<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 29, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
METALLURG HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 6719 23-29675771
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
--------------------------
800 THE SAFEGUARD BUILDING
435 DEVON PARK DRIVE
WAYNE, PENNSYLVANIA 19087
(610) 293-0838
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
ARTHUR R. SPECTOR
VICE PRESIDENT
METALLURG HOLDINGS, INC.
800 THE SAFEGUARD BUILDING
435 DEVON PARK DRIVE
WAYNE, PENNSYLVANIA 19087
(610) 293-0838
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
SAMUEL M. FEDER, ESQ.
ROGERS & WELLS LLP
200 PARK AVENUE
NEW YORK, NEW YORK 10166
(212) 878-8000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the exchange offer ("Exchange Offer") pursuant to the registration
agreement (the "Registration Agreement") described in the enclosed Prospectus
have been satisfied or waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, 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(d)
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. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
BE REGISTERED REGISTERED PER NOTE(1) OFFERING PRICE(1) FEE(2)
<S> <C> <C> <C> <C>
12 3/4% Series B Senior Discount Notes due
2008........................................... $121,000,000 53.865% $65,176,650 $19,234
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee under the
Securities Act of 1933.
(2) Calculated pursuant to Rule 457(f)(2).
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 OF 1933 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>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 29, 1998
OFFER TO EXCHANGE 12 3/4% SERIES B SENIOR DISCOUNT NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT FOR
ANY AND ALL OUTSTANDING 12 3/4% SERIES A SENIOR DISCOUNT NOTES DUE 2008
($121,000,000 PRINCIPAL AMOUNT OUTSTANDING AT MATURITY)
OF
METALLURG HOLDINGS, INC.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS
WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON
, 1998 (AS SUCH DATE MAY BE EXTENDED,
THE "EXPIRATION DATE").
Metallurg Holdings, Inc. (the "Issuer") hereby offers (the "Exchange
Offer"), upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal"), to exchange an aggregate of up to $121,000,000 principal amount
at maturity of 12 3/4% Series B Senior Discount Notes due 2008 (the "New Notes")
for an identical face amount of the outstanding 12 3/4% Series A Senior Discount
Notes due 2008 (the "Old Notes" and, with the New Notes, the "Notes"). The
issuance of the Old Notes generated gross proceeds of approximately $65.2
million to the Issuer. The terms of the New Notes are identical in all material
respects to the terms of the Old Notes except that the rights relating to the
exchange of Old Notes for New Notes and the restrictions on transfer set forth
on the Old Notes will not appear on the New Notes. See "The Exchange Offer." The
New Notes are being offered hereunder in order to satisfy certain obligations of
the Issuer under a Registration Agreement dated as of July 13, 1998 (the
"Registration Agreement") between the Issuer and BancBoston Securities Inc. (the
"Initial Purchaser"). Based on an interpretation by the staff of the Securities
and Exchange Commission (the "Commission") set forth in no-action letters issued
to third parties unrelated to the Issuer, New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold, and
otherwise transferred by a holder thereof (other than a holder which is an
"affiliate" of the Issuer within the meaning of Rule 405, under the Securities
Act of 1933, as amended (the "Securities Act"), without compliance with the
registration and the prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
holder's business and such holder has no arrangement with any person to
participate in or is engaged in the distribution of such New Notes.
The New Notes will mature on July 15, 2008. Commencing July 15, 2003, the
New Notes will accrue cash interest at the rate of 12 3/4% per annum, payable
semiannually in arrears on January 15 and July 15 of each year, commencing
January 15, 2004. The New Notes will be redeemable at the option of the Issuer,
in whole or in part, in cash, at any time on or after July 15, 2003, at the
redemption prices set forth herein, plus accrued and unpaid interest and
Liquidated Damages (as defined herein), if any, to the date of redemption. In
addition, prior to July 15, 2001, up to 34% of the aggregate principal amount at
maturity of the New Notes originally issued may be redeemed at the option of the
Issuer, in whole or in part, at any time and from time to time, at 112.750% of
the Accreted Value (as defined herein) thereof, plus Liquidated Damages, if any,
thereon to the date of redemption, with the net proceeds of one or more Public
Equity Offerings (as defined herein) following which there is a Public Market
(as defined herein), provided that at least 66% of the aggregate principal
amount at maturity of the New Notes originally issued remains outstanding
immediately after such redemption. In the event of a Change of Control (as
defined herein), each holder of the New Notes will have the right to require the
Issuer to purchase all or a portion of such holder's New Notes at a cash price
equal to 101% of the Accreted Value thereof, plus Liquidated Damages, if any,
thereon to the date of purchase (if such date of purchase is prior to July 15,
2003) or 101% of the principal amount thereof plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the date of purchase (if such date of
purchase is on or after July 15, 2003). See "Description of the New
Notes--Repurchase at the Option of Holders Upon a Change of Control."
The New Notes will be secured obligations of the Issuer. The New Notes will
rank PARI PASSU in right of payment with all existing and future unsubordinated
indebtedness of the Issuer and senior in right of payment to all subordinated
indebtedness of the Issuer. As debt of the Issuer however, the New Notes will be
effectively subordinated to all existing and future liabilities of Metallurg,
Inc. and its subsidiaries. The Issuer's subsidiaries may incur significant
additional indebtedness and other liabilities in the future. See "Description of
the New Notes--Certain Covenants-- Limitation on Debt." As of April 30, 1998, on
a pro forma basis after giving effect to the Acquisition Transactions (as
defined herein), the New Notes would have been effectively subordinated to
approximately $279.4 million of balance sheet liabilities, of which $106.7
million would have been indebtedness. See "Risk Factors--Holding Company
Structure; Effective Subordination." Furthermore, the indenture governing the
Notes (the "Indenture") permits the Issuer's subsidiaries to incur additional
indebtedness, which may be substantial. For example, as of April 30, 1998, the
Issuer and its subsidiaries could have incurred up to approximately $301.3
million of indebtedness under the Indenture. See "Description of the New
Notes--Certain Covenants--Limitation on Debt."
The Issuer will accept for exchange from an Eligible Holder any and all Old
Notes that are validly tendered prior to 5:00 p.m., New York City time, on the
Expiration Date. For purposes of the Exchange Offer, "Eligible Holder" shall
mean the registered owner of any Old Notes that remain Transfer Restricted
Securities, as reflected on the records of United States Trust Company of New
York as registrar for the Old Notes (in such capacity, the "Registrar"), or any
person whose Old Notes are held of record by the depositary of the Old Notes.
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York
City time, on the Expiration Date. For purposes of the Exchange Offer, "Transfer
Restricted Securities" means each Old Note until the earliest to occur of (i)
the date on which such Old Note is exchanged in this Exchange Offer and entitled
to be resold to the public by the holder thereof without complying with the
prospectus delivery provisions of the Securities Act; (ii) the date on which
such Old Note is registered under the Securities Act and is disposed of in a
shelf registration statement, if applicable; or (iii) the date on which such Old
Note has been distributed to the public pursuant to Rule 144 under the
Securities Act or by a broker-dealer pursuant to the plan of distribution
described herein. See "Plan of Distribution."
The maximum period of time that the Exchange Offer will remain open is 45
days. The Issuer will not receive any proceeds from the Exchange Offer and will
pay all the expenses incident to the Exchange Offer. If the Issuer terminates
the Exchange Offer and does not accept for exchange any Old Notes, it will
promptly return the Old Notes to the holders thereof. See "The Exchange Offer."
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Issuer has agreed that it will make this Prospectus available to
any broker-dealer for use in connection with any such resale beginning on the
date hereof (the "Expiration Date") and ending on the close of business on the
first anniversary of the Expiration Date. See "The Exchange Offer" and "Plan of
Distribution." Any broker-dealer that acquired Old Notes directly from the
Issuer and not as a result of market-making activities or other trading
activities, in the absence of an exemption from the registration requirements of
the Securities Act, must comply with such registration requirements and the
prospectus delivery requirements of the Securities Act in connection with any
secondary resales of New Notes received in exchange for such Old Notes.
Prior to this Exchange Offer, there has been no public market for the Notes.
To the extent that Old Notes are tendered and accepted in the Exchange Offer, a
holder's ability to sell untendered Old Notes could be adversely affected. If a
market for the New Notes should develop, the New Notes could trade at a discount
from their principal amount. The Issuer does not currently intend to list the
New Notes on any securities exchange or to seek approval for quotation through
any automated quotation system, although the Notes are eligible for trading in
the PORTAL Market of the Nasdaq Stock Market, Inc. There can be no assurance
that an active public market for the New Notes will develop.
The Exchange Agent for the Exchange Offer is United States Trust Company of
New York.
SEE "RISK FACTORS" BEGINNING ON PAGE 18 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY ELIGIBLE HOLDERS IN EVALUATING THE EXCHANGE OFFER.
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.
The date of this Prospectus is , 1998.
<PAGE>
AVAILABLE INFORMATION
The Issuer has filed with the Commission a Registration Statement (which
term shall include any amendments thereto) on Form S-4 under the Securities Act
with respect to the securities offered by this Prospectus. This Prospectus,
which constitutes a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto, to which reference is hereby made. Each statement made in
this Prospectus referring to a document filed as an exhibit or schedule to the
Registration Statement is qualified in its entirety by reference to the exhibit
or schedule for a complete statement of its terms and conditions, although all
of the material terms of the Issuer's contracts and agreements that would be
material to an investor have been summarized in this Prospectus. In addition,
upon the effectiveness of the Registration Statement filed with the Commission,
the Issuer will be subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith the Issuer will file periodic reports and other information with the
Commission relating to its business, financial statements and other matters.
Metallurg Inc. is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files periodic reports and other information with
the Commission. Any interested parties may inspect and/or copy the Registration
Statement, its schedules and exhibits, and the periodic reports and other
information filed in connection therewith, at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the Commission's regional offices located at
Citicorp Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661, and
7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such
materials can be obtained at prescribed rates by addressing written requests for
such copies to the Public Reference Section of the Commission at its principal
office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549. The Commission also maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants. The
Commission's Web site can be accessed on the World Wide Web at
http://www.sec.gov. The obligations of the Issuer under the Exchange Act to file
periodic reports and other information with the Commission may be suspended,
under certain circumstances, if the New Notes are held of record by fewer than
300 holders at the beginning of any fiscal year and are not listed on a national
securities exchange. The Issuer has agreed that, whether or not it is required
to do so by the rules and regulations of the Commission, for so long as any of
the New Notes remain outstanding it will furnish to the holders of the New
Notes, and if required by the Exchange Act, file with the Commission all annual,
quarterly and current reports that the Issuer is or would be required to file
with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act. In
addition, for so long as any of the Old Notes remain outstanding, the Issuer has
agreed to make available to any prospective purchaser of the Old Notes or
beneficial owner of the Old Notes in connection with any sale thereof the
information required by Rule 144A(d)(4) under the Securities Act.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MAY NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE ISSUER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION WITH RESPECT TO ANY SECURITY OTHER THAN THE SECURITIES OFFERED
HEREBY OR AN OFFER TO OR SOLICITATION OF ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE ISSUER SINCE
THE DATE HEREOF.
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EXCHANGE RATES
Except as otherwise noted, amounts in this Prospectus presented in
Deutschemarks have been converted into U.S. dollars at the rate of DM
1.85/$1.00; amounts presented in British pounds have been converted into U.S.
dollars at the rate of L0.60/$1.00; and amounts presented in Swiss francs have
been converted into U.S. dollars at the rate of SFr 1.52/$1.00. These
translations should not be construed as representations that the foreign
currency amounts actually represent such U.S. dollar amounts or could be
converted into U.S. dollars at the rates indicated.
MARKET DATA
Market data used throughout this Prospectus were obtained from internal
Metallurg surveys, industry publications or other publicly available
information. Although Metallurg believes that such sources are reliable, the
accuracy and completeness of such information is not guaranteed and has not been
independently verified.
3
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SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES TO THE FINANCIAL
STATEMENTS, APPEARING ELSEWHERE IN THIS PROSPECTUS. THE ISSUER IS A NEWLY FORMED
HOLDING COMPANY ESTABLISHED FOR PURPOSES OF CONSUMMATING THE ACQUISITION
TRANSACTIONS (AS DEFINED HEREIN). THE ISSUER OWNS ALL THE OUTSTANDING COMMON
STOCK OF METALLURG. UNLESS THE CONTEXT OTHERWISE REQUIRES, ALL REFERENCES HEREIN
TO THE "COMPANY" OR "METALLURG" MEAN METALLURG, INC. AND ITS DIRECT AND INDIRECT
SUBSIDIARIES. FOR A DISCUSSION OF THE COMPANY'S FISCAL YEAR AND THE EFFECTS OF
METALLURG'S REORGANIZATION PLAN (AS DEFINED HEREIN) ON ITS FINANCIAL
INFORMATION, SEE "SUMMARY FINANCIAL DATA."
THE COMPANY
GENERAL
Metallurg, founded in 1911, is a leading international producer and seller
of high-quality metal alloys and specialty metals used by manufacturers of
steel, aluminum, superalloys and chemicals and other metal consuming industries.
The Company sells more than 500 different products to over 3,000 customers
worldwide. The Company's operations are global in scope with eight production
facilities located in four countries in Europe, North America and South America.
In addition to selling products manufactured by the Company, Metallurg also
leverages its global sales force by distributing products manufactured by third
parties ("Merchanted Products"). For the Last Twelve Months (as defined in the
preamble to "Summary Financial Data"), the Company had sales and Adjusted EBITDA
(as defined in note (f) to "Summary Financial Data") of $644.1 million and $50.3
million, respectively. The Issuer's executive office is located at 800 The
Safeguard Building, 435 Devon Park Drive, Wayne, Pennsylvania 19087, telephone
number (610) 293-0838.
MARKET OVERVIEW
IRON AND STEEL INDUSTRIES; SPECIALTY FERROALLOYS. The Company manufactures
and sells specialty ferroalloys to some of the world's largest iron and steel
producers, such as Algoma Steel Inc., British Steel plc, Nucor Corporation,
Thyssen AG and US Steel Group. The Company's principal specialty ferroalloy
products are ferrovanadium and standard grades of low carbon ferrochrome. These
products are used by iron and steel producers to increase temperature and
corrosion resistance and strength-to-weight ratios for metals used in the
energy, automotive and construction industries. For the 1997 Fiscal Year (as
defined in the preamble to "Summary Financial Data"), the Company had sales in
this category of approximately $282.8 million, representing 45% of the Company's
total sales. The iron and steel industries have experienced growth since
emerging from a recession that ended in 1993. Raw steel production has rebounded
from a recessionary low of approximately 722 million tons in 1992 to
approximately 793 million tons in 1997.
ALUMINUM INDUSTRY; ALUMINUM MASTER ALLOYS AND COMPACTED PRODUCTS. The
Company manufactures a series of master alloys and briquettes and tablets for
sale to the aluminum industry. The Company's customers in this sector include
leading producers such as Alcan Aluminium Limited, Alcoa Aluminum Co. of
America, Aluminium Pechiney, Reynolds Metals Co. and Sumitomo Metals Industries
Ltd. Metallurg's principal aluminum products include titanium boron tertiary
alloys (which improve the conductivity of aluminum for electric cable),
strontium master alloys (which modify silicon-containing foundry alloys for
improved mechanical properties, as in automotive wheels) and chrome, iron and
manganese briquettes and tablets (which maximizes the ductility and strength of
aluminum used in the manufacture of can sheet and aerospace components,
respectively). The Company also manufactures binary master alloys containing
boron, zirconium or titanium (which are used for the grain refining of aluminum
alloy ingots, billets and continuous cast sheet). For the 1997 Fiscal Year, the
Company had sales to the aluminum industry of $120.0 million, representing 19%
of the Company's total sales. Aluminum consumption in the Western world has
grown from approximately 15.9 million metric tons in 1993 to
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approximately 18.8 million metric tons in 1997. This growth has been driven in
large part by demand for durable products, as well as the increased substitution
of aluminum for steel in certain transportation and construction applications.
SPECIALTY METALS AND ALLOYS; SUPERALLOY AND TITANIUM ALLOY INDUSTRIES. The
Company manufactures and sells specialty metals and alloys used by producers of
superalloys and titanium alloys to enhance the performance of finished metal
products such as aircraft engines and frames, gas turbines and boiler tubes. The
Company's customers for specialty metals and alloys include Allegheny Teledyne,
Inc., Carpenter Technology Corp., INCO Alloys, Kanthal AB, Oregon Metallurgical
Corp., RMI Titanium Company, Sandvik AB, Special Metals Corporation and Titanium
Metals Corp. For the 1997 Fiscal Year, the Company had sales in this category of
$92.6 million, representing 15% of the Company's total sales. Metallurg's
principal products in this category include chromium metal, special grades of
low carbon ferrochrome and vanadium aluminum. Growth and demand for superalloys
and titanium have been driven principally by commercial aerospace production. In
addition, new applications for these metals and alloys have been developed for
use in the consumer goods, power generation, oil and gas, chemical and
biomedical industries.
OTHER INDUSTRIES AND PRODUCTS. Metallurg also manufactures and distributes
a number of products used outside of the iron, steel, aluminum and superalloy
industries. These products include coating materials, which are sold to
electronics and tool manufacturers, vanadium oxytrichloride for use in the
synthetic rubber industry and polishing powders used by the glass polishing
industry. These products generally are higher-margin, technically sophisticated
products. For the 1997 Fiscal Year, the Company had $136.5 million in sales of
these products, representing 21% of the Company's total sales.
MERCHANTED PRODUCTS. The merchanting of products manufactured by third
parties is a natural complement to the Company's manufacturing operations.
Merchanted Products leverage the Company's global sales staff by providing a
broader product offering to its existing customers without incurring significant
additional overhead. As a result, Metallurg becomes a more significant supplier
to its customers, as they can more conveniently procure supplies and decrease
their sourcing costs by reducing their number of vendors and optimizing freight
costs. In addition, by offering Merchanted Products, the Company has greater
access to raw materials. The Company's total sales of $631.9 million for the
1997 Fiscal Year included an aggregate of $266.8 million in sales from
Merchanted Products.
COMPETITIVE STRENGTHS
The Company believes that its long-standing customer relationships, strong
name recognition and global distribution capabilities provide an attractive
platform for growth. The Company believes that it is distinguished by the
following competitive strengths:
- INDUSTRY LEADERSHIP. The Company enjoys significant worldwide recognition
in the metal alloys and specialty metals industries as a result of its
87-year history. With its longevity, technical innovation, high-quality
reputation, long-standing customer relationships and diverse product base,
the Company has developed and maintained significant market shares in the
markets for ferrovanandium consumed by the U.S. iron and steel industries,
special grades of low carbon ferrochrome and chromium metal consumed by
the superalloy industry and aluminum master alloys.
- LONG-STANDING CUSTOMER RELATIONSHIPS. The Company has developed and
maintained long-term relationships with a high-quality, internationally
diverse customer base. The Company has built its customer base by
providing consistent quality, a diverse portfolio of high-quality metal
alloys and specialty metals and a high level of technical support. The
Company's customers include some of the largest metals producing companies
in the world.
- DIVERSIFIED SALES BASE. Metallurg's revenue base is diversified across
markets, regions and customers. The Company sells more than 500 different
products to over 3,000 customers worldwide, none
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of which represents more than 5% of the Company's sales. By serving
customers in the iron, steel, aluminum, superalloy, titanium and chemical
markets, Metallurg believes that it is relatively less vulnerable than
certain of its competitors to the cycle of any one end-use market.
Furthermore, the Company's sales are globally balanced, with approximately
47% and 38% of revenues coming from Europe and North America,
respectively.
- RAW MATERIAL SOURCING. The Company generally sources raw materials from a
diverse group of suppliers and actively pursues alternative low cost
sources of raw materials. The Company has opened purchasing offices in
Russia and China which have enabled the Company to develop new sources of
supply for the Company's manufacturing and distribution businesses. The
Company also derives the competitive benefit of vertical integration
through its ownership of chrome ore mines located in Turkey. Furthermore a
key goal of the Company's capital expenditure program is to expand the
usage of lower cost raw materials. Management believes that obtaining
access to consistent, lower cost sources of supply represents a key
barrier to entry facing potential new competitors.
- GLOBAL MANUFACTURING AND SALES NETWORK. Metallurg is well positioned to
serve its global customer base through its eight production facilities,
three mines, 17 sales offices and two purchasing offices located
throughout the world. The Company believes that its international sales
force comprised of 121 sales personnel provides it with a key competitive
advantage and the ability to enhance its customer relationships through
aiding customers with more efficient and innovative use of products. The
Company leverages the expertise of its sales force by merchanting products
manufactured by third parties, which results in the offering of a broader
product line and Metallurg becoming a more significant supplier to its
customers, while at the same time strengthening ties to its sources of raw
materials.
BUSINESS STRATEGIES
The Company's business objective is to maximize the long-term profitability
of its operations while maintaining a strong financial position through the
various business and market cycles. The Company's continuing strategies for
achieving this objective are as follows:
- FOCUS ON CORE BUSINESSES. The Company seeks to achieve high market shares
in markets where the Company can differentiate itself on the basis of
technical expertise and product quality. As part of this strategy, the
Company is focusing its production and sales efforts on higher margin
specialized alloy businesses, and is investing in capital projects that
will expand its capacity or lower its costs in those areas. In recent
years, the Company has divested certain non-core and lower margin
businesses, including its tantalum carbide and United States titanium
scrap processing businesses.
- AGGRESSIVELY MANAGE COSTS. In recent years, the Company has instituted
measures to reduce operating costs and enhance profitability. Through a
combination of divesting non-core businesses, using contractors and
improving productivity, the Company has reduced the number of employees
from 2,508 at the end of 1992 to 1,483 as of April 30, 1998, while sales
have grown from $591.1 million in 1992 to $644.1 million for the Last
Twelve Months. The Company has restructured its operations into individual
business units focused on particular customer groups in order to better
manage costs and improve profitability. The Company's cost rationalization
program is ongoing and management anticipates that further cost savings
and productivity gains may be realized as a result.
- IMPROVE PRODUCT MIX. The Company continually pursues opportunities to
increase profitability through the Company's existing distribution network
by improving its product mix by: (i) divesting low margin products; (ii)
developing value added, higher margin products; and (iii) acquiring, or
entering into merchanting arrangements for, product lines that complement
the Company's core product offerings. Examples of high margin products
that have experienced significant recent
6
<PAGE>
growth include coating materials for thin film technology and titanium
carbon aluminum sold to the aluminum industry.
- SELECTIVELY PURSUE ACQUISITIONS AND OTHER STRATEGIC EXPANSION
INITIATIVES. The Company believes that its leading position in a diverse
group of specialty metals markets provides it with a strong base to
continue to expand its core businesses. The Company has the industry and
financial expertise of Safeguard International Fund, L.P. ("Safeguard
International") as its equity sponsor. The Company will pursue acquisition
opportunities and expansion initiatives as warranted by market conditions.
The Company intends to pursue acquisitions that: (i) add to or complement
its specialty metals portfolio; (ii) leverage its existing manufacturing
and distribution capabilities; or (iii) enhance its raw materials sourcing
capabilities. The Company is currently evaluating several acquisition and
expansion opportunities. See "Business--Business Strategies."
ISSUANCE OF THE OLD NOTES
The outstanding $121.0 million principal amount at maturity of 12 3/4%
Series A Senior Discount Notes due 2008 (the "Old Notes") were sold by the
Issuer to BancBoston Securities Inc. (the "Initial Purchaser") on July 13, 1998
(the "Closing Date") pursuant to a Purchase Agreement, dated as of July 6, 1998
(the "Purchase Agreement"), between the Issuer and the Initial Purchaser. The
issuance of the Old Notes generated gross proceeds of approximately $65.2 mllion
to the Issuer. The Initial Purchaser subsequently resold the Old Notes in
reliance on Rule 144A under the Securities Act and other available exemptions
under the Securities Act on or about July 13, 1998. The Issuer and the Initial
Purchaser also entered into the Registration Agreement pursuant to which the
Issuer granted certain registration rights for the benefit of the holders of the
Old Notes. The Exchange Offer is intended to satisfy certain of the Issuer's
obligations under the Registration Agreement with respect to the Old Notes. See
"The Exchange Offer-- Purpose and Effects."
The Old Notes were issued under an indenture, dated as of July 13, 1998 (the
"Indenture"), between the Issuer and United States Trust Company of New York as
trustee (in such capacity, the "Trustee"). The New Notes are also being issued
under the Indenture and are entitled to the benefits of the Indenture. The form
and terms of the New Notes will be identical in all material respects to the
form and terms of the Old Notes except that (i) the New Notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof; and (ii) holders of New Notes will not be, and
upon the consummation of the Exchange Offer, Eligible Holders of Old Notes will
no longer be, entitled to certain rights under the Registration Agreement
intended for the holders of unregistered securities. The Exchange Offer shall be
deemed consummated upon the delivery by the Issuer to the Exchange Agent under
the Indenture of New Notes in the same aggregate principal amount as the
aggregate principal amount of Old Notes that are validly tendered by holders
thereof pursuant to the Exchange Offer. See "The Exchange Offer--Termination of
Certain Rights" and "--Procedures for Tendering" and "Description of New
Notes--General."
The proceeds received by the Issuer from the issuance of the Old Notes were
used to fund a portion of the purchase price of the Acquisition Transactions (as
defined herein). There will be no proceeds to the Issuer from any exchange
pursuant to the Exchange Offer.
THE ACQUISITION TRANSACTIONS
On July 13, 1998, Metallurg Acquisition Corp., a wholly owned subsidiary of
the Issuer ("Acquisition Corp.") merged with and into Metallurg, Inc., with
Metallurg, Inc. being the surviving company and the Issuer becoming the holding
company for Metallurg, Inc. (the "Merger"). At the time of the Merger, each
outstanding share of Metallurg, Inc. common stock, par value $0.01 per share (a
"Metallurg Share"), was converted into the right to receive $30 in cash,
representing an aggregate cash purchase price of approximately $152.2 million
(including payments for cancellation of compensatory options). The total
7
<PAGE>
value of the transaction, including existing indebtedness and environmental,
pension and other liabilities, net of cash, was approximately $300 million.
In order to finance the Merger, (i) Safeguard International and certain of
its limited partners (the "Investor Group") contributed approximately $97.0
million of capital to the Issuer (the "Equity Contribution"); and (ii) the
Issuer consummated the offering of the Old Notes (the "Offering"). As used
herein, the term "Acquisition Transactions" means the Equity Contribution, the
Offering, the Merger, the Consent Solicitation (as defined herein) and the
execution of a supplemental indenture to the indenture (the "Senior Note
Indenture") governing Metallurg, Inc.'s 11% Senior Notes due 2007 (the "Senior
Notes").
In connection with the Merger, Metallurg, Inc. received the consents (the
"Consent Solicitation") of 100% of the registered holders of its Senior Notes to
a one-time waiver of the change of control provisions of the Senior Note
Indenture to make such provisions inapplicable to the Merger (the "Waiver") and
to amend the definition of "Permitted Holders" under the Senior Note Indenture
to reflect the post-Merger ownership of Metallurg (the "Amendment").
Safeguard International is an international private equity fund with current
committed capital in excess of $250.0 million, which includes coinvestment
commitments of up to $45.0 million. Safeguard International invests primarily in
equity securities of companies in process industries--industries which convert
raw or semi-finished materials into products for use by other businesses. With a
presence in both the United States and Europe and investment professionals that
have substantial management experience in process industries, Safeguard
International has a strong international operating orientation and concentrates
on situations where it believes that it can create value by drawing upon the
experience of its investment team. See "Management" and "Share Ownership."
8
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
The Exchange Offer.................. The Issuer is offering, upon the terms and subject to
the conditions set forth herein and in the
accompanying letter of transmittal (the "Letter of
Transmittal"), to exchange its 12 3/4% Series B
Senior Discount Notes due 2008 (the "New Notes," and,
with the Old Notes, the "Notes") for an identical
face amount of the outstanding Old Notes (the
"Exchange Offer"). As of the date of this Prospectus,
$121.0 million in aggregate principal amount at
maturity of the Old Notes is outstanding, the maximum
amount authorized by the Indenture for all Notes. As
of , 1998, there were registered holders
of the Old Notes, which held $121.0 million of
aggregate principal amount at maturity of the Old
Notes. See "The Exchange Offer--Terms of the Exchange
Offer."
Expiration Date..................... 5:00 p.m., New York City time, on , 1998, as
the same may be extended. See "The Exchange
Offer--Expiration Date; Extension; Termination;
Amendments."
Conditions of the Exchange Offer.... The Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being tendered
for exchange. However, the Exchange Offer is subject
to certain customary conditions, which may be waived
by the Issuer. See "The Exchange Offer--Conditions of
the Exchange Offer."
Procedures for Tendering Old
Notes............................... Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein and
therein, and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with the Old
Notes and any other required documentation to the
Exchange Agent at the address set forth herein. Old
Notes may be physically delivered, but physical
delivery is not required if a confirmation of a
book-entry of such Old Notes to the Exchange Agent's
account at The Depository Trust Company ("DTC") is
delivered in a timely fashion. By executing the
Letter of Transmittal, each holder will represent to
the Issuer that, among other things, the New Notes
acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the
person receiving such New Notes, whether or not such
person is the holder, that neither the holder nor any
such other person is engaged in, or intends to engage
in, or has an arrangement or understanding with any
person to participate in, the distribution of such
New Notes and that neither the holder nor any such
other person is an "affiliate," as defined under Rule
405 of the Securities Act, of the Issuer. Each broker
or dealer that receives New Notes for its own account
in exchange for Old Notes, where such Old Notes were
acquired by such broker or dealer as a result of
market-making
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
activities or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See
"The Exchange Offer--Procedures for Tendering" and
"Plan of Distribution."
Guaranteed Delivery Procedures...... Eligible Holders of Old Notes who wish to tender
their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver
their Old Notes or any other documents required by
the Letter of Transmittal to the Exchange Agent prior
to the Expiration Date (or complete the procedure for
book-entry transfer on a timely basis), may tender
their Old Notes according to the guaranteed delivery
procedures set forth in the Letter of Transmittal.
See "The Exchange Offer--Guaranteed Delivery
Procedures."
Acceptance of Old Notes and Delivery
of New Notes........................ Upon satisfaction or waiver of all conditions of the
Exchange Offer, the Issuer will accept any and all
Old Notes that are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on the
Expiration Date. The New Notes issued pursuant to the
Exchange Offer will be delivered promptly after
acceptance of the Old Notes. See "The Exchange
Offer--Procedures for Tendering."
Withdrawal Rights................... Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
Expiration Date. See "The Exchange Offer--Withdrawal
of Tenders." United States Trust Company of New York
is the exchange agent (in such capacity, the
"Exchange Agent"). The address and telephone number
of the Exchange Agent are set forth in "The Exchange
Offer--Exchange Agent."
Fees and Expenses................... All expenses incident to the Issuer's consummation of
the Exchange Offer and compliance with the
Registration Agreement will be borne by the Issuer.
The Issuer will also pay certain transfer taxes
applicable to the Exchange Offer. See "The Exchange
Offer--Fees and Expenses."
Notes Offered....................... $121,000,000 aggregate principal amount at maturity
of 12 3/4% Series B Senior Discount Notes due 2008
(the "New Notes").
Resales of the New Notes............ Based on interpretations by the staff of the
Commission set forth in no-action letters issued to
third parties, the Issuer believes that New Notes
issued pursuant to the Exchange Offer to an Eligible
Holder in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by such
Eligible Holder (other than (i) a broker-dealer who
purchased the Old Notes directly from the Issuer for
resale pursuant to Rule 144A under the Securities Act
or any other available exemption under the Securities
Act or (ii) a person that is an affiliate of the
Issuer within the meaning of Rule 405 under the
Securities Act), without compliance with the
registration and prospectus delivery provisions of
the
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
Securities Act, provided that the Eligible Holder is
acquiring the New Notes in the ordinary course of
business and is not participating, and has no
arrangement or understanding with any person to
participate, in a distribution of the New Notes. Each
broker-dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old
Notes were acquired by such broker as a result of
market-making or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See
"The Exchange Offer--Purpose and Effects" and "Plan
of Distribution."
</TABLE>
DESCRIPTION OF THE NEW NOTES
The Exchange Offer applies to $121.0 million aggregate principal amount at
maturity of Old Notes. The terms of the New Notes are identical in all material
respects to the Old Notes, except for certain transfer restrictions and other
rights relating to the exchange of the Old Notes for New Notes. The New Notes
will evidence the same debt as the Old Notes and will be entitled to the
benefits of the Indenture under which both the Old Notes were, and the New Notes
will be, issued. See "Description of The New Notes."
<TABLE>
<S> <C>
Notes Offered....................... $121,000,000 aggregate principal amount at maturity
of 12 3/4% Series B Senior Discount Notes due 2008.
Maturity Date....................... July 15, 2008.
Accretion........................... The New Notes will accrete at a rate of 12 3/4%,
compounded semi-annually, to an aggregate principal
amount of $121.0 million at July 15, 2003. Cash
interest will not accrue or be payable on the New
Notes prior to such date.
Interest Rate....................... Commencing July 15, 2003, the New Notes will accrue
cash interest at the rate of 12 3/4% per annum,
payable semi-annually in arrears on January 15 and
July 15 of each year, commencing January 15, 2004.
Optional Redemption................. The New Notes will be redeemable at the option of the
Issuer in whole or in part, in cash, at any time on
or after July 15, 2003, at the redemption prices set
forth herein, together with accrued and unpaid
interest and Liquidated Damages, if any, to the date
of redemption. In addition, at the option of the
Issuer, up to 34% of the aggregate principal amount
at maturity of the originally issued Old Notes may be
redeemed prior to July 15, 2001 with the net proceeds
of one or more Public Equity Offerings following
which there is a Public Market, at a redemption price
equal to 112.750% of the Accreted Value thereof, plus
Liquidated Damages, if any, thereon to the redemption
date (subject to the right of holders of record on
the relevant record date to receive interest due on
the relevant interest payment date), provided that at
least 66% of the aggregate principal amount at
maturity of the originally issued Old Notes remain
outstanding following such redemption. See
"Description of the New Notes--Optional Redemption."
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
Sinking Fund........................ None.
Change of Control................... Upon the occurrence of a Change of Control each
holder of New Notes (a "Holder") will have the right
to require the Issuer to purchase all or a portion of
such Holder's New Notes at a cash purchase price
equal to 101% of the Accreted Value thereof plus
Liquidated Damages, if any, thereon to the date of
purchase (if such date of purchase is prior to July
15, 2003) or 101% of the principal amount thereof
plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of purchase (if
such date of purchase is on or after July 15, 2003).
See "Description of the New Notes-- Repurchase at the
Option of Holders Upon a Change of Control." There
can be no assurance that, in the event of a Change of
Control, the Issuer would have sufficient funds or
otherwise be able to purchase all New Notes tendered.
See "Risk Factors--Limitations on Ability to make
Change of Control Payment."
Ranking............................. The New Notes will be secured obligations of the
Issuer. The New Notes will rank PARI PASSU in right
of payment with all existing and future
unsubordinated indebtedness of the Issuer and senior
in right of payment to all subordinated indebtedness
of the Issuer. As debt of the Issuer, however, the
New Notes will be effectively subordinated to all
existing and future liabilities of the Company and
its subsidiaries. As of April 30, 1998, on a pro
forma basis after giving effect to the Acquisition
Transactions, the New Notes would have been
effectively subordinated to approximately $279.4
million of balance sheet liabilities, of which $106.7
million would have been indebtedness. See "Risk
Factors--Holding Company Structure; Effective
Subordination." Furthermore, the Indenture permits
the Issuer's subsidiaries to incur additional
indebtedness which may be substantial. For example,
at April 30, 1998, the Issuer and its subsidiaries
could have incurred up to approximately $301.3
million of indebtedness under the Indenture. See
"Risk Factors--Holding Company Structure; Effective
Subordination and "Description of the New
Notes--Ranking," "--Certain Covenants--Limitation on
Debt."
Security............................ The obligations of the Issuer with respect to the New
Notes will be secured by an assignment and pledge to
the Trustee of (a) all of the outstanding equity
interests held by the Issuer in Metallurg, Inc. and
(b) all promissory notes issued from time to time to
the Issuer by Metallurg, Inc. (collectively, the
"Collateral"). The security interests in the
Collateral will be exclusive, first priority security
interests. Absent any acceleration of the New Notes
or failure to pay the same in full at maturity, the
Issuer will generally be able to vote pledged
securities and to receive distributions and other
proceeds in respect thereof. Subject to certain
conditions, the
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
Issuer will be permitted to cause the release of
collateral in connection with sales thereof otherwise
made in accordance with the Indenture covenants.
Limitation on Access to
Subsidiaries' Cash Flow............. The Issuer does not have, and may not in the future
have, any material assets other than common stock of
Metallurg, Inc. As a result, the Issuer's ability to
pay cash interest on the New Notes, and to purchase
New Notes upon the occurrence of a Change of Control,
will depend upon the receipt of dividends and other
distributions from its subsidiaries. The Revolving
Credit Facility and the Senior Note Indenture
restrict the Company's ability to pay dividends and
make other distributions to the Issuer, and without
such dividends or distributions, the Issuer will
likely not have the financial resources to pay cash
interest on the New Notes, or to purchase New Notes
upon a Change of Control. In addition, there can be
no assurance that the Issuer's subsidiaries will have
the resources available to pay any such dividends or
distributions. The Issuer's failure to pay cash
interest on the New Notes when due and payable, or to
make a Change of Control Offer when required or to
purchase New Notes when tendered pursuant thereto,
would constitute an Event of Default (as defined
herein) under the Indenture. See "Risk
Factors--Limitation on Access to Subsidiaries' Cash
Flow," "Description of the New Notes--General,"
"Description of the New Notes--Certain Covenants" and
"Description of the New Notes--Repurchase at the
Option of Holders Upon a Change of Control."
Certain Covenants................... The Indenture contains limitations on, among other
things, the ability of the Issuer and its Restricted
Subsidiaries (as defined herein) to: (i) incur
indebtedness; (ii) pay dividends, redeem capital
stock or make certain other restricted payments or
investments; (iii) enter into certain transactions
with affiliates; (iv) dispose of assets; (v) create
liens; (vi) enter into sale and leaseback
transactions; (vii) permit arrangements that restrict
dividends and other payments from subsidiaries; and
(viii) enter into certain mergers, consolidations or
asset sales. All of such covenants are subject to
significant exceptions. See "Description of the New
Notes--Certain Covenants."
Use of Proceeds..................... There will be no proceeds to the Issuer from any
exchange pursuant to the Exchange Offer. The net
proceeds to the Issuer from the sale of the Old Notes
were used to finance a portion of the purchase price
in the Acquisition Transactions.
Original Issue Discount............. The New Notes are being issued with original issue
discount ("OID") for United States federal income tax
purposes. Thus, although cash interest will not be
payable on the New Notes prior to January 15, 2004,
OID will accrue on a constant yield to maturity basis
from the issue date of the Old
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
Notes and will be included as interest income in a
Holder's gross income for United States federal
income tax purposes in advance of receipt of the cash
payments to which such income is attributable.
PORTAL Listing...................... The Issuer does not intend to apply for listing of
the New Notes on any securities exchange or for
quotation through the NASDAQ National Market or any
other quotation system, although the New Notes are
eligible for trading in The PORTAL Market of The
Nasdaq Stock Market, Inc.
</TABLE>
RISK FACTORS
See "Risk Factors" beginning on page 18 for a discussion of certain factors
which should be considered by Eligible Holders in evaluating the Exchange Offer.
14
<PAGE>
SUMMARY FINANCIAL DATA
The following table presents summary financial data of the Company for each
of the years in the two-year period ended December 31, 1996, the quarter ended
March 31, 1997, the three quarters ended January 31, 1998 and the quarter ended
April 30, 1998. Information for each of the two years in the period ended
December 31, 1996, for the quarter ended March 31, 1997 and for the three
quarters ended January 31, 1998 is derived from the consolidated financial
statements of the Company included elsewhere herein, which have been audited by
Deloitte & Touche LLP, independent public accountants. The data for the Company
as of and for the quarter ended April 30, 1998 are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) that are, in the
opinion of management, necessary for a fair presentation of the results of
operations for such periods. The results of operations for the quarter ended
March 31, 1997 and the three quarters ended January 31, 1998 are not necessarily
indicative of results for the full year. For a discussion of pro forma financial
data included in the summary financial data, see "Unaudited Pro Forma Condensed
Consolidated Financial Data."
The Issuer was formed in connection with the Acquisition Transactions and
did not exist during any of the periods for which the statement of operations,
balance sheet and other data are presented. Accordingly, such data reflect the
consolidated results of operations and financial position of the Company. The
information in this table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements of the Company, and the notes thereto,
included elsewhere in this Prospectus.
Financial information contained in this Prospectus for periods and dates
after March 31, 1997 reflects the effects of Metallurg's Reorganization Plan (as
defined in note (a) below), including the implementation of fresh-start
reporting, as of March 31, 1997. Accordingly, the Company's consolidated
financial statements for periods and dates prior to March 31, 1997 are not
comparable to subsequent consolidated financial statements. In addition,
Metallurg, Inc. changed its fiscal year from a calendar year to the period ended
January 31, for fiscal periods after consummation of its Reorganization Plan,
while its subsidiaries have retained a calendar fiscal year. As a result,
results of operations for the four quarters ended January 31, 1998 are comprised
of: (i) the pre-confirmation three months ended March 31, 1997 for Metallurg,
Inc. and its subsidiaries; (ii) the post-confirmation ten months ended January
31, 1998 for Metallurg, Inc. on a stand-alone basis; and (iii) the
post-confirmation nine months ended December 31, 1997 for its subsidiaries (the
"1997 Fiscal Year"). Consolidated results of operations for the three fiscal
quarters ended January 31, 1998 are comprised of: (i) the post-confirmation ten
months ended January 31, 1998 for Metallurg, Inc. on a stand-alone basis; and
(ii) the post-confirmation nine months ended December 31, 1997 for its
subsidiaries. Consolidated results of operations for the quarter ended April 30,
1998 include operational results of Metallurg, Inc. on a stand-alone basis for
the three months ended April 30, 1998 and the operational results of its
subsidiaries for the three months ended March 31, 1998. Consolidated results of
operations for the four fiscal quarters ended April 30, 1998 (the "Last Twelve
Months" or "LTM") include: (i) 12 months of operational results (through March
31, 1998) for Metallurg, Inc. and its subsidiaries; and (ii) an additional month
of results of operations of Metallurg, Inc. on a stand-alone basis for April
1998, which resulted in additional revenues of $3.2 million and $0.1 million of
Adjusted EBITDA. The consolidated balance sheet data at April 30, 1998 reflect
the financial position of Metallurg, Inc. at April 30, 1998 and of its
subsidiaries at March 31, 1998.
15
<PAGE>
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY COMPANY ISSUER
PRE-CONFIRMATION (A) POST-CONFIRMATION PRO FORMA (H)
--------------------------------- ------------------------------------- ----------------------
THREE THREE
YEARS ENDED QUARTER QUARTERS QUARTER LTM QUARTERS QUARTER
DECEMBER 31, ENDED ENDED ENDED ENDED ENDED ENDED
-------------------- MARCH 31, JAN. 31, APRIL 30, APRIL 30, JAN. 31, APRIL 30,
1995 1996 1997 1998 1998 1998 1998 1998
--------- --------- ----------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales......................... $ 688,002 $ 648,816 $ 155,427 $ 476,426 $ 167,675 $ 644,101 $ 476,426 $ 167,675
Commission income............. 1,362 1,186 160 541 155 696 541 155
--------- --------- ----------- ----------- ----------- ----------- --------- -----------
Total revenues.............. 689,364 650,002 155,587 476,967 167,830 644,797 476,967 167,830
Gross profit.................. 85,829 83,464 21,527 66,934 28,822 95,756 66,934 28,822
Operating income (loss)....... 15,705 (11,221 (b) 6,481 23,371 14,061 37,432 20,929 13,329
Net income (loss)............. 1,665 (28,495) 57,954(c) 6,272(d) 6,790 13,062 (1,762 (d) 4,780
OTHER DATA:
Environmental remediation
expenditures(e)............. 2,769 2,282 1,729 2,635 558 3,193 2,635 558
Depreciation and
amortization................ 15,296 10,688 2,143 5,320 2,188 7,508 7,554 2,858
Adjusted EBITDA (f)........... 47,149 38,928 10,498 32,515 17,755 50,270 32,307 17,693
Adjusted EBITDA margin........ 6.9% 6.0% 6.8% 6.8% 10.6% 7.8% 6.8% 10.6%
Capital expenditures.......... $ 6,712 $ 9,531 $ 2,774 $ 9,447 $ 2,929 $ 12,376 $ 9,447 $ 2,929
EBITDA as defined in
Indenture(g)................ 23,825 (4,935) 8,606 24,461 13,221 37,682 24,253 13,159
<CAPTION>
LTM
ENDED
APRIL 30,
1998
-----------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Sales......................... $ 644,101
Commission income............. 696
-----------
Total revenues.............. 644,797
Gross profit.................. 95,756
Operating income (loss)....... 34,258
Net income (loss)............. 3,018
OTHER DATA:
Environmental remediation
expenditures(e)............. 3,193
Depreciation and
amortization................ 10,412
Adjusted EBITDA (f)........... 50,000
Adjusted EBITDA margin........ 7.8%
Capital expenditures.......... $ 12,376
EBITDA as defined in
Indenture(g)................ 37,412
</TABLE>
<TABLE>
<S> <C>
Pro forma cash interest expense (i)................................................................................. 12,391
Pro forma interest expense (i)...................................................................................... 21,639
Ratio of Adjusted EBITDA to pro forma cash interest expense (f)(i).................................................. 4.0x
Ratio of Adjusted EBITDA to pro forma interest expense (f)(i)....................................................... 2.3x
Ratio of pro forma net debt to Adjusted EBITDA (f).................................................................. 2.4x
Ratio of pro forma debt to Adjusted EBITDA (f)...................................................................... 3.4x
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, 1998
------------------------
<S> <C> <C>
COMPANY ISSUER
ACTUAL PRO FORMA
----------- -----------
BALANCE SHEET DATA:
Cash and cash equivalents............................................................................ $ 50,221 $ 50,188
Working capital...................................................................................... 173,950 175,739
Total assets......................................................................................... 330,672 441,595
Pension liabilities.................................................................................. 37,473 37,473
Environmental liabilities............................................................................ 44,391 44,391
Total debt........................................................................................... 106,697 171,874
Shareholders' equity................................................................................. 49,827 97,023
</TABLE>
- ------------------------
(a) In April 1997, Metallurg and its subsidiary Shieldalloy Metallurgical
Corporation ("Shieldalloy") consummated their Joint Plan of Reorganization
dated December 18, 1996 (the "Reorganization Plan"), pursuant to Chapter 11
of the United States Bankruptcy Code. Metallurg and Shieldalloy sought
Chapter 11 protection in September 1993 following the Company's inability to
restructure or refinance its long-term indebtedness and revolving credit
facility in light of a confluence of negative economic factors that caused
the Company to default on certain of its then outstanding indebtedness. The
Company was particularly affected by (i) "dumping" by exporters from the
former Soviet Union of excess stocks of metals and alloys, which drove
prices of ferroalloys in Europe and the United States to very low levels and
(ii) the general economic recession that began in 1989 in the end-use
markets of the Company's customers.
(b) Includes effects of settlement arrangements entered into by the Company in
connection with the Reorganization Plan with regard to the settlement of
environmental claims with federal and state regulators (approximately $37.6
million) and the settlement of prepetition claims with certain other
creditors (approximately $10.5 million).
(c) Includes an extraordinary item of $43.0 million representing the net gain on
the discharge of indebtedness resulting from the consummation of the
Reorganization Plan.
(d) Includes an extraordinary item of $(0.8) million representing the net loss
on the early extinguishment of debt in November 1997.
16
<PAGE>
(e) Environmental expenditures related to ongoing operations are generally
included in cost of goods sold and are therefore deducted in calculating net
income and Adjusted EBITDA for any period. Environmental remediation
expenditures represent the costs associated with remedial activities. Such
remediation expenditures are charged to previously established accruals and
are therefore excluded from the calculation of net income and Adjusted
EBITDA. However, the cash expended by the Company in any period for
environmental remediation expenditures will affect the Company's cash flow.
(f) For purposes of this Prospectus, "Adjusted EBITDA" is defined as net income
(loss) before: (i) income taxes; (ii) interest expense; (iii) extraordinary
item; (iv) depreciation; (v) amortization; (vi) non-cash stock compensation;
(vii) loss (gain) on sale of assets; (viii) restructuring expenses; (ix)
reorganization expenses; (x) non-cash fresh-start adjustments; and (xi)
non-cash environmental provisions. Adjusted EBITDA has not been reduced to
reflect environmental remediation expenditures. This definition of Adjusted
EBITDA differs from the definition of EBITDA used in the Indenture. The
Company's use of Adjusted EBITDA may not be comparable to similarly titled
measures due to the use by other companies of different financial statement
components in calculating Adjusted EBITDA. See "Selected Financial
Data--Calculation of Adjusted EBITDA" and "Description of the Discount
Notes."
The Company considers Adjusted EBITDA to be useful in measuring the operating
performance of the Company because, together with net income and cash flows,
Adjusted EBITDA provides investors with additional measures to evaluate the
ability of the Company to incur and service debt and to fund acquisitions
and other capital expenditures. Adjusted EBITDA does not represent net
income or cash flows from operations as defined by generally accepted
accounting principles. Adjusted EBITDA is not an alternative to net income
as a reliable measure of the Company's operating performance or an
alternative to cash flows as measures of liquidity.
Adjusted EBITDA does not measure whether cash flow is sufficient to fund all
of the Company's cash needs, including principal amortization, capital
improvements and debt service. Adjusted EBITDA does not represent cash flows
from operating, investing or financing activities as defined by generally
accepted accounting principles.
(g) Under the terms of the Indenture, "EBITDA" is defined as follows
(capitalized terms have the meanings set forth in the Indenture):
"EBITDA" means, for any period, an amount equal to, for the Issuer and its
consolidated Restricted Subsidiaries, (a) the sum of Consolidated Net Income
for such period, plus the following to the extent reducing Consolidated Net
Income for such period: (i) the provision for taxes based on income or
profits or utilized in computing net loss, (ii) Consolidated Interest
Expense, (iii) depreciation, (iv) amortization of intangibles and (v) any
other non-cash items (other than any such non-cash item to the extent that
it represents an accrual of, or reserve for, cash expenditures in any future
period), minus (b) all non-cash items increasing Consolidated Net Income for
such period (other than any such non-cash item to the extent that it will
result in the receipt of cash payments in any future period).
Notwithstanding the foregoing, the provision for taxes based on the income
or profits of, and the depreciation and amortization of, a Restricted
Subsidiary shall be added to Consolidated Net Income to compute EBITDA only
to the extent (and in the same proportion) that the net income of such
Restricted Subsidiary was included in calculating Consolidated Net Income
and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Issuer by such Restricted Subsidiary
without prior approval (that has not been obtained), pursuant to the terms
of its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Restricted
Subsidiary or its stockholders.
EBITDA as defined in the Indenture is used as a measure of operating cash
flow. Subject to certain exceptions set forth in the Indenture, the Issuer
may only incur additional Debt if its pro forma ratio of EBITDA to
Consolidated Fixed Charges for the most recent four consecutive fiscal
quarters is more than 2.00 to 1.00. See "Description of the New
Notes--Certain Covenants-- Limitation on Debt." For the purposes of these
calculations, restrictions on the Issuer's subsidiaries' ability to pay
dividends to the Issuer in existence at December 31, 1997 are assumed for
all periods presented.
(h) Pro forma information reflects the effects of the Acquisition Transactions
and certain other pro forma adjustments. See "Unaudited Pro Forma Condensed
Consolidated Financial Data."
(i) Pro forma cash interest expense and interest expense are calculated based on
the twelve months ended March 31, 1998 and do not include the results of
operations of Metallurg, Inc. on a stand-alone basis for April 1998.
Adjusted EBITDA includes results of operations of Metallurg, Inc. on a
stand-alone basis for April 1998 (reflecting Adjusted EBITDA of $0.1 million
for such month). Pro forma cash interest expense (including $916,000 for
April 1998) would be approximately $13,307,000 for the Last Twelve Months.
Pro forma interest expense (including $1,717,000 for April 1998) would be
approximately $23,356,000 for the Last Twelve Months.
The pro forma condensed consolidated statement of operations for the three
quarters ended January 31, 1998 included elsewhere in this Prospectus
includes the extra month of results of operations of Metallurg, Inc. on a
stand-alone basis for January 1998 including the pro forma interest expense
for January 1998. See "Unaudited Pro Forma Condensed Consolidated Financial
Data." The Issuer believes that cash interest expense and interest expense
numbers and related ratios presented above are useful because they reflect
12 months of expenses which are being compared with 12 months of operations
for the operating subsidiaries of the Company.
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), which statements can be identified by
the use of forward-looking terminology, such as "may," "intends," "will,"
"expects," "anticipates," "estimates," "seeks" or "continues" or the negative
thereof or other variations thereon or comparable terminology. Any statements
with regard to the Issuer's expectations as to industry conditions and its
financial results, demand for or acceptance of Metallurg's (as defined herein)
products and services and other aspects of its business may constitute
forward-looking statements. Although the Issuer makes such statements based on
assumptions that it believes to be reasonable, there can be no assurance that
actual results will not differ materially from the Issuer's expectations.
Accordingly, the Issuer hereby identifies the following important factors, among
others, that could cause its results to differ from any results that might be
projected, forecasted or estimated in any such forward-looking statements: risks
associated with the substantial leverage of Metallurg and the Issuer,
subordination of the New Notes, restrictive debt covenants, integration of
acquisitions, cyclical nature of Metallurg's business, Metallurg's dependence on
foreign customers (particularly customers in Europe), the economic strength of
Metallurg's markets generally and particularly the strength of the demand for
iron, steel, aluminum and superalloys and titanium alloy industries in those
markets, the accuracy of Metallurg's estimates of the costs of environmental
remediation and the extension or expiration of existing anti-dumping duties.
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE
FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE EXCHANGE
OFFER.
SUBSTANTIAL LEVERAGE
The Issuer and the Company are highly leveraged as a result of the Offering
and the other Acquisition Transactions. As of April 30, 1998, after giving
effect to the Offering, the Issuer would have had total indebtedness of $65.2
million on a stand-alone basis and $171.9 million on a consolidated basis. The
Issuer, the Company and the Company's subsidiaries will be permitted to incur
additional indebtedness in the future, subject to certain limitations contained
in the instruments governing their indebtedness. See "Capitalization,"
"Description of Certain Indebtedness" and "Description of the New Notes."
The Issuer's and the Company's ability to make scheduled payments of
principal of, or to pay the interest or liquidated damages, if any, on, or to
refinance, their respective indebtedness, or to fund planned capital
expenditures will depend on their future performance, which, to a certain
extent, will be subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond their control. There
can be no assurance that the Company's business will generate sufficient cash
flow from operations or that anticipated revenue growth and operating
improvements will be realized in an amount sufficient to enable the Issuer or
the Company to service their respective indebtedness or to fund its other
liquidity needs. If the Company is unable to generate sufficient cash flow to
enable the Issuer and the Company to meet their respective debt obligations,
each of them will have to adopt one or more alternatives, such as restructuring
their respective debt, reducing or delaying capital expenditures, selling assets
or obtaining additional equity or debt financing. There can be no assurance that
any of these actions could be effected on a timely basis or on satisfactory
terms, if at all, or that these actions would enable the Issuer and the Company
to continue to satisfy their respective debt service requirements. The terms of
the indebtedness, including the Indenture, the Revolving Credit Facility and the
Senior Note Indenture, also may prohibit the Issuer or the Company from taking
such actions. If the Company is unable to satisfy its obligations related to its
indebtedness, substantially all of its long-term debt could be declared
immediately due and payable. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Financial
Resources."
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The degree to which the Issuer and the Company are leveraged could have
important consequences to Holders of the New Notes, including, but not limited
to: (i) making it more difficult for the Issuer to satisfy its obligations with
respect to the New Notes; (ii) increasing the Issuer's and the Company's
vulnerability to general adverse economic and industry conditions; (iii)
limiting the Issuer's and the Company's ability to obtain additional financing
to fund future working capital, capital expenditures and other general corporate
requirements; (iv) requiring the dedication of a substantial portion of the
Issuer's and the Company's cash flow from operations to the payment of principal
of, interest on, and liquidated damages, if any, on their indebtedness, thereby
reducing the availability of such cash flow to fund working capital, capital
expenditures or other general corporate purposes; (v) limiting the Issuer's and
the Company's flexibility in planning for, or reacting to, changes in its
business and the industry; (vi) placing the Issuer and the Company at a
competitive disadvantage relative to less leveraged competitors; and (vii)
restricting the Company's ability to pay dividends to the Issuer so that the
Issuer can pay its cash interest expense (which payments are scheduled to begin
in 2004) and other debt service obligations on the New Notes, the failure of
which may create an event of default under the New Notes, which, if not cured or
waived, could have a material adverse effect on the Issuer and the Company. In
addition, the Company's Senior Note Indenture, Revolving Credit Facility and
other indebtedness subject the Company to numerous financial and other
restrictive covenants, including, among other things, limitations on the ability
of Metallurg and its subsidiaries to incur additional indebtedness, to create
liens and other encumbrances, to make certain payments and investments, to sell
or otherwise dispose of assets, or to merge or consolidate with another entity.
Furthermore, indebtedness under the Revolving Credit Facility and credit
facilities of the Company's subsidiaries are at variable rates of interest,
which will cause the Company and its subsidiaries to be vulnerable to increases
in interest rates. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Description of Certain Indebtedness" and
"Description of the New Notes." The Company also has substantial environmental
and pension liabilities, which could further restrict its financial flexibility.
HOLDING COMPANY STRUCTURE; EFFECTIVE SUBORDINATION
The Issuer is a holding company and does not have any material operations or
assets other than the ownership of Metallurg. Accordingly, the New Notes will be
effectively subordinated to all existing and future liabilities of Metallurg and
its subsidiaries, including indebtedness under Metallurg's Senior Note Indenture
and its Revolving Credit Facility. Metallurg itself is a holding company with
limited operations of its own and substantially all of Metallurg's operating
income is generated by its subsidiaries. As of April 30, 1998, on a pro forma
basis after giving effect to the Acquisition Transactions, the New Notes would
have been effectively subordinated to approximately $279.4 million of balance
sheet liabilities of Metallurg and its subsidiaries, including $101.2 million of
indebtedness under its Senior Note Indenture and Revolving Credit Facility. In
addition, the New Notes will be subordinated to all contingent obligations of
the Company, which include reimbursement obligations in respect of $29.3 million
of letters of credit outstanding under the Revolving Credit Facility as of April
30, 1998. The Issuer, Metallurg and its subsidiaries may incur additional
indebtedness in the future, subject to certain limitations contained in the
instruments governing their indebtedness. See "Management's Discussion and
Analysis of Financial Conditions and Results of Operations--Liquidity and
Financial Resources."
Any right of the Issuer to participate in any distribution of assets of its
subsidiaries upon the liquidation, reorganization or insolvency of Metallurg
(and the consequent right of the Holders of the New Notes to participate in the
distribution of those assets) will be subject to the prior claims of Metallurg's
creditors. The obligations of Metallurg under the Revolving Credit Facility are
secured by substantially all of its assets. See "Description of Certain
Indebtedness."
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LIMITATION ON ACCESS TO SUBSIDIARIES' CASH FLOW
The Issuer's cash flow, and consequently its ability to service its
indebtedness, including its obligations under the New Notes, is dependent upon
the cash flows of Metallurg and its subsidiaries and the payment of funds by
Metallurg and its subsidiaries to the Issuer in the form of loans, dividends or
otherwise. Metallurg has no obligation, contingent or otherwise, to pay any
amounts due pursuant to the New Notes or to make any funds available therefor.
In addition, Metallurg's Revolving Credit Facility and the Senior Note Indenture
impose, and agreements entered into in the future may impose, significant
restrictions on the payment of dividends and the making of loans by Metallurg
and to the Issuer. The payment restrictions contained in the Revolving Credit
Facility and the Senior Note Indenture were not amended in connection with the
Acquisition Transactions and, as a result, there are no specific carveouts that
contemplate distributions to a holding company. See "Description of Certain
Indebtedness." Accordingly, repayment of the New Notes may depend upon the
ability of the Issuer to effect an offering of its capital stock or to refinance
the New Notes.
In addition, under Delaware law, a subsidiary of a company is permitted to
pay dividends on its capital stock only out of its surplus or, if it has no
surplus, out of its net profits for the year in which a dividend is declared or
for the immediately preceding fiscal year. Surplus is defined as the excess of a
company's total assets over the sum of its total liabilities plus the par value
of its outstanding capital stock. In order to pay a cash dividend, the Company
must have surplus or net profits equal to the full amount of the dividend at the
time the dividend is declared. In determining the Company's ability to pay
dividends, Delaware law permits the board of directors of the Company to revalue
its assets and liabilities from time to time to their fair market values in
order to create surplus.
The Issuer cannot predict what the value of its subsidiaries' assets or the
amounts of their liabilities will be in the future. Accordingly, there can be no
assurance that Metallurg will be able to dividend any amounts to the Issuer in
the future and, therefore, that the Issuer will be able to pay its debt service
obligations on the New Notes.
In some cases, local law applicable to Metallurg's subsidiaries restricts
the ability of certain subsidiaries to pay dividends to Metallurg. Metallurg's
German subsidiaries, Elektrowerk Weisweiler GmbH ("EWW"), in which Metallurg
owns a 98.0% interest, and GfE Gesellschaft fur Elektrometallurgie mbH ("GfE"),
in which Metallurg owns a 99.2% interest, are currently prohibited from paying
dividends under German law because their stated capital as reported in the
commercial register is higher than their actual capital as reported under German
accounting principles. Metallurg has made certain filings to reduce the stated
capital of its German operating subsidiaries which should enable such German
operating subsidiaries to make dividend payments by late 1998. However, there
can be no assurance that Metallurg's subsidiaries will be permitted or able to
pay to Metallurg dividends necessary to service its indebtedness. See
"Description of Certain Indebtedness." In addition, Metallurg's Turkish
subsidiary is limited in its ability to pay dividends from retained earnings, as
a result of historical currency devaluation. Metallurg's South African
subsidiary must obtain central bank approval prior to paying dividends.
In addition, working capital facilities and other financing arrangements at
Metallurg's subsidiaries restrict such subsidiaries' ability to pay dividends.
For example, EWW must obtain the consent of a German governmental authority,
which guarantees a portion of EWW's $8.1 million working capital facility, in
order to pay dividends to Metallurg. EWW's ability to pay dividends to Metallurg
is also restricted by the terms of a settlement arrangement entered into with a
German state pension board with regard to its pension liability. The stock of
EWW has been pledged to secure obligations owed by EWW to the German
governmental authority and the German state pension board. London & Scandinavian
Metallurgical Co., Limited ("LSM") is party to a working capital facility that
limits its ability to pay dividends and management fees to Metallurg in an
amount of up to 100% of LSM's annual net income. In addition, Metallurg's Swiss
merchanting subsidiary may only pay dividends to Metallurg in amounts up to 50%
of its net income. In the event that Metallurg is prohibited from receiving
dividends from these
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subsidiaries, Metallurg's ability to make required principal and interest
payments on its indebtedness will be adversely effected. See "Description of
Certain Indebtedness."
The contribution to Adjusted EBITDA generated by GfE and EWW for the Last
Twelve Months was $13.0 million, or 25.9% of Metallurg's Adjusted EBITDA for
such period. Although Metallurg may seek, subject to compliance with applicable
laws and other restrictions, to repatriate funds from these subsidiaries through
means other than dividend payments, such as by causing those subsidiaries to
repay principal and interest on outstanding obligations to Metallurg or to make
loans to Metallurg, there can be no assurance that any such arrangements could
be made.
DEPENDENCE ON CYCLICAL MARKETS
The performance of Metallurg's businesses is directly related to the
production levels of Metallurg's customers, which are mainly steel, aluminum,
superalloy and titanium alloy producers whose businesses are dependent on highly
cyclical markets, such as the automotive, construction, consumer durables and
aerospace markets. The iron and steel, aluminum, superalloy and titanium
industries have all exhibited a high degree of cyclicality. Consequently,
Metallurg's financial performance could fluctuate with the general economic
cycle, which could have a material adverse effect on Metallurg's business,
financial condition, and results of operations. In addition, many of Metallurg's
products are internationally traded products with prices that are significantly
affected by worldwide supply and demand. Although there has been an economic
recovery in certain of Metallurg's markets beginning in 1993, there can be no
assurance that the current recovery will continue for any extended period of
time.
LIMITED SOURCES FOR RAW MATERIALS
Certain of Metallurg's subsidiaries are dependent on third parties for raw
material supplies. Shieldalloy's production unit in Cambridge, Ohio currently
obtains a majority of its raw materials requirements for the manufacture of
ferrovanadium from two sources. Although alternative sources of ferrovanadium
raw materials exist, there can be no assurance that Metallurg would be able to
obtain adequate supplies of such materials, if at all, on acceptable terms from
other sources. Titanium and boron salts for the manufacture of sophisticated
aluminum master alloys are sourced from long-time suppliers who in certain
instances also supply competitive producers with these raw materials. Although
these and other raw materials are generally priced with reference to perceived
related market prices, any increase in demand could cause raw material costs to
rise. To the extent Metallurg is unable to recover its increased costs,
operating results would be adversely affected.
END OF ANTI-DUMPING DUTIES
Since July 1995, the Department of Commerce has imposed incremental
anti-dumping duties of 3.8% to 108% on imports of Russian ferrovanadium and
nitrided vanadium into the United States. These duties are subject to a "sunset"
review in 2000, after which time the International Trade Commission and,
independently, the Department of Commerce will determine whether to terminate or
extend them. In addition, all anti-dumping duties are subject to annual review
by the Department of Commerce. If the incremental duties are not maintained at
their current levels, Metallurg may be materially adversely affected. Normal
duties on these products are 4.2%.
Since 1993, the Council of the European Communities has imposed duties on
imports of ferrochrome from Russia, Kazakhstan and Ukraine as high as 0.31 ECU
per kilogram of material. These duties will expire in October 1998. The
expiration of these duties may have a material adverse effect on Metallurg. EWW
is seeking to extend these duties by making an application to the relevant
authorities. There is no assurance that such extensions will be granted.
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HIGHLY COMPETITIVE INDUSTRY
The metals industry is highly competitive on a worldwide basis. Competition
is primarily based on price, quality and timely delivery. In recent years, price
competition has intensified as a result of excess capacity in certain products.
In addition, export sales from the former Soviet Union of excess stocks of metal
and alloy additives severely hurt the price of ferroalloys in Europe and the
United States, which in turn exerted a negative impact on the price of
Metallurg's products. Although Metallurg believes that the downward effect of
this increased competition has abated, there can be no assurance that excessive
price competition will not recur. There can be no assurance that new entrants
will not increase competition in the metals industry, which could materially
adversely affect Metallurg. An increase in the use of substitutes for metal
alloys also could have a material adverse effect on the financial condition and
operations of Metallurg.
ENVIRONMENTAL REGULATION
Metallurg's manufacturing businesses are subject to extensive laws and
regulations governing, among other things, emissions to air, discharges and
releases to land and water (including groundwater), the generation, handling,
storage, transportation, treatment and disposal of wastes and other materials,
including wastes and materials containing low levels of radioactivity, and the
remediation of contamination caused by releases of wastes and other material, as
well as worker exposure to hazardous or toxic substances. There can be no
assurance that these laws and regulations will not result in the imposition of
future liabilities and obligations that would be material to Metallurg's
business operations, financial condition or cash flow. Metallurg's cost of
compliance with environmental laws and remediation obligations under such laws
has been and is expected to continue to be significant. In addition to its
ongoing compliance obligations, Shieldalloy entered into environmental
settlement agreements with federal and state regulators in connection with the
Reorganization Plan pursuant to which it has agreed to remediate historical
contamination at the Shieldalloy facilities in Newfield, New Jersey and
Cambridge, Ohio, which will require Metallurg to make significant expenditures
in coming years. Although the scope of Shieldalloy's remediation obligations
relating to the historical contamination at these facilities has been defined,
there can be no assurance that the ultimate cost of fulfilling these obligations
will not materially exceed Shieldalloy's current estimates or currently
established reserves. Such expenditures are currently estimated at $39.4
million, of which approximately $4.2 million is expected to be expended in 1998,
$4.3 million in 1999 and $8.1 million in 2000. In addition, Metallurg estimates
it will make expenditures of $5.0 million for remediation at its foreign
facilities. Of this amount, approximately $1.8 million is expected to be
expended in 1998, $0.7 million in 1999 and $0.7 million in 2000. For a detailed
discussion of these matters, see "Business--Environmental Matters."
INTERNATIONAL RISKS
Metallurg has substantial operations outside the United States. At April 30,
1998, Metallurg's operations located outside the United States represented
approximately 61% (based on book values) of Metallurg's assets. Approximately
81% of Metallurg's employees were outside the United States at April 30, 1998.
Based on customer location, for the 1997 Fiscal Year, approximately 38% of
Metallurg's sales were made in North America, 47% in Europe, 5% in Asia, 2% in
South America and 8% throughout the rest of the world. Foreign operations are
subject to special risks that can materially affect the sales, profits, cash
flows and financial position of Metallurg, including taxes on distributions or
deemed distributions to Metallurg or any United States subsidiary, currency
exchange rate fluctuations, limitations on repatriation of funds, maintenance of
minimum capital requirements, and import and export controls. In general,
Metallurg's cost of sales for products manufactured in certain foreign locations
has in the past been adversely impacted by the appreciation of the respective
local currencies of those locations relative to the U.S. dollar and other
currencies in which it sells. While Metallurg engages in hedging transactions to
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reduce certain of the risks of currency rate fluctuations, there can be no
assurances regarding the effectiveness or adequacy of those transactions.
LABOR RELATIONS
Approximately 50% of Metallurg's employees are covered by collective
bargaining or similar agreements. Many of these agreements covering Metallurg's
union employees at its foreign subsidiaries are renewable on an annual basis.
There can be no assurance that new labor agreements will be reached without a
work stoppage or strike or will be reached on terms satisfactory to Metallurg.
See "Business-- Employees."
RESTRICTIVE DEBT COVENANTS
The Indenture imposes significant operating and financial restrictions on
the Issuer. The Indenture significantly limits or prohibits, among other things,
the ability of the Issuer to incur additional indebtedness, incur liens, pay
dividends or make certain other restricted payments or investments, consummate
certain asset sales, enter into certain transactions with affiliates, permit
arrangements that impose restrictions on the ability of a subsidiary to pay
dividends or make certain payments to the Issuer, merge or consolidate with any
other person or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of the assets of the Issuer. The ability of the Issuer
to comply with these and other provisions of the Indenture may be affected by
events beyond the Issuer's control. These restrictions could limit the ability
of the Issuer to respond to market conditions or meet extraordinary capital
needs or otherwise restrict corporate activities. There can be no assurances
that such restrictions will not materially adversely affect the ability of the
Issuer to finance its future operations or capital needs. See "Description of
Certain Indebtedness" and "Description of the New Notes--Certain Covenants."
The Revolving Credit Facility and the Senior Note Indenture impose
significant operating and financial restrictions on Metallurg and its
subsidiaries. The Revolving Credit Facility and the Senior Note Indenture
significantly limit or prohibit, among other things, the ability of Metallurg
and its restricted subsidiaries to incur additional indebtedness, incur liens,
pay dividends or make certain other restricted payments or investments,
consummate certain asset sales, enter into certain transactions with affiliates,
permit arrangements that impose restrictions on the ability of a subsidiary to
pay dividends or make certain payments to Metallurg, merge or consolidate with
any other person or sell, assign, transfer, lease, convey or otherwise dispose
of all or substantially all of the assets of Metallurg. The ability of Metallurg
to comply with these and other provisions of the Revolving Credit Facility and
the Senior Note Indenture may be affected by events beyond the Issuer's and
Metallurg's control. These restrictions could limit the ability of Metallurg to
respond to market conditions or meet extraordinary capital needs or otherwise
restrict corporate activities. There can be no assurances that such restrictions
will not materially adversely affect the ability of Metallurg to finance its
future operations or capital needs. See "Description of Certain Indebtedness"
and "Description of the New Notes--Certain Covenants."
LIMITATIONS ON ABILITY TO MAKE CHANGE OF CONTROL PAYMENT
The Indenture provides that, upon the occurrence of any Change of Control
(as defined herein), the Issuer will be required to make an offer (a "Change of
Control Offer") to repurchase all the New Notes issued and then outstanding
under the Indenture at a price equal to 101% of the Accreted Value (as defined
therein) thereof (if such date of repurchase is prior to July 15, 2003) or 101%
of the principal amount thereof (if such date of repurchase is on or after July
15, 2003) plus, in each case, accrued and unpaid interest and Liquidated
Damages, if any, to the date of repurchase. Any Change of Control under the
Indenture would likely trigger a similar change of control offer under the
Senior Note Indenture and would constitute a default under the Revolving Credit
Facility. Upon such event, such lenders would be entitled to receive payment of
all outstanding obligations under the Revolving Credit Facility. See
"Description of Certain Indebtedness." If a Change of Control were to occur and
waivers under the Senior
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Note Indenture and the Revolving Credit Facility were not obtained, it is
unlikely that the Issuer would have sufficient funds available to repurchase the
New Notes pursuant to a Change of Control Offer or refinance the New Notes. If
the Issuer does not have sufficient financial resources to effect a Change of
Control Offer, it would be required to seek additional financing from outside
sources to enable it to repurchase the New Notes. There can be no assurance that
such financing would be available to the Issuer on satisfactory terms.
RISK OF FRAUDULENT TRANSFER LIABILITY
If a court of competent jurisdiction in a suit by an unpaid creditor or a
representative of creditors (such as a trustee in bankruptcy or a
debtor-in-possession) were to find that either the Issuer did not receive fair
consideration or reasonably equivalent value for issuing the New Notes and, at
the time of the incurrence of indebtedness represented by the New Notes, the
Issuer was insolvent, was rendered insolvent by reason of such incurrence, was
engaged in a business or transaction for which its remaining assets constituted
unreasonably small capital, intended to incur, or believed that it would incur,
debts beyond its ability to pay as such debts matured, or intended to hinder,
delay or defraud their creditors, such court could avoid such indebtedness,
subordinate such indebtedness to other existing and future indebtedness of the
Issuer or take other action detrimental to the Holders of the New Notes. The
measure of insolvency for purposes of the foregoing will vary depending upon the
law of the relevant jurisdiction. Generally, however, a company would be
considered insolvent for purposes of the foregoing if the sum of such company's
debts is greater than all the company's property at a fair valuation, or if the
present fair saleable value of the company's assets is less than the amount that
would be required to pay its probable liability on its existing debts as they
become absolute and matured.
RECENT BANKRUPTCY
Metallurg and Shieldalloy sought protection under Chapter 11 of the United
States Bankruptcy Code in September 1993 following Metallurg's inability to
restructure or refinance its long-term indebtedness and revolving credit
facility in light of the confluence of several negative economic factors that
caused Metallurg to default on certain then-outstanding indebtedness. Metallurg
was particularly affected by recessionary conditions in the end-markets for its
products and "dumping" by certain foreign competitors. There can be no assurance
that such economic factors will not recur in the future. See "--Dependence on
Cyclical Markets" and "--End of Anti-Dumping Duties."
Metallurg and Shieldalloy consummated the Reorganization Plan in April 1997.
While in Chapter 11 proceedings, Metallurg and Shieldalloy substantially reduced
their debt, restructured significant obligations, restructured their operations
and made certain management changes, reduced expenses and entered into
settlement agreements with various environmental regulatory authorities. Certain
of these activities, particularly reducing debt and restructuring obligations,
could have been accomplished only in the context of Chapter 11 and should not be
viewed as indicative of Metallurg's performance in the future.
PRINCIPAL STOCKHOLDERS
Safeguard International and the Investor Group are the sole stockholders of
the Issuer, which is the 100% parent of the Company, and Safeguard International
controls all of the voting power of the Issuer and, therefore Safeguard
International has the ability to designate all of the directors of the Issuer
and the Company. See "The Acquisition Transactions" and "Management." Safeguard
International is therefore in a position to direct the management and affairs of
the Issuer and the Company and may cause the Issuer and the Company to enter
into transactions that could ultimately enhance stockholder value but may
involve risks to Holders of the New Notes.
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ABSENCE OF PUBLIC MARKET FOR THE NEW NOTES
If the New Notes are traded after their initial issuance, they may trade at
a discount from their initial offering price, depending upon prevailing interest
rates, the market for similar securities, the performance of the Company and
certain other factors. Historically, the market for non-investment grade debt
has been subject to disruptions that have caused substantial volatility in the
prices of securities similar to the New Notes. There can be no assurance that if
a market for the New Notes develops, that market will not be subject to similar
disruptions. Any such disruptions may have an adverse effect on holders of the
New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Issuer does not currently anticipate that
it will register the Old Notes under the Securities Act. New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold or otherwise transferred by Holders thereof (other than any such
holder which is an "affiliate" of the Issuer within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act provided that such New
Notes are acquired in the ordinary course of such holders' business and such
holders have no arrangement with any person to participate in the distribution
of such New Notes. Each broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that, by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Issuer has agreed that it will make
this Prospectus available to any such broker-dealer for use in connection with
any such resale. See "Plan of Distribution." However, to comply with the
securities laws of certain jurisdictions, if applicable, the New Notes may not
be offered or sold unless they have been registered or qualified for sale in
such jurisdictions or an exemption from registration or qualification is
available and is complied with. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Old Notes will be adversely affected.
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THE EXCHANGE OFFER
PURPOSE AND EFFECTS
The Old Notes were sold by the Issuer on July 13, 1998 to the Initial
Purchaser, who resold the Old Notes to "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act) and other institutional
"accredited investors" (as defined in Rule 501(a) under the Securities Act). In
connection with the sale of the Old Notes, the Issuer and the Initial Purchaser
entered into the Registration Agreement pursuant to which the Issuer agreed to
file with the Commission a registration statement (the "Exchange Offer
Registration Statement") with respect to an offer to exchange the Old Notes for
New Notes within 60 days following the original issuance of the Old Notes. In
addition, the Issuer agreed to cause the Exchange Offer Registration Statement
to become effective under the Securities Act and to issue the New Notes pursuant
to the Exchange Offer. A copy of the Registration Agreement has been filed as an
exhibit to the Exchange Offer Registration Statement.
The Exchange Offer is being made pursuant to the Registration Agreement to
satisfy the Issuer's obligations thereunder. For purposes of the Exchange Offer,
the term "Eligible Holder" shall mean the registered owner of any Old Notes that
remain Transfer Restricted Securities, as reflected on the records of United
States Trust Company of New York as registrar for the Old Notes (in such
capacity, the "Registrar"), or any person whose Old Notes are held of record by
the depositary of the Old Notes. The Issuer is not required to include any
securities other than the New Notes in the Exchange Offer Registration
Statement. Holders of Old Notes who do not tender their Old Notes or whose Old
Notes are tendered but not accepted would have to rely on exemptions from
registration requirements under the securities laws, including the Securities
Act, if they wish to sell their Old Notes.
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties unrelated to the Issuer, the Issuer
believes that the New Notes issued pursuant to the Exchange Offer in exchange
for Old Notes may be offered for resale, resold and otherwise transferred by any
holder of such New Notes (other than a person that is an "affiliate" of the
Issuer within the meaning of Rule 405 under the Securities Act and except as set
forth in the next paragraph) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business and such
holder is not participating and does not intend to participate, and has no
arrangement or understanding with any person to participate, in the distribution
of such New Notes.
If any person were to be participating in the Exchange Offer for the purpose
of distributing securities in a manner not permitted by the Commission's
interpretation, (i) the position of the staff of the Commission enunciated in
interpretive letters would be inapplicable to such person and (ii) such person
would be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives New Notes for its own account in exchange for
Old Notes, where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such New Notes.
See "Plan of Distribution."
The Exchange Offer is not being made to, nor will the Issuer accept
surrenders for exchange from, holders of Old Notes in any jurisdiction in which
the Exchange Offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction. Prior to the Exchange Offer,
however, the Issuer will register or qualify or cooperate with the holders of
the Old Notes and their respective counsel in connection with the registration
or qualification of the New Notes for offer and sale under the securities or
blue sky laws of such jurisdictions as is necessary to permit consummation of
the Exchange Offer and do any and all other acts or things necessary or
advisable to enable the offer and sale in such jurisdictions of the New Notes.
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TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Issuer will accept any and
all Old Notes validly tendered prior to 5:00 p.m., New York City time, on the
Expiration Date. The Issuer will issue up to $121,000,000 aggregate principal
amount at maturity of New Notes in exchange for a like principal amount of
outstanding Old Notes which are validly tendered and accepted in the Exchange
Offer. Subject to the conditions of the Exchange Offer described below, the
Issuer will accept any and all Old Notes which are so tendered. Holders may
tender some or all of their Old Notes pursuant to the Exchange Offer; however,
the Old Notes may be tendered only in multiples of $1,000. See "Description of
The New Notes."
The form and terms of the New Notes will be the same in all material
respects as the form and terms of the Old Notes, except that (i) the New Notes
will be registered under the Securities Act and hence will not bear legends
restricting the transfer thereof and (ii) because the New Notes will be
registered, holders of New Notes will not be, and upon the consummation of the
Exchange Offer, Eligible Holders of Old Notes will no longer be, entitled to
certain rights under the Registration Agreement intended for the holders of
unregistered securities.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of the State of Delaware or the Indenture in
connection with the Exchange Offer. The Issuer intends to conduct the Exchange
Offer in accordance with the provisions of the Registration Agreement. Old Notes
which are not tendered for exchange or are tendered but not accepted in the
Exchange Offer will remain outstanding and be entitled to the benefits of the
Indenture, but will not be entitled to any registration rights under the
Registration Agreement.
The Issuer shall be deemed to have accepted validly tendered Old Notes when,
as and if the Issuer has given oral or written notice thereof to the Exchange
Agent for the Exchange Offer. The Exchange Agent will act as agent for the
tendering holders for the purposes of receiving the New Notes from the Issuer.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Eligible Holders who tender Old Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Issuer will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENTS
The Exchange Offer will expire at 5:00 p.m., New York City time, on ,
1998, subject to extension by the Issuer by notice to the Exchange Agent as
herein provided. The Issuer reserves the right to so extend the Exchange Offer
at its discretion, in which event the term "Expiration Date" shall mean the time
and date on which the Exchange Offer as so extended shall expire. The Issuer
will notify the Exchange Agent of any extension by oral or written notice and
will make a public announcement thereof, each prior to 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date.
The Issuer reserves the right (i) to delay accepting for exchange any Old
Notes for any New Notes or to extend or terminate the Exchange Offer and not
accept for exchange any Old Notes for any New Notes if any of the events set
forth below under the caption "Conditions of the Exchange Offer" shall have
occurred and shall not have been waived by the Issuer by giving oral or written
notice of such delay or termination to the Exchange Agent or (ii) to amend the
terms of the Exchange Offer in any manner. Any
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such delay in acceptance for exchange, extension or amendment will be followed
as promptly as practicable by public announcement thereof. If the Exchange Offer
is amended in a manner determined by the Issuer to constitute a material change,
the Issuer will promptly disclose such amendment in a manner reasonably
calculated to inform the holders of Old Notes of such amendment, and the Issuer
will extend the Exchange Offer for a minimum of five business days, depending
upon the significance of the amendment and the manner of disclosure to the
holders of Old Notes, if the Exchange Offer would otherwise expire during such
five business-day period. The rights reserved by the Issuer in this paragraph
are in addition to the Issuer's rights set forth below under the caption
"Conditions of the Exchange Offer."
TERMINATION OF CERTAIN RIGHTS
The Registration Agreement provides that if (a) on or prior to the 60th day
following the date of original issuance of the Old Notes, neither the Exchange
Offer Registration Statement nor the Shelf Registration Statement has been filed
with the Commission, (b) on or prior to the 120th day following the date of
original issuance of the Old Notes, the Exchange Offer Registration Statement
has not been declared effective, (c) on or prior to the 150th day following the
date of original issuance of the Old Notes, neither the Exchange Offer has been
consummated nor the Shelf Registration Statement has been declared effective, or
(d) after either the Exchange Offer Registration Statement or the Shelf
Registration Statement has been declared effective, such Registration Statement
thereafter ceases to be effective or usable (subject to certain exceptions) in
connection with resales of Notes in accordance with and during the periods
specified in the Registration Agreement (each such event referred to in clauses
(a) through (d), a "Registration Default"), the Issuer will pay liquidated
damages ("Liquidated Damages"), to each Holder of the Old Notes with respect to
the first 90-day period immediately following the occurrence of such
Registration Default in an amount equal to $.05 per week per $1,000 principal
amount of the Old Notes held by such Holder. Upon a Registration Default,
Liquidated Damages will accrue at the rate specified above until such
Registration Default is cured and the amount of Liquidated Damages will increase
by an additional $.05 per week per $1,000 principal amount of Old Notes with
respect to each subsequent 90-day period until all Registration Defaults have
been cured, up to a maximum amount of Liquidated Damages of $.25 per week per
$1,000 principal amount of Old Notes (regardless of whether one or more than one
Registration Default is outstanding). All accrued Liquidated Damages will be
paid by the Issuer on January 15 and July 15 of each year to the Holders of Old
Notes by wire transfer of immediately available
funds or by mailing checks to their registered addresses if no such accounts
have been specified.
Holders of New Notes will not be and, upon consummation of the Exchange
Offer, Eligible Holders of Old Notes will no longer be, entitled to certain
other rights under the Registration Agreement intended for holders of Transfer
Restricted Securities. The Exchange Offer shall be deemed consummated upon the
occurrence of the delivery by the Issuer to the Registrar under the Indenture of
New Notes in the same aggregate principal amount as the aggregate principal
amount of Old Notes that are tendered by holders thereof pursuant to the
Exchange Offer.
PROCEDURES FOR TENDERING
Only an Eligible Holder of Old Notes may tender such Old Notes in the
Exchange Offer. To tender in the Exchange Offer, an Eligible Holder must
complete, sign and date the Letter of Transmittal, or a facsimile thereof, have
the signatures thereon guaranteed if required by the Letter of Transmittal, and
mail or otherwise deliver such Letter of Transmittal or such facsimile, together
with the Old Notes (unless such tender is being effected pursuant to the
procedure for book-entry transfer described below) and any other required
documents, to the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date.
Any financial institution that is a participant in DTC's Book-Entry Transfer
Facility System may make book-entry delivery of the Old Notes by causing DTC to
transfer such Old Notes into the Exchange Agent's account in accordance with
DTC's procedure for such transfer. Although delivery of Old Notes
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may be effected through book-entry transfer into the Exchange Agent's account at
DTC, the Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, must, in any case, be
transmitted to and received or confirmed by the Exchange Agent at its addresses
as set forth under the caption "Exchange Agent" below prior to 5:00 p.m., New
York City time, on the Expiration Date. DELIVERY OF DOCUMENTS TO DTC IN
ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
The tender by an Eligible Holder of Old Notes will constitute an agreement
between such holder and the Issuer in accordance with the terms and subject to
the conditions set forth herein and in the Letter of Transmittal.
The method of delivery of Old Notes and the Letter of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the Eligible Holders. Instead of delivery by mail, it is recommended that
Eligible Holders use an overnight or hand delivery service. In all cases,
sufficient time should be allowed to assure delivery to the Exchange Agent on or
before the Expiration Date. No Letter of Transmittal or Old Notes should be sent
to the Issuer. Eligible Holders may request their respective brokers, dealers,
commercial banks, trust companies or nominees to effect the tenders for such
holders.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below) unless
the Old Notes tendered pursuant thereto are tendered for the account of an
Eligible Institution. In the event that signatures on a Letter of Transmittal or
a notice of withdrawal, as the case may be, are required to be guaranteed, such
guarantee must be by a member of a signature guarantee program within the
meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Issuer,
evidence satisfactory to the Issuer of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance and withdrawal of tendered Old Notes will be determined
by the Issuer in its sole discretion, which determination will be final and
binding. The Issuer reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Issuer's acceptance of which might,
in the judgment of the Issuer or its counsel, be unlawful. The Issuer also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Old Notes. The Issuer's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such times as the Issuer in its sole discretion shall determine. Although
the Issuer intends to request the Exchange Agent to notify holders of defects or
irregularities with respect to tenders of Old Notes, neither the Issuer, the
Exchange Agent nor any other person shall incur any liability for failure to
give such notification. Tenders of Old Notes will not be deemed to have been
made until such defects or irregularities have been cured or waived. Any Old
Notes received by the Exchange Agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
In addition, the Issuer reserves the right in its sole discretion (subject
to limitations contained in the Indenture) (i) to purchase or make offers for
any Old Notes that remain outstanding subsequent to the Expiration Date and (ii)
to the extent permitted by applicable law, to purchase Old Notes in privately
negotiated transactions or otherwise. The terms of any such purchases or offers
could differ from the terms of the Exchange Offer.
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By tendering, each Eligible Holder will represent to the Issuer that, among
other things, the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business by the person receiving such New
Notes, whether or not such person is the holder and that neither the Eligible
Holder nor any such other person has an arrangement or understanding with any
person to participate in the distribution of such New Notes and that neither the
Eligible Holder nor any such other person is an "affiliate," as defined in Rule
405 under the Securities Act, of the Issuer. If the holder is a broker-dealer
that will receive New Notes for its own account in exchange for Old Notes that
were acquired as a result of market-making activities or other trading
activities, such holder by tendering will acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes.
GUARANTEED DELIVERY PROCEDURES
Eligible Holders who wish to tender their Old Notes and (i) whose Old Notes
are not immediately available, or (ii) who cannot deliver their Old Notes and
other required documents to the Exchange Agent or cannot complete the procedure
for book-entry transfer prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand) setting forth
the name and address of the Eligible Holder, the certificate number(s) of
such Old Notes (if available) and the principal amount of Old Notes tendered
together with a duly executed Letter of Transmittal (or a facsimile
thereof), stating that the tender is being made thereby and guaranteeing
that, within five business days after the Expiration Date, the
certificate(s) representing the Old Notes to be tendered in proper form for
transfer (or a confirmation of a book entry transfer into the Exchange
Agent's account at the depositary of the Old Notes delivered electronically)
and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent; and
(c) Such certificate(s) representing all tendered Old Notes in proper
form for transfer (or confirmation of a book-entry transfer into the
Exchange Agent's account at the depositary of the Old Notes delivered
electronically) and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within five business days
after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Eligible Holders who wish to tender their Old Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date,
unless previously accepted for exchange.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date, and prior to acceptance for exchange thereof by the Issuer.
Any such notice of withdrawal must (i) specify the name of the person having
deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old
Notes to be withdrawn (including the certificate number or numbers and principal
amount of such Old Notes), (iii) be signed by the Depositor in the same manner
as the original signature on the Letter of Transmittal by which such Old Notes
were tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the Old
Notes register the transfer of such Old Notes into the name of the person
withdrawing the tender, and (iv) specify the name in which any such Old Notes
are to be registered, if
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different from that of the Depositor. All questions as to the validity, form and
eligibility (including time of receipt) of such withdrawal notices will be
determined by the Issuer in its sole discretion, whose determination shall be
final and binding on all parties. Any Old Notes so withdrawn will be deemed not
to have been validly tendered for purposes of the Exchange Offer, and no New
Notes will be issued with respect thereto unless the Old Notes so withdrawn are
validly re-tendered. Any Old Notes which have been tendered but which are not
accepted for exchange or which are withdrawn will be returned to the holder
thereof without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn Old
Notes may be re-tendered by following one of the procedures described above
under "Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS OF THE EXCHANGE OFFER
In addition, and notwithstanding any other term of the Exchange Offer, the
Issuer will not be required to accept for exchange any Old Notes tendered for
any New Notes and may terminate or amend the Exchange Offer as provided herein
before the acceptance of such Old Notes, if any of the following conditions
exist:
(a) Any action or proceeding is instituted or threatened in any court or
by or before any governmental agency or regulatory authority with respect to
the Exchange Offer which, in the sole judgment of the Issuer, might
materially impair the ability of the Issuer to proceed with the Exchange
Offer or have a material adverse effect on the contemplated benefits of the
Exchange Offer to the Issuer; or
(b) There shall have occurred any change, or any development involving a
prospective change, in the business or financial affairs of the Issuer,
which in the sole judgment of the Issuer, might materially impair the
ability of the Issuer to proceed with the Exchange Offer or materially
impair the contemplated benefits of the Exchange Offer to the Issuer; or
(c) There shall have been proposed, adopted or enacted any law, statute,
rule or regulation which, in the sole judgment of the Issuer, might
materially impair the ability of the Issuer to proceed with the Exchange
Offer or have a material adverse effect on the contemplated benefits of the
Exchange Offer to the Issuer; or
(d) There shall have occurred (i) any general suspension of, shortening
of hours for, or limitation on prices for, trading in securities on the New
York Stock Exchange (whether or not mandatory); (ii) a declaration of a
banking moratorium or any suspension of payments in respect of banks by
Federal or state authorities in the United States (whether or not
mandatory); (iii) a commencement of a war, armed hostilities or other
international or national crisis directly or indirectly involving the United
States; (iv) any limitation (whether or not mandatory) by any governmental
authority on, or other event having a reasonable likelihood of affecting,
the extension of credit by banks or other lending institutions in the United
States; or (v) in the case of any of the foregoing existing at the time of
the commencement of the Exchange Offer, a material acceleration or worsening
thereof.
The foregoing conditions are for the sole benefit of the Issuer and may be
asserted by the Issuer regardless of the circumstances giving rise to such
conditions or may be waived by the Issuer in whole or in part at any time and
from time to time in its sole discretion. If the Issuer waives or amends the
foregoing conditions, the Issuer will, if required by applicable law, extend the
Exchange Offer for a minimum of five business days from the date that the Issuer
first gives notice, by public announcement or otherwise, of such waiver or
amendment, if the Exchange Offer would otherwise expire within such five
business-day period. Any determination by the Issuer concerning the events
described above will be final and binding upon all parties.
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FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Issuer. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail; however, additional solicitation may be
made by telecopy, telephone or in person by officers and regular employees of
the Issuer and its affiliates.
The Issuer has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Issuer, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith. The Issuer
may also pay brokerage houses and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of this
Prospectus, Letters of Transmittal and related documents to the beneficial
owners of the Old Notes and in handling or forwarding tenders for exchange. The
Issuer will pay the other expenses to be incurred in connection with the
Exchange Offer, including fees and expenses of the Trustee, accounting and legal
fees and printing costs.
The Issuer will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered holder of the Old Notes tendered, or if
tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The exchange of the Old Notes for the New Notes in the Exchange Offer should
not constitute an exchange for federal income tax purposes. Consequently, (i) no
gain or loss should be realized by a U.S. Holder upon receipt of a New Note;
(ii) the holding period of the New Note should include the holding period of the
Old Note exchanged therefor and (iii) the adjusted tax basis of the New Note
should be the same as the adjusted tax basis of the Old Note exchanged therefor
immediately before the exchange. Even if the exchange of an Old Note for a New
Note were treated as an exchange, however, such an exchange should constitute a
tax-free recapitalization for federal income tax purposes. Accordingly, a New
Note should have the same issue price as an Old Note and a U.S. Holder should
have the same adjusted basis and holding period in the New Note as it had in an
Old Note immediately before the exchange. As used herein, the term "U.S. Holder"
means a person who is, for United States federal income tax purposes, (i) a
citizen or resident of the United States; (ii) a corporation, partnership or
other entity created or organized in or under the laws of the United States or
any political subdivision thereof; or (iii) an estate or trust the income of
which is subject to United States federal income taxation regardless of its
source.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Generally, Eligible Holders (other than any holder who is an "affiliate" of
the Issuer within the meaning of Rule 405 under the Securities Act) who exchange
their Old Notes for New Notes pursuant to the Exchange Offer may offer such New
Notes for resale, resell such New Notes, and otherwise transfer such New Notes
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided such New Notes are acquired in the ordinary course
of the holders' business, and such holders have no arrangement with any person
to participate in a distribution of such New Notes. Each broker-dealer that
receives New Notes for its own account in exchange for Old Notes, where such Old
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Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. See "Plan of
Distribution." To comply with the securities laws of certain jurisdictions, it
may be necessary to qualify for sale or register the New Notes prior to offering
or selling such New Notes. Upon request by Eligible Holders prior to the
Exchange Offer, the Issuer will register or qualify the New Notes in certain
jurisdictions subject to the conditions in the Registration Agreement. If an
Eligible Holder does not exchange such Old Notes for New Notes pursuant to the
Exchange Offer, such Old Notes will continue to be subject to the restrictions
on transfer contained in the legend thereon and will not have the benefit of any
covenant regarding registration under the Securities Act. In general, the Old
Notes may not be offered or sold, unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. To the extent that Old
Notes are tendered and accepted in the Exchange Offer, a holder's ability to
sell untendered Old Notes could be adversely affected.
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept the Exchange Offer and tender their Old
Notes. Holders of Old Notes are urged to consult their financial and tax
advisors in making their own decisions on what action to take.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
as reflected in the Issuer's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Issuer upon the consummation of the Exchange Offer. The expenses of the Exchange
Offer will be amortized by the Issuer over the term of the New Notes.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as Exchange Agent
for the Exchange Offer. All correspondence in connection with the Exchange Offer
and the Letter of Transmittal should be addressed to the Exchange Agent, as
follows:
<TABLE>
<CAPTION>
BY FACSIMILE: BY MAIL: BY HAND BEFORE 4:30 P.M.:
<S> <C> <C>
(212) 780-0592 United States Trust Company United States Trust Company
Attention: Customer Service of New York of New York
Confirm by Telephone to: P.O. Box 843 Cooper Station 111 Broadway
(800) 548-6565 New York, New York 10276 New York, New York 10006
Attention: Corporate Trust Attention: Lower Level
Services Corporate Trust Window
</TABLE>
BY OVERNIGHT COURIER AND BY HAND AFTER 4:30 P.M. ON EXPIRATION DATE:
United States Trust Company of New York
770 Broadway, 13th Floor
New York, New York 10003
Requests for additional copies of this Prospectus or the Letter of
Transmittal should be directed to the Exchange Agent.
33
<PAGE>
CAPITALIZATION
The following table sets forth as of April 30, 1998 the cash and cash
equivalents and consolidated capitalization (i) of the Company on an actual
basis and (ii) of the Issuer on a pro forma basis after giving effect to the
Offering, the Merger and other Acquisition Transactions. This table should be
read in conjunction with the information set forth under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the other financial information appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF APRIL 30, 1998
-----------------------
<S> <C> <C>
COMPANY ISSUER
ACTUAL PRO FORMA
---------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................................................. $ 50,221 $ 50,188
---------- -----------
---------- -----------
Short-term debt (a):
Revolving Credit Facility............................................................... $ 1,151 $ 1,151
Other indebtedness...................................................................... 1,756 1,756
---------- -----------
Total short-term debt..................................................................... 2,907 2,907
---------- -----------
Long-term debt, including current maturities:
Other indebtedness...................................................................... 3,790 3,790
Senior Notes............................................................................ 100,000 100,000
New Notes offered hereby................................................................ -- 65,177
---------- -----------
Total long-term debt, including current maturities........................................ 103,790 168,967
---------- -----------
Total shareholders' equity................................................................ 49,827 97,023(b)
---------- -----------
Total capitalization...................................................................... $ 156,524 $ 268,897
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(a) Following the Acquisition Transactions, Metallurg has on a pro forma basis
approximately $42 million of available borrowing capacity under the
Revolving Credit Facility and its working capital facilities at LSM, GfE and
EWW, subject to certain limitations contained in the instruments governing
their indebtedness. See "Description of Certain Indebtedness--Revolving
Credit Facility and Other Financing Arrangements" for a description of the
Revolving Credit Facility.
(b) Reflects the Equity Contribution to finance a portion of the purchase price
in the Acquisition Transactions.
34
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The Unaudited Pro Forma Condensed Consolidated Financial Data of the Issuer
have been derived by the application of pro forma adjustments to the Company's
historical financial data included elsewhere in this Prospectus. The pro forma
condensed consolidated statements of operations of the Issuer for the three
quarters ended January 31, 1998 and the fiscal quarter ended April 30, 1998 give
effect to the Acquisition Transactions as if the Acquisition Transactions had
been consummated as of April 1, 1997. In addition, the pro forma condensed
consolidated statements of operations of the Issuer for the three quarters ended
January 31, 1998 give effect to the issuance by the Company of the Senior Notes
and the use of proceeds therefrom to repay certain indebtedness of the Company
and its subsidiaries as described below (the "Other Pro Forma Adjustments") as
if such Other Pro Forma Adjustments had occurred on April 1, 1997. The pro forma
condensed consolidated balance sheet data of the Issuer give effect to the
Acquisition Transactions and the Other Pro Forma Adjustments as if the
Acquisition Transactions and the Other Pro Forma Adjustments had been
consummated as of April 30, 1998. The pro forma adjustments are based upon
available information and upon certain assumptions that management of the Issuer
believes are reasonable under the circumstances. The adjustments are described
in the accompanying notes. The Unaudited Pro Forma Condensed Consolidated
Financial Data do not purport to represent what the Issuer's results of
operations or financial position actually would have been if the Acquisition
Transactions and the Other Pro Forma Adjustments had been consummated on the
dates indicated, or what such results of operations or financial position will
be for any future period or date. The Unaudited Pro Forma Condensed Consolidated
Financial Data should be read in conjunction with "Selected Financial Data" and
the notes thereto and the consolidated financial statements and notes thereto
included elsewhere in this Prospectus.
35
<PAGE>
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED APRIL 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
METALLURG
HOLDINGS,
METALLURG, INC.
INC. OFFERING MERGER CONSOLIDATED
HISTORICAL ADJUSTMENTS ADJUSTMENTS PRO FORMA
-------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Total revenue.......................................... $ 167,830 $ 167,830
Cost of sales.......................................... (139,008) (139,008)
-------------- -------------
Gross margin......................................... 28,822 28,822
Selling, general and administrative expenses........... (14,761) $ (732)(a) (15,493)
-------------- ----- -------------
Operating income..................................... 14,061 (732) 13,329
Other income, net...................................... 878 -- 878
Interest expense, net.................................. (2,072) $ (2,171)(b) -- (4,243)
-------------- ----------- ----- -------------
Income (loss) before income taxes.................... 12,867 (2,171) (732) 9,964
Income tax provision (benefit)......................... 6,077 (868)(c) (25)(c) 5,184
-------------- ----------- ----- -------------
Net income........................................... $ 6,790 $ (1,303) $ (707) $ 4,780
-------------- ----------- ----- -------------
-------------- ----------- ----- -------------
</TABLE>
- ------------------------
<TABLE>
<S> <C> <C>
(a) Reflects the following:
Amortization of goodwill........................................................................... $ (670)
General overhead expenses, including professional fees, of the Issuer.............................. (62)
---------
$ (732)
---------
---------
Represents an estimate; the Issuer's actual overhead expenses cannot be predicted with certainty.
(b) Reflects interest expense on the New Notes and amortization of deferred issuance costs in
connection therewith.
(c) Tax effect of pro forma adjustments.
</TABLE>
36
<PAGE>
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE QUARTERS ENDED JANUARY 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
METALLURG
HOLDINGS,
METALLURG, INC.
INC. OFFERING MERGER CONSOLIDATED
HISTORICAL ADJUSTMENTS ADJUSTMENTS(E) PRO FORMA
-------------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
Total revenue.............................. $ 476,967 $ 476,967
Cost of sales.............................. (410,033) (410,033)
-------------- -------------
Gross margin............................. 66,934 66,934
Selling, general and administrative
expenses................................. (43,563) $ (2,442)(a) (46,005)
-------------- ------- -------------
Operating income (loss).................. 23,371 (2,442) 20,929
Other income, net.......................... 1,805 -- 1,805
Interest expense, net...................... (5,653) $ (10,015) (c) -- (15,668)
-------------- ----------- ------- -------------
Income (loss) before income taxes........ 19,523 (10,015) (2,442) 7,066
Income tax provision (benefit)............. 12,459 (4,340)(d) (83)(d) 8,036
-------------- ----------- ------- -------------
Income (loss) before extraordinary
item................................... $ 7,064 $ (5,675) $ (2,359) $ (970)
-------------- ----------- ------- -------------
-------------- ----------- ------- -------------
</TABLE>
- ------------------------
<TABLE>
<S> <C> <C>
(a) Reflects the following:
Amortization of goodwill.......................................................................... $ (2,234)
General overhead expenses, including professional fees, of the Issuer............................. (208)
---------
$ (2,442)
---------
---------
Represents an estimate; the Issuer's actual overhead expenses cannot be predicted with certainty.
(b) Reflects interest expense on the New Notes and amortization of deferred issuance costs on the New
Notes........................................................................................... $ (7,412)
---------
---------
(c) Reflects the following:
Interest on the Senior Notes at an assumed issuance date of April 1, 1997......................... $ (7,183)
Amortization of deferred issuance costs on the Senior Notes at an assumed issuance date of April
1, 1997......................................................................................... (300)
Reversal of interest on 12% senior-secured notes assumed repaid on April 1, 1997.................. 3,474
Reversal of historical interest expense on GfE bank debt and LSM Term Loan Facility (as defined
herein) assumed replaced with Company loans at April 1, 1997.................................... 1,406
---------
$ (2,603)
---------
---------
In November 1997, the Company used the proceeds from the issuance of the Senior Notes to retire
the 12% senior-secured notes, GfE bank debt and the LSM Term Loan Facility.
(d) Tax effect of pro forma adjustments.
(e) The Company has not included as pro forma adjustments the following non-recurring charges directly
related to the Merger, as follows:
Costs associated with the acceleration of vesting of stock awards upon change of control.......... $ (750)
Stock option cancellation expenses................................................................ (3,541)
Fees associated with the solicitation of consents from the Senior Note holders related to the
Merger.......................................................................................... (625)
---------
Subtotal........................................................................................ (4,916)
Tax effect at 40%................................................................................. 1,966
---------
Net adjustments................................................................................... $ (2,950)
---------
---------
</TABLE>
37
<PAGE>
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
APRIL 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
METALLURG
HOLDINGS,
METALLURG, INC.
INC. OFFERING MERGER CONSOLIDATED
HISTORICAL ADJUSTMENTS (A) ADJUSTMENTS (B) PRO FORMA
-------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 50,221 $ 61,457 $ (61,490) $ 50,188
Accounts and notes receivable, net............. 90,827 -- -- 90,827
Inventories.................................... 116,574 -- -- 116,574
Other assets................................... 12,815 372 -- 13,187
-------------- ------- --------------- -------------
Total current assets....................... 270,437 61,829 (61,490) 270,776
Goodwill......................................... -- -- 107,236(c) 107,236
Property, plant and equipment, net............... 41,666 -- -- 41,666
Other assets..................................... 18,569 3,348 -- 21,917
-------------- ------- --------------- -------------
TOTAL...................................... $ 330,672 $ 65,177 $ 45,746 $ 441,595
-------------- ------- --------------- -------------
-------------- ------- --------------- -------------
LIABILITIES
Current liabilities:
Short-term debt and current portion of long-
term debt.................................... $ 3,975 $ 3,975
Trade payables................................. 54,383 54,383
Accrued expenses............................... 31,537 31,537
Other current liabilities...................... 6,592 $ (1,450)(d) 5,142
-------------- --------------- -------------
Total current liabilities.................. 96,487 (1,450) 95,037
-------------- --------------- -------------
Long-term debt................................... 102,722 $ 65,177 -- 167,899
Accrued pension liabilities...................... 37,473 -- -- 37,473
Environmental liabilities, net................... 37,753 -- -- 37,753
Other liabilities................................ 6,410 -- -- 6,410
-------------- ------- --------------- -------------
Total long-term liabilities................ 184,358 65,177 -- 249,535
-------------- ------- --------------- -------------
Total liabilities.......................... 280,845 65,177 (1,450) 344,572
-------------- ------- --------------- -------------
SHAREHOLDERS' EQUITY
Common stock and additional paid-in capital...... 41,449 -- 55,574 97,023
Cumulative foreign currency translation
adjustment..................................... 749 -- (749) --
Retained earnings................................ 7,629 -- (7,629) --
-------------- ------- --------------- -------------
Total shareholders' equity................. 49,827 -- 47,196 97,023
-------------- ------- --------------- -------------
TOTAL...................................... $ 330,672 $ 65,177 $ 45,746 $ 441,595
-------------- ------- --------------- -------------
-------------- ------- --------------- -------------
</TABLE>
- ------------------------
<TABLE>
<S> <C> <C>
(a) Reflects the issuance of the New Notes and the payment of related deferred issuance costs.
(b) Reflects the following Merger adjustments:
Capital contribution to the Issuer........................................................ $ 97,023
Merger-related professional fees and expenses............................................. (5,655)
Purchase of outstanding shares of Metallurg, Inc. and payment of stock option cancellation
expenses................................................................................. (152,233)
Fees associated with the solicitation of consents from the Senior Note holders related to
the Merger............................................................................... (625)
----------
$ (61,490)
----------
----------
(c) Goodwill represents the excess of the purchase price over the net assets acquired. The goodwill will be
amortized over 40 years.
(d) Tax effect of Merger adjustments.
</TABLE>
38
<PAGE>
SELECTED FINANCIAL DATA
The following table presents selected historical financial data of the
Company for each of the years in the four-year period ended December 31, 1996,
the three months ended March 31, 1996, the nine months ended December 31, 1996,
the quarter ended March 31, 1997, the three quarters ended January 31, 1998 and
the quarter ended April 30, 1998. Information as of December 31, 1993, 1994 and
1995 and for the years ended December 31, 1993 and 1994 is derived from the
consolidated financial statements of the Company, which have been audited by
Deloitte & Touche LLP, independent public accountants. The information as of
December 31, 1996, March 31, 1997 and January 31, 1998 and for each of the two
years in the period ended December 31, 1996, for the quarter ended March 31,
1997 and for the three quarters ended January 31, 1998 is derived from the
consolidated financial statements of the Company included elsewhere herein,
which have been audited by Deloitte & Touche LLP, independent public
accountants. The selected financial data for the Company as of March 31, 1996
and April 30, 1998 and for the three months ended March 31, 1996, the nine
months ended December 31, 1996 and the quarter ended April 30, 1998 are
unaudited and reflect all adjustments (consisting only of normal recurring
adjustments) that are, in the opinion of management, necessary for a fair
presentation of the results of operations for such periods. The results of
operations for the quarter ended March 31, 1997 and the three quarters ended
January 31, 1998 are not necessarily indicative of results for the full year.
The information in this table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements of the Company, and the notes thereto,
included elsewhere in this Prospectus.
Financial information contained in this Prospectus for periods and dates
after March 31, 1997 reflects the effects of Metallurg's Reorganization Plan,
including the implementation of fresh-start reporting, as of March 31, 1997.
Accordingly, the Company's consolidated financial statements for periods and
dates prior to March 31, 1997 are not comparable to subsequent consolidated
financial statements. In addition, Metallurg, Inc. changed its fiscal year from
a calendar year to the period ended January 31, for fiscal periods after
consummation of its Reorganization Plan, while its subsidiaries have retained a
calendar fiscal year. As a result, results of operations for the 1997 Fiscal
Year are comprised of: (i) the pre-confirmation three months ended March 31,
1997 for Metallurg, Inc. and its subsidiaries; (ii) the post-confirmation ten
months ended January 31, 1998 for Metallurg, Inc. on a stand-alone basis; and
(iii) the post-confirmation nine months ended December 31, 1997 for its
subsidiaries. Consolidated results of operations for the quarter ended April 30,
1998 include operational results of Metallurg, Inc. on a stand-alone basis for
the three months ended April 30, 1998 and the operational results of its
subsidiaries for the three months ended March 31, 1998. Consolidated results of
operations for the three fiscal quarters ended January 31, 1998 are comprised
of: (i) the post-confirmation ten months ended January 31, 1998 for Metallurg,
Inc. on a stand-alone basis and (ii) the post-confirmation nine months ended
December 31, 1997 for its subsidiaries. Consolidated results of operations for
the Last Twelve Months include: (i) 12 months of operational results (through
March 31, 1998) for Metallurg, Inc. and its subsidiaries; and (ii) an additional
month of results of operations of Metallurg, Inc. on a stand-alone basis for
April 1998, which resulted in additional revenues of $3.2 million and $0.1
million of Adjusted EBITDA. The consolidated balance sheet data at April 30,
1998 reflect the financial position of Metallurg, Inc. at April 30, 1998 and of
its subsidiaries at March 31, 1998.
39
<PAGE>
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRE-CONFIRMATION
-----------------------------------------------------------------------------------
THREE NINE
MONTHS MONTHS QUARTER
YEARS ENDED DECEMBER 31, ENDED ENDED ENDED
------------------------------------------ MARCH 31, DECEMBER 31, MARCH 31,
1993 1994 1995 1996 1996 1996 1997
--------- --------- --------- --------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales............................... $ 541,188 $ 553,479 $ 688,002 $ 648,816 $ 165,294 $ 483,522 $ 155,427
Commission income................... 674 838 1,362 1,186 329 857 160
--------- --------- --------- --------- ----------- ------------- -----------
Total revenue..................... 541,862 554,317 689,364 650,002 165,623 484,379 155,587
Cost of sales....................... 508,424 496,218 603,535 566,538 144,474 422,064 134,060
--------- --------- --------- --------- ----------- ------------- -----------
Gross margin...................... 33,438 58,099 85,829 83,464 21,149 62,315 21,527
Selling, general and administrative
expenses.......................... 55,735 50,652 52,842 57,103 13,922 43,181 15,046
Environmental expenses(a)........... 2,342 2,082 5,624 37,582 606 36,976 --
Restructuring charges............... -- 2,653 11,658 -- -- -- --
--------- --------- --------- --------- ----------- ------------- -----------
Operating income (loss)........... (24,639) 2,712 15,705 (11,221) 6,621 (17,842) 6,481
Other:
Other income (expense), net......... (27,682) 7,477 7 (6,759) 1,656 (8,415) 3,179
Interest income (expense), net...... (7,027) (2,555) (1,949) 1,473 (452) 1,925 (245)
Reorganization expense.............. (3,409) (7,118) (3,927) (3,535) (610) (2,925) (2,663)
Fresh-start revaluation............. -- -- -- -- -- -- 5,107
--------- --------- --------- --------- ----------- ------------- -----------
Income (loss) before income tax
provision and extraordinary item.... (62,757) 516 9,836 (20,042) 7,215 (27,257) 11,859
Income tax provision (benefit)........ 225 2,507 8,171 8,453 2,649 5,804 (3,063)
--------- --------- --------- --------- ----------- ------------- -----------
Income (loss) before extraordinary
item................................ (62,982) (1,991) 1,665 (28,495) 4,566 (33,061) 14,922
Extraordinary item, net of tax(b)..... -- -- -- -- -- -- 43,032
Cumulative effect of change in
accounting principle................ (2,496) -- -- -- -- -- --
--------- --------- --------- --------- ----------- ------------- -----------
Net income (loss)..................... $ (65,478) $ (1,991) $ 1,665 $ (28,495) $ 4,566 $ (33,061) $ 57,954
--------- --------- --------- --------- ----------- ------------- -----------
--------- --------- --------- --------- ----------- ------------- -----------
Basic and diluted earnings per
share(c):
Income before extraordinary item.... -- -- -- -- -- -- --
Extraordinary item, net of tax...... -- -- -- -- -- -- --
--------- --------- --------- --------- ----------- ------------- -----------
Net income.......................... -- -- -- -- -- -- --
--------- --------- --------- --------- ----------- ------------- -----------
--------- --------- --------- --------- ----------- ------------- -----------
<CAPTION>
POST-CONFIRMATION
------------------------
THREE
QUARTERS QUARTER
ENDED ENDED
JANUARY 31, APRIL 30,
1998 1998
----------- -----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales............................... $ 476,426 $ 167,675
Commission income................... 541 155
----------- -----------
Total revenue..................... 476,967 167,830
Cost of sales....................... 410,033 139,008
----------- -----------
Gross margin...................... 66,934 28,822
Selling, general and administrative
expenses.......................... 43,563 14,761
Environmental expenses(a)........... -- --
Restructuring charges............... -- --
----------- -----------
Operating income (loss)........... 23,371 14,061
Other:
Other income (expense), net......... 1,805 878
Interest income (expense), net...... (5,653) (2,072)
Reorganization expense.............. -- --
Fresh-start revaluation............. -- --
----------- -----------
Income (loss) before income tax
provision and extraordinary item.... 19,523 12,867
Income tax provision (benefit)........ 12,459 6,077
----------- -----------
Income (loss) before extraordinary
item................................ 7,064 6,790
Extraordinary item, net of tax(b)..... (792) --
Cumulative effect of change in
accounting principle................ -- --
----------- -----------
Net income (loss)..................... $ 6,272 $ 6,790
----------- -----------
----------- -----------
Basic and diluted earnings per
share(c):
Income before extraordinary item.... $1.43 $1.37
Extraordinary item, net of tax...... (0.16 ) --
----------- -----------
Net income.......................... $1.27 $1.37
----------- -----------
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
PRE-CONFIRMATION
-------------------------------------------------------
POST-CONFIRMATION
DECEMBER 31, -------------------------------------
------------------------------------------ MARCH 31, MARCH 31, JANUARY 31, APRIL 30,
1993 1994 1995 1996 1996 1997 1998 1998
--------- --------- --------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................ $ 306,948 $ 326,981 $ 342,610 $ 331,626 $ 348,420 $ 305,704 $ 43,003 $ 330,672
Working capital............. 140,857 152,627 166,823 173,734 167,037 143,316 167,757 173,950
Property, plant and
equipment, net............ 81,254 65,921 53,516 47,885 51,664 38,907 41,502 41,666
Total debt.................. 29,212 37,719 37,625 19,869 32,005 66,488 107,149 106,697
Pension liabilities......... 46,750 43,921 47,409 43,926 46,524 41,090 38,351 37,473
Environmental liabilities... 18,497 17,762 12,780 44,011 16,290 48,135 45,080 44,391
Liabilities subject to
compromise................ 162,320 162,042 169,519 179,897 169,517 -- -- --
Total shareholders' equity
(deficit)................. (16,989) (18,561) (17,952) (42,179) (14,024) 50,000 41,771 49,827
</TABLE>
40
<PAGE>
- ------------------------
(a) As part of the Reorganization Plan, Shieldalloy entered into settlement
agreements with various environmental regulatory authorities with regard to
all of Shieldalloy's known significant environmental remediation
liabilities. Pursuant to these agreements, Shieldalloy has agreed to perform
environmental remediation which as of April, 30, 1998 had an estimated cost
of completion of $39.4 million, including approximately $16.6 million to be
incurred by Shieldalloy through the end of 2000.
(b) Reflects discharge of indebtedness income, net of tax effects, relating to
the consummation of the Reorganization Plan and the early extinguishment of
debt in November 1997.
(c) The computation of basic and diluted earnings per share is based on
4,956,406 common shares and common share equivalents outstanding during the
period. Earnings per share for periods prior to April 1, 1997 are not
presented because such presentation would not be meaningful due to
fresh-start reporting and the recapitalization of the Company as of March
31, 1997.
<TABLE>
<CAPTION>
PRE-CONFIRMATION
--------------------------------------------------------------------------
THREE NINE
MONTHS MONTHS QUARTER
YEARS ENDED DECEMBER 31, ENDED ENDED ENDED
------------------------------------ MARCH 31, DECEMBER 31, MARCH 31,
1993 1994 1995 1996 1996 1996 1997
-------- ------- ------- -------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Adjusted EBITDA (a)..................... $ (3,768) $25,715 $47,149 $ 38,928 $ 9,651 $ 29,277 $ 10,498
Environmental remediation expenditures
(b)................................... 751 814 2,769 2,282 -- 2,282 1,729
Capital expenditures.................... 6,280 7,566 6,712 9,531 1,014 8,517 2,774
Gross margin as percentage of sales..... 6.2% 10.5% 12.5% 12.9% 12.8% 12.9% 13.9%
Adjusted EBITDA as percentage of
sales................................. NM 4.6% 6.9% 6.0% 5.8% 6.1% 6.8%
Ratio of earnings to fixed charges
(c)................................... NM NM 1.0x NM 2.4x NM 3.4x
Cash flow from operating activities..... $ 22,247 $ (589) $ 5,658 $ 47,665 $14,905 $ 32,760 $ 6,416
Cash flow from investing activities..... (6,785) (3,700) (3,945) (5,019) 1,151 (6,170) 2,167
Cash flow from financing and
reorganization activities............. (11,371) 3,673 6,182 (16,117) (4,624) (11,493) (40,991)
EBITDA as defined in Indenture (d)...... (27,297) 18,317 23,825 (4,935) 7,044 (11,979) 8,606
<CAPTION>
POST-CONFIRMATION
-----------------------
THREE
QUARTERS QUARTER
ENDED ENDED
JANUARY 31, APRIL 30,
1998 1998
----------- ---------
<S> <C> <C>
OTHER DATA:
Adjusted EBITDA (a)..................... $32,515 $17,755
Environmental remediation expenditures
(b)................................... 2,635 558
Capital expenditures.................... 9,447 2,929
Gross margin as percentage of sales..... 14.0% 17.2%
Adjusted EBITDA as percentage of
sales................................. 6.8% 10.6%
Ratio of earnings to fixed charges
(c)................................... 3.2x 5.2x
Cash flow from operating activities..... $ (346) $11,044
Cash flow from investing activities..... (5,686) (3,567)
Cash flow from financing and
reorganization activities............. 19,048 (273)
EBITDA as defined in Indenture (d)...... 24,461 13,221
</TABLE>
- ------------------------
(a) For purposes of this Prospectus, "Adjusted EBITDA" is defined as net income
(loss) before: (i) income taxes; (ii) interest expense; (iii) extraordinary
item; (iv) depreciation; (v) amortization; (vi) non-cash stock compensation;
(vii) loss (gain) on sale of assets; (viii) restructuring expenses; (ix)
reorganization expenses; (x) non-cash fresh-start adjustments; and (xi)
non-cash environmental provisions. Adjusted EBITDA has not been reduced to
reflect environmental remediation expenditures. This definition of Adjusted
EBITDA differs from the definition of EBITDA used in the Indenture. The
Company's use of Adjusted EBITDA may not be comparable to similarly titled
measures due to the use by other companies of different financial statement
components in calculating Adjusted EBITDA. See "Selected Financial
Data--Calculation of Adjusted EBITDA" and "Description of the Discount
Notes."
The Company considers Adjusted EBITDA to be useful in measuring the operating
performance of the Company because, together with net income and cash flows,
Adjusted EBITDA provides investors with additional measures to evaluate the
ability of the Company to incur and service debt and to fund acquisitions
and other capital expenditures. Adjusted EBITDA does not represent net
income or cash flows from operating, investing or financial activities as
defined by generally accepted accounting principles. Adjusted EBITDA is not
an alternative to net income as a reliable measure of the Company's
operating performance or an alternative to cash flows as measures of
liquidity.
Adjusted EBITDA does not measure whether cash flow is sufficient to fund all
of the Company's cash needs, including principal amortization, capital
improvements and debt service.
(b) Environmental expenditures related to ongoing operations are generally
included in cost of goods sold and are therefore deducted in calculating net
income and Adjusted EBITDA for any period. Environmental remediation
expenditures represent the costs associated with remedial activities. Such
remediation expenditures are charged to previously established accruals and
are therefore excluded from the calculation of net income and Adjusted
EBITDA. However, the cash expended by the Company in any period for
environmental remediation expenditures will affect the Company's cash flow.
41
<PAGE>
(c) The ratio of earnings to fixed charges is computed by dividing pretax income
from operations before fixed charges (other than capitalized interest) by
fixed charges. Fixed charges consist of interest charges (including
contractual interest stayed pursuant to the Chapter 11 proceedings) and that
portion of rental expense Metallurg believes to be representative of
interest. For the years ended December 31, 1993, 1994 and 1996 and the nine
months ended December 31, 1996, earnings were insufficient to cover fixed
charges by $65.4 million, $7.8 million, $28.6 million and $33.7 million,
respectively.
(d) Under the terms of the Indenture, "EBITDA" is defined as follows
(capitalized terms have the meanings set forth in the Indenture):
"EBITDA" means, for any period, an amount equal to, for the Issuer and its
consolidated Restricted Subsidiaries, (a) the sum of Consolidated Net Income
for such period, plus the following to the extent reducing Consolidated Net
Income for such period: (i) the provision for taxes based on income or
profits or utilized in computing net loss, (ii) Consolidated Interest
Expense, (iii) depreciation, (iv) amortization of intangibles and (v) any
other non-cash items (other than any such non-cash item to the extent that
it represents an accrual of, or reserve for, cash expenditures in any future
period), minus (b) all non-cash items increasing Consolidated Net Income for
such period (other than any such non-cash item to the extent that it will
result in the receipt of cash payments in any future period).
Notwithstanding the foregoing, the provision for taxes based on the income
or profits of, and the depreciation and amortization of, a Restricted
Subsidiary shall be added to Consolidated Net income to compute EBITDA only
to the extent (and in the same proportion) that the net income of such
Restricted Subsidiary was included in calculating Consolidated Net Income
and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Issuer by such Restricted Subsidiary
without prior approval (that has not been obtained), pursuant to the terms
of its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Restricted
Subsidiary or its stockholders.
EBITDA as defined in the Indenture is used as a measure of operating cash
flow. Subject to certain exceptions set forth in the Indenture, the Company
may only incur additional Debt if its pro forma ratio of EBITDA to
Consolidated Fixed Charges for the most recent four consecutive fiscal
quarters is more than 2.00 to 1.00. See "Description of New Notes--Certain
Covenants--Limitation on Debt." For purposes of these calculations,
restrictions on the Company's subsidiaries' ability to pay dividends to the
Company in existence at December 31, 1997 are assumed for all periods
presented.
NM--Not meaningful.
42
<PAGE>
CALCULATION OF ADJUSTED EBITDA
<TABLE>
<CAPTION>
PRE-CONFIRMATION
-----------------------------------------------------------------------------------
THREE NINE
MONTHS MONTHS QUARTER
YEARS ENDED DECEMBER 31, ENDED ENDED ENDED
------------------------------------------ MARCH 31, DECEMBER 31, MARCH 31,
1993 1994 1995 1996 1996 1996 1997
--------- --------- --------- --------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss)...................... $ (65,478) $ (1,991) $ 1,665 $ (28,495) $ 4,566 $ (33,061) $ 57,954
Adjustments:
Income tax provision (benefit)....... 225 2,507 8,171 8,453 2,649 5,804 (3,063)
Interest expense..................... 9,434 4,815 4,851 3,043 1,335 1,708 1,706
Depreciation and amortization........ 20,294 12,986 15,296 10,688 2,414 8,274 2,143
--------- --------- --------- --------- ----------- ------------- -----------
EBITDA................................. (35,525) 18,317 29,983 (6,311) 10,964 (17,275) 58,740
Adjustments to EBITDA:
Environmental provisions............. 6,400 -- 3,552 34,754 -- 34,754 --
Provision for allowed claims......... -- -- -- 10,547 -- 10,547 --
Fresh-start revaluation.............. -- -- -- -- -- -- (5,107)
Writedown of investment in
subsidiaries....................... 5,732 -- -- -- -- -- --
Extraordinary item, net of tax....... -- -- -- -- -- -- (43,032)
Restructuring provision.............. 13,616 2,653 11,658 -- -- -- --
Noncash cumulative effect of
accounting changes................. 2,496 -- -- -- -- -- --
(Gains) losses on asset sales........ 104 (2,373) (1,971) (3,597) (1,923) (1,674) (3,266)
Reorganization expense............... 3,409 7,118 3,927 3,535 610 2,925 2,663
Non-cash stock compensation.......... -- -- -- -- -- -- 500
--------- --------- --------- --------- ----------- ------------- -----------
31,757 7,398 17,166 45,239 (1,313) 46,552 (48,242)
--------- --------- --------- --------- ----------- ------------- -----------
Adjusted EBITDA...................... $ (3,768) $ 25,715 $ 47,149 $ 38,928 $ 9,651 $ 29,277 $ 10,498
--------- --------- --------- --------- ----------- ------------- -----------
--------- --------- --------- --------- ----------- ------------- -----------
<CAPTION>
POST-CONFIRMATION
------------------------
THREE
QUARTERS QUARTER
ENDED ENDED
JANUARY 31, APRIL 30,
1998 1998
----------- -----------
<S> <C> <C>
Net income (loss)...................... $ 6,272 $ 6,790
Adjustments:
Income tax provision (benefit)....... 12,459 6,077
Interest expense..................... 8,270 2,900
Depreciation and amortization........ 5,320 2,188
----------- -----------
EBITDA................................. 32,321 17,955
Adjustments to EBITDA:
Environmental provisions............. -- --
Provision for allowed claims......... -- --
Fresh-start revaluation.............. -- --
Writedown of investment in
subsidiaries....................... -- --
Extraordinary item, net of tax....... 792 --
Restructuring provision.............. -- --
Noncash cumulative effect of
accounting changes................. -- --
(Gains) losses on asset sales........ (1,848) (493)
Reorganization expense............... -- --
Non-cash stock compensation.......... 1,250 293
----------- -----------
194 (200)
----------- -----------
Adjusted EBITDA...................... $ 32,515 $ 17,755
----------- -----------
----------- -----------
</TABLE>
43
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH METALLURG'S
CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO AND THE ISSUER'S
BALANCE SHEET AND THE RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS
PROSPECTUS.
OVERVIEW
In 1994, Metallurg began to recover from the effects of depressed industry
conditions principally caused by (i) the impact of the "dumping" of low-priced
vanadium and ferrochrome products by former Soviet Union exporters and (ii) a
recession in the iron and steel industry that lasted from 1989 to 1993 and
particularly affected the aerospace, automotive, durable goods, construction and
defense sectors in North America and Europe. Metallurg's recovery started
approximately two years after the recovery of its customers because the
stockpiles of metals being sold by those exporters took some time to be
consumed. The subsequent reduction of stockpiles of metals in the former Soviet
Union, the implementation of duties from successful anti-dumping petitions by
Metallurg and increased production by the steel, aluminum and superalloy
industries since 1993, have contributed to Metallurg's operating performance
beginning in 1994. See "Risk Factors--End of Anti-Dumping Duties."
In April 1997, Metallurg and Shieldalloy consummated the Reorganization
Plan. Metallurg settled its prepetition liabilities by distributing cash and
issuing Metallurg Shares and its 12% senior-secured notes, which have
subsequently been repaid. Effective March 31, 1997, Metallurg implemented
fresh-start reporting relating to its emergence from bankruptcy. Accordingly,
all assets and liabilities were restated to reflect their respective fair
values, and the consolidated financial statements subsequent to that date
include the related amortization credits associated with the fair value
adjustments. The consolidated financial statements after that date are those of
a new reporting entity and are not comparable to the pre-confirmation periods.
Significant differences between periods due to fresh-start reporting adjustments
are explained below where necessary. For example, the adoption of fresh-start
reporting resulted in a reduction of depreciation expense for all periods
subsequent to March 31, 1997, thus increasing gross margin and operating income.
Additionally, the adoption of fresh-start reporting will result in an increase
in additional paid-in capital, rather than an income tax benefit, as the
benefits relating to existing net loss carryforwards are recognized in the
future.
In addition, Metallurg, Inc. changed its fiscal year from a calendar year to
the period ended January 31, for fiscal periods after consummation of its
Reorganization Plan, while its subsidiaries have retained a calendar fiscal
year. As a result, results of operations for the 1997 Fiscal Year are comprised
of: (i) the pre-confirmation three months ended March 31, 1997 for Metallurg,
Inc. and its subsidiaries; (ii) the post-confirmation ten months ended January
31, 1998 for Metallurg, Inc. on a stand-alone basis; and (iii) the
post-confirmation nine months ended December 31, 1997 for its subsidiaries.
Consolidated results of operations for the quarter ended April 30, 1998 include
operational results of Metallurg, Inc. on a stand-alone basis for the three
months ended April 30, 1998 and the operational results of its subsidiaries for
the three months ended March 31, 1998. Consolidated results of operations for
the three fiscal quarters ended January 31, 1998 are comprised of: (i) the
post-confirmation ten months ended January 31, 1998 for Metallurg, Inc. on a
stand-alone basis and (ii) the post-confirmation nine months ended December 31,
1997 for its subsidiaries. Consolidated results of operations for the Last
Twelve Months include: 12 months of operational results (through March 31, 1998)
for Metallurg, Inc. and its subsidiaries; and (ii) an additional month of
results of operations of Metallurg, Inc. on a stand-alone basis for April 1998,
which resulted in additional revenues of $3.2 million and $0.1 million of
Adjusted EBITDA. The consolidated balance sheet data at April 30, 1998 reflect
the financial position of Metallurg, Inc. at April 30, 1998 and of its
subsidiaries at March 31, 1998.
44
<PAGE>
RESULTS OF OPERATIONS
Consolidated operating results for the quarter ended April 30, 1998 include
operational results of Metallurg for the three months ended April 30, 1998 and
the operational results of its subsidiaries for the three months ended March 31,
1998. The consolidated balance sheet data at April 30, 1998 reflect the
financial position of Metallurg at April 30, 1998 and of the operating
subsidiaries at March 31, 1998.
QUARTER ENDED APRIL 30, 1998 COMPARED TO THE QUARTER ENDED MARCH 31, 1997
Total revenues for Metallurg and its subsidiaries increased by 7.9%, from
$155.6 million in the first quarter of 1997 to $167.8 million in the first
quarter of 1998. Increased volume and selling prices of ferrovanadium accounted
for substantially all of the increase. In addition, increased revenues from
ferrotitanium and low carbon ferrochrome, due primarily to increased volume,
more than offset a reduction in sales of ferroboron and polishing powders due
primarily to increased price competition.
Gross margins increased from $21.5 million in the first quarter of 1997 to
$28.8 million in the first quarter of 1998, an increase of 33.9%, due
principally to the price and volume increases in ferrovanadium and ferrotitanium
discussed above. In aluminum master alloys and compacted products, a slight
decrease in volume was more than offset by improvements in product mix and
selling prices, which offset negative production variances. The values of the
Company's assets were reduced pursuant to fresh-start reporting, reducing
depreciation expense in the quarter ended April 30, 1998 by $0.3 million and
increasing gross margins by an equal amount.
Selling, general and administrative expenses ("SG&A") decreased from $15.0
million in the first quarter of 1997 to $14.8 million in the first quarter of
1998, a decrease of 1.9%. For the first quarter of 1997, SG&A represented 9.7%
of the Company's sales compared to 8.8% for the first quarter of 1998. SG&A was
higher in 1997 due to increased bonus accruals and awards under the Company's
Management Stock Award and Stock Option Plan (the "SASOP") incurred in
connection with the consummation of the Reorganization Plan and additional costs
related to the audit of March 31, 1997 financial statements.
Operating income increased from $6.5 million for the first quarter of 1997
to $14.1 million for the first quarter of 1998, an increase of 117.0%. The
increase resulted from the improvement in gross margins and decrease in SG&A
mentioned above.
Interest income (expense), net is as follows (in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED
APRIL 30, QUARTER ENDED
1998 MARCH 31, 1997
------------- --------------
<S> <C> <C>
Interest income................................................................... $ 828 $ 1,461
Interest expense.................................................................. (2,900) (1,706)
------------- -------
Interest expense, net............................................................. $ (2,072) $ (245)
------------- -------
------------- -------
</TABLE>
Interest expense increased significantly in 1998. In the first quarter of
1998, the Company accrued approximately $2.8 million of interest expense on $100
million aggregate principal amount of its Senior Notes, which were issued in
November 1997. The Company used a portion of the proceeds from the Senior Notes
to retire $39.5 million of outstanding 12% senior-secured notes. In the first
quarter of 1997, the Company accrued approximately $1.2 million of interest
expense on these 12% notes. The Company did not accrue interest on debt incurred
prior to entering Chapter 11 proceedings. As a result, approximately $2.1
million of contractual interest on these unsecured obligations, which were
reported as part of liabilities subject to compromise, was not reflected in the
quarter ended March 31, 1997.
45
<PAGE>
Income tax provision, net of tax benefits, is as follows (in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED
APRIL 30, QUARTER ENDED
1998 MARCH 31, 1997
------------- --------------
<S> <C> <C>
Total current..................................................................... $ 4,690 $ 704
Total deferred.................................................................... 1,387 (3,767)
------------- -------
Income tax provision (benefit), net............................................... $ 6,077 $ (3,063)
------------- -------
------------- -------
</TABLE>
The differences between the statutory federal income tax rate and the
Company's effective rate result primarily because of: (i) the excess of foreign
tax rates over the statutory federal income tax rate; (ii) certain deductible
temporary differences which, in other circumstances would have generated a
deferred tax benefit, have been fully provided for in a valuation allowance;
(iii) the deferred tax effects of certain tax assets, primarily foreign net
operating losses, for which the benefit had been previously recognized
approximating $0.5 million in the quarter ended April 30, 1998; and (iv) the
deferred tax effects of certain deferred tax assets for which a corresponding
credit has been recorded to "Additional paid-in capital" approximating $0.9
million in the quarter ended April 30, 1998. The deferred tax expenses referred
to in items (iii) and (iv) above will not result in cash payments in future
periods.
Net income was $6.8 million for the first quarter of 1998 compared to $58.0
million for the first quarter of 1997. Included in the 1997 net income is an
extraordinary item of $43.0 million representing the net gain from the discharge
of debt resulting from the consummation of the Company's Reorganization Plan and
a $5.1 million credit representing the effects of revaluing the Company's assets
and liabilities under fresh-start reporting. Reorganization expenses for the
first quarter of 1997 were $2.7 million. In March 1998, the Company sold its
minority investment in a Luxembourg affiliate and realized a gain of
approximately $0.9 million. In the first quarter of 1997, other income included
a $2.7 million gain on the sale of the Company's New York office building.
THREE QUARTERS ENDED JANUARY 31, 1998 COMPARED TO THE NINE MONTHS ENDED DECEMBER
31, 1996
Total revenues for Metallurg, Inc. and its subsidiaries decreased from
$484.4 million in the nine months ended December 31, 1996 to $477.0 million in
the three quarters ended January 31, 1998, a decrease of 1.5%. Sales
attributable to Frankel Metal Company ("FMC") accounted for a decrease of $7.0
million from the prior period's total revenues. Reduced volumes and selling
prices for manganese and ferrosilicon products in the United States, resulting
from strong competition and lack of supply at competitive prices, respectively,
accounted for a decrease in sales of approximately 2.8% from the prior period's
total revenues. In addition, decreased sales of low carbon ferrochrome accounted
for a decline in total revenues from the prior period of approximately 1.6% as
customers slowed down their buying in the quarter ended January 31, 1998.
Offsetting this decrease, however, were increased volumes and selling prices for
ferrovanadium and ferrotitanium, resulting from a strong steel market, which
resulted in increased sales of approximately 2.9% compared to the prior period's
total revenues. In addition, the installation in 1997 of a new plant for the
production of chromium metal in the U.K. contributed to an increase in sales of
approximately 1.6% from the prior period's total sales.
Gross margins increased from $62.3 million in the nine months ended December
31, 1996 to $66.9 million in the three quarters ended January 31, 1998, an
increase of 7.4%. Increases in volumes and selling prices of ferrovanadium and
ferrotitanium, as discussed above, accounted for an increase of approximately
7.8% from the prior period's gross margins. Although Metallurg's United Kingdom
aluminum powder producing division recorded a $0.5 million decrease in sales in
the three quarters ended January 31, 1998 compared to the nine months ended
December 31, 1996, margins relating to such division increased by $0.8 million
as compared to the prior period due to a change in product mix. The values of
Metallurg's assets were reduced pursuant to fresh-start reporting, reducing
depreciation expense in the three quarters ended January 31, 1998 by $1.1
million, or 1.7%, compared to the prior period, and increasing gross
46
<PAGE>
margin by an equal amount. FMC accounted for a further decrease in gross margins
of $1.0 million or 1.6% during this period as compared to the prior period.
Gross margins related to ferrosilicon products, however, accounted for a decline
in gross margins of approximately 1.9% as compared to the prior period as a
result of reduced volumes and selling prices as discussed above. In aluminum
master alloys and compacted products, increased volumes of 9.6% improved
production variances and significantly offset a decrease in margins at
Metallurg's United Kingdom operations caused by the impact of a strong British
pound.
SG&A increased from $43.2 million in the nine months ended December 31, 1996
to $43.6 million in the three quarters ended January 31, 1998, an increase of
0.9%. For the nine months ended December 31, 1996, SG&A represented 8.9% of
Metallurg's sales compared to 9.1% for the three quarters ended January 31,
1998. SG&A increased principally as a result of the inclusion of an extra month
of Metallurg, Inc.'s operations.
Operating loss was $17.8 million in the nine months ended December 31, 1996,
compared to operating income of $23.4 million in the three quarters ended
January 31, 1998. The loss in 1996 was due principally to an environmental
provision of $37.6 million, representing the anticipated future costs of
remediation and maintenance of various environmental projects, primarily at
Shieldalloy. The improvement resulted from an increase in margins on sales of
ferrovanadium, ferrotitanium and aluminum powders due to the strength of the
steel, superalloy and chemical industries, partially offset by a decrease in
margins on aluminum master alloys and briquettes resulting from a highly
competitive marketplace. Operating income for the nine months ended December 31,
1996 included $1.1 million of environmental expenses related to the operation of
the water remediation facility at Metallurg's Newfield, New Jersey site. As a
result of the Company's adoption of the American Institute of Certified Public
Accountants' Statement of Position ("SOP") 96-1, "Environmental Remediation
Liabilities," operating income in the three quarters ended January 31, 1998 does
not include such water remediation expenses. In addition, as discussed above, as
a result of the change of the holding company's fiscal year, operating income of
$23.4 million in the three quarters ended January 31, 1998 included
approximately $0.4 million of expenses related to the operations of the holding
company for the month of January 1998.
Interest income (expense), net is as follows (in thousands):
<TABLE>
<CAPTION>
THREE QUARTERS ENDED NINE MONTHS ENDED
JANUARY 31, 1998 DECEMBER 31, 1996
--------------------- ------------------
<S> <C> <C>
Interest income........................................................ $ 2,617 $ 3,633
Interest expense....................................................... (8,270) (1,708)
------- -------
Interest income (expense), net......................................... $ (5,653) $ 1,925
------- -------
------- -------
</TABLE>
Interest expense increased in the three quarters ended January 31, 1998, as
Metallurg recognized interest expense of $4.7 million on its 12% senior-secured
notes through December 1997 and accrued interest expense of $1.1 million on its
Senior Notes that were issued in November 1997. As a result of the change in the
fiscal year, the three quarters ended January 31, 1998 contain an additional
month of interest expense of approximately $0.9 million. In 1996, Metallurg did
not accrue interest on debt incurred prior to entering Chapter 11 proceedings
and therefore approximately $6.5 million of contractual interest on these
unsecured obligations, which were reported as part of liabilities subject to
compromise, were not reflected in the nine months ended December 31, 1996.
47
<PAGE>
Income tax (provision) benefit, net is as follows (in thousands):
<TABLE>
<CAPTION>
THREE QUARTERS ENDED NINE MONTHS ENDED
JANUARY 31, 1998 DECEMBER 31, 1996
-------------------- ------------------
<S> <C> <C>
Total current.......................................................... $ (7,121) $ (5,838)
Total deferred......................................................... (5,338) 34
-------- -------
Income tax provision, net.............................................. $ (12,459) $ (5,804)
-------- -------
-------- -------
</TABLE>
The differences between the statutory federal income tax rate and
Metallurg's effective rate are principally due to: (i) the excess of foreign tax
rates over the statutory federal income tax rate; (ii) certain deductible
temporary differences that, in the absence of fresh-start reporting would have
generated a deferred tax benefit, have been fully provided for in a valuation
allowance, (iii) the deferred tax effects of certain tax assets, primarily
foreign net operating losses, for which the benefit had been previously
recognized approximating $2.3 million in the three quarters ended January 31,
1998 and (iv) the deferred tax effects of certain deferred tax assets for which
a corresponding credit has been recorded to "Additional paid-in capital"
approximating $2.9 million in the three quarters ended January 31, 1998. The
deferred tax expenses referred to in items (iii) and (iv) above will not result
in cash payments in future periods.
Net income was $6.3 million for the three quarters ended January 31, 1998
compared to a loss of $33.1 million for the nine months ended December 31, 1996
due primarily to increases in interest and income tax expenses partially offset
by improved operating income, noted above. Net income for the three quarters
ended January 31,1998 included a loss of approximately $1.2 million related to
the operations of Metallurg, Inc. for the month of January 1998. Reorganization
expenses for the nine months ended December 31, 1996 totaled $2.9 million
whereas no such expenses were recorded in the three quarters ended January 31,
1998. In the three quarters ended January 31, 1998, other income included a gain
on the sale of certain plant assets of one of Metallurg's German subsidiaries.
In the nine months ended December 31, 1996, other income included an additional
gain on the sale of land in Turkey.
QUARTER ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Total revenues for Metallurg and its subsidiaries decreased by 6.1% from
$165.6 million in the first three months of 1996 to $155.6 million in the first
quarter of 1997. Sales attributable to FMC, the Company's former titanium scrap
processing subsidiary, which was sold in December 1996, accounted for $3.3
million of the decrease. Reductions in the Company's sales of manganese and
silicon products, resulting primarily from a decrease in selling prices, and a
reduction in sales of the Company's ferrochrome products manufactured by third
parties, resulting primarily from a decrease in volume, were partially offset by
increases in the selling prices of ferrovanadium in the United States and low
carbon ferrochrome produced by the Company.
Gross margins increased from $21.1 million in the first three months of 1996
to $21.5 million in the first quarter of 1997, an increase of 1.8%, due
principally to the price increases in ferrovanadium and low carbon ferrochrome
discussed above. In aluminum master alloys and compacted products, increased
volumes of 13% improved production variances and significantly offset a decrease
in margins at the Company's United Kingdom operations caused by the impact of a
strong British pound. Gross margins related to FMC accounted for an additional
decrease in gross margins of $0.6 million during this period.
SG&A increased from $13.9 million in the first three months of 1996 to $15.0
million in the first quarter of 1997, an increase of 8.1%. For the first three
months of 1996, SG&A represented 8.4% of the Company's sales compared to 9.7%
for the first quarter of 1997. SG&A increased as a result of increased bonus
accruals and awards under the SASOP incurred in connection with the consummation
of the Reorganization Plan and additional costs related to the audit of the
March 31, 1997 financial statements.
48
<PAGE>
Operating income decreased from $6.6 million for the first three months of
1996 to $6.5 million for the first quarter of 1997, a decrease of 2.1%. The
decrease resulted from increased SG&A expenses as discussed above, which were
offset somewhat by the increased margins, as discussed above. In addition,
operating income for the first three months of 1996 included $0.4 million of
environmental expenses related to the operation of the water remediation
facility at the Company's Newfield, New Jersey site. As discussed above,
operating income in the first quarter of 1997 does not include such water
remediation expenses.
Net income was $58.0 million for the first quarter of 1997 compared to $4.6
million for the first three months of 1996. Included in the net income for the
first quarter of 1997 is an extraordinary item of $43.0 million representing the
discharge of indebtedness resulting from the consummation of the Company's
Reorganization Plan and a $5.1 million credit representing the effects of
revaluing the Company's assets and liabilities under fresh-start reporting.
Reorganization expenses for the first quarter of 1997 and the first three months
of 1996 were $2.7 million and $0.6 million, respectively. In the first quarter
of 1997, other income included a $2.7 million gain on the sale of the Company's
New York office building. A gain of $1.9 million on the sale of land in Turkey
was reported in the first three months of 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Total revenues for Metallurg and its subsidiaries decreased by 5.7%, from
$689.4 million in 1995 to $650.0 million in 1996, due to a significant decrease
in prices of certain products, particularly ferrovanadium and ferrotitanium, and
a decrease in the availability to Metallurg of raw materials from the former
Soviet Union. As described below, worldwide consumption of aluminum was
unchanged from 1995, but pricing competition among suppliers adversely affected
Metallurg's sales.
Gross margins decreased by 2.8% in 1996 compared to 1995. The price increase
of ferrovanadium in the first quarter of 1995 was not repeated in 1996, as
quoted prices stayed relatively steady throughout 1996. As a result, margins on
vanadium products fell by 45% in 1996, compared to the prior year. Tonnage sales
and prices of low carbon ferrochrome continued to improve in 1996 as demand from
the expanding aerospace industry increased, resulting in a 20% rise in margins
from 1995. Chromium metal margins increased by almost 80% due to price
improvements resulting from the strength of the aerospace industry and the
closure of an important competitor. Sales of aluminum products fell by 8% and
margins by 40%, as LSM declined to compete at some of the very low prices
offered by competitors. In the fourth quarter of 1996 a sharp appreciation of
sterling by almost 20% against the European currencies also negatively impacted
LSM. Gross margins on aluminum products at Metallurg's Brazilian operations fell
by 40% as overseas competition cut prices in an effort to penetrate the South
American market.
SG&A increased by 8.1% from $52.8 million in 1995 to $57.1 million in 1996
due principally to the restructuring of German operations into a holding company
with several operating subsidiaries. In connection with this restructuring,
certain personnel who had previously concentrated solely on production aspects
of the business became more involved in general management and administrative
functions. This resulted in lower costs of production and increased SG&A
expenses being reported in 1996. SG&A represented 8.8% of Metallurg's sales in
1996, compared to 7.7% in 1995.
Operating loss was $11.2 million in 1996, compared to operating income of
$15.7 million in 1995. The loss in 1996 was principally due to an environmental
provision of $37.6 million, representing the anticipated future costs of
remediation and maintenance of various environmental projects at Shieldalloy. In
1995, operating income included a charge of $11.7 million for a restructuring of
Metallurg's principal German subsidiary into separate business units and a
restructuring of Metallurg's mining operations in Brazil. In connection with the
restructuring of Metallurg's principal German subsidiary into separate business
units, certain manufacturing facilities were decommissioned and environmental
expenses of $3.6 million were recognized representing the estimated costs of
remedial cleanup of the decommissioned
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areas. Operating income in 1996 also was negatively impacted by the increase in
SG&A and decrease in gross margins in 1996, compared to 1995 as described above.
Other expense for 1996 was $6.8 million. The significant items included in
this expense consisted of the allowance of additional unsecured prepetition
claims of $10.5 million relating to withdrawal by Shieldalloy from a
multiemployer pension plan, the settlement of certain environmental claims and
additional claims by institutional debtholders. This was partially offset by the
gain on the sale in 1996 of a parcel of land owned by Metallurg's Turkish
subsidiary.
For the years ended December 31, 1996 and 1995, Metallurg recorded tax
provisions of $8.5 million and $8.2 million, respectively, including current
foreign tax provisions of $8.1 million and $8.3 million, respectively, on net
foreign income of $25.8 million and $2.7 million, respectively. These foreign
tax provisions were calculated on a jurisdiction by jurisdiction basis and
resulted from income producing jurisdictions aggregating income of $36.1 million
and $27.1 million in the years ended December 31, 1996 and 1995, respectively.
Due to domestic losses in 1996 and utilization of net operating loss
carryforwards in 1995, no United States current tax provisions were recorded in
each of the years. Metallurg did not record benefits for foreign operations with
losses based on the uncertainty of realization of such benefits.
Net loss was $28.5 million in 1996, compared to net income of $1.7 million
in 1995. As discussed above, the principal reasons for this net loss were the
environmental provision of $37.6 million and the other expense of $6.8 million,
offset partially by $11.7 million in restructuring charges relating to
Metallurg's German and Brazilian subsidiaries recorded in 1995.
LIQUIDITY AND FINANCIAL RESOURCES
GENERAL. Metallurg's principal sources of liquidity include cash from
operations and amounts available under credit facilities. In November 1997,
Metallurg sold $100 million principal amount of Senior Notes, the proceeds of
which were used in part to retire Metallurg's then existing 12% senior-secured
notes (approximately $39.5 million), to repay certain debt of the UK and German
subsidiaries (approximately $19.8 million) and to pay a cash dividend
(approximately $20.0 million). In addition, Metallurg had $50.2 million in cash
and cash equivalents on hand at April 30, 1998, which includes cash used in June
1998 for Metallurg's $5.5 million semi-annual interest payment on the Senior
Notes, as compared to $43.0 million at January 31, 1998. At April 30, 1998,
Metallurg had approximately $42 million of available borrowing capacity under
the Revolving Credit Facility and its working capital facilities at LSM, GfE and
EWW, subject to certain limitations contained in the instruments governing their
indebtedness. The Company believes that these sources are sufficient to fund the
current and anticipated future requirements of working capital, capital
expenditures, pension benefits, potential acquisitions and environmental
expenditures through at least 1999.
At April 30, 1998, Metallurg had working capital of $174.0 million, as
compared to $167.8 million at January 31, 1998. For the first quarter of 1998,
Metallurg generated $11.0 million in cash from operations and received proceeds
of approximately $1.1 million on the sale of its 21.4% interest in a Luxembourg
company. Capital expenditures were approximately $2.9 million in the first
quarter. In addition, in February 1998, Metallurg purchased an additional 5%
interest in a Russian magnesium metal producer for approximately $2.0 million.
In the 1997 Fiscal Year, Metallurg generated $6.1 million in cash from
operations. In connection with the Reorganization Plan, however, Metallurg
distributed $59.4 million in cash, offset by a drawdown of prepetition letters
of credit of $9.7 million and proceeds from debt of LSM of $8.1 million. Capital
expenditures of $12.2 million in the 1997 Fiscal Year included approximately
$3.0 million to install a new plant for the production of chromium metal at LSM.
Metallurg received proceeds of $1.7 million from the sale of certain plant
assets of one of Metallurg's German subsidiaries, $3.4 million on the sale of
commercial real estate property in New York City and $3.6 million from the sale
of other assets during the 1997 Fiscal Year. See "Description of Certain
Indebtedness" for information concerning
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the Senior Notes, the Revolving Credit Facility and certain other financing
arrangements to which Metallurg or its subsidiaries is a party.
Metallurg's subsidiaries are, in certain circumstances, subject to
restrictions under local law and under their credit facilities that limit their
ability to pay dividends to Metallurg. See "Risk Factors--Limitation on Access
to Subsidiaries' Cash Flow."
EWW has a contingent obligation to a German state pension authority which as
of April 30, 1998, was DM 8.2 million (approximately $4.4 million). Metallurg
expects that EWW will pay approximately DM 6.5 million (approximately $3.5
million) to the pension authority in 1998 in respect of this obligation.
CAPITAL EXPENDITURES. Metallurg had capital expenditures of $2.9 million
and $12.2 million in the quarter ended April 30, 1998 and the 1997 Fiscal Year,
respectively. Metallurg's capital expenditures include projects related to
improving Metallurg's operations and productivity improvements, replacement
projects and ongoing environmental requirements (which are in addition to
expenditures discussed in "--Environmental Remediation Costs"). Capital
expenditures for the 1997 Fiscal Year included approximately $3.0 million to
install a new plant for the production of chromium metal at LSM. Capital
expenditures are expected to increase significantly over 1997 levels to
approximately $20.0 million in 1998, including $5.9 million of capital
investments that Metallurg believes will result in decreased costs of
production, improved efficiency and expanded production capacities. The
remaining capital expenditures planned for 1998 are primarily for replacement
and major repairs of existing facilities, some of which were deferred from
earlier periods. Although Metallurg has budgeted these items in 1998, Metallurg
has not committed to complete these projects, which are contingent on senior
management approval and other conditions. Metallurg believes that these projects
will be funded through internally generated cash, borrowings under the Revolving
Credit Facility and local credit lines.
ENVIRONMENTAL REMEDIATION COSTS. In 1996, Metallurg elected early adoption
of SOP 96-1, "Environmental Remediation Liabilities," which among other
requirements, states that losses associated with environmental remediation
obligations are accrued when such losses are deemed probable and reasonably
estimable. Such accruals generally are recognized no later than the completion
of the remedial feasibility study and are adjusted as further information
develops or circumstances change. Costs of future expenditures for environmental
remediation obligations are generally not discounted to their present value.
Metallurg expended $0.6 million and $4.2 million for environmental remediation
in the quarter ended April 30, 1998 and the 1997 Fiscal Year, respectively.
As part of the Reorganization Plan, Shieldalloy entered into settlement
agreements with various environmental regulatory authorities with regard to all
of the significant environmental remediation liabilities of which it is aware.
Pursuant to these agreements, Shieldalloy has agreed to perform environmental
remediation which, as of April 30, 1998, had an estimated cost of completion of
$39.4 million. Of this amount, approximately $4.2 million is expected to be
expended in 1998, $4.3 million in 1999 and $8.1 million in 2000. In addition,
Metallurg estimates it will make expenditures of $5.0 million with respect to
environmental remediation at its foreign facilities. Of this amount,
approximately $1.8 million is expected to be expended in 1998, $0.7 million in
1999 and $0.7 million in 2000. These amounts are not included in the calculation
of operating income.
Metallurg believes that while its remediation obligations and other
environmental costs, in the aggregate, will reduce its liquidity, its cash
balances, cash from operations and cash available under its credit facilities
are sufficient to fund its current and anticipated future requirements for
environmental expenditures.
POST-MERGER. The Issuer is a holding company, and its ability to meet its
payment obligations on the New Notes is dependent upon the receipt of dividends
and other distributions from its direct and indirect subsidiaries. The Issuer
does not have, and may not in the future have, any material assets other than
the common stock of the Company. The Company and its subsidiaries are parties to
various credit agreements,
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<PAGE>
including the Senior Note Indenture and the Revolving Credit Facility, which
impose substantial restrictions on the Company's ability to pay dividends to the
Issuer. See "Risk Factors--Limitation on Access to Subsidiaries' Cash Flow,"
"Risk Factors--Holding Company Structure; Effective Subordination," "Risk
Factors--Restrictive Debt Covenants" and "Unaudited Pro Forma Condensed
Consolidated Financial Data."
Management believes that cash flow from operations, together with available
borrowings under the Revolving Credit Facility, will provide adequate funds for
the Company's foreseeable working capital needs, planned capital expenditures,
debt service and other obligations through at least 1999. The Company's ability
to fund its operations and make planned capital expenditures, to make scheduled
debt payments, to refinance indebtedness and to remain in compliance with all of
the financial covenants under its debt agreements depends on its future
operating performance and cash flow, which, in turn, are subject to prevailing
economic conditions and to financial, business and other factors, some of which
are beyond its control. See "Risk Factors."
YEAR 2000 COMPLIANCE. Metallurg utilizes a number of computer software
programs and operating systems across its entire organization, including
applications used in sales, shipping, financial business systems and various
administrative functions. To the extent that Metallurg's software applications
contain source code that is unable to appropriately interpret the upcoming
calendar year "2000" and beyond, some level of modification or replacement of
such applications will be necessary. Metallurg is working to identify its
applications that are not "Year 2000" compliant and plans to modify or replace
such applications, as necessary. Given information known at this time about
Metallurg's systems that are non-compliant, coupled with Metallurg's ongoing,
normal course-of-business efforts to upgrade or replace critical systems, as
necessary, management does not expect Year 2000 compliance costs to have any
material adverse impact on Metallurg.
EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS. Metallurg has adopted
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share," issued in February 1997 by the Financial Accounting Standards Board
("FASB"). This statement requires the disclosure of basic and diluted earnings
per share and revises the method to calculate these amounts. The effect on
Metallurg's financial statements were not significant.
In February 1997, the FASB also issued SFAS No. 129, "Disclosure of
Information about Capital Structure." This statement is effective for financial
statements issued for periods ending after December 15, 1997. Management has
evaluated the effect on its financial reporting and determined that no further
disclosures are needed.
Metallurg has adopted SFAS No. 130, "Reporting Comprehensive Income," as of
February 1, 1998. This standard requires the display of comprehensive income and
its components in the financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS No. 131 requires the reporting of
profit and loss, specific revenue and expense items, and assets for reportable
segments. It also requires the reconciliation of total segment revenues, total
segment profit or loss, total segment assets, and other amounts disclosed for
segments to the corresponding amounts in the general purpose financial
statements. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. The Company will adopt this standard in the fourth quarter of 1998.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure About
Pensions and Other Postretirement Benefits." SFAS No. 132 changes current
financial disclosure requirements from those that were required under SFAS No.
87, "Employers' Accounting for Pensions," SFAS No. 88, "Employers' Accounting
for Settlement and Curtailments of Defined Benefit Pension Plans and for
Termination
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Benefits" and SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." The Company will adopt this standard in the fourth quarter
of 1998.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
SFAS 133 is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. The Company is currently evaluating the impact SFAS No. 133 will
have on its financial statements.
EFFECTS OF INFLATION
Inflation has not had a significant effect on Metallurg's operations.
However, there can be no assurance that inflation will not have a material
effect on Metallurg's operations in the future. Metallurg is subject to price
fluctuations in its raw materials and products. These fluctuations have affected
and will continue to affect Metallurg's results of operations.
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BUSINESS
OVERVIEW
Metallurg is a leading international producer and seller of high-quality
metal alloys and specialty metals used by manufacturers of steel, aluminum,
superalloys and chemicals and other metal consuming industries. The Company
sells more than 500 different products to over 3,000 customers worldwide. See
Note 3 to the Consolidated Financial Statements of the Company and its
subsidiaries. The Company's operations are global in scope with eight production
facilities located in four countries in Europe, North America and South America.
In addition to selling products manufactured by the Company, Metallurg also
leverages its global sales force by distributing Merchanted Products. For the
Last Twelve Months, the Company had sales and Adjusted EBITDA of $644.1 million
and $50.3 million, respectively. For a discussion of the Company's fiscal year
and the effects of Metallurg's Reorganization Plan on its financial information,
see "Summary Financial Data."
The Metallurg group was founded in 1911 with the construction of a vanadium
alloy and chemical producing plant in Nuremberg, Germany. The Company began
mining chrome ore in Turkey in 1916, and constructed a ferrochrome manufacturing
plant in Weisweiler, Germany in 1917. In subsequent years, the Company's
customer base grew throughout Europe and, in 1938, the Company added its first
subsidiary in the United Kingdom and a sales and distribution subsidiary in
Switzerland. Metallurg was established as a New York holding company in 1947 and
reincorporated as a Delaware corporation in 1997.
COMPETITIVE STRENGTHS
The Company believes that its long-standing customer relationships, strong
name recognition and global distribution capabilities provide an attractive
platform for growth. The Company believes that it is distinguished by the
following competitive strengths:
- INDUSTRY LEADERSHIP. The Company enjoys significant worldwide recognition
in the metal alloys and specialty metals industries as a result of its
87-year history. With its longevity, technical innovation, high-quality
reputation, long-standing customer relationships and diverse product base,
the Company has developed and maintained significant market shares in the
markets for ferrovanandium consumed by the U.S. iron and steel industries,
special grades of low carbon ferrochrome and chromium metal consumed by
the superalloy industry and aluminum master alloys.
- LONG-STANDING CUSTOMER RELATIONSHIPS. The Company has developed and
maintained long-term relationships with a high-quality, internationally
diverse customer base. The Company has built its customer base by
providing consistent quality, a diverse portfolio of high-quality metal
alloys and specialty metals and a high level of technical support. The
Company's customers include some of the largest metals producing companies
in the world.
- DIVERSIFIED SALES BASE. Metallurg's revenue base is diversified across
markets, regions and customers. The Company sells more than 500 different
products to over 3,000 customers worldwide, none of which represents more
than 5% of the Company's sales. By serving customers in the iron, steel,
aluminum, superalloy, titanium and chemical markets, Metallurg believes
that it is relatively less vulnerable than certain of its competitors to
the cycle of any one end-use market. Furthermore, the Company's sales are
globally balanced, with approximately 47% and 38% of revenues coming from
Europe and North America, respectively.
- RAW MATERIAL SOURCING. The Company generally sources raw materials from a
diverse group of suppliers and actively pursues alternative low cost
sources of raw materials. The Company has opened purchasing offices in
Russia and China which have enabled the Company to develop new sources of
supply for the Company's manufacturing and distribution businesses. The
Company also derives the competitive benefit of vertical integration
through its ownership of chrome ore mines located in Turkey. Furthermore a
key goal of the Company's capital expenditure program is to
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expand the usage of lower cost raw materials. Management believes that
obtaining access to consistent, lower cost sources of supply represents a
key barrier to entry facing potential new competitors.
- GLOBAL MANUFACTURING AND SALES NETWORK. Metallurg is well positioned to
serve its global customer base through its eight production facilities,
three mines, 17 sales offices and two purchasing offices located
throughout the world. The Company believes that its international sales
force comprised of 121 sales personnel provides it with a key competitive
advantage and the ability to enhance its customer relationships through
aiding customers with more efficient and innovative use of products. The
Company leverages the expertise of its sales force by merchanting products
manufactured by third parties, which results in the offering of a broader
product line and Metallurg becoming a more significant supplier to its
customers, while at the same time strengthening ties to some of its
sources of raw materials.
BUSINESS STRATEGIES
The Company's business objective is to maximize the long-term profitability
of its operations while maintaining a strong financial position through the
various business and market cycles. The Company's continuing strategies for
achieving this objective are as follows:
- FOCUS ON CORE BUSINESSES. The Company seeks to achieve high market shares
in markets where the Company can differentiate itself on the basis of
technical expertise and product quality. As part of this strategy, the
Company is focusing its production and sales efforts on higher margin
specialized alloy businesses, and is investing in capital projects that
will expand its capacity or lower its costs in those areas. In recent
years, the Company has divested certain non-core and lower margin
businesses, including its tantalum carbide and United States titanium
scrap processing businesses.
- AGGRESSIVELY MANAGE COSTS. In recent years, the Company has instituted
measures to reduce operating costs and enhance profitability. Through a
combination of divesting non-core businesses, using contractors and
improving productivity, the Company has reduced the number of employees
from 2,508 at the end of 1992 to 1,483 as of April 30, 1998, while sales
have grown from $591.1 million in 1992 to $644.1 million for the Last
Twelve Months. The Company has restructured its operations into individual
business units focused on particular customer groups in order to better
manage costs and improve profitability. The Company's cost rationalization
program is ongoing and management anticipates that further cost savings
and productivity gains may be realized as a result.
- IMPROVE PRODUCT MIX. The Company continually pursues opportunities to
increase profitability through the Company's existing distribution network
by improving its product mix by: (i) divesting low margin products; (ii)
developing value added, higher margin products; and (iii) acquiring, or
entering into merchanting arrangements for, product lines that complement
the Company's core product offerings. Examples of high margin products
that have experienced significant recent growth include coating materials
for thin film technology and titanium carbon aluminum sold to the aluminum
industry.
- SELECTIVELY PURSUE ACQUISITIONS AND OTHER STRATEGIC EXPANSION
INITIATIVES. The Company believes that its leading position in a diverse
group of specialty metals markets provides it with a strong base to
continue to expand its core businesses. The Company has the industry and
financial expertise of Safeguard International as its equity sponsor.
Consequently, the Company will pursue acquisition opportunities and
expansion initiatives as warranted by market conditions. The Company
intends to pursue acquisitions that: (i) add to or complement its
specialty metals portfolio; (ii) leverage its existing manufacturing and
distribution capabilities; or (iii) enhance its raw materials sourcing
capabilities. The Company is currently evaluating several acquisition and
expansion opportunities. Metallurg is currently in discussions to purchase
approximately 80% to 85% of a South American specialty metals producer,
which would have an implied value for all of the equity of $10 to $15
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million. The producer had total sales for the twelve months ended June 30,
1997 of approximately $35 million. Metallurg has not signed a binding
commitment or definitive agreement to purchase the company and there can
be no assurance that Metallurg and the company will do so. In addition,
any such commitment or agreement would likely be subject to numerous
conditions, including the completion of due diligence with results
satisfactory to Metallurg. There can be no assurance that the conditions
to any such transaction will be met.
PRODUCTS AND MARKETS
Metallurg sells more than 500 different products to over 3,000 customers
worldwide. The following table sets forth the dollar amounts and percentages of
Metallurg's sales attributable to Metallurg's various markets for the periods
presented, exclusive of commissions earned by Metallurg (dollars in millions):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 FISCAL ------------------------------------------
YEAR 1996 1995
---------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
SECTOR
Steel..................................................... $ 282.8 44.8% $ 328.1 50.6% $ 369.8 53.8%
Aluminum.................................................. 120.0 19.0 96.6 14.9 105.9 15.4
Superalloys............................................... 92.6 14.6 71.3 11.0 61.7 9.0
Chemicals................................................. 29.5 4.7 29.4 4.5 35.7 5.2
Other..................................................... 107.0 16.9 123.4 19.0 114.9 16.6
----------- --------- --------- --------- --------- ---------
Total............................................... $ 631.9 100.0% $ 648.8 100.0% $ 688.0 100.0%
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
</TABLE>
The following table sets forth the most significant product groups based on
Metallurg's sales for the 1997 Fiscal Year:
TOP TEN PRODUCT GROUPS BY SALES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1997 FISCAL PERCENT OF
YEAR SALES TOTAL
----------- -----------
<S> <C> <C>
NAME OF PRODUCT GROUP
Chrome products........................................................................... $ 117.5 18.6%
Aluminum products......................................................................... 94.6 15.0
Vanadium products......................................................................... 90.7 14.3
Columbium products........................................................................ 48.1 7.6
Silicon products.......................................................................... 46.7 7.4
Metal powders............................................................................. 28.1 4.4
Titanium products......................................................................... 20.1 3.2
Nickel products........................................................................... 15.9 2.5
Boron products............................................................................ 15.2 2.4
Tantalum products......................................................................... 8.6 1.4
----------- -----
Total Product Group................................................................. $ 485.5 76.8%
----------- -----
----------- -----
Total Sales............................................................................... $ 631.9 100.0%
----------- -----
----------- -----
</TABLE>
IRON AND STEEL INDUSTRIES; SPECIALTY FERROALLOYS. The Company manufactures
and sells specialty ferroalloys to some of the world's largest iron and steel
producers, such as Algoma Steel Inc., British Steel plc, Nucor Corporation,
Thyssen AG and US Steel Group. The Company's principal specialty ferroalloy
products are ferrovanadium and standard grades of low carbon ferrochrome. These
products are used by iron and steel producers to increase temperature and
corrosion resistance and strength-to-weight ratios for
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metals used in the energy, automotive and construction industries. For the 1997
Fiscal Year, the Company had sales in this category of approximately $282.8
million, representing 45% of the Company's total sales.
The iron and steel industry is cyclical, with iron and steel consumption
depending greatly on demand for durable goods, such as automobiles, construction
materials, machinery, appliances and miscellaneous manufactured products.
Metallurg believes that the iron and steel industry is currently strong, having
emerged from a recession, particularly in North America and Europe, which lasted
from 1989 to 1993. The recession resulted in negative pressures on alloy prices
and volumes and in iron and steel production cutbacks. In addition, Metallurg's
markets were disrupted in recent years by large flows of competing products from
the former Soviet Union. The end of the Cold War and the resulting decrease in
United States and Russian defense spending also contributed to a reduced demand
for Metallurg's products and low levels in the prices of ferroalloys.
Specifically, global raw steel production declined from a peak of 786 million
tons in 1989 to 722 million tons in 1992. The iron and steel industries have
experienced growth since emerging from the recession that ended in 1993. Raw
steel production has rebounded from a recessionary low of approximately 722
million tons in 1992 to approximately 793 million tons in 1997.
During the recession, Metallurg achieved significant reductions in costs
that have contributed to improvements in profitability and cash flow and
increased stabilization in its business. Management also believes that the flow
of competitive products from the former Soviet Union has slowed due to reduced
stockpiles of inventory and anti-dumping actions affecting imports of low carbon
ferrochrome and ferrovanadium from the former Soviet Union.
ALUMINUM INDUSTRY; ALUMINUM MASTER ALLOYS AND COMPACTED PRODUCTS. The
Company manufactures a series of master alloys and briquettes and tablets for
sale to the aluminum industry. The Company's customers in this sector include
leading producers such as Alcan Aluminium Limited, Alcoa Aluminum Co. of
America, Aluminium Pechiney, Reynolds Metals Co. and Sumitomo Metals Industries
Ltd. Metallurg's principal aluminum products include titanium boron tertiary
alloys (which improve the conductivity of aluminum for electric cable),
strontium master alloys (which modify silicon-containing foundry alloys for
improved mechanical properties, as in automotive wheels) and chrome, iron and
manganese briquettes and tablets (which maximizes the ductility and strength of
aluminum used in the manufacture of can sheet and aerospace components,
respectively). The Company also manufactures binary master alloys containing
boron, zirconium or titanium (which are used for the grain refining of aluminum
alloy ingots, billets and continuous cast sheet). For the 1997 Fiscal Year, the
Company had sales to the aluminum industry of $120.0 million, representing 19%
of the Company's total sales. Aluminum consumption in the Western world has
grown from approximately 15.9 million metric tons in 1993 to approximately 18.8
million metric tons in 1997. This growth has been driven in large part by demand
for durable products, as well as the increased substitution of aluminum for
steel in certain transportation and construction applications.
Like the iron and steel industry, the aluminum industry is cyclical.
Aluminum consumption fluctuates with demand for durable goods, such as
construction materials, machinery, transportation and miscellaneous manufactured
products. In 1997, the markets in North America, Europe and Japan collectively
accounted for over 70% of the Western world demand for primary aluminum.
According to Feronomics, Inc., Western world primary aluminum consumption is
expected to increase by 3.0% per year from 1997 through 2002.
Although exports of primary aluminum from the former Soviet Union have
contributed to increased supply and reduced prices in the industry since 1989,
Metallurg was less affected by such Soviet dumping in this industry than in the
iron and steel industry. This is because Metallurg's products are not used in
the primary metal stage, but instead are used in the downstream processing of
aluminum products. Increases in the substitution of aluminum for steel, such as
in automobile manufacturing, have a significant positive impact on the aluminum
industry, but only a small effect on the iron and steel industry. Metallurg
believes that it is well positioned to capitalize on future growth areas in the
aluminum industry, such as
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transportation, due to the increased use of aluminum in forging and casting
applications, and building and construction.
SPECIALTY METALS AND ALLOYS; SUPERALLOY AND TITANIUM ALLOY INDUSTRIES. The
Company manufactures and sells specialty metals and alloys used by producers of
superalloys and titanium alloys to enhance the performance of finished metal
products such as aircraft engines and frames, gas turbines and boiler tubes. The
Company's customers for specialty metals and alloys include Allegheny Teledyne,
Inc., Carpenter Technology Corp., INCO Alloys, Kanthal AB, Oregon Metallurgical
Corp., RMI Titanium Company, Sandvik AB, Special Metals Corporation and Titanium
Metals Corp. For the 1997 Fiscal Year, the Company had sales in this category of
$92.6 million, representing 15% of the Company's total sales. Metallurg's
principal products in this category include chromium metal, special grades of
low carbon ferrochrome and vanadium aluminum. Growth and demand for superalloys
and titanium have been driven principally by commercial aerospace production. In
addition, new applications for these metals and alloys have been developed for
use in the consumer goods, power generation, oil and gas, chemical and
biomedical industries.
The aerospace industry is the largest user of superalloys. A significant
reduction in the manufacture of military and civilian aircraft between 1989 and
1992 resulted in a 30% decrease in global demand for superalloys and a resulting
adverse impact on Metallurg and other superalloy producers. The producers of
superalloys have partly counteracted this decline by finding new consumers in
the power generation, oil and gas, chemical, consumer goods and biomedical
industries.
Since 1994, however, demand by the aerospace industry has positively
impacted the titanium and superalloy producers. According to Aerospace
Industries Association ("AIA"), the industry built 395 airliners in 1996 and 556
in 1997 with further demand for 15,000 through 2015. Superalloy and titanium
producers are adding capacity to cope with demand and shorter lead times. If
these forecasts prove to be accurate, Metallurg believes that it will experience
continued profitability of its chromium metal, low carbon ferrochrome, vanadium
aluminum and high purity nickel and ferrocolumbium which are produced in
Metallurg's United States, UK and German facilities.
OTHER INDUSTRIES AND PRODUCTS. Metallurg also manufactures and distributes
a number of products used outside of the iron, steel, aluminum and superalloy
industries. These products include coating materials, which are sold to
electronics and tool manufacturers, vanadium oxytrichloride for use in the
synthetic rubber industry and polishing powders used by the glass polishing
industry. These products generally are higher-margin, technically sophisticated
products. For the 1997 Fiscal Year, the Company had $136.5 million in sales of
these products, representing 21% of the Company's total sales.
MANUFACTURING PROCESSES
Metallurg's manufacturing processes involve melting, refining, casting,
sizing, blending and packaging operations, which vary from product to product.
For example, in the manufacture of low carbon ferrochrome, EWW consumes raw
materials including chrome ore, predominantly from Metallurg's Turkish mines,
and silicochrome. The raw materials are melted and reductants are added to
refine the chemistry of the production batch. The batch is poured into casting
molds that are cooled and then crushed, sized, blended and packaged. The
manufacture of ferrovanadium at Metallurg's Cambridge, Ohio, plant follows an
analogous process of melting, casting and crushing, except that
vanadium-containing raw materials are used. In general, the manufacture of
aluminum master alloys also follows similar principles using aluminum and other
additives; however, these master alloys are generally cast as waffle plate or
processed to a solid rod form for delivery to the customer. The manufacture of
briquettes and tablets involves the grinding and blending of raw materials, the
compression of these materials into a compacted form and packaging for delivery
to the customer. More sophisticated production routes are used for highly
specialized products which can require chemical processing or the use of vacuum
furnaces and a variety of other equipment.
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<PAGE>
CUSTOMERS
For the 1997 Fiscal Year, approximately 45% of Metallurg's sales were made
to the iron and steel industry, 19% to the aluminum industry, 15% to the
superalloy and titanium alloy industries, 5% to the chemicals industry, and the
remaining 16% were made to other industries, none of which was individually
significant to Metallurg. No single customer accounted for more than 5% of
Metallurg's sales in 1997.
The following table sets forth a representative sample of Metallurg's
significant current customers in each of its customer industry categories:
<TABLE>
<CAPTION>
IRON AND STEEL ALUMINUM SUPERALLOY AND TITANIUM OTHER
- --------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Algoma Steel Inc. Alcan Aluminium Limited Allegheny Teledyne, Inc. AKZO Chemical Company
Allegheny Teledyne, Inc. Alcoa Aluminum Co. of Carpenter Technology Corp. BASF Corporation
Avesta AB America INCO Alloys Cabot Corp.
British Steel plc Aluminium Pechiney Kanthal AB Rwe Dea
Inland Steel Co. Reynolds Metals Co. Oregon Metallurgical Corp. Treibacher Schleifmittel
Iscor Limited Shinwa Bussan RMI Titanium Company Corp.
The LTV Corporation Sumitomo Metals Industries Sandvik AB
Northwest Steel & Wire Co. Ltd. Titanium Metals Corp
Nucor Corporation
Outokumpu OY
Svenskt Stal AB
Thyssen AG
US Steel Group
</TABLE>
MERCHANTED PRODUCTS
The merchanting of products manufactured by third parties is a natural
complement to the Company's manufacturing operations. Merchanted Products
leverage the Company's global sales staff by providing a broader product
offering to its existing customers without incurring significant additional
overhead. As a result, Metallurg becomes a more significant supplier to its
customers, as they can more conveniently procure supplies and decrease their
sourcing costs by reducing their number of vendors and optimizing freight costs.
In addition, by offering Merchanted Products, the Company has greater access to
raw materials. The Company's merchanting revenues are from three sources:
"back-to-back" purchases and sales, which eliminate price risk to the Company,
purchases of stocks for the Company's own account for subsequent resale to
customers and agency sales for the account of another party where the Company
receives a commission and does not take title to the inventory. The Company's
total sales of $631.9 million for the 1997 Fiscal Year included an aggregate of
$266.8 million in sales from Merchanted Products.
FACILITIES AND OPERATIONS
PRODUCTION FACILITIES. Metallurg is organized geographically, having
established a worldwide sales network built around Metallurg's core production
facilities in the United States, the United Kingdom and Germany. These
production units have laboratories providing analytical, research and
development support to in-house operations, as well as analytical services to
customers and third parties. Metallurg owns all of the facilities listed.
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<PAGE>
The following table sets forth for each Metallurg operating subsidiary the
location of its facilities, the key products manufactured by such subsidiary and
each facility's 1997 Fiscal Year sales of manufactured products and Merchanted
Products:
<TABLE>
<CAPTION>
SALES OF SALES OF
MANUFACTURED MERCHANTED
OPERATING SUBSIDIARY LOCATION KEY PRODUCTS PRODUCTS (A) PRODUCTS (A)
- -------------------------- -------------------------- -------------------------- --------------- -------------
<S> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
Shieldalloy Newfield, New Jersey Aluminum Briquettes and
(Plant) Tablets
Aluminum Master Alloys
Ferrotitanium Metal
Powders $ 43.4 $ 116.9(b)
Cambridge, Ohio (Plant) Ferrovanadium
Grainal
Vanadium Chemicals 42.6 --
LSM Rotherham, UK (Plant) Aluminum Alloying Tablets
Aluminum Master Alloys
Chromium Metal
Ferroboron
Ferrotitanium
Glass Polishing Powders
Metal Powders
Nickel Boron
Nickel Cobalt Magnet
Alloys 133.7 27.2
GfE Nuremberg, Germany (Plant) Chromium Metal
Columbium Alloys
Magnet Alloys
Special Master Alloys
Vanadium Aluminum
Vanadium Chemicals 59.0 38.3
EWW Eschweiler-Weisweiler, Low Carbon Ferrochrome
Germany (Plant) 55.2 1.4
Aluminum Powder Co. Ltd. Holyhead, UK (Plant) Atomized Aluminum Powder 17.0 --
Companhia Industrial Sao Joao del Rei, Brazil Aluminum Master Alloys
Fluminense (Plant) Columbium Oxide
Tantalum Oxide 13.8 --
Turk Maadin Sirketi A.S. Kavak, Tavas and Gocek, Chrome Ore
Turkey (Mines) 5.3 --
</TABLE>
- ------------------------
(a) Includes external and intercompany sales, except for sales by Aluminum
Powder Co. Ltd., which do not include sales to its parent company LSM.
(b) Includes all Merchanted Products for Shieldalloy (both Newfield, New Jersey
and Cambridge, Ohio).
SALES OFFICES. Metallurg has sales personnel both at its production
facilities and at its 17 separate sales offices in the following countries:
Brazil, Canada, Germany, Italy, Japan, Mexico, Poland, South Africa, Sweden,
Switzerland, the United Kingdom, the United States and the former Yugoslavia.
RAW MATERIALS
Metallurg produces a wide variety of products which are sold into a number
of different metals industries. Metallurg also has followed a strategy of
specializing in products that command higher premiums because of their relative
technical sophistication; consequently, there is no single raw material that
makes up the basis of Metallurg's entire production.
Metallurg's Turkish subsidiary mines chrome ore which is supplied to EWW for
the production of low carbon ferrochrome. Management believes the mines have
identifiable reserves of 1.3 million tons and probable reserves of 700,000 tons
that would last until 2013.
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<PAGE>
For the production of chromium metal, Metallurg's UK-based subsidiary
purchases chromium oxide from the world's major producer, British Chrome
Chemicals, and supplements this supply with additional quantities from the
former Soviet Union. This product also requires large quantities of aluminum
powder substantially sourced from an affiliate of Metallurg.
Metallurg's four aluminum processing plants in the United States, UK and
Brazil buy approximately 30,000 tons of virgin aluminum from producers worldwide
while important alloying chemicals are sourced from five different suppliers
around the world.
Titanium scrap is sourced in significant quantities for the production of
ferrotitanium and other titanium containing products from countries active in
the aerospace industry, such as the United States, Russia and the UK, and from
sellers of surplus military equipment.
Vanadium pentoxide in its various forms is the source of raw material for
Metallurg's production of ferrovanadium, vanadium chemicals and vanadium
aluminum. For ferrovanadium production, Metallurg purchases slag containing
vanadium resulting from steel-making in South Africa and residues from
petrochemical companies resulting from the refining of petrochemical products
and from electric utilities which generate ash containing vanadium as a result
of burning fuel oil. Metallurg currently obtains a majority of these raw
materials from two sources. See "Risk Factors--Limited Sources for Raw
Materials." Vanadium chemicals and vanadium aluminum are produced from vanadium
pentoxide which is purchased on the open market and from vanadium residues which
are consumed in Metallurg's own production.
Niobium (columbium) oxide which is used as a raw material for the production
of sophisticated alloys by GfE and Shieldalloy is principally supplied by
Metallurg's Brazilian subsidiary which processes a variety of tantalum- and
niobium-containing minerals, ores and residues through its chemical plant.
Metallurg also utilizes a host of other raw materials such as cobalt,
nickel, boric acid, mischmetal, manganese, chrome silicide, etc., in the
manufacture of its wide product range which are purchased as required from
producers or traders. Most purchases are made on a spot basis at market price to
minimize the risk of exposure to market fluctuations.
COMPETITION
The metals industry is highly competitive on a worldwide basis. Competition
is primarily based on price, quality and timely delivery. Although Metallurg
faces competition in each of its markets, Metallurg does not believe that any
single competitor competes with Metallurg in all of its products or markets.
IRON AND STEEL INDUSTRY. In North America, products manufactured by
Strategic Minerals Corp. (Stratcor) and Masterloy Products Ltd. (Aimcor) compete
with Metallurg's ferrovanadium products. In Europe and the rest of the world,
Treibacher Industrie AG competes with Metallurg in its ferrovanadium products,
and a number of small producers and products from Russia compete with
Metallurg's ferrotitanium products. In standard grades of low carbon
ferrochrome, competition comes worldwide from Samancor Ltd. and Zimbabwe Alloys
Ltd. (Zimalloys).
ALUMINUM INDUSTRY. Competition is becoming more international because of
the growing number of master alloy and compacted product manufacturers. In
Europe and the Far East, KBM Affilips Ltd., Hydelko, Anglo Blackwells and
Aleastur-Asturiana de Aleaciones SA compete against products manufactured by
LSM, while in North and South America, KB Alloys and Milward Alloys Inc. (a
distribution agent of KBM Affilips Ltd.) compete against Metallurg in master
alloys. Competition in compacted products comes mainly from Elkem SA in North
America and Hoesch in the rest of the world.
SUPERALLOY AND TITANIUM ALLOY INDUSTRIES. Strategic Minerals Corp.
(Stratcor) and Reading Alloys Inc. compete internationally with Metallurg in
vanadium aluminum. Reading Alloys Inc. also competes in sophisticated alloys for
the superalloy industry, as do CBMM-Cia Brasileira de Metalurgica e Mineracao,
Cabot Corporation and H.C. Starck GmbH in certain products. Metallurg has no
significant competitor in
61
<PAGE>
special grades of low carbon ferrochrome. Delachaux Division Metaux and, to a
limited extent, Elkem SA compete with Metallurg in chromium metal.
RESEARCH AND DEVELOPMENT
Research and development ("R&D") is carried out on behalf of Metallurg in
its two Technical Centers by a 15-member team at LSM and a five-member team at
GfE, both supported as necessary by staff drawn from production. The Technical
Centers have furnaces, laboratories, milling and testing equipment with R&D
efforts linked to product and process improvement as well as the development of
new product lines. Strong relationships are maintained with customers and
materials departments of universities. Recently, successful projects in LSM
include a new carbon-based grain refiner for the aluminum industry developed
jointly with Shieldalloy, titanium carbide alloys for addition to rolls in the
iron and steel industry and Raney type catalysts for the chemical industry. In
Germany, the research and development is focused on advanced intermetallic
phases for structural and functional applications as well as development
recently of nickel aluminum sputtering targets, improvement of granulation
techniques for metal alloy powders and development of multinary master alloys.
EMPLOYEES
As of April 30, 1998, Metallurg employed approximately 1,483 people
worldwide. Labor unions represent approximately 50% of Metallurg's employees.
Employees are represented by unions at seven locations in the United States, the
United Kingdom, Germany and Brazil. Many of the collective bargaining agreements
covering Metallurg's union employees at its foreign subsidiaries are renewable
on an annual basis. Metallurg's relationships with its unions are managed at the
local level and are considered by management to be good. Metallurg has not been
affected by strikes in the last ten years (other than one in Turkey which
occurred in 1988), and there has not been a strike at any of Metallurg's United
States facilities for over twenty years.
BANKRUPTCY
On April 14, 1997, Metallurg and Shieldalloy consummated the Reorganization
Plan. Metallurg and Shieldalloy sought Chapter 11 protection in September 1993
following Metallurg's inability to restructure or refinance its long-term
indebtedness and revolving credit facility in light of the confluence of
numerous economic factors that negatively impacted the Metallurg Group's
businesses and caused Metallurg to default on certain then-outstanding
indebtedness. In particular, the economic recession that began in 1989 in
end-use markets, such as the aerospace, automotive, durable goods, construction
and defense sectors, placed significant downward pressure on alloy prices and
volumes. In addition, increased competition as a result of sales by exporters
from the former Soviet Union of excess stocks of metals and alloys precipitated
by the economic collapse of the former Soviet Union and the end of the Cold War
drove prices of ferroalloys in Europe to very low levels. Moreover, in the wake
of reductions in United States defense spending, there was a reduction in demand
in the market for superalloys.
Metallurg has sought to stabilize and strengthen its business since the
bankruptcy filing through the implementation of the business strategies
described above. As a result of the consummation of the Offering and the other
financial arrangements made by Metallurg, Metallurg believes that its financial
position has improved from 1993 with enhanced liquidity and extended maturities
of its debt. In response to the dumping by the former Soviet Union, Metallurg
sought and obtained anti-dumping orders against Russia for imports of
ferrovanadium into the United States and against Russia, Kazakhstan and Ukraine
for imports of low carbon ferrochrome into Europe. See "Risk Factors--End of
Anti-Dumping Duties." Metallurg believes that most of the stockpiles in the
former Soviet Union have been depleted and, therefore, if the anti-dumping
duties are reduced, the impact will be less than that experienced by Metallurg
in the early 1990's.
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<PAGE>
ENVIRONMENTAL MATTERS
The foreign and domestic operations of Metallurg's alloy manufacturing
business are subject to extensive laws and regulations governing, among other
things, emissions to air, discharges and releases to land and water (including
groundwater), the generation, handling, storage, transportation, treatment and
disposal of wastes and other materials, including wastes and materials
containing low levels of radioactivity, and the remediation of contamination
caused by releases of wastes and other material, as well as worker exposure to
hazardous or toxic substances. There can be no assurance that these laws and
regulations will not result in the imposition of future liabilities and
obligations, including future liability for other disposal or contamination at
both domestic and foreign facilities, that would be material to Metallurg's
business operations, financial condition or cash flow or that the current
estimates and reserves established by the Company and discussed herein are or
will be adequate. Management believes that Metallurg is faced with a number of
environmental matters which have largely resulted from changing environmental
laws and regulations and, increasingly, environmental controls and cleanup
requirements, particularly in the area of solid and hazardous waste removal. To
fulfill the terms of comprehensive settlement agreements with the environmental
regulatory authorities described more fully below, Shieldalloy has agreed to
perform environmental remediation which, as of April 30, 1998, had an estimated
cost of completion of $39.4 million. Of this amount, Shieldalloy expects to
expend approximately $4.2 million in 1998, $4.3 million in 1999 and $8.1 million
in 2000. Although the scope of Shieldalloy's remediation obligations has been
defined pursuant to such settlement agreements, there can be no assurance that
the ultimate cost of fulfilling these obligations will not materially exceed
Shieldalloy's current estimates or currently established reserves.
While its remediation obligations and other environmental costs will, in the
aggregate, reduce its liquidity, Metallurg believes its cash balances, cash from
operations and cash available under its credit facilities are sufficient to fund
its current and anticipated future requirements for environmental expenditures.
The historical manufacture of several products in Newfield, New Jersey and
Cambridge, Ohio resulted in the production of various by-products and wastes
that Shieldalloy is obligated to remediate under federal and state environmental
laws and regulations. The release or threatened release of hazardous substances
and wastes at the Newfield facility led that facility to be placed on the
National Priorities List for cleanup under the federal Comprehensive
Environmental Response, Compensation and Liability Act (also known as
"Superfund"). Pursuant to the Reorganization Plan, all known off-site
liabilities for disposal of solid and hazardous wastes were discharged.
Shieldalloy also entered into comprehensive settlement agreements with
governmental authorities covering remediation of various on-site and facility-
related environmental conditions at its Newfield and Cambridge facilities.
Metallurg has also provided for certain estimated costs associated with its
operating sites in Germany and Brazil, although there can be no assurance that
such estimates will prove to be accurate. Metallurg believes that total
environmental remediation and monitoring liabilities consist of the following
(in thousands):
<TABLE>
<CAPTION>
APRIL 30,
1998
-------------
<S> <C>
Domestic:
Shieldalloy--New Jersey...................................................... $ 30,493
Shieldalloy--Ohio............................................................ 11,830
-------------
42,323
Foreign........................................................................ 5,000
-------------
Total environmental liabilities.............................................. 47,323
Less: trust funds.............................................................. 2,932
-------------
Net environmental liabilities................................................ $ 44,391
-------------
-------------
</TABLE>
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<PAGE>
As part of the Reorganization Plan, Metallurg and Shieldalloy entered into
an Environmental Settlement Agreement with the Environmental Protection Agency
(the "EPA"), the Department of the Interior (the "DOI") and the Nuclear
Regulatory Commission (the "NRC") with respect to the Newfield and Cambridge
sites and with the New Jersey Department of Environmental Protection (the
"NJDEP") with respect to the Newfield site (the "U.S. and NJDEP Environmental
Settlement Agreement"). In addition to settling claims with federal authorities,
the U.S. and NJDEP Environmental Settlement Agreement memorialized prior
commitments to the State of New Jersey pursuant to Administrative Consent Orders
("ACOs") issued on September 5, 1984 and October 5, 1988. The U.S. and NJDEP
Environmental Settlement Agreement obligates Shieldalloy to complete a number of
environmental projects, including groundwater, soils and sediment remediation,
closure of nine wastewater and treatment lagoons, and related operation and
maintenance activities. The cost of fulfilling these obligations is currently
estimated to be approximately $30.5 million. Metallurg and Shieldalloy have
agreed to provide, create or make available financial assurance in this amount
for these projects through a combination of letters of credit and cash reserves.
At April 30, 1998, outstanding letters of credit issued as financial assurance
in favor of various environmental agencies were $21.4 million, and cash reserves
established as financial assurance total $0.8 million. The costs of providing
financial assurance over the term of the remediation activities have been
included in the accrued amounts to be disbursed over the next fourteen years.
Metallurg, Shieldalloy and Cyprus Foote Mineral Company ("Cyprus Foote"),
the former owner of the Cambridge site, have entered into a Permanent Injunction
Consent Order (the "Consent Order") with the State of Ohio resolving known
environmental remediation claims relating to the Cambridge site. The terms of
the Consent Order are incorporated by reference into the Settlement Agreement
entered into among Metallurg, Shieldalloy, Cyprus Foote, the Ohio Environmental
Protection Agency (the "OEPA") and the Ohio Department of Health (the "ODH")
(the "Ohio Environmental Settlement Agreement," and together with the U.S. and
NJDEP Environmental Settlement Agreement, the "Settlement Agreements"). Under
the Ohio Environmental Settlement Agreement, Shieldalloy and Cyprus Foote will
perform remedial design and remedial action at the Cambridge site, estimated to
cost approximately $8.7 million. Additionally, Shieldalloy and Cyprus Foote will
enhance, restore and preserve certain wetlands in the vicinity of the Cambridge
site. The Consent Order requires Shieldalloy and Cyprus Foote to provide
financial assurance for the above remediation projects in an initial amount of
$9.0 million. Pursuant to an agreement between Shieldalloy and Cyprus Foote,
Cyprus Foote will satisfy this requirement. In addition, the Consent Order
requires Shieldalloy to provide financial assurance for the long-term operation
and maintenance of the east and west slag piles at the Cambridge site, in the
amount of approximately $1.2 million, which was funded as part of the
Reorganization Plan, and an additional $0.1 million to fund extension of the
annuity for an additional 900 years. Metallurg has accrued its best estimate of
associated costs which it expects to substantially disburse over the next six
years.
As a result of historic manufacturing activities, slag piles that contain
low levels of naturally occurring radioactivity have accumulated at the
Cambridge and Newfield sites. These slag piles are subject to regulation by the
NRC and state agencies. As related production has ceased at the Cambridge
location, Shieldalloy is required to decommission the two slag piles at that
facility and obtain approval from the State of Ohio and the NRC to stabilize and
cap the slag piles. Authorization to cap on-site the larger slag pile at the
Cambridge site has been approved as protective of human health and the
environment by the State of Ohio. The NRC is expected to issue its final
environmental impact statements for Cambridge in 1998. As Ohio did before it
selected the cap on-site remedy, the NRC has considered a range of remedial
alternatives including removal of the slag pile to an off-site disposal facility
in previously issued draft environmental impact statements which have been
circulated to the public. The estimated costs for off-site disposal approached
$100.0 million; however, in the two draft environmental impact statements for
Cambridge issued in 1995 and 1996 and presented for public comment at two public
meetings in Cambridge, the NRC stated its current intention to accept the cap
on-site alternative already adopted by Ohio. As long as Shieldalloy continues
its ongoing efforts to sell the slag located at the Newfield location,
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<PAGE>
the NRC will allow the slag pile to remain in place, subject to submission of a
conceptual decommissioning plan and financial assurance for implementation of
that plan. Metallurg's obligation for decommissioning costs for these sites is
partially assured by cash funds held in trust. As a condition precedent to
consummation of the Reorganization Plan, draws aggregating $1.5 million were
made under prepetition letters of credit relating to both the Newfield and
Cambridge facilities, and the proceeds were deposited in a trust fund for
purposes of NRC decommissions.
Metallurg is defending an action brought by local residents alleging
personal injury and property damage from groundwater contamination and other
exposure to hazardous materials allegedly originating from Metallurg's Newfield,
New Jersey plant. Metallurg is vigorously defending this action. Metallurg
believes that this matter is covered by its insurance and the costs of such
defense are being borne by Metallurg's insurance carriers. Based on the damages
being sought and the availability of insurance, Metallurg does not believe that
the outcome of this litigation or the ongoing costs of defense will have a
material adverse effect on Metallurg's operations or financial position.
Metallurg has also provided for certain estimated costs associated with its
sites in Germany and Brazil. Metallurg's German subsidiaries have accrued
environmental liabilities in the amount of $4.7 million and $4.8 million at
April 30, 1998 and January 31, 1998, respectively, to cover the costs of closing
an off-site dump and for certain environmental conditions at a site in Nuremberg
owned by a subsidiary. In Brazil, costs of $0.3 million and $0.4 million have
been accrued at April 30, 1998 and January 31, 1998, respectively, to cover
reclamation costs of the closed mine sites.
In addition to its substantial remediation and monitoring obligations for
historical contamination, Metallurg's ongoing operations at its Cambridge
facility continue to be affected by actual and proposed changes to environmental
laws and regulations involving the treatment, storage and disposal of classified
hazardous wastes under the Resource Conservation and Recovery Act ("RCRA") and
control of air emissions under the Clean Air Act Amendments of 1990 ("CAAA"),
and under their state counterparts. In particular, Metallurg is currently
considering various options in connection with its production of ferrovanadium,
which may be affected by increasingly stringent sulfur dioxide emission
limitations under the CAAA, and by the EPA's proposed reclassification of spent
catalyst, one of Metallurg's raw materials, as a hazardous waste under RCRA.
Spent catalyst currently makes up approximately 8.0% of Metallurg's raw
materials. The combination of these pending regulatory requirements will compel
Metallurg to monitor the cost and constituents of its raw product slate with
increased care, and may require substantial capital expenditures at the
Cambridge facility in order to install appropriate pollution control devices,
reconfigure material handling facilities, or both, to allow Metallurg to process
the most cost-effective raw product mix.
LEGAL PROCEEDINGS
Metallurg and certain of its subsidiaries are parties to a variety of legal
proceedings, none of which Metallurg believes is material, relating to their
operations. Management does not expect that these matters, individually or in
the aggregate, would have a material adverse impact on Metallurg's operations or
financial position. For a discussion of pending litigation regarding
environmental matters, see "-- Environmental Matters."
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of the Issuer and with respect to Michael A.
Standen, the President and Chief Executive Officer of Metallurg, Inc. (the
"CEO"):
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
Heinz C. Schimmelbusch.................... 54 Director and President of the Issuer
Arthur R. Spector......................... 57 Director and Vice President of the Issuer
Michael R. Holly.......................... 52 Director and Vice President of the Issuer
Michael A. Standen........................ 61 President and Chief Executive Officer of Metallurg, Inc.
Douglas A. Fastuca........................ 33 Treasurer of the Issuer
</TABLE>
Each director of the Issuer holds office until the next annual meeting of
stockholders of the Issuer or until his or her successor has been elected and
qualified. Officers of the Issuer are selected by the Board of Directors and
serve at the discretion of the Board of Directors.
HEINZ C. SCHIMMELBUSCH. Mr. Schimmelbusch is a Managing Director of the
general partner and of the management company of Safeguard International. He is
also Chairman of the Board, President and Chief Executive Officer of Allied
Resource Corporation, a company he founded in 1994. Until 1994, Mr.
Schimmelbusch was Chairman of the Management Board of Metallgesellschaft AG,
Germany, a multi-billion dollar multinational company in the process industries,
and Chairman of the Supervisory Board of LURGI AG, Germany's leading process
engineering firm; of Buderus AG, a leading manufacturer of commercial and
residential heating equipment; of Dynamit Nobel AG, a leading manufacturer of
explosives; and Norddeutsche Affinerie AG, Europe's largest copper producer. Mr.
Schimmelbusch also served on the Boards of several German and other foreign
corporations and institutions, including Allianz Versicherungs AG, Munich;
Philipp Holzmann AG, Frankfurt; Mobil Oil AG, Hamburg; Teck Corporation,
Vancouver; and others. Mr. Schimmelbusch has been the founder and Chairman of a
number of public companies in process industries, including: Inmet Corporation,
Toronto, (formerly Metall Mining Corporation); Methanex Corporation, Vancouver;
and B.U.S. Umweltservice AG, Frankfurt. Mr. Schimmelbusch is a director of
Safeguard Scientifics, Inc., a position he has held since 1989, and of Arthur
Treacher's Seafood Grill.
ARTHUR R. SPECTOR. Mr. Spector is a Managing Director of the general
partner and of the management company of Safeguard International. From January
1997 to March 1998, Mr. Spector served as a managing director of TL Ventures
LLC, a venture capital management company organized to manage day-to-day
operations of TL Ventures III L.P. and TL Ventures III Offshore L.P. From
January 1995 through December 1996, Mr. Spector served as Director of
Acquisitions of Safeguard Scientifics, Inc. From July 1992 until May 1995, Mr.
Spector served as Vice Chairman and Secretary of Casino & Credit Services, Inc.
From October 1991 to December 1994, Mr. Spector was Chief Executive Officer and
a director of Perpetual Capital Corporation, a merchant banking organization.
Mr. Spector serves as Chairman of Neoware Systems, Inc., a manufacturer of
thin-client computers; and as a director of USDATA Corporation, a company which
produces factory and process automation software; and Docucorp International,
Inc., a document automation company.
MICHAEL R. HOLLY. Mr. Holly is a Managing Director of the general partner
and of the management company of Safeguard International. He is also Executive
Vice President and Chief Financial Officer of Puralube, Inc. a co-investment by
Safeguard Scientifics, Inc. and Allied Resource Corporation which is
commercializing a technology on a worldwide basis that re-refines used oil into
high-quality base lube oils. Mr. Holly is a senior executive with over 30 years
of combined experience in the areas of finance operations, marketing and
strategic planning. Mr. Holly has spent the last five years providing merger and
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acquisition advisory services to a variety of companies, including the last four
years working in close association with Safeguard Scientifics, Inc. Mr. Holly is
a Certified Public Accountant and spent 12 years with Price Waterhouse LLP and
three years with Coopers & Lybrand. For ten years, Mr. Holly served as the
combined Chief Operating and Chief Financial Officer of a national professional
services organization.
MICHAEL A. STANDEN. Mr. Standen has worked at Metallurg for his entire
professional career. He was appointed President and Chief Executive Officer in
1983 and Chairman in 1992. Mr. Standen joined LSM in 1961 and held positions in
sales and purchasing management before he was appointed Joint Managing Director
of LSM in 1977. He was elected to the Board of Directors of the Company in 1977.
DOUGLAS A. FASTUCA. Mr. Fastuca is a Director of the management company of
Safeguard International. Before joining Safeguard International, Mr. Fastuca was
Director of Business Development in SEI Investment's Global Asset Management
Unit from 1993 to 1997. He started his business career with General Electric
holding financial assignments in manufacturing and international operations at
GE Lighting and as a corporate auditor at GE Capital.
SHARE OWNERSHIP
Safeguard International and the Investor Group beneficially own in the
aggregate all of the outstanding equity of the Issuer (before giving effect to
options to be issued to management).
CERTAIN TRANSACTIONS
The management company of Safeguard International was paid a one-time
financial advisory fee of $2.5 million for services performed, and reimbursed
for various expenses incurred, in connection with the Acquisition Transactions.
Certain members and employees of the management company are directors and
officers of the Issuer.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
SENIOR NOTE INDENTURE. In April 1998, Metallurg completed the exchange of
its 11% Series B Senior Notes due 2007 for an identical face amount of Senior
Notes. The Senior Notes were issued in an aggregate principal amount of $100
million under the Senior Note Indenture and are senior, unsecured obligations of
Metallurg.
The Senior Notes bear interest at the rate of 11% per annum and mature on
December 1, 2007. They are redeemable by Metallurg, from time to time, in whole
or in part, in cash, after December 1, 2002 at the redemption price thereof,
together with accrued and unpaid interest thereon to the date fixed for
redemption. In addition, prior to December 1, 2000, up to 34% of the aggregate
principal amount of the Senior Notes originally issued may be redeemed at the
option of Metallurg, in whole or in part, at any time and from time to time, at
111% of the principal amount thereof, plus accrued and unpaid interest, if any,
to the date of redemption with the net proceeds of one or more public equity
offerings following which there is a public market, provided that at least 66%
of the aggregate principal amount of the Senior Notes originally issued remain
outstanding immediately after such redemption. The Senior Notes are also
redeemable at the option of the holder thereof upon a Change of Control.
An event of default under the Senior Notes includes, among other things,
failure to make payments when due, defaults under certain other agreements or
instruments of indebtedness, non-compliance with covenants, certain bankruptcy
or insolvency events and any failure to comply with the terms of any Guaranty
(as defined in the Senior Note Indenture). The covenants under the Senior Note
Indenture applicable to the Company are substantially similar to the covenants
in the Indenture.
REVOLVING CREDIT FACILITY AND OTHER FINANCING ARRANGEMENTS. Metallurg has a
credit facility with certain financial institutions led by BankBoston, N.A., as
agent (the "Revolving Credit Facility"), which provides Metallurg, Shieldalloy
and certain of their subsidiaries with up to $50.0 million of financing
availability at a rate per annum equal to (i) the Alternate Base Rate plus 1.0%
per annum, (the Alternate Base Rate is the greater of the Base Rate or the
Federal Funds Effective Rate plus 0.5%) or (ii) the reserve adjusted Eurodollar
rate plus 2.5% for interest periods of one, two or three months. The Revolving
Credit Facility permits borrowings of up to $50.0 million for working capital
requirements and general corporate purposes, up to $30.0 million of which may be
used for letters of credit in the United States. Pursuant to the Revolving
Credit Facility, BankBoston, N.A. through its London office, is providing up to
DM 20.5 million (approximately $11.1 million) of financing to GfE and its
subsidiaries (the "German Subfacility"), which is guaranteed by Metallurg and
the other United States borrowers. Outstanding obligations under the Revolving
Credit Facility are limited to a borrowing base based on eligible accounts
receivable, eligible inventory and certain equipment. To the extent that the
outstanding amounts to GfE and its subsidiaries exceed the borrowing base of
those companies, a reserve will be established against the United States
borrowing base. At April 30, 1998, there were no outstanding loans and $29.3
million of letters of credit outstanding in the United States under the
Revolving Credit Facility and DM 2.1 million (approximately $1.2 million)
outstanding under the German Subfacility. The Revolving Credit Facility and the
German Subfacility contain various covenants that restrict, among other things,
payments of dividends, share repurchases, capital expenditures, investments in
subsidiaries and borrowings. Substantially all of the assets of the United
States borrowers and guarantors under the Revolving Credit Facility are pledged
to secure all of the obligations under the Revolving Credit Facility (including
the German Subfacility), and all accounts receivable, inventory, the stock of
GfE's subsidiaries and certain other assets are pledged to secure the German
Subfacility. Metallurg used a portion of the proceeds of the offering of the
Senior Notes to repay outstanding loans under the German Subfacility (but not to
reduce the related commitment thereunder).
In addition, several of the other foreign subsidiaries of Metallurg have
credit facility arrangements with local banking institutions to provide funds
for working capital and general corporate purposes. These
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local credit facilities contain restrictions that vary from company to company.
At April 30, 1998, there was $1.7 million in outstanding loans under these local
credit facilities.
LSM has several credit facilities with Barclays Bank plc which provide LSM
and its subsidiaries with up to L7.0 million (approximately $11.7 million) of
borrowings, up to L3.8 million (approximately $6.4 million) of foreign exchange
exposure and up to L2.3 million (approximately $3.8 million) for other ancillary
banking arrangements including bank guarantees (the "LSM Credit Facility"). At
April 30, 1998, there was L0.2 million (approximately $0.3 million) outstanding
under the LSM Credit Facility. Borrowings under the LSM Credit Facility are
payable on demand. The outstanding loans under the LSM Credit Facility bear
interest at the lender's base rate plus 1.0%.
On April 11, 1997, LSM entered into a term loan facility with NM Rothschild
& Sons Limited in the amount of L5.0 million (approximately $8.1 million) (the
"LSM Term Loan Facility"), the proceeds of which were used to make a dividend to
Metallurg in order to fund the Reorganization Plan.
EWW has committed lines of credit with several banks in the aggregate amount
of DM 15.0 million (approximately $8.1 million) which reduce on an annual basis
by DM 3.0 million beginning July 1, 1999 and currently bear interest at rates
from 7.5% to 8.5%. As of April 31, 1998, there was DM 0.5 million (approximately
$0.3 million) outstanding under this facility.
DESCRIPTION OF THE NEW NOTES
The New Notes will be issued under an indenture, dated as of July 13, 1998
(the "Indenture"), by and between the Issuer and United States Trust Company of
New York, as trustee (the "Trustee"). A copy of the Indenture is available upon
request to the Issuer at the address set forth under "Available Information."
The following summaries of certain provisions of the Indenture do not purport to
be complete and are subject, and are qualified in their entirety by reference,
to the Trust Indenture Act of 1939 (the "Trust Indenture Act") and to all the
provisions of the New Notes and the Indenture, including the definitions therein
of certain terms. For purposes of this Section, references to the "Company"
shall mean Metallurg, Inc., excluding its subsidiaries. Capitalized terms used
in this Section and not otherwise defined below have the respective meanings
assigned to them in the Indenture.
GENERAL
The New Notes will mature on July 15, 2008 and will be limited to an
aggregate principal amount at maturity of $121.0 million. The New Notes will be
issued at a substantial discount from their principal amount at maturity, and
will accrete at a rate of 12 3/4% per annum, compounded semi-annually, from the
date of issuance to July 15, 2003, at which date the New Notes will have
accreted to an aggregate principal amount of $121.0 million. Cash interest will
not accrue or be payable on the New Notes prior to such date. Commencing July
15, 2003, cash interest on the New Notes will accrue at the rate of 12 3/4% per
annum and will be payable semi-annually in arrears on January 15 and July 15 of
each year, commencing on January 15, 2004, to the Persons who are registered
holders of the New Notes at the close of business on the preceding January 1 or
July 1, as the case may be. Accreted interest and stated interest, as
applicable, will be computed on the basis of a 360-day year comprised of twelve
30-day months.
Principal of, premium and Liquidated Damages, if any, and interest on, the
New Notes will be payable in immediately available funds, and the New Notes will
be exchangeable and transferable, at an office or agency of the Issuer, one of
which will be maintained for such purpose in The City of New York (which
initially will be the corporate trust office of the Trustee); PROVIDED, HOWEVER,
that principal, premium, Liquidated Damages, if any, and interest with respect
to New Notes the Holders of which have given wire instructions to the Issuer
will be required to be made by wire transfer of immediately available funds to
the accounts specified by the Holders thereof. The New Notes will be issued only
in fully registered form without coupons, in denominations of $1,000 or any
integral multiple thereof. No service charge will be
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made for any registration of transfer or exchange of New Notes, except for any
tax or other governmental charge that may be imposed in connection therewith.
RANKING
The New Notes will be senior, secured obligations of the Issuer and will
rank PARI PASSU with all senior indebtedness of the Issuer and senior to all
subordinated indebtedness of the Issuer. All debt and other liabilities of the
Issuer's Subsidiaries, including the claims of trade creditors, secured
creditors and creditors holding debt and guarantees issued by such Subsidiaries,
and claims of preferred stockholders, if any, of such Subsidiaries, will be
effectively senior to the New Notes. As of April 30, 1998, on a pro forma basis
after giving effect to the Acquisition Transactions, the Issuer's Subsidiaries
would have had approximately $279.4 million of balance sheet liabilities, of
which $106.7 million would have been indebtedness. See "Risk
Factors--Substantial Leverage" and "Risk Factors--Holding Company Structure;
Effective Subordination."
The Issuer and its Subsidiaries have other liabilities, including contingent
liabilities, which may be significant. Although the Indenture contains
limitations on the amount of additional Debt which the Issuer and the Restricted
Subsidiaries may Incur, all such Debt may be Incurred by Subsidiaries and the
amounts of such Debt could be substantial. See "--Certain Covenants--Limitation
on Debt," "Risk Factors-- Substantial Leverage," "Risk Factors--Holding Company
Structure; Effective Subordination" and "Description of Certain Indebtedness."
SECURITY FOR THE NEW NOTES
The obligations of the Issuer with respect to the New Notes will be secured
by an assignment and pledge to the Trustee of (a) all of the outstanding equity
interests held by the Issuer in the Company (but not any other Subsidiary the
Issuer may from time to time form or acquire) and (b) all promissory notes
issued from time to time to the Issuer by the Company (but not by any other
Subsidiary) (collectively, the "Collateral"). The security interests in the
Collateral will be exclusive, first priority security interests. Absent any
acceleration of the New Notes or failure to pay the same in full at maturity,
the Issuer will generally be able to vote pledged securities and to receive
distributions and other proceeds in respect thereof. In addition, so long as no
Default or Event of Default is in existence at the time of or immediately after
giving effect thereto, the Issuer will be permitted to cause the release of
Collateral in connection with sales thereof otherwise made in accordance with
the Indenture covenants.
There can be no assurance that the proceeds of any sale of the Collateral
pursuant to the Indenture following an Event of Default would be sufficient to
satisfy the expenses of such foreclosure and fees and other amounts payable to
the Trustee as well as payments due on the New Notes. In addition, the ability
of holders of New Notes to realize upon the Collateral may be subject to certain
bankruptcy law limitations in the event of a bankruptcy, particularly if such
bankruptcy proceeding were to be commenced by or against the Issuer prior to the
Trustee's having disposed of the Collateral.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the New Notes will not be
redeemable at the option of the Issuer prior to July 15, 2003. Thereafter, the
New Notes will be redeemable at the option of the Issuer, in whole or in part,
on not less than 30 nor more than 60 days' prior notice, at the following
redemption prices (expressed as percentages of principal amount), plus accrued
and unpaid interest and Liquidated Damages, if any, thereon to the redemption
date (subject to the right of holders of record on the relevant
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record date to receive interest due on the relevant interest payment date), if
redeemed during the 12-month period commencing on July 15 of the years set forth
below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ----------------------------------------------------------------------------------- ---------
<S> <C>
2003............................................................................... 106.375%
2004............................................................................... 104.250%
2005............................................................................... 102.125%
2006 and thereafter................................................................ 100.000%
</TABLE>
In addition, prior to July 15, 2001, the Issuer may redeem up to a maximum
of 34% of the aggregate principal amount at maturity of the originally issued
New Notes with the proceeds of one or more Public Equity Offerings following
which there is a Public Market, at a redemption price equal to 112.750% of the
Accreted Value thereof, plus Liquidated Damages, if any, thereon to the
redemption date (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date);
PROVIDED, HOWEVER, that after giving effect to any such redemption, at least 66%
of the aggregate principal amount at maturity of the originally issued New Notes
remains outstanding.
In the case of a partial redemption, the Trustee shall select the New Notes
or portions thereof for redemption on a PRO RATA basis, by lot or in such other
manner it deems appropriate and fair. The New Notes may be redeemed in part in
multiples of $1,000 only.
Notice of any redemption will be sent by first class mail to the Holder of
each New Note to be redeemed to such Holder's last address as then shown upon
the registry books of the Registrar. Any notice which relates to a New Note to
be redeemed in part only must state the portion of the principal amount equal to
the unredeemed portion thereof and must state that on and after the date of
redemption, upon surrender of such New Note, a New Note or New Notes in a
principal amount equal to the unredeemed portion thereof will be issued. On and
after the date of redemption, the Accreted Value will cease to increase and
interest will cease to accrue on the New Notes or portions thereof called for
redemption, unless (in the case of accrued interest) the Issuer defaults in the
payment thereof.
SINKING FUND
There are no sinking fund payments for the New Notes.
REPURCHASE AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of New Notes shall
have the right to require the Issuer to repurchase all or any part of such
holder's New Notes pursuant to the offer described below (the "Change of Control
Offer") at a purchase price (the "Change of Control Purchase Price") equal to
101% of the Accreted Value thereof, plus Liquidated Damages, if any, thereon at
the purchase date, if the purchase date is prior to July 15, 2003, or 101% of
the aggregate principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the purchase date, if the purchase date
is on or after July 15, 2003 (subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date). Neither the Board of Directors nor the Trustee may waive the covenant
relating to the right of each holder to redeem the New Notes upon a Change of
Control. The Issuer's failure to make any required repurchases in the event of a
Change of Control will create an immediate Event of Default with respect to the
New Notes.
Within 30 days following any Change of Control, the Issuer shall (a) cause a
notice of the Change of Control Offer to be sent at least once to the Dow Jones
News Service or similar business news service in the United States and (b) send,
by first-class mail, with a copy to the Trustee, to each holder of New Notes, at
such holder's address appearing in the Security Register, a notice stating: (i)
that a Change of Control has occurred and a Change of Control Offer is being
made pursuant to the covenant entitled "Repurchase
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at the Option of Holders Upon a Change of Control" and that all New Notes timely
tendered will be accepted for payment; (ii) the Change of Control Purchase Price
and the purchase date, which shall be, subject to any contrary requirements of
applicable law, a business day no earlier than 30 days nor later than 60 days
from the date such notice is mailed; (iii) the circumstances and relevant facts
regarding such Change of Control (including information with respect to pro
forma historical income, cash flow and capitalization after giving effect to the
Change of Control); and (iv) the procedures that holders of New Notes must
follow in order to tender their New Notes (or portions thereof) for payment, and
the procedures that holders of New Notes must follow in order to withdraw an
election to tender New Notes (or portions thereof) for payment.
The Issuer will comply, to the extent applicable, with the requirements of
Rules 13e-4 and 14e-1 of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of New Notes pursuant to a Change
of Control Offer. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Issuer will comply with the applicable securities laws and regulations and
will not be deemed to have breached its obligations under the covenant described
hereunder by virtue of such compliance.
The Change of Control repurchase feature is a result of negotiations between
the Issuer and the Initial Purchaser. The Issuer's management has no present
intention to engage in a transaction involving a Change of Control, although it
is possible that the Issuer would decide to do so in the future. Subject to
certain covenants described below, the Issuer could, in the future, enter into
certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of debt outstanding at such time
or otherwise affect the Issuer's capital structure or credit ratings.
The definition of Change of Control includes a phrase relating to the sale,
assignment, lease, conveyance, disposition or transfer of "all or substantially
all" the Issuer's assets. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of New Notes to require the Issuer to repurchase such New Notes as a
result of a sale, assignment, lease, conveyance, disposition or transfer of less
than all the assets of the Issuer may be uncertain.
Future debt of the Issuer may contain prohibitions of certain events which
would constitute a Change of Control or require such debt to be repurchased upon
a Change of Control. Moreover, the exercise by holders of New Notes of their
right to require the Issuer to repurchase such New Notes could cause a default
under existing or future debt of the Issuer, even if the Change of Control
itself does not, due to the financial effect of such repurchase on the Issuer.
Finally, the Issuer's ability to pay cash to holders of New Notes upon a
repurchase may be limited by the Issuer's then existing financial resources.
There can be no assurance that sufficient funds will be available when necessary
to make any required repurchases. The Issuer's failure to purchase the New Notes
in connection with a Change of Control would result in a default under the
Indenture which would, in turn, constitute a default under the existing or
future debt of the Issuer. The provisions under the Indenture relative to the
Issuer's obligation to make an offer to repurchase the New Notes as a result of
a Change of Control may be waived or modified (at any time prior to the
occurrence of such Change of Control) with the written consent of the holders of
a majority in aggregate principal amount of the New Notes then outstanding.
CERTAIN COVENANTS
LIMITATION ON DEBT. The Issuer shall not, and shall not permit any
Restricted Subsidiary to, Incur, directly or indirectly, any Debt (which
includes, in the case of Restricted Subsidiaries, Preferred Stock) unless, after
giving pro forma effect to the application of the proceeds thereof, no Default
or Event of Default would occur as a consequence of such Incurrence or be
continuing following such Incurrence and
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either (a) after giving effect to the Incurrence of such Debt and the
application of the proceeds thereof, the Consolidated Coverage Ratio would be
greater than 2.00 to 1.00 or (b) such Debt is Permitted Debt.
The term "Permitted Debt" is defined to include the following:
(a) Debt of the Issuer evidenced by the New Notes and represented by the
Indenture up to the amounts specified therein as of the Issue Date, together
with any accretion thereon, and the Exchange New Notes;
(b) Debt of the Company and its subsidiaries evidenced by the Senior
Notes and represented by the Senior Note Indenture;
(c) Debt under the Credit Facility, PROVIDED that the aggregate
principal amount of all such Debt under the Credit Facility at any one time
outstanding shall not exceed the greater of (i) $50.0 million, which amount
shall be permanently reduced by the amount of Net Available Cash used to
repay Debt under the Credit Facility and permanently reduce the loan
commitment thereunder pursuant to the covenant described under "--Limitation
on Asset Sales" and (ii) the sum of the amounts equal to (x) 65% of the book
value of the inventory of the Issuer and the Restricted Subsidiaries and (y)
90% of the book value of the accounts receivable of the Issuer and the
Restricted Subsidiaries, in each case as of the most recently ended quarter
of the Issuer for which financial statements of the Issuer have been
provided to the holders of New Notes (the greater of (i) and (ii) being the
"Permitted Debt Amount"); PROVIDED, FURTHER, that the aggregate amount of
Debt Incurred pursuant to this clause (c) together with the aggregate amount
of Debt Incurred pursuant to clause (d) below shall not exceed an amount
equal to the Permitted Debt Amount at any one time outstanding;
(d) Debt of the Issuer or any Restricted Subsidiary under one or more
debt facilities with banks or other institutional lenders providing for
revolving credit loans, term loans, receivables financing (including through
the sale of receivables to such lenders or to special purpose entities
formed to borrow from such lenders against such receivables), letters of
credit, foreign exchange, bankers acceptances or similar financial
arrangements, and any Permitted Refinancing Debt Incurred with respect
thereto, PROVIDEDthat the aggregate principal amount of all such Debt at any
one time outstanding shall not exceed the sum of (i) 65% of the book value
of the inventory of the Issuer or such Restricted Subsidiary and (ii) 90% of
the book value of the accounts receivable of the Issuer or such Restricted
Subsidiary, in each case as of the most recently ended quarter of the Issuer
for which financial statements of the Issuer have been provided to the
holders of the New Notes; PROVIDED, FURTHER, that the aggregate amount of
Debt Incurred pursuant to this clause (d), together with the aggregate
amount of Debt Incurred pursuant to clause (c) above shall not exceed the
Permitted Debt Amount at any one time outstanding;
(e) Debt in respect of Capital Lease Obligations and Purchase Money
Debt, PROVIDED that (i) the aggregate principal amount of such Debt does not
exceed the Fair Market Value (on the date of the Incurrence thereof) of the
Property acquired, constructed or leased and (ii) the aggregate principal
amount of all Debt Incurred and then outstanding pursuant to this clause (e)
(together with all outstanding Permitted Refinancing Debt Incurred in
respect of Debt previously Incurred pursuant to such clause (e)) does not
exceed $15.0 million;
(f) Debt of the Issuer owing to and held by any Restricted Subsidiary or
Debt of a Restricted Subsidiary owed to and held by the Issuer or another
Restricted Subsidiary; provided, however, that any subsequent transfer of
Capital Stock or other event that results in any such Restricted Subsidiary
ceasing to be a Restricted Subsidiary or any subsequent transfer of any such
Debt (except to the Issuer or a Restricted Subsidiary) shall be deemed, in
each case, to constitute the Incurrence of such Debt by the issuer thereof;
(g) Debt under Interest Rate Agreements entered into by the Issuer or a
Restricted Subsidiary for the purpose of limiting interest rate risk in the
ordinary course of the financial management of the
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Issuer or such Restricted Subsidiary and not for speculative purposes,
PROVIDED that the obligations under such agreements are directly related to
payment obligations on Debt otherwise permitted by the terms of this
covenant;
(h) Debt under Currency Exchange Protection Agreements entered into by
the Issuer or a Restricted Subsidiary for the purpose of limiting currency
exchange rate risks directly related to transactions entered into by the
Issuer or such Restricted Subsidiary in the ordinary course of business and
not for speculative purposes;
(i) Debt Incurred in connection with cash pooling arrangements by and
among the Issuer and its Restricted Subsidiaries, PROVIDED that no liability
is required under GAAP to be reflected in the consolidated financial
statements of the Issuer with respect thereto;
(j) Debt outstanding on the Issue Date not otherwise described in
clauses (a) through (i) above;
(k) Debt (other than Debt permitted by the immediately preceding
paragraph or the other clauses of this paragraph) in an aggregate principal
amount not to exceed $25.0 million; and
(l) Permitted Refinancing Debt Incurred in respect of Debt Incurred
pursuant to clause (a) of the immediately preceding paragraph and clauses
(a) and (k) above.
Notwithstanding the two immediately foregoing paragraphs, the Issuer shall
not, and shall not permit any Restricted Subsidiary to, Incur any Debt pursuant
to such paragraphs if the proceeds thereof are used, directly or indirectly, to
Refinance any Subordinated Obligations unless such Debt shall be subordinated to
the New Notes to at least the same extent as such Subordinated Obligations.
LIMITATION ON RESTRICTED PAYMENTS. The Issuer shall not make, and shall not
permit any Restricted Subsidiary to make, directly or indirectly, any Restricted
Payment if at the time of, and after giving pro forma effect to, such proposed
Restricted Payment,
(a) a Default or Event of Default shall have occurred and be continuing,
(b) the Issuer could not Incur at least $1.00 of additional Debt
pursuant to clause (a) of the first paragraph of the covenant described
under "--Limitation on Debt" or
(c) the aggregate amount of such Restricted Payment and all other
Restricted Payments declared or made since the Issue Date (the amount of any
Restricted Payment, if made other than in cash, to be based upon Fair Market
Value) would exceed an amount equal to the sum of:
(i) 50% of the aggregate amount of Consolidated Net Income accrued
during the period (treated as one accounting period) from and after
November 1, 1997 to the end of the most recent fiscal quarter ending at
least 45 days prior to the date of such Restricted Payment (or if the
aggregate amount of Consolidated Net Income for such period shall be a
deficit, minus 100% of such deficit),
(ii) Capital Stock Sale Proceeds,
(iii) the amount by which Debt (other than Subordinated Obligations)
of the Issuer or any other Restricted Subsidiary is reduced on the
Issuer's balance sheet upon the conversion or exchange (other than by a
Subsidiary of the Issuer) subsequent to the Issue Date of any Debt of the
Issuer or any other Restricted Subsidiary convertible into or
exchangeable for Capital Stock (other than Disqualified Stock) of the
Issuer (less the amount of any cash or other Property distributed by the
Issuer or any Restricted Subsidiary upon such conversion or exchange),
(iv) an amount equal to the sum of (A) the net reduction in
Investments in any Person other than a Restricted Subsidiary resulting
from dividends, repayments of loans or advances or other transfers of
assets, in each case to the Issuer or any Restricted Subsidiary from such
Person, and (B) the portion (proportionate to the Issuer's equity
interest in such Unrestricted Subsidiary) of
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the Fair Market Value of the net assets of an Unrestricted Subsidiary at
the time such Unrestricted Subsidiary is designated a Restricted
Subsidiary; PROVIDED, HOWEVER, that the foregoing sum shall not exceed,
in the case of any Person, the amount of Investments previously made (and
treated as a Restricted Payment) by the Issuer or any Restricted
Subsidiary in such Person, and
(v) $5.0 million.
Notwithstanding the foregoing limitation, the Issuer may:
(a) pay dividends on its Capital Stock within 60 days of the declaration
thereof if, on said declaration date, such dividends could have been paid in
compliance with the Indenture; PROVIDED, HOWEVER, that such dividend shall
be included in the calculation of the amount of Restricted Payments;
(b) purchase, repurchase, redeem, legally defease, acquire or retire for
value Capital Stock of the Issuer or Subordinated Obligations in exchange
for, or out of the proceeds of the substantially concurrent sale of, Capital
Stock of the Issuer (other than Disqualified Stock and other than Capital
Stock issued or sold to a Subsidiary of the Issuer or an employee stock
ownership plan or trust established by the Issuer or any of its Subsidiaries
for the benefit of their employees); PROVIDED, however, that (i) such
purchase, repurchase, redemption, legal defeasance, acquisition or
retirement shall be excluded in the calculation of the amount of Restricted
Payments and (ii) the Capital Stock Sale Proceeds from such exchange or sale
shall be excluded from the calculation pursuant to clause (c) (ii) above;
(c) purchase, repurchase, redeem, legally defease, acquire or retire for
value any Subordinated Obligations in exchange for, or out of the proceeds
of the substantially concurrent sale of, Permitted Refinancing Debt;
PROVIDED, HOWEVER, that such purchase, repurchase, redemption, legal
defeasance, acquisition or retirement shall be excluded in the calculation
of the amount of Restricted Payments;
(d) make Investments in an aggregate amount not to exceed $20.0 million;
PROVIDED, HOWEVER, that such Investments shall be excluded in the
calculation of the amount of Restricted Payments;
(e) repurchase shares of, or options to purchase shares of, common stock
of the Issuer or any of its Subsidiaries from employees or former employees
of the Issuer or any of its Subsidiaries, pursuant to the terms of
agreements (including employment agreements) or plans (or amendments
thereto) approved by the Board of Directors under which such individuals
purchase or sell, or are granted the option to purchase or sell, shares of
such common stock; PROVIDED, HOWEVER, that the aggregate amount of such
repurchases shall not exceed $2.0 million in any calendar year; PROVIDED
FURTHER, HOWEVER, that such repurchases shall be excluded in the calculation
of the amount of Restricted Payments;
(f) expend up to $10.0 million for Restricted Payments in addition to
the amounts in clauses (a) through (e); PROVIDED, HOWEVER, that, at the time
of, and after giving effect to any such expenditure, no Default or Event of
Default shall have occurred and be continuing and provided further, however,
that such expenditures shall be excluded from the calculation of the amount
of Restricted Payments; or
(g) make Restricted Payments required for any dissenters' rights
payments arising in connection with the Merger, but solely using up to $10.0
million of the net proceeds from the sale of the New Notes.
LIMITATION ON LIENS. The Issuer shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur or suffer to exist, any
Lien (other than Permitted Liens) upon any of its Property (including Capital
Stock of a Restricted Subsidiary), whether owned at the Issue Date or thereafter
acquired, or any interest therein or any income or profits therefrom, unless it
has made or will make effective provision whereby the New Notes will be secured
by such Lien equally and ratably with (or prior to) all other Debt of the Issuer
or any Restricted Subsidiary secured by such Lien.
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LIMITATION ON ASSET SALES. The Issuer shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, consummate any Asset Sale
unless (a) the Issuer or such Restricted Subsidiary receives consideration at
the time of such Asset Sale at least equal to the Fair Market Value of the
Property subject to such Asset Sale; (b) at least 75% of the consideration paid
to the Issuer or such Restricted Subsidiary in connection with such Asset Sale
is in the form of cash or cash equivalents; and (c) the Issuer delivers an
Officers' Certificate to the Trustee certifying that such Asset Sale complies
with the foregoing clauses (a) and (b). For purposes of this covenant, the
following are deemed to be cash: (x) the amount of any liabilities (other than
liabilities that are by their terms subordinated to any other Debt of the Issuer
or such Restricted Subsidiary, as the case may be) of the Issuer or such
Restricted Subsidiary (as shown on the Issuer's or such Restricted Subsidiary's
most recent balance sheet or in the New Notes thereto) that are assumed by the
transferee of any such assets or other property in such Asset Sale, as a result
of which the Issuer or the Restricted Subsidiaries are no longer obligated with
respect to such liabilities and (y) securities received by the Issuer or any
Restricted Subsidiary from the transferee that are immediately converted by the
Issuer or such Restricted Subsidiary into cash.
The Net Available Cash (or any portion thereof) from Asset Sales (or an
amount equal thereto) may be applied by the Issuer or a Restricted Subsidiary,
to the extent the Issuer or such Restricted Subsidiary elects (or is required by
the terms of any Debt): (a) to prepay, repay, legally defease or purchase Senior
Debt of the Issuer or Debt of any Restricted Subsidiary (excluding, in any such
case, any Debt owed to the Issuer or an Affiliate of the Issuer); or (b) to
reinvest in Additional Assets (including by means of an Investment in Additional
Assets by a Restricted Subsidiary in an amount equal to such Net Available Cash
received by the Issuer or another Restricted Subsidiary); PROVIDED, HOWEVER,
that in connection with any prepayment, repayment, legal defeasance or purchase
of Debt pursuant to clause (a) above, the Issuer or such other Restricted
Subsidiary shall retire such Debt and shall cause the related loan commitment
(if any) to be permanently reduced by an amount equal to the principal amount so
prepaid, repaid, legally defeased or purchased.
In the event that any Net Available Cash from an Asset Sale (or an amount
equal thereto) is not applied in accordance with the preceding paragraph within
270 days from the date of the receipt of such Net Available Cash, such Net
Available Cash shall constitute "Excess Proceeds." When the aggregate amount of
Excess Proceeds exceeds $5.0 million (taking into account income earned on such
Excess Proceeds, if any), the Issuer will be required to make an offer to
purchase (the "Prepayment Offer") the New Notes which offer shall be in the
amount of the Excess Proceeds, on a pro rata basis according to principal
amount, at a purchase price equal to 100% of the Accreted Value thereof plus
Liquidated Damages, if any, to the purchase date, if such purchase is prior to
July 15, 2003, or 100% of the principal amount thereof plus accrued and unpaid
interest and Liquidated Damages, if any, to the purchase date, if such purchase
is on or after July 15, 2003 (subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date), in accordance with the procedures (including prorating in the event of
oversubscription) set forth in the Indenture. To the extent that any portion of
the amount of Net Available Cash remains after compliance with the preceding
sentence and provided that all holders of New Notes have been given the
opportunity to tender their New Notes for purchase in accordance with the
Indenture, the Issuer may use such remaining amount for any purpose permitted by
the Indenture and the amount of Excess Proceeds will be reset to zero.
Within ten business days after the Issuer is obligated to make a Prepayment
Offer as described in the preceding paragraph, the Issuer shall send a written
notice, by first-class mail, to the holders of New Notes, accompanied by such
information regarding the Issuer and its Subsidiaries as the Issuer in good
faith believes will enable such holders to make an informed decision with
respect to such Prepayment Offer. Such notice shall state, among other things,
the purchase price and the purchase date, which shall be, subject to any
contrary requirements of applicable law, a business day no earlier than 30 days
nor later than 60 days from the date such notice is mailed.
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The Issuer will comply, to the extent applicable, with the requirements of
Section 14 (e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of New Notes pursuant to the covenant
described hereunder. To the extent that the provisions of any securities laws or
regulations conflict with provisions of the covenant described hereunder, the
Issuer will comply with the applicable securities laws and regulations and will
not be deemed to have breached its obligations under the covenant described
hereunder by virtue thereof.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES. The Issuer shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist any consensual restriction on the right of any Restricted Subsidiary to
(a) pay dividends, in cash or otherwise, or make any other distributions on or
in respect of its Capital Stock, or pay any Debt or other obligation owed, to
the Issuer or any other Restricted Subsidiary, except that any Debt owed by a
Restricted Subsidiary to the Issuer or any other Restricted Subsidiary may be
subordinated in right of payment to other Debt obligations of such Restricted
Subsidiary, (b) make any loans or advances to the Issuer or any other Restricted
Subsidiary, except that any repayment obligations of the Issuer or any other
Restricted Subsidiary in respect of such loans or advances may be subordinated
in right of payment to other Debt obligations of the Issuer or such other
Restricted Subsidiary or (c) transfer any of its Property to the Issuer or any
other Restricted Subsidiary. The foregoing limitations will not apply (i) with
respect to clauses (a), (b) and (c), to restrictions (A) in effect on the Issue
Date, (B) relating to Debt of a Restricted Subsidiary and existing at the time
it became a Restricted Subsidiary if such restriction was not created in
connection with or in anticipation of the transaction or series of transactions
pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or
was acquired by the Issuer or (C) which result from the Refinancing of Debt
Incurred pursuant to an agreement referred to in the immediately preceding
clause (i) (A) or (B) above or in clause (ii) (A) or (B) below, PROVIDED such
restriction is not materially less favorable to the holders of New Notes than
those under the agreement evidencing the Debt so Refinanced, and (ii) with
respect to clause (c) only, to restrictions (A) relating to Debt that is
permitted to be Incurred and is not prohibited from being secured without also
securing the New Notes or pursuant to the covenants described under
"--Limitation on Debt" and "--Limitation on Liens" that limit the right of the
debtor to dispose of the Property securing such Debt, (B) encumbering Property
at the time such Property was acquired by the Issuer or any Restricted
Subsidiary, so long as such restriction relates solely to the Property so
acquired and was not created in connection with or in anticipation of such
acquisition, (C) resulting from customary provisions restricting subletting or
assignment of leases or customary provisions in other agreements that restrict
assignment of such agreements or rights thereunder, (D) customary restrictions
contained in asset sale or stock purchase agreements limiting the transfer of
such Property pending the closing of such transaction or (E) any restriction
imposed by applicable law.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Issuer shall not, and shall
not permit any Restricted Subsidiary to, directly or indirectly, conduct any
business or enter into or suffer to exist any transaction or series of
transactions (including the purchase, sale, transfer, assignment, lease,
conveyance or exchange of any Property or the rendering of any service) with, or
for the benefit of, any Affiliate of the Issuer (an "Affiliate Transaction"),
unless (a) the terms of such Affiliate Transaction are (i) set forth in writing
and (ii) no less favorable to the Issuer or such Restricted Subsidiary, as the
case may be, than those that could be obtained in a comparable arm's-length
transaction with a Person that is not an Affiliate of the Issuer, (b) if such
Affiliate Transaction involves aggregate payments or value in excess of $2.0
million, the Board of Directors (including a majority of the disinterested
members of the Board of Directors) approves such Affiliate Transaction and, in
its good faith judgment, believes that such Affiliate Transaction complies with
clause (a) (ii) of this paragraph as evidenced by a Board Resolution promptly
delivered to the Trustee and (c) if such Affiliate Transaction involves
aggregate payments or value in excess of $15.0 million, the Issuer obtains a
written opinion from an Independent Appraiser to the effect that the
consideration to be paid or received in connection with such Affiliate
Transaction is fair, from a financial point of view, to the Issuer or such
Restricted Subsidiary, as the case may be.
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Notwithstanding the foregoing limitation, the Issuer or any Restricted
Subsidiary may enter into or suffer to exist the following:
(1) any transaction or series of transactions between the Issuer and one
or more Restricted Subsidiaries or between two or more Restricted
Subsidiaries in the ordinary course of business, PROVIDED that no more than
5% of the total voting power of the Voting Stock (on a fully diluted basis)
of any such Restricted Subsidiary is owned by an Affiliate of the Issuer
(other than a Restricted Subsidiary);
(2) any Restricted Payment permitted to be made pursuant to the covenant
described under "--Limitation on Restricted Payments";
(3) the payment of compensation (including amounts paid pursuant to
employee benefit plans) for the personal services of officers, directors and
employees of the Issuer or any of the Restricted Subsidiaries, so long as
the Board of Directors in good faith shall have approved the terms thereof
and deemed the services theretofore or thereafter to be performed for such
compensation to be fair consideration therefor; and
(4) the payment of reasonable fees to directors of the Issuer or such
Restricted Subsidiary (x) who are not employees of the Issuer or any
Restricted Subsidiary or (y) who are employees of the Issuer or any
Restricted Subsidiary, provided that such fees are consistent with the past
practices of the Issuer or such Restricted Subsidiary.
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS. The Issuer shall not, and
shall not permit any Restricted Subsidiary to, enter into any Sale and Leaseback
Transaction with respect to any Property unless (a) the Issuer or such
Restricted Subsidiary would be entitled to (i) Incur Debt in an amount equal to
the Attributable Debt with respect to such Sale and Leaseback Transaction
pursuant to the covenant described under "--Limitation on Debt" and (ii) create
a Lien on such Property securing such Attributable Debt without securing the New
Notes pursuant to the covenant described under "--Limitation on Liens" and (b)
such Sale and Leaseback Transaction is effected in compliance with the covenant
described under "--Limitation on Asset Sales."
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES. The Board of
Directors may designate any Subsidiary of the Issuer to be an Unrestricted
Subsidiary if (a) the Subsidiary to be so designated does not own any Capital
Stock or Debt of, or own or hold any Lien on any Property of, the Issuer or any
other Restricted Subsidiary, (b) the Subsidiary to be so designated is not
obligated under any Debt, Lien or other obligation that, if in default, would
result (with the passage of time or notice or otherwise) in a default on any
Debt of the Issuer or of any Restricted Subsidiary and (c) either (i) the
Subsidiary to be so designated has total assets of $1,000 or less or (ii) such
designation is effective immediately upon such entity becoming a Subsidiary of
the Issuer. Unless so designated as an Unrestricted Subsidiary, any Person that
becomes a Subsidiary of the Issuer will be classified as a Restricted
Subsidiary; PROVIDED, HOWEVER, that such Subsidiary shall not be designated a
Restricted Subsidiary and shall be automatically classified as an Unrestricted
Subsidiary if either of the requirements set forth in clauses (x) and (y) of the
immediately following paragraph will not be satisfied after giving pro forma
effect to such classification. Except as provided in the first sentence of this
paragraph, no Restricted Subsidiary may be redesignated as an Unrestricted
Subsidiary.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary if, immediately after giving pro forma effect to such
designation, (x) the Issuer could Incur at least $1.00 of additional Debt
pursuant to clause (a) of the first paragraph of the covenant described under
"--Limitation on Debt" and (y) no Default or Event of Default shall have
occurred and be continuing or would result therefrom.
Any such designation or redesignation by the Board of Directors will be
evidenced to the Trustee by filing with the Trustee a Board Resolution giving
effect to such designation or redesignation and an
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Officers' Certificate (a) certifying that such designation or redesignation
complies with the foregoing provisions and (b) giving the effective date of such
designation or redesignation, such filing with the Trustee to occur within 45
days after the end of the fiscal quarter of the Issuer in which such designation
or redesignation is made (or, in the case of a designation or redesignation made
during the last fiscal quarter of the Issuer's fiscal year, within 90 days after
the end of such fiscal year).
LIMITATION ON LINES OF BUSINESS
The Issuer and its Restricted Subsidiaries shall be prohibited from directly
or indirectly engaging to any substantial extent in any line or lines of
business activity other than that which, in the reasonable good faith judgment
of the Board of Directors, is a Related Business.
LIMITATION ON STATUS AS INVESTMENT COMPANY
The Issuer and its Restricted Subsidiaries shall be prohibited from being
required to register as an "investment company" (as that term is defined in the
Investment Company Act of 1940, as amended), or from otherwise becoming subject
to regulation under the Investment Company Act.
MERGER, CONSOLIDATION AND SALE OF PROPERTY
The Issuer shall not merge, consolidate or amalgamate with or into any other
Person (other than a merger of a Wholly Owned Subsidiary into the Issuer) or
sell, transfer, assign, lease, convey or otherwise dispose of all or
substantially all its Property in any one transaction or series of transactions
unless: (a) the Issuer shall be the surviving Person (the "Surviving Person") or
the Surviving Person (if other than the Issuer) formed by such merger,
consolidation or amalgamation or to which such sale, transfer, assignment,
lease, conveyance or disposition is made shall be a corporation organized and
existing under the laws of the United States of America, any State thereof or
the District of Columbia; (b) the Surviving Person (if other than the Issuer)
expressly assumes, by supplemental indenture in form satisfactory to the
Trustee, executed and delivered to the Trustee by such Surviving Person, the due
and punctual payment of the principal of, and premium, if any, and interest on,
all the New Notes, according to their tenor, and the due and punctual
performance and observance of all the covenants and conditions of the Indenture
to be performed by the Issuer; (c) in the case of a sale, transfer, assignment,
lease, conveyance or other disposition of all or substantially all the Property
of the Issuer, such Property shall have been transferred as an entirety or
virtually as an entirety to one Person; (d) immediately before and after giving
effect to such transaction or series of transactions on a pro forma basis (and
treating, for purposes of this clause (d) and clauses (e) and (f) below, any
Debt which becomes, or is anticipated to become, an obligation of the Surviving
Person or any Restricted Subsidiary as a result of such transaction or series of
transactions as having been Incurred by the Surviving Person or such Restricted
Subsidiary at the time of such transaction or series of transactions), no
Default or Event of Default shall have occurred and be continuing; (e)
immediately after giving effect to such transaction or series of transactions on
a pro forma basis, the Issuer or the Surviving Person, as the case may be, would
be able to Incur at least $1.00 of additional Debt under clause (a) of the first
paragraph of the covenant described under "--Certain Covenants--Limitation on
Debt"; (f) immediately after giving effect to such transaction or series of
transactions on a pro forma basis, the Surviving Person shall have a
Consolidated Net Worth in an amount which is not less than the Consolidated Net
Worth of the Issuer immediately prior to such transaction or series of
transactions; and (g) the Issuer shall deliver, or cause to be delivered, to the
Trustee, in form and substance reasonably satisfactory to the Trustee, an
Officers' Certificate and an Opinion of Counsel, each stating that such
transaction and the supplemental indenture, if any, in respect thereto comply
with this covenant and that all conditions precedent herein provided for
relating to such transaction have been satisfied.
The Surviving Person shall succeed to, and be substituted for, and may
exercise every right and power of the Issuer under the Indenture, but the
predecessor Company in the case of a sale, transfer, assignment,
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lease, conveyance or other disposition shall not be released from the obligation
to pay the principal of, and premium, if any, and interest on, the New Notes.
SEC REPORTS
Notwithstanding that the Issuer may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Issuer shall file
with the Commission and provide the Trustee and holders of New Notes with such
annual reports and such information, documents and other reports as are
specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S.
corporation subject to such Sections, such information, documents and reports to
be so filed and provided within 15 days after the times specified for the filing
of such information, documents and reports under such Sections; PROVIDED,
HOWEVER, that the Issuer shall not be so obligated to file such information,
documents and reports with the Commission if the Commission does not permit such
filings. The Issuer shall file with the Commission and provide the Trustee and
holders of New Notes with the information, documents and reports described
herein whether or not the Exchange Offer Registration Statement (as defined
under "Exchange Offer; Registration Rights") has been filed or declared
effective.
EVENTS OF DEFAULT
Events of Default in respect of the New Notes as set forth in the Indenture
include: (a) failure to make the payment of any interest on the New Notes when
the same becomes due and payable, and such failure continues for a period of 30
days; (b) failure to make the payment of any principal of, or premium, if any,
on, any of the New Notes when the same becomes due and payable at its Stated
Maturity, upon acceleration, redemption, optional redemption, required
repurchase or otherwise; (c) failure to comply with the covenant described above
under "--Merger, Consolidation and Sale of Property"; (d) failure to comply with
any other covenant or agreement in the New Notes or in the Indenture (other than
a failure which is the subject of the foregoing clause (a), (b) or (c)) and such
failure continues for 30 days after written notice is given to the Issuer as
provided below; (e) a default under any Debt by the Issuer or any Restricted
Subsidiary which results in acceleration of the maturity of such Debt, or
failure to pay any such Debt at maturity, in an aggregate amount greater than
$5.0 million (the "cross-acceleration provisions"); (f) any judgment or
judgments for the payment of money in an aggregate amount in excess of $5.0
million shall be rendered against the Issuer or any Restricted-Subsidiary and
shall not be waived, satisfied or discharged for any period of 30 consecutive
days during which a stay of enforcement shall not be in effect (the "judgment
default provisions"); (g) certain events involving bankruptcy, insolvency or
reorganization of the Issuer or any Significant Subsidiary (the "bankruptcy
provisions"); and (h) an event of default under a document governing a pledge of
Collateral.
A Default under clause (d) is not an Event of Default until the Trustee or
the holders of not less than 25% in principal amount of the New Notes then
outstanding notify the Issuer of the Default and the Issuer does not cure such
Default within the time specified after receipt of such notice. Such notice must
specify the Default, demand that it be remedied and state that such notice is a
"Notice of Default."
The Issuer shall deliver to the Trustee, within 30 days after the occurrence
thereof, written notice in the form of an Officers' Certificate of any event
which with the giving of notice and the lapse of time would become an Event of
Default, its status and what action the Issuer is taking or proposes to take
with respect thereto.
The Indenture provides that if an Event of Default with respect to the New
Notes (other than an Event of Default resulting from certain events involving
bankruptcy, insolvency or reorganization with respect to the Issuer or any
Significant Subsidiary) shall have occurred and be continuing, the Trustee or
the registered holders of not less than 25% in aggregate principal amount of the
New Notes then outstanding may declare to be immediately due and payable the
Accreted Value of all the New Notes then outstanding (if prior to July 15, 2003)
or the principal amount of all the New Notes then outstanding, plus
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accrued but unpaid interest to the date of acceleration (if on or after July 15,
2003). In case an Event of Default resulting from certain events of bankruptcy,
insolvency or reorganization with respect to the Issuer or any Significant
Subsidiary shall occur, such amount with respect to all the New Notes shall be
due and payable immediately without any declaration or other act on the part of
the Trustee or the holders of the New Notes. After any such acceleration, but
before a judgment or decree based on acceleration is obtained by the Trustee,
the registered holders of a majority in aggregate principal amount of the New
Notes then outstanding may, under certain circumstances, rescind and annul such
acceleration if all Events of Default, other than the nonpayment of accelerated
principal, premium or interest, have been cured or waived as provided in the
Indenture.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the holders of the New Notes,
unless such holders shall have offered to the Trustee reasonable indemnity.
Subject to such provisions for the indemnification of the Trustee, the holders
of a majority in aggregate principal amount of the New Notes then outstanding
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee with respect to the New Notes.
No holder of New Notes will have any right to institute any proceeding with
respect to the Indenture, or for the appointment of a receiver or trustee, or
for any remedy thereunder, unless (a) such holder has previously given to the
Trustee written notice of a continuing Event of Default, (b) the registered
holders of at least 25% in aggregate principal amount of the New Notes then
outstanding have made written request and offered reasonable indemnity to the
Trustee to institute such proceeding as trustee and (c) the Trustee shall not
have received from the registered holders of a majority in aggregate principal
amount of the New Notes then outstanding a direction inconsistent with such
request and shall have failed to institute such proceeding within 60 days.
However, such limitations do not apply to a suit instituted by a holder of any
Discount Note for enforcement of payment of the principal of, and premium, if
any, or interest on, such Discount Note on or after the respective due dates
expressed in such Discount Note.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
of the registered holders of a majority in aggregate principal amount of the New
Notes then outstanding (including consents obtained in connection with a tender
offer or exchange offer for the New Notes) and any past default or compliance
with any provisions may also be waived (except a default in the payment of
principal, premium or interest and certain covenants and provisions of the
Indenture which cannot be amended without the consent of each holder of an
outstanding Discount Note) with the consent of the registered holders of at
least a majority in aggregate principal amount of the New Notes then
outstanding. However, without the consent of each holder of an outstanding
Discount Note, no amendment may, among other things, (a) reduce the amount of
New Notes whose holders must consent to an amendment or waiver, (b) reduce the
accretion rate or reduce the rate of or extend the time for payment of interest
on any Discount Note, (c) reduce the principal of or extend the Stated Maturity
of any Discount Note, (d) make any Discount Note payable in money other than
that stated in the Discount Note, (e) impair the right of any holder of the New
Notes to institute suit for the enforcement of any payment on or with respect to
such holder's New Notes, (f) subordinate the New Notes to any other obligation
of the Issuer, (g) release any security interest that may have been granted in
favor of the holders of the New Notes (except in accordance with the existing
Collateral release provisions of the Indenture), (h) reduce the premium payable
upon the redemption or repurchase of any Discount Note as described under
"--Optional Redemption," or "-- Repurchase at the Option of Holders Upon a
Change of Control," or (i) at any time after a Change of Control or Asset Sale
has occurred, change the time at which the Change of Control Offer or any
Prepayment Offer relating thereto must be made or at which the New Notes must be
repurchased pursuant to such Change of Control Offer or Prepayment Offer.
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Without the consent of any holder of the New Notes, the Issuer and the
Trustee may amend the Indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of the
obligations of the Issuer under the Indenture, to provide for uncertificated New
Notes in addition to or in place of certificated New Notes (provided that the
uncertificated New Notes are issued in registered form for purposes of Section
163(f) of the Code, or in a manner such that the uncertificated New Notes are
described in Section 163(f) (2) (B) of the Code), to secure the New Notes, to
add to the covenants of the Issuer for the benefit of the holders of the New
Notes or to surrender any right or power conferred upon the Issuer, to make any
change that does not adversely affect the rights of any holder of the New Notes,
or to comply with any requirement of the Commission in connection with the
qualification of the Indenture under the Trust Indenture Act.
The consent of the holders of the New Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Issuer is
required to mail to each registered holder of the New Notes at such holder's
address appearing in the Security Register a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the New
Notes, or any defect therein, will not impair or affect the validity of the
amendment.
DEFEASANCE
The Issuer at any time may terminate all its obligations under or relating
to the New Notes, the Collateral and the Indenture ("legal defeasance"), except
for certain obligations, including those respecting the defeasance trust and
obligations to register the transfer or exchange of the New Notes, to replace
mutilated, destroyed, lost or stolen New Notes and to maintain a registrar and
paying agent in respect of the New Notes. The Issuer at any time may terminate
its obligations under the covenants described under "--Repurchase at the Option
of Holders Upon a Change of Control" and "--Certain Covenants," the operation of
the cross-acceleration provisions, the judgment default provisions, the
bankruptcy provisions with respect to Significant Subsidiaries, the Collateral
cross-default provisions described under "--Events of Default" above and the
limitations contained in clauses (d) (with respect to the covenants described
under "--Certain Covenants"), (e) and (f) under the first paragraph of
"--Merger, Consolidation and Sale of Property" above ("covenant defeasance").
Upon a covenant defeasance, any Collateral would be released. The Issuer may
exercise its legal defeasance option notwithstanding its prior exercise of its
covenant defeasance option.
If the Issuer exercises its legal defeasance option, payment of the New
Notes may not be accelerated because of an Event of Default with respect
thereto. If the Issuer exercises its covenant defeasance option, payment of the
New Notes may not be accelerated because of an Event of Default specified in
clause (d) (with respect to the covenants described under "--Certain Covenants",
(e), (f), (g) (with respect only to Significant Subsidiaries) or (h) under
"--Events of Default" above or because of the failure of the Issuer to comply
with clauses (d) (with respect to the covenants described under "--Certain
Covenants"), (e) and (f) under the first paragraph of "--Merger, Consolidation
and Sale of Property" above.
In order to exercise either defeasance option, the Issuer must, among other
things, irrevocably deposit in trust (the "defeasance trust") with the Trustee
money or U.S. Government Obligations for the payment of principal and interest
on the New Notes to maturity or redemption, as the case may be, and must comply
with certain other conditions, including delivery to the Trustee of an Opinion
of Counsel to the effect that holders of the New Notes will not recognize
income, gain or loss for United States federal income tax purposes as a result
of such deposit and defeasance and will be subject to United States federal
income tax on the same amounts and in the same manner and at the same times as
would have been the case if such deposit and defeasance had not occurred (and,
in the case of legal defeasance only, such Opinion of
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Counsel must be based on a ruling of the Internal Revenue Service ("IRS") or
other change in applicable United States federal income tax law).
GOVERNING LAW
The Indenture and the New Notes are governed by the internal laws of the
State of New York without reference to principles of conflicts of law.
THE TRUSTEE
United States Trust Company of New York is the Trustee under the Indenture.
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such of the rights and powers vested in it under the Indenture and use
the same degree of care and skill in its exercise as a prudent Person would
exercise under the circumstances in the conduct of such Person's own affairs.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms as well as any other capitalized terms used herein for which no
definition is provided.
"ACCRETED VALUE" means, as of any date of determination prior to July 15,
2003, the sum of (a) the initial offering price of each Discount Note and (b)
the portion of the excess of the principal amount of each Discount Note over
such initial offering price which shall have been accreted thereon through such
date, such amount to be so accreted on a daily basis at the rate of 12 3/4% per
annum of the initial offering price of the New Notes, compounded semi-annually
on each January 15 and July 15, commencing January 15, 1999, from the date of
issuance of the New Notes through the date of determination, computed on the
basis of a 360-day year of twelve 30-day months.
"ADDITIONAL ASSETS" means (a) any Property (other than cash, cash
equivalents and securities) to be owned by the Issuer or any Restricted
Subsidiary and used in a Related Business; (b) the costs of improving or
developing any Property owned by the Issuer or a Restricted Subsidiary which is
used in a Related Business; or (c) Capital Stock of a Person that becomes a
Restricted Subsidiary as a result of the acquisition of such Capital Stock by
the Issuer or another Restricted Subsidiary from any Person other than an
Affiliate of the Issuer; PROVIDED, HOWEVER, that, in the case of clause (c),
such Restricted Subsidiary is primarily engaged in a Related Business.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the covenant described under "--Certain Covenants--Limitation on
Transactions with Affiliates," "--Limitation on Asset Sales" and the definition
of "Additional Assets" only, "Affiliate" shall also mean any beneficial owner of
shares representing 10% or more of the total voting power of the Voting Stock
(on a fully diluted basis) of the Issuer or of rights or warrants to purchase
such Voting Stock (whether or not currently exercisable) and any Person who
would be an Affiliate of any such beneficial owner pursuant to the first
sentence hereof.
"ASSET SALE" means any sale, lease, transfer, issuance or other disposition
(or series of related sales, leases, transfers, issuances or dispositions)
(other than the grant of a security interest) by the Issuer or any Restricted
Subsidiary, including any disposition by means of a merger, consolidation or
similar transaction
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(each referred to for the purposes of this definition as a "disposition"), of
(a) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares) or (b) any other assets of the Issuer or any
Restricted Subsidiary outside of the ordinary course of business of the Issuer
or such Restricted Subsidiary (other than, in the case of clauses (a) and (b)
above, (i) any disposition by a Restricted Subsidiary to the Issuer or by the
Issuer or a Restricted Subsidiary to a Restricted Subsidiary, (ii) for purposes
of the covenant described under "--Certain Covenants--Limitation on Asset Sales"
only, any disposition that constitutes a Permitted Investment or Restricted
Payment permitted by the covenant described under "--Certain
Covenants--Limitation on Restricted Payments," (iii) any disposition effected in
compliance with the first paragraph of the covenant described under "--Merger,
Consolidation and Sale of Property," (iv) any disposition of Property or
equipment that has become obsolete or otherwise unsuitable for use in connection
with the business of the Issuer or such Restricted Subsidiary or (v) any
disposition or series of related dispositions of assets having a Fair Market
Value and sale price of less than $500,000).
"ATTRIBUTABLE DEBT" in respect of a Sale and Leaseback Transaction means, at
any date of determination, (a) if such Sale and Leaseback Transaction is a
Capital Lease Obligation, the amount of Debt represented thereby according to
the definition of "Capital Lease Obligation" and (b) in all other instances, the
present value (discounted at the interest rate borne by the New Notes (whether
or not cash interest is then accruing), compounded annually) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale and Leaseback Transaction (including any period for
which such lease has been extended).
"AVERAGE LIFE" means, as of any date of determination, with respect to any
Debt or Preferred Stock, the quotient obtained by dividing (a) the sum of the
product of the numbers of years (rounded to the nearest one-twelfth of one year)
from the date of determination to the dates of each successive scheduled
principal payment of such Debt or redemption or similar payment with respect to
such Preferred Stock multiplied by the amount of such payment by (b) the sum of
all such payments.
"BOARD OF DIRECTORS" means the Board of Directors of the Issuer or any
committee thereof duly authorized to act on behalf of such Board.
"CAPITAL LEASE OBLIGATIONS" means any obligation under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP; and the amount of Debt represented by such obligation shall be the
capitalized amount of such obligations determined in accordance with GAAP; and
the Stated Maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty. For purposes of
"--Certain Covenants--Limitation on Liens," a Capital Lease Obligation shall be
deemed secured by a Lien on the Property being leased.
"CAPITAL STOCK" means, with respect to any Person, any shares or other
equivalents (however designated) of corporate stock, partnership interests,
membership interests in limited liability companies or any other participations,
rights, warrants, options or other interests in the nature of an equity interest
in such Person, including Preferred Stock, but excluding any debt security
convertible or exchangeable into such equity interest.
"CAPITAL STOCK SALE PROCEEDS" means the aggregate cash proceeds received by
the Issuer from the issuance or sale (other than to a Subsidiary of the Issuer
or an employee stock ownership plan or trust established by the Issuer or any of
its Subsidiaries for the benefit of their employees) by the Issuer of any class
of its Capital Stock (other than Disqualified Stock) after the Issue Date, net
of attorneys' fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"CHANGE OF CONTROL" means the occurrence of any of the following events:
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(a) if (i) any "Person" or "group" (as such terms are used in Sections
13(d) (3) and 14(d) (2) of the Exchange Act or any successor provisions to
either of the foregoing) becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act, except that a Person will be deemed to have
"beneficial ownership" of all shares that any such Person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of 35% or more of the voting power
of the Voting Stock of the Issuer and (ii) the Permitted Holders are
"beneficial owners" (as defined in Rule 13d-3 under the Exchange Act except
that a Person will be deemed to have "beneficial ownership" of all shares
that any such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, in the aggregate of a lesser percentage of the total voting
power of all classes of the Voting Stock of the Issuer than such other
Person or group referred to in clause (i) (for purposes of this clause (a),
such Person or group, and the Permitted Holders, shall be deemed to
beneficially own any Voting Stock of a corporation (the "specified
corporation") held by any other corporation (the "parent corporation") so
long as such Person or group beneficially owns, directly or indirectly, in
the aggregate a majority of the voting power of the Voting Stock of such
parent corporation); or
(b) the sale, transfer, assignment, lease, conveyance or other
disposition, directly or indirectly of all or substantially all the assets
of the Issuer and the Restricted Subsidiaries, considered as a whole (other
than a disposition of such assets as an entirety or virtually as an entirety
to a Wholly Owned Subsidiary) shall have occurred, or the Issuer merges,
consolidates or amalgamates with or into any other Person or any other
Person merges, consolidates or amalgamates with or into the Issuer, in any
such event pursuant to a transaction in which the outstanding Voting Stock
of the Issuer is reclassified into or exchanged for cash, securities or
other Property, other than any such transaction where (i) the outstanding
Voting Stock of the Issuer is reclassified into or exchanged for Voting
Stock of the surviving corporation and (ii) the holders of the Voting Stock
of the Issuer immediately prior to such transaction own, directly or
indirectly, not less than a majority of the Voting Stock of the surviving
corporation immediately after such transaction and in substantially the same
proportion as before the transaction; or
(c) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with
any new directors whose election or appointment by such Board or whose
nomination for election by the shareholders of the Issuer was approved by a
vote of 66 2/3% of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute
a majority of the Board of Directors then in office; or
(d) the shareholders of the Issuer shall have approved any plan of
liquidation or dissolution of the Issuer.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONSOLIDATED COVERAGE RATIO" means, as of any date of determination, the
ratio of (a) the aggregate amount of EBITDA for the most recent four consecutive
fiscal quarters ending at least 45 days prior to such determination date to (b)
Consolidated Fixed Charges for such four fiscal quarters; PROVIDED, HOWEVER,
that (i) if the Issuer or any Restricted Subsidiary has Incurred any Debt since
the beginning of such period that remains outstanding or if the transaction
giving rise to the need to calculate the Consolidated Coverage Ratio is an
Incurrence of Debt, or both, Consolidated Fixed Charges for such period shall be
calculated after giving effect on a pro forma basis to such Debt as if such Debt
had been Incurred on the first day of such period and the discharge of any other
Debt repaid, repurchased, defeased or otherwise discharged with the proceeds of
such new Debt as if such discharge had occurred on the first day of such period,
(ii) if since the beginning of such period the Issuer or any Restricted
Subsidiary shall have made any Asset Sale or if the transaction giving rise to
the need to calculate the Consolidated Coverage Ratio is an Asset Sale, or both,
EBITDA for such period shall be reduced by an amount equal to the EBITDA (if
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positive) directly attributable to the Property which is the subject of such
Asset Sale for such period, or increased by an amount equal to the EBITDA (if
negative) directly attributable thereto for such period, in either case as if
such Asset Sale had occurred on the first day of such period, and Consolidated
Fixed Charges for such period shall be reduced by an amount equal to the
Consolidated Fixed Charges directly attributable to any Debt of the Issuer or
any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged
with respect to the Issuer and its continuing Restricted Subsidiaries in
connection with such Asset Sale, as if such Asset Sale had occurred on the first
day of such period (or, if the Capital Stock of any Restricted Subsidiary is
sold, by an amount equal to the Consolidated Fixed Charges for such period
directly attributable to the Debt of such Restricted Subsidiary to the extent
the Issuer and its continuing Restricted Subsidiaries are no longer liable for
such Debt after such sale), (iii) if since the beginning of such period the
Issuer shall have consummated a Public Equity Offering following which there is
a Public Market, Consolidated Fixed Charges for such period shall be reduced by
an amount equal to the Consolidated Fixed Charges directly attributable to any
Debt of the Issuer or any Restricted Subsidiary repaid, repurchased, defeased or
otherwise discharged with respect to the Issuer and its Restricted Subsidiaries
in connection with such Public Equity Offering for such period, (iv) if since
the beginning of such period the Issuer or any Restricted Subsidiary (by merger
or otherwise) shall have made an Investment in any Restricted Subsidiary (or any
Person which becomes a Restricted Subsidiary) or an acquisition of Property,
including any acquisition of Property occurring in connection with a transaction
causing a calculation to be made hereunder, which constitutes all or
substantially all of an operating unit of a business, EBITDA and Consolidated
Fixed Charges for such period shall be calculated after giving pro forma effect
thereto (including the Incurrence of any Debt) as if such Investment or
acquisition occurred on the first day of such period, (v) if since the beginning
of such period any Person that subsequently became a Restricted Subsidiary or
was merged with or into the Issuer or any Restricted Subsidiary since the
beginning of such period shall have made any Asset Sale, Investment or
acquisition of Property that would have required an adjustment pursuant to
clause (ii), (iii) or (iv) above if made by the Issuer or a Restricted
Subsidiary during such period, EBITDA and Consolidated Fixed Charges for such
period shall be calculated after giving pro forma effect thereto as if such
Asset Sale, Investment or acquisition of Property occurred on the first day of
such period and (vi) if since the beginning of such period any Restricted
Subsidiary shall have obtained relief from any limitation on the ability of such
Restricted Subsidiary to pay dividends to the Issuer, EBITDA and Consolidated
Fixed Charges for such period shall be calculated after giving pro forma effect
thereto as if the ability of such Restricted Subsidiary to pay dividends to the
Issuer had not been so limited from the first day of such period. For purposes
of this definition, pro forma calculations shall be determined in good faith by
a responsible financial or accounting Officer of the Issuer and as further
contemplated by the definition of the term "pro forma." If any Debt bears a
floating rate of interest and is being given pro forma effect, the interest
expense on such Debt shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any Interest Rate Agreement applicable to such Debt if such Interest
Rate Agreement has a remaining term in excess of 12 months).
"CONSOLIDATED FIXED CHARGES" means, for any period, the sum (without
duplication) of (a) Consolidated Interest Expense for such period plus (b) all
Preferred Stock Dividends (other than to the Issuer or a Wholly Owned
Subsidiary, and other than Redeemable Dividends) paid, accrued, declared or
accumulated during such period.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the total interest
expense of the Issuer and its consolidated Restricted Subsidiaries, plus, to the
extent not included in such total interest expense, and to the extent incurred
by the Issuer or its Restricted Subsidiaries, (a) interest expense attributable
to capital leases, (b) amortization of debt discount and debt issuance cost,
including commitment fees, (c) capitalized interest, (d) noncash interest
expenses, (e) to the extent required under GAAP to be reflected as interest
expense in the consolidated financial statements of the Issuer, commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers acceptance financing, (f) to the extent required under GAAP to be
reflected as an expense in the consolidated financial statements of the Issuer,
net costs
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associated with Hedging Obligations (including amortization of fees), (g)
Redeemable Dividends, (h) interest incurred in connection with Investments in
discontinued operations, (i) interest accruing on any Debt of any other Person
to the extent such Debt is Guaranteed by the Issuer or any of its Restricted
Subsidiaries and (j) the cash contributions to any employee stock ownership plan
or similar trust to the extent such contributions are used by such plan or trust
to pay interest or fees to any Person (other than the Issuer) in connection with
Debt Incurred by such plan or trust.
"CONSOLIDATED NET INCOME" means, for any period, the net income (loss) of
the Issuer and its consolidated Subsidiaries, less the aggregate amount of
recurring expenditures made by the Issuer and its consolidated Subsidiaries
during such period with respect to environmental matters which were not deducted
in determining such net income (loss) as a result of the adoption of American
Institute of Certified Public Accountants Statement of Position 96-1,
"Environmental Remediation Liabilities"; PROVIDED, HOWEVER, that there shall not
be included in such Consolidated Net Income (a) any net income (loss) of any
Person (other than the Issuer) if such Person is not a Restricted Subsidiary,
except that (i) subject to the exclusion contained in clause (d) below, the
Issuer's equity in the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
distributed by such Person during such period to the Issuer or a Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution to a Restricted Subsidiary, to the limitations
contained in clause (c) below) and (ii) the Issuer's equity in a net loss of any
such Person other than an Unrestricted Subsidiary for such period shall be
included in determining such Consolidated Net Income to the extent of the
Issuer's obligation to fund such net loss in cash, (b) any net income (loss) of
any Person acquired by the Issuer or any of its consolidated Subsidiaries in a
pooling of interests transaction for any period prior to the date of such
acquisition, (c) any net income (but not loss) of any Restricted Subsidiary, to
the extent that the payment of dividends or the making of distributions by such
Restricted Subsidiary to the Issuer is not at the time permitted, directly or
indirectly, without prior approval (that has not been obtained), pursuant to the
terms of its charter or any agreement, instrument (other than agreements and
instruments limiting dividends or distributions by the Company, and not any
other Restricted Subsidiary, to the stockholders of the Company or such other
Restricted Subsidiary) or any governmental regulation applicable to such
Restricted Subsidiary, (d) any gain (loss) realized upon the sale or other
disposition of any Property of the Issuer or any of its consolidated
Subsidiaries (including pursuant to any Sale and Leaseback Transaction) which is
not sold or otherwise disposed of in the ordinary course of business, (e) any
extraordinary gain or loss and (f) the cumulative effect of a change in
accounting principles. Notwithstanding the foregoing, for the purposes of the
covenant described under "--Certain Covenants--Limitation on Restricted
Payments" only, there shall be excluded from Consolidated Net Income any
dividends, repayments of loans or advances or other transfers of assets from
Unrestricted Subsidiaries to the Issuer or a Restricted Subsidiary to the extent
such dividends, repayments or transfers increase the amount of Restricted
Payments permitted under such covenant pursuant to clause (c) (iv) thereof.
"CONSOLIDATED NET WORTH" means the total of the amounts shown on the
consolidated balance sheet of the Issuer and its Restricted Subsidiaries as of
the end of the most recent fiscal quarter of the Issuer ending at least 45 days
prior to the taking of any action for the purpose of which the determination is
being made, as (a) the par or stated value of all outstanding Capital Stock of
the Issuer plus (b) paid-in capital or capital surplus relating to such Capital
Stock plus (c) any retained earnings or earned surplus less (i) any accumulated
deficit and (ii) any amounts attributable to Disqualified Stock.
"CREDIT FACILITY" means one or more debt facilities with banks or other
institutional lenders (including pursuant to (a) the Loan Agreement dated April
14, 1997, as amended, by and among the Company, certain subsidiaries of the
Company named therein, BankBoston, N.A. and the other Banks party thereto, and
BankBoston, N.A. as agent for such Banks, (b) the Loan Agreement dated October
20, 1997, as amended, by and among GfE, certain of its subsidiaries and
BankBoston, N.A., Frankfurt Branch and (c) each of the Loan Documents (as
defined in such Loan Agreements) relating to such Loan Agreements)
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providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special purpose
entities formed to borrow from such lenders against such receivables) or letters
of credit, foreign exchange, bankers' acceptances or similar financial
arrangements, in each case as amended, restated, supplemented or modified and in
effect from time to time, together with any extensions, revisions, refinancings
or replacements thereof by a lender or syndicate of lenders.
"CURRENCY EXCHANGE PROTECTION AGREEMENT" means, in respect of a Person, any
foreign exchange contract, currency swap agreement, currency option or other
similar agreement or arrangement designed to protect such Person against
fluctuations in currency exchange rates.
"DEBT" means, with respect to any Person on any date of determination
(without duplication), (a) the principal of and premium (if any) in respect of
(i) debt of such Person for money borrowed and (ii) debt evidenced by New Notes,
debentures, bonds or other similar instruments for the payment of which such
Person is responsible or liable; (b) all Capital Lease Obligations of such
Person and all Attributable Debt in aspect of Sale and Leaseback Transactions
entered into by such Person; (c) all obligations of such Person issued or
assumed as the deferred purchase price of Property, all conditional sale
obligations of such Person and all obligations of such Person under any title
retention agreement (but excluding trade accounts payable and customer advance
payments or deposits arising in the ordinary course of business); (d) all
obligations of such Person for the reimbursement of any obligor on any letter of
credit, banker's acceptance or similar credit transaction (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in (a) through (c) above) entered into in the ordinary
course of business of such Person to the extent such letters of credit are not
drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no
later than the third Business Day following receipt by such Person of a demand
for reimbursement following payment on the letter of credit); (e) the amount of
all obligations of such Person with respect to the redemption, repayment or
other repurchase of any Disqualified Stock or, with respect to any Subsidiary of
such Person, any Preferred Stock (but excluding, in each case, any accrued
dividends); (f) all obligations of the type referred to in clauses (a) through
(e) of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee; (g) all obligations of the type referred to in clauses (a) through
(f) of other Persons secured by any Lien on any Property of such Person (whether
or not such obligation is assumed by such Person), the amount of such obligation
being deemed to be the lesser of the value of such Property or the amount of the
obligation so secured; and (h) to the extent not otherwise included in this
definition, Hedging Obligations of such Person. The amount of Debt of any Person
at any date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability, upon the occurrence of
the contingency giving rise to the obligation, of any contingent obligations at
such date; PROVIDED that the amount outstanding at any time of any Debt issued
with OID is the face amount of such Debt less the remaining unamortized portion
of the OID of such Debt at such time as determined in accordance with GAAP.
"DEFAULT" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"DISQUALIFIED STOCK" means, with respect to any Person, Redeemable Stock of
such Person as to which (a) the maturity, (b) mandatory redemption or (c)
redemption, conversion or exchange at the option of the holder thereof occurs,
or may occur, on or prior to the first anniversary of the Stated Maturity of the
New Notes; PROVIDED, HOWEVER, that Redeemable Stock of such Person that would
not otherwise be characterized as Disqualified Stock under this definition shall
not constitute Disqualified Stock if such Redeemable Stock is convertible or
exchangeable into Debt or Disqualified Stock solely at the option of the issuer
thereof.
"EBITDA" means, for any period, an amount equal to, for the Issuer and its
consolidated Restricted Subsidiaries, (a) the sum of Consolidated Net Income for
such period, plus the following to the extent
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reducing Consolidated Net Income for such period: (i) the provision for taxes
based on income or profits or utilized in computing net loss, (ii) Consolidated
Interest Expense, (iii) depreciation, (iv) amortization of intangibles and (v)
any other noncash items (other than any such non-cash item to the extent that it
represents an accrual of or reserve for cash expenditures in any future period),
minus (b) all non-cash items increasing Consolidated Net Income for such period
(other than any such non-cash item to the extent that it will result in the
receipt of cash payments in any future period). Notwithstanding the foregoing,
the provision for taxes based on the income or profits of, and the depreciation
and amortization of, a Restricted Subsidiary shall be added to Consolidated Net
Income to compute EBITDA only to the extent (and in the same proportion) that
the net income of such Restricted Subsidiary was included in calculating
Consolidated Net Income and only if a corresponding amount would be permitted at
the date of determination to be dividended to the Issuer by such Restricted
Subsidiary without prior approval (that has not been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its stockholders.
"EVENT OF DEFAULT" has the meaning set forth under "--Events of Default."
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FAIR MARKET VALUE" means, with respect to any Property, the price which
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value will be
determined, except as otherwise provided, (a) if such Property has a Fair Market
Value of less than $5.0 million, by any Officer of the Issuer or (b) if such
Property has a Fair Market Value in excess of $5.0 million, by a majority of the
Board of Directors and evidenced by a Board Resolution, dated within 30 days of
the relevant transaction, delivered to the Trustee.
"GAAP" means United States generally accepted accounting principles as in
effect on the Issue Date, including those set forth (a) in the opinions and
pronouncements of the Accounting Principles Board of the American institute of
Certified Public Accountants, (b) in the statements and pronouncements of the
Financial Accounting Standards Board, (c) in such other statements by such other
entity as approved by a significant segment of the accounting profession and (d)
the rules and regulations of the Commission governing the inclusion of financial
statements (including pro forma financial statements) in periodic reports
required to be filed pursuant to Section 13 of the Exchange Act, including
opinions and pronouncements in staff accounting bulletins and similar written
statements from the accounting staff of the Commission.
"GFE" means GfE Gesellschaft fur Elektrometallurgie mbH.
"GUARANTEE" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Debt of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (a) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt of such other Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (b) entered into for the purpose of assuring in any
other manner the obligee against loss in respect thereof (in whole or in part);
PROVIDED, HOWEVER, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"HEDGING OBLIGATION" of any Person means any obligation of such Person
pursuant to any Interest Rate Agreement, Currency Exchange Protection Agreement
or any other similar agreement or arrangement.
"INCUR" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by merger, conversion, exchange or otherwise), extend,
assume, Guarantee or become liable in respect of such Debt or other obligation
or the recording, as required pursuant to GAAP or otherwise, of any such
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Debt or obligation on the balance sheet of such Person (and "Incurrence" and
"Incurred" shall have meanings correlative to the foregoing); PROVIDED, HOWEVER,
that a change in GAAP that results in an obligation of such Person that exists
at such time, and is not theretofore classified as Debt, becoming Debt shall not
be deemed an Incurrence of such Debt; PROVIDED FURTHER, HOWEVER, that solely for
purposes of determining compliance with "--Certain Covenants--Limitation on
Debt," amortization of debt discount shall not be deemed to be the Incurrence of
Debt, PROVIDED that in the case of Debt sold at a discount, the amount of such
Debt Incurred shall at all times be the aggregate principal amount at Stated
Maturity.
"INDEPENDENT APPRAISER" means an investment banking firm of national
standing or any third party appraiser of national standing, provided that such
firm or appraiser is not an Affiliate of the Issuer.
"INTEREST RATE AGREEMENT" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or other
similar agreement designed to protect against fluctuations in interest rates.
"INVESTMENT" by any Person means any direct or indirect loan (other than
advances to customers in the ordinary course of business that are recorded as
accounts receivable on the balance sheet of such Person), advance or other
extension of credit or capital contribution (by means of transfers of cash or
other Property to others or payments for Property or services for the account or
use of others, or otherwise) to, or Incurrence of a Guarantee of any obligation
of, or purchase or acquisition of Capita Stock, bonds, notes, debentures or
other securities or evidence of Debt issued by, any other Person. For purposes
of the covenants described under "--Certain Covenants--Limitation on Restricted
Payments," "--Designation of Restricted and Unrestricted Subsidiaries" and the
definition of "Restricted Payment," "Investment" shall include the portion
(proportionate to the Issuer's equity interest in such Subsidiary) of the Fair
Market Value of the net assets of any Subsidiary of the Issuer at the time that
such Subsidiary is designated an Unrestricted Subsidiary; PROVIDED, HOWEVER,
that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the
Issuer shall be deemed to continue to have a permanent "Investment" in an
Unrestricted Subsidiary equal to an amount (if positive) equal to (a) the
Issuer's "Investment" in such Subsidiary at the time of such redesignation less
(b) the portion (proportionate to the Issuer's equity interest in such
Subsidiary) of the Fair Market Value of the net assets of such Subsidiary at the
time of such redesignation. In determining the amount of any Investment made by
transfer of any Property other than cash, such Property shall be valued at its
Fair Market Value at the time of such Investment.
"ISSUE DATE" means the date on which the New Notes are initially issued.
"LIEN" means, with respect to any Property of any Person, any mortgage or
deed of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than any easement not materially
impairing usefulness or marketability), encumbrance, preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such Property (including any Capital Lease
Obligation, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing or any Sale and
Leaseback Transaction).
"LSM" means London & Scandinavian Metallurgical Co., Limited.
"MOODY'S" means Moody's Investors Service, Inc. or any successor to the
rating agency business thereof.
"NET AVAILABLE CASH" from any Asset Sale means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Debt or other obligations relating to the
Property that is the subject of such Asset Sale or received in any other noncash
form), in each case net of (a) all legal, title and recording tax expenses,
commissions and other fees and expenses incurred, and all United States federal,
state, provincial, foreign and local taxes required to be accrued as a liability
under GAAP, as a
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consequence of such Asset Sale, whether paid or payable, (b) all payments made
on any Debt which is secured by any Property subject to such Asset Sale, in
accordance with the terms of any Lien upon or other security agreement of any
kind with respect to such Property, or which must by its terms, or in order to
obtain a necessary consent to such Asset Sale, or by applicable law, be repaid
out of the proceeds from such Asset Sale, (c) all distributions and other
payments required to be made to minority interest holders in Subsidiaries or
joint ventures as a result of such Asset Sale, and (d) the deduction of
appropriate amounts provided by the seller as a reserve, in accordance with
GAAP, against any liabilities associated with the Property disposed in such
Asset Sale and retained by the Issuer or any Restricted Subsidiary after such
Asset Sale.
"OFFICER" means the Chairman, President and Chief Executive Officer, the
Vice President, Finance and Chief Financial Officer or any Vice President of the
Issuer.
"OFFICERS' CERTIFICATE" means a certificate signed by two Officers of the
Issuer, at least one of whom shall be the principal executive officer or
principal financial officer of the Issuer, and delivered to the Trustee.
"OPINION OF COUNSEL" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Issuer or the Trustee.
"PERMITTED HOLDERS" means (i) Safeguard International Fund, L.P., State of
Michigan Retirement Systems -- Safeguard Limited Partnership, Safeguard
Scientifics (Delaware), Inc., Dr. Heinz Schimmelbusch, Arthur R. Spector and
Michael Holly, or any Person of which any of the foregoing "beneficially owns"
(as defined in Rules 13d-3 and 13d-5 under the Exchange Act) voting securities
representing at least 51% of the voting power of all classes of Voting Stock of
such Person (exclusive of any matters as to which class voting rights exist) or
any Person which "beneficially owns" (as defined above) voting securities
representing at least 51% of the voting power of all classes of Voting Stock of
any of the foregoing (exclusive of any matters as to which class voting rights
exist); and (ii) any Person who beneficially owns Voting Stock of the Issuer on
the Issue Date so long as the Permitted Holders specified under clause (i) above
beneficially own in the aggregate at least 10% of the Voting Stock of the
Issuer.
"PERMITTED INVESTMENT" means any Investment by the Issuer or a Restricted
Subsidiary in (a) the Issuer, any Restricted Subsidiary or any Person that will,
upon the making of such Investment, become a Restricted Subsidiary, PROVIDED
that the primary business of such Restricted Subsidiary is a Related Business;
(b) any Person if as a result of such Investment such Person is merged or
consolidated with or into, or transfers or conveys all or substantially all its
Property to, the Issuer or a Restricted Subsidiary, PROVIDED that such Person's
primary business is a Related Business; (c) Temporary Cash Investments; (d)
receivables owing to the Issuer or a Restricted Subsidiary, if created or
acquired in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms; PROVIDED, HOWEVER, that such trade terms
may include such concessionary trade terms as the Issuer or such Restricted
Subsidiary deems reasonable under the circumstances; (e) payroll, travel and
similar advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses for accounting purposes and that are made
in the ordinary course of business; (f) loans and advances to employees made in
the ordinary course of business consistent with past practices of the Issuer or
such Restricted Subsidiary, as the case may be, PROVIDED that such loans and
advances do not exceed $2.5 million at any one time outstanding; (g) stock,
obligations or other securities received in settlement of debts created in the
ordinary course of business and owing to the Issuer or a Restricted Subsidiary
or in satisfaction of judgments; and (h) any Person to the extent such
Investment represents the non-cash portion of the consideration received in
connection with an Asset Sale consummated in compliance with the covenant
described under "--Certain Covenants--Limitation on Asset Sales."
"PERMITTED LIENS" means:
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(a) Liens to secure Debt permitted to be Incurred under clause (a) of
the first paragraph or clause (a), (c) or (d) of the second paragraph of the
covenant described under "--Certain Covenants--Limitation on Debt";
(b) Liens to secure Debt permitted to be Incurred under clause (e) of
the second paragraph of the covenant described under "--Certain
Covenants--Limitation on Debt," PROVIDED that any such Lien may not extend
to any Property of the Issuer or any Restricted Subsidiary, other than the
Property acquired, constructed or leased with the proceeds of such Debt and
any improvements or accessions to such Property;
(c) Liens for taxes, assessments or governmental charges or levies on
the Property of the Issuer or any Restricted Subsidiary if the same shall
not at the time be delinquent or thereafter can be paid without penalty, or
are being contested in good faith and by appropriate proceedings promptly
instituted and diligently concluded, PROVIDED that any reserve or other
appropriate provision that shall be required in conformity with GAAP shall
have been made therefor;
(d) Liens imposed by law, such as carriers', warehousemen's and
mechanics' Liens, on the Property of the Issuer or any Restricted Subsidiary
arising in the ordinary course of business and securing payment of
obligations which are not more than 60 days past due or are being contested
in good faith and by appropriate proceedings;
(e) Liens on the Property of the Issuer or any Restricted Subsidiary
Incurred in the ordinary course of business to secure performance of
obligations with respect to statutory or regulatory requirements-performance
or return-of-money bonds, surety bonds or other obligations of a like nature
and Incurred in a manner consistent with industry practice, in each case
which are not incurred in connection with the borrowing of money, the
obtaining of advances or credit or the payment of the deferred purchase
price of Property and which do not in the aggregate impair in any material
respect the use of Property in the operation of the business of the Issuer
and the Restricted Subsidiaries taken as a whole;
(f) Liens on Property at the time the Issuer or any Restricted
Subsidiary acquired such Property, including any acquisition by means of a
merger or consolidation with or into the Issuer or any Restricted
Subsidiary; PROVIDED, HOWEVER, that any such Lien may not extend to any
other Property of the Issuer or any Restricted Subsidiary; PROVIDED FURTHER,
HOWEVER, that such Liens shall not have been Incurred in anticipation or in
connection with the transaction or series of transactions pursuant to which
such Property was acquired by the Issuer or any Restricted Subsidiary;
(g) Liens on the Property of a Person at the time such Person becomes a
Restricted Subsidiary; PROVIDED, HOWEVER, that any such Lien may not extend
to any other Property of the Issuer or any other Restricted Subsidiary which
is not a direct Subsidiary of such Person; PROVIDED FURTHER, HOWEVER, that
any such Lien was not Incurred in anticipation of or in connection with the
transaction or series of transactions pursuant to which such Person became a
Restricted Subsidiary;
(h) pledges or deposits by the Issuer or any Restricted Subsidiary under
workmen's compensation laws, unemployment insurance laws or similar
legislation, or good faith deposits in connection with bids, tenders,
contracts (other than for the payment of Debt) or leases to which the Issuer
or any Restricted Subsidiary is party, or deposits to secure public or
statutory obligations of the Issuer, or deposits for the payment of rent, in
each case Incurred in the ordinary course of business;
(i) utility easements, building restrictions and such other encumbrances
or charges against real Property as are of a nature generally existing with
respect to properties of a similar character;
(j) Liens in favor of the Issuer;
(k) Liens existing on the Issue Date not otherwise described in clauses
(a) through (j) above;
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(l) Liens on the Property of the Issuer or any Restricted Subsidiary to
secure any Refinancing, in whole or in part, of any Debt secured by Liens
referred to in clause (b), (f), (g) or (k) above; PROVIDED, HOWEVER, that
any such Lien shall be limited to all or part of the same Property that
secured the original Lien (together with improvements and accessions to such
Property) and the aggregate principal amount of Debt that is secured by such
Lien shall not be increased to an amount greater than the sum of (i) the
outstanding principal amount, or, if greater, the committed amount, of the
Debt secured by Liens described under clause (b), (f), (g) or (k) above, as
the case may be, at the time the original Lien became a Permitted Lien under
the Indenture and (ii) an amount necessary to pay any premiums, fees and
other expenses incurred by the Issuer or a Restricted Subsidiary in
connection with such Refinancing; or
(m) Liens not otherwise permitted by clauses (a) through (l) above
encumbering assets having an aggregate Fair Market Value not in excess of
$25.0 million.
"PERMITTED REFINANCING DEBT" means any Debt that Refinances any other Debt,
including any successive Refinancings, so long as (a) such Debt is in an
aggregate principal amount (or if Incurred with original issue discount, an
aggregate issue price) not in excess of the sum of (i) the aggregate principal
amount (or if Incurred with original issue discount, the aggregate accreted
value) then outstanding of the Debt being Refinanced and (ii) an amount
necessary to pay any fees and expenses, including premiums and defeasance costs,
related to such Refinancing, (b) the Average Life of such Debt is equal to or
greater than the Average Life of the Debt being Refinanced, (c) the Stated
Maturity of such Debt is no earlier than the Stated Maturity of the Debt being
Refinanced and (d) the new Debt shall not be senior in right of payment to the
Debt that is being Refinanced; PROVIDED, HOWEVER, that Permitted Refinancing
Debt shall not include (x) Debt of a Subsidiary that Refinances Debt of the
Issuer or (y) Debt of the Issuer or a Restricted Subsidiary that Refinances Debt
of an Unrestricted Subsidiary.
"PERSON" means any individual, corporation, company (including any limited
liability company), partnership, joint venture, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"PREFERRED STOCK" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to the payment of
dividends, or as to the distribution of assets upon any voluntary or involuntary
liquidation or dissolution of such Person, over shares of any other class of
Capital Stock issued by such Person.
"PREFERRED STOCK DIVIDENDS" means for any dividend with respect to Preferred
Stock, the quotient of the dividend divided by the difference between one and
the maximum statutory United States federal income tax rate (expressed as a
decimal number between 1 and 0) then applicable to the issuer of such Preferred
Stock.
"PRO FORMA" means, with respect to any calculation made or required to be
made pursuant to the terms hereof, a calculation performed in accordance with
Article 11 of Regulation S-X promulgated under the Securities Act, as
interpreted in good faith by the Board of Directors after consultation with the
independent certified public accountants of the Issuer, or otherwise a
calculation made in good faith by the Board of Directors after consultation with
the independent certified public accountants of the Issuer, as the case may be.
"PROPERTY" means, with respect to any Person, any interest of such Person in
any kind of property or asset, whether real, personal or mixed, or tangible or
intangible, including Capital Stock in, and other securities of, any other
Person. For purposes of any calculation required pursuant to the Indenture, the
value of any Property shall be its Fair Market Value.
"PUBLIC EQUITY OFFERING" means an underwritten public offering of common
stock of the Issuer or the Company pursuant to an effective registration
statement under the Securities Act.
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"PUBLIC MARKET" means any time after (a) a Public Equity Offering has been
consummated and (b) at least 10% of the total issued and outstanding common
stock of the Issuer or the Company, as the case may be, has been distributed by
means of an effective registration statement under the Securities Act or sales
pursuant to Rule 144 under the Securities Act.
"PURCHASE MONEY DEBT" means Debt (a) consisting of the deferred purchase
price of property, conditional sale obligations, obligations under any title
retention agreement, other purchase money obligations and obligations in respect
of industrial revenue bonds, in each case where the maturity of such Debt does
not exceed the anticipated useful life of the asset being financed and (b)
Incurred to finance the acquisition (including costs of design and installation)
by the Issuer or a Restricted Subsidiary of such asset, including additions and
improvements; PROVIDED, HOWEVER, that such Debt is incurred within 180 days
after such acquisition of such asset by the Issuer or a Restricted Subsidiary.
"REDEEMABLE DIVIDEND" means, for any dividend with respect to Redeemable
Stock, the quotient of the dividend divided by the difference between one and
the maximum statutory United States federal income tax rate (expressed as a
decimal number between 1 and 0) then applicable to the issuer of such Redeemable
Stock.
"REDEEMABLE STOCK" means, with respect to any Person, any Capital Stock that
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable, in either case, at the option of the holder
thereof) or otherwise (a) matures or is mandatorily redeemable pursuant to a
sinking fund obligation or otherwise, (b) is or may become redeemable or
repurchaseable at the option of the holder thereof, in whole or in part, or (c)
is convertible or exchangeable at the option of the holder thereof for Debt or
Disqualified Stock.
"REFINANCE" means, in respect of any Debt, to refinance, extend, renew,
refund, replace, prepay, redeem, defease or retire, or to issue other Debt, in
exchange or replacement for, such Debt. "Refinanced" and "Refinancing" shall
have correlative meanings.
"RELATED BUSINESS" means any business that is related, ancillary or
complementary to the businesses of the Issuer and the Restricted Subsidiaries on
the Issue Date.
"RESTRICTED PAYMENT" means (a) any dividend or distribution (whether made in
cash, securities or other Property) declared or paid on or with respect to any
shares of Capital Stock of the Issuer or any Restricted Subsidiary (including
any payment in connection with any merger or consolidation with or into the
Issuer or any Restricted Subsidiary), except for any dividend or distribution
which is made solely to the Issuer or a Restricted Subsidiary (and, if such
Restricted Subsidiary is not a Wholly Owned Subsidiary, to the other
shareholders of such Restricted Subsidiary on a pro rata basis or on a basis
that results in the receipt by the Issuer or a Restricted Subsidiary of
dividends or distributions of greater value than it would receive on a pro rata
basis) or any dividend or distribution payable solely in shares of Capital Stock
(other than Redeemable Stock) of the Issuer; (b) the purchase, repurchase,
redemption, acquisition or retirement for value of any Capital Stock of the
Issuer or any Affiliate of the Issuer (other than from the Issuer or a
Restricted Subsidiary) or any warrants, rights or options to directly or
indirectly purchase or acquire any such Capital Stock or any securities
exchangeable for or convertible into any such Capital Stock, including the
exercise of any option to exchange any Capital Stock (other than for or into
Capital Stock of the Issuer that is not Disqualified Stock); (c) the purchase,
repurchase, redemption, acquisition, defeasance or retirement for value, prior
to any scheduled maturity, scheduled sinking fund or mandatory redemption
payment, any Subordinated Obligation (other than the purchase, repurchase or
other acquisition of any Subordinated Obligation purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of acquisition); or (d) any
Investment (other than Permitted Investments) in any Person.
"RESTRICTED SUBSIDIARY" means (a) any Subsidiary of the Issuer unless such
Subsidiary shall have been designated an Unrestricted Subsidiary as permitted or
required pursuant to the covenant described under
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"--Certain Covenants--Designation of Restricted and Unrestricted Subsidiaries"
and (b) an Unrestricted Subsidiary which is redesignated as a Restricted
Subsidiary as permitted pursuant to the covenant described under "--Certain
Covenants--Designation of Restricted and Unrestricted Subsidiaries."
"S&P" means Standard & Poor's Ratings Service or any successor to the rating
agency business thereof.
"SALE AND LEASEBACK TRANSACTION" means any arrangement relating to Property
now owned or hereafter acquired whereby the Issuer or a Restricted Subsidiary
transfers such Property to another Person and the Issuer or a Restricted
Subsidiary leases it from such Person.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SENIOR DEBT" of the Issuer means (a) all obligations consisting of the
principal, premium, if any, and accrued and unpaid interest in respect of (i)
Debt of the Issuer for borrowed money and (ii) Debt of the Issuer evidenced by
notes, debentures, bonds or other similar instruments permitted under the
Indenture for the payment of which the Issuer is responsible or liable; (b) all
Capital Lease Obligations of the Issuer; (c) all obligations of the Issuer (i)
for the reimbursement of any obligor on any letter of credit, bankers'
acceptance or similar credit transaction, (ii) under Hedging Obligations or
(iii) issued or assumed as the deferred purchase price of Property and all
conditional sale obligations of the Issuer and all obligations under any title
retention agreement permitted under the Indenture and (d) all obligations of
other Persons of the type referred to in clauses (a), (b) and (c) for the
payment of which the Issuer is responsible or liable as Guarantor; PROVIDED,
HOWEVER, that Senior Debt shall not include (a) Debt of the Issuer that is by
its terms subordinate in right of payment to the New Notes; (B) any Debt
Incurred in violation of the provisions of the Indenture; (C) accounts payable
or any other obligations of the Issuer to trade creditors created or assumed by
the Issuer in the ordinary course of business in connection with the obtaining
of materials or services (including Guarantees thereof or instruments evidencing
such liabilities); (D) any liability for United States federal, state, local or
other taxes owed or owing by the Issuer; (E) any obligation of the Issuer to any
Subsidiary; or (F) any obligations with respect to any Capital Stock of the
Issuer.
"SIGNIFICANT SUBSIDIARY" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Issuer within the meaning of Rule 1-02 under
Regulation S-X promulgated by the Commission.
"STATED MATURITY" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"SUBORDINATED OBLIGATION" means any Debt of the Issuer (whether outstanding
on the Issue Date or thereafter Incurred) which is subordinate or junior in
right of payment to the New Notes pursuant to a written agreement to that
effect.
"SUBSIDIARY" means, in respect of any Person, any corporation, company,
association, partnership, joint venture or other business entity of which more
than 50% of the total voting power of shares of Capital Stock or other interests
(including partnership interests) entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled directly or indirectly, by (i) such
Person, (ii) such Person and one or more Subsidiaries of such Person or (iii)
one or more Subsidiaries of such Person.
"TEMPORARY CASH INVESTMENTS" means any of the following: (a) Investments in
U.S. Government Obligations maturing within one year of the date of acquisition
thereof; (b) Investments in time deposit accounts, certificates of deposit and
money market deposits maturing within one year of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws of
the United States of America or any state thereof or any foreign country
recognized by the United States having
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capital, surplus and undivided profits aggregating in excess of $500.0 million
(or the foreign currency equivalent thereof) and whose long-term debt is rated
"A-3" or "A-" or higher according to Moody's or S&P (or such similar equivalent
rating by at least one "nationally recognized statistical rating organization"
(as defined in Rule 436 under the Securities Act)); (c) repurchase obligations
with a term of not more than 30 days for underlying securities of the types
described in clause (a) entered into with a bank meeting the qualifications
described in clause (b) above; and (d) Investments in commercial paper, maturing
not more than 270 days after the date of acquisition, issued by a corporation
(other than an Affiliate of the Issuer) organized and in existence under the
laws of the United States of America with a rating at the time as of which any
Investment therein is made of "P-1" (or higher) according to Moody's or "A-1"
(or higher) according to S&P (or such similar equivalent rating by at least one
"nationally recognized statistical rating organization" (as defined in Rule 436
under the Securities Act)).
"UNRESTRICTED SUBSIDIARY" means (a) any Subsidiary of the Issuer that is
designated after the Issue Date as an Unrestricted Subsidiary as permitted
pursuant to the covenant described under "--Certain Covenants--Designation of
Restricted and Unrestricted Subsidiaries" and not thereafter redesignated as a
Restricted Subsidiary as permitted pursuant thereto and (b) any Subsidiary of an
Unrestricted Subsidiary.
"U.S. GOVERNMENT OBLIGATIONS" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"VOTING STOCK" of any Person means all shares or other equivalents of
Capital Stock of such Person then outstanding and normally entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof.
"WHOLLY OWNED SUBSIDIARY" means, at any time, a Restricted Subsidiary all
the Voting Stock of which (except directors' qualifying shares and shares held
by third parties which, in the aggregate, represent no more than 2% of the
outstanding Voting Stock of such Restricted Subsidiary) is at such time owned,
directly or indirectly, by the Issuer and its other Wholly Owned Subsidiaries.
BOOK-ENTRY SYSTEM
The certificates representing the New Notes will be issued in fully
registered form. The New Notes initially will be represented by a single,
permanent global New Note, in definitive, fully registered form without interest
coupons (the "Global Note") and will be deposited with the Trustee as custodian
for DTC and registered in the name of Cede & Co., as DTC's nominee.
Upon the issuance of a Global Note, DTC or its nominee will credit the
accounts of Persons holding through it with the respective principal amounts of
the New Notes represented by such Global Note purchased by such Persons in the
Offering. Such accounts shall be designated by the Initial Purchaser. Ownership
of beneficial interests in a Global Note will be limited to Persons that have
accounts with DTC ("participants") or Persons that may hold interests through
participants. Any Person acquiring an interest in a Global Note through an
offshore transaction in reliance on Regulation S of the Securities Act may hold
such interest through Cedel or Euroclear. Ownership of beneficial interests in a
Global Note will be shown on, and the transfer of that ownership interest will
be effected only through, records maintained by DTC (with respect to
participants' interests) and such participants (with respect to the owners of
beneficial interests in such Global Note other than participants). The laws of
some jurisdictions require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to transfer beneficial interests in a Global Note.
Payment of principal of and interest on New Notes represented by a Global
Note will be made in immediately available funds to DTC or its nominee, as the
case may be, as the sole registered owner and the sole holder of the New Notes
represented thereby for all purposes under the Indenture. The Issuer has
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been advised by DTC that upon receipt of any payment of principal of or interest
on any Global Note, DTC will immediately credit, on its book-entry registration
and transfer system, the accounts of participants with payments in amounts
proportionate to their respective beneficial interests in the principal or face
amount of such Global Note as shown on the records of DTC. Payments by
participants to owners of beneficial interests in a Global Note held through
such participants will be governed by standing instructions and customary
practices as is now the case with securities held for customer accounts
registered in "street name" and will be the sole responsibility of such
participants.
A Global Note may not be transferred except as a whole by DTC or a nominee
of DTC to a nominee of DTC or to DTC. A Global Note is exchangeable for
certificated New Notes only if (a) DTC notifies the Issuer that it is unwilling
or unable to continue as a depositary for such Global Note or if at any time DTC
ceases to be a clearing agency registered under the Exchange Act, (b) the Issuer
in its discretion at any time determines not to have all the New Notes
represented by such Global Note, or (c) there shall have occurred and be
continuing a Default or an Event of Default with respect to the New Notes
represented by such Global Note. Any Global Note that is exchangeable for
certificated New Notes pursuant to the preceding sentence will be exchanged for
certificated New Notes in authorized denominations and registered in such names
as DTC or any successor depositary holding such Global Note may direct. Subject
to the foregoing, a Global Note is not exchangeable, except for a Global Note of
like denomination to be registered in the name of DTC or any successor
depositary or its nominee. In the event that a Global Note becomes exchangeable
for certificated New Notes, (a) certificated New Notes will be issued only in
fully registered form in denominations of $1,000 or integral multiples thereof,
(b) payment of principal of, and premium, if any, and interest on, the
certificated New Notes will be payable, and the transfer of the certificated New
Notes will be registerable, at the office or agency of the Issuer maintained for
such purposes and (c) no service charge will be made for any registration of
transfer or exchange of the certificated New Notes, although the Issuer may
require payment of a sum sufficient to cover any tax or governmental charge
imposed in connection therewith.
So long as DTC or any successor depositary for a Global Note, or any
nominee, is the registered owner of such Global Note, DTC or such successor
depositary or nominee, as the case may be, will be considered the sole owner or
holder of the New Notes represented by such Global Note for all purposes under
the Indenture and the New Notes. Except as set forth above, owners of beneficial
interests in a Global Note will not be entitled to have the New Notes
represented by such Global Note registered in their names, will not receive or
be entitled to receive physical delivery of certificated New Notes in definitive
form and will not be considered to be the owners or holders of any New Notes
under such Global Note. Accordingly, each Person owning a beneficial interest in
a Global Note must rely on the procedures of DTC or any successor depositary,
and, if such Person is not a participant, on the procedures of the participant
through which such Person owns its interest, to exercise any rights of a holder
under the Indenture. The Issuer understands that under existing industry
practices, in the event that the Issuer requests any action of holders or that
an owner of a beneficial interest in a Global Note desires to give or take any
action which a holder is entitled to give or take under the Indenture, DTC or
any successor depositary would authorize the participants holding the relevant
beneficial interest to give or take such action and such participants would
authorize beneficial owners owning through such participants to give or take
such action or would otherwise act upon the instructions of beneficial owners
owning through them.
DTC has advised the Issuer that DTC is a limited-purpose trust company
organized under the Banking Law of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered under the
Exchange Act. DTC was created to hold the securities of its participants and to
facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. DTC's participants include securities brokers and
dealers (which may include the Initial Purchaser), banks, trust companies,
clearing corporations and certain other organizations some of
97
<PAGE>
whom (or their representatives) own DTC. Access to DTC's book-entry system is
also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
either directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in Global Securities among participants of DTC, it is
under no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. None of the Issuer, the Trustee or
the Initial Purchaser will have any responsibility for the performance by DTC or
its participants or indirect participants of their respective obligations under
the rules and procedures governing their operations.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Issuer has agreed that, starting on the Expiration Date
and ending on the close of business on the first anniversary following the
Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until , 1998, all dealers effecting transactions in the Exchange
Securities may be required to deliver a Prospectus.
The Issuer will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit of any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of one year after the Expiration Date, the Issuer will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal. The Issuer has agreed to pay all expenses incident to the
Exchange Offer (including the expenses of one counsel for the holders of the Old
Notes) other than commissions or concessions of any brokers or dealers and will
indemnify the holders of the Old Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The legality of the New Notes being offered hereby will be passed upon for
the Issuer by Rogers & Wells LLP, New York, New York.
98
<PAGE>
EXPERTS
The consolidated financial statements of Metallurg as of and for the three
quarters ended January 31, 1998, as of and for the quarter ended March 31, 1997,
and as of December 31, 1996 and for each of the two years in the period ended
December 31, 1996 and the related financial statement schedule included in this
Prospectus and Registration Statement have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report appearing herein and are
included in reliance upon such report given upon their authority as experts in
accounting and auditing.
The consolidated balance sheet of the Issuer at June 29, 1998, included in
this Prospectus and Registration Statement has been audited by Arthur Andersen
LLP, independent auditors, as indicated in their report with respect thereto,
and is included herein in reliance upon the authority of said firm as experts in
giving said report.
99
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AUDITED FINANCIAL STATEMENTS OF METALLURG, INC.:
Independent Auditors' Report............................................................................. F-2
Statements of Consolidated Operations for the Three Quarters Ended January 31, 1998, the Quarter Ended
March 31, 1997 and the Years Ended December 31, 1996 and 1995.......................................... F-3
Consolidated Balance Sheets at January 31, 1998, March 31, 1997 and December 31, 1996.................... F-4
Statements of Consolidated Cash Flows for the Three Quarters Ended January 31, 1998, the Quarter Ended
March 31, 1997 and the Years Ended December 31, 1996 and 1995.......................................... F-5
Notes to Consolidated Financial Statements for the Three Quarters Ended January 31, 1998, the Quarter
Ended March 31, 1997 and the Years Ended December 31, 1996 and 1995.................................... F-6
AUDITED FINANCIAL STATEMENT SCHEDULE OF METALLURG, INC.:
Schedule VIII--Valuation and Qualifying Accounts and Reserves............................................ F-42
UNAUDITED FINANCIAL STATEMENTS OF METALLURG, INC.:
Condensed Statements of Consolidated Operations for the Quarters Ended April 30, 1998 and March 31,
1997................................................................................................... F-43
Condensed Statements of Consolidated Comprehensive Income for the Quarters Ended April 30, 1998 and March
31, 1997............................................................................................... F-44
Condensed Consolidated Balance Sheets at April 30, 1998 and January 31, 1998............................. F-45
Condensed Statements of Consolidated Cash Flows for the Quarters Ended April 30, 1998 and March 31,
1997................................................................................................... F-46
Notes to Condensed Consolidated Financial Statements..................................................... F-47
AUDITED FINANCIAL STATEMENTS OF METALLURG HOLDINGS, INC.:
Report of Independent Public Accountants................................................................. F-53
Consolidated Balance Sheet of the Issuer at June 29, 1998................................................ F-54
Notes to Consolidated Balance Sheet...................................................................... F-55
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Metallurg, Inc.:
We have audited the accompanying consolidated balance sheets of Metallurg,
Inc. and consolidated subsidiaries as of January 31, 1998 and March 31, 1997
(Reorganized Company balance sheets) and December 31, 1996 (Predecessor Company
balance sheet) and the related statements of consolidated operations and of
consolidated cash flows for the three quarters ended January 31, 1998
(Reorganized Company operations), the quarter ended March 31, 1997 and for each
of the two years in the period ended December 31, 1996 (Predecessor Company
operations). Our audits also included the financial statement schedule, Schedule
VIII--Valuation and Qualifying Accounts and Reserves, appearing on page F-42.
These consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting 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.
As discussed in Notes 1 and 2 to the consolidated financial statements, on
April 14, 1997, the U.S. Bankruptcy Court for the Southern District of New York
entered an order confirming the Company's plan of reorganization which became
effective after the close of business on that day. Accordingly, the accompanying
consolidated balance sheets as of January 31, 1998 and March 31, 1997 and the
statements of consolidated operations and of consolidated cash flows for the
three quarters ended January 31, 1998 have been prepared in conformity with the
American Institute of Certified Public Accountants Statement of Position No.
90-7, "Financial Reporting for Entities in Reorganization Under the Bankruptcy
Code," for the Company as a new entity with assets, liabilities, and a capital
structure having carrying values not comparable with prior periods as described
in Notes 1 and 2.
In our opinion, the Reorganized Company's balance sheets present fairly, in
all material respects, the financial position of Metallurg, Inc. and
consolidated subsidiaries at January 31, 1998 and March 31, 1997 and the results
of their consolidated operations and their consolidated cash flows for the three
quarters ended January 31, 1998, and the Predecessor Company consolidated
financial statements, referred to above, present fairly, in all material
respects, the consolidated financial position at December 31, 1996 and the
results of their consolidated operations and their consolidated cash flows for
the quarter ended March 31, 1997 and for each of the two years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
As discussed in Note 1 to the consolidated financial statements, effective
January 1, 1996, the Company elected early adoption of the American Institute of
Certified Public Accountants Statement of Position No. 96-1, "Environmental
Remediation Liabilities."
DELOITTE & TOUCHE LLP
New York, New York
April 1, 1998
F-2
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
REORGANIZED
COMPANY PREDECESSOR COMPANY
----------- -----------------------------------
THREE YEAR YEAR
QUARTERS QUARTER ENDED ENDED
ENDED ENDED DECEMBER DECEMBER
JANUARY 31, MARCH 31, 31, 31,
NOTES 1998 1997 1996 1995
--------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Gross volume.......................... 1 $ 499,998 $ 162,337 $ 695,095 $ 755,927
----------- --------- ----------- -----------
----------- --------- ----------- -----------
Sales................................. 1 $ 476,426 $ 155,427 $ 648,816 $ 688,002
Commission income..................... 1 541 160 1,186 1,362
----------- --------- ----------- -----------
Total revenue....................... 476,967 155,587 650,002 689,364
Cost of sales......................... 1 410,033 134,060 566,538 603,535
----------- --------- ----------- -----------
Gross margin........................ 66,934 21,527 83,464 85,829
Selling, general and administrative
expenses............................ 43,563 15,046 57,103 52,842
Environmental expenses................ 1 -- -- 37,582 5,624
Restructuring charges................. 1 -- -- -- 11,658
----------- --------- ----------- -----------
Operating income (loss)............. 23,371 6,481 (11,221) 15,705
Other:
Other income (expense), net......... 13 1,805 3,179 (6,759) 7
Interest income (expense), net...... 2, 9 (5,653) (245) 1,473 (1,949)
Reorganization expense.............. 2 -- (2,663) (3,535) (3,927)
Fresh-start revaluation............. 2 -- 5,107 -- --
----------- --------- ----------- -----------
Income (loss) before income tax
provision and extraordinary item.... 19,523 11,859 (20,042) 9,836
Income tax provision (benefit)........ 1, 11 12,459 (3,063) 8,453 8,171
----------- --------- ----------- -----------
Income (loss) before extraordinary
item................................ 7,064 14,922 (28,495) 1,665
Extraordinary item, net of tax........ 2 (792) 43,032 -- --
----------- --------- ----------- -----------
Net income (loss)..................... $ 6,272 $ 57,954 $ (28,495) $ 1,665
----------- --------- ----------- -----------
----------- --------- ----------- -----------
Common shares and common share
equivalents......................... 1 4,956
-----------
-----------
Basic and diluted earnings per share:
Income before extraordinary item.... $ 1.43
Extraordinary item, net of tax...... (.16)
-----------
Net income.......................... $ 1.27
-----------
-----------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
REORGANIZED COMPANY COMPANY
------------------------ -------------
JANUARY 31, MARCH 31, DECEMBER 31,
NOTES 1998 1997 1996
----- ----------- ----------- -------------
<S> <C> <C> <C> <C>
ASSETS (Note 2)
Current Assets:
Cash and cash equivalents........................................ 1 $ 43,003 $ 30,340 $ 63,274
Trade receivables, less allowance for doubtful accounts (1998:
$1,700; 1997: $-0-; 1996: $4,303).............................. 1 83,931 94,150 88,595
Inventories...................................................... 1, 5 117,589 109,258 106,363
Prepaid expenses and other current assets........................ 14,239 16,312 14,315
Assets held for sale............................................. 1 -- 1,180 1,843
----------- ----------- -------------
Total current assets........................................... 258,762 251,240 274,390
Investments in affiliates.......................................... 1 1,610 1,461 2,938
Property, plant and equipment, net................................. 1, 6 41,502 38,907 47,885
Other assets....................................................... 14 17,912 14,096 6,413
----------- ----------- -------------
Total.......................................................... $ 319,786 $ 305,704 $ 331,626
----------- ----------- -------------
----------- ----------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Short-term debt.................................................. 9 $ 2,836 $ 13,500 $ 13,468
Current portion of long-term debt................................ 9 1,180 1,277 1,352
Trade payables................................................... 51,308 55,947 48,264
Accrued expenses................................................. 24,022 25,351 21,599
Current portion of environmental liabilities..................... 1, 14 6,553 5,270 9,374
Taxes payable.................................................... 11 5,106 6,579 6,599
----------- ----------- -------------
Total current liabilities...................................... 91,005 107,924 100,656
----------- ----------- -------------
Long-term Liabilities:
Long-term debt................................................... 9 103,133 51,711 5,049
Accrued pension liabilities...................................... 1, 8 38,351 41,090 43,926
Environmental liabilities, net................................... 1, 14 38,527 42,865 34,637
Other liabilities................................................ 6,999 12,114 9,640
----------- ----------- -------------
Total long-term liabilities.................................... 187,010 147,780 93,252
----------- ----------- -------------
Liabilities Subject to Compromise.................................. 7 -- -- 179,897
----------- ----------- -------------
Total liabilities.............................................. 278,015 255,704 373,805
----------- ----------- -------------
Commitments and Contingencies...................................... 15 -- -- --
Shareholders' Equity (Deficit):
Common stock--1998 and 1997: par value $.01 per share, authorized
15,000,000 shares, issued and outstanding 4,956,406 shares; 1996:
stated value $10 per share, authorized 10,000 shares, issued and
outstanding 2,005 shares......................................... 12 50 50 20
Preferred stock--1996: par value $100 per share, authorized 300,000
shares, no shares issued and outstanding......................... 12 -- -- --
Additional paid-in capital......................................... 12 40,209 49,950 --
Cumulative foreign currency translation adjustment................. 12 673 -- 15,755
Retained earnings (deficit)........................................ 839 -- (57,954 )
----------- ----------- -------------
Total shareholders' equity (deficit)........................... 41,771 50,000 (42,179 )
----------- ----------- -------------
Total........................................................ $ 319,786 $ 305,704 $ 331,626
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
REORGANIZED
COMPANY
------------- PREDECESSOR COMPANY
THREE -----------------------------------
QUARTERS QUARTER YEARS ENDED
ENDED ENDED DECEMBER 31,
JANUARY 31, MARCH 31, --------------------
1998 1997 1996 1995
------------- ------------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................... $ 6,272 $ 57,954 $ (28,495) $ 1,665
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Executive stock awards.................. 1,250 500 -- --
Extraordinary item, net of taxes........ -- (43,032) -- --
Fresh-start revaluation................. -- (5,107) -- --
Depreciation and amortization........... 5,320 2,143 10,688 15,296
Gain on sales of assets................. (1,848) (3,266) (3,597) (1,971)
Reorganization expense, net of
payments.............................. (4,298) 1,538 894 (609)
Deferred income taxes................... 5,338 (3,767) (51) (229)
Provision for doubtful accounts......... 1,100 162 696 1,669
Provision for environmental costs, net
of payments........................... (2,468) (256) 32,473 783
Provision for restructuring costs....... -- -- -- 11,658
Provision for allowed claims............ -- -- 10,547 --
Other, net.............................. 3,659 3,057 5,961 (9,032)
------------- ------------- --------- ---------
Total................................. 14,325 9,926 29,116 19,230
Changes in operating assets and
liabilities:
Decrease (increase) in trade
receivables........................... 8,791 (20,272) 9,916 (1,917)
(Increase) decrease in inventories...... (14,853) (6,120) 14,308 (10,517)
Decrease (increase) in other current
assets................................ 1,961 (355) (1,210) 5,850
(Decrease) increase in trade payables
and accrued expenses.................. (5,650) 18,895 1,412 2,857
Decrease in prepetition liabilities..... -- (39) (189) (263)
Receipt from environmental trust, net... -- 5,928 -- --
Other assets and liabilities, net....... (4,920) (1,547) (5,688) (9,582)
------------- ------------- --------- ---------
Net cash (used in) provided by
operating activities................ (346) 6,416 47,665 5,658
------------- ------------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment............................... (9,447) (2,774) (9,531) (6,712)
Proceeds from asset sales................. 3,747 4,966 5,806 2,663
Other, net................................ 14 (25) (1,294) 104
------------- ------------- --------- ---------
Net cash (used in) provided by
investing activities................ (5,686) 2,167 (5,019) (3,945)
------------- ------------- --------- ---------
</TABLE>
F-5
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
REORGANIZED
COMPANY
------------- PREDECESSOR COMPANY
THREE -----------------------------------
QUARTERS QUARTER YEARS ENDED
ENDED ENDED DECEMBER 31,
JANUARY 31, MARCH 31, --------------------
1998 1997 1996 1995
------------- ------------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING AND
REORGANIZATION ACTIVITIES:
Cash distribution pursuant to Plan of
Reorganization.......................... -- (59,366) -- --
Drawdown of prepetition letters of
credit.................................. -- 9,700 -- 8,000
Proceeds from long-term debt.............. 100,000 8,100 -- --
Fees paid to issue long-term debt......... (4,000) -- -- --
Net borrowing (repayment) of short-term
debt.................................... (9,313) 1,062 (14,709) 420
Repayment of long-term debt............... (48,309) (487) (1,408) (2,238)
Payment of dividends...................... (19,330) -- -- --
------------- ------------- --------- ---------
Net cash provided by (used in) financing
and reorganization activities......... 19,048 (40,991) (16,117) 6,182
------------- ------------- --------- ---------
Effects of exchange rate changes on cash
and cash equivalents.................... (353) (526) (83) 774
------------- ------------- --------- ---------
Net increase (decrease) in cash and cash
equivalents............................. 12,663 (32,934) 26,446 8,669
Cash and cash equivalents--beginning of
period.................................. 30,340 63,274 36,828 28,159
------------- ------------- --------- ---------
Cash and cash equivalents--end of
period.................................. $ 43,003 $ 30,340 $ 63,274 $ 36,828
------------- ------------- --------- ---------
------------- ------------- --------- ---------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes................ $ 6,859 $ 1,524 $ 5,817 $ 6,031
------------- ------------- --------- ---------
------------- ------------- --------- ---------
Cash paid for interest.................... $ 6,715 $ 619 $ 3,021 $ 4,777
------------- ------------- --------- ---------
------------- ------------- --------- ---------
Cash paid for reorganization expense...... $ 5,423 $ 1,125 $ 2,641 $ 4,536
------------- ------------- --------- ---------
------------- ------------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Quarters Ended January 31, 1998,
the Quarter Ended March 31, 1997
and the Years Ended December 31, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION--The consolidated financial
statements include the accounts of Metallurg, Inc. ("Metallurg") and its
majority-owned subsidiaries (collectively, the "Company"). All intercompany
transactions and balances have been eliminated in consolidation. The accounts of
foreign subsidiaries have been translated into U.S. dollars in accordance with
SFAS No. 52.
On February 26, 1997, the Fourth Amended and Restated Joint Plan of
Reorganization (the "Plan") of Metallurg and one of its subsidiaries,
Shieldalloy Metallurgical Corporation (together, the "Debtors"), was confirmed
by the U.S. Bankruptcy Court for the Southern District of New York. Transactions
contemplated by the Plan were consummated on April 14, 1997 (the "Effective
Date"). For financial reporting purposes, the Company has reflected the effects
of the Plan consummation as of March 31, 1997. As a result of the consummation
of the Plan and the adoption of fresh-start reporting under the American
Institute of Certified Public Accountants' SOP No. 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code," the Company was required
to report its financial results for the period ending January 31, 1998 in two
separate periods. One period contains financial statements for the quarter ended
March 31, 1997, which includes the effects of the adoption of fresh-start
reporting and consummation of the Plan and is referred to as the "Predecessor
Company." The other period contains financial statements for the three quarters
ended January 31, 1998 for the reorganized Company. The financial statements of
the Company after consummation of the Plan are not comparable to the Company's
financial statements of prior periods and accordingly, a black line has been
used to separate the periods.
Effective April 1, 1997, the Company changed the reporting period of
Metallurg from a calendar year ending December 31 to a fiscal year ending
January 31 and began reporting the results of its operating subsidiaries on a
one-month lag. Accordingly, the three quarters ended January 31, 1998 include
nine months of worldwide operating results plus, in this transitional period, an
additional month of results of operations of Metallurg in the amount of a
$1,221,000 loss.
ACCOUNTING ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS--The Company considers all highly liquid
instruments maturing within 30 days or less when purchased to be cash
equivalents.
INVENTORIES--Inventories are stated at the lower of cost or market. The cost
of inventories is determined using principally the average cost and specific
identification methods.
ASSETS HELD FOR SALE--Assets held for sale are stated at the lower of cost
or estimated net realizable value which, for long-lived assets, is calculated in
accordance with SFAS No. 121. At March 31, 1997, an office building owned by the
Company's United Kingdom subsidiary, valued at approximately $1,180,000 was held
for sale. At December 31, 1996, Metallurg's investments in a joint venture and a
building were held for sale in the amounts of $1,200,000 and $643,000,
respectively.
F-7
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS IN AFFILIATES--Investments in affiliates in which the Company
has a 20% to 50% ownership interest and exercises significant management
influence are accounted for in accordance with the equity method.
PROPERTY AND DEPRECIATION--In accordance with fresh-start reporting,
property, plant and equipment previously stated at cost have been restated to
the estimated fair value as of March 31, 1997 and historical accumulated
depreciation has been eliminated. Major renewals and improvements are
capitalized, while maintenance and repairs are expensed when incurred.
Depreciation is computed using the straight-line and declining-balance methods
over the estimated useful lives of the assets. Upon sale or retirement, the
costs and related accumulated depreciation are eliminated from the respective
accounts and any resulting gain or loss is included in income.
GROSS VOLUME AND SALES--Sales represent amounts invoiced to customers by the
Company and such revenue is recognized when the product is shipped and title to
the product passes to the customer. In certain instances, the Company arranges
sales for which the supplier invoices the customer directly ("agency sales"). In
such cases, the Company receives commission income which is recognized when the
supplier passes title to the customer. Gross volume represents the sum of sales
and agency sales. The Company sells manufactured and merchanted products
primarily to the steel, aluminum, superalloy, hard metal and foundry industries.
ENVIRONMENTAL REMEDIATION COSTS--In 1996, the Company elected early adoption
of SOP No. 96-1, "Environmental Remediation Liabilities." Losses associated with
environmental remediation obligations are accrued when such losses are deemed
probable and reasonably estimable. Such accruals generally are recognized no
later than the completion of the remedial feasibility study and are adjusted as
further information develops or circumstances change. Costs of future
expenditures for environmental remediation obligations are generally not
discounted to their present value.
IMPAIRMENT OF ASSETS--In 1995, the Company implemented SFAS No. 121, which
prescribes the method of asset impairment evaluation for long-lived assets and
certain identifiable intangibles that are either held and used or to be disposed
of. Such impairment losses have been included in restructuring charges for the
respective periods.
RESTRUCTURING CHARGES--During 1995, the Brazilian operating subsidiary
adopted a plan to restructure mining and certain other operations. Analysis of
remaining ore deposits indicated that such ore deposits contained insufficient
material to provide continued economic feasibility and therefore a restructuring
charge of $5,250,000 was recorded. This charge related primarily to severance
and employee benefit costs ($1,020,000) and the write-down to fair value of
assets to be disposed of, made obsolete or redundant ($4,230,000). Severance and
employee benefit costs of $309,000 and $641,000 were paid in the quarter ended
March 31, 1997 and the year ended December 31, 1996, respectively, and related
to the elimination of approximately 145 positions. At January 31, 1998, March
31, 1997 and December 31, 1996, the carrying amount of assets to be disposed of
totaled $723,000, $1,900,000 and $1,946,000, respectively. The Company will not
depreciate any of the fixed assets while they are held for sale. The Company
anticipates completing these restructuring efforts in the next two years.
Also during 1995, the principal German subsidiary adopted a plan to
restructure the company into separate business units and to exit certain
unprofitable manufacturing processes. The restructuring charge of $6,408,000
primarily reflects severance for workforce reductions of approximately 28
employees ($697,000), impairment losses on assets that are no longer expected to
be used in the company's operations ($4,458,000) and the cost to dispose of
solid wastes that were generated by exited operations ($1,253,000).
F-8
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In addition, in connection with the restructuring of the German operations and
pursuant to local environmental regulations, the company became obligated to
remediate contaminated areas surrounding the exited operations in order to
restore the site to acceptable environmental condition. The estimated cost of
such remediation actions ($3,552,000) is reflected in environmental expenses on
the Statements of Consolidated Operations. In 1996, approximately $601,700 of
severance costs was paid and the remaining accrual was reversed. In 1997,
$408,000 of site restoration costs were paid and the remaining accrual
represents estimated future cash outflows expected to be paid over the next
three to five years.
INCOME TAXES--The Company uses the liability method whereby deferred income
taxes are provided for the temporary differences between the financial reporting
basis and the tax basis of the Company's assets and liabilities. The Company
does not provide for U.S. federal income taxes on the accumulated earnings
considered permanently reinvested in certain of its foreign subsidiaries which
approximated $37,000,000, $38,000,000 and $53,000,000 at January 31, 1998, March
31, 1997 and December 31, 1996, respectively. These earnings have been invested
in facilities and other assets and have been subject to substantial foreign
income taxes, which may or could offset a major portion of any tax liability
resulting from their inclusion in U.S. taxable income.
RETIREMENT PLANS--Pension costs of Metallurg and its domestic consolidated
subsidiaries are funded or accrued currently. The Company's foreign subsidiaries
maintain separate pension plans for their employees. Such foreign plans are
either funded currently or accruals are recorded in the respective balance
sheets to reflect pension plan liabilities.
STOCK-BASED COMPENSATION--The Company accounts for stock-based compensation
using the intrinsic value method, in accordance with Accounting Principles Board
Opinion No. 25. Accordingly, compensation cost for stock options is measured as
the excess, if any, of the market price of the Company's common stock at the
date of grant over the amount an employee must pay to acquire the stock.
Disclosures required with respect to alternative fair value measurement and
recognition methods prescribed by SFAS No. 123, "Accounting for Stock-Based
Compensation" are presented in Note 12.
FOREIGN EXCHANGE GAINS AND LOSSES--Foreign exchange gains (losses) of
$987,000, $712,000, $1,853,000 and $(904,000) were recorded for the three
quarters ended January 31, 1998, the quarter ended March 31, 1997 and the years
ended December 31, 1996 and 1995, respectively. Such amounts usually arise from
foreign currency hedging programs designed to minimize the negative effects of
changes in exchange rates on operations and are therefore included in cost of
sales.
FINANCIAL INSTRUMENTS--The Company enters into foreign exchange contracts in
the regular course of business to manage exposure against fluctuations on sales
and raw material purchase transactions denominated in currencies other than the
functional currencies of its businesses. Unrealized gains and losses are
deferred and recognized in income or as adjustments of carrying amounts when the
hedged transactions are included in income. Gains and losses on unhedged foreign
currency transactions are included in income. The Company does not hold or issue
financial instruments for trading purposes. The counterparties to these
contractual arrangements are a diverse group of major financial institutions
with which the Company also has other financial relationships. The Company is
exposed to credit risk generally limited to unrealized gains in such contracts
in the event of nonperformance by counterparties to those financial instruments,
but it does not expect any counterparties to fail to meet their obligations
given their high credit ratings.
F-9
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EXTRAORDINARY ITEM--In November 1997, the Company recognized an
extraordinary after-tax charge of $792,000 as a result of the early retirement
of the Company's 12% senior-secured notes due 2007 and the United Kingdom
subsidiary's term loan due 2000. The notes were redeemed at 103% and 101% of
principal amount, respectively, with accrued interest to the date of redemption.
In the quarter ended March 31, 1997, the Company recognized an extraordinary
gain, net of tax, of $43,032,000 relating to the discharge of indebtedness at
the consummation of the Plan of Metallurg and Shieldalloy.
EARNINGS PER SHARE--The Company adopted SFAS No. 128, "Earnings Per Share"
as of January 31, 1998. Basic earnings per share (EPS) amounts are computed by
dividing net income by the average number of common shares outstanding. Diluted
EPS amounts assume the issuance of common stock for all potentially dilutive
common stock equivalents. No options were exercised, nor assumed exercised for
purposes of the diluted EPS calculation, in the three quarters ended January 31,
1998, as the exercise price of the options exceeded the fair market value of the
common stock. Earnings per share for periods prior to April 1, 1997 are not
presented because such presentation would not be meaningful due to fresh-start
reporting and the recapitalization of the Company in connection with the Plan as
of March 31, 1997.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS--In June 1997, the FASB issued
SFAS No. 130, "Reporting Comprehensive Income." This statement is effective for
financial statements issued for periods beginning after December 15, 1997.
Management has evaluated the effect on its financial reporting from the adoption
of this statement and has found the majority of required disclosures to be not
applicable and the remainder to be not significant.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS No. 131 requires the reporting of
profit and loss, specific revenue and expense items, and assets for reportable
segments. It also requires the reconciliation of total segment revenues, total
segment profit or loss, total segment assets, and other amounts disclosed for
segments to the corresponding amounts in the general purpose financial
statements. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. Management has not yet determined what additional disclosures may be
required in connection with adopting SFAS No. 131.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure About
Pensions and Other Postretirement Benefits." SFAS No. 132 changes current
financial disclosure requirements from those that were required under SFAS No.
87, "Employers' Accounting for Pensions," SFAS No. 88, "Employers' Accounting
for Settlement and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits" and SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." The Company is required to adopt
this standard in 1998 and management is currently evaluating what additional
disclosures may be required in connection with adopting SFAS No. 132.
RECLASSIFICATION--Certain amounts in previously issued financial statements
were reclassified to conform to 1997 presentations.
2. PLAN OF REORGANIZATION AND FRESH-START REPORTING
Costs of administration of the Chapter 11 proceedings approximating
$2,663,000, $3,535,000 and $3,927,000 were recorded by the Debtors during the
quarter ended March 31, 1997 and the years ended December 31, 1996 and 1995,
respectively, and have been included as reorganization expense in the Statements
of Consolidated Operations. Those expenses consisted primarily of legal,
administration, consulting and other similar expenses.
F-10
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PLAN OF REORGANIZATION AND FRESH-START REPORTING (CONTINUED)
Condensed financial statements for the Debtors follow (in thousands):
METALLURG, INC. AND SHIELDALLOY METALLURGICAL CORP.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
QUARTER FOR THE YEARS ENDED
ENDED DECEMBER 31,
MARCH 31, ----------------------
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Total revenue................................................................. $ 56,858 $ 224,572 $ 228,593
----------- ---------- ----------
Operating costs and expenses:
Cost of sales............................................................... 51,630 208,733 207,207
Selling, general and administrative expenses................................ 4,942 14,440 13,421
Environmental expenses...................................................... -- 35,176 1,657
----------- ---------- ----------
Total operating costs and expenses............................................ 56,572 258,349 222,285
----------- ---------- ----------
Operating income (loss)....................................................... 286 (33,777) 6,308
Other:
Other income (expense), net................................................. (7,269) (21,778) 931
Interest (expense) income, net.............................................. (239) 2,775 1,926
Reorganization expense...................................................... (2,663) (3,535) (3,927)
Fresh-start revaluation..................................................... 1,050 -- --
Equity in earnings (losses) of subsidiaries................................. 19,367 28,012 (4,190)
----------- ---------- ----------
Income (loss) before income tax provision and extraordinary item.............. 10,532 (28,303) 1,048
Income tax (benefit) provision................................................ (211) 192 (617)
----------- ---------- ----------
Income (loss) before extraordinary item....................................... 10,743 (28,495) 1,665
Extraordinary item, net of tax................................................ 47,211 -- --
----------- ---------- ----------
Net income (loss)............................................................. $ 57,954 $ (28,495) $ 1,665
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
F-11
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PLAN OF REORGANIZATION AND FRESH-START REPORTING (CONTINUED)
METALLURG, INC. AND SHIELDALLOY METALLURGICAL CORP.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................................. $ 9,991 $ 41,729 $ 25,458
Accounts and notes receivable, net......................................... 40,796 52,471 68,116
Inventories................................................................ 36,200 35,547 37,500
Other assets............................................................... 4,643 6,080 4,762
---------- ---------- ----------
Total current assets..................................................... 91,630 135,827 135,836
Property, plant and equipment, net........................................... 9,375 11,410 14,632
Investments--intergroup...................................................... 64,773 54,484 22,979
Investments--other........................................................... 244 1,530 2,459
Other assets................................................................. (4,177) 1,622 4,159
---------- ---------- ----------
Total.................................................................. $ 161,845 $ 204,873 $ 180,065
---------- ---------- ----------
---------- ---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Trade payables............................................................. $ 15,326 $ 14,394 $ 9,077
Accrued expenses........................................................... 16,006 17,644 8,587
Other current liabilities.................................................. 565 536 181
---------- ---------- ----------
Total current liabilities................................................ 31,897 32,574 17,845
---------- ---------- ----------
Long-term Liabilities:
Long-term debt............................................................. 39,461 -- --
Accrued pension liabilities................................................ 2,143 1,441 1,676
Environmental liabilities, net............................................. 36,949 28,213 3,856
Other liabilities.......................................................... 1,395 -- 28
---------- ---------- ----------
Total long-term liabilities.............................................. 79,948 29,654 5,560
---------- ---------- ----------
Liabilities Subject to Compromise............................................ -- 184,824 174,612
---------- ---------- ----------
Total liabilities...................................................... 111,845 247,052 198,017
---------- ---------- ----------
Shareholders' Equity (Deficit):
Common stock outstanding................................................... 50 20 20
Additional paid-in capital................................................. 49,950 -- --
Cumulative foreign currency translation adjustment......................... -- 15,755 11,487
Deficit.................................................................... -- (57,954) (29,459)
---------- ---------- ----------
Total shareholders' equity (deficit)..................................... 50,000 (42,179) (17,952)
---------- ---------- ----------
Total.................................................................. $ 161,845 $ 204,873 $ 180,065
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-12
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PLAN OF REORGANIZATION AND FRESH-START REPORTING (CONTINUED)
METALLURG, INC. AND SHIELDALLOY METALLURGICAL CORP.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
FOR THE QUARTER DECEMBER 31,
ENDED --------------------
MARCH 31, 1997 1996 1995
--------------- --------- ---------
<S> <C> <C> <C>
Net Cash Flows from Operating Activities:.................................. $ 5,891 $ 11,723 $ (4,256)
------- --------- ---------
Cash Flows from Investing Activities:
Additions to property, plant and equipment............................... (1,022) (679) (1,577)
Proceeds from asset sales................................................ 4,215 493 994
Other, net............................................................... -- (6,192) --
------- --------- ---------
Net cash provided by (used in) investing activities.................... 3,193 (6,378) (583)
------- --------- ---------
Cash Flows from Financing and Reorganization Activities:
Cash distribution pursuant to Plan of Reorganization..................... (59,366) -- --
Drawdown of prepetition letters of credit................................ 9,700 -- 8,000
Intergroup borrowings (repayments)....................................... (579) 5,835 1,068
Dividends received....................................................... 9,423 5,091 6,407
------- --------- ---------
Net cash (used in) provided by financing and reorganization activities... (40,822) 10,926 15,475
------- --------- ---------
Net (decrease) increase in cash and cash equivalents....................... (31,738) 16,271 10,636
Cash and cash equivalents--beginning of period............................. 41,729 25,458 14,822
------- --------- ---------
Cash and cash equivalents--end of period................................... $ 9,991 $ 41,729 $ 25,458
------- --------- ---------
------- --------- ---------
</TABLE>
On the Effective Date, claims related to prepetition liabilities and
administrative expenses were discharged through distributions of $59,366,000 in
cash, the issuance of $39,461,000 of senior-secured notes and 4,706,406 shares
of new common stock. The value of the cash and securities distributed was less
than the recorded liabilities and the resultant net gain of $47,211,000 was
recorded as an extraordinary item, net of tax effects of nil due to statutory
exemption and utilization of net operating loss carryforwards. Such net
operating loss carryforwards had previously been offset in full by a valuation
allowance.
The Company was required to adopt fresh-start reporting because the holders
of the existing voting shares immediately prior to filing and confirmation of
the Plan received less than 50% of the voting shares of the emerging entity and
its reorganization value was less than the total of its post-petition
liabilities and allowed claims. SOP 90-7 required the Company to revalue its
assets and liabilities to their estimated fair value and to recognize as a
reduction of long-term assets the excess of the fair value of its identifiable
assets over the total reorganization value of its assets as of the Effective
Date. Accordingly, the Company's property, plant and equipment and other
noncurrent assets were reduced by approximately $5,520,000. In addition, the
Company's accumulated equity of approximately $4,733,000 and cumulative foreign
currency translation adjustment of approximately $14,587,000 were eliminated. As
a result of the adjustments made to reflect fresh-start reporting, a pre-tax
revaluation credit of $5,107,000 is included in the Company's results of
operations for the quarter ended March 31, 1997.
The total reorganization value assigned to the Company's assets was
estimated by calculating projected cash flows before debt service requirements
for a three-year period, plus an estimated terminal value of the Company
calculated using an estimate of normalized operating performance and discount
rates ranging from 13.5% to 16.5%. This amount was increased by (i) the
estimated net realizable value of assets to be sold and (ii) estimated cash in
excess of normal operating requirements.
F-13
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PLAN OF REORGANIZATION AND FRESH-START REPORTING (CONTINUED)
The effect of the Plan and the implementation of fresh-start reporting on the
Company's consolidated balance sheet as of March 31, 1997 was as follows (in
thousands):
<TABLE>
<CAPTION>
EFFECTS
PRIOR TO OF ADOPTION OF OPENING
JOINT PLAN JOINT PLAN FRESH-START BALANCE
EFFECTIVENESS (A) REPORTING SHEET
------------ ------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................. $ 66,670 $ (36,330) $ 30,340
Trade receivables, less allowance for doubtful accounts.... 94,255 (105) 94,150
Inventories................................................ 109,258 -- 109,258
Prepaid expenses and other current assets.................. 16,382 180 $ (250)(b) 16,312
Assets held for sale....................................... 341 -- 839(b) 1,180
------------ ------------- ----------- ---------
Total current assets..................................... 286,906 (36,255) 589 251,240
Investments in affiliates.................................... 2,779 -- (1,318)(c) 1,461
Property, plant and equipment, net........................... 42,348 -- (3,441)(c) 38,907
Other assets................................................. 14,243 614 (761)(c) 14,096
------------ ------------- ----------- ---------
Total.................................................... $ 346,276 $ (35,641) $ (4,931) $ 305,704
------------ ------------- ----------- ---------
------------ ------------- ----------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Short-term debt............................................ $ 13,500 $ 13,500
Current portion of long-term debt.......................... 1,277 1,277
Trade payables............................................. 55,947 55,947
Accrued expenses........................................... 22,736 $ 2,338 $ 277(b) 25,351
Current portion of environmental liabilities............... 5,270 -- -- 5,270
Taxes payable.............................................. 7,136 (557) -- 6,579
------------ ------------- ----------- ---------
Total current liabilities................................ 105,866 1,781 277 107,924
------------ ------------- ----------- ---------
Long-term Liabilities:
Long-term debt............................................. 4,248 47,463 -- 51,711
Accrued pension liabilities................................ 39,610 (1,345) 2,825(b) 41,090
Environmental liabilities, net............................. 37,495 5,370 -- 42,865
Other liabilities.......................................... 10,293 -- 1,821(b) 12,114
------------ ------------- ----------- ---------
Total long-term liabilities.............................. 91,646 51,488 4,646 147,780
------------ ------------- ----------- ---------
Liabilities Subject to Compromise............................ 180,247 (180,247) -- --
------------ ------------- ----------- ---------
Total liabilities........................................ 377,759 (126,978) 4,923 255,704
------------ ------------- ----------- ---------
Commitments and Contingencies................................
Shareholders' Equity (Deficit):
Common stock............................................... 20 30 -- 50
Additional paid-in capital................................. -- 49,950 -- 49,950
Cumulative foreign currency translation adjustment......... 14,531 56 (14,587)(d) --
Retained (deficit) earnings................................ (46,034) 41,301 4,733(d) --
------------ ------------- ----------- ---------
Total shareholders' equity (deficit)..................... (31,483) 91,337 (9,854) 50,000
------------ ------------- ----------- ---------
Total.................................................. $ 346,276 $ (35,641) $ (4,931) $ 305,704
------------ ------------- ----------- ---------
------------ ------------- ----------- ---------
</TABLE>
- ------------------------
(a) To record the distribution of cash and securities, the settlement of
liabilities subject to compromise and other transactions in accordance with
the Plan.
(b) To adjust assets and liabilities to their estimated fair value.
(c) To reduce long-term assets for the excess of the fair value of identifiable
net assets over the total reorganization value as of the Effective Date.
(d) To eliminate the accumulated deficit and cumulative foreign currency
translation adjustment in accordance with fresh-start reporting.
F-14
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. GEOGRAPHIC DATA
The Company operates in one significant industry segment, the manufacture
and sale of ferrous and non-ferrous metals and alloys. Data by geographic area
is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
JANUARY 31, MARCH 31, ----------------------
1998 1997 1996 1995
--------------- --------------- ---------- ----------
<S> <C> <C> <C> <C>
Identifiable assets:
North America......................................... $ 133,101 $ 107,254 $ 148,719 $ 150,281
Foreign............................................... 221,249 228,668 214,953 219,460
Eliminations.......................................... (34,564) (30,218) (32,046) (27,131)
--------------- --------------- ---------- ----------
Total............................................... $ 319,786 $ 305,704 $ 331,626 $ 342,610
--------------- --------------- ---------- ----------
--------------- --------------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE FOR THE QUARTER FOR THE YEARS ENDED
QUARTERS ENDED ENDED DECEMBER 31,
JANUARY 31, MARCH 31, ----------------------
1998 1997 1996 1995
--------------- --------------- ---------- ----------
<S> <C> <C> <C> <C>
Total revenue from unaffiliated customers:
North America......................................... $ 206,346 $ 68,540 $ 294,843 $ 300,200
Foreign............................................... 270,621 87,047 355,159 389,164
--------------- --------------- ---------- ----------
Total............................................... $ 476,967 $ 155,587 $ 650,002 $ 689,364
--------------- --------------- ---------- ----------
--------------- --------------- ---------- ----------
Net income (loss):
North America......................................... $ 1,332 $ 48,262 $ (56,506) $ 8,160
Foreign............................................... 4,940 9,692 28,011 (6,495)
--------------- --------------- ---------- ----------
Total............................................... $ 6,272 $ 57,954 $ (28,495) $ 1,665
--------------- --------------- ---------- ----------
--------------- --------------- ---------- ----------
</TABLE>
4. INVESTMENT ACTIVITIES
In 1997, Metallurg sold its 50% interest in AMPAL for proceeds approximating
book value of $1,200,000. In 1996, the Company purchased approximately 5% of the
outstanding stock of Solikamsk Magnesium Works ("SMW"), a Russian magnesium
metal producer, for approximately $1,000,000. Also in 1996, Shieldalloy sold its
wholly owned subsidiary, Frankel Metal Company ("FMC"), a processor of titanium
scrap, to FMC's management and recorded a net loss on the sale of $460,000.
5. INVENTORIES
Inventories, net of reserves, consist of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, MARCH 31, DECEMBER 31,
1998 1997 1996
----------- ---------- ------------
<S> <C> <C> <C>
Raw materials............................................................. $ 32,938 $ 21,769 $ 25,181
Work in process........................................................... 1,981 2,330 2,237
Finished goods............................................................ 77,473 80,500 75,478
Other..................................................................... 5,197 4,659 3,467
----------- ---------- ------------
Total................................................................... $ 117,589 $ 109,258 $ 106,363
----------- ---------- ------------
----------- ---------- ------------
</TABLE>
F-15
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. PROPERTY, PLANT AND EQUIPMENT
The major classes of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
JANUARY 31, MARCH 31, DECEMBER 31, ESTIMATED
1998 1997 1996 LIVES
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
(IN THOUSANDS) (IN YEARS)
Land........................................................... $ 2,899 $ 3,019 $ 6,177
Buildings and leasehold improvements........................... 13,766 13,205 43,826 10-32
Machinery...................................................... 22,388 17,729 181,172 3-17
Office furniture and equipment................................. 2,797 2,046 6,940 3-17
Transportation equipment....................................... 1,844 1,588 6,992 3-5
Construction in progress....................................... 3,106 1,320 1,142
----------- ----------- ------------
Total...................................................... 46,800 38,907 246,249
Less: accumulated depreciation................................. 5,298 -- 198,364
----------- ----------- ------------
Property, plant and equipment, net............................. $ 41,502 $ 38,907 $ 47,885
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
Depreciation expense related to property, plant and equipment charged to
operations for the three quarters ended January 31, 1998, the quarter ended
March 31, 1997 and the years ended December 31, 1996 and 1995 was $5,320,000,
$2,126,000, $10,621,000 and $15,227,000, respectively.
7. LIABILITIES SUBJECT TO COMPROMISE
Pursuant to the provisions of the Bankruptcy Code, certain liabilities
attributable to the period prior to the Petition Date could not be paid without
prior approval of the Bankruptcy Court and were reclassified to liabilities
subject to compromise. Substantially all of these claims were settled at the
Effective Date in accordance with the Plan of Reorganization. The liabilities
subject to compromise at December 31, 1996 consisted of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Long-term debt...................................................................................... $ 112,158
Trade payables and other accrued liabilities........................................................ 22,520
Prepetition environmental liabilities............................................................... 4,070
Accrued pension liabilities......................................................................... 12,030
Accrued interest payable............................................................................ 3,412
Liabilities to former shareholders.................................................................. 25,707
------------
Total liabilities subject to compromise......................................................... $ 179,897
------------
------------
</TABLE>
8. RETIREMENT PLANS
DEFINED BENEFIT PLANS
Metallurg and its domestic consolidated subsidiaries have defined benefit
pension plans covering substantially all salaried and certain hourly paid
employees. The plans generally provide benefit payments using a formula based on
an employee's compensation and length of service. These plans are funded in
amounts equal to the minimum funding requirements of the Employee Retirement
Income Security Act. Substantially all plan assets are invested in cash and
short-term investments or listed stocks and bonds.
F-16
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. RETIREMENT PLANS (CONTINUED)
Net periodic pension cost for the domestic defined benefit plans included
the following components (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
FOR THE THREE FOR THE QUARTER
QUARTERS ENDED ENDED DECEMBER 31,
JANUARY 31, MARCH 31, --------------------
1998 1997 1996 1995
--------------- ----------------- --------- ---------
<S> <C> <C> <C> <C>
Service cost--benefits earned during the period............. $ 360 $ 107 $ 493 $ 476
Interest cost on projected benefit obligation............... 844 280 964 939
Return on plan assets....................................... (3,608) (309) (1,074) (862)
Net amortization and deferral............................... 2,676 32 (18) 180
------ ----- --------- ---------
Net periodic pension cost............................... $ 272 $ 110 $ 365 $ 733
------ ----- --------- ---------
------ ----- --------- ---------
</TABLE>
Assumptions used to calculate pension costs and projected benefit
obligations are as follows:
<TABLE>
<CAPTION>
FOR THE THREE FOR THE QUARTER FOR THE YEARS ENDED
QUARTERS ENDED ENDED DECEMBER 31,
JANUARY 31, MARCH 31, --------------------------
1998 1997 1996 1995
--------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Discount rate...................................... 7.0% 7.0% 7.0% 7.0%
Rate of increase in future compensation levels..... 4.0% 4.0% 4.0% 4.0%
Expected long-term rate of return on plan assets... 7.5%-9.0% 7.5%-9.0% 7.5%-9.0% 7.5%-9.0%
</TABLE>
A reconciliation of the funded status to the amounts recorded in the balance
sheet is set forth below (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, MARCH 31, DECEMBER 31,
1998 1997 1996
----------- ---------- ------------
<S> <C> <C> <C>
Vested benefit obligation................................................. $ (15,608) $ (15,037) $ (13,166)
Nonvested benefit obligation.............................................. (441) (396) (912)
----------- ---------- ------------
Accumulated benefit obligation.......................................... (16,049) (15,433) (14,078)
Effect of projected future compensation................................... (1,022) (1,056) (767)
----------- ---------- ------------
Projected benefit obligation............................................ (17,071) (16,489) (14,845)
Plan assets at fair value................................................. 17,543 14,346 14,284
----------- ---------- ------------
Funded status........................................................... 472 (2,143) (561)
Unrecognized net transition obligation.................................... -- -- 7
Unrecognized prior service cost........................................... -- -- 128
Unrecognized net (gain) loss.............................................. (2,555) -- 211
----------- ---------- ------------
Accrued pension cost recorded......................................... $ (2,083) $ (2,143) $ (215)
----------- ---------- ------------
----------- ---------- ------------
</TABLE>
F-17
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. RETIREMENT PLANS (CONTINUED)
The Company's United Kingdom subsidiary maintains a defined benefit pension
plan covering all eligible employees. The net periodic pension cost for the
defined benefit plan included the following components (in thousands):
<TABLE>
<CAPTION>
FOR THE THREE FOR THE QUARTER FOR THE YEARS ENDED
QUARTERS ENDED ENDED DECEMBER 31,
JANUARY 31, MARCH 31, --------------------
1998 1997 1996 1995
--------------- --------------- --------- ---------
<S> <C> <C> <C> <C>
Service cost--benefits earned during the period............ $ 792 $ 250 $ 954 $ 918
Interest cost on projected benefit obligation.............. 2,580 839 3,004 2,781
Return on plan assets...................................... (7,195) (1,669) (4,586) (5,174)
Net amortization and deferral.............................. 4,131 286 1,093 2,120
------- ------- --------- ---------
Net periodic pension cost (credit)..................... $ 308 $ (294) $ 465 $ 645
------- ------- --------- ---------
------- ------- --------- ---------
</TABLE>
Assumptions used to calculate pension costs and projected benefit
obligations are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
FOR THE THREE FOR THE QUARTER
QUARTERS ENDED ENDED DECEMBER 31,
JANUARY 31, MARCH 31, --------------------
1998 1997 1996 1995
--------------- ----------------- --------- ---------
<S> <C> <C> <C> <C>
Discount rate............................................... 7.5% 8.5% 8.5% 8.5%
Rate of increase in future compensation levels.............. 6.0% 6.5% 6.5% 6.5%
Expected long-term rate of return on plan assets............ 8.75% 8.5% 8.5% 8.5%
</TABLE>
A reconciliation of the funded status to the amounts recorded in the balance
sheet is set forth below (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, MARCH 31, DECEMBER 31,
1998 1997 1996
----------- ---------- ------------
<S> <C> <C> <C>
Vested benefit obligation................................................. $ (50,005) $ (39,869) $ (37,238)
Nonvested benefit obligation.............................................. -- -- --
----------- ---------- ------------
Accumulated benefit obligation.......................................... (50,005) (39,869) (37,238)
Effect of projected future compensation................................... (3,326) (4,153) (3,879)
----------- ---------- ------------
Projected benefit obligation............................................ (53,331) (44,022) (41,117)
Plan assets at fair value................................................. 59,673 51,677 48,479
----------- ---------- ------------
Funded status........................................................... 6,342 7,655 7,362
Unrecognized net transition asset......................................... -- -- (1,361)
Unrecognized net loss (gain).............................................. 1,896 -- (3,244)
----------- ---------- ------------
Prepaid pension cost recorded........................................... $ 8,238 $ 7,655 $ 2,757
----------- ---------- ------------
----------- ---------- ------------
</TABLE>
The Company's German subsidiaries maintain unfunded defined benefit pension
plans covering substantially all eligible employees. The plans were amended in
1992 in a manner that terminated any credit for future service. Pension expense,
therefore, is related primarily to interest cost on the projected benefit
obligation and approximated $1,706,000, $591,000, $2,531,000 and $2,991,000 in
the three quarters ended January 31, 1998, the quarter ended March 31, 1997 and
the years ended December 31, 1996 and
F-18
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. RETIREMENT PLANS (CONTINUED)
1995, respectively. Assumptions used to calculate pension costs and projected
benefit obligations included discount rates of 6.0% in the three quarters ended
January 31, 1998, the quarter ended March 31, 1997 and the year ended December
31, 1996 and 6.5% for the year ended December 31, 1995. Increases in future
compensation levels were assumed at a rate of 3% for all periods presented.
A reconciliation of the funded status to the amounts recorded in the balance
sheet is set forth below (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, MARCH 31, DECEMBER 31,
1998 1997 1996
----------- ---------- ------------
<S> <C> <C> <C>
Vested benefit obligation................................................. $ (34,382) $ (37,014) $ (39,855)
Nonvested benefit obligation.............................................. -- -- --
----------- ---------- ------------
Accumulated benefit obligation.......................................... (34,382) (37,014) (39,855)
Effect of projected future compensation................................... (1,501) (1,514) (2,025)
----------- ---------- ------------
Projected benefit obligation............................................ (35,883) (38,528) (41,880)
Unrecognized net loss..................................................... -- -- 942
----------- ---------- ------------
Accrued pension cost recorded........................................... $ (35,883) $ (38,528) $ (40,938)
----------- ---------- ------------
----------- ---------- ------------
</TABLE>
OTHER BENEFIT PLANS
Metallurg maintains a discretionary defined contribution profit sharing plan
covering substantially all of the salaried employees of Metallurg and its
domestic consolidated subsidiaries. The related expense was $165,000, $62,000,
$229,000 and $208,000 in the three quarters ended January 31, 1998, the quarter
ended March 31, 1997 and the years ended December 31, 1996 and 1995,
respectively.
Balance sheet accruals for pension plans of the Company's other foreign
subsidiaries approximate or exceed the related actuarially computed value of
accumulated benefit obligations. Pension expense relating to the Company's other
foreign subsidiaries' pension plans was $353,000, $96,000, $228,000 and $209,000
for the three quarters ended January 31, 1998, the quarter ended March 31, 1997
and the years ended December 31, 1996 and 1995, respectively.
The Company maintained certain non-qualified retirement benefit arrangements
for certain individuals which, as of the Petition Date, were reflected as
liabilities subject to compromise. Pension expense relating to certain of those
arrangements was $300,000 and $509,000 in the years ended December 31, 1996 and
1995. No expense was recorded for these arrangements subsequent to 1996.
F-19
<PAGE>
METALLURG INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. BORROWINGS
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, MARCH 31, DECEMBER 31,
1998 1997 1996
----------- ----------- -------------
<S> <C> <C> <C>
Parent company and domestic subsidiaries:
Senior Notes............................................................ $ 100,000
12% senior-secured notes................................................ -- $ 39,461
----------- -----------
Subtotal.............................................................. 100,000 39,461
----------- -----------
Foreign subsidiaries:
Germany................................................................. 4,123 5,133 $ 6,061
United Kingdom.......................................................... -- 8,100 --
Other................................................................... 190 294 340
----------- ----------- ------
Subtotal.............................................................. 4,313 13,527 6,401
----------- ----------- ------
Less: amounts due within one year......................................... 1,180 1,277 1,352
----------- ----------- ------
Total long-term debt.................................................... $ 103,133 $ 51,711 $ 5,049
----------- ----------- ------
----------- ----------- ------
</TABLE>
PARENT COMPANY AND DOMESTIC SUBSIDIARIES
In November 1997, Metallurg sold $100,000,000 of its Senior Notes to Salomon
Brothers Inc and BancBoston Securities Inc. (the "Senior Notes Initial
Purchasers"), who resold the Senior Notes to qualified institutional buyers and
accredited investors. These Senior Notes mature in 2007 and accrue interest at a
rate of 11% per annum, payable semi-annually commencing in June 1998. The Senior
Notes are redeemable at the option of the Company, in whole or in part, at any
time on or after December 2002. Prior to December 1, 2000, a maximum of 34% of
the Senior Notes may be redeemed with net proceeds of one or more public equity
offerings of the Company. The Senior Notes are fully and unconditionally
guaranteed by the U.S. subsidiaries of Metallurg on a senior unsecured basis.
The Senior Note Indenture contains limitations on, among other things, the
ability of the Company to incur indebtedness and enter into certain mergers,
consolidations or asset sales. In addition, the Company is generally prohibited
from making dividends in an amount greater than the sum of the net proceeds from
certain equity offerings and 50% of its net income under terms of the Senior
Note Indenture. Approximately $12,000,000 principal amount of the Senior Notes
are held by related parties.
The proceeds received by the Company from the issuance of the Senior Notes
were used to fund an overall recapitalization of the Company, pursuant to which
the Company retired the 12% senior-secured notes, repaid the outstanding balance
on its German short-term borrowings, retired the United Kingdom subsidiary's
term loan and paid a cash dividend and dividend equivalents (aggregating
approximately $20,000,000) to the holders of Metallurg's common stock and stock
options. The balance of the net proceeds will be used for general corporate
purposes.
On March 13, 1998, the Company filed with the Securities and Exchange
Commission a registration statement on Form S-4 with respect to an offer to
exchange the Senior Notes for notes of the Company with substantially identical
terms pursuant to a Registration Agreement entered into on November 20, 1997
among the Company, the Guarantors and the Senior Notes Initial Purchasers.
F-20
<PAGE>
METALLURG INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. BORROWINGS (CONTINUED)
Pursuant to the Plan, Metallurg and Shieldalloy (the "Borrowers") entered
into an agreement with BankBoston, N.A. for a revolving credit facility (the
"Revolving Credit Facility"), in the amount of $40,000,000, to provide working
capital and to finance other general corporate purposes. In October 1997, this
facility was increased to $50,000,000 and the German Subfacility (as discussed
below) was established. Borrowings under this facility bear interest at a rate
per annum equal to (i) the Base Rate plus 1% per annum (the Base Rate is the
greater of BankBoston N.A.'s base rate or the Federal Funds Effective Rate plus
0.5%) or (ii) the reserve adjusted Eurodollar rate plus 2.5% for interest
periods of one, two or three months. The Company is required to pay a fee of
0.375% per annum on the unused portion of the commitment. The total amount the
Borrowers may borrow at any time is limited to a borrowing base calculation
which includes accounts receivable, inventory and fixed assets. The revolving
credit agreement, which expires on April 14, 2000, prohibits the Company from
making dividends and requires the Borrowers to comply with various covenants,
including the maintenance of minimum levels of earnings before interest, taxes,
depreciation and amortization. Substantially all assets of the Borrowers are
pledged as collateral under this agreement. At January 31, 1998, there were no
borrowings under this facility; however, outstanding letters of credit
approximated $27,129,000.
At the Petition Date, the Debtors were in default of certain provisions of
certain debt agreements. With minor exceptions, repayment of the amounts
outstanding at that date had been deferred pursuant to the Chapter 11
proceedings. Subsequent to the Chapter 11 filings, the Debtors did not accrue
interest on any of these obligations, except for secured debt, incurred on or
before the Petition Date. Contractual interest on these unsecured obligations
approximated $2,136,000, $8,600,000 and $9,200,000 in excess of interest expense
reflected in the Statements of Consolidated Operations for the quarter ended
March 31, 1997 and the years ended December 31, 1996 and 1995, respectively.
FOREIGN SUBSIDIARIES
Pursuant to the Revolving Credit Facility, BankBoston, N.A. through its
London office, is providing to GfE and its subsidiaries, up to DM 20,500,000
(approximately $11,400,000) of financing (the "German Subfacility"). The German
Subfacility is guaranteed by Metallurg and the other U.S. borrowers and
outstanding obligations are limited to a borrowing base based on eligible
accounts receivable, eligible inventory and certain equipment. The German
Subfacility contains various covenants that restrict, among other things, the
payment of dividends, share repurchases, capital expenditures, investments in
subsidiaries and borrowings. All accounts receivable, inventory, the stock of
GfE's subsidiaries and certain other assets are pledged to secure the German
Subfacility. The Company used a portion of the proceeds from the Senior Notes to
repay outstanding loans under the German Subfacility, but not to reduce the
related commitment thereunder. At January 31, 1998, there was DM 1,792,000
(approximately $1,000,000) of borrowings under the German Subfacility. The GfE
group also has term loans approximating DM 4,200,000 (approximately $2,350,000)
maturing through 2004 and bearing interest at a weighted average rate of 6.0%.
LSM, a United Kingdom subsidiary, has several credit facilities which
provide LSM and its subsidiaries with up to L7,000,000 (approximately
$11,600,000) of borrowings, up to L3,300,000 (approximately $5,400,000) of
foreign exchange exposure and up to L2,300,000 (approximately $3,800,000) for
other ancillary banking arrangements, including bank guarantees (the "LSM Credit
Facility"). The facility expires in 2000 and bears interest at the lender's base
rate plus 1.0%. The facility is unsecured and contains restrictions on
dividends. In 1997, LSM entered into a L2,000,000 (approximately $3,300,000)
facility for
F-21
<PAGE>
METALLURG INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. BORROWINGS (CONTINUED)
borrowings and foreign exchange exposure. This facility is unsecured and
borrowings bear interest at a rate of 1% over the bank's base rate. At January
31, 1998, there were no borrowings under these facilities. In March 1997, LSM
borrowed L5,000,000 (approximately $8,100,000) which funded a dividend in
connection with the Plan. In November 1997, proceeds of the 11% Senior Notes
were used to retire this term loan.
EWW, a German subsidiary, has committed lines of credit with several banks
in the aggregate amount of DM 15,000,000 (approximately $8,300,000). The credit
facilities decrease by DM 3,000,000 per year beginning in 1999 and currently
bear interest at rates from 7.5% to 8.5%. The credit agreements require EWW to
pledge certain assets, which include accounts receivable, inventory and fixed
assets. At January 31, 1998, there were DM 530,000 (approximately $300,000) of
borrowings under these agreements. EWW also has a term loan of DM 3,200,000
(approximately $1,800,000) maturing in 2001. The term loan is secured by a
mortgage on certain real property and bears interest at 4.5%.
The Company's other foreign subsidiaries maintain short-term secured and
unsecured borrowing arrangements, generally in local currencies, with various
banks. Borrowings under these arrangements aggregated $190,000 at January 31,
1998 at a weighted average interest rate of 12.0%.
Interest expense totaled $8,270,000, $1,706,000, $3,043,000 and $4,851,000
for the three quarters ended January 31, 1998, the quarter ended March 31, 1997
and the years ended December 31, 1996 and 1995.
The scheduled maturities of long-term debt during the next five years are
$1,180,000 in 1998, $995,000 in 1999, $864,000 in 2000, $794,000 in 2001,
$280,000 in 2002 and $100,200,000 thereafter.
10. FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, trade receivables, other
current assets, accounts payable and accrued liabilities approximate fair value
due to the short-term maturities of these assets and liabilities.
Investments in affiliates are accounted for by both the cost and equity
methods and pertain to minor equity investments in companies for which fair
values are not readily available but are believed to exceed carrying amounts.
The aggregate fair value of short-term bank debt approximates its carrying
amount because of recent and frequent re-pricing based on market conditions.
The fair value of the Company's $100,000,000 Senior Notes, issued in
November 1997, approximates $103,700,000, based on quoted market prices. The
carrying amount of other long-term debt approximates fair value.
The Company enters into foreign exchange contracts in the regular course of
business to manage exposure against fluctuations on sales and raw material
purchase transactions denominated in currencies other than the functional
currencies of its businesses. The contracts generally mature within 12 months
and are principally unsecured foreign exchange contracts with carefully selected
banks. The aggregate notional amount of the contracts outstanding as of January
31, 1998 was approximately $44,200,000. The notional values provide an
indication of the extent of the Company's involvement in such instruments but do
not represent its exposure to market risk, which is essentially limited to risk
related to currency rate movements. Unrealized gains on these contracts at
January 31, 1998 were approximately $231,000.
F-22
<PAGE>
METALLURG INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES
For financial reporting purposes, income (loss) before income tax provision
and extraordinary item includes the following components (in thousands):
<TABLE>
<CAPTION>
FOR THE THREE FOR THE QUARTER FOR THE YEARS ENDED
QUARTERS ENDED ENDED DECEMBER 31,
JANUARY 31, MARCH 31, ---------------------
1998 1997 1996 1995
--------------- --------------- ---------- ---------
<S> <C> <C> <C> <C>
United States............................................. $ 3,871 $ 1,472 $ (45,882) $ 7,158
Foreign................................................... 15,652 10,387 25,840 2,678
------- ------- ---------- ---------
Total................................................... $ 19,523 $ 11,859 $ (20,042) $ 9,836
------- ------- ---------- ---------
------- ------- ---------- ---------
</TABLE>
The reconciliation of income tax from continuing operations computed at the
U.S. federal statutory tax rate to the Company's effective tax rate is as
follows (in thousands):
<TABLE>
<CAPTION>
FOR THE THREE FOR THE QUARTER FOR THE YEARS ENDED DECEMBER 31,
QUARTERS ENDED ENDED -------------------------------------
JANUARY 31, MARCH 31,
1998 1997 1996 1995
------------------------ ------------------------ ------------------------ -----------
TAX TAX TAX TAX
PROVISION PROVISION PROVISION PROVISION
(BENEFIT) PERCENT (BENEFIT) PERCENT (BENEFIT) PERCENT (BENEFIT)
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income tax provision at
statutory rate................ $ 6,833 35.0% $ 4,032 34.0% $ (6,814) 34.0% $ 3,344
State and local income taxes,
net of federal income tax
effect........................ 163 0.8 86 0.7 280 (1.4) 98
Effective increase of foreign
valuation allowances and
differences between U.S. and
foreign rates................. 5,190 26.6 (6,886) (58.1) (757) 3.8 7,061
Foreign dividends, less benefit
of foreign tax credit......... 185 0.9 -- -- -- -- --
Changes in domestic valuation
allowance..................... -- -- (500) (4.2) 15,600 (77.8) (2,434)
Other........................... 88 0.5 205 1.7 144 (0.7) 102
----------- --- ----------- ----- ----------- ----- -----------
Total......................... $ 12,459 63.8% $ (3,063) (25.9%) $ 8,453 (42.1%) $ 8,171
----------- --- ----------- ----- ----------- ----- -----------
----------- --- ----------- ----- ----------- ----- -----------
<CAPTION>
PERCENT
-----------
<S> <C>
Income tax provision at
statutory rate................ 34.0%
State and local income taxes,
net of federal income tax
effect........................ 1.0
Effective increase of foreign
valuation allowances and
differences between U.S. and
foreign rates................. 71.8
Foreign dividends, less benefit
of foreign tax credit......... --
Changes in domestic valuation
allowance..................... (24.7)
Other........................... 1.0
-----
Total......................... 83.1%
-----
-----
</TABLE>
F-23
<PAGE>
METALLURG INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES (CONTINUED)
The income tax provision (benefit) represents the following (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
FOR THE THREE FOR THE QUARTER
QUARTERS ENDED ENDED DECEMBER 31,
JANUARY 31, MARCH 31, --------------------
1998 1997 1996 1995
--------------- --------------- --------- ---------
<S> <C> <C> <C> <C>
Current:
U.S........................................................ $ 600
Foreign.................................................... 6,270 $ 573 $ 8,080 $ 8,251
State and local............................................ 251 131 424 149
------- ------- --------- ---------
Total current............................................ 7,121 704 8,504 8,400
------- ------- --------- ---------
Deferred:
U.S........................................................ 940 160 -- 50
Foreign.................................................... 4,398 (3,927) (51) (279)
------- ------- --------- ---------
Total deferred........................................... 5,338 (3,767) (51) (229)
------- ------- --------- ---------
Total income tax provision (benefit)..................... $ 12,459 $ (3,063) $ 8,453 $ 8,171
------- ------- --------- ---------
------- ------- --------- ---------
</TABLE>
The Internal Revenue Service has completed the examination of the
consolidated U.S. federal tax returns for years through 1994. U.S. federal
income tax refunds receivable of $2,070,000 at January 31, 1998 and $1,043,000
at March 31, 1997 and December 31, 1996, relating primarily to the carryback
effect of environmental expenses and net operating losses, are reflected in
prepaid expenses in the accompanying Consolidated Balance Sheets.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax
F-24
<PAGE>
METALLURG INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES (CONTINUED)
purposes. Significant components of the Company's deferred tax assets and
liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, MARCH 31, DECEMBER 31,
1998 1997 1996
----------- ----------- ------------
<S> <C> <C> <C>
Deferred Tax Assets:
NOL and other credit carryforwards...................................... $ 37,295 $ 39,160 $ 47,996
Retirement benefits..................................................... 17,193 18,359 25,950
Environmental liabilities............................................... 16,090 16,976 20,139
Goodwill................................................................ 6,574 7,188 9,570
Allowance for doubtful accounts......................................... 3,646 2,762 445
Fixed assets............................................................ 309 1,848 --
Other................................................................... 1,393 3,907 1,800
----------- ----------- ------------
Total deferred assets................................................. 82,500 90,200 105,900
Deferred tax asset valuation allowance.................................. (72,300) (76,400) (95,100)
----------- ----------- ------------
Net deferred tax assets............................................... 10,200 13,800 10,800
----------- ----------- ------------
Deferred Tax Liabilities:
Fixed assets............................................................ (2,827) (2,088) (2,785)
Pension credits......................................................... (2,549) (2,968) (128)
Tax writeoffs and reserves.............................................. (1,790) (3,339) (3,329)
Inventories............................................................. (1,461) (712) (316)
Earnings of foreign subsidiaries expected to be remitted................ -- (558) (5,851)
Other................................................................... (1,673) (1,835) (691)
----------- ----------- ------------
Total deferred tax liabilities........................................ (10,300) (11,500) (13,100)
----------- ----------- ------------
Net deferred tax (liability) asset.................................. $ (100) $ 2,300 $ (2,300)
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
At January 31, 1998, the Company has net operating loss carryforwards
relating to domestic operations of approximately $2,125,000 (subject to certain
limitations relative to utilization) which expire through 2009 and Alternative
Minimum Tax Credit carryforwards of approximately $700,000 which can be carried
forward indefinitely. The Company's consolidated foreign subsidiaries have
income tax loss carryforwards aggregating approximately $70,200,000, a
substantial portion of which relates to certain Brazilian and German operations
which do not expire under current regulations. Due to significant uncertainties
surrounding the realization of certain loss carryforwards, the related deferred
tax assets have been substantially provided for in the valuation allowances at
January 31, 1998. However, during the period ended March 31, 1997, the Company
determined that a German subsidiary had sufficiently demonstrated the ability to
generate earnings and the valuation allowance of $6,032,000 relating to that
subsidiary was appropriately reversed. Such benefit from a reduction in
valuation allowance was partly offset by a deferred tax provision relating to an
adjustment of U.K. pension liabilities. For the three quarters ended January 31,
1998, approximately $5,200,000 of the deferred tax provision will not result in
cash payments in future periods. The non-cash portion of the deferred tax
provision reflects the deferred tax effects of certain deferred tax assets for
which a corresponding credit has been recorded to "Additional paid-in capital"
approximating $2,900,000 and the deferred tax effects of certain deferred tax
assets, primarily foreign net operating losses, for which a benefit had
previously been recognized in the amount of $2,300,000.
The adoption of fresh-start reporting results in an increase of additional
paid-in capital, rather than an income tax benefit, as the benefits relating to
existing deferred tax assets are recognized.
F-25
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SHAREHOLDERS' EQUITY (DEFICIT)
Shareholders' Equity consists of the following (in thousands):
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN TOTAL
ADDITIONAL CURRENCY RETAINED SHAREHOLDERS'
COMMON PAID-IN TRANSLATION EARNINGS EQUITY
STOCK CAPITAL ADJUSTMENT (DEFICIT) (DEFICIT)
------------- ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994.......................... $ 20 $ 12,543 $ (31,124) $ (18,561)
Net income........................................ -- -- 1,665 1,665
Change in translation adjustment.................. -- (1,056) -- (1,056)
--- ----------- ---------- -------------
Balance at December 31, 1995........................ 20 11,487 (29,459) (17,952)
Net loss.......................................... -- -- (28,495) (28,495)
Change in translation adjustment.................. -- 4,268 -- 4,268
--- ----------- ---------- -------------
Balance at December 31, 1996........................ 20 15,755 (57,954) (42,179)
Net income (excluding effects of the
consummation)................................... -- -- 11,920 11,920
Change in translation adjustment.................. -- (1,224) -- (1,224)
Issuance of new common stock and consummation
adjustments..................................... 30 $ 49,950 (14,531) 46,034 81,483
--- ----------- ----------- ---------- -------------
Balance at March 31, 1997........................... 50 49,950 -- -- 50,000
Net income........................................ -- -- -- 6,272 6,272
Change in translation adjustment.................. -- -- 673 -- 673
Amortization of stock awards...................... -- 1,250 -- -- 1,250
Deferred tax effects of fresh-start adjustments,
certain deferred tax assets and NOL
carryforwards................................... -- 2,906 -- -- 2,906
Dividends paid.................................... -- (13,897) -- (5,433) (19,330)
--- ----------- ----------- ---------- -------------
Balance at January 31, 1998......................... $ 50 $ 40,209 $ 673 $ 839 $ 41,771
--- ----------- ----------- ---------- -------------
--- ----------- ----------- ---------- -------------
</TABLE>
Effective April 14, 1997, the Certificate of Incorporation of the Company
was amended, whereby the authorized number of shares of common stock was
increased to 15,000,000 shares with a par value of $.01 per share, and each
original outstanding share of common stock of the Company was canceled. In
addition, in accordance with the Plan, 4,706,406 shares were issued to
prepetition unsecured claimholders. The Company was subsequently merged into a
new corporation, organized under the laws of the State of Delaware, and all
common shares then outstanding were exchanged on a one-for-one basis for shares
in the new corporation.
On the Effective Date, the Company adopted the SASOP, which is to be
administered by the Compensation Committee of the Board of Directors for a term
of 10 years. Under the terms of the SASOP, the Board may grant stock awards and
stock options (including incentive stock options, nonqualified stock options or
a combination of both) to officers and key employees of the Company. Under the
SASOP, 500,000 shares of common stock were made available for stock awards and
stock options. Pursuant to the Plan, the Board granted to eligible executives
250,000 shares of common stock (the "Initial Stock Awards"). Twenty percent of
each Initial Stock Award was transferable on the date of grant and 40 percent
will become transferable on the first and second anniversary of the date of
grant. Additionally, the Board granted to eligible employees options to purchase
167,000 shares of common stock at $11.38 (fair market
F-26
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SHAREHOLDERS' EQUITY (DEFICIT) (CONTINUED)
value on the date of grant), effective as of September 1, 1997. Such options
vest 33 1/3% on the date of grant and 33 1/3% will vest on the first and second
anniversary of the date of grant.
The Company accounts for the SASOP using the intrinsic value method in
accordance with APB No. 25. Accordingly, compensation expense related to the
Initial Stock Awards of $1,250,000 and $500,000 was recognized in the three
quarters ended January 31, 1998 and the quarter ended March 31, 1997,
respectively, and no compensation expense was recognized for the stock options
granted. The Company elected the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Had the Company used the fair value
method at the date of grant of the stock options, additional compensation
expense would have been recorded, resulting in the following pro forma amounts
(in thousands, except per share data):
<TABLE>
<CAPTION>
THREE QUARTERS
ENDED
JANUARY 31, 1998
-----------------
<S> <C>
Pro forma net income:
Earnings before extraordinary item............................................................. $ 6,818
Extraordinary item, net of tax................................................................. (792)
------
Net income..................................................................................... $ 6,026
------
------
Pro forma basic and diluted earnings per share:
Earnings before extraordinary item............................................................. $ 1.38
Extraordinary item, net of tax................................................................. (0.16)
------
Net income..................................................................................... $ 1.22
------
------
</TABLE>
The weighted average fair value of options granted was $1.47 per share. This
fair value was estimated at the grant date using the Black-Scholes option
pricing model with the following weighted average assumptions:
<TABLE>
<S> <C>
Expected volatility... 13%
Expected dividend Not applicable
yield...............
Expected life......... 24 months
Risk-free interest 5.25%
rate................
</TABLE>
At December 31, 1996, 10,000 shares of common stock were authorized, of
which 2,005 shares were outstanding. This stock had no par value and a stated
value of $10 per share. In addition, 300,000 shares of preferred stock were
authorized, having a par value of $100 per share, of which no shares were
outstanding at December 31, 1996.
F-27
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. OTHER INCOME (EXPENSE), NET
Other income (expense), net consists of the following (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
FOR THE THREE FOR THE QUARTER
QUARTERS ENDED ENDED DECEMBER 31,
JANUARY 31, MARCH 31, --------------------
1998 1997 1996 1995
--------------- --------------- --------- ---------
<S> <C> <C> <C> <C>
Net gain on asset sales..................................... $ 1,888 $ 3,266 $ 3,597 $ 1,971
Additional institutional claims............................. -- -- (1,706) --
District 65 Pension Plan claims............................. -- -- (5,050) --
Prepetition environmental claims............................ -- -- (3,791) --
Other, net.................................................. (83) (87) 191 (1,964)
------ ------ --------- ---------
Total..................................................... $ 1,805 $ 3,179 $ (6,759) $ 7
------ ------ --------- ---------
------ ------ --------- ---------
</TABLE>
In the three quarters ended January 31, 1998, one of the Company's German
subsidiaries sold certain plant assets no longer in productive use and recorded
a gain of approximately $1,700,000.
During 1997 and 1995, Metallurg sold two of its commercial real estate
properties located in New York City in contemplation of the Plan. Gains of
$2,747,000 and $765,000 are reflected in other income in the quarter ended March
31, 1997 and the year ended December 31, 1995, respectively.
Upon reaching settlement in 1996 with various prepetition creditors, the
District 65 Pension Plan and certain environmental regulatory authorities, the
Debtors recorded additional expenses of approximately $10,500,000.
In 1995, Turk Maadin Sirketi A.S., a Turkish chrome ore mining operation,
entered into an agreement to sell a parcel of land no longer in productive use
in an installment sale arrangement. As a result, gains on this transaction of
$3,787,000 in 1996 and $960,000 in 1995 have been reflected in other income.
14. ENVIRONMENTAL LIABILITIES
Shieldalloy operates manufacturing facilities in Newfield, New Jersey and
Cambridge, Ohio which produce alloys and other specialty products. The
historical manufacture of several products at the two facilities has resulted in
the production of various by-products which Shieldalloy is obligated to clean up
under federal and state environmental laws and regulations. These clean-up
obligations are under the jurisdiction of the United States Environmental
Protection Agency, the New Jersey Department of Environmental Protection, the
Ohio Environmental Protection Agency, the United States Nuclear Regulatory
Commission ("NRC"), the United States Department of Interior and the Ohio
Department of Health. The Company has also provided for certain estimated costs
associated with its sites in Germany and Brazil.
F-28
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. ENVIRONMENTAL LIABILITIES (CONTINUED)
Total environmental liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, MARCH 31, DECEMBER 31,
1998 1997 1996
----------- ----------- ------------
<S> <C> <C> <C>
Domestic:
Shieldalloy--New Jersey................................................. $ 30,925 $ 32,584 $ 33,540
Shieldalloy--Ohio....................................................... 11,797 12,264 12,600
----------- ----------- ------------
42,722 44,848 46,140
Foreign................................................................... 5,201 6,086 6,598
----------- ----------- ------------
Total environmental liabilities......................................... 47,923 50,934 52,738
Less: trust funds......................................................... 2,843 2,799 8,727
----------- ----------- ------------
Net environmental liabilities........................................... 45,080 48,135 44,011
Less: current portion..................................................... 6,553 5,270 9,374
----------- ----------- ------------
Environmental liabilities............................................... $ 38,527 $ 42,865 $ 34,637
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
Shieldalloy entered into Administrative Consent Orders ("ACO's") with the
State of New Jersey, dated October 5, 1988 and September 5, 1984, under which
Shieldalloy, as required, has conducted a remedial investigation and feasibility
study ("RI/FS") of alternatives to remedy groundwater contamination at the
Newfield facility. The ACO's also require Shieldalloy to evaluate, and where
appropriate, remediate certain additional environmental conditions pursuant to
state laws and regulations. These activities include the closure of nine
wastewater lagoons, soil remediation, surface water and sediment cleanup, as
well as miscellaneous operation and maintenance activities and onsite controls.
The Company accrued its best estimate of the associated costs with respect to
remedial activities at the site which it expects to disburse over the next
fifteen years. During 1995, $8,000,000 in a prepetition letter of credit was
drawn upon and deposited in a trust fund. During the quarter ended March 31,
1997, remaining prepetition letters of credit, in the amount of $8,200,000, were
drawn upon and deposited in a trust fund. Subsequently, pursuant to an agreement
with the State of New Jersey, the Company was permitted to withdraw cash from
the environmental trust and substitute letters of credit in an equivalent dollar
amount. At January 31, 1998, outstanding letters of credit issued as financial
assurances in favor of various environmental agencies total $21,419,000. The
costs of providing financial assurance over the term of the remediation
activities have been contemplated in the accrued amounts.
As a result of NRC-regulated manufacturing activities, slag piles have
accumulated at the Cambridge and Newfield sites which contain low levels of
naturally occurring radioactivity. As related production has ceased at the
Cambridge location, Shieldalloy is required to decommission the slag piles.
Shieldalloy obtained approval from the State of Ohio and is currently awaiting
approval from the NRC to stabilize and cap the slag piles in situ. As long as
production continues at the Newfield location, the NRC will allow the slag pile
to remain in place, subject to submission of a conceptual decommissioning plan
and financial assurance for implementation of that plan. The Company's
obligation for decommissioning costs for these sites is partially assured by
cash funds held in trust. As a condition precedent to consummation of the Plan,
$1,500,000 in a prepetition letter of credit, relating to both the Newfield and
Cambridge facilities, was drawn upon and deposited in a trust fund.
In 1987, Shieldalloy purchased the Cambridge manufacturing facility from
Foote Mineral Company. Cyprus Foote Mineral Company ("Cyprus Foote") is the
successor in interest to Foote. During 1995,
F-29
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. ENVIRONMENTAL LIABILITIES (CONTINUED)
Shieldalloy, Cyprus Foote and the State of Ohio entered into a Consent Order for
Permanent Injunction (the "Consent Order") under which Shieldalloy and Cyprus
Foote agreed to conduct an RI/FS of the Cambridge site and the State of Ohio
agreed to review such information on an expedited basis and issue a Preferred
Plan setting forth a final remedy for the site. On December 16, 1996, the State
of Ohio issued its Preferred Plan and, subsequently, Shieldalloy and Cyprus
Foote agreed to perform remedial design and remedial action at the site. These
activities include remediation of slag piles, clean up of wetland soils and
clean up of on-site and off-site sediments. Pursuant to the Consent Order,
Shieldalloy and Cyprus Foote are jointly and severally liable to the State of
Ohio in respect of these obligations. However, Shieldalloy has agreed with
Cyprus Foote that it shall perform and be liable for the performance of these
remedial obligations. Therefore, the Company has accrued its best estimate of
associated costs which it expects to substantially disburse over the next six
years. With respect to the financial assurance obligations to the State of Ohio,
Cyprus Foote has agreed to provide financial assurance of approximately
$9,000,000 as required by the State of Ohio and Shieldalloy has purchased an
annuity contract which will provide for future payments into the trust fund to
cover certain of the estimated operation and maintenance costs over the next 100
years.
The Company's German subsidiaries have accrued environmental liabilities in
the amounts of $4,827,000, $5,611,000 and $5,918,000 at January 31, 1998, March
31, 1997 and December 31, 1996, respectively, to cover the costs of closing an
off-site dump and for certain environmental conditions at a subsidiary's
Nuremberg site. In Brazil, costs of $374,000, $475,000 and $506,000 have been
accrued at January 31, 1998, March 31, 1997 and December 31, 1996, respectively,
to cover reclamation costs of the closed mine sites.
15. CONTINGENT LIABILITIES
In addition to environmental matters which are discussed in Note 13, the
Company continues defending various claims and legal actions arising in the
normal course of business. Management believes, based on the advice of counsel,
that the outcome of such litigation will not have a material adverse effect on
the Company's consolidated financial position or results of operations.
16. LEASES
The Company leases office space, facilities and equipment. The leases
generally provide that the Company pay the tax, insurance and maintenance
expenses related to the leased assets. At January 31, 1998, future minimum lease
payments required under non-cancelable operating leases having remaining lease
terms in excess of one year are as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
- -------------------------------------------------------------------------------------
<S> <C>
1999................................................................................. $ 1,431
2000................................................................................. 1,322
2001................................................................................. 1,074
2002................................................................................. 945
2003................................................................................. 715
Thereafter........................................................................... 3,626
---------
Total.............................................................................. $ 9,113
---------
---------
</TABLE>
F-30
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. LEASES (CONTINUED)
Rent expense under operating leases for the three quarters ended January 31,
1998, the quarter ended March 31, 1997 and the years ended December 31, 1996 and
1995 was $938,000, $511,000, $868,000 and $815,000, respectively.
In December 1996, Metallurg entered into a fifteen year lease for its new
headquarters location. No rent payments are required for the first 15 months of
the lease. Such rental concessions are being amortized over the lease term on a
straight-line basis.
17. SUBSEQUENT EVENTS
During February 1998, the Company purchased an additional 5% interest in
SMW, a Russian magnesium metal producer, for approximately $2,000,000. Also
during March 1998, the Company sold its minority investment in Compagnie des
Mines et Metaux S.A., a Luxembourg affiliate, for proceeds of approximately
$1,100,000, resulting in a gain of approximately $900,000.
18. SUPPLEMENTAL GUARANTOR INFORMATION
Under the terms of the Senior Notes, Shieldalloy, Metallurg Holdings
Corporation, Metallurg Services, Inc. and MIR (China), Inc. (collectively, the
"Guarantors"), wholly owned domestic subsidiaries of the Company, will fully and
unconditionally guarantee on a joint and several basis the Company's obligations
to pay principal, premium and interest in respect of the Senior Notes due 2007.
Management has determined that separate, full financial statements of the
Guarantors would not be material to potential investors and, accordingly, such
financial statements are not provided. Supplemental financial information of the
Guarantors is presented below:
F-31
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE QUARTERS ENDED JANUARY 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
METALLURG, GUARANTOR NON-GUARANTOR
INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenue..................................... $ 43,047 $ 150,569 $ 364,611 $ (81,260) $ 476,967
------- ----------- -------------- ------------ ------------
Operating costs and expenses:
Cost of sales................................... 39,279 134,990 315,954 (80,190) 410,033
Selling, general and
administrative expenses....................... 7,187 7,552 28,824 -- 43,563
------- ----------- -------------- ------------ ------------
Total operating costs and expenses................ 46,466 142,542 344,778 (80,190) 453,596
------- ----------- -------------- ------------ ------------
Operating income (loss)........................... (3,419) 8,027 19,833 (1,070) 23,371
Other:
Other income (expense), net..................... (28) 158 1,675 -- 1,805
Interest income (expense), net.................. (4,639) 605 (1,619) -- (5,653)
Equity in earnings of subsidiaries.............. 13,903 2,530 -- (16,433) --
------- ----------- -------------- ------------ ------------
Income before income tax provision and
extraordinary item............................... 5,817 11,320 19,889 (17,503) 19,523
Income tax (benefit) provision.................... (1,165) 2,910 10,714 -- 12,459
------- ----------- -------------- ------------ ------------
Net income before extraordinary item.............. 6,982 8,410 9,175 (17,503) 7,064
Extraordinary item, net of tax.................... (710) -- (82) -- (792)
------- ----------- -------------- ------------ ------------
Net income........................................ $ 6,272 $ 8,410 $ 9,093 $ (17,503) $ 6,272
------- ----------- -------------- ------------ ------------
------- ----------- -------------- ------------ ------------
</TABLE>
F-32
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET AT JANUARY 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
METALLURG, GUARANTOR NON-GUARANTOR
INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....................... $ 15,883 $ 724 $ 26,396 $ 43,003
Accounts and notes receivable, net.............. 31,713 43,665 67,403 $ (58,850) 83,931
Inventories..................................... 6,122 39,823 75,389 (3,745) 117,589
Other assets.................................... 6,400 230 7,609 -- 14,239
-------------- ----------- -------------- ------------ ------------
Total current assets........................ 60,118 84,442 176,797 (62,595) 258,762
Investments--intergroup........................... 91,464 50,666 -- (142,130) --
Investments--other................................ 244 -- 1,366 -- 1,610
Property, plant and equipment, net................ 1,024 6,805 33,673 -- 41,502
Other assets...................................... 13,790 4 12,666 (8,548) 17,912
-------------- ----------- -------------- ------------ ------------
Total....................................... $ 166,640 $ 141,917 $ 224,502 $ (213,273) $ 319,786
-------------- ----------- -------------- ------------ ------------
-------------- ----------- -------------- ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt and current portion of long-term
debt.......................................... $ 4,016 $ 4,016
Trade payables.................................. $ 964 $ 18,198 51,075 $ (18,929) 51,308
Accrued expenses................................ 4,543 4,022 15,457 -- 24,022
Loans payable--intergroup....................... 17,175 3,925 28,820 (49,920) --
Other current liabilities....................... 400 5,165 6,094 -- 11,659
-------------- ----------- -------------- ------------ ------------
Total current liabilities................... 23,082 31,310 105,462 (68,849) 91,005
-------------- ----------- -------------- ------------ ------------
Long-term Liabilities
Long-term debt.................................. 100,000 -- 3,133 -- 103,133
Accrued pension liabilities..................... 392 1,691 36,268 -- 38,351
Environmental liabilities, net.................. -- 35,179 3,348 -- 38,527
Other liabilities............................... 1,395 -- 14,153 (8,549) 6,999
-------------- ----------- -------------- ------------ ------------
Total long-term liabilities................. 101,787 36,870 56,902 (8,549) 187,010
-------------- ----------- -------------- ------------ ------------
Total liabilities........................... 124,869 68,180 162,364 (77,398) 278,015
-------------- ----------- -------------- ------------ ------------
Shareholders' Equity:
Common stock.................................... 50 1,227 80,358 (81,585) 50
Additional paid-in capital...................... 40,209 90,867 1,104 (91,971) 40,209
Cumulative foreign currency translation
adjustment.................................... 673 1,109 22,386 (23,495) 673
Retained earnings (deficit)..................... 839 (19,466) (41,710) 61,176 839
-------------- ----------- -------------- ------------ ------------
Shareholder's equity.......................... 41,771 73,737 62,138 (135,875) 41,771
-------------- ----------- -------------- ------------ ------------
Total....................................... $ 166,640 $ 141,917 $ 224,502 $ (213,273) $ 319,786
-------------- ----------- -------------- ------------ ------------
-------------- ----------- -------------- ------------ ------------
</TABLE>
F-33
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE THREE QUARTERS ENDED JANUARY 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
METALLURG, GUARANTOR NON-GUARANTOR
INC. SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
-------------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities.................. $ (13,977) $ (1,263) $ 14,894 $ (346)
-------------- ----------- ------- ------------
Cash Flows from Investing Activities:
Additions to property, plant and equipment.......... (330) (1,086) (8,031) (9,447)
Proceeds from asset sales........................... 9 106 3,632 3,747
Other, net.......................................... 77 -- (63) 14
-------------- ----------- ------- ------------
Net cash (used in) provided by investing activities... (244) (980) (4,462) (5,686)
-------------- ----------- ------- ------------
Cash Flows from Financing Activities:
Intergroup borrowings (repayments).................. (21,053) 1,322 20,544 813
Proceeds from long-term debt........................ 100,000 -- -- 100,000
Fees paid to issue long-term debt................... (4,000) -- -- (4,000)
Net repayment of short-term debt.................... -- -- (10,126) (10,126)
Repayment of long-term debt......................... (39,461) -- (8,848) (48,309)
Intergroup dividends received (paid)................ 5,585 -- (5,585) --
Dividends paid...................................... (19,330) -- -- (19,330)
-------------- ----------- ------- ------------
Net financing provided by (used in) financing
activities........................................... 21,741 1,322 (4,015) 19,048
-------------- ----------- ------- ------------
Effects of exchange rate changes on cash and cash
equivalents.......................................... -- -- (353) (353)
-------------- ----------- ------- ------------
Net increase (decrease) in cash and cash
equivalents.......................................... 7,520 (921) 6,064 12,663
Cash and cash equivalents--beginning of period........ 8,363 1,645 20,332 30,340
-------------- ----------- ------- ------------
Cash and cash equivalents--end of period.............. $ 15,883 $ 724 $ 26,396 $ 43,003
-------------- ----------- ------- ------------
-------------- ----------- ------- ------------
</TABLE>
F-34
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
METALLURG, GUARANTOR NON-GUARANTOR
INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenue..................................... $ 10,578 $ 52,475 $ 117,652 $ (25,118) $ 155,587
------- ----------- -------------- ------------ ------------
Operating costs and expenses:
Cost of sales................................... 10,219 47,590 100,709 (24,458) 134,060
Selling, general and administrative expenses.... 2,662 2,118 10,266 -- 15,046
------- ----------- -------------- ------------ ------------
Total operating costs and expenses................ 12,881 49,708 110,975 (24,458) 149,106
------- ----------- -------------- ------------ ------------
Operating (loss) income........................... (2,303) 2,767 6,677 (660) 6,481
Other:
Other (expense) income, net..................... (7,041) 9,903 317 -- 3,179
Interest (expense) income, net.................. (795) 554 (4) -- (245)
Reorganization expense.......................... (1,698) (965) -- -- (2,663)
Fresh-start revaluation......................... 11,652 (6,305) (240) -- 5,107
Equity in earnings of subsidiaries.............. (6,216) -- -- 6,216 --
------- ----------- -------------- ------------ ------------
Income before income tax provision and
extraordinary item.............................. (6,401) 5,954 6,750 5,556 11,859
Income tax provision (benefit).................... (241) 30 (2,852) -- (3,063)
------- ----------- -------------- ------------ ------------
Income (loss) before extraordinary item........... (6,160) 5,924 9,602 5,556 14,922
Extraordinary item, net of tax.................... 64,114 (17,036) (4,046) -- 43,032
------- ----------- -------------- ------------ ------------
Net income........................................ $ 57,954 $ (11,112) $ 5,556 $ 5,556 $ 57,954
------- ----------- -------------- ------------ ------------
------- ----------- -------------- ------------ ------------
</TABLE>
F-35
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET AT MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
METALLURG, GUARANTOR NON-GUARANTOR
INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............. $ 8,363 $ 1,645 $ 20,332 $ 30,340
Accounts and notes receivable, net.... 16,664 43,011 79,068 $ (44,593) 94,150
Inventories........................... 4,300 31,900 75,733 (2,675) 109,258
Other assets.......................... 4,342 308 11,662 -- 16,312
Assets held for sale.................. -- -- 1,180 -- 1,180
-------------- ----------- -------------- ------------ ------------
Total current assets................ 33,669 76,864 187,975 (47,268) 251,240
Investments--intergroup................. 78,591 49,632 -- (128,223) --
Investments--other...................... 244 -- 1,217 -- 1,461
Property, plant and equipment, net...... 828 6,967 31,112 -- 38,907
Other assets............................ 1,663 -- 12,433 -- 14,096
-------------- ----------- -------------- ------------ ------------
Total............................... $ 114,995 $ 133,463 $ 232,737 $ (175,491) $ 305,704
-------------- ----------- -------------- ------------ ------------
-------------- ----------- -------------- ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt and current portion of
long-term debt...................... $ 14,777 $ 14,777
Trade payables........................ $ 16,992 $ 17,708 56,386 $ (35,139) 55,947
Accrued expenses...................... 6,389 4,517 14,445 -- 25,351
Loans payable--intergroup............. -- 1,353 18,101 (19,454) --
Other current liabilities............. 236 5,429 6,184 -- 11,849
-------------- ----------- -------------- ------------ ------------
Total current liabilities........... 23,617 29,007 109,893 (54,593) 107,924
-------------- ----------- -------------- ------------ ------------
Long-term Liabilities:
Long-term debt........................ 39,461 -- 12,250 -- 51,711
Accrued pension liabilities........... 522 1,621 38,947 -- 41,090
Environmental liabilities, net........ -- 36,949 5,916 -- 42,865
Other liabilities..................... 1,395 -- 10,772 (53) 12,114
-------------- ----------- -------------- ------------ ------------
Total long-term liabilities......... 41,378 38,570 67,885 (53) 147,780
-------------- ----------- -------------- ------------ ------------
Total liabilities................... 64,995 67,577 177,778 (54,646) 255,704
-------------- ----------- -------------- ------------ ------------
Shareholders' Equity:
Common stock.......................... 50 1,227 80,226 (81,453) 50
Additional paid-in capital............ 49,950 90,867 222 (91,089) 49,950
Cumulative foreign currency
translation adjustment.............. -- -- 21,704 (21,704) --
Regained earnings (deficit)........... -- (26,208) (47,193) 73,401 --
-------------- ----------- -------------- ------------ ------------
Shareholders' equity................ 50,000 65,886 54,959 (120,845) 50,000
-------------- ----------- -------------- ------------ ------------
Total............................. $ 114,995 $ 133,463 $ 232,737 $ (175,491) $ 305,704
-------------- ----------- -------------- ------------ ------------
-------------- ----------- -------------- ------------ ------------
</TABLE>
F-36
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE QUARTER ENDED MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
METALLURG, GUARANTOR NON-GUARANTOR
INC. SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
-------------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities.................. $ (1,796) $ 7,677 $ 535 $ 6,416
------- ----------- -------------- ------------
Cash Flows from Investing Activities:
Additions to property, plant and equipment.......... (711) (311) (1,752) (2,774)
Proceeds from asset sales........................... 4,215 -- 751 4,966
Other, net.......................................... -- -- (25) (25)
------- ----------- -------------- ------------
Net cash provided by (used in) investing activities... 3,504 (311) (1,026) 2,167
------- ----------- -------------- ------------
Cash Flows from Financing and Reorganization
Activities:
Cash distribution pursuant to Plan of
Reorganization.................................... (55,865) (3,501) -- (59,366)
Drawdown of prepetition letter of credit............ 9,700 -- -- 9,700
Intergroup borrowings (repayments).................. 2,088 (2,652) 564 --
Proceeds from long-term debt........................ -- -- 8,100 8,100
Net short-term borrowing............................ -- -- 1,062 1,062
Repayment of long-term debt......................... -- -- (487) (487)
Dividends received (paid)........................... 9,423 -- (9,423) --
------- ----------- -------------- ------------
Net cash used in financing and reorganization
activities.......................................... (34,654) (6,153) (184) (40,991)
------- ----------- -------------- ------------
Effects of exchange rate changes on cash and cash
equivalents......................................... -- -- (526) (526)
------- ----------- -------------- ------------
Net (decrease) increase in cash and cash
equivalents......................................... (32,946) 1,213 (1,201) (32,934)
Cash and cash equivalents--beginning of quarter....... 41,309 432 21,533 63,274
------- ----------- -------------- ------------
Cash and cash equivalents--end of quarter............. $ 8,363 $ 1,645 $ 20,332 $ 30,340
------- ----------- -------------- ------------
------- ----------- -------------- ------------
</TABLE>
F-37
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
METALLURG, GUARANTOR NON-GUARANTOR
INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenue.......................... $ 35,536 $ 199,864 $ 489,110 $ (74,508) $ 650,002
Operating costs and expenses:
Cost of sales........................ 33,640 185,827 420,929 (73,858) 566,538
Selling, general and
administrative expenses............ 5,150 9,363 42,590 -- 57,103
Environmental expenses............... -- 35,176 2,406 -- 37,582
-------------- ----------- -------------- ------------ ------------
Total operating costs and
expenses............................. 38,790 230,366 465,925 (73,858) 661,223
-------------- ----------- -------------- ------------ ------------
Operating income (loss)................ (3,254) (30,502) 23,185 (650) (11,221)
Other:
Other income (expense), net.......... (11,881) (9,897) 11,200 3,819 (6,759)
Interest income (expense), net....... 1,254 1,517 (1,298) -- 1,473
Reorganization expense............... (1,500) (2,035) -- -- (3,535)
Equity in earnings (losses)
of subsidiaries.................... (13,041) 231 -- 12,810 --
-------------- ----------- -------------- ------------ ------------
Income (loss) before income
tax provision........................ (28,422) (40,686) 33,087 15,979 (20,042)
Income tax provision (benefit) 73 128 8,252 -- 8,453
-------------- ----------- -------------- ------------ ------------
Net income........................... $ (28,495) $ (40,814) $ 24,835 $ 15,979 $ (28,495)
-------------- ----------- -------------- ------------ ------------
-------------- ----------- -------------- ------------ ------------
</TABLE>
F-38
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET AT DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
METALLURG, GUARANTOR NON-GUARANTOR
INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............. $ 41,309 $ 432 $ 21,533 $ 63,274
Accounts and notes receivable, net.... 40,613 60,521 75,135 $ (87,674) 88,595
Inventories........................... 6,392 29,155 72,831 (2,015) 106,363
Other assets.......................... 3,996 255 10,064 -- 14,315
Assets held for sale.................. 1,843 -- -- -- 1,843
-------------- ----------- -------------- ------------ ------------
Total current assets................ 94,153 90,363 179,563 (89,689) 274,390
Investments--intergroup................. 52,622 -- -- (52,622) --
Investments--other...................... 1,530 -- 1,408 -- 2,938
Property, plant and equipment, net...... 364 11,053 36,468 -- 47,885
Other assets............................ 10,030 4,699 4,841 (13,157) 6,413
-------------- ----------- -------------- ------------ ------------
Total............................... $ 158,699 $ 106,115 $ 222,280 $ (155,468) $ 331,626
-------------- ----------- -------------- ------------ ------------
-------------- ----------- -------------- ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Short-term debt and current portion of
long-term debt...................... $ 14,820 $ 14,820
Trade payables........................ $ 22,296 $ 16,249 48,405 $ (38,686) 48,264
Accrued expenses...................... 4,913 3,531 13,155 -- 21,599
Loans payable--intergroup............. -- 10,101 17,268 (27,369) --
Other current liabilities............. 235 9,501 7,237 (1,000) 15,973
-------------- ----------- -------------- ------------ ------------
Total current liabilities........... 27,444 39,382 100,885 (67,055) 100,656
-------------- ----------- -------------- ------------ ------------
Long-term Liabilities:
Long-term debt........................ -- -- 5,049 -- 5,049
Accrued pension liabilities........... 1,441 -- 42,485 -- 43,926
Environmental liabilities, net........ -- 28,213 6,424 -- 34,637
Other liabilities..................... -- 8,727 9,690 (8,777) 9,640
-------------- ----------- -------------- ------------ ------------
Total long-term liabilities......... 1,441 36,940 63,648 (8,777) 93,252
-------------- ----------- -------------- ------------ ------------
Liabilities Subject to Compromise....... 171,993 42,902 -- (34,998) 179,897
-------------- ----------- -------------- ------------ ------------
Total liabilities................... 200,878 119,224 164,533 (110,830) 373,805
-------------- ----------- -------------- ------------ ------------
Shareholders' Equity (Deficit):
Common stock.......................... 20 1,987 80,424 (82,411) 20
Cumulative foreign currency
translation adjustment.............. 15,755 -- 21,816 (21,816) 15,755
Retained earnings (deficit)........... (57,954) (15,096) (44,493) 59,589 (57,954)
-------------- ----------- -------------- ------------ ------------
Shareholders' equity (deficit)........ (42,179) (13,109) 57,747 (44,638) (42,179)
-------------- ----------- -------------- ------------ ------------
Total............................... $ 158,699 $ 106,115 $ 222,280 $ (155,468) $ 331,626
-------------- ----------- -------------- ------------ ------------
-------------- ----------- -------------- ------------ ------------
</TABLE>
F-39
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
METALLURG, GUARANTOR NON-GUARANTOR
INC. SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
-------------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities.................. $ 1,922 $ 9,748 $ 35,995 $ 47,665
------- ----------- ------- ------------
Cash Flows from Investing Activities:
Additions to property, plant and equipment.......... (90) (599) (8,842) (9,531)
Proceeds from asset sales........................... -- 493 5,313 5,806
Other, net.......................................... (6,192) 25 4,873 (1,294)
------- ----------- ------- ------------
Net cash (used in) provided by investing activities... (6,282) (81) 1,344 (5,019)
------- ----------- ------- ------------
Cash Flows from Financing Activities:
Intergroup borrowings (repayments).................. 16,108 (10,223) (5,885) --
Net repayment of short-term debt.................... -- -- (14,709) (14,709)
Repayment of long-term debt......................... -- -- (1,408) (1,408)
Dividends received (paid)........................... 5,091 -- (5,091) --
------- ----------- ------- ------------
Net cash provided by (used in) financing activities... 21,199 (10,223) (27,093) (16,117)
------- ----------- ------- ------------
Effects of exchange rate changes on cash and cash
equivalents......................................... -- -- (83) (83)
------- ----------- ------- ------------
Net increase (decrease) in cash and cash
equivalents......................................... 16,839 (556) 10,163 26,446
Cash and cash equivalents--beginning of year.......... 24,470 988 11,370 36,828
------- ----------- ------- ------------
Cash and cash equivalents--end of year................ $ 41,309 $ 432 $ 21,533 $ 63,274
------- ----------- ------- ------------
------- ----------- ------- ------------
</TABLE>
F-40
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
METALLURG, GUARANTOR NON-GUARANTOR
INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenue........................... $ 40,858 $ 190,417 $ 534,687 $ (76,598) $ 689,364
------- ----------- -------------- ------------ ------------
Operating costs and expenses:
Cost of sales......................... 39,385 170,504 470,244 (76,598) 603,535
Selling, general and administrative
expenses............................ 4,600 8,745 39,497 -- 52,842
Environmental expenses................ -- 1,657 3,967 -- 5,624
Restructuring charges................. -- -- 11,658 -- 11,658
------- ----------- -------------- ------------ ------------
Total operating costs and expenses...... 43,985 180,906 525,366 (76,598) 673,659
------- ----------- -------------- ------------ ------------
Operating income (loss)................. (3,127) 9,511 9,321 -- 15,705
Other:
Other income (expense), net........... 1,270 (339) (924) -- 7
Interest income (expense), net........ 900 1,026 (3,875) -- (1,949)
Reorganization expense................ (1,615) (2,312) -- -- (3,927)
Equity in earnings of subsidiaries.... 3,312 1,203 -- (4,515) --
------- ----------- -------------- ------------ ------------
Income before income tax provision...... 740 9,089 4,522 (4,515) 9,836
Income tax provision (benefit).......... (925) 308 8,788 -- 8,171
------- ----------- -------------- ------------ ------------
Net income (loss)..................... $ 1,665 $ 8,781 $ (4,266) $ (4,515) $ 1,665
------- ----------- -------------- ------------ ------------
------- ----------- -------------- ------------ ------------
</TABLE>
F-41
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
METALLURG, GUARANTOR NON-GUARANTOR
INC. SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
-------------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities.................. $ (2,571) $ (1,685) $ 9,914 $ 5,658
-------------- ----------- ------- ------------
Cash Flows from Investing Activities:
Additions to property, plant and equipment.......... (116) (1,461) (5,135) (6,712)
Proceeds from asset sales........................... 940 54 1,669 2,663
Other, net.......................................... -- -- 104 104
-------------- ----------- ------- ------------
Net cash provided by (used in) investing activities... 824 (1,407) (3,362) (3,945)
-------------- ----------- ------- ------------
Cash Flow from Financing Activities:
Drawdown of prepetition letter of credit............ 8,000 -- -- 8,000
Intergroup borrowings (repayments).................. (1,107) 2,175 (1,068) --
Net short-term borrowing............................ -- -- 420 420
Repayment of long-term debt......................... -- -- (2,238) (2,238)
Dividends received (paid)........................... 6,407 -- (6,407) --
-------------- ----------- ------- ------------
Net cash provided by (used in) financing activities... 13,300 2,175 (9,293) 6,182
-------------- ----------- ------- ------------
Effects of exchange rate changes on cash and cash
equivalents......................................... -- -- 774 774
-------------- ----------- ------- ------------
Net increase (decrease) in cash and cash
equivalents......................................... 11,553 (917) (1,967) 8,669
Cash and cash equivalents--beginning of year.......... 12,917 1,905 13,337 28,159
-------------- ----------- ------- ------------
Cash and cash equivalents--end of year................ $ 24,470 $ 988 $ 11,370 $ 36,828
-------------- ----------- ------- ------------
-------------- ----------- ------- ------------
</TABLE>
F-42
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
(1) (2)
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS END
DESCRIPTION OF PERIOD EXPENSES --DESCRIBE-- --DESCRIBE-- OF PERIOD
- ---------------------------------------------- ----------- ----------- ------------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995:
Accounts receivable allowance for doubtful
accounts.................................... $ 5,513 $ 1,669 -- $ (3,187)(a) $ 3,995
YEAR ENDED DECEMBER 31, 1996:
Accounts receivable allowance for doubtful
accounts.................................... $ 3,995 $ 696 -- $ (388)(a) $ 4,303
QUARTER ENDED MARCH 31, 1997:
Accounts receivable allowance for doubtful
accounts.................................... $ 4,303 $ 162 -- $ (4,465)(b) $ --
THREE QUARTERS ENDED JANUARY 31, 1998:
Accounts receivable allowance for doubtful
accounts.................................... $ -- $ 1,700 -- -- $ 1,700
</TABLE>
- ------------------------
<TABLE>
<S> <C> <C>
(a) Uncollectible accounts written
off, less recoveries.
(b) Uncollectible accounts written
off, less recoveries............ $ (376)
Elimination of historical
allowance account upon
revaluation of assets to fair
value in accordance with
fresh-start reporting at March
31, 1997........................ (4,089)
---------
$ (4,465)
---------
---------
</TABLE>
F-43
<PAGE>
UNAUDITED FINANCIAL STATEMENTS
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
REORGANIZED PREDECESSOR
COMPANY COMPANY
------------ -----------
QUARTER QUARTER
ENDED ENDED
APRIL 30, MARCH 31,
1998 1997
------------ -----------
<S> <C> <C>
Total revenue................................................... $ 167,830 $ 155,587
------------ -----------
Operating costs and expenses:
Cost of sales................................................. 139,008 134,060
Selling, general and administrative expenses.................. 14,761 15,046
------------ -----------
Total operating costs and expenses............................ 153,769 149,106
------------ -----------
Operating income............................................ 14,061 6,481
Other income (expense):
Other income, net............................................. 878 3,179
Interest income (expense), net................................ (2,072) (245)
Reorganization expense........................................ -- (2,663)
Fresh-start revaluation....................................... -- 5,107
------------ -----------
Income before income tax provision and extraordinary item....... 12,867 11,859
Income tax provision (benefit).................................. 6,077 (3,063)
------------ -----------
Net income before extraordinary item.......................... 6,790 14,922
Extraordinary item.............................................. -- 43,032
------------ -----------
Net income...................................................... $ 6,790 $ 57,954
------------ -----------
------------ -----------
Weighted average shares outstanding............................. 4,956
------------
------------
Basic and diluted earnings per share............................ $1.37
------------
------------
</TABLE>
See notes to condensed unaudited consolidated financial statements.
F-44
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
REORGANIZED PREDECESSOR
COMPANY COMPANY
------------- -------------
QUARTER ENDED QUARTER ENDED
APRIL30, 1998 MARCH31,1997
------------- -------------
Net income....................................................... $ 6,790 $ 57,954
<S> <C> <C>
Other comprehensive income (loss):
Foreign currency translation adjustments (a)................... 76 (1,224)
------ -------------
Comprehensive income............................................. $ 6,866 $ 56,730
------ -------------
------ -------------
</TABLE>
- ------------------------
(a) The Company does not provide for U.S. income taxes on foreign currency
translation adjustments because it does not provide for such taxes on
undistributed earnings of foreign subsidiaries.
See notes to condensed unaudited consolidated financial statements.
F-45
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
REORGANIZED COMPANY
-----------------------
<S> <C> <C>
APRIL 30, JANUARY 31,
1998 1998
---------- -----------
ASSETS
Current assets:
Cash and cash equivalents.............................................................. $ 50,221 $ 43,003
Accounts and notes receivable, net..................................................... 90,827 83,931
Inventories............................................................................ 116,574 117,589
Other assets........................................................................... 12,815 14,239
---------- -----------
Total current assets................................................................. 270,437 258,762
Property, plant and equipment, net....................................................... 41,666 41,502
Other assets............................................................................. 18,569 19,522
---------- -----------
TOTAL............................................................................ $ 330,672 $ 319,786
---------- -----------
---------- -----------
LIABILITIES
Current liabilities:
Short-term debt and current portion of long-term debt.................................. $ 3,975 $ 4,016
Trade payables......................................................................... 54,383 51,308
Accrued expenses....................................................................... 31,537 30,575
Other current liabilities.............................................................. 6,592 5,106
---------- -----------
Total current liabilities............................................................ 96,487 91,005
---------- -----------
Long-term liabilities:
Long-term debt......................................................................... 102,722 103,133
Accrued pension liabilities............................................................ 37,473 38,351
Environmental liabilities, net......................................................... 37,753 38,527
Other liabilities...................................................................... 6,410 6,999
---------- -----------
Total long-term liabilities.......................................................... 184,358 187,010
---------- -----------
Total liabilities.................................................................... 280,845 278,015
---------- -----------
SHAREHOLDERS' EQUITY
Common stock............................................................................. 50 50
Additional paid-in capital............................................................... 41,399 40,209
Accumulated other comprehensive income................................................... 749 673
Retained earnings........................................................................ 7,629 839
---------- -----------
Total shareholders' equity........................................................... 49,827 41,771
---------- -----------
TOTAL............................................................................ $ 330,672 $ 319,786
---------- -----------
---------- -----------
</TABLE>
See notes to condensed unaudited consolidated financial statements.
F-46
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
REORGANIZED
COMPANY PREDECESSOR
----------- COMPANY
QUARTER -------------
ENDED QUARTER ENDED
APRIL 30, MARCH 31,
1998 1997
----------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................... $ 6,790 $ 57,954
Adjustments to reconcile net income to net cash provided by
operating activities:..........................................
Executive stock awards......................................... 293 500
Extraordinary item............................................. -- (43,032)
Fresh-start revaluation........................................ -- (5,107)
Depreciation and amortization.................................. 2,188 2,143
Gain on sale of assets......................................... (493) (3,266)
Reorganization expense, net of payments........................ (169) 1,538
Deferred income taxes.......................................... 1,272 (3,767)
Provision for doubtful accounts................................ 289 162
Provision for environmental costs, net of payments............. (558) (256)
Other, net..................................................... 4,238 3,057
----------- -------------
Total........................................................ 13,850 9,926
Change in operating assets and liabilities:
Increase in trade receivables.................................. (11,353) (20,272)
Increase in inventories........................................ (297) (6,120)
Decrease (increase) in other current assets.................... 1,328 (355)
Increase in trade payables and accrued expenses................ 8,633 18,895
Decrease in prepetition liabilities............................ -- (39)
Receipt from environmental trust, net.......................... -- 5,928
Other assets and liabilities, net.............................. (1,117) (1,547)
----------- -------------
Net cash provided by operating activities.................... 11,044 6,416
----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment, net................ (2,929) (2,774)
Proceeds from asset sales...................................... 1,143 4,966
Other, net..................................................... (1,781) (25)
----------- -------------
Net cash (used in) provided by investing activities.......... (3,567) 2,167
----------- -------------
CASH FLOWS FROM FINANCING AND REORGANIZATION ACTIVITIES:
Cash distribution pursuant to plan of reorganization........... -- (59,366)
Drawdown of prepetition letters of credit...................... -- 9,700
Proceeds from long-term debt, net.............................. -- 8,100
Net short-term borrowings...................................... 146 1,062
Repayment of long-term debt.................................... (419) (487)
----------- -------------
Net cash used in financing and reorganization activities..... (273) (40,991)
----------- -------------
Effects of exchange rate changes on cash and cash equivalents.... 14 (526)
----------- -------------
Net increase (decrease) in cash and cash equivalents............. 7,218 (32,934)
Cash and cash equivalents--beginning of period................... 43,003 63,274
----------- -------------
Cash and cash equivalents--end of period......................... $ 50,221 $ 30,340
----------- -------------
----------- -------------
</TABLE>
See notes to condensed unaudited consolidated financial statements.
F-47
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed unaudited consolidated financial statements
include the accounts of Metallurg, Inc. ("Metallurg") and its majority-owned
subsidiaries (collectively, the "Company"). These financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information pursuant to Accounting Principles Board Opinion No. 28.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The condensed consolidated balance sheet as of January 31, 1998 and the
condensed statements of consolidated operations and of consolidated cash flows
for the quarter ended March 31, 1997 were derived from audited financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the interim periods presented are not
necessarily indicative of the results to be expected for a full year.
On February 26, 1997, the Fourth Amended and Restated Joint Plan of
Reorganization (the "Plan") of Metallurg and one of its subsidiaries,
Shieldalloy Metallurgical Corporation ("Shieldalloy") was confirmed by the U.S.
Bankruptcy Court for the Southern District of New York. Transactions
contemplated by the Plan were consummated on April 14, 1997 (the "Effective
Date"). For financial reporting purposes, the Company has reflected the effects
of the Plan consummation as of March 31, 1997. As a result of the consummation
of the Plan and the adoption of fresh-start reporting under the American
Institute of Certified Public Accountants' ("AICPA") Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code,"
financial statements for the quarter ended March 31, l997, which includes the
effects of the adoption of fresh-start reporting and consummation of the Plan
and referred to as the "Predecessor Company." Financial statements for periods
subsequent to March 31, 1997 are referred to as the "Reorganized Company." The
financial statements of the Company after consummation of the Plan are not
comparable to the Company's financial statements of prior periods and
accordingly, a black line has been used to separate the periods.
For further information, see the financial statements and footnotes thereto
included in the Company's audited consolidated financial statements for the
three quarters ended January 31, 1998 and the quarter ended March 31, 1997.
Effective April l, 1997, the Company changed the reporting period of
Metallurg from a calendar year ending December 31 to a fiscal year ending
January 31 and began reporting the results of its operating subsidiaries on a
one-month lag. Accordingly, the quarter ended April 30, 1998 includes worldwide
operating results for the three months ended March 31, 1998 and operating
results of Metallurg, the parent holding company, for the three months ended
April 30, 1998.
2. INVENTORIES
Inventories, net of reserves, consist of the following (in thousands):
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
1998 1998
---------- -----------
<S> <C> <C>
Raw materials........................................................ $ 30,496 $ 32,938
Work in process...................................................... 2,075 1,981
Finished goods....................................................... 79,137 77,473
Other................................................................ 4,866 5,197
---------- -----------
Total.............................................................. $ 116,574 $ 117,589
---------- -----------
---------- -----------
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
The Company continues defending various claims and legal actions arising in
the normal course of business, including those relating to environmental
matters. Management believes, based on the advice of
F-48
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. COMMITMENTS AND CONTINGENCIES (CONTINUED)
counsel, that the outcome of such litigation will not have a material adverse
effect on the Company's consolidated financial statements.
4. EARNINGS PER COMMON SHARE
Earnings per share are calculated in accordance with SFAS No. 128, "Earnings
per Share." All diluted earnings per share amounts are computed on the basis of
the weighted average shares of common stock outstanding plus common equivalent
shares arising from the effect of dilutive stock options, using the treasury
method. The effect of dilutive stock options issued on April l, l998 at a strike
price of $8.43 per share was not material. Earnings per share for periods prior
to April l, 1997 are not presented because such presentation would not be
meaningful due to fresh-start reporting and the recapitalization of the Company
in connection with the Plan as of March 31, l997.
5. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company adopted SFAS No. 130, "Reporting Comprehensive Income," as of
February 1, 1998. This standard requires the display of comprehensive income and
its components in the financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS No. 131 requires the reporting of
profit and loss, specific revenue and expense items and assets for reportable
segments. It also requires the reconciliation of total segment revenues, total
segment profit or loss, total segment assets and other amounts disclosed for
segments to the corresponding amounts in the general purpose financial
statements. The Company will adopt this standard in the fourth quarter of 1998.
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosure About
Pensions and Other Postretirement Benefits." SFAS No. 132 changes current
financial disclosure requirements from those that were required under SFAS No.
87, "Employers' Accounting for Pensions," SFAS No. 88, "Employers' Accounting
for Settlement and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits" and SFAS No. l06, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." The Company will adopt this
standard in the fourth quarter of 1998.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
SFAS 133 is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. The Company is currently evaluating the impact SFAS No. 133 will
have on its financial statements.
6. SUPPLEMENTAL GUARANTOR INFORMATION
In November 1997, the Company sold $100 million principal amount of 11%
senior notes due 2007 (the "Senior Notes"). Under the terms of the Senior Notes,
Shieldalloy, Metallurg Holdings Corporation, Metallurg Services, Inc. and MIR
(China), Inc. (collectively, the "Guarantors"), wholly owned subsidiaries of the
Company, will fully and unconditionally guarantee on a joint and several basis
the Company's obligations to pay principal, premium and interest relative to the
Senior Notes. Management has determined that separate, full financial statements
of the Guarantors would not be material and, accordingly, such financial
statements are not provided. Supplemental financial information of the
Guarantors is presented below.
F-49
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED APRIL 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
METALLURG, GUARANTOR NON-GUARANTOR
INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenue.................................. $ 11,796 $ 55,547 $ 126,127 $ (25,640) $ 167,830
------- ----------- -------------- ------------ ------------
Operating costs and expenses:
Cost of sales................................ 10,331 45,603 108,214 (25,140) 139,008
Selling, general and administrative
expenses................................... 2,005 2,528 10,228 -- 14,761
------- ----------- -------------- ------------ ------------
Total operating costs and expenses............. 12,336 48,131 118,442 (25,140) 153,769
------- ----------- -------------- ------------ ------------
Operating income (loss)........................ (540) 7,416 7,685 (500) 14,061
Other income (expense):
Other income (expense), net.................. 878 -- -- -- 878
Interest income (expense), net............... (2,177) 238 (133) -- (2,072)
Equity in earnings of subsidiaries........... 8,163 2,604 -- (10,767) --
------- ----------- -------------- ------------ ------------
Income before income tax provision............. 6,324 10,258 7,552 (11,267) 12,867
Income tax provision (benefit)................. (466) 3,166 3,377 -- 6,077
------- ----------- -------------- ------------ ------------
Net income..................................... $ 6,790 $ 7,092 $ 4,175 $ (11,267) $ 6,790
------- ----------- -------------- ------------ ------------
------- ----------- -------------- ------------ ------------
</TABLE>
F-50
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
FOR THE QUARTER ENDED APRIL 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR COMBINED
COMBINED NON-GUARANTOR
METALLURG, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------------- ----------- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Net income.............................. $ 6,790 $ 7,092 $ 4,175 $ (11,267) $ 6,790
Other comprehensive income (loss):
Foreign currency translation
adjustment............................ 76 440 76 (516) 76
------ ----------- ------ ------------ ------
Comprehensive income.................... $ 6,866 $ 7,532 $ 4,251 $ (11,783) $ 6,866
------ ----------- ------ ------------ ------
------ ----------- ------ ------------ ------
</TABLE>
F-51
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
6. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET AT APRIL 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
METALLURG, GUARANTOR NON-GUARANTOR
INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............. $ 24,377 $ 3,402 $ 22,442 $ 50,221
Accounts and notes receivable, net.... 32,597 46,178 75,016 $ (62,964) 90,827
Inventories........................... 7,972 41,034 71,813 (4,245) 116,574
Other assets.......................... 7,287 244 5,284 -- 12,815
-------------- ----------- -------------- ------------ ------------
Total current assets................ 72,233 90,858 174,555 (67,209) 270,437
Investments--intergroup................. 100,338 54,039 -- (154,377) --
Investments--other...................... -- -- 3,152 -- 3,152
Property, plant and equipment, net...... 1,016 6,930 33,720 -- 41,666
Other assets............................ 5,333 3 11,010 (929) 15,417
-------------- ----------- -------------- ------------ ------------
Total............................... $ 178,920 $ 151,830 $ 222,437 $ (222,215) $ 330,672
-------------- ----------- -------------- ------------ ------------
-------------- ----------- -------------- ------------ ------------
LIABILITIES:
Current Liabilities:
Short-term debt and current portion of
long-term debt...................... $ 3,975 $ 3,975
Trade payables........................ $ 2,402 $ 17,096 50,334 $ (17,634) 52,198
Accrued expenses...................... 5,853 8,340 17,344 -- 31,537
Loans payable--intergroup............. 19,098 4,815 33,602 (55,330) 2,185
Other current liabilities............. -- 3,195 3,397 -- 6,592
-------------- ----------- -------------- ------------ ------------
Total current liabilities........... 27,353 33,446 108,652 (72,964) 96,487
-------------- ----------- -------------- ------------ ------------
Long-term Liabilities:
Long-term debt........................ 100,000 -- 2,722 -- 102,722
Accrued pension liabilities........... 345 1,784 35,344 -- 37,473
Environmental liabilities, net........ -- 34,691 3,062 -- 37,753
Other liabilities..................... 1,395 -- 5,944 (929) 6,410
-------------- ----------- -------------- ------------ ------------
Total long-term liabilities......... 101,740 36,475 47,072 (929) 184,358
-------------- ----------- -------------- ------------ ------------
Total liabilities................... 129,093 69,921 155,724 (73,893) 280,845
-------------- ----------- -------------- ------------ ------------
SHAREHOLDERS' EQUITY:
Common stock outstanding.............. 50 1,227 80,358 (81,585) 50
Additional paid-in capital............ 41,399 90,867 1,104 (91,971) 41,399
Accumulated other comprehensive
income.............................. 749 1,549 22,462 (24,011) 749
Retained earnings (deficit)........... 7,629 (11,734) (37,211) 48,945 7,629
-------------- ----------- -------------- ------------ ------------
Shareholders' equity.................. 49,827 81,909 66,713 (148,622) 49,827
-------------- ----------- -------------- ------------ ------------
Total............................... $ 178,920 $ 151,830 $ 222,437 $ (222,515) $ 330,672
-------------- ----------- -------------- ------------ ------------
-------------- ----------- -------------- ------------ ------------
</TABLE>
F-52
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
6. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE QUARTER ENDED APRIL 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
METALLURG, GUARANTOR NON-GUARANTOR
INC. SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
-------------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
Net Cash Flows from Operating Activities.............. $ 5,168 $ 2,229 $ 3,647 $ 11,044
------- ----------- ------- ------------
Cash Flows from Investing Activities:
Additions to property, plant and equipment.......... (35) (443) (2,451) (2,929)
Proceeds from asset sales........................... 1,122 -- 21 1,143
Other, net.......................................... 19 1 (1,801) (1,781)
------- ----------- ------- ------------
Net cash provided by (used in) investing activities... 1,106 (442) (4,231) (3,567)
------- ----------- ------- ------------
Cash Flows from Financing Activities:
Intergroup borrowings (repayments).................. 2,220 891 (3,111) --
Net short-term borrowings........................... -- -- 146 146
Repayment of long-term debt......................... -- -- (419) (419)
------- ----------- ------- ------------
Net cash provided by (used in) financing activities... 2,220 891 (3,384) (273)
------- ----------- ------- ------------
Effects of exchange rate changes on cash and cash
equivalents......................................... -- -- 14 14
------- ----------- ------- ------------
Net increase (decrease) in cash and cash
equivalents......................................... 8,494 2,678 (3,954) 7,218
Cash and cash equivalents--beginning of period........ 15,883 724 26,396 43,003
------- ----------- ------- ------------
Cash and cash equivalents--end of period.............. $ 24,377 $ 3,402 $ 22,442 $ 50,221
------- ----------- ------- ------------
------- ----------- ------- ------------
</TABLE>
F-53
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To: Metallurg Holdings, Inc.
We have audited the accompanying consolidated balance sheet of Metallurg
Holdings, Inc. (a Delaware corporation) and its subsidiary as of June 29, 1998.
This consolidated balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on this consolidated
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated balance sheet referred to above presents
fairly, in all material respects, the financial position of Metallurg Holdings,
Inc. and its subsidiary as of June 29, 1998, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
New York, New York
June 29, 1998
F-54
<PAGE>
METALLURG HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
JUNE 29, 1998
ASSETS
<TABLE>
<CAPTION>
Cash............................................................. $ 35
<S> <C>
---------
Total assets................................................. $ 35
---------
---------
</TABLE>
SHAREHOLDER'S EQUITY
<TABLE>
<S> <C>
Common stock, $.01 par value; 1,000 shares authorized; 350 shares
issued and outstanding.......................................... $ 35
---------
Total shareholder's equity................................... $ 35
---------
---------
</TABLE>
F-55
<PAGE>
METALLURG HOLDINGS, INC.
NOTES TO CONSOLIDATED BALANCE SHEET
Metallurg Holdings, Inc. ( the "Issuer") was incorporated under the laws of
the State of Delaware on June 10, 1998. The Issuer was formed by Safeguard
International Fund, L.P. ("Safeguard International") and certain limited
partners of Safeguard International (the "Investor Group") to enter into an
agreement and plan of merger whereby Metallurg Acquisition Corp. ("Acquisition
Corp."), a wholly owned subsidiary of the Issuer, will merge with and into
Metallurg, Inc. ("Metallurg"), with Metallurg being the surviving corporation.
The Issuer will become the holding company for Metallurg. The cash purchase
price will be $30 per share of Metallurg common stock or an aggregate cash
purchase price of approximately $152.2 million (including payments for
cancellation of compensatory options). For the three quarters ended January 31,
1998, Metallurg had $477.0 million of revenues and net income of $6.3 million.
In order to finance the Merger, (i) Safeguard International and the Investor
Group will contribute approximately $97.0 million of capital to the Issuer; and
(ii) the Issuer will consummate an offering of approximately $121.0 million
principal amount at maturity of Senior Discount Notes due 2008. Reference is
made to risk factors in the Prospectus on pages 20 to 26.
EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED)
On July 13, 1998, Acquisition Corp. merged with and into Metallurg, with
Metallurg being the surviving company and the Issuer becoming the holding
company for Metallurg. The cash purchase price was $30 per share, representing
an aggregate cash purchase price of approximately $152.2 million (including
payments for cancellation of compensatory options). For the three quarters ended
January 31, 1998, Metallurg had $477.0 million of revenues, operating income of
$23.4 million and net income of $6.3 million which includes a $0.8 million
extraordinary loss on early extinguishment of debt.
On July 13, 1998, the Senior Discount Notes were sold. On this date, the
Issuer issued 5202.335 Series A Voting Convertible Preferred Stock, $.01 par
value ("Series A") and 4,500 shares of Series B ("Series B") Non-Voting
Convertible Preferred Stock, $.01 par value. Series A and Series B shares'
liquidation value is $10,000 per share.
F-56
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE ISSUER, OR THE INITIAL PURCHASER. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE ISSUER, SINCE
THE DATE AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE AN OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information........................... 2
Exchange Rates.................................. 3
Market Data..................................... 3
Summary......................................... 4
Disclosure Regarding Forward Looking
Statements.................................... 18
Risk Factors.................................... 18
The Exchange Offer.............................. 26
Capitalization.................................. 34
Unaudited Pro Forma Condensed Consolidated
Financial Data................................ 35
Selected Financial Data......................... 39
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 44
Business........................................ 54
Management...................................... 66
Share Ownership................................. 67
Certain Transactions............................ 67
Description of Certain Indebtedness............. 68
Description of the New Notes.................... 69
Plan of Distribution............................ 98
Legal Matters................................... 98
Experts......................................... 99
Index to Financial Statements................... F-1
</TABLE>
------------------------
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW
NOTES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS 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.
$121,000,000
METALLURG HOLDINGS, INC.
[LOGO]
OFFER TO EXCHANGE 12 3/4% SERIES B
SENIOR DISCOUNT NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT FOR ANY AND ALL
OUTSTANDING 12 3/4% SERIES A
SENIOR DISCOUNT NOTES DUE 2008
---------------------
PROSPECTUS
---------------------
Dated , 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to Section 102(b)(7) of the Delaware General Corporation
Law (the "DGCL"), which enables a corporation in its original certificate of
incorporation or an amendment thereto to eliminate or limit the personal
liability of a director for violations of the director's fiduciary duty, except
(i) for any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) pursuant to Section
174 of the DGCL (providing for liability of directors for the unlawful payment
of dividends or unlawful stock purchases or redemptions) or (iv) for any
transaction from which a director derived an improper personal benefit.
Section 145 of the DGCL empowers the Issuer to indemnify, subject to the
standards set forth therein, any person in connection with any action, suit or
proceeding brought before or threatened by reason of the fact that the person
was a director, officer, employee or agent of such company, or is or was serving
as such with respect to another entity at the request of such company. The DGCL
also provides that the Issuer may purchase insurance of behalf of any such
director, officer, employee or agent.
The Issuer's Certificate of Incorporation provides in effect for the
indemnification by the Issuer of each director and officer of the Issuer to the
fullest extent permitted by applicable law.
ITEM 21. EXHIBITS AND FINANCIAL SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Purchase Agreement, dated as of July 6, 1998, by and between Metallurg Holdings, Inc. and BancBoston
Securities Inc (the "Initial Purchaser").
2.1 Merger Agreement, dated as of June 15, 1998, by and among Metallurg Holdings, Inc., Metallurg Acquisition
Corp. and Metallurg, Inc. (incorporated herein by reference to Exhibit 8K2 to Current Report on Form 8-K
filed by Metallurg, Inc. with the Securities and Exchange Commission on June 16, 1998).
3.1 Certificate of Incorporation of the Issuer.
3.2 By-laws of the Issuer.
4.1 Indenture, dated as of July 13, 1998, by and between the Issuer and United States Trust Company of New
York.
4.2 Form of 12 3/4% Series A Senior Discount Notes due 2008, dated as of July 13, 1998 (incorporated by
reference to Exhibit 4.1).
4.3 Form of 12 3/4% Series B Senior Discount Notes due 2008 (incorporated by reference to Exhibit 4.1).
4.4 Registration Agreement, dated as of July 13, 1998 by and between the Issuer and the Initial Purchaser.
5.1 Opinion of Rogers & Wells LLP.
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
10.1 Pledge Agreement, dated as of July 13, 1998, by and between the Issuer and United States Trust Company of
New York.
10.2 Loan Agreement dated April 14, 1997 (the "Revolving Credit Facility") among Metallurg, Inc. and
Shieldalloy Metallurgical Corporation as borrowers, Metallurg Services, Inc., MIR (China), Inc. and
Metallurg Holdings Corporation, as Guarantors (the "Guarantors") and BankBoston, N.A. as Agent for the
lending institutions, as amended by the First, Second and Third Amendments thereto (incorporated herein
by reference to Exhibit S410.1 to the Form S-4 Registration Statement filed by the Company with the
Securities and Exchange Commission on December 30, 1997 (File No. 333-42141)).
10.3 Fourth Amendment to the Revolving Credit Facility.
10.4 German Loan Agreement, dated October 20, 1997, by and among GfE Gesellschaft fur Elektrometallurgic GmbH,
GfE Umwelttechnik GmbH, GfE Giessrei und Stahlwerksbedarf GmbH GfE Metalle und Metarielien GmbH and
Keramed Medizintechnik GmbH and BankBoston, N.A. acting through its Frankfurt, Germany branch.
(incorporated herein by reference to Exhibit S410.2 to the Form S-4 Registration Statement filed by
Metallurg, Inc. with the Securities and Exchange Commission on December 30, 1997 (File No. 333-42141)).
10.5 Indenture, dated as of November 25, 1997, by an among Metallurg, Inc., the Guarantors and IBJ Schroder
Bank & Trust Company (incorporated herein by reference to Exhibit S44.1 to the Form S-4 Registration
Statement filed by Metallurg, Inc. with the Securities and Exchange Commission on December 30, 1997 (File
No. 333-42141)).
10.6 Joint Disclosure Statement for the Fourth Amended and Restated Joint Plan of Reorganization dated
December 18, 1996 (incorporated herein by reference to Exhibit T3E.1 to the Form T-3 filed by Metallurg,
Inc. with the Securities and Exchange Commission on March 21, 1997 (File No. 022-22265)).
10.7 Supplement to Joint Disclosure Statement for the Fourth Amended and Restated Joint Plan of Reorganization
dated December 18, 1996 (incorporated herein by reference to Exhibit T3E.3 to the Form T-3 filed by
Metallurg, Inc. with the Securities and Exchange Commission on March 21, 1997 (File No. 022-22265)).
10.8 Settlement Agreement dated December 27, 1996 between MI, SMC, the Environmental Protection Agency, the
Department of the Interior, the Nuclear Regulatory Commission and the New Jersey Department of
Environmental Protection. (incorporated herein by reference to Exhibit S410.5 to the Form S-4
Registration Statement filed by Metallurg, Inc. with the Securities and Exchange Commission on December
30, 1997 (File No. 333-42141)).
10.9 Permanent Injunction Consent Order dated December 23, 1996 between the State of Ohio, SMC, and Cyprus
Foote Mineral Company. (incorporated herein by reference to Exhibit S410.6 to the Form S-4 Registration
Statement filed by Metallurg, Inc. with the Securities and Exchange Commission on December 30, 1997 (File
No. 333-42141)).
10.10 Registration Rights Agreement dated April 14, 1997 among Metallurg, Inc. and certain holders of the
Company's common stock. (incorporated herein by reference to Exhibit S410.7 to the Form S-4 Registration
Statement filed by Metallurg, Inc. with the Securities and Exchange Commission on December 30, 1997 (File
No. 333-42141)).
10.11 Management Incentive Compensation Plan. (incorporated herein by reference to Exhibit S410.9 to the Form
S-4 Registration Statement filed by Metallurg, Inc. with the Securities and Exchange Commission on
December 30, 1997 (File No. 333-42141)).
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.12 Employment Agreements by Metallurg, Inc. dated April 14, 1997 by Metallurg, Inc. with Michael A. Standen,
Michael A. Banks, Barry C. Nuss, Eric L. Schondorf, J. Richard Budd III, and Robin A. Brumwell.
(incorporated herein by reference to Exhibit S410.10 to the Form S-4 Registration Statement filed by
Metallurg, Inc. with the Securities and Exchange Commission on December 30, 1997 (File No. 333-42141)).
10.13 Agreement dated December 20, 1983 between LSM and Alan D. Ewart. (incorporated herein by reference to
Exhibit S410.11 to the Form S-4 Registration Statement filed by Metallurg, Inc. with the Securities and
Exchange Commission on December 30, 1997 (File No. 333-42141)).
12.1 Statement re computation of ratio of earnings to fixed charges.
21.1 Subsidiaries of the Issuer.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Rogers & Wells LLP (to be contained in the opinion filed as Exhibit 5.1).
24.1 Power of attorney (incorporated by reference in the signature pages).
25.1 Form T-1 Statement of Eligibility and Qualification of United States Trust Company of New York.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Exchange Agent Agreement.
</TABLE>
ITEM 22. UNDERTAKING.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
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 registrant 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 and will be governed by the final
adjudication of such issue.
(b) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) The undersigned registrants hereby undertake:
(i) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement
II-3
<PAGE>
(ii) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(iii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iv) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the undersigned
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of New York, New
York, on July 28, 1998.
<TABLE>
<S> <C> <C>
METALLURG HOLDINGS, INC.
By: /s/ ARTHUR R. SPECTOR
-----------------------------------------
Arthur R. Spector
Vice President and Director
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Arthur Spector and Diana Wechsler Kerekes his
true and lawful attorney-in-fact and agent, each acting alone, with full powers
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments to this registration
statement and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, each acting alone, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully for all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLES DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ HEINZ C. SCHIMMELBUSH
- ------------------------------ President and Director July 28, 1998
Heinz C. Schimmelbusch
/s/ ARTHUR R. SPECTOR
- ------------------------------ Vice President and July 28, 1998
Arthur R. Spector Director
/s/ MICHAEL R. HOLLY
- ------------------------------ Vice President and July 28, 1998
Michael R. Holly Director
/s/ DOUGLAS A. FASTUCA
- ------------------------------ Treasurer July 28, 1998
Douglas A. Fastuca
*By:
Attorney In Fact
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ---------- ---------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Purchase Agreement, dated as of July 6, 1998, by and between Metallurg Holdings, Inc. and BancBoston
Securities Inc (the "Initial Purchaser").
2.1 Merger Agreement, dated as of June 15, 1998, by and among Metallurg Holdings, Inc., Metallurg Acquisition
Corp. and Metallurg, Inc.
3.1 Certificate of Incorporation of the Issuer.
3.2 By-laws of the Issuer.
4.1 Indenture, dated as of July 13, 1998, by and between the Issuer and United States Trust Company of New
York.
4.2 Form of 12 3/4% Series A Senior Discount Notes due 2008, dated as of July 13, 1998 (incorporated by
reference to Exhibit 4.1).
4.3 Form of 12 3/4% Series B Senior Discount Notes due 2008, dated as of July 13, 1998 (incorporated by
reference to Exhibit 4.1).
4.4 Registration Agreement, dated as of July 13, 1998, by and between the Issuer and the Initial Purchaser.
5.1 Opinion of Rogers & Wells LLP.
10.1 Pledge Agreement, dated as of July 13, 1998, by and between the Issuer and United States Trust Company of
New York.
10.2 Loan Agreement dated April 14, 1997 (the "Revolving Credit Facility") among Metallurg, Inc. and
Shieldalloy Metallurgical Corporation as borrowers, Metallurg Services, Inc., MIR (China), Inc. and
Metallurg Holdings Corporation, as Guarantors and BankBoston, N.A. as Agent for the lending institutions,
as amended by the First, Second and Third Amendments thereto.
10.3 Fourth Amendment to the Revolving Credit Facility.
10.4 German Loan Agreement, dated October 20, 1997, by and among GfE Gesellschaft fur Elektrometallurgic GmbH,
GfE Umwelttechnik GmbH, GfE Giessrei und Stahlwerksbedarf, GfE Metalle und Metarielien and Keramed
Medizintechnik GmbH and BankBoston, N.A. acting through its Frankfurt, Germany branch.
10.5 Indenture, dated as of November 25, 1997, by an among Metallurg, Inc., the Guarantors and IBJ Schroder
Bank & Trust Company (incorporated herein by reference to Exhibit S44.1 to the Form S-4 Registration
Statement filed by Metallurg, Inc. with the Securities and Exchange Commission on December 30, 1997 (File
No. 333-42141)).
10.6 Joint Disclosure Statement for the Fourth Amended and Restated Joint Plan of Reorganization dated
December 18, 1996 (incorporated herein by reference to Exhibit T3E.1 to the Form T-3 filed by the Company
with the Securities and Exchange Commission on March 21, 1997 (File No. 022-22265)).
10.7 Supplement to Joint Disclosure Statement for the Fourth Amended and Restated Joint Plan of Reorganization
dated December 18, 1996 (incorporated herein by reference to Exhibit T3E.3 to the Form T-3 filed by the
Company with the Securities and Exchange Commission on March 21, 1997 (File No. 022-22265)).
10.8 Settlement Agreement dated December 27, 1996 between MI, SMC, the Environmental Protection Agency, the
Department of the Interior, the Nuclear Regulatory Commission and the New Jersey Department of
Environmental Protection.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ---------- ---------------------------------------------------------------------------------------------------------
<C> <S>
10.9 Permanent Injunction Consent Order dated December 23, 1996 between the State of Ohio, SMC, and Cyprus
Foote Mineral Company.
10.10 Registration Rights Agreement dated April 14, 1997 among the Company and certain holders of the Company's
common stock.
10.11 Management Incentive Compensation Plan.
10.12 Employment Agreements dated April 14, 1997 with Michael A. Standen, Michael A. Banks, Barry C. Nuss, Eric
L. Schondorf, J. Richard Budd III, and Robin A. Brumwell.
10.13 Agreement dated December 20, 1983 between LSM and Alan D. Ewart.
12.1 Statement re computation of ratio of earnings to fixed charges.
21.1 Subsidiaries of the Issuer.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Rogers & Wells LLP (to be contained in the opinion filed as Exhibit 5.1).
24.1 Power of attorney (incorporated by reference in the signature pages).
25.1 Form T-1 Statement of Eligibility and Qualification of Unites States Trust Company of New York, as
trustee.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Exchange Agent Agreement.
</TABLE>
<PAGE>
Exhibit 1.1
- --------------------------------------------------------------------------------
METALLURG HOLDINGS, INC.
$121,000,000
12.75% Senior Discount Notes due 2008
Purchase Agreement
July 6, 1998
BANCBOSTON SECURITIES INC.
- --------------------------------------------------------------------------------
<PAGE>
Metallurg Holdings, Inc.
$121,000,000
12.75% Senior Discount Notes due 2008
PURCHASE AGREEMENT
July 6, 1998
New York, New York
BANCBOSTON SECURITIES INC.
100 Federal Street
Boston, Massachusetts 02110
Ladies & Gentlemen:
Metallurg Holdings, Inc., a Delaware corporation (the "ISSUER"),
proposes to issue and sell to BancBoston Securities Inc. (the "INITIAL
PURCHASER") $121,000,000 in aggregate principal amount at maturity of its 12.75%
Senior Discount Notes due 2008 (the "DISCOUNT NOTES"), subject to the terms and
conditions set forth herein. The Discount Notes will be issued pursuant to an
indenture (the "INDENTURE"), to be dated the Closing Date (as defined), between
the Issuer and United States Trust Company of New York, as trustee (the
"TRUSTEE"). Capitalized terms used herein and not otherwise defined shall have
the meanings assigned to such terms in the Indenture.
The offering of the Discount Notes is being made in connection with
the merger (the "MERGER") of Metallurg Acquisition Corp., a wholly owned
subsidiary of the Issuer ("Acquisition"), with and into Metallurg, Inc., a
Delaware corporation (the "COMPANY"), pursuant to that certain Agreement and
Plan of Merger, dated as of June 15, 1998 (the "MERGER AGREEMENT"). As a result
of the Merger, which shall occur on the Closing Date, the Company will become a
wholly owned subsidiary of the Issuer. "SUBSIDIARIES" of the Issuer shall
include the Company and all of its subsidiaries.
In connection with the Merger, the Company has solicited (the "CONSENT
SOLICITATION") consents to certain amendments to, and waivers under, the
indenture governing the Company's 11% Senior Notes due 2007 (the "PROPOSED
AMENDMENTS"). As of July 2, 1998, the requisite consents have been received
pursuant to the Consent Solicitation and a supplemental indenture giving effect
to the Proposed Amendments ("SUPPLEMENTAL INDENTURE") will be executed prior to
and will become effective upon effectiveness of the Merger.
1. ISSUANCE OF SECURITIES. The Issuer proposes, upon the terms and
subject to the conditions set forth herein, to issue and sell to the Initial
Purchaser an aggregate of $121,000,000 in principal amount at maturity of
Discount Notes. The Discount Notes and the Exchange Notes (as
<PAGE>
defined) issuable in exchange therefor are collectively referred to herein as
the "NOTES." The Notes will initially be secured by the stock of the Company
(the "COLLATERAL") pursuant to a pledge agreement, to be dated the Closing Date
(the "PLEDGE AGREEMENT").
Upon original issuance thereof, and until such time as the same is no
longer required under the applicable requirements of the Securities Act of 1933,
as amended (the "ACT"), the Discount Notes (and all securities issued in
exchange therefor or in substitution thereof) shall bear the following legend:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY
EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON
THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT
PROVIDED BY RULE 144A OR REGULATION S THEREUNDER. THE HOLDER OF THE
SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE ISSUER THAT
(A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED,
ONLY (1)(a) IN THE UNITED STATES TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE
UNITED STATES TO A NON-U.S. PERSON IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE ISSUER SO
REQUESTS), (2) TO THE ISSUER OR (3) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER
WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER
FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS
SET FORTH IN (A) ABOVE."
2. OFFERING. The Discount Notes will be offered and sold to the Initial
Purchaser pursuant to an exemption from the registration requirements under the
Act. The Issuer has prepared
2
<PAGE>
a preliminary offering memorandum, dated July 3, 1998 (the "PRELIMINARY OFFERING
MEMORANDUM"), and a final offering memorandum, dated July 6, 1998 (the "OFFERING
MEMORANDUM"), relating to the Issuer, its Subsidiaries and the Discount Notes.
The Initial Purchaser has advised the Issuer that the Initial Purchaser
will make offers (the "EXEMPT RESALES") of the Discount Notes on the terms set
forth in the Offering Memorandum, as amended or supplemented, solely to (i)
persons whom the Initial Purchaser reasonably believe to be "qualified
institutional buyers," as defined in Rule 144A under the Act ("QIBS") and (ii)
non-U.S. persons outside the United States in reliance upon Regulation S
("REGULATION S") under the Act (each, a "REG S INVESTOR"). The QIBs and Reg S
Investors are collectively referred to herein as the "ELIGIBLE PURCHASERS." The
Initial Purchaser will offer the Discount Notes to such Eligible Purchasers
initially at a price equal to 53.865% of the principal amount thereof at
maturity. Such price may be changed at any time without notice.
Holders (including subsequent transferees) of the Discount Notes will have
the registration rights set forth in the registration agreement relating thereto
(the "REGISTRATION RIGHTS AGREEMENT"), to be dated the Closing Date. Pursuant
to the Registration Rights Agreement, the Issuer will agree to file with the
Securities and Exchange Commission (the "COMMISSION"), under the circumstances
set forth therein, (i) a registration statement under the Act (the "EXCHANGE
OFFER REGISTRATION STATEMENT") relating to the 12.75% Exchange Discount Notes
due 2007 (the "EXCHANGE NOTES") to be offered in exchange for the Discount Notes
(the "EXCHANGE OFFER") and (ii) a shelf registration statement pursuant to Rule
415 under the Act (the "SHELF REGISTRATION STATEMENT" and, together with the
Exchange Offer Registration Statement, the "REGISTRATION STATEMENTS") relating
to the resale by certain holders of the Discount Notes, and to use its best
efforts to cause such Registration Statements to be declared effective and to
consummate the Exchange Offer. This Agreement, the Notes, the Indenture, the
Pledge Agreement, the Registration Rights Agreement, the Merger Agreement and
the Supplemental Indenture are hereinafter referred to collectively as the
"OPERATIVE DOCUMENTS."
3. PURCHASE, SALE AND DELIVERY. (a) On the basis of the representations,
warranties and covenants contained in this Agreement, and subject to its terms
and conditions, the Issuer agrees to issue and sell to the Initial Purchaser,
and the Initial Purchaser agrees to purchase from the Issuer, $121,000,000 in
aggregate principal amount at maturity of the Discount Notes. The purchase
price for the Discount Notes will be $18.85 per $1,000 principal amount at
maturity of the Discount Notes.
(b) Delivery of the Discount Notes shall be made, against payment of the
purchase price therefor, at such location as may be mutually acceptable. Such
delivery and payment shall be made at 9:00 a.m., New York City time, on July 13,
1998 or at such other time as shall be agreed upon by the Initial Purchaser and
the Issuer. The time and date of such delivery and payment are herein called
the "CLOSING DATE."
(c) On the Closing Date, one or more Discount Notes in definitive form,
registered in the name of Cede & Co., as nominee of The Depository Trust Company
("DTC"), having an aggregate
3
<PAGE>
amount corresponding to the aggregate amount of the Discount Notes (the "GLOBAL
NOTES") shall be delivered by the Issuer to the Initial Purchaser (or as the
Initial Purchaser directs), against payment by the Initial Purchaser of the
purchase price therefor, by wire transfer of same day funds, to an account
designated by the Issuer, provided that the Issuer shall give at least two
business days' prior written notice to the Initial Purchaser of the information
required to effect such wire transfer. The Global Notes shall be made available
to the Initial Purchaser for inspection not later than 9:30 a.m. on the business
day immediately preceding the Closing Date.
4. AGREEMENTS OF THE ISSUER. The Issuer covenants and agrees with the
Initial Purchaser as follows:
(a) To advise the Initial Purchaser promptly and, if requested by the
Initial Purchaser, confirm such advice in writing, (i) of the issuance by
any state securities commission of any stop order suspending the
qualification or exemption from qualification of any Notes for offering or
sale in any jurisdiction, or the initiation of any proceeding for such
purpose by any state securities commission or other regulatory authority
and (ii) of the happening of any event that makes any statement of a
material fact made in the Preliminary Offering Memorandum or the Offering
Memorandum untrue or that requires the making of any additions to or
changes in the Preliminary Offering Memorandum or the Offering Memorandum
in order to make the statements therein, in the light of the circumstances
under which they are made, not misleading. The Issuer shall use its best
efforts to prevent the issuance of any stop order or order suspending the
qualification or exemption of any Notes under any state securities or Blue
Sky laws and, if at any time any state securities commission or other
regulatory authority shall issue an order suspending the qualification or
exemption of any Notes under any state securities or Blue Sky laws, the
Issuer shall use its best efforts to obtain the withdrawal or lifting of
such order at the earliest possible time.
(b) To furnish the Initial Purchaser and those persons identified by
the Initial Purchaser to the Issuer, without charge, as many copies of the
Preliminary Offering Memorandum and the Offering Memorandum, including all
documents incorporated therein by reference, and any amendments or
supplements thereto, as the Initial Purchaser may reasonably request. The
Issuer consents to the use of the Preliminary Offering Memorandum and the
Offering Memorandum, and any amendments and supplements thereto required
pursuant hereto, by the Initial Purchaser in connection with Exempt
Resales.
(c) Not to amend or supplement the Preliminary Offering Memorandum or
the Offering Memorandum unless the Initial Purchaser shall previously have
been advised thereof and shall not have objected thereto within a
reasonable time after being furnished a copy thereof. The Issuer shall
promptly prepare, upon the Initial Purchaser's request, any amendment or
supplement to the Preliminary Offering Memorandum or the Offering
Memorandum that may be necessary or advisable in connection with Exempt
Resales.
4
<PAGE>
(d) If, after the date hereof and prior to consummation of any Exempt
Resale, any event shall occur as a result of which, in the judgment of the
Issuer or in the reasonable opinion of counsel for the Issuer or counsel
for the Initial Purchaser, it becomes necessary or advisable to amend or
supplement the Preliminary Offering Memorandum or Offering Memorandum in
order to make the statements therein, in the light of the circumstances
when such Offering Memorandum is delivered to an Eligible Purchaser which
is a prospective purchaser, not misleading, or if it is necessary or
advisable to amend or supplement the Preliminary Offering Memorandum or the
Offering Memorandum to comply with applicable law, (i) to notify the
Initial Purchaser and (ii) forthwith to prepare an appropriate amendment or
supplement to such Preliminary Offering Memorandum or Offering Memorandum
so that the statements therein as so amended or supplemented will not, in
the light of the circumstances when it is so delivered, be misleading, or
so that such Preliminary Offering Memorandum or Offering Memorandum will
comply with applicable law.
(e) To cooperate with the Initial Purchaser and counsel for the
Initial Purchaser in connection with the qualification or registration of
the Discount Notes under the securities or Blue Sky laws of such
jurisdictions as the Initial Purchaser may reasonably request and to
continue such qualification in effect so long as required for the Exempt
Resales; PROVIDED, HOWEVER, that the Issuer shall not be required in
connection therewith to register or qualify as a foreign corporation where
it is not now so qualified or to take any action that would subject it to
service of process in suits or taxation, in each case, other than as to
matters and transactions relating to the Preliminary Offering Memorandum,
the Offering Memorandum or Exempt Resales, in any jurisdiction where it is
not now so subject.
(f) Whether or not the transactions contemplated by this Agreement
are consummated or this Agreement becomes effective or is terminated, to
pay all costs, expenses, fees and taxes incident to the performance of the
obligations of the Issuer hereunder, including in connection with: (i) the
preparation, printing, filing and distribution of the Preliminary Offering
Memorandum and the Offering Memorandum (including, without limitation,
financial statements) and all amendments and supplements thereto required
pursuant hereto, (ii) the preparation (including, without limitation,
duplication costs) and delivery of all agreements, correspondence and all
other documents prepared and delivered in connection herewith and with the
Exempt Resales, (iii) the issuance, transfer and delivery of the Notes to
the Initial Purchaser, (iv) the qualification or registration of the Notes
for offer and sale under the securities or Blue Sky laws of the several
states (including, without limitation, the cost of printing and mailing a
preliminary and final Blue Sky Memorandum and the reasonable fees and
disbursements of counsel for the Initial Purchaser relating thereto), (v)
furnishing such copies of the Preliminary Offering Memorandum and the
Offering Memorandum, and all amendments and supplements thereto, as may be
requested for use in connection with Exempt Resales, (vi) the preparation
of certificates for the Notes (including, without limitation, printing and
engraving thereof), (vii) all fees and expenses incident to creating and
perfecting security interests in the Collateral in favor of the Collateral
Agent (as defined in the Pledge Agreement), pursuant to the Pledge
Agreement, including, without
5
<PAGE>
limitation, filing and recording fees and expenses, (viii) the fees,
disbursements and expenses of the Issuer's counsel and accountants, (ix)
all fees and expenses (including fees and expenses of counsel) of the
Issuer in connection with the approval of the Notes by DTC for "book-entry"
transfer, (x) rating the Notes by rating agencies, (xi) the reasonable fees
and expenses of the Trustee and the Collateral Agent and their counsel,
(xii) the performance by the Issuer of its other obligations under this
Agreement and the other Operative Documents and (xiii) "roadshow" travel
and other expenses incurred in connection with the marketing and sale of
the Notes.
(g) To use the proceeds from the sale of the Discount Notes in the
manner described in the Offering Memorandum under the caption "Use of
Proceeds."
(h) Not to voluntarily claim, and to resist actively any attempts to
claim, the benefit of any usury laws against the holders of any Notes.
(i) To do and perform all things required to be done and performed
under this Agreement by it prior to or after the Closing Date and to
satisfy all conditions precedent on its part to the delivery of the
Discount Notes.
(j) Not to sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in the Act) that would be
integrated with the sale of the Discount Notes in a manner that would
require the registration under the Act of the sale to the Initial Purchaser
or the Eligible Purchasers of the Discount Notes or to take any other
action that would result in the Exempt Resales not being exempt from
registration under the Act.
(k) For so long as any of the Notes remain outstanding and during any
period in which the Issuer is not subject to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), to make
available to any holder or beneficial owner of Discount Notes in connection
with any sale thereof and any prospective purchaser of such Notes from such
holder or beneficial owner, the information required by Rule 144A(d)(4)
under the Act.
(l) To cause the Exchange Offer to be made in the appropriate form to
permit registered Exchange Notes to be offered in exchange for the Discount
Notes and to comply with all applicable federal and state securities laws
in connection with the Exchange Offer.
(m) To comply with all of its agreements set forth in the
Registration Rights Agreement and all agreements set forth in the
representation letters of the Issuer to DTC relating to the approval of the
Notes by DTC for "book-entry" transfer.
(n) To effect the inclusion of the Notes in PORTAL and to obtain
approval of the Discount Notes by DTC for "book-entry" transfer.
6
<PAGE>
(o) During a period of five years following the Closing Date, to
deliver without charge to the Initial Purchaser, as it may reasonably
request, promptly upon their becoming available, copies of (i) all reports
or other publicly available information that the Issuer shall mail or
otherwise make available to its securityholders and (ii) all reports,
financial statements and proxy or information statements filed by the
Issuer with the Commission or any national securities exchange and such
other publicly available information concerning the Issuer or any of its
Subsidiaries, including without limitation, press releases.
(p) Prior to the Closing Date, to furnish to the Initial Purchaser,
as soon as they have been prepared in the ordinary course by the Issuer,
copies of any unaudited interim financial statements for any period
subsequent to the periods covered by the financial statements appearing in
the Offering Memorandum.
(q) Not to take, directly or indirectly, any action designed to, or
that might reasonably be expected to, cause or result in stabilization or
manipulation of the price of any security of the Issuer to facilitate the
sale or resale of the Notes. Except as permitted by the Act, the Issuer
will not distribute any (i) preliminary offering memorandum, including,
without limitation, the Preliminary Offering Memorandum, (ii) offering
memorandum, including, without limitation, the Offering Memorandum, or
(iii) other offering material in connection with the offering and sale of
the Notes.
(r) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement prior to the
Closing Date and to satisfy all conditions precedent to the delivery of the
Discount Notes.
5. REPRESENTATIONS AND WARRANTIES. (a) The Issuer represents and
warrants to the Initial Purchaser that:
(i) All of the representations and warranties of the parties to the
Merger Agreement made in the Merger Agreement are true and correct in all
material respects as if made on and as of the date hereof and the Closing
Date.
(ii) The Preliminary Offering Memorandum as of its date does not, and
the Offering Memorandum as of its date and as of the Closing Date does not
and will not, and any supplement or amendment to them will not, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except that the representations and warranties contained in
this paragraph shall not apply to statements in or omissions from the
Preliminary Offering Memorandum and the Offering Memorandum (or any
supplement or amendment thereto) made in reliance upon and in conformity
with information relating to the Initial Purchaser furnished to the Issuer
in writing by the Initial Purchaser expressly for use therein. No stop
order preventing the use of the Preliminary Offering Memorandum or the
Offering Memorandum, or any amendment
7
<PAGE>
or supplement thereto, or any order asserting that any of the transactions
contemplated by this Agreement are subject to the registration requirements
of the Act, has been issued.
(iii) Each of the Issuer and its Subsidiaries (A) has been duly
organized and is validly existing and in good standing under the laws of
its jurisdiction of organization, (B) has all requisite power and authority
to carry on its business as it is currently being conducted and as
described in the Offering Memorandum and to own, lease and operate its
properties, and (C) is duly qualified and in good standing as a foreign
entity, authorized to do business in each jurisdiction in which the nature
of its business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified or in good
standing could not reasonably be expected to (x) result, individually or in
the aggregate, in a material adverse effect on the properties, business,
results of operations, condition (financial or otherwise), affairs or
prospects of the Issuer and its Subsidiaries, taken as a whole, (y)
materially interfere with or adversely affect the issuance or marketability
of the Notes pursuant hereto or (z) in any manner materially draw into
question the validity of this Agreement or any other Operative Document or
the transactions described in the Offering Memorandum under the captions
"Use of Proceeds" and the "The Acquisition Transactions" (any of the events
set forth in clauses (x), (y) or (z), a "MATERIAL ADVERSE EFFECT").
(iv) There exist no conditions that would constitute a default (or an
event which with notice or the lapse of time, or both, would constitute a
default) under any of the Operative Documents.
(v) The Issuer is a newly formed company that has conducted no
business other than directly in connection with the Acquisition
Transactions. All of the outstanding capital stock of Acquisition is owned
by the Issuer, free and clear of any security interest, claim, lien,
limitation on voting rights or encumbrance, except for any such security
interest, claim, lien, limitation on voting rights or encumbrance under the
Pledge Agreement; and all such securities have been duly authorized,
validly issued, and are fully paid and nonassessable and were not issued in
violation of any preemptive or similar rights. All of the outstanding
capital stock of each Material Subsidiary of the Issuer (which term shall
mean the Company together with all "Material Subsidiaries" as defined in
the Merger Agreement) is owned by the Issuer or another Subsidiary of the
Issuer, free and clear of any security interest, claim, lien, limitation on
voting rights or encumbrance, except as set forth in Section 3.3.2 of the
disclosure schedule of the Company dated as of June 15, 1998 (the
"DISCLOSURE SCHEDULE"); and all such securities have been duly authorized,
validly issued, and are fully paid and nonassessable and were not issued in
violation of any preemptive or similar rights.
(vi) Other than employee options to purchase Company common stock
outstanding on the date of the Merger Agreement (the "OPTIONS"), there are
not currently any outstanding subscriptions, rights, warrants, calls,
commitments of sale or options to acquire, or instruments convertible into
or exchangeable for, any capital stock or other equity interest of the
Issuer's Subsidiaries.
(vii) When the Discount Notes are issued and delivered pursuant to
this Agreement, no Discount Note will be of the same class (within the
meaning of Rule 144A under the Act) as securities of the Issuer that are
listed on a national securities exchange registered under Section 6 of the
Exchange Act or that are quoted in a United States automated inter-dealer
quotation system.
8
<PAGE>
(viii) The Issuer has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement and each
of the other Operative Documents to which it is a party and to consummate
the transactions contemplated hereby and thereby, including, without
limitation, the corporate power and authority to issue, sell and deliver
the Notes as provided herein and therein.
(ix) This Agreement has been duly and validly authorized, executed
and delivered by the Issuer and is the legal, valid and binding agreement
of the Issuer, enforceable against the Issuer in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization or similar laws affecting the rights of creditors generally
and subject to general principles of equity.
(x) The Indenture has been duly and validly authorized by the Issuer
and, when duly executed and delivered by the Issuer, will be the legal,
valid and binding obligation of the Issuer, enforceable against the Issuer
in accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization or similar laws affecting the rights
of creditors generally and subject to general principles of equity. On the
Closing Date, the Indenture will conform in all material respects to the
requirements of the Trust Indenture Act of 1939, as amended (the "TRUST
INDENTURE ACT"), and the rules and regulations of the Commission applicable
to an indenture which is qualified thereunder. The Offering Memorandum
contains a summary of the terms of the Indenture, which is accurate in all
material respects.
(xi) The Pledge Agreement has been duly and validly authorized,
executed and delivered by the Issuer and is the legal, valid and binding
agreement of the Issuer, enforceable against the Issuer in accordance with
its terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization or similar laws affecting the rights of
creditors generally and subject to general principles of equity.
(xii) The Registration Rights Agreement has been duly and validly
authorized by the Issuer and, when duly executed and delivered by the
Issuer, will be the legal, valid and binding obligation of the Issuer,
enforceable against the Issuer in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or similar laws affecting the rights of creditors generally and
subject to general principles of equity. The Offering Memorandum contains
a summary of the terms of the Registration Rights Agreement, which is
accurate in all material respects.
9
<PAGE>
(xiii) The Supplemental Indenture has been duly and validly
authorized by the Company and its subsidiaries who are parties thereto and,
when duly executed and delivered by the Company and such subsidiaries, will
be the legal, valid and binding obligation of each of the Company and such
subsidiaries, enforceable against each of them in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar laws affecting the rights of
creditors generally and subject to general principles of equity.
(xiv) The Merger Agreement has been duly and validly authorized,
executed and delivered by the Issuer and Acquisition and is the legal,
valid and binding obligation of each of the Issuer and Acquisition,
enforceable against each of them in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or similar laws affecting the rights of creditors generally and
subject to general principles of equity.
(xv) The Discount Notes have been duly and validly authorized by the
Issuer for issuance and sale to the Initial Purchaser pursuant to this
Agreement and, when issued and authenticated in accordance with the terms
of the Indenture and delivered against payment therefor in accordance with
the terms hereof and thereof, will be the legal, valid and binding
obligations of the Issuer, enforceable against it in accordance with their
terms and entitled to the benefits of the Indenture, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
or similar laws affecting the rights of creditors generally and subject to
general principles of equity. The Offering Memorandum contains a summary
of the terms of the Notes, which summary is accurate in all material
respects.
(xvi) The Exchange Notes have been duly and validly authorized for
issuance by the Issuer and, when issued and authenticated in accordance
with the terms of the Exchange Offer and the Indenture, will be the legal,
valid and binding obligations of the Issuer, enforceable against it in
accordance with their terms and entitled to the benefits of the Indenture,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar laws affecting the rights of
creditors generally and subject to general principles of equity.
(xvii) [intentionally omitted]
(xviii) Except as set forth in the Merger Agreement or the Disclosure
Schedule, each of the Issuer and its Subsidiaries is not and, after giving
effect to the Offering and the Merger will not be, (A) in violation of its
charter, bylaws or other organizational documents, (B) in default in the
performance of any bond, debenture, note, indenture, mortgage, deed of
trust or other agreement or instrument to which it is a party or by which
it is bound or to which any of its properties is subject, which singly or
in the aggregate, could reasonably be expected to have a Material Adverse
Effect, or (C) in violation of any local, state, federal or foreign law,
statute, ordinance, rule, regulation, requirement, judgment or court decree
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(including, without limitation, environmental laws, statutes, ordinances, rules,
regulations, judgments or court decrees) applicable to it or any of its
Subsidiaries or any of its or their assets or properties (whether owned or
leased), which singly or in the aggregate, could reasonably be expected to have
a Material Adverse Effect. To the best knowledge of the Issuer, there exists no
condition that, with notice, the passage of time or otherwise, would constitute
a default under any such document or instrument.
(xix) Except as set forth in the Merger Agreement or the Disclosure
Schedule, none of (A) the execution, delivery or performance by the Issuer
of this Agreement or any of the other Operative Documents to which it is a
party, (B) the consummation of the Merger, (C) the issuance and sale of the
Notes (D) the perfection of the security interest in the Collateral in
favor of the Collateral Agent and (E) consummation by the Issuer of the
transactions described in the Offering Memorandum under the captions "Use
of Proceeds" and "The Acquisition Transactions," violates, conflicts with
or constitutes a breach of any of the terms or provisions of, or, after
giving effect to the Merger will violate, conflict with or constitute a
breach of any of the terms or provisions of, or a default under (or an
event that with notice or the lapse of time, or both, would constitute a
default), or require consent under, or result in the imposition of a lien
or encumbrance on any properties of the Issuer or any of its Material
Subsidiaries, or an acceleration of any indebtedness of the Issuer or any
of its Material Subsidiaries pursuant to, (1) the charter, bylaws or other
organizational documents of the Issuer or any of its Material Subsidiaries,
(2) any bond, debenture, note, indenture, mortgage, deed of trust or other
agreement or instrument to which the Issuer or any of its Material
Subsidiaries is a party or by which any of them or their property is or may
be bound, (3) any statute, rule or regulation applicable to the Issuer or
any of its Material Subsidiaries or any of their assets or properties or
(4) any judgment, order or decree of any court or governmental agency or
authority having jurisdiction over the Issuer or any of its Material
Subsidiaries or any of their assets or properties. Except as set forth in
the Merger Agreement or the Disclosure Schedule, no consent, approval,
authorization or order of, or filing, registration, qualification, license
or permit of or with, (A) any court or governmental agency, body or
administrative agency or (B) any other person is required for (1) the
execution, delivery and performance by the Issuer of this Agreement or any
of the other Operative Documents to which it is a party, (2) the Merger,
(3) the issuance and sale of the Note or (4) the perfection of the security
interest in the Collateral in favor of the Collateral Agent and the
transactions contemplated hereby and thereby, except such as have been or
will be obtained and made on or prior to the Closing Date (or, in the case
of the Registration Rights Agreement, will be obtained and made under the
Act, the Trust Indenture Act, and state securities or Blue Sky laws and
regulations).
(xx) There is and, after giving effect to the Merger will be (A) no
action, suit, investigation or proceeding before or by any court,
arbitrator or governmental agency, body or official, domestic or foreign,
now pending or, to the best knowledge of the Issuer, threatened or
contemplated to which the Issuer or any of its Subsidiaries is or may be a
party or to which the business or property of the Issuer or any of its
Subsidiaries, is or, after giving
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effect to the Merger may be subject (except as set forth in the Merger
Agreement or the Disclosure Schedule), (B) no statute, rule, regulation or
order that has been enacted, adopted or issued by any governmental agency
or that has been proposed by any governmental body and (C) no injunction,
restraining order or order of any nature by a federal or state court or
foreign court of competent jurisdiction to which the Issuer or any of its
Subsidiaries is or may be subject or to which the business, assets or
property of the Issuer or any of its Subsidiaries is or may be subject,
that, in the case of clauses (A), (B) and (C) above, except those matters
which are disclosed in the Preliminary Offering Memorandum and the Offering
Memorandum or that could not reasonably be expected to have a Material
Adverse Effect.
(xxi) No action has been taken and no statute, rule, regulation or
order has been enacted, adopted or issued by any governmental agency that
prevents the issuance of the Notes or prevents or suspends the use of the
Offering Memorandum; no injunction, restraining order or order of any
nature by a federal or state court of competent jurisdiction has been
issued that prevents the issuance of the Notes or prevents or suspends the
sale of the Notes in any jurisdiction referred to in Section 4(e) hereof;
and every request of any securities authority or agency of any jurisdiction
for additional information has been complied with in all material respects.
(xxii) The Issuer has delivered to the Initial Purchaser true and
correct copies of all documents and agreements related to the Merger and
the Supplemental Indenture, including all amendments, alterations,
modifications or waivers thereto and all exhibits or schedules thereto.
(xxiii) There is and, after giving effect to the Merger will be (A)
no significant unfair labor practice complaint pending against the Issuer
or any of its Subsidiaries nor, to the best knowledge of the Issuer,
threatened against any of them, before the National Labor Relations Board,
any state or local labor relations board or any foreign labor relations
board, and (except as set forth in the Merger Agreement or the Disclosure
Schedule) no significant grievance or significant arbitration proceeding
arising out of or under any collective bargaining agreement is so pending
against the Issuer or any of its Subsidiaries or, to the best knowledge of
the Issuer, threatened against any of them and (B) no significant strike,
labor dispute, slowdown or stoppage pending against the Issuer or any of
its Subsidiaries nor, to the best knowledge of the Issuer, threatened
against the Issuer or any of its Subsidiaries. None of the Issuer or any
of its Subsidiaries has violated (A) any federal, state or local law or
foreign law relating to discrimination in hiring, promotion or pay of
employees, (B) any applicable wage or hour laws or (C) any provision of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
the rules and regulations thereunder, except those violations which are
disclosed in the Preliminary Offering Memorandum and the Offering
Memorandum or that could not reasonably be expected to have a Material
Adverse Effect.
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(xxiv) Except as set forth in the Merger Agreement or the Disclosure
Schedule, none of the Issuer or any of its Subsidiaries has violated any
foreign, federal, state or local law or regulation relating to the
protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("ENVIRONMENTAL
LAWS"), except those violations which are disclosed in the Preliminary
Offering Memorandum and the Offering Memorandum or that could not
reasonably be expected to have a Material Adverse Effect.
(xxv) To the best knowledge of the Issuer, there is no alleged or
pending liability (including, without limitation, liability for
investigatory costs, cleanup costs, governmental response costs, natural
resource damages, property damages, personal injuries or penalties) of the
Issuer or any of its Subsidiaries arising out of, based on or resulting
from (A) the presence or release into the environment of any Hazardous
Material (as defined) at any of the Issuer's or any Subsidiary's
properties, businesses or operations, whether or not owned by the Issuer or
such Subsidiary, as the case may be, or (B) any violation or alleged
violation of any Environmental Law, which alleged liability is required to
be or is disclosed in the Offering Memorandum, other than as disclosed
therein or in the Merger Agreement or the Disclosure Schedule, or could
reasonably be expected to have a Material Adverse Effect. The term
"HAZARDOUS MATERIAL" means (A) any "hazardous substance" as defined by the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, (B) any "hazardous waste" as defined by the Resource
Conservation and Recovery Act, as amended, (C) any petroleum or petroleum
product, (D) any polychlorinated biphenyl and (D) any pollutant or
contaminant or hazardous or toxic material, waste or substance regulated
under or within the meaning of any other applicable provision of
Environmental Laws.
The Issuer and each of its Subsidiaries, as appropriate, (i) conduct a
periodic review of the effect of Environmental Laws on the business,
operations and properties of the Issuer and each of its Subsidiaries, in
the course of which, or as a result of which, the Issuer has identified and
evaluated associated costs and liabilities (including, without limitation,
any capital or operating expenditures required for cleanup, closure of
properties or compliance with Environmental Laws or any permit, license or
approval, any related constraints on operating activities, and any actual
or alleged liabilities to third parties), and (ii) have conducted
environmental investigations of, and have reviewed reasonably available
information regarding, the business, properties and operations of the
Issuer and each of its Subsidiaries, and of other properties within the
vicinity of their business, properties and operations, as appropriate for
the circumstances of each such property and operation; on the basis of such
reviews, investigations and inquiries, the Issuer has reasonably concluded
that, except as disclosed in the Registration Statement, any costs and
liabilities associated with such matters would not have, singularly or in
the aggregate, a Material Adverse Effect on the Issuer and its
Subsidiaries, taken as a whole, or otherwise require disclosure in the
Offering Memorandum, the Merger Agreement or the Disclosure Schedule.
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(xxvi) Each of the Issuer and its Subsidiaries has and, after giving
effect to the Merger, will have or be eligible to receive such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("PERMITS"), including, without limitation, under any
applicable Environmental Laws, as are necessary to own, lease and operate
their respective properties and to conduct their businesses except where
the failure to have such permits could not reasonably be expected to result
in a Material Adverse Effect; each of the Issuer and its Subsidiaries has
fulfilled and performed in all material respects all of its obligations
with respect to such permits and no event has occurred which allows, or
after notice would allow, revocation or termination thereof or results in
any other material impairment of the rights of the holder of any such
permit; and, except as described in the Offering Memorandum, the Merger
Agreement or the Disclosure Schedule, such permits contain no restrictions
that are materially burdensome to the business or operations of the Issuer
or such Subsidiary, as the case may be.
(xxvii) Except as set forth in the Merger Agreement or the Disclosure
Schedule, each of the Issuer and its Material Subsidiaries has and, after
giving effect to the Merger will have (A) good and marketable title to all
of the properties and assets described in the Offering Memorandum as owned
by it, free and clear of all liens, charges, encumbrances and restrictions
(except for Permitted Liens (as defined in the Indenture) and taxes not yet
payable), (B) peaceful and undisturbed possession under all material leases
to which any of them is a party as lessee and each of which lease is valid
and binding and no default exists thereunder, except for defaults that
could not reasonably be expected to have a Material Adverse Effect, (C) all
licenses, certificates, permits, authorizations, approvals, franchises and
other rights from, and has made all declarations and filings with, all
federal, state and local authorities, all self-regulatory authorities and
all courts and other tribunals (each, an "AUTHORIZATION") necessary to
engage in the business conducted by any of them in the manner described in
the Offering Memorandum and (D) no reason to believe that any governmental
body or agency is considering limiting, suspending or revoking any such
Authorization. Except as set forth in the Merger Agreement or the
Disclosure Schedule, all such Authorizations are valid and in full force
and effect and each of the Issuer and its Material Subsidiaries is in
compliance in all material respects with the terms and conditions of all
such Authorizations and with the rules and regulations of the regulatory
authorities having jurisdiction with respect thereto. Except as set forth
in the Merger Agreement or the Disclosure Schedule, all material leases to
which the Issuer or any of its Material Subsidiaries is a party are valid
and binding and no default by the Issuer or such Subsidiary, as the case
may be, has occurred and is continuing thereunder and, to the best
knowledge of the Issuer, no material defaults by the landlord are existing
under any such lease, except those defaults that could not reasonably be
expected to have a Material Adverse Effect.
(xxviii) Each of the Issuer and its Subsidiaries owns, possesses or
has the right to employ all patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, software, systems or
procedures), trademarks, service marks and trade names, inventions,
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computer programs, technical data and information (collectively, the
"INTELLECTUAL PROPERTY") presently employed by it in connection with the
businesses now operated by it or that are proposed to be operated by it
free and clear of and without violating any right, claimed right, charge,
encumbrance, pledge, security interest, restriction or lien of any kind of
any other person, except as set forth in the Merger Agreement or Section
3.14 of the Disclosure Schedule, and none of the Issuer or any of its
Subsidiaries has received any notice of infringement of or conflict with
asserted rights of others with respect to any of the foregoing. The use of
the Intellectual Property in connection with the business and operations of
the Issuer or any of its Subsidiaries does not infringe on the rights of
any person, except as could not reasonably be expected to have a Material
Adverse Effect.
(xxix) All material tax returns required to be filed by the Issuer or
any of its Subsidiaries in all jurisdictions have been so filed. All
taxes, including withholding taxes, penalties and interest, assessments,
fees and other charges due or claimed to be due from such entities or that
are due and payable have been paid, other than those being contested in
good faith and for which adequate reserves have been provided or where the
failure to make such payments would not have a Material Adverse Effect. To
the knowledge of the Issuer, there are no material proposed additional tax
assessments against the Issuer or any of its Subsidiaries, or the assets or
property of the Issuer or any of its Subsidiaries, except those tax
assessments for which adequate reserves have been established.
(xxx) None of the Issuer or any of its Subsidiaries is and, after
giving effect to the Merger will be an "investment Issuer" or a Issuer
"controlled" by an "investment company" within the meaning of the
Investment Issuer Act of 1940, as amended (the "INVESTMENT COMPANY ACT").
(xxxi) There are no holders of equity securities of the Issuer or any
of its Material Subsidiaries who, by reason of the execution by the Issuer
of this Agreement or any other Operative Document or the consummation by
the Issuer of the transactions contemplated hereby and thereby, have the
right to request or demand that the Issuer or any of its Subsidiaries
register under the Act or analogous foreign laws and regulations securities
held by them.
(xxxii) Each of the Issuer's Material Subsidiaries maintains, and the
Issuer will maintain, a system of internal accounting controls sufficient
to provide reasonable assurance that: (A) transactions are executed in
accordance with management's general or specific authorizations; (B)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and
to maintain accountability for assets; (C) access to assets is permitted
only in accordance with management's general or specific authorization; and
(D) the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with respect
thereto.
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(xxxiii) Each of the Subsidiaries maintains insurance covering its
properties, operations, personnel and businesses, insuring against such
losses and risks as are consistent with industry practice to protect the
Subsidiaries and their respective businesses. None of the Subsidiaries has
received notice from any insurer or agent of such insurer that substantial
capital improvements or other expenditures will have to be made in order to
continue such insurance.
(xxxiv) None of the Issuer or any of its Subsidiaries has (A) taken,
directly or indirectly, any action designed to, or that might reasonably be
expected to, cause or result in stabilization or manipulation of the price
of any security of the Issuer or any of its Subsidiaries to facilitate the
sale or resale of the Notes or (B) since the date of the Preliminary
Offering Memorandum, (1) sold, bid for, purchased or paid any person any
compensation for soliciting purchases of the Notes or (2) paid or agreed to
pay to any person any compensation for soliciting another to purchase any
other securities of the Issuer or any of its Subsidiaries.
(xxxv) No registration under the Act of the Discount Notes is
required for the sale of the Discount Notes to the Initial Purchaser as
contemplated hereby or for the Exempt Resales assuming (A) that the
purchasers who buy the Discount Notes in the Exempt Resales are Eligible
Purchasers and (B) the accuracy of the Initial Purchaser's representations
regarding the absence of general solicitation in connection with the sale
of Discount Notes to the Initial Purchaser and the Exempt Resales contained
herein. No form of general solicitation or general advertising (as defined
in Regulation D under the Act) was used by the Issuer or any of their
respective representatives (other than the Initial Purchaser, as to which
the Issuer makes no representation or warranty) in connection with the
offer and sale of any of the Discount Notes or in connection with Exempt
Resales, including, but not limited to, articles, notices or other
communications published in any newspaper, magazine, or similar medium or
broadcast over television or radio, or any seminar or meeting whose
attendees have been invited by any general solicitation or general
advertising. No securities of the same class as the Notes have been issued
and sold by the Issuer or any of its Subsidiaries within the six-month
period immediately prior to the date hereof.
(xxxvi) The execution and delivery of this Agreement, the other
Operative Documents and the sale of the Discount Notes to be purchased by
Eligible Purchasers will not involve any prohibited transaction within the
meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue
Code of 1986. The representation made by the Issuer in the preceding
sentence is made in reliance upon and subject to the accuracy of, and
compliance with, the representations and covenants made or deemed made by
Eligible Purchasers as set forth in the Offering Memorandum under the
caption "Notice to Investors."
(xxxvii) Each of the Preliminary Offering Memorandum and the Offering
Memorandum, as of its date, and each amendment or supplement thereto, as of
its date,
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contains the information specified in, and meets the requirements of, Rule
144A(d)(4) under the Act.
(xxxviii) Prior to the effectiveness of any Registration Statement,
the Indenture is not required to be qualified under the Trust Indenture
Act.
(xxxix) None of the Issuer or any of its respective affiliates or
any person acting on its behalf (other than the Initial Purchaser, as to
whom the Issuer makes no representation) has engaged or will engage in any
directed selling efforts within the meaning of Regulation S with respect to
the Discount Notes.
(xl) [intentionally omitted]
(xli) The sale of the Discount Notes pursuant to Regulation S is not
part of a plan or scheme to evade the registration provisions of the Act.
(xlii) The Issuer and its respective affiliates and all persons
acting on its behalf (other than the Initial Purchaser, as to whom the
Issuer makes no representation) have complied with and will comply with the
offering restrictions requirements of Regulation S in connection with the
offering of the Discount Notes outside the United States and, in connection
therewith, the Preliminary Offering Memorandum and the Offering Memorandum
contains or will contain the disclosure required by Rule 902(h).
(xliii) The Discount Notes sold in reliance on Regulation S will be
represented upon issuance by a temporary global securities that may not be
exchanged for definitive securities until the expiration of the 40-day
restricted period referred to in Rule 903(c)(3) of the Act and only upon
certification of beneficial ownership of such Discount Notes by non-U.S.
persons or U.S. persons who purchased such Discount Notes in transactions
that were exempt from the registration requirements of the Act.
(xliv) Subsequent to the respective dates as of which information is
given in the Offering Memorandum and up to the Closing Date, except as set
forth in the Offering Memorandum, (A) none of the Issuer or any of its
Subsidiaries has incurred any liabilities or obligations, direct or
contingent, which are or, after giving effect to the Merger, will be
material, individually or in the aggregate, to the Issuer and its
Subsidiaries, taken as a whole, nor entered into any transaction not in the
ordinary course of business, (B) there has not been any change or
development which, singly or in the aggregate, could reasonably be expected
to result in a Material Adverse Effect and (C) there has been no dividend
or distribution of any kind declared, paid or made by the Issuer on any
class of its capital stock.
(xlv) None of the execution, delivery and performance of this
Agreement, the issuance and sale of the Notes, the application of the
proceeds from the issuance and sale of the Notes and the consummation of
the transactions contemplated thereby as set forth in the
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Offering Memorandum, will violate Regulations G, T, U or X promulgated by
the Board of Governors of the Federal Reserve System or analogous foreign
laws and regulations.
(xlvi) The accountants who have certified or will certify the
financial statements included or to be included as part of the Offering
Memorandum are independent accountants as required by the Act. The
historical financial statements, together with related schedules and notes
thereto, comply as to form in all material respects with the requirements
applicable to registration statements on Form S-1 under the Act and present
fairly in all material respects the financial position and results of
operations of the Issuer and the Company and its subsidiaries at the dates
and for the periods indicated. Such financial statements have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods presented. The PRO
FORMA financial statements included in the Offering Memorandum have been
prepared on a basis consistent with such historical statements of the
Issuer and the Company except for the PRO FORMA adjustments specified
therein, and give effect to assumptions made on a reasonable basis and
present fairly in all material respects the historical and proposed
transactions contemplated by this Agreement and the other Operative
Documents; and such PRO FORMA financial statements comply as to form in all
material respects with the requirements applicable to PRO FORMA financial
statements included in registration statements on Form S-1 under the Act,
except as expressly stated therein. The other financial and statistical
information and data included in the Offering Memorandum derived from the
historical and PRO FORMA financial statements, are accurately presented in
all material respects and prepared on a basis consistent with the financial
statements, historical and PRO FORMA, included in the Offering Memorandum
and the books and records of the Issuer and its Subsidiaries.
(xlvii) The Issuer does not intend to, nor does it believe that it
will, incur debts beyond its ability to pay such debts as they mature. The
assets of the Issuer do not constitute unreasonably small capital to carry
out its business as conducted or as proposed to be conducted. Upon the
issuance of the Notes and the consummation of the Merger, the assets of the
Issuer will not constitute unreasonably small capital to carry out its
business as now conducted, including the capital needs of the Issuer,
taking into account the projected capital requirements and capital
availability.
(xlviii) Except pursuant to this Agreement and other than fees
pursuant to that certain letter agreement between the Issuer and Donaldson,
Lufkin & Jenrette Securities Corporation dated May 20, 1998 and
supplemented on July 2, 1998, there are no contracts, agreements or
understandings between the Issuer and its Subsidiaries and any other person
that would give rise to a valid claim against the Issuer or any of its
Subsidiaries or the Initial Purchaser for a brokerage commission, finder's
fee or like payment in connection with the issuance, purchase and sale of
the Notes.
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(xlix) Each certificate signed by any officer of the Issuer and
delivered to the Initial Purchaser or counsel for the Initial Purchaser
shall be deemed to be a representation and warranty by the Issuer to the
Initial Purchaser as to the matters covered thereby.
The Issuer acknowledges that the Initial Purchaser and, for purposes
of the opinions to be delivered to the Initial Purchaser pursuant to Section 8
hereof, counsel for the Issuer and counsel for the Initial Purchaser, will rely
upon the accuracy and truth of the foregoing representations and hereby consent
to such reliance.
(b) The Initial Purchaser represents, warrants and covenants to the Issuer
and agrees that:
(i) The Initial Purchaser is a QIB, with such knowledge and
experience in financial and business matters as are necessary in order to
evaluate the merits and risks of an investment in the Discount Notes.
(ii) The Initial Purchaser (A) is not acquiring the Discount Notes
with a view to any distribution thereof that would violate the Act or the
securities laws of any state of the United States or any other applicable
jurisdiction and (B) will be reoffering and reselling the Discount Notes
only to QIBs in reliance on the exemption from the registration
requirements of the Act provided by Rule 144A and in offshore transactions
in reliance upon Regulation S under the Act.
(iii) No form of general solicitation or general advertising (within
the meaning of Regulation D under the Act) has been or will be used by the
Initial Purchaser or any of its representatives in connection with the
offer and sale of any of the Discount Notes, including, but not limited to,
articles, notices or other communications published in any newspaper,
magazine, or similar medium or broadcast over television or radio, or any
seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.
(iv) The Initial Purchaser agrees that, in connection with the Exempt
Resales, it will solicit offers to buy the Discount Notes only from, and
will offer to sell the Discount Notes only to, Eligible Purchasers. The
Initial Purchaser further (A) agrees that it will offer to sell the
Discount Notes only to, and will solicit offers to buy the Discount Notes
only from (1) Eligible Purchasers that the Initial Purchaser reasonably
believes are QIBs and (2) Reg S Investors, (B) acknowledges and agrees
that, in the case of such QIBs and such Reg S Investors, such Discount
Notes will not have been registered under the Act and may be resold,
pledged or otherwise transferred only (x)(I) to a person whom the seller
reasonably believes is a QIB purchasing for its own account or for the
account of a QIB in a transaction meeting the requirements of Rule 144A,
(II) in an offshore transaction (as defined in Rule 902 under the Act)
meeting the requirements of Rule 904 under the Act, (III) in a transaction
meeting the requirements of Rule 144 under the Act, or (IV) in accordance
with another exemption from the registration requirements of the Act (and
based upon an opinion of counsel if the Issuer so requests), (y) to the
Issuer or (z) pursuant to an effective registration
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statement under the Act and, in each case, in accordance with any
applicable securities laws of any state of the United States or any other
applicable jurisdiction and (C) acknowledges that it will, and will notify
each subsequent holder that it is required to, notify any purchaser of the
security evidenced thereby of the resale restrictions set forth in (B)
above.
(v) The Initial Purchaser agrees that it has offered the Discount
Notes and will offer and sell the Discount Notes (A) as part of its
distribution at any time and (B) otherwise until 40 days after the later of
the commencement of the offering of the Discount Notes pursuant hereto and
the Closing Date, only in accordance with Rule 903 of Regulation S or
another exemption from the registration requirements of the Act. The
Initial Purchaser agrees that, during such 40-day restricted period, it
will not cause any advertisement with respect to the Discount Notes
(including any "'tombstone' advertisement") to be published in any
newspaper or periodical or posted in any public place and will not issue
any circular relating to the Discount Notes, except such advertisements as
are permitted by and include the statements required by Regulation S.
(vi) The Initial Purchaser agrees that it has not offered or sold and
will not offer or sell the Discount Notes sold pursuant hereto in reliance
on Regulation S (A) as part of its distribution at any time and (B)
otherwise until 40 days after the later of the commencement of the offering
of the Discount Notes pursuant hereto and the Closing Date, to a U.S.
person (as defined in Rule 902 of the Act) or for the account or benefit of
a U.S. person (other than a distributor (as defined in Rule 902 of the
Act)).
(vii) The Initial Purchaser agrees that, at or prior to confirmation
of a sale of Discount Notes by it to any distributor, dealer or person
receiving a selling concession, fee or other remuneration during the 40-day
restricted period referred to in Rule 903(c)(3) under the Act, it will send
to such distributor, dealer or person receiving a selling concession, fee
or other remuneration a confirmation or notice to substantially the
following effect:
"The Discount Notes covered hereby have not been registered under
the U.S. Securities Act of 1933, as amended (the "Securities
Act"), and may not be offered and sold within the United States
or to, or for the account or benefit of, U.S. persons (i) as part
of your distribution at any time or (ii) otherwise until 40 days
after the later of the commencement of the offering and the
Closing Date, except in either case in accordance with Regulation
S under the Securities Act (or Rule 144A or in other transactions
that are exempt from the registration requirements of the
Securities Act), and in connection with any subsequent sale by
you of the Discount Notes covered hereby in reliance on
Regulation S during the period referred to above to any
distributor, dealer or person receiving a selling concession, fee
or other remuneration, you must deliver a notice to substantially
the foregoing effect. Terms used above have the meanings
assigned to them in Regulation S."
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(viii) The Initial Purchaser agrees that the Discount Notes offered
and sold in reliance on Regulation S will be represented upon issuance by a
global security that may not be exchanged for definitive securities until
the expiration of the 40-day restricted period referred to in Rule
903(c)(3) of the Act and only upon certification of beneficial ownership of
such Discount Notes by non-U.S. persons or U.S. persons who purchased such
Discount Notes in transactions that were exempt from the registration
requirements of the Act.
The Initial Purchaser understand that the Issuer and, for purposes of
the opinions to be delivered to the Initial Purchaser pursuant to Section 8
hereof, counsel for the Issuer and counsel for the Initial Purchaser will rely
upon the accuracy and truth of the foregoing representations and hereby consents
to such reliance.
6. INDEMNIFICATION.
(a) The Issuer agrees to indemnify and hold harmless (i) the Initial
Purchaser, (ii) each person, if any, who controls the Initial Purchaser
within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act and (iii) the officers, directors, partners, employees,
representatives and agents of the Initial Purchaser or any controlling
person to the fullest extent lawful, from and against any and all losses,
liabilities, claims, damages and expenses whatsoever (including, but not
limited to, reasonable attorneys' fees and any and all expenses whatsoever
incurred in investigating, preparing or defending against any investigation
or litigation, commenced or threatened, or any claim whatsoever, and any
and all amounts paid in settlement of any claim or litigation), joint or
several, to which they or any of them may become subject under the Act, the
Exchange Act or otherwise, insofar as such losses, liabilities, claims,
damages or expenses (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of a material
fact contained in the Preliminary Offering Memorandum or the Offering
Memorandum, or in any supplement thereto or amendment thereof, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; PROVIDED, HOWEVER, that the Issuer will not be liable
in any such case to the extent, but only to the extent, that any such loss,
liability, claim, damage or expense arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with information
relating to the Initial Purchaser furnished to the Issuer in writing by or
on behalf of the Initial Purchaser expressly for use therein. This
indemnity agreement will be in addition to any liability which the Issuer
may otherwise have, including under this Agreement.
(b) The Initial Purchaser agrees to indemnify and hold harmless (i)
the Issuer, (ii) each person, if any, who controls the Issuer within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, and
(iii) the officers, directors, partners, employees, representatives and
agents of the Issuer, against any losses, liabilities, claims, damages and
expenses whatsoever (including, but not limited to, reasonable attorneys'
fees and any and
21
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all expenses whatsoever incurred in investigating, preparing or defending
against any investigation or litigation, commenced or threatened, or any
claim whatsoever and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become
subject under the Act, the Exchange Act or otherwise, insofar as such
losses, liabilities, claims, damages or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Preliminary Offering
Memorandum or the Offering Memorandum, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, in each case to
the extent, but only to the extent, that any such loss, liability, claim,
damage or expense arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made therein in
reliance upon and in conformity with information relating to the Initial
Purchaser furnished to the Issuer in writing by or on behalf of the Initial
Purchaser expressly for use therein; PROVIDED, HOWEVER, that in no case
shall the Initial Purchaser be liable or responsible for any amount in
excess of the discounts and commissions received by the Initial Purchaser,
as set forth on the cover page of the Offering Memorandum. This indemnity
will be in addition to any liability which the Initial Purchaser may
otherwise have, including under this Agreement.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify the party
against whom indemnification is to be sought in writing of the commencement
thereof (but the failure to so notify an indemnifying party shall not
relieve it from any liability which it may have under this Section 6 except
to the extent that it has been prejudiced in any material respect by such
failure or from any liability which it may otherwise have). In case any
such action is brought against any indemnified party, and it notifies an
indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate therein, and to the extent it may elect by
written notice delivered to the indemnified party promptly after receiving
the aforesaid notice from such indemnified party, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party.
Notwithstanding the foregoing, the indemnified party or parties shall have
the right to employ its or their own counsel in any such case, but the fees
and expenses
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<PAGE>
of such counsel shall be at the expense of such indemnified party or
parties unless (i) the employment of such counsel shall have been
authorized in writing by the indemnifying parties in connection with the
defense of such action, (ii) the indemnifying parties shall not have
employed counsel to take charge of the defense of such action within a
reasonable time after notice of commencement of the action or (iii) such
indemnified party or parties shall have reasonably concluded that there may
be defenses available to it or them which are different from or additional
to those available to one or all of the indemnifying parties (in which case
the indemnifying party or parties shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties), in
any of which events such fees and expenses of counsel shall be borne by the
indemnifying parties; PROVIDED, HOWEVER, that the indemnifying party under
subsection (a) or (b) above shall only be liable for the legal expenses of
one counsel (in addition to any local counsel) for all indemnified parties
in each jurisdiction in which any claim or action is brought. Anything in
this subsection to the contrary notwithstanding, an indemnifying party
shall not be liable for any settlement of any claim or action effected
without its prior written consent, PROVIDED that such consent was not
unreasonably withheld.
7. CONTRIBUTION. In order to provide for contribution in circumstances
in which the indemnification provided for in Section 6 is for any reason held to
be unavailable from the Issuer or is insufficient to hold harmless a party
indemnified thereunder, the Issuer, on the one hand, and the Initial Purchaser,
on the other hand, shall contribute to the aggregate losses, claims, damages,
liabilities and expenses of the nature contemplated by such indemnification
provision (including any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claims asserted, but after deducting in the case of losses,
claims, damages, liabilities and expenses suffered by the Issuer, any
contribution received by the Issuer from persons, other than the Initial
Purchaser, who may also be liable for contribution, including persons who
control the Issuer within the meaning of Section 15 of the Act or Section 20(a)
of the Exchange Act) to which the Issuer and the Initial Purchaser may be
subject, in such proportion as is appropriate to reflect the relative benefits
received by the Issuer, on one hand, and the Initial Purchaser, on the other
hand, from the offering of the Discount Notes or, if such allocation is not
permitted by applicable law or indemnification is not available as a result of
the indemnifying party not having received notice as provided in Section 6, in
such proportion as is appropriate to reflect not only the relative benefits
referred to above but also the relative fault of the Issuer, on one hand, and
the Initial Purchaser, 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
benefits received by the Issuer, on one hand, and the Initial Purchaser, on the
other hand, shall be deemed to be in the same proportion as (i) the total
proceeds from the offering of Discount Notes (net of discounts but before
deducting expenses) received by the Issuer and (ii) the discounts and
commissions received by the Initial Purchaser, respectively, in each case as set
forth in the table on the cover page of the Offering Memorandum. The relative
fault of the Issuer, on one hand, and of the Initial Purchaser, on the other
hand, shall be determined by reference to, among other things, whether the
untrue or alleged untrue
23
<PAGE>
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Issuer or the Initial
Purchaser and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Issuer and
the Initial Purchaser agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by PRO RATA allocation
or by any other method of allocation which does not take into account the
equitable considerations referred to above. Notwithstanding the provisions of
this Section 7, (i) in no case shall the Initial Purchaser be required to
contribute any amount in excess of the amount by which the discounts and
commissions applicable to the Discount Notes purchased by the Initial Purchaser
pursuant to this Agreement exceeds the amount of any damages which the Initial
Purchaser has otherwise been required to pay by reason of any untrue or alleged
untrue statement or omission or alleged omission and (ii) no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7, (A) each person,
if any, who controls the Initial Purchaser within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act and (B) the respective officers,
directors, partners, employees, representatives and agents of the Initial
Purchaser or any controlling person shall have the same rights to contribution
as the Initial Purchaser, and (A) each person, if any, who controls the Issuer
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act
and (B) the officers, directors, partners, employees, representatives and agents
of the Issuer shall have the same rights to contribution as the Issuer, subject
in each case to clauses (i) and (ii) of this Section 7. Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under this Section 7,
notify such party or parties from whom contribution may be sought, but the
failure to so notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have under this Section 7 or otherwise. No party shall be liable for
contribution with respect to any action or claim settled without its prior
written consent, PROVIDED that such written consent was not unreasonably
withheld.
8. CONDITIONS OF INITIAL PURCHASER'S OBLIGATIONS. The obligations of the
Initial Purchaser to purchase and pay for the Discount Notes, as provided
herein, shall be subject to the satisfaction of the following conditions:
(a) All of the representations and warranties of the Issuer contained
in this Agreement and qualified as to materiality shall be true and
correct, and all of the other representations and warranties of the Issuer
contained in this Agreement shall be true and correct in all material
respects, on the date hereof and on the Closing Date (after giving effect
to the Merger) with the same force and effect as if made on and as of the
date hereof and the Closing Date, respectively. The Issuer shall have
performed or complied with all of the agreements herein contained and
required to be performed or complied with by it at or prior to the Closing
Date.
(b) The Offering Memorandum shall have been printed and copies
distributed to the Initial Purchaser not later than 10:00 a.m., New York
City time, on the day following the date of this Agreement or at such later
date and time as to which the Initial Purchaser may agree, and no stop
order suspending the qualification or exemption from qualification of the
Discount Notes in any jurisdiction referred to in Section 4(e) shall have
been issued and no proceeding for that purpose shall have been commenced or
shall be pending or threatened.
(c) No action shall have been taken and no statute, rule, regulation
or order shall have been enacted, adopted or issued by any governmental
agency which would, as of the Closing Date, prevent the issuance of the
Discount Notes or the consummation of the Merger; no action, suit or
proceeding shall have been commenced and be pending against
24
<PAGE>
or affecting or, to the best knowledge of the Issuer, threatened against,
the Issuer or any of its Subsidiaries before any court or arbitrator or any
governmental body, agency or official that, if adversely determined, could
reasonably be expected to result in a Material Adverse Effect; and no stop
order shall have been issued preventing the use of the Offering Memorandum,
or any amendment or supplement thereto, or which could reasonably be
expected to have a Material Adverse Effect.
(d) Since the dates as of which information is given in the Offering
Memorandum, (i) there shall not have been any material adverse change, or
any development that is reasonably likely to result in a material adverse
change, in the capital stock or the long-term debt, or material increase in
the short-term debt, of the Issuer or any of its Subsidiaries from that set
forth in the Offering Memorandum, (ii) no dividend or distribution of any
kind shall have been declared, paid or made by the Issuer or any of its
Subsidiaries on any class of its capital stock and (iii) none of the Issuer
or any of its Subsidiaries shall have incurred any liabilities or
obligations, direct or contingent, that are or will be material,
individually or in the aggregate, to the Issuer and its Subsidiaries, taken
as a whole, and that are required to be disclosed on a balance sheet or
notes thereto in accordance with generally accepted accounting principles
and are not disclosed on the latest balance sheet or notes thereto included
in the Offering Memorandum. Since the date hereof and since the dates as
of which information is given in the Offering Memorandum, there shall not
have occurred any material adverse change in the business, prospects,
financial condition or results of operation of the Issuer and its
Subsidiaries, taken as a whole.
(e) The Initial Purchaser shall have received certificates, dated the
Closing Date, signed on behalf of the Issuer, in form and substance
satisfactory to the Initial Purchaser, confirming, as of the Closing Date,
the matters set forth in paragraphs (a), (b), (c) and (d) of this Section 8
and that, as of the Closing Date, the obligations of the Issuer to be
performed hereunder on or prior thereto have been duly performed.
(f) The Initial Purchaser shall have received on the Closing Date an
opinion, dated the Closing Date, in form and substance satisfactory to the
Initial Purchaser and counsel for the Initial Purchaser, of LeBoeuf, Lamb,
Greene & MacRae, L.L.P., counsel for the Issuer, to the effect set forth in
EXHIBIT A hereto. The opinions contemplated by paragraphs 3, 8 (other than
with respect to the Company), 14 (other than with respect to the Issuer and
the Company), 18 (other than with respect to the Issuer and the Company)
and 22 (other than with respect to the Company) of such Exhibit A need not
be delivered by such firm to the extent covered by an opinion, dated the
Closing Date, in form and substance satisfactory to the Initial Purchaser
and counsel for the Initial Purchaser, of the general counsel for the
Company.
(g) The Initial Purchaser shall have received on the Closing Date an
opinion, dated the Closing Date, in form and substance satisfactory to the
Initial Purchaser and counsel for the Initial Purchaser, of special German
counsel for GfE Gesellschaft fuer ElektroMetallurg
25
<PAGE>
mbH ("GfE") and Elektrowerk Weisweiller GmbH ("EWW"), to the effect set
forth in EXHIBIT B hereto.
(h) Within one business day following the time this Agreement is
executed and at the Closing Date, the Initial Purchaser shall have received
from Arthur Andersen LLP and Deloitte & Touche LLP, independent public
accountants, dated as of the date of this Agreement and as of the Closing
Date, customary comfort letters addressed to the Initial Purchaser and in
form and substance satisfactory to the Initial Purchaser and counsel for
the Initial Purchaser with respect to the combined financial statements and
certain financial information of the Issuer and the Company and its
subsidiaries, respectively, contained in the Offering Memorandum.
(i) Skadden, Arps, Slate, Meagher & Flom LLP shall have been
furnished with such documents, in addition to those set forth above, as
they may reasonably require for the purpose of enabling them to review or
pass upon the matters referred to in this Section 8 and in order to
evidence the accuracy, completeness or satisfaction in all material
respects of any of the representations, warranties or conditions herein
contained.
(j) Prior to the Closing Date, the Issuer shall have furnished to the
Initial Purchaser such further information, certificates and documents as
the Initial Purchaser may reasonably request.
(k) The Issuer and the Trustee shall have entered into the Indenture
and the Initial Purchaser shall have received counterparts, conformed as
executed, thereof.
(l) The Issuer and the Collateral Agent shall have entered into the
Pledge Agreement and the Initial Purchaser shall have received
counterparts, conformed as executed, thereof.
(m) The Issuer shall have entered into the Registration Rights
Agreement and the Initial Purchaser shall have received counterparts,
conformed as executed, thereof.
(n) The Merger shall be consummated and the terms of the Supplemental
Indenture shall have become effective prior to, or simultaneously with, the
Closing of the Offering on substantially the terms described in the
Offering Memorandum and the Initial Purchaser shall have received
counterparts, conformed as executed, of each of the Merger Agreement and
the Supplemental Indenture and such other documentation as they deem
necessary to evidence the consummation thereof.
(o) Any applicable waiting period under the Hart Scott Rodino Act in
respect of the Merger shall have been expired or terminated.
(p) All of the opinions to be delivered by the Issuer pursuant to the
Merger Agreement shall be addressed and delivered to the Initial Purchaser.
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(q) There shall not have been any announcement by any "nationally
recognized statistical rating organization," as defined for purposes of
Rule 463(g) under the Securities Act, that (i) it is downgrading its rating
assigned to any class of securities of the Issuer or (ii) it is reviewing
its ratings assigned to any class of securities of the Issuer with a view
to possible downgrading, or with negative implications, or direction not
determined.
(r) The Notes shall have been approved for trading on PORTAL.
All opinions, certificates, letters and other documents required by
this Section 8 to be delivered by the Issuer will be in compliance with the
provisions hereof only if they are reasonably satisfactory in form and substance
to the Initial Purchaser. The Issuer shall furnish the Initial Purchaser with
such conformed copies of such opinions, certificates, letters and other
documents as it shall reasonably request.
9. INITIAL PURCHASER'S INFORMATION. The Issuer acknowledges that the
statements with respect to the offering of the Discount Notes set forth in the
last paragraph on the cover page of the Offering Memorandum, the sixth paragraph
on page (i) and the first sentence of the third paragraph, the fourth sentence
of the fifth paragraph, and the seventh and eighth paragraphs under the caption
"Plan of Distribution" in the Offering Memorandum constitute the only
information relating to the Initial Purchaser furnished to the Issuer in writing
by or on behalf of any of the Initial Purchaser expressly for use in the
Offering Memorandum.
10. SURVIVAL OF REPRESENTATIONS AND AGREEMENTS. All representations and
warranties, covenants and agreements of the Initial Purchaser and the Issuer
contained in this Agreement, including the agreements contained in Sections 4(f)
and 11(d), the indemnity agreements contained in Section 6 and the contribution
agreements contained in Section 7, shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of the Initial
Purchaser, any controlling person thereof, or by or on behalf of the Issuer or
any controlling person thereof, and shall survive delivery of and payment for
the Discount Notes to and by the Initial Purchaser. The representations
contained in Section 5 and the agreements contained in Sections 4(f), 6, 7 and
11(d) shall survive the termination of this Agreement, including any termination
pursuant to Section 11.
11. EFFECTIVE DATE OF AGREEMENT; TERMINATION.
(a) This Agreement shall become effective upon execution and delivery
of a counterpart hereof by each of the parties hereto.
(b) The Initial Purchaser shall have the right to terminate this
Agreement at any time prior to the Closing Date by notice to the Issuer
from the Initial Purchaser, without liability (other than with respect to
Sections 6 and 7) on the Initial Purchaser's part to the Issuer if, on or
prior to such date, (i) the Issuer shall have failed, refused or been
unable to perform in any material respect any agreement on their part to be
performed hereunder, (ii) any other condition to the obligations of the
Initial Purchaser hereunder as provided in Section 8 is not
27
<PAGE>
fulfilled when and as required in any material respect, (iii) in the
reasonable judgment of the Initial Purchaser, any material adverse change
shall have occurred since the respective dates as of which information is
given in the Offering Memorandum in the condition (financial or otherwise),
business, properties, assets, liabilities, prospects, net worth, results of
operations or cash flows of the Issuer and its Subsidiaries, taken as a
whole, other than as set forth in the Offering Memorandum, or (iv)(A) any
domestic or international event or act or occurrence has materially
disrupted, or in the reasonable judgment of the Initial Purchaser will in
the immediate future materially disrupt, the market for the Issuer's
securities or for securities in general; or (B) trading in securities
generally on the New York or American Stock Exchange shall have been
suspended or materially limited, or minimum or maximum prices for trading
shall have been established, or maximum ranges for prices for securities
shall have been required, on such exchange, or by such exchange or other
regulatory body or governmental authority having jurisdiction; or (C) a
banking moratorium shall have been declared by federal, Massachusetts or
New York authorities, or a moratorium in foreign exchange trading by major
international banks or persons shall have been declared; or (D) there is an
outbreak or escalation of armed hostilities involving the United States on
or after the date hereof, or if there has been a declaration by the United
States of a national emergency or war, the effect of which shall be, in the
Initial Purchaser's reasonable judgment, to make it inadvisable or
impracticable to proceed with the offering or delivery of the Discount
Notes on the terms and in the manner contemplated in the Offering
Memorandum; or (E) there shall have been such a material adverse change in
general economic, political or financial conditions or if the effect of
international conditions on the financial markets in the United States
shall be such as, in the Initial Purchaser's reasonable judgment, makes it
inadvisable or impracticable to proceed with the delivery of the Discount
Notes as contemplated hereby.
(c) Any notice of termination pursuant to this Section 11 shall be by
telephone or telephonic facsimile and, in either case, confirmed in writing
by letter.
(d) If this Agreement shall be terminated pursuant to any of the
provisions hereof (otherwise than pursuant to clause (iv) of Section 11(b),
in which case each party will be responsible for its own expenses), or if
the sale of the Discount Notes provided for herein is not consummated
because any condition to the obligations of the Initial Purchaser set forth
herein is not satisfied or because of any refusal, inability or failure on
the part of the Issuer to perform any agreement herein or comply with any
provision hereof, the Issuer shall reimburse the Initial Purchaser for all
out-of-pocket expenses (including the reasonable fees and expenses of the
Initial Purchaser's counsel), incurred by the Initial Purchaser in
connection herewith.
12. NOTICE. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to the Initial
Purchaser shall be mailed, delivered, telecopied and confirmed in writing or
sent by a nationally recognized overnight courier service guaranteeing delivery
on the next business day to BancBoston Securities Inc., 100 Federal Street,
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Boston, Massachusetts 02110, Attention: Corporate Finance Department, telecopy
number: (617) 434-0624, with a copy to Skadden, Arps, Slate, Meagher & Flom LLP,
300 South Grand Avenue, Suite 3400, Los Angeles, California 90071, Attention:
Jonathan Grunzweig, telecopy number: (213) 687-5600; and if sent to the Issuer,
shall be mailed, delivered, telecopied and confirmed in writing or sent by a
nationally recognized overnight courier service guaranteeing delivery on the
next business day to Metallurg Holdings, Inc., c/o Safeguard International Fund,
L.P., 800 The Safeguard Building, 435 Devon Park Drive, Wayne, Pennsylvania
19087, Attention: Corporate Counsel, telecopy number: (610) 293-0854, with a
copy to LeBoeuf, Lamb, Greene & MacRae, L.L.P., 125 West 55th Street, New York,
New York 10019-5389, Attention: Lars Bang-Jensen, telecopy number (212)
424-8500.
13. PARTIES. This Agreement shall inure solely to the benefit of, and
shall be binding upon, the Initial Purchaser and the Issuer and the controlling
persons and agents referred to in Sections 6 and 7, and their respective
successors and assigns, and no other person shall have or be construed to have
any legal or equitable right, remedy or claim under or in respect of or by
virtue of this Agreement or any provision herein contained. The term
"successors and assigns" shall not include a purchaser, in its capacity as such,
of Notes from the Initial Purchaser.
14. CONSTRUCTION. This Agreement shall be construed in accordance with
the internal laws of the State of New York. TIME IS OF THE ESSENCE IN THIS
AGREEMENT.
15. CAPTIONS. The captions included in this Agreement are included solely
for convenience of reference and are not to be considered a part of this
Agreement.
16. COUNTERPARTS. This Agreement may be executed in various counterparts
which together shall constitute one and the same instrument.
[Signature page to follow]
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If the foregoing correctly sets forth the understanding among the
Initial Purchaser and the Issuer please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
among us.
Very truly yours,
Metallurg Holdings, Inc., on behalf of itself and
its present and future subsidiaries
By: /S/ ARTHUR R. SPECTOR
----------------------
Name: Arthur R. Spector
Title: Vice President
Accepted and agreed to as of
the date first above written:
BancBoston Securities Inc.
By: /S/ THEODORE J. DAVIES
------------------------
Name: Theodore J. Davies
Title: Director - Leveraged Finance
<PAGE>
EXHIBIT A
Form of Opinion of LeBoeuf, Lamb, Green & MacRae, L.L.P.
1. Each of the Issuer and the Company (a) is duly incorporated and is
validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, (b) has all requisite corporate power and
authority to carry on its business as it is currently being conducted and as
described in the Offering Memorandum and to own, lease and operate its
properties, and (c) is duly qualified and in good standing as a foreign
corporation, authorized to do business in each jurisdiction in which the nature
of its business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified could not reasonably
be expected to have a Material Adverse Effect.
2. The Issuer has all requisite corporate power and authority to execute,
deliver and perform its obligations under this Agreement and each of the other
Operative Documents to which it is a party and to consummate the transactions
contemplated hereby and thereby, including, without limitation, the corporate
power and authority to issue, sell and deliver the Notes as provided herein.
3. Except as otherwise set forth in the Offering Memorandum, all of the
outstanding equity interests of each Material Subsidiary is owned by the Issuer
or another Subsidiary of the Issuer, free and clear of any security interest,
claim, lien, limitation on voting rights or encumbrance, except as set forth in
Section 3.3.2 of the Disclosure Schedule; and all such securities have been duly
authorized, validly issued, and are fully paid and nonassessable and were not
issued in violation of any preemptive or similar rights.
4. This Agreement has been duly and validly authorized, executed and
delivered by the Issuer.
5. The Registration Rights Agreement has been duly and validly authorized,
executed and delivered by the Issuer, and is the valid and binding obligation of
the Issuer, enforceable against the Issuer in accordance with its terms, except
to the extent that (a) enforcement thereof may be limited by (i) bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights generally and (ii)
general principles of equity (regardless of whether enforceability is considered
in a proceeding at law or in equity); and (b) the enforceability of
indemnification and contribution provisions may be limited by Federal and state
securities laws and the policies underlying such laws.
6. The Indenture has been duly and validly authorized, executed and
delivered by the Issuer, and is the valid and binding obligation of the Issuer,
enforceable against the Issuer in accordance with its terms (assuming the due
authorization, execution and delivery of the Indenture by the Trustee), except
to the extent that (a) enforcement thereof may be limited by (i) bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights generally and (ii)
general principles of equity
<PAGE>
(regardless of whether enforceability is considered in a proceeding at law or in
equity); and (b) any waiver of certain usury laws contained in the Indenture may
be deemed unenforceable.
7. The Pledge Agreement has been duly and validly authorized, executed and
delivered by the Issuer, and is the valid and binding obligation of the Issuer,
enforceable against the Issuer in accordance with its terms, except to the
extent that (a) enforcement thereof may be limited by (i) bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights generally and (ii)
general principles of equity (regardless of whether enforceability is considered
in a proceeding at law or in equity); and (b) the enforceability of
indemnification and contribution provisions may be limited by Federal and state
securities laws and the policies underlying such laws.
8. The Supplemental Indenture has been duly and validly authorized,
executed and delivered by each of the Company and the guarantors which are
parties thereto and are valid and binding obligation of each of the Company and
such guarantors, enforceable against each of them in accordance with their
terms, except to the extent that enforcement thereof may be limited by (i)
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other similar laws now or hereafter in effect relating to creditors' rights
generally and (ii) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
9. The Merger Agreement has been duly and validly authorized, executed and
delivered by the Issuer and Acquisition, and is the valid and binding obligation
of each of the Issuer and Acquisition, enforceable against its in accordance
with its terms, except to the extent that enforcement thereof may be limited by
(i) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other similar laws now or hereafter in effect relating to creditors' rights
generally and (ii) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
10. The Discount Notes have been duly and validly authorized and executed
by the Issuer for issuance and sale to the Initial Purchaser pursuant to this
Agreement, and, when authenticated in accordance with the terms of the Indenture
and delivered against payment therefor in accordance with the terms hereof and
thereof, the Discount Notes will be the valid and binding obligations of the
Issuer, enforceable against it in accordance with their terms and entitled to
the benefits of the Indenture, except to the extent that (a) enforcement thereof
may be limited by (i) bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity); and (b) any waiver of certain usury laws contained in the Indenture may
be deemed unenforceable. The Offering Memorandum contains a summary of the
terms of the Discount Notes, which is accurate in all material respects.
11. The Exchange Notes have been duly and validly authorized for issuance
by the Issuer, and, when issued and authenticated in accordance with the terms
of the Exchange Offer and the
A-2
<PAGE>
Indenture, the Exchange Notes will be the valid and binding obligations of the
Issuer, enforceable against it in accordance with their terms and entitled to
the benefits of the Indenture, except to the extent that (a) enforcement thereof
may be limited by (i) bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity); and (b) any waiver of certain usury laws contained in the Indenture may
be deemed unenforceable. The Offering Memorandum contains a summary of the
terms of the Exchange Notes, which is accurate in all material respects.
12. The delivery to the Collateral Agent of certificates for shares of
common stock of the Company representing the collateral, so long as the
Collateral Agent maintains possession of such certificates, together with the
Pledge Agreement, creates a valid and perfected security interest in favor of
the Collateral Agent in such Collateral to secure the obligations of the Issuer
to holders of the Notes, and no interest of any other creditor of the pledgor
will be equal or prior to the collateral Agent's interest in the collateral
except as permitted therein.
13. The Offering Memorandum contains a summary of the terms of each of the
Indenture, the Registration Rights Agreement, the Supplemental Indenture and the
Merger Agreement which, in each case, is accurate in all material respects. The
statements under the captions "Description of Notes," "Notice to Investors,"
"Certain Federal Income Tax Consequences" and "Plan of Distribution" in the
Offering Memorandum, insofar as such statements constitute a summary of the
legal matters, documents or proceedings referred to therein, present fairly in
all material respects, such legal matters, documents and proceedings.
14. To such counsel's knowledge, neither the Issuer nor any of its
Material Subsidiaries is (a) in violation of its charter, bylaws or other
organizational documents or (b) in default in the performance of any bond,
debenture, note, indenture, mortgage, deed of trust or other agreement or
instrument to which it is a party or by which it is bound or to which any of its
properties is subject that has been filed or incorporated by reference as an
exhibit to any filing by the Issuer or any of its Subsidiaries with the
Commission, which, in the case of clause (b), singly or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect.
15. No registration under the Act of the Discount Notes is required for
the sale of the Discount Notes to the Initial Purchaser as contemplated hereby
or for the Exempt Resales assuming (a) that the Initial Purchaser is a QIB, (b)
that the purchasers who buy the Discount Notes in the Exempt Resales are either
QIBs or Reg S Investors, (c) the accuracy of the Initial Purchaser's
representations regarding the absence of general solicitation in connection with
the sale of Discount Notes to the Initial Purchaser and the Exempt Resales
contained herein and (d) the accuracy of the Issuer's representations in
Sections 5(a)(vii) and (xxxv) (other than with respect to the first sentence).
16. Each of the Preliminary Offering Memorandum and the Offering
Memorandum, as of its date, and each amendment or supplement thereto, as of its
date (except for the financial statements and related notes, the financial
statement schedules and other financial and statistical data
A-3
<PAGE>
included therein or omitted therefrom, as to which no opinion need be
expressed), contains the information specified in, and meets the requirements
of, Rule 144A(d)(4) under the Act.
17. [intentionally omitted]
18. None of (a) the execution, delivery or performance by the Issuer of
this Agreement or any of the other Operative Documents to which it is a party,
(b) the consummation of the Merger, (c) the issuance and sale of the Notes, (d)
the perfection of the security interest in the Collateral in favor of the
Collateral Agent and (e) consummation by the Issuer of the transactions
described in the Offering Memorandum under the captions "Use of Proceeds" and
"The Acquisition Transactions," violates, conflicts with or constitutes a breach
of any of the terms or provisions of, or a default under (or an event that with
notice or the lapse of time, or both, would constitute a default), or requires
consent under, or results in the imposition of a lien or encumbrance on any
properties of the Issuer or any of its Subsidiaries, or an acceleration of any
indebtedness of the Issuer or any of its Material Subsidiaries pursuant to, (i)
the charter, bylaws or other organizational documents of the Issuer or any of
its Material Subsidiaries, (ii) any bond, debenture, note, indenture, mortgage,
deed of trust or other agreement or instrument to which the Issuer or any of its
Subsidiaries is a party or by which any of them or their property is or may be
bound that has been filed or incorporated by reference as an exhibit to any
filing by the Issuer or any of its Subsidiaries with the Commission, (iii) any
statute, rule or regulation applicable to the Issuer or any its Subsidiaries or
any of their assets or properties (subject to customary exceptions) or (iv) To
such counsel's knowledge, any judgment, order or decree of any Delaware, New
York or Federal court or governmental agency or authority having jurisdiction
over the Issuer or the Company or any of their assets or properties (subject to
customary exceptions). Assuming compliance with applicable state securities and
Blue Sky laws, as to which such counsel need express no opinion, and except for
the filing of a registration statement under the Act and qualification of the
Indenture under the Trust Indenture Act, or in connection with the Registration
Rights Agreement, no consent, approval, authorization or order of, or filing,
registration, qualification, license or permit of or with, any Delaware, New
York or Federal court or governmental agency, body or administrative agency is
required for (i) the execution, delivery and performance by the Issuer of this
Agreement or any of the other Operative Documents to which it is a party, (ii)
the issuance and sale of the Notes or (iii) perfection of the security interest
in the Collateral in favor of the Collateral Agent and the transactions
contemplated hereby and thereby, except such as have been obtained and made or
have been disclosed in the Offering Memorandum.
19. [intentionally omitted]
20. Neither the Issuer nor the Company is an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
Investment Company Act.
21. To such counsel's knowledge, assuming consummation of the Merger in
accordance with the terms of the Merger Agreement, there are no holders of
equity securities of the Issuer or the Company who, by reason of the execution
by the Issuer of this Agreement or any other Operative Document to which it is a
party or the consummation by the Issuer of the transactions contemplated
A-4
<PAGE>
hereby and thereby, have the right to request or demand that the Issuer or any
of its Subsidiaries register under the Act or analogous foreign laws and
regulations securities held by them.
22. To such counsel's knowledge, assuming consummation of the Merger in
accordance with the terms of the Merger Agreement, there are not currently any
outstanding subscriptions, rights, warrants, calls, commitments of sale or
options to acquire, or instruments convertible into or exchangeable for, any
capital stock or other equity interest of any Subsidiary of the Issuer except as
set forth in Section 3.3.2 of the Disclosure Schedule.
23. To such counsel's knowledge, no stop order preventing the use of the
Preliminary Offering Memorandum or the Offering Memorandum, or any amendment or
supplement thereto, or any order asserting that any of the transactions
contemplated by this Agreement are subject to the registration requirements of
the Act, has been issued.
24. The Indenture complies as to form in all material respects with the
requirements of the Trust Indenture Act and the rules and regulations of the
Commission applicable to an indenture which is qualified thereunder. Prior to
the Exchange Offer or the effectiveness of the Shelf Registration Statement, the
Indenture is not required to be qualified under the Trust Indenture Act.
In addition, such counsel shall state that it has participated in
conferences with officers and other representatives of the Issuer and the
Company, representatives of the independent certified public accountants of the
Issuer and the Company and the Initial Purchaser and their representatives at
which the contents of the Preliminary Offering Memorandum and the Offering
Memorandum and related matters were discussed and, although it has not
undertaken to investigate or verify independently, and does not assume any
responsibility for, the accuracy, completeness or fairness of the statements
contained in the Preliminary Offering Memorandum or the Offering Memorandum
(except as indicated above), on the basis of the foregoing (relying as to
materiality to the extent such counsel deems appropriate upon facts provided to
such counsel by officers or other representatives of the Issuer and the Company
and without independent verification of such facts), no facts have come to its
attention which led it to believe that the Preliminary Offering Memorandum or
the Offering Memorandum, as of its date or the Closing Date, contained an untrue
statement of a material fact or omitted to state any fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading (except as to financial
statements and related notes, the financial statement schedules and other
financial and statistical data included therein).
A-5
<PAGE>
EXHIBIT B
Form of Opinion of Special German Counsel
1. The information contained in the Offering Memorandum under the heading
"Risk Factors-Limitation on Access to Subsidiaries' Cash Flow," insofar as it
purports to describe the legal requirements relating to the payment of dividends
under German law, fairly summarizes the matters therein described.
2. Except as otherwise set forth in the Offering Memorandum, there are no
consents, permissions, authorizations, approvals or orders of, or filings or
registrations with or notices to, any court, regulatory body, administrative
agency or other governmental body, other than those which have been obtained or
duly requested or made by EWW and GfE, which are required under German law for
the payment of dividends by GfE and EWW. As a result of such actions, such
entities will be permitted under German law to pay dividends on or before
December 31, 1998.
B-1
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF METALLURG HOLDINGS, INC.
METALLURG HOLDINGS, INC., a corporation organized and existing under
the laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Metallurg Holdings, Inc. The date
of filing of its Certificate of Incorporation with the Secretary of State was
June 10, 1998.
2. This Amended and Restated Certificate of Incorporation restates
and integrates and further amends the Certificate of Incorporation of this
corporation to read in its entirety as follows:
FIRST: The name of the corporation is Metallurg Holdings, Inc.
SECOND: The address, including street, number, city, and country, of
the registered office of the corporation in the State of Delaware is 1013 Centre
Road, in the city of Wilmington and the County of New Castle, Zip Code 19805.
The name of its registered agent at such address is the Corporation Service
Company.
THIRD: The nature of the business to be conducted or promoted and the
purposes of the corporation are to engage in any lawful act or activity for
which corporation may be organized under the General Corporation Law of
Delaware.
FOURTH: The total number of shares of all classes of stock which the
corporation is authorized to issue is 50,000 shares, of which 30,000 shares
shall be Common Stock $.01 par value ("Common Stock"), 10,000 shares shall be
Series A Voting Convertible Preferred Stock $.01 par value ("Series A Preferred
Stock"), and 10,000 shares shall be Series B Non-Voting Convertible Preferred
Stock $.01 par value ("Series B Preferred Stock"). The Series A Preferred Stock
and the Series B Preferred Stock are together referred to as the "Preferred
Stock."
The following is a statement of the powers, preferences and rights,
and the qualifications, limitations and restrictions thereof, of each class of
capital stock of the corporation.
A. COMMON STOCK
1. DIVIDEND RIGHTS. Dividends may be declared and paid on the
Common Stock from funds legally available therefor as and
when determined by the Board of Directors, subject in all
cases to the rights and preferences of the holders of the
Preferred Stock.
2. LIQUIDATION RIGHTS. Subject to the rights and preferences
of the holders of the Preferred Stock, upon any voluntary or
involuntary liquidation,
<PAGE>
dissolution or winding up of the affairs of the
corporation (a "Liquidation"), the holders of Common
Stock shall be entitled to receive all remaining assets
of the corporation available for distribution to its
stockholders, PRO RATA based on the number of shares of
Common Stock held by them.
3. VOTING RIGHTS. The holders of shares of Common Stock shall
be entitled to one vote for each share so held, and shall be
entitled to notice of any stockholders' meeting and to vote
upon such matters as may be provided in the by-laws of the
corporation, and as may be provided by law. Holders of
Common Stock shall not be entitled to cumulate their votes
for any purpose.
B. PREFERRED STOCK.
1. DIVIDEND RIGHTS. The holders of Preferred Stock shall be
entitled to share in any dividends declared and paid upon or
set aside for the common Stock, PRO RATA in accordance with
the number of shares of Common Stock into which such shares
of Preferred Stock are then convertible.
2. LIQUIDATION. Upon any Liquidation, after payment or
provision for payment of the debts and other liabilities of
the corporation, the holders of Preferred Stock shall be
entitled to receive, out of the remaining assets of the
corporation available for distribution to its stockholders,
with respect to each share of Preferred Stock an amount
equal to the sum of (i) the Original Cost of such share and
(ii) all declared but unpaid dividends payable with respect
to such share under Section 1 above before any distribution
shall be made to the holders of the Common Stock. If upon
any Liquidation, the assets of the corporation available for
distribution to its stockholders shall be insufficient to
pay the holders of Preferred Stock the full amount to which
they shall be entitled, the holders of Preferred Stock shall
share in any distribution of such assets PRO RATA based on
the number of shares of Preferred Stock held by them.
"Original Cost" of any share of Preferred Stock means (A)
$10,000 in the case of whole shares and (B) in the case of
fractional shares, the product of such fraction and $10,000.
3. VOTING RIGHTS.
(a) In addition to the rights provided by applicable law,
the holders of Series A Preferred Stock shall be
entitled to vote on all matters as to which holders of
Common Stock shall be entitled to vote, in the same
manner and with the same effect as such holders of
Common Stock, voting together with the holders of
Common Stock as one class. Each share of Series A
Preferred Stock shall entitle the holder thereof to
such number of votes as shall equal the number shares
of Common Stock into which such share of Series A
Preferred Stock is then convertible.
2
<PAGE>
(b) The holders of shares of Series B Preferred Stock shall
not be entitled to vote on any matters except as
required by applicable law.
4. OPTIONAL CONVERSION.
(a) Upon the terms set forth in this Section, each holder
of shares of Preferred Stock shall have the right, at
such holder's option, at any time and from time to
time, to convert all, but not less than all, of such
holders' shares into the number of fully paid and
nonassessable whole or fractional shares of Common
Stock equal to the quotient obtained by dividing (i)
the product of $10,000 and the number of shares of
Preferred Stock being converted, by (ii) the Conversion
Price (as defined below), as last adjusted and then in
effect, by surrender of the certificates representing
the share at which shares of Common Stock shall be
issuable upon conversion of shares of Preferred Stock
(the "Conversion Price") shall be $10,000, subject to
adjustment as set forth below.
(b) The holder of any shares of Preferred Stock may
exercise the conversion right pursuant to paragraph (a)
above by delivering to the corporation the certificate
or certificates for the shares to be converted, duly
endorsed or assigned in blank to the corporation (if
required by it), accompanied by written notice stating
that the holder elects to convert such shares and
stating the name or names (with address) in which the
certificate or certificates for the shares of Common
Stock are to be issued. Conversion shall be deemed to
have been effected on the date when such delivery is
made (the "Conversion Date"). As promptly as
practicable thereafter, the corporation shall issue and
deliver to or upon the written order of such holder, to
the place designated by such holder, a certificate or
certificates for the number of shares of Common Stock
to which such holder is entitled. The person in whose
name the certificate or certificates for Common Stock
are to be issued shall be deemed to have become a
stockholder of record on the applicable Conversion Date
unless the transfer books of the corporation are closed
on that date, in which event such person shall be
deemed to have become a stockholder of record on the
next succeeding date on which the transfer books are
open, but the Conversion Price shall be that in effect
on the Conversion Date.
(c) The corporation shall reserve, and at all times from
and after the date of issuance of the Preferred Stock
keep reserved, free from preemptive rights, out of its
authorized but unissued shares of Common Stock, solely
for the purpose of effecting the
3
<PAGE>
conversion of the shares of Preferred Stock, sufficient
shares of Common Stock to provide for the conversion of
all outstanding shares of Preferred Stock.
(d) If the number of shares of Common Stock outstanding is
increased by a stock dividend payable in shares of
Common Stock or by a subdivision or split-up of shares
of Common Stock, then, following the record date for
the determination of holders of Common Stock entitled
to receive such stock dividend, subdivision or
split-up, the Conversion Price shall be appropriately
decreased so that the number of shares of Common Stock
issuable on conversion of each share of Preferred Stock
shall be increased in proportion to such increase in
outstanding shares.
(e) If the number of shares of Common Stock outstanding is
decreased by a combination of the outstanding shares of
Common Stock, then, following the record date for such
combination, the Conversion Price shall be
appropriately increased so that the number of shares of
Common Stock issuable on conversion of each share of
Preferred Stock shall be decreased in proportion to
such decrease in outstanding shares.
(f) In the event of any capital reorganization of the
corporation, any reclassification of the stock of the
corporation (other than a change in par value or from
no par value to par value or from par value to no par
value or as a result of a stock dividend or
subdivision, split-up or combination of shares), or any
consolidation or merger of the corporation, each share
of Preferred Stock shall after such reorganization,
reclassification, consolidation, or merger be
convertible into the kind and number of shares of stock
or other securities or property of the corporation or
of the entity resulting from such consolidation or
surviving such merger to which the holder of the number
of shares of Common Stock deliverable (immediately
prior to the time of such reorganization,
reclassification, consolidation or merger) upon
conversion of such share of Preferred Stock would have
been entitled upon such reorganization,
reclassification, consolidation or merger. The
provisions of this clause shall similarly apply to
successive reorganizations, reclassifications,
consolidations or mergers.
5. MANDATORY CONVERSION
(a) Upon the consummation of an Initial Public Offering (as
defined below), each share of Preferred Stock then
outstanding shall, by virtue of and simultaneously with
such consummation, be deemed automatically converted
into the number of fully paid and nonassessable whole
or fractional shares of Common Stock
4
<PAGE>
equal to the quotient obtained by dividing (i) $10,000
by (ii) the Conversion Price, as last adjusted and then
in effect.
(b) As promptly as practicable after the date of
consummation of any Initial Public Offering and the
delivery to the corporation of the certificate or
certificates for the shares of Preferred Stock which
have been converted, duly endorsed or assigned in blank
to the corporation (if required by it), the corporation
shall issue and deliver to or upon the written order of
each holder of Preferred Stock, to the place designated
by such holder, a certificate or certificates for the
number of full shares of Common Stock to which such
holder is entitled. The person in whose name the
certificate or certificates for Common Stock are to be
issued shall be deemed to have become a stockholder of
Common Stock of record on the date of consummation of
such Initial Public Offering and on such date the
shares of Preferred Stock shall cease to be outstanding
and all rights with respect to the shares of Preferred
Stock so converted shall terminate (except the right to
receive shares of Common Stock issuable upon such
conversion), whether or not the certificates
representing such shares have been received by the
corporation.
(c) "Initial Public Offering" means the consummation of the
first public offering of Common Stock pursuant to a
registration statement filed under the Securities Act
of 1933.
FIFTH: The following provisions are inserted for the management of
the business and for the conduct of the affairs of the corporation, and for
creating, defining, limiting and regulating the powers of the corporation, the
directors and the stockholders.
A. In furtherance of and not in limitation of the powers conferred
by statute, the board of directors is expressly authorized to
make, alter or repeal the bylaws of the corporation.
B. The directors of the corporation shall be entitled to the
benefits of all limitations on the liability of directors
generally that are now or hereafter become available under the
General Corporation Law of Delaware. Without limiting the
generality of the foregoing, no director of the corporation shall
be personally liable to the corporation or to any stockholder of
the corporation for monetary damages for breach of fiduciary duty
as a director, provided that this provision shall not limit the
liability of a director (i) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (ii) for acts
of omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174
of the General Corporation Law of the State of Delaware, or (iv)
for any transaction from which the director derived an improper
personal benefit.
C. Elections of directors need not be by written ballot unless the
bylaws of the corporation shall so provide.
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<PAGE>
D. The corporation shall, to the maximum extent permitted from time
to time under the laws of the State of Delaware, indemnify and
upon request shall advance expenses to any person who is or was a
party or is threatened to be made a party to any threatened,
pending or completed action, suit, proceeding or claim, whether
civil, criminal, administrative or investigative, by reason of
the fact that he is or was or has agreed to be a director or
officer of this corporation or while a director or officer is or
was serving at the request of the corporation as a director,
officer, partner, trustee, employee or agent of any corporation,
partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, against expenses
(including attorney's fees and expenses), judgements, fines,
penalties and amounts paid in settlement or incurred in
connection with the investigation, preparation to defend or
defense of such action, suit, proceeding, claim or counterclaim
initiated by or on behalf of such person. Such indemnification
shall not be exclusive of other indemnification rights arising
under any by-law, agreement, vote of directors or stockholders or
otherwise and shall inure to the benefit of the heirs and legal
representatives of such person. Any repeal or modification on
the foregoing provisions of this Section (D) of Article FIFTH
shall not adversely affect any right or protection of a director
or officer of the corporation existing at the time of such repeal
or modification.
SIXTH: Except as expressly provided in any agreement between any
stockholder and the corporation, no holder of stock of the corporation shall be
entitled as of right to purchase or subscribe for any part of any unissued stock
of the corporation or any additional stock to be issued by reason of any
increase of the authorized capital stock of the corporation, or any bonds,
certificates of indebtedness, debentures or other securities convertible into
stock or such additional authorized issue of new stock, but rather such stock,
bonds, certificates of indebtedness, debentures and other securities may be
issued and disposed of pursuant to resolution of the board of directors to such
persons, firms, corporations or associations, and upon such terms as may be
deemed advisable by the board of directors in the exercise of their discretion.
SEVENTH: Meetings of stockholders may be held within or without the
State of Delaware, as the by-laws may provide. The books of the corporation may
be kept (subject to the provisions of the Delaware General Corporation Law)
outside of the State of Delaware at such place or places as may be from time to
time designated by the board of directors or in the by-laws of the corporation.
EIGHTH: The corporation reserves the right to amend, alter, change or
repeal any provisions by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
3. This Amended and Restated Certificate of Incorporation was duly
adopted by the directors and officers of the corporation, acting by unanimous
written consent in lieu of meeting effective as of this date, pursuant to
Sections 228 and 242 of the Delaware General Corporation Law.
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<PAGE>
IN WITNESS WHEREOF, the corporation has caused this certificate to be
signed by its authorized officers as of the 10th day of July, 1998.
METALLURG HOLDINGS, INC.
By: /S/ MICHAEL R. HOLLY
----------------------
Name: Michael R. Holly
Title:Vice President
Attested:
By: /S/ ARTHUR SPECTOR
------------------
Name: Arthur Spector
Title: Vice President
7
<PAGE>
Exhibit 3.2
BYLAWS
OF
METALLURG HOLDINGS, INC.
(A DELAWARE CORPORATION)
ARTICLE I
Offices and Fiscal Year
SECTION 1.01. REGISTERED OFFICE. The registered office of the
corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware until otherwise established by a vote of a majority of the board of
directors in office, and a statement of such change is filed in the manner
provided by statute.
SECTION 1.02. OTHER OFFICES. The corporation may also have offices
at such other places within or without the State of Delaware as the board of
directors may from time to time determine or the business of the corporation
requires.
SECTION 1.03. FISCAL YEAR. The fiscal year of the corporation shall
end on the 31st of December in each year.
ARTICLE II
Meetings of Stockholders
SECTION 2.01. PLACE OF MEETING. All meetings of the stockholders of
the corporation shall be held at the registered office of the corporation, or at
such other place within or without the State of Delaware as shall be designated
by the board of directors in the notice of such meeting.
SECTION 2.02. ANNUAL MEETING. The board of directors may fix the
date and time of the annual meeting of the stockholders, but if no such date and
time is fixed by the board, the meeting for any calendar year shall be held on
the third Tuesday of May in such year, if not a legal holiday, and if a legal
holiday then on the next succeeding business day at 10:00 o'clock A.M., and at
said meeting the stockholders then entitled to vote shall elect directors and
shall transact such other business as may properly be brought before the
meeting.
SECTION 2.03. SPECIAL MEETINGS. Special meetings of the stockholders
of the corporation for any purpose or purposes for which meetings may lawfully
be called, may be called at any time by the chairman of the board, a majority of
the board of directors, the chief executive officer or the president, or at the
request, in writing, of stockholders owning individually or together ten percent
or more of the entire capital stock of the corporation issued and outstanding
and entitled to vote. At any time, upon written request of any person or
persons who have duly called a special meeting, which written request shall
state the purpose or purposes of the meeting, it shall be the duty of the
secretary to fix the date of the meeting to be held at such date and time as the
secretary may fix, not less than ten nor more than sixty days after the receipt
of the request, and to give due notice thereof. If the secretary shall neglect
or refuse to
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fix the time and date of such meeting and give notice thereof, the person or
persons calling the meeting may do so.
SECTION 2.04. NOTICE OF MEETINGS. Written notice of the place, date
and hour of every meeting of the stockholders, whether annual or special, shall
be given to each stockholder of record entitled to vote at the meeting not less
than ten nor more than sixty days before the date of the meeting. Every notice
of a special meeting shall state the purpose or purposes thereof.
SECTION 2.05. QUORUM, MANNER OF ACTING AND ADJOURNMENT. The holders
of a majority of the stock issued and outstanding (not including treasury stock)
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute, by the certificate of
incorporation or by these bylaws. If, however, such quorum shall not be present
or represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At any 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 adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. When a quorum is present at any meeting, the
vote of the holders of the 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
applicable statute, the certificate of incorporation or these bylaws, a
different vote is required in which case such express provision shall govern and
control the decision of such question. Except upon those questions governed by
the aforesaid express provisions, the stockholders present in person or by proxy
at a duly organized meeting can continue to do business until adjournment,
notwithstanding withdrawal of enough stockholders to leave less than a quorum.
SECTION 2.06. ORGANIZATION. At every meeting of the stockholders,
the chairman of the board, if there be one, or in the case of a vacancy in the
office or absence of the chairman of the board, one of the following persons
present in the order stated: the vice chairman, if one has been appointed, the
chief executive officer or the president, the vice presidents in their order or
rank, a chairman designated by the board of directors or a chairman chosen by
the stockholders entitled to cast a majority of the votes which all
stockholders present in person or by proxy are entitled to cast, shall act as
chairman, and the secretary, or, in his absence, an assistant secretary, or in
the absence of the secretary and the assistant secretaries, a person appointed
by the chairman, shall act as secretary.
SECTION 2.07. VOTING. Each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
capital stock having voting power held by such stockholder. No proxy shall be
voted or acted upon after three years from its date, unless the proxy provides
for a longer period. Every proxy shall be executed in writing by the
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stockholder or by his duly authorized attorney-in-fact and filed with the
secretary of the corporation. A proxy, unless coupled with an interest, shall
be revocable at will, notwithstanding any other agreement or any provision in
the proxy to the contrary, but the revocation of a proxy shall not be effective
until notice thereof has been given to the secretary of the corporation. A duly
executed proxy shall be irrevocable if it states that it is irrevocable and if,
and only as long as, it is coupled with an interest sufficient in law to support
an irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the corporation generally. A proxy shall not be revoked by the
death or incapacity of the maker unless, before the vote is counted or the
authority is exercised, written notice of such death or incapacity is given to
the secretary of the corporation.
SECTION 2.08. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Any action
required to be taken at any annual or special meeting of stockholders of the
corporation, or any action which may be taken at any annual or special meeting
of such stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty days of the
earliest dated consent delivered in the manner required above to the
corporation, written consent, signed by a sufficient number of holders or
members to take action are delivered to the corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer or
agent of the corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to a corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. Prompt notice of the taking of the corporate action without
a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
SECTION 2.09. VOTING LISTS. 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. The list shall be arranged in alphabetical order 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.
SECTION 2.10. JUDGES OF ELECTION. All elections of directors shall
be by written ballot, unless otherwise provided in the certificate of
incorporation; the vote upon any other
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matter need not be by ballot. In advance of any meeting of stockholders, the
board of directors may appoint judges of election, who need not be stockholders,
to act at such meeting or any adjournment thereof. If judges of election are
not so appointed, the chairman of any such meeting may, and upon the demand of
any stockholder or his proxy at the meeting and before voting begins shall,
appoint judges of election. The number of judges shall be either one or three,
as determined, in the case of judges appointed upon demand of a stockholder, by
stockholders present entitled to cast a majority of the votes which all
stockholders present are entitled to cast thereon. No person who is a candidate
for office shall act as a judge. In case any person appointed as judge fails to
appear or fails or refuses to act, the vacancy may be filled by appointment made
by the board of directors in advance of the convening of the meeting, or at the
meeting by the chairman of the meeting.
If judges of election are appointed as aforesaid, they shall determine
the number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, receive votes or ballots, hear and determine all
challenges and questions in any way arising in connection with the right to
vote, count and tabulate all votes, determine the result, and do such acts as
may be proper to conduct the election or vote with fairness to all
stockholders. If there be three judges of election, the decision, act or
certificate of a majority shall be effective in all respects as the decision,
act or certificate of all.
On request of the chairman of the meeting or of any stockholder or his
proxy, the judges shall make a report in writing of any challenge or question or
matter determined by them, and execute a certificate of any fact found by them.
ARTICLE III
Board of Directors
SECTION 3.01. POWERS. The board of directors shall have full power
to manage the business and affairs of the corporation; and all powers of the
corporation, except those specifically reserved or granted to the stockholders
by statute, the certificate of incorporation or these bylaws, are hereby granted
to and vested in the board of directors.
SECTION 3.02. NUMBER AND TERM OF OFFICE. The board of directors
shall consist of one or more members as determined from time to time by
resolution of the board of directors. Each director shall serve until the next
annual meeting of the stockholders and until his successor shall have been
elected and qualified, except in the event of his death, resignation or removal.
All directors of the corporation shall be natural persons, but need not be
residents of Delaware or stockholders of the corporation.
SECTION 3.03. VACANCIES. Vacancies 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, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and shall
qualify, unless sooner displaced. If there are no directors in office, then an
election
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of directors may be held in the manner provided by statute. Whenever the
holders of any class or classes of stock or series thereof are entitled to elect
one or more directors by the provisions of the certificate of incorporation,
vacancies and newly created directorships of such class or classes or series may
be filled by a majority of the directors elected by such class or classes or
series thereof then in office, or by a sole remaining director so elected.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office.
SECTION 3.04. RESIGNATIONS. Any director of the corporation may
resign at any time by giving written notice to the chief executive officer or
the president or the secretary of the corporation. Such resignation shall take
effect at the date of the receipt of such notice or at any later time specified
therein and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 3.05. ORGANIZATION. At every meeting of the board of
directors, the chairman of the board, if there be one, or, in the case of a
vacancy in the office or absence of the chairman of the board, one of the
following officers present in the order stated: the vice chairman of the board,
if there be one, the chief executive officer or the president, the vice
presidents in their order of rank and seniority, or a chairman chosen by a
majority of the directors present, shall preside, and the secretary, or, in his
absence, an assistant secretary, or in the absence of the secretary and the
assistant secretaries, any person appointed by the chairman of the meeting,
shall act as secretary.
SECTION 3.06. PLACE OF MEETING. The board of directors may hold its
meeting, both regular and special, at such place or places within or without the
State of Delaware as the board of directors may from time to time appoint, or as
may be designated in the notice calling the meeting.
SECTION 3.07. ORGANIZATION MEETING. The first meeting of each newly
elected board of directors shall be held at such time and place as shall be
fixed by the vote of the stockholders at the annual meeting and no notice of
such meeting shall be necessary to the newly elected directors in order legally
to constitute the meeting, provided a quorum shall be present. In the event of
the failure of the stockholders to fix the time or place of such first meeting
of the newly elected board of directors, or in the event such meeting is not
held at the time and place so fixed by the stockholders, the meeting may be held
at such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the board of directors, or as shall be
specified in a written waiver signed by all of the directors.
SECTION 3.08. REGULAR MEETINGS. Regular meetings of the board of
directors may be held without notice at such time and place as shall be
designated from time to time by resolution of the board of directors. If the
date fixed for any such regular meeting be a legal
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holiday under the laws of the State where such meeting is to be held, then the
same shall be held on the next succeeding business day, not a Saturday, or at
such other time as may be determined by resolution of the board of directors.
At such meetings, the directors shall transact such business as may properly be
brought before the meeting.
SECTION 3.09. SPECIAL MEETINGS. Special meetings of the board of
directors shall be held whenever called by the chief executive officer or the
president or by two or more of the directors. Notice of each such meeting shall
be given to each director by telephone or in writing at least 24 hours (in the
case of notice by telephone) or 48 hours (in the case of notice by telegram) or
five days (in the case of notice by mail) before the time at which the meeting
is to be held. Each such notice shall state the time and place of the meeting
to be so held.
SECTION 3.10. QUORUM, MANNER OF ACTING AND ADJOURNMENT. At all
meetings of the board a majority of the directors shall constitute a quorum for
the transaction of business and the act 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 or by the
certificate of incorporation. 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.
Unless otherwise restricted by the certificate of incorporation or
these bylaws, 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 consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the board.
SECTION 3.11. EXECUTIVE AND OTHER COMMITTEES. The board of directors
may, by resolution adopted by a majority of the whole board, designate an
executive committee and one or more other committees, each committee to consist
of two or more directors. 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 of disqualification of a
member, and the alternate or alternates, if any, designated for such member, of
any 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 director 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
establishing such committee shall have and may exercise all the power and
authority of the board of directors in the management of the business and
affairs of the corporation, including the power or authority to declare a
dividend or to authorize the issuance of stock, 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 (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the board of directors as provided in Section 151 (a) of the
Delaware General Corporation Law ("DGCL"), fix any of the preferences or rights
of such shares relating to dividends, redemption, dissolution, any distribution
of assets of the corporation or the conversion into, or the exchange of such
shares for, shares of any other class or classes or any other series of the same
or any other class or classes
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of stock of the corporation), adopting an agreement of merger or consolidation
under Section 251 or 252 of the DGCL, 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 bylaws of the corporation; and,
unless the resolution expressly so provides, no such committee shall have the
power or authority to declare a dividend, to authorize the issuance of stock or
to adopt a certificate of ownership and merger pursuant to Section 253 of the
DGCL. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the board of directors.
Each committee so formed shall keep regular minutes of its meetings and report
the same to the board of directors when required.
SECTION 3.12. COMPENSATION OF DIRECTORS. Unless otherwise restricted
by the certificate of incorporation, 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.
ARTICLE IV
Notice -- Waivers -- Meetings
SECTION 4.01. NOTICE, WHAT CONSTITUTES. Whenever, under the
provisions of the statutes of Delaware or the certificate of incorporation or of
these bylaws, 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 in
accordance with Section 3.09 of Article III hereof.
SECTION 4.02. WAIVERS OF NOTICE. Whenever any written notice is
required to be given under the provisions of the certificate of incorporation,
these bylaws, or by statute, a waiver thereof in writing, signed by the person
or persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice. Except in the
case of a special meeting of stockholders, neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the stockholders,
directors, or members of a committee of directors need be specified in any
written waiver of notice of such meeting.
Attendance of a person, either in person or by proxy, at any meeting,
shall constitute a waiver of notice of such meeting, except where a person
attends a meeting for the express
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purpose of objecting to the transaction of any business because the meeting was
not lawfully called or convened.
SECTION 4.03. CONFERENCE TELEPHONE MEETINGS. One or more directors
may participate in a meeting of the board, or of a committee of the board, by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other.
Participation in a meeting pursuant to this section shall constitute presence in
person at such meeting.
ARTICLE V
Officers
SECTION 5.01. NUMBER, QUALIFICATIONS AND DESIGNATION. The officers
of the corporation shall be chosen by the board of directors and shall be a
chief executive officer and/or a president, one or more vice presidents, a
secretary, a treasurer, or officers acting in such capacities and such officers
as may be elected in accordance with the provisions of Section 5.03 of this
Article.
SECTION 5.02. ELECTION AND TERM OF OFFICE. The officers of the
corporation, except those elected by delegated authority pursuant to Section
5.03 of this Article, shall be elected annually by the board of directors, and
such other officer shall hold his office until his successor shall have been
elected and qualified, or until his earlier resignation or removal. Any officer
may resign at any time upon written notice to the corporation.
SECTION 5.03. SUBORDINATE OFFICERS, COMMITTEES AND AGENTS. The board
of directors may from time to time elect such other officers and appoint such
committees, employees or other agents as it deems necessary, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as are provided in these bylaws, or as the board of directors may from
time to time determine. The board of directors may delegate to any officer or
committee the power to elect subordinate officers and to retain or appoint
employees or other agents, or committees thereof, and to prescribe the authority
and duties of such subordinate officers, committees, employees or other agents.
SECTION 5.04. THE CHAIRMAN, VICE-CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER. The chairman of the board, or in his absence, the
vice-chairman of the board, shall preside at all meetings of the stockholders
and of the board of directors, and shall perform such other duties as may from
time to time be assigned to them by the board of directors. The chairman shall
have the power to sign documents and instruments on behalf of the corporation in
the same manner that such power is conferred upon the president. The chief
executive officer shall have all of the same powers as the president.
SECTION 5.05. THE CHIEF EXECUTIVE OFFICER OR PRESIDENT. The chief
executive officer or the president shall perform such duties and shall have such
rights and responsibilities as may from time to time be assigned to him by the
board of directors.
SECTION 5.06. THE VICE PRESIDENTS. The vice president or vice
presidents, if any, shall perform the duties of the chief executive officer or
the president in his absence and such
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other duties as may from time to time be assigned to them by the board of
directors or by the chief executive officer or the president.
SECTION 5.07. THE SECRETARY. The secretary, or an assistant
secretary, shall attend all meetings of the stockholders and of the board of
directors and shall record the proceedings of the stockholders and of the
directors and of committees of the board in a book or books to be kept for that
purpose; see that notices are given and records and reports properly kept and
filed by the corporation as required by law; be the custodian of the seal of the
corporation and see that it is affixed to all documents to be executed on behalf
of the corporation under its seal; and, in general, perform all duties incident
to the office of the secretary, and such other duties as may from time to time
be assigned to him by the board of directors or the chief executive officer or
the president.
SECTION 5.08. THE TREASURER. The treasurer, or an assistant
treasurer, shall have or provide for the custody of the funds or other property
of the corporation and shall keep a separate book account of the same to his
credit as treasurer; collect and receive or provide for the collection and
receipt of moneys earned by or in any manner due to or received by the
corporation; deposit all funds in his custody as treasurer in such banks or
other places of deposit as the board of directors may from time to time
designate; whenever so required by the board of directors, render an account
showing his transactions as treasurer and the financial condition of the
corporation; and, in general, discharge such other duties as may from time to
time be assigned to him by the board of directors of the chief executive officer
or the president.
SECTION 5.09. OFFICERS' BONDS. No officer of the corporation need
provide a bond to guarantee the faithful discharge of his duties unless the
board of directors shall by resolution so require a bond in which event such
officer shall give the corporation a bond (which shall be renewed if and as
required) 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.
SECTION 5.10. SALARIES. The salaries of the officers and agents of
the corporation elected by the board of directors shall be fixed from time to
time by the board of directors.
ARTICLE VI
Certificates of Stock, Transfer, Etc.
SECTION 6.01. ISSUANCE. Each stockholder shall be entitled to a
certificate or certificate for shares of stock of the corporation owned by him
upon his request therefor. The stock certificates of the corporation shall be
numbered and registered in the stock ledger and transfer books of the
corporation as they are issued. They shall be signed by the chief executive
officer or the president or a vice president and by the secretary or an
assistant secretary or the treasurer or an assistant treasurer, and shall bear
the corporate seal, which may be a facsimile, engraved or printed. Any of or
all the signatures upon such certificate may be a facsimile, engraved or
printed. In case any officer, transfer agent or registrar who has signed, or
whose facsimile signature has been placed upon, any share certificate shall have
ceased to be such
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officer, transfer agent or registrar, before the certificate is issued, it may
be issued with the same effect as if he were such officer, transfer agent or
registrar at the date of its issue.
SECTION 6.02. TRANSFER. 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, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. No transfer shall be made which would be
inconsistent with the provisions of Article 8, Title 6 of the Delaware Uniform
Commercial Code-Investment Securities.
SECTION 6.03. STOCK CERTIFICATES. Stock certificates of the
corporation shall be in such form as provided by statute and approved by the
board of directors. The stock record books and the blank stock certificates
books shall be kept by the secretary or by any agency designated by the board of
directors for that purpose.
SECTION 6.04. LOST, STOLEN, DESTROYED OR MUTILATED 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 against the
corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
SECTION 6.05. RECORD HOLDER OF SHARES. The corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Delaware.
SECTION 6.06. DETERMINATION OF STOCKHOLDERS OF RECORD. In order that
the corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which record date shall not be more than sixty or less than ten
days before the date of such meeting. If no record date is fixed by the board of
directors, the record date for determining stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
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adjournment of the meeting; provided, however, that the board of directors may
fix a new record date for the adjourned meeting.
In order that the corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the board of directors
may fix a record date, which record date shall not be more than ten days after
the date upon which the resolution fixing the record date is adopted by the
board of directors. If no record has been fixed by the board of directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the board of directors is
required by the DGCL, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation by delivery to its registered office in Delaware, its principal
place of business, or an officer or agent of the corporation having custody of
the book in which proceedings of meetings of stockholders are recorded.
Delivery made to a corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. If no record date has
been fixed by the board of directors and prior action by the board of directors
is required by the DGCL, the record date for determining stockholders entitled
to consent to corporate action in writing without a meeting shall be at the
close of business on the day on which the board of directors adopts the
resolution taking such prior action.
In order that the corporation may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any rights
of the stockholders 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 record date shall not
precede the date upon the resolution fixing the record date is adopted, and
which record date shall not be more than sixty days prior to such action. If no
record date is fixed, the record date for determining stockholders for any such
purpose shall be at the close of the business on the day on which the board of
directors adopts the resolution relating thereto.
ARTICLE VII
Indemnification of Directors, Officers and
Other Authorized Representatives
SECTION 7.01. INDEMNIFICATION OF AUTHORIZED REPRESENTATIVES IN THIRD PARTY
PROCEEDINGS. The corporation shall indemnify any person who was or is an
authorized representative of the corporation, and who was or is a party or is
threatened to be made a party to any corporation proceeding, by reason of the
fact that such person was or is an authorized representative of the corporation,
against expenses judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such third
party proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal third party proceeding (including
any action or investigation which could or does lead to a criminal third party
proceeding) had no reasonable cause to believe such conduct was unlawful.
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<PAGE>
The termination of any third party proceeding by judgment, order, settlement,
indictment, conviction or upon a plea of nolo contendere or its equivalent,
shall not of itself create a presumption that the authorized representative did
not act in good faith and in a manner which such person reasonably believed to
be in or not opposed to, the best interests of the corporation, and, with
respect to any criminal third party proceeding, had reasonable cause to believe
that such conduct was unlawful.
SECTION 7.02. INDEMNIFICATION OF AUTHORIZED REPRESENTATIVES IN
CORPORATE PROCEEDINGS. The corporation shall indemnify any person who was or is
an authorized representative of the corporation and who was or is a party or is
threatened to be made a party to any corporate proceeding by reason of the fact
that such person was or is an authorized representative of the corporation,
against expenses actually and reasonably incurred by such person in connection
with the defense or settlement of such corporate action if such person acted in
good faith and in a manner reasonably believed to be in, or not opposed to, the
best interests of the corporation, 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 to the corporation unless and only to the extent that the
Court of Chancery or the court in which such corporate proceeding was pending
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such authorized representative is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
SECTION 7.03. MANDATORY INDEMNIFICATION OF AUTHORIZED
REPRESENTATIVES. To the extent that an authorized representative of the
corporation has been successful on the merits or otherwise in defense of any
third party or corporate proceeding or in defense of any claim, issue or matter
therein, such person shall be indemnified against expenses actually and
reasonably incurred by such person in connection therewith.
SECTION 7.04. DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION. Any
indemnification under Section 7.01, 7.02 or 7.03 of this Article (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 authorized representative
is proper in the circumstances because such person has either met the applicable
standard of conduct set forth in Section 7.01 or 7.02 or has been successful on
the merits or otherwise as set forth in Section 7.03 and that the amount
requested has been actually and reasonably incurred. Such determination shall
be made:
(1) By the board of directors by a majority of a quorum consisting of
directors who were not parties to such third party or corporate proceeding, or
(2) If such a quorum is not obtainable, or, even if obtainable, a
majority vote of such quorum so directs, by independent legal counsel in a
written opinion, or
(3) By the stockholders.
SECTION 7.05. ADVANCING EXPENSES. Expenses actually and reasonably
incurred in defending a third party or corporate proceeding shall be paid on
behalf of a director by the corporation in advance of the final disposition of
such third party or corporate proceeding upon receipt of an undertaking by or on
behalf of the director to repay such amount if it shall
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<PAGE>
ultimately be determined that such person is not entitled to be indemnified by
the corporation as authorized in this Article.
Expenses actually and reasonably incurred in defending a third party
or corporate proceeding shall be paid on behalf of an authorized representative
other than a director by the corporation in advance of the final disposition of
such third party or corporate proceeding as authorized by the board of directors
upon receipt of an undertaking by or on behalf of such authorized representative
to repay if it shall ultimately be determined that such person is not entitled
to be indemnified by the corporation as authorized in this Article.
The financial ability of any authorized representative to make a
repayment contemplated by this Section shall not be a prerequisite to the making
of an advance, and shall not be considered by the board of directors in
determining whether to authorize advancement of expenses.
SECTION 7.06. DEFINITIONS. For purposes of this Article:
(1) "authorized representative" shall mean a director or officer
of the corporation, or a person serving at the request of the
corporation as a director, officer, or trustee, of another
corporation, partnership, joint venture, trust or other
enterprise;
(2) "corporation" shall include in addition to the resulting
corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have
had power and authority to indemnify its directors, officers,
employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is
or was serving at the request of such constituent corporation as
a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall
stand in the same position under the provisions of this Article
with respect to the resulting or surviving corporation as such
person would have with respect to such constituent corporation if
its separate existence had continued.
(3) "corporate proceeding" shall mean any threatened, pending or
completed action or suit by or in the right of the corporation to
procure a judgment in its favor or investigative proceeding by
the corporation;
(4) "criminal third party proceedings" shall include any action
or investigation which could or does lead to a criminal third
party proceeding;
(5) "expenses" shall include attorney's fees and disbursements;
(6) "fines" shall include any excise taxes assessed on a person
with respect to an employee benefit plan;
(7) "not opposed to the best interests of the corporation" shall
include such actions taken in good faith and in a manner the
authorized representative reasonably believed to be in the
interest of the participants and beneficiaries of a benefit plan;
(8) "other enterprises" shall include employee benefit plans;
(9) "party" shall include the giving of testimony or similar
involvement;
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<PAGE>
(10) "serving at the request of the corporation" shall include
any service as a director, officer or employee of the corporation
which imposes duties on, or involves service by, such director,
officer or employee with respect to an employee benefit plan, its
participants, or beneficiaries; and
(11) "third party proceeding" shall mean 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.
SECTION 7.07. INSURANCE. The corporation may purchase and maintain
insurance on behalf of any person who is or was a 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 another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in such a capacity, or arising out of his status as
such, whether or not the corporation would have the power or the obligation to
indemnify such person against such liability under the provisions of this
Article.
SECTION 7.08. SCOPE OF ARTICLE. The indemnification of authorized
representatives and advancement of expenses, as authorized by the preceding
provisions of this Article, shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under any statute, agreement, vote of stockholders or disinterested directors or
otherwise, both as to the action in an official capacity and as to action in
another capacity. The indemnification and advancement of expenses provided by
or granted pursuant to this Article shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be an
authorized representative and shall inure to the benefit of the heirs, executors
and administrators of such a person.
SECTION 7.09. RELIANCE ON PROVISIONS. Each person who shall act as an
authorized representative of the corporation shall be deemed to be doing so in
reliance upon rights of indemnification provided by this Article.
ARTICLE VIII
General Provisions
SECTION 8.01. 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 of the corporation, subject to the provisions of the
certificate of incorporation. 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 or reserves 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 interest of
the corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
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<PAGE>
SECTION 8.02. ANNUAL STATEMENTS. 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.
SECTION 8.03. CONTRACTS. Except as otherwise provided in these
bylaws, the board of directors may authorize any officer or officers including
the chairman and vice chairman of the board of directors, or any agent or
agents, to enter into any contract or to execute or deliver any instrument on
behalf of the corporation and such authority may be general or confined to
specific instances.
SECTION 8.04. CHECKS. All checks, notes, bills of exchange or other
orders in writing shall be signed by such person or persons as the board of
directors may from time to time designate.
SECTION 8.05. 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". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any other manner reproduced.
SECTION 8.06. DEPOSITS. All funds of the corporation shall be
deposited from time to time to the credit of the corporation in such banks,
trust companies, or other depositories as the board of directors may approve or
designate, and all such funds shall be withdrawn only upon checks signed by such
one or more officers or employees as the board of directors shall from time to
time determine.
SECTION 8.07. CORPORATE RECORDS. 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 and
number of shares registered in the name of each stockholder, shall be open to
the examination of any stockholder, for any purpose germane 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.
Every stockholder shall, upon written demand, under oath stating the
purpose thereof, have a right to examine, in person or by agent or attorney,
during the usual hours for business, for any proper purpose, the stock ledger,
books or records of account, and records of the proceedings of the stockholders
and directors, and make copies or extracts therefrom. A proper purpose shall
mean a purpose reasonably related to such person's interest as a stockholder.
In every instance where an attorney or other agent shall be the person who seeks
the right to inspection, the demand under oath shall be accompanied by a power
of attorney or such other writing which authorizes the attorney or other agent
to so act on behalf of the stockholder. The demand under oath shall be directed
to the corporation at its registered office in Delaware or at its principal
place of business. Where the stockholder seeks to inspect the books and records
of the corporation, other than its stock ledger or list of stockholders, the
stockholder shall first establish (1) compliance with the provisions of this
section respecting the form and manner of
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<PAGE>
making demand for inspection of such document; and (2) that the inspection
sought is for a proper purpose. Where the stockholder seeks to inspect the
stock ledger or list of stockholders of the corporation and has complied with
the provisions of this section respecting the form and manner of making demand
for inspection of such documents, the burden of proof shall be upon the
corporation to establish the inspection sought is for an improper purpose.
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders and its other books and records for a purpose
reasonably related to his position as a director. The Court of Chancery is
hereby vested with the exclusive jurisdiction to determine whether a director is
entitled to the inspection sought. The court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger and the stock list and to make copies or extracts therefrom. The
court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the court
may deem just and proper.
SECTION 8.08. AMENDMENT OF BYLAWS. These bylaws may be altered,
amended or repealed or new bylaws may be adopted by the vote of more than fifty
percent of the stockholders or by a majority of the whole board of directors,
when such power is conferred upon the board of directors by the certificate of
incorporation, at any regular meeting of the stockholders or of the board of
directors or at any special meeting of the stockholders of the board of
directors if notice of such alteration, amendment, repeal or adoption of new
bylaws be contained in the notice of such special meeting.
[Insert sentence to indicate the section amended, by whom and the
date of amendment]
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<PAGE>
Exhibit 4.1
================================================================================
METALLURG HOLDINGS, INC.
12.75% Senior Discount Notes due 2008
-------------------------
INDENTURE
Dated as of July 13, 1998
-------------------------
UNITED STATES TRUST COMPANY OF NEW YORK
Trustee
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions . . . . . . . . . . . . . . . . . . . . .1
SECTION 1.02. Other Definitions . . . . . . . . . . . . . . . . . 24
SECTION 1.03. Incorporation by Reference of Trust Indenture Act . 24
SECTION 1.04. Rules of Construction . . . . . . . . . . . . . . . 25
ARTICLE 2 THE SECURITIES
SECTION 2.01. Amount of Securities. . . . . . . . . . . . . . . . 25
SECTION 2.02. Form and Dating . . . . . . . . . . . . . . . . . . 26
SECTION 2.03. Execution and Authentication. . . . . . . . . . . . 26
SECTION 2.04. Registrar and Paying Agent. . . . . . . . . . . . . 27
SECTION 2.05. Paying Agent To Hold Money in Trust . . . . . . . . 27
SECTION 2.06. Securityholder Lists. . . . . . . . . . . . . . . . 28
SECTION 2.07. Replacement Securities. . . . . . . . . . . . . . . 28
SECTION 2.08. Outstanding Securities. . . . . . . . . . . . . . . 28
SECTION 2.09. Temporary Securities. . . . . . . . . . . . . . . . 29
SECTION 2.10. Cancellation. . . . . . . . . . . . . . . . . . . . 29
SECTION 2.11. Defaulted Interest. . . . . . . . . . . . . . . . . 29
SECTION 2.12. CUSIP Numbers . . . . . . . . . . . . . . . . . . . 29
ARTICLE 3 REDEMPTION
SECTION 3.01. Notices to Trustee. . . . . . . . . . . . . . . . . 30
SECTION 3.02. Selection of Securities To Be Redeemed. . . . . . . 30
SECTION 3.03. Notice of Redemption. . . . . . . . . . . . . . . . 30
SECTION 3.04. Effect of Notice of Redemption. . . . . . . . . . . 31
SECTION 3.05. Deposit of Redemption Price . . . . . . . . . . . . 31
SECTION 3.06. Securities Redeemed in Part . . . . . . . . . . . . 31
ARTICLE 4 COVENANTS
SECTION 4.01. Payment of Securities . . . . . . . . . . . . . . . 32
SECTION 4.02. SEC Reports . . . . . . . . . . . . . . . . . . . . 32
SECTION 4.03. Limitation on Debt. . . . . . . . . . . . . . . . . 32
SECTION 4.04. Limitation on Restricted Payments . . . . . . . . . 33
SECTION 4.05. Limitation on Restrictions on Distributions from
Restricted Subsidiaries . . . . . . . . . . . . . . 35
i
<PAGE>
SECTION 4.06. Limitation on Asset Sales . . . . . . . . . . . . . 36
SECTION 4.07. Limitation on Transactions with Affiliates. . . . . 38
SECTION 4.08. Change of Control . . . . . . . . . . . . . . . . . 39
SECTION 4.09. Compliance Certificate. . . . . . . . . . . . . . . 41
SECTION 4.10. Further Instruments and Acts. . . . . . . . . . . . 41
SECTION 4.11. Limitation on Liens . . . . . . . . . . . . . . . . 41
SECTION 4.12. Limitation on Sale and Leaseback Transactions . . . 41
SECTION 4.13. Limitation on Status as Investment Company. . . . . 42
SECTION 4.14. Designation of Restricted and Unrestricted
Subsidiaries. . . . . . . . . . . . . . . . . . . . 42
SECTION 4.15. Limitation on Lines of Business . . . . . . . . . . 43
ARTICLE 5 SUCCESSOR COMPANY
SECTION 5.01. When Company May Merge or Transfer Assets . . . . . 43
ARTICLE 6 DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default . . . . . . . . . . . . . . . . . 44
SECTION 6.02. Acceleration. . . . . . . . . . . . . . . . . . . . 46
SECTION 6.03. Other Remedies. . . . . . . . . . . . . . . . . . . 46
SECTION 6.04. Waiver of Past Defaults . . . . . . . . . . . . . . 46
SECTION 6.05. Control by Majority . . . . . . . . . . . . . . . . 46
SECTION 6.06. Limitation on Suits . . . . . . . . . . . . . . . . 47
SECTION 6.07. Rights of Holders to Receive Payment. . . . . . . . 47
SECTION 6.08. Collection Suit by Trustee. . . . . . . . . . . . . 47
SECTION 6.09. Trustee May File Proofs of Claim. . . . . . . . . . 48
SECTION 6.10. Priorities. . . . . . . . . . . . . . . . . . . . . 48
SECTION 6.11. Undertaking for Costs . . . . . . . . . . . . . . . 48
SECTION 6.12. Waiver of Stay or Extension Laws. . . . . . . . . . 49
ARTICLE 7 TRUSTEE
SECTION 7.01. Duties of Trustee . . . . . . . . . . . . . . . . . 49
SECTION 7.02. Rights of Trustee . . . . . . . . . . . . . . . . . 50
SECTION 7.03. Individual Rights of Trustee. . . . . . . . . . . . 51
SECTION 7.04. Trustee's Disclaimer. . . . . . . . . . . . . . . . 51
SECTION 7.05. Notice of Defaults. . . . . . . . . . . . . . . . . 51
SECTION 7.06. Reports by Trustee to Holders . . . . . . . . . . . 51
SECTION 7.07. Compensation and Indemnity. . . . . . . . . . . . . 52
SECTION 7.08. Replacement of Trustee. . . . . . . . . . . . . . . 53
SECTION 7.09. Successor Trustee by Merger . . . . . . . . . . . . 53
SECTION 7.10. Eligibility; Disqualification . . . . . . . . . . . 54
SECTION 7.11. Preferential Collection of Claims Against Company . 54
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<PAGE>
ARTICLE 8 DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. Discharge of Liability on Securities; Defeasance. . 54
SECTION 8.02. Conditions to Defeasance. . . . . . . . . . . . . . 55
SECTION 8.03. Application of Trust Money. . . . . . . . . . . . . 56
SECTION 8.04. Repayment to Company. . . . . . . . . . . . . . . . 56
SECTION 8.05. Indemnity for U.S. Government Obligations . . . . . 57
SECTION 8.06. Reinstatement . . . . . . . . . . . . . . . . . . . 57
ARTICLE 9 AMENDMENTS
SECTION 9.01. Without Consent of Holders. . . . . . . . . . . . . 57
SECTION 9.02. With Consent of Holders . . . . . . . . . . . . . . 58
SECTION 9.03. Compliance with Trust Indenture Act . . . . . . . . 59
SECTION 9.04. Revocation and Effect of Consents and Waivers . . . 59
SECTION 9.05. Notation on or Exchange of Securities . . . . . . . 60
SECTION 9.06. Trustee To Sign Amendments. . . . . . . . . . . . . 60
SECTION 9.07. Payment for Consent . . . . . . . . . . . . . . . . 60
ARTICLE 10 SECURITY
SECTION 10.01. Security Interest. . . . . . . . . . . . . . . . . 60
SECTION 10.02. Recording; Opinions of Counsel . . . . . . . . . . 61
SECTION 10.03. Disposition of Certain Collateral. . . . . . . . . 62
SECTION 10.04. Certain Releases of Collateral . . . . . . . . . . 62
SECTION 10.05. Payment of Expenses. . . . . . . . . . . . . . . . 63
SECTION 10.06. Suits to Protect the Collateral. . . . . . . . . . 63
SECTION 10.07. Trustee's Duties . . . . . . . . . . . . . . . . . 63
ARTICLE 11 MISCELLANEOUS
SECTION 11.01. Trust Indenture Act Controls . . . . . . . . . . . 64
SECTION 11.02. Notices. . . . . . . . . . . . . . . . . . . . . . 64
SECTION 11.03. Communication by Holders with Other Holders. . . . 65
SECTION 11.04. Certificate and Opinion as to Conditions Precedent 65
SECTION 11.05. Statements Required in Certificate or Opinion. . . 65
SECTION 11.06. When Securities Disregarded. . . . . . . . . . . . 65
SECTION 11.07. Rules by Trustee, Paying Agent and Registrar . . . 66
SECTION 11.08. Legal Holidays . . . . . . . . . . . . . . . . . . 66
SECTION 11.09. Governing Law. . . . . . . . . . . . . . . . . . . 66
SECTION 11.10. No Recourse Against Others . . . . . . . . . . . . 66
SECTION 11.11. Successors . . . . . . . . . . . . . . . . . . . . 66
SECTION 11.12. Multiple Originals . . . . . . . . . . . . . . . . 66
SECTION 11.13. Table of Contents; Headings. . . . . . . . . . . . 66
iii
<PAGE>
Appendix A - Provisions Relating to Initial Securities, Private Exchange
Securities and Exchange Securities
Exhibit 1 to Appendix A - Form of Initial Security
Exhibit A - Form of Exchange Security and Private Exchange Security
Exhibit B - Form of Collateral Pledge Agreement
iv
<PAGE>
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
- ------- ---------
310(a)(1) 7.10
(a)(2) 7.10
(a)(3) N.A.
(a)(4) N.A.
(b) 7.08; 7.10
(c) N.A.
311(a) 7.11
(b) 7.11
(c) N.A.
312(a) 2.06
(b) 10.03
(c) 10.03
313(a) 7.06
(b)(1) N.A.
(b)(2) 7.06
(c) 10.02
(d) 7.06
314(a) 4.02; 10.02
(b) N.A.
(c)(1) 10.04
(c)(2) 10.04
(c)(3) N.A.
(d) N.A.
(e) 10.05
(f) N.A.
315(a) 7.01
(b) 7.05; 10.02
(c) 7.01
(d) 7.01
(e) 6.11
316(a)(last sentence) 10.06
(a)(1)(A) 6.05
(a)(1)(B) 6.04
(a)(2) N.A.
(b) 6.07
317(a)(1) 6.08
(a)(2) 6.09
(b) 2.05
318(a) 10.01
N.A. means Not Applicable.
- -------------------
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of this Indenture.
i
<PAGE>
INDENTURE dated as of July 13, 1998, between METALLURG
HOLDINGS, INC., a Delaware corporation (the "Company"), and
UNITED STATES TRUST COMPANY OF NEW YORK, a New York banking
corporation (the "Trustee").
Each party agrees as follows for the benefit of each of the other
parties and for the equal and ratable benefit of the Holders of the
Company's 12.75% Senior Discount Notes Due 2008 (the "Initial Securities") and,
if and when issued pursuant to a registered exchange offer for the Initial
Securities, the Company's 12.75% Senior Discount Exchange Notes Due 2008 (the
"Exchange Securities") and, if and when issued pursuant to a Private Exchange
for the Initial Securities, the Company's 12.75% Senior Discount Private
Exchange Notes due 2008 (the "Private Exchange Securities," and together with
the Initial Securities and the Exchange Securities, the "Securities").
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 DEFINITIONS.
"Accreted Value" means, as of any date of determination prior to July
15, 2003, the sum of (a) the initial offering price of each Security and (b) the
portion of the excess of the principal amount of each Security over such initial
offering price which shall have been accreted thereon through such date, such
amount to be so accreted on a daily basis at the rate of 12.75% per annum of the
initial offering price of the Initial Securities, compounded semi-annually on
each January 15 and July 15, commencing January 15, 1999, from the date of
issuance of the Initial Securities through the date of determination, computed
on the basis of a 360-day year of twelve 30-day months.
"ADDITIONAL ASSETS" means (a) any Property (other than cash, cash
equivalents and securities) to be owned by the Company or any Restricted
Subsidiary and used in a Related Business; (b) the costs of improving or
developing any Property owned by the Company or a Restricted Subsidiary which is
used in a Related Business; or (c) Capital Stock of a Person that becomes a
Restricted Subsidiary as a result of the acquisition of such Capital Stock by
the Company or another Restricted Subsidiary from any Person other than an
Affiliate of the Company; PROVIDED, HOWEVER, that, in the case of clause (c),
such Restricted Subsidiary is primarily engaged in a Related Business.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified
<PAGE>
Person. For the purposes of this definition, "control" when used with respect
to any Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing. For purposes of the
covenants contained in Section 4.06, Section 4.07 and the definition of
"Additional Assets" only, "Affiliate" shall also mean any beneficial owner of
shares representing 10% or more of the total voting power of the Voting Stock
(on a fully diluted basis) of the Company or of rights or warrants to purchase
such Voting Stock (whether or not currently exercisable) and any Person who
would be an Affiliate of any such beneficial owner pursuant to the first
sentence hereof.
"AGENT MEMBER" means any member of, or participant in, the Depositary.
"APPLICABLE PROCEDURES" means, with respect to any transfer or
transaction involving a Temporary Regulation S Global Security or beneficial
interest therein, the rules and procedures of the Depositary for such Global
Security, Euroclear and Cedel, in each case to the extent applicable to such
transaction and as in effect from time to time.
"ASSET SALE" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions) (other than the grant of a security interest) by the Company or
any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of (a) any shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares) or (b) any other
assets of the Company or any Restricted Subsidiary outside of the ordinary
course of business of the Company or such Restricted Subsidiary (other than, in
the case of clauses (a) and (b) above, (i) any disposition by a Restricted
Subsidiary to the Company or by the Company or a Restricted Subsidiary to a
Restricted Subsidiary, (ii) for purposes of Section 4.06 only, any disposition
that constitutes a Permitted Investment or Restricted Payment permitted by
Section 4.04, (iii) any disposition effected in compliance with Section 5.01(a),
(iv) any disposition of Property or equipment that has become obsolete or
otherwise unsuitable for use in connection with the business of the Company or
such Restricted Subsidiary or (v) any disposition or series of related
dispositions of assets having a Fair Market Value and sale price of less than
$500,000).
"ATTRIBUTABLE DEBT" in respect of a Sale and Leaseback Transaction
means, at any date of determination, (a) if such Sale and Leaseback Transaction
is a Capital Lease Obligation, the amount of Debt represented thereby according
to the definition of "Capital Lease Obligation" and (b) in all other instances,
the present value (discounted at the interest rate borne by the Securities
(whether or not cash interest is then accruing), compounded annually), of the
total obligations of the lessee for rental payments during the remaining term of
the lease included in such Sale and Leaseback Transaction (including any period
for which such lease has been extended).
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"AVERAGE LIFE" means, as of any date of determination, with respect to
any Debt or Preferred Stock, the quotient obtained by dividing (a) the sum of
the product of the numbers of years (rounded to the nearest one-twelfth of one
year) from the date of determination to the dates of each successive scheduled
principal payment of such Debt or redemption or similar payment with respect to
such Preferred Stock multiplied by the amount of such payment by (b) the sum of
all such payments.
"BOARD OF DIRECTORS" means the Board of Directors of the Company or
any committee thereof duly authorized to act on behalf of such Board.
"BOARD RESOLUTION" means, with respect to the Company, a copy of a
resolution certified by the Secretary or an Assistant Secretary of the Company
to have been duly adopted by the Board of Directors and to be in full force and
effect on the date of such certification, and delivered to the Trustee.
"BUSINESS DAY" means each day which is not a Legal Holiday.
"CAPITAL LEASE OBLIGATIONS" means any obligation under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP; and the amount of Debt represented by such obligation shall be the
capitalized amount of such obligations determined in accordance with GAAP; and
the Stated Maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty. For purposes of
Section 4.11, a Capital Lease Obligation shall be deemed secured by a Lien on
the Property being leased.
"CAPITAL STOCK" means, with respect to any Person, any shares or other
equivalents (however designated) of corporate stock, partnership interests,
membership interests in limited liability companies or any other participations,
rights, warrants, options or other interests in the nature of an equity interest
in such Person, including Preferred Stock, but excluding any debt security
convertible or exchangeable into such equity interest.
"CAPITAL STOCK SALE PROCEEDS" means the aggregate cash proceeds
received by the Company from the issuance or sale (other than to a Subsidiary of
the Company or an employee stock ownership plan or trust established by the
Company or any of its Subsidiaries for the benefit of their employees) by the
Company of any class of its Capital Stock (other than Disqualified Stock) after
the Issue Date, net of attorneys' fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees incurred in connection with such issuance or sale and net of taxes
paid or payable as a result thereof.
"CEDEL" means Cedel Bank, S.A., or any successor securities clearing
agency.
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"CHANGE OF CONTROL" means the occurrence of any of the following
events:
(a) if (i) any "Person" or "group" (as such terms are used in Sections
13(d)(3) and 14(d)(2) of the Exchange Act or any successor provisions to
either of the foregoing) becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act, except that a Person will be deemed to have
"beneficial ownership" of all shares that any such Person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of 35% or more of the voting
power of the Voting Stock of the Company and (ii) the Permitted Holders are
"beneficial owners" (as defined in Rule 13d-3 under the Exchange Act except
that a Person will be deemed to have "beneficial ownership" of all shares
that any such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, in the aggregate of a lesser percentage of the total voting
power of all classes of the Voting Stock of the Company than such other
Person or group referred to in clause (i) (for purposes of this clause (a),
such Person or group, and the Permitted Holders, shall be deemed to
beneficially own any Voting Stock of a corporation (the "specified
corporation") held by any other corporation (the "parent corporation") so
long as such Person or group beneficially owns, directly or indirectly, in
the aggregate a majority of the voting power of the Voting Stock of such
parent corporation); or
(b) the sale, transfer, assignment, lease, conveyance or other
disposition, directly or indirectly, of all or substantially all the assets
of the Company and the Restricted Subsidiaries, considered as a whole
(other than a disposition of such assets as an entirety or virtually as an
entirety to a Wholly Owned Subsidiary) shall have occurred, or the Company
merges, consolidates or amalgamates with or into any other Person or any
other Person merges, consolidates or amalgamates with or into the Company,
in any such event pursuant to a transaction in which the outstanding Voting
Stock of the Company is reclassified into or exchanged for cash, securities
or other Property, other than any such transaction where (i) the
outstanding Voting Stock of the Company is reclassified into or exchanged
for Voting Stock of the surviving corporation and (ii) the Holders of the
Voting Stock of the Company immediately prior to such transaction own,
directly or indirectly, not less than a majority of the Voting Stock of the
surviving corporation immediately after such transaction and in
substantially the same proportion as before the transaction; or
(c) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with
any new directors whose election or appointment by such Board or whose
nomination for election by the share holders of the Company was approved by
a vote of 66 2/3% of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute
a majority of the Board of Directors then in office; or
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(d) the shareholders of the Company shall have approved any plan of
liquidation or dissolution of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COLLATERAL" means the Property and assets of the Company which is now
or hereafter subject to the Liens created by the Collateral Pledge Agreement.
"COLLATERAL PLEDGE AGREEMENT" means the pledge agreement between the
Trustee and the Company, substantially in the form of Exhibit B hereto, as it
may be amended or supplemented from time to time in accordance with the terms
thereof. Such pledge agreement shall be dated as of the Issue Date, and shall
be executed in favor of the Trustee for the benefit of the Holders.
"COMPANY" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor and, for purposes of
any provision contained herein and required by the TIA, each other obligor on
the indenture securities.
"CONSOLIDATED COVERAGE RATIO" means, as of any date of determination,
the ratio of (a) the aggregate amount of EBITDA for the most recent four
consecutive fiscal quarters ending at least 45 days prior to such determination
date to (b) Consolidated Fixed Charges for such four fiscal quarters; PROVIDED,
HOWEVER, that (i) if the Company or any Restricted Subsidiary has Incurred any
Debt since the beginning of such period that remains outstanding or if the
transaction giving rise to the need to calculate the Consolidated Coverage Ratio
is an Incurrence of Debt, or both, Consolidated Fixed Charges for such period
shall be calculated after giving effect on a pro forma basis to such Debt as if
such Debt had been Incurred on the first day of such period and the discharge of
any other Debt repaid, repurchased, defeased or otherwise discharged with the
proceeds of such new Debt as if such discharge had occurred on the first day of
such period, (ii) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Sale or if the transaction
giving rise to the need to calculate the Consolidated Coverage Ratio is an Asset
Sale, or both, EBITDA for such period shall be reduced by an amount equal to the
EBITDA (if positive) directly attributable to the Property which is the subject
of such Asset Sale for such period, or increased by an amount equal to the
EBITDA (if negative) directly attributable thereto for such period, in either
case as if such Asset Sale had occurred on the first day of such period, and
Consolidated Fixed Charges for such period shall be reduced by an amount equal
to the Consolidated Fixed Charges directly attributable to any Debt of the
Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise
discharged with respect to the Company and its continuing Restricted
Subsidiaries in connection with such Asset Sale, as if such Asset Sale had
occurred on the first day of such period (or, if the Capital Stock of any
Restricted Subsidiary is sold, by an amount equal to the Consolidated Fixed
Charges for such period directly attributable to the Debt of such Restricted
Subsidiary to the extent the Company and its continuing Restricted Subsidiaries
are no longer liable for such Debt after such sale), (iii) if since the
beginning of such period the
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Company shall have consummated a Public Equity Offering following which there is
a Public Market, Consolidated Fixed Charges for such period shall be reduced by
an amount equal to the Consolidated Fixed Charges directly attributable to any
Debt of the Company or any Restricted Subsidiary repaid, repurchased, defeased
or otherwise discharged with respect to the Company and its Restricted
Subsidiaries in connection with such Public Equity Offering for such period,
(iv) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or
an acquisition of Property, including any acquisition of Property occurring in
connection with a transaction causing a calculation to be made hereunder, which
constitutes all or substantially all of an operating unit of a business, EBITDA
and Consolidated Fixed Charges for such period shall be calculated after giving
pro forma effect thereto (including the Incurrence of any Debt) as if such
Investment or acquisition occurred on the first day of such period, (v) if since
the beginning of such period any Person that subsequently became a Restricted
Subsidiary or was merged with or into the Company or any Restricted Subsidiary
since the beginning of such period shall have made any Asset Sale, Investment or
acquisition of Property that would have required an adjustment pursuant to
clause (ii), (iii) or (iv) above if made by the Company or a Restricted
Subsidiary during such period, EBITDA and Consolidated Fixed Charges for such
period shall be calculated after giving pro forma effect thereto as if such
Asset Sale, Investment or acquisition of Property occurred on the first day of
such period and (vi) if since the beginning of such period any Restricted
Subsidiary shall have obtained relief from any limitation on the ability of such
Restricted Subsidiary to pay dividends to the Company, EBITDA and Consolidated
Fixed Charges for such period shall be calculated after giving pro forma effect
thereto as if the ability of such Restricted Subsidiary to pay dividends to the
Company had not been so limited from the first day of such period. For purposes
of this definition, pro forma calculations shall be determined in good faith by
a responsible financial or accounting Officer of the Company and as further
contemplated by the definition of the term "pro forma." If any Debt bears a
floating rate of interest and is being given pro forma effect, the interest
expense on such Debt shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any Interest Rate Agreement applicable to such Debt if such Interest
Rate Agreement has a remaining term in excess of 12 months).
"CONSOLIDATED FIXED CHARGES" means, for any period, the sum (without
duplication) of (a) Consolidated Interest Expense for such period plus (b) all
Preferred Stock Dividends (other than to the Company or a Wholly Owned
Subsidiary, and other than Redeemable Dividends) paid, accrued, declared or
accumulated during such period.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the total
interest expense of the Company and its consolidated Restricted Subsidiaries,
plus, to the extent not included in such total interest expense, and to the
extent incurred by the Company or its Restricted Subsidiaries, (a) interest
expense attributable to capital leases, (b) amortization of debt discount and
debt issuance cost, including commitment fees, (c) capitalized interest,
(d) noncash interest expenses, (e) to the extent required under GAAP to be
reflected as interest expense in the
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consolidated financial statements of the Company, commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing, (f) to the extent required under GAAP to be reflected as
an expense in the consolidated financial statements of the Company, net costs
associated with Hedging Obligations (including amortization of fees),
(g) Redeemable Dividends, (h) interest incurred in connection with Investments
in discontinued operations, (i) interest accruing on any Debt of any other
Person to the extent such Debt is Guaranteed by the Company or any Restricted
Subsidiary and (j) the cash contributions to any employee stock ownership plan
or similar trust to the extent such contributions are used by such plan or trust
to pay interest or fees to any Person (other than the Company) in connection
with Debt Incurred by such plan or trust.
"CONSOLIDATED NET INCOME" means, for any period, the net income (loss)
of the Company and its consolidated Subsidiaries, less the aggregate amount of
recurring expenditures made by the Company and its consolidated Subsidiaries
during such period with respect to environmental matters which were not deducted
in determining in such net income (loss) as a result of the adoption of American
Institute of Certified Public Accountants Statement of Position 96-1,
"Environmental Remediation Liabilities"; PROVIDED, HOWEVER, that there shall not
be included in such Consolidated Net Income (a) any net income (loss) of any
Person (other than the Company) if such Person is not a Restricted Subsidiary,
except that (i) subject to the exclusion contained in clause (d) below, the
Company's equity in the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
distributed by such Person during such period to the Company or a Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution to a Restricted Subsidiary, to the limitations
contained in clause (c) below) and (ii) the Company's equity in a net loss of
any such Person other than an Unrestricted Subsidiary for such period shall be
included in determining such Consolidated Net Income to the extent of the
Company's obligation to fund such net loss in cash, (b) any net income (loss) of
any Person acquired by the Company or any of its consolidated Subsidiaries in a
pooling of interests transaction for any period prior to the date of such
acquisition, (c) any net income (but not loss) of any Restricted Subsidiary, to
the extent that the payment of dividends or the making of distributions by such
Restricted Subsidiary to the Company is not at the time permitted, directly or
indirectly, without prior approval (that has not been obtained), pursuant to the
terms of its charter or any agreement, instrument (other than agreements and
instruments limiting dividends or distributions by Metallurg, and not any other
Restricted Subsidiary, to the stockholders of Metallurg or such other Restricted
Subsidiary) or any governmental regulation applicable to such Restricted
Subsidiary, (d) any gain (loss) realized upon the sale or other disposition of
any Property of the Company or any of its consolidated Subsidiaries (including
pursuant to any Sale and Leaseback Transaction) which is not sold or otherwise
disposed of in the ordinary course of business, (e) any extraordinary gain or
loss and (f) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purposes of Section 4.04 only, there
shall be excluded from Consolidated Net Income any dividends, repayments of
loans or advances or other transfers of assets from Unrestricted Subsidiaries to
the Company or a Restricted Subsidiary to
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the extent such dividends, repayments or transfers increase the amount of
Restricted Payments permitted under such covenant pursuant to clause (c)(iv)
thereof.
"CONSOLIDATED NET WORTH" means the total of the amounts shown on the
consolidated balance sheet of the Company and its Restricted Subsidiaries as of
the end of the most recent fiscal quarter of the Company ending at least 45 days
prior to the taking of any action for the purpose of which the determination is
being made, as (a) the par or stated value of all outstanding Capital Stock of
the Company plus (b) paid-in capital or capital surplus relating to such Capital
Stock plus (c) any retained earnings or earned surplus less (i) any accumulated
deficit and (ii) any amounts attributable to Disqualified Stock.
"CREDIT FACILITY" means one or more debt facilities with banks or
other institutional lenders (including pursuant to (a) the Loan Agreement dated
April 14, 1997, by and among the Company, certain subsidiaries of the Company
named therein, BankBoston, N.A. and the other Banks party thereto, and
BankBoston, N.A. as agent for such Banks, (b) the Loan Agreement dated
October 20, 1997, as amended, by and among GfE, certain of its subsidiaries and
BankBoston, N.A., Frankfurt Branch and (c) each of the Loan Documents (as
defined in such Loan Agreements) relating to such Loan Agreements) providing for
revolving credit loans, term loans, receivables financing (including through the
sale of receivables to such lenders or to special purpose entities formed to
borrow from such lenders against such receivables) or letters of credit, foreign
exchange, bankers' acceptances or similar financial arrangements, in each case
as amended, restated, supplemented or modified and in effect from time to time,
together with any extensions, revisions, refinancings or replacements thereof by
a lender or syndicate of lenders.
"CURRENCY EXCHANGE PROTECTION AGREEMENT" means, in respect of a
Person, any foreign exchange contract, currency swap agreement, currency option
or other similar agreement or arrangement designed to protect such Person
against fluctuations in currency exchange rates.
"DEBT" means, with respect to any Person on any date of determination
(without duplication), (a) the principal of and premium (if any) in respect of
(i) debt of such Person for money borrowed and (ii) debt evidenced by notes,
debentures, bonds or other similar instruments for the payment of which such
Person is responsible or liable; (b) all Capital Lease Obligations of such
Person and all Attributable Debt in respect of Sale and Leaseback Transactions
entered into by such Person; (c) all obligations of such Person issued or
assumed as the deferred purchase price of Property, all conditional sale
obligations of such Person and all obligations of such Person under any title
retention agreement (but excluding trade accounts payable and customer advance
payments or deposits arising in the ordinary course of business); (d) all
obligations of such Person for the reimbursement of any obligor on any letter of
credit, banker's acceptance or similar credit transaction (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in (a) through (c) above) entered into in the ordinary
course of business of such Person to the extent such letters of credit are not
drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no
later than the third Business Day
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following receipt by such Person of a demand for reimbursement following payment
on the letter of credit); (e) the amount of all obligations of such Person with
respect to the redemption, repayment or other repurchase of any Disqualified
Stock or, with respect to any Subsidiary of such Person, any Preferred Stock
(but excluding, in each case, any accrued dividends); (f) all obligations of the
type referred to in clauses (a) through (e) of other Persons and all dividends
of other Persons for the payment of which, in either case, such Person is
responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise, including by means of any Guarantee; (g) all obligations of the type
referred to in clauses (a) through (f) of other Persons secured by any Lien on
any Property of such Person (whether or not such obligation is assumed by such
Person), the amount of such obligation being deemed to be the lesser of the
value of such Property or the amount of the obligation so secured; and (h) to
the extent not otherwise included in this definition, Hedging Obligations of
such Person. The amount of Debt of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date; PROVIDED
that the amount outstanding at any time of any Debt issued with original issue
discount is the face amount of such Debt less the remaining unamortized portion
of the original issue discount of such Debt at such time as determined in
accordance with GAAP.
"DEPOSITARY" means, with respect to the Securities issuable or issued
in whole or in part in the form of one or more Global Securities, The Depository
Trust Company for so long as it shall be a clearing agency registered under the
Exchange Act, or such successor as the Company shall designate from time to time
in an Officers' Certificate delivered to the Trustee.
"DEFAULT" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"DISQUALIFIED STOCK" means, with respect to any Person, Redeemable
Stock of such Person as to which (a) the maturity, (b) mandatory redemption or
(c) redemption, conversion or exchange at the option of the holder thereof
occurs, or may occur, on or prior to the first anniversary of the Stated
Maturity of the Securities; PROVIDED, HOWEVER, that Redeemable Stock of such
Person that would not otherwise be characterized as Disqualified Stock under
this definition shall not constitute Disqualified Stock if such Redeemable Stock
is convertible or exchangeable into Debt or Disqualified Stock solely at the
option of the issuer thereof.
"EBITDA" means, for any period, an amount equal to, for the Company
and its consolidated Restricted Subsidiaries, (a) the sum of Consolidated Net
Income for such period, plus the following to the extent reducing Consolidated
Net Income for such period: (i) the provision for taxes based on income or
profits or utilized in computing net loss, (ii) Consolidated Interest Expense,
(iii) depreciation, (iv) amortization of intangibles and (v) any other noncash
items (other than any such noncash item to the extent that it represents an
accrual of or reserve for cash expenditures in any future period), minus (b) all
noncash items increasing Consolidated Net Income for such period (other than any
such noncash item to the extent that it will result in
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the receipt of cash payments in any future period). Notwithstanding the
foregoing, the provision for taxes based on the income or profits of, and the
depreciation and amortization of, a Restricted Subsidiary shall be added to
Consolidated Net Income to compute EBITDA only to the extent (and in the same
proportion) that the net income of such Restricted Subsidiary was included in
calculating Consolidated Net Income and only if a corresponding amount would be
permitted at the date of determination to be dividended to the Company by such
Restricted Subsidiary without prior approval (that has not been obtained),
pursuant to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its stockholders.
"EUROCLEAR" means the Euroclear Clearance System or any successor
securities clearing agency.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FAIR MARKET VALUE" means, with respect to any Property, the price
which could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value will be
determined, except as otherwise provided, (a) if such Property has a Fair Market
Value of less than $5,000,000, by any Officer of the Company or (b) if such
Property has a Fair Market Value in excess of $5,000,000, by a majority of the
Board of Directors and evidenced by a Board Resolution, dated within 30 days of
the relevant transaction, delivered to the Trustee.
"GAAP" means United States generally accepted accounting principles as
in effect on the Issue Date, including those set forth (a) in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants, (b) in the statements and pronouncements of the
Financial Accounting Standards Board, (c) in such other statements by such other
entity as approved by a significant segment of the accounting profession and
(d) the rules and regulations of the SEC governing the inclusion of financial
statements (including pro forma financial statements) in periodic reports
required to be filed pursuant to Section 13 of the Exchange Act, including
opinions and pronouncements in staff accounting bulletins and similar written
statements from the accounting staff of the SEC.
"GFE" means GfE Gesellschaft fuer Elektrometallurgie mbH.
"GUARANTEE" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Debt of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (a) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt of such other Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (b) entered into for the purpose of assuring in any
other manner the obligee against loss in respect thereof (in
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whole or in part); PROVIDED, HOWEVER, that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"GLOBAL SECURITY" means the Security or Securities that evidences all
or part of the Securities and bears the global securities legend set forth in
Exhibit 1 to Appendix A.
"HEDGING OBLIGATION" of any Person means any obligation of such Person
pursuant to any Interest Rate Agreement, Currency Exchange Protection Agreement
or any other similar agreement or arrangement.
"HOLDER" or "SECURITYHOLDER" means the Person in whose name a Security
is registered on the Registrar's books.
"INCUR" means, with respect to any Debt or other obligation of any
Person, to create, issue, incur (by merger, conversion, exchange or otherwise),
extend, assume, Guarantee or become liable in respect of such Debt or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Debt or obligation on the balance sheet of such Person (and "Incurrence"
and "Incurred" shall have meanings correlative to the foregoing); PROVIDED,
HOWEVER, that a change in GAAP that results in an obligation of such Person that
exists at such time, and is not theretofore classified as Debt, becoming Debt
shall not be deemed an Incurrence of such Debt; PROVIDED FURTHER, HOWEVER, that
solely for purposes of determining compliance with Section 4.03, amortization of
debt discount shall not be deemed to be the Incurrence of Debt, PROVIDED that in
the case of Debt sold at a discount, the amount of such Debt Incurred shall at
all times be the aggregate principal amount at Stated Maturity.
"INDENTURE" means this Indenture as amended or supplemented from time
to time.
"INDENTURE OBLIGATIONS" means the obligations of the Company pursuant
to this Indenture and the Securities (and any other obligor hereunder or under
the Securities) now or hereafter existing, to pay principal of and interest on
the Securities when due and payable, whether on maturity or an interest payment
date, by acceleration, call for redemption, acceptance of any Prepayment Offer,
Change of Control Offer, or otherwise, and interest on the overdue principal of,
and (to the extent lawful) interest, if any, on, the Securities and all other
amounts due or to become due in connection with this Indenture, the Securities
and the Collateral Pledge Agreement, including any and all extensions, renewals
or other modifications thereof, in whole or in part, and the performance of all
other obligations of the Company (and any other obligor hereunder or under the
Securities), including all costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses) incurred by the Trustee or the Holders
in the collection or enforcement of any such obligations or realization upon the
Collateral or the security of any Collateral Pledge Agreement.
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"INDEPENDENT APPRAISER" means an investment banking firm of national
standing or any third party appraiser of national standing, PROVIDED that such
firm or appraiser is not an Affiliate of the Company.
"INITIAL SECURITIES" has the meaning stated in the first recital of
this Indenture.
"INTEREST RATE AGREEMENT" means, for any Person, any interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement or
other similar agreement designed to protect against fluctuations in interest
rates.
"INVESTMENT" by any Person means any direct or indirect loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of such Person), advance or other
extension of credit or capital contribution (by means of transfers of cash or
other Property to others or payments for Property or services for the account or
use of others, or otherwise) to, or Incurrence of a Guarantee of any obligation
of, or purchase or acquisition of Capital Stock, bonds, notes, debentures or
other securities or evidence of Debt issued by, any other Person. For purposes
of the definition of "Restricted Payment", Section 4.04 and Section 4.14,
"Investment" shall include the portion (proportionate to the Company's equity
interest in such Subsidiary) of the Fair Market Value of the net assets of any
Subsidiary of the Company at the time that such Subsidiary is designated an
Unrestricted Subsidiary; PROVIDED, HOWEVER, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent "Investment" in an Unrestricted Subsidiary equal to an
amount (if positive) equal to (a) the Company's "Investment" in such Subsidiary
at the time of such redesignation less (b) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the Fair Market Value of the
net assets of such Subsidiary at the time of such redesignation. In determining
the amount of any Investment made by transfer of any Property other than cash,
such Property shall be valued at its Fair Market Value at the time of such
Investment.
"ISSUE DATE" means the date on which the Initial Securities are
initially issued.
"LIEN" means, with respect to any Property of any Person, any mortgage
or deed of trust, pledge, hypothecation, assignment, deposit arrangement,
security interest, lien, charge, easement (other than any easement not
materially impairing usefulness or marketability), encumbrance, preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such Property (including any Capital
Lease Obligation, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing or any Sale and
Leaseback Transaction).
"MERGER" means the merger of Metallurg Acquisition Corp. with and into
Metallurg pursuant to an agreement and plan of merger, dated as of June 15,
1998, among the Company, Metallurg and Metallurg Acquisition Corp.
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"METALLURG" means Metallurg, Inc.
"MOODY'S" means Moody's Investors Service, Inc. or any successor to
the rating agency business thereof.
"NET AVAILABLE CASH" from any Asset Sale means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Debt or other obligations relating to the
Property that is the subject of such Asset Sale or received in any other noncash
form), in each case net of (a) all legal, title and recording tax expenses,
commissions and other fees and expenses incurred, and all United States federal,
state, provincial, foreign and local taxes required to be accrued as a liability
under GAAP, as a consequence of such Asset Sale, whether paid or payable, (b)
all payments made on any Debt which is secured by any Property subject to such
Asset Sale, in accordance with the terms of any Lien upon or other security
agreement of any kind with respect to such Property, or which must by its terms,
or in order to obtain a necessary consent to such Asset Sale, or by applicable
law, be repaid out of the proceeds from such Asset Sale, (c) all distributions
and other payments required to be made to minority interest holders in
Subsidiaries or joint ventures as a result of such Asset Sale, and (d) the
deduction of appropriate amounts provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the Property
disposed in such Asset Sale and retained by the Company or any Restricted
Subsidiary after such Asset Sale.
"OFFICER" means the Chairman, President and Chief Executive Officer,
the Vice President, Finance and Chief Financial Officer or any Vice President of
the Company.
"OFFICERS' CERTIFICATE" means a certificate signed by two Officers of
the Company, at least one of whom shall be the principal executive officer or
principal financial officer of the Company, and delivered to the Trustee.
"OPINION OF COUNSEL" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"PERMITTED DEBT" means:
(a) Debt of the Company evidenced by the Securities represented
by the Indenture up to the amounts specified therein as of the Issue Date,
together with any accretion thereon, and the Exchange Securities and
Private Exchange Securities;
(b) Debt of the Company and its subsidiaries evidenced by the
Senior Notes and represented by the Senior Note Indenture;
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(c) Debt under the Credit Facility, PROVIDED that the aggregate
principal amount of all such Debt under the Credit Facility at any one time
outstanding shall not exceed the greater of (i) $50,000,000, which amount
shall be permanently reduced by the amount of Net Available Cash used to
repay Debt under the Credit Facility and permanently reduce the loan
commitment thereunder pursuant to Section 4.06 and (ii) the sum of the
amounts equal to (x) 65% of the book value of the inventory of the Company
and the Restricted Subsidiaries and (y) 90% of the book value of the
accounts receivable of the Company and the Restricted Subsidiaries, in each
case as of the most recently ended quarter of the Company for which
financial statements of the Company have been provided to the Holders of
Securities (the greater of (i) and (ii) being the "Permitted Debt Amount");
PROVIDED, FURTHER, that the aggregate amount of Debt Incurred pursuant to
this clause (c), together with the aggregate amount of Debt Incurred
pursuant to clause (d) below shall not exceed an amount equal to the
Permitted Debt Amount at any one time outstanding;
(d) Debt of any Restricted Subsidiary under one or more debt
facilities with banks or other institutional lenders providing for
revolving credit loans, term loans, receivables financing (including
through the sale of receivables to such lenders or to special purpose
entities formed to borrow from such lenders against such receivables),
letters of credit, foreign exchange, bankers acceptances or similar
financial arrangements, and any Permitted Refinancing Debt Incurred with
respect thereto, PROVIDED that the aggregate principal amount of all such
Debt at any one time outstanding shall not exceed the sum of (i) 65% of the
book value of the inventory of such Restricted Subsidiary and (ii) 90% of
the book value of the accounts receivable of such Restricted Subsidiary, in
each case as of the most recently ended quarter of the Company for which
financial statements of the Company have been provided to the Holders of
the Securities; PROVIDED, FURTHER, that the aggregate amount of Debt
Incurred pursuant to this clause (d), together with the aggregate amount of
Debt Incurred pursuant to clause (c) above shall not exceed the Permitted
Debt Amount at any one time outstanding;
(e) Debt in respect of Capital Lease Obligations and Purchase
Money Debt, PROVIDED that (i) the aggregate principal amount of such Debt
does not exceed the Fair Market Value (on the date of the Incurrence
thereof) of the Property acquired, constructed or leased and (ii) the
aggregate principal amount of all Debt Incurred and then outstanding
pursuant to this clause (e) (together with all outstanding Permitted
Refinancing Debt Incurred in respect of Debt previously Incurred pursuant
to such clause (e)) does not exceed $15,000,000;
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(f) Debt of the Company owing to and held by any Restricted
Subsidiary or Debt of a Restricted Subsidiary owed to and held by the
Company or another Restricted Subsidiary; PROVIDED, HOWEVER, that any
subsequent transfer of Capital Stock or other event that results in any
such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any
subsequent transfer of any such Debt (except to the Company or a Restricted
Subsidiary) shall be deemed, in each case, to constitute the Incurrence of
such Debt by the issuer thereof;
(g) Debt under Interest Rate Agreements entered into by the
Company or a Restricted Subsidiary for the purpose of limiting interest
rate risk in the ordinary course of the financial management of the Company
or such Restricted Subsidiary and not for speculative purposes, PROVIDED
that the obligations under such agreements are directly related to payment
obligations on Debt otherwise permitted by Section 4.03;
(h) Debt under Currency Exchange Protection Agreements entered
into by the Company or a Restricted Subsidiary for the purpose of limiting
currency exchange rate risks directly related to transactions entered into
by the Company or such Restricted Subsidiary in the ordinary course of
business and not for speculative purposes;
(i) Debt Incurred in connection with cash pooling arrangements
by and among the Company and its Restricted Subsidiaries, PROVIDED that no
liability is required under GAAP to be reflected in the consolidated
financial statements of the Company with respect thereto;
(j) Debt outstanding on the Issue Date not otherwise described
in clauses (a) through (h) above;
(k) Debt (other than Debt permitted by the immediately preceding
paragraph or the other clauses of this paragraph) in an aggregate principal
amount not to exceed $25,000,000; and
(l) Permitted Refinancing Debt Incurred in respect of Debt
Incurred pursuant to Section 4.03(a) and clauses (a) and (k) above.
"PERMITTED HOLDERS" means (i) Safeguard International Fund, L.P.,
State of Michigan Retirement Systems -- Safeguard Limited Partnership, Safeguard
Scientifics (Delaware), Inc., Dr. Heinz Schimmelbush, Arthur R. Spector and
Michael Holly, or any Person of which any of the foregoing "beneficially owns"
(as defined in Rules 13d-3 and 13d-5 under the Exchange Act) voting securities
representing at least 51% of the voting power of all classes
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of Voting Stock of such Person (exclusive of any matters as to which class
voting rights exist) or any Person which "beneficially owns" (as defined above)
voting securities representing at least 51% of the voting power of all classes
of Voting Stock of any of the foregoing (exclusive of any matters as to which
class voting rights exist); and (ii) any Person who beneficially owns Voting
Stock of the Company on the Issue Date so long as the Permitted Holders
specified under clause (i) above beneficially own in the aggregate at least 10%
of the Voting Stock of the Company.
"PERMITTED INVESTMENT" means any Investment by the Company or a
Restricted Subsidiary in (a) the Company, any Restricted Subsidiary or any
Person that will, upon the making of such Investment, become a Restricted
Subsidiary, PROVIDED that the primary business of such Restricted Subsidiary is
a Related Business; (b) any Person if as a result of such Investment such Person
is merged or consolidated with or into, or transfers or conveys all or
substantially all its Property to, the Company or a Restricted Subsidiary,
PROVIDED that such Person's primary business is a Related Business;
(c) Temporary Cash Investments; (d) receivables owing to the Company or a
Restricted Subsidiary, if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; PROVIDED,
HOWEVER, that such trade terms may include such concessionary trade terms as the
Company or such Restricted Subsidiary deems reasonable under the circumstances;
(e) payroll, travel and similar advances to cover matters that are expected at
the time of such advances ultimately to be treated as expenses for accounting
purposes and that are made in the ordinary course of business; (f) loans and
advances to employees made in the ordinary course of business consistent with
past practices of the Company or such Restricted Subsidiary, as the case may be,
PROVIDED that such loans and advances do not exceed $2,500,000 at any one time
outstanding; (g) stock, obligations or other securities received in settlement
of debts created in the ordinary course of business and owing to the Company or
a Restricted Subsidiary or in satisfaction of judgments; and (h) any Person to
the extent such Investment represents the non-cash portion of the consideration
received in connection with an Asset Sale consummated in compliance with the
covenant described under Section 4.06.
"PERMITTED LIENS" means:
(a) Liens to secure Debt permitted to be Incurred under clause (a) of
the first paragraph of Section 4.03 or clause (a), (c) or (d) of the
definition of "Permitted Debt";
(b) Liens to secure Debt permitted to be Incurred under clause (e) of
the definition of "Permitted Debt", PROVIDED that any such Lien may not
extend to any Property of the Company or any Restricted Subsidiary, other
than the Property acquired, constructed or leased with the proceeds of such
Debt and any improvements or accessions to such Property;
(c) Liens for taxes, assessments or governmental charges or levies on
the Property of the Company or any Restricted Subsidiary if the same shall
not at the time be delinquent or thereafter can be paid without penalty, or
are being contested in good faith
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and by appropriate proceedings promptly instituted and diligently
concluded, PROVIDED that any reserve or other appropriate provision that
shall be required in conformity with GAAP shall have been made therefor;
(d) Liens imposed by law, such as carriers', warehousemen's and
mechanics' Liens, on the Property of the Company or any Restricted
Subsidiary arising in the ordinary course of business and securing payment
of obligations which are not more than 60 days past due or are being
contested in good faith and by appropriate proceedings;
(e) Liens on the Property of the Company or any Restricted Subsidiary
Incurred in the ordinary course of business to secure performance of
obligations with respect to statutory or regulatory requirements,
performance or return-of-money bonds, surety bonds or other obligations of
a like nature and Incurred in a manner consistent with industry practice,
in each case which are not incurred in connection with the borrowing of
money, the obtaining of advances or credit or the payment of the deferred
purchase price of Property and which do not in the aggregate impair in any
material respect the use of Property in the operation of the business of
the Company and the Restricted Subsidiaries taken as a whole;
(f) Liens on Property at the time the Company or any Restricted
Subsidiary acquired such Property, including any acquisition by means of a
merger or consolidation with or into the Company or any Restricted
Subsidiary; PROVIDED, HOWEVER, that any such Lien may not extend to any
other Property of the Company or any Restricted Subsidiary; PROVIDED,
FURTHER, HOWEVER, that such Liens shall not have been Incurred in
anticipation or in connection with the transaction or series of
transactions pursuant to which such Property was acquired by the Company or
any Restricted Subsidiary;
(g) Liens on the Property of a Person at the time such Person becomes
a Restricted Subsidiary; PROVIDED, HOWEVER, that any such Lien may not
extend to any other Property of the Company or any other Restricted
Subsidiary which is not a direct Subsidiary of such Person; PROVIDED,
FURTHER, HOWEVER, that any such Lien was not Incurred in anticipation of or
in connection with the transaction or series of transactions pursuant to
which such Person became a Restricted Subsidiary;
(h) pledges or deposits by the Company or any Restricted Subsidiary
under workmen's compensation laws, unemployment insurance laws or similar
legislation, or good faith deposits in connection with bids, tenders,
contracts (other than for the payment of Debt) or leases to which the
Company or any Restricted Subsidiary is party, or deposits to secure public
or statutory obligations of the Company, or deposits for the payment of
rent, in each case Incurred in the ordinary course of business;
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(i) utility easements, building restrictions and such other
encumbrances or charges against real Property as are of a nature generally
existing with respect to properties of a similar character;
(j) Liens in favor of the Company;
(k) Liens existing on the Issue Date not otherwise described in
clauses (a) through (j) above;
(l) Liens on the Property of the Company or any Restricted Subsidiary
to secure any Refinancing, in whole or in part, of any Debt secured by
Liens referred to in clause (b), (f), (g) or (k) above; PROVIDED, HOWEVER,
that any such Lien shall be limited to all or part of the same Property
that secured the original Lien (together with improvements and accessions
to such Property) and the aggregate principal amount of Debt that is
secured by such Lien shall not be increased to an amount greater than the
sum of (i) the outstanding principal amount, or, if greater, the committed
amount, of the Debt secured by Liens described under clause (b), (f), (g)
or (k) above, as the case may be, at the time the original Lien became a
Permitted Lien under this Indenture and (ii) an amount necessary to pay any
premiums, fees and other expenses incurred by the Company or a Restricted
Subsidiary in connection with such Refinancing; or
(m) Liens not otherwise permitted by clauses (a) through (l) above
encumbering assets having an aggregate Fair Market Value not in excess of
$25,000,000 at any time.
"PERMITTED REFINANCING DEBT" means any Debt that Refinances any other
Debt, including any successive Refinancings, so long as (a) such Debt is in an
aggregate principal amount (or if Incurred with original issue discount, an
aggregate issue price) not in excess of the sum of (i) the aggregate principal
amount (or if Incurred with original issue discount, the aggregate accreted
value) then outstanding of the Debt being Refinanced and (ii) an amount
necessary to pay any fees and expenses, including premiums and defeasance costs,
related to such Refinancing, (b) the Average Life of such Debt is equal to or
greater than the Average Life of the Debt being Refinanced, (c) the Stated
Maturity of such Debt is no earlier than the Stated Maturity of the Debt being
Refinanced and (d) the new Debt shall not be senior in right of payment to the
Debt that is being Refinanced; PROVIDED, HOWEVER, that Permitted Refinancing
Debt shall not include (x) Debt of a Subsidiary that Refinances Debt of the
Company or (y) Debt of the Company or a Restricted Subsidiary that Refinances
Debt of an Unrestricted Subsidiary.
"PERSON" means any individual, corporation, company (including any
limited liability company), partnership, joint venture, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"PREFERRED STOCK" means any Capital Stock of a Person, however
designated, which entitles the holder thereof to a preference with respect to
the payment of dividends, or as
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to the distribution of assets upon any voluntary or involuntary liquidation or
dissolution of such Person, over shares of any other class of Capital Stock
issued by such Person.
"PREFERRED STOCK DIVIDENDS" means for any dividend with respect to
Preferred Stock, the quotient of the dividend divided by the difference between
one and the maximum statutory United States federal income tax rate (expressed
as a decimal number between 1 and 0) then applicable to the issuer of such
Preferred Stock.
"PRINCIPAL" of any Debt (including the Securities) means the principal
amount such Debt plus the premium, if any, on such Debt.
"PRO FORMA" means, with respect to any calculation made or required to
be made pursuant to the terms hereof, a calculation performed in accordance with
Article 11 of Regulation S-X promulgated under the Securities Act, as
interpreted in good faith by the Board of Directors after consultation with the
independent certified public accountants of the Company, or otherwise a
calculation made in good faith by the Board of Directors after consultation with
the independent certified public accountants of the Company, as the case may be.
"PROPERTY" means, with respect to any Person, any interest of such
Person in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible, including Capital Stock in, and other securities of, any
other Person. For purposes of any calculation required pursuant to this
Indenture, the value of any Property shall be its Fair Market Value.
"PUBLIC EQUITY OFFERING" means an underwritten public offering of
common stock of the Company or Metallurg pursuant to an effective registration
statement under the Securities Act.
"PUBLIC MARKET" means any time after (a) a Public Equity Offering has
been consummated and (b) at least 10% of the total issued and outstanding common
stock of the Company or Metallurg, as the case may be, has been distributed by
means of an effective registration statement under the Securities Act or sales
pursuant to Rule 144 under the Securities Act.
"PURCHASE AGREEMENT" means the Purchase Agreement, dated as of July 6,
1998, between the Company and the Purchaser.
"PURCHASE MONEY DEBT" means Debt (a) consisting of the deferred
purchase price of property, conditional sale obligations, obligations under any
title retention agreement, other purchase money obligations and obligations in
respect of industrial revenue bonds, in each case where the maturity of such
Debt does not exceed the anticipated useful life of the asset being financed and
(b) Incurred to finance the acquisition (including costs of design and
installation) by the Company or a Restricted Subsidiary of such asset, including
additions and improvements;
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PROVIDED, HOWEVER, that such Debt is incurred within 180 days after such
acquisition of such asset by the Company or a Restricted Subsidiary.
"PURCHASER" means BancBoston Securities Inc.
"REDEEMABLE DIVIDEND" means, for any dividend with respect to
Redeemable Stock, the quotient of the dividend divided by the difference between
one and the maximum statutory United States federal income tax rate (expressed
as a decimal number between 1 and 0) then applicable to the issuer of such
Redeemable Stock.
"REDEEMABLE STOCK" means, with respect to any Person, any Capital
Stock that by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable, in either case, at the option of
the holder thereof) or otherwise (a) matures or is mandatorily redeemable
pursuant to a sinking fund obligation or otherwise, (b) is or may become
redeemable or repurchasable at the option of the holder thereof, in whole or in
part, or (c) is convertible or exchangeable at the option of the holder thereof
for Debt or Disqualified Stock.
"REFINANCE" means, in respect of any Debt, to refinance, extend,
renew, refund, replace, prepay, redeem, defease or retire, or to issue other
Debt, in exchange or replacement for, such Debt. "Refinanced" and "Refinancing"
shall have correlative meanings.
"REGULATION S" means Regulation S under the Securities Act (or any
successor provision), as it may be amended from time to time.
"REGULATION S SECURITIES" means all Initial Securities offered and
sold outside the United States in reliance on Regulation S.
"RELATED BUSINESS" means any business that is related, ancillary or
complementary to the businesses of the Company and the Restricted Subsidiaries
on the Issue Date.
"RESTRICTED PAYMENT" means (a) any dividend or distribution (whether
made in cash, securities or other Property) declared or paid on or with respect
to any shares of Capital Stock of the Company or any Restricted Subsidiary
(including any payment in connection with any merger or consolidation with or
into the Company or any Restricted Subsidiary), except for any dividend or
distribution which is made solely to the Company or a Restricted Subsidiary
(and, if such Restricted Subsidiary is not a Wholly Owned Subsidiary, to the
other shareholders of such Restricted Subsidiary on a PRO RATA basis or on a
basis that results in the receipt by the Company or a Restricted Subsidiary of
dividends or distributions of greater value than it would receive on a PRO RATA
basis) or any dividend or distribution payable solely in shares of Capital Stock
(other than Redeemable Stock) of the Company; (b) the purchase, repurchase,
redemption, acquisition or retirement for value of any Capital Stock of the
Company or any Affiliate of the Company (other than from the Company or a
Restricted Subsidiary) or any warrants, rights or options to directly or
indirectly purchase or acquire any such Capital Stock or any securities
20
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exchangeable for or convertible into any such Capital Stock, including the
exercise of any option to exchange any Capital Stock (other than for or into
Capital Stock of the Company that is not Disqualified Stock); (c) the purchase,
repurchase, redemption, acquisition, defeasance or retirement for value, prior
to any scheduled maturity, scheduled sinking fund or mandatory redemption
payment, any Subordinated Obligation (other than the purchase, repurchase or
other acquisition of any Subordinated Obligation purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of acquisition); or (d) any
Investment (other than Permitted Investments) in any Person.
"RESTRICTED PERIOD" means the period of 40 consecutive days beginning
on and including the later of (i) the day on which Securities are first offered
to persons other than distributors (as defined in Regulation S) in reliance on
Regulation S and (ii) the Issue Date.
"RESTRICTED SUBSIDIARY" means (a) any Subsidiary of the Company after
the Issue Date unless such Subsidiary shall have been designated an Unrestricted
Subsidiary as permitted or required pursuant to Section 4.14 and (b) an
Unrestricted Subsidiary which is redesignated as a Restricted Subsidiary as
permitted pursuant to Section 4.14.
"RULE 144A" means Rule 144A under the Securities Act (or any successor
provision), as it may be amended from time to time.
"RULE 144A SECURITIES" means the Initial Securities purchased by the
Purchaser from the Company pursuant to the Purchase Agreement, other than the
Regulation S Securities.
"S&P" means Standard & Poor's Ratings Service or any successor to the
rating agency business thereof.
"SALE AND LEASEBACK TRANSACTION" means any arrangement relating to
Property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such Property to another Person and the Company or a
Restricted Subsidiary leases it from such Person.
"SEC" means the Securities and Exchange Commission or any successor
thereto.
"SECURITIES" has the meaning stated in the first recital of this
Indenture.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SENIOR DEBT" of the Company means (a) all obligations consisting of
the principal, premium, if any, and accrued and unpaid interest in respect of
(i) Debt of the Company for borrowed money and (ii) Debt of the Company
evidenced by notes, debentures, bonds or other similar instruments permitted
under this Indenture for the payment of which the Company is responsible or
liable; (b) all Capital Lease Obligations of the Company; (c) all obligations of
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the Company (i) for the reimbursement of any obligor on any letter of credit,
bankers' acceptance or similar credit transaction, (ii) under Hedging
Obligations or (iii) issued or assumed as the deferred purchase price of
Property and all conditional sale obligations of the Company and all obligations
under any title retention agreement permitted under this Indenture; and (d) all
obligations of other Persons of the type referred to in clauses (a), (b) and
(c) for the payment of which the Company is responsible or liable as Guarantor;
PROVIDED, HOWEVER, that Senior Debt shall not include (a) Debt of the Company
that is by its terms subordinate in right of payment to the Securities; (B) any
Debt Incurred in violation of the provisions of this Indenture; (C) accounts
payable or any other obligations of the Company to trade creditors created or
assumed by the Company in the ordinary course of business in connection with the
obtaining of materials or services (including Guarantees thereof or instruments
evidencing such liabilities); (D) any liability for United States federal,
state, local or other taxes owed or owing by the Company; (E) any obligation of
the Company to any Subsidiary; or (F) any obligations with respect to any
Capital Stock of the Company.
"SENIOR NOTES" means Metallurg's 11% Senior Notes due 2007 issued
pursuant to the Senior Notes Indenture.
"SENIOR NOTES INDENTURE" means the Indenture, dated as of November 25,
1997, among Metallurg, the guarantors named therein, and IBJ Schroder Bank &
Trust Company, as Trustee.
"SIGNIFICANT SUBSIDIARY" means any Restricted Subsidiary that would be
a "Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"STATED MATURITY" means, with respect to any security, the date
specified in such security as the fixed date on which the payment of principal
of such security is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"SUBORDINATED OBLIGATION" means any Debt of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Securities pursuant to a written agreement to
that effect.
"SUBSIDIARY" means, in respect of any Person, any corporation,
company, association, partnership, joint venture or other business entity of
which more than 50% of the total voting power of shares of Capital Stock or
other interests (including partnership interests) entitled (without regard to
the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled directly or
indirectly, by (i) such
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Person, (ii) such Person and one or more Subsidiaries of such Person or
(iii) one or more Subsidiaries of such Person.
"TEMPORARY CASH INVESTMENTS" means any of the following:
(a) Investments in U.S. Government Obligations maturing within one year of the
date of acquisition thereof; (b) Investments in time deposit accounts,
certificates of deposit and money market deposits maturing within one year of
the date of acquisition thereof issued by a bank or trust company which is
organized under the laws of the United States of America or any state thereof or
any foreign country recognized by the United States having capital, surplus and
undivided profits aggregating in excess of $500,000,000 (or the foreign currency
equivalent thereof) and whose long-term debt is rated "A-3" or "A-" or higher
according to Moody's or S&P (or such similar equivalent rating by at least one
"nationally recognized statistical rating organization" (as defined in Rule 436
under the Securities Act)); (c) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (a)
entered into with a bank meeting the qualifications described in clause (b)
above; and (d) Investments in commercial paper, maturing not more than 270 days
after the date of acquisition, issued by a corporation (other than an Affiliate
of the Company) organized and in existence under the laws of the United States
of America with a rating at the time as of which any Investment therein is made
of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P
(or such similar equivalent rating by at least one "nationally recognized
statistical rating organization" (as defined in Rule 436 under the Securities
Act)).
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date of this Indenture except as required by
Section 9.03 hereof; PROVIDED that in the event the Trust Indenture Act of 1939
is amended after such date, "TRUST INDENTURE ACT" means, to the extent required
by any such amendment, the Trust Indenture Act of 1939 as so amended.
"TRUSTEE" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor.
"TRUST OFFICER" means an officer of the Trustee within the corporate
trust department, including any vice president or trust officer of the Trustee
and also means, with respect to a particular corporate trust matter, any other
officer to whom such corporate trust matter is referred because of his or her
knowledge of and familiarity with the particular subject.
"UNRESTRICTED SUBSIDIARY" means (a) any Subsidiary of the Company that
is designated after the Issue Date as an Unrestricted Subsidiary as permitted
pursuant to Section 4.14 and not thereafter redesignated as a Restricted
Subsidiary as permitted pursuant thereto and (b) any Subsidiary of an
Unrestricted Subsidiary.
"U.S. GOVERNMENT OBLIGATIONS" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith
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and credit of the United States of America is pledged and which are not callable
or redeemable at the issuer's option.
"VOTING STOCK" of any Person means all shares or other equivalents of
Capital Stock of such Person then outstanding and normally entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof.
"WHOLLY OWNED SUBSIDIARY" means, at any time, a Restricted Subsidiary
all the Voting Stock of which (except directors' qualifying shares and shares
held by third parties which, in the aggregate, represent no more than 2% of the
outstanding Voting Stock of such Restricted Subsidiary) is at such time owned,
directly or indirectly, by the Company and its other Wholly Owned Subsidiaries.
OTHER DEFINITIONS.
Defined in
Term Section
---- ----------
"Affiliate Transaction" ................ 4.07
"Bankruptcy Law" ....................... 6.01
"Change of Control Offer" .............. 4.08(a)
"Change of Control Payment Date" ....... 4.08(b)
"Change of Control Purchase Price"...... 4.08(a)
"covenant defeasance option" ........... 8.01(b)
"Custodian" ............................ 6.01
"Events of Default" ..................... 6.01
"Excess Proceeds" ...................... 4.06(c)
"Exchange Offer Registration Statement". Exhibit 1 to Appendix A
"legal defeasance option" .............. 8.01(b)
"Legal Holiday" ........................ 11.08
"Liquidated Damages" ........................ Exhibit 1 to Appendix A
"Notice of Default" ..................... 6.01(a)
"Offer Amount" ......................... 4.06(d)(2)
"Offer Period" ......................... 4.06(d)(2)
"Paying Agent" ......................... 2.04
"Prepayment Offer" ..................... 4.06(c)
"Prepayment Offer Notice" .............. 4.06(d)(1)
"Purchase Date" ........................ 4.06(d)(1)
"Registrar"............................. 2.04
"Surviving Person" ..................... 5.01(a)
"Temporary Regulation S Global Security" Exhibit 1 to Appendix A
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SECTION 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
This Indenture is subject to the mandatory provisions of the TIA, which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.
SECTION 1.4 RULES OF CONSTRUCTION. Unless the context otherwise
requires:
(1) a term has the meaning assigned to it by definition in this
Indenture;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the plural
include the singular;
(6) unsecured Debt shall not be deemed to be subordinate or junior to
secured Debt merely by virtue of its nature as unsecured Debt;
(7) the principal amount of any noninterest bearing or other discount
security at any date shall be the principal amount thereof that would be
shown on a balance sheet of the issuer dated such date prepared in
accordance with GAAP; and
(8) the principal amount of any Preferred Stock shall be the greater
of (i) the maximum liquidation value of such Preferred Stock or (ii) the
maximum mandatory redemption or mandatory repurchase price with respect to
such Preferred Stock.
ARTICLE 2
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THE SECURITIES
SECTION 2.1 AMOUNT OF SECURITIES. The aggregate principal amount
at maturity of Securities which may be authenticated and delivered under this
Indenture is $121,000,000. Subject to Section 2.03, the Trustee shall
authenticate Initial Securities for original issue on the Issue Date in the
aggregate principal amount at maturity of $121,000,000.
SECTION 2.2 FORM AND DATING. (a) Provisions relating to the
Initial Securities, the Private Exchange Securities and the Exchange Securities
are set forth in Appendix A, which is hereby incorporated in and expressly made
a part of this Indenture. The Initial Securities and the Trustee's certificate
of authentication shall be substantially in the form of Exhibit 1 to Appendix A,
which is hereby incorporated in and expressly made a part of this Indenture.
The Exchange Securities and the Private Exchange Securities and the Trustee's
certificate of authentication shall be substantially in the form of Exhibit A,
which is incorporated in and expressly made a part of this Indenture. The
Securities may have notations, legends or endorsements required by law, stock
exchange rules, agreements to which the Company is subject, if any, or usage,
PROVIDED that any such notation, legend or endorsement is in a form reasonably
acceptable to the Company. Each Security shall be dated the date of its
authentication. The terms of the Securities set forth in Exhibit 1 to
Appendix A and Exhibit A are part of the terms of this Indenture.
(b) Upon their original issuance, Rule 144A Securities shall be
issued in the form of one or more Global Securities registered in the name of
the Depositary or its nominee and deposited with the Trustee, as custodian for
the Depositary, duly executed by the Company and authenticated by the Trustee,
for credit by the Depositary to the respective accounts of beneficial owners of
the Securities represented thereby (or such other accounts as they may direct).
Such Global Securities are collectively herein called the "Rule 144A Global
Security". Upon their original issuance, Regulation S Securities shall be
issued in the form of one or more temporary Global Securities registered in the
name of the Depositary or its nominee and deposited with the Trustee as
custodian for the Depositary, duly executed by the Company and authenticated by
the Trustee, for credit to the Agent Member accounts at the Depositary of
Euroclear and/or Cedel for further credit by Euroclear and Cedel, as the case
may be, to the respective accounts of the beneficial owners of the Securities
represented thereby (or such other accounts as they may direct) (the "Temporary
Regulation S Global Securities"). Interests in the Temporary Regulation S
Global Securities may only be held by the Agent Members of the Depositary for
Euroclear and Cedel.
SECTION 2.3 EXECUTION AND AUTHENTICATION. Two Officers shall sign
the Securities for the Company by manual or facsimile signature. The Company's
seal shall be impressed, affixed, imprinted or reproduced on the Securities and
may be in facsimile form.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security, the Security shall be
valid nevertheless.
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At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a written order of the Company for
the authentication and delivery of such Securities signed by two Officers or by
an Officer and either an Assistant Treasurer or an Assistant Secretary of the
Company, and the Trustee in accordance with such written order of the Company
shall authenticate and deliver such Securities.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate the Securities. Unless limited by the terms of
such appointment, an authenticating agent may authenticate Securities whenever
the Trustee may do so. Each reference in this Indenture to authentication by
the Trustee includes authentication by such agent. An authenticating agent has
the same rights as any Registrar, Paying Agent or agent for service of notices
and demands.
SECTION 2.4 REGISTRAR AND PAYING AGENT. The Company shall maintain
in the Borough of Manhattan, City of New York an office or agency where
Securities may be presented for registration of transfer or for exchange (the
"Registrar"), an office or agency where Securities may be presented for payment
(the "Paying Agent") and an office or agency where notices and demands to or
upon the Company in respect of the Securities and this Indenture may be served.
The Registrar shall keep a register of the Securities and of their transfer and
exchange. The Company may have one or more co-registrars and one or more
additional paying agents. The term "Paying Agent" includes any additional paying
agent. The Company may change any Paying Agent, Registrar or co-registrar
without notice to any Holder.
The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent or co-registrar not a party to this Indenture, which
shall incorporate the terms of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such agent. The Company shall
notify the Trustee of the name and address of any such agent 15 days prior to
entering into such agency agreement. If the Company fails to maintain a
Registrar or Paying Agent or fails to give the foregoing notice, the Trustee
shall act as such and shall be entitled to appropriate compensation therefor
pursuant to Section 7.07. The Company or any of its domestically incorporated
Wholly Owned Subsidiaries may act as Paying Agent, Registrar, co- registrar or
transfer agent.
The Company initially appoints the Trustee as Registrar and Paying
Agent in connection with the Securities.
SECTION 2.5 PAYING AGENT TO HOLD MONEY IN TRUST. Prior to each due
date of the principal and interest on any Security, the Company shall deposit
with the Paying Agent a
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sum sufficient to pay such principal and interest when so becoming due. The
Company shall require each Paying Agent (other than the Trustee) to agree in
writing that the Paying Agent shall hold in trust for the benefit of
Securityholders or the Trustee all money held by the Paying Agent for the
payment of principal of or interest on the Securities and shall promptly notify
the Trustee of any default by the Company in making any such payment. If the
Company or a Wholly Owned Subsidiary acts as Paying Agent, it shall segregate
the money held by it as Paying Agent and hold it as a separate trust fund. The
Company at any time may require a Paying Agent to pay all money held by it to
the Trustee and to account for any funds disbursed by the Paying Agent. Upon
complying with this Section, the Paying Agent shall have no further liability
for the money delivered to the Trustee.
SECTION 2.6 SECURITYHOLDER LISTS. The Trustee shall preserve in as
current a form as is reasonably practicable the most recent list available to it
of the names and addresses of Securityholders. If the Trustee is not the
Registrar, the Company shall furnish to the Trustee, in writing at least five
Business Days before each interest payment date and before the final maturity
date and at such other times as the Trustee may request in writing, a list in
such form and as of such date as the Trustee may reasonably require of the
names, addresses and, if available, taxpayer identification numbers of
Securityholders.
SECTION 2.7 REPLACEMENT SECURITIES. If a mutilated Security is
surrendered to the Registrar or if the Holder of a Security claims that such
Security has been lost, destroyed or wrongfully taken, the Company shall issue
and the Trustee shall authenticate a replacement Security if the
Holder satisfies any reasonable requirements of the Trustee. If required by the
Trustee or the Company, such Holder shall furnish an indemnity bond sufficient
in the judgment of the Trustee to protect the Company, the Trustee, the Paying
Agent, the Registrar and any co-registrar from any loss that any of them may
suffer if a Security is replaced. The Company and the Trustee may charge the
Holder for their expenses in replacing a Security.
Every replacement Security is an additional obligation of the Company.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
of mutilated, lost, destroyed or wrongfully taken Securities.
SECTION 2.8 OUTSTANDING SECURITIES. Securities outstanding at any
time are all Securities authenticated by the Trustee except for those canceled
by it, those delivered to it for cancellation and those described in this
Section as not outstanding. A Security does not cease to be outstanding because
the Company or an Affiliate of the Company holds the Security.
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a bona fide purchaser.
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If the Paying Agent segregates and holds in trust, in accordance with
this Indenture, on a redemption date or maturity date money, in immediately
available funds, sufficient to pay all principal and interest payable on that
date with respect to the Securities (or portions thereof) to be redeemed or
maturing, as the case may be, and the Paying Agent is not prohibited from paying
such money to the Securityholders on that date pursuant to the terms of this
Indenture, then on and after that date such Securities (or portions thereof)
cease to be outstanding and interest on them ceases to accrue.
SECTION 2.9 TEMPORARY SECURITIES. Until definitive Securities are
ready for delivery, the Company may prepare and the Trustee shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form
of definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Every such temporary Security shall be
authenticated upon the same conditions and in substantially the same manner, and
with the same effect, as the definitive Securities. Without unreasonable delay,
the Company shall prepare and the Trustee shall authenticate definitive
Securities and deliver them in exchange for temporary Securities. Such exchange
shall be made by the Company at its own expense and without any charge therefor.
Until so exchanged, the temporary Securities shall in all respects be entitled
to the same rights, privileges and benefits under this Indenture as definitive
Securities authenticated and delivered hereunder.
SECTION 2.10 CANCELLATION. The Company at any time may deliver
Securities to the Trustee for cancellation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for registration
of transfer, exchange or payment. The Trustee and no one else shall cancel and
destroy (subject to the record retention requirements of the Exchange Act) all
Securities surrendered for registration of transfer, exchange, payment or
cancellation and deliver a certificate of such destruction to the Company,
unless the Company directs the Trustee to deliver canceled Securities to the
Company. If the Company shall acquire any of the Securities, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Securities unless and until the same are delivered to the
Trustee for cancellation. The Company may not issue new Securities to replace
Securities it has redeemed, paid or delivered to the Trustee for cancellation.
SECTION 2.11 DEFAULTED INTEREST. If the Company defaults in a
payment of interest on the Securities, the Company shall pay defaulted interest
(plus interest on such defaulted interest to the extent lawful) in any lawful
manner. The Company may pay the defaulted interest to the persons who are
Securityholders on a subsequent special record date. The Company shall fix or
cause to be fixed any such special record date and payment date to the
reasonable satisfaction of the Trustee and shall promptly mail to each
Securityholder a notice that states the special record date, the payment date
and the amount of defaulted interest to be paid.
SECTION 2.12 CUSIP NUMBERS. The Company in issuing the Securities
may use "CUSIP" numbers (if then generally in use) and, if so, the Trustee shall
use "CUSIP" numbers in notices of redemption as a convenience to Holders;
PROVIDED, HOWEVER, that any such
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notice may state that no representation is made as to the correctness of such
numbers either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers.
ARTICLE 3
REDEMPTION
SECTION 3.1 NOTICES TO TRUSTEE. If the Company elects to redeem
Securities pursuant to paragraph 5 of the Securities, it shall notify the
Trustee in writing of the redemption date, the principal amount of Securities to
be redeemed, the redemption price and that such redemption is being made
pursuant to paragraph 5 of the Securities.
The Company shall give each notice to the Trustee provided for in this
Section at least 45 days before the redemption date unless the Trustee consents
to a shorter period. Such notice shall be accompanied by an Officers'
Certificate and an Opinion of Counsel from the Company to the effect that such
redemption will comply with the conditions herein.
SECTION 3.2 SELECTION OF SECURITIES TO BE REDEEMED. If fewer than
all the Securities are to be redeemed, the Trustee shall select the Securities
to be redeemed in compliance with the requirements of the principal national
securities exchange, if any, on which the Securities are listed, or, if the
Securities are not so listed, PRO RATA or by lot or by a method that the Trustee
considers fair and appropriate. The Trustee shall make the selection from
outstanding Securities not previously called for redemption. The Trustee may
select for redemption portions of the principal of Securities that have
denominations larger than $1,000. Securities and portions of them the Trustee
selects shall be in amounts of $1,000 or a whole multiple of $1,000, except that
if all the Securities of a Holder are to be redeemed, the entire outstanding
amount of Securities held by such Holder, even if not a multiple of $1,000,
shall be redeemed. Provisions of this Indenture that apply to Securities called
for redemption also apply to portions of Securities called for redemption. The
Trustee shall notify the Company promptly of the Securities or portions of
Securities to be redeemed.
SECTION 3.3 NOTICE OF REDEMPTION. At least 30 days but not more
than 60 days before a date for redemption of Securities, the Company shall mail
a notice of redemption by first-class mail to each Holder of Securities to be
redeemed.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price;
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(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(5) if fewer than all the outstanding Securities are to be redeemed,
the identification and principal amounts at maturity of the particular
Securities to be redeemed;
(6) that, unless the Company defaults in making such redemption
payment or the Paying Agent is prohibited from making such payment pursuant
to the terms of this Indenture, Accreted Value on Securities (or portions
thereof) called for redemption ceases to increase and interest on
Securities (or portions thereof) called for redemption ceases to accrue on
and after the redemption date; and
(7) the CUSIP numbers, if any, of the Securities and that no
representation is made as to the correctness or accuracy of such CUSIP
number, if any, listed in such notice or printed on the Securities.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such event,
the Company shall provide the Trustee with the information required by this
Section.
SECTION 3.4 EFFECT OF NOTICE OF REDEMPTION. Once notice of
redemption is mailed, Securities called for redemption become due and payable on
the redemption date and at the redemption price stated in the notice. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price stated in the notice, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the redemption date (subject to the right of Holders
of record on the relevant record date to receive interest due on the relevant
interest payment date that is on or prior to the date of redemption). Failure
to give notice or any defect in the notice to any Holder shall not affect the
validity of the notice to any other Holder.
SECTION 3.5 DEPOSIT OF REDEMPTION PRICE. Prior to the redemption
date, the Company shall deposit with the Paying Agent (or, if the Company or a
Wholly Owned Subsidiary is the Paying Agent, shall segregate and hold in trust)
money, in immediately available funds, sufficient to pay the redemption price of
and accrued interest (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date that
is on or prior to the date of redemption) on all Securities to be redeemed on
that date other than Securities or portions of Securities called for redemption
which have been delivered by the Company to the Trustee for cancellation.
SECTION 3.6 SECURITIES REDEEMED IN PART. Upon surrender of a
Security that is redeemed in part, the Company shall execute and the Trustee
shall authenticate for the Holder (at
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the Company's expense) a new Security equal in principal amount at maturity to
the unredeemed portion of the Security surrendered.
ARTICLE 4
COVENANTS
SECTION 4.1 PAYMENT OF SECURITIES. The Company shall promptly pay
the principal of and interest on the Securities on the dates and in the manner
provided in the Securities and in this Indenture. Principal and interest shall
be considered paid on the date due if, not later than 11:00 a.m. New York City
time, on such date the Trustee or the Paying Agent holds in accordance with this
Indenture, money, in immediately available funds, sufficient to pay all
principal and interest then due and the Trustee or the Paying Agent, as the case
may be, is not prohibited from paying such money to the Securityholders on that
date pursuant to the terms of this Indenture.
The Company shall pay interest on overdue principal at the rate
specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
SECTION 4.2 SEC REPORTS. Notwithstanding that the Company may not
be subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall file with the SEC and provide the Trustee and
Securityholders with such annual reports and such information, documents and
other reports as are specified in Sections 13 and 15(d) of the Exchange Act and
applicable to a U.S. corporation subject to such Sections, such information,
documents and reports to be so filed and provided within 15 days after the times
specified for the filing of such information, documents and reports under such
Sections; PROVIDED, HOWEVER, that the Company shall not be so obligated to file
such information, documents and reports with the SEC if the SEC does not permit
such filings. The Company shall file with the SEC and provide the Trustee and
Securityholders with the information, documents and reports described herein
whether or not (a) the Exchange Offer Registration Statement has been filed or
declared effective or (b) the period to which any such specified information,
document or report relates includes the Issue Date.
SECTION 4.3 LIMITATION ON DEBT. The Company shall not, and shall
not permit any Restricted Subsidiary to, Incur, directly or indirectly, any Debt
(which includes, in the case of Restricted Subsidiaries, Preferred Stock)
unless, after giving pro forma effect to the application of the proceeds
thereof, no Default or Event of Default would occur as a consequence of such
Incurrence or be continuing following such Incurrence and either (a) after
giving effect to the Incurrence of such Debt and the application of the proceeds
thereof, the Consolidated Coverage Ratio would be greater than 2.00 to 1.00 or
(b) such Debt is Permitted Debt.
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Notwithstanding the foregoing, the Company shall not, and shall not
permit any Restricted Subsidiary to, Incur any Debt if the proceeds thereof are
used, directly or indirectly, to Refinance any Subordinated Obligations unless
such Debt shall be subordinated to the Securities to at least the same extent as
such Subordinated Obligations.
SECTION 4.4 LIMITATION ON RESTRICTED PAYMENTS. (a) The Company
shall not make, and shall not permit any Restricted Subsidiary to make, directly
or indirectly, any Restricted Payment if at the time of, and after giving pro
forma effect to, such proposed Restricted Payment,
(i) a Default or Event of Default shall have occurred and be
continuing;
(ii) the Company could not Incur at least $1.00 of additional Debt
pursuant to clause (a) of the first paragraph of Section 4.03; or
(iii) the aggregate amount of such Restricted Payment and all other
Restricted Payments declared or made since the Issue Date (the amount of
any Restricted Payment, if made other than in cash, to be based upon Fair
Market Value) would exceed an amount equal to the sum of:
(A) 50% of the aggregate amount of Consolidated Net Income
accrued during the period (treated as one accounting period) from and
after November 1, 1997 to the end of the most recent fiscal quarter
ending at least 45 days prior to the date of such Restricted Payment
(or if the aggregate amount of Consolidated Net Income for such period
shall be a deficit, minus 100% of such deficit);
(B) Capital Stock Sale Proceeds;
(C) the amount by which Debt (other than Subordinated
Obligations) of the Company or any other Restricted Subsidiary is
reduced on the Company's balance sheet upon the conversion or exchange
(other than by a Subsidiary of the Company) subsequent to the Issue
Date of any Debt of the Company or any other Restricted Subsidiary
convertible into or exchangeable for Capital Stock (other than
Disqualified Stock) of the Company (less the amount of any cash or
other Property distributed by the Company or any Restricted Subsidiary
upon such conversion or exchange);
(D) an amount equal to the sum of (1) the net reduction in
Investments in any Person other than a Restricted Subsidiary resulting
from dividends, repayments of loans or advances or other transfers of
assets, in each case to the Company or any Restricted Subsidiary from
such Person, and (2) the portion (proportionate to the Company's
equity interest in such Unrestricted Subsidiary) of the Fair Market
Value of the net assets of an Unrestricted Subsidiary at the time
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such Unrestricted Subsidiary is designated a Restricted Subsidiary;
PROVIDED, HOWEVER, that the foregoing sum shall not exceed, in the
case of any Person, the amount of Investments previously made (and
treated as a Restricted Payment) by the Company or any Restricted
Subsidiary in such Person; and
(E) $5,000,000.
(b) Notwithstanding the foregoing limitation, the Company may:
(i) pay dividends on its Capital Stock within 60 days of the
declaration thereof if, on said declaration date, such dividends could have
been paid in compliance with this Indenture; PROVIDED, HOWEVER, that such
dividend shall be included in the calculation of the amount of Restricted
Payments;
(ii) purchase, repurchase, redeem, legally defease, acquire or retire
for value Capital Stock of the Company or Subordinated Obligations in
exchange for, or out of the proceeds of the substantially concurrent sale
of, Capital Stock of the Company (other than Disqualified Stock and other
than Capital Stock issued or sold to a Subsidiary of the Company or an
employee stock ownership plan or trust established by the Company or any of
its Subsidiaries for the benefit of their employees); PROVIDED, HOWEVER,
that (A) such purchase, repurchase, redemption, legal defeasance,
acquisition or retirement shall be excluded in the calculation of the
amount of Restricted Payments and (B) the Capital Stock Sale Proceeds from
such exchange or sale shall be excluded from the calculation pursuant to
clause (a)(iii)(B) above;
(iii) purchase, repurchase, redeem, legally defease, acquire or retire
for value any Subordinated Obligations in exchange for, or out of the
proceeds of the substantially concurrent sale of, Permitted Refinancing
Debt; PROVIDED, HOWEVER, that such purchase, repurchase, redemption, legal
defeasance, acquisition or retirement shall be excluded in the calculation
of the amount of Restricted Payments;
(iv) make Investments in an aggregate amount not to exceed
$20,000,000; PROVIDED, HOWEVER, that such Investments shall be excluded in
the calculation of the amount of Restricted Payments;
(v) repurchase shares of, or options to purchase shares of, common
stock of the Company or any of its Subsidiaries from employees or former
employees of the Company or any of its Subsidiaries, pursuant to the terms
of agreements (including employment agreements) or plans (or amendments
thereto) approved by the Board of Directors under which such individuals
purchase or sell, or are granted the option to purchase or sell, shares of
such common stock; PROVIDED, HOWEVER, that the aggregate amount of such
repurchases shall not exceed $2,000,000 in any calendar year; PROVIDED
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FURTHER, HOWEVER, that such repurchases shall be excluded in the
calculation of the amount of Restricted Payments;
(vi) expend up to $10,000,000 for Restricted Payments in addition to
the amounts in clauses (i) through (v) above; PROVIDED, HOWEVER, that at
the time of, and after giving effect to, any such expenditure, no Default
or Event of Default shall have occurred and be continuing and PROVIDED
FURTHER, HOWEVER, that such expenditures shall be excluded from the
calculation of the amount of Restricted Payments; or
(vii) make Restricted Payments required for any dissenters' rights
payments arising in connection with the Merger, but solely using up to
$10.0 million of the net proceeds from the sale of the Initial Securities.
(c) In computing Consolidated Net Income of the Company under
paragraph (a) above, (i) the Company shall use audited financial statements for
the portions of the relevant period for which audited financial statements are
available on the date of determination and unaudited financial statements and
other current financial data based on the books and records of the Company for
the remaining portion of such period and (ii) the Company shall be permitted to
rely in good faith on the financial statements and other financial data derived
from the books and records of the Company that are available on the date of
determination. If the Company makes a Restricted Payment which, at the time of
the making of such Restricted Payment, would in the good faith determination of
the Company be permitted under the requirements of this Indenture, such
Restricted Payment shall be deemed to have been made in compliance with this
Indenture notwithstanding any subsequent adjustments made in good faith to the
Company's financial statements affecting Consolidated Net Income of the Company
for any period.
SECTION 4.5 LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM
RESTRICTED SUBSIDIARIES. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, create or otherwise cause or
suffer to exist any consensual restriction on the right of any Restricted
Subsidiary to (a) pay dividends, in cash or otherwise, or make any other
distributions on or in respect of its Capital Stock, or pay any Debt or other
obligation owed, to the Company or any other Restricted Subsidiary, except that
any Debt owed by a Restricted Subsidiary to the Company or any other Restricted
Subsidiary may be subordinated in right of payment to other Debt obligations of
such Restricted Subsidiary, (b) make any loans or advances to the Company or any
other Restricted Subsidiary, except that any repayment obligations of the
Company or any other Restricted Subsidiary in respect of such loans or advances
may be subordinated in right of payment to other Debt obligations of the Company
or such other Restricted Subsidiary or (c) transfer any of its Property to the
Company or any other Restricted Subsidiary. The foregoing limitations will not
apply (i) with respect to clauses (a), (b) and (c), to restrictions (A) in
effect on the Issue Date, (B) relating to Debt of a Restricted Subsidiary and
existing at the time it became a Restricted Subsidiary if such restriction was
not created in connection with or in anticipation of the transaction or series
of transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by the Company or (C)
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which result from the Refinancing of Debt Incurred pursuant to an agreement
referred to in the immediately preceding clause (i)(A) or (B) above or in
clause (ii)(A) or (B) below, PROVIDED such restriction is not materially less
favorable to the Holders of Securities than those under the agreement evidencing
the Debt so Refinanced, and (ii) with respect to clause (c) only, to
restrictions (A) relating to Debt that is permitted to be Incurred and is not
prohibited from being secured without also securing the Securities pursuant to
Section 4.03 and Section 4.11 that limit the right of the debtor to dispose of
the Property securing such Debt, (B) encumbering Property at the time such
Property was acquired by the Company or any Restricted Subsidiary, so long as
such restriction relates solely to the Property so acquired and was not created
in connection with or in anticipation of such acquisition, (C) resulting from
customary provisions restricting subletting or assignment of leases or customary
provisions in other agreements that restrict assignment of such agreements or
rights thereunder, (D) customary restrictions contained in asset sale or stock
purchase agreements limiting the transfer of such Property pending the closing
of such transaction or (E) any restriction imposed by applicable law.
SECTION 4.6 LIMITATION ON ASSET SALES. (a) The Company shall not,
and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Sale unless (i) the Company or such Restricted Subsidiary
receives consideration at the time of such Asset Sale at least equal to the Fair
Market Value of the Property subject to such Asset Sale; (ii) at least 75% of
the consideration paid to the Company or such Restricted Subsidiary in
connection with such Asset Sale is in the form of cash or cash equivalents; and
(iii) the Company delivers an Officers' Certificate to the Trustee certifying
that such Asset Sale complies with the foregoing clauses (i) and (ii). For
purposes of this covenant, the following are deemed to be cash: (x) the amount
of any liabilities (other than liabilities that are by their terms subordinated
to any other Debt of the Company or such Restricted Subsidiary, as the case may
be) of the Company or such Restricted Subsidiary (as shown on the Company's or
such Restricted Subsidiary's most recent balance sheet or in the notes thereto)
that are assumed by the transferee of any such assets or other property in such
Asset Sale, as a result of which the Company or the Restricted Subsidiaries are
no longer obligated with respect to such liabilities and (y) securities received
by the Company or any Restricted Subsidiary from the transferee that are
immediately converted by the Company or such Restricted Subsidiary into cash.
(b) The Net Available Cash (or any portion thereof) from Asset Sales
(or an amount equal thereto) may be applied by the Company or a Restricted
Subsidiary, to the extent the Company or such Restricted Subsidiary elects (or
is required by the terms of any Debt): (i) to prepay, repay, legally defease or
purchase Senior Debt of the Company or Debt of any Restricted Subsidiary
(excluding, in any such case, any Debt owed to the Company or an Affiliate of
the Company); or (ii) to reinvest in Additional Assets (including by means of an
Investment in Additional Assets by a Restricted Subsidiary in an amount equal to
such Net Available Cash received by the Company or another Restricted
Subsidiary); PROVIDED, HOWEVER, that in connection with any prepayment,
repayment, legal defeasance or purchase of Debt pursuant to clause (i) above,
the Company or other Restricted Subsidiary shall retire such Debt and shall
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cause the related loan commitment (if any) to be permanently reduced by an
amount equal to the principal amount so prepaid, repaid, legally defeased or
purchased.
(c) In the event that any Net Available Cash from an Asset Sale (or
an amount equal thereto) is not applied in accordance with the preceding
paragraph within 270 days from the date of the receipt of such Net Available
Cash, such Net Available Cash shall constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $5,000,000 (taking into account
income earned on such Excess Proceeds, if any), the Company will be required to
make an offer to purchase (the "Prepayment Offer") the Securities which offer
shall be in the amount of the Excess Proceeds, on a pro rata basis according to
principal amount, at a purchase price equal to 100% of the Accreted Value
thereof plus Liquidated Damages, if any, thereon to the purchase date, if such
purchase is prior to July 15, 2003, or 100% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the
purchase date, if such purchase is on or after July 15, 2003 (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date) in accordance with the procedures
(including prorating in the event of oversubscription) set forth in this
Indenture. To the extent that any portion of the amount of Net Available Cash
remains after compliance with the preceding sentence and provided that all
Holders of Securities have been given the opportunity to tender their Securities
for purchase as described in Section 4.06(d), the Company may use such remaining
amount for any purpose permitted by this Indenture and the amount of Excess
Proceeds will be reset to zero.
(d)(1) Within ten business days after the Company is obligated to
make a Prepayment Offer as described in the preceding paragraph, the Company
shall send a written notice, by first-class mail, to the Trustee and the Holders
of Securities (the "Prepayment Offer Notice"), accompanied by such information
regarding the Company and its Subsidiaries as the Company in good faith believes
will enable such Holders to make an informed decision with respect to such
Prepayment Offer. The Prepayment Offer Notice shall state, among other things,
(i) that the Company is offering to purchase Securities pursuant to the
provisions of this Indenture, (ii) that any Security (or any portion thereof)
accepted for payment (and duly paid on the Purchase Date) pursuant to the
Prepayment Offer shall cease to accrue interest on the Purchase Date, (iii) that
any Securities (or portions thereof) not properly tendered shall continue to
accrue interest, (iv) the purchase price and purchase date, which shall be,
subject to any contrary requirements of applicable law, no less than 30 days nor
more than 60 days after the date the Prepayment Offer Notice is mailed (the
"Purchase Date"), (v) the aggregate principal amount of Securities to be
purchased, (vi) a description of the procedures which Holders of Securities must
follow in order to tender their Securities and the procedures that Holders of
Securities must follow in order to withdraw an election to tender their
Securities for payment and (vii) all other instructions and materials necessary
to enable Holders to tender Securities pursuant to the Prepayment Offer.
(2) Not later than the date upon which written notice of a Prepayment
Offer is delivered to the Trustee as provided above, the Company shall deliver
to the Trustee an Officers'
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Certificate as to (i) the amount of the Prepayment Offer (the "Offer Amount"),
(ii) the allocation of the Net Available Cash from the Asset Sales pursuant to
which such Prepayment Offer is being made and (iii) the compliance of such
allocation with the provisions of Section 4.06(a). On such date, the Company
shall also irrevocably deposit with the Trustee or with the Paying Agent (or, if
the Company or a Wholly Owned Subsidiary is the Paying Agent, shall segregate
and hold in trust) in Temporary Cash Investments, maturing on the last day prior
to the Purchase Date or on the Purchase Date if funds are immediately available
by open of business, an amount equal to the Offer Amount to be held for payment
in accordance with the provisions of this Section. Upon the expiration of the
period for which the Prepayment Offer remains open (the "Offer Period"), the
Company shall deliver to the Trustee for cancellation the Securities or portions
thereof which have been properly tendered to and are to be accepted by the
Company. The Trustee or the Paying Agent shall, on the Purchase Date, mail or
deliver payment to each tendering Holder in the amount of the purchase price.
In the event that the aggregate purchase price of the Securities delivered by
the Company to the Trustee is less than the Offer Amount, the Trustee or the
Paying Agent shall deliver the excess to the Company immediately after the
expiration of the Offer Period for application in accordance with this Section.
(3) Holders electing to have a Security purchased shall be required
to surrender the Security, with an appropriate form duly completed, to the
Company or its agent at the address specified in the notice at least three
Business Days prior to the Purchase Date. Holders shall be entitled to withdraw
their election if the Trustee or the Company receives not later than one
Business Day prior to the Purchase Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount at maturity of the Security which was delivered for purchase by the
Holder and a statement that such Holder is withdrawing his election to have such
Security purchased. If at the expiration of the Offer Period the aggregate
principal amount of Securities surrendered by Holders exceeds the Offer Amount,
the Company shall select the Securities to be purchased on a pro rata basis
(with such adjustments as may be deemed appropriate by the Company so that only
Securities in denominations of $1,000, or integral multiples thereof, shall be
purchased). Holders whose Securities are purchased only in part shall be issued
new Securities equal in principal amount at maturity to the unpurchased portion
of the Securities surrendered.
(4) At the time the Company delivers Securities to the Trustee which
are to be accepted for purchase, the Company shall also deliver an Officers'
Certificate stating that such Securities are to be accepted by the Company
pursuant to and in accordance with the terms of this Section. A Security shall
be deemed to have been accepted for purchase at the time the Trustee or the
Paying Agent mails or delivers payment therefor to the surrendering Holder.
(e) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section, the Company will
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comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under this Section by virtue thereof.
SECTION 4.7 LIMITATION ON TRANSACTIONS WITH AFFILIATES. (a) The
Company shall not, and shall not permit any Restricted Subsidiary to, directly
or indirectly, conduct any business or enter into or suffer to exist any
transaction or series of transactions (including the purchase, sale, transfer,
assignment, lease, conveyance or exchange of any Property or the rendering of
any service) with, or for the benefit of, any Affiliate of the Company (an
"Affiliate Transaction"), unless (a) the terms of such Affiliate Transaction are
(i) set forth in writing and (ii) no less favorable to the Company or such
Restricted Subsidiary, as the case may be, than those that could be obtained in
a comparable arm's-length transaction with a Person that is not an Affiliate of
the Company, (b) if such Affiliate Transaction involves aggregate payments or
value in excess of $2,000,000, the Board of Directors (including a majority of
the disinterested members of the Board of Directors) approves such Affiliate
Transaction and, in its good faith judgment, believes that such Affiliate
Transaction complies with clause (a) (ii) of this paragraph as evidenced by a
Board Resolution promptly delivered to the Trustee and (c) if such Affiliate
Transaction involves aggregate payments or value in excess of $15,000,000, the
Company obtains a written opinion from an Independent Appraiser to the effect
that the consideration to be paid or received in connection with such Affiliate
Transaction is fair, from a financial point of view, to the Company or such
Restricted Subsidiary, as the case may be.
(b) Notwithstanding the foregoing limitation, the Company or any
Restricted Subsidiary may enter into or suffer to exist the following:
(i) any transaction or series of transactions between the Company and
one or more Restricted Subsidiaries or between two or more Restricted
Subsidiaries in the ordinary course of business, PROVIDED that no more than
5% of the total voting power of the Voting Stock (on a fully diluted basis)
of any such Restricted Subsidiary is owned by an Affiliate of the Company
(other than a Restricted Subsidiary);
(ii) any Restricted Payment permitted to be made pursuant to
Section 4.04;
(iii) the payment of compensation (including amounts paid pursuant to
employee benefit plans) for the personal services of officers, directors
and employees of the Company or any of the Restricted Subsidiaries, so long
as the Board of Directors in good faith shall have approved the terms
thereof and deemed the services theretofore or thereafter to be performed
for such compensation to be fair consideration therefor; and
(iv) the payment of reasonable fees to directors of the Company or
such Restricted Subsidiary (x) who are not employees of the Company or any
Restricted Subsidiary or (y) who are employees of the Company or any
Restricted Subsidiary, PROVIDED that such fees are consistent with the past
practices of the Company or such Restricted Subsidiary.
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SECTION 4.8 CHANGE OF CONTROL. (a) Upon the occurrence of a
Change of Control, each Holder of Securities shall have the right to require the
Company to repurchase all or any part (equal to $1,000 in principal amount at
maturity or an integral multiple thereof) of such Holder's Securities pursuant
to the offer described below (the "Change of Control Offer") at a purchase price
(the "Change of Control Purchase Price") equal to 101% of the Accreted Value
thereof, plus Liquidated Damages, if any, thereon at the purchase date, if the
purchase date is prior to July 15, 2003, or 101% of the aggregate principal
amount at maturity thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon, to the purchase date, if the purchase date is on or
after July 15, 2003 (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date).
(b) Within 30 days following any Change of Control, the Company shall
(a) cause a notice of the Change of Control Offer to be sent at least once to
the Dow Jones News Service or similar business news service in the United States
and (b) send, by first-class mail, with a copy to the Trustee, to each Holder of
Securities, at such Holder's address appearing in the Security Register, a
notice stating: (i) that a Change of Control has occurred and a Change of
Control Offer is being made pursuant to this Section and that all Securities (or
portions thereof) timely tendered will be accepted for payment; (ii) the Change
of Control Purchase Price and the purchase date, which shall be, subject to any
contrary requirements of applicable law, a business day no earlier than 30 days
nor later than 60 days from the date such notice is mailed (the "Change of
Control Payment Date"); (iii) the circumstances and relevant facts regarding
such Change of Control (including information with respect to pro forma
historical income, cash flow and capitalization after giving effect to the
Change of Control); (iv) that any Securities (or portion thereof) accepted for
payment (and duly paid on the Change of Control Payment Date) pursuant to the
Change of Control Offer shall cease to accrue interest after the Change of
Control Payment Date; (v) that any Securities (or portions thereof) not tendered
will continue to accrue interest; and (vi) the procedures that Holders of
Securities must follow in order to tender their Securities (or portions thereof)
for payment, and the procedures that Holders of Securities must follow in order
to withdraw an election to tender Securities (or portions thereof) for payment.
(c) Holders electing to have a Security purchased will be required to
surrender the Security, with an appropriate form (which may include the form on
the reverse thereof) duly completed, to the Company or its agent at the address
specified in the notice at least three Business Days prior to the Change of
Control Payment Date. Holders will be entitled to withdraw their election if
the Trustee or the Company receives not later than one Business Day prior to the
Change of Control Payment Date, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount at maturity of
the Security which was delivered for purchase by the Holder and a statement that
such Holder is withdrawing his election to have such Security purchased.
Holders whose Securities are purchased only in part shall be issued new
Securities equal in principal amount at maturity to the unpurchased portion of
the Securities surrendered.
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(d) On or prior to the Change of Control Payment Date, the Company
shall irrevocably deposit with the Trustee or with the Paying Agent (or, if the
Company or any of its Wholly Owned Subsidiaries is acting as the Paying Agent,
segregate and hold in trust) in cash an amount equal to the Change of Control
Purchase Price payable to the Holders entitled thereto, to be held for payment
in accordance with the provisions of this Section. On the Change of Control
Payment Date, the Company shall deliver to the Trustee the Securities or
portions thereof which have been properly tendered to and are to be accepted by
the Company for payment. The Trustee or the Paying Agent shall, on the Change
of Control Payment Date, mail or deliver payment to each tendering Holder of the
Change of Control Purchase Price. In the event that the aggregate Change of
Control Purchase Price is less than the amount delivered by the Company to the
Trustee or the Paying Agent, the Trustee or the Paying Agent, as the case may
be, shall deliver the excess to the Company immediately after the Change of
Control Payment Date.
(e) At the time the Company delivers Securities to the Trustee which
are to be accepted for purchase, the Company shall also deliver an Officers'
Certificate stating that such Securities are to be accepted by the Company
pursuant to and in accordance with the terms of this Section. A Security shall
be deemed to have been accepted for purchase at the time the Trustee or the
Paying Agent mails or delivers payment therefor to the surrendering Holder.
(f) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to a
Change of Control Offer. To the extent that the provisions of any securities
laws or regulations conflict with the provisions of the covenant described
hereunder, the Company will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under the
covenant described hereunder by virtue of such compliance.
SECTION 4.9 COMPLIANCE CERTIFICATE The Company shall deliver to
the Trustee within 120 days after the end of each fiscal year of the Company an
Officers' Certificate stating that in the course of the performance by the
signers of their duties as Officers of the Company they would normally have
knowledge of any Default and whether or not the signers know of any Default that
occurred during such period. If they do, the certificate shall describe the
Default, its status and what action the Company is taking or proposes to take
with respect thereto. The Company also shall comply with Section 314(a)(4) of
the TIA.
SECTION 4.10. FURTHER INSTRUMENTS AND ACTS. Upon request of the
Trustee, the Company shall execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
SECTION 4.11. LIMITATION ON LIENS. The Company shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly, Incur or
suffer to exist, any Lien (other than Permitted Liens) upon any of its Property
(including Capital Stock of a Restricted Subsidiary), whether owned at the Issue
Date or thereafter acquired, or any interest therein or any
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income or profits therefrom, unless it has made or will make effective provision
whereby the Initial Securities will be secured by such Lien equally and ratably
with (or prior to) all other Debt of the Company or any Restricted Subsidiary
secured by such Lien.
SECTION 4.12. LIMITATION ON SALE AND LEASEBACK TRANSACTIONS. The
Company shall not, and shall not permit any Restricted Subsidiary to, enter into
any Sale and Leaseback Transaction with respect to any Property unless (a) the
Company or such Restricted Subsidiary would be entitled to (i) Incur Debt in an
amount equal to the Attributable Debt with respect to such Sale and Leaseback
Transaction pursuant to Section 4.03 and (ii) create a Lien on such Property
securing such Attributable Debt without securing the Securities pursuant to
Section 4.11 and (b) such Sale and Leaseback Transaction is effected in
compliance with Section 4.06.
SECTION 4.13. LIMITATION ON STATUS AS INVESTMENT COMPANY. The
Company and its Restricted Subsidiaries shall be prohibited from being required
to register as an "investment company" (as that term is defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act")), or
from otherwise becoming subject to regulation under the Investment Company Act.
SECTION 4.14. DESIGNATION OF RESTRICTED AND UNRESTRICTED
SUBSIDIARIES. The Board of Directors may designate any Subsidiary of the
Company to be an Unrestricted Subsidiary if (a) the Subsidiary to be so
designated does not own any Capital Stock or Debt of, or own or hold any Lien on
any Property of, the Company or any other Restricted Subsidiary, (b) the
Subsidiary to be so designated is not obligated under any Debt, Lien or other
obligation that, if in default, would result (with the passage of time or notice
or otherwise) in a default on any Debt of the Company or of any Restricted
Subsidiary and (c) either (i) the Subsidiary to be so designated has total
assets of $1,000 or less or (ii) such designation is effective immediately upon
such entity becoming a Subsidiary of the Company. Unless so designated as an
Unrestricted Subsidiary, any Person that becomes a Subsidiary of the Company
will be classified as a Restricted Subsidiary; PROVIDED, HOWEVER, that such
Subsidiary shall not be designated a Restricted Subsidiary and shall be
automatically classified as an Unrestricted Subsidiary if either of the
requirements set forth in clauses (x) and (y) of the immediately following
paragraph will not be satisfied after giving pro forma effect to such
classification. Except as provided in the first sentence of this paragraph, no
Restricted Subsidiary may be redesignated as an Unrestricted Subsidiary.
The Board of Directors may designate any Unrestricted Subsidiary to be
a Restricted Subsidiary if, immediately after giving pro forma effect to such
designation, (x) the Company could Incur at least $1.00 of additional Debt
pursuant to clause (a) of the first paragraph of Section 4.03 and (y) no Default
or Event of Default shall have occurred and be continuing or would result
therefrom.
Any such designation or redesignation by the Board of Directors will
be evidenced to the Trustee by filing with the Trustee a Board Resolution giving
effect to such
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designation or redesignation and an Officers' Certificate (a) certifying that
such designation or redesignation complies with the foregoing provisions and
(b) giving the effective date of such designation or redesignation, such filing
with the Trustee to occur within 45 days after the end of the fiscal quarter of
the Company in which such designation or redesignation is made (or, in the case
of a designation or redesignation made during the last fiscal quarter of the
Company's fiscal year, within 90 days after the end of such fiscal year).
SECTION 4.15. LIMITATION ON LINES OF BUSINESS. The Company and its
Restricted Subsidiaries shall be prohibited from directly or indirectly engaging
to any substantial extent in any line or lines of business activity other than
that which, in the reasonable good faith judgment of the Board of Directors, is
a Related Business.
ARTICLE 5
SUCCESSOR COMPANY
SECTION 5.01. WHEN COMPANY MAY MERGE OR TRANSFER ASSETS. (a) The
Company shall not merge, consolidate or amalgamate with or into any other Person
(other than a merger of a Wholly Owned Subsidiary into the Company) or sell,
transfer, assign, lease, convey or otherwise dispose of all or substantially all
its Property in any one transaction or series of transactions unless: (i) the
Company shall be the surviving Person (the "Surviving Person") or the Surviving
Person (if other than the Company) formed by such merger, consolidation or
amalgamation or to which such sale, transfer, assignment, lease, conveyance or
disposition is made shall be a corporation organized and existing under the laws
of the United States of America, any State thereof or the District of Columbia;
(ii) the Surviving Person (if other than the Company) expressly assumes, by
supplemental indenture in form satisfactory to the Trustee, executed and
delivered to the Trustee by such Surviving Person, the due and punctual payment
of the principal of, and premium, if any, and interest on, all the Securities,
according to their tenor, and the due and punctual performance and observance of
all the covenants and conditions of this Indenture and the Collateral Pledge
Agreement to be performed by the Company; (iii) in the case of a sale, transfer,
assignment, lease, conveyance or other disposition of all or substantially all
the Property of the Company, such Property shall have been transferred as an
entirety or virtually as an entirety to one Person; (iv) immediately before and
after giving effect to such transaction or series of transactions on a pro forma
basis (and treating, for purposes of this clause (iv) and clauses (v) and
(vi) below, any Debt which becomes, or is anticipated to become, an obligation
of the Surviving Person or any Restricted Subsidiary as a result of such
transaction or series of transactions as having been Incurred by the Surviving
Person or such Restricted Subsidiary at the time of such transaction or series
of transactions), no Default or Event of Default shall have occurred and be
continuing; (v) immediately after giving effect to such transaction or series of
transactions on a pro forma basis, the Company or the Surviving Person, as the
case may be, would be able to Incur at least $1.00 of additional Debt under
clause (a) of the first paragraph of Section 4.03; (vi) immediately after giving
effect to such transaction or series of transactions on a
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pro forma basis, the Surviving Person shall have a Consolidated Net Worth in an
amount which is not less than the Consolidated Net Worth of the Company
immediately prior to such trans action or series of transactions; and (vii) the
Company shall deliver, or cause to be delivered, to the Trustee, in form and
substance reasonably satisfactory to the Trustee, an Officers' Certificate and
an Opinion of Counsel, each stating that such transaction and the supplemental
indenture, if any, in respect thereto comply with this covenant and that all
conditions precedent herein provided for relating to such transaction have been
satisfied.
(b) The Surviving Person shall succeed to, and be substituted for,
and may exercise every right and power of the Company under this Indenture and
the Collateral Pledge Agreement, but the predecessor Company in the case of a
sale, transfer, assignment, lease, conveyance or other disposition shall not be
released from the obligation to pay the principal of, and premium, if any, and
interest on, the Securities.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT. The following events shall be
"Events of Default":
(1) the Company defaults in any payment of interest on any Security
when the same becomes due and payable, and such default continues for a
period of 30 days;
(2) the Company defaults in the payment of the principal of, or
premium, if any, on, any Security when the same becomes due and payable at
its Stated Maturity, upon optional redemption, upon required repurchase,
upon acceleration or otherwise;
(3) the Company fails to comply with Article 5;
(4) the Company fails to comply with any other covenant or agreement
in the Securities or in this Indenture (other than a failure which is the
subject of the foregoing clause (1), (2) or (3)) and such failure continues
for 30 days after written notice is given to the Company as provided below;
(5) a default by the Company or any Restricted Subsidiary under any
Debt of the Company or any Restricted Subsidiary which results in
acceleration of the maturity of such Debt, or failure to pay any such Debt
at maturity, in an aggregate amount greater than $5,000,000;
(6) any judgment or judgments for the payment of money in an aggregate
amount in excess of $5,000,000 shall be rendered against the Company or any
Restricted
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Subsidiary and shall not be waived, satisfied or discharged for any period
of 30 consecutive days during which a stay of enforcement shall not be in
effect;
(7) the Company or any Significant Subsidiary pursuant to or within
the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in an
involuntary case;
(C) consents to the appointment of a Custodian of it or for any
substantial part of its property; or
(D) makes a general assignment for the benefit of its creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
(8) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(A) is for relief against the Company or any Significant
Subsidiary in an involuntary case;
(B) appoints a Custodian of the Company or any Significant
Subsidiary or for any substantial part of its property;
(C) orders the winding up or liquidation of the Company or any
Significant Subsidiary; or
(D) is for any similar relief granted under any foreign laws;
and in each such case the order or decree remains unstayed and in effect
for 60 days; and
(9) an event of default under the Collateral Pledge Agreement.
The foregoing shall constitute Events of Default whatever the reason
for any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
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The term "Bankruptcy Law" means Title 11, UNITED STATES CODE, or any
similar federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, custodian or similar official
under any Bankruptcy Law.
A Default under clause (4) is not an Event of Default until the
Trustee or the Holders of not less than 25% in aggregate principal amount of the
Securities then outstanding notify the Company (and, in the case of such notice
by Holders, the Trustee) of the Default and the Company does not cure such
Default within the time specified after receipt of such notice. Such notice
must specify the Default, demand that it be remedied and state that such notice
is a "Notice of Default."
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any Default or Event of Default, its status and what action the Company is
taking or proposes to take with respect thereto.
SECTION 6.02. ACCELERATION. If an Event of Default (other than an
Event of Default specified in Section 6.01(7) or (8)) occurs and is continuing,
the Trustee by notice to the Company, or the Holders of at least 25% in
aggregate principal amount at maturity of the Securities then outstanding by
notice to the Company and the Trustee, may declare the Accreted Value of all
Securities then outstanding (if prior to July 15, 2003) or the principal amount
of all the Securities then outstanding plus accrued but unpaid interest to the
date of acceleration (if on or after July 15, 2003) to be immediately due and
payable. In the case of an Event of Default specified in Section 6.01(7) or
(8), such amount with respect to all the Securities shall be due and payable
immediately without any declaration or other act on the part of the Trustee or
the Securityholders. The Holders of a majority in aggregate principal amount at
maturity of the Securities then outstanding by written notice to the Trustee and
the Company may rescind any declaration of acceleration if the rescission would
not conflict with any judgment or decree and if all existing Events of Default
have been cured or waived except nonpayment of principal or interest that has
become due solely because of the acceleration. No such rescission shall affect
any subsequent Default or impair any right consequent thereto.
SECTION 6.03. OTHER REMEDIES. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
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SECTION 6.04. WAIVER OF PAST DEFAULTS. The Holders of a majority in
aggregate principal amount at maturity of the Securities by notice to the
Trustee may waive an existing Default and its consequences except (i) a Default
in the payment of the principal of or interest on a Security or (ii) a Default
in respect of a provision that under Section 9.02 cannot be amended without the
consent of each Securityholder affected. When a Default is waived, it is deemed
cured, but no such waiver shall extend to any subsequent or other Default or
impair any consequent right.
SECTION 6.05. CONTROL BY MAJORITY. The Holders of a majority in
aggregate principal amount at maturity of the Securities may direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or of exercising any trust or power conferred on the Trustee with
respect to the Securities. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture or, subject to Section 7.01,
that the Trustee determines is unduly prejudicial to the rights of other
Securityholders or would involve the Trustee in personal liability; PROVIDED,
HOWEVER, that the Trustee may take any other action deemed proper by the Trustee
that is not inconsistent with such direction. Prior to taking any action
hereunder, the Trustee shall be entitled to reasonable indemnity against all
losses and expenses caused by taking or not taking such action.
SECTION 6.06. LIMITATION ON SUITS. A Securityholder may not pursue
any remedy with respect to this Indenture or the Securities unless:
(1) such Holder shall have previously given to the Trustee written
notice of a continuing Event of Default;
(2) the Holders of at least 25% in aggregate principal amount at
maturity of the Securities then outstanding shall have made a written
request, and such Holder of or Holders shall have offered reasonable
indemnity, to the Trustee to pursue such proceeding as trustee; and
(3) the Trustee has failed to institute such proceeding and has not
received from the Holders of at least a majority in aggregate principal
amount at maturity of the Securities then outstanding a direction
inconsistent with such request, within 60 days after such notice, request
and offer.
The foregoing limitations on the pursuit of remedies by a
Securityholder shall not apply to a suit instituted by a Securityholder for the
enforcement of payment of the principal of or interest on such Security on or
after the applicable due date specified in such Security. A Securityholder may
not use this Indenture to prejudice the rights of another Securityholder or to
obtain a preference or priority over another Securityholder.
SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Notwithstanding
any other provision of this Indenture, the right of any Holder to receive
payment of principal of and
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interest on the Securities held by such Holder, on or after the respective due
dates expressed in the Securities, or to bring suit for the enforcement of any
such payment on or after such respective dates, shall not be impaired or
affected without the consent of such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default
specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company for the whole amount then due and owing (together with interest on any
unpaid interest to the extent lawful) and the amounts provided for in
Section 7.07.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Company, its creditors or
its property and, unless prohibited by law or applicable regulations, may vote
on behalf of the Holders in any election of a trustee in bankruptcy or other
Person performing similar functions, and any Custodian in any such judicial
proceeding is hereby authorized by each Holder to make payments to the Trustee
and, if the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and its counsel, and any other amounts due the Trustee under Section 7.07.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 6.10. PRIORITIES. If the Trustee collects any money or
property pursuant to this Article 6, it shall pay out the money or property in
the following order:
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, and any liquidated damages
without preference or priority of any kind, according to the amounts due
and payable on the Securities for principal and interest and liquidated
damages, respectively; and
THIRD: to the Company.
The Trustee may fix a record date and payment date for any payment to
Securityholders pursuant to this Section. At least 15 days before such record
date, the Company shall mail to each Securityholder and the Trustee a notice
that states the record date, the payment date and amount to be paid.
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SECTION 6.11. UNDERTAKING FOR COSTS. In any suit for the
enforcement of any right or remedy under this Indenture or in any suit against
the Trustee for any action taken or omitted by it as Trustee, a court in its
discretion may require the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees, against any party
litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section does not apply to a
suit by the Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by
Holders of more than 10% in aggregate principal amount at maturity of the
Securities.
SECTION 6.12. WAIVER OF STAY OR EXTENSION LAWS. The Company (to the
extent it may lawfully do so) shall not at any time insist upon, or plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and shall not hinder, delay or impede the execution
of any power herein granted to the Trustee, but shall suffer and permit the
execution of every such power as though no such law had been enacted.
ARTICLE 7
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE. (a) If an Event of Default has
occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by this Indenture and use the same degree of care and skill in
their exercise as a prudent person would exercise or use under the circumstances
in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only such duties
as are specifically set forth in this Indenture and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
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(1) this paragraph does not limit the effect of paragraph (b) of this
Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) and (f) of this Section.
(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
SECTION 7.02. RIGHTS OF TRUSTEE. (a) The Trustee may rely on any
document believed by it to be genuine and to have been signed or presented by
the proper person. The Trustee need not investigate any fact or matter stated
in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on the
Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers; PROVIDED, HOWEVER, that the Trustee's conduct does not constitute wilful
misconduct or negligence.
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(e) The Trustee may consult with counsel, and the advice or opinion
of counsel with respect to legal matters relating to this Indenture and the
Securities shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder in
good faith and in accordance with the advice or opinion of such counsel.
(f) Unless otherwise specifically provided herein, any demand,
request, direction or notice from the Company shall be sufficient if signed by
an Officer of the Company.
(g) The Company, the Paying Agent, the Registrar, the Trustee and any
agent of the Company, the Paying Agent, the Registrar or the Trustee may deem
and treat the Person in whose name any Security is registered as the absolute
owner of such Security for the purpose of receiving payment of or on account of
the principal of and, subject to the provisions of this Indenture, interest on
such Security and for all other purposes; and neither the Company, the Paying
Agent, the Registrar nor the Trustee nor any agent of the Company, the Paying
Agent, the Registrar or the Trustee shall be affected by any notice to the
contrary.
(h) The Trustee shall be under no obligation to exercise any of the
rights or powers created in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction.
(i) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters as it may
see fit.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not Trustee. Any Paying Agent, Registrar, co-registrar
or co-paying agent may do the same with like rights. However, the Trustee must
comply with Sections 7.10 and 7.11.
SECTION 7.04. TRUSTEE'S DISCLAIMER. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture, the Securities, the Collateral Pledge Agreement or the
Collateral, it shall not be accountable for the Company's use of the proceeds
from the Securities, and it shall not be responsible for any statement of the
Company in this Indenture, the Collateral Pledge Agreement or in any document
issued in connection with the sale of the Securities or in the Securities other
than the Trustee's certificate of authentication.
SECTION 7.05. NOTICE OF DEFAULTS. If a Default occurs and is
continuing and if it is known to the employees of the Trustee with
responsibility for the Securities, the Trustee
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shall mail to each Securityholder notice of the Default within the earlier of
90 days after it is known to such employees of the Trustee or written notice of
it is received by the Trustee. Except in the case of a Default in payment of
principal of or interest on any Security, the Trustee may withhold the notice if
and so long as a committee of its Trust Officers in good faith determines that
withholding the notice is in the best interests of Securityholders.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS. As promptly as
practicable after each June 15 beginning June 15, 1999, and in any event prior
to August 15 in each year, the Trustee shall mail to each Securityholder a brief
report dated as of such June 15 that complies with Section 313(a) of the TIA.
The Trustee shall also comply with Section 313(b) of the TIA.
A copy of each report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange (if any) on which the
Securities are listed. The Company agrees to notify promptly the Trustee
whenever the Securities become listed on any stock exchange and of any delisting
thereof.
SECTION 7.07. COMPENSATION AND INDEMNITY. The Company shall pay to
the Trustee from time to time reasonable compensation for its services. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee promptly
upon request for all reasonable out-of-pocket expenses incurred or made by it,
including costs of collection, in addition to the compensation for its services.
Such expenses shall include the reasonable compensation and expenses,
disbursements and advances of the Trustee's agents, counsel, accountants and
experts. The Company shall indemnify the Trustee against any and all loss,
liability or expense (including reasonable attorneys' fees) incurred by it in
connection with the acceptance and administration of this trust and the
performance of its duties hereunder and under the Collateral Pledge Agreement or
in connection with the placement or administration of the Securities, including
the costs and expenses of enforcing this Indenture against the Company and of
defending itself against any claim (whether asserted by any Holder or by the
Company). The Trustee shall notify the Company of any claim for which it may
seek indemnity. Failure by the Trustee to so notify the Company shall not
relieve the Company of its obligations hereunder. The Company shall defend any
such claim at the Company's expense with counsel satisfactory to the Trustee. If
the Trustee shall not consent to the Company's assumption of defense, the
Trustee may have separate counsel and the Company shall pay the fees and
expenses of such counsel. The Company need not reimburse any expense or
indemnify against any loss, liability or expense incurred by an indemnified
party through such party's own wilful misconduct, negligence or bad faith. The
Company need not pay for any settlement made by the Trustee without the
Company's consent, such consent not to be unreasonably withheld or delayed.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee other than money or property held in trust to pay
principal of and interest on particular Securities.
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Such lien shall survive the satisfaction and discharge of this Indenture and the
resignation or removal of the Trustee.
The Company's payment obligations pursuant to this Section shall
survive the satisfaction or discharge of this Indenture. When the Trustee
incurs expenses after the occurrence of a Default specified in Section 6.01(7)
or (8), the expenses are intended to constitute expenses of administration under
the Bankruptcy Law.
SECTION 7.08. REPLACEMENT OF TRUSTEE. The Trustee may resign at any
time by so notifying the Company. The Holders of a majority in aggregate
principal amount at maturity of the Securities then outstanding may remove the
Trustee by so notifying the Trustee and may appoint a successor Trustee. The
Company shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns, is removed by the Company or by the Holders of
a majority in aggregate principal amount at maturity of the Securities then
outstanding and such Holders do not reasonably promptly appoint a successor
Trustee, or if a vacancy exists in the office of Trustee for any reason (the
Trustee in such event being referred to herein as the retiring Trustee), the
Company shall promptly appoint a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.07.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in aggregate principal amount at maturity of the
Securities then outstanding may petition any court of competent jurisdiction for
the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
(who has been bona fide Holder of a Security for at least six months) may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
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Notwithstanding the replacement of the Trustee pursuant to this
Section, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
In case at the time such successor or successors by merger, conversion
or consolidation to the Trustee shall succeed to the trusts created by this
Indenture and any of the Securities shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Securities so
authenticated; and in case at that time any of the Securities shall not have
been authenticated, any successor to the Trustee may authenticate such
Securities either in the name of any predecessor hereunder or in the name of the
successor to the Trustee; and in all such cases such certificates shall have the
full force which it is anywhere in the Securities or in this Indenture provided
that the certificate of the Trustee shall have.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. The Trustee shall at
all times satisfy the requirements of TIA Section 310(a). The Trustee shall
have a combined capital and surplus of at least $50,000,000 as set forth in its
most recent published annual report of condition. The Trustee shall comply with
TIA Section 310(b); PROVIDED, HOWEVER, that there shall be excluded from the
operation of TIA Section 310(b)(1) any indenture or indentures under which
other securities or certificates of interest or participation in other
securities of the Company are outstanding if the requirements for such exclusion
set forth in TIA Section 310(b)(1) are met.
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
ARTICLE 8
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. DISCHARGE OF LIABILITY ON SECURITIES; DEFEASANCE.
(a) When (i) the Company delivers to the Trustee all outstanding Securities
(other than Securities replaced pursuant to Section 2.07) for cancellation or
(ii) all outstanding Securities have become due and payable, whether at maturity
or as a result of the mailing of a notice of redemption pursuant to Article 3
and the Company irrevocably deposits with the Trustee funds sufficient to pay at
maturity or upon redemption all outstanding Securities, including interest
thereon to maturity or such redemption date (other than Securities replaced
pursuant to Section 2.07), and if in either
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case the Company pays all other sums payable hereunder by the Company, then this
Indenture and the Collateral Pledge Agreement shall, subject to Section 8.01(c),
cease to be of further effect. The Trustee shall acknowledge satisfaction and
discharge of this Indenture on demand of the Company accompanied by an Officers'
Certificate and an Opinion of Counsel and at the cost and expense of the
Company.
(b) Subject to Sections 8.01(c) and 8.02, the Company at any time may
terminate (i) all its obligations under the Securities, the Collateral Pledge
Agreement and this Indenture ("legal defeasance option") or (ii) its obligations
under Sections 4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.11, 4.12, 4.13, 4.14,
4.15, 5.01(a)(iv) (to the extent relating to such other Sections), 5.01(a)(v)
and 5.01(a)(vi) and the operation of Section 6.01(4) (to the extent relating to
such other Sections), Section 6.01(5), 6.01(6), 6.01(7) (with respect only to
Significant Subsidiaries), 6.01(8) (with respect only to Significant
Subsidiaries) and 6.01(9) ("covenant defeasance option"). Upon the exercise of
a covenant defeasance option, any Collateral subject to the Collateral Pledge
Agreement shall be released. The Company may exercise its legal defeasance
option notwithstanding its prior exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default. If the
Company exercises its covenant defeasance option, payment of the Securities may
not be accelerated because of an Event of Default specified in Section 6.01(3)
and 6.01(4) (with respect to the Sections of Articles 4 and 5 identified in the
immediately preceding paragraph), 6.01(5), 6.01(6), 6.01(7) (with respect only
to Significant Subsidiaries), 6.01(8) (with respect only to Significant
Subsidiaries) and 6.01(9).
Upon satisfaction of the conditions set forth herein and upon request
of the Company, the Trustee shall acknowledge in writing the discharge of those
obligations that the Company terminates.
(c) Notwithstanding clauses (a) and (b) above, the Company's
obligations in Sections 2.04, 2.05, 2.06, 2.07, 7.07, 7.08, 8.05 and 8.06 and
Appendix A shall survive until the Securities have been paid in full.
Thereafter, the Company's obligations in Sections 7.07 and 8.05 shall survive.
SECTION 8.02. CONDITIONS TO DEFEASANCE. The Company may exercise
its legal defeasance option or its covenant defeasance option only if:
(1) the Company irrevocably deposits in trust with the Trustee money
or U.S. Government Obligations for the payment of principal of and interest
on the Securities to maturity or redemption, as the case may be;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal and interest when due and without
reinvestment on the deposited U.S. Government
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Obligations plus any deposited money without investment will provide cash
at such times and in such amounts as will be sufficient to pay principal
and interest when due on all the Securities to maturity or redemption, as
the case may be;
(3) 123 days pass after the deposit is made and during the 123-day
period no Default specified in Section 6.01(7) or (8) with respect to the
Company occurs which is continuing at the end of the period;
(4) the deposit does not constitute a default under any other
agreement binding on the Company;
(5) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or is
qualified as, a regulated investment company under the Investment Company
Act;
(6) in the case of the legal defeasance option, the Company shall have
delivered to the Trustee an Opinion of Counsel stating that (i) the Company
has received from, or there has been published by, the Internal Revenue
Service a ruling, or (ii) since the date of this Indenture there has been a
change in the applicable United States federal income tax law, in either
case to the effect that, and based thereon such Opinion of Counsel shall
confirm that, the Securityholders will not recognize income, gain or loss
for United States federal income tax purposes as a result of such
defeasance and will be subject to United States federal income tax on the
same amounts, in the same manner and at the same times as would have been
the case if such defeasance had not occurred;
(7) in the case of the covenant defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Securityholders will not recognize income, gain or loss for United States
federal income tax purposes as a result of such covenant defeasance and
will be subject to United States federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
covenant defeasance had not occurred; and
(8) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the Securities as contemplated by this
Article 8 have been complied with.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date in
accordance with Article 3.
SECTION 8.03. APPLICATION OF TRUST MONEY. The Trustee shall hold in
trust money or U.S. Government Obligations deposited with it pursuant to this
Article 8. It shall apply the deposited money and the money from U.S. Government
Obligations through the Paying
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Agent and in accordance with this Indenture to the payment of principal of and
interest on the Securities.
SECTION 8.04. REPAYMENT TO COMPANY. The Trustee and the Paying
Agent shall promptly turn over to the Company upon request any excess money or
securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee and the
Paying Agent shall pay to the Company upon written request any money held by
them for the payment of principal or interest that remains unclaimed for two
years, and, thereafter, Securityholders entitled to the money must look to the
Company for payment as general creditors; PROVIDED, HOWEVER, that the Trustee or
such Paying Agent before being required to make any such repayment, may at the
expense of the Company cause to be mailed to each such Holder a notice that said
moneys have not been so applied and that after a date named therein any
unclaimed balance of said moneys then remaining will be returned to the Company.
SECTION 8.05. INDEMNITY FOR U.S. GOVERNMENT OBLIGATIONS. The
Company shall pay and shall indemnify the Trustee against any tax, fee or other
charge imposed on or assessed against deposited U.S. Government Obligations or
the principal and interest received on such U.S. Government Obligations.
SECTION 8.06. REINSTATEMENT. If the Trustee or Paying Agent is
unable to apply any money or U.S. Government Obligations in accordance with this
Article 8 by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to this Article 8 until such time as the Trustee
or Paying Agent is permitted to apply all such money or U.S. Government
Obligations in accordance with this Article 8; PROVIDED, HOWEVER, that, if the
Company has made any payment of interest on or principal of any Securities
because of the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Securities to receive such payment from the
money or U.S. Government Obligations held by the Trustee or Paying Agent.
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ARTICLE 9
AMENDMENTS
SECTION 9.01. WITHOUT CONSENT OF HOLDERS. The Company and the
Trustee may amend this Indenture, the Collateral Pledge Agreement or the
Securities without notice to or consent of any Security holder:
(a) to cure any ambiguity, omission, defect or inconsistency;
(b) to comply with Article 5;
(c) to provide for uncertificated Securities in addition to or in
place of certificated Securities (provided that the uncertificated
Securities are issued in registered form for purposes of Section 163(f) of
the Code, or in a manner such that the uncertificated Securities are
described in Section 163(f)(2)(B) of the Code);
(d) to add to the covenants of the Company for the benefit of the
Holders of the Securities or to surrender any right or power conferred upon
the Company;
(e) to comply with any requirement of the SEC in connection with the
qualification of this Indenture under the Trust Indenture Act;
(f) to make any change that does not adversely affect the rights of
any Holder of the Securities;
(g) to evidence and provide for the acceptance of the appointment of a
successor Trustee hereunder; or
(h) to provide for additional collateral for or for guarantors of the
Securities.
After an amendment under this Section becomes effective, the
Company shall mail to Securityholders a notice briefly describing such
amendment. The failure to give such notice to all Securityholders, or any
defect therein, shall not impair or affect the validity of an amendment
under this Section.
SECTION 9.02. WITH CONSENT OF HOLDERS. The Company and the Trustee
may amend this Indenture, the Collateral Pledge Agreement or the Securities
without notice to any Securityholder but with the written consent of the Holders
of at least a majority in aggregate principal amount at maturity of the
Securities then outstanding (including consents obtained in connection with a
tender offer or exchange offer for the Securities). However, without the consent
of each Securityholder affected thereby, an amendment may not:
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(a) reduce the amount of Securities whose Holders must consent to an
amendment or waiver;
(b) reduce the accretion rate or reduce the rate of or extend the time
for payment of interest on any Security;
(c) reduce the principal of or extend the Stated Maturity of any
Security;
(d) make any Security payable in money other than that stated in the
Security;
(e) impair the right of any Securityholder to institute suit for the
enforcement of any payment on or with respect to such Holder's Securities;
(f) subordinate the Securities to any other obligation of the Company;
(g) release any security interest that may have been granted in favor
of the Securityholders;
(h) reduce the amount payable upon the redemption or repurchase of any
Security under Article 3 or Section 4.06 or Section 4.08 or change the time
at which any Security may be redeemed in accordance with Article 3;
(i) at any time after a Change of Control or Asset Sale has occurred,
change the time at which the Change of Control Offer or any Prepayment
Offer relating thereto must be made or at which the Securities must be
repurchased pursuant to such Change of Control Offer or Prepayment Offer;
or
(j) make any change in Section 6.04 or Section 6.07 or the second
sentence of this Section.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent approves the substance thereof.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment
to this Indenture or the Securities shall comply with the TIA as then in effect.
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SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS AND WAIVERS. A
consent to an amendment or a waiver by a Holder of a Security shall bind the
Holder and every subsequent Holder of that Security or portion of the Security
that evidences the same debt as the consenting Holder's Security, even if
notation of the consent or waiver is not made on the Security. However, any
such Holder or subsequent Holder may revoke the consent or waiver as to such
Holder's Security or portion of the Security if the Trustee receives the notice
of revocation before the date the amendment or waiver becomes effective. After
an amendment or waiver becomes effective, it shall bind every Securityholder.
An amendment or waiver becomes effective once the requisite number of consents
are received by the Company or the Trustee.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Securityholders entitled to give their consent or
take any other action described above or required or permitted to be taken
pursuant to this Indenture. If a record date is fixed, then notwithstanding the
immediately preceding paragraph, those Persons who were Securityholders at such
record date (or their duly designated proxies), and only those Persons, shall be
entitled to give such consent or to revoke any consent previously given or to
take any such action, whether or not such Persons continue to be Holders after
such record date. No such consent shall be valid or effective for more than
120 days after such record date.
SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES. If an
amendment changes the terms of a Security, the Trustee may require the Holder of
the Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to the
Holder. Alternatively, if the Company or the Trustee so determines, the Company
in exchange for the Security shall issue and the Trustee shall authenticate a
new Security that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS. The Trustee shall sign
any amendment authorized pursuant to this Article 9 if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may but need not sign it. In signing such amendment the
Trustee shall be entitled to receive indemnity reasonably satisfactory to it and
to receive, and (subject to Section 7.01) shall be fully protected in relying
upon, an Officers' Certificate and an Opinion of Counsel stating that such
amendment is authorized or permitted by this Indenture.
SECTION 9.07. PAYMENT FOR CONSENT. Neither the Company nor any
Affiliate of the Company shall, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any Holder
for or as an inducement to any consent, waiver or amendment of any of the terms
or provisions of this Indenture or the Securities unless such consideration is
offered to be paid to all Holders that so consent, waive or agree to amend in
the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
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ARTICLE 10
SECURITY
SECTION 10.1 SECURITY INTEREST.
(a) In order to secure the prompt and complete payment and
performance in full of the Indenture Obligations, the Company and the Trustee
have entered into this Indenture and the Collateral Pledge Agreement. Each
Holder, by accepting a Security, agrees to all of the terms and provisions of
this Indenture and the Collateral Pledge Agreement, and the Trustee agrees to
all of the terms and provisions of this Indenture and the Collateral Pledge
Agreement, as this Indenture and the Collateral Pledge Agreement may be amended
from time to time pursuant to the provisions thereof and hereof.
(b) Subject to the terms of the Collateral Pledge Agreement, the
Collateral as now or hereafter constituted shall be held for the equal and
ratable benefit of the Holders without preference, priority or distinction of
any thereof over any other by reason of difference in time of issuance, sale or
otherwise, as the only security for the Indenture Obligations.
(c) The provisions of TIA Section 314(d), and the provisions of
TIA Section 314(c)(3) to the extent applicable by specific reference in this
Article 10, are hereby incorporated by reference herein as if set forth in their
entirety, except that, as set forth in Section 10.04, TIA Section 314(d) need
not be complied with in certain respects.
SECTION 10.2 RECORDING; OPINIONS OF COUNSEL.
(a) The Company represents that it has caused to be executed and
delivered, filed and recorded and covenants that it will promptly cause to be
executed and delivered, filed and recorded, all instruments and documents, and
has done and will do or will cause to be done all such acts and other things, at
the Company's expense, as are necessary to effect and maintain valid and
perfected security interests in the Collateral. The Company shall, as promptly
as practicable, cause to be executed and delivered, filed and recorded all
instruments and do all acts and other things as may be required by law to
perfect, maintain and protect the security interests under the Collateral Pledge
Agreement and herein.
(b) The Company shall furnish to the Trustee, concurrently with
the execution and delivery of this Indenture and the Collateral Pledge Agreement
and promptly after the execution and delivery of any amendment thereto or any
other instrument of further assurance, an Opinion of Counsel stating that, in
the opinion of such counsel, subject to customary exclusions and exceptions
reasonably acceptable to the Trustee, either (i) this Indenture, the Collateral
Pledge Agreement, any such amendment and all other instruments of further
assurance have been properly recorded, registered and filed and all such other
action has been taken to the
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extent necessary to make effective valid security interests and to perfect the
security interests intended to be created by this Indenture and the Collateral
Pledge Agreement, and reciting the details of such action, or (ii) no such
action is necessary to effect and maintain in full force and effect the validity
and perfection of the security interests under the Collateral Pledge Agreement
and hereunder.
(c) The Issuers shall furnish to the Trustee, on or prior to
August 15, of each year commencing in 1999, an Opinion of Counsel, dated as of
such date, stating that, in the opinion of such counsel, subject to customary
exclusions and exceptions reasonably acceptable to the Trustee, either (A) all
such action has been taken with respect to the recording, registering, filing,
rerecording and refiling of this Indenture, all supplemental indentures, the
Collateral Pledge Agreement, financing statements, continuation statements and
all other instruments of further assurance as is necessary to maintain the
validity and perfection of security interests under the Collateral Pledge
Agreement and hereunder in full force and effect and reciting the details of
such action, and stating that all financing statements and continuation
statements have been executed and filed and such other actions taken that are
necessary fully to preserve and protect the rights of the Holders and the
Trustee hereunder and under the Collateral Pledge Agreement, or (B) no such
action is necessary to maintain in full force and effect the validity and
perfection of the security interests under the Collateral Pledge Agreement and
hereunder.
SECTION 10.3 DISPOSITION OF CERTAIN COLLATERAL.
(a) The Collateral shall not be released from the security
interest created hereunder and under the Collateral Pledge Agreement and no
property shall be substituted for any of the Collateral, except in accordance
with the provisions of Sections 5 and 18 of the Collateral Pledge Agreement;
PROVIDED that Collateral may be released from the security interest created
hereunder and under the Collateral Pledge Agreement in connection with any
disposition thereof by the Company made in accordance with the Indenture, so
long as no Default or Event of Default is in existence at the time of or
immediately after giving effect thereto.
(b) In the event that the Issuers have sold, exchanged, or
otherwise disposed of or propose to sell, exchange or otherwise dispose of any
portion of the Collateral which under the provisions of this Section 10.03 may
be sold, exchanged or otherwise disposed of by the Company without consent of
the Trustee, and the Company requests the Trustee to furnish a written
disclaimer, release or quitclaim of any interest in such property under the
Collateral Pledge Agreement, the Trustee shall execute such an instrument,
prepared by the Company, upon delivery to the Trustee of an Officers'
Certificate by the Company reciting the sale, exchange or other disposition made
or proposed to be made and describing in reasonable detail the property affected
thereby, and certifying that such property is property which by the provisions
of this Section 10.03 may be sold, exchanged or otherwise disposed of or dealt
with
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by the Company without any release or consent of the Trustee or the Holders.
The Trustee shall be authorized to conclusively rely on such certification.
(c) Any disposition of Collateral made in compliance with the
provisions of this Section 10.03 and Section 10.04 shall be deemed not to impair
the security interests under the Collateral Pledge Agreement and hereunder in
contravention of the provisions of this Indenture.
SECTION 10.4 CERTAIN RELEASES OF COLLATERAL.
Subject to applicable law, the release of any Collateral from Liens
created by the Collateral Pledge Agreement or the release of, in whole or in
part, the Liens created by the Collateral Pledge Agreement, will not be deemed
to impair the Collateral Pledge Agreement in contravention of the provisions of
this Indenture if and to the extent the Collateral or Liens are released
pursuant to, and in accordance with, the Collateral Pledge Agreement and
pursuant to, and in accordance with, the terms hereof. To the extent
applicable, without limitation, the Company shall cause TIA Section 314(d),
relating to the release of property or securities from the Liens of the
Collateral Pledge Agreement, to be complied with. Any certificate or opinion
required by TIA Section 314(d) may be made by two Officers, except in cases in
which TIA Section 314(d) requires that such certificate or opinion be made by an
independent person.
SECTION 10.5 PAYMENT OF EXPENSES.
On demand of the Trustee, the Company forthwith shall pay or
satisfactorily provide for all reasonable expenditures incurred by the Trustee
under this Article 10, including the reasonable fees and expenses of counsel and
all such sums shall be a Lien upon the Collateral and shall be secured thereby.
SECTION 10.6 SUITS TO PROTECT THE COLLATERAL.
Subject to Section 10.01 of this Indenture and to the provisions of
the Collateral Pledge Agreement, the Trustee shall have power to institute and
to maintain such suits and proceedings as it may deem expedient to prevent any
impairment of the Collateral by any acts which may be unlawful or in violation
of the Collateral Pledge Agreement or this Indenture, including the power to
institute and maintain suits or proceedings to restrain the enforcement of or
compliance with any legislative or other governmental enactment, rule or order
that may be unconstitutional or otherwise invalid or if the enforcement of, or
compliance with, such enactment, rule or order would impair the security
interests in contravention of this Indenture or be prejudicial to the interests
of the Holders or of the Trustee. The Trustee shall give notice to the Company
promptly following the institution of any such suit or proceeding.
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SECTION 10.7 TRUSTEE'S DUTIES.
The powers and duties conferred upon the Trustee by this Article 10
are solely to protect the security interests and shall not impose any duty upon
the Trustee to exercise any such powers and duties, except as expressly provided
in this Indenture or the TIA. The Trustee shall be under no duty to the Company
whatsoever to make or give any presentment, demand for performance, notice of
nonperformance, protest, notice of protest, notice of dishonor, or other notice
or demand in connection with any Collateral, or to take any steps necessary to
preserve any rights against prior parties except as expressly provided in this
Indenture. The Trustee shall not be liable to the Company for failure to
collect or realize upon any or all of the Collateral, or for any delay in so
doing, nor shall the Trustee be under any duty to the Company to take any action
whatsoever with regard thereto. The Trustee shall have no duty to the Company
to comply with any recording, filing, or other legal requirements necessary to
establish or maintain the validity, priority or enforceability of the security
interests in, or the Trustee's rights in or to, any of the Collateral.
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ARTICLE 11
MISCELLANEOUS
SECTION 11.1 TRUST INDENTURE ACT CONTROLS. If any provision of this
Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the required provision
shall control.
SECTION 11.2 NOTICES. Any notice or communication shall be in
writing and delivered in person or mailed by first-class mail or sent by
facsimile (with a hard copy delivered in person or by mail promptly thereafter)
or overnight courier guaranteeing next-day delivery and addressed as follows:
if to the Company:
Metallurg Holdings, Inc.
6 East 43rd Street
New York, New York 10017
Facsimile: (212) 687-9621
Attention of:
if to the Trustee:
United States Trust Company of New York
114 West 47th Street
New York, New York 10036
Facsimile: (212) 852-1627
Attention of: Corporate Trust Department
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Securityholder shall be mailed
to the Securityholder at the Securityholder's address as it appears on the
registration books of the Registrar and shall be sufficiently given if so mailed
within the time prescribed. If a notice or communication is mailed in the
manner above to a Securityholder, it is duly given, whether or not the
Securityholder receives it.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. Notices to the Company or the Trustee shall be effective only
upon receipt.
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SECTION 11.3 COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.
Securityholders may communicate pursuant to TIA Section 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA Section 312(c).
SECTION 11.4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take or refrain
from taking any action under this Indenture, the Company shall furnish to the
Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture relating
to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
SECTION 11.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with.
SECTION 11.6 WHEN SECURITIES DISREGARDED. In determining whether
the Holders of the required principal amount at maturity of Securities have
concurred in any direction, waiver or consent, Securities owned by the Company
or by any Person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Company shall be disregarded and
deemed not to be outstanding, except that, for the purpose of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent, only Securities which the Trustee knows are so owned shall be so
disregarded. Also, subject to the foregoing, only Securities outstanding at the
time shall be considered in any such determination.
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SECTION 11.7 RULES BY TRUSTEE, PAYING AGENT AND REGISTRAR. The
Trustee may make reasonable rules for action by or a meeting of Securityholders.
The Registrar the Paying Agent and any co-registrar may make reasonable rules
for their functions.
SECTION 11.8 LEGAL HOLIDAYS. A "Legal Holiday" is a Saturday, a
Sunday or a day on which banking institutions are not required to be open in the
State of New York. If a payment date is a Legal Holiday, payment shall be made
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period. If a regular record date is a Legal Holiday,
the record date shall not be affected.
SECTION 11.9 GOVERNING LAW. THIS INDENTURE AND THE SECURITIES SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW
TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE
REQUIRED THEREBY.
SECTION 11.10 NO RECOURSE AGAINST OTHERS. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under the Securities or this Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder shall waive and release
all such liability. The waiver and release shall be part of the consideration
for the issue of the Securities.
SECTION 11.11 SUCCESSORS. All agreements of the Company in this
Indenture, the Collateral Pledge Agreement and the Securities shall bind its
successors. All agreements of the Trustee in this Indenture shall bind its
successors.
SECTION 11.12 MULTIPLE ORIGINALS. The parties may sign any number of
copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement. One signed copy is enough to prove
this Indenture.
SECTION 11.13 TABLE OF CONTENTS; HEADINGS. The table of contents,
cross-reference sheet and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not intended
to be considered a part hereof and shall not modify or restrict any of the terms
or provisions hereof.
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IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed as of the date first written above.
METALLURG HOLDINGS, INC.
by /S/ ARTHUR R. SPECTOR
-----------------------------------
Name: Arthur R. Spector
Title: Vice President
UNITED STATES TRUST COMPANY OF NEW YORK, as
Trustee
by /S/ GERARD F. GANEY
-----------------------------------
Name: Gerard F. Ganey
Title: Senior Vice President
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APPENDIX A
PROVISIONS RELATING TO INITIAL SECURITIES,
PRIVATE EXCHANGE SECURITIES
AND EXCHANGE SECURITIES
1. DEFINITIONS
1.1 DEFINITIONS
For the purposes of this Appendix A the following terms shall have the
meanings indicated below:
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Temporary Regulation S Global Security or beneficial
interest therein, the rules and procedures of the Depositary for such Global
Security, Euroclear and Cedel, in each case to the extent applicable to such
transaction and as in effect from time to time.
"Cedel" means Cedel Bank, S.A., or any successor securities clearing
agency.
"Definitive Security" means a certificated Initial Security, Private
Exchange Security or Exchange Security bearing, if required, the restricted
securities legend set forth in Section 2.3(e).
"Depositary" means The Depository Trust Company, its nominees and
their respective successors.
"Euroclear" means the Euroclear Clearance System or any successor
securities clearing agency.
"Exchange Securities" means the 12.75% Senior Discount Exchange Notes
due 2008 to be issued pursuant to this Indenture in connection with a Registered
Exchange Offer pursuant to the Registration Agreement.
"Initial Purchaser" means BancBoston Securities Inc.
"Initial Securities" means the 12.75% Senior Discount Notes due 2008
in the aggregate principal amount at maturity of $121,000,000 issued on July 13,
1998.
"Private Exchange" means the offer by the Company, pursuant to Section
2(f) of the Registration Agreement dated July 13, 1998, or pursuant to any
similar provision of any other Registration Agreement, to issue and deliver to
certain purchasers, in exchange for the Initial
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Securities held by such purchasers as part of their initial distribution, a like
aggregate principal amount at maturity of Private Exchange Securities.
"Private Exchange Securities" means the 12.75% Senior Discount Private
Exchange Notes due 2008 to be issued pursuant to this Indenture in connection
with a Private Exchange pursuant to the Registration Agreement.
"Purchase Agreement" means the Purchase Agreement dated July 6, 1998,
between the Company and the Initial Purchaser.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Registered Exchange Offer" means the offer by the Company, pursuant
to the Registration Agreement, to certain Holders of Initial Securities, to
issue and deliver to such Holders, in exchange for the Initial Securities, a
like aggregate principal amount at maturity of Exchange Securities registered
under the Securities Act.
"Registration Agreement" means the Registration Agreement dated July
13, 1998, among the Company and the Initial Purchaser.
"Regulation S Securities" means all Initial Securities offered and
sold outside the United States in reliance on Regulation S under the Securities
Act.
"Restricted Period" means the period of 40 consecutive days beginning
on and including the later of (i) the day on which Securities are first offered
to persons other than distributors (as defined in Regulation S under the
Securities Act) in reliance on Regulation S and (ii) the Issue Date.
"Rule 144A Securities" means the Initial Securities purchased by the
Initial Purchaser from the Company pursuant to the Purchase Agreement, other
than the Regulation S Securities.
"Securities" means the Initial Securities, the Private Exchange
Securities and the Exchange Securities, treated as a single class.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Custodian" means the custodian with respect to a Global
Security (as appointed by the Depository), or any successor person thereto who
shall initially be the Trustee.
"Shelf Registration Statement" means the registration statement issued
by the Company in connection with the offer and sale of Initial Securities
pursuant to the Registration Agreement.
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"Transfer Restricted Securities" means Definitive Securities and any
other Securities that bear or are required to bear the legend set forth in
Section 2.3(d) hereto.
1.2 OTHER DEFINITIONS
DEFINED IN
TERM SECTION:
"Agent Members" 2.1(b)
"Global Security" 2.1(a)
"Regulation S" 2.1
"Rule 144A" 2.1
"Temporary Regulation S Global Security" 2.1(a)
2. THE SECURITIES
2.1 FORM AND DATING
The Initial Securities are being offered and sold by the Company
pursuant to the Purchase Agreement. The Initial Securities will be resold,
initially only to QIBs in reliance on Rule 144A under the Securities Act
("Rule 144A") and in reliance on Regulation S under the Securities Act
("Regulation S"). Initial Securities may thereafter be transferred to, among
others, QIBs and purchasers in reliance on Regulation S.
(a) GLOBAL SECURITIES. Rule 144A Securities shall be issued
initially in the form of one or more permanent global Securities in definitive,
fully registered form and Regulation S Securities shall be issued initially in
the form of one or more temporary global Securities (collectively, the
"Temporary Regulation S Global Security"), in each case without interest coupons
with the global securities legend and restricted securities legend set forth in
Exhibit 1 hereto, which shall be deposited on behalf of the purchasers of the
Initial Securities represented thereby with the Securities Custodian, and
registered in the name of the Depository or a nominee of the Depository, duly
executed by the Company and authenticated by the Trustee as provided in this
Indenture. Beneficial ownership interests in the Temporary Regulation S Global
Security will not be exchangeable for interests in the Rule 144A Global
Security, a permanent global security (the "Permanent Regulation S Global
Security"), or any other security without a legend containing restrictions or
transfer until the expiration of the Restricted Period and then only upon
certification (the "Regulation S Certification") in form reasonably satisfactory
to the Trustee that beneficial ownership interests in such Temporary
Regulation S Global Security are owned either by non-U.S. persons or U.S.
persons who purchased such interests in a transaction that did not require
registration under the Securities Act. Following the termination of the
Restricted Period, beneficial ownership interests in the Temporary Regulation S
Global Security may be exchanged for equivalent beneficial ownership interests
in the Permanent Regulation S Global Security, the Rule 144A Global Security, or
any other Security without a legend containing restrictions or transfer pursuant
to the Applicable Procedures of the Depositary and only upon the receipt by the
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Trustee and Euroclear or Cedel of the Regulation S Certification from the owner
of such beneficial ownership interest in such Temporary Regulation S Global
Security. The Company shall instruct the Depositary that, until the expiration
of the Restricted Period, beneficial ownership interests in the Temporary
Regulation S Global Security may be held only in or through accounts maintained
at the Depositary by Euroclear or Cedel (or by Agent Members acting for the
account thereof), and no person shall be entitled to effect any transfer or
exchange that would result in any such interest being held otherwise than in or
through such an account. The Rule 144A Global Security, Temporary Regulation S
Global Security and Permanent Regulation S Global Security are collectively
referred to herein as "Global Securities." The aggregate principal amount of
the Global Securities may from time to time be increased or decreased by
adjustments made on the records of the Trustee and the Depository or its nominee
as hereinafter provided.
(b) BOOK-ENTRY PROVISIONS. This Section 2.1(b) shall apply only to a
Global Security deposited with or on behalf of the Depository.
The Company shall execute and the Trustee shall, in accordance with
this Section 2.1(b) and pursuant to an order of the Company, authenticate and
deliver initially one or more Global Securities that (a) shall be registered in
the name of the Depository for such Global Security or Global Securities or the
nominee of such Depository and (b) shall be delivered by the Trustee to such
Depository or pursuant to such Depository's instructions or held by the Trustee
as Securities Custodian.
Members of, or participants in, the Depository ("Agent Members") shall
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depository or by the Trustee as Securities Custodian or
under such Global Security, and the Depository may be treated by the Company,
the Trustee and any agent of the Company or the Trustee as the absolute owner of
such Global Security for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall prevent the Company, the Trustee or any agent of
the Company or the Trustee from giving effect to any written certification,
proxy or other authorization furnished by the Depository or impair, as between
the Depository and its Agent Members, the operation of customary practices of
such Depository governing the exercise of the rights of a holder of a beneficial
interest in any Global Security.
(c) DEFINITIVE SECURITIES. Except as provided in Section 2.3 or 2.4,
owners of beneficial interests in Global Securities will not be entitled to
receive physical delivery of certificated Securities.
2.2 AUTHENTICATION. The Trustee shall authenticate and deliver:
(1) Initial Securities for original issue in an aggregate principal amount at
maturity of $121,000,000, (2) Exchange Securities for issue only in a Registered
Exchange Offer pursuant to the Registration Agreement, for a like principal
amount at maturity of Initial Securities and (3) Private Exchange Securities for
issue only in a Private Exchange pursuant to the Registration Agreement, for a
like principal
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amount at maturity of Initial Securities, upon a written order of the Company
signed by two Officers or by an Officer and either an Assistant Treasurer or an
Assistant Secretary of the Company. Such order shall specify the amount of the
Securities to be authenticated and the date on which the issue of Securities is
to be authenticated and whether the Securities are to be Initial Securities,
Private Exchange Securities or Exchange Securities. The aggregate principal
amount at maturity of Securities outstanding at any time may not exceed
$121,000,000, except as provided in Section 2.08 of this Indenture.
2.3 TRANSFER AND EXCHANGE. (a) TRANSFER AND EXCHANGE OF DEFINITIVE
SECURITIES. When Definitive Securities are presented to the Registrar or a
co-registrar with a request:
(x) to register the transfer of such Definitive Securities; or
(y) to exchange such Definitive Securities for an equal principal
amount at maturity of Definitive Securities of other authorized
denominations,
the Registrar or co-registrar shall register the transfer or make the exchange
as requested if its reasonable requirements for such transaction are met;
PROVIDED, HOWEVER, that the Definitive Securities surrendered for transfer or
exchange:
(i) shall be duly endorsed or accompanied by a written instrument of
transfer in form reasonably satisfactory to the Company and the Registrar
or co-registrar, duly executed by the Holder thereof or his attorney duly
authorized in writing; and
(ii) are being transferred or exchanged pursuant to an effective
registration statement under the Securities Act, pursuant to Section 2.3(b)
or pursuant to clause (A), (B) or (C) below, and are accompanied by the
following additional information and documents, as applicable:
(A) if such Definitive Securities are being delivered to the
Registrar by a Holder for registration in the name of such Holder,
without transfer, a certification from such Holder to that effect; or
(B) if such Definitive Securities are being transferred to the
Company, a certification to that effect; or
(C) if such Definitive Securities are being transferred pursuant
to an exemption from registration in accordance with Rule 144 under
the Securities Act, (i) a certification to that effect and (ii) if the
Company so requests, an opinion of counsel or other evidence
reasonably satisfactory to it as to the compliance with the
restrictions set forth in the legend set forth in Section 2.3(d)(i).
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(b) RESTRICTIONS ON TRANSFER OF A DEFINITIVE SECURITY FOR A
BENEFICIAL INTEREST IN A GLOBAL SECURITY. A Definitive Security may not be
exchanged for a beneficial interest in a Global Security except upon
satisfaction of the requirements set forth below. Upon receipt by the Trustee
of a Definitive Security, duly endorsed or accompanied by a written instrument
of transfer in form reasonably satisfactory to the Company and the Registrar or
co-registrar, together with:
(i) certification that such Definitive Security is being transferred
(A) to a QIB in accordance with Rule 144A or (B) outside the United States
in an offshore transaction within the meaning of Regulation S and in
compliance with Rule 904 under the Securities Act; and
(ii) written instructions directing the Trustee to make, or to direct
the Securities Custodian to make, an adjustment on its books and records
with respect to such Global Security to reflect an increase in the
aggregate principal amount of the Securities represented by the Global
Security, such instructions to contain information regarding the Depositary
account to be credited with such increase,
then the Trustee shall cancel such Definitive Security and cause, or direct the
Securities Custodian to cause, in accordance with the standing instructions and
procedures existing between the Depository and the Securities Custodian, the
aggregate principal amount of Securities represented by the Global Security to
be increased by the aggregate principal amount at maturity of the Definitive
Security to be exchanged and shall credit or cause to be credited to the account
of the Person specified in such instructions a beneficial interest in the Global
Security equal to the principal amount at maturity of the Definitive Security so
canceled. If no Global Securities are then outstanding and the Global Security
has not been previously exchanged pursuant to Section 2.4, the Company shall
issue and the Trustee shall authenticate, upon written order of the Company in
the form of an Officers' Certificate, a new Global Security in the appropriate
principal amount at maturity.
(c) TRANSFER AND EXCHANGE OF GLOBAL SECURITIES. (i) The transfer and
exchange of Global Securities or beneficial interests therein shall be effected
through the Depository, in accordance with this Indenture (including applicable
restrictions on transfer set forth herein, if any) and the procedures of the
Depository therefor. A transferor of a beneficial interest in a Global Security
shall deliver a written order given in accordance with the Depository's
procedures containing information regarding the participant account of the
Depository to be credited with a beneficial interest in the Global Security and
such account shall be credited in accordance with such instructions with a
beneficial interest in the Global Security and the account of the Person making
the transfer shall be debited by an amount equal to the beneficial interest in
the Global Security being transferred.
(ii) If the proposed transfer is a transfer of a beneficial interest
in one Global Security to a beneficial interest in another Global Security,
the Registrar shall reflect on
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its books and records the date and an increase in the principal amount at
maturity of the Global Security to which such interest is being transferred
in an amount equal to the principal amount at maturity of the interest to
be so transferred, and the Registrar shall reflect on its books and records
the date and a corresponding decrease in the principal amount at maturity
of the Global Security from which such interest is being transferred.
(iii) Notwithstanding any other provisions of this Appendix A (other
than the provisions set forth in Section 2.4), a Global Security may not be
transferred as a whole except by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
(iv) In the event that a Global Security is exchanged for Securities
in definitive registered form pursuant to Section 2.4 prior to the
consummation of a Registered Exchange Offer or the effectiveness of a Shelf
Registration Statement with respect to such Securities, such Securities may
be exchanged only in accordance with such procedures as are substantially
consistent with the provisions of this Section 2.3 (including the
certification requirements set forth on the reverse of the Initial
Securities intended to ensure that such transfers comply with Rule 144A,
Regulation S or such other applicable exemption from registration under the
Securities Act, as the case may be) and such other procedures as may from
time to time be adopted by the Company.
(d) RESTRICTIONS ON TRANSFER OF TEMPORARY REGULATION S GLOBAL
SECURITIES. During the Restricted Period, beneficial ownership interests in
Temporary Regulation S Global Securities may only be sold, pledged or
transferred through Euroclear or Cedel in accordance with the Applicable
Procedures and only (i) to the Company, (ii) so long as such security is
eligible for resale pursuant to Rule 144A under the Securities Act
("Rule 144A"), to a person whom the selling holder reasonably believes is a
"qualified institutional buyer" ("QIB") as defined in Rule 144A that purchases
for its own account or for the account of a QIB to whom notice is given that the
resale, pledge or transfer is being made in reliance on Rule 144A, (iii) in an
offshore transaction in accordance with Regulation S, (iv) pursuant to an
exemption from registration under the Securities Act provided by Rule 144 (if
applicable) under the Securities Act, or (v) pursuant to an effective
registration statement under the Securities Act, in each case in accordance with
any applicable securities laws of any state of the United States. During the
Restricted Period, interests in the Temporary Regulation S Global Security may
not be transferred to institutions that are "Accredited Investors" (but not
QIBs) as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act.
Holders of interests in Temporary Regulation S Global Securities will notify any
purchaser of such resale restrictions, if then applicable.
(e) LEGEND.
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(i) Except as permitted by the following paragraphs (ii), (iii), (iv)
and (vi), each Security certificate evidencing the Global Securities and
the Definitive Securities (and all Securities issued in exchange therefor
or in substitution thereof) shall bear a legend in substantially the
following form:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED
IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE
SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY
NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE
PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A OR
REGULATION S THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY
AGREES FOR THE BENEFIT OF THE ISSUER THAT (A) SUCH SECURITY MAY BE OFFERED,
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (i) (a) IN THE UNITED STATES
TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN
A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE
THE UNITED STATES TO A NON-U.S. PERSON IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT, OR (d) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (ii)
TO THE COMPANY OR (iii) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION, AND (B)
THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET
FORTH IN (A) ABOVE."
Each Definitive Security will also bear the following additional
legend:
"IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE
REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION
AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE
TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS."
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(ii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by a Global
Security) pursuant to Rule 144 under the Securities Act:
(A) in the case of any Transfer Restricted Security that is a
Definitive Security, the Registrar shall permit the Holder thereof to
exchange such Transfer Restricted Security for a Definitive Security
that does not bear the legends set forth above and rescind any
restriction on the transfer of such Transfer Restricted Security; and
(B) in the case of any Transfer Restricted Security that is
represented by a Global Security, the Registrar shall permit the
Holder thereof to exchange such Transfer Restricted Security for a
Definitive Security that does not bear the legends set forth above and
rescind any restriction on the transfer of such Transfer Restricted
Security,
in either case, if the Holder certifies in writing to the Registrar that its
request for such exchange was made in reliance on Rule 144 (such certification
to be in the form set forth on the reverse of the Initial Security).
(iii) After a transfer of any Initial Securities during the period of
the effectiveness of a Shelf Registration Statement with respect to such
Initial Securities, all requirements pertaining to legends on such Initial
Security will cease to apply, the requirements requiring that any such
Initial Security be issued in global form will cease to apply, and an
Initial Security in certificated or global form without legends will be
available to the transferee of the Holder of such Initial Securities upon
exchange of such transferring Holder's certificated Initial Security. Upon
the occurrence of any of the circumstances described in this paragraph, the
Company will deliver an Officers' Certificate to the Trustee instructing
the Trustee to issue Securities without legends.
(iv) Upon the consummation of a Registered Exchange Offer with
respect to the Initial Securities pursuant to which certain Holders of such
Initial Securities are offered Exchange Securities in exchange for their
Initial Securities, all requirements pertaining to such Initial Securities
that Initial Securities be issued in global form will cease to apply, and
certificated Initial Securities with the restricted securities legend set
forth in Exhibit 1 hereto will be available to Holders of such Initial
Securities that do not exchange their Initial Securities, and Exchange
Securities in certificated or global form will be available to Holders that
exchange such Initial Securities in such Registered Exchange Offer. Upon
the occurrence of any of the circumstances described in this paragraph, the
Company will deliver an Officers' Certificate to the Trustee instructing
the Trustee to issue Securities without legends.
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(v) Upon the consummation of a Private Exchange with respect to the
Initial Securities pursuant to which Holders of such Initial Securities are
offered Private Exchange Securities in exchange for their Initial
Securities, all requirements pertaining to such Initial Securities that
Initial Securities issued to certain Holders be issued in global form will
continue to apply, and Private Exchange Securities in global form will be
available to Holders that exchange such Initial Securities in such Private
Exchange.
(vi) Upon a sale or transfer of any Initial Security acquired
pursuant to Regulation S, all requirements pertaining to legends on such
Initial Security will cease to apply, the requirements requiring any such
Initial Security be issued in global form will cease to apply, and an
Initial Security in certificated or global form without the Restricted
Security Legend will be available to the transferee of the Holder of such
Initial Securities.
(f) CANCELLATION OR ADJUSTMENT OF GLOBAL SECURITY. At such time as
all beneficial interests in a Global Security have either been exchanged for
certificated or Definitive Securities, redeemed, repurchased or canceled, such
Global Security shall be returned by the Depository to the Trustee for
cancellation or retained and canceled by the Trustee. At any time prior to such
cancellation, if any beneficial interest in a Global Security is exchanged for
certificated or Definitive Securities, redeemed, repurchased or canceled, the
principal amount at maturity of Securities represented by such Global Security
shall be reduced and an adjustment shall be made on the books and records of the
Trustee (if it is then the Securities Custodian for such Global Security) with
respect to such Global Security, by the Trustee or the Securities Custodian, to
reflect such reduction.
(g) OBLIGATIONS WITH RESPECT TO TRANSFERS AND EXCHANGES OF
SECURITIES.
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate certificated Securities,
Definitive Securities and Global Securities at the Registrar's or
co-registrar's request.
(ii) No service charge shall be made for any registration of transfer
or exchange, but the Company may require payment of a sum sufficient to
cover any transfer tax, assessments, or similar governmental charge payable
in connection therewith (other than any such transfer taxes, assessments or
similar governmental charge payable upon exchange or transfer pursuant to
Section 3.06, 4.06, 4.08 and 9.05 of the Indenture).
(iii) The Registrar or co-registrar shall not be required to register
the transfer of or exchange of any Security selected for redemption
(except, in the case of a Security to be redeemed in part, the portion of
the Security not to be redeemed) or to transfer or exchange any Security
for a period beginning 15 days before the mailing of a notice of redemption
or an offer to repurchase Securities or 15 days before an interest payment
date.
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<PAGE>
(iv) Prior to the due presentation for registration of transfer of
any Security, the Company, the Trustee, the Paying Agent, the Registrar or
any co-registrar may deem and treat the person in whose name a Security is
registered as the absolute owner of such Security for the purpose of
receiving payment of principal of and interest on such Security and for all
other purposes whatsoever, whether or not such Security is overdue, and
none of the Company, the Trustee, the Paying Agent, the Registrar or any
co-registrar shall be affected by notice to the contrary.
(v) All Securities issued upon any transfer or exchange pursuant to
the terms of this Indenture shall evidence the same debt and shall be
entitled to the same benefits under this Indenture as the Securities
surrendered upon such transfer or exchange.
(h) NO OBLIGATION OF THE TRUSTEE.
(i) The Trustee shall have no responsibility or obligation to any
beneficial owner of a Global Security, a member of, or a participant in the
Depository or any other Person with respect to the accuracy of the records
of the Depository or its nominee or of any participant or member thereof,
with respect to any ownership interest in the Securities or with respect to
the delivery to any participant, member, beneficial owner or other Person
(other than the Depository) of any notice (including any notice of
redemption or repurchase) or the payment of any amount, under or with
respect to such Securities. All notices and communications to be given to
the Holders and all payments to be made to Holders under the Securities
shall be given or made only to the registered Holders (which shall be the
Depository or its nominee in the case of a Global Security). The rights of
beneficial owners in any Global Security shall be exercised only through
the Depository subject to the applicable rules and procedures of the
Depository. The Trustee may rely and shall be fully protected in relying
upon information furnished by the Depository with respect to its members,
participants and any beneficial owners.
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer
imposed under this Indenture or under applicable law with respect to any
transfer of any interest in any Security (including any transfers between
or among Depository participants, members or beneficial owners in any
Global Security) other than to require delivery of such certificates and
other documentation or evidence as are expressly required by, and to do so
if and when expressly required by, the terms of this Indenture, and to
examine the same to determine substantial compliance as to form with the
express requirements hereof.
2.4 CERTIFICATED SECURITIES
(a) A Global Security deposited with the Depository or with the
Trustee as Securities Custodian pursuant to Section 2.1 shall be transferred to
the beneficial owners thereof in the form of certificated Securities in an
aggregate principal amount at maturity equal to the
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principal amount at maturity of such Global Security, in exchange for such
Global Security, only if such transfer complies with Section 2.3 and (i) the
Depository notifies the Company that it is unwilling or unable to continue as a
Depository for such Global Security or if at any time the Depository ceases to
be a "clearing agency" registered under the Exchange Act, and a successor
depositary is not appointed by the Company within 90 days of such notice, or
(ii) an Event of Default has occurred and is continuing or (iii) the Company, in
its sole discretion, notifies the Trustee in writing that it elects to cause the
issuance of certificated Securities under this Indenture.
(b) Any Global Security that is transferable to the beneficial owners
thereof pursuant to this Section 2.4 shall be surrendered by the Depository to
the Trustee, to be so transferred, in whole or from time to time in part,
without charge, and the Trustee shall authenticate and deliver, upon such
transfer of each portion of such Global Security, an equal aggregate principal
amount at maturity of certificated Securities of authorized denominations. Any
portion of a Global Security transferred pursuant to this Section shall be
executed, authenticated and delivered only in denominations of $1,000 and any
integral multiple thereof and registered in such names as the Depository shall
direct. Any certificated Initial Security delivered in exchange for an interest
in the Global Security shall, except as otherwise provided by Section 2.3(d),
bear the restricted securities legend set forth in Exhibit 1 hereto.
(c) Subject to the provisions of Section 2.4(b), the registered
Holder of a Global Security may grant proxies and otherwise authorize any
Person, including Agent Members and Persons that may hold interests through
Agent Members, to take any action which a Holder is entitled to take under this
Indenture or the Securities.
(d) In the event of the occurrence of either of the events specified
in Section 2.4(a)(i), (ii) or (iii), the Company will promptly make available to
the Trustee a reasonable supply of certificated Securities in definitive, fully
registered form without interest coupons.
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<PAGE>
EXHIBIT 1
to APPENDIX A
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE
SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED
THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5
OF THE SECURITIES ACT PROVIDED BY RULE 144A OR REGULATION S THEREUNDER. THE
HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE ISSUER
THAT (A) SUCH SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED
ONLY (i) (a) IN THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c)
OUTSIDE THE UNITED STATES TO A NON-U.S. PERSON IN
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A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT, OR
(d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO
REQUESTS), (ii) TO THE COMPANY OR (iii) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION, AND (B)
THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER
OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A)
ABOVE.
[IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND
TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT
MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING
RESTRICTIONS.]
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[FORM OF FACE OF INITIAL SECURITY]
No. $__________
12.75% Senior Discount Note due 2008
CUSIP No. ______
Metallurg Holdings, Inc., a Delaware corporation, promises to pay
to Cede & Co., or registered assigns, the principal sum
of Dollars on July 15, 2008.
Interest Payment Dates: January 15 and July 15.
Record Dates: January 1 and July 1.
The following information is supplied for purposes of Sections 1273
and 1275 of the Internal Revenue Code:
Issue Date: July 13, 1998 Original issue discount under
Section 1273 of the
Internal Revenue Code (for each $1,000
principal amount at
maturity): $461.35
Issue Price (for each $1,000 principal Yield to Maturity: 12.75%
amount at maturity): $538.65
Additional provisions of this Security are set forth on the other side
of this Security.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this instrument to be duly
executed.
METALLURG HOLDINGS, INC.,
by
-------------------------------
Name:
Title:
by
-------------------------------
Name:
Title:
[CORPORATE SEAL]
Dated:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
UNITED STATES TRUST COMPANY OF NEW YORK
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
By:
-----------------------------
Authorized Signatory
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[FORM OF REVERSE SIDE OF SECURITY]
12.75% Senior Discount Note due 2008
1. INTEREST
(a) Metallurg Holdings, Inc., a Delaware corporation (such
corporation, and its successors and assigns under the Indenture hereinafter
referred to, being herein called the "Company"), promises to pay interest on the
principal amount of this Security at the rate per annum shown above from July
15, 2003 until maturity. The Company will pay interest semiannually on January
15 and July 15 of each year commencing January 15, 2004. Interest will be
computed on the basis of a 360-day year of twelve 30-day months. Until July 15,
2003, no cash interest will accrue or be payable on this Security, but the
Accreted Value will increase between July 13, 1998 and July 15, 2003, on a
semi-annual bond equivalent basis using a 360-day year comprised of twelve
30-day months, such that the Accreted Value shall be equal to the full principal
amount at maturity of this Security on July 15, 2003. The Accreted Value shall
cease to increase as of July 15, 2003. Beginning on July 15, 2003, interest on
this Security will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from July 15, 2003; PROVIDED that the
first interest payment date shall be January 15, 2004. The Company shall pay
interest on overdue principal at the rate borne by the Securities plus 1% per
annum, and it shall pay interest on overdue installments of interest at the same
rate to the extent lawful. The Company shall provide the Trustee with an
Officer's Certificate setting forth the calculation of the Accreted Value to any
date of determination requested by the Trustee and the Trustee may conclusively
rely on such Officer's Certificate for all purposes under the Indenture.
(b) LIQUIDATED DAMAGES. The holder of this Security is entitled to
the benefits of a Registration Agreement, dated as of July 13, 1998, between the
Company and the Purchaser named therein (the "Registration Agreement").
Capitalized terms used in this paragraph (b) but not defined herein have the
meanings assigned to them in the Registration Agreement. If (i) on or prior to
the 60th day following the date of the original issuance of the Securities,
neither the Exchange Offer Registration Statement nor the Shelf Registration
Statement has been filed with the Commission, (ii) on or prior to the 120th day
following the date of the original issuance of the Securities, the Exchange
Offer Registration Statement has not been declared effective, (iii) on or prior
to the 150th day following the date of original issuance of the Securities,
neither the Registered Exchange Offer has been consummated nor the Shelf
Registration Statement has been declared effective or (iv) after either the
Exchange Offer Registration Statement or the Shelf Registration Statement has
been declared effective, such Registration Statement thereafter ceases to be
effective or usable for its intended purpose without being succeeded immediately
by a post-effective amendment to such Registration Statement that cures such
failure and that is itself immediately declared effective (each such event
referred to in clauses (i) through (iv), being referred to herein as a
"Registration Default"), the Company hereby agrees to pay liquidated damages
("Liquidated Damages") to each Holder of Securities affected thereby with
respect to the first 90-day period immediately following the occurrence of the
first Registration Default, in
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an amount equal to $.05 per week per $1,000 principal amount of Securities held
by such Holder. The amount of the Liquidated Damages shall increase by an
additional $.05 per week per $1,000 principal amount of Securities with respect
to each subsequent 90-day period until all Registration Defaults have been
cured, up to a maximum amount of Liquidated Damages of $.25 per week per $1,000
principal amount of Securities (regardless of whether one or more than one
Registration Defaults is outstanding). All accrued Liquidated Damages shall be
paid by the Company on January 15 and July 15 of each year to Holders of
Securities by wire transfer of immediately available funds or by mailing checks
to their registered addresses if no such accounts have been specified.
Following the cure of all Registration Defaults relating to any particular
Securities, the accrual of Liquidated Damages with respect to such Securities
will cease. The Company shall notify the Trustee of the accrual and amount of
Liquidated Damages, if any.
2. METHOD OF PAYMENT
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered holders of Securities at the close
of business on the January 1 or July 1 next preceding the interest payment date
even if Securities are canceled after the record date and on or before the
interest payment date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company will pay principal and interest in money
of the United States of America that at the time of payment is legal tender for
payment of public and private debts. Payments in respect of the Securities
represented by a Global Security (including principal, premium and interest)
will be made by wire transfer of immediately available funds to the accounts
specified by The Depository Trust Company. The Company will make all payments
in respect of a certificated Security (including principal, premium and
interest), by mailing a check to the registered address of each Holder thereof;
PROVIDED, HOWEVER, that payments on the Securities may also be made, in the case
of a Holder of at least $1,000,000 aggregate principal amount at maturity of
Securities, by wire transfer to a U.S. dollar account maintained by the payee
with a bank in the United States if such Holder elects payment by wire transfer
by giving written notice to the Trustee or the Paying Agent to such effect
designating such account no later than 30 days immediately preceding the
relevant due date for payment (or such other date as the Trustee may accept in
its discretion).
3. PAYING AGENT AND REGISTRAR
Initially, United States Trust Company of New York, a New York banking
association (the "Trustee"), will act as Paying Agent and Registrar. The
Company may appoint and change any Paying Agent, Registrar or co-registrar
without notice. The Company or any of its domestically incorporated Wholly
Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar.
A1-4
<PAGE>
4. INDENTURE
The Company issued the Securities under an Indenture dated as of July
13, 1998 (the "Indenture"), between the Company and the Trustee. The terms of
the Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date of the Indenture (the "TIA"). Terms
defined in the Indenture and not defined herein have the meanings ascribed
thereto in the Indenture. The Securities are subject to all such terms, and
Securityholders are referred to the Indenture and the TIA for a statement of
those terms.
The Securities are senior secured obligations of the Company limited
to $121,000,000 aggregate principal amount at maturity at any one time
outstanding (subject to Sections 2.01 and 2.08 of the Indenture). This Security
is one of the Initial Securities referred to in the Indenture issued in an
aggregate principal amount at maturity of $121,000,000. The Securities include
the Initial Securities and any Exchange Securities and Private Exchange
Securities issued in exchange for Initial Securities. The Initial Securities,
the Exchange Securities and the Private Exchange Securities are treated as a
single class of securities under the Indenture. The Indenture imposes certain
limitations on the ability of the Company and its Restricted Subsidiaries to,
among other things, make certain Investments and other Restricted Payments, pay
dividends and other distributions, incur Indebtedness, enter into consensual
restrictions upon the payment of certain dividends and distributions by such
Restricted Subsidiaries, enter into or permit certain transactions with
Affiliates, create or incur Liens and make Asset Sales. The Indenture also
imposes limitations on the ability of the Company to consolidate or merge with
or into any other Person or convey, transfer or lease all or substantially all
of the Property of the Company.
5. OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Securities will
not be redeemable at the option of the Company prior to July 15, 2003.
Thereafter, the Securities will be redeemable at the option of the Company, in
whole or in part, on not less than 30 nor more than 60 days' prior notice, at
the following redemption prices (expressed as percentages of principal amount),
plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the
redemption date (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date), if
redeemed during the 12-month period commencing on July 15 of the years set forth
below:
REDEMPTION
YEAR PRICE
--------------------------------------------------
2003 106.375%
2004 104.250%
2005 102.125%
2006 and thereafter 100.000%
A1-5
<PAGE>
In addition, prior to July 15, 2001, the Company may redeem up to a
maximum of 34% of the original aggregate principal amount at maturity of the
Securities with the proceeds of one or more Public Equity Offerings following
which there is a Public Market, at a redemption price equal to 112.75% of the
Accreted Value thereof, plus accrued and unpaid interest thereon, if any, to the
redemption date (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date);
PROVIDED, HOWEVER, that after giving effect to any such redemption, at least 66%
of the aggregate principal amount at maturity of the originally issued
Securities remains outstanding. Any such redemption shall be made within
60 days of such Public Equity Offering upon not less than 30 nor more than
60 days' notice mailed to each holder of Securities being redeemed and otherwise
in accordance with the procedures set forth in the Indenture.
6. SINKING FUND
The Securities are not subject to any sinking fund.
7. NOTICE OF REDEMPTION
Notice of redemption will be mailed by first-class mail at least
30 days but not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at his or her registered address. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000. If money sufficient to pay the redemption price of and
accrued interest on all Securities (or portions thereof) to be redeemed on the
redemption date is deposited with the Paying Agent on or before the redemption
date and certain other conditions are satisfied, on and after such date the
Accreted Value will cease to increase and interest will cease to accrue on such
Securities (or such portions thereof) called for redemption.
8. REPURCHASE OF SECURITIES AT THE OPTION OF HOLDERS UPON CHANGE OF CONTROL
Upon a Change of Control, any Holder of Securities will have the
right, subject to certain conditions specified in the Indenture, to cause the
Company to repurchase all or any part of the Securities of such Holder at a
purchase price equal to 101% of the Accreted Value thereof, plus Liquidated
Damages, if any, thereon at the purchase date, if the purchase date is prior to
July 15, 2003, or 101% of the aggregate principal amount of the Securities to be
repurchased plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the date of purchase, if the purchase date is on or after July 15,
2003 (subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date that is on or prior
to the date of purchase) as provided in, and subject to the terms of, the
Indenture.
9. DENOMINATIONS; TRANSFER; EXCHANGE
The Securities are in registered form without coupons in denominations
of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange
Securities in accordance with
A1-6
<PAGE>
the Indenture. Upon any transfer or exchange, the Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements or
transfer documents and to pay any taxes required by law or permitted by the
Indenture. The Registrar need not register the transfer of or exchange any
Securities selected for redemption (except, in the case of a Security to be
redeemed in part, the portion of the Security not to be redeemed) or to transfer
or exchange any Securities for a period beginning 15 days before the mailing of
a notice of redemption or an offer to repurchase Securities or 15 days before an
interest payment date.
10. PERSONS DEEMED OWNERS
The registered Holder of this Security may be treated as the owner of
it for all purposes.
11. UNCLAIMED MONEY
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its written request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must look
only to the Company and not to the Trustee for payment.
12. DISCHARGE AND DEFEASANCE
Subject to certain conditions, the Company at any time may terminate
some of or all its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the Securities to redemption or maturity,
as the case may be.
13. AMENDMENT, WAIVER
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture, the Collateral Pledge Agreement or the Securities may be amended
without prior notice to any Securityholder but with the written consent of the
Holders of at least a majority in aggregate principal amount at maturity of the
outstanding Securities and (ii) any default or noncompliance with any provision
may be waived with the written consent of the Holders of at least a majority in
principal amount at maturity of the outstanding Securities. Subject to certain
exceptions set forth in the Indenture, without the consent of any Holder of
Securities, the Company, and the Trustee may amend the Indenture, the Collateral
Pledge Agreement or the Securities (i) to cure any ambiguity, omission, defect
or inconsistency; (ii) to comply with Article 5 of the Indenture; (iii) to
provide for uncertificated Securities in addition to or in place of certificated
Securities; (iv) to add additional covenants or to surrender rights and powers
conferred on the Company; (v) to comply with the requirements of the Commission
in order to effect or maintain the qualification of the Indenture under the TIA;
(vi) to make any change that does not adversely affect the rights of any
Securityholder; (vii) to evidence and provide for the acceptance of the
A1-7
<PAGE>
appointment of a successor Trustee; or (viii) to provide for additional
collateral for or for guarantors of the Securities.
14. DEFAULTS AND REMEDIES
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount at maturity of the Securities,
subject to certain limitations, may declare all the Securities to be immediately
due and payable. Certain events of bankruptcy or insolvency are Events of
Default and shall result in the Securities being immediately due and payable
upon the occurrence of such Events of Default without any further act of the
Trustee or any Holder.
Holders of Securities may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may refuse to enforce the
Indenture or the Securities unless it receives reasonable indemnity or security.
Subject to certain limitations, Holders of a majority in principal amount at
maturity of the Securities may direct the Trustee in its exercise of any trust
or power under the Indenture. The Holders of a majority in aggregate principal
amount at maturity of the Securities, by written notice to the Trustee and the
Company, may rescind any declaration of acceleration and its consequences if the
rescission would not conflict with any judgment or decree, and if all existing
Events of Default have been cured or waived except nonpayment of principal or
interest that has become due solely because of the acceleration.
15. TRUSTEE DEALINGS WITH THE COMPANY
Subject to certain limitations imposed by the TIA, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may otherwise deal with the Company
or its Affiliates with the same rights it would have if it were not Trustee.
16. SECURITY
In order to secure the obligations under the Indenture, the Company
and the Trustee have entered into the Collateral Pledge Agreement in order to
create security interests in certain assets of the Company.
17. NO RECOURSE AGAINST OTHERS
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under the
Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. By accepting a Security, each
Securityholder waives and releases all such liability. The waiver and release
are part of the consideration for the issue of the Securities.
A1-8
<PAGE>
18. AUTHENTICATION
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
19. ABBREVIATIONS
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
20. GOVERNING LAW
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
21. CUSIP NUMBERS
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
THE COMPANY WILL FURNISH TO ANY HOLDER OF SECURITIES UPON WRITTEN
REQUEST AND WITHOUT CHARGE TO THE HOLDER A COPY OF THE INDENTURE WHICH HAS IN IT
THE TEXT OF THIS SECURITY.
A1-9
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
__________________________________________________________
(Print or type assignee's name, address and zip code)
__________________________________________________________
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint _____________ agent to transfer this Security on the
books of the Company. The agent may substitute another to act for him.
____________________________________________________________
Date: ________________ Your Signature: _____________________
____________________________________________________________
Sign exactly as your name appears on the other side of this Security.
A1-10
<PAGE>
In connection with any transfer of any of the Securities evidenced by this
certificate occurring prior to the expiration of the period referred to in
Rule 144(k) under the Securities Act after the later of the date of original
issuance of such Securities and the last date, if any, on which such Securities
were owned by the Company or any Affiliate of the Company, the undersigned
confirms that such Securities are being transferred in accordance with its
terms:
CHECK ONE BOX BELOW
(1) _ to the Company; or
(2) _ pursuant to an effective registration statement under the
Securities Act of 1933; or
(3) _ inside the United States to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act of 1933) that
purchases for its own account or for the account of a qualified
institutional buyer to whom notice is given that such transfer is
being made in reliance on Rule 144A, in each case pursuant to and
in compliance with Rule 144A under the Securities Act of 1933; or
(4) _ outside the United States in an offshore transaction within the
meaning of Regulation S under the Securities Act in compliance
with Rule 904 under the Securities Act of 1933; or
(5) _ pursuant to an exemption from registration provided by Rule 144
under the Securities Act of 1933; or
(6) _ pursuant to another available exemption from registration under
the Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to register any
of the Securities evidenced by this certificate in the name of any person
other than the registered holder thereof; PROVIDED, HOWEVER, that if
box (4), (5) or (6) is checked, the Trustee may require, prior to
registering any such transfer of the Securities, such legal opinions,
certifications and other information as the Company has reasonably
requested to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933.
------------------------------
Your Signature
A1-11
<PAGE>
Signature Guarantee:
Date:
-------------------------- -----------------------------------
Signature must be guaranteed Signature of Guarantor
by a participant in a Guarantee
recognized signature guaranty
medallion program or other
signature guarantor acceptable
to the Trustee
- ----------------------------------------------------------------------
A1-12
<PAGE>
TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, and is aware that the sale to it is being made in reliance on Rule 144A
and acknowledges that it has received such information regarding the Company as
the undersigned has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is relying
upon the undersigned's foregoing representations in order to claim the exemption
from registration provided by Rule 144A.
Dated: ________________ ______________________________
NOTICE: To be executed by
an executive officer
A1-13
<PAGE>
[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The initial principal amount of this Global Security is $[ ].
The following increases or decreases in this Global Security have been made:
<TABLE>
<CAPTION>
Amount of decrease in Amount of increase in Principal amount of this Signature of authorized signatory
Date of Principal Amount of Principal Amount of Global Security following of Trustee or Securities
Exchange this Global Security this Global Security such decrease or increase Custodian
- --------- -------------------- -------------------- ------------------------- ----------------------------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.06 or 4.08 of the Indenture, check the box:
/ /
If you want to elect to have only part of this Security purchased
by the Company pursuant to Section 4.06 or 4.08 of the Indenture, state the
amount:
$ _____________
Date: __________________ Your Signature: __________________
(Sign exactly as your name appears
on the other side of the Note)
Signature Guarantee:_______________________________________
Signature must be guaranteed by a participant in a
recognized signature guaranty medallion program or other
signature guarantor acceptable to the Trustee
A1-15
<PAGE>
EXHIBIT A
[FORM OF FACE OF EXCHANGE SECURITY
AND PRIVATE EXCHANGE SECURITY]
No. $__________
12.75% Senior Discount [Exchange] [Private Exchange] Note due 2008
CUSIP No. ______
Metallurg Holdings, Inc., a Delaware corporation, promises to pay
to Cede & Co., or registered assigns, the principal sum
of Dollars on July 15, 2008.
Interest Payment Dates: January 15 and July 15.
Record Dates: January 1 and July 1.
The following information is supplied for purposes of Sections 1273
and 1275 of the Internal Revenue Code:
Issue Date: July 13, 1998 Original issue discount under
Section 1273 of the
Internal Revenue Code (for each $1,000
principal amount at
maturity): $461.35
Issue Price (for each $1,000 principal Yield to Maturity: 12.75%
amount at maturity): $538.65
Additional provisions of this Security are set forth on the other side
of this Security.
Ex. A-1
<PAGE>
IN WITNESS WHEREOF, the parties have caused this instrument to be duly
executed.
METALLURG HOLDINGS, INC.,
by _____________________________
Name:
Title:
by _____________________________
Name:
Title:
[CORPORATE SEAL]
Dated:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
by _____________________________
Authorized Signatory
- -----------------------
*/ If the Security is to be issued in global form, add the Global Securities
Legend from Exhibit 1 to Appendix A and the attachment from such Exhibit 1
captioned "TO BE ATTACHED TO
Ex. A-2
<PAGE>
GLOBAL SECURITIES - SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY".
**/ If the Security is a Private Exchange Security issued in a Private Exchange
to the Initial Purchaser holding an unsold portion of its initial allotment, add
the restricted securities legend from Exhibit 1 to Appendix A and replace the
Assignment Form with that included in Exhibit A.
Ex. A-3
<PAGE>
[FORM OF REVERSE SIDE OF EXCHANGE SECURITY
OR PRIVATE EXCHANGE SECURITY]
12.75% Senior Discount [Exchange] [Private Exchange] Note due 2008
1. INTEREST.
Metallurg Holdings, Inc., a Delaware corporation (such corporation,
and its successors and assigns under the Indenture hereinafter referred to,
being herein called the "Company"), promises to pay interest on the principal
amount of this Security at the rate per annum shown above from July 15, 2003
until maturity; [provided, however, that if a Registration Default (as defined
in the Registration Agreement) occurs, liquidated damages will be payable on
this Security in an amount equal to $.05 per week per $1,000 principal amount of
maturity. Such liquidated damages may increase as provided in the Registration
Agreement].(1) The Company will pay interest semiannually on January 15 and July
15 of each year commencing January 15, 2004. Interest will be computed on the
basis of a 360-day year of twelve 30-day months. Until July 15, 2003, no cash
interest will accrue or be payable on this Security, but the Accreted Value will
increase between July 13, 1998 and July 15, 2003, on a semi-annual bond
equivalent basis using a 360-day year comprised of twelve 30-day months, such
that the Accreted Value shall be equal to the full principal amount at maturity
of this Security on July 15, 2003. The Accreted Value shall cease to increase
as of July 15, 2003. Beginning on July 15, 2003, interest on this Security will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from July 15, 2003; provided that the first interest
payment date shall be January 15, 2004. The Company shall pay interest on
overdue principal at the rate borne by the Securities plus 1% per annum, and it
shall pay interest on overdue installments of interest at the same rate to the
extent lawful. The Company shall provide the Trustee with an Officer's
Certificate setting forth the calculation of the Accreted Value to any date of
determination requested by the Trustee and the Trustee may conclusively rely on
such Officer's Certificate for all purposes under the Indenture.
2. METHOD OF PAYMENT
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered holders of Securities at the close
of business on the January 1 or July 1 next preceding the interest payment date
even if Securities are canceled after the record date and on or before the
interest payment date. Holders must surrender Securities to a Paying Agent
- --------------------
(1) Insert if at the time of issuance of the Exchange Security or
Private Exchange Security (as the case may be) neither the Registered
Exchange Offer has been consummated nor a Shelf Registration Statement has
been declared effective in accordance with the Registration Agreement.
Ex A-4
<PAGE>
to collect principal payments. The Company will pay principal and interest in
money of the United States of America that at the time of payment is legal
tender for payment of public and private debts. Payments in respect of the
Securities represented by a Global Security (including principal, premium and
interest) will be made by wire transfer of immediately available funds to the
accounts specified by The Depository Trust Company. The Company will make all
payments in respect of a certificated Security (including principal, premium and
interest), by mailing a check to the registered address of each Holder thereof;
PROVIDED, HOWEVER, that payments on the Securities may also be made, in the case
of a Holder of at least $1,000,000 aggregate principal amount at maturity of
Securities, by wire transfer to a U.S. dollar account maintained by the payee
with a bank in the United States if such Holder elects payment by wire transfer
by giving written notice to the Trustee or the Paying Agent to such effect
designating such account no later than 30 days immediately preceding the
relevant due date for payment (or such other date as the Trustee may accept in
its discretion).
3. PAYING AGENT AND REGISTRAR
Initially, United States Trust Company of New York, a New York banking
association (the "Trustee"), will act as Paying Agent and Registrar. The
Company may appoint and change any Paying Agent, Registrar or co-registrar
without notice. The Company or any of its domestically incorporated Wholly
Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar.
4. INDENTURE
The Company issued the Securities under an Indenture dated as of July
13, 1998 (the "Indenture"), between the Company and the Trustee. The terms of
the Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date of the Indenture (the "TIA"). Terms
defined in the Indenture and not defined herein have the meanings ascribed
thereto in the Indenture. The Securities are subject to all such terms, and
Securityholders are referred to the Indenture and the TIA for a statement of
those terms.
The Securities are senior secured obligations of the Company limited
to $121,000,000 aggregate principal amount at maturity at any one time
outstanding (subject to Sections 2.01 and 2.08 of the Indenture). [This
Security is one of the Exchange Securities referred to in the Indenture issued
in exchange for the Initial Securities.] [This Security is one of the Private
Exchange Securities referred to in the Indenture issued in exchange for the
Initial Securities.] The Securities include the Exchange Securities, the
Private Exchange Securities and the Initial Securities in the aggregate
principal amount at maturity of $121,000,000. The Exchange Securities, the
Private Exchange Securities and the Initial Securities are treated as a single
class of securities under the Indenture. The Indenture imposes certain
limitations on the ability of the Company and its Restricted Subsidiaries to,
among other things, make certain Investments and other Restricted Payments, pay
dividends and other distributions, incur
Ex. A-5
<PAGE>
Indebtedness, enter into consensual restrictions upon the payment of certain
dividends and distributions by such Restricted Subsidiaries, enter into or
permit certain transactions with Affiliates, create or incur Liens and make
Asset Sales. The Indenture also imposes limitations on the ability of the
Company to consolidate or merge with or into any other Person or convey,
transfer or lease all or substantially all of the Property of the Company.
5. OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Securities will
not be redeemable at the option of the Company prior to July 15, 2003.
Thereafter, the Securities will be redeemable at the option of the Company, in
whole or in part, on not less than 30 nor more than 60 days' prior notice, at
the following redemption prices (expressed as percentages of principal amount),
plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the
redemption date (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date), if
redeemed during the 12-month period commencing on July 15 of the years set forth
below:
REDEMPTION
YEAR PRICE
------------------------------------------------------------
2003 106.375%
2004 104.250%
2005 102.125%
2006 and thereafter 100.000%
In addition, prior to July 15, 2001, the Company may redeem up to a
maximum of 34% of the original aggregate principal amount at maturity of the
Securities with the proceeds of one or more Public Equity Offerings following
which there is a Public Market, at a redemption price equal to 112.75% of the
Accreted Value thereof, plus accrued and unpaid interest thereon, if any, to the
redemption date (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date);
PROVIDED, HOWEVER, that after giving effect to any such redemption, at least 66%
of the originally issued aggregate principal amount at maturity of the
Securities remains outstanding. Any such redemption shall be made within
60 days of such Public Equity Offering upon not less than 30 nor more than 60
days' notice mailed to each holder of Securities being redeemed and otherwise in
accordance with the procedures set forth in the Indenture.
6. SINKING FUND
The Securities are not subject to any sinking fund.
7. NOTICE OF REDEMPTION
Ex. A-6
<PAGE>
Notice of redemption will be mailed by first-class mail at least
30 days but not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at his or her registered address. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000. If money sufficient to pay the redemption price of and
accrued interest on all Securities (or portions thereof) to be redeemed on the
redemption date is deposited with the Paying Agent on or before the redemption
date and certain other conditions are satisfied, on and after such date the
Accreted Value will cease to increase and interest will cease to accrue on such
Securities (or such portions thereof) called for redemption.
8. REPURCHASE OF SECURITIES AT THE OPTION OF HOLDERS UPON CHANGE OF CONTROL
Upon a Change of Control, any Holder of Securities will have the
right, subject to certain conditions specified in the Indenture, to cause the
Company to repurchase all or any part of the Securities of such Holder at a
purchase price equal to 101% of the Accreted Value thereof, plus Liquidated
Damages, if any, thereon at the purchase date, if the purchase date is prior to
July 15, 2003, or 101% of the aggregate principal amount of the Securities to be
repurchased plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the date of purchase, if the date of purchase is on or after July 15,
2003 (subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date that is on or prior
to the date of purchase) as provided in, and subject to the terms of, the
Indenture.
9. DENOMINATIONS; TRANSFER; EXCHANGE
The Securities are in registered form without coupons in denominations
of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange
Securities in accordance with the Indenture. Upon any transfer or exchange, the
Registrar and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements or transfer documents and to pay any taxes required by
law or permitted by the Indenture. The Registrar need not register the transfer
of or exchange any Securities selected for redemption (except, in the case of a
Security to be redeemed in part, the portion of the Security not to be redeemed)
or to transfer or exchange any Securities for a period of beginning 15 days
before the mailing of a notice of redemption or an offer to repurchase
Securities or 15 days before an interest payment date.
10. PERSONS DEEMED OWNERS
The registered Holder of this Security may be treated as the owner of
it for all purposes.
11. UNCLAIMED MONEY
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its written request
Ex. A-7
<PAGE>
unless an abandoned property law designates another Person. After any such
payment, Holders entitled to the money must look only to the Company and not to
the Trustee for payment.
12. DISCHARGE AND DEFEASANCE
Subject to certain conditions, the Company at any time may terminate
some of or all its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the Securities to redemption or maturity,
as the case may be.
13. AMENDMENT, WAIVER
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture, the Collateral Pledge Agreement or the Securities may be amended
without prior notice to any Securityholder but with the written consent of the
Holders of at least a majority in aggregate principal amount at maturity of the
outstanding Securities and (ii) any default or noncompliance with any provision
may be waived with the written consent of the Holders of at least a majority in
principal amount at maturity of the outstanding Securities. Subject to certain
exceptions set forth in the Indenture, without the consent of any Holder of
Securities, the Company, and the Trustee may amend the Indenture, the Collateral
Pledge Agreement or the Securities (i) to cure any ambiguity, omission, defect
or inconsistency; (ii) to comply with Article 5 of the Indenture; (iii) to
provide for uncertificated Securities in addition to or in place of certificated
Securities; (iv) to add additional covenants or to surrender rights and powers
conferred on the Company; (v) to comply with the requirements of the Commission
in order to effect or maintain the qualification of the Indenture under the TIA;
(vi) to make any change that does not adversely affect the rights of any
Securityholder; (vii) to evidence and provide for the acceptance of the
appointment of a successor Trustee; or (viii) to provide for additional
collateral for or for guarantors of the Securities.
14. DEFAULTS AND REMEDIES
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount at maturity of the Securities,
subject to certain limitations, may declare all the Securities to be immediately
due and payable. Certain events of bankruptcy or insolvency are Events of
Default and shall result in the Securities being immediately due and payable
upon the occurrence of such Events of Default without any further act of the
Trustee or any Holder.
Holders of Securities may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may refuse to enforce the
Indenture or the Securities unless it receives reasonable indemnity or security.
Subject to certain limitations, Holders of a majority in principal amount at
maturity of the Securities may direct the Trustee in its exercise of any trust
or power under the Indenture. The Holders of a majority in aggregate principal
amount
Ex. A-8
<PAGE>
at maturity of the Securities, by written notice to the Trustee and the Company,
may rescind any declaration of acceleration and its consequences if the
rescission would not conflict with any judgment or decree, and if all existing
Events of Default have been cured or waived except nonpayment of principal or
interest that has become due solely because of the acceleration.
15. TRUSTEE DEALINGS WITH THE COMPANY
Subject to certain limitations imposed by the TIA, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may otherwise deal with the Company
or its Affiliates with the same rights it would have if it were not Trustee.
16. SECURITY
In order to secure the obligations under the Indenture, the Company
and the Trustee have entered into the Collateral Pledge Agreement in order to
create security interests in certain assets of the Company.
17. NO RECOURSE AGAINST OTHERS
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under the
Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. By accepting a Security, each
Securityholder waives and releases all such liability. The waiver and release
are part of the consideration for the issue of the Securities.
18. AUTHENTICATION
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
19. ABBREVIATIONS
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
20. GOVERNING LAW
Ex. A-9
<PAGE>
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
21. CUSIP NUMBERS
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
22. REGISTRATION RIGHTS
Pursuant to the Registration Agreement, the Company will have certain
obligations to the Holders of the Private Exchange Securities. The Holders of
the Private Exchange Securities shall be entitled to receive certain liquidated
damages upon certain conditions, all pursuant to and in accordance with the
terms of the Registration Agreement. The Company shall notify the Trustee of
the amount of any such payments.
THE COMPANY WILL FURNISH TO ANY HOLDER OF SECURITIES UPON WRITTEN
REQUEST AND WITHOUT CHARGE TO THE HOLDER A COPY OF THE INDENTURE WHICH HAS IN IT
THE TEXT OF THIS SECURITY.
Ex. A-10
<PAGE>
ASSIGNMENT FORM*
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
__________________________________________________
(Print or type assignee's name, address and zip code)
__________________________________________________
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint ____________ agent to transfer this Security on the
books of the Company. The agent may substitute another to act for him.
____________________________________________________________
Date: ________________ Your Signature: _____________________
____________________________________________________________
Sign exactly as your name appears on the other side of this Security. Signature
must be guaranteed by a participant in a recognized signature guaranty medallion
program or other signature guarantor acceptable to the Trustee.
____________________
* If the Security is a Private Exchange Security, replace the Assignment Form
with that included in Exhibit 1 to Appendix A to the Indenture.
Ex. A-11
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.06 or 4.08 of the Indenture, check the box:
----
----
If you want to elect to have only part of this Security purchased
by the Company pursuant to Section 4.06 or 4.08 of the Indenture, state the
amount:
$ ______________
Date: __________________ Your Signature: __________________
(Sign exactly as your name appears
on the other side of the Note)
Signature Guarantee:_______________________________________
Signature must be guaranteed by a participant in a
recognized signature guaranty medallion program or other
signature guarantor acceptable to the Trustee.
Ex. A-12
<PAGE>
APPENDIX B
FORM OF
PLEDGE AGREEMENT
from
METALLURG HOLDINGS, INC.,
as Pledgor
to
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
<PAGE>
PLEDGE AGREEMENT
PLEDGE AGREEMENT, together with any amendments, replacements and
supplements hereafter entered into (the "Pledge Agreement"), dated July 13,
1998, between Metallurg Holdings, Inc. (together with its successors and
assigns, the "Pledgor") and United States Trust Company of New York, as trustee
(the "Trustee") under the indenture (as the same may be amended from time to
time in accordance with the terms thereof, the "Indenture") relating to the
12.75% Senior Discount Notes due 2008 (together with a series of substantially
identical senior discount notes due 2008 to be issued in exchange for the
originally issued series, the "Notes") of the Pledgor, made for the equal and
ratable benefit of the holders of the Notes (the "Holders"). As used herein,
all capitalized terms not otherwise defined herein shall have the meanings set
forth in the Indenture.
W I T N E S S E T H:
WHEREAS, the Pledgor will issue the Notes in an aggregate principal
amount at maturity of $121,000,000 pursuant to the Indenture; and
WHEREAS, in order to secure on an equal and ratable basis the payment
and performance in full of the obligations to the Holders and the Trustee under
the terms of the Indenture (the "Indenture Obligations"), the parties hereto
desire to set forth their mutual understanding and certain agreements regarding
the terms and conditions of the pledge of the Pledged Collateral (as defined
below) made by the Pledgor to the Trustee for the benefit of the Holders.
NOW, THEREFORE, in consideration of the premises and other benefits to
the Pledgor, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
Section 1. PLEDGE. As collateral security for the due and prompt
payment in full and complete performance of the Indenture Obligations and all
indebtedness and other liabilities and obligations, whether now existing or
hereafter arising, under, or arising out of, the Indenture, the Pledgor hereby
pledges, assigns, transfers, sets over and delivers unto the Trustee and hereby
grants unto the Trustee for the benefit of the Holders and unto their respective
successors and assigns, a first priority security interest in all of the right,
title and interest of the Pledgor in, to and under any and all of
B-1
<PAGE>
the following described property, rights and interests (collectively, the
"Pledged Collateral"):
(a) all of the Equity Interests of Metallurg, Inc. (the
"Pledged Subsidiary") identified on Schedule A attached hereto (for purposes of
this Agreement, "Equity Interests" shall mean any and all issued and outstanding
shares, interests, rights to purchase, warrants, options, participations or
other equivalents of or interests in (however designated) any entity, or any
securities convertible into or exercisable or exchangeable for any such
interests);
(b) all other Equity Interests, now or hereafter owned or
acquired by the Pledgor and wherever located, of the Pledged Subsidiary directly
owned by the Pledgor and the certificates representing such securities, and any
present or future options, warrants or other rights to subscribe for or purchase
any of the foregoing described in subsections 1(a) or 1(b) hereof or any notes,
bonds, debentures or other evidences of indebtedness that (i) are at any time
convertible, exchangeable or exercisable into Equity Interests of the Pledged
Subsidiary or (ii) have or at any time could by their terms have voting rights
with respect to any matter affecting the Pledged Subsidiary and all securities,
certificates and instruments representing or evidencing ownership of any of the
foregoing (the property described in subsections 1(a) and 1(b) hereof, being
referred to herein collectively as the "Pledged Securities"); and
(c) to the extent not included in the foregoing, all of
Pledgor's rights, claims or other general intangibles constituting, or arising
out of or relating to, its rights as a general partner, limited partner or
managing general partner of the Pledged Subsidiary, including without limitation
its share in the profits and losses of the Pledged Subsidiary and its right as
such partner to receive distributions of the Pledged Subsidiary's assets or
income, in each case whether arising under a partnership agreement or applicable
law, created by operation of law, or otherwise;
(d) all obligations for money borrowed ("Indebtedness")
from time to time owed to the Pledgor by the Pledged Subsidiary and the
instruments evidencing such Indebtedness, including, without limitation, all
Indebtedness listed on Schedule B hereto, and all interest, cash, instruments
and other property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such Indebtedness;
and
(e) all dividends, distributions, cash, instruments and
other property or securities (including without limitation any security as such
term is defined
B-2
<PAGE>
in Article 8 of the Uniform Commercial Code as in effect in the applicable
jurisdiction at such time (the "UCC")), now or hereafter at any time or from
time to time received or receivable or otherwise distributed or distributable in
respect of or in exchange for any or all of the Pledged Collateral and all
proceeds of the Pledged Collateral.
TO HAVE AND TO HOLD the Pledged Collateral, together with all rights, titles,
interests, powers, privileges and preferences pertaining or incidental thereto,
unto the Trustee for the benefit of the Holders and unto their respective
successors and assigns.
Section 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
PLEDGOR. The Pledgor hereby represents and warrants, covenants and agrees that:
(a) The Pledgor is, and as to Pledged Collateral acquired
by it from time to time after the date hereof, will be, the sole legal and
beneficial owner of the Pledged Collateral, and holds, or will hold, the Pledged
Collateral free and clear of all Liens (except for the security interest granted
hereunder to the Trustees for the benefit of Holders), and has not made and will
not make any other pledge, assignment, mortgage, hypothecation or transfer of
the Pledged Collateral. The Pledged Securities are not subject to any put,
call, option or other right in favor of any other person whatsoever.
(b) The Pledged Securities which are shares of stock have
been duly authorized and validly issued and are fully paid and non-assessable.
(c) Except as set forth below, upon delivery of the
certificates evidencing the Pledged Securities to the Collateral Agent and so
long as the Collateral Agent maintains possession of such certificates pursuant
to this Pledge Agreement, the Trustee will have a valid and perfected first
priority security interest in the Pledged Securities. In the case of a Pledged
Security which represents an interest in a partnership, upon filing of a UCC-1
financing statement in the appropriate jurisdiction in connection with such
interest, and upon delivery of the certificate evidencing such interest and so
long as the Collateral Agent maintains possession of such certificate, the
Collateral Agent will have a valid and perfected first priority security
interest in such Pledged Security, which together with the security interest in
the other Pledged Securities will secure the payment and performance in full of
the Indenture Obligations.
(d) The Pledgor has the valid right and legal authority to
pledge the Pledged Collateral in the manner hereby done or contemplated and will
defend its title thereto against the claims of all persons whomsoever and shall
maintain and
B-3
<PAGE>
preserve the security interest granted hereunder with respect to the Pledged
Collateral as long as this Pledge Agreement shall remain in full force and
effect.
(e) Neither the execution and delivery of this Pledge
Agreement by the Pledgor nor the consummation of the transactions herein
contemplated nor the fulfillment of the terms hereof (i) violate the Pledgor's
or the Pledged Subsidiary's, charter or bylaws, (ii) violate the terms of any
agreement, indenture, mortgage, deed of trust, equipment lease, instrument or
other document to which the Pledgor or the Pledged Subsidiary, is a party, or by
which any of them may be bound or to which any of their properties or assets may
be subject, which violation or conflict would have a material adverse effect on
the financial condition, business, assets or liabilities of the Pledgor and the
Pledged Subsidiary taken as a whole, or on the value of the Pledged Collateral
or a material adverse effect on the security interests hereunder, or (iii)
conflict with any law, order, rule or regulation applicable to the Pledgor or
the Pledged Subsidiary, of any court or any government, regulatory body or
administrative agency or other governmental body having jurisdiction over the
Pledgor or the Pledged Subsidiary, or its or their Properties, or (iv) result in
or require the creation or imposition of any Lien (other than the Lien
contemplated hereby), upon or with respect to any of the property now owned or
hereafter acquired by the Pledgor or the Pledged Subsidiary, which violation or
conflict would have a material adverse effect on the financial condition,
business, assets or liabilities of the Pledgor and the Pledged Subsidiary taken
as a whole, or on the value of the Pledged Collateral or a material adverse
effect on the security interests hereunder.
(f) The Pledged Securities, as described in Schedule A
attached hereto, include all of the issued and outstanding Equity Interests of
the Pledged Subsidiary as of the date hereof, and all outstanding options,
warrants, calls, commitments of any character whatsoever or other rights to
subscribe for or purchase any property described in subsection 2(a) or any
notes, bonds, debentures or other evidences of indebtedness that (i) are at any
time convertible into Equity Interests of the Pledged Subsidiary or (ii) have or
at any time could by their terms have voting rights with respect to any matters
affecting the Pledged Subsidiary. There is no Indebtedness owed to the Pledgor
by the Pledged Subsidiary as of the date hereof, and Schedule B is accordingly
blank.
(g) No consent or approval which has not been obtained
prior to the date hereof of any other person or entity and no authorization,
approval or other action by, and no notice to or filing with any governmental
body, regulatory authority or securities exchange, was or is necessary as a
condition to the validity of the pledge
B-4
<PAGE>
hereunder of the Pledged Collateral, and such pledge is effective to vest in the
Trustee the rights of the Trustee in the Pledged Collateral as set forth herein.
(h) The Pledgor shall deliver to the Trustee concurrently
with the execution of this Pledge Agreement: (i) all certificates and
instruments representing the Pledged Securities described in Schedule A, and
(ii) each other item of Pledged Collateral (including all certificates,
instruments, notes and writings representing or evidencing any such Pledged
Collateral) immediately upon the Pledgor's acquisition thereof. Any and all
Pledged Securities delivered to the Trustee shall be accompanied by undated duly
executed stock powers in blank and by such other instruments of transfer or
documents as the Trustee may reasonably request. The Trustee shall have the
right (in its discretion) to hold the certificates representing the Pledged
Securities in its own name or in the name of its nominee, all in form and
substance sufficient to make effective the pledge hereunder and otherwise
satisfactory to the Trustee.
(i) Upon reasonable request to the Pledgor, the Trustee
shall have full and free access during normal business hours to all of the
books, correspondence and records of the Pledgor relating to the Pledged
Collateral, and the Trustee and its representatives may examine the same, take
extracts therefrom and make photocopies thereof, and the Pledgor agrees to
render to the Trustee, at the Pledgor's cost and expense, such clerical and
other assistance as may be reasonably requested by the Trustee with regard
thereto.
(j) The Pledgor will comply in all material respects with
all requirements of law applicable to the Pledged Collateral or any part thereof
and use its best efforts to obtain all approvals as may be required to effect
any of the granting clauses of this Pledge Agreement.
(k) The Pledgor shall not permit the Pledged Subsidiary to
issue to the Pledgor or any of its Affiliates (other than a Restricted
Subsidiary) any securities of the type required to be pledged hereunder unless
such securities are promptly pledged and delivered hereunder to the Trustee in
accordance with Section 1. In addition, the Pledgor shall not permit the
Pledged Subsidiary to issue any securities of the type required to be pledged
hereunder unless such issuance is made in compliance with the terms of the
Indenture.
(l) If, while this Pledge Agreement is in effect, any stock
dividend, stock split, reclassification, readjustment, reorganization, merger,
consolidation, exchange offer, tender offer or other change in the capital
structure, including the
B-5
<PAGE>
creation of any subscription or other rights or other Pledged Securities, is
declared or made, or proposed to be declared or made, by the Pledged Subsidiary,
all substituted and additional securities or interest issued with respect to the
Pledged Collateral and evidenced by certificates shall be endorsed in blank by
the Pledgor promptly upon receipt thereof or otherwise appropriately transferred
to the Trustee in negotiable form, and all certificates or instruments
evidencing such securities shall be delivered to the Trustee to be held under
the terms of this Pledge Agreement in the same manner as, and as a part of, the
Pledged Collateral. All Pledged Securities shall be evidenced by one or more
certificates. Any securities that may be issued upon exercise of any
subscription or other rights relating to the Pledged Securities shall be
endorsed in blank and delivered to the Trustee with any necessary powers.
(m) The Pledgor shall pay and discharge all taxes,
assessments and governmental charges or levies against any Pledged Collateral
prior to delinquency thereof and shall keep all Pledged Collateral free of all
unpaid charges whatsoever, unless contested in good faith and appropriate
reserves have been set aside in accordance with GAAP.
(n) The Pledgor has, independently and without reliance on
the Trustee and/or any Holder and based on such documents and information as it
deemed appropriate, made its own credit analysis and decision to enter into this
Pledge Agreement.
(o) In the event that the Trustee desires to exercise any
remedies, voting or consensual rights or attorney-in-fact powers set forth in
this Pledge Agreement and determines it necessary to obtain any approvals
therefor, then, upon the request of the Trustee, the Pledgor agrees to use its
best efforts to assist and aid the Trustee to obtain as soon as possible any
necessary approvals for the exercise of any such remedies, rights and powers.
(p) The Pledgor has delivered to the Trustee a duly
executed acknowledgment from the Pledged Subsidiary acknowledging the
registration on its books and records of the pledge of the Pledged Securities
pursuant to this Agreement.
(q) There are no voting trusts or other agreements or
understandings to which Pledgor is a party or by which it may be bound with
respect to voting, managerial consent, election or other rights of Pledgor
relating to the Pledged Securities.
B-6
<PAGE>
(r) The principal place of business and chief executive
office of Pledgor and the office where Pledgor keeps its records concerning the
Pledged Collateral shall be [c/o Safeguard International Fund, L.P., 800 The
Safeguard Building, 435 Devon Park Drive, Wayne, Pennsylvania 19087].
Section 3. ADMINISTRATION OF THE PLEDGED COLLATERAL. The Trustee
shall administer the Pledged Collateral in accordance with the provisions hereof
and of the Indenture.
Section 4. RELEASE AND SUBSTITUTION OF PLEDGED COLLATERAL. The
Pledged Collateral shall not be released from the security interest created
hereunder and no property shall be substituted for any of the Pledged
Collateral, except in accordance with the provisions of Sections 5 and 18
hereof; PROVIDED that Pledged Collateral may be released from the security
interest created hereunder in connection with any disposition thereof by the
Pledgor made in accordance with the Indenture, so long as no "Default" or "Event
of Default" (as defined in the Indenture) is in existence at the time of or
immediately after giving effect thereto.
Section 5. VOTING RIGHTS, DIVIDENDS, ETC.
(a) So long as no Event of Default shall have occurred and
be continuing and notwithstanding any other section hereof:
(i) the Pledgor shall be entitled to exercise any and all
voting or consensual rights and powers, including subscription rights,
accruing to an owner of the Pledged Collateral or any part thereof for any
purpose not inconsistent with the terms of this Pledge Agreement or any
agreement giving rise to any of the Indenture Obligations;
(ii) the Pledgor shall be entitled to receive, retain and
use any and all dividends, distributions or other payments which are
permitted by the Indenture and paid on the Pledged Collateral in cash or
property (other than securities which are subject to this Agreement);
(iii) the Trustee shall execute and deliver to the Pledgor
or cause to be executed and delivered to the Pledgor, all such proxies,
powers of attorney, dividend orders and other instruments as the Pledgor
may reasonably request in writing for the purpose of enabling it to
exercise the voting or consensual rights and powers which the Pledgor is
B-7
<PAGE>
entitled to exercise pursuant to the foregoing subparagraph (i) or to
receive the dividends, distributions or other payments which the Pledgor is
authorized to retain pursuant to the foregoing subparagraph (ii).
(b) Upon the occurrence and during the continuance of an
Event of Default, all rights of the Pledgor to exercise the voting or consensual
rights and powers which the Pledgor would otherwise be entitled to exercise
pursuant to subparagraph (i) of Section 5(a) hereof and to receive the
dividends, distributions and other payments which the Pledgor would otherwise be
authorized to receive and retain pursuant to subsection (ii) of Section 5(a)
shall automatically cease, and all such rights shall thereupon become vested in
the Trustee, which shall then have the sole and exclusive right and authority to
exercise all such voting and consensual rights and powers and to receive and
retain as Pledged Collateral all such dividends, distributions and other
payments. Any and all money and other property paid over to or received by the
Trustee pursuant to the provisions of this Section 5(b) shall be retained by the
Trustee as Pledged Collateral hereunder and shall be administered and applied in
accordance with the provisions of this Pledge Agreement and the Indenture. All
dividends and interest payments which are received by the Pledgor contrary to
the provisions of this subsection (b) shall be received in trust for the benefit
of the Trustee, shall be segregated from other funds of the Pledgor and shall be
forthwith paid over to the Trustee as Pledged Collateral in the same form as so
received (with any necessary endorsement).
Section 6. DEFAULT; REMEDIES.
(a) EXERCISE OF REMEDIES UNDER THE PLEDGE AGREEMENT. If an
Event of Default shall have occurred and be continuing, the Trustee shall
commence the taking of such actions (or refrain from taking actions) toward
collection or enforcement of this Pledge Agreement and the Pledged Collateral
(or any portion thereof), including without limitation action toward foreclosure
upon any Pledged Collateral, as it deems appropriate in its sole discretion.
(b) REMEDIES GENERALLY. If an Event of Default shall have
occurred and be continuing, the Trustee itself or by its agents or attorneys may
(i) exercise any or all of its rights and remedies hereunder, under the
Indenture or any other instrument or agreement securing, evidencing or relating
to the Indenture Obligations or under applicable laws (including all of the
rights and remedies of a secured creditor under the Uniform Commercial Code then
in effect in the State of New York; the "NUCC"), (ii) retain the Pledged
Collateral or (iii) sell, assign, transfer, or dispose of, endorse and deliver
the whole or, from time to time, any part of the Pledged Collateral
B-8
<PAGE>
at public or private sale or sales, at any exchanges, brokers board or at any of
the Trustee's offices or elsewhere, for cash, upon credit or for other property,
for immediate or future delivery, and for such price or prices and on such other
terms that the Trustee may deem commercially reasonable (in its liability for
loss or damage). Upon consummation of any such sale, the Trustee shall have the
right to assign, transfer, endorse and deliver to the purchaser or purchasers
thereof the Pledged Collateral so sold. Each such purchaser at any such sale
shall hold the property sold absolutely free from any claim or right on the part
of the Pledgor, and the Pledgor hereby waives (to the full extent permitted by
law) all rights of redemption, stay or appraisal which the Pledgor now has or
may at any time in the future have under any rule of law or statute now existing
or hereafter enacted. The Trustee shall give the Pledgor at least 10 Business
Days' written notice (which the Pledgor agrees shall be deemed to be reasonable
notification within the meaning of Section 9-504(3) of the NUCC) of the
Trustee's intention to make any such public or private sale. Any such sale
shall be held at such time or times and at such place or places as the Trustee
may deem commercially reasonable. At any such sale, the Pledged Collateral, or
portion thereof to be sold, may be sold as an entirety or in separate portions,
as the Trustee may deem commercially reasonable. The Trustee shall not be
obligated to make any sale of the Pledged Collateral if it shall determine not
to do so, regardless of the fact that notice of sale of the Pledged Collateral
may have been given. The Trustee may adjourn any public or private sale or
cause the same to be adjourned from time to time by announcement at the time and
place fixed for sale, and such sale may, without further notice, be made at the
time and place to which the same was so adjourned. In case sale of all or any
part of the Pledged Collateral is made on credit for future delivery, the
Pledged Collateral so sold may be retained by the Trustee until the sale price
is paid by the purchaser or purchasers thereof, but the Trustee shall not incur
any liability in case any such purchaser or purchasers shall fail to take up and
pay for the Pledged Collateral so sold and, in case of any such failure, such
Pledged Collateral may be sold again upon like notice. As an alternative to
exercising the power of sale herein conferred upon it, the Trustee may proceed
by suit or suits at law or in equity to exercise its remedies regarding the
Pledged Collateral and sell the Pledged Collateral or any portion thereof
pursuant to judgment or decree of a court or courts having competent
jurisdiction. If under mandatory requirements of applicable law, the Trustee
shall be required to make disposition of the Pledged Collateral within a period
of time that does not permit the giving of notice to the Pledgor as herein
before provided, the Trustee need give the Pledgor only such notice of
disposition as shall be reasonably practicable in view of such mandatory
requirements of law.
(c) PREVENTING IMPAIRMENT OF THE PLEDGED COLLATERAL.
Regardless of whether or not there shall have occurred any Event of Default, the
Trustee may
B-9
<PAGE>
institute and maintain or cause in its name or in the name of the Pledgor or
either of them, to be instituted and maintained, such suits and proceedings as
the Trustee may be advised by counsel shall be necessary or expedient to prevent
any impairment of the security interest in or perfection of the Pledged
Collateral in contravention of the terms of the Indenture. The Pledgor agrees
not to knowingly take or permit to be taken any action which would impair the
Pledged Collateral or the Trustee's rights in the Pledged Collateral.
Section 7. TRUSTEE APPOINTED ATTORNEY-IN-FACT. The Pledgor hereby
constitutes and appoints the Trustee its attorney-in-fact, during the occurrence
and continuance of an Event of Default, for the purpose of carrying out the
provisions, but subject to the terms and conditions, of this Pledge Agreement
and taking any action and executing any instrument, including, without
limitation, any financing statement or continuation statement, and taking any
other action to maintain the validity, perfection, priority and enforcement of
the security interest intended to be created hereunder, that the Trustee may
deem necessary or advisable to accomplish the purposes hereof, which appointment
is irrevocable and coupled with an interest; PROVIDED, HOWEVER, that nothing
herein contained shall be construed as requiring or obligating the Trustee to
make any commitment or to make any inquiry as to the nature or sufficiency of
any payment received by it, or to present or file any claim or notice, or to
take any action with respect to the Pledged Collateral or any part thereof or
the monies due or to become due in respect thereof or any property covered
thereby, and no action taken or omitted or any part thereof shall give rise to
any defense, counterclaim or right of action against the Trustee, unless the
Trustee's actions are taken or omitted to be taken with gross negligence or bad
faith or constitute willful misconduct.
Section 8. PURCHASE OF PLEDGED COLLATERAL BY THE TRUSTEE OR
HOLDERS. At any sale of the Pledged Collateral, whether pursuant to power of
sale or otherwise hereunder, the Trustee or any Holder may, to the extent
permitted by applicable law, bid for and purchase, free from any right of
redemption (all such rights being hereby waived and released by the Pledgor to
the extent permitted by law), the Pledged Collateral or any part thereof or an
interest therein and upon compliance with the terms of such sale may hold,
retain, exploit, resell or otherwise dispose of such property without further
accountability to the Pledgor for the proceeds of such sale. The Pledgor will
execute and deliver or cause to be executed and delivered, such instruments,
endorsements, assignments, waivers, certificates and other documents and take
such further action as the Trustee shall request in connection with any such
sale.
Section 9. PAYMENTS AND PROCEEDS.
B-10
<PAGE>
All distributions to the Trustee with respect to the Pledged
Collateral after the occurrence of an Event of Default shall first be applied
to the reasonable costs and expenses, including attorneys' fees, incurred by the
Trustee in taking such foreclosure action and thereafter shall be applied by the
Trustee as provided in the Indenture. After payment in full of all Indenture
Obligations, the remaining proceeds from any foreclosure hereunder shall be paid
to the Pledgor, or its successors or assigns, or to whomsoever may be lawfully
entitled to receive the same or as a court of competent jurisdiction may direct,
any surplus then remaining from such Proceeds.
Section 10. WAIVER OF CLAIMS. Except as otherwise provided in this
Pledge Agreement, THE PLEDGOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, NOTICE OF JUDICIAL HEARING IN CONNECTION WITH THE TRUSTEE'S
TAKING POSSESSION OR THE TRUSTEE'S DISPOSITION OF ANY OF THE PLEDGED COLLATERAL,
INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICES AND HEARINGS FOR ANY
PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT THAT THE PLEDGOR WOULD
OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR OF
ANY STATE, and, to the full extent permitted by applicable law, the Pledgor
hereby further waives:
(a) all damages occasioned by such taking of possession
except any damages which are the direct result of the Trustee's gross
negligence, bad faith or willful misconduct;
(b) all other requirements as to the time, place and terms
of sale or other requirements, with respect to the enforcement of the Trustee's
rights and powers hereunder; and
(c) except as provided in Section 6(c) hereof, all rights
of redemption, appraisement, valuation, stay, marshalling of assets, extension
or moratorium, existing at law or in equity, by statute or otherwise, now or
hereafter in force, in order to prevent or delay the enforcement of this Pledge
Agreement or the sale or other disposition of the Pledged Collateral or any
portion thereof, and the Pledgor, for itself and all who may claim under it,
insofar as it now or hereafter lawfully may, hereby waives all such rights.
Any sale of, or the exercise of any options to purchase, or any other
realization upon, any Pledged Collateral shall operate to divest all right,
title, interest,
B-11
<PAGE>
claim and demand, at law or in equity, of the Pledgor therein and thereto, and
shall be a perpetual bar both at law and in equity against the Pledgor and
against any and all persons claiming or attempting to claim the Pledged
Collateral so sold, optioned or realized upon, or any part thereof, through and
under the Pledgor.
Section 11. REMEDIES CUMULATIVE; NO WAIVER. Each right, power and
remedy of the Trustee provided for herein or in another agreement pursuant to
which a Lien is created in favor of the Trustee for the benefit of any Holder,
or now or hereafter existing at law or in equity, by statute or otherwise, shall
be cumulative and concurrent and shall be in addition to every other right,
power or remedy of the Trustee or any Holder provided for herein or in another
agreement pursuant to which a Lien is created in favor of the Trustee for the
benefit of any Holder or now or hereafter existing at law or in equity, by
statute or otherwise. No failure on the part of the Trustee or any Holder to
exercise, and no delay in exercising, any right, power or remedy hereunder, or
in another agreement pursuant to which a Lien is created in favor of the Trustee
for the benefit or any Holder or now or hereafter existing at law or in equity,
by statute or otherwise, shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
No notice to or demand on the Pledgor hereunder shall, of itself, entitle the
Pledgor to any other or further notice or demand in the same, similar or other
circumstances.
Section 12. ADDITIONAL COLLATERAL. Without notice or consent of
any Pledgor and without impairment of the security interests and rights created
by this Pledge Agreement, the Trustee may accept from any person or persons
additional collateral or other security for the Indenture Obligations. Neither
the creation of the security interests created hereunder nor the acceptance of
any such additional collateral or security shall prevent the Trustee from
resorting to such additional collateral or security or to the Pledged
Collateral, in any order without affecting the Trustee's rights hereunder.
Section 13. FURTHER ASSURANCES. The Pledgor agrees (i) that it
shall, at its own expense, promptly file or record such notices, financing
statements, continuation statements or other documents and take all further
action as may be necessary to perfect, maintain and protect the validity,
perfection and priority of the security interests of the Trustee hereunder or to
enable the Trustee to exercise and enforce its rights and remedies hereunder
with respect to the Pledged Collateral, and as the Trustee may reasonably
request, such instruments to be in form and substance satisfactory to the
Trustee, and (ii) that it shall, at its own expense, do such further acts and
things and execute and deliver
B-12
<PAGE>
to the Trustee such additional conveyances, assignments, agreements and
instruments as the Trustee may at any time reasonably request in connection with
the administration and enforcement of this Pledge Agreement or relative to the
Pledged Collateral or any part thereof or in order to assure and confirm unto
the Trustee its rights, powers and remedies hereunder.
The Pledgor agrees that it will notify the Trustee in writing not less
than 30 days prior to any change in location and the creation of a new location
of (a) the principal place of business or chief executive office and (b) the
offices where the Pledgor's books and records and related information concerning
the Pledged Collateral are kept; PROVIDED, HOWEVER, that no such change may be
effected before all filings required to be made and all other necessary action
to preserve the perfection of the first priority security interest of the
Trustee in the Collateral shall have been made or taken.
The Pledgor will not change its name, identity or structure in any
manner which might make any financing statement filed hereunder incorrect or
misleading unless Pledgor shall have given the Trustee at least 30 days' prior
written notice thereof and shall have properly amended all financing statements
and properly filed all additional financing statements necessary to maintain the
perfection of the security interest granted hereunder at all times and shall
have provided the Trustee with an Officers' Certificate certifying that the
above steps have been taken.
Section 14. INDEMNIFICATION. The Trustee shall have such indemnity
as is provided under Section 7.07 of the Indenture.
Section 15. REGISTRATION RIGHTS, ETC.
(a) If the Trustee determines that the registration of any
of the securities included in the Pledged Collateral under, or other compliance
with, the Securities Act or any similar federal or state law is desirable, upon
or at any time after an Event of Default and acceleration of either issue of the
Notes, the Pledgor will use its best efforts to cause such registration or
compliance to be effectively made, at no expense to the Trustee or to the
Holders, and to continue any such registration effective for such time as may be
reasonably necessary in the opinion of the Trustee. The Pledgor will reimburse
the Trustee upon demand for any expenses incurred by the Trustee (including
reasonable attorneys' fees and expenses) incurred in connection therewith, which
obligation to pay such expenses shall be secured hereunder.
B-13
<PAGE>
(b) If the Pledgor is unable to effect a public sale of any
or all of the Pledged Collateral or if the Trustee determines that it is
desirable to sell the Pledged Collateral in one or more private sales, the
Trustee may limit such sales to a restricted group of purchasers who will be
obliged to agree, among other things, to acquire such securities for their own
account for investment and not with a view to distribution or resale. The
Pledgor acknowledges and agrees that any such private sale may result in prices
and other terms less favorable to the seller than if such sale were a public
sale and, notwithstanding such circumstances, agrees that any such private sale
shall be deemed to have been made in a commercially reasonable manner. The
Trustee shall be under no obligation to delay a sale of any of the Pledged
Collateral for the period of time necessary to permit the issuer of such
securities to register such securities for public sale under the Securities Act
or under applicable state securities laws even if such issuer would agree to do
so.
(c) The Pledgor further agrees to do or cause to be done
all such other acts and things as may be necessary to make such sale or sales of
all or any part of the Pledged Collateral valid and binding and in compliance
with any and all applicable law, rules, regulations, orders or decrees, all at
the Pledgor's expense. The Pledgor further agrees that a breach of any of the
covenants contained in this Pledge Agreement will cause irreparable injury to
the Trustee, as secured party, for which the Trustee would have no adequate
remedy at law in respect of such breach and, as a consequence, agrees that each
and every covenant contained in this Section 15 shall be specifically
enforceable against the Pledgor and the Pledgor waives and agrees not to assert
any defenses against an action for specific performance of such covenants.
Section 16. PLEDGOR'S INDENTURE OBLIGATIONS ABSOLUTE. The
liability of the Pledgor under this Pledge Agreement shall remain in full force
and effect without regard to, and shall not be released, suspended, discharged,
terminated or otherwise affected by (a) any change in the time, place or manner
of payment of all or any of the Indenture Obligations, or in any other term of
the Indenture, the Notes, any waiver, indulgence, renewal, extension, amendment
or modification of or addition, consent or supplement to or deletion from or any
other action or inaction under or in respect of the Indenture, the Notes or any
assignment or transfer thereof; (b) any lack of validity or enforceability, in
whole or in part, of the Indenture or the Notes; (c) any furnishing of any
additional security for the Indenture Obligations or any acceptance thereof or
any release or non-perfection of any security interest in the Pledged
Collateral; (d) any limitation on any party's liability or obligations under the
Indenture or the Notes; (e) any bankruptcy, insolvency, reorganization,
composition, adjustment, dissolution, liquidation or other like proceeding
relating to a Pledgor, or any action taken with respect to
B-14
<PAGE>
this Pledge Agreement by any trustee or receiver, or by any court, in any such
proceeding, whether or not the Pledgor shall have notice or knowledge of any of
the foregoing; (f) any exchange, release or amendment or waiver of or consent to
departure from any agreement pursuant to which a Lien is created in favor of the
Trustee for the benefit of the Holder, pursuant to which a person other than the
Pledgor has granted a security interest; or (g) any other circumstance that
might otherwise constitute a defense available to, or a discharge of the
Pledgor.
Section 17. WAIVER. To the extent permitted by applicable law, the
Pledgor hereby waives promptness, diligence, notice of acceptance and any other
notice with respect to any of the Indenture Obligations and this Pledge
Agreement and any requirement that the Trustee protect, secure, perfect or
insure any security interest or any property subject thereto or exhaust any
right or take any action against the Pledgor or any other person or entity;
PROVIDED, HOWEVER, that the Trustee shall in any event take such care in the
handling of any Pledged Securities in its possession as it takes with respect to
Property of a similar nature in its possession.
Section 18. TERMINATION. Upon payment and performance in full and
satisfaction of all of the obligations of the Pledgor or its successors or
assigns under the Indenture and all other amounts payable under this Pledge
Agreement, this Pledge Agreement shall terminate and the Trustee shall assign
and redeliver to the Pledgor all of the Pledged Collateral hereunder that has
not been sold, disposed of, retained or applied by the Trustee in accordance
with the terms hereof. Such reassignment and redelivery shall be without
warranty by or recourse to the Trustee, and shall be at the expense of the
Pledgor. At such time, this Pledge Agreement shall no longer constitute a Lien
upon or grant any security interest in any of the Pledged Collateral, and the
Trustee shall, at the Pledgor's expense deliver to the Pledgor written
acknowledgment thereof and of cancellation of this Pledge Agreement in a form
reasonably requested by the Pledgor; PROVIDED, HOWEVER, that this Pledge
Agreement shall continue to be effective or be reinstated, as the case may be,
if at any time any payment of any of the Indenture Obligations is rescinded or
must otherwise be returned upon the insolvency, bankruptcy or reorganization of
the Pledgor or the Pledged Subsidiary all as though such payment had not been
made.
Section 19. NOTICES. Any notices or other communications required
or permitted hereunder shall be in writing, and shall be sufficiently given if
made by hand delivery, by telex, by facsimile or registered or certified mail,
postage prepaid, return receipt requested, addressed as provided in Section
11.02 of the Indenture.
B-15
<PAGE>
Any party hereto may by notice to the other party designate such
additional or different addresses as shall be furnished in writing by such
party. Any notice or communication to any party shall be deemed to have been
given or made as of the date so delivered, if personally delivered; when
answered back, if telexed; when receipt is acknowledged, if faxed; and five
calendar days after mailing, if sent by registered or certified mail (except
that a notice of change of address shall not be deemed to have been given until
actually received by the addressee). The Pledgor may give notice to the Holders
at the addresses set forth for them in the register kept by the Registrar under
the Indenture or may request that the Trustee notify the Holders at such
addresses at the expense of the Pledgor.
Section 20. BINDING AGREEMENT; ASSIGNMENT. This Pledge Agreement
shall be binding upon and inure to the benefit of the Trustee, the Pledgor and
their respective successors and permitted assigns. Neither this Pledge
Agreement nor any interest herein or in the Pledged Collateral, or any part
thereof, may be assigned by the Pledgor without the prior written consent of the
Trustee (which consent shall not be unreasonably withheld). This Pledge
Agreement shall be deemed to be automatically assigned by the Trustee to any
person who succeeds to such Trustee in accordance with Article 7 of the
Indenture, and its assignee shall have all rights and powers of, and act as,
such Trustee hereunder.
Section 21. GOVERNING LAW. THIS PLEDGE AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF.
Section 22. AMENDMENTS. This Pledge Agreement may not be amended
or modified, except with the consent of the Pledgor and the Trustee in
accordance with Article 9 of the Indenture as it exists on the date hereof.
Section 23. SEVERABILITY. In the event that any provision
contained in this Pledge Agreement shall for any reason beheld to be illegal or
invalid under the laws of any jurisdiction, such illegality or invalidity shall
in no way impair the effectiveness of any other provision hereof, or of such
provision under the laws of any other jurisdiction; PROVIDED, that in the
construction and enforcement of such provision under the laws of the
jurisdiction in which such holding of illegality or invalidity exists, and to
the extent only of such illegality or invalidity, this Pledge Agreement shall be
construed and enforced as though such illegal or invalid provision had not been
contained herein.
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<PAGE>
Section 24. HEADINGS. Section headings used herein are inserted
for convenience only and shall not in any way affect the meaning or construction
of any provision of this Pledge Agreement.
Section 25. COUNTERPARTS. This Pledge Agreement may be executed in
any number of counterparts, each of which when so executed and delivered shall
be an original, and all of which shall together constitute but one and the same
instrument. A complete set of counterparts shall be lodged with the Trustee.
Section 26. EXPENSES. The Pledgor will upon demand pay to the
Trustee the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, which the
Trustee may incur in connection with (i) the administration of this Pledge
Agreement, (ii) the custody or presentation of, or the sale of, collection from,
or other realization upon, any of the Pledged Collateral, (iii) the exercise or
enforcement of any of the rights of the Trustee hereunder or (iv) the failure by
the Pledgor to perform or observe any of the provisions hereof.
Section 27. NO RECOURSE AGAINST OTHERS. A direct or indirect
partner, director, officer, employee or stockholder, as such, past, present or
future of the Pledgor or any successor entity shall not have any personal
liability in respect of the obligations of the Pledgor under this Agreement by
reason of its status as such partner, stockholder, employee, officer or
director, to the extent such liabilities may be waived under applicable law.
B-17
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Pledge Agreement to
be executed and delivered by their respective officers thereunto duly authorized
as of the day and first written above.
METALLURG HOLDINGS, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
<PAGE>
SCHEDULE A
PLEDGED SECURITIES
<TABLE>
<CAPTION>
Percentage
Class of Stock/ Number of
Stock Equity Certificate of Outstanding
Issuer Interest No.(s) Shares Equity
<S> <C> <C> <C> <C>
Metallurg, Inc. Common Stock 100%
</TABLE>
<PAGE>
SCHEDULE B
PLEDGED DEBT
None
<PAGE>
Exhibit 4.4
METALLURG HOLDINGS, INC.
$121,000,000
12.75% Senior Discount Notes due 2008
REGISTRATION AGREEMENT
New York, New York
July 13, 1998
To: BANCBOSTON SECURITIES INC.
100 Federal Street, M/S 01-12-07
Boston, Massachusetts 02110
Ladies and Gentlemen:
Metallurg Holdings, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to BancBoston Securities Inc. (the "Purchaser"), upon
the terms set forth in a purchase agreement dated July 6, 1998 (the "Purchase
Agreement"), $121,000,000 aggregate principal amount at maturity of its 12.75%
Senior Notes due 2008 (the "Securities") (the "Initial Placement"). As an
inducement to the Purchaser to enter into the Purchase Agreement and in
satisfaction of a condition to your obligations thereunder, the Company agrees
with you, (i) for your benefit and (ii) for the benefit of the holders from time
to time of the Securities (including you) (each of the foregoing a "Holder" and
together the "Holders"), as follows:
1. DEFINITIONS. Capitalized terms used herein without definition
shall have their respective meanings set forth in the Purchase Agreement. As
used in this Agreement, the following capitalized defined terms shall have the
following meanings:
"ACT" means the Securities Act of 1933, as amended, and the rules and
regulations of the Commission promulgated thereunder.
<PAGE>
"AFFILIATE" of any specified person means any other person which, directly
or indirectly, is in control of, is controlled by, or is under common control
with, such specified person. For purposes of this definition, control of a
person means the power, direct or indirect, to direct or cause the direction of
the management and policies of such person whether by contract or otherwise; and
the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"CLOSING DATE" has the meaning set forth in the Purchase Agreement.
"COMMISSION" means the Securities and Exchange Commission.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"EXCHANGE OFFER REGISTRATION PERIOD" means the one-year period following
the consummation of the Registered Exchange Offer, exclusive of any period
during which any stop order shall be in effect suspending the effectiveness of
the Exchange Offer Registration Statement.
"EXCHANGE OFFER REGISTRATION STATEMENT" means a registration statement of
the Company on an appropriate form under the Act with respect to the Registered
Exchange Offer, all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"EXCHANGING DEALER" means any Holder (which may include the Purchaser)
which is a broker-dealer, electing to exchange Securities acquired for its own
account as a result of market-making activities or other trading activities, for
New Securities.
"HOLDER" has the meaning set forth in the preamble hereto.
"INDENTURE" means the Indenture relating to the Securities dated as of July
13, 1998, between the Company and United States Trust Company of New York as
trustee, as the same may be amended from time to time in accordance with the
terms thereof.
"INITIAL PLACEMENT" has the meaning set forth in the preamble hereto.
"LIQUIDATED DAMAGES" has the meaning set forth in Section 7 hereof.
"MAJORITY HOLDERS" means the Holders of a majority of the aggregate
principal amount of Securities registered under a Registration Statement.
"MANAGING UNDERWRITERS" means the investment banker or investment bankers
and manager or managers that shall administer an underwritten offering.
2
<PAGE>
"NEW SECURITIES" means debt securities of the Company identical in all
material respects to the Securities (except that the cash interest and the
transfer restrictions will be modified or eliminated, as appropriate), to be
issued under the Indenture.
"NEW SECURITIES INDENTURE" means an indenture between the Company and the
New Securities Trustee, identical in all material respects with the Indenture
(except that the cash interest will be modified or eliminated, as appropriate).
"NEW SECURITIES TRUSTEE" means a bank or trust company reasonably
satisfactory to the Purchaser, as trustee with respect to the New Securities
under the New Securities Indenture.
"PROSPECTUS" means the prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A under the Act), as amended or supplemented
by any prospectus supplement, with respect to the terms of the offering of any
portion of the Securities or the New Securities, covered by such Registration
Statement, and all amendments and supplements to the Prospectus, including
post-effective amendments.
"REGISTERED EXCHANGE OFFER" means the proposed offer to the Holders to
issue and deliver to such Holders, in exchange for the Securities, a like
principal amount of the New Securities.
"REGISTRATION DEFAULT" has the meaning set forth in Section 7 hereof.
"REGISTRATION SECURITIES" has the meaning set forth in Section 3(a) hereof.
"REGISTRATION STATEMENT" means any Exchange Offer Registration Statement or
Shelf Registration Statement that covers any of the Securities or the New
Securities pursuant to the provisions of this Agreement, all amendments and
supplements to such registration statement, including post-effective amendments,
in each case including the Prospectus contained therein, all exhibits thereto
and all material incorporated by reference therein.
"SECURITIES" has the meaning set forth in the preamble hereto.
"SHELF REGISTRATION" means a registration effected pursuant to Section 3
hereof.
"SHELF REGISTRATION PERIOD" has the meaning set forth in Section 3(b)
hereof.
"SHELF REGISTRATION STATEMENT" means a "shelf" registration statement of
the Company pursuant to the provisions of Section 3 hereof which covers some of
or all the Securities or New Securities, as applicable, on an appropriate form
under Rule 415 under the Act, or any similar rule that may be adopted by the
Commission, all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
3
<PAGE>
"TRUSTEE" means the trustee with respect to the Securities and the New
Securities under the Indenture.
"UNDERWRITER" means any underwriter of Securities in connection with an
offering thereof under a Shelf Registration Statement.
2. REGISTERED EXCHANGE OFFER; RESALES OF NEW SECURITIES BY
EXCHANGING DEALERS; PRIVATE EXCHANGE. The Company shall prepare and, not
later than 60 days after the date of the original issuance of the Securities,
shall file with the Commission the Exchange Offer Registration Statement with
respect to the Registered Exchange Offer. The Company shall cause the Exchange
Offer Registration Statement to become effective under the Act within 120 days
after the date of the original issuance of the Securities.
(a) Upon the effectiveness of the Exchange Offer Registration
Statement, the Company shall promptly commence the Registered Exchange Offer, it
being the objective of such Registered Exchange Offer to enable each Holder
electing to exchange Securities for New Securities (assuming that such Holder is
not an affiliate of the Company within the meaning of the Act, acquires the New
Securities in the ordinary course of such Holder's business and has no
arrangements with any person to participate in the distribution of the New
Securities) to trade such New Securities from and after their receipt without
any limitations or restrictions under the Act and without material restrictions
under the securities laws of a substantial proportion of the several states of
the United States.
(b) In connection with the Registered Exchange Offer, the Company
shall:
(i) mail to each Holder a copy of the Prospectus forming
part of the Exchange Offer Registration Statement, together with an appropriate
letter of transmittal and related documents;
(ii) keep the Registered Exchange Offer open for 30 days
after the date notice thereof is mailed to the Holders (or longer if required by
applicable law);
(iii) utilize the services of a depositary for the Registered
Exchange Offer with an address in the Borough of Manhattan, The City of New
York; and
(iv) comply in all respects with all applicable laws.
(c) As soon as practicable after the close of the Registered
Exchange Offer, the Company shall:
(i) accept for exchange all Securities duly tendered and
not validly withdrawn pursuant to the Registered Exchange Offer;
4
<PAGE>
(ii) deliver to the Trustee for cancellation all Securities
so accepted for exchange; and
(iii) cause the Trustee promptly to authenticate and deliver
to each Holder of Securities, New Securities equal in principal amount to the
Securities of such Holder so accepted for exchange.
(d) The Purchaser and the Company acknowledge that, pursuant to
current interpretations by the Commission's staff of Section 5 of the Act, and
in the absence of an applicable exemption therefrom, each Exchanging Dealer is
required to deliver a Prospectus in connection with a sale of any New Securities
received by such Exchanging Dealer pursuant to the Registered Exchange Offer in
exchange for Securities acquired for its own account as a result of
market-making activities or other trading activities. Accordingly, the Company
shall:
(i) include the information set forth in Annex A hereto on
the cover of the Exchange Offer Registration Statement, in Annex B hereto in the
forepart of the Exchange Offer Registration Statement in a section setting forth
details of the Exchange Offer, in Annex C hereto in the underwriting or plan of
distribution section of the Prospectus forming a part of the Exchange Offer
Registration Statement, and in Annex D hereto in the Letter of Transmittal
delivered pursuant to the Registered Exchange Offer; and
(ii) use its best efforts to keep the Exchange Offer
Registration Statement continuously effective under the Act during the Exchange
Offer Registration Period for delivery by Exchanging Dealers in connection with
sales of New Securities received pursuant to the Registered Exchange Offer, as
contemplated by Section 4(h) below.
(e) In the event that the Purchaser determines that it is not
eligible to participate in the Registered Exchange Offer with respect to the
exchange of Securities constituting any portion of an unsold allotment, at the
request of the Purchaser, the Company shall issue and deliver to the Purchaser
or the party purchasing New Securities registered under a Shelf Registration
Statement as contemplated by Section 3 hereof from the Purchaser, in exchange
for such Securities, a like principal amount of New Securities. The Company
shall seek to cause the CUSIP Service Bureau to issue the same CUSIP number for
such New Securities as for New Securities issued pursuant to the Registered
Exchange Offer.
3. SHELF REGISTRATION. If, (i) because of any change in law or
applicable interpretations thereof by the Commission's staff, the Company
determines upon advice of outside counsel that it is not permitted to effect the
Registered Exchange Offer as contemplated by Section 2 hereof, or (ii) for any
other reason the Exchange Offer Registration Statement is not declared effective
within 150 days after the Closing Date or the Registered Exchange Offer is not
consummated within 180 days after the Closing Date, or (iii) the Purchaser so
requests with respect to Securities (or any New Securities received pursuant to
Section 2(f)) not eligible to be exchanged for New Securities in a Registered
Exchange Offer or, in the case where the Purchaser participates
5
<PAGE>
in any Registered Exchange Offer, the Purchaser does not receive freely tradable
New Securities, or (iv) any Holder (other than the Purchaser) is not eligible to
participate in the Registered Exchange Offer, or (v) in the case of any such
Holder that participates in the Registered Exchange Offer, such Holder does not
receive freely tradable New Securities in exchange for tendered Securities,
other than by reason of such Holder being an affiliate of the Company within the
meaning of the Act (it being understood that, for purposes of this Section 3,
(x) the requirement that the Purchaser deliver a Prospectus containing the
information required by Items 507 and/or 508 of Regulation S-K under the Act in
connection with sales of New Securities acquired in exchange for such Securities
shall result in such New Securities being not "freely tradeable" but (y) the
requirement that an Exchanging Dealer deliver a Prospectus in connection with
sales of New Securities acquired in the Registered Exchange Offer in exchange
for Securities acquired as a result of market-making activities or other trading
activities shall not result in such New Securities being not "freely
tradeable"), the following provisions shall apply:
(a) The Company shall, as promptly as practicable (but in no event
more than 30 days after so required or requested pursuant to this Section 3),
file with the Commission and thereafter shall use its best efforts to cause to
be declared effective under the Act a Shelf Registration Statement relating to
the offer and sale of the Securities or the New Securities, as applicable, by
the Holders from time to time in accordance with the methods of distribution
elected by the Majority Holders participating in the Shelf Registration and set
forth in such Shelf Registration Statement (such Securities or New Securities,
as applicable, to be sold by such Holders under such Shelf Registration
Statement being referred to herein as "Registration Securities"); PROVIDED,
HOWEVER, that, with respect to New Securities received by the Purchaser in
exchange for Securities constituting any portion of an unsold allotment, the
Company may, if permitted by current interpretations by the Commission's staff,
file a post-effective amendment to the Exchange Offer Registration Statement
containing the information required by Regulation S-K Items 507 and/or 508, as
applicable, in satisfaction of its obligations under this paragraph (a) with
respect thereto, and any such Exchange Offer Registration Statement, as so
amended, shall be referred to herein as, and governed by the provisions herein
applicable to, a Shelf Registration Statement.
(b) The Company shall use its best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the Prospectus
forming part thereof to be usable by Holders for a period of two years from the
date the Shelf Registration Statement is declared effective by the Commission or
such shorter period that will terminate when all the Securities or New
Securities, as applicable, covered by the Shelf Registration Statement have been
sold pursuant to the Shelf Registration Statement (in any such case, such period
being called the "Shelf Registration Period").
4. REGISTRATION PROCEDURES. In connection with any Shelf
Registration Statement and, to the extent applicable, any Exchange Offer
Registration Statement, the following provisions shall apply:
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(a) The Company shall furnish to you, prior to the filing thereof
with the Commission, a copy of any Shelf Registration Statement and any Exchange
Offer Registration Statement, and each amendment thereof and each amendment or
supplement, if any, to the Prospectus included therein and shall use its best
efforts to reflect in each such document, when so filed with the Commission,
such comments as you or any Holder reasonably may propose.
(b) The Company shall ensure that (i) any Registration Statement
and any amendment thereto and any Prospectus forming part thereof and any
amendment or supplement thereto complies in all material respects with the Act
and the rules and regulations thereunder, (ii) any Registration Statement and
any amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
(iii) any Prospectus forming part of any Registration Statement, and any
amendment or supplement to such Prospectus, does not include an untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading.
(c) (1) The Company shall advise you and, in the case of a Shelf
Registration Statement, the Holders of Registration Securities covered thereby,
and, if requested by you or any such Holder, confirm such advice in writing:
(i) when a Registration Statement and any amendment thereto has
been filed with the Commission and when the Registration Statement or any
post-effective amendment thereto has become effective; and
(ii) of any request by the Commission for amendments or supplements
to the Registration Statement or the Prospectus included therein or for
additional information.
(2) The Company shall advise you and, in the case of a Shelf
Registration Statement, the Holders of Registration Securities covered thereby,
and, in the case of an Exchange Offer Registration Statement, any Exchanging
Dealer which has provided in writing to the Company a telephone or facsimile
number and address for notices, and, if requested by you or any such Holder or
Exchanging Dealer, confirm such advice in writing:
(i) 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;
(ii) of the receipt by the Company of any notification with respect
to the suspension of the qualification of the Securities or New Securities, as
applicable, included therein for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and
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(iii) of the happening of any event that requires the making of any
changes in the Registration Statement or the Prospectus so that, as of such
date, the statements therein are not misleading and do not omit to state a
material fact required to be stated therein or necessary to make the
statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading (which advice
shall be accompanied by an instruction to suspend the use of the Prospectus
until the requisite changes have been made).
(d) The Company shall use its best efforts to obtain the withdrawal of any
order suspending the effectiveness of any Registration Statement at the earliest
possible time.
(e) The Company shall furnish to each Holder of Registration Securities
included within the coverage of any Shelf Registration Statement, without
charge, at least one copy of such Shelf Registration Statement and any
post-effective amendment thereto, including financial statements and schedules,
and, if the Holder so requests in writing, documents incorporated by reference
therein and exhibits to such Shelf Registration Statement (including those
incorporated by reference therein).
(f) The Company shall, during the Shelf Registration Period, deliver to
each Holder of Registration Securities included within the coverage of any Shelf
Registration Statement, without charge, as many copies of the Prospectus
(including each preliminary Prospectus) included in such Shelf Registration
Statement and any amendment or supplement thereto as such Holder may reasonably
request; and the Company consents to the use of the Prospectus or any amendment
or supplement thereto by each of the selling Holders of Registration Securities
in connection with the offering and sale of the Registration Securities covered
by the Prospectus or any amendment or supplement thereto.
(g) The Company shall furnish to each Exchanging Dealer which so requests,
without charge, at least one copy of the Exchange Offer Registration Statement
and any post-effective amendment thereto, including financial statements and
schedules, documents incorporated by reference therein, and, if the Exchanging
Dealer so requests in writing, exhibits to such Exchange Offer Registration
Statement (including those incorporated by reference therein).
(h) The Company shall, during the Exchange Offer Registration Period,
promptly deliver to each Exchanging Dealer, without charge, as many copies of
the Prospectus included in such Exchange Offer Registration Statement and any
amendment or supplement thereto as such Exchanging Dealer may reasonably request
for delivery by such Exchanging Dealer in connection with a sale of New
Securities received by it pursuant to the Registered Exchange Offer; and the
Company consents to the use of the Prospectus or any amendment or supplement
thereto by any such Exchanging Dealer, as aforesaid.
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(i) Prior to the Registered Exchange Offer or any other offering of
Securities or New Securities, as applicable, pursuant to any Registration
Statement, the Company shall register or qualify or cooperate with the Holders
of Securities or New Securities, as applicable, included therein and their
respective counsel in connection with the registration or qualification of such
Securities or New Securities, for offer and sale under the securities or blue
sky laws of such jurisdictions as any such Holder reasonably requests in writing
and do any and all other acts or things necessary or advisable to enable the
offer and sale in such jurisdictions of the Securities or New Securities, as
applicable, covered by such Registration Statement; PROVIDED, HOWEVER, 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 or to taxation in any such jurisdiction
where it is not then so subject.
(j) The Company shall cooperate with the Holders of Securities to
facilitate the timely preparation and delivery of certificates representing
Securities to be sold pursuant to any Registration Statement free of any
restrictive legends and in such denominations and registered in such names as
Holders may request prior to sales of Securities pursuant to such Registration
Statement.
(k) Upon the occurrence of any event contemplated by paragraph (c)(2)(iii)
above, the Company shall promptly prepare a post-effective amendment to any
Registration Statement or an amendment or supplement to the related Prospectus
or file any other required document so that, as thereafter delivered to
purchasers of the Securities or New Securities, as applicable, included therein,
the Prospectus will not include an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(l) Not later than the effective date of any such Registration Statement
hereunder, the Company shall provide a CUSIP number for the Securities or New
Securities, as applicable, registered under such Registration Statement, and
provide the Trustee with printed certificates for such Securities or New
Securities, in a form, if requested by the applicable Holder or Holder's
counsel, eligible for deposit with The Depository Trust Company.
(m) The Company shall use its best efforts to comply with all applicable
rules and regulations of the Commission to the extent and so long as they are
applicable to the Registered Exchange Offer or the Shelf Registration and will
make generally available to its security holders a consolidated earnings
statement covering a twelve-month period commencing after the effective date of
the Registration Statement and ending not later than 15 months thereafter, as
soon as practicable after the end of such period, which consolidated earnings
statement shall satisfy the provisions of Section 11(a) of the Act.
(n) The Company shall cause the Indenture to be qualified under the Trust
Indenture Act of 1939, as amended, on or prior to the effective date of any
Shelf Registration Statement or Exchange Offer Registration Statement.
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(o) The Company may require each Holder of Registration Securities to be
sold pursuant to any Shelf Registration Statement to furnish to the Company such
information regarding the Holder and the distribution of such Registration
Securities as the Company may from time to time reasonably require for inclusion
in such Shelf Registration Statement. The Company may require each Holder, upon
receipt of any notice from the Company of the happening of any event or the
discovery of any fact of the kind described in paragraph (c)(2)(iii) above, to
discontinue disposition of Registration Securities pursuant to a Shelf
Registration Statement until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by paragraph (k) above, and to
deliver to the Company (at the Company's expense) all copies in such Holder's
possession, other than permanent file copies then in such Holder's possession,
of the Prospectus covering such Registration Securities current at the time of
receipt of such notice. If the Company shall give any such notice to suspend
the disposition of Registration Securities pursuant to a Shelf Registration
Statement as a result of the happening of any event or the discovery of any
facts, each of the kind described in paragraph (c)(2)(iii) hereof, the Company
shall be deemed to have used its best efforts to keep the Shelf Registration
Statement effective during such period of suspension, PROVIDED that (i) the
Company shall use its best efforts to file and have declared effective (if an
amendment) as soon as practicable an amendment or supplement to such Shelf
Registration Statement and (ii) the period during which the Shelf Registration
Statement shall be maintained effective pursuant to this Agreement 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 the Holders shall have
received copies of the supplemented or amended Prospectus necessary to resume
such dispositions. Notwithstanding the foregoing, the Company shall not allow
any Shelf Registration Statement to fail to be effective for more than 30 days
during any 360-day period.
(p) The Company shall, if requested, promptly incorporate in a Prospectus
supplement or post-effective amendment to a Shelf Registration Statement, such
information as the Managing Underwriters and Majority Holders reasonably agree
should be included therein and shall make all required filings of such
Prospectus supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment.
(q) In the case of any Shelf Registration Statement, the Company shall
enter into such agreements (including underwriting agreements) and take all
other appropriate actions in order to expedite or facilitate the registration or
the disposition of the Registration Securities, and in connection therewith, if
an underwriting agreement is entered into, cause the same to contain
indemnification provisions and procedures no less favorable than those set forth
in Section 6 hereof (or such other provisions and procedures acceptable to the
Majority Holders and the Managing Underwriters, if any), with respect to all
parties to be indemnified pursuant to Section 6 hereof from Holders of
Securities to the Company.
(r) In the case of any Shelf Registration Statement, the Company
shall (i) make reasonably available for inspection by the Holders of
Registration Securities, any underwriter
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participating in any disposition pursuant to such Shelf Registration Statement,
and any attorney, accountant or other agent retained by the Holders or any such
underwriter all relevant financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries; (ii) cause the
Company's officers, directors and employees to supply all relevant information
reasonably requested by the Holders or any such underwriter, attorney,
accountant or agent in connection with any such Shelf Registration Statement as
is customary for similar due diligence examinations; PROVIDED, HOWEVER, that any
information that is designated in writing by the Company, in good faith, as
confidential at the time of delivery of such information shall be kept
confidential by the Holders or any such underwriter, attorney, accountant or
agent, unless such disclosure is made in connection with a court proceeding or
required by law, or such information becomes available to the public generally
or through a third party without an accompanying obligation of confidentiality;
(iii) make such representations and warranties to the Holders of Registration
Securities and the underwriters, if any, in form, substance and scope as are
customarily made by issuers to underwriters in primary underwritten offerings;
(iv) obtain opinions of counsel to the Company (which counsel and opinions (in
form, scope and substance) shall be reasonably satisfactory to the Managing
Underwriters, if any) addressed to each selling Holder and the underwriters, if
any, covering such matters as are customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably requested by
such Holders and underwriters; (v) obtain "cold comfort" letters (or, in the
case of any person that does not satisfy the conditions for receipt of a "cold
comfort" letter specified in Statement on Auditing Standards No. 72, an
"agreed-upon procedures" letter) and updates thereof from the independent
certified public accountants of the Company (and, if necessary, any other
independent certified public accountants of any subsidiary of the Company or of
any business acquired by the Company for which financial statements and
financial data are, or are required to be, included in the Shelf Registration
Statement), addressed to each selling Holder of Registration Securities and the
underwriters, if any, in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with primary
underwritten offerings; and (vi) deliver such documents and certificates as may
be reasonably requested by the Majority Holders and the Managing Underwriters,
if any, including those to evidence compliance with Section 4(k) and with any
customary conditions contained in the underwriting agreement or other agreement
entered into by the Company. The foregoing actions set forth in clauses (iii),
(iv), (v) and (vi) of this Section 4(r) shall be performed (A) on the effective
date of such Shelf Registration Statement and each post-effective amendment
thereto and (B) at each closing under any underwriting or similar agreement as
and to the extent required thereunder.
(s) In the case of any Exchange Offer Registration Statement, the
Company shall (i) make reasonably available for inspection by the Purchaser, and
any attorney, accountant or other agent retained by the Purchaser, all relevant
financial and other records, pertinent corporate documents and properties of the
Company and its subsidiaries; (ii) cause the Company's officers, directors and
employees to supply all relevant information reasonably requested by the
Purchaser or any such attorney,
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<PAGE>
accountant or agent in connection with any such Exchange Offer Registration
Statement as is customary for similar due diligence examinations; PROVIDED,
HOWEVER, that any information that is designated in writing by the Company, in
good faith, as confidential at the time of delivery of such information shall be
kept confidential by the Purchaser or any such attorney, accountant or agent,
unless such disclosure is made in connection with a court proceeding or required
by law, or such information becomes available to the public generally or through
a third party without an accompanying obligation of confidentiality; (iii) make
such representations and warranties to the Purchaser, in form, substance and
scope as are customarily made by issuers to underwriters in primary underwritten
offerings; (iv) obtain opinions of counsel to the Company (which counsel and
opinions (in form, scope and substance) shall be reasonably satisfactory to the
Purchaser and its counsel), addressed to the Purchaser, covering such matters as
are customarily covered in opinions requested in underwritten offerings and such
other matters as may be reasonably requested by the Purchaser or its counsel;
(v) obtain "cold comfort" letters and updates thereof from the independent
certified public accountants of the Company (and, if necessary, any other
independent certified public accountants of any subsidiary of the Company or of
any business acquired by the Company for which financial statements and
financial data are, or are required to be, included in the Exchange Offer
Registration Statement), addressed to the Purchaser, in customary form and
covering matters of the type customarily covered in "cold comfort" letters in
connection with primary underwritten offerings, or if requested by the Purchaser
or its counsel in lieu of a "cold comfort" letter, an agreed-upon procedures
letter under Statement on Auditing Standards No. 35, covering matters requested
by the Purchaser or its counsel; and (vi) deliver such documents and
certificates as may be reasonably requested by the Purchaser or its counsel,
including those to evidence compliance with Section 4(k) and with conditions
customarily contained in underwriting agreements. The foregoing actions set
forth in clauses (iii), (iv), (v) and (vi) of this Section 4(s) shall be
performed (A) at the close of the Registered Exchange Offer and (B) on the
effective date of any post-effective amendment to the Exchange Offer
Registration Statement.
5. REGISTRATION EXPENSES. The Company shall bear all expenses
incurred in connection with the performance of its obligations under Sections 2,
3 and 4 hereof (other than underwriting discounts and commissions and transfer
taxes, if any, relating to the sale or disposition of such Holder's Securities
pursuant to the Shelf Registration Statement) and, in the event of any Shelf
Registration Statement, will reimburse the Holders for the reasonable fees and
disbursements of one firm or counsel (in addition to one local counsel in each
relevant jurisdiction) designated by the Majority Holders to act as counsel for
the Holders in connection therewith, and, in the case of any Exchange Offer
Registration Statement, will reimburse the Purchaser for the reasonable fees and
disbursements of counsel acting in connection therewith.
6. INDEMNIFICATION AND CONTRIBUTION. In connection with any
Registration Statement, the Company agrees to indemnify and hold harmless each
Holder of Securities or New Securities, as applicable, covered thereby
(including the Purchaser and, with respect to any Prospectus delivery as
contemplated in Section 4(h) hereof, each Exchanging Dealer), the directors,
officers, employees and agents of each such Holder and each other person, if
any, who controls any such Holder within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or other Federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of
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a material fact contained in the Registration Statement as originally filed or
in any amendment thereof, or in any preliminary Prospectus or Prospectus, or in
any amendment thereof or supplement thereto, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
agrees to reimburse each such indemnified party, as incurred, for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER,
that (i) the Company shall not be liable in any case to the extent that any such
loss, claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of any such Holder specifically for inclusion
therein and (ii) the Company shall not be liable to any indemnified party under
this indemnity agreement with respect to the Registration Statement or
Prospectus to the extent that it is determined by a final non-appealable
judgment that (1) any such loss, claim, damage or liability of such indemnified
party results solely from an untrue statement of a material fact contained in,
or the omission of a material fact from, the Registration Statement or
Prospectus which untrue statement or omission was corrected in an amended or
supplemented Registration Statement or Prospectus, (2) the person alleging such
loss, claim, damage or liability was not sent or given, at or prior to the
written confirmation of such sale, a copy of the amended or supplemented
Registration Statement or Prospectus, and the Company had previously furnished
copies thereof to such indemnified party and (3) delivery of a prospectus is
required by the Act and was not so made. This indemnity agreement will be in
addition to any liability which the Company may otherwise have.
The Company also agrees to indemnify or contribute to Losses (as
defined below) of, as provided in Section 6(d), any underwriters of Registration
Securities registered under a Shelf Registration Statement, their officers and
directors and each person who controls such underwriters on substantially the
same basis as that of the indemnification of the Purchaser and the selling
Holders provided in this Section 6(a) and shall, if requested by any Holder,
enter into an underwriting agreement reflecting such agreement, as provided in
Section 4(q) hereof.
(a) Each Holder of Securities or New Securities, as applicable,
covered by a Registration Statement (including the Purchaser and, with respect
to any Prospectus delivery as contemplated in Section 4(h) hereof, each
Exchanging Dealer) severally and not jointly agrees to indemnify and hold
harmless the Company, each of its respective directors and officers and each
other person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20 of the Exchange Act to the same extent as the foregoing
indemnity from the Company to each such Holder, but only with reference to
written information relating to such Holder furnished to the Company by or on
behalf of such Holder specifically for inclusion in the documents referred to in
the foregoing indemnity. This indemnity agreement will be in addition to any
liability which any such Holder may otherwise have.
(b) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to
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be made against the indemnifying party under this Section 6, notify the
indemnifying party in writing of the commencement thereof; but the failure so to
notify the indemnifying party (i) will not relieve it from liability under
paragraph (a) or (b) above unless and to the extent it did not otherwise learn
of such action and such failure results in the forfeiture by the indemnifying
party of substantial rights and defenses and (ii) will not, in any event,
relieve the indemnifying party from any obligations to any indemnified party
other than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to appoint as counsel one firm
of attorneys of the indemnifying party's choice at the indemnifying party's
expense, which counsel, together with one local counsel in each applicable
jurisdiction, shall act on behalf of all the indemnified parties in any action
for which indemnification is sought (in which case the indemnifying party shall
not thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
PROVIDED, HOWEVER, that such counsel shall be satisfactory to the indemnified
party. Notwithstanding the indemnifying party's election to appoint counsel to
represent the indemnified party in an action, the indemnified party shall have
the right to employ separate counsel (including local counsel), and the
indemnifying party shall bear the reasonable fees, costs and expenses of such
separate counsel (and local counsel) if (i) the use of counsel chosen by the
indemnifying party to represent the indemnified party would, in the reasonable
judgment of the indemnified party, present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of the institution of such action or (iv) the indemnifying
party shall authorize the indemnified party to employ separate counsel at the
expense of the indemnifying party. An indemnifying party will not, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any pending or threatened
claim, action, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified parties are
actual or potential parties to such claim or action) unless such settlement,
compromise or consent includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit or proceeding.
(c) In the event that the indemnity provided in paragraph (a) or
(b) of this Section 6 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall have a joint and several
obligation to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating or defending same) (collectively "Losses") to which such
indemnified party may be subject in such proportion as is appropriate to reflect
the relative benefits received by such indemnifying party, on the one hand, and
such indemnified party, on the other hand, from the Initial Placement and the
Registration Statement which resulted in such Losses; PROVIDED, HOWEVER, that in
no case shall the Purchaser or any subsequent Holder of any Note or New Note be
responsible, in the aggregate, for any amount in excess of the purchase discount
or commission applicable to such Note, or in the case of a New
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Note, applicable to the Note which was exchangeable into such New Note, as
set forth on the cover page of the Final Memorandum, nor shall any
underwriter be responsible for any amount in excess of the underwriting
discount or commission applicable to the Securities purchased by such
underwriter under the Registration Statement which resulted in such Losses.
If the allocation provided by the immediately preceding sentence is
unavailable for any reason, the indemnifying party and the indemnified party
shall contribute in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of such indemnifying
party, on the one hand, and such indemnified party, on the other hand, in
connection with the statements or omissions which resulted in such Losses as
well as any other relevant equitable considerations. Benefits received by
the Company shall be deemed to be equal to the sum of (x) the total net
proceeds from the Initial Placement (before deducting expenses) as set forth
on the cover page of the Final Memorandum and (y) the total amount of
additional interest which the Company was not required to pay as a result of
registering the Securities or New Securities, as applicable, covered by the
Registration Statement which resulted in such Losses. Benefits received by
the Purchaser shall be deemed to be equal to the total purchase discounts and
commissions as set forth on the cover page of the Final Memorandum, and
benefits received by any other Holders shall be deemed to be equal to the
value of receiving Securities or New Securities, as applicable, registered
under the Act. Benefits received by any underwriter shall be deemed to be
equal to the total underwriting discounts and commissions, as set forth on
the cover page of the Prospectus forming a part of the Registration Statement
which resulted in such Losses. Relative fault shall be determined by
reference to whether any alleged untrue statement or omission relates to
information provided by the indemnifying party, on the one hand, or by the
indemnified party, on the other hand. The parties agree that it would not be
just and equitable if contribution were determined by pro rata allocation or
any other method of allocation which does not take account of the equitable
considerations referred to above. Notwithstanding the provisions of this
paragraph (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For
purposes of this Section 6, each person who controls a Holder within the
meaning of either the Act or the Exchange Act and each director, officer,
employee and agent of such Holder shall have the same rights to contribution
as such Holder, and each person who controls the Company within the meaning
of either the Act or the Exchange Act, each officer of the Company who shall
have signed the Registration Statement and each director of the Company shall
have the same rights to contribution as the Company, subject in each case to
the applicable terms and conditions of this paragraph (d).
(d) The provisions of this Section 6 will remain in full force and
effect, regardless of any investigation made by or on behalf of any Holder or
the Company or any of the officers, directors or controlling persons referred to
in this Section 6, and will survive the sale by a Holder of Securities or New
Securities, as applicable, covered by a Registration Statement.
7. LIQUIDATED DAMAGES.
If (a) on or prior to the 60th day following the date of the original
issuance of the Securities, neither the Exchange Offer Registration Statement
nor the Shelf Registration Statement
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has been filed with the Commission, (b) on or prior to the 120th day following
the date of the original issuance of the Securities, the Exchange Offer
Registration Statement has not been declared effective, (c) on or prior to the
150th day following the date of original issuance of the Securities, neither the
Registered Exchange Offer has been consummated nor the Shelf Registration
Statement has been declared effective or (d) after either the Exchange Offer
Registration Statement or the Shelf Registration Statement has been declared
effect, such Registration Statement thereafter ceases to be effective or usable
for its intended purpose without being succeeded immediately by a post-effective
amendment to such Registration Statement that cures such failure and that is
itself immediately declared effective (each such event referred to in clauses
(a) through (d), being referred to herein as a "Registration Default"), the
Company hereby agrees to pay liquidated damages ("Liquidated Damages") to each
Holder of Securities affected thereby with respect to the first 90-day period
immediately following the occurrence of the first Registration Default, in an
amount equal to $.05 per week per $1,000 principal amount of Securities held by
such Holder. The amount of the Liquidated Damages shall increase by an
additional $.05 per week per $1,000 principal amount of Securities with respect
to each subsequent 90-day period until all Registration Defaults have been
cured, up to a maximum amount of Liquidated Damages of $.25 per week per $1,000
principal amount of Securities (regardless of whether one or more than one
Registration Defaults is outstanding). All accrued Liquidated Damages shall be
paid by the Company on January 15 and June 15 of each year to Holders of
Securities by wire transfer of immediately available funds or by mailing checks
to their registered addresses if no such accounts have been specified.
Following the cure of all Registration Defaults relating to any particular
Securities, the accrual of Liquidated Damages with respect to such Securities
will cease.
All obligations of the Company set forth in the preceding paragraph
that are outstanding with respect to any Note, at the time such Note becomes
freely tradeable shall survive until such time as all such obligations with
respect to such Note shall have been satisfied in full.
8. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. The Company has not, as of the
date hereof, entered into, nor shall it, on or after the date hereof, enter
into, any agreement with respect to its securities that is inconsistent with the
rights granted to the Holders herein or otherwise conflicts with the provisions
hereof.
(b) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, qualified,
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 the Holders of at least a majority of the then outstanding aggregate
principal amount of Securities (or, after the consummation of any Exchange Offer
in accordance with Section 2 hereof, of New Securities); PROVIDED that, with
respect to any matter that directly or indirectly affects the rights of the
Purchaser hereunder, the Company shall obtain the written consent of the
Purchaser against which such amendment, qualification, supplement, waiver or
consent is to be effective. Notwithstanding the foregoing (except the foregoing
proviso), a waiver or consent to
16
<PAGE>
departure from the provisions hereof with respect to a matter that relates
exclusively to the rights of Holders whose Securities or New Securities, as
applicable, 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 Majority Holders, determined on the basis of securities being sold rather
than registered under such Registration Statement.
(c) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail,
telex, telecopier, or air courier guaranteeing overnight delivery:
(1) if to a Holder, at the most current address given by
such Holder to the Company in accordance with the
provisions of this Section 8(c), which address
initially is, with respect to each Holder, the address
of such Holder maintained by the registrar under the
Indenture, with a copy in like manner to BancBoston
Securities Inc. by fax to (617) 434-0624 and confirmed
by mail to them at 100 Federal Street, Boston,
Massachusetts 02110;
(2) if to you, initially at the address set forth in the
Purchase Agreement; and
(3) if to the Company, initially at its address set forth
in the Purchase Agreement.
All such notices and communications shall be deemed to have been duly
given when received.
The Purchaser or the Company by notice to the other may designate
additional or different addresses for subsequent notices or communications.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including, without the need for an express assignment or any consent by
the Company thereto, subsequent Holders of Securities and/or New Securities. The
Company hereby agrees to extend the benefits of this Agreement to any Holder of
Securities and/or New Securities and any such Holder may specifically enforce
the provisions of this Agreement as if an original party hereto.
(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 INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT
REGARD TO THE CONFLICT OF LAW PROVISIONS THEREOF).
(h) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired
or affected thereby, it being intended that all the rights and privileges of the
parties shall be enforceable to the fullest extent permitted by law.
(i) SECURITIES HELD BY THE COMPANY, ETC. Whenever the consent or
approval of Holders of a specified percentage of principal amount of Securities
or New Securities is required hereunder, Securities or New Securities, as
applicable, held by the Company or its Affiliates (other than subsequent Holders
of Securities or New Securities if such subsequent Holders are deemed to be
Affiliates solely by reason of their holdings of such Securities or New
Securities) shall not be counted in determining whether such consent or approval
was given by the Holders of such required percentage.
18
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Company and you.
Very truly yours,
METALLURG HOLDINGS, INC.
By: /S/ ARTHUR R. SPECTOR
----------------------------------------
Name: Arthur R. Spector
Title: Vice President
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above written
BANCBOSTON SECURITIES INC.
By: /S/ THEODORE J. DAVIES
---------------------------
Name: Theodore J. Davies
Title: Director
<PAGE>
ANNEX A
Each broker-dealer that receives New Securities for its own account pursuant to
the Registered Exchange Offer must acknowledge that it will deliver a prospectus
in connection with any resale of such New Securities. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Act. This Prospectus, as it may be amended or supplemented from time to
time, may be used by a broker-dealer in connection with resales of New
Securities received in exchange for Securities where such New Securities were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. The Company has agreed that, starting on the date hereof
(the "Expiration Date") and ending on the close of business on the first
anniversary of the Expiration Date, it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
<PAGE>
ANNEX B
Each broker-dealer that receives New Securities for its own account in exchange
for Securities, where such Securities were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Securities. See "Plan of Distribution."
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Securities for its own account
pursuant to the Registered Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such New Securities. The
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Securities received in
exchange for Securities where such Securities were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, starting on the Expiration Date and ending on the close of business on the
first anniversary following the Expiration Date, it will make this Prospectus,
as amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until _________________, 19__, all dealers
effecting transactions in the New Securities may be required to deliver a
prospectus.(1)
The Company will not receive any proceeds from any sale of New
Securities by broker-dealers. New Securities received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Securities or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such New
Securities. Any broker-dealer that resells New Securities that were received by
it for its own account pursuant to the Registered Exchange Offer and any broker
or dealer that participates in a distribution of such New Securities may be
deemed to be an "underwriter" within the meaning of the Act and any profit of
any such resale of New Securities and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the Act.
The Letter of Transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Act.
For a period of one year after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Securities) other than commissions or concessions of any brokers
or dealers and will
- ----------------------------
(1)In addition, the legend required by Item 502(e) of Regulation S-K
will appear on the back cover page of the Exchange Offer Prospectus.
<PAGE>
indemnify the holders of the Securities (including any broker-dealers) against
certain liabilities, including liabilities under the Act.
[If applicable, add information required by Regulation S-K Items 507
and/or 508.]
<PAGE>
ANNEX D
RIDER A
CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
----------------------------------------------------------------------
Address:
---------------------------------------------------------------
---------------------------------------------------------------
RIDER B
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of New
Securities. If the undersigned is a broker-dealer that will receive New
Securities for its own account in exchange for Securities that were acquired as
a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such New Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Act.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF ROGERS & WELLS LLP]
July 28, 1998
Metallurg Holdings, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Ladies and Gentlemen:
We have acted as special counsel for Metallurg Holdings, Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act"), of a registration
statement on Form S-4 (the "Registration Statement") relating to the proposed
offer by the Company to exchange $121,000,000 aggregate principal amount of
the Company's 12 3/4% Series A Senior Discount Notes due 2008 (the "Old
Notes") for a like amount of the Company's 12 3/4% Series B Senior Discount
Notes due 2008 (the "New Notes"). The Old Notes were issued, and the New
Notes will be issued, pursuant to an Indenture dated July 13, 1998 (the
"Indenture") by and between the Company and United States Trust Company of
New York, as trustee.
In acting as special counsel to the Company, we have examined (i) the
Registration Statement, (ii) the Indenture, (iii) the form of the New Notes
and (iv) originals or copies of such other documents, corporate records,
certificates and instruments as we have deemed necessary for purposes of this
opinion. In examining all such documents, we have assumed the genuineness of
all signatures, the authenticity of all documents purporting to be originals,
and the conformity to the respective originals of all documents purported to
be copies.
Based on the foregoing and such examination of law as we have deemed necessary
and subject to the assumptions, qualifications and exceptions contained herein,
we are of the opinion that the New Notes have been duly authorized by the
Company and, when issued, executed and authenticated in accordance with the
terms of the Indenture and delivered in exchange for the Old Notes in the manner
set forth in the Registration Statement, will constitute legal, valid, binding
and enforceable obligations of the Company subject to (i) the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' rights generally and (ii) the effect of
general principles of equity (regardless of
<PAGE>
Metallurg Holdings, Inc. 2 July 28, 1998
whether considered in a proceeding in equity or at law).
We hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to our firm under the heading "Legal Matters" in
the prospectus that forms a part thereof. In granting this consent, we do not
admit that we are with the category of persons whose consent is required under
Section 7 of the Securities Act or the rules and regulations of the Commission
thereunder.
Very truly yours,
/S/ ROGERS & WELLS LLP
<PAGE>
Exhibit 10.1
PLEDGE AGREEMENT
from
METALLURG HOLDINGS, INC.,
as Pledgor
to
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
<PAGE>
PLEDGE AGREEMENT
PLEDGE AGREEMENT, together with any amendments, replacements and
supplements hereafter entered into (the "Pledge Agreement"), dated July 13,
1998, between Metallurg Holdings, Inc. (together with its successors and
assigns, the "Pledgor") and United States Trust Company of New York, as trustee
(the "Trustee") under the indenture (as the same may be amended from time to
time in accordance with the terms thereof, the "Indenture") relating to the
12.75% Senior Discount Notes due 2008 (together with a series of substantially
identical senior discount notes due 2008 to be issued in exchange for the
originally issued series, the "Notes") of the Pledgor, made for the equal and
ratable benefit of the holders of the Notes (the "Holders"). As used herein,
all capitalized terms not otherwise defined herein shall have the meanings set
forth in the Indenture.
W I T N E S S E T H:
WHEREAS, the Pledgor will issue the Notes in an aggregate principal
amount at maturity of $121,000,000 pursuant to the Indenture; and
WHEREAS, in order to secure on an equal and ratable basis the payment
and performance in full of the obligations to the Holders and the Trustee under
the terms of the Indenture (the "Indenture Obligations"), the parties hereto
desire to set forth their mutual understanding and certain agreements regarding
the terms and conditions of the pledge of the Pledged Collateral (as defined
below) made by the Pledgor to the Trustee for the benefit of the Holders.
NOW, THEREFORE, in consideration of the premises and other benefits to
the Pledgor, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
Section 1. PLEDGE. As collateral security for the due and prompt
payment in full and complete performance of the Indenture Obligations and all
indebtedness and other liabilities and obligations, whether now existing or
hereafter arising, under, or arising out of, the Indenture, the Pledgor hereby
pledges, assigns, transfers, sets over and delivers unto the Trustee and hereby
grants unto the Trustee for the benefit of the Holders and unto their respective
successors and assigns, a first priority security interest in all of the right,
title and interest of the Pledgor in, to and under any and all of
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<PAGE>
the following described property, rights and interests (collectively, the
"Pledged Collateral"):
(a) all of the Equity Interests of Metallurg, Inc. (the
"Pledged Subsidiary") identified on Schedule A attached hereto (for purposes of
this Agreement, "Equity Interests" shall mean any and all issued and outstanding
shares, interests, rights to purchase, warrants, options, participations or
other equivalents of or interests in (however designated) any entity, or any
securities convertible into or exercisable or exchangeable for any such
interests);
(b) all other Equity Interests, now or hereafter owned or
acquired by the Pledgor and wherever located, of the Pledged Subsidiary directly
owned by the Pledgor and the certificates representing such securities, and any
present or future options, warrants or other rights to subscribe for or purchase
any of the foregoing described in subsections 1(a) or 1(b) hereof or any notes,
bonds, debentures or other evidences of indebtedness that (i) are at any time
convertible, exchangeable or exercisable into Equity Interests of the Pledged
Subsidiary or (ii) have or at any time could by their terms have voting rights
with respect to any matter affecting the Pledged Subsidiary and all securities,
certificates and instruments representing or evidencing ownership of any of the
foregoing (the property described in subsections 1(a) and 1(b) hereof, being
referred to herein collectively as the "Pledged Securities"); and
(c) to the extent not included in the foregoing, all of
Pledgor's rights, claims or other general intangibles constituting, or arising
out of or relating to, its rights as a general partner, limited partner or
managing general partner of the Pledged Subsidiary, including without limitation
its share in the profits and losses of the Pledged Subsidiary and its right as
such partner to receive distributions of the Pledged Subsidiary's assets or
income, in each case whether arising under a partnership agreement or applicable
law, created by operation of law, or otherwise;
(d) all obligations for money borrowed ("Indebtedness")
from time to time owed to the Pledgor by the Pledged Subsidiary and the
instruments evidencing such Indebtedness, including, without limitation, all
Indebtedness listed on Schedule B hereto, and all interest, cash, instruments
and other property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such Indebtedness;
and
(e) all dividends, distributions, cash, instruments and
other property or securities (including without limitation any security as such
term is defined
2
<PAGE>
in Article 8 of the Uniform Commercial Code as in effect in the applicable
jurisdiction at such time (the "UCC")), now or hereafter at any time or from
time to time received or receivable or otherwise distributed or distributable in
respect of or in exchange for any or all of the Pledged Collateral and all
proceeds of the Pledged Collateral.
TO HAVE AND TO HOLD the Pledged Collateral, together with all rights, titles,
interests, powers, privileges and preferences pertaining or incidental thereto,
unto the Trustee for the benefit of the Holders and unto their respective
successors and assigns.
Section 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
PLEDGOR. The Pledgor hereby represents and warrants, covenants and agrees that:
(a) The Pledgor is, and as to Pledged Collateral acquired
by it from time to time after the date hereof, will be, the sole legal and
beneficial owner of the Pledged Collateral, and holds, or will hold, the Pledged
Collateral free and clear of all Liens (except for the security interest granted
hereunder to the Trustees for the benefit of Holders), and has not made and will
not make any other pledge, assignment, mortgage, hypothecation or transfer of
the Pledged Collateral. The Pledged Securities are not subject to any put,
call, option or other right in favor of any other person whatsoever.
(b) The Pledged Securities which are shares of stock have
been duly authorized and validly issued and are fully paid and non-assessable.
(c) Except as set forth below, upon delivery of the
certificates evidencing the Pledged Securities to the Collateral Agent and so
long as the Collateral Agent maintains possession of such certificates pursuant
to this Pledge Agreement, the Trustee will have a valid and perfected first
priority security interest in the Pledged Securities. In the case of a Pledged
Security which represents an interest in a partnership, upon filing of a UCC-1
financing statement in the appropriate jurisdiction in connection with such
interest, and upon delivery of the certificate evidencing such interest and so
long as the Collateral Agent maintains possession of such certificate, the
Collateral Agent will have a valid and perfected first priority security
interest in such Pledged Security, which together with the security interest in
the other Pledged Securities will secure the payment and performance in full of
the Indenture Obligations.
(d) The Pledgor has the valid right and legal authority to
pledge the Pledged Collateral in the manner hereby done or contemplated and will
defend its title thereto against the claims of all persons whomsoever and shall
maintain and
3
<PAGE>
preserve the security interest granted hereunder with respect to the Pledged
Collateral as long as this Pledge Agreement shall remain in full force and
effect.
(e) Neither the execution and delivery of this Pledge
Agreement by the Pledgor nor the consummation of the transactions herein
contemplated nor the fulfillment of the terms hereof (i) violate the Pledgor's
or the Pledged Subsidiary's, charter or bylaws, (ii) violate the terms of any
agreement, indenture, mortgage, deed of trust, equipment lease, instrument or
other document to which the Pledgor or the Pledged Subsidiary, is a party, or by
which any of them may be bound or to which any of their properties or assets may
be subject, which violation or conflict would have a material adverse effect on
the financial condition, business, assets or liabilities of the Pledgor and the
Pledged Subsidiary taken as a whole, or on the value of the Pledged Collateral
or a material adverse effect on the security interests hereunder, or (iii)
conflict with any law, order, rule or regulation applicable to the Pledgor or
the Pledged Subsidiary, of any court or any government, regulatory body or
administrative agency or other governmental body having jurisdiction over the
Pledgor or the Pledged Subsidiary, or its or their Properties, or (iv) result in
or require the creation or imposition of any Lien (other than the Lien
contemplated hereby), upon or with respect to any of the property now owned or
hereafter acquired by the Pledgor or the Pledged Subsidiary, which violation or
conflict would have a material adverse effect on the financial condition,
business, assets or liabilities of the Pledgor and the Pledged Subsidiary taken
as a whole, or on the value of the Pledged Collateral or a material adverse
effect on the security interests hereunder.
(f) The Pledged Securities, as described in Schedule A
attached hereto, include all of the issued and outstanding Equity Interests of
the Pledged Subsidiary as of the date hereof, and all outstanding options,
warrants, calls, commitments of any character whatsoever or other rights to
subscribe for or purchase any property described in subsection 2(a) or any
notes, bonds, debentures or other evidences of indebtedness that (i) are at any
time convertible into Equity Interests of the Pledged Subsidiary or (ii) have or
at any time could by their terms have voting rights with respect to any matters
affecting the Pledged Subsidiary. There is no Indebtedness owed to the Pledgor
by the Pledged Subsidiary as of the date hereof, and Schedule B is accordingly
blank.
(g) No consent or approval which has not been obtained
prior to the date hereof of any other person or entity and no authorization,
approval or other action by, and no notice to or filing with any governmental
body, regulatory authority or securities exchange, was or is necessary as a
condition to the validity of the pledge
4
<PAGE>
hereunder of the Pledged Collateral, and such pledge is effective to vest in the
Trustee the rights of the Trustee in the Pledged Collateral as set forth herein.
(h) The Pledgor shall deliver to the Trustee concurrently
with the execution of this Pledge Agreement: (i) all certificates and
instruments representing the Pledged Securities described in Schedule A, and
(ii) each other item of Pledged Collateral (including all certificates,
instruments, notes and writings representing or evidencing any such Pledged
Collateral) immediately upon the Pledgor's acquisition thereof. Any and all
Pledged Securities delivered to the Trustee shall be accompanied by undated duly
executed stock powers in blank and by such other instruments of transfer or
documents as the Trustee may reasonably request. The Trustee shall have the
right (in its discretion) to hold the certificates representing the Pledged
Securities in its own name or in the name of its nominee, all in form and
substance sufficient to make effective the pledge hereunder and otherwise
satisfactory to the Trustee.
(i) Upon reasonable request to the Pledgor, the Trustee
shall have full and free access during normal business hours to all of the
books, correspondence and records of the Pledgor relating to the Pledged
Collateral, and the Trustee and its representatives may examine the same, take
extracts therefrom and make photocopies thereof, and the Pledgor agrees to
render to the Trustee, at the Pledgor's cost and expense, such clerical and
other assistance as may be reasonably requested by the Trustee with regard
thereto.
(j) The Pledgor will comply in all material respects with
all requirements of law applicable to the Pledged Collateral or any part thereof
and use its best efforts to obtain all approvals as may be required to effect
any of the granting clauses of this Pledge Agreement.
(k) The Pledgor shall not permit the Pledged Subsidiary to
issue to the Pledgor or any of its Affiliates (other than a Restricted
Subsidiary) any securities of the type required to be pledged hereunder unless
such securities are promptly pledged and delivered hereunder to the Trustee in
accordance with Section 1. In addition, the Pledgor shall not permit the
Pledged Subsidiary to issue any securities of the type required to be pledged
hereunder unless such issuance is made in compliance with the terms of the
Indenture.
(l) If, while this Pledge Agreement is in effect, any stock
dividend, stock split, reclassification, readjustment, reorganization, merger,
consolidation, exchange offer, tender offer or other change in the capital
structure, including the
5
<PAGE>
creation of any subscription or other rights or other Pledged Securities, is
declared or made, or proposed to be declared or made, by the Pledged Subsidiary,
all substituted and additional securities or interest issued with respect to the
Pledged Collateral and evidenced by certificates shall be endorsed in blank by
the Pledgor promptly upon receipt thereof or otherwise appropriately transferred
to the Trustee in negotiable form, and all certificates or instruments
evidencing such securities shall be delivered to the Trustee to be held under
the terms of this Pledge Agreement in the same manner as, and as a part of, the
Pledged Collateral. All Pledged Securities shall be evidenced by one or more
certificates. Any securities that may be issued upon exercise of any
subscription or other rights relating to the Pledged Securities shall be
endorsed in blank and delivered to the Trustee with any necessary powers.
(m) The Pledgor shall pay and discharge all taxes,
assessments and governmental charges or levies against any Pledged Collateral
prior to delinquency thereof and shall keep all Pledged Collateral free of all
unpaid charges whatsoever, unless contested in good faith and appropriate
reserves have been set aside in accordance with GAAP.
(n) The Pledgor has, independently and without reliance on
the Trustee and/or any Holder and based on such documents and information as it
deemed appropriate, made its own credit analysis and decision to enter into this
Pledge Agreement.
(o) In the event that the Trustee desires to exercise any
remedies, voting or consensual rights or attorney-in-fact powers set forth in
this Pledge Agreement and determines it necessary to obtain any approvals
therefor, then, upon the request of the Trustee, the Pledgor agrees to use its
best efforts to assist and aid the Trustee to obtain as soon as possible any
necessary approvals for the exercise of any such remedies, rights and powers.
(p) The Pledgor has delivered to the Trustee a duly
executed acknowledgment from the Pledged Subsidiary acknowledging the
registration on its books and records of the pledge of the Pledged Securities
pursuant to this Agreement.
(q) There are no voting trusts or other agreements or
understandings to which Pledgor is a party or by which it may be bound with
respect to voting, managerial consent, election or other rights of Pledgor
relating to the Pledged Securities.
6
<PAGE>
(r) The principal place of business and chief executive
office of Pledgor and the office where Pledgor keeps its records concerning the
Pledged Collateral shall be [c/o Safeguard International Fund, L.P., 800 The
Safeguard Building, 435 Devon Park Drive, Wayne, Pennsylvania 19087].
Section 3. ADMINISTRATION OF THE PLEDGED COLLATERAL. The Trustee
shall administer the Pledged Collateral in accordance with the provisions hereof
and of the Indenture.
Section 4. RELEASE AND SUBSTITUTION OF PLEDGED COLLATERAL. The
Pledged Collateral shall not be released from the security interest created
hereunder and no property shall be substituted for any of the Pledged
Collateral, except in accordance with the provisions of Sections 5 and 18
hereof; PROVIDED that Pledged Collateral may be released from the security
interest created hereunder in connection with any disposition thereof by the
Pledgor made in accordance with the Indenture, so long as no "Default" or "Event
of Default" (as defined in the Indenture) is in existence at the time of or
immediately after giving effect thereto.
Section 5. VOTING RIGHTS, DIVIDENDS, ETC.
(a) So long as no Event of Default shall have occurred and
be continuing and notwithstanding any other section hereof:
(i) the Pledgor shall be entitled to exercise any and all
voting or consensual rights and powers, including subscription rights,
accruing to an owner of the Pledged Collateral or any part thereof for any
purpose not inconsistent with the terms of this Pledge Agreement or any
agreement giving rise to any of the Indenture Obligations;
(ii) the Pledgor shall be entitled to receive, retain and
use any and all dividends, distributions or other payments which are
permitted by the Indenture and paid on the Pledged Collateral in cash or
property (other than securities which are subject to this Agreement);
(iii) the Trustee shall execute and deliver to the
Pledgor or cause to be executed and delivered to the Pledgor, all such
proxies, powers of attorney, dividend orders and other instruments as the
Pledgor may reasonably request in writing for the purpose of enabling it to
exercise the voting or consensual rights and powers which the Pledgor is
7
<PAGE>
entitled to exercise pursuant to the foregoing subparagraph (i) or to
receive the dividends, distributions or other payments which the Pledgor is
authorized to retain pursuant to the foregoing subparagraph (ii).
(b) Upon the occurrence and during the continuance of an
Event of Default, all rights of the Pledgor to exercise the voting or consensual
rights and powers which the Pledgor would otherwise be entitled to exercise
pursuant to subparagraph (i) of Section 5(a) hereof and to receive the
dividends, distributions and other payments which the Pledgor would otherwise be
authorized to receive and retain pursuant to subsection (ii) of Section 5(a)
shall automatically cease, and all such rights shall thereupon become vested in
the Trustee, which shall then have the sole and exclusive right and authority to
exercise all such voting and consensual rights and powers and to receive and
retain as Pledged Collateral all such dividends, distributions and other
payments. Any and all money and other property paid over to or received by the
Trustee pursuant to the provisions of this Section 5(b) shall be retained by the
Trustee as Pledged Collateral hereunder and shall be administered and applied in
accordance with the provisions of this Pledge Agreement and the Indenture. All
dividends and interest payments which are received by the Pledgor contrary to
the provisions of this subsection (b) shall be received in trust for the benefit
of the Trustee, shall be segregated from other funds of the Pledgor and shall be
forthwith paid over to the Trustee as Pledged Collateral in the same form as so
received (with any necessary endorsement).
Section 6. DEFAULT; REMEDIES.
(a) EXERCISE OF REMEDIES UNDER THE PLEDGE AGREEMENT. If an
Event of Default shall have occurred and be continuing, the Trustee shall
commence the taking of such actions (or refrain from taking actions) toward
collection or enforcement of this Pledge Agreement and the Pledged Collateral
(or any portion thereof), including without limitation action toward foreclosure
upon any Pledged Collateral, as it deems appropriate in its sole discretion.
(b) REMEDIES GENERALLY. If an Event of Default shall have
occurred and be continuing, the Trustee itself or by its agents or attorneys may
(i) exercise any or all of its rights and remedies hereunder, under the
Indenture or any other instrument or agreement securing, evidencing or relating
to the Indenture Obligations or under applicable laws (including all of the
rights and remedies of a secured creditor under the Uniform Commercial Code then
in effect in the State of New York; the "NUCC"), (ii) retain the Pledged
Collateral or (iii) sell, assign, transfer, or dispose of, endorse and deliver
the whole or, from time to time, any part of the Pledged Collateral
8
<PAGE>
at public or private sale or sales, at any exchanges, brokers board or at any of
the Trustee's offices or elsewhere, for cash, upon credit or for other property,
for immediate or future delivery, and for such price or prices and on such other
terms that the Trustee may deem commercially reasonable (in its liability for
loss or damage). Upon consummation of any such sale, the Trustee shall have the
right to assign, transfer, endorse and deliver to the purchaser or purchasers
thereof the Pledged Collateral so sold. Each such purchaser at any such sale
shall hold the property sold absolutely free from any claim or right on the part
of the Pledgor, and the Pledgor hereby waives (to the full extent permitted by
law) all rights of redemption, stay or appraisal which the Pledgor now has or
may at any time in the future have under any rule of law or statute now existing
or hereafter enacted. The Trustee shall give the Pledgor at least 10 Business
Days' written notice (which the Pledgor agrees shall be deemed to be reasonable
notification within the meaning of Section 9-504(3) of the NUCC) of the
Trustee's intention to make any such public or private sale. Any such sale
shall be held at such time or times and at such place or places as the Trustee
may deem commercially reasonable. At any such sale, the Pledged Collateral, or
portion thereof to be sold, may be sold as an entirety or in separate portions,
as the Trustee may deem commercially reasonable. The Trustee shall not be
obligated to make any sale of the Pledged Collateral if it shall determine not
to do so, regardless of the fact that notice of sale of the Pledged Collateral
may have been given. The Trustee may adjourn any public or private sale or
cause the same to be adjourned from time to time by announcement at the time and
place fixed for sale, and such sale may, without further notice, be made at the
time and place to which the same was so adjourned. In case sale of all or any
part of the Pledged Collateral is made on credit for future delivery, the
Pledged Collateral so sold may be retained by the Trustee until the sale price
is paid by the purchaser or purchasers thereof, but the Trustee shall not incur
any liability in case any such purchaser or purchasers shall fail to take up and
pay for the Pledged Collateral so sold and, in case of any such failure, such
Pledged Collateral may be sold again upon like notice. As an alternative to
exercising the power of sale herein conferred upon it, the Trustee may proceed
by suit or suits at law or in equity to exercise its remedies regarding the
Pledged Collateral and sell the Pledged Collateral or any portion thereof
pursuant to judgment or decree of a court or courts having competent
jurisdiction. If under mandatory requirements of applicable law, the Trustee
shall be required to make disposition of the Pledged Collateral within a period
of time that does not permit the giving of notice to the Pledgor as herein
before provided, the Trustee need give the Pledgor only such notice of
disposition as shall be reasonably practicable in view of such mandatory
requirements of law.
(c) PREVENTING IMPAIRMENT OF THE PLEDGED COLLATERAL.
Regardless of whether or not there shall have occurred any Event of Default, the
Trustee may
9
<PAGE>
institute and maintain or cause in its name or in the name of the Pledgor or
either of them, to be instituted and maintained, such suits and proceedings as
the Trustee may be advised by counsel shall be necessary or expedient to prevent
any impairment of the security interest in or perfection of the Pledged
Collateral in contravention of the terms of the Indenture. The Pledgor agrees
not to knowingly take or permit to be taken any action which would impair the
Pledged Collateral or the Trustee's rights in the Pledged Collateral.
Section 7. TRUSTEE APPOINTED ATTORNEY-IN-FACT. The Pledgor hereby
constitutes and appoints the Trustee its attorney-in-fact, during the occurrence
and continuance of an Event of Default, for the purpose of carrying out the
provisions, but subject to the terms and conditions, of this Pledge Agreement
and taking any action and executing any instrument, including, without
limitation, any financing statement or continuation statement, and taking any
other action to maintain the validity, perfection, priority and enforcement of
the security interest intended to be created hereunder, that the Trustee may
deem necessary or advisable to accomplish the purposes hereof, which appointment
is irrevocable and coupled with an interest; PROVIDED, HOWEVER, that nothing
herein contained shall be construed as requiring or obligating the Trustee to
make any commitment or to make any inquiry as to the nature or sufficiency of
any payment received by it, or to present or file any claim or notice, or to
take any action with respect to the Pledged Collateral or any part thereof or
the monies due or to become due in respect thereof or any property covered
thereby, and no action taken or omitted or any part thereof shall give rise to
any defense, counterclaim or right of action against the Trustee, unless the
Trustee's actions are taken or omitted to be taken with gross negligence or bad
faith or constitute willful misconduct.
Section 8. PURCHASE OF PLEDGED COLLATERAL BY THE TRUSTEE OR
HOLDERS. At any sale of the Pledged Collateral, whether pursuant to power of
sale or otherwise hereunder, the Trustee or any Holder may, to the extent
permitted by applicable law, bid for and purchase, free from any right of
redemption (all such rights being hereby waived and released by the Pledgor to
the extent permitted by law), the Pledged Collateral or any part thereof or an
interest therein and upon compliance with the terms of such sale may hold,
retain, exploit, resell or otherwise dispose of such property without further
accountability to the Pledgor for the proceeds of such sale. The Pledgor will
execute and deliver or cause to be executed and delivered, such instruments,
endorsements, assignments, waivers, certificates and other documents and take
such further action as the Trustee shall request in connection with any such
sale.
Section 9. PAYMENTS AND PROCEEDS.
10
<PAGE>
All distributions to the Trustee with respect to the Pledged
Collateral after the occurrence of an Event of Default shall first be applied
to the reasonable costs and expenses, including attorneys' fees, incurred by the
Trustee in taking such foreclosure action and thereafter shall be applied by the
Trustee as provided in the Indenture. After payment in full of all Indenture
Obligations, the remaining proceeds from any foreclosure hereunder shall be paid
to the Pledgor, or its successors or assigns, or to whomsoever may be lawfully
entitled to receive the same or as a court of competent jurisdiction may direct,
any surplus then remaining from such Proceeds.
Section 10. WAIVER OF CLAIMS. Except as otherwise provided in this
Pledge Agreement, THE PLEDGOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, NOTICE OF JUDICIAL HEARING IN CONNECTION WITH THE TRUSTEE'S
TAKING POSSESSION OR THE TRUSTEE'S DISPOSITION OF ANY OF THE PLEDGED COLLATERAL,
INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICES AND HEARINGS FOR ANY
PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT THAT THE PLEDGOR WOULD
OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR OF
ANY STATE, and, to the full extent permitted by applicable law, the Pledgor
hereby further waives:
(a) all damages occasioned by such taking of possession
except any damages which are the direct result of the Trustee's gross
negligence, bad faith or willful misconduct;
(b) all other requirements as to the time, place and terms
of sale or other requirements, with respect to the enforcement of the Trustee's
rights and powers hereunder; and
(c) except as provided in Section 6(c) hereof, all rights
of redemption, appraisement, valuation, stay, marshalling of assets, extension
or moratorium, existing at law or in equity, by statute or otherwise, now or
hereafter in force, in order to prevent or delay the enforcement of this Pledge
Agreement or the sale or other disposition of the Pledged Collateral or any
portion thereof, and the Pledgor, for itself and all who may claim under it,
insofar as it now or hereafter lawfully may, hereby waives all such rights.
Any sale of, or the exercise of any options to purchase, or any other
realization upon, any Pledged Collateral shall operate to divest all right,
title, interest,
11
<PAGE>
claim and demand, at law or in equity, of the Pledgor therein and thereto, and
shall be a perpetual bar both at law and in equity against the Pledgor and
against any and all persons claiming or attempting to claim the Pledged
Collateral so sold, optioned or realized upon, or any part thereof, through and
under the Pledgor.
Section 11. REMEDIES CUMULATIVE; NO WAIVER. Each right, power and
remedy of the Trustee provided for herein or in another agreement pursuant to
which a Lien is created in favor of the Trustee for the benefit of any Holder,
or now or hereafter existing at law or in equity, by statute or otherwise, shall
be cumulative and concurrent and shall be in addition to every other right,
power or remedy of the Trustee or any Holder provided for herein or in another
agreement pursuant to which a Lien is created in favor of the Trustee for the
benefit of any Holder or now or hereafter existing at law or in equity, by
statute or otherwise. No failure on the part of the Trustee or any Holder to
exercise, and no delay in exercising, any right, power or remedy hereunder, or
in another agreement pursuant to which a Lien is created in favor of the Trustee
for the benefit or any Holder or now or hereafter existing at law or in equity,
by statute or otherwise, shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
No notice to or demand on the Pledgor hereunder shall, of itself, entitle the
Pledgor to any other or further notice or demand in the same, similar or other
circumstances.
Section 12. ADDITIONAL COLLATERAL. Without notice or consent of
any Pledgor and without impairment of the security interests and rights created
by this Pledge Agreement, the Trustee may accept from any person or persons
additional collateral or other security for the Indenture Obligations. Neither
the creation of the security interests created hereunder nor the acceptance of
any such additional collateral or security shall prevent the Trustee from
resorting to such additional collateral or security or to the Pledged
Collateral, in any order without affecting the Trustee's rights hereunder.
Section 13. FURTHER ASSURANCES. The Pledgor agrees (i) that it
shall, at its own expense, promptly file or record such notices, financing
statements, continuation statements or other documents and take all further
action as may be necessary to perfect, maintain and protect the validity,
perfection and priority of the security interests of the Trustee hereunder or to
enable the Trustee to exercise and enforce its rights and remedies hereunder
with respect to the Pledged Collateral, and as the Trustee may reasonably
request, such instruments to be in form and substance satisfactory to the
Trustee, and (ii) that it shall, at its own expense, do such further acts and
things and execute and deliver
12
<PAGE>
to the Trustee such additional conveyances, assignments, agreements and
instruments as the Trustee may at any time reasonably request in connection with
the administration and enforcement of this Pledge Agreement or relative to the
Pledged Collateral or any part thereof or in order to assure and confirm unto
the Trustee its rights, powers and remedies hereunder.
The Pledgor agrees that it will notify the Trustee in writing not less
than 30 days prior to any change in location and the creation of a new location
of (a) the principal place of business or chief executive office and (b) the
offices where the Pledgor's books and records and related information concerning
the Pledged Collateral are kept; PROVIDED, HOWEVER, that no such change may be
effected before all filings required to be made and all other necessary action
to preserve the perfection of the first priority security interest of the
Trustee in the Collateral shall have been made or taken.
The Pledgor will not change its name, identity or structure in any
manner which might make any financing statement filed hereunder incorrect or
misleading unless Pledgor shall have given the Trustee at least 30 days' prior
written notice thereof and shall have properly amended all financing statements
and properly filed all additional financing statements necessary to maintain the
perfection of the security interest granted hereunder at all times and shall
have provided the Trustee with an Officers' Certificate certifying that the
above steps have been taken.
Section 14. INDEMNIFICATION. The Trustee shall have such indemnity
as is provided under Section 7.07 of the Indenture.
Section 15. REGISTRATION RIGHTS, ETC.
(a) If the Trustee determines that the registration of any
of the securities included in the Pledged Collateral under, or other compliance
with, the Securities Act or any similar federal or state law is desirable, upon
or at any time after an Event of Default and acceleration of either issue of the
Notes, the Pledgor will use its best efforts to cause such registration or
compliance to be effectively made, at no expense to the Trustee or to the
Holders, and to continue any such registration effective for such time as may be
reasonably necessary in the opinion of the Trustee. The Pledgor will reimburse
the Trustee upon demand for any expenses incurred by the Trustee (including
reasonable attorneys' fees and expenses) incurred in connection therewith, which
obligation to pay such expenses shall be secured hereunder.
13
<PAGE>
(b) If the Pledgor is unable to effect a public sale of any
or all of the Pledged Collateral or if the Trustee determines that it is
desirable to sell the Pledged Collateral in one or more private sales, the
Trustee may limit such sales to a restricted group of purchasers who will be
obliged to agree, among other things, to acquire such securities for their own
account for investment and not with a view to distribution or resale. The
Pledgor acknowledges and agrees that any such private sale may result in prices
and other terms less favorable to the seller than if such sale were a public
sale and, notwithstanding such circumstances, agrees that any such private sale
shall be deemed to have been made in a commercially reasonable manner. The
Trustee shall be under no obligation to delay a sale of any of the Pledged
Collateral for the period of time necessary to permit the issuer of such
securities to register such securities for public sale under the Securities Act
or under applicable state securities laws even if such issuer would agree to do
so.
(c) The Pledgor further agrees to do or cause to be done
all such other acts and things as may be necessary to make such sale or sales of
all or any part of the Pledged Collateral valid and binding and in compliance
with any and all applicable law, rules, regulations, orders or decrees, all at
the Pledgor's expense. The Pledgor further agrees that a breach of any of the
covenants contained in this Pledge Agreement will cause irreparable injury to
the Trustee, as secured party, for which the Trustee would have no adequate
remedy at law in respect of such breach and, as a consequence, agrees that each
and every covenant contained in this Section 15 shall be specifically
enforceable against the Pledgor and the Pledgor waives and agrees not to assert
any defenses against an action for specific performance of such covenants.
Section 16. PLEDGOR'S INDENTURE OBLIGATIONS ABSOLUTE. The
liability of the Pledgor under this Pledge Agreement shall remain in full force
and effect without regard to, and shall not be released, suspended, discharged,
terminated or otherwise affected by (a) any change in the time, place or manner
of payment of all or any of the Indenture Obligations, or in any other term of
the Indenture, the Notes, any waiver, indulgence, renewal, extension, amendment
or modification of or addition, consent or supplement to or deletion from or any
other action or inaction under or in respect of the Indenture, the Notes or any
assignment or transfer thereof; (b) any lack of validity or enforceability, in
whole or in part, of the Indenture or the Notes; (c) any furnishing of any
additional security for the Indenture Obligations or any acceptance thereof or
any release or non-perfection of any security interest in the Pledged
Collateral; (d) any limitation on any party's liability or obligations under the
Indenture or the Notes; (e) any bankruptcy, insolvency, reorganization,
composition, adjustment, dissolution, liquidation or other like proceeding
relating to a Pledgor, or any action taken with respect to
14
<PAGE>
this Pledge Agreement by any trustee or receiver, or by any court, in any such
proceeding, whether or not the Pledgor shall have notice or knowledge of any of
the foregoing; (f) any exchange, release or amendment or waiver of or consent to
departure from any agreement pursuant to which a Lien is created in favor of the
Trustee for the benefit of the Holder, pursuant to which a person other than the
Pledgor has granted a security interest; or (g) any other circumstance that
might otherwise constitute a defense available to, or a discharge of the
Pledgor.
Section 17. WAIVER. To the extent permitted by applicable law, the
Pledgor hereby waives promptness, diligence, notice of acceptance and any other
notice with respect to any of the Indenture Obligations and this Pledge
Agreement and any requirement that the Trustee protect, secure, perfect or
insure any security interest or any property subject thereto or exhaust any
right or take any action against the Pledgor or any other person or entity;
PROVIDED, HOWEVER, that the Trustee shall in any event take such care in the
handling of any Pledged Securities in its possession as it takes with respect to
Property of a similar nature in its possession.
Section 18. TERMINATION. Upon payment and performance in full and
satisfaction of all of the obligations of the Pledgor or its successors or
assigns under the Indenture and all other amounts payable under this Pledge
Agreement, this Pledge Agreement shall terminate and the Trustee shall assign
and redeliver to the Pledgor all of the Pledged Collateral hereunder that has
not been sold, disposed of, retained or applied by the Trustee in accordance
with the terms hereof. Such reassignment and redelivery shall be without
warranty by or recourse to the Trustee, and shall be at the expense of the
Pledgor. At such time, this Pledge Agreement shall no longer constitute a Lien
upon or grant any security interest in any of the Pledged Collateral, and the
Trustee shall, at the Pledgor's expense deliver to the Pledgor written
acknowledgment thereof and of cancellation of this Pledge Agreement in a form
reasonably requested by the Pledgor; PROVIDED, HOWEVER, that this Pledge
Agreement shall continue to be effective or be reinstated, as the case may be,
if at any time any payment of any of the Indenture Obligations is rescinded or
must otherwise be returned upon the insolvency, bankruptcy or reorganization of
the Pledgor or the Pledged Subsidiary all as though such payment had not been
made.
Section 19. NOTICES. Any notices or other communications required
or permitted hereunder shall be in writing, and shall be sufficiently given if
made by hand delivery, by telex, by facsimile or registered or certified mail,
postage prepaid, return receipt requested, addressed as provided in Section
11.02 of the Indenture.
15
<PAGE>
Any party hereto may by notice to the other party designate such
additional or different addresses as shall be furnished in writing by such
party. Any notice or communication to any party shall be deemed to have been
given or made as of the date so delivered, if personally delivered; when
answered back, if telexed; when receipt is acknowledged, if faxed; and five
calendar days after mailing, if sent by registered or certified mail (except
that a notice of change of address shall not be deemed to have been given until
actually received by the addressee). The Pledgor may give notice to the Holders
at the addresses set forth for them in the register kept by the Registrar under
the Indenture or may request that the Trustee notify the Holders at such
addresses at the expense of the Pledgor.
Section 20. BINDING AGREEMENT; ASSIGNMENT. This Pledge Agreement
shall be binding upon and inure to the benefit of the Trustee, the Pledgor and
their respective successors and permitted assigns. Neither this Pledge
Agreement nor any interest herein or in the Pledged Collateral, or any part
thereof, may be assigned by the Pledgor without the prior written consent of the
Trustee (which consent shall not be unreasonably withheld). This Pledge
Agreement shall be deemed to be automatically assigned by the Trustee to any
person who succeeds to such Trustee in accordance with Article 7 of the
Indenture, and its assignee shall have all rights and powers of, and act as,
such Trustee hereunder.
Section 21. GOVERNING LAW. THIS PLEDGE AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF.
Section 22. AMENDMENTS. This Pledge Agreement may not be amended
or modified, except with the consent of the Pledgor and the Trustee in
accordance with Article 9 of the Indenture as it exists on the date hereof.
Section 23. SEVERABILITY. In the event that any provision
contained in this Pledge Agreement shall for any reason beheld to be illegal or
invalid under the laws of any jurisdiction, such illegality or invalidity shall
in no way impair the effectiveness of any other provision hereof, or of such
provision under the laws of any other jurisdiction; PROVIDED, that in the
construction and enforcement of such provision under the laws of the
jurisdiction in which such holding of illegality or invalidity exists, and to
the extent only of such illegality or invalidity, this Pledge Agreement shall be
construed and enforced as though such illegal or invalid provision had not been
contained herein.
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<PAGE>
Section 24. HEADINGS. Section headings used herein are inserted
for convenience only and shall not in any way affect the meaning or construction
of any provision of this Pledge Agreement.
Section 25. COUNTERPARTS. This Pledge Agreement may be executed in
any number of counterparts, each of which when so executed and delivered shall
be an original, and all of which shall together constitute but one and the same
instrument. A complete set of counterparts shall be lodged with the Trustee.
Section 26. EXPENSES. The Pledgor will upon demand pay to the
Trustee the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, which the
Trustee may incur in connection with (i) the administration of this Pledge
Agreement, (ii) the custody or presentation of, or the sale of, collection from,
or other realization upon, any of the Pledged Collateral, (iii) the exercise or
enforcement of any of the rights of the Trustee hereunder or (iv) the failure by
the Pledgor to perform or observe any of the provisions hereof.
Section 27. NO RECOURSE AGAINST OTHERS. A direct or indirect
partner, director, officer, employee or stockholder, as such, past, present or
future of the Pledgor or any successor entity shall not have any personal
liability in respect of the obligations of the Pledgor under this Agreement by
reason of its status as such partner, stockholder, employee, officer or
director, to the extent such liabilities may be waived under applicable law.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Pledge Agreement to
be executed and delivered by their respective officers thereunto duly authorized
as of the day and first written above.
METALLURG HOLDINGS, INC.
By:/s/ARTHUR R. SPECTOR
-------------------------------
Name: Arthur R. Spector
-----------------------------
Title: Vice President
----------------------------
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
By:/s/GERARD F. GANEY
-------------------------------
Name: Gerard F. Ganey
-----------------------------
Title: Senior Vice President
----------------------------
<PAGE>
SCHEDULE A
PLEDGED SECURITIES
<TABLE>
<CAPTION>
Percentage
Class of Stock/ Number of
Stock Equity Certificate of Outstanding
Issuer Interest No.(s) Shares Equity
<S> <C> <C> <C> <C>
Metallurg, Inc. Common Stock 2 100 100%
</TABLE>
<PAGE>
SCHEDULE B
PLEDGED DEBT
None
<PAGE>
FOURTH AMENDMENT
FOURTH AMENDMENT dated as of June 19, 1998 (this "Amendment"), by
and among (a) METALLURG, INC., a Delaware corporation ("MI"), having its
principal place of business at 6 East 43rd Street, New York, New York 10017,
and SHIELDALLOY METALLURGICAL CORPORATION, a Delaware corporation ("SMC"),
having its principal place of business at 12 West Boulevard, Newfield, New
Jersey 08344 (MI and SMC are collectively referred to herein as the
"Borrowers"); (b) METALLURG SERVICES, INC., a New York corporation ("MSI"),
having its principal place of business at 6 East 43rd Street, New York, New
York 10017, MIR (CHINA), INC., a Delaware corporation ("MIR China"), having
its principal place of business at 6 East 43rd Street, New York, New York
10017, and METALLURG HOLDINGS CORPORATION, a New Jersey corporation ("MHC"),
having its principal place of business at 12 West Boulevard, Newfield, New
Jersey 08344 (MSI, MIR China and MHC are collectively referred to herein as
the "Guarantors"); (c) BANKBOSTON, N.A. (formerly known as The First National
Bank of Boston), a national banking association, as agent (in such capacity
the "Agent") for itself and the other financial institutions from time to
time parties to the Loan Agreement referred to below (collectively, the
"Banks"); and (d) the BANKS, amending certain provisions of the Loan
Agreement dated as of April 14, 1997, by and among the Borrowers, the
Guarantors, the Agent and the Banks (as amended or modified and in effect
from time to time, the "Loan Agreement"). Terms not otherwise defined herein
which are defined in the Loan Agreement shall have the respective meanings
herein assigned to such terms in the Loan Agreement. Terms not otherwise
defined herein or in the Loan Agreement but which are defined in Section 1(c)
of this Amendment shall have the respective meanings in this Amendment
assigned to such terms in Section 1(c).
WHEREAS, the Borrowers and the Guarantors have requested that the
Agent and the Banks agree to amend the terms of the Loan Agreement in certain
respects, and to waive certain terms of the Loan Agreement, in order to
permit the acquisition of MI by certain investors, such acquisition to be
structured as the Proposed Merger described below; and
WHEREAS, the Agent and the Banks are willing to so amend and, where
applicable, grant a waiver of, the terms of the Loan Agreement in such
respects as hereinafter more fully set forth, upon the terms and subject to
the conditions contained herein;
NOW, THEREFORE, in consideration of the mutual agreements contained
in the Loan Agreement, herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
Section 1. Amendment of Section 1 of the Loan Agreement. Section 1
of the Loan Agreement is hereby amended by inserting the following new
definitions in proper alphabetical order:
"Acquisition Co.: Metallurg Acquisition Corp., a Delaware
corporation, to be merged with and into MI, with MI as the surviving
corporation pursuant to the Merger Agreement."
<PAGE>
"Fourth Amendment: The Fourth Amendment hereto dated as of
June 19, 1998, among the Borrowers, the Guarantors, the Agent and the
Banks."
"Fourth Amendment Effective Date: The date on which the
conditions to the effectiveness of the Fourth Amendment (such
conditions being set forth in Section 6 thereof) shall have been
satisfied."
"M Holdings: Metallurg Holdings, Inc., a Delaware
corporation and parent of Acquisition Co. prior to the Proposed Merger
and parent of MI after the Proposed Merger."
"Merger Agreement: The Merger Agreement, dated as of June
15, 1998, among Acquisition Co., M Holdings and MI."
"Proposed Merger: The proposed merger, as contemplated by the
Merger Agreement, whereby Acquisition Co., a subsidiary of M Holdings,
merges with and into MI, which is the surviving corporation."
Section 2. Amendment of Section 9 of the Loan Agreement. Section
9.2(e) of the Loan Agreement is hereby amended by inserting immediately at
the end of such Section the words ", the term `distributions' as used in this
Section to include any monetary payments to M Holdings or any of its
affiliates other than payments (A) for goods and services on an arm's length
basis on terms competitive with those afforded by third parties, (B) under a
tax sharing agreement approved by the Banks and the Agent or (C) to
affiliates of M Holdings which are Subsidiaries of MI".
Section 3. Amendment of Section 10 of the Loan Agreement. Section 10 of
the Loan Agreement is hereby amended as follows:
(a) by amending each of Sections 10(e), (g), (h), (j) and (k) to
include "or M Holdings" immediately after any reference to the Guarantors.
(b) by restating Section 10(l) of the Loan agreement to read in its
entirety as follows:
(l) (i) M Holdings shall cease to own 100% of the capital
stock of MI of every class, (ii) any person or group of persons (within
the meaning of Section 13 or 14 of the Securities Exchange Act of 1934,
as amended), other than the shareholders of M Holdings as of the Fourth
Amendment Effective Date and their affiliates, shall have acquired
beneficial ownership (within the meaning of Rule 13d-3 promulgated by
the Securities and Exchange Commission under said Act) of more than 50%
of the outstanding shares of common or other voting stock of M
Holdings; (iii) during any consecutive two-year period, individuals who
were directors of M Holdings on the first day of such period (together
with any new directors whose election by the board of directors of M
Holdings or whose nomination for election by the stockholders of M
Holdings was approved by a vote of a majority of the directors then
still in office who
2
<PAGE>
were either directors at the beginning of such
period or whose election or nomination for election was previously so
approved) shall cease for any reason to constitute a majority of the
board of directors of M Holdings; or (iv) a "Change of Control", as
defined under the Indenture, as amended or supplemented and in effect
from time to time, shall occur other than as a result of the Proposed
Merger;".
Section 4. Limited Consent and Waiver.
Background. MI has advised the Agent and the Banks that it is
contemplating becoming a party to the Proposed Merger pursuant to the Merger
Agreement. In connection with the Proposed Merger, MI contemplates making
distributions on or in respect of its capital stock to its shareholders.
Further, as a result of the Proposed Merger, MI has advised the Agent and the
Banks that MI will need to obtain waivers from the holders of the Senior
Unsecured Notes and that it may need to charge a consent fee to obtain such
waivers.
Existing Prohibitions. Section 9.2(f)(i) of the Loan Agreement
prohibits any of the Borrowers or the Guarantors from becoming a party to the
Proposed Merger without the consent of the Agent and the Banks. Further,
Section 9.2(e) of the Loan Agreement prohibits MI from making any
distributions on or in respect of its capital stock as contemplated by the
Proposed Merger. Moreover, Section 9.2(j) of the Loan Agreement prohibits MI
in certain circumstances from amending, modifying or supplementing the terms
of the Indenture without the consent of the Agent and the Banks. In addition,
Section 10(l) creates a cross-default to any "Change of Control" under and as
defined in the Indenture.
Waivers and Consents. Each of the Agent and the Banks hereby waives:
(a) Section 9.2(f)(i) of the Loan Agreement, solely with respect to the
Proposed Merger, the prohibition on MI from becoming party to a merger;
(b) Section 9.2(e) of the Loan Agreement, solely with respect to the
Proposed Merger, the prohibition on MI from making any distributions on or in
respect of its capital of any nature;
(c) Section 9.2(j) of the Loan Agreement, solely with respect to the
payment of a consent fee to the holders of the Senior Unsecured Notes in an
amount not to exceed $1,250,000 in the aggregate, in order to obtain consent
from such holders to the Proposed Merger, and with respect to any
modification of the Indenture contemplated by such consent; and
(d) Section 10(l) of the Loan Agreement, solely with respect to the
Proposed Merger, the occurrence of a cross-default to any "Change of Control"
under and as defined in the Indenture resulting from the Proposed Merger.
Limitations. The foregoing waiver and consent is limited strictly to
its terms, shall apply only to the specific actions described herein, shall
not extend to or affect any of the Borrowers', the Guarantors' or MCL's other
obligations contained in the Loan Agreement or any other Loan
3
<PAGE>
Document and shall not impair any rights consequent thereon. None of the
Agent or the Banks shall have any obligation to issue any further waiver or
consent with respect to the subject matter of hereof or any other matter. Except
as expressly set forth herein, nothing contained herein shall be deemed to be a
waiver of, or shall in any way impair or prejudice, any rights of the Agent or
the Banks under the Loan Agreement or any other Loan Document.
Section 5. Representations, Warranties and Covenants; No Default;
Authorization. Each of the Borrowers and Guarantors hereby represents,
warrants and covenants to the Agent and the Banks as follows:
(a) Each of the representations and warranties of such Borrower or
Guarantor contained in the Loan Agreement was true as of the date as of which
it was made and is true as and at the date of this Amendment, and no Default
or Event of Default has occurred and is continuing as of the date of this
Amendment;
(b) This Amendment has been duly authorized, executed and delivered
by each of the Borrowers and Guarantors and is in full force and effect; and
(c) Upon the execution and delivery of this Amendment by the
respective parties hereto, this Amendment shall constitute the legal, valid
and binding obligation of the Borrowers and the Guarantors, enforceable in
accordance with its terms, except that the enforceability thereof may be
subject to any applicable bankruptcy, reorganization, insolvency or other
laws affecting creditors' rights generally.
Section 6. Conditions to Effectiveness. The effectiveness of this
Amendment, including the amendments and limited waivers and consents
contained herein, shall be subject to the satisfaction of the following
conditions precedent on or prior to July 15, 1998:
(a) This Amendment shall have been duly executed and delivered by
the respective parties hereto and shall be in full force and effect;
(b) The Banks and the Agent shall have reviewed the final terms of
the Proposed Merger, and the Merger Agreement and all related documentation
for the Proposed Merger shall be in form and substance satisfactory to the
Banks and the Agent. The Proposed Merger shall have closed or be concurrently
closing, and MI as survivor of the Proposed Merger, together with SMC, the
Guarantors and M Holdings, shall have assumed, ratified and confirmed their
obligations under this Amendment, the Loan Agreement as amended hereby, and
the other Loan Documents by an instrument of Assumption, Ratification and
Confirmation (the "Ratification") substantially in the form of Exhibit A
hereto;
(c) The holders representing the requisite principal amount of the
Senior Unsecured Notes shall have consented in writing to the Proposed
Merger, thereby waiving, for all holders of the Senior Unsecured Notes, and
without further terms and conditions other than payment of the consent fee
referred to in clause (c) of the third paragraph of Section 4, the right to
cause the repurchase of the Senior Unsecured Notes under Section 4.08 of the
Indenture, or any other
4
<PAGE>
right under the Indenture of any such holders to further approve or to seek
early or accelerated repurchase or other payment of the Senior Unsecured Notes.
Evidence of the obtaining of such consent, satisfactory to the Agent, shall have
been provided to the Agent. The capitalization of MI, as contemplated in and
upon the Proposed Merger, shall otherwise be satisfactory to the Banks and the
Agent. The shareholders of M Holdings as of the Fourth Amendment Effective Date
shall be those shareholders previously disclosed by MI to the Banks and the
Agent prior to the date hereof;
(d) The Agent shall have received from each of M Holdings,
Acquisition Co., the Borrowers and the Guarantors (i) a copy, certified by a
duly authorized officer of such Person to be true and complete, of each of
its Charter Documents as in effect on the date of certification, (ii) a
resolution of its Board of Directors authorizing the execution, delivery and
performance of this Amendment, the Merger Agreement and the Ratification, as
applicable, and (iii) an incumbency certificate, signed by a duly authorized
officer of such company, and giving the name and bearing a specimen signature
of each individual who shall be authorized to sign in the name and on behalf
of such company;
(e) All third-party consents and governmental approvals necessary
for the valid execution, delivery and performance by each of M Holdings,
Acquisition Co., the Borrowers and each of the Guarantors of this Amendment
and the Merger Agreement shall have been duly and effectively taken or (as
the case may be) obtained and evidence thereof satisfactory to the Agent and
the Banks shall have been provided to the Agent;
(f) Each of the Agent and the Banks shall have received (i) a
favorable opinion from Roger & Wells, counsel to the Borrowers and the
Guarantors in form and substance satisfactory to the Agent and the Banks, and
(ii) a favorable opinion from the General Counsel of MI in form and substance
satisfactory to the Agent and the Banks; and
(g) There shall be no Default or Event of Default after giving
effect to the Proposed Merger and this Amendment.
Section 7. Ratification, etc. Except as expressly amended hereby,
the Loan Agreement and all documents, instruments and agreements related
thereto are hereby ratified and confirmed in all respects. All references in
the Loan Agreement or any related agreement or instrument to the Loan
Agreement shall hereafter refer to the Loan Agreement as amended hereby.
Section 8. No Implied Waiver. Except as expressly provided herein,
nothing contained herein shall constitute a waiver of, impair or otherwise
affect any Obligations, any other obligations of any of the Borrowers or
Guarantors or any right of the Agent or any Bank consequent thereon.
Section 9. Counterparts. This Amendment may be executed in one or
more counterparts, each of which shall be deemed an original but which
together shall constitute one and the same instrument.
5
<PAGE>
Section 10. Governing Law. THIS AMENDMENT SHALL FOR ALL PURPOSES BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH
OF MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICTS OF LAW).
6
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this
Amendment as a sealed instrument as of the date first above written.
METALLURG, INC.
By: /s/ BARRY C. NUSS
--------------------------
Name: Barry C. Nuss
Title: Vice President, Finance
SHIELDALLOY METALLURGICAL
CORPORATION
By: /s/ BARRY C. NUSS
--------------------------
Name: Barry C. Nuss
Title: Secretary
METALLURG SERVICES, INC.
By: /s/ BARRY C. NUSS
--------------------------
Name: Barry C. Nuss
Title: Vice President
MIR (CHINA), INC.
By: /s/ BARRY C. NUSS
--------------------------
Name: Barry C. Nuss
Title: Vice President
METALLURG HOLDINGS CORPORATION
By: /s/ BARRY C. NUSS
--------------------------
Name: Barry C. Nuss
Title: Vice President
7
<PAGE>
BANKBOSTON, N.A. (formerly known as
The First National Bank of Boston),
individually and as Agent
By: /s/ JAMES J. WARD
--------------------------
Name: James J. Ward
Title: Director
BANK OF SCOTLAND
By: /s/ ANNIE CHIN TAT
--------------------------
Name: Annie Chin Tat
Title: Senior Vice President
NATIONAL BANK OF CANADA
By: /s/ GAETAN R. FROSINA
--------------------------
Name: Gaetan R. Frosina
Title: Vice President
By: /s/ JAMES DRUM
--------------------------
Name: James Drum
Title: Vice President
8
<PAGE>
Exhibit A
ASSUMPTION, RATIFICATION AND CONFIRMATION
ASSUMPTION, RATIFICATION AND CONFIRMATION dated as of July __, 1998 (this
"RATIFICATION"), by:
(a) METALLURG, INC., a Delaware corporation ("MI"), having its
principal place of business at 6 East 43rd Street, New York, New York
10017, and SHIELDALLOY METALLURGICAL CORPORATION, a Delaware corporation
("SMC"), having its principal place of business at 12 West Boulevard,
Newfield, New Jersey 08344 (MI and SMC are collectively referred to herein
as the "BORROWERS"); and (b) METALLURG SERVICES, INC., a New York
corporation ("MSI"), having its principal place of business at 6 East 43rd
Street, New York, New York 10017, MIR (CHINA), INC., a Delaware corporation
("MIR CHINA"), having its principal place of business at 6 East 43rd
Street, New York, New York 10017, and METALLURG HOLDINGS CORPORATION, a New
Jersey corporation ("MHC"), having its principal place of business at 12
West Boulevard, Newfield, New Jersey 08344 (MSI, MIR China and MHC are
collectively referred to herein as the "GUARANTORS"); in favor of
(c) BANKBOSTON, N.A. (FORMERLY KNOWN AS THE FIRST NATIONAL BANK OF
BOSTON), a national banking association, as agent (in such capacity the
"AGENT") for itself and the other financial institutions from time to time
parties to the Loan Agreement referred to below (collectively, the
"BANKS"); and (d) the BANKS party to the Loan Agreement dated as of April
14, 1997, by and among the Borrowers, the Guarantors, the Agent and the
Banks (as amended or modified and in effect from time to time, the "LOAN
AGREEMENT").
The term "Loan Agreement" includes the Loan Agreement as amended by the Fourth
Amendment to the Loan Agreement dated as of June 19, 1998 (the "FOURTH
AMENDMENT"), among the Borrowers, the Guarantors, the Agent and the Banks.
WHEREAS, at the request of the Borrowers and the Guarantors, the Agent and
the Banks have agreed in the Fourth Amendment to amend the terms of the Loan
Agreement (as in effect prior to the Fourth Amendment) in certain respects, and
to waive certain terms of the Loan Agreement (as in effect prior to the Fourth
Amendment), in order to permit the acquisition of MI by certain investors, such
acquisition to be structured as the Proposed Merger as defined in the Fourth
Amendment; and
WHEREAS, it is a condition precedent to the effectiveness of the Fourth
Amendment that the Borrowers and the Guarantors execute this Ratification in
favor of the Banks and the Agent concurrently with the effectiveness of the
Proposed Merger;
<PAGE>
-2-
NOW, THEREFORE, in consideration of the mutual agreements contained in the
Fourth Amendment and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrowers and the Guarantors
hereby agree as follows:
Section 1. EFFECTIVENESS OF PROPOSED MERGER. MI hereby represents and
warrants that, concurrent with the execution and delivery of this Ratification,
Acquisition Co. has merged with and into MI pursuant to the Merger Agreement,
the Proposed Merger has become effective and MI is the survivor of such merger.
Section 2. ASSUMPTION OF OBLIGATIONS. MI hereby assumes and confirms that
it has assumed and is obligated for all of the Obligations.
Section 3. SECURITY DOCUMENTS. To the extent that any Security Document
to which MI is a party contains a grant of a security interest or other lien by
MI and also contains an after-acquired property clause, MI hereby grants and
confirms that it has granted a security interest or other lien in such
after-acquired property and that such security interest and lien shall continue
in property of MI as of the date hereof and shall arise in and be effective for
property of MI acquired by MI on and after the date hereof as contemplated by
such Security Document. MI further ratifies and confirms all Uniform Commercial
Code financings statements and other recording instruments previously executed
by MI to perfect or insure priority of any such security interest or lien.
Section 4. RATIFICATION, ETC. The Loan Agreement, the other Loan
Documents and all other documents, instruments and agreements relating to any
thereof are hereby ratified and confirmed in all respects.
Section 5. REPRESENTATIONS, WARRANTIES AND COVENANTS; NO DEFAULT;
AUTHORIZATION. Each of the Borrowers and Guarantors hereby represents, warrants
and covenants to the Agent and the Banks as follows:
(a) Each of the representations and warranties of such Borrower or
Guarantor contained in the Loan Agreement was true as of the date as of which it
was made and is true as and at the date of this Ratification, and no Default or
Event of Default has occurred and is continuing as of the date of this
Ratification;
(b) This Ratification has been duly authorized, executed and delivered by
each of the Borrowers and Guarantors and is in full force and effect; and
(c) Each Loan Document shall constitute the legal, valid and binding
obligation of the Borrowers and the Guarantors party thereto, enforceable in
accordance with its terms, except that the enforceability thereof may be subject
to any applicable bankruptcy, reorganization, insolvency or other laws affecting
creditors' rights generally.
Section 6. COUNTERPARTS. This Ratification may be executed in one or more
counterparts, each of which shall be deemed an original but which together shall
constitute one and the same instrument.
<PAGE>
-3-
Section 7. GOVERNING LAW. THIS RATIFICATION SHALL FOR ALL PURPOSES BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICTS OF LAW).
<PAGE>
-4-
IN WITNESS WHEREOF, the undersigned have duly executed this Ratification as
a sealed instrument as of the date first above written.
METALLURG, INC.
By:
------------------------------
Name:
Title:
SHIELDALLOY METALLURGICAL
CORPORATION
By:
------------------------------
Name:
Title:
METALLURG SERVICES, INC.
By:
------------------------------
Name:
Title:
MIR (CHINA), INC.
By:
------------------------------
Name:
Title:
METALLURG HOLDINGS CORPORATION
By:
------------------------------
Name:
Title:
<PAGE>
Exhibit 12.1
Calculation of Earnings to Fixed Charges
[$ in thousands]
<TABLE>
<CAPTION>
Pre-Confirmation
------------------------------------------------------------------------------
Three Months Nine Months Quarter
Years Ended December 31, Ended Ended Ended
---------------------------------------- March 31, December 31, March 31,
1993 1994 1995 1996 1996 1996 1997
-------- -------- -------- -------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Pre-tax income......................... (62,757) 516 9,836 (20,042) 7,215 (27,257) 11,859
Add: interest expense.................. 9,434 4,815 4,851 3,043 1,335 1,708 1,706
Add: 1/3 rental expense................ 270 271 272 289 72 217 170
-------- -------- -------- -------- ----------- ------------ --------
Adjusted earnings...................... (53,053) 5,602 14,959 (16,710) 8,622 (25,332) 13,735
-------- -------- -------- -------- ----------- ------------ --------
Fixed charges:
Interest:
interest expense....................... 9,434 4,815 4,851 3,043 1,335 1,708 1,706
Contractual interest (1)............... 2,600 8,300 9,200 8,600 2,150 6,450 2,136
1/3 rental expense..................... 270 271 272 289 72 217 170
-------- -------- -------- -------- ----------- ------------ --------
Total fixed charges.................... 12,304 13,386 14,323 11,932 3,557 8,375 4,012
-------- -------- -------- -------- ----------- ------------ --------
Ratio of earnings to fixed charges.......... NM NM 1.0x NM 2.4x 3.4x
-------- -------- -------- -------- ----------- ------------ --------
-------- -------- -------- -------- ----------- ------------ --------
Deficiency of earnings to fixed charge...... 65,357 7,784 28,642 33,707
-------- -------- -------- -------- ----------- ------------ --------
-------- -------- -------- -------- ----------- ------------ --------
Post-Confirmation
---------------------------
Three Quarters Quarter
Ended Ended
January 31, April 30,
1998 1998
<S> -------------- ---------
<C> <C>
Earnings: 19,523 12,867
Pre-tax income......................... 8,270 2,900
Add: interest expense.................. 596 199
Add: 1/3 rental expense................ -------------- ---------
28,389 15,966
Adjusted earnings...................... -------------- ---------
Fixed charges:
Interest: 8,270 2,900
interest expense....................... -- --
Contractual interest (1)............... 596 199
1/3 rental expense..................... -------------- ---------
8,866 3,099
Total fixed charges.................... -------------- ---------
3.2x 5.2x
Ratio of earnings to fixed charges.......... -------------- ---------
-------------- ---------
Deficiency of earnings to fixed charge...... -------------- ---------
-------------- ---------
</TABLE>
- -------------------------
(1) Contractual interest relates to interest on prepetition debt that was not
accrued while the Company was in Chapter 11 proceedings.
<PAGE>
Exhibit 21.1
LIST OF SUBSIDIARIES
(As of July 24, 1998)
<TABLE>
<CAPTION>
Country of Percentage of
Name of Subsidiary Incorporation Voting Power
- ------------------ ------------- -------------
<S> <C> <C>
Metallurg, Inc. Delaware 100
Shieldalloy Metallurgical Corporation Delaware 100
Elektrowerk Weisweiler GmbH Germany 98
Metallurg (Canada) Limited Quebec 100
MIR (China), Inc. Delaware 100
Metallurg Holdings Corporation New Jersey 100
Metallurg Services, Inc. New York 100
London & Scandinavian Metallurgical Co. Limited England 100
The Aluminum Powder Company Limited England 100
Metallurg South Africa (Pty.) Limited South Africa 100
Turk Maadin Sirketi Turkey 100
GfE Gesellschaft fur Elektometallurgie mbH Germany 99.19
GfE Umwelttechnik GmbH Germany 100
Keramed Medizintechnik Gmbh Germany 100
GfE Metalle und Materialien GmbH Germany 100
GfE Giesserei- und Stahlwerksbedarf Germany 100
RZM-Recyclingzentrum Mittelfranken GmbH Germany 75
Companhia Industrial Fluminense Brazil 100
Metallurg S.P. Ind. Com. de Metais Ltda. Brazil 100
Ferrolegeringar Aktiengesellschaft Zurich, 100
Switzerland
Metalchimica S. r.l. Italy 95
Ferrolegeringar Metallurg Yugoslavia Serbia 100
FAG Poland Sp. z.o.o. Poland 100
Metallurg Rijeka Slovenia
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Country of Percentage of
Name of Subsidiary Incorporation Voting Power
- ------------------ ------------- -------------
<S> <C> <C>
Aktiebolaget Ferrolegeringar Sweden 100
Metallurg International Resources GmbH Germany 100
Metallurg (Far East) Limited Japan 100
Montanistica S.A. Zug, 100
Switzerland
Metallurg Mexico S.A. de C.V. Mexico 100
</TABLE>
2
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Metallurg Holdings,
Inc., on Form S-4 of our report dated April 1, 1998, appearing in the
Prospectus, which is part of this Registration Statement and to the reference to
us under the headings "Summary Financial Data", "Selected Financial Data" and
"Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
New York, New York
July 28, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountant, we hereby consent to the use of our report and
to all references to our Firm included in or made a part of this registration
statement.
ARTHUR ANDERSEN LLP
New York, New York
July 29, 1998
<PAGE>
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
----------------------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
Section 305(b)(2) _______
----------------------
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation or (I. R. S. Employer
organization if not a U. S. national bank) Identification Number)
114 West 47th Street 10036-1532
New York, New York (Zip Code)
(Address of principal
executive offices)
----------------------
METALLURG HOLDINGS, INC.
(Exact name of OBLIGOR as specified in its charter)
Delaware 23-29675771
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
800 The Safeguard Building 19087
435 Devon Park Drive (Zip code)
Wayne, Pennsylvania
(Address of principal executive offices)
----------------------
12-3/4% Series B Senior Discount Notes due 2008
(Title of the indenture securities)
================================================================================
<PAGE>
-2-
GENERAL
1. GENERAL INFORMATION
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System).
Federal Deposit Insurance Corporation, Washington, D. C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
3,4,5,6,7,8,9,10,11,12,13,14 and 15.
The obligor is currently not in default under any of its outstanding
securities for which United States Trust Company of New York is Trustee.
Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and
15 of Form T-1 are not required under General Instruction B.
16. LIST OF EXHIBITS
T-1.1 -- Organization Certificate, as amended, issued by the State of
New York Banking Department to transact business as a Trust
Company, is incorporated by reference to Exhibit T-1.1 to Form
T-1 filed on September 15, 1995 with the Commission pursuant to
the Trust Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE>
-3-
16. LIST OF EXHIBITS (continued)
T-1.4 -- The By-laws of the United States Trust Company of New York,
as amended, is incorporated by reference to Exhibit T-1.4 to
Form T-1 filed on September 15, 1995 with the Commission pursuant
to the Trust Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990 (Registration No. 33-97056).
T-1.6 -- The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939, as amended by the Trust Indenture
Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee
pursuant to law or the requirements of its supervising or
examining authority.
NOTE
As of July 22, 1998, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U. S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States
Trust Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility, as to matters
peculiarly within the knowledge of the obligor or its directors, the
trustee has relied upon information furnished to it by the obligor and will
rely on information to be furnished by the obligor and the trustee
disclaims responsibility for the accuracy or completeness of such
information.
------------------
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, United States Trust Company of New York, a corporation organized
and existing under the laws of the State of New York, has duly caused this
statement of eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, and State of New
York, on the 22nd day of July, 1998.
UNITED STATES TRUST COMPANY OF
NEW YORK, Trustee
By: /s/ PATRICIA STERMER
--------------------------------
Patricia Stermer
Assistant Vice President
<PAGE>
-4-
EXHIBIT T-1.6
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
----------------------------------
By: /s/ Gerard F. Ganey
Senior Vice President
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
MARCH 31, 1998
($ IN THOUSANDS)
ASSETS
Cash and Due from Banks $ 303,692
Short-Term Investments 325,044
Securities, Available for Sale 650,954
Loans 1,717,101
Less: Allowance for Credit Losses 16,546
-----------
Net Loans 1,700,555
Premises and Equipment 58,868
Other Assets 120,865
-----------
TOTAL ASSETS $ 3,159,978
===========
LIABILITIES
Deposits:
Non-Interest Bearing $ 602,769
Interest Bearing 1,955,571
-----------
Total Deposits 2,558,340
Short-Term Credit Facilities 293,185
Accounts Payable and Accrued Liabilities 136,396
-----------
TOTAL LIABILITIES $ 2,987,921
===========
STOCKHOLDER'S EQUITY
Common Stock 14,995
Capital Surplus 49,541
Retained Earnings 105,214
Unrealized Gains on Securities
Available for Sale (Net of Taxes) 2,307
-----------
TOTAL STOCKHOLDER'S EQUITY 172,057
-----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 3,159,978
===========
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory authority
and is true to the best of my knowledge and belief.
Richard E. Brinkmann, SVP & Controller
May 6, 1998
5
<PAGE>
Exhibit 99.1
FORM OF LETTER OF TRANSMITTAL
OFFER TO EXCHANGE
12 3/4% SERIES B SENIOR DISCOUNT NOTES DUE 2008
(REGISTERED UNDER THE SECURITIES ACT OF 1933)
FOR ANY AND ALL OF ITS OUTSTANDING
12 3/4% SERIES A SENIOR DISCOUNT NOTES DUE 2008
OF
METALLURG HOLDINGS, INC.
PURSUANT TO THE PROSPECTUS
DATED [ ], 1998
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON [ ], 1998, UNLESS THE OFFER IS EXTENDED.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
UNITED STATES TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C>
BY REGISTERED OR CERTIFIED MAIL: BY OVERNIGHT DELIVERY OR HAND:
United Trust Company of New York United Trust Company of New York
[ADDRESS] [ADDRESS]
Attn: Attn:
TO CONFIRM BY TELEPHONE OR FOR INFORMATION: FACSIMILE TRANSMISSIONS:
(212) (212) or (212)
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A NUMBER
OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY
BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS CONTAINED HEREIN MUST BE FOLLOWED. QUESTIONS AND REQUESTS
FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS AND THIS LETTER OF
TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
The undersigned acknowledges receipt of the Prospectus dated ,
1998 (the "Prospectus") of Metallurg Holdings, Inc. (the "Company") which,
together with this Letter of Transmittal (the "Letter of Transmittal") describes
the Company's offer (the "Exchange Offer") to exchange $1,000 in principal
amount of 12 3/4% Series B Senior Discount Notes due 2008 (the "New Notes") for
each $1,000 in principal amount of outstanding 12 3/4% Series A Senior Discount
Notes due 2008 (the "Old Notes"). The terms of the New Notes are identical in
all material respects (including principal amount, interest rate and maturity)
to the terms of the Old Notes for which they may be exchanged pursuant to the
Exchange Offer, except that the offering of the New Notes will have been
registered under the Securities Act of 1933, as amended and, therefore, the New
Notes will not bear legends restricting the transfer thereof.
This Letter of Transmittal is to be completed by holders of Old Notes (as
defined below) either if Old Notes are to be forwarded herewith or if tenders of
Old Notes are to be made by book-entry transfer to an account maintained by
United States Trust Company of New York (the "Exchange Agent") at The Depository
Trust Company ("DTC") pursuant to the procedures set forth in "The Exchange
Offer--Book-Entry Transfer" in the Prospectus, unless tenders are being made in
accordance with the Automated Tender Offer Program ("ATOP") established by DTC,
in which case a tendering holder will become bound by the terms and conditions
hereof in accordance with the procedures established under ATOP.
<PAGE>
Holders of Old Notes whose certificates (the "Certificates") for such Old
Notes are not immediately available or who cannot deliver their Certificates and
all other required documents to the Exchange Agent on or prior to the Expiration
Date (as defined in the Prospectus) or who cannot complete the procedures for
book-entry transfer on a timely basis, must tender their Old Notes according to
the guaranteed delivery procedures set forth in "The Exchange Offer--Guaranteed
Delivery Procedures" in the Prospectus. SEE INSTRUCTION 1. DELIVERY OF DOCUMENTS
TO DTC IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE
EXCHANGE AGENT.
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
ALL TENDERING HOLDERS COMPLETE THIS BOX:
DESCRIPTION OF OLD NOTES TENDERED
<TABLE>
<S> <C> <C>
Name(s) and address(es) of Registered Holder(s) Old Notes
Tendered (attach
additional list
if necessary)
- ------------------------------------------- ----------------
(Please fill in, if blank)
Principal Amount of Old Notes Tendered (if less than Certificate Principal Amount
all)**............................................. Number(s)* of Old Notes*
Total Amount Tendered........................
</TABLE>
- ------------------------
* Need not be completed by book-entry holders.
** Old Notes may be tendered in whole or in part in denominations of $1,000 and
integral multiples thereof. All Old Notes held shall be deemed tendered
unless a lesser number is specified in this column.
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
<TABLE>
<S> <C>
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE
ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
DTC Account Number
Transaction Code Number
/ / CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF TENDERED OLD
NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO
THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s)
Window Ticket Number (if any)
Date of Execution of Notice of Guaranteed Delivery
Name of Institution which Guaranteed
If Guaranteed Delivery is to be made By Book-Entry Transfer:
Name of Tendering Institution
DTC Account Number
Transaction Code Number
</TABLE>
<PAGE>
<TABLE>
<S> <C>
/ / CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD NOTES ARE TO BE
RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE.
/ / CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS OWN ACCOUNT AS
A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A "PARTICIPATING BROKER-DEALER")
AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
Address:
</TABLE>
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the above described principal amount
of Old Notes. Subject to, and effective upon, the acceptance for exchange of the
Old Notes tendered herewith, the undersigned hereby exchanges, assigns and
transfers to, or upon the order of, the Company all right, title and interest in
and to such Old Notes. The undersigned hereby irrevocably constitutes and
appoints the Exchange Agent as the true and lawful agent and attorney-in-fact of
the undersigned (with full knowledge that the Exchange Agent is also acting as
agent of the Company in connection with the Exchange Offer) to cause the Old
Notes to be assigned, transferred and exchanged. The undersigned represents and
warrants that it has full authority to tender, exchange, assign and transfer the
Old Notes and acquire New Notes issuable upon the exchange of such tendered Old
Notes, and that, when the same are accepted for exchange the undersigned will
acquire good and unencumbered title to the tendered Old Notes, free and clear of
all liens, restrictions, charges and encumbrances and not subject to any adverse
claim. The undersigned also warrants that it will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent or the Company to
be necessary or desirable to complete the exchange, assignment and transfer of
tendered Old Notes or transfer ownership of such Old Notes on the account books
maintained by The Depository Trust Company.
The Exchange Offer is subject to certain conditions as set forth in the
Prospectus under the caption "The Exchange Offer." The undersigned recognizes
that as a result of these conditions (which may be waived, in whole or in part,
by the Company), as more particularly set forth in the Prospectus, the Company
may not be required to exchange any of the Old Notes tendered hereby and, in
such event, the Old Notes not exchanged will be returned to the undersigned at
the address shown below the signature of the undersigned.
BY TENDERING OLD NOTES AND EXECUTING, OR OTHERWISE BECOMING BOUND BY, THIS
LETTER OF TRANSMITTAL, THE UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (I) THE
NEW NOTES ACQUIRED PURSUANT TO THE EXCHANGE OFFER ARE BEING ACQUIRED IN THE
ORDINARY COURSE OF BUSINESS OF THE PERSON RECEIVING SUCH NEW NOTES, WHETHER OR
NOT SUCH PERSON IS THE HOLDER, (II) NEITHER THE HOLDER NOR ANY SUCH OTHER PERSON
HAS AN ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN THE
DISTRIBUTION OF SUCH NEW NOTES, (III) IF THE HOLDER IS NOT A BROKER-DEALER, OR
IS A BROKER-DEALER BUT WILL NOT RECEIVE NEW NOTES FOR ITS OWN ACCOUNT IN
EXCHANGE FOR OLD NOTES, NEITHER THE HOLDER NOR ANY SUCH OTHER PERSON IS ENGAGED
IN OR INTENDS TO PARTICIPATE IN THE DISTRIBUTION OF SUCH NEW NOTES AND (IV)
NEITHER THE HOLDER NOR ANY SUCH OTHER PERSON IS AN "AFFILIATE" OF THE
UNDERSIGNED WITHIN THE MEANING OF RULE 405 OF THE SECURITIES ACT. BY TENDERING
OLD NOTES PURSUANT TO THE EXCHANGE OFFER AND EXECUTING, OR OTHERWISE BECOMING
BOUND BY, THIS LETTER OF TRANSMITTAL, A HOLDER OF OLD NOTES WHICH IS A
BROKER-DEALER REPRESENTS AND AGREES, CONSISTENT WITH CERTAIN INTERPRETIVE
LETTERS ISSUED BY THE STAFF OF THE DIVISION OF CORPORATION FINANCE OF THE
SECURITIES AND EXCHANGE COMMISSION TO THIRD PARTIES, THAT (A) SUCH OLD NOTES
HELD BY THE BROKER-DEALER ARE HELD ONLY AS A NOMINEE, OR (B) SUCH OLD NOTES WERE
ACQUIRED BY SUCH BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING
ACTIVITIES OR OTHER TRADING ACTIVITIES AND IT WILL DELIVER THE PROSPECTUS (AS
AMENDED OR SUPPLEMENTED FROM TIME TO TIME) MEETING THE REQUIREMENTS OF THE
SECURITIES ACT IN CONNECTION WITH ANY RESALE OF SUCH NEW NOTES (PROVIDED THAT,
BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, SUCH BROKER-DEALER WILL NOT
BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE
SECURITIES ACT).
<PAGE>
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death, bankruptcy or incapacity of the undersigned
and any obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives successors and assigns of the undersigned. Tendered Old
Notes may be withdrawn at any time prior to the Expiration Date.
Certificates for all New Notes delivered in exchange for tendered Old Notes
and any Old Notes delivered herewith but not exchanged, in each case registered
in the name of the undersigned, shall be delivered to the undersigned at the
address shown below the signature of the undersigned.
HOLDER(S) SIGN HERE
(Note: Signature(s) Must be Guaranteed if Required by Instruction 3)
Must be signed by registered holder(s) exactly as name(s) appear(s) on
Certificate(s) for Old Notes hereby tendered or by any person(s) authorized to
become the registered holder(s) by endorsements and documents transmitted
herewith or, if the Old Notes are held of record by DTC, the person in whose
name such Old Notes are registered on the books of DTC. If signature is by an
attorney-in-fact, executor, administrator, trustee, guardian, officer of a
corporation or another acting in a fiduciary or representative capacity, please
set forth the signer's full title. See Instruction 3.
- --------------------------------------------------------------------------------
(Signature(s) of Holder(s))
Date _____________________________________________________________________, 1998
Name(s) ________________________________________________________________________
- --------------------------------------------------------------------------------
(Please Print)
Capacity: ______________________________________________________________________
(Include Full Title)
Address ________________________________________________________________________
- --------------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone Number _________________________________________________
- --------------------------------------------------------------------------------
(Tax Identification or Social Security Number(s))
<PAGE>
GUARANTEE OF SIGNATURE(S)
(If Required--See Instructions 3)
Authorized Signature ___________________________________________________________
Name ___________________________________________________________________________
- --------------------------------------------------------------------------------
(Please Print)
Date _____________________________________________________________________, 1998
Capacity or Title ______________________________________________________________
Name of Firm ___________________________________________________________________
Address ________________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number _________________________________________________
<PAGE>
- -------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if the New Notes are to be issued in the name of
someone other than the registered holder of the Old Notes whose name(s)
appear(s) above.
Issue New Notes to:
Name _______________________________________________________________________
(PLEASE PRINT)
Address ____________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(INCLUDE ZIP CODE)
__________________________________________________________________________
(TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER)
- ------------------------------------------------------
- ------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if New Notes are to be sent to someone other than
the registered holder of the Old Notes whose name(s) appear(s) above or to
such registered holder(s) at an address other than that shown above.
Mail New Notes To:
Name _______________________________________________________________________
(PLEASE PRINT)
Address ____________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(INCLUDE ZIP CODE)
__________________________________________________________________________
(TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER)
- -----------------------------------------------------
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES. Certificates for all
physically delivered Old Notes or confirmation of any book-entry transfer to the
Exchange Agent's account at DTC of Old Notes tendered by book-entry transfer, as
well as this Letter of Transmittal (or facsimile thereof), properly completed
and duly executed, with any required signature guarantees or an Agent's Message
in lieu thereof and any other documents required by this Letter of Transmittal,
must be received by the Exchange Agent at one of its addresses set forth herein
on or prior to the Expiration Date.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE OLD NOTES AND ANY
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING HOLDER
AND, EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE ONLY
WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF SUCH DELIVERY IS BY MAIL, IT IS
RECOMMENDED THAT REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, BE USED.
<PAGE>
Holders whose Old Notes are not immediately available or who cannot deliver
their Old Notes and all other required documents to the Exchange Agent on or
prior to the Expiration Date or comply with the procedures for delivery by
book-entry transfer on a timely basis may tender their Old Notes by properly
completing and duly executing a Notice of Guaranteed Delivery pursuant to the
guaranteed delivery procedures set forth in "The Exchange Offer--Guaranteed
Delivery Procedures" in the Prospectus. Pursuant to such procedures: (i) such
tender must be made by or through an Eligible Institution (as defined therein);
(ii) on or prior to the Expiration Date the Exchange Agent must have received
from such Eligible Institution a letter, telegram or facsimile transmission
setting forth the name and address of the tendering holder, the names in which
such Old Notes are registered, and, if possible, the certificate numbers of the
Old Notes to be tendered; and (iii) all tendered Old Notes (or a confirmation of
any book-entry transfer of such Old Notes into the Exchange Agent's account at
the DTC) as well as this Letter of Transmittal or an Agent's Message in lieu
thereof and all other documents required by this Letter of Transmittal, must be
received by the Exchange Agent within five New York Stock Exchange trading days
after the date of execution of such Notice of Guaranteed Delivery, all as
provided in "The Exchange Offer--Guaranteed Delivery Procedures" in the
Prospectus.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders, by execution of a Letter of Transmittal (or
facsimile thereof), or any Agent's Message in lieu thereof, shall waive any
right to receive any notice of the acceptance of the Old Notes or exchange.
2. PARTIAL TENDERS AND WITHDRAWALS. Tenders of Old Notes will be accepted in
all denominations of $1,000 and integral multiples thereof. If less than all the
Old Notes evidenced by any Certificate submitted are to be tendered, fill in the
principal amount of Old Notes which are to be tendered in the box entitled
"Principal Amount of Old Notes Tendered (if less than all)." In such case, new
Certificate(s) for the remainder of the Old Notes that were evidenced by your
old Certificate(s) will be sent to the holder of the Old Note, promptly after
the Expiration Date. All Old Notes represented by Certificates delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
Tenders of Old Notes pursuant to the Exchange Offer are irrevocable, except
that Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any
time on or prior to the Expiration Date. In order for a withdrawal to be
effective on or prior to that time, a written notice of withdrawal must be
timely received by the Exchange Agent at one of its addresses set forth above or
in the Prospectus on or prior to the Expiration Date. Any such notice of
withdrawal must specify the name of the person who tendered the Old Notes to be
withdrawn, identify the Old Notes to be withdrawn (including the principal
amount of such Old Notes) and (where Certificates for Old Notes have been
transmitted) specify the name in which such Old Notes are registered, if
different from that of the withdrawing holder, a statement that such holder is
withdrawing its election to have such Old Notes exchanged, and must be signed by
the holder in the same manner as the original signature on the Letter of
Transmittal (including any required signature guarantees) or be accompanied by
evidence satisfactory to the Company that the person withdrawing the tender has
succeeded to the beneficial ownership of the Old Notes being withdrawn. The
Exchange Agent will return the properly withdrawn Old Notes promptly following
receipt of notice of withdrawal. If Old Notes have been tendered pursuant to the
procedures for book-entry transfer set forth in the Prospectus, any notice of
withdrawal must specify the name and number of the account at DTC to be credited
with the withdrawal of Old Notes or otherwise comply with DTC's procedures.
3. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Old
Notes tendered hereby, the signature(s) must correspond exactly with the name(s)
as written on the face of the Certificate(s) without alteration, enlargement or
any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
<PAGE>
If a number of Old Notes registered in different names are tendered, it will
be necessary to complete, sign and submit as many separate copies of this Letter
of Transmittal as there are different registrations of Old Notes.
When this Letter of Transmittal is signed by the registered holder(s) of the
Old Notes listed and transmitted hereby, no endorsement(s) of Certificate(s) or
written instrument or instruments of transfer or exchange are required unless
New Notes are to be issued in the name of a person other than the registered
holder(s). Signature(s) on such Certificate(s) or written instrument or
instruments of transfer or exchange must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Old Notes listed, the Certificates must be endorsed
or accompanied by a written instrument or instruments of transfer or exchange,
in a form satisfactory to the Company and duly executed by the registered
holder, in either case signed exactly as the name or names of the registered
holder(s) appear(s) on the Certificates.
If this Letter of Transmittal, any Certificates or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and, unless waived by the
Company, proper evidence satisfactory to the Company of such persons' authority
to so act must be submitted.
Endorsements on Certificates or signatures on separate written instruments
of transfer or exchange required by this Instruction 3 must be guaranteed by an
Eligible Institution.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office or correspondent in the United States (collectively, "Eligible
Institutions"). If Old Notes are registered in the name of a person other than
the person signing the Letter of Transmittal, the Old Notes surrendered for
exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by the
Company in its sole discretion, duly executed by the registered holder with the
signature thereon guaranteed by an Eligible Institution.
4. TRANSFER TAXES. The Company shall pay all transfer taxes, if any,
applicable to the transfer and exchange of Old Notes to it or its order pursuant
to the Exchange Offer. If, however, New Notes are to be delivered to, or are to
be registered or issued in the name of, any person other than the registered
holder of the Old Notes tendered hereby, the amount of any such transfer taxes
(whether imposed on the registered holder or any other person) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exception therefrom is not submitted herewith the amount of such transfer taxes
will be billed directly to such tendering holder.
Except as provided in this Instruction 4, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
5. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive,
in whole or in part, any of the conditions to the Exchange Offer set forth in
the Prospectus.
6. MUTILATED, LOST, DESTROYED OR STOLEN CERTIFICATES. Any holder whose Old
Notes have been mutilated, lost, destroyed or stolen should contact the Exchange
Agent at the address indicated below for further instructions.
<PAGE>
7. REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions relating to the
procedure for tendering, as well as requests for additional copies of the
Prospectus and this Letter of Transmittal may be directed to the Exchange Agent
at the address and telephone number set forth below. In addition, all questions
relating to the Exchange Offer, as well as requests for assistance and
additional copies of the Prospectus and this Letter of Transmittal, may be
directed to the Company at 800 The Safeguard Building, Wayne, Pennsylvania
19087, Attention: Diana Wechsler Kerekes, Telephone: (610) 293-0838.
8. IRREGULARITIES. All questions as to the form, validity, eligibility
(including time of receipt) and acceptance of Letters of Transmittal or Old
Notes will be resolved by the Company, whose determination shall be final and
binding. The Company reserves the absolute right to reject any and all Letters
of Transmittal or tenders that are not in proper form or the acceptance of which
would, in the judgment of the Company or its counsel, be unlawful. The Company
also reserves the right to waive any defects or irregularities or conditions of
the Exchange Offer as to any particular Old Notes covered by any Letter of
Transmittal or tendered pursuant to such letter. None of the Company, the
Exchange Agent or any other person shall be under any duty to give notification
of any defect or irregularity with respect to any tender of Old Notes for
exchange, nor shall any of them incur any liability for failure to give such
notification. The Company's interpretation of the terms and conditions of the
Exchange Offer shall be final and binding.
9. DEFINITIONS. Capitalized terms used in this Letter of Transmittal and not
otherwise defined have the meanings given in the Prospectus.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF), OR AN AGENT'S
MESSAGE IN LIEU THEREOF, AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY
THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
<PAGE>
EXHIBIT 99.2
FORM OF NOTICE OF GUARANTEED DELIVERY
METALLURG HOLDINGS, INC.
OFFER TO EXCHANGE
ALL OF ITS
12 3/4% SERIES B SENIOR DISCOUNT NOTES DUE 2008
FOR ALL OF ITS OUTSTANDING
12 3/4% SERIES A SENIOR DISCOUNT NOTES DUE 2008
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to accept the Exchange Offer (as defined below) if (i)
certificates for the Company's (as defined below) 12 3/4% Series A Senior
Discount Notes due 2008 (the "Old Notes") are not immediately available, (ii)
Old Notes, the Letter of Transmittal and all other required documents cannot be
delivered to United States Trust Company of New York (the "Exchange Agent") on
or prior to 5:00 P.M. New York City time, on the Expiration Date (as defined in
the Prospectus referred to below) or (iii) the procedures for delivery by
book-entry transfer cannot be completed on a timely basis. This Notice of
Guaranteed Delivery may be delivered by hand, overnight courier or mail, or
transmitted by facsimile transmission, to the Exchange Agent. See "The Exchange
Offer--Guaranteed Delivery Procedures" in the Prospectus. In addition, in order
to utilize the guaranteed delivery procedure to tender Old Notes pursuant to the
Exchange Offer, a completed, signed and dated Letter of Transmittal relating to
the Old Notes (or facsimile thereof) must also be received by the Exchange Agent
prior to 5:00 P.M. New York City time, on the Expiration Date. Capitalized terms
not defined herein have the meanings assigned to them in the Prospectus.
The Exchange Agent For The Exchange Offer Is:
United States Trust Company of New York
<TABLE>
<S> <C> <C>
By Overnight Courier: Facsimile Transactions: By Registered or Certified
(Eligible Institutions Mail:
Only)
United States Trust Company of (212) Attn:
New York Corporate Trust
Corporate Trust Department Department
Attn: Attn:
To Confirm by
Telephone
or for Information Call:
(212)
</TABLE>
Delivery of this Notice of Guaranteed Delivery to an address other than as
set forth above or transmission of this Notice of Guaranteed Delivery via
facsimile to a number other than as set forth above will not constitute a valid
delivery.
<PAGE>
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS NOT REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
Ladies and Gentlemen:
The undersigned hereby tenders to Metallurg Holdings, Inc., a Delaware
corporation (the "Company"), upon the terms and subject to the conditions set
forth in the Prospectus dated , 1998 (as the same may be amended or
supplemented from time to time, the "Prospectus"), and the related Letter of
Transmittal (which together constitute the "Exchange Offer"), receipt of which
is hereby acknowledged, the aggregate principal amount of Old Notes set forth
below pursuant to the guaranteed delivery procedures set forth in the Prospectus
under the caption "The Exchange Offer--Guaranteed Delivery Procedures."
<TABLE>
<S> <C>
Principal Amount of Old Notes Name(s) of Registered Holder(s):
Tendered for Exchange: $ ------ -----------------------
Old Note Certificate No.(s)
(if available): ----------
</TABLE>
If Old Notes will be tendered by book-entry transfer, provide the following
information:
DTC Account Number:
- ----------
Date:
- ----------
- --------------------------------------------------------------------------------
All authority herein conferred or agreed to be conferred shall survive the death
or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs personal representatives, successors
and assigns of the undersigned.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00
P.M., NEW YORK CITY TIME, ON , 1998
UNLESS THE EXCHANGE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
2
<PAGE>
PLEASE SIGN HERE
X
- ---------------------------------------------
X
- ---------------------------------------------
Signature(s) of Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number:
- ----------
Must be signed by the holder(s) of the Old Notes as their name(s) appear(s) on
certificates for Old Notes or on a security position listing, or by person(s)
authorized to become registered holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below.
Please print name(s) and address(es)
<TABLE>
<S> <C>
Name(s):
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Capacity:
------------------------------------------------------------------------------
Address(es)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity identified in Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii) a
broker, dealer municipal securities broker, municipal securities dealer,
government securities broker, or government securities dealer; (iii) a credit
union; (iv) a national securities exchange, registered securities association or
loaning agency; or (v) a savings association that is a participant in a
Securities Transfer Association recognized program (each of the foregoing being
referred to as an "Eligible Institution"), hereby guarantees to deliver to the
Exchange Agent, at one of its addresses set forth above, either the Old Notes
tendered hereby in proper form for transfer, or confirmation of the book-entry
transfer of such Old Notes to the Exchange Agent's account at The Depositary
Trust Company ("DTC"), pursuant to the procedures for book-entry transfer set
forth in the Prospectus, in either case together with one or more properly
completed and duly executed Letter(s) of Transmittal (or facsimile thereof and
any other required documents within five business days after the date of
execution of this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Old Notes tendered hereby to the Exchange Agent within the
time period set forth above and that failure to do so could result in a
financial loss to the undersigned.
<TABLE>
<S> <C>
- ------------------------ ------------------------
Name of Firm Authorized Signature
- ------------------------ ------------------------
Address Title
- ------------------------ ------------------------
Zip Code (Please Type or Print)
Area Code and Telephone No. ---------- Dated: ------------------------
</TABLE>
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. CERTIFICATES
FOR OLD NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF TRANSMITTAL.
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Exhibit 99.3
FORM OF EXCHANGE AGENT AGREEMENT
____________, 1998
United States Trust Company of New York
114 West 47th Street, 25th Floor
New York, New York 10036
Attention: Patricia Stermer
Assistant Vice President
Dear Ms. Stermer:
Metallurg Holdings, Inc., a Delaware corporation (the "Company"), proposes to
make an offer (the "Exchange Offer") to exchange up to $121,000,000 aggregate
principal amount of its 12 3/4% Series B Senior Discount Notes due 2008 (the
"Exchange Notes"), for a like principal amount of its outstanding 12 3/4% Series
A Senior Discount Notes due 2008 (the "Private Notes"). The terms and
conditions of the Exchange Offer are set forth in a prospectus (the
"Prospectus") included in the Company's registration statement on form S-4
(File No. 333-_____) (the "Registration Statement"), filed with the
Securities and Exchange Commission (the "SEC"), proposed to be distributed to
all record holders of the Private Notes. The Private Notes and the Exchange
Notes are collectively referred to herein as the "Notes." Capitalized terms
used herein and not defined shall have the respective meanings ascribed to
them in the Prospectus. The Company hereby appoints United States Trust
Company of New York to act as exchange agent (the "Exchange Agent") in
connection with the Exchange Offer. References hereinafter to "you" shall
refer to United States Trust Company of New York.
The Exchange Offer is expected to be commenced by the Company on or about
______________, 1998. The Letter of Transmittal accompanying the Prospectus
is to be used by the holders of the Private Notes to accept the Exchange
Offer and contains instructions with respect to the delivery of certificates
for Private Notes tendered.
The Exchange Offer shall expire at 5:00 P.M., New York City time,
on _______________, 1998, or on such later date or time to which the Company
may extend the Exchange Offer (the "Expiration Date"). Subject to the terms
and conditions set forth in the Prospectus, the Company expressly reserves
the right to extend the Exchange Offer from time to time and may extend the
Exchange Offer by giving oral (confirmed in writing) or written notice to you
before 9:00 A.M., New York City time, on the next business day after the
previously scheduled Expiration Date.
The Company expressly reserves the right, in its sole discretion, to amend or
terminate the Exchange Offer, and not to accept for exchange any Private
Notes not theretofore accepted for exchange. The Company will give oral
(confirmed in writing) or written notice of any amendment, termination or
nonacceptance to you as promptly as practicable.
<PAGE>
In carrying out your duties as Exchange Agent, you are to act in accordance
with the following instructions:
1. You will perform such duties and only such duties as are
specifically set forth in the section of the Prospectus captioned "The
Exchange Offer," in the Letter of Transmittal accompanying the Prospectus or
as specifically set forth herein; provided, however, that in no way will your
general duty to act in good faith and without gross negligence or willful
misconduct be limited by the foregoing.
2. You will establish an account with respect to the Private
Notes at The Depository Trust Company (the "Book-Entry Transfer Facility")
for purposes of the Exchange Offer within two business days after the date of
the Prospectus, and any financial institution that is a participant in the
Book- Entry Transfer Facility's systems may make book-entry delivery of the
Private Notes by causing the Book-Entry Transfer Facility to transfer such
Private Notes into your account in accordance with the Book-Entry Transfer
Facility's procedures for such transfer.
3. You are to examine each of the Letters of Transmittal and
certificates for Private Notes (and confirmation of book-entry transfers of
Private Notes into your account at the Book-Entry Transfer Facility) and any
other documents delivered or mailed to you by or for holders of the Private
Notes, to ascertain whether: (i) the Letters of Transmittal, certificates and
any such other documents are duly executed and properly completed in
accordance with instructions set forth therein and that such book-entry
confirmations are in due and proper form and contain the information required
to be set forth therein, and (ii) the Private Notes have otherwise been
properly tendered. In each case where the Letter of Transmittal or any other
document has been improperly completed or executed, or where book-entry
confirmations are not in due and proper form or omit certain information, or
any of the certificates for Private Notes are not in proper form for transfer
or some other irregularity in connection with the acceptance of the Exchange
Offer exists, you will endeavor to inform the presenters of the need for
fulfillment of all requirements and to take any other action as may be
necessary or advisable to cause such irregularity to be corrected.
4. With the approval of the Chairman, the President and Chief
Executive Officer, any of the Vice Presidents, the Treasurer or the Secretary
(such approval, if given orally, to be confirmed in writing) or any other
person designated by such an officer in writing, you are authorized to waive
any irregularities in connection with any tendency of Private Notes pursuant
to the Exchange Offer.
5. Tenders of Private Notes may be made only as set forth in the
Letter of Transmittal and in the section of the Prospectus captioned "The
Exchange Offer -- Procedures for Tendering," and Private Notes shall be
considered properly tendered to you only when tendered in accordance with the
procedures set forth therein. Notwithstanding the provisions of this
paragraph 5, Private Notes which the Chairman, the President and Chief
Executive Officer, any of the Vice Presidents, the Treasurer or the Secretary
or any other officer of the Company designated by any such person shall
approve as having been properly tendered shall be considered to be properly
tendered (such approval, if given orally, shall be confirmed in writing).
6. You shall advise the Company with respect to any Private
Notes received subsequent to the Expiration Date and accept its instructions
with respect to disposition of such Private Notes.
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<PAGE>
7. You shall accept tenders:
(a) cases where the Private Notes are registered in two or more
names only if signed by all named holders:
(b) in cases where the signing person (as indicated on the Letter
of Transmittal) is acting in a fiduciary or a representative capacity only
when proper evidence of his or her authority so to act is submitted; and
(c) from persons other than the registered holder of Private Notes
provided that customary transfer requirements, including those regarding any
applicable transfer taxes, are fulfilled.
You shall accept partial tenders of Private Notes when so indicated
and as permitted in the Letter of Transmittal and deliver certificates for
Private Notes to the transfer agent for split-up and return any untendered
Private Notes to the holder (or such other person as may be designated in the
Letter of Transmittal) as promptly as practicable after expiration or
termination of the Exchange Offer.
8. Upon satisfaction or waiver of all of the conditions to the
Exchange Offer, the Company will notify you (such notice if given orally, to
be confirmed in writing) of its acceptance, promptly after the Expiration
Date, of all Private Notes properly tendered and you, on behalf of the
Company, will exchange such Private Notes for Exchange Notes and cause such
Private Notes to be canceled. Delivery of Exchange Notes will be made on
behalf of the Company by you at the rate of $1,000 principal amount of
Exchange Notes for each $1,000 principal amount of the Private Notes tendered
promptly after notice (such notice if given orally, to be confirmed in
writing) of acceptance of said Private Notes by the Company; provided,
however, that in all cases, Private Notes tendered pursuant to the Exchange
Offer will be exchanged only after timely receipt by you of certificates for
such Private Notes (or confirmation of book-entry transfer into your account
at the Book-Entry Transfer Facility), a properly completed and, except as
described in the section of the prospectus captioned "The Exchange Offer -
Procedures for Tendering," duly executed Letter of Transmittal (or facsimile
thereof) with any required signature guarantees and any other required
documents. Unless otherwise instructed by the Company, you shall issue
Exchange Notes only in denominations of $1,000 or any integral multiple
thereof.
9. Tenders pursuant to the Exchange Offer are irrevocable, except
that, subject to the terms and upon the conditions set forth in the
Prospectus and the Letter of Transmittal, Private Notes tendered pursuant to
the Exchange Offer may be withdrawn at any time on or prior to the Expiration
Date in accordance with the terms of the Exchange Offer.
10. The Company shall not be required to exchange any Private
Notes tendered if any of the conditions set forth in the Exchange Offer are
not met. Notice of any decision by the Company not to exchange any Private
Notes tendered shall be given (and confirmed in writing) by the Company to
you.
11. If, pursuant to the Exchange Offer, the Company does not
accept for exchange all or part of the Private Notes tendered because of an
invalid tender, the occurrence of certain other events set forth in the
Prospectus or otherwise, you shall as soon as practicable after the
expiration or termination of the Exchange Offer return those certificates for
unaccepted Private Notes (or effect appropriate book-entry transfer),
together with any related required documents and the Letters of Transmittal
relating thereto that are in your possession, to the persons who deposited
them (or effected such book-entry
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<PAGE>
transfer).
12. All certificates for reissued Private Notes, unaccepted
Private Notes or for Exchange Notes (other than those effected by book-entry
transfer) shall be forwarded by (a) first-class certified mail, return
receipt requested, under a blanket surety bond obtained by you protecting you
and the Company from loss or liability arising out of the nonreceipt or
nondelivery of such certificates or (b) by registered mail insured by you
separately for the replacement value of each of such certificates.
13. You are not authorized to pay or offer to pay any concessions,
commissions or other solicitation fees to any broker, dealer, commercial
bank, trust company or other nominee or to engage or use any person to
solicit tenders.
14. As Exchange Agent hereunder, you:
(a) shall have no duties or obligations other than those
specifically set forth in the Prospectus, the Letter of Transmittal or herein
or as may be subsequently agreed to in writing by you and the Company;
(b) will be regarded as making no representations and having no
responsibilities as to the validity, sufficiency, value or genuineness of any
of the certificates for the Private Notes deposited with you pursuant to the
Exchange Offer, and will not be required to and will make no representation
as to the validity, value or genuineness of the Exchange Offer;
(c) will not be obligated to take any legal action hereunder which
might in your reasonable judgment involve any expense or liability, unless
you will have been furnished with reasonable indemnity;
(d) may rely on and will be protected in acting in reliance upon
any certificate, instrument, opinion, notice, letter, telegram or other
document or security delivered to you and reasonably believed by you to be
genuine and to have been signed by the proper party or parties;
(e) may act upon any tender, statement, request, comment,
agreement or other instrument whatsoever not only as to its due execution and
validity and effectiveness of its provisions, but also as to the truth and
accuracy of any information contained therein, which you shall in good faith
believe to be genuine or to have been signed or represented by a proper
person or persons;
(f) may rely on and shall be protected in acting upon written or
oral instructions from any officer of the Company;
(g) may consult with your counsel with respect to any questions
relating to your duties and responsibilities, and the written opinion of such
counsel shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted to be taken by you hereunder in good
faith and in accordance with the written opinion of such counsel; and
(h) will not advise any person tendering Private Notes pursuant to
the Exchange Offer as to whether to tender or refrain from tendering all or
any portion of Private Notes or as to the market value, decline or
appreciation in market value of any Private Notes that may or may not occur
as a result of the Exchange Offer or as to the market value of the Exchange
Notes;
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<PAGE>
provided, however, that in no way will your general duty to act in good faith
and without gross negligence or willful misconduct be limited by the
foregoing.
15. You will take such action as may from time to time be
requested by the Company or its counsel (and such other action as you may
reasonably deem appropriate) to furnish copies of the Prospectus, Letter of
Transmittal and the Notice of Guaranteed Delivery (as defined in the
Prospectus) or such other forms as may be approved from time to time by the
Company, to all persons requesting such documents and to accept and comply
with telephone requests for information relating to the Exchange Offer,
provided that such information shall relate only to the procedures for
accepting (or withdrawing from) the Exchange Offer. The Company will, at its
expense, furnish you with copies of such documents at your request.
16. You will advise by facsimile transmission or telephone, and
promptly thereafter confirm in writing to Diana Wechsler Kerekes of the
Company (telephone number (610) 293-0838, facsimile number (610) 293-0854),
and such other person or persons as the Company may request, daily up to and
including the Expiration Date as to the aggregate principal amount of Private
Notes which have been duly tendered pursuant to the Exchange Offer and the
items received by you pursuant to the Exchange Offer and this Agreement,
separately reporting and giving cumulative totals as to items properly
received and items improperly received. In addition, you will also inform,
and cooperate in making available to, the Company or any such other person or
persons upon oral request made from time to time prior to the Expiration Date
of such other information as it or he or she reasonably requests. Such
cooperation shall include, without limitation, the granting by you to the
Company and such person as the Company may request of access to those persons
on your staff who are responsible for receiving tenders, in order to ensure
that immediately prior to the Expiration Date the Company shall have received
information in sufficient detail to enable it to decide whether to extend the
Exchange Offer. You shall prepare a final list of all persons whose tenders
were accepted, the aggregate principal amount of Private Notes tendered, the
aggregate principal amount of Private Notes accepted and the identity of any
Participating Broker-Dealers and the aggregate principal amount of Exchange
Notes delivered to each, and deliver said list to the Company.
17. Letters of Transmittal, book-entry confirmations and Notices
of Guaranteed Delivery received by you shall be preserved by you for a period
of time at least equal to the period of time you preserve other records
pertaining to the transfer of securities, or one year, whichever is longer,
and thereafter shall be delivered by you to the Company. You shall dispose
of unused Letters of Transmittal and other surplus materials as instructed by
the Company.
18. You hereby expressly waive any lien, encumbrance or right of
set-off whatsoever that you may have with respect to funds deposited with you
for the payment of transfer taxes by reasons of amounts, if any, borrowed by
the Company, or any of its subsidiaries or affiliates pursuant to any loan or
credit agreement with you or for compensation owed to you hereunder.
19. For services rendered as Exchange Agent hereunder, you shall
be entitled to such compensation as set forth on Schedule I attached hereto.
20. You hereby acknowledge receipt of the Prospectus and the
Letter of Transmittal and further acknowledge that you have examined each of
them. Any inconsistency between this Agreement, on the one hand, and the
Prospectus and the Letter of Transmittal (as they may be amended from time to
time), on the other hand, shall be resolved in favor of the latter two
documents, except with respect to the duties, liabilities and indemnification
of you as Exchange Agent, which shall be controlled
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<PAGE>
by this Agreement.
21. The Company covenants and agrees to indemnify and hold you
harmless in your capacity as Exchange Agent hereunder against any loss,
liability, cost or expense, including attorneys' fees and expenses arising
out of or in connection with any act, omission, delay or refusal made by you
in reliance upon any signature, endorsement, assignment, certificate, order,
request, notice, instruction or other instrument or document reasonably
believed by you to be valid, genuine and sufficient and in accepting any
tender or effecting any transfer of Private Notes reasonably believed by you
in good faith to be authorized, and in delaying or refusing in good faith to
accept any tenders or effect any transfer of Private Notes; provided,
however, that anything in this Agreement to the contrary notwithstanding, the
Company shall not be liable for indemnification or otherwise for any loss,
liability, cost or expense to the extent arising out of your gross negligence
or willful misconduct. In no case shall the Company be liable under this
indemnity with respect to any claim against you unless the Company shall be
notified by you, by letter or cable or by facsimile which is confirmed by
letter, of the written assertion of a claim against you or of any other
action commenced against you, promptly after you shall have received any such
written assertion or notice of commencement of action. The Company shall be
entitled to participate, at its own expense, in the defense of any such claim
or other action, and, if the Company so elects, the Company may assume the
defense of any pending or threatened action against you in respect of which
indemnification may be sought hereunder, in which case the Company shall not
thereafter be responsible for the subsequently-incurred fees and
disbursements of legal counsel for you under this paragraph so long as the
Company shall retain counsel reasonably satisfactory to you to defend such
suit; provided, that the Company shall not be entitled to assume the defense
of any such action if the named parties to such action include both you and
the Company and representation of both parties by the same legal counsel
would, in the written opinion of your counsel, be inappropriate due to actual
or potential conflicting interests between you and the Company. You
understand and agree that the Company shall not be liable under this
paragraph for the fees and expenses of more than one legal counsel for you,
unless, in your reasonable opinion, local counsel outside of the State of New
York is necessary.
22. You shall arrange to comply with all requirements under the
tax laws of the United States, including those relating to missing Tax
Identification Numbers, and shall file any appropriate reports with the
Internal Revenue Service. The Company understands that you are required, in
certain instances, to deduct thirty-one percent (31%) with respect to
interest paid on the Exchange Notes and proceeds from the sale, exchange,
redemption or retirement of the Exchange Notes from holders who have not
supplied their correct Taxpayer Identification Number or required
certification. Such funds will be turned over to the Internal Revenue
Service in accordance with applicable regulations.
23. You shall notify the Company of the amount of any transfer
taxes payable in respect of the exchange of Private Notes and, upon receipt
of a written approval from the Company, shall deliver or cause to be
delivered, in a timely manner to each governmental authority to which any
transfer taxes are payable in respect of the exchange of Private Notes, your
check in the amount of all transfer taxes so payable, and the Company shall
reimburse you for the amount of any and all transfer taxes payable in respect
of the exchange of Private Notes; provided, however, that you shall reimburse
the Company for amounts refunded to you in respect of your payment of any
such transfer taxes, at such time as such refund is received by you.
24. This Agreement and your appointment as Exchange Agent
hereunder shall be construed and enforced in accordance with the laws of the
State of New York applicable to agreements made and to be performed entirely
within such state, and without regard to conflicts of law principles.
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25. This Agreement shall be binding upon and inure solely to the
benefit of each party hereto and nothing in this Agreement, express or
implied, is intended to or shall confer upon any other person any right,
benefit or remedy of any nature whatsoever under or by reason of this
Agreement. Without limitation of the foregoing, the parties hereto expressly
agree that no holder of Private Notes or Exchange Notes shall have any right,
benefit or remedy of any nature whatsoever under, or by reason of, this
Agreement.
26. This Agreement may be executed in two or more counterparts,
each of which shall be deemed to be an original, and all of which taken
together shall constitute one and the same agreement.
27. In case any provision of this Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
28. This Agreement shall not be deemed or construed to be
modified, amended, rescinded, canceled or waived, in whole or in part except
by a written instrument signed by a duly authorized representative of the
party to be charged.
29. Unless otherwise provided herein, all notices, requests and
other communications to any party hereunder shall be in writing (including
facsimile or similar writing) and shall be given to such party, addressed to
it, at its address or telecopy number set forth below:
if to the Company, to:
Metallurg Holdings, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087
Telephone: (610) 293-0838
Telecopy: (610) 293-0854
Attention: Diana Wechsler Kerekes
with a copy to:
Rogers & Wells
200 Park Avenue
New York, New York 10166
Telephone: (212) 878-8000
Telecopy: (212) 878-8375
Attention: Samuel M. Feder, Esq.
If to the Exchange Agent, to:
United States Trust Company of New York
114 West 47th Street
New York, New York 10036
Telephone: 852-1664
Telecopy: 852-1626
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Attention: Patricia Stermer
30. Unless terminated earlier by the parties hereto, this
Agreement shall terminate 90 days following the Expiration Date.
Notwithstanding the foregoing, paragraphs 17, 19, 21 and 23 shall survive the
termination of this Agreement. Upon any termination of this Agreement, you
shall promptly deliver to the Company any certificates for Notes, funds or
property then held by you as Exchange Agent under this Agreement.
31. This Agreement shall be binding and effective as of the date
hereof.
Please acknowledge receipt of this Agreement and confirm the
arrangements herein provided by signing and returning the enclosed copy.
METALLURG HOLDINGS, INC.
By:
---------------------------------
Name:
Title:
Accepted as of the date first above written:
UNITED STATES TRUST COMPANY OF NEW YORK,
as Exchange Agent
By:
---------------------------------
Name: Patricia Stermer
Title: Assistant Vice President
8
