag-Along Right.
(a) Holding agrees that, prior to the Free Transfer Date, it shall not
Transfer shares of Common Stock held by it to an unaffiliated third party or
parties ("Third Party") (other than pursuant to Section 2.04(b) or Section
2.04(c) or a bona fide pledge of the shares of Common Stock to a financial
institution as security for borrowings, to which the provisions of this Section
3.05 do not apply), unless the terms and conditions of such Transfer shall
include an offer to each of Carlyle and its Affiliate transferees ("Carlyle
Shareholders") to include in the transfer to the Third Party, at such Carlyle
Shareholder's option and on the Third Party Terms (as defined below), an amount
of the shares of Common Stock determined in accordance with Section 3.05(c) (the
"Tag-Along Rights").
(b) Holding shall deliver notice to the Company, Carlyle and each other
Carlyle Shareholder of any proposed Transfer to which the provisions of this
Section 3.05 apply (a "Sale Notice"). Each Sale Notice shall set forth: (i)
the name of the Third Party and the number of shares of Common Stock proposed to
be transferred, (ii) the address of the Third Party, (iii) the proposed amount
and form of consideration and terms and conditions of payment offered by the
Third Party, and any other material terms pertaining to the Transfer (the "Third
Party Terms"), and (iv) that the Third Party has been informed of the Tag-Along
Rights provided for in this Section 3.05 and has agreed to abide by the terms of
the Tag-Along Rights.
(c) Following delivery of a Sale Notice, each of the Carlyle Shareholders
shall have the option to sell to the Third Party on the Third Party Terms an
amount of shares of Common Stock calculated as follows: The Third Party shall
be required to purchase from each Carlyle Shareholder desiring to participate in
such transaction the number of shares of Common Stock owned by such Carlyle
Shareholder equaling the lesser of (x) the number derived by multiplying (i) the
total number of shares of Common Stock to be purchased by the Third Party by
(ii) a fraction, the numerator of which is the aggregate number of shares owned
by such Carlyle Shareholder and the denominator of which is the number of shares
of Common Stock then owned in the aggregate by Holding (and its Affiliate
transferees) and all Carlyle Shareholders, or (y) such lesser number of shares
as the Carlyle Shareholder shall designate in the Tag-Along Notice (defined
below). The Tag-Along Rights set forth in Section 3.05 may be exercised by any
Carlyle Shareholder by delivery of a written notice to the Company and Selling
Shareholder (the "Tag-Along Notice") within ten (10) business days following
receipt of a Sale Notice (the "Tag-Along Period"). The Tag-Along Notice shall
state the number of shares that such Carlyle Shareholder wishes to include in
such transfer to the Third Party. Upon the giving of a Tag-Along Notice, such
Carlyle Shareholder shall be entitled and obligated to sell the number of shares
set forth in the Tag-Along Notice to the Third Party on the Third Party Terms;
provided, however, that neither Holding nor any such Carlyle
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Shareholder shall consummate the sale of any shares offered by it if the Third
Party does not (i) purchase all shares which Holding and the Carlyle
Shareholders are entitled and desire to sell pursuant hereto and (ii) agree to
be bound by the obligations of Holding pursuant to Article I of this Agreement
until the third anniversary of the IPO Closing Date.
At the closing of the Transfer to any Third Party (of which Holding shall
give each Carlyle Shareholder who has elected to exercise the Tag-Along Right
provided by this Section 3.05 at least five business days' prior written
notice), the Third Party shall remit to Holding and each Carlyle Shareholder who
has elected the Tag-Along Right (collectively the "Selling Shareholders") the
consideration for the total sales price of the shares of such Selling
Shareholder sold pursuant thereto, against delivery by such Selling Shareholder
of certificates for such shares, duly endorsed or with duly executed stock
powers and the compliance by such Selling Shareholder with any other conditions
to closing generally applicable to the Selling Shareholders.
(d) If the provisions of this Section 3.05 have been complied with in all
respects, Holding shall have the right for a 120-day period following delivery
of the Sale Notice to transfer the shares of Common Stock to the Third Party on
the Third Party Terms (or on other terms no more favorable to the Selling
Shareholder) without further notice to Carlyle Shareholders who have not given a
Tag-Along Notice, but after such 120-day period no such transfer may be made
without again giving notice to all Carlyle Shareholders of the proposed transfer
and complying with the requirements of this Section 3.05.
(e) Thiokol shall cause Holding to comply with its obligations under this
Section 3.05.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.01 Carlyle Representations and Warranties.
Carlyle represents and warrants to Holding that it owns all of the shares
of Common Stock free and clear of all liens, encumbrances, security agreements,
options, claims, charges, restrictions and rights of third parties of any type
or description whatsoever (except restrictions of general applicability imposed
by federal and state securities laws and those restrictions and the security
interest created by this Agreement) ("Liens"). Carlyle agrees that, except in
the case of sales of Common Stock permitted under this Agreement to Persons
other than Holding, it will not create any Lien on the Common Stock until after
the last day of the Option Period and Carlyle represents and warrants that (i)
upon the purchase by Holding of the shares of Common Stock and payment in full
of the
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purchase price therefor, Holding will acquire Common Stock free and clear of any
Liens and (ii) the sale of the Common Stock to Holding by Carlyle pursuant to
exercise of any of its rights to purchase the Common Stock subject to the terms
of this Agreement will not result in a default under or breach of or conflict
with any agreement to which Carlyle is a party or by which it or any of its
assets is bound or result in the violation of any law, rule or regulation
applicable to Carlyle.
4.02 Holding Representation and Warranties.
Holding represents and warrants to Carlyle that (i) Holding, upon the
exercise of any of its rights to purchase Common Stock subject to the Agreement
is acquiring and will acquire the Common Stock for its own account and not with
a view to distribution and (ii) the sale of the Common Stock to Holding by
Carlyle pursuant to his Agreement will not result in a default under or breach
of or conflict with any agreement to which Holding or Thiokol is a party or by
which it or any of its assets are bound or result in the violation of any law,
rule or regulation applicable to Holding. Holding acknowledges that the Common
Stock acquired pursuant to this Agreement has not been registered or qualified
under the Securities Act of 1933 or any state securities law, and therefore
cannot be resold by Holding unless they have been so registered or qualified or
an exemption from registration and qualification is available.
ARTICLE V
SECURITY AGREEMENT
To secure the obligations of Carlyle to Holding under Article II and
Article III of this Agreement and Article III of the IPO Agreement for any
damages arising from (i) the breach by Carlyle of any of such provisions and/or
(ii) the rejection by Carlyle, as debtor or debtor in possession, or by any
trustee in bankruptcy for Carlyle, of Carlyle's obligations under Article II and
Article III of this Agreement and Article III of the IPO Agreement, Carlyle
hereby grants to Holding a continuing security interest in the shares of Common
Stock held by Carlyle subsequent to the IPO. To perfect such security interest,
the Common Stock and stock powers executed in blank by Carlyle with respect
thereto will at all times commencing with the IPO Closing Date to the Security
Interest Termination Date (as hereinafter defined) be held by First National
Bank of Chicago (or another institution) pursuant to the Collateral Custodial
Agreement (the "Collateral Custodial Agreement") in the Form of Exhibit J
attached to the Stock Purchase Agreement dated as of December 13, 1995 by and
among Holding, Carlyle and the Company (the "Stock Purchase Agreement") which
shall remain in full force and effect notwithstanding this Agreement and the IPO
Agreement. Carlyle represents and warrants to Holding that at all times through
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the Security Interest Termination Date, such security interests will be a first
priority, preferred, non-preferential security interest in favor of Holding.
The Security Interest Termination Date will occur upon the earlier of (i) the
purchase by Holding of all of the Common Stock owned by Carlyle, (ii) after the
last date of the Option Period described in Section 3.01 under which the Call
Option or the Right of First Refusal may be exercised or (iii) with respect to
any shares of Common Stock permitted to be sold under this Agreement, upon the
consummation of such sale. This Article V is the Security Agreement. In
addition to any other rights and remedies Holding may have, Holding will have
the rights of a secured party upon default under the applicable Uniform
Commercial Code with respect to such Common Stock. In connection with any
transfer of shares by Carlyle permitted by this Agreement (other than to an
Affiliate of Carlyle pursuant to Section 2.04(a)), Thiokol will cooperate
promptly to take all actions necessary to release such shares from the
provisions of this Article V and the Collateral Custodial Agreement. Any shares
not previously released shall be released on the Free Transfer Date, and the
Parties shall take all actions necessary to effect such release. In addition,
as promptly as practicable after the date of this Agreement, the Parties shall
take all actions necessary to release any shares owned by Holding from the
Collateral Custodial Agreement and the security provisions under the Stock
Purchase Agreement.
ARTICLE VI
CONFIDENTIALITY AND NON-COMPETE
6.01 Confidentiality.
During the period that a Carlyle Director is a member of the Board of
Directors of the Company, and for one year thereafter, except as required by
law, Carlyle and its Affiliates, and their respective principals, directors,
employees and agents (collectively "Representatives") shall hold and not use
(other than in the capacity as a director of or an investor in the Company) or
disclose any and all competition sensitive, business confidential, proprietary,
trade secret information ("Confidential Information") of the Company obtained as
an investor or in the capacity as a director or officer of the Company prior to
and subsequent to the IPO; provided, that this obligation shall not apply to
Confidential Information that (a) is generally available in the public domain,
(b) is known to Carlyle and its representatives other than through the
investment relationship and directorship with the Company or (c) becomes
publicly disclosed through no breach of this confidentiality obligation by
Carlyle or its representatives. In the event that Carlyle is requested to
disclose any Confidential Information through a formal judicial proceeding in a
court of
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competent jurisdiction, Carlyle shall give Holding prompt notice of such request
so that Holding may seek an appropriate protective order.
6.02 Non-Compete.
During the period of time that a Carlyle Director is a member of the
Board of Directors of the Company and for one year thereafter, Carlyle shall
not, and shall cause its Affiliates not to, make an investment in any Person
identified on Schedule I or any Person that is a direct and substantial
competitor with the business of the Company, other than (i) investments of less
than 2% of the outstanding equity securities of any Person or (ii) investments
in any Person (other than a Person identified on Schedule I) for which the
annual revenues and assets relating to the business of such Person that competes
with the Company are less than 15% of such Person's total annual revenues and
assets.
6.03 Equitable Relief.
Holding shall be entitled to equitable relief including an injunction
in addition to all other remedies available to enforce the obligations of
Carlyle under this Article VI.
ARTICLE VII
MISCELLANOUS
7.01 Notices.
Any notice or other communication required or permitted hereunder shall be
in writing and shall be delivered personally, or sent by facsimile transmission
or sent by certified, registered or express mail, postage prepaid. Any such
notice shall be deemed given when so delivered personally, or sent by facsimile
transmission or, if mailed, three (3) business days after the date of deposit in
the United States mail, by certified mail return receipt requested (if also sent
by facsimile if available at the office of the recipient), as follows:
If to Carlyle, to:
Carlyle-Blade Acquisition Partners, L.P.
1001 Pennsylvania Avenue
Suite 200 South
Washington, D.C. 20004-2505
Attention: William E. Conway, Jr.
Telecopier: (202) 347-1818
With a copy to:
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Latham & Watkins
1001 Pennsylvania Avenue, N.W.
Suite 1300
Washington, D.C. 20004
Attention: Bruce E. Rosenblum
Telecopier: (202) 637-2201
If to Holding, to:
Thiokol Holding Company
1105 North Market Street
Suite 1132
Wilmington, Delaware 19899
Attention: Edward T. Hendrixson
Director
Telecopier: (302) 427-4605
With copies to:
Thiokol Corporation
2475 Washington Boulevard
Ogden, UT 84401-2398
Attention: Daniel S. Hapke, Jr.
Corporate Vice President
and General Counsel
Telecopier: (801) 629-2279
and:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019-6150
Attention: Eric S. Robinson
Telecopier: (212) 403-2000
Any Party, by notice given in accordance with this Section 7.01 to the
other Parties, may designate another address or Person for receipt of notices
hereunder.
7.02 Reclassification, Reorganization, Merger, etc.
The rights and restrictions contained in this Agreement with respect
to Common Stock apply to all Securities held on the date hereof and any
Securities
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acquired in the future whether by purchase, exchange, reclassification,
reorganization, stock split, dividend, any other change in the Company's capital
structure or otherwise.
7.03 Waivers and Amendments; Non-Contractual Remedies; Preservation of
Remedies.
Article VII of this Agreement may be amended, superseded, cancelled,
renewed or extended, and the terms hereof may be waived only by a written
instrument signed by the Parties or in the case of a waiver, by the Party
waiving compliance. Any other provision of this Agreement may be amended,
superseded, cancelled, renewed or extended, and the terms thereof may be waived
only by a written instrument signed by Carlyle and Holding or in the case of a
waiver, by such of Carlyle or Holding waiving compliance. No delay on the part
of any Party in exercising any right, power or privilege hereunder shall operate
as a waiver thereof except as expressly provided herein. No waiver on the part
of any Party of any right, power or privilege, nor any single or partial
exercise of any such right, power or privilege, shall preclude any further
exercise thereof or the exercise of any other such right, power or privilege.
The rights and remedies herein provided are cumulative and are not exclusive of
any rights or remedies that any party may otherwise have at law or in equity.
7.04 Governing Law.
This Agreement shall be governed by and construed in accordance with the
substantive and procedural laws of the State of New York applicable to
agreements made and to be performed entirely within such State (without giving
effect to any conflict of laws principles which might require application of the
law of a different jurisdiction), except as to any matters relating to the
corporate governance or the capital stock of the Company, which shall be
governed by the law of the State of Delaware.
7.05 Arbitration of Disputes.
Except for controversies, claims or enforcement of the confidentiality
and covenant not to compete provisions set forth in Article VI, any other
controversy or claim arising out of this Agreement, or any other breach of this
Agreement, including any controversy or claim as to arbitrability or rescission,
shall be settled by arbitration in accordance with the commercial arbitration
rules of the Judicial Arbitration and Mediation Service.
(a) Such arbitration shall be conducted in the District of Columbia.
(b) Any judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof. The arbitrators shall not, under
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any circumstances, have any authority to award punitive, exemplary or similar
damages.
(c) Any Party may pursue the remedy of specific performance of the
Agreement or seek a preliminary or permanent injunction against the breach of
the Agreement or in aid of the exercise of any power granted hereunder, or any
combination thereof in any of the federal courts located within the District of
Columbia without resort to arbitration.
(d) For the purposes of adjudicating any controversy, claim or the
enforcement of confidentiality and covenant not to compete provisions in Article
VI hereof and for the enforcement of the Arbitration of Dispute in this Section
7.05, the Parties hereby consent to the jurisdiction of the federal courts
located within the District of Columbia.
7.06 Binding Effect; No Assignment; No Third Party Beneficiaries.
Except as expressly provided herein, neither this Agreement, nor any right
hereunder, may be assigned by any Party without the written consent of the other
Parties. Any such assignment or attempted assignment in violation of the
foregoing shall be void. Subject to the foregoing, this Agreement shall be
binding upon and inure solely for the benefit of the Parties and their permitted
successors and assigns and nothing in this Agreement, express or implied, is
intended to confer upon any other Person any rights or remedies of any nature
whatsoever under or by reason of this Agreement.
7.07 Counterparts.
This Agreement may be executed by the Parties in separate counterparts,
each of which when so executed and delivered shall be an original, but all such
counterparts shall together constitute one and the same instrument. Each
counterpart may consist of a number of copies hereof each signed by less than
all, but together signed by all of the Parties.
7.08 Headings.
The headings in the Agreement are for reference only, and shall not affect
the interpretation of this Agreement.
7.09 Severability.
If any portion of this Agreement shall be deemed unenforceable, the
remaining portions shall be valid and enforceable.
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7.10 Time of Essence.
Time is of the essence for each and every provision of this Agreement.
7.11 Attorneys' Fees.
If any legal action, arbitration or other proceeding is brought for
the enforcement of this Agreement, or because of an alleged dispute, breach,
default or misrepresentation in connection with any of the provisions of this
Agreement, the successful or prevailing party shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it may be entitled.
7.12 Survival.
All representations, warranties, covenants and agreements of the parties
shall survive the consummation of the transactions contemplated by this
Agreement.
7.13 Definitions.
As used in this Agreement, the following terms shall have the meanings set
forth below:
(a) "Affiliate" or "Affiliates" as applied to any Person, shall mean any
other Person directly or indirectly controlling, controlled by, or
under common control with that Person. For the purposes of this
definition, "control" (including with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as
applied to any Person, means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting
securities or by contract or otherwise.
(b) "Beneficially Own" and "Beneficial Ownership" have the meanings given
to these terms in Rule 13d-3 of the Rules and Regulations of the
Securities and Exchange Commission under the Exchange Act, as in effect
on the date hereof.
(c) "Change of Control" means any of the following: (i) the sale, lease,
conveyance or other disposition of all or substantially all of the
assets of Thiokol as an entirety or substantially as an entirety to any
Person or "group" (within the meaning of Section 13(d)(3) of the
Exchange Act) in one or a series of transactions, provided that a
transaction where the holders of all classes of capital stock of
Thiokol generally
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entitled to vote in the election of directors ("Common Equity")
immediately prior to such transaction own, directly or indirectly, 50
percent or more of all classes of Common Equity of such Person or group
immediately after such transaction(s) shall not be a Change of Control;
(ii) the liquidation or dissolution of Thiokol, provided that a
liquidation or dissolution of Thiokol which is part of a transaction or
series or related transactions that does not constitute a Change of
Control under the "provided" clause of clause (i) above shall not
constitute a Change of Control under this clause (ii); (iii) any
transaction or series of transactions (as a result of a tender offer,
merger, consolidation or otherwise) that results in, or that is in
connection with any Person, including a "group" (within the meaning of
Section 13(d)(3) of the Exchange Act) that includes such Person, not
theretofore having "beneficial ownership" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of 50 percent or more
of the aggregate voting power of all classes of Common Equity of
Thiokol, acquiring such 50 percent or more direct or indirect
"beneficial ownership," provided that transfers of securities among
corporations that are affiliated by 100% common ownership (such as a
contribution by a parent corporation to a wholly owned subsidiary)
shall not, of themselves, result in a Change of Control; or (iv) any
Person, including such a group, elects as directors of Thiokol Persons
who were not theretofore directors, were not nominees of the Nominating
Committee of the Board of Directors of Thiokol and after election
constitute a majority of the Board of Directors of Thiokol.
(d) "Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint
ventures, associations, companies, trusts or other organizations,
whether or not legal entities, and governments and agencies and
political subdivisions thereof.
(e) "Securities" shall mean any shares of capital stock of the Company
(other than the 9% Series A Cumulative Preferred Stock of the Company),
whether now authorized or not, and any rights, options or warrants to
purchase securities of any type which are, or may become, convertible
into such capital stock of the Company.
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed on the date first above written.
CARLYLE-BLADE ACQUISITION
PARTNERS, L.P., a Delaware limited
partnership.
By: Carlyle Partners II, L.P.
Its: General Partner
By: TC Group, L.L.C.
Its: General Partner
By: TCG Holdings, L.L.C.
Its: Managing Member
By: _____________________
Its: _____________________
THIOKOL CORPORATION
a Delaware corporation
By: _____________________
Its: _____________________
THIOKOL HOLDING COMPANY
a Delaware corporation
By: _____________________
Its: _____________________
HOWMET INTERNATIONAL INC.
a Delaware corporation
By: _____________________
Its: _____________________
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EXHIBIT 4.4
FORM OF
CORPORATE AGREEMENT
Corporate Agreement, dated as of ________ __, 1997 ("this Agreement"), by and
among Thiokol Corporation, a Delaware corporation ("Thiokol'), Thiokol Holding
Company, a Delaware corporation and a wholly owned subsidiary of Thiokol
("Holding"), and Howmet International Inc., a Delaware corporation (the
"Company") (individually, a "Party" and collectively, the "Parties").
WHEREAS, Holding, Thiokol, the Company and Carlyle-Blade Acquisition
Partners, L.P., a Delaware limited partnership (together with its affiliates,
"Carlyle") entered into the IPO Agreement, dated as of October 8, 1997 (the "IPO
Agreement"), in connection with, among other things, an initial public offering
(the "IPO") and, simultaneously with the consummation of the IPO (the "IPO
Closing Date"), the sale by Carlyle of 11,000,000 shares of Common Stock to
Holding (the "Sale") and the grant by Carlyle to Holding of an option to
purchase up to an additional 4,000,000 shares owned by Carlyle (the "4%
Option");
WHEREAS, upon consummation of the transactions contemplated by the IPO
Agreement, Thiokol will own between 60,000,000 and 64,000,000 shares of Common
Stock, par value $.01 per share (the "Common Stock"), of the Company;
WHEREAS, in connection with the transactions contemplated by the IPO
Agreement, the Parties desire to enter into this Agreement;
NOW THEREFORE, in consideration of the above premises and mutual agreements
set forth in this Agreement and subject to the terms and conditions stated
herein, the Parties hereby agree as follows:
ARTICLE I
RESTRICTION ON ACQUISITIONS
Neither Thiokol, Holding nor any of their Affiliates shall, without the
consent of (i) a majority (but not less than two) of the non-employee directors
of the Company who are not directors or employees of Thiokol, Holding, Carlyle
or their respective Affiliates and (ii) if Carlyle has a representative on the
Board of Directors of the Company (the "Carlyle Director"), the Carlyle
Director, acquire Publicly Held Shares (as defined below) if, after such
acquisition, the number of Publicly Held Shares would be less than 14% of the
outstanding shares of Common Stock, other than (i) pursuant to a tender offer
<PAGE>
to acquire all of the outstanding shares of Common Stock not then Beneficially
Owned by Thiokol and/or Holding or (ii) pursuant to a merger or other business
combination in which holders of all outstanding Publicly Held Shares are treated
the same. For purposes of this ARTICLE I, "Publicly Held Shares" shall mean
outstanding shares of Common Stock other than shares held by Thiokol, Holding,
Carlyle or any of their Affiliates.
ARTICLE II
PREEMPTIVE RIGHT
2.01 GRANT OF PREEMPTIVE RIGHT.
The Company hereby grants to Holding, on the terms and conditions set forth
herein, a continuing right (the "Preemptive Right") to purchase from the
Company, at the times set forth herein, such number of shares of Common Stock as
is necessary to allow Thiokol and its Subsidiaries (other than the Company and
its Subsidiaries) (collectively, the "Thiokol Entities") to maintain the then-
current Ownership Percentage (as defined below). The Preemptive Right shall be
assignable, in whole or in part and from time to time, by Holding to any Thiokol
Entity. The exercise price for the shares of Common Stock purchased pursuant to
the Preemptive Right shall be the volume-weighted average of the prices per
share of Common Stock for all trades reported on the New York Stock Exchange,
Inc. ("NYSE") during the 20 consecutive trading days ending immediately prior to
the date of first delivery of notice of exercise of the Preemptive Right by
Holding (or its permitted transferee) to the Company, or, in the case of any
public offering of Common Stock for cash, a price per share equal to the net
proceeds per share to the Company from such offering. Consecutive trading days
shall include such dates that shares of Common Stock do not trade on a New York
Stock Exchange regularly scheduled trading day. For purposes of this Agreement,
"Ownership Percentage" means, at any time, the fraction, expressed as a
percentage and rounded to the next highest thousandth of a percent, whose
numerator is the number of shares of Common Stock owned by the Thiokol Entities
and whose denominator is the number of outstanding shares of Common Stock;
provided, however, that any shares of Common Stock issued by the Company in
violation of its obligations under ARTICLE II of this Agreement shall not be
deemed outstanding for the purpose of determining the Ownership Percentage.
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2.02 NOTICE.
As promptly as practicable, but in any event within ten business days,
after the issuance of any shares of Common Stock that results in a reduction in
the Ownership Percentage, the Company will notify Holding in writing (a
"Preemptive Right Notice"). Each Preemptive Right Notice must specify the date
on which the Company issued such additional shares (such issuance being referred
to herein as an "Issuance Event" and the date of such issuance or event as an
"Issuance Event Date"), the number of shares the Company issued and the other
terms and conditions of such Issuance Event.
2.03 PREEMPTIVE RIGHT EXERCISE AND PRICE.
The Preemptive Right may be exercised by Holding (or any Thiokol Entity to
which all or any part of the Preemptive Right have been assigned) for a number
of shares equal to or less than the number of shares that are necessary for the
Thiokol Entities to maintain, in the aggregate, the Ownership Percentage. The
Preemptive Right may be exercised at any time within 20 business after receipt
of a Preemptive Right Notice by the delivery to the Company of a written notice
to such effect specifying (i) the number of shares of Common Stock to be
purchased by Holding, or any of the Thiokol Entities, and (ii) a calculation of
the exercise price for such shares. Upon any such exercise of the Preemptive
Right, the Company will, on the fifth business day after the receipt of such
notice of exercise, deliver to Holding (or any Thiokol Entity designated by
Holding), against payment therefor, certificates (issued in the name of Holding
or its permitted assignee hereunder, or as directed by Holding) representing the
shares of Common Stock being purchased upon such exercise. Payment for such
shares shall be made by wire transfer or intrabank transfer to such account as
shall be specified by the Company, for the full purchase price for such shares.
2.04 TERMINATION OF PREEMPTIVE RIGHT.
The Preemptive Right shall terminate in the event the Thiokol Entities shall
not Beneficially Own at least 20% of the outstanding shares of Common Stock.
ARTICLE III
INDEPENDENT DIRECTORS
The Company, Thiokol and Holding shall each use its good faith efforts to
(i) as promptly as practicable, but in any event within three months following
the IPO Closing Date, cause at least two members of the Company's Board of
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Directors to be independent directors within the meaning of the rules of the New
York Stock Exchange regarding who may serve on the audit committee of a company
listed on such exchange (as such rules are in effect as of the date of this
Agreement) and (ii) 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 or any of its Affiliates (other than
the Company and its Subsidiaries) after the IPO Closing Date.
ARTICLE IV
MISCELLANEOUS
4.01 NOTICES.
Any notice or other communication required or permitted hereunder shall be
in writing and shall be delivered personally, or sent by facsimile transmission
or sent by certified, registered or express mail, postage prepaid. Any such
notice shall be deemed given when so delivered personally, or sent by facsimile
transmission or, if mailed, three (3) business days after the date of deposit in
the United States mail, by certified mail return receipt requested (if also sent
by facsimile if available at the office of the recipient), as follows:
If to the Company, to:
Howmet International Inc.
475 Steamboat Road
Greenwich, CT 06830
Attention: Roland Paul
Vice President and
General Counsel
Telecopier: (203) 625-8771
If to Thiokol, to:
Thiokol Corporation
2475 Washington Boulevard
Ogden, UT 84401-2398
Attention: Daniel S. Hapke, Jr.
Corporate Vice President
and General Counsel
Telecopier: (801) 629-2279
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With a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019-6150
Attention: Eric S. Robinson
Telecopier: (212) 403-2000
If to Holding, to:
Thiokol Holding Company
1105 North Market Street
Suite 1132
Wilmington, Delaware 19899
Attention: Edward T. Hendrixson
Director
Telecopier: (302) 427-4605
With copies to:
Thiokol Corporation
2475 Washington Boulevard
Ogden, UT 84401-2398
Attention: Daniel S. Hapke, Jr.
Corporate Vice President
and General Counsel
Telecopier: (801) 629-2279
and:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019-6150
Attention: Eric S. Robinson
Telecopier: (212) 403-2000
Any Party, by notice given in accordance with this SECTION 4.01 to the
other Parties, may designate another address or person for receipt of notices
hereunder.
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4.02 RECLASSIFICATION, REORGANIZATION, MERGER, ETC.
The rights and restrictions contained in this Agreement with respect to the
Common Stock apply to all Securities held on the date hereof and any Securities
acquired in the future whether by purchase, exchange, reclassification,
reorganization, stock split, dividend, any other change in the Company's capital
structure or otherwise.
4.03 WAIVERS AND AMENDMENTS; NON-CONTRACTUAL REMEDIES; PRESERVATION OF
REMEDIES.
This Agreement may be amended, superseded, cancelled, renewed or extended,
and the terms hereof may be waived only by a written instrument signed by the
Parties or in the case of a waiver, by the Party waiving compliance; provided,
however, that ARTICLE I of this Agreement may not be amended or the provisions
thereof waived without the consent of (i) a majority (but not less than two) of
the non-employee directors of the Company who are not directors or employees of
Thiokol, Holding, Carlyle or their respective Affiliates and (ii) if Carlyle has
a representative on the Board of Directors of the Company, the Carlyle Director.
No delay on the part of any Party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof except as expressly provided herein.
No waiver on the part of any Party of any right, power or privilege, nor any
single or partial exercise of any such right, power or privilege, shall preclude
any further exercise thereof or the exercise of any other such right, power or
privilege. The rights and remedies herein provided are cumulative and are not
exclusive of any rights or remedies that any party may otherwise have at law or
in equity.
4.04 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
substantive and procedural laws of the State of New York applicable to
agreements made and to be performed entirely within such State (without giving
effect to any conflict of laws principles which might require application of the
law of a different jurisdiction), except as to any matters relating to the
corporate governance or the capital stock of the Company, which shall be
governed by the law of the State of Delaware.
4.05 BINDING EFFECT; NO ASSIGNMENT; NO THIRD PARTY BENEFICIARIES.
Except as expressly provided herein, neither this Agreement, nor any right
hereunder, may be assigned by any Party without the written consent of the other
Parties. Any such assignment or attempted assignment in violation of the
foregoing shall be void. This Agreement shall be binding upon and inure solely
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to the benefit of the Parties hereto and their permitted successors and assigns
and nothing in this Agreement, express or implied, is intended to confer upon
any other person any rights or remedies of any nature whatsoever under or by
reason of this Agreement.
4.06 COUNTERPARTS.
This Agreement may be executed by the Parties in separate counterparts,
each of which when so executed and delivered shall be an original, but all such
counterparts shall together constitute one and the same instrument. Each
counterpart may consist of a number of copies hereof each signed by less than
all, but together signed by all of the Parties.
4.07 HEADINGS.
The headings in the Agreement are for reference only, and shall not affect
the interpretation of this Agreement.
4.08 SEVERABILITY.
If any portion of this Agreement shall be deemed unenforceable, the remaining
portions shall be valid and enforceable.
4.09 TIME OF ESSENCE.
Time is of the essence for each and every provision of this Agreement.
4.10 EXPENSES.
If any legal action, arbitration or other proceeding is brought for the
enforcement of this Agreement, or because of an alleged dispute, breach, default
or misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing party shall be entitled to recover reasonable
attorneys' fees and other costs incurred in that action or proceeding, in
addition to any other relief to which it may be entitled.
4.11 DEFINITIONS.
As used in this Agreement, the following terms shall have the meanings set
forth below:
(a) "Affiliate" or "Affiliates" as applied to any Person, shall mean any
other Person directly or indirectly controlling, controlled by, or under
common control with that Person. For the purposes of this definition,
"control" (including with correlative meanings, the terms "controlling,"
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"controlled by" and "under common control with"), as applied to any
Person, means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of that
person, whether through the ownership of voting securities or by
contract or otherwise.
(b) "Beneficially Own" and "Beneficial Ownership" have the meanings given to
these terms in Rule 13d-3 of the Rules and Regulations of the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as
amended, as in effect on the date hereof.
(c) "Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint
ventures, associations, companies, trusts or other organizations,
whether or not legal entities, and governments and agencies and
political subdivisions thereof.
(d) "Securities" shall mean any shares of capital stock of the Company
(other than the 9% Series A Cumulative Preferred Stock of the Company)
whether now authorized or not, and any rights, options or warrants to
purchase securities of any type which are, or may become, convertible
into such capital stock of the Company.
(e) "Subsidiary" means any corporation, association partnership, limited
partnership, limited liability partnership, limited liability company,
business trust or other business entity of which 50% or more of the
total voting power of shares of stock entitled to vote in the election
of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by the Company or one or more of the
other subsidiaries of the Company or a combination thereof.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly
executed on the date first above written.
HOWMET INTERNATIONAL INC.
a Delaware corporation
By:
------------------------------------
Its:
-----------------------------------
THIOKOL HOLDING COMPANY
a Delaware corporation
By:
------------------------------------
Its:
-----------------------------------
THIOKOL CORPORATION
a Delaware corporation
By:
------------------------------------
Its:
-----------------------------------
-9-
<PAGE>
Exhibit 4.5
FORM OF
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (this "Agreement") is made and
entered into as of ________ __, 1997, by and between HOWMET INTERNATIONAL INC.,
a Delaware corporation (the "Company"), and CARLYLE-BLADE ACQUISITION PARTNERS,
L.P., a Delaware limited partnership ("CBAP").
This Agreement is made pursuant to the IPO Agreement, dated as of
October 8, 1997 (the "IPO Agreement"), by and among the Company, CBAP, Thiokol
Corporation, a Delaware corporation ("Thiokol") and Thiokol Holding Company, a
Delaware corporation and a wholly-owned subsidiary of Thiokol ("Holding"). In
order to induce CBAP to enter into the IPO Agreement, the Company has agreed to
provide the registration rights set forth in this Agreement.
The parties hereby agree as follows:
1. Definitions. (a) Specific Definitions.
----------- --------------------
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Agent: Any Person authorized to act and who acts on behalf of a
-----
Holder with respect to the transactions contemplated by this Agreement.
Business Days: All days other than Saturday or Sunday or any day on
-------------
which banking institutions in Washington, D.C. are authorized or obligated by
law to close.
Common Stock: Common Stock, par value $.0l per share, of the Company.
------------
Demand Registration: A registration pursuant to Section 3(a) hereof.
-------------------
Effective Date: The date the IPO is completed.
--------------
Exchange Act: The Securities Exchange Act of 1934, as amended from
------------
time to time.
Holder: CBAP and, subject to Section 10(j), any affiliate of CBAP or
------
any other Person acquiring Registrable Securities representing at least 5% of
the then outstanding shares of Common Stock; provided, however, that the term
"Holder" shall not include any Person who then holds fewer than 5% of the
outstanding shares of Common Stock and who may then sell Registrable Securities
in reliance upon Rule 144 promulgated under the Securities Act or any successor
rule or regulation.
<PAGE>
IPO: The initial public offering of the Common Stock pursuant to the
---
IPO Agreement.
Minimum Number: A number of Registrable Securities equal to 25% of
--------------
the Registrable Securities held by CBAP immediately after giving effect to the
transactions contemplated by the IPO Agreement (i.e., the IPO, the Sale and any
----
exercise of the Over-allotment Option and/or the 4% Option (as such terms are
defined in the IPO Agreement)), such number to be adjusted for any stock splits,
stock dividends or combinations of Registrable Securities after the date of this
Agreement.
NASD: The National Association of Securities Dealers, Inc.
----
NYSE: The New York Stock Exchange, Inc.
----
Person: An individual, firm, partnership, limited liability
------
partnership, corporation, limited liability company, trust, incorporated or
unincorporated association, joint venture, joint stock company or a government
or agency or political subdivision thereof.
Piggy-Back Registration: A registration pursuant to Section 3(e)
-----------------------
hereof.
Prospectus: The prospectus included in any Registration Statement, as
----------
amended or supplemented by any prospectus supplement with respect to the terms
of the offering of any portion of the Registrable Securities covered by the
Registration Statement and by all other amendments and supplements to the
prospectus, including post-effective amendments and all material incorporated by
reference in such prospectus.
Registrable Securities: (a) All shares of Common Stock owned after
----------------------
the Effective Date by a Holder, and (b) any shares of capital stock of the
Company issued or issuable with respect to such Common Stock by way of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or reorganization; provided, however,
-------- -------
that any such share or other security shall be deemed to be a Registrable
Security only if and so long as it is a Transfer Restricted Security.
Registration Statement: Any registration statement of the Company
----------------------
which covers Registrable Securities pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
Registration Statement, including post-effective amendments, and all exhibits
and all material incorporated by reference in such Registration Statement.
Securities Act: The Securities Act of 1933, as amended from time to
--------------
time.
SEC: The United States Securities and Exchange Commission.
---
2
<PAGE>
Shareholders Agreement: The Shareholders Agreement, dated as of the
----------------------
date hereof, by and among Holding, CBAP and the Company.
Transfer Restricted Securities: Securities acquired by a Holder other
------------------------------
than pursuant to an effective registration under Section 5 of the Securities Act
or pursuant to Rule 144; provided that a Security that has ceased to be a
--------
Transfer Restricted Security cannot thereafter become a Transfer Restricted
Security.
Underwritten Registration or Underwritten Offering: A registration in
--------------------------------------------------
which securities of the Company are sold (whether by the Company or by selling
stockholders) to an underwriter for reoffering to the public.
(b) Other Definitions. Other terms used herein may be defined
-----------------
elsewhere in this Agreement and, unless otherwise indicated, shall have such
defined meaning through this Agreement.
2. Securities Subject to this Agreement
------------------------------------
The securities entitled to the benefits of this Agreement are the
Registrable Securities.
3. Demand Registration and Piggy-Back Registration
-----------------------------------------------
(a) Request for Registration by Holders of Registrable Securities. At
-------------------------------------------------------------
any time following the earlier of the second anniversary of the Effective Date
or a Change of Control (as defined in the Shareholders Agreement) of Thiokol and
prior to the fifth anniversary of the Effective Date (the "Demand Period"), a
Holder or Holders may deliver to the Company a written request that the Company
effect a registration or qualification with respect to up to all of the
Registrable Securities, but in no event for an amount of Registrable Securities
less than the Minimum Number (a "Request"). Upon receipt of a Request, the
Company will
(1) within ten (10) days of receipt of such a request, give
written notice of the proposed registration or qualification to all other
Holders; and
(2) as soon as practicable use its best efforts to effect such
registration or qualification (including, without limitation, the execution
in the applicable Registration Statement of an undertaking to file required
post-effective amendments, appropriate qualification under the applicable
blue sky or other state securities laws and appropriate compliance with
exemptive regulations issued under the Securities Act and any other
governmental requirements or regulations) as may be so requested and as are
reasonably necessary to permit or facilitate the sale and distribution of
all or such portion of such Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of
any other Holder joining in such Request, Holding or the Company in the
case of primary Registrable Securities requested by the
3
<PAGE>
Company to be registered as are specified in a written notice given to the
Company within 20 days after the date of such written notice from the
Company pursuant to Section 3(a)(1); provided, however, that the Company
-------- -------
will not be obligated to effect more than two registrations pursuant to
this Section 3(a) (plus up to an additional two registrations on Form S-3
(or successor Forms thereto)).
Notwithstanding anything to the contrary set forth in this Agreement,
the Company shall not be required to effect a Demand Registration within six
months after the effective date of any other Registration Statement of the
Company. In addition, notwithstanding anything to the contrary, if at the time
of any request to register Registrable Securities pursuant to this Section 3(a),
the Company is actively engaging, with the prior approval of the Company's Board
of Directors, in an Underwritten Offering as to which a Holder is eligible to
include Registrable Securities pursuant to Section 3(e) (subject to the
limitations and restrictions set forth in such Section 3(e)) or 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 requested
registration to the substantial detriment of the Company, then the Company may
at its option direct (a "Directive") in writing within ten (10) days of receipt
of such Request that such Request be delayed (and, if the Holders of a majority
of the Registrable Securities initiating such request so elect, withdrawn) for a
period not in excess of six months from the date of such Directive, which right
to delay a Request may be exercised by the Company not more than once during any
two-year period.
Subject to the foregoing provisions, the Company will file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable after receipt of the Request, and shall use
its best efforts to cause such registration statement and prospectus through
which such Demand Registration is effected to remain effective, (i) in the case
of a firm commitment underwritten public offering, until each underwriter has
completed the distribution of all securities purchased by it and, (ii) in the
case of any other offering, until the earlier of the sale of all Registrable
Securities covered thereby or 120 days after the effective date thereof.
(b) Effective Registration and Expenses. A registration of Registrable
-----------------------------------
Securities will not count as a Demand Registration until it has become effective
and has remained effective for the applicable period specified in Section 3(a).
The Company will pay Registration Expenses (as hereinafter defined) in
accordance with Section 6(a).
(c) Underwriter's Cutback. If the Holders of a majority in number of
---------------------
the Registrable Securities to be registered in a Demand Registration under this
Section 3 (or the Holder or Holders who initiated the Demand Registration) so
elect, the offering of such Registrable Securities pursuant to such Demand
Registration shall be in the form of an Underwritten Offering. In such event, if
the managing underwriter or underwriters of such offering advise the Company and
the Holders in writing that in their opinion the Registrable Securities
requested to be included in such offering is sufficiently large so as to
materially and adversely affect the success of the offering, the
4
<PAGE>
Company will include in such registration the maximum amount of Registrable
Securities which in the opinion of such managing underwriter or underwriters can
be sold without any such material adverse effect (pro rata among the Holders who
have requested to be included in such registration pursuant to Section 3(a)).
(d) Selection of Underwriters. If any Demand Registration shall be in the
-------------------------
form of an Underwritten Offering, the investment banker or bankers and manager
or managers that will administer the offering will be selected by Holders of a
majority in number of the Registrable Securities to be included in such
offering; provided that such investment bankers and managers must be reasonably
--------
satisfactory to the Company.
(e) Piggy-Back Registration. If during the Demand Period the Company
-----------------------
determines to file a registration statement under the Securities Act relating to
a proposed sale to the public of shares of its securities (but excluding
registrations relating solely to employees' stock option or purchase plans or
relating solely to a transaction employing SEC Form S-4 or Form S-8 or successor
Forms thereto), either for its own account or the account of a security holder
or holders, the Company shall:
(1) promptly give each Holder written notice thereof (which will
include, to the extent known at the time, a list of the jurisdictions in
which the Company intends to attempt to qualify such securities under the
applicable blue sky or other state securities laws, the proposed offering
price or price range, and the plan of distribution);
(2) include in such registration (and any related qualification under
blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made within 25 days after such written notice from the Company,
by any Holder; and
(3) use its best efforts to cause the managing underwriter or
underwriters of such proposed Underwritten Offering to permit the
Registrable Securities requested to be included in the registration
statement for such offering to be included on the same terms and conditions
as any similar securities of the Company included therein. Notwithstanding
the foregoing, if the managing underwriter or underwriters of such offering
deliver a written opinion to the Company and the Holders that marketing
considerations require a limitation on the number of shares of Common Stock
offered pursuant to any Registration Statement filed under this Section,
the Company will include in such registration (i) first, the securities the
Company proposes to sell and (ii) second, the Registrable Securities
requested to be included therein, which in the opinion of such underwriters
(after taking into account the securities to be sold pursuant to clause
(i)) can be sold without having a material adverse effect on the offering,
pro rata among the Holders on the basis of the number of Registrable
Securities owned by such Holders requested to be included in such
registration. The
5
<PAGE>
Company will bear all Registration Expenses in connection with such a
Piggy-Back Registration. Notwithstanding anything to the contrary herein,
if the managing underwriter or underwriters of such offering deliver a
written opinion to the Company and the Holders that marketing
considerations require that no shares of Registrable Securities be included
in such offering, then the Company may, after notice thereof to the Holders
of Registrable Securities requested to be included in such registration,
proceed with such offering without including therein such Registrable
Securities.
(f) Holding Rights Under Call Option and Right of First Refusal.
-----------------------------------------------------------
The rights of any Holder to register shares under this Section 3 shall be
subject to any rights Holding may have under Article III of the Shareholders
Agreement.
4. Hold-Back Agreements
--------------------
(a) Restrictions on Public Sales by Holders. Each Holder agrees, if
---------------------------------------
requested in writing by the managing underwriters in an Underwritten Offering,
with respect to any Underwritten Offering in which such Holder's Registrable
Securities are covered by a Registration Statement filed pursuant to Section 3
hereof, not to effect any public sale or distribution of securities of the
Company of the same class as the securities included in such Registration
Statement, including a sale pursuant to Rule 144 under the Securities Act
(except as part of such Underwritten Registration), during the 90-day period
following the effective date of the Registration Statement for each Underwritten
Offering made pursuant to such Registration Statement, in each case to the
extent timely notified in writing by the Company or the managing underwriters.
(b) Restrictions on Public Sale by the Company and Others.
-----------------------------------------------------
The Company agrees:
(1) not to effect any public sale or distribution of its equity
securities during the 30-day period prior to, and during the 90-day period
after, the effective date of any Underwritten Offering made pursuant to a
Registration Statement filed under Section 3 hereof, to the extent timely
requested in writing by the managing underwriters (except as part of such
Underwritten Registration or pursuant to registrations on Forms S-4 or S-8
or any successor form to such Forms); and
(2) to cause each holder of its privately placed equity securities
who beneficially owns at least one percent of any class of the Company's
outstanding equity securities issued by the Company at any time on or after
the date of this Agreement to agree not to effect any public sale or
distribution of any such securities during the period described in Section
4(b)(i) above, including a sale pursuant to Rule 144 under the Securities
Act (except as part of such Underwritten Registration, if permitted).
6
<PAGE>
5. Registration Procedures
-----------------------
In connection with the Company's registration obligations pursuant to
Section 3 hereof, the Company will use its best efforts to effect such
registration to permit the sale of such Registrable Securities in accordance
with the intended method or methods of disposition thereof, and pursuant thereto
the Company will as expeditiously as possible:
(a) before filing a Registration Statement or Prospectus or any
amendments or supplements thereto, furnish to the Holders of the Registrable
Securities covered by such registration statement and the managing underwriters,
if any, copies of all such documents proposed to be filed, which documents will
be made available for review by such Holders and managing underwriters, and the
Company will not file any Registration Statement or amendment thereto or any
Prospectus or any supplement thereto to which the Holders of a majority in
number of the Registrable Securities covered by the Registration Statement or
the underwriters, if any, shall reasonably object;
(b) prepare and file with the SEC such amendments and post-effective
amendments to any Registration Statement, and such supplements to the
Prospectus, as may be reasonably requested by the Holder or any managing
underwriter of Registrable Securities or as may be required by the rules,
regulations or instructions applicable to the registration form utilized by the
Company or by the Securities Act or otherwise necessary to keep such
Registration Statement effective for the applicable period and cause the
Prospectus as so supplemented to be filed pursuant to Rule 424 under the
Securities Act; and comply with the provisions of the Securities Act;
(c) notify the selling Holders and the managing underwriters, if any,
promptly, and (if requested by any such Person) confirm such advice in writing,
(1) when the Prospectus or any Prospectus supplement or post-
effective amendment has been filed, and, with respect to the Registration
Statement or any post-effective amendment, when the same has become
effective,
(2) of any request by the SEC for amendments or supplements to the
Registration Statement or the Prospectus or for additional information,
(3) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose,
(4) if at any time the representations and warranties of the
Company contemplated by paragraph (n) below cease to be true and correct,
7
<PAGE>
(5) of the receipt by the Company of any notification with respect
to the suspension of the qualification of the Registrable Securities for
sale in any jurisdiction or the initiation or threatening of any proceeding
for such purpose, and
(6) of the existence of any fact which results in the Registration
Statement, the Prospectus or any document incorporated therein by reference
containing an untrue statement of material fact or omitting to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading;
(d) use best efforts to obtain the withdrawal of any order suspending
the effectiveness of the Registration Statement at the earliest possible moment;
(e) if reasonably requested by the managing underwriter or underwriters
or a selling Holder, as promptly as practicable incorporate in a Prospectus
supplement or post-effective amendment such necessary information as the
managing underwriters and the Holders of a majority in number of the Registrable
Securities being sold reasonably request to have included therein relating to
the plan of distribution with respect to such Registrable Securities, including,
without limitation, information with respect to the amount of Registrable
Securities being sold to such underwriters, the purchase price being paid
therefor by such underwriters and with respect to any other terms of the
underwritten (or best efforts underwritten) offering of the Registrable
Securities to be sold in such offering; and make all required filings of such
Prospectus supplement or post-effective amendment as promptly as practicable
after being notified of the matters to be incorporated in such Prospectus
supplement or post-effective amendment;
(f) at the request of any selling Holder, furnish to such Holder and
each managing underwriter, without charge, such number of conformed copies of
the Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference) as such
Holder may reasonably request;
(g) deliver to each selling Holder and the underwriters, if any, without
charge, as many copies of the Prospectus (including each preliminary prospectus)
and any amendment or supplement thereto as such Persons may reasonably request;
the Company consents to the use of the Prospectus or any amendment or supplement
thereto by each of the selling Holder and the underwriters, if any, in
connection with the offering and sale of the Registrable Securities covered by
the Prospectus or any amendment or supplement thereto;
(h) in connection with any public offering of Registrable Securities,
register or qualify or cooperate with the selling Holders, the managing
underwriters, if any, and their respective counsel in connection with the
registration or qualification of
8
<PAGE>
such Registrable Securities for offer and sale under the securities or blue sky
laws of such jurisdictions as any seller or underwriter reasonably requests in
writing and do any and all other acts or things necessary or advisable to enable
the disposition in such jurisdictions of the Registrable Securities covered by
the Registration Statement; provided that the Company will not be required
--------
to qualify generally to do business in any jurisdiction where it is not then so
qualified or to take any action which would subject it to general service of
process in any such jurisdiction where it is not then so subject;
(i) cooperate with the selling Holders and the managing underwriters, if
any, to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold and, if not required by
applicable law, not bearing any restrictive legends; and enable such Registrable
Securities to be in such denominations and registered in such names as the
managing underwriters may request at least two business days prior to any sale
of Registrable Securities to the underwriters;
(j) use its best efforts to cause the Registrable Securities covered by
the applicable Registration Statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof or the underwriters, if any, to consummate the
disposition of such Registrable Securities;
(k) if any fact contemplated by paragraph (c)(6) above shall exist, use
its best efforts to prepare a supplement or post-effective amendment to the
Registration Statement or the related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the Holders of the Registrable Securities, the Prospectus will not
contain an untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading;
(l) use its best efforts to cause all Registrable Securities covered by
the Registration Statement to be listed on the NYSE;
(m) not later than the effective date of the applicable Registration
Statement, provide a CUSIP number for all Registrable Securities and provide the
applicable trustees or transfer agents with printed certificates for the
Registrable Securities which are in a form eligible for deposit with Depositary
Trust Company;
(n) with respect to an Underwritten Offering or other transaction in
which an investment banking firm significantly participates, enter into
customary agreements with investment bankers and underwriters (including
underwriting agreements in customary form) and take all other appropriate
actions that the underwriter or investment banker may reasonably request in
order to expedite or facilitate the disposition of such Registrable Securities
and in such connection:
9
<PAGE>
(1) make such representations and warranties to the selling
Holders and the underwriters, if any, in form, substance and scope as are
customarily made by issuers to underwriters in primary Underwritten
Offerings or in the type of offering in which the investment bank is
significantly participating;
(2) obtain opinions of counsel to the Company and updates thereof
addressed to each selling Holder and the underwriters, if any, covering the
matters customarily covered in opinions requested in Underwritten Offerings
or in the type of offering in which the investment bank is significantly
participating and such other matters as may be reasonably requested by such
underwriters or other participating investment banks;
(3) obtain "cold comfort" letters and updates thereof from the
Company's independent certified public accountants addressed to selling
Holders and the underwriters, if any, such letters to be in customary form
and covering matters of the type customarily covered in "cold comfort"
letters to underwriters in connection with primary Underwritten Offerings;
(4) if an underwriting agreement is entered into, cause the same
to set forth in full the indemnification provisions and procedures of
Section 7 hereof (or such other substantially similar provisions and
procedures as the underwriters shall reasonably request) with respect to
all parties to be indemnified pursuant to said Section; and
(5) deliver such documents and certificates as may be reasonably
requested by the Holders of a majority of the Registrable Securities being
sold and the managing underwriters, if any, to evidence compliance with
paragraph (k) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company.
The above shall be done at the effectiveness of such Registration Statement,
each closing under any underwriting or similar agreement as and to the extent
required thereunder and from time to time as may reasonably be requested by the
underwriter or other participating investment bank, all in a manner consistent
with customary industry practice;
(o) make available to a representative of the Holders of a majority in
number of the Registrable Securities, any managing underwriter participating in
any disposition pursuant to such Registration Statement, and any attorney or
accountant retained by the sellers or managing underwriter, all financial and
other records, pertinent corporate documents and properties of the Company, and
cause the Company's officers, directors and employees to supply all information
reasonably requested (taking into account the number of Registrable Securities
held by the requesting Holder) by any such representative, underwriter, attorney
or accountant in connection with the registration, with respect to each at such
time or times as the Company shall reasonably determine; provided that any
--------
records, information
10
<PAGE>
or documents that are designated by the Company in writing as confidential shall
be kept confidential by such Persons unless disclosure of such records,
information or documents is required by court or administrative order;
(p) otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC, and make generally available to its security
holders, earnings statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 promulgated thereunder;
(q) cooperate and assist in any filings required to be made with the
NASD and/or the NYSE and in the performance of any due diligence investigation
by any underwriter (including any "qualified independent underwriter" that is
required to be retained in accordance with the rules and regulations of the
NASD); and
(r) promptly prior to the filing of any document which is to be
incorporated by reference into the Registration Statement or the Prospectus
(after initial filing of the Registration Statement) provide copies of such
document to counsel to the selling Holders and to the managing underwriters, if
any, make the Company's representatives available for discussion of such
document and make such changes in such document prior to the filing thereof as
counsel for such selling Holder or underwriters may reasonably request.
The Company may require each selling Holder to furnish to the Company
such information regarding such Holder and the distribution of such securities
as the Company may from time to time reasonably request in writing.
Each Holder agrees by acquisition of such Registrable Securities that,
upon receipt of any notice from the Company of the happening of any event of the
kind described in paragraph (k) above, such Holder will forthwith discontinue
disposition of Registrable Securities until such Holder's receipt of the copies
of the supplemented or amended Prospectus contemplated by paragraph (k) above,
or until it is advised in writing by the Company that the use of the Prospectus
may be resumed, and has received copies of any additional or supplemental
filings which are incorporated by reference in the Prospectus, and, if so
directed by the Company, such Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Registrable Securities
current at the time of receipt of such notice. In the event the Company shall
give any such notice, the time periods mentioned in Section 4(a) hereof shall be
extended by the number of days during the period from and including the date of
the giving of such notice to and including the date when each selling Holder
either receives the copies of the supplemented or amended prospectus
contemplated by paragraph (k) above or is advised in writing by the Company that
the use of the Prospectus may be resumed.
Nothing set forth in this Section 5 is intended to impair the Company
from making filings required under the Exchange Act on a timely basis; provided,
--------
however,
- -------
11
<PAGE>
that the Company shall provide drafts of such filings to selling Holders at
least five Business Days prior to the date the filing thereof is due and shall
cooperate with such Holders with respect to such filings and make such changes
or modifications to such filings as may be reasonably requested (in light of the
requirements of applicable law) by such Holders or its counsel.
6. Registration Expenses
---------------------
(a) All expenses incident to the Company's performance of or compliance
with this Agreement will be paid by the Company, regardless whether the
Registration Statement becomes effective (unless (i) the offering to which the
Registration Statement applies shall be withdrawn at the request of the Holder
who initiated the Demand Registration not as a result of a breach by the Company
of its obligations hereunder and (ii) such Holder notifies the Company that such
offering shall not count as a Demand Registration, in which case all such
expenses shall be paid by such Holder). Without limiting the foregoing, the
Company shall pay all expenses incident to a Demand Registration that has not
become and remained effective for the period specified in Section 3(a), other
than as a result of a withdrawal at the request of the Holders. The expenses to
be paid by the Company shall include, without limitation:
(1) all registration and filing fees (including, without
limitation, with respect to filings and registrations required to be made
with the NASD and/or NYSE);
(2) fees and expenses of compliance with securities or blue sky
laws (including, without limitation, fees and disbursements of counsel for
the underwriters in connection with blue sky qualifications of the
Registrable Securities and determination of their eligibility for
investment under the laws of such jurisdictions as the managing
underwriters or the Holders of a majority of the Registrable Securities
being sold may designate);
(3) printing (including, without limitation, expenses of printing
or engraving certificates for the Registrable Securities in a form eligible
for deposit with Depositary Trust Company and of printing prospectuses),
messenger, telephone and delivery expenses;
(4) fees and disbursements of counsel for the Company, the
underwriters and for the selling Holders;
(5) fees and disbursements of all independent certified public
accountants of the Company (including, without limitation, the expenses of
any special audit and "cold comfort" letters required by or incident to
such performance);
(6) fees and expenses of other Persons retained by the Company;
and
12
<PAGE>
(7) fees and expenses associated with any NASD and/or NYSE filing
required to be made in connection with the Registration Statement (all such
expenses being herein called "Registration Expenses").
Registration Expenses shall not include fees, discounts, commissions
or disbursements of underwriters, selling brokers, dealer managers or similar
securities professionals relating to the distribution of the Registrable
Securities or legal expenses of any Person other than the Company and the
selling Holders.
(b) The Company will, in any event, pay its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit, the fees and expenses incurred in connection with the listing of the
securities to be registered on each securities exchange on which similar
securities issued by the Company are then listed, rating agency fees and the
fees and expenses of any Person, including special experts, retained by the
Company.
7. Indemnification
---------------
(a) Indemnification by the Company. The Company agrees to indemnify
------------------------------
and hold harmless each Holder, its officers, directors, employees and Agents and
each Person who controls the Holder within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act (each such person being
sometimes hereinafter referred to as an "Indemnified Holder") from and against
all losses, claims, damages, liabilities and expenses (including reasonable
costs of investigation and legal expenses) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or based upon 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, liabilities or expenses arise out of or
are based upon any such untrue statement or omission or allegation thereof based
upon information furnished in writing to the Company by such holder expressly
for use therein; provided, however, that the Company shall not be liable in any
-------- -------
such case to the extent that any such loss, claim, damage, liability or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in any preliminary prospectus if (i) such
Holder failed to send or deliver a copy of the Prospectus with or prior to the
delivery of written confirmation of the sale of Registrable Securities and (ii)
the Prospectus would have corrected such untrue statement or omission; and
provided, further, that the Company shall not be liable in any such case to the
- -------- -------
extent that any such loss, claim, damage, liability or expense arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission in the Prospectus, if such untrue statement or alleged untrue
statement, omission or alleged omission is corrected in an amendment or
supplement to the Prospectus and if, having previously been furnished
13
<PAGE>
by or on behalf of the Company with copies of the Prospectus as so amended or
supplemented, such Holder thereafter fails to deliver such Prospectus as so
amended or supplemented prior to or concurrently with the sale of a Registrable
Security to the person asserting such loss, claim, damage, liability or expense
who purchased such Registrable Security which is the subject thereof from such
Holder. This indemnity will be in addition to any liability which the Company
may otherwise have. The Company will also indemnify underwriters, selling
brokers, dealer managers and similar securities industry professionals
participating in the distribution, their officers and directors and each Person
who controls such Persons (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) to the same extent as provided above with
respect to the indemnification of the Indemnified Holders of Registrable
Securities.
If any action or proceeding (including any governmental investigation
or inquiry) shall be brought or asserted against an Indemnified Holder in
respect of which indemnity may be sought from the Company, such Indemnified
Holder shall promptly notify the Company in writing, and the Company shall
assume the defense thereof, including the employment of counsel reasonably
satisfactory to such Indemnified Holder and the payment of all expenses. Such
Indemnified Holder shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall be the expense of such Indemnified Holder unless (a) the
Company has agreed to pay such fees and expenses or (b) the Company shall have
failed to assume the defense of such action or proceeding or has failed to
employ counsel reasonably satisfactory to such Indemnified Holder in any such
action or proceeding or (c) if the representation of such Indemnified Holder by
the counsel retained by the Company would be inappropriate due to actual or
potential differing interests between the Indemnified Holder and any other party
represented by such counsel in such proceeding (in which case, if such
Indemnified Holder notifies the Company in writing that it elects to employ
separate counsel at the expense of the Company, the Company shall not have the
right to assume the defense of such action or proceeding on behalf of such
Indemnified Holder, it being understood, however, that the Company shall not, in
connection with any one such action or proceeding or separate but substantially
similar or related actions or proceedings in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the reasonable
fees and expenses of more than one separate firm of attorneys at any time for
such Indemnified Holder and any other Indemnified Holders, which firm shall be
designated in writing by such Indemnified Holders). The Company shall not be
liable for any settlement of any such action or proceeding effected without its
written consent, but if settled with its written consent, or if there be a final
judgment for the plaintiff in any such action or proceeding, the Company agrees
to indemnify and hold harmless such Indemnified Holders from and against any
loss or liability by reason of such settlement or judgment.
(b) Indemnification by Holder of Registrable Securities. Each Holder
---------------------------------------------------
agrees to indemnify and hold harmless the Company, its directors and officers
and each Person, if any, who controls the Company within the meaning of either
Section 15
14
<PAGE>
of the Securities Act or Section 20 of the Exchange Act to the same extent as
the foregoing indemnity from the Company to such Holder, but only with respect
to information relating to such Holder furnished in writing by such Holder
expressly for use in any Registration Statement or Prospectus, or any amendment
or supplement thereto, or any preliminary prospectus. In case any action or
proceeding shall be brought against the Company or its directors or officers or
any such controlling person, in respect of which indemnity may be sought against
a Holder, such Holder shall have the rights and duties given the Company and the
Company or its directors or officers or such controlling person shall have the
rights and duties given to each Holder by the preceding paragraph. In no event
shall the liability of any selling Holder under this Section 7(b) be greater in
amount than the dollar amount of the net proceeds received by such Holder upon
the sale of the Registrable Securities giving rise to such indemnification
obligation.
The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in the distribution, to the same extent as provided
above with respect to information so furnished in writing by such Persons
specifically for inclusion in any Prospectus or Registration Statement or any
amendment or supplement thereto, or any preliminary prospectus.
(c) Contribution. If the indemnification provided for in this Section
------------
7 is unavailable to an indemnified party under Section 7(a) or Section 7(b)
hereof (other than by reason of exceptions provided in those Sections) in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the Company, on the one hand, and of the Indemnified Holder, on the other hand,
in connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of the Company, on the one hand,
and of the Indemnified Holder, 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 Company or by the Indemnified Holder and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The amount paid or payable by
a party as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the limitations set
forth in the second paragraph of Section 7(a), any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim.
The Company and each Holder agree that it would not be just and
equitable if contribution pursuant to this Section 7(c) were determined by pro
rata
15
<PAGE>
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 7(c), an Indemnified Holder shall
not be required to contribute any amount in excess of the amount by which the
total price at which the Registrable Securities sold by such Indemnified Holder
or its affiliated Indemnified Holders and distributed to the public were offered
to the public exceeds the amount of any damages which such Indemnified Holder,
or its affiliated Indemnified Holders, 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.
8. Rule 144
--------
The Company will use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Exchange Act or the Securities Act and, at the request of any Holder who
proposes to sell securities in compliance with Rule 144 promulgated under the
Securities Act (or any successor rule), as such rule may be amended from time to
time, the Company will (i) forthwith furnish to the Holder a written statement
of compliance with the filing requirements of the Commission as set forth in
Rule 144, and (ii) make available to the public and such Holder such information
as will enable such Holder to make sales pursuant to Rule 144 (or any successor
rule).
9. Participation in Underwritten Registrations
-------------------------------------------
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Registrable Securities on
the basis provided in any underwriting arrangements approved by the underwriters
and other Persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
10. Miscellaneous
-------------
(a) Remedies. Each Holder, in addition to being entitled to exercise
--------
all rights provided herein and granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this Agreement
and hereby agrees to waive the defense in any action for specific performance
that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not on or after the
--------------------------
date of this Agreement enter into any agreement with respect to its securities
which is
16
<PAGE>
inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof or impairs the rights granted
hereunder. The Company has not previously entered into any agreement with
respect to its securities granting any registration rights to any Person which
has not been terminated on or prior to the date hereof.
(c) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least 85% of the outstanding Registrable Securities. Notwithstanding the
foregoing, a waiver or consent to departure from the provisions hereof that
relates exclusively to the rights of Holders whose securities are being sold
pursuant to a Registration Statement and that does not directly or indirectly
affect the rights of other Holders may be given by the Holders of 50% or more of
the Registrable Securities being sold.
(d) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, registered first-
class mail, telex, telecopier, or air courier guaranteeing overnight delivery:
(1) if to CBAP or any affiliate of CBAP, The Carlyle Group, 1001
Pennsylvania Avenue, N.W., Washington, D.C. 20004, Attention: John F.
Harris, with a copy to: Latham & Watkins, 1001 Pennsylvania Avenue, N.W.,
Suite 1300, Washington, D.C. 20004, Attention: Bruce E. Rosenblum;
(2) if to any other Holder, at the most current address given by
such Holder to the Company; and
(3) if to the Company, to Howmet International Inc., 475 Steamboat
Road, Greenwich, Connecticut 06836-1960, Attention: General Counsel, with a
copy to: Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York, New
York 10019, Attention: Eric S. Robinson.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; when received if
deposited in the mail, postage prepaid, if mailed; and on the next business day,
if timely delivered to an air courier guaranteeing overnight delivery.
(e) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
17
<PAGE>
(g) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York.
(h) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(i) Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings as to the subject matter, other than those set forth
or referred to herein with respect to the registration rights granted by the
Company with respect to the securities sold pursuant to the Purchase Agreement.
This Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
(j) Successors and Assigns. The rights and obligations granted to CBAP
----------------------
pursuant to this Agreement may be transferred to any affiliate of CBAP or to any
Person acquiring Registrable Securities representing at least 5% of the then
outstanding shares of Common Stock; provided, however, that the transferee will
provide written notice to the Company stating the name and address of the
transferee, identifying the securities with respect to which such rights have
been assigned and agreeing to be bound by this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
HOWMET INTERNATIONAL INC.
By
------------------------------------
Name:
Title:
CARLYLE-BLADE ACQUISITION
PARTNERS, L.P.
By: CARLYLE PARTNERS II, L.P.
Its: General Partner
18
<PAGE>
By: TC GROUP, L.L.C.
Its: General Partner
By: TCG HOLDINGS COMPANY
Its: Managing Member
By:
-------------------------------------
Name:
Title:
19
<PAGE>
Exhibit 10.1
FORM OF
INTERCOMPANY SERVICES AGREEMENT
This Intercompany Services Agreement (this "Agreement") is made and entered
into as of this _____ day of ________________, 1997, by and between Howmet
International Inc., a Delaware corporation with headquarters in Greenwich,
Connecticut ("Howmet"), and Thiokol Corporation, a Delaware corporation with
headquarters in Ogden, Utah ("Thiokol").
1. COMMENCEMENT AND TERM OF AGREEMENT
----------------------------------
a. Beginning on the date that Howmet shall have completed an
initial public offering of its Common Stock (the "Effective Date"), Thiokol
shall begin to provide to Howmet the services set forth in Section 2a of this
Agreement ("Corporate Services").
b. Unless terminated earlier by agreement of the parties hereto
or in accordance with its terms, this Agreement shall have a term of three (3)
years from its Effective Date.
2. SERVICES, INSURANCE COVERAGE AND EMPLOYEE BENEFITS
--------------------------------------------------
a. The Corporate Services provided under this Agreement include,
but are not limited to the following:
(1) Tax planning advice and return preparation
(2) Corporate control and Internal audit
<PAGE>
(3) Risk management and Insurance (see Section 4 hereof)
(4) Health, safety and environmental
(5) Human resources and employee relations
(6) Legal services (other than outside counsel services)
(7) Employee benefit plan administration (see Section 5 hereof)
(8) Treasury and cash management
(9) Investor Relations and Public Affairs
(10) Executive Department services
b. To the extent provided in this Agreement, Thiokol may include Howmet
in its insurance coverages ("Insurance"). The foregoing notwithstanding, the
parties hereto recognize that Thiokol is neither an insurance broker nor an
insurance carrier. At no time will Thiokol be required by this Agreement or
otherwise by Howmet to act as an insurance broker or carrier.
c. In addition to the above services and coverages, Thiokol may provide
Howmet employees with benefit plans and programs and the corresponding
administrative services ("Benefit Plans").
3. COSTS AND FEES FOR CORPORATE SERVICES
-------------------------------------
a. In return for Corporate Services provided for herein, Howmet shall
pay Thiokol the costs of the services plus a fee, both amounts determined by
Thiokol from time to time on a basis consistent with its past practices,
recognizing, to the extent practicable, Thiokol's increased ownership of
Howmet's stock and Howmet's requirements for the Corporate Services. Howmet
shall pay these costs and fees in arrears on the last business day of the period
to which the costs and fees relate.
-2-
<PAGE>
b. In some cases, the services provided to Howmet by Thiokol will
include some services provided by third parties (e.g. insurance brokers and
carriers; actuaries; financial printers). Generally, such third party services
shall be billed directly to Howmet with no "mark up" by Thiokol. However, the
cost of Thiokol's arranging for third parties' services shall be billed to
Howmet along with a fee, as described herein.
4. Insurance.
---------
a. If Thiokol arranges for an insurance policy covering only
Howmet risks or interests, the costs of such a policy shall be handled in
accordance with Section 3b, above.
b. If Thiokol arranges for an insurance policy that covers risks
or interests of both Howmet and Thiokol, then the following terms and conditions
shall apply:
(1) Howmet shall, within 30 days of its receipt of a
reasonably detailed invoice from Thiokol, pay the portion of the premiums and
other charges for the Insurance attributable to the coverage provided to Howmet.
Notwithstanding the foregoing, if Thiokol provides Howmet with at least five
days' advance written notice, Howmet agrees to make funds available, as and when
to be paid by Thiokol, to Thiokol so that Thiokol may pay the premiums and other
charges for the Insurance attributable to the coverage provided to Howmet. The
portion of such premiums and other charges payable by Howmet shall be allocated
in good faith by Thiokol in a manner to reflect the cost to Thiokol of the
insurance premiums and other charges that are properly attributable to Howmet
(but without any allocation of Thiokol overhead costs). The Insurance provided
shall be subject to such policies of insurance or self-insurance, and such
-3-
<PAGE>
guidelines or procedures in respect of insurance or self-insurance, as Thiokol
shall determine. In the event the terms of the Insurance change from those
terms in effect immediately prior to the date hereof, Thiokol agrees (i) to the
extent Thiokol is aware of a material change prior to the effective date of the
change, to provide notice to Howmet of the change prior to its effective date,
or (ii) otherwise to provide notice to Howmet upon becoming aware of the change.
It is expressly agreed by Howmet and Thiokol that any self-insurance, retention
or deductible shall be for the account of and be an obligation of Howmet, and
that Howmet's obligations in respect of such self-insurance, retention or
deductible shall survive the termination of this Agreement.
(2) Termination of Insurance. Either Howmet or Thiokol may
------------------------
terminate all or any portion of the Insurance at any time on 90 days' prior
written notice to the other party hereto. Notwithstanding the foregoing, so long
as Thiokol beneficially owns shares of capital stock of Howmet possessing 50% or
more of the voting power of all then-outstanding shares of capital stock, Howmet
may not, without the prior written consent of Thiokol, terminate all or any
portion of the Insurance without providing evidence satisfactory to Thiokol in
its sole discretion that Howmet has obtained, or upon termination of such
Insurance will obtain, comparable insurance coverage. In the event all or any
portion of the Insurance is terminated, if appropriate, the charges therefor
shall be adjusted equitably to reflect such termination.
5. EMPLOYEE BENEFIT PLANS
----------------------
a. Plans and Services. Prior to the Effective Date, employees of
------------------
Howmet participated in the employee benefit plans sponsored by Howmet and
administered by Howmet. On and after the Effective Date, employees of Howmet
shall be eligible to participate in Thiokol plans subject to the terms of the
governing plan documents as interpreted by the appropriate plan fiduciaries and
-4-
<PAGE>
subject to Thiokol's decision whether the inclusion of Howmet employees in a
particular plan is economically justified. On and after the Effective Date,
subject to regulatory requirements, the Thiokol Corporate Benefits Department
will continue to administer those Thiokol plans in which employees of Howmet
participate in substantially the same manner as it administered the plans prior
to the Effective Date.
b. Direct Cost Reimbursement. Howmet shall reimburse Thiokol for the
-------------------------
direct costs associated with the plans in which Howmet employees participate.
For this purpose, direct costs associated with the plans shall include those
items charged to participating employers as direct costs prior to the Effective
Date which included the cost of the benefits (premiums and contributions) and
administration and management fees of third party providers and internal
personnel. As appropriate, Howmet's allocable share of the direct costs will be
determined consistent with the methodology used prior to the Effective Date.
Thiokol will provide an estimate of the direct costs allocable to Howmet at the
same time such information is provided to other business units of Thiokol that
are participating employers in the plans. Thiokol will invoice Howmet on a
monthly basis and Howmet shall make payment to Thiokol within 30 days of receipt
of an invoice. Notwithstanding the foregoing, if Thiokol provides Howmet with
at least five days' advance written notice, Howmet agrees to make funds
available, as and when to be paid by Thiokol, to Thiokol so that Thiokol may
make contributions or payments to, for the account of, or in respect of current
or former employees or their spouses of other beneficiaries (i) under tax-
qualified benefit plans or (ii) that are generally made on a predetermined
periodic basis. Experience rated insurance contracts will be actualized as soon
as practicable after the end of each year; Howmet shall promptly reimburse
Thiokol the amount of any increased cost and Thiokol will promptly refund to
Howmet any overcharges.
-5-
<PAGE>
c. Termination. Howmet or Thiokol may terminate participation by
-----------
Howmet in any plan sponsored by Thiokol by giving 180 days' written notice to
the other party, except that the date of termination may be extended by either
party if the termination of Howmet's participation would adversely affect the
tax qualification of the plan or its compliance with applicable regulatory
requirements. The termination date may also be extended to the earlier of an
additional 180 days or the expiration date of any contract pursuant to which
benefits are provided if termination within 180 days would adversely affect
rates or rights of other employees or if more time is necessary to effect an
orderly termination of Howmet's employees participation. If the termination
date is extended, Thiokol and Howmet will cooperate reasonably in establishing a
mutually agreeable termination date. Notice of less than 180 days may be given
by mutual written consent of Howmet and Thiokol. Unless Thiokol otherwise
agrees, termination shall be effective with respect to the entire plan. Thiokol
will promptly submit an invoice for, and Howmet shall promptly pay to Thiokol,
all costs incurred prior to the date of termination, including costs resulting
from the termination. All services offered by the Thiokol Corporate Benefits
Department with respect to such terminated benefit shall cease. Thiokol
thereafter will not be responsible for providing benefits of a like type to
Howmet employees.
d. Changes: Additional Services. Howmet may request changes in plan
-----------------------------
terms or services; approval of such changes shall be in the sole discretion of
Thiokol, which will not be exercised unreasonably. Howmet may request
additional services that, if agreeable to Thiokol, will be provided on a direct
cost basis to Howmet. From time to time, Thiokol may, as plan sponsor, make
changes in the benefit plans or in the administration of any of the plans.
e. Howmet Plans. Except for the executive compensation plans
------------
referenced in Exhibit A, on or after the Effective Date, no employee of Howmet
who is covered by a benefit plan sponsored by any entity other than
-6-
<PAGE>
Thiokol shall be entitled to simultaneous coverage under any plan sponsored by
Thiokol that provides a benefit of similar type, regardless of whether the other
plan provides more or less coverage than the Thiokol-sponsored plan. Howmet
shall be solely responsible for benefits delivery and administration of plans
covering its employees that are not sponsored by Thiokol. A list of plans not
sponsored by Thiokol that covered Howmet employees prior to the Effective Date
is attached as Exhibit B.
f. Regulatory Compliance. In the event Howmet provides benefit plans
---------------------
to its employees, other than those sponsored by Thiokol, Howmet will have sole
responsibility to comply with all regulatory requirements with respect to Howmet
plans. Notwithstanding the foregoing, Thiokol and Howmet agree to cooperate
fully with each other in the administration and coordination of regulatory and
administrative requirements that apply jointly to Howmet and Thiokol. Such
coordination, upon request, will include (but is not limited to) the following:
Sharing payroll data for determination of highly compensated employees,
providing census information (including accrued benefits) for purposes of
running discrimination tests, providing actuarial reports for purposes of
determining the funded status of any plan, review and coordination of insurance
and other third party contracts, and providing for review all summary plan
descriptions, requests for determination letters, insurance contracts, forms
5500, financial statement disclosures, and plan documents.
g. Executive Compensation. Certain executives also participate in
----------------------
executive compensation and benefit programs offered by Thiokol. These plans are
listed in Exhibit A and are administered by the Executive Vice President, Human
Resources and Administration of Thiokol.
h. Certain Notices. In the event there is an "ERISA Event," Thiokol
---------------
shall advise Howmet as soon as reasonably practicable after Thiokol
-7-
<PAGE>
determines the ERISA Event has occurred. For purposes of this Section 4(h), an
"ERISA Event" means (i) the termination of a Thiokol plan or the filing of a
Notice of Intent to Terminate such a plan, in either case, under Section 4041(c)
of the Employee Retirement Income Security Act of 1974, as amended from time to
time ("ERISA"); (ii) the institution of proceedings by the Pension Benefit
Guaranty Corporation (or any successor thereof) to terminate a Thiokol plan or
to appoint a trustee to administer such a plan or the receipt of notice by
Thiokol that such an action has been taken with respect to such a plan; (iii)
any substantial accumulated funding deficiency within the meaning of Section 412
of the Internal Revenue Code of 1986, as amended (the "Code") or Section 302 of
ERISA is incurred with respect to any plan sponsored by Thiokol and no waiver of
that deficiency has been obtained from the Internal Revenue Service; (iv) the
Internal Revenue Service determines that a Thiokol plan that is intended to be
qualified under Section 401 of the Code fails to meet the applicable
requirements of the Code and disqualifies the plan; or (v) an amendment to a
plan sponsored by Thiokol that results in a significant underfunding described
in Section 401(a)(29) of the Code or Section 307 of ERISA.
i. No Third Party Beneficiary. Nothing in this Agreement is
--------------------------
intended to entitle any employee or individual to any benefit or compensation
from Howmet or Thiokol or to otherwise establish or create any rights on the
part of any third party. Nothing in this agreement is intended to restrict or
limit Thiokol in the exercise of its rights or the fulfillment of its duties as
plan sponsor.
6. COOPERATION. Thiokol and Howmet shall cooperate with each other
-----------
with respect to all provisions of this Agreement and the Corporate Services,
Insurance (if any) and Benefit Plans (if any) provided hereunder.
7. LIMITATION OF LIABILITY. Except as may be provided in Section 8
-----------------------
below, Thiokol, its subsidiaries, affiliates, directors, officers, employees,
agents
-8-
<PAGE>
and permitted assigns (each, a "Thiokol Party") shall not be liable to
Howmet, any subsidiary or any affiliate, director, officer, employee, agent or
permitted assign of Howmet or any of its subsidiaries, (each, a "Howmet Party")
for any liabilities, claims, damages, losses or expenses, including, but not
limited to, any special, indirect, incidental or consequential damages, of a
Howmet Party arising in connection with this Agreement, the Corporate Services,
the Insurance or the Benefit Plans.
8. THIOKOL INDEMNIFICATION. Thiokol shall indemnify, defend and hold
-----------------------
harmless each of the Howmet Parties from and against all liabilities, claims,
damages, losses and expenses (including, but not limited to, court costs and
reasonable attorneys' fees) (collectively referred to as "Damages") of any kind
or nature, of third parties unrelated to any Howmet Party caused by or arising
in connection with the gross negligence or willful misconduct of any employee of
Thiokol in connection with the performance of the Corporate Services or the
administration of the Benefit Plans, or provision of the Insurance, except to
the extent that Damages were caused directly or indirectly by acts or omissions
of any Howmet Party; provided however, that in the case of a Benefit Plan,
Howmet's right of indemnification also shall extend to claims of Howmet's
employees but shall not extend to any Damages that otherwise would have been
owed in the absence of such gross negligence or willful misconduct.
Notwithstanding the foregoing, Thiokol shall not be liable for any special,
indirect, incidental, or consequential damages relating to such third party
claims. In the event that Howmet knows of a claim that may be the subject of
indemnification under this Section, it shall promptly notify Thiokol of such
claim and Thiokol, in its sole discretion, may defend, settle, or otherwise
litigate such claim.
9. HOWMET INDEMNIFICATION. Howmet shall indemnify, defend and hold
----------------------
harmless each of the Thiokol Parties, from and against all Damages of any kind
or nature, caused by or arising in connection with Howmet's failure to fulfill
-9-
<PAGE>
Howmet's obligations hereunder, except to the extent that such failure is
caused, directly or indirectly, by acts or omissions of any Thiokol Party.
Notwithstanding the foregoing, Howmet shall not be liable for any special,
indirect, incidental or consequential damages relating to such claims.
10. INFORMATION. Subject to applicable law, each party hereto
-----------
covenants and agrees to provide the other party with all information regarding
itself and transactions under this Agreement as are required by such other party
to comply with all applicable federal, state, county and local laws, ordinances,
regulations and codes, including, but not limited to, securities laws and
regulations.
11. CONFIDENTIAL INFORMATION. Howmet and Thiokol hereby covenant and
------------------------
agree to hold in trust and maintain confidential, except as otherwise required
by law, all Confidential Information relating to the other party or any of its
subsidiaries. Confidential Information shall mean all information disclosed by
either party to the other in connection with this Agreement whether orally,
visually, in writing or in any other tangible form, and includes, but is not
limited to, technical, economic and business data, know-how, flow sheets,
drawings, business plans, computer information data bases, and the like.
Without prejudice to the rights and remedies of any party to this Agreement, a
party disclosing any Confidential Information to the other party in accordance
with the provisions of this Agreement shall be entitled to equitable relief by
way of an injunction if the other party hereto breaches or threatens to breach
any provision of this Section 11.
12. ASSIGNMENT. Except as otherwise provided herein, neither party
----------
may assign or transfer any of its rights or duties under this Agreement to any
person or entity without the prior written consent of the other party.
-10-
<PAGE>
13. NOTICES. Any notice, instruction, direction or demand under the
-------
terms of this Agreement required to be in writing will be duly given upon
delivery, if delivered by hand, facsimile transmission or intercompany mail, or
five (5) days after posting if sent by certified mail, return receipt requested
to the following addresses:
Thiokol:
Thiokol Corporation
2475 Washington Blvd.
Ogden, Utah 84401-2398
Attention: Daniel S. Hapke, Jr.
Senior Vice President and General Counsel
Telecopy No.: (801) 629-2279
and
Howmet:
Howmet International Inc.
475 Steamboat Road
Greenwich, CT 06836-1960
Attention: Roland A. Paul
Vice President, General Counsel and Secretary
Telecopy No.: (203) 625-8771
or to such other address as either party may have furnished to the other in
writing in accordance with this Section 13.
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<PAGE>
14. GOVERNING LAW. This Agreement shall be construed in accordance
-------------
with and governed by the laws of the State of Utah except its choice of law
rules and except to the extent preempted by federal law.
15. SUSPENSION. The obligations of any party to perform any acts
----------
hereunder may be suspended if such performance is prevented by fires, strikes,
embargoes, riot, invasion, governmental interference, inability to secure goods
or materials, or other circumstances outside the control of the parties.
16. SEVERABILITY. If any provision of this Agreement shall be
------------
invalid or unenforceable, such invalidity or unenforceability shall not render
the entire Agreement invalid. Rather, the Agreement shall be construed as if
not containing the particular invalid or unenforceable provision, and the rights
and obligations of each party shall be construed and enforced accordingly.
17. RIGHTS UPON ORDERLY TERMINATION; SURVIVAL. Upon termination or
-----------------------------------------
expiration of this Agreement or any of the Services, Insurance or Plans
described herein, each party shall, upon request, forthwith return to the other
party all reports, paper, materials and other information required to be
provided to the other party by this Agreement. In addition, each party shall
assist the other in the orderly termination of this Agreement or any of the
Services, Insurance or Plans described herein. Notwithstanding any termination
of this Agreement, the obligations of the parties hereto to make payments
hereunder and the provisions of Sections 7, 8, 9 and 11 shall survive.
18. AMENDMENT. This Agreement may only be amended by a written
---------
agreement executed by all of the parties hereto.
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<PAGE>
19. ENTIRE AGREEMENT. This Agreement, including the exhibits hereto,
----------------
constitutes the entire agreement between the parties, and supersedes all prior
agreements, representations, negotiations, statements or proposals related to
the subject matter hereof.
20. COUNTERPARTS. This Agreement may be executed in separate
------------
counterparts, each of which will be deemed an original and all of which, when
taken together, shall constitute one agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
signed by their duly authorized representatives.
THIOKOL CORPORATION
By:__________________________
Name: _______________________
Title: _________________________
HOWMET INTERNATIONAL INC.
By:__________________________
Name: _______________________
Title: ______________________
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<PAGE>
EXHIBIT A
EXECUTIVE COMPENSATION PLANS
(TBD)
-14-
<PAGE>
EXHIBIT B
PLANS NOT SPONSORED BY THIOKOL THAT COVERED
HOWMET EMPLOYEES PRIOR TO THE EFFECTIVE DATE
(TBD)
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<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. 2 to the Registration
Statement (Form S-1 No. 333-37573) and related Prospectus of Howmet
International Inc. for the registration of approximately 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 12, 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. 2 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
10 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. 2 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 10, 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. 2 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 10, 1997
